[
    {
        "text": "For those of you that have not, it is available on the Investor Relations section of our website at investor.\nI'm pleased to report another quarter of strong operating performance and continued positive momentum at the Aaron's Company.\nIn the nearly one year since our separation, we have significantly strengthened our leadership position in the direct-to-consumer lease end market and are tracking well ahead of our long-term strategic plan.\nContinued investments in our best-in-class e-commerce channel, predictive lease decisioning engine and our high performing GenNext stores are driving greater productivity and growth in our business.\nThrough the tremendous efforts of our team, we continue to transform Aaron's go-to-market strategy by delivering customer friendly digital solutions, easy lease approvals and an enhanced shopping experience.\nSince 1955, Aaron's has been committed to serving a customer base that has too often been overlooked or excluded from preferred retail experiences.\nToday, we are leveraging our long and deep understanding of this customer segment to say yes when others say no; to provide our customers with access to great products on flexible and affordable terms and to deliver a seamless customer experience not only across our distributed store network but also digitally through our award winning e-commerce platform.\nWhether our customers interact with us in one of our beautiful new GenNext stores or via their mobile device, we continue to provide a growing assortment of products they want and need with low monthly payments that fit their budget and best-in-class customer service.\nI'm pleased to announce that our third quarter 2021 results have again exceeded our expectations through continued growth in the size of our lease portfolio same-store revenues and e-commerce revenues.\nAs a result, we returned another $37.5 million to shareholders in the quarter in the form of share repurchases.\nThis brings us to a total of nearly $100 million of capital returned to shareholders thus far this year.\nThe strong third quarter results, we are again raising our revenue and earnings outlook for the full year 2021.\nIn the third quarter, same-store revenues grew 4.6% compared to the prior year, the sixth consecutive quarter of positive same-store revenue growth.\nThe improvement was primarily driven by an 8.7% larger lease portfolio size entering the third quarter partially offset by a lower level of customer payment activity compared to the prior year.\nOur same-store lease portfolio size continues to grow at a healthy pace ending the third quarter up 6.1% compared to the prior year.\nWe attribute this growth primarily to strong demand for our products, higher average ticket, the favorable impact of centralized lease decisioning and the residual impact of government stimulus on the portfolio.\nAs discussed previously, our predictive lease decisioning engine is working very well and enables us to better match the customers' lease payment with their financial position with the goal of helping more customers achieve ownership and lowering our overall cost to serve.\nIn addition, our lease decisioning algorithms allow us to be flexible in responding to changes in the macroeconomic environment and to optimize outcomes that drive profitability.\nAs of the end of the third quarter, more than 83% of our total lease portfolio is comprised of lease agreements that were originated through our centralized decisioning platforms.\nThis compares to approximately 60% at the beginning of 2021.\nAs I mentioned last quarter, lease payment activity in 2021 has exceeded historical levels due to the government stimulus provided to our customer leading to higher lease renewal rates and lower write-offs as we saw in the third quarter and expect to see over the next three to four quarters, customer payment activity continues to normalize.\nBecause of investments we've made in centralized decisioning and lease servicing technologies, we expect 2022 lease renewal rates to ultimately settle above pre-pandemic levels but below the level we expect for the full year 2021.\nWe also expect lease merchandise write-offs in 2022 to settle below pre-pandemic levels but above the level we expect for full year 2021.\nIn addition to investments in our decisioning technology, we also continue to invest in our e-commerce channel and our GenNext strategy.\nOur e-commerce channel continues to grow at double-digit rates representing 14.3% of total lease revenues in the quarter.\nThe growth in our portfolio of leases generated online is driving improvements to our overall margin performance as we leverage the fixed cost structure of our store and supply chain assets to serve customers that are seeking a virtual shopping experience, low monthly payments and free delivery.\nOngoing investments in digital marketing and our customers' online experience are driving growth in this important channel, specifically e-commerce investments are leading to an enhanced shopping experience driven by personalization and richer product content improved customer visibility into products that are available for same or next day delivery and a broader assortment that includes new product categories.\nToday we have more than 3,000 products on aaron's.com, which is double from a year ago.\nAnd our express delivery program accounts for approximately 30% of e-commerce volume.\nBecause of this, we're generating a higher customer conversion rate, lowering our effective acquisition costs and delivering higher customer satisfaction.\nI could not be happier with the efforts of our team and the growing marketplace we're creating on aaron's.com.\nAs we discussed last quarter, our GenNext stores continue to perform at a high level.\nDuring the third quarter, we increased the size of our GenNext store set by 22 to end the quarter with 86 locations.\nAnd we believe we remain on track to have more than 100 GenNext stores by the end of the year.\nTo date, our portfolio of GenNext stores is generating results that are exceeding our targeted 25% internal rate of return and 5-year payback period.\nEqually as encouraging, monthly lease originations in GenNext stores open for less than one year again grew at a rate of more than 20 percentage points higher than our average legacy stores.\nStores, we continue to maintain a disciplined approach around our execution of the strategy.\nOur merchandising and supply chain teams have performed exceptionally well by getting ahead of market disruptions, by procuring inventory and expanding output from our Woodhaven manufacturing facilities.\nAs a result, we are entering the holiday season with strong inventory levels in both our stores and distribution centers and we have been increasing prices to respond to inflationary pressures and maintain product margins.\nI remain encouraged by the underlying performance of both our store and e-commerce channels as we're tracking well ahead of our 5-year plan on revenue and earnings.\nFor the third quarter of 2021, total revenues were $452.2 million compared with $441 million for the third quarter of 2020, an increase of 2.5%.\nThe increase in revenues was primarily due to the increased size of our lease portfolio, partially offset by the expected lower customer payment activity during the quarter and the reduction of 79 franchise stores during the 15-month period ended September 30, 2021.\nLease revenues in the third quarter of this year also benefited by an increase in ticket size or monthly rent for agreement, that is offsetting the inflation we are experiencing in the cost of lease merchandise.\nOn a same-store basis, lease and retail revenues increased 4.6% in the third quarter compared to the prior year quarter.\nAs Douglas mentioned, this is our sixth consecutive positive quarter of same-store revenue growth.\nLeases originated in both our e-commerce and in-store channels contributed to our revenue growth, which was primarily driven by a larger same-store lease portfolio size, partially offset by the expected lower customer payment activity in the quarter.\nMore specifically, in the third quarter of this year, our customer lease renewal rate was 89.7%, which was approximately 230 basis points higher than the 3-year third quarter pre-pandemic average but was approximately 130 basis points lower than the third quarter of last year.\nFor any period, the customer lease renewal rate is calculated by dividing the amount of customer payments recorded on an accrual basis as of the end of such period by the amount of total customer lease payments due for renewal during that period.\nAs discussed on our last earnings call, the benefits to our customer from government stimulus programs declined in the third quarter and as expected, resulted in lower customer payment activity as compared to the prior year.\nWe expect customer payment activity to continue to decline year-over-year for the next three or four quarters.\nAnd I will point out that a 100 basis point change up or down in customer lease renewal rates or write-offs on a $1.6 billion annual portfolio of total collectible customer lease payments results in a $16 million change in EBITDA.\nAdditionally, we continue to expect that customer payment activity will benefit from our investments in centralized decisioning.\nWe estimate that this technology has improved lease renewal rates by over 100 basis points compared to the pre-pandemic levels, while also materially improving the customer experience and simplifying the day-to-day activities at our stores.\nE-commerce revenues increased 13.3% versus the third quarter of 2020 and represented 14.3% of overall lease revenues compared to 13.1% in the third quarter of the prior year.\nWe continue to make investments in this important channel that we believe will continue to drive long-term growth for the company.\nThe company ended the third quarter of 2021 with a lease portfolio size for all company-operated stores of $132.2 million, an increase of 5.8% compared to a lease portfolio size of $125 million on September 30 of last year.\nAs a reminder, lease portfolio size represents the next month's total collectible lease payments from our aggregate outstanding customer lease agreements.\nManagement believes this is one of the metrics that is important in understanding the drivers of future lease revenue.\nTotal operating expenses, excluding restructuring expenses and spin-related costs were up $15.7 million in the quarter as compared to the third quarter of last year.\nThis increase is due primarily to higher personnel costs and a higher provision for lease merchandise write-offs.\nPersonnel costs increased $5.1 million in the third quarter of 2021 as compared to the prior year, primarily due to higher wages in our stores, additional personnel to support our key strategic initiatives and higher stand-alone public company costs.\nAdditionally, personnel costs were lower-than-anticipated during the third quarter this year as staffing levels in our stores remain below our operational targets due to the current challenges in the US labor market for retail-based hourly employees.\nOther operating expenses were relatively flat to the prior year period due to higher occupancy, shipping and handling costs, professional services and bank and credit card-related fees.\nThese increases were partially offset by lower advertising costs in the third quarter of 2021 versus the prior year period.\nThe provision for lease merchandise write-offs as a percentage of lease revenues and fees was 4.9% for the three months ended September 30, 2021, compared to an all-time low of 2.4% in the comparable period in 2020.\nThe increase in write-offs in the third quarter of this year compared to last year was primarily due to lower customer payment activity following several quarters where our customers received financial assistance in the form of government stimulus payments and supplemental federal unemployment benefits.\nThis normalization in write-offs was partially offset by the continued favorable impact of our technology investments, which include decisioning algorithms and customer payment platforms as well as our team's strong operational execution.\nAs we discussed on prior earnings calls, we continue to expect that annual write-offs will be between 4% to 5% of lease revenues and fees.\nAdjusted EBITDA for the company was $53.6 million for the third quarter of 2021 compared with $64.3 million for the same period in 2020, a decrease of $10.7 million or 16.6%.\nAs a percentage of revenues, adjusted EBITDA margin was 11.9% in the third quarter of 2021 compared to 14.6% for the same period in 2020.\nThis expected decline in adjusted EBITDA and adjusted EBITDA margin was due to lower customer payment activity, higher lease merchandise write-offs and higher personnel costs compared to the prior year levels.\nOn a non-GAAP basis, diluted earnings per share were $0.83 in the third quarter of 2021 compared with non-GAAP diluted earnings per share of $1.10 for the same quarter in 2020.\nCash generated from operating activities was $30.2 million for the third quarter of 2021, a decline of $92.6 million compared to the third quarter of 2020.\nThis decline was primarily due to incremental purchases of lease merchandise to meet increased customer demand and to mitigate the impact of anticipated supply chain challenges ahead of the upcoming holiday season.\nIn addition, the cost of our lease merchandise was adversely impacted by inflationary pressure.\nDuring the third quarter, the company purchased approximately 1,333,000 shares of Aaron's common stock for a total purchase price of approximately $37.5 million and through a 10b5-1 plan continue to repurchase shares into the first month of the current quarter.\nFor the year-to-date period ended October 22, 2021, the company has repurchased 3,034,000 shares for approximately $90.4 million.\nAs of October 22, we had approximately $60 million remaining under the company's $150 million share repurchase program that was approved by our Board in March of this year and ends December 31, 2023.\nAdditionally, the company's Board of Directors declared a regular quarterly cash dividend in August of $0.10 per share, which was paid on October 5.\nAs of September 30, 2021, the company had a cash balance of $15 million, no outstanding debt and total available liquidity of $248 million, which includes $233 million available under our unsecured revolving credit facility.\nAs Douglas highlighted in his remarks, we have again raised our full year revenue and adjusted EBITDA outlook for 2021.\nFor the full year, we have increased our outlook for total revenues to between $1.82 billion and $1.83 billion.\nWe also increased our outlook for adjusted EBITDA to between $225 million and $230 million.\nFor the full year 2021, we have maintained our outlook for an effective tax rate of 26%; we expect depreciation and amortization of approximately $70 million, and we expect the diluted weighted average share count for full year 2021 to be 34 million shares.\nWe have not assumed any additional shares repurchased beyond what has been discussed earlier on the call.\nWe have also increased our full year same-store revenues outlook from a range of 6% to 8% to a range of 7.5% to 8.5%.\nThis increase is primarily a result of the continued year-over-year growth in our lease portfolio size.\nWe have maintained our expected capital expenditure range of $90 million to $100 million.\nWe have reduced our free cash flow outlook for 2021 to $30 million to $40 million, primarily to reflect the significant investment in lease merchandise inventory the company has made to mitigate the impact of global supply chain challenges and the related inflationary pressures.\nBased on our current inventory levels, we do not anticipate any material challenges in meeting our customers' product demand as we end 2021 and head into 2022.\nAs I have previously described, benefits to our customer from government stimulus programs have moderated in the third quarter.\nOur revised outlook continues to assume customer lease payment activity remains higher in the fourth quarter of 2021 when compared to pre COVID-19 pandemic levels, but lower than the fourth quarter of 2020.\nAt the same time, we believe the favorable impact of centralized lease decisioning, our digital servicing platforms and other operational enhancements are contributing to a sustainable improvement in customer payment and write-off activity.\nAdditionally, we expect write-offs will continue to be lower in the fourth quarter of 2021 when compared to pre COVID-19 pandemic levels but higher than the fourth quarter of 2020.\nFinally, our updated outlook assumes no significant deterioration in the current retail environment, state of the US economy or global supply chain as compared to their current conditions.",
        "summary": "compname reports q3 non-gaap earnings per share $0.83.\nq3 non-gaap earnings per share $0.83.\nq3 revenue rose 2.5 percent to $452.2 million.\nsees fy revenue $1.82 billion to $1.83 billion.\nincreased our expected 2021 adjusted ebitda to between $225 million and $230 million.\nlowered our 2021 annual free cash flow outlook to between $30 million and $40 million."
    },
    {
        "text": "For those of you that have not, it is available on the Investor Relations section of our website at investor.\nActual results in the future may be materially different than those discussed here.\nThis could be due to a variety of factors including, among other things, uncertainties associated with the duration and severity of the COVID-19 pandemic and related impact on the economy and supply chain.\nThe company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows, and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance.\nFor the month of December, 2020, our results represent the consolidated statements of the company and its subsidiaries, and is based on the financial position and results of operations as a stand-alone company.\nFor all periods prior to December 1st 2020, combined financial statements include all revenue and cost directly attributable to the company and an allocation of expenses from our former parent related to certain corporate functions and actions.\nFirst, let me take a moment to recognize all of our talented team members for their determination and commitment in 2020, which enabled Aaron's to accelerate our key strategic priorities in a very challenging year.\nOur fantastic team members at our stores, distribution and service centers, Woodhaven manufacturing and store support center worked tirelessly to provide products and services to our customers, while accelerating our digital and real estate transformation.\nWe overcame the challenges posed by the COVID-19 pandemic, while continuing to meet the needs of our customers and safeguarding our team members.\nAt the same time, we delivered annual revenues that exceeded our expectations for the year and an adjusted EBITDA that was higher than we've generated in several years.\nIn addition, during the year, our team has worked diligently to establish Aaron's as a new stand-alone publicly traded company.\nThe spin-off transaction closed on November 30th 2020.\nAnd following the spin, we are well positioned with a strong balance sheet and cash flow profile to execute on our go-forward strategy.\nWhile some uncertainty remains regarding how the Corona virus may impact the economy or consumer behavior, I'm more energized and optimistic about our future than ever.\nOur business has never been more nimble, and we continue to make investments in technology, decisioning, e-commerce and store operations that are yielding higher productivity and lease portfolio performance.\nIn the fourth quarter of 2020, same-store revenues rose 3.4% as compared to the prior year quarter, primarily due to strong customer payment activity, improving lease portfolio size and higher retail sales.\nThe fourth quarter was the sixth out of the last eight quarters with positive same-store comps, with 2020 representing the first annual positive same-store revenue growth since 2013.\nAdditionally, we ended 2020 with a larger and healthier lease portfolio than we had at the beginning of the year.\nThe larger portfolio size is a result of better collections, fewer product returns and lower write-offs, which was enabled by improvements in operational execution, the roll-out of centralized decisioning technology and enhancements to our customer payments platform.\nWe achieved this larger portfolio despite revenue written into the portfolio that was flat in the fourth quarter.\nRecall that our implementation of decisioning technology in the second quarter of 2020 effectively reduced new lease originations and therefore, revenue written by 6% to 8%.\nMoving to our e-commerce channel.\nRevenues grew 39% in the quarter and represented approximately 13% of total lease revenues compared to 10% in the fourth quarter of 2019.\nIn the fourth quarter, e-commerce traffic was up 29% compared to the fourth quarter of 2019.\nDespite the significant increase in traffic at aarons.com, e-commerce recurring revenue written into the portfolio declined 1.2% as compared to last year's fourth quarter, due to both decisioning optimization and lower conversion of traffic.\nConversion is not what we would expect it to be due to the inventory shortages resulting from the global supply chain disruption.\nHowever, our inventory position continues to modestly improve in the first quarter of 2021, which should lead to higher conversion rates.\nI'm encouraged by the progress of our e-commerce initiatives, including our evolving analytics and digital capabilities.\nImprovements in online customer acquisition, conversion and decisioning are leading to margin growth and continued positive momentum in this important channel.\nIn 2020, we also accelerated our strategy to consolidate, remodel and reposition our store footprint with our new GenNext store concept, which includes enhanced shared rooms, digital technologies, expanded product assortment and improved brand imaging.\nAs of the end of the year, we had 47 GenNext stores opened and have more than 60 additional stores in the 2021 pipeline.\nOur GenNext stores are performing well, delivering new lease volumes that are higher than the corporate averages and in line with our expectations.\nWhile the new stores still represent a small portion of our overall store count, we believe over time the execution of our GenNext store strategy will provide meaningful lift to our overall performance.\nOverall, I'm pleased with our full year of 2020 and fourth quarter results.\nAnd I'm encouraged about the future and our new chapter as a financially strong stand-alone public company.\nAs we look to 2021, we remain focused on our key strategic initiatives of simplifying and digitizing the customer experience, aligning our store footprint to our customer opportunity and promoting the Aaron's value proposition of low payments, high approval rates and best-in-class service.\nFor the full year 2020, consolidated revenues were $1.735 billion, a decline of 2.8% compared to the full year 2019.\nThis decline is primarily the result of a reduction of 253 company-operated stores in 2019 and 2020 partially offset by a 1.8% increase in same-store revenues for the year.\nAdjusted EBITDA for the full year 2020 was $208.9 million, an increase of $43.6 million or 26.4% compared to the full year of 2019.\nAs a percentage of revenues, adjusted EBITDA was 12% compared to 9.3%, an increase of 270 basis points over the prior year.\nThis increase in adjusted EBITDA is primarily due to an improvement in customer payment activity, fewer lease merchandise returns and efficiencies in store operations, including pandemic-related staffing reductions in the second and third quarters of 2020.\nWrite-offs were 4.2% of lease revenues in 2020, a 200 basis point improvement over 2019.\nAnnual non-GAAP earnings per share was $3.02 in 2020, an increase of 43.8% compared to $2.10 for prior year 2019.\nTurning to the fourth quarter of 2020.\nRevenues were $430 million, a decrease of approximately 1% compared to the same quarter last year, despite the closure, consolidation and acquisition of a net 75 company-owned locations throughout the year.\nAdjusted EBITDA was $53.7 million for the fourth quarter compared to $51.2 million for the same period of 2019, an increase of $2.5 million or 4.8%.\nAdjusted EBITDA margin was 12.5% of revenues compared to 11.8% in the same period a year ago, an increase of 70 basis points.\nThe improvement in Q4 2020 adjusted EBITDA margin was primarily due to the reduction in inventory write-offs, partially offset by comping over the impact of one-time benefits realized in the fourth quarter of the prior year period.\nThese one-time items in 2019, related primarily to gains from real estate sale and leaseback transactions and other miscellaneous items.\nExcluding these one-time items from 2019, adjusted EBITDA margin in the fourth quarter of 2020 would have improved approximately 250 basis points.\nDiluted earnings per share on a non-GAAP basis for the quarter increased 11.3% to $0.79 versus $0.71 in the prior year quarter, primarily due to the continuing strength of customer payment activity and reduced lease merchandise write-offs.\nOperating expenses were down $1.2 million as compared to the fourth quarter of 2019, primarily due to an $11.7 million reduction in write-offs, offset primarily by an increase in advertising spend and the previously mentioned benefit of real estate transactions that took place in the fourth quarter of the prior year.\nDuring the fourth quarter of 2020, the company's store labor expense increased compared to the second and third quarters, during which labor expenses were lower due to pandemic-related store closures and furloughs.\nWrite-offs in the fourth quarter were 4.3%, down 300 basis points from the prior year fourth quarter, due primarily to the implementation of our new decisioning technology, improved operations and the benefit of government stimulus.\nCash generated from operating activities was $355.8 million for the 12 months ended December 31, 2020.\nCash from operating activities grew $169.8 million year-over-year, primarily due to improved lease portfolio performance, lower inventory purchases and one-time tax benefits resulting from the CARES Act, partially offset by other changes in working capital.\nAt the end of the year, the company had a cash balance of $76.1 million and less than $1 million of debt.\nIn addition, concurrent with completing the spin-off transaction of November 30th, the company entered into a $250 million unsecured revolving credit facility, which was undrawn at the end of 2020, giving the company more than $300 million of liquidity as of year-end.\nBefore I review our outlook for 2021, I want to remind you all that in November, prior to completing the spin-off transaction, the legacy combined company accelerated the payment of its regular quarterly cash dividend, which would normally have been paid in January 2021.\nTurning to our 2021 outlook.\nWe currently expect total revenues in the range of $1.65 billion to $1.7 billion.\nAdjusted EBITDA is expected to be in the range of $155 million to $170 million, representing an increase in the midpoint of our outlook as compared to the preliminary outlook we provided in November.\nAs it relates to the seasonality of our financial results, we expect that both revenues and earnings will be somewhat higher in the first six months of 2021 compared to the second six months of 2021.\nFree cash flows, which we define as operating cash flows of less capital expenditures, are expected to be $80 million to $90 million.\nCapital expenditures are also expected to be between $80 million and $90 million for the year.\nThis outlook assumes a few key items we want to highlight.\nFirst, no significant deterioration in the current retail environment or in the state of the U.S. economy as compared to its current condition.\nSecond, a gradual improvement in global supply chain conditions.\nAnd finally, no incremental government stimulus or supplemental unemployment benefits.\nTo summarize, 2020 was a successful year for Aaron's, despite the many challenges our team members and customers faced.\nTo echo Douglas's earlier comments, I am encouraged by the opportunity ahead of us.\nThe unique nature of Aaron's recurring revenue business model combined with our strong balance sheet, cash flows and operating leverage enables us to perform well during this period of uncertainty.",
        "summary": "q4 non-gaap earnings per share $0.79.\nsees fy revenue $1.65 billion to $1.7 billion.\nsees fy 2021 adjusted ebitda of between $155 million and $170 million."
    },
    {
        "text": "I am joined by Tom Greco, our President and Chief Executive Officer; and Jeff Shepherd, our Executive Vice President and Chief Financial Officer.\nI hope you and your families are healthy and safe amid all that we've endured over the past 12 months.\nHere at Advance, we are incredibly grateful for the way our entire team persevere.\nWhen the reality of COVID-19 defended on our communities in March of 2020, we found ways across AAP to meet new unfamiliar challenges with innovation and agility.\nAs an essential business, their efforts have been critical to keep America moving during a time of great needs.\nAs you've heard from us throughout this pandemic, we remain focused on three overarching priorities.\nFirst, protect the health, safety and well being of our team members and customers.\nSecond, preserve cash and protect the P&L during the crisis.\nAnd third, prepare to be even stronger following the crisis.\nOur results in Q4 and for the full year demonstrate that our unwavering focus on these priorities has enabled meaningful progress toward our long-term goals.\nFrom the beginning, we've invested in compensation for our frontline and distribution center team members, enhanced benefits, cleaning, personal protective equipment and innovative ways to serve our customers.\nThis helped ensure that our team members and customers feel safe coming into work and to shop.\nOur store and distribution center team members continuously stepped up throughout the year, and they are the true heroes for us.\nIn spite of many obstacles for our team, we saw significant improvements in organizational health and increased engagement scores throughout the year.\nFundamentally, we are building trust in the Advance brand at an enduring time for the world and one that our team members and customers will always remember.\nWe're confident our COVID-19-related investments, which we believe will subside over time, are strengthening our employment brand, our customer brand and our corporate reputation for the long-term.\nIn Q4, we delivered comparable store sales growth of 4.7% and margin expansion of 17 basis points.\nThis includes an 82 basis point headwind related to COVID-19.\nAdjusted diluted earnings per share improvement of 14% to $1.87, including a $0.22 headwind related to COVID-19.\nFor the full year, we delivered top-line growth resulting in record net sales of $10.1 billion.\nAdjusted operating income improvement of 4.1% to $827.3 million, including a $60 million headwind related to COVID-19.\nRecord adjusted diluted earnings per share of $8.51, including a $0.66 headwind related to COVID-19.\nAnd we also returned $515 million to shareholders through share repurchases and our continued quarterly cash dividend.\nJeff will cover more on the details of our financials shortly, but first, let's review our operational performance.\nCOVID-19-related factors continued to affect channel performance in Q4 across our industry.\nDIY omnichannel led the way, as it has since Q2.\nIt's well documented that consumers are spending more of their time at home, likely contributing to the shift in discretionary spending from services to goods.\nGiven economic uncertainty and elevated unemployment, many consumers are choosing lower cost options for vehicle repairs and maintenance, benefiting our DIY omnichannel business.\nOur professional business continued to recover with positive comp sales in both Q3 and Q4.\nMiles driven remained below prior year, in particular, for higher income workers working remotely who generally take their cars to pro shops.\nThis has limited growth in certain professional sales channels and in key categories like brakes.\nGeographically, all of our eight regions posted positive comps in the quarter, led by our southernmost regions, including both the Southeast and Southwest.\nMeanwhile, our Mid-Atlantic and Northeast regions remained below our reported growth rate.\nAs previously discussed, large urban markets in these regions have been more impacted by COVID-19 with the most significant decline in miles driven.\nThe good news is that while there remains a gap between our highest and lowest performing regions that spread continues to narrow.\nWe're cautiously optimistic this will further narrow in Q1 based on improving trends and more favorable winter weather early in the year.\nWith respect to categories, DieHard is driving record battery sales and led our growth in Q4.\nIn addition, appearance chemicals remained strong, a trend that began with the stay at home orders last April.\nAcross our professional business, our team continues to leverage our industry-leading assortment of national brands, OE parts and own brands.\nFor pro customers, there is nothing more important than having the right part in the right place at the right time.\nTo enable this, we continued to strengthen our Dynamic Assortment tool, which is now live in all our corporate stores and more than 700 independent locations that have opted in.\nThis machine learning platform has enabled significant improvements in product availability, helping drive over 60 basis point improvement in Q4 close rates.\nIn addition, we continued to make enhancements to our online portal, MyAdvance.\nThe ease of access and wide array of resources available now includes features like virtual training, which has been essential during the pandemic.\nThe resources we provide through our Carquest and WorldPac technical institutes allow our pro customers, including all technicians within those shop to attend interactive virtual training.\nAdditionally, we continue to update our comprehensive catalog of technical service bulletins through our MotoLogic platform.\nWe believe pro customers are recognizing and appreciating our investments to improve parts quality, product availability, delivery speed and the digital experience, resulting in higher enterprise pro online sales and share of wallet.\nThese actions have also enabled growth of our Technet customer base with approximately 1,400 new Technets added in 2020.\nFinally, we continued increasing our Carquest Independent locations in 2020, welcoming 50 new stores.\nOur independents remain a valuable component of our overall strategy and our team remains focused on further expansion.\nMoving on to DIY omnichannel, we gained share in every region and across most categories in both Q4 and for the full year based on the syndicated data available to us.\nWe believe our share gains are the result of our focus in four areas.\nFirst, the launch of DieHard.\nSecond, building awareness in regard of Advance through differentiation.\nThird, improving customer loyalty through Speed Perks.\nAnd fourth, improving store execution.\nStarting with DieHard, despite the challenges of the pandemic, our team successfully launched DieHard as planned and executed a marketing plan unlike anything we've ever done before at AAP.\nOur DieHard is Back campaign, featuring Bruce Willis, let consumers know that the iconic DieHard brand was back and they can now buy DieHard at Advance and Carquest.\nThis campaign is already improving top of mind and unaided awareness for DieHard.\nOur Speed Perks program is an important tool to drive customer loyalty.\nOur team continues to invest in personalization for Speed Perks members, driving higher engagement, long-term loyalty and increased share of wallet.\nIn 2020, we grew our VIP members, those with an annual spend of $250 to $500 by nearly 15%.\nAnd our Elite members, those with annual spend of more than $500 by more than 20%.\nTo wrap up the discussion on DIY omnichannel, we continue to see improvement from our initiatives, including our net promoter scores.\nThis gives us confidence that we're on the right track to sustained sales and share momentum in 2021.\nMoving on to an update of our four pillars of margin expansion, I'll begin with sales and profit per store.\nAs a reminder, following three consecutive years of declining sales per store, we finished 2017 at approximately $1.5 million per store.\nOver the last three years, we've been optimizing our footprint, including the closure of 273 underperforming stores.\nOur sales per store have now grown for three consecutive years.\nAnd we finished 2020 at nearly $1.7 million per store.\nWe're also executing a focused agenda to leverage payroll, while reducing shrink, returns and the factors to drive four wall profit per store improvement.\nIn addition, the ongoing focus on team members is enabling us to attract the very best parts people and to reduce turnover.\nOur team members are a differentiator for Advance.\nAnd four years ago, we made a commitment to dramatically improve retention.\nContinued investment in our unique Fuel the Frontline program with more than 22,000 stock grants awarded since inception is creating an ownership culture.\nIn the current environment, with an increased competition for talent, we are reducing store turnover and enhancing our employment brand.\nWe now have three straight years of comp sales growth and the closure of underperforming stores behind us.\nWe're excited to announce that we plan to expand our store base and geographic footprint this year and expect to open 50 to 100 new stores.\nOur second margin expansion pillar is supply chain.\nWhile we paused our cross banner replenishment and warehouse management system initiatives early in 2020, our team found ways to innovate and make progress on these productivity opportunity later in the year.\nThe expansion of cross banner replenishment is on track with the timing we communicated in November.\nAs we finished the year with just over 40% of the originally planned stores completed, we are on track to complete the originally planned stores and DCs by the end of Q3 2021 and the full run rate savings will come beginning in Q4 2021.\nIn addition, the implementation of our new warehouse management system or WMS continued in Q4.\nWe converted our fourth DC by year end as planned and we're on track to complete our largest buildings this year.\nWe believe we can capture roughly 75% of the savings from this initiative in 2022.\nMoving on to category management, the expansion of our own brand assortment is a key component.\nThis includes an increase of Carquest-branded assortment in engine management and undercar.\nCarquest has an excellent reputation with installers and new products have been very well received by both pro customers and Carquest Independents.\nIn 2020, we also launched our strategic pricing initiative to enhance our capabilities, while incorporating customer decision journey insights into price and discount decision making.\nFinally, our fourth pillar of margin expansion involves reducing and better leveraging SG&A.\nThe successful execution of our field restructure, back office consolidations and safety initiatives benefited SG&A in the quarter and will enable further improvement in margin expansion going forward.\nAs we called out in November, SG&A was elevated in Q4, primarily due to COVID-19-related expenses and other factors that Jeff will detail shortly.\nTo summarize, we're now in execution mode on our key growth and margin expansion initiatives.\nOur mission is Passion for Customers Passion for Yes.\nWith the goal of serving them with care and speed, we've made many necessary changes at AAP in recent years.\nBut one thing that has not changed is the current technology, the passion and the commitment of our team members and independent partners.\nOur actions have strengthened Advance, enabling us to compete more vigorously.\nFinally, we're very excited to share our third sustainability and social responsibility report next month, and we'll be providing a strategic update of our long-term plans on April 20.\nWith that, I'll pass the call to Jeff to discuss our financial results in greater detail as well as our 2021 guidance.\nI too would like to begin by expressing my gratitude to all our team members for the extraordinary focus and effort throughout 2020 despite the unprecedented times.\nOur entire team adjusted, adapted and continued to execute our priorities.\nIn Q4, our net sales of $2.4 billion increased 12%.\nAdjusted gross profit margin expanded 192 basis points to 45.9%.\ndriven primarily by inventory-related items, cost and price improvements as well as supply chain leverage.\nAs our primary focus throughout the year was on the health and safety of our team members and customers, we temporarily paused our physical inventory counts earlier this year.\nWhen we resumed these in Q4, our actual shrink rates were far better than we had anticipated.\nThis resulted in a benefit in inventory-related costs due to a reduction in the reserve to reflect the positive result.\nLIFO-related impacts were a tailwind this quarter versus prior year.\nThis will be the last quarter we included LIFO impacts in our adjusted financial results as we will begin reporting in Q1 2021 excluding any benefits or expenses from LIFO and our adjusted financial measures.\nWe believe this adjustment creates a more accurate picture of our operational results and is more in line with industry practices.\nOur Q4 adjusted SG&A expense was $913.5 million.\nOn a rate basis, this represented 38.6% of net sales compared to 36.9% in the fourth quarter of 2019.\nThe single biggest driver of this increase was $19 million in COVID-related costs directly attributable to the unanticipated spike in case rates.\nWe also incurred higher Q4 medical claims as a result of lower claims during the prior quarters.\nIn addition, our short-term incentive compensation for both field and corporate team members was higher than prior year.\nSeparately, we invested behind the launch of The DieHard is Back campaign.\nWe also incurred lease termination costs related to the ongoing optimization of our real estate footprint.\nWe believe these expected investments in DieHard and lease optimization will result in top and bottom line improvements.\nDespite higher SG&A expenses, adjusted operating income increased 14.6% in Q4 to $171.8 million.\nOn a rate basis, our adjusted OI margin expanded by 17 basis points.\nFinally, our adjusted diluted earnings per share was $1.87, up 14% from prior year despite a $0.22 impact in the quarter from COVID expenses.\nFor the full year, which includes an additional week versus 2019, we delivered record net sales of $10.1 billion, which increased 4.1%.\nThe 53rd, added approximately $158 million to sales.\nOur adjusted gross profit increased 5% year-over-year and adjusted gross profit margin expanded 38 basis points.\nAdjusted SG&A expense for full year 2020 increased 5.2% from 2019 results.\nThis was primarily the result of COVID-related expenses discussed earlier as well as the 53rd week.\nWe estimate the additional week resulted in a headwind of approximately 1.5% to our SG&A costs in the year.\nOur adjusted operating income increased 4.1% to $827.3 million.\nAnd our OI margins was 8.2%, flat compared to prior year.\nAdjusting for the $60 million in COVID costs, our adjusted operating income margin expanded 59 basis points.\nOur full year 2020 adjusted diluted earnings per share was $8.51, which is a new record for Advance and includes a headwind of $0.66 related to COVID costs.\nWe estimate the impact of the 53rd week was a tailwind from approximately $20 million to adjusted operating income and a benefit of approximately $0.23 to our reported adjusted earnings per share for the year.\nOur capital expenditures in Q4 was $75 million for a total investment of $268 million for the year and in line with our previously stated expectations.\nAs we've noted, some of the critical transformation investments we expected to make in 2020 will pause for a portion of the year.\nAs a result, we expect our capital spending will increase this year compared to 2020.\nOur free cash flow for the year was a record $702 million compared to $597 million in 2019.\nThis increase was driven by several factors, including efforts we have made to improve working capital.\nWe made meaningful progress on our AP ratio in 2020, delivered 300 basis points of improve and ended the year at 80.2%.\nThis in addition to a $76 million tailwind associated with the CARES Act resulted in a significant improvement in our cash conversion cycle.\nOur strong cash flow generation allowed us to continue our share repurchase activity in Q4.\nFor the year, we repurchased more than $458 million of Advance stock.\nAnd including our quarterly cash dividend, we returned $515 million to shareholders.\nOur team remains disciplined throughout 2020 to ensure adequate liquidity, protect the P&L during the pandemic and strengthen our balance sheet, which resulted in meaningful improvement in our cash position, resulting in $835 million in cash on hand at year end.\nFurther demonstrating our confidence in the long-term strength of our business and commitment to return cash to shareholders in a balanced approach utilizing both share repurchases and dividends, our board recently approved a continued payment of our quarterly cash dividend.\nWhile uncertainty remains in the current environment, we believe that we can continue to carry the momentum we have seen in the back half of 2020 forward.\nAs the economy continues to recover and with our planned new store openings, we expect to deliver increased net sales and additional margin expansion.\nImportantly, we expect miles driven to continue improving throughout 2021, which should enable year-over-year growth in our pro business.\nWe're encouraged by trends through the first four weeks of 2021.\nWith strength across our DIY omnichannel and pro business, we delivered double-digit comparable sales growth to start the year.\nWe recognized the importance of transparency.\nDespite continued uncertainty, we're pleased to provide our 2021 guidance.\nComparable store sales growth of 1% to 3%.\nAdjusted operating income margin rate of 8.7% to 8.9%, which includes margin expansion of 60 to 80 basis points.\nThat's compared to the 2020 adjusted operating income margin excluding the $20.1 million benefit from the 53rd week.\nIncome tax rate of 24% to 26%.\nCapital expenditures of $275 million to $325 million.\nAnd a minimum of $600 million of free cash flow.\nFinally, as Tom mentioned, following several years of closing underperforming stores and focusing on the improvement of operations across our footprint, we're excited to being actively growing our store base and expanding existing and new geographies.\nFor the first time in four years, we're guiding to new store openings of 50 to 100 locations.",
        "summary": "compname says q4 same store sales rose 4.7%.\nq4 adjusted earnings per share $1.87.\nq4 same store sales rose 4.7 percent.\nbelieve actions in q4 position co well to drive additional top-line growth and further margin expansion in 2021.\nsees 2021 capital expenditures $ 275 million - $325 million.\nsees 2021 net sales $10.1 billion - $10.3 billion.\nsees 2021 free cash flow of minimum $600 million.\nsees new store openings 50 -100 in 2021."
    },
    {
        "text": "Both are now available on the Investors section of our website, americanassetstrust.com.\nFirst and foremost, once again we hope that this letter finds you and your loved ones safe.\nAnd our financial results will continue to improve into 2021.\nOver the past year the COVID-19 pandemic severely affected most industries, commercial real estate being no exception.\nWe knew at the onset of the pandemic that American Assets Trust would not be impervious to this economic impact, but we were confident that the high quality, irreplaceable properties and asset class diversity of our portfolio combined with the strength of our balance sheet and ample liquidity would pull us through this.\nAs we've worked our way through these past 12 months, however, we realized that it is the resiliency of our properties and our company's employees that has enabled us to weather this storm.\nAnd fortunately, to embark on the path to recovery.\nWe are proud of our response to the challenges presented to us in 2020 and our ability to successfully operate for our company, while keeping our employees and customers as safe as possible.\nWe've been through hard times before and each time we have emerged stronger, which is our expectation now.\nAs we celebrate our 10th anniversary of being a New York Stock Exchange listed company, we are reminded that our commitment to our stockholders has always remained front and center.\nWe will continue to do our best to accretively grew our asset base and shareholder wealth, focusing on both organic growth and development opportunities as they present themselves within our existing portfolios as well as acquisitions in our targeted coastal West Coast markets with a primary focus on the office sector going forward at this time.\nFinally, I want to mention that the Board of Directors has approved a quarterly dividend of $0.28 a share for the first quarter, consistent with our previous dividend, which is, we believe is supported by our collection efforts in the first quarter.\nThe border is -- Board is looking for the rebound in Waikiki which impacts our Embassy Suites and our -- and retail on Waikiki Beach Walk.\nOnce the mandatory quarantine has been eliminated we [Indecipherable] see the beginning of a recovery in Waikiki which will about -- allow the Board to consider an increase in the dividend.\nWe are hopeful that this will recur in the third quarter and hopefully sooner.\nAdam, Bob and Steve will go into more detail on our various asset segments, collections and financial results.\nNow more than ever.\nWe are feeling more bullish than at any time over the past 12 months, now that the vaccine is widely available, the COVID 19 governmental restrictions in our coastal markets have lightened considerably and we are seeing firsthand the consumer behavior has begun reverting closer to pre-pandemic levels.\nPerhaps most significantly in California Governor Newsom announced recently that the state will fully reopen its economy on June 15th, lifting substantially all the restrictions that have guided daily life for more than a year in California, where currently two-thirds of our annualized base rent is derived.\nWe would expect our other coastal markets to follow similarly in the months to come.\nMeanwhile, we are encouraged and seeing our shopping center parking lots full, our office tenants returning or scheduling their return to office, tourism ramping up in Hawaii and public schools in our markets are starting to open back up, allowing parents to return to work, shopping and the like.\nOur collections have continued to improve each quarter since the pandemic began and improved each month in Q1 with the collection rate north of 93% for the first quarter.\nWe expect this collection trend to continue to improve going forward with April at approximately 90% to date.\nFurthermore, we had approximately $800,000 of deferred rent due from about 100 tenants in Q1 based on COVID-19 related lease modifications entered into in 2020 and we have collected approximately 88% of those deferred amount, we believe this further validates our strategy of supporting our struggling retailers through the government mandated closure.\nToday, we have avoided any material impact from retailer bankruptcy having lost only 13,000 square feet in the aggregate out of our over 3 million square foot retail portfolio, which we believe is a testament to us having superior locations at these restructured tenants want to remain in.\nAs we mentioned before, we continue working with challenge retailers with a heavy focus currently on those in Waikiki, who historically have been solid operators to bridge them through to the recovery as tourism continues to ramp up, which is primarily from the US Mainland at this point as Asian countries have not yet relaxed COVID restrictions and their travel to Hawaii yet.\nAdditionally, we are seeing significant positive activity and engagement with new retailers for vacant or distressed spaces in our retail portfolio as we negotiate new retail leases and term sheets, which we will keep you posted on.\nOn the multifamily front, we have hired a new community manager at our Hassalo on Eighth property who we -- who we expect will lead Hassalo to increased occupancy and better financial results over the remainder of the year.\nFurthermore, the 133 unit master lease with the private university in our San Diego multifamily portfolio expires at the end of May and our San Diego multifamily team led by Abigail Rex is fully engaged on additional marketing and advertising campaigns to entice students to remain in expiring units and to attract new prospects.\nTo date we have leased approximately 20% of those expiring units and expect to have the majority of them released by the end of summer.\nFinally, I want to mention that last week we issued our 2020 sustainability report which covers our 2020 operations and highlights our initiatives and commitments across a range of topics, including health and safety, environmental, social responsibility, corporate governor and was prepared entirely in-house at AAT.\nThese initiatives were a massive collaborative effort from our employee base, led by our sustainability committee with representatives from virtually every department in our company and oversight from our executive management team and Board of Directors.\nWe are proud of our efforts to-date, particularly our focus on human capital, but we know we have a lot more work to do going forward on all fronts.\nPlease reach out to any questions.\nLast night we reported first quarter 2021 FFO per share of $0.38, first quarter 2021 net income attributable to common stockholders per share of $0.02.\nI believe it is important to note that the FFO in the first quarter includes a charge of approximately $4.3 million for the early extinguishment of our $150 million Senior Guaranteed Notes, Series A, which were due on October 31, 2021.\nWithout the charge for the early extinguishment of debt, our first quarter 2021 FFO per share would have been approximately $0.44.\nFrom a financial perspective, it was a relatively quiet quarter.\nWe did end up close to our expectations.\nBased on the current environment same-store metrics are down in retail as expected and office was also lower for the quarter, but it is expected to end with 8% or greater same-store cash NOI for the year ended 2021.\nAt the end of the first quarter, net of One Beach, which is under redevelopment, our office portfolio stood at approximately 94% leased, with just 3.4% expiring through the end of 2021.\nOur top 10 office tenants represented 50.2% of our total office base rent.\nGiven the quality of our assets and the strength of the markets in which they are located with technology and life science as the key market drivers.\nOur office portfolio has weathered the crisis well.\nCurrent status by region are as follows: Bellevue is 96.5% leased; Portland is 97.1% leased; San Francisco is 100% leased, net of One Beach; and San Diego is 89.1% leased with two buildings under renovation at Torrey Reserve making up 5.8% of San Diego's vacancy and 2.6% of the office portfolio's vacancy.\nOur strategy of offering lease term flexibility while preserving pre-COVID rental rates produced 36 comparable new and renewal leases over the last 12 months, totaling 182,000 rentable square feet with a weighted average increase of 8.9% over prior rents on a cash basis and 16.9% on a straight-line basis.\nThe weighted average lease term was 3.3 years with just $8.7 per rental square foot in TIs and incentives.\nWe experienced limited small tenant attrition due to COVID and other business challenges during the quarter resulting in a net loss of approximately 31,000 rentable square feet, none of which was lost to a competitor.\nHowever, smaller tenant activity has picked up significantly with tenants willing to commit to longer-term leases at favorable rental rate.\nEven more encouraging is the push to return to the office and the emerging large tenant activity and competition for quality larger blocks of space in select markets including San Diego and Bellevue.\nWe continue to strategically invest in our current portfolio through renovation, redevelopment and ground-up development.\nThe renovation at two of the 14 buildings at Torrey Reserve should be complete this summer.\nIn the process, we are enhancing the campus amenities and aggregating large -- large blocks of space in the Del Mar Heights submarket to meet demand and take advantage of pricing power.\nConstruction has commenced on the redevelopment of One Beach Street in San Francisco with delivery in the first half of 2022 and construction is nearly complete on the redevelopment of 710 Oregon Square in the Lloyd sub-market of Portland.\nOne Beach will grow to over 102,000 square feet and 710 Oregon Square will add more than 33,000 square feet to our office portfolio.\nConstruction is also commenced on Tower 3 at La Jolla Commons, a 213,000 square foot, 11 story Class A plus office tower in the UTC submarket of San Diego with expected completion in Q2 or Q3 of 2023.\nWe are encouraged by the emerging large tenant activity and competition for quality large blocks of space in UTC.\nWe are optimistic about our office portfolio as we move forward into the rest of 2021 and beyond.",
        "summary": "compname reports q1 ffo per share $0.38.\nq1 ffo per share $0.38."
    },
    {
        "text": "Both are now available on the Investors section of our website, americanassetstrust.com.\nFirst and foremost, I would like to wish all our stakeholders and their loved ones continued health and safety during these truly unprecedented times.\nNow that people are starting to get vaccinated, we are optimistic and even hopeful eventually this pandemic will no longer be a threat, lives will return to some kind of normalcy and the economy will recover.\nHowever, at the present time, this pandemic continues to create challenges within our portfolio, particularly for our three theaters, gym's and our Waikiki Beach Walk properties.\nAs most of you know, all of our properties in Hawaii are owned fee simple and are very valuable.\nWe have a strong view that post-pandemic, Waikiki will return to normal, pent up tourism returning and every night being like a Friday night.\nWhile this pandemic still remains a threat that we believe we are well prepared to endure a prolonged pandemic with our irreplaceable portfolio, our best-in-class operating platform, our top-notch management team, our disciplined financial strength and a very strong balance sheet.\nIn such regard, I am extremely proud to announce that our inaugural public offering, which we closed on January 26, 2021, the offering consists of $500 million of 3.38% senior unsecured notes due 2031.\nAnd by the way, it was oversubscribed 4 times.\nSuccess and demand of this bond offering in the midst of a pandemic is truly a testament to our incredible properties, efficient operating portfolio, and our top-notch management team.\nBob will provide more financial details on the bond offering.\nFinally, I'd like to mention that the Board of Directors has approved a quarterly dividend of $0.28 for the first quarter, an increase of $0.03 from our previous dividend, which we believe is supported by our collection efforts in the fourth quarter, and is an expression of our Board's confidence in the embedded growth of our portfolio that we believe will recover post-pandemic.\nAs you can see, we're mutually cooperative.\nWe remain optimistic with the overall performance of our portfolio, even in light of the pandemic, and we are pleased to report that 100% of our properties are currently open and accessible by our tenants in each of our markets.\nOf course, we too have felt the bumps along the road like everyone else in our sectors.\nYet, our collections of monthly recurring billings due continued to improve in Q4 over Q3 and Q3 over Q2.\nThe total collections to-date of approximately 92% in Q4 versus 90% in Q3 and 87% in Q2.\nJanuary is currently trending consistent with Q4, just over 91% to-date, and likely to increase further, all despite the headwinds of Governor Newsom shutdown restrictions in California that lasted through most of December and January.\nCollections for essential tenants in our retail portfolio, which represent approximately one-third of retail build rents were almost 100% in Q3 and Q4.\nAnd collections for nonessential tenants continued to improve from 69% in Q3 to over 74% in Q4.\nOf note, no tenant in our retail portfolio represents more than 2% of our ABR, and less than 6% of our retail portfolio is due to expire in 2021, assuming no exercise of lease options.\nAnd of the approximately 500 tenants in our retail portfolio, since the beginning of the pandemic, we have had 13 retailers file bankruptcy, covering 18 total tenant lease spaces, of which 13 spaces have been assumed or are in the process of being assumed in bankruptcy, which we believe is a testament to us having superior locations that these restructured tenants want to remain in.\nNotably, the rejected leases to-date were less than 13,000 square feet in the aggregate.\nAs you would expect, our primary collection challenges remain in the retail segment with our movie theaters and gym's, as well as many of our retailers at Waikiki Beach Walk, which until mid-October had no incoming tourism to sustain meaningful revenue for our tenants.\nSo, we believe the pent-up demand for travel to Hawaii is massive.\nWe expect the tourism to rebound to occur at more deliberate pace until a broader vaccine rollout is achieved, hopefully by this upcoming summer.\nIn the meantime, we are working with these challenged retailers who historically have been great operators to bridge them through to the recovery.\nThis is part of our recurring thesis of prioritizing long-term strategic growth over the short term.\nDespite the uncertainty, we remain optimistic that we will continue to see sequential improvement spurred by the vaccine's distribution, government stimulus and anticipated pent up travel demand in regions that have yet to fully reopen their economies.\nAs Ernest mentioned, we believe that we are well positioned to navigate through and manage these challenges.\nWe have been through challenging times before and each time we have emerged stronger, given our long-term focus on high quality, diversified asset base.\nWe expect this time will be no different.\nLast night, we reported fourth quarter and year ended 2020 FFO per share of $0.41 and $1.89 respectively, and fourth quarter and year ended 2020 net income attributable to common stockholders per share of $0.05 and $0.46 respectively.\nThe lower FFO in the fourth quarter, which is approximately $0.05 lower than the Bloomberg consensus is primarily the result of additional reserves for our theaters, gym's and Waikiki Beach Walk retail.\nNevertheless, we remain optimistic of this portfolio, even in light of the pandemic.\nThe highlights of this quarter are, one, we have ample liquidity.\nAs Ernest previously mentioned, we recently completed our inaugural public bond offering.\nIn the midst of this unprecedented pandemic, we closed on $500 million of 3.38% 10-year senior unsecured notes.\nWith the proceeds from the offering, we repaid $150 million Senior Guaranteed Notes Series A and repaid the $100 million outstanding on our revolving line of credit.\nWe expect to use remaining $236 million of proceeds to fund our La Jolla Commons III development in the UTC submarket of San Diego, as well as continue our renovation of One Beach Street in San Francisco, with the remaining amounts for general corporate purposes and potential accretive acquisition opportunities.\nAt the beginning of this week, we had approximately $380 million of cash on the balance sheet with zero outstanding on our $350 million line of credit.\nWe chose to access the public debt markets now because of the low treasury yield and strength of the credit markets that we've been seeing during this pandemic.\nWe had the ability to access the public debt market several years prior to this, but we weren't ready to commit to being a regular issuer on a frequent basis until now.\nWhat's changed is that we have the ability to ladder our existing debt maturities today, so that we have close to, if not more than $400 million in future debt requirements on a recurring basis over an 18 to 24-month period, while at the same time being laser focused on a 5.5 times net debt-to-EBITDA or less.\nA conservative balance sheet is very important to us.\nDuring this pandemic, our EBITDA has been challenged, like others with exposure to retail and our hotel, resulting in lower EBITDA.\nWe believe that our high-quality portfolio and superior close to West Coast locations will begin to return to normal post-pandemic, and our expectation is that our net debt-to-EBITDA will begin working its way back down to 5.5% or less, based on the corporate model that I'm looking at.\nNumber two, we have embedded contractual growth and cash flow in our office portfolio, with approximately $24 million of in-place growth in just the office cash NOI in '21 and '22.\nNumber three, our same store cash -- office cash NOI came in at just 3% due to abatements that were provided to our GSA tenants at our First & Main in Portland, Oregon, as part of their lease renewal package during Q1 2020.\nThese abatements continued through February '21.\nAbsent these short-term abatements, office same store cash NOI growth in Q4 '20 compared to Q4 '19 would have been approximately 7%.\nNumber four, multifamily properties incurred mixed results based on their geographic locations.\nFor our multifamily properties located in Portland, occupancy was down 17% compared to the same quarter last year, while the weighted average monthly base rent increased approximately 1.4%.\nFor our multifamily properties located in San Diego, occupancy remained stable at approximately the same over the prior year, while the weighted average monthly base rent increased 7.3% over the prior year.\nOf note, our occupancy levels in Portland have been trending much higher since the beginning of the year with our recent leasing momentum, bringing optimism that we will return to a more normalized pre-pandemic occupancy level.\nNumber five, let's talk about guidance.\nAs previously disclosed, we withdrew our guidance in April 2020, due to the uncertainty that the pandemic would have on our existing guidance, particularly in our mixed use and retail sectors.\nUntil we have a clear view of the duration of the economic impact and the economy shows signs of recovery, we will refrain from issuing formal guidance.\nHowever, what we can do is provide you a framework on how to think about our portfolio.\nWe believe that Q4 '20 was close to, if not the bottom of the economic impact for us.\nWe have taken approximately $18 million in combined bad debt expense reserves in 2020, including turning up most of the straight line rent for which reserves have been taking.\nIncluded in this number is approximately $7.6 million or $0.10 of bad debt expense reserves that were included in our FFO number of $0.41 for Q4 '20.\nFrom my perspective, I believe $0.41 of FFO for Q4 '20 is the bottom.\nI would suggest that you conservatively use that as a starting base.\nAssume that continues for the first two quarters.\nBeginning in Q3 '21, assuming most everyone in America has been vaccinated, I would expect theaters restaurants and especially Waikiki Beach Walk retail and the Embassy Suites Waikiki to begin their recovery.\nI would apply some percentage growth to the $0.41 of the Q4 2020 FFO beginning in Q3 '21 and continuing into Q4 '21.\nAdjustments that also would need to be made include, in Q1 '21, approximately $0.05 related to the yield maintenance make whole payment on the Series A note prepayment will be a non-recurring expense in Q1 '21.\nAlso in Q1 '21 through Q4 '21, the additional proceeds from the public bond offering are expected to increase our interest expense by approximately $0.03 per quarter.\nAs we look beyond '21, we expect to see the following.\nFirst, we expect to see the Embassy Suites Waikiki coming back in full strength in '22, adding approximately another $0.13 of FFO.\nSecondly, the Waikiki Beach Walk retail coming back in partial strength in '22, adding approximately another $0.08 of FFO.\nAlso, in our supplemental this quarter, we have included our estimated development yield for La Jolla Commons III, which is expected to take between 24 and 30 months to develop.\nThe estimated yield for this development is approximately between 6.5% and 7.5% based on the market conditions today.\nWe expect this project to be completed by the end of 2023.\nA 6.5% yield on $175 million is approximately another $11 million of NOI or $0.14 of FFO.\nIn the meantime, the cash on the balance sheet earmarked for this development will be a short-term drag on earnings.\nAnd lastly, we expect our One Beach property on the North Waterfront of San Francisco to complete its renovation by the end of 2022, and we expect this property to produce approximately $0.05 plus of FFO upon stabilization in 2023.\nFor now, this is our informal big picture framework of what we conservatively expect in '21.\nBut it is not considered or it is not to be considered as formal guidance.\nAs we have more clarity and conviction on the back half of '21, we will share it with you.\nWe will continue our best to be as transparent as possible.\nAt the end of the fourth quarter, net of One Beach, which is under redevelopment, our office portfolio stood at approximately 95% leased, with just under 5% expiring at the end of 2021.\nOur top-10 office tenants represents 51.5% of our total office based rent.\nGiven the quality of our assets and the strength of the markets in which they are located, the technology and life science is the key market drivers and we continue to execute leases at favorable rental rates, delivering continued NOI growth in our office segment even in this challenging environment.\nThe weighted average base rent increase for the seven renewals completed during the fourth quarter was 5%.\nWith leases already signed, we have locked in approximately $24 million of NOI growth in our office segment, comprised of approximately $14 million in 2021 and $10 million in 2022.\nWe anticipate additional NOI growth in 2022 and 2023 through the redevelopments and leasing of 102,000 rentable square feet at One Beach Street in San Francisco and 33,000 rentable square feet at 710 Oregon Square in the Lloyd submarket of Portland.\nWith the recent entitlements for two blocks at Oregon Square in Portland, we can add up to an additional 555,000 rentable square feet to the portfolio.\nHowever, we continue evaluating market conditions and prospective tenant interest before commencing development of that project.\nIn the next few months, we will commence construction of Tower 3 at La Jolla Commons, a 213,000 rentable square foot, 11 storey Class A plus office tower in the UTC submarket of San Diego.\nWith expected completion in Q2 or Q3 of 2023, La Jolla Commons Tower 3 will grow our office portfolio by 6.1%.\nWe're moving forward because we believe in the long-term fundamentals of the market, especially in UTC.\nDirect vacancy remains low at 6.5% and the inventory is aging with just 26% or three out of 22 Class A office buildings being built since 2008, two of which are our own towers at La Jolla Commons.\nThese 3three newer towers are 97% leased.\nThe existing office inventory is actually shrinking due to conversion to life science and lab usage in and around UTC.\nAnd record-breaking venture capital is flowing into the region.\nSan Diego companies raised a record-breaking $2.6 billion of venture capital funding in Q4 of 2020.\nThe 2020 total reached $5.2 billion.\nLife science companies brought in a record $1.8 billion.\nThe 2020 volume from life science investment reached a record shattering $3.8 billion, and tech investment hit a record high of $762.1 million for the quarter and $1.3 billion for the year.\nLa Jolla Commons is just a few blocks away from the UTC Mall, which has undergone a $1.2 billion redevelopment, including 90 new tenants and is Westfield's top performing Center.\nIn the San Diego trolley operations serving UCSD and UTC are expected to begin operations in 2022.\nAnd as for the impact of work-from-home on our portfolio, based upon discussions with many of our tenants, not to mention significant expenditures, our larger tenants are currently investing in their existing spaces.\nWe expect the impact to be relatively short term in nature.\nBeyond our portfolio, even though the tech giants had established long-term work-from-home protocols, they are massively increasing their office footprint by expanding, acquiring buildings and land and leasing significant space across the country, all during COVID.\nFacebook has expanded by 2.2 million square feet, Microsoft by 1 million square feet, Amazon by 1.5 million square feet; and Google now plans 3 mixed-use projects on Google owned land, 40 acres in 1.3 million square feet in Mountain View, San Jose and Sunnyvale.\nFurther, in November, Google bought a 10-acre plot close to its existing campus in Kirkland, Washington, and plans to use it to expand in the area.\nAlso, Apple just acquired a large land site in Culver City, which is Los Angeles.\nfor a large office development for at least 1,000 people, at least an additional 336,000 feet in New York City.\nIn summary, we have a stable office portfolio with a strong tenant roster, no or little near term rollover, significant built in NOI growth and additional upside through repositioning and redevelopment within our existing portfolio, plus substantial new development on sites we already own.",
        "summary": "q4 ffo per share $0.41.\nq4 earnings per share $0.05."
    },
    {
        "text": "I'm joined today by Roy Harvey, Alcoa Corporation's President and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer.\nAny reference in our discussion today to EBITDA means adjusted EBITDA.\nWith that, here's Roy.\nWe had another strong quarter, bolstered by aluminum prices that are higher than we've seen in more than a decade.\nBefore we get underway, however, in particularly at a time where we are experiencing a rapidly changing market dynamic, I would like to reinforce once again that our values, which we established when we launched as an independent company in 2016 continue to guide us.\nIt's not just about the results, but also how we achieve them.\nOur values continue to be foundational for our company and our embedded in all of our decisions.\nNow, as Alcoa Corporation approaches its five-year anniversary, we've been reflecting on the achievements Alcoans across the globe that helped us to accomplish.\nIt is clear that our strategic priorities are creating value.\nToday, Alcoa is much stronger than when we launched.\nWe've significantly improved our processes, we've strengthened our balance sheet, we've reshaped our portfolio, we responded to societies need for responsible production launching the industry's most comprehensive portfolio of low-carbon products, and we've also certified many of our assets to the stringent standards of the Aluminum Stewardship Initiative.\nIn addition, our strategic priorities have helped us to do exactly what we said we wanted to do, strengthen our company to prepare for an even brighter future.\nAnd today, we've reached an important milestone.\nAdditionally, we've authorized a new share repurchase program that will complement our existing program that was authorized in 2018.\nThese decisions concerning capital returns align with our existing capital allocation framework and reflect two important points.\nFirst, we have confidence in the strength of our company and our ability to generate cash to sustain these programs through the commodity cycle.\nToday, both our balance sheet and operating portfolio are in a much stronger position, with no substantial debt maturities until 2027.\nSecond, we believe the markets we participate in will be stronger, that this cycle will last longer and then Alcoa is well positioned to deliver in a low-carbon ESG focused world.\nBut our work is never complete.\nThese achievements simply serve as a strong foundation.\nDespite the positive financial news, I am disappointed that we had a serious injury in the quarter.\nAn electrical contractor in Brazil sustained a life-threatening electrical shock.\nOur focus must always be on the safety of everyone who visits or works at our facilities.\nAs our comments progress today, I'd like to highlight some recent initiatives that align with our strategic priorities and that use this strong foundation as a starting point.\nThe Alumar restart that will be powered by renewable energy, the joint development project for high purity alumina and our net-zero ambition.\nThe green evolution is happening fast and as evidenced by these projects, we are positioning ourselves for the future.\nAlso, we'll talk more today about the strength in aluminum pricing and an improved pricing trend in Alumina.\nBut first, let's review the financials with our CFO, Bill Oplinger.\nThis quarter was even better than the previous one.\nRevenues at $3.1 billion were up $276 million or 10% sequentially.\nRevenues were up $744 million or 31% from the same period last year on higher aluminum and alumina prices.\nRealized aluminum prices were up 13% sequentially and 64% year-over-year.\nThird quarter earnings per share was $1.76 per share, $0.13 per share higher than the prior quarter and $2.02 per share higher than the year ago quarter.\nAdjusted earnings per share for the third quarter increased 38% sequentially, to a record $2.05 per share.\nAdjusted EBITDA, excluding special items also increased, up 18% sequentially to $728 million, much higher than last year's $284 million.\nThese charts, which debuted last quarter show that the Aluminum segment with modest income taxes and virtually no minority interest continues to outperform and drive record net income.\nIn the first nine months of 2021, the Aluminum segment has had its best year so far, with nearly $1.4 billion or 73% of Alcoa's total adjusted EBITDA, excluding special items of $1.9 billion.\nThat segment EBITDA generated record adjusted net income.\nBefore this year our best full year adjusted net income was in 2018 at $698 million.\nIn 2021, our adjusted net income for the first nine months is already $822 million or $124 million higher.\nNow with Aluminum prices remaining at post global financial crisis highs and Alumina prices recovering nicely, earnings should be even better in the fourth quarter.\nNow let's review adjusted EBITDA in more detail.\nThe $110 million increase in adjusted EBITDA excluding special items was driven by higher metal prices as well as favorable currencies, slightly higher Alumina prices and better product pricing in Alumina and Aluminum.\nHowever, as you know, a Bauxite unloader at Alumar sustained structural damage in mid-July and we ramped down refinery production by roughly one-third with corresponding impacts to Bauxite production assurity [Phonetic].\nThis outage had a $27 million impact in the quarter, mostly affecting shipment volume and production costs.\nIn addition, we experienced a few other impacts in the quarter, higher raw material costs, mostly caustic in the Alumina segment and carbon products in smelting, higher energy costs in Europe and to a lesser extent in Brazil were unfavorable by $71 million.\nSpain costs increased by $53 million, while we also experienced higher costs in Norway and Brazil.\nThese increases were favorably offset by strong earnings in the Brazil hydros, the highest earnings in a decade for a net unfavorable energy impact of $17 million.\nLastly in the Aluminum segment, railcar delays in Canada and seasonal shipping patterns in Europe negatively impacted the results in the quarter.\nThe other column primarily reflects the non-recurrence of the Portland smelter government support, which ended in the second quarter after we repowered the facility through July 2026, and increased accruals for residue storage area improvements in Brazil.\nNow let's look at impacts in our cash flows.\nThe cash flows continue to highlight major corporate actions as well as the benefits from very strong adjusted EBITDA.\nTo illustrate the strong cash generation in the last quarter, we have bridged from the second quarter ending cash balance to the third quarter cash balance.\nCash declined $200 million to $1.45 billion, our largest single outlay was $518 million in September when we redeemed the 2026 bonds, followed by working capital use of $206 million, $83 million of capital expenditures and a modest $19 million of pension and OPEB funding which is mostly OPEB.\nEBITDA and other factors provided net inflows of $626 million.\nOn a year-to-date basis, you can see the benefit of the strong nine months of EBITDA and the additional major sources of cash inflows, including non-core asset sales and the $500 million bond issue.\nThose cash flows and EBITDAs also impact key financial metrics.\nReturn on equity increased to 30.2% for the first nine months of 2021, nine month 2021 free cash flow less non-controlling interest distributions was negative $51 million due to the second quarter's $500 million pension funding, but was positive $320 million in the third quarter due to the strong EBITDA, partially offset by a three-day increase in days working capital.\nMost importantly, our key leverage metric proportional adjusted net debt is now below our $2 billion to $2.5 billion target range at $1.7 billion.\nWorking capital has increased in line with expectations, as metal prices continue to rise and now are being joined by Alumina price increases.\nMoving to our outlook for the remainder of the year.\nThe full year 2021 outlook is expected to see modest changes.\nFor Bauxite shipments, the expected ranges are decreasing 1 million tons to 49 million tons to 50 million tons due to the Alumar unloader outage in the third quarter.\nWe are expecting improvements on the income statement below the EBITDA line.\nDepreciation, depletion and amortization is expected to improve $10 million to $665 million, while interest expense is also expected to improve $10 million due to our redemption of the 2026 notes.\nIn the cash flow section, there are three expected changes.\nReturn seeking capital expenditures are expected to be $10 million lower.\nPayment of prior year taxes has been adjusted $5 million to $30 million and environmental and ARO spending is expected to be $20 million better, down to $120 million for the year.\nFor the fourth quarter, overall with Alumar refinery production returning close to normal operating levels and if current Aluminum and Alumina index pricing levels persist, we expect another record-setting quarter.\nHowever, at the San Ciprian refinery and smelter, the current high energy costs in the country and the strike if both persists through the quarter end are expected to be primary factors decreasing adjusted EBITDA approximately $100 million sequentially and increasing working capital sequentially $120 million.\nIncluded in the San Ciprian impacts are in refining, we expect sequentially lower shipments of 86,000 metric ton and an unfavorable EBITDA impact of approximately $15 million.\nIn smelting, we expect sequentially lower shipments of 52,000 metric tons and an unfavorable EBITDA impact of approximately $85 million.\nFor the rest of the portfolio, adjusted EBITDA in the Bauxite segment is expected to improve $10 million sequentially, primarily due to recovery from the Alumar unloader outage in 3Q 2021.\nAside from Index pricing, currency and the San Ciprian impacts that I mentioned, the Alumina segment adjusted EBITDA is expected to be flat sequentially, higher shipments, cost improvements and the partial recovery from the Alumar unloader outage are expected to offset higher raw materials and energy costs.\nIn the Aluminum segment, again excluding the San Ciprian impact Index pricing and currency impacts and assuming today's spot alumina prices persist, while we expect substantial benefit in the Alumina segment, Alumina costs in the Aluminum segment are estimated to increase by $100 million.\nHigher shipments are expected to offset increased raw materials and production costs, energy related impacts are expected to be comprised of two factors.\n$30 million as Brazil hydro sales seasonally decline and higher smelter energy costs of $20 million primarily in Norway.\nAs Bill noted, the Aluminum segment has a significant role in our profitability.\nThe LME Aluminum price was the highest that has been in 13 years and has doubled relative to the low point in the second quarter of 2020.\nIn addition, regional premiums are being influenced by higher transportation costs into deficit markets such as North America and Europe.\nThe continued economic recovery and the tightness of supply have continued to support this LME rally and high regional premiums.\nWe continue to see positive GDP in industrial production across the world's leading economies, which supports Aluminum demand across all major end-use sectors.\nThis year, we expect annual global demand for primary Aluminum to increase approximately 10% relative to 2020 and to surpass the pre-pandemic levels of 2019.\nStrong demand is also being supported by China's continued status as a net importer of primary Aluminum.\nIn 2021, China has curtailed more than 2 million tons of annualized capacity due to power shortages and its enforcement of policies related to energy and the environment.\nThese curtailments represent one of the largest supply cuts the Aluminum industry has ever experienced, particularly given that they are occurring during a year in which we have seen strong demand growth.\nThese supply dynamics are not only occurring in China.\nThere have been recent reports in Europe regarding energy shortages and high power costs that may lead to smelting cuts there as well.\nFor Alcoa's commercial impacts, we are also seeing significant year-over-year growth for our value-add Aluminum products.\nIn the third quarter, the premiums we earn for value-add products were up relative to the second quarter.\nStrong demand supported high spot premiums for open volumes.\nMuch of our volume for value-add products is sold in annual contracts.\nSo, only a portion benefits from high spot pricing.\nHowever, current market dynamics provide a positive environment for 2022 contract negotiations.\nNext, I'd like to comment on what we're seeing in the Aluminum market, which is also on the rise.\nAs we've noted previously, we are the world's largest third-party producer of Alumina and market fundamentals there have also become more favorable over this last month.\nIn the first two months of the quarter, ex-China Alumina prices remained more muted than in Aluminum, high freight costs made shipments to China unattractive and the market outside China had sufficient supply.\nHowever, in the last month or so, we have seen a substantial rally in ex-China Alumina pricing.\nSome unplanned production disruptions outside of China reduced the amount of Alumina available for spot purchases.\nAt the same time, some refineries in China have restricted production to be the same dynamics I discussed earlier in regards to the smelting cuts.\nPower shortages and policies related to the environment in energy.\nThese dynamics have driven current global supply tightness in Alumina.\nWhile China remains short in Alumina as a net importer, it is now competing with smelters outside of China for available Alumina.\nAs a result, prices for Alumina outside of China are at the highest levels they've been since 2018.\nNow, let's move to a slide that recap some of the items that Alcoa has been doing to support our business for the future.\nOur strategic actions over the past two years and our ongoing activities are positioning Alcoa for the future.\nTwo years ago, we announced three key strategic programs.\nThe new operating model, non-core asset sales amd the portfolio review.\nWe've already met the goals on two of these.\nFirst, we fully implemented the new operating model and captured the annual savings.\nSecond, we also met the top end of our target for non-core asset sales.\nThe portfolio review, meanwhile, has three years remaining and was designed to improve both the cost structure and sustainability position of our global production assets, focusing primarily on smelting and refining.\nIt considers options for significant improvement, curtailment, closure or divestiture.\nAt this two year mark, we've already addressed nearly half the 1.5 million tons of smelting capacity with a repowering at Portland, the curtailment of Intalco and restarting Alumar.\nThe announced restart of 268,000 metric tons of smelting capacity in Brazil equates to our share of Alumar's nameplate capacity.\nIt will supply the short Brazilian market and the smelter will be fully powered with renewable energy by 2024.\nWe've earlier reported that 78% of our global smelters are powered by renewables, and we expect that percentage to reach 85% by the conclusion of the portfolio review in 2024.\nIn refining, we've also addressed half of our global goal of 4 million tons of refining capacity with the 2019 closure of the Point Comfort refinery in Texas.\nNow, let's move to the right hand side of this slide.\nIn September, we took another step to strengthen our balance sheet and redeemed in full $500 million in senior notes issued at a 7% interest rate that were due in 2026.\nWe used cash on hand to repurchase this debt.\nA stronger financial position is an outcome of our focus on aligning decisions with our strategic priorities, including our imperative to advance sustainably.\nLast month, we added even more production facilities to our list of locations certified to the Aluminum Stewardship Initiative, the industry's most comprehensive third-party system to verify responsible production.\nToday we have 15 global sites certified to ASIs Performance Standard, the latest were two Canadian smelters, ABI and Deschambault.\nCongratulations to those teams in Quebec for earning these certifications.\nImportantly, we also have ASIs Chain of Custody Certification, which allows us to sell ASI certified Bauxite, Alumina and Aluminum.\nAnd we've earned a premium on ASI certified products, which we can sell globally.\nEarlier this month, we also announced the beginning of a joint development project related to the market for high purity alumina or HPA.\nIndustry analysis shows that demand for HPA will be strong with increasing year-over-year demand due to the need for low carbon solutions in transportation and other sectors.\nOur non-metallurgical alumina, HPA, is used to create a variety of products for a sustainable economy.\nThis includes lithium-ion batteries that are the backbone of clean emissions free electric vehicles and energy efficient LED lighting applications.\nWhile we are still at an early stage of development, we believe our process knowledge of Alumina refining can help ensure the operational and financial success of this joint development project.\nAnd more generally, across our alumina refineries, it is important to note that Alcoa has the world's lowest carbon intensity in its global refining system.\nThis too was an advantage now and in the future for our smelter grade and non-metallurgical businesses, both of which are the largest outside of China.\nFinally, I am proud of our ambition to reach net-zero by 2050 for Scope 1 and Scope 2 greenhouse gas emissions across our global operations.\nAnnounced earlier this month, this ambition complements our Climate Change policy and existing GHG targets, which we discussed more fully in our Annual Sustainability Report.\nTo work toward this ambition, we are focused on increasing the share of our operations powered by renewable energy and commercializing some of the breakthrough innovations we've discussed previously, such as the ELYSIS technology which eliminates all direct greenhouse gases from the traditional aluminum smelting process and adapting Mechanical Vapor recompression to Alumina refining to further reduce our already low-carbon intensity.\nNext, I wanted to quickly highlight the news we announced earlier today.\nWe are proud to initiate this quarterly dividend and authorized a new buyback program.\nSince Alcoa Corporation's launch nearly five years ago, we've talked about strengthening our company.\nThis announcement is clear evidence of the work that Alcoans across the globe have completed to position the company to succeed not only in the favorable market environment we're seeing now, but through the commodity cycle.\nToday, Alcoa is stronger than it has been since our inception, and with our current view of the markets and expected cash flows, we believe these programs can be sustained.\nThe decision regarding capital returns aligns with our current capital allocation framework.\nTo review the framework prioritizes maintaining liquidity and investing capital to sustain and improve our operations.\nNext, we aim to maximize value creation opportunities across four categories listed in no specific order.\nOne of those, of course, is returning cash to stockholders, which we've demonstrated today.\nNow, let me briefly highlight the other three value creation opportunities.\nFirst, we've made great progress in reducing our debt.\nAs mentioned, our adjusted proportional net debt is now below our target range of $2.0 billion to $2.5 billion.\nToday, our company has no substantial debt maturities until 2027 and our expected cash pension funding requirements are at their lowest levels.\nAs we've said previously, our net debt may fluctuate, but we intend to maintain a strong balance sheet through this cycle.\nSecond, another focus is the transformation of our portfolio, building on the progress we have already made in this five-year program.\nFinally, we continue to evaluate value creating growth projects and pursue opportunities that will generate an adequate rate of return.\nFirst, it's a very good time to be in the upstream aluminum business.\nWe have a long position in all three of our segments and the work that we've accomplished while continuing has made us more competitive, enabling us to succeed through the commodity cycle, because of this work we are well positioned to capture benefits from improved markets, including the very healthy aluminum prices that we're currently seeing.\nNext, I'm proud to say that Alcoa Corporation is stronger today than any other time.\nOur strategies are working and our balance sheet is in its best shape ever.\nThis improved financial strength has allowed more flexibility to execute on our capital allocation framework, including the authorization of further returns to our investors.\nFinally, we are ready for a sustainable future.\nAs we approach our five-year anniversary next month, I'm excited about what's ahead as we move forward as a stronger company that can deliver value to our people, our processes and our products.\nOperator, who do we have our first question?",
        "summary": "compname reports q3 adj earnings per share of $2.05 excluding items.\nalcoa sets another record for quarterly net income and earnings per share.\nq3 adjusted earnings per share $2.05 excluding items.\nq3 earnings per share $1.76.\nq3 revenue $3.1 billion versus refinitiv ibes estimate of $2.91 billion.\n2021 shipment outlook for alumina and aluminum segments remains unchanged.\nanticipates continued positive financial results in q4 of 2021.\nworking capital increase in q4 related to san ciprián could approximate $120 million.\ncontinues to expect a strong 2021 based on continued economic recovery and increased demand for aluminum in all end markets.\nexpects annual global demand for primary aluminum to increase about 10% relative to 2020 and to surpass pre-pandemic levels in 2019.\nalcoa corporation initiates quarterly cash dividend and new share repurchase program.\ninitiation of a quarterly cash dividend on its common stock and a new $500 million share repurchase program.\nhave no substantial debt maturities until 2027."
    },
    {
        "text": "As detailed in yesterday's release, ABM generated strong third quarter results featuring double-digit growth in revenue, continued solid cash generation, and a 20% gain in adjusted earnings per share.\nRevenue growth was broad-based as each of our five business segments achieved year-over-year gains in revenue, aided by an improving business environment and the gradual reopening of the economy.\nOur team members once again executed well and continue to provide exceptional service to our clients.\nOverall, demand for ABM's higher margin virus protection services remained elevated in the quarter, underscoring ongoing client concerns regarding cleaning and disinfection of their facilities.\nAs anticipated, demand for virus protection eased slightly in the third quarter compared to the second quarter of fiscal 2021, but remain well above pre-pandemic levels.\nThe emergence of the Delta variant and rising COVID-19 cases nationally have gains heightened interest in the need for disinfection prevention measures, particularly in high traffic areas.\nAs we look forward to 2022 and beyond, we believe that virus protection services will remain a contributor to our overall revenue as disinfection becomes a standard service protocol and facility maintenance programs.\nDuring the third quarter, we continued to benefit from efficient management of labor as office occupancy levels remain relatively low nationwide and began to trend downward slightly as the third quarter progressed due to the spread of the Delta variant.\nIn this evolving environment, our flexible labor model enabled us to capitalize on staffing efficiencies and the associated benefit to our margins.\nIn light of the current pause in the return to the office trend, we anticipate a more gradual ramp in office occupancy levels during 2022, providing an opportunity for a longer tailwind of rising from labor efficiencies.\nAt the same time, we are proactively addressing current dynamics in the labor market, which include heightened competition for available talent.\nAs I noted in last quarter's conference call, ABM has developed a task force model that leverages our substantial internal resources and cross-functional expertise to identify and implement solutions rapidly and effectively.\nEarlier this year, we established a human resources task force with a specific focus on recruiting and retention, and this task force has been instrumental in helping us to manage our staffing needs and ensure our resources are allocated efficiently and cost effectively.\nAs a reminder, roughly half of our revenue is generated from union labor accounts, which mitigates concerns around labor inflation and availability.\nRevenue growth in the third quarter was led by performance of our Aviation segment, where revenues increased 51% compared to the prior year period and the segment operated profitably.\nOur strong performance in aviation reflected a seasonal improvement in air travel as well as our strategic shift toward securing high margin and more stable service contracts with airports and related facilities.\nWhile revenue in our Aviation segment remains below pre-pandemic levels, we expect to see continued growth, driven in part by new airport transportation and janitorial contracts.\nOur Technical Solutions segment continued to perform strongly, generating nearly 23% revenue growth in the third quarter as our broad capabilities address key client needs for energy efficiency, productivity and mechanical performance throughout their facilities.\nRevenue growth benefited from improved access to client sites, enabling us to execute on a large number of projects Technical Solutions ended the third quarter with a record backlog level and the long-term outlook for this segment is particularly favorable given our position as a leading provider of electrical vehicle charging infrastructure.\nAlthough EV charging infrastructure services currently represent a limited portion of Technical Solutions revenue, electrical vehicle adoption continues to rise, aided by the current administration's target to make half of all vehicle sold in 2030 zero emissions vehicles.\nAs a result, we see a long runway of growth for our e-mobility EV charging infrastructure business as we look out over the next several years.\nTurning to Education segment.\nSchool districts have accelerated the return to in-person learning, as we estimate that 95% plus of K-12 and higher education institutions will resume in-school classes this fall.\nWith the reopening of schools and educational facilities, Education segment revenue grew solidly from the prior year period, driven by increased demand for our services.\nWe believe the heightened concerns amid the prevalence of the Delta variant may lead to incremental opportunities for disinfecting services in the fourth quarter and into 2022.\nBut we do expect our labor savings from hybrid environment will wane quickly with a return to full-time in-person learning this fall.\nOverall, our scale and market diversity and breadth of service keep us well positioned for growth in the fourth quarter and beyond.\nGiven the strength of our year-to-date performance and our positive outlook for the fourth quarter, we are increasing our full year adjusted earnings per share guidance to $3.45 to $3.55, up from $3.30 to $3.50 previously.\nOn the acquisition front, a few weeks ago we announced a definitive agreement to acquire Able Services in a strategic transaction that we believe will create significant value for all of our stakeholders.\nWe're excited to join with Able's talented team and we look forward to working together to better serve our clients with a broader array of services and solutions that address their evolving needs.\nThe combination of ABM and Able expands our core engineering and janitorial capabilities in attractive geographies.\nThis acquisition is expected to be accretive to adjusted earnings per share from day one, aided by an estimated $30 million to $40 million and cost saving synergies.\nAs a larger company with enhanced scale, we will be better positioned to provide our clients with service offerings that will not only enhance our growth and margins, but will add significant value for our clients.\nWe also see the potential for revenue synergies over time as we deepen our client relationships and realize cross-selling opportunities.\nWe are progressing on the close of this acquisition, which we expect will occur by the end of September.\nAs a reminder, we have not included any contribution from Able in our updated guidance forecast.\nIn closing, the past nine months have been exciting, productive and successful for ABM.\nWe have executed well on our strategic growth objectives, while generating strong financial results, and we are very much looking forward to the addition of Able Services to ABM.\nIn the next few months, We plan to share with you our strategic plan for the next five years, which I am extremely excited about.\nThird quarter revenue was $1.54 billion, an increase of 10.7% from last year.\nThis improvement was driven by revenue growth in each of our five business segments, reflecting an improving business environment and continued demand for our virus protection services.\nOn a GAAP basis, the loss from continuing operations was $13.7 million or $0.20 per diluted share compared to $56 million or $0.83 per diluted share in last year's third quarter.\nThe GAAP loss from continuing operations in this year's third quarter is attributable to a reserve of $112.9 million, equivalent to $1.24 per diluted share.\nThe fully resolved previously announced outstanding litigation, you will find additional information related to the legal settlement in our Form 10-Q, which will be filed later today.\nExcluding the impact of reserve taken in the third quarter as well as other one-time factors including a favorable prior year self-insurance adjustment of $26.1 million, our adjusted income from continuing operations was $61.3 million or $0.90 per diluted share in the third quarter of fiscal 2021, compared to $50.1 million or $0.75 per diluted share in the third quarter of last year.\nThe increase in adjusted income from continuing operations was primarily the result of strong operational performance, including growth in our higher margin services.\nAdditionally, our results benefited from several other factors, including efficient labor management, one less workday compared to the third quarter of fiscal 2020, and lower bad debt expense.\nCorporate expense for the third quarter increased by $27.5 million year-over-year.\nThe majority of this increase reflects a more normalized expense level in this year's third quarter as furloughs and other cost saving measures taken at the beginning of the pandemic reduced corporate expenses in the same period a year ago.\nThe increase in corporate expense this quarter also reflects planned investments of approximately $9 million, as we continue to execute on our technology transformation initiative.\nOn a year-to-date basis, we have invested $29 million in information technology and other strategic initiatives relative to our previously disclosed target of $40 million for the full fiscal 2021 year.\nNow turning to our segment results.\nRevenue in our largest segment, Business & Industry, grew 6.7% year-over-year to $807.7 million, benefiting from increased office occupancy in the quarter as well as continued elevated demand for virus protection services.\nIn addition, we saw improved demand for sports venues, as spectator attendance levels increased significantly from the prior year period.\nOperating profit in this segment grew 18.2% year-over-year to $84.7 million, reflecting efficient labor management, reduced bad debt expense and ongoing client demand for higher margin virus protection services.\nOur Technology & Manufacturing segment generated revenue growth of 1.2% year-over-year to $246.1 million, and operating profit margin improved to 10.4%, up from 10.1% last year.\nSince most of our clients in the T&M segment are considered essential service provider, this segment has been least impacted by COVID-19 disruption.\nAs a result, segment revenue grew modestly on a year-over-year basis.\nHowever, the segment operating profit margin increased 30 basis points from the prior year period, reflecting lower bad debt expense.\nEducation revenue grew 10.5% year-over-year to $208.4 million, driven by the reopening of schools and other educational institution amid a return to in-person learning.\nEducation operating profit totaled $17.7 million, down 3.3% from the same period last year.\nAlthough the return to school trend increased demand for virus protection services, the resumption of more normalized staffing levels reduced overall margins compared to the prior year, which benefited from minimal staffing requirement.\nAviation revenue increased 51% in the third quarter to $175.7 million, marking the first period of year-over-year revenue growth in the Aviation segment since the third quarter of fiscal 2019.\nRevenue growth was fueled by a rebound in U.S. passenger levels amid significantly busier summer travel season compared to the same period last year, as well as our increased focus on securing more business with airport and related facilities.\nAviation operating profit improved to $10.3 million compared to an operating loss of $8.2 million last year.\nAviation segment margins continued to improve on a sequential basis, rising to 5.9% in the third quarter from 3.9% in the second quarter of fiscal 2021.\nThe improvement in operating margin is attributable to a favorable shift in business mix as we emphasize higher margin airport facility contracts and from stronger client demand for virus protection services compared to the prior year period.\nTechnical Solutions revenue increased 22.7% year-over-year to $146.1 million, highlighting continued strong market demand for our energy efficiency solutions as well as improved access to client sites.\nSegment operating margin was 9.9% in the third quarter compared to 11.1% in last year's third quarter, reflecting a higher personnel costs compared to last year's third quarter, which benefited from pandemic-related cost saving actions.\nI'll now discuss our cash and liquidity.\nWe ended the third quarter with $505.4 million in cash and cash equivalents compared to $394.2 million at the end of fiscal 2020, with total debt of $811.6 million as of July 31, 2021.\nOur total debt to pro forma adjusted EBITDA, including standby letters of credit was 1.4 times at the end of the third quarter of fiscal 2021.\nIn June, we announced an expansion of our credit agreement to $1.95 billion.\nThe benefits of this revised and expanded credit facility include enhanced financial flexibility as well as increased liquidity to fund strategic growth initiatives.\nAdditionally, the revised agreement has more favorable credit term on both the revolving credit facility and the term loan.\nAs you know, we recently announced the pending acquisition of Able Services for $830 million, which we plan to pay using a mix of cash on hand and borrowings from our credit facility.\nFollowing the close, we expect to have very manageable bank leverage ratio of approximately 3 times.\nSupported by strong cash flow of the combined company, we intend to reduce this leverage ratio in a timely manner.\nThird quarter operating cash flow from continuing operations was $87.6 million compared to $130.9 million in the third quarter of last year.\nThe decrease in cash flow from continuing operations during the third quarter was primarily due to a deferral in payroll taxes last year under the CARES Act.\nFor the nine-month period ending July 31, 2021, operating cash flow from continuing operations totaled $258.8 million, unchanged from the same period last year.\nFree cash flow from continuing operations was $79.2 million in the third quarter of fiscal 2021, down from $121.1 million in the third quarter of fiscal 2020.\nThe decrease in free cash flow reflected the CARES Act payroll tax deferral I mentioned.\nDuring the third quarter, we were pleased to pay our 221st consecutive quarterly dividend of $0.19 per common share, returning an additional $12.8 million to our shareholders.\nOur Board also declared our 222nd consecutive quarterly dividend, which will be payable November 1, 2021 to shareholders of record on October 7, 2021.\nNow, I'll discuss our outlook.\nAs Scott mentioned, our increased guidance for full year fiscal 2021 adjusted income from continuing operations is now a range of $3.45 to $3.55 per diluted share, compared to $3.30 to $3.50 per diluted share previously.\nThe increase in our adjusted earnings forecast is due to our strong financial performance over the first nine months of fiscal 2021, as well as our favorable outlook for the fourth quarter of the year.\nPlease note that this guidance excludes any impact from our pending acquisition of Able Services.\nAt this time, we are not providing guidance for full year 2021 GAAP income from continuing operations since we are unable to provide an accurate estimate and timing of the items impacting comparability relating to the Able Services acquisition, such as acquisition-related contingency advisory fees and integration costs.\nWe continue to expect a 30% tax rate for fiscal 2021 excluding discrete items such as the Work Opportunity Tax Credits and the tax impact of stock-based compensation awards.",
        "summary": "abm industries q3 adjusted earnings per share $0.90.\nq3 gaap loss per share $0.20 from continuing operations.\nq3 adjusted earnings per share $0.90.\nraises adjusted earnings per share guidance for full year fiscal 2021.\nq3 revenue rose 10.7 percent to $1.54 billion.\nincreasing guidance for full year 2021 adjusted income from continuing operations to $3.45 to $3.55 per share."
    },
    {
        "text": "Bill Bayless, Chief Executive Officer; Jim Hopke, President; Jennifer Beese, Chief Operating Officer; William Talbot, Chief Investment Officer; Daniel Perry, Chief Financial Officer; Kim Voss, Chief Accounting Officer; and Jamie Wilhelm, our EVP of Public-Private Partnerships.\nAs you know, Q3 encompasses the completion of the prior academic year, which was substantially impacted by the onset of the COVID pandemic and the commencement of the new academic year.\nLet me start by saying that we are pleased with the start of the 2020-2021 academic year.\nAs Jennifer, William, and Daniel will discuss, the resiliency of the modern student housing industry, operationally, financially, and from an industry fundamentals perspective, is once again being demonstrated as we transition into the new academic year amid the COVID pandemic.\nWhile our business has not fully normalized at this time, we believe we are on the road to recovery as exemplified in many areas.\nOur lease-up occupancy exceeded 90%, a level many believe to be a best-case scenario in the early days of this pandemic.\nOur rent collection rate improved to 97% in September, the first full month of the new academic year in most of our markets, from approximately 94% in Q2.\nThis improvement taking place, while many other sectors continue to experience decreasing trends at this time.\nWe're also receiving significantly fewer resident hardship rent abatement request.\nSeveral hundred currently versus several thousand per month in the prior academic year.\nWe have also definitively witnessed the strong consumer sentiment regarding students' desires to be in the college environment with their peers regardless of University's curriculum delivery methodology, whether it being online, in-person, or a hybrid combination.\nAnd our university partners have planned and implemented prudent strategies.\nIt appears to have provided stability and ongoing on-campus occupancies.\nAs we are not currently holding any discussions for on-campus rental refunds beyond one university partner, which we expect to total only $1 million -- approximately $1 million in the fourth quarter versus the $15 million we contributed in the second quarter of the prior academic year.\nAlso, as William will discuss, in ACC's Tier one university markets, there appears to be enrollment stability amid the pandemic.\nEven amid this black swan event, the resounding value of a college degree and abundant demand for higher education at Power five and Carnegie R1 research institutions continues underpinning the stability and consistent growth opportunity in our sector.\nFinally, as part of our ongoing commitment to the Hi, How Are You Project, whose mission is to remove the stigma associated with mental illness and to encourage discussion regarding mental health and well-being.\nWe jointly conducted a mental health survey at our communities in conjunction with the commencement of the new academic year to better understand the mindsets during COVID-19.\nThe survey received responses from over 12,000 of our residents.\nThis is one of the largest surveys of its kind, specifically examining college student's perspectives about COVID and how it has impacted their mental health.\nNot surprising, according to the survey, 85% of respondents are more stressed as a result of the global pandemic.\nAlso worth noting, the top three items students are missing most are: one, socializing with their friends; two, participating in in-class instruction; and three, attending events both on and off-campus.\nEncouragingly, the results also reveal students believe that their mental health is just as important as their physical health, and they're open to having dialogue to help themselves and others.\nWe'll continue to promote the mission of the Hi, How Are You Project, and promote discussion around mental well-being among our student residents through our Residence Life programs, as we hope to have a meaningful impact in this very important endeavor.\nWe are excited to get the 2020-2021 academic year under way with September representing its first full month.\nBased on our leasing activity, it is now evident that the vast majority of our students desire to be with their peers in their college environment regardless of the curriculum delivery method at their universities.\nOur modern, well-located, fully amenitized apartment communities offer students the ability to continue to thrive despite the current COVID environment.\nTurning to Page S6 of the supplemental.\nAs usual, our third quarter includes a mix of two academic years, with prior academic year leases expiring mid-quarter and new academic year leases commencing in August and September.\nWhile the prior year academic year results were heavily influenced by COVID, in the new academic year we are seeing an improving financial trajectory.\nDuring the quarter, we provided $2.1 million in rent refunds to on-campus residents at one ACE Partnership University, which we expect to decrease to $1.2 million in the fourth quarter.\nThis is in comparison to the $15 million provided to residents that are primarily on-campus residence halls in the second quarter.\nAs noted in our release, no additional refunds are in discussion at this time.\nWith regard to students and parents being impacted by COVID-19, we instituted our Resident Hardship Program during the second quarter where we provided over $8 million of financial assistance.\nDuring the current quarter, the amount totaled $4.7 million, with the majority of this amount relating to our prior academic year leases.\nIn September, based on significantly lower levels of requests within the program, we gave approximately $175,000 in direct rent relief during the month.\nIn regards to collections, we had a 97% collection rate on our rent charge for September, a significant improvement from the 93.7% seen during the second quarter.\nAs expected, our third quarter other income was impacted by $8.4 million due to the loss of summer camp conference business, the continued waiver of online transaction fees and late payment fees, and higher levels of bad debt.\nGoing into the fourth quarter, we will continue to be impacted to some degree as we work on reinstituting leasing and payment fees.\nWith regard to same-store opex, we were able to partially offset lost revenue with savings and operating expenses of 5.2%, led by savings in all of our controllable categories.\nWe continue to have lower G&A costs due to the cancellation of nonessential travel, savings, and maintenance as we were able to turn more of our units in-house, lower marketing expenses due to substantially fewer in-person promotional and marketing events, and lower payroll costs associated with adjusted staffing and less overtime during the pandemic.\nAfter executing successful touchless, digital, and physically distant move-ins at our properties across the country, our sanitization plan procedures continues.\nThroughout the pandemic, at our owned properties, our resident's physical health has been minimally impacted by the COVID virus.\nIn the current academic year, residents have reported a total of approximately 1,500 positive COVID-19 cases or 1.7% of our occupied beds.\nAt this time, we are tracking only 110 active cases or 0.1% of our occupied beds.\nIt is also worth noting that both the CDC and Dr. Fauci have urged universities to not send students back home to their primary residents if at all possible, to eliminate the risk of scattering students throughout the country and putting them in contact with parents and family that may be in a higher risk category.\nWe are pleased to see that universities have successfully implemented their operational protocols.\nWork through the initial spikes in cases, seeing cases decline, and several have recently announced plans for expanded in-person activities in the spring.\nTurning to our leasing results on Page S9 of the supplemental.\nAs of September 30, our 2020-2021 same-store portfolio was 90.3% leased, with in-place rents growing 1.1% over prior year.\nHowever, as you will see in the chart, we gained approximately 300 additional leases at our properties that primarily serve sophomores and above, which offsets the decreasing at our properties, primarily serving first year students as our university partners finalize their move-in in assignment processes.\nWe continue to see fall leasing activity at our off-campus communities, primarily serving sophomores and above.\nThe largest opportunity for occupancy gains in the spring is our on-campus ACE property serving first year students, a process which again is administered by university partners.\nTurning first to development.\nWe are pleased to have completed construction and delivered two owned ACE developments on the campuses of the University of Southern California Health Sciences in San Francisco State University.\nThe developments were completed on time and on budget despite the challenging environment.\nHowever, initial occupancy at the communities were impacted primarily due to state and university policies in response to COVID-19.\nWe still anticipate the projects will stabilize at development yields of 6.25 upon a return to normalcy on each campus.\nIn addition, we completed the second phase of our Flamingo Crossings Village project at Walt Disney World.\nWith the continued temporary suspension of the Disney College Program, both delivered phases, which totaled 406 units and 1,624 beds remain unoccupied at the current time.\nGiven our strong relationship, Disney has agreed to abate all ground rent until the project becomes occupied, and we are actively working with Disney to market and lease the community to the broader rental market, including Walt Disney World cast members.\nThe original design of the community and ground lease contemplated the potential leasing of units beyond the DCP program with configurable furniture, attractive individual lease liability options, and an unmatched amenity package in the market.\nBased on recently updated projections provided by Disney, we now do not expect occupancy from DCP participants until the second half of 2021.\nWhile leasing of the currently available beds to the open market has just commenced and will continue through 2021, based on traditional conventional multifamily absorption versus immediate DCP stabilization as units are brought online, coupled with discount pricing due to the interim nature of these non-DCP leases, we expect short-term diminished economics from the original DCP pro forma projections.\nWe anticipate housing both open market renters and DCP participants through at least 2022.\nWe continue the construction of the remaining phases of the project to be delivered through May 2023, in anticipation of the full return of the Disney College Program along with leasing to the broader rental market until the DCP program returns to levels that fully occupy the community.\nIn our on-campus third-party development business, during the quarter, we commenced construction on a 476-bed development on the campus of Georgetown University in Washington, D.C. The project is located on the University's capital campus, just north of the Georgetown Law School, and is expected to be delivered in fall of 2022.\nWe expect to earn a total of $3 million in development fees, and we'll manage the project upon completion.\nWe continue to make progress on predevelopment efforts at the University of California, Berkeley, University of California, Irvine, MIT, Princeton University, West Virginia University, Concordia University, and Virginia Commonwealth University.\nThe ultimate timing, finance structure, and project feasibility for these predevelopments have not been finalized at this time.\nWith regard to the overall on-campus development environment, we still anticipate the continued increase in on-campus P3 opportunities across the country.\nThe occupancy of antiquity communities on-campus have been impacted to a much greater extent, the more modern accommodations offered both on and off-campus.\nAnd universities will look to modernize their on-campus housing to meet consumer preferences and mitigate against future losses.\nIn addition, we anticipate more universities return to off-balance sheet financing structures, including our ACE program, to finance the development of new housing as universities will be focused on conserving their balance sheets and debt capacity in the wake of the effects of COVID-19.\nWe are currently tracking a deep pipeline of on-campus opportunities, and American Campus remains in a strong position to capitalize on those opportunities.\nTurning to university enrollment.\nWe have been actively tracking fall 2020 enrollment and the potential impact of COVID-19.\nOf the 68 owned markets where ACC currently operates, 85% of universities have reported statistics for the fall.\nOverall, we've seen only a 0.3% decline in enrollment across those 58 markets.\n50% of our universities experienced increased enrollment in fall 2020, with an average increase in students of 2.5%.\nOf the half of our universities that had decreases in enrollment, they only averaged a 3.1% decline for fall 2020.\nFirst year student enrollment is only down 1.1% for fall.\nAs Jennifer discussed, our properties that primarily serve first year students are currently 77% occupied.\nAnd given there has only been a slight decline in first year student enrollment, we believe there is opportunity to improve occupancies in those projects as first year students may decide to return to the university for the spring semester.\nUniversity enrollment has remained stable despite reduced international students for fall 2020.\nAs international students typically constitute less than 10% of enrollment in our portfolio, while demand from domestic students remains deep to replace any loss from international students.\nWith 51% of our universities having released fall 2020 international data, there has been a 14% decline in international students.\nYet those same universities have grown the much larger segment of domestic enrollment by 1.2%.\nOverall, this demonstrates the demand from domestic students at the Tier one universities we serve offset the negative impact from reduced international enrollment.\nThe resilient, stable enrollment figures during the pandemic places the Tier one colleges and universities we serve in a strong position for academic year 2021 and beyond.\nFinally, the new supply landscape for next academic year continues to remain favorable.\nWithin ACC's 68 markets, we are now tracking 21,150 beds currently under construction for 2021, of a potential additional 400 beds planned, but not yet under construction, reflecting a decline of 2% to 4% in new supply off the current year's decline in new supply of 20%.\nLimited available land close to campus, construction costs, and lack of available construction financing will continue to put downward pressure on future supply in our markets for the next few years.\nAs we reported last night, total FFOM for the third quarter of 2020 was $45.2 million or $0.32 per fully diluted share.\nAs Jennifer said, despite the unprecedented and ongoing response to the virus, we have all experienced in 2020 and its direct effect on the operating environment of the colleges and universities we serve, we have been pleased with the resiliency the student housing sector has exhibited.\nWhile the company's near-term earnings will, of course, be affected by the governmental and university actions taken in response to the pandemic, we believe that we are on a path to return to a relative level of normalcy both operationally and financially after achieving over 90% for this fall despite the amount of ongoing online instruction as well as seeing significant reductions in delinquencies, refunds, and resident hardships as we have started the new academic year.\nLike last quarter, we cannot completely isolate every item related to the pandemic, but we believe FFOM was negatively impacted by approximately $19 million versus our original expectations for the quarter.\nAnd year-to-date, FFOM has been negatively impacted by approximately $42 million to $43 million.\nTotal property revenue was approximately $27 million impacted for the quarter, with $15 million due to COVID-related rent relief, lost summer camp revenue, increased bad debt, and wave fees.\nAnd $12 million due to lower opening occupancy for the fall semester relative to our original expectations.\nPartially offsetting the loss revenue, property operating expenses were $7.5 million than -- lower than originally budgeted, as Jennifer discussed.\nAlso as a result of the lower originally budgeted property NOI, joint venture partners' noncontrolling interest and earnings was approximately $700,000 lower, and ground lease expense was approximately $1.4 million less due to a reduction in outperformance rent being paid to our university ground lessor partners as well as Disney's agreement to waive ground rent on the Disney College Program housing until occupancy resumes.\nAdditionally, third-party management fee income was approximately $1.2 million lower than expected.\nAnd FFOM contributed from our on-campus participating properties was almost $500,000 lower, due to University's refunding a portion of rents and lower fall occupancies at properties in both of these business segments.\nLastly, we benefited from approximately $700,000 in G&A and third-party overhead expense savings relative to our original plan due to both reduced travel and payroll costs.\nDue to the continued uncertainty surrounding the pandemic, we will not be reissuing earnings guidance for 2020.\nIf the current environment remains stable, though, we are hopeful that the reduction in revenue through the remainder of the year should be limited to the impact of the 90.3% occupancy we achieved for the opening of the fall semester, and the $1.2 million in rent refunds that we have agreed to for the fourth quarter at one of our ACE partnership universities.\nAlso, while delinquencies and resident hardships have improved significantly in September, we still expect to run at an elevated level of bad debt relative to the 1% level we typically operated at prior to the pandemic.\nWith regards to operating expenses, we will, of course, strive to be as efficient as possible and create savings that can help offset the lower revenue levels in the near-term.\nHowever, with the new academic year physical occupancy levels above 90% and approximately $2.5 million to $3 million in expected additional annual costs for COVID-related cleaning supplies and procedures, we do not expect to be able to create expense savings at the same levels we did in the second and third quarters.\nAnd finally, as discussed last quarter, we continue to believe the three third-party development projects at the University of California, Irvine, Cal Berkeley, and Concordia University, originally scheduled to commence in 2020 will be delayed until 2021.\nThese projects were expected to contribute a combined $4 million in development fee income in the fourth quarter of 2020.\nAgain, while there will be some continued financial impacts of the pandemic into the immediate future, the progress that has been made gives us confidence that longer term, our operating results will return to normalized levels.\nIn the meantime, we continue to have a strong and healthy balance sheet and substantial liquidity to allow us to absorb the disruption.\nAs of September 30, we had $44 million in cash on hand and over $720 million of availability on our corporate revolver, with no remaining debt maturities in 2020, and a manageable $167 million in secured mortgage debt maturing in 2021.\nAlso, as detailed on Page S16 of our earnings supplemental, the remaining phases of the Walt Disney World project represent our only ongoing development with phases spanning through 2023 and only $201 million in remaining development capital needs.\nAs of September 30, the company's debt to total asset value was 41.3%, and net debt-to-EBITDA was 8.1 times.\nIt's worth noting that excluding the impacts of COVID on operating results this year, net debt-to-EBITDA would be in the range of seven to 7.1 times.\nAlthough our leverage levels are temporarily elevated relative to the targets we have historically communicated, we feel confident that with the three-year capital plan we layout on Page S16 as well as the expected normalization of the EBITDA, the company's debt to total assets will return to the mid-30% range and net debt-to-EBITDA to the high five to low six times range.",
        "summary": "q3 ffo per share $0.32.\nq3 adjusted ffo per share $0.32."
    },
    {
        "text": "In addition, we discuss non-GAAP financial measures including core funds from operations or core FFO, adjusted funds from operations or AFFO and net debt to recurring EBITDA.\nI'm very pleased to report that we achieved record investment volume of approximately $1.1 billion for the first 9 months of 2021 with continued momentum heading into the 4th quarter of this year.\nWhile replicating these investment volume is the testament to the efforts of our talented team, I am most pleased with the exceptional quality of the investments that we've made in a challenging environment.\nWhile our investment activities further strengthen our best-in-class retail portfolio we have also fortified our robust balance sheet with $1.5 billion of capital markets transactions year-to-date positioning our company for dynamic growth in the quarters ahead.\nNotably, we completed our inaugural preferred equity offering during the 3rd quarter, raising $175 million at a 4.25% coupon.\nThis represents the lowest non-PSA REIT preferred equity coupon in history and provides a new source of perpetual capital for our rapidly growing company.\nDuring the 3rd quarter, we invested approximately $343 million in 83 high quality retail net lease properties across our 3 external growth platforms, 80 of these properties were sourced through our acquisition platform representing acquisition volume of over $340 million.\nThe 80 properties acquired during the 3rd quarter are leased to 49 tenants operating in 20 distinct retail sectors including best in class operators and off-price retail, convenience stores, tire and auto service, home improvement, auto parts, grocery, and general merchandise.\nThe acquired properties at a weighted average cap rate of 6.2% and a weighted average lease term of 10.7 years.\nAs mentioned, through the first 9 months of the year, we've invested a record $1.1 billion in 226 retail net lease properties spanning 40 states across the country and 26 retail sectors.\nWhile raising the lower end of our acquisition guidance for the year to $1.3 billion our thoughtful and disciplined approach is evidenced by the nearly one-third of annualized base rents acquired year-to-date derived from ground lease assets and roughly 70% of annualized base rents acquired derived from leading investment grade retailers.\nDuring this past quarter, we executed on several unique transactions, including our 3rd Amazon Fresh store in Illinois.\nWe're excited about the opportunity to add yet another Amazon Fresh store to the portfolio located in a prominent Chicago suburb with median household incomes of 110,000 and a daytime population of roughly 225,000 within a 5-mile radius.\nOur acquisition team also continues to uncover compelling ground lease opportunities.\nDuring the quarter, we completed the acquisition of a 9-property portfolio of Thorntons Convenience Stores for approximately $21 million.\nThe stores which are paying an average annual rent of only $120,000 per year and had a weighted average lease term of close to 20 years are all well located in the Nashville and Chicago MSAs.\nShortly after executing a letter of intent to purchase this portfolio, BP announced they're taking full ownership of Thorntons convenience store chain after 2.5 years as part of a joint venture established in 2019.\nThis transaction makes BP, which is an A minus rated company by S&P, one of the leading convenience store operators in the Midwest with more than 200 stores across 6 states.\nOther notable ground lease acquisitions during the quarter, including are Walmart and Sam's Club in Lansing, Michigan, two Lowe's Stores located in Wallingford, Connecticut and Abington, Massachusetts, and a CVS in Springfield, Massachusetts.\nWe have acquired 73 ground leases year-to-date for total investment spend of nearly $350 million representing nearly 31% of acquisition spent for the entire year.\nThis includes 28 ground leases during the 3rd quarter representing investment volume of over $108 million.\nAs of September 30, our ground lease exposure reached a record of nearly 14% of annualized base rents.\nThe ground lease portfolio now derives roughly 87% from investment grade tenants and has a weighted average lease term of 12.1 years, with an average rent of less than 10 dollars per square foot.\nThis portfolio continues to represent an extremely attractive risk-adjusted investment for our shareholders.\nOn recent earnings calls and discussions, there had been considerable dialog regarding our ground lease portfolio and its valuation.\nThis is a very compelling comparison when thinking about the value of our ground lease portfolio, which is a weighted average credit rating of BBB plus over 2 years of additional term in comparison to the Bloomberg BBB index and internal growth of nearly 1%.\nAs of September 30, our portfolio's total investment grade exposure was approximately 67% representing close to 100 basis point year-over-year increase.\nOn a 2-year stacked basis, our investment grade exposure has improved by roughly a 1,000 basis points.\nMoving on to our Development and Partner Capital Solutions program, we continue to uncover compelling opportunities with our retail partners.\nWe had 7 development in PCS projects either completed or under construction during the first 9 months of the year that represent total committed capital of approximately $40 million.\nI'm pleased to announce we commenced construction during the quarter on our 3rd development with Gerber Collision in New Port Richey, Florida.\nGerber will be subject to a new 15-year lease upon completion and we anticipate rent will commence in the second quarter of 2022.\nConstruction continued during the 3rd quarter on 2 development in PCS projects with anticipated cost of just over $5 million.\nThe projects consists of our first 7-Eleven development in Saginaw Michigan and a Gerber Collision in Pooler, Georgia.\nWe remain focused on leveraging our three external growth platforms and our differentiated asset management capabilities to expand our relationships with best-in-class retailers providing comprehensive solutions that facilitate the real estate strategies and growth plans.\nWhile we continue to strengthen our best-in-class retail portfolio through record investment activity, we remain active on the disposition front during the 3rd quarter.\nWe continue to reduce exposure to franchise restaurants and non-core tenants through the disposition of 3 properties for total gross proceeds of approximately $11.8 million with a weighted average cap rate of 6.3%.\nAs of September 30, we've disposed of 13 properties for gross proceeds of just over $48 million and are maintaining our disposition guidance of $50 million to $75 million for the year.\nBolstered by the recent addition of David Darling as our Vice President of Real Estate, the asset management team continues to diligently address upcoming lease maturities.\nTheir efforts have reduced our 2021 maturities to just 4 leases, representing 10 basis points of annualized base rents.\nDuring the 3rd quarter, we executed new leases, extensions or options in approximately 72,000 square feet of gross leasable area.\nThrough the first 9 months of the year, we executed new leases, extensions, or options on approximately 347,000 square feet of gross leasable space.\nOur 2022 lease maturities are de minimis with only 19 leases maturing representing less than 1% of annualized base rents expiring over the course of the next year.\nAs of September 30, our expanding retail portfolio consisted of 1338 properties across 47 states, including 162 ground leases and remains effectively fully occupied at 99.6%.\nFor those that have been following our company over the years, this reduction in Walgreens exposure is a true milestone given our historical exposure which once approached 40% of our portfolio.\nWe have made a concerted effort to approach to tailor our pharmacy exposure given the high per square foot rental rates of many vintage pharmacy leases and then virgin approaches of CVS and Walgreens to a quickly changing landscape.\nMany of you are familiar with Mike as he most recently served as Chairman of the US Real Estate, Gaming and Lodging Investment Banking Practice at Jefferies.\nOver the course of his career, Mike has raised in excess of $50 billion of capital through numerous transactions.\nHaving had the opportunity to work with Mike for many years, I am extremely excited to leverage his unique perspectives and experiences as our company continues to dynamically grow and evolve.\nWith that, I'll hand the call over to Peter to discuss our financial results for the quarter.\nCore funds from operations for the 3rd quarter was $0.92 per share, representing a 13% year-over-year increase.\nAdjusted funds from operations per share for the quarter increased 11.5% year-over-year to $0.89.\nAs a reminder, treasury stock is included within our diluted share count prior to settlement if and when ADC stock trades above the deal price of our outstanding forward equity offerings.\nThe aggregate dilutive impact related to these offerings was roughly half a penny in the 3rd quarter.\nAs mentioned on the last 2 calls, we expect to achieve high single-digit earnings growth for full year AFFO per share.\nBuilding upon our 6% AFFO per share growth in 2020, this implies 2 year stack growth in the mid teens.\nWe view this level per share growth is very compelling when combined with the strength of our portfolio and our fortress like balance sheet.\nThis consistent and reliable earnings growth continues to support a growing and well covered dividend.\nDuring the 3rd quarter, we declared monthly cash dividends of [Phonetic] $0.217 per common share for July, August and September.\nOn an annualized basis, the monthly dividends represent an 8.5% increase over the annualized dividend from the 3rd quarter of last year.\nWhile meaningfully increasing the common dividend over the past year, we maintained conservative payout ratios for the 3rd quarter of 71% of core FFO per share and 70% of AFFO per share respectively.\nSubsequent to quarter end, we again increased the monthly cash dividend by 4.6% to $0.227 per common share for October.\nThe monthly dividend reflects an annualized dividend amount of $2.72 per share or 9.8% increase over the annualized dividend amount of $2.48 per share from the 4th quarter of 2020.\nOn a 2-year stack basis, this reflects annualized dividend growth of more than 15%.\nGeneral and administrative expenses for the 3rd quarter which were impacted by recent changes to the company's executive officers totaled $5.7 million.\nG&A expense was 6.5% of total revenue or 6% excluding the noncash amortization of above and below-market lease intangibles.\nWhile we continue to invest in people and systems to support our dynamic and growing business, we still anticipate that G&A as a percentage of total revenue will be roughly 7% for full year 2021.\nThis excludes the impact of lease intangible amortization on total revenues.\nAs mentioned last quarter, G&A expense for our acquisitions team fluctuates based on acquisition volume for the year and our current anticipation for G&A expense reflects acquisition volume within our new guidance range of $1.3 billion to $1.4 billion.\nTotal income tax expense for the 3rd quarter was approximately $390,000, which was slightly lower than our expectation.\nDue to a one-time refund.\nWe continue to anticipate total income tax expense for 2021 to be close to $2.5 million.\nMoving onto our capital markets activities for the quarter, as Joey mentioned, in September, we completed our inaugural preferred equity offering raising $175 million of gross proceeds at a record low coupon of 4.25.\nThis attractive offering demonstrates our ability to opportunistically access yet another source of capital to support the continued growth of our company.\nDuring the 3rd quarter, we entered into forward sale agreements in connection with our ATM program to sell an aggregate of approximately 367,000 shares of common stock for anticipated net proceeds of roughly $27 million.\nDuring the quarter, we also settled close to 886,000 shares under forward ATM sale agreements and received net proceeds of approximately $56 million.\nAt quarter end, we had approximately 3.4 million shares remaining to be settled under existing forward sale agreements which are anticipated to raise net proceeds of more than $226 million upon settlement.\nInclusive of the settlement of our outstanding forward equity, our fortified balance sheet stood at approximately 3.7 times net debt to recurring EBITDA.\nExcluding the impact of our unsettled forward equity, our net debt to recurring EBITDA was approximately 4.4 times.\nIf you include our recent preferred equity offering and net debt, this adds roughly half a turn of leverage to our net debt to recurring EBITDA metrics.\nAt September 30, total debt to enterprise value is just under 25%, while our fixed charge coverage increased to a record 5.1 times.\nWith full availability under our revolving credit facility and nearly $830 million in total liquidity, we have tremendous flexibility to execute on our growth plans.",
        "summary": "q3 adjusted ffo per share $0.89.\nqtrly core funds from operations (core ffo) per share increased 13.0% to $0.92.\nqtrly adjusted funds from operations (affo) per share increased 11.5% to $0.89."
    },
    {
        "text": "Our Chief Financial Officer, Ray Young, will review the drivers of our performance as well as corporate results and financial highlights.\nWe reported first quarter adjusted earnings per share of $1.39, more than double the year ago period.\nAdjusted segment operating profit was $1.2 billion, 86% higher than the first quarter of 2020 and our sixth consecutive quarter of year-over-year adjusted OP growth.\nOur trailing fourth quarter average adjusted ROIC was 9%, 375 basis points higher than our 2021 annual WACC and significantly higher than the 7.6% in the year ago period.\nAnd our trailing fourth quarter adjusted EBITDA was about $4.2 billion, 19% higher than the prior year period.\nI'm proud of our team, and they continue to deliver sustained strong growth, powered by their continued advancement of the strategic transformation of our business, outstanding execution and excellent risk management and commitment to serving the evolving needs of our customers in new and innovative ways.\nI'd like to take a moment now to highlight some of the trends, developments and accomplishments from the first quarter.\nFirst, we are encouraged by many of the demand indicators we are seeing.\nFrom a geographic perspective, China was one of the first countries to emerge from COVID-related restrictions, and we are continuing to see significant export demand driven by its economic recovery.\nIn the U.S. meat production is strong as exports and retail sales remain robust and restaurant dining expands.\nVaccine rollout has been slower in EMEA but is accelerating now.\nAnd so we're optimistic that demand will recover there as the year progresses.\nOf course, some countries like Brazil and India are still in the midst of the pandemic and demand there may be slower to come back.\nFrom a product perspective, expectation of a progressive recovery in global foodservice will support demand for sweeteners, flower and other ingredients in 2021.\nAnd we are seeing a strong demand for beverages, alternative proteins and nutritional supplements, including expected sales growth of 12% for plant protein ingredients this year.\nIn summary, recovery from COVID and demand improvements are occurring at varying paces depending on geography and products.\nComplete recovery will extend over multiple years, but we are seeing clear trends that are favorable for our broad portfolio.\nAnother area in which we are seeing positive demand indications is ethanol in the U.S. About a year ago, we made the difficult decision to idle ethanol production at our dry mills in Cedar Rapids, Iowa and Columbus, Nebraska.\nWe committed that we will not restart those facilities until we saw economic and market factors that would point to a sustainable recovery.\nAs we move through the winter and into spring, we saw industry inventories falling almost 10% during the quarter, ending almost 20% lower year-over-year on March 31.\nMobility and driving miles increasing as COVID-related restrictions eased with recent gasoline consumption getting closer to pre-pandemic levels.\nSupport from the EPA for the renewable fuel standard.\nAnd China resuming purchases of U.S. ethanol in the first half of 2021.\nWith all of these factors supporting demand growth and improving industry margins, we decided to restart production.\nAt the same time, we are continuing to work with interested parties to complete the monetization of our dry mill ethanol assets.\nFrom a portfolio management perspective, we're still committed to reducing our exposure to vehicle fuel ethanol.\nAnd as demand continues to grow for the wide range of innovative alternative products that can come from natural sources like corn, we expect to see additional interest from other parties in both in biomaterials and sustainable aviation fuel.\nOne of the ways we are meeting growing and evolving demand is by introducing new technologies and innovations across our value chain.\nIn Q1, Our Covantis joint venture celebrated the commercial launch of its revolutionary blockchain platform to modernize the global agriculture ocean shipping industry.\nSimilarly, in the U.S. we've led an effort with industry partners to launch the barge digital transformation project, which uses new technologies to replace outdated, inefficient processes on our in-line water ways.\nWe're also innovating to meet the demand for sustainable solutions.\nOver the last year, as growth of e-commerce drove demand for packaging, our biosolutions team worked proactively with customers to apply our corn-based native and modified starches to help increase the number of times cardboard boxes can be recycled.\nIn Europe, our animal nutrition teams are using life cycle analysis of the complete supply chain from crops and ingredients to final animal products like milk, eggs and meat to help develop new feed supplements that improve animal health and reduce environmental impact, including greenhouse gas emissions.\nWe're also continuing to innovate to improve the customer experience.\nLast year, as travel was restricted, we launched new technologies designed to take our customers on collaborative virtual journeys that allowed us to share consumer insights, emerging trends and product solution opportunities, including real-time tasting.\nNow as parts of the world reopen, we are continuing to expand our innovating customer capabilities.\nIn March, we opened our completely renovated customer innovation center in Beijing, expanding our ability to support technical innovation and creation.\nAnd earlier this month, we were proud to celebrate the opening of the new cutting-edge, plant-based customer innovation lab at our research hub in Singapore.\nThese new facilities will propel our abilities to work with customers to create tailor-made solutions to meet evolving and growing consumer needs in the region.\nFinally, I want to speak about the very important issue of sustainability.\nOur commitment to sustainability expands our value chain.\nIt includes our work with growers to implement responsible farming practices, including the 13 million acres we've enrolled in sustainable farming programs globally in recent years.\nIt encompasses our Strive 35 goals to reduce the environmental impact of our processing operations, exemplified by the recent announcement of our partnership to help advance the proposed revolutionary zero emission power facility, utilizing our carbon capture and storage facility adjacent to our operations in Decatur, Illinois.\nSustainability is a key driver of our expanding portfolio of environmentally responsible plan-derived products and our efforts to reduce hunger and support the communities in which we live and work.\nOne critical pillar of our sustainability work for us and our customers is increasing the traceability of our supply chain.\nWe joined the Brazilian soy moratorium in 2006.\nAnd in 2015, we introduced our first comprehensive no deforestation policy.\nSince then, we made impressive progress, including achieving 99% traceability to mill in our farms around supply chain and full traceability to farm for direct suppliers in 25 key municipalities in the Brazilian Cerrado.\nNow we are taking our efforts to a new level.\nLast month, we announced our new policy to protect forests, biodiversity and communities.\nAs part of this ambitious plan, we aim to achieve full traceability throughout our direct and indirect South American soy supply chains by 2022 and have deforestation-free supply chains around the world by 2030.\nI'm proud of the work our team is doing to deliver on our sustainability commitments and capabilities.\nWe know they are a key driver of consumer decisions and business success.\nBut more importantly, they are one of the ways in which we are living up to our purpose and enriching the quality of life around the world.\nI'll come back later to talk about the next steps in our journey and our strategy.\nThe Ag Services and Oilseeds team delivered an outstanding quarter with operating profit of $777 million, representing a record for a first quarter.\nAg Services results were substantially higher year-over-year.\nResults were driven by a record Q1 for our North American origination team, which executed extremely well to capitalize on strong Chinese demand.\nAs expected, results in South America were significantly lower versus the prior year period.\nFarmer selling was lower versus the extremely aggressive pace in the year ago quarter.\nLower margins, including the impacts from the slightly delayed harvest and higher freight costs also affected South American results.\nResults for the quarter were affected by about $75 million in negative timing related to ocean freight positions.\nThose impacts will reverse as contracts execute in the coming quarters.\nCrushing delivered its best quarter ever as the business leverage its global footprint and diversified capabilities to capture strong execution margins in both soybean and softseed crushing, driven by robust vegetable oil demand and tight soybean stocks.\nNet timing impacts for the quarter in crush were minimal.\nRefined products and other results were higher year-over-year.\nWhile overall volumes were down due to pandemic impacts, margins were stronger in both North America and EMEA, refined oils.\nGlobal biodiesel results were lower year-over-year.\nEquity earnings from Wilmar were lower versus the prior year period.\nLooking ahead, we now expect full year calendar year results for Ag Services and Oilseeds to be higher than the record 2020, with a particularly strong fourth quarter, driven by potentially record global demand for North American agricultural products.\nFor the second quarter, we expect results to be slightly stronger than the second quarter of 2020, but significantly lower than the record first quarter of 2021 with stronger Crushing and RPO expectations compared to the second quarter of 2020, offsetting seasonably lower Ag Service results.\nThe Carbohydrate Solutions team again delivered significant year-over-year profit growth.\nOur Starches and Sweeteners subsegment, which includes the wet mill ethanol production, achieved significantly higher results versus the first quarter of 2020.\nThe business managed risks exceptionally well, capitalizing on rising prices in the ethanol complex and favorable coal product values in an industry environment of improving margins and falling inventories.\nCorn oil results were significantly higher than the previous year, which have been impacted by substantial mark-to-market effects.\nIn general, though demand for sweeteners and flour by the foodservice sector remained below the prior year, there were signs of acceleration in the month of March.\nStarch sales volumes remained solid on demand from industrial applications like packaging materials.\nVantage Corn Processor results were substantially higher, driven by improved margins on the distribution of fuel ethanol and strong performance in USP-grade industrial alcohol.\nLooking ahead, second quarter results for Carbohydrate Solutions are expected to be in line with this first quarter of 2021, which would represent a significant year-over-year profit growth driven by the improved ethanol market environment, including the restart of our two VCP dry mills and the recovery of the foodservice segment.\nThe Nutrition team delivered 5% revenue growth on a constant currency basis and solid year-over-year operating profit growth.\nHuman Nutrition results were significantly higher than the prior year quarter.\nFlavors had an exceptional quarter, driven by strong sales across various market segments, especially beverages.\nFavorable product mix in North America, improved margins in EMEA and accelerated income from a customer agreement also contributed results, partially offset by certain specific expenses.\nSpecialty Ingredients results were lower, primarily driven by demand factors, including the effect of pantry loading in the previous year quarter and shifts in demand for texturants.\nHealth and Wellness had a strong start to the year, with robust demand for nutritional products, driving higher results in probiotics and fibers.\nAnimal Nutrition results were lower versus the first quarter of 2020, driven primarily by lower demand and higher input costs as a result of pandemic effects, primarily in South America.\nThis was partially offset by favorable results in amino acids, driven by improved product mix.\nLooking ahead, we expect continued strong demand for flavors and proteins and improving demand for our animal nutrition products as restrictions ease to drive second quarter results that will be significantly higher than the prior year quarter, supporting the 15% per annum trend growth rate for the calendar year.\nLet me finish up with a few observations from the Other segment as well as some of the corporate line items.\nOther business results were lower than the prior year quarter, driven by lower captive insurance underwriting results, partially offset by more favorable ADM investor services earnings.\nFor the quarter, there were about $0.17 per share of adjusted items for earnings per share purposes, which are referenced in slide 24 in the appendix.\nThese adjustment items included: One, the settlement of the class action lawsuit against Golden Peanut to avoid the rising cost of a prolonged litigation, in a case in which we did not believe we violate any laws; two, impairments and restructuring costs related to the exit of certain noncore product lines and inefficient assets in nutrition; and three, mark-to-market on the embedded option in the Wilmar exchangeable bond.\nIn the corporate lines, unallocated corporate costs of about $200 million were slightly higher year-over-year, due primarily to our continued investments in IT and business transformation and transfers of costs from the business segments into the centralized centers of expertise in supply chain and operations.\nWe are still on track for calendar year corporate unallocated costs to be overall similar to 2020.\nAs expected, net interest expense for the quarter decreased from the year-over-year period on lower interest rates and the favorable liability management actions taken in the prior year.\nThe effective tax rate for the first quarter of 2020 was -- first quarter of 2021 was approximately 16% compared to the benefit of 4% in the prior year.\nWe still anticipate our calendar year effective tax rate to be in the range of 14% to 16%.\nOur balance sheet remains solid despite the higher commodity price environment with a net debt-to-total capital ratio of about 33% and available liquidity of $7.7 billion.\nAs part of our active management for pension liabilities, we did close on another U.S. pension liability transfer transaction on April one with about $0.7 billion of liabilities transferred to the U.S. insurance market.\nThis effectively reduces our U.S. pension liabilities by close to 40% and will result in the U.S. pension plans more or less fully funded from a projected benefit obligation perspective.\nI'm proud of the team for our great start to 2021.\nAnd I'm even more proud of the strategic work we have done to transform our company and enable our growing success.\nWe began in 2011 by committing to specific strategic goals and financial metrics focused on what we call the three Cs: capital discipline, cost reduction and cash generation.\nWe launched new initiatives like our $1 billion challenge with prioritized operational excellence, and we focused on returns as our primary financial metric.\nWe call that getting fit for the journey.\nOnce we were fit, we launch the next part of our strategy, focusing on three core pillars to enhance returns, deliver more predictable growth and strengthen our ability to control our results.\nDuring this time, our team has done a great job optimizing business performance, realigning our portfolio and building a global leader in nutrition, driving efficiencies through our operational excellence initiatives and expanding through organic growth investments, M&A and the broadening of our customer base and product offerings.\nNow we're moving into the next phase of our strategic transformation by sharpening our focus on two strategic pillars: productivity and innovation.\nOur productivity efforts will take many actions that were part of our optimized and drive focuses and boost them to the next level.\nThe productivity pillar will include: advancing the roles of our centers of excellence or COEs in procurement, supply chain and operations to deliver additional efficiencies across the enterprise; the continued rollout of our One ADM business transformation program and implementation of improved standardized business processes; and increasing our use of technology, analytics and automation at our production facilities in our offices and with our customers.\nOur innovation activities will help us accelerate growth and profitability, not just for the near term, but importantly, for the long term.\nWe'll expand and invest in improving the customer experience, including leveraging our producer relationships and enhancing our use of state-of-the-art digital technology to help our customers grow; sustainability-driven innovation, which encompasses the full range of our products, solutions, capabilities and commitments to serve our customers' needs; and growth initiatives, including organic growth to support additional capacity and meet growing demand, opportunistic M&A and increased leveraging of our very successful venture capital portfolio.\nWe'll support both pillars with investments in technology, which include expanding our digital capabilities and investing further in product research and development.\nAnd of course, all of our efforts will continue to be strengthened by our ongoing commitment to revenues.\nAs I look at our long-term plans and this evolution of our strategy, I'm very excited about the value creation opportunities ahead of us.\nOur teams are continuing to perform at the high level and doing a great job serving our customers.\nThe demand outlook for our products is strong, driven by the pre and during global trends of food security, health and well-being and sustainability.\nAnd we are delivering on our potential and our promise.\nThat is why we are even more optimistic in our 2021 outlook today than we were three months ago, with expectations for significantly higher full year operating profit and earnings per share versus our record 2020.\nAnd as we look beyond 2021, we expect that our sharpened focus on productivity and innovation, combined with continuing demand expansion driven by the fundamental needs and evolving demands of our global customers and the multiyear COVID recovery, will deliver sustained growth in earnings in the years to come.",
        "summary": "compname reports first quarter earnings of $1.22 per share, $1.39 per share on an adjusted basis.\nq1 adjusted earnings per share $1.39.\ncalendar year outlook for 2021 substantially improved; expect significant earnings per share growth and another record year.\nqtrly ag services and oilseeds adjusted operating profit of $777 million versus $422 million.\nseeing clear, favorable demand trends for many of co's products.\nexpect demand pattern to continue as vaccine rollouts accelerate and restrictions ease.\nexpect significant year-over-year growth in earnings across all three businesses in 2021."
    },
    {
        "text": "Our actual results could significantly differ due to many risks, including the risk factors in our SEC filings.\nAn audio replay will be made available on our website shortly after today's call.\nIt is now my pleasure to introduce Anant Bhalla.\nBefore we speak about third-quarter results, I want to share with you about the progress made in each element of our AEL 2.0 strategy that was first unveiled around this time, last year.\nWe outlined the building blocks in order to execute the strategy, improve returns, and migrate to the capital-efficient business model we envisioned.\nWe introduced the virtuous flywheel of the due [Phonetic] AEL business model going forward.\nThe virtuous flywheel starts with an industry-leading, at-scale annuity origination platform.\nWe delivered a complete refresh of our general account product suite, regained relevance and growth in our IMO distribution channel, and built additional distribution with Eagle Life while adding talent to improve productivity and product economics.\nOur fundraising abilities through our liability origination platforms allow us to be an investment manager with expertise in both liability-driven asset allocation and to manage an open-architecture investment platform that can source a wide variety of differentiated investments.\nOver the course of this year, we have established our investment management pillar capabilities necessary to be fully invested in core fixed-income assets managed by BlackRock and Corning, and private assets managed by American Equity or its strategically aligned investment managers.\nWe now have six sleeves [Phonetics] to seven sleeves private asset sectors in which we have conviction, specifically commercial real estate, residential real estate, including mortgages, and single-family rental homes as a landlord.\nInfrastructure debt and infrastructure equity, middle-market loans to private companies, and lending to recurring revenue, technology or software with an acronym called STARR, with two Rs, sector companies, all of which would allow AEL to deploy an additional couple of billion dollars each year in private assets, demonstrably moving us toward a goal of 30% to 40% in private assets.\nWe now have access to the necessary investment capabilities and scaling to target allocation will allow AEL shareholders to realize the full potential of differentiated asset management with a potentially lower-risk profiles than other alternate business models.\nFinally, we've got the capital structuring and reinsurance capabilities to then attract third-party risk-bearing capital to this business, either for accessing AEL's at-scale liability origination or for access to both our differentiated asset allocations and our attractive cost of funding liabilities through reinsurance.\nThe former is visible with our first such arrangement being the Brookfield Reinsurance transaction completed this quarter, with attractive fee-like revenues that will drive an evolution of AEL to a higher return on equity or ROE business through building a capital-efficient return on assets or ROA earnings model, thereby both diversifying and improving the quality of earnings.\nThe latter will be our focus with our AEL Bermuda Reinsurance entity that we expect to go live around the end of this year with plans progressing well for it.\nOn the Brookfield Reinsurance transaction, we executed both in-force and new business flow reinsurance, effective July 1.\nWe believe this is a good deal for both parties.\nFor us the weighted average fee of the first $5 billion seeded [Phonetic] to Brookfield, including $4 billion of in-force that was seeded effective July 1 was 97 basis points better than the 90 basis points originally described last October.\nThe forward flow reinsurance fees at 170 basis points for six years to seven years is a meaningfully positive signal on the quality of our liability origination and the strength of our franchise.\nIn summary, late last year, we outlined the building blocks for AEL 2.0, and in 2021, we have executed all proof points for the fundamental building blocks.\nGoing forward, we expect to reap the financial benefits from scaling, retained, spread earning assets in private assets' investments, as well as through reinsuring liabilities into fee-like ROE earnings from future reinsurance transactions or asset management allocation in both public and private assets.\nThe Board and I are proud of the pace of execution.\nIn some cases, like Investment Management, we have accelerated execution from 2022 into 2021 to be able to exit 2021 with all the fundamental capabilities in place to restock our capital return.\nWe have $236 million in share repurchase authorization remaining and we expect to target the return of $250 million [Phonetic] of capital to common shareholders for 2021 starting immediately with our next regularly scheduled dividend after Board approval, later this quarter, and then, share repurchases after approval of Brookfield for May to increase its ownership in AEL from 9.9% to as high as 19.9%.\nThe Brookfield Form-A regulatory hearing in Iowa is now scheduled for November 30.\nOnce approval is granted to Brookfield, we intend to start repurchasing shares in the open market.\nIn terms of other capital initiatives, we expect the refinancing of redundant statutory reserves on our lifetime income benefit riders with an explicit fee to be completed this quarter with a transaction closing retroactive to October 1.\nWith the closing of the refinancing, we will realize the capital savings, including but not only limited to, the capital savings we intended to achieve with a potential reinsurance of $5 billion of in-force only block of business to Varde Agam [Phonetic].\nWe are no longer pursuing the reinsurance business partnership with them, but expect to continue an ongoing dialog around asset management.\nAdditionally, the new redundant reserve financing will save approximately $9 million pre-tax per quarter in financing costs once the transaction is closed relative to the prior facility.\nThird-quarter operating costs already reflected $2 million of savings from the recapture of finance reserves that were then seeded to Brookfield.\nTherefore, we expect the refinancing of the remaining redundant reserves currently being financed to result in an additional $7 million of quarterly savings going forward.\nWe have a strong excess capital position, generated by our reinsurance strategies and our business model evolution, thereby fueling the growth in both our new business sales or liability origination and further scaling our allocation into higher returning private assets, while returning capital to shareholders.\nWe made major strides in the investment strategy pillar.\nI'll let Jim speak to this before touching on business results for the quarter.\nWith the number of recent announcements, we finished the last 12 months with a revitalized and reorganized investment department and the asset management relationships we need to respond with resilience to changing markets.\nOur promise to you was to develop the relationships necessary to transform our investment portfolio toward a 30% to 40% allocation to privately sourced assets.\nWe made good on this promise and have substantially completed the necessary build-out of our asset management partner relationships.\nThe biggest news was our announcement of the agreement to move our core investment portfolio management to BlackRock and Conning.\nIn a time when it's become difficult to source good yields in core public investments, it is extremely important to maximize effectiveness.\nEven with $45 billion in core public assets, American Equity can't match both the breadth and depth of expertise of the large public fixed income asset managers.\nMigrating our core public fixed income portfolio to BlackRock and Conning will help us obtain better net yields in core fixed income, while allowing us to focus in areas where we can have an industry-leading expertise like private assets, derivative trading, differentiated strategic asset allocation, and asset-liability management.\nBlackRock took over management of $45 billion of assets in October and has already invested over $1.8 billion of company cash into long-term securities on our behalf.\nWith regards to privately sourced assets, we recently announced a strategic investment with Monroe Capital to scale a dedicated platform, focused on software, technology, and recurring revenue or STARR-based -- the STARR acronym, middle-market businesses.\nAs part of this agreement, we have committed to initially invest $1 billion from our general account in such loans.\nThis strategy will focus on companies that offer mission-critical, high return on investment, software or technology solutions, resulting in recession-resistant revenue streams and lower default rates.\nAlong with expected to generate returns higher than investments with a similar risk-reward profile, our hope is to grow the STARR platform with third-party investors including other insurance companies through structured products based on STARR platform's loan origination.\nWe have also provided financing to our residential real estate partner Pretium to help support its purchase of Anchor Loans, a specialist in short-term mortgage loans in the single-family housing market.\nIn addition, we purchased over $1 billion of mortgage loans related to this transaction that are a particularly good asset-liability match for further duration liabilities that we may issue.\nIn addition, we have initiated a partnership in the infrastructure debt, and are exploring opportunities and infrastructure equity.\nAll of this is an addition to our existing relationships with Pretium and Adam Street.\nTo date, we've done $327 million dollars with Adam Street in middle-market loans.\nSince beginning our partnership with Pretium, we've invested $779 million in residential mortgages, and since this summer, $301 million in single-family rental homes.\nIncluding residential mortgage loans, single-family rental homes, commercial mortgage and agricultural loans, and middle-market loans, to date, we've invested approximately $2.5 billion dollars in privately sourced assets during 2021, exceeding our promise of investing $1 billion to $2 billion in privately sourced assets this year.\nPrivately sourced assets currently account for approximately 15% of invested assets.\nLooking at the state of the current -- the current state of the portfolio, the overall credit quality remained strong with an overall rating of single A-minus for long-term investments.\nThe net unrealized gain position at quarter-end was $4.5 billion, down $327 million from the three months earlier as interest rates moved higher.\nThere were minimal credit losses in the quarter and the performance of our commercial and agricultural mortgage loan portfolio remained strong with no new delinquencies or forbearances granted.\nFrom a liquidity standpoint, we continue to hold cash in excess of our current target level of 2% of invested assets.\nAt September 30, we had $7.6 billion of cash and equivalents and the investment company portfolios, compared to $10 billion at June 30.\nThe level of cash has since come down further with investments in private assets and as BlackRock has begun to redeploy cash into core publicly traded securities.\nCurrently, we have approximately $3 billion of uncommitted cash to deploy between now and early 2022 to be fully invested.\nFor the quarter, new investment asset purchases totaled approximately $400 million, almost entirely in privately sourced assets.\nThe expected return on new money investments in the quarter was approximately 4.6%, net of fees.\nThe current point in time yield on the portfolio, was roughly in [Phonetic] investment activities through October 31, was approximately 3.7%.\nSo some pressure on investments spread will continue into the fourth quarter.\nAfter the redeployment of remaining cash that is an excess of our target, we continue to estimate the yield on our investment portfolio will be approximately 4%.\nWith regards to redeployments, we expect to substantially redeploy the excess cash by year-end, and as previously indicated, reach our cash target in early 2022.\nMoving on to sales results for the third quarter, total sales of $1.3 billion were up 11% versus the second quarter of this year.\nFor the third quarter, FIA or fixed index annuity sales increased 3%, sequentially, to $915 million.\nWe believe this result will be generally in line with the overall market.\nYear-to-date, total sales of $4.9 billion positions us to end the year firmly toward the upper end of our 2021 sales goal of $5 billion to $6 billion outlined at the start of the year.\nThis is a good indication of our ability to pivot in our business mix as and [Phonetic] when we see asset side or capital optimization opportunities.\nAt American Equity Life, total sales through the IMO channel was $760 million.\nOf this, fixed index annuity sales increased 4% to $728 million from $703 million sequentially, as the refreshed AssetShield series continues with its momentum and got a nice lift from the introduction of the state sheet [Phonetic].\nFIA sales at Eagle Life of $188 million represents a 2% increase versus the second quarter of 2021 and 210% increase compared to the year-ago quarter.\nWithin FIA sales at Eagle Life, the early signs of a mix shift toward income product sales albeit off a small base is visible as income product sales were up 80% [Phonetic] over the second quarter of this year.\nMultiyear fixed-rate annuity sales were up 37% over the second quarter as we entered one of the largest banks in the country as part of our distribution footprint expansion and expect to shift mix to fixed index annuities in this bank in 2022.\nExcluding one notable item, we reported non-GAAP operating income of $136 million or $1.46 per share.\nAs expected, results benefited from the completion of the in-force reinsurance transaction with Brookfield.\nIn addition, we recorded historically high levels of income from partnerships and other investment account -- investments accounted for at fair value, prepayments and other bond fees, and hedge gains.\nWith that, I'm happy to give my short-lived role as Interim CFO to our new CFO, Axel Andre.\nWe are very pleased that Axel joined the American Equity team.\nAnd over to him to go deeper into the quarter's numbers.\nFor the third quarter of 2021, we reported non-GAAP operating income of $79.5 million or $0.85 per diluted common share compared to a loss of $249.8 million or $2.72 per diluted common share for the third quarter of 2020.\nExcluding actuarial assumption updates, which was the first notable item this year and the single notable item for this quarter, operating income for the third quarter of 2021 was $136.3 million or $1.46 per diluted common share, compared with $91.1 million or $0.98 per diluted common share in the year-ago quarter.\nThe third quarter 2021 non-GAAP operating results were negatively affected by $56.8 million or $0.61 per diluted common share from updates to actuarial assumptions.\nThird-quarter 2020 non-GAAP operating results were negatively affected by $340.9 million or $3.70 [Phonetic] per diluted common share from such updates.\nOn a pre-tax basis, the effect of the third quarter 2021 updates before the change to earnings pattern resulting from these updates decreased amortization of deferred policy acquisition costs and deferred sales inducements by $161 million and increased the liability for future payments under Lifetime Income Benefit Riders by $233 million for a total decrease in pre-tax operating income of $72 million.\nThe actuarial adjustments to amortization of deferred policy acquisition costs and deferred sales inducements as well as the increase in the liability for future payments under Lifetime Income Benefit Riders primarily reflected changes in our assumptions regarding future interest margins, lapsation, mortality, and Lifetime Income Benefit Rider utilization.\nWe have updated or assumptions for aggregate spread at American Equity Life to increase from 2.25% in the fourth quarter of 2021 to 2.4% by year-end 2022, and then move modestly higher to 2.5% at the end of the eight-year reversion period, with a near term discount rate through 2023 of 155 basis points, and eventually grading to 210 basis points by the end of the eight-year reversion period.\nLast year, we had several assumptions for aggregate spread to increase from 2.4% in the near term to 2.6% at the end of the eight-year reversion period, with a discount rate of 1.6%, grading fairly linearly to an ultimate discount rate of 2.1%.\nThe effect of this change was to increase back in DSI amortization by $67 million pre-tax while increasing the liability for guaranteed lifetime income benefit payments by $77 million pre-tax as experience continues to emerge with slightly lowered lapsation, mortality, and Lifetime Income Benefit Rider utilization assumptions.\nThe combined net effect was a decrease in DAC and DSI amortization by $234 million pre-tax while increasing the reserve for guaranteed Lifetime Income Benefit payments by $159 million pre-tax.\nThe quarter included $7.6 million of additional revenues from reinsurance stemming from our Brookfield Reinsurance transaction.\nIncluded in revenues is $3.7 million [Phonetic] of asset-liability management fees and $4.9 million reflecting amortization of deferred gain on a GAAP basis.\nThese are recurring type revenues which are expected to grow over time as we migrate liabilities to the ROA business model.\nAverage yield on invested assets was 3.91% in the third quarter of 2021 compared to 3.51% in this year's second quarter.\nThe increase was attributable to an 18 basis points benefit from lower cash relative to invested assets, a 22 basis point increase from returns on partnerships and other investments accounted for at fair value, and 2 basis point increase from prepayments and other bulk [Phonetic] fee income.\nReflecting the in-force reinsurance transaction with Brookfield, cash and equivalents in the investment portfolio averaged $7 billion over the third quarter, down from $10 billion in this year's second quarter.\nThe aggregate cost of money for annuity liabilities was 151 basis points, down from 156 basis in the second quarter of this year.\nThe cost of money in the third quarter benefited from 8 basis points of hedging gains compared to 4 basis points of gains in the second quarter.\nThe slight decrease in the cost [Phonetic] of money reflects the still relatively high cost of option purchases made in the second quarter of 2020 prior to renewal rate changes that became effective in late June and July of that year.\nBrookfield in-force reinsurance transaction lowered the absolute cost of money for deferred annuities [Phonetic] in dollars by $12.9 million.\nInvestment spread in the third quarter was 240 basis points, up from 195 basis points from the second quarter.\nExcluding prepayment income and hedging gains, adjusted spread in the third quarter was 220 basis points compared to 181 basis points for the second quarter.\nShould the yields available to us decrease or the cost of money rise, we have the flexibility to reduce our rates, if necessary, and could decrease our cost of money by roughly 58 basis points if we reduced current rates to guaranteed minimums, unchanged from our second quarter call.\nExcluding the effect of assumption revisions, the liability for Guaranteed Lifetime Income Benefit payments increased $43 million this quarter after a net positive experience and adjustments of $15 million relative to our modeled expectations.\nThe better than expected result primarily reflected the benefit from continued high-index credits in the quarter, offset in part by lower lapsation in certain policy blocks and higher than modeled deliver election on Lifetime Income Benefit Rider election in certain cohorts.\nThe in-force reinsurance transaction with Brookfield lowered the expected accretion by $7 million while assumption revisions increased expected accretion by $2 million for a net of $5 million.\nDeferred acquisition cost and deferred sales inducement amortization totaled $93 million for the quarter, $12 million less than modeled expectations due to strong index credits in the quarter, offset partly by higher than modeled interest margins.\nThe in-force reinsurance transaction with Brookfield lowered the expected level of amortization expense by $7 million, while assumption revisions lower expected amortization by an additional $21 million.\nOther operating costs and expenses decreased to $57 million from $65 million in the second quarter.\nOperating costs in the second quarter included $5 million of expenses associated with tenants' transition while third-quarter operating costs reflected $2 million of savings from the recapture of finance reserves that were then seeded to Brookfield.\nWe expect the refinancing of the remaining redundant reserves to be effective as of October 1, resulting in an additional $7 million of quarterly savings going forward.\nAt September 30, cash and equivalents at the holding company were in excess of target by approximately $300 million.\nWe expect to take an ordinary dividend from American Equity Life Insurance company, the operating company, this quarter, given the excess capital position in the life companies, further growing holding company cash by year-end 2021 to be able to largely support both our 2021 and 2022 capital return plans.\nThis is a solid sign of the progress made just in the past 12 months in becoming AEL 2.0.",
        "summary": "compname says funds under management at quarter-end increase 1.1% from june 30, on $1.3 billion of sales.\namerican equity - funds under management at quarter-end increase 1.1% from june 30, on $1.3 billion of sales .\nq3 non-gaap operating earnings per share $1.46 excluding items."
    },
    {
        "text": "Dan Amos, Chairman and CEO of Aflac Incorporated will begin with an overview of our operations in Japan and the US.\nFred Crawford, President and CEO of Aflac Incorporated will then touch briefly on conditions in the fourth quarter and discuss key initiatives including how we are navigating the pandemic.\nMembers of our US executive management team joining us for the Q&A segment of the call are Teresa White, President of Aflac US; Virgil Miller, President of Individual Benefits; Rich Williams, President of Group Benefits; Eric Kirsch, Global Chief Investment Officer and President of Aflac global investments; Al Riggieri, Global Chief Risk Officer and Chief Actuary; June Howard, Chief Accounting Officer; and Steve Beaver, CFO of Aflac US.\nWe are also joined by members of our executive management team in Tokyo at Aflac Life Insurance Japan.\nCharles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director; Todd Daniels, Director and CFO; and Koji Ariyoshi, Director and Head of Sales and Marketing.\nAlthough we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature.\nActual results could differ materially from those we discuss today.\nWe encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results.\naflac.com and includes reconciliations of certain non-US GAAP measures.\nI'll now hand the call over to Dan.\nAt this time last year, it would have been very difficult to foresee the gravity of what was soon to unfold for society and for the company do to COVID-19.\nI'm proud of our employees, our sales distribution and Board of Directors for their decisive people-first initiatives we spearheaded early on in both the United States and Japan to protect our workforce and to be here for our policyholders throughout this trying time.\nWe were able to reinforce our financial strength and operations, as well as our distribution franchise with digital and virtual investments to the position of our company for the future growth.\nAdjusted earnings per diluted share excluding the impact of foreign exchange increased 10.8% in 2020.\nWhile benefiting from a lower effective tax rate, we were pleased with the results when you consider the pandemic pressure on revenues, accelerated investment in our core technological platforms and the initiatives to drive future earned premium growth and efficiency.\nInvesting in growth and innovation will continue to be critical strategic focus this year.\nThere is one central message it had been emphasizing with our management team.\nIt is imperative that we control the factors we have the ability to control and what we don't have control over, we must monitor continually to be ready to adapt.\nDespite the fact that sales in both US and Japan had been suppressed considerably due the constraints of face-to-face opportunities, we did not sit still.\nWe maintained forward motion as we absorbed accelerated investment in our platform while continuing strong earning performance.\nIn 2020, Aflac Japan generated solid overall financial results with a stable profit margin of 21.2%, an extremely strong premium persistency of 95.1%.\nThe relaunch of our new cancer rider drove a sequential improvement in both cancer insurance and total sales in the fourth quarter.\nAs a result, total sales were down 22.2% for the quarter and 36.2% for the year.\nIn Japan, we introduced our new medical product in January and even up against difficult comparisons of last January that were pre-COVID sales, it is a positive launch exceeding our expectations.\nWe are encouraged by the reception of both the consumers and our sales force.\nWhile these sales results represent sequential improvements relative to last quarter, the effective reduced face-to-face activity are evident and we continue to promote virtual sales.\nOur goal in Japan is to be the leading company for living in your own way.\nThis is a declaration of how we tailor our products to fit the needs of customers during the different stages of their lives and reach them where are they want to buy through agencies, strategic alliance and banks.\nNow turning to Aflac US, we saw a stable profit margin of 19.3% amid a year of intense investments in the future of our business and the global pandemic conditions.\nHowever, this backdrop continues to notably impact our sales results in this segment as well, largely due to reduced face-to-face activity.\nAs expected, we saw modest sequential sales improvement in the quarter with a decrease of 27.2% for the quarter and 30.3 for the year.\nIn the US, we continue to feel the impact of limited access at the work site especially among our career agents who have historically relied upon face-to-face meetings to engage small business owners and their employees.\nHowever, we remain cautiously optimistic for continued modest sequential sales improvement contingent upon the pace of the economic recovery and as a results, expect to see a wider second half of 2021.\nFred is responsible for acquisitions and he will cover that shortly.\nBut while these acquisitions may not have an immediate effect on the top line, they better position Aflac for future long-term sales in the United States.\nAs part of the Vision 2025 in the US, we seek to further develop a world where people are better prepared for unexpected health expenses, the need for the products we offer is a strong or stronger than ever has been and at the same time we know consumer habits and buying preferences have been evolving and we are looking to reach them in ways other than the traditional media and outside the work site.\nThis is part of the strategy to increase access, penetration and retention.\nEven while working remotely for the greater part of the year, we remain true to our culture and identity as a socially responsible company.\nWe stepped up our engagement with our employees through virtual town meetings and weekly touch base letters.\nAdditionally, diversity continues to play an important role at Aflac as it has for decades.\nI have always believed that in order to accomplish our goals and serve the community where we have a presence, we must surround our sales with a group of people who bring different perspectives to the table.\nWe have done that for years, at the end of 2020, nearly 50% of Aflac's US employees were minorities, 66% were women, 23% of our US senior officers were minorities and 30% were women.\nAnd then when you think of Aflac's Board of Directors, 36% were minorities and 36% were women.\nDiversity has always played an important role within ESG and [Indecipherable] with executive oversight of our ESG efforts.\nHe will provide greater detail on our 2021 key objectives.\nI've always said that the true test of strength is how one handles adversity.\nWhile pandemic conditions are ongoing, I'm pleased that 2020 confirmed what we knew all along and that is that Aflac is strong, adaptable and resilient.\nWe strive to be where people want to purchase insurance that applies to both Japan and the United States.\nIn the past, this is met meeting face to face with individuals to understand their situation propose a solution and close the sale.\nHowever, the pandemic clearly demonstrates the need for virtual means.\nIn other words, non-face-to-face sales to reach potential customers and provide them with the prediction that they need.\nTherefore we have accelerated investments to enhance the tools available for our distribution in both countries.\nRelated to capital deployment, we placed significant importance on continuing to achieve strong capital ratios in the United States in Japan on behalf of our policyholders and shareholders.\nWhen it comes to capital deployment, we pursue value creation through a balance of actions including growth investments, stable dividend growth and disciplined tactical stock repurchase.\nIt goes without saying that we treasure our record of dividend growth.\nThe fourth quarter's declaration mark the 38th consecutive year of dividend increases.\nAdditionally, the Board approved a first quarter dividend increase of 17.9%.\nOur dividend track record is supported by the strength of our capital and cash flows.\nAt the same time, we remain tactical in our approach to share repurchase, buying back $1.5 billion of our shares in 2020.\nWe have also focused on integrating the growth investments we have made in our platform.\nAs always, we are working to achieve our earnings per share objectives while also ensuring we deliver on our promise to our policyholders.\nBy doing so, we look to emerge from this period in a continued position of strength and leadership.\nI don't think it's coincidental that we've achieved our success while focusing on doing the right things, pull our policyholders, shareholders, employees, distribution channel, business partners and communities.\nIn fact, I believe that go hand in hand.\nI'm proud of what we have accomplished in terms of both our social purpose and financial results, which have ultimately translated into strong long-term shareholder return.\nNow let me turn the program over to Fred.\nI'm going to touch briefly on conditions in the fourth quarter with respect to the pandemic.\nI'll then provide an update on key initiatives in Japan and the US, Japan has experienced approximately 400,000 COVID-19 cases and 6,000 confirmed since inception of the virus.\nWhile quite low as compared to other developed countries and the US, these statistics have more than doubled since the end of the third quarter.\nEarlier this week, the government of Japan extended their state of emergency for Tokyo and 9 other prefectures through March 7.\nThis action includes the suspension of domestic tourism campaign and entry of foreigners into Japan.\nWe have responded with again moving more of our workforce to working from home, unlike the state of emergency declared last year in the initial stages of the virus.\nGovernment restrictions are more balanced with economic recovery considerations and we have not prohibited face-to-face consultations and/or closed our sales shops.\nMeanwhile, Prime Minister, Suga has announced a goal of beginning vaccinations mid-February.\nThrough the fourth quarter, Aflac Japan's COVID-19 impact totaled approximately 3400 unique claimants with incurred claims totaling JPY1 billion.\nWe continue to experience a significant reduction in paid claims for medical conditions other than COVID-19 as Japan manages hospital capacity and discourages more routine visits.\nDespite the recent rise in infection rates in Japan, we continued to track well below our stress assumptions.\nAs Dan outlined, sales have clearly been impacted, but when looking at policies in force, the impact of reduced sales on earned premium has largely been offset by improved persistency with the reduction in reported revenue driven primarily by paid up policies.\nFinally, pandemic related expenses in the quarter totaled JPY1.8 billion which includes the rollout of virtual distribution tools, employee teller working equipment and distribution support.\nTurning to the US, there are nearly 27 million COVID-19 cases and 450,000 deaths as reported by the CDC.\nFor Aflac US in 2020, COVID-19 claimants totaled 23,000 with incurred claims of approximately 71 million in the quarter and $128 million for all of 2020.\nWe are now in a better position to back test the correlation of US rates of infection to paid claims in order to build an estimate for incurred claim reserves.\nIt's fair to say this is still very difficult to estimate as IBNR often works from years of reliable data to establish trends.\nWhile our reserves assume elevated claims, we continue to see the length of stay in hospital and transition to ICU traveling below our expectations.\nWe have seen limited impact to our reported persistency numbers, however, we believe this is in part attributed to the combination of reduced sales where lapse rates tend to be much higher in the first year, and the state executive orders requiring premium grace periods.\nExecutive orders are still in place in 11 states as of the end of the quarter with 5 states having open-ended expiration dates.\nWe have reduced pressure on lapse rates through proactive work with our policyholders including converting from payroll deduction to direct bill and encouraging a review of wellness benefits.\nTurning to key operating initiatives, 2020 was an important year in setting the stage for growth once we move clear of pandemic conditions.\nBeginning with Japan after launching and promoting a simplified cancer rider in the 4th quarter, we successfully launched our refreshed medical product called EVER Prime in January.\nAs Dan noted in his comments, it's early and our associates channel is having to navigate pandemic conditions, but January medical sales are promising.\nIntroduced in October of 2020, we have technology in place to allow agents to pivot from face-to-face to virtual sales and an entirely digital customer experience.\nTrue virtual sales in Japan is relatively limited.\nIn addition, the majority of applications are still filed in paper form, although digital applications have been adopted in face-to-face consultations.\nExcluding traditional non-face-to-face means of distributing products like worksite, direct mail and call center sales, we estimate only 2% to 3% of our sales are currently digital end-to-end.\nHowever, we understand some of our agencies have significantly adopted virtual tools to supplement face-to-face consultations.\nWe have discussed our paperless initiative across all operations in Japan.\nThis is a JPY10 billion investment with approximately JPY2.8 billion spent in the fourth quarter and JPY4.8 billion spent in 2020.\nWe are projecting another JPY4.3 billion spend planned for 2021.\nThis investment has a 3-year payback and will reduce the production and circulation of over 80 million pieces of paper per year.\nIn summary, we expect the combination of product development, improved pandemic conditions and the return of Japan posed to distributing Aflac cancer insurance will drive growth as we look toward the second half of 2021.\nTurning to the US, we focused our efforts in 2020 on setting the table for 2021, including a national launch of network, dental and vision completing our group benefit acquisition and standing up our new direct to consumer digital platform.\nOn the operation side, we rolled out a new and upgraded enrollment platform called Everwell 2.0 in September, which requires time for full adoption and stabilizing the platform.\n2020 was an important year to introduce digital tools, increase adoption rates and take on any corrective action before 2021.\nIn addition, under Teresa White's leadership, we have reorganized the US forming a group benefits in individual division.\nRich Williams, will now lead our group benefits division, which includes Aflac voluntary group, Aflac network, dental, vision, Argus, our dental TPA and our new Aflac premier life, absence management and disability business.\nVirgil Miller will lead our individual benefits division, which includes Aflac's individually issued and small business focused worksite products and our new consumer market's business targeting workers not at the traditional worksite both divisions pull from shared service US operating platforms.\nThis new alignment provides focus for each division within the US business segment and allows Aflac to offer tailored products and services for our career agency teams and broker partners based on the unique markets they serve.\nLike Japan, we have all the tools in place for agents to conduct business without a face-to-face meeting.\nHowever, most sales are being driven on a continuum of face-to-face and digital interaction.\nWe estimate about 15% of our traditional individual sales are completed without some form of face-to-face interaction.\nThis excludes digital direct to consumer, which is naturally non-face-to-face.\nTurning to more specifics on our key growth initiatives, on January 12, we announced the national rollout of Aflac dental and vision.\nOur dental and vision products are now available in 40 states with more coming online throughout the year.\nThis is a broad launch that is available to large and small companies and distributed through agents and brokers.\nIn November, we closed on our Zurich Group Benefits acquisition, the new platform managed to contribute to sales in the quarter with 5 million in production.\nThis is more of a turnkey launch meaning products are filed and we are open for business in 2021 under the Aflac brand.\nFinally, we officially launched our new digital direct-to-consumer platform in the first week of January.\nWe offered critical illness, accident and cancer and are approved to sell all 3 products in approximately 30 states with more states and products coming online throughout the year.\nAs highlighted during our investor conference, we are addressing expenses over 2 horizons.\nIn 2020, we took actions to realize approximately $100 million of annualized run rate expense savings on a go-forward basis.\nActions included restricting hiring, rationalizing distribution expenses and a voluntary separation plan that resulted in a 9% reduction to our US workforce.\nLonger term expense initiatives center on our group division and the migration onto a new administrative platform as well as integration of the Zurich Group Benefits business.\nAs you are all aware, we have adopted a conservative buy-to-build acquisition strategy.\nThe build efforts taken together impacted our expense ratio in the fourth quarter by 160 basis points and is expected to impact the 2021 ratio by approximately 180 basis points.\nOur global investments team remains focused on asset quality, monitoring economic conditions and sourcing new investment opportunities.\nPortfolio actions prior to and in the early days of the pandemic lowered our exposure to prolonged economic weakness and we ended 2020 with a modest amount of asset losses.\nWe continue to watch closely our middle market loan and traditional real estate -- transitional real estate portfolios.\nWhile we have seen ratings downgrades, our portfolios are resilient consisting of diversified first-lien loans conservatively underwritten to high quality borrowers.\nWe have further refined our approach to managing the unhedged dollars in Japan, both lowering our hedge ratio and maintaining our out-of-the-money protection for extreme moves in foreign exchange.\nThese unhedged dollars provide diversification and income benefits as well as lowering our enterprise exposure to the Yen.\nAs has been our practice for 2021, we have locked in lower hedge costs with floating-rate loan yields benefiting from LIBOR floors.\nFinally, we are pleased with the performance of our strategic investment in alliance with Varagon Capital Partners during 2020 contributing to corporate investment income.\nWe are working to establish similar strategic alliances that leverage the capabilities of our asset management subsidiary and further the performance of our insurance segments.\nAs commented on by Dan, we have refocused our efforts in key areas to drive tangible ESG initiatives in 2021.\nWe are focused on the following, building off our published ESG investment policy.\nAflac Global Investments is advancing a responsible investing framework that includes the establishment of a core ESG team and formal governance process.\nWe initiated work with third-party experts to measure draft and eventually disclose a formal plan to be carbon-neutral on or before 2014 and carbon net-zero emissions on or before 2015.\nWe pledged to continue hitting key milestones on our important women and leadership initiative as part of a diversity and inclusion in Japan and targeting 30% of leadership positions in Japan filled by women by 2025.\nIn the US, we seek to advance our already strong diversity statistics by broadening our influence through identifying and providing capital to organizations that advanced diversity and inclusion as well as social justice and economic mobility.\nFinally, we pledged to advanced reporting and disclosure framework in compliance with SASB and TCFD reporting standards.\nWe will provide further disclosures on ESG initiatives in our proxy material and on our ESG hub, esg.\nWrapping up my comments, we believe the investments made in the past 2 years and accelerated during the pandemic, positioned us for future growth and efficiency in the face of what we believe to be temporary weakness in sales and earned premium.\nI'll now pass on to Max to discuss financial performance in more detail.\nWe finished the year with stable fourth quarter earnings in a year marked by significant mortality and morbidity events as well as continued low interest rates.\nFor the quarter, adjusted earnings per share increased 3.9% to $1.7 and a full year earnings per share was a record $4.96, up 11.7% year-over-year.\nAdjusted book value per share including foreign currency translation gains and losses to 19.1% both for the quarter and full year.\nThe adjusted ROE excluding the foreign currency impact was 12.1% in the fourth quarter and a respectable 15.1% for the full year, a material spread to our cost of capital.\nThis quarter benefited from favorable marks on our alternate investment portfolio to the amount of $47 million pre-tax above our long-term return expectations, a very good outcome on our building alternatives portfolio.\nWe also booked a severance charge associated with our previously announced voluntary separation program or VSP.\nIn our US and corporate segments, totaling pre-tax $43 million included in adjusted earnings.\nTurning to our Japan segment, total earned premium for the quarter declined 3.5%, reflecting mainly first sector policies paid-up impacts.\nWhile earned premium for our third sector products was down 1.9%.\nFor the full year, total earned premium was down 2.8% while totally policies in force declined by a lesser rate at 1.2%.\nAs policies in force are not impacted by the paid-up status, it tends to serve as a better indicator of the growth of the underlying business.\nPersistency has been on our positive trajectory ___[08:08]___ slightly sequentially to 95.1%, up 70 basis points year-over-year.\nJapan's total benefit ratio came in at 68.9% for the quarter, down 110 basis points year-over-year.\nAnd the third sector benefit ratio was 58.6% down 150 basis points year-over-year.\nThe main driver for the lower benefit ratio was a higher than normal IBNR release due to the sustained lower-paid claims environment in 2020.\nWe estimate that this lower the benefit ratio by roughly 130 basis points compared to what we would deem a normal IBNR release to be.\nFor the full year, the reported total benefit ratio was 69.9%, up 40 basis points year-over-year.\nAnd our third sector benefit ratio was 59.7%, also up 40 basis points year-over-year, largely due to improved persistency.\nThe expense ratio in Japan was 23%, up 130 basis points year-over-year.\nThe main driver was our people less initiative, which kicked in at a higher gear as we digitize our operations and drive efficiencies throughout the value chain to future state with significantly reduced paper usage.\nThis investment increased our quarterly expense ratio by 85 basis points.\nFor the quarter, adjusted net investment income increased 11.9% in Yen terms, led by strong returns in our alternatives portfolio, but also strong results from the loan book, like real estate and middle market loans.\nFor the full year, adjusted net investment income was 4.4%.\nThe pre-tax margin in the quarter was 20.9%, up 110 basis points year-over-year.\nAs the combined effect from the lower benefit ratio and higher expense ratio was still positive.\nFor the full year, the pre-tax margin was a respectable 21.2%.\nTurning to US results, the earned premium was down 2.3% for the quarter due to weaker sales results.\nPersistency improved 160 basis points to 79.3%.\nThis was driven by emergency orders in various states and by lower sales in 2020 as new policies lapse at a higher rate than in-force policies older than one year.\nWe're moving these factors would result in a stable year-over-year persistency rate and we view that as a good outcome to-date.\nGiven a pandemic environment's impact on our policyholders and reflecting our efforts to retain accounts and keep premium in-force.\nFor the full year, earned premium was down 0.9%.\nOur total benefit ratio came in at 51.6%, which was 250 basis points higher than Q4 2019.\nPandemic conditions continue to be very relevant when analyzing our benefit ratio.\nDue to the recent increase in infection rates, we estimate incurred claims impact of $72 million of which 58 million was an increase to IBNR, resulting in an impact to the benefit ratio of 5.1 percentage points from COVID-related claims.\nThis is somewhat offset by favorable non-COVID related claims activity generating an underlying benefit ratio of 46.5%.\nCOVID and non-COVID-related claims tend to have a negative correlation, which clearly can be seen in our quarterly results throughout 2020.\nWe would expect this pattern to continue in early 2021.\nGoing forward, we still expect the guided range of fab of 48% to 51% to be a reasonable future benefits ratio.\nOur expense ratio in the US was 43.5%, up 60 basis points year-over-year.\nThe severance charge for our VSP explains 220 basis points of the rise.\nWhile the residual is primarily driven by digital investments and the reduction in revenues, the full year expense ratio landed at 38.6%.\nAdjusted net investment income in the US was up 1.1% due to strong alternative investment income, while the portfolio book yield contracted 22 basis points year-over-year.\nFull year adjusted net investment income declined 2.1%.\nAs both the benefit and expense ratio rose, profitability did come under pressure with a pre-tax margin of 11.6% in the quarter.\nFor the full year, we still reported a solid pre-tax margin of 19.3% in line with recent historical average.\nIn our corporate segment, the pre-tax loss widened to $47 million in the quarter compared to 9 million from a year ago.\nLower net investment income on our short duration hold Holdco cash position, increased retirement expenses and $8 million of DSP severance expense were the main components of the delta.\nFor the full year, the Corporate segment pre-tax loss was $115 million.\nOur capital position remains strong and stable.\nWe ended the quarter with an SMR of north of 9% in Japan.\nAnd an RBC of approximately 525% in Aflac Columbus.\nHolding company liquidity stood at $4 billion, $2 billion above our minimum balance.\nWith a leverage of 23%, we continued to travel in the middle of our stated leverage range of 20% to 25% offering ample debt capacity.\nThe continued spread of COVID-19 leads us to remain cautious in how we manage our capital base, make investments and deploy capital to the benefit of the shareholder.\nIn the quarter, we repurchased $500 million of our own stock and paid dividends of $196 million offering good relative IRR on these capital deployments.\nFor the full year, we paid $798 million of dividends and return an additional $1.5 billion to shareholders in the form of share repurchases.\nWe will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk adjusted ROE with meaningful spread to our cost of capital.\nA recent example is the Board's decision to increase the quarterly dividend by 17.9% to $0.33 per share.\nBefore going into Q&A.\nI would characterize our 2020 financial performance as solid despite significant external challenges.\nAs we look forward into 2021, we do not see any fundamental drivers causing us to change the outlook provided at our Financial Analyst Briefing in November.\nIn order to achieve these objectives, we remain laser focused on executing on our growth initiatives, expense efficiency and continue to drive ROE at a significant spread to our cost of capital.\nCarol, we will now take the first question please.",
        "summary": "compname reports fourth quarter net earnings of $951 million, reiterates increase in first quarter cash dividend of 17.9%.\naflac - in yen terms, aflac japan's net premium income was ¥333.8 billion for quarter, or 3.5% lower than year ago.\naflac - pandemic conditions continue to impact sales results both in united states & japan, as well as earned premium & revenues.\nexpect pandemic conditions to remain with us through first half of 2021."
    },
    {
        "text": "I appreciate you joining us today to discuss our first quarter fiscal year 2022 results.\nOur positive momentum continued with another quarter of solid results, despite the continuing impact of the COVID-19 pandemic.\nCompared to the prior year period, sales were up 14% from $401 million to 405 -- $455 million and adjusted diluted earnings per share from continuing operations were up 206% from $0.17 per share to $0.52 per share.\nOur sales to commercial customers increased 52% and our sales to government and defense customers decreased 17%.\nWe are particularly pleased that our sequential growth from Q4, Q1 was 4%, notwithstanding the fact that our first quarter typically declines from our fourth quarter as a result of seasonality in our business.\nSequential growth in our commercial activities was 17%.\nThis improvement was driven by our parts businesses, which is an encouraging indicator of returning demand.\nThe strong performance in the quarter was also due to the robust demand for our airframe MRO services.\nNotably, the significant majority of our MRO volume has been on standard maintenance work as opposed to catch-up work.\nOur operating margin was 5.5% for the quarter on an adjusted basis up from 2.5% last year and 5.2% in the fourth quarter.\nFor context, our margin this quarter was actually higher than 2 years ago prior to the pandemic even though our revenue was down $86 million or 16%.\nThis performance demonstrates the operating leverage that we have created over the last 18 months by optimizing our MRO operations, exiting underperforming activities and reducing indirect and overhead costs.\nIt was another strong quarter, as we generated $18 million from operating activities from continuing operations.\nWe also continue to reduce the usage of our accounts receivable financing program.\nExcluding the impact of that AR program, our cash flow from operating activities from continuing operation was $26 million.\nSubsequent to the end of the quarter, we announced several new business wins.\nFirst, we announced an exclusive agreement with Arkwin, a TransDigm company to distribute engine actuation and other commercial aviation product.\nThis award reflects the power of our independent distribution offering to component OEMs as well as the strength of our balance sheet.\nSecond, we announced a contract with the Department of Energy for the conversion and delivery of a 737-700 aircraft modified to allow the DoE to quickly transition between passenger and cargo modes.\nLike our prior C40 aircraft delivery contract with the U.S. Marine Corps, this contract demonstrates the significant cost savings available to government customers by procuring in the aftermarket.\nFinally, we announced an extension of our component support program with Volotea, a growing low cost Spanish carrier which reflects the market's continued demand for this offering and our ability to drive, lower operating costs with superior operating performance.\nBefore turning it over to Sean, I would like to comment on the critical role that AAR in the U.S. withdrawal from Afghanistan.\nWe had over a 150 people station in country primarily in support of our WASS program.\nOver a 36 hour period, our WASS team transported approximately 2,000 U.S. embassy personnel to Kabul International Airport to support their evacuation from the country.\nAll of our employees subsequently departed the country safely as well and I'm exceptionally proud of our team support of state department personnel under very difficult circumstances.\nOur sales in the quarter of $455.1 million were up 14% or $54.3 million year-over-year.\nSales inour Aviation Services segment were up 19.8% driven by recovery in our commercial markets.\nSales in our Expeditionary Services segment were down $17.7 million, reflecting the divestiture of our Composites business and strong performance of the U.S. Air Force pallet contract in the prior year quarter.\nGross profit margin in the quarter was 14.2% versus 12.1% in the prior year quarter and adjusted gross profit margin was 16.1% versus 13% in the prior year quarter.\nThe significant improvement reflects the cost take out and efficiency initiatives we have implemented.\nAs the commercial market recovers, we would expect to continue to generate higher gross margins, given the fixed nature of some of our cost of sales and the higher margin nature of our parts business, which is not yet participated in the market recovery to the same degree as our maintenance business.\nAs we indicated during last quarter's call, one of our commercial programs contracts was terminated during the quarter.\nWe recognized $10 million of charges primarily related to this termination and an asset impairment.\nSG&A expenses in the quarter were $49.3 million or 10.8% of sales excluding severance of about $1 million, this would have been closer to 10.6% of sales.\nThis is down from 11.3% in the year ago quarter and 11.2% in Q4.\nAs a reminder, last year's results had contemporary cost savings due to salary and benefit reductions that were in place through Q2 of last year.\nNet interest expense for the quarter was $0.7 million compared to $1.6 million last year, driven by lower borrowings.\nAverage diluted share count for the quarter was $35.7 million versus $35 million for the prior year quarter.\nWith respect to Afghanistan, as we discussed on last quarter's call, we had in-country activity on 2 programs, our WASS program supporting the State Department and our C130 program supporting four Afghan Airforce aircraft.\nIn conjunction with the state department's exit from Afghanistan, we are winding down related activities and expect that to be completed later this quarter.\nThe C130 program is currently continuing with support of 2 of the 4 aircraft based in the UAE.\nIn total, our FY'21 sales in Afghanistan were $67 million, the margins on these activities were consistent with the overall WASS program, which we have described in the past as being high single-digit operating margin.\nAs John indicated, we generated cash flow from our operating activities from continuing operations of $17.5 million as we continue to reduce our rotables and inventory balances.\nIn addition, we reduced our accounts receivable financing program by $8.4 million in the quarter.\nOur balance sheet remains exceptionally strong with net debt of $80.2 million and net leverage of only 0.6 times.\nLooking forward, we expect that demand for our MRO activities will remain strong as airlines continue to focus both on readiness to support the recovery in air travel and on preserving a healthy maintenance supply chain.\nWith respect to part supply, while we saw increasing levels of activity during the quarter, we expect stable performance in the near term as a result of the uncertainty created by the Delta variant.\nOn the government side, the exit from Afghanistan as well as the programs nearing natural completion points will have a near-term impact on our business.\nHowever, our Department of Energy contract is an offsetting award that demonstrates the fundamental value proposition of our commercial best practices business model.\nIn addition, we continue to build a solid past performance history.\nAs such, we believe that over time, we remain in an excellent position to grow our government business through additional program wins and expansions of our current positions.\nBased on these near term dynamics, we currently expect overall Q2 performance to be similar to Q1.\nWhile there remains uncertainty over the timing of the recovery.\nWe are confident that a recovery will occur and we believe, we are exceptionally well positioned.\nWe have emerged from the crisis with an even stronger balance sheet, our government and commercial pipelines are full and the operating leverage we have created positions us to continue to drive further margin expansion.",
        "summary": "compname reports q1 sales of $455 mln.\nq1 adjusted earnings per share $0.52 from continuing operations.\nq1 sales $455 million versus refinitiv ibes estimate of $438.4 million."
    },
    {
        "text": "Both of these documents are available in the Investor Relations section of our website at applied.com.\nA replay of today's broadcast will be available for the next two weeks.\nThese are available at the Investor Relations section of applied.com.\nWe appreciate you joining us.\nI'll begin with some brief thoughts, and then Dave will follow to review our financial results in more detail.\nOur second quarter was characterized by cost discipline, margin control and solid cash generation within a persistent soft end market backdrop.\nExecution in these areas is providing a path to deliver our earnings and cash commitments for the year and should support accretive growth once demand rebounds as well as capital deployment opportunities going forward.\nWe also remain highly focused on accelerating our company-specific out growth potential regardless of the industrial cycle.\nAs highlighted in recent quarters, our leading technical position and service capabilities across motion control, fluid power, flow control and now automation puts us in a unique position to capture greater share organically as our customers outsource their technical MRO and production infrastructure needs.\nAs well as through M&A, a smaller players look to partner with a leading technical platform, given increasing service, operational and capital requirements.\nThis trend should supplement a strong cross-selling opportunity here at Applied that remains in the early innings, and is focused on expanding the reach of our fluid power, flow control, consumables and automation solutions across our embedded service center network customer base.\nWe also entered our second half of fiscal 2020 with a strong balance sheet, having reduced outstanding debt by $115 million over two years, post our acquisition of FCX, with net leverage down to our stated target of 2.5 times.\nCombined with our cash generation trajectory, we have notable flexibility for additional deleveraging, acquisitions and pursuing other opportunities to enhance shareholder returns in the back half of our fiscal year.\nAs it relates to the broader end market backdrop, as discussed in recent quarters and consistent with macroeconomic industrial reports, demand remains weak across our top industry verticals.\nAfter seeing some stabilization during October and November, customer activity was unusually weak during December and remained subdued with organic sales trending down in the mid-single digits year-over-year, so far in January.\nWhile softness remains broad-based declines were most notable within metals, mining, oil and gas, machinery and process-related industries.\nWe also saw greater weakness across our international operations during the quarter within Canada and Mexico.\nSome of the recent softness likely reflects demand abnormalities that occurred this time a year, given seasonality, plant shutdowns and customer budget resets, in turn making it difficult to fully gauge the underlying direction of current demand.\nWe are also cognizant of potential positive momentum that could arise if a trade resolution can stay on track, which has the potential to positively influence trends for the balance of our fiscal 2020 and into fiscal 2021.\nThat said, uncertainty remains, and we believe that sensible approach to our outlook remains prudent at this time.\nRegardless of the direction of the cycle near term, we know how to operate to it, as our industry and recent results highlight.\nAt the same time, there is a great understanding and commitment on the opportunity Applied has long-term as the leading technical MRO distribution and solutions provider.\nOur strategy is deeply focused on this opportunity and moving the company toward its long-term financial goals, providing the framework for significant earnings growth and value creation in the coming years.\nBefore I begin, another reminder that a supplemental investor deck recapping key financial and performance talking points is available on our investors site.\nTo summarize, we are managing effectively in a slow and uncertain end market environment with timely execution of our recent cost initiatives, continued solid gross margin performance and another positive quarter of cash generation.\nWe expect cash generation momentum to continue into the second half of fiscal 2020 providing ample flexibility to pursue capital deployment opportunities.\nOverall, we believe we are well-positioned in the current environment.\nHighlighting results for the quarter.\nConsolidated sales decreased 0.8% over the prior year quarter, excluding 3.2% growth contribution from acquisitions, sales declined 4% on an organic basis.\nBoth selling days and foreign currency had a neutral impact this quarter.\nAs previously highlighted, sustained weak demand across a number of key end markets remains the primary drag on sales.\nLooking at our results by segment.\nAs highlighted on Slide 6 and 7, sales in our Service Center segment declined 2.3% year-over-year or 3.5%, excluding a 1.2% incremental impact from acquisitions.\nResults reflect continued weak manufacturing activity and related MRO needs across our service center network as well as softer demand within our international operations in Canada, and Mexico.\nSegment sales were unusually weak during the month of December.\nAs mentioned earlier, we believe part of this reflects seasonal variations that occur around the holidays as customers to take time off and adjust project and production schedules.\nWithin our Fluid Power and Flow Control segment, sales increased 2.7% over the prior year quarter with acquisitions adding 7.6% growth.\nThis includes a full quarter of contribution from our August 2019 acquisition of Olympus Controls, and one remaining month of contribution from our November 2018 acquisition of Fluid Power sales.\nOn an organic basis, segment sales declined 4.9% reflecting weaker flow control sales and slower activity across our industrial OEM customer base, as well as the remaining year-over-year drag from the large project referenced in prior quarters.\nExcluding the project related drag, segment sales declined approximately 3% on an organic basis over the prior year.\nWe note declines in this segment moderated and the daily sales rate was up modestly on a sequential basis, partially reflecting improving technology end market demand during the quarter.\nMoving on to margin performance.\nAs highlighted on Page 8 of the deck, reported gross margin of 28.9% was up 4 basis points year-over-year.\nResults include a non-cash LIFO charge during the quarter of approximately $1.9 million, which compared favorably to prior year LIFO expense of $2.7 million, resulting in a roughly 9 point -- basis point positive impact year-over-year.\nExcluding LIFO, our gross margin was down a modest 5 basis points year-over-year.\nMargins were slightly pressured by an unfavorable mix impact resulting from slower growth within local accounts as compared to large national accounts in our US service center operations.\nThis modest headwind was partially balanced by ongoing execution on pricing and other margin expansion initiatives.\nOver time, we continue to expect mixed benefit margins, reflecting the positive contribution of expansionary products, growth among our technical service oriented solutions and ongoing actions to expand business across our local customer base.\nTurning to operating cost.\nOn a reported basis, selling, distribution and administrative expenses were up 0.3% year-over-year, but down 3.4% on an organic basis, when adjusting out the impact of acquisitions and foreign currency translation.\nSD&A was 21.9% of sales during the quarter, down 15 basis points sequentially on an adjusted basis.\nOur teams are doing a commendable job of managing expenses in a slower environment including their timely execution of previously announced cost actions.\nWhile, we remain highly focused on managing costs in the second half of our fiscal 2020 given the current environment.\nAs a reminder, our SD&A expense will increase on an absolute basis sequentially into our third quarter, reflecting seasonality as well as the impact of annual merit increases and two extra selling days versus the second quarter.\nThat said, we still expect SD&A to decline as a percent of sales into our second half relative to first half levels.\nEBITDA in the quarter was $74.5 million compared to $76 million in the prior year quarter, while EBITDA margin was 8.9% or 9.2% excluding non-cash LIFO expense in the quarter.\nReported earnings per share for the quarter was $0.97 per share compared to $0.99 per share in the prior year.\nCash generated from operating activities was $34.9 million, while free cash flow was $47.9 million or approximately 126% of net income.\nYear-to-date free cash flow of $93 million represents 119% of adjusted net income and is up nearly 60% from the prior year.\nWe are continuing to make good progress on our working capital initiatives in a slower demand environment.\nThis includes ongoing traction from our shared services and other collection initiatives.\nWe expect additional tailwinds into the second half of fiscal 2020, as inventory levels declined from the second quarter ending position.\nWe remain confident in our free cash flow potential for the full year, which will support our capital allocation strategy, focused on reducing outstanding debt, funding M&A opportunities, and opportunistically buying back shares.\nWe paid down $5 million of outstanding debt during the quarter.\nOur debt is down nearly $115 million since financing the acquisition of FCX with net leverage at 2.5 times EBITDA at quarter end below the prior year period of 2.8 times.\nThis represents the 11th dividend increase since 2010 and underscores our strong cash generation and commitment to delivering shareholder value.\nTransitioning now to our outlook.\nWe are narrowing our previous guidance ranges and now expect sales of down 2% to flat year-over-year or down 5% to down 3% on an organic day per day basis as well as earnings per share in the range of $4.20 to $4.40 per share.\nPreviously, our guidance assumes sales down 5% to down 1% organically and earnings per share of $4.20 to $4.50 per share.\nOur updated guidance assumes end market weakness seen during December and January continues in coming months with seasonal Q3 sales step up at the lower end of historical trends.\nAt the midpoint, this implies mid-single digit organic sales declines will persist in the third quarter, with the declines easing to the low-single digits in the fourth quarter on easier comparisons.\nBy segment, our guidance assumes mid-to low-single digit organic declines year-over-year in our service center segment during the second half and low-single digit organic declines in our Fluid Power and Flow Control segment.\nOur guidance also assumes gross margins are flat to up 10 basis points for the full year, slightly below our prior guidance of up 10 basis points to 20 basis points.\nWe continue to view 10 basis points to 20 basis points of gross margin expansion as the appropriate annual target over time, given our internal initiatives.\nLastly, we reaffirm our free cash flow outlook of $200 million to $220 million, which represents a 30% increase of our fiscal 2019 at the midpoint.\nOverall, while we are executing largely to plan year-to-date, we remain prudent with our outlook, given the backdrop of uncertainty in near term industrial demand.\nWe remained highly focused on our internal growth and margin initiatives, which in addition to potential benefits from trade resolution and ongoing cost opportunities, we see several levers that should support our earnings momentum in coming quarters if the current environment does not weaken further.\nCombined with our cash generation potential, we believe our position is strong and we are eagerly moving forward to realize our full potential.",
        "summary": "compname reports q2 earnings per share $0.97.\nq2 earnings per share $0.97.\nfiscal 2020 guidance updated, range narrowed.\napplied industrial technologies -2020 guidance now assumes non-gaap adjusted earnings per share of $4.20 to $4.40.\nreaffirm our free cash guidance of $200 million to $220 million, up 30% at midpoint for 2020.\nsees 2020 non-gaap adjusted earnings per share of $4.20 to $4.40.\nsees sales down 2% to 0% in 2020.2020 adjusted earnings per share ranges exclude fiscal q1 restructuring expenses.\napplied industrial technologies - recent quarter impacted by an unusually slow december."
    },
    {
        "text": "We had a fantastic third quarter.\nFor our combined Brokerage and Risk Management segments, we posted 17% growth in revenue, 10% organic growth and nearly 11% organic if you control for last year's large life sale that we've discussed frequently.\nNet earnings growth of 22%, adjusted EBITDAC growth of 13%.\nAnd we completed five new mergers in the quarter, bringing our year-to-date closed merger count to 19, representing nearly $200 million of annualized revenue.\nAnd if you add in the pending Willis Reinsurance merger, that number would be pushing $1 billion.\nSo the team continues to execute at a very high level, growing organically, growing through acquisitions, improving our productivity, raising our quality and, most importantly, constantly building upon our unique Gallagher culture.\nA terrific quarter on all measures.\nLet me provide a brief update on our agreement to purchase Willis Re.\nOn the regulatory approval front, we received competition clearance in five of six jurisdictions required to close, including clearance by the U.S. Department of Justice.\nThe final jurisdiction in the U.K. where the CMA is reviewing the transaction, that's the final jurisdiction.\nThat review is ongoing, but we believe we're in good shape.\nAlthough there is still work to be done, at this point, we believe we're on track for a fourth quarter closing.\nOn the integration front, hundreds of Gallagher and Willis Re professionals are hard at work, ensuring we will be well positioned to service our clients when we close.\nOur 40-year acquisition history allows us to leverage our proven M&A integration path.\nIntegration is in our DNA.\nWe're looking forward to welcoming 2,200 new colleagues to Gallagher as a family of professionals this holiday season.\nIt's really exciting to think about all the talent and expertise that will be joining us.\nIt's going to be incredible for our combined organization and our clients.\nBack to our quarterly results, starting with the Brokerage segment.\nReported revenue growth was excellent at 16%.\nOf that, 9% was organic revenue growth, at the upper end of our September IR Day expectation and nearly 10% controlling for last year's large life product sale.\nNet earnings growth was 23%, and we grew our adjusted EBITDAC 13%.\nDoug will provide some comments on third quarter margin and our fourth quarter outlook, but needless to say, another excellent quarter from the Brokerage team.\nLet me walk you around the world and break down our organic by geography, starting with our P/C operations.\nFirst, our domestic retail operations were very strong with more than 10% organic.\nResults were driven by good new business combined with higher exposures and continued rate increases.\nRisk Placement Services, our domestic wholesale operations, grew 16%.\nThis includes more than 30% organic in open brokerage and 5% organic in our MGA programs and binding businesses.\nNew business and retention were both up a point or so relative to 2020 levels.\nOutside the U.S., our U.K. operations posted more than 9% organic.\nSpecialty was 12%, and retail was a solid 6%, both supported by excellent new business production.\nAustralia and New Zealand combined grew more than 6%, also benefiting from good new business.\nAnd finally, Canada was up nearly 10% on the back of double-digit new business and stable retention.\nMoving to our employee benefit brokerage and consulting business.\nThird quarter organic was up about 5%, in line with our September IR Day commentary.\nControlling for last year's large life insurance product sale, organic would have been up high single digits and represents a really nice step-up from the 4% organic we reported for the second quarter and a 2% organic for the first.\nSo we're experiencing positive revenue momentum and really encouraging sign for the remainder of the year and 2022.\nSo total Brokerage segment organic solidly in that 9% to 10% range, simply an excellent quarter.\nNext, I'd like to make a few comments on the P/C market.\nGlobal P/C rates remain firm overall, and pricing is positive in nearly all product lines.\nOverall third quarter renewal premium increases were about 8% and similar to increases during the first half of this year.\nMoving around the world, U.S. retail premium was up about 8%, including nearly 10% increases in casualty and professional liability.\nEven workers' comp was up around 5%.\nIn Canada, premium was up about 9%, driven by double-digit increases in professional liability and casualty.\nAustralia and New Zealand combined up 3% to 4%.\nAnd U.K. retail was up about 7% with double-digit increases in professional liability, while commercial auto was closer to flat.\nFinally, within RPS, wholesale open brokerage premiums were up more than 10% and binding operations were up 5%.\nAdditionally, improved economic activity, even despite the Delta variant and supply chain disruptions, are leading to positive policy endorsements and other favorable midterm policy adjustments as our customers add coverages and exposures to their existing policies.\nSo premiums are still increasing almost everywhere.\nAs we look ahead over the coming quarters, I see the P/C market remaining difficult with rate increases persisting for quite a while.\nIn the near term, we don't see any meaningful changes in carrier underwriting appetite capacity, attachment points or terms and conditions.\nLong term, markets do not appear to be seeing a slowdown in rising loss costs.\nGlobal third quarter natural catastrophe losses, likely in excess of $40 billion, increased cyber incidences, social inflation, replacement cost inflation and supply chain disruptions.\nAnd all of this is before factoring in further increases in claim frequency as global economies recover and become even more robust.\nAll of these factors, combined with low investment returns, suggest that carriers will continue to push for rate.\nI just don't see a dramatic change for the foreseeable future.\nSo it's still a very difficult and even hard in many spots global P/C environment.\nBut remember, our job as brokers is to help our clients find the best coverage while mitigating price increases through our creativity, expertise and market relationships.\nAs we think about the environment for our employee benefits, the improved business activity, lower unemployment and increased demand for our consulting services is driving more revenue opportunities.\nAnd our customers and prospects continue to rapidly shift away from expense control strategies to plans and tactics that will help them grow their business.\nAnd with rebounding covered lives in one of the most challenging labor markets in memory, our consulting businesses are extremely well positioned to deliver creative solutions to our clients.\nSo as I sit here today, I think fourth quarter Brokerage segment organic will be similar to the third quarter, and that could take full year 2021 organic toward 8%.\nThat would be a really nice improvement from the 3.2% organic we reported in 2020.\nTo put that in perspective, 8% would be our best full year Brokerage segment organic growth in nearly two decades, and we think 2022 organic will end up in a very similar range.\nMoving on to mergers and acquisitions.\nI mentioned earlier we completed five brokerage mergers during the quarter, representing about $16 million of estimated annualized revenues.\nAs I look at our tuck-in M&A pipeline, we have more than 50 term sheets signed or being prepared, representing around $400 million of annualized revenues.\nSo even without the reinsurance merger, it's looking like we will finish 2021 strong, wrapping up another successful year for our merger strategy.\nNext, I would like to move to our Risk Management segment, Gallagher Bassett.\nThird quarter organic growth was 16.6%, even better than our September IR Day expectation.\nMargins were strong, too.\nAdjusted EBITDAC margin once again came in above 19%.\nResults continue to benefit from late 2020 and early 2021 new business wins, in addition to further improvement in new arising claims within general liability and core workers' compensation.\nJust an exceptional quarter from the team.\nLooking forward, while our fourth quarter comparison is somewhat more challenging, the recovering global economy, improving employment situation and excellent new business production should result in fourth quarter organic over 10%.\nThat puts us on track for double-digit full year organic and an EBITDAC margin nicely above 19%.\nAs I look back over the last nine months, I can't help but to be really impressed with our team and our accomplishments.\nOur commitment to our clients and to each other is evident in our successes, and that is due to our unique Gallagher culture.\nIn these challenging times, our clients are continuing to count on us, and I'm proud of our team's unwavering client focus.\nGallagher's unique culture is founded on the values in The Gallagher Way.\nThose values have kept us on a steady course throughout the pandemic.\nAnd time and time again, during these past months, our clients have shared their trust and appreciation for the value Gallagher brings to the table.\nIt comes down to talented individuals tapping into the power of our expertise across the globe, working together during this ongoing pandemic to continue to deliver for our clients.\nThat's The Gallagher Way, and it's the backbone of who we are as an organization.\nAs Pat said, a fantastic third quarter.\nThen I'll walk you through our CFO commentary document, and finish up with my typical comments on cash, liquidity and capital management.\nHeadline all-in organic of 9%, outstanding in itself, but as Pat said, really running closer to 10% due to last year's life sale.\nEither way, a nice step-up from the 6% we posted in the first quarter and the 6.8% in the second.\nAs we sit now, I'm seeing a fourth quarter organic again pushing that double-digit level.\nTurning now to Page six to the Brokerage segment adjusted EBITDAC margin table.\nUnderlying margin after controlling for the life sale was around 160 basis points.\nLet me take you through the math to get you to that.\nFirst, headline margins were down 48 basis points, right about where we forecasted at our September IR day.\nSo controlling for the large life sale would bring us back to flat.\nSecond, in September, we forecasted about $25 million of expenses returning into our structure as we emerge from the pandemic and a small amount of performance comp time.\nRecall, expenses returning mostly relate to higher utilization of our self-insured medical plans, resumption of advertising costs, more use of consultants, merit increases and a small pickup in T&E expenses.\nWe came in right on that forecast.\nSo controlling for these expenses also brings you to that underlying margin expansion of about 160 basis points.\nThat feels about right on organic in that 9% to 10% range.\nLooking forward, we think about $30 million of our pandemic period expense savings return in the fourth quarter.\nAnd if you assume, say, 9% organic, math would say we should show 90 to 100 basis points of expansion here in the fourth quarter.\nSo in the end, the headline story is that we have a really decent chance at growing our full year '21 margins by nearly 150 basis points.\nAnd that's even growing over the life sale and the return of costs as we come out of the pandemic.\nAdd that to expanding margins over 400 basis points last year means we'd be growing margins more than 550 basis points over two years.\nThat really demonstrates the embedded improvements in how we do business.\nNo matter how you look at it, it's simply outstanding work by the team.\nMoving to the Risk Management segment EBITDAC table on Page 7.\nAdjusted EBITDAC margin of 19.5% in the quarter is an excellent result.\nYear-to-date, our margins are at 19.2%, which underscores our ability to maintain a large portion of our pandemic period savings.\nLooking forward, we think we can hold margins above 19% in the fourth quarter and for the full year.\nThat would result in about 100 basis points of margin expansion relative to 2020, another fantastic margin story.\nNow let's shift to our CFO commentary document we posted on our IR website, starting on Page 4.\nYou'll see most of the third quarter items are close to our September IR Day estimates.\nOne small exception is Brokerage segment amortization expense, about $3 million below our September IR Day estimate.\nIt's simply because we finalized our valuation work on a recent '21 acquisition, which causes a small catch-up estimate change.\nFlipping to Page five in the Corporate segment table.\nSharing actual third quarter results in the blue section to our September IR estimates in gray.\nInterest and banking line on a reported and adjusted basis were both in line.\nThe non-GAAP adjustment here is that $12 million charge related to the early extinguishment of debt that we issued in May related to the terminated Aon and Willis remedy package.\nAcquisition cost line, mostly related to the Willis Re transaction, came in a bit higher than our IR Day estimate on a reported basis, but in line on an adjusted non-GAAP basis.\nWe will see some additional transaction-related costs here in the fourth quarter.\nShould have a sense of what those costs might be at our December IR Day.\nAgain, we plan on presenting these costs as a non-GAAP adjustment as well.\nOn the corporate cost line, in line on an adjusted basis after controlling for $5 million of a onetime permanent tax item, that's a noncash and it's simply a small valuation allowance related to a couple of international M&A transactions.\nAnd finally, clean energy.\nWe are increasing our full year net earnings range to $87 million to $95 million on the back of the third quarter upside.\nAs for cash and capital management and M&A.\nAs you heard Pat say, we have a strong pipeline of tuck-in merger opportunities, and that's on top of the Willis Re acquisition that we hope to close here in the fourth quarter.\nAt September 30, cash on hand was about $2.7 billion, and we have no outstanding borrowings on our credit facility.\nWe plan to use that cash, cash flow generated during the fourth quarter and our line of credit to fund our -- the acquisition of Willis Re.\nOur Brokerage and Risk Management segments combined have produced 15% growth in revenue, nearly 8% organic growth.\nWe completed 19 new mergers this year with nearly $200 million investment made at annualized revenue.\nNet earnings margin expanded 81 basis points.\nAdjusted EBITDAC margin expanded 153 basis points.\nAnd our clean energy investments are on track to being up 30% this year, setting us up nicely for substantial additional cash flows for the coming five to seven years.\nA terrific quarter, in my mind, on all measures, positions us for another great year.\nThose are my comments.\nBack to you, Pat.\nAnd Hillary, we can go to questions.",
        "summary": "qtrly total revenues $2,138.2 million versus $1,849.1 million."
    },
    {
        "text": "Joining me on the call today are Kent Masters, our chief executive officer; and Scott Tozier, our chief financial officer; Raphael Crawford, president of Catalyst; Netha Johnson, president of Bromine Specialties; and Eric Norris, president of Lithium, are also available for Q&A.\nPlease also note that some of our comments today refer to non-GAAP financial measures.\nScott will provide more detail on our results, outlook, and guidance.\nWe reported another solid quarter with net sales of $831 million and adjusted EBITDA of $218 million.\nSales improved by 11% on a year-over-year basis, while adjusted EBITDA was relatively flat compared to the third quarter last year.\nExcluding FCS from our third quarter 2020 results, our net sales were 19% higher and EBITDA was up 14%.\nScott will get into more detail on our financials in a few minutes including favorable revisions to our guidance.\nDuring our recent Investor Day, we did a deep dive into our accelerated growth strategy and provided color on how we think about the near-term expansion of our Lithium business as well as our disciplined investment approach.\nSince that event in early September, we are pleased to have announced several updates on those efforts.\nThis includes signing an agreement to acquire Guangxi Tianyuan New Energy Materials, or Tianyuan, which owns a recently built conversion plant near Qinzhou.\nWe are totaling to ensure the plant operates as advertised and expect to close this transaction in the first quarter of next year.\nThis puts us on track for first sales from this plant in the first half of next year.\nIn addition to this plant, we have signed two recent agreements for investments in China to support two greenfield projects, each initially targeting 50,000 metric tons per year.\nThese projects position us for initial added conversion capacity of up to 150,000 metric tons of lithium hydroxide on an annual basis to meet our customers' growing demands.\nIn addition, our MARBL joint venture announced the restart of the Wodgina Lithium Mine in Western Australia.\nOn Slide 5, you will see the objectives we set for 2021.\nWhen we set these goals, we did so with the intent of challenging ourselves with plans that were aggressive, but achievable.\nAs we approach the end of the year, I'm excited by the significant progress and proud of the effort our team has put into achieving these goals.\nAs you see on this slide, we have accomplished the vast majority of what we set out to do.\nFor example, we are successfully progressing high-return, fast payback Bromine projects at both Magnolia and JBC.\nThese projects will increase our capacity and improve the efficiencies of our operations.\nWe've also made significant progress on our lithium growth projects.\nFirst, at La Negra III and IV, our team continues to execute to plan.\nI'm excited to announce that we recently completed a major milestone by achieving first lithium carbonate production in late October.\nInitial production volumes will be used to qualify the plant and the material with our customers to ensure we are meeting their requirements.\nThis qualification process is proceeding on track with first sales expected in the first half of next year.\nIn Western Australia, the ongoing labor shortages and pandemic-related travel restrictions have continued to significantly impact virtually all companies in that region and show no signs of easing in the near term.\nDespite these efforts and with Herculean efforts, our team has managed to hold Kemerton I construction completion to year-end 2021.\nWe now expect Kemerton II construction completion in the second half of 2022.\nWhile we are facing challenges at these projects, our strategy to consolidate resources and prioritize the first train continues to mitigate additional risks.\nOn Slide 7, I'll highlight the progress we've made on our Wave III program since we last spoke to you at our Investor Day.\nAt the end of September, we announced an agreement to acquire Tianyuan for $200 million, including a recently built conversion plant near the port of Qinzhou designed to produce up to 25,000 metric tons of lithium per year with the potential to expand to 50,000 metric tons per year.\nWe expect this acquisition to follow a similar path as our acquisitions of Xinyu and Chengdu facilities back in 2016.\nFollowing the close of the transaction, which is expected in the first quarter of next year, we plan to make additional investments to bring Qinzhou plant to Albemarle standards and ramp to initial production of 25,000 metric tons.\nThis acquisition enables us to accelerate conversion capacity growth and leverage our world-class resource base.\nTogether with our partner, we agreed to restart operations at the Wodgina Lithium Mine in Western Australia.\nInitially, Wodgina will begin one of three processing lines, each of which can produce up to 250,000 metric tons of lithium spodumene concentrate.\nThis resource will be critical as we ramp our conversion capacity in Western Australia with our Kemerton sites.\nWe also signed agreements to invest in two greenfield conversion sites in China at Zhangjiagang and Meishan.\nWe plan to build identical conversion plants with initial target production of 50,000 metric tons of battery-grade lithium hydroxide at each site.\nThese investments offer additional optionality for future growth and have expansion potential.\nInvesting in China offers capital-efficient, high-return growth with proximity to our low-cost Australian spodumene resources and many of our major cathode and battery customers.\nWe continue to explore global expansion of our conversion capacity as the battery supply chain shifts west.\nTurning to Slide 8 for a review of our global project pipeline.\nAs you can see, Albemarle is executing a robust pipeline of projects all around the world.\nFor example, our bromine business is pursuing incremental expansions in Jordan and the United States.\nThese high-return projects leverage our low-cost resources and technical know-how to support customers in growing and diverse markets, like electronics, telecom and automotive.\nIn Chile, the Salar Yield Improvement Project allows us to increase lithium production without increasing our brine pumping rates utilizing a proprietary technology to improve efficiency and sustainability.\nIn Australia, we continue to progress study work on additional Kemerton expansions to leverage greater scale and efficiency with repeatable designs.\nFinally, in the United States, we are expanding our Silver Peak facility in Nevada to double lithium carbonate production.\nThis is the first of several options to expand local U.S. production.\nIn Kings Mountain, North Carolina, we continue to evaluate restarting our mine.\nAnd at our bromine facility in Magnolia, Arkansas, we're evaluating the process technologies to leverage our brines to extract lithium.\nWe'll continue to update you periodically on our pipeline.\nI hope this gives you a sense of the diversity and optionality Albemarle has as a global lithium producer.\nLet's begin on Slide 9.\nDuring the third quarter, we generated net sales of $831 million, an 11% increase from the same period last year.\nThis improvement was driven by strong sales for our lithium and bromine segments.\nAdjusted EBITDA was essentially flat on a year-over-year basis, resulting from the sale of FCS and increased freight and raw material costs.\nThe GAAP net loss of $393 million includes a $505 million after-tax charge related to the recently announced Huntsman arbitration decision.\nWhile we continue to assess our legal options, we have also initiated discussions with Huntsman regarding a potential resolution.\nExcluding this charge, adjusted earnings per share was $1.05 for the quarter, down 4% from the prior year.\nThird quarter adjusted EBITDA of $218 million increased by 14% or $27 million compared to the prior year, excluding the sale of FCS.\nHigher adjusted EBITDA for lithium and bromine was partially offset by a $13.5 million out-of-period adjustment regarding inventory valuation in our international locations, impacting all three GBUs.\nLithium's adjusted EBITDA increased by $25 million year over year, excluding foreign exchange.\nAdjusted EBITDA for bromine increased by $5 million compared to the prior year due to higher pricing partially offset by increased freight and raw material costs.\nVolumes were flat given the chlorine constraints in the quarter.\nAnd Catalyst adjusted EBITDA declined $4 million from the previous year.\nThis was due to lower sales and cost pressures, partially offset by higher-than-expected joint venture income, which included a favorable tax settlement in Brazil.\nSlide 11 highlights the company's financial strength that is key to our ability to execute our growth plans over the coming years.\nOur net debt to EBITDA at the end of the quarter was 1.7 times and is below our targeted long-term range of two to 2.5 times.\nThis provides us with capacity to fund growth while supporting modest dividend increases.\nWe don't expect the recent arbitration decision to impact our current growth plans, but it could temporarily reduce our flexibility to take advantage of upside growth opportunities.\nTurning to Slide 12, I'll walk you through the updates to our guidance that Kent mentioned earlier.\nHigher full year 2021 net sales and adjusted EBITDA guidance reflects our strong third quarter performance.\nNet cash from operations guidance is unchanged due to the timing of shipments to customers and increased raw materials and inventory costs.\nCapital expenditures were revised higher related to the continuing tight labor markets and COVID-related travel restrictions in Western Australia, as well as accelerated investments in growth.\nTurning to Slide 13 for a more detailed outlook on each of our GBUs.\nLithium's full year 2021 adjusted EBITDA is now expected to grow in the mid- to high teens year-over-year.\nThat's up from our previous guidance due to higher volumes and pricing.\nThe volume growth is driven primarily by tolling.\nAnd our full year average realized pricing is now expected to be flat to slightly higher compared to 2020.\nAs a reminder, most of our battery-grade lithium sales are on long-term contracts with structured pricing mechanisms that are partially exposed to the market.\nWe also benefit from stronger market pricing on shorter-term technical grade sales and on spot and tolling sales of battery-grade lithium.\nFull year 2021 average margins are expected to remain below 35% due to higher costs related to the project start-ups and tolling partially offset by productivity improvements.\nBromine's full year 2021 adjusted EBITDA growth is now expected to be in the low double digits.\nThat's also up from previous guidance due to the continued strength in demand and pricing for flame retardants.\nOur bromine volumes remain constrained due to sold-out conditions and a lack of inventory.\nThe outlook for chlorine availability has improved since last quarter, but the market remains tight and the impact of higher chlorine pricing is expected to be felt more in 2022 than in 2021 due to the timing of inventory changes and shipments.\nYear-to-date, higher bromine pricing has mostly offset higher raw material and freight costs.\nCatalyst full year 2021 EBITDA is now expected to decline between 20% and 25%.\nThat's also an improvement from our previous guidance, owing to the higher-than-expected joint venture income.\nThe year-over-year decline in adjusted EBITDA is primarily due to the impact of the U.S. Gulf Coast winter storm earlier in the year, product mix and the previously disclosed change in our customers' order patterns.\nCatalyst fourth quarter margins will also be impacted by product mix, including a greater proportion of lower-margin FCC and CFT resid orders.\nFCC demand continues to improve with increasing global fuel demand, while HPC orders continue to be delayed.\nOverall, market conditions are improving but volumes and Catalysts are not expected to return to prepandemic levels until late 2022 or 2023.\nIn total, we expect EBITDA margins to be lower in the fourth quarter due to higher raw materials, energy and freight costs across all 3 of our businesses.\nWe are closely watching several key risk factors, including global supply chain disruptions, global impacts of the energy rationing in China and chip shortages.\nSupply chain and logistics challenges are the most immediate.\nOur teams are working day and night to navigate these port issues, the lack of drivers and upstream supply disruptions to ensure our customers get their orders on time.\nWe also continue to monitor the global situation with regard to chip shortages.\nWe recognize that the auto industry has been struggling with those shortages.\nBut to date, we have not seen a direct impact on either our lithium or bromine orders.\nAnd with that, I'll hand it back to Kent.\nAs Scott mentioned, we are disappointed by the outcome of the Huntsman arbitration decision.\nBut regardless of the ultimate outcome of that dispute, Albemarle will continue to focus on the execution of our growth strategy.\nAs we highlighted during our Investor Day in September, we have a well-thought out and focused operating model that we are implementing across our businesses.\nThis model, the Albemarle Way of Excellence, provides us with a framework to execute our objectives effectively and efficiently and will help us to remain on target as we pursue significant growth opportunities ahead.\nAnd as we pursue these opportunities, we will be disciplined in our approach to capital allocation.\nOur primary capital priority is accelerating high-return growth.\nThis means that we will invest not just to get bigger but to create tangible shareholder value and maintain financial flexibility to take advantage of future opportunities.\nUtilizing this approach with our low-cost resources, we believe our annual adjusted EBITDA will triple by 2026.\nFinally, at the core of all of this is sustainability.\nAs one of the world's largest lithium producers and innovators, we were able to work closely with our customers to create value and drive better sustainability outcomes for all stakeholders.\nI'll hand over to the operator.",
        "summary": "compname reports third-quarter sales growth of 11% and increases guidance.\nq3 adjusted earnings per share $1.05 excluding items."
    },
    {
        "text": "Joining me on the call today are Kent Masters, chief executive officer; and Scott Tozier, chief financial officer.\nOur GBU Presidents, Raphael Crawford, Netha Johnson, and Eric Norris are also available for Q&A.\nPlease also note that some of the comments made today refer to non-GAAP financial measures.\nScott will provide more details on our financial results, outlook, and capital allocation priorities.\nAnd finally, I'll walk you through our 2022 objectives.\n2021 was a transformative year for Albemarle.\nOur strategic execution and ability to effectively manage the challenges of the global pandemic enabled us to capitalize on the strength of the lithium and bromine markets and generate results that exceeded expectations.\nFor the year, excluding our fine chemistry services business, which was sold in June of 2021, we increased net sales by 11% to $3.3 billion, which was in line with our previous guidance.\nAdjusted EBITDA grew 13% in 2021 to $871 million, surpassing the upper end of our guidance.\nLooking ahead, our outlook for 2022 has improved based primarily on favorable market conditions for lithium and bromine.\nWe expect adjusted EBITDA to grow between 35% and 55% versus 2021, excluding fine chemistry services.\nTo continue driving this growth, we are focused on quickly bringing capacity online with accelerated investments.\nLa Negra 3 and 4 is currently in commercial qualification, and we expect to start realizing first sales from this facility in the second quarter.\nIn November, we achieved mechanical completion of the first train at Kemerton.\nThe construction team is now dedicated to the second train, and we will be able to leverage our experience from train one to improve efficiencies and timeliness of this project.\nAnd we recently signed a nonbinding letter agreement to explore the expansion of our MARBL joint venture with increased optionality and reduced risk.\nNow looking at Slide 5.\nWe introduced this slide early last year to lay out our 2021 objectives designed to support the four pillars of our strategy: to grow profitably, to maximize productivity, to invest with discipline, and to advance sustainability.\nVirtually all the goals we set last year were met or exceeded despite challenges related to severe weather, supply chain issues, and the ongoing effects of the pandemic.\nThe focus of our people around the world is what drove our strong year and underscores our ability to deliver on our commitments.\nThese accomplishments have also set the stage for us to take advantage of the growth opportunities ahead.\nJust as important as driving growth is an ongoing dedication to strong ESG values.\nI'm very proud of what you see on Slide 6.\nSince I became CEO in 2020, one of my main priorities has been continued improvement in sustainability.\nI'm pleased to see that these efforts are increasingly being recognized externally, but it certainly isn't a new initiative for Albemarle.\nSustainability is not just doing the right thing but also doing it the right way.\nFor example, the lithium market is expected to see significant demand growth in the coming years.\nAs a leader in lithium production, we expect to be an example and help define the standards of sustainability in this market as it goes through this fundamental shift.\nNow turning to Slide 7 and more on the lithium market outlook.\nBased on our current market data, EV trends, and regular interactions with our customers, we are revising our lithium demand outlook upwards once again.\nWe now expect 2025 lithium demand of approximately 1.5 million tons, up more than 30% from our previous estimates.\nBeyond 2025, we anticipate continued growth with lithium demand of more than 3 million tons by 2030.\nEV sales growth is accelerating as consumers become more energy-conscious, governments incentivize clean energy, technology improves, and EVs approach pricing parity with internal combustion vehicles.\nIn 2021, global EV production nearly doubled to over 6 million vehicles from 3 million in 2020.\nBy the end of the decade, EVs are expected to account for close to 40% of automotive sales.\nWhen you look at last year's growth rate of nearly 50% and the auto industry's ambitions for a rapid transition to EVs, it's easy to see why demand expectations are so bullish.\nHowever, meeting this demand will be a challenge.\nTurning to our wave two projects on Slide 8.\nLa Negra 3 and 4, which will add conversion capacity for our Chilean brine resource in the Salar de Atacama, is currently in the customer qualification process.\nWe anticipate incremental volumes and revenue contribution from this project in the second quarter of this year.\nWhile there are significant changes taking place to the political landscape in Chile, we do not anticipate any material impacts to our business.\nWe support the Chilean people's right of self-determination and applaud the peaceful leadership transition in that country.\nOur team has already begun building relationships with the incoming administration.\nAs I mentioned earlier, Kemerton 1 reached mechanical completion late last year and is currently in the commissioning phase.\nThis puts us on track to begin first sales in the second half of this year.\nKemerton 2 remains on track to reach mechanical completion by the end of this year.\nThe OEMs and battery manufacturers have been investing heavily in growth, including commitments in North America and Europe, and the lithium industry must do the same.\nTurning to Slide 9.\nWe provide an overview of how Albemarle is investing to support downstream growth.\nSince our Investor Day, we have accelerated and further defined our wave three projects, including the announcement of three strategic investments in China.\nThis wave of investments will provide Albemarle with approximately 200,000 tons of additional capacity.\nThat's up from 150,000 tons of capacity originally planned for wave three.\nWe've also continued to progress our growth options for wave four.\nBased on discussions with our customers, we are analyzing options to restart our Kings Mountain lithium mine and the potential to build conversion assets in North America and Europe.\nOur vertical integration, access to high-quality, low-cost resources, years of experience bringing conversion capacity online, and strong balance sheet provide us with considerable advantages.\nI'm on Slide 10 now.\nIn China, we expect to close the acquisition of the Qinzhou conversion facility in the first half of this year.\nThis transaction is progressing well, and we continue to work through the appropriate regulatory reviews.\nThe Qinzhou plant is currently being commissioned, and we have begun tolling our spodumene to assist with that process.\nWe continue to progress the two greenfield lithium conversion projects in Meishan and Zhangjiagang.\nWe have started site clearing at Meishan and expect to break ground at Zhangjiagang later this year.\nWe expect mechanical completion of both projects by the end of 2024.\nThe restart of one of three processing lines at the Wodgina mine is going well, with first spodumene concentrate production now expected in the second quarter.\nAt Greenbushes, Talison continues to ramp production from the CGP 2 facility to meet design throughput and recovery rates.\nIn addition, the tailings project at Talison is on track.\nOur bromine business is investing in innovation and capital projects to take advantage of growth opportunities.\nWe expect new products to make up more than 10% of annual bromine revenues by 2025, up from essentially a standing start.\nThe first of these products to launch is SAYTEX ALERO, our next-generation polymeric flame retardant.\nWe first discussed SAYTEX ALERO at our Investor Day last year, and I'm excited to say that we have achieved first commercial sales in January and expect to scale production throughout the year.\nWe've also invested in the resource expansion at the Smackover formation in Arkansas, and we continue to grow our conversion and derivative capacity in both Arkansas and Jordan.\nScott, you might be on mute.\nCan you hear me now?\nI was on mute.\nI'll begin on Slide 12.\nFor the fourth quarter, we generated net sales of $894 million, which is an increase of $15 million compared to the prior-year quarter.\nThis was driven by higher sales from lithium and bromine, partially offset by the loss of revenue from our fine chemistry services business, which was sold in June 2021.\nExcluding FCS, we grew by 11%.\nThe fourth-quarter net loss attributable to Albemarle was $4 million, reflecting an increased cost estimate to construct our Kemerton lithium hydroxide plant due to anticipated cost overruns from the impact of pandemic-related issues on the supply chain and labor.\nFourth-quarter adjusted diluted earnings per share of $1.01 was down 14% from the prior year.\nThe primary adjustment to earnings per share is the $1.13 add-back of that Kemerton revision.\nExcluding FCS, fourth-quarter adjusted EBITDA was up 12% from the prior year.\nLithium results remained strong driven by higher volumes as well as higher pricing.\nBromine results were roughly flat year over year, reflecting strong performance in late 2020 and repeating it in 2021.\nAnd Catalyst improved in the fourth quarter as refinery markets continue to rebound and the business saw benefits from onetime items.\nOur second-half sales grew 13% from the first half of the year, following a relatively flat growth since mid-2020.\nThis acceleration of growth is expected to continue into 2022.\nOn Slide 14, you can see we are expecting both volume and pricing growth in all three of our business units in 2022.\nWe expect net sales of between $4.2 billion to $4.5 billion and adjusted EBITDA in the range of $1.15 billion to $1.3 billion.\nThis implies an adjusted EBITDA margin of between 27% and 29%.\nAdjusted diluted earnings per share and net cash from operations are also expected to improve year over year.\nWe anticipate healthy growth in adjusted EBITDA in all four quarters this year, and we expect Q1 to be the strongest quarter for several reasons.\nAll three GBUs are expected to benefit from lower-cost inventory sold at prices that have been raised in anticipation of inflation.\nIn the first quarter, lithium also has the benefit of strong shipments from our Talison joint venture to our partner as well as a onetime spodumene sales material produced at Wodgina on initial start-up in 2019.\nAnd finally, going forward, higher spodumene transfer pricing increases are going to increase our cost of sales and only partially be offset by higher Talison joint venture income, which is included in our EBITDA after tax.\nAnd this creates a tax-impacted EBITDA margin drive.\nAs Kent mentioned, capex is expected to increase to the $1.3 billion to $1.5 billion range this year as we accelerate lithium investments to meet increased customer demand.\nThe key actions to meet or exceed this guidance include: first, successful execution of our lithium project start-ups; second, closing the acquisition in China; third, solid performance at our sold-out plants in lithium, bromine, and FCC catalysts; fourth, continued strength in our end-use markets and favorable pricing environment; and lastly, solid procurement to combat inflation.\nLithium's full year 2022 EBITDA is expected to be up 65% to 85%, a significant improvement from our previous outlook.\nWe now expect volume growth to be up 20% to 30% for the year with the new capacity coming online as well as ongoing efficiency improvements.\nAverage realized pricing is now expected to increase 40% to 45% compared to 2021 due to strong market pricing as well as the expiration of pricing concessions originally agreed to in late 2019.\nIn some cases, as these concessions rolled off, pricing reverted to legacy contracts with significantly higher variable pricing.\nAnd as we've been saying, we've also taken the opportunity to work with our strategic customers to renegotiate contracts to more variable-rate structures.\nCatalyst EBITDA is expected to be up 5% to 15%.\nThis is below our previous outlook, primarily due to cost pressures related to high natural gas pricing in Europe and raw material inflation.\nVolumes are expected to grow across segments with overall refining markets improving.\nWe continue to see volumes returning to pre-pandemic levels in late 2022 or 2023.\nFCC volumes are already there, but HPC volumes are lagging.\nBromine EBITDA is expected to be up 5% to 10%, slightly above our previous outlook based on strong flame retardant demand supported by macro trends, such as digitalization and electrification.\nVolumes are expected to increase based on the expansions we began in 2021.\nAnd as discussed, higher pricing and ongoing cost and efficiency improvements are expected to offset higher freight and raw material costs.\nNow turning to Slide 16, I'll provide some additional color on lithium volume growth.\nThis slide shows the expected lithium production volume ramp from the new conversion facilities we expect to complete this year.\nWe begin the year with a baseload production of 88,000 metric tons in 2021, which includes Silver Peak, Kings Mountain, Xinyu, Chengdu, and La Negra 1 and 2.\nAnd you can see that this is virtually a 50-50 split of carbonate and hydroxide.\nAs our wave two projects come online, output will begin to favor hydroxide.\nGenerally speaking, we expect it to take about two years to ramp to full conversion capacity at a new plant, including approximately six months for commissioning and qualification.\nTherefore, we expect to reach our full 200,000 tons of conversion production by early 2025.\nOur capital allocation priorities remain the same.\nOur primary focus is to invest in profitable growth opportunities, particularly for lithium and bromine.\nStrategic portfolio management and maintaining financial flexibility are important levers to support this growth.\nFor example, we have divested non-core businesses like FCS and reallocated funds to organic/inorganic growth opportunities, like the expected acquisition of the Qinzhou plant.\nThe strategic review of Catalyst is progressing well and is on track for us to make an announcement of the outcome in the first half of this year.\nWe'll also continue to evaluate bolt-on acquisitions to accelerate growth or bolster our portfolio of top-tier assets.\nAs always, future dividends and share repurchases are subject to board approval.\nHowever, we expect to continue to support our dividend.\nGiven the outsized growth opportunities we see in lithium, we don't anticipate share repurchases in the foreseeable future.\nFirst, we will continue to grow profitably.\nThis means completing our wave two expansions and progressing wave three expansions to grow lithium conversion capacity and volumes.\nWe'll also focus on safely and efficiency starting up those facilities.\nNext, we will continue to maximize productivity, and this is even more important in today's environment with rising cost for raw materials.\nWe will leverage our operational discipline to offset inflation through manufacturing excellence, implementing lean principles, and embracing smart technology to improve HSE, cost, reliability, and quality.\nOur procurement cost-saving initiatives and manufacturing excellence projects will be key to offsetting higher raw materials and freight cost as we work to achieve adjusted EBITDA margin of between 27% and 29%.\nWe will invest with discipline.\nAs Scott discussed, portfolio management and maintaining our investment-grade credit rating are both high priority for us and will continue to be a focus in 2022.\nImportantly, we plan to complete the catalyst strategic review later this year, which will maximize value and set that business up for success while enabling us to focus on growth.\nFinally, we will advance sustainability.\nThat means driving progress toward our goals for greenhouse gas emissions and freshwater use and setting additional sustainability targets.\nWe'll also continue to work with our customers to improve the sustainability of the lithium supply chain by completing our mine site certifications, Scope 3 greenhouse gas assessments, and analyzing product life cycles.",
        "summary": "albemarle corporation finishes 2021 strong raises 2022 outlook.\noration finishes 2021 strong; raises 2022 outlook.\nq4 adjusted earnings per share $1.01.\nq4 sales rose 2 percent to $894 million.\nexpects that its full-year 2022 results across all business units will improve relative to full-year 2021.\nsees fy 2022 net sales $4.2 billion - $4.5 billion."
    },
    {
        "text": "Last year's results were $1.28 per share on net income of $66.3 million.\nAlthough these results were below our internal expectations for the quarter due to the impact of extreme weather and timing, we remain confident in our ability to achieve our original guidance range of $3 to $3.30 per share.\nIn a few minutes, Steve and Bob will provide additional insights in the key financial drivers for the remainder of the year.\nAt the highest level, I'd like to share a few thoughts on the extreme weather events that took place during the quarter and provide a progress update on our clean energy strategy.\nAs you know, in February of this year, a polar vortex brought extreme cold and icing conditions to much of our nation with areas, especially in the South and Southwest experiencing some of the coldest temperatures in decades.\nThese temperature extremes caused major disruption in the power and gas markets, resulting in significant operational challenges and power price volatility in a very short period of time.\nAlthough ALLETE was affected by the extreme weather during the quarter, the effects varied greatly depending on locations and the nature of our operations.\nFor example, our regulated operations performed well and customers at Minnesota Power and Superior Water, Light and Power were largely unaffected, while extreme weather in the Southwest and lower wind availability in the Midwest negatively affected our ALLETE clean energy operations and related earnings.\nALLETE's strategic geographic diversity and our diverse business mix were certainly major factors in our ability to successfully navigate this extreme event, and we believe they will continue to differentiate ALLETE with our ability to remain resilient and manage adverse economic risk.\nThere are many differing views on the preferred speed and means of the global clean energy transformation needed to address climate change.\nAs we execute ALLETE's sustainability strategy, it's critically important to us that this transition truly be sustainable for ALLETE's businesses.\nSo we're committed to addressing climate change with all of our stakeholders in mind, our customers, our communities, our employees and our shareholders throughout this critical transition.\nWhether we're talking about ALLETE's regulated or non-regulated businesses, our sustainability and action strategy provides optionality and allows time for advances in technology as well as time for our communities and our employees to transition to a secure and carbon-free energy economy.\nTurning to Slide 3.\nAs we highlighted earlier this year, a significant step forward in our commitment to sustainability as Minnesota Power's recently announced vision to deliver 100% carbon-free energy to customers by 2050.\nThis bold vision and its timing reflects how seriously we take our responsibilities to the climate, our customers and our communities.\nMinnesota Power is the first Minnesota utility to provide 50% renewable energy to our customers.\nWe reached this milestone last December, and we are continuing to move forward to reduce carbon.\nIt's important to note that the renewable energy provided by Minnesota Power consists of a diverse mix of wind, hydro, solar and biomass, and that diversity helps ensure resiliency and the reliable and affordable energy that our customers and our communities expect.\nAs detailed in our last conference call, Minnesota Power filed its integrated resource plan with the Minnesota Public Utilities Commission in February.\nThis IRP outlines our plans to further transform Minnesota Power's energy supply to 70% renewable by 2030 and to be coal free and 80% lower carbon by 2035.\nThroughout this process, we will continue our close and transparent engagement with our many stakeholders.\nFormed just 10 years ago, ALLETE clean energy is now the second largest company in the ALLETE family, with 100% renewable generation, serving many utilities as well as some of the largest commercial and industrial customers in the country.\nALLETE clean energy will drive additional clean energy sector growth, building on its strong track record of success by expanding beyond wind and additional clean energy spaces, such as solar and storage.\nWe've made significant progress on optimizing ALLETE clean energy's portfolio.\nAnd just yesterday, we announced exciting renewable energy projects in Wisconsin with two new utility customers, which Bob will discuss in a moment.\nALLETE's family of businesses offer a differentiated value proposition.\nAnd as we shared with you in February, we're committed to achieving our 5% to 7% average annual earnings per share growth objective.\nWe believe our businesses will continue to grow and thrive as society's commitment to further decarbonization only increases.\nBecause ALLETE is an early mover in this transition, we're well positioned to continue as a leader in our nation's clean energy future.\nWe aren't alone in our view.\nIn recent years, more than one external publication has recognized ALLETE as a top-tier renewable energy company, and we couldn't be more proud of that fact.\nToday, ALLETE reported first-quarter 2021 earnings of $0.99 per share on net income of $51.8 million.\nEarnings in 2020 were $1.28 per share on net income of $66.3 million.\nThe timing of income taxes and operating and maintenance expense in the first quarter of 2021 negatively impacted results compared to internal expectations by approximately $0.15 per share, which is expected to reverse during the remainder of the year.\nIn addition, net income in 2021 included an approximately $5 million or $0.10 per share negative impact related to ALLETE clean energy's Diamond Spring wind energy facility due to extreme winter weather in the Southwest United States in February 2021.\nThis winter weather event caused volatility in power prices in the regional power market, resulting in losses being incurred under one of the facility's power sales agreement.\nA few details from our business segments.\nALLETE's regulated operations segment, which includes Minnesota Power, Superior Water, Light and Power and the company's investment in the American Transmission Company recorded net income of $45 million compared to $57.5 million in the first quarter of 2020.\nEarnings reflected lower net income at Minnesota Power as compared to 2020, primarily due to lower margins resulting from the expiration of a power sales contract in 2020, lower kilowatt hour sales to industrial customers primarily due to the indefinite idling of the Verso paper mill in Duluth, Minnesota, higher operating and maintenance, property taxes and depreciation expense and the timing of income taxes.\nThese decreases were partially offset by increased earnings related to the Great Northern Transmission Line.\nNet income at Superior Water, Light and Power and our equity earnings in the American Transmission Company were similar to those reported in 2020.\nALLETE clean energy recorded first-quarter 2021 net income of $7.4 million compared to $11.7 million in 2020.\nNet income in 2021 included an approximately $5 million after-tax negative impact at ALLETE clean energy's Diamond Spring wind energy facility related to the extreme winter weather event and pricing volatility in the regional power market.\nALLETE clean energy's other wind facilities were negatively impacted by lower-than-expected wind resources.\nMegawatt hour generation was approximately 15% below our expectations for the quarter, resulting in lower revenue and production tax credits.\nTiming of income taxes of approximately $2 million negatively impacted earnings in the first quarter, which is expected to reverse during the year.\nThese decreases were partially offset by earnings from the South Peak wind energy facility, which commenced operations in April 2020.\nOur corporate and other businesses, which includes BNI Energy and ALLETE properties recorded a net loss of $600,000 in 2021 compared to a net loss of $2.9 million in 2020.\nThe lower net loss in 2021 reflects the first full quarter of contributions from ALLETE's Nobles two wind energy facility and higher earnings from marketable equity securities as compared to the first quarter in 2020.\nI'll now turn to our 2021 earnings guidance.\nDespite the negative impact due to the extreme winter weather conditions and lower-than-expected wind resources impacting ALLETE clean energy during the quarter, we remain confident in achieving our 2021 earnings guidance of $3 to $3.30 per share.\nAs I noted, total timing impacts in the first quarter of approximately $0.15 per share are expected to reverse throughout the year.\nAnd we now expect production for Minnesota Power's taconite customers to be approximately 37 million to 38 million tons.\nOur original 2021 guidance included a projection of Minnesota Power's industrial sales, which reflected a partial recovery from 2020 with anticipated production from our taconite customers of approximately 35 million tons.\nNominations from our industrial customers for production through this summer are above our original estimate, supported by strong steel production and pricing of iron ore and steel, which has improved significantly since the depth of the pandemic in 2020.\nWe anticipate this strength to continue for the remainder of the year based on external market signals, both domestically and globally.\nPrimarily driven by this positive development, we now anticipate that our regulated operations will be at the higher end of our guidance range of $2.30 to $2.50 per share.\nAnd ALLETE clean energy and our corporate and other businesses are expected to be at the lower end of our original guidance of $0.70 to $0.80 per share, primarily due to the extreme winter weather event previously discussed.\nAs already highlighted, financial results of ALLETE's businesses were impacted varying degrees by the extreme weather during the quarter, but we remain steadfast and confident in our ability to achieve our original earnings guidance range for 2021.\nAt the highest level, this confidence comes from our ability to mitigate some of the losses realized at ALLETE clean energy through expense management and an improving 2021 outlook for the economy and our large power production levels at Minnesota Power.\nAs I've expressed since the beginning of this year, achieving ALLETE's growth objective of 5% to 7% over the long term remains a focus, and we are continuing to advance and execute upon strategies to ensure that happens.\nOne of the most important initiatives is to ensure Minnesota Power is able to achieve reasonable rates of return.\nGiven the challenges of COVID and increasing investments and expenses incurred to support the clean energy transition, the company's return levels are at some of the lowest levels in decades at approximately 2% to 3% below the currently authorized level.\nIt is imperative that the financial returns of the business be improved, so that we are able to sustain our business and attract the equity and debt capital needed as we go forward.\nTowards that end, in addition to our ongoing laser focus on business efficiency improvements, we have continued to advance our preparations for our Minnesota Power rate case, which will be filed in November of this year.\nBeyond equitable regulatory outcomes, growth in our regulated businesses will be driven predominantly by sustainable clean energy infrastructure investments.\nMinnesota Power's energy forward initiatives, as outlined in our recent IRP filing, would include an unprecedented transformation of our generation fleet as well as supporting transmission and distribution investments.\nWe believe the IRP strikes an important balance of advancing and achieving clean energy goals, while ensuring our system remains reliable and cost competitive to our customers.\nWe are also pursuing other regulated opportunities, particularly in the transmission area as the MISO region continues to be challenged with constraints on the grid as renewable generation continues to expand.\nOur planned expansion of our 550-megawatt DC transmission line and our increasing investment in the American Transmission Company are prime examples of our transmission strategy already in motion.\nAlso in the transmission arena, Minnesota Power is an active member of Grid North Partners, formally known as CapX2020, a group of 10 northern cooperatives, municipal power agencies and investor-owned utilities who on March 9, 2021, announced a renewed name and focus to develop and expand transmission capacity to maintain reliable energy delivery across the northern region of the country and identify collaborative solutions to meet the region's evolving energy needs.\nMinnesota Power is one of the three investor-owned utilities involved in this powerful partnership focused on grid reliability with a proven track record of identifying, developing and implementing transmission solutions.\nOur second largest business, ALLETE clean energy, is entering a new and exciting stage of growth as it expands its service offerings beyond wind, include solar and storage solutions.\nAt the same time, the company continues to seek opportunities to optimize its existing PTC safe harbor wind turbines and enhanced returns of the existing portfolio.\nAs I stated last quarter, we are highly confident that with the expanded scale and suite of service offerings, we will be able to maintain very high levels of average annual earnings growth approaching 40% over the next 5 years.\nA recent example of our strategy in action is evident by yesterday's announcement of the Red Barn build, own, transfer project with Wisconsin Public Service Corporation and Madison Gas and Electric.\nThis 92-megawatt project not only provides an opportunity to utilize our 80% safe harbor turbines, but also expands our customer base and presence in yet another geographic region of the country.\nSubject to customary company and regulatory approvals, ALLETE clean energy plans to begin and complete construction of the facility in 2022.\nAn exciting added feature of this investment includes the acquisition of the up to 67-megawatt Whitetail development project.\nThis asset is well positioned in development with its advanced transmission and acute position, landowner relationships and provides additional optionality in the region for either a long-term PPA or build, own, transfer project.\nIn terms of an update on existing projects, recall that we had announced the Northern Wind project with Xcel Energy in February.\nThis project entails the repowering, expansion and planned sale of our energy Chanarambie and Viking wind power facility.\nI'm pleased to report that the regulatory approval and permitting process continues to advance as expected for this 2022 project.\nAs we highlighted, cash received from the transaction is earmarked for deployment into new opportunities related to our solar and storage expansion strategy, reducing the potential for future equity needs.\nOn another note, our 303-megawatt Caddo project construction continues to advance on plan for a year-end 2021 completion.\nIn summary, the demand for new clean energy solutions continues to accelerate and exceed our original expectations.\nProposed changes in federal policy from the Biden administration, such as Direct Pay of PTCs, 10-year PTC extension, clean tech parity, etc.\n, would only enhance our prospects.\nOur expanding capabilities, strong reputation and widening geographic footprint established over the past 10 years uniquely positions us to leverage these trends, helping solve customer needs and providing our investors with a rewarding value proposition as we go.\nAll of ALLETE's growth initiatives are well supported by a strong balance sheet, conservative capital structure at approximately 41% total debt and a growing base of operating cash flow already over $300 million annually.\nI'll now hand it back to Bethany.\nWe're pleased with our progress and our execution of ALLETE's strategy made all the more remarkable given the challenges of the past year.\nAnd as the economy continues to strengthen, we're excited to share more in the coming quarters.\nWe're proud of all that we've accomplished and look forward to the future as we continue to answer the nation's call for cleaner and more sustainable energy.\nOn Slide 7, there are several links to important sustainability information about our company, but I would point you to the second link document, ALLETE's first comprehensive corporate sustainability report.\nThis CSR aligns with the reporting requirements of the sustainability accounting standards board, or SASB, and the task force on climate-related financial disclosures or TCFD.\nI'd encourage you to review this document as it describes in detail ALLETE's strong commitment to sustainability in all of its forms, including diversity, equity and inclusion, our strong partnership with our communities as well as best practice governance.\nWe refer to our sustainability commitment as a commitment to people, planet and prosperity.\nWe're proud of ALLETE's track record and our work on this report, and we'll update the CSR regularly as we continue to execute our sustainability and action strategy.\nWe're a team and a company with a rich history of doing the right things the right way, and sustainability in all of its dimensions is not only a value shared by us at ALLETE, it's the very foundation of our strategy.",
        "summary": "compname says reaffirms 2021 earnings guidance range of $3.00 - $3.30 per share."
    },
    {
        "text": "Market demand, COVID-19 impacts, including operational logistics and supply chain disruptions, competition, weather, seasonality, currency-related issues, geopolitical issues and other risk factors listed from time-to-time in the company's SEC reports.\nDan will begin our call with a review of our financial results for the second quarter 2021.\nAnd I will then provide more comments on the results.\nSo Dan, go ahead, please.\nThe key takeaways from our second quarter 2021 results are: second quarter sales and earnings are up significantly over the COVID impacted prior year second quarter.\nTotal company net sales of $348 million were up 29%.\nIndustrial division net sales of $231 million were up 27%.\nAgricultural division net sales of $116 million were up 35%.\nNet income of $26 million or $2.19 per diluted share was up 100%.\nThe adjusted net income of $23.4 million or $1.97 per diluted share was up 73% and EBITDA of $44.9 million was up 30% over the prior year's second quarter adjusted results.\nAlso, our trailing 12-month adjusted EBITDA was $155.3 million, up 7% from full year 2020.\nTotal debt outstanding was reduced by $38.7 million during the second quarter, and was down 28% from the prior year second quarter.\nAnd our backlog increased 10% during the current second quarter to $503.6 million, which was up 132% over the prior year quarter.\nSecond quarter 2021 net sales of $348 million were 29% higher than the prior year second quarter.\nDuring the quarter, our top line benefited from a continued rise in order rates and backlog as well as the effect of recent pricing actions, but inbound supply chain and labor capacity issues are still constraining our growth across all lines of business.\nIndustrial division's second quarter 2021 net sales of $231 million represented a 27% increase from the prior year second quarter.\nWe saw strong customer demand and backlog growth in all of this division's product lines.\nAgricultural division second quarter 2021 sales were $116 million, up 35% from the prior year second quarter.\nDuring the quarter, strong agricultural market conditions, low dealer inventories and pricing actions continue to drive organic sales growth in this division.\nGross margin for the second quarter of 2021 was $88.1 million or 25.4% of net sales compared to $67.8 million or 25.2% of net sales in the prior year second quarter.\nExcluding $0.7 million of Morbark's inventory step-up expenses, the prior year second quarter gross margin was $68.5 million or 25.5% of net sales.\nIn the second quarter, the favorable leveraging effect from significant sales volume improvement over the COVID-impacted prior year quarter as well as aggressive pricing actions helped us maintain percentage gross margins despite a dramatic rise in material costs, production inefficiencies resulting from supply chain and labor capacity constraints and a less favorable mix of service part sales.\nOperating income for the second quarter of 2021 was $33.6 million or 9.7% of net sales, which is up 48% over the prior year quarter and up 45% when prior year results are adjusted to exclude the Morbark inventory step-up expense.\nHigher sales volume and the gross margin effects already mentioned, more than offset a more normal level of operating expenses as compared to the reduced spending levels of the pandemic-affected prior year period.\nWhile we're pleased to see this improvement, we would normally expect a double-digit operating margin percentage in the second quarter.\nOur recent pricing actions have been aggressive, but the effective impact of these actions has been lagging a continued steep rise in cost.\nThis is likely to continue until the rate of cost increases moderate.\nNet income for the second quarter 2021 of $26 million or $2.19 per diluted share was double the prior year second quarter results.\nExcluding a $2.6 million after-tax gain on a real estate sale from the current year quarter and the Morbark inventory step-up expense from the prior year quarter, second quarter adjusted net income of $23.4 million was up 73% over the adjusted prior year result.\nThis increase in adjusted net income was primarily due to the 48% improvement in operating income, but it was also helped by lower interest expense and a favorable effective income tax rate.\nSecond quarter 2021 EBITDA was $44.9 million, up 30% over the prior year second quarter adjusted EBITDA.\nTrailing 12-month EBITDA of $155.3 million is up $10.1 million or 7% above adjusted 2020 EBITDA.\nSecond quarter 2021 EBITDA was 12.9% of net sales, which was flat to the prior year second quarter adjusted results.\nDuring the second quarter 2021, we saw an $18 million net provision of cash from operating activities, despite steep volume and inflation-driven increases in both accounts receivable and inventories.\nThis, combined with the repatriation of cash from foreign subsidiaries, resulted in a $38.7 million reduction in outstanding debt during the second quarter.\nImproved turnover of both receivables and inventory accounted for this better-than-expected performance.\nWe ended the second quarter of 2021 with an all-time high order backlog of $503.6 million, which is an increase of 132% over the prior year second quarter and 10% higher than the end of the current year first quarter.\nDuring the quarter, we saw continued strong customer demand across the entire range of our industrial and agricultural products.\nTo recap our second quarter 2021 results.\nSecond quarter sales and earnings were up significantly over the COVID-impacted prior year second quarter.\nTotal company net sales up 29%.\nIndustrial division net sales, up 27%.\nAgricultural division net sales, up 35%.\nNet income, up 100% Adjusted net income, up 73%, and EBITDA, up 30% over the prior year second quarter adjusted results.\nTrailing 12-month adjusted EBITDA was up 7% from full year 2020.\nTotal outstanding debt was reduced by $38.7 million during the second quarter, and our backlog increased 10% during the second quarter to $503.6 million.\nIt's an honor to succeed Ron Robinson, who's had an exemplary 22-year period as our CEO.\nThis is certainly an interesting time to step in as CEO with the many positive and challenging trends that are influencing business at the moment.\nOver the past few months and certainly throughout the second quarter, coronavirus vaccination rates steadily improved across many countries, economies reopened and people became more confident about returning to more normal daily routines.\nWhile recovery from the pandemic is not yet evident in all of our markets, North America and Europe have rebounded strongly, and we experienced a further resurgence of activity in our markets in the second quarter.\nCustomer ordering activity remained at a healthy level, and our backlog increased to another new record at the end of the quarter.\nUnfortunately, many raw material suppliers and industrial component manufacturers have not been able to add capacity fast enough to meet the higher demand.\nCertain critical components such as computer logic chips remain in severe shortage, and logistics networks are strained.\nManufacturers such as Alamo Group rely on a stable supply chain and efficient logistics network to allow us to meet our customers' needs in a timely manner.\nA shortage of skilled workers has further limited the ability of manufacturers to add capacity, most notably in North America.\nFinally, the combination of shortages and high demand has led to cost inflation in the raw materials and components that are needed to support our production requirements.\nFor example, steel prices continue to rise sharply and were up by double digits again in the period.\nLike most manufacturers, Alamo Group is not immune to these issues, and our teams have had to work flexibly and creatively to deliver another solid performance for the quarter.\nContinuing the trend of the last several quarters, our agricultural division produced strong second quarter results.\nThe ag market has consistently held up better during the pandemic, largely due to the combined effects of several positive trends.\nFirst, after several years of soft conditions, dealer inventories were low when demand began to accelerate, and they remain low now as demand continues to outpace deliveries from OEMs to dealers.\nAlso, crop prices have been steadily rising since August of 2020, giving professional farmers the confidence to invest in maintenance or replacement of their equipment.\nSimilarly, livestock prices have been rising given the same increased confidence to ranchers.\nFinally, the pandemic has led to more people to seeking rural lifestyles, increasing investments in land and the essential equipment to maintain it.\nAs a result of these combined trends in the market, in the second quarter, our agricultural division enjoyed steady growth in orders and sales, not only in North America and Europe, but also in markets such as Brazil and Australia.\nThe industrial division also reported solid improvements in both sales and earnings in the second quarter.\nThe impact of the pandemic on governmental budget has not been as severe as previously expected, and activity in this market continued to improve sequentially during the period.\nMunicipalities in the United States benefited from the very strong real estate market that has increased property taxes that are a major source of their revenue.\nAlso, stimulus actions taken by national governments in North America and Europe helped agencies at the state and local level offset lower revenue from income taxes and fees as employment fell as a result of pandemic.\nDuring the second quarter, the industrial division sales to governmental agencies continued to accelerate but they've not quite fully recovered to the levels achieved before the onset of the pandemic.\nNongovernmental markets for the industrial divisions products also improved in sectors such as forestry, land clearing, petrochemicals, utilities and steel during the second quarter as most world economies took steps to reopen.\nThis was evident in improved sales of the division's large wood grinders, vacuum trucks and excavators.\nAlso, by the end of the quarter, utilization of our vacuum truck rental fleet was very close to pre-pandemic levels.\nThe industrial division was impacted by sharply higher steel costs, shortages of important hydraulic components, logistics delays and skilled worker shortages.\nWhile this division also took significant price actions to protect margins, the longer delivery cycles associated with the division's products means that it will take somewhat longer for the higher prices to be fully evident in its results.\nConsidering the many operational challenges we faced in the second quarter, I'm pleased with the results we've achieved.\nI'm also proud that our teams quickly reacted to these challenges to mitigate the impact on our results to the fullest extent possible.\nI'm also pleased that we further reduced our debt this quarter and continued to strengthen the company's balance sheet.\nThis positions the company well to take advantage of acquisition opportunities that may arise, and what's proving to be an active M&A season.\nWith Alamo Group's record order backlog of nearly $504 million, the company's outlook continues to look promising although it doesn't now appear that the cost pressures, component shortages and tight labor market are likely to meaningfully improve during the remainder of 2021.\nOne issue that remains of concern is the spread of the de-strain of COVID that has emerged over the past few weeks.\nAlthough evidence suggests that vaccinations reduce both the frequency and seriousness of COVID infections, another significant wave of coronavirus illness could adversely affect our performance.\nOn balance, though, I remain confident that our teams will continue to react appropriately as conditions in our operating environment involved, and that Alamo Group will continue to deliver solid results this year.",
        "summary": "q2 adjusted earnings per share $1.97.\nq2 earnings per share $2.19."
    },
    {
        "text": "Yesterday, on the close of the market, we issued our news release and investor supplement and posted related materials on our website at allstateinvestors.com.\nOur management team is here to provide perspective on these results.\nLet's start on Slide two.\nToday, we're going to link operating results and strategy in order to show how we expect to continue to generate shareholder value.\nSo Allstate's strategy has two components: increase personal profit liability market share; and expand protection solutions, which are shown in the two ovals on the left.\nThe Transformative Growth plan to increase market share and personal profit liability has four components.\nThis strategy will drive market valuation by executing, innovating and focusing on long-term value creation.\nSo in the first half of the year, we executed well for customers, we executed well financially and for shareholders, as you can see on the right-hand panel.\nProperty-Liability market share increased by approximately one percentage point due to the acquisition of National General.\nAllstate Protection Plans continue to grow rapidly by broadening the product offering to include appliance and furniture and expanding availability through Home Depot stores.\nStrong execution generated excellent financial results, with revenues increasing 23.8% compared to the prior year, adjusted net income of $3 billion and a return on equity of 23.8% for the last 12 months.\nShareholders benefited from a 50% increase in the quarterly common dividend and a reduction in outstanding shares by 2.4% just this year under the current $3 billion share repurchase program.\nYesterday, the Board approved a new $5 billion common share repurchase program, which represents approximately 13% of current market capitalization, and we expect to complete that by the end of March of 2023.\nLet's continue on Slide three.\nIn addition to operating execution, we're innovating to create long-term value.\nThe Transformative Growth plan to create a digital insurance company is making good progress.\nToday, we're going to spend time talking about the distribution component of that plan.\nAllstate is among the leaders in telematics capabilities with Drivewise in the industry's largest pay-per-mile product Milewise, which offers customers unique value.\nArity, our telematics service platform company, recently launched Arity IQ, which, when combined with LeadCloud and Transparent.\nly platforms, will integrate telematics information into pricing at the time of quote rather than at the times after the sale.\nWe enhanced our competitive position in independent agent channel by using National General to consolidate and improve our IA business model.\nWe executed agreements to sell Allstate Life Insurance Company and Allstate Life Insurance Company of New York to redeploy capital out of lower growth and return businesses and reduce exposure to interest rates.\nIncreasing market share, while maintaining attractive returns and expanding protection solutions through transformation, targeted acquisitions and divestitures will create shareholder value.\nSlide four lays out the Allstate's strong second quarter performance.\nRevenues of $12.6 billion in the quarter increased 21.6% compared to the prior year, largely reflects the National General acquisition and higher net investment income.\nProperty-Liability premiums earned and policies in force increased by 12.9% and 12.1%, respectively.\nNet investment income of $974 million increased by over $0.75 billion compared to the prior year quarter, reflecting $649 million of income from the performance-based portfolio.\nNet income of $1.6 billion was reported in the second quarter compared to $1.2 billion in the prior year.\nAdjusted net income was $1.1 billion or $3.79 per diluted share, as you can see from the table on the bottom.\nThat's a 40% increase from the prior year quarter.\nAllstate's excellent execution and strong operating results in the quarter contributed to that return on equity, which I just mentioned, of 23.8% over the last 12 months.\nLet's move to Slide five to discuss our progress on building Transformative Growth business models.\nSo Transformative Growth, it's a multiyear initiative, and what we're working to do is build a low-cost digital insurer with broad distribution, and that's going to be accomplished through four areas: expanding customer access, improving customer value, increasing sophistication and investment in customer acquisition, and deploying new technology ecosystem.\nIn Transformative Growth, you wouldn't do it all in one day, of course, so it's got five phases, and substantial progress has been made in Phases two and three.\nPhase two successes include improving the competitive price position of auto insurance, protecting margins by reducing costs.\nNew advertising was launched with increased investment.\nWe also are off to an excellent start with National General.\nAnd of course, the phases overlap, so progress is also being made in Phase three.\nSo we're transforming the distribution platform, including supporting transition of Allstate agents to higher-growth and lower-cost models, which we'll discuss on the next slide.\nImproving customer acquisition sophistication will lower cost relative to lifetime value.\nWe continue to focus on lowering underwriting claims expenses to deliver lower-cost protection to customers, and we've designed a new technology architecture.\nWe've coded much of the new applications.\nThe next step for us is to launch an integrated system with one product in one state.\nTurning to Slide six.\nLet's review how we're transforming the Allstate agent, Allstate direct sales and independent agent distribution platforms to grow market share.\nThe illustrative slides on the right side of the slide show -- provide a view into our growth expectations by channel over time.\nStarting with Allstate exclusive agents, we're making progress transitioning to a higher-growth and lower-cost model.\nThis year, we changed agent compensation by increasing new business compensation opportunity and reducing of bonus paid on policy renewals.\nWe expect to continue this shift from renewal compensation to new sales because it aligns with what consumers want.\nConsumers want assistance with purchasing insurance more than they want routine policy service.\nTo lower cost for agents, we're digitizing processes, redesigning products to increase self-service and expanding centralized service support.\nWe're also working to reduce agent operating expenses and real estate costs.\nThese changes will improve the customer value proposition with lower cost and easier service.\nNow of course, you're not going to do this in one day either, so a multiyear transformation -- transition program is in place to support existing agents.\nWe've initiated it, and it has different levels of support based on agent performance.\nGiven this transition, we reduced new agent employment last year, which has had a negative impact on new business levels.\nBut as Mario will discuss next, this has been offset by higher productivity from existing agents.\nAt the same time, we have two new agent models in market, which have personal touch but a lower cost structure.\nAll of these changes are supported by more competitive auto insurance pricing and increased marketing spending, which is designed to continue to grow.\nBut as you can see on the right, the net impact of these changes for the Allstate agent channel is to be flat to a slight decline in sales in the short term but increased growth thereafter.\nThe Allstate direct sales effort leverages the capabilities that we built for the Esurance brand, and we've shifted our advertising focus away from Esurance to be totally focused on the Allstate brand and utilizing the direct channel for Allstate-branded sales as well.\nAnd pricing is lower than the Allstate agent model since it doesn't come with the help of an agent.\nAnd as this business grows, we're improving our operational and marketing effectiveness.\nDirect sales now represent 29% of new auto business sales, and we expect that to continue to grow rapidly, as you can see on the right.\nIndependent agent distribution also represents an attractive growth opportunity.\nThe acquisition of National General enhanced our capabilities in this channel, and it added four million policies in force.\nAdditional growth is expected by broadening the product portfolio from high-risk drivers to middle-market auto and home insurance through the existing agent relationships.\nWe also expect to increase the number of agents actively engaged in selling National General products.\nSo when you combine this effective and efficient distribution with more competitive auto insurance pricing, enhanced marketing, advanced pricing and telematics and a digital experience, that's the Transformative Growth plan that will drive Property-Liability market share growth.\nSo Mario will now discuss the second quarter results in more detail.\nTurning to Slide seven.\nLet's dive deeper into the near-term results on our multifaceted approach to grow Property-Liability market share.\nAs you can see in the chart on the left side of the slide, Property-Liability policies in force grew by 12.1% compared to the prior year quarter primarily driven by National General and growth in Allstate brand new business.\nNational General, which includes Encompass, contributed growth of four million policies, and Allstate brand Property-Liability policies increased in the quarter driven by growth in homeowners and other personal lines.\nAllstate brand auto policies in force declined slightly compared to the prior year quarter but increased sequentially for the second consecutive quarter, including growth of 111,000 policies compared to prior year, and as you can see by the table on the lower left.\nThe chart on the right shows a breakdown of personal auto new issued applications compared to prior year.\nWe continue to make progress in building higher-growth business models as we look to achieve leading positions in all three primary distribution channels.\nThe middle section of the chart on the right shows Allstate brand impacts by channel, which in total generated a 6.7% increase in new business growth compared to the prior year.\nModest increases from existing agents, excluding new appointments, and a 31% increase in the direct channel more than offset the volume that would normally have been generated by newly appointed agents, as we pilot new agent models with higher growth and lower costs.\nThe addition of National General also added 481,000 new auto applications in the quarter.\nThe recorded combined ratio of 95.7% increased 5.9 points compared to the prior year quarter.\nThis was primarily driven by increased losses relative to the historically low auto accident frequency experienced in the prior year quarter due to the pandemic.\nIncreased losses were partially offset by lower pandemic-related expenses primarily shelter-in-place paybacks in 2020 as well as lower catastrophe losses.\nThese are represented by the green bars in the combined ratio reconciliation chart on the lower left of the slide.\nShifting to the chart on the bottom right, we continue to make progress in reducing our cost structure.\nThis enables improvement in the competitive price position of auto insurance and investments in marketing and technology, while maintaining strong returns.\nThe total Property-Liability expense ratio of 24.7% in the second quarter decreased by 7.1 points compared to the prior year, again, driven by lower coronavirus-related expenses.\nThis was partially offset by the amortization of purchased intangibles associated with the acquisition of National General, restructuring charges and a 0.7-point increase from higher investment in advertising.\nExcluding these items, as shown by the dark blue bars, the expense ratio decreased by 0.4 points in the second quarter compared to the prior year period, decreased 1.7 points below year-end 2019 and 2.5 points below year-end 2018, reflecting continued progress in improving cost efficiencies.\nClaims expenses have also been reduced through innovations such as QuickFoto Claim, Virtual Assist and aerial imagery, which also improves the customer experience.\nThese claim improvements are not reflected in the expense ratio but are in the loss ratio and also helped maintain margins.\nMoving to Slide nine, let's discuss how our auto insurance profitability, which remains very strong and is still favorable to prepandemic levels despite pandemic-driven volatility.\nAllstate Protection auto underlying combined ratio finished at 91.8%.\nAs you can see from the chart, the level remains favorable to 2017 through 2019 historical second quarter and year-end levels despite increasing by 9.4 points compared to the prior year quarter.\nThe increase to the prior year quarter reflects a comparison to a period with historically low auto accident frequencies.\nThe improvement relative to historical levels is driven by auto accident frequency remaining below prepandemic levels, partly offset by auto severity increases and competitive pricing enhancements.\nTo illustrate the pandemic-driven volatility, Allstate brand auto property damage gross frequency increased 47.3% from the prior year quarter but is 21% lower than the same period in 2019.\nAuto severity increases persisted relative to the prior year quarter and prepandemic periods across coverages, largely driven by the shift in mix to more severe, higher-speed auto accidents and rising inflationary impacts in both used car values and replacement part costs.\nThe incurred severity increases are running higher than general inflation, which are reflected in the recorded combined ratio.\nTo counteract rising severity, we are leveraging advanced claim capabilities, predictive modeling, advanced photo and video utilization and deep expertise in repair process management to enable a scaled response to inflation and supply constraints.\nTargeted price increases will also be implemented, as necessary, to maintain attractive auto insurance returns.\nNow let's shift to Slide 10, which highlights investment performance for the second quarter.\nNet investment income totaled $974 million in the quarter, which was $754 million above the prior year quarter, driven by higher performance-based income as shown in the chart on the left.\nPerformance-based income totaled $649 million in the second quarter, as shown in gray, reflecting both idiosyncratic and broad-based valuation increases in private equity investments and, to a lesser extent, gains from the sales of real estate equity.\nMarket-based income, shown in blue, was $3 million above the prior year quarter.\nThe impact of reinvestment rates below the average interest-bearing portfolio yield was mitigated in the quarter by higher average assets under management and prepayment fee income.\nOur total portfolio return in the second quarter totaled 2.6%, reflecting income as well as higher fixed income and equity valuations.\nWe take an active approach to optimizing our returns per unit risk over appropriate investment horizons.\nOur investment activities are integrated into our overall enterprise risk-and-return process and play an important role in generating shareholder value.\nWe draw upon a deep and experienced team of roughly 350 professionals to leverage expertise in asset allocation, portfolio construction, fundamental research, deal leadership, quantitative methods, manager selection and risk management.\nWhile the results for this quarter were exceptionally strong, particularly for the performance-based investments, we managed the portfolio with a longer-term view on returns.\nAt the right, we have provided our annualized portfolio returns over a three-, five-, and 10-year horizon.\nAs disclosed in our investor supplement, our performance-based portfolio has delivered an attractive 12% IRR over the last 10 years, which compares favorably to relevant public and private market comparisons.\nOur performance-based strategy takes a longer-term view, where we seek to deliver attractive absolute and risk-adjusted returns and supplement market risk with idiosyncratic risk.\nMoving to Slide 11.\nProtection Services continues to grow revenue and profit.\nRevenues, excluding the impact of realized gains and losses, increased 27.1% to $581 million in the second quarter.\nThe increase was driven by continued rapid growth in Allstate Protection Plans and expanding marketing services at Arity due to the integration of LeadCloud and Transparent.\nly, which were acquired as part of the National General acquisition.\nPolicies in force increased 15.5% to $147 million, also driven by Allstate Protection Plans and supported by the successful launch with the Home Depot in the first quarter.\nAdjusted net income was $56 million in the second quarter, representing an increase of $18 million compared to the prior year quarter driven by profitable growth at Allstate Protection Plans and profits at Arity and Allstate Identity Protection.\nAllstate Protection Plans generated adjusted net income of $42 million in the second quarter and $155 million over the past 12 months.\nNow let's move to Slide 12, which highlights Allstate's attractive returns and strong capital position.\nAllstate continued to generate attractive returns in the second quarter with adjusted net income return on equity of 23.8% for the last 12 months, which was 5.8 points higher than the prior year.\nExcellent capital management and strong financial results have enabled Allstate to return cash to shareholders, while simultaneously investing in growth.\nWe continue to provide significant cash returns to shareholders in the second quarter through a combination of $562 million in share repurchases and $245 million in common stock dividends.\nWe announced the acquisition of SafeAuto in June, leveraging National General's success in integrating companies to accelerate growth.\nThe current $3 billion share repurchase program is expected to be completed in the third quarter.\nAnd yesterday, the Board approved a new $5 billion share repurchase authorization to be completed by March 31, 2023.\nThis represents approximately 13% of our current market capitalization.\nThis new authorization continues Allstate's strong track record of providing cash returns to shareholders and reflects, in part, the deployable capital generated by the sale of our life and annuity businesses.\nMoving to Slide 13.\nIt should be clear that Allstate is an attractive investment opportunity.\nWhen you invest in Allstate, you get ownership of a company with advanced capabilities and a clear strategy, delivering superior financial results relative to peers and the broader market.\nThe table below shows Allstate across key financial metrics over the past five years compared to the S&P 500 and property-casualty insurance peers with a market cap of $4 billion or more.\nAs you can see by the four measures on the top, operating EPS, operating return on average equity, cash yield and total shareholder return, Allstate is consistently ranked in the top two or three among its peers.\nIn the case of operating earnings per share and cash yield to common shareholders, Allstate is in the top 10 and top 15%, respectively, compared to the S&P 500.\nMoving down one row, Allstate's top line revenue growth relative to peers and the S&P 500 is in the middle of the pack.\nWe are committed to accelerating top line performance through Transformative Growth and innovating protection, while continuing to deliver excellent financial results.\nMoving down to the price-to-earnings ratio.\nAllstate is well below average, eight out of 10 P&C peers, and in the 10th percentile among the S&P 500.\nThis is an attractive valuation given our market-leading capabilities, excellent returns, future growth prospects and commitment to accelerate growth.\nI've turned to Slide 14.\nLet's finish where we started with a more macro and longer-term view of Allstate's execution, innovation and long-term value creation.\nAnd this is the whole report card.\nThis is what you get by investing in Allstate.\nEmpowering customers with protection is a core part of our shared purpose.\nWe provide a broad set of protection solutions with over 180 million protection policies in force.\nYou see our name whether you're watching TV, you're in Walmart, you're in Target, you're in Costco, you're in Home Depot.\nAllstate is ubiquitous out there protecting customers.\nWe constantly achieve industry-leading margins on auto and home insurance and have attractive risk-adjusted investment returns.\nAs a result, the adjusted net income return on equity has averaged 15.6% from 2016 to 2020, ranking number two in our peer group.\nThis has led to a 14.9% annualized total shareholder return over the last five years.\nWe have a history of innovation.\nTransformative Growth is a multiyear personal, Property-Liability strategy to build a digital platform that offers low-cost, affordable, simple and connected protection solutions.\nWe're simultaneously innovating protection by expanding through telematics, product warranties and identity protection.\nIn telematics, we've taken a broad and aggressive approach with the insurance offerings and the creation of Arity, a leading telematics business.\nAllstate is also innovating in corporate citizenship, focusing on climate change, privacy and equity.\nFor example, we used an underwriting syndicate for our $1.2 billion bond offering last year that was exclusively minority women and veteran-owned banking enterprises.\nLong-term value is also being created through proactive capital management and strong governance.\nOver the past five and 10 years, we've repurchased 25% and 50%, respectively, of outstanding shares.\nAmong the S&P 500, Allstate is in the top 15% of cash provided to shareholders.\nAt the same time, we've successfully invested over $6 billion in acquisitions, including Allstate Protection Plans, Allstate Identity Protection and National General.\nAnd of course, strong governance is key to delivering those results.\nAllstate has an experienced and diverse management team and Board with relevant expertise.\nExecution, innovation and long-term value creation will continue to drive increased shareholder value.",
        "summary": "q2 adjusted earnings per share $3.79.\nq2 revenue rose 21.6 percent to $12.6 billion."
    },
    {
        "text": "A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC.\nI'll now turn the meeting over to Dave.\nAMETEK delivered excellent results in the first quarter was stronger than expected sales growth and outstanding operational execution leading to earnings above our expectations.\nWe returned to organic sales growth earlier than expected.\nAnd as the economy continues its recovery, we are experiencing strong orders growth resulting in a record backlog.\nOperationally, our businesses are performing at a high level, delivering impressive margin expansion and strong cash flows.\nAdditionally, we started the year with a notable level of acquisition activity, deploying a record $1.85 billion on five acquisitions thus far in 2021.\nThese acquisitions combined with our strong first quarter results and solid orders momentum led us to substantially increase our full year sales and earnings guidance.\nAMETEK's success in navigating this difficult environment is a testament to the dedicated and highly talented employees across the company.\nWhile we are encouraged with the acceleration of the vaccine rollout, we remain focused on the health and well-being of our employees and we'll remain vigilant in ensuring proper safety protocols are being followed.\nNow let me turn to the first quarter results.\nOverall sales in the quarter were up 1% versus the prior year to $1.22 billion.\nOrganic sales were up 1% with the divestiture of Reading Alloys being offset by a two point foreign currency tailwind.\nOverall, orders in the quarter were a record $1.4 billion, up 16% compared to the same period last year, with organic orders up 9%.\nThis led to a book-to-bill of 1.15 and a record backlog of $2 billion.\nWe are encouraged by the strong orders as many of our businesses are seeing improved demand conditions across our markets, while some of our longer cycle businesses have yet to return to growth.\nOperating income in the quarter was $293 million, a 6% increase over the first quarter of 2020.\nOperating margins expanded an impressive 110 basis points to 24.1%.\nEBITDA in the quarter was $356 million, up 4% over the prior year, with EBITDA margins of 29.2%.\nThis outstanding operating performance led to earnings of $1.07 per diluted share, up 5% versus the first quarter of 2020 and above our guidance range of $0.97 to $1.02.\nCash flow in the quarter was also very strong with operating cash flow of 5% to $284 million and free cash flow conversion of 122% of net income.\nLet me provide some additional details at the operating group level.\nOur Electronic Instruments Group and Electromechanical Group reported outstanding results in the first quarter, with both groups delivering positive organic sales growth and impressive margin expansion.\nSales for Electronic Instruments Group in the quarter were $791 million, up 2% over last year's first quarter driven by modest organic sales growth and a 1.5% foreign currency tailwind.\nEIG's operating income in the first quarter was $207 million, up 7% versus the same quarter last year and operating margins expanded an impressive 110 basis points to 26.2%.\nThe Electromechanical Group also delivered strong operating performance in the quarter with positive organic sales growth driven by strong demand in our automation business.\nEMG's first quarter sales were $425 million, down 1% versus the prior year.\nOrganic sales were up 2% in the quarter, while the divestiture of Reading Alloys was a five point headwind and foreign currency was a two point tailwind.\nEMG's operating income was a record $105 million in the quarter, up 8% compared to the same quarter last year, and EMG's operating margins expanded an exceptional 190 basis points to a record 24.7%.\nNow turning to acquisitions.\nAs we have discussed, acquisition activity slow considerably in 2020 due to the pandemic.\nDuring this time, we acted swiftly to appropriately align our cost structure with the demand environment and to protect and further strengthen our balance sheet to support a meaningful return of M&A in 2021.\nAt the same time, we communicated that our business and acquisition teams remain very active and managing our pipeline of acquisition opportunities.\nThese actions positioned us to capitalize on an improving acquisition environment in a significant manner, deploying $1.85 billion to acquire five excellent businesses, thus far this year.\nNow, let me take a moment to provide additional color on these deals.\nI'll start with AMETEK's largest ever acquisition, Abaco Systems, headquartered in Huntsville, Alabama.\nAbaco is a leading provider of mission-critical embedded computing systems used on key aerospace and defense platforms, along with specialized industrial applications.\nAbaco's open architecture computing and electronic systems are ruggedized to meet military standards and withstand harsh conditions, including extreme temperatures, altitude and high vibration.\nAs a leading provider of differentiated technology solutions serving attractive, high-growth applications, Abaco nicely complements and expands our existing aerospace and defense platform.\nAbaco has approximately $325 million in annual sales, and we deployed $1.35 billion on the acquisition.\nNext, Magnetrol International, based in Aurora, Illinois, Magnetrol is a leading provider of level and flow control solutions for challenging process applications across a diverse set of end markets, including medical, pharmaceutical, oil and gas, food and beverage and general industrial markets.\nMagnetrol's outstanding strategic fit, weather sensors, test and calibration business.\nCombined, these businesses form an industry-leading sensor platform with a broad range of level and flow measurement solutions.\nMagnetrol has annual sales of approximately $100 million, and we deployed $230 million on the acquisition.\nToday, we announced the acquisition of NSI-MI Technologies, a leading provider of radio frequency and microwave test and measurement solutions based in Suwanee, Georgia.\nNSI-MI is an exciting addition to our test and measurement platform, given their deep expertise and advanced RF and microwave technologies.\nThey're highly differentiated test and measurement solutions are uniquely positioned to support the continued development of advanced RF and microwave technologies for critical, high-growth applications including 5G wireless communications, autonomous vehicles and specialized defense systems.\nNSI-MI has annual sales of approximately $90 million, and we deployed $230 million on the acquisition.\nIn addition to these acquisitions, AMETEK also acquired two smaller and yet highly strategic businesses, and [Phonetic] Crank Software and EGS Automation.\nCrank Software, which is headquartered in Ottawa, Canada is the provider of embedded graphical user interface software and services.\nCrank's award winning Storyboard software platform is ideally positioned to capitalize on the accelerating demand for smart digitally enabled devices.\nAnd EGS Automation is an attractive bolt-on acquisition for our Dunkermotoren business, expanding our presence in the attractive automation market.\nLocated near Dunker's German headquarters, EGS designs and manufactures highly engineered and customized robotic solutions for niche medical, food and beverage and general industrial markets.\nCombined, these acquisitions add approximately $535 million in annual sales aligned with attractive secular growth markets.\nAdditionally, they provide AMETEK with excellent returns in line with our stated hurdle rates.\nEach of these integrations is going very well in the early stages of our ownership.\nAMETEK's decentralized operating structure and proven operating capability provides us the flexibility to successfully integrate the businesses, while continuing to pursue additional acquisitions.\nWe are still working through a strong pipeline of attractive acquisition candidates.\nAnd as Bill will discuss in a moment, we have ample balance sheet capacity with approximately $1.8 billion available to support our acquisition strategy.\nIn addition to continued capital deployment on acquisitions, we also remain committed to investing in our businesses.\nFor all of 2021, we expect to invest approximately $95 million in incremental growth investments.\nThese investments are largely centered around our research and development and sales and marketing functions, including targeted investments in support of our digital transformation strategy.\nOur investments in RD&E continue to yield innovative advanced technology solutions, allowing us to expand our leadership position across our niche markets.\nFor all of 2021, we expect to spend approximately $270 million or 5.5% of sales on RD&E for our base businesses before adding in our recent acquisitions.\nThis level of spend is up 10% over last year's RD&E spend.\nNow, shifting to our outlook for the remainder of the year.\nWith our strong results in the first quarter, including solid orders growth and a record backlog along with contributions from our recent acquisitions, we have increased our full-year sales and earnings guidance.\nFor 2021, we now expect overall sales to be up high teens on a percentage basis, while organic sales are expected to be up high single-digits on a percentage basis versus 2020.\nDiluted earnings per share are now expected to be in the range of $4.48 to $4.56, which is an increase of 13% to 15% over last year's comparable basis.\nThis new range is a $0.28 midpoint increase from our previous adjusted earnings guidance of $4.18 to $4.30 per diluted share.\nFor the second quarter, overall sales are anticipated to be up in the low 30% range versus last year's quarter.\nSecond quarter earnings per diluted share are expected to be in the range of $1.08 to $1.10, up 29% to 31% over last year's second quarter.\nOur revised guidance includes each of the five completed acquisitions.\nTo summarize, AMETEK delivered an excellent first quarter with solid orders and sales growth, strong margin expansion, a high quality of earnings and meaningful capital deployment.\nThese outstanding results speak to the strength and flexibility of the AMETEK growth model, along with the resilience of our world-class workforce.\nWith our differentiated technology solutions, serving a diverse set of niche end markets aligned with attractive secular growth opportunities, we remain firmly positioned to deliver long-term sustainable growth.\nAs Dave highlighted, AMETEK began the year with outstanding results highlighted by strong sales and orders growth and a high quality of earnings.\nWith that, I'll provide additional financial highlights for the quarter.\nFirst quarter, general and administrative expenses were $18.6 million, up $3 million from the prior year, largely due to higher compensation expense.\nAs a percentage of total sales, G&A was 1.5% in the quarter.\nFor 2021, general and administrative expenses are now expected to be up approximately $12 million on a return of temporary costs, including compensation.\nThe effective tax rate in the first quarter was 19.5%, which was essentially in line with the adjusted 19.4% reported in the same period last year.\nFor 2021, we continue to expect our effective tax rate to be between 19% and 20%.\nAnd as we've stated in the past, actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate.\nOur businesses continue to do an outstanding job managing their working capital.\nFor the quarter, operating working capital was 14.2%, down 470 basis points from the 18.9% reported in the first quarter of 2020.\nJust excellent work by our teams on the working capital front.\nCapital expenditures in the first quarter were $18 million.\nFor the full year we now expect capital expenditures to be approximately $120 million.\nDepreciation and amortization expense in the first quarter was $65 million.\nFor all of 2021, we now expect depreciation and amortization to be approximately $300 million, including after tax, acquisition-related intangible amortization of approximately $140 million or $0.60 per diluted share.\nAs Dave highlighted, our businesses continue to generate tremendous levels of cash given our asset light business model and strong working capital management.\nIn the first quarter, both operating cash flow and free cash flow were up 5% over last year's first quarter to $284 million and $267 million, respectively.\nFree cash flow conversion was very strong at 122% of net income in the quarter.\nTotal debt at quarter end was $2.35 billion, down from $2.41 billion at the end of 2020, offsetting this debt with cash and cash equivalents of $1.1 billion.\nAt the end of the first quarter, our gross debt-to-EBITDA ratio was 1.7 times and our net debt-to-EBITDA ratio was 0.9 times.\nAs Dave noted, we've been very active on the acquisition front.\nDuring the first quarter, we deployed approximately $270 million on the acquisitions Magnetrol, Crank Software and EGS Automation.\nSubsequent to the end of the quarter, we deployed approximately $1.58 billion on the acquisition of Abaco Systems and NSI-MI, resulting in $1.85 billion in total capital deployed on strategic acquisitions thus far this year.\nAlso subsequent to the end of the first quarter, we announced we entered into a five-year delayed-draw bank term loan for up to $800 million with existing lenders under our revolving credit facility.\nProceeds from the term loan will be used to repay borrowings under our revolving credit facility following the recent acquisition activities and to provide capital to further support our acquisition growth strategy.\nFollowing the acquisitions of Abaco and NSI, our gross debt-to-EBITDA ratio and our net debt-to-EBITDA ratio is expected to be 1.9 times and 1.7 times, respectively, at the end of the second quarter.\nWe continue to have an excellent financial capacity with approximately $1.8 billion of cash and existing credit facilities to support our growth initiatives.\nTo summarize, our businesses drove excellent performance in the first quarter with high quality results that outpaced our expectations.\nWe remain poised for significant growth in 2021, given our strong balance sheet, outstanding cash flows and the efforts of our talented workforce.",
        "summary": "compname reports q1 adjusted earnings per share $1.07.\nq1 adjusted earnings per share $1.07.\nq1 sales rose 1 percent to $1.22 billion.\nametek - for 2021, now expect overall sales to be up high teens on a percentage basis compared to prior year, with organic sales up high single digits.\nadjusted earnings per diluted share are expected to be in range of $4.48 to $4.56 for 2021.\noverall sales in q2 are expected to be up in low 30% range versus q2 of 2020.\nanticipate adjusted earnings per diluted share will be in range of $1.08 to $1.10 for q2 2021."
    },
    {
        "text": "Growth continues to be a theme for AMG as evidenced by our outstanding second-quarter results, which were driven by the consistent execution of our strategy and enhanced by our focus on new investments.\nEconomic earnings per share of $4.03 grew 47% year over year and represented the strongest second quarter in our history, primarily driven by EBITDA growth of 40% and ongoing share repurchase activity.\nYear to date, our affiliates excellent absolute and relative investment performance has resulted in higher asset levels, enhanced organic growth, and meaningful performance fees.\nWe began the quarter by announcing our new investment in OCP Asia, increasing our exposure to the region and its fast-growing private credit markets, and we ended the quarter with the announcement of our newest partnership in Parnassus, the largest independent ESG-dedicated fund manager in the industry.\nTogether with our recent investment in Boston Common, a long-term leader in impact investing, we expect that these new affiliates will contribute over 90 million in EBITDA in 2022 and contribute meaningfully to our organic growth over time.\nAnd we are only halfway through 2021.\nWith the addition of Parnassus, our run-rate EBITDA is now over 1 billion, increasing our opportunity to invest in new affiliates and areas of secular growth and in resources to enhance the growth of our existing affiliates, including strategic growth capital and distribution.\nAs evidenced by our seven new partnerships, which we've established over the last two years, our model is resonating with the highest quality independent investment firms in the industry.\nLooking ahead, we see an even greater opportunity to execute on our new investment opportunity set, given the favorable transaction environment, AMG's strong competitive position, and the increasing demand for our partnership solutions.\nAs I highlighted in prior quarters, throughout the pandemic, a number of client demand trends have remained intact, including the ongoing demand for illiquid alternatives, while other trends have accelerated, such as the appetite for responsible and impact investing, all against the backdrop of an improving environment for active management.\nOur strategy is focused on investing in areas of secular growth and our new investments in 2021 reflect this focus as we've increased our exposure to fast-growing segments such as Asia, private markets and ESG.\nWith the addition of Parnassus, Boston Common, and Inclusive Capital Partners, AMG's affiliates will now manage more than 80 billion in dedicated ESG strategies, and more than 600 billion in strategies that integrate ESG into their investment process, and they are positioned to capitalize on future growth as investors around the world continue to turn to active managers for responsible and impact investing.\nA pioneer in sustainable investing, Parnassus has a 37-year track record of investing based on principles and performance, achieving attractive risk-adjusted returns by building portfolios that also have a positive societal impact.\nWe have known Ben Allen, Todd Alston, and their partners for nearly a decade.\nAnd when it came time for Parnassus to choose a permanent partner and complete the first generational transition in the firm's long-term succession plan, they chose AMG.\nWe believe that AMG's partnership approach is the best solution in the market today for independent firms.\nAs it preserves the alignment between clients and partners across multiple generations while maintaining unique entrepreneurial cultures of partner-owned firms.\nAnd this will be especially important to Parnassus given its leading market position and responsible and impact investing.\nSuccession planning has been and continues to be a core component of AMG's partnership approach as generational succession and demographically driven transition is inevitable for partner-owned firms.\nSelecting an experienced supportive partner is critical to the long-term success of these independent firms.\nAMG's expertise and collaborating with affiliates to develop and execute management transition plans and align incentives across generations of affiliate partners remains a significant differentiating factor as firms select AMG as their institutional partner.\nToday, having worked with affiliates on these matters for nearly three decades, AMG is able to provide customized solutions for new partnerships based on our foundational principles of independence, alignment, and support.\nOver the past two years, we have significantly enhanced our strategic focus and our resources dedicated to originating, structuring, and executing on new investments.\nFor the first time since 2016, the majority of our cash flow will be deployed in new affiliate, investments already announced with additional high-quality prospects in our transaction pipeline.\nAs I said before, growth was certainly a theme for the second quarter.\nIn addition to new investments, the strategic actions we have taken to invest in our affiliates and in distribution resources on behalf of our affiliates are also key contributors to that growth.\nDuring the quarter, we completed the evolution of our U.S. wealth platform, AMG Funds, to an affiliate-only model, consistent with our institutional distribution strategy.\nWe have received shareholder approval for all funds transitioning from external sub-advisors, resulting in an incremental 4 billion in assets now being managed by our affiliates.\nAs part of these changes, we are offering a more differentiated product lineup at lower fees and providing clients access to excellent affiliate strategies, including in attractive areas such as ESG equities and fixed income, Asian equities, and international equities.\nThis is an important evolution of our strategy as all of AMG's operations and resources across our institutional wealth platforms globally are now fully aligned with our affiliates, which positions us to deliver meaningful additional organic growth over time.\nAnd this is just one example of shareholder value creation through investments in our affiliates growth.\nSeveral years ago, we ceded the AMG Pantheon's fund with $10 million, given the opportunity we saw to provide U.S. wealth investors access to private equity portfolios.\nAnd last week, the fund reached a significant milestone, crossing the $0.5 billion mark in AUM.\nThe fund's performance is outstanding and its organic growth is accelerating as U.S. wealth investors are seeing the benefits of allocating to private equity in their portfolios.\nThis is a great example of how AMG's central capabilities can drive new growth areas for our affiliates.\nIn addition, we have been actively investing in affiliates through lift-outs, including global sustainable equities and fixed-income teams at Artemis and more recently at Pantheon, where we assisted in lifting out our real estate team for its global infrastructure and real assets platform.\nFinally, the strength and momentum that we described in our business at the start of the year has only just begun to manifest in our results.\nAs we look forward to the second half of 2021 and the full-year 2022, we see tremendous opportunity to further build on this momentum through the continued execution of our strategy to drive top-line EBITDA growth, which, together with share repurchases, will further compound our earnings per share and create meaningful shareholder value over time.\nOur second-quarter results demonstrate the differentiated growth drivers inherent in AMG's business model.\nand our ability to create shareholder value now and into the future.\nOur affiliates delivered strong investment performance.\nWe generated net inflows excluding Quant strategies.\nWe put significant capital to work both in new partnerships and investments in affiliates, and we repurchased stock in the quarter, evidencing our ability to compound growth through each of our cor earnings drivers.\nFor the quarter, adjusted EBITDA of 227 million grew 40% year over year, driven by strong affiliate investment performance in markets and the impact of our growth investments.\nEconomic earnings per share of $4.03 grew 47% year over year.\nFurther benefiting from share repurchase activity.\nNet client cash inflows, excluding certain quantitative strategies, worth 3 billion in the quarter, driven by private markets, specialty fixed income, U.S. equities, ESG strategies, and the strategic evolution of our U.S. wealth platform, AMG Funds.\nOutflows from certain quant strategies totaled 11 billion and had a de minimis impact on our earnings.\nOur organic growth profile continues to improve as clients seek active management solutions in the face of a more volatile market environment, and we continue to add new affiliates in areas of secular growth, including ESG, Asia, and private markets.\nTurning to performance by asset class and excluding certain quantitative strategies.\nIn alternatives, our illiquid strategies posted another strong quarter, with 3.7 billion in net inflows, led by strong fundraising at Pantheon, EIG, and Bearing.\nPerformance in this category remained strong, with more than 90% of assets outperforming benchmarks in the most recent and prior vintages.\nPrivate markets businesses like OCP Asia, continue to be a focus area for us from a new investment perspective and represent a significant source of management fee earnings stability and performance fee potential over the long term.\nWithin liquid alternatives, net inflows were 1.4 billion, supported by continued client appetite for alternative sources of risk and return in the low-yield environment.\nIncluding at affiliates such as Garda and Capula.\nWe continue to see significant performance fee generation in this category, reflecting our excellent performance across our concentrated long-only equity and specialty fixed income strategies.\nMoving to global equities.\nWe reported net outflows of 6.3 billion, driven by idiosyncratic, lower fee institutional reallocation activity.\nThese mandates accounted for approximately two-thirds of the outflows in this category.\nLong-term global equity performance continues to be strong, particularly in strategies that are meaningful contributors to our EBITDA.\nMomentum in our U.S. equity strategies continues with inflows of 2.9 billion, driven by strong client demand, particularly for our value-focused strategies managed by leading firms such as River Road and Yactman and our small-cap strategies.\nOur performance continues to be strong in this category and with our recent investments in Jackson Square, Boston Common, and Parnassus.\nGoing forward, we have a balanced mix of high-performing growth and value strategies.\nOur multi-asset and fixed-income category generated inflows of nearly $1 billion, primarily driven by ongoing demand for muni-bond strategies and wealth-management solutions, particularly at GW&K and Baker Street this quarter.\nFor the second quarter, adjusted EBITDA of 227 million grew 40% year over year, driven by strong affiliate performance in markets and additional earnings power from our recent new affiliate investments.\nOur adjusted EBITDA included 16 million of performance fees, and as I mentioned previously, reflects excellent affiliate investment performance, particularly in our liquid alternatives category.\nEconomic earnings per share of $4.03 grew 47% year over year, further benefiting from ongoing share repurchase activity.\nOur recently announced partnership with Parnassus is expected to close early in the fourth quarter and will therefore have a partial-year impact on our financial results in 2021.\nNet of onetime transaction costs, we expect Parnassus to contribute approximately $15 million to our fourth-quarter EBITDA results.\nOn a full-year 2022 basis, we expect Parnassus to contribute approximately 70 million of EBITDA and $1.30 of economic earnings per share.\nNow moving to specific modeling items for the third quarter.\nWe expect adjusted EBITDA to be in the range of 215 to 220 million based on current AUM levels, which reflect a flat market blend through yesterday and seasonally lower performance fees of up to 5 million.\nOur share of interest expense was $27 million for the second quarter, and we expect interest expense to be 28 million in the third quarter, reflecting our recent hybrid bond offering.\nControlling interest depreciation was 2 million in the second quarter, and we expect the third quarter to be at a similar level.\nOur share of reported amortization and impairments was 36 million for the second quarter, and we expect it to be similar in the third quarter.\nOur effective GAAP and cash tax rates were 36 and 18%, respectively, for the second quarter and we expect GAAP and cash tax rates to be 25 and 18%, respectively, for the third quarter.\nIntangible-related deferred taxes were 31 million this quarter and we expect this to decline to a more normalized level of 12 million in the third quarter.\nBoth our GAAP tax rate and intangible-related deferred taxes were elevated this quarter as a result of recently enacted U.K. tax rate changes and did not impact economic net income or economic earnings per share.\nOther economic items were negative 4 million.\nIn the third quarter, for modeling purposes, we expect other economic items, excluding any mark-to-market impact on GPNC to be 1 million.\nOur adjusted weighted average share count for the second quarter was 42.5 million, and we expect our share count to be approximately 42.1 million for the third quarter.\nFinally, turning to the balance sheet and capital allocation.\nOur balance sheet remains a source of strength as we invest for growth and consistently return capital to shareholders.\nEarlier this month, we further enhanced the balance sheet by issuing a 40-year $200 million hybrid bond at an asset management industry low coupon of 4.2%.\nWe continue to prioritize extending duration, enhancing flexibility, and maintaining significant capacity to allocate capital to fuel our growth strategy.\nWe also remain committed to returning excess cash to our shareholders.\nIn the second quarter, we repurchased $80 million of shares, bringing us to $290 million year to date, and we remain on track for $500 million of repurchases for the full year, subject to market conditions and the timing of new affiliate investments.\nOver the last 24 months, we've returned nearly $1 billion of excess capital to shareholders, having repurchased nearly 20% of our shares outstanding, while simultaneously partnering with seven new affiliates, and investing in our existing affiliates and centralized capabilities.\nAs Jay highlighted in his remarks, our strong results this quarter demonstrate AMG's differentiated growth drivers and highlight the strength of our business model and the efficacy of our strategy.\nThe momentum in our business continues to accelerate, and we are putting our capital and resources to work to compound growth over time.\nOur recent new investments in affiliates add significant and growing earnings power to our business and together with our strong capital position and demonstrated ability to return capital to shareholders, we are well-positioned to deliver shareholder value over time.",
        "summary": "compname reports earnings per share of $2.55, economic earnings per share of $4.03 in the second quarter of 2021."
    },
    {
        "text": "2020 was an extraordinary year, and the consistent execution of AMG's long-term strategy resulted in strong business performance and growth.\nComplex operating conditions in volatile markets accelerated transition across the investment management industry with a number of our peers and competitors pursuing scale while others look to divest or exit businesses altogether.\nThroughout this period, AMG remained committed to our fundamental principles.\nThat investment performance is about skill, not scale.\nThat investment alpha is best generated by differentiated active managers and that the entrepreneurial investment-centric cultures of independent partner-owned firms offer clients the greatest opportunity for alpha.\nAs a result, we remain focused on executing our long-term strategy with excellence and discipline.\nOur affiliates built on their strong long-term performance records, demonstrating their ability to distinguish themselves across market cycles, including during volatile periods like 2020.\nToday, approximately three-quarters of our products are outperforming their long-term benchmarks on an EBITDA basis.\nOur affiliates also continue to evolve and enhance their product offerings, often in collaboration with AMG, expanding their abilities to meet long-term client needs.\nOverall, AMG emerged from the unprecedented events of 2020 in an even stronger position than we entered the year.\nAnd we entered 2021 with significant momentum across our business and substantial capacity and flexibility to generate meaningful additional earnings growth and shareholder value.\nTurning to our results.\nSince the second quarter of 2020, the earnings power of our business has increased considerably driven by the strong and improving performance from the large majority of our affiliates, combined with the impact of strategic investments and actions we have taken to reposition our business over the past 18 months.\nThese collective actions contributed to year-over-year growth in EBITDA of 27% in the fourth quarter, driven by growth in management fees and performance fees, as well as operational efficiency.\nWe also capitalized on the market environment in 2020 to strengthen our balance sheet and improve flexibility for the benefit of our shareholders.\nWith our enhanced capital position and substantial free cash flow, we deployed more than $800 million across the combination of growth investments and share repurchases, including new partnerships with Comvest, Jackson Square and Boston Common while simultaneously repurchasing 10% of our shares over the course of the year.\nAMG had a strong finish to 2020 but the results do not fully capture the magnitude of the earnings power heading into 2021, during which significant market, business performance and new investment tailwinds will further contribute to our earnings growth.\nIn the second half of 2020, business activity and client flows in private markets, wealth management and specialty fixed income were particularly strong.\nThese areas collectively account for more than one-third of our EBITDA and are becoming a more significant contributor to our overall growth profile.\nOur fundamental equity and liquid alternative strategies are better positioned today given their improved track records, increased performance fee opportunity and enhanced potential to generate organic growth.\nIn addition to the building momentum of our existing affiliates.\nThe incremental earnings contribution of our 2020 new investments will be fully realized in our 2021 results given the timing of these investments over the course of the year.\nAnd finally, given our substantial liquidity and cash flow generation, we expect to continue to deploy significant capital in 2021 across both our new investment pipeline and additional share repurchases.\nFor all of these reasons, as we enter this year, we are confident in AMG's forward prospects and our ability to generate meaningful growth in economic earnings per share.\nAs you know, AMG is a leader in partnering with independent asset management firms.\nWe have continued to evolve our approach to meet the ongoing needs of our affiliates as they grow their businesses over time.\nToday, we offer a uniquely broad set of partnership solutions for independent firms, including growth capital, distribution support, minority investments and long-term succession planning.\nOur differentiated approach continues to resonate with the highest quality independent firms as evidenced by our new investments over the course of 2020, which included Comvest Partners, a premier middle market private equity and private credit firm, which is an area of high client demand and increasing allocations; Jackson Square Partners, a leader in global equities with an outstanding reputation and track record for managing high conviction portfolios, and Boston Common Asset Management, a woman-owned innovator in global, sustainable and impact investing, which has significant organic growth prospects given their long record of success in ESG investing.\nTogether, these new investments evidence the power and breadth of AMG solution set.\nAnd all three firms have joined our global distribution platform to expand their client reach across channels and geographies.\nIndividually, each new partnership underscores AMG's focus on investing in high-quality, growing businesses at disciplined valuations through customized structures designed to deliver returns across a range of outcomes.\nWith our unique competitive position and proprietary relationships, our new investment activity remains high.\nAcross a broader universe of firms around the world, prospective affiliates are increasingly engaging with us.\nNotably, Boston Common is our second partnership with a specialist in sustainable investing following inclusive capital last year.\nClient appetite for responsible and impact investing is steadily increasing, and this is an important moment in time for the asset management industry to address long-term sustainability through capital allocation.\nWe and our affiliates are increasingly focused on this imperative.\nWe are closely collaborating to support affiliates' increased engagement and participation in responsible capitalism, particularly with respect to their product offerings.\nFor example, we are providing capital resources to Artemis as they launch a dedicated sustainable global equity strategy.\nAnd similarly, we supported GW&K in building out a suite of sustainable fixed income strategies, which AMG is now distributing.\nMore broadly, our global sales teams are bringing client insight to other affiliates with respect to integrating ESG into investment processes.\nUltimately, we believe that independent active managers are best positioned to generate investment alpha as clients grow their allocations to ESG investing, and our affiliates are increasingly participating in this growth area.\nIn its most fundamental way, sustainability, from the perspective of long-termism and the preservation of a firm's ability to build and create value over time, has been at the very heart of AMG's business purpose since our inception in 1993.\nAMG's foundational principles support enhances the long-term duration of independent firms through succession planning.\nWe help partner-owned firms to manage their greatest asset and their greatest risk, human capital, and to preserve and enhance partner alignment with their most important stakeholder, their clients.\nIn addition to human capital, AMG also offers capabilities to assist affiliates in addressing other long-term risks, including operational, regulatory and reputational support.\nIn helping our affiliates to manage long-term risk and enhance their ability to grow over time, AMG has focused on sustainability of independent partner-owned firms for nearly 30 years.\nAnd as we build upon our three decades of successful partnerships and position ourselves for the future, the impact of the strategic and growth investments that we have made over the past two years are beginning to materialize in our results as they did in the fourth quarter and will more fully manifest in the years ahead.\nOver this period, we have invested in four new affiliates.\nWe have invested in the growth of our existing affiliates.\nWe broadened our partnership solution offering.\nWe enhanced our strategic capabilities.\nWe realigned our distribution platforms with the greatest opportunities, and we significantly enhanced our capital position.\nWe have achieved all of this while reinvigorating AMG's entrepreneurial culture and reestablishing an ownership mindset across the entire organization.\nLooking ahead to 2021.\nWe have significant momentum in our business and heightened conviction in our strategy.\nAs we continue to generate increasing levels of free cash flow, and we invest that capital into our growth initiatives while returning excess capital through share repurchases, AMG's long-term opportunity to compound earnings is clear and positions us to deliver significant shareholder value over time.\nAs Jay discussed, strategic changes taking place in our industry are creating significant disruption, and that disruption is highlighting AMG's long-standing belief in the value proposition of independent partner-owned firms and their unique alignment with their clients.\nAt the same time, focused execution against our strategy is producing results in both our quarterly earnings and our expectations for future growth.\nWe entered 2021 with significant momentum across our business, increasing earnings power and a stronger and more flexible balance sheet to execute on the considerable opportunities ahead of us to generate shareholder value.\nTurning to the quarter.\nAdjusted EBITDA of $255 million grew 27% year over year, driven by strength in both management and performance fees, and economic earnings per share of $4.22 benefited from an enhanced level of share repurchase activity.\nAMG delivered strong earnings growth despite net client cash outflows of $15.8 billion that were driven by certain quantitative strategies and seasonal client redemptions.\nQuantitative strategies accounted for 95% of outflows in the quarter while contributing approximately 3% of run rate EBITDA.\nAway from quant and taking into account seasonality, our underlying organic growth trends continued to improve, and client flows were positive in the quarter.\nStrong investment performance and an increasingly attractive environment for allocating to active managers drove further stabilization in fundamental equities.\nAnd affiliate strategies across illiquid alternatives, wealth management and specialty fixed income generated significant positive net flows and continued to contribute an increasing proportion of our earnings.\nTurning to our asset class breakdown and excluding challenged quantitative strategies.\nIn alternatives, we reported net inflows of $700 million in the fourth quarter, reflecting ongoing momentum across our illiquid alternative affiliates.\nStrength in private markets was partially offset by $2 billion in seasonal redemptions in certain liquid alternative strategies with fourth-quarter liquidity windows.\nFundraising remains strong at Pantheon, Baring, EIG and Comvest as clients continue to steadily increase private market allocations globally.\nPerformance in this category has been excellent as our affiliates have been deploying dry powder into attractive return opportunities, including across Asia private equity, global secondaries, co-investments and credit funds.\nOverall, our private markets book remains a significant source of earnings growth, accounting for nearly 20% of management fee EBITDA and continues to build future carried interest potential.\nWithin liquid alternatives, our affiliates continue to post strong performance across relative value fixed income and concentrated long-only strategies, which collectively generated the majority of our performance fees in 2020.\nGarda and ValueAct, among others, produced very strong returns in 2020, and our liquid alternative strategies enter 2021 well positioned to deliver for clients.\nMoving to fundamental equities.\nWe reported net outflows of $2.3 billion in global equities and $1.1 billion in U.S. equities, partly due to the impact of retail seasonality.\nWe continue to generate positive organic growth in areas where client demand for active converges with top quartile performance, including at Harding Loevner, Veritas and GW&K.\nOur investment performance across our fundamental equity strategies continues to be very strong with approximately 80% of fundamental equity AUM above benchmark for the five-year period, significantly outpacing the 62% level of two years ago.\nAnd with that strong performance, coupled with a more favorable macro environment for active investing, we are well positioned for future organic growth.\nIn particular, we are seeing increasing momentum in client conversations regarding value strategies, where overall industry dynamics have improved and our affiliates continued to deliver strong relative investment performance.\nMulti-asset and fixed income strategies posted another strong quarter of organic growth, generating $1.9 billion of net inflows driven by muni bond strategies and broader wealth solutions at GW&K and Baker Street.\nThis area of our business continues to deliver steady, long duration inflows, and we anticipate ongoing client demand trends to support future growth.\nIn aggregate, AMG is well positioned to generate positive flows over time given our Affiliates' participation in areas supported by long-term client demand trends and their differentiated ability to deliver superior outcomes for clients.\nNow, turning to financials.\nFor the fourth quarter, adjusted EBITDA of $255 million grew 27% year over year, driven by strong investment performance, higher markets, lower corporate expenses and the impact of growth investments in both existing and new affiliates, including affiliate equity purchases.\nAdjusted EBITDA included $60 million of performance fees, driven by strong investment performance across a broad array of alpha-oriented strategies.\nEconomic earnings per share of $4.22 and further benefited from an elevated level of share repurchase activity, which I'll expand on in a moment.\nFor the full year, performance fees of $86 million represented approximately 11% of our earnings.\nWith a diverse and growing performance fee opportunity, we are entering 2021 well positioned for continued strength in this area.\nNow, moving to specific modeling items for the first quarter.\nWe expect adjusted EBITDA to be in the range of 240 to 250 million based on current AUM levels, reflecting our market blend, which was up 2.5% as of Friday.\nOur estimate includes a performance fee range of 35 to 45 million, reflecting normal seasonality and strong performance at our liquid alternative managers.\nOur share of interest expense was 27 million for the fourth quarter, reflecting the impact of our hybrid debt offering.\nWe expect interest expense to remain at a similar level for the first quarter.\nControlling interest depreciation was 2 million in the fourth quarter, and we expect a consistent level for the first quarter.\nOur share of reported amortization and impairments was 87 million for the fourth quarter.\nIn the first quarter, we expect this line item to be approximately 40 million.\nOur effective GAAP and cash tax rates were 24 and 25% for the fourth quarter.\nFor modeling purposes, we expect our GAAP and cash tax rates to be approximately 25 and 19%, respectively, for the first quarter.\nIntangible-related deferred taxes were negative 3 million in the fourth quarter, and we expect intangible related deferred taxes to be 9 million in the first quarter.\nOther economic items were negative 8 million and included the mark to market impact on GP and seed capital investments.\nIn the first quarter, for modeling purposes, we expect other economic items, excluding any mark-to-market impact on GP and seed to be 1 million.\nOur adjusted weighted average share count for the fourth quarter was 45.3 million, and we expect share count to be approximately 43 million for the first quarter.\nTurning to the balance sheet and capital allocation.\nOver the course of 2020, we continue to position the company for growth, taking advantage of the historically attractive financing environment to enhance our capital position by building additional liquidity and flexibility.\nWe doubled the duration of our debt to 15 years while keeping our cost of debt unchanged, enhanced our capital flexibility by issuing junior hybrid debt and significantly improved our liquidity position, including the repurposing of our dividend in favor of share repurchases.\nAs a result of these actions, our balance sheet is in excellent position heading into 2021.\nAnd together with the flexibility provided by our significant discretionary free cash flow, we feel confident in our ability to invest for growth and simultaneously return significant excess cash to shareholders.\nIn 2020, we allocated the cash flow generated by our business toward a combination of growth investments and capital return to shareholders primarily through share repurchases.\nWe invested approximately 400 million of capital into growth investments across four new affiliate partnerships, an elevated level of Affiliate equity purchases and seed and GP capital commitments.\nIn addition, we repurchased 430 million of shares during the year, repurchasing 10% of our shares outstanding.\nIn the fourth quarter, we repurchased 226 million of shares versus our guidance of at least 100 million.\nThe additional 126 million of repurchases in the quarter reflects strong business performance in the second half of 2020 and significant incremental cash generated from performance fees and tax benefits.\nLooking ahead, through the combination of higher run rate cash generation, a more normalized level of Affiliate repurchases and our strong liquidity position, we have the flexibility to continue to increase discretionary capital allocation to both growth investments and capital return.\nIn the first quarter, we expect to repurchase approximately 200 million of shares, which is elevated by 100 million as a function of our strong year-end cash position and first-quarter performance fee expectations.\nFinally, turning to full-year guidance.\nWhile we haven't given full-year guidance in some time, given the sharp move in equity markets, the increased earnings power of the business on both a management fee and performance fee basis, our strong liquidity position and heightened share repurchase activity, we are providing earnings guidance for 2021.\nWe expect economic earnings per share to be in the range of $15.50 to $17, reflecting an adjusted EBITDA range of 875 million to $940 million.\nThe midpoint of that range includes a market performance through last Friday and 2% quarterly market growth starting in the second quarter, performance fee contribution of approximately 10% of earnings and a weighted average share count for the year of approximately 41.5 million, which reflects $500 million of excess capital returned through share repurchases.\nI would note that while we are not including the impact of new investments in earnings guidance, given timing uncertainty, new investment activity is incorporated into our capital planning and would provide incremental upside to this earnings guidance.\nBoth our first quarter and full-year guidance are subject to forward prospects for new investments and market conditions.\nAs Jay discussed, 2020 was a year of unprecedented events and change, and we've remained focused on establishing new partnerships, supporting growth initiatives at our existing affiliates, positioning our balance sheet for future growth and returning excess capital to shareholders through repurchases.\nWe come into 2021 with even more conviction in our strategy and our ability to deploy capital to compound long-term earnings growth and create value for our shareholders.",
        "summary": "compname reports earnings per share of $2.54, economic earnings per share of $4.22 in fourth quarter."
    },
    {
        "text": "AMG achieved outstanding results in 2021 through the strong execution of our growth strategy, the excellent performance of our affiliates and increasing momentum across our business.\nAMG generated over $1 billion of EBITDA, up 33% year over year, and record economic earnings per share of $18.28, representing annual growth of 37%.\nOur demonstrated commitment to investing for growth across both existing and new affiliates while simultaneously returning capital to shareholders has resulted in significant business momentum and compounded earnings growth, which continues in 2022.\nStepping back, over the last few years, we have renewed our focus on AMG's foundational values of entrepreneurial spirit, ownership mindset, and disciplined execution, which has resulted in reinvigorating our new investment strategy, enhancing our strategic engagement with affiliates, and realigning our resources with our most significant growth opportunities.\nThrough these initiatives, we have meaningfully increased our long-term earnings power, and more importantly, are reshaping our business in favor of fast-growing areas, including private markets, liquid alternatives, Asia, wealth management, and ESG.\nAll of which are well positioned to deliver strong growth over time.\nMore broadly, we believe that the investment environment has fundamentally changed.\nFollowing a decade of globally coordinated monetary policy, ultra low rates, and highly correlated returns across asset classes.\nA new paradigm is forming.\nLooking ahead, given the combination of elevated inflation, rising interest rates, and an increasing focus on climate change and sustainability, taking an active approach to investing is critical to achieving clients' goals and objectives.\nAMG's affiliates are industry-leading active managers, with proven track records of delivering excellent risk-adjusted returns for clients across market cycles and are well positioned for this evolving environment.\nIn parallel with the fundamental shift in the investment environment, clients are changing the way they manage their exposures as well.\nAnd all of these developing trends will continue to shape our strategy and the way that we and our affiliates engage with clients.\nAmong the trends that are influencing both our capital allocation decisions and our financial results are the ongoing demand for private markets, the diversifying power of uncorrelated liquid alternatives, and an increasing appetite for sustainable investing.\nToday, AMG is structurally well positioned in these areas.\nWithin private markets, our Affiliates manage $120 billion in assets under management across roughly 30 global and regional private equity, credit, direct lending, real estate, infrastructure, and private market solution strategies, offering investors diversification, income, and inflation protection across market cycles.\nWe have established three new partnerships in this segment over the last 24 months, in Comvest, OCP Asia, and Abacus, and have invested in distribution and product development at Pantheon, PFM, and Baring Asia to continue to address growing demand for both institutional and wealth investors globally.\nAnd now that we have completed the repositioning of our U.S. Wealth platform, we are investing in private markets, resources, and product development to accelerate our Affiliates growth in this attractive client segment.\nCollectively, our Affiliates have raised nearly $25 billion in the private markets over the course of 2021, generating organic growth north of 20%, and each have significant dry power -- powder to capitalize on market opportunities ahead.\nThe changing environment is also creating greater opportunities for liquid alternatives as correlations fall across markets and the demand for these unique return streams has rapidly improved.\nOur liquid alternative Affiliates had an excellent year in 2021, generating significant returns and performance fees while navigating volatility and protecting capital.\nStrong flow trends continue for Capula and Garda, and each is focused on product innovation.\nAnd we began 2022 with an incremental investment in Systematica, one of the industry's leading technology-driven alternative managers.\nThrough Leda Braga's outstanding leadership, Systematica has grown and diversified substantially since AMG's initial investment in 2016 and is well positioned to benefit from increasing client demand for absolute return streams and portfolio diversification.\nA consistent theme across our client conversations today is the desire for and increasing focus on sustainable investing and active stewardship.\nAs I've said before, sustainable investing requires an active approach, and our affiliates are benefiting as clients increasingly engage high-quality active managers to generate positive impact in communities worldwide.\nDedicated ESG strategies across our Affiliates now account for over $90 billion of our assets under management, a segment that is growing organically at a double-digit rate.\nTwo ESG pioneers, Parnassus and Boston Common, joined as new affiliates in 2021, each with a multi-decade and differentiated track record of sustainable investing.\nIn addition, we are collaborating with a number of our affiliates to broaden their capabilities in this area.\nAs client demand for ESG investing continues to accelerate, our Affiliates authentic approach will be an ongoing area of differentiation for AMG.\nOur strategic focus on the fast-growing areas of private markets, liquid alternatives, and ESG strategies, along with our Asia focus and wealth management businesses, have collectively become a more significant contributor to our overall growth profile.\nOur Affiliates in these areas generate approximately $35 billion in net client flows, which accelerated in the second half of the year, and we will continue to invest in these attractive areas.\nAs I said earlier, we are focused on long-term sustainable growth.\nAnd the strategic decisions we are making today with our capital and resources are aligned with the growth opportunities we see over the next decade.\nAMG's business model is uniquely advantaged in this respect.\nWe have the ability to shape and scale our earnings power through new investments, the magnitude of which is evident across our recent transactions.\nIn 2021, we partnered with four new affiliates operating in fast-growing areas.\nAnd so far in 2022, we've made a significant incremental investment in Systematica, which together will contribute approximately $120 million in annual EBITDA going forward.\nAMG has been one of the most active investors in independent asset managers over the past 24 months.\nOur partnership approach is resonating with the highest quality partner-owned investment firms.\nAnd looking ahead, we are confident in our ability to execute on our new investment opportunity set given the favorable transaction environment, AMG's strong competitive position and increasing demand for our unique partnership solutions.\nAs we continue to invest in high-quality new affiliates and in growth opportunities at existing affiliates using a disciplined capital allocation framework, we are able to meaningfully enhance our growth profile over time.\nGiven our ability to invest for growth and evolve the shape of our business, together with share repurchases, the long-term opportunity to compound earnings growth is clear.\nAnd we are uniquely positioned to deliver significant shareholder value over time.\nAs Jay highlighted, we delivered excellent results in 2021, with strong momentum across Affiliate performance, organic growth and capital deployment.\nAnd we entered 2022 with enhanced earnings power and significant liquidity and capital flexibility.\nOur diverse group of Affiliates is well positioned to deliver strong outcomes for clients in an environment where active management is critical to navigating the fundamentally changing investment landscape.\nAnd we continue to focus on strategically evolving our business toward attractive secular growth areas and driving long-term durable earnings growth.\nTurning to the quarter.\nAdjusted EBITDA of $357 million grew 40% year over year and economic earnings per share totaled $6.10, up 45% year over year.\nOn a full year basis, adjusted EBITDA of $1.06 billion and economic earnings per share of $18.28 each grew more than 30% versus the prior year.\nNet client cash flows, excluding certain quantitative strategies, were $4 billion for the quarter.\nOutflows from certain quant strategies totaled $10 billion and continue to have a de minimis impact on our earnings.\nOver the course of 2021, our core organic growth trends gained momentum quarter by quarter, delivering $14 billion in total inflows ex quant for the year.\nWe enter 2022 with an enhanced overall AUM, earnings and organic growth profile, with a strong presence across private markets, liquid alternatives, Asia, wealth management, and ESG strategies, areas where active management is delivering significant value for clients, and growth is accelerating.\nTurning to business performance by asset class and excluding certain quantitative strategies.\nIn alternatives, net inflows totaled $12 billion, driven by strength across private markets and liquid alternatives, and reflected the continuing impact of our strategy to evolve our business toward growth.\nIn private markets, we continue to see very strong fundraising levels across Baring Asia, Pantheon, EIG, and Comvest, with net inflows totaling $9 billion for the quarter and nearly $25 billion for the full year.\nInterest in private market strategies continues to grow as both retail institutional clients seeking long-term returns and alternative sources of income look to increase their allocations.\nAnd these long-duration assets are adding further stability and diversity to our earnings.\nWe are also experiencing increasing demand for our liquid alternative strategies given their excellent performance track records and demonstrated ability to deliver absolute returns and uncorrelated alpha to client portfolios.\nCollectively, our liquid alternative managers, including Systematica, ValueAct, Capula, and Garda, delivered outstanding performance to clients in 2021 and generated substantial management and performance fees for AMG.\nMoving to global equities.\nNet outflows of $8 billion were driven by two large institutional redemptions, which accounted for two-thirds of the activity in this category.\nOverall, our affiliates investment performance remains strong and the environment for high-quality active managers continues to be favorable.\nOur global equity affiliates offer differentiated strategies where we continue to see client demand, including in Asian equities and ESG.\nWe are confident that with our strong performance and diverse offerings, we are well positioned to attract increased client allocations in the future.\nWithin U.S. equities, we reported net outflows of $1 billion, reflecting Q4 seasonality.\nWe are excited about the growth potential for this category overall.\nAnd our long-term investment performance remains excellent, with approximately 75% of assets outperforming on a 5-year basis.\nWe experienced strong demand for our ESG and value-oriented affiliates, including Boston Common, Parnassus, Yacktman, and River Road, and are well placed to benefit in 2022 from current market trends and investor focus on sustainable and impact investing as well as the implications of higher rates and inflation.\nAnd lastly, in multi-asset and fixed income, we generated inflows of $1.5 billion for the quarter and $4 billion for the full year, with a continuation of steady growth in our wealth management businesses.\nThese businesses continue to deliver a valuable combination of organic growth and long-duration assets and earnings.\nFor the fourth quarter, adjusted EBITDA of $357 million grew 40% year over year, driven by strong affiliate performance and the addition of our recent new affiliate investments.\nEconomic earnings per share of $6.10 grew 45% year over year, further benefiting from share repurchases.\nWe generated $122 million of net performance fees in the fourth quarter, driven by excellent investment performance, most notably in our liquid alternatives category.\nAnd we see a growing opportunity to generate performance fees across our diverse set of absolute return, beta sensitive, and private market strategies that builds on itself over time, as strong performance leads to inflows, which translate into higher asset levels and a greater opportunity to generate earnings growth in the future.\nHistorically, performance fees have proven consistent and durable, averaging approximately 10% of annual earnings, with significant upside asymmetry to those levels in certain years, similar to what we experienced in 2021.\nNot only do performance fees contribute a steady recurring earnings stream, but they also represent a meaningful source of capital to facilitate the execution of our long-term growth strategy.\nNow moving to specific modeling items for the first quarter.\nWe expect adjusted EBITDA to be in the range of $235 million to $245 million based on current AUM levels, which reflect our market blend, down approximately 4% through Friday.\nThis guidance reflects performance fees of up to $10 million and the full impact of our recent investments in Abacus and Systematica.\nOur share of interest expense was $29 million for the fourth quarter, and we expect a similar level in the first quarter.\nControlling interest depreciation was $2 million in the fourth quarter, and we expect the first quarter to be at a similar level.\nOur share of reported amortization and impairments was $88 million for the fourth quarter.\nWe expect it to be approximately $30 million in the first quarter.\nOur effective GAAP and cash tax rates were 30% for the fourth quarter.\nAnd we expect GAAP and cash tax rates to be 26% and 18%, respectively, in the first quarter.\nIntangible-related deferred taxes were $1 million this quarter, and we are expecting $15 million in the first quarter.\nOther economic item adjustments were negative $12 million for the fourth, reflecting the exclusion of mark-to-market gains.\nIn the first quarter, for modeling purposes, we expect other economic items, excluding any mark-to-market, to be $1 million.\nOur adjusted weighted average share count for the fourth quarter was 41.8 million, and we expect our share count to be approximately 41 million for the first quarter.\nFinally, turning to the balance sheet and capital allocation.\n2021 was a very active year.\nAnd we deployed more than $1 billion of capital into growth investments as well as share repurchases.\nIn line with our strategy, more than half of that capital was allocated toward growth, including across the four new investments we made in private markets and sustainable investing firms.\nAdditionally, in January, we completed an incremental investment in Systematica, a leading global technology-enabled alternatives manager, further increasing our economic exposure to in-demand uncorrelated return streams.\nThese investments were structured and priced to deliver strong shareholder returns across a range of outcomes and are expected to collectively contribute approximately $120 million of EBITDA in 2022.\nFor the full year, we also repurchased $510 million of shares, including $120 million in the fourth quarter, reducing our shares outstanding by 8% for the year.\nWe remain committed to returning excess capital to shareholders through share repurchases.\nAnd in 2022, we expect to repurchase approximately $400 million of shares, subject to market conditions and new investment activity.\nIn addition, we took advantage of last year's favorable financing environment to extend the duration of our balance sheet by issuing a 40-year hybrid note and extending our revolver and term loan through 2026.\nAnd we entered the year with a very strong balance sheet and ample capacity to execute on the significant and broad-ranging growth opportunities we see ahead.\nOur business continued to evolve in 2021, driven by our focus on allocating our resources and capital to areas of secular growth, including the key themes that Jay focused on: private markets, liquid alternatives, and ESG.\nWe have demonstrated our ability to successfully compound earnings, leveraging our unique growth drivers.\nAnd today, our business is in as strong a position as it has ever been.\nWe are excited about the opportunities ahead of us and are well positioned to create significant value for our shareholders over time.",
        "summary": "q4 earnings per share $6.10.\ncompname reports earnings per share of $4.17, economic earnings per share of $6.10 in q4."
    },
    {
        "text": "I'm joined by Christa Davies, our Chief Financial Officer; and Eric Andersen, our President.\n2021 continues to be a remarkable year.\nAnd as a result of our colleagues' hard work, dedication and perseverance, we've delivered outstanding results in Q3 and year-to-date.\nThis performance is an extraordinary accomplishment and a direct result of their efforts, working together as one firm to bring the best of Aon to clients.\nWe're also proud to report that our client feedback continues to be outstanding as net promoter scores are at a five-year high.\nAdditionally, Aon's colleague engagement is at the highest levels we've seen over the past decade, consistent with top quartile employers.\nThis client feedback and colleague engagement are directly reflected in our firm's sustained momentum and financial performance.\nIn deep appreciation for all that our colleagues do for our clients and our firm, we were excited to establish in Q3 the Aon United growth ownership plan.\nThis unique program rewards every colleague with a stock-based award to share in the current and future success of our firm, and we're thrilled to recognize and support our colleagues in this way.\nOverall, as we reflect on Q3 and the first nine months of 2021, our momentum, defined by client delivery, colleague engagement and financial results, is exceptional, even more promising as what we see in the opportunity ahead.\nOur conversations with clients reinforce substantial and growing unmet demand to support them in making better decisions to protect and grow their businesses in an increasingly volatile world.\nThis opportunity to create new markets to serve our clients is the catalyst for our innovation agenda and a source of greater momentum in our business.\nFocusing on financial performance in Q3, our global team delivered outstanding results across each of our key financial metrics, including 12% organic revenue growth.\nNotably, our strongest growth in over a decade for two quarters in a row, driven by mid-single-digit or greater organic revenue growth from every solution line, highlighted by particular strength in health and commercial risk at 16% and 30%, respectively and adjusted earnings per share growth of 14%.\nYear-to-date, our 9% organic revenue growth reflects mid-single-digit or greater organic growth from three of our four solution lines.\nOur Aon United strategy is delivering significant momentum in every solution line, with net new business generation and ongoing strong retention.\nWe also saw double-digit growth for the second consecutive quarter in the more discretionary portions of our business, such as transaction liability, human capital and project-related work within Commercial Risk Solutions and Health Solutions.\nWe continue to expect mid-single-digit or greater organic revenue growth and margin expansion in the full year 2021, 2022 and over the long term as we continue to win share in our core business and execute to further expand our total addressable market.\nAs we move forward, we continue to be guided by our Aon United Blueprint, to ensure we're operating as a fully integrated global team capable of delivering the best of our firm in every local market.\nToday, we'd like to highlight how the core tenets of our blueprint drive momentum and deliver greater future opportunity.\nSpecifically, how delivering Aon United is enabling core new business generation and fueling stronger retention.\nHow Aon Business Services is building capability for colleagues and translating into better service for clients.\nOur ongoing focus on innovation at scale is accelerating the development of new solutions to serve unmet demand, and our commitment to inclusive people leadership has resulted in the highest level of engagement and retention in over a decade.\nFirst, executing Aon United is delivering net new business generation and ongoing strong retention by continuing to engage clients across all their needs with the entirety of our firm.\nThis strategy has been built over many years and enables extraordinary solutions for clients, resulting in Aon winning more, growing our book of business with new and existing clients and, in turn, delivering exceptional results to shareholders.\nWe've invested heavily in Aon Business Services, or ABS, over the past five years, which now represents the core operating platform that spans the entirety of the firm.\nABS Centers of Excellence have and will continue to grow margins by driving efficiencies across all solution lines.\nEqually important, ABS capability enables us to improve client service delivery and scale innovation globally much faster, driving higher organic growth.\nThe ABS model is redefining what we're capable of delivering to clients and improving the way we work.\nThird, we continue to accelerate innovation at scale.\nAON is delivering innovative solutions to our clients by helping them navigate new forms of volatility, build resilient workforces, access new forms of capital and address the underserved through digital solutions, all of which substantially grow our total addressable market.\nThis has been demonstrated, for example, intellectual property back financing, a first-of-its-kind option created and enabled by Aon's IP solutions team.\nGiven the inllectual property represents 80-plus percent of the value of the S&P 500, we believe the entire IP category has the potential to be a $100 billion market over time.\nOther categories that represent new addressable markets in the tens of billions, include cyber, climate, supply chain and digital client solutions, led by our exceptional team at CoverWallet.\nFundamentally, this opportunity to serve substantial new addressable markets is driven by client demand.\nAt Aon, we relentlessly focused on the voice of the client, and we're hearing consistent client feedback about the need to make better decisions around long tail risks.\nFor example, we're currently getting this guidance from the almost 3,500 clients that are currently participating in our regional Aon Insight series.\nAnd it's also being reinforced by two pieces of proprietary research that we recently released.\nEvery two years, Aon conducts our global risk management survey, and the latest report released three days ago was informed by insights from more than 2,300 clients across 16 industries spanning public and private organizations from 60 countries around the world.\nWith more emphasis and reliance on technology, cyber risk top the list as the number one current and predicted future risk globally.\nIt's highest rank since the inception of survey.\nThe top 10 risks also reflect the impact COVID has had on organizations as they needed to navigate volatility with better and faster decisions.\nWe're seeing organizations shift focus from event-based to impact-based risk assessments, reflecting the shift in mindset following the systemic impact of the pandemic.\nAon also recently released results of a survey focused on 800 C-suite leaders and senior executives in the U.S., EU, U.K. and Canada to understand how organizations are preparing for and responding to the current environment.\nWe found that, today, senior leaders are more astutely risk aware than ever before, but remain confident to take on calculated risks and investments that build resiliency of their companies.\nAs we stated before, the approach to risk strategy has shifted from being generally defensive and risk averse to more opportunistic, taking a holistic, integrated view as they seek solutions to address these challenges.\nThere's great respect to the need to defend their businesses, but that's accompanied by a desire to find solutions that help them win, that the IP financing example highlights.\nIn this environment, we're uniquely positioned to deliver data-driven insights to help our clients make better decisions that grow their businesses.\nFourth and finally, we continue to see tremendous impact of our commitment to inclusive people leadership.\nVoluntary attrition is down substantially versus our 2019 baseline our quarterly pulse of colleagues shows that we continue to enjoy all-time high engagement levels.\nMany examples highlight our talent focus and priority, including our commitment on our entrepreneurship programs and a $30 million investment to create 10,000 new roles in the apprenticeship community.\nOur investment in talent development has over 14,000 Aon colleagues around the world have participated in training programs in the last nine months alone, and the announcement of the Ann United growth ownership plan.\nIn summary, our global Aon team delivered the best third quarter results in over a decade.\nOur Aon United Blueprint, powered by our capability in Aon Business Services, combined with significant investment in new and growing categories of addressable client demand, reinforces the momentum we have today and offer even greater potential over the next few years.\nThe result is clients that are better informed, better advised and equipped to make better decisions.\nAs Greg highlighted, we delivered continued progress for both the quarter and year-to-date.\nThrough the first nine months of the year, we translated strong organic revenue growth into double-digit adjusted operating income and adjusted earnings-per-share growth, building on our momentum as we head into the last quarter of the year.\nAs I further reflect on our performance year-to-date, as Greg noted, organic revenue growth was 12% in the third quarter and 9% year-to-date, our strongest organic revenue growth in over a decade.\nWe saw strong global macroeconomic conditions in the quarter, but we continue to assess the refactors as we have since the beginning of the pandemic.\nThose factors are the virus and vaccine rollout, including the potential impacts of new variants, government stimulus and overall GDP growth.\nThese macroeconomic conditions do impact our clients in various areas of our business.\nConsidering the current outlook for these factors, we continue to expect mid-single-digit or greater organic revenue growth for the full year 2021, 2022 and over the long term.\nI would also note that total reported revenue was up 13% in Q3 and 12% year-to-date, including the favorable impact from changes in FX rates driven by a weaker U.S. dollar versus most currencies.\nMoving to operating performance.\nFirst, I want to speak to the impact of our previously communicated repatterning expenses as compared to COVID-impacted expense in 2020, which I'll describe before any 2021 growth.\nAs we've described, the timing of expenses is changing year-over-year, such that $65 million of expenses moved into Q3 from Q4.\nThis impact is due to the actions we took allotted in 2020 as we reduced discretionary expenses to be prepared for the impact of COVID-19 and potential macroeconomic distress.\nIn Q3, this repatterning negatively impacted margins by approximately 240 basis points, resulting in Q3 operating margin contraction of 30 basis points.\nExcluding this impact, margins would have expanded by 210 basis points in Q3 and 240 basis points year-to-date.\nA second key factor impacting adjusted margins has been the relative speed of revenue growth and investment.\nIn Q3, excluding the impact of the repatterning, our strong organic revenue growth significantly outpaced expense growth similar to Q2.\nWe continue to evaluate investments using our return on invested capital framework in the areas of talent, and business services and innovation to enable long-term growth.\nWe expect that these areas of investment will continue to ramp up significantly during Q4.\nIn addition, we anticipate continued resumption of T&E and modest increases in real estate as more colleagues return to the office.\nCollectively, the headwind from expansionary patterning and tailwind from slower investment as compared to revenue growth were the main factors driving 30 basis points of margin contraction in Q3 and 20 basis points of margin expansion year-to-date.\nLooking forward, as we've said historically, we expect to deliver full year margin expansion for 2021 and over the long term.\nTurning back to the results in the quarter.\nWe translated strong adjusted operating income growth into adjusted earnings per share growth of 14% in Q3 and 16% year-to-date.\nAs noted in our earnings material, FX translation was a favorable impact of approximately $0.02 per share in Q3 and $0.24 per share year-to-date.\nIf currencies remain stable at today's rates, we would expect an insignificant impact in Q4.\nExcluding the costs associated with the termination of the combination with Willis Towers Watson-related costs, our performance and outlook for free cash flow in 2021 and going forward remains strong.\nFree cash flow decreased 40% year-to-date to $1.1 billion as strong revenue growth was offset by the $1 billion termination fee payment and other related costs.\nOf the total $1.363 billion of termination fee and other related costs, a pre-tax amount, the $1 billion termination fee was paid in Q3 and approximately 2/3 of the remaining charges will be paid in 2021, with the majority of the balance paid in 2022.\nWe continue to expect to drive free cash flow over the long term, building on our long-term track record of 14% CAGR over the last 10 years based on operating income growth, working capital improvements and reduced structural uses of cash enabled by Aon Business Services.\nAs Greg highlighted, Aon Business Services not only drive efficiencies, but also enables revenue opportunities and innovation at scale.\nAs an example, through our integrated vendor management system in the U.S. last year, we were able to ensure that 5% of addressable vendor spend was with diverse suppliers, which is two times higher than the Fortune 500 average.\nIn addition to being a key initiative for Aon as part of our overall ESG strategy, this is also a way we can have an even bigger impact on what we deliver for clients in an Aon United way.\nIn the third quarter, we have an opportunity to engage with the biopharmaceutical clients looking to establish a supplier diversity program as part of their broader inclusion and diversity strategy.\nGiven our demonstrated supply diversity expertise, our global spend management team and human capital colleagues came together to forge a new innovative solution based on this client's emerging need, which included establishing government structure and conducting research on peer and industry norms.\nGiven our outlook for long-term free cash flow growth, we expect share repurchase to continue to remain our highest return on capital opportunity for capital allocation.\nIn the third quarter, we repurchased approximately 4.4 million shares or approximately $1.3 billion.\nWe also expect to continue to invest organically and inorganically in innovative content and capabilities to address unmet client needs.\nOur M&A pipeline, centered around the four areas that Greg described, is focused on bringing innovative solutions to our clients' biggest challenges, delivered by the connectivity of Aon United.\nI would also note that on October one, we closed the previously announced sale of our retiree exchange business to a light.\nIn 2020, the Retiree Exchange generated $176 million of revenue and it is a predominantly Q4 business.\nTurning now to our balance sheet and debt capacity.\nWe remained confident in the strength of our balance sheet and manage liquidity risk through a well-lettered debt maturity profile.\nIn Q3, we issued $1 billion of senior notes as we return closer to historical leverage ratios, while maintaining our current investment-grade credit ratings.\nInterest expense in the fourth quarter is expected to be approximately $85 million, reflecting our increased debt levels.\nOver the long term, we expect to return to our past practice of growing debt as EBITDA grows.\nFurther, I'd note that fourth quarter is our seasonally strongest quarter for free cash flow generation, and we intend to allocate this cash to our highest and best uses based on return on capital, which remains share repurchase.\nIn summary, strong top and bottom line performance for both the quarter and year-to-date reflect continued progress and momentum as we enter the last quarter of the year.\nWe believe our disciplined approach to return on invested capital, combined with expected long-term free cash flow growth, will unlock substantial shareholder value creation over the long term.",
        "summary": "q3 revenue rose 13 percent to $2.7 billion."
    },
    {
        "text": "This is Craig Lampo Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO.\nI will provide some financial commentary.\nAnd then, Adam will give an overview of the business as well as current trends, and then we will take questions.\nThe company closed the third quarter with record sales of $2,818,000,000 and GAAP and adjusted diluted earnings per share of $0.67 and $0.65 respectively.\nSales were up 21% in U.S. dollars, 20% in local currencies and 13% organically compared to the third quarter of 2020.\nSequentially, sales were up 6% in U.S. dollars, in local currencies and organically.\nOrders for the quarter were $3,016,000,000, which was up 33% compared to the third quarter of 2020 and down 3% sequentially, resulting in a very strong book-to-bill ratio of 1.07 to 1.\nBreaking down sales into our two segments, the Interconnect segment which comprised 96% of sales was up 21% in U.S. dollars, and 20% in local currencies compared to the third quarter of last year.\nOur Cable segment which comprised 4% of our sales was up 18% in U.S. dollars and 17% in local currencies compared to the third quarter of last year.\nAdam will comment further on trends by market in a few minutes.\nOperating income was $571 million in the third quarter.\nOperating margin was 20.3%, which decreased by 20 basis points compared to the third quarter of 2020, but increased by 30 basis points sequentially when compared to the second quarter 2021 adjusted operating margin.\nThe year-over-year decline in operating margin was primarily driven by the impact of the more challenging commodity and supply chain environment in 2021, together with the slight margin dilution of recent acquisitions, including MTS which are currently operating at a lower operating margin than the company average.\nThe sequential increase in operating margin compared to the second quarter -- adjusted operating margin was driven by normal conversion on the increased sales levels.\nFrom a segment standpoint, in the Interconnect segment margins were 22.4% in the third quarter of 2021 which was equal to the third quarter of 2020, an increase from 22% in the second quarter of 2021.\nIn the Cable segment margins were 3.8%, which decreased from 10.7% of third quarter of 2021, and 6.1% in the second quarter of 2021.\nOur margins in the cable segment continue to be particularly impacted by the ongoing and sudden increase in commodity and logistics costs, which have not yet been offset by pricing actions.\nGiven the dynamic economic environment, we are very proud of the company's performance.\nOur team's ability to effectively manage many challenges is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high performance action oriented culture.\nThe company's GAAP effective tax rate for the third quarter of -- was 22.2%, which compared to 22.1% in the third quarter of 2020.\nOn an adjusted basis, the effective tax rate was 24.5% in the third quarter of both 2021 and 2020.\nGAAP diluted earnings per share was $0.67, an increase of 20% compared to $0.56 in the prior year period.\nAnd adjusted diluted earnings per share was a record $0.65, an increase of 18% compared to $0.55 in the third quarter of 2020.\nOperating cash flow in the third quarter was $328 million or 81% of adjusted net income.\nNet of capital spending, our free cash flow was $238 million or 59% of adjusted net income.\nCash flow in the quarter was a bit lower than we would typically expect primarily due to the higher-than-typical increase in inventory levels driven by the continued -- challenging supply chain environment.\nFrom a working capital standpoint, inventory days, days sales outstanding and payable days were 91, 70 and 61 days, respectively.\nWhile days sales and payable days were both within our normal range inventory days at the quarter end were elevated for the reasons just mentioned, as well as the impact of recent acquisitions which have inventory days that are currently significantly above the company average.\nDuring the quarter, the Company repurchased 2.3 million shares of companies -- of common stock for approximately $171 million at an average price of approximately $73.\nAnd at the end of the quarter, total debt was $5.2 billion and net debt was $3.9 billion.\nTotal liquidity at the end of the quarter was $2.9 billion, which included cash and short-term investments on hand of $1.3 billion plus availability under our existing credit facilities.\nThird quarter 2021 GAAP EBITDA was $686 million and our net leverage ratio was 1.6 times.\nAs previously discussed, due to the pending sale of the MTS Test & Simulation business, that business is being reported as a discontinued operation and therefore it's expected results are excluded from our Q4 guidance.\nIn addition, the company will incur certain additional cash, tax and other acquisition-related cost upon the divestiture of the Test & Simulation business, which is not included in income from continuing operations.\nAs Craig mentioned, I'm going to highlight some of our achievements here in the third quarter.\nI will discuss the trends and our progress across our served markets.\nAs Craig went over, our results in the third quarter were substantially better than we had expected coming into the quarter.\nWe exceeded the high end of our guidance in sales as well as an adjusted diluted earnings per share.\nOur sales grew a very strong 21% in U.S. dollars in 20% in local currencies, reaching a new record $2,818,000,000.\nOn an organic basis, our sales increased by 13% with broad-based growth across most of our served markets as well as contributions from the company's acquisition program.\nOrders in the quarter were robust again, more than $3 billion, $3,016,000,000, and this represented another strong book-to-bill of 1.07 to 1.\nNow despite the many operational challenges that we have continued to face throughout the quarter, including continued cost increases related to commodities, supply chain and other logistics pressures, we were very pleased to deliver robust operating margins of 20.3% in the quarter and as Craig detailed, that was a 30 basis point sequential improvement.\nOur EPS, adjusted diluted earnings per share grew strongly from prior year, increasing by 18% to a new record $0.65, and that's just an excellent reflection, once again, of our organization's continued strong execution.\nThe company generated operating and free cash flow of $328 million and $238 million in the third quarter and we're very pleased that the Board of Directors just approved yesterday, an increase in our dividend of 38% effective in January of next year.\nComing out of this quarter, I'm just extremely proud of our team around the world.\nThese results once again reflect the discipline as well as the agility of our entrepreneurial organization as we continue to perform well amid the very dynamic and challenging environment.\nNow turning to our trends and progress across our served markets, we're very pleased that the company's broad and balanced end-market diversification continues to create value for Amphenol.\nVery importantly our diversification mitigates the impact of the volatility of individual end-markets while also at the same time exposing us to leading technologies wherever they may arise across the electronics industry.\nAnd these are both important benefits, especially amid such a dynamic market environment.\nTurning first to the Military market, this market represented 10% of our sales in the third quarter.\nSales grew by 7% from prior year and declined by 4% organically, which was a little bit lower than our expectations heading into the quarter.\nOn an organic basis growth in ordinance, airframe and space-related products was more than offset by moderations of our sales of products that are used in vehicle, naval and communications applications.\nSequentially sales declined by about 3%.\nLooking into the fourth quarter, we now expect to see sequential sales increase.\nAnd for the full year 2021, this would imply a mid-teens increase in sales from last year's levels.\nWe continue to be excited by the strength of Amphenol's position in the military market as defense customers around the world continue to adopt next generation technologies at an increasing pace.\nOur industry-leading breadth of high technology Interconnect and Sensor products positions the company strongly across essentially all major defense programs, and this gives us confidence for our long-term performance.\nThe commercial aerospace market represented 2% of our sales in the quarter.\nSales were flat compared to prior year, and declined by about 19% organically as the benefit of our recent acquisitions was offset by continued declines in demand from aircraft manufacturers.\nAs we expected coming into the quarter, our sales declined by about 3% sequentially.\nLooking into the fourth quarter, we are happy that -- to now expect a mid-teens increase in sales compared to these levels, and for the full year 2021, this would imply roughly 10% sales decline compared to last year, a clear reflection of the pandemic related headwinds that have impacted the travel industry and thus the commercial aircraft market during the COVID-19 pandemic.\nRegardless of this challenging environment so far, our team working in the commercial aerospace market remains committed to leveraging the company's strong Interconnect and Sensor technology position across a wide array of airplane, platforms and next generation systems, integrated into those aircraft.\nAs personal and business travel continues to recover from the pandemic impacted lows, we do look forward to benefiting as jet manufacturers expand their production and in turn expand their procurement of our components.\nThe industrial market represented 26% of our sales in the quarter.\nSales increased by a very strong 44% in U.S. dollars and 24% organically.\nThis excellent growth was broad based across most segments of the worldwide industrial market, including in particular the battery and heavy electric vehicle, factory automation, oil and gas, rail mass transit, heavy equipment, alternative energy and instrumentation segments, together with the contributions from our recent acquisitions.\nOn a sequential basis, sales increased by 4% from the second quarter, which was much better than our expectations coming into the quarter.\nLooking into the fourth quarter, we expect sales to moderate from these levels, but for the full year 2021, we expect sales to increase more than 40% from prior year, a very strong performance.\nI remain extremely proud of our global team working in the industrial market.\nOur long-term strategy to expand our high technology Interconnect, Antenna and Sensor, offering both organically and through complementary acquisitions has positioned the company to capitalize on the many revolutions that are occurring across the industrial electronics market.\nWe look forward to realizing the benefits of the strategy for many years to come.\nThe automotive market represented 19% of our sales in the quarter and despite the widely reported challenges across the automotive market, our sales actually came in higher than expectations in the quarter growing a strong 31% in U.S. dollars and 26% organically.\nThis strong performance reflected our automotive team's excellent execution in the face of numerous supply chain challenges, as well as robust growth of our products used in electric and hybrid electric vehicles.\nThis is another clear confirmation of our global team's long term efforts at designing in high voltage and other Interconnect and Sensor products into these next-generation platforms.\nOn a sequential basis, sales were flat compared to the second quarter.\nThe widely reported supply chain challenges in the auto industry continued to impact demand from vehicle manufacturers around the world.\nAccordingly, we do expect in the fourth quarter, a high-single digit sequential moderation in sales.\nFor the full year 2021, this implies sales will increase by more than 40% compared to last year, driven by our expanded position in next generation electronics integrated into cars, including in particular, those electric and hybrid drivetrains.\nI remain extremely proud of our team working in the automotive market, who has continued to demonstrate a high degree of agility and resiliency in both driving a significant recovery from last year as reduced sales levels, while also expertly navigating the myriad of supply chain challenges that the entire automotive industry is facing.\nWe look forward to benefiting from their efforts long into the future.\nThe mobile devices market represented 13% of our sales in the quarter and our sales in this market declined from prior year by 5% as modest growth in sales of products incorporated into smartphones and laptops was more than offset by declines in wearables and tablets.\nSequentially sales increased by a stronger than expected 36% driven by higher sales across virtually all product categories that we serve.\nLooking into the fourth quarter, we expect a continued mid to high single-digit increase in sales from these third quarter levels, and for the full year, we anticipate sales to grow modestly from 2020, which is in fact an impressive achievement given last year's robust demand.\nI remain very proud of our team working in the mobile devices market.\nTheir unique agility continues to enable the company to react quickly to changing demand in this most volatile of markets.\nWith our leading array of Antennas, Interconnect products and mechanisms enabling a broad range of next generation mobile devices, we're positioned well for the long term.\nTurning to the mobile networks market, this market represented 5% of our sales in the quarter and sales increased by 11% from prior year and 7% organically.\nAnd this sales growth was really driven by our sales to mobile service providers, which was offset by a small moderation of sales to OEMs. On a sequential basis, our sales increased just slightly, which was largely in line with our expectations coming into the quarter.\nFor the fourth quarter, we expect another slight sequential increase in sales as mobile networks customers continue to ramp up their investments in 5G and other next generation networks.\nAnd for 2021, this would imply that our sales would grow by approximately 10%.\nOur team continues to work aggressively in the mobile networks market to realize the benefits of our efforts to expand our position in next generation 5G equipment and networks around the world.\nAs our customers ramp up their investments into these advanced systems we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers.\nThe information technology and datacom market represented 22% of our sales in the quarter.\nSales in this market rose from prior year by a very strong 28% in U.S. dollars and 26% organically.\nThis was driven by increased demand from OEMs, and in particular, increased demand from web service providers.\nSequentially our sales grew by a better than expected 10% from second quarter levels.\nAs we look into the fourth quarter we do expect a slight decline from these elevated levels, and for the full year 2021, we expect sales to increase in the low 20% range.\nWe remain encouraged by the company's outstanding position in the global IT datacom market.\nOur OEM and service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power.\nIn turn, our team remains highly focused on enabling this continuing revolution in IT datacom with industry leading high speed power and fiber optic Interconnect products.\nWe look forward to realizing the benefits of that leading position for many years to come.\nAnd finally, the broadband market represented 3% of our sales in the quarter.\nSales declined by 5% from prior year and 10% organically as cable operator procurement moderated.\nOn a sequential basis, sales decreased by a slightly better than expected 3%.\nFor the fourth quarter, we now expect a further moderation in sales from these levels, and for the full year 2021, we anticipate that sales will grow in the mid-single digits.\nDespite this more challenging environment in the broadband market we continue to look forward to supporting our service provider customers around the world, all of whom are working to increase their bandwidth to support the expansion of high-speed data applications to homes and businesses.\nNow turning to our outlook, there's no question that the current market environment remains highly uncertain with significant supply chain and inflationary challenges as well as the ongoing pandemic.\nGiven this, and assuming constant exchange rates, for the fourth quarter, we expect sales in the range of $2,690,000,000 to $2,750,000,000, and adjusted diluted earnings per share in the range of $0.61 to $0.63.\nThis would represent year-over-year sales growth of 11% to 13% and adjusted diluted earnings per share growth of 7% to 11%.\nOur fourth quarter guidance represents an expectation for full-year sales of $10,540,000,000 to $10,600,000,000, and full year adjusted diluted earnings per share of $2.39 to $2.41.\nThis outlook represents full year sales and adjusted earnings per share growth of 23% and 28% to 29%, respectively.\nI remain confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability.\nIn addition, our entire organization remains committed to delivering long-term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world.\nAnd with that, Operator, we'd be very happy to take any questions.",
        "summary": "q3 adjusted earnings per share $0.65.\nq3 gaap earnings per share $0.67."
    },
    {
        "text": "This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO.\nI will provide some financial commentary, and then Adam will give you an overview of the business as well as current trends.\nThen we will take questions.\nThe company closed the fourth quarter with record sales of $3,027 billion and GAAP and adjusted diluted earnings per share of $0.72 and $0.70, respectively.\nWe are very proud that the fourth quarter represents the first time in Amphenol's history that we achieved quarterly sales in excess of $3 billion.\nFourth-quarter sales were up 25% in U.S. dollars and in local currencies and up 18% organically.\nCompared to the fourth quarter of 2020, the significant sales increase was primarily driven by the robust growth in the IT, data communications, industrial, mobile networks, commercial air, automotive, and broadband markets, including contributions from the company's acquisition program.\ndollars and organically and 8% in local currencies.\nFor the full year 2021, sales were a record $10,876 billion, which were up 26% in U.S. dollars, 25% in local currencies, and 18% organically compared to 2020.\nOrders for the quarter were $3.278 billion, which is up 30% compared to the fourth quarter of 2020 and up 9% sequentially, resulting in a strong book-to-bill ratio of 1.08:1.\nBreaking down fourth-quarter sales into our two segments.\nThe interconnect segment, which comprise 96% of our sales, was up 25% in U.S. dollars, while the cable segment was up 22% in U.S. dollars.\nBreaking down full-year sales into our two segments.\nThe interconnect segment was up 27% in U.S. dollars and the cable segment was up 21% in U.S. dollars.\nAdam will comment further on trends by market in a few minutes.\nGAAP and adjusted operating income was $593 million and $608 million, respectively, in the fourth quarter of 2021, and GAAP operating margin was 19.6%, which decreased by 50 basis points compared to the Q4 of 2020 and by 70 basis points relative to the third quarter of 2021.\nFourth-quarter 2021 GAAP operating income includes $15 million of acquisition-related costs related to the Halo acquisition, which closed during the fourth quarter.\nExcluding these costs, the fourth quarter 2021 adjusted operating margin was 20.1%, which decreased by 50 basis points compared to the fourth quarter of 2020 and by 20 basis points relative to the third quarter of 2021.\nThe year-over-year decrease was primarily driven by the impact of the more challenging commodity and supply chain environment, together with a slight margin dilution of acquisitions, and these impacts were partially offset by the normal operating leverage on higher sales levels as well as the lower negative cost impacts from the pandemic.\nOn a sequential basis, the slight decrease in adjusted operating margin was due to the continued challenging commodity and supply chain environment, which has not yet been fully offset by pricing and other actions.\nFor the full year 2021, GAAP operating margin was 19.4% and adjusted operating margin was 20%.\nThe 80 basis point increase in adjusted operating margin as compared to 2020 was primarily driven by the normal operating leverage on higher sales volumes as well as the lower negative cost impacts resulting from the pandemic, and these benefits were partially offset by the more challenging commodity and supply chain environment experienced in 2021 as well as the current margin dilutive effect of the acquisitions we made during the year.\nFrom a segment standpoint, operating margin in the interconnect segment was 22.1% in the fourth quarter of 2021, and operating margin in the cable segment was 2.4%.\nOur margins in the cable segment continued to be particularly impacted by the ongoing and significant increase in commodity and logistics costs, which have not yet been offset by pricing actions.\nGiven the dynamic overall cost and supply chain environment, we are very proud of the company's operating performance.\nOur team's ability to effectively manage through all of these many challenges is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster high-performance, action-oriented culture.\nThe company's GAAP effective tax rate for the fourth quarter was 18.8% and the adjusted effective tax rate was 23.8%, which compared to 21.7% and 24.5% in the fourth quarter of 2020, respectively.\nThe slightly lower adjusted tax rate in the quarter reflected the year-to-date true-up of a full-year adjusted effective tax rate from the expected 24.5% to a slightly lower 24.3% a result -- as a result of a slightly more favorable mix of income for the full year.\nFor the full year 2021, the company's GAAP effective tax rate was 20.6% and the adjusted effective tax rate was 24.3%, which compared to 20.5% and 24.5% in 2020, respectively.\nIn 2022, we expect our adjusted effective tax rate to be approximately 24.5%.\nGAAP diluted earnings per share was a record $0.72 in the fourth quarter, an increase of 26%, compared to $0.57 in the prior-year period, and adjusted diluted earnings per share was also a record $0.70, an increase of 23%, compared to $0.57 in the fourth quarter of 2020.\nFor the full year, GAAP diluted earnings per share was $2.51, a 28% increase from $1.96 in 2020.\nAnd adjusted diluted earnings per share was $2.48 in 2021, an increase of 33% compared to 2020.\nThis was an excellent result, especially considering the significant cost, supply chain, and other operational challenges the company faced in 2021.\nOperating cash flow in the fourth quarter was a record $464 million or 106% of adjusted net income.\nAnd net of capital spending -- our free cash flow was also a record $379 million or 87% of adjusted net income.\nFor the full year, 2021 operating cash flow was $1.524 billion or 98% of adjusted net income.\nAnd net of capital spending, our free cash flow for 2021 was $1.167 billion or 75% of adjusted net income.\nFrom a working capital standpoint, inventory days, days sales outstanding and payable days were 80, 71, 56 days, respectively all of which were within our normal range, and we are especially pleased that our team's focus on all elements of working capital management, which resulted in a significant reduction of the company's inventory days from the third quarter.\nDuring the quarter, the company repurchased 2.1 million shares of common stock at an average price of $81 bringing total repurchases during 2021 to 9.3 million shares or $662 million.\nWhen combined with our normal quarterly dividend, total capital returned to shareholders in 2021 was more than $1 billion.\nTotal debt at December 31 was $4.8 billion, and net debt was $3.6 billion.\nTotal liquidity at the end of the quarter was $2.9 billion, which included cash and short-term investments on hand of $1.2 billion-plus availability under our existing credit facilities.\nFor the quarter and full-year 2021 GAAP EBITDA was $726 million and $2.6 billion, respectively.\nAnd at the end of 2021, our net leverage ratio was 1.4 times.\nWe will report results for these new segments as well as comparable historical financial data starting in the first quarter of 2022.\nAnd hopefully, it's not too late for me to wish you and your family is all a happy new year.\nI also want to just express my wishes that everybody here on the call together with your family, your friends, and your colleagues are all managing to stay safe and healthy, in particular, amid the Omicron wave that's occurring in many areas of the country.\nAs Craig mentioned, I'm going to highlight some of our fourth quarter and, in particular, our full-year achievements.\nI'll discuss our trends and progress across our served markets, and then I'll make a few comments on our outlook in the first quarter.\nAnd of course, we'll have time for Q&A thereafter.\nWith respect to the fourth quarter, we're truly proud to have finished the year with record sales and adjusted earnings per share in the fourth quarter, both of which were significantly above the guidance that we gave just 90 days ago.\ndollars and in local currencies reaching a new record of $3.27 billion.\nOn an organic basis, our sales increased by 18%, driven in particular by robust growth in the IT datacom, mobile networks, industrial, and automotive end markets.\nAnd I'll talk to each of those markets here in a moment.\nThe company booked a record $3.278 billion in orders in the fourth quarter which represented another strong book-to-bill of 1.08:1.\nDespite the many operational challenges we and others continue to face, including ongoing cost increases related to commodities, supply chain and other pressures, our adjusted operating margins in the quarter reached a very strong 20.1%.\nAdjusted diluted earnings per share was a new record $0.70 and represented a robust growth of 23% from prior year, an excellent demonstration of our organization's continued strong execution.\nAnd as Craig mentioned, we generated record operating and free cash flow in the quarter of $464 million and $379 million, respectively, both of which are clear reflection of the quality of the company's earnings.\nJust at the end of this quarter, I'm extremely proud of our team.\nAs these quarter's results once again reflect the discipline and the agility of our entrepreneurial organization who continued to perform very well amid a very challenging environment.\nWe're also very pleased that in the quarter, we announced on December 1, the acquisition of Halo Technology Limited for a purchase price of approximately $715 million.\nHalo is a leading provider of active and passive fiber optic interconnect components for the communications infrastructure markets with expected sales this year of approximately $250 million.\nPayless product offerings are highly complementary to our existing high-speed and fiber optic interconnect solutions and represent a significant long-term growth opportunity for Amphenol, in particular with customers in our IT datacom, mobile networks, and broadband markets.\nWe're especially excited that Halo significantly bolsters our position in active fiber optic interconnect products, which is a technology with truly high-growth potential as customers around the world are upgrading their networks to support the acceleration of high-speed data traffic.\nHalo is an agile supplier of these important products to a wide variety of customers across these communications infrastructure markets, whose unique technology and service offering enables them to realize strong operating results.\nWe also announced on December 1, the closing of the sale of the MTS Test & Simulation business to Illinois Tool Works or ITW.\nWe remain extremely pleased with the entirety of the MTS acquisition, which as you all recall, was announced last year in the fourth quarter, meaning 2020.\nWith the disposition of Test & Simulation to ITW, we have now acquired one of the leading sensor companies in the industry, further strengthening our broad offering of high-technology sensors.\nWe're very proud of the performance of the MTS sensors team during their first three quarters as part of the Amphenol family, and we look forward to them driving outstanding value for many years to come.\nI remain very confident that our acquisition program will continue to create great value for the company.\nAnd in fact, our ability to identify and execute upon acquisitions and then to successfully bring these new companies into Amphenol remains a core competitive advantage for the company.\nNow turning to the full year of 2021.\nI can just say it was an extremely successful year for Amphenol despite the many operational and cost challenges that we faced.\ndollars and 18% organically reaching a new sales record of $10.876 billion.\nI would just note that, in fact, over the past two years, both of which have been impacted by the COVID-19 pandemic.\nWe've grown our sales by more than 32% from our 2019 levels, which is a great confirmation of the value of the company's diversification and the agility of our management team in every environment.\nOur full-year 2021 adjusted operating margins reached 20%, which was an increase of 80 basis points from last year from 2020 despite the multiple pressures on margins that we experienced around the world.\nAnd this strong level of profitability enabled us to achieve record-adjusted diluted earnings per share of $2.48.\nWe generated operating and free cash flow of $1.524 billion and $1.167 billion, respectively, again, excellent confirmations of the company's superior execution and disciplined working capital management.\nWe also put that cash to work with our acquisition program that created great value in 2021 with 7 new companies added to the Amphenol family.\nMTS Sensors, Halo, Positronic, El-Cab, Unlimited Services, Cablecon, and Euromicron, have collectively expanded our position across a broad array of technologies and markets while bringing outstanding and talented individuals into the Amphenol family and thereby strengthening our organization.\nWe're excited that these acquisitions represent expanded platforms for the company's future performance.\nIn addition, as Craig noted, in 2021, we bought back over 9.3 million shares under our share buyback program and increased our quarterly dividend by 38% representing a total return of capital to shareholders of just over $1 billion for the year.\nSo while there continues to be a high level of volatility in the overall environment in 2021, as we enter 2022, our agile entrepreneurial management team is confident that we have built further strength from which we can drive superior long-term performance.\nNow let me turn to the performance of the company across our served markets.\nAnd I would just note that we remain very pleased that the company's balanced and broad end-market diversification continues to create value for Amphenol with no single end market representing more than 25% of our sales in 2021, and that market, industrial being really one of our most diversified markets across the segments within industrial.\nWe believe that this diversification mitigates the impact of the volatility of individual end markets while continuing to expose us to the leading technologies wherever they may arise across the electronics industry.\nNow turning to the military market.\nMilitary represented 10% of our sales in the fourth quarter and 11% of our sales for the full year of 2021.\nOur sales grew from prior year by 6% in U.S. dollars in the fourth quarter as we benefited from acquisitions.\nOn an organic basis, our sales did moderate by about 4% driven by reduced sales related to airframe applications and ground vehicles.\nSequentially, our sales increased slightly as we had expected coming into the quarter.\nFor the full year 2021, sales to the military market grew by 13% in U.S. dollars and 4% organically, reflecting our leading market position and strong execution across virtually all segments of the military market, together with the benefits of the MTS Sensors and Positronic acquisitions completed earlier in the year.\nLooking ahead, we expect sales in the first quarter to increase slightly from these fourth-quarter levels and we continue to be excited by the strength of the company's position in the military market.\nAs militaries around the world continue to accelerate their adoption of next-generation technologies, our industry-leading breadth of high-technology Interconnect and Sensor products positions the company strongly across essentially all major defense programs, and this gives us confidence for our long-term performance.\nThe commercial aerospace market represented 2% of our sales in the fourth quarter and as well for the full year of 2021.\nSales in the quarter grew 27% in U.S. dollars and 6% organically as we benefited from the beginnings of a recovery in procurement to support growing aircraft production as well as from the contributions from our recent acquisitions.\nSequentially we're very pleased that our sales grew a robust 15% from the third quarter, which was in line with our expectations coming into the quarter.\nFor the full year, sales declined by 10% reflecting the significant impact of the ongoing pandemic on travel and aircraft production.\nLooking into -- looking into the first quarter, we expect a sequential moderation in sales from these levels.\nRegardless of the challenges in the Com Air market in both 2020 and 2021, our team working in this market remains very committed to leveraging the company's strong Interconnect and Sensor technology positions across a wide array of aircraft platforms and next-generation systems integrated into those airplanes.\nAs personal and business travel continues to recover from the pandemic impacted lows, we look forward to benefiting as jet manufacturers expand their production and, in turn, their procurement of our products.\nThe industrial market represented 25% of our sales in the fourth quarter and for the full year, and sales in this market significantly exceeded our expectations coming into the quarter increasing by a very strong 42% in U.S. dollars and 25% organically from prior year.\nWe experienced robust strength in essentially all segments of the industrial market with particular strength in battery and heavy electric vehicle, transportation, rail mass transit, factory automation, heavy equipment as well as oil and gas.\nOn a sequential basis, our sales increased by 2%, which was significantly better than our expectation for a sequential moderation as we saw broad-based strength.\nFor the full-year 2021, sales in the industrial market grew by a very strong 46% in U.S. dollars and 27% organically as we saw again broad-based growth across virtually all market segments of the global industrial market.\nLooking to the first quarter of 2022, we do expect a sequential moderation in sales from these very strong fourth-quarter sales levels.\nOur outstanding global team working in the industrial market continues to find new opportunities for growth across the many segments of this exciting market.\nI remain confident that our long-term strategy to expand our high-technology Interconnect antenna and sensor offerings, both organically as well as through complementary acquisitions has positioned us to capitalize on the many revolutions happening across the industrial electronics market.\nWe look forward to realizing the benefits of this strategy for many years to come.\nThe automotive market represented 19% of our sales in the fourth quarter and 20% for the full year 2021.\ndollars and 16% organically versus prior year, and this was driven particularly by strength of our sales in the hybrid and electric vehicle applications as well as our sales to customers in Asia.\nSequentially, our automotive sales increased by a very strong 10%, well above our prior expectations for a high single-digit decline as we saw strong demand from customers in anticipation of improving production volumes in the first quarter.\nFor the full year 2021, our sales to the automotive market increased by a strong 47% in U.S. dollars and 41% organically, reflecting the continued recovery of the automotive market as well as our expanded position in next-generation electronics integrated into cars, including, in particular, electric and hybrid drivetrains.\nLooking into the first quarter, we expect a high single-digit sequential moderation in sales from these very lofty levels that we achieved in the fourth quarter.\nI remain extremely proud of our team working in the automotive market, who has demonstrated an incredible degree of agility and resiliency in both driving a significant recovery from the reduced sales levels in 2020, while also expertly navigating the myriad of supply chain challenges that struck the entire automotive industry during the course of this year.\nWe look forward to benefiting from their efforts long into the future.\nThe mobile devices market represented 14% of our sales in the fourth quarter and 12% of our sales for the full year of 2021.\nOur sales to mobile device customers declined from prior year by 5% and in U.S. dollars and 6% organically as declines in products incorporated into smartphones more than offset the growth that we did realize in wearable devices, laptops, and tablets.\nSequentially, our sales increased by a better-than-expected 14%, driven by higher sales to smartphones and wearable devices.\ndollars and 2% organically as we benefited from growth in our products used in laptops and wearables, offset in part by a moderation of sales related to smartphones and tablets which, as you will recall, were particularly strong during 2020 with all of the work from home and study from home dynamics that were there early on in the pandemic.\nLooking into the first quarter, we anticipate a typical seasonal sequential decline of approximately 35%.\nWhile mobile devices will always remain 1 of our most volatile markets, our outstanding and agile team is poised as always to capture any opportunities for incremental sales that may arise in 2022 and beyond.\nOur leading array of antennas, interconnect products, and mechanisms continue to enable a broad range of next-generation mobile devices, which positions us well for the long term.\nThe mobile networks market represented 5% of our sales in the quarter and for the full year.\nAnd we're very pleased that sales in mobile networks increased from prior year by a very strong 36% in U.S. dollars and 28% organically.\nAnd this was with growth, particularly from our sales to mobile network operators in support of their next-generation 5G network buildouts.\nSequentially, our sales increased by a higher-than-expected 7%.\nFor the full-year 2021, our sales to the mobile networks market grew by 12% from prior year and 7% organically.\nLooking into the first quarter of 2022, we do expect sales to moderate from these very strong levels.\nOur team continues to work aggressively to realize the benefits of our long-term efforts at expanding our position in next-generation 5G equipment and networks around the world.\nAs customers continue to ramp up their investments into these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers.\nThe information technology and data communications market represented 22% of our sales in the fourth quarter and 21% of our sales for the full year.\nSales in the fourth quarter in IT datacom were much stronger than expected, rising by 53% in U.S. dollars and 49% organically from prior year as we benefited from broad-based demand for our industry-leading high-speed power and fiber optics solutions.\nWhile we saw strength really across server, networking, and storage applications, we experienced especially robust growth from web service providers and other data center operators in the quarter.\nSequentially, our sales grew by 10%, which was significantly higher than our expectations, which had been coming into the quarter of a slight decline.\nWe do believe our sales growth benefited from some modest pull-in of demand from the first quarter as customers prepared for potential supply chain issues related to Chinese New Year.\ndollars and 24% organically as we continue to benefit from our strong technology solutions and leading position across a broad array of applications.\nAgain, sales to web service providers were a significant contributor to our full-year growth in 2021.\nLooking ahead, we do expect a high single-digit moderation in the first quarter, reflecting the very robust demand in the fourth quarter.\nNevertheless, we're excited by our strengthened technology position especially with the addition of Halo's active and passive fiber optic interconnect products.\nI remain encouraged by the company's outstanding position in the global IT datacom market.\nour OEM and service provider customers continue to drive their equipment and networks to ever-higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power.\nWe look forward to realizing the benefits of our leading position for many years to come.\ndollars and 2% organically from prior year as we benefited from increased spending by cable operators as well as the contributions from our recent acquisitions.\nOn a sequential basis, sales grew by a better-than-expected 10%.\nFor the full year 2021, sales to the broadband market grew by 9% in U.S. dollars and 1% organically.\nLooking ahead, we expect sales to increase in the low double digits from these levels as we benefit from the addition of Halo's product sales into the broadband market.\nWe remain encouraged by the company's position with broadband customers and we look forward to continuing to support our service provider customers around the world, all of whom are working to increase their bandwidth to support the expansion of high-speed data applications to both homes and businesses.\nNow turning to our outlook.\nThe current market environment, no doubt, remains highly uncertain with significant continuing supply chain and inflationary challenges as well as the impact of the ongoing pandemic assuming that conditions do not meaningfully worsen and also assuming constant exchange rates.\nFor the first quarter, we expect sales in the range of $2.690 billion to $2.750 billion as well as adjusted diluted earnings per share in the range of $0.59 to $0.61.\nThis guidance represents very strong sales growth over prior year of 13% to 16% as well as adjusted diluted earnings per share growth of 13% to 17% compared to the first quarter of last year.\nThis new alignment will allow us to further scale our business beyond the $10 billion sales level that we crossed last year.\nVery importantly, this alignment further strengthens our unique and strong Amphenolian culture of entrepreneurship, while reinforcing the accountability of our 130 general managers around the world.\nI come away from this quarter still so confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability.\nIn addition, our entire organization remains committed to delivering long-term sustainable value, all while prioritizing the continued safety and health of each of our employees around the world.\nAnd the results that we saw in the fourth quarter really are a great credit to their and our entire Amphenol organization's dedication.\nAnd with that, operator, we'd be very happy to take any questions that you may have.",
        "summary": "q4 adjusted earnings per share $0.70.\nq4 gaap earnings per share $0.72.\nsees q1 adjusted earnings per share $0.59 to $0.61.\nsees q1 sales up 13 to 16 percent."
    },
    {
        "text": "The second quarter was a busy and productive one for ARI, resulting in strong earnings and a continued well-covered dividend.\nThe company originated five first mortgage loans totaling $825 million, bringing year-to-date total originations to $1.4 billion.\nMore importantly, the commercial real estate transaction market remains robust, with Real Capital Analytics reporting 167% increase in second quarter volume versus last year.\nFor ARI, we continue to see a high volume of interesting opportunities as our pipeline continues to build.\nThe diversity of the transactions closed to-date once again demonstrates the depth and talent of our origination team and highlights the benefits Apollo's platform brings to ARI.\nNotably, the transaction secured by the German portfolio of properties and the U.S. portfolio of parking facilities were, one, due to our team's ability to speak for the entire loans and to be thoughtful, flexible and efficient in underwriting and structuring.\nOur European lending platform continues to fire on all cylinders, winning many transactions that would otherwise historically have gone to banks.\nYear-to-date, approximately 70% of our transactions completed were loans secured by properties throughout Europe.\nAs our platform in Europe grows and continues to expand its market presence, we have established a reputation as a reliable, innovative capital provider.\nOur ability to provide borrowers with a one-stop shop for large financings, as well as our responsiveness and creativity around structuring has allowed us to compete very effectively in Europe.\nWith respect to loan repayments, ARI continued to benefit from improving real estate fundamentals and the robust level of liquidity in the real estate capital markets.\nthree loans totaling approximately $260 million repaid during the quarter, including one hospitality loan and two subordinate residential for-sale loans, one of which was a large New York City project, and the other was for a condominium development in Los Angeles.\nSubsequent to the quarter, an additional $287 million of loans repaid as repayment activity in general is becoming more consistent with pre-pandemic expectations.\nTurning to the balance sheet.\nARI completed an eight year $500 million debut offering of senior secured notes priced at 4.5/8%.\nThere was significant investor interest in the transaction, which enabled ARI to both upsize the deal and tighten pricing.\nConsistent with our prior commentary on corporate finance strategy, we felt it was prudent to continue to term out some of our financing, access additional non asset-specific leverage and increase our pool of unencumbered assets, which were north of $2 billion at quarter-end.\nCredit quality generally remains stable, and we continue to make progress with our focused loans.\nDemolition is moving forward at the property on Fulton Street in Brooklyn, which will be developed into an approximately 50 story, 600 unit multifamily tower.\nGiven the pace of development and the strength of the Brooklyn submarket, we reduced the original reserve against this asset by $20 million.\nWe also continue to see positive activity at our asset in the Miami Design District.\nAs I mentioned on our last earnings call, we signed a large lease with Restoration Hardware for a significant portion of the existing property.\nWith the positive momentum in the submarket, we believe the appropriate path toward maximum economic recovery will be through additional short term leases, while we focus on working through zoning and planning to read the property for redevelopment as expeditiously impossible.\nLastly, in Europe, the sales process on the asset underlying our Oxford Street loan is fully underway.\nIn the second round of bidding, there were multiple credible offers in excess of ARI's loan basis, and we anticipate the sale of the asset and a full repayment to ARI before the end of the year.\nI also wanted to provide an update on 111 West 57th Street.\nThe property is moving toward completion despite construction delays.\nWe continue to see interest from potential buyers as evidenced by recent increases in foot traffic.\nAs I have previously stated, getting the project built to spec is the first order of business for ARI, and we are confident the building is on track to be completed.\nOnce built, the price level and pacing of sales will be the next area of focus.\nBut the increasing level of interest in this property, along with the recent activity in the broader New York ultra luxury market is encouraging.\nAs we disclosed in the 10-K filed yesterday, subsequent to quarter-end, there were some changes to the property's capital structure.\nA vehicle managed by an affiliate of Apollo transferred their junior mezzanine position to ARI and in connection with this transfer, one of the properties' subordinate capital providers paid the affiliate a price representing the original principal balance and agreed to forgo the accrued interest on the loan.\nIn conjunction with this transaction, ARI and the subordinate capital provider have agreed to a waterfall sharing arrangement pursuant to which rather than the company receiving interest it would otherwise have been entitled to after July 1, 2021 on the junior mezzanine loan.\nProceeds received from the sale or refinance of the underlying collateral after repayment to priority lenders under the waterfall will be shared between ARI and the subordinate capital provider at an agreed upon allocation.\nWe will continue to provide updates on the project as construction completes and sales progress.\nFor the second quarter, we reported strong financial results, with distributable earnings prior to realized loss and impairments of $59 million or $0.41 per share.\nGAAP net income available to common stockholders was $64 million or $0.42 per share.\nAs of June 30, our General CECL Reserve remained relatively unchanged quarter-over-quarter.\nWith respect to the specific CECL reserve, we reversed $20 million against our Fulton Street loan, as we continue to make progress in readying the site for a multifamily tower development, as well as improvements in the Brooklyn multifamily market.\nWe also foreclosed on a hotel asset in Washington, D.C. and recorded an additional $10 million loss, bringing our total loss against that asset to $20 million.\nThis is now reflected as a realized loss in our financial statements.\nGAAP book value per share prior to depreciation and General CECL Reserve increased to $15.48 as compared to $15.35 at the end of the first quarter.\nThe loan portfolio at quarter end was $7.5 billion, a 16% increase since the end of 2020.\nThe portfolio had a weighted average unlevered yield of 5.5% and the remaining fully extended term of just under three years.\nApproximately 89% of our floating rates U.S. loans have LIBOR floors that are in the money today, with a weighted average floor of 1.32%.\nIn addition to the five loans originated this quarter, we made $246 million of add-on funding for previously closed loans.\nWith respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity.\nWe ended the quarter with $227 million of total liquidity.\nOur debt-to-equity ratio at quarter end increased to 2.3 times as our portfolio migrated toward first mortgages.\nAnd lastly, as noted in our -- in the eight-K we filed last week, subsequent to quarter end, we exchanged our $169 million, 8% Series B preferred stock, a 7.1/4% Series B1 preferred stock in the same amount.\nThis reduces our cost by 75 basis points per annum, and the preferred stock continues to be held by a single institutional investor.",
        "summary": "compname reports q2 earnings per share of $0.42.\nq2 earnings per share $0.42."
    },
    {
        "text": "As we move toward the end of 2021, we continue to see similar trends from prior quarters in the commercial real estate market, specifically the underlying performance of most commercial real estate continues to recover at a measured pace consistent with the recovery in the overall economy.\nThere have been clear property type and geographic winners, as well as those asset types and regions that remain challenged.\nUltimately, an improving economy should be positive for the commercial real estate industry and asset level metrics should continue to improve.\nIn contrast to operating performance, real estate investment and financing activity recovered sooner and more quickly, consistent with the broad and rapid recovery across the capital markets.\nAt presence -- at present, the pace of activity continues to accelerate, and regardless of the asset class, the combination of a low-interest rate environment and significant fund flows is supporting robust transaction volume and a well-funded high highly liquid financing market.\nThe commercial real estate lending market has surpassed 2019 levels and is on track for a record year in terms of lending volumes across CMBS, banks, insurance companies, and non-bank lenders such as ARI.\nIn the current highly competitive environment, the strength of the Apollo Commercial Real Estate Debt platform again has proven to be incredibly beneficial as we have completed approximately $1.5 billion of new transactions for ARI through the first three quarters of the year.\nThe pipeline continues to be a mix of both US and European transactions for well-positioned high-quality properties with institutional sponsorship in gateway markets.\nWe expect ARI loan origination totals for 2021 will approach pre-pandemic levels as we have already committed to an additional $340 million of transactions in the fourth quarter and we are working through a number of other transactions that should close by year-end.\nIt is worth highlighting that ARI's loan originations year-to-date continue to favor Europe, which is reflective of a combination of the strong reputation and market position our team has developed there, slightly less competition, and our team's ability to underwrite and structure large transactions.\nAs a result of our success in Europe, loans securing properties in Europe represent approximately 40% of ARI's portfolio at quarter-end.\nTo reiterate what I have said previously, the types of transactions, quality of equity sponsorship, and deal structures for ARI's European loans are very similar to the transactions we complete in the United States.\nOur European loan portfolio is diversified by property type and geography and we manage currency risk as we borrow and lend in local currency and use forward contracts to hedge.\nThe strength of the CRE lending market has also led to more normalized repayment activity in our portfolio.\nThrough September 30, we have received almost $800 million of loan repayments and an additional $277 million of loans have repaid since quarter-end.\nOur repayments reflect encouraging signs from the general economy as transitional assets are achieving their business plans including construction projects achieving certificates of occupancy and for-sale residential units being sold.\nAs a result, ARI's construction exposure continues to decline, representing approximately only 14% of the portfolio at quarter-end.\nWe also have seen positive anecdotes from our portfolio of loans securing office properties, including the repayment of a large Manhattan office loan this quarter as well as increased leasing activity and foot traffic at our other projects.\nIn general, the credit quality across our portfolio remains stable and we continue to make progress with our focus loans.\nBefore I finish my remarks, I want to take a minute to highlight some recent corporate governance highlights with respect to our Board of Directors.\nIn the past year ARI, expanded the company's Board of Directors from 8 to 10 members, with the addition of Pamela Carlton and Carmencita Whonder.\nBoth women are senior executives and we believe ARI will benefit greatly from their insight and expertise.\nWe continue to recognize the importance of ESG issues to our stakeholders, and as a reminder, ARI incorporates consideration of ESG issues into our investment analysis and decision-making processes.\nJai has made valuable contributions to ARI during his tenure, and we will be, sorry to see him go.\nOne of his greatest contributions was building a strong team below him and he will leave us in good hands.\nWe have already begun a search for his replacement and we expect his departure will be seamless.\nOur distributable earnings for the quarter were $49 million and $0.35 per share, and GAAP net income available to common stockholders was $57 million or $0.38 per diluted share.\nGAAP book value per share prior to depreciation and the General CECL Reserve increased slightly to $15.54 from $15.48 at the end of last quarter.\nThis increase was primarily due to unrealized gains on currency hedges.\nThe loan portfolio at quarter-end was $7.3 billion, a slight decline from the end of previous quarter due to increased loan repayments.\nThe portfolio had a weighted average unlevered yield of 5.2% and the remaining fully extended term of just under three years.\nApproximately 89% of our floating rate U.S. loans have LIBOR floors that are in the money today, with a weighted average floor 1.20%.\nDuring the quarter, we made a $180 million first mortgage, $141 million of which was funded.\nWe also made $113 million of add-on fundings for previously closed loans.\nWith respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity.\nWe increased our secure facility with J.P. Morgan to $1.5 billion and extended the maturity to September of 2024.\nWe ended the quarter with almost $600 million of total liquidity, which was a combination of cash and capacity on our lines.\nOur debt-to-equity ratio at quarter-end decreased slightly to 2.2 times and we ended the quarter with $1.7 billion of unencumbered loan assets.\nI feel very fortunate to have been offered this opportunity and I will truly miss working with this very talented group of individuals.",
        "summary": "compname reports q3 earnings per share of $0.38.\nq3 earnings per share $0.38."
    },
    {
        "text": "With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Chris Stansbury, Senior Vice President and Chief Financial Officer; Andy King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions.\nOur actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and 10-Q filings with the SEC.\nThese non-GAAP measures are not intended to be a substitute for our GAAP results.\narrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation and a replay of today's call.\nI'll now hand the call to our Chairman, President and CEO, Mike Long.\nI'm pleased to report that our hardworking and dedicated team delivered strong financial results in the third quarter.\nOur reputation for reliability and consistency are the hallmarks that have allowed our customers and suppliers to place their trust in Arrow for critical engineering, design and supply chain services.\nAs I mentioned on our prior quarterly earnings calls this year, Arrow had faced adverse conditions many times in the past and has always emerged stronger than before.\nOur business model is resilient and unique.\nEven during periods of decreased demand, our ability to generate substantial cash flow allows us to invest in areas that represent the best long-term opportunities.\nOur foundation will be even stronger exiting the pandemic.\nWe're already -- and already we're seeing concrete proof of that.\nGlobal component sales returned to year-over-year growth, driven by record third quarter sales in Asia.\nAnd we've only just started to see the demand stabilize and recover in the Americas and Europe.\nAnother way we build confidence in the marketplace is to keep our balance sheet strong.\nOur results this quarter showed just that.\nCash flow from operations totaled $275 million in the third quarter, and that's $1.7 billion over the last 12 months.\nAnd we have reduced our debt by nearly $1.5 billion since the first quarter of 2019 when the semiconductor market correction began.\nAdditionally, we remain committed to returning excess cash to shareholders and the third quarter was no different.\nWe repurchased another $150 million worth of shares this quarter for a total of $375 million this year.\nTurning to current business conditions.\nAs I mentioned, strong third quarter sales in global components were driven by tremendous growth in the Asia region.\nWe see further opportunities for strengthening future performance once the Americas and Europe start to recover.\nWe previously mentioned that regional inventories had been destocked prior to the onset of the pandemic.\nStarting from those lean levels, global components sales increased sequentially in each region for the first time since third quarter of 2017.\nDemand in Asia has been robust across all the key verticals.\nAnd the third quarter is typically the strongest quarter for that region.\nAll regions benefited from a strong turnaround in transportation-related demand compared to the second quarter.\nDesign activity, again, reached an all-time record for any quarter in our history.\nAnd design activity increased year-over-year for the fourth quarter in a row.\nThis is a positive leading indicator.\nArrow will continue to increase our engineering and design efforts as we believe this is the best way to position our business for the long term.\nOther indicators are consistent with improving trends.\nThird quarter backlog increased year-over-year for the second quarter in a row.\nLead times increased slightly compared to last year.\nGlobal components book-to-bill was 1.03 exiting the second quarter.\nBook-to-bill was again the highest in the Asia region, where businesses normalized quicker than the other two regions.\nOur Americas customer sentiment survey shows that further improvement.\nThe percentage of customers saying they had too little inventory was slightly above the long-term average.\nThe percentage of customers saying they had too much inventory, returned to the long-term average.\nTurning to enterprise computing solutions.\nWe're pleased to deliver sales that were near the high end of our prior expectations and above second quarter's level.\nWe also achieved operating profit leverage on that sequential growth.\nIn terms of IT spending, we continue to see purchases directed toward the tactical areas of endpoints and devices rather than transformational areas.\nWe participate and work from home spending through security and cloud-based solutions, but some more complex projects remain delayed as companies limit outside workers.\nHowever, we continue to believe some of those delayed investments in mission-critical technologies cannot be pushed out indefinitely.\nLooking at the mix, demand from larger, better capitalized VARs and MSPs, who rely on fewer of our capabilities and services remained resilient.\nDemand from the smaller customers who rely on more of our capabilities have been weaker in this environment.\nEven with a less favorable margin mix, we are still able to generate strong economic returns from this business.\nYou can see this in our third quarter return on working capital, return on invested capital and cash-to-cash cycles in the third quarter.\nLooking ahead, we'll continue to support our stakeholders and communities, and are committed to providing our customers with products and solutions they need when they need them.\nThird quarter sales were $7.23 billion.\nSales increased 2% quarter-over-quarter.\nThe average euro-dollar exchange rate for the quarter was $1.17 to EUR one compared to the rate of $1.12 we had used for forecasting.\nFavorable margin -- favorable foreign exchange increased sales growth by approximately $97 million.\nGlobal components sales were $5.31 billion.\nSales were above the high end of our prior guidance and increased 5% year-over-year on a non-GAAP basis.\nGlobal components' non-GAAP operating margin was 3.9%, down 50 basis points year-over-year.\nThis was mainly due to regional mix with Asia contributing 49% of global components sales, up from 45% in the second quarter and 40% last year.\nIn addition, despite significant improvement in the Americas and Europe regions as compared to the second quarter, there remains substantial opportunity for further sales recovery that should also drive future operating income leverage.\nEnterprise computing solutions sales of $1.92 billion decreased 7% year-over-year on a non-GAAP basis, but were near the high end of our prior expected range.\nThird quarter billings increased year-over-year after having been approximately flat year-over-year in the first and second quarters.\nWe experienced strong demand for security solutions and also grew sales of services.\nDemand for storage and networking were weaker year-over-year.\nGlobal enterprise computing solutions non-GAAP operating income margin decreased by approximately 30 basis points year-over-year to 4.4% due to both product and customer mix.\nReturning to consolidated results for the quarter.\nInterest and other expense of $30 million was below our prior expectation due to lower interest rates and lower borrowings.\nThe non-GAAP effective tax rate of 23.6% was approximately in line with our expectation and was within our long-term range of 23% to 25%.\nNon-GAAP diluted earnings per share were $2.08, $0.38 above the high end of our prior expectation.\nApproximately $0.06 of the upside to both prior guidance and year-over-year growth were attributable to more favorable exchange rates.\nTurning to the balance sheet and cash flow.\nWe reported strong operating cash flow of $275 million.\nDuring the quarter, we reduced debt by approximately $79 million through lower short-term borrowings.\nOur balance sheet is in great shape, and our liquidity position remains strong.\nCurrent committed and undrawn liquidity stands at over $3.4 billion, including our $227 million cash balance.\nWe're closely monitoring credit and receivables.\nCollections remain healthy and the percent current is near all-time highs.\nDSO decreased by more than DPO.\nInventory days were the lowest level since the fourth quarter of 2017.\nAnd as we've said in the past, it's fair to measure our performance by the cash conversion cycle, not by any one metric in isolation.\nThe third quarter cash conversion cycle was 15 days shorter than last year.\nWe returned approximately $150 million to shareholders during the quarter through our share repurchase plan.\nThe remaining authorization under our existing plan is approximately $563 million.\nNow turning to guidance.\nMidpoint fourth quarter non-GAAP earnings per share of $2.65 per share would be an all-time quarterly record.\nWhile we recognize heightened risks from the potential future return to virus-related restrictions, right now, we continue to see improving trends for both businesses.\nOur guidance reflects global components delivering profit leverage on accelerating sales growth.\nIt also reflects a continued recovery in enterprise computing solutions margins back to prior levels.\nLastly, please note that CFO commentary includes information on our fiscal calendar closing dates for 2021.\nIn 2021, the first, second and third quarters close on April 3, July three and October 2, unlike in 2020, where they closed on March 28, June 27, and September 26.\nFull year comparisons are not affected as our year ends on December 31, as always.\nThe first quarter of 2021 will benefit from the extra quarter close compared to the first quarter of 2020.\nWhile the fourth quarter of 2021 will be negatively impacted by only capturing one calendar close instead of 2.\nWe believe the second and third quarters are still comparable as each will capture one calendar close.\nWe also believe there are a few impacts for the global components business in any quarter as sales for that business tend to be more linear rather than back-end loaded like the enterprise computing solutions business.\nAs we sit here in late October, it's difficult for us to estimate a dollar figure for this calendar shift.\nFor modeling purposes, we would recommend starting with an expectation for full year '21 enterprise computing solutions growth, then attributing one to two percentage points of greater contribution from the first quarter and one to two percentage points less contribution from the fourth quarter.\nDenise, would you please give the Q&A instructions?",
        "summary": "compname reports q3 adjusted earnings per share $2.08.\nq3 non-gaap earnings per share $2.08.\nq3 sales $7.23 billion versus refinitiv ibes estimate of $6.72 billion."
    },
    {
        "text": "Today's discussion is being broadcast on our website.\nParticipating in today's call are Bob Wetherbee, Board Chair President and CEO; and Don Newman, Senior Vice President and Chief Financial Officer.\nBob and Don will focus on our third quarter highlights and key messages, but may refer to certain slides within their remarks.\nThese slides are available on our website.\nThey provide additional color and details on our results and outlook.\nIt feels great to report that we returned to profitability in the third quarter, three months ahead of our expectations.\nThis was no small achievement, as we overcame pandemic-induced disruptions, a three-plus month labor strike and the challenges inherent in significant business transformation.\nOur success is due in equal parts to accelerated rates of recovery in our diverse end markets, our significant business restructuring and transformation efforts and the perseverance of the ATI team.\nOur third quarter adjusted earnings per share were $0.05.\nEPS improve to $0.35 per share when you factor in the net positive impacts from settling our recent labor strike, including the benefits from our new collective bargaining agreement, and the lingering strike-related costs as well as the gain from the Flowform Products divestiture.\nI'm proud of what our team has accomplished, overcoming the challenges of the past two years.\nWe're winning on the top line through new business and by capturing share gains.\nWe're winning on the bottom line by tightly managing costs and solidifying our financial foundation.\nWe've begun to pivot to growth.\nWe're excited about what we can achieve as the commercial aerospace recovery accelerates and our business operates at high utilization levels.\nBefore I dig into our performance and outlook by end market, I'll provide a progress update on a few of our strategic initiatives.\nFirst, we took another step in our ongoing business transformation.\nWe sold our Flowform business for $55 million, resulting in a gain on sale of nearly $14 million.\nWhile this business primarily serves the defense market, it had little connection to the broader ATI.\nThere were a few material synergies, and its long-term success was linked to specific program volumes rather than our material science.\nThe new owner will be better placed to invest for its future.\nSecond, we've built upon our firm financial foundation by taking steps to reduce earnings volatility and cash flow variability and increase financial flexibility.\nI don't want to steal a lot of Don's highlights here, so I'll limit my comments.\nWe successfully tapped the favorable debt markets to our advantage.\nWe significantly extended our debt maturities by redeeming notes due in 2023.\nAt the same time, we added new notes due in 2029 and 2031.\nA portion of these proceeds were used to support a voluntary pension contribution.\nAs a result of these third quarter actions, annual interest expense will decrease by about $6 million and pension funding levels improve.\nThird, as a visible next step in our continuing journey to become one ATI, we promoted Kim Fields to serve as Chief Operating Officer effective January 2022.\nThis officially recognizes the role she's been serving in since December 2020, leading both business segments.\nKim's doing a great job aligning the businesses, accelerating execution and streamlining material flows.\nAs markets recover and asset utilization increases, we're better positioned to expand margins and improve cash generation under her leadership.\nLastly, we continue to make progress on strategically transforming our Specialty Rolled Products business, taking deliberate actions to create a competitive cost structure.\nThis began last December when we announced our plans to exit low-margin standard stainless sheet products.\nIt includes closing five facilities and concurrently streamlining and upgrading our high-value material flow paths.\nThose efforts are largely on track.\nI'll have more on that in a moment.\nIn July, we reached agreement with Specialty Rolled Products union representative employees, ending their 3.5-month strike.\nTogether, we signed a contract that rewards our employees for their important contributions to ATI's overall success.\nThe SRP business is now positioned to be successful in the long term.\nI'm pleased to say that by the end of September, we've ramped SRP's production rates back to pre-strike levels, with one exception that we're working hard to address.\nThe SRP team did an outstanding job safely getting back on track, accelerating production to meet strong customer demand.\nYou might wonder where we stand on our decision to exit standard stainless sheet products given the current strong market demand.\nHistory reminds us, this is a temporary upswing in a highly cyclical business with chronically low margins and high fixed costs.\nOur commitment to exit hasn't wavered, but our time line has extended by three to five months due to the strike-related impacts.\nFirst, the strike caused us to slow aerospace qualification activities across SRP operations.\nIt also created significant product backlog destined for strategic customers.\nAs a result, at facilities slated for closure, we'll extend a few select operations into the second quarter of 2022.\nI would have preferred to stay on our original time line.\nWe're committed to better position our customers for the accelerating economic recovery and take near-term advantage where current market conditions offer a valuable upside.\nThe savings capture will be slowed by a quarter or two.\nSo let me be clear, the overall favorable economics attached to our transformation over the long run remain in place.\nTurning to our third quarter performance and outlook by market.\nWe're seeing clear evidence of recovery.\nMomentum is building as volumes return to pre-pandemic demand levels.\nLet's start with our largest end market, commercial aerospace.\nExpansion continues unevenly across our product portfolio.\nIn the jet engine market, forgings demand grew for the fourth quarter in a row.\nThis expansion was driven by demand for narrowbody engines, coupled with our 2021 market share gains.\nOur Q3 results included initial LEAP-1B volume increases to support the expected 737 MAX production ramp.\nIn contrast to forgings, our sequential jet engine Specialty Materials sales declined somewhat.\nWhile it appears that our customers' jet engine material inventories are nearing a low point, it's clear that pockets of inventory exist.\nWe also believe there's widespread customer desire to tightly manage year-end inventory levels.\nWe predict these inventory stockpiles will be fully depleted soon, as OEM production rate increases materialize.\nWe expect customer hesitancy to wane over the next few quarters and order patterns to reflect underlying demand once again.\nLastly, on Commercial Aerospace.\nOur airframe business expanded sequentially for two reasons: first, post-strike recovery efforts in our SRP business; and second, the increasing orders associated with our new European OEM long-term agreement.\nYear-over-year airframe sales declined.\nWe expect this market to continue at low levels in Q4 and into 2022 as international travel rates recover more slowly and 787 deliveries remain on hold.\nDespite the mixed third quarter aerospace performance, there's good news on the horizon.\nAs the COVID Delta variant impact slows and international travel restrictions ease, customers are once again returning to the skies.\nThis market is already displaying strong recovery trends in the form of increased domestic passenger travel, higher global cargo volumes and accelerated fleet retirements.\nMoving to the defense market.\nRevenue declined sequentially, largely due to customer shipment timing and the sale of our Flowform business.\nYear-over-year growth was strong.\nWhat's driving growth in the near term?\nTitanium armor for land-based vehicle programs in the U.S. and the U.K., military jet engine sales and the expansion of new helicopter programs.\nLonger term, we remain highly confident in ATI defense growth.\nOur confidence stems from a wide range of new programs and opportunities that can benefit from our advanced materials development and production capabilities.\nTurning to the energy markets.\nWe saw significant growth sequentially and year-over-year in both business segments.\nThis occurred in oil and gas as well as specialty energy.\nIn our Advanced Alloys & Solutions segment, we produced and shipped most of a large nickel alloy project destined for offshore waters in South America.\nIn our High Performance Materials & Components segment, strong demand continued for our nickel products used in land-based gas turbine production in Asia.\nThe near-term outlook for our energy markets is solid.\nGlobal GDP growth and higher travel rates will increase energy demand clearly.\nSustainability trends will drive exploration and production of more environmentally friendly energy generation and transmission technologies.\nAll of these are best served with our unique high-performance materials.\nLet's wrap up our market discussion with our critical applications used in medical and electronics.\nIn medical, sales grew sequentially and year-over-year.\nIncreased demand for biomedical implant materials was driven by low post-pandemic customer inventory levels and increased elective surgery volumes.\nIn Q4, we expect these trends to continue and likely expand to include MRI-related materials.\nElectronic sales were lower compared to the record-setting levels of the previous quarter and last year, but still very strong.\nThe strong demand for other key end markets required production allocations within our China Precision Rolled Strip facility, constraining, within the quarter, available capacity for electronics products.\nWe also had a planned Q3 maintenance outage at our Oregon facility.\nUnderlying customer demand for electronics remains strong and should continue.\nI'll wrap up my opening comments by saying I'm confidently bullish on ATI's future.\nOur end markets are recovering.\nWe're growing our market share.\nWe've aggressively locked in cost-structure improvements.\nWe have significant growth opportunities on the horizon.\nWe've put ourselves in a position to accelerate growth and expand margins.\nWe're executing to win.\nIt's an exciting time for ATI.\nI'm proud to lead this team as we achieve our goal of becoming a premier supplier of aerospace and defense materials.\nBob already gave you my opening line.\nATI returned to profitability in the third quarter, three months ahead of our expectations.\nA lot of hard work went into rightsizing the business and putting us on this path for growth.\nWe'll celebrate for a moment, but in reality, we've already shifted our focus to capitalizing on this momentum, further expanding our business and generating shareholder value.\nNow for the details.\nOverall, Q3 revenue increased to $726 million, up 18% sequentially and 21% year-over-year.\nQ3-adjusted EBITDA grew to $80 million, up 49% sequentially and up 381% year-over-year.\nQ3 performance suggests a revenue run rate approaching $3 billion and an adjusted EBITDA run rate of $320 million.\nOn a reported basis, ATI earned $0.35 per share in the third quarter.\nWe earned $0.05 per share in the quarter after adjusting for a net $43 million of special items.\nThese included gains for post-retirement medical benefits, resulting from the new SRP collective bargaining agreement and from Flowform products divestiture.\nStrike-related costs were also excluded.\nTo better understand our results, I'll provide some color around each segment's performance.\nStarting with AA&S, sales grew by 35% sequentially and EBITDA by nearly 60% versus the prior quarter.\nWithin the segment, the SRP team did an outstanding job accelerating post-strike production levels.\nThis was against a backdrop of strong customer demand and elevated pricing opportunities.\nTheir efforts produced tangible results, bringing us back to first quarter 2021 production rates by the end of September, as we had predicted.\nOur Precision Rolled Strip business in China once again had record sales and earnings due to continued strong demand across a variety of end markets.\nAA&S segment Q3 performance also compared favorably to Q3 2020.\nRevenue increased $49 million, and EBITDA increased $46 million.\nThis impressive earnings growth was powered by increased market demand, higher HRPF toll conversion volumes, streamlined cost structures and metal price tailwinds.\nHPMC Q3 sales and earnings were in line with the second quarter and much improved from the third quarter of 2020.\nSequential forgings growth from commercial and military jet engine sales was offset by a quarter-over-quarter decline in Specialty Materials jet engine revenues and the impact of selling our Flowform business in Q3.\nEarnings and margins were consistent sequentially.\nWe offset a weaker product mix, driven by increased energy market sales with operational cost improvements.\nHPMC sales were higher year-over-year in every major market, led by commercial aerospace.\nEarnings and margins expanded significantly in Q3 versus the same quarter in 2020.\nThis is a result of our decisive 2020 cost-cutting actions, jet engine share gains and contractual margin improvements.\nLet's move to the balance sheet.\nLate in the third quarter, we issued two debt tranches totaling $675 million.\n$325 million of the notes are due in 2029 and bear interest at 4.875%.\n$350 million of the notes are due in 2031 and bear interest at 5.125%.\nProceeds from these notes were largely used to redeem $500 million of notes due in 2023, bearing a 7.875% interest rate.\nThe financing brings several benefits, including $6 million in annual cash interest savings, significantly lower interest rates and a much improved debt maturity schedule.\nExcess proceeds from the financing were largely used to support a $50 million voluntary pension contribution in the quarter.\nI will come back to our pension glide path in a moment.\nAfter redeeming the 2023 notes in mid-October, we had more than $800 million of liquidity, including approximately $440 million of cash on hand.\nThird quarter managed working capital levels improved sequentially, but remained above our target.\nThis was largely due to SRP strike recovery efforts.\nQ3 SRP sales were back-end loaded, increasing quarter-end accounts receivable.\nWe also ramped production in the quarter, but we're unable to fully eliminate inventory backlogs before quarter end.\nWe expect significant reductions in managed working capital levels, well below 40% of revenue across the company in Q4.\nOur $50 million voluntary contribution is the latest action in our plan to improve pension funding levels and reduce related expenses and contributions over time.\nIn the third quarter, we completed our fifth pension annuitization effort.\nThis lowers overall participation by nearly 1,000 people and shifts approximately $70 million of assets and liabilities to a third party.\nWe have seen favorable asset returns and planned discount rate movements so far in 2021.\nIf that holds through the end of the year, we may see a meaningful improvement in our pension-funded status at the close of 2021.\nNow let's take a few minutes to discuss fourth quarter outlook.\nIn HPMC, we expect the jet engine-driven recovery to accelerate and broaden across our product portfolio.\nAfter several strong quarters, sales to specialty energy markets will likely decline.\nWe anticipate continued commercial aerospace forgings growth.\nWe also expect additional defense sales and to benefit from a large discrete commercial space project.\nThese changes should result in improved mix sequentially.\nFor AA&S, we anticipate improved financial results in our SA&C business.\nThis is due to defense and medical volumes increasing and expenses decreasing after our seasonal Q3 maintenance outage.\nIn our SRP business, several pieces of equipment will take extended outages in the fourth quarter in support of our strategic transformation.\nFirst, we'll idle a finishing line to upgrade its high-value specialty materials capabilities; and second, we'll idle a melt asset to allow finishing operations to process post-strike backlogs.\nThe outages are expected to negatively impact cost absorption and increase cash expense in the fourth quarter.\nWe anticipate a return-to-normal capacity levels in Q1 2022.\nLastly, we anticipate our China Precision Rolled Strip business to experience its normal seasonal slowdown in the fourth quarter due to lower post-holiday electronics demand.\nAdditionally, we expect to recognize a $7 million benefit in the fourth quarter from a retroactive 2021 tax credit in China.\nIn aggregate, we anticipate building on our improved Q3 results on both the top and bottom line.\nWe expect to report adjusted earnings between $0.07 and $0.13 per share in the fourth quarter, despite the SRP strategic outage costs.\nIncremental margins will fully reflect our cost structure leverage as sales expand, largely in our HPMC segment.\nThis growth should propel our fourth quarter earnings to 2021's high point and lead to further profit expansion in 2022.\nThis guidance range translates into a year-end EBITDA exit rate that's more than three times greater than year-end 2020.\nIn other words, in four quarters, we've more than tripled our earnings trajectory.\nAs Bob said earlier, it's an exciting time to be at ATI.\nWe are back in the black and see a steady climb out of the 2020 earnings trough.\nBefore I hand the call back to Bob, I want to affirm the free cash flow guidance provided in early 2021.\nExcluding pension contributions, we expect to be free cash flow positive for the full year 2021.\nThe team has worked hard to put us in a position to be successful, and they are committed.\nWork remains to close out the year, but I'm confident that we'll hit the mark.\nWe demonstrated significant progress in the third quarter and fully expect to exit the year on a high note.\nI'll close with four important points.\nNumber one, ATI is focused on growth with the cost structure we need for success.\nNumber two, we're well positioned in key markets to achieve higher than GDP growth over the long term.\nNumber three, transformation of our product mix is largely on track and will deliver significant benefits.\nAnd number four, our people, the ATI team are the core of our competitive advantage.\nTogether, we've accomplished much during an extended period of uncertainty, challenge and change.\nI laugh a little when I hear financial experts and market pundits describe what we've collectively weathered as headwinds.\nThat's a tad bit understated.\nThe ATI team has persevered to do what needed to be done, working safely and responding with urgency, always with the long-term interest of the company and our shareholders in mind.\nHas it been easy?\nHave we occasionally had to first convince ourselves it was possible and that we could do it?\nBut to be clear, we've done what needed to be done.\nI'm proud of what we've accomplished together.\nWith a clear strategy and consistent focused execution, we're accelerating our velocity to a very successful future.",
        "summary": "compname reports q3 earnings per share of $0.35.\nq3 adjusted earnings per share $0.05 excluding items.\nq3 sales rose 18 percent to $726 million.\nq3 earnings per share $0.35."
    },
    {
        "text": "As always, we will also post a replay of this conference call on the website.\nI would now like to turn the conference call over to Stephan.\nI hope that you are doing well.\nStarting on slide three, you will find a few highlights from the quarter.\nWe serve patients and consumers across a variety of end market.\nAnd this makes after a resilient business through economic cycles.\nIn the most recent period is no exception.\nWe have the industry's widest range of dispensing systems, active material science solutions and drug delivery technologies and services that we leverage across our reporting segments.\nOur customers benefit from our commitment to research and development, and the new innovations that allow us to help them grow their own businesses.\nIt has also maintained our strong focus on sustainability, and Aptar was recently named among the Top 10 companies for reducing environmental impact by JUST capital, alongside Dell, IBM, Microsoft, MasterCard, and several other large companies.\nThis is of course, compared to the first quarter of 2020 and COVID-19 was not yet the major factor in our quarterly results.\nWe also achieved an adjusted EBITDA margin comparable to the prior year, while absorbing the mix shift within our pharma segment and the relative mix across our three segments.\nOur food and beverage segment deliver a stellar performance this quarter as consumers continue to cook at home during the pandemic, driving strong demand for our innovative food dispensing closures.\nPrice increases also contributed to our top line growth that we are passing on increased resin costs to our customers.\nDemand from the beverage market was below the prior year.\nThough sales grew modestly on the resin price adjustments.\nIn pharma the increased demand for our injectable components including supplying some of the COVID-19 vaccine distributions, and increased demand for our active material science solution, including those for COVID-19 test kits, offset declines in the prescription drug and consumer healthcare markets.\nAs we had mentioned when giving guidance for the quarter, fewer non-critical doctor visits and the lower incidence of cold and flu illnesses have resulted in certain pharma customers drawing down inventory levels of allergy and other respiratory treatment delivery devices.\nWe continue to be well positioned to niche healthcare sectors and receive these pandemic related supply chain adjustments as transitory.\nIn beauty and home, sales to the personal care and home care markets increase, while sales to the beauty market declined due to the continued low level of retail beauty activity related to the ongoing pandemic related lockdowns.\nWe are cautiously optimistic that the second half of the year will show a recovery in the beauty market.\nWe are also maintaining initiatives to contain costs and manage inflation that includes raising prices to offset increases in raw material and other costs, while investing in key growth areas including adding capacity to supply the beauty market in China.\nMany of our customers remain optimistic that consumers are harboring pent-up demand for the beauty products that will help bring a feeling of normalcy to the lives post pandemic.\nTurning to slide four, and new product launches, I would like to briefly comment on several product introductions that will highlight the breadth of our offerings.\nIn pharma, our active material science technology was selected to protect two new at-home COVID-19 tests that recently received Emergency Use Authorization from the FDA.\nThese tests provide convenient access to testing without the need to visit the doctor's office.\nOur technology is integrated into these diagnostic kits to protect against moisture and other environmental conditions that would otherwise impact test accuracy.\nIn the prescription drug market, our unidose powder device is being used in a pivotal trial of intranasal powder-based Naloxone by Nasus Pharma.\nAlso landmark's new nasal spray treatment which combines an antihistamine with steroids to treat allergic rhinitis was recently approved in Europe with our nasal spray device.\nThis confirms that the ongoing conversion to nasal delivery continuous in this important area.\nIn the injectables market, we continue to support various COVID-19 vaccine distributions in all regions, with the most recent projects being added in India and Latin America.\nIn beauty and home, our E-commerce capable high-flow pump was chosen by P&G for their new indie brand shampoo called Native.\nAnd our post-consumer recycled resin closure was selected by P&G for their planet KIND refreshing face wash.\nWe also supplying a PCR solution to Unilever for the Dove brand purifying charcoal and clove hydrating body wash.\nIn Europe we are providing the pump for in-store refillable personal care products in aluminum bottles for The Body Shop and our fragrance pump is featured on the Flora and Guilty Gucci perfumes by Coty.\nFinally, L'Oreal is using our airless jar for its Revitalift facial skincare product in China.\nIn food and beverage after infant nutrition closure was selected for the Creme de la Creme, instant and rich milk powder for Europe and for HiPP combiotic in China.\nOur closures with valves for inverted condiments are the dispensing solution for several barbeque, mayonnaise ketchup and jelly products in Brazil.\nAlso in the condiment aisle our dispensing food closures are featured on Mike's Hot Honey Original Sauce and Berman's Hot Sauce Original here in the U.S. Finally in the beverage market our sports closure is featured on two new flavors of a well-known functional drink beverage in China.\nI will walk through some of the details around the first quarter performance, starting with slide five.\nAs Stephan stated, for the first quarter, we reported sales growth of 8%.\nwith core sales up 1%.\nI will go into our growth by market shortly, but want to comment on our earnings first.\nWe reported earnings per share of $1.24, which is an increase of 48% over the prior year.\nCurrent period reported earnings included a non-cash pre tax gain of $17 million or $0.19 per share related to an increase in the fair value of an equity investment.\nThis investment happens to be our investment in PureCycle Technologies, our strategic partner pursuing Ultra-Pure post-consumer resin that will one day be part of our circular economy.\nTurning to slide six.\nFirst quarter adjusted earnings per share excluding restructuring expenses, and the gain on the equity investment increased 10% to $1.09 per share on a comparable basis with the prior year, including adjusting for currency effects.\nOur earnings also reflect certain tax benefits, including the tax deduction that we receive from stock-based compensation that as you know, can fluctuate from quarter-to-quarter.\nAptar's adjusted EBITDA increased 6% to $152 million compared to the prior year.\nAnd this included the positive effects of currency translation rates, as well as the impact of the shift in business across our markets and resin cost increases.\nBriefly summarizing our segment results, our pharma business performance was mixed across the different divisions with total segment core sales even with the prior year, and then adjusted EBITDA margin of approximately 35%.\nLooking at sales growth by market compared to the prior year, core sales to the prescription market decreased 8%.\nAnd core sales to the consumer healthcare market decreased 1% for the reasons that Stephan mentioned earlier.\nCore sales to the injectables market increased 14% with higher demand for our vaccine components.\nPrice accounted for approximately 2% of the total growth and about one-third of the remaining growth is from COVID related sales, mostly to supply vaccine distributions.\nCore sales of our active material science solutions increased 5% primarily due to increase sales of our active containers used for probiotics.\nTurning to our beauty and home segment, core sales decreased 3% and the segment's adjusted EBITDA margin was 10% in the quarter and was negatively impacted by increased resin and other raw material costs, which are passed through where possible, albeit through a process that has typically been on a 60 to 90-day lag.\nWith unit sales growth by market on a core basis, core sales to the beauty market decrease 10% due to continued localized lockdowns, especially in Europe, and global travel restrictions, which have caused a significant reduction in traditional retail, the duty free sales.\nCore sales to the personal care market increased 2% due to continued strong demand for our hand sanitizer and liquid soap dispensers.\nWholesale to the homecare market increased 13% and strong demand for our cleaners and disinfectants, and some automotive products.\nTurning to our food and beverage segment, which had a solid performance, core sales increased 14% in the segment achieved adjusted EBITDA margin of 17% primarily due to the ongoing strength in the food market.\nLooking at each market, core sales to the food market increased 19% as consumers continue to dine at home trend because of the pandemic.\nCore sale for the beverage market increased 2%, primarily due to the pass-through of higher resin prices.\nMoving to slide seven, which summarizes our outlook for the second quarter.\nCurrent underlying demand conditions in most of our markets are not expected to change dramatically from what we experienced in the first quarter.\nThe anticipated demand for our prescription drug and consumer healthcare devices will remain under pressure compared to the prior year as customers continue to work off existing inventories.\nHowever, in some of our other markets, including beauty, we will have easier comparisons to the prior year second quarter, which was the most difficult period when you consider the impact of pandemic lockdowns.\nWe expect a second quarter adjusted earnings per share, excluding restructuring and any change in the fair value of equity investments to be in the range of $0.91 to $0.99 per share.\nThe estimated tax rate range for the second quarter is 26% to 28%.\nIn closing, we continued to have a strong balance sheet with a leverage ratio of 1.4.\nOn a gross basis that the capital was approximately 37%.\nOn the net basis, it was approximately 31%.\nIn addition, we continue to invest in innovative growth projects, and we are confirming our forecasted range of capital expenditures for the year at a range of $300 million to $330 million.\nAt this time, Stephan will provide a few closing comments before we move to Q&A.\nIn closing, on slide eight, I'd like to mention that the broad range of end markets that we serve makes Aptar a very resilient company through economic cycles, and the most recent period was no exception.\nThe wide variety of technologies and solutions that we provide, combined with our commitment to R&D, and new innovative solutions will further build upon our solid customer pipeline.\nWe have a profound respect for the environment that drives lower energy consumption, landfill free facilities, and sustainable product designs, we will continue to advocate for a circular economy in which packaging is reused and recycled.\nTherefore, our positive mid and long term view is unchanged.\nAnd when we look past this global pandemic induced crisis, the future is quite promising.\nWe look forward to going after for the long term benefit of all stakeholders.",
        "summary": "compname posts q1 adjusted earnings per share $1.09 excluding items.\nq1 earnings per share $1.24.\nq1 adjusted earnings per share $1.09 excluding items.\nq1 sales rose 8 percent to $777 million.\naptargroup - sees earnings per share for q2, excluding any restructuring expenses and changes in fair value of equity investments, to be in range of $0.91 to $0.99."
    },
    {
        "text": "I would now like to turn the conference call over to Stephan.\nI hope that you are doing well.\nI would like to discuss a few highlights as mentioned on Slide three.\nIn summary, sales increased in each of our reporting segments with currency-related tailwinds adding to the core growth.\nThe right breadth of our portfolio of solutions and services continues to be a key strength of Aptar as we generated growth in each segment and double-digit growth overall for the company.\nBob will speak in more detail on sales by market when he gives his update.\nSimilar to the first quarter, growth of our Pharma segment was driven by strong demand for elastomeric components for injectable drugs and exit Material Solutions, which offset declines in sales to the prescription and consumer healthcare markets, which continue to be impacted by customers drawing down inventory levels in key categories.\nOur Beauty + Home segment reported solid growth in the beauty and home care markets, the former being mostly on easier comparison to the depressed second quarter of 2020 although with some initial signs of recovery.\nSales to the personal care market were slightly below the prior year's strong performance as hand sanitizer demand is normalizing.\nApproximately 75% of the growth came from increased volumes.\nIn our Food + Beverage segment, top line growth was strong across each market segment with about 60% of the growth coming from price adjustments related to the passing through of higher resin costs.\nIt continues to be a very challenging input cost environment, and we are in the process of passing through higher input costs to our customers.\nOur overall margin was also affected by the mix of sales within our Pharma segment, favoring some of our lower-margin businesses in pharma.\nWe also remain active on the M&A front making several strategic investments.\nDuring the quarter, we announced that we were in the process to acquire the outstanding shares of Voluntis, a pioneer in digital therapeutics.\nThis is a significant step in building our foundation in the fast-growing digital healthcare space.\nIf we have learned anything from the pandemic, it is that advancements in healthcare are rapidly accelerating.\nAnd things like remote patient engagement and patient monitoring, whether for clinical trials or real-world treatment, will be a big part of each of our futures.\nJust this week, we announced another pharma transaction.\nWe have entered into an agreement to acquire 80% of Weihai Hengyu Medical Products, a leading manufacturer of elastomer components for injection devices in China.\nThis investment gives us immediate local and regional supply capabilities in the critical and growing injectable space.\nAlso, subsequent to the quarter, we announced the collaboration with a Chinese skin care company called YAP to bring new skin care solutions to the market.\nWe look forward to leveraging YAP's expansive market insight database focused on specific consumer skin care needs and skin care profiles, and we will use YAP's in-depth experience and customized turnkey solutions as well as online product distribution and promotion.\nOn the sustainability front, we have been active in forming strategic partnerships to further our progress toward a more circular economy where plastic can be recycled and reused.\nTo that end, we have formed a partnership and are serving as a strategic advisor to a company called Repo to offer a reusable water bottle that uses technology to help people stay high graded while helping to collect castaway plastic bottles.\nNow on Slide four, I would like to speak to a few environment, social and governance, or ESG updates.\nAs previously announced, 3BL Media evaluated the 1,000 largest public U.S. companies on ESG performance, and Aptar is honored to be named among the top 50 companies who are leading in corporate citizenship.\nWe also announced the launch of our 2020 Sustainability Report, which highlights again our extensive sustainability initiatives that have been implemented across our global operations, and we invite you to read the report on our website.\nOur first comprehensive sustainability report was for the year 2014.\nSo our experience in engagement is built on deep expertise and a long track record.\nCanvas is a highly accomplished business leader with over 30 years of experience developing and marketing products for the healthcare, cosmetics, food and beverage industries.\nAnd she has held leadership positions with Amway, Loreal, Coca-Cola and Procter and Gamble, among others.\nOur directors provide valuable guidance and keen oversight based on their first-hand operating experience in the end market and geographic regions in which we operate as well as functional expertise and multicultural insights.\nCandace is a valuable addition to Aptar's Board with deep contemporary knowledge of our markets, including having spent a significant time in China.\nTurning now to Slide five, in new product and technology launches.\nI would like to briefly comment on several product introductions that will highlight the breadth of our offerings.\nIn pharma, our elastomer softwares used with injection systems continue to play an important role in the COVID-19 vaccine distributions worldwide, including a vaccine approved in Latin America.\nWe're also supplying stockers for several animal vaccines in Mexico.\nIn the prescription drug market, the central nervous system pipeline is active, and we have several customers making progress with nasal delivery of a variety of medicines in the area of opioid overdose antidote, epinephrine medicines to treat suicidal tendencies.\nIn Consumer Healthcare, our pressure-free ophthalmic squeeze dispenser is the delivery device for a new over-the-counter iLubricant by Bausch and Lomb Biotrue brand in the U.S. In Beauty + Home, we recently announced a strategic sustainable dispensing system, our first fully recyclable non-material dispenser pump for the beauty and personal care products called Future.\nBecause the Future pump is made only from polyethylene, it also aligns with the most common materials used to make the bottles, polyethylene and polyester, or PET.\nTherefore, the complete packaging, including pump and bottle, are more easily recycled.\nWe also supplied our prestige fragrance pump for a new Tom Ford fragrance and our dispensing closure for Dollar Shave Club's New shampoo and conditioner line, most recently launched in the U.S. Also in the U.S., our airless pump is the dispensing solution for Coty's Cover Girl + Olay brand color cosmetics product called Eye Rehab.\nFinally, in the home care market, our closure with SimpliSqueeze valve is featured on the NUK dish care product in Europe.\nIn Food + Beverage, we received critical guidance recognition from the Association of Plastic Recyclers for our SimpliCycle recyclable valve technology.\nOr SimpliCycle valve is made from a low-density materials that allows the valve to float so it is easily separated from the polyester stream and then ultimately recycled twisted polypropylene or polyethylene olefin stream.\nIn the food market, our custom closures are featured on a limited additional line of mash-up sauces, including hot sales coupled with ranch and tartar sauce combined with ketchup by KraftHeinz in Canada.\nNestle has also launched a new range of condiments with flavors from the Middle East called Mezeast, which feature our food closures.\nTurning to the beverage market.\nOur closure with SimpliSqueeze valve is the dispensing solution for a new concentrate product in Germany called Creme de la Cream Concentrates by ALDI.\nStarting with Slide six.\nAs Stephan mentioned, we had a strong top line performance in the quarter, and I will walk through some of the market growth in a few minutes.\nTurning to Slide seven.\nSecond quarter adjusted earnings per share increased 7% to $0.91 per share on a comparable basis with the prior year and when neutralizing currency effects.\nAptar's adjusted EBITDA increased 8% to $148 million compared to the prior year, and this included the negative impact of the shift in business across our markets as well as a net negative inflation impact of approximately $9 million.\nOur consolidated adjusted EBITDA margin would have been approximately 180 basis points higher without the net negative inflation effect and the margin compression impact from passing on the higher costs.\nSlide eight and nine cover our year-to-date performance and show the 5% core sales growth and our adjusted earnings per share which were $2.01, up 10% compared to the $1.83 a year ago, including comparable exchange rates.\nBriefly summarizing our segment results, our Pharma business performance was mixed across the different divisions with total segment core sales growth of 2%.\nPharma had an adjusted EBITDA margin of approximately 33%, which was reflective of the mix of business across the different markets compared to the previous year.\nAdditionally, Pharma's margin was negatively impacted by approximately 100 basis points due to net negative inflation costs in the quarter of approximately $2 million.\nLooking at sales growth by market compared to the prior year.\nCore sales to the prescription market decreased 7%, and core sales to the consumer healthcare market decreased 1% as certain pharma customers in these markets continue to draw down inventory levels as treatment for allergic rhinitis and cough and cold are impacted by low levels of patient consumption and fewer overall noncritical doctor appointments.\nIt was another strong quarter for components used for injectable medicines and our active material solutions.\nCore sales to the injectables market increased 14%, and half of the growth was related to vaccine administration, of which the majority was for COVID-19 vaccines.\nCore sales of our active material science solutions increased 20%, primarily due to increased sales of our protective packaging solutions for probiotic products and COVID-19 diagnostic test solutions.\nTurning to our Beauty + Home segment.\ncore sales increased 13% over the prior year second quarter, which is the most difficult period during the COVID-19 pandemic.\nApproximately 75% of the growth came from increased volumes.\nThis segment's adjusted EBITDA margin was 11% in the quarter and was negatively impacted by the timing of passing through increased resin and other raw material costs as well as other inflationary costs, which had negatively affected adjusted EBITDA by roughly $5 million.\nHad we not had this net negative inflation impact and we did not have the margin compression effect of passing through the higher costs, EBITDA margins would have been approximately 180 basis points higher.\nLooking at sales growth by market on a core basis.\nCore sales to the beauty market increased 28% due to higher consumer demand for fragrances and facial skin care products.\nCore sales to the personal care market decreased 1% as higher sales to the hair care and sun care markets were offset by declines in personal cleansing as hand sanitizer demand normalizes.\nCore sales to the home care market increased 26% on strong demand for a variety of applications and increased custom tooling sales.\nTurning to our Food + Beverage segment, which had another solid performance, core sales increased 23%.\nApproximately 60% of the core sales increase is due to passing through higher resin and other input costs.\nThe segment had an adjusted EBITDA margin of 16% and was negatively impacted by net inflationary cost increases of approximately $2 million.\nHad we not had this net negative inflation impact and we did not have the margin compression effect of passing through higher costs, EBITDA margins would have been approximately 360 basis points higher.\nLooking at each market, core sales to the food market increased 21% as volume rose on increased demand for specialty food dispensing closures as consumers continue to cook at home.\nCore sales to the beverage market increased 26% as we realized some recovery over a very low prior year second quarter.\nMoving now to Slide 10, which summarizes our outlook for the third quarter.\nI'd like to take a minute to remind everyone that in the prior year third quarter, we had a progresssignificant amount of cost and tooling sales that caused an atypical jump in our sales last year in our Active Material Solutions Group, where we were up over 50% in year-over-year top line growth.\nAs Stephan mentioned, while we expect the second half to continue to show signs of recovery, our expectation is now for a stronger recovery toward the end of the year.\nThere's still a lot of uncertainty regarding the pace of economic recovery, and many of our customers remain cautious.\nWe don't yet see a significant change in the prescription drug market in the third quarter but are anticipating an improvement in the fourth.\nWe expect our third quarter adjusted earnings per share, excluding any restructuring expenses, acquisition costs and changes in the fair value of equity investments, to be in the range of $0.90 to $0.98 per share.\nThe estimated tax rate range for the third quarter is 28% to 30%.\nWhile we don't give guidance beyond the coming quarter earnings per share range, we have mentioned our optimism around the fourth quarter, and that would imply that our fourth quarter adjusted earnings per share range should be above the third quarter, nearer to the current published consensus of equity research analysts.\nIn closing, we continue to have a strong balance sheet with a leverage ratio of approximately 1.5.\nOn a gross basis, debt to capital was approximately 36%.\nWhile on a net basis, it was approximately 29%.\nIn addition, we continue to invest in innovative growth projects, and we are confirming our forecasted range of capital expenditures for the year at a range of $300 million to $330 million.\nAt this time, Stephan will provide a few closing comments before we move to Q&A.\nIn closing, on Slide 11, I'm very proud of our people and the work we have accomplished through the first half of the year amid these unprecedented times.\nAs certain economies begin to reopen, we expect the recovery in our beauty, beverage and prescription pharma business to gradually progress.\nHowever, this recovery is likely to occur at a measured pace given the uncertainties around the COVID-19 variants and very limited intercontinental and intra-Asian travel.\nWe anticipate a stronger performance toward the end of the year.\nAs Bob pointed out, our fourth quarter should be stronger than our third, despite the fact that certain inflationary costs will remain a headwind, especially labor and likely transportation.\nTo mitigate those effects, we aim to implement further price adjustments where necessary to pass on these costs.\nAs we look out further, vaccine distributions will eventually be more widespread and successful, and life will eventually return to more normal experiences, with more robust social activities and international travel.\nOur business is built for the long haul.\nAs I mentioned earlier, because of our breadth across attractive markets, we are able to generate growth even when conditions are not always ordinary in each market.\nWe will continue to focus on sustainable growth and returns across all areas of our business and anticipate that our consolidated margins will improve as we transition to a more balanced and steady growth pattern.\nThe long-term outlook for our company has not changed and remains quite promising.\nWe are making strategic investments today that will further strengthen our competitive position, including expanding capacity in key high-growth regions and markets.",
        "summary": "q2 adjusted earnings per share $0.91 excluding items.\nfor q3, broader macro factors impacting business are not anticipated to change dramatically from q2.\nexpect accelerated improvement toward end of year.\nexpects ongoing steady demand for elastomer components for injection devices in q3.\naptargroup - strong custom tooling sales reported in q3 2020 by pharma segment's active material science solutions division is not expected to repeat.\nwill look to implement further price adjustments as necessary to pass inflation and cost pressures over time.\nsees q3 earnings per share $0.90 to $0.98 excluding items."
    },
    {
        "text": "Before beginning, let's take a moment for our usual cautionary reminder.\nSuch factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks that are detailed in the Company's SEC reports and filings.\nWith net sales for Q1 up by over 20% and net income up by a factor of six, I'm pleased with our overall results.\nThis is a good start to the year and stands in stark contrast to Q1 of 2020 when the global pandemic started.\nThe bright spot for us was herbicides for corn, soybeans, fruits and vegetables, which recorded an increase of 86% in net sales and 60% increase in gross profit.\nWe enjoyed sales increases among our corn soil insecticides, however, they were offset by decreased sales in Bidrin, our cotton insecticide, as our customers work through inventories carried over from last year when there was low pest pressure.\nFurther, our soil fumigants sales declined by about 10%, due largely to water allocation issues in California.\nOur non-crop business came on strong led by Dibrom, our mosquito adulticide, pest strips and increased license fees and royalties from our proprietary Envance solutions.\nWe continue to pursue expansion of the Envance portfolio into additional markets.\nIn our international business, we continue to see strong performance in Mexico, improvement in Brazil and higher gross margin in Central America.\nAlso our newly acquired Australian business, AgNova, performed very well and is providing both market access and a level of critical mass to Australia and the Pacific region.\nFurther, our newly acquired greenhouse business, which features a line of biological solutions for soil health, nutrient uptake and stress tolerance, fits well within our markets in the Americas and Australia and has given us expanded market access into India, China and Europe.\nAs David will elaborate, we continued to exercise financial discipline over the quarter.\nWhile operating expenses rose on an absolute basis, they dropped as a percentage of sales from -- to 36% from 38% during the comparable quarter, thus we are seeing some economies of scale in our overall operations.\nIn addition, improved sales enabled us to reduce inventory levels when compared to the first quarter of 2020 despite the addition of the two new businesses.\nOur factory overhead absorption was up slightly due largely to the addition of the two greenhouse plants.\nWe expect the factory efficiency will improve over the course of current year.\nFinally, we finished the first quarter of 2021 with borrowing capacity of $51 million as compared to $36 million in the comparable period in 2020.\nNext I would like to turn to David for his comments on our financial performance with a focus on matters of particular interest to our investors.\nWith regard to our public filing, we plan to file our Form 10-Q within the next few days.\nAs we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate.\nAs a result, throughout 2020 and now into 2021, our customers and suppliers and our employees and operations have all continued more or less without disruption during the pandemic.\nWith regard to our sales performance for the first quarter of 2021, the Company's net sales increased by 21% to $116 million as compared to net sales of $96 million at this time last year.\nWithin that overall improvement, our U.S. sales increased by 18% to $72 million and our international sales increased by 27% to $44 million.\nInternational sales accounted for 38% of total net sales as compared to 36% of net sales this time last year.\nWith regard to gross profit performance, our U.S. crop business recorded lower absolute gross profit on the increased sales.\nThere are few reasons.\nFirst, we recorded lower manufacturing output compared to this time last year and lower factory recovery as a result.\nWe believe we will catch up during the balance of the year.\nSecond, we had lower sales of higher margin products, for example, those products associated with our cotton market and higher sales of some lower margin products.\nOur non-crop gross margin approximately doubled as compared to the same quarter of the prior year.\nThere are two reasons.\nFirst, as Eric mentioned -- has already mentioned, we had improved sales of our U.S. Dibrom products and our pest strips.\nAnd second, we secured an extension to one of our Envance essential oil technology agreements and recorded increased royalties and license fees as a result.\nWith regard to our first quarter 2021 international sales, we saw increased sales and as a result, increased gross profit.\nHalf of the improvement was driven by the newly acquired businesses, AgNova in Australia and Agrinos biologicals business, which both generated margins above our international average.\nIn addition, our other international businesses benefited from an overall favorable mix of sales in the quarter.\nOperating expenses for the quarter increased by 13% as compared to the same period of the prior year.\nThis included the addition of the activities of the two newly acquired businesses, which together accounted for approximately half of the increase.\nOther increases included legal expenses, higher incentive compensation accruals linked to business performance and freight costs associated with volume and mix.\nOffsetting these increases, we recorded lower marketing expenses and an improved performance on foreign exchange rates than in the comparable quarter of 2020.\nEric covered the sales performance and I followed up with comments on gross margin and operating expenses.\nTogether, these factors generated operating income that was twice the level reported for the same period of 2020.\nFrom this statement, you can also see that during the first quarter, we recorded a gain on our equity investment in the business called Clean Seed, which has some exciting technology that fits well with our SIMPAS business.\nWe also recognized in other income the forgiveness of a payroll protection plan loan that we assumed upon the acquisition of the Agrinos biological business out of bankruptcy.\nFinally, we recorded $560,000 lower interest expense in the first quarter of 2021 as compared to the same period of 2020.\nThere were two factors.\nFirst the rate on our loan is down as a result of U.S. policy to stimulate the economy.\nAnd second, we have lower borrowings caused by 12 months of cash generation from our businesses offset by some acquisition activity.\nOur income before tax is up 14 times in comparisons last year.\nFrom a tax perspective, we had a very similar base rate for the quarter of 31%.\nHowever, in 2020, we recorded very low taxable income.\nAnd in addition, we have some benefits primarily related to the Tax Cuts and Jobs Act that was not available in 2021.\nAll of these factors came together in the bottom line.\nWe are reporting $3.1 million, which is a six-fold increase compared to the first quarter of 2020.\nNow I want to turn my attention to the balance sheet.\nAs you can see on this slide, we started 2021 with an improvement of 44% in the cash -- in cash generated by our activities.\nFurther you can see that working capital increased, which is normal at this point in the Company's annual cycle.\nPlus we have two more businesses in 2021 as compared to the same quarter of 2020.\nThe main driver for the increase in the first quarter relates to accounts receivable.\nYou can see that in the statement of operations, our sales were up more than $20 million quarter-over-quarter.\nAs I noted at the start of my remarks, our customers have continued to operate without significant disruption throughout the pandemic.\nThey are placing orders for our products and making payments when expected.\nWe continue to monitor accounts receivable performance across our various businesses, both in the U.S. and abroad and can confirm that at this time we continue to experience a pretty stable credit risk position.\nAt the end of March 2021, our inventories were at $172 million, including about $8 million of inventory related to acquisitions completed since the end of the first quarter of the prior year.\nThis compares with inventories of $176 million this time last year.\nSo we feel that we have controlled inventory fairly well during this early phase in the Company's annual cycle.\nOur current inventory target for the end of the financial year is $150 million, that compares with $164 million at the end of 2020.\nThat target is obviously dependent on a few things, including a continued low impact from the pandemic, normal weather patterns and no acquisitions.\nWith regard to liquidity, as you can see from this chart, we have been consistently moving debt down.\nYou can see that our position at the end of the first quarter is significantly better than at the end of the first quarter of the prior year.\nAvailability under the credit line has improved to $51 million at March 31, 2021, as compared to $36 million last year.\nOur credit facility is scheduled to terminate in June of 2022 and we are already in discussions with our lead bankers regarding a reset on the facility to ensure that it does not go current at the end of the second quarter of this year.\nIn summary then, in the first quarter of 2021, we have increased sales by 21%, seen manufacturing output lower than the prior year and taken a higher level of under recovery factory costs as a consequence.\nOverall margins have remained in the normal range for the company.\nWe have managed operating expenses, which increased in absolute terms, but reduced when expressed as a percentage of sales.\nOur pre-tax income increased 14 times and net income six times.\nFrom a balance sheet perspective, accounts receivable increased driven by strong sales growth.\nInventories increased, but to a lesser degree than last year including the impact of the addition of the two new businesses.\nDebt increase but continues to track below prior year comparative periods.\nAnd finally, availability under the Company's credit facility has improved.\nWe believe that this performance represents a good start to 2021.\nWith that, I want to turn to our growth initiatives beginning with our biological businesses.\nAs we've mentioned in the past, we have assembled multiple product lines globally, offering in soil health and biological solutions for farmers.\nPresently, these products generate over $30 million in sales annually for us.\nWe have intentionally taken this direction in light of the fact that biological markets is forecasted to grow at a compound annual growth rate of nearly 10%, which is far higher than that of traditional crop protection in a second only to precision ag and projected growth in the ag sector.\nOver the past few decades, industry has spent billions of dollars in R&D to develop these solutions, which, at first, were not widely accepted by growers.\nHowever, the tide is turning and growers have increasingly embraced this technology.\nSustainability has become a vital consideration for farmers as farmland is considered their most precious asset.\nGrowers want to improve yield while ensuring that their soil is healthy both now and for future generations.\nWe are poised to address growers' demand with the portfolio globally of over 80 bio-solutions that enhance soil health and sustainable agriculture.\nLet me now turn to technology and specifically to the subject of how our SIMPAS, Ultimus technology offers an unrivaled solution for the carbon credit market.\nFirst, let me set the stage.\nAs you know, climate change has become a subject of enormous interest globally.\nAlong with infrastructure, it is one of the most important pillars of the current U.S. administration.\nIn the interest of addressing climate change within the ag industry, we have seen a proliferation of carbon credit markets globally, some private, some public, and each with its own set of rules and standards.\nWithin the past month, The Growing Climate Solutions Act of 2020 was introduced into the U.S. Senate.\nUnder the act, USDA will become the national authority for certifying both carbon credit programs and for verifiers for compliance with these programs.\nSimilarly, three days ago, the European Commission published their own guidance on carbon farming in which they stressed the importance of monitoring, reporting and verification or MRV, stating MRV is integral to result based carbon farming schemes as it is the step that quantifies the impact of climate actions that is the result.\nIn short, governments are moving at a rapid pace to organize and standardize the carbon credit markets and a common theme is that of MRV.\nWith that background, let me turn to our patented SIMPAS, Ultimus technology and explain why it is ideal solution for the carbon credit market.\nThe SIMPAS part of the technology is a precision application system that we have described before.\nIt's variable rate, multiple product dispensing system that enables grower to use only what is needed, precisely where it is needed on the field as per an agronomist prescription.\nFurther, SIMPAS is not limited to any particular type of input.\nIt can dispense crop protection products such as insecticides, nematicides, and fungicides as well as biologicals and nutritionals.\nThis season, planters using our SIMPAS technology will be treating 60,000 to 70,000 acres in the United States using our products alone while strategic partners are testing their own products.\nIn fact, I will now share a brief video that was shot two weeks ago by Asmus Farm Supply, a leading edge retailer located in Iowa, simultaneously applying insecticide, fungicide and micronutrient through their 24-row SIMPAS system.\nNow let's turn to Ultimus, which through the use of RFID tags and our ISO [Phonetic] configured software platform, measures records and verifies the use of crop inputs.\nWhen coupled with the permanent ledger system, such as blockchain, Ultimus record of these activities and transactions becomes immutable.\nTo demonstrate how SIMPAS, Ultimus can address the carbon credit market, allow me to use a concrete example.\nAgrinos makes a product called iNvigorate, which is a consortium of 22 microbials that improve soil health while embracing the roots ability to absorb nutrients such as nitrogen and phosphorus.\nLet's say as a part of a carbon credit program, a farmer wants to reduce the use of nitrogen laden synthetic fertilizer.\nWith SIMPAS, Ultimus, by using iNvigorate and a less than full rate of synthetic fertilizer, the farmer could measure, record and verify the application and present the permanent record to the carbon program authority.\nInterestingly, working with the University of Illinois in 2018, Agrinos conducted this very exercise and demonstrated using half rates of nitrogen and phosphorus fertilizer on corn with iNvigorate generates the same yield as a full rate fertilizer alone.\nOne other point worth mentioning here is that in certain European nations, farmers are already being required to do a pre-plant soil analysis.\nIf they find a high level of nitrogen in the soil, they're restricted as to how much nitrogen they can add to the field.\nSIMPAS, Ultimus and the soil health product like iNvigorate, those farmers could not only ensure compliance with the mandate, but also improve bioavailability of nitrogen, potassium and phosphorous to the crop.\nBefore leaving this topic, I'd like to share a quick video showing our team utilizing the SmartFill apparatus to fill smart cartridges with our zinc micronutrient.\nBy the way, we have successfully engineered that SmartFill system, so that it can be deployed anywhere globally at a very reasonable cost.\nAs you can see then, we are unique in offering a comprehensive solution toward advancing sustainable agriculture and addressing climate change.\nSIMPAS offers the farmer prescriptive delivery of multiple products for use only where needed and is an ideal platform for delivering soil and plant health products.\nAnd as I mentioned, we offer over 80 biologicals from our own portfolio.\nUltimus completes the picture as a leading MRV technology for the fast-developing carbon credit market.\nTurning now to full-year 2021, we are encouraged at what we are seeing in the row crop markets.\nAfter eight years of relative stagnation, which is the longest running down cycle in the century, commodity prices for corn have taken off.\nAfter floundering around three to four orders per bushel, corn has now jumped to $7.50.\nSimilarly, soybeans have risen from the $8 to $9 range to over $15 per bushel.\nThese prices should have a positive effect on the farm economy.\nThus, we expect that weather permitting row crop farmers will be inclined to invest in their crops with greater confidence and less restraint than we have seen in the past several years.\nCurrent sales activity for our crop products has been strong during the second quarter.\nIn order to ensure a reliable supply of products and to respond swiftly to changing market conditions, we continue to invest in our core manufacturing assets.\nIn this vein, after being offline for several years, we have resumed synthesis of our unique PCNB fungicide product line at our Los Angeles facility.\nAs you may recall PCNB under the turf side brand, is used for snow mold control and turf applications such as golf courses and under the Block -- Blocker brand to control common scab in potatoes.\nThis revival will help not only sales performance, but also factory absorption.\nOn a consolidated basis then, we expect full-year 2021 net sales to increase by low-double digits as compared to those in 2020.\nIn fact, we reiterate the other measures from this slide, which we presented in our last earnings call with respect to gross margin, operating expenses and the like.\nHowever, we add that we expect our net income growth to be even stronger than that of sales.\nIn summary, based on Q1, we are off to a strong start and looking forward to a better year.\nWe will now entertain any questions you may have.",
        "summary": "q1 sales $116 million."
    },
    {
        "text": "Before beginning, let's take a moment to -- review, excuse me, our cautionary reminders.\nSuch factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks that are detailed in the Company's SEC reports and filings.\nI'd like to talk a little bit about the 2021 forecast that we've given and kind of update where we are at the half.\nSo, I think at the -- in the March forecast outlook, we gave the top six items as a outlook, and then in 2020 -- in May, we added that net income would grow at a faster rate than revenue.\nSo, what I'd like to do is kind of show where we said we would be and where we wound up for the first half.\nSo, with regards to revenue, we said that we would be in low double-digit increase, and at the half now, we're looking at a 25% increase in our revenue.\nWe said gross profit margins, we are forecasting to be similar to recent years, and at the half, we're right at the same 39%.\nOperating expenses, some increases driven by our growth initiatives, and as a percent of sales, up -- for net as a percent of sales, we're down 1%.\nInterest expense, we felt we'd be similar to 2020, but in fact our interest is down by 30%.\nOur tax rate, we expect for the year to end up at the mid 20%s range, we're actually up 31% versus 23%, but we are still thinking we will wind up as we have some tax benefits that we'll see coming for us in fourth quarter.\nDebt to EBITDA ratio, we were saying we're targeting 2 to 2.5 times as we were preparing building inventories for the season.\nWe are at that 2.5 times level, but in the second half, we expect to move that down and, short [Phonetic] of acquisition, we'd probably expect to maybe even be below that 2 number.\nAnd then, on net income, growing at a faster rate, yeah, actually we're 86% versus 25%.\nFor those of you that focus on EBITDA, we're now saying that our EBITDA for the year will wind up growing at a faster rate than revenue as well, and for the half, we've got a 29% increase.\nSo at this point, things are rolling along well.\nWe still have our tailwinds.\nWe're looking pretty strong and cotton right now as we hit our -- both our insecticide.\nBidrin is doing doing very well.\nWe've got plant bugs that are out there and active.\nSo, we expect a very good year with Bidrin.\nIn addition, particularly with West Texas hitting, we expect our defoliant Folex will do also very well.\nCorn soil insecticides look well going into '22, so that will have some sales in this quarter, and additionally, in the fourth quarter and first quarter next year.\nBut we are seeing our customers looking to secure product.\nI think as many as -- when customers telling us 300 different products that are on allocation in United States right now, we're in pretty good position with our six plants here in North America.\nSo, I think we're really in pretty good.\nWe do have some headwinds and inbound freight from Pacific coming across from Asia.\nFortunately, we are not very dependent on that, just maybe 10% to 12% we have come over.\nBut the cost per container has moved from about $3,500 a container, up to $20,000 a container.\nSo, it's a huge increase when [Phonetic] accounted that generally a freighter coming across has about $73 million of revenue that now has moved up to $420 million of revenue, so quite a big increase.\nAnd so far we've done reasonably well at putting through price increases, but we are working on this every month to put out to the team what cost changes we have with the understanding that we can try and recover as best we can.\nSo with that, David, I'll turn this over to you.\nWith regards to our public filing, we intend to file our Form 10-Q today.\nAnd as we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate.\nAs a result, throughout 2020 and now during the first half of 2021, our customers and suppliers and our employees and operations have all continued more or less without disruption during the pandemic.\nWith regard to our sales performance for the second quarter of 2021, the Company's net sales increased by 29% to $135 million as compared to net sales of $105 million this time last year.\nWithin that overall improvement, our US sales increased by 44% to $84 million and our International sales increased by 10% to $51 million.\nInternational sales accounted for 38% of total net sales as compared to 44% of net sales this time last year.\nWith regard to gross profit performance, our US Crop business recorded improved absolute gross profit on increased sales, which were up about approximately 40%.\nOffsetting the strong sales growth performance, our factory performance was impacted by short-term challenges, including the delayed start up of a production cell in our LA facility and some mechanical integrity testing at our access plant.\nThese issues were substantially behind us.\nOverall, gross margin percentage to net sales remained strong at 43%.\nOur Non-Crop absolute gross margin increased by 39%, on sales that's [Phonetic] increased by 55% as compared to the same quarter of the prior year.\nWithin this change, we had improved sales of both our US Dibrom products and our pest strips.\nOn the other hand, while we have substantially higher Envance technology license income in the first half of 2021, we recorded lower license income during the second quarter.\nFurthermore, we experienced lower factory recovery in the second quarter of 2021 for the reasons already discussed.\nOverall, gross margin percentage remained strong at 46%.\nWith regard to our Q2 2021 International sales, we saw increased sales of 10% and a strong increase in gross margin, which were up 35%.\nMore than half of the improvement was driven by the newly acquired businesses, AgNova in Australia and Agrinos biologicals business, which both generate margins above our International average.\nOverall, gross margin improved to 31% as compared to 25% for the same period of the prior year.\nI thought I would come up for a moment on overall cost of goods, which remained flat at 61% of net sales.\nWe have seen some upward pressure on cost affecting certain products in our portfolio because of where the associated raw materials are sourced.\nWe are also seeing significant increases in inbound ocean freight, particularly from Asia.\nSo, our exposure there is not significant.\nWe have made selective price increases to offset this cost inflation.\nThis graph shows the impact of the factory performance on our overall gross margin.\nYou can see that in the second quarter of 2021, the factory cost is 3.3% of sales, whereas in Q2 of 2020, the performance was such that we only had a 0.6 net cost -- 0.6% net cost.\nDespite the factory performance, our margin percentage remained flat for both quarters.\nOperating expenses for the quarter increased by $9.5 million or 28% as compared to the same period of the prior year.\nDespite the increase, expenses, when compared to net sales, remained level at 32% of sales.\nThe increased cost included the addition of activities of two newly acquired businesses, which together accounted for approximately third of the increase.\nThis included taking a charge of $1 million in additional deferred consideration on the Australian business that we acquired in the fourth quarter of 2020.\nThat business has exceeded expectations in its first year, and consequently, the Company's liability associated with earn out agreement has increased.\nOur outbound freight costs are almost purely volume driven and were up 34%.\nAs I noted earlier, during the same period, net sales were up 29%.\nIn addition to volume, we had some mix of customer, destination and products, and some freight inflation.\nThe freight increase accounted for a quarter of the increase.\nOther increases included legal expenses and higher incentive compensation accruals linked to business performance.\nAs you can see from this slide, our operating income was 33% higher than the level reported for the same period of 2020.\nWe recorded lower interest expense in the second quarter of 2021 as compared to last year.\nThere are two factors.\nFirst, the rate on our loan is down as a result of the US policy to stimulate the economy.\nAnd second, we have lower borrowings due to debt repayment for 12 months of cash generation from our businesses, offset by some acquisition activity.\nFrom a tax perspective, our effective rate increased to 32% for the second quarter of 2021 as compared to 29% this time last year.\nThe main reason for the increase in the effective rate is the earn out expense on the Australian acquisition, which is not deductible for tax purposes.\nAll these factors came together in the bottom line.\nWe are reporting $5.1 million in net income as compared to $3.9 million last year, a quarter-over-quarter increase of 32%.\nFor the first six months of 2021, our sales were up 25% and gross margins, in absolute terms, were up 24%.\nAll of our main activities of US Crop, US Non-Crop and International have all contributed to this exciting performance.\nOperating expenses have increased, primarily as a result of the new businesses acquired in the final quarter of 2020, increased performance linked incentive compensation expenses, and costs associated with the volume changes, such as freight and warehouse costs.\nOverall, operating costs were up 21% as compared to net sales that increased 29%.\nAnd operating costs compared to sales improved to 34% in 2020 as compared to 35% last year.\nInterest expense has reduced by 30% as a result of cash generated over the last 12 months.\nTax expenses increased driven by financial performance.\nOverall, net increase -- net income increased by 86%.\nNow, I want to turn my attention to the balance sheet.\nAs you can see on this slide, during the second quarter of 2021, we increased cash generation from operations by 41% as compared to the same quarter of the prior year.\nFurther, you can see that working capital really didn't move very much as we got into the middle of the annual cycle.\nAnd this performance includes the expanded scope related to the businesses acquired in the fourth quarter of 2020.\nDuring the quarter, we continue to follow our strategy of buying attractive assets that fill white space in our portfolio.\nAccordingly, we paid a deposit of $10 million for a product acquisition, and took control of that asset at the start of the third quarter.\nAt the end of June 2020, our inventories were at $175 million as compared to $181 million this time last year.\nIf, for a moment, we exclude the impact of products and entities acquired since December of 2019, our base inventory has reduced by 11% from $177 million at that time to $158 million this year.\nSo we feel that we have controlled inventory well during this phase of the Company's annual cycle.\nOur current inventory target at the end of the financial year is $150 million.\nThat compares with $164 million at the end of 2020.\nThat target is obviously dependent on a few things, including a continued low impact from the pandemic, normal weather patterns and does not take acquisitions into account.\nWith regard to liquidity, under the terms of the credit facility agreement, the Company uses consolidated EBITDA, as defined in the agreement, to determine leverage.\nOur consolidated EBITDA for the trailing four quarters to June 30, 2021, was $59 million as compared to $52 million for the four quarters to June 30, 2020.\nAs a result, availability under the credit facility amounted to $57 million at June 30, 2021, and $49 million at the same time last year.\nAs you can see from the chart, we've been controlling debt well even as we work through the annual cycle and as we continue to invest in the business.\nAs I mentioned at the last call, our credit facility was scheduled to expire in June of 2022.\nAnd at the time of the call, we were already in discussions with our lead banker regarding a reset on the facility.\nWe needed to execute the new agreement at this time to ensure debt remained long-term.\nWe are pleased to report that we have executed that new credit agreement with a slightly larger capacity and greater improved -- generally improved covenants.\nAs a consequence, we are feeling positive about liquidity looking forward for the balance of the year -- of this year and beyond.\nFor the first half of 2021, we increased sales by 25%; gross margins by 24%; and operating expenses have reduced when compared to net sales; our interest expense is down; and net income has improved by 86%.\nFrom a balance sheet perspective, accounts receivable increased, driven by strong sales; inventories have been well controlled; working capital has been held flat during the quarter; and debt is lower than this time last year despite three acquisitions that were completed in the intervening 12 months; and finally, we have a new credit facility and availabilities improved.\nWith that, I will hand back to Eric.\nWhat I'd like to do now is go back to November of '20 at our third quarter conference call, we gave some three to five year forecast as far as where we expected to wind up in '23 and '25.\nAnd you may remember there were kind of three major tranches within our core business, we also have three, and the target with our existing products was going from a kind of $468 million to $507 million at '23 to $527 million in '25.\nSo, this kind of reflects just kind of a standard 2.5% increase on an annual basis with our existing products.\nThe second area was with regard to our new product pipeline.\nBy new product not -- this is not the acquisitions, these are products that we come together with our team and talk about the ability for us to differentiate our products by adding maybe two molecules, or even three molecules together to create kind of unique properties.\nAnd with that, we looked at growing that, adding about $37 million in three years and $109 million over the five year.\nAnd then, finally, acquisitions we've kind of basically looked at -- we've been averaging a little over $40 million a year, but I think what we are looking at was starting at the smaller level than that.\nBut overall, climbing that to about $100 million over a five-year period.\nSo again, at this point, no reason to differentiate with our initial forecast for our existing product line, but we are seeing a kind of a reset with our new products.\nSo, what we've done is we meet quarterly [Phonetic] and take a look at the projects.\nThere are projects that got canceled.\nThere are new projects that come on.\nAnd so with this, we're running about a year behind on our schedule.\nSo, looking at maybe somewhere in the '26 level, between '26 and '27, we'll be hitting target of $109 million.\nAnd then with regards to our acquisitions, again, we feel comfortable at this point that we can continue to make the target that we laid out in November of last year.\nWhen we go to our green solutions, we've got a fairly aggressive growth and I think you remember that this is about a 10% CAGAR expected globally.\nWe think we're in a much stronger position than most.\nAnd so, we have an additional -- an initial $22 million that we've got growing, by $48 million in a three-year period going to actually $118 million in growth by 2025.\nAnd so, for the first half of 2021, we're right at $17 million and expecting target to be somewhere in that $32 million to $35 million.\nSo, we're -- that's about a 50% increase from where we currently are.\nLooking at a 40% increase per annum to get to that $70 million and that $140 million, this -- we could have acquisitions that fall into that space, but certainly we've got acquisitions covered in the other into the core operations.\nSo, our team is -- feels good that this is the best forecast at this time.\nSo, why you might ask?\nWhen we pulled together our portfolio, we saw that we had 80 different biological solutions globally, which is a big number broken down into biofertilizers, microbials, biochemicals and biostimulants.\nBut since that time, we're now over 100 different solutions that we have in that space.\nAnd by this, we are not talking different geographical labels or different pack sizes, we're talking about unique differentiated products.\nThat's a big number.\nAnd within the biological space, has a very, very robust portfolio of products.\nJust a little color on this.\nWithin the US, just on the Agrinos products that we acquired, we're planning to do -- we are doing this year 14 different crop trials, and you'll see there is less than 14 crops there, but we've got kind of multiples on corn and a couple of the other products.\nIn addition, for our AMGUARD Non-Crop business, we've got nine turf trials.\nSo, when we talk about trials, that's not individual plots, those are the scope of a direction of a particular project.\nBut when you talk about actual plots, we're talking about 1,500 total test plots.\nAnd that's within our green solutions, this is just Agrinos in the US.\nWe had looked at achieving about $35 million of incremental sales by '23 and $130 million by 2025.\nOur team saying, OK, within the US, and this doesn't include international, on -- and limiting it to four crops, we're looking a little bit behind where we were, so we're kind of running a year behind this.\nAnd so let me kind of move on to kind of explanation for why that is.\nSo, there are kind of three main areas that we look to as far as this hitting its stride and it, of course, was the equipment itself needs to perform and we feel like all aspects of it, whether it's the tracking of the cartridges with refilling, the actual applications, the ability to put prescriptions in, all of those -- all of that looks well beta tested and we think we've accomplished that.\nThe second area is building that toolbox of products that our SaS customers might have, those are soil-applied solutions, they've got ability to use multiple products.\nAnd if you look at this last year, we really had our kind of core products available, which are generally linked to either kind of nematode or insect control.\nIn addition then we have a micronutrient and zinc.\nAnd so for this year, we did have several people that applied multiple and did a multiple -- three different products and did very well.\nBut a lot of growers looked at it and said, OK, let's wait on that investment until we get to the '22 season when you add more.\nSo, we haven't given you good visibility of what the future look like for our toolbox.\nBut what we're excited about in '22, and so for the first time, we'll have -- we'll be able to include both soybeans and cotton to solutions being applied by our growers.\nAnd so, up until now, it's corn growers just applied corn, but they -- corn growers generally grow soybeans as well.\nAnd in the Southern market, the corn growers in addition to soybeans also many of them are cotton.\nSo, this is a greater utilization of -- and really kind of -- for the design of what SIMPAS is about.\nAnd then as you see in '23, our portfolio grows even more.\nSo that when we get into that '23 season, we're talking about 42 different products in that platform.\nAnd this will continue to grow over time.\nAnd as we talk with growers and distribution and retailers, we'll see kind of what they really want.\nIn addition, though, we have and -- up there on the board, we have third-party products from a number of different companies that really would like us to get their products registered and improved into the SIMPAS system.\nSo highlights that we've seen here from our last year's experience here, what we're seeing generally is that our SIMPAS users are twice the size of our SmartBox users.\nGenerally, our SmartBox users kind of average treating about half of their field and it goes at full rate, but they -- if they're doing -- they got 1,000 acres and they do 500 acres of corn, they're going to apply 500 with insecticide and nematicide, but the soybeans, the other 500, aren't getting touch.\nBut what we are seeing though is that if the farmers' farms are twice the size and as such just with the three products we have, they're purchasing three -- I'm sorry, four times the amount as far as revenue.\nSo, that's what we really envision that this would be a big upswing from what we've seen in SmartBox with utilization of multiple solutions.\nAnd then finally, we've done the math and at current corn prices, all we're looking at in order to pay for a SIMPAS system over over a five-year period is just 0.5 bushel per acre increase.\nSo, it's not a major investment when you look at it that way.\nAnd I think we expect with SIMPAS solutions to be more than double-digit increases in their yield.\nAnd then, so for this '22 year, what we've done and again even with the Delta strain that we're seeing going, there have been a number of operations that we've been able to place and still expect to do where we can do field demos and actually bring in people from all over to -- and even bring in people from Brazil as well, bringing people in to see the system work and its performance.\nAnd in addition, they are being able to demonstrate the return on investment.\nAnd lastly, what we've got is our -- for our team, sales wise, we have outfitted them with, what I call, soup to nuts A-to-Z on SIMPAS.\nBasically, giving them the ability to see and be able to explain that to everybody in the chain, whether it's a third party, whether it's a distributor, how they make money, whether or not it's a retailer trying to figure out how he writes his prescription, how he gets agronomists information in there, how he shows return on investment with the growers.\nSo, what we've done is we've created this IPAD that basically covers five major areas.\nSo, there is the SIMPAS Solutions, the Cartridges, what really the SIMPAS' experience is all about, and Logistics.\nAnd so from each one of those topics, it breaks out into additional tabs.\nSo, basically there are, as I call this, A-to-Z, essentially [Phonetic] 32 different tabs for which our sales team can do and download this for our retailers.\nSo if you take a look at one of these -- we're talking about a SIMPAS Solutions.\nWhen you pull that up, then you can type -- you can hop on into any one of the products that we're currently offering.\nIn addition, then you can hit the Coming Soon, and you can see the table that I provided just before this.\nAnd then similarly, if you go to the Business Builder, a retailer can kind of get a lot of questions answered around the scope of what's the prescription like, what's the business model and can provide him with much better comfort that what he's promoting in SIMPAS is a win-win for everybody.\nSo, that's where we are with our update, and we'll continue to provide this as we go through.\nAnd I'm keep pushing the team to continue to sharpen their pencil and provide continual updates as to where we're going to be.\nSo, before we switched to questions, I have a couple -- we had a couple of questions that were brought up in this last quarter that I wanted to address here in front of everybody.\nSo, one question was about our acquisitions and what kind of return are we getting on those?\nThat we've talked about, we make acquisitions in the 5 to 6 times EBITDA, which for the industry is generally 10 to 12 times EBITDA, and we play in that space where we look for what we think are going to be nice wins for us, and we pass on those where we think it's little too expensive.\nBut you've seen by our over 50 products and five manufacturing sites and three closed delivery systems and eight businesses that we are successful and operate in that space.\nSo what we did is, we said OK, we just took a look at this '14 to '20, which is kind of the down cycle that occurred from '13 to today, and we looked at what the actual cash that we paid for these, we've got a mix set of businesses and product lines.\nAnd when we looked at the kind of incremental benefit, we took the '21 current projection, which looks pretty solid and we calculate out that incremental EBITDA and it comes out in that 5 to 6 times range and kind of return on capital employed at 10%.\nAnd if we were to take these incremental businesses and the sign addition -- current overheads that are with our existing business, if we put that proportionately on to these businesses, it kind of moves that number to in between 7 and 8 times.\nSo, a second question has to do within our working capital.\nHow do we make the determinations?\nHow do we measure?\nWhat metrics do we use?\nAnd it kind of goes into three different areas.\nSo, with the external acquisitions, we've got a very robust model that we use that takes a product with sales, cost of goods, OpEx assigned to it, any interest assigned to it, as far as the working capital, and we actually do build to an earnings per share over each of the 10 years.\nOnce we do that and then we measure kind of an internal rate of return, a payback period on the acquisition, I already mentioned the 10-year P&L, and that's the basis for how we measure making our acquisitions.\nWith return to internal investments, such as what I mentioned in the new product pipeline or SIMPAS or the green solutions, we do look at a similar concept as to what we do with acquisitions.\nWe've build out what it looks like maturity generally that's in the five to seven year period.\nLooking out kind of -- we've build out again over a period until we hit maturity, and measure what the short-term, mid-term and long-term returns are going to be.\nAnd that's how we prioritize our basic internal growth initiatives.\nAnd then, lastly, we have decisions to make about how to regionally deploy our working capital.\nAnd with regards to our existing business and, I would say, the more mature businesses have a better return on capital.\nWhen we look at our domestic business or even our Mexico business we've had for 20-some years, those tend to have higher return rates.\nBut when we go into newer territories and try to establish a beachhead and grow particularly as you get into Central and South America, the credit terms tend to be longer.\nAlthough we're trying to offset that with longer payment terms to our suppliers, generally, we have to make strategic decisions there.\nAnd let's take Brazil, for instance, we have not -- we had not participated much in Brazil, and years passed, in 2019, we acquired a business and we're building that business today, and that does not reap the same standards or the same levels of return.\nBut overall, we look at what's in the best interest of the firm on all of these for what's the short-term return, mid-term and long-term return.\nSo with that, I think, Brock, we'll open up to any questions audience might have.",
        "summary": "american vanguard corp - qtrly net sales were up 29% to $135 million in 2021, compared to $105 million in 2020."
    },
    {
        "text": "With that said, let's have our usual cautionary reminder.\nSuch factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the Company's SEC reports and filings.\n2020 was a year that was fraught with changing demands and conditions, and our people weathered the storm admirably.\nWe met our critical objective of keeping the workplace safe and healthy for our employees with virtually no work-related transmission.\nThis, in turn, enabled us to operate continuously, and to serve our customers reliably in all regions.\nBy comparison, the Top 5 public companies in our sector were on average, flat on both the top and bottom line.\nWhile David will be giving you more detail on this and other aspects of our financial performance, I would like to cover a few highlights.\nOver the course of 2020, we committed to improving our balance sheet and I'm pleased to report that we succeeded in doing so.\nWe generated a nine-fold increase in cash from operations versus the prior year due, in part, from inventory and factory management, controlled operating expenses, and record high customer early pay participation.\nThis, in turn, enabled us to pay down debt and improve borrowing capacity.\nWe are able to make these improvements while, at the same time, concluding two key strategic acquisitions; AgNova, for market access in Australia, and Agrinos, a green solutions company.\nFurther, we defined an environmental, social and governance platform, which includes extremely promising products and technology solutions.\nNow, I would like to turn to David for his comments on our financial performance, with the focus on matters of particular interest to our investors.\nI will then give you my thoughts on our growth platforms, and a particular focus on green solutions and precision application.\nI will then close with my 2021 outlook, and then take questions from our listeners.\nWith regard to our public filing, we plan to file our Form 10-K for 2020 within the next few days.\nAs we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries, in which we operate.\nAs a result, throughout 2020, our customers and suppliers, and our employees and operations have all continued more or less without disruption during the pandemic.\nHaving said that, the pandemic has impacted us in a few ways including, first, at the start of the year, we experienced a significant devaluation in a few key currencies, specifically, the Brazilian real, the Mexican peso, and the Australian dollar.\nThat negative currency effect has started to somewhat reverse as we reached the end of 2020.\nSecond, the pandemic prevented us from many of our normal infield activities, including face-to-face meetings with distributors, retailers or growers, or activities such as product development and defense.\nOn the other hand, as you will see in our financial statements, the same restrictions and foreign exchange rate movements have caused us to spend less on operating expenses, including travel.\nWith regard to our financial performance for the fourth quarter of 2020, the Company's net sales increased by 8% to $141 million, as compared to sales of $131 million, this time last year.\nWithin that overall improvement, our US sales were up 4% to $85 million, and our international sales increased by 15% to $56 million.\nInternational sales accounted for 39% of total sales, as compared to 37% of total sales, this time last year.\nThe main factor -- factors driving our sales performance are as follows.\nIn our US crop market, sales increased by approximately 19% as a result of strong sales of products sold into the Midwest row crop market such as, our SmartBox, Counter, and Aztec brands, as growers reacted to increased blood pressure and on to increased commodity pricing for soybeans and corn.\nSales for our domestic non-crop market declined about 45% as a result of lower sales of our deep Dibrom products into vector control districts, primarily as customers worked to address slightly elevated channel inventory levels.\nFinally, our international sales grew by 15%.\nApproximately half of the improvement is associated with new sales related to the two businesses acquired at the start of the quarter.\nThe balance of the increase relates to strong sales of our bromacil herbicide, which has a much improved supply position this year and Counter sold into Mexico.\nWith regard to the underlying market performance of our products, during the quarter, our US crop business recorded increased absolute gross profit, but gross margin percentage declined slightly.\nThe decline in gross margin percentage was driven primarily by the lower manufacturing activity, which is typical for the Company's fourth quarter.\nOur fourth quarter non-crop gross margin declined from 42% in Q4 of 2019 to 35% in 2020, driven primarily by the reduced market demand for Dibrom already discussed, and by the lower factory activity rate.\nInternational margins improve with the addition of businesses acquired in the fourth quarter, and strong sales of bromacil, reflecting improved material supply.\nOverall, gross margin performance for the final quarter of 2020 was in line with the prior year at 36%.\nOperating expenses for the quarter increased by 11% as compared to the same period of the prior year.\nThis includes the addition of the activities of the two newly acquired businesses, which together accounted for approximately 40% of the increase.\nOther increases include, additional marketing expenses, legal expenses, higher cash incentive compensation accruals linked to business performance, and some expense associated with the change in the fair value contingent liabilities associated with an acquisition.\nThis relates to a business that we purchased out of bankruptcy.\nWhen the opportunity presented itself, we moved quickly and got a great deal.\nWe engaged outside valuation experts to assist management in the assessment of the fair value of the assets acquired.\nThe gain we recorded is the difference between the purchase price consideration paid and the fair value of the net assets acquired.\nAlso during the three-month period, we recorded lower interest expense, primarily as a result of lower federal base rates on our loans.\nFinally, our effective tax rate was low in the quarter.\nThere are couple of reasons for this.\nFirst, the bargain purchase, just discussed, is a non-taxable transaction.\nAnd second, we were able to release some reserves associated with uncertain tax positions related to acquisitions we made in both 2017 and 2019.\nAs a result of these various factors, net income for the three-month period was more than twice the level reported in the same period of 2019.\nWith regard to the full-year performance, the overall business revenues reduced by about 2% in 2019, as compared to 2019 -- in 2020, as compared to 2019.\nWe consider that performance to be reasonably aligned with the prior year in a period that has been marked by widespread closure of many businesses during the prolonged period the pandemic.\nWithin that revenue decline, our US crop business increased by 1% to $223 million in 2020, our US non-crop business sales declined by 21%, to end at $49 million, and our international business remained approximately flat with new business revenue offsetting the effect of foreign exchange rates.\nOur 2020 manufacturing performance ended the year very close to our average long-term performance.\nAs you can see from the chart, net factory costs for the year amounted to approximately 2.8% of sales.\nThis compares to 2.6% for 2019, and our target of 2.5%.\nThis says, that despite all the pandemic-related challenges, we were able to maintain our manufacturing activity at relatively normal levels.\nFor the full year 2020, despite some movements by category, gross margin percentage was in line with 2019, at 38%.\nFor the full year of 2020, our operating expenses increased by 2%, to end at $154 million, or 33% of sales as compared to $151 million, or 32% of sales last year.\nIn 2020, we had several dynamics affecting our operating expenses.\nThese include, pandemic-related reductions in travel activities, the impact of lower FX rates affecting translation to US dollars of operating costs recorded in other currencies, and finally the addition of new businesses acquired in the final quarter of the year.\nOur interest expense is down primarily because of federal reserve base rates.\nOur tax expense is down primarily because of the bargain purchase gain, which is non-taxable, and the release of reserves in certain tax positions related to prior acquisitions.\nIn summary, for the full year 2020, when looking at our income statement performance, we have operated close to normal.\nMargins have remained very steady, indicating that prices have held up, raw material costs and factory performance has been well managed throughout this year of disruption.\nOur operating costs have increased slightly, but do include additional businesses for both the quarter and the year.\nWe made a good deal to inquire -- to acquire an exciting biologicals business for a bargain price out of [Phonetic] bankruptcy.\nAnd at the bottom line, we've seen a very strong finish to 2020 and reported net income, up 12% compared to 2019.\nFrom my perspective, the operating and financial focus for the Company remains as follows.\nWe continue to follow a disciplined approach to planning our factory activity, balancing overhead recovery with demand forecasts and inventory levels.\nAs you can see on this slide, we've had a very strong year with respect to cash in 2020.\nWe generated slightly less from operations when compared to prior year, but have been focused full year on working capital, and this slide shows that has gone very well.\nIncluding working capital, we generated $89 million from operations, which is about nine times what we have achieved on a -- in average for the prior two years.\nThe cash generated was used principally to two purposes.\nFirst, we invested a total of $36 million, acquiring two businesses, making a strategic equity investment, continuing to develop our manufacturing capability, and advancing our SIMPAS delivery systems.\nSecondly, we paid down debt by $43 million.\nAt the end of December 2020, our inventories were at $164 million.\nThis includes about $14 million of inventory related to acquisitions completed since late December 2019.\nAnd adjusted or underlying inventory of $152 million is slightly better than the $154 million we indicated during the last call.\nWith regard to accounts receivable, as I noted earlier, our customers have continued to operate without significant disruption.\nThey are placing orders for our products, making payments when expected.\nParticipation in our annual standard early pay program was strong, indicating that our customers -- that the customers we deal with had a good year.\nThe end result for 2020 resulted in consolidated accounts receivable of $119 million in 2020, as compared to $136 million, this time last year, notwithstanding the higher sales in the fourth quarter.\nConsequently, we can report that despite the pandemic, we have not seen any material change in the assessment of our credit risk exposure at the end of 2020 in comparison to the prior year.\nWith regard to liquidity, as you can see from this chart, we have been constantly working down debt from a high in the first quarter, which is a normal rhythm for the Company, to a low at the end of the year.\nAt the same time, after a challenging first quarter, which was impacted by the arrival of the COVID-19 pandemic, our quarterly financials have steadily improved.\nThere are three factors in the calculation of availability.\nThe first is our financial performance, which is broadly in line.\nThe second is the multiplayer under the terms of the credit facility, which is slightly higher this year than last, and accounts for about $15 million increase in availability.\nAnd the third is the level of debt, which accounts for $43 million increase in availability.\nTaking all that together, availability at December 31, 2020 is $85 million, as compared to $27 million for the same time last year.\nIn summary then, in 2020 from a balance sheet cash perspective, we have continued to be acquisitive for the long-term benefit of the Company.\nWe have carefully managed inventory and accounts receivable and, thereby, working capital, cash and debt.\nAt the end of the year, we believe we have improved our balance sheet and liquidity, and are well positioned to look at 2021 with a sense of optimism.\nWith that, I will hand back to Eric.\nAs you may recall from our earnings call in November last year, I began to turn our attention to our strategic direction and long-term prospects.\nIn the course of my comments, I described our three platforms for growth, namely, our core business, our green solutions platform, and our precision application technology, led by SIMPAS and Ultimus.\nI also gave you a view into how much we think these platforms will grow over the next three years to five years.\nToday, I would like to revisit these platforms with a particular focus on how our green solutions and precision application technology, both provide unique and compelling environmental -- what I'll call, ESG, environmental, social and governance solutions, and position us to grow our business at a faster rate than through conventional AgChem offerings.\nLet's start with a quick update on our core business.\nAs I mentioned earlier, in Q4 we closed on the acquisition of AgNova, an Australian-based company, headquartered in Melbourne that sources, develops and distributes specialty crop protection and protection solutions for the agriculture, horticulture and non-crop markets.\nThe addition of AgNova, improves our market access in the region, including with respect to SIMPAS, Agrinos, and green plant solutions, and gives us greater critical mass in an important territory.\nFurthermore, AgNova offers product lines that we can readily market in other regions.\nNow let's turn to the other two platforms.\nIn doing so, it is first necessary to lay the proper groundwork.\nI mentioned earlier, we have defined our ESG position.\nPublic companies, far and wide, are increasingly being called upon by investors such as, BlackRock happens to be our largest shareholders, institutional shareholder services like ISS, and regulators such as the SEC to report upon their commitment to ESG.\nWe at American Vanguard, have a great story to tell with regard to ESG.\nAs I take you through our green solutions and precision application technology platforms, you will see this more clearly.\nAt the close of 2020, we published our statement under the tab ESG on our website.\nAs we stated on that page, we are committed to the principal of sustainable agriculture, which to us means that all people should have the right to a stable, affordable food supply both now and into the future while, at the same time, maintaining and preferably improving soil health.\nAs an essential part of that commitment, we seek to promote three equitable considerations, climate, environment and food.\nAs per our Climate Change Commitment, also on our website, we are committed to making enterprisewide progressive and measurable efforts toward helping to address the trend of global warming.\nWith respect to environmental quality, we seek to leave the planet in a better state than we founded.\nAnd as a key supplier of crop inputs, we are essentially involved in food equity.\nIn order to advance these three agendas, a crop input company such as, ourself, would focus on products or application technology that promote carbon sequestration, improve plant and soil health, have an environmentally friendly profile, and improve yield.\nAs an example, you can see from this slide, courtesy of our greenhouse business, biostimulants can advance all of these considerations.\nThey reduce carbon dioxide, thus improving air quality, and the climate; improve the yield per acre, making food more affordable; improve food quality, helping growers to succeed; conserve water, advancing environmental equity; and improve the soil's microbial community.\nWe have many such ESG-friendly products within our green solution platform.\nFor example, OHP provide several biosolutions to domestic nursery and ornamental customers.\nAmGreen and Central America offers a range of tailored biologicals to customers like, Chiquita.\nAnd we continue to see consumer acceptance of our low-impact insecticides from Envance Technologies that are safe for children and pets.\nThese -- this technology forms the basis of our innovation partnership with Procter & Gamble, specifically, under the Zevo brand of consumer insect control products.\nAfter having achieved success in 2020 with Home Depot and Target, Zevo's 10-store test and Tampa's Walmart stores has exceeded expectations, and will enable the P&G team to aggressively sell to full chain distribution for calendar 2021.\nLet me share with you a short video posted on P&G Venture Capital website -- Venture Capital -- Ventures website that positions Zevo.\nFor any of you who have not tried any of the core Zevo products, I encourage you to go out and purchase them, and give them a try.\nIn addition to Zevo for household use, we offer Guardian mosquito repellent, and are expanding these solutions into animal health and professional pest control.\nAt the same time, we are pursuing two novel development platforms.\nUnder our Maryland [Phonetic] research platform, we are using our patented screening process to discover and create novel insecticide compounds.\nThis is true R&D effort.\nOver the past several months, we have screened over 130,000 active ingredients in our lab, and have identified a manageable number of promising candidates for further development and possible commercialization.\nSimilarly, under our Envance Technologies' Dragon Fire research platform, we are developing patented bioherbicide products and applications to help us address a global $18 billion market for non-selective herbicides.\nThese products will feature high efficacy and will give users eco-friendly solutions for weed control.\nBetween the Maryland research platform and Dragon Fire's bioherbicides, and that technology continues to ring the bell for environmentally responsible solutions.\nNow, let's spend a few minutes on Agrinos.\nFirst, let me note that I was very pleased with the fact that we were able to acquire this business at such a reasonable cost, as its parent of foreign holding company in Norway was in liquidation.\nFrom its three operations in US, Mexico and India, Agrinos produces a line of high-yield technology, soil-applied solutions that it markets into eight regions across the globe.\nThese products promote carbon sequestration, nitrogen fixation and soil health.\nIts invigorate line as an [Indecipherable] approved consortium of 22 bacteria that have been developed to promote multiple benefits including, soil -- include improvement of the soil microbial community on many global crops and soil conditions, facilitating nitrogen absorption and nutrient uptake, while supporting root biomass and plant health.\nIts uplift products, which are derived from biologically extracted chitin have similar effects.\nAnd their B Sure nutrient solution provides time-released nitrogen, which in turn improve soil health and help to reduce the need for nitrogen laden fertilizers.\nWith nearly 150 pending and issued patents in multiple countries, Agrinos is proving to be an excellent fit for American Vanguard.\nWe gained an established product line, considerable IP, and a specialized fermentation and manufacturing infrastructure.\nIn fact, our initial interest in Agrinos came last year, when we were seeking distribution rights for putting their solutions through SIMPAS.\nThe opportunity for Agrinos to be part of American Vanguard organization is so much the better.\nAfter having owned the business for only five months, we have already realized a high percentage of the synergies that we had forecasted.\nWith our global reach, we can now give these products the market access they deserve.\nLet's now turn our attention to SIMPAS.\nFor some time now, we have been reporting on the exciting development and commercialization of our SIMPAS precision application system.\nLet me now elaborate on SIMPAS as an ESG technology.\nPut simply, SIMPAS is the ideal tool for advancing both climate and environmental equity, and for that reason food equity as well.\nWith respect to climate, SIMPAS is designed to be far more efficient than single-product application systems.\nIt can apply multiple inputs at varying rates, only what is needed, precisely where it is needed, in one pass.\nIn addition, because it applies inputs only where they're called for, as per the agronomic prescription, SIMPAS enables the grower to use potentially far less full rate at his or her field with significantly less water.\nConsequently, the growers' environmental footprint is much smaller and the potential for run-off is that much more reduced.\nBut there is more to the story.\nIn addition to efficiency and lowering of the environmental input footprint, SIMPAS is designed to apply not only chemical inputs, but also biologicals, the very types of products that we have described as promoting carbon sequestration, nitrogen uptake and soil health.\nEven as I speak, we are testing multiple green technology solutions for use in SIMPAS SmartCartridges.\nIn short, we are supplying not only the product solutions, but also the application technology with which to advance climate and environmental equity.\nAnd the icing on the cake is that with our Ultimus platform, we can trace all inputs from factory to field, and measure how much of each input is used in each area of each field.\nThis platform also permits the return of empty and partially used SmartCartridges.\nSo on top of environmentally responsible products and application technology, we offer unrivaled measuring and tracking capability for multiple inputs.\nWith this functionality, Ultimus is the ideal technology for measuring inputs in order to obtain carbon credits.\nWhile many carbon banks are being formed and multiple sets of rules are being discussed, they all require a means to measure what the grower is adding to the field.\nTo our knowledge, no technology does this better than Ultimus.\nNor is this just conjecture on our part, in this slide we show the results of an actual SIMPAS 2020 beta system application, in which we demonstrated that we could apply Counter 20G precisely as per agronomists prescription, and its important that we could measure that application after the fact.\nThis will be a fundamental importance in the carbon credit market.\nThe picture on the left illustrates the prescription written for a field in North Carolina.\nThe picture on the right depicts the actual application.\nAnd when we shared this with our SIMPAS growers, they were all very impressed.\nNow for an update on SIMPAS systems.\nBut, we are targeting more systems for this planting season, and we expect or hope that we will get into that 100,000 acre target, which is the target that we set for ourselves.\nNow, let me share our latest SIMPAS video that illustrates key advantages.\nWith that, let me now turn in to our 2021 outlook.\nWe see an ag industry that is generally optimistic for 2021.\nReopening of schools and businesses following 2020 lockdown, and a potential for less volatile international trade disruptions, promises to refresh ag sector demand.\nThe increase in crop commodity prices for corns, soybeans, corn and other crops has improved the prospect for grower profitability and, with that, a more normal purchasing pattern versus the very conservative procurement behavior that we witnessed during the 2020 pandemic.\nWe estimate a low double-digit year-over-year revenue increase for American Vanguard.\nWe expect profit margins to remain steady with recent history.\nAnd operating expenses will increase somewhat due, in part, to newly acquired businesses, and the SIMPAS launch.\nWe expect interest expense will be similar to 2020 levels, and our overall tax rate should be in the mid-20% range.\nConsequently, we are targeting a significant percentage increase in net income and earnings per share in 2021.\nFinally, we are targeting a debt to EBITDA ratio in the 2 times to 2.5 times range.\nAnd note, that at the end of 2020, our debt to EBITDA ratio was 2.2 times.\nWith that, we'll take any questions you may have.",
        "summary": "american vanguard corp q4 net sales were $141 million in 2020, compared to $131 million in 2019."
    },
    {
        "text": "For the third quarter, we achieved consolidated earnings of $0.76 per share versus $0.72 last year, an increase of $0.04 per share or 5.6%.\nIncluded in the results for the third quarter of 2021 were minimal gains on investments held to fund one of the company's retirement plans, as compared to $0.02 per share of gains included in the third quarter of 2020.\nExcluding these gains from both periods, adjusted diluted earnings for the third quarter of 2021 were $0.76 per share, as compared to adjusted earnings of $0.70 per share for the third quarter of 2020, an increase of $0.06 per share or 8.6%.\nEva will discuss the quarter in more detail.\nThe third quarter contributed to a strong 2021 year-to-date, where we've achieved 11.7% earnings-per-share growth over last year or 10.7% on an adjusted basis.\nRegarding the pending general rate case covering rates for the years 2022 through 2024 at our water utility subsidiary Golden State Water Company, we're pleased to report that we have reached a settlement in principle with the public advocates office of the California Public Utilities Commission or CPUC for short, and nearly all of the items in the case.\nI'll touch on this a little more after Eva's update.\nOn the electric side of the business, we were pleased that in September the CPUC approved Bear Valley Electric Services most recent wildfire mitigation plan, while also in September, the Office of Energy, Infrastructure Safety under the California Natural Resources Agency approved Bear Valley Electric Services latest Safety Certification filing.\nThe company remains in a strong position, we have successfully navigated the pandemic by continuing to deliver excellent service to our customers, while prioritizing the health and safety of our workforce and compliance with existing government guidelines.\nWe continue to invest in needed infrastructure that results in high water quality, reliable delivery, systems safety and a commitment to preserving the precious resources that are in our care.\nLet me start with our third quarter financial results on Slide eight.\nThis slide presents our reported result before adjustments.\nConsolidated earnings for the third quarter of 2021 were $0.76 per share, as compared to $0.72 per share in 2020.\nAs Bob mentioned, excluding the gains on investments held to fund, one of our retirement plans from both periods.\nAdjusted diluted earnings for the third quarter were $0.76 per share, as compared to adjusted earnings of $0.70 per share for the third quarter of 2020.\nThis represents an increase of $0.06 per share or 8.6%, compared to the adjusted earnings last year.\nOur Water segment's reported earnings were $0.62 per share, as compared to $0.57 per share last year.\nExcluding the gains on investments, including both quarters adjusted earning at Water segment were $0.62 per share for the third quarter, as compared to adjusted earning of $0.55 per share for the third quarter of last year.\nThis adjusted increase of $0.07 per share was largely due to higher water operating revenue, less supply costs as a result of new rates for 2021 authorized by the public -- by the California Public Utilities Commission.\nOur Electric segment's earnings were $0.04 per share for both periods, an increase in electric operating revenues, less electric supply costs was largely offset by higher operating expenses.\nEarnings from our contracted services segment increased $0.01 per share for the quarter, due to a decrease in operating expenses.\nDiluted earnings from AWR parent decreased $0.02 per share due to changes in state unitary taxes, as compared to the same period in 2020.\nOur consolidated revenue for the quarter increased by $3.1 million, as compared to the same period in 2020, while the revenues increased $4.1 million, due to the third-year step increases for 2021 as a result of passing earnings test.\nThe increase in electric revenues was largely due to CPUC approved rate increases for 2021.\nContracted services revenues decreased to $1.3 million largely due to lower construction activity, partially offset by increases in management fees, due to the successful resolution of various economic price adjustments.\nTurning to Slide 10.\nOur water and electric supply costs were $33.3 million for the quarter, an increase of $1 million from last year.\nAny changes in supply costs for both the water and electric segments, as compared to the adopted supply costs are tracked in balancing account.\nLooking at total operating expenses other than supply costs.\nConsolidated expenses decreased $800,000, as compared to the third quarter of last year.\nThis was primarily due to a decrease in construction costs at our contracted services segment.\nInterest expense, net of interest income and other increased by $600,000, due to lower gains generated on investments held for retirement plan during the quarter as previously discussed.\nThe lower investment gains were partially offset by decrease in interest expense, largely due to the early redemption of private placement notes with a high coupon rates in May of this year.\nSlide 11, shows the earnings per share bridge, comparing the third quarter of 2021 with last year's third quarter.\nThis slide reflects our year-to-date earnings per share by segment as reported, fully diluted earnings for the nine months ended September 30, 2021 were $2, as compared to $1.79 for the same period in 2020, included in these results were gains on investments, held to fund a retirement plan, which increased earnings by $0.04 per share and $0.02 per share for the nine months ended September 30, 2021 and 2020 respectively.\nExcluding these gains from both periods.\nAdjusted year-to-date earnings for 2021 were $1.96 per share, as compared to adjusted year-to-date earnings of $1.77 per share for 2020.\nThis results in a 10.7% increase in adjusted EPS.\nTurning to liquidity, net cash provided by operating activities were -- was $81.9 million for the first nine months of 2021, as compared to $87.8 million in 2020.\nThe decrease was partially due to different timing of income tax instalment payments between the two periods.\nIn addition, there was a decrease in billed surcharges to recover under collections recorded in Golden State Water's, while the revenue adjustment mechanism and the modified cost balancing account.\nThe decrease in operating cash flow was also due to the timing of building off and cash receipts for construction work at military bases.\nThis was partially offset by an improvement in cash from accounts receivable related to utility customers, due to -- due in part to improved economic conditions, as compared to the first nine months of 2020, because of the COVID-19 pandemic.\nOur regulated utility invested $105.4 million in company-funded capital projects during the nine months -- first nine months this year, and we estimate our full-year 2021 company-funded capital expenditure to be $130 million to $140 million.\nAt this time, we do not expect American States Water to issue additional equity for at least next three years to fund its current businesses.\nI will now provide updates on the California drought and our recent regulatory activity.\nCurrently, the majority of California is considered to be an extreme drought.\nThe Governor of California has now proclaimed a state of emergency for all 58 counties within the state and signed an executive order asking all Californians to voluntarily reduce water usage by 15%, as compared to 2020.\nCPUC has called on all California investor-owned water utilities to implement voluntary conservation measures to meet this goal.\nIn response Golden State Water has increased its communication with customers regarding the need for conservation, implemented voluntary conservation efforts in nearly all of its rate making areas and mandatory water reduction in a few small customer service areas on the coast.\nWe have also established a CPUC approved Water Conservation Memorandum Account to track incremental drought-related costs for future recovery.\nAs we discussed in our prior calls Golden State Water filed a general rate case application for all its water regions and the general office in July 2020.\nThis general rate case will determine new water rates for the years 2022 through 2024.\nAmong other things, Golden State Water requested capital budgets of approximately $450.6 million for the three-year rate cycle and another $11.4 million of capital projects to be filed for revenue recovery through advice letters, when those projects are completed.\nGolden State Water and the public advocates office of the CPUC have reached the settlement agreement in principle on the majority of the items in this general rate case application.\nThe unsettled matters are Golden State Water's request for: one, a medical cost balancing account; two, general liability insurance cost balancing account; and three, the consolidation of two of Golden State Water's customer service areas.\nThe date to file a joint motion for approval of settlement agreement to the CPUC has been proposed for November 23rd, 2021.\nAs a result of this proposed timing a final decision in the case from the CPUC is now expected in 2022.\nWhen a final decision is issued in 2022, the new rates adopted in the final decision will be effective retroactive to January 1st, 2022.\nSince we are still in the process of drafting the settlement agreement with the public advocates office, we cannot share any further details at this time.\nAs a reminder, the administrative law judge assigned to this rate case has previously clarified that Golden State Water can continue using the water revenue adjustment mechanism or RAM.\nAnd the modified cost balancing account, also known as the MCBA until our next general rate case application covering the years 2025 through 2027.\nRegarding our cost of capital application, which was filed in May of this year, we requested capital structure of 57% equity and 43% debt, which is our currently adopted capital structure.\nA return on equity of 10.5% and a return on rate base of 8.18%.\nThere was a pre-hearing conference held in September, but the scoping memo with an official schedule has not been published.\nFinal decision is expected in the first half of 2022 with an effective date retroactive to January 1st, 2022.\nAs part of the response to the COVID-19 pandemic, Golden State Water and Bear Valley Electric Service have suspended service disconnections for non-payment pursuant to CPUC orders.\nOn July 15th of this year, the CPUC issued a final decision on the second phase of the water utility low income affordability rulemaking, which among other things, extended the existing moratorium on water service disconnections, due to non-payment until the earlier of February 1st 2022 or pursuant to further CPUCs guidance on the matter.\nOn June 24th of this year, the CPUC issued a final decision to extend the moratorium on electric disconnections until September 30th of this year.\nNone of the terms of CPUC adopted payment plans, actual electric service disconnections for non-payment will not occur until approximately December 1st of this year.\nFor Golden State Water and Bear Valley Electric Service, we are tracking incremental costs, including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the pandemic and CPUC approved COVID-19-related memorandum accounts, which are to be filed with the CPUC for future recovery.\nCPUC requires that amounts tracked in the company's COVID-19 memorandum accounts for unpaid customer bills be offset by any federal and state relief for water utility bill debt and customer payments through payment plan arrangements prior to receiving recovery from customers.\nOn July 12th of this year, the Governor of California approved almost $1 billion in relief funding for overdue Water Customer Bills and almost $1 billion in relief funding for overdue Electric Customer Bills.\nGolden State Water and Bear Valley Electric Service intend to seek recovery of overdue amounts from all available funding sources.\nFunds for both water and electric utility relief are expected to be distributed to utilities during the fourth quarter of 2021, for the first quarter of 2000 -- for the first quarter of 2022.\nTurning our attention to Slide 18, this slide presents the growth in Golden State Water's rate base as authorized by the CPUC for 2018 through 2021.\nThe adopted weighted average water rate base has grown from $752.2 million in 2018 to $980.4 million in 2021, a compound annual growth rate of 9.2%.\nThe rate base amounts for 2021 do not include any rate recovery for advice letter projects.\nLet's move on to ASUS on Slide 19.\nASUSs earnings contribution increased by $0.01 per share to $0.11 during the third quarter of 2021, as compared to the same quarter last year, largely due to a decrease in overall operating expenses.\nFor the year-to-date September 30th, 2021 ASUSs earnings contribution is $0.05 per share higher than last year, primarily due to an overall increase in construction activity and management fee revenue, as well as a decrease in overall operating expenses, including lower, legal and other outside services costs, labor cost and maintenance expense.\nThe increase in construction activity was largely due to timing differences of when work was performed, as compared to the first nine months of 2020.\nWe reaffirm our projection that ASUS will contribute $0.45 to $0.09 per share for 2021.\nWe continue to work closely with the US government for contract modifications relating to potential capital upgrade work for improvement of the water and wastewater infrastructure at the military bases, we serve.\nHowever, the continuing volatility of prices for materials and slower than anticipated recovery in the supply of materials from the COVID-19 pandemic could cause delays in construction activity for existing projects.\nAnd are likely to result in deferrals of government procurement to award new capital upgrade projects.\nGiven the uncertainties we project ASUS to contribute the same range of earnings $0.45 to $0.49 per share for 2022.\nUS government is expected to release additional bases for bidding over the next several years.\nWe are actively involved in various stages of the proposal process at a number of bases currently considering privatization [Technical Issues] continue to have a good relationship with the US government, as well as a strong history and expertise in managing water and Wastewater Systems on military bases.\nAnd we are -- we believe we are well positioned to compete for these new contracts.\nI would like to turn our attention to dividends, which is a compelling part of the company's investment story.\nLast week, the Board of Directors approved a fourth quarter dividend of $0.365 per common share.\nIf you recall last quarter, the Board of Directors approved a 9% increase in the annual dividend from $1.34 per share to $1.46 per share.\nCurrently, our dividend policy is to provide a compound annual growth rate of more than 7% over the long-term.\nCompound annual dividend growth rate for the quarterly dividend is 9% over the last five years and nearly 10% over the last 10-years.\nOur log and consistent history of dividend payments dates back to 1931.\nIn addition to an unbroken 67-year history of annual calendar year dividend increases.",
        "summary": "compname reports q3 adjusted earnings per share of $0.76 excluding items.\nq3 adjusted earnings per share $0.76 excluding items.\nq3 earnings per share $0.76.\nfinal decision from cpuc on general rate case application is not expected by end of 2021."
    },
    {
        "text": "You can access this announcement on the Investor Relations page of our website www.\naam.com and through the PR Newswire services.\nYou can also find supplemental slides for this conference call on the Investor page of our website as well.\nFor additional information, we ask that you refer to our filings with the Securities and Exchange Commission.\nInformation regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.\nWith that let me turn things over to AAM's Chairman and CEO, David Dauch.\nJoining me on the call today are Mike Simonte, AAM's President and Chris May, AAM's Vice President and Chief Financial Officer.\nTo begin my comments today, I'll review the highlights of our first quarter 2021 results.\nNext, I'll touch on some exciting recent business announcements with Ford and REE and lastly, we will discuss the challenges within the supply chain and our financial outlook.\nAfter Chris covers the details of our financial results, we will then open up the call for any questions that you may have.\nIn the first quarter 2021, AAM delivered solid operating performance and strong cash flow generation.\nAlthough the industry is facing continuity of supply issues, we continue to navigate through these challenges while delivering very strong results.\nAAM sales for the first quarter 2021 were $1.43 billion, up approximately 6% compared to $1.34 billion in the first quarter of 2020.\nThe increase in our revenues on a year-over-year basis primarily reflects the recovery from COVID-19 related industry shutdowns that we experienced last year.\nAlthough North American industry production was down 4% according to the third party estimates, light truck production was up 5% year-over-year and volumes on our core platforms increased 9% year-over-year.\nFurthermore, light truck inventory and a number of the key platforms that we support remained extremely low.\nConsumer demand for light trucks remained strong and our customers are building them as much and as fast as possible.\nWe believe the demand environment for these products will continue for an extended period of time.\nAAM's adjusted EBITDA in the first quarter 2021 was $262.9 million or 18.4% of sales.\nThis margin performance is a first quarter record for AAM.\nThis compares to $213.3 million last year or 15.9% of sales.\nIn addition to benefiting from higher production level, our intense focus on optimizing the business and flexing our cost structure to align with the global market demand contributed greatly to our performance in the first quarter of 2021.\nAAM's adjusted earnings per share in the first quarter 2021 was $0.57 per share compared to $0.20 per share in the first quarter of 2020.\nCash flow generation was strong in the quarter.\nOur operating performance and commitment to reducing capital spending drove this high level of free cash flow.\nFurthermore, we prepaid over $100 million of our term loan in the quarter.\nAs we have previously stated, we are committed to reducing our debt and strengthen our balance sheet throughout 2021.\nOn the business front, we are happy to announce that we are providing both air cooled and liquid cooled power transfer units, which are part of our EcoTrac product family, for the all-new Ford Bronco Sport.\nThis is a great new product offering from Ford that has been very well received in the marketplace.\nAnd as for electrification, we are excited to announce today that AAM and REE Automotive have agreed to jointly develop an exciting new electric propulsion system for e-mobility.\nAs we shared in our last call, REE Automotive is a leading provider of e-mobility solutions.\nThe company's core innovation includes integrating traditional vehicle components into the wheel allowing for a flat and modular platform.\nAAM's partnership with REE intends to incorporate our lightweight highly efficient next-generation electric drive units which feature fully integrated high speed motors and inverters into REE's highly modular technology that enables a fully flat EV chassis for multiple commercial vehicle applications.\nThe electric drive units will be developed at AAM's advanced technology and development center here in Detroit.\nWe are very excited to partner with REE Automotive to bring new e-Mobility technologies to the market.\nThis is an important step in growing AAM's electric propulsion business and expanding our addressable market.\nIn addition, our electrification data with multiple OEMs continues to intensify and our technology, engineering, and new product offerings are attracting strong global interest.\n2021 will be an exciting year for us in this face.\nOur engineering teams in collaboration with our technical partnerships with Inovance and offer engineering are quickly achieving technology advancements for our next generation of products.\nOn a separate but related matter, we are also pleased to announce today that AAM will receive a grant from the US Department of Energy in support of the development of our three-in-one electric drive unit.\nThis award further recognizes AAM' technology and innovation to support new energy vehicles.\nAs for our current generation of electric vehicle products, we are presently in the process of launching multiple new programs globally including components, sub-assemblies, and electric drive units.\nThese innovations and advancements are allowing AAM to compete to win business with our traditional customer base while also position AAM to win business with new OEM entrants in the space.\nWe're also very pleased to announce that we recently published our 2020 Sustainability Report.\nI'm very proud to say we exceeded our initial sustainability goals this year-this past year and now are in the process of setting even higher goals.\nAAM's sustainability program is set by our cultural values and strategic principles as a company that stress teamwork, diversity and inclusion, community involvement, and respect for the environment.\nOur sustainability program has become more transparent in consideration of the interest of our shareholders, customers, suppliers, associates, and other stakeholders.\nWe are deeply committed to profitably growing our business in a way that is sustainable and socially responsible.\nBefore I transition to Chris, I want to talk about our current operating environment and our financial guidance.\nIn my 35-year career in the industry, I've never seen such stress on the value chain stemming from shortages in semiconductors, labor, steel, containers, and port delays and the rising commodity prices that we're experiencing.\nWe believe the second quarter 2021 will be the trough of the semiconductor shortage issue with improvement in the second half of the year.\nHowever, we expect this issue will carry into 2022.\nFor AAM, we will continue to work with our customers and our extended supply base to protect continuity of supply.\nAlthough there are significant high uncertainty, especially with the availability of semiconductors, we continue to maintain our current financial guidance.\nIn fact, based on what we know today and assuming our customers continue to prioritize full-size truck production with minimal disruption, we can see a path to the high end of our ranges.\nOur current guidance remains as follows: From a revenue standpoint, $5.3 billion to $5.5 billion and an adjusted EBITDA basis, $850 million to $925 million and adjusted free cash flow of $300 million to $400 million.\nOperation in our business is running extremely well.\nWe continue to manage our expenses to improve our operational efficiency and tightly control capital expenditures.\nEven with all the pressures we face, we believe 2021 can be an outstanding year for AAM and this has AAM team both very motivated and excited.\nI will cover the financial details of our first quarter results with you today.\nI will also refer to the earnings slide deck as part of my prepared comments.\nSo let's begin with sales.\nIn the first quarter of 2021, AAM sales were $1.43 billion compared to $1.34 billion in the first quarter of 2020.\nSlide 8 shows a walk of first quarter 2020 sales to first quarter 2021 sales.\nFirst, we add back the impact of COVID-19 of approximately $169, then we account for the unfavorable impact of the semiconductor shortage which we estimate to be approximately $64 million inside the quarter.\nOn a year-over-year basis, we are impacted by GM's transition from a rear beam axle to a new lightweight and highly efficient independent rear drive axle for GM's new full-size SUV which impacted sales by about $38 million.\nThe first quarter of 2021 is the last quarter of this year-over-year impact to occur.\nOther volume and mix were negative by $26 million.\nPricing had an unfavorable impact of $4 million on a year-over-year basis.\nMetals and FX accounted for an increase in sales of $44 million.\nDuring the last six months, we have continued to see an increase in the primary index related inputs to the metal based materials that we purchase.\nYou may recall, we hedged this risk by passing with our customers bypassing through the majority of index related changes.\nThe metal portion of this column reflects these elevated pass-throughs on a year-over-year comparison.\nNow, let's move on to profitability.\nGross profit was $227.1 million or 15.9% of sales in the first quarter of 2021 compared to $195.3 million or 14.5% sales in the first quarter of 2020.\nAdjusted EBITDA was $262.9 million in the first quarter of 2021 or 18.4% of sales.\nThis compares to $213.3 million in the first quarter of 2020 or 15, 9% of sales.\nAs David mentioned, this was AAM's highest first quarter adjusted EBITDA margin in our company's history.\nYou can see a year-over-year walk down of adjusted EBITDA on Slide 9.\nWe benefited from the contribution margin on the increase in net sales from last year, but most importantly, we continued our strong cost reduction actions reflecting a year-over-year benefit of $28 million.\nLet me now cover SG&A.\nSG&A expense including R&D in the first quarter of 2021 was $90 million or 6.3% of sales.\nThis compares to a similar amount in the first quarter of 2020% or 6.7% of sales.\nAAM's R&D spending in the first quarter of 2021 was $32 million compared to $37 million in the first quarter of 2020.\nAAM has been able to capture an increase in sales with no net increase in SG&A expense.\nWe will not only continue to focus on controlling our SG&A costs, but also further our investments in key technologies and innovations with an emphasis on electrification.\nThis emphasis includes an appropriate level of funding to be successful to meet our objectives.\nBut it also includes shifting resources from traditional product support to new technology development in a very cost effective manner.\nLet's move on to interest and taxes.\nNet interest expense was $48.2 million in the first quarter of 2021 compared to $48.7 million in the first quarter of 2020.\nWe expect this favorable trend to continue as we benefit from continued debt reduction.\nIn the first quarter of 2021, we recorded income tax expense of $8.8 million compared to $3.3 million in the first quarter of 2020.\nAs we continue into 2021, we expect our book effective tax rate to be approximately 20%.\nWe would expect cash taxes to be in the $30 million to $40 million range for 2021.\nTaking all these sales and cost drivers into account, our GAAP net income was $38.6 million or $0.33 per share in the first quarter of 2021 compared to a loss of $501.3 million or $4.45 per share in the first quarter of 2020.\nAdjusted earnings per share for the first quarter of 2021 was $0.57 per share compared to $0.20 per share in the first quarter of 2020.\nLet us now move on to cash flow and the balance sheet.\nNet cash provided by operating activities for the first quarter of 2021 was $179 million compared to $139 million last year.\nCapital expenditures, net of proceeds from the sale of property, plant and equipment for the first quarter was $40 million.\nCash payments for restructuring and acquisition-related activity for the first quarter of 2021 were $23 million.\nThe cash outflows related to the recovery from the Malvern fire we experienced in September 2020 net of insurance proceeds were $11 million in the quarter.\nHowever, we anticipate the Malvern fire to heavy neutral cash impact for the full year as timing of cash expenditures and cash insurance proceeds align over time.\nIn total, we would expect $50 million to $65 million in restructuring and acquisition costs in 2021.\nThis is no change from prior guidance.\nReflecting the impact of this activity, AAM generated adjusted free cash flow of $174.1 million in the first quarter of 2021.\nFrom a debt leverage perspective, we ended the quarter with net debt of %2.8 billion and LTM adjusted EBITDA of $769 million calculating a net leverage ratio of 3.6 times at March 31st.\nThis continues the trend of a declining leverage ratio and keeps us on track delivering at least internal leverage reduction this year.\nBased on AAM's strong free cash in the first quarter of 2021, we prepaid over $100 million on our term loans.\nWe continue to expect to strengthen AAM's balance sheet by reducing our gross debt and lowering future interest payments.\nIn fact, subsequent to the end of the first quarter, AAM paid an additional $89 million on our term loans.\nBefore we move to the Q&A portion of the call, let me close my comments with some thoughts on our 2021 financial outlook.\nWe are reiterating our targets that we provided on February 12 of this year.\nOur outlook encapsulants the best information we currently have regarding customer production schedules, their prioritization of building full-size pickups and SUVs, and the uncertain backdrop related to semiconductors.\nAs David indicated, based on these inputs and assumptions, we can see a trend to the high end of the guidance ranges we provided.\nThe strong free cash flow number as a result of focused restructuring and cost reduction initiatives, year-over-year margin growth, working capital optimization, and reduced capital spending.\nOur EBITDA in free cash flow generation, we used to fund our R&D programs, support our future growth and reduce leverage is we are very focused on improving our financial profile.\nWhile we do not provide quarterly guidance, I would expect the second quarter impact related to semiconductors to be greater than the first quarter based on recent customer announcements and supply chain challenges.\nAAM continues to lay a solid framework for long-term success in shareholder value.\nWe continue to invest in electrification to develop highly efficient electric drive units, some assemblies and components that are compelling value to OEMs that will drive our growth.\nOur customers continue to award as Business on core platforms that will yield strong cash flows well into the future and AAM we are passionately focused on managing our cost structure, optimizing our performance, and delivering best-in-class results.\nAt the end of the day, the first quarter of 2021 was a fantastic start to the year.\nWe also understand there are near-term challenges and uncertainties related to the supply chain that we must manage and navigate, but this management team is confident in addressing these challenges.\nWe have reserved some time to take questions.\nSo at this time, please feel free to proceed with any questions you may have.",
        "summary": "q1 adjusted earnings per share $0.57.\nq1 earnings per share $0.33.\nq1 sales $1.43 billion.\naam's previously stated full year 2021 targets remain unchanged.\nco projects they are currently trending toward high-end of its 2021 fy outlook ranges."
    },
    {
        "text": "You can access this announcement on the Investor Relations page of our website www.\naam.com and through the PR Newswire services.\nYou can also find supplemental slides for this conference call on the Investor page of our website as well.\nFor additional information, we ask that you refer to our filings with the Securities and Exchange Commission.\nInformation regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.\nWith that, let me turn things over to AAM's Chairman and CEO, David Dauch.\nJoining me on the call today are Mike Simonte, AAM's President; and Chris May, AAM's Vice President and Chief Financial Officer.\nTo begin my comments today, I'll review the highlights of our second quarter 2021 financial results.\nNext, I'll touch on some exciting business development news in the quarter, including announcements with the Chinese EV OEM deal and our recent communication about GM's Oshawa plant.\nAnd lastly, we'll discuss the ongoing and unprecedented challenges within the supply chain and our financial outlook.\nAfter Chris covered the details of our financial results, we will then open up the call for any questions that you may have.\nAAM delivered strong operating performance in the second quarter of 2021 navigating industry production volatility stemming from the continuity of supply challenges.\nThese challenges were greater than we originally anticipated at the beginning of the quarter, but our team did an excellent job in managing these obstacles resulting in solid financial results.\nAAM sales for the second quarter 2021, were $1.28 billion, up approximately 149% compared to $515 million in the second quarter of 2020.\nThe increase in our revenues on a year-over-year basis primarily reflects the recovery from COVID-19 related industry shutdowns that we experienced last year.\nNorth American industry production was up approximately 130% according to third party estimates.\nLight truck production was up 150% year-over-year.\nAnd volumes of our core platforms increased significantly year-over-year.\nInventory levels on key light truck programs that we support remain well below normal levels.\nConsumer demand for light trucks remains robust and our OEM customers are building them as fast as possible.\nWe believe the demand environment for these products, combined with the lack of inventory should lead to an extended recovery through 2022 which will certainly benefit AAM.\nAAM's adjusted EBITDA in the second quarter 2021 was $222.6 million or 17.3% of sales.\nThis compares to a loss of $52.1 million last year.\nIn addition to benefiting from higher production levels, our intense focus on optimizing the business and flexing our cost structure over the past several quarters greatly contributed to our performance in the quarter.\nWe remain committed to driving efficiency and managing factors underneath our control.\nAAM's adjusted earnings per share in the second quarter of 2021 was $0.29 per share compared to a loss of $1.79 in the second quarter of 2020.\nAnd as for cash, I'm very excited about our cash flow generation in the quarter.\nWe generated adjusted free cash flow of over $136 million compared to an outflow of approximately $162 million in the second quarter of 2020.\nOur operating performance and commitment to efficient capital spending drove this high level of free cash flow.\nAdditionally, we prepaid over $140 million of term loans in the second quarter.\nAnd since the fourth quarter of 2020, to the second quarter 2021, we have paid down approximately $360 million of long-term debt.\nAs we previously stated, we are committed to reducing our debt and strengthen our balance sheet this year.\nWe are delivering on that goal.\nWe achieved 2.5 times net leverage ratio in the second quarter.\nIt is this management team's focus to further strengthen AAM's balance sheet.\nOn the business front, we are very excited to announce that we will be supplying electric vehicle components to NIO, supporting their next generation of e-Powertrain program.\nAnd for those of you who don't know who NIO is, NIO is a leading Chinese electric vehicle OEM and a pioneer in China’s electric vehicle market.\nWe continue to see good growth opportunities to support electric vehicles with drive units and a wide range of sub-assemblies and components.\nThis applies with both existing and new customers.\nToday's announcement clearly underscores AAM’s technology in electric vehicle propulsion and our commitment to excellence within this space.\nWe are very eager to support this new customer.\nElectrification dialog with multiple global OEMs continues to be very constructive as manufacturers are intensely focused to support this transformation.\nWe see plenty of opportunities over the next several years as our state-of-the-art technology, engineering, compact design and new product offerings are attracting strong global interest.\nOur engineering teams are rapidly developing next-generation technology, while supporting the launch of multiple new electrification programs globally.\nOur technology, innovation, and focus on customer service, our strong value propositions, allowing OEMs to compete to win business with both traditional and start up OEMs. It's our goal to be the supplier of choice when it comes to the electric drive units, sub-assemblies and components.\nClearly, these are very exciting times for AAM.\nHaving said that, we continue to deliver on our theme of securing the future by protecting the core.\nWe are very pleased to reiterate that AAM will be the sole supplier of front, rear pick-up axles for the production at GM's Oshawa facility.\nThis development demonstrates our high quality products and on-time delivery capabilities, as well as our strong relationship with General Motors.\nWe look forward to supporting GM as they expand their production of the successful full-sized trucks to meet consumer demand and rebuild their inventories.\nIn the quarter, we completed an acquisition which specializes in producing powdered metal components.\nAnd as we mentioned before, we will do smart, quick-return, bolt-on acquisitions that will complement our core business, drive synergies, and provide solid financial returns.\nThis was a compelling high value purchase which should immediately benefit AAM as also part of our long-term lightweighting component strategy.\nFinally, we are recognized as GM overdrive award winner in 2020.\nWe are very grateful for this award as it demonstrates our commitment to the continuity of supply, while addressing an unfortunate industrial fire last year.\nOperational excellence is a core value for AAM and will certainly benefit us and provide us the competitive advantage going forward.\nBefore I transition to Chris, I want to talk about our current operating environment and our financial guidance.\nThe stress on the value chain stemming from shortages and semiconductors, labor, steel, shipping containers, port delays, and rising commodity prices is unprecedented.\nSecond quarter 2021 was a challenging environment with the semiconductor challenges causing the production volatility that we saw in our schedules.\nThese headwinds are continuing and schedules will remain volatile.\nWe believe the second quarter 2021 still to be the trough of this issue and the semiconductor availability to improve in the second half of the year.\nHowever, we expect supply chain challenges related to this and other constraints to continue into 2022.\nFor AAM, we will continue to work diligently with our customers and our extended supply base to protect continuity of supply and support our customers.\nLet's discuss our financial guidance.\nAlthough there is continued operating uncertainty, especially with the availability of semiconductors, we are maintaining our guidance for revenue and raising the low end of our EBITDA range.\nWe are also raising our adjusted free cash flow outlook.\nOur guidance is as follows.\nOur revenue will be $5.3 billion to $5.5 billion.\nAdjusted EBITDA $875 million to $925 million.\nAnd adjusted free cash flow of $350 million to $425 million.\nAside from the impact of the semiconductor issue and metal market challenges, operationally, our business is running very, very well.\nWe are focused on managing our costs and expenses, while ensuring operational and capital efficiency to optimize our business.\nAnd as I've mentioned before, these fundamentals should support strong margin opportunities as we return to normal operating conditions.\nAt AAM, we have two over achieving priorities and both are equally important.\nFirst, we're focused on the here and the now.\nThat means operational excellence, strong cost management, and an unwavering commitment to support our customers.\nWe have continued to demonstrate these qualities and manage factors that we can control, leading to strong free cash flow generation, and yes, a stronger balance sheet.\nSecond, we're focused on our future.\nWe will continue to make investments in R&D to develop the next generation of electrified products and lightweighting of components to drive profitable future growth.\nOur engineering teams are developing creative solutions to offer solid value propositions to our customers.\nThis is demonstrated by a high interest in our electric vehicle products.\nAnd for us, our breadth and depth in drive chains provides us with a competitive advantage in not only technology development, but also an understanding of the OEMs, what the OEMs want from the propulsion system.\nClearly these are very exciting times and the future is very bright for AAM.\nAnd with that, let me turn things over to Chris May.\nI will cover the financial details of our second quarter results with you today.\nI will also refer to the earnings slide deck as part of my prepared comments.\nSo, let's go ahead and begin with sales.\nIn the second quarter of 2021 AAM sales were $1.28 billion compared to $515 million in the second quarter of 2020.\nSlide seven, shows a walk of second quarter 2020 sales to second quarter 2021 sales.\nFirst, we add back the impact of COVID-19 from second quarter of 2020 of approximately $947 million.\nThen, we account for the unfavorable impact of the semiconductor shortage which we estimate to be approximately $162 million in the second quarter of 2021.\nOther volume mix and pricing was negative by $99 million.\nMetals and FX accounted for an increase in sales of $82 million.\nDuring the last several quarters, we have continued to see an increase in the primary index related inputs to metal-based materials that we purchase.\nYou may recall, we hedged this risk with our customers by passing through the majority of index related changes.\nThe metal portion of this column reflects those elevated pass-throughs on a year-over-year comparison.\nNow, let's move on to profitability.\nGross profit was $190 million or 14.8% of sales in the second quarter of 2021, compared to a loss of $99 million in the second quarter of 2020.\nAdjusted EBITDA was $222.6 million in the second quarter of 2021 or 17.3% of sales.\nThis compares to a loss of $52.1 million in the second quarter of 2020.\nYou could see a year-over-year walk down of adjusted EBITDA on slide eight.\nWe benefited from the contribution margin on the increase in net sales from last year as we continued to experience positive improvements in performance.\nAs a result, the short notice production schedule changes and receipt of long lead inventory items such as steel, our raw, whipped, and finished goods inventories increased in this quarter.\nThis drove a $16 million benefit from inventory absorption timing, which should reverse out in the second half of the year as we anticipate reducing inventories during that timeframe.\nAs we mentioned, throughout the quarter, our schedules were more volatile than expected, but we were able to close the latter part of the quarter on a strong note.\nNow, let me cover SG&A.\nSG&A expense including R&D in the first quarter of 2021 was $86 million or 6.7% of sales.\nThis compares to 14.3% of sales in the second quarter of 2020 as revenues rapidly declined last year due to COVID-19 related shutdowns.\nAAM's R&D spending in the second quarter of 2021 was $30 million compared to $32 million in the second quarter of 2020.\nWe will continue to focus on controlling our SG&A costs, while at the same time, continue to invest in key technologies and innovations, with an emphasis on electrification.\nThis emphasis includes an appropriate level of funding to be successful and meet our objectives, but also include, smartly utilizing current resources from traditional products to support new technology development in a cost effective manner.\nWe do expect R&D to increase in the second half of the year as we are positioning to launch and pursue more electric vehicle business.\nWe continue to experience significant customer interest in our new products and technology.\nNow, let's move on to interest and taxes.\nNet interest expense was $47.3 million in the second quarter of 2021 compared to $51.6 million in the second quarter of 2020.\nWe expect this favorable trend to continue as we benefit from continued debt reduction.\nIn the second quarter of 2021, we recorded income tax expense of $2.4 million compared to a benefit of $43.9 million in the second quarter of 2020.\nAs we continue into 2021, we expect our effective tax rate to be approximately 15% to 20%.\nWe would expect cash taxes to be in the $30 million to $40 million range.\nTaking all these sales and cost drivers into account, our GAAP net income was $16 million or $0.13 per share in the second quarter of 2021, compared to a loss of $213.2 million or a loss of $1.88 per share in the second quarter of 2020.\nLet's now move to cash flow and the balance sheet.\nNet cash provided by operating activities for the second quarter of 2021 was $167.1 million compared to an outflow of $142.5 million last year.\nCapital expenditures, net of the proceeds from the sale of property plant equipment for the second quarter of 2021 was $41 million.\nCash payments for restructuring acquisition-related activity for the second quarter of 2021 were $16 million.\nThe net cash inflow related to the recovery from the Malvern fire we experienced in September of 2020 was $5 million in the quarter.\nHowever, we anticipate the Malvern fire to have a neutral cash impact for the full year as the timing of cash expenditures and cash insurance proceeds align over time.\nIn total, we would expect $50 million to $65 million in restructuring and acquisition costs in 2021.\nThis is no change from prior guidance.\nReflecting the impact of this activity, AAM generated adjusted free cash flow of $136.1 million in the second quarter of 2021.\nFrom a debt leverage perspective, we ended the quarter with net debt of $2.6 billion and LTM adjusted EBITDA of $1 billion, calculating a net leverage ratio of 2.5 times at June 30.\nThis continues the trend of a declining leverage ratio and marks the achievement of a critical goal for 2021 to reduce our leverage by a full turn or more this year.\nSpeaking of AAM's strong free cash flow generation, we prepaid over $140 million on our term-loans in the quarter.\nSubsequent to the end of the second quarter, we redeemed an additional $100 million on our 6.25% notes due in 2025.\nWe continue to expect to strengthen AAM's balance sheet by reducing our gross debt and lowering future interest payments.\nAs of today, we have paid down approximately $350 million in our term loans and notes in 2021 alone.\nBefore we move on to the Q&A portion of the call, let me close out my comments with some thoughts on our 2021 financial outlook.\nWe raised the lower end of our adjusted EBITDA range and we increased our outlook for adjusted free cash flow.\nOur outlook is based on the latest and best information we have regarding our customer production schedules, including the reduction in GM truck production we are experiencing this week.\nWe continue to assume our customers will prioritize building full-size pickup trucks and SUVs is going forward.\nBut the uncertain backdrop related to semiconductors remains, thus the ranges we have provided.\nThe revision to our free cash flow range is a result of focused and efficient capital spending, restructuring and cost reduction initiatives, year-over-year margin growth and working capital optimization.\nOur strong financial results will be used to reduce debt and support our research and development initiatives to solidify our position for future profitable growth AAM continues to focus on building long-term shareholder value and success.\nWe are focused on our future in electrification.\nWe continue to allocate more engineering and financial resources to technology development to provide compelling high value products to OEMs and drive our future profitable growth.\nYou are now beginning to see tangible results with the new business award announcements we are making.\nWe will continue to secure business on our legacy core platforms that will yield strong cash flows well into the future.\nAnd let's not forget our passion to run an efficient highly focused organization that centers around performance optimization, strong cost structure, and the delivery of best-in-class results.\nThe second quarter of 2021 continues a theme of managing factors under our control in a difficult operating environment.\nThere are plenty of near-term challenges and uncertainties as it relates to the supply chain in the second half of 2021.\nBut that stated, this management team is experienced and confident in navigating these obstacles.\nWe have reserved some time to take questions.\nSo, at this time, please feel free to proceed with any questions you may have.",
        "summary": "compname reports q2 earnings per share of $0.13.\nq2 adjusted earnings per share $0.29.\nq2 earnings per share $0.13.\nq2 sales $1.28 billion versus refinitiv ibes estimate of $1.16 billion.\namerican axle - targeting sales in range of $5.3 - $5.5 billion for 2021."
    },
    {
        "text": "Joining the call today are Tom Ferguson, Chief Executive Officer; Philip Schlom, Chief Financial Officer; and David Nark, Senior Vice President, Marketing Communications and IR.\nThose risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the company, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets and the metal coatings markets; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic; customer-requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing and availability of experienced management and employees to implement the company's growth strategies.\nIn addition, AZZ's customers and its operations could potentially be adversely impacted by the ongoing COVID-19 pandemic.\nSuffice it to say that we feel a lot better about this first quarter call than we did at this time last year.\nOverall, sales improved 7.8% versus the prior year to $230 million, although up 14.6% when adjusted for the divestitures.\nMetal Coatings turned in another excellent quarter with sales up 7.3% to $128 million and Infrastructure Solutions up 8.3% to $102 million and over 23% up when adjusted for the divestiture of SMS. The higher volumes resulted from strong operational performance and improved activity in most of our served markets.\nI will get into the details of this as we go along.\nWe are pleased to have completed another strong quarter of performance.\nWe continue to generate strong cash flow during the first quarter, while also returning capital to our shareholders.\nWe generated net income of $22.3 million and earnings per share of $0.88 per diluted share, both representing over 300% improvement versus the prior year's first quarter.\nOur businesses leverage the realignment actions taken last year to improve operating margins, while maintaining their focus on providing outstanding quality and service to our customers.\nWe also benefited from lower interest expense while incurring a 25.5% tax rate for the quarter.\nIn line with our strategic commitment to value creation, we've repurchased over 125,000 shares for $6.3 million and distributed $4.2 million in dividends.\nIn Metal Coatings, we posted sales of almost $128 million while achieving operating margins of 24.7%, resulting in operating income being up over 25% from the previous year.\nThe margin improvement was primarily due to driving operating efficiencies and productivity, while realizing improved pricing in the face of rising zinc, labor and energy costs.\nWe remain committed to delivering on the investments made in our Surface Technology business, and we're pleased to see most customers beginning to return to pre-COVID levels of demand.\nOur Metal Coatings team continues to demonstrate their ability to perform and deliver great results.\nOur Infrastructure Solutions segment, which was severely impacted by the COVID pandemic, particularly in the first quarter of last year, demonstrated its resilience as they improved sales to $102 million or up over 23% when considering the impact of the SMS divestiture.\nThe team delivered operating income of $9.6 million or 9.4%, up dramatically versus prior year.\nThe segment benefited from its realignment actions from last year, while building on synergistic opportunities between EPG and WSI.\nThey are focused on strategic selling initiatives and are well positioned to deliver a strong fiscal year 2022.\nFor fiscal year 2022, while COVID continues to generate some uncertainty in certain sectors, with our strong performance in the first quarter and due to seeing more opportunities than risk the balance of this year, we are tightening and raising our guidance.\nWe anticipate sales to be in the range of $855 million to $935 million and earnings per share at $2.65 to $3.05.\nMetal Coatings is continuing to focus on sales growth, including leveraging our spin galvanizing operations at several sites, operational execution and customer service as labor and operating expenses due to material cost inflation are increasing.\nOur Infrastructure Solutions segment has seen more normalized business levels and entered Q2 with some momentum in their bookings activity.\nOur WSI business is seeing good results from the expanded Poland facility, although globally, the business continues to experience some intermittent project delays due to COVID outbreaks at certain customer sites.\nThe electrical platform is focused on operational execution and growing its e-house and switchgear businesses.\nWe anticipate continuing to benefit from low interest rates and should experience a lower tax rate for the remainder of the year.\nFor fiscal year 2022, AZZ will continue to execute on our strategic growth objectives to drive shareholder value.\nOur commitment to superior customer service is unwavering.\nOur ability to generate strong cash flow is based on initiatives to drive operational excellence, manage costs, ensure pricing discipline and emphasis on receivables collection within our operating platforms.\nWe are confident that our businesses remain vital to improving and sustaining infrastructure.\nSo we are actively working to position our core businesses to provide sustainable profitability long into the future.\nIn the first quarter of our fiscal year 2022, we reported improved sales of $229.8 million, 7.8% higher than the prior year first quarter where we had sales of $213.3 million.\nNet income for the quarter was $22.3 million, an increase of $16.8 million compared with the $5.5 million in net income for the first quarter of fiscal 2021.\nThe company's earning per share was $0.88, more than 4 times the $0.21 earned and generated during the first quarter of last year.\nFor the first quarter gross margins, they were 25.2%, a 540 basis point improvement over the first quarter of 2021.\nThe improvement was a result of our businesses most impacted by the pandemic returning to more normal operations and continued strength in our Metal Coatings segment.\nFirst quarter operating income of $30.7 million improved $16.4 million or up 114.5% compared with the prior year.\nOur operating margin was 13.4%, 670 basis points better than the 6.7% recorded in prior year's first quarter.\nInterest expense for the quarter of $1.7 million was 35.6% lower as we realized interest savings on our $150 million senior notes that we refinanced last year an upsized by $25 million.\nFirst quarter income tax expense was $7.6 million, an effective tax rate of 25.5%.\nThe current quarter effective tax rate was significantly improved over the 45.8% effective tax rate realized in the first quarter of last year, driven mainly by our improved earnings in the current quarter.\nAt this time, without consideration of the potential impact of tax law changes, we estimate our full year tax rate will be roughly 23%.\nNext, I'll cover the results of operations within our Metal Coatings and Infrastructure segments.\nOur Metal Coatings segment generated first quarter sales of $127.7 million, a 7.3% increase over the $119 million reported in the first year -- first quarter of last year.\nMetal Coatings segment operating income of $31.6 million was $6.5 million or 25.9% higher than the first quarter of 2021.\nMetal Coatings operating margins were 24.7%, 360 basis points improved over fiscal 21's first quarter and 60 basis points improved over the first quarter of fiscal year 2020.\nThe business continues to thrive and has effectively managed rising cost of labor, zinc, energy and most other consumable costs with operating efficiencies, increased productivity and value pricing.\nIn addition, the business segment is benefiting from the January 2021 purchase and full integration of Acme Galvanizing in Wisconsin.\nOur Infrastructure Solutions segment generated sales of $102.1 million, $7.8 million or 8.3% increased over the $94.3 million in sales during the first quarter of last year.\nOn a pro forma basis, excluding sales related to our divestiture of Southern Mechanical Services from our Industrial platform, Infrastructure Solutions segment year-over-year sales increased 23.4%.\nOur Industrial Platform sales improved year-over-year as personnel are now able to access customer locations.\nHowever, this market continues to work through stricter cross-border requirements when traveling to customer locations to perform their field services.\nAs a result of strong actions taken by the management team during the early stages of the pandemic last year, operating income for this segment increased to $9.6 million for the first quarter as compared to the $1 million loss in the first quarter of last year.\nWe believe the actions to divest non-core businesses in FY '20 and '21 as well as making some difficult personnel decisions during fiscal '21 will continue to benefit the Infrastructure Solutions segment on a go-forward basis.\nThe Infrastructure Solutions segment generated gross profits of $22.3 million, which reflected a $9.7 million increase over prior year.\nGross margins were 21.8%, well above the 13.3% realized during last year's first quarter.\nI will now turn to our balance sheet and liquidity.\nNet cash provided by operating activities for the three months ended May 31 was $11.1 million compared to net cash used in operations of $11.2 million in the prior year first quarter.\nThe increase in cash provided by operating activities in the current quarter is primarily attributable to strong net earnings.\nThe company, due to cyclicality in certain platforms of our business, typically draws cash during the first quarter and generates positive cash flows remainder of the year.\nThis first quarter was no different as we observed a net decrease in cash of $2.4 million.\nHowever, current quarter use of cash represented a $7.8 million improvement compared with the first quarter of the prior fiscal year.\nCapital spending in the first quarter was $7.5 million compared with $10.8 million investing capital during the first quarter of the prior year.\nOur current capital expenditure estimate of $35 million is consistent with the past couple of years.\nAt May 31, our outstanding debt was $185 million compared with $219 million outstanding at the end of the first quarter last year.\nDuring the past quarter, we continued to generate strong cash flows that allowed us to continue to reduce debt.\nDuring the quarter, we continue to repurchase shares under our November 2020 $100 million share repurchase program.\nDuring the first quarter, we invested in repurchasing $6.3 million or 126,000 shares of our common stock.\nWe declared and will pay a quarterly dividend.\nLastly, this week we entered into a new five year credit facility with our bank group.\nOur previous arrangement was to expire in March 2022.\nOur credit facility capacity range is $600 million with the following transaction highlights.\nWe reduced our revolver from $450 million to $400 million to reduce costs associated with unused line fees.\nWe increased our accordion to $200 million from $150 million to retain full capacity.\nWe improved pricing levels of borrowing by 12.5 basis points and reduced unused line fees by 7.5 basis points.\nWe retained our leverage ratios at 3.25 to 1 and our interest coverage ratio at 3 to 1.\nWe are excited with the banks we have partnered with and look forward to improving our utilization of our credit facility as we remain active with acquisition opportunities, and we continue to repurchase shares of our common stock under our $100 million existing buyback program.\nWe remain well within all boundaries of our existing debt covenants and continue to strengthen our liquidity and we'll continue to evaluate our capital structure as we further execute and implement upon our strategic plans.\nHere are some key indicators that we are paying particular attention to.\nFor the Metal Coatings segment's galvanizing business, we are carefully tracking fabrication and construction activity, material and labor cost inflation and progress of infrastructure legislation.\nFor the Surface Technologies platform, we are primarily focused on expanding our customer base and benefiting from improved operational performance.\nFor Infrastructure Solutions, we are off to a decent start with turnaround and outage activity having returned to a more normal level.\nAnd the fall season currently looking to be good as long as international customers aren't impacted by further COVID-related restrictions.\nThe Electrical Platform is benefiting from T&D and utility spending and growing data center and battery energy storage activity.\nFinally, for corporate, we have completed the strategic review of Infrastructure Solutions and are now focused on pursuing specific areas of opportunity.\nAs we have noted previously, we are having regular meetings with the board, and we anticipate being able to provide more detail in October.\nWe remain committed to our growth strategy around Metal Coatings and achieving 21% to 23% operating margins with galvanizing performance being quite steady as we continue to improve Surface Technologies.\nWe will remain acquisitive, particularly in galvanizing.\nFor Infrastructure Solutions, we will continue to focus on profitable growth in our core businesses.\nOur segments -- business units should benefit from more normal turnaround and outage seasons and a solid market for transmission and distribution, utility and data center, e-houses and switchgear.",
        "summary": "compname reports results for first quarter of fiscal year 2022 generates earnings per share of $0.88 and revises guidance.\ncompname reports results for first quarter of fiscal year 2022; generates earnings per share of $0.88 and revises guidance.\nq1 earnings per share $0.88.\nq1 sales $229.8 million versus refinitiv ibes estimate of $223.7 million.\nsees fy sales $855 million to $935 million."
    },
    {
        "text": "Joining in the Q&A after Bob and Mike's comments will be Jacob Thaysen, President of Agilent's Life Sciences and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group.\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website.\nCore revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.\nThe Agilent team delivered another excellent quarter to close out an outstanding record-setting 2021.\nAt $6.32 billion for fiscal 2021, revenues are almost $1 billion higher than last year.\nFull year core growth is up 15% on top of growing 1% last year.\nThe strength is broad-based for the three business units, all growing more than 10% core for the year.\nOur full year operating margin was up 200 basis points.\nEarnings per share are $4.34 or up 32%.\nLet's now take a closer look at our strong finish to 2021 and review Q4 results.\nOur momentum continues as orders increase faster than revenue in Q4.\nAnd at the same time, we delivered our fourth straight quarter of double-digit revenue growth.\nAt $1.66 billion, revenues are up 12% on a reported basis.\nOur core revenues grew 11%, exceeding our expectations.\nThis is on top of 6% core growth last year.\nOur Q4 operating margin is 26.5%.\nThis is up 160 basis points from last year.\nEPS is $1.21, up 23% year-over-year.\nOur earnings growth also exceeded our expectations.\nWe continue to perform extremely well in Pharma, our largest market, growing 21%, driven by our Biopharma business.\nTotal pharma now represents 36% of our overall revenue.\nThis compared to 31% of our revenues just two years ago.\nThe strong growth in our Chemical and Energy business continues as we delivered 11% growth in the quarter.\nThis is on top of growing 3% in Q4 of last year.\nPMI numbers are positive and we expect that chemical and energy will continue its strong growth trajectory into fiscal 2022.\nIn Diagnostics and Clinical, revenues grew 11% on top of growing 1% last year as testing volume started to recover.\nOn a geographic basis, our results are led by strong performance in the Americas and China.\nOur business in the Americas grew 15% on top of 5% last year.\nChina grew 8% core on top of strong 13% growth in Q4 of last year.\nChina order growth outpaced revenue growth for the third quarter in a row.\nNow, looking at a performance by business unit, the Life Sciences and Applied Markets Group generate revenue of $747 million.\nLSAG is up 11% of both the reported and a core basis.\nLSAG's growth is broad based and led by strength in liquid chromatography and cell analysis.\nThe Pharma and Chemical Energy markets were particularly strong for new instrument purchases.\nOur cell analysis business crossed $100 million revenue mark in the quarter for the first time.\nDuring the quarter, the LSAG team announced a new high mobility LC/Q-TOF and enhancements to our VWorks automation software suite.\nThese new well received offerings are used to improved analysis of proteins and peptides to speed development of new protein-based therapeutics.\nThe Agilent CrossLab Group posted revenue of $572 million.\nThis is up reported 10% and 9% core.\nGrowth is broad based, driven by strength in service contracts and on-demand services as well as our chemistries and supplies.\nOur focus on increasing connect rates continues to pay off for us.\nThe strong expansion of our installed base in 2021 and increasing connect rates bodes well continued to strengthen our ACG business moving forward.\nOur ability to drive growth and leverage our scale produce operating margins of roughly 30%, not more than 200 basis points from the prior year.\nThe Diagnostics and Genomics Group delivered revenue of $341 million, up 16% reported and up 13% core.\nOur NASD oligo business led the way with robust double-digit growth in the quarter and achieved full year revenues exceeding $225 million.\nWe expect another year of strong double-digit growth as the team continues to do a great job of increasing throughput with existing capacity.\nThe expansion of our Train B oligo manufacturing facility in Frederick, Colorado is proceeding as planned.\nWe expect this additional capacity to come online by the end of calendar year 2022.\nMoving on from our other business group updates, there are several other significant developments for Agilent this quarter.\nWe announced our commitment to achieving net zero greenhouse gas emissions by 2050.\nWe believe our approach delivers the same rigorous sustainability that'd be applied to everything else we do.\nWe also believe these actions are not only the right thing to do, but fundamental to achieving long-term success.\nOur sustainable leadership continues to be primarily recognized as well.\nYou may have seen that Investor's Business Daily recently named Agilent to its Top 100 ESG Companies list.\nWe're also a company where diversity and inclusion represent a company priority and is a core element of our culture.\nDuring the quarter, we achieved recognition by Forbes as one of the World's Best Employers and as a Best Workplace for Women.\nWhile the Agilent team has a strong track record of delivering above-market growth and leading customer satisfaction, we're always looking to do more.\nTo further accelerate growth and strengthen our focus on customers, we are implementing a new One Agilent commercialization, combining for the first time all customer-facing activities under one leader.\nThe new organization brings together and strengthens our sales, marketing, digital channel and services team.\nThe new enterprise level commercialization is led by Padraig McDonnell.\nPadraig will continue to lead the Agilent CrossLab Group as Business Group President as well as serves Agilent's first ever Chief Commercial Officer.\nThe way I'd like to characterize this move is to say we are doubling down on the success we've achieved with ACG, applying a holistic customer-focused approach to all aspects of our business.\nWe're also moving the chemistries and supplies division to LSAG.\nThis close organizational alignment between instrument and chemistries development will further accelerate our progress on instrument connect rates for chemistries and consumables.\nWe believe that structure of follow strategy and that this new organizational structure will further enhance our customer focus and the execution of our growth strategies.\nLooking ahead to the coming year, we are in a strong position to continue to deliver on our build and buy growth strategy.\nAgilent's business remains strong.\nWe enter the new year with a robust backlog and have multiple growth drivers, coupled with the proven execution excellence of the Agilent team.\nA year ago to our Agilent Investor Day, we raised our long-term annual growth outlook to the 5% to 7% range, while reaffirming our commitment to annual operating margin improvement and double-digit earnings per share growth.\nWe are now one year in and well on our way to achieving these long-term goals.\nBob will provide more details, but for fiscal 2022, our initial full year guide calls for a core growth in the range of 5.5% to 7%.\nWe expect to continue our top line growth as we launch market-leading products and services, invest in fast-growing businesses and deliver outstanding customer service.\nMy confidence in the unstoppable One Agilent team and our ability to execute and deliver remains firmly intact.\nThis is our formula for delivering solid financial results, outstanding shareholder returns and continued strong growth.\nWe are very pleased with our performance in 2021 but not satisfied.\nAs I tell the Agilent team, the best is yet to come for our customers, our team and our shareholders.\nI will now hand the call off to Bob.\nIn my remarks today, I'll provide some additional details on revenue and take you through the income statement and some other key financial metrics.\nI'll then finish up with our initial outlook for the upcoming year and for the first quarter.\nAs Mike mentioned, we had very strong results in the fourth quarter.\nRevenue was $1.66 billion, reflecting reported growth of 12%.\nCore revenue growth at 11% was a point above our top end guidance range.\nCurrency accounted for 0.8% of growth, while M&A contributed half a point of growth during Q4.\nAnd as expected, COVID-19-related revenues were roughly flat sequentially and resulted in just over a point headwind to the quarterly revenue growth.\nLate in the quarter, we did see transit times that were in certain cases greater than anticipated, resulting in some revenues being deferred into Q1.\nOur results were driven by a continuation of outstanding momentum in Pharma and in Biopharma in particular, while Chemical and Energy and Diagnostics and clinical also delivered strong results for us.\nOur largest market, Pharma, grew 21% during the quarter against a tough compare of 12% last year.\nThe Small Molecule segment delivered mid-teens growth, while Large Molecule grew 30%.\nPharma was a standout all year, growing 24% for the full year after growing 6% in 2020.\nAnd in FY '22, we expect our Pharma business to grow in the high-single digits.\nChemical and Energy continue to show strength growing 11% with instrument growth in the mid-teens during the quarter.\nThis impressive performance was against a 3% increase last year.\nThe C&E business grew 12% for the year after declining 3% in 2020.\nGrowth was driven by continued momentum in chemicals and engineered materials and we expect our C&E business to continue to grow solidly next year in the high-single digits.\nDiagnostics and Clinical grew 11% with all three groups growing nicely during the quarter.\nWhile the largest dollar contributor to this market is DGG, driven by our pathology-related businesses, the LSAG business continues to penetrate the clinical market and drive growth with strong performances by Cell Analysis and Mass Spec.\nWe saw mid-teens growth in the Americas and strong growth in China, albeit off a small base.\nFor the year, the Diagnostics and Clinical business grew 15% for the year after declining slightly by 1% in 2020.\nAnd we expect to continue to grow in the mid to high-single digits in 2022.\nAcademia and Government, which can be lumpy and represents less than 10% of our business, was up 1% in Q4 versus a flat growth last year.\nMost research labs continue to remain open globally and increase capacity to pre-pandemic levels.\nChina came in at low-single digits, while the Americas and Europe were roughly flat.\nFor the year, we grew 7% after declining 4% last year.\nWe expect this market will continue to improve slightly in fiscal year 2022 and expect growth of low to mid-single digits.\nFood was flat during the quarter against a very tough 16% compare.\nEurope and the Americas grew while China declined.\nFor the year, food grew 13% after growing 7% in 2020.\nLooking forward, we expect food to return to historical growth rates in the low-single digits.\nAnd rounding out the markets, Environmental and Forensics declined 2% in the fourth quarter off of 5% decline last year as growth in Environmental was overshadowed by a decline in Forensics.\nFor the year, we grew 5%, off a 2% decline in 2020.\nAnd looking forward, like Food, we expect Environmental and Forensics to grow in the low-single digits in the coming year.\nFor Agilent overall, on a geographic basis, all regions again grew in Q4, led by Americas at 15% China grew 8% in Europe grew 4%.\nAnd for the year, Americas led the way with 21% growth, followed by China at 13% and Europe at 12%.\nNow let's turn to the rest of the P&L.\nFourth quarter gross margin was 55.9%, up 90 basis points from a year ago.\nGross margin performance, along with continued operating expense leverage, resulted in an operating margin for the fourth quarter of 26.5%, improving 160 basis points over last year.\nPutting it all together, we delivered earnings per share of $1.21, up 23% versus last year.\nAnd during the quarter, we benefited from some additional tax savings, resulting in a quarterly tax rate of 13% and our full year tax rate was 14.25%.\nOur share count was 305 million shares as expected.\nAnd for the year, earnings per share came in at $4.34, an increase of 32% from 2020.\nWe continued our strong cash flow generation, resulting in $441 million for the quarter, an increase of 17% versus last year.\nFor all of 2021, we generated almost $1.5 billion in operating cash and invested $188 million in capital expenditures.\nDuring the quarter, we returned $195 million to our shareholders paying out $59 million in dividends and repurchasing roughly 830,000 shares for $136 million.\nAnd for the year, we returned over $1 billion to shareholders in the forms of dividends and share repurchases.\nAnd we ended the year with $1.5 billion in cash and $2.7 billion in outstanding debt and a net leverage ratio of 0.7 times.\nAll in all, a great end to an outstanding year.\nNow let's move on to the outlook for fiscal 2022.\nWhile we are still dealing with the pandemic and we have the additional challenges around logistics and inflationary pressures, we enter the year with strong backlog and momentum.\nFor the full year, we're expecting revenue to range between $6.65 billion and $6.73 billion, representing reported growth of 5% to 6.5% and core growth of 5.5% to 7%, consistent with our long-range goals.\nAnd this incorporates absorbing roughly 0.5% headwind associated with COVID-related revenues with the majority of that impact coming in Q1.\nWe're expecting all three of our businesses to grow, led by DGG.\nWe expect DGG to grow high-single digits with the continued contribution of NASD in cancer diagnostics.\nWe expect ACG to grow at high-single digits with both services in our chemistries and supplies businesses growing comparably while LSAG is expected to grow in mid-single digits.\nWe expect operating margin expansion of 60 to 80 basis points for the year as we absorb the build-out costs of Train B at our Frederick, Colorado NASD site.\nAnd in helping you build out your models, we're planning for a tax rate of 14.25%, consistent with current tax policies and $305 million fully diluted shares outstanding.\nAll this translates to a fiscal 2022 non-GAAP earnings per share expected to be between $4.76 to $4.86 per share, resulting in double-digit growth.\nAnd finally, we expect operating cash flow of approximately $1.4 billion to $1.5 billion and capital expenditures of $300 million.\nThis capital investment represents an increase over 2021 as we continue our focus on growth, bringing our NASD Train B expansion online and expanding consumables manufacturing capacity for our Cell Analysis and Genomics businesses.\nWe have also announced raising our dividend by 8%, continuing an important streak of dividend increases and providing another source of value to our shareholders.\nNow let's move on to our first quarter guidance.\nBut before I get into the specifics, some additional context.\nLunar New Year is February 1 this year, a shift from last year when it was in mid-February.\nAs a result, we expect some Q1 revenue to shift to the second quarter of this year as customers shut down ahead of the holiday.\nIn addition, as I mentioned, we do expect to see the largest impact of COVID-related revenue headwinds in the first quarter.\nWe estimate these two factors will impact our base business growth by 2 to 3 points and roughly equal in impact.\nFor Q1, we are expecting revenue to range from $1.64 billion to $1.66 billion, representing reported and core growth of 5.9% to 7.2%.\nAdjusting for the timing of Lunar New Year and COVID-related headwinds, core growth would be roughly 8% to 10% in the quarter.\nFirst quarter 2022 non-GAAP earnings are expected to be in the range of $1.16 to $1.18.\nIn conjunction with the new One Agilent commercial organization Mike talked about, we will be reporting under the new structure starting in Q1.\nIn addition, we'll be providing a recast of certain LSAG and ACG historical financials to account for the segment changes after the filing of our Annual Report on Form 10-K in December.\nI am extremely proud of what the Agilent team achieved in 2021 and look forward to another strong performance in 2022.\nWith that for me, back to you for Q&A.\nBethany, if you could please provide instructions for the Q&A now.",
        "summary": "q4 non-gaap earnings per share $1.21.\nsees q1 revenue up 5.9 to 7.2 percent.\nsees q1 revenue $1.64 billion to $1.66 billion.\nsees fy revenue $6.65 billion to $6.73 billion.\nq4 revenue rose 11 percent to $1.66 billion.\nsees q1 non-gaap earnings per share $1.16 to $1.18.\nfiscal year 2022 non-gaap earnings guidance of $4.76 to $4.86 per share."
    },
    {
        "text": "As some of you know, our Head of Investor Relations, Rubun Dey, recently left the company to pursue other opportunities.\nOur Vice President and Chief Accounting Officer, Laura Adams, has stepped in as Interim Head of Investor Relations, which she will oversee while also maintaining her ongoing role.\nLaura has been a finance executive with the firm for over a decade, overseeing many areas of corporate finance, including governance, financial and treasury oversight and risk mitigation.\nShe has played a vital role for me and our leadership team in our strategic decision-making around our capital allocation and M&A plans and our investment thesis more recently.\nDuring today's call, we will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.\nWe include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our second quarter fiscal year 2022 slides.\nWe are now on Slide 4.\nLaura, it's great to have you play a more public role on these calls, because you have been a leader on our finance team and integral to the quarterly earnings process for many years.\nI have personally relied on your expertise for as long as I've been CEO.\nLloyd and I, along with several of our Booz Allen colleagues were excited to be in New York City earlier this month to share our new investment thesis and our strategy for growth.\nIt was great to see so many of you in person, and we hope you took away from that event a deeper understanding of our strategy, business and multi-year financial goals.\nToday, we will continue the conversation in the context of our second quarter results for the fiscal year.\nAnd we will show how Booz Allen is already setting up to accelerate into the financial goals described in our investment thesis.\nI'm also pleased to share an update on our future of work rollout.\nBefore diving into the second quarter results, I want to briefly recap a few points from our Investor Day, starting with VLT; velocity, leadership and technology.\nVLT is the strategic framework that will accelerate our growth and create exceptional shareholder value.\nThrough VLT, we will capitalize on future market opportunities and leverage our positioning to deploy talent and capital against the nation's highest priorities.\nAs part of our new strategy, we also told you about the opportunities we see for hyper growth in the areas of digital battle space and national cyber, among others.\nAnd then those of you who attended AUSA a week later, saw some of our differentiated technology solutions that are transforming national missions.\nSpecifically, demos of Rainmaker and a few of our Edge solutions are excellent examples of how we are leading in our market.\nFueled by the investments we have made during Vision 2020, Booz Allen holds first-mover advantage at key intersections of technology and mission.\nThe overall strategy is important because it's what creates our strong financial performance year-to-year.\nAnd on Investor Day, we were pleased to present our new investment thesis.\nIt's the multi-year outlook that will frame our quarter-to-quarter performance going forward.\nAt the core of these thesis is accelerating growth in adjusted EBITDA dollars through fiscal year 2025.\nWe expect adjusted EBITDA to increase by about 50% from $840 million in fiscal year 2021 to $1.2 billion to $1.3 billion in fiscal year 2025.\nBroadly, we expect this increase to be driven by above market organic revenue growth, continued strong margins and capital deployment that prioritizes strategic acquisitions.\nTo be more specific, our path to 50% adjusted EBITDA growth includes financial expectations of 5% to 8% annual organic revenue growth, adjusted EBITDA margins in the mid-10s and $3.5 billion to $4.5 billion in total capital deployment during the period.\nThe leadership team and I are confident that we can accelerate growth and achieve the goals in our investment thesis.\nWe have the right strategy.\nAnd more importantly, the right team is in place to drive our business.\nThis quarter's results demonstrate that Booz Allen is already positioned for acceleration.\nSo let me shift now to an overview of the second quarter.\nAs we have said since fiscal year 2022 begun, this year's growth pattern looks different from recent fiscal years with slower revenue growth in the first half and significant acceleration expected in the second half.\nThese pattern is primarily due to three factors.\nFirst and most important, a ramp-up in hiring.\nSecond, productivity and time of dynamics tied to the pandemic that create challenging comps in the first half.\nAnd third, full inclusion of revenue from acquisitions.\nThese factors contribute to choppiness at the top-line.\nAnd with our second quarter results now final, you can see that the first half of the fiscal year played out just as we expected.\nFor the full six months, revenue growth was in the low-single-digits.\nWe are pleased to report that across bottom line metrics we outperformed in the first half with strong profit margins driving EBITDA and ADEPS growth.\nBook-to-bill for the second quarter was strong, reflecting a significant year-over-year increase in bookings and cash generation was exceptional.\nOur latest results demonstrate several key things about our business at the midpoint of the fiscal year.\nWe are not demand constraint, as shown in our backlog and book-to-bill performance.\nHiring, which is our top operational priority, rapidly accelerated over the first two quarters.\nWe continue to attract and retain the talent we need in a very competitive market, and we aim to keep our momentum going.\nOur team is managing the business extraordinarily well, which can be seen especially in the bottom line metrics.\nWe are well underway with making strategic acquisitions and successfully integrating them, with our acquisition of Tracepoint last month being the most recent example.\nWe're already seeing lift from combining Tracepoint's channel access and incident response expertise with Booz Allen's cyber consulting and managed services offerings.\nAnd while we did face headwinds from comps and a slow ramp up on some contracts, we continue to manage through them.\nTaken together, our first half results and the strong operational performance behind them point to acceleration through the rest of the fiscal year.\nTo achieve our second half objectives, we are focused on a set of priorities that are critical to our success.\nLet me walk through them.\nOur top priority remains recruiting.\nWe must continue strong hiring to execute our growing backlog.\nSecond, we will maintain operational excellence in managing the business.\nThird, we will continue to capture key market opportunities.\nFourth, we will capitalize on the upside presented by our acquisitions of Liberty and Tracepoint.\nAnd fifth, we will continue to invest in our people and differentiated solutions to drive growth beyond this fiscal year.\nLloyd and I are confident Booz Allen will continue to make progress on these objectives.\nAnd today, we are pleased to reaffirm guidance for the full fiscal year.\nWe believe that our growing momentum will both deliver another successful year and accelerate our business into the years covered by our new investment thesis.\nLloyd will share more details on our results and fiscal year 2022 guidance in a few minutes.\nBefore giving him the floor, I want to provide an update on the implementation of our future of work program.\nAs you may recall, we believe we can offer our people increased flexibility in the way we work with the expectation that many of our people will work in a hybrid model.\nIt makes up telework and purposeful in-person collaboration.\nWe have plans to launch future of work and reopen all our offices on September 7, but those plans have to be delayed.\nIt just was not safe at the time given the summer wave of COVID driven by the Delta variant.\nSince then, case metrics have improved and we are implementing a vaccination policy consistent with the federal government's mandate, requirements and timeline.\nWe're making excellent progress in our vaccination rates.\nAnd earlier this month, we began a phase reopening of offices that have remained closed, and we expect to have all offices open by November 22.\nWe are excited to now be in the position to safely engage more broadly with clients and colleagues in-person.\nOur people did an extraordinary job staying connected over the past 19 months.\nBut just like Investor Day, there are times when being face-to-face is best.\nOur future of work program provides the flexibility to come together with purpose when and where it makes the most sense.\nWith the opportunity to see more of our teams, clients, investors and other Booz Allen stakeholders in-person, I'm feeling energized and confident about the future.\nAnd my optimism is enhanced by the strong performance we delivered in the first half and how it sets us up for acceleration for the rest of the fiscal year and well beyond.\nAnd with that, Lloyd, over to you to take us through the financials in depth.\nOur overall objective with Investor Day was to once again demonstrate Booz Allen's commitment to long-term profitable growth.\nLeveraging our VLT strategy, we will make the internal investments and strategic acquisitions required to drive and execute that growth.\nIn our view, the first half of fiscal year 2022 was an inflection point.\nAs we move into the second half of the fiscal year and move past the direct and indirect influences of COVID over the last 19 months, we are entering the next leg of the firm's multi-year journey.\nAs Horacio noted, we closed out the first half of the fiscal year with top-line performance in line with our expectations and prior guidance and with bottom-line performance well ahead.\nThis gives us great confidence in our plan for the full fiscal year.\nOur large backlog, strong bookings and proposal activity signals continued client interest and strong demand for our work.\nOur hiring engine is now firing on all cylinders, positioning us to drive growth in the second half of the fiscal year.\nWe closed on the acquisitions of Liberty and Tracepoint.\nAs we have noted, we anticipated early year choppiness in our top-line results as we move into a post-COVID operating rhythm, which played out as we expected.\nOur strong balance sheet position and favorable market conditions have allowed us to take advantage of a number of opportunities, including attractive levels of debt financing, M&A and share repurchases.\nAs a reminder, we had forecast constrained low-single-digit top-line growth in the first half with an acceleration through the fiscal year, driven by three dynamics: a ramp up in contracts and hiring, normalizing staff utilization and time off usage, growing contributions from acquisitions.\nI will speak to these in more detail when I address our guidance.\nWith that, let me walk you through the second quarter results.\nAt the top-line, in the second quarter, revenue increased 4.3% year-over-year to $2.1 billion.\nRevenue excluding billable expenses grew 3.6% to $1.5 billion.\nRevenue growth was driven by inorganic contributions and solid operational performance, offset from higher than normal staff utilization in the comparable prior year period.\nNow, let me step through performance at the market level.\nIn defense, revenue declined by 0.6%, primarily due to a significant materials purchased in billable expenses and unusually high staff utilization in the prior year period, a headwind felt throughout most of our markets.\nDefense also saw some slowness in ramp ups on both new and existing work, while ongoing protests continue to create uncertainty on the timing of programs starts.\nIn the first six months, revenue increased 1.8%.\nIn civil, revenue grew by 16.4% led by strong performance in our health business and the addition of Liberty.\nLiberty's contributions so far is slightly outpacing our previously forecasted range of $300 million to $340 million of annualized revenue.\nWe remain exceptionally pleased with Liberty's performance and contribution to Booz Allen and are well underway with plans to fully integrate it with our broader health and digital business.\nWe are feeling momentum across this entire market as we continue to capture key opportunities aligned to the government's priorities.\nIn the first six months, revenue increased 11.2%.\nIn intelligence, we recorded 0.8% revenue growth this quarter.\nOur portfolio reshaping efforts have started to yield critical wins, and we are excited to see this business return to growth.\nFor the full first six months, revenue declined 2.9%, but we believe this will continue to turnaround in the second half of the fiscal year.\nLastly, revenue and global commercial declined 5.7% compared to the prior year quarter.\nWe continued to strategically shift focus to our U.S. commercial cyber business and anticipate growth in the back half of the fiscal year as we accelerate hiring to capitalize on the strong demand and additive growth in the business from Tracepoint.\nIn the first six months, revenue declined 17.2%.\nOur book-to-bill for the quarter was 2.03 times, while our last 12 month's book-to-bill was 1.28 times.\nTotal backlog grew 18% year-over-year, resulting in backlog of $29 billion, a new record.\nFunded backlog grew 9.7% to $4.9 billion, unfunded backlog grew 54.7% to $9.5 billion and priced options grew 4.4% to $14.6 billion.\nWe are proud of our bookings performance in the second quarter, which continues to demonstrate we are not demand constrained, and our ability to win and convert on work aligned with our core capabilities and clients' most critical missions.\nPivoting to headcount, as of September 30, we had approximately 29,200 employees, up by about 1,600 year-over-year or 5.8%.\nIn the first half of the fiscal year, we added approximately 1,500 employees.\nAs we have previously noted, the competition for talent, particularly technical talent, remains fierce.\nStill, we have successfully executed our hiring and retention strategies.\nAs Betty Thompson highlighted at Investor Day, those strategies focused on fostering a strong people-centered culture and effective talent systems that support individual pursuits as well as business needs.\nAccelerating headcount growth remains a top operational priority for this fiscal year and will be key as we move into the next multi-year period of our investment thesis.\nWe expect to continue building on our progress through the second half of the fiscal year.\nMoving to the bottom line, adjusted EBITDA for the quarter was $270 million, up 18.1% from the prior year period.\nAdjusted EBITDA margin on revenue was 12.8% compared to 11.3% in the prior year period.\nThe increase in adjusted EBITDA margin was driven by three factors.\nFirst, profitable contract level performance and mix, which includes the inorganic contributions into our results.\nSecond, prudent cost management.\nAnd third, a return to a billing for fee within intel, which had a $7 million negative impact on the prior year period under the CARES Act.\nAs we move through the fiscal year, we expect billable expenses and unallowable spend to ramp up, with billable expenses which are currently near the low end of our historical 29% to 31% range, expected to move toward the midpoint of that range by the fiscal year end.\nSecond quarter net income increased 14% year-over-year to $155 million.\nAdjusted net income was $170 million, up 19% from the prior year period, primarily driven by the same factors driving higher adjusted EBITDA.\nDiluted earnings per share increased 16% to $1.14 from $0.98 the prior year period.\nAnd adjusted diluted earnings per share increased 22% to $1.26 from $1.03.\nThese increases to our non-GAAP metrics were primarily driven by better operating performance, the inclusion of Liberty, a lower effective tax rate and a lower share count due to our share repurchase program.\nCash from operations was $470 million in the second quarter compared to $426 million in the prior year period.\nThis increase was driven primarily by continued strong cash management, fueled by consistent operational performance.\nCapital expenditures for the quarter were $21 million, up approximately $3 million from the prior year period, driven by investments for future growth.\nWe still expect capital expenditures to land within our forecast range for the fiscal year.\nDuring the quarter, we paid out $50 million for our quarterly dividend and repurchased $106 million worth of shares at an average price of $83.31 per share.\nWe also acquired the remaining stake in Tracepoint, a promising digital forensics and incident response business.\nAs you may recall, we took a minority stake in Tracepoint last December.\nAnd the partnership has proven so fruitful that we completed the purchase in September.\nIn total, including the close of the Tracepoint acquisition, we deployed $285 million during the quarter.\nToday, we are announcing that our board has approved a regular dividend of $0.37 per share payable on December 2 to stockholders of record on November 15.\nAs our actions and performance demonstrate, we remain committed to preserving and maximizing shareholder value through a disciplined balanced capital allocation posture.\nTurning now to guidance.\nPlease move to Slide 8.\nBefore I address the numbers, I want to highlight our continued expectations for a distinct first half, second half dynamics this fiscal year.\nLet me walk through the puts and takes of this second half ramp, starting with the top-line perspective.\nFirst, we expect year-over-year comparables in staff utilization to normalize in the second half of the fiscal year.\nAs a reminder, in fiscal year 2021, staff utilization trended roughly 300 basis points above typical levels in the first half of the year before starting to normalize in the third quarter.\nSecond, we expect that our ramp on both contracts and hiring will translate into growth as we move through the fiscal year.\nStrong customer interest and proactive demand signals give us confidence that any near-term slowness in the acquisition process is likely temporary, not withstanding any unforeseen disruptions in government funding.\nOn the other hand, from a supply perspective, our efforts to improve hiring, in some cases ahead of demand, have paid off.\nThird, our growing Liberty business will fully contribute in the second half of the fiscal year relative to a partial first half.\nLastly, minor timing differences in our costing of labor, resulting from the implementation of our new financial management systems.\nPutting it all together, we still forecast significant acceleration from our first half performance ramping through the fourth quarter, barring any major disruption such as a prolonged government shutdown or other dynamics outside of our control.\nRegarding adjusted EBITDA margins, we exercise considerable control over our cost structure and margin levers.\nWe traditionally take a conservative approach to cost management early in the fiscal year and prioritize investments in our people, infrastructure and long-term growth objectives as we move throughout the fiscal year.\nGiven the slowness we noted in the government's contracting process, we have maintained a tighter grip on our cost levers into this fiscal year.\nHowever, we still expect to make those same investments in the second half of the fiscal year, which will pressure back half adjusted EBITDA margins.\nTaking these factors into consideration, we are reaffirming our fiscal year 2022 guidance.\nWe expect revenue growth to be between 7% and 10% inclusive of Liberty and Tracepoint.\nWe expect adjusted EBITDA margin in the mid-10% range.\nLet me reiterate that we expect to make investments in our people and our technology in the second half of the fiscal year to support our multi-year growth aspirations.\nThat said, given our strong first half results, we expect to finish near the top end of our current guidance.\nWe expect adjusted diluted earnings per share to be between $4.10 and $4.30 based on an effective tax rate of 22% to 24%, 134 million to 137 million weighted average shares outstanding and interest expense of $92 million to $95 million.\nWe expect operating cash flow near the low end of our prior $800 million to $850 million range, which is inclusive of approximately $56 million of cash payments related to the Liberty transaction.\nAnd finally, we expect capex in the $80 million to $100 million range.\nFinally, I would like to round out the conversation by looking to the future and our new investment thesis, which Horacio recapped in his remarks.\nAs we continue to position ourselves for a post-COVID operating environment, we believe that our actions and performance throughout the remainder of fiscal year '22 will put us on the right trajectory to accelerate our growth and execute on our investment thesis.\nWe are truly excited for the future of this firm and all we can accomplish for both our clients and our investors.\nOperator, please open the lines.",
        "summary": "compname reports quarterly adjusted earnings per share $1.26.\nqtrly earnings per share $1.14.\nqtrly adjusted earnings per share $1.26.\nbooz allen hamilton holding - qtrly revenue increase of 4.3% over yoy to $2.1 billion.\nco reaffirms its previously provided fiscal 2022 guidance."
    },
    {
        "text": "I'm Laura Adams, chief accounting officer and interim head of investor relations.\nAnd with me to talk about our business and financial results are Horacio Rozanski, our president and chief executive officer; and Lloyd Howell, executive vice president, chief financial officer, and treasurer.\nDuring today's call, we will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.\nWe are now on Slide 4.\nToday, Lloyd and I will share our third quarter results in the context of our fiscal year 2022 guidance and our multi-year investment thesis.\nWe will also describe the underlying dynamics of our business and the progress we are making on our VoLT strategy.\nTo set the context, let's go back to our October Investor Day, where we outlined our VoLT strategy and associated financial goals.\nAs a reminder, VoLT stands for velocity, leadership, and technology.\nIt is a strategic program Booz Allen has launched to capitalize on our first mover advantage in helping the federal government transform core missions through the use of new technologies.\nOver the next few years, we look to grow faster by building scaled positions in critical areas such as national cyber and digital battlespace.\nWe are in the early stages of this journey, but are already making strides and seeing strong progress.\nAs part of VoLT, we have set new multi-year financial goals that deliver both strong profit growth and continued investment in our business.\nOur investment thesis centers on growing adjusted EBITDA dollars from $840 million in fiscal year 2021 to $1.2 billion to $1.3 billion in fiscal year 2025.\nThat's approximately a 50% increase.\nWe expect this increase to be accomplished through 5% to 8% annual organic revenue growth, adjusted EBITDA margins in the mid-10s, and $3.5 billion to $4.5 billion in total capital deployment that prioritizes strategic acquisitions.\nOur expectations for fiscal year 2022 were consistent with these goals.\nGross revenue growth in the 7% to 10% range and adjusted diluted earnings per share in the range of $4.10 to $4.30.\nWe also said this fiscal year growth pattern would look different from recent years, with slower revenue growth in the first half and significant acceleration in the second half.\nOur revenue growth in the third quarter was lighter than we expected.\nAnd while we forecast strong fourth quarter revenue growth, we're lowering our full fiscal year 2022 revenue outlook to account for a slower pace.\nLloyd will take you through the quarter results and our updated guidance in greater depth.\nThere were several factors that contributed to the revenue dynamics for the quarter.\nOn the positive side, we continue to win the right kind of work and hire the right people, as reflected in our backlog growth and headcount increases over the last 12 months.\nConversely, the translation of those positives into revenue growth was slower than historical standards, driven by a number of factors, including a protracted continuing resolution; a higher dollar value of awards under protest; delayed awards and slower ramp-up on sold contracts; lower staff productivity due in large part to the omicron variant surging during the quarter; and lower-than-anticipated billable expenses.\nThese dynamics impacted our entire portfolio and some pockets of our defense business were especially hard hit due in part to the number of large awards delayed and a greater proportion of billable expenses in their revenue base.\nLooking ahead, we see some of these challenging dynamics continuing into the coming months.\nAs a result, we are taking a three-pronged approach to proactively manage through this environment.\nFirst, we are addressing those business areas where we see the greatest funding uncertainty.\nSecond, we are continuing to control costs in order to deliver on our commitments to both grow adjusted EBITDA and invest in our business.\nAnd third, we are doubling down on areas of significant growth opportunity shifting resources across the portfolio by leveraging our unique operating model and single P&L.\nIn short, we continue to lean into growth while managing tightly in the face of greater market volatility.\nBefore turning the call over to Lloyd, let me return to the longer-term outlook and the progress we have made in our business so far.\nAs we look ahead, we remain on track to deliver strong growth in adjusted EBITDA through fiscal year 2025, supported by continued revenue growth, stable adjusted EBITDA margins, and strategic deployment of capital.\nOur confidence in the future is predicated in our belief that we have the right strategy and the proven ability to execute in both good times and challenging ones.\nAnd several accomplishments from the last few months underscore these points.\nFirst, we continue to win the right kind of work at the center of national priorities where innovation can help the government transform the way the mission is executed.\nOur clients from the Department of Veterans Affairs to the Air Force are looking to Booz Allen for expertise in areas such as DevSecOps, AI, and the commercialization of new technologies to advance their missions.\nSecond, we are making key investments that differentiate our service to clients.\nFor example, last December, as part of our ramp-up on national cyber, we announced the opening of our carrier-grade 5G lab in Central Maryland.\nThe lab offers a state-of-the-art testing environment for secure, cyber-resilient 5G solutions.\nSimilarly, as we advance our work on digital battlespace, we are significantly expanding our footprint in Honolulu.\nThis investment deploys into the INDOPACOM region some of our most advanced capabilities to expand our support of several high-priority client missions.\nThird, we are successfully using acquisitions as strategic accelerators.\nLiberty and Tracepoint continue to deliver the strategic and financial value we expected.\nIntegration is going well, and we are extremely pleased with the upside these acquisitions create.\nAnd in addition, we continue to build our acquisition pipeline.\nAnd fourth, and perhaps most importantly, we continue to strengthen our team and ensure we have the focus and resiliency to support our clients as they too manage through a volatile environment.\nI am extremely proud of our workforce for achieving complete compliance with our COVID vaccination requirement.\nOur purpose and values are at the core of everything we do, so we believe that prioritizing the health and safety of all our employees is the right thing to do for our institution, our clients, and our communities.\nFurthermore, a fully vaccinated workforce allows us to better serve our clients, supports safer in-person collaboration, and is critical to entering a post-pandemic phase.\nTogether, always together, the people of Booz Allen are forging ahead with relentless focus on our clients' missions and our growth strategy.\nThis is what delivers the consistent results that create long-term shareholder value.\nAnd with that, I'll give the floor to Lloyd for more details on the third quarter, the fiscal year and our investment thesis.\nLloyd, over to you.\nAs we near the end of fiscal year 2022, a year marked by many twists and turns, we have continued to build on our underlying fundamentals, which have supported our expectations for second half performance outpacing first half.\nAnd while top line growth and cash did not deliver at the levels we anticipated, we are delivering the bottom line results we need to invest in our business and our people to achieve our long-term growth initiatives.\nWith three quarters now completed and greater visibility into the fourth quarter, we are seeing some transitory changes at the macro level that are impacting overall market performance.\nExpanding on what Horacio said, just as we believe that we were turning the corner on the pandemic's impacts and reverting to more predictable business patterns, we were hit by omicron, which led to another spike in PTO, resulting in staff utilization rates not normalizing as we had anticipated.\nThis, coupled with an overhang effect from the continuing resolution, has impacted our ability to convert strong demand into top line growth.\nWe factored some of this uncertainty into our 2022 fiscal year guidance, but we did not fully anticipate the impact of the second wave on utilization, nor did we foresee the delays in translating wins into revenue generation.\nI will get into more detail shortly when I give updated guidance.\nAt the top line, revenue increased 6.6% year over year to $2 billion, which includes approximately $117 million from inorganic contributions.\nRevenue, excluding billable expenses, grew 6.2% year over year to $1.4 billion.\nRevenue growth was slower this quarter for the following three reasons: first, funding delays resulting in slower ramp on new work and existing work; second, lower staff utilization resulting from an uptick in PTO taken over the holiday period, due in part to a rise in COVID cases and the inclusion of the New Year's Eve holiday in this quarter's results.\nAnd third, billable expenses continued to be pressured by slower travel patterns and the timing of material purchases getting pushed to the right.\nTaken together, these factors are largely timing issues that we believe will dissipate as we return to more normal business rhythms.\nNow let me walk through the market level performance.\nRevenue declined by 2.2% year over year and has been trending down quarter over quarter.\nSince defense is roughly 50% of our business portfolio and largely comprised of cost reimbursable work, the macro factors and subsequent top line impacts I noted were especially impactful in this market.\nMore specifically, to expand on what Horacio said, our Army account was hit the hardest by some of these dynamics, where our performance was impacted by budgetary challenges, slowness, and ramp-ups, and some losses.\nGoing forward, our defense leadership is doubling down on addressing these issues by growing headcount, managing utilization, and aggressively deploying talent to capture the highest value opportunities, including hyper growth initiatives such as our digital battlespace platform.\nIn civil, revenue grew by 25.3% year over year, of which 5.1% was organic, marking our second consecutive quarter of strong double-digit growth.\nOur results reflect solid performance across the portfolio, particularly in health, where we see strong alignment with the administration's priorities, which are yielding important wins.\nAdditionally, Liberty continues to strengthen our unique market position as we prepare to leverage integrated capabilities in the areas of cloud, DevSecOps, and API development to pursue additional market share across our broader portfolio.\nIn Intelligence, we recorded our second consecutive quarter of growth at 0.8% year over year.\nThis continued improvement in performance reflects our ability to hire ahead of growing demand and capitalize on our mission expertise and advanced technological offerings to secure key recompetes and new work opportunities.\nThis positions us for multiyear growth in key areas, including digital modernization, artificial intelligence and high-end data analytics.\nLastly, global commercial revenue grew 26.7% compared to the prior-year period.\ncommercial cyber business and contributions from Tracepoint, where we are seeing strong cross-selling momentum and early synergies.\nWe are now on Slide 6.\nNet bookings for the third quarter were approximately $797 million, up 29% over the prior-year period, translating to a quarterly book-to-bill of 0.39 times and a trailing 12-month book-to-bill of 1.28 times.\nTotal backlog grew approximately 19.2% year over year to $27.8 billion.\nFunded backlog grew 11.7% to $4 billion.\nUnfunded backlog grew 57.7% to $9.4 billion.\nAnd price options grew 4.4% to $14.3 billion.\nThese results underscore continued demand and strong alignment to our clients' core missions in the areas of artificial intelligence, cyber and digital modernization, to name a few and further, our position as a trusted partner and market leader.\nLooking ahead, as we continue to pursue larger and more technically complex bids, we anticipate that ongoing protests will become part of the normal business cycle, which we are increasingly factoring into our operating plan.\nAs of December 31, we had approximately 29,500 employees, an increase of approximately 1,900 year over year or 6.8%.\nThe labor market for tech and tech-adjacent talent remains highly competitive, but we are pleased that we continue to successfully execute on our hiring and retention strategies, a reflection of our appeal as an employer of choice.\nThis resulted in a third consecutive quarter of mid-single-digit headcount growth, consistent with our expectations.\nMoving to the bottom line.\nAdjusted EBITDA for the quarter was $222 million, up 8% from the prior-year period.\nAdjusted EBITDA margin on revenue was 10.9% compared to 10.8% in the prior-year period.\nThe increase in adjusted EBITDA margin was driven by three factors: first, profitable contract level performance and mix, which includes inorganic contributions; second, prudent cost management; and third, a return to billing for fee within Intel, which had a $2 million negative impact on the prior-year period under the CARES Act, a tailwind that will taper off after this quarter.\nThird quarter net income decreased 10.8% year over year to $129 million.\nAdjusted net income was $137 million, down 5.5% year over year.\nDiluted earnings per share decreased 7.8% to $0.95 from $1.03 the prior-year period.\nAnd adjusted diluted earnings per share decreased 1.9% to $1.02 from $1.04.\nBoth GAAP and non-GAAP metrics were impacted by a higher effective tax rate following the release of an income tax reserve of $10.2 million in the prior-year period related to the Aquilent acquisition, as well as higher interest expense partially offset by a lower share count due to our share repurchase program.\nOur non-GAAP metrics exclude certain acquisition costs and the noncash gain of $7.1 million from the spin-off of SnapAttack during the quarter.\nCash from operations was $21 million in the third quarter, down from $233 million in the prior year comparable period.\nOperating cash performance is volatile quarter-to-quarter, and the decline in this period was more pronounced due to some of the factors impacting top line growth, coupled with higher disbursements.\nAs we have done before, we are focused on our working cash management and cash collection efforts to continue improving our operating cash performance and reinforce our strong balance sheet.\nYear to date, we have generated $481 million in operating cash flow and $430 million in free cash flow for a free cash flow conversion rate nearing 100% and supporting our strong balance sheet positioning and capital deployment priorities.\nDuring the quarter, we deployed approximately $139 million, inclusive of $50 million in quarterly dividends and $83 million in share repurchases.\nToday, we are also pleased to announce that the Board has increased our quarterly dividend by $0.06 to $0.43 per share, payable on March 2 to stockholders of record on February 11.\nThis marks our ninth consecutive fiscal year of increasing our quarterly dividend, a testament to our fundamental strength and promise to continue growing our dividend, even in a more challenging operating environment.\nWith one quarter left in this fiscal year, we remain committed to a patient, disciplined capital allocation strategy, leveraging our strong balance sheet position to deploy capital in an accretive manner, creating near- and long-term shareholder value.\nAs we have said in October, our capital deployment priorities remain focused on strategic M&A to enhance growth while sustaining a healthy dividend and opportunistically repurchasing shares.\nLet me now walk you through how the puts and takes from the quarter translate into updates to our full year fiscal 2022 guidance.\nPlease move to Slide 8.\nDespite lighter revenue and operating cash challenges this quarter, we are proud of our team's efforts to manage the business, controlling what we can in spite of another wave of macro environmental challenges.\nThese efforts have enabled margin expansion with solid ADEPS performance throughout this fiscal year as we reinforce the strength of our fundamentals and balance sheet in preparation to execute on our investment thesis.\nIn the fourth quarter, we were laser-focused on executing against our operational priorities.\nWe will continue to aggressively hire ahead of demand, capitalizing on our strong portfolio of new work opportunities to sustain long-term organic growth.\nWe will efficiently manage the business by investing in our people and technology to lead the next wave of innovation.\nAnd lastly, continue to build our M&A pipeline and acquire businesses that meet our disciplined criteria to serve as strategic accelerators.\nOur revised guidance reflects these efforts in addition to the third quarter performance and trends I just outlined.\nLet me run through the numbers.\nFor the full fiscal year, revenue growth is now expected to be in the range of 5.7% to 7.2%.\nAt the midpoint, our revised guidance range reflects $100 million to $220 million of revenues tied to the uncertainties we outlined earlier.\nThey break down as follows: $30 million to $80 million tied to funding delays and resulting slowness in deploying staff on sold and funded work; $20 million to $40 million tied to an incremental step down in staff utilization due largely to the continuing pandemic and PTO usage; and $50 million to $100 million from lower pandemic-related travel and the timing of material purchase getting pushed to the right.\nAs a reminder, the inclusion of the New Year's Eve holiday and minor timing differences in the costing of labor related to the implementation of our next-gen financial management system will become tailwinds in the fourth quarter, adding roughly 175 basis points to the top line.\nOn the bottom line, we now expect adjusted EBITDA margin for the fiscal year to be approximately 11%.\nThis increase reflects our considerable control over our cost structure and margin levers even in times of uncertainty.\nWe are reaffirming our adjusted diluted earnings per share guidance to be between $4.10 and $4.30.\nWe now expect operating cash to be between $700 million and $750 million.\nThe incremental step-down follows our expectations for lower top line growth and accounts for the $56 million of onetime payments in connection with the Liberty acquisition, which we had anticipated being able to make up through a combination of working capital management and operating performance.\nAs I mentioned, we will remain laser-focused on optimizing our working capital to return to the strong level of cash conversion we have historically delivered to position us ahead of future growth initiatives.\nAnd finally, we continue to expect capital expenditures to be between $80 million to $100 million.\nAs we move toward our investment thesis, I remain confident in our team's ability to manage through these times of uncertainty as we have proven our ability to do over the years.\nWe will continue to execute on our near-term growth objectives and remain confident in the long-term trajectory of the business, upholding our role as the industry leader in meeting the high standards our shareholders have come to expect.\nWith that, over to you, Laura.\nOperator, please open the lines.",
        "summary": "qtrly revenue $2.03 billion, up 6.6%.\nqtrly earnings per share $0.95.\nqtrly adjusted diluted earnings per share $1.02.\nbooz allen hamilton - experienced slower than expected revenue growth in q3 due to factors related to covid-19 pandemic, u.s. governmental budget uncertainty.\nsees 2022 revenue\tgrowth of 5.7% – 7.2%.\nsees 2022 adjusted earnings per share $4.10 - $4.30."
    },
    {
        "text": "Joining me on the call today are Corie Barry, our CEO; and Matt Bilunas, our CFO.\nDuring the call today, we will be discussing both GAAP and non-GAAP financial measures.\nToday, we are reporting record Q3 financial results of $11.9 billion in sales and non-GAAP diluted earnings per share of $2.08, which is up 1% over last year and up 84% compared to two years ago.\nAgainst a still evolving backdrop, our leaders continue to drive new ways of operating, and our employees continue to do amazing things to support our customer's technology needs in knowledgeable, fast, and convenient ways.\nOur omnichannel capabilities and our ability to inspire and support across all of technology in a way no one else can means we are uniquely positioned to seize the opportunity in this environment and in the future.\nWe continue to capitalize on strong customer demand as more people sustainably work, entertain, cook, and connect at home.\nAnd Domestic comparable sales growth was up 2% on top of 23% last year.\nFrom a merchandising perspective, the biggest contributors to our comparable sales growth in the quarter were appliances, home theater, and mobile phones.\nProduct availability continued to improve throughout quarter.\nWe have pockets of constraints in areas like appliances, gaming, and mobile phones.\nSimilar to last quarter, however, we do not believe this materially limited our overall sales growth.\nWhile we have faced and continue to face supply chain challenges, including delays and higher costs, we are proactively navigating a situation that we have been dealing with for several quarters, as our industry has been facing disruptions and supply constraints since early in the pandemic.\nOur merchant demand planning and supply chain teams made strategic sourcing and inventory decisions early in the year to set us up well heading into holiday.\nAnd we are resourcefully adapting to the constantly evolving environment with actions like pulling up product flow, adjusting store assortment based on availability, and acquiring additional alternative transportation.\nWe have deep, long-standing relationships with our transportation and logistics vendors, and they have been incredibly supportive as we navigate.\nIn addition, through our close partnerships with our product vendors, we have a great deal of visibility into and can influence the status of product in the supply chain process.\nWe have varying degrees of inventory and supply chain challenges every holiday season, and this year will be no different.\nBut we entered Q4 with 15% more inventory year over year and feel confident in our ability to serve our customers throughout the holiday.\nAs expected, we did experience a more promotional environment for many of our products when compared to last year.\nWhen compared to two years ago, we still saw a less promotional environment during Q3.\nFrom a sales channel perspective, results were similar to last quarter.\nCustomers are returning to stores, and they are also choosing to interact with us digitally and via phone and chat at much higher rates than pre-pandemic.\nOnline sales were 31% of domestic revenue compared to 16% in Q3 of fiscal '20, growing by more than $2 billion during that time.\nOur app saw a 19% increase in unique visitors versus last year, and phone and chat sales continued to climb versus last year and two years ago.\nWe continue to be an industry leader in fast and convenient product fulfillment for our customers.\nDuring the third quarter, we reached our fastest small product delivery times ever.\nCompared to last year, same-day delivery was up 400%, and we nearly doubled the percent of products delivered within one day.\nBased on a third-party analysis of competitor websites, we are the leader in one-day-or-less published shipping time across a sample of higher-volume ZIP codes and higher-demand items.\nIn addition to partnering with a diversified set of delivery partners, we also thoughtfully used our employee delivery capability, as we now have more than 400 stores doing employee deliveries, with almost 60% of our customers living within 10 miles of an employee delivery location.\nWe also have an industry-leading in-store pickup experience.\nWe have, by far, the broadest assortment of CE products available for pickup, and the process is incredibly fast.\nIn Q3, more than 90% of online orders that were available for product pickup were ready in less than 30 minutes of the order being placed.\nCustomers clearly find value in coming to our stores to pick up their products as the percent of online sales picked up at our stores remained high at 42%, even with our fast home delivery options, with one-third of our store-pickup customers choosing our convenient curbside option.\nAnd our customer NPS for order pickup in Q3 was up versus last year and two years ago.\nIn fact, in the last year, 31% of all our purchasing customers bought online and picked up in store at least once.\nThese strong Q3 results and our market-leading omnichannel capabilities are due to our amazing associates across the company and the investment decisions we have made in the last several years in supply chain, store operations, our people, and technology.\nClearly, our business has changed dramatically in the last two years, with digital sales more than double pre-pandemic levels and phone, chat, and in-home sales growing.\nCustomers are starting their research and shopping online and then branching out from there to all forms of digital and physical shopping depending on their specific needs.\nStores are crucial to our customer experience, and they need to be even more efficient and must keep pace with greater customer expectations.\nFor example, we know customers sometimes seek out in-person help to answer questions.\nAnd other times, they would rather use digital tools to learn about products or pick up their orders in our stores.\nWe have made the right investment decisions to position us as a leader in omnichannel retailing.\nWhile we are proud of our progress, there are even more opportunities ahead of us.\nAnd it is more important than ever to build on our position of strength and truly become a customer-obsessed company.\nThis means we put the customer at the heart of all we do by anticipating their needs, listening, learning, and applying those insights to create long-term relationships and seamless experiences.\nThat led us to launch Best Buy Totaltech last month.\nTotaltech is a bold new membership program, leveraging our strengths across merchandising, fulfillment, installation, tech support, and product repair, unique capabilities that customer's value and no one else can match.\nOur membership program offers product discounts and periodic access to hard-to-get inventory, free delivery and installation, free technical support, free product protection, and many other benefits.\nLet me provide a tangible example of how the offer can come to life.\nA Totaltech member purchases a 65-inch TV and gets a $150 member discount.\nShe gets the TV delivered and mounted on the wall in her living room.\nThe next month, she buys a new iPhone for her daughter.\nAs long as she keeps up her membership, she gets two years of product protection on the TV she bought and two years of AppleCare+ protection for the phone.\nA few weeks later, she can't get her laptop to connect to her printer, so she hops on a dedicated chat line with Geek Squad who fixes the problem by remoting into her computer so she can get on with a productive day of working from home.\nAs a member, she received all those benefits for $199 per year.\nAs you can see, not only do members receive significant savings, they can also be confident that whatever their technology needs are, we will be there to help.\nThe goal is to create an experience that makes it inconceivable for members to purchase their tech from anyone else, driving a larger share of consumer electronic spend to Best Buy.\nWe successfully rolled out the program nationally and online and converted more than 3 million former tech support members.\nIt is very early as we just launched last month.\nBut so far, we continue to see behaviors that we intend to drive and that we saw in the pilot, including more frequent interaction and higher incremental spend than non-members.\nGiven the breadth of the offer, it is resonating well across all customer demographics, and our new members are skewing younger than our former Total Tech Support membership program.\nNPS numbers across all channels are higher than for non-members as well.\nAnd importantly, our employees believe in and love articulating the value of membership to our customers.\nAs we've discussed in previous calls, we are in the midst of multiple store pilots and tests.\nOf course, we are always piloting concepts.\nBut right now, we are very focused on piloting and testing to build a framework that will move us from a retailer that's focused foremost on its stores to a true omnichannel one that provides equal focus on all the ways customers shop with us.\nI will provide a few updates on our progress.\nWe launched phase 1 of our virtual store pilot last month.\nFor this, we built out a physical store in one of our distribution centers with merchandising and products that is staffed with dedicated associates, including vendor-provided expert labor.\nIt has no physical customers.\nInstead, customers interact with our experts via chat, audio, video, and screen sharing depending on their preference and are able to see live demos, displays, and physical products.\nIt is early, and we have not rolled out all the product categories yet.\nBut initial results are showing much higher conversion rates, as well as higher average order value than we see with historical chat interactions.\nIn Charlotte, we have made significant progress rolling out the market pilot designed to leverage all our assets in a portfolio strategy across stores, fulfillment, services, in outlet, lockers, our digital app, and both in-store and in-home consultation labor.\nWe launched our new outlet featuring all product categories in addition to a new services hub model and remodeled eight stores.\nAnd in Houston, we are continuing to see strong results from our experiential store pilot and plan to roll out aspects of this more broadly in stores across the country as we enter next year.\nThese are not the only pilots happening, and thus, they aren't the only pilots that will influence where we go as a company.\nFrom Northern California to Houston to The Bronx, we are assessing new formats and learning our way to the right physical model.\nAt the same time, we are piloting and evolving our labor models in other markets to meet our customer's changing shopping behaviors.\nThat means leveraging technology in stores that don't have as much labor and developing a much more flexible workforce.\nThis is a workforce that can not only provide expert help across product categories, both in-store and virtually, but also flex into other activities like curbside fulfillment, and it empowers employees to flexibly pick up shifts at other stores or at our distribution centers.\nI also want to highlight our unique ability to both inspire and support our customers through our consultation and our Geek Squad services.\nWe have almost 3,000 consultants and designers to provide free consultations across customers' homes, in-stores, and virtually.\nThese consultations represent one of our highest NPS experiences, consistently over 80.\nImportantly, they also lead to longer-term and stickier customer relationships as more than 85% of customers who use the program stated they intend to continue shopping with their consultants.\nTurning to the product support we provide, as many of you likely know, when something goes wrong with your products or delivery or installation, it is a highly unplanned and often emotional event.\nNot surprisingly, our customer research tells us that customers value quick response times and demand transparency, fast repair times, and quality repairs from a trusted provider.\nOur Geek Squad has an industry-leading set of capabilities that garner market-leading NPS and also drive additional revenue for Best Buy in the moment and over time.\nAround 20% of our phone and computer repair customers purchase additional products the day they receive the repair.\nAdditionally, our data shows that customers who have phone or computer repairs are far more likely to make a purchase in the following 12 months.\nOver time, we have also been evolving our partnerships with our vendors in response to changing customer shopping behavior.\nOur in-store vendor experiences are crucial to our customer experience and remain a significant source of competitive advantage.\nWe have extended many of these in-store experiences to digital experiences.\nOur vendors partner with us to provide expert training and tools for our consultants and designers.\nAnd importantly, our vendors are increasingly sending sales leads from their own websites to our consultants and designers.\nWe are also leveraging our unique Geek Squad capabilities to strengthen and expand our partnerships with our vendors.\nWe are already the nation's largest physical destination for Apple-authorized repair services, including same-day iPhone repairs, attracting new customers as one-third of these Apple repair customers are new or reengaged customers for Best Buy.\nIn October, we launched Samsung-authorized phone repair service nationally.\nRoughly 30% of our stores will offer same-day, in-store repairs completed by Samsung-certified Geek Squad agents using Samsung parts, diagnostics, and tools.\nPhone repair is a universal need for customers, and this expansion gives Best Buy the capability to repair the overwhelming majority of phones in the marketplace.\nIn addition, we are also starting to leverage our industry-leading and convenient buy-online-pick-up-in-store experience in partnerships with our vendors.\nCustomers purchasing select items on samsung.com now have the option to pick up their products at their local Best Buy store.\nAnd shoppers purchasing Insignia, Toshiba, and Pioneer Fire TVs on amazon.com can pick up their TVs at their local Best Buy stores.\nFor many of our vendors, we use our considerable supply chain expertise to transport their product often from the country of origin to our distribution centers.\nIn addition to helping our vendors, it allows us to increase our level of visibility into incoming inventory and to garner greater scale.\nAnd finally, we have been investing in our long-standing advertising business, building new capabilities to help vendors effectively reach our customers.\nBest Buy's relevance, customer relationship, and first-party data have grown along with customer's technology needs and our ability to meet those needs.\nThese are all great examples of value we can provide to our vendor partners that many other retailers cannot.\nIn addition to focusing our performance on our core CE and appliance categories, we are continuing to expand our assortment in newer categories where we can leverage our ability to commercialize new technology.\nFor example, we created a robust online experience and assortment for electric transportation.\nAnd during Q3, our sales in the category more than doubled.\nAs a result, we are expanding our online assortment of electric bikes by four times and also plan to assort them in physical stores early next year.\nAnd because customers are looking to us to complete their solutions, we have been expanding our assortment in categories, like outdoor living, as more and more consumers look to make over or upgrade their outdoor living spaces.\nThis includes products like patio furniture, grills, fire pits, and electric mowers, just to name a few.\nIn fact, earlier this month, we acquired Yardbird, a leading direct-to-consumer company that specializes in premium sustainable outdoor furniture, including dining sets, lounge seating, fire tables, and accessories.\nWe are excited about the opportunity to use our expertise in merchandising and supply chain to scale this business, both online and in physical locations across the nation.\nWe also made an exciting acquisition recently in the health space.\nLet me take a second to reiterate our overall health strategy and how the acquisition fits.\nOur Best Buy Health strategy focuses on three areas that start with our strength in retail and build to connecting patients to physicians.\nThe first focus area is the consumer health category for customers who want to be healthier, sleep better, or need to monitor a chronic condition, like diabetes or heart disease, for example.\nYou can see this built out in a robust way on our website.\nThe second area is active aging, which includes device-based emergency response and other services for Generation A, who wish to live independently in their homes.\nThis opportunity shows up prominently in our physical stores.\nThe third focus area is virtual care.\nBest Buy's role in virtual care is to enable people in their homes to connect seamlessly with their healthcare providers.\nThe trend to this type of care is increasing, accelerated in large measure by the pandemic.\nTo more fully meet that growing customer demand and accelerate our work with new and innovative services, we acquired a company called Current Health.\nCurrent Health developed a market-leading remote patient monitoring platform that allows physicians to monitor and connect with patients in their home.\nTheir platform includes an FDA-cleared wearable medical device that monitors vital signs, a home hub which integrates to hundreds of other monitoring devices, and integration to the patient's electronic health record.\nWith their remote monitoring platform, combined with the scale, expertise, and connection to the home that Best Buy has, we will be able to create a holistic care ecosystem that shows up for customers across all their healthcare needs.\nTo be clear, even though the healthcare industry is evolving quickly, in many ways as a result of the pandemic impacts, it adopts new ways of doing things at a much slower pace than other industries like retail.\nVirtual care is a truly nascent space with significant opportunity, but it will take time and investment to develop our offerings and scale.\nAs you can see, technology developments are driving our initiatives across the company.\nWe need technology tools and capabilities to help us as we transform and evolve the way we operate and serve our customers.\nThat is why we continue to devote significant resources to technology investments.\nFor example, we are leveraging our investments in electronic sign labels to very nimbly highlight Best Buy Totaltech member pricing for customers shopping in our stores.\nWe also just launched the ability for our electronic sign labels to provide important messaging regarding product availability, so that customers will easily be able to see if the product is in stock in that store or at another store nearby, or when it could be delivered and installed.\nTechnology was instrumental in recently launching the first of many new communication enhancements to improve our award-winning appliance customer experience.\nMetro delivery customers that utilize the appointment tracker page on the day of their delivery can now see how many stops away their driver is at any given time.\nIt may seem like a small enhancement but already we can see significant customer engagement with the page, another step toward our goal to make customers feel confident and in control throughout the research, purchase, fulfillment, and use of their large product.\nTechnology was also crucial in our recent launching of next-day delivery of appliances and large TVs, which we are piloting first for in-store and online customers in our Minneapolis and Baltimore markets.\nNext month, we are launching a new capability, leveraging QR codes for high-velocity products that are locked up, particularly in areas of high shrink.\nInstead of waiting for an associate to unlock the product, the customer can scan the QR code and then proceed to check out to pay and pick up the product.\nAnd we recently implemented enhancements to our digital platform, improving flexibility across our workforce by seamlessly giving employees the ability to pick up open shifts at nearby locations in addition to their home location.\nThese examples are a small token of the work our digital and technology teams are doing to improve the customer and employee experience.\nAnd of course, we are also continuing to make significant investments in fundamental technology capabilities, like data and analytics, and broader cloud migration in order to drive scale, efficiency, and effectiveness.\nI would like to take a moment to extend my gratitude to our people.\nOver the past 21 months, they have flexibly dealt with rapidly changing store operations as we responded to impacts of the pandemic.\nThey created safe environments for customers and worked tirelessly to provide excellent service, even in situations where customers resisted following safety guidelines and in some cases were disrespectful.\nIn addition, we have increased the level of pilots and tests in the field as we evolve our operating model.\nThis has introduced a great deal of change.\nI am truly grateful for and impressed by our associates' dedication, resourcefulness, and flat-out determination.\nAnd I'm thrilled to say that our in-store NPS in Q3 increased versus last year and versus two years ago before the pandemic despite all of these disruptions.\nNow, I would like to briefly touch on our ESG efforts and how we are working across the company to have a positive impact on our planet.\nEarlier this month, we announced that we are a founding member of the Race to Zero initiative that aims to accelerate climate action within the retail industry.\nBest Buy's participation builds on our existing efforts to reduce our carbon footprint.\nWe are proud of our progress in reducing emissions 61% since 2009, and we have pledged to be carbon neutral by 2040.\nWe have also taken on a more specific focus on the circular economy within our operations and with our customers.\nIn Q3, we collected and responsibly recycled more than 48 million pounds of consumer electronics, keeping products and commodities out of landfills.\nTo help our customers live more sustainably, last quarter, we sold more than 5 million ENERGY STAR-certified products, helping our customers reduce their carbon footprint and save on utility bills.\nWe also kept more than 600,000 devices in use longer and out of landfills by leveraging our customer trade-in program, Geek Squad repair services, and Best Buy outlets.\nThese are initiatives our customers and vendors value and capabilities no one else has at our scale and breadth.\nIn summary, we have delivered remarkable year-to-date results, and I am so proud of the execution of all our teams.\nWe are looking forward to a strong holiday season and believe we are extremely well-positioned with both the tech customer's wants and fast and convenient ways to get it.\nWe launched some of our Black Friday deals in mid-October that included a price guarantee for all customers, and this past Friday started Black Friday early by making almost all of our Black Friday deals available.\nThroughout the holiday season, we are promising free next-day delivery on thousands of items.\nAnd of course, store pickup, whether in-store or curbside, will be a great and convenient option for our customers to get their products.\nBuilding on that, as we think about next year and beyond, we are mindful of just how much the consumer has changed and how enduring that change will be.\nTerms like home nesting and virtual care have been invented to describe what all of us know so well, that where we work, entertain, receive healthcare, and connect has changed, and our homes are now central to our lives more than ever before.\nThe penetration of technology associated with this way of living has been and continues to be sizable.\nAnd we are already seeing shorter upgrade cycles as technology evolves, and we constantly optimize our homes.\nThe demand for convenience and experience on the customers' terms has exponentially driven change.\nOur hypothesis has consistently been that true omnichannel retailing would create differentiated experiences that allow us to seamlessly and conveniently engage and retain customers.\nAs such, we have continuously invested in these experiences and notably, we never defined omnichannel as being stores and online.\nInstead, we included our unique and powerful service, virtual, and in-home capabilities.\nWe are certain that technology will continue to play a more dominant role in consumers' lives.\nGiven our omnichannel capabilities, the ones we have today and the ones we are building for the future, we are fully confident that we will capitalize on a much larger, more broadly defined consumer electronics category, and be able to better serve a customer who will be using and upgrading much of that CE more frequently.\nWe plan to hold an investor event next March to share more detail on our initiatives, provide our thoughts on our financial model going forward, and introduce longer-term financial targets.\nWe are once again reporting strong financial results that continue to support our belief that technology plays an even more important role in everyone's lives, and we are uniquely positioned to serve them.\nDespite lapping the extraordinary 23% comparable sales growth from last year, we were once again able to generate positive comparable sales growth in each fiscal month of the third quarter.\nCompared to our guidance, enterprise revenue of $11.9 billion exceeded the high end of our revenue outlook of $11.6 billion, driven by the better-than-expected comparable sales growth of 1.6%.\nOur non-GAAP gross profit rate and SG&A expense were essentially in line with our expectations.\nCompared to last year, enterprise revenue grew $57 million, and our non-GAAP diluted earnings per share of $2.08 increased $0.02, a lower share count resulted in a $0.12 per share benefit on a year-over-year basis.\nOur non-GAAP operating income rate of 5.8% decreased 30 basis points as we invested in the launch of our new Totaltech membership.\nWhen comparing our results against two years ago for the third quarter of our fiscal '20, total revenue grew more than 20%.\nAdditionally, our domestic store channel revenue was approximately flat versus two years ago, while online revenue grew almost 150% in that time frame.\nAs a result of the higher revenue and our ability to adjust to a new customer shopping behavior, our enterprise non-GAAP operating income rate was 160 basis points higher this quarter than the comparable quarter from two years ago.\nLet me now share more details specific to our third quarter.\nIn our domestic segment, revenue increased 1.2% to almost $11 billion.\nThis increase was driven by a comparable sales increase of 2%, which was partially offset by the loss of revenue from store closures in the past year.\nAs Corie shared, the biggest contributors to the comp sales growth in the quarter were appliances, home theater, and mobile phones.\nAfter delivering significant growth for the past several quarters and lapping a 46% comp in the third quarter of last year, computing comparable sales were down slightly on a year-over-year basis but still up nearly $1 billion from two years ago.\nIn addition, our services comparable sales declined 5.6% this quarter.\nThis was primarily the result of our new Totaltech membership, which includes benefits that were previously stand-alone revenue generating services, such as warranty and installation.\nIn our International segment, revenue decreased 7.8% to $925 million.\nThis decrease was driven by the loss of approximately $90 million in revenue from exiting Mexico and a comparable sales decline of 3% in Canada.\nPartially offsetting these items was the benefit of approximately 450 basis points from foreign currency.\nTurning now to gross profit.\nThe domestic gross profit rate decreased 60 basis points to 23.4%.\nAs expected, the decrease was due to, one, lower profit margin rates, which were primarily driven by lapping lower levels of promotions, product damages, and returns compared to last year as well as higher inventory shrink; and two, lower services margin rates, which included rate pressure from Totaltech.\nThe previous items were partially offset by higher profit sharing revenue from the company's private label and co-branded credit card arrangement.\nThe gross profit rate pressure from our new membership offering primarily relates to the incremental customer benefits and associated costs compared to our previous Total Tech Support offer.\nAs Corie mentioned, like many others, we saw increased transportation costs within our supply chain.\nHowever, this pressure was offset by reduced parcel expense since our mix of online sales was lower than last year.\nThe international non-GAAP gross profit rate increased 240 basis points to 25%.\nThe higher gross profit rate was driven by improved product margin rates in Canada and a loss of lower margin sales from the Mexico exit.\nMoving next to SG&A.\nDomestic non-GAAP SG&A increased $9 million and improved 20 basis points versus last year as a percentage of revenue.\nAs expected, higher advertising expense and increased technology investments were partially offset by last year's $40 million donation to the Best Buy Foundation and lower incentive compensation.\nWhen comparing to two years ago, domestic non-GAAP SG&A increased $155 million and decreased 230 basis points as a percentage of revenue.\nThe largest drivers of the increase versus fiscal '20 were higher incentive compensation, increased technology and advertising investments, and additional variable costs due to the higher sales volume.\nPartially offsetting these items was lower store payroll expense.\nMoving to the balance sheet.\nWe ended the quarter with $3.5 billion in cash.\nAt the end of Q3, our inventory balance was 15% higher than last year's comparable period and was 13% higher than our Q3 ending inventory balance from two years ago.\nThe increased inventory represents our plans to support the current demand for technology, as well as last year's unusually low inventory balance.\nEarlier this month, we completed our acquisitions of Current Health and Yardbird, which will be reflected on our cash flow statement in Q4.\nThe combined purchase price of the two transactions was approximately $485 million, and they were funded with cash.\nThe Current Health acquisition was a larger cash outlay at approximately $400 million and is expected to have a slightly negative impact on our Q4 non-GAAP operating income.\nWe are not expecting either acquisition to have a material impact on our revenue performance this year.\nDuring the quarter, we returned a total of $577 million to shareholders through share repurchases of $405 million and dividends of $172 million.\nWith a year-to-date share buyback spend of $1.7 billion, we still expect to spend more than $2.5 billion in share repurchases this year.\nLet me next share more color on our guidance for the fourth quarter, which remains very similar to the implied guidance we provided last quarter.\nWe expect comparable sales growth to be in the range of down 2% to up 1% to last year, which is on top of our 12.6% comparable sales growth in the fourth quarter of last year.\nLike other companies, we continue to monitor the evolving impacts of the pandemic and supply chain pressures driven by global demand.\nWe are confident in our ability to navigate the ever-changing environment.\nFrom a profit rate perspective, we are planning for a non-GAAP rate that is approximately 30 basis points below last year's rate due to the estimated impact of our new Totaltech offer, which we expect to be partially offset by a more favorable product mix.\nFrom a non-GAAP SG&A standpoint, we are planning dollars to increase approximately 8% compared to last year.\nThe largest drivers of SG&A increase are expected to be technology investments, increased advertising, health investments, and higher compensation, in addition, incentive compensation.\nIn addition, we are planning on increased spend compared to our previous outlook for store labor and call center support this holiday season to better support the customer experience.\nTurning to our full year outlook.\nWe expect the following: enterprise revenue in the range of $51.8 billion to $52.3 billion compared to our previous guide of $51 billion to $52 billion, comparable sales growth of 10.5% to 11.5% compared to our previous guide of 9% to 11%, and a non-GAAP gross profit rate slightly higher than last year.\nFor SG&A, we expect growth of approximately 9.5%, which compares to our prior outlook of 9%.\nWe expect our non-GAAP effective tax rate to be approximately 20%, and we expect capital expenditures to be in the range of $800 million to $850 million.",
        "summary": "compname reports q3 profit of $2 per share.\nq3 non-gaap earnings per share $2.08."
    },
    {
        "text": "The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, costs related to an internal loss, and costs related to certain accounting compliance matters.\nWe're also providing our results on a constant currency basis, which eliminates changes in currency exchange rates from the prior year.\nWe believe the non-GAAP results make it easier for investors to assess operating performance between periods.\nAccordingly, our comments today focus primarily on the non-GAAP results.\nOur strong first quarter results were driven by the ongoing successful integration of G4S acquisitions and our fixed cost reductions, which more than offset the impact of extended pandemic shutdowns, mostly in Europe.\nOn a reported basis, revenue was up 12%, operating profit grew 43%, reflecting a margin increase of 200 basis points to 99.2%.\nAdjusted EBITDA was up 32%, with margin improvement of 210 basis points to 14%, and earnings per share grew 64% to $0.82 per share.\nIt's important to remember that we're comparing to a year ago quarter that was not materially affected by COVID-19.\nIn fact, until the last week or so of March we start seeing those impacts.\nSo we're quite encouraged by the fact that on an organic basis, this year's first quarter revenue was down only 6%, while operating profit increased 30%, reflecting an operating margin improvement, as we said earlier of 200 basis points and we expect this leverage and margin expansion to continue as revenues recover.\nWe forecast organic revenue and profit growth to accelerate as we move through this year 2021, especially in the second-half, supported by continued recovery from the pandemic.\nDuring the quarter, we completed the final phase of the G4S acquisition these businesses which stand 17 countries have been largely integrated well ahead of schedule and we're on track to exceed our original synergy targets of $20-plus million.\nOn April 1st, we completed our purchase of PAI for $213 million, reflecting a pre-synergy purchase multiple of about 7 times EBITDA.\nPAI provides managed services for approximately 100,000 ATMs and brings its strong management highly scalable business model and cross-selling opportunities to Brink's.\nPAI is a great platform on which we can accelerate our 2.3 strategy in North America.\nI'll cover PAI in more detail in a few minutes.\nTogether G4S and PAI are expected to add approximately $130 million in adjusted EBITDA this year and more next year as revenue growth returns and full run rate synergies are full -- are realized.\nWe are increasing our 2021 guidance at mid-point to over $700 million of EBITDA and earnings per share of approximately $5 per share, which includes the positive impact of the PAI acquisition as well as a cross-currency swap.\nI'll review guidance more on the next slide.\nFinally, I'm happy to report that we plan to host an Investor Day in October when we will provide the details behind our three-year strategic plan and prevent -- and present financial targets.\nOur current strategic plan, which we call SP2 has three-years -- has three layers, excuse me, two of which expand on the first three-year plan.\nWe're continuing to drive organic growth by taking our Strategy 1.0 initiatives wider and deeper across our global footprint, boosted by the operating leverage initiatives that are already driving margin growth.\nWD and lean initiatives are now part of our core Brink's business system and are becoming embedded in our culture.\nG4S and PAI acquisitions provide a strong start to our second strat plan and with $1.4 billion of liquidity, we are assessing additional acquisition opportunities to support our core business and our 2.0 digital cash initiatives, which are aimed at driving subscription based recurring revenue streams, beginning next year.\nOur Investor Day event may also include an update on the potential growth opportunity related to cannabis pending the outcome of recent legislation efforts at the federal level.\nTurning to the next page, Slide 5 summarizes our updated and increased guidance for 2021.\nWe're targeting revenue growth of 21% at midpoint to $4.45 billion, driven primarily by inorganic growth from acquisitions and continued organic revenue growth recovery.\nOperating profit growth of 34% at midpoint to $511 million, reflecting a margin of 11.5%.\nAgain, an increase of 120 basis points over last year.\nNote is at the high end of our revenue range, which is equivalent to about 2019 pro forma revenue, the margin increases 170 basis points.\nOur garden -- guidance target as for adjusted EBITDA growth of 25% to $705 million at midpoint and earnings per share growth of 32% at midpoint of just under $5 per share.\nIt's also important to note the top of our revenue guidance range, which only gets us back to around 100% of pro forma 2019 revenue, our EBITDA guidance is approximately $750 million at 16% margin.\nOnce again, we're expecting revenue and profit growth to accelerate in the second-half of the year.\nOur confidence is based on continued economic recovery from the pandemic lows and realization of full-year benefits from the G4S acquisitions, the sustain -- the sustainability of operating leverage, driven by our cost reductions and normal seasonality.\nConsistent with prior quarters during the pandemic first quarter internal U.S. and external cash levels remain elevated versus prior years, contrary, actually to what many might have expected during the pandemic.\nBased on Federal Reserve published data cash in circulation in the U.S. in the first quarter is up 17% versus prior year, a material increase over the 30-year historical 6 plus percent compound annual growth rate.\nSimilarly, euro currency in circulation is also up over 12% in the first quarter, which is higher than its historical annual -- compound annual growth rates of about 9%.\nHistory has also shown that during periods of recession and economic stimulus, the use of cash increases as a percent of payments suggesting that we are in and will continue to be in a period of increased cash usage.\nOur internal metrics also support this data as the value of notes flowing through our U.S. operations increased 4% over last year's first quarter when the pandemic was not much of a factor.\nAnd our acquisition of PAI also provides what we feel is a leading indicator on cash usage.\nThe number of cash withdrawal transactions at PAI's ATMs that were open a year ago is up more than 18% over the quarter -- the same first quarter of last year, and the value of these transactions is up even more.\nThese internal and external data points demonstrate the resiliency and persistence of cash usage, even during the pandemic, and they support the fact that cash usage is not going away, and in fact getting stronger.\nSlide 6 presents data from reputable independent sources also demonstrating the cash usage is strong and growing.\nThe combination of a long-term forecast for strong in-person retail sales and the continued use of cash as one of the most popular forms of payment supports the case that cash management is a great growth opportunity for Brink's.\nThe graph on the left hand side of this slide is compelling.\nIn 2020 according to the U.S. Census Bureau, 86% of retail spending was done in-person even during a pandemic, and experts predict that by 2025 in-person retail spending will still account for over three quarters of total retail sales.\nAnd importantly, when it comes to in-person transactions, the most used form payment still is cash at about 35%, ahead of both debit and credit.\nIt's also important to remember that retail sales are expected to reach over $6 trillion in 2025.\nSo the size of in-person retail sales at over $5 trillion will be larger five years from now than it was pre-pandemic even with the projected continued acceleration in e-commerce sales growth.\nAgain based on this data Brink's is very much in a growth business.\nGiven our strategic focus on increasing organic revenue, growth through acquisitions and our development of digital cash solutions for a very large market of un-vented retailers we're highly confident that we'll continue to deliver strong organic revenue growth that will create value for our shareholders.\nPlease visit our website to see this data and more on cash and retail sales.\nSlide 7 is a format that we include each quarter that covers the four key metrics of revenue, operating profit, adjusted EBITDA and EPS.\nFor the current quarter, the current quarter in constant currency and the reported results for the same quarter in prior years.\nI'll go into detail on each of these metrics on the next two slides.\nTurning to Slide 8.\nPlease remember that we disclosed acquisitions separately for the first 12 months of ownership at which time they are mostly integrated and then they're included in organic results.\nOur results for this quarter include the February 2021 acquisitions of the G4S cash businesses in Macau, Kuwait and Luxembourg, which completed the G4S acquisitions announced last year.\nStarting in the second quarter of 2021, our results will also include the recent PAI acquisition.\n2021 first quarter revenue was up 13% in constant currency, as the pandemic related organic decline of 6% was more than offset by a 20% contribution from acquisitions.\nNegative forex reduced revenue by $9 million or 1% as strength in the euro was more than offset by weakness in Latin American currencies.\nReported revenue was $978 million, up $105 million or 12% versus the first quarter last year.\nIn general, revenue recovery was consistent with the fourth quarter 2020 except for Europe where lockdowns were reimposed by governments in response to a post new year's wave of the pandemic.\nFirst quarter operating profit was up about 50% in constant currency, with organic growth contributing 30% and acquisitions added 20%.\nAs I noted last quarter, we believe that the fact we achieved organic operating growth despite an organic revenue decline is a testament to our proactive cost realignment.\nForex reduced operating profit by $5 million or minus 8%.\nReported operating profit for the quarter was $90 million and the operating margin was 9.2%, up 200 bps from the first quarter 2020 and just 20 bps below our 2019 first quarter pre-pandemic operating profit margin of 9.4%.\nCorporate expense in the first quarter was up $15 million due primarily to a change in the methodology for allocating allowance for doubtful accounts with our updated reporting segments.\nUnder the previous methodology conditions mostly associated with the pandemic overstated the country accrual by $12.3 million.\nThe new methodology consistent with U.S. GAAP reversed the country accrual overstatement resulting in an increase in segment operating profit and a corresponding $12.3 million charge in corporate.\nThere was no impact to the consolidated operating profit for the quarter.\nMore information on the methodology change is included in our 10-Q filing.\nMoving to Slide 9.\nFirst quarter, interest expense was $27 million, up $8 million versus the same period last year due primarily to higher debt associated with the G4S acquisitions.\nTax expense in the quarter was $20 million, $8 million higher than last year, driven by higher income.\nOur full-year non-GAAP effective tax rate is estimated at 32%, in line with last year.\n$90 million of first quarter 2021 operating profit was reduced by $27 million of interest expense, $20 million of taxes and by $2 million in minority interest and other to generate $41 million of income from continuing operations.\nDividing this by $50.5 million weighted average diluted shares outstanding generated $0.82 of earnings per share, up $0.32 or 64% versus $0.50 in the first quarter last year.\nOur earnings per share comparison was positively impacted versus 2020 by about $0.09 from a gain on marketable securities versus a loss last year and by $0.02 from the $1.1 million share repurchase in the third quarter 2020, which reduced our outstanding shares by about 2%.\nTo calculate first quarter 2021 adjusted EBITDA, we started with $41 million of income from continuing operations and added $44 million of depreciation and amortization, which was up $7 million due primarily to the G4S cash acquisitions.\nInterest expense and taxes, as just discussed, were $47 million and non-cash share-based compensation was $8 million.\nBacking out $3 million in gains on marketable securities resulted in $137 million of adjusted EBITDA, up $33 million or plus 32% versus prior year.\nNow onto capex on Slide 10.\nTotal cash capex for 2020 was $119 million, which included $101 million for operating capex and $18 million to purchase cash devices.\nWe acquired another $31 million of assets under financing leases.\nThis year, we expect cash capex of about $180 million or approximately 4% of revenue, which includes approximately $125 million for legacy Brink's businesses, $25 million for the acquired G4S cash businesses and $30 million for cash devices.\nThis includes $10 million cash devices for PAI.\nWe expect to acquire about $35 million of operating assets under financing leases.\nIt's important to note that many of our Strategy 2.0 initiatives utilize cash devices.\nThe cost of these cash devices whether purchased or leased will be included as a component of the subscription agreement as a cost of services sold.\nIt's our intent to source the majority of these devices under operating lease arrangements.\nIf we're unable to secure operating leases in certain countries, our cash and/or finance lease capex could increase.\nCapex could also increase if we identify additional opportunities to deploy capital with returns above our minimum targets.\nTurning to 2021 free cash flow on Slide 11.\nOur 2021 free cash flow target range is $185 million to $275 million, which reflects our adjusted EBITDA guidance range of $660 million to $750 million.\nWe expect to use about $95 million of cash for working capital growth and restructuring, this includes about $35 million in 2020 deferred payroll and other taxes payable.\nCash taxes should be approximately $95 million and cash interest about $105 million, an increase of around $27 million, due primarily to a full year of debt related to the G4S acquisition and additional debt related to the PAI acquisition.\nAs I just discussed, our net cash capex target is around $180 million, an increase of $67 million versus last year.\nOur free cash flow target, excluding the payment of taxes deferred from 2020 would be 2020 -- would be $220 million to $310 million generating an EBITDA to free cash flow conversion ratio of about 33% to 41%, up from the 28% achieved last year on the same basis.\nAdvancing to Slide 12, the bars on this chart represent the source of our liquidity.\nThe cash available in our business and capacity in our revolving credit facility.\nAt the top of each bar, you can see our cash, below the cash is our credit facility both available and drawn, and below that our debt and financial leases.\nThe bars each represent a point in time at year-end 2020, quarter end March 31, 2021, and pro forma year-end 2021, considering our 2021 free cash flow target and the impact of the PAI acquisition.\nAt the end of last year, we had approximately $1.6 billion in liquidity.\nIn the first quarter of this year, we used approximately $108 million in cash to complete the G4S cash acquisitions in Kuwait, Macau and Luxembourg.\nAt the end of 2021, we're expecting to have liquidity of about $1.4 billion, which includes the impact of our completed $213 million acquisition of PAI in the midpoint of our 2021 free cash flow target of between $185 million and $275 million.\nOther than the 5% annual amortization of our Term Loan A, we have no significant debt maturities before 2024.\nOur variable interest rate, including the expanded Term Loan A is L plus 200.\nOn April 26, 2021, we entered into a 10-year U.S. dollar-euro cross-currency interest rate swap on $400 million notes issued last June.\nWe locked in a 151 bp reduction in rate that should reduce 2021 interest expense by about $4 million and increase 2021 earnings per share by around $0.06.\nLast year, we amended our bank agreement through February 2024 to replace the total debt leverage covenant with the secured debt leverage covenant.\nThe 2021 cap on the new covenant is 4.25 times and our March 31, 2021, pro forma secured leverage ratio was 1.8 times.\nWe don't anticipate approaching our covenant limits at any time in the foreseeable future.\nOur legacy liabilities, including the U.S. frozen pension plan and the Voluntary Employees Beneficiary Association or VEBA plan benefited from rising discount rates in the American Recovery Relief Act of 2021.\nAs a result and based on current assumptions, we expect to make no cash contributions to these plans until 2029.\nOur quarterly dividend is currently $0.15 per share and our credit rating remain strong.\nLet's look at our net debt and leverage on Slide 13.\nThis slide illustrates our actual net debt and financial leverage at year-end 2020, March 31, 2021, and our estimated for the year-end 2021.\nCurrent year-end estimates include the $213 million acquisition of PAI, the $705 million midpoint of our adjusted EBITDA range and our free cash flow target range between $185 million and $275 million.\nNet debt at the end of 2020 was $1.9 billion, that was up over $500 million versus year-end 2019, due primarily to the debt incurred to complete the G4S cash acquisition.\nAt December 31, 2020, our total leverage ratio was 3.3 times.\nAnd as I just mentioned, our fully synergized secured leverage ratio at March 31, 2021, was approximately 1.8 times.\nAt the end of 2021 given our free cash flow guidance and the completion of the G4S and PAI acquisitions, we're estimating a net debt range of $2.06 billion to $2.15 billion, which combined with our EBITDA guidance of $660 million to $750 million is expected to reduce leverage by up to a half a turn to a midpoint total leverage ratio of about 3.0 turns.\nWith that, I'll hand it back over to Doug for a strategic update.\nLet's talk a little bit now of strategy.\nSlide 15 summarizes our current strategic plan, SP2 which builds on the proven initiatives executed in our first strategic plan that covered the three years through 2019 and resulted in 8% annual revenue growth on a compound annual basis during this period of time and compound annual growth rate for operating income of over 20% per year.\nThe bottom layer outlines our 1.0 initiatives supporting core organic growth and cost reductions.\nOur SP2 target is to achieve over $70 million of cost reductions and productivity improvements by 2022, driven by our lean initiatives and core Brink's continuous improvement culture.\nWe're driving our cost reductions wider and deeper by expanding cost initiatives into more countries and implementing over 18 different proven operational initiatives including fleet savings, route optimization, money processing standardization, and more.\nThese initiatives are supported by dedicated lean experts in each country as part of a newly introduced Brink's business system.\nSustained cost reductions of SG&A and other fixed expenses have been realized through our recent restructurings and last year's priority three targeted cost takeout.\nThese cost reductions and structural changes are driving operating leverage as demonstrated this quarter in the higher OP margins versus last year and 2019 even with lower revenue levels.\nThe benefit of operating leverage will continue to be material as organic revenue recovers from the pandemic yielding higher margins going forward.\nThis leverage is evident in our 2021 earnings guidance, which shows a margin improvement of 100 basis points from the low end of the guidance with margins of 11% to the high end of the guidance at 12%.\nAs organic revenue continues to recover, operating leverage is expect to add over 150 basis points to our profit margin by 2022 and WD initiatives will drive additional growth as well as we spoke about earlier.\nThe middle layer of our strategy represents our 1.5 acquisition strategy, including G4S and PAI which are the first acquisitions in SP2, where we have invested approximately $2.2 billion in 15 acquisitions since 2017.\nEach of these acquisitions support our overall growth strategy and will collectively yield close to 6 times EBITDA on a post synergy basis.\nWith the G4S acquisitions largely integrated and run rate synergies recognized, we're continuing to identify and evaluate additional acquisition opportunities to support our core businesses and our new 2.0 strategy.\nWhat's new in the two -- SP2 strategy is the top layer, which includes the introduction and development of digital cash solutions through integrated platform of services, technology and devices, leveraging our core CIT and money processing capabilities and assets.\nWe call 2.0 Brink's Complete as it offers complete digital-focused solutions for the broader cash ecosystem.\nWe believe our 1.0 and 1.5 strategies form a very strong foundation that by themselves will drive double-digit earnings growth well into the future.\nWe expect that the strong base of growth will be supplemented starting latter part or late this year by this new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.\nTurning to Slide 16.\nWith 2.0, we're taking our tech enabled strengths, including mobile apps, systemwide track and trace, customer portals and low cost devices and combining them with our core capabilities in cash logistics and money processing.\nThis enables us to deliver complete digital cash management solutions that provide faster access to working capital for retailers and are easy to use -- as easy to use as other digital payment options.\nBy integrating these new services with our core cash operations, we're creating a platform of truly differentiated digital cash management solutions that we include as four distinct strategic pillars.\nOn the left hand side, 2.1 is a digital cash solution offering a complete hassle free tech enabled cash settlement for retailers that is just as timely and is easy to use and in most cases, at least as cost effective as processing credit and debit card purchases.\nIn addition to optimizing working capital, our 2.1 solutions reduced labor cost and theft-related losses.\nThe box on the upper right hand corner of Page 16 illustrates how the 2.1 digital cash solution combines an app and Brink's device similar to a credit card and a reader to provide credit for cash deposited into the device, delivering an experience similar to processing cash payments.\nOur 2.2 solution extends cash process automation and settlement to large big box and enterprise retailers, enabling them to automate and optimize their high volumes of cash from the register to the back office to their banks using Brink's as a single service provider.\nGiven our acquisition of, PAI, I'll cover 2.3 ATM solutions separately in just a moment.\nOn the right hand side our 2.4 digital payment solution integrates our 2.1 digital cash management solutions with other payment methods to provide a unified solution for small and medium-sized businesses.\nMost all digital payment processes are solely focused -- most all digital payment processors are solely focused on processing non-cash payments, with no solution offered to retailers for handling cash.\nFor example Square has stated that cash represents about 30% of their retailers in-store payments yet they and most all payment processors do not offer any solution for managing cash payments.\nOur 2.4 solution is designed to do just that and fill that void.\nWith the recent PAI acquisition, I wanted to summarize our 2.3 strategy in a bit more detail over the next several pages just as a preamble to our Investor Day.\nWith 2.3, we provide a full range of ATM services, an important part of the cash ecosystem that also converts digital to cash through the use of cards and other devices.\nATMs are critical consumer touch point that are also expensive for retailers and financial institutions to operate and are not core frankly to their businesses.\nBy outsourcing these devices to Brink's retailers and financial institutions can reduce cost and more importantly focus on the needs of their customers and their business.\nOur BPCE relationship in France is a great example of a fully outsourced FI managed service for a complete ATM state of more than 11,000 ATMs, which will be coming on in the second half of this year.\nPAI enables us to offer a similar full range of ATM managed services in North America.\nWe believe the market for ATM managed services will be a steady source of growth for Brink's, as it has been for PAI and we offer both ATM only services as well as an expanded complete cash services offering.\nRetailers need ATM partners like PAI that offer an array of leading technology solutions that are tailored to their needs and desires up to and including a complete managed service as illustrated in the right-hand portion of this slide.\nAnd as financial institutions rationalize their branch networks, they are increasingly relying on ATMs as a main source of customer interaction and moving to outsourced ATM services.\nBefore PAI and BPCE, Brink's ATM services for the most part were comprised primarily of cash fulfillment and some first line and second line maintenance services as shown in the lower section of the blue services illustration on this page.\nBrink's now provides a full end-to-end range of higher value, higher margin services.\nThe goal is to develop multiple recurring revenue streams with long-term subscription-based contracts.\nThe benefits for customers include single source access to a full range of proprietary ATM technology and operating and management systems.\nBy operating ATM -- by outsourcing ATM operations and even ownership our customers can free up resources and capital and focus again on their business.\nWe believe some of our financial institutions, especially regional and community banks and credit unions will increasingly look to outsource these functions and longer term the outsourcing of ATMs by larger banks in the U.S. Tier 1 and Tier 2 financial institutions should be another growth opportunity just as it is starting to be for us in Europe.\nPAI is the largest private held provider of ATM services in the U.S. with a platform of more than 100,000 active ATM service locations.\nOn a full-year 2021 basis PAI is projected to generate gross revenue approximately $320 million and adjusted EBITDA of approximately $30 million.\nIn summary the addition of PAI for us accelerate our execution of strategy 2.3 with a strong U.S. platform and brings a highly scalable asset light business model offering SaaS technology to both retailers and FIs.\nPAI also offer significant cross-selling opportunities to market our Brink's 2.0 services to its current customers starting with PAI's 70,000 plus merchant partners and to market ATM services to banks and FIs as well as other retail customers.\nThese services include obviously our 2.0 cash management and ATM solutions for retailers all from one source.\nAnd again as we said, PAI also expands the potential for five value outsourced ATM networks for FIs both in the U.S. and on a global basis.\nUnder the leadership of CEO, David Dove, PAI has an exceptional management team with deep industry experience and offer significant potential for cost and revenue synergies.\nIn other words, PAI is ready to go and is expected to be accretive to our earnings this year.\nI'll close with a slide that summarizes our recent performance, our increased guidance and our next three year strategic plan.\nWe expect substantial improvement in 2021 and beyond with midpoint 2021 guidance of revenue up 21%, EBITDA up 25% to $700 million plus and earnings per share up over 30%.\nAs a reminder, our 2021 guidance does not include any material contribution from our Strategy 2.0.\nAs we -- and as we enter what we believe will be a robust post-pandemic economic recovery, Brink's is emerging stronger than ever with substantial growth opportunities underpinned by operating leverage that will increase with our recovery.\nWe have a proven global management, proven results, a strong balance sheet, ample liquidity and and expanded global footprint, a realigned cost strategy -- structure and a compelling strategic plan to expand our presence in the cash ecosystem with new digital solutions.\nWe recognize that the last year under the global pandemic has been tough for all of our team members and their families.\nWe look forward to disclosing more information on these strategies, when we host an Investor Day.",
        "summary": "qtrly non-gaap earnings per share $0.82."
    },
    {
        "text": "The non-GAAP results exclude a number of items including our Venezuela operations, the impact of Argentina's highly inflationary accounting reorganization and restructuring costs, items related to acquisitions and dispositions and costs related to an internal loss and certain accounting compliance matters.\nWe're also providing our results on a constant currency basis which eliminates changes in foreign currency exchange rates from the prior year.\nWe believe the non-GAAP results make it easier for investors to assess operating performance between periods.\nAccordingly, our comments today will focus primarily on non-GAAP results.\nToday we reported strong second quarter results that clearly demonstrate the resiliency of our business and the continued strength of cash usage around the world.\nReported revenue was up 27%, including organic growth of 15% on a comparable basis in local currency revenue as recovered to 97% of 2019 pre-COVID levels, supporting a strong recovery from the pandemic lows, even with the unanticipated continued shutdown of many economies, especially in Europe, Latin America and parts of Asia during the first half of this year.\nOperating profit grew 51% with a margin rate increase of 160 basis points to 10.5%, which is 80 basis points above the pre-pandemic second quarter 2019 rate of 9.7%.\nThis suggests that our focus on sustainable cost reductions is having the desired impact on increased margins even with the revenues not yet back to pre-pandemic levels.\nAdjusted EBITDA was up 39% with a margin rate increase of 130 basis points to 15.8% which is a 120 basis points above the pre-pandemic second quarter 2019 EBITDA rate.\nAnd earnings came in at $1.18 per share, up 62% over 2020 and up 40% over the second quarter of 2019.\nWe achieved these results despite extended shutdowns that affected the second quarter results.\nGiven the year-to-date impact of the pandemic and the uncertainty regarding the future impact we now expect full year 2021 percent revenue growth in the mid to high teens, and we continue to expect earnings to be around the midpoint of the range, reflecting higher margins.\nWe expect continued gradual revenue recovery in the second half of this year to provide a strong jumping-off point for 2022 when full year revenue is expected to exceed pre-COVID levels.\nOur preliminary targets for 2022 continue to include strong growth in revenue, adjusted EBITDA and cash flow.\nIn summary, we believe the continued strong and steady improvement in our results despite the extended pandemic headwinds is very encouraging as we look ahead to 2022 when we expected also layer on contributions from our digital growth strategies.\nWe're looking forward to Investor Day in early December when we will provide detailed review of our core and digital growth strategies as well as financial projections for 2022.\nWe're trying to finalize the appropriate format of virtual meeting, a live event in New York or hybrid of such and we'll let you know as soon as we make that decision.\nTurning now to slide four, which summarizes our guidance and our preliminary target for 2022.\nWith half of 2021 behind us, we now expect full year 2021 revenue to be at the lower end of the range, but we still expect to achieve year-over-year percentage increases, as I said before, in the mid to upper teens for revenue.\nOur revenue expectations were adjusted for two reasons, the first is the unexpected persistence of the pandemic-related shutdowns, which again negatively impacted our first and second quarters' revenues.\nThe second factor is related to a change in how we recognize revenue for our recent acquisition of PAI.\nThis technical change to net revenue recognition reduced our forecast PAI revenue by $50 million or so of this year, but has no impact on profit, and in fact, actually increases our margin rate.\nWhile the ultimate duration and impact of the pandemic remains difficult to predict we do expect to return to a more normalized economic conditions as we move through the remainder of this year and more importantly as we go into 2022.\nFull-year 2021 operating profit is expected to be approximately at the midpoint of our guidance reflecting year-over-year margin rate increases of at least 150 basis points, as we drive adjusted EBITDA growth up 25% versus prior year to approximately $700 million and earnings per share growth of 32% to about approximately $5 per share.\nThis slide also shows our preliminary 2022 EBITDA target of approximately $800 million reflecting growth in the mid-teens.\nAs Ron will show you we are also targeting 2022 free cash flow growth of about 50% on or more of EBITDA.\nIt's important to note that our outlook for both 2021 and 2022 was driven primarily by growth in our core operations and does not include any material contribution from our Strategy 2.1 digital solutions, more on our core and digital strategies as well as on our 2023 financial targets at our Investor Day event in December.\nslide five is a format that we include each quarter that covers four key metrics, revenue, operating profit, adjusted EBITDA and EPS.\nFor the current quarter, the current quarter In constant currency and the reported results for the same quarter in prior years.\nI'll go into detail on each of these metrics in the next two slides.\nOn slide six, please remember that we disclosed acquisitions separately for the first 12 months of ownership.\nAfter 12 months they are mostly integrated and then included inorganic results.\nIncluded in acquisitions for this quarter are PAI and most of the former G4S businesses.\n2021 second quarter revenue was up 22% in constant currency, with 15% organic growth versus last year and 7% from acquisitions.\nWhile the pandemic continues to impact many countries today, the second quarter of 2020 was globally, the most impacted.\nNorth America, Latin America and Europe, all grew organically while the rest of the world was relatively flat.\nPositive ForEx increased revenue by $39 million or 5% as currencies in most of our markets have improved versus last year's pandemic-driven devaluation.\nReported revenue was $1.49 billion, up $223 million or 27% versus the second quarter last year.\nIn general, revenue recovery was consistent with the first quarter 2021 despite the impact of lower than expected economic activity caused by new lockdowns imposed by governments in response to COVID variance and increased cases.\nSecond quarter reported operating profit was $111 million, up over 50% versus last year.\nOrganic growth was 42%, acquisitions added 5% and ForEx another 4%.\nOur operating profit margin of 10.5% was up 160 bps versus 2020 and up 80 bps versus pre-pandemic 2019.\nThis is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.\nRecall that in the first quarter the corporate allocation methodology was changed to more accurately reflect segment performance, but distorts the year-to-year comparisons of corporate expenses.\nNow to slide seven, second quarter interest expense was $28 million, up $5 million versus the same period last year, primarily due to the higher debt associated with the completed acquisitions.\nTax expense in the quarter was $30 million, $12 million higher than last year, driven by higher income.\nOur full-year non-GAAP effective tax rate is estimated at 32% in line with last year.\n$111 million of second quarter 2021 operating profit plus interest expense and taxes, plus $6 million in minority interest and other generated $60 million of income from continuing operations.\nThis is a $1.18 of earnings per share up $0.45 or 62% versus $0.73 in the second quarter last year.\nThe gain on marketable securities positively impacted earnings per share by about $0.16 versus $0.09 last year.\nSecond quarter 2021 Adjusted EBITDA, which excludes $11 million and gains on marketable securities, was $166 million, up $46 million or plus 39% versus prior year.\nTurning to free cash flow on slide eight.\nOur 2021 free cash flow target range is $185 million to $275 million, which reflects our adjusted EBITDA guidance range of $660 million to $750 million.\nWe expect to use that $95 million of cash for working capital growth and restructuring.\nThis includes around $35 million in 2020 deferred payroll and other taxes payable.\nCash taxes should be approximately $95 million.\nCash interest is expected to be about $105 million, an increase of $27 million due primarily to the incremental debt associated with the G4S and PAI acquisitions.\nOur net cash capex target is around $180 million, an increase of $67 million over last year driven by acquisitions and a return to more normalized investment.\nOur free cash flow target excluding the payment of 2020 deferred taxes would be $220 million to $310 million generating an EBITDA to free cash flow conversion ratio of about 33% to 41%, up from the 28% achieved on the same basis last year.\nAdvancing to slide nine.\nThis slide illustrates our actual net debt and financial leverage at year-end 2020 at June 30, 2021, our year-end 2021 estimate, and the 2022 year end preliminary target.\nThe current year end estimates include the $213 million acquisition of PAI, our adjusted EBITDA range and our free cash flow target range.\nNet debt at the end of 2020 was $1.9 billion, that was up over $0.5 billion versus year-end 2019 due primarily to the debt incurred to complete the G4S cash acquisition.\nOn December 31, 2020, our total leverage ratio was 3.3 times.\nAt the end of 2021, given our free cash flow guidance and the completion of the G4S and PAI acquisitions, we're estimating a net debt range of $2.055 billion to $2.145 billion, which combined with our EBITDA guidance is expected to reduce leverage by up to half a turn to the midpoint total leverage ratio of about 3 turns.\nOur preliminary target for year-end 2022 would reduce the leverage ratio approximately another half turn.\nMoving to slide 10, look we spent the last few minutes talking about what we've done and what we're going to do.\nI want to wrap up my remarks with some comments about how we do it.\nFor 162 years and today in 53 countries we have practiced continuous improvement in corporate citizenship.\nThat work has been formalized into the Brink's Sustainability Program it's a comprehensive program under my leadership and directed by the Brink's Board and I'm very pleased with the progress we're making.\nWe are a signatory to the United Nations Global Compact on human rights.\nWe pledged to support CEO action for diversity and inclusion.\nWe've hired dedicated leaders for diversity, equity and inclusion and supplier diversity.\nWe've expanded the Brink's Women's Leadership Forum and created employee resource groups.\nWe've significantly increased our disclosure, and recently completed a materiality assessment that will help guide additional sustainability progress for the next 18 to 24 months.\nWe've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the road, implementing dual fuel and alternative fuel vehicles and continually optimizing routes to minimize miles driven.\nOur Strategy 2.0 solutions target not only increased customer service, but also a major reduction in weekly stops that could take many more trucks off the roads.\nWe have made improvements to our already robust governance and risk management and I direct you to our website to learn more about Brink's sustainability program.\nBut perhaps the most compelling role Brink's has is economic inclusion.\nApproximately 20% of the US population is unbanked or underbanked and doesn't have access to credit.\nThe numbers globally are much higher.\nAs the world's largest cash management company Brink's has a critical role in facilitating the global cash ecosystem to serve everyone but especially the most vulnerable.\nFor this reason alone, I believe that BCO belongs in every portfolio that is concerned about sustainability and ESG.\nWith that, I'll hand it back to Doug.\nMoving to slide 11.\nIt summarizes our current strategic plan, SP2 which builds on the proven initiatives executed in our first strategic plan built over the three-year period through 2019 resulted in compound annual growth rate of 8% for revenue and for more than 20% for operating income.\nThe bottom layer outlines our 1.0 initiatives supporting core organic growth and cost reductions.\nOur SP2 target is to achieve annual organic revenue growth of at least 5%, and we've laid out more than $70 million of cost reductions and productivity improvements by 2022.\nWe're driving our cost reductions wider and deeper by expanding cost initiatives into more countries and implementing over 18 different proven operational initiatives including things such as fleet savings, route optimization, money processing center standardization and much more.\nThese initiatives are supported by dedicated lean experts in every country, and by our overall continuous underlying continuous improvement culture.\nSustained SG&A cost reductions and other fixed cost expenses reductions have been realized through our recent restructurings and last year's targeted cost takeouts.\nThese cost reductions and structural changes are driving operating leverage as demonstrated this quarter by higher OP margins versus last year and versus 2019.\nThe benefits of operating margins are expected to continue to yield higher margins as revenue recovers from the pandemic lows.\nThe middle layer represents our 1.5 Acquisition Strategy including G4S and PAI which are the first acquisitions in SP2 we've invested approximately $2.2 billion in 15 acquisitions since 2017.\nEach of these acquisitions, support our overall growth strategy and we expect them to collectively represent a post synergy, post multiple of less than 6 times EBITDA.\nWith the G4S acquisition largely integrated and run rate synergies largely recognized, we're well positioned in 2022 to drive revenue and margin rates above pre-pandemic levels in the 17 markets included in that acquisition.\nAs demonstrated by our recent PAI acquisition, our future acquisition focus is primarily on supporting 2.0 growth initiatives pivoting away from larger core 1.0 acquisitions.\nHowever, we'll continue to consider smaller tuck-in core acquisitions that offer compelling returns.\nAs Ron mentioned, our key focus is on increasing free cash flow and capital allocation that maximizes total shareholder return.\nWe expect our capex spend as a percent of revenue to continue to decrease while supporting increased revenue growth in our core and 2.0 strategies at above historical levels.\nWhat's new in SP2 is a top layer of our strategy, which includes the development and introduction of digital cash management solutions through an integrated platform of services, technology and devices, leveraging our core CIT and money processing capabilities and significant assets.\nWe call Strategy 2.0 Brink's Complete as it offers as it offers complete digitally focused solutions for a broader cash management ecosystem from one provider Brink's.\nWe believe our 1.0 and 1.5 strategies form a very strong foundation that might themselves will drive double-digit earnings growth well into the future.\nThis strong base of growth will be supplemented by a new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.\nWe plan to provide much more detail about the digital solutions at our Investor Day event, including specific financial targets and an update on some initial customer wins, but today I want to simply remind investors in general terms about the potential impact this opportunity could have on our company and frankly on our industry.\nWe believe that managing cash for retailers and other merchants is a significant growth opportunity for Brink's, especially when you consider that about 85% of retail and merchant locations in the US do not currently use any of our services or the services offered by our competitors.\nThis means that literally millions of potential customer at payment locations are completely unvended.\nWhy is this the case?\nWell, given the sheer size of the unvended market it's hard to pinpoint all the reasons.\nSome unvended retailers are simply too small and a cost effective and simply enough management solution for cash has not historically been available, but many larger unvended or under vended retailers that are nationally known and have thousand locations are also unvended.\nTo be blunt, in some cases, some of them probably perceive our industries traditional solutions and services to simply be do costly or to be frankly too much of a hassle.\nThis is potentially a transformational opportunity and our strategy is targeted directly at this opportunity.\nWe believe that Brink's complete digital solutions operate, easy-to-use, attractively priced, subscription-based solution for cash management services offering a compelling benefit for both vended and unvended retailers.\nThe benefits listed on this slide on the right hand side add up to what we consider a step change in value making cash management easier, much safer and far more efficient than anything else offered by our industry.\nSimply, our goal is to offer digital cash management solutions that are easy to use and are as cost effective as other debit and credit payment solutions.\nAs with the development and introduction of many new products or services we've had our share of growing pains on this along the way including, frankly the global pandemic, but we are now expanding our rollout in the US and in several other global countries with a primary focus on unvended and underserved national retailers with multiple locations, and with several recent wins, we're feeling confident that the value of our solutions is beginning to be recognized by customers that historically have used limited or no cash management solution.\nThe chart on the left side of slide 12 illustrates the total number of retail and commercial locations in the US, estimated to be in the $3 million plus range.\nThe portion in brown shows that only about 15% of these locations are currently served by Brink's or any of our competitors, while almost all of them are vended by debit-credit payment processors.\nThis suggests that with the right cash management solution and value proposition, the opportunity or what we call for cash whitespace shown on the chart, is tremendous.\nTo put this opportunity in perspective, we believe that we can capture a significant portion of the potentially unvended market, the light blue, and even if we capture only a small portion of the rest of the white space unvended market the results could increase our retail sales by more than 50% plus over the next several years in the US alone.\nWe have a way to go in reaching such a lofty milestone, but we expect to begin showing some meaningful progress as we exit 2021, and remember our 2022 financial targets, do not include a material impact of our Strategy 2.1 Brinks Complete Initiatives.\nAgain, more to come on this Investor Day.\nEven with the unanticipated impact of continued shutdowns during the second quarter, we've reported revenue growth of 27% and operating profit growth of 50%.\nThat's good leverage, and it supports and is supported by strong margin improvement.\nWe anticipate that revenue will continue to gradually recover over the second half of this year providing a strong jumping-off point for achieving revenue in 2022 that will exceed pre-pandemic levels and will include the benefits of the two acquisitions completed since 2019, G4S and PAI.\nWhile we feel confident as we move into the second quarter of this year we believe that setting the stage for 2022 and beyond is even more important.\nI can assure you that we are sharply focused on achieving our 2022 targeted EBITDA of $800 million, which is supported by continued revenue growth and strong margin improvement and includes only, again a limited contribution of 2.1 initiatives.\nCash usage continues to grow and cash continues to be a key method of payment in the US and globally underpinning our future growth and recovery from the pandemic,.\nWe have a proven global management team, a strong balance sheet, ample liquidity and expanded global footprint from our acquisitions, a realigned cost structure coming out of the pandemic and a compelling strategic plan to expand our presence in the cash ecosystem with new digital solutions.\nWe look forward to disclosing more information on these strategies and our 2023 financials when we host Investor Day in December.",
        "summary": "compname posts quarterly non-gaap earnings per share $1.18.\nqtrly gaap earnings per share $0.47; qtrly non-gaap earnings per share $1.18."
    },
    {
        "text": "The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, and costs related to an internal loss and certain accounting compliance matters.\nAlso providing our results on a constant currency basis which eliminates changes in foreign currency rates in the prior year.\nWe believe the non-GAAP results make it easier for investors to assess operating performance between periods.\nAccordingly, our comments today will focus primarily on non-GAAP results.\nToday we reported third quarter results above the guidance we provided in September with double-digit increases in revenue, profits, and earnings per share.\nImportantly, despite slower-than-expected revenue recovery from the pandemic lows, third quarter revenue versus pre-COVID levels did grow sequentially over the second quarter.\nAnd despite other operational issues that impacted the quarter including labor shortages and wage inflation in the US that is not yet been offset by price increases that have been enacted, operating profit margin improved by 50 basis points to 10.8%.\nWith continued revenue and margin improvement, this position is as well for 2022 and the future.\nWe are affirming our four-year 2021 guidance, which includes revenue in the range between $4.1 billion and $4.2 billion, with a bias to the higher end of the range due to the strong third quarter results.\nOperating profit of approximately $465 million, which reflects a margin increase of close to 100 basis points versus prior year.\nAnd adjusted EBITDA of approximately $660 million reflecting an EBITDA margin of approximately 16%.\nWe're also affirming our preliminary 2022 adjusted EBIT target range between $785 and $825 million.\nAfter an expected margin improvement of approximately 100 basis points this year, we expect a similar operating profit margin increase next year with margins continuing to be driven by our Strategy 1.0 lean cost initiatives and further margin leverage driven by sustained fixed cost reductions and revenue growth.\nWe expect continued revenue improvement in 2022, driven by continued revenue growth from the pandemic lows, organic revenue growth, partially driven by higher than normal price increases that will offset wage inflation and further revenue growth driven by initial contributions from our digital solutions that will take-- that will be stronger next year.\nBased on these revenue drivers and an expected higher 2021 year-end revenue run rate, we believe revenue in 2022 will exceed 100% of the adjusted pre-COVID revenue level of approximately $4.55 billion, which includes historical revenue acquired with G4S and PAI.\nAs a reference point, at 100% of the adjusted pre-COVID revenue level, we would expect 2022 adjusted EBITDA to be about $755 million.\nAnd we'd expect continued margin and growth and margin leverage as revenue grows above this pre-COVID levels, which would support our initial 2022 targets as we've provided.\nWe're also pleased to announce today our plan to enter into a $150 million accelerated share repurchase agreement that would represent the repurchase of approximately 5% of the company's outstanding shares at the current share price.\nBased on our current share price and projected earnings for 2021 '22, we believe the best investment for our shareholders is to buy Brink's shares.\nWe expect the $150 million ASR will be-- we are announcing today will be substantially completed by early November.\nOur board has approved another $250 million authorization to be used from time to time over the next 2 years.\nAnd finally, we're pleased to confirm that we'll host an Investor Day on December 15.\nWe'll hope you'll attend.\nTurning to the next slide.\nOur third quarter results came in, as I said, above September guidance with revenue, operating profit, and EBITDA, each exceeding our outlook and analyst consensus.\nOn a reported basis, revenue was up 11% with organic growth of 6%.\nWell, not as strong as I said as originally expected, organic revenue grew sequentially from the second quarter and revenue as compared with the pre-COVID levels also improved.\nOperating profit grew 16%, reflecting a margin increase of 50 basis points to 10.8%, and is demonstrating earnings leverage with our revenue increase.\nAdjusted EBITDA was up 15% with a margin of 60 basis points to 15.8%, earnings per share grew 28% from $0.89 per share to $1.14.\nWe achieved these results despite the ongoing impact of the global pandemic in several key markets and wage and labor issues in the US.\nAs Mark will cover in a minute, we expect these conditions in the US to improve as we move into 2022.\nOn a global basis, we see encouraging trends indicating that revenue is recovering to pre-pandemic levels and above, as evidenced by the significant revenue recovery so far this year compared to pre-pandemic levels, though the rate of recovery may continue to be choppy and uneasy from country to country and region to region.\nPlease join me in welcoming Mark to Brink's.\nI'm excited to join the Brinks leadership team and look forward to getting to know all of you over the next several months.\nI'll start by adding some high level comments to our third quarter results at the segment level.\nIn North America, third quarter reported revenue grew 14%, while operating profit grew 4%, which includes the impact of the PAI acquisition we did last April.\nThese results were less than our expectations as we enter Q3, primarily driven by labor shortages across the US market.\nThe impact of this tight labor market reduced segment revenue by about 1% and reduced segment margins by approximately 300 basis points.\nThis came in the form of both lost revenue and higher labor costs.\nIn August, several of our branches didn't have enough drivers, and as many of you know, CIT revenue is largely based on a revenue per stop model.\nWhen we're short on drivers, we can't service all our routes, so missing stops means missing revenue.\nAnd then on the cost side, like many in the transportation and logistics industry, we've had to aggressively increase frontline hourly wages, not only to attract new associates, but also to reduce the attrition rates of the current Brink's workforce.\nThe good news is, we've recently seen improvements on both fronts, of both hiring and retention.\nThe expiration of the federal unemployment benefits seems to be driving a meaningful increase in job applications.\nAnd while we're still slightly understaffed, but we are seeing sequential improvement week over week in the volume of new applications.\nIn fact, our staffing level is currently the highest it's been in five months, and our US HR teams are working diligently to resolve the ongoing labor shortages.\nIt's also important to note that rising fuel cost generally have not had a material impact on our profitability as most of our customer agreements have fuel surcharge clauses as a cost recovery mechanism.\nTo offset our rising costs that we've seen here in the US, we've announced and implemented several price increases in our business in Q3 that are well above the historical annual averages.\nAdditionally, we've announced this month that our upcoming 2022 annual general price increase will also be well above the historical average increases to account for the ongoing impact of the extraordinary 2021 wage inflation.\nWe anticipate meaningful lift in this price increase that will take us back in balance, relative to our price versus cost inflation ratio as we start 2022 and into the first quarter.\nI want to make the point that we are confident in our ability to pass on inflationary cost pressures to the marketplace in the form of these type of price adjustments.\nNow to Latin America, where revenue continued its double-digit growth trend with reported revenue up 13% and operating profit of 26%, reflecting a margin increase of 240 basis points to 22.3%.\nOur lean transformation in Latin America, particularly in Mexico, continues to produce good results in both organic growth and strong earnings leverage despite the lingering impact of COVID across the region in Q3.\nIn Europe, while below our expectations, we saw modest organic revenue growth with strong profit growth.\nOperating profit improved more than 300 basis points to 11.8%, a result of strong cost management and the benefits of prior-year restructuring actions coming through for the rest of the world segment, revenue grew 8% on a reported basis, accounting for the contribution of the G4S acquisition.\nOn organic basis, revenue and profits declined, reflecting the impact of government mandated COVID restrictions across the region, and tough 2020 comps in our precious metal logistics business.\nSimilar to Europe, we are beginning to see signs of improvement in September as economies begin to reopen.\nNow let's move to slide 6.\nSlide 6 presents the 2021 quarterly revenue by segment, showing the revenue recovery percentage versus pre-COVID levels We present comparisons, both on a US dollar and a local currency basis, both of which are important to us.\nThe local currency recovery percentage is helpful in understanding the underlying resiliency of cash usage in each region, and the US dollar recovery percentage is factor in the impact of foreign currency translation, which of course is how we report our results.\nBeginning on the left side, we'll start with North America.\nYou can see modest sequential improvement from 93% to 97% from the first to second quarter.\nWe then saw a slight dip down to 96% in the third quarter, and we expect the 4th quarter recovery to be north of 100%.\nNow moving to Latin America, you can see that on a local currency basis, recovery has been significantly stronger than North America with the third quarter at 108% of adjusted 2019 levels.\nA large part of this recovery is attributed to the inflationary environment in Argentina.\nBut even excluding Argentina, local currency recovery was 19% in Q3 and is expected to be over 100% in Q4.\nAs we move to Europe, notice to the US dollar reported recovery percentages are greater than the local currency percentages.\nAs we've noted in previous disclosures, the impact of the Delta variant has had significant impact in this region, but forex has helped offset some of this impact.\nWe expect the fourth quarter be about 94% recovered in local currency.\nAnd for the rest of the world, we saw a similar dynamic.\nIn local currency, we're seeing levels similar to North America in the mid 90% range.\nForex translation has been helpful in the region as well and we expect our fourth quarter to come in around 96% on a US dollar basis.\nIn total, we expect our consolidated results in the fourth quarter to be about 95% on a reported basis and around 100% on a local currency basis.\nThis suggests our business is back to pre-COVID levels as we exit the year.\nThis certainly supports the underlying resiliency of cash usage in the global economy and provides an ability for us to continue to grow in the future.\nYou really hit the ground running and are a great addition to the team.\nOn slide 7, please remember that we disclose acquisitions separately for the first 12 months of ownership.\nAfter 12 months, there are mostly integrated and then included in organic results.\nIncluded in acquisitions for this quarter are primarily PAI and about 20% of the former G4S businesses.\n2021 third quarter revenue was up over 10% in constant currency, with 6% organic growth versus last year and 5% from acquisitions.\nReported revenue was $1,076,000,000, up $105 million or 11% versus the third quarter last year.\nThird quarter reported operating profit was $116 million, up 16% versus last year.\nOrganic growth was 2%, acquisitions added 7%, and forex another 7%.\nOur operating profit margin of 10.8% was up 50 bips versus 2020.\nThis is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.\nNow to Slide 8.\nThird quarter interest expense was $27 million, up $1 million versus the same period last year, as higher debt associated with completed acquisitions was partly offset by lower average interest rates.\nTax expense in the quarter was $31 million, $8 million higher than last year, driven by higher income.\nOur full-year non-GAAP effective tax rate is estimated at 33% versus 32% last year.\n$116 million of third quarter 2021 operating profit less interest expense, taxes, and one million dollars in minority interest in other, generated $57 million of income from continuing operations.\nThis is a 100%, $1.14 of earnings per share up $0.25 or 28% versus $0.89 in the third quarter last year.\nThe gain on marketable securities positively impacted earnings per share by about $0.03 this quarter versus minus $0.02 in the quarter last year.\nThird quarter 2021 adjusted EBITDA which excludes $2 million in gains on marketable securities was $170 million, up $22 million or plus 15% versus prior year.\nTurning to free cash flow on Slide 9.\nOur 2021 free cash flow target is $185 million, which reflects our adjusted EBITDA guidance of $660 million.\nWe expect to use about $60 million of cash for working capital growth and restructuring, and another $35 million in 2020 deferred payroll and other taxes payable.\nCash taxes should be approximately $95 million, up $18 million, versus last year, due primarily to the timing of refunds.\nCash interest is expected to be about $105 million, an increase of $27 million due primarily to the incremental debt associated with the G4S and PAI acquisitions.\nOur net cash capex target is around $180 million, an increase of $67 million over last year driven by acquisitions and a return to more normalized investment.\nOur free cash flow target, excluding the payment of 2020 deferred taxes would be $220 million, generating an EBITDA to free cash flow conversion ratio of about 33%, up from the 28% achieved in the same basis last year.\nWhile not included in cash flow from operating activities, in July we opportunistically sold all of our shares and MoneyGram for $33 million.\nWe purchased those shares in November 2019 for $9 million.\nOur preliminary 2022 target is to increase our free cash flow, 50 plus percent, to a range of $350 million to $400 million, which equates to $7 to $8 per share.\nAdvancing to Slide 10.\nThis slide illustrates our actual net debt and financial leverage at year-end 2020 at September 30, 2021, our year-end 2021 estimate, and the 2022 year-end preliminary target.\nThe current year-end estimates include a $213 million acquisition of PAI, our adjusted EBITDA guidance, and our free cash flow target.\nThe shaded blue box on top of the 2021 year-end bar represents the impact of the planned $150 million accelerated share repurchase announced today.\nNet debt at the end of 2020 was $1.9 billion.\nThat was up over $500 million versus year-end 2019 due primarily to the debt incurred to complete the G4S cash acquisition.\nOn December 31, 2020, our total leverage ratio was 3.3 turns At the end of 2021, given our free cash flow guidance and the completion of the G4S and PAI acquisitions, we're estimating a net debt of $2.175 billion or $2.325 billion, including the planned ASR.\nThis is expected to generate total leverage of 3.3 turns and 3.5 turns respectively.\nOur 2022 EBITDA target range of $785 million to $825 million, combined with the estimated year-end 2022 net debt of $2,035,000,000 to $2,095,000,000 would reduce the total leverage ratio to approximately 2.5 to 2.7 turns.\nMoving to Slide 11.\nThe last few quarters, I spoke to you about Brink's sustainability program.\nIt's a comprehensive program under my leadership and directed by the Brinks Board.\nI discuss the significant progress we're making.\nWe are a signatory to the United Nations Global Compact, we pledged to support CEO Action for Diversity and Inclusion, we've hired dedicated leaders for diversity, equity, inclusion, and supplier diversity.\nWe've expanded the Brink's Women's Leadership Forum and created employee resource groups.\nWe've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the road, implementing dual fuel and alternate fuel vehicles, and continually optimizing routes to minimize miles driven.\nOur Strategy 2.0 Solutions, which learn more about at our December 15 Investor Day, target not only increased customer service, but also a major reduction in weekly stops that could take many more trucks off the roads.\nAnd while we're very proud of our progress in these areas, what I want to focus on today is Brink's social impact.\nOne of Brink's most compelling roles is that of facilitating economic inclusion.\nIn United States, 28% of in-person transactions are in cash, and approximately 18% of the population is unbanked or underbanked, doesn't have access to credit, and must rely on cash.\nWe estimate similar demographics for other developed countries, but the reliance on cash is much higher in developing markets.\nMexico, Brazil, and the Philippines are just three examples, where over half of the in-person transactions are in cash.\nImportantly, cash use is often highest among many underrepresented groups, people of color, the elderly, immigrants, veterans, and the poor.\nAs the world's largest cash management company, Brink's has a critical role in facilitating the global cash ecosystem to serve everyone, but especially the most vulnerable.\nFor this reason alone, I believe that BCO belongs in every impact investing portfolio.\nTurning now to Page 12.\nAs we reviewed during past earnings calls and plan to discuss in much more detail on the upcoming Investor Day, we have three layers that support our current multi-year strategy plan.\nThe first two represent an extension of our proven first strategic plan.\nThe bottom layer outlines our 1.0 strategic initiatives that drive core organic growth and cost reductions.\nOur target is to achieve annual mid single-digit organic revenue growth, and this has been proven during our first strategic plan period of time, and improve operating profit margins by approximately 200 basis points over the next two years, over the two-year period that is of 2021 and '22.\nWe expect to drive cost reductions wider and deeper than we did over the last strategic plan, expanding into more countries, and expanding the number of lean initiatives.\nWe also expect to leverage the significant fixed cost reductions we've made over the last year and a half into higher margins, maintaining fixed cost levels as revenue increases.\nThe middle layer, Strategy 1.5, represents our acquisition strategy.\nIncluding G4S and PAI which are acquisitions completed early in our current strategic plan, we've invested a total of $2.2 billion in over 17 acquisitions since 2017.\nSince we added acquisitions as a part of our overall strategy, we have proven that we can acquire and integrate such businesses with strong returns and strategic benefits.\nAs demonstrated by our recent PAI acquisition, future acquisitions may focus more on supporting the Strategy 2.0 and our digital initiatives.\nWe'll also be considering smaller tuck-in core acquisitions that offer going returns.\nWhat's new in our current strategy strategic plan is the top layer of our strategy, which introduces digital cash management solutions.\nWe've created an integral platform of services, technologies, and devices, leveraging our core CIT and money processing capabilities.\nThese new digital cash management solutions will be as easy to use as debit and credit card payments.\nWe believe our existing operations form a strong foundation that by themselves will drive mid-single digit revenue growth and double-digit profit growth well into the future.\nThis strong base of growth is expected to be supplemented by additional revenue growth and margin improvement as our digital solutions gain traction beginning in 2022 and well into the future.\nAs we said before, we'll provide more detail in Investor Day coming up.\nI'd like to close with a slide that summarizes our recent performance and our outlook going forward.\nFor 2021, again, we're targeting revenue growth of 12%, operating profit growth of 22%, reflecting a margin increase of almost 100 basis points over last year.\nAdjusted EBITDA growth of 17%, reflecting an EBITDA margin of 16%, and EBIT-- earnings per share growth of 21%.\nWe expect substantial improvement in 2022 and beyond as we've discussed with strong increases in revenue, operating profit margins, EBITDA, and EPS, as our existing operations continue to grow and we layer on our new strategies.\nThe right hand side of this slide, Slide 13, provides additional perspective of our 2022 outlook.\nOur 2021 revenue as compared to adjusted pre-COVID levels as Mark pointed out, has improved from 89% in the first quarter of this year to 93% in the third quarter that we just reported.\nThis trend supports our expectation of continued revenue recovery and strong year-end-- and a strong year end jumping-off point, expected to be least 95% which is a great starting point for next year.\nSo we need just an approximately additional 5% revenue recovery from the fourth quarter run rate throughout full year '22 to reach 100% of our pre-COVID revenue levels.\nWe expect our 2022 revenue recovery will also be supported by additional organic growth, including higher than normal price increases in the US that will offset wage inflation that we've seen this year.\nThese higher than historical increases will also help improve our margins.\nAnd we expect further growth in 2022 will be driven by initial contributions by our digital solutions.\nAll these indicators support our belief that 2022 revenue will exceed adjusted pre-COVID 2019 revenue at level of corresponding to our preliminary EBITDA range of $785 million to $825 million.\nBrink's is a stronger company today than it's ever been, and is clearly stronger as we transition to the other side of the pandemic.\nWe have substantial growth opportunities and are well positioned to capitalize on a large under-penetrated global cash payments market.\nWe have a proven global management team, a strong balance sheet, ample liquidity, an expanded global footprint, and a realigned cost structure, and a compelling strategic plan to expand our presence in the cash ecosystem with digital solutions.\nWe look forward to disclosing more information on our future strategy when we host our Investor Day, hopefully for all of you, on December 15.",
        "summary": "qtrly non-gaap earnings per share $1.14.\nco intends to enter into an accelerated share repurchase (\"asr\") agreement to acquire $150 million of company's common stock.\ncompany expects asr will be substantially completed by early november.\nfull-year guidance remains unchanged."
    },
    {
        "text": "Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.\nWell, this is no ordinary time, and first and foremost, all of us at Brandywine sincerely hope that you and yours are safe, healthy, and sheltering in places happily and as productively as possible.\nThe pandemic has disrupted everything and presented a new landscape for everyone and every business.\nWhile the duration of the crisis remains unclear, we have assessed the crisis's impact on every element of our business, employee, tenant, vendor safety and security, a return to save building operations, construction schedule delays, forward leasing pipeline and renewal activity and of course, all the related financial implications.\nAdditional details on these and other topics are outlined in our COVID Insert, found on Pages 1 to 13 of our supplemental package.\nLooking at the first quarter, we opened the year strong.\nOur first quarter results were among the best we've had in recent years.\nWe had excellent leasing activity.\nRental rate mark-to-market was almost 16% on a GAAP basis and 8% on a cash basis.\nSame-store numbers were tracking slightly ahead of our original plan.\nCapital costs were at the low end of our targeted range.\nOur retention rate was 76% and we posted FFO of $0.35, which was in line with consensus.\nOur leasing pipeline was building nicely, including some excellent forward leasing activity on several of our development projects.\nThat strong start is of course in the rear view mirror and all somewhat irrelevant given the circumstances, and our entire focus is on the path forward.\nAnd as we turn our attention to the impact of the virus, it's important to reflect on where we are and how to extrapolate the current situation to the near and intermediate-term future.\nSo several observations from our team before we outline our '20 strategy.\nFirst, we have a 25-year track record of building strong employee culture and establishing lasting relationships with our tenants, vendors and communities.\nNever has the time for having built those bridges been more important than today.\nSo, we've erred on the side of over communicating with all of our stakeholders.\nSecond, the paraphrase and number of behavioral scientists and economists, how people behave in a pandemic is not really a great guide to how they will act or live their lives in normal times.\nAs one person put it, we're living in the middle of a grand forced experiment and we really don't know how that experiment is going to play out.\nSo while we've stayed in close touch with our tenants, vendors, political and community leaders, the path forward and the pace we walk down that path is somewhat uncertain.\nPlease note that in developing our 2020 COVID revised business plan, we've pragmatically assessed forward risk, and incorporated all those assumptions into our plan.\nGiven the current circumstances, this plan is as accurate as we can make it.\nThird, every crisis embodies elements of both danger and opportunity.\nOur clear priority has been to assess every element of risk and institute plans to effectively mitigate or anticipate its effect.\nWe're also, however, focused forward on the opportunity set to anticipate situations where we can enhance our business plan execution, whether that be through extending lease terms, improving the pricing of our current supply chains, we're working with institutional partners to seek opportunities where market position, talent base and capital can create growth opportunities.\nSo in looking at the risk factors in our COVID-19 business plan, our first priority is the safety and security of all of our employees, tenants and buildings.\nWe are very happy to report that no Brandywine employee has contracted the virus, and consistent with applicable state and CDC guidelines, we've maintained a doors open lights on approach to all of our building operations, and maintained close communication with our tenants, vendors, and local health and municipal officials.\nSecondly, we focused on the stability of our economic platform with particular attention to each of the following items.\nGiven that these are no ordinary times and the stay at home orders in effect, we did receive requests from tenants for rent deferrals.\nFull details of those efforts are found on Page 9 of our SIP.\nBottom line, we've about 1.6% of our rents coming from retail tenants.\nNormal monthly billings run about $500,000.\nWe received $150,000 in April.\n29 tenants or 45% of leases have been or in the process of documenting rent deferrals.\nAbout 2.1% of our rents come from co-working and conferencing tenants.\nNormal monthly billings are $675,000.\nDuring April we received $580,000.\nFor April, we received 95% of overall rents, 96% collection rate from our office tenants, and 100% collection rate from our Top 30 tenants.\nThe vast majority of rent relief requests are from our retail and co-working tenants.\nAt this point, there have been no rent abatements granted.\nRent deferral situations are paid back to us either in 2020 or '21 or via lease extensions.\nJust a point as well.\nOur leases were clear and that our tenants have a legal obligation to pay us rents.\nWhile we certainly recognize every company wants to preserve cash, the legal obligation to pay us rent is clear.\nAnd as we have done over our history, we'll certainly work with those companies that truly need bridge assistance.\nFrom an insurance standpoint, it's also clear that we can't rely on our standard property policy to reimburse us for rent not paid by tenants in default of their contractual obligations.\nWe did, however, have the foresight to procure a $5 million of coverage sublimit for interruption by communicable diseases under our property policy, which we believe will be operative where we have force majeure majeure, such as in the case where you have hard head work stoppages due to government mandates.\nDue to the uncertainty of the recoverability of these announced, we've not included any insurance proceeds in our revised business plan.\nWe also were impacted by some construction work stoppages.\nThe vast majority of our construction operations remained shut down, with the exception of Austin, which was shut down for a period of time, and some of our operations in MetDC.\nIn our 2020 plan, we're assuming that construction gets back to work in the next 30 days.\nIn fact, in Pennsylvania, our governor last night announced plans to restart the opening of our economy on May 8, and has accelerated the restart of construction, obviously compliant with safe distancing and CDC guidelines on May 1.\nBut the impact of this temporary work stoppage in our '20 plan is $2.3 million of GAAP NOI, 218,000 [Phonetic] square feet of lower occupancy, which reduces our year-end occupancy by 1.4%.\nWe also spend a significant amount of time looking at our leasing pipeline, which stands right now 1.3 million square feet.\nOur leasing team and executive directors have been in extensive and repeated touch with every prospect and tenant rep of our 1.3 million square foot pipeline.\nTo the best we can determine as of today, we believe that about 52% of that pipeline or 670,000 square feet are deals that are progressing, but clearly with the shutdown, the execution timing is uncertain, but we would anticipate within the next 90 to 120 days.\nWe have about 45% of the deals in our pipeline on hold due to the virus.\nOf that, based upon the information we have, we think that 10% of those will likely progress to execution, about 70%, it's just simply too early to tell as a lot of our prospects are focused on their own businesses versus their office space requirements and we believe about 15% is mostly likely dead requirements because of the virus and we expect to lose the balance of about 7% to another competitor.\nWe also spend a great deal of time looking our capital spend.\nAnd as Tom will walk through in more detail, we've done a thorough review of our expected spend for the balance of the year, and have reduced that spend by $50 million or about 20%.\nMore detail on that can be found on Page 11 of our SIP.\nWe did make some adjustments to spec revenue as you might expect.\nAnd primarily due to slower projected leasing and the impact of construction work stoppages, we're reducing our spec revenue target by $5 million to $26 million.\nOur redevelopment project at 1676 International Drive in Northern Virginia experienced both of these conditions totaling almost 60% of this slide or $2.9 million.\nThe timing of our major tenant in that project has slid until the first part of '21, and the additional lease up that we had projected for the balance of '20, we have also shifted till next year.\nOverall, leasing delays totaled about $2.7 million of GAAP revenue, and the previously mentioned work stoppage of $2.3 million accounts for the balance.\nFrom a dividend coverage and liquidity standpoint, the company is in excellent shape.\nWe're projecting to have between $400 million and $480 million available on our line of credit by the end of the year, that number depends on whether we refinance or pay off an $80 million mortgage securing one of our Philadelphia CBD properties.\nWe only have one $10 million mortgage maturing in 2021, no unsecured bond maturities until '23.\nWe generate $85 million of free cash flow after debt service and dividend payments, and that dividend is extremely well covered with a 54% FFO and a 70% CAD payout ratios.\nAnd looking at our guidance, we set our new range at $1.37 to $1.45 per share.\nTo do a very quick reconciliation, our previous midpoint was a $1.46 per share.\nWe did increase and Tom will talk about during his conversation, our project reserves, which reduced that by $0.02.\nWe did a building sale that cost us $0.01.\nOur office leasing slides are close to $0.02 a share, the construction slides will cost us $0.01.\nWe anticipate losing a $0.01 through our joint ventures and we anticipate losing another $0.01 through lost parking revenue, and the hotel component of our AKA project at the FMC tower.\nThe share buyback, which we also announced, added $0.03 back, so our new midpoint is $1.41.\nSo with those components addressed, we'd like to take a look at the development opportunity set quickly.\nFirst of all, on the development front, all four of our production assets, that is Garza, Four Points, 650, and 155 King of Prussia Road are all fully approved, all work is paid for.\nThe pricing has been finalized and they're ready-to-go subject to leasing.\nAs we have noted previously, each of these projects can be completed within four quarters to six quarters and cost between $40 million to $70 million.\nPre COVID-19, we had a strong pipeline of deals that could have kicked off one or more of these projects.\nAs we look at the crisis now, clearly starting any development is an elective decision, and will be evaluated on a case-by-case basis.\nAnd as such, you'll note in our revised business plan, where we have reduced our two projected 2020 starts down to one, which we achieved with the start of our 3000 Market Street project.\nIn looking at our existing development projects, at 405 Colorado, as we identified in our supplemental, we did have a disappointment post quarter close.\nOur lead 70,000 square foot tenant terminated their lease pursuant to a one-time Right-to-Terminate, if we did not meet an interim milestone delivery date.\nBased on the original construction schedule, we had a significant cushion built-in to meet that milestone.\nThe general contractor, while still being able to complete the project on time, missed that milestone date.\nWe will naturally have a claim against that contractor, but right now our focus is on getting the project built and leased.\nSo that project now stands at 18% leased with 160,000 square feet to lease, and what we know will be a very exciting addition to Austin skyline.\nWe had great pipeline of deals before the crisis, and we expect that pipeline to reemerge and I've been in touch with a number of those prospects.\nDue to the short construction shutdown we did have in Austin, we did slide the completion date back to Q1 '21, and due to this tenant event moved the stabilization date back to Q4 '21.\nOn the Bulletin Building, due solely to the mandated construction work stoppage, we are moving the completion date back one quarter to Q3 '20.\nGiven that that building is fully leased, we did move the stabilization date up to the Q4 of '20, so that will be fully stabilized.\nThis is a renovation project within Schuylkill Yards.\nThis 64,000 square foot building is being fully converted into a life science facility.\nAnd we're very fortunate to have recently signed a lease with a life science tenant, where they will take the entire building on a 12-year lease commencing in the third quarter of '21, and deliver a development yield of 8.5%.\nSo, we're really excited.\nThis is truly a great exclamation point to our emerging life science push in University City.\nJust quick updates on Broadmoor and Schuylkill Yards.\nOn Broadmoor, we're advancing Block A, which is a combination of 360,000 square foot office building, and 340 apartments through final design and pricing.\nAt Schuylkill Yards, we continue design development process for a dedicated life science building, and anticipate that with the schedule we have in place, market conditions permitting that could start in the first-half of year.\nOn our Schuylkill Yards West project, which is our office residential tower, as you know from previous calls, that's fully approved, priced and ready-to-go, subject to finalizing our debt and equity structure.\nCertainly, the virus had a big impact on the timing of this project start.\nWe continue to work with our preferred QOZ equity partner, but the crisis has certainly slowed the pace of procuring financing.\nWe do remain optimistic that we'll get that across the finish line, when the situation returns to some level of normalcy.\nOn the investment front, we sold one property during the quarter for $18 million.\nWe also repurchased, net after dividends savings, $55 million of our own shares.\nThose shares were purchased at a 10.5% cap rate and 8% dividend yield, and an imputed value of $203 per square foot.\nAs we assessed regardless of trading price of our stock, this was a good investment, delivering both immediate and better returns on our targeted developments, and was paid for via the asset sale and the capital spending reduction of $50 million.\nTo provide a frame of reference, the average cap rates in our markets on asset sales since the great financial crisis has been 6.4% and an average price per square foot of $350.\nBoth of those metrics more than supporting this investment, as well as when you compare that to current replacement costs between $400 and $600, it further amplifies the validity of making that investment in our own shares.\nThere are a tremendous number of private capital sources actively looking for high-quality investments, particularly with well-capitalized partners.\nWe continue to have an active dialogue with several institutional investors and private equity firms.\nWe are exploring several asset level joint ventures that would improve our return on invested capital, enhance our liquidity and provide growth capital.\nWhile these discussions are active, constructive and ongoing, there's no certainty as to their outcome, but we continue to pursue and look forward to continued improvement in the debt markets.\nThe last opportunity I'd like to spend a moment on is the opportunity set embedded in the future of office market demand drivers post the virus.\nWhether you believe there'll be more or less demand, more square feet per employee, more work from home, the immutable constant will be that high quality office space will be a recipient of any demand drivers.\nTenants clearly want safe, secure, healthy environments.\nWe do believe that owners of best-of-class product like Brandywine, will be beneficiaries of these future demand drivers.\nAnd I'd ask you to note the building access, security, HVAC, elevator items that we have identified in our COVID supplemental package insert.\nAnd we're also keeping all these potential changes in consumer preferences in mind as we finalize our development planning.\nTom will now provide an overview of our financial results.\nI wanted to start off with a review of the net income.\nWe came in at $7.9 million or $0.04 per diluted share.\nFFO totaled $61.4 million or $0.35 per diluted share.\nSome general observations of the first quarter.\nOperating results were generally in line with our fourth quarter guidance.\nOperating expenses from lower G&A expense was a $1 million as compared to the forecast.\nThat's due to some timing of some compensation and professional fee recognition.\nInterest expense lower due to the lower rates that we had forecasted and slightly higher capitalization of interest.\nFirst quarter fixed charge and interest coverage ratios were 3.7% and 4%, respectively.\nBoth metrics improved, as compared to the first quarter of 2019.\nConsistent with prior years, our first quarter annualized net debt-to-EBITDA did increase as G&A increased to 6.7 times.\nIt was primarily due to higher sequential G&A, cash used for our stock repurchase, and this is partially offset by nice proceeds from the sale of our non-core asset not included in our 2020 business plan.\nLooking at 2020 guidance, as Jerry outlined earlier, we're reducing the midpoint of our guidance by $0.05 per share.\nThe combined $5 million reduction in spec revenue is $0.03 per share.\nIn light of the increased economic concerns from our tenants, we increased our forecasted reserves by $0.02 per share.\nWe did that on a general basis, so not included in our revised same-store for now.\nThe non-core asset sale in the first quarter also including the JV in the fourth quarter, which we didn't adjust guidance for, is about a $0.01 a share.\nWe anticipate similar leasing slides at MAP, our JV, where we're 50% owner, and some slides as well at 4040, which did open -- get its CO in February of this year.\nIn addition to that, we believe our parking and FMC operations will be negatively affected in the near-term, and we're putting a tiny share for that reduction, and then the reduction to partially offset that is the buyback which is $0.03 accretive.\nLooking forward to the second quarter of 2020, we have the following general assumptions.\nPortfolio level operating expenses will total about $80 million.\nThis will be sequentially $3.3 million below the first quarter, primarily due to the $1.8 million increase in some operating expenses, its timing of R&M, $600,000 due to the loss GAAP income for the non-core asset sale that was there in the first quarter, not there in the second quarter, and $1 million due to March move out of SHI, Barton Skyway, and the lower hotel revenue that we expect to happen in AKA.\nFFO contribution from unconsolidated joint ventures will total $2 million for the first [Phonetic] quarter, which is down $700,000, primarily do the MAP and bringing in 4040 online which will incur some initial start-up losses.\nFor the full year the FFO contribution is estimated to be $9.5 million.\nG&A, our second quarter G&A expense will be $8.5 million, very similar to first quarter.\nFull year G&A expense will total about $32 million.\nInterest expense will be $21 million for the second quarter with 95.3% of our balance sheet debt being fixed rate.\nCapitalized interest will approximate $1 million and full year interest expense is approximately $82 million.\nCapitalized interest will continue to approximate $3.2 million for the year as we continue building 405 Colorado.\nWe extended our mortgage at Two Logan Square for an additional maturity date from May 1 to August 1.\nThat mortgage payoff is about $80 million at a 3.98% rate.\nThis loan is very well covered based on the current NOI that's in place which has grown overtime, and we're considering an extension or a refinance of that loan.\nTermination, other income, we anticipate termination fee and other income to be $2.5 million for the second quarter and $11.5 million for the year.\nNet management leasing and development fees, quarterly NOI will be $2 million, that will approximately $8 million for the quarter.\nLand sales and tax provision will net to zero.\nOur buyback activity as Jerry mentioned, we executed on a stock buyback in March of 2020, at excellent economic terms and then implied 8% cash dividend yield.\nSince the shares were purchased late in the quarter, the weighted average share count did not have any impact on our first quarter results.\nIn addition, the weighted average share count for the year will be reduced to about $174 million, and for the second quarter will be roughly $172 million as our weighted average share count.\nWe have no anticipated ATM or additional share buyback activity in our plan.\nFor investments, we have no other incremental sales activity in our plan.\nOn the acquisition side, we do have the Radnor land purchase, which did occur this quarter.\nAnd we still have the only -- the building acquisition at 250 King of Prussia Road for roughly $20 million.\nAnd that will be bought later in the year and that will go into redevelopment, so no earnings increase or NOI in 2020.\nAs outlined, we took a hard look at our capital spend and have reduced 2020 capital by $50 million.\nWhile we reduced our earnings, we have saved on the capital for 1676.\nThe reduced development capital is based on only one development start and 3000 market being our only development start, and that will have just lower the amount of prospective capital we had on the other two development starts.\nBased on above, our CAD range will remain at 71% to 78%, as the lower capital may be offset by deferred rent that will be repaid in 2020.\nUses are outlined as on Page 12.\nWe have $91 million of development capital, that's being spent.\nWe have common dividends of $97 million.\nRevenue maintain of $36 million.\nAnd then we have a $40 million of revenue create.\nAnd then $6 million of mortgage amortization.\nLoan pay off if we do it is $80 million and the acquisition of a King of Prussia Road.\nPrimary sources will be cash flow after interest of $182 million.\nLine use of $150 million, which would bring us up to the $200 million we've projected, and cash on hand of a $33 million, and some land sales that we still expect to have happen later in the year.\nBased on this capital plan, we would have $200 million outstanding on our line, or a $120 million if we refinance the mortgage.\nWe projected our net debt-to-EBITDA will range between 6.3 times and 6.5 times.\nSo it's a little higher than where it's been, where our range had previously been, 6.1 times to 6.3 times.\nThe main reason is the leasing slides that have been talked about, a lot of those affect EBITDA in the fourth quarter.\nWhen you annualize that EBITDA, it results in a higher net debt-to-EBITDA.\nThe lower capital spend offsets the share buybacks, so that's not affecting it.\nIn addition, our debt to GAV will approximately be 43%.\nAs Jerry mentioned, we have a well-covered dividend, both from FFO and AFFO metric of 54% and 70%, respectively.\nIn addition, we anticipate our fixed charge ratio will continue to approximate 3.7 times and our interest coverage to approximate 4.1 times.\nWe're sorry, we ran a few minutes over our normal time in our prepared comments, but that was important to frame out the thought process and the new business plan.\nAnd as we always do, we'd ask that in the interest of time, you limit yourself to one question and a follow-up.",
        "summary": "sees fy 2020 ffo per share $1.37 to $1.45 .\nq1 ffo per share $0.35."
    },
    {
        "text": "Our first quarter net income totaled $6.8 million or $0.04 per diluted share and FFO totaled 60.2 million or $0.35 per diluted share and in line with consensus estimates.\nSome general observations for the first quarter.\nWhile the results were in line, we did have a number of moving pieces in several variances to up to our fourth quarter guidance.\nPortfolio operating income totaled about 68.5 million and was below our fourth quarter estimate.\nThe main reasons for that was lower parking revenue as work guidelines restricted people coming back to work and recommended working from home.\nResidential was below our expectations.\nOur operations, primarily FMC, remains soft, primarily from the results of both UPenn and Drexel being primarily virtual.\nAlso snow, we had some snow removal costs that were above-forecast.\nWhile we do get very good recovery, we do experience higher -- we did experience higher net operating costs.\nTermination and other income totaled 2.1 million or 1 million -- 1.9 million below our fourth quarter guidance.\nThe results were never -- were negatively impacted by one transaction that we anticipated to be classified in other income was actually recorded as a reduction to G&A expense.\nLand gain and tax provision totaled about $2 million or $1.5 million above our fourth quarter guidance.\nWe recorded a land gain associated with our contribution of our interest to the Schuylkill Yards West joint venture and that was not forecasted.\nWe had a forecasted land gain of $0.5 million that didn't occur and it was delayed and will now we anticipate occurring in the second quarter.\nG&A expense totaled 6.6 or 1.4 million below our $8 million fourth-quarter guidance.\nDecrease was primarily due to the reduction in our other income guidance, which I just mentioned, and that was partially offset by higher professional fees at year-end.\nFFO contribution from our unconsolidated joint ventures totaled $6.3 million, slightly below our fourth quarter guidance.\nAnd our cash and GAAP same-store yields, as Jerry mentioned, came in below our targeted range, partially due to a tenant move-out in the suburbs, but also due to the reduced parking.\nThat tenant has been backfilled and will take occupancy later this year.\nOur first quarter fixed charge and interest coverage ratios were 4.1 and 3.8 times respectively.\nBoth metrics remain consistent with the fourth quarter.\nOur first quarter annualized net debt-EBITDA increased to 6.5 and is above our current 6.1to 6.3 range, and the increase is due to lower NOI, sequential NOI from the fourth quarter.\nWe do expect this metric to improve with increasing NOI during the second half of the year.\nAs far as other reporting items, Jerry did mention collections has been excellent at roughly 99%.\nLess than 100% of deferrals was in our results for the first quarter.\nPortfolio changes 2340 Dulles Corner, as previously discussed, with Northrop move out, we have placed this property into redevelopment.\nAnd we will include it on our redevelopment page in the second quarter supplement as we complete our final plans and underwriting.\n905 Broadmoor, with the expiration of the IBM lease, we have taken this building out of service and it will be demolished at a future date as part of our overall Broadmoor Master Plan.\nAs a result of that, we did have Broadmoor taken out of our same-store and leasing statistics as of 1-1 of this year.\nWe have some general assumptions.\nPortfolio operating income will be about $68 million.\nIt will be sequentially flat from the first quarter while primarily due to lower occupancy -- operating expenses including snow, which will be offset by the Broadmoor building being taken out of service.\nFFO contribution from our unconsolidated joint ventures will total $5.5 million for the second quarter.\n1.3 sequential decrease primarily due to some leasing at Commerce Square and our MAP joint venture.\nOur second quarter G&A expense will total 6.0 -- will increase from $6.6 million to $8.2 million.\nThe sequential increase is primarily due to the one-time first quarter decrease.\nInterest expense will approximate $16 million and capitalized interest will approximate $1.7 million.\nTermination fee and other income will total about $1 million for the second quarter.\nNet management and leasing and development fees will be about $3 million.\nThe $7 million -- the $700,000 decrease from the first quarter is primarily due to the timing and volume of the leasing commission.\nIncome interest and investment income will total $1.7 million consistent with the first quarter.\nLand sale and tax provision will be about $1.1 million generating proceeds of about $12 million.\nThe '21 business plan also assumes no new property acquisition or sales activity, no anticipated ATM or share buyback activity and no finance or refinance activity.\nOur capital plan remains fairly straightforward.\nOur CAD remains unchanged at 75% to 81% range and we have -- we have 100 -- and then we have a common dividends of about 98 million, revenue maintain capital of 30 million, revenue create 35 million.\nBased on the capital plan outlined above, our line of credit balance will be approximately $132 million, leaving a 168 million of line availability.\nThe increase in our projected line of credit is partially due to the build-out and the remaining -- from last quarter, our reduced -- our increased line of credit is primarily due to the announced incubator of Cira Center.\nWe also project that net debt-EBITDA will remain at a range of 6.3 to 6.5, main variable between timing is the development activity.\nIn addition, our debt to GAV will be in the 42% to 43% range and we anticipate our fixed charge ratios will remain at 3.7 and our interest coverage around 4.\nSo the key -- the key takeaways -- our portfolio and the operational platform is really in solid shape and our team has done a really a wonderful job of getting excellent visibility into what our tenants are thinking, how they're reacting to the return to work timeline, and we're doing everything we can to aid them in that process, including, as we've mentioned on previous calls, doing a number of pro-bono space planning exercises to make sure that they have the option of kind of evaluating how they want to reconfigure their space.\nOur leasing pipeline does continue to increase as tenants start to reemerge from the work from home mentality.\nSafety and health, issued both in design and execution, are really becoming tenants top priorities.\nWe're hearing that from more and more prospects.\nAnd we really do believe that new development in our trophy level inventory will benefit from this trend.\nA good -- a good data point, as the pipeline in our development projects increased by 23% during the quarter, evidencing that real focus of flight to quality.\nAnd I think strategically, we look at our, we have some very robust forth growth drivers that remain very much on target.\nWe have two fully approved mixed use master plan sites that can double our existing inventory, diversify our revenue stream and drive significant earnings growth.\nOur planned 3 million square feet of life science at development can create a real catalyst to accelerate the overall pace of the development of Schuylkill Yards.\nWe have a very -- a very attractive CAD growth over the last five years and have created a very well covered and attractive dividend that's poised to grow as we increase earnings.\nPrivate equity is abundant and the debt markets are incredibly competitive evidenced by the 65% loan to cost of Schuylkill Yards West.\nAnd strong operating platforms like Brandywine are gaining significant traction for project level investment as evidenced by the really strong activity we had in our Broadmoor marketing campaign.\nOur partnership with Schuylkill Yards West reinforces that more and more smart investors are beginning to focus on the emerging life science market here in Philadelphia.\nAnd again, as usual we'll end where we started, which is we hope you all are doing well and you and your families are safe.\nSo with that, Sara, we're glad to open up the floor to questions.\nWe do ask that in the interest of time you limit yourself to one question and a follow-up.",
        "summary": "compname announces q1 earnings per share $0.04.\nq1 earnings per share $0.04.\nqtrly ffo $0.35 per diluted share."
    },
    {
        "text": "These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them.\nWe refer you to B&G Foods' most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition.\nBruce, will then discuss our financial results for the second quarter as well as expectations for 2021.\nWe are pleased with the company's performance in the second quarter and our prospects for the remainder of the year.\nAs we expected, the second quarter was the most challenging to lap from a comparative perspective, given that Q2 2020 occurred at the height of pantry loading and stocking during the COVID-19 pandemic.\nHowever, performance remained elevated relative to 2019.\nAs many of you know, this is my first earnings call at B&G Foods.\nI've now been in the role as CEO for about six weeks.\nSo for the folks on the line that I haven't met yet, it is a pleasure to meet you today over the phone.\nI'm certainly looking forward to meeting many of you in person over the coming months as we get back into the cadence of in-person investor conferences, industry events and trade shows.\nWhile I am mostly in listen mode for now, I will be happy to share some of my observations so far, and then come back over the coming quarters with a more detailed discussion around strategy, the portfolio as well as our opportunities and challenges at B&G Foods.\nObviously, one of the biggest drivers of industry performance over the past 1.5 years has been the COVID-19 pandemic.\nIn many cases, this is a matter of portfolio DNA, what are the brands, what are the categories, coupled with management's effectiveness in keeping employees safe, mitigating business risk, maintaining supply and maximizing opportunity.\nHere at B&G Foods, we have done a pretty good job.\nAt the height of the pandemic in Q2 last year, we generated some of the largest growth numbers in the packaged food industry.\nToday, COVID continues to be a concern in everyday life across the country and around the world.\nBut with the passage of time and the increasing proportion of the population that has been vaccinated, we expect gradual, if uneven, recovery in normal economic activity.\nWe do have opportunities coming out of the pandemic though.\nWhen I look at the consumer trends that accelerated during the pandemic, e-commerce, comfort brands, baking, cooking, enhancers, flavorings and seasonings.\nThere are lots of opportunities for the B&G portfolios at the center of these trends.\nWe clearly aren't going to match 2020's net sales on our base business, but we are a larger business than we were in 2019, driven by continued growth and interest in cooking, baking and eating at home.\nB&G's base business is up 7% on a two year stack from 2019.\nWithin the portfolio, our spices & seasonings baking and meals brands are up 20% versus Q2 2019.\nAnd specifically on spices & seasonings which is about 20% of our total company portfolio and aggregates to be the number two spices and seasonings business in the United States, net sales are up more than 20% from Q2 2019 and remains well positioned coming out of the pandemic as more consumers continue to cook more often at home.\nAlso, the spices and seasonings portfolio is about 15% to 20% foodservice, so we are also benefiting as restaurants and eating establishments reopen, and more Americans are dining out again.\nOur baking portfolio is also seeing positive trends in the post-pandemic world.\nRecent studies show that even in spring 2021, approximately 65% of consumers were baking at home at least once per week, lifting the prospects of our growing list of baking brands that includes B&G Foods stalwarts such as Brer Rabbit and Grandma's Molasses as well as more recent additions such as Clabber Girl and Crisco.\nWe will spend more time talking about Crisco, but so far after eight months of ownership, we are very encouraged by the category trends and the top line performance of this business.\nAnother significant impact coming out of the pandemic is inflation and at unprecedented levels.\nWe are seeing inflation on key cost inputs across the portfolio, particularly in many tradable commodities, packaging material and freight.\nThe impact on our base portfolio is approximately 3% to 4%, but much higher on the Crisco business where soybean oil costs have doubled from last year.\nAt B&G Foods, we identified the risks of inflation early and acted to raise prices to recover higher input costs.\nWe will see more impact from both inflationary costs and pricing moving into the P&L through Q3 and Q4, with some lag effect on the timing of pricing implementation with customers.\nFinally, I wanted to give you my perspective on B&G Foods overall and some thoughts on how we move forward.\nThis company has grown net sales and adjusted EBITDA at a greater than 10% compound annual growth rate over the last 17 years since its IPO in 2004.\nThe company was built upon a successful track record of acquisition-related growth.\nWe have successfully acquired and integrated more than 50 brands into our company since it was established in 1996.\nFor sure, some of the brands are a little old and stodgy, but many of these generate significant cash.\nMany other brands and businesses that we have acquired, including spices, baking and meals, still have incredible opportunities in front of them.\nOur goals are to continue to increase sales, profitability and cash flows through organic growth and disciplined acquisitions of complementary branded businesses.\nGoing forward, what you should expect from me is stronger focus within the portfolio on where we will grow, invest, acquire and create value.\nMuch more to come on that in future meetings and calls.\nAs Casey mentioned, we had a strong financial performance during our second quarter despite some very challenging comparables.\nA year ago at this time, we were still, for the most part, sheltering at home, had little hope of an effective vaccine in the near future and saw the majority of the away-from-home eating industry shutdown, other than a budding recovery of takeout dining that began midsummer last year.\nApril, May and June of 2020 were the peak months of COVID-19, and Americans were still eating the majority of their meals at home, creating unprecedented demand for shelf-stable and frozen packaged food products, the types of products that we sell.\nIn fact, when we reported our second quarter results last year at this time, we were discussing net sales growth that was up nearly 40% and adjusted EBITDA growth that was up nearly 45% from the prior year.\nMargins were also up significantly.\nThis year, as we lap those pandemic-enhanced results, I think it is also important to view the second quarter in the context of its comparisons to Q2 2019.\nWhile sales were lower than March, April and May months of last year, net sales finished nicely ahead of pre-pandemic levels for the quarter, and we continue to track to the mid-single-digit increases over 2019 levels that we had been talking to for some time.\nWe are seeing many of the consumer behaviors that we witnessed last year persist, driving a sustained increase in the numbers of Americans preparing their meals at home and eating at home on a daily basis.\nAs Casey said earlier, we are seeing consumers cooking, baking and eating at home more frequently than they had prepandemic.\nAnother factor worth mentioning before we get deeper into our results is inflation.\nAt the beginning of this year, when we were delivering our Q4 results and outlook for the year, we raised our concerns about inflation as the broader economy restarted, and we began to more fully adapt to the impact of COVID-19.\nI hate to use the word unprecedented too loosely, but we are certainly seeing inflation with little recent precedent.\nWhile our conversations about inflation may have seemed early at the time, it is now hard to read, watch or listen to the news without hearing about inflation.\nInflation is here, and it appears that it will likely be here for some time.\nIn some cases, that means costs are up marginally.\nAnd in other cases, particularly for tradable commodities, cost may be up as much as double digits from last year's pandemic-depressed levels.\nAt B&G Foods, we acted quickly to take price across large parts of our portfolio to help offset inflation and preserve our margin structure.\nWe have now executed list price increases in approximately 80% of the brands in our portfolio.\nWhile we were covered with many forward purchases in many cases throughout portions of the year, this mitigates the damage, but the cost increases still hurt.\nAnd while we are taking price, it largely comes with a lag effect setting up a fairly common phenomenon where the margins may be compressed a little bit more than we would like to see them in the short term, but are expected to remain fairly stable in the long term.\nWe expect these inflationary pressures to persist and that conversations about inflation and price increases will continue well into 2022.\nAnd now for the 2021 Q2 highlights.\nWe reported net sales of $464.4 million; adjusted EBITDA before COVID-19 expenses of $85 million; adjusted EBITDA of $83.8 million; and adjusted diluted earnings per share of $0.41.\nAdjusted EBITDA before COVID-19 expenses as a percentage of net sales was 18.3%.\nAdjusted EBITDA as a percentage of net sales was 18%.\nNet sales of $464.4 million were down $48.1 million or 9.4% from the peak of COVID Q2 2020, but up $93.2 million or 25.1% from pre-COVID Q2 2019.\nCrisco, which we acquired in December 2020, generated $58.4 million of net sales in Q2 2021.\nBase business net sales, which primarily exclude Crisco and approximately 1.5 months of Clabber Girl net sales, were up $26.4 million or 7.1% compared to 2019.\nAs a reminder, we acquired Clabber Girl in May 2019.\nWe continue to believe that we will see a material lift say, mid-single digits in net sales, over the levels that we experienced in 2019.\nComparisons to 2020 are obviously driven by a decline in volumes, but we are also seeing a benefit from price, which includes list price increases, trade spend optimization and a little bit of mix.\nFor the recent quarter, price/mix was a benefit of approximately $6.2 million, bringing us to approximately $12.8 million of benefit for the first two quarters combined.\nWe generated adjusted EBITDA before COVID-19 expenses of $85 million in the second quarter of 2021, a decrease of $21.9 million or 20.5%.\nDuring the second quarter of 2021, we incurred approximately $1.2 million in incremental COVID-19 costs at our manufacturing facilities, which primarily included temporary enhanced compensation for our manufacturing employees, compensation we continue to pay manufacturing employees while in quarantine and expenses related to other precautionary health and safety measures.\nWe expect to see continued reduction in these costs, which averaged about $1.5 million per month during the height of the pandemic and have averaged a little less than $0.5 million per month in the second quarter of 2021.\nInclusive of these costs, we reported adjusted EBITDA of $83.8 million, which is a decrease of $18.8 million or 18.3% compared to last year's second quarter.\nAdjusted EBITDA as a percentage of net sales was 18% in the second quarter of 2021 compared to 20% in the second quarter of 2020.\nAdjusted EBITDA as a percentage of net sales was 19.1% in the second quarter of 2019.\nAdjusted diluted earnings per share was $0.41 compared to $0.71 in Q2 2020 and $0.38 in Q2 2019.\nSpices & seasonings continues to be one of the key drivers in the portfolio.\nNet sales of our spices & seasonings including our legacy brands such as Ac'cent and Dash, and the brands we acquired in 2016 such as Tone's and Weber were approximately $99.3 million, a little bit more than 21% of our total company net sales for the quarter.\nNet sales of spices & seasonings were up by approximately $0.7 million or 0.7% compared to Q2 2020.\nNet sales of spices & seasonings were up approximately $18.1 million or 22.2% compared to Q2 2019.\nSpices & seasonings sales remain elevated across all of our brands and channels, and we are seeing a real benefit as consumers repeatedly demonstrate their interest in trying new recipes while cooking and eating at home.\nAmong our other large brands, Maple Grove Farms, which generated $20.2 million in net sales for the quarter, was up $2.2 million or 11.7% compared to Q2 2020, and up $2.4 million or 13.4% compared to Q2 2019.\nMaple Grove Farms benefited from both strong retail demand as well as a recovery in its food service business.\nOrtega generated net sales of $40.9 million and was down $5.9 million or 12.7% compared to Q2 2020, but was up $6.9 million or 20% from Q2 2019.\nOrtega is a callout brand that is still benefiting from COVID-like demand, but we are selling products as fast as we can make them, particularly taco shells, taco sauce and chili peppers.\nAnd unfortunately, due to internal and external supply chain constraints, we are still not able to capitalize fully on the demand opportunity.\nOrtega is a brand that we are very much leaning into and our operations team is working hard to expand capacity and maximize this opportunity.\nWe have a similar story with Las Palmas.\nLas Palmas generated net sales of $8.8 million, was down $3.4 million or 27.7% compared to Q2 2020, but was up $1.2 million or 15.2% compared to Q2 2019.\nSimilar to Ortega, Las Palmas was not able to fully capture the continued demand opportunity with supply constraints of chilis due to crop issues.\nCream of Wheat which has been one of our largest beneficiaries of the consumer patterns emerging from the pandemic, generated $14.2 million in net sales for the quarter.\nAnd while down $3.8 million or 20.8% from Q2 2020, Cream of Wheat was up $2.5 million or 21.9% from its pre-pandemic Q2 2019 levels.\nGreen Giant had a tough quarter that combined the most challenging COVID comparison in our portfolio with the most challenging supply chain constraints as we wait for the new vegetable pack.\nGreen Giant generated $105.7 million in net sales, down $58.4 million or down 35.6% compared to Q2 2020, and down $7.2 million or 6.4% compared to Q2 2019.\nGreen Giant will continue to face tough comparisons and supply chain constraints until the year will largely get through the pack season in the third quarter of this year.\nHowever, we do expect a strong fourth quarter once we are fully loaded on inventory.\nWe generated $111.6 million in gross profit for the second quarter of 2021 or 24% of net sales.\nGross profit was down when compared to Q2 2020 gross profit of $134.1 million or 26.2% of net sales.\nBut margins were up almost 100 basis points sequentially and when compared to Q1 2021 gross profit, which was 23.3% of net sales.\nAs we discussed earlier, we are seeing low to mid-single-digit input cost increases in our base business coupled with double-digit increases for Crisco.\nThese increases also include low- to mid-single-digit increases in factory regions, low single-digit increases in packaging and double-digit increases in freight.\nThese costs were largely offset in part by our pricing initiatives as well as an aggressive forward purchasing strategy by various cost savings initiatives in our manufacturing facilities.\nGross margin was also negatively impacted by the inclusion of Crisco in our results.\nCrisco comes with a higher depreciation rate than the base business, thus margining us down nearly 100 basis points for the quarter.\nAlthough this impact is netted out for adjusted EBITDA and adjusted EBITDA margin purposes.\nThese pressures were offset in part from a lapping of COVID-19 expenses, which were just $1.2 million for the quarter compared to $4.3 million during Q2 2020.\nSelling, general and administrative expenses were $47.1 million for the quarter or 10.1% of net sales.\nThis compares to $44.3 million or 8.7% for the prior year and 10.7% in the second quarter of 2019.\nThe dollar increase in SG&A compared to last year ago levels is almost entirely driven by a $4.6 million increase in warehousing costs, coupled with $1.9 million in incremental acquisition-related and nonrecurring expenses, which primarily relate to the acquisition and integration of the Crisco brand, as well as $0.3 million in increased advertising and marketing spend.\nThe increase in warehousing costs was primarily driven by the Crisco acquisition and customer fines related to COVID-19 shortages and delays.\nThese costs were partially offset by decreases in selling of $2.5 million and decreases of general and administrative expenses of $1.5 million.\nAs I mentioned earlier, we generated $85 million in adjusted EBITDA before COVID-19 costs and $83.8 million in adjusted EBITDA in the second quarter of 2021.\nThis compares to adjusted EBITDA of $102.6 million in Q2 2020 and $71 million in Q2 2019.\nInterest expense was $26.7 million compared to $24.8 million in the second quarter last year.\nThe primary driver of the increase in interest expense was the acquisition of Crisco.\nAs a reminder, we financed the entire $550 million acquisition price with debt, a combination of revolver draw and new term loan.\nThe revolver currently costs us a little less than 2% in interest and the term loan a little bit less than 2.75% in interest.\nDepreciation and amortization are also up year-over-year, driven primarily by Crisco.\nDepreciation expense was $14.8 million in the second quarter of 2021 compared to $10.6 million in last year's second quarter.\nAmortization expense was $5.4 million in the second quarter of 2021 compared to $4.7 million in last year's second quarter.\nWe are still expecting an effective tax rate of approximately 26% for the year, but taxes were a little higher than that in this year's second quarter due to some discrete tax events at an effective rate of 26.8% for the quarter compared to 26.2% in last year's second quarter.\nWe generated $0.41 in adjusted diluted earnings per share in the second quarter of 2021 compared to $0.71 per share in Q2 2020 and $0.38 per share in Q1 2019.\nWe remain encouraged by these trends.\nDespite the tough comparisons against 2020, and the continuing challenges of COVID, we still expect to achieve company record net sales for the year, reflecting a mid- to high single-digit increase in the base business net sales compared to 2019 and coupled with the addition of Crisco, in line with the $2.05 billion to $2.1 billion net sales guidance that we provided in March.\nAnd despite the continued inflationary pressures that we face, we are continuing to target the 18%-plus adjusted EBITDA margins that we have generated in recent years.\nHowever, because we are not fully able to estimate the impact of COVID-19 cost inflation and our cost inflation mitigation efforts will have on our results for the remainder of fiscal 2021, we are unable at this time to provide more detailed earnings guidance for the full year of fiscal 2021.\nA couple of quick callouts from a modeling perspective.\nAs I mentioned earlier, interest expense, depreciation and amortization are continuing to trend higher than last year as a result of the Crisco acquisition.\nWe expect full year interest expense of $105 million to $110 million including cash interest expense of $100 million to $105 million; depreciation expense of $60 million to $62 million; amortization expense of $21 million to $22 million; and an effective tax rate of approximately 26% for the full year.\nFinally, as a reminder, last year's third quarter included an extra week as a result of our 53rd week during the fiscal calendar of 2020.\nAt the time, we estimated that the extra week was worth approximately $35 million in extra net sales.\nAs I said at the beginning of the call, we had a fairly strong quarter despite lapping Q2 2020, which benefited from peak COVID-19 demand.\nThe quarter played out pretty much as management expected.\nAnd the company remains on track to deliver the mid- to high single-digit growth ahead of 2019 that is set as a target for this year.\nI am digging in and enjoying my early days at B&G Foods, and I look forward to sharing more of my perspectives on the company's performance, strategy and portfolio in the time ahead.\nThis concludes our remarks, and now we would like to begin the Q&A portion of our call.",
        "summary": "b&g foods q2 adjusted earnings per share $0.41.\nq2 adjusted earnings per share $0.41.\nq2 earnings per share $0.38.\nq2 sales $464.4 million versus refinitiv ibes estimate of $444.5 million.\nreaffirmed its net sales guidance for full year fiscal 2021."
    },
    {
        "text": "It would be a gross understatement to say that 2020 was a year like no other year.\nCOVID-19 brought an incredible amount of suffering, inconvenience and unfortunately death with it.\nIt's humbling that our company benefited from such a tragedy and at the same time it's a tribute to our employees working in the midst of the pandemic and dealing with our own issues caused by it that we were able to respond as well as we did to the increased needs of consumers as they cope with COVID and the resulting quarantine.\nBruce will go through the financial details in a moment, but the headlines for the year are that net sales increased 18.5% to $1.968 billion and adjusted EBITDA increased 19.4% to $361.2 million.\nThis remarkable increase slowed temporarily in the fourth quarter and I will discuss the factors lead me to use the word temporarily.\nAs Dave just discussed, we generated unprecedented financial results during fiscal 2020.\nDelivering company record net sales, adjusted EBITDA, and adjusted diluted earnings per share for the year.\nWe reported net sales of $1.968 billion in fiscal 2020, an increase of $307.5 million or 18.5% compared to the prior year.\nFiscal 2020 net sales included approximately $27.8 million in net sales from our acquisition of Crisco.\nCrisco closed on December 1, 2020, providing with a full month of net sales.\nWe generated adjusted EBITDA before COVID-19 expenses of $374.8 million in fiscal 2020, an increase of $72.3 million or 23.9%.\nDuring 2020 we incurred approximately $13.5 million in incremental COVID-19 costs at our manufacturing facilities, which primarily included temporary enhanced compensation for our manufacturing employees, compensation we continue to pay manufacturing employees while in quarantine and expenses related to other precautionary health and safety measures.\nInclusive of these costs, we reported adjusted EBITDA of $361.2 million, which is an increase of $58.7 million or 19.4% compared to last year.\nAdjusted EBITDA before COVID-19 expenses as a percentage of net sales was 19% in fiscal 2020.\nAdjusted EBITDA as a percentage of net sales after including approximately $13.5 million in COVID-19 costs incurred during the year was 18.4%.\nAdjusted EBITDA as a percentage of net sales was 18.2% in fiscal 2019.\nWe reported net sales of $510.2 million in the fourth quarter, an increase of $40 million or 8.5%.\nFourth quarter 2020 net sales included approximately $27.8 million in net sales from our acquisition of Crisco.\nWe generated adjusted EBITDA before COVID-19 expenses of $77.6 million in the fourth quarter, an increase of $8.1 million or 11.7%.\nDuring the fourth quarter of fiscal 2020, we incurred approximately $4.3 million in incremental COVID-19 expenses at our manufacturing facilities.\nAs a result we reported adjusted EBITDA of $73.3 million in the fourth quarter, an increase of $3.8 million or 5.6%, from $69.5 million in the prior year period.\nWe reported $2.26 adjusted diluted earnings per share in fiscal 2020, an increase of $0.62 per share or 37.8% compared to the prior year.\nWe reported $0.35 in adjusted diluted earnings per share in the fourth quarter of fiscal 2020, an increase of $0.07 per share or 25% compared to the prior year.\nFiscal 2020 net sales increased by $307.5 million, which included an increase in base business net sales of $244.5 million and an increase in net sales from acquisitions of $63 million.\nOf the $244.5 million increase in base business net sales, $209.8 million was attributable to increased base business volume.\nOf the $63 million of net sales from acquisitions, $33.7 million was attributable to an additional seven and one-half months of Clabber Girl net sales in fiscal 2020 and $27.8 million was attributable to one month of Crisco net sales.\nFiscal 2020 base business net sales also benefited from $35.8 million in net pricing, inclusive of our spring 2019 list price increase, our 2019 trade spend optimization program as well as the impact of COVID-19, which resulted in lower than average daily trade promotions during the height of the pandemic.\nKeep in mind that our pricing calculation also includes an element of favorable mix as we saw less spices in the foodservice channel, which tend to be priced at a lower margin.\nFX was a drag on net sales of a little bit more than $1 million for the year.\nWe estimate that the extra reporting week in fiscal 2020, which occurred in the third quarter contributed approximately $35 million to our net sales.\nLeading our brand performance was Green Giant, which reached approximately $639 million in net sales during fiscal 2020, marking an increase of $112.2 million or 21.3% for the year.\nGreen Giant outperformance was largely led by shelf-stable with Green Giant Le Sueur shelf-stable net sales up by approximately $64.8 million or 39.7% for the year.\nGreen Giant shelf-stable had COVID-19 enhanced sales that led to extraordinary performance that began in the second half of March and carried through to the end of the third quarter.\nAs we hit the fourth quarter, we began to manage sales closely through the implementation of certain customer allocations to ensure there we had sufficient product to last us until this summer's pack season.\nAs a result, Green Giant shelf-stable net sales were flat in the fourth quarter, despite elevated demand and double-digit consumption trends that persist today.\nNet sales of Green Giant frozen products were up double digits for the year, plus $47.4 million or 13.1%.\nAmong our other larger brands, Cream of Wheat had one of the best performances in fiscal 2020, with net sales up by approximately $12.9 million or 21.6% for the year.\nCream of Wheat continue to outperform in the fourth quarter with net sales up by $2.7 million or 16.1% compared to the prior year period.\nClabber Girl also had very strong performance as part of what we believe will be a lasting resurgence in baking.\nNet sales of Clabber Girl products were up by approximately $10.2 million or 18.9% during the comparable period of time that we owned it, following the mid May 2019 acquisition.\nWe have been very pleased with the performance of Clabber Girl business which generated approximately $97.5 million in net sales during our first full year of ownership compared to our expectations at the time of acquisition of approximately $75 million of net sales.\nNet sales of Clabber Girl were up by approximately $2.5 million or almost 10% in the fourth quarter compared to the year-ago period.\nNet sales of Ortega were also up double digits during fiscal 2020 with an increase of $17.9 million or 12.7% compared to the prior year.\nSupply chain constraints, driven by industry wide taco shell capacity constraints, limited the upside for the fourth quarter.\nAnd as a result while our net sales growth was impressive with a $2.5 million increase or 7.3% compared to the prior year period, we could have done much more had we add incremental product supply.\nVictoria was also one of the larger gainers in the portfolio, increasing net sales in fiscal 2020 by $11.3 million or 26.4% compared to the prior year.\nNet sales of Victoria reached nearly $55 million in 2020.\nWhile consumption remains strong throughout the year, net sales dropped approximately $0.6 million dollars or 4.7% in the fourth quarter, primarily due to the timing shift of a large promotional event with one of our key club customers that moved from fourth quarter 2019 to the third quarter 2020.\nNet sales of Maple Grove Farms were up by approximately $6.1 million or 8.7%, impressive performance given that a substantial portion of Maple Grove Farms business is sold through the foodservice channel, which went dark for a significant portion of the year.\nFourth quarter performance showed nice improvement as well, with net sales up $2.1 million or 12.2%, driven by continued strong consumption trends and an improvement in the foodservice side of the business.\nOur spices & seasonings, including our legacy brands such as Ac'cent and Dash and the brands we acquired in 2016, such as Tones and Weber were up by $30.9 million or 9.2% for the year.\nNet sales of spices & seasonings reached $367.7 million in fiscal 2020.\nThe retail side of this business began to show strong momentum by June as more and more Americans began to fully embrace cooking and seasoning their meals at home, a trend which continues in 2021.\nThe foodservice side of the business continues to be down, but it's slowly improving.\nIn the fourth quarter net sales of our spices & seasonings increased by $2.1 million or 2.4%.\nDespite the outsized performance for the year, our spices & seasonings could have increased even more even with a drag from foodservice had we had incremental supply.\nAmong our other larger brands, New York Style had challenges both in foodservice and to a lesser degree in the retail deli.\nNet sales of New York Style were down $1.8 million, 4.5% for fiscal 2020 compared to the prior year.\nGross profit was $481.7 million for fiscal 2020, or 24.5% of net sales.\nExcluding the negative impact of approximately $5 million of acquisition divestiture-related expenses, the amortization of acquisition-related inventory fair value step-up and non-recurring event -- expenses included in the cost of goods sold, our gross profit would have been $486.7 million, or 24.7% of net sales.\nGross profit was $383.1 million for fiscal 2019 or 23.1% of net sales.\nExcluding the negative impact of approximately $22 million of acquisition divestiture-related expenses, amortization of acquisition-related inventory fair value step-up and non-recurring expenses included in cost of goods sold our gross profit would have been $405.1 million, for 24.4% of net sales.\nOutside of COVID-19 related expenses, including those described previously at our factories and those from our co-packers, inflation remained somewhat benign throughout a significant portion of 2020.\nHowever, we did begin to see inflation starting late in the third quarter and accelerated into the fourth quarter particularly for freight costs, certain agricultural products and other ingredient costs and packaging.\nI will discuss inflation a little bit more in our 2021 outlook, but we expect to see inflationary pressures continue in the coming months and we are working to alleviate these pressures in our 2021 budget.\nSelling, general and administrative expenses for the year were $186.2 million or 9.5% of net sales.\nThis compares favorably to the prior year as a percentage of net sales, which included $160.7 million in selling, general and administrative expenses or 9.7% of fiscal 2019 net sales.\nThe dollar increase in SG&A was composed of increases in selling expenses of $8.2 million, increases in consumer marketing investments of $7.7 million, increases of warehousing expenses of $2 million and increases in G&A of $10.7 million.\nIncreases in SG&A including increases in selling, brokerage, and incentive compensation that are tied to increased sales and profitability.\nThese increases were offset in part by a reduction in acquisition divestiture-related and non-recurring expenses of $3.1 million.\nAs I mentioned earlier, we generated $374.8 million in adjusted EBITDA before COVID-19 expenses and after the inclusion of $13.5 million in COVID-19 expenses, adjusted EBITDA of $361.2 million.\nThis compares to adjusted EBITDA of $302.5 million in 2019.\nWe generated $2.26 in adjusted diluted earnings per share in fiscal 2020 compared to $1.64 per share in 2019.\nThe increase was primarily driven by volumes, including COVID-19 driven demand for our products as well as the acquisitions of Clabber Girl in mid May 2019 and Crisco in December 2020.\nAdjusted diluted earnings per share were also positively driven by increased adjusted EBITDA margins despite the impact of COVID-19 costs due to the benefits of our increased sales as well as lower effective cost of borrowing.\nWe had another strong year for cash, with net cash provided by operating activities of $281.5 million, which more than supported our long-standing dividend policy and helped us reduce our net debt before taking into account debt incurred to finance the Crisco acquisition and our pro forma net leverage.\nAs a reminder, we began the year with net debt to pro forma adjusted EBITDA of approximately 6.12 times, we reached nearly 4.75 times at the end of the third quarter and finished the year with pro forma net debt to adjusted EBITDA before COVID-19 expenses of approximately 5.21 times, which is our consolidated leverage ratio as calculated for purposes of our credit agreement.\nOur increase in net cash provided by operating activities allowed us to reduce net debt by approximately $135 million over the course of the year, excluding our acquisition of Crisco.\nOur 2021 outlook includes an expectation for elevated net sales of our products in the early month, driven by consumption that has remained over 10% higher than pre-pandemic levels on a blended basis across the B&G Foods portfolio for nearly every week of the last 11 months.\nWe don't expect to exceed our net sales for March, April or May 2020 when there is a surge in sales driven more by pantry loading than by consumption.\nOur current year is off to a tremendous start, as we have strong expectations for fiscal 2021, especially when compared to 2019.\nAs a result of the challenges faced while trying to forecast COVID-19, we are not able to provide a detailed financial forecast at this time.\nHowever, what I can say is that we expect to generate company record net sales of $2.05 billion to $2.1 billion in 2021 inclusive of the full benefit of a full year of the Crisco acquisition.\nWe do expect 2021 to bring us a different set of challenges than we faced in 2020 and these challenges will include a return of inflation across a number of key input costs, including certain agricultural products, packaging, and freight as mentioned earlier.\nAs in prior years, our expectation is that we will manage these costs through a combination of pricing, initiatives, and cost savings activities to preserve our margin profile and our cash flows.\nAs you can see in those numbers the great majority of our brands grew in fiscal 2020, some substantially because of the dramatic effects of COVID on consumer buying and dining patterns.\nE-commerce was a growing driver of those trends and we invested during the year to follow consumers as they bought more through various online means and we saw sales through those means of buying grow in return.\nAlthough there is no precise way to measure this, using IRI and other data sources, we believe that our online sales grew by roughly 150%, albeit from a relatively modest base.\nWe expect that trend to continue in 2021 and are investing further in building out our online presence and to marketing with various retailers on their site, so that we can be at the forefront of this new way of selling.\nOur business also benefited from the low concentration of sales in the foodservice channel versus retail.\nBefore COVID, roughly 13% of our net sales were to foodservice customers.\nIn 2020 that number decreased to 9% as foodservice sales softened and retail sales grew.\nWe are seeing modest recovery in the channel and expected to strengthen as the year progresses.\nBut in general, declines in brands such as Regina and softness in Wright's New York Style, and Maple Grove are the result of higher proportion of their sales to foodservice.\nSeveral other trends in our business in 2020 are encouraging as we move forward into 2021.\nHousehold penetration of B&G Foods brands grew by 900 basis points and the average sale of B&G products per purchase grew by 25%.\nAs we expand our digital capabilities, we're able to track the consumers involved in these trends and invest more specifically in reinforcing their purchases.\nOur consumption trends consistently showed double-digit increases that placed us at near or at the top of comparable food companies and those trends continue in 2021.\nWe increased our marketing spending by approximately 20% for the year last year and over 50% in the fourth quarter to reinforce those gains and speak to all consumers about our brands that are driving growth.\nDespite all the positives, the year's performance does not reflect the full potential of changes in consumer behavior.\nWe saw serious supply chain capacity issues in the second and third quarter and were unable to fully meet demand on brands that offered meal solutions such as Ortega and Bear Creek.\nSpices & seasonings sales were also affected by manufacturing capacity issues, packaging outages, and absenteeism due to COVID related quarantine.\nOur policy at our facilities has been to be very aggressive in terms of quarantine employees with pay who had any type of exposure.\nThat has paid valuable dividends in terms of employee safety, but often left the facilities short-handed and increased our costs.\nEarly on in the fourth quarter, we realized that due to crop conditions and co-packer capacity issues, the supply of Green Giant shelf-stable products would not meet the elevated demand we were seeing and place those products on allocation, resulting in relatively flat sales for the quarter.\nWe will not see meaningful relief in this area until the summer when the new crop arrives.\nSince we took that action we've seen competition take similar actions, not surprising since we were all affected by a relatively poor crop last fall.\nTurning to a closer look at the fourth quarter, it would be easy to say that the business returned to a more normal footing with base business sales up just 2.5%.\nFrankly, we don't see it that way.\nOne thing I have remarked on since returning is how closely consumption trends track the actual demand we see in the business.\nThat's more true now than it was six years ago.\nAs noted earlier, our consumption trends remain very strong.\nWhat we saw in the fourth quarter was a relatively soft November and December and in factory sales do we believe to retailer stocking up late in Q3 in anticipation of strong demand over the holiday season.\nThat demand did not materialize to the extent they anticipated and inventories had to be worked off.\nAt the back end of the quarter, there was a shift in timing of the typically soft sales week at year-end.\nIn 2019, that week fell in our financial January while in fiscal 2020 it fell at the end of December.\nThe effect is easy to illustrate January 2020, excuse me 2021 base business sales were up 35%.\nThe year-over-year difference, accounting for roughly 5% of fourth quarter net sales.\nAdjusted EBITDA for the fourth quarter was handicapped by $4.3 million in COVID related expenses that were not compensated for by increased sales and an additional spend of $4.5 million in marketing.\nGiven that we remain very optimistic about 2021.\nOur sales continue to be strong, a reflection of the consumption trends and our service levels continue to improve as we add capacity in our workforce strengthens and returns.\nWhile we are still experiencing COVID related expenses, the rate of spending is trending downward and should not be near the $13.5 million cost, we saw in the last three quarters of 2020.\nOur growth through innovation was handicapped in 2020 as retailers canceled resets and focused on maintaining inventory of existing products.\nDespite that the limited launches, we managed to do in 2020 combined with incremental sales of 2019 new products accounted for roughly 2% of our net sales, or $45 million.\nThe successful items in that group will see further expansion of the distribution in fiscal 2021 and will be joined by new product introductions and a variety of brands with special focus on Green Giant frozen and Ortega products.\n2021 will also see a full year of ownership of the iconic Crisco brand, which we acquired on December 1 and which made significant accretive contributions to our fiscal 2020 results in just one month.\nWe are integrating the brand into our company as we speak and expect to have it fully integrated by the end of the summer.\nThe brand brings with it strong sales, reinforced by COVID trends and very attractive margins.\nThe acquisition profile fits our model perfectly in terms of purchase price, financing costs, tax advantages, EBITDA margin, and free cash flow from EBITDA.\nWe believe that there are good opportunities for the brand to grow in both new distribution and new products and we will be working to execute both in 2021.\nAs Bruce mentioned, this year is not without its challenges.\nWe are seeing significant cost pressure on a variety of fronts, including transportation packaging and commodities.\nOur operations group has done a good job of protecting us where possible, but there is still exposure that we must cover.\nWe plan to do that through a combination of pricing, rationalization of trade programs and an enhanced cost reduction program.\nWe've already taken some of those actions.\nPrice increases on the Underwood brand and Green Giant shelf-stable products went into effect last month, more are necessary and will follow.\nIn my opinion cost relief on some elements of costs such as commodities is uncertain.\nThere will be significant competition for what crops get planted this year and the outcome is in doubt until the harvest this fall.\nProgress in 2020 that's well worth noting includes a heightened recognition of the corporate responsibilities of B&G Foods.\nAs we approach the threshold of $2 billion in net sales.\nThe year saw the formation of a new Corporate Social Responsibility committee at the Board of Director level.\nIts mission to direct and oversee our efforts to meet our corporate social responsibilities to our employees, customers, communities and other stakeholders.\nDuring 2020, we also adopted and published on our website a new human rights policy and a new environmental health and safety policy.\nAnd most recently, we have established an employee directed diversity equity and inclusion counsel to help understand and meet the needs of our employees, while achieving appropriate workforce diversity, equity, and inclusion throughout the company.\nWhile we have already had efforts in place on these fronts, the company has more completely formalized those efforts and is committed to increasing all of our efforts and investments.\nWhen we look at fiscal 2021 and try to estimate how we will perform.\nI have to admit that it's a major challenge.\nThe year has started off with very good momentum, but we will soon reach the sales weeks when consumers were loading their pantries in 2020 with everything and anything and we cannot expect to match those weeks.\nBut as 2020 stabilized in the third quarter and fourth quarter we saw more of the \"new normal\" trends that we think will continue and could support increased sales versus fiscal 2019.\nThere is no doubt that many people will continue to work from home for at least part of their work week.\nWe like to believe that consumers have discovered or rediscovered the satisfaction of cooking and baking at home.\nAnd the savings that they can reap from doing so.\nWe are investing to foster more baking at home, in particular, very appropriate since approximately 19% of our sales are in brands that are involved in baking.\nAnd we believe that we can retain many of the new customers who discovered our brands and will market in a traditional way and online to do so.\nAll of that leads us to estimate that we will have base business net sales that will exceed 2019 net sales by approximately 10%, with 11 months of Crisco net sales incremental to that.\nI wish I could call out fiscal 2021 with more precision in that, but we obviously are in very unchartered waters in many ways.\nWe continue to believe that our shareholders are best served by the operating model that we have had in place since we went public in 2004.\nStrived for modest organic growth in our base business of well-established brands, they are on a larger growth component via accretive acquisitions and return a meaningful proportion of free cash flow to shareholders through dividends.\nThis strategy has resulted in a net sales compound annual growth rate of 11% since our IPO in 2004 and an adjusted EBITDA CAGR of 11.9%.\nSince our IPO, B&G Foods has paid out $1.73 billion in dividends.\nWe believe that we have served our shareholders well by making those payments.\nOn average over the years, dividends have represented approximately 60% of free cash flow.\nIn 2020, that payout ratio was about 54%, lower than normal due to the remarkable surge in operating results.\nI'd like to conclude with the final shout out to our employees, all of whom have made this company successful in an extremely challenging year and in particular to the workers, who have been on the front line in our manufacturing facilities, distribution centers, and offices.\nOn a daily basis making sure we can supply the foods that consumers need.\nOther workers have made important contributions as well even while working from home, a less than ideal scenario in many cases.\nWithout all of their dedicated efforts, we could not have achieved the records that were set in fiscal 2020 or have begun 2021 with the prospect of another successful year.\nThis concludes our remarks.\nAnd now we would like to begin the Q&A portion of our call, operator?",
        "summary": "sees fy 2021 sales $2.05 billion to $2.1 billion.\nq4 sales $510.2 million versus refinitiv ibes estimate of $531.1 million.\nq4 adjusted earnings per share $0.35.\nunable at this time to provide more detailed guidance for fiscal 2021."
    },
    {
        "text": "For today's call, Jeff will begin by covering a summary of our third quarter.\nRoop will then discuss our detailed third quarter results, including a cash and balance sheet summary and fourth quarter guidance.\nJeff will wrap up with an outlook by market sector, an update on our strategic initiatives and a discussion on our midterm financial model before we conclude the call with Q&A.\nWe hope you are all staying safe and healthy during these unprecedented times.\nIn Q3, we delivered revenue of $526 million, which was up 7% sequentially from Q2, supported by strong demand in our defense, semi-cap and telco sectors and improved manufacturing productivity.\nWith improving operational efficiency, non-GAAP gross margins rebounded 170 basis points to 8.7% for the quarter.\nImproved profits and focused expense management resulted in non-GAAP earnings of $0.32 per share, which includes $1.3 million or $0.04 per share of COVID-related costs.\nWe believe COVID costs are a part of the new operating normal.\nAnd while we believe they will decline to some degree from current levels, they will likely not completely go away.\nAfter a challenging couple of quarters, I'm pleased to report that our manufacturing and engineering services operations have essentially returned to pre-COVID productivity levels, which has supported our improved results for Q3.\nThis has not been without an incredible amount of work from our COVID task force and our entire employee population to maintain stringent protocols to ensure we keep our workplace safe and healthy, which remains a top priority.\nOur cash conversion cycle for the quarter improved to 81 days from 84 days in Q2.\nAs I've mentioned previously, our go-to-market team continues to deliver exciting opportunities aligned to our complex and focused services and solutions that utilize the full breadth of the One Benchmark capabilities.\nAnd we had another strong quarter of bookings in Q3, where we awarded business that should represent over $200 million of future engineering and manufacturing revenue.\nIn the medical sector, we were awarded a new program for a lab-free rapid COVID-19 testing device from DnaNudge that has begun production in our Netherlands facility.\nWe are excited to partner with DnaNudge to provide DFX support and high reliability manufacturing for what has turned out to be a very swift product ramp.\nWe also had design and manufacturing process wins with two other companies for a pulmonary treatment device and an optical diagnostic product for renal applications.\nIn the defense vertical, we were awarded new programs for secure communication radio modules that incorporate our design solutions and manufacturing services for electronics that will be deployed in military aircraft.\nIn industrials, we were awarded the full system box build for a LiDAR application, and we were awarded manufacturing for a new generation of oscilloscopes.\nIn computing, we were awarded a new prototype for a hyperscale computing customer and a new outsourcing award from an existing customer supporting network control and monitoring electronics.\nOur new business pipeline continues to be strong across our targeted sectors and subsectors, and we remain very encouraged about the prospect for continued wins, where the outsourcing environment for both engineering and manufacturing projects remains favorable.\nI hope everyone and their families continue to stay safe and healthy.\nTotal Benchmark revenue was $526 million in Q3, a 7% increase on a sequential basis.\nMedical revenues for the third quarter were flat sequentially as expected from moderating demand for products involved in COVID-19 therapies, such as ventilators, x-rays and ultrasound devices.\nNew product demand is shifting more toward diagnostic devices, such as DnaNudge's diagnostic box, which we were awarded in Q3.\nSemi-cap revenues were up 14% in the third quarter and up 45% year-over-year from continued strong demand across our semi-cap customers.\nA&D revenues for the third quarter increased 18% sequentially due to strong defense demand in surveillance, connectivity, encryption and digital subsystems and from new program wins.\nConversely, commercial aerospace demand, which was 30% of 2019 revenues, remain muted and declined on certain platforms during the quarter.\nIndustrial revenues for the third quarter were flat sequentially from continued softness for products in the oil and gas industry, which was approximately 20% of our 2019 revenue.\nIn addition, demand remains muted for customers that support commercial building infrastructure and transportation markets.\nOverall, the higher value markets represented 81% of our third quarter revenue.\nIn the traditional markets, computing revenues were flat sequentially from stable demand in high-performance computing and data center storage products.\nTelco was up 16% from Q2 with improved demand in commercial satellite and network infrastructure products.\nOur traditional markets represented 19% of third quarter revenues.\nOur top 10 customers represented 42% of sales in the third quarter.\nOur GAAP earnings per share for the quarter was $0.16.\nOur GAAP results included restructuring and other onetime costs totaling $7.2 million.\n$6.3 million of these costs are related to the impairment of assets and severance and other items related to the decision to exit a certain line of business in our A&D sector related to turbine machining.\nThe remaining $900,000 of restructuring and other onetime costs are due to various restructuring activities around our sites.\n$1.6 million insurance recovery related to our Q4 2019 ransomware event.\nTo date, we have recovered $6.6 million.\nTurning to slide eight.\nFor Q3, our non-GAAP gross margin was 8.7%, a 170 basis point sequential increase.\nDuring the quarter, gross margin was positively impacted by higher revenues, which enabled improved leverage across our cost structure, increased productivity across our sites and lower sequential COVID-19-related costs.\nWe estimate that we incurred approximately $1.3 million or approximately $0.04 per share of COVID costs in the quarter versus $3.4 million in Q2.\nOur SG&A was $29.7 million, an increase of $1.2 million sequentially and a decrease of $1.2 million year-over-year.\nWe expect that our SG&A costs will be relatively flat sequentially between Q3 and Q4.\nOperating margin was 3%, an increase from 1.2% in Q2 due to the higher revenue and increased gross margin.\nIn Q3, our non-GAAP effective tax rate was 18.6%, which was lower than expected as a result of the insurance recovery reported in Q3 and the distribution of profits around the globe.\nNon-GAAP earnings per share was $0.32 for the quarter.\nNon-GAAP ROIC was 5.8%.\nOur non-GAAP earnings per share improved sequentially based on our improved operational performance, lower net interest expense and lower tax rate.\nOur cash balance was $335 million at September 30, with $161 million available in the U.S.\nWe continue to have a strong capital structure, and our liquidity position provides flexibility to manage our business to support our future strategy.\nWe generated $6 million in cash flow from operations and used $6 million for capital expenditures.\nOur accounts receivable balance was $306 million, an increase of $4 million from the prior quarter.\nContract assets were $161 million at September 30 and $154 million at June 30.\nPayables were down $22 million quarter-over-quarter.\nInventory at September 30 was $353 million, down $11 million sequentially.\nTurning to slide 10 to review our cash conversion cycle.\nOur cash conversion cycle days were 81.\nAccounts receivable days improved three days.\nInventory days improved six days, and customer deposits improved by one day to help support an overall sequential improvement of three days.\nTurning to slide 11 for our capital allocation update.\nIn Q3, we continue to pay a quarterly cash dividend of approximately $5.8 million.\nWe expect to continue the recurring quarterly cash dividend.\nThere were no share repurchases in Q3.\nWe will consider restarting share repurchases opportunistically in Q4.\nTurning to slide 12 for a review of our fourth quarter 2020 guidance.\nWe expect revenue to range from $500 million to $540 million.\nWe expect that our gross margins will be 9% to 9.1% for Q4, and SG&A will range between $29 million to $30 million.\nThis range contemplates the SG&A cost reductions that Jeff will review further in his following comments, the continued reduced travel offset by the reestablishment of certain employee salaries that have been temporarily reduced.\nImplied in our guidance is a 3.3% to 3.5% operating margin range for modeling purposes.\nThe guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs.\nWe expect to incur restructuring and other nonrecurring costs in Q4 of approximately $2.8 to $3.2 million.\nOur non-GAAP diluted earnings per share is expected to be in the range of $0.32 to $0.36 or a midpoint of $0.34.\nWe estimate that we will generate approximately $45 million to $50 million cash flow from operations for fiscal year 2020.\ncapex for the year will be approximately $32 million to $38 million as we prioritize investments to support our new customers and expand our production capacity for future growth.\nOther expenses net is expected to be $2.7 million, which is primarily interest expense related to our outstanding debt.\nWe expect that for Q4, our non-GAAP effective tax rate will be between 18% to 20% because of the distribution of income around our global network.\nThe expected weighted average shares for Q4 are 36.5 million.\nThis guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base, operations or customers.\nGuidance also assumes no material changes to end market conditions due to COVID-19.\nFollowing Roop's comments on our guidance for the fourth quarter, I wanted to provide additional color on our view of demand by sector, shown on slide 14.\nOverall, for the fourth quarter, we expect increased revenues from stronger demand and new programs in defense, industrials and telco to offset anticipated declines in medical as we pivot manufacturing from COVID-19-related therapeutic equipment to diagnostic, trauma and elective surgical devices.\nThe resulting Q4 revenue should be in line with Q3 levels.\nWe do not expect a seasonal uptrend in Q4 this year as customers are more cautious on increasing their demand signals given the economic and geopolitical environment.\nNow turning to the medical sector.\nDuring the first half of this year, we saw demand reductions in our core medical products in the cardiac, renal and orthopedic markets associated with trauma and elective surgeries as many of our existing customers and new customers reallocated their manufacturing and sales capacity in the fight against COVID.\nAs reported, one of the existing key cardiac customers, ZOLL Medical, enlisted Benchmark to support a rapid ramp of manufacturing capability to support ventilator production.\nIn the fourth quarter, we see declining demand for COVID-19 therapy devices, but the corresponding demand recovery for our non-COVID products isn't expected to start until first half of next year.\nThis anticipated recovery, along with new medical programs, gives us confidence that next year will be another growth year for the medical sector.\nIn semi-cap, after a stronger-than-expected increase in Q3, demand remained stable for semiconductor capital equipment in Q4.\nWe remain well positioned in this sector with our advanced precision machining and electronics manufacturing and further demand outlook.\nThis sector is expected to remain strong as the semiconductor capital equipment index is predicting another growth year in 2021.\nMoving to the A&D sector outlook.\nOur aerospace and defense sector is comprised of approximately 70% defense-related products and 30% commercial aerospace offerings based on 2019 revenue levels.\nDefense demand across the portfolio remained strong in Q4 as we support many funded programs across the United States Armed Forces.\nWe are anticipating that our commercial aircraft programs, which have declined significantly in first half '20, have a limited demand recovery in Q4 and in fiscal year 2021.\nAs Roop mentioned earlier, we have not seen an uptick in orders in industrials for oil and gas and the building and transportation infrastructure markets, where many large projects continue to be delayed.\nDespite soft demand, we do expect an overall increase in industrials in Q4 for new programs and an increased number of global engineering services projects.\nOverall, we see stable demand across our computing and telco customer base.\nHigh-performance computing projects are in flight as expected in the second half but are being offset to some degree with the persistent weakness in higher-value enterprise applications as the remote work trend continues.\nIn telco, network infrastructure product demand across a number of our customers remain strong from the continued need for greater bandwidth for data services.\nAfter a nice rebound in Q3, demand from our commercial satellite customers remained stable in Q4.\nAs Roop shared in our guidance, with this revenue and sector mix forecast, we remain on track to achieve at least 9% gross margins in Q4.\nWe continue to make steady progress on our key strategic initiatives that we laid out for 2020.\nMy staff and I review progress regularly, and we share updates with our extended teams to ensure all of Benchmark is focused on a common set of goals.\nFirst, customer focus is a top priority at Benchmark.\nWe are working as an organization using customer feedback to find ways to optimize our engagement model and make it easier to do business with our organization.\nThis attention, coupled with operational performance, are the cornerstones for customer satisfaction, which I'm happy to report remains at a high level.\nWith many of our growth and strategic accounts, we are building deliberate long-term technology road maps and business relationships to help inform how we can invest in and be more valuable to our customers in the future.\nThis customer-centric approach is an important foundation in growing our business.\nIn our sector strategies, we have a keen focus on selecting the vertical submarkets most aligned to our value proposition.\nOur objective within these markets is to expand and scale with strategic customers by selecting the full breadth of services and capabilities.\nThis includes focused investment in technology innovations that differentiate Benchmark against other competitors and even against prospective customers' internal manufacturing to increase our win rates.\nThis thesis is playing out well across each of our higher-value sectors.\nIn fact, over the last year, we have seen improvements in engineering services tied to EMS deals and vice versa.\nNext, we continue to drive enterprise efficiencies.\nWe are continuing work on our global footprint optimization, where we are winding down manufacturing in some locations and ramping up new production in other locations.\nThe goal is to gain efficiencies with fewer rooftops by selecting locations with operational synergies and align with customer preference.\nTo this end, in the third quarter, we made the decision to exit a line of business in our A&D sector related to turbine machining.\nThis is the right decision when we look at strategic alignment of the impacted facility and the prolonged downturn in commercial aerospace demand driven by the pandemic.\nThese decisions are never easy, but we're focused on our long-term strategy.\nIn addition, we have a rigorous focus on controlling our costs and expense management through improved processes, G&A centralization activities and intense focus on project and investment prioritization.\nWe are reshaping our SG&A landscape.\nFor next year, we are targeting SG&A at or below $130 million even with the end to temporary salary cuts and corporate furloughs, higher travel expenses and higher variable compensation.\nThe hard work we have invested in our HR, IT, finance and other shared services to enable centralization are yielding lower costs next year.\nUnfortunately, this does require restructuring activities, which, as Roop has mentioned, will occur this quarter.\nFinally, I want to close with our initiative on engaging talent and shifting our culture.\nAs I've said, Benchmark has a great cultural foundation that starts with a committed workforce who wants to deliver for our customers.\nOur investments in this initiative will include focus on better self-service tools, increased empowerment and critical skills development to ensure the talent the organization needs in future leaders can be found within our own diverse team.\nThis includes the ongoing commitment to advancing diversity and inclusion efforts at all levels in the company, which we are enhancing as part of our ongoing ESG focus.\nFor technology companies like Benchmark, competitiveness requires innovation, fresh ideas and creative thinking, all areas fueled by diversity.\nThe attentive work on these strategic priorities formed the foundation for setting our midterm target model through the year 2022.\nThe company had a great start at pivoting the higher-value markets before my arrival, and we are now at our target mix between traditional and higher-value splits.\nThe right markets and customer selection remains key to our strategy.\nSetting COVID and the resulting macroeconomic uncertainty aside, we believe that we can grow revenue at a 5% compound annual growth rate over the next two years by growing our current accounts and ramping new programs with our targeted new customers.\nWhile we're overcoming some pretty significant revenue decline headwinds in our aerospace and oil and gas markets and other demand softness in our installed base due to the pandemic recession, our growth expectations speak to the strength in our recent bookings and outsourcing wins.\nAs the economy picks up later in 2021 and through 2022, we expect our growth can accelerate further with this new win momentum and recovery in our customer installed base.\nWith our current mix of business, the success of ongoing operational excellence initiatives and our current global footprint, we are targeting gross margins in the range of 9.3% to 9.7%.\nOn the SG&A expense line, I'm committed to effective overhead management and have taken the necessary actions to drive an efficient organization that is rightsized to support our customers and employees effectively.\nAs the company expands and needs greater investments and capabilities, we will keep expenses aligned to our future revenue growth.\nThe resulting non-GAAP operating margin target range will be between 3.4% to 3.8%.\nWith this model, we feel comfortable that we can grow earnings faster than revenue.\nAs operating margins improve, we see resulting improvement in ROIC.\nI am confident and remain excited about our team's ability to capitalize on the growth opportunities in our diverse end markets, where our deal pipeline in win rate is increasing, and we remain focused on executing our ongoing initiatives to increase incremental value for our customers, employees and shareholders.",
        "summary": "q3 non-gaap earnings per share $0.32.\nq3 gaap earnings per share $0.16.\nq3 revenue $526 million versus refinitiv ibes estimate of $511.3 million.\nsees q4 2020 non-gaap earnings per share $0.32 to $0.36 excluding items.\nsees q4 2020 revenue $500 million to $540 million.\nbenchmark electronics - continue to make progress on improving gross margins as co expect to achieve our 9% target in q4.\nrestructuring charges are expected to range between $2.8 million to $3.2 million in q4."
    },
    {
        "text": "Today, we will review the second quarter 2021 financial results and provide an update on key business trends for Bio-Rad.\nWith me on the phone today are Norman Schwartz, our Chief Executive Officer; Ilan Daskal, Executive Vice President and Chief Financial Officer; Andy Last, Executive Vice President and Chief Operating Officer; Annette Tumolo, President of the Life Science Group; and Dara Wright, President of the Clinical Diagnostics Group.\nOur actual results may differ materially from these plans and expectations, and the impact and duration of the COVID-19 pandemic is unknown.\nFinally, our remarks today will include references to non-GAAP net income and diluted earnings per share, which are financial measures that are not defined under Generally Accepted Accounting Principles.\nSo I'd like to take a few minutes to review our current state of operations around the world.\nOverall, Bio-Rad has adapted well to the working constraints that COVID has imposed upon us, and we find ourselves able to respond and react well to everyday operational changes and demands.\nWe continue to make solid progress on our core strategies, support of our customers and the safety of our employees.\nWith improvement in our end markets after the significant downturn a year ago, we're responding well to increased demand.\nBut as with other manufacturers in life sciences, we are having to work hard to procure raw materials in some challenged areas, such as plastics and electronic components, as well as dealing with increased pressure on raw material costs.\nWe also continue to experience higher than typical logistics costs as indicated in our Q1 call.\nWith the emergence of the COVID-19 delta variant, we are maintaining our work from home policies for the near term as we work on return to the workplace plans targeted for later this quarter, and we continue to monitor the global pandemic situation carefully given the fluidity the delta variance has created.\nEmployee safety remains a principal focus, and we are pleased with our safety record and the growing vaccination status of our organization.\nAs we enter Q3, we expect the emergence of the delta variant will continue to create some challenges, and we are maintaining vigilance and flexibility as a result.\nOverall, we expect to see continued improvement in our end markets through the second half of the year as our customers continue to adapt.\nHowever, the new delta variant clearly introduces an element of uncertainty as we move forward.\nNow I would like to review the results of the second quarter.\nNet sales for the second quarter of 2021 were $715.9 million, which is a 33.4% increase on a reported basis versus $536.9 million in Q2 of 2020.\nOn a currency-neutral basis, sales increased 27.5%.\nOn a geographic basis, we experienced currency-neutral growth across all three regions.\nSales of our core products in the second quarter of last year were negatively impacted by the pandemic.\nAnd generally, we are seeing a continued gradual capacity improvement at both academic and diagnostic labs, which we estimate between 90% and 95% of pre-COVID levels.\nWe estimate that the COVID-19-related sales were about $68 million in the quarter.\nSales of the Life Science group in the second quarter of 2021 were $334.2 million compared to $252.1 million in Q2 of 2020, which is a 32.6% increase on a reported basis and a 27.1% increase on a currency-neutral basis.\nThe year-over-year sales growth in the second quarter was driven mainly by increases in western blotting, Droplet Digital PCR and qPCR products.\nWe have seen strong growth in the biopharma market for our Droplet Digital PCR platform.\nWe are also seeing a healthy uptake for ddPCR in wastewater solutions.\nGovernment funding toward public health labs is driving increased demand for our ddPCR products that offer automated solutions with high accuracy and sensitivity.\nProcess Media, which can fluctuate on a quarterly basis, saw a year-over-year double-digit growth versus the same quarter last year.\nExcluding Process Media sales, the underlying Life Science business grew 29.1% on a currency-neutral basis versus Q2 of 2020.\nOn a geographic basis, Life Science currency-neutral year-over-year sales grew across all regions.\nBefore moving on, I would like to highlight the broad legal settlement with 10 times Genomics announced earlier this week.\nThis settlement resolves the multiyear global litigation with 10 times over outstanding issues in the field of single cell and includes a global cross-license agreement.\nIn addition to past and future royalties, Bio-Rad received broad freedom to operate in the single-cell market and maintained exclusivity to our microwell single-cell IP.\nWe estimate that the future royalty payments from this legal settlement could total $110 million to $140 million over the life of the agreement, which runs through the year 2030.\nThis includes payments of $32 million in the third quarter for back royalties owed to Bio-Rad for the period from November 2018 through December 2020 as well as for settlement fees and interests.\nSales of the Clinical Diagnostics group in the second quarter were $380.2 million compared to $283.2 million in Q2 of 2020, which is a 34.3% increase on a reported basis and a 28% increase on a currency-neutral basis.\nDuring the second quarter, the diagnostics group posted double-digit growth across all of its product lines.\nThe year-over-year growth was driven by a recovery of routine testing.\nElective surgery recovery is still progressing although at a slower pace.\nOn a geographic basis, the diagnostics group currency-neutral year-over-year sales grew across all regions.\nOur diagnostics group announced last month a partnership with Seegene, which is a global leader in multiplex molecular diagnostics.\nBio-Rad will exclusively market the Seegene tests in the U.S., pending regulatory approvals.\nSeegene's diagnostic products have high sensitivity and specificity and are optimized to work with Bio-Rad's CFX Real-Time PCR Systems.\nThe reported gross margin for the second quarter of 2021 was 56.1% on a GAAP basis and compares to 54.6% in Q2 of 2020.\nRecall that the gross margin in Q2 of 2020 included an $8 million customs duty charge.\nAnd excluding that charge, the Q2 gross margin further improved this quarter as a result of our productivity and efficiency initiatives.\nHowever, as mentioned, we currently see increased pressure on raw material costs and higher logistics costs.\nAmortization related to prior acquisitions recorded in cost of goods sold was $4.6 million and compares to $5 million in Q2 of 2020.\nSG and A expenses for Q2 of 2021 were $213.4 million or 29.8% of sales compared to $189.3 million or 35.3% in Q2 of 2020.\nIncreases in SG-and-A expenses was mainly the result of employee-related performance compensation expense.\nTotal amortization expense related to acquisitions recorded in SG and A for the quarter was $2.4 million versus $2.3 million in Q2 of 2020.\nResearch and development expense in Q2 was $63.4 million or 8.9% of sales compared to $52 million or 9.7% of sales in Q2 of 2020.\nQ2 operating income was $124.8 million or 17.4% of sales compared to $51.7 million or 9.6% of sales in Q2 of 2020.\nLooking below the operating line, the change in fair market value of equity securities holdings added $1.031 billion of income to the reported results and is substantially related to the holdings of the shares of Sartorius AG.\nAlso during the quarter, interest and other income resulted in net other income of $1.3 million primarily due to foreign exchange and compared to $10.7 million of income last year.\nQ2 of 2020 includes an $8.9 million dividend from Sartorius, which was declared in June and was paid in July.\nIn 2021, the Sartorius dividend was declared in the first quarter.\nThe effective tax rate for the second quarter of 2021 was 21% compared to 22.4% for the same period in 2020.\nThe tax rate for both periods were driven by the large unrealized gain in equity securities.\nIn addition, the second quarter of 2021 effective tax rate was lower also due to a lapse of statute of limitations of certain tax reserves.\nReported net income for the second quarter was $914.1 million, and diluted earnings per share were $30.32.\nThis is a decrease from last year and is related to changes in valuation of the Sartorius holdings.\nMoving on to the non-GAAP results.\nLooking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins as well as other income.\nLooking at the non-GAAP results for the second quarter.\nIn cost of goods sold, we have excluded $4.6 million of amortization of purchased intangibles and $1.2 million of restructuring-related expenses.\nThese exclusions moved the gross margin for the second quarter of 2021 to a non-GAAP gross margin of 56.9% versus 55.5% in Q2 of 2020.\nNon-GAAP SG-and-A in the second quarter of 2021 was 29.2% versus 33.9% in Q2 of 2020.\nIn SG-and-A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2.4 million, legal-related expenses of $8.8 million and restructuring and acquisition-related benefits of $7 million.\nNon-GAAP R-and-D expense in the second quarter of 2021 was 9.1% versus 9.8% in Q2 of 2020.\nIn R-and-D, on a non-GAAP basis, we have excluded $2.1 million of restructuring benefits.\nThe cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 17.4% on a GAAP basis to 18.5% on a non-GAAP basis.\nThis non-GAAP operating margin compares to a non-GAAP operating margin in Q2 of 2020 of 11.8%.\nWe have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity holdings of $1.031 billion and the $1.8 million loss associated with venture investments.\nThe non-GAAP effective tax rate for the second quarter of 2021 was 21.5% compared to 23.8% for the same period in 2020.\nThe lower rate in 2021 was driven by the geographic mix of earnings.\nAnd finally, non-GAAP net income for the second quarter of 2021 was $106.6 million or $3.54 diluted earnings per share compared to $48.3 million or $1.61 per share in Q2 of 2020.\nMoving on to the balance sheet.\nTotal cash and short-term investments at the end of Q2 were $1.167 billion compared to $1.025 billion at the end of Q1 of 2021.\nDuring the second quarter, we did not purchase any shares of our stock.\nFor the second quarter of 2021, net cash generated from operating activities was $154.6 million, which compares to $92.1 million in Q2 of 2020.\nThis increase mainly reflects higher operating profits.\nThe adjusted EBITDA for the second quarter of 2021 was 22.3% of sales.\nThe adjusted EBITDA in Q2 of 2020 was 18.6% and excluding the Sartorius dividend was 16.9%.\nNet capital expenditures for the second quarter of 2021 were $23.4 million, and depreciation and amortization for the second quarter was $33.7 million.\nMoving on to the guidance.\nAndy previously alluded to continued uncertainties surrounding the pandemic, which could create some challenges and we look -- sorry, as we look to the better half of this year.\nThat being said, with customers continuing to adapt in this environment, we assume a gradual return to pre-pandemic activity and the more normalized business mix during the second half of 2021.\nWe are now guiding non-GAAP currency-neutral revenue growth to be between 10% and 10.5% for 2021 versus our prior guidance of 5.5% to 6%.\nThis updated outlook assumes the full year COVID-related sales to be between $200 million and $210 million, of which approximately $40 million to $50 million are projected for the second half of 2021.\nExcluding COVID-related sales, the non-GAAP year-over-year currency-neutral sales growth in the second half is expected to be between 13% and 14%.\nThis represents between 4.5% and 5.5% growth in the second half of 2021 over the first half of 2021.\nFull year non-GAAP gross margin is now projected to be between 57% and 57.5%.\nFull year non-GAAP operating margin is forecasted to be about 19%, which assumes higher operating expenses in the second half of 2021 versus the first half as we are anticipating continued gradual return to more normal activity levels.\nThis guidance excludes any benefit related to the settlement with 10 times Genomics.\nOur updated annual non-GAAP effective tax rate for 2021 is projected to be between 23% and 24%.\nFull year adjusted EBITDA margin is forecasted to be between 23% and 23.5%.",
        "summary": "q2 non-gaap earnings per share $3.54.\nq2 earnings per share $30.32.\nq2 sales rose 33.4 percent to $715.9 million.\nsees 2021 non-gaap currency-neutral revenue growth between 10.0 to 10.5 percent."
    },
    {
        "text": "We will review the third quarter 2021 financial results and provide an update on key business trends for Bio-Rad.\nWith me on the phone today are Norman Schwartz, our Chief Executive Officer; Ilan Daskal, Executive Vice President and Chief Financial Officer; Andy Last, Executive Vice President and Chief Operating Officer; Annette Tumolo, President of the Life Science Group; and Dara Wright, President of the Clinical Diagnostics Group.\nOur actual results may differ materially from these plans and expectations, and the impact and duration of the COVID-19 pandemic is unknown.\nFinally, our remarks today will include references to non-GAAP net income and diluted earnings per share, which are our financial measures that are not defined under generally accepted accounting principles.\nWith that, I now turn over the call to Ilan Daskal, our Executive Vice President and Chief Financial Officer.\nBefore I begin the detailed third quarter discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's operations in light of the current pandemic-related environment that we are experiencing globally.\nAnnette's efforts and leadership have contributed to significant growth for the Life Science Group and Bio-Rad, and the company has started a search for a successor, and we will provide an update in the coming months.\nNow I'd like to take a few minutes to review our current state of operations around the world.\nWe're now entering the seventh consecutive quarter of operating within the COVID pandemic, and so I shall make my comments brief as we have now established an operating cadence with embedded employee safety practices.\nOur end markets continued to show improvement during Q3, with demand pickup in both life science and diagnostic markets in all regions.\nThe supply chain constraints highlighted in our Q2 call, however, have persisted in particular, for supply and cost of plastic raw materials, electronic components and higher logistics costs.\nTo date, we have been able to balance supply and demand through careful management.\nHowever, we see this supply constraint trends continuing through year-end and into 2022, and thus increasing the challenge of adequately meeting customer demand.\nAs a result of the COVID-19 Delta variant, we recently pushed out our return to the workplace date for the U.S. into early November.\nDuring Q3, we introduced a mandatory vaccination requirement for all employees in the U.S. and are extremely pleased with the results of this decision.\nWe are believing -- we believe we are maintaining our commitment to a safe workplace for all our employees.\nAs we enter Q4, we expect COVID-related demand for our products to be sequentially lower.\nAnd overall, we believe the majority of our end markets are approaching close to normal operations, although we recognize that COVID will continue to create dynamic market challenges.\nNow I would like to review the results of the third quarter.\nNet sales for the third quarter of 2021 were $747 million, which is a 15.4% increase on a reported basis versus the $647.3 million in Q3 of 2020.\nOn a currency-neutral basis, sales increased 13.8%.\nThe third quarter sales include a $32 million settlement for back royalties from 10 times.\nExcluding the back royalties, the Q3 year-over-year currency-neutral revenue growth was 9%.\nOn a geographic basis, we experienced strong currency-neutral growth in the Americas and in Asia, while growth in Europe declined slightly due to a tough year-over-year compare of COVID-related sales.\nWe estimate that COVID-19-related sales were about $57 million in the quarter as we continue to benefit from spikes in demand in geographies where new outbreaks have occurred.\nSales of the Life Science Group in the third quarter of 2021 were $373.5 million compared to $324 million in Q3 of 2020, which is a 15.3% increase on a reported basis and a 13.9% increase on a currency-neutral basis.\nExcluding the $32 million settlement for back royalties, the underlying Life Science business grew 4.1% on a currency-neutral basis versus Q3 of 2020.\nThe year-over-year sales growth in the third quarter was driven mainly by increases in Droplet Digital PCR products and excluding COVID-related sales, our core qPCR business also experienced nice growth driven by strong uptake of our newer generation CFX Opus platform.\nProcess Media, which can fluctuate on a quarterly basis, saw strong year-over-year double-digit growth versus the same quarter last year.\nExcluding Process Media sales and the $32 million settlement for back royalties, the underlying Life Science business declined 2% on a currency-neutral basis versus Q3 of 2020 due to lower COVID-related sales.\nWhen also excluding COVID-related sales, Life Science year-over-year currency-neutral revenue growth was 21.8%.\nOverall, we have seen strong growth in the biopharma market for our Droplet Digital PCR platform.\nWe also continue to see steady adoption of ddPCR in wastewater solutions, supported by government funding toward public health labs.\nOn a geographic basis, Life Science currency-neutral year-over-year sales grew across the Americas and Asia but declined in Europe.\nWhen excluding COVID-related sales, European region revenue posted a double-digit increase from the year-ago period.\nSales of the Clinical Diagnostics Group in the third quarter were $372.2 million compared to $322.2 million in Q3 of 2020, which is a 15.5% increase on a reported basis and a 13.7% increase on a currency-neutral basis.\nDuring the third quarter, the Diagnostics Group posted growth across all of its product lines.\nThe year-over-year growth was driven by a recovery of routine testing, which appears to be approaching normal levels, with the exception of blood typing, which is progressing at a slower pace.\nOn a geographic basis, the Diagnostics Group currency-neutral year-over-year sales grew double digits across all regions.\nThe reported gross margin for the third quarter of 2021 was 58.6% on a GAAP basis and compares to 56.7% in Q3 of 2020.\nThe Q3 2021 gross margin improvement was mainly driven by the settlement payments as well as our productivity and efficiency initiatives.\nAmortization related to prior acquisitions recorded in cost of goods sold was $4.7 million as compared to $4.8 million in Q3 of 2020.\nSG&A expenses for Q3 of 2021 were $216.2 million or 28.9% of sales compared to $198.2 million or 30.6% in Q3 of 2020.\nIncreases in SG&A spend was mainly the result of employee-related expense.\nTotal amortization expense related to acquisitions recorded in SG&A for the quarter was $2.4 million versus $2.3 million in Q3 of 2020.\nResearch and development expense in Q3 was $64.5 million or 8.6% of sales compared to $59.5 million or 9.2% of sales in Q3 of 2020.\nQ3 operating income was $156.8 million or 21% of sales compared to $109.6 million or 16.9% of sales in Q3 of 2020.\nLooking below the operating line, the change in fair market value of equity securities holdings added $4.869 billion of income to the reported results and is substantially related to holdings of the shares of Sartorius AG.\nAlso during the quarter, interest and other income resulted in a net expense of $3.2 million, primarily due to foreign exchange losses and compared to $5.5 million of expense last year.\nThe effective tax rate for the third quarter of 2021 was 21.8% compared to 21.9% for the same period in 2020.\nThe tax rate for both periods were driven by the large unrealized gain in equity securities.\nReported net income for the third quarter was $3.928 billion, and diluted earnings per share were $129.96.\nThis is an increase from last year and is largely related to changes in valuation of the Sartorius holdings.\nMoving on to the non-GAAP results.\nLooking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margin as well as other income.\nLooking at the non-GAAP results for the third quarter, in sales, we have excluded $32 million related to 10 times legal settlement.\nIn cost of goods sold, we have excluded $4.7 million of amortization of purchased intangibles, $4.1 million in IP license costs associated with the debt royalty payment and a small restructuring cost.\nThese exclusions moved the gross margin for the third quarter of 2021 to a non-GAAP gross margin of 57.9% versus 57.5% in Q3 of 2020.\nNon-GAAP SG&A in the third quarter of 2021 was 29.6% versus 29.4% in Q3 of 2020.\nIn SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2.4 million, legal-related expenses of $2.3 million and a small restructuring and acquisition-related benefit.\nNon-GAAP R&D expense in the third quarter of 2021 was 9% versus 9.2% in Q3 of 2020.\nIn R&D, on a non-GAAP basis, we have excluded a small restructuring cost.\nThe cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 21% on a GAAP basis to 19.4% on a non-GAAP basis.\nThis non-GAAP operating margin compares to a non-GAAP operating margin of 18.8% in Q3 of 2020.\nWe have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity holdings of $4.869 billion and about a $2 million loss associated with venture investments.\nThe non-GAAP effective tax rate for the third quarter of 2021 was 18% compared to 22.5% for the same period in 2020.\nThe low rate in 2021 was driven by the geographic mix of earnings.\nIn addition, the effective tax rate was lower as a result of an increase in compensation-related tax deductions.\nAnd finally, non-GAAP net income for the third quarter of 2021 was $112.2 million or $3.71 diluted earnings per share, and that compares to $90.3 million and $3 per share in Q3 of 2020.\nMoving on to the balance sheet.\nTotal cash and short-term investments at the end of Q3 were $1.343 billion compared to $1.167 billion at the end of Q2 of 2021.\nDuring the third quarter, we did not purchase any shares of our stock.\nFor the third quarter of 2021, net cash generated from operating activities was $230.4 million, which compares to $135.7 million in Q3 of 2020.\nThis increase mainly reflects higher operating profits.\nFollowing the end of the quarter, we completed the acquisition of Dropworks for approximately $125 million in cash.\nDropworks is developing a droplet-based digital PCR system that could provide a more cost-effective solution to streamline the digital PCR workflow for life science research and diagnostic applications.\nWe see Dropworks as accelerating Bio-Rad's entry into the lower-end segment of the digital PCR business and allow for expansion in the $2.5 billion to $3 billion qPCR segment, thereby significantly increasing the opportunity for our ddPCR platforms.\nThe adjusted EBITDA for the third quarter of 2021 was 23.1% of sales.\nThe adjusted EBITDA in Q3 of 2020 was 22.9%.\nNet capital expenditures for the third quarter of 2021 were $34.6 million, and depreciation and amortization for the third quarter was $33.7 million.\nMoving on to the guidance.\nOverall, we expect a continued trend to a more normalized growth rate.\nHowever, we are seeing increased supply chain constraints that creates an elevated level of uncertainty around timing of customer deliveries.\nWe are now guiding full year 2021 non-GAAP currency-neutral revenue growth to be between 12% and 13% versus our prior guidance of 10% to 10.5%.\nThis updated outlook reflects a wider revenue range due to the supply challenges, which we are experiencing.\nFull year COVID-related sales are now expected in the range of $240 million and $245 million versus our prior guidance of $200 million to $210 million.\nFull year non-GAAP gross margin is now projected to be between 57.5% and 57.8% versus prior guidance of 57% and 57.5%.\nFull year non-GAAP operating margin is forecasted to be about 19.5% versus prior guidance of 19%.\nOur updated guidance assumes higher operating expenses in Q4 as we continue to anticipate a gradual return to more normal activity levels.\nOur updated annual non-GAAP effective tax rate is projected to be between 21% and 22%.\nThe lower rate versus our prior guidance is mainly due to an increase in compensation-related tax deductions.\nFull year adjusted EBITDA margin is now forecasted to be between 23.5% and 24% versus prior guidance of 23% and 23.5%.\nLastly, with the uncertainties surrounding COVID, we are now planning to hold our Investor Day in February due to our preference to host an in-person event.",
        "summary": "q3 non-gaap earnings per share $3.71.\nq3 sales rose 15.4 percent to $747 million.\nbio rad laboratories - now anticipates 2021 non-gaap currency-neutral revenue growth between 12 to 13 percent.\nsees 2021 estimated non-gaap operating margin of about 19.5 percent.\nqtrly gaap income per share $129.96."
    },
    {
        "text": "Joining us today are Cindy Baier, our President and Chief Executive Officer; and Steve Swain, our Executive Vice President and Chief Financial Officer.\nThese statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future.\nI direct you to the release for the full safe harbor statement.\nFor reconciliations of each non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information which may be found at Brookdale.com/investor, and was furnished on an 8-K yesterday.\nI am pleased that occupancy began to grow by the end of the first quarter and continued in April.\nFor the last year, we have been in the toughest battle in the company's history.\nWe have been fighting for the health and well-being of our residents, patients and associates.\nWhile the battle is not over, we have created and implemented highly effective tools to help us reduce COVID-19 cases, including hosting thousands of vaccination clinics in our communities.\nSo our residents, patients and associates could receive the lifesaving COVID-19 vaccines.\nTogether our frontline, regional and corporate associates stepped up and rapidly executed a series of carefully considered actions to do everything we could to support those who live in, or served by and work within our communities and agencies.\nI'm especially grateful to our associates who recently led through the historic ice storms in Texas.\nI'm so proud of everything you have accomplished.\nThe genuine affection for our associates and the gratitude that you expressed means a great deal to us.\nWe are also beyond grateful for the scientists who created the vaccines, the people that produce them, the government agencies who prioritize shot for our community, residents and associates, as well as CVS Health, Public Health Departments and other pharmacy partners who helped administer these life saving vaccines.\nWith more Americans vaccinated every day, we're hopeful the end of the pandemic is within sight.\nAnd I am proud of Brookdale's unique and vital role during this crisis.\nLet's review our journey.\nJust over a year ago we closed all of our communities to non-essential guests to help protect against the novel coronavirus that was ravaging the country and the world.\nToday, I'm thrilled that all of our communities have reopened to loved ones.\nWe have resumed many of our resident's favorite group activities and social events.\nYou can feel a renewed sense of hope and vitality in our communities.\nWe believe that the COVID-19 vaccines are critically important in changing our business trends.\nEarly on we realized the importance of vaccines and we took a leadership role in successfully advocating for priority vaccine access for assisted living residents and associates and worked closely with public and private officials to improve the vaccine rollout.\nI am incredibly proud of Brookdale's herculean effort to schedule the clinics and educate individuals within our communities at lightening fast speeds.\nThrough unwavering perseverance in less than four months, we hosted at least three clinics in every one of our communities and over 125,000 COVID-19 vaccine doses were administered to our residents and associates.\nWith 93% of our residents benefiting from the protection of these life saving vaccine, we have made a significant positive impact in helping our nation's seniors reduce their chances of contracting COVID-19.\nI believe our relentless focus on making vaccines available as quickly as possible saved many lives.\nThe benefit of the vaccine clinics is already reflected in the 97% decline of resident COVID-19 cases in our communities since the peak in mid-December.\nWith the high vaccination rate.\nwe believe that we have broken the link with COVID-19 case trends in the metropolitan areas surrounding our communities.\nOur 695 communities across the country, combined have an incredibly small number of current cases.\nWe are pleased with these results, yet we remain diligent with our science-based approach to help protect our communities through PPE use, cleaning protocols and other best practices.\nAs always, the health and well-being of our residents and associates is our top priority.\nLet me turn to our financial highlights for the first quarter.\nWe continued to deliver sequential move-in improvement every month since November.\nMove-ins increased 29% from the fourth quarter to the first quarter.\nThis is significant progress, particularly in light of the fact that the first quarter started with the pandemic's third wave ravaging the nation.\nOur sales force transformation is delivering results.\nThe team is driving positive momentum with leads and visits increasing sequentially.\nI'm proud our sales associates are attracting many seniors to Brookdale, so that we can help more people navigate the challenges of aging.\nIn March, net move-ins and move-outs, also known as MIMO turned positive.\nWhat is especially exciting about March is that the net MIMO was positive in each of our three senior living segments.\nThis is the first positive net MIMO since before the pandemic began.\nI am delighted that we concluded March with sequential occupancy growth and we accomplished this while maintaining rate discipline.\nWe continue to focus on driving occupancy improvement and our profitable growth strategy.\nNow turning to an update on government grants.\nTo date, providers have been able to request funding for COVID-19 expenses and lost revenue for the first and second quarters of 2020.\nThe Provider Relief Fund portal has not yet opened to submit third and fourth quarter 2020 requests.\nWhen the portal opens, we are prepared to file our request as soon as possible.\nWe are grateful that the bipartisan Senate letter to HHS signed by a full quarter of the Senate requested a portion of the remaining Provider Relief Fund to be dedicated to senior living.\nIn addition, 59 representatives signed the Companion House letter.\nAs the largest senior living operator, we will continue to be an advocate for the senior living industry, reinforcing the vital role our industry plays in the healthcare continuum and it's critical role to help protect a vulnerable population.\nStarting with our Health Care Services.\nThe transaction to sell a majority stake of Brookdale Health Care Services to HCA Healthcare continues to be on track for a mid-year closing.\nOur teams are working well together on the transition plan and we remain excited about the benefits of this transaction for our residents and patients.\nWhen the transaction closes, we expect to receive approximately $300 million in net cash proceeds which will strengthen Brookdale's liquidity position.\nFor our senior living business, we are seeing the first green shoots of growth.\nDemand for our communities is returning and gaining momentum.\nIndependent market research showed unaided awareness for Brookdale is 2.5 times higher than that of the a next identified competitor.\nOur sales force transformation is taking hold, as seen in our sequential move-in growth every month since November.\nWith our recent occupancy growth and net MIMO results, we believe that we are at a positive inflection point.\nOn a sequential basis, we expect growth in the second quarter and stronger growth in the third quarter.\nWhile we can't tell you the exact timing of the recovery based on our recent experience and with a dramatically lower construction starts and the accelerating demographic tailwind, I am confident that demand will continue to improve.\nI am very optimistic about our future.\nOur business at its core is providing high quality needs based services for a rapidly growing senior population.\nWe enable seniors to spend more time doing the things that give their life meaning and provide joy by helping them manage the challenges of aging.\nWe will continue to make the best of our leadership position, especially with our clinical and operational expertise.\nThere are three takeaways related to first quarter results.\nOccupancy inflected positive in March and the positive growth continued in April.\nWe maintained rate discipline with our pricing strategy and we continue to face a challenging labor environment.\nHowever, as occupancy grows, margins will improve based on operating leverage.\nLet me provide context for the three highlights, starting with occupancy.\nLooking back to January of this year, the country including our industry felt the pressure of the third wave resurgence.\nEven so, we are pleased with the strengthening move-ins during the first quarter and into April.\nWith the benefit of our communities completing 100% of first vaccine clinics in February, our occupancy decline rapidly moderated.\nIn March, net move-ins and move-outs or net MIMO turn positive for the first time since the beginning of the pandemic and by March month end, occupancy had turn positive on a sequential basis.\nWhile COVID-19-related occupancy losses that occurred over the past year will have a negative impact on year-over-year comparisons, the positive net MIMO in March was an important milestone.\nTurning to rate or RevPOR, the first quarter was 2.9% higher year-over-year and 3.3% higher on a sequential same-community basis.\nFor most of our communities, our annual price increase took effect at the beginning of the year.\nThe rate increases will help mitigate higher labor costs and lower occupancy.\nWhile market conditions remain dynamic, we have balanced rate discipline with targeted discounting to respond to the competitive environment in specific markets.\nThe third key highlight is opex.\nOn a same community basis, the first quarter senior housing operating expense improved 1% year-over-year.\nThe primary driver of the favorability was from variable costs, such as supplies and food, and it was a linked to lower occupancy levels that occurred as we progressed through 2020.\nThe variable cost favorability more than offset higher wage rates resulting from the difficult labor environment and incremental work and staffing related to the pandemic.\nLet me briefly discuss our Health Care Services segment results.\nThe revenue decrease was mainly impacted by the pandemic with fewer services within our communities due to lower occupancy along with the impact of the severe winter storm in Texas.\nTo mitigate a significant portion of the revenue loss, the team continued their strong cost controls, matching their operating expenses to the current business and payment model.\nFor senior housing and Health Care Services combined in the first quarter of this year, we recognized $11 million of CARES Act related income.\n$9 million was for the employee retention credit associated with wages paid through the end of September 2020 along with approximately $2 million related to government grants.\nAs Cindy mentioned, we look for HHS to provide an updates on the use of the remaining Provider Relief Fund and the opportunity to submit request to mitigate second half 2020 COVID-related expenses and lost revenue.\nTurning to G&A, over the past few years, we took actions to reduce our G&A costs to match our smaller community footprint.\nThe last significant transaction was related to the Healthpeak unconsolidated CCRC venture completed in the first quarter 2020.\nThis transaction delivered that the majority of our year-over-year G&A reduction as well as tighter controls on G&A costs.\nAdjusted EBITDA for the first quarter 2021 was $35 million compared to $185 million for the prior year quarter, of which $100 million was from the one-time management termination fee related to the Healthpeak transaction, I just mentioned.\nThe other major driver of lower adjusted EBITDA is lower revenue due to the pandemic.\nAdjusted free cash flow was $56 million lower in the first quarter compared to the prior year period.\nTwo items helped to mitigate the impact of lower EBITDA.\nThe working capital change was a benefit of $49 million.\nThis favorability was mainly due to lower accounts payable payments and timing of payroll.\nNon-development capex was $33 million lower than the prior year due to timing of elective projects.\nTurning to liquidity, as of March 31st, total liquidity was $439 million compared to $575 million at year-end.\nThe $137 million change was primarily from $67 million of infrequent items, including pay down of debt and letters of credit and our annual insurance funding, $51 million of negative adjusted free cash flow and $19 million of ongoing debt principal payments.\nAs I described last quarter, the expected sale of our Health Care Services segment will provide approximately $300 million of liquidity and will be reported as net cash provided by investing activities.\nTo wrap-up, let me share high level comments about the second quarter 2021.\nWith our recent occupancy growth, we believe we are at a positive inflection point.\nOn a sequential basis, we expect growth in the second quarter and stronger growth in the third quarter.\nIn the second quarter, we expect a sizable step down in COVID-related expenses due to the low number of active cases in our communities.\nWe anticipate capex projects will accelerate in the second quarter now that our communities are open and we expect to see continued move-in growth.\nAnnual non-development capex investment remains at approximately $140 million for 2021.\nFor working capital in 2020, we benefited from two CARES Act programs that require repayment.\nWe received accelerated Medicare payments and we elected to defer payment of the employer portion of the social security payroll tax.\nThe program balances related to the Health Care Services segment will be deducted from the sale proceeds.\nAs of quarter end, these amounts were $84 million.\nThe remaining senior housing program balances of $76 million will be paid half in 2021 and half in 2022.\nFor Health Care Services, we will continue reporting the results as a segment until the transaction closes, which we expect to occur mid-year, subject to final regulatory approvals.\nUpon the closing of the transaction, the net proceeds of approximately $300 million will strengthen our liquidity position.\nWe are encouraged by several leading business indicators.\nOccupancy has inflected to positive growth.\nWe maintained rate discipline through the toughest part of the pandemic and expect our pricing strategy will continue to provide benefits in the future.\nConstruction has decidedly slowed.\nFor instance, according to NIC assisted living units under construction is at a six-year low.\nWhen looking within 20 minutes of Brookdale's owned and leased portfolio, construction starts have dropped 80% from the peak.\nThe current low construction starts will provide a tailwind for several years.\nThe upcoming baby boomer opportunity is strong with nearly 1 million potential new residents starting within a year.\nAnd we are seeing increasing needs based demand from higher acuity care where 75% of residents are diagnosed with at least two chronic diseases.\nI'm incredibly proud of our associates and cannot express the depth of my admiration for their tremendous dedication.\nThey have focused on what matters most, enriching the lives of those we serve, our residents, patients and their families.\nWe are coming through the pandemic with grit and determination and it puts a smile on all of our faces to have begun a new year that promises a return to enrichment and growth in our communities.",
        "summary": "brookdale senior living - net move-ins and move-outs turned positive in march for first time since covid-19 pandemic began, remained positive in april.\nbrookdale senior living - q1 revenue per occupied unit (revpor) increased by 2.9% year-over-year on a same community basis.\nbrookdale senior living inc - qtrly total revenue and other operating income $749.4 million versus $1,014.1 million."
    },
    {
        "text": "blackhillscorp.com under the Investor Relations heading.\nLeading our quarterly earnings discussion today are Lin Evans, President and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer.\nAlthough we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially.\nIll begin on slide four, which lists our key achievements during the second quarter.\nOur team delivered strong financial results, with earnings up 21% compared to last year.\nWe also delivered solid operational performance with strong execution of our capital plan, and we made excellent progress on our regulatory initiatives, including Storm Uri expense recovery actions.\nAfter safety, one of our key operational priorities is providing reliable and resilient service to our customers.\nDuring the record-breaking heat in June across the Western United States, the Black Hills team and our electric systems and generating fleet performed exceptionally well.\nThis was our second consecutive quarter that included extreme weather events, and our energy delivery systems performed as designed.\nDuring both quarters, our diverse mix of power generation resources and our reliable and dispatchable generation capacity allowed us to serve customers and avoid rolling blackouts and other emergency actions that were required in other parts of the country.\nThe Black Hills team continued to execute our capital investment plan to maintain our enviable reliability and system resiliency and to serve our growing communities.\nWere on track to deploy up to $647 million of capital for the year, and we continue to evaluate and develop new opportunities beyond 2021.\nOn the regulatory front, we had a very productive quarter.\nAs we said we would do, we filed rate reviews in Colorado, Iowa and Kansas.\nIn Colorado, we recently received approval for a new safety-focused investment rider for our gas utility.\nAnd on June 30, we submitted our electric integrated resource plan for our South Dakota and Wyoming utilities in a moment, and then Rich will cover regulatory activity in more detail in his update.\nSlide five lays out our financial outlook.\nWe affirmed our 2021 earnings guidance based on strong second quarter financial performance.\nWe also maintain our 2022 earnings guidance range.\nWe are targeting 5% to 7% earnings growth for 2023 through 2025 and at least 5% annual dividend growth.\nOur growth plan is shown on slide six.\nWe continue to plan for capital investments of more than $3 billion through 2025.\nWe expect earnings growth to be driven by our robust capital plan to serve customers, incremental project opportunities and other earnings drivers that add margin with little or no capital investment.\nIn our electric utilities business, we are evaluating our transmission needs to develop expanded access to power markets and to cost-effectively serve loads across our electric utilities.\nWe also see opportunity to serve growing load in our prime data center market in Cheyenne, Wyoming.\nWe look forward to engaging our regulators regarding these potential transmission opportunities.\nOur initial modeling leads us to believe interconnecting our three electric systems and expanding power market access would benefit our customers and shareholders while also supporting our long-term emissions reduction goals.\nIn addition, were exploring the potential for responsibly adding more renewable generation and pursuing additional renewable natural gas projects across our agriculture-heavy service territories.\nWe currently have a long list of potential renewable natural gas interconnect projects, and while our existing RNG business is relatively modest, RNG represents an interesting sustainability and perhaps longer-term financial opportunity.\nWere very optimistic about population migration into our service territories.\nBoth our electric and gas utility service territories are seeing accelerating customer growth, and we continue to see evidence of firming customer growth trends.\nFinally, were advancing our culture to be better every day through cultivating innovative solutions and leveraging technologies and data analytics as we encourage our team to find ways to serve our customers with more efficient and effective processes.\nMoving to slide seven.\nAs I said earlier, on June 30, we submitted our integrated resource plan for our electric systems in South Dakota and Wyoming.\nThe resource plan modeled a variety of scenarios with the objective of accomplishing four goals: first, serve our growing customer demand for electricity; second, utilize resources that are cost-effective; third, maintain strong reliability; and finally, achieve our environmental goals as set forth in our ESG initiatives.\nOur preferred plan proposes to add 100 megawatts of new renewable generation, evaluate the addition of up to 20 megawatts of battery storage to help maintain reliability, and evaluate and develop new transmission opportunities.\nIn addition, the plan proposes to convert our 90-megawatt Neil Simpson II coal-fired power plant to natural gas in 2025, the end of its engineered life.\nThis option helps provide system resiliency, demonstrates our continued support of a locally based energy economy and supports our emission reduction goals.\nIn addition to our resource plan, were supporting research to advance emissions-reducing technologies.\nThe funding for a feasibility study for a hydrogen pilot project we proposed was recently approved by the Wyoming Energy Authority and the University of Wyoming Energy Research Council.\nThe feasibility study will examine the viability of using hydrogen and natural gas generation.\nWere also supporting the University of Wyomings research program for turbine firing technologies that would further reduce emissions.\nAs these technologies advance, future options for our generation resources will only continue to expand and, in turn, allow us to continue to cost-effectively and responsibly reduce our emissions.\nSpecifics about the pilot project and the associated capital necessary to execute our recently submitted resource plan are still in the early stages of evaluation.\nAs we work with regulators through the review of the resource plan and gain greater clarity on project specifics, we will provide estimates on potential incremental additions to our capital plan.\nAny new generation investment would be incremental to our current capital plan.\nWe have included some transmission investment in our existing capital forecast, but there may be incremental opportunities.\nMoving to slide eight.\nWe continue to make progress from an Environmental, Social and Governance, or ESG perspective.\nWere taking a responsible approach to reducing our emissions, with goals to reduce emissions intensity for our electric operations of 40% by 2030 and 70% by 2040 off a 2005 baseline.\nFor our gas utilities, were targeting a 50% reduction by 2035 and have voluntarily committed to reducing methane emissions with our participation in the EPA Methane Challenge and the One Future Coalition.\nWe have a legacy of prioritizing ESG issues, and were working to holistically communicate that story as we continually enhance our disclosures.\nDuring August, we will publish new disclosures for the Sustainability Accounting Standards Board and the Natural Gas Sustainability Initiative.\nWe will also soon publish our 2020 Corporate Sustainability Report and updated AGA and EEI quantitative reports.\nI encourage you to visit our Investor website and review these materials once they are published.\nAnd finally, on slide nine, were well-positioned as an integrated utility with a strong long-term growth outlook.\nWere executing our customer-focused strategy and are confident in our future.\nslide 11 summarizes earnings per share for the second quarter.\nWe delivered earnings per share as adjusted of $0.40 compared to $0.33 in Q2 2020, a 21% increase.\nOverall, strong financial results were driven by new rates and rider revenues and recovery of wholesale power margins at our utilities.\nHigher gross margins were partially offset by increases in O&M, DD&A and interest expense.\nWeather was not a major driver of earnings during the non-peak second quarter for both our electric and gas utilities.\nThe net benefit to earnings from weather was $0.01 per share compared to normal and $0.01 below the second quarter last year.\nSlide 12 illustrates the detailed drivers of change in net income quarter-over-quarter.\nAll amounts listed on this slide are after tax.\nAs I noted on the previous slide, the main drivers compared to last year were $9.2 million of gross margin improvement from new rates and riders and recovery of wholesale power margins at our utilities.\nO&M increased due to higher employee costs and outside services, planned power plant maintenance-related expenses and operating expenses for new wind generation.\nThe improvement in other income expense over the prior year was driven by lower retirement benefit service costs and market impacts on nonqualified deferred compensation expense.\nThe additional quarter-over-quarter tax benefits of $4.3 million on the far right of the slide were primarily from two items: first, Nebraska Tax Cuts and Jobs Act customer bill credits, which reduced gross margins collected from customers and reduced income tax expense by the same amount; and second, increased flow-through tax benefits related to repairs and certain indirect costs.\nAs we promised last quarter, we made progress on mitigating Winter Storm Uris impact on earnings.\nThe first quarter net impact from Storm Uri was $12.5 million, or $0.15 per share.\nAs we told you then, we planned to offset approximately $0.05 of these costs through regulatory actions and ongoing power marketing opportunities.\nWe delivered $0.03 of the offsets in the second quarter, and we anticipate achieving the other $0.02 through the remainder of the year.\nAnd we are on plan to mitigate the remaining $0.10 net storm year impact through O&M management and other opportunities.\nSlide 13 shows the details of our recent regulatory activity.\nIn Kansas, we filed our first rate review in more than seven years, including a request to renew our existing 5-year system safety and integrity investment rider.\nIn Iowa, we filed our first rate review in more than a decade, including a request for a new system safety and integrity investment rider.\nAnd Ill note that Iowa interim rates took effect in June.\nAnd we continue to make progress on our rate review filed for Colorado Gas.\nWe expect all three of these rate reviews to conclude late this year or early next year, with new rates effective in Q1 2022.\nLooking forward, we are tentatively planning to submit rate reviews for Arkansas Gas in the fourth quarter of this year and for Wyoming Electric in mid-2022.\nAnd as previously noted, we are making progress on our Storm Uri recovery plans.\nAll our recovery applications have been filed, and we already received final approval and commenced recovery in Nebraska and South Dakota, with interim rates in place in Arkansas and Iowa.\nSlide 14 shows our financial position through the lens of capital structure, credit ratings and financial flexibility.\nWe have a manageable debt maturity profile and are committed to maintaining our solid investment-grade credit ratings.\nAt the end of June, we had more than $500 million of available liquidity on our revolving credit facility.\nAnd in July, we amended and extended our revolving credit facility with similar terms through July 2026.\nWe expect to finalize our refinancing strategy for the $600 million balance on our term loan in the third quarter.\nWe are evaluating refinancing options that align with our anticipated recovery period.\nThe weighted average length of recovery requested in our regulatory plans is 3.7 years.\nNew debt and deferred recovery of fuel costs for Storm Uri temporarily increased our debt to total capitalization ratio to 62% at the end of March, and it remained at that level at the end of June.\nAs we recover storm costs, repay debt and execute on our equity program, we expect to reduce our debt to total capitalization ratio, and we continue to target debt to total cap ratio in the mid-50s.\nDuring the second quarter, we issued $40 million through our at-the-market equity offering program.\nOur equity issuance expectations are still $100 million to $120 million for 2021 and $60 million to $80 million for 2022.\nMoving to our dividend on slide 15.\nIn 2020, we proudly marked 50 consecutive years of annual dividend increases, one of the longest track records in our industry.\nSince 2016, weve increased our dividend at an average annual rate of 6.6%.\nAnd looking forward, we anticipate increasing our dividend by more than 5% annually through 2025 while maintaining our 50% to 60% payout target.\nWere pleased with our strong second quarter financial results and the progress we made during the quarter on many fronts.\nWere excited about our growth opportunities, with accelerating population migration into our service territories and many opportunities to continue to develop our strong capital program.\nWe continue to be well-positioned, both operationally and financially, to be ready to serve all our stakeholders.",
        "summary": "compname reports qtrly gaap earnings per share $0.40.\nblack hills corp qtrly gaap earnings per share $0.40."
    },
    {
        "text": "blackhillscorp.com under the Investor Relations heading.\nLeading our quarterly earnings discussion today are Linn Evans, President and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer.\nAlthough we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially.\nMoving to Slide 4, I'd like to start, as we always do at Black Hills, with a focus on safety, the safety and the well-being of the people we work with and the communities we serve is paramount and we are committed to being on the forefront of safeguarding our co-workers and our customers at all times and especially now.\nWe continue to monitor the pandemic and its impact to our business, our customers and our communities.\nWhile some of the service territories are experiencing an increase in infection rates, we are not anticipating significant lockdowns to close our local economies.\nFor our customers who need financial assistance, we are continuing to support them as well as local non-profits in our communities.\nI'm extremely proud of our team's dedication to support and serve our customers.\nThey truly are going the extra mile to provide safe and reliable energy that our customers depend on as we improve life with energy every day.\nOverall, financial impacts from COVID-19 are trending as expected for the year.\nWe continue to maintain strong liquidity to support our businesses.\nAnd our supply chains and capital projects are operating with little impact.\nMoving to Slide 6, we had an excellent third quarter.\nWe executed operationally and exercised diligent expense management delivering a 32% increase in earnings over the same period last year.\nBased on the strength of our earnings and outlook, we are increasing this year's earnings guidance to a range of $3.60 to $3.70 per share.\nWe're also introducing guidance for next year in the range of $3.75 to $3.95 per share, reflecting our expectation for solid growth year-over-year.\nWe also increased our five-year capital forecast to continue serving the growing needs of our customers and communities.\nWe've identified an additional $239 million of capital projects.\nAnd that increases our total five-year forecast of $2.9 billion.\n95% of that $2.9 billion will be invested in our utilities.\nSlide 7 lists the excellent strategic progress we made this quarter.\nWe obtained final approval from FERC for the Wygen I power purchase agreement.\nThe approval of this agreement allows us to continue to provide critical base load capacity and energy for our Wyoming Electric Utility.\nWe filed our new rate review and rider request for Colorado Gas.\nLast Wednesday in Nebraska, we had a constructive hearing on a settlement agreement regarding our pending rate review.\nWe also maintain strong liquidity to support our capital investment program.\nWe're delivering on our promise to enhance communications on our ESG initiatives.\nWe recently disclosed new ESG reports using the EEI and AGA qualitative and quantitative templates.\nAnd we will announce our greenhouse gas emissions reductions goals later this week in tandem with our updated Corporate Sustainability Report.\nNot only did we announce a 5.6% increase in our dividend, we also completed 50 consecutive years of annual dividend increases, a remarkable achievement that exemplifies our legacy of sustainable growth.\nOverall, it's been an outstanding quarter of strategic execution and we are confident in our strong outlook and continued success in delivering what we told you we would accomplish.\nI'll start on Slide 9.\nAs Linn noted, we delivered strong financial performance for the quarter with earnings per share as adjusted of $0.58, up $0.14 from last year, driven by strong year-over-year Q3 results at our gas utilities.\nNotable in the quarter were returns on invested capital of our utilities, favorable weather impacts, customer growth and favorable tax items.\nWe estimate weather positively impacted Q3 earnings per share by $0.05 compared to normal and by $0.11 compared to Q3 2019.\nResults for the third quarter of this year include negative COVID impacts of approximately $0.03 per share, in line with our expectations.\nNet income as adjusted increased 35% quarter-over-quarter, while earnings per share as adjusted increased 32% quarter-over-quarter, the difference driven by dilution from additional common shares outstanding from our equity issuance earlier this year.\nOn Slide 10, you see we increased our 2020 earnings guidance and initiated our 2021 earnings guidance, as Linn noted earlier in his remarks.\nOur earnings guidance assumptions are shown in more detail in the appendix.\nOn Slide 11, we reconcile GAAP earnings to earnings as adjusted, a non-GAAP measure.\nWe do this to isolate special items and communicate earnings that we believe better represent our ongoing performance.\nThis slide displays the last five quarters and demonstrates the seasonality of our earnings.\nThere were no special items in the third quarter this year.\nSlide 12 is a waterfall chart illustrating the primary drivers of our earnings results from third quarter of 2019 to third quarter of 2020.\nAll amounts on this chart are net of income taxes.\nWhile I talk through the gross margin comparisons, I will refer to pre-tax margin impacts.\nOur Electric Utilities gross margin benefited from rider revenues, power marketing results and a pickup related to the Tax Cuts and Jobs Act, which I will cover more in a moment.\nOur Gas Utilities gross margin benefited from new rates, favorable weather conditions that increased agricultural loads, customer growth and mark-to-market gains on gas commodity contracts.\nA bit more color on agricultural loads.\nLast year was a record precipitation year in our Nebraska service territory and our irrigation loads were correspondingly low in the third quarter.\nThis year was hotter and drier than normal in Nebraska.\nCompared to normal for agricultural loads, last year's Q3 pre-tax margins were negatively impacted by approximately $5 million, while this year's Q3 pre-tax margins were positively impacted by approximately $2 million.\nSo we had a $7 million pre-tax swing related to the agricultural loads comparing Q3 2019 to Q3 2020.\nWhen looking at weather overall for this year's Q3, including the agricultural impacts, our Electric Utilities gross margin benefited by $1.6 million pre-tax compared to normal and our Gas Utilities gross margin benefited by $2.6 million pre-tax compared to normal.\nThe final comment on our Utilities gross margins relates to COVID impacts, which generally played out as we had forecast.\nThe combination of COVID net load impacts and forgiven late fees impacted our Utilities gross margin by approximately $1 million pre-tax.\nOur non-regulated margins were slightly higher than last year, reflecting higher revenues from our new wind assets at our Power Generation segment, partially offset by lower tons sold in our Mining segment.\nTotal O&M increased compared to the prior year, largely driven by a $2.4 million after-tax expense from the retirement of certain assets at our Power Generation segment.\nNet COVID-related O&M of $800,000 after-tax resulted from higher bad debt expense accruals and sequestration of the essential employees, partially offset by lower costs related to travel, training and outside services.\nDepreciation increased as a result of additional plant placed in service.\nInterest expense increased due to higher debt balances resulting from new debt issued to fund our capital investment program.\nOther income expense was unfavorable to the prior year, reflecting additional expense for our non-qualified benefit plans this year related to stock market performance and higher pension expense.\nWe had a favorable effective tax rate in Q3 compared to the prior year.\nThis was driven by additional production tax credits from our wind assets placed in service last year and the release of reserves associated with the Tax Cuts and Jobs Act.\nA bit more color on that.\nWe finalized certain regulatory proceedings around the TCJA during the third quarter and we're able to release associated reserve amounts, benefiting our Electric Utility gross margins by $1.5 million and income taxes by $2.1 million.\nSlide 13 shows our financial position through the lens of capital structure, credit ratings and financial flexibility.\nWe are in excellent shape from a debt maturity and liquidity perspective and we continue to maintain solid investment grade credit ratings.\nIn February, we issued $100 million of equity to help support our 2020 capital investments.\nWe don't expect to issue any more equity in 2020.\nYou'll note in our 2021 guidance assumptions in the appendix we expect to issue $80 million to $100 million of equity through our at-the-market equity offering program in 2021.\nWe've mentioned previously the need to issue up to $50 million of equity in 2021 based on our previously disclosed forecast.\nAnd the addition of $142 million to forecasted capital investments for 2020 and 2021 drives the increased equity need.\nIn June, we issued $400 million of 2.5% 10-year notes to term out our short-term debt and support our ongoing capital investment program, further enhancing our liquidity position.\nThis debt issuance was a great outcome and provides our customers low cost debt for the next decade.\nAt quarter end, we had $84 million of borrowings on our credit facility with no material debt maturities until late 2023.\nAs at the end of October, we continue to have over $600 million of liquidity available from capacity on our revolving credit facility.\nSlide 14 illustrates our dividend growth track record.\nWe completed 50 consecutive years of increasing dividends in 2020 with strong and consistent increases in the past few years.\nWe maintain our target for a long-term dividend payout ratio of 50% to 60% of EPS, demonstrating our confidence in our long-term earnings growth prospects.\nMoving to Slide 16.\nOur customer-focused strategy is designed to deliver sustainable long-term value growth for customers and shareholders.\nWe're aligning our people, processes, technology and analytics to serve the growing needs of our customers and our growing communities.\nWe are investing in our customers' needs for safety, reliability, resiliency, growth and an overall positive customer experience.\nThese investments for customers positions us to deliver both long-term earnings and dividend growth for shareholders.\nOur programmatic approach to these investments also provides greater consistency and clarity for the benefit of all of our stakeholders.\nTurning to our capital investment plan on Slide 17.\nWe added $239 million to our five-year forecast for a total of $2.9 billion focused on projects and initiatives that maintain customer safety and reliability and foster customer growth over the next five years.\nMost of the increased capital is related to additional programmatic investment in our Gas Utilities and more than half of the increase is planned for this year and next year.\nFor this year, we are increasing our capital investment by $64 million to $733 million and for next year, we're increasing our capital investment by $78 million to $633 million.\nGoing forward, we fully expect to invest at least $500 million annually to support our customers.\nWe continue to take a relatively conservative approach to our capital forecast.\nWe include opportunities that have a reasonable degree of certainty and then we add capital as we gain more clarity around incremental projects that will support our customers.\nWe anticipate that additional capital opportunities are likely over the planned period, especially in the outer years.\nSlide 18 illustrates that our capital plan is utility focused with timely recovery on most of our investments.\n95% of our forecasted investments are for our utilities and we anticipate 83% of our Gas Utility investments and 51% of our Electric Utility investments received timely recovery.\nOn the regulatory front, we've listed our current activity on Slide 19.\nAs noted earlier, rate reviews are under way for our Gas Utilities in Nebraska and Colorado.\nWe appreciate that we had a constructive hearing last Wednesday in Nebraska.\nThe hearing focused on our settlement agreement for the rate review, the rider we requested and for the consolidation of our two utilities in Nebraska.\nIn other regulatory initiatives, we continue to advance our Renewable Advantage program to add up to 200 megawatts of renewable energy in Colorado.\nWe're currently negotiating with the winning bidder on a 200 megawatt solar project to be constructed in Pueblo, Colorado.\nWe're excited to complete our Renewable Ready subscription-based program for our South Dakota and Wyoming Electric Utilities, our 52.5 megawatt Corriedale wind project, we are building to support that program is nearly complete and we expect it to be in full service prior to year end.\nThe wind facility is located near Cheyenne, Wyoming, one of the best wind resources in the United States.\nOn the ESG front, we have a strong legacy of sustainable growth and we're guided by our core values to safely and cost effectively serve our customers as we provide opportunities for our people to develop and advance their unique skills.\nAt Black Hills, we have a strong ESG commitment and we're prepared to tell our story more holistically.\nAn important initiative for us was the publication of our first ESG reports.\nWe use the EEI and AGA templates that I mentioned earlier, which will soon be followed by our greenhouse gas emission reduction goals, which we will release later this week.\nWe are adding or expanding renewable energy in all three of our Electric Utilities in Colorado, South Dakota and Wyoming.\nThis year, we were once again awarded Gold Star status in Colorado's Environmental Leadership Program.\nGold Star is the highest achievable status and I am proud that we have held this distinction since 2014.\nIn fact, we were the first utility in Colorado to achieve this designation.\nWe also recently voluntarily joined EPA's Methane Challenge program to reduce methane emissions beyond regulatory requirements in our Gas Utilities.\nWe continue to rigorously promote our strong safety culture with a goal to be the safest utility in the industry.\nOur team is already delivering results better than industry average and they are staying on the forefront of processes and safeguards to keep people safe during the ongoing pandemic.\nWe're also very engaged in serving the needs of our customers through financial aid and supporting organizations like the United Way that offer critical assistance in times like these.\nIn 2019, we provided over $5.5 million in charitable giving and we continue to support our strong commitment to the economic viability of our customers and our communities.\nTheir impressive credentials and experience are already being instrumental in driving future growth while fulfilling our ESG commitments.\nThey participated in our Board meeting last week and are already adding value.\nIn closing, we are confident in our future.\nWe are well positioned as a low risk utility investment and complementary gas and electric utility businesses.\nWe're privileged to operate and stable in growing territories, which continue to be resilient even during the ongoing pandemic.\nWe have a solid financial position and liquidity.\nAnd we are investing and being ready to serve the growing needs of our customers and communities as we improve life with energy.\nAnd Rich and I are happy to respond to questions.",
        "summary": "compname posts q3 adjusted earnings per share $0.58.\nq3 adjusted earnings per share $0.58.\nraises fy 2020 adjusted non-gaap earnings per share view to $3.60 to $3.70.\ncompname says initiates 2021 earnings per share guidance range of $3.75 to $3.95.\ncompname says increases 2020 to 2024 capital investment forecast by $239 million to $2.9 billion."
    },
    {
        "text": "Leading our quarterly earnings discussion today are Linn Evans, President and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer.\nAlthough we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially.\nAs we look back at 2020, I couldn't be prouder of what our team has accomplished.\nThroughout an uncertain and disruptive year, I admired how the Black Hills Energy team rose to every challenge head-on.\nI'm especially pleased how our team always kept their health and safety, and our customers' health and safety at the forefront, as we successfully executed in our customer-focused utility strategy, all while delivering strong financial performance that exceeded our guidance.\nI believe, most of us will look back on 2020 as a year of seemingly endless challenge and yet as these challenges that prove the character and resilience of an organization and make us stronger.\nLike those before us for the past 137 years at Black Hills, we adapted, we rallied together and we worked hard, truly exemplifying our ready-to-serve commitment and the incredible spirit within our team.\nThe Black Hills Energy team once again delivered a long list of accomplishments for our stakeholders throughout 2020.\nSlides 4 through 6 highlight the success of consistently delivering on what we said we would do.\nWhat I'd like to refer to as delivering a high say/do ratio.\nSafety is our number one priority at Black Hills each and every day.\nAnd is this priority and our genuine concern for our fellow coworkers, our customers and our communities that gave us a solid foundation upon which to confront the pandemic and build a stronger future.\nFor the seventh consecutive year, our safety culture produced an injury incident rate better than the utility average, demonstrating progress on our goal to become the safest utility in the industry.\nOur team, combined with our resilient infrastructure, advanced our reputation of delivering industry-leading reliability for our customers.\nAs outages occurred, I was impressed throughout the year as my coworkers delivered a remarkable response, safely and efficiently restoring service with a ready-to-serve attitude and dedication.\nWe produced strong fourth quarter and full-year financial results as the economies in our Midwestern states continue to improve.\nWe are fortunate to operate and stable and growing territories where most of our communities remained open during the pandemic.\nAs we said we would, we have provided greater clarity into our longer-term earnings outlook.\nWe increased our 2021 guidance, we initiated 2022 guidance and we announced long-term earnings and dividend growth targets.\nRich will cover these targets in more detail during his comments.\nI'm pleased that we successfully and safely executed on our customer-focused investment program.\nThrough solid planning and collaboration with contractors and suppliers, our team deployed $755 million in capital projects to further harden and modernize our energy systems.\nThese investments included our $79 million, 52.5-megawatt Corriedale wind project, which we constructed in our strong wind resource area near Cheyenne, Wyoming.\nThe project now serves customers in South Dakota and Wyoming through our innovative and voluntary customer subscription-based Renewable Ready program.\nWe also made terrific regulatory progress with the Nebraska and Wyoming commissions approving our consolidation applications and our rate reviews on constructive terms.\nBoth commissions approved our applications to consolidate multiple rate structures into a single statewide rate structure.\nThese approvals will help streamline our regulatory strategies in both states and provide efficiencies as we continuously improve how we serve and how we interact with our customers in those states.\nIn addition to receiving constructive revenue increases in both states, both states also approved riders to support our programmatic investment for safety and reliability.\nThroughout the pandemic, we maintained our strong financial position and investment-grade credit ratings, executing upon our debt and equity financing needs on favorable terms during the year.\nAnd our time tested staying power as a result of environmental, social and governance matters always being a core focus.\nIn 2020, we provide a greater transparency into our ESG profile and journey.\nWe published new qualitative and quantitative reports.\nWe issued an updated corporate sustainability report and we announced our goals to reduce greenhouse gas emissions intensity.\nFor our electric operations, we are on track to achieve a 40% reduction by 2030 and a 70% reduction by 2040, off a 2005 baseline.\nWe are currently developing our integrated resource plans for South Dakota and Wyoming, which we will complete this summer and in next year for Colorado.\nThese resource plans will provide detail regarding how we will achieve these goals, including options for our current resources and potential investment opportunities to meet customer demand.\nFor our natural gas utilities, we expect to cut greenhouse gas emissions intensity by 50% by 2035.\nAgain, that's off of the 2005 baseline.\nWe have already cut our gas utility emissions by one-third since 2005.\nSlide 7 shows that we plan to invest over $600 million annually during the next five years for a total of over $3 billion.\nOur base forecast of over $2.7 billion represented by the orange bars relates to projects that are fully planned and in progress.\nAs incremental projects are more refined for timing, cost and other factors, we will add them to our base forecast.\nIncremental projects we are working on include additional electric generation and transmission projects, gas pipeline projects and additional programmatic investment.\nSlides 27 through 32 in the appendix provide additional details related to our capital investment plan.\nIn addition, our dedicated growth team is aggressively pursuing new growth opportunities.\nWe are powering data centers and technology growth within our service territories and with more people moving into our service territories, we are ready-to-serve our growing customer demand.\nWe are adding to our reputation of delivering innovative solutions, products and technologies, including the expansion of renewables and cleaner technologies, such as electric vehicles and renewable natural gas.\nAcross all of our business, we continue to focus on cost discipline, along with our better every day culture to drive greater efficiency and value through continuous improvement.\nLooking forward, we are confident in our future.\nWe are well positioned as an integrated pure-play utility serving a strong and growing region and jurisdictions with constructive regulatory environments.\nI'm excited to work alongside with our highly engaged team executing our proven strategy to continue delivering strong results for all of our stakeholders.\nJust like all of you, we are hopeful for a brighter year ahead, especially for our families and friends whose lives were deeply affected by the virus.\nWhile the pandemic remains a serious issue, our business fundamentals remain strong and we are applying what we learned in 2020 to become more efficient, more responsive and more technology enabled.\nI'll start on Slide 11 where you can see we delivered an 8.8% increase in earnings per share as adjusted for the fourth quarter and a 5.7% increase for the full-year compared to 2019.\n2020 Adjusted earnings per share of $3.73 came in just above the top end of our guidance.\nFull-year earnings were driven by strong margin growth from returns on our invested capital, new customer growth, excellent cost management and tax credits.\nThese positive drivers overcame net COVID impacts and higher share count.\nNet full-year COVID impacts of $0.07 were consistent with our forecast.\nThis includes net load impacts and net expenses associated with the pandemic, which are detailed on Slide 35 in the appendix.\nNet weather impacts for the fourth quarter and the full-year were fairly nominal, which we estimate as $0.01 lower than normal in Q4 and $0.05 lower than Q4 2019.\nFor the full-year, weather was $0.03 higher than normal, but $0.03 lower than 2019.\nSlides 12 and 13 contain waterfall charts illustrating the primary drivers of our earnings results comparing Q4 2019 to Q4 2020 and full-year 2019 to 2020, all the amounts on these charts are net of income taxes.\nAs you can see, both the quarter and full-year show strong growth in margins that are natural gas utilities when compared to 2019.\nThis was driven by new rates from our constructive regulatory outcomes in Wyoming and Nebraska and by riders across our service territories.\nCustomer growth across our service territories also contributed nicely to margin in 2020.\nOur electric utilities and non-regulated margins also increased for the full-year.\nO&M increased by only 1.5% [Phonetic] for the full-year and that's including the O&M we incurred relate to COVID.\nWe are pleased with our team's O&M control in 2020, it really was outstanding.\nDD&A increased as a result of our strong capital investment program in 2019 and 2020.\nInterest expense increased due to higher debt balances resulting from new debt issued to fund our capital investment program, partially offset by lower short-term borrowing rates.\nOther income expense was favorable to the prior year, reflecting expensing of project development costs in the prior year, which was partially offset by higher current year pension plan cost driven by lower interest rates.\nOur effective tax rate for 2020 was 11.9%, compared to 12.2% in 2019, driven by higher tax credits.\nSlide 14 shows our financial position through the lens of capital structure, credit ratings and financial flexibility.\nWe are in excellent shape from a debt maturity and liquidity perspective.\nWe continue to maintain solid investment-grade credit ratings.\nLast February, we issued $100 million of equity to help support our 2020 capital investments.\nYou will note, in our 2021 and 2022 guidance assumptions in the appendix, we expect to issue $100 million to $120 million in 2021 and $60 million to $80 million in 2022 through our at-the-market equity offering program to support our ongoing capital investment plans.\nOn the debt side, in June, we issued $400 million of 2.5% 10-year notes to term out our short-term debt, further enhancing our liquidity position.\nThis debt issuance was a great outcome and provides our customers low-cost debt for the next decade.\nAt year-end, we had $234 million outstanding on our credit facility with no material debt maturities until late 2023.\nAs of February, we continue to maintain over $500 million of available liquidity.\nWhile debt-to-total capitalization remained in the 58% to 59% range through 2020, we are targeting a debt-to-total cap ratio in the mid-50s.\nAs Linn noted, we are providing greater clarity into our long-term earnings outlook as outlined on Slide 15.\nWe see opportunities to continue our strong cost management into 2021 and accordingly, increased our 2021 guidance to $3.80 to $4 per share, up $0.05 on each end [Phonetic].\nWhile issuing a second year of guidance is not our typical practice, we also provided 2022 guidance of $3.95 to $4.15 per share, which incorporates the new Wygen I contract starting January 1, 2022.\nOur newly initiated 2022 guidance targets an approximate 5% earnings per share CAGR from 2019 to 2022.\nUsing 2022 as our base year, we expect to grow earnings per share in 2023 through 2025 at a 5% to 7% CAGR.\nWe are excited about our growth opportunities as we share this long-term earnings per share growth target.\nMoving to our dividend on Slide 16.\nIn 2020, we proudly marked 50 consecutive years of annual dividend increases, one of the longest track records in our industry.\nSince 2016, we have increased our dividend at an average annual rate of 6.6%.\nLooking forward, we anticipate increasing our dividend by more than 5% annually through 2025, while maintaining our 50% to 60% payout target.\nWe are uniquely positioned as a pure-play utility in constructive jurisdictions with a complementary business mix across stable and growing territories.\nThese factors paired with our strong and sustainable growth outlook, provide an attractive investment opportunity.",
        "summary": "increasing guidance for 2021 earnings per share available for common stock to be in the range of $3.80 to $4.00.\ninitiating guidance for 2022 earnings per share available for common stock in a range of $3.95 to $4.15."
    },
    {
        "text": "Information on these factors can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 and any subsequent quarterly report on Form 10-Q or Current Report on Form 8-K, which are available at the SEC website www.\nLet me make a quick few remarks about the -- what we're seeing in our market before we get into our results.\nFlorida seemed to be in -- caught up in it more than probably any other state.\nAnd there was a lot of concern as to whether that will impact the economy and to what extent.\nI'm happy to report three months into it now, Delta seems fairly in the rearview mirror.\nI think they have come down to even lower than they were three months back.\nSo we're happy about that.\nBut what we were most happy about is also that does not actually have the same kind of impact that previous surges have had on the economy.\nI think the economy is learning to deliver these surges at when they happen.\nHopefully, there won't be anymore, but at least over the last three months, we did not see a significant impact to the local economy here or in other parts of the country where we do business.\nBut it's good to see Delta behind us obviously with a fair amount of pain that we wanted to of the healthcare side.\nWe -- the Delta surge did put our plans about return to office on hold a little bit.\nWe have started bringing people back in, in the summer.\nWe have to take a pause.\nLater today, I will be making a call internally and we will be talking about how we're going to restart that process.\nOur expectation is that by January -- first week of January, we will be in the new normal, and typically now that slowly started bringing people back.\nWe will start that but not even for Board meetings, we've not had in-person Board meeting since the start of the pandemic.\nYesterday, the Board met telephonically and decided it was time to -- to start meeting in person.\nOur first in-person Board meeting, which will be over two days in the middle of November.\nSo I'm excited about that, too.\nOverall, the economy here in Florida is doing well.\nThere are obviously widespread labor shortages and supply chain disruptions that everyone has talked about.\nWe are seeing that.\nOur customers are feeling it.\nIndirectly, we're feeling that as well.\nBut it's hard for me to say when those will resolve themselves.\nBut that is the challenges we're dealing with.\nI look at this -- the biggest economic crisis of our lifetime that we went through.\nIt's 18 months into it.\nIf all we're dealing with the supply chain issues and labor shortages, I think that's a pretty good place to be.\nThis could happen a lot worse.\nSo I take this as actually a victory that these are the issues.\nThis could happen a lot worse.\nQuickly getting into our quarter, we posted net income of $87 million or $0.94 a share.\nThis compares to $104 million we posted last quarter, which was $1.11 per share.\nThe annualized returns so far for the 9 months so far -- our return on equity is 12.4% and return on assets of 1.09%.\nNet interest income declined slightly to $195 million from $198 million last quarter, but it was up compared to the third quarter of last year, which I think at that time, it was $188 million.\nThe net contracted 2.33% from 2.37%, mostly because of lower asset yields and less than expected commercial loan growth.\nAlso, less PPP impact this quarter versus last quarter was also a large reason for that contraction.\nCost of deposits, as we've been telling you, has -- continues to come down.\nWe dropped at 20 basis points this quarter.\nIt was 25 last quarters so 5 basis point reduction in the cost of deposits.\nOn a spot basis, we're actually at 19 basis points and I checked last night, we're down another basis points so like 18 basis points as of yesterday.\nSo the story on the deposit side continues.\nWe also had decent growth in deposits especially DDA -- non-interest DDA grew by $324 million.\nBut we did that very meaningfully -- we're not trying to grow the balance sheet.\nGrowing the balance sheet and hanging things up in liquidity does not really create value for anyone.\nInstead, this quarter we decided not to grow the balance sheet.\nWe shrank it, freed up capital and bought back stock quite strongly.\nIn fact one of the things the Board did yesterday when we met is approved another $150 million buyback given that we are going to wind down the authorization that we have based on how quickly we bought stock this quarter.\nAlso, the fact that the stock was around $40 or so makes it very easy in my -- from my perspective given where our book value is we're trading at such a low multiple so easy.\nIt doesn't take much of rocket science to figure out, but it's a good buy.\nSo we've been aggressive and buying back and we've gone through much of that -- much of the authorization.\nLoans -- Total loans excluding PPP runoff, they grew by $74 million.\nResidential business remained strong as has been the case for the last several quarters.\nCommercial segments, the payoffs outpaced production.\nOn the production side, actually we were pretty happy.\nOur production -- we try to go back and say, let's see what we were doing pre-pandemic and we compared the production this quarter to the third quarter of 2019.\nProduction was actually higher this quarter.\nBut it's the -- it's two things that we can control, one being payoffs and the other line utilization.\nThose have been disappointed [Phonetic] this quarter, which is why it all adds up to only about $74 million of growth in the loan portfolio.\nWhat else, credit, I would say nothing but good news on the credit front.\nI know these days, credit is not on people's mind or should always be on everyone's mind, that's the primary risk we take as a bank.\nSo I'm happy to report on the credit front criticized classified assets declined by $240 million.\nLoans under temporary deferral or modified under the CARES Act also declined to $285 million.\nThey were $497 million I believe at end of last quarter, so almost cut in half.\nNPL ratio also got better.\nIt was 1.21% this quarter.\nLast quarter, it was 1.28%.\nBy the way, that includes the guaranteed portion of SBA loans.\nSo if you exclude that NPL ratio, it's actually 99 basis points.\nThe $69 million large commercial loan that we spoke to you about last quarter, it's the resolution of that is moving forward.\nWe're pretty happy with how we reserve for it and feel very comfortable in that level of reserve.\nNet charge-offs annualized was 19 basis points.\nLast year, I think we were at about 26 basis points.\nSo good news on the net charge-offs front as well.\nCapital, book value has grown to $34.39, tangible is at $33.53.\nBefore I hand this over to Tom, just let me say, sort of what are the top in my mind in terms of what we're trying to achieve in the short to medium term sales is basically loan growth but not reaching for loan growth as getting caught up in that and going outside of the risk, that's not acceptable but loan growth restarting the growth engine on the left of the balance sheet is a top priority, continue to improve deposits, while we've made a lot of progress on that.\nI think there is more work to be done there, especially in light of the fact that actually it will rise, maybe nine months, maybe less, maybe a little more but some -- on great environment that we have to be ready for it.\nAnd we are basically working our deposit business to be -- that.\nIn the very short-term is to return to office safely is another priority and then launching in new markets.\nThe new markets we've talked about last time to you, we don't really have much to share yet because it's not going to ready for primetime, but we have been working for the last three months on finalizing and hopefully over the -- over the course of next threemonths, we will make some announcements and launch one or two new markets.\nSo I wanted to spend a little time first on deposits, give you a little bit more detail and perspective on some of the things that we're working on and what we achieved in the quarter.\nSo as Raj said, average non-interest bearing deposits grew by $749 million for the quarter and $2.7 billion compared to the third quarter of 2020.\nPeriod-end non-interest bearing DDA grew by $324 million, while total deposits shrank by $493 million.\nSo we break down a little bit the $324 million of NII DDA growth for the quarter, it was again broad spread across all geographies, across all business units and very heavily focused on new client acquisition.\nI'd also spend a little bit of time working on the deposit portfolio, the work that Raj is talking about is, has been a daily level of kind of bruising work that's not that glamorous but we're working very hard on new account operating relationships, cross-selling within the book, ensuring the ECR rates are set at appropriate levels really working hard on kind of the building blocks of this and I think the two places that you see it, number one, are the continued NII DDA growth obviously in the $324 million, but also secondarily, if you look at service charges, deposit fees on accounts was up 33% for this quarter compared to the same period last year.\nSo we're really starting to see excellent kind of cadence in the rhythm in both continued NII DDA growth, continued opening of new operating account business, which is really our central focus as a strategy and continuing for a surging in the level of service charge revenue that we have from these accounts.\nSo all of that is -- is a big part of what Raj talks about when we're talking about the entire deposit mix and the quality of the deposit book.\nA little further down, money market accounts declined by $1.1 billion this quarter as we continue to execute the strategy of the quality of the base.\nWe have looked hard at accounts that we think are highly susceptible to increases in rates once we get into a different interest rate environment and we've taken a lot of steps to ensure that we're moving out deposit accounts right now on a proactive basis as we continue to grow the operating account business and take advantage of that entire dynamic to have just an overall better quality book.\nSwitching to the loan side, as Raj said, excluding PPP loans, the total portfolio grew by $74 million in the third quarter.\nResidential continued to be strong, reflecting the strength in the housing market and the rate environment.\nThe overall resi portfolio grew by $751 million for the quarter.\nOf that, the EBL segment was $50 million and the pure residential correspondent portfolio grew by $701 million.\nIn the mortgage warehousing business, which is also benefited from a strong housing market, there we saw a decline of $141 million for the quarter.\nMost of that is starting to see some normalization in this segment.\nThis refi activity begins to moderate.\nAnd we see a little bit lower line utilization in this area.\nAlthough we continue to be interested in growing commitments and expect our commitment book to grow in the short-term.\nFor the C&I business, it was up $13 million for the quarter, including owner occupied CRE loans and I'll talk a little bit more about what we see in that the segment.\nThe remaining commercial portfolio declined for the quarter.\nThe largest decline was in CRE including multifamily, which was down by an aggregate of $317 million for the quarter.\nThe New York multifamily portfolio, which you have been following now with us for a number of years, declined by $76 million for the quarter.\nBut at this point, we believe that, that's stabilizing.\nThat's the lowest level of run-off that we have seen in a number of quarters.\nAnd we're actually starting to see some positives in the multifamily market in New York.\nI'm sure you all have followed it.\nWe're starting to see rent increases in the market.\nWe're starting to see people return back to the New York City.\nMultifamily market schools are reopening and things are happening that are driving people returning to the city.\nThere's been an awful lot of data out in the last couple of months about rent -- rent levels even with concessions improving back to sort of pre-pandemic levels, and we are looking at new opportunities now in the multifamily space within the New York market.\nSo we're feeling better.\nWe're feeling good about the portfolio we have today at the current level that it's had and we're feeling better about the short-term growth opportunities within multifamily in New York.\nI'd land a little bit more on Raj's comments about production.\nWhen we looked at production across the commercial lines especially C&I, CRE and small business areas, it was better than pre-pandemic levels for the same quarter.\nWe are seeing a reasonable return of pipeline particularly in the C&I area where we have a large pipeline heading into the fourth quarter and the first quarter of next year.\nSo we're seeing clients investing more.\nWe are still fighting through kind of low utilization rates and even really of the accounts that we're bringing on from an NII DDA perspective that have lines of credit with them even those lines are coming in at pretty low utilization rates, but we think ultimately that patience will pay off for us and as people start making more capex expenditures and growing more solidly in 2022, we believe these relationships including existing ones we have, we'll start to see improvements in these areas.\nBut actually overall production and pipeline build, we feel pretty optimistic about right now heading into the fourth quarter and heading into -- into 2022.\nYeah, line utilization bottomed out in the first quarter.\nIt's starting to improve all through the second quarter.\nSo we were pretty optimistic because we're seeing a very steady trend of improvement.\nBut in the third quarter, it's really stagnated so it haven't gone down, but it really hasn't come beyond where it was in the second quarter.\nSo -- And to Tom's point in the new business that we're writing, the line business, it comes on utilization levels, especially in that new business is very low, lower than its existing book as well.\nSo it's all dry powder so when these bottlenecks and the economy are resolved, this should create growth.\nBut it's hard for me to say, it was to happen a quarter from now or two quarters and three quarters from now.\nBut that's sort of what we're seeing.\nTom, you were done?\nYeah, no, I was just [Speech Overlap] I was going to give the PPP update.\nAs for PPP, $159 million of the First Draw PPP loans were forgiven in Q3.\nAs of September 30, there was a total of $49 million in PPP loans outstanding under the First Draw program and $283 million of outstanding under the Second Draw program.\nWe expect to open the forgiveness portal for the Second Draw program next month.\nBut obviously, this is kind of winding down at this point.\nQuick update on deferrals and CARES Act modifications.\nSlide 16 in the supplemental deck also provides more detail on this.\nFor commercial, no commercial loans around short-term deferral as of September 30.\n$244 million of commercial loans remained on modified terms under the CARES Act, compared to $436 million at June 30.\nThe largest decline in loans modified under the CARES Act was $144 million decline in the hotel portfolio.\nThe hotel portfolio, particularly in Florida, continues to to rebound and if you try to get a hotel in certain areas of Florida lately, good luck, particularly in the Keys and other coastal properties just the occupancy has really returned strongly there.\nSo we're -- we're feeling good to see that change come about.\nToday, $414 million in commercial loans have rolled off modification.\n100% of these loans have either paid off or resumed regular payments from residential perspective excluding the Ginnie Mae early buyout portfolio $40 million of loans remained on short-term deferral or have been modified under the longer-term CARES Act prepayment plan at September 30.\nOf the $533 million in residential loans that were granted an initial payment deferral $493 million or 92% of rolled off.\nOf those that have rolled off, 95% have been paid or are making regular payments.\nI think the last thing I'd say on the loan portfolio is also when we look at the $74 million in growth, keep in mind that we had $175 million of payoffs in in criticized and classified loans.\nSo while it certainly impacted the loan growth number, it did contribute to the overall improvement in the credit quality and we're happy to see that.\nGive a little bit more detail on the numbers for the quarter, starting with the NIM.\nThe NIM did decline this quarter to 2.33% from 2.37%.\nThe PPP fee recognition had a bigger impact on the NIM last quarter than it did this quarter.\nIf we factor out the impact of PPP fees and the impact of increasing prepayment fees on some of our securities, the NIM actually would have been flat quarter-over-quarter.\nLoan growth was ready this quarter, not commercial and we seen more commercial growth as opposed to residential growth we likely would have seen some uptick in that NIM.\nThe yield on loans decreased to 3.45% from 3.59% last quarter, recognition of PPP fees, the differential in that quarter-over-quarter if it hadn't been for that the yield on loans would have declined by only 6 basis points for the quarter and most of that 6 basis points really was attributable to the shift from residential to -- from commercial to residential.\nEventually, obviously, we believe that level will swing back the other way.\nI know you've been asking me, so I'll answer you now.\nThere are still $8.1 million worth of deferred fees on PPP loans remaining to be recognized almost all of that $8 million relates to the Second Draw program.\nSo I don't really think we'll see much of that in the fourth quarter.\nYield on securities declined from 1.56% to 1.49% and accelerated prepayments, which we think some day has to come to an end but keeps not coming to an end.\nIt just keeps getting faster on that mortgage-backed securities accounted for almost all of that quarterly decline in yields.\nThe total cost of deposits declined by 5 basis points quarter-over-quarter.\nThe cost of interest bearing deposit is down 6 basis points.\nAnd our best expectation right now is that NIM would remain relatively stable over the fourth quarter, but obviously there are things that contribute to that that are a little bit difficult for us to predict, but that's our best expectation as of now.\nAnd we can comfortably say the cost of deposits will continue to grow for at least to one quarter.\nWith respect to the allowance and the provision, overall, the provision for credit losses for the quarter was a recovery of $11.8 million.\nSlide 9 through 11 of our deck provide further details on the ACL.\nThe ACL declined from 77 basis points to 70 basis points over the course of the quarter.\nMost significant drivers to that change, $2.3 million decrease related to the economic forecast.\nThis is becoming less impactful than it has been in prior quarters, which is not surprising as things start to stabilize, a $4.5 million decrease due to charge-offs, another $3.7 million due to a variety of changes in the portfolio, including the mix of new production and ad bids [Phonetic], the further shift to loan segments with lower expected loss rates primarily residential impact on PDs of an improving borrower financial performance, risk rating changes, etc, and a $5.9 million decrease in the amount of qualitative overlays and this is mainly just a shift things that are now being captured by the models.\nThis last quarter, we didn't think the models were adequately capturing.\nThe largest component of the reduction in the reserve with the CRE portfolio.\nThe CRE model was particularly sensitive to unemployment, which improved this quarter and the commercial property forecast also improved, particularly for retail and multifamily, where we saw improving forecast in vacancy rates.\nThere was also a reduction in criticized, classified pre-loans, which impacts the reserve.\nWe also saw the resi reserve come down.\nThis was caused by residential loans continuing to come off deferral and resuming payments and changes in the economic forecast related to unemployment and long-term interest rates also had an impact.\nRemind you that almost 20% of the resi both this government insured and actually carries no reserve.\nC&I reserves actually ticked up a little bit as a percentage of loans this quarter.\nWith respect to risk rating migration, if you see -- you can see some details on this in Slides 23 through 25 of our deck, the total criticized and classified commercial loans declined by $240 million this quarter, most of that within the substandard accruing category, which declined by $252 million.\nSpecial Mention ticked up a little an substandard non-accruing ticked down a little.\nTotal non-performing loans decreased $277 million this quarter from $293 million at June 30.\nThe decline in criticized and classified assets really occurred across pretty much all portfolio segments with the largest decline in CRE.\nLooking at other income and expense, there's not really anything material to call out this quarter.\nOn the year-to-date basis, we had initially guided to mid single digit increase in non-interest expense and that's the looks like where we're going to -- likely going to land by the end of the year and I would also note the 33% year-over-year increase in deposit service charges and fees, which Tom mentioned and we're pretty happy about that.\nETR was a little lower this quarter mainly due to a temporary reduction in the Florida tax rate.\nLast point I'll make, you'll see in the next couple of weeks, we'll be filing an S-3, a Shelf registration, we don't read anything into that that you all don't feel like you need to call me, our Shelf registration is expiring and we just want to have an active shelf on file.\nWe're not planning anything so but you'll see that.\nLet's jump into it.",
        "summary": "compname posts q3 earnings per share $0.94.\nq3 earnings per share $0.94."
    },
    {
        "text": "I hope you are all doing well and staying safe.\nWhile the majority of our production employees continue to work from home, we have many dedicated employees at our manufacturing sites and with customers all adhering to the many layered health and safety protocols.\nAs a matter of fact, we delivered a record quarter in terms of earnings per share and tied the record for quarterly sales.\nWe improved manufacturing output and experienced more consistent order demand after the trough in activity last quarter stemming from the rapid onset of widespread pandemic lockdowns.\nNot surprisingly, and as we anticipated, most flow instrumentation end markets remain challenged.\nBob will walk you through the details of the quarter and after that, I'll come back and talk further about the market outlook and what we're hearing from customers in the current environment.\nAs you can see on slide 4, total sales for the third quarter were $113.6 million compared to $108.6 million in the same period last year, an increase of 5%.\nAs we noted last quarter, activity levels began to improve as lockdown started to be lifted in mid-May and into June and this activity stabilization continued out throughout the third quarter.\nIn municipal water, overall sales increased 11%, a roughly equal combination of improved order rates and recovery of the backlog built in Q2, which as we noted last quarter was the result of lockdown induced manufacturing disruptions which limited our output.\nPositive revenue mix trends continued with further adoption of smart metering solutions including ORION Cellular radios and BEACON software-as-a-service revenue along with ultrasonic meter penetration.\nAs noted and as anticipated, flow instrumentation sales declined 18% year-over-year, reflective of the broadly challenged markets and application served globally.\nOperating profit as a percent of sales was 17.2%, a 210 basis point increase from the prior year's 15.1% with improved gross profit margins and SEA leverage contributing to the strong results.\nGross margin for the quarter was 39.6%, up 120 basis points year-over-year.\nMargins benefited from higher sales volumes and positive sales mix.\nNotably, the overall trends of ultrasonic meter adoption and AMI implementations, including higher BEACON software-as-a-service and ORION Cellular radio sales.\nWhile copper prices, which serve as a proxy for Brass have been increasing.\nOur average price cost in the third quarter was effectively neutral compared to the prior year due in part to the normal purchasing to production lag.\nFinally, a reminder that prior year's results included a non-recurring discrete warranty provision associated with the products sold only outside North America.\nSEA expenses for the third quarter were $25.5 million down $300,000 year-over-year with higher personnel costs, mostly offset by lower travel, trade show and other ongoing pandemic impacted expenses.\nThe expense run rate was $2.3 million higher than the second quarter's $23.2 million reflecting the lifting of the temporary cost actions taken in the second quarter in response to the rapid onset of the pandemic.\nThe income tax provision in the third quarter of 2020 was 23.9%, slightly higher than the prior year's 22.1% rate.\nIn summary, earnings per share was $0.51 in the third quarter of 2020, an increase of 16% from the prior year earnings per share of $0.44.\nWorking capital as a percent of sales was 23% relatively in line with the prior two quarters.\nWe again delivered strong free cash flow which at $19.1 million dollars was consistent with the prior year comparable quarter despite the deferral of our federal income tax quarterly instalment payment under the CARES Act from the second quarter into the third quarter.\nOur year-to-date free cash flow of $67.8 million was 22% higher than the prior year $55.6 million and is currently tracking at 187% conversion to net earnings.\nWe ended the quarter with approximately $94 million of cash on the balance sheet as we paid down the small euro line of credit with excess cash.\nWe continue to have full access to our untapped $125 million credit facility.\nOur stable balance sheet and ample liquidity remain a clear source of strength for Badger Meter.\nUnfortunately, much of the globe, including the majority of US states are experiencing a resurgence in COVID cases.\nWhile this continues to create uncertainty, we are optimistic that extensive lockdowns will not again become a necessity, regardless, we remain fully prepared to manage safely in support of our customers in the critical and essential water sector.\nMunicipal water customer base is large and diverse.\nThe potential for some to experience difficult budgetary challenges exist due to a variety of contributing factors.\nHowever, as we've continued to learn from our active dialog across the spectrum of customers, their activities are essential and in many cases regulated.\nSome are implementing temporary cost reduction measures such as hiring freezes and travel restrictions.\nHowever, spending on critical and necessary activities, which includes metering solutions required for billing and controlling non-revenue water continues in many respects.\nOur large and diverse customer base means that there will not be a sole or single response as each municipal operation is unique with different needs and priorities.\nMunicipal water bid tenders and awards are mostly proceeding as planned, although a few have incurred extended timelines or deferrals.\nThere have been no widespread or significant cancellations and most daily order activity has returned to near normal.\nOur supply chain and the logistics partners continue to operate with new safety protocols and processes in place to address the needs of customers with no critical shortages currently.\nIn spite of other challenges and uncertainty, I'm extremely pleased with the level of execution of our team as evidenced by our operational and financial results.\nThrough the first nine months of 2020.\nMost of this fiscal year, we've been managing in a pandemic environment with countless changes to how all of us do business and severe economic shock to the global economy.\nDespite that backdrop, we have delivered municipal water sales growth, strong EBITDA margin expansion, robust working capital management and cash flow and an increase in earnings per share.\nIt is a true testament to the criticality of the water industry and the exceptional Badger Meter team.\nNow turning to the outlook.\nLet me start at a granular level where I do want to highlight a few items in terms of near-term outlook.\nFirst, the benefit of the backlog conversion into sales we saw in Q3.\nOn a year-to-date basis, it is neutral, created in Q2, recovered in Q3.\nBut as you analyze the municipal water growth rate in the quarter, order activity alone accounted for a solid mid-single-digit growth rate in sales.\nThe second as Bob noted, copper prices on average have trended up and with our normal leg, this will be a factor in Q4.\nI remind you that, while still important, the impact of Brass on our cost structure has been moderating over time as we sell more software and radios versus primarily in meters.\nLastly, you may recall, we had a seasonally strong fourth quarter of municipal water sales a year ago, which creates a tougher comp for the balance of 2020.\nTurning to the more important longer-term dynamics, it is clear that COVID-19 will have a profound impact on the global water sector and we will -- and we believe there will be a catalyst or increased adoption of smart water solutions.\nOur customers have a need for holistic integrated solutions that operationalize real time data.\nThese digitally enabled solutions such as our smart meter AMI offering reduce overall cost and offer safer remote solutions.\nThese factors are in addition to the secular drivers that have already been evolving such as the need to reduce non-revenue water, drive conservation, address the aging workforce of utilities and connect with end consumers.\nWith our robust cash flow and ample liquidity, we are actively investing in, and developing products and solutions to address these challenges.\nThis includes both organic and acquisition driven growth geared toward augmenting our offerings and attractive adjacencies serving water-related markets and applications.\nFor example added sensors and instruments for complementary data elements, such as pressure and temperature, which are used to determine system health.\nIt also includes expanding functionality of our ion water software app [Phonetic] that helps drive consumer engagement.\nWe will continue to stay close to the rapidly changing implications of the pandemic on both near term operations and longer-term trends and are prepared to successfully manage all aspects within our control.",
        "summary": "q3 earnings per share $0.51.\nq3 sales $113.6 million versus refinitiv ibes estimate of $101.5 million.\nbelieve long term opportunities for growth remain intact."
    },
    {
        "text": "Our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used.\nCore means the designated financial metrics excluding the impact of the recent s::can and ATI acquisitions.\nWe believe this reference point is important for year-over-year comparability.\nI'm not sure how often in the term supply chain challenges or inflation are going to be referenced during the quarterly earnings cycle over the next month, but I can only imagine it's going to be an all-time record.\nWhile we clearly faced our fair share of those challenges, I want to focus my introductory comments and recognizing the tremendous execution of our Badger Meter teams globally, for their proactive and constructive dialog with customers to manage priorities, expectations and build trust, for their agility and effectively redesigning certain product components to provide greater flexibility on supply sources, for their unrelenting diligence and supplier and logistics management, and for their collaboration across functions to maximize our deliveries to customers.\nThese strategic and tactical actions by our world-class team allowed us to deliver record sales and earnings this quarter, while we added to our already record backlog.\nTurning to Slide 4.\nOur total sales for the third quarter were $128.7 million, an increase of 13.3% over the $113.6 million in the same period last year.\nTotal utility water product line sales increased 12.2%.\nExcluding approximately $10 million of sales from the s::can and ATI acquisitions, core utility water revenues increased 1.7% year-over-year.\nA great result considering both the difficult prior year comparison and current year supply chain challenges.\nIn addition to the difficult comparison, our manufacturing output in the current quarter continued to be limited by supplier shortages of certain electronics and other components along with logistics challenges.\nWe did experience growth in mechanical meter, cellular radio and BEACON software as a service levels, and we continue to realize the benefit from strategic value-based pricing actions.\nStrong orders continued in the third quarter of 2021, and we exited the quarter with another record high backlog.\nOur water quality solution sales were also impacted by supply chain challenges on a more modest basis, yet still delivered results in line with our expectations.\nThe flow instrumentation product line did not escape the impact of production limitations from component shortages, but delivered a strong 18.5% year-over-year increase in sales.\nImproved demand trends across the majority of global end markets and applications as well as an easier comparison led to the increase year-over-year.\nWe are very pleased with the margin performance in the quarter, in light of widespread inflation, difficult comparisons and the dynamic supply chain impact on manufacturing operations.\nStarting with gross margins, we increased gross profit dollars by $6.2 million and as a percent of sales, gross margins improved 20 basis points to 39.8% from 39.6%.\nMargins benefited from favorable acquisition mix as well as the higher volumes and positive product sales mix, namely higher SaaS revenues, along with favorable value-based pricing realization.\nThese factors combined more than offset increasing cost headwinds across purchase components, including higher brass, resin and other materials, as well as freight and logistics.\nAs our margins demonstrate, we have executed well thus far and proactively implementing pricing mechanisms to offset existing cost increases, however, as been well publicized, the breadth and pace of inflationary pressures is increasing.\nWe will continue to actively monitor pricing in light of these circumstances, recognizing there'll be leading and lagging impacts in this dynamic environment.\nSEA expenses in the third quarter were $31.7 million consistent with the first two quarters on a dollar basis, with sequentially improved leverage as a percent of sales to 24.7%.\nSEA expenses increased $6.2 million year-over-year with the inclusion of the water quality acquisitions as well as more normalized pandemic impacted expenses such as travel.\nAs a result of the above, overall operating profit margin was 15.1% compared to a record 17.2% in the prior year quarter.\nThe income tax provision in the third quarter of 2021 was 18.3%, below the prior year's 23.9% and our normalized rate in the mid 20% range due to a discrete favorable income tax benefit related to equity compensation transactions.\nIn summary, earnings per share was $0.54 in the third quarter of 2021, an increase of 6% from the prior year's earnings per share of $0.51.\nWorking capital as a percent of sales was 25.6%, an increase of 140 basis points compared to the prior quarter-end.\nThe modest elevation in accounts receivable and inventory are temporary byproduct of the current supply chain environment.\nFor example, we are strategically maintaining higher levels of certain inventory components and work in process, capitalizing on spot availability and capacity.\nIn addition, certain customers are understandably deferring payment on partial shipments.\nWe believe these are transitory repercussions of the current environment.\nFree cash flow of $13.9 million was lower than the prior year, the result of this higher working capital.\nOn a year-to-date basis, free cash flow conversion of net earnings is 125%.\nTurning to Slide 5.\nWe've updated the quarterly sales comparison chart which highlights the key factors driving uneven year-over-year top line trends.\nThe growth rate we experienced this quarter excluding the acquisitions was the result of strong customer demand, which was muted by headwinds from the varied supply chain challenges and difficult prior year core utility water comparisons.\nAs we enter fourth quarter and look to 2022, our backlog is supportive of continued sales growth with the level of quarterly sales quite frankly dependent on the level of supply chain disruption.\nWhile this could be the variability in the cadence of sales, it is important to recognize two things.\nWith regard to our execution.\nOne, our performance thus far is delivering total sales growth despite the significantly supply challenged environment.\nAnd two, that our orders and awards are not being canceled or postponed, but simply shifting to the future.\nWe feel very good about our competitive position and the underlying drivers supporting our markets.\nIn summary, here on Slide 6, we believe that our strong order momentum and backlog confirms the underlying market demand for our solutions, which combine data, communications and analytics into tailorable solutions to enable customers to be more efficient, effective and sustainable throughout the water ecosystem.\nThe water quality acquisitions continue to perform well and the integration work that has been underway, including customer discussions, confirm the growing need and acceptance of online low maintenance and reagent free solutions for real-time water quality monitoring.\nThese distributed solutions will be a game changer for utilities, wastewater and industrial customers alike.\nWe remain optimistic about our future prospects as we continue to execute on our growth strategy, but in tandem we are acutely aware of the challenges presented by the current disruption to the supply chain and global shortage of electronics and other components, accelerating broad-based inflation as well as the potential for further impacts from the pandemic.\nWhile these challenges are not unique to Badger Meter or even our industry, the ongoing headwinds have the ability to impact top line growth rates and exert increasing margin pressures.\nThe breadth of these challenges is greater than what we've experienced previously, but the playback -- playbook for addressing them is not new.\nFinally, I want to mention our work with AT&T on the connected climate initiative they launched in August.\nWe are one of the several partners that AT&T highlighted for our efforts to reduce the impact of climate change via the the water and energy savings associated with our smart water offerings.\nUsing infrastructure free cellular technology in our ORION LTE-M radio, enables our AMi solutions to deliver more resilient, efficient and sustainable water solutions.",
        "summary": "badger meter q3 earnings per share $0.54.\nq3 earnings per share $0.54.\nq3 sales $128.7 million versus refinitiv ibes estimate of $127 million.\nanticipate component shortages and lengthened lead times will ease over time, but assume they will persist well into 2022."
    },
    {
        "text": "And while we believe our assumptions are reasonable, there are a variety of reasons actual results may differ materially from those projected.\nI'm -- as is our custom, we will go through market conditions here in the islands.\nIf you look at the unemployment slide here, you see that the economy here in the islands is steadily improving, are really being driven by a nice improvement or regaining traction in the visitor industry, as well as improvement in what we call the local economy.\nUHERO's economic pulse indicator, which is a high frequency aggregation of numerous data points, has basically the local economy now at 72% versus pre-pandemic levels.\nA quarter ago, I think we reported 62% to you, so sized [Phonetic] improvement there.\nAnd you see all of this relating into better unemployment rates.\nUnemployment now is down to 7.7%, the fifth consecutive month of declines.\nThe real estate market here in the islands like many markets is very strong.\nOahu's single-family homes were up; in terms of sales, 49% June versus June a year ago.\nSales price -- median sales prices were up 27%, and inventories are very constrained.\nSo median days on market are down 60% from a year ago to eight days and months of inventory is down 52% from a year ago to 1.2 months of inventory.\nThe condominium sector here on Oahu, similar story, a little bit more muted though, but sales up 134% June on June.\nMedian sales price is up 9% and inventory conditions very similar to the single-family home market.\nSo a very strong real estate sector here on Oahu and generally, throughout the Hawaiian Islands.\nThe visitor industry, as I mentioned, is doing quite nicely.\nSo you see this chart here really since the relaunch of our -- or the launch of our Safe Travels program, visitor arrivals have increased substantively, basically now approaching pre-pandemic levels.\nAirlift is a great story in June.\nActually, we had 1,027,000 seats into the islands, which is a 14.3% increase from June of 2019, and July and August forecasts are even more robust than that.\nSo the airlines are doing their jobs.\nArrivals are looking good.\nThe most recent data we have from the Hawaii Tourism Authority has arrivals at 74% of 2019 levels, so pre-pandemic levels.\nVisitor days at 83%, pre-pandemic levels.\nAnd expenditures at just under 80% of 2019 levels.\nAnd we have reason to believe that the balance of the summer, June, July and August should eclipse those numbers as well.\nHotels are doing quite nicely.\nAs of June, we're back up to about 97% of our room stock back in service.\nOccupancies are running at 77% statewide versus 84% pre-pandemic in 2019.\nAverage daily rates were very robust at $320 for June versus $280 for the same month in 2019.\nSo, if you can believe it, RevPAR, or revenue per available room, is actually higher as of June of this year than it was in June of 2019 at $246 per available room versus $235 per available room June of 2019.\nSo, very strong performance in the hotel sector.\nAnd forward bookings, just talking to a number of professionals in the industry, seems to be very strong as things stand right now.\nThe COVID condition here in the islands is reasonably good.\nRolling seven day averages have us in the top half of the country.\nAlthough we are concerned like most other marketplaces over the emergence of the Delta variant.\nAnd vaccinations, for the most part, have gone well.\nSo, we're in the 36 percentile of the country and hopefully -- obviously like most marketplace, we would love to get that number higher.\nSo, that's a synopsis of the marketplace.\nGrowth from core customers remained solid in the second quarter.\nCore loans net of PPP waivers increased by $113 million, or 1%, in the quarter and by $250 million year-over-year.\nWaivers on PPP loans have accelerated and resulted in a net decline of $212 million in the quarter.\nOur strong deposit growth continued, increasing $613 million, or 3.1%, linked quarter and $2.7 billion, or 16%, year-over-year.\nWith the loan to deposit ratio of 60%, our strong deposit base remains a stable source of liquidity.\nTogether with our healthy cash balance of $910 million at the end of the quarter, we maintain significant flexibility for further loan and investment growth, and we continue to deploy liquidity to support net interest income as well as mitigate the impact of near-term rate pressures.\nConsistent with this strategy, we added $1 billion of liquid and safe investments to the portfolio, increasing total balances to $8.5 billion.\nNet income for the second quarter was $67.5 million, or $1.68 per common share, up from $59.9 million in the first quarter and $38.9 million in the second quarter of 2020.\nNet interest income in the second quarter was $123.5 million, up from $120.6 million in the first quarter and down from $126.7 million in the second quarter of 2020.\nIncluded in the second and first quarters' net interest income were $3.8 million and $0.9 million, respectively, of accelerated loan fees from PPP loan waivers.\nIncluded in the second quarter of 2020 net interest income was an interest recovery of $2.9 million.\nAdjusting for PPP loan forgiveness, net interest income was slightly higher than the first quarter as the impact from lower interest rates was offset by the deployment of liquidity.\nAs Mary will discuss later.\nwe recorded a negative provision for credit losses of $16.1 million this quarter.\nNoninterest income totaled $44.4 million in the second quarter, up from $43 million in the first quarter and down from $51.3 million in the second quarter of 2020.\nIncluded in the second quarter were gains of $3.7 million from the sale of investment securities.\nIncluded in the second quarter of 2020 was a gain of $14.2 million from the sale of our remaining Visa shares.\nAdjusting for these changes, the decrease from the first quarter was due to lower mortgage banking income, primarily from the impact of rate volatility on MSR valuations.\nIn the second quarter, we recorded an MSR impairment of $1.1 million versus a recovery of $2.2 million in the first quarter.\nAdjusting for the MSR valuations, mortgage banking income was up about $400,000 quarter-over-quarter.\nPartially offsetting the MSR valuation impairment or higher service charges and other transaction fees, the increase from the second quarter of 2020 was mainly due to an increase of $5.4 million from fees on deposit accounts and other service charges due to the reopening of the economy.\nWe expect noninterest income will be approximately $42 million to $43 million per quarter for the remainder of the year from the increasing deposit fees, service charges and other transaction fees from the improving economy.\nNoninterest expense in the second quarter totaled $96.5 million.\nThe second quarter's expenses included charges of $3.2 million related to the early termination of repurchase agreements and term debt and a $3.1 million benefit from the sale of property.\nThe termination of the repos and term debt allowed us to reduce our non-core funding, reposition some securities at a net gain and increase our net interest income.\nWith the improving economic provisioning and earnings outlook for 2021, accruals for corporate incentive compensation are back to pre-pandemic levels and were $3.2 million higher than the second quarter of 2020.\nIn the second quarter of 2021, we also experienced higher levels of variable expenses from rising production, as well as continuing investments in innovation initiatives.\nThe remaining core expenses were nearly flat with expenses from the second quarter of 2020 and overall expenses continued to be managed in a disciplined manner.\nExcluding one-time items, our normalized full year noninterest expense projection, including restoration of corporate incentives, remains approximately $385 million, with the third and fourth quarter expenses being approximately the same as the second quarter at $96 million to $97 million.\nThe effective tax rate for the second quarter was 22.84%.\nCurrently, we expect the effective tax rate for 2021 will be approximately 24%, driven by higher pre-tax income.\nOur return on assets during the first quarter was 1.23%.\nThe return on common equity was 19.6%.\nAnd our efficiency ratio was 57.47%.\nOur net interest margin in the second quarter was 2.37%, a decline of 6 basis points from the first quarter.\nThe decline in the margin in the second quarter reflects the ongoing impact from the strong deposit growth and lower rates, partially offset by deployment of liquidity.\nWe expect the margin will decline approximately 5 basis points to 6 basis points in the third quarter, primarily due to the continued deposit growth and the recent decrease in long-term rates, then stabilize in the fourth quarter.\nNet interest income in the third quarter will be approximately flat to slightly higher than the second quarter.\nThe increase in NII is expected from continued balance sheet growth, deployment of excess liquidity and stable interest rates, but we remain asset sensitive and are well positioned for higher rates.\nThese estimates exclude the impact of PPP loan prepayments, which have been volatile and unpredictable.\nWe strengthened our capital levels through our very successful issuance of $180 million in preferred stock.\nThe addition of preferred capital together with our strong earnings increased our Tier 1 capital and leverage ratios to 13.9% and 7.31%, respectively, adding to our excess levels.\nWe are well positioned for continued growth over and above the strong deposit growth of $4.4 billion we've already absorbed into our balance sheet since the beginning of 2020.\nDuring the second quarter, we paid out $27 million, or 40%, of net income in dividends.\nOur strong capital levels and income generation will enable us to restart the share repurchase program this month, which has been suspended since the first quarter of 2020.\nThe remaining share buyback authority is $113 million.\nAnd finally, consistent with our improving income levels, our Board declared a dividend of $0.70 per common share for the third quarter of 2021, an increase of $0.03 per share.\nAt the end of the quarter, customer loan balances on deferral were down 88% from their peak to 1.8% of total loans.\nYou'll recall, given we had the capacity to do so, we elected to partner with our customers through this unprecedented event and provided extended relief primarily through principal deferrals on low margin real estate.\nAccordingly, 93% of loans remaining under deferral are secured, with our consumer residential deferrals having a weighted average loan-to-value of 68%, and our commercial deferrals having a weighted average loan-to-value of 46% with 97% continuing to pay interest.\nReturn to payment performance previously deferred loans has continued to be strong with less than 1% of these customers delinquent 30 days or more at the end of the quarter.\nCredit metrics remained strong and stable in the quarter.\nNet charge-offs were $1.2 million as compared with net charge-offs of $2.9 million in the first quarter and net charge-offs of $5.1 million in the second quarter of 2020.\nNon-performing assets totaled $19 million, up $1.1 million for the linked period and down $3.7 million year-over-year.\nLoans delinquent 30 days or more were $29.8 million or 25 basis points of total loans at quarter-end, down $10.1 million for the linked period and up $6.3 million from the second quarter of last year.\nCriticized exposure continued to decrease during the quarter, dropping from 2.6% of loans to 2.17% of total loans.\nAs Dean noted, we recorded a negative provision for credit losses of $16.1 million.\nThis included a negative provision to the allowance for credit losses of $16.8 million, which with net charge-offs of $1.2 million reduced the allowance to $180.4 million, representing 1.5% of total loans and leases or 1.56% net of PPP balances.\nThe decrease in the allowance is reflective of the most recent UHERO economic outlook and forecast for our market, coupled with our credit risk profile.\nThe allowance does continue to consider and provide for the potential downside risk inherent with the pandemic.\nThe reserve for unfunded credit commitments was $4.5 million at the end of the quarter with a provision of $1.5 million made to fund the linked-period increase.\nWe are now happy to answer any questions you may have.",
        "summary": "compname posts q2 earnings per share $1.68.\noration second quarter 2021 financial results.\nq2 earnings per share $1.68."
    },
    {
        "text": "A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K.\nWe will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results.\nI'll begin with an overview of our key messages and some highlights from our strong first quarter.\nNext, I'll provide an update on execution against our growth strategy across our three franchises.\nFinally, I'll close with some thoughts on how Broadridge is continuing to drive long-term sustainable growth.\nOur first quarter results marked a strong start to the fiscal year.\nRecurring revenues rose 16% and adjusted earnings per share rose 9%.\nSecond, our top line growth continues to be propelled by a combination of our own actions and strong underlying market trends.\nThe biggest driver of our 7% organic growth across all three of our businesses was the onboarding of closed sales as we continue to convert our $385 million backlog into recurring revenue.\nWe also benefited from the continued tailwind of very healthy position growth in governance, driven by ongoing trends.\nThird, we continue to execute on our long-term growth plans across our governance, capital markets and wealth and investment management franchises.\nI'll provide an update on our execution steps in a few moments.\nFinally, our strong start to the year puts us in a very good position to reaffirm our full year guidance, including 12% to 15% recurring revenue growth and 11% to 15% adjusted earnings per share growth.\nIt also keeps us on track to deliver at the higher end of our 3-year growth objectives.\nBeyond those three-year objectives, we are focused on delivering sustainable long-term growth driven by ongoing industry trends and investments across our governance, capital markets and wealth franchises and in turn, generating consistent top quartile shareholder returns.\nGenerating those returns requires consistent execution.\nOur governance business had a very strong first quarter.\nICS recurring revenues rose 11% to $410 million.\nAs I noted earlier, the biggest driver of that growth was revenue from closed sales.\nThe other key driver continued to be position growth, which reached 39% for equity proxies in a small quarter, and 9% for funds and ETFs.\nIn equities, the growth continues to be broad-based across all market caps in multiple industries.\nIn funds, much of the growth is being propelled by ETFs.\nOver the past decade, the number of both equity and funded ETF shareholders has risen at a high single-digit rate, propelled by the ongoing democratization of investing.\nWe're also extending our governance franchise to enable voting choice.\nMany of you saw the announcement from BlackRock a few weeks ago that they will implement pass-through voting for their institutional investors.\nClimate change and ESG more broadly are becoming increasingly important to investors, and they're demanding to have greater transparency and voice in the actions that companies they own are taking to address these issues.\nBroadridge is playing a key role in helping BlackRock implement this important change.\nWe have been working with them over an extended period to leverage our infrastructure to enable pass-through voting.\nIt's a great example of how our expertise in managing preferences and voting and our 24/7 SaaS platform is helping our fund industry clients.\nGiven the increasing importance of ESG, we're hearing from others in the industry, seeking to offer a similar service to their clients over time.\nMoving to capital markets.\nWe continue to make progress in growing our franchise with revenues rising 34% to $209 million driven primarily by the integration of Itiviti, which is going well.\nOur newly combined capital markets team has hit the ground running in finding complementary product opportunities that leverage our pre and post rate expertise and client reach.\nFor example, we recently announced the integration of Itiviti's NYFIX solution with Broadridge's buy-side portfolio order and investment management system.\nThis will enable Broadridge's clients to achieve greater automation in their post-trade workflows and is a tangible step toward integrating our solutions across the trade life cycle.\nOutside of Itiviti, we brought live another large U.S. bank with a global business to our GPTM capital markets technology platform.\nThe first phase of this onboarding, covering global fixed income, is a result of over two years of platform investment.\nWe expect to roll out additional phases, including the expansion of equities over the coming quarters.\nIn wealth and investment management, revenues rose 6% to $131 million.\nWe continue to make steady progress in developing our Broadridge wealth management platform, while also delivering component solutions.\nFor example, we were recently selected by a leading Canadian pension plan to leverage our investment management private debt and loan solutions to help them manage their alternative asset portfolio.\nI want to wrap up by giving you my perspective on what our continued execution means for Broadridge and our investors.\nOur strong first quarter results reflect the underlying growth trends powering our business and the execution of the clear growth plan we laid out at our Investor Day 11 months ago.\nWe're extending our governance capabilities to cover more investors, more geographies and more issuers.\nWe're building the data-driven solutions for the fund industry and the digital communications infrastructure that helps companies increase the effectiveness and lower the cost of their client communications.\nWe're growing our capital markets franchise by adding new clients under our platforms and integrating the front office capabilities we acquired in Itiviti.\nAnd we're building our wealth and new management franchise by adding more component solutions and creating a next-generation wealth management technology platform.\nThe critical factor underlying all this execution has been and will continue to be investment in our technology and digital platforms.\nWe're pursuing a $52 billion market opportunity that's continuing to evolve.\nThe long-term trends driving that evolution, including the ongoing democratization of investing, which in turn is driving and being driven by greater digitization, were only accelerated by the pandemic.\nThose same trends are powering our growth and creating an imperative for investment by our clients in the next-generation technology we provide.\nWe're all hearing a lot these days about the \"democratization\" of investing.\nBut what we are seeing now is a continuation of a 50-year trend driven by the ongoing combination of new technology and reduced trading costs.\nThese forces have led to continued innovation from discount brokerage to online trading, to 401s, ETFs and managed accounts.\nMore recently, modern user interface, 0 commission trading and the pandemic have accelerated this long-term trend.\nTogether, these forces have made investing consistently more cost-effective and more accessible for more people.\nFor Broadridge, this has supported high single-digit growth over the last decade in the number of positions we serve.\nGoing forward, more innovations, including direct indexing, will support continued growth.\nSo we expect that same high single-digit growth for many years to come.\nIt's worth noting that democratization is also playing a part in the increasing importance of ESG, which further underlines the importance of what Broadridge does.\nAs new investors come to the market and new innovations drive increased diversification, it's critical that investors get to shareholder disclosures and other communications they need to make informed decisions.\nInvestors are also seeking to exercise their vote on how issuers and funds should approach ESG issues.\nOur 24/7 SaaS technology platform plays a critical role in powering that system of corporate governance.\nAnd these trends are making governance, voting and disclosures an even more important part of the investment process.\nWe have built that platform through continuous innovation and investment to link tens of thousands of corporate issuers and funds with hundreds of banks and broker-dealers and tens of millions of institute individual investors.\nOur platform is constantly monitoring and validating positions across more than 100 million retail and 270,000 institutional accounts.\nEvery day, we collect, maintain and manage the investor preferences that are critical to driving digital distribution.\nDoing so effectively and securely requires investment in continuous monitoring to provide the highest levels of data security.\nIt also requires us to serve our bank and broker-dealer clients with co-branded communications, client service and integrated billing and collections that greatly simplify the entire ecosystem.\nAs a result, we've built a 24/7 proxy and fund information infrastructure, which delivers highly accurate voting for thousands of annual meetings and whose efficiency saves funds and corporate issuers hundreds of millions of dollars each year.\nSo we will continue to invest in extending that network to enable expanded voting, enhance shareholder communications and to better gather and share data analytics that helps funds and issuers better understand changes in their investor base.\nDigitization is the second trend that's been accelerated by the pandemic and which is driving our growth.\nIt's reducing costs for our clients, broadening their reach and accelerating processes from account opening to trade settlement and communications.\nIt's being facilitated by the rapid adoption of next-generation technologies.\nThe move to the cloud enables a scalable and variable cost computing architecture, which is changing our clients' business models.\nData, analytics, and AI are transforming how clients make decisions and power their investment processes.\nThe move to digital technology and financial services has been both a driver and beneficiary of market democratization.\nFinancial services need technology and scale to compete in today's complex markets, and Broadridge provides both.\nOur SaaS technology is an on-ramp for accelerated digitization with next-generation technology.\nWe're delivering blockchain solutions to the repo market, AI-driven trading to fixed income and enhanced virtual and new meeting experience among many other examples.\nBringing new technologies to our clients with mutualized solutions at scale is a core part of our strategy.\nPast investments have put Broadridge in a position to help our clients today.\nWith the acceleration of democratization and digitization, the opportunity to invest for the future is as high as ever.\nWe're investing to build new platforms and solutions, including our Broadridge wealth platform.\nConsistent with our history, we'll also actively seek out M&A opportunities that meet our strategic and financial criteria.\nCollectively, this investment strategy has and will continue to extend our capabilities in governance, including data analytics, capital markets, including most recently phone office trading and wealth and investment management.\nI'm confident that these investments will only further strengthen our position as an innovation enabler for our clients and reinforce our long-term growth.\nFinally, any focus on sustainable, long-term growth must be grounded in meeting the needs of all stakeholders.\nAt Broadridge, that focus starts with our culture, anchored in the service profit chain that puts associate engagement at the core of our business approach.\nIt extends to our clients and communities as well as our shareholders.\nI encourage you to read our recently released sustainability report.\nYou'll learn about how we are building the most engaging workplace for the most talented associates in our industry, the efforts we make to keep our clients' data secure, our success in reducing greenhouse gas emissions and much more.\nThey are the foundation of our success.\nLet me briefly sum up.\nBroadridge delivered a strong quarter driven by continued execution and powerful underlying growth trends.\nWe are executing on our long-term growth strategy and are committed to making investments that will create additional opportunities.\nAnd we're doing it the right way by also driving associate engagement, making a positive impact on our communities, reducing our environmental footprint and improving the financial lives of millions.\nI'm confident that Broadridge is on track to achieve the higher end of our three-year growth objectives and is well positioned to drive sustainable growth for the long term.\nAnd now let me turn to Edmund for a review of our financial results.\nAs you've just heard from Tim, we are pleased with how our strategy is progressing.\nIt's good to be here to discuss another quarter of strong financial performance, driven by new sales, strong underlying volume trends and the acquisition of Itiviti.\nYou can see that strong performance in the financial summary on slide seven, which shows that recurring revenues grew 16% to $751 million.\nAdjusted operating income rose 17% to $177 million, with AOI margins flat to last year at 14.8%, reflecting our continued ability to find efficiencies and gain operating leverage through our scale, allowing us to invest in our technology and digital platforms.\nThat growth in operating income was partially offset by higher interest expense related to financing the Itiviti acquisition.\nAs a result, adjusted earnings per share rose 9% to $1.07.\nLet's get into the details of those results, starting with the recurring revenue on slide eight.\nRecurring revenues grew from $650 million in Q1 '21 to $751 million in Q1 '22, an increase of 16%.\nOrganic recurring revenue grew at 7% and came in at the high end of our 5% to 7% three-year objectives, reflecting the continued momentum from our sales and revenue backlog and increased investor participation.\nThe contribution from acquisitions, primarily our continued success integrating Itiviti, added another nine points to recurring revenue growth.\nWe reported double-digit recurring revenue growth in both of our segments.\nICS recurring revenue grew by 11%, all organic, to $410 million, propelled by a combination of new sales and strong volumes.\nRegulatory revenues rose 23% to $165 million, powered by higher mutual funded ETF communications, strong equity position growth in the U.S. and closed sales revenue.\nGrowth was also strong in our international proxy business led in part by strong performance in Canada.\nOur issuer business also contributed to our overall growth rate to strong sales of our disclosure products.\nAnd as expected, we are also benefiting from high retention of our virtual shareholder meeting solution.\nData-driven fund solutions revenue grew 5% to $83 million, boosted by an increase in revenue from assets under administration and revenue from new sales of our data and analytics products.\nFinally, customer communications revenues rose 2% driven by new sales and growth in digital.\nIn turning to GTO, recurring revenues grew 21% to $341 million and 2% organic.\nWealth and investment management revenues rose 6%, driven by the onboarding of new component sales and higher retail trading.\nCapital Markets revenues increased 34% as we benefited from a full quarter of Itiviti revenue.\nExcluding Itiviti, organic growth was slightly negative as lower license and consulting revenue was offset by strong revenue growth from new business, including revenues from onboarding of the major U.S. bank that Tim mentioned.\nGoing forward, we expect revenue from closed sales, fueled by our healthy revenue backlog, will drive strong growth over the balance of the year.\nBroadridge continued to benefit from strong volume trends in the first quarter.\nThe biggest driver of our internal growth was mutual fund and ETF record growth, which rose 9% driven by healthy markets and strong inflows.\nEquity record growth was 39% in a seasonally small quarter.\nSo keep in mind that the first quarter historically represents approximately 5% of full year equity communications with more than 80% coming in the fiscal third and fourth quarters while mutual funded ETF communications are more balanced through the year.\nLooking ahead, our testing of record positions is showing continued strong growth trends in the seasonally larger second half with high single-digit growth indicated for both equities and funds.\nOn the bottom of the slide, we saw a modest 2% increase in our trading volumes as higher fixed income volumes were offset by lower equity volumes.\nOur outlook for the balance of the year assumes flat trading volumes.\nTurning to slide 11, where we summarize the drivers of recurring revenue growth.\nRecurring revenues rose 16%, powered by 7% organic growth and nine points from acquisitions.\nRevenue from closed sales was the biggest driver of our organic growth.\nWe saw strong contribution from sales across both ICS and GTO.\nOur recurring revenue retention rate remained unchanged at 98% and internal growth contributed another two points as growth in ICS outpaced the decline in GTO.\nItiviti was the biggest driver of our acquisition growth, contributing $54 million of growth with a much smaller contribution from the tuck-in acquisitions we made late in Q4 and in early Q1.\nTotal revenue growth was 17% as strong recurring revenue growth was accompanied by four points of growth from higher distribution revenue and three points from event-driven revenues.\nLow to no margin distribution revenues grew 11% year-over-year, primarily resulting from the higher customer communications mailings.\nHigher postage rates were a small factor in the first quarter but will be a more significant contributor to distribution revenues for the remainder of the year.\nSo we expect continued high levels of distribution revenue growth for the full year.\nAnd as I've previously noted, over the long term, we expect that the share of distribution revenue as a percentage of total revenue will continue to decline as we remain focused on growing recurring revenue.\nEvent-driven revenues rose to $76 million in the quarter, driven by higher mutual fund proxies.\nQ1 '22 did benefit from a large fund proxy that was originally expected in Q3 '22.\nDespite this timing benefit and given the strong start to the year, we now expect event-driven revenues for the full year to be modestly ahead of our $220 million seven-year average.\nFor modeling purposes, we're expecting Q2 to Q4 to be in line with our $55 million seven-year quarterly average.\nRounding out revenue drivers, changes in FX contributed one point to our growth.\nYou can find our comparable revenue, segment profitability and closed sales numbers for fiscal '20 and '21 in the eight-K we filed at the end of September and in the appendix to these slides.\nSo let's now move to margins on slide 13.\nAdjusted operating income margin was flat at 14.8% in the first quarter.\nThe positive impact of strong recurring and event-driven growth was offset by growth investments and an increase in low-margin distribution revenue.\nWe continue to expect AOI margin of approximately 19% for the full year as we benefit from the higher-margin Itiviti revenues and continued margin expansion in our organic business, offsetting the greater-than-expected higher growth and low margin distribution revenues.\nMoving on to close sales on slide 14.\nClosed sales of $30 million were essentially flat year-over-year.\nAnd closed sales were balanced across both our ICS and GTO segments, and we continue to see over 2/3 of our sales in smaller core deals, those under $2 million in annualized value.\nThat gives us confidence in the broad demand and long-term growth of our digital products.\nWe remain on track to deliver $240 million to $280 million in closed sales for the full year.\nAnd finally, cash flow and capital allocation on slide 15.\nBroadridge's cash flow generation is typically negative in the fiscal first quarter and strengthens throughout the year, and Q1 '22 was no exception with negative free cash flow of $151 million.\nTurning to uses of capital, we continue to invest in our long-term growth.\nA big part of that investment is the technology platforms we're building in capital markets and wealth.\nThese new platforms require upfront investment to build new capabilities and convert new clients.\nWe invested $82 million in our platforms during the first quarter.\nOur investment in our next-generation wealth management platform is an important part of that, but we're also investing in other platforms such as our global post-trade management or GPTM solution.\nAll of these investments are tied to long-term client contracts and strengthen our capabilities across capital markets and wealth management.\nWe will continue to prioritize these internal investments in our technology platforms as part of our capital allocation model.\nAnd we're excited about the growth from new client revenues as we convert clients onto the new platforms.\nAs we integrate Itiviti, continued M&A remains a focus.\nDuring the quarter, we had a modest minority investment and invested $13 million in a pair of tuck-in acquisitions within our capital markets business.\nLooking forward, you can expect us to continue investing in our platforms and allocating capital to targeted M&A opportunities that meet our high strategic criteria and financial profile.\nAnd we will continue to return capital to shareholders, primarily through our dividend, as we remain focused on paying down debt and maintaining an investment-grade credit rating.\nWe are reaffirming our full year guidance on all of our key financial metrics.\nWe continue to expect 12% to 15% recurring revenue growth, adjusted operating income margin of approximately 19% and adjusted earnings per share growth of 11% to 15%.\nI'll note that over the last five years, the first half has typically represented less than 30% of our full year adjusted EPS, and I expect that trend to hold in fiscal year '22.\nFinally, as I noted earlier, we expect closed sales in the range of $240 million to $280 million.\nAnd with that, let me reiterate today's key messages.\nBroadridge delivered strong first quarter results with 16% recurring revenue growth driven by new sales, strong underlying volume trends and the acquisition of ltiviti.\nWe are reaffirming our guidance for a strong fiscal year 2022, and we are investing in our business as we pursue our $52 billion addressable market.\nAs a result, we are well positioned to deliver at the high end of our three-year objectives, and we see a long run rate for continued growth.",
        "summary": "q1 revenue rose 17 percent to $1.193 billion.\nreaffirming fiscal year 2022 financial guidance."
    },
    {
        "text": "In the supplemental package, the company has reconciled on non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investor Relations section of our website at investors.\nDuring the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address questions.\nI'm delighted to report that for the first time since the pandemic, I'm together with Doug, Mike, Sara and our Boston Team for this earnings call and all BXP employees returned to the office on July 6th.\nBXP is emerging from the pandemic with strength and momentum as evidenced by improving financial results and rapidly elevating leasing and investment activity.\nSo, the US economy awash with fiscal and monetary stimulus is roaring back as we exit the pandemic.\nUS GDP growth was 6.4% in the first quarter and predicted to be higher for the second quarter and for all of 2021.\nOver 850,000 jobs were created in June and aggregate unemployment decreased to 5.9%.\nIndustries that use offices have been less impacted by the pandemic and the employment rate for their workers is lower.\nDespite the annual inflation rate rising to 5.4% in June, the 10-year US treasury rate has dropped to around 1.3% and the Federal Reserve's rhetoric remains distinctly dovish given it believes the recent inflation is driven by transitory factors.\nHigh economic growth and low interest rates create the ideal environment for strong real estate investment performance.\nNow, BXP's financial results for the second quarter reflect the impacts of this recovery and an increasingly favorable economic environment.\nOur FFO per share this quarter was $0.10 above market consensus and $0.12 above our own forecast, which Mike will detail shortly.\nWe completed 1.2 million square feet of leasing, more than double the volume we achieved in the first quarter and only 10% below our long-term second quarter averages.\nOur clients are making long-term commitments.\nThe leases signed in the second quarter had a weighted average term of 7.5 years, many are expanding, as was the case with 2 large media and tech clients in LA and building quality is increasingly important as evidenced by strong tour and leasing activity at the GM Building, Reston Town Center, Colorado Center and the view floors at Embarcadero Center.\nWe believe this activity and performance supports our repeatedly stated position that tenants are committed to the office as their location of choice to collaborate, innovate, and train all critical for their long-term success and that concerns about the work from anywhere impact on the BXP footprint are overstated.\nMoving to private equity market conditions, $15.7 billion of significant office assets were sold in the second quarter flat to last quarter of 77% from the second quarter a year ago and down approximately 44% from 2019 pre-pandemic levels, and it remains 23% of commercial real estate transaction activity.\nCap rates are arguably declining for assets with limited lease rollover and anything life science related given lower interest rates.\nNotably, in Cambridge this last quarter a REIT agreed to purchase Charles Park vacant though with identified tenants for $815 million or $2200 a square foot.\nAlso, One Memorial Drive in Cambridge, a fully leased 409,000 square feet office asset is under agreement to sell for $825 million or over $2000 a square foot, and a 3.8% initial cap rate.\nMoving to BXP's capital market activity, we had a very active and successful quarter with acquisitions.\nAll of the investment strategies we have described to you over the last several quarters are represented in the 4 new investments we recently announced, which aggregate almost 2 million square feet.\nThese strategies are growing life sciences, enter the Seattle market, acquire high quality assets that need redevelopment or refreshment at discounted valuations due to the pandemic and acquire office assets in partnership with private equity investors through a joint venture investment program we set up with GIC and CPP, two leading global real estate investors.\nSo let's start with our official entry into the Seattle region with the acquisition of Safeco Plaza We have previously discussed the Seattle area as having a strong real estate market, as well as a logical expansion region for BXP's gateway strategy.\nThe Puget Sound region is the headquarters location for leading global employers like Amazon and Microsoft and has one of the largest clusters of computer science workers in the US.\nSeattle has experienced high levels of population and rent growth given its expanding technology and life science employment base and is much more affordable than other major technology markets given those State of Washington income taxes and lower real estate costs for both office space and housing.\nRents, land values and building value lower in Seattle than any of our other core gateway markets.\nThe broader Puget Sound market has the scale and growth potential to afford us opportunities to both acquire and develop in multiple districts of Seattle, Bellevue and other eastside markets.\nWe have an attractive pipeline of additional investment opportunities currently under review and we'll build out a full service real estate execution team over time.\nSafeco Plaza comprises 800,000 square feet, has a LEED Platinum certification and is located in the center of the Seattle CBD with convenient access to rail, ferry and highway transit options.\nThe building is currently 90% leased with 6 years of weighted average lease term at rents that are approximately 30% below market.\nSafeco Plaza offers generous ceiling heights 360-degree views and timeless architectural features and our strategy is to refresh the ground plane lobby and amenities and release the building at market rates in the coming years.\nLiberty Mutual which acquired Safeco is the anchor tenant leasing 68% of the build.\nBXP will own either 51% or 33.3% of the property, depending on whether one or two private equity investors join the partnership.\nWe believe our basis in the acquisition, which is $465 million or $581 a square foot is very favorable relative to replacement cost and recent office trading activity in the Seattle market.\nWe believe Safeco Plaza to be a very attractive investment opportunity with a future redevelopment play given the quality and location of the building our going in basis as well as the cash flow we receive from existing tenants during the refreshment process.\nWe have a non-refundable deposit posted and intend to close the acquisition in early September.\nWe are also entering a new sub-market for BXP, Midtown South in New York City with the acquisition of 360 Park Avenue South.\nMidtown South has become New York's strongest submarket in terms of rent growth and vacancy given it is the preferred location for many technology occupiers, New York City's most rapidly growing business segment.\n360 Park Avenue South comprises 450,000 square feet and is in a prime location at the corner of 26th street, one block from Madison Square Park.\nThe transaction will close and the building will be vacated by a long-term corporate user later this year, which provides us the opportunity to plan in advance and subsequently execute a complete refreshment of the building.\nWith generous ceiling heights and a unique elevator configuration allowing for 2 separate dedicated lobbies, we believe the building will appeal to both large and medium sized users seeking marketing and brand expression opportunities with their space.\nIn terms of economics, we are paying $300 million for the building or $667 a square foot, which leaves us significant latitude relative to comparable sales to budget generous building enhancements.\nThe acquisition structure is also creative and we think favorable for BXP.\nConsideration for the purchase will be the assumption of a $202 million mortgage on the property and the issuance of $98 million of OP units and BXP's Operating Partnership.\nWe are committed to complete the transaction on December 1st of this year and the number of OP units issued at closing will be determined by BXP stock price at that time but with a floor of $111 a share.\nIn other words, we would benefit by issuing fewer units if our share price continues to rise through the closing date but our downside is capped by a floor.\nMost importantly, the tax deferral inherent in our contribution structure distinguished our proposal such that it did not have to be the highest price to yield the seller the highest after tax value.\nOne of our joint venture investment program partners will likely join this investment by funding all of the capital needed for the refreshment resulting in their owning up to a 50% interest in the project over time.\nNext on acquisitions, we added to our life science business and entered the Montgomery County, Maryland life science market through the acquisition of a seven building 435,000 square feet office park located in close proximity to the Shady Grove Life Sciences Center, the premier cluster for life sciences in the Washington DC region.\nMontgomery County is the 4th largest life science market in the US and home or proximate to several large biomedical institutions such as NIH, FDA, John Hopkins University, and the University of Maryland.\nThe 4 million square foot Shady Grove sub-market at the epicenter is currently 3% vacant with rising rents.\nWe are paying a $116.5 million for the asset or $267 a square foot and intend to convert the entire park to lab and life science use over time.\nThere are 7 buildings in total 3 of which are vacant and will be converted to lab immediately.\nThe remaining 4 buildings are 63% leased and will be converted to lab use as leases expire and office tenants vacate over the next few years.\nThe entire site is 31 acres and can accommodate additional ground-up development depending on demand.\nThere is a strong backlog of space requirements in the market and we are already competing for a large build-to-suit in addition to other requirements.\nWe have a non-refundable deposit posted and plan to close the acquisition in August.\nAnd lastly, in the second quarter, we completed another life science acquisition 153 and 211 Second Avenue in Waltham, Massachusetts.\nThese two existing lab buildings comprising 154,000 square feet and a 100% leased to Sanofi are located immediately adjacent to our 200 West Street lab conversion property, which is almost complete and expected to deliver in the 4th quarter of this year.\nThis was an off-market transaction completed at a price of $100 million or $650 a square foot, and a 6.4% initial cap rate.\nSanofi's lease is short term and below market.\nThe site comprises 14 acres and has 120,000 square feet of additional development rights, which could be increased when combined with the excess development capacity of our adjacent 200 West Street site.\nLife sciences is a rapidly growing segment of our overall business.\nToday, life sciences at BXP is 3 million square feet, representing 6.4% of our total revenue.\nWe have 920,000 square feet of lab redevelopment and development projects currently underway that are experiencing strong user demand and expected to deliver in the next 36 months.\nAnd we have approximately 5.5 million square feet of future conversion and development opportunities under our control in the Cambridge, Waltham, Lexington, South San Francisco and now Montgomery County markets.\nWithin 5 years, assuming continued strong market conditions, we could more than double the amount of BXP's revenue that is generated from the Life Science sector.\nRegarding dispositions, we have an agreement to sell our Spring Street office park in Lexington, Mass for $192 million or $575 a square foot.\nWe expect the sale to close in September as part of an exchange with the two life science acquisitions mentioned previously.\nYear-to-date, we have completed or committed to dispositions aggregating $225 million in our share of gross proceeds and are considering additional asset sales in 2021.\nAnd as a reminder on investment activities though we did not add to or deliver from our active development pipeline this quarter, we have 4.3 million square feet of development underway that is 71% pre-leased and projected to add approximately $190 million to our NOI and 3.7% to our annual NOI growth over the next 3 years.\nOn a final an important personnel note, John Powers who as you know, is the head of our New York region told us he would like to retire at the end of this year.\nWe conducted a thorough external and internal search and are very excited to have Hilary Spann join BXP as an Executive Vice President.\nHilary has many years of real estate management and investment experience as a senior officer of CPP and prior at JPMorgan Investment Management Having completed $12 billion in investments in New York City alone.\nHilary will join BXP after Labor Day and commence her duties as New York Regional Manager at the beginning of 2022.\nSo in summary, we had a very active and successful second quarter with strong financial results and multiple new business wins in the leasing and investment market.\nBXP has a strong growth ramp driven by improving economic conditions and leasing activity, the recovery of our variable revenue streams, delivery of a well-leased development pipeline, completion now of 4 new acquisitions, a strong balance sheet and capital allocated from large scale private equity partners to pursue new investment opportunities as the pandemic recedes, a rapidly expanding life science portfolio in the nation's hottest life science markets as well as low interest rates and decreasing capital costs.\nFinally, I want to express my sincere appreciation for the BXP team which is back at the office, serving our clients, and winning new mandates with great care, expertise, and enthusiasm.\nObviously, we have a lot to talk about on the transactional side, I'm sure, there'll be some questions on that, but I do want to spend a few minutes talking about the leasing markets and the activity that we're seeing.\nThere is certainly no question that we're on the precipice of significant change in the atmosphere around in person work but more announcements come out every day, the fact remains there is still some uncertainty and there is some trepidation about COVID-19 the delta variant and whatever the next thing is going to be.\nSo the transition period that we are now in as many organizations like ours encourage or require their employees to come back to work, it's going to take some time.\nSo they're going to be some ramifications of that.\nThe impacts on space needs are going to really vary depending upon the size of organizations which we would like to put in 3 categories.\nSo the first are the really large employers.\nAnd honestly, they are moving forward with plans for space, based on long-term growth plans hiring that's occurred over the last 16 months, and thousands of open job requirements that they are trying to fill right now.\nThen, you have really small organizations that are very stable and they've all recognized that, very little is going to change regarding how they utilize a real estate, maybe some will work more from outside the office but everyone is going to continue to have a dedicated workspace in their facilities and they're really not impacting the amount of space they have.\nAnd then, there's a 3rd group, which is an important group and the 3rd group are mid sized organizations or younger companies that are experiencing growth but where it's very unclear how their organizational culture is effectively going to be built.\nIf people aren't in physical contact and I think those companies are going to have to take some time to figure that out, will it work or won't work, and we don't believe that this is going to happen immediately.\nWe think it's going to take 6 to 12 months and it's going to really depend quite frankly on, how they're doing from a competitive perspective.\nHow are their peers doing in their industries and does it matter that they're not in contact with each other, all the time.\nWhen surveyed, most employers preferred to have their teams together as much as possible to enhance efficiency and collaboration and serendipitous idea generation etc.\nWhile many employees, declared their preferences for some or more remote work.\nWell, with the tight labor market, employers are acknowledging the reality.\nThere will be an increase of work that takes place outside the office, and this will incrementally moderate some space growth in the short term, but these same companies may over time add collaborative spaces to accommodate their teams when they are all getting together and they may eventually decide that people need to be back more frequently.\nUnlike any other prior recession, there have been thousands and thousands of new positions created and there are lots and lots of job openings across the service sectors, the technology sector, the life science sector, the generators of office demand in our markets, and we believe many of these jobs are going to lead to space absorption over the coming years.\nEmployees are returning to their offices with very few reminders of COVID restrictions and they're getting together formally in meeting rooms and collaboration areas and they're taking the time to reconnect their breakfast and lunch and dinner in restaurants.\nIn many of our CBD assets, we have access control, so we can sort of see what's been going on in our competitive building sets.\nSo comparing to February of 2020 in New York City, about 50% of the employees who had cards are now coming to the office at least once a week and that number is about 34% in Boston and 20% in San Francisco.\nSo it's very different from market to market.\nOur sequential parking income grew about 20% from the first quarter and while we've not seen monthly parking permits pick up tenants are driving in and paying for daily parking, we actually think that monthly parking permits will be a good indicator for the increase of office frequency in Boston and San Francisco.\nIn Boston true transient parking is actually up and we've actually had to close portions of the Prudential Center garage around lunchtime every day during a couple of days in July due to lack of capacity, believe it or not.\nAt Embarcadero Center, we've seen about a 20% pick up from the low point on monthly parking, but we're still only at 60% of our historical high.\nSo we have a long ways to go in parking.\nWe expect to see improvements during the rest of the year and at the end of the year we think we're going to be at about 70% of where we were in 2019 on a full-year comparative basis.\nAs you listen to the apartment company calls, you're hearing about the dramatic increase in occupancy in urban areas, the employees are moving back into the cities into those same apartments, which by the way didn't grow during the pandemic and so unlikely they're planning on working at home in those apartments on a frequent basis and we're seeing this in our portfolio as we move from 51% occupancy in January to 82% at the Hub House project that's the Hub on Causeway project, from 10% to 41% at the Skyline in Oakland and from 79 to 93 at Reston Signature.\nThen our restaurant activity is up materially.\nAnd only is really being limited now by the challenges that the operators are having with labor, both in the front and the back of house.\nWe have begun to move away from percentage rent assistance to our retail tenants and back to contractual fixed rent.\nBelieve it or not in Reston, we actually had a tenant request a modification back to fixed rent because the percentage rent was creating a higher payment to us.\nSublet space continues to be a major topics during many of our conversations with investors.\nLast quarter I described, the dynamics of opportunistic sublet space and discussed our belief that many of the visceral announcements made by tenants that we're putting space on the market would reverse as organizations begin to plan their in-person work strategy again.\nThis quarter at 535 Mission, a tech company without subletting any space withdrew 40% of their 100,000 square feet availability.\nIn Manhattan CBRE is reporting that there has been a drop of about 5.9 million square feet out of a total of 19.3 million square feet that was put on post COVID and about 67% of that was backfilled by the prime tenant.\nYes, there is a lot of sublet space on the market, but a large portion is going to be reoccupied, some is not actionable because of short terms.\nIt has unworkable existing conditions or quite frankly users just don't like the comfort of the lessors profile and some of it's getting leased like the three floors that were completed at 680 Folsom in San Francisco that macys.com had on a sublet market.\nThe headwinds from sub-let space exists, but they are going to dissipate as companies begin to come back to work.\nNow as I pivot my remarks to the Boston Properties office and life science portfolio specifically, I'm going to describe the level of activity that I think is counter to the headlines of weak market conditions across the office sector in the United States.\nThe BXP portfolio includes a number of iconic high quality, well maintained, and continually upgraded assets.\nWhen there is market weakness, our assets outperform.\nWe spent a lot of time discussing our portfolio vacancy last quarter in our forward expectations.\nWe experienced quicker than expected revenue commencement on signed leases and saw basically flat vacancy relative to the prior quarter.\nWe were down 10 basis points on a 45 million square feet portfolio and this included taking back 66,000 square feet of non-revenue space that I talked about last quarter at the Hub on Causeway from the cinema that had never opened.\nWe now have new signed leases for 640,000 square feet of space that have yet to commence and are not included in our occupied in-service portfolio.\nSo on a relative basis, here's my view of the markets and I'm raking it based upon activity in the portfolio, active lease negotiations, tours, RFPs from best to least.\nBoston Waltham, we don't have any available space in Cambridge, so we have no activity there.\nSan Francisco CBD, Northern Virginia, Midtown Manhattan, Peninsula Silicon Valley, West LA, Princeton and finally DC CBD, all of the transactions.\nI'm going to talk about are post COVID negotiations, meaning they all began in the latter half of '20 or into 2021, so just to change things up this quarter let's start with LA.\nLess than 30 days later, we had a signed lease for 140,000 square feet of that space to a growing tech company.\nDuring May, we completed a 350,000 square feet long-term extension and expansion at Colorado Center with a media company.\nIn total, this 490,000 square feet, had a weighted average expiring rent that was effectively equal to the starting rent of that space and 200,000 square feet of the expiring rents were at above market holdovers.\nThis follows our immediate release of the 70,000 square feet vacancy that we had from a defaulting tenant in the first quarter.\nWe have a number of smaller deals in negotiation in Santa Monica Business Park and we're responding to requests from tenants that would prefer to go direct on some of the sublet availability at Colorado Center.\nIn Boston, during the second quarter in the CBD we signed 6 leases totaling 55,000 square feet and the average rent starting represented a growth roll off of about 20%.\nIn each case, the tenant was either renewing or expanding.\nWe have 7 additional leases in the works totaling 70,000 square feet.\nObviously, most of them are small since we don't have much in the way of availability in our Boston portfolio.\nIn the suburban Boston portfolio, we completed 60,000 square feet, the average weighted cash rent on those leases was up 17%.\nLife science organizations are dominating activity in this market.\nWe commenced construction on 880 Winter Street that's the lab life science renovation that we're doing in Waltham and have signed an LOI for 60,000 square feet.\nWe started the building on July 5 and are exchanging proposals with over 180,000 square feet of tenants for the 220,000 square feet building, and it will be delivering in August of next year.\nWe've been responding to new inquiries just about every week on that space.\nAsking rents in the market for lab space are in the high '60s to mid '70s triple net, which are well above our underwriting when we planned this project about 15 months ago.\nMany of you have been asking about inflation and construction costs.\nWhen we do our construction budgeting, we always include an escalation expectation.\nSo those numbers are baked into those numbers in our supplemental, it varies depending upon the labor market conditions, subcontractor availability and material costs.\nWe've bid in our on budget for both 880 Winter Street and 180 CityPoint, so we figured out what the escalation would be and we hit it.\nCurrently, we're carrying about a 4% to 6% escalation for base building jobs that we would bid in 12 months.\nNow, turning back to leasing.\nIn Waltham, we are negotiating leases for another 70,000 square feet of space with life science companies at Bay Colony that is adjacent to 880 Winter Street and our Reservoir Place building.\nOur new acquisitions at 211 and 153 Second which Owen described have a lease expiration in the late '22 and the current rents on the space are dramatically below market.\nThe expirations will land right in the sweet spot of the current demand in the Boston and the Waltham and the Lexington sub-markets.\nThere is some pure office demand in the market and with more and more buildings being converted to life science, we actually expect the office markets going to tighten dramatically over the next few years.\nIn New York, we continue to have significantly more tours than we had in comparable periods in 2019 and the second quarter is actually up significantly on a sequential basis from the first.\nWe completed 10 office leases totaling 90,000 square feet including another full floor expansion at 399.\nIn total, gross rents on leases signed this quarter were about 20% lower than the in-place rents.\nWe are negotiating over 400,000 square feet of additional leases, including almost 250,000 square feet at Dock 72.\nThe majority of the New York City leases will be for terms in excess of 10 years and we include 2 more expanding tenants at 399 Park Avenue.\nActivity at the street near the buildings is also picking up.\nWe signed up a new fitness provider at 601 Lex, a new fast casual restaurant at 399 and we're negotiating a lease for all of the available restaurant space at Times Square Tower.\nAnd we plan an opening the Hue culinary collective at 601 Lexington in September.\nIn Reston, our building continue to have extensive activity.\nThis quarter, we completed over 170,000 square feet of leasing of which more than 100,000 square feet was on vacant space.\nIn addition, we have active negotiations on another 72,000 square feet including almost 60,000 square feet of currently vacant space.\nReston Next is moving toward completion with the first tenant expected to take occupancy by the end of 2021.\nWe have another 85,000 square feet of office renewals in negotiation in Springfield, Virginia.\nRetail leasing is roaring back in Reston Town Center.\nWe have negotiated 35000 square feet of restaurant transactions and have almost 100,000 square feet of cinema, fitness, and soft good transactions in the Town Center.\nPedestrian activity in Reston Town Center is as active as any location in our portfolio.\nOffice rents are basically flat to slightly down on the relet since the expiring cash rents have been contractually increasing by 2.5% to 3% for the last 10 years.\nIn San Francisco CBD, we completed 5 transactions totaling 54,000 square feet with an average roll-up of 8%.\nWhy is it so low this quarter?\nWhile the square footage was impacted by a full floor transaction, it starts in the mid '90s where the tenant elected to forego any TI's for a lower rent.\nIf you exclude that transaction, the mark-to-market would have been 17%.\nIn addition, we have 8 active lease negotiations involving 143,000 square feet with an average rent starting of over $100 a square foot -- that is over $100 a square foot in this reportedly terrible market in San Francisco.\nThe bulk of these spaces are in the higher floors at Embarcadero Center and they all have views.\nPedestrian activity at the street plane, particularly in the CBD of San Francisco has improved over the last quarter, but it's still well behind Boston, Reston, and New York.\nAnd this has affected tenants' appetite for making space decisions.\nHowever, medium-sized technology users have begun to look for space.\nSublease absorption has picked up in the city with about a million square feet of withdrawals or completed transactions.\nAnd as I said earlier, macys.com did 104,000 square feet at 680 Folsom our building.\nIn Mountain View, we continue to see a constant flow of medical device and alternative energy and automotive and other R&D users looking for space.\nWe completed a full-building lease with an energy company with a healthy 60% mark up in rent and we have another 21,000 square feet lease in negotiation.\nThere is some large tech tenants in the market today looking for expansion space and one recently executed leases for about 700,000 square feet of availability that was in Santa Clara.\nWe are certainly pursuing those tenants for platform 16 and we have begun internal discussions about the appropriate time for the speculative restart of this building.\nSo to summarize, our leasing activity in the second quarter accelerated.\nOur portfolio is in great shape in LA.\nWe continue to see strong economic transactions in the CBD of Boston, our suburban Boston portfolio and the CBD of San Francisco.\nWe have significant activity in Reston and are covering our vacancy.\nNew York tour activity is strong, we're doing deals but economic terms are weaker.\nWe are expanding our life science investments across the company and in Greater Boston and South San Francisco our new construction is seeing strong demand at escalating rents.\nI'm going to start my comments by describing our earnings results which as Owen mentioned significantly beat our expectations.\nWe reported FFO for the quarter of $1.72 per share, which is $0.12 per share, better than the midpoint of our guidance.\nAbout $0.06 of our outperformance came from earlier than anticipated leasing and better parking, retail, and hotel performance, which I would consider core revenue outperformance.\nThe other $0.06 is from unbudgeted termination income and expense deferrals that we expect to incur in the 3rd quarter.\nOur office portfolio beat our expectations by approximately $0.02 per share from accelerated leasing.\nWe had several larger leases commence earlier than we expected, including our 350,000 square feet renewal and expansion with a large media tenant in LA, a 65,000 square feet healthcare from in suburban Boston and 3 technology tenants in Reston totaling over 100,000 square feet.\nAll of these leases were in our full year assumptions that were completed faster than we anticipated.\nLeasing in our residential portfolio also improved this quarter exceeding our revenue projections by a penny.\nThe improvement was across the board with our stabilized residential buildings exceeding our occupancy assumptions by 100 basis points to 200 basis points and the recently delivered projects at the Hub House in Boston and Skyline in Oakland seeing even stronger absorption.\nWhile market rents continue to be below pre-pandemic levels, concessions are starting to dissipate.\nOur parking, hotel, and retail income exceeded our expectations by $0.03 per share.\nAs Doug detailed, these components of our income stream has started to improve, which should continue as activity levels grow in our cities.\nThe other 2 areas where we exceeded expectations were in termination income and lower operating expenses.\nOur termination income totaled $6.1 million, which was $0.03 above our budget.\nIt came from 2 sources, first at 399 Park Avenue.\nThe building is full and we have more demand than available space.\nThis quarter, we were able to accommodate one of our expanding financial services tenants by recapturing 50,000 square feet from another tenant.\nThe transaction resulted in $2 million of termination income in the quarter.\nAnd second, we received about $4 million in unexpected settlement income from tenants who defaulted on their leases last year.\nWe categorize this as termination income.\nWhile we anticipate a modest amount of termination income every quarter, we do not assume receiving any additional settlement income this year.\nFinally, in our operating expense line, our maintenance expenses came in $0.03 per share lower than we anticipated.\nWe've deferred these costs and expect that will be incurred in the 3rd quarter.\nOne other item I'd like to point out is that we reported second quarter same property NOI growth of 8.9% on a GAAP basis and 7.5% on a cash basis over the second quarter 2020.\nThe strong increase honestly is primarily due to the charges for accrued rent and accounts receivable we took in 2020 related to tenants impacted by the pandemic.\nIf you net out last year's charges, our GAAP same-property NOI dropped by 1% year-over-year due to lower occupancy.\nHowever our cash same property NOI grew by 3.8% year-over-year as free rent periods expired and we've converted those to cash rents in 2021.\nThis quarter's leasing statistics also require explanation.\nThe total company in New York City leasing in particularly were negatively impacted by two retail leases in New York City.\nExcluding retail, the mark-to-market on our New York City office leases was positive 6% on a gross basis and positive 8% on a net basis.\nAnd office leases in the total portfolio demonstrated strong rental increases of 14% growth and 21% net.\nNow, I'd like to turn to our expectations for the rest of 2021.\nFor the 3rd quarter, we provided guidance of $1.68 to $1.70 per share, $0.03 above consensus estimates at the midpoint.\nAt the midpoint, our 3rd quarter guidance is $0.03 per share lower than our second quarter FFO.\nAgain, this is due to the outsized termination income and expense deferrals from the second quarter, net of those 2 items, our 3rd quarter guidance is $0.02 per share to $0.04 per share higher than the second quarter.\nIn the office portfolio, our occupancy exceeded expectations in the second quarter due to early lease commencements.\nFor the rest of 2021, we anticipate occupancy will be relatively steady.\nAs Doug mentioned, we have 640,000 square feet of signed leases that have not yet commenced occupancy.\nWe expect 450,000 square feet of these leases to occupy before year-end.\nIn addition, we have another approximate 600,000 square feet of both renewal and new leases in the works for 2021 occupancy.\nThis activity, combined with already signed leases are expected to cover the 1.1 million square feet of lease expirations that remain in 2021.\nWith stable occupancy, the current run rate for the in-service portfolio is a good proxy for the rest of 2021.\nWe are expecting consistent quarterly improvement from our other income sources, primarily from our parking and the continued lease up of our recently delivered residential properties.\nOur assumptions result in $0.02 of projected incremental NOI growth in the 3rd quarter from these sources.\nWe also expect growth from the acquisitions that Owen described.\nAcquisition activity net of disposition will add approximately a penny to our 3rd quarter NOI and $0.02 to the 4th quarter.\nSo in summary, after adjusting for $0.06 of high terminate higher termination income and deferred expenses from the second quarter, we project our in-service portfolio for the 3rd quarter to be higher by $0.02 at the midpoint and our net acquisition and disposition activity to contribute a penny.\nWhile we are not delivering any developments into service in the 3rd quarter, we anticipate incremental growth from developments in the 4th quarter that will accelerate in 2022.\nWe anticipate that we will start to recognize revenue as the first tenants commence occupancy at our $270 million Hub on Causeway office tower in Boston in the 4th quarter and by mid '22 we expect this project that is currently 95% leased to be generating a stabilized NOI.\nWe also expect to deliver our $50 million life science lab conversion at 200 West Street that is 100% leased in December of this year.\nThat will be at its full run rate in 2022.\nOur development deliveries will accelerate and be more meaningful to our earnings growth in 2022 in addition to the deliveries in Q4 of this year, next year we have $1.7 billion of developments slated for delivery and initial occupancy and they're 85% leased in the aggregate.\nOverall, we're thrilled with our results this quarter as the markets continue to recover.\nOur leasing activity is exceeding our expectations, our variable income streams are improving, our development pipeline is on track to add future growth and we're taking advantage of opportunities to acquire some unique assets at favorable prices that we expect will generate additional future earnings growth and value creation.\nOperator, that completes our formal remarks.\nCan you please open the line for question?",
        "summary": "compname reports earnings per share of $0.71 and ffo per share of $1.72.\ncompname reports earnings per share of $0.71 and ffo per share of $1.72.\nq2 ffo per share $1.72.\nthird of quarter 2021 projected earnings per share of $1.28 - $1.30 and projected ffo of $1.68 - $1.70 per diluted share.\nsigned approximately 1.2 million square feet of leases in q2."
    },
    {
        "text": "There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.\nDuring our call today, we will make reference to non-GAAP financial measures.\nThe third quarter was another outstanding quarter for our company, as we achieved our fifth straight quarter of exceptional results since reopening our properties last spring, this sustained level of strong performance is a direct result of the fundamental changes we made to our operating philosophy last year.\nUpon reopening, we sharpened our focus on driving play from our most loyal guests.\nWe streamlined our cost structure, and we adopted a more efficient approach to doing business that touched every part of our operations.\nOur record third quarter performance and our results over each of the last five quarters attributes to the transformation of our business model, and the disciplined approach we have taken to operating our business.\nThese exceptional results have significantly enhanced our free cash flow and strengthen our balance sheet with our leverage declining to 2.5 times at the end of the third quarter.\nAs a result of our strong financial position and our prospects for continued growth our Board of Directors has authorized a share repurchase program of $300 million allowing us to return a portion of our robust free cash flow to our shareholders.\nSo let's review the operating performance and helped to make this possible.\nFor the second straight quarter revenues exceeded both 2019 and 2020 levels setting a new third quarter record, strong flow through resulted in an adjusted EBITDAR of more than $340 million, also a third quarter record.\nOur quarterly EBITDAR was 42% higher than the third quarter of 2020 and 60% higher than the third quarter of 2019, and our companywide operating margins exceeded 40% for the second straight quarter.\nOur third quarter margin grew nearly 400 basis points over last year's record, and is up more than 1,400 basis points from 2019.\nEvery segment of our business contributed to this outstanding performance, as we set new third quarter EBITDAR record in each of our three operating segments.\nIn our Las Vegas Locals segment revenues grew 35% over last year and EBITDAR was up almost 60%, operating margins exceeded 54% and have been at or above the 50% mark every quarter of this year.\nIn Downtown, Las Vegas, we posted record third quarter EBITDAR of $13.2 million on margins of 31%.\nThis is a substantial improvement over the EBITDAR loss we reported a year ago and is up double digits over our record third quarter 2019 results.\nAnd in our Midwest and South segment, we set new third quarter records for both revenues and EBITDAR, as EBITDAR grew 22% over prior year and 42% from 2019.\nThis strong performance was broad-based, as 11 of our 17 regional properties set new EBITDAR record for the third quarter.\nNationwide, of the 26 properties that were open the entire quarter 21 grew EBITDAR by double digits over last year, with 18 setting new third quarter EBITDAR records.\nAs I mentioned earlier, the record levels of revenues, EBITDAR and margins we have produced throughout 2021 are the result of deliberate actions we have taken since reopening last year including focusing on the right customer transforming our operating model and implementing new capabilities and refinements throughout our business, and we are continuing to implement initiatives and technologies to enhance customer convenience, build loyalty, streamline processes and reinforce our operating efficiency.\nAn example of this is our BoydPay cashless technology, which is now live at 11 properties in four states.\nWhile initially BoydPay was focused on our slot product we are quickly expanding BoydPay's capabilities to other areas both gaming and non-gaming.\nIn the next several weeks, we will be expanding BoydPay to the majority of our restaurants in Las Vegas.\nIn addition, we recently launched a field trial for BoydPay at table games in Nevada, with Pennsylvania soon to follow.\nOur goal is to create a tool that will make it easier for our guests to make wagers and pay for non-gaming amenities right from their smartphone.\nWe're making excellent progress toward this objective and expect BoydPay will become available at every Boyd Gaming property next year pending regulatory approvals.\nWe're also using technology to create new revenue opportunities and enhance the guest experience in other ways as well.\nFor example in Nevada, we recently relaunched Boyd Sports offering an unmatched selection of bidding opportunities through the most expansive wagering menu in the state.\nWe're pleased with the customer reception so far with strong increases in activity from both new and reactivated guests.\nBeyond these new initiatives we also have additional organic growth opportunities available throughout our operations.\nAcross the country many of our hotels have been running below capacity since reopening due to a tight labor market.\nAs a result, we've not been able to accommodate many rated customers who have established gaming histories with us.\nAs the labor market normalizes, we will be able to bring more hotel rooms online driving gaming revenue growth from these customer segments.\nIn Downtown Las Vegas, we anticipate continued growth as tourism throughout the city recovers and Hawaiian visitation improves, and we also have opportunities for future growth in our mid-week business and our meeting and convention business.\nOverall, we expect to see further recovery in visitation throughout our portfolio, as restrictions are lifted, COVID numbers improve and travel resumes.\nOn top of our organic growth opportunities we are well positioned for further gains in the digital space.\nWe view online gaming and online casinos in particular, as a strategic growth opportunity for our company.\nWith gaming operations across 10 states and a strong player loyalty program, we have the foundation to build a robust digital complement to our land-based casino operations.\nOur iGaming operations are off to a good start in both, Pennsylvania, New Jersey, where our Stardust branded online casinos have delivered strong results since launching in April.\nExpanding our iGaming operations is a strategic priority for our company, and we will look to further build our online casino capabilities and geographic presence over time.\nIn sports betting our partnership with FanDuel continues to grow, our current focus is Louisiana where we are preparing to launch sports betting at our five properties in that state by year-end pending regulatory approval.\nOnce live this will extend our partnership with FanDuel the six of our nine regional states.\nIn all, we expect our digital operations including sports, casino, and social casino will generate more than $20 million in EBITDAR this calendar year.\nDigital is a profitable business for us today, and there will be an increasingly important part of our overall strategy in the years ahead, generating incremental revenue and EBITDAR for our company, expanding our customer base and importantly building loyalty among our guests by providing us another opportunity to engage with them.\nWe also continue to benefit as a 5% equity partner in FanDuel's accelerating expansion across the country and their position, as one of the leading online sports and casino operators in the country.\nSince our last call FanDuel launch new sports betting operations in Arizona and Connecticut, and expect to go live in Maryland, Washington State and Wyoming by the end of the year.\nSports betting operations in 15 states by year-end FanDuel is a clear leader in the expansion of digital gaming, and we are participating in its success as an equity owner and a partner.\nWhile the opportunity in digital is substantial we also have strategic opportunities to further expand our traditional gaming operations.\nIn Northern California construction on the Wilton Rancheria tribe Sky River Casino was progressing.\nSteel Structures topped off last month, and we are quickly moving forward both exterior and interior construction.\nThis project remains on time and on budget, and we are on track to open Sky River early in the fourth quarter of next year.\nAnd in Louisiana we continue to make progress on development plans for a new land-based facility of Treasure Chest Casino featuring expanded gaming space and significantly upgraded non-gaming amenities.\nTreasure Chest has been a strong performer for years and this project will allow us to further enhance the property and it was already producing strong results.\nBefore turning it over to Josh, I want to provide an update on our ESG initiatives.\nSince issuing our first ESG report earlier this year, we've convened teams of corporate and property executives to focus on a number of strategic ESG initiatives including reducing our water and energy consumption, lowering our carbon footprint, encouraging employee volunteerism and workplace giving enhancing the diversity of our workforce and refine our responsible gaming efforts.\nWe look forward to providing you with an update on our progress in next year's ESG report.\nWe also continue to support our communities during times of need, as we did after Hurricane Ida struck South Louisiana in late August.\nTo assist our South Louisiana communities with the recovery effort Boyd Gaming made a significant contribution to our partners at Second Harvest Food Bank helping them provide much needed food and water to thousands of local residents in the immediate aftermath of the storm.\nAt the same time, we extended full pay and benefits to our team members of Treasure Chest and Amelia Belle while those properties were closed following the storm.\nWe also provided immediate cash benefits to all of these employees, and we are providing additional relief as needed through the Boyd Gaming Team Member Crisis Fund.\nGiving back to our communities, and being a responsible corporate citizen have always been core tenants of our company, we were proud to uphold our commitment after Hurricane Ida, and we will continue to honor that commitment as a central part of our company's ESG philosophy.\nIn summary, after our fifth strong quarterly performance in a row, we have great confidence in our future and our ability to grow our business.\nOur restructured operating model and our tight focus on the right customer are delivering exceptional results.\nCompanywide EBITDAR has exceeded the $1 billion mark in just nine months with margin, significantly higher than pre-closure levels.\nWe're confident that this level of performance is sustainable and that we will maintain much of the margin improvements we have achieved over the last 18 months.\nOur free cash flow has more than doubled and our balance sheet is the strongest it has ever been, giving our Board the confidence to authorize a new share repurchase program, and we have opportunities for incremental growth ahead.\nAs the pandemic fades, additional visitors will return to our properties.\nAs the labor market normalizes, we will be able to bring more hotel rooms online increasing our capacity to host profitable customers, and we will further leverage our nationwide portfolio our extensive customer database and our partnership with FanDuel to continue expanding our digital business.\nWe are well positioned for the future.\nAnd while our recent success, as a result of our transformed operating strategy has also attributed to the strength of the entire Boyd Gaming team.\nOur team members are successfully executing the strategy that is creating these exceptional results.\nI cannot say enough about their dedication and effort over these past 15 months in dealing with the COVID pandemic and an uncertain environment.\nIt is an honor to lead this team, and we look forward to continued growth and success in the months and years ahead.\nResults for the third quarter and year-to-date have been truly outstanding.\nOur performance reflects a transformed operating philosophy that we implemented after reopening our properties in the third quarter of last year focused on building loyalty and efficiently serving our core customer.\nThis operating philosophy structurally changed how we execute our business including reevaluating our approach to marketing, as well as scrutinizing every other facet of our operation.\nAnd as you've seen in our results we have consistently executed this strategy for five quarters generating revenues that are now surpassing 2019 levels with significantly higher EBITDAR across our business.\nAnd as Keith mentioned, we are optimistic about our future, as we have multiple avenues for continued growth, as well as confidence that we will continue to operate at higher levels of margin.\nToday, we are financially a much stronger company, and at any point in our history.\nTotal EBITDAR over the last 12 months surpasses $1.2 billion and leverage at the end of the third quarter was 2.75 times and expected to further decline by year-end.\nAs a result of our strong operational performance, we are now generating robust levels of free cash flow, approaching $700 million over the past 12 months.\nTo reflect our confidence in the company's future our Board authorized a $300 million share repurchase program.\nThis amount is an addition to $61 million remaining from a prior approval.\nGiven our sizable and growing free cash flow, we will also continue to invest in opportunities to generate high returns for our company.\nThese growth opportunities will be balanced with returning capital to shareholders and maintaining current levels of leverage over the long term.\nOperator, that concludes our remarks, and we're now ready to take any questions.",
        "summary": "board authorizes $300 million share repurchase program."
    },
    {
        "text": "New factors emerge from time to time and it's simply not possible to predict all such factors.\nOn our call today, Allan will review highlights from the third quarter, our response to the pandemic and the strength of the new home market, and then recap our strategic objectives for the coming quarters.\nBob will cover our third quarter results in greater detail as well as our expectations for the fourth quarter and the full year.\nI will then come back to provide an update on our land spending and balance sheet, followed by a wrap up by Allan.\nWe generated very strong financial results in the third quarter with increases in both home closings and gross margins leading to nearly 40% growth in adjusted EBITDA.\nWe also reported our highest third quarter net income in over 10 years.\nFrom a sales perspective, after weathering a very difficult environment in April, we experienced improved demand in May, which accelerated in June, leading to the best June sales pace we have generated in a decade.\nTogether, these results have positioned us for a strong finish to our fiscal year.\nLast quarter, we outlined our initial response to the pandemic, highlighted by the priority we place on the health and safety of our employees, customers and trade partners.\nThis continues to be our highest priority, with ongoing implications for every aspect of our business.\nIn addition to our safety protocols, over the course of the third quarter, we reviewed and revised numerous operational and financial practices.\nThere were three primary outcomes from these adjustments.\nFirst, we preserve liquidity by maintaining a full draw on our revolver until the end of the quarter.\nWhile this increased interest expense in the quarter, it ensured that we had substantial cash to deal with any potential disruption and closings.\nWith strong sales and greater clarity around the operational environment, we fully repaid the revolver and do not currently intend to have it drawn other than for seasonal liquidity needs.\nSecond, we paused land spending to apply new COVID-related risk criteria to our underwriting.\nTemporarily slowing land spending contributed to an increase in liquidity during the quarter.\nBut more importantly, it allowed us to review every proposed transaction against new risks to employment, household income and supply.\nWhile our review resulted in us exiting a handful of positions, in the vast majority of cases, we were able to validate and renegotiate pending transactions.\nGoing forward, we are confident we have a lot pipeline that supports our growth ambitions.\nAnd third, we improved the cost structure of the business.\nAs we adapted to a new working environment, we realized there were opportunities for us to improve our cost structure without reducing our ability to sell and build a growing number of homes in the quarters ahead.\nThat was important to us because we saw the demand was rebounding quite quickly.\nPrior to the COVID-19 pandemic, the new home market was very strong supported by wage growth, low unemployment, low mortgage rates, low housing supply and high consumer confidence.\nIn late March, that momentum gave way to the pandemic.\nAnd in April, industrywide demand plummeted.\nBut as you've heard and read, housing demand began recovering very quickly, and by June, was arguably better than prior to the pandemic.\nFor you and for us, that raises two crucial questions.\nWhere did this surge in demand come from?\nAnd is this sustainable?\nOnly time will reveal the answers.\nBut here is what we think is driving it and why it may last.\nFirst, low mortgage rates have gotten even lower.\nThis is a real plus for buyers as it improves affordability, increasing access to new homes for all buyer segments, especially first-time buyers.\nSecond, working from home and schooling from home have led to a massive reappraisal of shelter needs.\nOur buyers are telling us that new homes offer crucial advantages over most apartments and used homes, including more space, more flexible floor plans and better outdoor living features, plus they're move-in ready and don't require costly cleaning or time-consuming improvements.\nThird, the shift to remote work appears to be durable.\nDespite some challenges posed by remote work, both employees and employers have experienced an enormous boost to productivity arising from the elimination of commutes.\nKnowledge workers in particular are capable of working from completely different places, which can only benefit demand for new homes.\nAnd fourth, this may be the tipping point demographers have predicted for a decade, reflecting the moment that ownership-reluctant millennials embrace the inevitability and desirability of homeownership.\nThis is our most speculative observation, but millennials represent about a quarter of the US population, so their housing preferences have to be watched very closely.\nDespite the many challenges presented by the pandemic, we see no reason to deviate from our longer-term balanced growth strategy, which targets a double-digit return on assets by growing EBITDA faster than revenue from a more efficient and less leveraged balance sheet.\nAs we monetize our longer-term assets and increase the share of lots controlled by option, we will generate plenty of liquidity to both grow the business and remain on course to reduce our long-term debt below $1 billion.\nFinally, I want to express our corporate support for the elimination of prejudice, discrimination and injustice in our country.\nWe have shared on social media a letter I wrote to our employees expressing both my personal views and our corporate commitment to addressing these issues in our company and our communities.\nI am extraordinarily pleased with the enthusiasm our team has shown to learn about and honestly discuss these issues.\nWe are taking steps that will allow us to share the benefits of greater inclusion and diversity with our employees, customers, trade partners and shareholders.\nI know our efforts can make a difference.\nAs Allan highlighted earlier, adjusted EBITDA in the quarter was up nearly 40% versus the prior year to $54 million.\nThis performance was driven by strong results across our core metrics.\nSpecifically, compared to last year, we grew homebuilding revenue by 10% to $532.5 million as we benefited from an 8% increase in closings combined with a 3% increase in our ASP.\nOur gross margin, excluding amortized interest, impairments and abandonments, was up approximately 180 basis points to 21.2%, driven by increased margins on spec homes and our ongoing efforts to simplify product and reduce incentives.\nThis margin excludes impairments and abandonments associated with our reunderwriting process totaling $2.3 million.\nSG&A as a percentage of total revenue was 11.7%, down 50 basis points, even with $1.4 million in one-time charges associated with improving our ongoing cost structure.\nTotal GAAP interest expense was up around $2.1 million, primarily due to our decision to carry a fully drawn revolver through nearly the entire quarter for liquidity purposes.\nEven with that, however, our cash interest expense was down $3.7 million as a result of our prior debt retirements and refinancing activities.\nOur tax expense in the quarter was about $5 million for an average tax rate of 24%.\nTaken together, we owned $15.3 million of net income from continuing operations or $0.51 in earnings per share this quarter, up $3.6 million versus the prior year.\nAs clarity into market conditions has improved, we are comfortable offering the following guidance into our expectations for the full year and the fourth quarter.\nFor the full year of fiscal 2020, we expect adjusted EBITDA to be up 5% to 10% compared to last year with a big improvement in gross margin more than offsetting the impact of fewer home closings.\nThis would represent the second highest level of EBITDA we've produced in a decade.\nFor the fourth quarter, the pandemic has impacted a variety of our operational metrics, particularly timing.\nFor example, our beginning backlog is essentially flat to the level we had last year, but the stage of completion is very different.\nThe COVID outbreak impacted the timing of both orders and spec starts during the quarter such that a larger than usual share of this backlog will deliver in the first quarter of fiscal '21 rather than the fourth quarter of this year.\nAccordingly, we expect our backlog conversion ratio will be in the low-70% range rather than the high-80%s like last year.\nOur margin expectations reflect the strength in demand that occurred during the third quarter and our cost improvement efforts.\nSpecifically, we expect gross margins will be up at least 100 basis points to around 21% and SG&A will be down more than 5% on an absolute dollar basis.\nFinally, with our reunderwriting complete, a cash component of land spend will accelerate, likely exceeding $100 million.\nAt the beginning of the third quarter, we owned or controlled more than a three-year supply of land based on our trailing 12-month closings.\nThis position allowed us to pause land spending, assess the demand environment and reunderwrite land deals that were in process.\nThis process resulted in modest land acquisition and development spending during the quarter totaling just under $56 million.\nWith our reunderwriting process complete and demand improvements evident, we have resumed our regular land acquisition and development activity and expect to return to more normalized spending levels in our fiscal fourth quarter and into fiscal 2021.\nOf course, we'll take a disciplined approach given the ongoing spread of the coronavirus and the long-term impacts the pandemic may have on the economy.\nStrategically, we expect to sustain a lot position representing at least three years' supply with a growing share controlled by options, allowing us to better leverage our spend, improve return on assets and reduce risk.\nWe ended the third quarter with over $400 million of liquidity, more than double this point last year.\nThis reflected more than $150 million of unrestricted cash and no outstandings on our revolver.\nWith a durable business model that mixes to be built and spec homes and a growing land positions supported by larger share of options, we expect to generate sufficient liquidity to both reduce borrowings and grow our business in the years ahead.\nWe have no significant maturities until 2025 and our clearly defined deleveraging path includes $50 million term loan repayments in each of the next three years.\nAfter our upcoming September repayment, we will have just over $100 million remaining on our goal of bringing our total debt below $1 billion.\nThe third quarter of fiscal 2020 was very successful.\nWe increased closings and improved margins, driving both revenue and profitability growth.\nWe also took steps to improve our business and ongoing cost structure.\nThese results, coupled with the tremendous sales momentum that we experienced in the back half of the quarter, position us to realize the objectives of our balanced growth strategy.\nWhile there have been and will continue to be many challenges associated with operating during the pandemic, I'm very proud of our team for taking decisive steps to improve long-term shareholder value.\nIt is because of them that I'm confident we have the people, the strategy, and the resources to navigate this fluid environment and execute our plan over the coming years.",
        "summary": "beazer homes q3 earnings per share $0.51.\nq3 earnings per share $0.51.\nqtrly homebuilding revenue of $532.5 million, up 10.4%.\nalso announced retirement and succession plans for robert l. salomon, executive vice president and cfo.\nbeazer homes usa - upon salomon's retirement, will be appointing david i. goldberg to serve as senior vice president and cfo."
    },
    {
        "text": "New factors emerge from time to time and it is simply not possible to predict all such factors.\nOn our call day, Allan will review highlights from our fiscal 2020 and then discuss why 2021 will be an important inflection year for the company.\nBob will cover our fourth quarter results in greater depth, and then I will then come back to provide our expectations for the first quarter of fiscal 2021 and provide an update on how our balance sheet, liquidity and land spending will support our growth objectives for 2021 and beyond.\nMy comments will then be followed by a wrap-up by Allan.\nIn the beginning of our fiscal year, we laid out three strategic goals for 2020.\nAt that time, we had no idea the global economy would be turned upside down by a pandemic.\nBut we have an exceptionally talented group of employees who had the creativity and the grit to reinvent many of our business processes to deal with this new environment.\nAnd it is because of them that I can tell you, we exceeded every one of our strategic goals.\nFirst, we grew our adjusted EBITDA by more than 10% as gross margins expanded to reflect the benefits of product simplification and the price improvements we achieved.\nSecond, we generated a return on assets above 10%, up about 1 point from the prior year as we continue to grow EBITDA at a faster rate than our assets.\nAnd finally, we achieved a net debt-to-EBITDA below five times as we simultaneously retire debt and add it to our already strong liquidity position.\nOf course, some of the success can be attributed to the low mortgage rates and the big reassessment of living arrangements during the pandemic, but these results would not have been possible without the resiliency of our team.\nWe entered the new year with the dollar value of our backlog, up an astounding 50%, giving us both visibility and confidence moving forward.\nBut it's more than just our backlog that gives us confidence as many of the factors that contributed to sales strength last year remain in place.\nWhile demand likely won't remain as torrid as it has been in the last several months, we're optimistic that new home demand will remain strong.\nBy historical standards, we've built far fewer new homes in the last decade than population growth, household formation or job growth would have predicted.\nAnd those families have been living somewhere.\nNow with remote work demonstrating long-lasting appeal, these deferred homebuyers are on our website, visiting our communities and buying our homes.\nThey're finding that low rates have given them surprising purchasing power, but supply is highly constrained, and prices are rising as we work to offset higher land, labor and material costs.\nWith this supportive backdrop, 2021 will be an important inflection year for the company.\nOver the last 10 years, as we've executed our balanced growth strategy, we've translated incremental gains and operating metrics into more than $200 million of improvement in adjusted EBITDA.\nAt the same time, we've actually reduced our operating assets by about 10%.\nThese efforts have led to big increases in profitability and returns, but very little new order growth.\nIn fact, that has been the tension at the heart of our balanced growth strategy to improve profitability and returns while reducing debt at the same time.\nOver the last five years, we've spent nearly $2.3 billion on land and land development activity.\nThat's a big-sounding number, but it was about $270 million less than the cash we generated from the land related to our home closings.\nSo what did we do with that extra cash?\nWe paid off debt.\nIn fact, over that same time period, we spent about $450 million retiring and refinancing debt.\nOther than modest share repurchases, nearly all of the cash we generated was used to retire debt and build liquidity.\nThat allocation of capital wasn't focused on top line growth, but it was the necessary and prudent course of action.\nIt has radically reduced financial risk, lowered interest expense and accelerated our ability to use our deferred tax assets.\nThe exciting news is that this year is different.\nEntering 2021, our liquidity and anticipated profitability are such that we expect to achieve the last leg of our debt retirement objective, which is to get total debt below $1 billion by the end of 2022 using only a portion of our future profits.\nThis means we can reinvest all of the cash generated from operations, as well as the balance of our profitability for growth.\nOur balance sheet and lot position will not continue shrinking.\nThat is a fundamental change in our capital allocation posture.\nAfter many years of hard work, we can now tilt our balanced growth strategy toward growth, while we have operational momentum and a supportive macro environment.\nInvestors may wonder about the time lag between increasing investment and generating growth.\nWell it's true that land purchase this year is unlikely to contribute to this year's financial results, but our efforts to grow profitability will deliver results this year.\nFor 2021, we're focused on achieving the following objectives, first, we expect to generate slightly higher EBITDA and double-digit earnings-per-share growth.\nStarting with a much larger backlog will help us overcome the reduction in community count we will experience this year.\nAt the same time, we expect to increase our operating margin by delivering higher-margin homes and maximizing our overhead leverage.\nEarnings per share will benefit from significantly lower interest expense.\nSecond, we expect to grow our total lot position.\nWe'll achieve this through higher on spending and an even greater use of options, positioning us for community count growth.\nAnd third, we will continue to retire debt as we approach our deleveraging goal.\nLooking beyond this year, we're positioning our company for ongoing profitable growth, characterized by improving returns and funded with a less leveraged balance sheet.\nLooking at the fourth quarter compared to the prior year, new home orders increased nearly 40% to 2,009, driven by the highest fourth quarter sales pace we've achieved in the last decade.\nHomebuilding revenue decreased 12% to $679 million, primarily driven by a 14% decrease in closings related to the impact of the pandemic on order and construction timing.\nOur gross margin, excluding amortized interest, impairments and abandonments, was 21.7%, up approximately 180 basis points.\nSG&A was relatively flat on an absolute basis but rose as a percentage of total revenue to 11.1%, reflecting the decrease in revenue.\nThis led to adjusted EBITDA of $77.1 million in the quarter, down slightly in dollar terms, but up over 70 basis points as a percentage of revenue to 11.2%.\nTotal GAAP interest expense was down nearly 16% or $6 million.\nOur tax expense for the quarter was about $9 million for an average annual tax rate of 25%.\nFinally, these components taken together led to $24.6 million of net income from continuing operations or $0.82 per share in earnings this quarter.\nLet's start with a review of our operational and financial expectations for the first quarter of fiscal '21 -- 2021 compared to the prior year.\nOrders are expected to be essentially flat despite an approximately 15% decline in community count.\nClosing should be relatively flat versus the prior year.\nAlthough our backlog was up significantly heading into this year, this was largely driven by sales in August and September, which will close in our second quarter.\nAdditionally, we remain focused on delivering an exceptional customer experience and in light of anticipated labor and material constraints, we are planning for slightly longer cycle times.\nOur ASP is expected to be approximately $380,000.\nWe expect gross margin to be up more than 150 basis points, around 21.5%.\nAlthough we experienced higher lumber prices last quarter, this won't materially impact Q1 performance but will be a modest headwind in Q2.\nSG&A as a percentage of total revenue should be down about 50 basis points, reflecting the benefit of our continued focus on controlling costs.\nWe expect EBITDA to be up more than 20%.\nInterest amortized as a percentage of homebuilding revenue should be in the low 4s, supporting our goal of double-digit net income growth.\nOur tax rate is expected to be about 25%.\nAnd this should all lead to earnings per share above $0.30, up significantly versus the prior year.\nWe ended the fourth quarter with $578 million of liquidity, up more than $200 million versus the prior year.\nThis reflected about $328 million of unrestricted cash and nothing outstanding on our revolver.\nWe are positioned to emphasize growth even with the commitment to retire more than $50 million of debt this year.\nAt the end of the fourth quarter, we owned or controlled a three-year supply of land based on our trailing 12-month closing.\nFourth quarter land spending of $116 million, but our full year total spend of $441 million, it was about $100 million below the amount we generated from the land related to home closings, reflecting the deliberate pause in spending we undertook at the onset of the COVID pandemic.\nWe expect to recapture this activity in 2021, which is likely to result in land spend approaching $600 million.\nOn the table on the right-hand side of Slide 11, we depict our expectations for near-term community count, which we anticipate will likely trough in the 120s in the fourth quarter.\nCommunity count growth will be evident in fiscal 2022 as we benefit from our increased land spend and the greater use of options.\nWith the strength in the new home market, land prices are somewhat frothy across our footprint.\nHowever, we are confident that we can achieve this increase in our land acquisition activity without materially changing our risk profile for three reasons.\nFirst, we have already contracted for or approved the majority of our land acquisition activity for the coming year, giving us confidence in our ability to fulfill our acquisition targets without chasing low-margin sites.\nSecond, we are increasingly controlling lots and options, allowing us to better leverage our incremental spend and manage risk.\nAs a matter of business [Phonetic], we grew our option lot as a percentage of active lots by 6 points to 35% last quarter -- last year and expect a similar improvement this year.\nAnd finally, our underwriting process and financial thresholds have not changed.\nWe continue to include no price appreciation in our modeling and our required rate -- our required return and profitably metrics are unchanged.\nFiscal 2020 was a challenging year, but with our team's resiliency, we rose to the occasion and generated very strong results.\nWe improved profitability and returns, increased sales paces to close the year and grew our backlog significantly, giving us confidence going into fiscal '21.\nImportantly, we also positioned the company to adopt a more consistently growth-oriented allocation of capital.\nOf course, our highest priority remains the safety of our employees, customers and trade partners, and we will continue to adapt our activities to that end.\nAs I say every quarter, I'm confident we have the people, the strategy and the resources to create value over the coming years.\nI didn't let him see this part of the script, so he's squirming a little bit right now.\nAs we announced this summer, Bob is stepping down as CFO this week, and I thought a moment of recognition was warranted.\nBob joined me here 12 years ago at a very difficult time in our company's history and was integral in our turnaround.\nSince then, he's been deeply involved in every aspect of our business.\nHe's been my partner and mentor to our corporate and operational leaders for his entire tenure.\nIn fact, all of our constituents are indebted to him for his many contributions.\nGoing forward, our management team is in great shape.\nDave is ready to take the next step in his career, and he and I will ensure that this is a seamless transition.\nNow I'll get to work.\nOperator, please open the line for Q&A.",
        "summary": "compname reports q4 earnings per share of $0.82.\nq4 earnings per share $0.82."
    },
    {
        "text": "While we are making those statements in good faith, we do not have any guarantee about the results we will achieve.\nDescriptions of the risk factors are included in the documents we filed with the SEC.\nAlso, we will be discussing some non-GAAP financial measures.\nReferences to adjusted items, including organic net sales refer to measures that exclude items management believes impact the comparability for the period referenced.\nToday, Dave and I will discuss our results for the quarter, our updated outlook for the remainder of the year and why we believe that Conagra continues to be well-positioned for the future.\nSlide 5 lays out our key messages for today.\nFirst, as everyone is aware, the external environment is incredibly dynamic right now, and we see many of these challenges persisting.\nBut despite the complex operating situation, the ongoing dedication, resilience and agility of our team enabled us to deliver solid Q1 results on the back of strong sales.\nWe continue to benefit from our proven approach to brand building and the breadth of investments we're making to increase consumer demand.\nThese efforts drive brand health, which is evidenced by the continued strength of our sales, share and repeat rates across the portfolio.\nAs a result, we believe our brands are well-positioned to continue managing through the current inflationary challenges and support ongoing inflation-justified pricing actions.\nLooking ahead, we're reaffirming our earnings per share outlook for the year.\nHowever, we now see a slightly different path to achieving that EPS.\nWe expect inflation to be higher than originally forecasted but we also see continued strength in consumer demand even above our original expectations.\nWe believe that consumer demand, coupled with additional pricing and cost-saving actions, will enable us to deliver adjusted diluted earnings per share of about $2.50.\nSo with that as the backdrop, let's jump right in.\nWe know that our long-term performance is a function of the caliber and engagement of our team, and that has never been more true than today.\nI'm extremely proud of the team's resilience and agility in adapting to the dynamic environment we're currently experiencing.\nAs a result of our team's continued hard work and dedication, we've been able to successfully execute through sustained elevated demand and challenging supply conditions.\nFirst, as we've already mentioned, consumer demand has remained at higher levels than we expected due to macro forces, as well as the unique position of our portfolio.\nThis is a great problem to have, but it increases the demands on our supply chain at a time when the industry is navigating labor shortages, material supply issues and transportation cost and congestion challenges.\nTaken together, these factors created an upper control limit on the amount of product we could produce and ship in Q1.\nIf we had the capacity to meet all of the demand, our numbers would likely have been even more impressive.\nHowever, our ability to deliver solid results amid this dynamic environment is a testament to our team's ongoing commitment to executing the Conagra Way playbook each and every day.\nThe Conagra Way playbook to portfolio modernization remains our North Star in any operating environment.\nRegardless of the external factors that may influence short-term demand and supply dynamics in any given quarter, we define long-term success as creating meaningful and lasting connections between consumers and our brands.\nWe believe that our playbook is the most effective framework for delivering on that objective.\nThose of you who have followed us for a while will recall that our modern approach to brand building is more comprehensive than legacy industry practices.\nInstead of anchoring our brand building predominantly in broadcast advertising that pushes new messages on old products, we anchor our investments and our efforts first in developing new modern and superior items.\nThen once we've created these more modern and provocative products, we invest to drive the physical availability of those items in-store and online.\nAnd finally, our investments to drive meaningful one-to-one communication to the right consumers at the right time, at the right place, enable us to remain salient and relevant.\nThis comprehensive approach and unwavering commitment to modernizing and premiumizing our portfolio continues to pay off and enables us to better manage our brands within any environment.\nAnd as you can see on Slide 8, our team delivered solid results during the first quarter.\nAs you know, our year-over-year growth rates were impacted by the elevated demand we experienced during the first quarter of fiscal 2021 when we were still in the early months of the pandemic.\nAs you can see, on a two-year CAGR basis, organic net sales for the first quarter increased 7% and adjusted earnings per share grew by nearly 8%.\nImportantly, our solid performance in the first quarter was broad-based.\nJust take a look at Slide 9.\nTotal Conagra weighted dollar share grew 0.8 points on a two-year basis in the quarter with share gains in each of our domestic retail domains: frozen, snacks and staples.\nInnovation remained a key to our success across the portfolio in Q1.\nSlide 10 highlights the impact of our disciplined approach to delivering new products and modernizing our portfolio.\nDuring the first quarter, our innovation outperformed the strong results we delivered in the year-ago period.\nThis reflects not only the quality of the products launched, but also our efforts to support those launches with investments and capabilities that deliver deeper, more meaningful consumer connections.\nAnd as you can see, our innovation rose to the top of the pack in several key categories, including snacks, sweet treats, frozen vegetables and frozen meals.\nOur performance is a clear testament to the innovation and marketing engine at Conagra, and we believe the solid reputation we've built with customers and consumers.\nIn addition to developing superior products, we also remain focused on physical availability during the first quarter through both brick-and-mortar and online.\nSlide 11 demonstrates how our ongoing investments in e-commerce continued to yield strong results.\nOnce again, we delivered quarterly growth in our $1 billion e-commerce business, both against our peers and as a percentage of our overall retail sales.\nWe outpaced the entire total edible category in terms of e-commerce retail sales growth during the first quarter, just as we did throughout fiscal 2021.\nE-commerce sales now represent more than 9% of our total retail sales, more than double what they were just two years ago.\nAs we mentioned earlier, our solid top-line performance during the first quarter was driven by strong demand, robust brand-building investments and inflation-justified pricing actions.\nSlide 12 details the extent of our pricing actions to date.\nA few key points to keep in mind.\nFirst, we began implementing actions on some of our domestic retail products in the fourth quarter of fiscal 2021 in response to the inflation we began to experience last fiscal year.\nThe majority of our domestic retail pricing actions, however, just started to hit the market at the end of Q1 in response to the inflation we spoke to you about on our Q4 earnings call in July.\nAs a result, the benefit in the quarter is less than what we expect to see going forward.\nYou can see this playing out in the consumption data from the last four weeks, all of which are part of our fiscal second quarter.\nDuring this period, our on-shelf prices rose across all three domestic retail domains.\nLooking ahead, our original plans for the year included additional inflation-justified pricing in future periods.\nGiven the heightened inflationary environment, however, we now expect to take incremental actions beyond those original plans.\nMany of these actions have already been communicated to our customers and the benefits will be weighted toward the second half of the fiscal year.\nWe'll keep you apprised, but it's important that we stress that our pricing actions are not a blunt instrument.\nWe take a fact-based approach to pricing within the portfolio.\nWe use a data-driven approach to elasticities and thoughtfully execute actions to align with customer windows.\nAs we look ahead, we remain confident in the fiscal 2022 earnings per share guidance we outlined on the fourth-quarter call, but we now expect to take a different path to achieving that guidance.\nAs mentioned, we now expect inflation to be higher than originally forecasted.\nHowever, we believe that the combination of continued strength in consumer demand, incremental inflation-justified pricing and additional cost savings actions will enable us to offset the impact of that inflation.\nI'd like to briefly unpack these factors, starting with the update to our inflation expectations.\nAs you can see on Slide 14, we currently expect gross inflation to be approximately 11% for fiscal 2022, compared to the approximately 9% we anticipated at the time of our fourth-quarter call.\nThe bulk of the incremental inflation can be attributed to continued increases in the cost of proteins, edible fats and oils, grains and steel cans since our Q4 call.\nI want to emphasize that this is our best current estimate of gross inflation for the full year and does not account for the impact of supply chain productivity improvements or hedging.\nDave will provide more color on inflation and the various levers we're able to pull to help offset its impact.\nEven in the face of this acutely inflationary environment, we remain squarely focused on continuing to invest in our brands and capturing the strong consumer demand.\nAnd we're pleased to share that the consumer demand we experienced during the first quarter exceeded our prior expectations.\nAs you can see on Slide 15, our total company retail sales on a two-year CAGR basis were up nearly 7% in the first quarter with strong growth across our frozen, snacks and staples domains.\nAnd when you peel back the onion further you find even more evidence to underscore the durable strength of our top-line performance.\nThe chart on the left side of Slide 16 demonstrates that we continue to grow our household penetration during the first quarter, building upon the significant new consumer acquisition we've achieved over the past year and a half.\nBut what I believe is even more encouraging is the chart on the right.\nWe didn't just acquire new consumers, we kept them.\nThe data shows growth in repeat rates that demonstrates our new consumers discovered the incredible products and tremendous value proposition of our portfolio.\nWe're proud that our products are resonating with consumers and that those shoppers keep coming back for more.\nImportantly, our performance on these metrics, household penetration and repeat rates has not only been strong in the absolute but relative to the competition as well.\nWe're also encouraged by the elasticity of demand for our portfolio, which has been better than previously expected.\nSlide 17 demonstrates that our pricing actions to date have had limited impact on demand.\nAs I mentioned, most of our pricing actions taken to date began to appear on shelf at the end of Q1.\nAnd you can see how that dynamic is being reflected in the data for September, which is part of our second quarter.\nWe continue to be cautiously optimistic that our elasticities will remain favorable as the full array of pricing enters the market.\nAs evidenced by our strong penetration and repeat rates, a growing number of consumers have clearly discovered the convenience and value that our retail portfolio provides.\nTaken together, the net result of these factors I just detailed is the reaffirmation of our earnings per share guidance and margin and a few updates on how we expect to get there.\nWe're increasing our organic net sales guidance to be approximately plus 1%, up from approximately flat at the time of our Q4 call.\nWe are reaffirming our adjusted operating margin guidance to remain at approximately 16%.\nWe're updating our gross inflation guidance to about 11%, and we are reaffirming our adjusted earnings per share guidance of approximately $2.50.\nThis includes enduring trends that predate the COVID-19 pandemic and new consumer behaviors adopted over the past 18 months.\nAs a reminder, we have a proven track record of successfully attracting millennial and Gen Z consumers at a higher rate than our categories as a whole.\nBy attracting younger consumers now we create the groundwork for future growth.\nNot only do these younger generations offer the opportunity to drive lifetime value, they're larger than the Gen X generation that immediately preceded them.\nHistorically, younger adults have eaten at home less than older generations.\nThe meaningful shift toward at-home eating tends to happen during the family formation years.\nIn particular, we know that annual frozen category spend per buyer increases in households with young kids, and it increases further as the kids grow up.\nImportantly, almost half of millennials have yet to begin having kids, and we fully expect their consumption of Conagra products will grow along with the growth of their families.\nAnother enduring trend is the growth of snacking, which has long been the fastest-growing occasion in food and shows no signs of slowing down.\nWe have a very strong $2 billion ready-to-eat snacks business that spans multiple subcategories where we either have the fastest-growing brand, the largest brand or both.\nThe COVID-19 pandemic has only served to accelerate these existing trends and create additional long-term growth drivers.\nOne of the primary drivers for more at-home eating is the shifting workplace dynamics that are meaningfully changing weekday eating behavior.\nThis includes both the contracting workforce and the rise of remote work.\nAs more people work from home or exit the workforce, the more likely these people are to eat at home, particularly on weekdays.\nImportantly, some aspects of remote workforce adoption are expected to be permanent.\nThe way we work is changing and that's driving changes in consumer eating habits as well.\nMore time at home also means more time devoted to preparing meals.\nYounger consumers are acquiring new skills and developing new food habits at a formative age.\nThe behavioral science tells us that when people learn to cook at an early age, they continue to cook at elevated levels as they get older, and consumers of all ages are rediscovering their kitchens and cooking more at home.\nAcross all these long-term tailwinds, we believe our portfolio is uniquely positioned to meet the needs of today's consumers.\nOur frozen portfolio offers hyper convenient meals and sides perfect for the quick work lunch or family dinner.\nOur snacks and sweet treats portfolio caters to those looking to experience bold, anytime flavors at home while enjoying time with friends and family.\nAnd our staples portfolio offers the simple cooking aids and meal enhancers that both experienced and first-time cooks are seeking.\nIn summary, Conagra's portfolio has delivered against the recent behavioral shift better than the competition.\nAnd as we move beyond the pandemic and millennials and Gen Z-ers continue to age, we believe that our brands are well-positioned to become an even more regular part of their routines.\nI'll start by going over some highlights from the quarter shown on Slide 21.\nAs a reminder, our year-over-year comparisons reflect the lapping of extremely strong demand for at-home food consumption during the early months of the pandemic.\nFor that reason, we are also including two-year comparisons for a number of important metrics to provide helpful context regarding the underlying health of our business.\nWe are pleased with the overall results of the first quarter, which, as Sean discussed, reflected our ability to successfully navigate the current dynamic environment.\nOrganic net sales declined by 0.4%, compared to a year ago and increased 7% on a two-year CAGR.\nAdjusted gross profit and adjusted operating profit both decreased year over year but were flat on a two-year basis, demonstrating our ability to offset the double-digit inflation experienced in the business during the quarter.\nI also want to highlight the increase in our advertising and promotional spend on both a one- and two-year basis.\nThese investments reflect our continued commitment to building and maintaining strong brands.\nTurning to Slide 22.\nI'd like to spend a few minutes discussing our net sales for the quarter.\nOn an organic net-sales basis, the 0.4% decrease during the quarter was driven by a 2% decline in volume from lapping last year's elevated demand.\nThis decline was almost entirely offset by favorable brand mix and the pricing actions we've taken to date in response to the inflationary environment.\nThere are two items I want to call out on price/mix.\nFirst, as a reminder, the majority of our domestic retail pricing actions just started to hit shelves at the end of Q1.\nSo the benefit in the quarter was limited compared to the benefits we expect to receive over the course of fiscal '22.\nSecond, our 1.6% benefit from price/mix laps a 70-basis-point benefit in the prior-year period that was associated with the true-up of fiscal '20 fourth-quarter trade expense accrual.\nWithout that item, the current quarter's price mix benefit would have been plus 2.3%.\nDivestitures resulted in a 110-basis-point decline in net sales during the quarter, and foreign exchange provided a 50-basis-point benefit.\nTogether, these factors drove a 1% decline in total Conagra net sales for the quarter compared to a year ago.\nSlide 23 shows our net sales summary by segment, both on a year-over-year and a two-year compounded basis.\nAs you can see, we've had strong two-year compounded net sales growth in each of our three retail segments with a slight decline in our food service segment.\nNet sales for the entire company have increased 7% on a two-year CAGR basis.\nOur two-year annual sales growth rate for the domestic retail segments is tracking closely with the retail consumption growth achieved over the same period.\nTurning to adjusted operating margin.\nSlide 24 details the puts and takes of our first-quarter results.\nFirst-quarter inflation was 16.6%, driving our adjusted gross margin decline of 530 basis points compared to a year ago.\nWe delivered 550 points of benefit from our margin lever actions in the quarter, inflation-justified pricing, supply chain realized productivity, cost synergies associated with the Pinnacle Foods acquisition and lower pandemic-related expenses.\nHowever, these benefits were more than offset by the very significant inflation.\nNote that the 16.6% inflation shown on the slide represents gross market inflation for Q1 and does not include hedging or sourcing benefits.\nWe capture hedging as part of our realized productivity.\nFor the first quarter, our net inflation inclusive of hedging was high single digits.\nOur Q1 adjusted operating margin was also impacted by year-over-year changes to A&P and adjusted SG&A.\nAs I previously mentioned, we continue to increase our investments in A&P in the quarter.\nThe adjusted operating profit and margin by segment for the quarter are shown on Slide 25.\nAs a reminder, we expect our first quarter this fiscal year to benefit the least from our inflation-justified pricing actions.\nIt's also worth highlighting again that our adjusted operating profit is flat on a two-year basis.\nOver a two-year period, we have completely offset double-digit inflation while also increasing investment in the business.\nAs you can see on Slide 26, our Q1 adjusted earnings per share of $0.50 was heavily impacted by inflation, as well as by a slightly higher tax rate.\nThese headwinds were partially offset by strong performance from our Ardent Mills joint venture, lower net interest expense and a slightly lower average diluted share count due to our share repurchases during the quarter.\nTurning to Slide 27.\nWe ended the quarter with a net debt-to-EBITDA ratio of four times, which was in line with our expectations and reflects the seasonality of the business.\nOur cash flow from operations and free cash flow were also both in line with our expectations for the quarter.\nOur capex increased year over year as we remain focused on continued capacity investments to maximize physical availability of our products.\nWe also continued to return capital to shareholders during the first quarter.\nWe repurchased approximately $50 million of common stock and paid approximately $132 million in cash dividends.\nAs a reminder, the board of directors approved a 14% increase to our annual dividend in July.\nWe paid our first dividend at the increased quarterly rate of $0.3125 per share or $1.25 per share on an annualized basis shortly after the conclusion of Q1.\nAs we have already detailed today, we continue to experience cost of goods sold inflation at a level that is both significant and in excess of the level projected at the time of our Q4 fiscal '21 earnings call.\nWe now expect gross cost of goods sold inflation to be approximately 11% for fiscal '22.\nWe previously expected gross inflation of approximately 9%.\nThis heightened inflationary pressure is coming from increases across many inputs, particularly proteins, edible fats and oils, grains and metal-based packaging.\nWe are also seeing increasing costs in transportation given marketplace dynamics.\nWe have strong plans in place to mitigate the impact of this inflation.\nFirst, we will leverage sourcing and hedging.\nGiven our sourcing and hedging positions, we only expect two-thirds of the 200-basis-point increase in gross inflation to impact the fiscal '22 P&L.\nRegarding quarterly flow, we expect about half of the net impact from this heightened inflation to hit in the fourth quarter.\nWe expect the other half to impact Q2 and Q3 about equally.\nAs a reminder, the benefit of hedging actions is classified as realized productivity in our schedules.\nIn addition to hedging and sourcing, we expect to have a number of drivers to help offset inflation in fiscal '22.\nAs Sean already detailed, these drivers include higher-than-expected consumer demand, lower-than-expected elasticities of demand and incremental inflation-justified pricing beyond our original plan.\nAs Sean noted, the benefits of our incremental pricing actions will be weighted toward the second half of the fiscal year.\nWe are also taking additional actions to enhance supply chain productivity through the balance of fiscal '22.\nAnd as always, we will maintain a disciplined approach to cost control, which continues to be a hallmark of our culture.\nWe now have additional cost savings actions planned beyond what was included as part of our initial guidance for the year.\nIn summary, we intend to leverage our full range of margin drivers to offset the impact of inflation.\nWe expect to realize the benefits from these drivers as the year progresses with the benefits weighted toward the second half of the year.\nWe continue to expect margins to improve sequentially over the remainder of fiscal '22.\nWe remain confident in our original adjusted earnings per share guidance of approximately $2.50 for the year, but the path to achieve that guidance has changed.\nWe now expect organic net sales growth of approximately 1% compared to our prior expectations of approximately flat growth.\nAlso, we expect our adjusted operating margin to continue to be approximately 16% but sees some modest compression versus our original forecast.\nWe expect the increase in dollar profit from higher net sales together with incremental cost savings to offset the incremental net inflation dollars.\nAs I explained on last quarter's call, this guidance is our best estimate of how we will perform in fiscal '22.\nBut our ultimate performance will be highly dependent on multiple factors, including: first, how consumers purchase food as food service establishments continue to reopen and people return to in-office work and in-person school; second, the level of inflation we ultimately experience; third, the elasticity of demand impact as consumers respond to higher prices; and finally, the ability of our end-to-end supply chain to continue to operate effectively as the pandemic continues to evolve.\nBefore turning it over to the operator for Q&A, I want to reiterate Sean's comments regarding our confidence in the resiliency of our business.\nOur ability to deliver solid results amid such a dynamic environment reflects the continued dedication of our team, as well as the strength of our brands and the Conagra Way playbook.\nThat concludes my remarks.",
        "summary": "q1 adjusted earnings per share $0.50.\nreaffirming its fiscal 2022 adjusted earnings per share guidance and updating its expected path to achieving that guidance.\ncontinues to experience elevated cost of goods sold inflation, rate of which continued to increase during q1 of fiscal 2022.\ncontinues to expect margins to improve sequentially over remainder of year.\nfy2022 organic net sales growth is expected to be approximately +1% versus prior guidance of approximately flat."
    },
    {
        "text": "This quarter was certainly different than the last, less -- day-to-day and sometimes minute-to-minute -- focused on COVID, PPP, loan deferrals and the Steuben acquisition, and we seem to have settled into a reasonably effective operating cadence.\nOperating earnings for the quarter were a bit better than we might have expected, given the yield curve and the muted product demand.\nBut our nonbanking businesses had a strong quarter.\nIn fact, year-to-date are up 4% on the topline and over 6% on the bottom line, so a very solid performance for those businesses.\nThe quarter was also very good for mortgage banking, credit, deposit growth, consumer deposit fees and the Steuben acquisition was also very additive to our performance.\nThe only real negative in the quarter, notwithstanding the litigation accrual that Joe will discuss further, was credit demand, excluding mortgage lending.\nThe total loan book was off about 1%, with slight declines in every business.\nThe mortgage business was quite strong, we sold over $100 million of lower rate, conforming production in the secondary market, where premiums are -- at the present moment -- very generous.\nSo, overall, we're satisfied with the quarter and with current operating trends, given the environment.\nAs we head into the last quarter of the year and into 2021, we will continue to be mindful and focused on the potential headwinds, including credit, the economic environment and interest rates.\nDespite the forward headwinds, we think we're in pretty good shape to capitalize on opportunities that, we expect, lie ahead.\nAs Mark noted, the earnings results for the third quarter of 2020 were very solid, especially in light of the economic challenges and industry headwinds we faced throughout the year.\nThe company recorded $0.79 in fully diluted GAAP earnings per share for the third quarter, excluding $0.04 per share for litigation reserve expense, net of tax effect and $0.02 per share for acquisition-related expenses, net of tax effect.\nFully diluted operating earnings per share were $0.85 for the quarter.\nThese results were $0.01 per share higher than the third quarter of 2019, fully diluted operating earnings per share of $0.84 and $0.09 higher than the linked second quarter 2020, fully diluted operating earnings per share of $0.76.\nThe company's adjusted pre-tax pre-provision net revenue per share of $1.10 was consistent with the third quarter of 2019 and $0.02 per share higher than the linked second quarter results.\nI will next touch on the company's balance sheet, before providing additional details on the company's earnings performance for the quarter.\nThe company closed the third quarter of 2020 with total assets of $13.85 billion.\nThis was up $401.1 million or 3% from the end of the linked second quarter and up $2.25 billion or 19.4% from the year earlier.\nSimilarly, average interest earning assets for the third quarter of 2020 of $11.96 billion were up $852.5 million or 7.7% from the linked second quarter of 2020, and up $2.15 billion or 21.9% from one year prior.\nThe very large increase in total assets and average interest earning assets over the prior 12 months was driven by the second quarter 2020 acquisition of Steuben Trust Corporation and large inflows of government stimulus-related funding in PPP originations.\nEnding loans at September 30th, 2020 were $7.46 billion, up $605.5 million, or 8.8% from one year prior, due to the Steuben acquisition and the origination of $507.4 million of PPP loans.\nEnding loans were down $69.4 million or 0.9% from the end of the linked second quarter, due to a decline in business activities in the company's markets due to the COVID-19 pandemic.\nThe company's average total deposits were up $823 million or 8.1% on a linked quarter basis, and up $2 billion or 22.6% over the third quarter of 2019.\nA significant portion of these funds were invested in overnight federal funds sold, which increased average cash equivalents in the quarter to $1.3 billion, up $635.1 million or 95.4% higher than the third quarter of 2019 and $478 million or 58.1% higher than the linked second quarter balances.\nThe company's capital reserves and liquidity profile remains strong in the third quarter.\nThe company's net tangible equity to net tangible assets ratio was 9.92% at September 30th, 2020.\nThis was down from 10.08% at the end of the second quarter, but up from 9.68% one year prior.\nThe company's Tier 1 leverage ratio was 10.21% at the end of the third quarter, which remained over two times the well capitalized regulatory standard of 5%.\nThe company has an abundance of liquidity resources and is extremely well positioned to fund future loan growth.\nThe company's funding base is largely comprised of low-cost core deposits.\nAt September 30th, 2020, checking and savings account balances represented 71.3% of the company's total deposit base.\nThe combination of the company's cash and cash equivalents, borrowing availability at the Federal Reserve Bank, borrowing capacity at the Federal Home Loan Bank and unpledged available-for-sale investment securities portfolio, provided the company with over $4.8 billion of immediately available sources of liquidity.\nThe company recorded total revenues of $152.6 million in the third quarter of 2020, an increase of $4.3 million or 2.9% from the prior year's third quarter.\nThe increase in total revenues between the periods was driven by increases in net interest income, banking-related noninterest revenues and noninterest revenues derived from our financial services businesses.\nNet interest income was up $1.7 million or 1.9% between comparable annual quarters, driven by a $2.15 billion or 21.9% increase in average assets between the periods, offset in part by a 61-basis point decrease in net interest margin.\nThe company's fully taxable equivalent net interest margin was 3.12% in the third quarter of 2020 as compared to 3.73% in the third quarter of 2019.\nA precipitous drop in market interest rates and significant increases and change in the composition of earning assets between the periods, including a $635.1 million increase in average cash equivalents, negatively impacted the company's net interest margin.\nNoninterest banking revenues were up $1.2 million or 6.9% from $17.9 million in the third quarter of 2019 to $19.1 million in the third quarter of 2020.\nThis was driven by a $4 million increase in mortgage banking revenue, offset in part by a $2.8 million decrease in deposit service and other banking fees.\nEmployee benefit services revenues were up $0.8 million or 3.4% from $24.3 million in the third quarter of 2019 to $25.2 million in the third quarter of 2020, driven by increases in plan administration and recordkeeping revenues and employee benefit trust revenues.\nWealth management, insurance services revenues were also up $0.5 million or 3.6% between comparable annual quarters.\nSimilarly, total revenues were up $7.7 million or 5.3% on a linked quarter basis, due to a $1 million or 1.1% increase in net interest income, a $4.8 million or 33.4% increase in banking noninterest revenues and a $2 million or 5.1% increase in revenues from our financial services businesses.\nThe substantial increase in banking noninterest revenues was driven by a $2.5 million increase in mortgage banking income due to an increase in secondary market mortgage sales activities, a $2.3 million increase in deposit service and other banking fees, as deposit transaction activity levels rebounded in the third quarter.\nThe company recorded $1.9 million in the provision for credit losses during the third quarter of 2020.\nThis amount was significantly less than the amounts recorded in the prior two quarters of 2020, and only a $100,000 greater than the amount recorded in the third quarter of 2019.\nThe decrease in the provision for credit losses during the third quarter as compared to the prior two quarters was due to improving economic conditions, modest levels of delinquent nonperforming loans, a decrease in loans outstanding, low levels of net charge-offs and a large decrease in the number and amount of the company's loan balances subject to borrow forbearance.\nThe company recorded loan net charge-offs of $1.3 million or 7 basis points annualized during the third quarter of 2020.\nComparatively, loan net-charge offs in the third quarter of 2019 were $1.6 million or 10 basis points annualized.\nOn a year-to-date basis, the company recorded net charge-offs of $3.7 million or 7 basis points annualized.\nThis compares to $5.4 million or 11 basis points annualized for the nine-month period ended September 30th, 2019.\nExclusive of $0.8 million of acquisition-related expenses and $3 million of litigation reserve charges, the company recorded $93.2 million of operating expenses in the third quarter of 2020.\nThis compares to $90.9 million in operating expenses recorded in the third quarter of 2019, exclusive of $6.1 million of acquisition-related expenses and $87.5 million in operating expenses in the linked second quarter of 2020, exclusive of $3.4 million of acquisition-related expenses.\nAlthough the company continued to experience reduced levels of business activities during the third quarter of 2020 due to the ongoing COVID-19 pandemic, the resumption of certain marketing and business development activities and incremental costs associated with operating a larger organization, as a result of the acquisition of Steuben in the second quarter of 2020, resulted in a $2.3 million or 2.6% net year-over-year increase in operating expenses between the comparable third quarters.\nThe $5.7 million or 6.5% increase in operating expenses between the third quarter of 2020 and the linked second quarter was driven by a $2.6 million or 4.7% increase in salaries and employee benefits, $1.3 million or 11.7% increase in data processing and communications expense, a $0.4 million or 3.9% increase in occupancy and equipment expense and a $1.4 million or 16.4% increase in other expenses.\nThe effective tax rate for the third quarter of 2020 was 20.3%, consistent with the linked second quarter.\nDuring the third quarter, the company grew $3 million or $0.04 per fully diluted share, net of tax effect, in litigation reserves related to a class action suit brought against the company for its deposit account overdraft disclosures.\nThe company anticipates that it will execute a settlement agreement with the plaintiff on the matter in the fourth quarter.\nThe agreement will be subject to the final approval of the court, and the company does not anticipate that additional reserves will be approved for this matter in future periods.\nFrom a credit risk and lending perspective, the company continues to closely monitor the activities of its COVID-19-impacted borrowers and develop loss mitigation strategies on a case-by-case basis, including but not limited to the extension of forbearance arrangements.\nAt September 30th, 2020, 216 borrowers representing $193 million or 2.6% of loans outstanding were active under COVID-related forbearance.\nAs of last week, the outstanding loan balances under active forbearance dropped below $125 million.\nAlthough these trends are favorable, the company anticipates that the number of delinquent nonperforming loans will increase over the coming quarters.\nAt September 30th, 2020, nonperforming loans increased to 43 basis points or 0.43% of total loans outstanding.\nThis compares to 0.42% of total loans outstanding at the end of the third quarter of 2019 and 0.36% at the end of the linked second quarter of 2020.\nTotal delinquent loans, which includes nonperforming loans and loans 30 or more days delinquent, to total loans outstanding was 0.79% at the end of the third quarter of 2020.\nThis compares to 0.85% at the end of the third quarter of 2019 and 0.72% at the end of the linked quarter -- second quarter of 2020.\nThe company's allowance for credit losses increased from $64.4 million or 0.86% of total loans outstanding at June 30th to $65 million or 0.87% of total loans outstanding at September 30th.\nThe allowance for credit losses at September 30th represented over 10 times the company's trailing 12 months of net charge-offs.\nOperationally, we will continue to adapt to the changing market conditions.\nWe remain very focused on asset quality and credit loss mitigation.\nWe anticipate assisting the substantial majority of the company's PPP borrowers with forgiveness request in the fourth quarter of 2020 and throughout 2021.\nThe eligibility of the borrower's forgiveness request and the SBA's ability to provide loan forgiveness in a timely manner is uncertain at this time.\nFor these reasons, it is uncertain as to the timing in which the company's remaining $11.3 million of net deferred PPPs will be recognized through the income statement.\nLoan demand may also be impaired by weak economic conditions.\nWe are also uncertain as to whether or not the high levels of deposit liabilities will be retained, spent down or increased by further additional stimulus.\nSince the ultimate effect that the COVID-19 pandemic will have on the company's credit loss remains uncertain, a decrease in the provision for credit losses during the third quarter should not be interpreted as a trend or utilized to forecast provision in future quarters.\nAlthough the credit metrics that management historically utilized to determine expected loan losses remains subdued in the third quarter, the company anticipates increases in delinquency and nonperforming loan balances in future quarters, that it is unlikely that all COVID-affected borrowers will resume full payment of contractual amounts upon the expiration of the forbearance agreements.\nAlthough we have begun to deploy portions of our cash equivalent balances into investment securities to increase interest income on a going forward basis and provide a hedge against the sustained low interest rate environment and anticipate recognizing the substantial majority of deferred PPP's over the next several quarters, we also expect net interest margin pressures to persist and remain well below our historical levels.\nFortunately, the company's diversified noninterest revenue streams, which represent approximately 38% of the company's total year-to-date revenues, remain strong and are anticipated to mitigate some of the margin compression.\nIn addition, the company's management team is actively developing and implementing various earnings improvement initiatives, including potential revenue enhancements and cost-reduction measures intended to favorably impact future earnings.\nThe company's dividend capacity remained strong.\nAccordingly, the company expects to continue to pay a quarterly dividend, consistent with past practices.\nUndoubtedly, the COVID-19 crisis has changed the near-term outlook for society in general, as well as expectations around economic conditions.\nWith this said, we will continue to support our stakeholders in a thoughtful, disciplined and compassionate manner.\nI believe the company is well prepared to curb the impacts.",
        "summary": "compname reports q3 earnings per share of $0.79.\nq3 gaap earnings per share $0.79.\nq3 revenue $152.6 million versus refinitiv ibes estimate of $150 million.\ncommunity bank system - qtrly operating diluted earnings per share (non-gaap) of $0.85.\ncommunity bank system- covid-19 expected to continue to impact co's financial results."
    },
    {
        "text": "Many factors could cause future results to differ materially.\nA more detailed description of such factors can be found in the filings with the Securities and Exchange Commission.\nJoining us for today's call are Jerry Grisko, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer.\nWe experienced growth in total revenue, same unit revenue, earnings per share and adjusted EBITDA for the first quarter of 2021.\nThese results provide important momentum for the remainder of the year.\nOur results demonstrate the fundamental attributes of our business model that I've emphasized throughout the past year.\nThese characteristics continue to enable our positive performance during both favorable and less favorable business conditions.\nThese attributes include the proportion, representing approximately 70% of our revenue that comes from essential and recurring services, including our tax services, insurance services, payroll services and a host of others that our clients rely on us to provide regardless of business conditions.\nOur high client retention rates, our broad geographic footprint, the diversity of our client base in terms of industry and size of business, our strong and consistent cash flow and the substantial amount of variable expenses in our business.\nWe continue to capitalize on the stability that our business model affords.\nThroughout the last year and into the first quarter of 2021, we have watched how these attributes provided us an opportunity for growth regardless of economic environment.\nIn addition, we continue to be extremely vigilant in managing our overall expenses and discretionary spending.\nPractices we focused on at the start of the pandemic and carried into the first quarter of this year.\nAs recovery continues, and we return to some level of normalcy, these expenses will begin to return as well, albeit at somewhat reduced levels compared to 2019.\nNow I will turn to the performance of our two primary practice groups.\nWithin our Financial Services group, we continue to experience very strong demand for our core services, including many of the compliance-related services that are weighted more heavily toward the first quarter of each year.\nThis year, the IRS tax filing deadline was extended to May 15, so a portion of our tax compliance revenue work will extend beyond the traditional mid-April time frame.\nWithin our Discretionary and Project-Based businesses, we continue to experience increasing demand for our litigation support business and are seeing returning interest in our private equity advisory services and our valuation services.\nFurther, we anticipated that some project-based and discretionary work that was put on hold or delayed last year would carry over into 2021, and we are seeing that now, especially for our services that touch M&A transactions.\nWhile it is still too early to tell if this trend will continue throughout the year, all signs are positive and we remain encouraged based on the general level of optimism we are hearing from our clients and the external signs of economic recovery.\nAlso, important to note, the passage of the most recent COVID relief bill and stimulus package, like those passed in 2020, present new considerations for businesses and translates to more opportunities for us to deepen our client relationships and offer support when our clients need it most.\nWe continue to be active in our outreach and engagement of our clients to help supporting accessing these new and expanded opportunities.\nOur government healthcare consulting business ended 2020 strong and started this year with tailwinds as delayed contracts resumed, and we find our clients have largely adjusted to working with us using virtual tools.\nWe are also seeing new projects move forward, including increasing interest in our services related to managed care, which means additional opportunities for this business.\nTurning to our Benefits and Insurance group.\nWe started the year strong and are seeing a continuation of the positive trends that we experienced in the second half of last year in our employee benefits business, the core of our property and casualty business, and the advisory services provided within our retirement plan services businesses.\nClient retention is also up for these same services so far in 2021.\nFrom a consolidated viewpoint, we continue to experience some softness in the portion of our Payroll business that generally serves smaller businesses, including a number in the food services industry.\nTo put this in context, the total revenue from this segment of our payroll clients represents less than 4% of CBIZ' total revenues.\nOne additional area I want to highlight is our investment in producers.\nOur ability to track, retain and develop our producers is essential to accelerate organic growth, and I am pleased to report that our overall number of producers is up at the start of 2021, and we continue to make progress in this area.\nThe new producers we brought on in recent years continue to outperform our projections.\nAnd as a result, we are continuing to add new producers and to expand this program to other areas of our business.\nIn summary, we are pleased to start 2021 in a position of financial strength with a strong balance sheet, low debt and ready access to capital.\nWith total revenue growing by 8.4% in the first quarter, revenue growth from acquired businesses accounted for 4.8% of that growth, with same unit growth up by 3.6%.\nAfter facing uncertainty in 2020 coming into this year, we were unclear how the year-over-year comparison to 2020 would unfold in the first quarter.\nThe core business has continued the steady performance that we saw through much of last year.\nAnd as expected, the advisory and transaction-oriented business services that were more vulnerable to the conditions encountered last year have largely stabilized, and we are positioned to record growth this year.\nOur Financial Services group recorded total revenue growth of 8.1%, with same unit revenue growth of 4.5%.\nWith no industry concentration within our core services clients, the diverse set of clients we serve lend stability to this business.\nThe acquisitions we closed last year are performing extremely well, with the only soft comparison being the private equity focused advisory business where the first quarter this year compares with a strong first quarter a year ago.\nWe currently have a full pipeline of prospective work within this group and we expect to report growth for the full year.\nContinuing to work under remote conditions, our government healthcare consulting business had a strong first quarter.\nTurning to the benefits and insurance group, total revenue grew by 9.6%, with same unit revenue growth of 1.6% in the first quarter this year.\nSome of the transactional-based businesses, such as payroll services, are soft in comparison with first quarter a year ago.\nBut after reporting a same unit revenue decline of 3% for the full year last year, the 1.6% first quarter same unit revenue growth within benefits insurance this year is noteworthy.\nAs Jerry commented, our investment in additional producers that has occurred in recent years is resulting in stronger pipelines of new business.\nWe are continuing to invest in bringing additional producers onboard to further enhance growth prospects.\nWhen coupled with strong client retention, we are well positioned for growth.\nAs Jerry discussed, we remain vigilant in managing our expenses, which include for example, lower levels of expense for travel and entertainment that given the constraints caused by the pandemic are directly tied to our remote work.\nAlso, as a reminder, in the first quarter a year ago, we recorded an additional $2 million of bad debt expense.\nAnd so with the improvement in client receivables we are seeing, bad debt expense was lower this year.\nWe are pleased to report 390 basis point margin expansion on pre-tax income, leading to a 39.4% increase in earnings per share, up to $0.92 per share this year compared with $0.66 in the first quarter a year ago.\nAs we progress through this year, we intend to resource some level of discretionary spending, and that may challenge the year-over-year comparisons in the second quarter and for the balance of the year.\nFor example, our investment in our national marketing media campaign was paused throughout 2020, but this is now under way in the second quarter.\nAlso, last year, as we pointed out in our quarterly calls, benefits and healthcare costs were lower as many medical procedures were delayed or deferred.\nAfter experiencing lower trends in this cost in the second, third and fourth quarters of 2020, benefits and healthcare costs were again lower in the first quarter this year.\nThis expense is hard to predict in the near term, but we expect a more normal level of expense over the balance of this year.\nSo bear in mind, this trend may create some volatility to margin as we progress through the balance of this year.\nThis impacts our reported gross margin, which was 27.1% on an adjusted basis this year compared to 22.6% a year ago.\nAnd operating margin on an adjusted basis was 22.4% compared with 18.2% a year ago.\nAs a reminder, there is no impact to pre-tax income.\nCash flow has continued to be strong, with days sales outstanding on receivables improving from 94 days a year ago to 91 days this year.\nSeasonally, CBIZ typically uses cash in the first quarter each year as receivables build in connection with our busy season revenue.\nAt March 31 this year, the balance outstanding on our $400 million unsecured credit facility was $162 million compared with $108 million outstanding at December 31, 2020.\nThis leaves approximately $230 million of unused capacity at March 31.\nSo we have plenty of dry powder to address strategic acquisition opportunities as well as continue with share repurchases.\nIn the first quarter, we used approximately $32.7 million to repurchase approximately 1.1 million shares.\nSince the end of the quarter through April 27, we have purchased approximately 270,000 additional shares under a 10b program for a total of approximately 1.4 million shares repurchased this year to date.\nAs a result of this repurchase activity, we expect a fully diluted weighted average share count for 2021 within a range of 54 million to 54.5 million shares, which represents a slight reduction in our full year expectation compared with guidance earlier this year, and we will provide further updates as we progress through the year.\nOf course, strategic acquisitions continue to be the top priority as we deploy capital.\nWith over $200 million of unused capacity, we have the flexibility to be aggressive in pursuing potential acquisitions.\nLast year, we closed seven acquisitions, and we announced an 8th acquisition effective on January one this year.\nCollectively, these acquisitions are expected to contribute approximately $48 million of annualized revenue, and we will see these transactions contribute to revenue growth throughout this year.\nIn the first quarter, we used $3.7 million for acquisitions, including earn-out payments on acquisitions closed in previous years.\nFuture earn-out payments are estimated at approximately $11.8 million for the balance of this year, $16.1 million next year in 2022, approximately $9.7 million in 2023, approximately $13.5 million in 2024, and $800,000 in 2025.\nJerry will comment further on the recently announced acquisition, which is effective on May 1.\nAnd to be clear, the numbers I just referenced do not include the impact of this new acquisition.\nBeyond the acquisition we announced today, we continue to have a full pipeline of potential acquisitions.\nCapital spending in the first quarter was $1.1 million.\nLast year, capital spending for the full year was $11.7 million.\nAnd for 2021, we continue to estimate capital spending at approximately $12 million to $15 million for the full year.\nAdjusted EBITDA grew by 28.5% to $73.3 million reported in the first quarter this year, up from $57 million a year ago.\nThe margin expansion on adjusted EBITDA was 370 basis points to 24.3% of revenue this year compared with 20.6% a year ago.\nThe effective tax rate in the first quarter was 24.1%, and we continue to project an effective tax rate for the full year of approximately 25%.\nOf course, as a reminder, the effective tax rate can be impacted either up or down by a number of factors that can be unpredictable, and we are not speculating on the impact of potential legislative changes in the tax rate that may occur.\nFirst, in regards to M&A, we started 2021 with the strongest M&A pipeline we've had in many years.\nAlready this year, we've completed one acquisition within our core accounting and tax practice and another within our retirement plan services business.\nI mentioned the acquisition of Middle Market Advisory Group during our last call.\nM&A provides tax, compliance and consulting services to middle market companies and family groups in a number of attractive industries and is located in Denver, Colorado.\nThis acquisition complements our rapidly growing Denver based practice.\nI'm also pleased to announce the acquisition of Wright Retirement Services, a provider of third-party administrative services to retirement plan clients across the country.\nLocated in Valdosta, Georgia, Wright Retirement services has a long-standing relationship with CBIZ as a client, and we are excited by the opportunity to offer their clients a broader array of services.\nThis week we signed definitive documents to acquire the non-attest assets and business of Bernston Porter, a Bellevue, Washington based accounting firm.\nAs you know, for a number of years we've talked about identifying partners and completing acquisitions in attractive and growing markets.\nThe Pacific Northwest has been high on our list.\nTo enter a market like this, we wanted to do it with a partner that brought the size, scope and client base that would serve as a platform and be a catalyst for growth in that region.\nAnd as always, we prioritize cultural fit, alignment of values and strong leadership as essential for future success.\nOver the years, we've evaluated a number of opportunities in the greater Seattle Metropolitan market, and that process led us to Bernston Porter.\nFounded in 1985 by Bob Bernston and Greg Porter, over time Bernston Porter grew to be one of the top 10 CPA firms in the Puget Sound region.\nBernston Porter's team, under the leadership of President Mary Actor, brings with it an outstanding reputation for exceptional client service, a commitment to the growth and development of their team members, and service to the communities where they work and live, all qualities that align with CBIZ' core values and beliefs.\nThe effective date for this acquisition is May 1, but we wanted to do announce it today as all conditions to closing have been satisfied.\nM&A continues to be a key component of CBIZ' growth strategy and will be a top priority for us in 2021 and beyond, especially as we see increasing interest in CBIZ as a potential partner.\nOur performance over the last year on the backdrop of the pandemic demonstrates the value and stability of our business model.\nWe also continue to emphasize our unique position in the market, given the breadth and depth of our expertise and services and our strong and steady cash flow.\nOur access to capital allows us to continue to make investments in the business that many of our competitors simply cannot afford.\nWe know that these messages resonate with firms in each of our various businesses, and we are eager to explore these opportunities.\nI would now like to turn to our revised guidance.\nAs a result of our strong performance in the first quarter and the acquisition of Bernston Porter effective on May 1, we are revising upward our previously announced guidance.\nOur revised guidance is to grow revenue between 8% to 10% and earnings per share within a range of 12% to 15% for the full year of 2021 compared to the full year of 2020.\nWhile there is still uncertainty as we navigate this next phase of the pandemic, our guidance assumes that recovery will continue and that business conditions will remain the same or improve throughout the remainder of the year.\nWith this revision and guidance and the announcement of the acquisition, I want to point out that Bernston Porter is a traditional accounting firm that recognizes a disproportionate amount of its revenue in the first half of the year due to the timing of tax deadlines in the busy season.\nGiven the seasonal nature of this business, the earnings impact of this acquisition will be more fully realized in 2022 and beyond.",
        "summary": "q1 earnings per share $0.92 from continuing operations.\nsees fy revenue up 8 to 10 percent.\nq1 revenue rose 8.4 percent to $300.7 million.\nfor 2021 co expects to grow fully diluted earnings per share within a range of 12% to 15% over prior year."
    },
    {
        "text": "In addition, today's call includes discussions of certain non-GAAP financial measures.\nTables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company's website at crowncastle.com.\nAs you saw from our second quarter results and increased full year outlook, we continue to generate significant growth in cash flows and dividends from the deployment of 5G in the U.S.\nWe are experiencing the highest level of tower activity in our history, resulting in a year of outsized growth as we now anticipate 12% growth in AFFO per share for full year 2021, meaningfully above our long-term annual target of 7% to 8%.\nOur current 7% to 8% growth target was established in 2017 when we expanded our fiber and small cell strategy through the completion of our largest acquisition.\nThis 7% to 8% growth target was an increase of 100 basis points from our prior target since we expected a diverse portfolio to increase our ability to consistently drive long-term growth.\nSince that time, the strategy has worked better than expected as we have grown our dividend per share at a compounded annual growth rate of 9%, with some years being driven by outsized growth in our fiber and small cell business like last year, and other years like this one being driven by higher growth in our tower business.\nThis record level of activity is tied to the existing wireless carriers increasing their spend to add more equipment to tower sites and DISH starting to build a new nationwide 5G network from scratch.\nWe expect this elevated level of activity to continue beyond this year and support future growth on our towers.\nWhile driving strong growth in our tower business this year, the initial focus by our customers on towers has also led to some delays in our small cell deployment, shifting the timing of when we expect to complete the nearly 30,000 small cells contractually committed in our backlog.\nWhen combined with zoning and permitting challenges as well as the previously disclosed Sprint cancellation, we now expect to deploy approximately 5,000 small cells in each of this year and next year with the remaining nearly $20,000 from our current backlog completed beyond 2022.\nThis delay has not impacted our view of long-term attractiveness of small cells since the fundamental need for small cells continues and the unit economics remain in line with our expectation.\nWith more than 50,000 small cells on air, we have already seen how important small cells are as a key tool used by the carriers to add network capacity by reusing their spectrum over shorter and shorter distances.\nWe believe small cells will be an even more important tool going forward as the nature of wireless networks requires continued cell site densification to meet the increasing demand for data, especially as 5G networks are deployed.\nAs a result, we believe these timing factors will not alter our long-term returns on our investments or our ability to deliver on our growth objectives.\nOne of the core principles of our strategy is to focus on the U.S. market because we believe it is the best market for communications infrastructure ownership, with the most attractive growth profile and the lowest risk.\nWith that view in mind, we've invested nearly $40 billion in shared infrastructure assets that we believe are mission-critical for today's wireless networks and sit in front of what is expected to be a massive decade-long investment by our customers to deploy 5G in the U.S. As you can see on slide four, our tower and fiber investments are at two different stages of development and maturity.\nOur tower investment began more than 20 years ago at an approximately 3% yield, when we built and acquired assets that we could share across multiple customers.\nBy providing a lower cost to each customer, we have leased up those assets over the years and generated compelling returns for our shareholders.\nAs we have proven out the value proposition for our customers over time, our tower assets now generate a yield on invested capital of 11% with meaningful capacity to support additional growth.\nAs we realize the wireless network architecture would need to evolve with 4G, requiring a network of cell sites that would be much denser and closer to end users, we expanded our shared infrastructure offering beyond towers, establishing the industry-leading small cell business in the U.S. It's encouraging that the business is already generating a current yield on invested capital of more than 7%, given the relative immaturity of these investments.\nTo provide additional visibility into how our investments are progressing, we've updated our analysis of the cohort of five markets we introduced a year ago.\nLooking at a collective view of how these five markets have performed over the last year on slide five, growth from both small cells and fiber solutions has contributed to an incremental yield of 7% on the approximately $200 million of incremental net capital investment.\nAdjusted for the timing impacts associated with the large in-process small cell project, where capital investment has occurred in advance of the corresponding revenue and cash flows, the incremental yield is approximately 8%.\nThis incremental yield resulted in a modest decline in the combined cash yield from 9.2% a year ago to 9% currently.\nThis is in line with our expectations as we have invested in new small cells at a 6% to 7% initial yield that we expect to grow over time as we lease up those assets to additional customers.\nDuring the last year in these markets, we have added more than 500 route miles of new high-capacity fiber to support the deployment of approximately 2,000 small cells.\nImportantly, approximately 40% of the small cells deployed were co-located on existing fiber with the balance representing new anchor builds in attractive areas of these markets where we expect to capture future small cell and fiber solutions demand.\nGenerally speaking, we would expect markets that have a longer average investment life to have higher returns than those with less mature assets.\nThis is true because we have more time to add customers to existing assets, which is consistent with our historical experience with towers, where we have, on average, added about one tenant -- one new tenant every 10 years.\nSimilar to our experience with the movements in yield and tower investments over time, as we showed back on page four, sometimes the steady climb of yields on legacy investment is less obvious as we invest in less mature assets that bring down the overall market yield.\nThis is certainly true of some of the cohort.\nVery much related to the average life of the investment is the density of small cells per route mile of fiber since, as in the tower business, the co-location of additional nodes on existing fiber is what drives the yields up over time.\nConsequently, we typically see a higher percentage of nodes co-located on existing fiber as the density of nodes increases.\nOn the third characteristic, we believe the markets with both small cells and fiber solutions will ultimately have higher yields than those with only one of the two revenue streams.\nWith this setup as a backdrop, I want to share a few observations that I think are important to highlight as we assess this data set on page six.\nLooking across the markets, you can see the longer average investment lives tend to correspond to higher yield.\nDenver has the least mature capital base and the lowest market yield, while Orlando has one of the most mature capital bases and the highest yields.\nIn addition, the higher density of nodes per mile, which is generally correlated with the longer investment life and higher percentage of co-located nodes generates higher market yield.\nThe financial benefit associated with co-locating nodes is apparent when looking at the incremental yield in Los Angeles and Phoenix.\nIn the last year, about half of the small cells deployed across those two markets were co-located on existing fiber, resulting in a strong incremental yield.\nMeanwhile, Denver does not fit neatly into this framework, featuring the highest node density but the lowest yield.\nPart of the explanation is that Denver is a market where we spent more than we originally budgeted on our initial build activity, which weighed down the starting yield.\nImportantly, during the last 12 months, we achieved strong yields on incremental invested capital in Denver, increasing the market yield by 70 basis points.\nThis is consistent with our experience more broadly in the small cell business as co-located nodes on existing fiber come at high incremental yields, driving attractive returns over time.\nAnd finally, looking at the financial benefit of having both small cells and fiber solutions leveraging the same asset base, you can see the markets with a meaningful contribution from both offerings are generally performing better.\nThe best example to point to here is Philadelphia, where despite having a less mature capital base and lower node density than Phoenix, it is generating a similar yield on invested capital of nearly 10% due primarily to the higher contribution from fiber solutions.\nOur experience in Philadelphia also highlights another important point when assessing the performance of a portfolio of assets.\nSimilar to what we've seen throughout our long history of towers, when you zoom in on a particular set of assets and focus on a short time period, the picture may not always be perfect.\nOver the last year, the market yield in Philadelphia has contracted by 60 basis points due to a combination of a lack of small cell activity as this was not a priority market for our customers and more muted growth from fiber solutions.\nDespite this, Philadelphia is still generating a very attractive yield on invested capital, and we believe our dense fiber footprint in this top market is positioned well to capture future small cell and fiber solutions growth.\nIn summary, the combined performance of this cohort of market provides another point of validation for our strategy, with small cells and fiber solutions growth contributing to attractive incremental yields while we continue to make discretionary investments in new assets that will expand the long-term growth opportunity.\nTurning back now to our overall strategy.\nAs has been obvious to all of us over the last 18 months, connectivity is vital to our economy and how we live and interact with one another.\nOur strategy is to provide profitable solutions to connect communities and people to each other.\nOur business is also inherently sustainable.\nOur shared infrastructure solutions limit the proliferation of infrastructure and minimize the use of natural resources.\nOur solutions help address societal challenges like the digital divide in underserved communities by advancing access to education and technology.\nAs you've seen in our last two sustainability reports, we've enhanced our focus on ESG, which we believe will drive increased revenue opportunities from things like smart cities and broadband for all and lower operating costs in areas like tower lighting, electric vehicles and interest savings, which Dan will discuss in just a minute.\nImportantly, none of this is possible without a team at Crown Castle that embraces diversity and inclusion, ensuring that our employees and our business partners are empowered to help us serve our customers, connect our communities and build the future of communications infrastructure in the U.S. So to wrap up, we expect to deliver outsized AFFO per share growth of 12% this year as we capitalize on the highest tower activity levels in our history with our customers deploying 5G at scale.\nWe expect this elevated level of tower activity to continue beyond this year.\nOur diversified strategy of towers and small cells has driven higher growth than expected as we have grown our dividend at a compounded annual growth rate of 9% since we expanded our strategy in 2017.\nAnd looking forward, I believe our strategy to offer a combination of towers, small cells and fiber solutions, which are all critical components needed to develop 5G will extend our opportunity to deliver dividend per share growth of 7% to 8% per year.\nAnd when I consider the durability of the underlying demand trends we see in the U.S. that provides significant visibility into the future growth for our business, I believe Crown Castle stands out as a unique investment that we believe will generate compelling returns over time.\nAs Jay mentioned, 2021 is shaping up to be a great year of growth for Crown Castle as our customers deploy 5G nationwide.\nThe elevated tower activity drove strong second quarter financial results and another increase to our full year outlook, which now includes an expected 12% growth in AFFO per share.\nTurning to second quarter results on slide seven.\nSite rental revenue increased 8%, including 5.3% growth in organic contribution to site rental revenue.\nThis growth included 8.6% growth from new leasing activity and contracted escalators net of 3.3% from nonrenewal.\nThe higher activity levels also drove a $40 million increase in contribution from services when compared to second quarter 2020, leading to 15% growth in adjusted EBITDA and 18% growth in AFFO per share.\nTurning to slide four.\nWith the strong second quarter and continued momentum, we have again increased our full year outlook, highlighted by a $30 million increase to adjusted EBITDA and a $20 million increase to AFFO.\nThe higher activity in towers drove the majority of these changes to our outlook including an additional $15 million in straight-line revenue, a $45 million increase to the expected contribution from services and $15 million of additional labor costs.\nThe lower expected volume of small cells deployed this year that Jay discussed earlier results in a $10 million reduction in organic contribution to site rental revenue, which translates to a 20 basis point reduction in the expected full year growth in consolidated organic contribution to site rental revenue to 5.7%.\nOur expectations for the contribution to full year growth from towers and fiber solutions remains unchanged at approximately 6% for towers and 3% for fiber solutions, with small cell growth now expected to be approximately 10% compared to our previous outlook of approximately 13% growth.\nMoving to investment activities.\nDuring the second quarter, capital expenditures totaled $308 million, including $19 million of sustaining expenditures, $60 million of discretionary capital expenditures for our tower segment and $223 million of discretionary capital expenditures for our fiber segment.\nOur full year expectation for capital expenditures has reduced to $1.3 billion from our prior expectation of $1.5 billion, primarily attributed to the reduction in small cells we expect to deploy this year.\nTurning to our balance sheet.\nWe exited the second quarter with a net debt-to-EBITDA ratio of approximately five times, which is in line with our target leverage.\nConsistent with our overall focus on delivering the highest risk-adjusted return for shareholders, we have methodically reduced risk across our balance sheet over the last five years by reducing our exposure to variable rate debt in extending the maturity profile of our borrowings to better align the duration of our assets and liabilities.\nSpecifically, since our first investment-grade bond offering in early 2016, we have increased the weighted average maturity from just over five years to nearly 10 years, increased our mix of fixed rate debt from just under 70% to more than 90% and reduced our weighted average borrowing rate from 3.8% to 3.2%.\nConsistent with that focus, we issued $750 million of 10-year senior unsecured notes in June at 2.5% to refinance outstanding notes maturing in 2022 and to repay outstanding borrowings on our commercial paper program.\nAdditionally, in June, we amended our existing credit facility, extending the maturity date to June 2026 and incorporating sustainability targets that resulted in lower interest rates in the facility as we achieve specified sustainability metrics over the next five years.\nWe believe this was the first time sustainability targets had been incorporated in a credit facility for tower company.\nAdding quantifiable sustainability metrics to our inherently sustainable business model that Jay outlined earlier highlights our commitment to delivering value to all our stakeholders.\nStepping back and to wrap things up, we are excited about the record levels of tower activity as our customers deploy 5G at scale.\nWe are capitalizing on those positive fundamentals and expect to deliver a great year of growth with AFFO now expected to grow 12% for the full year 2021, meaningfully above our long-term annual target of 7% to 8%.\nOur diverse portfolio of assets and customer solutions has performed better than expected since we meaningfully augmented our fiber footprint with a large acquisition in 2017 as we have grown our dividend per share at a compound annual growth rate of 9% over that time.\nImportantly, in some years like last year, our fiber and small cell business has driven that outperformance, while in other years like this one, our tower business is the driver.\nWe continue to invest in new assets that we believe will allow us to grow our dividend per share at 7% to 8% per year going forward.\nThis growth provides a very attractive total return opportunity when combined with our current approximately 3% dividend yield, and we believe our investments in new assets will extend this opportunity into the future.\nWith that, Cody, I'd like to open the call to questions.",
        "summary": "qtrly site rental revenues grew 8%, or $106 million, from q2 2020 to q2 2021."
    },
    {
        "text": "In the first quarter, Cullen/Frost earned $113.9 million or $1.77 a share compared with earnings of $47.2 million or $0.75 a share reported in the same quarter last year and $88.3 million or $1.38 a share in the fourth quarter of 2020.\nIn a very challenging economic environment, our team not only continued to execute on our strategies, but also achieved some extraordinary accomplishments that I'll discuss in detail as we go through the call.\nEconomic impacts of the pandemic continue to affect loan demand.\nOverall, average loans in the first quarter were $17.7 billion, an increase of 18% compared with $15 billion in the first quarter of last year.\nBut excluding PPP loans first quarter average loans of $14.9 billion represented a decline of just over 1% compared to the first quarter of 2020.\nAverage deposits in the first quarter were $35.4 billion and they were an increase of 30% compared to $27.4 billion in the first quarter of last year.\nObviously, macroeconomic factors over the past year have impacted our deposit growth but it's also been our experience over our history that our frost that we're safe haven for customers and times of uncertainty.\nOur return on average assets and average common equity in the first quarter were 1.09% and 11.13%, respectively.\nWe did not record a credit loss expense related to loans in the first quarter after recording a credit loss expense of $13.3 million in the fourth quarter.\nOur asset quality outlook is stable and experienced a meaningful improvement during the first quarter.\nIn general, problem assets are declining in number and new problems have dropped significantly and are at pre-pandemic levels.\nNet charge-offs for the first quarter dropped sharply to $1.9 million from $13.6 million in the fourth quarter.\nAnnualized net charge-offs, for the first quarter, were just 4 basis points of average loans.\nNonperforming assets were $51.7 million at the end of the first quarter, down 17% from the $62.3 million at the end of the fourth quarter.\nAnd a year ago, nonperformers stood at $67.5 million.\nOverall, delinquencies for accruing loans at the end of the first quarter were $106 million or 59 basis points of period-end loans at stable when compared to the end of 2020 and comparable to what we have experienced in the past several years.\nOf the $2.2 billion in 90-day deferrals granted to borrowers that we've discussed on previous calls, only about $11 million remain in deferment at the end of the first quarter.\nTotal problem loans, which we define as risk grade 10 and higher were $774 million at the end of the first quarter compared with $812 million at the end of the fourth quarter.\nEnergy-related problem loans continued to decline and were $108.6 million at the end of the first quarter compared to $133.5 million for the previous quarter.\nTo put that in perspective, total problem energy loans peaked at nearly $600 million early in 2016.\nIn general, energy loans continued to decline as a percentage of our portfolio falling to 7.5% of our non-PPP portfolio at the end of the first quarter.\nAs a reminder, that figure was 8.2% at the end of the fourth quarter and the peak was 16% back in 2015.\nWe continue to work hard to rationalize our company's exposure to the energy segment to appropriate levels.\nOverall, we find that credit quality is improving.\nWhen the pandemic started last year, we assembled teams to analyze the non-energy portfolio segments that we considered the most at risk which included restaurants, hotels, entertainment, sports and retail.\nThe total of these portfolio segments, excluding PPP loans, represented just $1.6 billion at the end of the first quarter.\nAnd our loan loss reserve for these segments was 4.9%.\nThe credit quality of individual credits in these segments is mostly stable or better compared to the end of the fourth quarter, and the outlook is improving although macroeconomic trends impacting some segments will take time to fully digest.\nThe Hotel segment, where we have $286 million outstanding remains our most at risk category.\nHowever, we believe our exposure to any significant loss is minimal.\nI'm very proud of our team's ability to build relationships with new customers in challenging times.\nParticularly when so much effort was put into helping existing small business customers get PPP loans.\nDuring the first quarter, we added 55% more new commercial relationships than we did in the first quarter of last year.\nA good portion of those mentioned PPP is the reason they came to frost, but even more of them we're just from the continued hard work by our bankers and the level of service that we provide.\nNew loan commitments booked during the first quarter, excluding PPP loans, were down by 16% compared to the first quarter of 2020, which was before the economic impact of the pandemic had been felt.\nSo this comparison clearly shows the impact of the pandemic on loan demand.\nRegarding new loan commitments booked, the balance between these relationships was nearly even with 49% larger and 51% core at the end of the first quarter.\nWe will continue to keep this balance in mind.\nIn total, the percentage of deals lost to structure was 70%, and it was fairly consistent with the 73% we saw this time last year.\nHowever, keep in mind, we believe that's a high number, and it illustrates the competition out there through underwriting.\nOur weighted current active loan pipeline in the first quarter was up about 1% compared with the end of the fourth quarter.\nSo though modest, it was good to see some improvement.\nConsumer banking also continues to see outstanding growth.\nOverall, our net new consumer customer growth rate for the first quarter was up 255% compared to the first quarter of 2020, 255%.\nSame-store sales, as measured by account openings were up by 18% and through the end of the first quarter when compared to the first quarter of 2020, and up a non-annualized 11% on a linked-quarter basis.\nIn the first quarter, 36% of our account openings came from our online channels, including our Frost mobile app.\nWe believe this compares very well to the industry.\nOnline account openings were 35% higher when compared to the first quarter of 2020.\nConsumer loan portfolio was $1.8 billion at the end of the first quarter, up by 1.4% compared to the first quarter of last year.\nWe're nearing the completion of our previously announced Houston expansion.\nWe opened the 23rd of the planned 25 new financial centers in April, and the remaining two will be opened in the coming weeks.\nOverall, the new financial centers are exceeding our expectations.\nThis is one of the extraordinary accomplishments that I mentioned earlier.\nOur team's performance of keeping the momentum going in Houston despite the pandemic and all the work we put into PPP is a true credit to our outstanding staff.\nNow let me share with you where we stand with the expansion as of March for the 22 locations we had opened at that time and it excludes PPP loans.\nOur numbers of new households were 144% of target and represent over 8,700 new individuals and businesses.\nOur loan volumes were 212% of target and represented $263 million in outstandings.\nLet's look at the mix of this portfolio.\nAbout 85% represent commercial credits with about 15% consumer.\nThey represent just under half C&I loans, about 1/4 investor real estate, 15% consumer and around 10% nonprofit in public finance.\nFinally, with only three loans over $10 million, over 80% are core loans.\nNow let's look at deposits.\nAt $343 million, they represent 114% of target.\nThey represent about two-third commercial and one-third consumer.\nWe've seen increasing momentum over the last year when we were about 68% of our target.\nWhat I hope this demonstrates and what's important to understand is that the character of the business we are generating through the expansion is very consistent with the overall company.\nIt's just what we do.\nAnd you can see that its profitability will be driven by small and midsized businesses.\nI'm extremely proud of what our organization has been able to do in Houston, and I believe you should be, too.\nWe've built a platform that will add to shareholder value for years to come.\nAnd that's why I'm happy to share that we will be taking the lessons and skills we've learned in the Houston market to a very similar opportunity we have before us in Dallas early next year with 25 new locations over a 30-month period.\nThis will put us on a path to triple our number of locations in that dynamic market over that time.\nTurning now to PPP.\nOur team was ready to respond when SBA reopened the application process in January.\nTo date, we've taken in about 12,400 new loan applications in the second round of PPP with over $1.3 billion funded.\nCombined with our total from the first round last year, we funded more than 31,000 loans or $4.6 billion, just amazing.\nWe've also been working hard to help those borrowers get loans forgiven.\nWe've invited all of the round one borrowers to apply for forgiveness, and we've submitted 70% of those loan balances to the SBA, and we've received forgiveness on about 50% already.\nBecause this process is vital to our borrowers, we're doing all the work in-house with frost bankers.\nWe haven't outsourced any of these efforts.\nWe're excited to announce that on April 15, we've launched a new feature for our consumer customers called $100 overdraft grace.\nThis feature is an investment in our organic growth strategy.\nAnd at the same time, we believe it will make a difference in our customers' lives.\nIt clearly sets us apart from both traditional bank competitors and neo banks.\nAs a result, we expect it to further increase the rate of new customer growth and our already growing consumer bank.\nAlso this month, we received some good news from third-party organizations that assess our customer service.\nThe Greenwich Excellence awards or frost has had the highest scores for superior service, advice and performance to small business and middle market banking clients for four consecutive years.\nLet us know that our already high overall satisfaction and Net Promoter scores went up even higher over 2020, while many of our competitors saw declines.\nAnd I'm very pleased to let you know that J.D. Power and Associates, just this week announced at Frost once again received the highest ranking in customer satisfaction in Texas in the retail banking satisfaction study.\nThat's the 12th consecutive year we've had the highest scores in Texas.\nWhen you put it all together, the solid financial results, the healthy numbers in deposits and loans, all the new relationships, the goodwill from our PPP efforts, the Houston expansion and the customer service accolades it shows that when we care about customers and work to be a force for good and their everyday lives will be rewarded.\nAnd I don't just mean rewarded in a financial sense.\nI mean the sense that people recognize that we're doing something important and we're doing it better than just about anyone else.\n2020 was a tough year in 2021, hasn't been easy so far, but things are looking up.\nAnd that's due to everything that our employees have been doing for our company and our customers in these difficult times, and I'm very optimistic about our outlook.\nI appreciate all their hard work.\nAnd I'm proud of them, and I'm proud to be at frost.\nLooking first at our net interest margin.\nOur net interest margin percentage for the first quarter was 2.72%, down 10 basis points from the 2.82% reported last quarter.\nThe decrease was impacted by a higher proportion of earning assets being invested in lower-yielding balances at the Fed in the first quarter as compared to the fourth quarter, partially offset by the positive impact of the PPP loan portfolio.\nInterest-bearing deposits at the Fed earning 10 basis points averaged $9.9 billion or 25% of our earning assets in the first quarter, up from $7.7 billion or 20% of earning assets in the prior quarter.\nExcluding the impact of PPP loans, our net interest margin percentage would have been 2.59% in the first quarter, down from an adjusted 2.75% for the fourth quarter.\nThe taxable equivalent loan yield for the first quarter was 3.87%, up 13 basis points from the previous quarter.\nExcluding the impact of PPP loans, the taxable equivalent loan yield would have been 3.77%, basically flat with the prior quarter.\nAverage loan volumes in the first quarter of 17.7 billion were down 260 million from the fourth quarter average of 17.9 billion.\nExcluding PPP loans, average loans in the first quarter were down about 184 million, or 1.2% from the fourth quarter, with about three quarters of that decrease related to energy loans.\nTo add some additional color on our PPP loans, as Phil mentioned, we funded over 1.3 billion of round two PPP loans during the first quarter.\nThis was offset by approximately 580 million and forgiveness payments during the quarter on round one loan, bringing our total round one forgiveness payments to approximately 1.4 billion.\nAt the end of the first quarter we had approximately 73 million in net deferred fees remaining to be recognized with about one third of this related to round one loans.\nWith respect to round two loans given the smaller dollar size of the loans and changes in the forgiveness process, we expect this portfolio to have a shorter average life and the round one portfolio.\nAs a result, we currently expect about 90% of the remaining net defer fees to be recognized this year.\nLooking at our investment portfolio, the total investment portfolio averaged 12.2 billion during the first quarter, down about 335 million from the fourth quarter average of 12.6 billion.\nThe taxable equivalent yield on the investment portfolio was 3.41% in the first quarter, flat with the fourth quarter.\nThe yield on the taxable portfolio, which averaged 4 billion was 2.06% down 6 basis points from the fourth quarter as a result of higher premium amortization associated with our agency mortgage backed security given faster prepayment speed, and to a lesser extent, lower yields associated with recent purchases.\nOur municipal portfolio averaged about 8.2 billion during the first quarter, down 154 million from the fourth quarter with a taxable equivalent yield of 4.09% flat with the prior quarter.\nAt the end of the first quarter 78% of the municipal portfolio was pre-refunded, or PSF insured.\nInvestment purchases during the first quarter were approximately 500 million and consistent about 200 million each in treasuries and mortgage backed securities respectively with the remainder being municipal.\nOur current projections only assumed that we make investment purchases of about 1.4 billion for the year, which will help us to offset a portion of our maturities and expected prepayments and calls.\nRegarding non-interest expense looking at the full year 2021, we currently expect an annual expense growth of something around the 3.5% to 4% range from our 2020 total reported non-interest expenses.\nAnd regarding the estimates for full year 2021 earnings, given our first quarter results, in our assumption of similar to improving credit metrics to those we saw in the first quarter.\nWe currently believe that the current mean of analysts' estimates of $5.42 is too low.",
        "summary": "q1 earnings per share $1.77."
    },
    {
        "text": "In the third quarter Cullen/Frost earned $109.8 million or $1.73 per diluted common share compared with earnings of $115.8 million or $1.78 a share reported in the same quarter of last year.\nOur return on average assets was 1.35% for the quarter compared to 1.49% in the third quarter last year.\nAverage deposits in the third quarter were up to $26.4 billion compared with $26.2 billion in the third quarter of last year.\nAverage loans in the third quarter were $14.5 billion up 5.8% from the third quarter of last year.\nWe continue to see growth in our C&I CRE and Consumer segments.\nOur provision for loan losses was $8 million in the third quarter compared to $6.4 million in the second quarter of 2019 and $2.7 million in the third quarter of 2018.\nNet charge-offs for the third quarter were $6.4 million compared with $15.3 million for the third quarter of last year.\nThird quarter annualized net charge-offs were only 17 basis points of average loans.\nNonperforming assets were $105 million at the end of the third quarter compared to $76.4 million in the second quarter of 2019 and $86.4 million in the third quarter of last year.\nThe increase in the third quarter related to a single energy credit which have been included in problem energy loans since early 2016.\nOverall delinquencies for accruing loans at the end of the third quarter were $100 million or 69 basis points of period end loans.\nThose numbers remain well within our standards and comparable to what we have experienced in the past several years.\nOur overall credit quality remains good.\nTotal problem loans which we define as risk grade 10 and higher of $487 million at the end of the third quarter compared to $457 million in the second quarter of this year and $504 million for the third quarter of last year.\nEnergy-related problem loans declined to $87.2 million at the end of the third quarter compared to $93.6 million at the end of the second quarter and $138.8 million in the third quarter of last year.\nEnergy loans in general represented 10.5% of our portfolio at the end of the third quarter well below our peak of more than 16% in 2015.\nOur focus for commercial loans continues to be on consistent balanced growth including both the core component which we define as lending relationships under $10 million in size as well as larger relationships while maintaining our quality standards.\nNew relationships increased 5% versus the third quarter a year ago.\nThe dollar amount of new loan commitments booked during the third quarter dropped by 14% compared to the prior year with decreases in C&I public finance and energy but a slight increase in CRE amendments.\nSimilar to what we discussed last quarter we are looking at lots of deals but our booking ratio was down particularly in commercial real estate.\nIn the current quarter our booking ratio for CRE was 24% versus 32% in the prior year.\nOverall in the third quarter we saw our percentage of deals lost to structure increase from 56% to 61% versus a year ago.\nI was pleased to see our weighted current active loan pipeline in the third quarter was up by about 30% compared with the end of the second quarter due to higher levels of C&I opportunities.\nSo we are seeing good activity and I'm expecting some good growth in the fourth quarter.\nIn Consumer Banking our value proposition and award-winning service and technology continued to attract customers.\nThe fourth fifth and sixth of the 25 new financial centers planned over the next two years in Houston opened in the third quarter and we have already opened the seventh so far in the fourth quarter with more to come before the end of this year.\nOverall net new consumer customer growth for the third quarter was up by 48% compared with a year ago.\nSo far this year same-store sales as measured by account openings increased by 14% compared to a year ago.\nIn the third quarter just under 30% of our account openings came from our online channel which includes our Frost Bank mobile app.\nThis channel continues to grow.\nIn fact online account openings were 56% higher during the quarter compared to the previous year.\nThe consumer loan portfolio averaged $1.7 billion in the third quarter increasing by 1.9% compared to the third quarter of last year.\nI continue to be extremely proud of our banking insurance and wealth advisory staff executing our strategy of organic growth consistent with our strong culture.\nThe interest rate environment presents challenges to our industry but we continue to focus on the fundamentals and growing our lines of business in line with our quality standards.\nTo sum up Frost has received the highest ranking in customer satisfaction in Texas in J.D. Power's U.S. Retail Banking Satisfaction Study for 10 years in a row.\nWe have received more Greenwich excellence and best brand awards for small business and middle-market banking than any other bank nationwide for three consecutive years and we have once again been named the best Bank in Texas by money magazine.\nYou don't do that without great people dedicated to providing the kind of service that makes people's lives better.\nI'll make a few comments about the Texas economy before providing some additional information about our financial performance for the quarter and I'll close with our guidance for full year 2019.\nRegarding the economy Texas unemployment remained at the historically low level of 3.4% for the fifth month in a row in September.\nTexas job growth continued at a healthy pace but decelerated during the third quarter coming in at 3% in July 1.8% in August and 0.9% in September compared to the 2.3% growth seen in the first six months of the year.\nThe Dallas Fed currently estimates Texas job growth at 2.1% for full year 2019.\nIn terms of employment growth by industry construction has been especially strong growing at 6% year-to-date followed by manufacturing job growth of 2.7%.\nEnergy industry job growth has weakened and now stands at 1.6% year-to-date however energy job growth was negative in the third quarter.\nLooking at individual markets.\nHouston economic growth was slightly ahead of historical trends in the third quarter.\nThe Fed's Houston business Cycle Index saw to a 3.9% growth rate in September but remains above its historical average of 3.5%.\nYear-to-date Houston employment is up 2% with third quarter growth slightly better at 2.2%.\nThe construction sector saw 7.3% job growth in the nine months through September.\nThe strongest growth of any sector in the Houston economy.\nHouston's unemployment rate fell slightly to 3.6% in September.\nThe Dallas business cycle index expanded at a 4.4% annual rate in the third quarter while the Fort Worth business cycle index expanded at a 3.5% annual rate.\nIn September the unemployment rate fell to 3.1% in Dallas and 3.2% in Fort Worth.\nThe Austin economy also remained healthy in August.\nThe Austin business cycle index grew at a 7.8% annualized rate.\nAustin's unemployment rate stood at 2.7%.\nThe information sector saw by far the fastest job creation in Austin in the year-to-date period with job growth of 23% over the prior year period.\nGrowth in the San Antonio economy accelerated in September.\nThe San Antonio business cycle index expanded its fastest pace since 2016 growing at a 3.8% rate in September well above its long-term trend of 2.9%.\nSan Antonio's unemployment rate decreased slightly to 3% as of September.\nThe Permian Basin economy showed year-to-date job growth of 0.2% through September with unemployment of 2.3% remaining well below the state's overall 3.4%.\nLooking at our net interest margin.\nOur net interest margin percentage for the third quarter was 3.76% down nine basis points from the 385 -- 3.85% reported last quarter.\nThe decrease primarily resulted from lower yields on loans and balances at the Fed partially offset by lower funding costs.\nThe taxable equivalent loan yield for the third quarter was 5.16% down 18 basis points from the second quarter.\nLooking at our investment portfolio the total investment portfolio averaged $13.4 billion during the third quarter up about $122 million from the second quarter average of $13.3 billion.\nThe taxable equivalent yield on the investment portfolio was 3.43% in the third quarter up one basis point from the second quarter.\nOur municipal portfolio averaged about $8.2 billion during the third quarter flat with the second quarter.\nDuring the third quarter we purchased about $100 million in agency mortgage-backed securities yielding 2.63% and about $260 million in municipal securities with a TE yield of 3.31%.\nThe municipal portfolio had a taxable equivalent yield for the third quarter of 4.08% up two basis points from the previous quarter.\nAt the end of the third quarter about 2/3 of the municipal portfolio was PSF insured.\nThe duration of the investment portfolio at the end of the quarter was 4.3 years flat with the previous quarter.\nLooking at our funding sources.\nThe cost of total deposits for the third quarter was 39 basis points down two basis points from the second quarter.\nThe cost of combined Fed funds purchased and repurchase agreements which consists primarily of customer repos decreased 16 basis points to 1.53% for the third quarter from 1.69% in the previous quarter.\nThose balances averaged about $1.29 billion during the third quarter up about $49 million from the previous quarter.\nMoving to noninterest expenses.\nTotal noninterest expense for the quarter increased approximately $15.2 million or 7.8% compared to the third quarter last year.\nExcluding the impact of the Houston expansion and the increased operating costs associated with our headquarter's move in downtown San Antonio noninterest expense growth with an approximately 4.3%.\nRegarding the assets for full year 2019 reported earnings we currently believe that the mean of analyst estimates of $6.81 is reasonable.\nNow I'll open up the call to questions.",
        "summary": "q3 earnings per share $1.73.\nincreases quarterly cash dividend by 6 percent to $0.71per share."
    },
    {
        "text": "In the third quarter, Cullen/Frost earned $95.1 million or $1.50 per share compared with earnings of $109.8 million or $1.73 per share reported in the same quarter of last year and $93.1 million or $1.47 per share in the second quarter of this year.\nOverall, average loans in the third quarter were $18.1 billion, up by 25% from $14.5 billion in the third quarter of last year, which included the impact from PPP loans.\nHowever, even excluding this impact, loans managed a 3.3% increase from a year earlier.\nAverage deposits in the third quarter were $32.9 billion, also up by 25% from the $26.4 billion in the third quarter of last year and the highest quarterly average deposits in our history.\nWe understand that the banking industry has seen broad increases in deposit levels, as authorities implemented comprehensive fiscal and monetary responses to the pandemic.\nHowever, it's also been our experience that Frost has historically been a safe place in times of uncertainty, and I believe this will always be a part of our growth in challenging times.\nFor the first time, our total assets have surpassed $40 billion, up 41% in the last five years, and all of that representing organic growth.\nAnd speaking of organic growth, I'll discuss our Houston expansion in more detail later in the call.\nBut I'd like to point out that we were pleased to see our deposit market share in Houston has now moved up to #6, up from 10th place a year ago.\nEven with the challenging environment, we and others in our industry have seen pressure on profitability.\nOur return on assets in the third quarter was just below 1% at 0.96%, and we were pleased to announce yesterday the action of our Board to increase our dividend for the 26th consecutive year.\nWe saw a reduction in credit cost expense to $20.3 million in the third quarter, down from $32 million in the second quarter of 2020.\nThis compared with $8 million in the third quarter of last year.\nNet charge-offs for the third quarter were $10.2 million, down sharply from the $41 million in the second quarter and included no energy charge-offs.\nAnnualized net charge-offs for the third quarter were 22 basis points of average loans.\nNonperforming assets were $96.4 million at the end of the third quarter compared to $85.2 million at the end of the second quarter and $105 million at the end of the third quarter last year.\nThe third quarter increase resulted primarily from the addition of an energy service company.\nOverall delinquencies for accruing loans at the end of the third quarter were $133 million or 73 basis points of period-end loans.\nThose numbers remain within our standards and comparable to what we've experienced in the past several years.\nIn total, we granted 90-day deferrals to more than 2,500 borrowers for loans totaling $2.2 billion.\nAt the end of the third quarter, there were around 300 loans totaling $157 million in deferment or about 1%.\nTotal problem loans, which we define as risk grade 10 and higher, were $803 million at the end of the third quarter compared to $674 million at the end of the second quarter.\nEnergy-related problem loans were $203.5 million at the end of the third quarter compared to $176.8 million for the previous quarter and $87.2 million for the third quarter last year.\nTo put that in perspective, the year-end 2016 total problem energy loans totaled nearly $600 million.\nEnergy loans continued to decline as a percentage of our portfolio, falling to 9.1% of our non-PPP portfolio at the end of the third quarter.\nAs a reminder, the peak was 16% back in 2015.\nOil prices have stabilized from volatile levels that we saw earlier in the year, and we continue to moderate our company's exposure to the energy segment.\nThrough the first nine months of this year, the pandemic's economic impacts on our portfolio have been negative but manageable.\nDuring our last two conference calls, we discussed the nonenergy portfolio segments that have had an increased impact from the economic dislocations brought on by the pandemic, namely restaurants, hotels, entertainment and sports and retail.\nThe total of these portfolio segments, excluding PPP loans, represented $1.54 billion at the end of the third quarter, and our loan loss reserve for these segments was 3.37%.\nNew relationships are up by 38% compared with this time last year, largely because of our strong efforts and reputation for success in helping small businesses get PPP loans.\nThe dollar amount of new loan commitments booked through September is up by about 2% compared to the prior year.\nRegarding new loan commitments booked, the balance between these relationships has stayed steady at 53% large and 47% core so far in 2020.\nThe market remains competitive and, in fact, seems to be getting more so.\nFor instance, the percentage of deals lost to structure increased from 61% this time last year to 70% this year.\nIt was good to see that in this environment, our weighted current active loan pipeline in the third quarter was up 11% compared with the second quarter of this year.\nConsumer banking continues to see growth, although it slowed somewhat by the effect of the pandemic.\nOverall, net new customer growth for the third quarter was down 13% compared with the third quarter of 2019 for consumers.\nSame-store sales, as measured by account openings, were down about 15.5% through the end of the third quarter when compared with the third quarter of 2019.\nIn the third quarter, 52% of our account openings came from our online channel, which includes our Frost Bank mobile app, and online account openings were 73% higher compared to the third quarter of 2019.\nOur investments in enhancing our mobile and online experience proved timely during the quarantine.\nThe consumer loan portfolio was $1.8 billion at the end of the third quarter, up by 6.7% compared to the third quarter of last year.\nOur growth is being driven primarily by consumer real estate loans.\nOur Houston expansion continues on pace, with five new financial centers opened in the third quarter for a total of 20 of the 25 planned new financial centers.\nWe expect to open two more in this quarter, with the remaining three opening in early 2021.\nThe fact that we've been able to continue our expansion plans through the pandemic and see very promising results is due to the dedication and skill of Frost bankers.\nWhen they've done the miraculous, what merely seems extraordinary tends to be taken for granted.\nOf course, we realize the pressures impacting the banking industry in light of the current and projected economic and interest rate environment and the importance of operating as efficiently as possible while providing the level of world-class customer service Frost is known for.\nI'm proud of our efforts over time and, in particular, what we've accomplished this year, which Jerry Salinas has been reporting on as we've moved through 2020.\nNext year will be no different, and we're committed to improving our operating efficiency further.\nIn that regard, I'll note that our executive team has committed to reduce our own salaries by 10% effective January one as well as reducing my team's bonus targets by 5% and mine by 10% for the coming year.\nWe're taking these actions despite the recognized success Frost has had managing through the pandemic and supporting our customers and communities.\nThey represent management's desire to contribute to the current and future long-term well-being of the company and reflect our commitment to our unique culture.\nAll of us at Frost in all our lines of business will face these challenges together, and our company, as always, will emerge stronger than ever.\nLooking first at our net interest margin.\nOur net interest margin percentage for the third quarter was 2.95%, down 18 basis points from the 3.13% reported last quarter.\nThe decrease primarily resulted from lower yields on loans, which had a negative impact of approximately 11 basis points on the net interest margin and a lower yield on securities, which had a three basis point negative impact, combined with an increase in the proportion of balances at the Fed as a percentage of earning assets, which had about a seven basis point negative impact on the NIM compared to the previous quarter.\nLower interest costs in the quarter reduced these negatives by about two basis points.\nThe taxable equivalent loan yield for the third quarter was 3.73%, down 22 basis points from the previous quarter.\nThe decrease in yield was impacted by decreases in LIBOR during the quarter, as about 2/3 of our loan portfolio, excluding PPP, is made up of floating rate loans, and about 60% of our floating rate loans are tied to LIBOR.\nThe PPP loan portfolio also had a negative effect on our loan yield as compared to the second quarter.\nDuring the third quarter, we extended the expected term of the PPP portfolio somewhat, which resulted in a yield on the PPP portfolio of 3.65% during the third quarter as compared to 4.13% in the second quarter.\nThis had a nine basis point negative impact on the comparison between the second and third quarter reported total loan yields.\nLooking at our investment portfolio.\nThe total investment portfolio averaged $12.7 billion during the third quarter, up about $180 million from the second quarter average of $12.5 billion.\nThe taxable equivalent yield on the investment portfolio was 3.44% in the third quarter, down nine basis points from the second quarter.\nThe decrease in the portfolio yield was driven by a decrease in the yield on our taxable portfolio.\nThe yield on that portfolio, which averaged $4.2 billion during the quarter, was down 19 basis points from the second quarter to 2.21%, as a result of higher premium amortization associated with our agency MBS securities, given faster prepayment speeds and lower yields associated with recent purchases.\nOur municipal portfolio averaged about $8.5 billion during the third quarter, flat with the second quarter, with a taxable equivalent yield of 4.08%, up one basis point from the prior quarter.\nAt the end of the third quarter, 78% of the municipal portfolio was pre-refunded or PSF insured.\nThe duration of the investment portfolio at the end of the third quarter was 4.5 years, up slightly from 4.4 years last quarter.\nFor the third quarter, I'll point out that the salaries line item includes about $4.5 million in reductions in salary expense associated with truing up our incentive plans based on current expectations of projected payouts for the year.\nAs Phil mentioned, in this environment, we continue to focus on managing our discretionary spending and looking for ways to operate more efficiently.\nLooking at the full year 2020, our previous guidance on expenses was that adding back the deferred expenses related to PPP loans, we expected an annual expense growth of something around 6%.\nOur current expectations would reduce that to something around the 3% range.",
        "summary": "q3 earnings per share $1.50."
    },
    {
        "text": "In the fourth quarter, Cullen/Frost earned $88.3 million or $1.38 a share, compared with earnings of $101.7 million or $1.60 a share reported in the same quarter last year, and $95.1 million or $1.50 a share in the third quarter of 2020.\nFor the full year of 2020 Cullen/Frost earned $323.6 million or $5.10 a share, compared with earnings of $435.5 million or $6.84 a share reported for 2019.\nOur team continues to manage expenses, while at the same time pursuing the expansion of market share and investing for long-term growth.\nOverall, average loans in the fourth quarter were $17.9 billion, an increase of 22% compared with $14.7 billion in the fourth quarter of last year, but excluding PPP loans, fourth quarter average loans of $15 billion represented a 2.3% increase compared to the fourth quarter of 2019.\nAverage deposits in the fourth quarter were $34 billion, an increase of 25% compared with the $27 billion in the fourth quarter of last year.\nFor the second consecutive quarter, we've seen the highest quarterly average deposits in our history.\nThis growth reflects it for us has always been a safe haven for customers in times of uncertainty, and also our success in building new relationships.\nOur return on average assets and average common equity in the fourth quarter was 86 basis points and 8.55% respectively.\nWe saw a reduction in our credit loss expense to $13.8 million in the fourth quarter, down from $20.3 million in the third quarter of 2020.\nAnd this compared to $8.4 million in the fourth quarter of last year.\nNet charge-offs for the fourth quarter were $13.6 million compared with $10.2 million in the third quarter.\nAnnualized net charge-offs for the fourth quarter were 30 basis points of average loans.\nNonperforming assets were only $62.3 million at year-end, down 35% from the $96.4 million at the end of the third quarter.\nA year ago, non-performer stood at $109.5 million.\nOverall, delinquencies for accruing loans at the end of the fourth quarter were $103 million or 59 basis points of period end loans.\nThose numbers remain within our standards and comparable to what we've experienced in the last several years.\nIn total, we have granted 90-day deferrals to more than 2500 customers for loans totaling $2.2 billion, and at the end of the fourth quarter, only about $46 million remained in deferment.\nTotal problem loans, which we define as risk grade 10 and higher were $812 million at the end of the fourth quarter, in line with the $803 million at the end of the third.\nEnergy related problem loans were $133.5 million at the end of the fourth quarter, compared to $203.7 million for the previous quarter, and $132.4 million for the fourth quarter of last year.\nTo put that in perspective, total problem energy loans peaked at nearly $600 million early in 2016.\nEnergy loans continue to decline as a percentage of our portfolio, falling to 8.2% of our non-PPP portfolio at the end of the fourth quarter.\nAs a reminder that figure was 9.1% at the end of the third quarter and the peak was 16% back in 2015.\nWe continue to work hard to rationalize our Company's exposure to the energy segment to appropriate levels.\nThroughout 2020, the pandemic's economic impacts on our portfolio were negative but manageable, and our overall outlook for credit quality is stable to improving.\nIn the second half of 2020, we discussed the non-energy portfolio segments that have had an increased impact in the economic dislocations brought on by the pandemic: restaurants, hotels, entertainment and sports and retail.\nThe total of these portfolio segments excluding PPP loans represented just under $1.6 billion at the end of the fourth quarter and our loan loss reserve for these segments was 4.55%.\nWe saw the largest reserve increases in hotels and restaurants where our allocated allowances as a percentage of outstanding balances are now 9.1% and 7.4% respectively.\nWe continue to monitor credit in these areas closely and we will have a good and we have a good handle on our risk, and as a reminder, hotels and lodging represent approximately 1.9% of our total loans and restaurants represent approximately 1.8% of our total loans.\nTo me a really bright spot is the growth in our commercial relationships in 2020.\nThey were up by 31% compared to a year ago.\nWe're great at building relationships.\nIt's what we do.\nIt's in our mission statement.\nBut clearly cross national recognition for its success and going above and beyond to obtain PPP loans for its customers at a positive impact in the market.\nIn addition, our Houston expansion is also contributing to our success here.\nNew commercial relationships in Houston, grew 49% in 2020 and represented 39% of the new commercial relationships companywide during the year.\nFor the year, our loan commitments booked were down 6% compared to the prior year and reflected the impact of the pandemic.\nRegarding new loan commitments booked, the balance between these relationships have stayed steady at 53% larger and 47% core at the end of 2020 -- 2020.\nThe market remains very competitive.\nThe percentage of deals lost to structure increased from 61% this time last year, to 67% this year.\nOur weighted current active loan pipeline in the fourth quarter dropped by about 2% compared with the end of the third quarter, reflecting the continued impact of the pandemic on business activity.\nConsumer banking continues to see good growth.\nOverall, our net new customer growth for the fourth quarter was up 57% compared to the pre-COVID fourth quarter of 2019.\nSame-store sales as measured by account openings for branches opened less than a year were up by 2.2% through the end of the fourth quarter when compared to the fourth quarter of 2019, and up 8.2% compared to the prior quarter.\nHere again our Houston expansion is helping this growth.\nFor example, despite currently representing only about 16% of our total consumer households, Houston contributed 34% of fourth quarter total company consumer household growth.\nIn the fourth quarter, 41% of our account openings came from our online channel, including our cross-mobile app.\nOnline account openings were 39.5% higher compared to the fourth quarter of 2019.\nThe consumer loan portfolio was up $1.8 billion at the end of the fourth quarter, up by 7.2% compared to the fourth quarter last year.\nOur Houston expansion is nearing completion with two new financial centers opened in the fourth quarter for a total of 22 of 25 planned new financial centers.\nCOVID has had an impact on our rollout, but we expect to open the remaining three in the first half of this year.\nOverall, the new financial centers are exceeding our expectations and the new locations were well placed and well-timed to leverage our success in obtaining PPP loans for the market.\nThe fourth quarter also saw the opening of our new financial center in College Station with the second financial center to open in nearby Bryan later this quarter.\nSo far in January, our newest location in Dallas, the Red Bird Financial Center location also opened for business.\nWe remain committed to consistent, sustainable, above average organic growth.\nWe also remain committed to managing costs and operating as efficiently as possible.\nThis month, we took the difficult step of eliminating 68 positions across the company where business needs have changed, where technology can be better utilized and where responsibilities could be consolidated.\nThis along with broadly successful efforts to improve efficiency, which Jerry will discuss positioned us well as we move into 2021.\nI talk often about the dedication skill of Frost Bankers and about their commitment, Frost philosophy and culture.\nThroughout a difficult 2020 and now into a new year that promises to be challenging in its own way, the people of Frost have been and will be ready to provide the level of world-class customer service Frost is known for.\nI'm proud of what we've accomplished and I'm optimistic about the long-term well-being of the company and the communities we serve.\nLooking first at our net interest margin, our net interest margin percentage for the fourth quarter was 2.82%, down 13 basis points from the 2.95% reported last quarter.\nThe decrease was almost all a result of a higher proportion of earning assets being invested in lower yielding balances at the Fed, in the fourth quarter as compared to the third quarter.\nInterest-bearing deposits at the Fed earning 10 basis points averaged $7.7 billion or 20% of our earning assets in the fourth quarter, up from $5.9 billion or 16% of earning assets in the third quarter.\nThe taxable equivalent loan yield for the fourth quarter was 3.74%, up 1 basis point from the previous quarter.\nAverage loan volumes in the fourth quarter of %17.9 billion were down $205 million from the third quarter average of $18.1 billion.\nThe decrease was driven by a decrease of $296 million in average PPP loans as a result of those balances being forgiven.\nExcluding PPP loans, average loans in the fourth quarter were up about $92 million or 2.4% on an annualized basis from last quarter.\nLooking at our investment portfolio.\nThe total investment portfolio averaged $12.6 billion during the fourth quarter, down about $98 million from the third quarter average of $12.7 billion.\nThe taxable equivalent yield on the investment portfolio was 3.41% in the fourth quarter, down 3 basis points from the third quarter.\nThe lower portfolio yield was driven by a decrease in the yield in our taxable portfolio.\nThe yield on that portfolio which average $4.2 billion during the quarter was down 9 basis points from the third quarter to 2.12% as a result of higher premium amortization associated with our agency MBS securities given faster prepayments speeds and lower yields associated with recent purchases.\nOur municipal portfolio averaged about $8.4 billion during the fourth quarter, down $95 million from the third quarter, with the taxable equivalent yield of 4.09%, up 1 basis point from the prior quarter.\nAt the end of the fourth quarter, 78% of the municipal portfolio was pre-refunded or PSF insured.\nThe duration of the investment portfolio at the end of the fourth quarter was 4.4 years compared to 4.5 years last quarter.\nDuring the fourth quarter, our investment purchases were less than $100 million and consisted primarily of MBS securities.\nAs we look out into 2021, we currently are not expecting to make a significant amount of investment purchases in this market.\nWe are currently only expecting to make purchases in the neighborhood of about $1 billion, which will help to offset a portion of our maturities and expected prepayments in calls.\nFor the fourth quarter, I'll point out that non-interest expense includes about $7.1 million in one-time restructuring costs with $5.2 million of that related to severance impacted by the eliminated positions Phil noted.\nAs we mentioned last quarter and as Phil mentioned in his comments, in this environment, we continue to focus on managing our discretionary spending and looking for ways to operate more efficiently.\nWe have worked and continue to work in a collaborative manner across our organization to look for ways to operate more efficiently without affecting our customer experience.\nWe challenged ourselves to eliminate open positions where possible and reorganized operating areas, including using technology where it makes sense to further automate processes.\nWe used a thoughtful process to reorganize positions where the business needs have changed, where technology could be better utilized and where responsibilities could be consolidated.\nWe asked our teammates to question discretionary spending and visited with vendor relationships to reduce costs where we could.\nAll this was done without losing sight of our core values of integrity, caring and excellence.\nWe believe that we have always been prudent in managing expenses but in this zero rate environment, our approach has become even more focused.\nWe began this process in the second quarter of last year as we began to deal with the challenges of the pandemic in a zero interest rate environment.\nOur initial guidance for expense growth for 2020 was around 10.5% and we actually ended up with a growth rate of under 2% on reported non-interest expenses, 2020 over 2019.\nObviously the changes resulting from the operating environment and lower incentives affected the decrease somewhat, but overall, it shows our team's commitment to managing expenses in this environment.\nNow looking forward into 2021, we expect an annual expense growth of something around the 4% to 4.5% range growth off of our 2020 total reported non-interest expenses.\nRegarding income taxes, we currently expect our effective tax rate for 2021 to be a little higher than our 2020 effective tax rate of 5.7%.\nJust as a reminder, 2020 income tax expense included a discrete onetime credit of $2.6 million.\nRegarding the estimates for full year 2021 earnings, we currently believe that the current mean of analysts' estimates of $4.72 is a little low.\nThis assumes a steady operating environment with no unexpected credit event.",
        "summary": "compname reports q4 earnings per share of $1.38.\nq4 earnings per share $1.38.\nqtrly average loans increased $3.2 billion, or 22.0 percent, to $17.9 billion."
    },
    {
        "text": "I'm going to begin with the safe harbor statement.\nI recommend that you read it at your leisure.\nWe have our entire management team on the call today available for Q&A after the formal pitch.\nWe have a lot of slides and several presenters but I'm going to give you the short story upfront.\n2020 was a turbulent year.\nWe emerged from 2020 much stronger as a company.\nWe like to say that we do our best work and we're going to jam.\nThat's true for 2020.\nWe protected our people, we found a way to run the plants and warehouses safely, we set production and shipping records, we figured out how to make hand sanitizer in our U.K. plant, we operated the company with 2,000 remote employees, we pivoted our marketing messages to support a 60% increase in e-commerce sales, we installed the new packaging lines with the assistance of off-site engineers using Google classes, we added overflow warehouses, and we validated new suppliers and co-manufacturers.\nIn our communities, we delivered masks and hand sanitizers to hospitals where we live and donated to food banks, and recently our Mason City, Iowa plant loaned an ultra-cold freezer to a local hospital to store the COVID-19 vaccine.\nConsumer demand drove huge sales growth, which enabled us to overcome significant incremental COVID costs and incremental U.S. government tariffs.\nBut it also gave us the opportunity to invest in our future, which we did in the second half.\nLooking ahead to '21, we're optimistic that the vaccine will help the global business environment.\nWe operate in many categories and we do expect pluses and minuses, depending on the category.\nAll in, we expect to deliver 3% organic sales growth and 6% to 8% earnings per share growth in 2021.\nAnd this is on top of almost 10% organic growth and 15% earnings per share growth in 2020, which exceeded our 2020 outlook when we last spoke in October.\nOur Evergreen model is intact.\nBefore we start the formal part of the program, here is a brief video that is a look back on 2020.\nOkay, here's today's agenda.\nI'm going to begin by describing who we are as a company, I'm going to be followed by Britta Bomhard, who is our Chief Marketing Officer.\nBritta's going to talk about the categories, how they performed in 2020 and how we expect them to perform in '21.\nSteve Cugine's going to come up and tell us about our new products in '21.\nSteve Cugine, by the way, will be retiring in the middle of '21.\nSteve has had a spectacular career with Church & Dwight, spanning over 20 years.\nFor the past seven years, he has been running our international business, which has been a stellar performer.\nAnd Steve is going to introduce Barry Bruno, who has been with the company for a number of years and he has been Steve's right-hand man in growing the international business.\nI'm going to come back and talk about the animal productivity story as well as how we run the company and also talk about our M&A platform.\nWe're going to wrap up with Rick Dierker, our CFO, to run us through the financials.\nAnd now, who we are.\nWhether you've been a short term one year shareholder of Church & Dwight, three, five, 10 or 15 years, you're very pleased with our performance.\nWe have been a stellar performer in the CPG space for many, many years, we're known for our consistency.\nAnd one of the reasons for our consistency is our Evergreen model.\nEvery year, we expect to grow our top line organically 3% and our bottom line 8%.\nThat's true in '21, it will be true in '22, '23, '24, '25.\nYou might ask, how's that been working out for you?\nWell, if you take a look back over the last 10 years, you'll see that we've exceeded the 3% target every year except 2013 and 2017.\nWith respect to 8% EPS, you can see over many, many years, we're consistent.\nSo Church & Dwight is a consistent performer.\nWe have an Evergreen model that is very familiar to all of our existing shareholders, 3% top line, 8% bottom line.\nNow, where does the 3% organic growth come from?\nWell, 2% from the U.S., 6% from international and 5% from the specialty products.\nThis is our evergreen target, but it also happens to be the targets for 2021.\nWe expect to deliver these three numbers for each of those divisions in '21.\nWe focus on power brands, we have 13 power brands in our company that are displayed here on this chart.\nAnd those 13 power brands, deliver 80% of our revenues and profits.\nAnd we're very balanced as a company.\nAbout half of our consumer business is in household and half is in personal care and we have a small specialty products business, which is a combination of bulk sodium bicarbonate and animal productivity products.\nWe have a nice split between premium and value, 58% premium and 42% value.\nWhat this means is, we operate and perform well in virtually any economic environment.\nWith respect to our geographic split.\nWe have a lot of room to grow internationally.\nWe're largely a U.S. company, only 17% of our consumer business is international, so lots and lots of runway.\nThat's going to generate a lot of growth for us in future years.\nOne of our big advantages is that we're nimble, we're small, we only have 5,000 employees.\nWe have the highest sales per employee of any CPG company, and it helps us three ways.\nQuick decision-making, ease of communication and ability to adapt.\nAnd the ability to adapt was highlighted in 2020 when you saw how we reacted to the pandemic.\nWe have a long history of growth through acquisitions.\nIf you went back to the year 2000, the only brand we owned was ARM & HAMMER.\nWe were up only $800 million in sales in the year 2000.\nIn '21, we're going to cross $5 billion.\nAnd of those 13 power brands, 12 of them were acquired since 2001.\nIf you go back just a few years in 2015, we were a laggard when it came to online sales, less than 1% of our sales were online.\nAt the end of 2019, it was 8%, at the end of '20, largely due to COVID, it's over 13%.\nSo we regard us as a leader now, with respect to e-commerce.\nWe have a low exposure to private label, only 12%, and if you look at the categories, there's only five of our 17 categories where we have significant private label share and those shares have been pretty stable over the last five years.\nNow, I'm going to bring up Britta Bomhard, our Chief Marketing Officer, to take us through the categories in the U.S. business.\nAs you have heard from Matt, we plan to deliver another year of growth in 2021 on top of an outstanding performance in 2020, and in line with our Evergreen model.\nThere are five distinctive drivers for our growth in 2021.\nNumber one, tailwinds on vitamin gummy category growth accelerated by strong brand, Vitafusion.\nSecond, Waterpik, despite dental offices and many retailers being closed for part of the year, we sold slightly more power flosses in 2020 than in 2019.\nRemoving these roadblocks, growth will be even stronger.\nThree, Flawless sales will benefit from new products, a great influencer boost and a rebound of footfall.\nFour, some brands will rebound where social distancing really impacted sales.\nWith vaccines coming, consumers will socialize more.\nAnd five, last but most importantly, we strengthened our brands and improved our media spend effectiveness.\nWe create brands consumers love.\n2020 was a year of dramatic changes, how consumers use media, which allowed us many test-and-learn experiments feeding our predictive data model and giving us confidence that our media dollars will be again more effective in 2021.\nBut, let's start with tailwinds.\nWe are in the right categories.\nWe saw growth in 12 of our 17 categories, average 9.8% overall.\nWe saw an over 50% growth in vitamin, double-digit growth in baking soda and single-digit in many other categories.\nThe only category with double-digit decline is Power Flosses, and that is in the Nielsen universe.\nThis is important as Nielsen only measures about one quarter of Power Floss's sales.\nAnd I will show you numbers from the whole universe later.\nWe have high expectations for category growth in 2021 and I will speak to them in more detail.\nFour categories will stay on elevated levels, five categories will come down from COVID peaks but some to higher levels, five categories will bounce back from COVID impact, three categories will be steady.\nThe underlying brand for category growth is household penetration.\nAs you can see in this chart, 11 of our 17 categories increased household penetration.\nThis means more consumers are buying this category.\nIt wasn't only consumers buying these categories, they bought our brands in unprecedented numbers.\nWe added 8.6 million households to ARM & HAMMER, More Power to You, 2.4 million to OxiClean Stain Fighter and in the second half alone, Vitafusion added 3 million more households.\nWe know that we have category-leading repeat rate.\nThis means once these households experience our brands, they enjoy them and come back to them, laying the foundation for strong growth in 2021.\nLet's look at some of the category behaviors one by one.\nVitamins grew an amazing 58% in consumption.\nYou can see the original stock up peak in March, but also that increased levels continued for the rest of the year.\nIt takes 66 days to form a new habit, and consumers clearly formed new habits, regarding taking vitamins.\n20% of consumer started taking vitamins, 57%, that means more than half, are now taking vitamins daily.\nSo it's not only more consumers taking vitamins, they also take them more frequently, and another one-third of consumers plan to add more types of vitamins to their baskets, planning to add immune-strengthening, for example.\nLast but not least, when taking vitamins, consumers preferred gummies over other forms.\nYou can see that the share of gummies on total increased by nearly one-third, that is, it is now 23% and who would be better placed to profit from that growth than the number 1 vitamin gummy, Vitafusion.\nLet's look at the category of Power Flosses.\nNielsen only captures about one quarter of category sales, that is why I show you unit sales across all classes of trade and you can see that after the decline at the beginning of the year with the lockdown, there was a strong rebound.\nIn total, for 2020, we achieved slightly more unit sales than in 2019, despite dentists and certain retailers being closed for significant periods of time, which also means that we came out strong by the end of the year and this momentum will continue and only accelerate with more dentist office opened up and resuming higher traffic, there is only upside.\nWomen's grooming saw two opposing trends.\nOn one hand, retailer stores closed over reduced foot traffic reducing sales, on the other hand, spa closures in COVID concerns driving do at home movement and increasing sales.\nOur Flawless team quickly spotted the trend and turned it around with spa at home products, which have just launched.\nWe now offer solutions for women who do not want to go to a beautician and get a face massage or do not want to visit to the nail salon.\nAnd as nail salons and spas have closed down due COVID, we believe that women will continue to prefer at-home treatment.\nSo here are two of our exciting new products.\nA facial massage cleanser and a salon nail tool kit.\nSteve will talk more about them later.\nMoreover, we have secured an icon to speak for the brand, Halle Berry, who will be even more popular, if that's even possible, in 2021 due to the launch of her new film, Moonfall.\nIn addition, we have Ashley Graham, Amelia Hamlin and Dove Cameron as enthusiasts promoting Flawless.\nIt will be an exciting year for Flawless.\nFlawless means being perfect to you.\nBe you, be flawless.\nNow to our biggest category, laundry.\nAs you can see, laundry grew 5.5% in 2020 but was a lot of swings due to consumers' stockpiling and changing habits.\nBeing more concerned about germs and being home, allowing for more time to do laundry that will continue as tailwinds for 2021.\nCat Litter will also benefit from changed habits that continue.\nIt is hard to get good statistics on cat ownership but we do know that 6% more households bought Cat Litter in 2020, leading me to believe that this is the minimum of additional cat owners.\nWhat this number won't capture is the households who got additional cats and as consumers want to spend more time with their cat instead of going to stores, we have seen a significant increase in online sales, which are not captured in these Nielsen sales.\nThen, there are categories, which are impacted by social distancing.\nWe call these the social interaction categories.\nOne of them is dry shampoo, where we had seen category decline due to store closures and like browsing in store.\nHere, the advance of vaccination and the associated expected increase of socializing will bounce back the category.\nAnd even more eagerly awaited bounce back of sales is in the condom category, as condoms mean pleasure.\n18 to 24 year olds can't wait to get their social lives back and with college campuses reopening, 2021 looks promising.\nNow that we've gone through the different categories, let me summarize changed consumer behaviors due to COVID that we think will stay and help our business.\nNumber one, self-care at home for our hair care and removal hair businesses like Nair and Flawless, cat ownership for Cat Litter, higher consciousness of germs and cleanliness benefiting ARM & HAMMER, OxiClean, XTRA but also Kaboom, and four, awareness trend with a regular daily intake of supplements, Vitafusion, L'il Critters and Viviscal will benefit, and Waterpik for gum health.\nIt is not only category growth that will drive our business, it will also be the strengths of our brands and the ability to win market share, which we have proven year-over-year.\nWe have brands consumers love.\nIn 2020, a year with difficult supply situations, the majority of our brands, which means seven out of our 13 power brands have grown share.\nWe are set to continue our market share winning streak.\nLet me get back to what I outlined at the beginning, as growth drivers, brand equity and media effectiveness.\n2020 was a year where consumers radically changed consumption but also media behavior.\nThis is a marketeer's dream, because it allows for a lot of test and learn and very distinctive data set.\nAs you are familiar with data analytics, we now have great input to our media effectiveness model and are confident to drive even better ROIs in 2021.\nLet me just share one area.\nIt is not only consumers who love our brands, it is influencers as well.\nWe have more than 500 influencers globally enjoying and recommending our brand.\nWe have reached more than 200 million consumers via those recommendations and this number will definitely grow in 2021.\nWhat will the influencers write about?\nAbout some of our exciting new products.\nI hand over to Steve Cugine to share what we are launching.\nChurch & Dwight has delivered consistent new product innovation, year-in and year-out, in support of our global growth objectives.\n2021 is no different, we have a super lineup of brand-building innovation, so much so, we do not have the time to take you through the full list.\nSo we have curated a few of our favorites.\nEvery new product is born from a consumer insight.\n79% of our consumers want germs removed from their laundry, introducing OxiClean Laundry and Home Sanitizer.\nThis product kills 99.9% of bacteria and viruses, it also removes germs, odors and stains.\nCheck out this video.\n[video playing] Consumers have been hyperfocused on cleaning household surfaces.\nIntroducing OxiClean multi-purpose disinfecting spray.\nThis product kills COVID, it is powerful, cleaning and disinfecting without chlorine bleach.\nTwo-thirds of consumers find flossing difficult and only 16% floss daily.\nIntroducing Waterpik Sonic-Fusion 2.0, the most successful new product launch in power flosser history just got better.\nIt has two times of bristle speed, greater flossing power, multiple head sizes and two brush speeds.\nHere's another consumer insight.\nConsumers with smaller bathrooms struggle with counter space and outlets.\nIntroducing Waterpik ION, the same amazing clean, unplugged.\nThis product is 30% smaller than traditional plug-in models, has 90 seconds of water capacity and with a lithium-ion battery that lasts up to four weeks with a single charge.\nCheck out this video.\nHere's another consumer insight.\nMen seek condoms that fit and feel the best.\nIntroducing Trojan All The Feels, it is a selection of our best condoms with personalized fit and feel and better feel equals more usage.\nHere is a video featuring our Ecstasy condom.\nOne more consumer insight is that consumers are becoming more confident in doing beauty routines at home and they are aware of the cost savings.\nIntroducing Finishing Touch Flawless facial cleanse and salon nails.\nAnd one last consumer insight.\n33% of consumers plan to purchase more immune-support supplements.\nIntroducing Vitafusion Super Immune Support.\nIt is the only gummy to deliver over 100% daily value of the top three immune ingredients, Vitamin C, zinc and elderberry, it also includes a new ingredient, Manuka honey.\nThis is the first Vitafusion item in the cough and cold aisle.\nVitafusion has been increasing the amount of new items it has been launching, 2021 will be no different.\nWe have an exciting lift of new items coming.\nI'm also excited to share with you the details of another fabulous quarter and year for the international division.\n2020 was like no other year as we track the coronavirus as it surged across the globe starting in Asia in Q1.\nWe planned for its impact and pivoted to areas of growth as our international mix is heavily weighted toward personal care versus household products and therefore, more susceptible to global store closures, particularly in Europe.\nWe finished 2020 posting organic growth of 8.6%, well above our 6% Evergreen goal.\nThis is remarkable given the fact that during Q2 at the height of the pandemic, we delivered less than 1% organic growth for the division.\nQ4 finished up a remarkable 14.9% behind growth in both our domestic subsidiary markets as well as our GMG business, where a resurgent Asia was a key driver of performance.\nWe have now built an international business that's over $800 million and approaching scale in key markets and we feel that there is not a market that we cannot reach.\nWe've also tripled the historic CAGR of the division from 3% to 9%.\nWait a minute, I didn't label this slide The Cugine Effect, it must come from my friend, Barry Bruno.\nWell this seems like a good transition point from looking at the past performance to Barry Bruno and his focus on the future.\nI will be retiring from Church & Dwight in June of this year.\nBarry Bruno has been promoted to Executive Vice President of the International Consumer Products division.\nBarry was one of my first hires when I moved into this position almost eight years ago.\nHe has been the co-architect of the existing international strategy.\nBarry has led the design and execution of the Global Markets Group and the divisionwide global international marketing team.\nHis fingerprints are all over the success of this business in conjunction with the other members of the division leadership team.\nBarry came to Church & Dwight from Johnson & Johnson, where he worked for 14 years across consumer, pharmaceutical and medical device businesses, where he developed a depth of experience in both U.S. domestic and global markets during his time there.\nHe turned that experience into a great start here at Church & Dwight and I have confidence in his ability to continue what we've started here in International.\nCongratulations, Barry, and good luck.\nIn closing, it has been my sincere pleasure to work for this great company for the past 20 years.\nThe culture at Church & Dwight is a place where performance matters, straight talk is encouraged and teamwork is a differentiator.\nI stayed at Church & Dwight because I felt that I could bring my unique self to work every day, cable big ideas that challenge the status quo, and when the decision was made, I know I had the support of my peers to make it happen.\nThis is as true today as when I joined in 1999.\nI am confident in the future as the company and the international team is stronger today than ever before.\nIt's been an honor to work alongside you these last seven plus years here in International and I can assure you that the Cugine Effect is felt far beyond just us here in International.\nAnd your work over 20 plus years has impacted the entire Church & Dwight organization.\nYou will be missed by so many Steve, but I think most of all by me.\nAs you saw under Steve's leadership, we've built International into an $820 million business that's growing faster than ever.\nAnd as a reminder to this audience, we think about our International business in two buckets, our subsidiaries, where we have fully staffed Church & Dwight teams on the ground in Canada, Mexico, U.K., France, Germany and Australia, and our Global Markets Group, which covers 130 other markets via distributors who represent our brands.\nI'm going to get into both shortly.\nHowever, this chart shows the relative size of each in net sales.\nAs you've seen, GMG has been on a tear and now represents 34% of all international sales, followed by Canada and our European subsidiaries and then, our Australia and Mexican subsidiaries.\nFrom a growth standpoint, our subsidiaries grew plus 4.8% in 2020 and GMG continued its stellar run with explosive growth of plus 19%.\nWhat's noteworthy here is that our international business is much more heavily weighted toward personal care products than our U.S. business, which makes these results even more impressive in an environment where COVID slowed down many personal care categories.\nFor some additional context, our subsidiaries have been delivering outsized growth, more than double historical CPG category averages and some of our key subs are now for the first time approaching scale, which we'll talk about as the margin improvement enabler a bit later.\nAs I mentioned earlier, GMG is now our largest entity with outstanding growth of plus 19%.\nEmerging markets in Asia, the Middle East and Latin America have been and will continue to be growth drivers going forward.\nLast but not least, you know how acquisitive we are, and I'm happy to share that we've delivered double-digit growth on Waterpik and Flawless in 2020 and they remain far underrepresented in international household penetration than in the U.S. lead market.\nIf we look a level deeper in key drivers, in our subsidiaries, we continue to make great headway in turning our U.S. domestic power brands into international power brands.\nARM & HAMMER, OxiClean and Trojan are all examples of U.S. power brands, which still have long international runway in our subsidiaries.\nLikewise, Waterpik and Flawless' household penetration in our subs trailed the U.S. significantly and we're lifting and applying best practices from the U.S. to drive subsidiary success on these brands.\nFinally, we're approaching pricing with greater rigor and discipline and hiring dedicated resources in international to help us understand where pricing opportunities exist.\nFrom a GMG standpoint, emerging markets have been a big area of focus and we are significantly under-indexed in these key markets versus our competitors.\nFor context, our top CPG competitors derive over 25% of international sales from emerging markets in which we both compete, while C&D only realizes only 7% of our international revenue from them.\nToday, we're spending more in these markets and we'll continue to prioritize them going forward.\nFrom an acquisition standpoint, our distributor coverage in 130 plus markets gives us a great footprint for expansion and we've been making excellent headway on new acquisitions like Waterpik and Flawless, but we're also still making excellent progress on some of our older acquisitions like Batiste and our VMS brands.\nLast but not least, we are working with our supply chain partners to evolve from our export origins, where we ship products from the U.S. and the U.K. where they're made today to more local manufacturing, particularly in Asia.\nSpeaking of Asia, I don't think it will come as a surprise to you that the region contains some of the largest economies in the world.\nHowever, what you might find interesting is the visualization here showing if there are more consumers living in Asia than in the rest of the world combined, including 4.5 billion middle income consumers who represent our target audience for Church & Dwight brands.\nIn recognition of this and the terrific future growth opportunity that exists in Asia, we now have C&D representative offices in Shanghai, Singapore, and just last month opened our first India office in Mumbai, to help drive growth in that new market for us.\nFrom an acquisition standpoint, Waterpik and Flawless are our primary areas of focus and our key subs we've delayered by removing distributors and are now leveraging our own sales force to sell direct.\nIn terms of GMG, we continue to expand into new markets via distributors with two very recent examples being our launch of Waterpik in Japan and of Flawless in India, in just the past few months.\nFinally, we're bringing C&D's marketing, e-commerce and pricing expertise to bear on these brands to make sure we're leveraging our capabilities, which are often broader than those of the companies from whom we acquire brands, so that we can drive efficient profitable growth all around the globe.\nWe know this is a winning formula as we doubled the business already.\nHowever, what's even more exciting is the runway ahead of us that exists due to very low household penetration in comparison to the lead U.S. market.\nIn terms of Flawless, it's a brand we love that's still in its very early days internationally.\nHowever, you heard Britta talk about the powerhouse influencers that we're leveraging in the U.S. and I'm happy to share that we're using them abroad as well, with plants in 10 of our largest global markets that are sure to drive awareness and trial of this great new addition to our portfolio.\nI mentioned earlier that we love all of our acquisitions here in international, even those that are a bit older and an example of how we're still greenhousing some of these older brands can be seen first with Batiste where we've grown at a 20% CAGR over the last five years and are still under-indexed in household penetration versus our lead market in the U.K.\nWe continue to launch in new markets and drive household penetration in existing markets and again have lots more room to run with household penetration less than 2% in most global markets.\nFinally, we can't forget about VMS. We've owned it a little bit longer, but the trends that we see in the U.S. are the same abroad and I'm happy to share that VMS is booming for us internationally as well.\nOne example of a market where we're investing significant time and resources on VMS is in China, where sales were up more than 30% in 2020.\nSo again, long runways even on acquisition we've owned for a while now.\nOkay, so how are we doing it?\nWell, we're making strategic investments in areas that have the biggest impact.\nFor example, to support our booming e-commerce business in China, we are ramping up hiring of our own e-commerce staff to help augment and better direct the efforts of our multiple partners in China.\nIndia is a vast and complicated market and we knew we needed boots on the ground, so we've hired our first staff there just a few weeks ago.\nAnother complicated area is global pricing where we are now building strategies to take advantage of pricing power in order to understand where we can take price and we now, for the first time, have dedicated international expertise there as well.\nFrom a manufacturing standpoint, we're evolving from our historical export routes where we manufactured product in developed western markets and shifted around the world to local manufacturing, especially in Asia where our business is now big enough to justify bringing co-packers online to deliver better costs and faster supply to customers.\nFinally, we are investing for the first time in global marketing campaigns like ARM & HAMMER's More Power to You campaign where we leverage proven insights, while localizing the talent and messaging to make sure we're relevant in the markets in which they are launched.\nIndividually, none of these might seem all that impactful to you, however, cumulatively, I assure you they represent a significant investment in resources and capability building that we're confident will keep international growing long into the future.\nLast but not least, we remain committed to doing all of the above, while continuing to use our increasing scale, pricing power in key markets and our personal care weighted mix to keep increasing operating margin by 50 basis points per year.\nWe did even better than that in 2020 where we grew 120 basis points and we remain committed to further continuous improvements here.\nSo in closing, we remain very excited about International and remain committed to our 6% organic growth target, which is also consistent with our outlook for 2021, and as a reminder, this is on top of almost 9% organic growth we experienced in 2020.\nWe've got a long runway on U.S. power brands going global, a number of acquisitions with very low household penetration versus their lead markets, and enormous opportunity in emerging markets where we've just started opening new offices to help us reach these consumers and a number of strategic investments in resources and capabilities like e-commerce and pricing to help make sure our great international team is working as efficiently and effectively as possible to drive profitable growth long into the future.\nNow, back to you, Matt.\nI'm going to run you through the animal productivity story right now.\nYou heard me speak earlier about what our Evergreen model is, it's 3% annual organic growth, 2% from the U.S., 6% from International and 5% from the Specialty Products.\nOur specialty products business is a $300 million business, two-thirds is animal productivity and one-third is specialty chemicals.\nIf you look at the animal productivity piece, you'll see it's split between animal dairy and animal non-dairy.\nHistorically, dairy has been the biggest part of the business.\nThree types of products we produce our prebiotics, probiotics and nutritional supplements.\nNow why is that important?\nIt's because the consumer is moving away from wanting to consume food that is produced with antibiotics.\nThe dairy business has been cyclical.\nAs I said before, it's been the biggest part of the business.\nIf you look at this chart in 2011, 2014, 2017, those were up years.\nSo typically it's a three-year cycle.\nThe expectation was that 2020 was going to be a big up year.\nIt didn't happen, why?\nBecause of the pandemic.\nSo we expect a strong year from the dairy business in '21.\nNow, if you look at dairy versus non-dairy, we were monolithic back in 2015.\nLess than 1% of our sales were from non-dairy.\nIn '21, we expect it to cross 30%.\nSo just wrapping up here.\nWe have a trusted brand, all of those products I described are ARM & HAMMER products, and we're aligned with the consumer trend to move away from antibiotics to prebiotics and probiotics.\nWe've moved from dairy to other species, cattle, swine and poultry and we have a lot of runway internationally.\nNow I'm going to talk about how we run the company.\nIt's pretty simple, we have five operating principles.\nOne, leverage brands, two, friend of the environment, three, leverage people, four, leverage assets and finally, leverage acquisitions.\nNumber one, brands consumers love.\nAs we say -- we opened the program today, pointing out that we have 13 brands that we call our power brands.\nThese are brands that consumers love.\nNumber two, we are a friend of the environment and that friend of the environment started back in the 19th century.\nIf you run your eyes across this page, you can see back in 1888, we -- the company introduced pro-environmental wall charts and trading cards that we put in our packages as a promotion for the environment.\nIn the '70s, we were the first corporate sponsor of Earth Day.\nIf you went 20 years later to 1990, we were still the only corporate sponsor of Earth Day.\nMore recently, in 2016, 50% of our global electricity demand was supplied by renewable energy sources.\nIn 2018, we crossed 100%.\nOver the last five years, we've been planting trees in the Mississippi River Valley.\nNow why is that important?\nIt's because trees take CO2 out of the atmosphere and this is consistent with our goal of being carbon-neutral by 2025.\nHere are our three environmental goals.\nReduce water and our wastewater by 25% by 2022.\nFor solid waste, to increase our solid waste recycling rate to 75% by the end of 2021.\nWe want to achieve 100% carbon-neutral status for all of our global operations by 2025 and of all those three, that's the one I'm most excited about.\nNow we've been getting a lot of recognition externally as you can see on this slide.\nFrom JUST Capital, FTSE4Good, the EPA, etc.\nNot because we've been applying for these things and running our business so we can take a bow.\nNo, we've been recognized because we've been doing the right thing.\nNumber three, we leverage people.\nWe have the highest sales per employee of any company in the CPG space.\nThis is an underappreciated statistic.\nLook at these numbers.\nWe're almost $1 million of sales per employee, you'd normally expect that off a start-up.\nWe have a very simple compensation structure.\nWe focus on four things, revenue, gross margin, cash from operations and EPS.\nAnd gross margin is actually an unusual element of our incentive compensation package.\nThe reason why we have gross margin in there is because it creates financial literacy.\nGross margin expansion is very important to our operating model and when people think, hey, gross margin is part of my incentive comp, they ask the question, what's gross margin, and how can I get it?\nNumber four, we consider ourselves asset-light.\nCapex as a percentage of sales has been about 2% for as long as I've been with the company.\nThe other thing that may not be appreciated is that about 25% of our global sales are manufactured by third parties.\nSo I just ran through the first four operating principles.\nLet's go into number five, leveraging acquisitions.\nIf you did the first four principles well, you're going to have good shareholder returns.\nIf you can add to that leveraging acquisitions, you get great shareholder returns, which we do.\nWe have a long history of growth through acquisitions as I mentioned earlier.\nAnd the reason why we do so well with acquisitions is because we're disciplined.\nSo here's the five criteria.\nNumber one, we only buy brands that are number 1 or number 2 in their categories.\nNumber two, we only buy brands that can grow 3% or better and have gross margins that are equal to or better than our corporate gross margins.\nNumber three, need to be asset-light.\nNumber four, we're always looking for cost synergies.\nSo we're trying to leverage a Church & Dwight supply chain footprint.\nAnd finally, these brands need to have a sustainable competitive advantage for many years to come.\nOur most recent acquisition is Zicam, that's a number 1 Zinc supplement in the United States in the adult cold shortening category.\nAs many of you have been watching, the cough and cold categories have been -- are expected to be down in '21.\nBecause people are wearing masks and using hand sanitizers, etc.\nWe expect that as well but we think this is going to be a wonderful acquisition for us for years to come.\nJust to wrap up the M&A section, we have 13 brands today, we're shooting for 20 tomorrow.\nWhy is this important?\nWell, acquisitions have been a great driver of total shareholder return historically and will be again in the future.\nAnd next up is Rick to take us through the financials.\nI'm going to go through four items today.\nFirst off is the Evergreen model like we always do, number two is 2020 results, both for the quarter and the full year, the third thing will be the 2021 outlook and then, the fourth will be the capital allocation discussion.\nSo first off is the Evergreen model and our shareholders know that we've been talking about this for a very long time, 3% top line, 8% bottom line.\nAnd we have a detailed model to go through as well.\nSo 3% for net sales growth, 25 basis points for gross margin expansion, flat marketing as a percentage of sales, which is typically higher dollars as we grow the top line.\nAnd then we leverage SG&A by 25 basis point.\nThat gets us to 50 basis points of operating margin expansion and about 8% earnings per share growth.\nNow moving to 2020.\nSo we ended the year in a fantastic way.\nQ4 2020 was 10.8% organic sales growth, 11% domestic organic sales growth, 14.9% for international and minus 1.2% for SPD.\nGross margin was down 280 basis points, but in line with what our expectations were.\nRemember our outlook was down 250 basis points for the quarter.\nNow that 280 included a 40 basis point drag because we recognized some of our supply chain workers as the pandemic spiked the again.\nAnd then, marketing change was up 140 basis points in the quarter as we invested behind our brands to enter 2021 with momentum.\nSG&A was leveraged by 70 basis points.\nDespite higher amortization and investments, the top line helps us leverage SG&A in a big way.\nAnd then, earnings per share was $0.53, our outlook was $0.50 to $0.52.\nSo we beat the midpoint of the range by $0.02.\nMoving to the full year 2020.\nOrganic was 9.5%, domestic was 10.7%, international 8.6% and SPD was 0.4%.\nSo just really a strong year to have a 10% organic full-year number.\nGross margin was 45.2% or down 30 basis points, really driven because of COVID and incremental tariffs, but we'll get into the detail in a minute.\nMarketing was 12.1% or higher by 30 basis points.\nThat's very significant, it was a huge investment behind our brands.\nYou'll hear in the outlook that we're going to return to pre-pandemic levels for marketing support.\nAdjusted SG&A is 14.1% or down 10 basis points, so we did leverage SG&A.\nAnd so, earnings per share was up 15% or $2.83 and then cash was up to $990 million, a $400 million above our $890 million estimate a year ago.\nAnd then, finally that translates into 125% free cash flow conversion, we do a great job converting net income into cash flow.\nAnd now, turning to the detail on gross margin.\nSo for Q4, we had positive price volume mix, similar to the way we've had it all year long plus 130 basis points.\nThen, inflation was a drag of 310 basis points, but that included a few items, commodities, distribution with a tight trucking market, labor increases and then investments.\nCOVID costs were 150 basis point drag, which included a 40 basis point drag for the supplemental bonus that we discussed earlier.\nIncremental tariffs for Waterpik was a 90 basis point drag for the quarter, and then productivity programs were plus 160, so there's a lot of great work behind our good to great program.\nAcquisition, that's really Zicam, for the month of December, a positive margin mix, and then Flawless accounting was down 30 basis points.\nRemember back in 2019, it was a good guy and so, it didn't exist in 2020, so it's a drag year-over-year.\nAnd that's how we get to down 280 basis points for the quarter.\nAnd then, all that translates into the full year to be down 30 basis points.\nAnd so, we feel like we have a great springboard to have margin expansion in 2021 and we'll talk about that in a minute.\nTurning to this slide, this is four reasons why we can expand gross margin in the future and we believe these things.\nFirst off is our good to great program and I just got finished telling you how well we did in 2020.\nNumber two is supply chain optimization, that's really our footprint, our network.\nNumber three is acquisition synergies, you heard us a few months ago talking about Zicam, and we signed up for $5 million of synergies for Zicam, as an example.\nAnd then, fourth is new products, we want to launch accretive new products.\nSo those four reasons help us have confidence in expanding margin over the long term.\nOkay, moving to the 2021 outlook.\nSo at a high level, our outlook consists of reported sales growth of 4.5%, that's really the organic number of 3% plus the impact of Zicam.\nOrganic is 3%, operating profit margin expansion of 100 basis points, which is almost double our 50 basis point expansion for our Evergreen model.\nAnd then, adjusted earnings per share growth of 6% to 8%.\nSo here's a detailed outlook for 2021.\nFirst, the 4.5% reported and then we get into the 3% organic sales growth.\nAnd it's very consistent with what you just heard from Matt and Barry and Britta, 2% for domestic, 6% for international and 5% for SPD.\nNow, the 3% organic growth, it does have a couple of strategic choices that we've made previously in there.\nRemember, last year we communicated that we were de-emphasizing OxiClean laundry and we were getting out of the private label vitamin business.\nBoth of those things, this is the second and complete year of those actions and now that would have added a full point of organic growth as an example.\nSo we would have been at 4%, I just want to give you context there.\nGross margin is up 50 basis points.\nWe'll go through that detail in a minute and marketing is down 30 basis as we get back to kind of the average for pre-pandemic levels is around 11.8 and that's what we plan on doing in 2021.\nSG&A, we leveraged by 20 basis points and then were up 100 basis points for operating margin.\nNow you might ask if you're leveraging the operating margin by 100 basis points, why aren't you higher on the earnings per share growth outlook?\nIt's just 8%, your Evergreen model is 50 basis points and your 8% earnings per share growth.\nWell, it's because of tax.\nOur tax rate in 2020 was 19% and we're going back to the consistent average of around 21%, 22%.\nIn 2019, we had two things that helped us on tax.\nOne was a discrete international planned settlement and then the second one was just a higher number of stock option exercises.\nAnd so, those two things aren't going to recur to the same extent.\nAnd so, as a result, we're up 100 basis points on operating margin, just really strong base business plan, up 6% to 8% on EPS, and then up to approximately $1 billion of cash flow generation, cash from operations.\nOkay, here's a track record of our organic sales over the last 10 years.\nWe've typically averaged around 4%, this year we're calling 3% for 2021 and as I said before, if you add in some of those strategic decisions we made, we are closer to the 4% on an apples to apples basis.\nWe focus on gross margin in a big way.\nGross margins are great surrogate for -- and driver for EBITDA margin, and then that flows all the way down to cash flow and cash generation, and we believe cash drives value.\nSo plus 50 basis points in 2021.\nThe detail of the 50 basis points of expansion in '21 really leads off with price and volume mix continuing to expand.\nWe have higher volumes, we have improved price mix throughout the year.\nInflation and the COVID costs are drag of around 130 basis points.\nCOVID costs do reduce year-over-year, but there is -- they still exist.\nAnd then productivity programs are a tailwind of 100 basis points.\nTariffs and acquisition, that's again the Zicam acquisition in the favorable gross margin impact to mix.\nThose two pretty much offset and we're at plus 50 basis points for the year.\nSo really happy with that type of expansion.\nNow, we're talking about the seasonality of gross margin.\nThe first half, second half dynamic.\nSo first half gross margin is down 50 basis points.\nAnd why is that?\nWhile we're going back to normal promotional levels, remember in 2020 March, April, May, June, promotional levels pulled back in a big way as the pandemic was spiking and couponing as well.\nWe have higher Waterpik tariffs in the first half, right.\nIt's not in the comp year ago, first half.\nAnd we have COVID costs compared to a year ago, when they were none, and plus there is higher commodity costs.\nMoving to marketing, we have a long track record of spending between 11% and 12% on marketing.\nIt just drives the brand's growth over time and drives our Evergreen model.\nIn years past, about -- the average is around 11.\n8% and we're saying in 2021, we're going to get back to the pre-pandemic average of around 11.8%.\nMoving to SG&A leverage.\nWe have a long track record of leverage in SG&A, this is on a reported basis.\nIn 2021, we're going to be down 20 basis point, is our expectation, but if you look at this on a cash basis on the next slide, you can see how much we're actually leveraging cash SG&A.\nWe're going to be down 60 basis points in 2021.\nAnd then, finally on EPS, we have a long track record of great earnings per share growth, low double-digit, high single-digit earnings per share growth for a long period of time.\nAnd in 2021, it is no different.\n6% to 8% earnings per share growth of $3 to $3.06 is the outlook.\nAnd that's on top of 15% growth in 2020.\nSame discussion we just had in gross margin.\nWe have a timing dynamic for earnings per share growth as well.\nFor many of the same reason, earnings per share growth is expected to be down 5% in the first half, as we get back to normal promotional levels.\nWe have higher Waterpik tariffs and we have higher COVID costs as well as higher commodity costs.\nIn the second half, we expect to be up around 20% and that's because of a return to historical marketing level, improved promotional efficiency, lower COVID costs, tariff remediation in those actions that we're taking and 2020 investments that aren't going to repeat in the back half of the year.\nOkay, moving to free cash flow.\nThis is my favorite slide.\nWe have a long track record of free cash flow conversion, 122% over the time period.\nWe had 125% in 2020.\nHow do we do that?\nWell, we have great working capital management, we've moved from 52 days down to 16 days is the outlook for 2021.\nAnd if you strip out the Chinese supply chains that we have for Waterpik and Flawless, those numbers are actually closer to five days as we approach 0 working capital.\nWe have a very strong balance sheet, we have a lot of financial capacity.\nWe expect to end the year at 1.3 times debt-to-EBITDA at the end of 2021.\nAnd so, we have a lot of dry powder, what do we do?\nWe have the ability to do up to $4.2 billion deal and still maintain our credit rating.\nSo just a lot of excess cash and debt capacity.\nNow moving to capital allocation.\nWe're very clear on the top five reasons for capital allocation.\nNumber one, far away is TSR-accretive M&A and we're very picky on what deals we do deal.\nNumber two, we moved this up previously this summer, on capex for organic growth and you're going to hear me talk about capacity additions for laundry, litter and vitamins in a few minutes.\nSo number two is capacity investments for growth.\nLaunching an accretive MPD has been a just a stalwart of this company and it helps drive our top line as well.\nNumber four is debt reduction.\nAnd as you saw, we're going to end the year at 1.3 times debt-to-EBITDA in 2021, is our expectation.\nAnd then, return cash to shareholders through dividends and buyback.\nWe're not a capital-intensive company.\nIf you looked back at our history, we usually bump around 2% of sales or below.\nIn years past, we've had capacity additions and that's what happened in 2009, we had our York laundry plant and that's when we bumped up to about about 5.5%.\nIn 2011, we bumped up to 2.8% when we had our Victorville laundry plant and so 2021, 2022 are no different.\nWe think we're going to spike up to around 3.5% as we add these capacity investments.\nAnd so those capacity investments are around laundry, litter, vitamins, baking soda, technology and our distribution network around the country.\nAnd then, finally, we have a great history of paying the dividends.\nFor over 120 years we've been paying dividends and in 2021, our outlook is a 5.2% dividend increase on top of increases of 5.5%, 4.5% and 14.5% these past few years.\nIn addition, we did a $300 million ASR that started in December and we expect to complete by the end of Q1.",
        "summary": "q4 adjusted earnings per share $0.53 excluding items.\nsees fy sales up about 4.5 percent.\nexpect 2021 to be another strong year with adjusted earnings per share of $3.00 to $3.06.\nin 2021, we expect several categories to remain at elevated consumption levels.\nexpect modest growth from laundry category in 2021.\nexpect growth in water flossers in 2021 due to wellness trend and as higher traffic returns to dental offices.\nexpect full year reported gross margin to be up 50 basis points.\nfor q1, expect reported sales growth of approximately 3.0%, organic sales growth of approximately 2.0%."
    },
    {
        "text": "Before we begin, let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call.\nIn addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA.\nKevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave Williams, Executive Vice President and Chief Financial Officer of Chemed; and Nick Westfall, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary.\nI will begin with highlights for the quarter, and Dave and Nick will follow-up with additional operating detail.\nWhen we reported our second quarter 2020 operating results, I noted that the pandemic and related economic lockdown severely impacted our April 2020 operating results.\nSince April, both VITAS and Roto-Rooter have reengineered their operating procedures to safely care for our patients and customers during the pandemic.\nThese operational changes have allowed Chemed to generate sequential operational improvement starting in May 2020, and this improvement has continued and has, in fact, accelerated throughout the third quarter and continued into October.\nDavid will provide updated earning guidance later in the call.\nOur hospice segment operations continued to be impacted by the pandemic.\nFortunately, the federal government, specifically HHS and CMS have been exceptionally supportive in terms of relaxing regulations, allowing the use of telehealth where appropriate and providing pragmatic flexibility in caring for our 19,000 patient census.\nThe severe initial disruption within our patient referral and admission patterns we noted in the second quarter has noticeably dissipated throughout the third quarter.\nThis improvement is reflected in our third quarter admissions.\nOur July 2020 admissions increased 4.3%, August increased 5.9% and September admissions expanded 4%.\nOverall, our third quarter 2020 admissions increased 4.7%.\nOur average daily census did decline two-tenths of 1 percentage point in the quarter.\nThe slight decline in census is a result of soft admissions from the second quarter as well as supressed referrals from nursing homes and assisted-living facilities.\nWe anticipate admissions to normalize when these types of facilities return to their pre-COVID occupancy levels.\nAs I discussed last quarter, we made the strategic decision for Roto-Rooter to maintain full staffing and operating capacity early in the pandemic.\nThis strategic decision to maintain full capacity was designed to capitalize on any snapback in commercial and residential demand, both to protect existing market share as well as to maximize on opportunities to grow market share.\nI believe this has proven to be the correct strategic course.\nRoto-Rooter services demand began to show weekly improvement beginning in the later part of April and has strengthened unabated throughout the second and third quarters of 2020.\nThis is reflected in our monthly performance.\nRoto-Rooter unit-for-unit commercial revenue declining 38.6% in April, improving to a 31.8% decline in May and a decline of 19.7% in June.\nThird quarter 2020 unit-for-unit commercial demand did decline 11.6% when compared to the prior year quarter.\nThis third quarter commercial demand is a significant improvement when compared to the 29.1% decline in the second quarter 2020 commercial revenue.\nOn a sequential basis, third quarter 2020 unit-for-unit commercial revenue totaled $39.5 million, an increase of 26.8% when compared to the second quarter of 2020.\nOur residential services have proven to be exceptionally resilient with our unit-for-unit residential revenue declining a modest 1.6% in April, increasing 11.7% in May and 18.7% in June.\nThe third quarter residential demand set all-time records with July 2020 unit-for-unit residential revenue expanding 22.8%, August revenue increased 24.1%, and September 2020 residential unit-for-unit revenue increased 26.6%.\nThis translated into Roto-Rooter on a unit-for-unit basis having third quarter 2020 commercial revenue declining 11.6% and residential revenue increasing 24.6%.\nTotal Roto-Rooter third quarter unit-for-unit revenue increased 12.9% when compared to the prior year.\nIncluding acquisitions, Roto-Rooter generated consolidated third quarter 2020 revenue growth of 20.4%.\nI anticipate continued strong operational and financial results for both VITAS and Roto-Rooter, as we operate during the pandemic.\nWith that, I would like to turn this teleconference over to David.\nVITAS' net revenue was $337 million in the third quarter of 2020, which is an increase of 4.8% when compared to the prior year period.\nThis revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 5.7%, a 0.2% decline in days-of-care and acuity mix shift, which then reduced the blended average Medicare rate increase 242 basis points.\nIn addition, a favorable reduction in our Medicare Cap liability increased our third quarter 2020 revenue growth 162 basis points.\nOur average revenue per patient per day in the third quarter of 2020 was $194.10, which, including acuity mix shift, is 3.2% above the prior year period.\nReimbursement for routine home care and high acuity care averaged $166.51 and $971.71, respectively.\nDuring the quarter, high acuity days-of-care were 3.4% of our total days-of-care, 57 basis points less than the prior year quarter.\nThis 57 basis points mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.7% to 3.2% in the quarter.\nIn the third quarter of 2020, VITAS reversed $4.1 million in Medicare Cap billing limitations recorded in earlier quarters.\nThis compares to the prior year third quarter Medicare Cap billing limitation of $1.3 million.\nAt September 30, 2020, VITAS had 30 Medicare provider numbers, 4 of which have an estimated fiscal 2020 Medicare Cap billing limitation liability that totaled $8.7 million.\nThis compares favorably to the full year fiscal 2019 Medicare Cap billing limitation liability of approximately $11.4 million.\nVITAS' third quarter 2020 adjusted EBITDA, excluding Medicare Cap, totaled $68.2 million, which is an increase of 25.6%.\nAdjusted EBITDA margin, excluding Medicare Cap, was 20.5% in the quarter, which is a 367 basis point improvement when compared to the prior year period.\nNow let's take a look at Roto-Rooter.\nRoto-Rooter generated quarterly revenue of $191 million in the third quarter of 2020, which is an increase of $32.3 million or 20.4% over the prior year.\nOn a unit-for-unit basis, which excludes the Oakland and HSW acquisitions completed in July of 2019 and September of 2019, respectively, Roto-Rooter generated quarterly revenue of $173 million, which is an increase of 11.4% over the prior year quarter.\nTotal commercial revenue, excluding acquisitions, did decline 11.6% in the quarter.\nThis aggregate unit-for-unit commercial revenue decline consisted of drain cleaning declining 13%, commercial plumbing and excavation declining 11.2% and commercial water restoration declining 1.6%.\nThis was more than offset by the residential activity.\nTotal residential revenue, excluding acquisitions, increased 24.6%.\nThis aggregate residential revenue growth consisted of residential drain cleaning increasing 22%, plumbing and excavation expanding 31.2% and residential water restoration increasing 16.1%.\nNow let's talk about our 2020 guidance.\nOver the past 7 months, our operating units have been able to successfully navigate within a rapidly changing environment and produce operating results that we believe provides us with the ability to issue guidance for the remainder of the calendar year.\nHowever, this guidance should be taken with the recognition that pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could have an immediate and material impact upon our ability to achieve this guidance.\nWithin this context, revenue growth for VITAS in 2020 prior to Medicare Cap is estimated to be 4%.\nOur average daily census in 2020 is estimated to expand approximately 1.3%.\nAnd VITAS' full year 2020 adjusted EBITDA margin prior to Medicare Cap is estimated to be 21%.\nWe are currently estimating $8.6 million for Medicare Cap billing limitations for calendar year 2020.\nRoto-Rooter is forecasted to achieve full year 2020 revenue growth of 12.5% to 13%.\nThis full year revenue growth assumes 2.7% of seasonal sequential revenue growth from the third quarter to the fourth quarter of 2020.\nOver the past 5 years, excluding water restoration and the impact from acquisitions, this Q3 to Q4 seasonal sequential revenue growth has averaged between 4% to 11%.\nBased upon the above, Chemed's full year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits for stock options, costs related to litigation and other discrete items, is estimated to be in the range of $18 to $18.15.\nThis compares to our previous guidance of $16.20 to $16.40.\nThis 2020 guidance assumes an effective corporate tax rate of 25.8%.\nAnd for comparison purposes, Chemed's 2019 reported adjusted earnings per diluted share was $13.95.\nIn the third quarter, our average daily census was 19,045 patients, a slight decline of 0.2% over the prior year.\nThis decline in average daily census is a direct result of the disruptions across the entire healthcare system, which started in March that impacted traditional admission patterns into hospice.\nWhile certain healthcare sectors have shown improvement in admission patterns in the third quarter, the long-term care market, specifically nursing homes and assisted-living facilities continue to be impacted as they work to safely navigate serving their residents during the pandemic.\nADC growth is expected to normalize over the coming quarters as we return to pre-pandemic referral patterns across all sectors of the healthcare industry.\nIn the third quarter of 2020, total admissions were 17,943.\nThis is a 4.7% increase when compared to the third quarter of 2019.\nIn the third quarter, our admissions increased 18.3% for our home-based pre-admit patients.\nHospital directed admissions expanded a positive 6.2%, nursing home admits declined 22.6% and assisted-living facility admissions declined 13.5% when compared to the prior year quarter.\nOur average length of stay in the quarter was 97.1 days.\nThis compares to 92.6 days in the third quarter of 2019 and 90.9 days in the second quarter of 2020.\nOur median length of stay was 14 days in the quarter, which is 3 days less than the 17 day median in the third quarter of 2019 and equal to the second quarter of 2020.\nMedian length of stay continues to be a key indicator of our penetration into the high acuity sector of the market.\nAs we sit here today, we're confident in our ability to support all of our team members and their ability to deliver care by prioritizing their safety with sufficient PPE inventory, education and clinical protocols.\nAdditionally, we'll continue to utilize the resources and testing supplies we've acquired to comply with federal, state and local requirements to safely access the health facilities in our markets.\nLastly, our entire team will continue to be out in the communities we serve, collaborating safely with our local healthcare partners to successfully identify and navigate patients and their families onto the hospice benefit during this unprecedented time.\nAs we've internally discussed throughout the pandemic, we'll get through this by continuing to support one another and the patients and families we serve, all while focused on continuing to deliver the results we have thus far throughout the pandemic.\nI will now open this teleconference to questions.",
        "summary": "sees fy 2020 adjusted earnings per share $18.00 to $18.15 excluding items.\nroto-rooter is forecasted to achieve full-year 2020 revenue growth of 12.5% to 13.0%.\nqtrly vitas net patient revenue of $337 million, an increase of 4.8%.\nqtrly roto-rooter revenue of $191 million, an increase of 20.4%."
    },
    {
        "text": "Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call.\nIn addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization, or EBITDA, and adjusted EBITDA.\nI will begin with highlights for the quarter and David, Nick will follow up with additional operating detail.\nOperating during a pandemic has been exceptionally challenging for both of our business segments.\nFortunately, VITAS and Roto-Rooter have shown incredible speed, flexibility, and focus to remain completely open and operate safely for the benefit of our patients, customers and employees.\nI believe Chemed's operational and financial performance this past year is a testament to the success of these efforts.\nOur VITAS Healthcare segment continues to be directly impacted by the pandemic.\nFortunately, the federal government, specifically HHS and CMS have been very supportive in terms of relaxing regulations, allowing the use of telehealth where appropriate and providing pragmatic flexibility in caring for our entire patient census.\nThe most complex issue facing VITAS over the past nine months has been the disruptive impact the pandemic has had on traditional hospice referral sources, which in turn has impacted our patient census patterns.\nFortunately, the portions of the healthcare continuum have not -- certain portions have normalized and hospital referral admissions have significantly improved from low-admission rates experienced early in the pandemic.\nThis is reflected in our second half of 2020 admission and census activity.\nOur third and fourth quarter 2020 admissions increased 4.7% and 2.8% respectively.\nNormally, two sequential quarters of solid admissions growth would result in an increase in average daily census.\nHowever, despite the admissions growth, our average daily census declined 2.8% in the fourth quarter.\nThis decline in census is a direct result of disruption in senior housing, which includes nursing homes and assisted-living facilities.\nSenior housing is an important referral network for the hospice industry, given the fact that over 90% of all half of those patients are over the age of 65.\nSenior housing has seen a severe reduction in occupancy levels and continues to struggle even as hospitals and other key hospice referral sources have significantly recovered.\nHospice referred admissions typically account for 50% of VITAS' total admissions and a significant portion of these referrals have very short length of stays.\nVITAS hospital referrals are returning to pre-pandemic levels.\nThis is reflected in hospital generated admissions increasing 6.2% and 7.4% in the third and fourth quarters, respectively.\nNursing home hospice patients represented 14.7% of our fourth quarter 2020 census, a decline of 310 basis points when compared to the prior year.\nVITAS nursing home admissions decreased 22.6% in the third quarter of 2020 and declined 19.3% in the fourth quarter when compared to the equivalent prior year quarter.\nNursing home base patients are -- referred to hospice earlier into a terminal prognosis and statistically have a much greater probability of being in hospice more than 90 days.\nThis decline in nursing home admissions is a direct result of continued disruption in the senior housing occupancy.\nAccording to data provided by the National Investment Center for Senior Housing & Care, COVID-19 continues to adversely affect senior housing occupancy, which reached another record low in October of 2020.\nMedian length of stay in the fourth quarter of 2020 was 14 days, two days less than the prior year.\nThis unusual decline in median length of stay is a result of a 7.4% increase in hospital referred admissions and a 19.3% decrease in nursing home admissions.\nThe combination of which has had a material impact on our median length of stay.\nWe anticipate improvement in senior housing admissions in the second half of 2021 as senior housing patient mix and aggregate occupancy returns to pre-pandemic levels.\nRoto-Rooter operating results have been nothing short of exceptional during the pandemic.\nStrong residential plumbing and drain cleaning demand has been more than adequate to compensate for weakness from our commercial customers.\nThe fourth quarter branch residential demand set all-time records.\nUnit-by-unit residential revenue totaled $123 million in the quarter, an increase of 20.8% when compared to the prior-year quarter.\nFourth quarter 2020 unit-for-unit branch commercial demand did decline to 9.8% when compared with the fourth quarter of 2019.\nThis is a significant improvement when compared to the second quarter of 2020, which had commercial demand declining 29.1% and in the third quarter of 2020 with a commercial revenue decline of 11.6% when compared to the prior year.\nRoto-Rooter generated fourth quarter 2020 revenue of $201 million, an increase of 10.2%.\nConsolidated revenue in addition to Roto-Rooter branch operations, includes independent contractors, franchise fees and product sales, as well as the Oakland acquisition completed in July of 2019 and the HSW acquisition completed in September of 2019.\nWith that, I would like to turn this teleconference over to David.\nVITAS' net revenue was $332 million in the fourth quarter of 2020, which is a decline of 2.3% when compared to the prior year period.\nThis revenue variance is comprised primarily of a 2.8% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase of approximately 2.4% and acuity mix shift, which then reduced the blended average Medicare rate increase approximately 255 basis points.\nThe combination of a lower Medicare Cap and a decrease in Medicaid net room and board pass-through increased revenue growth an additional 64 basis points in the quarter.\nOur average revenue per patient per day in the fourth quarter of 2020 was $198.33, which including acuity mix shift is a 7 -- is 7 basis points below the prior-year period.\nReimbursement for routine homecare and high acuity care averaged $169.83 and $997.37, respectively.\nDuring the quarter, high acuity days-of-care were 3.4% of our total days-of-care, which is 62 basis points less than the prior-year quarter.\nIn the fourth quarter of 2020, VITAS accrued $2.5 million in Medicare Cap billing limitations.\nThis compares to a $4.5 million Medicare Cap billing limitation in the fourth quarter of 2019.\nOf VITAS' 30 Medicare provider numbers, 23 of these provider numbers currently have a Medicare Cap cushion of 10% or greater.\nFour provider numbers have a cap cushion between 5% and 10%, one provider number has a cap cushion between 0 and 5%, and two of our provider numbers currently have a fiscal 2021 Medicare Cap billing limitation liability.\nVITAS' fourth-quarter 2020 adjusted EBITDA, excluding Medicare Cap, totaled $78.7 million, which is an increase of 11.7%.\nVITAS adjusted EBITDA margin, excluding Medicare Cap was 23.5% in the quarter, which is a 306 basis point improvement when compared to the prior-year period.\nFor Roto-Rooter, Roto-Rooter generated quarterly revenue of $201 million in the fourth quarter of 2020, an increase of $18.7 million or 10.2% over the prior-year quarter.\nOn a unit-for-unit basis, which excludes the Oakland and HSW acquisitions, completed in July of 2019 and in September of 2019, respectively, Roto-Rooter generated quarterly revenue of $183 million in the fourth quarter of 2020, which is an increase of 12.8% over the prior-year quarter.\nTotal branch commercial revenue in the quarter, excluding acquisitions, decreased 9.8%.\nThis aggregate commercial revenue decline consisted of drain cleaning revenue declining 11.6%, commercial plumbing and excavation declining 8.9%, and commercial water restoration increasing 1%.\nTotal branch residential revenue, excluding acquisitions increased 20.8% and this aggregate residential revenue growth consisted of residential drain cleaning increasing 17.1%, residential plumbing and excavation expanding 25.5% and our residential water restoration increasing 16.8%.\nNow, let's turn to Chemed's full-year 2021 guidance.\nHistorically, Chemed earning guidance has been developed using previous year's key operating metrics, which are then modeled and projected out for the calendar year.\nCritical within these projections is the understanding of traditional pattern correlations among key operating metrics.\nOnce we complete this phase of our projected operating results, we would then modify the projections for the timing of price increases, changing in commission structure, wages, marketing programs, and a variety of continuous improvement initiatives that our business segments plan on executing over the year.\nThis modeling exercise also takes into consideration anticipated industry and macroeconomic issues outside of management's control but are somewhat predictable in terms of timing and impact on our business segments' operating results.\nWith that said, our 2021 guidance should be taken with a recognition that pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact our ability to achieve this guidance.\nStatistically, our VITAS patients residing in senior housing are identified as hospice-appropriate earlier into their terminal prognosis and at a much greater probability of having a length of stay in excess of 90 days.\nHospice patients referred from hospitals, oncology practices and similar quarter referral sources are generally more acute and they have a significantly lower probability of length of stays 60 to 90 days.\nAccording to data released by the National Investment for Senior Housing & Care, COVID-19 continues to adversely affect senior housing occupancy, which as Kevin mentioned earlier, had another record low in October of 2020.\nThis reduced occupancy in senior housing has had a corresponding reduction in VITAS nursing home admissions.\nNursing home patients represented 14.7% of the VITAS fourth quarter 2020 patient census, which is our 310 basis point reduction when compared to the prior-year quarter.\nVITAS anticipates continued weak occupancy and corresponding weak referrals from senior housing for the first half of 2021.\nThis guidance anticipates senior housing will begin to normalize to pre-pandemic occupancy starting in the second half of the calendar year 2021.\nBased upon the above discussion, VITAS' 2021 revenue prior to Medicare Cap is estimated to decline approximately 4% when compared to the prior year.\nVITAS' average daily census in 2021 is estimated to decline approximately 5% and full-year adjusted EBITDA margin prior to Medicare Cap is estimated to be 19.4%.\nAnd we are currently estimating $10 million for Medicare Cap billing limitations in calendar year 2021.\nRoto-Rooter is forecasted to achieve 2021 revenue growth of approximately 5% to 6% and Roto-Rooter's adjusted EBITDA margin for 2021 is estimated to be 26%.\nBased upon this discussion, the full year 2021 adjusted earnings per diluted share excluding non-cash expense for stock options, tax benefits from stock option exercises, cost related to litigation and other discrete items is estimated to be in the range of $17 to $17.50.\nThis 2021 guidance assumes an effective corporate tax rate and adjusted earnings of 24.7%.\nAnd this compares to Chemed's 2020 reported adjusted earnings per diluted shares of $18.08.\nIn the fourth quarter, our average daily census was 18,718 patients, a decline of 2.8% over the prior year.\nAs Kevin discussed earlier, this decline in average daily census is a direct result of the disruptions across the entire healthcare system that impacted traditional admission patterns in the hospice since March.\nWhile certain healthcare sectors have shown improvement in the admission patterns, referrals from senior housing, specifically nursing homes and assisted-living facilities, continue to be negatively impacted.\nIt is important to note, in the fourth quarter, we saw the sequential decline of senior housing segments, specifically nursing homes and ALFs moderate to actually show a slight improvement as compared to the 2020 third quarter total admissions for the senior housing segment.\nADC growth is expected to normalize in the second half of 2021 as we return to pre-pandemic referral patterns across all sectors of the healthcare industry.\nIn the fourth quarter of 2020, total admissions were 17,960, this is a 2.8% increase when compared to the fourth quarter of 2019.\nIn the fourth quarter, our home-based pre-admit admissions increased 9.2%.\nHospital-directed admissions expanded 7.4%.\nNursing home admins declined 19.3% and assisted-living facility admissions declined 14.7% when compared to the prior year quarter.\nAverage length of stay in the quarter was 97.2 days, this compares to 95.2 days in the fourth quarter of 2019 and 97.1 days in the third quarter of 2020.\nOur median length of stay was 14 days in the quarter, which is two days less than the 16-day median in the fourth quarter of 2019 and equal to the third quarter of 2020.\nNeedless to say, 2020 was an unprecedented year where our organizational flexibility, leadership and commitment to our patients, their families, our referring healthcare partners, and one another was tested unlike anything we've ever experienced.\nI couldn't be more proud of every VITAS team member who stepped up to these challenges to help provide access and incredible care, while producing these results for our shareholders.\nOur entire team will continue to be out in the communities we serve, collaborating safely with our local healthcare partners to successfully identify and navigate patients and their families onto the hospice benefit during this unprecedented time.\nI will now open this teleconference to questions.",
        "summary": "sees fy 2021 adjusted earnings per share $17.00 to $17.50 excluding items.\nqtrly vitas net patient revenue of $332 million, decline of 2.3%.\nqtrly roto-rooter revenue of $201 million, an increase of 10.2%.\nvitas anticipates continued weak occupancy and corresponding weak referrals from senior housing for first half of 2021.\nanticipates senior housing occupancy will begin to normalize to pre-pandemic occupancy starting in second half of calendar year 2021.\nroto-rooter is forecasted to achieve full-year 2021 revenue growth of 5% to 6%.\nfull-year 2021 adjusted earnings per diluted share is estimated to be in range of $17.00 to $17.50."
    },
    {
        "text": "Molly Langenstein, our CEO and president, also joins me today.\nYou should not unduly rely on these statements.\nOur first-quarter results underscore the tremendous progress we are making in our turnaround strategy and the power of our three unique brands and being a digital-first, customer-led company.\nThe strong Q1 performance across all three brands was fueled by our significant improvement in product and marketing.\nOur momentum started in Q4 2019, temporarily stalled by the pandemic, is now back on track to deliver meaningful growth in the years to come.\nTotal first-quarter sales grew 38% over last year, spurred by Soma's extraordinary sales growth of 65%, as well as fantastic customer response to Chico's and White House Black Market, which drove 31% growth in our apparel brand.\nWe delivered meaningful year-over-year gross margin and SG&A rates improvement, and our balance sheet is strong with ample cash and liquidity and strategically lean inventories.\nWe drove a much higher gross margin by dramatically reducing the number of promotional days.\nNot only did Soma post a 65% sales growth over last year's first quarter, but comparable sales also grew a remarkable 39% over the first quarter of 2019.\nSoma is well on its way to delivering an incremental 100 million in sales this year.\nAccording to NPD research data, Soma outpaced the market leader in growth in bras, panties, and sleepwear, excluding sports bras, for the last 12 months.\nThese powerful results give us confidence that Soma will continue to take a meaningful share of the U.S. intimate apparel market and explode into a billion-dollar brand by 2025.\nThe business strategy put in place in Soma around inventory, products, marketing, and digital is working, and we have every confidence applying the same strategy as Chico's and White House Black Market will continue the apparel sales momentum.\nExciting things are happening at Chico's and White House Black Market and in the first quarter, the apparel brands posted faster sell-through rates and higher maintains margins than in 2019.\nThis is proof that our marketing efforts are increasingly more compelling and that our elevated products and styling are truly resonating with our customers.\nOur first-quarter results underscore the tremendous progress we are making on the five strategic priorities that I shared last quarter.\nLet me take a few minutes to update you on each.\nNumber one, continuing our ongoing digital transformation.\nOver the last two years, we have successfully transformed into a seamless digital-first, customer-led model for all three of our brands, making major strategic investments in talent and technology.\nThese efforts are paying off as year-over-year first-quarter digital sales grew a very healthy 13.4%.\nAll three brands and digital sales grew year over year.\nCustomers using our proprietary digital tools, Style Connect and My Closet, are more engaged and have our highest conversion rate.\nThese tools fuel 10% sequential multi-channel customer growth, and these customers spend more than three times a single-channel customer.\nNumber two, further refining products through styling, fabric, and innovation.\nAt each of our brands, we are laser-focused on our customer and on continually elevating our product in order to increase our market share and drive results.\nInnovation and creating comfortable beautiful solutions are core in the Soma brand.\nOur products serve our customers' lifestyles and promote health, including a great night's sleep.\nAloe-infused Restore and Cool Nights are two great examples.\nWe continually innovate and introduce three new bras during the corner -- quarter, exceeding sales expectations.\nIn both our apparel brands, we've changed the styling of the products to more closely aligned with the customer.\nWe embrace the comfort culture and develop innovative fabrics and technology to provide comfort features, shifting her from sweat to fabric with ease.\nWe are very encouraged by what we are seeing.\nAt Chico's, she loves our core franchise bottom, woven, and knit top in new fabrics.\nAt White House Black Market, new elevated casual in denim and tops are popular as she is buying coordinating outfits.\nAnd dresses are once again at the top of her list for both apparel brands.\nNumber three, driving a significant increase in customer engagement through digital storytelling.\nOur enhanced marketing is driving brand awareness, generating traffic, and acquiring new customers through social media engagement and creative storytelling.\nNewly acquired customers are being retained at a meaningfully higher rate than in fiscal 2019.\nThe year-over-year average age of new customers dropped 10 years at Chico's.\nAt Soma, the average age dropped eight years.\nAnd at White House Black Market, the average age dropped slightly.\nThese stats reinforce the runway for all three brands.\nAt Soma, we are growing the customer base.\nOne in three new customers is under 34, resulting from our more inclusive branding and evolved product assortment.\nOur brands use digital storytelling.\nThe use of social influencers, and building upon our organic social efforts, and wider-by communications are some of the ways we are working to elevate our marketing and reach new customers.\nOur weekly Facebook Live events, for example, are driving significant engagement compared to industry benchmarks.\nNumber four, maintaining our operating and cost discipline.\nOur biggest Q1 accomplishment was the strength in full-price sales and corresponding reduced promotions.\nOur on-hand inventories are strategically lean, and receipts are disciplined.\nOn-hand inventory levels, which were down 29% versus last year's first quarter and down 21% compared to the first quarter of 2019, drove more full-price sales and generated a solid gross margin in the first quarter.\nThe density of products, improved products, and social proofing are driving a sense of urgency for customer purchasing.\nThese factors should continue to strengthen gross margin performance.\nAnd number five, delivering higher productivity in our real estate portfolio.\nStores continue to be an integral part of our strategy because data shows that digital sales are higher in the markets where we have a retail presence.\nWe also will support store growth where the investments deliver profitable returns.\nSoma is a great example of that.\nWe have successfully opened 30 Soma shop-in-shops inside Chico's stores.\nThese started opening in February, and we will have 47 open by mid-June.\nThese shop-in-shops are exceeding plan, driving brand awareness, and generating both store and digital sales in markets where Soma is not represented.\nAt the same time, we continue to rationalize and tighten our real estate portfolio for higher store profitability standards.\nWe will continue to shrink our store base to align with these standards, primarily as leases come due, lease kickouts are available, or buyouts make economic sense.\nWe have lease flexibility with nearly 60% of our leases coming up for renewal or kickout available over the next three years.\nWe anticipate closing 13% to 16% of our remaining store fleet over the next three years, with 40 to 45 of those closures occurring in fiscal '21.\nOur stand-alone boutiques outperform those in regional enclosed malls by about seven percentage points.\nAccordingly, the vast majority of closures are expected to be mall-based with the SKU toward Chico's and White House Black Market stores.\nFirst-quarter net sales totaled $388 million, compared to $280 million last year.\nThis 38.4% increase reflects a 13.4% increase in digital sales, and recovery, and store sales, as our stores were temporally closed last year.\nLooking at the first quarter compared to 2019, comparable sales decline 22%, with Soma up 39%, and the apparel brands down 33%.\nTotal company on-hand inventories for the first quarter compared to 2019 were down 21%, with Soma up 13% and the apparel brands down 35.3%, illustrating these strategic investments in Soma's growth and our turnaround strategy in apparel.\nWe reported a net loss of $8.9 billion, or $0.08 per diluted share, compared to a net loss of $178 million, or $1.55 per diluted share last year, which included the $35 million, or $1.17 per diluted share and significant after-tax noncash charges.\nOur gross margin was 32.7%, compared to negative 4% last year.\nThe prior-year margin included the impact of significant noncash inventory write-offs and store asset impairments.\nThis year, we meaningfully expanded our margin rate as a result of disciplined inventory control, strategically reduced promotions, and more full-price selling.\nSG&A expenses for the first quarter total $134 million, just a modest uptick from the first quarter last year but our stores were closed for approximately half of the quarter.\nWe have continued our cost discipline and reduction initiatives, generating lower SG&A expense dollars and rate than the first quarter of fiscal '19 and a sequential improvement in both dollars and rate over the fourth quarter of fiscal '20.\nOur balance sheet remains very solid.\nWe ended the first quarter with over $102 million in cash and marketable securities.\nAnd borrowings on our $300 million credit facility remain unchanged from the fiscal year at $149 million.\nOur financial position liquidity continued to be bolstered by strong digital performance across all brands, improving retail store sales, and a significant leaner expense structure that better aligns cost with sales.\nIn addition, our balance sheet reflects a federal income tax receivable of approximately $55 million that we expect to realize in the summer of fiscal '21.\nWe anticipate building cash throughout fiscal '21.\nRegarding first-quarter cash flows, cash used in operating activities was $4.4 million.\nThis use reflects the impact of more than $15 million in outflows or residual rental settlements for the fiscal '20 real estate rent abatement and reduction initiatives, as well as reductions in extended supply or payment terms implemented last year.\nOn a real estate front, in March, we launched phase two of our lease renegotiation process with A&G Real Estate Partners.\nWe have secured commitments from landlords of approximately $10 million of additional rent abatements and reductions.\nThe majority of which will be realized in fiscal '21.\nThis is an addition to the $65 million abatements and reductions negotiated last year.\nOn a cash basis, approximately $20 million of those savings are expected to be realized this year.\nWe expect to close up to a total of 330 stores from the beginning of fiscal '19 through the end of fiscal '23.\nIn the first quarter of fiscal '21, we closed nine stores and we ended the quarter with 1,293 boutiques.\nNow, let me turn to our outlook.\nWe expect continued improving demand throughout the year for Chico's FAS, and we also realized there is economic uncertainty as we continue to emerge from the pandemic.\nWe do, however, believe it is appropriate to provide some high-level public expectations for fiscal 2021.\nWe expect a consolidated year-over-year net sales improvement in the 28% to 34% range, gross margin rate improvement of 18 to 20 percentage points over last year.\nSG&A as a percent of sales down 500 to 600 basis points year over year and income tax expense of approximately $500,000.\nWe are committed to making all appropriate actions to improve performance and drive shareholder value, and we look forward to continuing to engage with our shareholders to discuss our progress.\nOur turnaround is on track, and we are uniquely positioned to build on our first-quarter momentum, improve our operating performance, and generate shareholder value over the long term.\nWe have an exciting future ahead.\nWe will not be making further comments on the contents of their income statement or our shareholder conversations at this time.\nWith that, we can open up the call for Q&A.",
        "summary": "compname says q1 loss per share $0.08.\nq1 loss per share $0.08.\nq1 sales $388 million versus $280.3 million.\nnot providing specific fiscal 2021 guidance at this time.\nexpects 2021 consolidated year-over-year net sales improvement between 28% to 34%."
    },
    {
        "text": "Before we begin, I'd like to review the Safe Harbor statements.\nDuring the call today, we may also discuss non-GAAP financial measures.\nAdditionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call.\nWe do not undertake and specifically disclaim any obligation to update or revise this information.\nI will now turn the conference over to our President and Chief Executive Officer, Matthew Lambiase.\nI'd like to start by saying that all the employees at Chimera are healthy and working remotely from home.\nWe implemented our contingency work plan in early March, and have not experienced any significant technology issues.\nWe all hope view and your family stay safe and healthy as well.\nIn the month of March, the COVID-19 pandemic created an environment of fear and extreme uncertainty resulting in near catastrophic conditions for the fixed income markets.\nMany investors felt that the government mandated lockdowns would likely bring an economic recession and they sold their credit investments while reinvesting into safer risk-off assets such as T-Bills, U.S. Treasury notes and cash.\nCredit-focused bond funds and ETFs saw record outflows forcing fund managers to sell their holdings into thin markets creating heightened volatility and market dislocations.\nAll sectors of the fixed income market, apart from U.S. treasuries, experienced sharp downward price movements.\nSo investors who use leverage as part of their strategies we're also forced to sell assets as they attempted to meet margin calls from their repo lenders.\nMarket conditions witnessed in March of 2020 were very similar to that experienced in the the 2008 crisis.\nYet, price movements were swift and occurred over a much shorter timeframe.\nThe Federal Reserve was quick to respond and on March 15, a Sunday night, they announced many initiatives to combat the worsening economic conditions.\nThe Federal funds rate was cut to 0%, new purchase plans for treasuries and agency mortgage-backed securities were implemented and funding programs like the TELS and commercial paper facility were revived from the 2008 Federal Reserve playbook.\nThe Fed's actions were largely helpful bringing order to many areas of fixed income market including agency mortgage-backed securities.\nLiquidity programs for residential credit securities were not offered by the Federal Reserve and they continue to trade in a challenged fashion in the secondary markets.\nLike the Fed, Congress also did its part by passing the CARES Act with the intent to help individuals most directly impacted by the COVID-19 pandemic.\nThe U.S. economy is vastly different today than where it was prior to the COVID-19 crisis.\nThe abrupt shutdown in the U.S. economy has swiftly created some of the worst economic problems since the Great Depression.\nIn these past six weeks, 30 million people have applied for unemployment benefits, a sharp contrast to the 3.5% unemployment rate that we had in February.\nMany U.S. homeowners have decided to take advantage of newly created mortgage forbearance programs.\nIn the near term, the government initiatives, coupled with mortgage forbearance, will soften the immediate blow to the U.S. economy.\nBut these may have lasting negative impact on the housing and mortgage market, should they persist for an extended period.\nOver the past several years, Chimera has taken a number of balance sheet initiatives that helped it in this difficult period to protect our book value to meet all the margin calls from our repo lenders and to pay our dividends.\nOur agency mortgage-backed securities portfolio has always served dual purposes, primarily as a source of spread income, and secondarily as a source of liquidity rather than selling our higher yielding legacy assets.\nThis quarter, we sold our agency pass-through securities to pay down debt and further deleverage our overall portfolio.\nWe ended the first quarter at 2.2 times recourse leverage, down 35% from year-end.\nOver the past decade, we've purchased or acquired approximately a $14 billion portfolio of legacy non-agency securities and season-low loan balance mortgages.\nThis portfolio is funded through securitization as well as repo leverage, but it has not been immune to downward price movements.\nWe've worked diligently to protect this portfolio, which has historically been a consistent driver of earnings for our company and makes Chimera's portfolio differentiated in the mortgage REIT industry.\nWe remain hopeful that at some point in the future, the pricing of these assets reverts to it's fundamental value, rather than the illiquid pricing we're currently experiencing.\nA restarting of the economy should be a good first step in the process, which we believe could lead to an improvement in credit spreads and a recapturing of our lost book value experienced in the quarter.\nIn the last few months, we've been busy executing transactions on the liability side of our balance sheet.\nIn March, Chimera executed two mortgage securitizations, totaling $883 million.\nWe've arranged over $800 million of longer-term refocus over these for our credit assets and we executed $374 million of convertible debt, which further diversifies our liability and capital structure.\nWhile pricing is never ideal in a crisis, we are heartened to be able to access the capital markets.\nLooking forward, it's hard to have a clear view on how the U.S. economy is going to perform as it starts back up.\nWe are in uncharted waters with regard to the high unemployment and severe changes in social habits.\nWe would love to believe that we'll be back to a V-shape recovery, but it's most likely going to take longer and be difficult to get back to where we were in February.\nThe mortgage and housing market outlook will also be challenging in the very near term.\nMortgage forbearance stays at a high degree of uncertainty to mortgage credit and we will be cautious until we have more clarity on the forbearance duration and the totals in our portfolio.\nGiven all these complexities, earnings for the next few quarters will be difficult to predict until the economic conditions clarify.\nWe remain focused on maintaining liquidity, extending our financing terms, and keeping our credit portfolio intact.\nWe are navigating through a very turbulent period but we are very hopeful that the U.S. economy will recover and the mortgage market will return to more normal footing when the economy restarts and people get back to work.\nThe first quarter of 2020 was an extremely volatile period in the U.S. fixed income market.\nThe 10-year treasury note began the year at 1.92% and fell 125 basis points to end the first quarter with a yield of 0.67%.\nThe Federal Reserve cut its overnight lending rate by 150 basis points over a two-week period as part of its response to the COVID-19 pandemic.\nThe large drop in interest rates, sharp increase in rate volatility and investor flight to quality had a large imbalance of funds across most fixed income products.\nInvestors that utilized leverage were forced to sell their securities at low prices to meet margin calls on existing repo transactions.\nChimera was not immune.\nIn the first quarter, we utilized the combination of cash balances, unpledged [Phonetic] securities and outright sales of our agency assets as part of our overall liquidity management strategy.\nChimera has successfully met all margin calls to date.\nChimera's swift [Phonetic] funding strategy is multifaceted.\nThe primary objective has been and continues to be utilizing securitization to create long term funding for our credit assets.\nAt the end of the first quarter, we had nearly $8.5 billion of securitized debt outstanding.\nSecondarily, we use repo financing on our retained assets, legacy non-agency securities, and loans.\nWe typically use longer repo maturity dates when financing these assets, which enables more effective counterparty and portfolio management.\nAnd post quarter end, we added two new long term credit financing facilities totaling $800 million.\nThese facilities contain attractive features including a significant reduction of daily mark-to-market risk on our credit assets.\nWe successfully continued our loan securitization strategy this quarter and in March, we priced two deals with season reperforming loans from our warehouse.\nCIM 2020-R1 has $391 million underlying loans with a weighted average coupon of 5% and a weighted average loan age of 158 months.\nThe average loan size in the R1 securitization was $123,000 and had an average FICO score of 613.\nWe sold $312 million senior securities with a 2.35% cost of debt.\nChimera retained a March 2023 calendar call option on the R1 securitization.\nIn addition, we securitized CIM 2020-R2, which had a $492 million underlying loans with a weighted average coupon of 3.79% and a weighted average loan age of 161 months.\nThe average loan size in the R2 deal was $219,000 and had an average FICO of 690.\nWe sold $352 million senior securities with a 2.55% cost of debt.\nIn response to the significant drop in interest rates, increased price volatility and repo margin calls, this quarter, we sold our entire portfolio of $5.7 billion residential agency pass-throughs.\nThese pass-throughs were the most liquid and lowest yielding assets in our portfolio and have always been part of our strategy to meet our liquidity needs.\nWe also terminated all our agency hedge positions comprised of U.S. Treasury note futures and $4.1 billion notional balance on interest rate swaps.\nThe agency CMBS portfolio, which has taken us many years to accumulate, was retained.\nAs of the quarter end, this portfolio totaled $2.5 billion.\nWe continue to like the spread income generated by this portfolio and the superior convexity profile of Ginnie Mae project loans relative to residential agency pass-throughs.\nThese securities finance well in the repo markets and have some more rates and haircuts as traditional agency pass-throughs.\nThe unique [Indecipherable] explicit prepayment lockout and penalties are valuable security trades as interest rates fall.\nAfter quarter end, spreads on agency CMBS began to tighten when the Fed began purchasing these assets as part of their quantitative easing program.\nPortfolio activity this quarter has significantly reduced the company's risk exposure as measured by recourse leverage.\nWe ended the quarter at 2.2 times recourse leverage down from 3.4 times at year-end and 3.8 times at the end of the third quarter of 2019.\nThis represents a 35% reduction of recourse leverage over the last three months and 42% over the past six months.\nIt is important to note, due to current market conditions, our high-yield credit assets, which is the largest component of our portfolio, have been marked down in book value -- have been marked down in value, which has contributed to Chimera's lower book value this quarter.\nOur ability to retain this portfolio enables the opportunity for security value increases over time as economy restarts and the country works its way through the current pandemic.\nAs we move forward to the current economic crisis, we remain cautiously optimistic.\nWe will continue to space out the repo maturities and seek longer tenure for our credit repo.\nAnd as we get more visibility into the housing and mortgage economics resulting from the crisis, we will seek to deploy cash into new investment opportunities as we have for the past decade.\nI'll review Chimera's financial highlights for the first quarter.\nGAAP book value at the end of the first quarter was $12.45 per share.\nOur GAAP net loss for the first quarter was $389 million or $2.08 per share.\nOn a core basis, net income for the first quarter was $106 million or $0.57 per share.\nEconomic net interest income for the first quarter was $151 million.\nFor the first quarter, the yield on average interest earning assets was 5.3%.\nOur average cost of funds was 3% and our net interest spread was 2.3%.\nTotal leverage for the first quarter was 4.7 to 1, while recourse leverage ended the quarter at 2.2 to 1.\nExpenses for the first quarter, excluding servicing fees and transaction expenses were $18.6 million, consistent with last quarter.\nGiven the current market environment, we wanted to provide additional information about liquidity.\nWe currently have approximately $650 million in cash and unencumbered assets.\nThis is after we paid both our preferred and common stock dividends totaling $111 million.\nAlso, in April, we closed a public convertible bond offering that raised $374 million.\nWe believe it's important to have ample liquidity in this market and we're happy that the capital markets were open for us to achieve this goal.\nWe will continue to monitor our liquidity and assess opportunities to increase liquidity and balance, supporting our current portfolio and finding new opportunities in the market.",
        "summary": "compname reports q1 core earnings per share of $0.57.\nq1 core earnings per share $0.57.\nq1 gaap loss per share $2.08."
    },
    {
        "text": "Before we begin, I'd like to review the safe harbor statements.\nDuring the call today, we may also discuss non-GAAP financial measures.\nAdditionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call.\nWe do not undertake and specifically disclaim any obligation to update or revise this information.\nI will now turn the conference over to our CEO and chief investment officer, Mohit Marria.\nJoining me on the call today are Choudhary Yarlagadda, our president and chief operating officer; Rob Colligan, our chief financial officer; and Vic Falvo, our head of capital markets.\nBefore we begin, in November, we announced the retirement of Matt Lambiase.\nMatt founded and led Chimera since 2007.\nUnder his leadership, Chimera grew to a $3.8 billion mortgage REIT and paid more than $5.2 billion in dividends to shareholders.\nMatt was a great leader, friend and mentor for everyone in our company.\nThis quarter, Chimera continued its path of book value reappreciation.\nThroughout the year, we worked diligently on the liability side of our balance sheet to enhance liquidity and strengthen our cash position.\nThese actions enabled us to retain our high-yielding credit portfolio and benefit from the improvements in asset prices that started in the second half of 2020.\nChimera's book value improved nearly 4% in the fourth quarter and over 16% at the middle of the year.\nThis improved book value, combined with the company's dividend policy, has generated a 6% economic return for the fourth quarter and a 22% economic return since June 30, 2020.\nThe housing market is robust across America.\nThe Federal Reserve has been very supportive of agency mortgage-backed securities with open market purchases for its own portfolio.\nThe Fed's purchases have helped lenders offer low mortgage rates to homeowners for new home purchases as well as lowering the cost of homeownership for those that desire to refinance.\nThe National Association of Realtors recently reported that in December, contract closing for existing homes increased with annualized pace of 6.76 million units.\nThis is the strongest pace we have seen since late 2006.\nHousing inventories are low, demand is strong and mortgage rates are at all-time historic lows.\nThese are all indicators for continued performance in the housing and residential mortgage credit.\nChimera has a unique and differentiated residential credit portfolio among mortgage REITs.\nAt year-end, our GAAP investment portfolio included $12.6 billion of mortgage loans and $2.5 billion of non-agency RMBS.\nOver 90% of the loans in non-agency securities on our balance sheet were originated prior to 2010.\nWith strong underlying housing fundamentals and the prospects of a post-pandemic economic recovery, we believe our seasoned mortgage portfolio of loans in non-agency RMBS is uniquely positioned to perform well.\nThe securitization market has demonstrated depth and resiliency in the past year and is a key component of our company's liability management.\nSpreads on securitized mortgage loans widened as the pandemic began in the spring of 2020.\nSubsequently, these spreads have grown tighter and closed the year at historically low levels.\nSecuritization enables us to finance our mortgage loans for longer term by transferring them from our loan warehouse into mortgage trust as we sell senior notes in each deal.\nThis process helps the company to accomplish a desired asset liability mix, while providing long-term nonrecourse financing.\nFor the full year, we sponsored seven reperforming loan securitizations, two prime jumbo securitizations, one agency eligible investor loan securitization and one non-performing loan securitization.\nIn total, Chimera sponsored $4.2 billion and 11 separate securitized deals for the calendar year 2020, and we retained $655 million in subordinate notes.\nSecuritization is Chimera's primary source of financing for our loan portfolio, and as of year-end, securitized debt represented more than 60% of Chimera's liabilities.\nWe firmly believe that retention of subordinate notes from Chimera-sponsored deals provides the best levered returns available in the market.\nSecondarily, we utilized repo and other forms of secured financing for warehouse loans and subordinate notes as we seek to enhance our portfolio returns.\nSince the onset of the pandemic, we have taken aggressive actions to reduce Chimera's financing risk by lengthening and strengthening our secured credit facilities.\nAt year-end, we have $3.2 billion of credit-related secured financings, which is 37% less than we were financing at the year-end 2019.\nThe average maturity of our credit-related financing is 15 months and $2 billion, or roughly two-thirds are either nonmark-to-market or limited mark-to-market.\nIn April, we issued convertible debt.\nConcurrent with our offering, the company entered into a capped call transaction.\nDuring the fourth quarter of 2020, we exercised a capped call option, and the company elected to receive a settlement of approximately 4.7 million shares for our common stock, which were then retired.\nThe retirement of these shares reduces the company's share count, benefiting the book value and future returns of our company.\nLast night, our board of directors increased the size of our outstanding common stock repurchase authorization to 250 million.\nThis provides a valuable tool for our team as we evaluate the merits of new leverage investment opportunities related to the potential benefit of stock -- common stock repurchase.\nOur balance sheet is strong, and we remain focused on delivering long-term value for shareholders.\nNow, I would like to go through the fourth-quarter portfolio activity.\nIn October, we issued CIM 2020-R6, with $418 million of reperforming loans purchased in September.\nThe underlying loan from the deal had a weighted average coupon of 5.25% and a weighted average loan age of 164 months.\nThe average loan size in the R6 transaction was $102,000 and had an average LTV of 71%.\nThe average FICO score of the borrower was 638.\nWe sold 334 million senior securities from the deal and retained 84 million in subordinate notes, plus interest-only securities.\nOur cost of debt for the CIM 2020-R6 was 2.19%, with an 80% advance rate.\nIn November, we issued CIM 2020-R7 and CIM 2020-NR1.\nThe R7 deal consisted of $653 million reperforming loans from the called CIM 2017-8 securitization.\nThe underlying loans in the deal had a weighted average coupon of 6.38% and a weighted average loan age of 172 months.\nThe average loan size in the R7 transaction was $81,000 and had an average LTV of 60%.\nThe average FICO score of the borrowers was 662.\nWe sold $552 million senior securities from the deal and retained $91 million in subordinated notes, plus interest-only securities.\nOur cost of debt for the R7 deal was 2.22%, with an 86% advance rate.\nThe collateral for the NR1 securitization was $132 million of non-performing loans called from CIM 2017-8 deal.\nThe underlying loans had a weighted average coupon of 5.76% and a weighted average loan age of 170 months.\nThe average loan size was $100,000, had an 86 LTV and a 589 average FICO.\nWe sold $84 million notes, with a 4.49% cost of debt and a 64% advance rate.\nChimera retained $48 million of subordinate notes.\nThe R6, R7 and the NR1 deal were not rated by any of the rating agencies.\nIn December, we issued CIM 2020-J2, our second prime jumbo securitization for 2020.\nThe deal was rated by Moody's, Fitch and DBRS and had $327 million loans, with a weighted average coupon of 3.09% and a weighted average loan age of two months.\nThe average loan size was $912,000 and at an average FICO of 782 and an average LTV of 64%.\nAs we begin 2021, the housing market is booming, our mortgage portfolio continues to perform well, and we have ample cash position to make new investments.\nInterest rates are at historic lows, and the securitization market is strong, with spreads on some classes near all-time tights.\nThis year, we will continue to seek ways to improve upon or lower our liability cost for securitized debt as well as the back-end financing of our retained securities from Chimera securitizations.\nAs of year-end, Chimera owns call rights from 7 billion in 16 previously issued same deals that are either currently callable or will become callable in 2021.\nThis provides a source of product to meet strong investor demand.\nAnd lastly, our company's leverage is low.\nAs market conditions improve, we can increase our leverage either by growing assets, repurchasing equity or both.\nChimera is well positioned as we begin 2021.\nWe will use all the tools available to deliver the best risk-adjusted dividend to our shareholders.\nI'll review Chimera's financial highlights for the fourth-quarter and full-year 2020.\nGAAP book value at the end of the fourth quarter was $12.36 per share, and our economic return on GAAP book value was 6% based on the quarterly change in book value and the fourth-quarter dividend per common share.\nGAAP net income for the fourth quarter was $129 million or $0.49 per share and $15 million or $0.07 for the full year.\nOn a core basis, net income for the fourth quarter was $72 million or $0.29 per share, and it was $334 million or $1.46 per share for the full year.\nEconomic net interest income for the fourth quarter was $117 million, and it was $513 million for the full year.\nFor the fourth quarter, the yield on average interest earning assets was 5.9%, our average cost of funds was 3.6% and our net interest spread was 2.3%.\nTotal leverage for the fourth quarter was 3.6 to 1, while recourse leverage ended the quarter at 1.2 to 1.\nFor the fourth quarter, our economic net interest return on equity was 12.5%, and our GAAP return on average equity was 15.8%.\nExpenses for the fourth quarter, excluding servicing fees and transaction expenses, were $18 million, up slightly from last quarter.",
        "summary": "compname posts q4 core earnings per share $0.29.\nq4 core earnings per share $0.29.\nq4 gaap earnings per share $0.49.\nboard of directors increases existing share repurchase authorization for up to $250 million."
    },
    {
        "text": "On the call today, Scott Buckhout, CIRCOR's president and CEO, and Abhishek Khandelwal, the company's chief financial officer.\nThe slides we'll be referring to today are available on CIRCOR's website at www.\nThese expectations are subject to known, and unknown risks, uncertainties, and other factors.\nFor a full discussion of these factors, the company advises you to review CIRCOR's Form 10-K, 10-Q, and other SEC filings.\nThe company's filings are available on its website at circor.com.\nActual results could differ materially from those anticipated, or implied by today's remarks.\nThese non-GAAP metrics exclude certain special charges and recoveries.\nThe CIRCOR Team has gone above and beyond to deliver essential products to our customers, while keeping each other safe, and maintaining business continuity.\nCIRCOR delivered a strong second quarter, despite unprecedented macro challenges.\nI'm proud of the portfolio transformation that we've executed over the last couple of years.\nWith the recent divestiture of distributed valves, we completed our shift out of upstream Oil & Gas and other commodity businesses.\nAs a result of this transformation, we've sharpened our focus on our core Mission Critical flow control platforms, and we positioned CIRCOR for strong future growth.\nOur current portfolio of Mission Critical business is more diversified and less cyclical mitigating the impact of the broader economic environment.\nIn addition, our portfolio of products has differentiated technology and a strong market position that has enabled us to raise prices through the current downturn.\nAll of our factories are operating in line with customer demand.\nAs of today, we're absorbing some inefficiencies associated with safety protocols we put in place to ensure our employee's safety.\nWe continue to manage some COVID-19 related challenges on the supply chain side.\nBeyond this, we're experiencing a limited direct disruption in operations from COVID-19.\nDespite these challenges, the CIRCOR operating system is delivering improved operating performance across most metrics.\nAnd finally, we're positioning CIRCOR to take advantage of a market recovery.\nWe remain on track to deliver on our commitment to launching 45 new products this year.\nWe continue to invest in front-end resources and strategic growth initiatives.\nWe're closely collaborating with suppliers and customers to ensure alignment as markets change.\nLastly, we continue to focus on deleveraging the balance sheet.\nNow, I'd like to provide some highlights from the second quarter.\nPlease turn to Page 4.\nWe booked orders of $193 million with the book-to-bill ratio slightly over 1.0, and a backlog build of $7 million.\nSales came in at $186 million, down 14% organically, largely driven by industrial.\nAerospace & Defense this top-line remained robust through the quarter.\nThe adjusted operating margin was 8.5% down 210-basis-points from last year.\nThe margin decline was primarily driven by lower volume in industrial.\nDespite lower revenue, we managed companywide detrimental to 22%, due to the aggressive cost and price actions we implemented earlier this year.\nOur cost actions remain in line with the targets we laid out in our first-quarter earnings call, and our price actions across the company are coming in as expected.\nLet's begin by reviewing our segment results.\nAll figures up from continuing operations and exclude divestitures.\nStarting with industrial in Slide 5.\nIn Q2, Industrial segment orders were down 16% organically, due to COVID-19 impact on most industrial-end markets.\nThe Industrial segment had sales of $124 million, down 19% organically.\nThe majority of our end markets within industrial were challenged, due to the COVID-19 pandemic.\nWe saw the capital projects and customer maintenance delays to the quarter.\nOur EOM margin was 10% representing a decline of 350-basis-points versus the prior year.\nThis was primarily driven by lower sales volume, and inefficiencies associated the need to maintain social distancing on the factory floor, among other safety policies, due to COVID-19.\nThe cost actions they've initiated at the end of 2019, coupled with further action stated the pandemic resulted in a drop-through 27% which is significantly lower than our contribution margin.\nIn Q2 in the Aerospace & Defense segment, we delivered orders of $77 million, down 18% organically, due to a difficult comparison.\nLast year, we received a large Joint Strike Fighter order for $17 million.\nWhile this year, we had the impact of COVID-19 on commercial Aerospace, although partially offset by the Virginia Class Submarine order for $9 million.\nAerospace & Defense had sales of $62 million, down 3% organically, due to COVID-19 impact on commercial Aerospace, and ongoing 737MAX delays.\nThis was partially offset by strong defense shipments, especially for the Virginia Class Submarine, and the Joint Strike Fighter programs.\nThe Aerospace & Defense operating margin was 21.1% up 500-basis-points.\nThe $2 million of lower revenue in the Aerospace & Defense team delivered $3 million of incremental operating income, driven by pricing, productivity, and cost actions.\nTurning to Slide 7.\nFor Q2, the adjusted tax rate was 14.8%, due to foreign tax-rate differential, and higher R&D tax credits.\nLooking at special items and restructuring charges, we recorded a total pre-tax charge of $17 million in the quarter.\nThe acquisition-related amortization & depreciation was a charge of $12 million.\nWanting professional fees were a charge of $4.6 million, attributable to last year's unsolicited tender offer, corporate governance actions, and other proxy related matters.\nInterest expense for the quarter was $8 million, down $5 million, compared to the prior year.\nThis was a result of lower-debt balances and a federal interest rate of 25-basis-points.\nOther income was at $2 million charge in the quarter primarily, due to foreign exchange losses, partially offset by pension income.\nCorporate costs in the quarter were $9.7 million, higher than normal, primarily driven by a write-off of $1.8 million against a written asset from a previously divested business.\nFor Q3 and Q4, we expect the corporate cost run rate to be approximately $7 million per quarter.\nTurning to Slide 8.\nOur free cash flow from operations was negative $28 million in the second quarter, which is in line with the guidance provided during our first-quarter earnings call.\nDuring the quarter, we disposed of our Distributor Valves business for a negative $8.25 million in cash.\nThe company also incurred approximately $10 million of cash disbursements associated with, last year's unsolicited tender offer to acquire the company, support for corporate governance changes, restructuring, investment, banking fees, and other professional services.\nAt the end of the second quarter, our net debt was $467 million, which was $205 million dollars lower than Q2, 2019.\nAs we mentioned in our Q1 quarterly call, we expect our Q3 free cash flow to be approximately break-even to slightly negative.\nAs we complete the final disbursements related to the exit of Distributed Valves and other restructuring expenses.\nQ4 is expected to be a strong positive cash flow quarter, largely clean of transition, and restructuring expenses.\nNow, I will hand it back over to Scott, to provide some color on our end markets, and outlook.\nNow, I'll provide an overview of what we're seeing in our end markets, as well as some of the actions we're taking to manage through the pandemic.\nPlease turn to Page 9.\nLet me start by recapping ou in-market exposure.\nFirst, we've completely exited upstream Oil & Gas.\nLooking at today's portfolio, approximately 46% of our revenue is General Industrial, 27% is Aerospace & Defense with defense approximately twice the size of commercial, and 27% as aftermarket sales and support.\nI'd like to point out a few aspects of our current portfolio.\nOur Aftermarket business is largely driven by Industrial and defense.\nAftermarket margins are higher than OEM margins.\nOrders driven by our large global installed base are mitigating the impact of the broader economic decline.\nAftermarket is a strategic growth area for CIRCOR, and aftermarket growth investments will continue through 2020 and beyond.\nWe expect the defense to remain robust.\nOur Defense team is winning new programs in next year's U.S. defense budget appears to be coming in at 2020 levels or slightly better.\nIn addition, we're seeing strong support from many of our larger defense platforms.\nOur Commercial business represents 8% of revenue, and less than half of it is driven by Boeing and Airbus commercial aircraft platforms.\nThe majority of the remaining commercial sales come from a long list of OEM platforms across business and regional aviation, Civil Helicopters, and Space programs.\nOur Industrial business is very diversified by the end market.\nOutside of downstream, Oil & Gas which represents 10% of revenue, no end-market represents more than 6% of revenue.\nThis offers significant diversification, reducing cyclicality, and our dependence on anyone end market.\nLet's start with the industrial.\nOrders overall in Q2 were down 16% organically.\nDuring the second quarter of the Industrial business, we saw the impact of COVID-19 across most major end markets.\nFor market orders were down 23%, impacted by an overall slowdown in global manufacturing, as well as large project delays linked to the global reduction in capex.\nWe saw a capital project delays in Commercial Marine, Machinery Manufacturing, Chemical Processing, and Building & Construction end markets.\nThe impact on water and wastewater was relatively modest compared to other end markets.\nconsumer goods manufacturing sector.\nThe COVID-19 environment coupled with some customers shifting consumer goods manufacturing from China to the U.S. created a moderate increase in orders in this sector.\nAftermarket orders were down 8% organically in Q2.\nOur global installed base combined with our dedicated Aftermarket Commercial team is mitigating the impact of steeper declines and for market capital projects.\nThe aftermarket weakness was most significant in Commercial Marine, due to lower utilization of Cruise ships, and offshore service vessels.\nWe're seeing pockets of growth in some areas like nuclear power in Asia and midstream Oil & Gas in Latin America.\nDownstream order intake in the quarter was relatively low, due to delayed capital projects and maintenance turnarounds.\nRefiners are minimizing short-term spending and reducing the scope of activities planned for the fall turnaround season.\nAftermarket backlog is expected to grow as we exit the year in preparation for the delayed maintenance activities from 2020, and layering on top of the already planned repair and maintenance work slated for 2021.\nBoating activity remains strong for long cycle capital projects in growth markets.\nFor Industrial overall in Q3, the end-market outlook is similar to market levels in Q2.\nWe expect the impact of COVID-19 to drive a year-over-year decline in revenue of 18% to 28%.\nWe expect most OEM end markets in Q3 to remain at Q2 levels, due to ongoing capital expenditure reductions, and capital project delays.\nOn the aftermarket side, we're starting to see some improvements sequentially in Europe and Asia, as those markets recover from the COVID related downturn.\nIn North America, we expect Q3 revenue to be in line with Q2.\nRegionally, the general industrial market is expected to decrease in Q3 versus the prior year in North America, Europe, and India.\nHowever, we expect to see growth in China.\nOur Aerospace & Defense segment delivered orders of $77 million in the quarter, driven by ongoing strength in Defense programs like the Joint Strike Fighter.\nthe US Naval Virginia Class Submarine, the CVN-80 aircraft carrier, and various missile programs.\nStrengthened Defense orders offset weakness in commercial Aerospace orders which were down from the previous quarter, due to the impact of COVID-19 on production rates at Boeing and Airbus, and 737MAX.\nOverall, we expect Q3 orders to decrease sequentially driven by the timing of Defense Program orders, and COVID related headwinds in the Commercial business.\nFor Aerospace & Defense and aggregate, we expect revenue to be up sequentially in Q3, but down 3% to 5% versus last year.\nCommercial revenue is expected to be down approximately 30% to 40% versus last year, while the defense should be up 12% to 17%.\nIt's important to note that we're increasing prices on both sides of the business, Defense and Commercial Aerospace.\nWith carryover pricing from 2019, and new increases this year, we expect to net a 4% price increase in Q3.\nThe price increases are heavily weighted in the aftermarket.\nBefore I wrap up, I want to read [audio gap] out last summer and have continued to make strong progress.\nWhile the pandemic has had a significant impact on our end markets, we've responded accordingly by accelerating, and expanding many aspects of the plan, particularly with respect to reducing structural cost, and leaning out the company.\n[Audio gap] and the growth capacity of the company, despite the expanded reduction of structural cost.\nNotably, we've increased our commitment to new products launched in 2020 to 45, up from 40 in the original plan.\nAnd finally, the price remains an important part of our playbook, due to the mission-critical nature of our products, we've been able to raise prices this year in line with the original plan we committed to last year, despite the recent market disruption.\nTo summarize, we're taking the appropriate steps to navigate the current environment while continuing to execute on our strategic plan.\nAs the market continues to change, we'll continue to adapt to ensure we're positioned to succeed.\nI'd like to close by once again [audio gap] the unwavering dedication to our customers.\nThey've been doing a remarkable job.\nWe remain committed to positioning CIRCOR for long-term growth, expanding margins, generating strong free cash flow, and deleveraging the company.\nNow, Abhi and I would be happy to take your question.",
        "summary": "q2 revenue $186 million versus refinitiv ibes estimate of $168.3 million.\nqtrly orders of $193 million produced a book-to-bill ratio of 1.04 and backlog increase of $7 million.\nremain on track to achieve $45 million 2020 cost reduction plan."
    },
    {
        "text": "I'm joined today by Scott Buckhout, CIRCOR's president and CEO; and Abhi Khandelwal, the company's chief financial officer.\nThese expectations are subject to known and unknown risks, uncertainties and other factors and actual results could differ materially from those anticipated or implied by today's remarks.\nYou can find a full discussion of these factors in CIRCOR's Form 10-K, 10-Qs and other SEC filings also located on our website.\nCIRCOR delivered another strong quarter and executed well despite a challenging global supply chain environment.\nWe continue to see strong demand for our mission-critical products with year-to-date orders in backlog up 11% and 15%, respectively.\nNotably, Industrial organic orders growth was 28% in the quarter and our Industrial backlog is up 30% year-to-date, well above pre-pandemic levels.\nWhile aerospace and defense orders were down in the quarter due to timing, we're well positioned on growing commercial and defense programs and continue to launch new products for our customers.\nRevenue in the quarter was up 2% organically with operating margin up 80 basis points year over year and 240 basis points sequentially.\nEPS was up 39% versus last year.\nIt's important to note that revenue and earnings for the quarter were adversely impacted by supply chain disruptions that intensified through the last month of the quarter.\nMore specifically, we saw approximately $10 million of revenue pushed out of Q3 due to supplier input delays, logistics constraints and ongoing labor availability challenges.\nThis reduced our organic growth by roughly 5 points in the quarter.\nOur teams are working to mitigate the impact of supply chain issues by qualifying alternate suppliers, reengineering product with higher-grade materials and expediting shipping in order to continue delivering to our customers as committed.\nLooking forward, we expect these challenges to continue through the fourth quarter, resulting in a $15 million impact on revenue.\nFor the year, we expect approximately $25 million of revenue to push out of 2021.\nThis is reflected in our revised full year guidance, which Abhi will discuss later.\nOur strategic priorities on people, growth acceleration, margin expansion and free cash flow continue to be our guiding principles.\nI'll talk more about select accomplishments from Q3 later in the call.\nLet's start with the financial highlights on Slide 3.\nOrganic orders of $194 million in the quarter were up 15% versus prior year.\nWe saw a strong year-over-year increase of 28% in industrial with growth in all regions.\nOrders were down 10% in aerospace and defense due to the timing of large defense orders.\nOrganic revenue was $191 million, up 1% versus prior year.\nRevenue came in approximately $10 million lower than expected as a result of the supply chain challenges that Scott mentioned upfront.\nAdjusted operating income was $19 million or 10.1%, up 80 basis points from prior year and up 240 basis points from the previous quarter.\nFinally, we delivered $0.50 of adjusted earnings per share, up 39% versus prior year and generated free cash flow of $7 million.\nMoving to Slide 4.\nIndustrial organic orders were up 28% versus last year and down 9% sequentially.\nOrder growth was apparent across all regions, with particular strength in North America and EMEA.\nAftermarket orders were up 42% and our downstream aftermarket backlog is the highest it has been since 2017.\nOur book-to-bill ratio for the quarter and year-to-date is 1.1%, an indication of continued end market demand.\nIndustrial organic revenue was up 3% versus last year and up 1% sequentially.\nBy region, we saw year-over-year strength in EMEA, China and India, partially offset by lower revenue in North America.\nDespite the strong backlog from the first half, supply chain and logistic constraints became a bigger challenge than expected late in the quarter.\nThis adversely impacted revenue by $6 million or 5 points of organic growth.\nAdjusted operating margin was 8.7%, up 80 basis points versus last year and up 70 basis points versus Q2.\nImprovements were driven by productivity and continued value-based pricing up 2%, partially offset by higher inflation.\nWe expect further margin expansion in Q4.\nTurning to Slide 5.\naerospace and defense orders were $54 million down 10% versus last year and flat sequentially.\nOrders were lower versus prior year due to a large non-repeat defense order for the Dreadnought submarine in 2020.\nThe commercial aerospace recovery continues led by narrow-body programs.\nWe've seen sequential growth for the past three consecutive quarters.\nRevenue was $61 million, down 2% year over year and up 2% from prior quarter.\nSlightly lower revenue was primarily driven by lower defense OEM shipments, partially offset by recovery in commercial aerospace, up 10% and an improvement in defense aftermarket revenue, up 7%.\nSimilar to Industrial, aerospace and defense was also impacted by the global supply chain and logistic constraints, which negatively impacted the quarter by $4 million or six points of growth.\nFinally, operating margin was 24.2% in the quarter, up 50 basis points year over year and up 430 basis points from Q2.\nWe were still able to expand margin in a challenging global environment through pricing actions, productivity and favorable defense program mix.\nWe expect margin in Q4 to be roughly in line with prior year.\nTurning to Slide 6.\nFree cash flow in the quarter was $7 million, an improvement versus prior year but lower than expected.\nMore specifically, we had planned for higher milestone collections on long-term projects that moved out of the quarter.\nWe will collect this cash in future quarters as we complete these projects.\nWe reduced our total debt by $23 million versus prior year and ended Q3 with $445 million of net debt.\nDue to the lower earnings and cash outlook for the year, we now expect to improve our leverage by approximately 0.3 turns by the end of the year.\nWe will continue to use all free cash flow generated to delever.\nStarting with fourth quarter guidance.\nWe expect revenue to be up 1% to 3% organically, which includes $15 million of delayed revenue out of the quarter due to continued global supply chain, logistics and labor challenges.\nFor Industrial, we expect orders in Q4 to be up more than 10% and revenue is expected to be up 3% to 6% with growth across most end markets.\nIn A&D, fourth quarter orders are expected to be up greater than 50% driven by large OEM defense programs.\nRevenue, on the other hand, is expected to be flat to down 5%, with double-digit growth in commercial aerospace and defense aftermarket, offset by lower deliveries on defense programs.\nWe're expecting adjusted earnings per share of $0.60 to $0.65 in the fourth quarter with incremental and decremental margins of 30% to 35%.\nCorporate cost is expected to increase by $1 million versus prior year.\nFinally, we're planning for free cash flow of $10 million to $15 million in Q4 as we expect supply chain constraints will continue to impact our ability to complete in-process projects and collect milestone billings from customers.\nAs a result of the supply chain challenges late in Q3 and into Q4, we are revising our full year guidance.\nOrganic revenue is expected to be flat to down 2%, which reflects $25 million of revenue delayed out of the year.\nAdjusted earnings per share of $1.69 to $1.74 is lower as a result of this reduction in volume and free cash flow is expected to be $4 million to $9 million.\nNow, I'll hand it back to Scott to discuss our market outlook.\nLet's get started with our Industrial outlook on Slide 8.\nAs Abhi mentioned, in the third quarter, we saw continued order strength across all Industrial regions, with year-to-date backlog exceeding pre-COVID levels.\nIn Q4, we expect another quarter of double-digit orders growth led by North America.\nVirtually all end markets are expected to grow with commercial marine and downstream showing the largest year-over-year improvement.\nOn revenue, we expect modest improvement year over year with growth between 3% and 6%.\nOur short-cycle products are expected to be up 6% to 9% overall, primarily driven by aftermarket growth between 8% and 11%.\nOur longer-cycle end markets are expected to be roughly in line with last year.\nMany of our midstream and downstream customers are prioritizing aftermarket projects in the near term and our OEM project pipeline and backlog remain strong.\nIn commercial marine, we expect to see growth as shipbuilding activity in Asia continues to recover from historically low levels.\nFinally, pricing is expected to net roughly 2% and as pricing actions that were taken in Q2 and Q3 start to roll through our top and bottom line.\nMoving to aerospace and defense.\nQ3 orders were flat sequentially and down versus prior year, driven by a large non-repeat order in Q3 2020.\nWe expect a significant increase in Q4 orders.\nThe increase versus prior quarter and prior year is driven by large defense orders, continuing recovery in commercial aerospace and strong medical growth.\nA&D revenue in the fourth quarter is expected to be flat to down 5% versus prior year, primarily due to supply chain constraints and the timing of shipments for large defense programs.\nDefense revenue is expected to be down 10% to 15% with lower shipments on our OEM programs.\nOn the other hand, government orders for defense spares and MRO services picked up in the third quarter and we expect aftermarket revenue growth of 10% to 15%.\nCommercial aerospace is expected to continue its recovery with 25% to 30% growth following three consecutive quarters of sequential orders growth.\nRevenue from commercial air framers will be up 20% to 25% and mostly driven by the increased recovery in narrow-body aircraft production, most notably the A320.\nAftermarket revenue growth is expected to improve as aircraft utilization continues to increase.\nFinally, pricing is expected to be a net benefit of 3% for defense and 4% for commercial.\nI'd like to provide a third quarter update on our previously shared strategic priorities.\nThese priorities continue to guide what our team works on every day.\nWe're investing in growth.\nWe launched eight new products in Q3 and remain on track to deliver 45 new products by the end of 2021.\nI'll share two exciting new products on the next slide.\nNext, our teams continue to drive price increases in both Industrial and aerospace and defense to help offset growing inflation.\nMany of these price increases are permanent and will help drive top and bottom-line growth going forward.\nIn Industrial, we increased prices or implemented surcharges on many of our product lines in Q2 and Q3.\nThis drove the incremental price we're showing in Q3 and Q4.\nFor A&D, we typically match the length of our customer contracts with our supplier contracts, which has helped us mitigate material inflation.\nAdditionally, we continue to use value-based pricing where appropriate, especially in the aftermarket.\nTo drive margin expansion, we're making key investments at two of our biggest industrial sites in the U.S. and Germany.\nWith new modern equipment and processes implemented, we expect to see an improvement in safety, quality and productivity.\nWe're making really good progress with our 80/20 initiative.\nWith this structured approach, we've built a meaningful pipeline of growth and simplification opportunities and have already used 80/20 to implement strategic price increases at our U.S. site.\nEven more importantly, when talking to the teams, it's apparent that 80/20 is becoming a part of our culture and how we do business.\nBefore we move to Q&A, I want to highlight two new products we recently launched.\nThese products are particularly exciting because they show how CIRCOR is accelerating growth by leveraging our technical expertise into new growing markets where we do not currently play.\nFor the past several years, our team has been looking for opportunities to penetrate the green energy sector by leveraging our sealing technology and competence in designing and manufacturing products for high-pressure gas storage and transport applications.\nThe first set of products is for applications in the hydrogen market.\nHydrogen Isolation Valves and Modular Dome Regulators are critical components of the control system on hydrogen gas transportation trailers.\nOur balanced isolation valve has very low leak rates at extreme temperatures and pressures and the Modular Dome Regulator developed and manufactured in India allows stable pressure control.\nWe're the first supplier to meet the latest EU transportation regulation on the balance valve and we're able to secure more than $1 million of initial orders so far in 2021.\nThe second new product I want to share is a switch module with kinetic sensors for landing gear position detectors on commercial aircraft.\nOur switch module inside the aircraft wheel is engineered to detect the landing gear position and turn on the electric motor allowing the aircraft a taxi itself of no engine or towing.\nThis technology not only allows more efficient and safer ground transportation, but also contributes to reducing carbon emissions by burning less fuel.\nBoth of these new products showcase how we're accelerating growth through new product development and expanding our portfolio into new markets.",
        "summary": "q3 adjusted earnings per share $0.50.\nq3 revenue $191 million.\nsees q4 adjusted earnings per share $0.60 to $0.65.\nsees fy 2021 organic revenue to decrease by (2)% to (0)%."
    },
    {
        "text": "Slides for today's call are posted on our website and we invite you to follow along.\nParticipants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, August 5, 2020.\nInformation on potential factors and risks that could affect our actual results of operations is included in our SEC filings.\nThe Company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call, other than through filings made concerning this reporting period.\nIn addition, today's discussion will include references to non-GAAP measures.\nClean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance.\nOur Q2 performance underscores the versatility of our business model and our leadership role and emergency response.\nResponding to crisis is an integral part of the job here at Clean Harbors.\nIt's in our DNA and that ability enabled us to jump into action late in Q1 and into Q2 with a wide-ranging response plan.\nIt began with setting strict safety protocols and gathering the proper equipment to protect our workforce.\nWe've been successfully at staying safe, the infection rate among our workforce remains well below the per capita rates of the U.S. and Canada.\nNow let's turn to our high level overview for our Q2 results here on Slide 3.\nIn response to the recessionary environment caused by COVID-19, we implemented a comprehensive series of actions that included implementing a hiring, wage and travel freeze, temporarily closing nearly half our rerefining capacity, transitioning a majority of our non-field based employees to work-from-home, lowering our capital spending, reducing our overall cost structure to align with revenues, launching our COVID-19 emergency response service offering.\nOn the strength of these actions and improving market conditions, since we spoke with you in late April, we delivered a better than expected performance in Q2.\nRevenues came in at $710 million, down 18% from prior year, with the bulk of that decline in our Safety-Kleen segment.\nOur adjusted EBITDA was $135.5 million for the quarter, which included a total of $23.4 million from the CARES Act here in the U.S. and the Canadian Emergency Wage Subsidy or CEWS.\nThese programs enabled us to employ more workers than we would have otherwise been able to, with the pandemic related shutdowns.\nLooking at our segment results beginning on Slide 4, Environmental Services revenues declined 12% from a year ago due to the COVID related slowdown across multiple lines of business, partly offset by incineration and decontamination work.\nAdjusted EBITDA grew 17% as a result of our cost reduction efforts, a strong performance in our facilities, emergency response revenue and the two government programs which accounted for $13.3 million in this segment.\nEmergency response work, whose margins tend to be above the corporate average, totalled $50 million in the quarter.\nOur incineration utilization increased to 87% due to our healthy backlog coming into the quarter and steady streams from chemical customers.\nOur mix of higher value waste enabled us to drive our average price per pound up 6% from Q2 of last year.\nOur landfill volumes were down 24%, due to the deferral of some remediation and waste projects, but our base business remained stable, which drove our average price per ton, up 15% from a year ago.\nOverall, a real terrific quarter for our Environmental Services segment.\nGiven expected investor interest, on Slide 5 we wanted to provide some additional details around our COVID-19 response work.\nAs of June 30th, we generated $60 million in revenue related to the virus.\nAs of today, we are now at more than 7,000 responses and this work has opened doors for us to new customer relationships.\nOur jobs have varied from as small as -- from as a small as a armored vehicle clean out to as large as a NASCAR track.\nWe anticipate that demand for our services will eventually subside over time, but we do anticipate over $100 million of corporate work in 2020.\nMoving to Slide 6.\nSafety-Kleen revenue was down 30% due to a slowdown in both the branch and the SK Oil businesses, due to customer shutdowns.\nThe reduced demand for our core offerings as well as the drop in base oil demand and lower pricing.\nAdjusted EBITDA declined 41% due to the lower revenue, pricing for our SK Oil products and costs associated with the temporary shuttering of our refineries, partly offset by cost reduction efforts and government assistance programs which totaled $8.3 million dollars for this segment in Q2.\nParts washer services were up 11% for the quarter and we collected 43 million gallons of waste oil, about two-thirds of our normal rate.\nGiven where we were at the end of April, we are pleased to see this segment bounce back over the course of the quarter.\nBlended products and direct volumes on a percentage basis were in line with last year, but at a lower overall volume.\nMost recently, demand for base oil has recovered some, to the point that we restarted our Kansas and the Bartow rerefineries in July.\nThe value of our base oil and blended products recovered somewhat over the course of Q2, however, with crude prices holding stable and vehicle miles driven remaining below traditional levels, we are proceeding cautiously before reopening any additional we rerefineries.\nTurning to capital allocation on Slide 7.\nGiven the current environment, our strategy remains to focus on preserving cash to ensure we exit the pandemic in the best possible position.\nAs we highlighted on our last call, we're carefully controlling our capex spend here in 2020 and expect to be well below last year's level.\nIn terms of M&A and divestitures, we're not likely to be active on a near-term basis.\nThat said, we are confident that we will emerge from this downturn in a stronger financial position and operational position than some of our peers, which will allow us to be opportunistic.\nIn terms of our debt, we repaid half of the $150 million, that we tapped on our revolver in Q2.\nAnd in late July, we repaid the other half, given our healthy cash position and how the company has performed.\nLooking ahead to the remainder of 2020, we believe we have positioned ourselves well for the current economic environment.\nWithin multiple parts of our business, we've seen a measurable recovery from the lows we experienced in April.\nWithin Environmental Services, our facilities network is still seeing a steady flow of waste volumes.\nWe have not seen any meaningful decline from most of our large quantity generators, however, individual products, delays due to the virus remain common and we've seen slower production with some chemical customers.\nWhile that may limit our high margin volumes in the coming months, we anticipate areas like our industrial services and others to ramp up in the back half of the year, as maintenance and disposal work can only be deferred for so long.\nWithin Safety-Kleen, entered Q3 on a positive trajectory with the summer driving seizing increasing demand for our services, but we will still remain below prior year levels.\nWe are monitoring the new shelter-in-place mandates closely, but to-date, the recent rise in COVID cases has not derailed the recovery in the SK branch business.\nFor SK Oil, we're raising our production volumes with the restarted plants now online.\nWe will continue to active manage our CFO rates to reflect the value of the waste oil and the collection services that we're providing.\nIn summary, our Q2 results demonstrated the resiliency of our business model.\nOur crisis management capabilities and our front-line role in COVID decontamination.\nDespite the economic uncertainties that remain, the actions that we've taken in responsive to the pandemic and our market leadership, gives us confidence that we can achieve our 2020 targets.\nLet me mirror Alan's comments about how effectively our organization responded to the pandemic.\nThe work of our outstanding team is reflected into results we are sharing with you today.\nIn these unprecedented times, the Clean Harbors team stood up to the challenges presented by this crisis.\nPersonally, I couldn't be more proud of our organization.\nTurning to Slide 9 and in our income statement, we delivered strong second quarter results in light of the pandemic.\nRevenue declined 18% and we aggressively managed the cost structure of the business in response to the slowdown.\nThose efforts, combined with the assistance we received from the two government programs, resulted in a 220 basis point improvement in gross margin.\nAs Alan highlighted, our EBITDA declined less than $15 million from a year ago, despite revenues being $159 million lower.\nOur adjusted EBITDA margin for the quarter was 19.1%, which speaks to how effectively we reduced costs, managed overtime, closed rerefineries and locations and furloughed workers as needed.\nOur SG&A performance also demonstrates our comprehensive cost reduction efforts.\nDespite the fact that employee benefits including 401(k), are up significantly from a year ago, we lowered our SG&A expense by $20.1 million.\nOf that total, $9.1 million was related to the impact of CARES and CEWS.\nWe flexed down our cost structure rapidly in the quarter, drastically cutting spending -- drastically cutting our spend in multiple areas such as travel and marketing.\nWe also benefited from meaningfully lower healthcare costs in the quarter, which helped offset some severance and bad debt expense.\nAs expected, depreciation and amortization in Q2 was down slightly to $72.5 million with only one small bolt-on acquisition in the trailing 12 months, we should continue to see this trend going forward.\nFor 2020, we expect depreciation and amortization in the range of $285 million to $295 million, which is slightly below last year.\nIncome from operations to a $60.2 million, down 18%, reflecting the lower revenue and gross profit.\nEPS was $0.52 in Q2 versus $0.65 a year ago.\nWe emerged from the second quarter with our balance sheet in terrific shape.\nOur cash and short-term marketable securities exceeds $500 million at June 30th.\nThat total includes $75 million of funds still drawn on our revolver that Alan referenced.\nThe entire $150 million, which we bought out of the abundance of caution, when the pandemic begin has now been fully repaid.\nGiven the COVID environment, our collection team keeps cash coming in the door from customers and our payables balance has shrunk with the lower revenue and associated costs.\nAfter the full pay down of our revolver, our current and long-term debt obligations today sit at $1.56 billion.\nOur weighted average cost of debt remains at an attractive 4%, with a healthy blend of fixed and variable debt.\nWe've actually lowered our leverage in Q2 from where it was at in Q1.\nLeverage on a net debt basis now sits at 2.1 times for the trailing 12 months ended June 30th, which puts us in an excellent position financially.\nOur net debt to EBITDA ratio is down over 15% from a year ago.\nTurning to cash flows in Slide 11.\nCash from operations in Q2 was up 29% to $139.8 million.\nCapex, net of disposals, was down 25% to $42 million, reflecting our COVID response plan to preserve capital.\nThe result was an adjusted free cash flow of $98.1 million, which is well ahead of prior year.\nGiven how our cash flow has trended, we are slightly raising our expectation for capex.\nFor the year, we're now targeting capex, net of disposals and the purchase of our headquarters in the range of $155 million to $175 million.\nDuring the quarter, as planned, we did not repurchase any shares of stock and year-to-date repurchases stand at $17.3 million.\nWe will be cautious in our approach to any meaningful level of buybacks, until the markets are well into their recovery stage.\nMoving to guidance on Slide 12, given how well our business has performed throughout the pandemic and based on current market expectations -- conditions, we are reestablishing 2020 guidance.\nWe now expect 2020 adjusted EBITDA in the range of $470 million to $500 million.\nThis is based on the assumption of a slight slowdown in our Environmental Services profitability from Q2 levels while the Safety-Kleen segment improved sequentially.\nThis guidance assumes that there will be continued localized outbreaks of the virus, but does not assume any kind of nationwide shelter-in-place like we saw in early Q2.\nLooking at our guidance range from a quarterly perspective, we expect our adjusted EBITDA in the second half of the year to be evenly split between Q3 and Q4.\nHere's how our full-year 2020 guidance translates from a segment perspective.\nIn Environmental Services, we expect adjusted EBITDA to be just slightly above 2019's level of $446 million.\nGrowth and profitability within incineration, contributions from the expected $100 million in decontamination work and comprehensive cost reduction initiatives will offset declines in profitability within industrial services, landfills, remediations, waste projects and other lines of business.\nFor Safety-Kleen, we anticipate adjusted EBITDA to decline approximately 20% from 2019's $282 million.\nWe expect the branch business to remain below pre-COVID levels in the back half as vehicle miles driven are still less than historical norms but well above Q2 levels.\nAt the same time, we expect SK Oil to rebound from a challenging second quarter as the base oil market improves from a difficult, April-May period and we continue to aggressively manage the front-end of our rerefining spend -- spread.\nIn our corporate segment, we expect negative adjusted EBITDA to be essentially flat from 2019's $188 million, due to increases in 401(k) severance and bad debt, largely offset by lower incentive compensation and cost savings.\nBased on our current guidance and working capital assumptions, we expect 2020 adjusted free cash flow in the range of $200 million to $230 million.\nFree cash flow is always hard to accurately predict due to the influence of working capital demands.\nHowever, with our ability to defer all payroll tax payments from April to year-end, we should total $360 million[Phonetic].\nIt is likely that we will deliver free cash flow to shareholders, certainly north of $200 million.\nIn summary, while Q2 was not without its challenges, it proved to be a strong operational quarter for the business.\nAs Alan highlighted, we are a crisis response company at our core and we can thrive in these types of dynamic environments.\nLooking ahead, we will pursue additional cost control initiatives for market conditions remain limited.\nThat said, we see the opportunity for some of our stalled lines of business to recover.\nSome of our project and turnaround work, may ultimately push out until 2021, but we see enough opportunity in the market today to support our facilities network in the back half of the year.\nWithin Safety-Kleen, we expect a steady uptick in demand for our core branch services, while with -- meanwhile within SK Oil, we will continue to ramp up base and blended production.\nAnd lastly, we remain focused on providing COVID decontamination services, as the race toward a vaccine continues.",
        "summary": "compname reports q2 adj earnings per share of $0.52.\nq2 adjusted earnings per share $0.52.\nq2 revenue $710 million versus refinitiv ibes estimate of $698.9 million.\nsees fy 2020 revenue about $100 million.\nreestablishes 2020 adjusted ebitda and adjusted free cash flow guidance.\nfield services is on track for a strong 2020, with anticipated covid-related revenue of approximately $100 million for full year."
    },
    {
        "text": "Slides for today's call are posted on our website, and we invite you to follow along.\nParticipants are cautioned not to place undue reliance on these statements which reflect management's opinions only as of today, February 26, 2020.\nInformation on potential factors and risks that could affect our actual results of operations is included in our SEC filings.\nThe company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call, other than through filings made concerning this reporting period.\nIn addition, today's discussion will include references to non-GAAP measures.\nClean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance.\nStarting on Slide 3.\nBefore discussing our financial results, I wanted to speak to our safety performance.\nI'm proud to report that 2019 was the best safety year in our history, with our total recordable incident rate and other key metrics at record lows.\nOver the past five years, we've seen our focus on safety drive real positive results for us, and have helped us protect our workforce better and better each year.\nAnd our highest priority at the company is that each employee goes home uninjured every day.\nTurning to our financials.\nWe concluded 2019 with another quarter of profitable growth in Q4, led by our environmental service segment which achieved better-than-expected results on a combination of higher landfill and incineration volumes, project wins and strengthen our field services.\nOn the top line, the SK branch business, and our field service group, offset some industrial and energy-related weakness and sluggishness in SK oil.\nRevenues were up 1% for the quarter, and favorable business mix drove an 8% growth of adjusted EBITDA and a 100-basis-point improvement in margin.\nFor the full year, adjusted EBITDA grew by 10% on a 3% increase in revenue, and we generated record adjusted free cash flow of $208.5 million.\nCredit for our results belongs to our entire team, who not only helped us set some financial records, but did so safely all year.\nTurning to our segment results, beginning with environmental services on Slide 4.\nRevenues were up modestly as our facilities and field services offset some softness in industrial and energy services.\nHigh single-digit adjusted EBITDA growth fueled a 140-basis-point margin improvement as the segment topped 20% for the third straight quarter.\nAs it relates to our facilities, it was largely a volume story this quarter.\nIncineration utilization increased to 89%, and landfill tonnage was up 40% from a year ago.\nWe had some sizable projects that fed both our incinerators and landfills.\nOur average price per pound for incineration in Q4 was flat with a year ago primarily reflecting the effects of a large project that we did in Q4 2019, that delivered a significant amount of low-price volume.\nAverage incineration price per pound for the full year rose 11% from 2018, largely due to enhancements at our facilities which can now handle a mix of higher-value waste streams.\nWhile there were no major emergency response events in the quarter, for the full year, we recorded approximately $15 million of ER revenue.\nMoving to Slide 5.\nSafety-Kleen revenue was up 2% on growth in our SK branch business and pricing of our core services which offset year-end weakness in base oil and blended pricing.\nAdjusted EBITDA in the segment dipped 1% and margins declined from a year ago due to a lower pricing in SK oil and a drop in value of certain byproducts in our rerefining process in the early days of IMO 2020.\nParts washer services were up from a year ago, waste oil collection volumes were healthy at 55 million gallons, with a charge for oil rate that was higher than a year ago and above Q3's rate.\nOur direct loop volumes grew by approximately 30% in the quarter, and the business accounted for 7% of total volumes sold in Q4.\nTotal blended product sales in Q4 were up 24% -- were 24%, up from 22% a year ago.\nAnd for the full year, our volumes of direct lube sales grew by nearly 25%.\nAnd we continuously, steadily grow this business.\nAnd we believe we'll, ultimately, reach our long-term goals for blended volumes as the market for sustainable products continues to expand.\nTurning to our strategic update on Slide 6.\nOur outstanding team of employees is integral to our success and a competitive differentiator for Clean Harbors.\nDuring 2018 and 2019, we made substantial investments in our workforce including greater retirement and healthcare benefits as well as higher employee compensation.\nIn 2020, we are again raising our 401(k) contributions and absorbing all healthcare cost increases resulting in millions more of incremental spend on our workforce.\nIn 2020, as we have in prior years, we're pursuing a broad array of cost savings that, we believe, will more than offset these investments.\nProfitable growth remains a primary focus for us in 2020.\nWe've taken significant steps forward over the past three years, and we want to extend that momentum.\nOur disposal recycling network will continue to be the cornerstone of our success.\nIn the coming year, we intend to further leverage our facilities and service locations through pricing and mix initiatives, along with greater project volumes and cross-selling opportunities.\nWe're also in the early stages of rolling out our new e-commerce platform to enable customers to request our products and some services online.\nBy taking a next-day delivery approach to delivering our products and services, we intend to make Clean Harbors and Safety-Kleen, much easier to do business with.\nWe've always been forward-thinking company as it relates to technology in our industry, and we think e-commerce holds great promise for us.\nAnd in addition, we're rolling out our -- the use of our AI technology to have our customers more directly interface with our waste profile systems to expedite the approval and acceptance process for hazardous waste disposal services.\nCustomers will be able to use our e-commerce platform to schedule their own waste pickups.\nThe customer experience will be much more improved and our ability to manage orders with delivery services will be enhanced as well.\nAnother key strategy for this year is capitalizing on the shifting market conditions brought on by IMO 2020.\nWe've already seen the rule drive changes in the value of high-sulfur fuel oil as well as low-sulfur fuel oil.\nHowever, the crude oil and base oil markets, today, remain in a state of flux, with pricing disruptions caused by the global coronavirus impacts.\nWhile the IMO regulation took effect in January 1, ships have until March to come into compliance with the rule, so we don't think any one will have any real clarity on the impact from IMO 2020 for another couple of months.\nIn the interim, we're aggressively managing our spread.\nWith the decline in high-sulfer fuel oil that began late last year, we're continuing to push for increasing charge for oil rates on our used motor oil and maximizing our collection volumes.\nIn addition, in 2020, we expect to pursue emerging growth opportunities, such as PFAS and take full advantage of the growing market acceptance of our sustainability offerings.\nAnd as I outlined on our Q3 call, we provide a broad array of sustainability-focused services that go beyond, are being the largest collector and recycler of waste oil.\nSustainability is core to our brand which is why we made it central theme of our recent marketing campaign.\nSustainability is part of Clean Harbors' DNA for 40 years and we expect it to only become a larger part of our story in years ahead.\nTurning to Slide 7.\nWe continue to regularly evaluate all four elements of our capital allocation strategy.\nIn 2019, we invested just over $200 million in capital assets, added two successful bolt-on acquisitions, divested a small non-core business in Western Canada and repurchased our shares.\nIn terms of our debt, we refinanced the final tranche -- large tranche that was due in 2021, reducing our overall borrowing cost.\nAnd as Mike will cover in his remarks, we enter 2020 with a strong balance sheet -- strong cash balance, and we'll look to generate our highest level of returns with that capital.\nIn summary, we achieved record adjusted EBITDA, adjusted free cash flow and TRIR in 2019.\nThe underlying dynamics in both our operating segments remain positive, and we anticipate a strong 2020 which also happens to be our 40th anniversary as a company.\nAnd for me, personally, it's something that I'm really proud of, and we have lots of plans to celebrate that exciting milestone with the teams this year.\nTurning to Slide 9, in our income statement.\nAs Alan indicated, we delivered good profitable growth in Q4.\nWe increased revenue by $12.8 million which represents 1% growth from the prior year.\nAdjusted EBITDA grew by $10.3 million.\nThis reflects the mix of business we experienced in the quarter, pricing initiatives and operational efficiencies.\nFrom a gross profit perspective, we saw a decline in Q4 on both an absolute dollar and percentage basis from a year ago due to business mix including the project work associated with the 2008 California wildfires and higher costs related to labor, insurance and healthcare expenses.\nJust to touch on insurance for a moment, like many companies, we are seeing costs in nearly every type of insurance rising, particularly property, auto and excess casualty.\nWe'll continue to drive our cost-saving initiatives to offset these higher insurance costs as well as to continue to focus on safety to lower incidents and incident severity.\nOn a full-year basis, gross profit increased by approximately $30 million, with gross margin essentially flat year over year.\nSG&A expenses were down significantly in the quarter compared with a year ago, declining by $18.4 million which drove a 240-basis-point improvement in percentage terms.\nIn Q4 of 2018, we had a significant bad debt charge associated with the customer bankruptcy.\nEven after that onetime item, we had a considerable improvement driven by higher revenue within both operating segments and lower corporate costs due to a series of cost-saving initiatives, moving employees to lower-cost jurisdictions and reduced incentive compensation compared with a year ago.\nOn a full-year basis, SG&A expenses were down 110 basis points.\nFor 2020, using the midpoint of our guidance range, we would expect SG&A to be up in absolute dollars from the prior year and slightly up on a percentage basis, given the onetime benefits we experienced last year.\nDepreciation and amortization in Q4 was down slightly to $77.4 million.\nWhile it was up slightly for the full year as a result of some assets we've added from tuck-in acquisitions and capital spending.\nFor 2020, we expect depreciation and amortization in the range of $290 million to $300 million which is consistent with the past two years.\nIncome from operations in Q4 increased 26% to $52.3 million reflecting the combination of our revenue growth and improved SG&A spend.\nThis is the same story with the full year as our annual income from operations also rose 26%.\nOn a GAAP basis, earnings per share was $0.43 in Q4 versus $0.29 a year ago.\nOur adjusted earnings per share was $0.42.\nFor the full-year 2019, earnings per share was $1.74 versus $1.16 in the prior year, and adjusted earnings per share rose 50% to $1.86 from $1.26 in 2018.\nTurning to the balance sheet on Slide 10.\nCash and short-term marketable securities at year-end totaled $414.4 million, up more than $85 million from September and in line with our expectations.\nFor the full year, we increased cash on the balance sheet by $135 million.\nOur current and long-term debt obligations at year-end were about $1.56 billion, down $11 million from the prior year -- from a year ago primarily due to mandatory payments under our term loan.\nOur weighted average cost of debt is about four and a half percent through a healthy mix of fixed and variable debt.\nWe concluded the year with a strong balance sheet, and we sit at 2.1 times levered at year-end on a net debt basis.\nTurning to cash flows on Slide 11.\nCash from operations in Q4 was up slightly to $128.5 million.\ncapex, net of disposals, was $39.1 million, up from a year ago resulting in adjusted free cash flow in the quarter of $89.4 million.\nFrom an annual perspective, we ended 2019 with net capex spend of $204.7 million, and adjusted free cash flow was $208.5 million, in line with our free cash flow guidance.\nFor 2020, we expect net capex of $195 million to $215 million which, at the midpoint, is essentially flat with the prior year.\nThis number excludes the capital spend of $20 million to $25 million related to the purchase of, and investments to be made in our corporate headquarters in 2020.\nGiven the expansion plans we have in this property, it made economic sense to make this onetime purchase of our headquarters as it recently came on the market.\nDuring the quarter, we repurchased 59,000 shares of our stock at an average price of $84.28 a share for a total of $5 million.\nFor the full year, we bought back 299,000 shares at an average price of $71.65 a share for a total of $21.4 million.\nWe remain committed to returning capital to our shareholders through our buyback program, and we'll continue to be opportunistic based on the stock price.\nMoving to guidance on Slide 12.\nBased on our 2019 results and current market conditions, we expect 2020 adjusted EBITDA in the range of $545 million to $585 million.\nThe midpoint of that range represents a 5% increase from 2019.\nLooking at our guidance from a quarterly perspective, we expect growth in Q1 adjusted EBITDA to be in line with the full year with steady growth in the business, pricing gains and operational efficiencies.\nHere's our full-year 2020 guidance translates from a segment perspective.\nIn environmental services, we expect adjusted EBITDA to increase by a low single-digit percentage in 2020.\nThis growth will be driven by continued higher value weight gains in our facilities, pricing gains, projects and increases in various lines of business across multiple regions.\nFor Safety-Kleen, we anticipate adjusted EBITDA growth in the mid- to high-single-digit range.\nWe expect to see steady profitability growth in the SK branch business due to pricing and operational efficiencies.\nWe expect an expansion in Safety-Kleen Oil based on more effective spread management and continued increase in blended sales.\nOur guidance today does not include any favorable impact from IMO 2020, as it is too early to determine its impact.\nOur corporate segment -- in our corporate segment, we now expect negative adjusted EBITDA to grow by a low-single-digit percentage from 2019 due to increases in benefits as we continue to make investments in our workforce.\nBased on our current guidance and working capital assumptions, we expect 2020 adjusted free cash flow in the range of $210 million to $240 million.\nIn summary, Q4 was a solid conclusion to 2019.\nOverall, the company delivered an excellent year as we met or exceeded our guidance in all four quarters.\nMargin performance and cash flow generation throughout the year were strong and consistent with our goal to deliver on our promises and hit our targets.\nAs Alan outlined, our core lines of business entered 2020 with healthy momentum and some favorable trends.\nWe expect another profitable year -- another profitable growth -- another year of profitable growth for Clean Harbors in 2020.\nAnd finally, I wanted to mention that in addition to our normal full slate of more than a dozen conferences and investor events, we intend to host an Investor Day in the back half of this year.\nWe are currently targeting mid-September, but we'll issue a save-the-date announcement once we finalize a date and location.\nAt this event, we will showcase our broad management team strength, outline our strategies for growth for each business and provide some longer-term targets for the company.",
        "summary": "compname reports q4 earnings per share of $0.43.\nq4 earnings per share $0.43.\nq4 adjusted earnings per share $0.42.\nprovides 2020 adjusted ebitda guidance of $545 million to $585 million.\nadjusted free cash flow guidance of $210 million to $240 million for 2020."
    },
    {
        "text": "Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Mike Murphy, Chief Financial Officer.\nPlease note slide two of our supplemental information covering forward looking statements.\nOn a consolidated basis, the company reported net sales for the first quarter of $426 million and adjusted EBITDA of $54 million.\nIf you highlights to mention our paperboard business continue to experience strong demand, particularly in our folding carton segment.\nBased on that strong demand, we announced and began to implement price increases across our SBS product portfolio.\nOur operations were affected by the February cold weather events in the south natural gas curtailments impacted production and increased energy prices.\nCollectively, this negatively impacted our adjusted Eva da by approximately $6.5 million are tissue business are lower orders and shipments reflecting overall market trends.\nIRI market data showed a nearly 20% decline in overall tissue dollar sales in the first quarter of 2021.\nAs compared to the fourth quarter of 2020.\nConsumers were destocking their pantries and retailers were working through elevated inventory levels.\nWith a decrease in demand, our production outpaced sales, resulting in above target inventory levels.\nWe're taking downtime on our assets to reduce and manage inventories, particularly with today's elevated pull prices.\nWith regards to our balance sheet, we use the free cash flows generated during the first quarter to reduce our net debt by $21 million.\nWe're experiencing significant cost inflation at a temporary decrease in tissue demand.\nAs noted over the previous quarters, we remain focused on our top priorities during COVID the health and safety of our people and safely operating our assets to serve as customers.\nOur people's focus has been key to our success, and we will continue to be so in partnership with local health agencies we have offered on site COVID vaccinations across several of our facilities, and we're continuing to offer a $200 incentive to each employee to become vaccinated.\nLet's discuss some additional details about both of our businesses.\nAs you recall, we estimate that approximately two thirds of paperboard demand is derived from products that are more recession resilient, and 1/3 is driven by more economically sensitive or discretionary products.\nWe continue to observe strengthened demand from our folding carton customers and are starting to see a recovering food service segments.\ndemand for food packaging products and retail paper plates has remained healthy throughout the pandemic.\nWe're also pleased with the market reception of our sustainability focus brands of New World Cup and reimagine folding carbon.\nBoth are playing a role in our favorable market position.\nOur strong order book which predates Industry supply disruptions continues to be robust.\nWe are diligently working to implement the previously announced price increases.\nfastmarkets Risi, a third party industry publication has recognized a $50 per ton increase in folding carton and a $20 per ton increase in food service grades and it's March and April publications.\nDuring our fourth quarter earnings call, we noticed that the cold weather event in the style impacted operations at our side percent Arkansas.\nThis resulted in the $6.5 million direct impact to our adjusted EBITDA.\nWhile there was while the weather event primarily impacted the first quarter, other potentially longer lasting impacts on input costs are included separately in our revised inflation expectations.\nAs you're aware, we scheduled our largest plant maintenance outage for 2021.\nDuring the second quarter at our Lewiston, Idaho, we recently completed that work and are back up and running.\nThe overall economic impact on this outage store adjusted Eva dust in the second quarter is projected to be between 21 and $24 million as originally expected.\nOur industry view remains largely the same, but I wanted to discuss the inventory overhang from 2020 and the expected temporary impact on volume in 2021.\nThe market for tissue in the US is traditionally two thirds at home and 1/3 away from home with around 10 million tons per year total demand.\nAs consumers spent more time at home in 2020, there was a shift toward at home consumption.\nThroughout the pandemic, we witnessed consumer pantry loading and retailers responding by placing higher orders with existing suppliers and seeking out tertiary suppliers, both both domestic and international to meet demand.\nIt is difficult to estimate the level of inventory overhang with consumers and customers as there is no third party data available for this metric.\nBased on receipt, tissue ship and data for 2020 and some assumptions on consumption trends.\nWe estimate that the industry is currently faced with more than a month of excess inventory between consumers and retailers.\nWhile it is difficult to predict the timing for the resolution of the inventory overhang, it is likely that both consumers and retailers are working through much of the excess inventory during the first and second quarters of this year.\nWe have entered a new phase of the pandemic with consumers starting to return to more normal lifestyles.\nThis may involve increased the weight from home consumption of tissue, and destocking and consumer pantries.\nBased on IRI market data, consumer purchases of tissues slowed considerably in the first quarter, but have now started to recover to pre pandemic levels.\nretailers have responded to these trends by managing down their higher inventory levels, reducing their orders to suppliers like us.\nThis is likely a temporary adjustment after a very robust 12 months of pandemic driven demand.\nWhile the inventory adjustment is temporary, it may result in at home industry tissue shipments dropping to below 2019 levels in 2021.\nWith that said, we expect long term consumption growth to continue between one to 2% per year.\nwith private brands continuing to gain share.\nOur tissue volume trends in the first quarter and heading into the second quarter appear to reflect these industry dynamics.\nWe sold 11 point 7 million cases in the first quarter, which was down around 23% and 16% compared to the first and fourth quarters of 2020 and down 5% relative to the first quarter of 2019 sales at 12 point 3 million cases.\nWe're continuing to closely monitor channel and customer trends to ensure that we're aligned with areas in the market with the highest growth prospects.\nLet's turn to our production and inventory levels.\nWhile we did take some acid downtime in the first quarter, our production exceeded sales and inventory levels increased.\nWe're taking more substantial substantial downtime in the second quarter to reduce inventory levels to get closer to our targets.\nWhile this will have a negative impact on our fixed costs absorption will help us avoid producing excess inventory at today's elevated market poll prices as well as income Supply Chain costs.\nAs Mike and I discuss our outlook for the second quarter, we will go into some additional detail on actions that we're taking, as we face the normalization, tissue demand and significant cost inflation.\nA consolidated company summary income statement shows first quarter as well as the first quarter of 2020.\nIn the first quarter, our net income was $12 million.\ndiluted net income per share was 71 cents per share, and adjusted income of 69 cents per share.\nThe corresponding segment results are on slide seven are pulp and paper board business was impacted by the weather event.\nWhile consumer products are lower demand partly offset by the benefits from the Shelby expansion.\nBefore we speak in more detail about our divisional performance, I wanted to remind you of some of the changes that we started making last quarter and how we portray our financial purchase.\nPreviously, we had shown the impact of production volume changes and associated fixed costs leveraging impact in our cost category.\nWe have modified that approach and are including production volume changes in our volume category.\nWe believe that this change will enable investors to better understand sales changes as we expect to produce similar quantities of product that we sell, which will all be in the volume category.\nIn tissue production exceeded sales in the first quarter of 2021.\nAnd the reverse was true in the first quarter of 2020, which complicates comparisons to prior periods.\nThe cost category will better reflect the changes in raw material input pricing and inflation.\nThis contract sheeting business as a service and distorts our sales price of our base paperboard products.\nAdditionally, as a reminder, we have moved our bale pulp sales to external customers back to the producing segment.\nfrom Consumer Products Division to the pulp and paper work division.\nWe've also started transferring build post from our pulp and paper board division things will better reflect the economics associate accounting changes that taking effect with our first quarter 2021 report we found that retest numbers as part of our 8k associate with our fourth quarter earnings announcement, where we read past the prior three years as well as the past eight quarters.\nSlide eight is a year over year adjusted even comparison for pulp and paper board business.\nWe are implementing the previously announced the price increases in our SPS business and are starting to see some of the benefits relative to a year ago and have a positive shift in our net.\nOur sales and production volumes were slightly off due to the impact of the weather event in the south in February.\nOur costs were elevated in part due to the weather events slightly offset by lower year over year input costs.\nYou can review a comparison of our first quarter of 2021 performance relative to fourth quarter 2020 performance on slide 14 in the appendix.\nWe continue to see the benefits of a positive mix shift due to our shelbie expansion and related commercial news.\nOur sales have converted chronics in the first quarter or 11 point 7 million cases representing a unit decline of 23% versus prior year.\nOur production of converted product in the quarter was 13 point 5 million cases or down 3% versus the prior year.\nThis mismatch in sales and production has led to increases in our inventory.\nWe've had several year over year cost as we've benefited from ramp and our shelving mill and realized benefits from the rationalization and from some lower input and freight costs.\nYou can review a comparison of our first quarter of 2021 performance relative to the fourth quarter of 2020 on slide 15 in the appendix.\nWe have also added finished good production and other financial data on a quarterly basis to slide 6510 outlines our capital structure.\nwe generated approximately 20,000,020 $1 million in free cash flow to reduce our net debt and our liquidity was 282 point 7 million at the end of the first quarter.\nWe continue to make strides in reducing our net debt and increasing our financial flexibility.\nOver the past couple of years, we've worked on our financial flexibility so that we could be well positioned during times of uncertainty in our business.\nWe prioritize capital allocation, repaying debt and bolstering our liquidity and turning down our debt maturities to Since access to our abl facilities based loosely on accounts receivable, inventory levels and advanced rates, and our term loans covenant life, maintenance financial covenants do not present a material constraint on our financial flexibility.\nThe net result is that we believe that we have a stable financial structure with ample liquidity and a few years before we have any required principal payments.\nSlide 11 provides a perspective on our second quarter outlook and some other key drivers for the full year 2021.\nOur expectations assume that we continue to operate our assets without significant COVID related disruptions.\nAs previously discussed, demand visibility and tissue as well as inflation expectations have and will continue to be challenging and unpredictable for a while.\nAs we mentioned previously, our pulp and paper for business has been diligently working to implement the previously announced price increases.\nWe expect that the benefit of this will continue to be reflected in the next couple of quarters.\nThe planned major maintenance outage at Lewiston in April, which is included in our paperboard business is complete, and it's expected to impact earnings by 21 to $24 million.\nConsistent with our initial expectations.\nTissue demand is expected to weaken further from the first quarter shipments of 11 point 7 million cases, as our shipments in April are at 3.1 million cases compared to a monthly average in the first quarter of 2021 a 3.9 million cases to address our elevated inventory levels, and expected lower demand from our customers in the short term.\nWe are materially reducing production flow anticipated shipments in the second quarter.\nTo put this into context.\nThe amount of quote unquote lack of ordered downtime in the second quarter of 2021 is expected to exceed 1/3 of our peak demonstrated production of 15 point 9 million cases in the second quarter of 2020.\nThe lack of fixed cost absorption and related expenses are expected to be meaningful period cost in the second quarter due to the magnitude of the downtime.\nWe started observing raw material price inflation in the first quarter and expected to expecting that to accelerate into the second quarter.\nWe estimate that the impact would be approximately 9 million to $30 million in the second quarter relative to the first quarter.\nDue to tissue sales and production declines.\nSecond quarter out of its costs and higher inflation.\nOur second quarter adjusted EBIT dot could be close to breakeven.\nWhile we're not providing specific annual guidance for 2021 there are several drivers assumptions and variables that we'd like to update from our commentary during our fourth quarter call.\nWe're expecting continued positive impact from the previously announced SBS price increases.\nAnd our paperport business plan major maintenance outage is expected reduce earnings for 2021 compared to 2020 by 25 to $30 million.\nSimilar to our previous guidance to the impact of the weather events in the south, we've decided to move the Cypress an outage from the fourth quarter into the third quarter.\nWe've updated this guidance on slide 20, where we broke out the timing by quarter which reflects our current plan and made a negative impact from the weather events in the first quarter of 2021 a 6.5 million.\nPreviously we spoke to our anticipated tissue buying declines of high single to low double digit percentages year over year.\nConsidering demand today, we're revising this assumption to mid double digit decline year over year for 2021 as the consumer and retailer pullback has been more significant than anticipated.\nWhile demand forecasting continues to be challenging as the market works through the inventory overhang.\nWe believe these issues to be temporary nature.\nBy we're encouraged by our sales pipeline given the pull back and demand across channels than demand ramp from these wins will be delayed.\nAs customers are working through existing inventory in their supply chains with wider consumer demand.\nWe're expecting even higher input costs including pulp, packaging, energy and freight versus our previous expectations of 40 to 50 million or revised estimate based on our current assessment of the market to 65 to 75 million of inflation in 2021 versus 2020.\nPolk continues to be the main driver.\nWe're taking various proactive measures to reduce costs, improve sales and manage inventories, which are some will address in his closing remarks.\nFor the full year 2021.\nWe're also anticipating the following expect interest expense.\nAs between 68 and 3536 and $38 million.\nWe continue to expect depreciation amortization to be between 106 and $110 million.\nWe have revised our capital expenditure expectations downward from 60 to 65 million to 55 to 16 million.\nAnd our effective tax rate is expected to be 25 to 26%.\nAnd we expect to utilize some of our current tax attributes, which amounts to 16 million to reduce cash taxes.\nWe did receive approximately 8 million of that 16 million in the first quarter and an additional 3 million in April.\nI would like to discuss the actions that we're taking across the company to combat higher inflation and lower tissue demand.\nIn our paperboard business, we're focused on implementing the previously announced paperboard price increases and maximizing production to meet demand.\nIn our tissue business, we're working with customers to offset higher costs through previously announced price increases and upcoming product changes.\nWe have a robust pipeline of new tissue volume and are actively pursuing additional sales opportunities across both businesses, we're working through ways to reduce costs both in the short and long term.\nfrom looking at our network cost structure to optimizing polemics to lower variable costs.\nwe're managing our cash flows by taking significant downtime across our tissue operation, and a careful slow down and planned capital expenditures in 2021.\nAt the beginning of the second quarter, we also launched a transformation effort focused on improving our core operations in the medium to long term.\nThe transformation team is made up of dedicated internal resources supported by top tier consulting firm aimed at achieving the full potential of Clearwater paper over the next several years.\nThe team is now focused on identifying and evaluating opportunities for improvement across the company.\nI look forward to discussing this effort with you in the upcoming quarters.\nWe have been will continue to take appropriate actions to position our business for the future, while balancing the needs to respond to current market conditions.\nLet me remind you of why I think these businesses are well positioned in the long run.\nWe believe that the key strengths of this business are the following.\nFirst, we operate well invested assets with a geographic footprint enabling us to efficiently serve as customers on both coasts.\nWe have a diverse customer base, which serves and markets that have largely stable demand.\nSecond, knocking vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.\nThird, we believe through product and brand development, the business is well positioned to take advantage of trends toward more sustainable packaging and food service products.\nLastly, our paper for business has demonstrated an ability to generate good margins and solid cash flows.\nOur Consumer Products Division is a leader within the growing private branded tissue market.\nFrom our vantage point, we believe the key strengths of this business are the following.\nFirst, we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customer patience is a key differentiator trends away from branded products to private brands.\nPrivate brands issue share in the US rose to over 30% from 18% in 2011.\nWhile these trends are impressive, we're still a long way from where many European countries are for private brands represent over half of total tissue share.\nLastly, tissue with an economically resilient and youth based product.\nHistorically, demand has not been negatively impacted by economic uncertainty.\nAfter we get beyond the temporary distortions in our tissues supply chain at the retailer and consumer level, we're optimistic that this business will generate meaningful cash flows and returns over the long run.\nWhile we're faced with some headwinds in 2021.\nWe're building our business to be successful both in the near and long term, and believe that we will come out of point 21 a better operation than where we started.\nOur balance sheet is well positioned to support us with strong liquidity, limited financial maintenance covenants, and debt maturities which are a few years away.\nWe're working with our board to develop a medium to long term capital allocation plan and look forward to sharing those thoughts including internal investments, external investments, and the return of capital to shareholders as we approach our 2.5x target leverage ratio.",
        "summary": "q1 revenue $426 million."
    },
    {
        "text": "Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Mike Murphy, Chief Financial Officer.\nFinancial results for the third quarter 2020 were released shortly after today's market close.\nOn a consolidated basis, the company reported net sales for the third quarter of $457 million and adjusted EBITDA of $77 million, which represents growth of approximately 3% and 145% respectively over the third quarter of last year.\nA few business highlights to mention.\nOur tissue business drove results with both higher sales and production volumes, to meet elevated demand.\nLower input costs, particularly in pulp were also a tailwind on a year-over-year basis.\nOur service levels in tissue started to recover to pre-COVID levels, as we continued to work with customers to fulfill orders and replenish inventory levels.\nOur paperboard business continue to deliver stable performance, managing through uneven end-market segments with solid execution.\nOur current backlogs are in line with previous years and we successfully launched ReMagine folding carton brand, offering recycled content in SBS Board.\nIn the third quarter, we used the free cash flows generated to reduce our net debt by an additional $40 million and we refinanced our 2023 notes with a new 2028 notes.\nOn slide four as I noted, these last two quarters, we remain focused on our top priorities during COVID, the health and safety of our employees and safely operating our assets to service our customers.\nWe continue to operate with appropriate safeguards against COVID, including temperature checks, quarantine protocols, sanitation practices, social distancing guidelines, face covering requirements, remote work, travel restrictions and enhanced benefits.\nOur human resources and manufacturing leadership teams are doing an exceptional job of proactively monitoring the health of our workforce and ensuring that we have the proper staffing levels in place.\nOur efforts and risk mitigation strategies are making a difference in helping to reduce the risk of COVID at our sites.\nI would like to express my deepest gratitude to all of our people for their extraordinary efforts and perseverance through these challenging times.\nI will now share what we saw from both the tissue and paperboard businesses in the third quarter.\nLet's start with our Consumer Products division on slide five.\nAs we have previously noted, at-home tissue demand remained elevated during the quarter.\nWe continue to believe that this is being driven by the shift from away from home to at-home consumption, as many people continue to work and learn from home.\nWe noted on our previous earning call that because of these consumption changes, we were seeing retail sales per IRI panel data stabilize at above pre-COVID levels.\nIn the third quarter that resulted in low double-digit retail sales growth relative to the 2019 quarter.\nWe expect that year-over-year increase had continued to moderate as retailers replenished their inventories, consumers de-stocked their pantries and people adjust to living with the pandemic.\nOur industry view remains largely the same, so I will summarize in a few key points to provide some context.\nFirst, recall that the market for tissue in the US is traditionally two-third at-home and one-third away-from-home.\nMany states economies began to reopen, which we believe drove some of the normalization and demand in the third quarter.\nWe expect continued uncertainty associated with these reopening and travel patterns, making it challenging to predict demand drivers for these end markets during the next few quarters.\nIt is also difficult to predict what a new normal might look like as the pandemic eventually subsides.\nSecond, while it is too early to discern trends on branded share relative to private branded share.\nWe are noticing the paper towel demand is tracking ahead of the overall tissue category while facial demand is lagging.\nWe will continue to monitor these trends in the coming months and quarters due to the continued uncertainty in consumer demand associated with COVID.\nThird, as we noted last quarter, SKU rationalization has occurred, creating additional production.\nWe believe that lower SKU counts benefit both retailers and manufacturers like us.\nWhile we have seen some customers desiring a recovery of SKUs, we do not anticipate SKU counts to go back to pre-COVID levels in the near to medium term.\nOur tissue results in the third quarter were robust.\nWe shipped 14.5 million cases, which was up around 10% compared to the third quarter of 2019, but down 9% over the second quarter of 2020, as expected.\nWe continue to execute for our customers and are pleased with production efficiency and fixed cost leverage achieved.\nWe have largely replenished inventories throughout the supply chain and are seeing in-stock conditions improve.\nIn addition, to meet peak demand during the pandemic, we believe that some of our customers need short-term commitments to alternative suppliers and tertiary brands to meet demand, including imported products.\nAs a result, we believe that these customers have greater than normal inventory levels in several product categories that they are now working to reduce.\nWe have also adjusted our sales and customer mix over the last six months to better position our business for growth in a long-run.\nThat has led us to exit several customers to reduce complexity and improve our network.\nWhile we have a robust pipeline of new business for next year, these strategic moves are expected to have a volume drag in the next couple of quarters.\nMike will further address the impact of these trends on our businesses and financial outlook section of our discussion.\nAs you recall, we estimate that approximately two-thirds of paperboard demand is derived from products that are more recession-resilient and one-third is driven by more economically sensitive or discretionary products.\nOur business including customer demand has been stable despite economic uncertainties.\nOur folding carton customers, especially those with exposure to food and healthcare packaging continue to see strong demand and our foodservice customers, especially those with exposure to quick service restaurants and away-from-home dining, as well as commercial printers continue to see weaker demand.\nOur exposure to diverse end-market segments helped provide stability for our order book in the quarter.\nWe did not have a planned major maintenance outage in the third quarter of 2020 like we did in 2019, which drove improved operations.\nOur current sales backlogs are consistent with previous years, indicating stable demand.\nWhile we're encouraged by our solid performance in the quarter, we're navigating through some uncertain market conditions.\nOn our last earnings call, we introduced the ReMagine brand of SBS folding carton paperboard with up to 30% post-consumer recycled fiber that is FDA-compliant for food contact.\nTogether with our NuVo SBS brand of cup stock with up to 35% post-consumer recycled fiber, we're meeting our customers and consumer preferences for more recycled content in an already highly sustainable form of paper-based packaging without compromising on consumer safety and product quality.\nThe consolidated company summary income statement is depicted under the third quarter as well as the first three quarters of 2020 and 2019.\nIn the third quarter, diluted net income per share was $1.28 per share and adjusted EBITDA was $77 million.\nThe corresponding segment results are on slide eight.\nOur Paperboard business continued its strong adjusted EBITDA performance while consumer products benefited from significant sales growth and fixed cost leverage associated with production growth and favorable input costs.\nIn the second quarter of 2019, we started our Shelby, North Carolina, paper machine and incurred as anticipated, start-up costs related to lower production throughput, higher waste and other costs which persisted during the remainder of 2019.\nAs a reminder, we achieved the targeted production rate of our new paper machine in the second quarter of 2020 and we are continuing to capture the benefits associated with the project, including ramping our converting lines, realizing supply chain benefits and achieving sales wins and mix improvements.\nWhile we're not providing a specific dollar amount for these costs and benefits, the continued realization of the Shelby investment is an important factor in our performance improvement.\nOur mix continues to improve as Shelby has come online, more than offsetting some year-over-year price impacts.\nWe are benefiting from the volume increases related to the production ramp which helped to meet elevated demand.\nOverall fixed cost leverage from increased production, lower input costs and improved mix positively impacted our tissue business in the third quarter of 2020, relative to the third quarter of 2019.\nYou can review a comparison of our third quarter 2020 performance relative to the second quarter of 2020 on slide 16 in the appendix.\nSlide 10 contains some additional context to the outstanding performance in our tissue business and we are building off the data we shared last quarter.\nThe slide contains IRI panel data, which is a snapshot of retail sales of tissue measured in dollars.\nThe line shows monthly change on a year-over-year basis while the data on the box shows a quarterly view versus last year.\nIt is estimated that $1 retail sales grew 34% in the first quarter, 23% in the second quarter and 12% in the third quarter.\nYou can see in the data that pantry loading phenomenon at the end of the first and beginning of second quarters, that has given away to a more stable demand picture for our retail customers.\nDuring our last quarter's call, we anticipated the IRI panel data to be up in the 10% to 15% range in the third quarter and it was close to 12%.\nIn the fourth quarter, we would expect year-over-year sales growth to continue to moderate.\nThis expectation is highly uncertain and dependent on consumer behavior, retail buying patterns and COVID-related restrictions.\nOur sales in the third quarter were 14.5 million cases, representing a unit decline of 9% versus the second quarter and unit growth of 10% versus prior year as expected.\nOur production in the quarter was 15.3 million cases, were down 4% versus the second quarter and up 19% versus prior year.\nOur production levels had benefited from the Shelby ramp and SKU rationalization.\nThe cost leverage from the significant increase in production along with improved costs in freight and logistics led to continued strong results.\nSlide 11 is a year-over-year adjusted EBITDA comparison for our paperboard business.\nLower pricing reflected in Macy's reported price decrease in February was partially offset by favorable mix.\nThe absence of a planned major maintenance outage at our Idaho mill was also a major driver of year-over-year improvement.\nOverall, our team brand our operations well in the quarter and continue to deliver stable results.\nYou can review a comparison of our third quarter 2020 performance relative to the second quarter of 2020 performance on slide 17 in the appendix.\nOur performance in the third quarter exceeded our expectations with stronger sales and production volumes in tissue and continued stability in paperboard, despite weak economic conditions.\nThese factors combined with outstanding operational execution delivered robust results.\nSlide 12 provides a perspective on our fourth quarter outlook.\nAs previously discussed, tissue outlook is largely a function of sales demand.\nAs Arsen mentioned, we recently exited some customers and specific products to better position us for the future.\nAdditionally, several of our large customers placed heavy orders with us and other suppliers in the third quarter, leaving them with high inventories in several product categories.\nAs a result, we're seeing order pace slow in October as customers are adjusting their supply chains.\nOur October shipments were around 4 million cases, which is down from an average of 4.8 million cases per month in the third quarter of 2020 and 4.4 million cases per month in the fourth quarter of 2019.\nWe are anticipating our tissue sales to be at or below fourth quarter 2019 levels.\nOur production will also decline to meet this level of demand, so that our inventories do not exceed targeted levels, which will impact our fixed cost absorption that had benefited Clearwater throughout much of 2020.\nInput costs are expected to continue to be largely benign except for some increasing freight expenses.\nAnd as we mentioned previously, our paperboard business remained stable in total and while we continue to prepare for potential COVID recession-related weakness, our portfolio of customers and end-market segment exposure continues to position us well through the end of October.\nIf assumptions around demand as well as largely stable prices and raw material inputs hold, we would anticipate fourth quarter adjusted EBITDA to be in the range of $52 million to $62 million.\nThis range also assumes that we continue to operate our assets without significant COVID-related disruptions.\nFor the full year 2020, we anticipate the following.\nInterest expense between $46 million and $48 million, which is a slight decrease to the past expectations due to debt repayments.\nDepreciation is expected to be between $109 million and $112 million.\nCapital expenditures are trending toward $45 million and we still do not expect to be a net cash taxpayer in 2020.\nWhile we're not prepared to provide specific guidance for 2021, there are several variables to keep in mind.\nPlanned major outage expenses are expected to reduce our earnings in 2021 compared to 2020 by $25 million to $30 million.\nWe've updated this guidance on slide 22, which represents a slight increase relative to prior guidance of $23 million to $27 million.\nThis is due partly to a new project to replace the head box on one of our Lewiston paper machines, which will require some additional downtime.\nBased on third-party pulp forecast, we are anticipating around a $50 per ton increase in pulp.\nAs a reminder, we purchased approximately 300,000 tons of pulp each year.\nCapex is expected to trend closer to our historical averages of approximately $50 million.\nSlide 13 outlines our capital structure.\nWe utilized approximately $40 million of free cash flow to reduce our net debt, which included a $40 million voluntary prepayment of our term loans and our liquidity was $277 million.\nIn the quarter, we refinanced our 2023 notes with a new 2028 note maturity, providing approximately 5.5 additional years of tenure at a rate we deemed to be attractive at 4.75%.\nWe also achieved the mass [Phonetic] amendment through our ABL facility, providing some reporting and other flexibilities.\nS&P recognized our improving credit trend and removed us from negative outlook.\nWe continue to make strides, reducing our net debt and increasing our financial flexibility.\nI would like to reiterate our value proposition, which we discussed on our previous earnings call and mentioned to investors throughout the quarter.\nWe believe Clearwater Paper is very well positioned across two attractive and complementary businesses.\nOur Consumer Products division is a leader within the growing private branded tissue market.\nFrom our vantage point, we believe the key strengths of this business are the following.\nFirst, we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customers.\nOur expertise in manufacturing, supply chain and transportation is a key differentiator, especially during challenging times like today.\nSecond, there are long-term trends away from branded products to private brands.\nThese have typically been amplified during recessions.\nPrivate brand tissue share in the US rose to over 30% in 2019, up from 18% in 2011.\nWhile these trends are impressive, we're still a long way from where many European countries are, where private brands represent over half of total tissue share.\nLastly, tissue is an economically resilient and need-based product.\nHistorically, demand has not been negatively impacted by economic uncertainty.\nTurning to our Paperboard division.\nWe believe that the key strengths of this business are the following.\nFirst, we operate well-invested assets with a geographic footprint enabling us to efficiently service customers on both posts.\nWe have a diverse customer base that serve end markets that have largely stable demand.\nSecond, not being vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.\nThird, we believe the business is well positioned to take advantage of trends toward more sustainable packaging and food service products.\nLastly, our paperboard business has demonstrated an ability to generate good margins and solid cash flows.\nOverall, our large capital investments are behind us and we're prioritizing cash flows to reduce debt, as we demonstrated in the third quarter with a net debt reduction of approximately $40 million, bringing our net reduction thus far in 2020 to over $140 million.\nWe intend to continue to deleverage by delivering benefits from our Shelby investment, continuing with operational improvements, aggressively managing working capital and prudently allocating capital.\nWhile we expect to have lower tissue shipments in the coming quarters, we're making sound strategic moves to support our customers and their success and continue to position our business for success in the long-run.\nWe believe that this strategy is the best way to create value for equity and debt holders.",
        "summary": "q3 earnings per share $1.28.\nq3 sales $457 million versus refinitiv ibes estimate of $461.6 million.\nin q4, demand for tissue products is expected to soften relative to q3 of 2020."
    },
    {
        "text": "We certainly hope you and your family continue to remain safe and healthy, in what remains a challenging environment.\nAs usual, we have a few reminders before we go into results.\nThese statements are based on management's current expectation, but may differ from actual results or outcomes.\nIn addition, we may refer to certain non-GAAP financial measures.\nTurning to today's discussion of our results.\nI'll start by covering our usual top line commentary, with highlights in each of our segments.\nKevin will then address our total company results, as well as our FY '21 outlook.\nFinally, Linda will offer her perspective and we'll close with Q&A.\nFor the total company, Q1 sales increased 27%, reflecting about a point of benefit from the acquisition of majority interest in our joint venture in the Kingdom of Saudi Arabia, and about a point of headwinds from unfavorable foreign exchange impact.\nThis quarter's 27% organic sales growth is supported by double digit sales growth in eight of our 10 businesses.\nI'll now go through our results by segment.\nIn our Health and Wellness segment, Q1 sales were up 28%, reflecting double digit growth in all three businesses.\nOur Cleaning business had another quarter of double digit growth behind continued strong demand, for our disinfecting products.\nWhile we continue to make progress expanding supply, we're still not at a point where we can fully meet ongoing elevated demand.\nDespite those constraints, our Clorox brand continues to see increases in both household penetration and repeat rates.\nWe've been investing behind this momentum to convert new users to loyal consumers, and we've been seeing very strong return on our investment.\nOn the innovation front, our bleach complexion effort is now complete.\nThe Clorox fabric sanitizer platform and Clorox disinfecting wet mopping cloth, both continue to show strong growth.\nOn a related note, our wet mopping cloth, along with our Clorox and Clorox Scentiva branded disinfecting wipes and Pine-Sol multi-surface cleaner, all recently received approval from the EPA, for kill claims against the virus that causes COVID-19 on hard non-porous surfaces.\nOur professional products business also had double-digit sales growth behind strong shipments across all of our disinfecting product lines.\nA key driver of growth this quarter was the total Clorox Total 360 system, which uses an electrostatic technology to deliver disinfectants to large, hard to reach areas.\nTo support sales and continued momentum in this business, we're bringing online, new production capacity this month, for the disinfectant used in these devices.\nIn addition, we've created a dedicated out of home team, that focuses on growth opportunities in new channels and spaces, to further build on strategic alliances with already established, with Uber Technologies, United Airlines, AMC Theaters and Cleveland Clinic.\nLastly, within this segment, our Vitamins, Minerals and Supplements business grew sales by double digits this quarter.\nThis strong growth was driven by shipments to replenish retail inventories, following the recent supply disruptions, and by shipments in support of our RenewLife brand relaunch.\nOur priorities this year are, to continue to improve service levels, in order to capture the strong consumption trend; execute the RenewLife brand relaunch with excellence; and deliver consumer meaningful innovation.\nTurning to the Household segment; Q1 sales were up 39% with growth in all three businesses.\nGrilling sales more than doubled this quarter, due mainly to strong consumption behind the grilling occasions and increased household penetration.\nSales growth this quarter was also driven partly by customer replenishment of inventory.\nWe've been very pleased to see the strong turnaround of this business, reflected in our continued share growth, strong collaboration with the retailers, and successful entry into the pellet category, with our Kingsford pellets continuing to build distribution and share.\nWith recent increases in grilling occasions and new households, including millennials, we're optimistic about the prospects of this business, and will invest behind this momentum to drive long-term profitable category growth.\nGlad sales were up by double-digits in Q1, behind ongoing strong demand for our products, as consumers continue to spend more time at home.\nWe're building on this momentum with a consistent stream of innovation, including our new Glad ForceFlex with Clorox trash bags, which launched in September.\nThis product eliminates Food and bacterial odors throughout the trash bags, and has already earned more than 1,000 five star ratings online from consumers.\nOur Glad ForceFlex trash bags with unique fragrances and colors, which launched in Q3, also continue to perform well, and are among top selling new items at major retailers.\nCat Litter sales grew in Q1, driven mainly by strong online shipments in innovation, supported by higher advertising investments.\nWe're encouraged by our return to share growth in Fresh Step, behind the continued strong performance of Fresh Step Clean Paws innovation platform and the strong start of Fresh Step with Gain Original Scented Litter with the power of Febreze.\nIn our Lifestyle segment, Q1 sales increased 17% with double-digit growth in two of three businesses.\nBrita sales were up by double-digits for the third consecutive quarter.\nThe growth is driven by -- mainly by continued strong consumption, especially in larger sized systems and long last systems and filters.\nSales growth was also driven partly by customer replenishment of inventory, an effort our team has been very focused on.\nHousehold penetration for Brita continues to grow, which gives us more reason to invest further.\nWe'll be introducing a new and improved LongLast Plus filter, that allows water to flow faster and captures more contaminants, along with a new pitcher.\nThe Food business also saw double-digit sales growth, behind ongoing strong consumption of our Hidden Valley Ranch products, which continues to benefit from more at-home eating occasions.\nThis is another business where we're seeing household penetration growth.\nWe will continue to invest in innovation, and are encouraged to see a strong start to our new Hidden Valley Ranch secret sauce dressing.\nFinally Burt's Bees sales decreased this quarter.\nAs the business continued to be impacted by lower store traffic, especially in parts of the store, where Burt's Bees products are typically found.\nWe've since accelerated our online strategy and strengthened our presence in the fast growing cough and cold category, with the launch of a new line of Rescue Balm with turmeric.\nWhile we expect the categorywide challenges to persist in the short term, we have strong confidence in the Burt's Bees brand and its long-term growth prospects, supported by a robust innovation platform.\nNow turning to International; Q1 sales grew 18%, driven by ongoing elevated demand for our products, disinfecting products, and essential household products across nearly every geography.\nOrganic sales grew 17%, reflecting about 9 points of benefit from the Saudi JV acquisition and about 8 points of unfavorable foreign currency headwinds.\nOur international business has very strong momentum and we're looking to build on that through investments that accelerate our IGNITE Strategy.\nIncreasing the stake in our Saudi JV is just an example of that.\nAnother example is the international expansion of our Clorox disinfecting wipes, which are now being supported by a dedicated supply chain, separate from that in the U.S.\nThis will allow us to better meet ongoing elevated demand in our existing international markets where we currently offer wipes, and to launch this consumer preferred form into new geographies.\nI sincerely hope you and your families are well.\nI'm pleased with our very strong start to the fiscal year, reflecting broad based strength across our portfolio, with double-digit volume, sales and profit growth in each of our reporting segments.\nAdditionally, each reporting segment delivered gross margin expansion, contributing to our eighth consecutive quarter of gross margin expansion for the company.\nTurning to our first quarter results; first quarter sales were up 27%, driven by 22 points of organic volume growth and 5 points of favorable price mix.\nSales results also included one point of growth from acquiring majority control of our Saudi joint venture, offset by one point of FX headwinds.\nOn an organic basis, sales grew 27%.\nGross margin for the quarter increased 400 basis points to 48% compared to 44% in the year ago quarter.\nFirst quarter gross margin included the benefit of strong volume growth, as well as 170 basis points of cost savings and 150 basis points of favorable mix.\nThese factors were partially offset by 300 basis points of higher manufacturing and logistics costs, which were similar to last quarter, included temporary COVID-19 spending.\nSelling and administrative expenses as a percentage of sales came in at 12% compared to 14% in the year ago quarter.\nPrimarily from increased operating leverage.\nadvertising and sales promotion investment levels as a percentage of sales, came in at about 9%, equal to the year ago quarter.\nWe're spending for our U.S. retail business coming in at 11% of sales.\nImportantly, this represented about a 30% increase in advertising support this quarter, compared to the year ago period, reflecting stronger investments to support our ambition to accelerate long-term profitable growth.\nOur first quarter effective tax rate was 21%, compared to 22% in the year ago quarter, primarily driven by the impact of our increased ownership of our Saudi joint venture.\nNet of all these factors, we delivered diluted net earnings per share of $3.22 versus $1.59 in the year ago quarter, an increase of 103%.\nExcluding the contribution from our Saudi joint venture acquisition, Q1 diluted earnings per share grew 66%.\nOur strong cash flow, was due to profitable sales growth, partially offset by higher employee incentive compensation payments made in the first quarter, which were related to our fiscal year '20 performance.\nTurning to our fiscal year outlook; we now anticipate fiscal year sales to grow between 5% to 9%, reflecting our strong Q1 results, as well as our raised expectations for the balance of the fiscal year, including double-digit growth in Q2.\nAnd as we noted last quarter, we continue to anticipate deceleration in the back half of fiscal year '21, as we lap double-digit growth in the same period in fiscal year '20, when we saw the initial spike in COVID-19.\nImportantly we continue to assume or back half sales results will be significantly stronger relative to pre-pandemic sales levels.\nWe also continue to anticipate about one point of contribution from our Saudi joint venture, offset by one point of foreign exchange headwinds.\nOn an organic sales basis, our outlook assumes 5% to 9% growth.\nWe expect fiscal year gross margin to be about flat, reflecting the benefit of strong cost savings and higher sales, offset by rising commodity and transportation costs, as well as temporary costs related to COVID-19.\nFor perspective, we expect gross margin expansion in the front half, followed by a contraction over the balance of the fiscal year, as we lap gross margin expansion of 250 basis points delivered in the back half of fiscal year '20, driven by strong operating leverage from robust shipment growth during the initial phase of the pandemic.\nWe continue to expect fiscal year selling and administrative expenses to be about 14% of sales, as we continue to invest aggressively in long-term growth initiatives.\nAdditionally, we continue to anticipate fiscal year advertising spending to be about 11% of sales, spending closer to 10% in the front half of the year and 12% in the back half, in support of our robust innovation program.\nWe now expect our fiscal year tax rate to be between 21% to 22%.\nNet of these factors, we now expect fiscal year '21 diluted earnings per share to increase between 5% to 8% or $7.70 to $7.95 reflecting our assumption for stronger top line performance, partially offset by a rising cost environment.\nAs we shared last quarter, our fiscal year diluted earnings per share outlook continues to include a contribution of $0.45 to $0.53 from our increased stake in our Saudi Arabia joint venture, primarily driven by a one-time non-cash gain.\nExcluding the impact of the Saudi acquisition, our fiscal year diluted earnings per share reflects strong investments behind the robust momentum we're seeing broadly in our portfolio.\nWe're engaging new consumers, supporting back half innovation plans and expanding our portfolio into new channels and markets, all in support of our ambition to accelerate long-term profitable growth.\nIn closing, I'm pleased with our very strong start to fiscal year '21, [Indecipherable] both top and bottom line performance across our reporting segments.\nThis provides a strong foundation for a continued momentum, which we plan to drive through aggressive investments in our IGNITE Strategy, in support of creating long-term shareholder value.\nI hope you are well and in good spirits, as we continue to navigate this pandemic.\nIt's great to be joining you on my first call as CEO, especially after the tremendous first quarter we delivered.\nOur results show what Clorox does best.\nWe serve people who count on our brands, especially during a time when they need to feel safe, and when their home is the center of their world.\nThis reinforces my first message; our outstanding results are a reflection of our team's dedication to serving consumers and communities.\nI am incredibly proud to see the broad based strength in our portfolio, with double-digit sales and profit growth in all reporting segments.\nIn the last eight months, all eyes have been on Clorox disinfecting products, and our brands delivered once again this quarter, with double-digit sales growth in our Cleaning and Professional Products businesses, reflecting continued higher usage of products in homes, businesses and healthcare settings.\nAnd now, we're also shining a brighter light on the terrific performance delivered by other parts of our portfolio, with double-digit sales growth in eight of 10 businesses, demonstrating the important role our brands play in addressing people's everyday needs.\nIt's particularly gratifying to see great results from our Grilling and Glad businesses, as the team has been relentless in driving progress on our business plans, including meaningful innovation.\nBased on double-digit top line increases and significant margin expansion in our first quarter, we delivered very strong earnings growth for our shareholders and I'm happy we were able to raise our fiscal year outlook.\nThese results would not be possible without the passion and commitment of our Clorox teammates around the world.\nWhile I feel good about our financial performance for the quarter, there is one thing that continues to keep me up at night.\nOur ongoing focus to meet unprecedented demand for much of our portfolio.\nWe're certainly encouraged by the progress we're making in a number of businesses, including having Clorox Bleach mostly back on store shelves, but there is more work to be done.\nI can assure you that our teams are leaving no stone unturned across all businesses experiencing elevated demand.\nWe're continuing to focus on products that can be made faster, and investing significantly in third party supply sources in an efforts to expedite our products to retailers.\nOur consumers, retail partners and communities are counting on us, and I want people to know that maximizing supply continues to be top priority.\nNext the Clorox team and I will play 1% offense behind our strong portfolio of leading brands consumers love, in support of our ambition to accelerate long-term profitable growth.\nI feel privileged to be CEO of this special company and I have my sights set on extending our momentum longer term.\nIn this uncertain environment, people are turning to brands they trust, and we're proud to have trusted brands in our categories.\nWe're seeing this play out in strong helpful penetration, not just in our disinfecting products, but in many parts of our portfolio.\nFor perspective, the percentage of our total portfolio was stable or growing household penetration has more than doubled year-over-year, and as I look beyond the pandemic and try to answer the question of whether or not we can sustain our strong results, I'm encouraged by the trends we're seeing, particularly consumer behaviors formed during the last seven months.\nThey are good indicators our brands will continue to play a meaningful role in people's daily life.\nFor example, people are prioritizing Health and Wellness, drinking more water and taking vitamins and supplements.\nFocusing on safety and hygiene, cleaning and disinfecting, in and out of their homes.\nStaying home more, including cooking, grilling, spending time with family and adopting a pet.\nSpending more time online with about 90% of people saying they've shopped online since the pandemic.\nThere are strong signs these behaviors will stick over the long term, as people have been building these habits for three times longer than it normally takes routines to form.\nAnd while early, we're encouraged by the strong repeat rates we're seeing across our portfolio, among core and new consumers.\nThis is the time for 100% offense and that means investing significantly behind our global portfolio, including through advertising and market leading innovation.\nIncreasing capital spending to expand production capacity in the near and long term and partnering with retailers, to enhance shopping experiences and grow our categories.\nWith the strength of our global portfolio, the sustained consumer behaviors we're seeing and our significant investments to drive growth, Clorox is in a great position to keep winning with consumers.\nAnd finally the defining opportunity for Clorox is simple, to serve even more people around the world, with the strategy that helps us make the most of who we are and where we have strategic advantage.\nOur IGNITE Strategy puts people at the center of everything we do, and fundamentally we will address consumer needs and follow them in the most meaningful ways we can.\nHere's what I would highlight; Clorox is a Health and Wellness company at heart.\nWith the strength of our brands and capabilities in disinfecting, we're in a great position to extend our role in public health.\nWe'll continue to lean into the strategic alliances we've established with leading brands to keep their customers safe, and we'll certainly pursue more of these types of relationships with other organizations, to increase our support for people outside of their homes.\nI'm also excited about expanding Clorox disinfecting wipes in International, supported by a dedicated supply chain that will allow us to scale this business in our existing markets and enter new geographies.\nMore than ever, people are online and we believe digital behavior is here to stay.\nClorox has leaned into e-commerce and digital marketing early, so that people can engage with our brands, in a more personal and relevant way.\nAs people navigate a tough economy with pressures from unemployment and less discretionary spending, they'll continue to turn to brands they trust, and we'll continue to earn their trust and loyalty by focusing on superior value.\nAnd what's also important to me, is that we continue to be committed to growing the right way, guided by our values and with ESG embedded into our business.\nIt's how we help our people, our communities and our planet thrive, now and in the future.",
        "summary": "compname reports q1 earnings per share $3.22.\nq1 earnings per share $3.22.\nin q1, sales increased 27%, driven by double-digit growth in eight of 10 business units due to covid-19.\nfirst-quarter gross margin increased 400 basis points to 48% from 44% in year-ago quarter.\nsees 5% to 9% sales growth in 2021.\nsees $7.70 to $7.95 diluted earnings per share range in 2021."
    },
    {
        "text": "We hope you and your families are continuing to stay safe and well.\nBefore we get started, I want to let you know that we're making some changes to how we present our results.\nToday, Linda will start by providing some overall key takeaways for the year.\nNext, I'll follow up with some highlights from each of our segments.\nKevin will then address our financial results as well as our outlook for fiscal year '22.\nAnd finally, Linda will return to offer her perspective, and we'll close with Q&A.\nNow a few reminders before we go into results.\nThese statements are based on management's current expectations but may differ from actual results or outcomes.\nIn addition, we may refer to certain non-GAAP financial measures.\nFiscal '21 was an extraordinary year for Clorox, with the pandemic putting us through the ultimate test of volatility, including rapid changes in consumer demand and significant cost inflation, which was reflected in our Q4 results.\nDespite the complexities we faced, we delivered 9% sales growth for the fiscal year on a reported and organic basis, reflecting growth in all four reportable segments.\nThis was on top of the reported 8% increase we delivered in fiscal '20.\nOn a two-year stack basis, we delivered 17% sales growth.\nWith rising cost pressures, we experienced declines in gross margin, particularly in Q4, resulting in a decrease of 200 basis points for the fiscal year, which we will discuss in more detail.\nFiscal year '21 adjusted earnings per share decreased 2% to $7.25.\nRecognizing the immediate priorities before us, I would like to reinforce what matters most: long-term profitable growth.\nWith a business that's significantly larger than before the pandemic and a portfolio of trusted brands exposed to more tailwinds, we have clarity in our strategic imperatives, and I have every confidence in our ability to continue delivering long-term value creation for our shareholders.\nWhen I look at fiscal '21, our performance has shown the strength of our people, brands and products as well as the resilience of our category as we work tirelessly to supply consumers with products across our portfolio.\nAs a result, we experienced significant growth in demand and strengthened our position among global consumers, with strong household penetration, supported by higher repeat rates across new and existing users.\nThe last 12 months have also demonstrated the need to accelerate our IGNITE Strategy to address near-term headwinds and capitalize on long-term opportunities.\nThe industry environment remains dynamic, with significant inflationary pressure and continuing uncertainty.\nIn the face of these conditions, our top priority is strong execution to mitigate the impact of elevated cost headwinds and continue to improve market share.\nThe pandemic has also highlighted areas where additional investments can help us be as agile as possible in the future.\nWe are clear on the opportunities ahead of us to differentiate Clorox and build a stronger, more resilient and more profitable company.\nThis includes driving our growth runways and making investments to enhance our digital capabilities and drive productivity improvements, which I will discuss shortly.\nWe are confident that strong execution of our IGNITE Strategy will enable us to achieve our 3% to 5% long-term sales target and deliver long-term shareholder value.\nFor Q4, faster-than-expected moderating demand for cleaning and disinfecting products had a pronounced impact on sales growth as we moved through the peak of the pandemic and lapped the unprecedented demand we experienced last year.\nThe magnitude of this quarter's gross margin contraction was a result of faster-than-expected sales moderation, acceleration of inflationary headwinds and improvements in supply, which led to broader product assortment, including the reintroduction of value packs.\nI'll discuss shortly the actions we're taking to address these headwinds.\nNow let me share a few highlights of our progress on our IGNITE Strategy.\nFirst, with fuel growth being a critical focus to help address elevated cost pressures and ensure the long-term health of our brands, I'm pleased we delivered over $120 million in cost savings in the fiscal year, surpassing our annual target.\nSecond, we made strong progress on our 2025 goal to know 100 million people, crossing the halfway mark to our goal this fiscal year.\nOur higher investment in personalization has led to significantly improved ROI.\nIt has been one of the contributors to increasingly strong payouts, driving our confidence in continued investments in our brands.\nThird, with innovation at the heart of our strategy, we doubled our innovation investments in fiscal '21, and new products were a bigger contributor to our top line, which we expect to continue in fiscal '22.\nNext, as consumers have increased their digital usage during the pandemic, we leaned into digital marketing and commerce, resulting in our e-commerce business nearly doubling in the last two years, which today represents about 13% of total company sales.\nFinally, we continue to make progress on our ESG goals.\nFor example, we advanced our commitment to climate action and submitted our proposal on science-based targets for our operations and Scope three emissions to the Science Based Targets initiative in June.\nAnd as a people-centric company, we continue to focus on the wellbeing of our teammates and our values-based inclusive culture.\nI'm particularly proud that during this trying year, we achieved our best safety score in recorded history, with a recordable incident rate of 0.26, significantly lower than the 3.3 industry average.\nI'm also pleased that in fiscal '21, we continued to have high employee engagement of 87%, putting us at the top quartile of Fortune 500 companies.\nNow let me turn to fiscal '22.\nWe expect inflationary pressure to persist, along with continued moderating demand as we lap COVID-19-related demand surges in the first half of fiscal '21.\nWhile this is reflected in our fiscal '22 outlook, which Kevin will discuss, by the second half of the year, we expect to be within the lower end of the range of our long-term sales targets.\nLike others in our industry and beyond, we are experiencing significant increases in input and transportation costs across all categories in our portfolio, which have accelerated since Q3.\nAnd we're holistically and dynamically managing this with a laser focus on rebuilding margin.\nWe implemented pricing on Glad and announced actions on our Food, Cleaning and International businesses.\nThis represents about 50% of our portfolio.\nWe're also pursuing pricing in additional parts of our portfolio, which we'll communicate at the right time.\nBased on the constructive conversations we're having with our retail partners and importantly, the strength of our brands, we feel confident about our ability to execute our pricing plans.\nIn addition, we will continue to drive our hallmark cost savings program.\nWe expect sequential gross margin improvements as we progress through fiscal '22, with our assumption for gross margin expansion by Q4.\nIn terms of market share, as we've discussed previously, we have experienced some declines due to supply challenges, but have made notable progress.\nWith strong investments in internal and external production capacity, including additional manufacturing lines and a significant expansion of our production team, in June, we achieved our highest case fill rate since the start of the pandemic.\nI'm pleased to see that in the latest 13-week data, ending July 17, we saw market share gains in seven out of nine businesses.\nCertainly, we recognize there's more work to do in parts of the portfolio, such as Glad Trash, and we have adjusted our plans to drive market share improvements over time.\nDespite these near-term headwinds, we remain focused on our long-term priorities rooted in our IGNITE Strategy to deliver our long-term growth aspirations.\nWhile some pandemic-related behaviors may revert over the next 12 months, we continue to believe there's been a shift in behaviors that will advantage Clorox longer-term, including a focus on health, wellness and hygiene, more time at home as well as increased adoption of e-commerce and digital platforms.\nThe pandemic also revealed the urgency to upgrade our digital infrastructure and capabilities.\nLast year, I brought in Chief Information and Enterprise Analytics Officer, Chau Banks, who has extensive experience in business-driven digital transformation, to conduct a fresh assessment of our own program that was already underway before the pandemic.\nWith that assessment now complete, we are accelerating our transformation through planned investments of about $500 million over the next five years to enhance our digital capabilities and drive productivity improvements, including replacing our ERP.\nThis will enhance our supply chain to better position Clorox to meet customer needs, yield efficiencies and support our digital commerce, innovation and brand-building efforts.\nPrior to the pandemic, we were already adapting our business to differentiate Clorox from a digital perspective.\nWe'll continue to invest in e-commerce and digital marketing across our portfolio, leveraging data-driven insights to engage with consumers in more relevant ways.\nInnovation continues to be a key focus area for me and our new Chief Growth Officer, Tony Matta, who joined last October.\nTony has more than 20 years of brand-building experience with leading consumer companies.\nEnsuring we have stickier innovation delivering multiyear value, we're driving lasting new product platforms, such as Fresh Step Clean Paws and Scentiva, which continue to grow.\nIn addition, we're extending innovation by leveraging external partners to create new revenue streams.\nWe're continuing to support our brands, especially margin-accretive innovation, with disciplined high-ROI advertising and sales promotion investments to build and strengthen consumer loyalty.\nWe also remain very focused on driving our growth runways to build Clorox into a global cleaning and disinfecting brand.\nWe are still in the early stages of a multiyear journey, but continue to believe they can become a meaningful contributor to growth longer-term.\nAnd as we execute on all these initiatives, we will continue to drive the strategic link between our societal impacts and long-term value creation as we live our purpose and keep our ESG commitments front and center in our decision-making every day.\nNow turning to our segment results.\nIn Health and Wellness, Q4 sales decreased 17% for the quarter, while full year sales were up 8%, with growth across all businesses.\nOn a two-year stack basis, Q4 sales grew 16% and full year sales grew 22%.\nIn Cleaning, sales were down by double digits compared to double-digit growth in the year ago quarter, primarily due to the deceleration of demand across various cleaning and disinfecting products.\nOn a full year basis, Cleaning sales grew behind a strong front half performance.\nWhile demand fell faster than anticipated, it remains higher than it was pre-pandemic, with strong repeat rates among new buyers.\nImportantly, our supply and product assortment are almost fully restored, which is reflected in our market share improvement, especially in wipes and sprays.\nAs consumer demand migrated to more preferred forms and value packs, we also saw a negative impact to price mix, which we expect to continue over the next few quarters.\nGoing forward, we'll be focused on strengthening our merchandising activities, especially for the back-to-school period.\nSales in Professional Products were down by double digits versus year ago period, when we experienced double-digit growth.\nFor the full year, Professional Products sales were up by double digits, fueled by an exceptional front half performance.\nDemand started moderating in Q3 and continued into Q4 as customers worked through high inventory levels, especially of Clorox T 360 electrostatic sprayers.\nIn the short term, we expect results will continue to be volatile as we lap periods with unprecedented demand.\nLonger-term, this business continues to be a strategic growth area for the company.\nAs part of our initiative to expand into new channels, we continue to add to our roster of out-of-home partnerships, including Live Nation, the world's leading live events company.\nLastly, within the Health and Wellness segment, our Vitamins, Minerals and Supplements business increased by double digits this quarter after lapping a double-digit decrease caused by a supply disruption related to COVID-19.\nFor the full year, sales were up as well.\nSales growth for the quarter was driven by a strong performance in the food, drug and mass channel and e-commerce.\nTurning to the Household segment.\nQ4 sales were down 8%.\nFull year sales grew 10%, with growth across all three businesses.\nOn a two-year stack basis, Q4 sales grew 8% and full year sales grew 12%.\nGlad sales decreased by double digits in Q4, lapping strong double-digit growth in the year ago quarter, which was impacted by initial stockpiling.\nFor the full year, sales were up.\nOur efforts going forward are focused on managing base with the strong inflationary headwinds we're facing.\nAnd as Linda mentioned, we still have more work to do in this business to restore market share.\nGrilling sales decreased by double digits in Q4 as demand started moderating after four consecutive quarters of strong double-digit growth.\nFor the full year, sales grew by double digits, fueled by very strong consumption overall.\nOur focus on expanding distribution of our latest innovation, Kingsford Pellets, continued with a nationwide launch, building on the product's initial success, while we're also introducing signature flavors made with 100% real spices that will be available in select retailers before Labor Day as we gear up for the 2022 grilling season.\nThis innovation is intended to help our business continue building consumption among multicultural millennials and other heavy grillers.\nCat Litter sales grew by double digits in Q4 driven by continued strong consumption.\nFor the full year, Litter sales also grew.\nThe result reflected strength in e-commerce, with Fresh Step becoming the number one brand online for the first time and positive overall category trends, boosted by record pet adoptions during the pandemic.\nIn our Lifestyle segment, sales were down 3% and full year sales grew 6%.\nOn a two-year stack basis, Q4 sales grew 13% and full year sales grew 16%.\nBrita sales were down as demand continued to moderate from an extended period of elevated consumption.\nFull year sales grew on top of double-digit growth in the prior year.\nDespite the deceleration in Q4, business fundamentals are strong, especially now that our supply is mostly restored.\nWe're excited about the strong merchandising program we've put in place this year, including the largest back-to-college event ever for the brand.\nThe Food business was down, primarily due to lower shipments of Hidden Valley Ranch bottle dressings, with consumption moderating as consumer mobility improved.\nFull year sales were up by double digits, on top of double-digit growth in the prior year.\nThe consumer fundamentals for this business are strong, with the brand growing market share and household penetration.\nBurt's Bees sales increased by double digits this quarter as overall category consumption begin to recover.\nFull year sales were down as category consumption was negatively impacted by store closures, mask mandates and stay-at-home measures.\nWe expect this business to continue to recover as people begin returning to their pre-pandemic shopping patterns and consumer mobility keeps improving.\nWe'll build on that momentum with our new \"Lips To Love\" campaign, supported by a strong innovation pipeline.\nLastly, turning to International.\nQ4 sales grew 5%, reflecting the combined impact of the Saudi JV acquisition and benefit of price increases, partially offset by lower shipments due to the moderating demand after a period of elevated consumption.\nExtended lockdowns in Canada also contributed to the decrease in shipments.\nThe results are on top of 12% growth in the year ago period, when we saw elevated consumption across our portfolio during the early stages of the pandemic.\nImportantly, we continue to expand our global Disinfecting Wipes business, building on the dedicated international supply chain that was developed in five months and are making progress launching our Clorox Expert Disinfecting Wipes in existing countries as well as new markets.\nFor the full year, sales increased 14%, reflecting very strong growth for the majority of the year before moderating in Q4.\nOn a two-year stack basis, Q4 sales grew 17% and full year sales grew 19%.\nAs Linda mentioned, for fiscal year '21, we delivered 9% sales growth on top of 8% sales growth in fiscal year '20.\nWhile this is lower than we anticipated in our outlook, we feel good about delivering another strong sales year.\nOf course, we continue to manage through an extremely challenging cost environment, which impacted our fiscal year margins and earnings.\nImportantly, we delivered another year of strong cash flow, which came in at $1.3 billion compared to a record $1.5 billion for fiscal year '20.\nI'm pleased our strong cash flow allowed us to return almost $1.5 billion to our shareholders through our dividend and share repurchase program, representing an increase of about 90% in cash returned to shareholders versus fiscal year '20.\nBefore I review our Q4 results, I wanted to highlight a $28 million noncash charge we booked in Q4 related to a third-party supplier for our Professional Products business.\nAs we have shared previously, during the height of the pandemic, we worked with a number of third-party suppliers to support us in addressing unprecedented demand in the consumer and professional spaces.\nWe are reducing our reliance on one of these suppliers, and as a result, we took a charge in the fourth quarter.\nImportant to note, this noncash charge is included in our reported earnings per share and excluded from our Q4 adjusted earnings per share as it represents a nonrecurring item.\nTurning to our fourth quarter results.\nFourth quarter sales decreased 9% in comparison to a 22% increase in the year ago quarter, delivering a two-year stack of 13% sales growth.\nOur sales results reflect an 8% decline in organic volume and two points of unfavorable price mix, primarily in our Health and Wellness segment, as supply improvements resulted in a broader product assortment, including the reintroduction of value packs.\nOn an organic basis, fourth quarter sales declined 10%.\nFourth quarter sales were lower than expected, primarily in our Health and Wellness segment, as demand for cleaning and disinfecting products moderated more rapidly than we had previously anticipated.\nWhile the cleaning and disinfecting category continues to moderate, we're pleased to see improving share as we've increased our ability to supply.\nGross margin for the quarter decreased 970 basis points to 37.1% compared to 46.8% in the year ago quarter.\nGross margin results were lower than anticipated, largely driven by higher input costs and lower sales.\nThe year-over-year change in Q4 gross margin was primarily driven by lower sales, resulting in lower manufacturing fixed cost absorption as well as significant cost headwinds, driving about 290 basis points of higher commodity costs, 180 basis points of increased transportation costs as well as 130 basis points of unfavorable mix.\nOur fourth quarter gross margin also includes about 70 basis points of negative impact from the noncash charge I just mentioned.\nThese margin headwinds were partially offset by about 90 basis points of cost savings and 50 basis points of benefit from our pricing actions in our International division.\nSelling and administrative expenses as a percentage of sales came in at 14.4% compared to 14.1% in the year ago quarter.\nAdvertising and sales promotion investment levels as a percentage of sales came in at about 12%, with U.S. spending at about 14% of sales.\nStrong investments in Q4 supported our back half innovation program and reflected our continued focus on building loyalty among new consumers.\nOur fourth quarter effective tax rate was 0%, primarily driven by a tax benefit from the exiting of a small foreign subsidiary, which was mostly offset by the charge we took to pre-tax book income associated with this decision as well as favorable return to provision adjustments.\nOn a full year basis, our effective tax rate was 20%.\nNet of all these factors, adjusted earnings per share for the fourth quarter came in at $0.95 versus $2.41 in the year ago quarter, a decline of 61%.\nBefore I review the details of our outlook, let me provide perspective on the strategic investment Linda discussed.\nWe are planning to invest about $500 million over the next five years to enhance our digital capabilities and drive productivity improvements, including the replacement of our ERP.\nIn fiscal year '22, we plan to invest about $90 million in operating and capital expenditures, with about $55 million impacting our P&L and the remainder reflected in our balance sheet.\nBeginning in Q1 and going forward, our adjusted earnings per share will exclude the portion of the $500 million investment that flows through our P&L to provide better insights into our underlying operating performance of our business.\nNow turning to our fiscal year '22 outlook.\nWe anticipate fiscal year sales to be down 2% to 6%, reflecting ongoing demand moderation, primarily in our cleaning and disinfecting products in the front half of the fiscal year, in addition to the unfavorable mix and higher trade spending as we move to a more normalized supply and promotional environment.\nWe assume these factors will be partially offset by the pricing actions we're taking broadly across our portfolio.\nOrganic sales are expected to be down 2% to 6% as well.\nWe expect front half sales to decline high single to low double digits as we lap 27% growth in the front half of fiscal year '21, during the height of the pandemic.\nAdditionally, we expect Q1 sales to decline low double digits.\nAs we move to the back half of the year, we expect to return to the lower end of our long-term sales growth target.\nOf course, we continue to operate in a dynamic and uncertain environment, which could impact our outlook.\nWe anticipate fiscal year gross margin to be down 300 to 400 basis points due to our assumption for significant ongoing headwinds from elevated commodity and transportation costs, which represent nearly $300 million in year-over-year cost increases.\nWe expect these headwinds to be more pronounced in the front half of the year, particularly in Q1, as we expect key commodity cost increases to reduce gross margin by about 500 basis points, driving our assumption for Q1 gross margin to decline 1,100 to 1,300 basis points.\nFor perspective, in Q1, we are lapping a modern gross margin record of 48%, reflecting over 400 basis points of favorable operating leverage on 27% sales growth in the year ago quarter.\nThis is based on our assumption that cost inflation will begin to moderate, and it will see the benefits from mitigating actions flow more fully through our P&L.\nWe expect fiscal year selling and administrative expenses to be about 15% of sales, which includes about one point of impact related to our investment to enhance our digital capabilities.\nAdditionally, we anticipate fiscal year advertising spending to be about 10% of sales, reflecting our ongoing commitment to invest behind our brands and build market share.\nWe expect our fiscal year tax rate to be about 22% to 23%.\nThe year-over-year increase primarily reflects lapping several onetime benefits in the prior fiscal year.\nNet of these factors, we anticipate fiscal year adjusted earnings per share to be between $5.40 to $5.70.\nAs we start fiscal year '22, I would like to emphasize our priority to address elevated cost pressures from both commodities and transportation throughout the fiscal year.\nWe are focused on executing the pricing actions we discussed today.\nWe have implemented our announced price increase on our Bags and Wraps and are taking pricing on our Food, Cleaning and International businesses.\nThis represents about 50% of our portfolio.\nWe are also pursuing pricing in additional parts of our portfolio, which we'll announce at a later date.\nWhile it's still early, we are confident in our ability to price given the strength of our brand and the constructive conversations we're having with retailers.\nConsistent with our IGNITE Strategy, we're addressing short-term headwinds head-on, with an eye on the long-term health of our business.\nWe will continue to invest in our brands, including meaningful innovation to drive differentiation, which will help us continue to drive superior consumer value.\nWe are leaning into our cost savings program and productivity initiatives to help address ongoing cost pressures.\nAnd we're accelerating investments in our digital transformation to drive increased capabilities, lower costs across our supply chain and improve innovation efforts and our brand engagement activities.\nAnd finally, as Linda mentioned, our business is significantly larger than before the pandemic, and we're well positioned for the future.\nOur global portfolio of trusted brands is more relevant than ever, and we're positioning ourselves to make the most of the changing consumer trends we see.\nWe have confidence in our strategic plans and our ability to execute to enable us to continue to create long-term value for our shareholders.\nWe're focused on strong execution in the face of dynamic conditions, including addressing significant cost headwinds and improving market share.\nIn addition, we have clarity on the strategic imperatives and executional mandate to differentiate Clorox and build a stronger, more resilient and more profitable company.\nAnd as we accelerate and execute our IGNITE Strategy, we're confident that it will drive improved performance.",
        "summary": "sees fy adjusted earnings per share $5.40 to $5.70.\nstarting in fy 2022, expects to invest about $500 million over next five years in its digital capabilities, productivity enhancements.\n2022 fiscal year sales are projected to be down 2% to 6%.\nin second half of fy 2022, sales are expected to normalize toward lower end of co's long-term sales growth target of 3% to 5%.\nexpects largest factor impacting its sales performance in fiscal year 2022 to be consumer demand, which remains uncertain.\nfiscal year 2022 organic sales are projected to be down 2% to 6%."
    },
    {
        "text": "We generated earnings of $1.90 per share, and an ROE of 13.53% in the third quarter.\nOur results included solid loan growth in a number of business lines, which was overshadowed by the headwinds from PPP loan forgiveness and reduced auto dealer loans due to supply constraints.\nWe continued to drive strong deposit growth, robust fee income, and excellent credit quality.\nRevenue increased quarter-over-quarter and year-over-year, despite the low rate environment.\nOur focus remains on managing expenses while supporting our revenue-generating activities.\nAlso during the quarter, we repurchased over 3 million shares, reducing our share count by over 2%.\nWe expect economic metrics remained relatively strong over the next year, which bodes well for growth.\nOur corporate mission is to create shareholder value by providing a higher level of banking that nurtures long lasting relationships.\nKey to achieving this mission is our dedication to our customers, employees and communities.\nOur green loans and commitments continue to increase and totaled $1.5 billion at quarter end.\nRecently, we launched a national Asian and Pacific Islanders resource grade.\nWe now have 10 employee resource groups covering all of our markets.\nThese groups support our diverse team members and strengthen relationships in our communities.\nI encourage you to review our diversity equity and inclusion report, as well as our 13th Annual Corporate Responsibility related report, which were recently published.\nThese reports include updates on our strategies and progress in these important areas.\nTurning to our third quarter financial performance on slide four.\nSignificant progress was made on PPP forgiveness, reducing these loans about $1.8 billion or 64% on a period-end basis.\nSupply constraints continue to impact auto dealer floor plan loans, which average only $600 million relative to the historical run rate of about $4 billion.\nPutting PPP and dealer side, the average loans and the remainder of our portfolio grew about $600 million or nearly 1.5% over the second quarter, including a 3% increase in general middle market.\nOur pipeline is strong and loan commitments continue to increase.\nAverage deposits increased 5% or $3.6 billion to another all-time high.\nThis is due to our customers' solid profitability and capital markets activity as well as the liquidity injected into the economy through physical and monetary actions.\nNet interest income increased $10 million, benefiting from an additional day in the quarter, higher loan fees and deployment of excess liquidity, partly offset by lower rates.\nCredit quality was excellent with net charge-offs of only 1 basis points, and criticized loans have declined to well below our long-term average.\nAs a result, our reserve declined again and we had a negative provision.\nReserve ratio of 1.33% reflects the positive outlook for the economy and our portfolio.\nFee-generating activity remained robust.\nThird quarter non-interest income was up 11% on a year-over-year basis.\nOn a quarter-over-quarter basis, record warrant income and commercial lending fees were offset by decline in card fees from elevated levels due to lower levels of government stimulus.\nOur efficiency ratio held steady at 62%, as we continue to focus on supporting revenue generating activity.\nThis includes our technology investments, which help us attract and retain customers and colleagues by enhancing their overall experience and efficiency.\nWe remain focused on our digital transformation by enabling our business with products and services, modernizing our platform and building our digital future with the right talent, skills and strategy.\nAs we said earlier, we continue to manage our capital levels, keeping a close eye on long trends and capital generation.\nUsing our capital to support our customers and drive growth remains our top priority, while providing an attractive return to our shareholders.\nWe along with our customers and colleagues across our markets remain optimistic about the future.\nWe expect economic metrics remain relatively strong over the next year.\nOur chief economist forecast real GDP to increase 4.5% in 2022, with each of our three primary markets of California, Texas, and Michigan above that level, which bodes well for growth.\nTurning to slide five.\nPPP loans decreased $1.8 billion to end [Phonetic] the quarter at $1 billion as the forgiveness process accelerated.\nExcluding the decline in PPP loans, we had good momentum in several business lines.\nSpecifically, we've driven consistent growth in general Middle Market, Equity Fund Services, Environmental Services and Entertainment.\nThis growth was partially offset by decreases in National Dealer Services and Mortgage Banker.\nIndustry data shows that auto and dealer inventory levels are at a 20 to 25 day supply versus the typical 60 to 70 days due to challenges resulting from chip shortages, labor constraints and foreign nameplate shipping issues.\nWe believe our dealer floor plan balances are very close to the bottom and inventory levels should start to slowly rebuild.\nMortgage Banker loans also declined.\nOf note, our mix is beneficial with 71% of our loans tied to purchase activity.\nThe expectation is that refi volumes should continue to fall as rates increase.\nHowever, purchase activity should remain relatively strong.\nAs far as line commitments, we posted another strong quarter with an increase of over $800 million and growth in most business lines.\nUsage also grew resulting in the line utilization rate holding steady at 47%.\nLoan yields increased 14 basis points, including 14 basis points from the net impact of PPP loans and 3 basis points from higher non-PPP fees.\nThis was partly offset by a 3 basis point impact from lower rates, which included swap maturities.\nDeposits continue to grow in nearly every business line, hitting a new record as shown on slide six.\nThe majority of our deposits are non-interest bearing and the average cost of interest bearing deposits remained at an all-time low just below 6 basis points.\nOur total funding cost held steady at 7 basis points.\nWith strong deposit growth, our loan to deposit ratio decreased to 59%.\nSlide seven provides details on our securities portfolio.\nWe deployed some of our excess liquidity by increasing the size of the securities portfolio by $1 billion or $566 million on average.\nThis allowed us to mitigate the rate headwinds resulting in approximately the same level of securities income quarter-over-quarter.\nMBS purchases in the third quarter had average durations of around six years and yields of about 170 basis points.\nWith securities rolling off with rates over 200 basis points, the total portfolio yield declined to 1.76%.\nOur goal is to continue to offset any pressure from lower reinvestment yields by gradually and opportunistically increasing the portfolio size.\nTurning to slide eight.\nNet interest income grew $10 million, primarily due to an increase in the contribution from loans.\nHowever, the net interest margin declined 6 basis points due to the large increase in excess liquidity.\nAs far as the details, interest income on loans increased $7 million and added 6 basis points to the net interest margin.\nThis was driven by one additional day in the quarter, which added $4 million, higher loan fees and balances on non-PPP loans together added $5 million, and the impact of PPP with higher fees netted against more balances added $2 million.\nThis was partly offset by lower LIBOR and the swap maturity, which together had a $4 million unfavorable impact.\nAs I mentioned, we neutralized the drag from lower securities yields on interest income by increasing the portfolio size.\nA $4.5 billion increase in average balances of the Fed combined with a 5 basis point increase in the rate paid on these balances added $3 million and had a 10 basis point negative impact on the margin.\nFed deposits remain extraordinarily high at over $20 billion and weighed heavily on the margin with the gross impact of approximately 65 basis points.\nGiven our asset sensitive balance sheet, the recent steepening of the yield curve is a positive sign for the future.\nOur models estimate an 11% increase in annual net interest income in the first year when rates gradually rise 100 basis points.\nAnd of course, the incremental income in year two compared to the year one increase would be yet higher.\nCredit quality was excellent, as shown on slide nine.\nNet charge-offs were only $2 million and included $16 million in net recoveries from our energy business line.\nNon-performing assets decreased and remained low at 62 basis points of loans.\nAlso, criticized loans declined in nearly every business line and are now below 4% of total loans.\nWith help from the rise in oil and gas prices, the energy portfolio had significant decreases in both non-accrual and criticized loans.\nStrong credit metrics combined with our growing confidence and sustainable economic growth resulted in a decrease in our allowance for credit losses.\nOur total reserve ratio remains healthy at 1.33%.\nOverall, our customers quickly adapted and navigated a very challenging environment.\nHowever, we remain vigilant given the potential stress on our customers from supply chain disruptions, labor constraints and inflation.\nNon-interest income declined modestly to $280 million following a very strong second quarter as outlined on slide 10.\nWarrant-related income increased $7 million to an all-time high due to robust IPO and M&A activity.\nSimilarly, commercial lending fees were also a record driven by a large increase in syndication fees.\nDeposit service charges grew $3 million as a result of an acceleration in customer activity.\nAlso BOLI income increased primarily due to the receipt of the annual dividend.\nAs expected, government card activity declined a stimulus-related volume waned.\nHowever, this was partly offset by increases in merchant, consumer and commercial card activity.\nDeferred comp asset returns, which is offset in non-interest expenses for less than $1 million compared to $6 million in the second quarter.\nAlso, derivative income declined $2 million due to reduced customer appetite for interest rate hedges, partly offset by robust energy derivative transactions with oil and gas prices hitting multiyear highs.\nFiduciary income decreased from a record level in the second quarter as continued strong equity market performance was more than offset by the absence of annual tax service fees.\nIn summary, we are pleased with another very strong quarter for fee income.\nAs shown on slide 11, expenses were up $2 million in the quarter.\nSalaries and benefits increased $5 million, mainly due to an increase in performance-based incentives, which was partly offset by decline in deferred comp.\nAlso, we had higher software and consulting costs as we progressed on our digital transformation journey and occupancy expense was seasonally higher.\nIn line with lower card fee income, outside processing decreased $6 million.\nLitigation cost decreased following the elevated second quarter levels.\nAnd finally, FDIC insurance declined due to strong credit quality and higher capital ratios at the bank level.\nOur stable efficiency ratio is consistent with our commitment to maintaining our strong expense discipline as we invest for the future.\nSlide 12 provides details on capital management.\nOur CET1 ratio decreased to an estimated 10.21%.\nWe repurchased 3 million shares in the third quarter under our share repurchase program.\nWe continue to closely monitor loan growth trends and capital generation as we manage our way toward our 10% CET1 target.\nIn addition, we have maintained a very competitive dividend yield.\nSlide 13 provides our outlook for the fourth quarter relative to the third quarter.\nExcluding PPP loans, we expect loan growth in several businesses, including general Middle Market and large corporate.\nPartly offsetting this growth, we expect continued decline in Mortgage Banker due to lower refi volumes and seasonality.\nOf note, we believe auto dealer floor plan loans were close to a bottom.\nPPP forgiveness is expected to continue and the bulk should be repaid by year end.\nAs we look forward to next year, we believe loan growth from year-end '21 to year-end '22 should be relatively strong, supported by our robust pipeline and expectations that the economy will remain strong.\nWe expect the average deposits to remain elevated as customers continue to generate and maintain excess balances.\nWe expect net interest income in the fourth quarter to be impacted by a decrease in PPP-related income from $34 million in the third quarter to be $10 million to $15 million in the fourth quarter.\nEx-PPP, we expect net interest income to be relatively stable.\nLower fees from elevated third quarter levels and to a lesser extent maturing swaps are expected to mostly offset the benefit from non-PPP loan growth.\nAs far as next year, putting aside the headwind from the decline in PPP income, we expect to benefit from loan growth.\nAs I discussed earlier, we are highly sensitive to rate movements, so assumptions for rates are a key determinant for net interest income expectations, including the impact of maturing loan floors and swaps.\nCredit quality is expected to remain strong.\nAssuming the economy remains on the current path, we believe the allowance should continue to move toward our pre-pandemic day-one CECL reserve of 1.23%.\nAs far as fourth quarter non-interest income, we expect continued solid performance in several customer-driven fee categories such as deposit service charges, card and derivatives, particularly, foreign exchange.\nMore than offsetting this growth, we expect a decrease from record levels of warrant and commercial loan fees as well as elevated BOLI.\nWe expect 2021 non-interest income will be one of the highest we've ever recorded.\nCertain line items such as card, warrants and derivatives, including CVA [Phonetic] may be difficult to repeat as we look in the next year.\nAnd we assume deferred comp, which is offset in non-interest expense will not repeat.\nHowever, we expect strength in growth across many other fee income categories.\nWe expect expenses in the fourth quarter to be relatively stable.\nAs we continue to invest for the future, technology investments are expected to rise as they typically do as we approach year end.\nIn addition, we expect seasonally higher occupancy, advertising and travel and entertainment expenses.\nThis is expected to be offset by a reduction from the third quarter elevated performance-based incentives.\nOur planning process for next year is underway.\nBig picture, we expect compensation to normalize in 2022.\nHowever, inflationary pressures could impact a number of line items, including salaries.\nAlso, we are focused on product and market development, as well as driving efficiency, which means continued investment in technology.\nThis is particularly important to ensure we continue to be well positioned to assist customers and colleagues given the prospect of strong economic growth for the foreseeable future.\nWe expect the tax rate to be 22% to 23%, excluding discrete items.\nAnd finally, as I indicated on the previous slide, we plan to continue managing toward our CET1 target as we monitor loan trends.\nOverall, we are pleased with our results.\nMany business lines showed good momentum with increases in loans, commitments in pipeline.\nAlso, fee income was robust, deposit growth was strong and credit quality was excellent.\nThis resulted in revenue growth and a steady efficiency ratio in spite of the low rate environment.\nWe continue to feel good about how well we are positioned for the future, particularly our ability to support our customers in this extraordinary environment.\nWith our expertise and experience, we are building long-term relationships.\nOur unique geographic footprint provide significant growth opportunities.\nWe are located in seven of the top 10 fastest growing metropolitan areas, including the expansion of our Southeast presence earlier this year.\nWe are focused on delivering a more diversified and balanced revenue stream with an emphasis on fee generation.\nWe will continue to carefully manage expenses as we invest in our products and services and make progress on our ongoing digital journey.\nFinally, our disciplined credit culture and strong capital base continue to serve us well.\nThese key strengths provide the foundation for creating long-term shareholder value.",
        "summary": "compname posts q3 2021 net income of $262 mln, $1.90 per share.\nthird quarter 2021 net income of $262 million, $1.90 per share.\nquarter-end common equity tier 1 capital ratio of 10.79% versus 10.84%."
    },
    {
        "text": "Hopefully, each of you had a wonderful holiday season.\nI will begin today's call with a few highlights from the quarter and commentary on CMC's strategic growth projects.\nPaul Lawrence will then cover the quarter's financial information in more detail, and I will conclude with a discussion of the current market environment and our outlook for the second quarter of fiscal 2022.\nAfter which, we will open the call to questions.\nI'm pleased to report that CMC's first quarter fiscal 2022 earnings were the best in our company's 106-year history.\nEarnings from continuing operations were 232.9 million or $1.90 per diluted share on net sales of 2 billion.\nExcluding the impact of a tax benefit related to an international reorganization, adjusted earnings from continuing operations were 199.2 million or $1.62 per diluted share.\nCMC generated core EBITDA of 326.8 million, an increase of 109% from the year-ago period and an improvement of 28% from the prior quarter.\nThis was the third consecutive quarter in which our company has reported record bottom-line earnings, core EBITDA, and segment-level EBITDA.\nThese achievements are a result of the execution of our strategic plans presented to shareholders during our virtual investor day in August of 2020.\nStrong market conditions and strong margins across several product lines certainly contributed to these exceptional results.\nHowever, to put this performance into context, during the fiscal 2014 and 2015 time period, we experienced similar robust market conditions to what we enjoy today, and our 12-month EBITDA was between 375 million and 400 million with return on invested capital in the mid-single digits.\nThis significant improvement over the past six years underscores the enhanced earnings power of CMC today, and it is our objective to produce better returns with higher highs and lower lows through the economic cycle.\nTo back up this statement, CMC achieved an annualized return on invested capital of 25.1% during the first quarter and an annualized return on equity of 35.6%.\nOur team members continue to tightly manage controllable costs, reflecting changes to costs on a per-unit basis, better than most industry and macro benchmarks we track.\nWe are certainly proud of CMC's record financial results delivered by strong execution of our strategic initiatives, as well as solid market fundamentals.\nWhile we are proud of the performance to date, let me take a moment to explain why I believe CMC's best days are still ahead of us.\nI'll start with sustainability.\nBefore we can responsibly talk about growth, we need to be certain that what we are growing is sustainable.\nCMC was founded 106 years ago as a metals recycler, and we carry on that legacy today, operating possibly the cleanest portfolio of steel mills in the world.\nWe're also committed to further improvement as we make significant progress toward our 2030 environmental goals.\nCMC's Scope 1 and 2 emissions are already well under the 2040 Paris Accords target, and our emissions have improved by 6.2% per ton of steel produced compared to our fiscal 2019 baseline.\nThis two-year improvement stands in stark contrast to the global industry, which increased its emissions intensity over the same time frame.\nSince fiscal 2019, we've also improved our energy efficiency by 7.8%, while the global industry's performance has deteriorated by nearly 6%.\nWe are sourcing more renewable energy than ever before, and the proportion of green energy within our overall consumption has risen by roughly 3 percentage points over the last two years, and we continue to work every angle to move this figure higher.\nOur commitment to renewable sourcing is demonstrated by the design of our future Arizona 2 micro mill now under construction in Mesa.\nThis exciting new plant will be capable of directly connecting to an on-site solar field, making micro mill steelmaking the world's cleanest steelmaking technology even cleaner.\nIn our industry, sustainability also means treating our people with the right way and keeping them safe on the job.\nCMC's mission is that each day, every one of our employees finishes their shift in the same condition they started.\nWe have developed a unique safety culture that leans on innovative thinking, emphasizes shared accountability, and aims toward an ultimate goal of zero incidents.\nThrough this approach, CMC has achieved several consecutive years of improvement in our incident rates, including dramatic improvements at acquired facilities where we have instilled our CMC culture.\nAcross each line of business, we focus extensively at keeping our people safe and healthy.\nNot only is this the right thing to do, but over the long term, we expect the care we have for our employees will lead to long-term retention of our exceptional workforce and make CMC an employer of choice within our industry.\nI touched on only a few highlights of our ESG commitment, which is detailed in our sustainability report published in December 2021, and I encourage you to read the report.\nTo sum up, I would say that CMC is not just sustainable, but a sustainability leader.\nBeing a leader means always pushing further and never standing still.\nIn the years ahead, we will do just that.\nAnd clearly -- our clearly sustainable platform gives us a solid foundation on which to grow.\nI'd like to now discuss some of our exciting initiatives which are a result of the disciplined and deliberate execution of CMC's strategic plan.\nThese projects strengthen and reinforce our organization's core capabilities.\nWhile extending CMC's growth runway into markets, customer groups, and applications, we already know well.\nRecently, we announced a series of exciting growth initiatives, which have been under consideration for some time.\nI'd like to emphasize that we have been disciplined in knowing the strategic direction and goals that most benefit our shareholders, disciplined in taking the next step in identifying opportunities that move our organization toward these goals, and then, acting decisively when these opportunities arise and the timing is right.\nLet me begin with an update on CMC's third micro mill currently under construction in Mesa, Arizona.\nThis plant will be the first micro mill in the world capable of producing merchant bar and, as I mentioned earlier, will be among the greenest in the world.\nArizona 2, as we are calling it, provides significant strategic value to CMC.\nIt will replace the much higher cost and inefficient rebar capacity of the former Steel California operations.\nThe sale of which will fund over half the cost of our new plant.\nArizona 2 will also give CMC a coast-to-coast merchant bar footprint and serve several customers we already know well through our MBQ operations in Alabama, South Carolina, and Texas.\nImportantly, Arizona 2 will help further optimize CMC's operational network and enhance customer service.\nThe new mill, dubbed MM4, will augment our operational footprint in the Eastern United States and enhance our ability to serve markets in the Northeast, Mid-Atlantic, and Midwest.\nWe expect significant internal synergies from this investment, including enhanced production flexibility among our Eastern U.S. mill network, improved customer service capabilities, as well as enhanced delivery times and logistical efficiencies in getting steel to its destination.\nMM4 is a project we have studied for several years and now feel the time is right to execute.\nMM4 will be rebar-centric with additional capabilities under consideration.\nThis investment further demonstrates our commitment to a sustainable future for CMC.\nBoth mill projects stand to benefit directly from the largest infrastructure package to be enacted in the U.S. in several decades.\nThe Infrastructure Investment and Jobs Act signed last November will provide 1.2 trillion in funding over five years and stimulate an estimated 1 million to 1.5 million tons of incremental annual rebar demand at full run rate.\nThis would add roughly 15% to current domestic consumption of around 8.5 million tons.\nWe expect the time between the bill's enactment and the commencement of significant construction activity to be in the range of 18 to 24 months, which lines up very well with the scheduled future commissioning of Arizona 2.\nWe further anticipate a late calendar 2024, early 2025 start-up of MM4, and this would coincide with infrastructure-related demand nearing full run rate.\nStepping beyond mill investments, CMC's agreement to acquire Tensar Corporation announced last month will add additional products and capabilities, which will make CMC a unique provider of value-added reinforcement solutions for the domestic and international construction markets.\nThis transaction represents CMC's entry into an adjacent and complementary product space through the purchase of a proven market and innovation leader.\nThe acquisition meaningfully extends CMC's growth runway and provides a platform for further expansion into high-margin, high customer service engineered solutions.\nAs we discussed in our call in December, Tensar's offerings provide best-in-class value propositions to customers, particularly against competing traditional reinforcing solutions but are underpenetrated in the marketplace.\nWe believe this combination of attractiveness to customers and large potential market opportunity will support significant organic growth at Tensar in the years ahead.\nTensar is already very well managed with a strong reputation and proven innovation and operational capabilities.\nWe believe these factors greatly reduce the execution risk of this transaction while providing CMC with solid commercial synergy opportunities out of the gate.\nCurrently, we expect to close on the acquisition during the fiscal third quarter.\nThe two U.S. mill expansions plus the Tensar acquisition, combined with our recently commissioned rolling line in Europe, should provide CMC with at least 200 million of sustainable through-the-cycle EBITDA once fully operational.\nMy belief that CMC's best days are ahead is based not just on our announced strategic investments but several other factors as well, including the quality of our people.\nWe've not discussed this topic much in the past, but it's vitally important to the future of CMC with a longer-term impact greater than any new capital project.\nAs we sit here today, I'm very confident regarding the new generation of leaders that are developing at every level of our organization.\nOur bench strength has never been better.\nCMC's transformational growth projects over the last several years have expanded our North American business by nearly 50%, necessitating organizational adjustment to accommodate such rapid growth.\nEmployees were provided with opportunities to take on new responsibilities and new roles across the company, giving each an expanded perspective of CMC's business and valuable experience in managing through change.\nAdditionally, the last two years have involved unprecedented challenges, first related to complications due to the pandemic, followed by high inflation, logistical issues, and labor shortages.\nOur team has responded exceptionally well to the series of challenges, and we have all seen the outcome, a stronger company generating record financial results.\nWith hindsight, it's clear the events of the last several years has created an innovative, adaptable, stress-tested roster of current and future key leaders at CMC.\nLastly and while this is outside CMC's control, I'm confident about the future of our core geographical markets.\nCMC has exposure to the most economically vibrant and rapidly growing regions in both the U.S. and Europe.\nFor more than a decade, population growth within CMC's key U.S. markets have outpaced the broader United States.\nThis trend has picked up pace considerably since early 2020 and has been reflected in new community formation and relocation of businesses.\nUltimately, population drives construction over the long term, and CMC is well-positioned to benefit.\nThe dividend will be paid on February 3, 2022.\nThis represents CMC's 229th consecutive quarterly dividend with the amount paid per share increasing 17% from a year ago.\nAs we announced last quarter, we are also committed to returning capital to shareholders through our share repurchase program, and Paul will give you an update on our activity this past quarter.\nWith that as an overview, I'll now turn the discussion over to Paul Lawrence, senior vice president and chief financial officer, to provide some more comments on the results for the quarter.\nAs Barbara noted, we reported record fiscal first quarter 2022 earnings from continuing operations of 232.9 million or $1.90 per diluted share, more than triple prior-year levels of 63.9 million and $0.53, respectively.\nResults this quarter include a net after-tax benefit of 33.7 million, primarily related to a tax capital loss recognition on an international tax restructuring transaction, which took place in the quarter.\nExcluding the impact of this item, the adjusted earnings from continuing operations were 199.2 million or $1.62 per diluted share.\nCore EBITDA from continuing operations was 326.8 million for the first quarter of 2022, more than double the 156.6 million generated during the prior-year period.\nBoth our North America and Europe segments contributed significantly to year-over-year earnings growth, while core EBITDA per ton of finished steel reached a record level of $233 per ton.\nThe first quarter marked the 11th consecutive quarter in which CMC generated an annualized return on invested capital at or above 10%, which is in excess of our cost of capital.\nNow, I will review our results by segment for the first quarter of fiscal '22.\nThe North American segment recorded adjusted EBITDA of 268.5 million for the quarter, an all-time high.\nThis compares to adjusted EBITDA of 155.6 million in the same period last year.\nLargest driver of this 73% improvement was a significant increase in margins on steel products and raw materials.\nPartially offsetting this benefit were higher controllable costs on a per ton of finished steel basis due primarily to increased unit pricing for freight, energy, and alloys.\nSelling prices for steel products for our mills increased by $364 per ton on a year-over-year basis and $76 per ton sequentially.\nMargin over scrap on steel products increased $202 per ton from a year ago and $82 per ton sequentially.\nThe average selling price of downstream products increased by $158 per ton from the prior year, reaching $1,092.\nThis increase was consistent with the rise in underlying scrap costs, resulting in unchanged margins over scrap relative to the prior period.\nDuring our fourth quarter earnings call, I indicated that CMC's downstream backlog was expected to reprice higher throughout fiscal 2022 as new higher price work replaces older lower-priced work.\nThrough the first four months of the fiscal year, we are seeing the anticipated rate of repricing play out.\nWe continue to expect forward -- further upward movement in CMC's average backlog price through the remainder of the fiscal year, particularly in light of strong market demand and bid volume, which we are experiencing in our downstream geographies.\nShipments of finished product in the first quarter were essentially flat from a year ago.\nEnd market demand for our mill products remained strong.\nThis is supported by our own shipment volume and industrywide data we track regarding consumption of rebar, merchant bar, and wire rod.\nDownstream product shipments increased by nearly 8% from the prior period, driven by the beneficial impact of our growing construction backlog.\nTurning to Slide 11 of the supplemental deck, our Europe segment generated record adjusted EBITDA of 79.8 million for the first quarter of 2022 compared to adjusted EBITDA of 14.5 million in the prior-year period.\nThis improvement was driven by expanded margins over scrap, the receipt of a 15.5 million energy credit, and strong profit contributions from our new rolling line.\nHigher costs for energy and mill consumables partially offset these positive factors.\nEnergy credit received was for calendar 2020.\nLegislation is currently before the Polish Parliament to extend this credit further.\nMargins over scrap increased $236 per ton on a year-over-year basis and were up $120 per ton from the prior quarter.\nTight market conditions provided the backdrop to achieve the segment's highest average selling price in more than a decade, reaching $869 per ton during the first quarter.\nThis level represented an increase of $408 per ton compared to a year ago and $106 per ton sequentially.\nEurope volumes climbed 8% compared to the prior year as a result of extensive planned maintenance performed at our rebar rolling line.\nShipments of merchant and other products were relatively unchanged as sales of higher-margin finished products replaced sales of semi-finished billets.\nDemand conditions within Central Europe remained strong.\nThe Polish construction market continues to grow at a robust rate, with particular strength in the residential and infrastructure sectors.\nConstruction of our merchant and wire rod -- consumption of our merchant and wire rod products has been supported by expanding manufacturing activity as highlighted by several key macroeconomic indicators, including the Polish and German PMI readings and Polish new industrial orders.\nThe combination of good demand and strong pricing has provided an ideal backdrop for the start of our third rolling line.\nThis new asset is significantly outperforming the original investment case.\nTurning to capital allocation, balance sheet, and liquidity, as of November 30, 2021, cash and cash equivalents totaled 415 million.\nIn addition, we had approximately 650 million of availability under our credit and accounts receivable programs, bringing total liquidity to nearly 1.1 billion.\nIn addition, as we announced last week, in late December, we closed on the sale of our Rancho Cucamonga California site and received gross proceeds of 313 million.\nProceeds received represent approximately 45% of the entire purchase price of the rebar acquisition we completed in 2019.\nDuring the second quarter, we will record a pre-tax gain of approximately 275 million related to this transaction.\nDuring the quarter, we generated 26 million of cash from operating activities despite a $252 million increase in working capital.\nThe rise in working capital was driven by the increase in average selling prices.\nLooking beyond price factors, our days of working capital have decreased from a year ago.\nOver the course of the past four quarters, CMC has invested roughly $500 million in working capital.\nOur leverage metrics remain attractive and have improved significantly over the last two fiscal years.\nAs can be seen on Slide 15, our net debt-to-EBITDA ratio now sits at just 0.7 times, while our net debt to capitalization is 18%.\nWe believe our robust balance sheet and overall financial strength provides us the flexibility to finance our strategic organic growth projects and complete the acquisition of Tensar while continuing to return cash to shareholders.\nCMC's effective tax rate was 11%, which was driven sharply below our typical statutory rates by the international reorganization performed during the quarter.\nAbsent the enactment of any corporate tax legislation that would impact fiscal 2022, we forecast our tax rate to be approximately 25% to 26% for the balance of the year.\nWith respect to CMC's fiscal 2022 capital spending outlook, we currently expect to invest 475 million to 525 million this year, roughly half of which will be attributable to Arizona 2.\nLastly, after approving the program in mid-October, CMC repurchased 159,500 shares during the first fiscal quarter of 2022 at an average price of $33.28 per share.\nThese transactions amounted to approximately 5.3 million, leaving 344 million remaining under the current authorization.\nWe expect share buyback activity to increase in the second half of the year.\nTurning now to market conditions, first, in North America, we are seeing strong activity within nearly all of our end markets.\nAt the mill level, demand for rebar, merchant bar, and wire rods remains robust with total domestic consumption for each of these products growing on a year-over-year basis during CMC's fiscal first quarter.\nRebar and wire rod in particular are being supported by continued construction growth.\nDuring CMC's first quarter, total domestic construction spending increased roughly 10% from the prior year, according to U.S. Census Bureau, driven by growth in both residential and private nonresidential categories.\nWhile national spending was largely unchanged for infrastructure, activity within CMC's core geographies outperformed the national average during the first quarter, driven by healthier state-level budgets and the need to accommodate growing populations with expanded infrastructure networks.\nStrength in construction activity has also benefited our merchant bar product lines which are used in various applications, including ceiling joists, industrial stairs and railings, and warehouse racking.\nThe industrial markets served by CMC's merchant products are healthy, and we are seeing particular strength among machinery and equipment manufacturers.\nAs you know, construction is by far CMC's largest end market, and our best leading indicator is our volume of downstream project bids.\nActivity levels have been very strong for the last three quarters, driven by a good blend of private and public sector work.\nProject owners are also awarding high volumes of new work, which has allowed CMC to grow our downstream backlog on a year-over-year basis for two consecutive quarters.\nWork is entering our backlog at very attractive average price levels, which we expect to drive profitability when shipped in future quarters.\nThe picture is equally positive in Europe.\nConstruction activity is strong with new residential construction permits increasing by double-digit percentages on a year-over-year basis.\nThe Central European industrial sector continues to grow as reflected in the current 18-month trend of expansionary PMI readings for both Poland and Germany.\nWith production from our new rolling line, which allows our Polish operations to produce each of our three major product groups simultaneously, CMC is now even better positioned to capitalize on this growth.\nIn addition, supply congestions in Central Europe are tight, which has given -- has driven margins sharply upwards from the historical lows of fiscal 2020 and early fiscal 2021.\nRegarding our outlook for fiscal 2022, we remain confident.\nBased on our view of the marketplace and our internal indicators, we anticipate continued strong financial performance.\nSigns point to robust demand in our key end markets, and we expect supply and demand conditions to remain favorable, supporting healthy margin levels.\nThe positive tone of our outlook is backed up by several key external construction forecasts and indicators.\nThe Portland Cement Association once again increased its expectation for cement consumption growth in 2022 and now anticipates an increase of 2.5% on a year-over-year basis.\nAdditionally, the Dodge Momentum Index, which measures the value of nonresidential projects entering the planning phase, remains near a 14-year high and shows strength in both its commercial and institutional components.\nMore near term, in the second quarter of fiscal 2022, we expect shipments to follow a typical seasonal trend, which has historically equated to a modest decline from Q1 levels.\nMargins on steel products, as well as controllable cost per ton, should be generally consistent on a quarter-over-quarter basis.\nAnd at this time, we will now open the call to questions.",
        "summary": "q1 earnings per share $1.90 from continuing operations.\nq1 adjusted earnings per share $1.62 from continuing operations excluding items."
    },
    {
        "text": "It's very good to be with you today, and I hope you and your families are coping well.\nDespite these unprecedented times, CNA continues to operate effectively, as our underlying business performance improved once again this quarter as evidenced by the ongoing acceleration in rate achievement, as well as higher overall growth and growth in new business.\nWe also had an improved underlying loss ratio and a lower expense ratio for the quarter.\nAs we have done in previous years, we completed our annual Life & Group review in the quarter, which importantly includes the long-term care gross premium valuation or GPV analysis of our active life reserves.\nAs part of our analysis, we took strong action to address the lower interest rate environment we now face compared to a year ago by conservatively modifying our discount rate assumptions.\nFirst, we have lowered our expectation for the normative 10-year treasury yield to 2.75%, a reduction of 100 basis points from last year.\nSecond, we extended the time period to grade up to that normative rate from six years to 10 years.\nSince long-term care reserves are discounted, these changes reflect our ongoing prudent approach to reserving and our steadfast resolve to protect our capital and earnings in an ongoing low interest rate environment.\nAl will provide you with much more details associated with this year's GPV review.\nOur underlying combined ratio of 92.6% for the quarter improved by 2 points from a year ago and is the lowest underlying combined ratio for CNA in the last 10 years.\nThe underlying loss ratio improvement consisted of only 0.5 point benefit due to lower frequency from the ongoing economic downturn, with most of the improvement driven by our International business, which has steadily returned to profitability as a result of our reunderwriting efforts in our London operation over the last 18 months.\nAs I mentioned in the last quarter, we expected only a relatively modest impact from loss frequency benefit because a substantial portion of our portfolio consists of insureds in essential industries such as construction, healthcare and manufacturing that were not subject to shelter-in-place restrictions.\nAnd we continue to assume a potential for higher severity and casualty lines, like auto and general liability, as the economy is restored over time.\nSo, we believe it is still early to react too favorably to the short-term trends.\nThe lower P&C expense ratio of 31.8% largely reflected our growing premium base, which contributed approximately 0.7 points of the improvement in our underlying combined ratio.\nAs I have said on prior calls, our strategy has been to simultaneously make substantial investments in talent, technology and analytics to position us for sustained success while streamlining our operation in order to keep our overall underwriting expenses flat.\nThen, by growing the Company in a disciplined and prudent fashion, we would steadily decrease the expense ratio, which you can clearly see in this quarter as more of the growth earned in.\nTurning to the dynamics of this hard market and starting with pricing, rate increases continued to accelerate as we achieved plus 12% in P&C overall, up 1 point from the second quarter.\nImportantly, excluding workers' comp, which had slightly negative rate and our very profitable Affinity Programs, which had a small positive rate increase, the rate change was plus 17%, up 2 points from Q2 and 5 points from Q1.\nImportantly, the increases apart from these two areas were broad-based at each business unit and essentially all product lines achieved higher rate.\nThe acceleration in our written rate increases over the last six quarters has led to four quarters of earned rate increases, now at plus 9%.\nThis compares to our long-run loss cost trend assumptions of slightly more than 4%, excluding our Affinity book.\nAs mentioned on our last call, we had previously increased our view of long-run loss cost trends in 2020, as we continued to feel the impact of social inflation on our portfolio, in particular in our aging services and auto portfolios.\nIn the quarter, we remained comfortable with our latest view and did not further need to increase them.\nHowever, as I also mentioned last quarter, the impact of the pandemic could be up at scaling the social inflation dynamic.\nThe great news, however, is that all the dynamics fueling the hard market, which we and others have articulated repeatedly, should allow us to achieve strong rate increases well into 2021 so that the margin gap, all else equal, should continue to grow net of any added pressure from long-run loss cost trends in 2021.\nAnd as we see this play out, over the next couple of quarters, we will then be in a better position to incorporate the benefit into our loss ratio picks.\nIn terms of growth, gross written premium, ex-captives, grew 9%, while net written premium growth was 7%, both higher than the second quarter.\nExposure continued to be a headwind to our growth as it was down 3 points compared to the third quarter last year.\nAs was the case in the second quarter, new business growth in the third quarter was again higher than the same period last year, which evidences our ability to provide strong service to our agents and brokers in this remote working environment.\nThe investments we made at the end of the first quarter to respond quickly to shorter time frames on submissions that I mentioned on the last call continued to pay dividends this quarter.\nRetention declined 1 point from the second quarter to 82%, due to our reunderwriting efforts in our London operations, which will essentially be completed in the fourth quarter and to our targeted actions in the US to improve the profitability of certain lines within healthcare and manufacturing that I have spoken about previously.\nCompleting the picture for the quarter, our overall combined ratio was 100.9%, which included 0.4 points of favorable development and 8.7 points of loss activity from a series of natural catastrophe events.\nIn the quarter, there were no significant changes in the regulatory environment.\nThe claim notices we received in the third quarter have been modest and very little has been paid out.\nOf course, that was our expectation all along, as we knew that claim outcomes from this event would play out slowly over time.\nAs a result, our previously established COVID-19 ultimate loss estimate of $195 million remains appropriate for all events that occurred through the third quarter, from which we believe claims will eventually emerge and our loss estimate is still virtually all in IBNR.\nThe overall portfolio fared well in the third quarter with the unrealized gain position increasing once again and net investment income was strong, driven by LP positions.\nDespite this strong quarter, we continued to see a reduction in our net investment income from our fixed income portfolio supporting P&C, due to the lower interest rate environment that we believe is unlikely to change meaningfully anytime soon.\nThis is a key dynamic fueling my perspective for a protracted hard market, as it will take time for us in the industry to achieve an offsetting increase in underwriting income.\nFinally, our core income for the third quarter was $193 million or $0.71 per share.\nNet income was $213 million or $0.79 per share.\nAs Dino indicated, I will now provide details of our results by business segment.\nStarting with Specialty, the combined ratio was 89.5% this quarter.\nThe combined ratio includes favorable prior-period development of 2 points and 1 point from catastrophe losses.\nThe favorable prior-period development was largely driven by continued strong profitability from the surety business, partially offset by unfavorable development in healthcare.\nThe underlying combined ratio for Specialty was 90.5% this quarter, 1.6 points of improvement compared to third quarter 2019.\nThe underlying loss ratio was 60%, and the expense ratio was 30.5%.\nThe expense ratio has improved by 1.3 points compared to third quarter 2019, due to both growth in net earned premium and lower expenses.\nThe gross written premium growth ex-captives was plus 11% in Specialty for the quarter and was 9% on net written premium.\nRates continued to increase at plus 13%, up from 11% last quarter.\nRetention was 86% this quarter, which was flat to last quarter.\nNew business volume was strong with growth of 14% over the prior year's quarter.\nThe combined ratio for Commercial was 111.5% this quarter, which is 9.9 points higher than third quarter 2019 and includes 17 points of catastrophe losses and 0.6 points of unfavorable prior-period development.\nThe cat losses are attributable to severe weather-related events in the quarter, primarily Hurricanes Laura, Isaias, Sally and the Midwest derecho.\nThe underlying combined ratio for Commercial was 93.9% this quarter, 0.1 points higher than the third quarter of 2019, but 0.9 points improvement on a year-to-date basis versus prior.\nThe underlying loss ratio was 61%, compared to 61.5% in the prior year, reflecting a modest benefit from lower frequency in the quarter as Dino mentioned.\nThe expense ratio was 32.3% compared to 31.7% in the third quarter 2019.\nThe prior-year expense ratio included a release, especially with the state loss assessment fund, which is muting the favorable impact of current year net earned premium growth and lower expenses.\nGross written premium growth ex-captives was plus 7% in Commercial for the quarter and net was plus 4%.\nThe rate change of 11% was up 1 point from last quarter.\nNew business growth was down 3% versus prior quarter and up 8% on a year-to-date basis.\nThe combined ratio for International was 98.1% this quarter compared to 107.4% in the third quarter 2019.\nThe combined ratio includes 3 points of catastrophe losses for the quarter.\nThe underlying combined ratio for International was 95% this quarter, an improvement of 10.3 points compared to prior-year quarter.\nThe underlying loss ratio was 60.1%, and the expense ratio was 34.9%.\nThe underlying loss ratio improved 7.2 points, fueled by a reunderwriting execution, while expense ratio declined 3.1 points, driven by lower acquisition and underwriting expenses.\nThe gross written premium in International increased by 5% and net increased by 10%, both in comparison to the prior year.\nThe net written premium growth comparison to the prior period was impacted by a change in timing of our reinsurance treaty.\nRate change of 16% was up 2 points from prior quarter.\nRetention was 70% this quarter, which is in line with 2019 levels and reflects the progression of the reunderwriting strategy.\nMore than five years ago, we commenced efforts focused on the active management of long-term care with the goal of reducing the risk of CNA, while also effectively serving our policyholders.\nThis encompass significant investment in the business and a commitment to proactively and effectively address risks.\nWe've made considerable progress on these objectives, including reducing risk across many dimensions of the block, achieving meaningful rate increases and taking pre-emptive actions on our reserving assumptions.\nThe actions we've taken with our 2020 annual review of our Life & Group reserves are reflective of this continued approach and commitment.\nAs a reminder, our annual Life & Group reserve reviews include the long-term care gross premium valuation or GPV of our active life reserves, as well as the long-term care claim reserve analysis.\nIn addition, we completed a claim reserve review for our structured settlements block, which I will also address.\nStarting with the long-term care GPV review, the most significant change resulting from this review was an update of our discount rate assumptions.\nThese changes associated with the discount rate are detailed in Slides 14 and 15.\nIt is important to note that the discount rate is a function of the current investment portfolio yield as well as the reinvestment yield assumed for future investments.\nThe benchmark we use in reference to the risk-free reinvestment yield is the 10-year US Treasury.\nWhile we're projecting risk-free rates over the short and intermediate term, we assume long-term rate or normative rate with a critical importance, given the duration of the liabilities.\nIn the previous two year's reserve reviews, we have reduced our expectations for the normative 10-year treasury yield by 105 basis points.\nAt our 2019 review, assuming that this benchmark rate will get to 3.75% by 2025, in light of the current interest rate environment and expectation with conditions persisting, we've taken several critical actions on our discounted assumptions.\nFirst, we have lowered our expectation for the normative rate at 2.75%, a reduction of 100 basis points from last year and 205 basis points cumulatively over the last three years.\nSecond, we've extended the time period to grade up to a normative rate from six years to now 10 years.\nThis means that it's not until 2030 that we will assume the new 2.75% normative rate.\nAnd finally, we are using the forward curve for the first three years of the projection and then we'll grade up to the normative rate over the remaining seven years.\nYou will see on Slide 15 that we're not assuming the tenure will get back to the 2% level until 2027, a significant change compared to our prior-year expectations.\nI should also note, we did not make any meaningful changes to investment in spread assumptions or portfolio credit quality as part of this review.\nThe sum of all the assumption changes on the discount rate resulted in an unfavorable pre-tax impact of $609 million.\nThese discount rate changes, including the significant decrease in the normative rate, extended time frame to get to the new normative rate, and use of the forward curve over the next several years, reflects our prudent approach to reserving and meaningfully reduces the reinvestment risk assumed in these liabilities.\nWith that, I will move on to other key assumption changes, including morbidity, persistency and rate increases, all highlighted on Slide 16.\nWith respect to morbidity, along with the change in the level of interest rates, we also lowered our expectation of inflation.\nThis change impacts our assumption for cost of care for future claims and together with other morbidity assumptions, had a favorable pre-tax impact of $51 million.\nWith respect to persistency, the key assumption changes have increased the mortality rates for older age policyholders not on claim and reflective of our experience for this cohort.\nPersistency changes had a favorable pre-tax impact of $152 million.\nFinally, regarding future premium rate increases, as a reminder, our approach is to include rate increases that have been approved, filed but not approved, but that we plan to file as part of the current rate increase program.\nOver the past year, our actual rate achievement has exceeded our prior-year expectations, contributing $200 million of favorable impacts.\nIn addition, we are continuing to file for additional rate increases under existing programs.\nWe are updating our assumptions to reflect our actual rate achievement in addition to the updates to existing programs at a total favorable pre-tax impact of $318 million.\nAnd I should note that the weighted average duration to future rate increase approvals assuming annual reserves is only 1.5 years.\nOverall, and as highlighted on Slide 17, our annual GPV analysis for long-term care [Indecipherable] reserve deficiency and charged earning of $74 million on a pre-tax basis.\nWhile these changes and notably the change on the discount rate are significant, they reflect our continued approach to prudently and proactively address risks associated with this business.\nIn addition to the GPV analysis, we've also concluded our annual long-term care claim reserve review, which is the review of the sufficiency of our reserves covering our claim operation.\nThe impact from this review is favorable with a $37 million release of reserves, driven by lower expected claim severity, specifically with we reserved higher claim closure rates, most notably driven by claim recoveries.\nI should note that this is the fifth year in a row that result of the claim review is favorable, which is a validation of our responsible approach to actuarial assumption setting.\nFinally, and as indicated on the bottom of the Slide 17, we had an unfavorable impact associated with the claim reserve review for our structured settlements block.\nThese structured settlements agreement to provide six periodic payments to claimants associated with historic P&C claims.\nTotal reserves for our structured settlement block were approximately $550 million at the end of the third quarter.\nSimilar to our long-term care block, these reserves are held on our balance sheet on a present value basis and thus are subject to changes in assumed discount rates.\nAs well, many of these policies have life contingencies and thus are impacted by changes in mortality assumptions.\nAs part of our reserve review this year, we made adjustments to both the discount rate and mortality assumptions, resulting in a reserve strengthening of $46 million on a pre-tax basis.\nTurning to Slide 18.\nOverall, our Life & Group segment produced a core loss of $35 million in the quarter, with some of the reserve changes coming in both the long-term care and structured settlement blocks with a pre-tax charge of $83 million or $65 million after-tax.\nWith the efforts from the impacts of these reserve reviews, the segment produced core income from current operations of $30 million for the third quarter.\nThese results were favorable to our expectations and primarily driven by morbidity experience.\nSpecifically, we continue to experience lower-than-usual new claim frequency, higher claim terminations and more favorable claim severity that may be effects of COVID-19.\nAs referenced in the previous quarter, within the uncertainty of these trends, we are taking a cautious approach from a income recognition perspective and then holding a higher level of IBNR reserves.\nIn addition, as we continue to be in these trends which are temporary and short-term in nature, we did not incorporate this more recent experience into our GPV assumption setting efforts.\nOur Corporate segment produced a core loss of $19 million in the third quarter.\nNow let me turn to investments.\nPre-tax net investment income was $517 million in the third quarter, compared with $487 million in the prior quarter.\nThe results reflected favorable returns from our limited partnership and common equity portfolios, which produced pre-tax income of $71 million compared to $18 million during the same period last year.\nPre-tax net investment income from our fixed income portfolio was $443 million this quarter, compared to $462 million in the prior-year quarter.\nThe pre-tax effective yield on our fixed income holdings was 4.5% in the period.\nThe decrease was primarily in our P&C portfolio, which, as Dino mentioned, has been impacted by lower reinvestment rates.\nPre-tax net investment gains for the quarter were $27 million, compared to a gain of $7 million in the prior-year quarter.\nThe gain was primarily driven by the continued recovery of the mark-to-market on our non-redeemable preferred stock investments and higher net realized investment gains on fixed maturity securities, partially offset by a loss on the redemption of our $400 million of senior notes due August 2021.\nOur unrealized gain position on our fixed income portfolio stood at $5 billion, up from $4.4 billion at second quarter.\nThe change in unrealized during the quarter was driven by the tightening of credit spreads across the market, while risk-free rates remained low.\nFixed income assets that support our P&C liabilities had an effective duration of 4.5 years at quarter-end, in line with portfolio targets.\nThe effective duration of the fixed-income assets that support our Life & Group liabilities was nine years at quarter-end.\nOur balance sheet continues to be extremely strong.\nAt quarter-end, shareholders' equity was $12 billion or $44.30 per share, driven by the increase in our unrealized gain position during the quarter.\nShareholders' equity, excluding accumulated other comprehensive income, was $11.6 billion or $42.78 per share.\nWe continue to maintain a conservative capital structure with a low leverage ratio and a well-balanced debt maturity schedule.\nAs I noted in August, we issued $500 million of senior notes at a record low coupon of 2.05%, with tremendous demand for the paper and we subsequently redeemed our 2021 debt, a net of which will reduce our annual interest expense by nearly $13 million.\nAnd at quarter-end, all of our capital adequacy and credit metrics remained above target levels, supporting our credit ratings.\nIn the third quarter, our operating cash flow was strong at $758 million, driven by higher premiums, and to a lesser extent, lower paid losses.\nIn addition to our positive operating cash flow, we continue to maintain liquidity in the form of cash and short-term investments and have sufficient liquidity holdings to meet obligations and withstand significant business variability.\nAnd we are pleased to announce our regular quarterly dividend of $0.37 per share.\nOne last point of emphasis before we move on to the question-and-answer portion of the call.\nEach quarter this year I have developed greater confidence in the strength and duration of the hard market because of the widespread industry awareness, and therefore increasing customer awareness of the adverse impact of the protracted low interest rate environment, social inflation dynamics, as well as years of depressed pricing and elevated catastrophe activity.\nIncreasingly, it is understood this will take more than a few additional quarters of correction to allow the industry to achieve required levels of return to responsibly protect the customer risks we assumed.\nI am optimistic that we will be able to take full advantage of this correction period to achieve stronger pricing, better terms and conditions, growing our top line premium, as well as our share of high-quality new business and improving both our underlying loss and expense ratios.",
        "summary": "cna financial q3 earnings per share $0.79.\ncompname announces third quarter 2020 net income of $0.79 per share and core income of $0.71 per share.\nq3 core earnings per share $0.71.\nq3 earnings per share $0.79.\nbook value per share at quarter end $ 44.30 at sept 30, 2020 versus $ 45.00 at dec 31, 2019."
    },
    {
        "text": "In the fourth quarter, we continue to effectively leverage the favorable market conditions and achieve strong quarterly results, which topped off a great year with record core income.\nBefore I provide details, let me offer a few highlights on both periods.\nOur gross written premiums, excluding our captive business, grew by 16% in the fourth quarter and 10% for the full year.\nImportantly, the overall P&C rate increase remained at 8% in the fourth quarter, consistent with the third quarter, leading to a full-year rate increase of 9%, which was well above long-run loss cost trends.\nThe all-in combined ratio was 92.9% for the quarter and 96.2% for the year, each representing the best ratios in five years.\nUnderlying combined ratio was 91.2% for the quarter and a record low of 91.4% for the full year.\nAll of this led to record core income of just over $1.1 billion for the year, up 50% in core earnings per share of $4.06 per share.\nDrilling down on the details starting with the fourth quarter, our P&C operations produced core income of $353 million, or $1.29 per share.\nOur Life & Group segment produced core income of $6 million, and our Corporate & Other segment produced a quarter loss of $94 million, mainly impacted by a non-economic charge related to asbestos and environmental.\nAs usual, Larry will provide more details on Life & Group and the Corporate segments.\nIn the fourth quarter, the all-in combined ratio was 92.9% percent, a half a point lower than the fourth quarter of 2020, and the lowest all-in quarterly combined ratio since 2016.\nPretax catastrophe losses in the quarter were $40 million or 2 points of the combined ratio, compared to $14 million in the prior year period.\nP&C's underlying combined ratio of 91.2%, the 1.4 points improvement over last year's fourth quarter result.\nThe underlying loss ratio in the fourth quarter of 2021 was 60.1%, which is down 0.3 points compared to the fourth quarter of 2020.\nExcluding the impacts of COVID in the prior year quarter, the underlying loss ratio improved by 0.8 points as we continue to recognize some of the margin built in the current accident year from the earned rate increases, as we did last quarter.\nFor P&C overall, prior period development was favorable by 0.3 points on the combined ratio.\nTurning to production, gross written premium, excluding our captive business, grew by 16% in the fourth quarter, which was twice as high as the first half of the year.\nNet written premium grew by 11% for the quarter, an increase of 6 points from the third quarter.\nNew business grew by 28% in the quarter, and the overall written rate increase was 8%, while earned rate in the quarter was 10%.\nIn addition, retention of 83% was higher than it's been all year.\nThe strong production results were broad-based across all the operating segments.\nIn terms of the business units, the all-in combined ratio for specialty was 89.9% and the underlying combined ratio was 90.1%, a half-point improvement compared to last year.\nThe underlying loss ratio improved by 0.9 points to 59.1%.\nThe expense ratio increased by 0.5 points to 30.9 from a one-time to up, and Larry will provide more detail in the discussion on expenses.\nGross written premium ex captives grew 15% in the fourth quarter, with 58% growth in new business.\nThis is the sixth consecutive quarter of double-digit growth in specialty.\nWe also achieved an overall rate increase of 11%, up 1 point from the third quarter.\nWe achieved higher rate in management liability, and our affinity programs, and stable rate in our healthcare business.\nIn addition, retention improved to 3 points to 83%.\nTurning to commercial, the all-in combined ratio was 94.9% in the quarter, including 2.9 points of cat.\nThis was the lowest all-in combined ratio in four years.\nThe underlying combined ratio was 92.2% this quarter, which was the lowest on record, and was 1.4 points lower than the fourth quarter of 2020, and 2.4 points lower, excluding the COVID frequency impacts that lowered the loss ratio in 2020.\nThe underlying loss ratio of 61.4% improved by 0.3 points compared to the fourth quarter 2020, excluding the COVID frequency impacts.\nAs we referenced last quarter, the underlying loss ratio for commercial was higher in the latter half of 2021, resulting from mix change between Property & Casualty net earned premium due to the new property quota share treaty we purchased in June.\nExpense ratio improved 2.3 points to 30.4% this quarter.\nCommercial achieved that 19% growth in gross written premiums ex captives, with 16% growth in new business.\nRate at 5% was only slightly below the third quarter, and excluding work comp, the rate change was +7% in the quarter, which was consistent with the third quarter.\nRetention was up 2 points to 84%, which was the highest of any quarter this year.\nRetention were strong in all of our commercial business units, and middle-market retention improved to 85%, which is the highest level since prior to the pandemic.\nExposure change was +2% in commercial this quarter as a result of increases in payrolls, and sales volumes as the economy continues to improve.\nThis is the highest exposure increase since the first half of 2019.\nFor International, the all-in combined ratio was 94.8% in the quarter.\nThe underlying combined ratio improved by 4.2 points to another record low of 90.9% this quarter.\nThe expense ratio improved at 2.6 points to 32.4%, and the underlying loss ratio improved 1.6 points to 58.5%.\nWe are very pleased with the improvement in our international results, which highlights our disciplined approach to the reunderwriting and catastrophe exposure reduction we executed.\nInternational achieved a 9% growth in gross written premium and new business growth of 15%.\nRates were up 13% this quarter, achieving double-digit rate for the seventh consecutive quarter and 9 of the last 10 quarters.\nIn addition, retention at 82% was the strongest quarterly retention in over three years.\nNow, let me provide some perspectives on the full-year performance.\nAs I mentioned before, core income was a record for the year increasing 50%, so a little over $1.1 billion or $4.06 per share, and net income for the year was just over $1.2 billion or $4.41 per share.\nThis compares to $735 million and $690 million in 2020 respectively.\nThe increase from the prior year is attributed to significantly improved underlying underwriting gain, and while still substantial a lower level of cat loss compared to 2020, as well as higher net investment income driven by limited partnership returns.\nThe all-in combined ratio was 96.2%, with 5.1 points of catastrophe loss and 0.3 points of favorable prior period development.\nThis is the lowest calendar year combined ratio in five years, and a significant accomplishment considering the heavy levels of catastrophe lost again this year.\nThat losses were $397 million pre-tax in 2021, compared to $550 million last year.\nBut catastrophe losses in 2021 were actually higher than the $355 million catastrophe result in 2020 when you account for the COVID cat charge we incurred in 2020.\nOur P&C underlying underwriting profit for the full year increased 31% to $667 million, and the underlying combined ratio improved to 1.7 points to 91.4%.\nIt's the fifth consecutive year of improvement in the underlying combined ratio.\nThe underlying loss ratio in 2021 was 60%, down 0.2 points compared to 2020.\nExcluding the impacts of COVID in the prior year, the underlying loss ratio improved 5.6 points.\nThe expense ratio improved 1.5 points for the full year.\nAll three operating segments produced a strong underlying results in 2021.\nFor specialty, the underlying combined ratio of 89.7% was the best on record and 1.6 points lower in 2020.\nCommercial produced an underlying combined ratio of 92.6% in 2021, which is also a record and 1.3 points lower than 2020.\nMultiple years of reunderwriting initiatives in our international portfolio of paid off, an underlying combined ratio of 92.1% in 2021, three and a half points lower in 2020.\nTurning to production for the full year, gross written premium growth ex captives was 10% this year.\nWe achieved strong new business growth of 19%, and a full year rate increase of 9%.\nRetention was 82% for the full year.\nNet written premium grew by 5% for the year, in terms of the wider spread between gross and net written premium for the year compared to 2020.\nThis is a function of the new property quota share treaty agreement, which was on a risk-attaching basis, causing the spread to widen.\nHe'll be transitioning with Larry through the first quarter, and we'll be handling the earnings calls after the first quarter.\nWe are excited to have Scott on board.\nI will provide some additional information on the results, as Dino indicated.\nStarting with core income for the fourth quarter, our P&C operations produced a core income of $353 million, as Dino indicated.\nA key contributor to the strong result was our pre-tax underlying underwriting income of $167 million, a 22% increase from the fourth quarter of 2020.\nIn addition, our catastrophe losses were relatively modest at $40 million pre-tax, despite the fact that estimated cat losses for the industry were significantly above the 10 year median for fourth quarter events.\nFor full-year 2021, the record core income of $1.106 billion produced an ROE of 9.1% up substantially from 2020 6.1%.\nOur Q4 expense ratio was a key component of our higher underlying underwriting profits.\nFor the fourth quarter of 2021.\nThe expense ratio was 30.8%, which was 1.2 points lower than the fourth quarter of 2020.\nIn specialty, the expense ratio increased slightly in the quarter by half a point compared to a year ago due to recognition of higher profit sharing in the quarter for one of our profitable programs.\nIn commercial, the expense ratio improved by 2.3 points this quarter, largely from growth in net earned premium.\nInternational also showed significant year-over-year improvement of 2.6 points, driven by net earned premium growth and lower acquisition cost.\nOn an annual basis, the expense ratio was 31.1% in 2021, one and a half points lower than full year 2020.\nWe believe 31% is a reasonable run rate going forward as we continue to make investments in talent, technology, and analytics.\nThe expense ratio improved for each segment for specialty, improving 0.8 points from 31.3% to 30.5%.\nCommercial improving almost 20.4 points from 33% in 2020 to 31.1% in 2021.\nIn international improving 20.4 points from 35.5% for 2020 to 33.1% for 2021.\nMoving to a prior period development, for the fourth quarter, the overall Property & Casualty net prior period development impact on the combined ratios was 0.3 points favorable compared, to no impact in the prior year quarter.\nFavorable development was driven by surety and especially segment from more recent action years, somewhat offset by management and professional liability.\nIn the commercial segment, stable development, and worker's compensation was offset by unfavorable development in auto and general liability.\nIn international, favor will develop in our commercial classes was offset by unfavorable development in our specialty classes.\nIn terms of our covered reserves, we made no changes to our overall COVID catastrophe loss estimates during the quarter.\nWe continually review our COVID reserves, and our previously established estimate of ultimate losses, ALAE remains appropriate.\nThe majority of the loss estimate remains in IBNR.\nFor the full year 2021 over, our development was favorable by three-tenths of a point, compared to 0.7 points favorable in 2020.\nThe pay to incurred ratio of 0.89 was elevated in Q4 relative to the first three quarters of 2021, due largely to pay out of catastrophes that occurred in prior quarters.\nHowever, the 0.89 ratio remains at the lower end of our pre-pandemic range.\nThe ratio, which fluctuates quarter to quarter, has been consistently lower over the past two years, with several factors driving that, including our growth in underlying underwriting profits.\nWe have also had lower non-cash paid losses across several product lines, where we have taken significant underwriting actions such as our medical malpractice, and excess liability lines that we have previously discussed with you.\nThe slowdown in the court dockets has also contributed to the lower-paid losses.\nOn a full-year basis to pay to improve ratio was 0.70.\nMoving to on our Property & Casualty segments, a corporate segment produced a core loss of $94 million in the fourth quarter, which compares to a $49 million core loss in the fourth quarter of 2020.\nThe loss for fourth quarter 2021 was predominantly driven by our annual asbestos and environmental reserve review completed during the quarter.\nThe results of the review included a non-economic after-tax charge of $48 million, driven by the strengthening of reserves associated with higher defense and indemnity cost on existing accounts.\nIn compares to last year's non-economic after-tax charge of $39 million.\nFrom a core income perspective, the impact of the fourth quarter 2021 charge was a reduction of approximately $0.18 per share versus an approximate reduction of $0.14 per share impact in the fourth quarter of 2020.\nFollowing this year's review, we have incurred cumulative losses of $3.4 billion, which is well within the $4 billion limit of our last portfolio transfer cover that we purchased in 2010.\nImportantly, pay losses are at $2.2 billion.\nYou will recall from previous year's reviews, that there is a timing difference with respect to recognizing the benefit of the COVID relative to incurred losses, as we can only do so in proportion to the pay losses recovered under the treaty.\nThe loss recognized today will be recaptured over time through the amortization of a deferred accounting game, as paid losses ultimately catch up with incurred losses.\nAs of year in 2021, we have $429 million of deferred gain that will be recaptured over time.\nIn addition to the impact from our annual investment, asbestos and environmental reserve review, net investment income in the fourth quarter attributed to our core corporate segment is down $13 million after-tax on a year over year basis due to loss portfolio transfer agreement we entered into the end of last year related to legacy excess worker's comp reserves.\nWe also strengthen our legacy mass tort IBNR reserves this quarter by $16 million on an after-tax basis.\nThe Life & Group we had core income of $6 million for the fourth quarter of 2021, which is $20 million lower than last year's fourth quarter, as those results benefited from favorable commodity experience driven by the pandemic.\nI wanted to comment on the approaching change in GAAP accounting methodology related to long-duration targeted improvements are LDTI, which will apply to our Life & Group businesses.\nWe will adopt this new accounting guidance effective January 1st, 2023, and we'll apply it as of January 1st, 2021.\nWe are working diligently on this implementation and intend to discuss the impacts on our first quarter call.\nWe do expect the impact of this change will be a material decrease in accumulated other comprehensive income, predominantly being driven by the difference between the expected interest rates from our investment strategy, and the liability discount rate assumptions required under this accounting change.\nThis accounting pronouncement applies only to GAAP basis financial statements and has no statutory accounting or cash flow impacts on the businesses.\nAs a result, this accounting change is due by us, and the industry as non-economic as none of the fundamentals of the businesses are changed by it.\nTotal pre-tax that investment income was $551 million in the fourth quarter, essentially the same as last year's fourth quarter.\nThe results included income of $108 million from our limited partnership, or LP and common stock portfolios as compared to $140 million on these investments for the prior year quarter.\nThe strong LP returns for the quarter across both.\nthe P&C, and Life & Group segments were significantly driven by private equity funds and reflected the lag reporting results from the third quarter.\nAs a reminder, our private equity funds, which comprise approximately two-thirds of our LP portfolio, primarily report results on a three-month lag basis, whereas our hedge funds are on a real-time basis.\nOur fixed income portfolio continues to provide consistent net investment income stable relative to the last few quarters, and the prior year quarter.\nWhile the current low-interest rate environment continues to be a headwind, the impact on our net investment income has been mitigated by our strong operating cash flows, which have been driven by our growth in premium volume, strong underwriting profitability, and the slower payout of losses that I previously discussed.\nPretax that investment income for the full year 2021 was $2.2 billion, compared to $1.9 billion for 2020.\nThe increase was largely driven by our LP and common stock investments, which had pre-tax returns of $402 million for 2021, compared to $144 million for 2020.\nThe returns from our fixed income securities portfolio was essentially the same for 2021 as it was for 2020, as our higher asset base offset the lower average portfolio year.\nOur average book value has increased $1.4 billion from the year in 2020.\nOn a pre-tax effective income, yield decreased 20 basis points.\nTo give a sense of magnitude of the increase in our operating cash flow in the fourth quarter, operating cash flow was strong once again at $643 million, and then our full year basis increased approximately $860 million from full-year 2020 after adjusting for the payment to purchase our excess workers' comp LPT agreement.\nFrom a balance sheet perspective, the unrealized gain possession of a fixed income portfolio was $4.4 billion at year-end, down from $4.8 billion at the end of the third quarter, reflecting the slightly higher interest rate environment.\nFixed income invested assets that support our P&C liabilities, and Life & Group liabilities had effective durations of 4.9 years and 9.2 two years, respectively, at year-end.\nOur balance sheet continues to be very solid.\nAt year-end, shareholder's equity was $12.8 billion for $47.20 per share.\nShareholder's equity, excluding accumulated other comprehensive income, was $12.5 billion, or $46.02 per share, an increase of 10% from year in 2020 adjusting for dividends.\nWe have a conservative capital structure, with a level leverage ratio of 18%, and continue to maintain capital above target levels in support of our ratings.\nWe are still digesting the potential changes to the S&P Capital model.\nAlthough, we do not currently see this fact changing, our course the final version of the model has not been determined, and S&P has determined the deadline for companies to provide feedback.\nWe continue to work with them to fully understand the potential impact of the proposed changes.\nFinally, we are pleased to announce we are increasing our regular quarterly dividend 5% to $0.40 per share, which will be payable on March 10th to shareholders of record on February 22nd.\nIn addition to the increase in our regular quarterly dividend, we are declaring a special dividend of $2 per share, also payable on March 10 to shareholders of record on February 22nd.\nBefore opening the call to the Q&A session.\nI'd like to offer a few comments about how we perceive the marketplace dynamics might evolve in 2022.\nMost importantly, we see pricing remaining favorable with overall rate increases, persisting above the long-run loss cost trends for most of 2020 to in light of the oft-quoted headwinds like social inflation, and economic inflation, and elevated cat activity.\nAll of the headwinds are still present, there has been no significant change since last quarter.\nThe uncertainty these factors create a lot of cost trends have only been exacerbated by the Omicron variant, which has slowed the full return of court activity in docket logs to a pre-pandemic level.\nWhich is why we have continued to prudently recognize margin improvement in our current accident year loss ratio.\nAnd although written rate increases in the last eight to ten quarters have allowed us to make up most of the lost ground from 2015, when the rate versus loss cost trend started to become a headwind.\nIt can easily become insufficient if loss cost trends increase further.\nAnd this is why we are focused on pushing for more rate and where needed additional improvements in terms and conditions.\nAs I mentioned earlier, our pricing remains stable for the third quarter at 8 points, while retention increased 2 points.\nSo even though rates have moderated from their high watermark in the fourth quarter of 2020, we believe the pace down will be slower than the pace rates increased.\nFinally, as seen by our increasing overall growth, as well as our growth in new business as the year progressed, we are bullish about our continued prospects at meaningful levels of quality business to our portfolio in 2022.",
        "summary": "compname announces full year 2021 net income of $4.41 per share and record core income of $4.06 per share.\nqtrly net catastrophe losses were $40 million pretax versus $14 million in prior year quarter.\nbook value per share at quarter end $47.20 at dec 31, 2021 versus $46.82 at dec 31, 2020."
    },
    {
        "text": "Centene anticipates that subsequent events and developments may cause its estimates to change.\nAdditionally, please mark your calendars for our upcoming 2022 guidance meeting to be held on December 10.\nWe will invite sell-side analysts to participate in person in New York, and ask others to participate virtually.\nBrent Layton has a conflict that could not be avoided, but you can expect him to join us on future calls.\nFirst, on the quarter, we were pleased with the results and the fact that the matrix was straightforward with minimum noise.\nIn the quarter, we generated revenue of $32.4 billion and HBR of 88.1% and adjusted earnings per share of $1.26.\nDrew, provide additional context.\nOverall, the numbers reflect a return to a normal utilization while still covering reasonable amounts of COVID costs which seem to have peaked in August.\nImportantly, our performance provides a strong foundation for our value creation plan and we remain committed to our margin goals.\nFurther supporting our strategic progress during the quarter, we announced a series of organizational changes including a point Sarah London as Vice Chairman of the Board of Directors and Brent Layton as the company's President and Chief Operating Officer.\nWe do not plan to replace his position, as we continue to work on refreshing and streamline the Board to a size of 9 to 13 members.\nTurning to the current landscape.\nOverall, the portfolio is performing well.\nWe delivered a strong membership increase in Medicaid are positioned for continued growth in Medicare and we continue to stay the course in marketplace.\nSarah, will provide further detail.\nWe are working closely with states and the timing redetermination, which has so far been extended until January with the opportunity for additional extensions three months at a time.\nIn addition, we look forward to offer members who will no longer qualify for Medicaid, the opportunity to enroll in our marketplace for us.\nWe expect that advanced premium tax credits will keep costs in line for these members, and we value the opportunity support continuity of care and preserve, provide relationships which in the long-term leads to higher quality care, which is much more cost effective.\nLooking ahead of 2022, there are several additional factors we continue to monitor and evaluate.\nThese include the pace of the RFP pipeline, ongoing growth in Medicare, the opportunity for improvement in marketplace license, as well as the COVID landscape overall.\nWe will provide full details on these factors and their potential impacts, as headwinds and tailwinds at our Investor Day in December.\nIn addition, we are committed to achieving an investment grade rating and a disciplined capital allocation framework that takes into consideration our priorities including investing in our business debt management and share repurchases.\nBefore I close, I would like to highlight the importance of vaccine mandates in stopping the transmission of COVID and protecting those who cannot yet safely receive inoculations, particularly the immunologically compromised, and young children for whom vaccine access is getting closer, but still pending.\nCentene has been a leader on this critical issue mandating vaccinations, as an additional employment.\nWe also continue to support our members in assessing the vaccine to a national outreach and campaigns and creative participation such as the Pro Football Hall of Fame NESCO.\nIn closing, we are pleased with our third quarter results and has the same momentum across the enterprise.\nWe remain focused on executing across the value creation playbook, we have in place.\nAs always, we intend and continue to provide transparent updates, as we progress through our initiatives and I look forward to seeing many of you at our December Investor Day.\nI'm going to provide highlights of our product line performance before touching on the early progress we are making around our value creation plan.\nDuring the quarter we continue to build on our market leading position and are experiencing solid growth and good outcomes.\nIn Medicaid our business continues to perform well, membership increased to $14.8 million aided by continued suspension of redeterminations and the go-live of our business in North Carolina.\nIn marketplace with more than 90% of our membership receiving some form of subsidy we maintain our low income focus and our commitment to providing healthcare access and affordability to our members.\nAt the end of the third quarter our marketplace membership was $2.2 million, and we are pleased with the progress of our clinical initiatives as we head into the fourth quarter.\nLooking ahead, our 2022 marketplace offerings reflect a diverse and evolving needs of our Ambetter consumers.\nWe are introducing a group of new products designed to optimize flexibility, access and affordability.\nIn addition, we plan to grow our coverage map by entering five new states with marketplace products.\nAs we continue to monitor policies and plans around the return of Medicaid redeterminations we believe that our enhanced footprints within both Medicaid and marketplace positions Centene well to support our members with options for coverage continuity.\nIn Medicare Advantage, we continue to see a compelling growth opportunity for the company.\nWe are expanding Centene's footprint to reach $48 million Medicare eligible adults across the country, which is more than 75% of eligible beneficiaries.\nToday, Centene serves more than 1.2 million Medicare Advantage members across 33 states.\nBeginning in 2022, the company expects to offer plans in 327 new counties, representing a 26% increase and three new states including Massachusetts, Nebraska and Oklahoma.\nNow turning to our value creation plan.\nAs as we outlined this past June, we have embarked on our strategy to leverage Centene's size and scale and drive margin expansion through SG&A efficiencies, medical management initiatives and strategic capital deployment.\nWe are focused on generating sustained growth and margin expansion.\nAnd although it is still very early seeing the enterprisewide commitment from the outset has given me confidence that we are on the right track to achieve our goal.\nBrent, Drew and I are leading this effort and we believe, we now have an organizational structure in place to drive this forward across our business and functions.\nOn the SG&A front, we have identified opportunities across the company where we believe we can be more efficient.\nThis isn't about cost cutting, it's about positioning the company for long-term success.\nFor example, we piloted new technology within our call centers for use by Centene employees.\nThis technology trial yielded significant reductions in cycle times, and now will be rolled out enterprisewide.\nAnother opportunity we've mentioned is a value creation target is pharmacy.\nAs we alluded to in June, we are now taking steps toward consolidating down to a single PBM platform, and rationalizing those platforms we view as non-essential.\nWe began this work in Q3, and look forward to providing more detail around this overall program in December.\nIn addition, we are progressing on the review and potential sale of certain non-core assets, as part of our portfolio optimization process, which has taken on an increased focus as part of the value creation plan.\nAgain, we are in the very early stages, and as we continue to leverage our size and scale to our benefit these are just a few of the many levers we are pulling to achieve our adjusted net income margin target of at least 3.3%.\nLet me remind you that as we progress through these and other initiatives, particularly in 2023 and 2024, we anticipate seeing a greater impact pushing us toward our goal.\nBefore handing the call over to Drew, let me provide a quick update on the Magellan transaction.\nWe are still awaiting one final regulatory approval in California, and continue to expect the deal to close by the end of 2021.\nWe continue to work with the regulators to move the transaction to completion.\nOur Q3 consolidated HBR was 88.1%, right on track with our full year guidance.\nConsistent with national data our COVID costs peaked in late August, drop throughout September and the sharp drop of COVID costs continues in October.\nWhile the delta variant has a higher peak, as measured in authorizations compared to January 2021, it peaked and fell rather quickly.\nWith our diversified enterprise we were able to manage through this given our steady performance in Medicaid and Medicare.\nAccordingly, we are maintaining the midpoint of our consolidated HBR range for 2021 just shrinking the width of the range since we're three quarters through the year.\nOur adjusted SG&A expense ratio was 8.6% in the third quarter with higher short term variable incentive compensation costs compared to Q2 given the positive trajectory of the business.\nWhile we are getting some SG&A leverage on our growth in 2021, there is a lot more to come over the next few years, as we execute on the value creation plan.\nOne item to point out from a mix standpoint circle, a well positioned ASC like hospital enterprise and England has an SG&A rate in the '30s on service fee revenue of approximately $1.4 billion.\nThis has an approximate 30 basis point mathematical impact on our consolidated SG&A rate for Q3 2021 and going forward.\nContinuing on the highlights of the quarter, cash flow provided by operations in the third quarter was strong at $1.8 billion.\nWith respect to unregulated cash we had $2.7 billion at quarter end, which includes the $1.8 billion we borrowed to partially fund the Magellan transaction.\nWe expect to need approximately $2.3 billion of unregulated cash to close Magellan in the fourth quarter.\nDebt at quarter end was $18.8 billion, our debt to cap ratio was 41.2% inclusive of Magellan financing and excluding our non-recourse debt.\nOur medical claims liability totaled $14.1 billion at quarter end and represents 51 days in claims payable compared to 48 in Q2.\nThis three-day increase was driven by the timing of state-directed payments, claims payments and state fee schedule changes.\nYou will see a couple of items in our GAAP to adjusted earnings per share reconciliation, a $309 million one-time gain as a result of our acquisition of the remaining 60% of circle in early July 2021 and a write-down of our investment in RxAdvance of $229 million in the quarter, as we are simplifying our pharmacy operations, both of these are non-cash items.\nBefore we get to updated 2021 guidance I wanted to comment on the recently announced rating year 2022 star scores.\nThis will drive 2023 Medicare revenue.\nWe are certainly pleased with over 50% of membership in 4-star contracts and our first 5-star contract, rating year 2022 benefited from the continuation of disaster provisions due to COVID with an expectation of those provisions sunsetting and upon reviewing the in-process results of our quality program we expect rating year 2023 scores to drop, followed by a subsequent jump in rating year 2024 scores.\nThis essentially has the effect of providing some fungible investment dollars for calendar year 2023.\nWe've updated our full-year 2021 outlook including a narrowed adjusted earnings per share guidance range of $5.05 to $5.15.\nThis outlook incorporates revenues within a range of $125.2 billion to $126.4 billion increased by the inclusion of Circle and expected state-related pass through payments of $500 million.\nIt includes an expected HBR of 87.6% to 88% and then SG&A ratio of 8.2% to 8.6% 20 basis points higher than the prior guidance with the largest driver being the mix math on Circle as we just discussed.\nWhile we still have a quarter to go to finish 2021, the strength of our diversified enterprise has enabled us to manage through the volatility of COVID, pent-up demand and resulting 2021 marketplace pressure.\nThis enterprise strength will only improve, as we execute on the value creation plan over the next few years.\nWith regards to 2022, consistent with our public comments in September, we continue to expect modest adjusted earnings per share growth next year.\nWe look forward to providing more details around 2022 expectations and going more in-depth into the long-term value creation drivers during our December 10 Investor Day.",
        "summary": "centene q3 adjusted earnings per share $1.26.\nq3 adjusted earnings per share $1.26.\nq3 revenue rose 11 percent to $32.4 billion.\nqtrly health benefits ratio of 88.1%.\nseptember 30, 2021 managed care membership of 26.5 million, an increase of 1.4 million members, or 5%, compared to september 30, 2020.\nsees 2021 total revenues $125.2 billion - $126.4 billion.\nsees 2021 adjusted diluted earnings per share $5.05 - $5.15.\nsees 2021 hbr of 87.6% - 88.0%."
    },
    {
        "text": "To access the call on the Internet, please log into the Capital One website at capitalone.com and follow the links from there.\nIn the fourth quarter, Capital One earned $2.6 billion or $5.35 per common share.\nFor the full year, Capital One earned $2.7 billion or $5.18 per share.\nIncluded in earnings per share for the quarter were two small adjusting items, which are outlined on the slide.\nNet of these adjusting items, earnings per share for the quarter was $5.29.\nFull-year 2020 adjusted earnings per share was $5.79.\nIn addition to the adjusting items in the quarter, we recorded an equity investment gain of $60 million or $0.10 per share related to our equity stake in Snowflake.\nFor the full year, the investment gain was $535 million or around $0.89 per share.\nTurning to Slide 4, I will cover the quarterly allowance moves in more detail.\nIn the fourth quarter, we released $593 million of allowance, primarily in our card business.\nEconomic assumptions underlying our allowance included unemployment of around 8% at the end of 2021 and the impacts of the $900 billion stimulus package passed in December.\nThe release was driven by the strong credit performance we have observed and by the new stimulus bill.\nIn our allowance, we continue to assume that the relationship between the economic metrics and credit quickly reverts to a historical norm, and we've added significant additional qualitative factors for COVID-related uncertainty.\nIn our commercial business, we charged off certain energy loans and released allowance for these specific reserves that were previously established for those loans.\nTurning to Slide 5.\nYou can see the allowance coverage levels declined modestly from the prior quarters across our segments but remained well above pre-pandemic levels.\nOur Domestic Card coverage is now at 10.8%, while our branded card portfolio coverage is 12.7%.\nRecall that the difference between these metrics is driven by loss-sharing agreements in our partnership portfolios.\nCoverage in our consumer and commercial businesses also remained elevated at 3.9% and 2.2%, respectively.\nMoving to Slide 6, I'll discuss our liquidity position.\nYou can see our preliminary average liquidity coverage ratio during the fourth quarter was 145%, well above the 100% regulatory requirement.\nOur liquidity reserves from cash, securities and Federal Home Loan Bank capacity declined slightly from the third quarter to end the year at approximately $144 billion, including about $41 billion in cash driven by continued strong deposits.\nTurning to Slide 7.\nYou can see that our net interest margin increased 37 basis points quarter over quarter to 6.05%.\nThe increase was largely driven by higher card loan revenue margin as strong credit results led to lower suppression, the impact of third and fourth-quarter deposit pricing actions and a modest decline in our cash balance, which was partially offset by lower yields on cash and securities.\nLastly, turning to Slide 8.\nI will cover our capital position.\nOur Common Equity Tier 1 capital ratio was 13.7% at the end of the fourth quarter, up 70 basis points from the third quarter and 150 basis points higher than a year ago.\nWe continue to estimate that our CET1 capital need is around 11%, which includes a buffer over our capital requirements under the SCB framework of 10.1%.\nAs we close out 2020, we have approximately 270 basis points or around $8 billion of capital in excess of our CET1 target.\nFollowing the latest stress test results released by the Federal Reserve last month and in light of the strong capital position I just described, we expect to restore our quarterly dividend back to $0.40 per share in the first quarter, pending board approval.\nOur board of directors has also authorized the repurchase of up to $7.5 billion of the company's common stock inclusive of share repurchase capacity of up to approximately $500 million in the first quarter based on the Fed's current trailing four-quarter average earnings rule.\nThe timing and amount of stock repurchase activity will be informed by our outlook on the economy, as well as actual forecasted levels of capital, earnings and growth.\nWhile he will be here through March 15, this will be Scott's last earnings call.\nYou've built strong relationships with our shareholders and across the investment community, and you've always brought their external perspectives to our work inside of Capital One.\nYou've been a key advisor and partner for me and for the board and a strong leader in our company.\nI'm particularly grateful for the legacy you've built, transforming finance technology, strengthening processes and controls, building a great team of talented leaders, including your successor, Andrew Young.\nWe will miss you, and I'm sure you will continue to do great things.\nWith that, let me turn to our Domestic Card business.\nExceptional credit performance was the biggest driver of Domestic Card financial results in the quarter.\nThe Domestic Card charge-off rate for the quarter was 2.69%, a 163-basis-point improvement year over year and a 95-basis-point improvement from the sequential quarter.\nThe 30-plus delinquency rate at quarter end was 2.42%, 151 basis points better than the prior year.\nThe delinquency rate was up 21 basis points from the linked quarter, consistent with typical seasonal patterns.\nFourth-quarter provision for credit losses improved by $1.1 billion year over year, driven by the allowance release that Scott discussed and lower charge-offs.\nSeveral factors are driving continued credit strength.\nConsumers are behaving cautiously, spending less, saving more and paying down debt.\nThese behaviors have been amplified by the cumulative effect of unusually large government stimulus and widespread forbearance across the banking industry.\nOur own long-standing resilience choices put us in a strong position going into the pandemic.\nAnd our strategic investments in digital technology and transformation are paying off in enhanced capabilities and underwriting that are powering our performance and response to the pandemic.\nStrikingly strong consumer credit has persisted throughout 2020, even after the expiration of several parts of the CARES Act.\nUncertainty about future credit trends remains high, especially in the context of an evolving pandemic that is difficult to predict.\nAs Scott discussed, that uncertainty informs our allowance for credit loss.\nWe believe that each incremental month of favorable credit reduces the cumulative losses through the downturn rather than just delaying the impact.\nAt the end of the fourth quarter, Domestic Card ending loan balances were down $20.1 billion or 17% year over year, driven by three factors: cautious consumer behavior, reduced spending and demand for new credit, and drove payment rates to historically high levels.\nOur marketing pullbacks at the outset of the downturn put additional pressure on loan balances, and we moved a partnership portfolio to held-for-sale in the third quarter.\nExcluding the impact of the move to held-for-sale, ending loans declined about 15%.\nFourth-quarter average loans declined 16% year over year.\nOn a linked quarter basis, the expected seasonal ramp drove ending loans up by about 3%.\nPurchase volume continued to rebound from the sharp declines early in the pandemic.\nFor the full year, purchase volume was down 2% in 2020.\nFourth-quarter purchase volume was essentially flat compared to the prior-year quarter.\nThat compares to a year-over-year decline of about 30% in the first weeks of the pandemic.\nQuarterly purchase volume increased 10% from the sequential quarter, consistent with the expected seasonality and the continued rebound.\nDespite the rebound, purchase volume growth is still down compared to the double-digit growth we were seeing before the pandemic.\nFourth-quarter revenue declined 7% year over year as a result of the decrease in average loans, partially offset by higher revenue margin.\nThe revenue margin was up 121 basis points year over year to 16.91%, largely driven by two factors: strong credit drove lower revenue suppression; and year over year, net interchange revenue in the numerator of the margin is essentially flat, while average loan balances, the denominator of the margin calculation, are down 16%.\nNoninterest expense was down $186 million or 8% from the fourth quarter of last year, largely driven by our choice to pull back on Domestic Card marketing when the pandemic hit.\nTotal company marketing trends are largely driven by Domestic Card.\nFourth-quarter marketing for the total company was down 21% year over year.\nOn a sequential quarter basis, total company marketing increased significantly in the fourth quarter.\nLooking ahead, future marketing will be impacted by how things play out with the pandemic and the economy.\nIn the midst of the pandemic, we're finding opportunities, and we are leaning into them.\nThese opportunities are enhanced by our tech transformation.\nThe ultimate level of our 2021 marketing will depend on our continuing real-time assessment of the marketplace.\nSlide 12 summarizes fourth-quarter results for our Consumer Banking business.\nDriven by our auto business, ending loans increased 9% year over year.\nAverage loans grew 10% for the fourth quarter and 9% for the full year.\nWhen the COVID downturn began, we tightened our underwriting box in auto to focus on the most resilient asset.\nWe believe that several factors drove our growth.\nThe auto market rebound has been stronger for larger franchise dealers, the part of the market where we're focused.\nOur digital products and services drove growth in direct-to-consumer originations and growth with dealers who want to provide a low-touch car buying experience in response to social distancing.\nAnd our dealer relationship strategy put us in a strong position to grow high-quality auto loans.\nFourth-quarter auto originations were down 2% year over year.\nCompetition picked up late in the third quarter and continued to increase in the fourth quarter.\nFourth-quarter ending deposits in the consumer bank were up $36.7 billion or 17% year over year, driven by the stimulus-driven surge in deposits in the second quarter.\nAverage deposits were up 19% for the fourth quarter and up 15% for the full year.\nOur average deposit interest rate decreased 73 basis points year over year and 19 basis points from the linked quarter as we reduced deposit pricing in response to the market interest rate environment and competitive dynamics.\nFourth-quarter Consumer Banking revenue increased 18% from the prior-year quarter.\nAnnual revenue was up 4%.\nBoth increases were driven by growth in auto loans and retail deposits.\nAnnual growth was negatively impacted by differences in the timing of Federal Reserve rate cuts, preceding our deposit pricing reduction.\nNoninterest expense in Consumer Banking was up 1% year over year.\nFourth-quarter provision for credit losses improved by $275 million year over year, driven by lower charge-offs and a modest allowance release in our auto business.\nFourth-quarter credit results in our auto business remain unusually strong even after seasonal linked quarter increases in 24 basis points in the auto charge-off rate and 102 basis points in the delinquency rate.\nYear over year, the charge-off rate improved 143 basis points to 0.47% and the delinquency rate improved 210 basis points to 4.78%.\nStrong auto credit is the result of several factors.\nIn addition to the same general drivers of Domestic Card credit strength, auto credit also benefited from very strong auction values.\nAnd our auto forbearance is having a temporary positive impact, particularly on delinquency rates.\nWe've provided updated auto forbearance information on appendix Slide 18.\nWe expect auto credit metrics to increase from their unusually low levels as auction prices normalize and the temporary impacts of COVID forbearance play out.\nMoving to Slide 13.\nI'll discuss our Commercial Banking business.\nFourth-quarter ending loan balances were up 2% year over year, driven by growth in selected C&I and CRE specialties.\nAverage loans were also up 2% for the fourth quarter and 6% for the full year.\nQuarterly average deposits increased 21% from the fourth quarter of 2019, and average -- annual average deposits grew 14% in 2020 as middle market customers continued to bolster their liquidity.\nFourth-quarter revenue was up 10% from the prior-year quarter.\nAnnual revenue was up 6% for the year.\nAnnual revenue growth from higher loan and deposit volumes and higher noninterest income was partially offset by lower net interest margin.\nNoninterest expense for the quarter increased by 1% year over year.\nProvision for credit losses improved by $90 million compared to the fourth quarter of 2019.\nThe allowance release that Scott discussed was partially offset by higher charge-offs largely related to our oil and gas portfolio.\nOur oil and gas exposure declined year over year.\nWe've provided a breakout of our oil and gas portfolio composition and reserves on appendix Slide 19.\nThe Commercial Banking annualized charge-off rate for the quarter was 0.45%.\nThe criticized performing loan rate for the quarter increased compared to both the prior year and linked quarters to 9.5%, driven by downgrades in our commercial real estate portfolio.\nThe criticized nonperforming loan rate rose modestly from the prior-year quarter to 0.9%.\nI'll close tonight with some thoughts on our results and how we're positioned for the future.\nIt's not a surprise that the pandemic shaped our 2020 results.\nFor the full year, total company loan balances declined 5%.\nAnnual revenue was essentially flat, including $535 million in gains on our Snowflake investment.\nNoninterest expense was down 3%, with a decline in marketing and relatively flat operating expense.\nProvision for credit losses increased by $4 billion.\nAnd earnings per share rebounded from negative territory early in the year to $5.18 for the full year, down significantly from 2019.\nThree key themes are evident in our 2020 results.\nThe pandemic pressured top-line loan balances and revenue, particularly in the first half of the year.\nOn the bottom line, strikingly strong credit resulted in a return to positive trajectory and record profitability in the second half of the year.\nAnd our long-standing strategic choices put us in a strong position to respond to both the near-term challenges and the emerging opportunities.\nTurning first to the near-term challenges.\nDomestic Card loan balances declined sharply as cautious consumers, stimulus and widespread industry forbearance drove historically high payment rates and reduced demand.\nLower loan balances put pressure on revenue, efficiency and scale.\nThe operating efficiency ratio net of adjustments was 46%.\nIt was 46.9%, excluding Snowflake gains.\nThe flip side of this top-line pressure was exceptionally strong consumer credit performance, which drove two consecutive quarters of record earnings in the second half of 2020.\nAnd strong second-half earnings, coupled with a smaller balance sheet, enabled us to increase our CET1 ratio to 13.7%.\nToday, we've announced our intent to raise the quarterly dividend to its prior level of $0.40 per share subject to board approval, and we've also discussed our plan -- we also discussed our plan for up to $7.5 billion of share repurchases, which our board has already approved.\nThroughout 2020, we have been well-served by the choices we made before the downturn began.\nSince our founding days, we've hardwired resilience into the choices we've made on credit, capital and liquidity through good times and bad.\nAs a result, we entered the downturn with strong and resilient credit trends, a fortified balance sheet and deep experience in successfully navigating through prior periods of stress, including the Great Recession.\nOur investments to transform our technology and how we work and our efforts to drive the company to digital are paying off.\nOur transformation is powering our response to the downturn and putting us in a strong position for emerging opportunities as the pandemic plays out.\nPulling way up despite the pressures of the pandemic in the near term, nothing has changed about where we think our businesses are headed or the long-term strategic opportunities that are being created as sweeping digital change continues to transform banking.\nAs we manage through the near-term challenges, we also continue to focus on the things that create long-term value when delivered and sustained over time, continuing to transform our technology from the ground up, capitalizing on our transformation to drive innovation and growth, generating positive operating leverage and improving efficiency, and managing capital efficiently and effectively, including significant capital distribution.\nIt's been a pleasure to work with you over the years, and I wish you all the success as you go forward.\nAnd now we'll start the Q&A session.\n[Operator instructions] Keith, please start the Q&A.",
        "summary": "compname reports fourth quarter 2020 net income of $2.6 billion, or $5.35 per share.\nq4 adjusted earnings per share $5.29 excluding items.\nq4 earnings per share $5.35.\nin addition, capital one's board of directors has authorized a common stock repurchase program of up to $7.5 billion.\nqtrly net interest margin of 6.05 percent.\ncommon equity tier 1 capital ratio under basel iii standardized approach of 13.7 percent at december 31, 2020."
    },
    {
        "text": "We started this year off on a positive note, and we're excited about our momentum.\nWe took share in the contact lens market with strength in our silicone hydrogel portfolio led by MyDay and Biofinity.\nOur myopia management portfolio continued to strengthen, including MiSight growing 82% to 3 million and CooperSurgical posted a very strong quarter with Paragard growing 16% and fertility 10%.\nWith both businesses outperforming, we delivered robust earnings and cash flow and expect continued strong performance moving forward.\nRegarding the quarter and reporting all percentages on a constant currency basis, even with continuing COVID challenges, we posted consolidated revenues of 681 million with CooperVision revenues of 507 million, up 1%, and CooperSurgical revenues of 174 million, up 7%.\nNon-GAAP earnings per share were $3.17.\nFor CooperVision, we saw strength in our daily silicone hydrogel portfolio and in our Biofinity franchise, along with general strength in torics and multifocals.\nBy geography, the Americas grew 6% led by strength in Biofinity and daily silicones, including nice growth from both Clariti and MyDay.\nEMEA was down 4% as several countries continued managing through stringent COVID-related restrictions.\nWe did see growth in our daily silicones and Biofinity, though, so that bodes well for the future.\nAsia Pac was up 3% led by strength in MyDay, especially in Japan.\nOverall, sales exceeded expectations, and we're well positioned to continue growing and taking share with current and future product launches driving momentum.\nMoving to some additional quarterly numbers.\nOur silicone hydrogel dailies grew 8% with both MyDay and Clariti growing.\nParticular strength was noted in MyDay and especially MyDay toric as we continue rolling that product out around the world.\nOverall, dailies silicones are leading the market right now as health and wellness trends drive adoption, and we believe that will continue as there's still 2.4 billion in annual global sales of older hydrogels that need to be traded up.\nMoving to our FRP portfolio.\nBiofinity grew 6% with strike noted in Biofinity Energys and Biofinity toric multifocal.\nI've mentioned these products before, but as a reminder, Energys is a truly unique and innovative lens that uses digital zone optics to help alleviate eye fatigue from excessive screen time.\nIn today's world, this product has the ability to perform well, and we're seeing that.\nAnd our Biofinity toric multifocal was launched last year and is doing extremely well.\nThis is a made-to-order product and part of our extensive offering of unique products that differentiate our business.\nRegarding product launches, we remain incredibly active.\nWe now have regulatory approval to launch Clariti in Japan, and we'll be doing that shortly.\nAnd that's in addition to our ongoing successful launch of a second base curve for MyDay sphere in that market.\nWe're also continuing to launch and relaunch MyDay sphere and toric in many other markets around the world.\nWe're continuing the rollout of Biofinity toric multifocal, including launching in Europe shortly, and we're rolling out extended toric ranges for Clariti and Biofinity.\nAdditionally, our pipeline is strong, and we expect to remain very active going forward.\nAnd lastly, we're incredibly busy with our myopia management portfolio of MiSight and Ortho-k lenses, which grew 46% for the quarter to 12 million.\nWithin this, MiSight grew 82% to 3 million and Ortho-k grew 37%, including 1 million of revenue from our acquisition of GP Specialists from August of last year.\nWith respect to MiSight, we now have over 30,000 kids around the world wearing the lens, including over 2,000 in the U.S., and our momentum is accelerating.\nOur launch activity continues to go extremely well, and we expect similar success in new markets such as South Korea where we'll be launching in the next few months.\nWe've also made advancements in discussions with several large retailers and buying groups regarding MiSight and even moved into a test phase with one large retailer for roughly 70 stores.\nWe've also received several awards recently, including from Contact Lens Spectrum and Popular Science, and we're making advancements with multiple professional associations, helping to get myopia management recognize the standard of care.\nAnd we made great progress with several universities, supporting the training and education of their optometry students as many schools are now adding myopia management training courses to their curriculums.\nFrom a fitting perspective, if we look at U.S. data, the average age for a new MiSight wear remains 11 years old, and in a positive sign, it's trending younger.\nComparing this to the average age of a regular new contact lens wear of 17 shows we're bringing kids into contacts at a much younger age, which is fantastic.\nThis is all extremely exciting and supports our goal of reaching or exceeding 25 million of MiSight sales this fiscal year and over 50 million next year.\nMoving to myopia management spectacles, I want to touch on our recent acquisition of SightGlass Vision and our partnership with EssilorLuxottica.\nSightGlass Vision has developed innovative spectacles to reduce the progression of myopia in children, and our joint venture with EssilorLuxottica will leverage our shared expertise and global leadership in myopia management to accelerate the commercialization of these spectacles around the world.\nWe're now working through the typical regulatory requirements to form the JV, and we started developing launch plans in certain markets as we await the two-year clinical data, which will be out in the next couple of months.\nThe SightGlass technology is a great complement to our existing myopia management portfolio of contact lenses.\nAnd working with a great partner like EssilorLuxottica will accelerate growth of the entire pediatric vision marketplace.\nMore to follow on this exciting opportunity as we continue making progress.\nTo wrap up on myopia management, we're at the forefront of an extremely exciting global pediatric opportunity.\nThis market is in its infancy, but the growth is exciting, and having the only FDA-approved product in MiSight has been a game-changer.\nWe're continuing to invest in sales and marketing programs and new launches, regulatory approvals and R&D to keep driving adoption on a global basis.\nProactively addressing the progression of myopia in pediatric patients offers immediate visual correction, along with many long-term health benefits, such as reducing the risk of serious eye disease later in life, such as retinal detachment, cataracts and glaucoma.\nSo, this effort is important, and it's why so many eye care professionals are getting involved and strongly supporting this activity.\nTo conclude on vision, let me add that the continuing rollout of vaccines will definitely benefit us given the consumer nature of our business.\nIn the near term, we expect better foot traffic in retail outlets, especially malls, along with increasing service capacity and better staffing attendance in optometry offices.\nWe also expect a strong back-to-school season as in-person learning returns around the world.\nOn a longer-term basis, our growth drivers remain strong and are likely improving with the macro trend of people spending more time on electronic devices.\nIt's estimated that roughly one-third of the world is currently myopic, and that's expected to increase to 50% by 2050.\nCombining this trend with a continuing shift to daily silicones, geographic expansion and growth in torics and multifocals, our industry has a very bright future.\nFor CooperVision, our robust product portfolio, active product launch activity, momentum with myopia management and strong new fit data puts us in a great position for long-term sustainable growth.\nWe had a very strong quarter led by Paragard and fertility.\nOverall revenues were 174 million, up a healthy 7% as markets rebounded and we took share.\nI'm really excited about the state of CooperSurgical right now under the fantastic leadership of Holly and our team, and the future looks extremely bright.\nRevenues grew 10% year over year to 70 million with strikes seen around the world and throughout our product portfolio.\nWe're taking share, and we're well positioned for future gains with improving traction in our key accounts.\nOne of the strengths of our fertility business is our broad product portfolio, which essentially covers the full spectrum of fertility clinics' needs outside of pharma products.\nWe've done a great job cross-selling and building relationships with the larger clinics around the world, and this has resulted in solid growth in areas ranging from consumable products like pipettes, media and RI Witness, our RFID lab-based management system that I discussed last quarter, to equipment such as incubators and workstations to genetic testing.\nFrom a market perspective, COVID is still negatively impacting patient flow, and some important countries like India are still significantly hampered, but we're definitely seeing a pickup in activity.\nIn the meantime, we're taking market share, and we expect that to continue.\nOverall, the fertility market has extremely positive long-term macro growth trends, and we're well positioned to capitalize on these trends to drive growth.\nWithin our office and surgical unit, we were up 5% led by Paragard's growth of 16%.\nAs the only 100% hormone-free IUD in the U.S. market, the product offers a fantastic, long-lasting birth control option that addresses the needs and interest of women looking for a healthy alternative.\nWe're very bullish on Paragard right now and believe we'll continue posting solid growth this year.\nElsewhere, we've seen deferred elective procedures steadily rescheduled, and our medical device sales have improved.\nSeveral of our focus products grew in the quarter, including Endosee Advance, our direct visualization system for evaluation of the endometrial, INSORB, our patented surgical skin closure device, and our portfolio of uterine manipulators.\nWe made great progress over the past several years, and we have a lot of exciting things happening today.\nWe just completed an ESG materiality assessment to ensure we stay focused on the right areas, and my passion and commitment to this type of work remains very strong.\nIf anyone has any questions or interest in our ESG efforts, please reach out and let's connect.\nOur fourth-quarter consolidated revenues increased 5% year over year, or 3% in constant currency to $681 million.\nConsolidated gross margin increased 50 basis points year over year to 67.8%.\nThis improvement was driven by strength in CooperSurgical with higher-margin Paragard and fertility consumable products performing extremely well, along with favorable currency.\nMoving forward, we're in excellent shape to continue delivering solid gross margins.\nWe completed our manufacturing restructuring activity in Q1, so we're well positioned for the current environment, along with being ready to efficiently ramp up quickly as demand continues to rebound.\nWe still have absorption-related inefficiencies, but we expect those to go away with sales growth.\nOpex was up only 2.1% year over year as we kept expenses under control.\nThis resulted in consolidated operating margins of 26.9%, up nicely from 25% last year.\nThis performance exceeded expectations, and we expect to continue posting strong results, balancing expense control against investment opportunities that we see within our business, particularly within myopia management.\nInterest expense for the quarter was $6.4 million driven by lower rates and lower average debt, and the effective tax rate was 11.3%.\nNon-GAAP earnings per share was $3.17 with roughly 49.7 million average shares outstanding.\nFree cash flow was solid at $92 million comprised of $148 million of operating cash flow, offset by $56 million of capex.\nNet debt increased slightly to $1.7 billion, while our adjusted leverage ratio decreased to 2.1 times with improving EBITDA.\nAnd finally, we repurchased $25 million worth of stock this past quarter at an average price of $357 per share.\nIn addition to our strong operational performance, we completed several tuck-in acquisitions recently.\nDuring the quarter, we acquired Embryo Options to add a cryo storage software solution to our fertility portfolio, allowing clinics to automate the management of cryopreserved embryos, eggs and sperm.\nThe business did $4.7 million in sales last year and added $500,000 in revenue in our Q1.\nWithin CooperVision, as Al mentioned, we acquired the remaining 80% stake of SightGlass Vision in January for $41 million in cash plus aggregate potential earn-outs of up to $139 million based on revenue milestones and regulatory approvals.\nAfter the close of the quarter, we entered into an agreement to form a 50-50 joint venture with EssilorLuxottica that we hope to close soon.\nAlso subsequent to quarter end, we closed two more tuck-in deals at CooperSurgical.\nThe first was the GA Medical, a pre-revenue manufacturer of an in-office water vapor ablation system that will launch shortly, and Safe Obstetric Systems, owner of Fetal Pillow, a balloon device used during c-sections to make the delivery less traumatic for the mother and baby.\nThe business did $4.4 million in sales last year.\nAnd we repurchased -- I'm sorry, we purchased it for $52 million in cash plus a potential earn-out of up to $14 million.\nThis is directly tied to the tax item I discussed last quarter where CooperVision's intellectual property and related assets were transferred to the U.K. in November 2020.\nFor non-GAAP purposes, we adjusted for this activity and will continue doing so moving forward.\nWe continue to monitor and evaluate the scope, duration and impact of the ongoing COVID-19 pandemic on our operations and financial results.\nWhile we still view resurgences as a significant risk factor, our visibility has improved.\nSo, we're now providing full-year 2021 guidance to provide a better feel for our expected upcoming performance, including our anticipated myopia management investments.\nThe guidance includes consolidated revenues of 2.8 to 2.845 billion, up 15 to 17%, or up 12 to 14% in constant currency, with CooperVision revenues of 2.090 to 2.120 billion, up 13 to 15%, or up 9 to 11% and in constant currency, and CooperSurgical revenues of 710 to 725 million, up 21 to 23%, or 19 to 22% in constant currency.\nNon-GAAP earnings per share is expected to be in the range of $12.90 to $13.10.\nLastly, on free cash flow, we now expect to approach 500 million this year as operating cash flow improves, and capex reduces.",
        "summary": "q1 non-gaap earnings per share $3.17.\nsees fiscal 2021 non-gaap diluted earnings per share $12.90 - $13.10."
    },
    {
        "text": "I'm Rebecca Gardy, Vice President of Investor Relations.\nA transcript of this earnings conference call will be available within 24 hours at investor.\nThese statements rely on assumptions and estimates, which could be inaccurate and are subject to risk.\nOn Slide 4, you will see today's agenda.\nWith us on the call today are Mark Clouse, Campbell's President and CEO and Chief Financial Officer, Mick Beekhuizen.\nMark will share his overall thoughts on our third quarter performance and our end market performance by division.\nMick will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2021.\nMark will then make some closing remarks before moving to an analyst Q&A.\nThroughout the last year, we rallied through the pandemic and made decisions focused on prioritizing the safety and well-being of our employees while meeting the needs of our customers and consumers.\nThis approach has served us well over the past 15 months as we progressed our strategy in a volatile operating environment.\nOur team pulled together, we executed with excellence, and we delivered strong results.\nHowever, you will also have seen the continued strength in-market on market shares underpinned by healthy retention of new and younger households and the full recovery of distribution levels.\nWe did face a significant inflationary environment in the quarter as well as shorter-term increases in supply chain costs.\nWe anticipated the vast majority of these drivers, but in certain areas, the pressures intensified especially around inflation and some of the transitional costs moving out of the COVID-19 environment.\nWe are confident that we can address these issues and we have plans and pricing already in place as we exit the fiscal year and enter fiscal 2022.\nOur confidence is further strengthened by our continued in-market momentum and the structural health of our business and brands.\nI will first review our results and then share the context and actions we are taking to address these challenges and the improving trajectory we expect for the rest of the year as we head into fiscal 2022.\nAs we outlined during our second quarter earnings call, we expected this would be a challenging quarter and we recognize that there would be headwinds as we lap the peak of COVID-19 demand, manage the volatility of current market dynamics, and continue to navigate our own transformation agenda.\nWe delivered sales of $1.98 billion, in line with our expectations as we cycled a 17% organic growth comparison to a year ago.\nOur sales results benefited from the continued momentum of our Snacks power brands and our U.S. retail products in our Meals & Beverage division as well as the early signs of recovery from our foodservice business.\nImportantly, our brands remain strong with nearly three-quarters of our portfolio gaining or holding share in the quarter.\nIn our core categories, most of our brands grew at higher rates than pre-pandemic levels and our brand consumption on a two-year comparison grew 9%.\nThese results were driven by our decision to invest in supply and service while preserving brand investments with advertising and consumer promotion expense as a percentage of net sales comparable to last year.\nLooking ahead, we expect organic sales in the fourth quarter to decline versus last year as the COVID-19 lap continues.\nWe do expect a sequential improvement from the third quarter as the comparison to prior year eases a bit and our foodservice business continues to recover.\nFrom a margin perspective, our decline versus prior year excluding the net benefit from mark-to-market adjustments on outstanding commodity hedges stemmed from certain headwinds, which are grouped into three main bucket.\nFirst, external factors were larger than we had anticipated.\nWe, like others, face pronounced inflation related primarily to steeply higher transportation costs, some of which was an outcome from the strain of the Texas winter storms on supply chain logistics and the closure of our Paris, Texas facility for two weeks.\nThese factors partially offset by our productivity improvements reflect about a third of the gross margin erosion in the third quarter and will continue into fiscal 2022.\nWe currently expect the benefit from pricing actions we have put in place across our portfolio and our strong productivity plans to mitigate this inflation pressure in fiscal 2022 while we remain vigilant monitoring the ongoing dynamic nature of the current environment.\nThe second bucket I would characterize as transitional items that we are working our way through as we move out of the COVID-19 environment and fully recover on supply.\nThis includes areas like lower fixed cost leverage as we lap the year ago elevated levels of demand, sustain labor challenges and added investment in higher cost co-manufacturers to recover fully on supply.\nWe had factored these pressures into our plans, but in some cases, they were more significant than anticipated as either the time to recover or the magnitude of the impact were greater than expected.\nThese transitional costs reflect about half of our gross margin erosion in the quarter and while we expect the impact of these costs to moderate into the fourth quarter, they will continue to add pressure as we fully cycle the COVID-19 environment.\nThe third bucket is execution related to the high degree of transformation we have under way in our Snacks division.\nThroughout my time at Campbell, we have taken significant steps to improve our execution as we have steadily advanced our agenda.\nHowever, this quarter, the convergence of multiple transformation efforts including systems, logistics, and capacity all put additional executional pressure on the business in a tough third quarter environment.\nWe have already taken decisive actions to allocate more resources and better phase projects to address these issues.\nWe do not expect these elements will have a material impact on the fourth quarter and more importantly, they do not alter our long-term expectations for the Snacks margin expansion opportunity we highlighted last quarter and will share in greater detail during our Investor Day later this year.\nAlthough all of these headwinds put pressure on our near-end performance, they do not represent structural issues and we remain confident in our strategic plans.\nAs a result of the third quarter pressures on margin, adjusted earnings per share came in lower than we expected at $0.57.\nAs Mick will discuss in more depth, we are updating our guidance accordingly.\nTurning to our division performance, let me begin with Meals & Beverages.\nOur net sales decline of 14% and in-market performance of minus 24% in the third quarter reflect lapping the historically high consumption levels that we experienced during the onset of the pandemic last year.\nOn a two-year basis, we had net sales momentum in key categories with share gains over prior year in condensed soups, ready-to-serve soups, Swanson broth, Prego, and Pacific Foods.\nCompared to the third quarter of fiscal 2019, we delivered strong consumption growth of 9% against organic net sales growth of 3% with the gap driven by our foodservice business, which continued to recover as governments gradually eased on-site dining restrictions in some markets.\nOverall, as we have invested in our service levels, they are stabilizing and we are now in a better position on supply across the division.\nWe have restored the shelf in the majority of our categories and our share of total points of distribution is consistent with pre-COVID-19 levels across U.S. soup, Prego, and V8 beverages.\nIn-market consumption for soup was strong versus two years ago growing at 9% and gaining dollar share.\nWe delivered record share growth in U.S. soup of nearly 2 points driven by condensed soups, Swanson broth, Chunky, and Pacific Foods.\nWe also made significant progress on the retention of new households since the onset of the pandemic.\nSoup gained dollar share in all three categories with millennials driving strong growth in condensed cooking, broth, and ready-to-serve soup.\nWe are confident that the brand investments made are working as buyers and buy rate remain elevated compared to pre-COVID-19 levels.\nWe continue to be encouraged by the sustainment of quick scratch cooking behaviors and in-home eating occasions even as COVID-19 restrictions are lifted.\nIn fact, condensed delivered its ninth consecutive quarter of dollar share gains growing share nearly 3 points.\nNotably with millennial consumers, condensed grew share by nearly 4 points.\nWithin ready-to-serve, Chunky delivered double-digit in-market consumption growth on a two-year basis.\nPacific Foods continued to be a powerful growth engine within our soup portfolio with in-market consumption growth of nearly 30% on a two-year basis and continued share gains versus prior year, marking its sixth consecutive quarter of share improvement.\nOn Swanson broth, as we invested to restore distribution and service, we increased share by nearly 2 points versus prior year.\nOn a two-year basis, we grew household penetration by more than a point and saw higher repeat rates on our brand.\nPrego delivered its 24th consecutive month with the Number 1 share position in the Italian sauce category and achieved its strongest share gain in over three years.\nCompared to pre-pandemic levels, we are seeing strong repeat rates and buyer retention on this brand as well as strong resonance with millennial consumers.\nOverall, the Meals & Beverages division delivered a strong in-market quarter against difficult comparisons with share gains in key categories especially among younger consumers, TPD [Phonetic] gains and improved service levels continuing to support our confidence that it will emerge from the pandemic in a stronger position.\nLet's now turn to Snacks where our power brands continue to fuel performance with in-market consumption growth of 14% on a two-year basis despite being down 5% year-over-year.\nOn a two-year basis, total Snacks consumption grew 10% against organic net sales growth of 3% with the gap driven by the decline in our partner brands and continued pressure in the convenience channels.\nWe grew share on many of our power brands over prior year and repeat rates on seven of nine power brands are ahead of pre-COVID-19 levels.\nWe delivered our fifth consecutive quarter of share growth on Late July Snacks, Kettle Brand potato chips, Snack Factory Pretzel Crisps, and Lance sandwich crackers.\nOn a two-year comparison within the power brands, our salty snack brands grew in-market consumption nearly 20% and increased household penetration across the majority of these brands.\nOur Pepperidge Farm Farmhouse products also continued to deliver exceptional results with in-market consumption growth of 9% on top of the prior year increase.\nTurning to Goldfish, we returned to share growth, increasing by more than 1 point compared to prior year.\nThis was in part due to an improved performance on multi-packs, continued momentum on Flavor Blasted Goldfish, and new broadened digital activation.\nWe also exited the quarter with early momentum from the launch of limited edition Frank's RedHot Goldfish.\nTurning to Slide 12, as Mark just shared, our third quarter results were impacted by last year's demand surge related to the start of the COVID-19 pandemic as well as the gross margin impact due to pronounced inflation, our transition out of the COVID-19 environment, and some executional pressure as we continued to advance our transformation agenda primarily in our Snacks division.\nDuring the quarter, organic net sales declined 12% and adjusted EBIT decreased 27% driven by lower sales volume and a lower adjusted gross margin partially offset by lower marketing and selling expenses.\nAdjusted earnings per share from continuing operations decreased 31% to $0.57 per share primarily reflecting the decrease in adjusted EBIT.\nYear-to-date, our organic net sales increased 1% driven by lower promotional spending in both divisions.\nMeals & Beverages increased 1% mainly driven by growth in U.S. soup and V8 beverage offset by declines in foodservice.\nIn Snacks, organic net sales were flat as declines in Lance sandwich crackers and in partner brands within the Snyder's-Lance portfolio were offset by gains in our salty snacks portfolio and our fresh bakery products.\nYear-to-date adjusted EBIT of $1.14 billion was comparable to prior year as a lower adjusted gross margin and increased adjusted administrative expenses were offset by lower adjusted marketing and selling expenses, higher adjusted other income and sales volume gains.\nWithin marketing and selling expenses, lower selling and other marketing costs were partially offset by a 3% increase in advertising and consumer promotion expense or A&C.\nYear-to-date, our adjusted EBIT margin was 17.2% compared to 17.3% in the prior year.\nAdjusted earnings per share from continuing operations increased 4% to $2.43 per share primarily reflecting lower adjusted net interest expense.\nI'll review in the next couple of slides our third quarter results in more detail and provide revised guidance for the remainder of fiscal 2021 reflecting these results and our expectation for sustained inflationary pressures through the remainder of the year.\nOur organic net sales decreased 12% during the quarter lapping the prior year organic net sales increase of 17% when the demand for at-home consumption surged at the onset of the COVID-19 pandemic.\nCompared to the third quarter of fiscal 2019, organic net sales grew 3%.\nOur adjusted gross margin decreased by 290 basis points in the third quarter from 34.7% to 31.8%.\nOn the slide, you'll see the various items bridging the year-over-year change in our overall gross margin.\nNow let me tie it back to Mark's earlier comments, which excludes the 250 basis points net benefit from mark-to-market adjustments on outstanding commodity hedges included in inflation and other in the bridge.\nFirst, external factors led to about one-third of the year-over-year decrease in margin.\nThese external factors included approximately 290 basis points of inflation and some temporary disruption from the Texas storm back in February, both reflected in inflation and other in the bridge.\nCost inflation was approximately 4% on a rate basis, which was higher than anticipated largely driven by freight rates.\nPartially offsetting these headwinds was our ongoing supply chain productivity program, which contributed 150 basis points to gross margin and included initiatives among others within procurement and logistics optimization.\nSecond, headwinds related to our transition into the post COVID-19 operating environment represented about half of the gross margin decline as we transitioned from last year's demand surge, mix, and operating leverage.\nEach had an approximate 110 basis point negative impact on gross margin in the third quarter.\nNet pricing drove a positive 30 basis point improvement.\nThe remainder were incremental other supply chain costs within inflation and other such as increased costs associated with co-manufacturing to support supply and distribution recovery.\nThird, executional challenges, which represented the remainder of the decline were mostly incremental other supply chain costs within inflation and other.\nThese costs were mainly related to the transformation of our Snacks division and were partially offset by our cost savings program, which added 60 basis points to our gross margin.\nMoving on to other operating items, marketing and selling expenses decreased $37 million or 15% in the quarter.\nThis decrease was driven by lower A&C, lower incentive compensation, lower selling expenses and the benefits of cost savings initiatives.\nOverall, our marketing and selling expenses represented 10.2% of net sales during the quarter compared to 10.7% last year.\nAs a percentage of net sales, total A&C was comparable to the prior year quarter.\nAdjusted administrative expenses decreased $2 million or 1% driven primarily by lower incentive compensation partially offset by higher benefit related costs.\nAdjusted administrative expenses represented 7.2% of [Technical Issues] an 80 basis point increase compared to last year.\nMoving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives.\nThis quarter, we achieved $20 million in incremental year-over-year savings resulting in year-to-date savings of $55 million.\nWe expect an additional $20 million in the fourth quarter to deliver an aggregate $75 million of cost savings for the fiscal year with the majority of the savings from the Snyder's-Lance integration.\nWe remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022.\nOn Slide 17, we are providing a total company adjusted EBIT bridge to summarize the key drivers of performance this quarter.\nAs previously mentioned, adjusted EBIT declined by 27%.\nThe previously mentioned net sales decline resulted in a $88 million dollar EBIT headwind while the 290 basis point gross margin decline resulted in a $58 million EBIT headwind.\nBoth were partially offset by lower marketing and selling expenses.\nOverall, our adjusted EBIT margin decreased year-over-year by 290 basis points to 14.3%.\nThe following chart breaks down our adjusted earnings per share growth between our operating performance and below the line items.\nAdjusted earnings per share decreased $0.26 from $0.83 in the prior year quarter to $0.57 per share due to the negative $0.26 impact of adjusted EBIT as slightly lower interest expense was offset by slightly higher adjusted taxes.\nIn Meals & Beverages, organic net sales decreased 15% to $1 billion primarily due to declines across U.S. retail products, including U.S. soup and Prego pasta sauces as well as declines in Canada and foodservice.\nSales of U.S. soup decreased 21% due to volume declines in condensed soup, ready-to-serve soups, and broth lapping a 35% increase in the prior year quarter.\nFor Meals & Beverages, volume decreased in U.S. retail driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior year quarter when organic net sales increased 21%.\nCompared to the third quarter of fiscal 2019, organic net sales in Meals & Beverages grew 3%.\nOperating earnings for Meals & Beverages decreased 35% to $179 million.\nThe decrease was primarily due to sales following [Phonetic] declines and a lower gross margin partially offset by lower marketing and selling expenses.\nThe lower gross margin resulted from higher cost inflation including higher freight costs, other supply chain costs such as external sourcing and the weather-related disruption at the beginning of the quarter, reduced operating leverage and unfavorable product mix partially offset by the benefits of supply chain productivity improvements.\nOverall within our Meals & Beverages division, the operating margin decreased year-over-year by 550 basis points to 17.2%.\nWithin Snacks, organic net sales decreased 8% driven by volume declines within our salty snacks portfolio including Pop Secret popcorn, Cape Cod potato chips, and Snyder's of Hanover pretzels as well as in Lance sandwich crackers, partner brands and fresh bakery.\nVolume declines were partially driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior year quarter when organic net sales increased 12%.\nCompared to the third quarter of fiscal 2019, Snacks organic net sales grew 3%.\nOperating earnings for Snacks decreased 29% for the quarter driven by a lower gross margin and sales volume declines partially offset by lower marketing and selling expenses and lower administrative expenses.\nThe lower gross margin resulted from higher cost inflation and other supply chain costs, reduced operating leverage, and unfavorable product mix partially offset by the benefits of supply chain productivity improvements.\nOverall within our Snacks division, the operating margin decreased year-over-year by 350 basis points to 11.5%.\nI'll now turn to our cash flow and liquidity.\nFiscal year-to-date cash flow from operations decreased from $1.1 billion in the prior year to $881 million primarily due to changes in working capital, principally from lower accrued liabilities and lapping significant benefits in accounts payable in the prior year.\nOur year-to-date cash for investing activities were largely reflective of the cash outlay for capital expenditures of $190 million, which was $30 million lower than the prior year primarily driven by discontinued operations.\nOur year-to-date cash outflows for financing activities were $1.4 billion, reflecting cash outlays due to dividends paid of $327 million.\nAdditionally, we reduced our debt by $1 billion [Phonetic].\nWe ended the quarter with cash and cash equivalents of $209 million.\nThe company's March 2017 strategic share repurchase program remains suspended.\nIn the fourth quarter, we expect more pronounced inflationary pressures to negatively impact margins while pricing actions take hold in the beginning of fiscal 2022.\nIn addition, although we expect to make progress on the transition into the post COVID-19 environment, it will remain a headwind from a margin perspective.\nWhile we expect gross margin headwinds to persist through the fourth quarter, we expect a sequential improvement of our EBIT margin relative to prior year due to easier comparables, improved execution, and normalizing marketing investments.\nWe expect net sales for fiscal 2021 to decline 3.5% to 3%.\nExcluding the impact from the 53rd week in fiscal 2020 and the impact of the European chips and Plum divestitures, we expect organic net sales to decline 1.2% to minus 0.7%.\nTo put our fiscal 2021 organic net sales guidance into perspective at the midpoint of our guidance range, we expect fiscal 2021 to be 6% above fiscal 2019.\nWe expect adjusted EBIT of minus 5% to minus 4%.\nWe expect net interest expense of $210 [Phonetic] million to $215 [Phonetic] million and an adjusted effective tax rate of approximately 24%.\nAs a result, we expect adjusted earnings per share of $2.90 to $2.93 per share, representing a year-over-year decline of minus 2% to minus 1% to the prior year.\nThe earnings per share impact of the 53rd week in fiscal 2020 was estimated to be $0.04 per share.\nTo put our fiscal 2021 earnings per share guidance into perspective at the midpoint of our guidance range, we expect fiscal 2021 to be in line with fiscal 2020 considering the impact of the 53rd week and 27% above fiscal 2019 adjusted EPS.\nRegarding capital expenditures, we now expect to spend approximately $300 million for the full year, which is below previous expectations driven by the impact from COVID-19 on the operating environment.\nIn closing, I want to reiterate Mark's conviction in the long-term performance of Campbell.\nWe are working diligently to deliver the results we know we are capable of delivering and I remain optimistic about our strategy, our team, and the underlying strength of our brands.\nIn closing, we expected this to be a challenging quarter for the company, but it was made even tougher by several additional factors.\nHowever, we do not see these challenges as structural nor do they temper in any way our confidence in the transformation we are implementing at Campbell.\nWe knew this would not be simple and we remain confident in how we are responding and the actions already under way.\nFinally, and most importantly for the long-term health of our business is the progress we are making on our categories and brands and the overwhelmingly positive indicators that we are seeing from consumers and customers.\nWe will address the inflation and execution and as we continue to demonstrate sustainable growth, we will unlock Campbell's full potential.",
        "summary": "compname says q3 adjusted earnings per share $0.57 from continuing operations excluding items.\nq3 adjusted earnings per share $0.57 from continuing operations excluding items.\nupdates full-year fiscal 2021 guidance.\nqtrly reported net sales $1.98 billion versus $2.24 billion.\nsees fy 2021 net sales down 3.5% to down 3.0%.\nqtrly organic net sales decreased 12% from prior year.\nsees fy 2021 adjusted earnings per share $2.90 to $2.93.\nauthorized anti-dilutive share repurchase program of up to $250 million to offset dilution from shares issued under stock compensation programs.\nremains on track to deliver annualized savings of $850 million by end of fiscal 2022.\nin q4, expects continued margin pressure related to transition out of covid-19 environment."
    },
    {
        "text": "I'm Rebecca Gardy, Head of Investor Relations at Campbell Soup Company.\nToday's remarks have been prerecorded.\nThese statements rely on assumptions and estimates, which could be inaccurate and are subject to risk.\nOn Slide 4, you will see today's agenda.\nMark will share his overall thoughts on our fourth quarter and full year performance, as well as end market performance by division.\nMick will discuss the financial results of the quarter and the year in more detail and then provide our guidance for the full year fiscal 2022.\nIn fiscal 2021, the pandemic continued to present challenges across North America.\nBut I am so proud of how our teams, particularly our front-line and supply chain teams adapted and rallied to keep each other safe and meet the sustained demand for our products.\nOn behalf of the entire Campbell leadership team, I am deeply grateful for their dedication and we continue to make their safety and well-being paramount as they work to meet the needs of our customers, consumers and our communities.\nAs difficult and complex as this time has been, it has also been an extraordinary period for Campbell, and we've made clear meaningful progress advancing our strategic plan.\nWe've evolved into a different company, one that is stronger, more agile and with growing more relevant brands that are better positioned for the future.\nFor the full year, I'm pleased to report that Campbell's organic net sales were comparable to fiscal 2020 and grew 3% on a two-year compounded annual growth basis driven by both divisions, reflecting strong end market performance.\nIn fact, three quarters of our portfolio grew or held market share for the year, reflecting our continued momentum.\nAdjusted EBIT lagged fiscal 2020 as we lapped dramatic scale and efficiency from a year ago, and navigated a much higher inflationary environment this year.\nHowever, on a two-year CAGR, adjusted EBIT grew 5% and adjusted earnings per share grew 14% as we de-levered and improved our balance sheet.\nTurning to Slide 7, full-year organic net sales were comparable to prior year, which included a positive fourth quarter finish to fiscal 2021 in light of last year's remarkably strong performance.\nIf you recall, our first half fiscal 2021 was driven by strong elevated end market performance as we continue to gain share and made steady progress on supply to restore the shelf.\nThe third quarter reflected the challenging comparisons to the prior year as we cycle the demand surge that accompanied the onset of the COVID-19 pandemic and navigated several headwinds, including increased inflation and executional pressures in our Snacks division.\nIn the fourth quarter, we delivered solid results ahead of our expectations across all three key metrics: net sales, adjusted EBIT and adjusted EPS, and addressed the executional pressures we experienced last quarter.\nOrganic net sales declined 4% as we lapped a 12% growth than the prior year and delivered 4% growth on a two-year CAGR basis.\nOur fourth quarter performance accelerated relative to third quarter, driven by strong end market results, particularly in US Soup and Goldfish, and the continued recovery of our foodservice business.\nIn Snacks, we delivered sequential operating margin improvement of 270 basis points versus the third quarter despite the continued industry wide supply chain challenges.\nAn important barometer of the health of our brand portfolio is our end market performance.\nFor the full year, 75% of our brands grew or held share versus the prior year, and the majority of our brands in our 13 core categories grew ahead of pre-COVID levels.\nTo note, repeat rates on our brands in all core categories are ahead on a two-year basis.\nTotal company in-market consumption was minus 1% compared to fiscal 2020, on a 52-week basis.\nImportantly, compared to the fiscal 2019 period, consumption grew 10%, driven equally by strength in both our Meals and Beverages and Snacks divisions, as we continue to make material advances in attracting and retaining consumers, especially the critical Millennial cohort.\nTurning to our division performance on slide 9, let me begin with Meals & Beverages.\nOur 4th quarter organic net sales decline of 9% and end market performance of minus 2% reflects cycling the partial inventory recovery and elevated consumption levels in the prior-year quarter.\nCompared to the fourth quarter of fiscal 2020, we continued to grow share in Swanson broth, condensed soup, Prego, ready to serve soup and Pacific Foods.\nOn a two-year basis, we delivered strong consumption growth of 13% against organic net sales growth of 10%, narrowing the gap as our foodservice business continued to stabilize.\nOn US Soup, we delivered another quarter of record share growth of nearly 2 points, with gains in all segments.\nThis included gains from Swanson broth, condensed soup, Well Yes!\nand Slow Kettle driven by the continued recovery in our total points of distribution or TPDs.\nOur share of TPDs grew for the fourth consecutive quarter this year.\nUS Soup two-year dollar sales growth of 16% in the fourth quarter exceeded the growth in total shelf stable meals and was just slightly behind total edible growth in that same time period.\nHousehold penetration and repeat rates remain elevated compared to pre-COVID levels.\nCondensed soup increased dollar share for the 10th consecutive quarter with the largest driver of share growth coming from condensed eating varieties as we nearly restored the full range of offerings to the shelf.\nAs our ability to supply improved, we were also pleased to see household gains and ready to serve versus the prior year as a result of the shelf recovery, and favorable at-home consumption behaviors particularly for lunch occasions.\nReady to serve end market consumption grew an impressive 21% on a two-year basis, led by Chunky, Slow Kettle and the successful relaunch of Well Yes!\nPacific Foods continues to strengthen its position as the number one organic soup brand with the fourth quarter marking seven straight quarters of share gains in measured channels.\nWe expanded distribution and have recovered the majority of our supply, while bringing in more millennials to the category than any other soup or broth brands.\nOn Swanson broth, we increased our share by 3.7 points, our highest quarter of share growth in over three years, driven by our investment in supply recovery.\nThis is important as it demonstrates the strength of the brand as we recovered lost share to lower priced players as our supply improved.\nPrego delivered its best year of dollar share gains in four years and maintained the number one share position for 27 consecutive months.\nThe brand grew in market consumption on a two-year basis and delivered 5% growth over the prior year.\nHousehold penetration was elevated versus fiscal 2019 in every quarter and grew 1 points in the fourth quarter.\nOverall, the Meals & Beverages division delivered strong end market performance against difficult comparisons to the prior year and achieved share gains in key categories, particularly with millennials.\nOn Slide 11, we are excited to share with you a glimpse into our Meals & Beverages innovation plans for fiscal 2022.\nOur new items focus on new occasions and relevant wellness trends, expanding on the relaunch of our better for you Well Yes!\nbrand is the launch of Well Yes!\nPower Bowls with five unique varieties for both lunch and snack occasions.\nWe have also expanded our successful Slow Kettle Crunch innovation with four varieties of Campbell's red and white Crunch including our iconic classic tomato soup with Goldfish toppings.\nOn our Pacific Foods business, we are launching additional plant-based products, including creamy oat milk soups and creamy plant based protein broths.\nFinally, if you haven't tried the new chunky spicy chicken noodle it's fantastic and brings variety to the critical at-home lunch occasion.\nIn addition to our relevant and consumer-driven innovation, another element of our winning soup strategy is a refresh of our Campbell's condensed soup.\nWe are contemporizing the brand to better match our growing millennial consumer base, while improving the product and its shopability as we continue to support our positioning as a starting point for delicious meals.\nWe also have continued our journey of simplifying our ingredient lines and improving quality.\nIt's always tricky when looking to evolve such an iconic design and product but our new graphics and improved ingredient line strike the right balance and have been met with a very positive customer and consumer response.\nLet's now turn to Snacks.\nThis quarter was the second highest 13-week quarter of net sales for the Snacks division since the Snyder's-Lance acquisition.\nOrganic net sales grew 1% over the prior year quarter and 7% on a two-year basis.\nIn-market performance declined only 1% year-over-year, but grew 11% on a two-year basis.\nTurning to our Snacks Power brands, which continue to fuel performance with in-market consumption growth of 2% this fiscal year and 15% on a two-year basis driven by double-digit consumption growth in the majority of our brands.\nCompared to the prior year, we grew share on many of our power brands, most notably Cape Cod potato chips, Snack Factory Pretzel Crisps, Goldfish Crackers and Late July snacks.\nCompared to pre-COVID levels, household penetration remains elevated and repeat rates are higher on all Power brands.\nTurning to Goldfish, we delivered sustained share growth, increasing for a second quarter in a row by more than 1 point compared to this time last year.\nOn a one and two-year basis, Goldfish delivered strong results including double-digit consumption growth, increased household penetration and higher repeat rates.\nThis solid performance on Goldfish was due in part to the successful launch of limited edition Goldfish Frank's RedHot crackers.\nAdditionally, the reinstatement of promotions improved performance on multi-packs and an effective marketing campaign contributed to our strong results.\nWe are excited to continue to introduce on trend limited editions on Goldfish with the launch of this week of Goldfish Jalapeno Popper and plans for additional innovation later this fiscal year.\nEntering the fourth quarter amid rising inflation, labor shortages and some executional pressures, we better focused our agenda in the Snacks division, driving operational excellence and allocating additional resources throughout the supply chain network.\nWe are very pleased with the speed and progress we have made to address the executional pressures we experienced in the third quarter.\nWe head into fiscal 2022 with a stronger foundation and confidence we can continue our significant transformation on this important business.\nOn Slide 17, we do expect the challenging environment in fiscal 2022 as COVID persists and inflation in labor availability remain highly volatile.\nHowever, we also anticipate our effective pricing actions, supply chain productivity programs and cost savings initiatives to be significant offsets, resulting in an improvement in the second half of the fiscal year relative to the prior year and exiting fiscal 2022 with momentum, as we continue to make progress on our strategic plan.\nMick will provide more details on our fiscal 2022 outlook and assumptions in a moment.\nTurning to Slide 19 for the fourth quarter organic net sales, which excludes the impact from the additional week and the impact of the sale of the Plum baby food and snacks business declined 4% as we cycled both the elevated demand in food purchases for at-home consumption, and a partial retailer inventory recovery in the prior year.\nCompared to the fourth quarter of fiscal 2019, which we view to be more meaningful given the COVID-19 impact to prior year, organic net sales increased 4% on a two-year CAGR.\nAdjusted EBIT decreased 13% compared to prior year, to $267 million driven by lower sales volume, including the impact of the additional week in the prior year quarter and a lower adjusted gross margin, partially offset by lower adjusted marketing and selling expenses and lower adjusted administrative expenses.\nOur adjusted EBIT margin was 14.3% compared to 14.6% in the prior year.\nAdjusted earnings per share from continuing operations decreased $0.08 or 13% versus prior year to $0.55 per share, partially driven by the estimated $0.04 contribution from the additional week in fiscal 2020.\nFor the full-year organic net sales, which excludes the impact from the additional week, divestitures hence the impact of currency were comparable to the prior year and grew 3% compared to fiscal 2019 on a two-year CAGR basis.\nCompared to prior year, Meals & Beverages organic net sales decreased 1% driven by declines in foodservice, partially offset by growth in V8 beverages.\nIn Snacks, organic net sales were flat, as gains in our salty snacks portfolio including Late July snacks and Snack Factory Pretzel Crisps and in Goldfish crackers were offset by declines in Lance sandwich crackers and in partner brands within the Snyder's-Lance portfolio.\nFull-year adjusted EBIT decreased 3% versus the prior year to $1.4 billion.\nThe decline reflected lower adjusted gross margin and lower sales volume, including the impact of prior year's additional week, partially offset by lower adjusted marketing and selling expenses and higher adjusted other income.\nOur marketing and selling expenses represented 9.6% of net sales compared to 10.9% last year.\nFull year 2021 adjusted EBIT margin was 16.6% compared to 16.7% in the prior year.\nFull year adjusted earnings per share from continuing operation increased 1% to $2.98 per share.\nOn the next slide, I'll break down our net sales performance for the fourth quarter.\nOrganic net sales decreased 4% during the quarter lapping an increase of 12% in the prior year quarter when the demand for at-home consumption remained elevated and retailers partially recovered on the inventory.\nThe organic net sales decline was driven by a 5 points headwind due to volume declines, partially offset by favorable price and sales allowances and lower promotional spending, which each drove a 1 point gain in the quarter.\nThe impact of one last week in the quarter subtracted 7 points and the recent sale of Plum subtracted 1 point.\nAll in, our reported net sales declined to 11% from the prior year stronger than anticipated as in-market demand remained elevated.\nTurning to Slide 22, our fourth quarter adjusted gross margin decreased by 420 basis points from 35.6% last year to 31.4% this year, which was generally consistent with our expectations.\nMix and operating leverage had a negative impact of approximately 70 basis points and 40 basis points respectively on gross margin, as we continue to transition from last year's elevated demand.\nNet pricing drove a 100 basis point improvement due to lower levels of promotional spending in the quarter as well as favorable price and sales allowances, which do not yet reflect the price increases effective first quarter of fiscal 2022.\nInflation and other factors had a negative impact of 640 basis points with slightly more than half of the decline driven by cost inflation as overall input prices on a rate basis increased by approximately 5%.\nThe remaining impact was driven by higher other supply chain costs largely due to last year's manufacturing cost efficiencies related to a higher production levels to service the elevated demand, as well as lower mark-to-market gains on outstanding commodity hedges, partially offset by lower COVID-19 related costs.\nOur ongoing supply chain productivity program contributed 150 basis points to gross margin, partially offsetting these inflationary headwinds.\nOur cost savings program, which is incremental to our ongoing supply chain productivity program added 80 basis points to our gross margin.\nMoving on to other operating items, adjusted marketing and selling expenses decreased $91 million or 34% in the quarter on a year-over-year basis.\nThis decrease was driven by lower advertising and consumer promotion expense, lower selling expenses and lower marketing overhead costs.\nA&C declined 52% reflecting our elevated pandemic driven level of investment in the prior year to attract and retain new households.\nHowever A&C was comparable to the fourth quarter of fiscal 2019.\nOverall, our adjusted marketing and selling expenses represented 9.3% of net sales during the quarter, a 330 basis point decrease compared to last year.\nAdjusted administrative expenses decreased $30 million or 18% with approximately one-half of the decrease, driven by the estimated impact of the additional week in the prior year quarter.\nThe balance of the decrease reflected lower general administrative costs, higher charitable contributions in the prior year and benefits associated with our cost savings initiatives, partially offset by higher IT costs.\nAdjusted administrative expenses represented 7.4% of net sales during the quarter, a 60 basis point decrease compared to last year.\nMoving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives.\nThis quarter, we achieved $25 million in incremental year-over-year savings, which came in ahead of our expectations, resulting in full-year savings of $80 million, with the majority of the savings from the Snyder's-Lance integration.\nWe remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022.\nOn slide 25, we are providing a total company adjusted EBIT bridge to summarize the key drivers of performance this quarter.\nAs previously mentioned, adjusted EBIT declined by 13% as the net sales decline, including the impact of the additional week in the prior year quarter and the 420 basis point gross margin contraction resulted in a $84 million and $77 million EBIT headwind respectively.\nPartially offsetting this was lower adjusted marketing and selling expenses, contributing 330 basis points to adjusted EBIT margin and lower adjusted administrative and R&D expenses contributing 50 basis points.\nThe estimated impact to EBIT from the additional week in fiscal 2020 was $22 million.\nOverall, our adjusted EBIT margin decreased year-over-year by only 30 basis points to 14.3%.\nThe following chart breaks down our adjusted earnings per share change between our operating performance and below the line items, a $0.10 impact of lower adjusted EBIT and a $0.01 impact of higher adjusted taxes, partially offset by a $0.03 favorable impact from lower interest expense resulted in better than expected adjusted earnings per share of $0.55, down $0.08 from $0.63 per share in the prior year, of which an estimated $0.04 was driven by the additional week in fiscal 2020.\nIn Meals & Beverages, declines across US retail products, including US Soup, Prego pasta sauces and Pace Mexican sauces led to a 9% decrease in fourth quarter organic net sales compared to the prior year.\nThe decline was driven by volume decreases in US retail due to last year's partial retail inventory recovery and increased demand of food purchases for at-home consumption in the prior year quarter.\nHowever for the comparable period in fiscal 2019, organic net sales increased 10%.\nIn the fourth quarter of fiscal 2021, sales of US Soups decreased 21%, 7 points of which were driven by the additional week in the prior year, while at the same time cycling a 52% increase in the prior year quarter.\nOperating earnings for Meals & Beverages decreased 30% to $129 million.\nThe decrease was primarily due to sales volume declines including the additional week and a lower gross margin, partially offset by lower marketing and selling expenses as well as lower administrative expenses.\nThe lower gross margin resulted from higher other supply chain costs net of lower COVID-19 related costs, higher cost inflation, including higher freight costs and ingredients and packaging inflation, and unfavorable product mix, partially offset by the benefits of supply chain productivity improvements.\nOverall within our Meals & Beverages division, fourth quarter operating margin decreased year-over-year by 290 basis points to 15.2%.\nWithin Snacks, organic net sales increased 1% to $1 billion, driven by volume gains in Goldfish crackers and our salty snacks portfolio including Snack Factory Pretzel Crisps, Snyder's of Hanover pretzels, and Cape Cod potato chips, partially offset by declines in partner brands and fresh bakery, favorable price and sales allowances and lower promotional spending also contributed to sales growth.\nCompared to the fourth quarter of fiscal 2019, Snacks organic net sales grew 7%.\nOperating earnings for Snacks increased 7% for the quarter, driven by lower marketing and selling expenses, partially offset by sales volume declines, including the impact of the additional week and a lower gross margin.\nThe lower gross margin resulted from higher cost inflation and other supply chain costs net of lower COVID-19 related costs, partially offset by the benefit of cost savings initiatives, supply chain productivity improvement, favorable price and sales allowances and lower promotional spending.\nOverall within our Snacks division, fourth quarter operating margin increased year-over-year by 170 basis points to 14.2%.\nI'll now turn to cash flow and liquidity.\nFiscal 2021 cash flow from operations decreased from $1.4 billion in the prior year to $1 billion primarily due to changes in working capital, mostly from a significant increase in accounts payable in the prior year and lower accrued liabilities in the current year.\nOur year-to-date cash for investing activities was reflective of the cash outlay for capital expenditures of $275 million, which was slightly lower than the prior year driven by discontinued operations and the net proceeds from the sale of Plum.\nOur year-to-date cash outflows for financing activities were $1.7 billion, reflecting cash outlays due to dividends paid of $439 million as we continue to focus on delivering meaningful return of cash to our shareholders.\nAdditionally, we reduced our debt by $1.2 billion.\nWe ended the year with cash and cash equivalents of $69 million.\nIn June, the Board authorized a $250 million anti-dilutive share repurchase program to offset the impact of dilution from shares issued under our stock compensation programs.\nThe Company expects to fund the repurchase out of its existing cash flow generation.\nWe expect to continue to uncertainty around the duration and effects of the pandemic on industry wide supply chain networks, resulting in accelerating inflationary pressures and a constrained labor market.\nWe expect to partially mitigate these headwinds with well-executed pricing and planned productivity initiatives, as well as our cost savings program.\nFirst half margins, particularly in the first quarter will continue to be impacted by transitional headwind cycling prior year's elevated sales and scale efficiencies with comparisons easing in the second half of the fiscal year.\nWe expect organic net sales to be minus 1% to plus 1%, adjusted EBIT of minus 8% to minus 5%, and adjusted earnings per share of minus 8% to minus 4% versus the fiscal 2021 results.\nFiscal 2021 results include a $0.12 benefit from mark-to-market gains on outstanding commodity hedges and an approximate $0.02 adjusted earnings per share contribution from Plum.\nImportantly, when considering these items, the upper end of our fiscal 2022 adjusted earnings per share range is in line with fiscal 2021 performance.\nAs you see on Slide 31, we expect core inflation for the year to be high single digits with a more pronounced impact in the second half of fiscal 2022, which we plan to address with price increases in trade optimization, supply chain productivity improvements and cost savings initiatives, and a continued focus on discretionary spending across the organization.\nMoving to additional assumptions, we expect ongoing supply chain productivity gains of approximately 2% to 3% for the year excluding the benefit of our cost savings program.\nAs previously mentioned, we expect to continue to progress on our cost savings program and expect to deliver an incremental $45 million in fiscal 2022, keeping us on track to deliver $850 million by the end of the fiscal year.\nAdditionally, we expect net interest expense of $190 million to $195 million and an adjusted effective tax rate of approximately 24%, which is largely in line with fiscal 2021.\nWhile cognizant of our current operating environment, we expect to continue to invest in the business, targeting capital expenditures of approximately $330 million, which includes carryover projects from fiscal 2021.\nAdditionally, we expect the net of adjusted administrative expenses and adjusted other income to increase as a percentage of net sales, reflecting the planned information technology investments and related costs and the cycling of lower administrative items in the prior year.\nAll in, we expect year-over-year operating margin improvement in the second half of the year.\nOverall, as Mark said, we had a positive finish to the year.\nWe are truly grateful to our teams and for their continued dedication and commitment as we head into fiscal 2022.\nIn closing, we feel good about how we landed fiscal 2021 amid a difficult environment.\nWe expect fiscal 2022 will be a complicated transitional year, but I'm confident that with our strong end market momentum and the progress that we've made, we will successfully navigate through it.\nI look forward to sharing our view on how we intend to unlock the full growth and value potential of this fantastic company going forward at our Investor Day on December 14.",
        "summary": "program has no expiration date and is in addition to the $250 million anti-dilutive share repurchase program.\nexpects to fund the repurchases out of its existing cash flow generation.\ncampbell soup qtrly organic net sales, which exclude impact from additional week, impact from sale of plum baby food & snacks business, down 4%.\nremains on track to deliver annualized savings of $850 million by the end of fiscal 2022.\nsees fy2022 organic net sales down 1% to up 1%.\nexpects q1 to be the most challenging as co continues to cycle the elevated sales and scale efficiency from a year ago.\nqtrly adjusted earnings per share from continuing operations $0.55.\ncampbell soup - sees fy2022 net sales down 2% to flat.\nfirst half fy2022 margins will continue to be impacted by transitional headwinds.\ncampbell soup - for fy2022, sees core inflation of high single digits for year with more pronounced impact in second half."
    },
    {
        "text": "As always, we appreciate your interest in Central Pacific Financial Corporation.\nThe COVID-19 pandemic is top of mind for all of us.\nOverall, the state of Hawaii is doing a good job at managing and containing the pandemic.\nHawaii was early to put in place stay-at-home orders and mandatory curfew then quarantine.\nOur residents in general are abiding by government orders, as well as hygiene recommendations.\nDue to our geographic isolation, Hawaii was able to effectively lock down and protect the state from outside visitors with potential COVID-19 infections.\nWe believe these measures will slow and contain the spread of COVID-19 in the state and result in a faster recovery.\nHowever, with a complete tourism shut down in Hawaii, we are seeing a dramatic impact on the state's economy.\nWe are hopeful that we will start to see visitors returning to the island in the late summer to early fall of this year, particularly from Asia as they are closer to recovery from the pandemic.\nCentral Pacific Financial is committed to supporting our employees, customers and community during this time of crisis.\nOur first focus is on our employees.\nAnd therefore we have temporarily closed 13 of our smaller branches to allow for adequate social distancing and our larger remaining branches.\nThe staff from the temporarily closed branches have been redeployed to work at the remaining branches, assist other areas of the bank or make customer telephone calls.\nThe majority of our support staff, even at the executive level, have started working remotely on a full-time or rotating basis.\nWe believe the actions we have taken to date will allow us to meet the needs of our customers and community while ensuring the safety of all employees.\nWe want to assure you that we are prepared to handle this crisis.\nI personally led companies through prior crisis, including the 2011 Tohoku earthquake, tsunami and radiation after-effects while I was in Tokyo leading IBM, Japan and the SARs outbreak in 2002 to 2004 while I was leading BEARINGPOINT ASIA PACIFIC.\nAdditionally, many of our key team members that helped us through the 2008 to 2009 financial crisis remain with the company and are applying the valuable lessons learned.\nDespite COVID-19, our RISE2020 initiatives are continuing.\nThe revitalization of our building headquarters is proceeding as we continue to support the local construction industry.\nWe are also pushing ahead with our digital initiatives, including the development of our new online and mobile banking platforms and the replacement of our ATMs. Digital technology is even more critical to our business during crises like this and will remain a high priority strategy for our future.\nAs a result, we have not had any disruption in our business.\nAs Paul noted, our remote workforce plan has been rolled out with an overall smooth transition.\nWe already have virtual private network, VPN technology capability over the last quarter.\nAnd we've expanded VPN access to over 70% of our employees.\nIn addition to VPN, we are well set up with the latest technologies and enable our operations to continue efficiently.\nOur teams are using collaboration tools, including Microsoft Team and several other cloud-based software program.\nFor our customers, we continue to offer our current online and mobile banking tools and we are making good progress on our new digital offerings as part of our RISE2020 initiatives.\nBanking is deemed an essential service and I've been so proud of how our CPB employees have risen to deliver exceptional service in these challenging times.\nI'd like to reiterate that our employee and customer safety is of the utmost priority.\nWe are monitoring our employees' health and well-being very closely.\nWe are providing personal protective equipment for our frontline staff and have implemented precautionary measures to ensure social distancing in our branches and all work areas.\nDuring the first quarter, our teams remained focused on generating revenue even as the pandemic situation began to escalate.\nThe Bank grew total loans by $63 million or 1.4% sequential quarter.\nThe loan growth primarily came from our residential and commercial mortgage loan categories.\nWe were also able to grow core deposits by $45 million or 1.1% sequential quarter.\nAdditionally, we were successful in reducing the average cost of total deposits by 5 basis points to 36 basis points.\nGoing forward, we believe, there are still opportunities for loan and deposit growth as our teams collaborate together to support our consumer and business customers through this unprecedented time.\nWe have also moved quickly to put in place a number of COVID-19 relief programs for our consumer and business customers.\nFor our customers, we are offering an employment disruption loan, as well as, consumer and residential mortgage loan payment deferral programs.\nFor our business customers, we are an SBA approved lender and are participating in the paycheck protection program for PPP, which is part of the Federal CARES Act.\nWe've seen tremendous demand for the paycheck protection program and have made over 4200 loans totaling nearly $490 million approved by the SBA.\nAs a result of the PPP loan demand, it was necessary to redeploy employees to handle and assist with the loan processing, including augmenting the loan process by engaging outside resources to assist.\nOur PPP team is focused right now to fund the loans that were approved by the SBA, as well as, to prioritize remaining applications that did not get processed in time under the initial funding and of course to submit the applications to SBA when the lender portal reopens.\nWe are staying in close contact with our customers through increased outreach efforts.\nOur bankers are having calls with their key customers as frequently as daily.\nW are monitoring our customers' financial health during this challenging time and are providing guidance and the resources they need to help them weather the storm.\nFurthermore, we are prudently making loan modifications for certain commercial customers to allow for deferral of loan principal and/or interest for short-term period.\nAs of April 16, we have made loan payment deferrals on approximately $300 million in total balances which represent less than 7% of our total loan portfolio.\nCentral Pacific Financial has had a prudent credit risk management philosophy, which we believe will help us weather through this pandemic.\nFollowing our recovery from the Great Recession, we implemented a disciplined approach to credit that included tighter underwriting standards with a focus on making quality loans and maintaining a diversified portfolio.\nOur loan portfolio today is well diversified by product and by industry.\nWhile, certain industries we lend to will be impacted by the pandemic, there are other industries and portfolios that we expect to have limited impacts.\nThe primary industries that will likely experience impacts from the pandemics are summarized on Slide 9 and include accommodation and foodservice, retail trade, wholesale trade, manufacturing and healthcare.\nThis comprises approximately $378 million or 8% of our total loan portfolio.\nA large portion of these balances are to well-established businesses that have weathered through the last downturn.\nSecondary industries that may also experience impacts include real estate management and other leasing, transportation, professional and administrative and other industries and services that total approximately $487 million or 11% of our total loan portfolio.\nThese industries have thus far experienced little impact from COVID-19.\nAdditional details on our primary and secondary industries can be found on Slide 10.\nWe also anticipate impacts on our consumer portfolio, which is approximately $560 million or 13% of our total loan portfolio.\nWe are actively granting 90-day payment deferrals to the borrowers.\nAdditional details on our consumer portfolio are shown on Slide 11.\nWe anticipate limited impact on our residential, home equity and investor commercial real estate loans.\nThe weighted average loan-to-value in these portfolio are 60%, 58% and 53% respectively.\nThese loans comprise of approximately $3.1 billion or 68% of our total loan portfolio.\nAdditional details on these portfolios can be found on Slides 12 and 13.\nIn the final week of March, we aggressively reviewed our commercial loan portfolio and reached out to our customers to determine the initial impacts, if any, of COVID-19 on their businesses.\nThrough this process, we identified borrowers that were likely to experience financial difficulty and proactively downgraded approximately $65 million in loans from past and special mention.\nThese loans are primarily accounted for as part of the outstanding loan balance of the primary industries previously mentioned.\nIt is important to note that all of these loans were performing prior to COVID-19.\nAs part of our assessment for the downgrade, we reviewed management-end actions taken such as closing businesses and reducing expenses, monthly cash burn and access to cash liquidity and capital and the overall ability to weather through the pandemic in the near term.\nWe further note that it is still early to reach any firm conclusions and that these loans that were downgraded do not include the expected positive impact from the federal subsidy program.\nWe are proactively working with our customers and many have already applied and have been approved for the paycheck protection program.\nFurthermore, we have also provided assistance with short term payment deferrals as necessary.\nAdditional details and breakdown by industry can be found on Slide 14.\nOverall, our asset quality continues to remain strong.\nOn the finance side, we have implemented several steps to effectively manage through the current environment.\nWe will ensure our capital and liquidity positions remain strong.\nThrough our past experience, we have developed robust capital and liquidity stress tests and comprehensive capital and liquidity contingency plans.\nWe also decided to temporarily suspend our share repurchase program.\nTo manage our expenses, as well as protect our employees, we have implemented internal policies to temporarily suspend all business travel, large group meetings, meals and entertainment.\nWe have also reevaluated or postponed certain consulting projects.\nAnd finally, hiring of new employees is on an exception basis and we are evaluating our compensation plans.\nI'd like to now briefly cover the company's financial results for the first quarter of 2020 which is summarized on Slide 15.\nNet income for the first quarter of 2020 was $8.3 million or $0.29 per diluted share.\nReturn on average assets in the first quarter was 0.55% and return on average equity was 6.21%.\nOur earnings were impacted by a total provision for credit losses of $11.1 million recognized in the first quarter which related to a new CECL methodology and the effects of the COVID-19 pandemic on the economic forecasts.\nWe also recorded a CECL day one impact of $3.6 million, which was an adjustment to our opening shareholders equity.\nOur pre-tax pre-provision earnings for the first quarter was $21 million.\nNet charge-offs in the first quarter totaled $1.2 million compared to net charge-offs of $2.3 million in the prior quarter.\nThe charge-offs primarily came from the Hawaii consumer loan portfolio.\nAt March 31, our allowance for credit losses was $59.6 million or 1.32% of outstanding loans.\nNet interest income for the first quarter was $47.8 million, which was relatively flat on a sequential basis and the net interest margin remained stable at 3.43%.\nFirst quarter other operating income totaled $8.9 million compared to $9.8 million in the prior quarter.\nThe decrease was primarily due to lower mortgage banking income and BOLI income, driven by market volatility during the quarter.\nThis was partially offset by additional fee income of $1.3 million related to an interest rate swap for a commercial real estate client.\nOther operating expense for the first quarter was $36.2 million, which was flat to the prior quarter.\nIncluded in the total, there was lower deferred compensation expense due to market volatility, which was offset by higher provision on off-balance sheet credit exposures under CECL.\nThe efficiency ratio increased to 63.9% in the first quarter compared to 62.8% in the prior quarter.\nThe increase was primarily due to the decrease in other operating income.\nThe effective tax rate was 25.3% in the first quarter.\nGoing forward, we expect the effective tax rate to be in the 25% to 27% range.\nThe global COVID-19 pandemic is an extremely challenging situation faced by all during this time.\nWe want to assure you that Central Pacific is prepared and ready to handle the situation.\nWe have a solid financial, credit, liquidity and capital position to enable us to weather the storm.\nWe remain committed to our employees, customers and the community and will continue to provide support to all of these areas.\nEarlier this month, we ran a highly successful community campaign sponsored by our CPB foundation called KeepHawaiiCooking.\nThrough this program, our foundation subsidized the cost of 10,000 take-out meals to local families struggling during this time.\nThe purchase of these meals also provided a much needed support to our local restaurants.\nWe are further looking at other potential initiatives to help our local economy, one of which is the campaign to continue communication and engagement with visitors, particularly from Japan to keep Hawaii top of mind and encourage their return to Hawaii once the pandemic ends and recovery occurs.\nTo conclude, we are very focused on flattening the curve with the COVID-19 situation and we are pulling together the company and communities to beat this.\nAt this time, we'll be happy to address any questions you may have.",
        "summary": "compname reports q1 earnings per share $0.29.\nq1 earnings per share $0.29.\nnet interest income for q1 of 2020 was $47.8 million, compared to $45.1 million in year-ago quarter.\nrecognized total credit loss expense of $11.1 million in q1 under cecl methodology."
    },
    {
        "text": "I'm pleased to report on the Company's solid financial performance for the fourth quarter of 2019 as well as for the full 2019 year.\nWe continue to generate strong loan and core deposit growth and maintain solid asset quality and capital ratios, both on a sequential quarter and a year-over-year basis.\nFor the full 2019 year compared to last year, we improved our net interest income, net interest margin, non-interest income and efficiency ratio.\nOur profitability and strong capital position enabled us to repurchase 165,700 shares of CPF stock during the fourth quarter.\nDuring the 2019 year, we repurchased 797,000 shares or roughly 2.8% of our common stock outstanding as of the end of 2018.\nCombined with cash dividends, we have returned $48.5 million in capital to our shareholders this past year.\nWe continue to execute with our RISE2020 initiative to enhance customer experience, drive stronger long-term growth and profitability, and improve shareholder returns.\nIn the fourth quarter, we launched our new website under the cpb.\nbank domain name and implemented an end-to-end commercial loan origination system that will drive better efficiency.\nThe development of our new online and mobile banking platform is progressing well and our employees are excited to pilot the new platform in the first quarter.\nKey steps toward our 2020 milestones in the area of the branch and ATM modernization were achieved with construction under way at our main branch headquarters and our new ATM selected.\nThe Hawaii economy continues to perform well with annual visitor arrivals set to exceed 10 million for the first time ever, continued strength in construction activity and growing importance of military in Hawaii over U.S.'s Indo-Pacific strategy.\nOur total assets surpassed the $6 billion mark at year-end and reflected an increase of 3.5% from the previous year-end.\nOur balance sheet composition continues to move in the right direction with growth focused in loans and core deposits.\nTotal loans increased by $82 million or 1.9% over the previous quarter and by $371 million or 9.1% year-over-year.\nOn a sequential quarter basis, increases were led by $43 million in growth in consumer loans and $41 million in growth in resi mortgages.\nOn a year-over-year basis, the $371 million loan growth was broad-based in almost all loan categories.\nAsset quality continued to be strong with non-performing assets of $1.7 million, which represented 3 basis points of total assets.\nTotal deposits increased on a sequential quarter basis by 1.6% and year-over-year by 3.5%.\nImportantly, core deposits contributed to all that growth with the sequential quarter increase of $103 million or 2.5% led by a 3.7% increase in non-interest bearing demand balances.\nThe year-over-year increase in core deposits of $243 million or 6.1% was led by a 10.5% increase in savings and money market balances and a 9.3% increase in interest-bearing demand.\nThe increases in core deposits, both sequential quarter and year-over-year, were offset by planned decreases and higher cost government time deposits.\nOur loan-to-deposit ratio was 87% as of the end of the year.\nOur efforts in business development and targeted deposit gathering strategies have yield successful results in deposit growth.\nWe are continuing to ramp up these efforts in 2020, supported by further strengthening of our teams and technology platforms.\nNet income for the fourth quarter of 2019 was $14.2 million or $0.50 per diluted share, compared to net income of $14.6 million or $0.51 per diluted share reported last quarter.\nReturn on average assets in the fourth quarter was 0.95% and return on average equity was 10.70%.\nFor the full 2019 year, net income was $58.3 million or $2.03 per diluted share, compared to net income of $59.5 million or $2.01 per diluted share in the prior year.\nReturn on average assets for the 2019 year was 0.99% and return on average equity was 11.36%.\nFor the full-year 2019, pre-tax pre-provision net revenue totaled $84.2 million, which was a year-over-year increase of $7.1 million or 9.2%.\nWe are pleased we were able to post solid 2019 results, while investing for our future through our RISE2020 initiative.\nNet interest income for the fourth quarter increased by $2.3 million to $47.9 million on a sequential quarter basis, and the net interest margin was 3.43%.\nThe fourth quarter included $1.1 million in non-recurring interest and dividend income, which positively impacted net interest income and net interest margin.\nOn a normalized basis, the fourth quarter net interest margin was 3.34%, which represented a 4 basis point sequential quarter increase.\nThe sequential quarter normalized net interest margin expansion was driven by increases in average loan balances and decreases in interest-bearing deposit and borrowing costs.\nDuring the fourth quarter, we recorded a provision for loan and lease losses of $2.1 million, compared to a provision of $1.5 million recorded in the prior quarter.\nNet charge-offs in the fourth quarter totaled $2.3 million, compared to net charge-offs of $1.6 million in the prior quarter.\nThe charge-offs primarily came from the Hawaii consumer loan portfolio.\nAt December 31, our allowance for loan and lease losses was $48.0 million or 1.08% of outstanding loans and leases.\nFourth quarter other operating income totaled $9.8 million, compared to $10.3 million in the prior quarter.\nThe decrease was primarily due to lower mortgage banking income.\nOther operating expense for the fourth quarter was $36.2 million, compared to $34.9 million in the prior quarter.\nThe sequential quarter increase was driven by higher salaries and employee benefits, and higher computer software expense.\nThese increases relate to our RISE2020 initiative and also include accruals for incentive compensation.\nThe efficiency ratio was 62.81% in the fourth quarter, compared to 62.48% in the prior quarter.\nThe effective tax rate increased to 26.7% due to return to provision adjustments.\nGoing forward, we expect that effective tax rate to be in the 24% to 26% range.\nOverall, we are pleased with another solid quarter and the continued positive momentum as we finished up the 2019 year.\nOur team is working hard to deliver on our RISE2020 commitments, and we look forward to sharing our progress with you over the coming quarters.\nAt this time we will be happy to address any questions you may have.",
        "summary": "central pacific financial q4 earnings per share $0.50.\nq4 earnings per share $0.50.\ncentral pacific financial - net interest income for fourth quarter of 2019 was $47.9 million, compared to $44.7 million in the year-ago quarter."
    },
    {
        "text": "As always, we appreciate your interest in Central Pacific Financial Corp.\nThe start of 2021 is a very exciting time for Central Pacific.\nWe are pleased to announce that we have successfully completed our RISE2020 initiative, which positions us extremely well in the current environment and for the future.\nWe also completed our RISE2020 milestone on digital banking with the new online and mobile banking platforms that launched in the third quarter and the completion of our full ATM network upgrade in the fourth quarter.\nThis is part of an exciting new brand design that we just launched.\nThe new brand reflects both the Company's unique history and our bright future ahead.\nWe had strong financial results for the fourth quarter and full year of 2020.\nWhile net income was impacted by one-time expenses and higher provisions for credit losses, our core pre-tax pre-provision earnings were solid.\nWe continue to thoroughly review and regularly monitor our loan portfolio to appropriately manage the credit risk in the pandemic environment.\nDuring the fourth quarter, our total balance of loans on payment deferrals decreased significantly and was down to 3% of total loans, excluding PPP loans at year-end.\nFinally, our Board of Directors declared a quarterly cash dividend of $0.23 per share and approved a new share repurchase authorization.\nThe State of Hawaii continues to manage through the COVID-19 pandemic.\nWe are vaccinating our residents as quickly as possible and have worked through the first tier of first responders and frontline medical workers.\nWe have recently opened two mass vaccination sites in Honolulu, as we move to the next tier, which includes the elderly population.\nOur COVID infection rate in the State of Hawaii is currently the second-lowest in the nation on a per capita basis.\nThe tourism economies remained open with the requirement for a negative COVID test to avoid quarantine.\nThe daily visitor arrival counts have recently been in the 5,000 to 8,000 range per day, but is still significantly down compared to a year ago.\nWe are optimistic that with the mass vaccination initiative we will start to see a Hawaii economic recovery in 2021.\nAt Central Pacific, we continue to operate with the highest standards of health, safety and social distancing.\nWe've successfully consolidated four branches into neighboring branches in 2020, three of which were in-store branches that had too small of a footprint for adequate social distancing.\nWe expect to retain customers and deposits from these closed branches as we continue to provide exceptional service at our other branches and through our digital channels.\nMuch of our back office teams continue to work flexible remote schedules and all employees are required to complete a daily online health questionnaire prior to starting work each day.\nWe believe the actions we've taken will continue to enable us to provide a safe environment for both our employees and customers.\nIn the fourth quarter, excluding PPP loan pay-offs of $112 million, the bank grew its loan portfolio by $46 million, driven by growth in commercial, construction, residential mortgages, HELOC and commercial mortgages.\nOur residential lending team continues to outperform with record levels of production, resulting in $5.4 million in mortgage banking income for the quarter.\nFor the 2020-year, mortgage banking income was $13.7 million, which was more than double the income from the previous year, augmented by over $1 billion in loan production.\nDuring the fourth quarter, we received and processed a significant amount of PPP forgiveness applications, which resulted in the recognition of $5.4 million in fee income.\nWe continue to process PPP forgiveness applications and recently started accepting new PPP loan applications for both first draw and second draw loans from our business customers.\nAdditionally, our team continues to engage and remain steadfast in our support of our customers and for the broader business community impacted by COVID-19.\nCore deposits during the fourth quarter increased by $132 million, which is consistent with year-end seasonal inflows augmented by our front-line business development efforts.\nFor the 2020 year, core deposits increased by $787 million.\nAdditionally, our cost of total deposits declined by 4 basis points from the prior quarter and is now down to 9 basis points.\nProviding best-in-class digital technology for our customers remain the key priority for us.\nIn 2020, we launched our new consumer mobile and online platforms and completed the rollout of our new ATM fleet.\nWe are seeing strong adoption and utilization of these new digital tools by our customers.\nAnd just yesterday, we launched a new platform that will allow our customers and other consumers to open a new personal checking or savings account online or apply for a consumer loan online.\nOur team is laser-focused on adding additional digital products and services this year and we look forward to updating you in the coming quarters.\nAt year-end, the loan portfolio totaled $4.96 billion with 55% consumer and 45% commercial.\nDuring the quarter, we continued to monitor the loan portfolio and provided support to our customers as they continue to navigate through the ongoing changes in the marketplace.\nWe assisted our customers by providing additional loan payment deferrals as needed and we were pleased to see a significant number of borrowers resume making their monthly loan payments.\nAt quarter-end, the total balance of loans on payment deferrals declined to $120 million or 3% of the total loan portfolio, excluding PPP balances.\nOur redeferral rate was 15% and was primarily driven by residential loans where payment deferrals were extended to nine months.\nDuring the quarter, we saw a significant decline in consumer loans on deferral as customers returned to making loan payments.\nOf the approximately 4,200 consumer loans that returned to payments, only 7% are granted a short-term loan modifications with 93% resuming payment at contractual terms.\nIn the commercial and commercial real estate loan portfolios, the total balance of loans on payments deferrals declined to $47 million or 1% of the total loan portfolio, excluding PPP balances.\nThe highest exposure by industry continues to be Real Estate and Rental & Leasing totaling $33 million, a decline of $14 million sequential quarter.\nThe loans in the Real Estate and Rental & Leasing industry are supported by low loan-to-value ratios.\nThe majority of these borrowers are expected to resume making loan payments at the end of their six month loan payment deferrals.\nLoan payment deferrals for our high-risk industries totaled $12 million or 0.3% of the total loan portfolio, excluding PPP balances.\nAs of January 20th, our total balance of loans on payment deferrals decreased further to $101 million or 3% of total loans, excluding PPP balances.\nAdditional details on our loan payment deferrals can be found on Slides 20 and 21.\nDuring the quarter, criticized loans declined by $4.5 million sequential quarter to $192 million or 4.2% of the total loan portfolio, excluding PPP balances.\nSpecial mention loans declined by $6.3 million to $142 million or 3.1% of the total loan portfolio, excluding PPP balances and classified loans increased by $1.7 million to $50 million or 1.1% of the total loan portfolios, excluding PPP balances.\nWe sold a classified and non-accrual commercial real estate loan at par of $4.2 million and settled a payoff of another classified and non-accruals commercial real estate and commercial loan at 92 [Phonetic] or $2.9 million.\nApproximately 32% of special mention balances and 10% of classified balances also received PPP loans.\nAdditional details on loans rated special mention and classified can be found on Slides 22 and 23.\nOverall, we continue to believe our proactive approach to working with our customers and our disciplined credit management and diversified loan portfolio has allowed us to remain strong and our asset quality to remain stable through these unprecedented time.\nThis will continue to serve us well into the future.\nNet income for the fourth quarter of 2020 was $12.2 million or $0.43 per diluted share.\nReturn on average assets in the fourth quarter was 74 basis points and return on average equity was 8.87%.\nFor the full 2020 year, net income was $37.3 million or $1.32 per diluted share.\nReturn on average assets was 0.58% and return on average equity was 6.85%.\nPre-tax pre-provision earnings for 2020 was $88.2 million compared to $84.2 million in 2019.\n2020 pre-tax pre-provision earnings were the highest CPF has generated since the Great Recession.\nOur 2020 earnings were impacted by higher provision for credit loss expense due to the current COVID-19 pandemic.\nAdditionally, in the fourth quarter, there were several one-time expenses which totaled $5.9 million.\nNet interest income for the fourth quarter was $51.5 million, which increased from the prior quarter due to accelerated recognition of PPP's fee income as PPP loans were forgiven by the SBA.\nNet interest income included $6.3 million in PPP net interest income and net loan fees compared to $3.4 million in the prior quarter.\nThe net interest margin increased to 3.32% in the fourth quarter compared to 3.19% in the prior quarter.\nThe increase was due to the aforementioned PPP fee income recognition.\nThe NIM normalized for PPP was 3.17 in the fourth quarter compared to 3.26 in the prior quarter.\nThe decrease is due to lower loan and investment yields and the new subordinated debt interest expense.\nFourth quarter other operating income totaled $14.1 million compared $11.6 million in the prior quarter.\nThe increase was primarily due to higher mortgage banking income of $1.1 million sequential quarter.\nAdditionally, in the current quarter, we realized a gain on sale of securities of $0.2 million compared to a loss on sale of securities of $0.4 million in the prior quarter.\nOther operating expense for the fourth quarter was $45.1 million, which was an increase of $8.1 million compared to the prior quarter.\nThe increase was largely driven by one-time expenses totaling $5.9 million which related to employee incentives and benefits, branch consolidation costs, litigation settlement, debt prepayment fees, and other one-time expense accruals.\nAdditionally, in the current quarter, there was higher deferred compensation expense related to equity-market volatility and higher computer software expense related to our technology initiative.\nThe efficiency ratio increased to 68.8% in the fourth quarter compared to 60.9% in the previous quarter, primarily due to the one-time expenses.\nExcluding one-time expenses of $5.9 million, the fourth quarter efficiency ratio would have been 59.8%.\nNet charge-offs in the fourth quarter totalled $1.8 million compared to net charge-offs of $1.3 million in the prior quarter.\nAt December 31st, our allowance for credit losses was $83.3 million or 1.83% of outstanding loans, excluding PPP loans.\nThis compares to 1.79% coverage as of the prior quarter-end.\nThe buildup of credit reserves was largely driven by the economic forecast utilized in our CECL methodology.\nThe effective tax rate was 23.7% in the fourth quarter.\nAnd going forward, we expect the ETR to continue to be in the 24% to 26% range.\nOur liquidity and capital positions remain strong and we continue to perform robust stress testing.\nWith the $55 million subordinated note offering we completed in the fourth quarter, our CPF total risk-based capital ratio increased to 15.2% as of December 31st.\nIn summary, Central Pacific continues to make positive forward progress on our strategy, while at the same time managed well through the COVID-19 pandemic.\nWe have a solid financial, credit, liquidity and capital position.\nAs the economic recovery gradually begins, we remain committed to supporting our employees, customers and the community.\nAt this time, we'll be happy to address any questions you may have.\nBack to you, operator.",
        "summary": "q4 earnings per share $0.43.\nnet interest income for q4 of 2020 was $51.5 million, compared to $47.9 million in year-ago quarter."
    },
    {
        "text": "We appreciate you joining us today to review our fourth quarter and annual 2020 results.\nWe at Chesapeake Utilities continue to operate effectively in this new normal, serving our customers and keeping employees as safe as possible as we await the full availability of the COVID-19 vaccination in the coming months.\nAs shown on slide two, participating with me on the call today are Jeffry Householder, President and Chief Executive Officer; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Risk and Compliance Officer.\nWe also have other members of our management team joining us virtually.\nOur objective today is to provide insight into our fourth quarter and annual 2020 results, review the estimated impact of COVID-19 on our business in 2020 as well as update you on our progress on key strategic initiatives and our outlook for the future in regards to new opportunities.\nMoving to slide three.\nWe had a very strong year in 2020.\nAs shown on slide four, earnings growth from continuing operations increased 13.2%, resulting in our 14th year in a row of record earnings.\nWe also achieved a consolidated return on equity above 11%, which is something we've done each year since 2005.\nOur consistent earnings track record is a significant accomplishment and represents top quartile performance among our peer group over an extended period.\nI note that we achieved these financial results in a year where our total capital investments once again approached $200 million, representing 18% of total capitalization.\nThis has been an extraordinary year.\nIt's a testament to the dedication of our employee team that we were able to identify safety and operating procedures that enabled us to continue throughout the year uninterrupted delivery of the essential energy services Chesapeake provides.\nOne of the significant concerns I had as the pandemic intensified was the potential loss of momentum in the completion of our capital growth projects.\nOur team is able to find ways to safely keep projects on schedule.\nAnd our investments in 2020 will deliver strong margin and earnings growth for years to come.\nOur stock also proved to be resilient during the pandemic-related market downturn.\nWe maintain significant value relative to the losses in the broader utility market.\nToward the end of the year, subsequent to our inclusion in the S&P 600 Small-Cap Index, and reflecting our strong, consistent financial performance, the Chesapeake stock price increased above pre-COVID-19 levels.\nA key part of our total shareholder return is our strong dividend.\nChesapeake Board followed our long-standing practice of closely correlating annualized dividend growth to our earnings growth and declared an annualized dividend of $1.76 per share, an 8.6% increase and the 17th consecutive year of increased dividends.\nWe've now doubled our annualized dividend per share over the past 10 years.\nAt the same time, we've been able to reinvest a significant portion of our earnings back into the business to propel future earnings through additional capital investments.\nAs shown on slide five, at year-end, the Chesapeake Utilities' total shareholder return exceeded 15%, the top level of performance among other gas utilities for the year.\nWhile our total shareholder return was strong for 2020, I believe it is equally important to consider the longer-term value creation as well.\nIncluding 2020, our total shareholder return compound annual growth rate over one-, three-, five-, 10- and 20-year historic periods has exceeded 13% for each period, representing long-term upper quartile performance compared to our peer group.\nIn fact, we are at the 100th percentile among our peers for the whole periods.\nslide six highlights the significant growth experienced by the company over the past decade.\nWe've doubled our market capitalization twice over the past 10 years, and 2020 was another step down on the path to continue growing our business.\nWe ended the year with Chesapeake Utilities' market capitalization at $1.9 billion, more than doubling from 2015.\nNet income for 2020 was $71.5 million or $4.28 per share compared to $65.2 million and $3.96 per share for 2019.\nShown on slide seven, the company's net income from continuing operations for 2020 was $70.6 million or $4.21 diluted earnings per share.\nThis represents an increase of $9.5 million or $0.49 a share above 2019 results.\nWe had significant margin growth in 2020, totaling over $25 million.\nOur margin results would have been even higher, but they were partially offset by $4.3 million lower gross margins due to a decline in customer consumption driven primarily by weather and the unfavorable net impact of the COVID-19 pandemic.\nA significant margin impact resulted from our policy to provide assistance to customers during the pandemic and stop nonpaid service disconnects.\nWe now have received authorization in each of our regulated jurisdictions to create regulatory assets to defer COVID-19-related net expenses.\nIn 2020, we deferred a total of $1.9 million in distribution utility expenses.\nThe after-tax impact of COVID-19 in 2020 was approximately $1 million or $0.06 per share.\nWe're continuing to review the various cost impacts associated with COVID, and we'll adjust as necessary these estimates in the future.\nOur growth strategy is fairly straightforward.\nWe manage our regulated businesses to provide stable, predictable earnings or a foundation, as we like to say internally, over the long term and continually seek opportunities to expand our footprint.\nWe look for nonregulated investments that can augment these utility results and which meet three fundamental criteria: investments that are, one, related to our core energy businesses; two, meet our higher than utility return targets; and three, exhibit risk profiles consistent with our existing nonregulated businesses.\nWe seek to provide total shareholder return in the upper quartile of our peers in both short- and long-term performance, the product of earnings and dividend growth driven by capital projects that can achieve an adequate return on investment on our prescribed targets.\nOn slide eight, we've identified the primary drivers of growth that we have been constantly pursuing, and we had significant noteworthy activity in almost all of these areas in 2020.\nSlide nine outlines some of our key business accomplishments last year, and let me highlight a few of those accomplishments.\nWe continue to make progress on our business transformation initiative.\nAt the beginning of 2019 with a market capitalization of approximately $1.3 billion, we set an aggressive internal goal to double the size of our company in five years.\nThat may seem ambitious, but we had already achieved that level of growth twice over the previous 10 years.\nTo do it again, we need to make sure our organizational structure, our processes, our employee skills, diversity, technology, we're able to keep pace with our growth objectives.\nWe've taken significant actions toward this goal, simplifying our organization and business unit management structure and achieving greater process standardization across our units.\nI don't think you can underestimate the impact of COVID-19 on our business.\nThe pandemic has been a tragic and painful experience across the planet.\nHowever, responding to the challenges has forced us to identify and address weaknesses in our safety practices, our processes, our technology our training and our organizational structure.\nCOVID-19 has significantly accelerated our business transformation process and introduced several new elements such as remote work, facility design into our planning.\nWhile we're strengthening our operational and business practices, we know that it's important to hold on to the culture and traditions that are at the core of our success and have made this company a special place for all of us to work.\nChesapeake Utilities was once again recognized as a top workplace in Delaware and Florida and earned the inaugural 2021 Top Workplaces USA award for midsized companies.\nWe appreciate this national recognition awarded by a third-party based on feedback and survey results from our employees.\nWe saw solid earnings contributions from all of our business units last year.\nOur results reflect increased earnings from the Hurricane Michael regulatory settlement, new pipeline expansion projects, the acquisitions of Boulden Western natural propane operations and the Elkton Gas natural gas distribution system.\nOrganic growth in our natural gas distribution operations, continued pipeline replacement, increased margin from Marlin Gas Services, higher retail propane margins, increased rates for Aspire Energy.\nWe also had gains on two property sales that helped to offset some of the pandemic cost increases.\nAs I mentioned earlier, we continued our strong record of investment growth in 2020.\nCapital expenditures totaled $196 million.\nWe advanced multiple pipeline expansion projects, most notably, the Callahan Pipeline in Florida went into service early and under budget, producing $30.9 million in incremental margin in 2020.\nCustomers in our service territories continue to prefer natural gas as their energy of choice, and our regulated natural gas customer growth in both Florida and the Delmarva Peninsula, as a result, continues to be more than twice the national average.\nWe also completed the acquisitions of the two propane companies, I mentioned earlier, the Boulden propane in Delaware and Western Natural Gas in Florida and the Elkton natural gas system in Maryland.\nThe integrations of these acquisitions were completed seamlessly, and they all contributed to our bottom line in 2020.\nWe worked hard last year to rebalance our capital structure and achieve our 50% equity target.\nWe obtained $89.7 million of new equity from our ATM program and various stock plans, which was certainly helpful as Chesapeake Utilities -- the S&P 600 small-Cap index in September.\nWe also retained $42.4 million of earnings in 2020, increasing stockholders' equity to $697.1 million and achieving the 50% of total capitalization.\nTurning to slide 10.\nNet income for the quarter was $22.4 million compared to the same quarter of last year.\nAs I'm sure you all recall, during the fourth quarter of 2019, we exited the natural gas marketing business and recognized gains on the sales associated with that exit.\nAs a result, I will focus our discussion today largely on continuing operations, although our consolidated earnings both for the quarter and annually in 2020 were strong despite the absence of any onetime gain.\nIn terms of continuing operations for the quarter, our income from continuing operations grew by $4.5 million or 27%.\nEPS for the fourth quarter compared to the fourth quarter last year grew by $0.20 to $1.24 per share from $1.04, representing growth of 19% because of the equity issued in the fourth quarter of 2020.\nNet income for 2020 for the year was $71.5 million or $4.26 per share compared to $65.2 million or $3.96 per share for 2019.\nThe company's net income from continuing operations for 2020 was $70.6 million or $4.21 per share.\nThis represents an increase of $9.5 million or $0.49 per share above 2019 results of $3.72 or 13.2% growth.\nHigher income was the result of increased performance across the enterprise, as Jeff highlighted earlier, coupled with expense management.\nChesapeake Utilities is committed to gross margin growth through new project development and efficient operations, as shown on slide 11.\nFor 2020, gross margin increased 7.7% while operating -- other operating expenses were up less than half of that growth at 2.7%.\nKeep in mind, the 7.7% increase in gross margin is inclusive of $4.3 million of milder weather that we experienced and $5.3 million of lower margin associated with COVID-19.\nIf you exclude the COVID-19 impact, our operating income growth would have been, on a consolidated basis, 12.2% versus reported 6.1%; for our Regulated Energy segment, 11.3% versus reported of 6.4%; and for our Unregulated Energy segment, 12.1% versus 3.6%.\nIn terms of expense growth, I mentioned our laser focus on managing expenses in the midst of the pandemic and in support of our continued collaboration across the company.\nExcluding the incremental expenses associated with new acquisitions, where there was also a corresponding margin growth, our other operating expense growth was 1.3% on a consolidated basis, 1.6% for our Regulated Energy segment and 0.8% for our Unregulated Energy segment.\nAll of this remaining increase is attributable to higher insurance costs.\nOverall, our effective cost management helped to offset unfavorable expense impacts of COVID-19 and keep our operating costs flat, taking into consideration the acquisitions and the insurance.\nFinally, depreciation, amortization and property tax increased $14.5 million associated with our continued property expansions and new investment related to our growth initiatives.\nAnd what you can see is that excluding weather and the negative impacts of COVID-19, gross margin increased $34.9 million or $1.52 per share.\nHowever, there's some offsetting impacts of expenses associated with the acquisition and also associated with Hurricane Michael.\nHigher earnings for 2020 reflect increased earnings from the Hurricane Michael regulatory settlement reached with the Florida PSC, and that's $0.23 per share after associated depreciation and amortization of regulatory assets.\nPipeline expansion projects added $0.35 per share.\nContributions from the acquisitions of Boulden, Elkton and Western Natural Gas added $0.09 per share net of their incremental expenses.\nOrganic growth in the natural gas distribution operations added $0.15 per share.\nMarlin had increased margin that added an additional $0.08 per share.\nOur propane distribution operations generated higher retail propane margins that contributed $0.08 per share.\nRate increases for Aspire added $0.06, and we had incremental margin from our Florida GRIP program that included $0.05 per share.\nAnd lastly, margins from some of Eastern Shore's capital improvements and nonservice expansion projects also added $0.05 per share.\nThese increases were offset by lower gross margin again due to a decline in customer consumption driven primarily by weather $0.19 per share and the net unfavorable impact of the COVID-19 pandemic or $0.06 per share.\nThe estimated consolidated net impact that COVID had on our earnings reflects the establishment of regulatory assets in the fourth quarter associated with the net incremental expense incurred by our natural gas and electric distribution businesses to continue to provide our essential services as well as the tax benefits that resulted from implementing the CARES Act.\nGiven the various components and the magnitude of the settlement on our results for the year, we thought it would be useful to lay out the details.\nThe settlement agreement allowed FPU to, first, refund the overcollection of interim rates through the fuel charge; second, record regulatory assets for storm costs in the amount of $45.8 million, including interest, which will be amortized over six years; third, we cover those storm costs through a surcharge for a total of $7.7 million annually; and finally, collect an annual increase in revenue of $3.3 million to recover capital costs associated with new plants and a regulatory asset for the cost of removal and undepreciated plants.\nThe new base rates and storm surcharge were effective November 1, 2020.\nOn an annual basis, the settlement contributed $3.8 million in net income after tax or $0.23 per share, as I mentioned previously.\nI'd like to spend a few moments highlighting our capital spending in 2020 and our initial forecast for 2021.\nAs you can see on slide 14, spending in 2020 totaled $196 million, within the guidance that we provided for the year.\nWe continue to invest in growth projects and opportunities in the normal course as we work within the guidelines of COVID-19 safety requirements.\nOur regulated distribution and transmission businesses represented 75% of new capital additions in 2020.\nThe initial forecast for 2021 capital expenditures remains at similar levels, ranging between $175 million and $200 million.\nAgain, the investment is concentrated with about 80% budgeted in new regulated energy assets.\nFor the five years ended December 31, 2020, capital expenditures totaled $1 billion.\nIn terms of guidance through 2022 of $750 million to $1 billion, we are expecting to invest over $850 million by the end of 2021, exceeding our lower end estimate of $750 million and already reaching 85% of the $1 billion higher end of the range.\nJeff will touch on our expanded guidance through 2025 in just a few minutes.\nslide 15 represents recent pipeline investments completed in 2020 or scheduled for completion in 2021.\nAnd these projects in tandem with the associated distribution system expansions are one of the largest drivers of our capital spending in 2020 and projected 2021.\nThese pipeline expansions represent $116 million and span our footprint, including in Florida, Ohio and on Delmarva.\nIncremental gross margin is estimated to be $21.7 million once these projects are fully in service by the fourth quarter of 2021.\nFurther pipeline expansions will continue to be a growth driver as we undertake economically viable extensions that enable our distribution systems to continue to capitalize on the increasing demand for new natural gas services to residential and commercial customers.\nOur latest projects and initiatives table is shown on slide 16, and I think you all are pretty familiar with this.\nAnd it shows our pipeline expansion, CNG and RNG transportation, acquisitions and regulatory initiatives.\nKey projects are expected to generate approximately $66 million and $73 million for the years 2021 and 2022, respectively.\nPipeline expansions are expected to generate $7 million in incremental margin in 2021, shy by $1 million of the incremental $8 million added in 2020.\nThe Hurricane Michael proceedings settlement accounted for $11 million in incremental margin in 2020 and remains at that level for 2021 and 2022.\nWe particularly note the margin estimate of $10.5 million for 2022 from the recent acquisitions of Boulden, Elkton and Western Natural Gas approximately double the 2020 gross margin contribution.\nIn total, the incremental margin growth from these projects and initiatives represents approximately $27 million for 2020, $16 million for 2021 and $7 million for 2022.\nAs a reminder, we only include definitive projects in this table once they reach maturity and do not include organic margin growth from distribution, customer additions, rate adjustments in our unregulated businesses, etc.\nAccordingly, the RNG transportation margin, for example, will be adjusted as new projects are definitive and announced.\nJust -- the growth we've experienced and ensure we have the capital capacity to fuel our future growth, we maintain a strong balance sheet with access to sufficient, competitively priced capital.\nAs you can see on slide 17, as of the end of the year, total capitalization was $1.4 billion comprised of 50% stockholders' equity, 36% long-term debt at fixed rate and 14% short-term debt, including outstanding borrowings under our revolver and the current portion of long-term debt.\nDuring 2020, we added a net incremental $204 million of permanent capital, including in our stockholders' equity and long-term debt.\nOur recent equity issuance moved us to our target equity to total capitalization range beginning at 50%.\nWe continue to utilize our traditional equity plans in 2020 to issue stock and increase equity beyond our earnings retained and reinvested in the business.\nWe successfully utilized our first ATM program and various stock plans to raise just under $90 million in new equity gross proceeds and issued $90 million in new long-term debt at an average rate of 2.98%.\nWe also restructured and enhanced our short-term debt facilities to provide additional capacity while also streamlining the administration of this funding source.\nWe will continue to add capacity that supports our strategic growth plans and look forward to updating you on our progress.\nAt the end of 2020, we completed our latest annual strategic plan update.\nI've been telling our employees that this is a fantastic time to be in the energy delivery business and to be part of Chesapeake Utilities.\nThere's certainly no denying that we are in extraordinary times with the energy industry transitioning to a lower carbon world.\nWe faced many challenges raised by opponents to fossil fuels.\nThose challenges will require that we respond effectively, finding ways to meaningfully reduce our carbon footprint.\nAt the same time, we need to meet customer demands for cleaner energy and continue to contribute to the economic well-being of the communities we serve.\nWe believe that far from limiting our growth potential, these challenges present significant opportunities for investment and expansion.\nOn slide 18, we've highlighted our key strategic platforms for growth.\nThese are the principal areas of investment focus that will drive our growth over the next few years.\nFirst is we want to optimize the earnings growth in our existing businesses through organic growth, regulatory initiatives and increased opportunities for collaboration and efficiency across our operating units.\nOur recent strategic plan update identified hundreds of millions of dollars of investment opportunities within our existing units.\nThese opportunities represent organic growth without significant acquisition.\nSecond, we continue to see opportunities for interstate and intrastate pipeline projects across Delmarva, Florida, Ohio and other states.\nMany of these pipelines will increase capacity to meet the growing demand for natural gas as our distribution systems continue to expand.\nOur service areas have experienced tremendous growth during the pandemic.\nThird, we think further growth in our propane gas business is likely, primarily through acquisitions in the Mid-Atlantic and Southeast, along with the expansion of our propane AutoGas business.\nFourth, we continue to expand Marlin Gas Services' core CNG offerings to a larger market area.\nIn addition, we're aggressively pursuing RNG transport opportunities across the U.S. And recently, we added several LNG tankers to our CNG fleet to increase our transport capacity capabilities.\nMarlin offers a unique opportunity to pursue RNG transport agreements and, at the same time, help us identify potential renewable investment opportunities.\nOur fifth platform for growth is renewable energy investment, which we discuss on slide 19.\nOver the past year, we've announced our participation in several renewable energy projects.\nEach of these projects is advancing, and we're actively working to finalize the scope and extent of our investment and participation levels.\nLet me update you on our progress and describe some of our emerging projects.\nOn the Delmarva Peninsula, we're working at Bioenergy Devco and CleanBay renewables on several poultry waste-to-energy R&D projects, the two projects that are furthest along are the Bioenergy Devco Georgetown Delaware facility and CleanBay's Westover Maryland project.\nAs the developers complete final design and financing brand use permitting activities before construction begins, we have various agreements in place at the respective plants for gas processing, fuel off-take, Marlin transport, pipeline construction to take away RNG and deliver thermal gas for organic fertilizer production, the development of solar photovoltaic systems to provide renewable power to one of the sites, potential construction of a renewable gas CHP at one site and other potential investment opportunities.\nMost of the Chesapeake investment opportunities included in that list are currently either under contract or we have an LOI in place and are negotiating final terms.\nIn Florida, we're working with the solar turning to investigate the opportunity to utilize a blend of RNG and hydrogen to operate our Eight Flags combined heat and power plant on Amelia Island.\nIn fact, yesterday, we executed a letter of support with solar turbines to participate in our hydrogen research and development project.\nOur goal is to utilize a significant percentage of hydrogen to fuel that turbine within the next few years.\nOur CNG vehicle fueling station outside the port of Savannah, Georgia is under construction.\nWe're working on several landfill gas processing sites that would enable us to transport RNG to the site of use as a renewable vehicle fuel.\nCNG offers an attractive vehicle fuel choice, but the opportunity to provide renewable CNG will support premium fuel margins as increasingly of interest to the trucking and marine port vehicle markets.\nWe announced an agreement with Fortistar to construct a pipeline in Ohio, connecting a landfill RNG gas processor to our Aspire gathering system.\nConstruction on the pipeline is scheduled to begin soon, and in-service is scheduled for later this year.\nWe're also working on a host of other renewable investment projects, and we're not quite at the stage of public announcement.\nThese projects include several additional landfill gas processing facilities, additional agricultural waste RNG projects, solar generation for our electric system and other opportunities.\nAnd I look forward to updating you as the details are finalized.\nI should note that our renewable energy investment strategy is aligned with the same strategic objectives and financial discipline that we've applied to all of our investment opportunities over many years.\nWe're looking for investments that are linked to our core businesses, aligned with our financial targets and meet our tolerance for risk.\nWe are not simply seeking renewable investments for the sake of having a renewable investment.\nOur current capital and earnings investment guidance was originally issued for the five-year period 2018 through 2022.\nGiven our updated strategic plan and the margin growth already announced and included in our major projects table, yesterday, we announced an extension of our capital and earnings per share guidance.\nAs you can see on slide 20, we're resetting our five -year capital guidance for the period 2021 to 2025 to $750 billion.\nI'm excited that our latest strategic plan update gives us a high degree of confidence that we have significant investment opportunities ahead of us.\nOn slide 21, we're also extending our earnings per share guidance for an additional three-year period through 2025.\nOur projected diluted earnings per share range in 2025 is $6.05 to $6.25.\nThe 2025 guidance range represents an average earnings per share growth of approximately 10% from our initiation of guidance at the end of 2017.\nAs shown on slide 22, Chesapeake Utilities continues to build on our bedrock commitment to ESG, a focus on environmental stewardship, dedication to social justice and to sound governance principles.\nThis is how we work every day.\nOur recognition as a top workplace for the ninth consecutive year in the areas we serve, as well as our recognition in the top workplace inaugural USA awards, speaks volumes about our diverse and inclusive culture, one which continues to promote the growth and development and engagement of our employees and our communities.\nOur vibrant and inclusive culture could not have been any more evident than in 2020 when we collectively responded to the challenges presented by the COVID-19 pandemic and to the opportunities that were presented for social justice actions.\nStrong corporate governance has been essential to creating long-term value and safeguarding our commitments to all stakeholders.\nOur Board and its committees have adopted guidelines and other policies that have provided a framework for ongoing effective governance.\nActive and informed engagement, which is critical to our people, beginning with our Board and extending throughout the company could not be more important as we continue together to chart the road ahead.\nOur responsibility to operate in a safe and environmentally friendly manner furthers our stewardship and facilitates sustainable practices across our organization.\nOur team, with input from the Board of Directors, discusses key risks and mitigating factors identified as part of our vibrant enterprise risk management program.\nEmbedded within our ERM program are ESG-related areas and emerging risks.\nIn regards to safety, we are committed to providing a safe workplace for our employees and to make safety a priority in our interactions with each other, our customers and the communities we serve.\nIt is part of our culture and an important strategic initiative, both in the short term and the long term.\nSafety is not only our top priority.\nIt is also the center of who we are.\nOne of the latest accomplishments in this regard is the completion of our safety town facility in Dover, Delaware to provide both hands-on and classroom training for our operations technicians.\nWe are also excited about our inaugural sustainability report, which will be provided later this year and is the next step in our long-standing ESG stewardship highlighting the unwavering dedication and commitment of the Chesapeake team.\nWe are committed to providing a work environment that values diversity and background, experience and skill sets as highlighted on slide 23.\nIn continuing our bedrock commitment to equity diversity and inclusion, our newly formed Equity Diversity and Inclusion, or EDI, Council, is instrumental to helping guide our path forward.\nThe vision of our EDI Council is for all employees to embrace and share their diverse experiences and backgrounds with the mission to help improve the communities we serve and to make us a better company.\nThe EDI Council is central to who we are and who we want to be and will further enhance the collaboration around our workplace culture that is the engine driving our business.\nThe EDI Council continued to be busy in 2020, fostering the rollout of employee resource groups throughout the company.\nThe talent, skills and ideas that these groups have brought to the forefront have been inspiring and provide the place for our employees to be -- to feel that they are supported by each other and by the company.\nWe work hard every day to also help ensure that the communities we serve continue receiving the value and benefits of clean, plentiful and affordable energy delivery services so that no one is left behind.\nWhether it is ceasing nonpay disconnects, working with our customers to craft payment plans that enable them to bring their accounts current or providing funds for local community aid organizations to help in the midst of the pandemic, we are doing our part.\nIn addition, we have donated record levels to aid local organizations.\nWe are very excited about the projects under way by our diverse and engaged teams to reduce the carbon footprint of the communities we serve.\nOur commitment remains steadfast to take the steps necessary to deliver energy where and when it is needed while continuing to advance our environmental stewardship.\nOur announced projects in RNG are just the beginning.\nThese are examples of how we are doing our part to help build a more sustainable future for the communities we serve.\nYou will see us pursuing many more of these opportunities in the future.\nWe believe natural gas is a key component to the country's long-term energy strategy.\nWe also believe that the markets we serve value the energy services we deliver, whether natural gas, propane or electricity, and our customers have spoken loudly in this regard.\nAt the same time, we have opportunities given our business mix, expertise and strategic approach to capitalize on new opportunities like RNG that provide the bridge from the here and now to a more sustainable future.\nWe'll continue to execute our strategy, focused on delivering top quartile performance and significant shareholder return.\nAnd we are committed to identifying and delivering innovative solutions for the delivery of clean, reliable and safe energy to our customers.",
        "summary": "q4 earnings per share $1.24 from continuing operations."
    },
    {
        "text": "I know that we're reporting on the second quarter 2021 today.\nBut we're super excited about what we see for the second half of this year.\nWe advertised that we were front-end loading our capex in 2021 through the first half of the year, which we did.\nAnd now we see and actually have it today, corporate record high natural gas production and Comstock that we are selling at high natural gas prices.\nGlobal demand for natural gas is very strong for industrial power generation as well as electrical demand for cooling and heating, while supply is low-to-moderate in part due to the disciplined use of capital expenditure dollars across the entire oil and gas sector, as you are all aware of in this earnings season.\nOur corporate strength lies in our best-in-class, low-cost structure, which creates our high margins as well as the 1,900 plus net drilling locations within our 3000 to 323,000 net acre Haynesville/Bossier footprint, which we operate 91% of.\nOne of the major tasks in 2021 was reduce our cost of capital, which we took mighty steps forward with our 5.875% senior notes being issued in the second quarter 2021.\nWe do feel the wind in our sails as we look at the third and fourth quarter of 2021 and 2022 and want to recommit to you with our goal of reducing our leverage ratio to less than two times at the end of 2022 or before if possible.\nWith the refinancing in place, we reduced our interest costs per mcfe by 25% this quarter to $0.36 and are committed to continue working to reduce that number by year-end 2021, if possible.\nThe denominator of Comstock is our consistent drilling results quarter after quarter after quarter in a Tier one Haynesville/Bossier region, which speaks volumes about all of our departments, especially our operations department.\nAnd through our quality Haynesville/Bossier rock, that we have decades of that quality rock lift to drill.\nI know that, that denominator is why Jerry Jones and his family invested $1 billion in Comstock since August 2018, and we believe that is why you, the bondholders, banks and equity owners buy Comstock, proven rock quality, proven results over many, many years.\nNow I'll start the formal second quarter 2021 results.\nI am Jay Allison, Chief Executive Officer of Comstock.\nAnd with me is Roland Burns, our present office -- Operating Officer; and Ron Mills, our VP of Finance and Investor Relations.\nWhile we believe the expectations and such statements to be reasonable, there could be no assurance that such expectations will prove to be correct.\nNow if we'll go over to the second quarter 2021 highlights.\nWe cover the highlights of the second quarter on slide three.\nIn the second quarter, we reported adjusted net income of $55 million or $0.22 per diluted share.\nProduction for the quarter averaged approximately 1.4 bcfe a day and was 98% natural gas.\nOur average daily production for the quarter was 8% higher than the first quarter of 2021 and 6% higher than the second quarter of 2020.\nRevenues, including realized hedging losses were $325 million, 40% higher than the second quarter of 2020.\nAdjusted EBITDAX of $251 million was 55% higher than the second quarter of 2020.\nOperating cash flow for the quarter was $196 million or $0.71 per diluted share.\nFor the quarter, we generated $20 million of free cash flow as the preferred dividends, increasing our year-to-year free cash flow to $53 million.\nThat's a good start toward reaching our annual free cash flow generation goal of over $200 million.\nWith the stronger commodity prices we're seeing in the second half of the year, we now expect free cash flow to come in well above that goal of $200 million.\nAnd lastly, we completed the task of refinancing all of our higher coupon senior notes in the second quarter, which substantially reduced our cost of capital going forward.\nIf you turn over to slide four, we recap the refinancing transaction, which closed on June 28.\nWe issued $965 million of new 5.875% senior notes, which are due in 2030.\nThe proceeds from the offering were used to redeem the remainder of our 9.75 quarter bonds.\nThe refinancing transaction reduced our reported annual interest expense by $33 million, and we will save $28 million in annual cash interest payments.\nCombined with the March refinancing that we did, our annual interest payments were reduced by $48 million.\nThe lower cash interest expense will also drive significant improvements in our cash interest costs per mcfe produced, as I mentioned earlier, on a pro forma basis, assuming the refinancing was completed at the beginning of the quarter.\nOur second quarter interest cost for mcfe would have been $0.36 per mcfe as compared to a $0.48 rate in the first quarter.\nIn addition to lowering our cost of capital, we also improved our weighted average maturity of our senior notes to 7.6 years, up from 6.3 years.\nOn slide five, we summarize our reported financial results for this recently completed second quarter.\nWe had a solid quarter, and it was driven by that 6% production increase in combination with stronger oil and gas prices than we had last year.\nOre production for the second quarter totaled 100 -- our total production for the second quarter totaled 124 bcf of natural gas and 362,000 barrels of oil.\nLike Jay said, this was 6% higher than we had in the second quarter of 2020, and it's an 8% increase over where we were in the first quarter of this year.\nOur oil and gas sales, as a result, including the realized losses from our hedging program, increased by 40% to $325 million.\nOil prices averaged $55.82 per barrel, and our gas price averaged $2.46 per mcfe; both of those numbers, including the impact of our hedges.\nNatural gas prices were 31% better than we realized last year in the same second quarter of last year.\nRemember that NYMEX -- the NYMEX contract for the quarter only averaged $2.83.\nSo I know the recent run-up in gas prices is really -- you'll really see those numbers starting in July forward.\nLooking at the cost side, our production costs were up about 6%, kind of matching the increase in production.\nOur G&A was down 5%, and our noncash depreciation, depletion and amortization was up 18% in the quarter.\nOur adjusted EBITDAX came in at $251 million; it's 55% higher than the second quarter of last year.\nOperating cash flow was $196 million, 67% higher than the second quarter of 2020.\nWe did report a net loss of $184 million in the second quarter or $0.80 per share, but that was all due to a very large mark-to-market loss on our hedge contracts of $205 million and a $114 million charge related to the early retirement of the senior notes from our June 28 refinancing transaction.\nAdjusted net income, excluding the mark-to-market unrealized hedging loss and the loss on early retirement of debt and certain other unusual items, was a profit of $55 million or $0.22 per fully diluted share.\nOn slide six, we summarize the financial results for the first half of this year.\nFor the first six months of the year, production totaled 241.5 bcfe.\nThat includes 688,000 barrels of oil, and that's about 1% lower than our production for the first half of 2020.\nBut our oil and gas sales, including any realized hedging losses were $657 million, which is 30% higher than the first half of 2020.\nOil prices for the first half of this year have averaged $52.06 per barrel.\nThat's 22% higher than last year, and our realized gas prices averaged $2.62 per mcf; both of those numbers, including the impact of our hedging, and that's up 34% over last year.\nFor the first half of this year, we've reported adjusted EBITDAX of $513 million, 41% higher than the same period last year.\nOperating cash flow was $403 million, 47% higher than last year.\nAnd then overall, for this period, we reported a loss of $322.5 million or $1.39 per share.\nAgain, this was due to the charges for the early extinguishment of debt related to both the March and June refinancings and that mark-to-market unrealized loss on our hedge position.\nExcluding those items, our adjusted net income would be $118 million profit or $0.46 per diluted share.\nslide seven, we recap our hedging program.\nDuring the second quarter, we had 68% of our gas volumes hedged.\nThat reduced our realized gas price that $2.46 per mcfe from the actual $2.59 for mcfe we realized from selling our gas production.\nWe also had about 38% of our oil volumes hedged, which decreased our realized oil price to $55.82 per barrel versus the $61.25 we actually realized.\nOverall, our hedging program resulted in realized losses of $18.8 million in the quarter.\nFor the remainder of this year, we have natural gas hedges covering 976 million cubic feet per day, which is around 70% of our expected production in the second half of this year.\n59% of those hedges are fixed price swaps, but 41% are collars, which give us exposure to the higher prices we're now seeing.\nFor 2022 or next year, we have about 40% to 45% of our expected production hedged.\nAnd almost half of those or 49% are in the form of collars, which give us substantial exposure to the higher prices that we're kind of now seeing for next year.\nOn slide eight, we summarized the shut-in activity during the second quarter.\nAnd we had a good quarter on this front.\nWe had only 52 million a day shut-in during the second quarter, which is 3.8% of our production, and that came down substantially from the 6.4% we had shut-in, in the first quarter.\nThere really were no significant disruptions due to storms or other matters in the quarter and the shut-ins that we had were very routine and related primarily to production we shut-in to conduct offset frac activity.\nOn slide nine, we detail our operating cost per mcfe.\nWe had a good quarter there.\nOur operating cost per mcfe averaged $0.54 in the second quarter, and that was $0.01 lower than the first quarter rate.\nGathering costs were $0.25, taxes $0.08 and the other lifting cost in the field were $0.21, very comparable to the first quarter rates.\nSlide 10, on corporate overhead per mcfe.\nThat, again, came in at $0.05 in the second quarter.\nIt's one of the lowest in the industry.\nAnd again, very, very consistent to what we expected and what we've had in the past.\nWe do expect cash G&A to remain in this $0.05 to $0.07 range kind of going forward.\nThat's the depreciation, depletion and amortization per mcfe produced.\nThat came in at $0.96 in the second quarter.\nIt was $0.01 higher than the $0.95 rate we had in the first quarter of this year.\nIt's a picture of our balance sheet at the end of the second quarter, and it reflects our June 28 refinancing transaction, which closed right at the end of the month -- right at the end of the quarter.\nSo we ended the quarter with $475 million drawn on our revolving credit facility, which is a $1.4 billion borrowing base.\nAnd we expect to continue to reduce that as we generate free cash flow the rest of the year.\nThat's really -- free cash flow is being really designated to continue to reduce our debt.\nWe now have in total about $2.459 billion of senior notes outstanding.\nThey're comprised of $244 million of the 7.5% senior notes, which are due in 2025.\nWe assumed as part of the Covey Park acquisition, $1.25 billion of new 6.75% senior notes due in 2029 that we issued in March.\nAnd then the new $965 million of new 5.875 senior notes due in 2030 that were issued right at the end of the second quarter.\nWe currently plan to retire the 2025 7.5% bonds, probably sometime early next year, just using -- targeting the free cash flow that's generated and using that as a permanent debt reduction moved by the company.\nWe do -- on Slide 12, you can see our new revised maturity schedule.\nAnd so you can see now that our weighted average maturity of our senior notes is now 7.6 years after the recent refinancing, right at the end of the second quarter.\nSo we're in great shape on the maturity schedule.\nAnd as Jay pointed out, have substantially improved our cost of capital and generated substantial annual interest savings on what otherwise would be dollars that would have to go for fixed charges on our debt service.\nSo we did end the quarter with about $20 million in cash on the balance sheet.\nSo our current liquidity is at $945 million.\nSlide 13, we recapped the second quarter capital expenditures.\nSo in the second quarter, we spent $165 million on our development activities and $154 million of that relates to our operated Haynesville shale properties.\nSo we drilled 21 or 15.7 net operated horizontal Haynesville wells, and then we returned 16 or 14.2 net operated Haynesville wells to sales in the recently completed second quarter.\nWe also spent about $10.9 million on nonoperated activity and other development activity.\nIn addition to funding our development program, we've also invested $7.6 million on leasing new exploratory acreage.\nGiven the tremendous success of that leasing program, we have decided to increase our budget up to a maximum of $20 million to spend on putting new leases in to support our Haynesville shale drilling program in the future.\nAs we're seeing very good opportunities to do that at attractive terms.\nSo right now, as Dan will go over in a minute, we're currently operating five operated drilling rigs for our 2021 program, and we see kind of maintaining those five as we look ahead into 2022.\nSo we're at a very good consistent level, we think, which is right for the company.\nSo based on this current operating plan, we expect to spend about $525 million to $560 million on this year's drilling plan, which will drill 55 net wells and turned to sales about 48 net wells.\nThis is a small increase from what we expected at the beginning of the year.\nMost of that is really due to changes in the timing of when completions happen and then also higher-than-expected nonoperated activity.\nWe definitely are very focused on generating significant free cash flow.\nAnd with the current gas prices, we now anticipate significantly exceeding our original target of $200 million of free cash flow for this year.\nWe'll use that incremental free cash flow to accelerate the delevering of our balance sheet.\nFlip over on slide 14.\nYou'll see the map outlined in the summary of our new well completions.\nSince the last call, we've turned 21 new additional wells to sales.\nThe 21 wells were tested at rates ranging from 15 million cubic feet a day up to 32 million cubic feet a day with a 22 million cubic feet per day average IP rate.\nThe wells at lateral lengths ranging from 4,580 feet all the way up to 11,388 feet, and we had an average for the quarter of -- or for this list of 8,251 feet.\nSo in addition to the wells we have listed here, we currently have 13 additional wells that we have in various stages of completion.\nRegarding the activity levels this past May, we did drop down from six to five rigs.\nThat's where we are today, and we intend to hold our activity flat at this level for the remainder of the year and into next year.\nOur fiscal DUC count currently stands at 23 wells, and we're currently we're actively running three frac crews.\nOver on slide 15, as an updated DNC call stream for our benchmark long lateral wells.\nThese are our laterals greater than 8,000 feet in length.\nThrough the end of the second quarter, 73% of all the wells turned to sales this year have been long lateral wells.\nDuring the second quarter, our total D&C cost averaged $1,051 a foot.\nThis represents a 3% increase compared to the first quarter.\nAnd is 2% higher than the full year 2020 total D&C cost.\nOur drilling costs in the second quarter increased by 7% compared to the first quarter.\nThis is primarily attributable to a lower average lateral length versus the first quarter, but still 15% less than our drilling cost in 2020.\nOur completion costs remained relatively flat with only a 2% increase from the first quarter.\nBut we're still running 16% higher than 2020.\nAnd this is due to the large number of the smaller fracs that were pumped in 2020, which led to the lower cost last year, lower completion costs.\nFor the remainder of the year, we expect our completion costs will remain relatively flat, and we do not foresee any material increase in costs.\nSo by building on our basin leading drilling performance and keeping our current completion cost in check, we expect to maintain our total D&C cost for our benchmark long lateral wells in this 1,025, 1,050 foot range.\nAlso, I want to add that we're currently drilling two, 15,000 foot laterals that we spud in June.\nThis is the first for the company.\nWe expect to complete these wells during the fourth quarter.\nWe also have two additional 15,000 foot wells that we will spud later this month that will be completed in the first quarter of next year.\nThese longer laterals are going to help bolster our efforts to further increase our lateral lengths and to drive down our credit costs; drive down the footage cost further than where we've been.\nSo that summarizes the operations.\nOkay, Dan, that's short and sweet.\nIt's usually about ten pages, and we've condensed it.\nThat's a good report and Roland, same here.\nIf you look at the 2021 outlook, I'd like to direct you to slide 16, where we summarize our outlook for the remainder of this year.\nOur operating plan for this year is expected to provide for around 8% to maybe 10% production growth and most importantly, generate in excess as Roland said, $200 million of free cash flow and maybe a lot more than that.\nOur primary focus this year is to improve our balance sheet, reduce our leverage and lower our cost of capital, which we've made great strides on that.\nOur June refinancing transaction was another significant step to reducing our cost of capital with the $28 million annual savings and interest payments.\nNow we will primarily focus on absolute debt reduction, and we'll seek to retire, as Roland said, our 2025 bonds with free cash flow that we generate the rest of this year.\nIf natural gas prices stay at current levels, we would expect our leverage ratio to improve to less than a 2.5 times at the end of 2021, down from that $3.8 million at the end of 2020.\nAnd based on our current plans and the price outlook, we'd anticipate our leverage ratio further improving it to less than two times at the end of 2022.\nWe remain focused on maintaining and improving our industry-leading low-cost structure and best-in-class well drilling returns with our industry-leading low-cost structure, our Haynesville drilling program generates some of the highest drilling returns in all of North America.\nOur large inventory of Haynesville/Bossier drilling locations provide us with decades of drilling inventory.\nWe'll also focus on lowering our greenhouse gas emissions and are currently evaluating participating in one of the programs to certify our gas as responsibly sourced and we have very strong liquidity, as Roland mentioned, at $945 million.\nOn the guidance page, we just update the guidance for the remainder of this year.\nProduction guidance remains at the 1.33 to 1.425 bcfe per day number that we had previously provided.\nAs mentioned on the call, our development capex guidance is $525 million to $560 million.\nAnd we anticipate on remaining at the five rigs we're currently running over the remainder of the year.\nAnd at the same time, as mentioned earlier, the leasing capital has increased to $15 million to $20 million as we continue to add acreage.\nOn the cost side, LOE, GTC, really all the cost items remain unchanged from the prior quarter.\nAnd so there's -- we continue to hit all of our targets on the cost side.",
        "summary": "q2 adjusted earnings per share $0.22.\nq2 loss per share $0.80."
    },
    {
        "text": "It's a little rainy outside of Frisco, Texas, guest winters in the airs coming our way.\nWhat a great time to be in the natural gas business, especially in the Haynesville.\nI want to have a couple of clarified statements before we start the actual third quarter of 2021 results.\nWith our Bakken properties of a contract for that $154 million, which most of you are aware of, and closing expected in the coming weeks, we did preannounce that we would accelerate completion activity on the $9.4 net Haynesville wells this year to bring those volumes forward into our current strong pricing environment for natural gas.\nThe increased production from those wells really will appear in the first quarter of 2022.\nNow I thought it would be a good time to talk about the direction of the company.\nThe direction of Comstock is to continue to focus on capital efficiency in the Haynesville and generation of free cash flow, specifically over the next several quarters, we plan to use that free cash flow to pay off our credit facility and to retire the 7.5 bonds in May of 2022, then with our debt reduction goals a bit we want to establish a shareholder dividend.\nI am Jay Allison, Chief Executive Officer of Comstock.\nWith me is Roland Burns, our President and Chief Financial Officer; Dan Harrison, our Chief Operating Officer; and Ron Mills, our Vice President of Finance and Investor Relations.\nWhile we believe the expectations in such statements to be reasonable, there could be no assurance that such expectations will prove to be correct.\nThis is Slide three, the third quarter 2021 highlights.\nWe cover the highlights the third quarter on Slide three.\nIn the third quarter, we generated $84 million of free cash flow after paying preferred dividends, increasing our year-to-date free cash flow generation to $137 million.\nGiven the strong outlook for natural gas prices, we now expect to significantly exceed our original annual free cash flow generation goal of over $200 million.\nFor the quarter, we reported adjusted net income of $91 million or $0.34 per diluted share.\nOur production increased 25% in the quarter to 1.424 Bcf a day and was 98% natural gas.\nRevenues, including realized hedging losses, increased 86% to $394 million.\nOur adjusted EBITDAX in the third quarter grew by 109% to $309 million.\nOperating cash flow for the quarter was $225 million or $0.92 per diluted share.\nAnd again, we announced the sale of our Bakken properties for $154 million.\nWe expect to close the divestiture in the next several weeks.\nWe are using a portion of the proceeds from that sale to accelerate completion of this 9.4 net drilled uncompleted wells to benefit from the stronger winter pricing.\nWe've now started completion operations on those wells, which Dan will go over within a minute, have been completed by year-end with production January of next year.\nAnd we recently engaged MiQ to initiate the independent certification of our natural gas production under the MiQ methane standard.\nIf you flip to Slide four, we cover our announcement to sell the Bakken assets on Slide four.\nWe recently announced that we're selling our non-operated Bakken shale properties to northern oil and gas for $154 million.\nThe assets sold include interest in $442 or 68.3 net well bores.\nJune 30, the proved reserves associated with the properties totaled 10.8 million barrels of oil and 44.2 billion cubic feet of natural gas.\nWe expect to close the transaction next several weeks.\nOn Slide five, we summarize our financial results for the third quarter of 2021.\nWe had a very strong quarter, which was driven by that 25% production increase, combined with substantial improved oil and gas prices.\nOur production in the third quarter totaled 129 Bcf of natural gas, 346,000 barrels of oil.\nThat was 25% higher than the third quarter of 2020, and it's 4% higher than what we were producing in the second quarter of this year.\nOur oil and gas sales, including the losses that we realized from our hedges increased by 86% to $394 million in the third quarter.\nOur oil prices in the quarter averaged $58.58, and our gas price averaged $2.90 per Mcfe, that's after the impact of our hedges.\nOur realized hedge natural gas price in the quarter was 49% higher than the third quarter last year.\nOur production costs were also -- were up 36% in the quarter, reflecting the higher production level, combined also with higher production taxes resulting from the stronger prices that we realized.\nOur G and A, though, was down 10%, and our depreciation and depletion and amortization was up 30% in the quarter.\nAdjusted EBITDAX came in at $309 million.\nThat's 109% higher than the third quarter of 2020.\nAnd our operating cash flow that we generated was $255 million, 174% higher than the third quarter of last year.\nWe did report a net loss of $293 million in the quarter or $1.26 per share, but that was all due to the very large mark-to-market loss on our hedge contracts of $393 million.\nThat resulted from the surge in oil and gas futures prices since the end of the second quarter.\nAdjusted net income, excluding the unrealized hedging losses and certain other unusual items was actually a profit of $90.6 million or $0.34 per diluted share.\nOn Slide six, we summarize the results for the first nine months of this year.\nProduction for the first nine months averaged 372.5 Bcfe, which is 7% higher than the same period in 2020.\nOil and gas sales, including realized hedging losses were $1.1 billion a 47% higher than the same period last year.\nOil prices were 36% higher at $54.24 per barrel, and our realized natural gas price averaged $2.72 per Mcf, both of those, including the effect of our hedges, and that was 39% stronger than 2020.\nAdjusted EBITDAX for this period has increased 61% to $823 million, operating cash flow at $658 million has increased 80% from 2020.\nFor the first nine months of this year, we did report a $615 million loss or $2.66 per share.\nAgain, this was due to two items, the large mark-to-market loss on the hedge contracts and a charge for early retirement of debt related to our March and June refinancing transactions.\nAdjusted net income, excluding the unrealized hedging losses and the charge for early debt retirement and other unusual items, was $209 million profit or $0.80 per diluted share.\nOn Slide seven, we cover our hedging program.\nDuring the third quarter, we did have 70% of our gas volumes hedged, which did reduce our realized gas price to $2.90 per Mcf from the $3.79 per Mcf that we realized from selling our production.\nWe also had 40% of our oil volumes hedged, which reduced our oil price to that $58.58 per barrel versus the $66.11 that we received.\nOur realized hedging losses in the quarter were $117 million.\nFor the remainder of the year, we have natural gas hedges covering 967 million cubic feet a day, which is about 70% of our expected production in the fourth quarter.\n58% of those hedges are price swaps and then 42% are collars, which also give us exposure to the higher prices.\nFor next year, we have approximately 50% of our expected production hedged.\nBut 46% of those 22 hedges are swaps and 54% are more than half are collars, which give us exposure to the higher prices that we're seeing for next year.\nI also want to point out that since the second quarter report, we've only added new hedge contracts covering $75 million a day of our gas production, and those were in the form of wide collars.\nThey had a $3 floor and they had a weighted average ceiling of $5.58.\nNow that requirement is going to melt away as our leverage falls below two.\nSo as we achieve our leverage goals next year, will no longer be required to hedge our volumes.\nSlide eight, we summarized the shut-in activity during the third quarter.\nWe had about $81 million a day or 5.8% of our natural gas production shut in during the third quarter as compared to 3.8% in the second quarter.\nThe shut-ins this quarter were mainly due to the really high level of completion activity that we had, both for our own activity and offset operators.\nAnd that's necessary to order to protect the older wells when we frac a new well nearby.\nOn Slide nine, we detail our operating cost for Mcfe.\nOur operating cost averaged $0.60 in the third quarter, $0.06 higher than the second quarter rate.\nThis increase was mostly due to higher production taxes coming from the higher oil and gas sales we had for the quarter.\nOur gathering costs were $0.27.\nThe production at Avalor taxes averaged $0.13 and the field level operating cost averaged $0.20.\nBoth together and fill over costs were fairly comparable to our second quarter rates.\nSlide 10, we detail our corporate overhead cost for Mcfe, and our cash G and A cost per Mcfe remained at a steady $0.05 per Mcfe in the third quarter.\nSlide 11 shows the DD and A per Mcfe produced that averaged $0.98 in the quarter, about $0.02 higher than the $0.96 rate we had in the second quarter.\nProceeding to Slide 12, we kind of recap our balance sheet at the end of the third quarter.\nWe had $525 million drawn on our revolving credit facility at the end of the quarter and we expect to use our free cash flow and proceeds from the Bakken sale to further pay down that balance during the rest of the year.\nOn October 22, our bank group reaffirmed our $1.4 million borrowing base.\nAnd right now, we have just under $2.5 billion of senior notes outstanding comprised of the $244 million of the 7.5% senior notes due in 2025, $1.25 billion of the 6.75% senior notes due in 2029 and $965 million of our new 5% and 7%, 8% senior notes due in 2030.\nWe currently plan, as Jay mentioned, to retire the 7.5% bonds next may with the free cash flow that we're generating.\nThe reduction in our debt and the growth in our EBITDAX so far is driving a substantial improvement to our leverage ratio, which has now fallen to 2.3 times if you look at the third quarter on a stand-alone basis.\nWe see this improving further over the next two quarters, and we expect this to get below 1.5 times in 2022.\nAt the end of the quarter, our financial liquidity has grown to over $1 billion.\nOn Slide 13, we give a recap of the third quarter capital expenditures.\nIn the third quarter, we spent $162 million on our development activities and $143 million of that was on our Haynesville operated shelf properties.\nWe drilled 13 or 11.7 net new operated Haynesville wells, and then we turned 27 or 22.4 net wells to sales in the third quarter.\nWe also spent about $90 million on non-operated activity and other development activity.\nIn addition to funding our development program, we also spent $5 million on leasing of new exploratory acreage.\nWe're currently running five operated rigs for our 2021 drilling program, and we plan to remain at that level for the rest of this year.\nBased on our current operating plan for this year, we expect to spend between $590 million to $630 million, which will include drilling 52.5 net operated Haynesville wells and then turning 54.4 net operated wells to sales.\nThe increased spending from our earlier budget is related to the acceleration of the completion activity on an additional 9.4 net drilled but uncompleted wells.\nAccelerating this activity allows us to bring these wells on several months early versus our prior schedule where completion activity was not going to begin on any of these wells until January, 2022.\nSo this is being funded with part of the proceeds from our $154 million divestiture of the Bakken properties.\nWe are going to remain very focused on generating significant free cash flow for this year and as we look into 2022.\nAnd with the current gas prices, we anticipate significantly exceeding our original target of $200 million of free cash flow generation for this year.\nThat incremental free cash flow and the proceeds from the Bakken sale will be used to also accelerate our delevering plans.\nAnd now we're excited to be able to be on the verge of accomplishing those, getting our debt down to a level that we think is the right level for the company and having a leverage ratio that's offset the right level.\nOver on Slide 14.\nThis is a map outlined.\nWe show in the area of our most recent well activity.\nWe have completed 15 new wells since the time of our last call.\nThese wells were drilled with lateral lengths that range from 4,578 feet up to a high of 10,530 feet the average lateral length being 7,925 feet.\nThe wells tested at IP rates that range from $11 million a day to $30 million a day with a $22 million a day average IP rate.\nWe currently have 13 additional wells that have been drilled that are waiting on completion.\nOn our activity levels, we're currently running five and three frac crews.\nOur activities will remain steady at these levels through the end of the year, while we expect the number of our DUCs to further decrease by year-end.\nOver on Slide 15 is the updated D and C cost trend for our benchmarked long lateral wells.\nThese included all our laterals that were drilled with greater than 8,000 foot lateral lengths.\nFor the third quarter, our total D and C remained flat at $1,051 a foot.\nAs compared to the second quarter and 2% higher than our full year 2020 D and C cost.\nOur drilling costs in the third quarter increased by 5% to $410 a foot compared to the second quarter, but 10% below our drilling cost in 2020.\nThe quarter-to-quarter drilling cost increase was mainly attributable to rising pipe prices and a slightly lower drilling efficiency we had due to lower average lateral lengths drilled in the third quarter.\nConversely, we experienced a slight quarter-to-quarter decrease of 3% in our completion costs the decrease resulted from a higher completion efficiency that was able to achieve during the third quarter.\nAs a result of the rapid increase in commodity prices during the third quarter, we have already experienced some increase in service cost.\nLooking ahead to the fourth quarter and early next year, we anticipate a 10% average increase in service cost as the demand increases.\nWe plan to partially offset these higher service costs through an increase in efficiencies by drilling longer laterals.\nIn September, we successfully drilled, cased and cemented 215,000 foot laterals on the same pad, which we believe is the first in the basin.\nBoth laterals were drilled to the Haynesville formation, and both these wells are currently being completed.\nWe expect to have these wells turn to sales by mid-December.\nWe are also in the process of drilling two additional 15,000 foot laterals in the Bossier formation.\nWe expect to be finished drilling these wells before year-end, and the wells will be completed during the first quarter of next year.\nOn Slide 16, we'll cover our recent agreement with MiQ to initiate the certification of our natural gas production in North Louisiana and East Texas under the MiQ methane standard.\nMiQ will oversee an independent third-party audited assessment of methane emissions from our companywide gas production, which is primarily made up of our Haynesville and Bossier shale gas production.\nResponsible Energy Solutions will serve as the third-party auditor for the certification process.\nThe certification will cover two Bcf a day of natural gas production that we produce for our sales and our partners.\nThis initiative demonstrates our commitment to produce our natural gas under strict environmental standards.\nIt will also allow us to deliver differentiated, responsibly sourced natural gas to our customers.\nThis process is expected to commence by the end of this year, and we anticipate we'll achieve certification during the first half of 2022.\nAgain, to kind of reiterate what Dan said, this certification we hope to cover all the guests that we produce and then our partners, that's a two Bcf by the middle of next year.\nSo I think that's a big step for us.\nWe are cautious before we hired MiQ.\nWe think they'll do a great job at a reasonable cost.\nSo if you look at 2021, this is on Page 17, kind of the outlook.\nAnd I can tell you, we're just really excited about the quarter about what the fourth quarter looks like, and particularly what 2022 would look like.\n2018, '19 were consolidation years.\n2020 was a COVID year and '21 and '22, that's the delevering years.\nIt's a focus on free cash flow.\nAnd I think Dan and his group have done a really, really good job.\nWe continue to be a low-cost operator.\nBut I'd like to direct you to Slide 17, where we summarize our outlook for the remainder of the year.\nOur original operating plan, which is what we told you, for this year, expected to provide production growth close to 10%.\nAnd most importantly, generate in excess of $200 million of free cash flow.\nWell, we're currently on track to significantly exceed the target $200 million in free cash flow, as Roland has stated.\nThe primary focus this year is to improve our balance sheet, reduce our leverage and lower our cost of capital.\nOur March and June refinancing transactions have reduced our cost of capital with the $48 million annual savings in interest payments the free cash flow is being used to reduce our debt.\nOur leverage ratio has already improved to 2.3 times in the quarter, down from 3.8 times at the end of 2020.\nAnd then based upon our current plan and the price outlook, we anticipate our leverage ratio further improving to less than 1.5 times in 2022.\nAnd we remain focused on maintaining and improving our industry-leading low-cost structure and best-in-class well drilling returns.\nWith our industry-leading low-cost structure, our Haynesville drilling program generates some of the highest drilling returns in all of North America.\nOur large inventory in the Haynesville/Bossier drilling locations provide us with decades of drilling inventory.\nWe'll also focus on lowering our greenhouse gas emissions and have demonstrated our environmental stewardship with our recent partnership with MiQ to certify our gas as responsible sourced.\nWe have very strong liquidity right now, over $1 billion of liquidity.\nOn Slide '18, we provide our guidance for the fourth quarter, which is just the last three months.\nOn the production side, we expect production to average between 1.42 and 1.45 Bcfe per day.\nThat incorporate, that will be plus or minus 99% gas and that incorporates the sale of the Bakken, which is anticipated to close sometime in around mid-November.\nDevelopment capital, as mentioned, is $115 million to $135 million, including the impact of the spending related to the acceleration of the 13 or 9.4 net DUC completions in order to benefit from the stronger winter pricing.\nWe're using a portion of the Bakken sales proceeds to fund that acceleration, and those DUCs are now expected to all be online sometime in late December to the end of January versus the original budget in the February, March time frame.\nThat budget anticipates remaining at five rigs at our current five rigs over the remainder of this year, we also anticipate spending another $1 million to $2 million on the leasing activities.\nLOE cost on a unit basis in the fourth quarter are expected to average $0.19 to $0.23, which is down from our prior annual guidance of $0.21 to $0.25.\nGathering, transportation costs are expected to remain in the $0.23 to $0.27 range.\nThe production and ad valorem taxes are expected to average $0.12 to $0.14, which is up from the prior guidance of $0.08 to $0.10, and that is all related to the impact of higher oil and gas prices.\nDD and A rate of $0.90 to $1 is unchanged as is our cash G and A guidance of $0.05 to $0.07.",
        "summary": "compname reports q3 loss per share $1.26.\nq3 adjusted earnings per share $0.34.\nq3 loss per share $1.26.\nqtrly production 1,424 mmcfe per day (98% natural gas).\nannounced a partnership with miq to independently certify its natural gas production in north louisiana and east texas."
    },
    {
        "text": "Please note, for those of you listening by phone, you may experience a time delay in slide movement.\nWhen referring to operating margins, that is based on operating income and sales, excluding surcharge.\nLet's start on slide four and a review of our safety performance.\nThrough the first half of our fiscal year, our total case incident rate was 0.5.\nDuring this time, we have achieved the lowest incident rate in Carpenter Technology's history and a 60% improvement year-over-year.\nThis marks another key step forward in our mission to achieve a zero injury workplace.\nIt is also noteworthy to point out that our PEP segment worked injury-free during the first half of the fiscal year.\nWe continue to emphasize key initiatives as we look to secure our next safety milestone.\nOur safety results to date are especially impressive given the challenges related to COVID-19.\nImportantly, every one of our operating facilities has remained open, which is an achievement that I know resonates with our customers and shows a clear resiliency and commitment.\nOur second quarter results finished largely in line with our expectations.\nOur performance was impacted by ongoing inventory reductions as well as the continued market headwinds.\nDespite conditions being challenging, we are actively managing our business and have placed consistent emphasis on three key strategic priorities: first, ensure the safety of our employees.\nSecond, drive cash flow generation and strengthen our liquidity profile.\nWe have made further progress against this initiative in the second quarter and delivered $51 million of free cash flow.\nFiscal year-to-date, we have generated almost $114 million in free cash flow.\nIf you look at the last three quarters, we have generated $214 million of free cash flow.\nWe ended the second quarter with total liquidity of $665 million, including $271 million of cash and no near-term financial obligations.\nThird, focus on the long-term relationships with our customers.\nWe have successfully deepened our relationships with our key customers across our end-use markets as we partner to address evolving material requirement and the initial signs of recovery across our end-use markets.\nA great example of this is in the aerospace and defense end-use market, where we have recently extended multiple long-term agreements with key customers.\nThere are a couple of critical takeaways from these contract extensions.\nCustomers fully understand that capacity was limited for the aerospace materials we produce prior to the pandemic and that supply of such aerospace materials will be constrained again when build rates return to normalized levels.\nCarpenter Technology is one of only a handful of companies in the world that produce these highly specialized materials and the only one that has invested in capacity, namely the Athens facility.\nAnd the aerospace fundamentals that were present prior to the pandemic remained strong and unchanged going forward.\nWhile we are working to best position our core business to be stronger on the other side of the pandemic, we also continue to take steps to advance our capabilities and leadership in critical emerging technologies.\nTo that end, our hot strip mill in Reading is now in the commissioning phase.\nThe mill will be a significant enhancement to our existing soft magnetics leadership position as it expands our capabilities to capitalize on the electrification megatrend that is shaping and growing many of our end-use markets.\nI will speak more about our leading position in electrification later in my remarks.\nNow let's move to slide six for the end-use market update.\nStarting with the aerospace and defense end-use market, where sales were down year-over-year, but up slightly sequentially.\nMany of the trends we were seeing last quarter are still prevalent, including changing forward material needs and uncertainty around recovery timing.\nWhile our sequential results were up, we expect our third quarter performance to be choppy as the recovery takes shape.\nIn the medical end-use market, sales were down 3% sequentially as customers continue to manage inventory levels as concerns around hospital capacity and potential resurgence weighed on the supply chain.\nIn the transportation end-use market, sales were down year-over-year, but up sequentially due to a rebound in the global light vehicle submarket and the strength of our high-temperature solutions.\nNow moving to the energy end-use market.\nIn terms of the year-over-year comparison, keep in mind that we divested our Amega West business earlier this fiscal year.\nWithin the oil and gas submarket, conditions in North America remain challenging.\nFor the power generation submarket, opportunities exist for applications in the gas turbine replacement cycle.\nLastly, for the industrial and consumer end-use market, sales were down year-over-year and sequentially.\nHowever, we continue to experience strong demand for semiconductor and fluid control application.\nIn addition, consumer market demand was up across all key application areas.\nIn our industrial end-use market, we expect continued strong demand in the semiconductor industry for our highly engineered ultra high-purity materials.\nThe strong demand is driven by global growth in semiconductor manufacturing to support 5G smartphones and cloud infrastructure.\nIn fact, the demand for semiconductor capital equipment is expected to remain robust for the foreseeable future, with the world's largest contract chip maker planning to boost capital spending by almost 50% in 2021.\nSince Carpenter Technology is a global leader in providing ultra-clean materials to support critical semiconductor applications, we are constantly evaluating customer request to increase our already strong participation in this space.\nAs we move into the second half of fiscal year 2021, we expect continued strength in the transportation in these markets.\nOur high-value solutions play a significant role in delivering advanced powertrains across both passenger and commercial vehicles.\nThese are increasingly in demand as global emission standards tighten.\nStrong sales have been met with low inventory levels as U.S. vehicle inventory remains below 50 days of supply, down approximately 16% year-over-year.\nThe heavy-duty truck market has rebounded and is projected to be up 40% in calendar year 2021.\nThat's positive news as Carpenter Technology supplies high-temperature exhaust valve materials and specialty fuel delivery solutions to the top three engine producers.\nIn our aerospace and defense end-use market, we continue to build on our already strong leadership position as we look forward to the market recovery.\nIn the near-term, demand will likely continue to remain low and choppy at times as specific programs and customers are recovering at different rates.\nHowever, we expect a demand reset to higher levels if customers confidently reorient to increasing OEM demand.\nOf course, Carpenter Technology will benefit from this recovery as a critical supplier across multiple applications on virtually all aircraft platforms.\nOur customers continue to plan for the long-term, and we, likewise, are working with them to map out appropriate support plans.\nAs I mentioned earlier, we continue to secure beneficial long-term contracts even during this downturn, with substantial price increases.\nThese key aerospace customers understand robust demand will return and value our support.\nWe remain very active in our defense submarket by offering advanced solutions.\nAs a notable example, recently, a key customer accomplished a step change in performance of a target platform with the help of our material solutions.\nOur solutions are and will continue to be important for designers working on programs from aerospace electrification to next-generation defense systems.\nNow turning to our medical end-use market.\nStates are beginning to lift restrictions on elective surgeries, spurring a restocking actions that will continue over the coming quarters at both end-user OEM customers as well as distributors supporting the medical device market.\nThese restocking efforts have more impact on elective surgery applications such as orthopedic and dental as opposed to the more nonelective cardiology segment, which has been more resilient.\nThe medical market is recovering ahead of aerospace, and our role as a critical supplier to the industry has been strongly reinforced and will provide incremental bottom line impact as demand recovers.\nAs I mentioned earlier, we continue to invest in critical emerging technology.\nIn addition to supporting an already strong aerospace position and auxiliary power units and generators, our new hot strip mill will enable the launch of products to provide lead time benefits and capacity for growing aerospace electrification applications, automotive-based engine turbocharger designs and the transition to electric vehicles.\nAs electric vehicle demand continues to grow and program activity increases for electrifying short-range air travel, we are increasing our investment in motor technology and our soft magnetic solutions.\nSpecifically, we are investing in advanced part capabilities and state-of-the-art modeling and testing.\nThese capabilities ensure our customers realize the full material performance benefits in their motor and powertrain designs.\nWe've also invested in emerging technologies related to additive manufacturing and digital platforms, where adoption could be accelerated due to changes caused by this pandemic.\nAll are exciting developments to say the least and accelerators of earnings growth moving into the future.\nI'll start on slide nine, the income statement summary.\nNet sales in the second quarter were $348.8 million.\nAnd sales, excluding surcharge, totaled $299.4 million.\nSales excluding surcharge decreased 3% sequentially on a 11% lower volume.\nCompared to the second quarter a year ago, sales decreased 36% on 33% lower volume.\nAs Tony covered in his review of the end-use markets, the year-over-year decline is attributable to the ongoing demand headwinds in our key end-use markets of aerospace and defense and medical as a result of the global pandemic.\nAs expected, the demand was similar to our recent Q1 levels.\nGiven the current demand environment, we continue to actively manage our production schedules and focus on executing against our targeted inventory reduction program.\nAs we said on prior calls, while the reduction in inventory drives near-term cash flow generation as evidenced by our growing liquidity, it negatively impacts our operating income performance.\nSG&A expenses were $42.2 million in the second quarter, down $13 million from the same period a year ago and flat sequentially.\nThe lower year-over-year SG&A expenses primarily reflect the actions we took to reduce costs, including the elimination of about 20% of our salary positions, managing discretionary spend closely, as well as the impact of remote working conditions that reduce certain administrative costs, such as travel and entertainment.\nThe current quarter's operating results include a $52.8 million goodwill impairment charge associated with our additive reporting unit that is in our PEP segment.\nIn addition, our results for the quarter include $3.9 million in COVID-19 related costs.\nIncluded in this amount are direct incremental operating costs, including outside services to execute enhanced cleaning protocols, isolation pay for employees potentially exposed to COVID-19 and additional personal protective equipment and other operating supplies necessary to maintain the operations while keeping the employees safe against possible exposure.\nThe operating loss was $89 million in the quarter.\nWhen excluding the impact of the special items, namely the goodwill impairment charge and the COVID-19 costs, adjusted operating loss was $32.3 million compared to adjusted operating income of $57.3 million in the prior year period and an adjusted operating loss of $30.9 million in the first quarter of fiscal year 2021.\nAgain, the current quarter's results reflect the impact of significantly lower volume, combined with the targeted inventory reduction, partially offset by the cost reduction efforts.\nOur effective tax rate for the second quarter was 11.2%.\nWhen factoring out the disproportionate impact of the goodwill impairment charge on the tax rate, the income tax rate for the quarter would have been approximately 25%.\nFor the balance of the year, we currently expect the tax rate to be in the range of 28% to 32%.\nEarnings per share for the quarter was a loss of $1.76 per share.\nWhen excluding the impact of the special items, adjusted earnings per share was a loss $0.61 per share.\nBefore we move on to the segment slides, I would like to highlight a couple of modeling items.\nThe first is related to interest expense.\nWe provided fiscal year 2021 guidance for net interest expense of $35 million, which reflected the impact of the bond refinancing we completed in Q1 and the assumptions around capitalized interest for the large projects expected to be placed in service in 2021.\nThrough six months, we reported interest expense of about $15 million and continue to expect full-year fiscal '21 interest expense to be about $35 million.\nThe second is depreciation and amortization.\nOur guidance for fiscal year 2021 remains at $130 million.\nThrough six months, we reported depreciation and amortization of $60 million.\nNow turning to slide 10 and our SAO segment results.\nNet sales for the quarter were $300.4 million or $251.6 million, excluding surcharge.\nCompared to the second quarter last year, sales excluding surcharge decreased 34% on 32% lower volume.\nSequentially sales, excluding surcharge, were essentially flat on 11% lower volume.\nThe sequential results reflect similar demand conditions in our largest end-use market of aerospace and defense as the supply chain continues to deal with near-term reductions in OEM build rates.\nThis was partially offset by stronger shipments in transportation as North American light vehicle production continues to ramp back up.\nThe industrial and consumer end-use market saw weaker demand in general industrial applications that was partially offset by higher demand for consumer applications.\nSAO reported an operating loss of $11.6 million for the current quarter.\nThe same quarter a year ago, SAO's operating income was $76.3 million; and in the first quarter of fiscal year 2021, SAO reported an operating loss of $18.6 million.\nThe year-over-year reduction in operating income primarily reflects the impact of lower volume as well as the negative income statement impacts of reducing inventory, partially offset by the actions taken to reduce operating costs.\nDuring the current quarter, SAO reduced inventory by approximately $58 million and year-to-date has reduced inventory by $131 million.\nSequentially, the lower operating loss is principally the result of lower volume, offset by a favorable product mix and a less pronounced impact of the inventory reduction relative to the first quarter due in part to rising raw material prices.\nIn addition, the current quarter's results reflect approximately $3.2 million of direct incremental costs associated with our efforts to protect our facilities and employees in light of COVID-19.\nThis compares with $7.3 million in COVID-19 costs in Q1, which as we disclosed last quarter, included $3.1 million associated with a bad debt write off.\nLooking ahead, we expect demand conditions across most end-use markets will stabilize and begin to gradually recover in the second half of our fiscal year 2021.\nBased on current expectations, we anticipate SAO will generate an operating loss of approximately $8 million to $11 million in the third quarter of fiscal year 2021.\nThe anticipated results reflect incremental operating expense reductions as a result of cost savings actions taken to date, combined with a less pronounced impact of inventory reductions, partially offset by higher sequential depreciation and amortization costs as our global ERP system and hot strip mill investments come online.\nThis estimate includes similar sequential COVID-19 related costs in the upcoming third quarter.\nNow turning to slide 11 and our PEP segment results.\nNet sales, excluding surcharge, were $54.1 million, which were down 48% from the same quarter a year ago and down 12% sequentially.\nThe year-over-year decline in sales was driven by market headwinds, largely due to the global pandemic.\nAdditionally, sales in the energy end-use market declined as a result of our exit of the Amega West oil and gas business in the first quarter of this fiscal year.\nThe sequential decline in sales reflects near-term demand pressures in aerospace and defense and medical end-use markets due primarily to the impact of a global pandemic and its impact on aircraft OEM build rates and medical elective procedures.\nThese declines were partially offset by modest growth in sales in our distribution business.\nIn the current quarter, PEP reported an operating loss of $7.2 million.\nThis compares to an operating loss of $3.6 million in the first quarter of fiscal year 2021 and operating income of $0.4 million in the same quarter last year.\nThe sequential operating results reflect the unfavorable impacts of lower sales.\nWe continue to drive opportunities for incremental cost reductions across the businesses while realizing the ongoing benefits of the cost reduction and portfolio actions already taken.\nAs we look ahead, we believe that demand conditions will gradually begin to improve in the coming quarters, and we continue to evaluate opportunities to reduce cost and manage working capital closely all while maintaining our ability to meet future anticipated demand.\nWe currently anticipate PEP will generate an operating loss of $3 million to $5 million in our upcoming third quarter.\nNow turning to slide 12 and a review of free cash flow.\nIn the current quarter, we generated $84 million of cash from operating activities.\nThis cash generation was driven by improvements in working capital, primarily inventory.\nWithin the quarter, we decreased inventory by $71 million.\nThis reduction is substantial on the result of considerable effort to continue to execute against our targeted inventory reduction programs across our facilities.\nOver the last three quarters, beginning with our fourth quarter of fiscal year 2020, we've reduced inventory by $273 million.\nWe remain in constant communication with key customers to ensure that we maintain the appropriate inventory levels and lead times are aligned as demand patterns change.\nIn the second quarter, we spent $27 million on capital expenditures.\nWe remain on track to spend about $120 million in capital expenditures for fiscal year 2021 as planned.\nAs a reminder, our fiscal year 2021 capital spend includes completing the $100 million multiyear hot strip mill project, which will come online later this fiscal year.\nTony will comment on the capabilities of the new hot strip mill and how it fits into our strategy in the coming slides.\nWith those highlights in mind, we generated $51 million of free cash flow in the quarter.\nFrom a liquidity perspective, we ended the current quarter with total liquidity of $665 million, including $271 million of cash and $394 million of available borrowings under our credit facility.\nOur focus on liquidity is essential in the near-term as we work our way through disruptions brought on by COVID-19 in our end-use markets.\nIt's also important to note that as a result of the actions we had taken to date to reduce cost and protect liquidity, we have been able to maintain a constant dividend to our shareholders.\nWe believe that demonstrates our conviction in our ability to deal with the temporary impacts of the market disruption and our confidence in the long-term future for our business.\nOn last quarter's earnings call, I announced the launch of the Carpenter Electrification brand.\nInterest has been extremely high, and I want to take some time to give you more insights into our vision.\nCarpenter Technology has spent decades perfecting the processing of soft magnet materials with the highest induction, permeability and lowest core losses.\nHistorically, our materials have supported our leading position as a solutions provider for generator and auxiliary power unit, APU, applications, and this business has grown consistently with the aerospace market.\nOur Hiperco alloy motor technology is well-known in the aerospace market, where Hiperco stator cores are used in over two three of the APUs, which generate the power to kick off the main engine in aircraft.\nTo support our existing business and further capitalize on the growing trend in electrification, we are in the final stages of commissioning our new hot strip mill on Reading campus.\nThe new strip mill is another critical component of our electrification strategy.\nThe bulk of the construction is complete, and the team is working diligently on the commissioning process.\nIn early December, we hit an important milestone when the first hot metal was rolled on the new mill.\nAlthough there is still work to be done to ensure the facility is up and running, it is fair to say we are all excited about the potential for this facility.\nI thought I would highlight some of the technical details of the mill.\nThe mill is designed to roll slabs from five inches thick down to coils with a minimum size of 0.08 inches, with width ranging from eight to 19 inches.\nIt is designed to run iron, nickel and cobalt materials.\nAnd is also capable of rolling copper, manganese and titanium.\nThe mill includes automated surface inspection equipment and a digital real-time quality and maintenance system.\nThe mill will also enable us to produce materials in our existing portfolio with improved throughput, quality and responsiveness.\nTo serve customers at every step of the way and to realize improved motor responses using these high-performance alloys, we have continued to expand our expertise into the production of stator and rotor stacks.\nUnderstanding that soft magnetic materials are sensitive to processing steps that can reduce their performance, our material experts are further advancing technical and manufacturing knowhow associated with the production of motor stack through a multitude of methods tailored to customers' performance requirements.\nThese capabilities ensure our customers realize the full material performance benefits in their motor and powertrain designs.\nAs we build our motor technology capabilities, we are already engaging with a wide variety of customers to utilize our Hiperco stack technology to solve the need of generating orders of magnitude improvements in power compared to conventional systems.\nElectrification trend across several of our end-use markets is clearly gaining significant momentum.\nElectrification of passenger vehicles is already a growing reality.\nThe number of electrical vehicles sold is expected by some industry experts to increase from 2.5 million to over 10 times that by the year 2030.\nIn addition, there is clearly momentum building for the electrification of transport trucks that could enable lower maintenance, better efficiency and lower ownership cost of transporting a payload, not to mention the substantial environmental benefit of zero-emission trucks.\nThe anticipated growth for electric truck is one that we are watching closely.\nAs we continue to hear from OEMs, a significant challenge to the expansion of electric trucks is the lack of sufficient energy density in the battery.\nWe believe our materials and expertise can provide innovative solutions for this challenge.\nIn addition, with our long-standing position in the aerospace supply chain, we see a concerted effort in commercial aerospace to move toward more efficient electric applications in existing aircraft and future paths to hybrid and full electric aircraft.\nElectrification benefits can also be seen in highly efficient and responsive motors for medical equipment.\nIn consumer electronics, high performance, high induction, high permeability and low loss soft magnetic alloys are important for device performance benefits and product development flexibility.\nAs you can see, the market opportunity is substantial.\nIt's projected that the total electrification market, which includes motors, power electronics and legacy applications such as APUs will grow from approximately one billion today to as much as five times that number by the year 2030.\nWith this type of growth, it is easy to see why Carpenter Electrification is an important component of our strategic plans going forward.\nThe collaborations we're having with customers across many markets in support of their innovative designs to increase power, range or efficiency can be truly revolutionary in shaping the future.\nWhile the past nine months have presented significant challenges, we have acted decisively and quickly in response to unpredictable market conditions.\nFirst, we implemented enhanced safety protocols and a strategic action plan aimed at safeguarding our employees and facilities as well as continuing to fulfill customer needs.\nSecond, we moved quickly to align our cost structure and portfolio to new market conditions.\nWe have reduced our cost, idled facilities and divested businesses.\nThird, we have placed an emphasis on driving increased cash flow and strengthening our liquidity position.\nIn the last nine months, we have generated $214 million of free cash flow.\nAnd our total liquidity at the end of this quarter was $665 million, including $271 million in cash.\nOur enhanced liquidity and streamlined cost structure places us on solid ground to drive accelerated growth as markets continue to recover.\nToday, we are confident that we will emerge on the other side of COVID-19, a stronger company and one with an established and profitable core business as well as a leadership position in disruptive technologies that will impact the future of our industry and our customers.\nOur capabilities in our soft magnetic space will be significantly strengthened following the completion of our hot strip mill in Reading.\nAnd the potential of our additive manufacturing platform, while delayed a bit due to COVID-19, remains highly attractive.\nWe have taken significant steps and made difficult decisions during these last nine months, but believe we will be a stronger, cleaner and more flexible company moving forward.\nAs I mentioned, the long-term outlook across our end-use markets remain strong, and we are an established and trusted supply chain partner in each.\nAt the beginning of this fiscal year, we stated that it was our expectation to generate positive free cash flow and positive adjusted EBITDA in fiscal year 2021 despite volume headwinds and increased costs related to COVID-19.\nWe are well on our way to over-delivering on that expectation.\nFrom a free cash flow perspective, we have generated $114 million through the first half of the fiscal year, and we remain confident that there is opportunity to generate incremental free cash flow in the upcoming second half of our fiscal year.",
        "summary": "carpenter technology q2 loss per share $1.76.\nq2 adjusted loss per share $0.61 excluding items.\nq2 loss per share $1.76.\nq2 sales fell 39 percent to $348.8 million."
    },
    {
        "text": "Please note for those of you listening by phone, you may experience a time delay in slide movement.\nWhen referring to operating margins, that is based on operating income and sales, excluding surcharge.\nLet's begin on Slide four and a review of our safety performance.\nOur fiscal year-to-date total case incident rate, or TCIR, is 0.6.\nWe have now demonstrated three consecutive quarters of sub-1.0 TCIR performance as an organization, which is exceptional safety performance.\nHowever, we do not take these accomplishments for granted and continue to enhance the fundamentals of our program in areas such as hand safety, human performance, leadership development, ergonomics, employee engagement activities and at-home safety programs.\nI look forward to achieving our next safety performance milestone as we pursue safety excellence on our path to 0.\nOur third quarter results were largely in line with our expectations as near-term volume headwinds related to COVID-19 continue to pressure our financial performance.\nBoth our SAO and PEP segments delivered results that were consistent with the guidance we provided on our second quarter earnings call.\nWe have maintained a focus on our key strategic priorities during this challenging period.\nFirst, ensure the safety of our employees.\nSecond, drive cash flow generation and strengthen our liquidity profile.\nOver the last four quarters, we have generated $189 million in free cash flow and ended the third quarter with total liquidity of $539 million, including $244 million of cash and no near-term financial obligations.\nAnd third, focus on the long-term relationships with our customers.\nDuring the quarter, we continued to expand our relationships across our customer base and then cover additional areas of value creation.\nAs evidenced, we completed several contract extensions, primarily in our medical, transportation and aerospace and defense end-use markets.\nIn the aerospace market, customers fully understand that capacity was limited prior to the pandemic and supply of aerospace materials will be constrained again when build rates return to normalized levels.\nAs you know, Carpenter Technology is the only company in our space that has invested in capacity, namely the Athens facility.\nQualification efforts have continued through the pandemic as we received a meaningful provisional approval during the quarter.\nLastly, the investment made in our hot strip mill on our Reading campus is currently in its final commissioning stages.\nThis advanced mill is a significant addition to our soft magnetics solutions and capabilities portfolio and positions us to benefit from the growing trend of electrification.\nNow let's move to Slide six and the end-use market update.\nOur customers and markets have been heavily impacted by COVID-19, particularly aerospace and defense, our largest market.\nWe have been successful in mitigating a portion of the near-term impact of the aerospace downturn by capitalizing on growing demand for our solutions in transportation and industrial and consumer end-use markets, namely our semicon business.\nRecently, all of our end-use markets have experienced positive inflections and have moved past their pandemic decline trajectories.\nAll of our end-use markets are in demand recovery, albeit at different rates.\nWe believe the worst is behind us, and we expect to see improving conditions over the coming quarters.\nLet's get into some more detail starting with the aerospace and defense end-use market where sales were down both year over year and sequentially.\nIn the third quarter, customer inventories continued to decrease, and we saw some initial replenishment activity.\nAs a reminder, in our recent second quarter, we talked about a variety of onetime customer contract-related items, which represented a positive.\nWhen you remove the impact of those items, aerospace results would be relatively flat sequentially.\nWhile visibility remains limited, overall sentiment points to incremental improvement through the balance of calendar year 2021 and then accelerate activity in calendar year 2022 and beyond.\nIn addition, future industry capacity and lead time continues to be a focus during conversations with customers as most recall the situation the supply chain was in prior to COVID-19 where lead times were significantly extended.\nActivity in the defense submarket remains solid, and we continue to see increased demand on select programs.\nIn our medical end-use market, sales were up 7% sequentially.\nElective procedure volumes increased compared to the second quarter as patient sentiment and hospital capacity improved.\nThe recovery of elective surgery volume is expected to continue into the second half of calendar year 2021 as vaccination levels rise to support increased confidence.\nBased on current conditions, we expect activity levels in the medical end-use market to show further improvement in the fourth quarter as our customers look to support an increase in elective surgeries.\nAs many of you recall, the medical end-use market was one of our fastest growing markets prior to the pandemic.\nToday, we remain well positioned to continue supporting the medical end-use market given our expanded OEM relationships, leading advanced materials portfolio and ability to develop new materials solutions that address complex and unmet market needs.\nIn the transportation end-use market, sales were up both sequentially and year-over-year.\nOn a sequential basis, sales increased across all of our submarkets.\nDemand in the light vehicle market remains solid driven by North America and China.\nWhile the heavy-duty truck market has largely recovered and is expected to grow through calendar year 2022.\nOverall, we are winning share in both the light vehicle and heavy-duty truck submarkets due to the value of our high-temp, high-resistance turbocharger and valve exhaust solutions.\nNow moving to the energy end-use market.\nConditions in the oil and gas submarket remained challenged and activity levels remain low in the U.S., while international markets have shown some improvement.\nKeep in mind, that prior year third quarter results included our Amega West business that was divested during the first quarter of this fiscal year.\nIn our power generation submarket, we continue to work with customers as the current maintenance upgrade cycle continues.\nLastly, for the industrial and consumer end-use market, sales were down year-over-year and sequentially.\nThe slight sequential decline was a function of order flow between the last two quarters as we continue to experience demand pickup, consistent with the general manufacturing recovery.\nI'll start on Slide 8, the income statement summary.\nNet sales in the third quarter were $351.9 million and sales, excluding surcharge, totaled $298.1 million.\nSales, excluding surcharge, were effectively flat sequentially on 5% lower volume.\nCompared to the third quarter a year ago, sales decreased 40% on 39% lower volume.\nAs Tony covered in his review of the end-use markets, the year-over-year decline is attributable to the ongoing demand headwinds in our key end-use markets of aerospace and defense and medical as a result of the global pandemic.\nAs expected, the demand was similar to our recent Q2 levels.\nGiven the current demand environment, we continue to actively manage our production schedules and focus on executing against our targeted inventory reduction program.\nAs we have said on prior calls, while the reduction in inventory drives near-term cash flow generation, as evidenced by our liquidity position, it negatively impacts our operating income performance.\nSG&A expenses were $47.8 million in the third quarter, down $3 million from the same period a year ago, reflecting the actions we took to reduce costs, including the elimination of about 20% of our global salaried positions late last fiscal year, managing discretionary spend closely as well as the impacts of remote working conditions that reduced certain administrative costs such as travel and entertainment.\nSequentially, SG&A costs were higher by $5.6 million, reflecting incremental costs in the quarter associated with going live with our new ERP implementation as well as the incremental depreciation costs associated with the ERP system.\nThe current quarter's operating results include $7.6 million of restructuring and asset impairment charges, including inventory writedowns, associated with our ongoing actions to reduce cost and narrow focus in our additive business unit within our PEP segment.\nIn addition, our results for the third quarter include $2.7 million in COVID-19-related costs, which are down slightly from the $3.9 million of COVID-19 costs incurred in our recent second quarter.\nAs a reminder, these costs include direct incremental operating costs, including outside services to execute enhanced cleaning protocols, isolation pay for employees potentially exposed to COVID-19 and additional personal protective equipment and other operating supplies necessary to maintain the operations while keeping employees safe against possible exposure.\nThe operating loss was $40 million in the current quarter when excluding the impact of the special items, namely the restructuring and asset impairment charges and the COVID-19 costs.\nAdjusted operating loss was $29.7 million compared to operating income of $58.7 million in the prior year period and adjusted operating loss of $32.3 million in the second quarter of fiscal year 2021.\nAgain, the current quarter's results were largely in line with the expectations we set at the beginning of the quarter and reflect the impact of significantly lower volume compared to the prior year combined with a targeted inventory reduction, partially offset by the cost reduction efforts.\nAlthough not shown on the slide, in the current quarter, other expense net includes an $8.9 million noncash pension settlement charge related to our largest qualified pension plan.\nIn addition to recording the charge in the current quarter, we were also required to remeasure the plan's net pension liabilities.\nAs a result of the remeasurement, we expect pension expense to be lower by about $3 million for the full fiscal year versus what we had anticipated.\nFor clarity, this reduction in net pension expense does not impact operating income.\nOur effective tax rate for the third quarter was 29.2%.\nFor the balance of the year, we currently expect the tax rate to be in the range of 28% to 30%.\nEarnings per share for the quarter was a loss of $0.84 per share.\nWhen excluding the impacts of the special items, adjusted earnings per share was a loss of $0.54 per share.\nNow turning to Slide nine and our SAO segment results.\nNet sales for the quarter were $299.6 million or $246.5 million, excluding surcharge.\nCompared to the third quarter last year, sales, excluding surcharge, decreased 38% on 37% lower volume.\nSequentially, sales, excluding surcharge, were essentially flat on 3% lower volume.\nThese sequential results reflect similar weakened demand conditions in our largest end-use market of aerospace and defense as the supply chain continues to deal with near-term reductions in OEM build rates.\nThis was partially offset by stronger shipments in transportation as North American light vehicle production continues to drive strong demand conditions for our materials.\nSAO reported an operating loss of $9.9 million for the current quarter.\nThe same quarter a year ago, SAO's operating income was $76.4 million.\nAnd in the second quarter of fiscal year 2021, SAO reported an operating loss of $11.6 million.\nThe year-over-year reduction in operating income primarily reflects the impacts of lower volume as well as the negative income statement impacts of reducing inventory, partially offset by the actions taken to reduce operating costs.\nDuring the current quarter, SAO reduced inventory by approximately $15 million and, year-to-date, has reduced inventory by $146 million.\nSequentially, the lower operating loss is principally the result of lower volume, offset by a favorable product mix and a less pronounced impact of the inventory reduction relative to the second quarter due in part to rising raw material prices.\nIn addition, the current quarter's results reflect approximately $2.1 million of direct incremental costs associated with our efforts to protect our facilities and employees in light of COVID-19.\nThis compares with $3.2 million in COVID-19 costs in our recent second quarter.\nLooking ahead, we expect demand conditions across most end-use markets will stabilize and begin to gradually recover beginning in the fourth quarter of fiscal year 2021.\nBased on current expectations, we anticipate SAO will generate an operating loss of approximately $5 million to $7 million in the fourth quarter of fiscal year 2021.\nFor clarity, I want to highlight a couple of key points in this guidance.\nFirst, this estimate includes similar sequential COVID-19-related costs in the upcoming fourth quarter.\nAnd second, as we continue to reduce inventory, we expect that we will be required to record a noncash LIFO decrement charge in our upcoming fourth quarter.\nGiven the significant inventory reductions we expect to generate for the full fiscal year, we are liquidating LIFO layers that include inventory costs that are higher than the fiscal year 2021 cost and, as such, a noncash charge will be recorded to the income statement.\nThe guidance we provided excludes the impact of any noncash LIFO decrement charges.\nNow turning to Slide 10 and our PEP segment results.\nNet sales, excluding surcharge, were $64.9 million, which were down 39% from the same quarter a year ago and up 20% sequentially.\nThe year-over-year decline in sales was driven by market headwinds, largely due to the global pandemic.\nAdditionally, sales in the energy end-use market declined as a result of our exit of the Amega West oil and gas business in the first quarter of this fiscal year.\nThe sequential increase in sales reflects increasing demand for titanium materials used in the aerospace and defense and medical end-use markets.\nIn addition, our distribution business drove higher sales due to growing demand related to the strong activity in the automotive supply chain.\nLastly, our additive business saw a modest increase in sales as demand improved.\nIn the current quarter, PEP reported an operating loss of $3.3 million.\nThis compares to an operating loss of $7.2 million in the second quarter of fiscal year 2021 and an operating loss of $0.3 million in the same quarter last year.\nThe sequential operating results reflect the favorable impacts of higher volumes across all the PEP business units.\nAs we look ahead, we believe that demand conditions will gradually begin to improve in the coming quarters, and we currently anticipate PEP will generate an operating loss of $0 million to $1 million in our upcoming fourth quarter.\nAlso, as I mentioned for SAO, the PEP guidance includes COVID-19 costs in line with the recent quarter but excludes any noncash LIFO decrement charges.\nNow turning to Slide 11 and a review of free cash flow.\nIn the current quarter, we generated $4 million of cash from operating activities.\nAs you can see within the cash flow generated from operations, we continue to reduce inventory, although less pronounced than we have executed in the last several quarters.\nOver the last four quarters, beginning with our fourth quarter of fiscal year 2020, we have reduced inventory by just under $300 million, including $182 million of reductions to date in fiscal year 2021.\nIn terms of other working capital, with the implementation of our new ERP system, we experienced some challenges with customer collections that reduced cash from accounts receivable collections.\nThose challenges are largely behind us, and we expect to realize the benefits of that catch-up in our upcoming fourth quarter.\nIn the third quarter, we spent $19 million on capital expenditures.\nWe expect to spend about $110 million to $120 million on capital expenditures for fiscal year 2021 depending on the timing of certain projects expected to be completed in the balance of this fiscal year.\nThe actions we have taken to generate cash in the current environment have been essential.\nIt should not be lost that we believe in the value of returning capital to our shareholders.\nAnd despite the challenging economic conditions, we have continued to pay a quarterly dividend to our shareholders.\nThe quarterly dividend demonstrates the confidence we have in our ability to deal with the near-term impacts of market conditions and the long-term prospects for our business.\nWith those details in mind, we reported negative $25 million of free cash flow in the quarter.\nAs I mentioned, we dealt with some challenges in the quarter related to cash collections of accounts receivable.\nAs we look at the fourth quarter, we believe we have addressed those challenges, and we'll continue to execute on opportunities for further inventory reductions.\nWith that in mind, we are targeting at least $50 million of positive free cash flow in our upcoming fourth quarter.\nFrom a liquidity perspective, we ended the current quarter with total liquidity of $539 million, including $244 million of cash and $295 million of available borrowings under our credit facility.\nKeep in mind, in the current quarter, we amended and extended our credit facility and reduced the size of our facility from $400 million to $300 million, which is reflected in the sequential change in liquidity.\nWith that, I'll move on to the next slide, Slide 12, to talk about our capital structure.\nOver the years, we maintained a balanced view of capital allocation.\nAnd as the global pandemic emerged a little over a year ago, we quickly shifted our focus toward building liquidity, which was enabled by our strong capital allocation philosophy.\nIn addition to the actions we took to reduce costs and focus on cash generation earlier this year, we took action to extend our maturity profile and add incremental cash to our balance sheet with our July 2020 notes offering.\nThis extended our notes due in July 2021 to July 2028.\nLast month, in March 2021, we executed another important step in our strategy by completing an amended and extended credit facility.\nThe previous credit facility was set to expire in March 2022.\nThe new facility matures in March 2024.\nWith those actions behind us, we have no near-term maturities and have significant liquidity with opportunities to generate even more.\nAs we all know, different demand recovery time lines and customer ordering patterns will continue to influence our shorter-term quarter-to-quarter mix.\nI want to share a bit more on our enthusiasm related to midterm and longer-term outlooks in the end-use markets we serve.\nLet's start with aerospace.\nDuring the downturn, we continue to improve our already strong position.\nMost market participants and experts believe that demand will rebound to and through pre-COVID-19 levels which, if you recall, was already exhibiting constrained dynamics.\nLonger term, the industry will continue to need improved fuel efficiency and emissions, driving the need for better engine materials where we are strongly positioned.\nDefense will continue to experience market resiliency on key platforms that require increases in strength, customers and fatigue performance.\nLonger term, we are monitoring funding patterns as governments reassess their budgets after significant COVID-19-related spending.\nIn medical, as orthopedics and dental follow the cardiology recovery, we continue to secure additional share and identify more upside, largely due to the breadth of the high-value material solutions we offer in support of the industry innovation in this space.\nLonger term, we see this continuing as quicker patient recoveries and improved patient outcomes will be the key drivers.\nIn transportation, with the recovery well under way in North America and China, regulations drive the near-term movement to higher efficiency powertrains, which is a positive for our portfolio of high-temperature materials.\nLonger term, as electric vehicle adoption grows, it is natural they will take more and more share away from the large internal combustion engine base.\nWe have a good view of the life cycle decline of those products and are balancing our focus accordingly.\nAs I mentioned earlier, our new hot strip mill brings capability and capacity to support significant future electric vehicle volume growth.\nMoving to energy, which experienced a significant decline in demand this past year.\nOil prices have increased by 50% in calendar year 2021, and we have seen limited capital expenditures released for some major projects that offer up specific opportunities.\nWith that said, there will likely continue to be a supply and demand imbalance over the next couple of years.\nLonger term, we expect to see continued emphasis to move away from oil to natural gas and other alternative fuel sources.\nIn industrial submarkets, specifically with semiconductor and fluid control products, the relatively steady demand we experienced through the pandemic is expected to increase driven by manufacturing for 5G, Internet of Things connectivity and more efficient power plants that require better-performing materials.\nThe consumer submarket is expected to continue its seasonal cyclicality.\nHowever, we're seeing more and more applications that have tighter design envelopes that require the removal of wave interference and that make use of our materials to offer automated sensory feedback responses.\nLonger term, with the proliferation of digital and data management, we expect to see more devices with more sensors requiring exponentially more connectivity.\nI've spoken in prior quarters about our soft magnetics products and their relevance within increasing electrification trends.\nWe believe this capability will well position us in the long term to capitalize on the growth in these areas.\nIn the electrification space, we are participating in an increasing amount of prototype and initial low rate production initiatives that utilize our products to provide power dense propulsion in a manner that relies upon reduced mass or where there is limited space for the motor.\nAnd we see current drone, air taxi and other related applications becoming more and more relevant, especially where our options to extend range or boost performance are being exhausted.\nAnd lastly, in additive manufacturing, while we've seen some projects cancel or delay indifferently, along with some industry consolidation, we believe the competitive space has been narrowed, thus providing a focus on the value of our quality and life cycle management platform where data and knowledge management will be vital to the success of any additive program.\nDespite the challenges the pandemic has created, we have continued to strengthen our foundation for long-term profitable growth.\nI'm proud that we continue to drive toward a goal of a zero-injury workplace and that all of our facilities have remained open during the pandemic.\nThe efforts have demonstrated a resiliency and commitment to our fellow employees, our customers and our communities.\nWe have adopted to new working conditions, aligned our cost structure and our manufacturing footprint to rapidly changing market conditions.\nWe have taken a series of steps to enhance our capital structure, drive strong liquidity and extend our debt maturities.\nWe ended the third quarter with $244 million in cash and over $539 million in total liquidity.\nOur capital structure activities combined with our targeted cost reduction initiatives place us on solid ground to not just manage through the downturn but emerge on the other side a leaner, more flexible and more productive company.\nWe have also deepened our relationships with our customers.\nRecovery across our end-use markets remains in varying stages.\nBut we expect overall market conditions to continue to improve as we move through the rest of calendar year 2021 and into 2022.\nSome markets will recover faster than others.\nAnd we are laser-focused on capitalizing on the recovery as opportunities arise.\nThis includes our largest end-use market, aerospace and defense, where the recovery is beginning to show signs of life.\nWe are working daily with our customers to align our production schedules with their material needs as overall sentiment begins to trend upwards.\nOur core business is established and built upon 130 years of metallurgical expertise, manufacturing and processing experience and a commitment to delivering mission-critical solutions to customers in some of the largest industries in the world.\nThis strong core business will be supported over the long term by the targeted investments we have made in critical, emerging technologies, including electrification and additive manufacturing.\nTaken together, we believe our core business and next-generation capabilities position us to deliver sustainable, long-term growth and value creation to our shareholders for years to come.",
        "summary": "carpenter technology q3 adjusted loss per share $0.54 excluding items.\nq3 adjusted loss per share $0.54 excluding items.\nq3 loss per share $0.84.\nq3 sales fell 40 percent to $351.9 million."
    },
    {
        "text": "Today's call will begin with Chris discussing business trends experienced during the first quarter of 2021, views of what's to come and context around our progress toward an unwavering commitment to achieving Vision 2025.\nBob will discuss the financial details of Carlisle's first quarter performance and current financial position.\nThose considering investing in Carlisle should read these statements carefully and review reports we file with the SEC before making an investment decision.\nAnd we've also have historically provided in supplemental tables, which are available on our website.\nWith that, I introduce Chris Koch, Chairman, President and CEO of Carlisle.\nI hope all of you, your families, co-workers and friends are staying safe and healthy as we collectively manage through what is hopefully the beginning of the end of the COVID-19 pandemic.\nReflecting on the last 12 months of uncertainty, I take great pride in how roughly one year ago the Carlisle team handled the immediate threats born out of the pandemic.\nOur first actions were to ensure our teams at Carlisle were taking the steps necessary to provide a safe work environment.\nWe ensured that our team members had access to healthcare, continue to be paid, and had company support for the difficult situations many were facing.\nWe enacted strict health and safety protocols based on the CDC, World Health Organization and best-in-class peer actions and recommendations, which contributed to a low infection rate at Carlisle across the globe.\nOur next steps were to support our highly engaged and flexible workforce as they took very proactive measures to ensure we supported our customers that were providing essential services to the economy.\nWe wanted to ensure that they can count on Carlisle to be there to provide the right product to the right place at the right time or what we've come to call, the Carlisle experience.\nTurning to Slide 3 now.\nThroughout 2020 an essential part of leadership's job was to cut through the confusion, misinformation and complexity present in our daily lives and communicated a clear, direct and simple strategic vision for the organization that would inform our priorities, educate our collective mission and guide our everyday actions of work.\nAt Carlisle we call this Vision 2025.\nThis compelling strategic framework gave us clear direction and consistency emission during the tumultuous past year and will continue to guide our efforts as we accelerate into the recovery in 2021.\nDuring the past 12 months Carlisle again proved its ability to navigate varying economic cycles with steadiness and focus, while delivering strong financial performance reconfirming our conviction in Vision 2025 and it's key strategies.\nThe first quarter of 2021 continues to validate the hard work, effort and commitment by all Carlisle employees to our stakeholders and signals that operational momentum is building across our platforms.\nMoving to Slide 4.\nDue to the strength in our CCM, CFT and CBF businesses, our revenue was flat year-over-year despite a very tough comparison to quarter 1 of 2020.\nThe well-understood impact of the COVID-19 pandemic on the commercial aerospace markets continued to weigh on CIT results and it had a significant negative impact on the first quarter of this year.\nMore than offsetting this was outstanding performance at CCM where our team delivered 6.3% year-over-year revenue growth.\nA tremendous achievement when considering the first quarter of 2020 was 1% higher than 2019 and Q1 of '19 was 12% higher than 2018.\nAdditionally, we are encouraged by CBF's rebound from a multi-year sector decline in demand for off-highway vehicles.\nAnd lastly, CFT continues to build on its second half 2020 performance and we're encouraged with CFT's global end market strengthening.\nOur strong results and rapid recovery from the initial shock of the early stages of the pandemic reinforce our confidence in the Carlisle team's ability to achieve Vision 2025.\nThe first quarter results highlight how we continue to execute on our long-term strategies including maintaining the highest standards in providing the Carlisle experience to our customers, investing in high return capital projects to drive organic growth across our core platforms, working an active pipeline of acquisition targets, returning excess capital to shareholders through share repurchases and dividends, continuing on our ESG journey and demonstrating the exceptional and sustainable earnings power of the Carlisle business model.\nIt is our history of innovation, investment and continuous improvements that supports more conviction than ever in Carlisle's future success.\nThe first quarter of 2021 continue to demonstrate the strength of the CCM franchise and reaffirms our commitment to reinvesting in this, our highest returning business.\nOur pivot to CCM that began with the introduction of Vision 2025 several years ago was to us an obvious strategic choice after more than two decades of exceptional returns on capital, strong organic growth and solid financial performance.\nThis is further bolstered by the now well-understood value of the Carlisle experience.\nBy the Carlisle experience we mean ensuring delivery of the right product at the right place at the right time.\nWe mean industry-leading investment in production facilities and R&D capabilities, best-in-class education for channel partners on the latest roofing products and installation best-practices, an award-winning customer service team, continuing to innovate and provide value-added products that ensure quicker, easier and safer installation of our building envelope systems and solutions in an increasingly labor and material constrained environment.\nAnd finally, and maybe most importantly, contributing products that provide a better environment for all stakeholders.\nTaken in whole, the Carlisle experience is how CCM has become a manufacturing, engineering and commercial leader in the construction products industry.\nFurther evidence of our commitment to the Carlisle experience into investing in our highest-returning businesses, earlier this week Carlisle announced plans to invest more than $60 million to build an innovative, state-of-the-art manufacturing facility in Sikeston, Missouri.\nThis investment will support our organic growth initiatives and also create jobs for the city of Sikeston and surrounding communities.\nThe building and its surrounding footprint will incorporate the latest advances in lead building technologies and highest standards of sustainability.\nThe insulation materials manufactured here not only lower energy cost for building owners and operators, but also help reduce a buildings GHG emissions.\nAdditionally, this site's central location will reduce the carbon footprint of CCM's supply chain and improve material lead times for customers in the region.\nDemand continues to grow for our insulation solutions given the strong reroofing cycle under way in the U.S. as well as the growing needs to improve the energy performance of commercial buildings.\nWith that in mind, we felt this was the right time to expand our capacity and enhance the Carlisle experience for our customers in the Midwest.\nPlease turn now to Slide 6.\nillustrated are some specifics on our first quarter results where CCM exhibited the remarkarble the strength of its business model.\nCCM organic sales grew nearly 6% year-over-year reflecting strong demand for our sustainable building envelope solutions and underscoring the importance of the Carlisle experience.\nMarch volumes were particularly strong more than offsetting significant weather-induced softness in February.\nAnd additionally, bookings entering the second quarter are at record levels.\nFortunately, our conviction in a strong 2021 meant that we anticipated the market needs and drove elevated production levels during the latter part of 2020 and into the winter months as others in the industry cast out on underlying demand.\nWe did this is a commitment to our customers to ensure their needs will be met and continue to earn our place as a supplier of choice for their building envelope solutions.\nCCM continues to benefit from the strong reroofing cycle in the United States.\nOur products and solutions for non-residential buildings are non-discretionary and can only be deferred for so long.\nWe believe CCM volumes in 2021 should benefit from work postponed in 2020 due to the pandemic.\nBut we maintain our conviction in the sustainability of the reroofing demand in the U.S. where we continue to expect the market to grow from $6 billion to $8 billion in the next decade.\nAdditionally, CCM is meeting head-on the challenges from the significant acceleration in raw material and logistics cost inflation during the quarter.\nComing into the year we were expecting an inflationary environment, coupled with strong demand and thus had prioritized selling price increases across most product categories at CCM to ensure we can continue to invest in and provide world-class customer service to our customers.\nOur procurement and supply chain teams are doing a great job in navigating a volatile and extremely tight marketplace.\nAgain with the goal of providing the best-in-class Carlisle experience to our customers.\nThe first quarter results were in line with subdued expectations given the ongoing disruption in the commercial aerospace market.\nImproving leading indicators, which include the expanding vaccine rollout, increasing numbers of domestic travelers, growing aircraft manufacturer backlogs, and improvements in CIT's order books give us confidence that CIT is positioned for a sequential improvement going forward.\nCFT delivered improved revenue and profitability performance in the first quarter driven by its reenergized commitment to new product innovation, improved operational efficiencies, price discipline and integration of our newer platforms.\nWe are especially pleased that new products accounted for over half of the volume growth in this quarter.\nAt CBF the significant actions taken to improve the business over the past few years are yielding expected results combined with demand for off-highway vehicles and equipment especially in Ag and construction is driving very strong volumes.\nCBF is delivering positive and accelerated earnings growth in what looks to be a significant inflection year for this business.\nOur ESG efforts also continue to gain momentum under Dave Smith, our recently appointed Vice President of Sustainability.\nIn early April, we published our 2020 sustainability report in conjunction with the launch of a new award-winning ESG-focused website.\nThese launches collectively share details of Carlisle's century-long journey and provide a deeper look into the socially responsible approach we undertake to create value for all stakeholders of the company.\nI'd also like to highlight how important the Carlisle operating system was to Carlisle throughout the past year and will continue to be as we drive to deliver Vision 2025.\nDuring the pandemic year of 2020 and the 13th year of our COS journey, our teams leaned heavily on COS to navigate through significant uncertainty.\nThe first quarter again demonstrated the value of COS as we delivered 1.2% savings as a percent of sales well within our target of 1% to 2% annually.\nMoving to Slide 8.\nBefore Bob updates you on our financial performance, I wanted to give you a quick update on capital deployment.\nWe continue to seek synergistic acquisitions that are currently working a robust pipeline.\nFor years we remained active on share repurchases buying back $150 million worth of shares during the first quarter and we paid $28 million worth of dividends.\nWe remain opportunistic in share repurchases and will continue to balance our cash position with the opportunities within the robust M&A pipeline.\nWe believe the strong performance in the first quarter across all platforms at Carlisle is a product of staying the course on our strategies.\nI'm proud of how the team met the challenges in the past year.\nI believe Carlisle is at a solid position to accelerate through the recovery.\nBob will now provide operational and financial detail about the first quarter and review our balance sheet and cash flow.\nStarting with this quarterly call when referencing profitability I'll be speaking to adjusted EBITDA margins and adjusted earnings.\nRevenue was flat in the first quarter driven by CCM, CFT and CBF offset by the well-documented commercial aerospace decline in CIT.\nOrganic revenue declined 1.4%.\nCCM, CFT and CBF all delivered greater than 5% organic growth in the quarter.\nAcquisitions contributed 0.4% sales growth for the quarter and FX was a 90 basis point tailwind.\nTurning to our adjusted EBITDA margin bridge on Slide 10.\nQ1 adjusted EBITDA margin declined 180 basis points to 14.4%.\nPricing and volume headwinds combined for a 150 basis point decline is driven by CIT.\nAcquisitions were a 10 basis point headwind.\nFreight, labor, raw material and other operating costs netted to a 140 basis point decline.\nCOS benefits added 120 basis points.\nOn Slide 11, we have provided adjusted earnings per share bridge where you can see the first quarter adjusted earnings per share was $1.47, which compares to $1.67 last year.\nVolume, price and mix combined were $0.24 year-over-year decline.\nRaw material, freight and labor costs were a $0.25 headwind.\nInterest and tax together were a $0.01 headwind.\nPartially offsetting the decline, share repurchases contributed 5%, COS contributed $0.16, and lower opex was a $0.09 benefit year-over-year.\nWhile COVID-related volumes declines at CIT clearly represented the most significant headwind during the quarter, our CIT team did a commendable job managing costs, leveraging COS to improve efficiencies and taking actions to position Carlisle for recovery while mitigating the pandemic's impact on earnings.\nAt CCM, the team has again delivered outstanding results with revenues increasing 6.3% driven by volume and 60 basis points of foreign currency translation tailwind.\nCCM continued to exhibit its resilience with solid U.S. commercial roofing performance despite continued COVID-related restrictions in some areas and severe weather in February.\nOur European and architectural metal teams were solid contributors to the quarter's revenue performance.\nAdjusted EBITDA margin at CCM was 20.1% in the first quarter, a 50 basis point improvement over last year, driven by the higher volumes, COS savings and cost management partially offset by wage and raw material inflation.\nCIT revenue declined 30.6% in the first quarter.\nAs has been well-publicized this decline was driven by the pandemic's impact on commercial aerospace markets.\nWhile recovery in aerospace could be prolonged we are confident that there will be a resumption of growth with the continued rollout of the COVID vaccine and airlines returning to profitability.\nIn our medical platform where sales were up nicely in the quarter year-over-year, we continue to expect sequential improvement from pent-up demand as the impacts of COVID on hospital capex in postponement of elective surgeries ease.\nAdditionally, our project pipeline is robust and our backlog's improving.\nCIT's adjusted EBITDA margin declined year-over-year to 7.1% driven by commercial aerospace softly -- partly offset by savings from COS and lower expenses.\nWhile the actions taken by CIT in 2020 to rightsize our footprint and reuse the overall workforce were difficult, we are positioned to deliver sequentially improving performance throughout 2021.\nTurning to Slide 14.\nCFT sales grew 12.9% year-over-year.\nOrganic revenue improved by 5.3%.\nAcquisitions added 4.1% in the quarter and FX contributed 350 basis points.\nStabilization in key end markets, driven by an improved industrial capital spending outlook in 2021 coupled with new product's introductions, pricing resolve and efforts to upgrade the customer experience position CFT to accelerate through the recovery.\nAdjusted EBITDA margins were 15.5% with a 590 basis point decline year-over-year.\nThis decline primarily reflects an FX gain of approximately $3 million from the previous year, partially offset by growing volume.\nTurning to Slide 15.\nCBF first quarter organic revenue growth was 20.4% and FX had a positive 3.7% impact driving CBF's organic total growth to 24.1% in the quarter.\nDemand for agricultural and construction equipment was a primary contributor to the growth.\nAdditionally, backlog continues to strengthen with bookings up 80% year-over-year.\nAdjusted EBITDA margins were 13.3%, a 600 base improvement driven by higher volumes and COS savings.\nOn Slide 16 and 17 we show selected balance sheet metrics.\nOur balance sheet remains strong.\nWe ended the quarter with $767 million of cash on hand and $1 billion of availability under our revolving credit facility.\nWe continue to approach capital deployment in a balanced and disciplined manner.\nInvesting in organic growth through capital expenditures and opportunistically repurchasing shares while also actively seeking strategic and synergistic acquisitions.\nFree cash flow for the quarter was $47.6 million, a 57% improvement year-over-year.\nTurning to Slide 18, you can see the outlook for 2021 and corporate items.\nCorporate expense is now expected to be approximately $120 million for the year driven by stock and incentive-based compensation along with higher medical expenses.\nWe continue to expect depreciation and amortization expense to be approximately $225 million.\nFor the full year, we expect to invest in our businesses and still expect capital expenditures of $150 million to $175 million.\nNet interest expense is still expected to be approximately $75 million for the year, and we still expect our tax rate to be approximately 25%.\nFinally, we expect restructuring in 2021 to be approximately $20 million.\nDuring the second quarter of 2021, we are very optimistic about the remainder of the year.\nFrom record backlogs at CCM to growing positive trends in CIT's aerospace markets to recovery in both CBF and CFT coupled with excellent sourcing and price discipline, we're confident in our ability to deliver solid results for our shareholders.\nWe will continue to seek to deploy capital into strategic acquisitions, share repurchases and dividends.\nWhile there are still uncertainties around the pandemic for the full year of 2021, we anticipate the following.\nAt CCM supported by a strong multi-year reroofing base, project deferrals that occurred in 2020, positive momentum in our newer businesses of architectural metals and polyurethanes, and expansion of our European business, we now anticipate revenue growth of low double digits in 2021.\nAt CIT given improving leading indicators, including a vastly better COVID-19 outlook, increasing daily TSA screenings for domestic travel, and improving airline financials translating into increased manufacturers orders CIT's financial performance has stabilized and is positioned for sequential improvement going forward.\nThat said, we anticipate pressures remain near term.\nGiven a very difficult year-over-year comparison in the first and second quarters we continue to expect CIT revenue will decline in the mid-to-high single-digit range in full year 2021.\nAt CFT with end markets strengthening especially general industrial and improvements in the team's execution of our key strategies, we continue to expect low double-digit growth in 2021.\nAnd at CBF supported by strengthening demand in core markets, price resolving and growing backlog, we now expect over 30% year-over-year growth in 2021.\nAnd finally, for Carlisle as a whole, we expect low double-digit growth in 2021.\nIn closing, I want to once again express my gratitude to our dedicated employees, their families, our business partners and all those associated with Carlisle's success.\nGiven our 100-year history and the resilience this company has shown in times of adversity and uncertainty, we remain confident in Carlisle's outlook, our strong financial foundation, cash-generating capabilities, unwavering commitment to our Vision 2025 strategic plan, and to providing products and services essential to the world's needs.\nThis concludes our formal comments.",
        "summary": "sees fy sales for carlisle brake & friction up more than 30%.\nq1 adjusted earnings per share $1.47."
    },
    {
        "text": "This is Viki Blinderman, the Chief Accounting Officer.\nToday, we'll be discussing the company's third quarter results for 2020.\nThis audio conference is being recorded and an archive will be made available on our website later today through November 2.\nOn the call today from management are: Mel Payne, Chairman and Chief Executive Officer; Ben Brink, Chief Financial Officer; Peggy Schappaugh, Vice President of Operations & Acquisitions Analysis; and Steve Metzger, General Counsel.\nToday's call will begin with formal remarks from management followed by a question-and-answer period.\nToday, I won't say a whole lot.\nIt's all about our company.\nAnd I wanted to simply state that we do a lot of communications beneath the covers of what is reported to the public.\nSo this went out to every managing partner, every sales manager, every field support leader, directors of support, and every employee and leader in our Houston Support Center.\nThis went out about 5:24 p.m. yesterday with our quarterly nine month release.\n\"I have never in my life been more honored and inspired by anyone or any group of people than I have been by the amazing leadership and performance of our managing partners and sales managers and our funeral and cemetery portfolio of businesses over the last nine months and especially the last six months after the coronavirus pandemic shocked our country with both a continuing health and economic crisis.\nThe same is true for all the support leadership and teams, who enabled all of our frontline coronavirus battle warriors and their courageous teams of employees to remain in the battle of serving their client families and communities when it counting most.\nNow when this goes out, it generates a lot of attention.\nWe do a lot of communication and recognition in the company.\nSo I know I'm speaking to them as they hear this.\nAnd now they're hearing it, not just reading it.\nAnd I often get many responses to these kinds of communications.\nBut I'll just read you one.\nWe have been working hard and keep pushing for revenue enhancement while serving the families with higher flexibility and awareness to each need related to the pandemic.\nIt has been wonderful to have the support of all members within Carriage Services.\nWe truly are united.\nI am looking forward to the call\".\nLoren is the daughter of Frank Forastiere.\nI'm sure they're on the call.\nThe Forastiere family business is the business in Springfield, Massachusetts.\nThey joined Carriage and came our partners in October of '98.\nFrank was one of the original standards council members and he had to rotate off a couple of years ago when he passed the leadership managing partner role to his daughter, Loren.\nEvery Thursday, Loren, we hear about what you and your team is doing, not always on a Thursday.\nHow much of this is COVID only?\nAnd how much of it is market share?\nAnd I will tell you, Loren and Frank, we know who you're growing the business, how you're growing the business.\nAnd even when the outbreak slowed, you didn't.\nWe know where the business is coming from.\nAnd I'm not going to mention their name, it's a big business, but it's getting smaller by the month.\nBecause this is the exact example of what's going on broadly across Carriage.\nOur extraordinary third quarter performance is a reflection of a company that is completely aligned at all levels to our 2020 theme of transformative high performance.\nAnd the continued momentum we see in all areas of the company is the Carriage high-performance flywheel in full effect.\nThese results also demonstrate the strength of our decentralized entrepreneurial standards operating model, the quality of our managing partners and their teams and our ability to rapidly innovate and adapt in the face of unprecedented challenges brought on by the coronavirus crisis.\nWe are excited to share these results with you today.\nFor the third quarter and year-to-date results, all of our reported operating and financial performance metrics were records.\nAs I review our results, it is important to recognize the full impact of the operating and financial and value creation leverage dynamics that allowed Carriage to leverage organic revenue growth into higher growth rates in total Field EBITDA, adjusted consolidated EBITDA and adjusted diluted earnings per share.\nFor the third quarter, we earned $84.4 million of total revenue, an increase of 27.6%; $37.3 million of total Field EBITDA, an increase of 45% with total Field EBITDA margins improving 530 basis points to 44.2%.\nAdjusted consolidated EBITDA improved $10.4 million or 60.1% to $27.7 million.\nAnd our industry-leading adjusted consolidated EBITDA margin improved 670 basis points to 32.8%.\nAdjusted diluted earnings per share increased an impressive 82.1% to $0.51 in the quarter.\nYear-to-date, total revenue has increased 17.9% to $239.4 million.\nTotal Field EBITDA has increased 24% to $100.6 million.\nTotal Field EBITDA margin increased 200 basis points to 42%.\nAdjusted consolidated EBITDA increased 32.3% to $75.9 million.\nAdjusted consolidated EBITDA margin increased 340 basis points to 31.7%.\nAnd our adjusted diluted earnings per share increased 34% to $1.30 for the first nine months of the year.\nIt is truly an honor and a privilege to have the opportunity to share the insight on the hard work, creativity and pure grit of our managing partners, sales managers and their teams.\nWhen COVID started to hit our country, we wanted to, first and foremost, ensure the safety of our people and give them peace of mind so that they were still able to provide outstanding service to our families.\nShawn Phillips, regional partner, led the charge and centrally gathered an abundance of PPE here in Houston to disperse to our funeral homes and cemeteries across the country.\nThis gave our managing partners and their teams one less thing to be concerned about and more time to focus on serving every family while still maintaining CDC guidelines.\nBecause our managing partners are true owners of their businesses, they remain focused on high performance as it pertains to not only revenue growth but also EBITDA margin.\nIn 2019, some adjustments were made to our Being The Best incentives as it relates to margins, further motivating our managing partners to produce higher margins.\nSo when the uncertainty of COVID hit, there was immediately an acceleration of expense management from our intuitive managing partners.\nFuneral Home same-store net revenue was up 3.3% September year-to-date while same-store Field EBITDA was up 9.6%, propelling the September year-to-date Funeral Home same-store margin from 38.4% to 40.7%, an increase of 230 basis points.\nOur managing partners and sales managers also made great strides in quarter three on Cemetery sales.\nAfter finishing quarter two behind $1.9 million in Cemetery same-store operating net revenue, largely due to the cancellation of our annual Ching Ming event, we were able to closed the gap in quarter three to within 250,000 operating net revenue and bring our same-store margins from being behind $1.6 million in quarter two to being flat on a year-to-date basis.\nIn quarter three, we continue to see an increase in sales at our three new Cemetery acquisitions, increasing operating net revenue 28.7% from quarter two, improving margin of 35.4% in quarter two to 44.7% in quarter three, bringing the year-to-date margin to 38.1%.\nWe continue to see accelerated integration of our four large acquisitions that were made at the end of 2019 and in January of 2020, even among the pandemic, which has proved to make our partnership with these businesses even stronger.\nThe improving results, since the first quarter, reflects the great work that is being done by the managing partners and their teams at each of these businesses with the continued support from our operational leadership team.\nThis is just the beginning of the higher performance at these four large strategic acquisitions, which will continue to grow and translate into even higher margins into next year and many years to come.\nAnd the most important thing to note is the power of our decentralized model, which gives our managing partners the ability and freedom to make decisions locally as it relates to each of their markets.\nSo as guidelines and restrictions were put in place, they were able to quickly adapt and make the necessary adjustments to serve our families in safe and creative ways.\nAt the beginning of 2019, we rebooted our standards and added two key components: an intense focus on compounded net revenue growth and we introduced a new standard, the service guest experience.\nThe service guest experience standard was something new to everyone.\nBut the goal was to truly differentiate ourselves and create even more value and personalization for each of our families.\nThe creative juices began in 2019.\nBut the level of creativity that has been stimulated during this pandemic with the CDC guidelines and restrictions in place has been simply remarkable and amazing to witness.\nOur people have found more unique ways to give families what they need, a service to honor the lives of their love one, and the important time to agree with their family and friends, even if that meant doing visitations in small groups or having people RSVP for a service or conducting drive-through visitation or holding services outdoors.\nIn addition, we increased our number of funeral homes that offer live streaming from only 30 to now 125 in an effort to overcome restrictions and give our families, that don't feel safe attending a service in person, an opportunity to participate in the service virtually.\nWe believe that these creative ideas won't go away but have become the new way we show value to our families.\nWe knew that our managing partners were true entrepreneurs.\nBut that spirit has really shined through during this pandemic.\nThey continue to grow market share above the lift we have seen from COVID cases.\nA vast majority of our same-store funeral homes had market share growth on a year-to-date basis and approximately 75% of those businesses had market share growth beyond COVID.\nDue to early local restrictions on gatherings, we did see a dip in our Funeral Home averages, starting at the end of March, the lowest point being in April.\nBut with the inspiring and innovative ideas at our businesses, both our burial and cremation averages have been picking up ever since.\nOn a same-store basis, we saw an increase in our burial average of 3% in the third quarter versus the second quarter and an increase in cremation average of 6.4%.\nWe believe this upward trend in average will continue the rest of this year and into next year.\nAnd when talking about cremation average specifically, we saw an increase in our cremation calls with the reboot of standards in 2019, which put more emphasis on net revenue growth.\nAt the end of '19, we put more focus on converting those cremations into a cremation with some type of service.\nWe remain dedicated on taking time with each of our families to educate them on what is possible when choosing cremation as a disposition.\nAnd cremation is just that, it's a type of disposition.\nIt does not mean there is no service or celebration of life.\nWe have heard so many great stories of how our funeral directors take the time to connect with each family and simply listen as the family share stories and interest about their loved ones.\nThis allows us to provide unique and creative ways to honor them and share that with everyone that attends the service, transforming a stat occasion into a lasting memory.\nI would like to share just a few examples of how our people incorporate unique touches to every service.\nOne of our businesses organized a parade for someone down Main Street because they always wanted to have a parade in their honor.\nWe had another business create replicate tickets of their favorite sports teams to hand out at the service.\nAnd another business that made laminated miniature vinyl cards for a former music producer for all who knew him to have a reminder of the life he was so proud of.\nAnd another business that had the unique idea to give a grieving husband the opportunity to apply the insignia of their family brand on a wooden casket that would be the final resting place for the love of his life.\nThese things may seem small to someone looking in, but they are a touching moment for the family that has just lost someone very close to them.\nThis is how our people make such an impact and touch not only the family that is grieving but anyone attending the service, leaving a lasting memory so that when they are in the unfortunate position of losing someone close to them, they know who they can rely on to create that customized memorable service.\nThe third quarter marked the first period of time where the full effect of the successful execution of our trust fund portfolio repositioning strategy was reflected in our reported financial revenue and EBITDA.\nThe recurring annual income generated from our trust fund portfolio is currently $15.7 million, up from approximately $9.4 million prior to the execution of our strategy.\nInitially, this 67% increase in recurring annual income will primarily benefit our recognized revenue through our cemetery perpetual care trust, while increasing the value of preneed funeral and cemetery trust contracts to be recognized over the long term.\nFor the third quarter, financial revenue increased 44.5% to $5.6 million, driven by a 111% increase in cemetery trust earnings.\nFinancial EBITDA increased 51.6% to $5.2 million and financial EBITDA margin increased 440 basis points to 93.8% compared to the third quarter of last year.\nNext year, we expect financial revenue to be between $22 million and $23 million and financial EBITDA of approximately $21.5 million, an almost 50% increase from our financial EBITDA prior to the execution of our repositioning strategy.\nGoing forward, this higher level of recurring financial revenue and EBITDA will be significantly accretive to our adjusted consolidated EBITDA and adjusted consolidated -- adjusted free cash flow margins that are reflected in our updated three year milestone scenario.\nOverhead increased $1.1 million while overhead as a percentage of revenue, the measure of our ability to leverage our overhead and support platform, fell to 11.8% in the third quarter.\nAll of the increase in our overhead for the quarter was due to an increase in the incentive compensation accruals, primarily for our Funeral Home and Cemetery Being The Best annual incentive awards.\nWe are now fully accrued for a higher field incentive compensation at the end of the quarter.\nAs Peggy mentioned, an important turning point for Carriage was the update to our standards operating model in late 2018 to focus on three year annual compound local revenue growth, driven by market share gains, as we deliver a high-value personal service and sales experience to every family we have the opportunity to serve.\nOur managing partners and their teams are able to share in the local profits of their business with no overhead allocations when they achieve at least 50% of their annual standards for our Being The Best incentive program.\nI'm looking forward to continued growth in our field incentive compensation accruals in the future.\nOur strong operating performance led to an extraordinary free cash flow generation and debt reduction in the third quarter.\nFor the quarter, our adjusted free cash flow increased 120.3% to $27.6 million and our adjusted free cash flow margin expanded 1,370 basis points to 32.7%.\nThe continued expansion of our adjusted free cash flow margin represents a greater percentage of revenue generated as cash capital that is available to responsibly grow the intrinsic value of Carriage.\nWe were able to pay down $37.5 million in debt during this third quarter, equal to 7.4% of our debt outstanding at the beginning of the quarter.\nThis included the repurchase of $3.6 million of our 2.75% subordinated convertible notes in privately negotiated transactions.\nFor the year, we have paid down $63 million of debt, which is equal to 11.8% of our total debt outstanding post the close of Oakmont Memorial Park and Mortuary on January 3.\nWe are currently well ahead of our previous expectations for debt reduction.\nAnd we now expect our total debt outstanding to be approximately $460 million by the end of the year.\nOur net debt to pro forma adjusted consolidated EBITDA fell to 4.8 times at the end of the quarter due to the accelerating growth in our adjusted consolidated EBITDA, combined with a large amount of debt reduction through the quarter.\nWe were able to reduce our leverage on an absolute basis by over one full turn during the third quarter.\nThe rapid and substantial decrease of our leverage ratio demonstrates not only our ability but our commitment to operate Carriage at a lower leverage profile now and into the future.\nWe expect our leverage ratio to be approximately 4.5 times by year-end and below four times by year-end 2021.\nDuring the third quarter, we divested six businesses for total proceeds of $7.3 million.\nWe currently expect to sell approximately 20 businesses or excess real estate for total proceeds of around $17 million and be substantially complete by the time we look to execute a refinancing transaction in the second quarter of next year.\nThese transactions will be accretive to our leverage profile and will incrementally improve the organic growth rates and field margin profile of our same-store Funeral Home segment.\nOur debt repayment in the quarter was also helped by the receipt of a $7 million federal tax refund related to tax law changes made in the recently passed CARES Act.\nWe expect to receive an additional $1 million refund prior to the end of the year and we will be a full cash taxpayer again in 2021.\nAs we have previously stated, our primary focus for capital allocation over the next three quarters will be the continuation of the significant progress we have made to reduce total debt outstanding and reduce our debt-to-EBITDA leverage ratio.\nOur rapidly improving credit profile positions Carriage to execute a refinancing transaction of our existing 6.625% unsecured high-yield notes when they become callable on June one of next year.\nWe expect this transaction to reduce our interest cost by a minimum of 200 basis points, reduce our cash interest cost by a minimum of $8 million and add a minimum of $0.29 of earnings per share on an annual basis.\nThis transaction will also lead to a material improvement in our cost of capital.\nThese assumptions are conservatively included in our updated three year milestone scenario and in our updated rolling fourth quarter outlook.\nAfter the completion of this refinancing transaction, Carriage will have a maximum financial flexibility to pursue a range of value creation and capital allocation opportunities, including partnering and acquiring the best remaining funeral home and cemetery businesses in the country, who will look to Carriage as the succession planning solution of choice within our industry; invest in strategic growth projects throughout our portfolio; opportunistically repurchase our shares, all while remaining at a more modest leverage profile as the vast majority of these will be funded by our growing and recurring free cash flow.\nThe final piece of our capital allocation strategy will be to steadily increase our dividend over time.\nWe are pleased and excited to announce the decision by our Board of Directors to increase our annual dividend by $0.05 to $0.40 per share.\nThis increase marks the second $0.05 increase in our dividend since the onset of the coronavirus crisis and should be viewed as an additional sign of confidence in our future performance.\nAt $0.40 per share, our annual dividend payments will be $7.2 million per year and represent approximately 10% of our projected 2022 adjusted free cash flow.\nBeyond 2022, we will target a dividend policy of approximately 10% of our adjusted free cash flow and a 1% dividend yield on the market price of Carriage shares.\nWe're also pleased to announce an updated rolling 4-quarter outlook and updated three year milestone Roughly Right Scenario that both show a significant increase in our performance expectations through 2022 and beyond.\nWe expect to achieve important company performance milestones of over $100 million in adjusted consolidated EBITDA and industry-leading 32% adjusted consolidated EBITDA margin and earn over $60 million of adjusted free cash flow this year whereas we previously expected those milestones to be met in 2021 and 2022.\nWe also now expect to earn between $1.80 and $1.85 in adjusted diluted earnings per share this year, growing to between $2.15 and $2.25 in 2021 and growing further to $2.48 to $2.60 in 2022, when we have the full year effect of a lower cost capital structure.\nWe have increased our performance expectations in all major categories as we see continued growth in local market share in both our Funeral Home and Cemetery segments at higher and sustainable margins, improved preneed cemetery property sales, continued performance improvement from our four recent strategic acquisitions and the full impact of the increase in financial revenue and EBITDA from our preneed trust fund portfolio repositioning strategy.\nWe view these performance expectations as readily attainable through 2022 and believe we have multiple opportunities to exceed these expectations through continued improvement of our existing portfolio and through savvy and disciplined capital allocation post a refinancing transaction.\nAnd finally, I'd like to take this opportunity to echo the sentiments of our entire leadership team, that while the coronavirus crisis impacted our results in a variety of ways, our third quarter and year-to-date results are the byproduct of the tremendous work by dedicated leaders and teams across our entire company over the past two years.\nWe look forward to a strong finish to this year and achieving the goals we've set out before us in the future.\nThese materials will detail Carriage's almost 30-year evolutionary journey and the key concepts that drive our high-performance culture.\nThen give us a call, or better yet, come for a visit in Houston for a deeper dive into the fastest-growing, highest-margin and second-longest tenured funeral home and cemetery consolidator based in the U.S. We're happy to host, socially distanced, of course.\nWhen Mel first asked me to participate in today's earnings call, admittedly, I was a bit surprised.\nIt isn't exactly standard practice for your General Counsel to actively participate in these calls.\nHowever, I know that with Mel, there's always a longer-term goal to an idea that, at the time, may seem a bit unorthodox.\nSo with that in mind, it is a real privilege for me to have the opportunity to talk about our support center teams generally and our legal team more specifically.\nNow on preparing my remarks, I asked Mel if there's anything in particular that he'd like me to cover.\nAnd those of you listening, who routinely follow Carriage, will not be surprised by Mel's direct response.\nHe said, \"Steve, I only have three things for you to consider.\nFirst, talk about anything at all as long as it has to do with the company\".\nAnd then he simply said, \"Say what you mean and mean what you say\".\nThat response, as short and direct as it is, pretty well exemplifies a mindset that I believe is at the heart of our performance.\nThere are no prepackaged playbooks or one-size-fits-all scripts to follow but rather trust in our people to generate good ideas and then go out and perform.\nThe results from that approach are often viewed in terms of financial metrics, like EBITDA and EPS.\nHowever, behind those numbers and trends is a team of uniquely talented individuals.\nManaging partners and their teams, who we reference often, absolutely lead that performance.\nAnd whatever they -- and what they do in the non-pandemic environment is special to watch.\nNow behind the scenes, supporting those managing partners and their teams is an equally impressive group, who have also risen to numerous challenges this year.\nWhether it's our IT team quickly rolling out live streaming tools and remote document execution options to help keep our families and employees safe; or our field operations support team, jumping in to assist our businesses with around-the-clock administrative support when those businesses become shorthanded; or our HR, risk management and legal professionals, partnering together to oversee and manage a 24-hour hotline to ensure any question our frontline professionals have had during this pandemic is answered immediately, the collaboration, selflessness and problem solving demonstrated by these teams have put the work of each one of these behind-the-scenes professionals front and center within Carriage.\nNow most public companies have some version of a support center.\nWhether it's referred to as headquarters or simply corporate, the idea of a single location, where traditional back-office functions take place, is certainly not a novel one.\nWith that said, what makes Carriage's support team stand out is the fact that the same philosophy of entrepreneurship and autonomy that drives our decentralized model and the approach and success of our managing partners extends to our support center teams.\nThe formula is simple, find the very best talent and then put them in a position to do what they do best.\nThis includes allowing leaders at all levels to act quickly with authority and without the need for time-consuming meetings and layers of approvals, which, at best, delay and, at worst, destroy progress, improvement and growth.\nAs it relates to our legal team, I have the privilege to work with professionals who bring much more than impressive and diverse legal backgrounds to the table.\nI often tell Mel that our in-house attorneys take great pride in being consulted on business matters, not just legal issues.\nWe intentionally provide our attorneys with financials, weekly performance updates by business, weekly cash debt balance activity and other critical financial metrics.\nThe goal behind providing all this data, that some may believe is reserved for operations, finance and accounting teams, is so our attorneys can continuously dig deeper into learning more about our businesses and understand what ultimately drives the results we release each quarter and then apply that knowledge to how they provide guidance and make decisions.\nThat purposeful financial focus and ownership mindset truly result in our attorneys serving much more as business partners, who just happen to have a legal background, than simply as lawyers.\nWe frequently have discussions about big-picture strategic objectives and capital deployment.\nAnd their feedback and thinking not only contribute to ultimate decision-making, but just as importantly further enhance and guide the support they provide each day.\nOur legal team and many of their support center colleagues invest a significant amount of time in proactive, continuous learning about not only the business but the financial drivers.\nAnd as a result, they have great awareness and ownership in the financial health and growth of their company.\nFor example, in explaining the financial impact of a proactive matter one of our attorneys has been working on for some time, he recently briefed me by saying, \"Steve, that recovery is going to come in around $0.01 a share\".\nHis reference to our earnings per share metric was not unusual, it's a language and a perspective that is used often.\nAnd it's a great example of the work they do to understand our financials in the mindset applied to spending and decision-making throughout our company.\nNow I share all of this regarding the Carriage entrepreneurial philosophy and ownership mindset extending to our support teams to tie back to the incredible work performed during this pandemic for a couple of reasons.\nFirst, when things initially became uncertain and the challenges unprecedented back in March, our teams in the field and here at the support center were already well-equipped, prepared and most importantly empowered to act quickly, responsibly and wisely.\nAnd second, the ownership mindset shared by leaders here in the support center creates an environment where they're encouraged to not just fill a function but to ask questions, think strategically and act confidently when a time-sensitive pivot may be called for.\nThis pandemic has required the full complement of collective talent within our team.\nAnd they have exceeded the already high expectations that they set for themselves.\nAs a company, we talk a lot about the entrepreneurial spirit that drives our business.\nAnd I have the good fortune to see it in action every day, not only in the work performed by our frontline professionals but also by our support center team.\nI know I speak for our legal team as well as our support center colleagues when I say it is an absolute privilege for all of us to have the opportunity to work with and support our managing partners and each of the frontline leaders who serve our families every day during the most challenging of circumstances.\nSo if anybody out there takes Ben up on his invitation to come and visit, we'll introduce you to some of Steve's dragon slayers.\nAnd you'll see exactly what we mean by that.\nSo two days ago, Shawn Phillips and I got an email.\nWe got that email from Dewayne Cain.\nDewayne is the founder of Rest Haven in Dallas.\nAnd it reads as follows, \"Wednesday, October 28, marks our one year anniversary\".\nSo he's referencing one year ago today, when we closed the day before the acquisition of Rest Haven, which was founded 50 years ago by Dewayne.\nThe email said as follows, \"My decision to form a partnership with Carriage was the third-best decision I ever made.\nThe two that preceded it were: one, asking Jesus into my life; and two, asking Ann to marry me.\nLast October, no one could have predicted what 2020 would bring.\nBut I can truthfully say that in these last 12 months, my belief in Carriage as well as my admiration and respect for you and Shawn has grown.\nMay God continue to bless our great country, our wonderful families, our successful company and our continued friendship\".\nSo I emailed Dewayne back yesterday.\nNow for those of you who've been around a while and might have been on that call a year ago, Dewayne was my guinea pig.\nI wanted him to do a testimonial, the first one that would have ever been done by a former owner, one 12-hour period after he wasn't the owner.\nBut we made it clear to Dewayne that he never will not be the owner.\nAnd he still uses the same parking spot and he doesn't pay me any rent.\nIt's OK, Dewayne, I forgive you.\nThis is what I've sent Dewayne back, \"Dewayne and Ann, amen, partner, to your prayer.\nMay God continue to bless our great country, our wonderful families, our successful company and our continued friendship.\nHappy one year anniversary.\nSo my dear friend and partner, if you don't mind, I might take the liberty of reading your email instead.\nStay safe and healthy\".\nAnd Dewayne emailed me back last night, 7:21 p.m., \"You definitely have my permission because it's so very true\".\nNow what we couldn't have known one year ago, when we invited Dewayne to do his testimonial, is that Mike Doherty, the third-generation member of Fairfax Memorial Park and Funeral Home in Fairfax, Virginia, was on that call and listening carefully to what Dewayne had to say about Carriage being a family succession solution, which Fairfax was looking for at the time.\nHe later called Dewayne personally to ask him about Carriage.\nThat led to Carriage being the winner for Fairfax, which I've known about a long time.\nAnd it put this big business in Carriage.\nIt was founded 62 years ago by Mike's grandfather.\nAnd we have promised Mike, and when we went and presented to Mike and the other members of the Board, Dave Dodrill was a big owner, had come in to help the family.\nSo you have -- you never know in this business who's listening and they're paying attention to what is said by not those of us in the company always, but by those of us who -- by those of you who joined the company, especially owners of great businesses.\nYou are known by the company you keep and the reputation they have will also build your own reputation.\nThis is who we are.\nThe best years of our company are in front of us.\nWe will get through this coronavirus as a country, I hope soon.\nBut I have never been more proud of our people than I am now.\nAnd our future has never looked so bright.\nSo we look forward to reporting that future performance to you as it occurs.",
        "summary": "q3 adjusted earnings per share $0.51.\nq3 revenue rose 27.6 percent to $84.4 million.\nsees q4 adjusted free cash flow of $56 million - $60 million, up from $50 million - $55 million."
    },
    {
        "text": "I'm Susie Lisa, senior vice president of investor relations for CVS Health.\nToday's call is being broadcast on our website, where it will be archived for one year.\n2021 was an important year for CVS Health.\nWe exceeded our financial goals.\nWe advanced our strategy and we brought greater value to the people we serve, playing a critical role in the nation's pandemic response.\nWe ended a strong 2021 with another strong quarter.\nWe exceeded our adjusted earnings per share expectations for the fourth quarter in a row delivering $1.98 adjusted earnings per share in the final quarter of 2021 and $8.40 adjusted earnings per share for the full year.\nWe are entering 2022 with powerful momentum.\nWe are delivering healthcare solutions that are personalized, connected, and increasingly digital.\nWe are engaging millions of consumers across our businesses and in our community health destinations across America.\nCVS Health is becoming a bigger part of their everyday health.\nTurning now to our performance.\nFor the full year 2021, CVS Health grew adjusted revenue by 8.8% to $292 billion.\nWe delivered adjusted operating income of $17.3 billion, up 8.1% year over year.\nAnd we increased adjusted earnings per share by 12%.\nWe generated strong cash flow from operations of nearly $18.3 billion for the full year, exceeding our most recent guidance of at least $13.5 billion.\nThis strong performance positions us well for 2022.\nAt this early stage of the year, we are maintaining our full year 2022 adjusted earnings per share guidance of $8.10 to $8.30.\nOur forecast reflects increased volume from COVID testing and front store sales in our retail business relative to our forecast at investor day, offset by the accelerated timing of vaccine boosters pulled into the fourth quarter of 2021.\nShawn will provide more details on our results and guidance shortly.\nOur 2021 performance demonstrates our ability to anticipate, deliver, and exceed consumers' expectations for healthcare.\nConsumers are a major force driving change in healthcare, and we continue to engage successfully with individuals in more places and on their terms, virtually, in the home, and in their local community.\nCustomers and clients continue to realize the superior value we are providing with our integrated health solutions, particularly those that address the most prevalent, costly, and complex health conditions, such as diabetes, cancer, and chronic kidney disease.\nTurning to the segment highlights.\nIn healthcare benefits, we delivered 9.4% adjusted revenue growth for the full year 2021, driven by our performance in government services.\nWe had another strong year of Medicare growth with increases across all product lines.\nTotal Medicare Advantage membership grew at 9.8% on a year-over-year basis, as we added over 265,000 new members in 2021 and exceeded our initial growth expectations.\nAs a result of our strategic focus on dual-eligible special needs plans, enrollment nearly doubled in 2021.\nOur full year medical benefit ratio of 85% was in line with our guidance expectations.\nFor the full year 2021, the utilization of total healthcare services in aggregate was in line with normalized historical baseline levels.\nTurning to 2022, we had an impressive annual enrollment period in our Medicare business.\nFor the second consecutive year, we grew all Medicare product lines, and our growth rates this year exceed the industry averages in all categories.\nWe grew total Medicare Advantage membership by 11.6% versus the prior year, reflecting increases in individual and group Medicare Advantage of over 15% and 6%, respectively, year over year.\nWe also led the industry in absolute Medicare PDP net membership growth.\nThis added nearly 295,000 net new members, while the overall PDP market continues to decline.\nWe had a solid 2022 selling season in our national accounts commercial business.\nWe expect to grow membership in the low single digits for the full year and maintained strong client retention of 96%.\nOur success is driven by the combination of our competitive cost structure, our integrated benefit designs, including medical and pharmacy, and products and services that utilize CVS Health capabilities, such as Transform Care Diabetes and Virtual Primary Care programs.\nMembership enrollment was lower than expected in the eight ACA individual exchanges we entered this year.\nWe continue to build this business gradually, with select geographic expansion, a focused price discipline, and the appeal of co-branded Aetna CVS Health offerings.\nConsistent with our prior guidance, we do not expect this offering to contribute materially to our financial results in 2022.\nOverall, our deep understanding of consumer needs, innovative product portfolio, and our service excellence will drive growth in our healthcare benefits segment.\nOur comprehensive range of products and benefit design that address consumers' whole health needs remains a key differentiator and fueled a strong selling season.\nFor 2022, we forecast 7% to 9% revenue growth and 15% to 17% adjusted operating income growth.\nTurning to pharmacy services, we delivered 7.8% revenue and 20.6% adjusted operating income growth in 2021.\nWe continue to be a consultative partner to our clients and members.\nWe're delivering industry-leading cost trends and savings, service excellence and a broad product portfolio, and a commitment to transparency.\nWe consistently create value for our customers and clients with our better-than-market drug trend.\nWe continue to enhance our utilization programs to ensure access to the therapeutics that are the most clinically appropriate.\nFor 2022, we achieved a client retention rate of over 98% and drove $8.8 billion of net new business revenue.\nWe are a leader in specialty pharmacy, delivering revenue growth of 12.3% for the fourth quarter and 9.3% for the full year versus prior period.\nOur specialty pharmacy programs drive value in the marketplace and they differentiate us as we pair programs with digital capabilities to deliver a convenient and connected experience.\nFor pharmacy services in 2022, we expect 6% to 8% revenue growth and 7% to 9% adjusted operating income growth, as we create long-term value for our clients and our members.\nOur retail segment plays a critical role as a community health destination for millions of Americans.\nThis segment outperformed the industry and our expectations in 2021.\nWe grew revenue 9.8% year over year to just over $100 billion, marking an important milestone in the history of this CVS Health business.\nWe delivered an exceptional 24% adjusted operating income growth in 2021.\nPharmacy sales and prescriptions filled both increased by nearly 9% year over year.\nThis was notably driven by consumers who came to CVS Health for COVID-19 vaccine administration.\nFor the full year 2021, CVS Health administered more than 32 million COVID-19 tests and more than 59 million vaccines.\nOver 35% of COVID-19 vaccines in 2021 were administered during the fourth quarter.\nOur work to test and vaccinate America for COVID is a powerful example of the relationships we are building with consumers, which leads to new customers seeking a range of other health services at CVS Health.\nFront store sales growth was strong throughout 2021, up 8.4% versus the prior year.\nThey were led by consumer demand for the over-the-counter COVID-19 tests, as well as cough and cold, beauty, and personal care products.\nWe sold over 22 million OTC COVID-19 tests with approximately 70% of sales in the fourth quarter.\nWe are progressing on optimizing our retail portfolio and pivoting our stores into three formats: primary care clinics, enhanced health hubs, and traditional CVS pharmacy locations.\nWe are executing our plan to dedensify stores based on consumer health and buying needs, omnichannel preferences, and shifts in the U.S. population.\nFor 2022, as I mentioned, given the earnings outperformance and pull-forward of vaccine boosters in 2021, we are maintaining our 2022 guidance.\nThis now implies retail revenue to be plus or minus 1% versus prior year, and a low 20% decline in adjusted operating income growth.\nShawn will provide more details.\nOur digital approach is focused on delivering a superior experience for consumers by creating a more connected and seamless health journey.\nWe are making progress toward setting a new standard for digital healthcare for consumers.\nCVS.com is one of the top health websites with over 2 billion visits in 2021, up nearly 55% over the prior year.\nOur digital capabilities for health interactions such as COVID testing and vaccines, prescription services, and sales of health and wellness products have dramatically increased consumer engagement across all CVS Health businesses.\nWe now serve 40 million customers digitally, up approximately 10% in the last six months alone.\nIn 2021, we launched several new digital health services powered by advanced analytics to personalize the experience.\nWe made it easier to join our CarePass program reaching 5.6 million subscribers in the quarter, up more than 40% year over year.\nWe integrated CarePass for our Aetna Commercial members and are excited about the adoption we are seeing.\nWe also simplified the CarePass enrollment for all consumers, which is driving more growth in subscribers.\nFor our HealthHUB and MinuteClinic patients, we simplified and digitized the check-in process for patients.\nOur self-service digital tool enables individuals to complete traditional paperwork in advance of their appointment.\nAlmost 80% of patients are already utilizing this capability.\nAt our investor day, we promised a superior healthcare experience for consumers that will improve health outcomes, lower cost, and provide broader access to care.\nWe are making several moves to realize our vision for healthcare.\nWe're advancing our care delivery capabilities, optimizing our retail portfolio, and further diversifying the health products and services that we offer.\nWe're driving this evolution both through internal initiatives and by seeking to execute capability-focused M&A for complementary health services.\nWe will connect consumers in more places in more ways and on their terms, with our digital-first technology-forward approach, as well as an enhanced omnichannel health experience.\nThese strategic moves will accelerate the growth of our foundational businesses.\nIn all this work, we will place the consumer at the center of all that we do.\nWe remain focused on delivering on our commitment to sustainability for our shareholders, our customers, and our communities.\nWe recently launched CVS Health Zones, aim to advance health equity and to address social determinants of health in high-risk communities.\nWe are collaborating with trusted national and local organizations to confront the six key social determinants of health through local investments.\nOur goal is to equip communities with the resources needed to close gaps in care for specific health conditions, such as diabetes and heart disease.\nHealth Zones is now active in five geographies with additional markets planned in 2022.\nWe remain committed to the environment and have pledged to reduce our overall impact, cutting greenhouse gas emissions across our operations and supply chain, and decreasing resource consumption, especially paper and plastic.\nIn December, CVS Health was named to the 2021 S&P Dow Jones Sustainability North American Index for the 9th consecutive year and the Dow Jones Sustainability World Index for the third consecutive year.\nOur financial performance, execution, portfolio of assets, and differentiated strategy all create strong momentum into 2022 and a clear pathway to achieve low double-digit adjusted earnings per share growth over time.\nI would also like to take a moment to recognize the continued contribution of our colleagues who have played a vital role in helping our nation prevail over the pandemic.\nI am proud of what we have done and are doing every day to make a difference.\nOur fourth quarter results reflect the continuation of the strong performance delivered in the first three quarters of the year, as we once again exceeded our expectations for revenue, cash flow, and adjusted earnings per share.\nWe maintained our focus on growth, operational execution, and supporting the communities we serve as the effects of the pandemic persists.\nStarting with the enterprise as a whole.\nTotal fourth quarter adjusted revenues of 76.6 billion, increased by 10.6% year over year.\nWe reported adjusted operating income of 4.1 billion and adjusted earnings per share of $1.98, representing an increase of 40.8% and 52.3% versus prior year, respectively.\nFor full year 2021, we reported total adjusted revenues of 292.1 billion, an increase of 8.8% versus prior year, reflecting robust growth across all business segments.\nWe delivered adjusted operating income of 17.3 billion and adjusted earnings per share of $8.40, up approximately 8.1% and 12% year over year, respectively.\nAnd we generated significant cash flow from operations of nearly 18.3 billion.\nThis marks a record year of cash flow from operations for CVS Health and reflects the strength of our financial results, accelerated collections, and focused improvements in our working capital position.\nTurning to the healthcare benefits segment.\nFourth quarter adjusted revenue of 20.7 billion increased by 10.1% year over year, driven by membership growth in our government services business and lower COVID-19-related investments, slightly offset by the repeal of the health insurer fee.\nAdjusted operating income of 510 million grew by over 230% year over year, driven by lower COVID-19 related investments and improved underlying performance, partially offset by higher COVID-related medical costs compared to prior year.\nOur adjusted medical benefit ratio of 87% improved 130 basis points year over year, driven by lower COVID-19 related investments, partially offset by the repeal of the health insurer fee.\nAs a result of the omicron variant, we experienced higher COVID testing and treatment costs in the fourth quarter, but this was largely offset by lower non-COVID costs, particularly in Medicare and Medicaid.\nDays claims payable at the end of the quarter was 49 and was, as expected, lower than the third quarter and consistent with normal seasonal trends and historic levels.\nOverall, we remain confident in the adequacy of our reserves.\nIn the pharmacy services segment, fourth quarter revenues of 39.3 billion increased by 8.2% year over year, driven by increased pharmacy claims volume, growth in specialty pharmacy, and brand inflation, partially offset by the impact of continued client price improvements.\nTotal pharmacy membership increased by approximately 400,000 lives sequentially, reflecting sustained growth in government programs.\nTotal pharmacy claims processed increased by 8.2% above prior year.\nApproximately half of this growth was attributable to net new business in 2021, with COVID-19 vaccine administration and new therapy prescriptions also contributing to the year-over-year growth.\nAdjusted operating income of $1.8 billion grew 16.8% year over year, driven by improved purchasing economics, reflecting the products and services of our group purchasing organization, and growth in specialty pharmacy.\nIn our retail long-term care segment, we delivered exceptional revenue and adjusted operating income growth versus prior year and once again exceeded our expectations.\nFourth quarter revenue of 27.1 billion was up by 12.7% year over year, representing an increase of 3 billion.\nThere are two main components to this increase: one, approximately 60% was driven by the administration of COVID-19 vaccines and testing; front store sales, including demand for over-the-counter COVID test kits and related treatment categories; as well as strong COVID-related prescription volume.\nThe remaining 40% was attributable to a combination of underlying sustained pharmacy growth and broad strength in front store sales trends, partially offset by continued pharmacy reimbursement pressure.\nThis strong revenue growth helped produce adjusted operating income of 2.5 billion.\nThis quarterly result was 38% above prior year and significantly exceeded our forecasts.\nThe increase in adjusted operating income was driven by a few key components: the administration of COVID-19 vaccines, underlying strength in pharmacy and front store sales, and a $106 million gain from an antitrust legal settlement, which were partially offset by the combined impacts of ongoing but stable reimbursement pressure, and business investments, including the minimum wage increase and store improvements.\nIn terms of the improved performance in the quarter versus our expectations, there are two primary components.\nApproximately 75% was driven by vaccines, largely third-dose boosters, which we previously expected to impact the first quarter of 2022.\nAnd the remaining 25% was driven by the nationwide surge in demand for over-the-counter and diagnostic COVID-19 testing, combined with stronger underlying front store sales performance.\nLooking at cash flow and the balance sheet.\nOur liquidity and capital position remained strong at the end of the fourth quarter with full year cash flow from operations of nearly 18.3 billion and nonrestricted cash of over 3.8 billion.\nThrough our proactive liability management transaction in December, we paid down 2.3 billion in long-term debt in the quarter, bringing the total long-term debt we have repaid since the close of the Aetna transaction to a net total of 21 billion.\nIn addition, we returned over 2.6 billion to shareholders through our quarterly dividends in 2021.\nOur consistent outperformance during 2021 provides solid momentum as we head into this year, setting the stage for our continued strong outlook in 2022 despite multiple COVID unknowns that remain challenging to predict, such as additional variants, vaccine and testing protocols, and government testing initiatives.\nAs Karen noted earlier, we are maintaining our full year adjusted earnings per share guidance range of $8.10 to $8.30.\nWe feel this is an appropriate stance at this early point in the year, especially given the earnings outperformance of retail in Q4 was due largely to the pull-forward of third-dose vaccine administration from 2022 into 2021.\nThis represents 2% to 5% growth versus our revised 2021, adjusted earnings per share baseline of $7.92.\nAs you think about the adjusted earnings per share baseline and year-over-year growth, I'd like to encourage you to keep a few things in mind.\nFirst, recall that our 2021 baseline of $7.92 removes items we do not forecast, prior year's development, net of profits returned to customers and net realized capital gains.\nIt also includes the annualized impact of our investment in our colleagues through an increase in minimum wage.\nSecond, it is also important to note that the baseline now includes a net favorable component attributable to COVID-19, driven by vaccines and testing of approximately $0.30 per share.\nCVS Health continues to help lead the nation's COVID-19 pandemic response, clearly demonstrating the power of our integrated business model, consumer engagement, and local community health destinations.\nWhile there is no change to our Retail segment guidance, I would like to provide more detail on our COVID-19 retail volume assumptions for 2022.\nWe expect that COVID-19 testing both in-store diagnostic and over-the-counter will continue at higher volumes than anticipated at investor day, offset by a reduced outlook on vaccines.\nIn 2022, we expect vaccine volumes to decline approximately 70% to 80% and in-store diagnostic testing volumes to decline 40% to 50% compared to 2021.\nFor over-the-counter test kits, we expect modest full-year volume growth versus 2021.\nRelative to vaccines, our outlook does not assume any impact from the administration of a fourth COVID-19 booster.\nAs such, we expect the contribution of COVID-19 vaccines to be more heavily weighted to the first half of the year.\nAs I mentioned, the impact of COVID-19 remains one of the most challenging aspects of developing our guidance due to many factors, including the risk of additional surges, potential new testing or vaccine protocols, legislative changes, and OTC test kit dynamics such as supply challenges, coverage mandates, and government initiatives.\nTurning to items that are below adjusted operating income on our income statement, we expect our interest expense for 2022 to be approximately $2.3 billion.\nWe are purchasing shares to offset dilution.\nAnd as a result, we expect that diluted share count to be approximately flat versus 2021.\nOur expectation for the effective income tax rate is approximately 25.6%, consistent with 2021.\nIn terms of cash flow and capital deployment, we anticipate continued strong cash flow from operations in 2022.\nAnd we are updating our guidance range to $12 billion to $13 billion, reflecting the improved cash flow results for 2021.\nCapital expenditures are expected to be in the range of $2.8 billion to $3 billion as we invest in technology and digital enhancements to improve the consumer experience, as well as our community locations.\nAs we detailed in December, we remain committed to maintaining our investment-grade ratings, while also having the flexibility to deploy capital strategically for capability-focused M&A.\nTo conclude, the strong 2021 performance of CVS Health is expected to carry into 2022 as we continue to execute our strategy.\nWe have solidified our leadership role in healthcare delivery as a trusted partner to our consumers and their communities.\nAs we build upon this trust, we will continue to drive meaningful improvements that lower the cost of care, improve access and build engagement and convenience, ultimately enabling people to live healthier lives.",
        "summary": "cvs health qtrly revenue rose 10.1% to $76.6 billion.\nqtrly total revenues increased to $76.6 billion, up 10.1% compared to prior year.\nqtrly gaap diluted earnings per share from continuing operations of $0.98 and adjusted earnings per share of $1.98.\nadministered more than 8 million covid-19 tests and more than 20 million covid-19 vaccines nationwide in q4 of 2021.\nfor full year, company administered more than 32 million covid-19 tests."
    },
    {
        "text": "As a reminder, before we begin, the Company has a slide deck to accompany the earnings call this quarter.\nBecause these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company's current expectations.\nI'm going to pass it over to Tom to begin.\nSo, a pretty exciting quarter here for us at California Water Service Group.\nWe get to talk quite a bit about our California General Rate Case and some of the other things that are going on in the quarter.\nAnd I'm going to begin on Slide 6, which is a slide about the recognition of the 2018 California General Rate Case.\nSo, as most everyone knows at this point, on October 14, the California Public Utilities Commission published a proposed decision in our California GRC, that's a delayed GRC that should have been effective on January 1, 2020 and the proposed decision approved the settlement that we had announced back in October of 2019.\nAnd it also proposed to adopt Cal Water's positions on the disputed financial matters in the case.\nAnd for the first two quarters of the year, we had been reluctant to record regulatory assets for some of our continuing balancing account mechanisms, such as the WRAM and the MCBA decoupling mechanism, as well as our pension and medical cost balancing accounts, because those accounts we did not know whether they were probable for recovery.\nWe have concluded, based upon the proposed decision and a couple of things subsequent to that, that the GRC decision is very probable to award us those accounts on a continuing basis.\nAnd so, we are recognizing the regulatory assets associated with the water revenue adjustment mechanism, modified cost balancing account and the pension medical cost balancing account regulatory assets, and those will -- those add significantly to our revenue for the quarter and for the year-to-date.\nIn addition, the Commission will grant us interim rate recovery.\nAnd since we now know the proposed decisions take on the revenue requirement, we're able to calculate what is in the interim rate memorandum account.\nAnd so, we've also booked a regulatory asset for the interim rate memorandum account.\nI did want to talk briefly about the subsequent event that is giving us further confidence in the General Rate Case.\nAnd that is, that on Tuesday, among other things that happened on Tuesday in the United States, the the Cal PA, the Public Advocates Office issued their comments on the proposed decision.\nAnd while they gave extensive comments on a variety of areas, they did not comment on the three major areas that we're recovering here.\nIn other words, their comments do not take issue with the proposed decisions granting of a continued water revenue adjustment mechanism, modified cost balancing account or pension and medical cost balancing account.\nAnd so, we feel very strongly that the final decision, which can be rendered by the Commission no earlier than November 19, is going to allow those those balancing accounts for us.\nAnd so, that's very good news for the Company.\nIn addition to those three items, I would mention that as part of this rate case, we are refunding to customers the excess deferred tax associated with the Tax Cut Jobs Act reduction in the federal income tax rate and that refund is being applied.\nIt's applied to the customer rates and it's shown up in our income statement as a reduction to our effective tax rate.\nAnd so, you'll see a lower effective tax rate for the Company on a go-forward basis as we refund those excess deferred taxes.\nI do want to emphasize that these assessments of probability do have some risk associated with them.\nWe are dependent upon the CPUC adopting the proposed decision with no material changes.\nBut as I say, given the evidence that we have right now, we think that is likely and that's why we've gone ahead and included these in our third quarter estimates -- or rather third quarter earnings results, not estimates.\nAnd so, turning to Slide 7.\nThe result of that determination means that we have a very significant increase in our net income for the third quarter.\nThat is going from $42.4 million to $96.4 million as compared to 2019.\nEarnings per share $1.94 for the third quarter as compared to $0.88 in the third quarter of 2019.\nOn a year-to-date basis, on Slide 8, the net income is up, it's up about $30 million to -- so it's $81.3 million, up from $51.8 million in the year-to-date period of 2019.\nAnd that means, our earnings per share is $1.66 on a year-to-date basis as compared to $1.08 on a year-to-date basis in 2019.\nAnd then going through Slide 9 and Slide 10, I'll go through very quickly.\nJust the other changes that we have to earnings, revenues and expenses are pretty standard for us.\nThe things that we've talked about in prior quarters.\nSo, we have increased operating expenses for wages and other things, such as generally increased depreciation, amortization.\nWe do have variations from time to time in our unbilled revenue accruals and you'll see that on a couple of these slides as well as the mark-to-market adjustment that we have on some of our retirement plan assets.\nSo, there is nothing major either in the quarter or in the year-to-date period in those areas, but those do end up affecting earnings.\nI do want to focus very briefly on Slide 11, the earnings bridge, to emphasize the point about the third quarter earnings.\nAnd if you're there on Slide 11, you will notice the first bar change is $0.80, which is titled delayed recording of Q1 and Q2 regulatory assets.\nAnd because we're recording the effect of the General Rate Case through the third quarter, in the third quarter, that $0.80, that's in the first part, represents the earnings that would have been achieved in the first two quarters of the year had the rate case been adopted on time.\nAnd so, we're putting this -- just highlighting this for you, so that when we get to the third quarter of 2021, there is a recognition that we're probably not going to earn $1.94 again per share in the third quarter of 2021, although obviously that would be nice if we could.\nAnd then I do want to focus on Slide 13.\nI think just to run through this again as a basis of calculation for analysts and others thinking about the Company stock.\nThe earnings power of the Company, and again we're a predominantly regulated utility in all four states.\nAnd that is -- drives most of our revenues and net income.\nThe California Rate Case, if it is a docket, the proposed decision is adopted, actually allows for a specific net income about $76 million in test year 2020 and that reflects the authorized equity return on the equity portion of $1.5 billion in rate base.\nIn addition to California, we have about $110 million of rate base in other states that should earn a similar equity return, again, on a normalized test year kind of basis.\nBut do remember that our equity returns on the regulated businesses are dependent on our cost being in line with adopted costs.\nAnd also, in particular, in the other three states, in New Mexico, Washington and Hawaii, our returns are also affected by our water sales.\nAnd as Paul will talk about in a minute, beginning in 2023, we expect the earnings in California will also be affected by water sales.\nAnd another point for the quarter and the year to date is to make sure that everyone understands that on an annual basis, we do not anticipate a net income effect from changes in our unbilled revenue accruals or unrealized changes in the value of retirement assets, the mark-to-market that we talk about from time to time.\nThose factors through the third quarter, are adding about $9.6 million to our year-to-date net income.\nAnd so, just be cognizant of that as we go toward the end of the year, that we expect particularly the unbilled to drop back down to where it was at the end of 2019.\nAnd then finally, there are a couple of other factors that cause our earnings to be a bit higher than the otherwise core regulated earnings, and those are unregulated activities, operation maintenance contracts, the antenna leases for various things -- various cellular antennas on our facilities, the regulatory asset that we book associated with the equity portion of construction funding, the AFUDC if you will, and then state tax timing differences can play a factor there.\nAnd so, just wanted everybody to be aware of that, happy to take questions on that as well.\nI want to give everyone a quick operational update with the backdrop of COVID-19.\nBut even with COVID-19, it was the worst fire season in California history.\nSo, in addition to COVID, we had to deal with a number of fires and then folding in the public safety power shut downs that we had throughout the state at various times during the state, as well as a couple of earthquakes, it's been a very, very busy year for operations.\nWe've opened our emergency operations center and totaled 18 times year-to-date.\nI think that's a new record for us.\nThe EOC, or emergency operation centers, we basically follow a FEMA type protocol in terms of how we deal with emergency situations.\nAnd very happy to say that, despite dealing with a number of potential emergencies throughout the year, the Company's operations have gone very, very well and we avoided having any major disruptions of water service or lack of water service, especially during fire season.\nHaving said that, we still continue to operate with enhanced safety protocols to protect customers and employees from infections.\nProtecting employees and customers and public health remains our number one priority.\nVery happy to share with everyone, and you may have seen this, we received the Stevie Award, the Silver Stevie Award as Most Valuable Employer for COVID Response.\nThat was out of 700-plus companies competing for a Stevie Award.\nSo we're very happy to win that award for our work on the COVID response and keeping our employees safe.\nWhile dealing with the pandemic, we've seen an increase in customer accounts aging from the suspension of collection activities.\nIf you recall, early on in the process, Cal Water suspended our collections and shut-offs, and it was further ordered by the governor [Phonetic] to do so, but we had done it prior to any orders of the government, because we recognize the need for water for our customers to help fight the virus.\nSo, our over 90 balances has increased to about $5.4 million.\nOnly a portion of such amounts are typically uncollectible.\nWe continue to monitor that very, very closely.\nWe think it's indicative of the hard financial times as the pandemic has hit people, and people have been ordered to shelter in place, and maybe have been on some type of assistance program and not able to meet their ability to pay their bills.\nWe've increased our reserve for doubtful accounts by about $1.6 million to $2.7 million, roughly 50% of that balance is reserved for, and we'll continue to monitor that as we move into the four quarter.\nOur incremental expenses dealing with the COVID were less than $100,000 in the third quarter, which we think is good.\nWe do have a memo account in California and also a memo type account in Hawaii.\nAnd as most of you know, a memo account, you expense the cost in the right -- in the period it's incurred, but you track it kind of off the books.\nAnd when it gets to be a certain amount, you potentially have the ability to go back to the Commission and seek recovery for those costs as they are incremental to what was planned in the business model.\nSo, we continue to track costs on our memo accounts associated with COVID in our operations.\nWater sales, in aggregate, have been closer to the adopted levels, or about 95% of adopted sales in California, with the increases in customer usage, obviously, with people being home, using more water and that was offset by lower business in industrial uses during the quarter.\nIn terms of liquidity.\nOur liquidity remains strong.\nAs of September 30, we had $113 million in cash and additional current capacity of $170 million through a line of credit.\nSo, liquidity has remained strong with the Company throughout the pandemic, and we're positioned very well going into the fourth quarter.\nSo turning to Slide 15, is the California regulatory update.\nIt has been a very busy year for Cal Water on the regulatory front.\nAs Tom mentioned, the Company received a proposed decision in October and then the PD, or the proposed decision, the Commission established a new revenue requirement for Cal Water of $698.7 million for test year 2020.\nIn the proposed decision, it also authorized $828 million of new capital expenditures or new capital investments across the three years of the rate case cycle.\nNow, we filed a settlement agreement as a part of this rate case and the settlement agreement that we filed resolved the majority of the issues in the General Rate Case.\nHowever, there were 11 items, 11 litigated items, litigated financial items, which were not part of the settlement agreement that we filed with the Commission.\nIn the proposed decision, the judge agreed with Cal Water's position on all 11 of the litigated financial items.\nThey were ruled in our favor by the administrative law judge and these included: The continuation of the water revenue adjustment mechanism, WRAM/MCBA; a continuation of the sales reconciliation mechanism, or SRM; the continuation of the pension and healthcare balancing accounts, inclusion of an equity component in our AFUDC calculation; an approval of capital projects for AMI, or advanced meter infrastructure; and for some water quality or water treatment projects down in the Los Angeles area.\nThe Commission is set to rule on the proposed decision, at earliest on its November 19 open meeting.\nI will also note on Slide 15 that Cal Water along with the other parties have filed a request for rehearing on the August 27 decision by the Commission, which bars Cal Water and others from continuing to use the WRAM/MCBA, beginning, in our case, in our 2021 Rate Case filing, which will be effective in 2023.\n2021 as I said -- our 2020 has been a busy year.\n2021 will also be a busy year, because, as I just mentioned, we will be filing our 2021 Rate Case next spring and we will also be filing our cost of capital case next spring.\nSo we -- our regulatory team will be very busy next year, putting all of those together.\nAnd I'm going to give a quick update on the capital investment program for 2020.\nCapital investments for the third quarter were $84.7 million, up 16% over the same period last year.\nYear-to-date, our capital investments are $221.3 million, up $13.5 million year-to-date over 2019.\nThe Company has previously estimated, we'd spend between $260 million and $290 million.\nWe think we're in good shape going into the fourth quarter to achieve our capital investment program goals for this year, despite what has been really a challenging operating environment.\nIn addition, we announced on October 13, that we had completed and put into service our Palos Verdes Water Reliability Project, which is the largest project in the Company's history, just shy of $100 million project, to bring redundancy to the PV Peninsula down in Southern California, so it's nice to have that wrapped up.\nThe team did a fantastic job, again, working in difficult operating environments to get that project wrapped up this year.\nHot off the press yesterday.\nThe CPUC adopted a decision granting Cal Water's request for an additional $700 million of additional financing authority, which is expected to be used to help finance the Company's capital program through 2025 or later.\nSo, this will allow us to go out and raise an additional $700 million of debt or equity to finance our capital growth program in the next five years.\nSo, that was good news as well.\nOne of the areas that we've been super busy and frankly, or probably, the busiest in business development that we've been probably in the last 20 years as BD, and so Paul is going to give us an update on what's been happening on the business development side.\nOn Slide 17, I have an update for our business development efforts.\nCal Water is continuing a very strong new business development process and has had a lot of success this year.\nYear-to-date, our new development efforts have put over 25,000 new customer connections under contract.\nRepresenting over a 5% growth in new customer connections across the Company's subsidiaries.\nSo far, in 2020, the Company has closed on two acquisitions, the Rainier View Water system in Washington and the Kalaeloa Water and Sewer system in Hawaii.\nAnd, we have entered into contracts for acquisitions of the Animas Valley Water Company in New Mexico and the Gunner Ranch Sewer system in California, which are both subject to regulatory approval.\nOn the regulatory approval side, we are still undergoing regulatory review on two other acquisitions, that being the Kapalua Water and Sewer Company in Hawaii and the The Preserve at Millerton Water and Sewer in California.\nIn summary, our business development efforts are strong, as you can see from this matrix, and our pipeline of potential deals is robust.\nAnd I will turn that back over to Tom.\nSo, I'll just spend a couple of seconds going over our next two slides, which are the traditional bar charts showing our capex and rate base.\nA little bit more certainty on these two charts than in the past.\nObviously, as Marty and Paul mentioned, the capex authorized by the Commission is getting closer to realization.\nWe do have the midpoint of our target of $275 million for capex, that's very achievable here in 2020 and how much we've done so far.\nIf you flip to the estimated regulated rate base, we have updated this chart to reflect the proposed decision rate base in California.\nAnd then add the rate base that I mentioned earlier in the call from the other states.\nSo we estimate that our rate base in 2020 after the CPUC adopts -- assuming they adopt the proposed decision and the settlement, the California and other state regulated rate base is going to be about $1.6 billion.\nThat does not include the Palos Verdes pipeline project.\nAs Marty mentioned, that was close to $100 million.\nThat is one of these advice letter projects.\nWe expect that to be included in rates pretty close to the start of the year in 2021 or maybe even a little bit before that, depending upon the timing as it flows through the rate case process here in California.\nSo, that will be almost two-thirds of the advice letter rate base that we show on this chart.\nSo, I do want to emphasize though that 2021 and 2022, our rate bases in California are subject to the earnings test.\nWe haven't been talking -- we didn't have an earnings test this year because of the rate case test year.\nBut two out of every three years, we do have an earnings test that looks at the progress we've made on our capital investments and the effective rate of return before it grants us additional rates in the districts in California.\nSo, I think we'll have an update on that, by the time we get to the year-end call and what that increment will add to 2021.\nSo, what's shown in 2021 here is the authorized rate base if we were to pass all of those earnings tests.\nAnd so, that is what it is there.\nIt's been a real busy couple of weeks since we got the PD to figure all this out and get everything booked and work with our independent registered Certified Public Accountants, Deloitte & Touche.\nI know you worked a lot of hours to get this stuff booked.\nIt's great to have the 2018 General Rate Case close to being ramped up and getting that done.\nIt was disappointing for us that it was so late, but it's nice to have it done and allowing us to kind of move forward.\nAnd we've already been working on our 2021 General Rate Case, as Paul mentioned.\nAs we move into the last six weeks of what has truly been a disruptive year, maybe the biggest disruptive year anyone in our generation has ever experienced.\nCal Water has continued to be well positioned with the execution of our business plan, including our business development growth plans, and our dividend growth plans and our capital investment programs.\nMost importantly, is our safety program that has allowed us to continue our operations.\n91% of our employees have been at work every single day.\nMost of our employees are our assets are in the field and they've been on the job every single day with COVID, which required us to adopt a lot of very tight COVID protocols to protect them.\nSo, we figure we're executing well, we're positioned really well.\nAnd I thought, in a year that's just hasn't had a lot of really good news, I want to close with something that I think is fairly significant.\nIn late September, the legislature in the state of California passed a bill that we've been working on to help us address some of our concerns regarding wildfire liability.\nSenate Bill 1386, which is the bill, which is now law after being signed by Governor Newsom, specifies that fire hydrants connected to public water systems are generally not designed or installed to provide water service to aid in the extinguishing of fires that threaten property not served by a water service provider or wildfires.\nThe government affairs team worked very hard with California lawmakers to get this law put into place.\nAnd we believe this is another significant milestone to further differentiate our risk profile from the profiles of the electric and gas utilities in the state of California.\nSo, it's a big step in the right direction, kudos for the team for getting that done.\nAnd Brigette, with that, we're going to open it up for Q&A, please.",
        "summary": "q3 earnings per share $1.94."
    },
    {
        "text": "Joining me on the call today are President and Chief Executive Officer, Lynn Bamford; and Vice President and Chief Financial Officer, Chris Farkas.\nThese statements are based on management's current expectations and are not guarantees of future performance.\nAs a reminder, the company's results include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance.\nAlso note that both our adjusted results and full year guidance exclude our build-to-print actuation product line that supported the 737 MAX program as well as our German valves business, which was classified as held for sale in the fourth quarter of 2020.\nI'll begin with the key highlights of our third quarter performance and an overview of our full year 2021 outlook.\nStarting with the third quarter highlights.\nWe experienced a strong 12% increase in overall sales, of which 4% was organic.\nOur A&D markets improved 15%, reflecting solid growth in commercial aerospace, naval defense and yet another quarter of strong performance from our PacStar acquisition.\nHaving just completed its first year under Curtiss-Wright's ownership, I'm pleased to report that PacStar is executing very well, and its integration remains on track.\nThe business is well positioned for continued strong top line growth and is closely aligned with the Army's top modernization priorities.\nTurning to our commercial markets.\nWe experienced strong year-over-year growth, which was led by both our industrial vehicle and process markets as these industries continue to sharply rebound.\nLooking at our profitability, adjusted operating income improved 12% with adjusted operating margins strong at 17.5%, reflecting higher sales and operating income across all our segments as well as the benefits of our operational excellence initiatives.\nIt's important to note that this strong performance was achieved while we continue to invest strategically with a $4 million incremental investment in research and development as compared to the prior year.\nAs a result, we are on track to invest $12 million in incremental R&D this year to support our future organic growth initiatives.\nAdjusted diluted earnings per share was $1.88 in the third quarter, which was slightly above our expectations due to the strong operational performance and the benefits of our consistent share repurchase activity.\nFree cash flow was similarly strong, up 76% compared with the prior year, with strong free cash flow conversion that exceeded 125% and keeps us on track to achieve our long-term objectives.\nTurning to our third quarter orders.\nWe achieved 13% growth, and book-to-bill exceeded onetime sales, driven by increases within each of our three segments.\nDigging a little deeper, we experienced solid growth of 7% in our A&D market orders as well as a robust growth of 25% in our commercial market, providing continued support to our strong backlog.\nNext, I wanted to address the global supply chain disruption on our business.\nOverall, I am really proud of the team's strong execution in light of this challenging supply chain environment.\nAs we expected and as we indicated last quarter, our operations continued to be based with some supply chain disruptions caused by both delays in container shipments and shortages in electronic components, principally impacting sales within our A&I and Defense Electronics segment.\nThus far, these disruptions have been immaterial to our full year 2021 results, essentially limited to timing rather than lost revenues based upon the team's untiring efforts to mitigate these impacts to sales and to preserve our profitability.\nWe continue to aggressively manage the timing of product within our supply chain and remain encouraged by our strong backlog.\nAs we move forward, this remains a watch item for us.\nAnd should we encounter further revenue pushout, we anticipate offsetting any delays through the strength of our combined portfolio.\nWe immediately and opportunistically began to repurchase $200 million of our stock in mid-September.\nI'm pleased to report that we recently completed this program and bought back more than 1.5 million shares.\nWe are on track to complete at least $250 million of share repurchases in 2021, and we remain well positioned for the continued return of capital to our shareholders going forward with $350 million of remaining authorization.\nFinally, turning to our full year 2021 adjusted guidance.\nWhile we maintained our outlook for sales, operating income, margin and free cash flow, we tightened and raised the bottom end of our adjusted earnings per share guidance range.\nWe now expect to achieve between $7.20 and $7.35, essentially double-digit growth compared with the prior year based on our strong year-to-date performance and the benefit of our repurchase activity.\nWe remain very much on track to deliver strong results in 2021.\nI'll begin with the key drivers of our third quarter results where we again delivered another strong financial performance with higher sales and operating income in all three segments.\nStarting in the Aerospace & Industrial segment.\nSales increased 14% in the third quarter, led by strong increases in demand for our products and services in both commercial aerospace and general industrial markets.\nWithin the segment's commercial aerospace market, sales increased more than 20% year-over-year as we experienced improved OEM demand on Narrowbody aircraft as well as a solid increase in aftermarket sales.\nWe also experienced higher sales for our industrial vehicle products, including both on- and off-highway, which continue to benefit from improved demand and strong order activity.\nTurning to the segment's profitability.\nAdjusted operating income increased 34% while adjusted operating margin increased 240 basis points to 15.7%.\nOur results reflect favorable absorption on strong sales and the savings generated by our prior year restructuring actions.\nIn the Defense Electronics segment, revenues increased 22% in the third quarter, principally reflecting the contribution from our PacStar acquisition.\nLower organic sales reflect the timing on various C5ISR programs in aerospace defense as we experienced a shift of about $10 million to $15 million in lower-margin system sales into the fourth quarter, which was mainly due to the global shortage and electronic components.\nThis segment's third quarter operating margin reflected favorable mix for our higher margin embedded computing revenues, which was more than offset by $4 million in incremental R&D investments and about $1 million in unfavorable FX.\nAnd absent these two unfavorable impacts, this segment's third quarter 2021 operating margin would have been in line with the prior year's strong performance.\nNext, in the Naval & Power segment, revenues increased 3% in the third quarter, led by higher sales of naval nuclear propulsion equipment and higher valve sales to process markets where we continue to experience strong demand.\nThis segment's adjusted operating income increased 4% while adjusted operating margin increased 20 basis points to 18.6%, reflecting favorable absorption on sales and approximately $2 million in restructuring savings.\nIt's also worth noting that we achieved higher profitability in this segment despite the wind down on the CAP1000 program in our commercial power market.\nTo sum up the third quarter results, overall, both sales and adjusted operating income increased 12%.\nAnd across Curtiss-Wright, we drove 10 basis points of year-over-year margin expansion while adding $4 million in incremental R&D investments, which represents a 70 basis point headwind on our overall profitability.\nTurning to our full year 2021 guidance.\nI'll begin with our end market sales outlook, where we continue to expect total Curtiss-Wright sales growth of 7% to 9%, of which 2% to 4% is organic.\nAnd while our sales guidance remains unchanged, I wanted to briefly highlight some specific dynamics within a few markets.\nStarting with naval defense, our guidance remains unchanged at flat to up 2%, and we continue to see strong order activity for our nuclear propulsion equipment on critical naval platforms.\nThese awards not only support our outlook for overall aerospace and defense market sales growth in 2021, but also provide long-term visibility and stability for our naval defense market revenues.\nNext, a few comments about our commercial markets where overall sales growth remains unchanged at 6% to 8%.\nIn the process market, we continue to see a solid rebound in MRO activity for our industrial valve businesses, principally to oil and gas customers.\nIn the general industrial market, based upon strong year-to-date growth in orders for industrial vehicle products, we are now on track to return to 2019 levels in this market by the end of 2021.\nThis is one year ahead of what we communicated at our May Investor Day where we previously expected to reach those levels in 2022.\nContinuing with our full year outlook, we are reaffirming our sales, operating income and operating margin guidance.\nWe expect adjusted operating income growth of 9% to 12% and adjusted operating margin growth of 40 to 50 basis points to a range of 16.7% to 16.8%.\nDiving deeper, I'd like to share a few specific reminders about our segment guidance.\nI'll begin in the Aerospace & Industrial segment where we're expecting operating income to grow 17% to 21% while operating margin is projected to increase 180 to 200 basis points, keeping us on track to exceed 2019 profitability levels this year.\nNext, in the Defense Electronics segment, we're maintaining our outlook for solid growth in sales and operating income despite the challenges that we've encountered in the supply chain.\nAs we noted earlier, we experienced a $10 million to $15 million shift in revenue from the third into the fourth quarter based upon the timing and receipt of electronic components.\nWe expect these delays to continue, and now expect to finish the year closer to the lower end of this segment's guidance range for sales.\nIt is, however, a very dynamic issue, and we're working aggressively to mitigate the impact on our business as we look to close out the year.\nRegarding the segment's profitability, it's important to note that we are maintaining our outlook for operating income despite the revenue timing issues and our $8 million year-over-year increase in strategic investments in R&D.\nLastly, in the Naval & Power segment, our guidance remains unchanged, and we continue to expect 20 to 30 basis points of margin expansion on solid sales growth despite the wind down of the CAP1000 program.\nContinuing with our financial outlook, where we increased the bottom end of our full year 2021 adjusted diluted earnings per share guidance to a new range of $7.20 to $7.35, which reflects growth of 9% to 12%, in line with our growth in operating income.\nOur updated guidance reflects both the lower share count stemming from our ongoing share repurchase activity as well as a slightly lower interest expense where we continue to maintain sufficient capacity under our revolver for continued share repurchase, acquisitions and operational investments.\nAnd lastly, based on strong year-to-date free cash flow generation of $128 million, we remain on track to achieve our full year free cash flow guidance of $330 million to $360 million.\nI'd like to recap some of the key takeaways of our 2021 guidance where despite some caution as it pertains to the ongoing supply chain issues, we are well positioned to drive strong results for this year.\nLed by high single-digit revenue growth, including the contribution from last year's PacStar acquisition, we expect to generate 9% to 12% growth in both operating income and diluted earnings per share this year.\nOur 2021 operating margin guidance of 16.7% to 16.8% reflects our solid execution and ongoing focus on operational excellence.\nWe expect to achieve those results while investing an additional $12 million or 40 basis points in strategic R&D to facilitate future organic growth.\nIn addition, our adjusted free cash flow remains strong, and we are on track to achieve our ninth consecutive year of greater than 100% free cash flow conversion.\nWe also continue to maintain a strong and healthy balance sheet and remain committed to deploying disciplined and balanced capital allocation to support our pivot to growth.\nWe are focused on investing our capital for the best possible return to drive long-term shareholder value.\nAnd in the case of our recent share repurchase announcement, we took advantage of opportunities to ramp up our activities in this area.\nMeanwhile, acquisitions have been and will continue to remain the highest priority for Curtiss-Wright.\nWith a full pipeline of opportunities, I remain ever confident that we will effectively deploy our capital to strategically and profitably grow our business for the long term.\nIn summary, Curtiss-Wright is performing well, and we remain on track to deliver strong profitable growth in 2021, driven by our diversification and the strength of our combined portfolio.\nOur defense backlog remains strong, particularly in naval defense.\nAnd our commercial orders have been very resilient, reflecting book-to-bill of 1.1 times sales year-to-date.\nWe continue to demonstrate the highest levels of agility in response to the dynamic changes taking place in our end markets.\nAltogether, this affords us the opportunity to remain on track to achieve our long-term guidance communicated at our May Investor Day.",
        "summary": "q3 adjusted earnings per share $1.88.\nqtrly adjusted sales of $614 million, up 12%.\nqtrly new orders of $617 million, up 13%.\nraised bottom end of full-year 2021 adjusted diluted earnings per share guidance to new range of $7.20 to $7.35 (previously $7.15 to $7.35).\nmaintained full-year 2021 sales growth of 7% to 9%."
    },
    {
        "text": "For the benefit of our participants, we have posted slides, which accompany our discussion.\nAnd these slides are available on the Investor Relations page of dieboldnixdorf.com.\nIn the supplemental schedules of our slides, we have reconciled each non-GAAP metric to its most directly comparable GAAP metric.\nAdditional information on these factors can be found in the company's SEC filings.\nAnd now I will pass the microphone to Gerrard.\nWe were very pleased with our results this quarter, and Jeff will get into details.\nFrom our perspective, we are executing in line with our strategy.\nWe delivered stronger-than-expected orders, especially in Eurasia Banking and retail.\nWhile revenue was in line with our pre-COVID expectations, and we continue to deliver strong year-over-year improvements in profitability.\nStarting on Slide 3, I'll describe our near-term priorities.\nFrom the earlier stages of the crisis in January, our first priority has been on protecting the health and well-being of our employees.\nOur second priority is on our mission to deliver essential services as designated by the U.S. government and many other governments around the world.\nAlmost 100% of our banking revenue and around 65% of our retail revenue is generated from customers that are essential businesses.\nI'm extremely pleased that we have consistently delivered strong service levels: banks, grocery stores, pharmacies and fuel and convenience locations, which facilitate critical day-to-day commerce.\nThirdly, we are committed to strengthening Diebold Nixdorf during this crisis.\nThis means leveraging the operational rigor we have forged over the past two years to drive efficiencies in our business.\nIt also means we are taking further steps to maintain adequate liquidity and ensure financial flexibility.\nOur response to pandemic is guided by our company values, shown on the right side of the slide, which have been in place and have underpinned our progress over the past two years.\nOur employees are using technology to collaborate on an unprecedented scale to meet customer needs and address business challenges.\nThis is taking place despite the social distancing protocols we operate under.\nWe're acting with a great sense of urgency and decisiveness as we seek to enhance the way we do business, for the betterment of customers and shareholders.\nAnd more than ever, our team is stepping up to hold one another accountable.\nOn Slide 4, I'd like to add more color to our comprehensive response plans.\nStarting with our customers and solutions.\nWe are delivering strong service levels, which reinforce our value proposition, even in the hardest-hit areas of the world.\nIn turn, our customers have affirmed our value and the criticality of the ATM and retail checkout channels.\nTwo recent customer quotes on this slide, one from a European grocer and the other from a large financial institution in the U.S., up to the essence of our value proposition.\nAnd we continue to enhance our differentiation by bringing to market our DN Series next-generation banking solutions, self-checkout solutions, dynamic software and our IoT-enabled AllConnect Data Engine.\nTurning to our employees.\nWe've gone to great lengths since early January to proactively care for their health and well-being.\nWe have equipped our service technicians with the appropriate protective gear and trained them on relevant hygiene and social distancing rules.\nFor employees and our manufacturing facilities, we have segmented our workers, intensified our cleaning rituals and are taking temperatures on a daily basis.\nAnd for our support functions, we have provided the proper tools, resources and guidance for more than 10,000 employees to safely and productively work from home.\nI'm pleased to report that our efforts are making a difference, and we are operating well in all areas of our business with no disruptions despite these circumstances.\nWe're also looking out for the financial health of employees as well during this tumultuous time, by establishing an employee crisis reserve fund, which is available for employees who need support, especially in markets with limited government programs.\nIn recognition of the tremendous efforts of our frontline service employees during this challenging time, we have provided an extra week of pay.\nAdditionally, our company has increased the frequency and depth of its internal communications.\nIn return, we're seeing strong employee engagement and resourcefulness during this crisis.\nIn addition, I'm pleased to see Diebold Nixdorf actively supporting our communities.\nIn Ohio, we've been producing face shields and shipping them to medical facilities in need.\nIn Germany, we started manufacturing ventilated carriages.\nOur manufacturing facilities are all online and performing well.\nWith respect to our global supply chains, members of our response team have been vigorously engaged since January to avoid major disruptions by maintaining frequent contact with our key suppliers, monitoring safety stocks and developing contingency plans.\nWhile COVID-19 is likely to remain as a watch item for supply chains over the coming quarters, we are currently pleased with our ability to limit the impact.\nOur comprehensive response is leveraging the operating rigor, which we've created during the past two years.\nWe continue to efficiently manage inventory, receivables and payables, as well as indirect spend.\nAnd we are keenly focused on maintaining adequate liquidity and financial flexibility.\nAfter an abundance of caution, we drew the remaining amount on our revolving credit facility in March.\nOn Slide 5, we provided a framework for thinking about the impact of COVID-19 on Diebold Nixdorf over the medium term.\nFirstly, our business model is resilient.\nUnderpinned by many customers, reaffirming that the ATM and self-checkout channels are vital to their business, and that our company plays a critical role in their ability to serve the needs of their customers.\nStarting with our services business, which generated about 51% of total revenue in 2019, we expect a mild impact as the vast majority of our services revenues are recurring.\nIt comes from sticky contracts for maintaining critical ATMs and retail devices.\nIn the near term, we're likely to see a slowdown for installation service revenue.\nCertain hardware-related projects are pushed out.\nFor our products business, which accounted for about 39% of revenue in 2019, we expect to see a moderate impact of certain customers postpone installation dates or defer new hardware purchases.\nIn the first quarter, we experienced early signs within our European retail and Eurasia Banking segments, which corresponds to the geographic spread of the virus.\nAnd while we did not see an acceleration of these trends in April, it is reasonable to expect that product revenue declines will be more pronounced in the second quarter.\nWe've taken multiple steps within our manufacturing operations to create a variable cost structure to help us mitigate the impact of lower volume on our profitability.\nMoving to our software business.\nWe generate recurring revenue from the sale of licenses and maintenance, which we expect will be very resilient.\nOur project-based business, or professional services, could be affected by customers deferring initiatives, although we have experienced very limited impact to date.\nThe vast majority of our customers are continuing this important work.\nAdditionally, our software teams have done a great job of supporting customers remotely.\nFor these reasons, we expect a mild impact to our software revenue, which accounted for about 11% of total company revenue in 2019.\nFrom an industry perspective, we expect our banking business, which generated approximately 74% of the company's revenue during 2019, will show greater resiliency in our retail business, due to the higher mix of services and software revenues.\nSo while we are confident in the resilience of our business model, we've not been standing still during this time.\nWe continue to take further decisive actions to strengthen Diebold Nixdorf.\nOn Slide 6, you will see that we continue to execute on our multiyear DN Now cost program.\nWe remain encouraged with our achievements, including substantial gains in profit margins during the first quarter.\nWe are seeing good progress from our services modernization plans and our G&A cost reduction actions, especially our finance transformation efforts.\nAnd while COVID-19 pandemic has mildly influenced select work streams, we are continuing to pursue our gross savings target of $130 million for the year.\nAdditionally, the company launched incremental actions during the quarter, which cumulatively add up to another $80 million to $100 million of savings.\nWe have suspended capital investments on internal major projects, mostly related to the upgrading of systems.\nDuring the quarter, we also reduced our annual bonus expense by a substantial amount.\nWe have deferred merit pay increases and have implemented a hiring freeze.\nIn several European markets, we have transitioned certain functions to shorter work weeks.\nWe continue to reduce indirect spend.\nAnd based on our successful transition to remote work environment, we have reassessed our global real estate footprint and are taking decisive actions to further reduce our footprint over the coming months.\nWhile some of these cost reductions will be temporary, others will generate long-term structural savings for our company.\nBeginning on Slide 7.\nFirst-quarter revenue of $911 million was in line with our pre COVID 19 expectation and reflects the actions we are taking to drive higher quality revenue.\nIn order to make useful comparisons to the prior year, we have provided a table to explain five different factors.\nOur work stream for divesting noncore businesses accounted for approximately $13 million of revenue variance versus the first quarter of 2019.\nNext, you can see a $17 million variance from our efforts to reduce our exposure to low-margin business with most of the impact relating to our actions to call our portfolio of lower value services contracts.\nOn the borrowing line, you will see a $31 million variance, which includes nonrecurring volume from the prior year period, partially offset by incremental activity in the current quarter.\nThese items were fully known and planned for as part of our 2020 operating plan.\nWe have previously communicated our expectation for year-over-year revenue declines in the first half followed by gains in the second half of the year.\nWith respect to foreign currency, we experienced headwinds of $23 million in the quarter as the U.S. dollar strengthened primarily against the euro and Brazilian real.\nCOVID-19 is the last factor on this table.\nApproximately $33 million of revenue, which we expected to recognize in the first quarter of 2020, will be recognized in future periods.\nThis effect was predominantly in our retail and Eurasia Banking segments.\nTransitioning to the right of this slide, you will see the combined efforts of higher-quality revenue and our DN Now initiatives, as non-GAAP gross profit increased $7 million year over year.\nWe achieved this positive result despite the effects of COVID-19 and a foreign currency headwind of approximately $7 million in the quarter.\nFrom a gross margin perspective, we are pleased to deliver a 380-basis-point increase year over year to 27.9%.\nOn $911 million of revenue, this increase translates to approximately $35 million of incremental gross profit.\nWe are delivering significant margin increase across all three business lines, with services rising by 230 basis points, products expanding 280 basis points, and our software and gross margin increased by 1,280 basis points due to an easier comp, as well as better delivery and management of our labor costs.\nOver to Slide 8.\nAs previously mentioned, the company is harvesting operating efficiencies and from functional G&A cost as part of our DN Now transformation.\nWe made good progress on our finance transformation, which includes regionalizing and centralizing activities, and introducing automation within our core finance functions.\nThrough the end of March, we have streamlined our organization by approximately 470 employees.\nOur procurement initiative is also bearing results as we are utilizing spend analytics to reduce indirect spend.\nWith respect to real estate expenses, we are looking closely at our needs post COVID.\nWe have demonstrated a highly resilient ability to work remotely.\nAnd accordingly, we are aggressively moving to reduce our real estate footprint.\nIn the past several weeks, we have decided to close greater than 50 smaller sites permanently.\nWhen compared with the prior year, we reduced our non-GAAP operating expenses by $29 million, a decline of 13%.\nGiven this success, we expect to continue to deliver G&A efficiencies going forward.\nAs displayed on Slide 9, stronger gross margin, coupled with reductions to operating expense, boosted our operating profit by $36 million or 133% year over year to $63 million.\nThe operating margin expanded by 430 basis points in the quarter to 6.9%.\nOur first-quarter results include a reduction to our annual bonus expense of approximately $7 million, which is just one of our incremental actions we have executed to strengthen the company during the COVID-19 period.\nAdjusted EBITDA of $89 million improved by $24 million or 37% over the prior-year period.\nThe company's adjusted EBITDA margin expanded by 350 basis points in the quarter to 9.8%.\nThe next three slides provide segment-level financial information.\nIn order to make the year-on-year comparisons more meaningful, we introduced adjusted revenue and gross profit for the first quarter of 2019, which removes the effects of foreign currency and divestitures.\nWe are showing gross profit on these slides to more closely reflect how we are running the business.\nHowever, we will continue to disclose segment operating profit in the MD&A section of our Form 10-Q.\nAs Gerrard mentioned earlier, Eurasia Banking delivered very strong orders in the first quarter and built up a nice backlog.\nThese wins included a new ATM-as-a-Service contract with Bank99 in Austria, valued at more than $20 million in a branch transformation win, valued at more than $13 million with a large Saudi Arabian financial institution.\nMoving to Slide 10.\nFirst-quarter revenue of $311 million was in line with our pre-COVID expectations.\nApproximately $13 million of the revenue decline was due to our divestiture activity, while $8 million was due to our delivered actions taken in 2019 to reduce low-margin business.\nAdditionally, certain large hardware installations benefited 2019 revenue, which did not continue in 2020.\nDelays from the COVID-19 pandemic pushed approximately $14 million of revenue into future periods.\nNon-GAAP gross profit of $90 million in the quarter and a gross margin of 28.9% reflects the resiliency of this segment as we benefit from our DN Now services modernization and software excellence initiatives, as well as our intentional actions to reduce low-margin business.\nFirst-quarter gross profit includes a foreign currency headwind of approximately $4 million versus the prior-year period.\nOn Slide 11, Americas Banking revenue of $345 million reflects a 3% decline, primarily due to our constant decision to exit lower margin service contracts.\nWithin our products revenue, we are seeing good growth from U.S. regional financial institutions, although nonrecurring projects at large banks in North America eased year over year as we had expected.\nDuring the quarter, we were especially pleased to generate software revenue growth of 13% in constant currency.\nGross profit of $104 million for the quarter increased 30% versus the prior year due to the execution of our DN Now initiatives and a favorable customer mix.\nWe were pleased to expand gross margins from 22.7% to 30.3%, with meaningful contributions from all three business lines.\nKey to our success was services gross margin of 32.1% for this segment, reflecting very good performance from our services modernization initiative.\nSlide 12 contains financial highlights for our retail segment.\nFrom an orders perspective, retail performed as we expected and was in line with the prior-year period.\nRevenue of $256 million primarily reflects lower POS installation activity in Europe, partially offset by growth in self-checkout hardware and higher software activity.\nBoth results came in as expected.\nThe impact of the pandemic was more acute in this segment, pushing approximately $19 million of revenue out of the quarter.\nGross profit increased to $60 million, up 11% in the quarter, and gross margin improved significantly to 23.4% due to a favorable revenue mix from services software and self-checkout solutions, as well as solid progress with our services modernization and software excellence program.\nOur cash flow update is on Slide 13.\nAs we discussed previously, the company has been consistent and are disciplined in managing our net working capital over the past several quarters.\nNet working capital as a percentage of trailing 12-month revenue declined steadily over the last seven quarters, down to 13.3% in the first quarter of 2020, down from 19.1% a year ago, due primarily to more efficient management of inventory and accounts payable.\nFrom a cash flow perspective, net working capital drove a $15 million benefit year over year.\nBecause of our focus, we believe the company is well prepared to manage net working capital during the current challenging economic conditions.\nAs communicated previously, the company typically uses cash during the first half of the year and our free cash use of $65 million in the quarter was slightly better than our expectations and slightly improved versus one year ago.\nFirst-quarter results include an incremental $35 million of compensation-related cash payments tied to our strong 2019 performance.\nAdjusting for this item, you can clearly see that we are delivering high-quality earnings in addition to our net working capital efficiencies.\nTowards the bottom of the slide, we bridge our cash balances from the end of 2019 through the end of March.\nWe used approximately $71 million to pay down debt.\nThis includes our amortization payments, as well as our contractual requirement to reduce debt with at least half of our free cash flow from the prior year.\nSince I have already discussed our free cash flow, the next item is cash inflow from our revolving credit facility.\nWe drew the entire available amount from our facility in March out of an abundance of caution in light of the evolving COVID-19 pandemic and related macroeconomic implications.\nThis action has almost no impact on our expected cash interest payments of approximately $170 million because the incremental interest on the revolver will largely be offset by lower LIBOR rates for other debt instruments.\nAn additional $89 million reduction of cash is attributed to foreign currency headwinds experienced in the quarter, plus the effect of selling our 68% stake in the German IT outsourcing business called, Portavis and one other pending transaction.\nWith a cash balance of $549 million at the end of March, we believe we have adequate liquidity to fund the seasonal cash flows of our business and our DN Now transformation program.\nOn Slide 14, we highlight our debt maturities and leverage ratio.\nOur contractual debt maturities of $98 million for 2020 and $26 million for 2021 are manageable under our current liquidity model.\nWe continue to monitor the debt markets relative to our strategy to address our 2022 debt maturities.\nAt the appropriate time, we will take steps to optimize our capital structure by reducing our weighted average cost of capital, lowering interest rates and extending maturities.\nTo the right of the slide, we have provided our net debt to trailing 12 months adjusted EBITDA ratio for the past five quarters.\nAs you can see, we have steadily improved this metric and we are pleased to maintain the 4.4 times ratio in the first quarter as our adjusted EBITDA gains offset the changes to net debt.\nThis compares favorably to our bank covenant maximum of 7 times.\nOur net debt on 31st March was approximately $1.9 billion.\nMoving to Slide 15.\nI will build upon Gerrard's comments about the financial resiliency of our business model and provide a few guideposts for understanding how we expect to perform under challenging macroeconomic conditions.\nFor your convenience, we have provided selected financial results from 2019, including revenue and gross margin for services, products and software.\nWe expect our services business to be resilient during this time, with a mild impact to revenue.\nAs previously disclosed, we expect to complete two divestitures in 2020, which generated about $110 million of services revenue for the company in 2019.\nOne of these transactions closed in Q1, with the other expected to close in Q2, subject to customary closing conditions.\nAdditionally, the software we deliver for our customers is critical to their performance, and therefore, we expect a mild impact for COVID-19 to this business line.\nWith respect to product revenue, we expect a moderate impact based on what we have seen thus far, as well as the company's experience from prior recessions.\nGiven the timing of the crisis, it is reasonable to expect a more significant impact of product revenue in the second quarter as certain product installations are expected to be delayed during country lockdowns while other hardware orders are postponed.\nOur current cost structure and incremental action plans provide us with the confidence to improve gross margins during this challenging time.\nWe are targeting improvements to service margins due to our actions to improve the quality of revenue and execution of the services modernization plan.\nFor products, we expect to deliver broadly stable gross margin due to our variable cost structure and our solid performance in the first quarter, inclusive of some level of higher freight costs.\nAt the same time, we expect to improve our software margins versus the prior year due to better project execution and more efficient utilization of labor.\nMoving to operating profit.\nWe expect to benefit from our DN Now initiatives and our plans for realizing approximately $130 million of savings for 2020.\nAnd while COVID-19 is having a mild influence on select DN Now work streams, we have also launched incremental actions to generate $80 million to $100 million of savings, as Gerrard described.\nThese actions include: accelerating our finance transformation, streamlining indirect spend, significantly lower bonus expense and other labor savings, reduced travel and marketing expenditures and savings from our real estate and information technology initiatives.\nTogether with our net working capital efficiencies and cash management actions, we are targeting breakeven free cash flow for 2020.\nBy minimizing the uses of cash, we will maintain adequate liquidity and covenant compliance through 2020.\nIn summary, this leadership team has taken significant and appropriate action to strengthen the company during these challenging times.\nOur accomplishment, near-term plans and company values provide us with the confidence to persevere.\nWe are hard at work executing these plans, and we are developing additional levers to be used as needed.\nAnd now I will hand the call back to Gerrard for closing comments.\nI'd like to conclude on Slide 16 with a few reminders about why we believe Diebold Nixdorf is well-positioned to persevere through this crisis and emerge as a stronger company.\nI'll also provide a few color comments regarding April.\nFirst, we've been designated as an essential service provider to financial institutions and retailers.\nOur customers are counting on us to keep their businesses running.\nAnd during this crisis, the criticality of the ATM channel, point-of-sale and self-checkout channels have been reaffirmed strongly.\nNext, our position as a trusted technology partner produces strong recurring revenue streams, which underpins a resilient business model.\nFurthermore, our leadership team has demonstrated resiliency and an ability to execute complex transformation initiatives over the past two years.\nConsidering DN's operational rigor and our incremental cost actions in place, we are confident in our ability to navigate the current environment and emerge as a strong company.\nBefore we turn over to Q&A, let me offer a few thoughts on what we saw in April.\nFrom an order entry perspective, we are seeing a moderate slowing in hardware decisions from customers in Eurasia Banking and retail, where projects are being delayed and not canceled.\nWithin Eurasia banking, these delays tend to be mostly evident within smaller Tier 2 banks.\nWithin Americas Banking, order activity has remained largely in line with our pre-COVID expectations.\nRegarding installations, we have seen some hardware installations push out, typically by several weeks as customers focus on other priorities.\nIn April, our factories shipped more volume than in the same period of 2019, reflecting the backlog as we entered Q2, even though we may see some implementations pushed out of Q2.\nFrom a services perspective, we continue to be fully engaged with customers in delivering strong service levels.\nAnd from a software perspective, we've not seen any delays in professional services projects from larger customers, but the only delays observed among Tier 2 and Tier 3 customers.\nOverall, employee morale remains strong as we rally around our customers' needs and implement incremental actions to strengthen Diebold Nixdorf.\nIn closing, while the current operating environment is dynamic, we remain confident in our people, our mission and in the resiliency of our business.\nWe stand ready to support our customers as the global economic economy recovers.\nOur confidence is based on the DN Now foundation we've built over the last two years, the robust plans we're executing and the tremendous response we're seeing from Diebold Nixdorf employees who are living out at company values.",
        "summary": "diebold nixdorf targeting break-even free cash flow for the full year.\ndiebold nixdorf inc - targeting break-even free cash flow for the full year."
    },
    {
        "text": "We have prepared slides to supplement our comments during this conference call.\nJoining me on the call today are Ed Breen, chief executive officer; Lori Koch, our chief financial officer; and Jon Kemp, president of our electronics and industrial segment.\nOur 2020 Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risk and uncertainties which may cause such differences.\nUnless otherwise specified, all historical financial measures presented today exclude significant items.\nWe will also refer to other non-GAAP measures.\nI will provide comments on another overall strong quarter, including continued advancement of our strategic priorities as a premier multi-industrial company aimed at growth and creating value for our shareholders.\nAs a result of the principles and protocols that we adopted over the last year, we continue to operate safely and productively on site and remotely.\nWe have encouraged all employees to get vaccinated, and where possible, we are working with local governments to facilitate access, including on-site vaccinations at some locations.\nOur Wilmington- based office locations have fully reopened, and I have to say it is great to be back in the office with our teams.\nStarting on Slide 2.\nLori will take you through the specifics but in summary, broad-based organic growth was driven by continued strength in our key end markets, including ongoing recovery in those most impacted by the pandemic.\nDespite a challenging production environment with escalating raw material costs and continuous supply chain and logistics constraints, strong operating discipline and quick pricing actions resulted in about 460 basis points of margin expansion versus the year-ago period.\nWith strong order trends continuing and confidence in our teams' ability to continue to navigate through raw material and supply chain challenges, we are raising our full-year guidance for net sales, operating EBITDA and adjusted EPS.\nI will provide more details on our updated guidance shortly.\nIn addition to our financial results, we continue to execute on our balanced approach to capital allocation during the quarter.\nIn May, we further delevered our balance sheet by redeeming $2 billion of bonds, thereby reducing our gross financial debt to $10.6 billion at the end of the quarter.\nSince the end of last year, we have paid down a total of $5 billion of debt and do not have another debt maturity until the fourth quarter of 2023, which further solidifies our sound liquidity position.\nWe also returned approximately $800 million of capital to shareholders during the second quarter through share repurchases and dividends.\nDuring the second quarter, we purchased a total of $640 million in shares, which includes completion of our previous share repurchase program and the start of repurchases under our new authorization announced last quarter, which expires on June 30, 2022.\nThrough the first 6 months of the year, we repurchased approximately $1.1 billion in shares and plan to be opportunistic with our remaining authorization as we move throughout the year.\nAnd in July, we repurchased an additional $125 million of shares.\nWith respect to dividends, we returned about $160 million of cash to shareholders during the quarter.\nAs we previously mentioned, we intend to work with the board to increase our dividend annually as we grow earnings.\nBefore I close, I'm pleased to note that in late June, we closed on the previously announced divestiture of our Solamet business for approximately $190 million.\nAnd on July 1, we completed the acquisition of Laird performance materials utilizing cash on hand.\nThe Laird acquisition advances DuPont's strategy of growing as a global innovation leader and strengthens our leadership position in advanced electronic materials.\nJoining us today is the president of our global E&I segment, Jon Kemp.\nIt's an exciting transaction for DuPont that significantly advances our position in the electronics industry and accelerates the transformation of our interconnect solutions business into a total solutions provider.\nWe've been following Laird for several years and have admired their capabilities as a leading provider of electromagnetic shielding and thermal management solutions and are excited to have added their capabilities and history of growth to our portfolio.\nAs a reminder, Laird delivered $465 million of revenue with approximately 30% EBITDA margin in 2020.\nE&I and Laird are both recognized for innovation, quality and reliability and have strong relationships across the electronics industry.\nThis combination brings together DuPont's premier applied material science expertise with Laird's industry-leading application engineering capabilities.\nIt also adds more content on many of the devices that we're already in.\nWe have already begun the process of integrating Laird into our existing interconnect solutions business, providing opportunities to further optimize business structure, functional support and our global site network.\nWe expect $60 million in run rate cost synergies by the end of year 3 with approximately 60% realized in the first 18 months.\nWe expect to achieve cost synergies through a mix of G&A, procurement and site consolidation initiatives.\nOn the next slide, I'll share some of the key benefits of this transaction and describe how the combination enhances DuPont's position as a leading electronic materials provider.\nThe second way it enhances our position is through innovation.\nThis acquisition strategically aligns us to critical needs across thermal management, signal integrity, power management, miniaturization and high reliability.\nAnd it enables us to have early engagement with OEMs in both system design and material specification, creating both greater product differentiation and higher margins.\nThe next benefit of the acquisition is that it broadens our portfolio of solutions.\nWith Laird's unique multifunctional capabilities, we will leverage an expanded customer base, broad product portfolio, global scale and deep technical expertise to increase speed to market, create new efficiencies in the development of integrated and multifunctional solutions and provide high-value next-generation products that will deliver additional growth in the next several years.\nWe believe customers will see immediate benefits as the combined E&I organization engages across value chains to address the increasingly complex challenges in the industry.\nOur combined organization will advance our leadership to help customers accelerate solutions necessary for the adoption of high-performance computing, artificial intelligence, 5G communications, smart and autonomous vehicles and the Internet of Things.\nWe will be well positioned to capture growth in these key secular growth areas.\nI'll cover our second-quarter financial performance, beginning on Slide 5.\nOur results for the quarter reflect the diversity and strength of our portfolio and our teams' continued ability to execute in the face of escalating raw material costs and global supply chain and logistics headwinds.\nNet sales of $4.1 billion were up 26% versus second quarter of 2020, up 23% on an organic basis.\nThe organic sales growth resulted from a 20% increase in volume and a 3% increase in price.\nCurrency provided a 4% tailwind in the quarter, which was slightly offset by a 1% headwind as a result of non-core business divestitures in the prior year.\nOverall sales growth was broad-based with double-digit growth on an organic basis in all 3 reporting segments and across all regions.\nThe most notable increase versus the year-ago period was in our M&M segment, reflecting the sizable change in the global automotive market versus the prior year and disciplined pricing actions.\nI will provide additional color on our segment top-line results on the next slide.\nFrom an earnings perspective, we delivered operating EBITDA of $1.06 billion and adjusted earnings per share of $1.06 per share, up 53% and about 240%, respectively, versus the year-ago period.\nThe earnings improvement resulted from volume gains most notably reflecting ongoing recovery in key end markets adversely impacted by the pandemic and the absence of approximately $150 million in charges associated with temporary idling certain facilities, partially offset by the absence of a $64 million gain associated with a joint venture that has since been divested.\nStrong operating EBITDA leverage drove operating EBITDA margin expansion of 460 basis points.\nIncremental margins for the quarter were about 43%.\nGiven the unique nature of 2020 and the discrete items that impacted our operating results in the prior year, it's important to evaluate our year-over-year operating performance for our core results on an underlying basis.\nSpecifically, operating EBITDA for our core results during the quarter was up about 40% versus last year after excluding the impact of the $150 million in idle mills incurred in the prior year, with about 240 basis points of margin expansion and operating leverage of one and a half times.\nSimilarly, I continue to track our growth versus 2019 given the significant impact that the pandemic had in key end markets last year.\nIn comparing our current second-quarter results to a more normalized performance before the pandemic, all reported sales in the quarter were up 6% versus the second quarter of 2019 and up 10% versus that same period for our core sales.\nOperating EBITDA for our core results during the quarter was up 15% versus second quarter of 2019 or one and a half times leverage.\nFrom a segment perspective, E&I delivered operating EBITDA margin of 32%, with 190 basis points of expansion driven by broad-based volume gains.\nM&M delivered significant operating EBITDA improvement, driven by an overall recovery in automotive markets and the absence of approximately $130 million in charges associated with temporarily idling polymer capacity in the year-ago period.\nOperating EBITDA margin for the quarter was 23%, reflecting volume growth and net pricing gains resulting from actions taken ahead of escalating raw material costs.\nIn W&P, operating EBITDA increased 4% versus the year-ago period.\nOperating EBITDA margin and leverage were adversely impacted primarily by 2 key drivers.\nFirst, given contractual commitments with customers, local selling price increases lagged the headwind from raw materials and supply chain cost escalation.\nWe expect this to resolve in the second half as price increases start to kick in.\nSecond, production volumes for Tyvek protective garments were at peak levels in the year-ago period given the company's response to the pandemic.\nThis enabled us to minimize manufacturing changeovers to other Tyvek grades, resulting in an overall increase to production rates.\nAs Tyvek output shifted from protective garments to multiple other applications, the resulting increase in expected changeovers in the current quarter decreased production rates, leading to lower volumes.\nFor the quarter, cash flow from operating activities and free cash flow were $440 million and $224 million, respectively.\nWhile these amounts have improved since the first quarter, cash flow and conversion are not where we need them to be.\nThe headwinds we faced are related to increased working capital levels and capital spending in excess of D&A as we advance critical capacity expansion projects.\nWith respect to working capital, we saw an increase in inventories due to our efforts to create a more stable supply chain for our customers given the strong demand environment and numerous raw material and logistics constraints.\nIn the second half of the year, we expect higher cash flow and conversion rate as the global supply chain and logistic environment stabilizes.\nSlide 6 provides more detail on the year-over-year changes in net sales for the quarter.\nOrganic sales were up 17% on 17% volume growth with double-digit volume growth increases in all regions.\nVolume gains were led by mid-20s percent growth in Industrial Solutions, reflecting broad-based demand strength across most product lines but most notably for OLED displays for new phones and television launches, medical silicones in healthcare and Kalrez seals within electronics.\nInterconnect solutions also delivered organic growth over 20% with high-teens volume growth.\nThe volume growth was driven by higher material content in premium next-generation smartphones, partially resulting from timing shifts as select OEM demand shifted from the second half this year, along with some share gains for printed circuit board.\nSemiconductor technologies continues to benefit from strong electronics demand and advancements in key growth areas such as 5G, high-performance computing and electric vehicles.\nDuring the quarter, new technology ramps in advanced nodes within logic and foundry and higher demand for memory in servers and data centers drove double-digit volume growth.\nContinued recovery of key end markets within W&P drove organic growth of 11%, driven by volume increases.\nSales gains were led by recovery in construction with Shelter Solutions reporting organic sales growth of more than 30%, which reflects continued strength in North American residential construction for products like Styrofoam and Tyvek house wrap and in retail channels for do-it-yourself applications.\nCommercial construction recorded higher sales in the quarter for Corian surfaces as global demand continues to improve.\nWithin safety solutions, organic sales were up high single digits, reflecting strong volume improvement for aramid fibers in industrial, oil and gas and automotive end markets.\nAs previously noted, lower production volumes for Tyvek reduced overall safety volume.\nIn water solutions, broad-based demand for water technologies remained strong.\nHowever, logistics challenges primarily in our Ultrafiltration business impacted our ability to supply, resulting in a low single-digit volume decline versus the year-ago period.\nWe expect organic sales growth for the year for water solutions to be in the mid to high single digits.\nThe most notable increase in top-line improvement was in our M&M segment, which had organic sales growth of over 50%.\nThe improvement was driven by the continuing recovery of the global automotive market, which represents about 60% of the segment from an end market perspective and helped deliver strong volume growth across all 3 lines of business.\nLocal pricing gains of 13% also contributed to organic sales growth, reflecting our actions taken to offset raw material costs and higher metals pricing in the advanced solutions business.\nExcluding metals pricing, local price was up about 8%.\nWithin engineering polymers, global supply constraints of key raw materials continues to improve but are expected to remain tight through the end of the year.\nWe continue to expect to recover lost volume related to these disruptions as the raw material constraints are alleviated.\nTurning to Slide 7.\nI mentioned earlier that adjusted earnings per share of $1.06 per share was up over 240% from $0.31 per share in the year-ago period.\nHigher segment earnings resulted in a net benefit totaling over $0.40.\nThis net benefit resulted mainly from higher volumes and the absence of idle mills recorded in the prior year, offset slightly by portfolio changes, which includes the absence of the gain recorded in the prior year in corporate.\nAlso providing a significant benefit to adjusted earnings per share versus last year was an approximate $0.30 per share benefit due to a lower share count.\nBenefit from lower interest expense in the current quarter as a result of our recent delevering actions was mostly offset by a higher base tax rate compared to last year.\nOur base tax rate for the quarter of 19.8% was higher than the year-ago period due to the absence of certain discrete gains benefiting the prior year rate.\nFor full-year 2021, we currently expect our base tax rate to be closer to the lower end of our expected range of 21% to 22%.\nLet me discuss our financial outlook on Slide 8, which includes our view of the third quarter and full-year 2021.\nWe are raising our full-year guidance range for net sales, operating EBITDA and adjusted EPS.\nAlong with the underlying improvement that we are expecting compared to our previous estimates, our revised guide also reflects the acquisition of Laird and the divestiture of the Solamet business.\nAt the midpoint of the range provided, we now expect net sales for the year to be about $16.5 billion and operating EBITDA to be about $4.235 billion.\nAlso, we now expect adjusted earnings per share to be $4.27 per share at the midpoint of the range provided, which reflects about $0.23 underlying raise to our original estimate, a $0.10 benefit from the portfolio changes and about $0.27 full-year benefit related to the amortization reporting change.\nFor the third-quarter 2021, we expect net sales to be about $4.2 billion, operating EBITDA to be about $1.07 billion and adjusted earnings per share to be about $1.12 per share, all at the midpoints of the ranges provided.\nBefore opening up for Q&A, I'd like to provide some highlights on our commitment to ESG and what we are doing to sustainably grow and operate our businesses for the long term.\nIn June, we published our 2021 sustainability report, which reflects our first full-year progress against the 2030 goals that we set in 2019.\nOur report highlights more than 50 examples of how our teams are addressing the environmental and social needs of our customers and communities.\nSome of the highlights from this report are reflected on Slide 9.\nESG is fundamental to our core long-term strategy, which is why the board of directors and I made the decision to incorporate the progress on our sustainability goals into our incentive compensation program beginning this year.\nAs an innovation leader, we believe our biggest lever to affect economic, environmental and social progress is through working directly with our customers.\nToday, our R&D investment is focused on the intersection of key market trends and the needs of sustainable development.\nOne example of how we are doing this is in the area of addressing the global need for clean water.\nOur water solutions business recently launched its B-Free technology.\nThis pretreatment solution enables a significant improvement in the reliability of reverse osmosis desalination plants.\nAnother example is within advanced mobility.\nThe broad adoption of electric vehicles is fundamental in addressing climate change.\nThrough leveraging our broad portfolio of expertise in battery assembly and thermal management for electric vehicles, our DuPont M&M collaborated team with General Motors to develop an advanced adhesive solution for use in electric vehicles.\nIn June, as a result of our close collaboration, GM recognized the DuPont team with the GM Supplier of the Year award.\nThe power of customer partnerships to drive sustainability is a key element to our long-term growth strategy, and I am confident that we will continue to deliver these types of wins in the future.\nWith that, let me turn it to Leland to open the Q&A.\nWe will allow for one question and one follow up question per person.\nOperator, please provide the Q&A instructions.",
        "summary": "compname posts q2 adjusted earnings per share $1.06.\nq2 adjusted earnings per share $1.06.\nq2 sales $4.1 billion versus refinitiv ibes estimate of $4 billion.\ndupont - 2q21 gaap earnings per share from continuing operations of $1.04.\ndupont - raises full year 2021 guidance for net sales, operating ebitda and adjusted eps.\ncompname announces change to treatment of intangible amortization expense for non-gaap reporting effective 3q21.\ndupont - fy adjusted earnings per share outlook includes fy benefit estimated at $0.27/share related to amortization reporting change."
    },
    {
        "text": "We have prepared slides to supplement our comments during this conference call.\nJoining me on the call today are Ed Breen, chief executive officer; and Lori Koch, chief financial officer.\nOur 2020 Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences.\nUnless otherwise specified, all historical financial measures presented today exclude significant items.\nWe will also refer to other non-GAAP measures.\nOur fourth quarter results are highlighted by 6% volume gains, including a 9% increase in the E&I segment and a 12% increase in W&P.\nM&M delivered top-line results ahead of expectations, including volumes well ahead of global auto builds in the quarter.\nCustomer demand was broad-based across the portfolio, led by greater than 20% volume growth in semiconductor technologies and high teens volume growth in Water.\nOur top-line performance also reflects significant pricing actions we took to offset $250 million of raw material inflation in the quarter.\nWe are seeing increases in all businesses with about three-fourths of the impact in M&M.\nOur teams have done an outstanding job monitoring our input costs and quickly translating that into price increases to remain price cost neutral for the year.\nWe are taking additional actions as we work to offset logistics costs, which, during the fourth quarter, were a $50 million headwind, mostly in W&P.\nTheir unwavering commitment in the face of a relentless pandemic, ongoing supply chain disruptions, and logistic challenges deserves our gratitude.\nTurning to Slide 3, I will provide an update on our portfolio transformation and will review how our focus on those strategic actions, balanced capital allocation, and innovation-led growth position us extremely well heading into 2022 to continue unlocking value for our shareholders, innovating for our customers, and creating opportunity for our employees.\nIn November, we announced our planned acquisition of Rogers Corporation, as well as our intent to divest a significant portion of our M&M segment.\nThese portfolio actions will position DuPont among the top of the multi-industrial peer set with top-quartile revenue growth, EBITDA margins, and low cyclicality, all hallmarks of top-performing companies.\nGoing forward, our business will be centered around the secular, high-growth pillars of electronics, water, industrial technologies, protection, and next-generation automotive.\nOur team sees strong customer demand across these pillars, driven by megatrends such as the transition to hybrid and electric vehicles, clean water, sustainability, and the move to 5G.\nThe preparation for the Rogers acquisition is well underway and on track for end of second quarter closing.\nSeveral significant milestones in the path to closing have already been achieved.\nIn mid-December, the waiting period under the HSR expire here in the U.S., and regulatory processes in other parts of the world are underway.\nJust two weeks ago, on January 25th, Roger shareholders voted to approve the transaction.\nExcitement is building for combining this business with our portfolio of electronics offerings, which includes our recent acquisition of Laird Performance Materials.\nOur teams are anxious to get to the point where we can start working with the application engineers, R&D, and sales teams at Rogers to map out the revenue synergy opportunities in the areas of next-generation auto, 5G infrastructure, defense electronics, and clean energy.\nCombined with Laird, these acquisitions increase the total addressable market of our E&I business by approximately 50% and will deepen our penetration into markets such as electric vehicles, consumer electronics, and industrial technologies.\nA lot of work has been done to plan for the cost synergies associated with the Rogers acquisition, which we expect to be approximately 150 million.\nWe also have line of sight to about 63 million of cost synergies from the Laird acquisition from last summer, which is ahead of our target.\nWe are looking across both of the acquisitions, as well as our existing E&I business to maximize our synergies through G&A and footprint optimization, along with procurement savings.\nWe also announced that we have initiated a process to divest the majority of the M&M segment.\nOur work here is also on track and progressing well.\nAs I had expected, there is a significant level of interest in this market-leading asset, and I am pleased with how the process is progressing.\nOur target is to have a signed agreement by the end of the first quarter with the closing in the fourth quarter of this year.\nIn addition to positioning the company as a top-performing multi-industrial, these transactions enable us to transform the portfolio while maintaining a strong balance sheet and continuing with a balanced financial policy.\nToday, we announced that our board has approved a 10% per share increase to our dividend, which is consistent with our commitment for a dividend payout in the range of 35% to 45% and to grow the dividend annually in line with earnings.\nIn addition, our board has also authorized a new 1 billion share repurchase program, which enables us to continue returning value to our shareholders as we expect to complete the remaining 375 million under our existing authorization in the first quarter, ahead of the planned expiration.\nAfter paying down the financing associated with the Rogers acquisition, we expect to deploy a significant portion of the remaining M&M proceeds to do further M&A to build on our core areas of strength, as well as additional share repurchases.\nWe will also generate strong cash flow this year in addition to the 240 million gross proceeds from the biomaterials divestiture, which is the last of our non core divestitures.\nOur strong balance sheet positions us well to deliver for all stakeholders through investment in our business, dividends, share repurchases, and additional M&A.\nFinally, we will deliver shareholder value through staying focused on innovation, which is at the core of DuPont.\nThe 6% volume growth we delivered in the quarter and 10% volume growth for the year benchmarks well against our top peers.\nFor the quarter, our volume gains, excluding M&M segment, were up 10%.\nThese results are proof point that the work of our R&D teams and application engineers who spent countless hours working alongside our customers solving their most complex challenges is an advantage in the marketplace.\nOur focus on innovation is also at the core of our ESG strategy through both innovation and our own processes to reduce greenhouse gas emissions at our factories, as well as new product innovations that support and advance our customer sustainability goals in areas such as clean water, clean energy, electric vehicles, and connectivity.\nThe levers of portfolio transformation, balanced capital allocation, and innovation-led growth is a powerful combination to create long-term shareholder value at DuPont.\nAs Ed mentioned, customer demand in our key end markets remain strong in the fourth quarter.\nWe continue to face unprecedented global supply chain challenges and rising inflation.\nHowever, the swift pricing actions that we continue to implement are benefiting top-line performance and maintaining earnings on a dollars basis.\nThese factors, along with our intense focus on execution, contributed to net sales, operating EBITDA, and adjusted earnings per share results above our guidance.\nIn addition, we have solid cash flow generation and returned over 650 million in capital to shareholders during the quarter through 500 million in share repurchases and over 150 million in dividends.\nFor the year, we returned more than 2.7 billion in cash flow to shareholders, 32.1 billion in share repurchases, and 600 million in dividends.\nTurning to Slide 4.\nNet sales of 4.3 billion were up 14% versus the fourth quarter of 2020, up 13% on an organic basis.\nOrganic sales growth consists of 7% price gains, reflecting the continued actions we are taking to address inflationary pressure and 6% volume growth.\nA 2% portfolio tailwind reflects the net impact of strong top-line results related to our acquisition of Laird and headwind from non core divestitures.\nCurrency was a 1% headwind in the quarter.\nOverall sales growth was broad-based and reflects double-digit organic growth in all four regions and high-single-digit to double-digit organic growth in all three reporting segments.\nFrom an earnings perspective, we reported fourth quarter operating EBITDA of 973 million and adjusted earnings per share of $1.08 per share, up 5% and 54%, respectively, from the year-ago period.\nOur incremental market in the quarter was pressured by price costs and logistics.\nNet of these impacts, our incremental margin was about 33% in 4Q.\nEd mentioned earlier the pricing actions that we took throughout the year, resulting in us offsetting about 250 million of raw material inflation in the quarter.\nAnd we also ended the year price cost neutral.\nThe raw material inflation, coupled with about 50 million of higher logistics costs in the quarter, were headwinds to our margins.\nI will provide more detail of the margin compression we saw in the quarter in a few minutes.\nFrom a segment perspective, E&I delivered 10% operating EBITDA growth on volume gains and earnings uplift from Laird, which more than offset raw material and logistics segments, as well as start-up costs associated with our Kapton capacity expansion.\nIn W&P, operating EBITDA increased 7% as pricing gains and volume growth more than offset higher raw material and logistics costs.\nWe will remain disciplined in our pricing approach as we move into 2022 to address continued inflation.\nM&M operating EBITDA declined 3% as net pricing gains were more than offset by lower equity earnings due to higher natural gas costs in Europe.\nIn the quarter, cash flow from operating activities was 621 million and capex was 184 million, resulting in free cash flow of 437 million.\nFree cash flow conversion was 100%.\nIn addition, we received gross proceeds of about 500 million during the quarter from our Clean Technologies divestiture, which was closed at the end of December.\nBefore we go to the next slide, I would also like to make a few comments on our full year performance.\nFull year net sales of 16.7 billion grew 16% and were up 14% on an organic basis.\nThe organic growth consists of a 10% increase in volume and a 4% increase in price.\nOrganic sales growth reflects double-digit growth in all four regions and in all three reporting segments.\nFurther, all nine of our business lines had organic growth in 2021, and seven of the nine business lines grew double digits.\nThe 10% increase in volume for the year consists of gains in all three reporting segments and within all nine business lines, reflecting robust global customer demand in secular growth areas, such as electronics and water, along with recovery in end markets negatively impacted by the pandemic in prior year, such as automotive, commercial construction, and select industrial markets.\nFull year operating EBITDA of 4.2 billion increased 21%, reflecting 1.3 times operating leverage, operating EBITDA margin expansion of about 100 basis points, an incremental margin of 32%.\nOperating EBITDA increased for all three reporting segments during the year.\nFull year adjusted earnings per share of $4.30 per share was up about 95% from prior year on higher segment earnings, a lower share count, and lower interest expense.\nSlide 5 shows the impact that price cost inflation had on our operating EBITDA margin in the fourth quarter.\nAs costs continued to rise throughout 2021, our fourth quarter results reflect the largest headwind to quarterly margins for the year.\nIn total, pricing actions fully offset about 250 million of raw material inflation, which was higher than our expectations for input costs coming into the quarter and mainly in the M&M segment.\nWhile our pricing actions have enabled us to maintain earnings, the price cost inflation resulted in a significant headwind of about 150 basis points to operating EBITDA margins versus the year-ago period.\nAdditionally, higher logistics cost of about 50 million in the quarter resulted in a margin headwind of about 120 basis points.\nOffsetting the headwinds from raws and logistics was a 70 basis-point improvement in operating EBITDA margin, which includes volume growth in E&I and W&P and the benefit associated with the Laird acquisition.\nIf you exclude the price cost and logistics headwinds in the quarter, on an ex-M&M segment basis, our operating EBITDA margin was above 26.5% in the fourth quarter, further illustrating our strong performance and putting an emphasis on our planned portfolio actions.\nTurning to Slide 6, which provides more detail on the year-over-year changes in the net sales for the quarter.\nAs I mentioned earlier, organic sales growth of 13% during the quarter consists of 7% pricing gains and 6% volume growth.\nIn E&I, volume gains delivered 9% organic sales growth for the segment, led by higher volumes in semiconductor technologies of more than 20%.\nSemiconductor technologies demand was driven by the ongoing transition to more advanced node technologies resulting from growth in electronics megatrends.\nSemi Tech was up mid-teens for the full year.\nAnd we expect to continue to outpace MSI growth as we head into 2022.\nWe are seeing more investments in semiconductor capacity, which we expect to be a positive for us in the long term.\nIndustrial Solutions was up mid-teens during the quarter on volume growth, which was driven by ongoing strength for Kalrez and Vespel within electronics and industrial end markets, along with strong demand for medical silicones and biopharma and healthcare applications.\nOrganic growth for Industrial Solutions was up mid-teens for the full year as well.\nAs expected, organic sales growth for Interconnect Solutions was down in the quarter, reflecting the anticipated impact of the shift in demand related to premium next-generation smartphones to the first half of 2021, along with softness in automotive end markets related to the semi chip shortage.\nFor the full year, organic sales growth for our Interconnect Solutions was up mid single-digits.\nAnd we expect to return to a more traditional seasonality in 2022.\nIn addition, we recently completed our Kapton expansion project here in the U.S., which expands our production of polyamide film and flexible circuit board materials.\nWe will begin qualifying materials in the first half of this year for high-value applications, which will start to accelerate in the second half of 2022.\nFor W&P, 17% organic sales growth during the quarter consisted of a 12% increase in volume, including volume gains in all three businesses, and 5% pricing gains.\nSales gains were led by high-teens organic growth in Safety Solutions as continued recovery in industrial end markets resulted in significant volume improvement for Nomex and Kevlar air and mid fibers.\nWithin Water Solutions, high-teens organic sales growth reflects strong global demand for water technologies, primarily in industrial and desalination markets.\nShelter Solutions sales increased on mid-teens organic growth, driven by continued strength in North American residential construction and continued recovery in commercial construction led by higher demand for quarry and services.\nYear-over-year pricing gains of 5% during the quarter relate primarily to actions taken in safety and shelter in response to raw material inflation and also reflect sequential price improvement from all three business lines within W&P versus the third quarter.\nFor the full year, W&P delivered 10% organic sales growth on 8% volume improvement and 2% pricing gains.\nSafety and Shelter Solutions were up low double digits organically, and Water Solutions was up mid single digits for the year.\nThe global demand for clean water technologies remained strong, and expanding our capacity remains a priority for us.\nFor M&M, 13% organic sales growth during the quarter was driven by a 16% increase in price, offset slightly by a 3% decline in volumes.\nM&M within the segment within our portfolio most significantly impacted by raw material inflation.\nThe 60% local price increase during the quarter reflects continued actions taken to offset higher raw material and logistics costs.\nVolume declines reflect softness in global auto production due to supply constraints, primarily the semiconductor chip shortage.\nFor the year, M&M organic sales growth was 24% on 12% higher volume and 12% pricing gains.\nAll three business lines within M&M delivered organic sales growth of greater than 20% for the full year.\nTurning to Slide 7.\nAdjusted earnings per share of $1.08 per share was up 54% from $0.70 per share in the year-ago period.\nHigher volumes and strong results from Laird more than offset higher logistics costs and other operating items, such as Kapton start-up costs.\nBelow-the-line items continue to benefit our earnings per share results compared to the year-ago period, primarily our lower share count.\nLower interest expense was mainly offset by a higher tax rate.\nFor full year 2022, we expect our base tax rate to be in the range of 21% to 23%.\nLet me close with a few comments on our financial outlook on Slide 8.\nWe expect continued top-line strength across the portfolio in 2022, led by ongoing strength in semiconductors, as the industry continues to operate near capacity to meet demand and consistent demand in areas such as industrial technologies, smartphone sales, housing starts, and water filtration.\nOur plan assumes these market dynamics will lead to solid volume growth in 2022.\nIn 2022, we are planning that raw material and logistics costs will remain at elevated levels with approximately 600 million of year-over-year headwinds versus 2021, primarily in the first half.\nOnce again, the raw material inflation will be predominantly in our M&M segment.\nIn response, we are implementing more price increases in all businesses, which will enable us to offset raw material and logistics costs on a full year basis, but we will lag in the first quarter.\nWe expect our operating EBITDA margins to improve throughout 2022, driven by volume growth, productivity, acquisition synergies, and full implementation of pricing actions.\nIn the first quarter, we expect net sales between 4.2 billion and 4.3 billion and operating EBITDA between 940 million and 980 million.\nAt the midpoint of our guidance range, we are anticipating first quarter operating EBITDA margins to be about flat sequentially with the fourth quarter of 2021.\nWe expect sequential improvement in E&I and M&M to be offset by W&P as manufacturing cost increases stemming from the omicron variant and ongoing logistics cost headwinds lead to sequential margin decline.\nFor the full year, net sales of 17.4 billion to 17.8 billion and operating EBITDA of approximately 4.4 billion at the midpoint reflects volume growth and acceleration of additional pricing gains throughout the year to offset the impact of both raw material and logistics cost increases.\nWe expect operating EBITDA margin in the back half of 2022 to return to more normalized levels as impacts from the omicron variant subsides, as well as gains from volume improvement, productivity actions, acquisition synergies, and full implementation of price increases.\nOnce we sign a deal, the in-scope M&M businesses will move to discontinued operations.\nAnd we will reset the guidance [Inaudible] DuPont.\nLet me close by summarizing why I am excited about 2022 at DuPont.\nOur results demonstrate that our businesses deliver the solutions our customers demand and a tight supply chain and challenging logistics environment.\nWe delivered 6% volume growth well ahead of our expectations coming into the quarter.\nOur teams continue to work closely with our customers to understand their complex material challenges and to win business by delivering innovative and sustainable solutions.\nYou can also see our teams are managing every lever within our control.\nThis is evident through our delivery of pricing gains to offset every dollar of raw material inflation in 2021.\nAnd these actions continue into 2022.\nIn addition to having our fundamentals in place, we are on track to complete a few substantial steps in the transformation of DuPont in 2022 with the planned Rogers acquisition and the M&M divestiture.\nThese transactions, as well as the potential for additional M&A in strategic areas, position DuPont as a premier multi-industrial company, focused in the areas of electronics, water, industrial technologies, protection, and next-generation auto.\nAnd finally, because of our ability to complete this transformation while maintaining a strong balance sheet, we will be in a position to generate value for all stakeholders through organic and inorganic investment in our businesses and by staying committed to our dividend and share repurchases as we announced today.\nI look forward to providing you updates on each of these areas as we progress through 2022.\nWith that, let me turn it to Pat to open the Q&A.\nWe will allow for one question and one follow-up question per person.\nOperator, please provide the Q&A instructions.",
        "summary": "q4 adjusted earnings per share $1.08.\nq4 sales rose 14 percent to $4.3 billion.\nsees q1 sales $4.2 billion to $4.3 billion.\ncompname announces 10 percent increase to q1 regular dividend and board approval of $1.0 billion share buyback program.\ndupont - for 2022, expect net sales between $17.4 and $17.8 billion.\ndupont - water & protection reported q4 net sales of $1.4 billion, up 16 percent from year-ago period.\ndupont - mobility & materials reported q4 net sales of $1.3 billion, up 12 percent from year-ago period.\ndupont - consumer demand remains strong however raw material and logistics cost inflation is expected to continue to impact margins in q1."
    },
    {
        "text": "Also on the call today are Ryan Campbell, our Chief Financial Officer; Cory Reed, President of Production and Precision Ag; and Brent Norwood, Manager of Investor Communications.\nToday, we'll take a closer look at Deere's fourth quarter earnings and spend some time talking about our markets and our current outlook for fiscal 2022.\nThey can be accessed on our website at johndeere.com/earnings.\nAny other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited.\nParticipants in the call, including the Q&A session agree that their likeness and remarks in all media may be stored and used as part of the earnings call.\nAdditional information concerning these measures, including reconciliations to comparable GAAP measures is included in the release and posted on our website at johndeere.com/earnings under Quarterly Earnings and Events.\nJohn Deere finished the year with solid execution in the fourth quarter resulting in a 13.6% margin for the Equipment Operations.\nAg fundamentals remained strong through the course of the year and our order books indicate another year of robust demand in 2022.\nMeanwhile, the construction and forestry markets also continue to benefit from strong demand and lean inventories leading to the divisions strongest financial results in over 15 years.\nNow let's take a closer look at our year-end results for 2021 beginning on Slide 3.\nFor the full year, net sales and revenues were up 24% to $44 billion, while net sales for equipment operations increased 27% to $39.7 billion.\nNet income attributable to Deere and Company was $5.96 billion or $18.99 per diluted share.\nSlide 4 shows the results for the fourth quarter.\nNet sales and revenue were up 16% to $11.3 billion, while net sales for the Equipment Operations, were up 19%, to nearly $10.3 billion.\nNet income attributable to Deere and Company was $1.283 billion or $4.12 per diluted share.\nBefore I cover our fourth quarter results, I'd like to recognize all of John Deere's 77,000 employees for their tremendous hard work and dedication throughout a year filled with unpredictability.\nI'd also like to recognize the ongoing efforts and unparalleled capabilities of the John Deere dealer network that's not only an integral part of our value proposition in the market, but also often called upon in the toughest of times to keep our customers up and running.\nLet's start with fourth quarter results for Production and Precision Ag starting on Slide 5.\nNet sales of $4.66 billion were up 23% compared to the fourth quarter last year, primarily due to higher shipment volumes and price realization.\nPrice realization in the quarter was positive by about 7 points.\nAnd currency translation was also positive by roughly 1 point.\nOperating profit was $777 million resulting in a 16.7% operating margin for the segment, compared to 15.2% margin for the same period last year.\nThe year-over-year increase was driven by positive price realization, higher shipment volumes and mix, partially offset by higher production costs.\nAlso, it's worth noting that last year's results were negatively impacted by employee separation expenses resulting from restructuring activities.\nShifting focus to Small Ag and Turf on Slide 6.\nNet sales were up 17%, totaling $2.8 billion in the fourth quarter.\nThe increase was primarily driven by higher shipment volumes and price realization.\nPrice realization in the quarter was positive by just over 4 points, while currency translation was minimal.\nFor the quarter, operating profit was $346 million, resulting in a 12.3% operating margin.\nThe higher shipment volumes, sales mix and price realization were partially offset by higher production costs, R&D and SA&G.\nWhen comparing to the fourth quarter of 2020, keep in mind, the prior period included $77 million in separation costs and impairments.\nSlide 7 shows our industry outlook for Ag and Turf markets globally.\nIn the U.S. and Canada, we expect industry sales of large Ag equipment to be up approximately 15%, reflecting another year of strong demand.\nIn fiscal year '21 customer demand driven by the combination of strong fundamentals and advanced fleet age and low inventory outpaced the industry's ability to supply.\nWith all of these dynamics still present in '22, we expect demand to exceed the industry's ability to produce for a second consecutive year as supply base delays continue to constraint shipments.\nOrder books for the upcoming year or mostly full except for a few cases where we paused orders to manage supply challenges and allow us to reevaluate inflationary pressure later in the year.\nCurrently, orders are complete for the years' production of crop care products, while our combine production slots are over 90% full with the early order program still ongoing.\nMeanwhile, large tractor orders are sourced well into the third quarter and we expect the remainder of the book to fill out shortly.\nWe're encouraged that take rates for our mainstay precision technologies like Combine Advisor, ExactApply an ExactEmerge continue to track higher year-over-year.\nMore recent product introductions such as ExactRate planners and the X9 combine saw significant increases when compared to last year, while our premium and automation software activation take rates are over 85% for our 8 series and 9R Series Tractors.\nAdditionally, we saw significant increases in customer engagement with our digital tools in 2021.\nEngaged acres now stand at over 315 million acres, due in part to a sharp increase in Europe with a number of engaged acres has doubled over the past year.\nLikewise, use of our digital features such as expert alerts and service advisor remote has increased by about 30% compared to last year.\nIn the small Ag and Turf segment, we expect industry sales in the U.S. and Canada to remain flat for the year as supply challenges continue to limit industry production.\nFollowing two years of very robust demand, field inventory levels are at multi-year lows and are unlikely to begin recovering until some time in 2023.\nMoving on to Europe.\nThe industry is forecast to be up roughly 5% as higher commodity prices strengthen business conditions in the arable segment and dairy prices remain resilient even as margins show some pressure from rising input costs.\nWe expect the industry will continue to face supply base constraints resulting in demand outstripping production for the year.\nAt this time, our order book extends into the third quarter for Mannheim tractors.\nIn South America, we expect industry sales of tractors and combines to increase about 5%.\nFarmer sentiment and profitability remain steady at all time highs as our customers benefit from robust commodity prices, record production and a favorable currency environment.\nOur order books reflect the strong sentiment and currently extends into the second quarter, which is as far as we've allowed it to grow.\nDespite limited government sponsored financing programs, private financing is supporting continued strength in equipment demand, while strong farmer balance sheets enable many customers to purchase using cash.\nIndustry sales in Asia are forecasted to be flat as India, the world's largest tractor market by units, hold steady in 2022.\nMoving onto our segment forecast beginning on Slide 8.\nFor production and Precision Ag, net sales are forecast to be up between 20% and 25% in fiscal year '22.\nForecast includes expectations of about 9 points of positive price realization for the full year.\nFor the segment's operating margin, our full-year forecast is between 20% and 21%, reflecting consistently solid financial performance across the various geographical regions.\nSlide 9 shows our forecast for the Small Ag and Turf segment.\nWe expect net sales in fiscal year '22 to be up 15% to 20%.\nThis guidance includes nearly 7 points of positive price realization and roughly 1 point of currency headwind.\nThe segment's operating margin is forecasted to range between 16% and 17%.\nNow let's focus on Construction and Forestry on Slide 10.\nFor the quarter, net sales of $2.8 billion were up 14%, primarily due to higher shipment volumes and 6 points of positive price realization.\nOperating profit moved higher year-over-year to $270 million resulting in a 9.6% operating margin due to positive price realization and higher shipment volumes, partially offset by higher production cost, SA&G and R&D.\nThe quarter also benefited from the lack of one-time expenses included in the prior period.\nLet's turn to our 2022 Construction and Forestry industry outlook on Slide 11.\nBoth earthmoving and compact construction equipment industry sales in North America are expected to be up between 5% and 10%.\nEnd markets for earthmoving and compact equipment are expected to remain strong in our fiscal year '22 forecast, benefiting from continued strength in the housing market, increased activity in the oil and gas sector, as well as strong capex programs from the independent rental companies.\nDemand for earthmoving and compact construction equipment is expected to exceed our production for the year, resulting in continued low inventory levels, especially for compact construction equipment.\nIn forestry, we now expect the industry to be up about 10% to 15% as lumber production looks to remain at elevated levels throughout the year even though lumber prices have come down from peaks in mid-summer.\nMoving to the C and F segment outlook on Slide 12.\nDeere's construction and forestry 2022 net sales are forecasted to be up between 10% to 15%.\nOur net sales guidance for the year includes about 8 points of positive price realization.\nWe expect this segment's operating margin to be between 13.5% and 14.5% for the year, benefiting from price, volume and lack of one-time items from the prior year.\nNow, let's move now to our financial services operation on Slide 13.\nWorldwide financial services net income attributable to Deere and Company in the fourth quarter was $227 million, benefiting from income earned on higher average portfolio and favorable financing spreads, as well as improvements on the operating lease portfolio, partially offset by a higher provision for credit losses.\nResults for the prior period were also affected by employee separation costs.\nFor fiscal year 2022, the net income forecast is $870 million as the segment is expected to continue to benefit from a higher average portfolio.\nSlide 14 outlined our guidance for net income, our effective tax rate, and operating cash flow.\nFor fiscal year 2022, our full-year outlook for net income is forecasted to be between $6.5 billion and $7 billion.\nThe full-year forecast is inclusive of the impact from higher raw material prices and logistics costs, which we estimate will add an additional $2 billion in expenses relative to 2021.\nAt this time, we expect two-thirds of that increase to manifest itself in the first half of the year as the comparisons get easier in the back half of fiscal year '22.\nAt this time, our forecasted price realization is expected to outpace both material cost and freight for the entire year, though we will likely be price cost negative in the first quarter.\nMoving on to tax.\nOur guidance incorporates an effective tax rate projected to be between 25% and 27%.\nLastly, cash flow from the equipment operations is expected to be in the range of $6 billion to $6.5 billion and includes a $1 billion voluntary contribution to our pension and OPEB plans.\nBefore we open up the line for Q&A, we like to first address a few of the likely questions around the current market dynamics, our financial results and the details around our new labor agreement, as well as provide some thoughts on capital allocation for the next year.\nTo cover the range of topics, I'll engage today's call participants to provide some additional color, and then we'll open up the line for additional questions.\nFirst, I'd like to start with the current demand environment for large Ag equipment.\nCory, can you provide some additional color on demand for large Ag products and which new technologies are resonating with customers.\nWe're really encouraged by both the velocity of our order books and the take rates for some of our latest technology.\nDemand has been strong since the beginning of 2021 and overall that doesn't look like it's going to let up in 2022.\nI touched on this earlier, our order books are either full or near full for most of our North American large ag product lines.\nStarting with the combine and EOP.\nOur EOP for 2022 production will finish in January, where we'll grow the levels of S-series production and we've already sold out of our planned production for X9 combines.\nThis is the first year in a multi-year ramp up of production for X9 and we'll ship a 1,000 plus units of X9 9 into North America alone.\nWe'll further solidify our market leadership in the power class 9 plus combine categories, while also establishing a clear new global benchmark in both productivity and efficiency.\nWe're also seeing strong demand for some of our newer products, products like ExactRate planter applied fertilizer systems and AutoPath.\nExactRate represents an important first step in the precision application of fertilizer.\nFuture iterations of this product will be critical in helping us improve nitrogen use efficiency for our customers.\nIn just its second year we're seeing take rates of that product close to 20%, which is really encouraging.\nSimilarly, in the first full season, we've seen tremendous feedback from the launch of John Deere AutoPath.\nAutoPath leverages John Deere's onboard technology like our Gen-4 displays, SF6000 receivers including the SF3 correction signal and embedded software linked to the John Deere operation center throughout a customer's entire production cycle.\nThe technology leverages data from planting to know exactly where the row unit traveled to plant seeds and then creates a guidance line for each subsequent path, making in-season fertilizer applications, manual cultivation for weeding or crop protection passes easier and more accurate.\nAt harvest, it makes it easier to find your guess row and makes that easy for harvest to be even more efficient.\nIn 2021, we saw take rates of the automation package activation or subscription, which includes AutoPath double, leading to more customers enabled with John Deere's highest value Precision Ag software.\nIn 2022 and beyond, we'll continue to add value to AutoPath for new features and new technologies as a part of our Precision Ag software package strategies and AutoPath will be foundational for even more automated farming in the future, making every step of our customers' production system even better.\nLastly, See and Spray.\nSee and Spray Ultimate is going to hit the market this year on a limited basis and we're excited to get it in the more customers' hands.\nWe view See and Spray as just the first step in a long series of sense and act.\nIn that journey, we're encouraged by to see early demand for both See and Spray itself and multiple products related to plant-level management in future.\nLet's dive a little bit deeper on the fluctuations in North American large ag market share for fiscal year '21 and then let's provide some expectations for this next year in fiscal year '22.\nCan you first walk us through the progression of market share that we saw in '21, Corey?\nYes, 2021 was a unique year.\nDemand inflected sharply from October of '20 to January '21 timeframe.\nAnd as a result, we experienced pressure on market share early in the year due to our asset-light model.\nIf you recall, we talked about this dynamic in our fourth quarter earnings call last year and noted that we expected to recover that share quickly and that's exactly what happened.\nIn fact, we gained 2 points of market share in North America for our large Ag products by year-end and you can see an example of that in the last three quarters of retail sales data for the 100 plus horsepower tractor categories.\nSo how might market share play out this next year, given that our most recent labor agreement didn't ratify until November 17th?\nYes, it's a great question and while it's too early to forecast with a lot of precision, we see the potential for 2022 to play out very similarly.\nWe're very likely to see similar pressure in the first quarter as we recover from record low inventories, but also expect a production ramp that helps us maintain and even grow our position as we execute throughout the year.\nLet's get into some of the details on our latest labor agreement.\nOne of the most frequent questions out there is on the incremental cost of the new contract relative to the previous one.\nSo how should investors think about the impact to our cost structure?\nFirst, it's important to note, we're really glad to have our UAW employees back in our factories and proud of the groundbreaking contract that we put in place.\nWith respect to its impact on our cost [Technical Issues] side of the contracts period.\nOver the six-year contract, the incremental costs will be between $250 million and $300 million pre-tax per year with 80% of impacting operating margins.\nSo, we experienced a gap between the last contract and the current one resulting in a few weeks of lost production.\nHow does that impact the quarterly cadence of our financial results?\nThere are a number of unique items impacting the first quarter.\nAt first we would -- if you think about first quarter '22, we expect the topline for the equip ops to be pretty similar to the first quarter of '21, missing a few weeks plus of production will neutralize some of the benefits that Corey mentioned in terms of ramping up to higher line rates in December and January.\nWith respect to margins, there are few things to consider.\nIn the first quarter, we'll have our toughest price cost comp for the year.\nWe expect that to be negative in the first quarter, but positive for the full year.\nWe also expect to experience poor overhead absorption due to the lower volumes as mentioned and there are few other one-time items that will provide some additional drag including ratification bonus and some favorable tax credits that we saw in the first quarter of '21 that don't repeat in '22.\nAll in, we expect first quarter margins to be mid-to high-single digits for the Equipment Operations with those businesses that have been most affected by the delayed ratification to be below that average looking beyond the first quarter, though we do expect margins for the rest of the year to be more favorable and incrementals more in line with historical averages.\nLet's conclude with some discussion around capital allocation.\nRyan, how would you characterize our capital allocation strategy in fiscal year '21 and what might we expect this upcoming year?\nWith respect to 2021, our strong liquidity position and our cash flow generation really allowed us to execute against all of our cash priorities.\nWe continue to focus on maintaining our solid A credit rating, but beyond that we invested in our strategic growth priorities, both organically and inorganically.\nIn addition, we returned over $3.5 billion in capital to shareholders through dividends and share repurchases.\nOur two dividend increases are evidence of the confidence we have in the structural improvements we've made in the earnings power of our business.\nOverall, our actions in 2021 serve as a good blueprint for how to think about 2022 as we expect to again execute against all of our priorities.\nIt sounds like we'll continue to see discipline with respect to returning capital, but can you elaborate any further on investing back into our businesses?\nThe smart industrial strategy that we put in place during 2020 is the foundation for us to focus our resources on the areas that are most differentiated from a customer value perspective.\nIt's through that lens that we are positioned to increase the level of investment back into our business both organically and inorganically through M&A.\nAs you can see in our guidance, the R&D investment is up 17% in 2022.\nThe focus of the increase is on further developing our tech stack, which accelerates our capabilities related to sense and act, autonomy, digital solutions, connectivity and electrification.\nWe're planning to demonstrate many of our new technologies at our Investor Tech Day in mid 2022.\nSo stay tuned for that exciting event.\nFinally, as it relates to M&A, expect us to continue to be active, aligned with the themes that we've discussed over the last year.\nLastly, is there anything else that you'd like to highlight for investors to expect in 2022?\nYes, 2022 is shaping up to be a very important year for us.\nWe put in place the new strategy and are well positioned to accomplish our goals.\nOn that note, we do have a set of goals both related to business and sustainability that will sunset this year.\nAccordingly, we'll be rolling out our next suite of goals that will highlight the opportunity we have and what we think we can accomplish over the rest of the decade.\nImportantly, we are uniquely positioned and that there is direct alignment between our creation of customer value, improving our own earnings and delivering more sustainable outcomes for the environment.\nSo, Brent expect us to see -- expect to see a comprehensive suite of goals that really brings all of those elements together.\nNow, we're ready to begin the Q&A portion of the call.\nThe operator will instruct you on the polling procedure.\nIn consideration of others and our hope to allow more of you to participate in the call, please limit yourself to one question.\nIf you have additional questions, we ask that you rejoin the queue.",
        "summary": "compname reports q4 sales up 16% to $11.33 bln.\ncompname reports net income of $1.283 billion for fourth quarter, $5.963 billion for fiscal year.\nq4 earnings per share $4.12.\nq4 sales rose 16 percent to $11.33 billion.\nfull-year 2022 earnings forecast to be $6.5 to $7.0 billion, reflecting healthy demand.\nanticipate supply-chain pressures will continue to pose challenges in our industries.\nlooking ahead, we expect demand for farm and construction equipment to continue benefiting from positive fundamentals.\nconstruction & forestry sales moved higher for quarter primarily due to higher shipment volumes and price realization.\nsmall agriculture and turf sales increased for quarter due to higher shipment volumes and price realization.\nproduction and precision agriculture sales increased for quarter due to higher shipment volumes and price realization.\nsees 2022 construction & forestry net sales up 10% to 15%.\nsees 2022 small agriculture & turf net sales up 15% to 20%.\nsees 2022 production & precision agriculture net sales up 20% to 25%.\nfiscal-year 2022 net income attributable to deere & company for financial services operations is forecast to be about $870 million."
    },
    {
        "text": "Our call today will include remarks from our CEO, Roger Hochschild; and John Greene, our Chief Financial Officer.\nAs we conclude our formal comments, there will be time for a question-and-answer session.\nDuring the Q&A session, please limit yourself to one question; and if you have a follow-up question, please get back into queue, so we can accommodate as many participants as possible.\nOur strong fourth quarter results were the capstone to good performance in a very challenging year, proving the value and resilience of our digital banking business model.\nWhile the economic impacts of the coronavirus pandemic were expansive, our business stood up to these challenges and we are in $799 million after-tax for the fourth quarter and over $1.1 billion for the full year.\nOur fourth quarter results underscore the capital generation of our model.\nWhile our revenues were down 4% year-over-year, our outstanding credit performance combined with the actions we took to reduce our funding costs and control our expenses, enabled us to exit the year with a 30% ROE in the fourth quarter.\nLooking back on the full year, our operating results highlight the strength of our business and the execution of our team.\nWe proactively adapted to the many ways in which the pandemic has altered our operating environment, including changes in consumer spending patterns, repayment trends and borrowing habits.\nDiscover has always provided best-in-class customer service and this did not change with the pandemic.\nWhile other issuers faced significant challenges with long hold times, there was no disruption to our outstanding service as we leveraged our digital capabilities and our 100% U.S.-based customer service.\nWe kept average hold times under five minutes through the trough of the downturn and they quickly returned to normal levels of under one minute.\nAdditionally, our operational flexibility allowed us to keep our employees safe with nearly all employees continuing to work-from-home since mid-March.\nSimilarly, our history of conservative credit management and the resilience of our prime customer base positioned us well as we entered this period of economic stress.\nWe also took quick action at the onset of the pandemic to mitigate credit risk by tightening new account underwriting criteria, reducing promotional rate offers and pulling back on credit line increases, and we added $2.4 billion to reserves as the macroeconomic outlook deteriorated.\nAs expected, the tightening of our underwriting criteria combined with elevated payment rates impacted our loan growth and our total loans decreased 6% year-over-year.\nHowever, we took substantial market share in private student lending and gain share in card lending.\nOur digital bank operating model combined with disciplined expense management has historically generated industry-leading efficiency, but in 2020, we took additional action to control costs and delivered on our commitment to cut $400 million from planned expenses despite absorbing several one-time items that have occurred during the year.\nExcluding the one-time items, expenses were down nearly 2% year-over-year.\nWe achieved this while still investing in analytics, automation and core technology capabilities to support long-term growth and efficiency improvement.\nFor example, we've invested in new analytics to optimize acquisition marketing to our core customers and we enhanced customer engagement through more targeted offers and interactions.\nOur payments business was also well positioned heading into last year's sudden economic decline.\nOur PULSE debit business had a strong year with volume up 10% from 2019, reflecting the impact of stimulus funds and higher transaction sizes as debit became a critical way of procuring goods during the pandemic.\nOur Discover proprietary network was down 2% for the year and exited the fourth quarter at plus 5%, in line with card sales volume.\nWhile Diners Club volume declined, reflecting the impact of the pandemic on global T&E spending, we signed five new international network partners as we continue to expand global acceptance.\nAs we look into 2021, we believe there is a significant amount of uncertainty around the timing and shape of the economic recovery and some of the impacts from last year's downturn have yet to be fully realized.\nFor this reason, we anticipate deterioration in our credit performance in the back half of this year.\nNonetheless, we see reasons for optimism.\nAfter bottoming in April, our card sales steadily rebounded throughout the year and returned to growth in the fourth quarter.\nWe saw improvement across all categories, especially in grocery and retail, which now represent more than half of our sales mix.\nThis favorable sales trend has also continued into the first half of January.\nIn this environment, we will remain disciplined on expense management but also committed to making investments for growth and efficiency and anticipate higher marketing expenses relative to 2020 levels.\nWe also anticipate resuming a more normal pattern of capital return.\nEarlier this week, our Board of Directors approved a new $1.1 billion share repurchase plan and we may begin buybacks as soon as the first quarter, subject to the Federal Reserve's limitations.\nIn conclusion, 2020 presented us with unparalleled challenges but our business model has well positioned, and I couldn't be more pleased with how the team here at Discover responded.\nI'm confident that the actions we took strengthened our business and will drive long-term value for our shareholders and customers.\nWhile there is still uncertainty around the pace of the recovery, I'm optimistic that 2021 will be a better year.\nI'll now ask John to discuss key aspects of our financial results in more detail.\nI'll walk through our fourth quarter results, starting on Slide 4.\nWe earned $799 million in net income or $2.59 per share.\nThese results included several one-time expenses, totaling $137 million.\nExcluding these, earnings per share would have been $2.94.\nThere were a number of factors, both positive and negative, that influenced our performance during the year.\nImportantly, our results for 2020 reflect proactive management of our funding and operating cost and our conservative approach to credit management.\nThese factors helped offset the revenue impacts of elevated payment trends and lower sales volumes.\nHowever, we're seeing some positive signs with a return to sales growth in the quarter and continued expansion of our net interest margin.\nIn the fourth quarter, net interest income was down 2%, reflecting a 5% decline in average receivables and lower loan yield.\nThis was mostly offset by decreased funding costs driven by lower market rates and management of our deposit costs.\nNon-interest income was 14% lower, driven by higher rewards costs from strong engagement in the 5% category this quarter, a one-time write-off of certain real estate facilities and lower loan fee income also contributed to the year-over-year decrease.\nThe provision for credit losses was $305 million lower than the prior year due to meaningful improvement in credit performance.\nThere was no change to reserve levels in the current quarter, whereas the prior year included an $85 million reserve build.\nOperating expenses increased 8% year-over-year driven by one-time items related to software write-offs, charges for penalties and restitution, and costs of a voluntary early retirement program.\nCompensation expense also contributed to the increase.\nThese were partially offset by lower marketing costs and decreased professional fees.\nExcluding one-time items, expenses were down 4% from the prior year.\nTurning to loan growth on Slide 5.\nTotal loans were down 6% from the prior year driven by a 7% decrease in card receivables.\nLower card receivables were the result of three factors.\nFirst, payment rates continue to be elevated.\nWhile this has reduced loan balances, it has had a favorable impact to credit performance.\nSecond, promotional balances have continued to decline due to actions we took early in pandemic to tighten credit.\nAnd third, an increase in transactor activity.\nLooking at our other lending products.\nIn student loans, we had a strong peak origination season, increasing market share in leading to 7% loan growth.\nPersonal loans were down 7% as a result of actions we took early in the pandemic to minimize potential credit losses.\nMoving to Slide 6.\nNet interest margin continued to improve, up 34 basis points from the prior year and 44 basis points from the prior quarter to 10.63%.\nCompared to the third quarter, lower deposit pricing was the primary driver of the improvement in net interest margin.\nWe cut our online savings rate another 10 basis points from the third quarter as we continue to actively manage funding costs lower.\nOnline savings rates, 12 month and 24-month CDs are all down to 50 basis points.\nLower interest charge-offs and a favorable mix of promotional rate balances also contributed to the margin expansion from the prior quarter.\nThese factors offset the impact of the high level of balance sheet liquidity that we are currently carrying.\nWhile this is depressing, our net interest margin today, it should benefit margin as we deploy this liquidity into future loan growth.\nAverage consumer deposits increased 18% from the prior year.\nWe continue to see steady demand for our consumer deposit products, which were up $1 billion from the prior quarter.\nAll of the growth from the third quarter was from indeterminate maturity accounts, which allows us to immediately capture the benefit of deposit rate decreases.\nTurning to Slide 7.\nWe continue to optimize our mix -- our funding mix.\nAnd our goal remains to have 70% to 80% of our funding from deposits.\nWe also have an opportunity to benefit from higher rate funding maturities over the next couple of years.\nBoth of these items are expected to benefit net interest margin in future quarters.\nLooking at Slide 8.\nAs Roger noted, we delivered on our commitment to reduce planned expenses by at least $400 million during the year, and I'm pleased to say that we accomplished this goal despite several one-time expense items that occurred in 2020.\nTotal operating expenses in the fourth quarter increased $94 million or 8% from the prior year, driven completely by $137 million in one-time expense items.\nExcluding these, operating expenses would have been down $43 million or 4% year-over-year.\nYet, even as we remain disciplined on costs, we continue to invest in analytical capabilities that we expect will drive future growth and efficiency improvements.\nLooking at some of the individual line items.\nEmployee compensation was up $57 million or 13%, driven by a one-time item related to a voluntary early retirement program as well as staffing increases in technology and higher average salaries and benefits.\nMarketing and business development expense was down $75 million or 32%.\nMost of the reduction was in brand marketing and card acquisition as we aligned marketing spend and tightened credit criteria in response to this changing economic environment.\nProfessional fees decreased $22 million or 10%, mainly driven by lower third-party recovery fees related to courts operating at limited capacity.\nOn Slide 9, you can see our credit metrics for the quarter.\nOnce again, credit performance was very strong and total charge-offs below 2.4% and credit card net charge-offs nearly 2.6%.\nThe card net charge-off rate was 78 basis points lower than the prior year, while the net charge-off dollars were down $180 million or 28%.\nCompared to the third quarter, net card charge-off rate declined 82 basis points.\nThe 30-plus delinquency rate was 55 basis points lower than last year and increased 16 basis points from the prior quarter.\nCredit also remained strong in our private student loan portfolio with net charge-offs down 31 basis points year-over-year.\nExcluding purchased loans, the 30-plus delinquency rate improved 40 basis points from the prior year and 9 basis points compared to the prior quarter.\nIn our personal loan portfolio, net charge-offs were down 147 basis points and the 30-plus delinquency rate was down 29 basis points year-over-year.\nTo wrap up credit, this was another quarter of strong performance across all of our lending products driven by the actions we've taken in underwriting, line management and collections, the resiliency of our prime customer base and the impact of government stimulus.\nWe believe that losses will increase in the second half of 2021 and into 2022.\nHowever, the timing and magnitude of losses could be impacted by any additional government assistance or material shifts in the economic environment.\nMoving to the allowance for credit losses on Slide 10.\nWe held allowance flat to the prior quarter.\nWhile the macro environment has improved, the outlook remains uncertain.\nSimilar to our past approach, we modeled several different economic scenarios.\nThe primary assumptions in our economic model were a year-end 2021 unemployment rate of about 8% and GDP growth of about 2.7%.\nWe did not include any additional stimulus beyond what has already been provided to consumers.\nOur economic scenarios also consider the increasing number of COVID cases, the timing of the vaccine rollout and the recent increase and unemployment claims.\nTurning to Slide 11.\nOur Common Equity Tier-1 ratio increased 90 basis points sequentially to 13.1%, remaining above our 10.5% internal target and well above regulatory minimums.\nWe have continued to fund our quarterly dividend at $0.44 per share.\nRegarding share repurchases, as Roger indicated, earlier this week, we received authorization from our Board of Directors to repurchase up to $1.1 billion of common stock.\nAnd we intend to begin share buybacks in the first quarter, subject to the Federal Reserve regulatory limitations.\nMoving to Slide 12 and some perspectives on how to think about 2021.\nWe anticipate modest positive loan growth for the year.\nWe see opportunities for customer acquisition, but the level of growth will be dependent on payment rate trend and the timing and pace of the broad economic recovery.\nWith respect to our net interest margin, as I previously mentioned, we expect we will continue to see benefits to margin from lower deposit rates and maturity of higher rate funding.\nWe also remain committed to disciplined expense management and we'll continue to invest to drive profitable long-term growth and efficiency improvement.\nThis includes increased marketing investments for new customer acquisition as well as investments in advanced analytics and technology capability.\nIn terms of credit performance, as I've already noted, we expect losses to increase in the second half of 2021 and remain elevated into 2022.\nFinally, our capital allocation strategy has not changed, and we remain committed to returning capital to shareholders through dividends and buybacks.\nIn summary, we had a solid fourth quarter with strong credit performance across the portfolio, net interest margin expansion driven by lower funding costs, flat reserves; and excluding one-time items, operating expenses were down year-over-year.\nI'm very pleased with our execution throughout 2020 and Discover's efforts to protect employees and provide uninterrupted best-in-class service to our customers.\nThe quick actions we took at the onset of the pandemic and our investment in core capabilities protected and strengthened the Discover franchise in 2020.\nThe challenges we faced, demonstrate the resiliency of Discover's digital banking business model; and while uncertainty remains, we are well positioned for growth as our economy continues to recover.",
        "summary": "compname posts q4 earnings per share $2.59.\nq4 earnings per share $2.59.\nboard of directors approves repurchase of up to $1.1 billion of common stock.\nnew repurchase program expires on december 31, 2021.\ntotal loans ended the quarter at $90.4 billion, down 6% year-over-year.\ncredit card loans ended the quarter at $71.5 billion, down 7% year-over-year.\nqtrly payment services volume was $70.1 billion, up 6% year-over-year.\nnet interest income for the quarter decreased $47 million, or 2%, from the prior year period."
    },
    {
        "text": "This release is available on the Company's website at dhigroupinc.com.\nLastly, during today's call, management will be referring to specific financial measures, which include adjusted EBITDA, adjusted EBITDA margin and net debt, which are not prepared in accordance with U.S. GAAP.\nAs always, we appreciate your interest in DHI.\nI want to begin by saying a few words about COVID-19 and our response to this global pandemic.\nOur foremost concern at DHI is to ensure the health and safety of our DHI community.\nAs such when the pandemic began to unfold in mid-March, we at DHI jumped into action to aid our communities by launching COVID-19 resource centers on each of our brand sites to assist both clients and candidates alike with information relevant to their needs in these challenging times.\nThese sites provide information on virtual career fairs, open remote job posts, real-time hiring trends, industry insights, articles, and hiring resources.\nWe also launched a campaign to provide free recruitment services to U.S. hospitals to help them find technologists in fields like electronic medical records, healthcare administration and computer system processing.\nAlso, all of our employees have been working from home using the best possible remote communication and collaboration tools and our team members, including sales and support, marketing and product development continue to be highly effective.\nIn fact, our product development team actually gained efficiency working from home this quarter, delivering dozens of new product releases.\nI'll dive more into these product releases later in the call, but first let me provide a quick update on the current market environment for tech jobs.\nThe pandemic is certainly challenging the way we all live and work.\nWe saw job postings drop in the early part of the quarter but come back to the trailing 12-month average levels in June and July as companies became more confident in their hiring strategies.\nMany firms serving highly impacted industries have paused or reduced their hiring plans and we believe that our bookings are highly correlated to the state of geographical restrictions and reopenings, which certainly remain in flux.\nIt's clear that our collective future will be more online and businesses will accelerate their efforts to digitize.\nThese efforts will, of course, require technologists.\nA recent report released by Microsoft in July predicts that the worldwide digital jobs will grow from 41 million in 2020 to 190 million in 2025.\nOf the 149 million new digital jobs created, 98 million are forecast to be in software development.\nWith our technology skill of data model in technology focused marketplaces, we stand ready to capitalize on this trend.\nNow let me provide some more detail regarding the product development efforts I mentioned earlier.\nDuring the second quarter, our product development team continued to deliver a high pace of product innovation.\nWith the release of Dice recruiter profile, we took the first leap forward in Dice's transformation from a job board to a full-scale career marketplace.\nDice Recruiter Profile allows our client recruiters to enrich their brands with photos, personal information, details of our corporate culture and important news, as well as information about latest hires, upcoming events and future hiring needs, all of which create more transparency and personalize the recruiter define the role.\nCandidates can now discover the recruiters that are aligned with their interests and use recruiter profile information to better engage on job postings and respond to outreach.\nWith the Dice Marketplace, we're creating a trusted environment where recruiters and candidates can learn much more about each other to facilitate more effective career discussions.\nWe also launched Dice Remote Jobs.\nThe pandemic has demonstrated that candidates can successfully work from home and want to do so and that more jobs are predicted to be remote-qualified in the future.\nRemote job opportunities has been the top requested feature by both clients and candidates since the start of the pandemic and the views for these job postings have been significantly higher than non-remote job postings.\nThis is an excellent opportunity for employers to tap into pools of remote workers across the United States to increase talent pipelines and diversify their workforce and we at DHI want to be the leader in the technologist's part of this important trend.\nWe also launched ClearanceJobs Automated Recruiter Workflow in the quarter, which we believe is a true game-changer.\nWorkflow is an easy to use set of tools that allow our recruiter to automate routine tasks in their day, including talent sourcing, pipelining, engagement, marketing and rewards [Phonetic].\nWhen specific candidate activities occur, they trigger automated pre-planned actions and responses.\nAs an example, if a recruiter is looking for an Oracle database administrator in California, when a new candidate with the correct profile registers on the database, Workflow will automatically connect the recruiter with the new candidate, tag them in their pipeline, produce an email introduction and generate a text notification that all of this has been completed.\nOur internal estimates indicate that this powerful set of tools can eliminate approximately 3.5 hours of administrative task time per recruiter per day.\nClearanceJobs is the only career site in the world that incorporates this capability.\nClearanceJobs continues to be DHI's test-bed for key market-leading features like this one of a kind technology.\nWe also launched eFinancialCareers Enhanced Candidate Profile during the quarter.\neFC candidates can now expose a richer profile, equivalent to that offered on ClearanceJobs to recruiters specializing in their respective field.\nAnd in mid-July, we launched eFC Follow, Voice and Video.\nThese features complete the eFC marketplace delivering a rich set communication tools for recruiters and professionals to engage in career discussions.\nNow finance and tech professionals and recruiters can connect virtually with video and voice calling as well as instant messaging all through the eFC platform.\nWe have many new releases planned for the remainder of the third quarter.\nDice is completing a design for its own enhanced candidate profile and messaging system with an expected launch by year-end.\nWe are working on delivering calendaring integration for ClearanceJobs, and for eFC we will be releasing a modern new brand identity starting with their B2B site.\nWe continue to transform our sales organization this quarter with the addition of a new customer success leader, a new Dice agency program leader and the relaunch of managed services as sourcing services, with a focus on delivering vetted candidates for targeted client searches.\nMuch like other trends in our business, we have seen a steady improvement in the demand for sourcing services since April.\nTurning to sales performance by brand.\nFor all of our brands we were experiencing a check mark shaped recovery, not a V-shaped recovery.\nDice's current bookings are trending toward their performance pre-pandemic, although our new business teams, including the Dice Commercial Accounts team remain challenged due to the extra conservatism of potential new clients in this environment.\nDespite this challenge, the commercial sales team has been heads down training and improving its core practices.\nThey are becoming more sophisticated in their go-to-market approach and as a result, brought in the largest new business deal in the history of our Company.\nThis deal with a large U.S. government agency is worth $270,000 in annual contract value.\nTo put this in perspective, we typically sign new business deals in the $7,000 to $10,000 range.\nThis success, along with the momentum we saw in signing new customers in the weeks leading up to the start of the pandemic in mid-March gives us great confidence that our focus on commercial accounts will be the cornerstone for our growth as the business environment normalizes.\nOur renewals with existing Dice clients, while impacted in the quarter as a result of the pandemic, are slowly returning to expected levels, and existing clients have told us that they cannot find appropriate technologists without our platform.\nIt's important to note that this dip in renewal-based bookings during the quarter will manifest itself in lower revenue for the remainder of the year, as we recognize each booking as revenue monthly across the duration of the contract.\nClearanceJobs has been relatively unaffected by the pandemic as its performance is generally correlated to the U.S. DOD budget.\nWe are very fortunate that the 2021 Defense Authorization bills appear to be moving forward toward approval.\nWe continue to work hard on expanding CJ's addressable market through direct sales to U.S. government agencies and have booked $0.5 million in new contract revenue through the first half of the year.\nWe expect ClearanceJobs to add several new government customers as we make our way through the rest of this year.\nFinally eFinancialCareers remains our most challenged brand.\nFrom the Hong Kong protests last summer, to the uncertainty of Brexit last fall, to the current pandemic; eFC clients have faced significant challenges that have certainly affected our bookings.\nThe global banking community is still working out the hiring plans in light of the indeterminate effect of the pandemic on loan portfolios.\nWe are fortunate that eFC is generally focused on larger banking institutions and counts 50% of the global 100 banks as clients.\nThese institutions believe in an online banking future and continue to hire technologists even now.\nThere is no question, however, that the uncertainty in the banking industry has weighed down eFC's performance to date and will continue to do so at least through the remainder of the year.\nAs I conclude my remarks, I want to reiterate that we are successfully executing on our plan to build career marketplaces for matching tech professionals with employers.\nWe believe we have created a better online platform than our competitors for matching companies with the highest quality tech professionals.\nAnd with our proven go-to-market strategy, we believe we can capitalize on the millions of new technologist jobs expected over the next five years and grow our revenue at or above the market rate of growth.\nWhile this growth won't happen overnight and COVID-19 certainly presents uncertainty, we are confident in our business plan and the continued progress we are making toward achieving our goal.\nI'll start by going through the financial results, then add a few comments about the business.\nFor the second quarter, we reported total revenues of $33.8 million, which was down 8% from the first quarter and down 9% year-over-year when you exclude the impact of foreign exchange.\nDice revenue was $20.5 million in the second quarter, down 9% sequentially and down 12% year-over-year.\nWe ended the second quarter with 5,450 Dice recruitment package customers, which is down 7% sequentially and 11% year-over-year.\nDuring the quarter, we did not see any notable changes to customers' leaving the platform relative to other quarters.\nHowever, we did see lower new customers being added.\nThis gives us comfort that our core customers continue to see the value in our platform even during these challenging times.\nWe maintained our average monthly revenue per recruitment package customer versus the year ago quarter at $1,131 or $13,572 on an annual basis.\nThis is important as over 90% of Dice revenue is recurring and comes from recruitment package customers.\nOur Dice customer renewal rate was 57% for the second quarter, down 13 percentage points year-over-year and our revenue renewal rate was 61%, which was down 19 percentage points when compared to the same period last year.\nThese lower renewal rates have a minimal impact on in-quarter revenues, but do impact contracted revenue and will result in lower revenue during the term of the related contracts.\nAnd while we did see lower in-period renewal rates, that is customers renewing prior to or at contract termination, we are maintaining an ongoing dialog with these non-renewal customers with the expectation that they will resign when there is further recovery in the economy.\nIn addition, we hired a new leader for our Client Success organization who is implementing new processes around on-boarding and ongoing touch points that should have a positive impact on both customer and revenue renewal rates.\nAs we look at Dice, our strategy continues to be on larger customer relationships through moving upstream in terms of our marketing efforts, sales activities and go-to-market approach.\nWe believe this will put us in the best position for stability and growth.\nCurrently, approximately 15% of our customers generate 50% of our recruitment package revenue though no one customer makes up even 1% of revenue.\nWe think this is a good balance of a strong stable revenue base without having significant customer concentration risk.\nClearanceJobs' second quarter revenue was $7.1 million, an increase of 3% sequentially and 18% year-over-year.\nThis continued solid double-digit revenue growth year-over-year is reflective of ClearanceJobs' strong innovative products and competitive differentiation.\nSecond-quarter revenue for eFinancialCareers was $6.2 million, down 15% from the first quarter and 21% year-over-year, when excluding the impact of foreign exchange rates.\nAs expected, COVID negatively impacted our performance for eFinancialCareers during the quarter.\nIn the U.K., which is our largest geography by revenue for eFC, we were impacted by the COVID shut down and U.K. furloughs, which have been extended through October of this year.\nIn the APAC region, eFC's second largest geography, we continued to experience difficulties primarily due to the impact of the pandemic.\nTurning to operating expenses.\nSecond quarter operating expenses were $31.3 million, representing a decrease of $1.7 million or 5% year-over-year.\nThis decrease in operating expenses was primarily the result of the comprehensive cost management exercise which began in late March and continues currently.\nFor the second-quarter, sales and marketing expense decreased $1.5 million year-over-year to $12.3 million.\nThe majority of our cost savings was associated with the reduced digital marketing spend for candidates, given that there has been a larger amount of candidate engagement naturally during the work from home environment.\nAnd even while we accelerated the deployment of new product features in the second quarter, our product development expense decreased $617,000 year-over-year to $3.8 million, as a result of higher capitalization rates associated with these projects.\nIncome tax expense for the second quarter was $430,000, resulting in an ineffective tax rate of 19%, which is lower than our expected statutory rate of 25% due to the allocation of income between jurisdictions.\nWe recorded net income for the second quarter of $1.9 million or $0.04 per diluted share compared to net income of $3.1 million or $0.06 per diluted share a year ago.\nThis quarter's earnings per share had a $0.01 detriment primarily from severance and related costs that negatively impacted net income.\nLast year's earnings had a $0.02 detriment from disposition related costs, including the loss on the sale of a business and discrete tax items.\nExcluding those items, on a normalized basis, earnings per share for the quarter was $0.05 versus $0.08 last year.\nAdjusted EBITDA margin for the second quarter was 23%, up from 21% in the first quarter and down from 24% in the second quarter last year.\nAs we stated on our last call, our goal is to manage the business to approximately 20% adjusted EBITDA margins.\nWe were able to exceed that due to the quick action we took to both support our customers and revise our spending, along with the ongoing management of the overall cost structure.\nWe generated $7.1 million of operating cash flow in the second quarter compared to $11.1 million in the prior year quarter.\nFrom a liquidity perspective, at the end of the quarter, our total debt was $37 million.\nWe had $27.5 million of cash resulting in net debt of $9.5 million.\nEven with the incremental borrowing in the first quarter, we still have significant borrowing capacity available to us under our credit facility.\nLiquidity continues to be a key area for us.\nDuring the quarter, several customers requested flexibility on billing terms and with our strong liquidity position, we were able to provide this flexibility with the intent of retaining active customers and working with them through their challenges.\nMore recently, we have seen the number of requests drop significantly, which is clearly a positive sign.\nDeferred revenue at the end of the quarter was $47.2 million, down 15% from the first quarter.\nThis is due to the impacts of COVID-19 as well as more contracts having a monthly or quarterly payment terms as a result of the flexible billing terms I just discussed and the normal seasonality of bookings.\nWhen we add the unbilled portion of our contracts to deferred revenue, our committed contract backlog at the end of the quarter was down 11% from the end of the second quarter last year.\nDuring the quarter, we repurchased approximately 1.3 million shares for $3.4 million or $2 56 per share.\nWe used $2.9 million of the $7 million buyback program, which ran through May of this year and $530,000 under the new $5 million share buyback program.\nWe continue to believe that buyback is a recognition of the strength in the long-term prospects of our business.\nConsistent with our previous programs, we will continue to evaluate investment opportunities in the business against buying back shares while also using it as an opportunity to offset the impacts of our employee equity incentive programs.\nAs we look ahead, bookings are improving across all teams.\nBut as Art mentioned, this appears to be more of a Nike swoosh shaped recovery than a V-shaped recovery.\nFor Dice, while there is still great uncertainty due to the pandemic, we've seen a stable number of tech job postings in the past few weeks as companies continue to use technology in their business model.\nWith regard to ClearanceJobs, we expect them to continue to grow because of their success is correlated to the U.S. Department of Defense budget which, relatively speaking, has been immune to the environment we find ourselves in.\nFor eFinancialCareers, while it operates in multiple geographies, we continue to expect significant headwinds in our two largest regions, the U.K. and APAC as a result of the furloughs in the U.K. due to COVID and in addition to COVID, the ongoing geopolitical issues in Hong Kong.\nWhile we have relationships with approximately 50% of the global 100 banks providing us more stability in the current environment, we have seen our smaller customers continue to be impacted.\nAs we've mentioned, we continue to evaluate our entire cost structure and have reduced non-headcount-related expenses, both operating expenses and capital expenditures.\nThis includes such areas as contractor and consulting spend, marketing spend and third-party vendors spend, while being very disciplined around any headcount additions.\nWith regards to marketing, we believe we can still achieve our candidate and client metrics with lower spend as overall digital advertising rates have come down.\nWe remain confident in our ability to manage our expenses appropriately for any revenue changes that might occur.\nLooking forward, we will operate the business in a manner that maintains our employee base and allows us to continue investing in our business to drive long-term revenue growth and to support our customers in these challenging times.\nAs such, while not providing specific guidance, we continue to manage the business to margins in the 20% range.\nLet me sum up by saying that while we continue to find ourselves in very challenging times, we feel our business model provides us some protection and predictability and we are confident in the investments we have made in innovation and sales.\nWe remain focused on the continued execution of our business plan and look forward to reporting on our progress throughout the rest of 2020.\nIt is a pleasure to be part of such a great team.",
        "summary": "compname posts q2 earnings per share of $0.04.\nq2 earnings per share $0.04.\nq2 revenue $33.8 million."
    },
    {
        "text": "A playback of today's call will be archived on our Investor Relations website located at investors.\ndicks.com for approximately 12 months.\nAnd finally, a few admin items.\nFirst, a note on our same-store sales reporting practices.\nOur consolidated same-store sales calculation include stores that we temporarily closed last year as a result of COVID-19.\nThe method of calculating comp sales varies across the retail industry, including the treatment of temporary store closures because of COVID-19.\nAccordingly, our method of calculation might not be the same as other retailers.\nNext, as a reminder, due to the uneven nature of 2020, we planned 2021 off of the 2019 baseline.\nAccordingly, we will compare 2021 sales and earnings results against both 2019 and 2020.\nAnd lastly, for your future scheduling purposes, we are tentatively planning to publish our fourth quarter 2021 earnings results before the market opens on March 8, 2022, with our subsequent earnings call at 10:00 a.m. Eastern Time.\nWe're extremely pleased to announce another very strong quarter in which we delivered significant sales and earnings growth over both last year and 2019.\nOur strategies continue to work as we reimagine the athlete experience in our core business and with the new concepts.\nWe have driven strong profitable growth at DICK's.\nAnd earlier this year, we launched two DICK'S House of Sport stores, highly experiential destinations that are redefining sports retail.\nThe innovations we've made in our Golf Galaxy business are performing extremely well.\nAnd our second Public Land store recently opened, focusing on the outdoor activities.\nLooking ahead, I couldn't be more excited about the future of DICK's Sporting Goods.\nWe now expect to deliver comp sales of over 20% for 2021, and remain very confident in the long-term prospects of our business.\nBefore diving into our Q3 results, I think it's important to recognize that our current success is a result of a transformational journey that began in the back half of 2017 when we started to make meaningful changes across our business.\nWe also improved our service and selling culture, made our stores more experiential and reallocated floor space to regionally relevant and growing categories.\nThese changes fueled improved results and significantly improved our comp sales trajectory, well before the pandemic.\nFor years, we've also invested in technology and data science to build our best-in-class omnichannel platform.\nThis allowed us to quickly capitalize on athlete needs and strong consumer demand throughout 2020, and deliver our full-year comp sales increase of nearly 10%.\nWe announced today that we've raised our full-year guidance for the third time this year, and now expect our comp sales to increase between 24% and 25%.\nDuring a time when consumers are making lasting lifestyle changes with an increased focus on health and fitness and greater participation in outdoor activities, we believe that DICK's Sporting Goods has become synonymous with sport in the United States.\nNearly, our entire category portfolio has rebaselined meaningfully higher versus pre-COVID sales levels.\nWe've capitalized on strong consumer demand and have gained considerable market share in key categories, driven by enhanced product access, service, and omnichannel capabilities.\nLooking ahead, we are well positioned to continue gaining share and we remain optimistic about the long-term demand trends in our most important categories like athletic apparel, footwear, team sports and golf.\nWe also remain very optimistic about longer-term EBT margin, driven by a number of permanent changes versus pre-COVID levels.\nThese changes include a highly differentiated product assortment that is less susceptible to broader promotional pressures; more granular management in promotions and significantly higher profitability of our eCommerce channel.\nNow getting back to our Q3 results.\nConsolidated same-store sales increased 12.2% on top of a 23.2% increase in the same period of last year, and a 6% increase in Q3 2019.\nDriven by our strong sales and gross margin rate expansion, on a non-GAAP basis, our third quarter earnings per diluted share of $3.19, increased 59% over last year and 513% over Q3 2019.\nOur Q3 comps were supported by broad-based growth across our business, as our strong execution, diverse category portfolio and world-class omnichannel platform helped us continue to capitalize on and meet robust consumer demand despite a dynamic global supply chain.\nWe're continuing to see strong retention of the 8.5 million new athletes we acquired last year, and we added another 1.7 million new athletes during this quarter.\nOur active athlete database is at a record high.\nOur increasingly differentiated product assortment, combined with our disciplined promotional strategy and cadence is continuing to drive significantly higher merchandise margin rate.\nDuring the quarter, we expanded our merchandise margin rate by 301 basis points versus 2020 and by 578 basis points versus 2019.\nAs we discussed previously, we're focused on enhancing the athlete experience across our entire omnichannel ecosystem.\nIn our stores, we continue to make DICK's a great place to work, as we know that our people are our competitive differentiator and a great teammate experience drives a great athlete experience.\nIn fact, we recently earned a place on Fortune's list of Best Workplaces in Retail for 2021.\nWe're also engaging our athletes with new and elevated service standards and making our stores more experiential.\nThese strategies are working and continue to set us apart within the marketplace.\nDuring the quarter, our brick-and-mortar stores comped up approximately 15% versus last year and delivered a 31% sales increase when compared to 2019.\nImportantly, our stores continue to be the hub of our omnichannel strategy, enabling over 90% of our total sales and fulfilling approximately 70% of our online sales in Q3.\nMoving to our eCommerce business.\nDuring the quarter, we were pleased to deliver online sales growth of 1%, which was on top of a 95% increase in the same period last year.\nOur online sales remained substantially above pre-COVID levels, increasing nearly 100% when compared to the same period in 2019.\nImportantly, we also continue to drive a significant improvement in the profitability of our eCommerce channel by leveraging fixed costs, sustained athlete adoption of in-store pickup and curbside, as well as fewer and more targeted promotions.\nBeyond our omnichannel platform, our portfolio of brands is a tremendous asset.\nWe continue to invest substantially in our highly profitable and growing vertical brands.\nKey brands including DSG, CALIA and VRST are driving exclusivity within our assortment and gaining meaningful traction with our athletes.\nAt the same time, while many national brands continue to narrow distribution and focus more on their most strategic partners, DICK's offers them something unique and valuable.\nWe are rooted in sport and can showcase an entire brand of portfolio, including apparel, footwear and hard lines across our over 800 stores and online.\nOur brand partners continue to make significant investments in our business every year and provide us with increasing allocations of exclusive and differentiated products.\nThese top-of-the-line products are highly coveted and rarely promoted, driving significant sales and margin momentum.\nOur strategic partnerships with key brands have never been stronger, and we're making big bets with important brand partners.\nTo that end, we recently announced a groundbreaking new partnership with Nike that we see as truly transformative for the sports industry.\nThrough this collaboration, DICK'S and Nike will create unmatched value for our athletes through exclusive products, experiences, content and other specialized offers.\nTogether, we'll embrace our collective strengths and capabilities to expand our reach, connect with even more athletes and most importantly serve them better.\nOur companies have a long and successful history of working together, and this demonstrates a deepening of the DICK's and Nike relationship.\nThis partnership is aimed at driving growth for both companies, while serving our customers in a personalized way.\nAt DICK's, part of our strategy is to lead with mobile, and we're excited to launch this partnership through a connected marketplace exclusively in our DICK's mobile app.\nLooking ahead, we will explore additional opportunities to work with Nike and our other strategic partners across our respective physical and digital properties to further enhance convenience, experiences and content for our athletes.\nNow, I'd like to provide a few updates on our newest concept.\nFirst, we remain very pleased with our first 2 DICK's House of Sport stores in Rochester and Knoxville.\nHouse of Sport is built around experience, service, community and product, setting an unparalleled standard for sports retail and athlete engagement.\nMoving forward, we are excited to continue to refine and grow House of Sport, while pulling key learnings into the rest of the DICK's chain.\nWe're also excited by the early results of our first two Golf Galaxy performance centers located outside of Boston and Minneapolis, St Paul.\nGolf Galaxy Performance Center has been completely redesigned and equipped with TrackMan and BioMech golf technologies.\nWe've also invested in talent to ensure our teammates become trusted advisors to golf enthusiast of all levels.\nIn addition to innovating within our core business, we also launched Public Lands, a new omnichannel specialty concept to better serve outdoor athletes.\nOur first Public Lands store recently opened here in Pittsburgh, and our second store opened in Columbus just a few weeks ago.\nWe also launched publiclands.com, a complete eCommerce experience for the outdoor enthusiasts.\nWhile it's still early, Public Lands is off to a strong start and we are very enthusiastic about this growth opportunity and its goal to get more people outside, exploring and protecting Americas Public Lands.\nBefore concluding, I want to spend a moment on the supply chain.\nAmidst the very dynamic environment, our team has done an excellent job working with our vendor partners and with our vertical brand manufacturers to ensure a robust flow of product to meet strong demand.\nWe ordered aggressively to get ahead of this disruption and our quarter ending inventory levels increased 7.3% compared to the end of the same period last year.\nWhile there will continue to be inventory challenges across the marketplace, our fourth quarter is off to a strong start and we feel that we are well positioned within our industry this holiday season.\nIn closing, we have exciting growth opportunities ahead of us.\nAnd as Ed said, we are very confident in the longer-term prospects of our business.\nAs we continue to execute against our strategic priorities and reimagine the athlete experience, we believe the investments we've made to transform our business will strengthen our leadership position within the marketplace.\nOur teammates are at the center of this transformation.\nAfter joining the company in 2017 as SVP of Finance and Chief Accounting Officer, Navdeep was appointed to the CFO position last month.\nNavdeep's impact on our business has been phenomenal.\nOver the last four years, he has led most of the finance functions in the organization and he has become a trusted partner to our entire executive team.\nHe has also driven companywide productivity efforts, served on our long-term Strategic Committee and he played a really critical role in securing financing at the outset of COVID.\nPrior to DICK's, Navdeep spent 11 years at Advance Auto Parts in various leadership roles, most recently serving as Senior Vice President of Finance.\nEarlier in his career, Navdeep held a variety of management roles at Sprint Nextel and he served as a lieutenant in the Indian Navy.\nNavdeep's keen financial acumen and strategic vision will be instrumental to the continued growth and success of DICK's.\nAnd with that, Navdeep, it is my pleasure to hand it over to you.\nWith three quarters of the year now behind us, our consistent, strong results have demonstrated our ability to serve our athletes in a very differentiated way, while driving toward another record sales and earnings here in 2021.\nLet's begin with a brief review of our third quarter results.\nLike Lauren said, we are excited to report a consolidated sales increase of 13.9% to approximately $2.75 billion.\nConsolidated same-store sales increased 12.2% on top of a 23.2% increase in the same period last year, and a 6% increase in Q3 of 2019.\nOur strong comps were driven by growth across each of our three primary categories of hardlines, apparel and footwear, as well as an 8.5% increase in transaction and a 3.7% increase in average ticket.\nWhen compared to 2019, consolidated sales increased 40%.\nOur brick-and-mortar stores comped up approximately 15% versus 2020, and delivered a 31% sales increase when compared to 2019, with roughly the same square footage.\nOur eCommerce sales increased 1% versus last year on top of a 95% online sales increase in the third quarter of 2020.\nCompared to Q3 of 2019, our eCommerce sales increased 97%.\nAs a percent of total net sales, our online business has grown from 13% in 2019% to 19% in the current quarter.\neCommerce penetration was 21% last year.\nMoving to gross profit.\nGross profit in the third quarter was $1.06 billion, or 38.45% of net sales, and improved 354 basis points compared to last year.\nThis improvement was driven by merchandise margin rate expansion of 301 basis points and leverage on fixed occupancy costs of 111 basis points from sales increase.\nThe increase in merchandise margin was primarily driven by fewer promotions due to our increasingly differentiated assortment and disciplined promotional strategy, as certain categories in the marketplace continue to be supply constrained.\nWe also saw a favorable sales mix.\nIn addition, we were able to pass through selective price increases to help cover merchandise cost increases from higher supply chain and input costs.\nAs expected, these improvements were partially offset by higher freight costs resulting from global supply chain disruptions and our prioritization of inventory availability over costs.\nCompared to 2019, gross profit as a percent of net sales improved 886 basis points, driven by merchandise margin rate expansion of 578 basis points due to fewer promotions, as well as leverage on fixed occupancy costs of 370 basis points, which again was partially offset by higher freight costs.\nSG&A expenses were $631.9 million, or 23% of net sales, however, leveraged 151 basis points compared to last year due primarily to the increase in sales.\nSG&A dollars increased $40.8 million, due primarily to current year cost increases to support the growth in sales.\nIn the prior year quarter, SG&A included $43 million of COVID-related costs.\nHowever, in the current year, we transitioned our hourly teammates to compensation programs with a longer-term focus, including increasing and accelerating annual merit increases and higher wage minimums, partially offsetting last year's COVID-related costs.\nCompared to 2019 and on a non-GAAP basis, SG&A expenses as a percentage of net sales leveraged 325 basis points due primarily to the increase in sales.\nSG&A dollars increased $116.8 million due to increase in store payroll and operating expenses to support the increase in sales, as well as hourly wage rate investments.\nDriven by our strong sales and gross margin rate expansion, non-GAAP EBT was $415.6 million, or 15.12% of net sales, and increased $171.8 million, or 501 basis points from the same period last year.\nCompared to 2019, non-GAAP EBT increased $355.6 million, or approximately 1,200 basis points as a percentage of net sales.\nIn total, we delivered a non-GAAP earnings per diluted share of $3.19.\nThis compares to a non-GAAP earnings per diluted share of $2.01 last year, a 59% year-over-year increase, and a non-GAAP earnings per diluted share of $0.52 in 2019, a 513% increase.\nOn a GAAP basis, our earnings per diluted share were $2.78.\nThis included $7.7 million in non-cash interest expense, as well as 12.8 million additional shares that we have designed to be offset by our bond hedge at settlement, but are required in the GAAP diluted share calculation.\nBoth of these are related to our convertible notes we issued in Q1 of 2020.\nNow looking to our balance sheet.\nWe are in a strong financial position, ending Q3 with approximately $1.37 billion of cash and cash equivalents, and no borrowings on our $1.855 billion revolving credit facility.\nOur quarter-end inventory levels increased 7.3% compared to end of Q3 last year.\nLooking ahead, we continue to aggressively chase product to meet demand and prioritize inventory availability over costs.\nAs part of this, we expect elevated freight expenses to continue at least in the fourth quarter and have included the impact of this within our outlook.\nTo reiterate Lauren's comment, while there will continue to be supply chain challenges across the marketplace, we feel that we are very well positioned within our industry this holiday season.\nTurning to our third quarter capital allocation.\nDuring the quarter, net capital expenditures were $54.1 million.\nWe paid $503 million in dividends, which included a special dividend of $5.50 per share that we announced last quarter.\nWe also repurchased 2.17 million shares of our stock for approximately $273 million at an average price of $125.80.\nWe have approximately $605 million remaining under our share repurchase program.\nYear-to-date, we have returned nearly $1 billion to shareholders through dividends and share repurchases.\nLooking ahead, we will continue to invest in the profitable growth of our business, while maintaining an appropriate level of cash on the balance sheet.\nReturning capital to shareholders will also continue to be an important component of our capital allocation strategy.\nNow, let me move on to our fiscal 2021 outlook for sales and earnings.\nWhile still early, Q4 is off to a strong start.\nTaking this into account, along with our significant Q3 results, an expectation of a continued strong consumer demand and our confidence in our ability to navigate the global supply chain challenges, we are raising our consolidated same-store sales guidance and now expect the full-year comp sales to increase by 20% to 25% compared to our prior expectation of up 18% to 20%.\nThis is on top of 9.9% increase in consolidated same-store sales last year and a 3.7% increase in 2019.\nAt the midpoint, our updated comp sales guidance represents a 39% sales increase versus 2019 compared to our prior expectation of up 33%.\nOn a non-GAAP EBT basis, we expect the full-year results to be in the range of $1.89 billion to $1.92 billion compared to our prior outlook of $1.61 billion to $1.67 billion, which at midpoint and on a non-GAAP basis is up 333% versus 2019 and up 160% versus 2020.\nAt the midpoint, non-GAAP EBT margin is expected to be approximately 15.7%.\nWithin this, gross margin is expected to increase versus both 2019 and 2020, driven by leverage on fixed expenses and higher merchandise margins.\nThis assumes higher freight costs and fewer promotions compared to both 2019 and 2020 for the fourth quarter.\nSG&A expenses is expected to leverage versus both 2019 and 2020, due to the significant projected increase in full-year sales.\nIn total, we are raising our full-year non-GAAP earnings per diluted share outlook to a range of $14.60 to $14.80, compared to our prior outlook of $12.45 to $12.95.\nAt the midpoint and on a non-GAAP basis, our updated earnings per share guidance is up 298% versus 2019 and up 140% versus 2020.\nIn closing, the work that we have done over the past several years to rearchitect our strategy, operations and financial, sets us up well to deliver improved value to our shareholders over the long term.",
        "summary": "compname reports q3 sales up 14% to $2.75 bln.\ncompname reports record third quarter sales and earnings; delivers 12.2% increase in same store sales and raises full year guidance.\nq3 same store sales rose 12.2 percent.\nsees fy non-gaap earnings per share $14.60 to $14.80.\nq3 non-gaap earnings per share $3.19.\nq3 sales rose 13.9 percent to $2.75 billion.\ntotal inventory increased 7.3% at end of q3 of 2021 compared to end of q3 of 2020.\nq3 2021 earnings per diluted share of $2.78."
    },
    {
        "text": "A playback of today's call will be archived in our Investor Relations website located at investors.\ndicks.com for approximately 12 months.\nAnd finally, a couple of admin items.\nFirst, a note on our same-store sales reporting practices.\nOur consolidated same-store sales calculation include stores that were temporarily closed as a result of COVID-19.\nThe method of calculating comp sales varies across the retail industry, including the treatment of temporary store closures as a result of COVID-19.\nAccordingly, our method of calculation may not be the same as other retailers.\nWe've never had quite a year like 2020.\nWe were challenged in numerous ways, as were so many others, but as an organization, we not only survived, we thrived.\nThe strength of our diverse category portfolio, technology capabilities and advanced omni-channel execution helped us capitalize on the favorable shifts in consumer demand across golf, outdoor activities, home fitness and active lifestyle.\nFor the full year, we delivered record sales and earnings.\nOur consolidated same-store sales increased a record-setting 9.9%, which was on top of our 3.7% comp increase from the prior year.\nAnd our non-GAAP earnings per diluted share of $6.12 represented a 66% increase over last year.\nWe developed innovative technology, including curbside pickup that set the pace for the retail industry and helped drive full year eCommerce sales of over $2.8 billion, an increase of 100%.\nMost importantly, we cared for each other and our communities every step of the way.\nAs we reopened our stores, the health and safety of our teammates and athletes was our highest priority, and we established protocols and procedures to provide a safe shopping experience.\nOur frontline hourly associates and distribution center teammates went above and beyond in 2020, and we showed our appreciation to our premium pay program.\nIn total, in 2020, we invested approximately $175 million across incremental teammate compensation and safety costs.\nAdditionally, last Friday, we partnered with Allegheny Health Network to host a COVID-19 vaccination clinic at our corporate headquarters.\nAs a result of this partnership, approximately 6,000 community members were vaccinated.\nThe largest single vaccination clinic in State of Pennsylvania to date.\nWe plan to host a number of these vaccination clinics in the future also.\nWe also recognize that youth sports programs have been severely hampered by the pandemic and low-income communities of color have been most impacted.\nTo help get these kids back on the field, we donated $30 million this year to our Sports Matter Foundation to help serve these impacted communities.\nWhile the pandemic informed much of our ESG activity in 2020, we also increased our focus on caring for the planet.\nAmong other actions, this past year, we committed to become the sports retail sector lead of the Beyond the Bag Challenge, which aims to identify innovative solutions to replace today's single-use plastic retail bags in a way that is both sustainable and convenient for our customers.\nWe also joined the outdoor association's Climate Action Corp and committed to publishing climate-related goals in 2021.\nToday, as Lauren and Lee talk about another strong quarter, I remain as committed and is excited about our business as I've ever been.\nI'm extremely proud of how our teammates managed through this challenging year.\nThey came together to care for their communities, their families and each other.\nAt DICK's, it is our people who make us great, and I am so excited for our future and for what I know we will all accomplish together.\nNow on to our results.\nOur Q4 consolidated same-store sales increased 19.3%, which was on top of our 5.3% comp increase in the same period last year.\nOur strong comps were supported by significant growth across each of our three primary categories of hardlines, apparel and footwear, as we continued to benefit from favorable shifts in consumer demand, as well as strong execution from our team.\nFrom a channel standpoint, our brick-and-mortar stores comped positively for a second straight quarter, increasing mid-single digits and our eCommerce sales increased 57%, representing nearly one-third of our total business.\nWithin eCommerce, we continued to see the strongest growth across in-store pickup and curbside, which increased nearly 250% compared to BOPIS sales in the prior year.\nThese same-day services are fully enabled by our stores, which are the hub of our industry-leading omni-channel experience, both serving our in-store athletes and providing over 800 forward points of distribution for digital fulfillment.\nIn fact, during Q4, our stores enabled 90% of our total sales and fulfilled over 70% of our online sales, either through ship-from-store, in-store pickup, or curbside.\nDuring Q4, we again remained very disciplined in our promotional strategy and cadence, and certain categories in the marketplace continued to be supply constrained.\nAs a result, we expanded our merchandise margin rate by 372 basis points.\nThis merchandise margin expansion drove a significant improvement in gross margin, which on a non-GAAP basis increased 507 basis points.\nIn total, our fourth quarter non-GAAP earnings per diluted share of $2.43 represented an 84% increase over last year.\nIt's clear that our strategies over the past several years are working and have helped us not only withstand the pandemic, but thrive, setting us up for long-term success.\nAs we enter 2021, our business has so much momentum, and we are pleased with the start to our year.\nOur focus this year will center around enhancing our existing strategies to accelerate our core and enable long-term growth.\nFirst within merchandising, our strategic partnerships with key brands have never been stronger, and we will continue to make big bets with important brand partners.\nAt the same time, we will continue to elevate our vertical brands.\nAs we've discussed on previous calls, our vertical brands have become a significant source of strength and growth.\nDuring 2020, our vertical brands eclipsed $1.3 billion in sales, with comps outperforming the Company average by over 400 basis points.\nOur DSG brand finished the year as our largest vertical brands and CALIA was again our second largest women's athletic apparel brands only behind Nike.\nFurthermore, our vertical brands together represented the Company's largest brand in golf, fitness, outdoor equipment and team sports.\nDuring 2021, we will invest in making our vertical brands even stronger, which will improve space in store and increase marketing, while expanding into additional product categories.\nLater this month, we will augment our men's apparel collection by launching Burst [Phonetic], our new premium apparel brand that serves the modern athletic male.\nBurst, which will only be available at DICK'S, will put us in a much stronger position to compete with similar offerings from premium apparel brands and specialty athletic apparel stores.\nAlso in 2021, we will build on our momentum from 2020 and drive growth in important categories, including golf, athletic apparel, footwear and team sports, as well as in fitness, we saw significant gains throughout the pandemic.\nIn 2020, our golf business across both DICK'S and Golf Galaxy was tremendous.\nAs the country's largest golf retailer, we are very well positioned to capitalize on increased participation and other favorable trends.\nAnd in 2021, we will invest in TrackMan technology to enhance the fitting and lesson experience in our Golf Galaxy stores.\nIt will also enable online booking of lessons and club fittings, and we'll invest in talent to elevate our in-store service model.\nAdditionally in 2021, we plan to build on the strong results and momentum in our athletic apparel and footwear businesses.\nOur athletic apparel assortment for 2021 is on trend, and we're excited to continue the energy in this category beyond the pandemic.\nAs part of this, we will convert over 100 additional stores to premium full-service footwear, taking this experience to over 60% of the DICK's chain.\nWe believe that these enhancements, along with strong consumer trends and improving allocations of the most in-demand styles, will drive continued positive results in our athletic apparel and footwear business.\nLastly, we expect our team sports business to provide a nice tailwind during 2021, as kids get back out on the field following a year in which many seasons were canceled.\nFurthermore, we plan to reconceptualize our soccer business, an initiative we delayed last year because of COVID.\nWe will follow the same playbook we used to attack the baseball category in 2019, centered around more premium product, enhanced store experiences, and exceptional service.\nBeyond merchandising, in 2021, we will focus on several key areas to enable the profitable growth of our business, including our omni-channel experience, data science and customer relationships.\nWithin our omni-channel experience, we will continue to lean on our stores as well as our eCommerce business to serve our customers whom we call athletes whenever, wherever and however they want.\nAs Ed mentioned earlier, in 2020, our eCommerce sales increased 100%, partially driven by our curbside service that we launched in March and continuously improved throughout the year.\nCurbside pickup, along with fewer promotions and leverage of fixed costs, drove significant improvements in the profitability of our online channel in 2020.\nIn 2021, we expect curbside to remain a meaningful piece our omni-channel offering as our athletes turn to the service for speed and convenience.\nIn addition, the curbside will continue to improve our online shopping experience.\nThis includes leading with mobile, which for 2020 represented over 50% of our online sales.\nThis also includes shortening the path to purchase and reducing delivery times, as well as becoming a more consistent destination for our athletes' needs by offering a more integrated loyalty experience.\nBeyond online shopping, through our game changer technology, we will enhance our scorekeeping and live streaming offering for youth sports with video on demand, all delivered through a premium subscription service.\nWe will also continue building relationships with both new and existing athletes in our stores and online.\nIn fact, the key to our omni-channel offering is our ScoreCard program, which in 2020 drove over 70% of total sales.\nIn 2021, we will continue to use data science to leverage our extensive athlete database to drive more personalized one-to-one marketing to increase loyalty among the 8.5 million new athletes that we acquired in 2020, including more than 2.5 million new athletes added during Q4.\nLastly, we are very excited to be opening our first experiential prototype store next week in Rochester, New York.\nThis new DICK's store called DICK's House of Sport will focus on service and community and allow us to innovate and deliver elevated experiences to our athletes, including an outdoor field to host sports events and from a product trial, a rock climbing wall and health and wellness basis for in-store programing.\nIt will serve as the test and learn center, and will roll the most successful elements into our core DICK'S stores.\nAs I look at our business, we are really in a great position.\nOur brick-and-mortar stores and our technology platforms are working seamlessly together to deliver an industry-leading omni-channel experience.\nWe have world-class vertical brands and our vendor relationships with key partners have never been stronger.\nWe've become more athlete-centric focusing on friendly, knowledgeable and available service.\nImportantly, we have a respected and loved brands, and are aligned behind our common purpose to create confidence and excitement by personally equipping all athletes to achieve their dreams.\nIn closing, we're extremely pleased with our Q4 and 2020 results and look forward to building on this success in 2021.\nLet's begin with a brief review of our full-year 2020 results.\nConsolidated sales increased 9.5% to $9.58 billion, even though stores were closed to foot traffic during the spring, representing 16% of our store days closed on average for the year.\nConsolidated same-store sales increased a record-setting 9.9%.\nAnd within this, we delivered a 100% increase in eCommerce sales.\nAnd as a percent of total sales, our online business increased to 30% compared to 16% last year.\nGross profit for the full year was $3.05 billion, or 31.83% of net sales, and on a non-GAAP basis, improved 249 basis points from last year.\nThis improvement was driven by merchandise margin rate expansion of 204 basis points and leverage on fixed occupancy cost of 114 basis points, partially offset by shipping expenses resulting from meaningfully higher eCommerce sales growth.\nGross profit also included approximately $23 million of incremental COVID-related compensation and safety costs.\nSG&A expenses were $2.3 billion, or 23.98% of net sales on a non-GAAP basis, and leveraged 25 basis points from last year, primarily driven by the significant sales increase.\nSG&A dollars increased $178 million compared to last year's non-GAAP results, driven by $152 million of incremental COVID-related compensation and safety costs, as well as a $30 million donation we made to the DICK's Foundation to help jump-start youth sports program struggling to come back from the pandemic.\nApart from these items, increases in store payroll and operating expenses incurred to support the increase in sales were offset by expense reductions, including advertising during our temporary store closures.\nDriven by our strong sales and merchandise margin rate expansion, non-GAAP EBT was $733.3 million, or 7.65% of net sales, and on a non-GAAP basis, increased $292.8 million, or 262 basis points from the same period last year.\nIn total, non-GAAP earnings per diluted share were $6.12, compared to non-GAAP earnings per diluted share of $3.69 last year, a 66% year-over-year increase.\nNow moving to our Q4 results.\nConsolidated net sales increased 19.8% to approximately $3.13 billion.\nConsolidated same-store sales increased 19.3%, driven by a 20.3% increase in average ticket, partially offset by a 1% decrease in transactions.\nOur eCommerce sales increased 57%.\nAnd as a percent of total net sales, our online business increased to 32% compared to 25% last year.\nAnd lastly, we delivered significant growth across each of our three primary categories, hardlines, apparel and footwear.\nGross profit in the fourth quarter was $1.05 billion, or 33.67% of net sales, and on a non-GAAP basis, improved 507 basis points compared to last year.\nThis improvement was driven by merchandise margin rate expansion of 372 basis points and leverage on fixed occupancy costs of 148 basis points.\nThe merchandise margin rate expansion was primarily driven by fewer promotions and lower clearance activity.\nIn terms of shipping expense, we saw higher costs from shipped packages due to increased volume and industrywide holiday surcharges.\nHowever, the higher average ticket, combined with higher penetration of in-store and curbside pickup, neutralized this impact from a basis point perspective.\nSpecifically, for the fourth quarter, our curbside and in-store pickup sales increased nearly 250%.\nSG&A expenses were $761.2 million, or 24.35% of net sales, and on a non-GAAP basis, increased $163 million or 142 basis points compared to last year.\n27 basis points are attributable to the expense recognition associated with the change in value of our deferred comp plans, resulting from the increase in overall equity markets during the fourth [Phonetic] quarter.\nThis expense is fully offset in other income and has no net impact on earnings.\nThe balance of the deleverage was primarily due to $47 million of incremental COVID-related compensation and safety costs, as well as the $30 million donation we made to the DICK'S Foundation, most of which was in Q4.\nThese items were partially offset by leverage and other expenses from the significant sales increase.\nDriven by our strong sales and merchandise margin rate expansion, non-GAAP EBT was $298.5 million, or 9.55% of net sales, and on a non-GAAP basis, increased $149.9 million or 385 basis points from the same period last year.\nIn total, we delivered non-GAAP earnings per diluted share of $2.43, compared to non-GAAP earnings per diluted share of $1.32 last year, an 84% year-over-year increase.\nOn a GAAP basis, our earnings per diluted share were $2.21.\nThis included $7.2 million in non-cash interest expense, as well as 6.7 million additional shares that will be offset by our bond hedge at settlement, but required in the GAAP diluted share calculation, both related to the convertible notes we issued in the first quarter.\nNow moving on to our balance sheet.\nWe are in a strong financial position, ending Q4 with nearly $1.7 billion of cash and cash equivalents and no borrowings on our $1.85 billion revolving credit facility.\nOur quarter-end inventory levels decreased 11% compared to the end of the same period last year.\nLooking ahead, our inventory is very clean, and we'll continue to chase product to improve our in-stock positions in the most in-demand categories.\nTurning to our fourth quarter capital allocation.\nNet capital expenditures were $53 million, and we paid $27 million in quarterly dividends.\nNow let me move on to our fiscal 2021 outlook for sales and earnings.\nDue to the uneven nature of 2020, we planned 2021 off a 2019 baseline and for the same reason, believe it will be important to compare against both 2019 and 2020.\nFurthermore, given the continued uncertainty around when athlete activities will normalize in 2021 and what the new normal will be, we'll be guiding to a wider range of possible outcomes that we typically do.\nLet's start with the sales guidance, followed by EBT dollars and rate and then on to EPS.\nFor 2021, consolidated same-store sales are expected to be in the range of negative 2% to positive 2%, which, at the midpoint, represents a low double-digit sales increase versus 2019.\nOur square footage versus 2019 is about the same.\nWe have been pleased with our sales trends so far this year.\nAnd for the first quarter, we expect significant consolidated same-store sales and earnings growth, as we anniversary the majority of our temporary store closures from last year.\nBeginning in Q2, our guidance assumes comps will decline in the range of high single-digits to low double-digits, as we anniversary more than 20% comp gain across those quarters in 2020.\nNon-GAAP EBT is expected to be in the range of $550 million to $650 million, which at the midpoint and on a non-GAAP basis is up 36% versus 2019 and down 18% versus 2020.\nAt the midpoint, non-GAAP EBT margin is expected to increase over 100 basis points versus 2019 and decline approximately 150 basis points versus 2020.\nWithin this, gross margin is expected to increase versus 2019, driven by leverage on fixed expenses and higher merchandise margin.\nWhen compared to 2020, gross margin is expected to decline, due primarily to gradually normalizing promotions and modest deleverage on fixed expenses beginning in the second quarter.\nSG&A expense is expected to deleverage versus both 2019 and 2020.\nCompared to 2019, SG&A is expected to deleverage, primarily due to hourly wage rate investments.\nCompared to 2020, SG&A is expected to deleverage, primarily due to normalizing advertising expense as a percent of net sales.\nOur guidance also contemplates approximately $30 million of COVID-related safety costs during the first half of the year.\nThe vast majority of which will fall in -- within SG&A.\nIn terms of our premium pay program for hourly and store -- hourly store and DC teammates, at the beginning of fiscal 2021, we transitioned to a more lasting compensation programs, including increasing and accelerating annual merit increases and higher wage minimums.\nThe impact of these programs has also been included within our guidance, but falls outside of the aforementioned COVID costs as these changes are now permanent.\nLastly, we anticipate non-GAAP earnings per diluted share to be in the range of $4.40 to $5.20, which at the midpoint and on a non-GAAP basis is up 30% versus 2019 and down 22% versus 2020.\nThis is lower than our traditional tax rate, and is due to the favorable tax impact of share-based payments expected to vest in 2021.\nOur capital allocation plan includes net capital expenditures of $275 million to $300 million, which will be concentrated in improvements within our existing stores, ongoing investments in technology, as well as six new DICK's stores, six new specialty concept stores, and we will also convert two Field & Stream stores into Public Lands stores and relocate 11 DICK's stores.\nIn terms of returning capital to shareholders, today, we announced an increase in our quarterly dividend of 16% to $0.3625 per share or $1.45 on an annualized basis.\nIn addition, our plan includes a minimum of $200 million of share repurchases, the effect of which is included in our earnings per share guidance.\nHowever, we will consider continuing to opportunistically repurchase shares beyond the $200 million.\nIn closing, we are extremely pleased with our 2020 results.\nWe are looking forward to continuing the success in 2021, and we -- we remain very enthusiastic about our business.\nThis concludes our prepared comments.",
        "summary": "compname says q4 sales were $3.13 bln.\ncompname reports record fourth quarter and full year results; delivers 19.3% increase in fourth quarter same store sales.\nq4 sales $3.13 billion versus refinitiv ibes estimate of $3.05 billion.\ndelivers 19.3% increase in q4 same store sales.\nqtrly earnings per share $ 2.21.\nsees fy earnings per share non-gaap $ 4.40 - $ 5.20.\nplans to repurchase a minimum of $200 million of its common shares in 2021."
    },
    {
        "text": "During today's call, we will discuss GAAP and non-GAAP financial measures.\nAs for the content of today's call, Kevin will start with a discussion of the business, and Robert will follow with a recap of Dolby's financial results and provide our second quarter and fiscal 2022 outlook.\nIt continues to be a dynamic environment.\nWhile revenue and earnings per share finished within our range of guidance, both were impacted by a $6 million negative true-up for lower-than-estimated unit shipments in our foundational audio technologies.\nAs we discussed last quarter, we are seeing year-over-year declines for foundational audio coming off of tough comps, and now issues with the supply chain.\nBut over the long term, we expect foundational audio to track roughly in line with market demand for the consumer devices we serve.\nAt the same time, we see strength across Dolby Vision, Dolby Atmos, and our imaging patents portfolio, and we remain confident in our ability to grow these revenues at a rate of over 35% this year.\nWe also see positive signs of momentum with Dolby.io.\nAll of this gives us confidence in the opportunity ahead.\nRobert will take you through the details of the financials in just a moment.\nI will start by covering our progress in Dolby Vision and Dolby Atmos.\nAt CES last month, we saw our partnership with Samsung grow stronger as they announced the adoption of Dolby Atmos into their TVs for the first time.\nSamsung has been showcasing Dolby Atmos across their soundbar, PC, and mobile products for some time, and we are excited that they have decided to offer their TV customers the most immersive audio experience with Dolby Atmos.\nDuring LG's CES keynote, they highlighted their latest OLED TVs, the first to support Dolby Vision gaming at 4K -- in 4K at 120 hertz.\nAnd Hisense debuted their first short-throw consumer laser projectors to include the combined Dolby experience.\nWe saw new soundbar products from Samsung and Hisense supporting Dolby Atmos and the latest TVs from Sony, Panasonic, and TCL, all featuring the Dolby Vision and Dolby Atmos experience.\nAlso during the quarter, Walmart's On and Best Buy's Pioneer TVs began supporting Dolby Vision, an important step toward addressing the mass market retailer brands and making Dolby experiences more widely available at all price points.\nBeyond the living room, we also made progress this quarter in PC, mobile, and gaming.\nIn November, ASUS adopted Dolby Vision with the launch of their new two-in-one PC, marking their first device to include the combined experience.\nAnd more recently, they announced that their latest gaming laptops will also feature Dolby Vision and Dolby Atmos.\nDell announced at CES that they will now support the combined Dolby experience across their latest Alienware gaming PC lineup, and they launched a new Alienware gaming headset with Dolby Atmos.\nLenovo previewed their newly designed ThinkPad laptops, which feature Dolby Vision, Dolby Atmos, and Dolby Voice, expanding the number of models that include our communications technology.\nThis quarter also brought new tablets from Lenovo and ASUS and smartphones from Xiaomi and Motorola, highlighting Dolby Technologies.\nWe are also making strides in sports content.\nJust this week, Comcast announced that they will be broadcasting the 2022 Winter Olympics in Dolby Vision and Dolby Atmos.\nThis major event adds to the growing list of sports coverage made available in Dolby.\nAnd in the world of e-sports, the Honor of Kings Challenger Cup finals was available in Dolby Atmos on Tencent Video and Bilibili.\nAs we enable more Dolby experiences across music, gaming, and sports, we add to our value proposition for new and deeper adoption of Dolby Vision and Dolby Atmos across devices and end markets.\nWhile CES was far from normal this year, what remain the same was the strong engagement from our partners and particularly in automotive.\nThis quarter, Neo highlighted that they will be adding Dolby Atmos into their ET5 model, expanding beyond the ET7 model they announced previously.\nConsumers and artists alike continue to sing the praises of Dolby Atmos Music, with AMA's New Artist of the Year, Olivia Rodrigo, describing the experience as magical.\nTwo-thirds of the Top 100 billboard artists now have one or more tracks available in Dolby Atmos.\nAs we gain more prominence in the music space, we have more reasons for adoption across mobile, PC, and automotive.\nLet me shift to cinema.\nThere are currently about 98% of Dolby Cinemas opened globally with six new sites launched during our fiscal Q1.\nEven with the uncertainty of the pandemic, we saw ongoing recovery in the box office with titles like \"No Time to Die\" and \"Spider-Man: No Way Home\".\nAs moviegoers return to the cinema, we continue to see a preference toward premium experiences, and Dolby Cinema is the ultimate way to experience movies in the theater.\nLet's talk about our developer platform, Dolby.io, where we are focused on enabling developers to create the most compelling experiences in target markets where we can offer the most differentiation, virtual live performances, online and hybrid events, social audio, premium education, gaming, and content production, which we estimate to represent a market opportunity of about $5 billion and growing.\nWe are excited about the experiences developers are building and the pace of new developer accounts accelerated this quarter.\nThis increased momentum is due in part to the interest we are seeing for our release of programmable spatial audio.\nWhile we have been providing an automated spatial mix for some time, this highly requested feature allows developers to choose where to render real-time voices around the listener.\nFor example, we see developers building virtual concert experiences, virtual reality collaboration platforms, and virtual worlds in which listeners hear people from the location of the speaker or their avatar.\nThere has been so much demand customers were going into production on the beta ahead of our general availability release this week.\nWe also completed an acquisition this quarter.\nWith Millicast, developers can take the highly interactive experiences they build with Dolby.io and stream them to audiences of more than 60,000 people with ultra-low delay, a capability that is in demand in our focused verticals.\nMillicast has a notable presence in content production with companies such as NBC, the NFL, and Disney and their expertise in the field makes them a great fit with Dolby.io.\nWith our unique experience in media and communications, coupled with the ease of self-service on our platform, we are able to expand our capabilities for developers to offer high-quality audio and visual interactions to much larger audiences.\nTo wrap up, while we are still operating in an uncertain economic environment, we continue to have success in growing the number of Dolby Atmos and Dolby Vision experiences to new devices and services.\nThere is much opportunity ahead of us as we enable new experiences through music, gaming, and live content.\nAnd we are excited about bringing the Dolby magic to a broader range of experiences and interactions with the power of Dolby.io.\nAll of this gives us confidence in our ability to drive revenue and earnings growth into the future.\nAnd with that, I'd like to hand it over to Robert to take us through the financials.\nLet's jump into the results for Q1.\nTotal revenue in the first quarter of $352 million was in the range we provided and included a negative true-up of about $6 million for Q4 2021 shipments reported that were below the original estimate.\nThe negative true-up was primarily in foundational revenue in our gaming and consumer electronics markets.\nOn a year-over-year basis, first quarter revenue was about $38 million below last year's Q1 as we benefited from a $21 million true-up in Q1 2021, which is a $6 million negative true-up in Q1 2022, and the prior year also benefited from timing of revenues under contract.\nThese factors were partially offset by higher adoption of Dolby Atmos, Dolby Vision, and imaging patents within our fiscal Q1 of 2022.\nQ1 revenue was comprised of $332.3 million in licensing and $19.3 million in products and services.\nLet's get into the year-over-year trends in licensing revenue by end market.\nBroadcast represented 37% of total licensing in fiscal Q1.\nBroadcast revenues declined by about $18 million or 13% from the prior-year Q1 due to timing of revenue and a larger true-up in the prior year and lower recoveries.\nThese factors were partially offset by higher adoption of Dolby Atmos and Dolby Vision in TVs and new licenses in our imaging patent programs.\nMobile represented 23% of total licensing in fiscal Q1.\nMobile decreased by $31 million or 29% compared to Q1 of last year as our foundational audio revenues last year benefited from both high recoveries and timing of revenues under contract, partially offset by new imaging patent licenses.\nWe do see mobile growing for the full year, which I'll cover later.\nConsumer electronics represented about 17% of total licensing in fiscal Q1.\nOn a year-over-year basis, Q1 CE licensing increased by approximately $6 million or 11%, driven by higher foundational audio revenues for DMAs and soundbars, as well as higher recoveries.\nWe also saw growth from higher adoption of Dolby Atmos and Dolby Vision across CE devices.\nThese favorable factors were partially offset by the large true-up in the prior year.\nPC represented about 10% of total licensing in fiscal Q1.\nOur Q1 PC revenues increased by 6% or $2 million compared to the prior-year Q1.\nThis increase was driven by new imaging patent licensees, along with higher Dolby Vision adoption.\nOther markets represented about 13% of total licensing in fiscal Q1.\nThey were essentially flat year over year as lower revenues from gaming and lower foundational audio patent revenue were essentially offset by higher revenues from Dolby Cinema.\nBeyond licensing, our products and services revenue in Q1 was $19 million, compared to $70 million in last year's Q1.\nThe year-over-year increase reflects ongoing improvements in the cinema industry globally.\nTotal gross margin in the first quarter was 90.7% on a GAAP basis and 91.3% on a non-GAAP basis.\nOperating expenses in the first quarter on a GAAP basis were $228.3 million, compared to $189.8 million in Q1 of the prior year.\nThis increase was primarily caused by a gain of the sale of an asset in the prior year, higher marketing activations tied to Atmos Music and Dolby Live at Park MGM and the extra week of payroll in Q1 2022.\nOperating expenses in the first quarter on a non-GAAP basis were $195.1 million, compared to $167.1 million in the prior year.\nOperating expenses were in line with our guidance for Q1.\nOperating income in the first quarter was $90.6 million on a GAAP basis or 25.8% of revenue, compared to $164.7 million or 42.3% of revenue in Q1 of last year.\nOperating income in the first quarter on a non-GAAP basis was $126 million or 35.8% of revenue, compared to $189.7 million or 48% of revenue in Q1 last year.\nThe income tax rate in Q1 was 13% on a GAAP basis and 18% on a non-GAAP basis.\nOur GAAP rate benefited primarily from a discrete adjustment related to stock-based compensation.\nNet income on a GAAP basis in the first quarter was $80 million or $0.77 per share per diluted share compared to $135.2 million or $1.30 per diluted share in last year's Q1.\nNet income on a non-GAAP basis in the first quarter was $104.5 million or $1.01 per diluted share, compared to $153.3 million, or $1.48 per diluted share in Q1 of last year.\nDuring the first quarter, we generated $32 million in cash from operations, compared to $82 million generated in last year's fiscal Q1.\nWe ended the first quarter with about $1.26 billion in cash and investments.\nDuring the first quarter, we bought back about 400,000 shares of our common stock at the end of the quarter with $256 million of stock repurchase authorization available.\nAs is typically the case, our window for repurchases in fiscal Q1 were shorter due to the timing of release of our year-end results.\nIn February, our board authorized an additional $250 million of stock buyback, bringing our total authorization to approximately $506 million to enable expansion of our share buyback program.\nWe also announced today a cash dividend of $0.25 per share.\nThe dividend will be payable on February 23, 2022, to shareholders of record on February 16, 2022.\nShifting to the remainder of the fiscal year.\nThere continues to be uncertainty given the ongoing implications of the pandemic, particularly as it relates to trends in unit shipments that are impacted by supply chain issues and inflation and consumer spending behavior.\nAll of these variables make it more difficult to gather consistent and reliable data.\nWe are also keeping an eye on transaction cycle times, particularly in our recovery efforts, given the -- given the ongoing travel restrictions caused by the pandemic.\nWith that, let me take you through the outlook for Q2 and the full year.\nFor Q2, we see total revenues ranging from $315 million to $345 million.\nWithin that, licensing revenues could range from $300 million to $325 million.\nThe revenue increase from last year's Q2 is anticipated to be driven by -- primarily by higher broadcast and PC revenues from Dolby Vision and Dolby Atmos.\nThe other markets category is also expected to be up year over year, assuming continued improved attendance at our Dolby Cinemas.\nMobile is anticipated to be relatively flat to prior year as higher revenue from Atmos and Vision is essentially offset by lower foundational audio revenue.\nQ2 products and services revenue could range from $15 million to $20 million.\nLet me move on to the rest of the P&L outlook for Q2.\nQ2 gross margin on a GAAP basis is expected to be 89%, plus or minus, and the non-GAAP gross margin is estimated to be about 90%, plus or minus.\nOperating expenses in Q2 on a GAAP basis are estimated to range from $224 million to $236 million.\nIncluded in this range is approximately $5 million to $7 million of restructuring charges, primarily for severance and related benefits as we adjusted resources toward the areas where we see the largest opportunities.\nOperating expenses in Q2 on a non-GAAP basis are estimated to range from $190 million to $200 million, which contemplates the impact of our annual merit increase.\nOther income is projected to be around $1 million for the second quarter.\nAnd our effective tax rate for Q2 is projected to range from 19% to 20% on a GAAP basis and 18% to 19% on a non-GAAP basis.\nBased on the combination of factors I just covered, we estimate that Q2 diluted earnings per share could range from $0.42 to $0.57 on a GAAP basis and from $0.72 to $0.87 on a non-GAAP basis.\nMoving on to the full year.\nWe are maintaining our fiscal '22 total revenue guidance of $1.34 billion to $1.4 billion.\nThis was a result in about 5% to 9% of year-over-year growth as compared to the $1.28 billion in fiscal year '21.\nWithin this, licensing revenues could range from $1.260 billion to $1.315 billion, compared to $1.214 billion in fiscal year '21, which will result in a 4% to 8% year-over-year growth.\nWe still anticipate that licensing revenue growth in fiscal '22 will be driven by Atmos, Vision, and imaging patents across all end markets.\nOur other markets category is still expected to grow over 25%, primarily from Dolby Cinema and to a lesser extent, from gaming, followed by PC and mobile, which we expect to grow mid- to high single digits.\nAnd our CE and broadcast markets are anticipated to be relatively flat year over year as growth from Atmos, Vision, and imaging patents is essentially offset by decreases in foundational revenue.\nProducts and services revenue are expected to range from $75 million to $90 million for fiscal year '22 with improvements in Cinema products and growth in Dolby.io.\nGross margins for fiscal year '22 are expected to be relatively consistent with fiscal year '21.\nWith the restructuring charge expected in Q2, operating expenses in fiscal 2022 can now range from $877 million to $897 million on a GAAP basis.\nOn a non-GAAP basis, the expected operating expense range remains unchanged at $750 million to $770 million.\nAs we said last quarter, our business model remains very strong as we expect to deliver operating margins between 24% to 26% on a GAAP basis and between 34% and 36% on a non-GAAP basis.\nBased on the factors above, we estimate the full year diluted earnings per share now range from $2.50 to $3 on a GAAP basis.\nOn a non-GAAP basis, full year diluted earnings per share remains unchanged at $3.52 to $4.02.\nWith that, let's move on to Q&A.\nOperator, can you please queue up the first question?",
        "summary": "compname reports q1 non-gaap earnings per share of $1.01.\nq1 non-gaap earnings per share $1.01.\nq1 gaap earnings per share $0.77.\nsees q2 diluted earnings per share to range from $0.72 to $0.87 on a non-gaap basis.\nsees q2 total revenue to range from $315 million to $345 million.\nsees q2 diluted earnings per share to range from $0.42 to $0.57 on a gaap basis.\nsees 2022 total revenue to range from $1.34 billion to $1.40 billion.\nsees 2022 diluted earnings per share to range from $2.50 to $3.00 on a gaap basis.\nsees 2022 diluted earnings per share to range from $3.52 to $4.02 on a non-gaap basis."
    },
    {
        "text": "Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Corey Dyer are also on the call and will be available for Q&A.\nFor further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC.\nReconciliations to net income are included in the supplemental package furnished to the SEC and available on our website.\nWe further strengthened connections with customers, landing record new logos and delivering our fourth consecutive quarter with over $100 million of bookings.\nWe also continued to deliver for our customers around the world despite volatility in the global supply chain, leveraging our scale, diversification, and strategic procurement processes to continue to deliver on time and on budget for our customers.\nWe continued to enhance our global platform by expanding into new markets with tremendous growth potential while continuing to expand capacity in existing markets around the world.\nWe delivered solid financial results, with double-digit revenue growth, leading to a beat in the current quarter and a race to the outlook for the balance of the year.\nLast but not least, we further strengthened our balance sheet by raising approximately $600 million of low coupon Swiss green bonds and over $1 billion of common equity to fund our future growth.\nOur formula for long-term value creation is a global, connected, sustainable framework, and we made further progress on each front during the third quarter.\nWe continued to globalize our business, with significant bookings and solid performance across regions.\nOur bookings were diversified by both region and product type, reflecting our unique, full-spectrum global product offering.\nWe also announced our entry into two high potential emerging markets, India and Nigeria, during the third quarter while expanding our connectivity capabilities by working with Zayo to develop the largest open fabric-of-fabrics that will interconnect key centers of data exchange.\nWe are also extending our capabilities for customers to the edge with the announcement of what will be one of a few strategic partnerships in this arena.\nLet's discuss our sustainable growth initiatives on Page 3.\nDuring the third quarter, Digital Realty was honored to be recognized by GRESB as an overall global sector leader in the technology and science category for exemplary ESG performance, receiving a coveted five-star rating from this leading global ESG benchmarking organization and reflecting Digital Realty's commitment to being a global leader in ESG.\nWe also became a U.N. Global Compact signatory in September, aligning our ESG goals and commitment to the U.N. Sustainable Development Goals with a global initiative.\nWe also advanced our sustainable financing strategy, raising our first-ever Swiss green bonds and publishing the allocation of $440 million of proceeds from our September 2020 Euro green bond, which funded sustainable data center development projects in four countries across three continents, certified in accordance with leading sustainable rating standards.\nWe are committed to minimizing our impact on the environment while simultaneously meeting the needs of our customers, our investors, our employees, and broader society while advancing our goal of delivering sustainable growth for all of these stakeholders.\nWhile on the topic of energy, I'm pleased to report that Digital Realty experienced only a small negative impact from the substantial rise in energy costs during the third quarter.\nIn Europe, where concerns of an energy crisis were most acute, we typically contract for energy supplies a year or more in advance, providing price visibility and certainty for our customers.\nElsewhere around the world, energy costs are typically passed through to customers, minimizing our direct exposure.\nWe continue to keep a close eye on energy prices.\nBut given the resiliency of our business model, we do not expect rising energy costs to impact our reported results by more than a few pennies.\nLet's turn to our investment activity on Page 4.\nWe continue to invest in our global platform.\nAs previously announced, we entered into a joint venture with Brookfield to expand PlatformDIGITAL into India, a giant underserved market, with the fifth largest GDP in the world.\nLike many emerging markets, India presents some unique challenges, underscoring the need for local knowledge and experience.\nTo that end, we were pleased to announce the hiring of Seema Ambastha as CEO for the India joint venture.\nSeema has years of experience in the Indian IT sector broadly and in the data center industry specifically where she most recently served as a senior executive leader with the NTT Netmagic data center business across India.\nWe believe the India data center market has the potential to experience significant growth over the next decade, and we're thrilled to have such a strong partner and strong leader in this exciting new venture.\nDuring the third quarter, we continued to expand iColo, our Kenyan data center operator, acquiring a land parcel in Mozambique to build a facility position to land subsea cables and other connectivity-focused customers.\nWe also acquired a controlling interest in Medallion Communications, the leading colocation and interconnection provider in Nigeria, in partnership with our existing African partner, Pembani Remgro.\nAs the African internet economy matures, we expect Nigeria will represent a significant growth opportunity given its large and relatively young population, a growing and diversifying economy, as well as a maturing regulatory environment.\nGiven the connectivity Africa from our existing hub in Marseille, our platform will now offer the market-leading destinations, connecting Africa to Europe and beyond.\nWe're also investing to organically expand our capacity.\nAs of September 30, we had 44 projects underway around the world, totaling almost 270 megawatts of incremental capacity, with over 250 megawatts scheduled for delivery before the end of 2022.\nWe continue to invest most heavily in EMEA, where we now have 27 projects underway in 15 different markets, totaling 150 megawatts of incremental capacity, most of which is highly connected, including significant expansions in Frankfurt, Marseille, Paris, and Zurich.\nOur investment in organic development is a reflection of the strength of demand across EMEA.\nWe're being a bit more selective in North America.\nWe're seeing strong demand in Portland, where we have a 30-megawatt facility under construction that is 100% preleased and scheduled for delivery in the first quarter of next year, while we also have significant projects underway in Northern Virginia, New York, and Toronto.\nFinally, in Asia-Pacific, we continue to pursue strong, organic development, both on our own and with our joint venture partners.\nWe are adding capacity in Hong Kong that will open this quarter and expect to open Korea's first carrier-neutral facility in Seoul in early 2022.\nWe are building a connected campus in Seoul to provide the full spectrum of solutions for our customers.\nThe larger second facility will accommodate up to 64 megawatts of capacity and will be located within 25 kilometers of our first facility.\nLet's turn to the macro environment on Page 5.\nWe are fortunate to be operating in a business levered to secular demand drivers, and our leadership position provides us with unique vantage point to detect developing trends as they emerge globally on PlatformDIGITAL.\nJust over a year ago, we introduced the Data Gravity Index, our market intelligence tool that forecasts the growing intensity of the enterprise data creation lifecycle and its gravitational impact on global IT infrastructure.\nEarlier this year, we published an industry manifesto, enabling connected data communities to guide cross-industry collaboration, tackle data gravity head-on, and unlock a new era of growth opportunity.\nRecent third-party research continues to support the growing relevance of data gravity.\nAccording to ITC, the amount of digital data created over the next five years will be greater than twice the amount of data created since the advent of digital storage.\nThis digital data creation is expected to drive exponential growth in enterprise user data aggregation, storage, and exchange, providing a powerful tailwind for data center demand.\nWe continue to see enterprise and service provider customers deploying their own data hubs and using interconnection to securely exchange data in multiple metros on PlatformDIGITAL to accommodate their own data creation growth.\nRecently, for the second consecutive year, Digital Realty was ranked as the only outperformer and global leader by GigaOm for edge colocation.\nThis ranking reflects our continued innovation and the execution of our PlatformDIGITAL roadmap for delivering global differentiated capabilities and value for our customers and partners.\nWe are honored by the strong validation of our platform and our market-leading innovation to capture the growing global demand opportunity from data-driven businesses.\nLet's turn to our leasing activity on Page 7.\nFor the second straight quarter, we signed total bookings of 113 million.\nThis time, with a 12 million contribution from interconnection.\nDeal mix was consistent with the prior four-quarter average, sub-1 megawatt deals plus interconnection represented about 40% of the total, while larger deals represented around 60%.\nSpace and power bookings were also well diversified by region, with EMEA and APAC contributing 45% of our total, about the same as the Americas, with interconnection accounting for the remaining 10%.\nThe weighted average lease term was a little over five and a half years, and we landed a record 140 new logos during the third quarter, with strong showings across all regions, demonstrating the power of our global platform.\nIn terms of specific wins during the quarter and around the world, a leading cloud-native cybersecurity platform is expanding its high-performance computing capabilities by leveraging PlatformDIGITAL in four markets across North America and Europe, connecting with cloud providers, improving performance, and driving down cost.\nA market-leading autonomous driving technology developer partnering with Digital Realty to tailor an innovative and unique infrastructure solution for simulation workloads.\nTwo major North American energy firms chose Digital Realty to leverage our geographic reach and rearchitect their network to interconnect with cloud providers and implement security controls as part of their hybrid IT strategy.\nA public university in the Eastern U.S. is launching a Global Research Initiative with other universities in EMEA and deploying PlatformDIGITAL network hubs across two continents in three cities to help enable this project.\nA maker of high-performance computing systems is expanding their footprint by deploying on PlatformDIGITAL across multiple regions to guarantee GDPR compliance while enhancing their security, performance, and sustainability.\nAnd finally, a Global 500 fintech provider is expanding their own hybrid IT availability zones into multiple new metros, using PlatformDIGITAL to support their data-intensive and high-performance computing requirements.\nTurning to our backlog on Page 9.\nThe current backlog of leases signed but not yet commenced rose from 303 million to 330 million, and our third-quarter signings more than offset commencements.\nThe lag between signings and commencements was down slightly from last quarter at just over seven months.\nMoving on to renewal leasing activity on Page 10.\nWe signed 223 million of renewal leases during the third quarter, our largest ever renewal quarter, in addition to new leases signed.\nThe weighted average lease term on renewals signed during the quarter was a little over three and a half years.\nRenewal rates for sub-1 megawatt deals remain consistently positive, greater than the megawatt renewals were skewed by our largest deal of the core that combined a sizable 30-megawatt renewal with our largest new deal for the quarter, which will land entirely in existing currently vacant or soon to be vacant capacity across Chicago and Ashburn.\nExcluding this one transaction, our cash mark-to-market would have been a positive 1%.\nThis multifaceted transaction was a prime example of what we mean when we talk about our holistic long-term approach to customer relationship management.\nWe believe we have a distinct advantage when we are competing for new business with a customer that we are already supporting elsewhere within our global portfolio.\nAnd whenever we can, we try to ride a comprehensive financial package across multiple locations and offerings, including both new business, as well as renewals.\nIn terms of first-quarter operating performance, reported portfolio occupancy ticked down by 50 basis points, largely driven by the sale of fully leased assets during the quarter.\nUpon commencement of the large combination renewal expansion list I mentioned a moment ago, portfolio occupancy is expected to improve by 70 basis points.\nSame capital cash NOI growth was negative 5.5% in the third quarter, primarily driven by a spike in property taxes in Chicago, where local assessors have adopted a very aggressive posture, along with the impact of the Ashburn churn event in January.\nOf the 70 megawatts we got back on January 1st, approximately 80% has since been released to multiple large and growing customers.\nAs a reminder, the Westin Building in Seattle, the Interxion platform in EMEA, Lamda Hellix in Greece, and Altus IT in Croatia are not yet included in the same-store pool.\nSo, these same capital comparisons are less representative of our underlying business today than usual.\nAnd while we're still in the early stages of our budgeting process, we are optimistic in terms of where our same-store and allied growth goals for 2022.\nTurning to our economic risk mitigation strategies on Page 11.\nThe U.S. dollar strengthened during the third quarter, providing a small FX headwind in the third quarter.\nAs a reminder, we manage currency risk by issuing locally denominated debt to act as a natural hedge, so only our net assets within a given region are exposed to currency risk from an economic perspective.\nOur Swiss green bond offering during the quarter is a good example of this.\nIn addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed-rate financing.\nGiven our strategy of matching the duration of our long-lived assets with long-term fixed-rate debt, a 100-basis-point move in [Inaudible] would have approximately a 50-basis-point impact on full-year FFO per share.\nOur near-term funding and refinancing risk is very well managed and our capital plan is fully funded.\nIn terms of earnings growth, third-quarter core FFO per share was up 7% on both a year over year and sequential basis, driven by strong operational execution, cost controls, and a reduction in financing costs from the debt refinancings and redemptions of preferred stock over the past year.\nTo avoid any confusion, our core FFO outperformance excludes the benefit of a nearly $20 million promote fee received in connection with the monetization of our joint venture with Prudential.\nHeading into the final quarter of the year, we have solid momentum, so we are raising our full-year outlook for revenue, adjusted EBITDA, and core FFO per share to reflect this underlying momentum in our business.\nLast but certainly not least, let's turn to the balance sheet on Page 12.\nWe continue to recycle capital by disposing of assets that have limited growth prospects, raising over 100 million in the third quarter for our 20% position in the Prudential JV and some land in Arizona.\nWe also raised approximately 95 million of common equity under our ATM program in July, as well as 950 million of common equity in a September forward equity offering.\nOur reported leverage ratio remains at six times, but including committed proceeds from the September forward equity offering, the leverage ratio drops to 5.6 times, while our fixed charge coverage improves to six times.\nWe continued to execute our financial strategy of maximizing the menu of available capital options while minimizing the related costs and extending the duration of our liabilities to match our long-lived assets.\nOur two capital markets transaction this quarter are examples of our prudent approach to balance sheet management.\nThis successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital, sets us apart from our peers, and enables us to prudently fund our growth.\nAs you can see from the chart on Page 13, our weighted average debt maturity is over six years and our weighted average coupon is down to 2.2%.\ndollar-denominated, reflecting the growth of our global platform while also acting as a natural FX hedge for investments outside the U.S. Over 90% of our debt is fixed rate, guarding against a rising rate environment.\nAnd 98% of our debt is unsecured, providing the greatest flexibility for capital recycling.\nFinally, as you can see from the left side of Page 14, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years.\nOur balance sheet is poised to weather a storm but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy.\nOperator, would you please begin the Q&A session?",
        "summary": "q3 revenue rose 11 percent to $1.1 billion."
    },
    {
        "text": "For a further discussion of the risks related to our business, please see our 10-K and subsequent filings with the SEC.\nReconciliations to net income are included in the supplemental package furnished to the SEC and available on our website.\nWe further strengthened connections with customers with $156 million of new bookings with record results in both a zero to 1 megawatt and greater than a megawatt category and ended the year with $500 million in new bookings, a 15% increase over the prior year.\nWe also continue to enhance our global platform with the completion of organic development projects in multiple metros despite the continued challenges presented by the pandemic and the global supply chain in addition to strategic investments, establishing Digital Realty as the leading pan-African provider.\nFinancially, we had a solid quarter with full year results above the high end of the guidance range that we provided this time last year.\nAnd finally, we continue to strengthen our balance sheet by raising equity capital through the establishment of Digital Core REIT in a highly successful IPO on the Singapore Stock Exchange and the related sale of a 90% interest in 10 fully utilized core data centers.\nAs a perpetual capital partner, Digital Realty and Digital Core REIT can continue to work together while providing our customers with a seamless experience.\nOur formula for long-term value creation is a global, connected, sustainable framework.\nAnd we made further progress on each front during the fourth quarter.\nFirst, we continue to globalize our business with record global bookings and strength across all regions and all product types, including quarterly highs in both our sub-1 megawatt and greater than 1 megawatt categories.\nWe also announced two significant global initiatives.\nFirst, in December, we announced the successful listing of Digital Core REIT as a stand-alone publicly traded company on the Singapore Stock Exchange.\nand Canada, valued at $1.4 billion at a 4.25% cap rate.\nWe generated net proceeds of over $950 million from the transaction, and we retained a 35% equity interest in the publicly traded REIT.\nThe offering was very well received, and Digital Core REIT has traded up approximately 30% since the IPO, enhancing the gain on our remaining ownership stake.\nIn addition to providing investors a stable cash flow stream from a portfolio of high-quality core data centers, Digital Core REIT offers key strategic benefits to Digital Realty.\nFirst, Digital Core REIT is a perpetual capital partner.\nIt has a long-term investment horizon and a global mandate to invest in stabilized income-producing data centers.\nSecond, Digital Core REIT has been carefully crafted to provide a seamless customer experience.\nDigital Core REIT is sponsored by and externally managed by Digital Realty.\nWe will continue to manage the properties providing the same level of operational excellence, and we will earn fees for asset and property management, as well as acquisitions, dispositions and development.\nFrom a customer perspective, nothing changes when we contribute an asset to Digital Core REIT.\nThird, Digital Core REIT is an ideal partner vehicle for Digital Realty.\nWe expect to contribute additional stabilized core assets to Digital Core REIT in the future, and we may also co-invest alongside Digital Core REIT on future investment activity.\nFinally, our interests are aligned.\nAs mentioned, Digital Realty will continue to own a 10% direct ownership stake in each of the assets in addition to 35% in the publicly traded vehicle.\nDigital Core REIT is led by two longtime Digital Realty team members, John Stewart, who most of you know well, along with an Dan Tith.\nWe are excited about their opportunity to create value for Digital Core REIT unitholders, including Digital Realty.\nOur second global initiative, which we announced just after quarter end, is the definitive agreement to acquire roughly a 55% stake in Teraco, Africa's leading carrier-neutral colocation provider.\nThis acquisition immediately establishes Digital Realty as the leading colocation and interconnection provider on the high-growth African continent and builds upon our earlier investments in Africa with iColo, in both Kenya and Mozambique and in Medallion in Nigeria.\nTeraco complements these investments, as well as our highly connected facilities in the Mediterranean by hosting the key strategic landing endpoints for subsea cables circling Africa.\nFrom Marseille and Athens in the North; Mombasa and Maputo along the east; Durban and Cape Town in the South; and Lagos along the Western Coast, PlatformDIGITAL is supporting the growth of our customers, as well as the broader digital transformation of the entire African continent.\nTeraco has seven state-of-the-art data centers across three key metros in South Africa and serves over 600 customers, including more than 275 connectivity providers, over 25 cloud and content platforms and approximately 300 enterprises.\nTeraco facilitates approximately 22,000 interconnections between customers and hosts seven cloud on-ramps and provides direct access to seven subsea cables.\nTeraco has historically generated healthy double-digit growth in revenue and EBITDA.\nIn addition, more than half of Teraco's in-service portfolio was developed within the past two years.\nThe current development pipeline will expand the existing asset base by over 25%.\nAnd Teraco owns land adjacent to its highly connected campuses in Johannesburg and Cape Town that will support another doubling of the in-place capacity, representing significant embedded growth potential and providing considerable runway to support our customers' growth.\nLeading global cloud and content platforms have recently begun making significant investments in Africa, given the existing capacity within the in-service portfolio, the incremental capacity currently under construction and the strategic landholdings to support future expansion.\nTeraco is uniquely positioned to support the expected growth of digital infrastructure in Africa over the next several years.\nLet's discuss our sustainable growth initiatives on Page 3.\nDuring the fourth quarter, Digital Realty earned Nareit's Leader in the Light Award for the fifth consecutive year, complementing the company's five-star GRESB rating and top ranking within the technology and science sector.\nDigital Realty was also named one of America's Most Responsible Companies by Newsweek and was the No.\n1 ranked data center company.\nWe continue to advance our sustainable financing strategy, recasting and upsizing our credit facility with improved terms while incorporating a sustainability-linked pricing component with pricing subject to adjustment based on annual performance against certain green targets.\nWe are committed to minimizing our impact on the environment, while simultaneously meeting the needs of our customers, our investors and our employees, along with the broader society and advancing our goal of delivering sustainable growth for all these stakeholders.\nLet's turn to our investment activity on Page 4.\nWe continue to invest in the expansion of our global platform.\nIn addition to the Teraco transaction, we've grown our presence along the Eastern Coast of Africa with iColo and supplemented our acquisition of Medallion data centers in Nigeria with two land purchases in Lagos for future development.\nOver the next decade, we expect to see huge opportunity for global businesses to tap into Africa's rapidly growing internet economy, and Digital Realty is uniquely positioned to enable this growth.\nWe also continue to invest in the organic growth of our platform.\nWe spent $580 million on growth capex in the fourth quarter, our largest quarterly growth capex investment to date.\nWe currently have 44 projects underway, totaling more than 250 megawatts of IT capacity in 27 metros around the world.\nThis capacity was 46% presold as of year-end.\nGeographically, we continue to invest most heavily in EMEA with 27 projects underway, totaling more than 140 megawatts across 16 metros.\nIn Asia Pacific, we delivered several development projects during the fourth quarter, including facilities in Singapore and Hong Kong.\nIn January, we opened Digital Seoul 1, our first data center in South Korea and the first carrier-neutral facility in the country.\nThis facility will serve as a connectivity gateway for latency-sensitive customer workloads, but can be connected to hyperscale applications hosted in our second facility in Korea, totaling over 60 megawatts of capacity currently under construction just outside the city center.\nThe two facilities will be tied together with fiber to create a connected campus and will complement each other by providing solutions for the full customer spectrum, from small performance sensitive co-location customers to huge hyperscale deployments.\nIn North America, our development pipeline is diversified by product mix, as well as geographically with projects underway in seven different markets.\nWe continue to see strong hyperscale demand in Hillsboro, while we are expanding in Downtown Atlanta to bring on additional colocation capacity at one of the most highly connected destinations in the Southeastern United States.\nWe are bringing capacity online in both these markets, among others, given the robust demand backdrop and our tightening inventory position.\nLet's turn to the macro environment on Page 5.\nWe're fortunate to be operating in a business levered to secular demand drivers.\nOur leadership position provides us with a unique vantage point to detect secular trends as they emerge globally on platformDIGITAL.\nOur customers continue to solve some of the most complex IT infrastructure connectivity and data integration challenges.\nWe are witnessing a growing trend of multinational companies across all segments, deploying and connecting large, private data infrastructure footprints on PlatformDIGITAL across multiple regions and metros globally.\nIndustry research firm Gartner recently updated their global IT spending forecast for 2022, projecting a 5.1% increase to $4.5 trillion, driven by companies investing in digital data growth strategies.\nAdditionally, Gartner believes that by 2024, 75% of organizations will have deployed multiple data hubs to drive mission-critical data analytics sharing and governance in support of digital data growth strategies.\nThese forecasts are consistent with our view of where the puck is headed.\nOur market intelligence tool, the Data Gravity Index, forecasts similar growth in the intensity of data creation and its gravitational pull on global IT infrastructure.\nIn addition, our industry manifesto, enabling connected data communities serves as the global playbook for industry collaboration to tackle data gravity challenges head on and unlock a new era of growth opportunity for all companies.\nDigital Realty was recently named company of the year by Frost & Sullivan for North American data center best practices.\nThis award reflects our continued focus on operational excellence, underpinned by continuous innovation and execution of the PlatformDIGITAL road map.\nWe are honored by the strong validation of the differentiated value proposition we are creating for customers and partners.\nGiven the resiliency of the demand drivers underpinning our business, and the relevance of our platform in meeting these needs, we believe we are well-positioned to continue to deliver sustainable growth for customers, shareholders and employees, whatever the macro environment may hold in store.\nLet's turn to our leasing activity on Page 7.\nAs Bill noted, we delivered record bookings of $156 million with an $11 million contribution from interconnection during the fourth quarter.\nVolume was elevated across both of our primary reporting categories in the quarter with a healthy mix between enterprise and hyperscale business.\nFor the full year, we booked $0.5 billion of new business with roughly a 60-40 split between greater than 1 megawatt and less than 1 megawatt plus interconnection.\nThe EMEA region had a particularly strong quarter accounting for approximately 60% of total bookings led by Frankfurt with standout performance across product types.\nThe fourth quarter was also notable for the strength of cross-selling between regions.\nNearly 30% of our sub-1 megawatt plus interconnection bookings were exported from one region to another, a strong indication of the value customers derive from our global platform.\nNot surprisingly, the Americas was our biggest exporter with most deals landing in EMEA, followed by APAC.\nBoth EMEA and APAC had strong export quarters as well, with over 15% of their sub-1-megawatt plus interconnection bookings landing out of region.\nThe weighted average lease term was nearly 10 years primarily driven by hyperscale pre-leasing in EMEA.\nWe landed over 130 new logos during the fourth quarter, our second best quarterly result and just shy of last quarter's record 140 for our full year total of 480 new logos.\nWe are encouraged by the consistent organic growth of our customer base, and we view these results as strong validation of platform digital and our global strategy.\nIn terms of specific wins during the quarter and around the world, Graphcore, a British semiconductor company that develops accelerators and systems for AI and machine learning, selected PlatformDIGITAL to address their density, security and scale requirements.\nThe initial deployment will land in Amsterdam to be followed by a global rollout, and we are also collaborating on solution engineering and joint go-to-market activities.\nA leading high-frequency trading shop is expanding on PlatformDIGITAL to extend their high-performance computing platform across two continents and expand trading into two new international metros, while approving cloud access and business continuity state side.\nA Global 2000 U.S. energy provider is expanding with Digital Realty, consolidating their own on-premise facilities and using PlatformDIGITAL to scale their business across multiple metros.\nA leading aerospace manufacturing and services company is expanding on PlatformDIGITAL, leveraging dense interconnection to support data exchange across four new markets.\nA Global 2000 insurance brokerage is consolidating their data center footprint and has adopted PlatformDIGITAL to remove data gravity barriers and interconnect with clouds across multiple metros.\nAn IVY League university is expanding on PlatformDIGITAL to exit their own on-premise facility and enhance their access to the healthcare provider community for data exchange.\nAnd finally, a major APAC food services organization selected PlatformDIGITAL to improve cloud connectivity and leverage the local centers of data exchange in Japan.\nTurning to our backlog on Page 9.\nThe current backlog of leases signed but not yet commenced rose from $330 million to $378 million as our fourth -- record fourth quarter signings more than offset commencements.\nThe lag between signings and commencements was unusually high at nearly 14 months, primarily driven by long-term leases on recent development starts in EMEA as customers accelerated efforts to secure a long-term runway for growth against a backdrop of steadily dwindling inventory.\nMoving on to renewal leasing activity on Page 10.\nWe signed $151 million of renewal leases during the fourth quarter in addition to the record new leases signed.\nThe weighted average lease term on renewals signed during the fourth quarter was nearly four years.\nRenewal rates rolled down 4%, driven by a handful of large deals in North America as negative releasing spreads on greater than 1 megawatt renewals more than offset the positive releasing spreads on the sub-1 megawatt renewals.\nIn terms of operating performance, overall portfolio occupancy ticked down 60 basis points, almost entirely due to development deliveries placed in service during the quarter.\nSame capital cash NOI growth was negative 6.6% in the fourth quarter, primarily driven by churn in North America, as well as higher property operating and net utilities expense.\nAs a reminder, the 2021 same-store pool did not include the Westin Building in Seattle, the Interxion platform in Rijk, Lamda Hellix in Greece or Altus IT in Croatia.\nEach of these businesses will be included in the same-store pool beginning in the first quarter of 2022, and each is expected to contribute to improving same-store growth going forward, partially offset by higher property taxes, as well as FX headwinds expected in 2022.\nTurning to our economic risk mitigation strategies on Page 11.\nThe U.S. dollar strengthened during the fourth quarter relative to prior year exchange rates, and FX represented roughly a 130 basis point headwind to the year-over-year growth in our reported results from the top to the bottom line.\nAs a reminder, we manage currency risk by issuing locally denominated debt to act as a natural hedge, so only our net assets within a given region are exposed to the currency risk from an economic perspective.\nIn addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed rate financing.\nGiven our strategy of matching the duration of our long-lived assets with long-term fixed-rate debt, a 100 basis point move in base rates would have roughly a 50 basis point impact on our full year FFO per share.\nOur near-term funding and refinancing risk is very well managed with a well-diversified menu of public and private capital sources available to fund the growth of our business.\nIn terms of earnings growth, fourth quarter core FFO per share was up 4% year over year and up 1% sequentially, driven by solid operational execution, cost controls and a reduction in financing costs due to proactive balance sheet management over the past 12 months.\nFor the full year, core FFO per share was up 5% year over year and came in $0.03 above the high end of our initial guidance range, which did not contemplate the contribution of $1.4 billion of assets through Digital Core REIT in early December.\nAs a reminder, full year core FFO per share excludes the $20 million promote fee on the Prudential joint venture in the third quarter, as well as the $25 million PPA settlement in the first quarter.\nLooking ahead to 2022, we expect core FFO per share will be between $6.80 and $6.90, including the 1% dilution from Teraco, as well as 100 to 200 basis points of expected FX headwinds due to the strength of the dollar relative to 2021.\nWe expect to deliver revenue between $4.7 billion and $4.8 billion in 2022 and adjusted EBITDA of approximately $2.5 billion.\nGiven the tightened supply environment, we expect flat cash renewal rates in 2022, up from slightly negative in 2021.\nAnd we expect overall portfolio occupancy to remain within the current range despite the significant new capacity scheduled to come online during the year in addition to the embedded lease-up potential within the Teraco portfolio.\nWe are off to a great start on our financing plans for the year with a highly successful 750 million bond offering in early January of 10.5-year paper at 1.375% coupon.\nFinally, we expect to raise $500 million to $1 billion from capital recycling whether through contributions to Digital Core REIT, noncore asset sales to third parties or a combination of both.\nIn terms of the quarterly dividend, the distribution policy is ultimately a board-level decision.\nGiven the continued growth in our cash flows and taxable income, we would expect to see continued growth in the per share dividend, just as we have had each and every year since our IPO in 2004.\nLast, but certainly not least, let's turn to the balance sheet on Page 12.\nAs of year-end, our reported leverage ratio stood at 6.1 times, while fixed charge coverage was 5.4 times.\nPro forma for settlement of the $1 billion September forward equity offering, leverage drops to 5.7 times, while fixed charge coverage also improved to 5.7 times.\nWe continue to execute on our financial strategy of maximizing the menu of available capital options while minimizing the related costs and extending the duration of our liabilities to match our long-lived assets.\nAs Bill previously mentioned, we recast our credit facility during the fourth quarter, upsizing from $2.35 billion to $3 billion, extending the maturity by three years and tightening pricing by 5 basis points.\nWe also incorporated a sustainability-linked pricing component subject to adjustment based on annual performance targets, further demonstrating our commitment to sustainable business practices.\nSubsequent to quarter end, we raised approximately $850 million from the 10.5-year euro bonds at 1.375%, and we used a portion of the proceeds to redeem all $450 million of our outstanding 4.75% U.S. dollar bonds due 2025.\nThis successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu of public, as well as private capital, sets us apart from our peers and enables us to prudently fund our growth.\nAs you can see from the chart on Page 13, our weighted average debt maturity is over six years and our weighted average coupon is just over 2%.\nA little over three-quarters of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform while also acting as a natural FX hedge for our investments outside the U.S. 94% of our debt is fixed rate, guarding against a rising rate environment, and 99% of our debt is unsecured, providing the greatest flexibility for capital recycling.\nFinally, as you can see from the left side of Page 13, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years.\nOur balance sheet is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy.\nOperator, would you please begin the Q&A session?",
        "summary": "introduced 2022 core ffo per share outlook of $6.80-$6.90.\nreported net income available to common stockholders of $3.71 per share in 4q21.\ndigital realty reported revenues for q4 of 2021 of $1.1 billion, a 2% decrease from previous quarter."
    },
    {
        "text": "Any of these risks and uncertainties could cause our actual results to differ materially from our projections.\nAdditional information about factors that may cause our actual results to differ from projections is contained in our Form 10-K for the year ended December 31, 2020, and in other company SEC filings.\nOn the call today, we will discuss non-GAAP financial measures, including adjusted EBITDA and free cash flow.\nWe're off to a very solid start to 2021, as we expected, signaling our accelerating recovery from the pandemic.\nOur year-over-year rate of revenue decline in the first quarter improved meaningfully on a sequential basis, and we posted substantial improvements in adjusted EBITDA margin and adjusted earnings per share compared to the first quarter of 2020.\nImportantly, we told you we would deliver on this a year ago, and we delivered as promised.\nOnce again, saying what we're going to do and then doing what we say.\nOur payments segment led the way for Deluxe, showing solid performance and continuing to deliver for our customers.\nWe have also seen improvements in our data-driven marketing, part of our Cloud Solutions business, which reinforces our optimism about around the rest of the year.\nWe generated [Indecipherable] despite continued COVID-related pressures and the impact of severe weather conditions in many parts of the U.S. in February.\nThere are some highlights from the quarter.\nRevenue was $441 million with a rate of decline on a year-over-year basis of 9%, a meaningful sequential improvement over the fourth quarter decline of nearly 13%.\nAdjusted EBITDA margin improved nearly 340 basis points year-over-year to 20.5%.\nAdjusted earnings per share improved nearly 17%.\nFree cash flow improved 47% year-over-year to $18 million.\nWe've improved liquidity in each of the last four quarters, and our net debt is now at the lowest level in nearly three years, which is a testament to the team's financial acumen and our responsible and prudent fiscal stewardship through the crisis.\nIn terms of sales, the first quarter was the strongest we've ever had in terms of annual contract value, or ACV.\nWe closed more than 1,600 deals, including the single largest win in Deluxe history with financial services leader, PNC, as well as the significant deal with TD Bank.\nWe closed 20 deals with ACV over $1 million each.\nAnd the top six deals had a combined ACV of over $50 million.\nSince we started our One Deluxe sales approach over six quarters ago and including a recent win which was signed in April, we have closed nine of the 13 largest deals of the last decade and two of the largest in company's history.\nOf course, we still must implement all of these wins, but our continued sales success adds to our already strong confidence in our future.\nAcross the company, we remained laser focused on our One Deluxe go-to-market strategy, accelerating our historic transformation through 2020 and into 2021 in the midst of a global pandemic.\nOur success and our now proven strategy put us in the position to announce the largest acquisition in the company's 106-year history, First American Payment Systems, which is expected to close later in this current quarter.\nBy acquiring First American, we're confirming our strategy to transform into a payments and trusted business technology company.\nThe transaction will expand our payments business by adding merchant services to our product offering and will double the size of the Payments segment to approximately $600 million with 20% plus adjusted EBITDA margins and strong growth rates.\nImportantly, after the transaction closes, Payments will now rival our check business on a revenue basis.\nAs you will recall and as I've communicated on several occasions, we have five prerequisites to reengaging on M&A.\nOur Q4 earnings call and again at the First American payment transaction call on April 22, I confirmed we had met all 5.\nAs a reminder, those prerequisites were: first, a scalable, modern technology platform; second, a sales organization capable of selling the entire portfolio; third, a product function capable of adding features and new solutions; fourth, a world-class team; and fifth, to strengthen our balance sheet.\nWe refer to all of these actions as One Deluxe, another example of saying what we will do and doing what we say.\nHaving fulfilled these prerequisites, we're ready to expand our business through a major strategic, logical and responsible acquisition.\nFirst American will be a great fit.\nWith that, let me now turn to sales.\nWe continue to make significant progress in becoming a sales-driven revenue growth company as we now signed the two largest deals in company's history in less than six months with PNC and Truist as we continue to unify our go-to-market sales approach to drive growth.\nWe continue with new business at an accelerated rate, and we're successfully cross-selling our products and services.\nLet's talk about the PNC deal for a moment.\nHere, we further expanded our existing relationship with a new multiyear partnership with the eighth largest commercial bank in the U.S., leveraging services from our core Deluxe data-driven marketing solution, complemented by promotional and multiple other Deluxe products, including our proprietary artificial data tools, strategic sourcing framework and delivery optimization algorithm, we will help PNC find and bring on new customers with improved speed to market, better value, increased efficiency and continuous innovation.\nThis is an important example of the power of expanding an existing relationship to include other existing Deluxe services.\nThe company's old operating silos would never have even identified the opportunity, much less combined multiple existing products to create a compelling solution for PNC.\nThis is more evident, proving our One Deluxe strategy really works.\nSome of our key wins for the quarter include: in Payments, we have extended our relationship with BBVA with a significant number of Deluxe mobile capture solution licenses to support its end consumer and small business customers.\nIn Cloud, aside from PNC, which will also benefit our Promotional Solutions segment, key wins include another top 50 financial institution, where we will deliver full end-to-end campaign management services for its branch transformation initiatives.\nWe also signed the top mortgage originator in the U.S., where we will offer prescreen and mail services to support their customer acquisition and recapture programs.\nIn Promotional Solutions and beyond the PNC transaction, Deluxe has expanded its relationship with LPL Financial.\nLPL will use the Deluxe brand center platform to efficiently rebrand newly acquired strategic broker-dealers with all pertinent marketing and operational materials while supporting regulatory compliance.\nIn checks, we successfully extended and expanded our contractual check relationships across several top-tier financial institutions.\nIn addition, we recently closed on a significant deal with TD Bank, the seventh largest bank in North America.\nOur recently enhanced check products and importantly, the strength of our balance sheet, enable us to continue to win market share and protect our outstanding cash flow.\nOf course, it will take time to onboard these wins, but our One Deluxe strategy is clearly working, and we're on pace to significantly exceed last year's record sales performance.\nMoving on to some segment highlights.\nPayments had a solid quarter, growing beyond the major wins in Q1 last year, and the impact of the [Indecipherable], we continue to work on our implementation backlog and expect acceleration as COVID-related implementation customer delays fade away over the coming months.\nOur treasury management business led the way this quarter.\nAs a reminder, services here include automation and intelligence, lockbox processing, remote.\nOur digital payments business, which includes the Deluxe payment exchange and medical payment exchange, while relatively small, more than doubled year over year, and we remain very optimistic about this business.\nThis success highlights our ability to add new features and build new products successfully.\nDuring the quarter, we are pleased to have conducted a soft launch of our HR management solution.\nSmall- and medium-sized businesses and integrated HR and payroll platform with a modern user experience, another example of our new product building capability.\nWe also expanded the Deluxe Payment Exchange network, which builds upon our digital payment products to now also include digital payments directly into lockboxes.\nOur [Indecipherable] has been implemented for medical claims payments, and will be expanded from there.\nWe are very optimistic on the potential growth prospects for both of these new offerings.\nIn Cloud Solutions, we've made important progress on adding a number of new clients.\nAs we discussed before, our 2021 cloud revenue performance will be impacted by the exits and divestitures we made in 2020.\nExcluding these impacts, the cloud rate of decline was about 10% or just over half of the reported rate, and sequentially before the business grew 5%.\nAll of this provides us confidence in the trajectory of this business.\nKeith will discuss this in more detail.\nWe are particularly optimistic about our data-driven marketing prospects as the economy recovers.\nAs expected, we can see that lift off beginning in our first quarter.\nWe have good visibility now into the rest of the year as we partner with our financial institution customers, planning multiple large-scale marketing campaigns, adding to our confidence for 2021 and beyond.\nOur website services also showed resiliency when compared to the fourth quarter of 2020, driven by stronger client retention as favorable exchange rates.\nWe did see encouraging signs for recovery in our corporation services as we previously announced.\nTurning now to our Promotional Solutions segment.\nThe business was affected by continued COVID-related lockdowns, particularly in the Northeast and West Coast, along with severe winter weather in February.\nDespite these impacts, the rate of decline improved for the fourth quarter of 2020 and we are very optimistic about this segment's prospects as the recovery unfolds.\nImportantly, adjusted EBITDA margin improved over 600 basis points year over year, which Keith will also touch on in a moment.\nOur business essentials line where we deliver custom forms and other products that businesses consume in their routine operations performed well during the quarter and is a leading indicator of the nation's overall economic rebound.\nWe expect to see a recovery in branded merchandise as events and in-person activities return as COVID wanes.\nFinally, our highly profitable cash generating checks business continue to be impacted by secular trends combined with the dual impact of the pandemic and severe weather.\nImportantly, we expect the accelerated COVID recovery, plus our market share gains to significantly reduce the rate of decline over the course of the year.\nEarly evidence of this recovery can be seen in the sequential improvement and revenue decline rates between Q4 2020 and Q1 2021.\nOur strategy in checks remains focused on capturing new share, while holding margin percentage flat and making smart investments, giving a strong cash flow to invest in payments and cloud.\nAnd the strategy is working, helping us win some of the largest deals in the company's history, expand into Canada and land multiple significant competitive takeaways.\nIn summary, our recovery is accelerating and our margin percentage is expanding.\nWe improved liquidity for the fourth consecutive quarter, and now net debt is at the lowest level in almost three years.\nAll four businesses are experiencing positive momentum to start the year.\nOur transformation into a sales-driven payments and trusted business technology company is yielding results and will accelerate with the addition of First American.\nOur One Deluxe strategy is clearly working, and our execution is strong.\nThis really is a new Deluxe, a payments and trusted business technology company.\nNow, we'll turn over to Keith, who will provide you more details on our financial performance.\nAs Barry mentioned, we are pleased with our first quarter results.\nWhile we felt the continuing effects of COVID as well as the impact from severe weather conditions in February, we delivered improvements in sequential quarterly trends.\nThis performance was in line with our guidance and highlights the accelerating recovery we expected as we move through the rest of the year.\nLet's go through the enterprise level highlights for the quarter before moving on to the segments.\nWe posted total revenue of $441.3 million.\nWhile this is a decline of 9.3% as compared to the same period last year, importantly, it was a 360 basis point improvement in the rate of decline experienced in the prior quarter.\nWe reported GAAP net income of $24.3 million in the quarter.\nYear-over-year comparability is not meaningful given the asset impairment charges taken during the first quarter of 2020 related to the anticipated effects of COVID.\nOur measures of adjusted earnings and adjusted EBITDA exclude these noncash charges, along with restructuring, integration and other costs.\nThese adjustments are detailed in the reconciliations provided in our release.\nAdjusted EBITDA grew 8.6% to $90.5 million and adjusted EBITDA margin improved nearly 340 basis points year-over-year to 20.5%.\nThese improvements were largely driven by reductions in SG&A, and we have aligned expenses to our post-COVID operating model and continue progress against internal value realization initiatives.\nNow turning to our segment details.\nConsistent with our expectations shared on the fourth quarter call, Payments grew Q1 revenue 3.2% year-over-year to $79.5 million.\nPayments also grew nearly 2% sequentially from the fourth quarter.\nThe quarterly performance was led by our treasury management business, which grew 4% year-over-year.\nAdjusted EBITDA increased 1.7% in the quarter and adjusted EBITDA margin was 23%, down 40 basis points as product mix impacted gross profit rates versus the prior year.\nWe continue to expect double-digit revenue growth for the full year as we continue to work on implementing the backlog of new clients we signed in 2020 and in Q1 of 2021.\nWe continue to invest to drive growth and bring on all of our wins.\nAnd as such, we are assuming adjusted EBITDA margins will remain in the low 20% range through the year.\nOf course, the payments numbers will change significantly with the exciting addition of First American Payment Systems later in the year.\nI will provide details on that in a moment.\nCloud Solutions revenue results point to the recovery, but the business is performing better than the reported results imply.\nBusiness exits and divestitures taken in 2020 [Indecipherable] the reported results.\nTo provide you with better clarity, in addition to providing our GAAP results, we will also share cloud revenue performance, excluding these business exits and divestitures.\nOn a GAAP basis, revenue declined 18.2% year-over-year to $62.2 million in the quarter, but increased 5% sequentially from Q4.\n8% of the year-over-year decline was due to the impact of exits and divestitures and revenue benefited from additions in the data-driven marketing business.\nAs expected, Q1 data-driven marketing solutions revenue recovered sequentially versus Q4 as the pandemic-related financial industry slowdown and marketing spend recovery began.\nBeyond the record-setting PNC deal, we've also signed several new data marketing clients during the quarter that will benefit us in future periods.\nWeb and hosted solutions remained stable compared to Q4, driven by stronger client retention and favorable exchange rates.\nYear-over-year, we saw declines in this business due to the macro environment and our decision to exit certain nonstrategic product lines last year.\nIn Q1, cloud's adjusted EBITDA margin improved over 800 basis points versus prior year, driven by expense alignment to post-COVID operating model targets and improved mix related to our prior year business exits.\nWe expect cloud margins to remain healthy in the low to mid-20% range.\nPromotional Solutions first quarter 2021 revenue was $124.5 million.\nWhile down 12.8% year-over-year, the sequential rate of decline improved 380 basis points from the fourth quarter of 2020.\nAdjusted EBITDA margin for the quarter was 14.2%, up 640 basis points due to year-over-year reductions in SG&A expenses.\nWe are anticipating improved adjusted EBITDA margins throughout 2021 in the low to mid-teens as a result of value realization initiatives and cost actions taken in 2020, including meaningful improvements in our distributor relationships.\nChecks first quarter revenue declined 8.1% from last year to $175.1 million due to anticipated secular trends compounded by the impact of the pandemic.\nThe rate of decline did improve 180 basis points sequentially from Q4 despite severe weather impacts, clearly signaling to COVID recovery.\nFirst quarter adjusted EBITDA margin levels continue to be strong at 47.7%.\nBased on high renewal rates and new businesses won in 2020 and in the first quarter of 2021, we anticipate secular check declines to return to mid-single-digit rates or better, consistent with the recoveries from previous economic slowdowns.\nNow turning to our balance sheet and cash flow.\nWe ended the quarter with strong liquidity of $427.7 million, including $125.4 million of cash.\nDuring the quarter, the amount drawn under the credit facility was unchanged from the year-end and remained at $840 million.\nResulting net debt decreased for the fourth consecutive quarter, ending the quarter at $714.6 million, the lowest level in nearly three years.\nWe think this result in the middle of an unprecedented pandemic highlights the financial acumen and discipline of this management team.\nFree cash flow, defined as cash provided by operating activities plus capital expenditures, was $17.9 million for the first quarter of 2021, an increase of $5.7 million or 46.7% improvement compared to last year.\nThe increase was primarily due to improved working capital efficiency.\nOur Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares.\nThe dividend will be payable on June 7, 2021, to all shareholders of record on May 24, 2021.\nWe did not repurchase common stock in the first quarter.\nAs a reminder, our capital allocation priorities are to first responsibly invest in growth while paying our dividend; and second, to pay down debt.\nWe will evaluate future repurchases on an opportunistic basis.\nNow turning to guidance.\nAs I mentioned on the fourth quarter of 2020 call, we are well positioned for a recovery to further accelerate in the second quarter, enabling us to exit the year of sales-driven mid-single-digit revenue growth company without the benefit of acquisitions.\nI will remind you this achievement will be historic as the company has not reported sales-driven growth in the mid-single digits in more than a decade.\nThis really is a new Deluxe.\nAs a result and on a stand-alone basis, without the impact of First American, we are reiterating our guidance for full year 2021 revenue growth of 0% to 2% and full year 2021 adjusted EBITDA margin of 20% to 21%.\nWe continue to expect capital expenditures to be approximately $90 million as we continue with important transformation work, innovation investments and building future scale across our product categories.\nWe also continue to expect a tax rate of approximately 25%.\nWe will update our full year guidance, including First American during our second quarter 2021 earnings call in early August.\nJust to summarize, I'm pleased with the first quarter results and believe that the company is in a position of strength as we continue the strong momentum we've been demonstrating, and we look forward to delivering on our 2021 expectations.\nNow back to Barry.\nOur first quarter results clearly demonstrate our continued momentum and the power of our One Deluxe strategy.\nThe logical and responsible acquisition of First American is entirely consistent with our long-standing strategy and will serve to accelerate our growth, transforming Deluxe into a payments and trusted business technology company.\nWe sat in the past 2.5 years preparing Deluxe to reenter the M&A market by improving our technology, reorganizing our sales structure and strategy, expanding our product set, building out our management team and strengthening our balance sheet.\nAs I said before, I'm incredibly proud that our team delivered these prerequisites on an expedited time line in the midst of an unprecedented pandemic.\nWe say what we're going to do, and we do what we say, consistently.\nWe really are a new Deluxe.\nOperator, we're now ready to take questions.",
        "summary": "deluxe corp - qtrly revenue $441.3 million versus $486.4 million."
    },
    {
        "text": "On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher.\nOur actual results may differ materially from our projections due to a number of risks and uncertainties.\nToday's remarks will also include references to non-GAAP financial measures.\nThe second quarter was another quarter of solid progress as revenues grew 24.4% and EBITDA grew 12.6%.\nOrganic revenue growth accelerated to 2.8%, fueled by low double-digit growth in international and low single-digit growth in North America.\nThe sequential improvement in organic growth was driven by new logo wins, increased cross-sell, continued strong retention, and the lessening of previously communicated headwinds.\nWe also saw strong sales in the building pipeline for our new solutions, both domestically and internationally, as businesses look to leverage more of our solutions to support their post-pandemic operating models.\nWe expect to see a continued ramp in the third and fourth quarters as we execute against our near-term growth strategy and have continued to strengthen the business for the long term with new talent, data assets, partnerships, and solutions that continue to bolster our offerings and provide our clients differentiated insights that help them grow revenues, lower operating costs, and improve the risk and compliance profile.\nBefore we jump to our normal business and operations update, I wanted to touch on a few announcements we made in the quarter.\nAs Dun & Bradstreet's chief product officer, Ginny comes to us from TransUnion and has over 20 years of experience driving innovation and leading product organizations.\nShe manages the overall product strategy for our global portfolio and is focused on driving rapid innovation and developing solutions at scale that enable our clients' success.\nMike is our chief technology officer and brings more than 25 years of experience and deep technological insight to Dun & Bradstreet.\nMike joined us from Fiserv and brings with him a proven track record of modernizing and scaling existing platforms for companies such as AOL, Microsoft, and First Data.\nWe also established a new location in Jacksonville, Florida, which will serve as our global headquarters.\nWe look to leverage this strategic location to help us to continue to innovate and grow, as well as benefit from substantial state and local financial incentives that made this move an easy one.\nAnd finally, before I move on to the business update, I wanted to share a very special milestone here at Dun & Bradstreet.\nOn July 20, we celebrated our 180th year anniversary, which is a testament to the long-standing value D&B has and continues to provide to businesses throughout the world.\nNow, let's move on to our business update.\nOn our first-quarter call, we discussed our key priorities for 2021, which are to continue to grow our share of wallet with our strategic customers; to approach and monetize the SMB space in new and innovative ways; to launch new products domestically to localize new and existing products globally; and lastly, to integrate the Bisnode acquisition.\nThroughout the second quarter, our team has made great strides toward executing on these priorities.\nWe're pleased with the ongoing success we're having with our strategic clients, which included renewal rates at near 100% and the addition of some exciting new logos.\nIn North America, we signed a multiyear deal with Ceridian, a global human capital management software company for Analytics Studio and various sales and marketing products, including the new Rev.\nUp ABX and digital targeting solutions.\nCeridian was looking to support their growth strategies and, in particular, the ability to connect and activate the offline view of customers and prospects through digital insights.\nThey're also focused on strategic global expansion and leveraging our world-based file to better understand addressable markets by region to support growth in target markets.\nLeveraging the investments we've made in nontraditional data and our sales and marketing solutions, we signed additional business with one of the largest online retailers who will be using our data and analytics to support their efforts in growing a new business line that needed help targeting specific retailers in high foot traffic areas such as airports and sports stadiums.\nDeloitte Touche Tohmatsu also entered into a multiyear agreement with us to assist with their client engagement, customer relationship management, and overall master data program.\nTheir global data management team was tasked with creating a global master data warehouse that could be used across all markets and will be the central hub for global applications, as well as local markets.\nThe team selected our D&B Direct+ API to be the central point for company information, hierarchies, and connections, including our full Family Tree.\nAlong with the master data use case, they're also using our insights to inform their investment to drive a more diverse workforce pipeline and, in particular, underrepresented minorities to the public accounting profession.\nWe will deliver a microsite with downloadable learning modules and coupled with a multichannel marketing campaign.\nWe're proud to support Deloitte in ensuring the success of this fantastic program.\nWe also signed a deal with Vintro, an online networking platform, who will be using our comprehensive B2B data, as well as our insights and AI-driven platforms to enable their clients to accelerate global opportunity and innovation.\nIn addition to the direct sale, we're also partnering with Vintro on a new platform to enhance the supply chain ecosystem through enhanced access to SMBs.\nTurning to our international segment.\nWe're making strong progress on the Global 500 account program we rolled out in the first quarter, demonstrated by several wins in the second quarter.\nOne of these was a significant expansion of our long-standing relationship with Barclays through a multiyear enterprisewide agreement supporting their global master client data and insight strategy.\nBarclays will be using D&B's comprehensive global data cloud for a multitude of use cases.\nGlobally consistent and identifiable by the DUNS number, our data will enable a broader and deeper view of every customer and prospect from intent data to financial and regulatory information.\nBarclays was looking for an end-to-end global solution, and we stood alone in our ability to deliver such an outcome.\nIn D&B Europe, our newly acquired Bisnode region, we signed several deals with Global 500 companies as our strategy to become the provider of choice in Central Europe has begun to bear fruit.\nBayer, a life science company with more than 150-year history and core competencies in the areas of healthcare and agriculture, signed a three-year global contract for D&B data by multiple delivery platforms.\nThis deal will support Bayer in organizing and managing their third-party records across various software platforms.\nDeutsche Bank signed a new contract to use our local German database to support their sales efforts.\nAfter various data and usability comparisons, they chose D&B over their previous provider, a large international competitor.\nWe continue to build and grow relationships with Global 500 companies.\nAt the end of the second quarter, nearly three-quarters of the Global 500 companies are clients of ours, a significant increase from year-end 2019 that was closer to two-thirds.\nWhile we continue to deepen relationships with our strategic clients, we're also seeing positive trends in the small and midsized markets.\nAs it relates to our second priority, addressing the SMB market in new and innovative ways, we started with the build-out of our D&B product and data marketplaces.\nThe D&B product marketplace was created to provide a curated set of our solutions, as well as partner solutions designed for small business.\nIt now has 20 partners, the newest of which are Brex and LendingTree along with other major brands such as Microsoft, Comcast Business, AT&T Business, Mastercard, and Symantec.\nThe D&B Data Marketplace where users can now buy a broader range of prematched, independent data sets from alternative data providers, now includes data sets such as commercial real estate, job postings, shipping, healthcare, and U.S. agricultural data.\nWe currently have 36 partner data sets as of the end of the second quarter, up from 22 at the end of the first quarter.\nNow turning to our e-commerce strategy.\nWe continue to see more and more attention in our digital assets.\nIn the second quarter, we saw dnb.com site visits continue to grow with over 46 million visits in Q2, an 84% increase over prior Q2.\nWhile the vast majority of customers are coming for CreditSignal and monitoring services, we're also beginning to see increased demand for our sales and marketing solutions.\nOverall, we hit more than $2 million in e-commerce sales in Q2, up 73% from prior-year quarter, and are forecasting sales to double again by the end of the third quarter.\nThis, combined with our D&B Marketplaces, are expected to drive nearly $10 million in incremental annual recurring revenues by year-end, and we look forward to updating you in the coming quarters on our progress.\nOur third priority is launching new products and use cases.\nLast quarter, we announced D&B Rev.\nUp ABX, a solution that simplifies and automates marketing and sales workflows for our clients.\nSince its launch, we closed six deals with ACV of nearly $2 million and with a strong and growing pipeline as awareness spreads and further enhancements are added to the platform.\nWe're excited to now take the Rev.\nUp capabilities to the SMB marketplace with the launch of D&B Rev.\nUp Now brings enterprise digital marketing technology, once only available to large-size businesses, to SMBs so that they can find and engage their best customers without having the cost and complexity of an in-house analytics department.\nWe're also bolstering our sales and marketing solutions through our alliance with Zeta Global.\nWe are bringing together trusted consumer and private business data into a single, highly secured data cloud that contains profiles on over 220 million individuals in the United States.\nThe Data Cloud combines Zeta's business-to-consumer data, including individuals' intent, behavioral, transactional, and location-based signals with Dun & Bradstreet's business-to-business data, including employer data such as companies, titles, and emails, to power a new market sector we refer to as business-to-person or B2P, which will enable businesses to unlock the buying power of decision-makers through this uniquely combined data set offering, a true 360-degree view of an individual and the ability to reach them through both business and consumer-based activation channels.\nAnd last but not least, I'm excited to announce the launch of D&B ESG Intelligence, which delivers a standardized score and analytics built from the Dun & Bradstreet Data Cloud and established sustainability standards.\nOur ESG rankings cover 12 ESG themes and 32 topic-specific categories to help our clients best understand specific risks and opportunities.\nWe believe this is another great example of how we can leverage the power of our Data Cloud and the DUNS number to create consistent and comprehensive rankings for businesses of all sizes throughout the globe.\nThis deep coverage and breakdown of specific ESG topic rankings helps compliance and procurement teams track and report on specific ESG factors that increase growth and reduce risk.\nSimilar to how PAYDEX established the de facto commercial credit score, we see the opportunity to set a standardized commercial ESG score that will help underwriters procurement organizations, investors, and many other areas quickly analyze and action new customers, vendors, suppliers, investments, and partners in an accurate and efficient manner.\nIn our international segment, we continue to focus on rolling out localized solutions across our owned and partner markets.\nIn the second quarter, we delivered 14 product launches across Europe, Greater China, and the Worldwide Network partner markets.\nincluding important new solutions, D&B Finance Analytics, D&B Risk Analytics, and Data Blocks.\nWe also expanded distribution of D&B Onboard and Direct+ across the slew of worldwide network partners.\nIn D&B Europe, we continue to see good traction from existing D&B products, like D&B Credit, Direct+ and D&B Onboard, while also introducing new products, including D&B Finance Analytics and Risk Analytics in the Nordic markets, Optimizer in the Nordics and Southeast Europe, and Data Blocks in Central Europe.\nThese solutions will enable us to execute our strategy of migrating customers off legacy offerings onto modern digital platforms, as well as attract new customers.\nThese solutions, along with the many we have discussed over the past few quarters, are allowing us to create a significant amount of new product revenue.\nFor North America and international combined, the New Product Vitality Index, or the percentage of revenues from new products, was 6% in Q2.\nFor context, we began measuring this stat in Q1 of 2019, and it's up already from 0.2% in Q2 of 2019.\nWe will continue to drive more and more new solutions into our markets around the world and look forward to updating you on our progress through the coming quarters.\nI'm pleased to report that integration is going as planned with top-line performance in line and synergy realization coming in slightly ahead of expectations.\nWe've executed more than $25 million in annualized savings from actions taken through Q2.\nSavings are being driven by the consolidation of functions across our global team, as well as executing a broad real estate strategy, including vacating, reducing the footprint of 14 office locations.\nOn the Bisnode operations side, we implemented a new global data framework across D&B Europe markets to ensure consistent monitoring and enhancement of database breadth and quality.\nWe have already made key data improvements, including the failure scores in Nordic markets in Germany, growing the database of nonregistered companies in Central Europe, and increasing financial statement data in Switzerland.\nThese initiatives are intended to improve retention, to enhance customer satisfaction, as well as demand for data from our global customers.\nOverall, I'm pleased with our continued transformation, and I'm excited about the progress we continue to make, laying the foundation for accelerated sustainable growth throughout the remainder of 2021 and into 2022.\nToday, I will discuss our second-quarter 2021 results and our outlook for the remainder of the year.\nOn a GAAP basis, second-quarter revenues were $521 million, an increase of 24% or 23% on a constant-currency basis compared to the prior-year quarter.\nThis includes the net impact of the lower purchase accounting deferred revenue adjustment of $2 million.\nNet loss for the second quarter on a GAAP basis was $52 million or a diluted loss per share of $0.12, compared to a net loss of $208 million for the prior-year quarter.\nThe improvement was primarily driven by higher prior-year expenses related to the retirement of debt as part of the initial public offering, lower interest expense, improvements in operating income driven by lower equity-based compensation related to stock options granted in the prior-year quarter, and the net impact of Bisnode acquisition.\nThis was partially offset by higher tax provision recognized in the current year, largely driven by changes in the state apportionment and the enactment of the U.K. tax rate increase.\nTurning to Slide 2, I'll now discuss our adjusted results for the second quarter.\nSecond-quarter adjusted revenues for the total company were $521 million, an increase of 24.4% or 23.2% on a constant-currency basis.\nThis year-over-year increase included 19.9 percentage points from the Bisnode acquisition and 0.5 point from the impact of lower deferred revenue purchase accounting adjustments.\nRevenues on an organic constant-currency basis were up 2.8%, driven by double-digit growth in our international segment, as well as single-digit growth in North America.\nSecond-quarter adjusted EBITDA for the total company was $198 million, an increase of $22 million or 13%.\nExcluding the net impact of the Bisnode acquisition, EBITDA increased slightly due to revenue growth partially offset by increased data and data-processing costs, higher commissions, and higher public company costs.\nSecond-quarter adjusted EBITDA margin was 38.1%.\nExcluding the net impact of Bisnode, EBITDA margin was 40.8%.\nSecond-quarter adjusted net income was $108 million or adjusted diluted earnings per share of $0.25, an increase from $81 million in the second quarter of 2020.\nTurning now to Slide 3, I will now discuss the results for our two segments, North America and international.\nIn North America, revenues for the second quarter were $357 million, an increase of approximately 1% from the prior year.\nExcluding the positive impact of foreign exchange and the negative impact of the Bisnode acquisition, North America organic revenue increased $3.2 million or 1%.\nIn finance and risk, we continue to see strength in our risk solutions and solid growth in our finance solutions attributable to new business and higher customer spend.\nThe growth in these solutions was partially offset by $1 million of revenue elimination from the Bisnode transaction.\nFor sales and marketing, revenue was $158 million, a decrease of $3.1 million or 2%.\nWhile data sales had another solid quarter, the overall growth in sales and marketing was offset by $4 million from the Data.com legacy partnership wind-down.\nNorth America second-quarter adjusted EBITDA was $167 million, a decrease of $3 million or 2% primarily due to higher data processing costs and higher commissions, partially offset by revenue growth and ongoing cost management.\nAdjusted EBITDA margin for North America was 46.9%.\nTurning now to Slide 4.\nIn our international segment, second-quarter revenues increased 147% to $164 million or 137% on a constant-currency basis, primarily driven by the net impact from the acquisition of Bisnode and strong growth in both finance and risk and sales and marketing solutions.\nExcluding the net impact of Bisnode, international revenues increased approximately 13%.\nFinance and risk revenues were $104 million, an increase of 92% or an increase of 85% on a constant-currency basis, primarily due to the Bisnode acquisition.\nExcluding the net impact of Bisnode, revenue grew 10% with growth across all markets, including higher revenue from Worldwide Network alliances due to higher cross-border data fees and royalties and higher revenues from our U.K. market attributable to growth in our finance solutions.\nSales and marketing revenues were $60 million, an increase of 383% or an increase of 366% on a constant-currency basis, primarily attributable to the Bisnode acquisition.\nExcluding the impact of Bisnode, revenue grew 22% due to higher revenues from API offerings across our U.K. and Greater China markets and increased revenues from our Worldwide Network partners product royalties.\nSecond-quarter international adjusted EBITDA of $43 million increased $23 million or 113% versus second quarter of 2020, primarily due to the net impact of the Bisnode acquisition, as well as revenue growth across our international businesses, partially offset by higher data costs.\nAdjusted EBITDA margin was 26% or 28.9% excluding Bisnode.\nTurning to Slide 5, I'll now walk through our capital structure.\nAt the end of June 30, 2021, we had cash and cash equivalents of $178 million, which, when combined with the full capacity of our $850 million revolving line of credit due 2025, represents total liquidity of approximately $1 billion.\nAs of June 30, 2021, total debt principal was $3,667 million, and our leverage ratio was 4.7 on a gross basis and 4.4 on a net basis.\nThe credit facility senior secured net leverage ratio was 3.6.\nTurning now to Slide 6, I'll now walk through our outlook for full-year 2021.\nAdjusted revenues are expected to remain in the range of $2,145 million to $2,175 million, an increase of approximately 23.25% compared to full-year 2020 adjusted revenues of $1,739 million.\nRevenues on an organic constant-currency basis, and excluding the net impact of lower deferred revenues, are expected to increase between 3% to 4.5%.\nAdjusted EBITDA is expected to be in the range of $840 million to $855 million, an increase of 18% to 20%.\nAnd adjusted earnings per share is expected to be at the high end of the range of $1.02 to $1.06.\nAdditional modeling details underlying our outlook are as follows.\nWe expect interest expense to be $200 million to $210 million; depreciation and amortization expense of approximately $90 million excluding incremental depreciation and amortization expense resulting from purchase accounting; adjusted effective tax rate of approximately 24%; weighted average shares outstanding of approximately 430 million; and finally, for capex, we are increasing our guidance from approximately $160 million to approximately $237 million to account for the $77 million purchase of our new global headquarters building in Jacksonville.\nOverall, we continue to see the year shaping up, as previously discussed, with organic revenue growth continuing to accelerate throughout the year, with Q3 expected to be a bit below the midpoint of our range and Q4 to be at the high end of the range.\nAnd finally, as previously discussed, we continue to expect adjusted EBITDA for the third quarter to be below the low end of the guidance growth range with a similar growth rate as Q2 due to timing of certain expenses related to data acquisition and sales and marketing initiatives.\nWe expect the fourth quarter to be above the high end of the guidance growth range.\nOverall, we are pleased with our performance through the first half of 2021 and look forward to continuing the strong momentum we are building in both our North America and international segments.\nOperator, will you please open up the line for Q&A?",
        "summary": "q2 adjusted earnings per share $0.25.\nq2 loss per share $0.12.\ndun & bradstreet holdings - gaap revenue for q2 2021 was $520.9 million, an increase of 24.4% & 23.2% on a constant currency basis compared to q2 2020.\ndun & bradstreet - adjusted revenue for q2 2021 was $520.9 million, an increase of 24.4% and 23.2% on a constant currency basis compared to q2 2020.\nreiterating its previously provided full year 2021 outlook."
    },
    {
        "text": "On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher.\nOur actual results may differ materially from our projections due to a number of risks and uncertainties.\nToday's remarks will also include references to non-GAAP financial measures.\nAnthony will begin with highlights from the third quarter including the progress we are making with our growth strategies and transformation.\nBryan will then take you through a review of the financials before we proceed to Q&A.\nThis was another solid quarter that finished in line with our expectations, putting us on track to meet the full year 2020 outlook provided on the second-quarter call.\nOur company's financial results demonstrate that despite experiencing impacts of COVID-19 and other near-term headwinds, the core fundamentals of our business are strong.\nOur continued focus on efficiency is reflected in our improved EBITDA margins and annualized run rate cost savings to date of $225 million which is up $5 million from the second quarter.\nWe continue to progress toward our revised target of $250 million, and we'll continue to update you on future calls.\nOverall, our team continues to make great strides in executing on our strategy, and we are building significant momentum.\nSo let's start with some of the announcements and successes that occurred during the third quarter.\nFirst is the announcement we made last month that we entered into a definitive agreement to acquire Bisnode, a longtime Dun & Bradstreet Worldwide Network member.\nThe acquisition represents a key investment in support of our international growth strategy.\nDuring our October 8 call, we described how Bisnode had several strategic and financial benefits including a significantly expanded footprint across the DACH region which is Germany, Australia and Switzerland, Scandinavia and Central Europe, allowing us to better serve our clients operating in the region and globally.\nWe are busy with the integration planning in anticipation of the transaction close which is still expected in January 2021 and plan to share incremental financial and strategic details on Bisnode during the next quarter's earnings call.\nNow, turning to our sales and operations execution in the third quarter.\nOur year-to-date retention rate remained strong at 96%, and 32% of our business was sold in multi-year deals.\nOne deal that exemplifies both of those metrics is the expansion of our strategic relationship with Microsoft to a multiyear contract for enterprise data management with use cases spanning both finance and risk and sales and marketing.\nThis is an important example of our ability to not just retain but expand the scope and duration of strategic relationships which is a key element of our growth strategy.\nOther third-quarter renewals include a multiyear enterprise license deal with HSBC supporting their data and analytics strategy, a Global 500 office supply retailer who turned to Dun & Bradstreet to help them manage fraud risk and an expanded multiyear relationship with a multibillion-dollar private shipping supplies company.\nWe also renewed business with insurance solutions provider, T&A, and financial technology solutions provider, WEX, who both use our finance and risk solutions.\nPlus, we expanded our relationship with Greensill, a British market-leading provider of working capital finance.\nThese renewals are examples of where we are able to build off of an existing set of use cases within the enterprise and cross-sell and upsell solutions to broaden our penetration into different parts of their global organizations.\nTurning to new business.\nAmong others, we recently signed a Fortune 500 manufacturer of coatings and paint who turned to our United Kingdom and United States teams for a cross-border solution that provides an end-to-end view of their customers' and suppliers' master data using our latest API, Direct+, offering.\nNow we also won back an industry-leading Fortune 1000 global specialty chemicals and performance materials company who turned back to Dun & Bradstreet from a lower-cost alternative to consolidate its credit processes.\nAs you can see, client engagement is strong, and we continue to see high demand across our existing portfolio of solutions, giving us confidence that we have listened to our clients and that our ongoing transformation of technology, data coverage and analytics is delivering what they need.\nIn addition to our existing portfolio of solutions, we recently announced a new sales and marketing solution, D&B Connect, a highly configurable plug-and-play, self-service data management platform.\nD&B Connect helps our clients assess, clean and enrich their customer data against category-leading data in the Dun & Bradstreet data cloud.\nWith D&B Connect, time spent on data management is reduced from days to hours so that our clients can focus on what's most important, growing new business.\nThis is particularly important for small and medium-sized businesses who do not have the resources of a large enterprise and who need to quickly make sense of the data they have and gain additional insights to safeguard and grow their business.\nNext, I'll update you on our technology transformation, starting with our progress on Project Ascent.\nAs we described in the second-quarter call, Project Ascent will modernize our data supply chain, allowing us to rapidly expand our traditional and nontraditional data sets, simplify connectivity to the end user solutions and enhance our overall throughput.\nIn the quarter, we began investing in global shipping manifest data which is a new nontraditional data set that is complex to curate and in high demand for use in supply chain fraud and risk analytics.\nWe're already using the data to fulfill a finance and risk use case for our customer engagement and are pleased with the initial performance.\nIn the fourth quarter and beyond, we plan to enhance the operational user interface, reporting capabilities and most importantly, add new nontraditional data sets and convert our existing data sets over to the new supply chain process.\nOur ongoing enhancements to our API technology allow us to expand our latest D&B Direct+ offerings globally including the United Kingdom and Ireland, China and to our Worldwide Network which has been met with strong market reception.\nConsolidating and progressing our API solutions enable simplification, scalability and the ability to deliver integrated data solutions with speed at lower cost.\nAs we connect deeper and deeper within the core workflows of clients through our technology enhancements, it is clear to us that organizations are seeking more effective ways to grow revenue, improve their margins and mitigate their risk.\nOur transformation also includes the expansion and enhancement of our data which has led to significant growth of our data cloud which today includes over 400 million public and private businesses worldwide.\nThis is 85 million or 27% more coverage of our businesses than we had when we took the company private in February of 2019.\nWe frequently hear from customers who want more and better data coverage, especially in international markets including Asia and Europe.\nIn February of 2019, we have increased our coverage of businesses in the Asia Pacific region by 57%, fueled by our proprietary AI engine that addresses local language translation.\nWe also remain focused on the expanding coverage of small and emerging businesses in the United States, United Kingdom and Ireland, increasing the pace of small business data accumulation, growing from 56,000 per month in the first half of the year to 174,000 per month in the third quarter.\nWe are listening to our clients and delivering which is translating into sales and ultimately, revenue and profit.\nAnother key element of our transformation is the strengthening of our analytics and insights.\nLast quarter, we told you about D&B analytics studio, our cloud-based analytics platform which allows clients to combine their data with third-party data and the scale, diversity and accuracy of our constantly expanding data cloud to achieve broader insights that could not be achieved on their own.\nIt puts the power of analytics directly in the hands of the user and gives them a glimpse of the power of our data and could translate to future cross-selling into different solutions.\nFor example, one of the largest global management consulting firms piloted our analytics studio using Dun & Bradstreet data and insights, combined with their data and insights to build derivative B2B analytics for improved customer engagement.\nBeing able to rapidly ingest third-party internal and customer data is a key advantage for consulting engagements, and we believe that the analytics studio gives our clients differentiated capabilities.\nThe studio is gaining fast momentum, and we have 13 proof of concepts under way with clients.\nWe signed five deals in the quarter including a global financial software company who is studying its total addressable market as well as to analyze its customers' product purchasing behaviors.\nAnd with a government client who turned to D&B analytics studio to research and understand the impact of federal funding on small and medium businesses.\nWith continued strong interest from clients and a growing pipeline, we will continue to evolve the studio with alternative data sources, services and commercial-use solution sets to meet more use cases.\nOverall, we are pleased with the extraordinary effort of our team and are excited about the continued progress we are making in our transformation.\nWe look forward to closing out the year strong.\nToday, I will discuss our third-quarter 2020 results and our full year guidance.\nTurning to Slide 1.\nOn a GAAP basis, third-quarter revenues were $442 million, an increase of 8% compared to the prior-year quarter.\nThis includes the net impact of the lower purchase accounting deferred revenue adjustment of $38 million.\nWe had a net loss of $17 million for the third quarter or a diluted loss per share of $0.04 compared to a net loss of $89 million for the prior-year quarter primarily driven by the lower purchase accounting deferred revenue adjustment, lower transition-related costs, preferred dividends included in the prior-year period and lower interest expense partially offset by the call premium related to the partial redemption of the senior secured notes.\nTurning to Slide 2.\nI'll now discuss our adjusted results for the third quarter.\nThird-quarter adjusted revenues for the total company were $442 million, an increase of 8%.\nThe increase was driven by the net impact of the lower purchase accounting deferred revenue adjustment of $38 million.\nThis increase was partially offset by known headwinds as previously communicated.\nThese headwinds include lower usage revenues driven by the impact of COVID-19 of approximately $6 million, lower royalty revenues from the wind down of the Data.com partnership of approximately $6 million, a decision we made in the second half of 2019 to make structural changes within the legacy credibility business of $3 million and the shift of a government contract from Q3 to Q4 of $4 million.\nThe total impact of these known headwinds was approximately $19 million.\nExcluding these unique items, revenues grew approximately 3% primarily from growth in our subscription-based revenues in our finance and risk solutions.\nAdjusted EBITDA for the total company was $197 million, an increase of 27% primarily driven by the lower purchase accounting deferred revenue adjustments reflected in the corporate segment along with lower overall operating costs driven primarily by lower net personnel expenses due to ongoing cost management initiatives.\nAdjusted EBITDA margin was 44.6%.\nWe had an adjusted net income of $101 million or adjusted diluted earnings per share of $0.24.\nTurning now to Slide 3.\nI will now discuss the results for our two segments, North America and international.\nIn North America, revenues for the third quarter decreased 3% to $363.3 million.\nfinance and risk revenues decreased $1.8 million or 1% to $206.6 million.\nThe decrease was primarily driven by lower usage volumes, the structural change in credibility and the shift of the government contract from Q3 to Q4 partially offset by an $8 million increase in our subscription-based revenues in our risk and government solutions.\nSales and marketing revenues decreased $9.6 million or 6% to $156.7 million.\nThe decrease was primarily due to lower royalty revenue of approximately $6 million from the Data.com legacy partnership along with lower usage revenues.\nAdjusted EBITDA for North America decreased $5.4 million or 3% primarily due to lower revenues partially offset by lower operating costs primarily from ongoing cost management efforts.\nAdjusted EBITDA margin for North America was 50.7%.\nTurning to Slide 4.\nIn our international segment, third-quarter revenues increased 10% and or 7% on a constant-currency basis to $79.8 million.\nfinance and risk revenues increased $8 million to $66.3 million.\nExcluding the positive impact of foreign exchange of approximately $1 million, the $7 million increase was driven primarily by Worldwide Network alliances from higher cross-border data sales of approximately $5 million and higher revenue from our U.K. market of approximately $2 million partially offset by lower usage volume in our Asian market of $0.6 million.\nSales and marketing revenues decreased $1.1 million to $13.5 million.\nExcluding the positive impact of foreign exchange of $0.4 million, decreased revenue was primarily attributable to lower revenue from our U.K. market of approximately $2 million, lower usage volume in our Asian market of $0.5 million partially offset by increased revenue from Worldwide Network alliances of $0.6 million primarily a result of increased product loyalty.\nInternational adjusted EBITDA of $28.2 million increased $2.7 million or 10.6% primarily due to higher revenues, with adjusted EBITDA margin of 35.4%.\nAdjusted EBITDA for the corporate segment increased $44.7 million primarily due to the net impact of lower purchase accounting deferred revenue adjustments of $38 million.\nTurning to Slide 5.\nI'll now walk through our capital structure.\nAt the end of September 30, 2020, we had cash and cash equivalents of $311.3 million which when combined with the full capacity of our recently upsized $850 million revolving line of credit through 2025 represents total liquidity of approximately $1.2 billion.\nOn July 6, 2020, we completed the initial public offering and concurrent private placement which raised net proceeds of $2.2 billion after deducting underwriting discounts and IPO-related expenses.\nWe used the majority of these proceeds to redeem the full amount of preferred stock and 40% or $300 million of our senior unsecured notes.\nShortly after the IPO, we paid down our revolving line of credit balance, and on September 26, we partially redeemed 40% or $280 million of our senior secured notes.\nAs of September 30, total debt principal was $3,387 million, and our leverage ratio was 4.7 times on a gross basis and 4.2 times on a net basis.\nThis compared to 5.6 times gross and 5.5 times net at the end of the second quarter.\nAs a result of our decreased leverage, during the third quarter, our credit rating was upgraded to B+ from B- by S&P Global with a positive outlook, to a B2 from a B3 by Moody's and to a B+ and subsequently to a BB- from a B by Fitch.\nWe are happy with the progress we are making to deleverage our balance sheet and improve our credit ratings, allowing us more financial flexibility to further support our growth initiatives.\nRegarding our recent announcement to acquire Bisnode for approximately SEK 7.2 billion or $818 million, upon close, 75% of the consideration for the equity value will be paid in cash and the remaining 25% will be paid in newly issued shares of common stock of the company in a private placement.\nThe cash portion will be funded through cash on hand and debt financing.\nOnce funded, we anticipate that we will maintain net leverage in the range of low to mid four times Turning now to Slide 6.\nI'll now walk through our outlook for full year 2020.\nFull year guidance is unchanged since our last call.\nRevenue on a constant-currency basis is expected to be in the range of $1,729 million to $1,759 million.\nAdjusted EBITDA is expected to be in the range of $704 million to $724 million.\nRevenue and adjusted EBITDA include a negative $21 million impact from deferred revenue purchase accounting in both the low end and high end of the range.\nAdjusted earnings per share is expected to be in the range of $0.89 to $0.93.\nAdjusted earnings per share includes a negative $0.04 impact from deferred revenue purchase accounting in both the low end and high end of the range.\nAdditional modeling details underlying our outlook are as follows.\nThese estimates include an additional $2 million of public company costs per quarter, with the largest component being corporate insurance.\nWe expect interest expense of approximately $255 million, reduced from $265 million primarily due to partial paydown of the secured notes, and depreciation and amortization expense of approximately $60 million excluding incremental depreciation and amortization expense resulting from purchase accounting, adjusted effective tax rate of approximately 24%, weighted average shares outstanding of 367 million and finally, capex of approximately $120 million.\nOverall, we are pleased with the progress we are making in our transformation and the core performance of the business.\nOperator, will you please open up the line for Q&A.",
        "summary": "d&b q3 adjusted earnings per share $0.24.\nq3 adjusted earnings per share $0.24.\nq3 loss per share $0.04.\nfy 2020 revenue is expected to be in range of $1,729 million to $1,759 million.\nfy 2020 adjusted ebitda is expected to be in range of $704 million to $724 million."
    },
    {
        "text": "On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher.\nour actual results may differ materially from our projections due to a number of risks and uncertainties.\nToday's remarks will also include references to non-GAAP financial measures.\nI'd like to take some time today to discuss highlights from 2020 and our plans for 2021.\n2020 was an incredible year for Dun & Bradstreet.\nIn the midst of a challenging new environment, we're able to successfully complete our IPO, signed a definitive agreement to acquire Bisnode, and continued to transform our business with significant enhancements for our technology, data, and analytics, which are ultimately laying the foundation for our ability to execute on our near- and long-term growth strategies.\nReturning to the public markets last July was a major milestone for our company and allowed us to raise approximately $2.4 billion.\nThe net IPO proceeds allowed us to pay down our entire preferred equity, and 40% of both are secured and unsecured notes.\nThis significantly improved our financial profile and is saving us more than $175 million of annual dividend and interest expense.\nWith our lower leverage and increased cash flow, we now have significantly more financial flexibility to accelerate our growth strategy, both organically and inorganically.\nFor example, we're able to execute a critical step in our international growth strategy, the acquisition of Dun & Bradstreet Worldwide Network member, Bisnode, which was signed in October 2020 and closed on January 8, 2021.\nThe acquisition of Bisnode significantly expands our footprint to additional territories that make up 40% of the GDP of Europe and are home to 50 of the Global 500 companies.\nThe combined business, with nearly 250,000 clients collectively, will now be able to provide mission-critical solutions to an expanded European footprint with more local data, more local knowledge, and more streamlined delivery channels.\nAs a global company, having local expertise and knowledge helps us to engage with clients of all sizes in the region and across the globe to provide solutions and support necessary to meet their increasing demands.\nAs we've now been operating the business for around a month, we're even more excited about the opportunity.\nThe business came with a combination of Dun & Bradstreet products along with some legacy disparate solutions.\nWe will sun-down the legacy solutions and invest in the development of our market-leading global platforms and localized solutions.\nWe also have identified approximately $40 million in annualized run-rate savings that we expect to have actioned by the end of 2022.\nBryan will provide incremental financial details, including our expectations for 2021, in his section.\nBut overall, we already have strong momentum under way and look forward to updating you on our progress in the coming quarters.\nNow, turning back to the fourth quarter and full-year 2020.\nWe delivered solid financial results in both the fourth quarter and full-year 2020 despite known headwinds and a challenging macro environment.\nFourth-quarter revenues were up 1.8%, excluding the net benefit of the lower deferred revenue purchase accounting impact.\nAdjusting for the previously communicated headwinds, normalized revenues on a constant-currency basis were up 3.5% for the fourth quarter and 3% for the full year.\nTotal company revenue retention for the year was 96%, an increase of 70 basis points versus prior year.\nAnd we now have 36% of our business under multi-year contracts.\nRevenue retention for our strategic account segment for the year is 99.8%, which once again reinforces our position as a mission-critical provider to the largest businesses in the world.\n2020 was certainly a challenging year in terms of businesses of all sizes navigating their way through a difficult environment.\nI'm proud of what we were able to accomplish in terms of retention, and in some cases, expansion, especially when you look at what we did with our strategic accounts.\nBuilding on the near-100% gross retention I just mentioned, we're able to grow our revenues with our strategic customers by 3% versus prior year.\nWe also increased our multiyear business in the strategic channel by 11 percentage points to 67.5%.\nThese multi-year contracts not only have built-in growth.\nThey also create recurring revenue streams that allow us to continue to cross-sell additional solutions.\nA great example of this was with one of the top three wireless providers in the U.S. as they adopted a multi-year agreement with Master Data, digital marketing, and global analytics solutions.\nNext, I'll talk about the significant progress we made in our government channel, where we had a strong year with wins in the Department of Defense, the Federal Emergency Management Agency, and the Small Business Administration.\nAnd in the fourth quarter, we were able to secure a sole-sourced 16-month contract with two six-month options to further support the General Services Administration or the GSA.\nAs governments both domestically and globally look to grapple with a rapidly evolving environment, we are pleased to be able to assist such critical work through our unique and differentiated offerings.\nMoving on to our field sales accounts.\nWe saw customers, including one of the leading hedge funds in the world and an online brand management technology company, renew at or slightly above prior-year levels, which was reflective of the overall customer segment.\nThese businesses, which range from $100,000 to $1 million of potential spend a year, were more impacted by the current adverse environment.\nHowever, they maintained consistent spend with us given the criticality of the solutions we provide despite their overall budget limitations.\nWe continue to have dialogue in terms of the adoption of incremental solutions as things begin to return to a more normalized environment and look forward to deepening our relationships going forward.\nFinally, our small and medium business accounts were an area that went through a significant evolution.\nWe spent the later part of 2019 beginning to execute a digital strategy that shifts our reliance on direct mail campaigns and telephonic interactions to a more e-commerce-centric interaction.\nWhile revenues from direct mail and telesales were down significantly versus prior year, we're able to partially offset those declines with digital sales up 53% over the prior year.\nWe carried this momentum through the back half of 2020 and are excited about our progress in expanding upon our SMB digitization efforts, which I will discuss further in my 2021 operations section.\nFrom an international lens, as we continue to expand and improve our beneficial ownership data, we're able to secure a new contract with one of China's top four banks.\nThis solution will help the bank manage and screen their client shareholders in order to meet anti-money laundering requirements in the Know Your Customer compliance process.\nIn the U.K., we expanded our business with a Fortune 500 online payments provider whose platforms are available in more than 200 markets around the world.\nThey will be using our modern API and cloud-based Software-as-a-Service solutions globally to provide entity verification screening and monitor potential fraud.\nWe also continue to grow our Sales and Marketing solutions internationally.\nA British multinational enterprise software firm, Sage Global Services, a market leader for integrated accounting, payroll, and payment systems, will be using our global data to assist with their Sales and Marketing efforts through cleansing and updating data within their CRM systems and assisting in account-based marketing efforts.\nAs you can see, client engagement is strong, and we believe this momentum is a direct outcome of the substantial progress we've made in terms of our ongoing transformation that is producing higher quality, more modern, and scalable global solutions.\nIn 2020, we invested approximately $115 million in capitalized software development, focused on enhancing and expanding our data supply chain, innovating new solutions, and modernizing our existing platforms via integration, enhanced user interfaces, and decreased latency.\nAs we've discussed before, Project Ascent has been an important piece of our technology transformation as we continue to enhance and expand our ability to ingest and curate data, diversify our coverage of existing data and expand access to a variety of alternative data sets.\nWe also made significant progress in simplifying and scaling our infrastructure for further growth.\nConverging multiple existing legacy environments onto a common platform, primarily in the cloud, improves our stability and operating costs and enables automation, continuous integrating, and on-demand provisioning, so our developers can deploy more rapidly into production, ultimately allowing us to scale quickly and efficiently.\nAn example of taking an existing set of solutions, focusing on the modern offering, and connecting it to enhance data supply chain, is what we're doing with our Direct+ API.\nAll alternative data sets that come to Dun & Bradstreet are now ingested through Ascent and delivered by Direct+, providing our customers with the freshest, most complete, and accurate results, which allows our customers to access the most up-to-date data and analytics available in our ecosystem.\nOver the next year, we will continue to load new data and begin migrating existing data sets to be curated through Ascent.\nThese particular investments, along with all the new product innovations we rolled out in 2020, are creating the foundation for our future growth.\nAnd finally, as we invest in the business, we also continue to focus on efficiency, reflected in our improved EBITDA margins and annualized run-rate cost savings to date of $241 million, which is up $16 million from the third quarter.\nThis was achieved through a rationalization of our real estate footprint and net reduction from external providers as we expand our global capability and continued rationalization of our back-office support structure.\nAs I said, 2020 was an incredible year.\nOur team continue to make great strides in executing on our strategy, and we are well-positioned for 2021 and beyond.\nNow, turning to 2021, we will continue to focus on our transformation effort as we look to leverage the work we did in 2020.\nOne area I'd like to highlight is our new SMB digital platform, which will provide small- and medium-sized businesses a one-stop shop and help to deepen our relationships with cross-sell opportunities, extend our reach to new customers, particularly small businesses, and increase our revenue from new channels, including self-service e-commerce.\nWe have thousands of small businesses coming to our website each day for a whole host of reasons, including registering for a Dun's number, looking to improve their credit profile, or becoming a qualified supplier to a major corporation.\nWe took multiple digital entry points and established a unified site that provides a single corridor for these businesses to not just access our products, but to gain access to a more expansive environment, including partner products designed specifically for small business.\nThis helps us to grow our small, medium business sales; increase stickiness with current clients, and create partnership opportunity with our largest enterprise clients to bring new solutions and services to small business.\nAs we look to our Finance and Risk and Sales and Marketing portfolios, we will continue to launch new, innovative capabilities throughout the year.\nAnd internationally, we'll continue to focus on launching new products in our respective markets through globalizing existing new North America solutions, introducing new offerings concurrently with North America, and launching specific local offerings.\nThese solutions will largely leverage existing technology platforms and data supply chains but be tailored for market users with local language, data, and feature requirements.\n2020 was another year of remarkable transformation, and we are poised to accelerate growth in 2021.\nOur key priorities are to continue the transformation of our technology to scale for growth, deliver more to our clients digitally, expand our data and analytics capabilities, integrate Bisnode, and grow both organically and inorganically as we look for new and better ways to serve our clients.\nWe are excited for what's to come.\nToday, I will discuss our fourth-quarter and full-year 2020 results and our outlook for 2021.\nTurning to Slide 1.\nOn a GAAP basis, fourth-quarter revenues were $480 million, an increase of 11% or 10.5% on a constant-currency basis compared to the prior-year quarter.\nThis includes the net impact of the lower purchase accounting deferred revenue adjustment of $39 million.\nNet income for the fourth quarter on a GAAP basis was $7 million or a diluted income per share of $0.02 compared to a net loss of $263 million for the prior-year quarter.\nThis was primarily driven by prior year's expense of $172 million related to the make-whole provision associated with the Series A preferred stock, which was redeemed as a result of the IPO, also the net impact of the lower deferred revenue adjustment of $39 million, as well as a higher non-operating gain of approximately $24 million related to the fair value adjustment of a foreign currency pilot.\nBefore I get to the full-year results, let me clarify that comparisons to full-year 2019 are being compared to the combined pro forma results, which include the predecessor period prior to the privatization, the successor period post-privatization, and pro forma adjustments that give effect to the take-private transaction as if it had it occurred on January 1, 2019.\nFor revenue and adjusted EBITDA, the only pro forma adjustment was a $16 million reduction due to additional deferred revenues.\nOn a GAAP basis, full-year 2020 revenues were $1,738 million, an increase of 10% compared to 2019.\nThis includes the net impacts of the lower purchase accounting deferred revenue adjustment of $134 million and an international lag adjustment of $26 million, which had a combined 10 percentage point impact on year-over-year growth.\nWe had a full-year net loss of $176 million or a diluted loss per share of $0.48 compared to a net loss of $599 million for the prior year.\nTurning to Slide 2, I'll now discuss our adjusted results for the fourth quarter and full year.\nFourth-quarter adjusted revenues for the total company were $480 million, an increase of 11% or 10.5% on a constant-currency basis.\nThis increase includes the $39 million net impact of lower deferred revenue purchase accounting adjustments, a 9-percentage point impact on year-over-year growth.\nThis increase was partially offset by known headwinds as previously communicated.\nThese headwinds include Lower usage revenues primarily driven by the impact of COVID-19 of approximately $8 million; lower royalty revenues from the wind-down of the Data.com partnership of approximately $6 million; a decision we made in the second half of 2019 to make structural changes within legacy Credibility solution of $1 million; partially offset by the shift of $4 million of government revenues from the third quarter.\nThe total net impact of these known headwinds was approximately $11 million.\nExcluding these unique transitory items and the impact of currency, the underlying revenues for the total company grew approximately 3.5%.\nFourth-quarter adjusted EBITDA for the total company was $209 million, an increase of $51 million or 32%.\nThis increase includes the $39 million net impact of lower deferred revenue purchase accounting adjustments, a 26-percentage point impact on year-over-year growth.\nBut the remainder of the improvement is primarily due to lower overall operating costs, driven by ongoing cost management initiatives, including lower net personnel expenses, partially offset by increased public company cost.\nFourth-quarter adjusted EBITDA margin was 43.5%.\nFourth-quarter adjusted net income was $118 million or adjusted diluted earnings per share of $0.28, an increase from fourth quarter's 2019's adjusted net income of $51.5 million.\nFull-year adjusted revenues for the total company were $1,738 million, an increase of 8% compared to 2019 adjusted revenues combined pro forma.\nThis increase includes the net impact of lower deferred revenues; purchase accounting adjustment of $134 million, an 8-percentage point impact; and known headwinds as previously communicated.\nThese headwinds include lower usage revenues, primarily driven by the impact of COVID-19, of approximately $20 million; lower royalty revenues from the wind-down of the Data.com partnership of approximately $20 million; a decision we made in the second half of 2019 to make structural changes within legacy Credibility solution of $11 million; and Worldwide Network and nonrecurring revenues of $6 million.\nThe total impact of these known headwinds was approximately $57 million.\nExcluding these unique transitory items, along with the deferred revenue adjustment, revenues on a constant-currency basis grew approximately 3%, primarily from growth in our subscription-based revenues in our Finance and Risk solution.\nFull-year adjusted EBITDA for the total company was $715 million, an increase of 30%, primarily driven by $134 million of lower purchase accounting deferred revenue adjustments reflected in the corporate segment, which has a 25 percentage point impact on the year-over-year growth; along with lower net personnel, travel, and marketing cost of approximately $55 million in the current year period, primarily resulting from ongoing cost management efforts; partially offset by increased technology cost of approximately $42 million related to data processing and data acquisition cost.\nFull-year adjusted EBITDA margin was 41.2%, an increase of 670 basis points.\nThe net impact from deferred revenue had an impact of 5 percentage points on the year-over-year margin improvement.\nFull-year 2020 adjusted net income was $350 million or adjusted diluted earnings per share of $0.95 compared to 2019 adjusted net income of $175 million.\nThe increase was primarily driven by the net impact of lower deferred revenue adjustment in the current year; lower personnel and travel costs, primarily driven by ongoing cost management; and lower interest expense; partially offset by higher technology cost primarily related to data processing and acquisition cost.\nTurning now to Slide 3.\nI will now discuss the results of our two segments, North America and International.\nIn North America, revenues for the fourth quarter increased 0.3% to $401 million.\nThe fourth-quarter net headwinds of $11 million mentioned earlier all related to North America.\nExcluding these revenues, underlying growth was approximately 3%, driven by increased subscription-based revenues.\nFinance and Risk fourth-quarter revenues were $218 million, an increase of 0.4%, driven by the shift of a $4 million government contract from Q3; higher subscription-based revenues; partially offset by known, transient headwinds of $1 million; and structural changes in Credibility solutions; and $8 million in lower usage compared to an elevated Q4 2019, along with the impact of COVID-19.\nNorth America Sales and Marketing fourth-quarter revenues were $183 million, an increase of 0.2%.\nThe increase was primarily driven by higher revenues of approximately $8 million from our D&B Direct API Solutions, partially offset by lower royalty revenues of approximately $6 million from the Data.com legacy partnership.\nNorth America fourth-quarter adjusted EBITDA was $198.3 million, and adjusted EBITDA margin for North America was 49.5%.\nTurning now to Slide 4.\nI will now discuss full-year results for North America.\nIn North America, revenues for 2020 were $1,460 million.\nExcluding the net impact of $48 million of headwinds communicated, $20 million related to Data.com, $11 million related to the structural changes we made within our legacy Credibility solutions, and $17 million of lower usage primarily related to COVID-19, North America underlying revenues increased 3%.\nNorth America Finance and Risk full-year revenues were $811 million, an increase of $2.5 million or less than 1%.\nThe increase was primarily driven by higher subscription-based revenues of approximately $30 million; partially offset by lower revenues of approximately $17 million of lower usage primarily attributable to the impact of COVID-19; and lower revenues of approximately $11 million primarily due to structural changes we made within our legacy Credibility solutions.\nNorth America Sales and Marketing full-year revenues decreased $7.3 million or 1% to $649 million.\nThe decrease was primarily due to lower royalty revenues of approximately $20 million from the Data.com legacy partnership, along with lower usage revenues across our Sales and Marketing solution, partially due to the impact of COVID-19.\nThese transitory headwinds were offset by a net increase in revenue across our Sales and Marketing solutions of approximately $6 million, largely attributable to our D&B Direct API solution.\nIn addition, revenue increased by $6.5 million from the acquisition of Lattice, which was acquired at the beginning of the third quarter of 2019.\nFull-year adjusted EBITDA for North America increased to $696 million primarily due to lower operating costs resulting from ongoing cost management efforts that drove lower net personnel expenses.\nFull-year adjusted EBITDA margin for North America was 47.7%, an increase of 60 basis points.\nTurning to Slide 5.\nIn our International segment, fourth-quarter revenues increased 10% or 8% on a constant-currency basis to $80 million, primarily driven by growth in the Worldwide Network and the United Kingdom.\nFinance and Risk fourth-quarter revenues were $64 million, an increase of 11% and an increase of 8% on a constant-currency basis primarily due to higher revenue of approximately $4 million in Worldwide Network alliances due to higher cross-border data sales and higher revenue from Risk Solutions in our U.K. market for approximately $1 million.\nSales and marketing fourth-quarter revenues were $16 million, an increase of 6% and an increase of 4% on a constant-currency basis, primarily attributable to higher revenue from API solutions in our U.K. market of approximately $1 million.\nFourth-quarter International adjusted EBITDA of $23 million increased 4% versus fourth-quarter 2019 primarily due to higher revenues.\nThe adjusted EBITDA margin was 29%.\nTurning to Slide 6.\nIn our International segment, full-year 2020 revenues were $299 million, an increase of $6.6 million or 2% or 1% on a constant-currency basis.\nExcluding $9 million of transitory headwinds, $6 million from the Worldwide Network and our U.K. business, $3 million from COVID-19, International revenues grew approximately 5% on a constant-currency basis.\nInternational Finance and Risk full-year revenue of $244 million increased $9 million or 4%, 3% on a constant-currency basis, primarily driven by higher revenue of approximately $10 million from Worldwide Network due to higher cross-border data sales, higher revenues of approximately $1 million from the increased sales of risk solutions in the United Kingdom and $2 million from our Greater China market driven by solutions targeted at small businesses, partially offset by lower usage volumes in our Asian markets of approximately $2 million primarily due to the impact of COVID-19 and transitory headwinds in the Worldwide Network in the U.K. of $6 million.\nInternational Sales and Marketing full-year revenues of $56 million decreased $2 million or 4% and 5% on a constant-currency basis.\nExcluding the positive impact from foreign exchange of $0.4 million, the decrease in revenue was driven primarily by lower product royalties from our Worldwide Network alliances of approximately $1 million and lower usage volume in our Asia market of approximately $1 million primarily due to the impact of COVID-19.\nFull-year 2020 International adjusted EBITDA of $95 million decreased $4 million or 4% versus 2019 due to net revenue increases from solutions with incremental costs, including increased Worldwide Network data expenses.\nAdjusted EBITDA margin was 31.7%.\nFourth-quarter adjusted EBITDA for the Corporate segment increased $50 million primarily due to the net impact of lower purchase accounting deferred revenue adjustments of $39 million.\nAdjusted EBITDA for the Corporate segment for the full-year 2020 improved by $160 million or 68% compared to prior year on a combined pro forma basis.\nThe improvement was primarily due to the net impact of lower deferred revenue adjustments of $134 million and lower net personnel expenses due to lower incentive-based compensation.\nTurning to Slide 7.\nI'll walk through our capital structure.\nAt the end of December 31, 2020, we had cash and cash equivalents of $354 million, which, when combined with full capacity of our recently upsized $850 million revolving line of credit due 2025, represents total liquidity of approximately $1.2 billion.\nAs of December 31, total debt principal was $3,381 million, and our leverage ratio was 4.6 times on a gross basis and 4.1 times on a net basis.\nThe credit facility senior secured net leverage ratio was 3.4 times.\nOn January 27, 2021, we repriced our term loan with a 50-basis point lower spread, now at 325 basis points.\nThis will save us approximately $14 million of annual interest.\nWe are happy with the progress we are making to deleverage our balance sheet and improve our credit rates, allowing us more flexibility to further support our growth, both organically and inorganically.\nRegarding our January 8, 2021, closing on the acquisition of Bisnode, the transaction closed with a combination of approximately 6.2 million newly issued shares of common stock of the company in a private placement and approximately $625 million of net cash.\nThe cash portion was funded with $300 million of incremental term loan and cash on the balance sheet and a small amount from the revolving credit facility which has since been paid down.\nTurning now to Slide 8.\nI'll now walk through our outlook for full-year 2021.\nAdjusted revenues are expected to be in the range of $2,145 million to $2,175 million, an increase of approximately 23.5% to 25% compared to full-year 2020 adjusted revenues of $1,738 million.\nAdjusted EBITDA is expected to be in the range of $840 million to $855 million, an increase of approximately 17.5% to 19.5%, compared to full-year 2020 adjusted EBITDA of $715 million.\nAdjusted earnings per share is expected to be in the range of $1.02 to $1.06.\nThese estimates include the impact of Bisnode.\nWith the combination of the two entities, certain revenues and costs became internal transfers and are now being eliminated.\nWe are currently estimating $65 million of elimination that will be EBITDA-neutral but does impact comparability to the prior revenues and expenses reported by Bisnode through Ratos.\nSubsequent to the application of these elimination, the incremental adjusted revenues will have a 19-point impact on the total full-year growth, which includes the sun-downing of approximately $50 million in legacy solutions revenues that we expect to have fully run off by the end of 2022.\nAdditional modeling details underlying our outlook are as follows: Interest expense of $200 million to $210 million; depreciation and amortization expense of approximately $90 million, excluding incremental depreciation and amortization expense resulting from purchase accounting; adjusted effective tax rate of approximately 24%; weighted average shares outstanding of approximately 430 million; and finally, capex of approximately $160 million.\nAlthough we do not provide quarterly guidance, I want to provide you with some color as to how we expect to progress throughout the year.\nExcluding the deferred revenue adjustment of $17.4 million in Q1 2020, we are projecting adjusted revenue growth in the first quarter of 2021 to be at the low end of our guidance range as we work through the end of the Data.com wind-down and the impact of COVID-19.\nAs we enter the second quarter, we expect to be toward the middle end of our guidance range with growth accelerating to the high end of our range into the fourth quarter due to the lack of prior-year transitory headwinds, the impact of contractual revenue increases, and the ramp-up of new solutions revenues.\nFor adjusted EBITDA, excluding the deferred revenue adjustment of $17.4 million in Q1 2020, we are projecting adjusted EBITDA growth in the first quarter to be at the low end of our range as the annualization of cost savings for 2020 are partially offset with increased public company costs of approximately $4 million per quarter in the first half and $1.5 million per quarter in the second half.\nWe expect the second and third quarters to be below the low end of the range and the fourth quarter to be above the high end of the range of our guidance.\nOverall, we are very pleased with the progress we made in 2020 related to our transformation and the underlying performance of the business, and we are excited about our momentum headed into 2021.\nWith that, we're now happy to open the call to questions.\nOperator, will you please open up the line for Q&A?",
        "summary": "dun & bradstreet sees fy 2021 adjusted ebitda in range of $840 million to $855 million.\nq4 adjusted earnings per share $0.28.\nq4 loss per share $0.02.\nsees fy 2021 adjusted earnings per share $1.02 to $1.06.\nrevenue for q4 of 2020 was $480.1 million, an increase of 11.0% as reported, and 10.5% on a constant currency basis.\nfull year 2021 adjusted revenues are expected to be in range of $2,145 million to $2,175 million.\nfull year 2021 adjusted ebitda is expected to be in range of $840 million to $855 million."
    },
    {
        "text": "Let's begin with the summary of the results on Page 3.\nWe expect Q2 to be challenging and in preparation, we reinforced our cost program earlier in Q1, so we were in some sense prepared for the battle.\nWe ended the quarter with a comprehensive set of actions to manage through the turbulent times and focused on what we can control, our operations, costs and importantly safety of our employees.\nFrom an operational point of view, we are not out of the woods yet, but a significant majority of our facilities are up and running moving into Q3 which is positive to operating leverage as compared to this quarter.\nTop line trends are very much in line with our expectations entering the quarter.\nRevenue declined 16% organically and bookings declined 21%.\nTrends have improved in the quarter and we saw a material sequential improvement in June.\nWe still carry a strong backlog across all segments and that increases our confidence for the second half.\nMargin performance for the quarter was acceptable considering the state of business activity in April and May.\nAfter profitability gains in Q1 on lower revenue, we targeted 25% to 30% decremental margin for the full year.\nThat puts us on track to exceed our initial full-year target.\nIn addition to the tight cost controls and variable costs, we took further structural cost actions in the quarter as part of our business realignment activities, which will benefit us in the second half.\nAlong with our cost actions, our proactive working capital management resulted in cash flow improvement in both absolute and conversion terms.\nWe generated $78 million more in free cash flow than the comparable quarter last year.\nAs a result of our first half performance and our solid order backlog, we are reinstating our annual adjusted earnings per share guidance to $5.00 to $5.25 per share.\nTo be clear, even with a strong backlog and positive recent trends, we still see demand uncertainty in our markets and are not back to business as usual, but our teams have proven their ability to manage costs and operations and we are prepared to operate and achieve results in a wide variety of scenarios that may be in store for the second half.\nLet's take a look at the segment performance on Slide 4.\nEngineered Products at a tough quarter particularly in the shortest cycle on capex-levered businesses like vehicle aftermarket, industrial automation and industrial winches.\nWaste hauling and aerospace & defense were more resilient shipping against their strong backlogs.\nLower volumes led to margin decline versus a very strong margin that this segment posted in the comparable quarter last year, and we have taken structural cost actions in this segment, which will support its margin in the second half along with reconvering volumes.\nFueling Solutions saw continued strong activity in North America driven by demand of EMV compliance solutions.\nWhereas, Europe and Asia declined due to COVID related production and supply chain interruptions as well as budget cuts and deferrals in response to the decline in oil prices.\nIncreased margin performance was commendable with 80 basis point increase on a better mix pricing and ongoing productivity actions.\nThe sales decline in Imaging & Identification was driven predominantly a steep decline in our digital textile printing business which we expected in the significant dislocation in global apparel and fashion markets due to the pandemic.\nMarking & coding -- marking & coding showed continued resilience on strong demand for consumables and fast-moving consumer goods solutions.\nThis is our highest gross margin segment.\nSo decremental margins are challenging and require heavy lifting on cost containment, where marking & coding business did a good job, achieving a flat margin year-over-year and we have taken proactive actions to manage the cost base in the digital printing business.\nAs a result of these actions and a pickup in textiles consumable volumes, we expect performance to improve in the second half.\nPumps & Process Solutions demonstrated the resilience we expected.\nIt's top line decline the least among our segments despite a challenging comparable from last year.\nStrong growth -- strong growth continued in biopharma and medical applications with colder products posting record growth in the quarter.\nThis was offset by a moderate decline in industrial applications and material slowing and energy markets.\nOur Plastics Processing business revenue declined in the quarter as a result of shipment timing, we expect to -- for it to do well in the second half of a strong backlog.\nAs you can see this segment continued to deliver a solid margin performance posting improving margin on declining revenue for the second quarter in a row, we expect this segment to deliver flat or improved absolute profit for the full year.\nRefrigeration & Food Equipment declined as food retailers continued to delay construction remodels due to peak utilization and the commercial food service market remains severely impacted by restaurant and school closures in the United States.\nOur heat exchanger business showed resilience particularly in non-HVAC applications.\nOn the margin side, negative absorption on lower volumes drove the margin decline.\nIn Q2, we took structural cost actions in this segment, which paired with ongoing productivity and automation initiatives yield in a materially improved margin performance in the month of June.\nWe expect these benefits to continue accruing in the second half and expect this segment to deliver year-over-year growth in absolute earnings and margin in the second half of this year.\nI'll pass it to Brad here.\nLet's go to Slide 5.\nOn the top is the revenue bridge.\nFX continued to be a meaningful headwind in Q2, reducing top line by 1% or $24 million.\nWe expect FX to be less of a headwind in the second half of the year.\nAcquisitions were effectively offset by dispositions in the quarter.\nThe revenue breakdown by geography reflects relatively more resilient trends in North America and Asia versus the more significant impacts across Europe and several emerging economies like India, Brazil and Mexico.\nThe US, our largest market declined 10% organically, with four segments posting organic declines, partially offset by growth in retail fueling.\nAll of Asia declined 14%.\nChina representing approximately half of our business in Asia, showed early signs of stabilization posting an 11% year-over-year decline in the second quarter, an improvement compared to a 36% decline in Q1.\nImaging & Identification and Engineered Products were up in China while Fueling Solutions declined due to the expiration of the underground equipment replacement mandate and also slower demand from the local national oil companies.\nEurope was down 19% on organic declines in all five segments.\nMoving to the bottom of the page.\nBookings were down 21% organically on declines across all five segments, but there are reasons for cautious optimism as we enter the second half.\nFirst, as presented in the box on the bottom, June bookings saw a significant improvement from the May trough, with all five segments posting double-digit month-over-month sequential growth.\nSecond, our backlog is up 8% compared to this time last year, driven by our longer cycle businesses and the previously mentioned intra-quarter improvement in our shorter cycle businesses.\nWe believe we are well positioned for the second half of the year.\nLet's move to the bridges on Slide 6.\nI'll refrain from going into too much detail on the chart, but the adverse top line trend drove EBIT declines, although our cost containment and productivity initiatives help offset overall margins to hold up at an acceptable decremental.\nIn the quarter, we delivered on the $50 million annual cost reduction program, which focuses on IT footprint and back office efficiency, and took additional restructuring charges that add to the expected benefits.\nWe also executed well in the quarter on additional cost takeout to offset the under-absorbed -- under-absorption of fixed cost previously estimated at $35 million to $40 million.\nSome of these recent initiatives will continue supporting margins in the second half and into 2021.\nGoing to the bottom chart.\nAdjusted earnings declined mainly due to lower segment earnings, partially offset by lower interest expense and lower taxes on lower earnings.\nThe effective tax rate, excluding discrete tax benefits is approximately 21.5% for the quarter, unchanged from the first quarter.\nDiscrete tax benefits in the quarter were approximately $2 million, slightly lower than the prior year's second quarter.\nRightsizing and other costs were $17 million in the quarter or $13 million after-tax relating to several new permanent cost containment initiatives that we pulled forward into 2020.\nNow moving to Slide 7.\nWe are pleased with the cash generation in the first half of the year, with year-to-date free cash flow of $269 million, a $126 million or 90% increase over last year.\nOur teams have done a good job managing capital more effectively in this uncertain environment.\nWe have seen strong collections on accounts receivables.\nWe continue to operate with inventories of supportive of our backlog in order trends.\nQ2 also benefited from an approximately $40 million deferral of US tax payments into the second half of the year.\nCapital expenditures were $79 million for the first six months of the year, a $12 million decline versus the comparable period last year.\nMost of our in-flight growth and productivity capital projects were completed in the second quarter.\nSo we expect to see continued year-over-year capital expenditure declines in the second half.\nLastly now on Slide 8.\nDover's financial position remains strong.\nWe have been targeting a prudent capital structure and our leverage of 2.2 times EBITDA places us comfortably in the investment grade rating with a safety -- with a margin of safety.\nSecond, we are operating with approximately $1.6 billion of current liquidity, which consists of $650 million of cash and $1 billion of unused revolver capacity.\nWhen commercial paper markets were fractured at the outset of the pandemic in March, we drew $500 million on our revolver out of an abundance of caution.\nMarkets have since stabilized and we reestablished our commercial paper program and fully repaid the revolver.\nIn Q2, we also secured a new incremental $450 million revolver facility to further bolster our liquidity position.\nAs of June, we have no drawn funds on either revolver.\nOur prudent capital structure, access to liquidity and strong cash flow have allowed us to largely maintain our capital allocation posture.\nWe can -- we have deployed nearly a $250 million on accretive acquisitions so far this year and we continue to pursue attractive acquisitions.\nFinally, we are lifting our recent suspension on share repurchase and we will opportunistically buyback stock should the market conditions dictate.\nI'm on Page 9, which is an updated view of the demand outlook by business we introduced last quarter.\nHere we are trying to provide you with directional estimates of how we expect segments to perform in the second half relative to the second quarter in lieu of full year revenue guidance.\nI'll caveat that all of this is based on current reads of the markets and is subject to change as the situation remains fluid.\nFirst in Engineered Products, shorter cycle businesses such as vehicle service and industrial automation have shown improvement late in the quarter and the trends are improving globally.\nAdditionally aerospace and defense continues operating from a large backlog of defense program orders.\nWaste handling may see some headwinds driven by tightening of industry capex and municipal finances after several years of strong growth performance.\nBookings have slowed in late in Q2 as customers pause their capital spending to manage liquidity.\nWe are watching the dynamics closely, but we have started addressing the cost base in this business proactively.\nFueling Solutions is a tale of two cities, North America, approximately half the business remain resilient both on EMV conversion and also willingness of non-integrated retailers to continue investing in their asset base.\nIn Europe and Asia, integrated oil companies represent a larger share of the network and capital budget cuts resulting from oil price declines are having a more negative impact on investment in the retail network, plus recall we are facing a $50 million revenue headwind in China this year from the expiration of the underground equipment replacement mandate, despite some of the top line headwinds with robust margin accretion to date, we expect segment to hold its comparable full-year profit line despite a decreasing top line.\nImaging & Identification outlook is improving.\nOur service and maintenance interventions resumed in market and coding as travel restrictions were lifted, and we are seeing a resulting pickup demand for printers.\nOur integration activities with Systech acquisition are proceeding as planned.\nWe started seeing some green shoots on the digital textile printing side, but we are forecasting a difficult year as global textiles will take time to recover.\nIn Pumps & Process Solutions is expected to show improved trajectory from here.\nFirst, our plastics and polymer businesses will ship against it's significant backlog in the second half.\nBiopharma and medical is expected to continue its impressive growth.\nIndustrial pumps, a shorter cycle business is expected to start gradually recovering.\nA material portion of demand in our pumps and precision components business is levered to maintenance and repair and aftermarket.\nThe oil and gas mid and downstream markets served primarily by precision components business continues to slow as a result of deferral of capex and refurbishment spending in refining and pipelined operators.\nIn Refrigeration & Food Equipment, we believe the worst is behind us for this segment.\nBookings were relatively resilient for this segment and we have improved in June, resulting in a robust backlog that we are prepared to execute against.\nWe also saw growth is restarting the construction and remodel projects resulting in us being fully booked for refrigeration cases into Q4.\nAdditionally Belvac is scheduled to begin shipments against it's significant backlog, which will be accretive to segment margins.\nRecovery in volumes along with cost actions we've undertaken should result in positive margin and profit trend through the remainder of the year resulting in the segment posting a second half comparable profit increase.\nLet's go to Slide 10.\nAs a result of the fluidity of the COVID situation, we are cautious about guiding top line trajectory at this time, but everything points to sequential improvement from here across most markets.\nThe proactive cost management stance we took in Q1 and continued in Q2 has positioned us from a margin performance standpoint, and today we are improving our target for annual decrementals margin to 20% to 25%.\nWe continue work in the pipeline of restructuring actions, including those targeting benefits in 2021, and we are positioned well to deliver on our margin objectives.\nWe remain confident in the cash flow capacity of this portfolio and reiterating a conversion target above 100% of adjusted net earnings and a cash flow margin target of 10% to 12% compared to 8% to 12% target we had last year.\nI'll conclude with the following.\nWe have reinitiated earnings per share guidance as a result of our confidence in our ability to manage costs in an uncertain demand environment.\nWe have a good team, and they understand the playbook.\nHaving said that, make no mistake, we are on the front foot from here on driving revenue growth, both organically and inorganically.\nWe have strong operating companies and a strong balance sheet with which to support them.\nThis is not the time to hunker down and wait for the storm to pass, so we are equally focused on market share gains, new product development initiatives as we are on our main pillars of synergy extraction from our portfolio, all of which we continue to fund, despite the market challenges.\nInorganically we have available capital to deploy and I fully expect to be active in the second half.\nAnd with that let's go to Q&A.",
        "summary": "qtrly revenue of $1.5 billion, a decline of 17%.\nin 2020, dover expects to generate adjusted earnings per share in range of $5.00 to $5.25.\nlooking forward, demand outlook for remainder of year remains uncertain.\nremain positioned well for second half with a higher backlog compared to this time last year.\nas we expected, activity declined across a majority of markets we serve.\ndover -demand conditions in textile printing, foodservice, below-ground fueling, food retail and automotive aftermarket were particularly challenged."
    },
    {
        "text": "And we have prepared slides to supplement our comments today.\nI'm Pankaj Gupta, Dow investor relations vice president.\nBecause these statements are based on current assumptions and factors that involve risks and uncertainties.\nDow's Forms 10-Q and 10-K include detailed discussions of principal risks and uncertainties which may cause such differences.\nUnless otherwise specified, all financials, where applicable, excludes significant items.\nWe will also refer to non-GAAP measures.\nOn Slide 2, you will see our agenda for the call.\nJim will begin by reviewing our fourth quarter and full year highlights, and operating segment performance.\nHoward will then share our outlook and modeling guidance.\nAnd then Jim will discuss how we will continue to execute on our priorities to deliver value growth.\nBeginning with Slide 3.\nIn the fourth quarter, Dow once again delivered top and bottom-line growth year over year, with sales growth and margin expansion in every operating segment.\nOur results reflect the strength and resilience of our advantaged portfolio and the incredible efforts of the Dow team, as we continue to ensure well-being and safety of our team and our communities.\nWe delivered year-over-year sales growth of 34% with gains in every operating segment, business, and region.\nWhile volume declined 4% year over year due to supply constraints from several factors, including our own maintenance, lingering effects of weather-related outages, and global logistics challenges, we continued to see robust underlying demand across our end markets, particularly for higher-margin downstream and sustainability-led applications.\nPrices were up 39% year over year, reflecting gains in all operating segments, businesses, and regions.\nOur discipline and agility enabled us to navigate the supply constraints and logistics challenges I just mentioned, dual control actions in China, and rising energy costs.\nWe delivered operating EBIT growth of $1.2 billion year over year with margin expansion in every operating segment.\nEquity earnings were also up year over year with margin expansion at our joint ventures in Saudi Arabia, Thailand, and Kuwait.\nThese results translated into significant cash generation for the quarter, with cash flow from operations of $2.6 billion, up $901 million year over year, and cash flow conversion of 88%.\nAnd we returned $912 million to shareholders in the quarter, including $512 million through our industry-leading dividend and $400 million in share repurchases.\nOur performance in the fourth quarter capped a record year for Dow, which you will see highlighted on Slide 4.\nIn 2021, Team Dow capitalized on the economic recovery, achieving record sales and earnings performance despite pandemic-driven uncertainty and industrywide weather-related challenges.\nOur focus on cash flow and disciplined capital allocation enabled us to continue to deliver on our financial priorities.\nWe achieved $7.1 billion of cash flow from operations, bringing our total cash flow from operations since spin to $18 billion.\nWe enhanced our balance sheet by reducing gross debt by another $2.4 billion in the year, bringing down gross debt by more than $5 billion since spin.\nWe have also no substantive debt maturities until 2026.\nWe proactively funded our U.S. pension plans and successfully executed Sadara's debt reprofiling, lowering Dow's guarantees by more than $2 billion.\nDow has returned a total $7.3 billion to shareholders since spin through our dividend and share repurchases, including $3.1 billion in 2021.\nAnd we kept capex well within D&A as we continue to invest in our higher-return and faster-payback growth investments.\nIn 2021, we achieved a return on invested capital of greater than 22% on strong earnings growth.\nAs we turn the corner on the pandemic, we do so with a strong balance sheet and a deliberate and disciplined strategy to decarbonize and grow.\nWe achieved this record financial performance in 2021 while advancing our ESG leadership.\nImportantly, we announced our disciplined strategy to decarbonize our assets while improving underlying EBITDA by more than $3 billion as we capitalize on our participation in attractive, high-growth end markets and sustainability-driven solutions.\nOur ESG efforts continue to be recognized externally as we were recently recognized by JUST Capital for the third year.\nDow earns the top spot in the chemicals sector overall, as well as the No.\n1 position in the workers and stakeholders in governance categories in the industry.\nI'm extremely proud of Team Dow's dedication to deliver for our customers and drive value for all of our stakeholders.\nWe will build on these achievements in 2022 as we advance our ambition.\nMoving to our operating segment performance for the fourth quarter on Slide 5.\nIn the packaging and specialty plastics segment, operating EBIT was $1.4 billion, up $662 million year over year, primarily due to margin improvement and partly offset by lower-supply volumes.\nSequentially, operating EBIT was down $512 million, and operating EBIT margins declined by 520 basis points on lower olefin and co-product pricing, combined with higher raw material costs and energy costs.\nThe packaging and specialty plastics business reported higher net sales year over year, driven by price gains in all regions, as well as in key applications, such as flexible food, industrial, and consumer packaging.\nVolume declined year over year, primarily in Asia-Pacific, due to supply constraints.\nMoving to the industrial intermediates and infrastructure segment, operating EBIT was 595 million, up 299 million year over year, primarily due to continued price strength.\nSequentially, operating EBIT was down $118 million, and operating EBIT margins declined 280 basis points, primarily driven by higher energy costs in Europe and our planned maintenance turnaround activity.\nThe polyurethanes and construction chemicals business increased net sales compared to the year-ago period on broad-based price gains in all regions.\nVolume declines were primarily due to a planned transition, away from a low-margin co-producer contract and our planned maintenance turnaround activity.\nThe industrial solutions business delivered a net sales improvement compared to the year-ago period with local price gains in all regions.\nVolume was flat year over year as higher volume from a renewable energy contract was offset by fewer licensing and catalysts sales.\nAnd finally, the performance materials and coatings segment reported operating EBIT of $295 million compared to 50 million in the year-ago period, as margins increased 900 basis points due to strong price momentum for silicones and coatings offerings.\nSequentially, operating EBID improved $11 million as price gains were partly offset by our planned maintenance turnaround activity.\nThe consumer solutions business achieved higher net sales year over year, with local price gains in all regions and across end market applications.\nVolume declined as strong demand, particularly for industrial, electronics, and personal care applications, was offset by lower supply availability due to our own decision to pull forward maintenance activity to coincide with dual-control actions in China.\nThe coatings and performance monomers business achieved increased net sales year over year, as higher raw material costs and strong industry demand led to price gains in all regions.\nand Canada, was more than offset by lower merchant sales of acrylic monomers, partly due to Dow's own higher captive use.\nTurning to Slide 6, our diversified portfolio continues to enable us to capitalize on attractive end market trends with higher-margin downstream products.\nOur four primary market verticals are each growing at rates of 1.3 to 1.5 times GDP and benefiting from sustainability macro trends.\nWe are meeting this demand with higher-margin solutions, such as functional polymers, alkoxylates, surfactants, polyurethane systems, sustainable coatings, and performance silicones.\nIn the packaging vertical, demand for lower carbon emissions, recyclable, and circular materials are driving demand for Dow's industry-leading plastics portfolio and in-house application design capabilities.\nDow's broad suite of products and hybrid innovations targeting infrastructure will continue to benefit from government investments and incentives, with particular demand resiliency in the Americas, Europe, as well as in the Middle East, Africa, and India.\nWe see global demand across the diverse consumer market vertical remaining at elevated levels, particularly for applications like electronics, 5G, appliances, pharma, and home care, where several of Dow's growth investments are targeted.\nAnd in mobility, Dow's portfolio of specialty silicones, polyurethanes, and elastomers is uniquely positioned to benefit from growing electric and autonomous vehicle trends.\nImportantly, these attractive market verticals are supported by favorable balances across our key value chains, with continued strength across consumer and industrial end markets, which we'll see on Slide 7.\nWe expect the economic recovery to continue as forecasts call for above historical average global GDP growth in 2022.\nWhile the omicron variant has resulted in some near-term disruption, we do not expect it to materially change the current recovery path, particularly as global immunization levels and treatment options continue to increase.\nSeveral factors support continued strength across our end markets.\nConsumer balance sheets remain healthy, with significant pent-up demand driven by more than $5 trillion in additional savings accumulated through the pandemic.\nManufacturing growth is expected to remain robust, supported by increasing investments in infrastructure and accelerated adoption for 5G, EV, and sustainability trends.\nAnd with retail inventories remaining low and backlogs elevated, easing supply chain issues should unleash additional volume growth in 2022, as manufacturing activity increases to meet strong consumer demand.\nThis will certainly be a focus for Dow as we work closely with our customers to fill order backlogs and replenish inventories to meet the robust demand and increased service levels.\nTurning to Slide 8.\nIn the first quarter, we expect these demand trends to drive growth, particularly following the Chinese Lunar New Year.\nDemand remains resilient in packaging and specialty plastics.\nAlthough domestic polyethylene supply improved through the fourth quarter, comonomer supply remains constrained.\nAnd trade sources are predicting another year of higher-than-average turnaround activity.\nThese factors, coupled with improvements in shipping logistics that will help meet demand in the export market, are leading to more constructive supply and-demand balances domestically.\nEquity earnings are expected to be lower sequentially due to rising feedstock costs impacting Asian olefin margins.\nAnd we anticipate higher raw material and energy costs, particularly in Europe and Asia.\nAltogether, we anticipate an approximately $200 million impact versus the prior quarter for this segment.\nUtilizing our best-in-class feedstock flexibility and our differentiated portfolio, Dow will continue to be agile to mitigate potential volatility and meet demand.\nIn industrial intermediates and infrastructure, strong demand for our high-value materials in appliances, construction, pharma, home care, and energy applications, combined with tight supply and increased global infrastructure investment, are supporting a constructive demand outlook.\nWe anticipate approximately a $100 million benefit in this segment from completed turnarounds in the fourth quarter, including Sadara's isocyanate facility and several in our core polyurethane business.\nAnd we expect the elevated energy costs in Europe will be a $75 million impact versus the prior quarter for this segment.\nIn performance materials and coatings, increasing industrial activity and consumer demand for electronics and construction continues to outpace supply for our differentiated silicone products.\nThe industry also anticipates resilient demand for architectural coatings as rebuilding from low inventory levels in preparation for the Northern Hemisphere spring and summer months.\nThe completion of our turnaround in the fourth quarter at our siloxane facility in China will allow us to take advantage of tight global market conditions as silicon metal supplies improve and energy curtailments in China continue to ease.\nWe will also be executing a turnaround at our methacrylates facility in Deer Park.\nAll in, we expect a $25 million net tailwind versus the prior quarter from turnarounds for this segment.\nTurning to the full year.\nWe're continuing to provide our best estimates of several income statement and cash flow drivers.\nNotably, we expect lower equity earnings sequentially due to margin compression versus the tighter conditions in 2021, particularly in Asia as oil remains constructive, putting upward pressure on the naphtha-based feedstock costs in the region.\nTotal turnaround spending for the year will be up approximately $100 million versus 2021 as we have another heavy turnaround year with three crackers slated for maintenance activity and increased inflationary pressure on materials and labor.\nNet interest expense is expected to be approximately $600 million, benefiting from our proactive deleveraging actions since spin.\nFor cash flow, we anticipate higher joint venture dividends from increased earnings in 2021 and a $1 billion tailwind toward pension-related items following our actions last year.\nContinued investment in our digital initiatives will drive efficiency and enable us to achieve our $300 million EBITDA run rate on the program by 2025.\nWe will also complete the spending portion of our restructuring program which is now delivering a full $300 million EBITDA run rate as we enter 2022.\nAnd finally, as we highlighted at our investor day, we anticipate increasing our capital expenditures to $2.2 billion, well within our DNA target, as we continue to advance our higher return, faster payback projects, and execute on our decarbonize and grow strategy.\nOverall, the macroeconomic backdrop remains favorable in 2022.\nAnd Dow is well positioned due to our global footprint, feedstock flexibility, productivity programs, and sustainable solutions for our customers.\nWe will continue to leverage these advantages as we navigate higher oil prices and continue to deal with inflation and logistics challenges.\nAnd as the year progresses, we intend to drive operating rates and service levels higher and do expect widening oil to gas spreads.\nTurning to Slide 10.\nAt our investor day in October, we laid out our disciplined strategy to decarbonize and grow the company, supported by a series of inflight earnings growth programs that will drive over $3 billion in underlying EBITDA growth.\nIn 2022, our capital and operating investments are on track to deliver $200 million to $300 million in run-rate EBITDA and will serve higher-margin, differentiated applications where demand is accelerating, as customers work to reduce their own carbon footprint.\nIn packaging and specialty plastics, our Fort Saskatchewan expansion completed last year will deliver a full year of earnings growth to support increasing polyethylene demand.\nAnd our FCDh pilot plant in Louisiana will start up this year to produce propylene for coatings, electronics, and durables end markets.\nNotably, the technology enables lower capex, opex, and CO2 emissions compared to conventional PDH technologies.\nThese projects serve faster-growing, more sustainable market segments, such as renewables, to drive lower carbon emissions for our customers.\nFor example, our endurance compounds for cable systems support next-generation, longer-life, and lower-carbon emissions infrastructure, including on and offshore wind farms, by reducing the cable manufacturing carbon emissions footprint by 80%.\nAnd our ENGAGE elastomers deliver 35% improved performance and efficiency for solar photovoltaic applications.\nIn industrial intermediates and infrastructure, our alkoxylates and PU systems expansion projects are closely linked with brand owner demand for higher value, differentiated downstream applications across home and consumer care, agricultural, and infrastructure end markets.\nFor example, our surfactants offer an improved environmental profile for leading brand owner laundry and home care products.\nAnd our polyurethane system, PASCAL technology, enables up to 10% greater energy efficiency and appliances without raising manufacturing costs.\nIn performance materials and coatings, we're expanding capacity in formulated solutions for coatings and silicones through incremental debottlenecking projects.\nOur products enable higher-performing, more sustainable solutions, targeting mobility, consumer, and infrastructure end markets.\nFor example, FASTRACK coatings enable autonomous mobility infrastructure and have approximately 45% lower greenhouse gas emissions.\nAnd our DOWSIL technology enables higher-density, lower-cost battery packs for the fast-growing electric vehicle market.\nFinally, as Howard mentioned, our restructuring program and digital investment will continue to support our low-cost operating model and top-quartile cost structure.\nTurning to Slide 11.\nThe increasing demand for sustainable products represents a significant growth opportunity for Dow with attractive pricing that will support longer-term, higher-quality earnings.\nOur customers are looking for opportunities to enhance their sustainability.\nAnd we are meeting those needs with lower-carbon emissions solutions beginning with our own operations.\nOur Alberta project will decarbonize approximately 20% of Dow's global ethylene capacity while growing our global polyethylene supply by about 15%.\nWe are also working with our suppliers to reduce our Scope 3 carbon emissions.\nTo date, we have more than 150 supplier agreements in place and have adopted third-party frameworks like CDP, together for sustainability and EcoVadis to drive tangible improvements in environmental performance along the value chain.\nWe continue to advance a circular economy for plastics and see a consistent trend across our brand owner customer base toward redesigning packages to be recyclable and incorporating 30% post-consumer recycled content in their packaging by 2030.\nSix of our largest sites have now received International Sustainability and Carbon Certification PLUS recognition for tracking the use of sustainable feedstocks.\nWe're advancing our partnership with Mura Technology to scale advanced recycling solutions and secure circular product supply.\nMura broke ground on the new plant with an expected start-up around the end of the year.\nEarlier this month, we announced an investment in Mr. Green Africa, the first recycling company in Africa to be a Certified B Corporation, which includes socially responsible waste collection and plans to codevelop new flexible plastic packaging that will enable more sustainable packaging solutions.\nA first-of-its-kind investment for Dow in Africa, this business model will be scaled to other developing regions around the world.\nWe continue to grow our recyclable offerings, recently doubling sales with Chinese laundry brand, Liby, and increasing our addressable market opportunities.\nAnd like the partnerships, Dow recently announced to source pyrolysis oil from Gunvor and New Hope Energy.\nThese investments in circularity are examples of our progress and solid foundation as we grow and scale circular solutions.\nTo close, on Slide 12, 2021 was an outstanding year for Team Dow.\nWe delivered record financial performance and continued our disciplined execution of our strategic priorities.\nBuilding on this foundation, we're focused on advancing our plan to decarbonize our assets and grow earnings.\nOur competitive advantage enables us to meet the increasing needs of our customers and consumers who are demanding more circular and sustainable products while we work to achieve zero carbon emissions in our own operations.\nAnd as we look ahead, our priorities remain consistent.\nOur focus on profitable growth, while maintaining a low-cost position and best-owner mindset, will enable us to deliver on our earnings growth levers.\nWe'll continue to maintain our balanced and disciplined approach to capital allocation, driving higher returns for the company and our shareholders while retaining the financial flexibility that has served us well.\nAnd we'll continue to advance our leadership in ESG with a clear path to achieve our zero carbon circularity and sustainability targets.\nThe world and our customers are demanding a more sustainable future.\nAs we execute our ambition, I am confident that we will create significant, long-term value for all of our stakeholders.\nOperator, please provide the Q&A instructions.",
        "summary": "q4 sales rose 34 percent to $14.4 billion.\nindustrial intermediates & infrastructure segment net sales in quarter were $4.5 billion, up 30% versus year-ago period.\nqtrly net sales up 34% versus year-ago period, with improvement in every operating segment, business and region.\nperformance materials & coatings segment net sales in quarter were $2.6 billion, up 26% versus year-ago period.\nin 2022, we expect continued demand strength across our end markets.\nlogistics constraints are expected to ease throughout year to fulfill elevated order backlogs and pent-up customer demand.\nin 2022, expect continued demand strength across end markets, supported by growing industrial production and sustained consumer spending.\nlogistics constraints expected to ease throughout year to fulfill elevated order backlogs and pent-up customer demand."
    },
    {
        "text": "These risks and other factors could adversely affect our business and future results.\nFor more information about those risk factors, we would refer you to our 10-K or 10-Q that we have on file with the SEC and the company's other SEC filings.\nIf you did not receive a copy, these documents are available in the Investor Relations section of our website at dukerealty.com.\nThe fundamentals in our business continue to be the best we've ever seen.\nWe now have had three successive quarters of demand at or near all-time records, and projected market level rent growth has risen from the 10% range to the mid-teens percent nationally and in some submarkets as high as 35%.\nDuring the quarter, we began roughly $350 million of new developments with expected strong value creation and IRRs, and we raised our full year guidance on starts once again.\nCap rate compression and rent growth continued to outpace material cost increases, allowing us to drive improved margins.\nThe margins on our development pipeline are now over 60%, and our core portfolio achieved record rent growth of 22% on a cash basis from second-generation leasing activity.\nThese quarterly results and our improved outlook for the balance of the year resulted in our raising key components of our 2021 guidance, including year-over-year core FFO growth now expected to be at 13.8% and growth in AFFO per share of 11.6%.\nBased on these results and our optimism about the balance of the year, we have raised the dividend by almost 10%.\nMark will go over these changes in detail momentarily.\nI'll first cover market fundamentals and then review our overall operational results.\nIndustrial net absorption registered 121 million square feet, which is only one million square feet less than the all-time record.\nThis was more than enough to offset the new supply as completions came in at about 79 million square feet.\nThis positive net absorption over deliveries for the quarter reduced vacancy down to 3.6%, setting yet another record low.\nThe strong fundamentals increased nationwide asking rents during the third quarter by 10% compared to the previous year.\nCBRE now projects demand for the full year in the mid-300 million-square-foot range and likely to break the all-time 2016 record of 327 million square feet.\nCompletions for the year are projected to be about 270 million square feet.\nNational asking rents for the full year are expected to be in the mid-teens with some markets like Northern New Jersey and Southern California likely to see increases of 30% to 35%.\nThe reaction to supply chain bottlenecks continues to be in the early stages of a long-term boom for our sector, with CBRE reaffirming roughly 1.2 billion square feet of projected aggregate demand over the next five years.\nIncreasing inventory levels, safety stock, consumer spending and online shopping trends are driving much of this demand.\nDemand by occupier type remains broad-based with e-commerce and logistics services companies continuing to make up roughly 60% of our activity, with the e-commerce contribution about 10% lower compared to 2020 and the 3PL contribution about 10% higher than this time last year.\nIt is also noteworthy that Amazon's share of demand this year is about 10% of overall total demand compared to 18% of demand in 2020.\nTurning to our own portfolio.\nWe executed a very strong quarter by signing 9.5 million square feet of leases.\nThe strong lease activity for the quarter resulted in continued growth in rents within our portfolio as we reported 35% on a GAAP basis and 22% cash, notably, with only 25% of our transactions occurring in coastal Tier one markets.\nWe now project our mark-to-market on a GAAP basis within our portfolio to be 28%.\nWe started $349 million of new development totaling two million square feet that consisted of six speculative projects and two build-to-suits in the quarter.\n80% of this volume was in our coastal Tier one markets.\nOur team has continued to lease our speculative projects successfully as evidenced by stabilizing seven new developments during the quarter and increasing the development pipeline to 60% leased.\nTo put our track record of leasing speculative projects in context, the $897 million of projects that we placed in service this year through September 30 increased from 39% leased when the construction started to 90% leased when they were placed in service.\nFor all of our speculative developments we've started since the beginning of 2019, our average lease-up time is less than two months from the dates the projects were placed in service.\nOur team's continued ability to quickly lease up speculative development projects will be a key contributor of our future growth.\nSticking with the development pipeline.\nAt quarter end, we totaled $1.1 billion with 86% of this allocated to Tier one markets and 60% preleased.\nWe now expect value creation from this pipeline of over 60%, which is primarily due to rapid appreciation of rents and land.\nWe are also very proud to remind everyone that we target only developing the lead certified standards.\nWe expect the lead percent of our total NOI to trend toward 25% by the end of 2022.\nOn the construction cost side of things, our teams have taken steps to mitigate schedule risk related to materials such as contracting for steel nearly a year out, and we've only had minor delays in a few of our projects.\nThe outlook for new starts is strong and is reflected in our revised guidance of our midpoint being up $175 million.\nOn a longer-term basis, we either own or control land, primarily in coastal infill markets that can support roughly $1 billion of annual starts over the next four years if the supply/demand picture remains robust, which we believe it will.\nIt is also important to note the market value of the land we own is about 2 times our book basis, and on average, we've only owned this land for about two years.\nLand we control and will be closing over the next few quarters is also well below market.\nThe favorable land value, we will continue to support high development margins and very good IRRs long term.\nAnd overall, we believe we are very well positioned to continue to lead the sector and grow through new development.\nFor the quarter, disposition proceeds totaled $738 million, including outright sales and contributions to joint ventures.\nThe outright sales comprise our entire remaining portfolio in St. Louis, three buildings in Indianapolis and one building in Chicago.\nThe activity also included the first two tranches of the Amazon property contributions to our newly formed joint venture with CBRE Global Investors.\nThe pricing in aggregate was at an in-place cap rate of 4.8%, which was inflated a bit by a high 5% cap rate for the St. Louis portfolio in which pricing was impacted by expected rent roll-downs on looming tax abatement expirations.\nWe acquired one facility in the third quarter totaling $24 million, a 63,000-square-foot facility in the San Gabriel Valley submarket of Southern California.\nThis third quarter activity has further shifted the geographic position of our portfolio on an NOI basis to approximately 40% in the coastal Tier one market.\nLet me also note that just after quarter end in very early October, we closed on the sale of a 517,000-square-foot Amazon facility in Columbus, Ohio.\nThis sale represents our final property disposition for the year.\nI will now turn our call over to Mark to discuss our financial results and guidance update.\nCore FFO for the quarter was $0.46 per share, which represents 15% growth over the $0.40 per share from the third quarter of 2020.\nAFFO totaled $151 million for the quarter compared to $135 million in the third quarter of 2020.\nSame-property NOI growth on a cash basis for the three and nine months ended 2021 compared to the same periods of 2020 was 3.8% and 5.3%, respectively.\nThe growth in the same-property NOI for the third quarter of 2021 compared to the third quarter of 2020 was mainly due to rent growth, partially offset by an 80 basis point decrease in occupancy in our same-property portfolio due to an extremely high occupancy comp of 98.6 in 2020.\nOur balance sheet is in great shape with plenty of dry powder to fund our growth.\nWe had $273 million of sale proceeds in 1031 escrow accounts at the end of the quarter that will be used to fund near-term building and land acquisitions.\nWe finished the quarter with reduced leverage as a result of the significant disposition activity during the quarter, but intend to return to recent leverage levels by the end of the year as we continue to grow through development.\nAs a result of our continued strong operating results, we announced revised core FFO guidance for 2021 in a range of $1.71 to $1.75 per share compared to the previous range of $1.69 to $1.73 per share.\nThe $1.73 midpoint of our revised core FFO guidance represents a nearly 14% increase over 2020.\nFor same-property NOI growth on a cash basis, we have increased our guidance to a range of 5% to 5.4% from the previous range of 4.75% to 5.25%.\nWe continue to outperform our underwriting assumptions for speculative developments, both in the timing of lease-up and in the rental rates we're achieving, while we have maintained a solid list of build-to-suit prospects as well as land sites in various stages of due diligence and entitlements.\nBased on these prospects, our revised guidance for development starts is between $1.3 billion and $1.45 billion compared to the previous range of $1.1 billion to $1.3 billion.\nWe've updated a couple of other components of our guidance based on our more optimistic outlook as detailed in a range of estimates exhibit included in our supplemental information on our website.\nIn closing, I'm incredibly proud of our team's execution in leasing, capital deployment and development starts.\nWe started the year with very solid growth expectations and have exceeded every one of them, resulting in a nearly 14% growth in core FFO at the revised midpoint.\nOur shareholders should be very pleased with our dividend increase of $0.025 per share.\nThis 9.8% increase marks our seventh straight year of annual dividend increases, representing a growth of over 65% over that period.\nLooking out to the next few years, our operating platform is perfectly positioned to take advantage of the numerous growth drivers benefiting the logistics sector.\nThese drivers, combined with the undersupply of new available warehouse product, will allow us to maintain our high occupancy rates and rent growth while creating substantial profit margins on our $1 billion-plus development pipeline.\nThe net result of these factors is our belief we can continue to grow earnings at approximately 10% pace for the foreseeable future.\n[Operator Instructions] Sean will now open it up and take our first question.",
        "summary": "compname reports q3 core ffo per share $0.46.\nq3 ffo per share $0.40.\nq3 core ffo per share $0.46."
    },
    {
        "text": "For more information about those risk factors, we would refer you to our December 31, 2019 10-K that we have on file with the SEC.\nWe hope all of you joining us today as well as your families are safe and healthy.\nLet me start by saying that 2020 was another outstanding year for Duke Realty.\nEven amid the global pandemic and a major US recession, we exceeded all of our 2020 goals, including our original pre-pandemic operating and financial guidance metrics.\nWe also capped off the year with fourth quarter leasing volume being the strongest quarter of the year, and just after quarter end, executed a significant debt transaction to bolster our balance sheet, which sets us up for a great start to 2021.\nLet me recap the highlights of our outstanding year.\nWhen the pandemic hit, we engaged our business continuity plan to ensure the health and safety of our employees, our customers and our construction work sites.\nThis was executed extremely well and I'm happy to resort cases at Duke Realty were very minimal.\nWe signed nearly 21 million square feet of leases, we maintained the occupancy of our stabilized portfolio between 97% and 98% throughout the year, and our total portfolio which includes our under development pipeline ended the year at 96% leased, the highest level we've ever achieved.\nWe renewed 70% of our leases for 83% when including immediate backfills and attained 29% GAAP rent growth and 14% cash rent growth on second generation leases throughout the year.\nWe grew same property NOI on a cash basis 5%, which included -- which exceeded our revised guidance expectations.\nWe commenced $795 million in new developments that were 62% pre-leased, 67% of which were in coastal Tier 1 markets.\nWe placed $730 million of developments in service that are now 94% leased.\nWe completed $322 million of property dispositions and $411 million of property acquisitions.\nWe raised $675 million of debt at an average -- at a weighted average term of 20 years and an average coupon of 2.4%.\nWe increased our annual common dividend by 9.1%.\nAnd finally, we've continued to run our Company in the most responsible manner with our ESG culture and numerous ESG achievements.\nI'll first touch on overall market fundamentals.\nThe fourth quarter demand was exceptional in logistics sector with 104 million square feet of absorption, which was the highest on record.\nDemand exceeded supply for the quarter by about 30 million square feet which nudged national vacancy rates down to 4.6%, which is still roughly about 200 basis points below long-term historical averages.\nFor the full year, demand was 225 million square feet, compared to a sly number of 265 million square feet.\nEven when adjusting for the significant amount of activity we saw from Amazon this year, the full year 2020 net absorption was still 12% higher than 2019.\nFor transactions larger than 100,000 square feet, e-commerce users comprised 22% of total demand and 3PLs about 26%.\nComparatively, e-commerce demand in our own portfolio represented about 20% of our total leasing square footage volume for the year.\nThis segment of the demand market, users over 100,000 square feet, continues to be the most active subset.\nTo that end, we signed 29 deals in the fourth quarter over 100,000 square feet in our portfolio.\nAsking rental rates rose again in the fourth quarter, up 8.3% over this time last year.\nThis rate of growth is about 100 basis points higher than the five-year historical average of 7.1%.\nWe see this trend continuing in 2021 with macro rent growth levels in the mid-single digits.\nIn our own portfolio, we had our strongest quarter of the year with 9.7 million square feet of leases executed, which is our second highest quarter ever in our Company's nearly 50-year history.\nOur average transaction size was 104,000 square feet.\nIn addition, the average lease term signed during the quarter was 7.5 years.\nOn the rent collections side, we averaged 99.9% for the fourth quarter and 99.9% for the full year, arguably best-in-class in the entire REIT sector.\nThese figures include a very small amount of deferral agreements and credit enhancement collections as detailed in the supplemental package.\nLooking forward, our overall tenant credit quality is very strong.\nWe do have a handful of tenants and industries most acutely impacted by COVID that are in financial difficulty, which Mark will touch on in a moment as to their minor impact on our 2021 financial numbers.\nWe do have a strong prospect list of backfills for most of these spaces.\nSo the longer term impact in the situation we believe will be positive.\nAt quarter end, our stabilized in-service portfolio was 98.1%.\nThe lease activity for the quarter combined with the strong fundamentals I touched on led to another great quarter of rent growth of 13% cash and 27% GAAP.\nWe also had a very strong quarter in first-generation leasing, in our speculative developments on our construction, we executed two significant leases in the quarter.\nThe first was a 622,000 square foot lease in Northern New Jersey to a leading national home furnishings retailer looking to expand its supply chain network for inventory redundancy, often referred to as safety stock or referred to as increased inventory levels, for them to take 100% of the facility -- 100% of the space in that facility.\nThe second notable lease transaction in the spec project was 290,000 square feet lease we signed in the South Bay submarket of Southern California.\nThis lease was a major -- was to a major national beverage distributor to take 100% of the space as well.\nIt's important to note both these buildings are still under construction and not scheduled to be completed until the second and third quarters of this year.\nTurning to development, we had a tremendous quarter starts, breaking ground on eight projects totaling $420 million in cost and 69% pre-leased.\nIn total, nearly 70% of our fourth quarter development starts were in coastal Tier 1 markets and five of our eight projects were redevelopments of existing land and site structures.\nOur development pipeline at year-end totaled $1.1 billion with 80% of this allocated to coastal Tier 1 markets.\nThis is a larger pipeline than we had a year ago and the allocation to coastal Tier markets is also higher than a year ago.\nThe pipeline is 67% pre-leased and we expect to generate margins in the 30% to 40% range.\nLooking forward, our prospect list for new starts in 2021 is very strong, and our land balance at year-end totaled $297 million, with nearly 80% of this allocated to coastal Tier 1 markets, setting us up very well for future growth.\nWe had a very active quarter on both dispositions and acquisitions.\nConsistent with our strategy to increase our exposure to coastal Tier 1 markets, we sold $276 million of assets in the fourth quarter, comprised of two facilities in the far Northwest submarket Indianapolis, one in the far Northeast market of Atlanta, one facility in the Western portion of the Lehigh Valley and an asset leased to Amazon in Houston.\nIn turn, we used these proceeds to acquire two assets in Southern California and a portfolio in Seattle for $305 million, that in aggregate are 74% leased, with an expected initial stabilized yield in the mid-4s and long-term IRRs -- unlevered IRRs in the mid-6s.\nThe Seattle portfolio encompasses three buildings that are 69% leased in aggregate located in the DuPont submarket and adjacent to an existing facility we developed several years ago.\nFor the full year, our capital recycling encompassed $322 million of asset sales and $423 million of acquisitions.\nCombined with the development previously mentioned by Steve, this activity moves our coastal Tier 1 exposure to 41% of GAV and our overall Tier 1 exposure to 67%.\nWe expect this recycling to continue in 2021 with dispositions primarily from the monetization of some of our Amazon assets, allowing us to manage our tenant exposure as well as some Midwestern assets to further refine our geography.\nI am pleased to report the core FFO for the quarter was $0.41 per share compared to core FFO of $0.40 per share in the third quarter and represented a 7.9% increase over the $0.38 per share reported for the fourth quarter of 2019.\nCore FFO was $1.52 per share for the full year 2020 compared to $1.44 per share for 2019, which represents a 5.6% annual growth rate.\nFFO as defined by NAREIT was $1.40 per share for the full year 2020 which is lower than the core FFO due mainly to debt extinguishment charges.\nWe grew AFFO by 6.2% on a share adjusted basis compared to 2019.\nSame property NOI growth on a cash basis for the three months and 12 months ended December 31, 2020 was 3.3% and 5% respectively.\nSame property growth for the quarter was driven by continued strong rent growth and a 20-basis point increase in average commencement occupancy within our same property portfolio from the fourth quarter of 2019.\nNet operating income from non-same-store properties was 17.3% of total net operating income for the quarter.\nSame property NOI growth on a GAAP basis was 3.1% for the fourth quarter and 2.8% for the full year 2020.\nBad debt expense for the year was primarily related to non-cash straight-line reserves, which negatively impacted GAAP same property NOI.\nWe finished 2020 with $295 million outstanding on our unsecured line of credit, which we refinanced earlier this month with a $450 million, 1.75% 10-year green bond issuance which will bear interest at an effective rate of 1.83%.\nThe pricing on this transaction was very attractive with our effective rate incorporating a 70-basis point spread over treasury rates which at the time was the lowest credit spread ever on a 10-year REIT bond offering.\nWe intend to continue a robust pace of growth in 2021, which we anticipate to fund with the combination of asset dispositions, internally generated cash flow, short-term use of our line of credit and a potential unsecured bond issuance later in the year.\nAlso, if additional growth opportunities arise, it's possible we issue a modest amount of equity through the ATM on an opportunistic basis.\nFrom a macro outlook perspective, we expect the 2021 environment to be overall relatively strong and improving each quarter in light of the expected federal stimulus and vaccinations.\nSupply and demand are relatively in balance.\nThe overall fundamentals picture is quite supportive of continued market rent growth and thus a positive setup for pricing power and new development starts.\nWith this as a backdrop, yesterday, we announced the range for 2021 core FFO per share of $1.62 to $1.68 per share with a midpoint of $1.65, representing an 8.6% increase over 2020.\nWe also announced growth in AFFO on a share adjusted basis to range between 5.8% and 10.1% with the midpoint at 8%.\nOur average in-service portfolio occupancy range is expected to be 95.7% to 97.7%.\nSame property NOI growth on a cash basis is projected in a range of 3.6% to 4.4%%.\nOur guidance for same-property NOI includes the negative impact from a few tenants Steve mentioned that we expect to terminate in early 2021.\nWe expect proceeds from building dispositions in the range of $500 million to $700 million, which we will use to fund our highly accretive development pipeline.\nAcquisitions are projected in the range of $200 million to $400 million with a continued focus on infill coastal markets and facilities with the repositioning or lease-up potential.\nDevelopment starts are projected in the range of $700 million to $900 million with a continuing target to maintain the pipeline at a healthy level of pre-leasing.\nOur pipeline of build-to-suit prospects continues to remain robust and the $800 million midpoint of our 2021 guidance is consistent with our actual development starts for 2020.\nMore specific assumptions and components of our guidance are available in the 2021 range of estimates document on the Investor Relations website.\nIn closing, I'd like to reiterate what a great year 2020 was for Duke Realty amid the pandemic and a recession.\nAs we look ahead into 2021, the demand drivers remain exceptionally strong.\nSupply and demand remain in balance and we anticipate another year of strong results.\nThis is evidence that our 2021 guidance of $700 million to $900 million of expected new development starts, strong occupancy expected to remain elevated and most of all evident with our expected growth in FFO per share and AFFO of 8.6% and 8% in the midpoints respectively.\nThis level of growth is what we believe should be achievable on a consistent basis going forward.\nOur performance is the result of a decade of portfolio repositioning with a steadfast focus on quality, investing in selective submarkets and strengthening our balance sheet.\nWe will continue to see added value created by our dominant development platform and we believe we can continue this level of growth well into the future.\nAlso, please remember the prompt for our system is now one-zero.\nSean, you may open up the lines for our first question.",
        "summary": "q4 core ffo per share $0.41.\nq4 ffo per share $0.40.\nintroducing 2021 guidance for core ffo of $1.62 to $1.68 per diluted share.\nsees 2021 guidance for ffo, as defined by nareit, of $1.58 to $1.68 per diluted share."
    },
    {
        "text": "As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those implied by our comments today.\nSince our last earnings call, we have made outstanding progress on multiple fronts.\nI'll highlight just four.\nFirst, we increased our total liquidity and decreased our total debt through a successful preferred equity offering.\nSecond, we reduced our monthly burn rate, significantly beating our prior expectations.\nThird, we reopened five additional hotels.\nAnd fourth, we struck a sweeping deal with Marriott that not only increased the NAV of our portfolio by $50 million but distinguishes DiamondRock's portfolio as the least encumbered by long-term management agreements among all full service public lodging REITs.\nNow, while we have made good progress and remain optimistic about the future of travel, the pandemic we are living through has obviously created tremendous dislocation in near-term demand.\nIn the third quarter, there were some encouraging early signs of a recovery in travel demand.\nThe relative bright spot has been in leisure travel, which of course is elective travel.\nGuests have been checking into the drive-to resorts DiamondRock is known for.\nIn contrast, business travel and group business demand has only marginally improved and is likely to remain very constrained until there is a healthcare solution such as a vaccine, effective therapy or a massive national testing program.\nInterestingly, we are seeing signs of pent-up demand.\nSo, we believe there is a chance for a meaningful snap back on the other side of the healthcare solution.\nPersonally, this is my fourth downturn, and we know how to manage through these environments.\nThat experience is why DiamondRock has always embraced a low-leverage and conservative balance sheet strategy.\nWe currently have more than enough liquidity to carry the Company until such time as we are cash flow positive once again.\nHistory shows that travel demand always eventually surpasses the peak of the prior cycle, and we remain optimistic that this recovery ultimately will be no different.\nBut make no mistake, this is the most difficult operating environment of modern times and requires almost herculean efforts to ensure guest and employee safety first, while trying to preserve cash flow.\nAlthough the environment required significant reductions in staffing, we were able to soften the blow to hotel associates with nearly $8 million in severance paid out this year.\nRest assured that we are doing everything possible to be responsible fiduciaries and community citizens while making certain that DiamondRock is set up for future success.\nLet's turn specifically to DiamondRock's third quarter.\nHotel adjusted EBITDA in the quarter was a $17.4 million loss, a marked improvement from the $30.4 million loss in the second quarter.\nCorporate adjusted EBITDA was a $24.4 million loss as compared to a $37 million loss in the second quarter.\nThird quarter adjusted FFO per share was a loss of $0.22 as compared to a loss of $0.20 in the second quarter.\nTwo items worth noting with these results: one, they exclude $7.4 million in onetime severance costs; and two, this one is important, adjusted FFO per share was negatively impacted by a non-cash income tax valuation allowance recognized in the quarter of $12.4 million or $0.06 per share.\nIn other words, our third quarter AFFO would have been a loss of only $0.16 per share without that tax adjustment.\nMoreover, in the quarter, we successfully reopened five more hotels and had nearly 90% of our rooms available to sell at the end of the third quarter.\nTo illustrate the progress, that 90% figure compares to just 58% at the end of the second quarter.\nFurthermore, portfolio occupancy jumped over 1,000 basis points from the second quarter to 18.6%.\nRecall that we ended the second quarter with just 22 hotels open and operating.\nWe opened a 23rd hotel, our Lodge at Sonoma Resort, on the first day of the third quarter.\nThose 23 hotels saw occupancy rise from 26% in July to 28% in August, and finally, to 31% in September.\nIn July, we reopened two other hotels besides The Lodge at Sonoma that included Hilton Boston Downtown and the Hilton Burlington on Lake Champlain.\nOur decision to reopen hotels has been and continues to be dynamic and data-driven.\nWe reopen hotels if we can lose less money doing so.\nBased on this approach, the data led us to keep three of our New York City hotels closed but to reopen our two big box hotels, the Chicago Marriott and the Boston Waterfront Westin in early September.\nNow, as you'd expect, nightly occupancy is comparatively lower at these two big box hotels than the balance of the portfolio.\nBut a resilient base of contract business and aggressive cost controls has thus far confirmed that reopening was the right decision.\nFor the entire portfolio, total revenue decreased 79% in the quarter as a result of an 81% decline in RevPAR, that was partially offset by a smaller decline in food and beverage revenue.\nTotal revenues were $50 million in the quarter as compared to just $20.4 million in the second quarter.\nOver the summer, monthly revenues showed steady progress, rising from slightly over $11 million in June to over $14 million in July, to over $16 million in August, and finally, reaching almost $20 million in September.\nEncouragingly, revenue in October looks to be coming in even a little bit better at over $22 million.\nOkay, let's talk about profitability.\nTo maximize absolute profit, our asset managers are working closely with our operators to aggressively drive revenue while implementing strict expense controls.\nIn the third quarter, every department, rooms, F&B and other, saw material improvement in profitability as compared to Q2 with sequential acceleration in flow-through that surpassed internal forecast.\nFor example, the rooms department margin rose from 45% in the second quarter to 64% in the third quarter, driven in large part by a 25% sequential reduction in the cost per occupied room.\nOver the course of the quarter, we saw the number of hotels achieving breakeven profitability continue to expand.\nIn June, we had 10 hotels generating positive gross operating profit, or GOP, and this figure rose to 18 hotels by the end of September.\nOver that same period, GOP margin moved from a negative 35% to a positive 9% margin as a testament to our ability to drive revenue while constraining costs.\nOn an EBITDA basis, six hotels in June were operating profitably, and that figure rose to 10 hotels by September.\nWhat you cannot see, however, is an additional 10 hotels were, on average, approximately $100,000 from breakeven EBITDA in September.\nHere's one other additional data point I think you'll find interesting.\nIf we exclude the two big box hotels, the Chicago Marriott and the Westin Boston, from the 27 hotels we had open in September, the remaining 25 hotels collectively would have been within $200,000 of breakeven EBITDA.\nClearly, the portfolio is near a favorable tipping point for profitability, and much of the source of that strength is DiamondRock's drive-to resort portfolio.\nOur resorts are performing very well and generated positive and growing EBITDA every month in the quarter.\nLet me share with you a couple of highlights from just two of our resorts to give you an idea of the pockets of strength we are seeing.\nThe Landing in Lake Tahoe saw a 19% increase in RevPAR over the third quarter 2019 with an ADR of nearly $500 per night and total RevPAR approaching nearly $560 per night.\nEBITDA margins at this hotel increased nearly 1,400 basis points as compared to the third quarter in 2019.\nThe L'Auberge de Sedona saw a 21% increase in RevPAR over the third quarter in 2019 with total RevPAR approaching nearly $675 per night.\nMoreover, we are taking steps to ensure this success continues.\nFor example, subsequent to the quarter-end, we completed a new Michael Mina restaurant in Sonoma as part of the larger ROI up-branding of that resort from a Renaissance to an Autograph.\nThe restaurant opened strong, and in just the first month of operation, generated nearly $325,000 in revenue.\nWe also expect the restaurant to create a halo effect at that resort, which will allow us to increase room rates.\nAnother example of strength is likely to come from the almost complete renovation of the Barbary Beach House in Key West, which will be done before year-end.\nThis former Sheraton has been reimagined into a very special lifestyle boutique that is already getting rave reviews.\nAnd we are optimistic about our ability to drive rate this winter season.\nSwitching gears, let's look at each of our segments of demand in the quarter.\nLeisure is unquestionably the strongest performing segment in the portfolio.\nThe resort portfolio performance increased strongly and steadily over the quarter from 36% occupancy and $141 in total RevPAR in July to over 43% occupancy and nearly $191 in total RevPAR in September, a $50 per night jump.\nFor the third quarter, ADR at our resorts increased 2.2% as compared to last year with September showing good strength and up 5%.\nThe resilience of rate at our resorts tells us price is not a gating issue in making the travel decision.\nThis is an encouraging data point that the same people will ultimately be prepared to travel when their employers feel comfortable letting them get back on the road.\nAs for business transient, our current thinking is that we will not see a material change until there is an announcement of a vaccine or broad distribution of a therapy.\nFor our portfolio, business transient remained soft but it did improve.\nIn the 3rd quarter, business transient revenue and rooms more than doubled from their contribution in the second quarter.\nIn fact, business transient rooms were 23% of total rooms sold in the third quarter, up from only 19% in the second quarter.\nSimilarly, the group segment remains a relative soft spot.\nOutside of social gatherings such as weddings, we continue to expect that large corporate group events will be the final segment to recover.\nNevertheless, there are some encouraging data points to share with you.\nThe first data point is that DiamondRock saw approximately 250,000 room nights of leads generated each month during the quarter, with most of the inquiries for 2021 and 2022.\nInterestingly, RFP conversion ratios to awarded business are at near normal rates.\nAlso, sports teams are playing.\nDiamondRock has arrangements with seven professional football and baseball teams, Several NCAA sports teams and even a PGA golf tournament.\nAnother good data point is that according to Cvent, September was the strongest month of RFP activity since March.\nSeptember volume is up 18% versus August, and October is on pace for a strong performance, too.\nCvent also reports that overall group rates are down approximately 5% to 10% in 2021 but up 5% to 10% in 2022.\nLooking at 2021, rates are softer earlier in the year when uncertainty is the highest and quickly approach pre-pandemic levels by late 2021.\nGroup rate integrity in RFPs has been relatively more resilient in New York City, Boston and Chicago than it has been in San Francisco.\nAgain, an encouraging trend, given our geographic mix.\nBefore handing the call off to Jeff, I did want to touch on our capital investments.\nWe held capex spending to $8.6 million in the quarter, which is inclusive of approximately $0.5 million for Frenchman's Reef.\nOutside of life safety projects or emergency repairs, our primary focus remains conserving capital.\nHowever, we did prioritize projects that can produce a near-term earnings benefit and high return on investment.\nThese projects include the F&B repositioning initiatives at our hotels in Sonoma and Charleston, as well as completing the conversion renovation at the Barbary Beach Resort in Key West.\nWe expect these investments will be measurable earnings contributors in 2021, and the average IRR for these projects is expected to exceed 30%.\nBefore leaving capex, I did want to remind everyone that we have paused the reconstruction of Frenchman's Reef.\nOur current plan is to look for a joint venture partner for this project over the next year before restarting construction in order to preserve our balance sheet capacity.\nLet me start by talking about our liquidity.\nWe improved our liquidity in the quarter by nearly $71 million as a result of the successful preferred offering -- preferred equity offering.\nAt the end of the third quarter, we had approximately $435 million of total liquidity, including corporate-level cash, hotel-level cash and undrawn revolver capacity.\nI'm pleased to report, we are beating our original estimates for monthly cash burn rates, and we continue to make significant gains.\nBefore capex, our average monthly burn rate in the third quarter, pro forma for the preferred dividend, was $14.7 million.\nLet me walk through the sources of the $2 million improvement.\nThe net operating loss at the corporate NOI level was $10 million per month in the quarter, as compared to our earlier estimate of $11.5 million, a $1.5 million per month improvement, owing, among other reasons, to improving top line, strict cost controls and the decision to reopen additional hotels.\nDebt service was $4.1 million per month in the quarter, as compared to a prior estimate of $4.5 million.\nThe $3,000 to $4,000 per month savings is a result of forbearance that will reverse in the coming months.\nThe straight line capital expenditure budget in both cases is $3 million per month.\nIncluding capex, our total Company burn rate was $17.7 million during the quarter and implies a cash runway through late 2022.\nAs Mark mentioned at the start of the call, we strongly believe that we have more than enough liquidity to carry us through to a point where we are cash flow positive, and that is why we took the step of issuing preferred equity last quarter so that we would not be pressured into a common equity offering in the future.\nAs it relates to the outlook for our burn rate, we are not providing specific guidance.\nHowever, remember that Q4 and Q1 historically see weaker demand levels, and there is a risk that the recent increases in COVID cases throughout much of the US could lead to municipalities rolling back the operating guidelines that have allowed us to reopen.\nWhile we will continue to do everything within our power to minimize loss and maximize profitability, I encourage you to consider that sequential revenue and profit growth could prove challenging in the next two quarters.\nWe updated our analysis of breakeven profitability and estimate that on whole, the portfolio will achieve breakeven profitability at 25% occupancy on a gross operating profit basis and 40% on a net operating income basis.\nThis is about 500 basis points lower occupancy than our original -- or I should say, our earlier estimates of breakeven occupancy.\nThe average daily rate assumed in this analysis is approximately 20% to 25% decline from 2019 levels.\nIndividual hotels can, of course, vary from the average.\nWe ended the third quarter with $111 million of cash and over $300 million of undrawn capacity on our revolver.\nWe executed a $119 million, 8.25% Series A preferred offering in August and elected to use $50 million of the proceeds to pay down our revolver, which remain available to us, and retain the remaining net proceeds from the offering in cash.\nAt the end of the quarter, we had $605 million of non-recourse mortgage debt at a weighted average interest rate of 4.2% and $500 million of bank debt, comprised of $400 million of unsecured term loans and just under $100 million drawn on our unsecured revolving credit facility.\nAs you've heard me say many times in recent months, our debt composition and maturity schedule is perhaps our balance sheet's greatest strengths.\nIn general, banks are reluctant to commit new capital at this time, and they are keenly focused on: one, curtailing over-reliance on bank debt; and two, addressing 2020 to 2022 maturities without meaningfully impairing existing liquidity.\nNot surprisingly, these factors are the impetus for many travel and leisure companies entering the high-yield bond market, and I expect those conditions will remain a driver for capital markets activity in the industry in 2021.\nFor DiamondRock, bank debt is less than 50% of our net debt and net debt is just 22% of our estimated replacement cost of our hotels.\nWe have just one mortgage maturity in early 2022, which has an extension option.\nMore critically, our revolver matures in 2023 and our term loans mature in 2024.\nEach has extension options, too.\nIn short, we are not seeking new debt capital commitments from our lenders at this time.\nWe believe these facts, in combination with our strong liquidity and declining burn rate, greatly improve the likelihood DiamondRock can avoid the issuance of dilutive capital and pivot to offense at the appropriate time.\nWith that, I will turn the floor back over to Mark.\nIn late August, we announced a sweeping transaction with Marriott International that has several features.\nLet me hit the highlights of that deal.\nMost significantly, we converted five of our managed hotel contracts to franchise agreements.\nThese conversions were completed in September, and we have engaged a variety of leading third-party managers that are uniquely suited to each asset.\nIn addition to the 50 basis point to 100 basis point improvement in residual cap rate for the five hotels that generally [Indecipherable] to franchise properties, we believe the change will produce approximately $2 million of incremental profit on stabilized cash flows.\nWe've already started reaping benefits from the change, as we consolidated finance and management roles in Alpharetta, Denver, Sonoma and Charleston that will yield almost $400,000 of annual savings.\nThe second biggest value creator from the deal is a new franchise agreement to up-brand the Vail Marriott Resort to a Luxury Collection brand upon completion of the renovation next year.\nAs you recall, we had undertaken the renovation of this hotel to a luxury standard over the past few years, and the lobby renovation next year is the final phase.\nWe expect it to be done in late 2021 in time for the ski season.\nConsistent with prior expectations, we estimate this repositioning and sale could result in $3 million of incremental EBITDA, given the significant rate differential that exists today between the resort as a Marriott and the luxury competitive set.\nThe third benefit of the deal is that we have the right, but not the obligation, to convert the JW Marriott Cherry Creek to a Luxury Collection brand with a small renovation.\nWe are currently reviewing the ROI on this opportunity.\nThe final benefit to us is that we secured an explicit right to terminate the Autograph Collection franchise agreement encumbering the Lexington Hotel for a termination fee.\nWe believe that this improves the residual cap rate of the property by greatly expanding the universe of potential buyers.\nIn the aggregate, we calculate that the sweeping agreement adds at least $50 million of net asset value to the DiamondRock portfolio.\nNo cash payment was associated with this agreement.\nInstead, DiamondRock agreed to standard renovation scopes that will be completed over the next three to five years for the converted hotels at cost generally consistent with our normal internal expectations.\nIn addition, we provided franchise extensions at our Westin D.C. and Westin San Diego properties at market terms, ensuring that these hotels will remain dominant hotels in their respective markets.\nThe second announcement we made in late August was the addition of Mike Hartmeier to the Board of Directors, effective October 2020.\nMike is one of the most experienced lodging M&A bankers in the industry, and we believe he will be a valuable, unbiased voice in the boardroom to pursue options that maximize value for shareholders.\nTurning to our outlook, while we saw improvement in the third quarter, we do not expect the industry to significantly rebound until there is a healthcare solution to the pandemic.\nOur current view is that at least one of the 11 vaccines in Phase III trials could announce positive findings in the next 90 days with broad distribution by mid-2021.\nThis, in combination with improved patient outcomes and broader acceptance of safety protocols such as social distancing and wearing masks, should lead to increasing travel activity and improving financial performance.\nOnce profitability is restored, we expect to see a handful of well-capitalized lodging platforms pivot to exploit what could be an extended period of accretive investment opportunities.\nWe have a solid balance sheet to allow us to withstand the substantial downturn and then pivot to offense at the right time.\nWe have great assets, strong industry relationships and an experienced management team that has successfully weathered numerous prior downturns over the prior 30 years.",
        "summary": "q3 adjusted ffo loss per share $0.22.\nis not providing updated guidance at this time."
    },
    {
        "text": "Joining me on the call today are Gene Lee, Darden's Chairman and CEO; Rick Cardinas, President and COO; and Raj Vennam, CFO.\nAny reference to pre-COVID when discussing second quarter performance is a comparison to the second quarter of fiscal 2020.\nThis is because last year's results are not meaningful due to the pandemic's impact on the business and the limited capacity environment that we operated in during the second quarter quarter of fiscal '21.\nWe plan to release fiscal 2022 third quarter earnings on Thursday, March 24 before the market opens followed by a conference call.\nGene will share some brief remarks, Rick will give an update on our operating performance and Raj will provide more detail on our financial results and an update to our fiscal 2022 financial outlook.\nSales trends remained strong throughout the quarter, as all our brands stayed laser focused on creating memorable guest experiences.\nDespite the toughest inflationary environment we've seen in years, we achieved strong profitable sales growth.\nOur ongoing success navigating the pandemic is a testament to the power of our strategy, driven by our back to basics operating philosophy and the strength of our four competitive advantages.\nOur disciplined commitment to our strategies allow us to manage this environment well, while returning significant cash to our shareholders.\nPeople and product will continue to be our focus and Rick will share more details about that in a minute.\nAdditionally, our teams have done a great job managing inflation effectively and Raj will provide more color on that during his remarks.\nHolidays are the busiest time of year for our restaurant teams as they delight our guest and help create lasting holiday memories.\nThis time of year is also a great reminder that being of service is at the heart of our business, which is why we're committed to serving our guests, our team members and our communities.\nOne of the ways we serve our communities is by helping fight hunger, this fiscal year, through our foundation, Darden provided $2.5 million to help our partners at Feeding America add refrigerated trucks for 15 food banks to support mobile pantry programs and distribution in communities facing high rates of food insecurity.\nWe are uniquely positioned to help and by leveraging our scale and relationships with partners like Penske Truck Leasing and Lineage Logistics, we're proud to do our part to help get food into the hands of people who need it.\nFinally, earlier today, we announced that effective May 30th, Rick will succeed me as Chief Executive Officer and will join Darden's Board of Directors.\nThis is the right time for this transition and I look forward to continuing to serve as Darden's Chairman.\nOur company is in a clear position of strength and this is also the right time for me and my family, I'm excited for Rick, who has been a tremendous partner over the last seven years and is one of the best strategic thinkers I've worked alongside.\nOur brands have tremendous opportunity ahead of them and Rick is the perfect person to lead Darden into the next chapter.\nIt is an honor to be appointed Darden's next Chief Executive Officer and I'm grateful to Gene and the Board for their confidence in me.\nIt is humbling to lead 170,000 outstanding team members, who nourish and delight everyone we serve.\nI was incredibly fortunate to work with each of Darden's CEOs.\nSo, I have a strong appreciation for the legacy of leadership I'm inheriting.\nBy upholding our commitments to operational excellence and maximizing the power of the Darden platform, we will continue to execute our strategy to drive growth and shareholder value.\nTurning to the quarter.\nOur restaurants continue to execute at a high level.\nOur focus on simplifying operations to drive execution remains our top priority, which is why we once again paused any new initiatives during the quarter in order to eliminate distractions and allow our operators to focus on running great shifts.\nThis pause also ensures they can zero-in on people and product as we navigate through the current staffing and supply chain challenges.\nFrom a people perspective, we feel good about the progress we've made on the staffing front.\nAcross our brands manager staffing levels are above historical norms and team member staffing levels continue to improve.\nOur new hiring system has made it easier to source talent, giving our management teams more time to focus on successfully onboarding and training new team members.\nWe also continue to invest in our team members further strengthening our industry leading employment proposition.\nEarlier this year, we committed to increasing the minimum hourly earnings for our restaurant team members to $12, which includes income earned through gratuities by January 2023.\nHowever, given the strength of our performance, we are accelerating that timing to January 2022.\nThis primarily impacts entry level roles, such as hosts, busters [Phonetic] and dishwashers.\nAnd with this change, we expect our restaurant team members will earn on average approximately $20 per hour.\nOur people are the key to our performance.\nWe work hard to be the employer of choice in our industry and we're proud that our retention rates for managers and team members are both in the top quartile.\nAnd we will continue to invest in them to retain and attract the best talent in the industry.\nOn the product side, our supply chain team continues to do a great job making sure our restaurants have the products they need to serve our guests.\nOur inventory levels are strong and the team's ability to meet the needs of the business can be seen in the fact that we shipped more cases in the last two quarters than at any time during Darden's history.\nThe ability to maintain supply continuity for our restaurants minimizes distractions and allows our operators to focus on executing at the highest level, whether our guests or in our dining rooms or enjoying the convenience of to-go.\nDuring the quarter to-go sales continued to benefit from the strength of our digital platform.\nThis platform not only makes it easier for our teams to execute, it makes it more convenient for our guests to visit, order, pay and pick up.\nOff-premise sales accounted for 28% of total sales at Olive Garden and 15% of total sales at LongHorn Steakhouse.\nDigital transactions accounted for 60% of all off-premise sales during this quarter and 11% of Darden's total sales.\nFinally, we successfully opened 12 new restaurants during the quarter, including a flagship Yard House in Time Square with minimal staffing challenges.\nThe time to build a new restaurant is longer today than it has been historically and we are also beginning to see longer lead times for kitchen equipment and technology hardware.\nRegardless, we remain on track to open approximately 35 to 40 new restaurants this fiscal year.\nI also want to recognize our team members in our restaurants and our support center for your tireless efforts in creating exceptional experiences for our guests.\nI wish you all a safe and happy holiday season.\nTotal sales for the second quarter were $2.3 billion, 37% higher than last year, driven by 34.4% same restaurant sales growth and the addition of 34 net new restaurants.\nAverage weekly sales grew by more than 7% compared to pre-COVID.\nDiluted net earnings per share from continuing operations were $1.48.\nTotal EBITDA was $335 million, resulting in EBITDA margin of 14.7%.\nThe significant business model improvements we made over the past year and half combined with strong sales resulted in margin growth of 270 basis points compared to pre-COVID.\nWe expect this to be the highest quarterly EBITDA margin growth this fiscal year as this quarter has the most opportunity given its low seasonality.\nWe continue to return significant cash to shareholders paying $143 million in dividends and repurchasing $266 million in shares, totaling over $400 million of cash returned to investors in the quarter.\nAnd while we're happy with our performance, cost pressures continue to exceed our expectations on both commodities and labor with total inflations of 6% this quarter.\nOur teams continue to demonstrate agility in managing through this environment.\nThis quarter we implemented several mitigating actions to preserve the strength of our business model, while balancing the impact of our guests and team members.\nOne of these actions was taking additional pricing.\nFor the second quarter, total pricing was 2% and we expect back half pricing to approach 4%, resulting in total pricing of just under 3% for the full fiscal year.\nWe continue to execute our strategy of pricing significantly below our overall inflation to strengthen our value leadership position by leveraging our scale.\nThis level of pricing covers most of what we consider to be the structural and long lasting impacts of the current inflationary environment and absorbing what we consider to be more short-term fluctuations, while providing future flexibility should there be a need.\nFor the rest of the fiscal year, we expect commodity and labor inflation to peak in our third quarter and then start to slow down as we enter the fourth quarter and lap commodities inflation of 4.3% in the fourth quarter of last year.\nNow turning to our P&L and segment performance for the second quarter.\nWe're comparing against pre-COVID results in the second quarter of 2020 which we believe are more comparable to normal business operations and with how we've been framing our margin expansion opportunity.\nFor the second quarter, food and beverage expenses were 220 basis points higher, driven by elevated commodity inflation of 9%, as well as investments in food quality, portion size and pricing significantly below inflation.\nRestaurant labor was 90 basis points favorable, driven by sales leverage and efficiencies gained from operational simplifications and was partially offset by elevated wage pressures.\nHourly wage inflation during the quarter was almost 9%.\nRestaurant expenses were 130 basis points lower due to sales leverage, which more than offset higher utilities costs.\nMarketing spend was $44 million lower, resulting in 230 basis points of favorability.\nAs a result, restaurant level EBITDA margin for Darden was 18.8%, 230 basis points better than pre-COVID levels.\nG&A expense was 40 basis points lower, driven by savings from the corporate restructuring in fiscal 2021, a decrease in mark-to-market expense and sales leverage.\nTurning to our segment performance.\nSecond quarter sales at Olive Garden increased 5% versus pre-COVID, strong performance, especially as we were wrapping against nine weeks of never-ending possible.\nThis sales growth combined with the business model improvements at Olive Garden helped drive a segment profit margin increase of 320 basis points even while offsetting elevated inflation.\nLongHorn continued its strong sales growth with an increase of 22% versus pre-COVID.\nHowever, inflationary pressures including double digits for commodities were at their highest level in the second quarter, resulting in reduction of segment profit margin by 80 basis points.\nSales at our Fine Dining segment increased 22% versus pre-COVID as this segment continues to see a strong rebound in performance.\nSegment profit margin grew by 140 basis points, driven by strong sales leverage and operational efficiencies, which more than offset double-digit commodities inflation.\nOur other segment grew sales by 7% versus pre-COVID and segment profit margin by 250 basis points.\nThis segment continues to perform well and we're pleased to see the business model transformation persist.\nFinally, turning to our financial outlook for fiscal 2022, we updated our outlook for the full year to reflect our performance year-to-date and our expected performance for the remainder of the year.\nWe now expect total sales of $9.55 billion to $9.7 billion, representing growth of 9% to 11% from pre-COVID levels, same restaurant sales growth of 29% to 31% and 35 to 40 new restaurants.\nCapital spending of approximately $425 million, total inflation of approximately 5.5% with commodities inflation between 7% and 8%, total restaurant labor inflation between 6% and 6.5% which includes hourly wage inflation approaching 9%.\nEBITDA of $1.55 billion to $1.6 billion and annual effective tax rate of approximately 14% and approximately 130 million diluted average shares outstanding for the year.\nAll resulting in diluted net earnings per share between $7.35 and $7.60.\nThis outlook implies EBITDA margin growth versus pre-COVID similar to our previous outlook of 200 to 250 basis points with flow-through from pricing and higher sales helping offset elevated inflation.",
        "summary": "darden restaurants q2 earnings per share $1.48 from continuing operations.\nq2 earnings per share $1.48 from continuing operations .\nsees 2022 total sales of approximately $9.55 to $9.70 billion.\nsees 2022 same-restaurant sales versus.\nfiscal 2021 of 29% to 31%.\nsees 2022 diluted net earnings per share from continuing operations of $7.35 to $7.60.\nqtrly blended same-restaurant sales increase of 34.4%."
    },
    {
        "text": "Joining me on the call today are Gene Lee, Darden's CEO; and Rick Cardenas, CFO.\nWe plan to release fiscal 2021 first quarter earnings on September 24 before the market opens, followed by a conference call.\nIt has been 14 weeks since our last earnings call.\nI don't know about all of you, but it's felt more like 14 months.\nSo much has happened.\nOver the past three months, our businesses -- our business changed in ways we never imagined.\nThen Rick will share some of our fourth quarter and year-end results and provide our outlook for the first quarter.\nWhen I look back on all that has transpired, one thing that stands out is the resiliency of the full-service dining industry.\nPrior to the pandemic, total annual sales for the casual dining industry was approximately $108 billion.\nAnd while I do not know how long it will take the industry to recover from the significant impact it experienced, I am confident that this category will get back to the size it once was.\nOur industry plays a vital role in our communities, and that was evident in how the consumer relied on restaurants over the last several months, even in a To Go only environment.\nAnd while on-premise will continue to play an important role as we recover, we know that the consumer still wants to enjoy and in-restaurant experience.\nIn fact, going out to a restaurant with friends and family is the number one activity consumers say they look forward to doing as the economy opens back up.\nAnd we've seen that as our dining rooms reopen across the country.\nAs this vital industry continues to rebuild, there's tremendous opportunity to increase market share through increased on-premise demand and incremental off-premise sales.\nThose executing at the highest level are going to continue to win, and Darden is well positioned to take advantage of the opportunity.\nWhen we last spoke in March, we knew the pandemic was going to have a significant impact on our business.\nOur ability to manage through this crisis has been driven by our commitment to prioritize guest and team member safety, invest in our team members, provide frequent and transparent communication, leverage our digital platform, and be brilliant with the basics.\nThe health and safety of our guest and team members has always been our top priority, and we have taken a number of steps to create a safe environment in our restaurants.\nFrom sourcing mask and other personal protective equipment for our team members, to developing a contactless curbside pickup process, our brands -- at our brands while dining rooms were closed.\nWe are mindful of the trust our guest and team members place in us.\nToday, our health and safety commitments are focused on team member health checks, personal protective equipment, enhanced sanitation processes, social distancing and frequent hand-washing.\nWe also provide paid sick leave for all our team members so they can stay at home if they are real [Phonetic].\nBut we can't do it alone, and that's why we encourage our guests to join the online wait list or make reservations, not enter our restaurants if they are symptomatic, wear a mask and utilize contactless or mobile payment options where available.\nWe continued to invest in our team members as our dining rooms closed.\nIn addition to rolling out permanent paid sick leave, we introduced a three-week emergency pay program that provided nearly $75 million of pay during the fourth quarter for our hourly team members who could not work.\nWhen emergency pay ended, we covered insurance payments and benefit deductions for hourly team members who were furloughed.\nAs we brought hourly team members back to work to support increased To Go volume, we introduced an additional payment to help cover unexpected costs such as transportation and child care incurred as a result of the pandemic.\nAnd to recognize the unbelievable work our managers did during the quarter, we paid their target bonus for the fourth quarter.\nWe know our people are our greatest competitive advantage.\nNot only were these investments the right thing to do to take care of our team members, they've also created a deeper loyalty and strengthened engagement, while we've seen this pay off as we bring our people back to work.\nCommunication is the most important aspect of leadership during a crisis.\nWe knew frequent and transparent communication with our team members and investors was important.\nBeyond daily meetings with all of our brand Presidents, who in turn met with their operational leaders on a daily basis, we have maintained a consistent communication cadence with our team members.\nSince this crisis began, I've provided regular business updates to our people and had been open and honest about the impacts to our business and consequently the impacts to them.\nWe took the same approach with our shareholders and the analysts by providing four business updates during the quarter.\nThe pandemic accelerate the consumers' desire for convenience, and we saw a significant increase in digital engagement.\nThe work we have done over the past few years, investing in our digital platform to reduce friction, prepared us to quickly adapt to consumer behavior and deliver on their expectations of convenience in a To Go only environment.\nDuring this time, we have strengthened our digital platform and made meaningful progress against our digital strategy.\nIn addition to improving the guest experience across our digital channels, our strategy is focused on using technology to help our guest easily order outside and inside the restaurant, improve the wait to be seated, streamline the order pick-up process and speed up how they pay.\nWe've been building on our digital platform to support increased demand, and we certainly tested like never before.\nDuring the quarter, online ordering at Olive Garden grew by more than 300% over prior year and accounted for 58% of To Go sales.\nAt LongHorn, online ordering grew by 400% and accounted for 49% of the gross sales.\nAdditionally, we accelerated our timeline and rolled out online ordering at our brands that had not yet deployed it.\nWe also added the ability to order alcohol online for all of our brands and markets where that was allowed.\nOur commitment to being brilliant with the basics allowed us to remain focused on operational execution, even as the environment forced us to radically change how we serve our guest.\nEach one of our brands did a phenomenal job delivering a new guest experience by collaborating and sharing best practices.\nThis involved creating contactless curbside pickup that included designing what was essentially a drive-through in our parking lots.\nFlawless [Phonetic] execution in this environment meant enabling our guests to order and pay online and have our team members seamlessly place their sealed orders in their vehicles.\nOur operators displayed tremendous innovation, flexibility and passion as they continued to serve our guests.\nAnd to ensure we consistently executed at the highest level, we took the opportunity to streamline our menus and improve our processes and procedures.\nWith these changes, we are seeing improvements in execution and direct labor productivity.\nSo, what have we learned from all this?\nWe've learned a lot, but most importantly, this situation has reinforced that our strategy that we developed five years ago, grounded in our back to basics operating philosophy, leveraging our four competitive advantages and cultivating a portfolio of iconic brands, is still the right one today.\nStrong brands with loyal guests have fared better, and the trust we have earned from our guest is critical.\nBeing brilliant with the basics by consistently delivering exceptional food, service and atmosphere is imperative.\nHowever, we know how important safety and cleanliness are to our guests right now, and we must continue to earn their trust every day.\nAnd throughout this unprecedented time, we have benefited greatly from our four competitive advantages: our significant scale, our extensive data and insights, our regular strategic planning, and our culture.\nWhether sourcing PPE for our team members, ensuring we're not impacted by supply chain issues or sharing best practices across eight brands, the ability to leverage our scale has allowed us to quickly react to constant change.\nFinally, as I said earlier, we know our people are our greatest competitive advantage, and I'm impressed by how our team members responded and continue to respond to take care of our guests and each other.\nHaving a strong culture has been part of our DNA since we were founded.\nWe were able to keep the majority of our managers employed, and we stay connected with our furloughed hourly team members.\nThis allowed us to bring our people back quickly and get our dining rooms open safely without any delays.\nWe have also brought 60,000 furloughed restaurant team members back to work, and we expect to bring at least another 40,000 back as business continues to improve.\nI'm incredibly proud that our culture has actually strengthened during this most difficult period in our company's history.\nThis, above all else, is what gives me confidence in Darden's future.\nFiscal 2020 was on track for a solid year of performance, and the beginning of Q4 was no different.\nThe first few weeks of sales were strong.\nAnd then, nearly overnight, the impact of COVID-19 required us to pivot toward a To Go only format.\nThis posed unprecedented challenges for our restaurant and support center teams, and I am proud of how everyone moved quickly to increase To Go sales, reduce costs, manage working capital and improve efficiency.\nThe simplifications Gene referenced helped reduce key variable expenses in our restaurants, especially direct labor.\nThe teams also worked to reduce or eliminate other fixed costs in our restaurants and restaurant support center, as well as eliminate non-essential capital spending.\nGiven the significant reduction in cash flow, we also had to work quickly to ensure we had enough cash for whatever might occur.\nDuring the quarter, we suspended the dividend and share repurchases, fully drew down our $750 million credit facility, took out a $270 million term loan and raised over $500 million in a follow-on equity offering.\nAll these efforts and the strong loyalty of our guests resulted in us tripling our prior To Go sales run rate averages and materially reducing our cash burn as we disclosed to you through our periodic business updates.\nGiven the confidence in our cash flow trends and the ability to access it in the future, we fully repaid our credit facility in early May.\nNow turning to the results, the total sales were $1.3 billion, a decrease of 43%.\nSame restaurant sales decreased 47.7%, and adjusted diluted net loss per share was $1.24.\nBecause of the significant reduction in total sales compared to last year, all of the expense lines experienced sales deleverage.\nSo, I'll just touch on a few highlights.\nFirst, food and beverage costs were higher as a percent of sales, given menu mix related to both To Go mix and simplified menus, as well as increased packaging expense and elevated beef costs.\nAs we look at the labor line, there was significant deleverage in management labor, including approximately $25 million in manager bonuses.\nHowever, we saw an improvement in hourly labor as a percent of sales of over 150 basis points, even with a substantial reduction in sales.\nRestaurant expenses per operating week decreased over 20%, given our focus on cost management, even as we incurred over $5 million in incremental cleaning supplies and PPE related to COVID-19.\nFor marketing and G&A expense, we were able to reduce the absolute spend by $37 million and $17 million respectively versus last year.\nIncluded in our restaurant labor and to a small extent G&A is approximately $50 million of investments net of retention credits.\nThis was related to emergency and furlough pay for our team members while they were not working.\nThis negatively impacted our earnings per share by $0.30, which was not adjusted out of reported earnings.\nDuring the quarter, we impaired $390 million of assets as a result of lower sales, reduced profitability and lower market capitalization.\nThe impairments related to $314 million of Cheddar's goodwill and trademark assets, $47 million of restaurant level assets and $29 million of other assets.\nWe permanently closed 11 restaurants in the quarter, six of which were already impaired.\nThe entire $300 million -- $390 million of impairment charges were adjusted out of our reported earnings.\nWe ended the quarter with $763 million in cash and another $750 million available in our credit facility.\nThis gives us over $1.5 billion of liquidity available to weather the crisis and make appropriate investments to grow profitably.\nOur adjusted debt to adjusted capital at the end of the quarter was 61%, well within our debt covenant of 75%.\nAs we shifted to an off-premise only model, we took a disciplined approach to pursue sales opportunities with an eye toward incremental profitability and cash flow, by focusing on cost management and the guest experience, while ensuring our team members were taken care of.\nThis approach resulted in a better finish to Q4 than anticipated and is the underpinning for the strength of our business model that is reflected in our first quarter financial outlook.\nNow, turning to fiscal 2021 performance, in today's release, we provided quarter-to-date same restaurant sales and the performance of our restaurants with dining rooms at least partially open.\nThese results are encouraging.\nWith last week's blended same restaurant sales down 30%, we are operating cash flow positive at these levels.\nOur To Go sales remain elevated in restaurants with dining rooms at least partially reopened.\nOlive Garden To Go sales are approximately double their pre-COVID averages and LongHorn has more than tripled their pre-COVID averages in these restaurants.\nWhile it is our normal practice to provide an annual financial outlook, due to the uncertainty in business performance moving forward, we are only providing an outlook for the first quarter.\nWe expect to achieve approximately 70% of prior year sales levels, total EBITDA of at least $75 million and diluted net earnings per share of greater than or equal to zero on a diluted share base of 131 million shares.\nAt this point, we don't intend to further share intra-quarter business updates since we have provided our first quarter outlook.\nFor the full year, we intend to open between 35 and 40 net new restaurants.\nOur first opening of the year is expected to be in early July with a few others likely to be opened by the end of the first quarter.\nIn total, we expect between $250 million and $350 million of capital spending for fiscal '21.\nTurning to other aspects of capital allocation, as you recall, we suspended our dividend last quarter due to the level of cash flow uncertainty and the need to preserve as much cash as possible.\nWe have been consistent in our commitment to returning cash to shareholders, and our dividend is a big part of that.\nAs soon as we see the business begin to generate the sustainable cash flows to support a dividend and repay our term loan, we will have discussions with our Board on our dividend policy.\nDave will celebrate his 65th birthday later this year, and we've been discussing this transition for some time.\nDave and I have been partners on this journey for 23 years.\nHe was a joint venture partner for LongHorn when I joined [Indecipherable] in 1997.\nI still remember the first time I met him.\nWe were going to visit his restaurants, so he picked me up at the airport in his Volvo with no air conditioning in the North Carolina heat.\nI knew at the end of the day that Dave was a special operator.\nI wasted no time.\nWe bought out his interest in this joint venture and brought him into the Company.\nOver the last 23 years, Dave has been successful in every one of his leadership positions.\nHe has led three of Darden's iconic brands: The Capital Grille, LongHorn Steakhouse and Olive Garden.\nAnd most recently, he served as our Chief Operating Officer.\nHe built great teams and became a mentor to many operators and executives.\nHis can-do approach and attitude permeates throughout Darden and each of our brands today.\nFor many of the last 23 years, Dave and I have had lunched together on Monday to discuss what happened in the previous week and talk about what needed to get done going forward.\nNot much has changed over those 23 years, except today, we order salads instead of two or three entrees each.\nI'll miss seeing him when I walk into the room on these days.\nUnfortunately, because of COVID-19, our conference has been postponed until next year.\nWe will however be inviting Dave to our conference in 2021, and he has committed to come so we can celebrate all he has done for Darden and for many of you.\nAnd as I've said to you repeatedly, your ability to adapt, innovate and collaborate during this time has truly been inspiring.",
        "summary": "q4 sales $1.27 billion versus refinitiv ibes estimate of $1.24 billion.\nq4 adjusted non-gaap loss per share $1.24 excluding items.\ndarden restaurant - expects to open 35-40 net new restaurants and have total capital spending of $250 to $300 million in 2021.\nsees q1 total sales of approximately 70% of prior year sales.\ndarden restaurant - qtrly negative blended same-restaurant sales of 47.7%.\ndarden restaurants - with over $750 million of cash on hand as of june 22 & access to $750 million credit facility, has access to over $1.5 billion of liquidity."
    },
    {
        "text": "I have a lot of positive updates to share with you today.\nI'll be giving you an update on our 2021 performance and an overview of our long-term plan.\nDave will then provide details on our financials.\nSo, let's start on slide 4.\nOn the second quarter call, I said that we were having a strong start to the year.\nAnd with three quarters of 2021 behind us, that description is still on the mark as we continue to deliver for our team, customers, communities and investors.\nThis progress in 2021 positions us well for our future growth.\nDTE continues to be recognized for our engagement by Gallup with our ninth consecutive Great Workplace Award.\nIn addition, we remain committed to our focus on diversity, equity, and inclusion.\nSwitching over to our customers, as you know, our service territory experienced some major storms.\nThis summer, we had 12 storms, with five having over 100,000 outages.\nIt is something we have never seen at DTE's history.\nOur crews worked countless hours to restore power to our customers and for that, I am very grateful.\nWe understand how important it is to provide reliable power and are committed to making continuous improvements as part of our service excellence efforts for our customers now and into the future.\nWe have accelerated our efforts in the most impacted communities, including Wayne, Oakland, and the Washtenaw counties.\nIn an effort to accelerate our preventative maintenance, we are increasing our tree trimming workforce from 1,200 to almost 1,500 people, and our overhead line workforce from 850 to over 1,000 people.\nWe made the decision to invest an additional $70 million in our tree trimming program from 2021 to 2023 as over two-thirds of our outages are tree-related.\nAdditionally, we have been making significant investments and increasing our focus on grid reliability.\nWe are advancing our efforts to get trees off the wires and deliver clean, safe, and reliable energy, all while focusing on service excellence for our customers.\nWe filed the distribution grid plan with the Michigan Public Service Commission in September.\nThe plan addresses the long-term investment strategy that prepares our grid for the eventual electrification of transportation and addresses the increasingly severe weather patterns that we have seen in our service territory.\nMoving on to our communities, we are continuing our commitment to provide cleaner, more reliable energy.\nWe have partnered with Washtenaw County to build our first MIGreenPower community solar project.\nThe 20-megawatt facility will be the largest of its kind in the area.\nOn the investor front, we continue to have a strong financial year and are well-positioned to deliver growth.\nAs you'll see in our 2022 outlook and our five-year plan, we are on track to deliver 5% to 7% earnings per share growth through 2026 and dividend growth in line with our earnings per share growth.\n2021 is shaping up to be a very successful year.\nWe are raising the midpoint of our operating earnings per share guidance from $5.77 to $5.84 per share.\nThis is 14% growth in earnings per share from our original 2020 guidance.\nAnd I feel very confident that you'll see a final 2021 number that is at the higher end of our new operating earnings per share guidance range.\nI am proud that we're able to deliver these results while we continue to keep our electric base rates flat throughout most of 2022.\nWe have not increased our electric base rates since May of 2020, and we don't plan to file our next electric rate case until early next year.\nFor 2022, we are providing an operating earnings per share early outlook range of $5.70 to $5.97 per share.\nEven with the area -- earnings rolling off at the end of this year, we continue to deliver 6% growth from the 2021 original guidance midpoint.\nWe will work toward hitting the higher end of that range as we have done in the past.\nToday, we are also announcing a 7% increase for our 2022 annualized dividend, in line with the top end of our operating earnings per share growth target.\nAs I mentioned on the last quarter call, we retired the River Rouge power plant this year and plan to retire Trenton Channel and the St. Clair power plants in 2022.\nThis is nearly 2,000 megawatts of coal retirements or 30% of our coal generation fleet.\nAnd in this quarter, we made another significant step toward our goal of reducing carbon emissions.\nWe announced that we'll be ceasing coal use at Belle River by 2028, two years earlier than originally planned, and preparing also to file an updated integrated resource plan in the fall of 2022, almost one year earlier than planned.\nWe look forward to working with all stakeholders to address ways to further accelerate decarbonization, while always maintaining affordability and reliability for our customers.\nNow, moving over to non-utility side, we are renaming our Power and Industrial segment to DTE Vantage.\nThrough our unique vantage point, we are helping customers transform the way their energy is produced and manage to be substantially cleaner and more efficient.\nThe name DTE Vantage better reflects our position in bringing an innovative cleaner energy solutions to our customers.\nOver the five-year plan, our utilities continue to focus on our infrastructure investment agenda, especially investments in cleaner generation and investments to improve reliability and the customer experience.\nOur updated five-year utility plan is $18 billion, which is $1 billion higher than the prior plan.\nOver 90% of our five-year investment plan will be at our two utilities.\nInvestments in our non-utility business are strategically focused on our customers' needs and aligns with our aggressive ESG initiatives.\nOverall, we have a robust total investment agenda of $19.5 billion over the next five years.\nAnd as always, we continue to look for ways to bring more capital into the plan to advance our Clean Vision Plan and further improve reliability for our customers while maintaining affordability.\nAt DTE Electric, we announced our plan to accelerate decarbonization by ceasing coal use at the Belle River Power Plant by 2028, reducing carbon emissions by 50% two years earlier than originally planned.\nThis is another step toward our goal of net zero carbon emissions.\nAdditionally, we expect to file our integrated resource plan in the fall of 2022, one year earlier than planned.\nBy making this important generation decision now DTE continues to accelerate our journey toward cleaner energy generation that is affordable and reliable for the customers and communities we serve.\nThe $1 billion increase in our DTE Electric five-year plan is driven by distribution infrastructure investments, preparing our grid for electrification, and hardening initiatives, an increased cleaner energy investment due to our voluntary renewable program, which is still exceeding our high expectations.\nThis quarter, we have partnered with Washtenaw County to build our first MIGreenPower solar project.\nOverall, the MIGreenPower program, which is one of the largest in the nation, continues to grow at an impressive rate.\nSo far, we have reached over 950 megawatts of voluntary renewable commitments with large business customers and over 40,000 residential customers.\nWe have an additional 400 megawatts in advanced stages of discussion with future customers.\nFor our distribution infrastructure renewal, we are supporting electrification and a load growth with infrastructure redesign, improving circuit reliability and reducing restoration times with system hardening and enabling a smarter grid with advanced technology and automation.\nThis $15 billion investment over the next five years supports our long-term operating earnings growth of 7% to 8% at the electric company.\nAnd, now, let's discuss the opportunity at our gas utility on slide 8.\nAt DTE Gas, we are on track to achieve net zero greenhouse gas emissions by 2050.\nEarlier this year we announced our new Natural Gas Balance program.\nThis program provides the opportunity for customers to purchase both carbon offsets and renewable natural gas to enable them to offset up to 100% of the carbon from their natural gas usage.\nWe are proud of how fast this program is growing.\nEarlier we have over 4,000 customers subscribed, and we look forward to seeing it become as successful as our voluntary renewable program at DTE Electric.\nOverall, at DTE Gas, we are planning on investing $3 billion over the next five years to upgrade and replace aging infrastructure with potential upside to the plan of $500 million.\nAlong with our pipeline integrity and main replacement investments, we are investing an innovative technology and products that will reduce methane emissions and the carbon footprint for our company.\nOverall, we expect our long-term operating earnings growth to be 9% at DTE Gas.\nAs I mentioned earlier, we renamed our P&I business to DTE Vantage.\nWe are planning on investing between $1 billion to $1.5 billion at this segment over the next five years.\nWe are targeting operating earnings of $85 million to $95 million in 2022, growing to $160 million to $170 million in 2026 with approximately 80% of the operating earnings in this business coming from decarbonization-related projects.\nAs the REF business sunsets at the end of this year, we continue to see additional opportunities in renewable natural gas and industrial energy services.\nEarlier this year, we told you about a new RNG project in South Dakota, which is now under construction and is slated to start up in the second quarter of next year.\nWe commenced construction on another Wisconsin RNG project in the third quarter and entered into an agreement for an additional RNG project, which will be our first project in New York.\nIn aggregate, these three projects will serve the vehicle fuel market, producing over 500,000 million Btus of RNG per year, with 100% of the production offtake contracted long-term.\nThere has been strong RNG market growth supported by the Federal Renewable Fuel Standard and California's Low-Carbon Fuel Standard.\nWe are uniquely positioned to capitalize on a growing preference for efficient energy, with the opportunity to implement coal generation systems, especially as manufacturing plants continue to open up nationwide.\nThis also puts us in a very good position to explore additional decarbonization opportunities, including carbon capture and storage.\nDave, over to you.\nLet me start on slide 10 to review our third quarter financial results.\nTotal operating earnings for the quarter were $334 million.\nThis translates into a $1.72 per share.\nYou can find a detailed breakdown on our earnings per share by segment including a reconciliation to GAAP reported earnings in the Appendix.\nI'll start the review at the top of the page with our Utilities.\nDTE Electric earnings were $342 million for the quarter.\nThis was lower than the third quarter of 2020 primarily due to cooler weather in 2021 and higher storm cost, partially offset by higher commercial sales.\nMoving on to DTE Gas, operating earnings were $10 million lower than the third quarter last year.\nThe earnings decrease was driven primarily by higher O&M expenses and rate-based growth costs, partially offset by the rate implementation.\nLet's keep moving down the page to DTE Vantage on the third row.\nOperating earnings were $73 million.\nThis is $26 million higher than the third quarter of 2020 driven primarily by REF earnings and new RNG projects.\nOn the next row, you can see energy trading had another solid quarter with operating earnings relatively flat quarter-over-quarter.\nFinally, Corporate & Other was unfavorable $39 million quarter-over-quarter.\nThere are a couple of main drivers for this variance.\nThe largest driver is the timing of taxes, which will reverse in the fourth quarter.\nWe also had a onetime tax item true-up subsequent to the spin of DTE Midstream.\nAs we look forward to the balance of the year, the tax timing adjustments for the first three quarters will result approximately a $50 million favorable reversal in the fourth quarter, so our full-year 2021 results at Corporate & Others is expected to fall within our guidance for that segment.\nOverall, DTE earned $1.72 per share from continuing operations in the third quarter of 2021.\nThis represents a very strong third quarter, and our year-to-date results put us in a great position for the year.\nAs Jerry mentioned, we are raising the midpoint of our 2021 operating earnings per share guidance from $5.77 to $5.84 per share.\nOur revised operating earnings per share guidance range for 2021 is $5.70 to $5.98 per share.\nAnd with strong year-to-date performance, we expect our full-year operating earnings per share to be biased toward the higher end of this range.\nThis bias to the higher end also reflects the additional investment in reliability as we are investing $70 million to combat extreme weather-related power outages with no impact to our customer bills.\nAdditionally, we've contemplated some further investment opportunities in our businesses during 2021, which positions DTE well for success in future years.\nLet's move on to slide 12 to discuss our 2022 outlook.\nWe are continuing strong 5% to 7% long-term operating earnings per share growth through some significant milestones.\nWe are converting $1.3 billion of mandatory equity in '22, and the REF business will sunset at the end of 2021.\nThrough this, we'll achieve 6% growth from 2021 original guidance.\nOur 2022 operating earnings per share early outlook midpoint is $5.84 per share, and we will work toward hitting the higher end of our range of $5.70 to $5.97 per share.\nIn 2022, at DTE Electric Group growth will be driven by distribution and cleaner generation investments.\nDTE Gas will see continued customer-focused investments in main renewable and other infrastructure improvements to support our capital plan.\nAs we discussed, 2021 is the final year of earnings for our reduced emissions fuels business at DTE Vantage.\nApproximately $90 million of REF earnings net of associated costs rolls off at the end of the year.\nThis is offset by new project earnings in 2022.\n2022 earnings at this segment are largely driven by continued RNG and industrial energy services projects that will serve as a base for growth going forward.\nAt Corporate & Other, the biggest driver in our year-over-year improvement is lower interest expense.\nThis is a result of leveraging the earnings and cash strength in 2021 to opportunistically remarket some higher priced debt.\nThis will provide interest savings in 2022 and future years.\nWe continue to focus on maintaining solid balance sheet metrics.\nDue to our strong cash flows, DTE has minimal equity issuances in our plan beyond the convertible equity units in 2022, while also increasing our five-year capital investment plan by $1 billion.\nWe have a strong investment-grade credit rating and target an FFO to debt of 16%.\nAdditionally, we are increasing our 2022 dividend by 7% to $3.54 per share.\nIn the third quarter, we completed our liability management plan following the spin of our Midstream business.\nUsing the funds raised from DTM's debt issuance, we repurchased a little over $2.6 billion of corporate debt and incurred approximately $400 million of debt breakage fees associated with the early retirement of this debt.\nAnd since this debt was allocated to the Midstream Business in our previous financial statements, you won't see a large decrease in the debt level at Corporate & Other.\nThis liability management plan is NPV-positive, EPS-accretive, and further supports our long-term growth.\nSo, in summary, we feel great about our success so far this year and are confident in achieving our increased 2021 guidance.\n2022 is looking good with a 6% earnings per share growth from 2021 original guidance and our increased five-year capital plan supports our 5% to 7% long-term growth, while delivering cleaner generation and increased reliability for our customers.\nDTE continues to be well-positioned to deliver the premium total shareholder returns that our investors have come to expect over the past decade with strong utility growth and a dividend growing in line with EPS.",
        "summary": "compname reports quarterly operating earnings per share of $1.72.\ndte energy qtrly operating earnings per share $1.72.\nrevised its 2021 operating earnings per share guidance range from $5.62 - $5.92 to $5.70 - $5.98.\ncompname says provided a 2022 operating earnings per share early outlook guidance range of $5.70 - $5.97."
    },
    {
        "text": "Joining me on the call is Byron Boston, Chief Executive Officer, and Co-Chief Investment Officer; Smriti Popenoe, President and Co-Chief Investment Officer; and Steve Benedetti, Executive Vice President, Chief Financial Officer, and Chief Operating Officer.\nI'm extremely pleased with our first-quarter results, which Steve and Smriti will review in more detail in a minute.\nOur current total economic return for the quarter was 7.2% on a quarterly basis, and we have generated a total economic return of 34.8% over the last four quarters, averaging 8% per quarter.\nWe achieved this during an unprecedented time in the markets.\nMost importantly, since this new era in history began in January 2020, we have outperformed our industry and other income-oriented vehicles with a 27.1% total shareholder return as noted on Slide five.\nOur performance during the first quarter continues to demonstrate that Dynex has the skills and experience necessary to navigate the current environment.\nThe Dynex team relied heavily on our deep experience in managing the embedded extension risk in a mortgage-backed security, and we use this tactical expertise to take advantage of the environment.\nWe created value during the first quarter in four ways.\nWe've managed the existing portfolio, optimized our capital structure, raised equity, and invested capital to generate an excellent return for the quarter.\nWe have been strategically focused on our investment strategy at capital allocation as well as simplifying and enhancing our capital structure.\nWe have been executing the strategy to grow the company to drive operating leverage and to improve our common stock's liquidity while balancing our equity capital.\nThis quarter was unique in providing us the opportunity to raise $128 million in new common equity and invest that capital accretive.\nWe also called our higher coupon preferred Series B, further optimizing the right side of the balance sheet.\nBoth decisions added to earnings and book value in the first quarter and our view -- and in our view, will strengthen our performance over the long term.\nNow from a macro perspective, we're at a critical inflection point in the global economy as the pandemic evolves in a disparate fashion and the impact of government responses and the vaccine takes hold.\nWe are preparing in our usual disciplined manner for multiple scenarios.\nAnd as we have said before, surprises are still highly probable given the geopolitical backdrop.\nWe firmly believe that we can deliver value to our shareholders across multiple market scenarios, as Smriti will elaborate in her comments.\nThis remains a very favorable return environment with funding costs anchored and the curve steeper.\nWe believe the liquidity and flexibility inherent in our agency-focused strategy are essential for a highly uncertain global environment with many complex and interrelated risks.\nThe first quarter continued the excellent performance for the company.\nFor the quarter, we recorded a comprehensive income of $1.76 per common share, a total economic return of $1.38 per common share or 7.2%, and a core net operating income of $0.46 per common share.\nOverall, total shareholders' capital grew approximately $100 million or 15% during the quarter as we raised $128 million in net common equity through two public offerings, as Byron noted, redeemed $70 million in higher-cost preferred equity and added approximately $36 million in capital from excess economic return over dividends paid.\nThe excess economic return was largely driven by our hedging strategy as we actively managed our position and timed our hedging adjustments as the curve steepened during the quarter, resulting in gains of $166 million, more than offsetting the impact of higher rates in our investment portfolio.\nBook value per common share during the quarter rose $0.99 or 5.2%.\nAbsent the cost of the equity raises, book value grew approximately 7.5% during the quarter.\nCore net operating income to common shareholders sequentially improved this quarter to $0.46 from $0.45 in Q4, principally resulting from lower G&A expenses and the reduction in the preferred stock dividend with the redemption of the remaining $70 million in Series B preferred stock outstanding mid-quarter.\nAverage earning assets marginally increased to $4.3 billion as we opportunistically deployed the capital raise throughout the quarter.\nAt quarter-end, leverage was 6.9 times shareholders' equity, and earning assets were $5.2 billion.\nWith the growth in the investment portfolio and the continued favorable conditions for the TBA dollar roll market, we expect sequential core net operating income growth for the second quarter versus the first quarter.\nAdjusted net interest income was essentially flat as declines in RMBS pool balances were offset by an increase in TBA investments.\nThe adjusted net interest spread was slightly lower at 187 basis points versus 198 basis points last quarter.\nOn the balance sheet, portfolio asset yields and TBA specialness were 12 basis points lower during the quarter, which was partially offset by the benefit from lower borrowing costs, which declined five basis points.\nTBA drop income increased 33% during the quarter as we more heavily invested in TBAs, but at slightly lower net interest spreads as TBA specialness was lower in the quarter.\nTBAs continue to offer superior returns versus repo borrowings.\nAnd today, our expectations are that adjusted net interest spread will be flat to modestly higher for the second quarter depending on prepayment speeds.\nWith respect to prepayment speeds, the increase was well within the expected ranges during the quarter.\nAgency RMBS prepayments speeds were 18.4 CPR for the quarter versus 17.1 CPR for Q4, while overall portfolio CPRs, including the CMBS portfolio, were approximately 14 CPR.\nI will begin with a review of the markets, our performance and then cover our current macroeconomic view and the outlook.\nAnd I'm going to bring your attention to the line at the top of the panel that says 10-year treasuries.\nWe've now completed an incredible round-trip in the 10-year treasury yield.\nAs of December 31, 2019, you can see that was at 1.92%.\nThat yield touched something like 50 basis points in the first quarter of 2020, and we've come all the way back to 1.74% at the end of the first quarter.\nSo it's been an incredible round-trip.\nI just wanted to point that out.\nThe other thing to note here is just the incredible decline in repo rates.\nAgain, on December 31, 2019, repo rates stood at 2%.\nAnd now -- one-month repo rate now is sitting in the mid-teens, 14 basis points.\nSo it's -- the curve is steeper, and it's been quite a ride in the markets.\nFor the quarter, two-year treasury rates were up to four basis points, while ten- and thirty-year rates rose eighty-two and seventy-six basis points, respectively.\nImplied volatility on swaptions broke out of the tight range of sixty to sixty-five where it traded in the second half of last year.\nIt increased to an elevated seventy-five to eighty basis points per day range where it remains today.\nShorter tenors were even more elevated during the quarter, which prompted us to rebalance our hedges.\nAs you can see on this chart, MBS OASs were within a range of about fifteen to twenty basis points with even wider ranges when you include intraday volatility.\nAgency repo rates on the quarter declined seven basis points, and this reflects significant liquidity in the front end, some technical factors that have kept favorable financing costs at record low levels.\nWe had an excellent quarter in which the cost of our two equity raises was more than offset with active management of the balance sheet.\nAs Steve mentioned, book value increased to $1.44 or 7.5% on a gross basis, less $0.45 cost of the capital raises, we get to the net of $0.99 or 5.2% increase reported for the quarter.\nRoughly 65% of the $1.44 or $0.90 of the book value increase was due to the portfolio positioning from the existing portfolio.\nMBS performed very well, and our hedges were positioned appropriately for the most.\nAs we explained on last quarter's call, we came into this quarter with a view that a steeper curve was highly probable given vaccine development and deployment, fiscal stimulus, treasury supply, and inflation dynamics.\nHedging positions in the long end and options reflected this view, and this view largely played out over the quarter.\nThe other 35% of the book value increase came from the timely deployment of capital from the two raises.\nAs we mentioned last quarter, we expected curve volatility to create opportunities to add assets at attractive returns, and we were able to capitalize on the spread widening that accompanied large moves in interest rates.\nWe're ending the quarter with leverage at 6.9 times, up about 0.5 times from year-end.\nIt's important to understand the numbers behind the leverage.\nEarning assets actually ended up quarter-over-quarter, almost $1.1 billion higher, including TBAs.\nThe decline in leverage also includes the fact that book value increased and the equity raise also reduced leverage.\nPeak month-end leverage during the quarter was 7.7 times.\nSo the balance sheet is actually larger, even though the leverage doesn't seem to have been affected as much.\nSo this last quarter, we were active in managing all aspects of our balance sheet, both the left and right-hand side, as Byron mentioned.\nOur options-based hedges on the long end of the yield curve performed very well, and we actually booked gains and rebalanced into more future-based hedges to navigate the coming quarters.\nYou can see that on Page 11.\nIn terms of repo management, our focus on the technicals was essential this quarter to position our book to be more short-term to take advantage of falling repo rates, and we're now locking in much lower rates into the second and third quarters.\nPost-quarter-end, we took some profits on our 30- and 15-year MBS TBA positions.\nWe're expecting to reinvest at wider levels.\nLeverage is about 6.1 times and book value is flat versus quarter-end.\nTurning now to our near-term macroeconomic view and outlook.\nWe expect a range-bound environment to support MBS valuations with the ability to invest during bulks or volatility.\nSpecifically, declining pay-ups on specified pools, historically low repo rates, and unprecedented dollar roll specialness are unique potential opportunities in our focus.\nIn terms of rates in the curve, the front end is still anchored.\nThe Fed has defined itself as being very patient, having an outcome-based response function versus projection-based.\nIn our view, this means preparing for a more volatile set of outcomes in the longer end of the yield curve as the data begins to flow.\nAnd the environment has shifted from rates just moving steeper and higher to more range-bound with possible surprises in both directions.\nWhile we think the market eventually evolved into a steeper curve and higher rates, we think it will chop through some range-bound action in the interim.\nAnd the implications for Dynex, a range-bound environment is really a great environment to earn carry.\nAnd so we spend time on disciplined preparation for more volatility and surprises, we focus on the data, and we believe we'll have chances to add assets at low double-digit returns just as we did last quarter.\nAnd eventually, the steeper curve will lead to a higher return environment and wider net interest spreads.\nIn terms of mortgage spreads and returns, Agency RMBS has been very well supported by both bank demand and Fed demand coming into this quarter.\nWe've also had lower net supply, slower prepayment speeds and now we have slightly higher mortgage rates.\nWe expect strong MBS performance to continue, supported by these technical factors.\nAnd the implication for Dynex is that book values will be supported by this performance.\nAny discussion of the taper or technicals where demand starts to fall away from mortgages, we believe, creates investment opportunity and we're well-positioned to take advantage of that.\nIn terms of prepayments, they remain a driver of returns, particularly in higher coupons and in specified pools.\nThe winter seasonal slowdown that typically comes was actually very modest.\nInterest rates, mortgage rates specifically were lower during the season and the responsiveness of borrowers to low rates now appears to be really strong.\nSo the implication for Dynex here is that our coupon selection and flexibility from moving between TBA and pools will still be a major differentiating factor in creating returns, and we believe, again, provides the opportunity to add assets accretive.\nTurning to specified pools.\nOn-Page 19, we have a pricing matrix that just goes through by coupon, what happened to various types of specified pools over the quarter.\nAnd the first quarter unequivocally was a bad quarter for specified pool pay-ups as interest rates rose.\nYou can see there's been a dramatic decline in pay-ups since year-end, particularly on the higher coupons.\nAnd in our opinion, this offers the opportunity to be very strategic and shift between TBA and pools, which is also supported by low repo rates at this point.\nAnd finally, just a comment on dollar roll specialness.\nWe expect to see continued specialness in the two and 2.5 coupons well into the third quarter.\nAnd the decline in repo rates that we've recently seen has actually made pools more attractive than they were before compared to TBAs.\nAnd so we continue to look at that trade-off and invest selectively in spec pools.\nOver the next few quarters -- last quarter, flexibility and nimbleness were really important, and I think they both remain very key to our success in managing the portfolio.\nAt the current leverage, which I mentioned, we had delivered post-quarter-end and balance sheet size, which is about $1 billion higher versus quarter-end -- versus year-end, we still expect core net operating income to continue to exceed the level of the dividend.\nAnd as Steve mentioned, the second quarter will include some accretive benefits of really good dollar roll levels that we have locked in through June.\nWe are looking ahead in the next few quarters the actual data, the potential for a Fed discussion of tapering, possible technical reduction in demand away from the Fed, so perhaps banks stepping away; and overall volatility in the long end of the yield curve to offer opportunities to add assets.\nWe're also watching carefully the evolution of credit markets, particularly the transition from -- for banks to foreclosure in residential and commercial sectors.\nAnd we think that there might be some opportunity there, but believe that develops closer to the second half of the year.\nIn terms of leverage, I mentioned we'll continue to manage the portfolio composition and size based on the opportunities in the market.\nAt this point, we're estimating, again, another two to three turns of capacity that offers additional total economic return power of anywhere between 1% to 3%.\nAnd just as an example, one turn of leverage invested at 10% economic return is $0.24, which represents a meaningful upside to returns from today.\nFirst, let me finish with a couple of thoughts.\nOur team has always operated with great integrity and unwavering commitment to our values and a focus on supporting our community.\nGiven our fiduciary responsibilities, our highest priorities are to be a reliable steward of capital, transparent in our actions, and good corporate citizens.\nDynex is a strong diverse organization, building on a thirty-year vision to create a multi-generational organization that continues to stand the test of time.\nIn our annual report this year, please take a look, we shared our purpose, core values, and vision.\nWe live and breathe these elements in our daily work and believe this is a distinguishing factor for our company.\nThis is reflected in our long-term industry-leading performance as shown on Slides five and six.\nDynex has the highest three- and five-year returns, along with the best Sharpe ratio among fifteen peers, comprising agency and hybrid mortgage REITs.\nOur management team, our Board of Directors, and I are personally committed to investing alongside our shareholders.\nAs we disclosed in the proxy, together, we are among the top five shareholders on a percentage basis in our common stock.\nLet me leave you with this thought.\nThis continues to be a great environment to generate a strong economic return.\nWe remain optimistic about our future and our prospects for 2021 and beyond.",
        "summary": "q1 non-gaap core operating earnings per share $0.46."
    },
    {
        "text": "Going to Slide 2.\nToday, we have on the call, Drew DeFerrari, our Chief Financial Officer; and Ryan Urness, our General Counsel.\nNow moving to Slide 4 and a review of our third quarter results.\nAs we review our results, please note that in our comments today and in the accompanying slides, we referenced certain non-GAAP measures.\nWe refer you to the quarterly report section of our website for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.\nWe are living in truly unprecedented and trying times for our country.\nI could not be prouder of our employees as they continue to serve our customers with real fortitude in difficult times.\nNow for the quarter, revenue was $810.3 million, a decrease of 8.4%.\nOrganic revenue excluding $8.9 million of storm restoration services in the quarter declined 9.4%.\nAs we deployed 1 gigabit wireline networks, wireless/wireline converged networks and wireless networks, this quarter reflected an increase in demand from one of our top five customers.\nGross margins were 18.7% of revenue, reflecting solid overall performance, offset in part by the continued impacts of the complexity of a large customer program.\nGeneral and administrative expenses were 7.7% reflecting tight cost controls and all of these factors produced adjusted EBITDA of $92.8 million, or 11.5% of revenue and adjusted diluted earnings per share of $1.06 compared to $0.88 in the year ago quarter.\nLiquidity was strong as cash and availability under our credit facility was $587.1 million, this amount represents our highest level of liquidity ever.\nFinally, we made significant progress in reducing net leverage as notional net debt declined $110 million during the quarter to $558.7 million, a reduction of over $467 million in just the last four quarters.\nNow going to Slide 5.\nToday, major industry participants are constructing or upgrading significant wireline networks across broad sections of the country.\nThese wireline networks are generally designed to provision 1 gigabit network speeds to individual consumers and businesses, either directly or wirelessly using 5G technologies.\nAdditional industry participants have recently stated their belief that a single high-capacity fiber network can most cost-effectively deliver services to both consumers and businesses, enabling multiple revenue streams from a single investment.\nThis view appears to be increasing the appetite for fiber deployments and we believe that the industry effort to deploy high capacity fiber networks continues to meaningfully broaden our set of opportunities as we look forward to calendar 2021.\nAccess to high capacity telecommunications has become increasingly crucial to society in the time of the COVID-19 pandemic, especially in rural America.\nThe FCC RDOF auction currently under way reflects the view of some that the needs of work from home, telemedicine, distance learning and other newly essential applications require dramatically increased rural network investment.\nWe are providing program management, planning, engineering and design, aerial, underground and wireless construction and fulfillment services for 1 gigabit deployments.\nThese services are being provided across the country in dozens of metropolitan areas to several customers, including customers with stated aspirations to initiate broad fiber deployments, as well as customers who appear to be contemplating the resumption of broad deployments and with whom current activity is increasing.\nThese deployments include networks consisting entirely of wired network elements as well as converged wireless/wireline multiuse networks.\nPotential fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging societal incentives.\nOur ability to provide integrated planning, engineering and design, procurement and construction and maintenance services is of particular value to several industry participants.\nNear-term macroeconomic effects and uncertainty may influence some customer plans.\nCustomers continue to be focused on the possible macroeconomic effects of the pandemic on their business, with particular focus on small and medium business dislocations and overall consumer confidence and creditworthiness.\nWe see some uncertainty in the overall municipal environment as authorities continue to manage the general effects of the pandemic on permitting and inspection processes, and the impact of potential business limitations due to the recent nationwide increase in COVID-19 infections.\nOverall, we remain confident that our scale and our financial strength position us well to deliver valuable service to our customers.\nMoving to Slide 6.\nDespite the effects of the COVID-19 pandemic on the overall economy, we performed well.\nDuring the quarter, we experienced increased demand from one of our top five customers.\nOrganic revenue decreased 9.4%.\nOur top five customers combined produced 71.6% of revenue, decreasing 15.4% organically, while all other customers increased 11.1% organically.\nVerizon was our largest customer at 17.9% of total revenue or $144.8 million.\nRevenue from Comcast was $143.6 million, or 17.7% of revenue.\nComcast was Dycom's second largest customer and grew 9% organically.\nLumen, formerly known as CenturyLink was our third largest customer at 16.6% of revenue or $134.4 million.\nAT&T was our fourth largest customer at $118.9 million or 14.7% of revenue.\nAnd finally, revenue from Windstream was $38.9 million or 4.8% of revenue.\nWindstream was our fifth largest customer.\nThis is the seventh consecutive quarter where all of our other customers in aggregate, excluding the top five customers have grown organically.\nOf note, fiber construction revenue from electric utilities exceeded $31 million in the quarter, approaching just less than 4% of total revenue.\nWe have extended our geographic reach and expanded our program management and network planning services.\nIn fact, over the last several years, we have meaningfully increased a long-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of 1 gigabit wireline, direct and wireless/wireline converged networks as those deployments dramatically increase the amount of outside plant network that must be extended and maintained.\nNow going to Slide 7.\nBacklog at the end of the third quarter was $5.412 billion versus $6.441 billion at the end of the July 2020 quarter, declining approximately $1 billion.\nOf this backlog, approximately $2.339 billion is expected to be completed in the next 12 months.\nThe decline in backlog largely reflects further communications during this quarter, regarding the reprioritization and rescoping of the components of a large program and our assessment of the expected pace of another component of the same program.\nFor AT&T, we were awarded maintenance service agreements in Indiana, Ohio, Kentucky, Tennessee, Alabama, Georgia and Florida.\nAlso from AT&T allocating services agreement for Georgia for Frontier Engineering and Construction Services project in New York and Rural Fiber Services agreements in Minnesota, Oklahoma, Tennessee and Mississippi.\nHeadcount increased during the quarter to 14,154.\nIn addition, subsequent to the end of the third quarter, we executed contracts that resulted in our booking in excess of $740 million of backlog.\nThese bookings will be incorporated in our fourth quarter calculation.\nGoing to Slide 8.\nContract revenues for Q3 were $810.3 million and organic revenue declined 9.4% for the quarter.\nStorm work performed in Q3 '21 was $8.9 million compared to none in Q3 '20.\nAdjusted EBITDA was $92.8 million, or 11.5% of revenue, reflecting 108 basis point improvement over Q3 '20.\nGross margins were at 18.7% in Q3 and increased 68 basis points from Q3 '20.\nCompared to our expectations for the quarter, gross margins were approximately 100 basis points below the midpoint, this variance reflected impacts from customers whose capital expenditures were weighted toward the front half of the calendar year, including a large customer program, offset in part by improvements across the services performed for several of our top customers.\nG&A expense improved 17 basis points compared to Q3 '20.\nNon-GAAP adjusted earnings per share was $1.06 in Q3 '21, compared to $0.88 in Q3 '20.\nThe increase resulted from higher adjusted EBITDA, lower depreciation and interest expense, and higher other income from asset sales, offset in part by higher income tax expense.\nNow going to Slide 9.\nOur balance sheet and financial position remains solid.\nOver the past four quarters, we have reduced notional net debt by $467.4 million, included in this decline was a $110.1 million reduction in Q3 from solid free cash flow.\nWe ended the quarter with $12 million of cash and equivalents, $85 million of revolver borrowings, $427.5 million of term loans, and $58.3 million principal amount of convertible notes outstanding.\nAs of Q3, our liquidity was strong at $587.1 million.\nCash flows from operations were robust at $111.9 million, bringing our year-to-date operating cash flow to $279.4 million from prudent working capital management.\nThe combined DSOs of accounts receivable and net contract assets was at 127 days, which was in line with Q3 '20.\nCapital expenditures were $3.5 million during Q3, net of disposal proceeds and gross capex was $9.4 million.\nFor the full fiscal year 2021, we expect net capex to range from $45 million to $55 million, which is a $15 million reduction from our prior outlook.\nIn summary, we continue to maintain a strong balance sheet and strong liquidity.\nGoing to Slide 10.\nFor Q4 2021, which includes an additional week of operations due to the company's 52 to 53-week fiscal year, the company expects modestly lower contract revenues with margins that range from in-line to modestly higher as compared to Q4 2020.\nThe company believes the impact of the COVID-19 pandemic on it's operating results, cash flows and financial condition is uncertain, unpredictable and could affect it's ability to achieve these expected financial results.\nMoving to Slide 11.\nWithin a challenged economy, we experienced solid end market activity and capitalized on our significant strengths.\nFirst and foremost, we maintained strong customer presence throughout our markets.\nOur extensive market presence has allowed us to be at the forefront of evolving industry opportunities.\nFiber deployments enabling new wireless technologies are under way in many regions of the country.\nTelephone companies are deploying fiber to the home to enable 1 gigabit high-speed connections.\nCable operators are deploying fiber to small and medium businesses and enterprises.\nA portion of these deployments are in anticipation of the customer sales process.\nDeployments to expand capacity as well as new build opportunities are under way.\nDramatically increased speeds to consumers are being provisioned and consumer data usage is growing, particularly upstream.\nCustomers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance and operations business.\nIn addition, we are increasingly providing integrated planning, engineering and design, procurement and construction and maintenance services for wired and converged wireless/wireline networks.\nAs our nation and industry continue to contend with the COVID-19 pandemic, we remain encouraged that our major customers are committed to multiyear capital spending initiatives.\nWe are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team as we navigate challenging times.",
        "summary": "q3 adjusted non-gaap earnings per share $1.06.\nqtrly contract revenue $810.3 million versus$884.1 million.\ndycom industries - for quarter ending jan 30,2021 expects modestly lower contract revenues with margins that range from in-line to modestly higher."
    },
    {
        "text": "During our call, management may discuss certain items, which are not based entirely on historical facts.\nAnd of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations.\nBrinker's fourth quarter was one of our more profitable quarters in recent history, marking a solid finish to a successful, albeit unusual year.\nUnderpinning our fiscal '21 results is a consistent strategy that differentiates us in the marketplace and an exceptional team that executes every day in our restaurants.\nWe were already growing sales and taking share before the pandemic hit, and we made the decision to lean further into our strategy of providing convenience, value, and a great guest experience by doubling down on third-party delivery and improving our take-out systems.\nIn a year of social distancing, our teams came together safely to lead the industry on traffic and regained positive sales momentum.\nIn a year of closures and shutdowns, we opened our first virtual brand in over 1,000 restaurants by leveraging our technological infrastructure, It's Just Wings surpassed our $150 million target in our company-owned restaurants.\nAnd along with the support of our franchise partners, It's Just Wings became more than $170 million business in the U.S., with many of our international franchisees also now operating the brand.\nIn a year that started with unemployment near record highs, we kept all our management teams employed and paid them solid bonuses.\nWe put a retention plan in place for our strongest team members to encourage them to stay with us as the staffing environment continued to change through the spring and summer.\nIn a year where gatherings and special occasions at Maggiano's were restricted, Steve and the team restructured the value proposition, the takeout proposition, and reengineered the Heart of House.\nThe brand is already delivering much more profitable sales as volumes come back and guests have responded very positively to the changes.\nIn a year, we thought we might have to borrow money more to survive the pandemic, we paid down our debt by over $300 million and we're committed to continuing that trend this year.\nAnd in a year where we worried we wouldn't be able to support our charitable partners at levels we're used to, our team set a record, raising more than $10 million for St. Jude during an exceptionally critical time for their patients and families.\nOur teams have raised nearly $90 million for St. Jude's patients during our partnership.\nIn fact, we've positioned ourselves to invest aggressively to grow this business during fiscal '22 and beyond and to keep our balance sheet strong.\nThe ability to make these kinds of investments starts with owning our restaurants; having the opportunity to leverage our fleet and realize the full potential -- the full profitability of our efforts.\nThe pandemic solidified our commitment to corporate ownership.\nDespite the challenges of owning restaurants like dealing with labor issues and commodity cycles because ownership gives us the scale to effectively manage the issues, it allows us to steward our brands consistently and have control over the investments we make to grow the business.\nThis year, our investments will target more ways to offer convenience, value, and a great guest experience.\nBy doubling our pipeline of new restaurant openings, reimagining to keep our assets strong and vibrant, accelerating our technology advantages, and expanding our portfolio of brands.\nCurrently, we're in the middle of rolling out our second virtual brand, Maggiano's Italian Classics.\nIt's now in over 250 restaurants today and doing very well.\nThis one will be a slower roll for a couple of reasons.\nIt's a little more complex.\nAnd since we're back to fully operational dining rooms, we're being very intentional about the experience for our operators and our guests.\nWe're excited about it.\nWe're getting great guest feedback, and we're anticipating being in restaurants 900 restaurants by the end of the fiscal year.\nWe're also investing in both takeout and delivery by pursuing opportunities to increase visibility and drive awareness of these channels across all four of our brands.\nWe recently implemented technology enhancements to our curbside takeout system, which is already simplifying the operational side of the business and improving guest metrics.\nIt's Just Wings has gone live with a website that offers online ordering for takeout as well as delivery, and we're excited about the growth potential for the brand.\nThese technology investments are helping us do a better job handling the increased mix of off-premise business from pre-pandemic mid-teens to what's now more than 30%, and as well as leveraging the full capacity of our assets with very little incremental capital.\nIt isn't every day you more than double your off-premise business and add a couple of brands to your base.\nIt only happens well with best-in-class systems to enable it and a strong team to execute it.\nOur team is critical to our success, and we take the current staffing environment very seriously.\nWe've executed a full-court press to hire, train and retain our talent.\nWhile the challenges came fast and furious for all of us in March, I'm pleased with the progress we've made.\nThere are still opportunities, but isolated to specific trade areas, and we're confident we'll get these staffing challenges resolved in the near future.\nTo further support our operators, we're rolling out a new service system with handheld devices that we've worked on for three years to perfect.\nIt isn't as easy as some might claim it.\nTo implement a system that operators can execute during high volume that saves labor and still delivers a great guest experience.\nOurs is also putting more money in our team members' pockets, so they're staying with us longer, which is crucial in this environment.\nIt's in more than 250 restaurants now, and we anticipate full implementation by November.\nAnd finally, because we chose not to take price at Chili's during fiscal '21, we have room to take some price this year as consumers return to work and income levels return to normal.\nWe're evaluating how we'll address those opportunities, especially in channels like delivery while all while protecting our industry-leading value proposition.\nWe spent last year learning to run a much more efficient and robust revenue-generating model.\nWe're spending this year and beyond capitalizing on the opportunities for growth that are not just available, but achievable for Brinker.\nThere's nobody who's doing this better than this team, and I'm honored to be part of their story.\nAs Wyman indicated, the fourth quarter was a strong finish to our fiscal-year 2021.\nFor the fourth quarter, Brinker reported total revenues of $1.009 billion, with a consolidated comp sales of 65%.\nIn keeping with our ongoing strategy, the majority of these sales were driven by traffic, up 53% for the quarter, a 10% beat versus the industry on a two-year basis.\nThese sales translated into solid earnings per share with fourth-quarter adjusted earnings of $1.68.\nAt the brand level, Chili's comparable restaurant sales were positive 8.5% versus the fourth quarter of fiscal-year '19, which we believe is the more appropriate comparison for the quarter.\nAdditionally, on an absolute dollar basis, the fourth quarter was Chili's largest sales quarter on record, topping $900 million in total revenue.\nMaggiano's, while down 18% compared to fourth quarter of fiscal '19, made very solid progress with its recovery curve and built positive momentum to carry into the current fiscal year.\nMoving down the P&L.\nOur fourth-quarter restaurant operating margin was 16.9%.\nAdjusting this performance for the impact of the 53rd week, the resulting 16% operating margin still represents a material year-over-year improvement and more importantly was a 110-basis-point margin improvement versus the pre-COVID fourth quarter of fiscal '19.\nFood and beverage expense for the fourth quarter as a percent of company sales was 20 basis points unfavorable as compared to prior year.\nThis variance was driven -- primarily driven by increased commodity costs, particularly for chicken and pork products.\nLabor expense for the quarter, again, as a percent of company sales was favorable 240 basis points versus prior year, primarily driven by the extra week sales leverage versus fixed labor expenses and the slower reopening pace in a couple of high wage states such as California.\nDuring the quarter, our managers focused considerable efforts toward staffing our restaurants to support the solid demand for our brands.\nScale clearly matters in this area, as they were effectively supported by our experienced HR teams who help deploy hiring tools and events to assist in the process.\nGiven the more challenging hiring environment, the dynamic of hiring, training, and retaining team members resulted in an increase in labor inflation in the mid-single-digit range, a dynamic we expect to continue in the near term.\nTo reward our operator's strong performance throughout the fiscal year, we also chose to further invest in our hourly team members and managers through a variety of incremental bonus structures, totaling approximately $4 million for the quarter beyond our normal payout formulas.\nThis incremental investment impacted quarterly earnings per share by approximately $0.06 and increased labor expense margin by roughly 40 basis points, well worth the benefits it will accrue.\nRestaurant expense was 830 basis points favorable year over year as we fully leveraged many of our fixed costs, particularly from the benefit of the additional week in the quarter.\nThe continued positive operating performance did result in a meaningful increase in our quarterly tax rate, 15% for the quarter, which includes a catch-up adjustment to increase the annual income tax accrual.\nThis increase negatively impacted fourth-quarter earnings per share approximately $0.06.\nOur operating cash flow for the fourth quarter and fiscal year remained strong with $101 million and $370 million for those time frames, respectively.\nEBITDA for the quarter totaled $144 million, bringing the fiscal-year EBITDA total to $368 million.\nDuring the fourth quarter, we continued to use a significant portion of our cash flow to further reduce revolver borrowings.\nBy year-end, our revolver balance was reduced to $171 million.\nThis decreased our total funded debt leverage to 2.5 times and our lease-adjusted leverage to 3.6 times at year end.\nSpeaking of the revolver, we have reached agreement on terms and conditions for a new revolving credit facility with our bank group.\nThe new $800 million five-year revolver includes improved pricing allows the return of restricted payments and provides ample liquidity and flexibility to support our growth strategies.\nOur board of directors has also reinstated the share repurchase authorization that was suspended in the early days of the pandemic with an authorization amount of $300 million.\nNow turning to our outlook for fiscal-year '22.\nAt this point, with the volatility and unknowns of the current operating environment, we can only share some high-level thoughts for certain annual metrics.\nFor example, we expect commodity and labor inflation percentages each in the mid-single digits with commodity inflation toward the lower end of the range.\nCapex of $155 million to $165 million, an annual effective tax rate of 14% to 15%, and weighted annual share count of 45 million to 47 million shares.\nAs we now move ahead with fiscal 2022, the reality of the pandemic with all its uncertainties is still part of our everyday operations.\nThat being said, all now four of our brands are well prepared and positioned to perform in whatever environment they face throughout the year.\nWe are very proud of their efforts during the past fiscal year and are confident of the experiences, the growth, and the strength of their business models will continue to deliver quality results as we move forward from here.",
        "summary": "qtrly net income per diluted share, excluding special items, increased to $1.68.\nsees fy 2022 commodity and labor inflation to be in mid-single digits."
    },
    {
        "text": "Today's call is being recorded.\nAn archive of the recording will be available later today in the IR Calendar section of the News & Events tab at our IR website, www.\nThese materials are labeled Q3 2021 Earnings Conference Call.\nCertain risk factors that may impact our business are set forth in our filings with the SEC, including our 2020 Form 10-K and subsequent filings.\nAlso, we'll be referring to certain non-GAAP financial measures, including adjusted earnings per share attributable to Equifax, and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance.\nWe had a very strong third quarter and first nine months of 2021, a continuation of our strong outperformance last year with record revenue in the quarter of $1.223 billion, which was up over 14% with core non-mortgage market and non-UC ERC claims revenue growth of 20%.\nWe are executing extremely well against the critical priorities of our EFX2023 strategy, as we highlighted on Slide 4.\nOur focus on leveraging the new Equifax cloud for innovation, new products and growth is clearly driving our strong financial results.\nOur revenue growth has accelerated from 3% in 2019 as we were recovering from the 2017 cyber event and investing heavily in our EFX cloud transformation to 17% last year.\nWe are on track to deliver 19% core growth this year at the midpoint of our revised 2021 guidance.\nMore importantly, our core growth, which excludes the impact of the mortgage market, unemployment claims and ERC-related revenues is expected to accelerate to 21% this year, a powerful figure that reflects the strength of our underlying business model and EFX2023 growth strategy.\nNot only is our core growth accelerating above historical levels during 2021 in challenging COVID markets and more recently, in a declining mortgage market, we are also expanding EFX beyond our traditional credit deal routes to a more diverse data analytics and technology company with our investments in the Equifax cloud, new data assets and NPIs, along with reinvesting our outperformance in bolt-on M&A in areas such as talent, government and ID and fraud.\nWe are quickly pivoting from building the Equifax cloud to leveraging it for innovation, new products that will position the new Equifax for stronger and more diversified growth in the future.\nOur EFX2023 growth strategy remains our compass for the future and drives all of our top and bottom line growth initiatives, as we move toward 2022 and beyond.\nTurning to Slide 5, Equifax had a very strong quarter.\nRevenue at $1.22 billion was up 14.5% with organic constant currency growth of a strong 12%.\nThe almost 15% topline growth was off a strong 19% growth last year in a much stronger mortgage market.\nThis was our seventh consecutive quarter of double-digit revenue growth.\nMore importantly, our core growth was up a strong 20%.\nOur U.S. B2B businesses of Workforce Solutions and USIS, which together represent almost 75% of Equifax revenue, again drove our growth, delivering 17% revenue growth despite the 21% decline in the U.S. mortgage market in the quarter.\nNon-mortgage revenue was up over 30%.\nAnd organic non-mortgage revenue was up 24%, strengthening sequentially from the 16% and 20% we saw in the first two quarters of the year.\nThird quarter Equifax adjusted EBITDA totaled $404 million, up slightly from third quarter last year with margins of 33%.\nAs expected, margins were down versus 2020 due to the inclusion of cloud technology transformation costs of $45 million in our adjusted results in the quarter, which were excluded last year.\nAnd redundant cloud transformation systems cost of $15 million.\nThese costs related to cloud tech transformation negatively impacted EBITDA margins by almost 500 basis points.\nAdjusted earnings per share of $1.85 a share was down slightly from last year.\nAdjusting for the cloud transformation costs of $45 million or $0.27 a share, adjusted earnings per share would have been up a strong 11%.\nWe continue to make significant progress executing the EFX cloud data and technology transformation.\nIn the quarter, we completed 4,000 B2B customer migrations, for a total of 15,400 migrations completed so far this year.\nIn September alone, USIS completed over 900 customer migrations.\nSince the beginning of the transformation, we've completed almost 97,000 B2B migrations, 3.5 million consumer migrations, and 1 million data contributor migrations.\nWe remain on track and confident in our plan.\nWe continue to expect the North American transformation to be principally complete in early 2022, with the remaining customer migrations broadly completing by the end of next year.\nInternational transformation will follow, being principally completed by the end of 2023, with some customer migrations continuing into 2024.\nWe're still in the early days of leveraging the cloud, but remain confident that will differentiate us commercially, expand our NPI capabilities, accelerate our topline and expand our margins and the growth in cost savings in 2022 and beyond.\nOur NPI performance also continues to accelerate.\nIn the quarter, we released 30 new products and we still expect our Vitality Index to accelerate from 5% last year to over 8% in 2021.\nGiven our very strong third quarter performance, we are increasing our full year revenue guidance by approximately 320 basis points or $131 million, at the midpoint of a range between $4.9 billion to $4.921 billion, up 19% from last year, and increasing our full year adjusted earnings per share guidance by $0.22 per share to a midpoint of $7.57 per share, which adjusting for technology transformation cost implies a 23% growth in EPS.\nRoughly two-thirds of the 320 basis point increase in our revenue growth framework to 19% is from organic business performance, with the balance from the acquisition of Appriss, Health e(fx) and Teletrack, which we expect to add about $45 million to revenue in the fourth quarter.\nIn the third quarter, Equifax core revenue growth, the green sections of the bars on Slide 6, grew a very strong 20%, a third consecutive quarter of core growth at or above 20%.\nNon-mortgage growth in EWS and USIS and growth in International drove about 900 basis points to core revenue growth, excluding acquisitions and FX, with mortgage outperformance primarily in Workforce Solutions driving about 800 basis points of organic core growth in the quarter.\nAs we move through '22 and '23, we expect to continue to see strong and balanced core growth, reflecting the benefits of the new EFX Cloud, accelerated NPIs, continued strong non-mortgage growth, both from organic growth and acquisitions, as well as continued strong outperformance from Workforce Solutions.\nTurning to Slide 7, Workforce Solutions had another exceptional quarter, delivering revenue of $508 million, which was up 35%.\nThis is the first quarter Workforce Solutions has delivered over $0.5 billion of revenue in a single quarter, a big milestone.\nThis was against a very strong 57% growth last year.\nAdjusted EBITDA margins were up -- were 54%.\nNon-mortgage revenue at Workforce Solutions was up over 48% with organic non-mortgage revenue up 41%.\nThe strength of Workforce Solutions and uniqueness of their twin income and employment data set was clear again in the third quarter.\nWorkforce's Verification Services revenue of $403 million was up a strong 34%.\nVerification Services mortgage revenue grew 22% in the quarter despite the 21% decline in the mortgage market with the EWS outperformance driven by increased records, penetration and new products.\nImportantly, Verification Services non-mortgage revenue was up 55% in the quarter, consistent with the very strong growth we saw last quarter.\nOur government vertical, which provides solutions to federal and state governments in support of assistance programs, including food and rental support, grew over 20% in the quarter.\nGovernment remains one of our largest non-mortgage segments with attractive growth potential in the future and represents about one-third of non-mortgage verification revenue.\nOur new SSA contract went live this quarter at relatively low start-up volumes, and we expect to see it ramp as we move through 2022.\nWe expect new products, the addition of Appriss and expanded federal and state social services to fuel growth in our government vertical in the future.\nTalent Solutions, which provides income employment verifications as well as other information for the hiring and onboarding processes through our EWS data hub, had another outstanding quarter from customer expansion and NPIs growing over 100%.\nTalent Solutions now represents almost 30% of non-mortgage verification revenue.\nAs you know, over 75 million people change jobs in the U.S. annually with the vast majority having some level of screening as a part of the hiring process.\nThe addition of Appriss Insights and our new partnership with the National Student Clearinghouse will fuel growth and new products in this important vertical.\nThe non-mortgage consumer lending business, principally in banking and auto, showed strong growth as well of about 90% in the quarter, both from deepening penetration with lenders and from some recovery in these markets, although auto has been impacted by inventory shortages.\nEmployer Services revenue of $105 million was up $30 million in the quarter.\nThis is an important growth engine for Workforce Solutions that also delivers records.\nCombined, our unemployment claims and employee retention credit businesses had revenue of about $65 million, up about $14 million from last year.\nEmployer Services non-UC and ERC businesses had revenue of about $40 million, up 60%, with organic growth of about 35%.\nOur I-9, business driven by our new I-9 Anywhere product continue to show very strong growth, up about 80%.\nOur, I-9 business is now almost half of Employer Services non-UC and ERC revenue.\nReflecting the growth in I-9 and the return to growth of Workforce Analytics, we expect Employer Services non-UC and ERC businesses, to deliver total growth of about 40% and organic growth of about 25% in the year.\nReflecting the uniqueness between data, strong verify our revenue and operating leverage resulted an adjusted Workforce Solutions EBITDA margins of 54.3%.\nThe decline versus last year is driven -- protect, driven by investments in the tech transformation, as well as redundant systems cost, and as well as significant investments in Data Onboarding, Sales and Marketing to continue to drive Workforce Solutions growth.\nRudy Floater and the Workforce Solutions team delivered another outstanding quarter and are positioned to deliver a very strong 2021, 2022 and beyond.\nTurning now to USIS, their revenue of $380 million was up slightly from last year.\nTotal USIS mortgage revenue of $148 million was down 17%, while mortgage credit inquiries were down 21%, slightly better than the down 23% we expected in July.\nUSIS out-performance versus the overall market was driven by growth in marketing and debt monitoring products.\nImportantly, non-mortgage revenue of $240 million grew almost 8% -- sorry, 16% with organic growth of over 9%.\nYear-to-date, non-mortgage revenue was up a strong 17%, and organic non-mortgage revenue growth is over 10%.\nBanking, insurance, commercial and direct-to-consumer, were all up over 10% in the quarter.\nFraud was up almost 10% organically and up over 75% in total with the inclusion of our Kount acquisition.\nAuto was up mid-single digits, despite supply pressures and telco was down just over 5%.\nFinancial Marketing Services revenue, which is broadly speaking our off-line or batch business, was $55 million in the quarter and up about 20%.\nThe strong performance was driven by marketing-related which was up over 20%, and ID and fraud revenue, which grew over 15%.\nIn 2021, marketing-related revenue is expected to represent about 40% of FMS revenue, identity and fraud above 20% and risk decisioning about 35%.\nThe USIS sales team delivered record wins up over 20% versus last year and 40% sequentially in the quarter.\nThe new deal pipeline in USIS remains very strong.\nDuring the quarter, USIS acquired Teletrack, a U.S. leader in alternative credit data.\nTeletrack is being consolidated with DataX, our specialty finance credit reporting agency that we acquired in 2018, to expand our capabilities in the fast-growing alternative data space, serving unbanked and underbanked U.S. consumers.\nThe USIS adjusted EBITDA margins were 40% in the quarter, flat sequentially with second quarter.\nSimilar to second quarter, the decline in margins in the quarter versus last year was due to both costs related to cloud transformation, which include the cost of redundant systems and inclusion of our adjusted results of the technology transformation costs which are being excluded in 2020 and the expansion of our investments in sales and marketing, as well as new products to leverage both the strengthening U.S. market and accelerate new product introductions to drive revenue growth in '22 and beyond.\nThe revenue of $245 million was up 10% on a local currency basis and up 100 basis points sequentially.\nThis was the fourth consecutive quarter of growth in our global markets following the COVID pandemic impacts.\nAsia Pacific, which is principally our Australia business, performed well in the quarter with revenue of $89 million, up about 7% in local currency.\nAustralia delivered this growth despite the extended COVID lockdowns in many portions of that country.\nAustralia consumer revenue continued to recover, up 3% versus last year and about flat sequentially.\nOur Commercial businesses combined online and off-line revenue was up 8% in the quarter.\nFraud and identity was up 13%, following 22% growth in the first half.\nEuropean revenues of $68 million were up 9% in local currency in the quarter and flat sequentially.\nOur European credit reporting business was up about 5% with continued growth in both the U.K. and Spain.\nOur European debt management business revenue increased by about 21% in local currency, off the lows we saw last year during the COVID recession.\nCanada delivered revenue of $44 million in the quarter, up over 8% in local currency despite a weakening Canadian mortgage market that was down 15%.\nCanada experienced strong growth in fintech while supply issues continue to impact our auto business.\nLatin American revenues of $45 million grew 16% in the quarter in local currency, which was the third consecutive quarter of growth coming out of COVID.\nWe continue to see the benefit in LatAm of the strong new product introductions introduced over the past three years.\nInternational adjusted EBITDA margins at 26.7% were down slightly from 27.3% in the second quarter.\nThe sequential decline was driven by incremental technology costs in Australia and Canada, as they accelerate their cloud transformation programs.\nThe decline in the quarter was principally due to costs related to the cloud transformation, both the cost of redundant systems and inclusion in our adjusted results of the technology transformation costs, which we excluded last year.\nMargins were negatively impacted the quarter by -- also negatively impacted the quarter by our increased investments in sales and marketing and new products.\nGlobal Consumer Solutions revenue of $82 million was down 6% on a reported basis, and 7% on a local currency basis in the quarter, slightly above our expectations.\nWe saw growth of about 2% in our Global Consumer Direct business, which sells directly to consumers through equifax.com and represents a little over half of GCS revenue.\nThe decline in GCS revenue in the quarter was again driven by our U.S. lead gen partner business.\nWe expect the GCS partner business and GCS business overall to return to growth in the fourth quarter.\nGCS adjusted EBITDA margins of 23.4% were up sequentially, reflecting lower operating costs.\nThe decline versus last year was principally driven by revenue declines.\nTurning now to Slide 8.\nWorkforce Solutions continues to power Equifax as clearly our strongest, fastest-growing and most valuable business with strong 35% growth in the quarter, up 57% growth a year ago.\nCore revenue growth was 42%, driven by the uniqueness of the twin income and employment data, scale of the twin database and consistent execution by Rudy and his team.\nEWS's ability to consistently and substantially outgrow their underlying markets is driven by three factors.\nFirst, growing the work number database.\nAt the end of the third quarter, TWN reached 125 million active records, an increase of 12% or 13 million records from a year ago and included 97 million unique records.\nAt 97 million uniques, we now have over 60% of non-farm payroll, which makes our TWN data set more valuable to our customers, with higher hit rates.\nWe are now receiving records every pay period from 1.9 million companies up from 1 million when we started the year and 27,000 contributors a short two years ago.\nThe exclusive agreement with a major payroll processor that we announced on our February call went live in the third quarter and contributed to this growth.\nOur strong momentum continues, as we signed another large payroll processor last week on an exclusive basis that will come online in the coming months.\nWe also expect to add further payroll processors in the coming months.\nAs a reminder, almost 60% of our records are contributed directly by employers to which EWS provides comprehensive Employer Services like UC claims, W-2 Management, I-9, WOTC, ERC, HSA and other HR and Compliance Solutions.\nOur acquisitions of HIREtech, i2verify and Health e(fx) this year strengthened our ability to deliver these unique HR services, particularly through relationships with payroll processors and HR software companies.\nThese partnerships have been built, up over the past decade by the Workforce Solutions team.\nThe remaining 40% of our records are contributed through partnerships with payroll providers and HR software companies, most of which are exclusive.\nWe still have substantial room to grow our income and employment database.\nAnd expect to continue to add new data contributors, as well as reach agreements with several additional payroll processors in the fourth quarter, to add their records on an exclusive basis to TWN in 2022.\nBeyond the over 50 million non-farm payroll records not yet in the TWN database, we're focused on data records from the 40 million to 50 million gig workers and around 30 million pension recipients in the U.S. marketplace to further broaden the TWN database.\nWe have plenty of room to grow TWN.\nWorkforce Solutions' new product pipeline is rapidly expanding as our teams leverage the power of our new Equifax cloud capabilities.\nAnd third, by increasing our penetration in the markets we serve and expanding into new markets.\nFor example, we continue to increase our penetration in the mortgage market.\nAt the end of 2020, Workforce Solutions received an inquiry in almost 60% of completed mortgages, up from 55% in 2019.\nThis 500 basis point increase is a big step forward, but we still have plenty of runways to expand the customers using TWN mortgage.\nWe're also seeing substantial growth in TWN in other credit markets, including card and auto as these verticals take advantage of the unique lift from TWN income and employment data in the 16% hit rates with our database.\nGrowing system-to-system integrations is another key lever in driving both increased penetration and increasing the number of pulls per transaction.\nDuring the quarter, about 75% of TWN mortgage transactions were fulfilled system-to-system, up over 2x from 32% in 2019.\nAnd again, we still have plenty of growth potential here.\nWorkforce Solutions is performing exceptionally well with attractive above market and above Equifax growth rates and margins that we expect to continue in the future.\nSlide 9 highlights the core growth performance of our U.S. B2B mortgage businesses, Workforce Solutions and USIS.\nOur combined U.S. B2B businesses delivered 3% revenue growth in mortgage in the third quarter, outperforming the mortgage market by 24 basis points with the market down 21%.\nThis strong performance -- outperformance was again driven by Workforce Solutions with core mortgage growth of 43%, enabled by the multiple drivers that I just discussed.\nSlide 10 provides an update on new product innovation, leveraging the Equifax cloud and our differentiated data, a key driver of our current and future growth.\nIn the quarter, we delivered 30 new products with 150 new products in the market so far this year, which is up 18% from the 96 we delivered in the same time frame last year.\nWe continue to expect our 2021 Vitality Index defined as a percent of revenue delivered from NPIs launched in the past three years to be over 8%.\nIn the third quarter, we launched significant new products.\nWe expect to continue to drive growth in '22 and beyond.\nThe SSA Payroll Exchange that went live as EWS product that supports verifications of SSI and SSDI social services delivering critical income and employment status based on program requirements.\nOne View with DataX is a new integrated consumer credit report that redefines how we deliver display and provide insights to our customers.\nIt also sets the stage for integrating nontraditional credit data in a single view solution for our customers.\nAlternative data from DataX, Teletrack, NC+, rental payments and other sources are a critical priority for Equifax, and we expect to continue to drive NPIs in this space in the future.\nDigital Identity Trust 2.0 product provides businesses with a comprehensive passive identity verification services that delivers a trust/do not trust recommendation across both physical and digital identity vectors.\nThis product will leverage Kount data by year-end.\nMarketMix Premier Solution enables the ability for FIs to access market share and size of liquidity across geographics.\nThis provides quick identification of targeted growth markets to deploy spend across branch sales and marketing efforts.\nAnd lastly, the new Equifax Affordability product in Australia uses bank transaction data and sophisticated categorization to provide an Affordability view to customers, while removing friction for the consumer.\nWe're clearly focused on leveraging our new Equifax cloud capabilities to drive our NPI rollouts and new product revenue in '21 and beyond.\nGrowing NPI is central to our EFX2023 growth strategy.\nAs detailed on Slide 11 and 2021, we reinvest our strong outperformance in strategic and accretive bolt-on acquisitions that strengthen our position in existing growth markets and allow us to enter new markets with new capabilities.\nOur 2021 acquisitions add $300 million plus synergies to our run rate revenue.\nWe are focused on executing acquisitions that are accretive to our long-term revenue growth and margins and deliver attractive shareholder returns.\nOur priorities for M&A are clear and aligned around, number one, expanding our differentiated data, which is at the core Equifax.\nWe have scale and unique data sets that we want to expand and leverage with new data elements to drive enhanced decisioning for our customers.\nAll of our acquisitions deliver new and differentiated data, and more data drive better decisions.\nSecond, expanding and widening our largest and fastest-growing business, Workforce Solutions, is a priority for our M&A.\nThe Appriss Insights, HIREtech, Health e(fx) and IQ Verify acquisitions strengthen Workforce and position EWS for future outperformance.\nAnd last, broadening our ID and fraud capabilities in the fast-growing digital and e-commerce space is another M&A priority.\nKount strongly advanced our capabilities in this fast-growing space.\nWe closed the Appriss acquisition on October 1st and are focused on integration, new solutions and growth.\nAppriss Insights and our new partnership with the National Student Clearinghouse are a big step forward in our strategy to build out an, EWS data hub centered off our almost 500 million historical TWN data records, to address the fast-growing talent and government markets.\nAs detailed on Slide 12, combining our scale TWN data with Appriss Insights criminal and healthcare credentialing and sections data, along with other partner data assets, including the exclusive partnership for college and university data, we entered into in the third quarter with the National Student Clearinghouse, allows Workforce Solutions to deliver the most complete, realtime 360-degree view of the prospective employee or applicant, for government benefits available in the market.\nThe Talent Solutions and Government verticals offer large and growing markets for our Workforce Solutions business through the EWS Data Hub.\nWorkforce Solutions government vertical is focused on delivering data and solutions to support federal and state benefit programs as well as law enforcement agencies.\nThis is a substantial and growing sector that we estimate to have an addressable market of about $2 billion.\nAppriss Insights strongly accelerates our ability to penetrate these large and fast growing TWNs.\nInsights is anticipated to generate 150 million of run rate revenue during 2021 and to grow on a stand-alone basis at over 15% annually.\nWe also anticipate building toward approximately $75 million in revenue synergies by 2025, leveraging the EFX Cloud to integrate Appriss Insight's rich people-based risk intelligence data in the AWS data hub to form a new multi-data solutions and through cross-selling efforts.\nAcquiring Appriss Insights and partnering with the National Student Clearinghouse provide strong pillars for Workforce Solutions growth and fast-growing markets going forward.\nSlide 13 highlights our focus on adding alternative data to our database focused on the 60 million un or underbanked population in the United States.\nAccording to our Federal Reserve study, 6% of U.S. adults do not have a checking, savings or money market account, although two-fifth use some form of alternative financial service.\nMoreover, 16% of adults have a bank account, but also use an alternative financial service product generally, at much higher costs.\nProviding services that help bring these underserved populations into the financial mainstream is core to our purpose of helping people live their financial best.\nAnd is an important priority for our customers.\nOur acquisition of Teletrack in September, which we are combining with our DataX business, creates a leading U.S. specialty consumer reporting agency with data on more than 80 million, in file unbanked and underbanked and credit rebuilding consumers.\nOur national consumer telecom and utilities exchange partnership is another unique data set focused on this space that has more than 420 million records and 250 million consumers, helping our customers to expand underwriting to no hit or thin file customers.\nWe are focused on expanding our unique alternative data from sources, including specialty finance companies, alternative lenders, telco companies, cable and satellite TV providers, municipalities and utilities to drive growth in the fast-growing alternative data markets.\nAnd we'll continue to look for opportunities to strengthen our alternative databases through partnerships and M&A.\nAs Mark discussed, our 3Q results were very strong and much stronger than we discussed with you in July, with revenue about $50 million higher than the midpoint of the expectation we shared.\nFor perspective, the strength was driven by our U.S. B2B businesses, principally Workforce Solutions and also USIS.\nWorkforce Solutions Verification Services was stronger than discussed in July, principally in non-mortgage and talent solutions, card and auto, as well as to a lesser extent in mortgage.\nWorkforce Solutions employee retention credit and unemployment claims revenue was stronger than we discussed in July.\nWe expect the strength in ERC to continue in the fourth quarter.\nUSIS was also somewhat stronger than we discussed in July.\nThe strength in mortgage relative to our discussion in July was partially a reflection of the mortgage market being down 21% versus the down 23% we discussed in July.\nWorkforce Solutions' outperformance relative to the mortgage market was also stronger than we expected.\nThis strong revenue drove upside in adjusted earnings per share relative to the expectations that we shared in July.\nBefore discussing our increased guidance for 2021 and providing a framework for you to consider for 2022, let's briefly discuss our assumptions for the U.S. mortgage market.\nAs shown on Slide 14, we are expecting the 21% year-to-year decline in U.S. mortgage credit inquiries that we saw in the third quarter to continue in the fourth quarter with the fourth quarter down about 20%.\nThis results in 2021 U.S. mortgage market credit inquiries being down just over 7% from 2020, slightly better than the down somewhat under 8% we discussed with you in July.\nFor 2022, based on trends we are seeing in new purchase and refinance that I will discuss shortly, our 2022 framework assumes the U.S. mortgage market as measured by total credit market inquiries will decline about 15% from 2021.\nThe 15% decline versus 2021 is most substantial in the first half of 2022, given the significant slowing we have seen in the U.S. mortgage market already in the second half of '21.\nOur assumed level of 2022 U.S. mortgage market credit inquiries remains over 10% above the average levels we saw over the 2015 to '19 period.\nThe left side of Slide 15 provides perspective on the number of homes that would benefit by 75 basis points or more from refinancing their mortgage at current rates.\nDespite the substantial refinancing activity that's occurred over the past year and current increases in US treasuries, the number of U.S. mortgages that could benefit from a refinancing remains at a relatively strong level of about 12 million.\nHome prices have appreciated significantly over the past 18 months, which has provided many homeowners with cash up refinancing opportunities, which in past cycles has led to increased refinancing activity from borrowers.\nFor perspective, based upon our most recent data in April, mortgage refinancings remain at just under 1 million a month.\nAs shown on the right side of Slide 15, the pace of existing home purchases continues at historically very high levels.\nThis strong new purchase market is expected to continue throughout '21 and '22.\nOur 2022 assumption for our U.S. mortgage credit inquiries assumes that we see purchase mortgage financings at levels above the levels we saw in 2020, with refinancings declining significantly from the levels we saw in both 2020 and 2021.\nSlide 16 provides our guidance for 4Q '21.\nWe expect revenue in the range of $1.23 billion to $1.25 billion, reflecting revenue growth of about 10% to 11.8%, including a 0.1% benefit from FX.\nAcquisitions are expected to positively impact revenue by 5.4%.\nWe're expecting adjusted earnings per share in 4Q 2021 to be $1.72 to $1.82 per share compared to 4Q 2020 adjusted earnings per share of $2 per share.\nIn 4Q 2021, technology transformation costs are expected to be around $45 million or $0.27 per share.\nExcluding these costs, which were excluded from 4Q 2020 adjusted EPS, 4Q 2021 adjusted earnings per share would be $1.99 to $2.09 per share.\nSlide 17 provides the specifics on our 2021 full year guidance.\nWe are increasing guidance substantially, reflecting our very strong 3Q 2021 performance.\nThe acquisitions of Appriss, Health e(fx) and Teletrack are expected to add about $45 million of revenue in the quarter.\n2021 revenue of between $4.901 billion and $4.921 billion reflects growth of about 18.7% to 19.2% versus 2020, including a 1.4% benefit from FX.\nAcquisitions are expected to positively impact revenue by about 3.1%.\nAWS is expected to deliver over 38% revenue growth with continued very strong growth in Verification Services.\nUSIS revenue is expected to be up mid-to-high-single digits, driven by growth in non-mortgage.\nCombined, EWS and USIS mortgage revenue is expected to be up over 18% in 2021, about 25 percentage points stronger than the overall market decline of just over 7%.\nInternational revenue is expected to deliver constant currency growth of about 10%.\nAnd GCS revenue is expected to be down mid-single digits in 2021.\nGCS revenue is expected to be up over 5% in the fourth quarter.\nAs a reminder, in 2021, Equifax is including all cloud technology transformation costs and adjusted operating income, adjusted EBITDA and adjusted EPS.\nThese onetime costs were excluded from adjusted operating income, adjusted EBITDA and adjusted earnings per share in 2017 through 2020.\nIn 2021, Equifax expects to incur onetime cloud technology transformation costs of approximately $165 million, a reduction of over 50% from the $358 million incurred in 2020.\nThe inclusion in 2021 of these onetime costs would reduce adjusted earnings per share by about $1.01 per share.\n2021 adjusted earnings per share of $7.52 to $7.62 per share, which includes these tech transformation costs, is up 7.8% to 9.3% from 2020.\nExcluding the impact of tech transformation cost of $1.01 per share, adjusted earnings per share in 2021 would show growth of about 22% to 24% versus 2020.\n2021 is also negatively impacted by redundant system costs of about $80 million relative to 2020.\nThese redundant system costs are expected to negatively impact adjusted earnings per share by approximately $0.50 per share.\nAnd negatively impact adjusted earnings per share growth by about seven percentage points in 2021.\nWe remain confident in our cloud transformation plan and the savings in 2022 and beyond that we have discussed previously with you.\nNow let's turn to a discussion of an early framework for 2022.\nSlide 18 provides the macro assumptions behind our 2022 framework.\nGiven the continued significant uncertainties in the overall U.S. and global economy, as well as in the U.S. mortgage market, we wanted to provide you with the assumptions we've been using at this stage in developing our framework for 2022.\nAs I discussed previously, we expect the U.S. mortgage market, our proxy for which is U.S. mortgage credit inquiries, to decline about 15% in 2022 relative to 2021.\nEquifax's U.S. B2B mortgage revenue is expected to continue to significantly outperform the overall mortgage market and show growth in 2022 relative to 2021.\nOur overall framework is based on a continued U.S. economic recovery that is 2022 GDP growth of about 4% for the full year.\nWe expect our USIS and Workforce Solutions non-mortgage businesses to outperform their underlying markets.\nWe expect Workforce Solutions' UC and ERC businesses to decline by almost 30% in 2022.\nWe also expect that International economies will continue to recover in 2022.\nOur International businesses are also expected to outperform their underlying markets.\nSlide 19 provides a view of Equifax total and core revenue growth from 2017 through 2022 -- through the 2022 framework.\nIn 4Q 2021, Equifax core revenue growth is expected to be a strong 17% with core organic revenue growth of about 12%.\nAlmost two-thirds of that core organic growth is driven by non-mortgage growth across all four BUs.\nIn 2022, based on the assumptions I just shared, Equifax total revenue is expected to be up about 8%.\nWe anticipate delivering strong core revenue growth of 14%, reflecting organic growth of 11% -- organic core growth of 11% and a 3% benefit from acquisitions completed in 2021, which will more than offset the significant headwinds from the assumed declines in the U.S. mortgage market and the UC and ERC businesses.\nSlide 20 provides a revenue walk detailing the drivers of the 8% revenue growth in 2022 from the midpoint of our 2021 revenue guidance to the midpoint of our 2022 revenue framework, 2022 revenue of $5.3 billion.\nThe 15% decline in the U.S. mortgage market and the expected declines in the Workforce Solutions unemployment claims and ERC businesses are expected to negatively impact revenue in 2022 by 5.75 percentage points.\nCore organic revenue growth is anticipated to be over 11%.\nNon-mortgage core organic growth is expected to drive about two-thirds of the growth.\nThe largest contributor is Workforce Solutions with strong organic growth in talent solutions, government and employee boarding solutions, including I-9.\nUSIS non-mortgage International and GCS are also expected to drive core growth.\nMortgage revenue outperformance relative to the overall mortgage market is expected to drive the remaining about one-third of the organic core growth.\nThis is driven by strong outperformance in Workforce Solutions.\nThe acquisitions completed in 2021 are expected to contribute about three percentage points of growth to 2022.\nSlide 21 provides an adjusted earnings per share walk, detailing the drivers of the expected 14% growth from the midpoint of the 2021 guidance of $7.57 per share to the midpoint of our 2022 framework of $8.65 per share.\nRevenue growth of 8% at our 2021 EBITDA margins of about 33.8% would deliver 11% growth in adjusted EPS.\nIn 2022, we expect to deliver EBITDA margin expansion of about 200 basis points.\nThis margin expansion is expected to drive 9% growth in adjusted EPS.\nThis margin expansion is expected to be delivered by the actions we have discussed with you throughout 2021.\nOur transformation investments will be reduced by about $100 million in 2022 with about half of this reduction or about $50 million being reinvested in new product and other development.\nWe will begin to see net cloud cost savings in 2022 defined as the savings from improving production costs driven by the decommissioning of our legacy on-prem systems and other improvements in our operations exceeding the cost of running our new cloud-native systems.\nMargins will also be enhanced by leverage on corporate and G&A.\nPartly offsetting these benefits to EBITDA are cost increases, particularly in salaries and contracted services as the tight labor market drives cost higher, as well as lower EBITDA margins in 2022 from the 2021 acquisitions as we will just be ramping synergies during 2022.\nDepreciation and amortization is expected to increase by about $45 million in 2022, which will negatively impact adjusted earnings per share by about 4%.\nD&A is increasing in 2022 as we accelerate putting cloud-native systems into production.\nThe combined increase in interest expense and tax expense in 2022 is expected to negatively impact adjusted earnings per share by about two percentage points.\nThe increase in interest expense reflects the increased debt from our 2021 acquisitions.\nOur estimated tax rate used in this framework of 24.5%, does not assume any changes in the U.S. federal tax rate.\nShould that occur, we will let you know the estimated impact on our 2022 results.\nAs there remains significant uncertainty in underlying market drivers, including the pace of normalization of the U.S. mortgage market and the pace of economic growth worldwide, what we provided today for 2022 is a framework for you to consider.\nWe hope this early view of our framework for 2022 is helpful and reinforces the power of the new Equifax to deliver 14% growth and 8% total growth at the midpoint of our range of thinking, assuming the mortgage market and UC and ERC declines impact our revenue growth by almost 6%, in 2022.\nStepping back and reviewing the macro trends outlined on Slide 22, these macros have been driving information services for the last decade.\nOver the last 24 months, we believe most of the macro factors have substantially accelerated.\nAnd through our 2021 acquisitions of Appriss, Kount and Teletrack and our EFX cloud investments, advantage Equifax to benefit from these macro trends.\nWe believe we also have unique levers at Equifax to deliver strong future growth, including Workforce Solutions above market and EFX growth and margins and our expanded focus on new data assets like Appriss Insights, the USIS recovery and non-mortgage growth and Kount ID and fraud growth.\nThe new Equifax Cloud, which is driving our competitiveness NPIs topline and cost savings; and NPI leveraging Equifax cloud and our expanded resources and focus on new products and then, of course, M&A to broaden strength in Equifax.\nThese attractive market macros along with broad Equifax growth levers and our strong core outperformance in the past few years, give us the confidence in our ability to deliver above-market growth in the future.\nWrapping up on Slide 23, Equifax delivered another strong and broad-based quarter.\nWe had strong momentum as we move into the fourth quarter to 2022.\nWe now delivered seven consecutive quarters of strong, above-market, double-digit growth, reflecting the power of the new Equifax business model and our execution against our EFX2023 strategic priorities.\nEquifax is on offense.\nWe remain confident in our outlook for 2021 and raised our full year midpoint revenue growth rate by approximately 300 basis points to 19% growth for the year.\nAnd we also raised our midpoint earnings per share by $0.22 to $7.57 per year.\nWorkforce Solutions had another outstanding quarter, following our results, delivering 35% revenue growth and 54% EBITDA margins.\nEWS is our largest, fastest-growing and most valuable business, and Rudy and his team remain focused on delivering outsized growth.\nUSIS also delivered a strong quarter with 16% non-mortgage growth and 9% organic non-mortgage growth offsetting the impact of sharp over 20% decline in the mortgage market, Sid saying his USIS team remains competitive and are winning in the marketplace.\nInternational grew for the fourth consecutive quarter with 10% growth in local currency as economies reopen and business activity resumes outside the United States.\nWe have high expectations for International as we move into 2022.\nWe spent the past three years building the Equifax Cloud and are now in the early days of leveraging the new and uniquely Equifax Cloud capabilities.\nAs we move into '22 and beyond, we will increasingly realize the topline cost and cash benefits from these new only Equifax Cloud capabilities.\nAs I mentioned earlier, our 2021 M&A has added $300 million of run rate revenue to Equifax.\nReinvesting our strong cash flow in accretive and strategic bolt-on M&A is central to our EFX2023 growth strategy.\nWe're now focused on integrating these acquisitions and executing our synergy and growth plans in order to leverage our new data products and capabilities.\nOur early look at a 2022 financial framework calls for 8% revenue growth and adjusted earnings per share growth of 14%, assuming a 15% decline in the mortgage market.\nMore importantly, the framework includes strong 14% EFX growth -- core EFX growth.\n2022 will be a pivotal year for Equifax as we shift toward leveraging the Equifax Cloud for innovation, new products and growth.\nAnd lastly, turning to Slide 24, many of you have been closely following Equifax for many years and know we've been speaking to you about for some time about our plan to have our first Investor Day, which will be our first Investor Day since 2012 and the cyber event.\nIt's been a long time.\nI'm energized to announce that our Investor Day will take place on November 10 at 8:30 AM Eastern Time and will be held virtually.\nWe've opened up online registration as of today, and the link to do so on Slide 24 is live.\nWe are very excited to have the opportunity to update you on the progress we have made in making and executing our EFX2023 growth strategy, share with you our long-term financial framework and also our capital allocation plan, speak with you about how we are and will continue to leverage our FX cloud capabilities, including by continuing to accelerate our new product innovations; and provide you with overviews of the state of affairs of our business units related by their respective leaders.\nInvestor Day will be an important day for our company and stakeholders, and we look forward to speaking with you then.",
        "summary": "q3 adjusted earnings per share $1.85.\nq3 revenue of $1.2 billion, up 14%.\nincreasing full-year revenue and earnings per share guidance.\nadjusted earnings per share attributable to equifax was $1.85 in q3 of 2021, down 3 percent compared to q3 of 2020.\nraising our full-year financial guidance, reflecting revenue to a range of $4.901 billion to $4.921 billion.\nraising our full-year financial guidance, reflecting adjusted earnings per share to a range of $7.52 to $7.62."
    },
    {
        "text": "As always, we appreciate your interest.\nBrent Wood, our CFO, is also participating on the call.\nWe refer to certain of these risk factors in our SEC filings.\nWe hope everyone and their families are well.\nThey continued performing at a high level amid a challenging unique work environment.\nOur fourth quarter and full year results were strong and demonstrate the resiliency of our portfolio and of the industrial market.\nSome of the results the team produced include Funds From Operation, came in above guidance up 8.7% compared to fourth quarter last year.\nThis marks 31 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend.\nAnd for the year, FFO rose 8% to a record $5.38.\nThis represents an $0.08 per share improvement over our original pre-COVID forecast.\nOur quarterly occupancy averaged 96.9% and at quarter end, we were ahead of projections at 98% leased and 97.3% occupied.\nOur occupancy is benefiting from a healthy market, with accelerating e-commerce and last mile delivery trends.\nAlso benefiting the occupancy was a high retention rate of 80% for the year.\nQuarterly releasing spreads were strong at 15.4% GAAP, and 7.9% cash.\nOur 2020 releasing spreads set an annual record at 21.7% GAAP and 12.3% cash.\nThis further marks six consecutive years of double-digit rent -- GAAP rent growth.\nFinally, same-store NOI rose 2.2% for the quarter and 3.2% for the year.\nIn summary, during the prolonged, choppy environment, I'm proud of our team's results.\nToday, we're responding to strengthen the market and demand for industrial product by both users and investors by focusing on value creation via development and value-add investments.\nI'm grateful we ended the year at 98% leased, our highest quarter end on record.\nHouston, our largest market at 97.2% leased, with a ten-month average rent collection of over 99%.\nFurther, Houston represents 13.1% of rents down 80 basis points from fourth quarter 2019 and is further projected to fall into the 12% as a percent of our NOI this year.\nCompanywide rent collections remain resilient.\nFor January thus far, we've collected approximately 99% of monthly rents.\nThere are still some unknowns about how fast and when the economy truly reopens and recovers.\nBrent will speak to our budget assumptions, but I'm pleased that in spite of the uncertainty, we finished 2020 at $5.38 per share in FFO and forecast $5.68 for 2021.\nAs we've stated before, our development starts were pulled by market demand.\nThus, we halted starts for a few quarters last year, then [Indecipherable] again in fourth quarter.\nBased on the market strength, we're seeing today, our forecast is for $205 million in development starts for 2021.\nAnd to position us following the pandemic, we acquired several new sites during the fourth quarter with more on our pipeline along with value-added additions.\nMore details to follow as we close on each of these investments.\nAnd to perhaps free [Phonetic] up the question, none of the development starts, value add investments or land purchases are in Houston.\nFinally, our strategic dispositions during the quarter were to sell the last of our four buildings in Santa Barbara completing our market exit along with another Houston asset.\nBrent will now review a variety of financial topics including our 2021 guidance.\nOur fourth quarter results reflect the resiliency of our team and strong overall performance of our portfolio amid a very challenging year.\nFFO per share for the fourth quarter exceeded our guidance range at $1.38 per share, and compared to fourth quarter 2019 of $1.27 represented an increase of 8.7%.\nThe outperformance continues to be driven by our operating portfolio performing better than anticipated, namely higher occupancy.\nFrom a capital perspective, during the fourth quarter, we issued $17 million of equity at an average price just over $140 per share, and as previously disclosed, we closed on two senior unsecured private placement notes totaling $175 million with a weighted average interest rate of 2.65%.\nThat activity, combined with our already strong and conservative balance sheet has kept us in a position of financial strength and flexibility.\nOur debt to total market capitalization is 19%, debt to EBITDA ratio is 5.2 times and our interest and fixed charge coverage ratio increased over 7.2 times.\nOur rent collections have been equally strong.\nWe have collected 99.6% of our fourth quarter revenue and we have already collected half of the total rent deferred early in the year of $1.7 million.\nBad debt for the fourth quarter of $1.1 million included a single, straight-line rent charge of $677,000 as part of an ongoing process of replacing an existing tenant with a better credit tenant at a much higher rental rate at a California property.\nAlthough the tenant was current on their cash rent, we were required to write off the remaining straight-line rent balance due to the probability of terminating their lease early to accommodate the new tenant.\nAs we have consistently stated, the depth and duration of the pandemic and its impact on the economy is indeterminable.\nHowever, the degree of potential tenant financial stress and loss of occupancy we had budgeted throughout 2020 never materialized.\nAs a result, our actual FFO per share for the year of $5.38 exceeded our pre-pandemic guidance issued a year ago.\nLooking forward, FFO guidance for the first quarter of 2021 is estimated to be in the range of $1.37 per share to $1.41 per share and $5.63 to $5.73 for the year.\nThe 2021 FFO per share midpoint represents a 5.6% increase over 2020.\nThe leasing assumptions that comprise 2021 guidance produced an average occupancy midpoint of 96.4% for the year and a cash [Phonetic] same property increase range of 3.5% to 4.5%.\nOther notable assumptions for 2021 guidance include $65 million in acquisitions and $60 million in dispositions, $140 million in common stock issuances, $250 million of unsecured debt, which will be offset by $85 million in debt repayment and $1.8 million in bad debt, which represents a forecasted year-over-year bad debt decrease of 35%.\nIn summary, we were very pleased with our fourth quarter results.\nWe will continue to rely on our financial strength, the experience of our team, and the quality and location of our portfolio to carry our momentum into 2021.\nNow, Marshall will make some final comments.\nIn closing, I'm proud of our 2020 results and excited to pursue our 2021 opportunities.\nOur Company and our team are working well through the pandemic, as evidenced by a number of Company records set.\nAnd as the economy stabilizes, it's the future that makes me most excited for EastGroup.\nOur strategy has worked well in the past few years.\nComing out of this pandemic, we foresee an acceleration in a number of positive trends for our properties and within our markets.\nMeanwhile, our bread and butter, traditional tenants remain and will continue needing last mile distribution space in fast growing sunbelt markets.\nThese, along with the mix of our team, our operating strategy and our markets has us optimistic about our future.\nLeland recently passed away, and we will miss his eternal optimism.\nAnd with that, we'll open up the floor for any questions.",
        "summary": "compname reports q4 ffo per share $1.38.\nq4 ffo per share $1.38.\nestimated ffo per share attributable to common stockholders for 2021 is estimated to be in the range of $5.63 to $5.73."
    },
    {
        "text": "Also on the call are other members of the management team.\nMaterials supporting today's call are available at www.\nActual results could differ materially from current expectations.\nImportant factors that could cause different results are set forth in our SEC filings.\nPlease read these carefully.\nDuring the question-and-answer session, please limit yourself to one question and one follow-up.\nAnd before I start commenting on the quarter, I wanted to note the senior leadership changes that we announced last week, Kevin Payne, SCE's President and CEO, plans to retire on December 1, and this is after 35 years with the company.\nKevin's had a profound impact at the utility, most particularly with its customer-centric focus, leading our wildfire risk mitigation efforts and advocating for and advancing the company's clean energy strategy.\nWhile I am going to miss my good friend very much, I am delighted with our deep bench: Steve Powell will succeed Kevin as President and CEO; and Jill Anderson, currently Senior Vice President of Customer Service, will succeed Steve as EVP of Operations.\nPromoting Edison talent will ensure a seamless transition, and I believe that Steve and Jill both bring exceptional experience to their new roles.\nI know that a number of you have already met Steve and Jill and many of you will have an opportunity to meet them next week at EEI's Financial Conference as well.\nTurning to the quarter.\nToday, Edison International reported core earnings per share of $1.69 compared to $1.67 a year ago.\nThis comparison is not meaningful because during the quarter, SCE recorded a true-up for the final decision in track one of its 2021 general rate case, which is retroactive to January 1.\nReflecting the year-to-date performance and our outlook for the remainder of the year, we are narrowing our 2021 earnings per share guidance range to $4.42 to $4.52.\nWe are also reiterating our longer-term earnings per share growth target of 5% to 7% through 2025.\nMaria will discuss our financial performance in detail in her report.\nNow starting with past events.\nSCE today announced two updates related to the 2017 and 2018 wildfire and mudslide events.\nPage three in the slide deck provides an overall summary.\nFirst, SCE revised the best estimate of potential losses to $7.5 billion from $6.2 billion.\nAs we have mentioned in our continuing communications on this topic, we evaluate the best estimate quarterly.\nAs part of the ongoing and very complex litigation process, we diligently consider new information that arises to provide all of you with our best estimate.\nBased on additional information across a broad set of claim types collected during the quarter, along with an agreement with the CPUC Safety and Enforcement Division, or SED, which I'll talk about in a minute, SCE revised its estimate of the total potential losses.\nWhile the total estimate increased this quarter, SCE continued to make meaningful progress, settling claims and completed approximately $485 million of settlements.\nSCE has now settled about 70% of the estimated exposure for the 2017 and 2018 events.\nI want to emphasize that we do not need equity above our previously disclosed 2021 financing plan to fund the higher estimated losses.\nMaria will address this topic later on the call.\nSecond, the utility reached an agreement with the SED to resolve its investigations into the 2017 and 2018 wildfire and mudslide events and three other 2017 wildfires.\nAs we have previously disclosed, the SCD has conducted investigations to assess SCE's compliance with applicable rules and regulations in areas affected by the Thomas, Koenigstein, and Woolsey Fires.\nIt was possible that CPUC would initiate formal enforcement proceedings to pursue fines and penalties for alleged violations though we were unable to estimate the magnitude or the timing as part of our best estimate.\nThe recently executed agreement, which is subject to CPUC approval, would resolve that uncertainty.\nThe agreement has a total value of $550 million, composed of about $110 million fine, $65 million of shareholder-funded safety measures and an agreement by SCE to waive its right to seek cost recovery for $375 million of uninsured claims payments out of the $5.2 billion total in the current best estimate.\nIn the SCD agreement, SCE did not admit imprudence, negligence or liability with respect to the 2017 and 2018 wildfire and mudslide events and will seek rate recovery of prudently incurred actual losses in excess of available insurance other than for the $375 million waived under the SED agreement.\nWhile SCE disputes a number of the alleged violations reaching an agreement puts one additional uncertainty behind us.\nLet me now address the Southern California wildfire season.\nSCE continues to make solid progress on the execution of its Wildfire Mitigation Plan or WMP and its PSPS action plan.\nSCE has installed over 1,000 miles of covered conductor year-to-date, bringing the total to 2,500 miles since program inception.\nOver the past three years, the utility has replaced about 25% of its overhead distribution power lines in high fire risk areas with covered conductor.\nSCE has also performed another annual cycle of inspections in high fire risk areas, supplemented with additional inspections targeting dry fuel areas.\nThis resulted in approximately 195,000 assets, undergoing 360-degree inspections in SCE's high-power risk area.\nSCE also continues to be on track to meet most of its goals outlined in our WMP by end of the year.\nAnd the scorecard is shown on page four of the slide deck.\nAll these ongoing mitigation actions continue to strengthen our confidence in our utilities overall improved risk profile with respect to wildfires.\nTurning to page five.\nWe highlight the metrics we showed you last quarter, which are proof points of how SCE believes it has reduced wildfire risk for its customers.\nWe have added an additional metric.\nLooking back at past wildfire events and considering the utility's current PSPS protocols, we can't quantify the damage that would have been prevented.\nUsing red flag warning days as a proxy for when the utility would use PSPS today, SCE would have prevented over 90% of the structures damaged or destroyed for fires larger than 1,000 acres associated with its infrastructure.\nAnd we have summarized this on page six.\nIn total, considering physical mitigation measures such as covered conductor, operational practices such as tree removals, inspections and vegetation management and the use of PSPS.\nSCE estimates that it has reduced the probability of losses from catastrophic wildfires by 55% to 65% relative to pre-2018 levels.\nThis is based on a recent analysis using risk management solutions, industry-leading wildfire model and SCE's data related to actual mitigations deployed and mitigation effectiveness, which enabled us to quantify the risk reduction.\nWhile the risk can never be fully eliminated, the utility does expect to further reduce risk and to decrease the need for PSPS to achieve this risk reduction with continued grid-hardening investments.\nAs California continues to transition to a clean energy economy, maintaining and even improving system reliability becomes essential, particularly with greater reliance on electricity.\nSCE worked closely with the Governor's office, CAISO, the CPUC, customers and many stakeholders to avoid rolling outages this past summer when the state and the entire West once again faced record temperatures.\nMajor California energy agencies, including the CAISO, California Energy Commission and CPUC have indicated that additional capacity is needed to support summer 2020 -- summer 2022, pardon me, under extreme conditions like the heat, drought and wildfires we have seen repeatedly over the past several years.\nTo accelerate construction of new capacity, the governor issued an emergency proclamation that requested the CPUC to work with load-serving entities to accelerate construction of energy storage for 2021 and 2022.\nTo this end, in addition to securing over 230 megawatts of additional capacity from third parties, SCE plans to construct about 535 megawatts of utility-owned storage for this upcoming summer.\nThis is a material increase in incremental capacity to mitigate the risk of statewide customer outages for summer 2022, caused by extreme weather events and continued drought conditions.\nWhile the governor signed the largest climate package in state history, which included 24 bills and over $15 billion in climate, clean energy and wildfire preparedness funding, there is still an ongoing need for a lot more to be done.\nSo I would like to highlight a paper that we recently released and it's entitled \"Mind the Gap: Policies for California's Countdown to 2030\".\nThis policy paper is Edison International's latest contribution to identify policies and actions needed to help California reduce emissions and decarbonize the economy.\nIn the paper, we identified state and federal policy recommendations needed for California to meet its 2030 climate target, which is a foundational way point for the state to achieve its goal to the decarbonize its economy by 2045.\nWhile California has made progress in reducing GHG emissions, closing the gap between the current trajectory and its 2030 goal requires a significant acceleration of effort.\nIt means quadrupling the average 1% annual reduction in GHG emissions achieved by the state since 2006, quadrupling that to 4.1% per year between 2021 and 2030.\nThat's a tall order, but it's feasible.\nIt will require market transforming policies and incentives to advance critical areas, such as decarbonizing the power supply, preparing the grid for shifts in usage and increasing demands and electrifying transportation and buildings.\nAs the only all electric investor-owned utility in California, SCE is well positioned to lead this transition.\nWe will continue to work in close partnership with policymakers and stakeholders to identify ways to improve funding, planning, standard setting and other approaches to successfully achieve the equitable and affordable transition to a clean energy economy.\nTo emphasize affordability, our analysis shows that an electric led transition is the most affordable pathway.\nSince the greater efficiency of electric motors and appliances will reduce customers' total costs across all energy commodities by 1/3 by 2045.\nEdison International is committed to achieving net 0 GHG emissions across Scopes one, two and three by 2045.\nAnd this covers the power SCE delivers to customers as well as Edison International's enterprisewide operations, including supply chain.\nThis all continues our alignment with the broad policies needed to address climate change and ensure a resilient grid.\nWe will also continue to engage with state, national and global leaders to advance the clean energy transition, which is why today, I am joining you by phone from COP26 in Glasgow, Scotland, where am representing both Edison and EEI.\nAnd with that, Maria will provide her financial report.\nMy comments today will cover third quarter 2021 results, our capital expenditure and rate base forecast and updates on other financial topics.\nEdison International reported core earnings of $1.69 per share for the third quarter 2021, an increase of $0.02 per share from the same period last year.\nAs Pedro noted earlier, this year-over-year comparison is not particularly meaningful because SCE recorded a true-up for the final decision in its 2021 general rate case, and that's retroactive back to January 1.\nOn page seven, you can see SCE's key third quarter earnings per share drivers on the right-hand side.\nI will highlight the primary contributors to the variance.\nTo begin, SCE received a final decision in the 2021 GRC during the third quarter because first and second quarter results were based on 2020 authorized revenue, a true-up was recorded during the quarter for the first six months of 2021.\nThis true-up is reflected in several line items on the income statement for a net increase in earnings of $0.35.\nThe components are listed in footnote three.\nHigher 2021 revenues contributed $0.55 and including $0.50 related to the 2021 GRC decision, $0.04 for CPUC revenues related to certain tracking accounts and $0.01 at FERC.\nO&M had a positive variance of $0.28, mainly due to the establishment of the vegetation management and risk management balancing accounts, partially offset by increased wildfire mitigation costs due to the timing of regulatory deferrals in the third quarter of 2020.\nDepreciation had a negative variance of $0.20, primarily driven by a higher asset base and a higher depreciation rate resulting from the 2021 GRC decision.\nIncome taxes had a negative variance of $0.41.\nThis includes $0.39 of lower tax benefits related to balancing accounts and the GRC true-up, which are offsetting revenue and have no earnings impact.\nAt EIX Parents and Other, the loss per share was $0.09 higher than in third quarter 2020.\nThe primary driver was preferred dividends on the $1.25 billion of preferred equity issued at the parent in March of this year.\nNow let's move to SCE's capital expenditure and rate base growth forecast.\nAs shown on page eight, we have updated our capital forecast primarily to reflect the recently announced utility-owned storage investment.\nAs Pedro mentioned, SCE filed an advice letter for cost recovery of $1 billion of capital spending to construct about 535 megawatts of utility-owned storage.\nSCE is seeking expedited approval of the advice letter to maximize the likelihood of the projects meeting their expected online dates for the incremental capacity needed for summer 2022.\nThese projects are a prime example of the essential role utilities can play in quickly ensuring California has a safe, reliable and clean electricity supply.\nWe increased our 2022 capital expenditure forecast by approximately $900 million and lowered the forecast somewhat for 2023 through 2025 because these storage projects accelerate some, but not all of the capacity we previously forecasted in those years.\nThe net increase in the high end of the capital forecast for 2021 through 2025 is approximately $500 million.\nAs shown on page nine, we have also updated our rate base forecast to reflect the storage investments I just mentioned.\nThis is the primary driver of the increase to the 2022 through 2025 rate base forecasts.\nFor 2021, we also fine-tuned the forecast to reflect adjustments related to wildfire mitigation tracking accounts following the implementation of the 2021 GRC decision and quarter end estimates of the spending related to these accounts.\nThe results of these updates is a reduction to the 2021 rate base of $300 million.\nOverall, these updates result in a projected rate base growth rate of 7% to 9% from 2021 to 2025.\nPage 10 provides an update on several major approved and pending applications for recovery of amounts and regulatory assets.\nThis will result in significant incremental cash flow to SCE over the next few years.\nSCE expects to collect over $1.4 billion in rates between now and 2024 related to already approved applications.\nAbout half of that balance will be recovered in 2022.\nFor the three pending applications shown in the middle of the slide, assuming timely regulatory decisions, SCE expects to collect another $844 million by the end of 2023.\nLastly, we show the remaining expected securitizations of AB 1054 capital expenditures.\nThe utility recently received a final decision in its second securitization application.\nThis will allow SCE to securitize $518 million of wildfire mitigation capital expenditures.\nSCE expects to complete the securitization in Q4 of this year or Q1 2022.\nThe securitizations, along with the rate recovery of the other regulatory assets will allow SCE to pay down short-term debt and strengthen our balance sheet and credit metrics.\nTurning to page 11.\nDuring the quarter, SCE filed an application to establish its CPUC cost of capital for 2022 through 2024 and reset the cost of capital mechanism.\nSCE is requesting an ROE of 10.53% with resets to its cost of debt and preferred financing, which would keep customer rates unchanged.\nThe utility's alternative request to maintain its ROE at 10.3% and reset the cost of debt and preferred would reduce customer rates by about $50 million in 2022.\nWhen SCE filed the cost of capital request in August, it paused any other filings related to the trigger mechanism.\nLast week, SCE was directed by the CPUC to file the information that would have normally been provided in those other filings.\nThe next step from here is that the commission will issue a scoping memo to outline the issues and procedural schedule.\npages 12 and 13 show our 2021 guidance and the preliminary modeling considerations for 2022.\nAs Pedro mentioned earlier, we are narrowing the 2021 earnings per share guidance range to $4.42 to $4.52.\nTurning to page 14.\nWe see an average need of up to $250 million of equity content annually through 2025.\nThe specific annual amounts will depend on the level of spending within our capital plan for that year.\nThe significant new investment of $1 billion of utility-owned storage considerably accelerates the timing of the capital investment program and increases the overall opportunity as noted earlier.\nTo fund this growth, which is well above the high end of the capital spending range previously disclosed for next year, we anticipate accelerating the issuance of equity content securities from the 2023 through 2025 period into 2022.\nThe 2022 equity need will be in the range of $300 million to $400 million, and we will provide more specifics on the financing plan when we provide 2022 earnings per share guidance on the fourth quarter 2021 earnings call.\nAdditionally, let me reiterate Pedro's comment that the SED agreement and update to the best estimate of potential losses associated with the 2017 and 2018 wildfire and mudslide events do not require equity above the levels previously announced in our 2021 financing plan.\nConsistent with our prior disclosure, we plan to issue securities with up to $1 billion of equity content to support investment-grade rating.\nIn closing, I want to underscore the important role that SCE plays in ensuring safety and resiliency.\nThis can be seen in the ongoing investment in risk-reducing wildfire mitigation as well as utility-owned storage to enhance near-term reliability.\nThese investments are indicative of the longer-term opportunity associated with meeting customer needs and clean energy objectives and gives us confidence in reiterating our long-term earnings per share growth rate of 5% to 7% for 2021 through 2025.\nThat concludes my remarks.",
        "summary": "q3 2021 core earnings were $644 million, or $1.69 per share.\nnarrows 2021 earnings per share guidance to $4.42-4.52."
    },
    {
        "text": "Our second quarter results show the continued strength of our business.\nWe continue to be able to safely and efficiently operate our properties under new operating condition.\nPaul will provide more details on collections, but across our organization, we have seen payment patterns consistent with last year.\nWe have put in place a rent deferral program for residents facing hardship due to the impact of COVID-19, approximately 500 residents are enrolled in this program.\nWe saw strong demand on the MH side of the business, with a 4.6% increase in rental revenue.\nIn the quarter, we saw a decrease in residents moving out of our communities.\nWe increased new home sales volume by 14% and the average purchase price increased by 10%.\nOur MH properties are currently 95% occupied.\nOur residents are homeowners who have generally paid cash for their home.\nThis capital commitment to our communities is an important differentiator in difficult times.\nOur overall occupancy consist of less than 6% renters.\nMoving to our RV business, we have had an acquisition strategy over the years of buying RV resorts that are heavily focused on annual and seasonal revenue streams.\n80% of our RV revenue is longer term in nature and 20% comes from our transient customers.\nIn the second quarter, our properties were impacted by local shelter in place orders, which call for reduced or eliminated travel activity inside of jurisdiction.\nOur RV annual customer generally has developed roots with the community.\nFor the second quarter, the annual revenue which historically accounts for approximately 70% of our total revenue, grew by 4.7%.\nIn the more -- in the quarter, we were primarily close to transient traffic until the beginning of June.\nWe followed shelter in place orders and reduced activity to protect our employees and customers from potential risks associated with transient traffic.\nWe saw a significant increase in reservation activity and revenue in the month of June.\nThe demand is high for customers to travel in a controlled environment.\nThey have continued to react to the evolving climate in an impressive manner.\nThe team has successfully adapted to new regulatory protocols and changes in the operating environment, with the primary focus on the safety and well-being of our employees, residents, and guests.\nFor the second quarter, we reported $0.47 normalized FFO per share.\nWe have added these expenses back in our calculation of NFFO.\nOur core MH rent growth of 4.6%, consists of approximately 4.1% rate growth and 50 basis points related to occupancy gains.\nWe have increased occupancy at 103 sites since December, with an increase in owners of 156 while renters decreased by 53.\nCore RV resort based rental income from annuals increased 4.7% for the second quarter and 6.1% year-to-date, compared to the same period last year.\nThe driver of rent growth from annuals in the quarter was rate with occupancy essentially flat compared to the prior period.\nYear-to-date core resorts -- year-to-date core resort base rent from seasonals increased 3.7% compared to 2019.\nCore base rent from transient decreased 47.7% in the quarter, as a result of the closures Marguerite mentioned in her remarks.\nMembership dues revenue increased 3% compared to the prior year.\nDuring the quarter, we sold approximately 5,800 [Phonetic] Thousand Trails Camping Pass memberships.\nThis represents a 12% decrease for the quarter, which we attribute to the impact of COVID-19.\nWe experienced significant recovery in sales volume in June, which showed an increase of 43% over June 2019.\nThe net contribution from membership upgrade sales in the quarter was flat compared to last year.\nSales volumes increased almost 12%, while the mix of product sold changed resulting in a lower average sales price.\nCore utility and other income was about $400,000 lower than second quarter 2019.\nIncreases in pass-through and utility income, primarily resulting from pass-throughs of real estate tax increases that were effective in late 2019 were offset by reduced revenue resulting from our suspension of late fees as well as fees related to transient RV state.\nCore property operating expenses were flat compared to second quarter 2019.\nThe footnote disclosure included in our supplemental financial information package states that our core income from property operations includes approximately $1 million of non-recurring COVID-19 related expenses.\nExcluding these expenses, we realized a 90 basis point decline in core property operating expenses in the quarter compared to last year.\nIn summary, second quarter core property operating revenues increased 60 basis points and core property operating expenses increased 10 basis points resulting in an increase in core NOI before property management of 1%.\nCore NOI before property management, excluding COVID-19 related expenses increased 1.8%.\nIncome from property operations generated by our non-core portfolio, which includes our marina assets was $3 million in the quarter.\nRevenues from annual customers, at the marinas and other properties in the non-core portfolio generated more than 90% of total non-core revenues in the quarter and year-to-date period.\nProperty management and corporate G&A expenses were $25.4 million for the second quarter of 2020 and $51.3 million for the year-to-date period.\nOther income and expenses, generated net contribution of $1.7 million for the quarter.\nAncillary retail and restaurant operations were impacted by COVID-19 and generated approximately $1.2 million less NOI during the quarter than last year.\nIn addition, our joint venture income was approximately $2.4 million lower because of the refinancing distribution we recognized in 2019.\nInterest and related loan cost amortization expense of $26.2 million for the quarter and $53.2 million for the year-to-date period.\nAll of our MH, RV and marina locations are open, though some have limited access to certain amenities pursuant to state and local guidelines.\nOur rent deferral program was in place from April through June.\nThrough that program, we assisted 540 residents with the deferral of approximately $0.5 million of rent.\nWe also provided assistance in the form of rent credits to annual customers at certain of our RV resorts, were openings were delayed because of shelter in place orders.\nThose credits will be applied to future charges and total approximately $900,000.\nWe have also continued suspension of late fees in the month of July.\nSince the outset of the COVID-19 pandemic, we have not experienced meaningful negative impact to our rate of rent collection.\nFor the second quarter, our overall collection rate for our MH, RV and TT properties was 99%, consistent with the second quarter of 2019.\nOur month-to-date collections in July are consistent with the collections at this time in April, May and June, 2020.\nNow some comments on debt markets in our balance sheet.\nMarket conditions have stabilized somewhat since our April call.\nCurrent secured financing terms available for MH and RV assets range from 55% to 75% LTV, with rates from 2.75% to 3.5% for 10 year money.\nWe continue to see lenders place high value on sponsor strength and ELS continues to be highly regarded.\nHigh quality age qualified MH assets will command preferred terms from participating lenders.\nOur cash balance after funding our July dividend is more than $50 million.\nWe have available capacity of $350 million from our unsecured line of credit, we have approximately $141 million of capacity under our ATM program, and we have no scheduled debt maturities for the next 12 months.\nWe continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to us.\nOur interest coverage ratio was 4.9 times and our debt to adjusted EBITDAre is 5 times.\nThe weighted average maturity of our outstanding secured debt is 12.5 years.",
        "summary": "q2 adjusted ffo per share $0.47.\napproved about 540 resident applications for deferral of rent due to covid related financial hardship in quarter."
    },
    {
        "text": "And up front here, I'm going to be covering Pages four to six.\nIf you take a step back, what a difference a year makes.\nWe reported our second quarter 2020 numbers, we were in the throes of a pandemic with no clear end in sight.\nAlthough COVID-19 cases in some geographies are rising again, we are in a much more stable environment and have much better visibility with respect to our operations than a year ago.\nWe remain focused on our employee safety as we continue to work in this environment.\nWe had a very strong operating quarter with revenues of $2.44 billion, operating income of $133 million and earnings per diluted share of $1.78.\nWe maintained strong operating income margins of 5.5% and had revenue growth of 21% overall with 18% organic revenue growth.\nIt is important to remember that in second quarter 2020, we had several of our key geographic markets either shut down or partially shut down.\nThis revenue growth resulted in a sizable investment in working capital this quarter, leading to a more typical cash flow pattern for us than the prior year, during which we were liquidating our balance sheet due to COVID-19-imposed lockdowns and customer site restrictions.\nRegardless of the unusual factors impacting our comparison against last year, we had a very strong quarter.\nOur business trends are strong.\nThis RPO growth was broad-based across market sectors and geographies.\nFor the quarter, we continue to see excellent operational execution in both our Electrical and Mechanical Construction segments.\nWe had revenue growth in our Electrical Construction segment of 19.3% and in our Mechanical segment, up 21.3%, which I believe reflects more than just the resumption of normal demand from the COVID-impacted results of the second quarter last year.\nWith Mechanical Construction operating income margins of 8.3% and Electrical Construction operating income margins of 8.7%, we are executing with discipline and precision as we grow our business.\nWe had broad-based growth across our trade offerings end market sectors and across our geographic footprint.\nWe had especially strong growth within the commercial, and that's really across commercial but data centers and logistical infrastructure drove that and healthcare market sectors.\nOur large project work and small quick term project work are both strong from a revenue and booking perspective.\nWe continue to work very hard to bid and schedule our work amid the uncertainty around material pricing and availability.\nOur team is experienced with this issue.\nAnd so far, we have weathered this challenge, but it requires attention to detail, communication with our supply chain partners and customers, thoughtful planning and careful contract negotiations.\nThe supply chain pressures are likely to be with us for most of the balance of the year.\nAgain, I sound redundant, but we are blessed with an execution-oriented culture across EMCOR.\nOur Electrical and Mechanical Construction teams are some of the best operators in the business.\nWe leave the quarter with very strong RPO growth across these segments of almost 8% from the year ago period and nearly 10% for the end of 2020, and this is despite very strong revenue growth.\nOur U.S. Building Services segment had a very strong quarter with revenue growth of 30.4% and operating income growth of 13.9%.\nOperating income margins were strong at 4.9%.\nRPOs additionally increased 37.8% versus the year ago period and organically, RPOs are up 21.2%.\nWe see accelerating demand for HVAC retrofit projects with a special emphasis on energy retrofit and IAQ or indoor air quality.\nWe are also performing very well in our commercial site-based business with strong bookings year-to-date and several important customer wins.\nWe are not only executing for our current customers, but are winning new work and have a very healthy pipeline of opportunities in this business.\nWe expect to continue to see strong demand for our mechanical services as well as our commercial site-based business services as customers seek to improve their facilities as they emerge from the pandemic.\nOur Building Services team has done an exceptional job of anticipating our customers' needs post-pandemic, and we are a key partner in making these facilities more energy efficient and safer with improved air quality and movement.\nIn our Industrial Services segment, we had a near breakeven performance on an operating income basis despite taking a $4 million charge for a receivable from a customer who recently entered into bankruptcy protection.\nWe had positive EBITDA, and I believe we will start seeing better revenue comparisons as we move through the second half of 2021.\nWe do expect our forward view to improve as customer inquiries and scheduling are at very robust levels for late 2021 and early 2022.\nCrack spreads remained strong, and utilization continues to improve.\nOur U.K. Building Services segment had another strong quarter with operating income growth of 31.7%.\nWe continue to execute well for our customers in the U.K. and have strong retrofit project growth and also for our full facilities management offering.\nOverall, a very strong quarter, and we remain poised to deliver for our customers and shareholders for the remainder of 2021.\nWith that, I will turn the discussion over to Mark.\nOver the next several slides, I will supplement Tony's opening commentary on EMCOR's second quarter performance as well as provide a brief update on our year-to-date results through June 30.\nSo let's revisit and expand our review of EMCOR's second quarter performance.\nConsolidated revenues of $2.44 billion are up $423.6 million or 21% over quarter two 2020.\nOur second quarter results included $53.8 million of revenues attributable to businesses acquired, pertaining to the time that such businesses were not owned by EMCOR in last year's second quarter.\nAcquisition revenues positively impacted both our United States Electrical Construction and United States Building Services segments.\nExcluding the impact of businesses acquired, second quarter revenues increased to nearly $370 million or 18.4% when compared to the second quarter of 2020, which was severely impacted by the COVID-19 pandemic and the corresponding containment and mitigation measures mandated by certain of our customers as well as numerous governmental authorities.\nDespite the less-than-difficult compare between quarterly periods due to the challenging environment in 2020, EMCOR's quarter two 2021 revenues represent an all-time quarterly revenue record for the company.\nThe specifics to each of our reportable segments are as follows: United States Electrical Construction segment revenues of $489.5 million increased $79.1 million or 19.3% from 2020 Second quarter.\nExcluding acquisition revenues of $8.6 million, this segment's revenues increased 17.2% quarter-over-quarter.\nSignificant increases in revenue contribution from projects within the commercial, institutional and healthcare market sectors, were the primary drivers of the period-over-period improvement.\nWe continue to see strength in the telecommunications submarket sector as we experience sustained customer demand for data center projects driving the growth in commercial market sector activity within this segment.\nUnited States Mechanical Construction segment revenues of $958.7 million increased $168.2 million or 21.3% from quarter two last year.\nRevenue growth was primarily attributable to an increase in commercial and healthcare market sector activities.\nWith respect to the commercial market sector, consistent with the growth experienced by our Electrical Construction segment, this segment also continues to see strong demand for data center project work, given growth in data storage and cloud computing across the country.\nIn addition, the continued build out of our customers' e-commerce supply chains has resulted in an increase in the number of fire protection project opportunities for this segment within various warehousing and distribution facilities.\nWith regard to the healthcare market sector, consistent with the trends we experienced during the first quarter of this year, we are engaged in a number of projects ranging for mechanical system retrofits to complete installations in both new and existing healthcare facilities.\nSecond quarter revenues for EMCOR's combined United States Construction business of $1.45 billion increased $247.3 million or 20.6%.\nThis revenue performance represents an all-time high for our combined construction segments.\nDespite this record revenue performance, we increased remaining performance obligations, which Tony briefly covered, within each of these segments as a result of strong project bookings.\nUnited States Building Services quarterly revenues of $624.4 million increased to $145.5 million or 30.4%.\nExcluding acquisition revenues in this segment of $45.2 million, this segment's revenues increased almost 21% organically.\nThis performance also represents a time quarterly record for this segment's revenues.\nRevenue gains within each of the divisions due to the resumption of maintenance and project activity as compared to 2020's COVID-impacted quarter augmented by incremental projects aimed at improving customers indoor air quality as well as increased building automation and controls activity were the primary drivers of this quarter's strong revenue performance.\nEMCOR's Industrial Services segment revenues of $235.2 million decreased to $5.9 million or 2.5% as this segment has yet to return to pre-pandemic revenue levels due to prolonged adverse market conditions within the oil and gas and related industries.\nAlthough still below the prior year, this 2.5% quarter-over-quarter revenue reduction is significantly less then the more abrupt quarterly revenue declines experienced in other quarters post quarter one of 2020.\nAs Tony previously indicated, we are beginning to see positive signs of demand returning as we look forward toward our turnaround planning for early 2022.\nLet's hope that we do not see any additional macro economic headwinds impacting in this industry.\nUnited Kingdom Building Services revenues of $129.9 million increased $36.7 million or 39.5% from last year's quarter.\nResumption of maintenance contract activity that began during quarter one of this year strengthened in quarter two as project work that was deferred in 2020 has recommenced.\nAdditionally, revenues of this segment benefited from $14.5 million of favorable exchange rate movement during the period.\nSelling, general and administrative expenses of $242.9 million represent 10% of revenues and reflect an increase of $37.7 million from quarter two 2020.\nAdjusting for incremental expenses attributable to companies acquired, inclusive of intangible asset amortization, EMCOR's organic SG&A increase was $33.4 million.\nAs a reminder, the prior year period benefited from substantial cost reductions resulting from actions taken in response to the COVID-19 pandemic.\nA significant percentage of such actions pertain to employment costs including furloughs, headcount reductions and temporary salary reductions.\nAdditionally, 2020 Second quarter included reduced levels of incentive compensation expense as a result of the downward recalibration of our internal forecasts driven by the uncertainty created by the pandemic.\nIn contrast, the results for the second quarter of 2021 include significant included a significant growth in revenues as well as profitability forecasts, which equips EMCORE's previous earnings performance records across numerous of our operating companies.\nThese factors have necessitated headcount additions to support such growth as well as increased levels of quarterly incentive compensation accruals.\nJust so that there is no misunderstanding, at this time last year, we were either reversing the previous quarter's incentive accruals or accruing at significantly reduced rates.\nWhile at this point in 2021, based on our performance for the first six months of the year and our projections for the remainder of the year, our incentive compensation levels are tracking more linear with our current year earnings expectations.\nIn addition to these increases in employment costs, our results for the second quarter of 2021 included a $4.1 million provision for credit losses due to the bankruptcy filing of a customer within our U.S. Industrial Services segment which negatively impacted our quarterly consolidated SG&A margin by 20 basis points.\nReported operating income for the quarter of $133.4 million compares to an operating loss of $122.6 million in 2020 Second quarter due to the $232.8 million noncash impairment charge recorded in the prior year.\nExcluding 2020's impairment charge, operating income for the current period represents a $23.2 million or 21.1% improvement over last year's adjusted non-GAAP second quarter operating income of $110.1 million.\nFor the second quarter of 2021, operating margin represents 5.5% of revenues and is consistent with our adjusted non-GAAP operating margin in last year's quarter.\nConsistent with our quarterly revenue performance, the operating income of each of our reportable segments, other than U.S. Industrial Services, has increased by double-digit percentages.\nSpecific quarterly operating performance by reporting segment is as follows: operating income of our U.S. Electrical Construction Services segment of $42.7 million for the quarter ended June 30, 2021, increased by $11.1 million from the comparable 2020 period.\nReported operating margin of 8.7% represents a 100 basis point improvement over last year's second quarter due to an improvement in gross profit margin given a more favorable revenue mix and continued strong project execution.\nSecond quarter operating income of our U.S. Mechanical Construction Services segment of $79.3 million increased $12.3 million from the comparable 2020 period.\nReported operating margin of 8.3% represents a slight reduction from last year's quarter.\nOur over 20% increase in quarterly revenues was the major driver of our period-over-period operating income improvement, while the slight reduction in operating margin resulted from a modest decrease in gross profit due to the composition of work performed during each period.\nEach of our Electrical and Mechanical Construction segments established new second quarter records in terms of operating income dollars.\nOur total U.S. construction business is reporting $122 million of operating income and an 8.4% operating margin.\nThis performance has improved by $23.4 million and 20 basis points from last year's second quarter.\nOperating income for U.S. Building Services is $30.3 million or 4.9% of revenues.\nThis represents a $3.7 million improvement quarter-over-quarter and like most of our other reporting segments represents a new second quarter record for operating income dollars.\nIncreased gross profit from the mechanical services and commercial site-based services divisions due to a strong resumption in demand as compared to 2020's challenging second quarter was the primary reason for the period-over-period increase in operating income.\nThe 70 basis point reduction in quarterly operating margin is due to revenue mix, which included a larger percentage of fixed-price capital projects that traditionally have a lower gross profit margin profile than the segment's call-out service work.\nOur U.S. Industrial Services segment operating loss of approximately $200,000 represents a decrease of $3.5 million from last year's second quarter operating income of $3.3 million.\nWhile this segment experienced an increase in both gross profit and gross profit margin during the current quarter, its results included an increase in credit losses due to the aforementioned customer bankruptcy, which negatively impacted operating income by $4.1 million and operating margin of the segment by 180 basis points.\nU.K. Building Services operating income of $7 million or 5.4% of revenues represents an improvement of $1.7 million with a slight reduction in operating margin over 2020 Second quarter.\nApproximately $800,000 of this period-over-period improvement is due to positive foreign exchange movement with the remainder attributable to an increase in project activity primarily within the commercial market sector.\nThe decrease in quarterly operating margin is a result of an increase in the ratio of selling, general and administrative expenses to revenues in the current quarter as the prior year benefited from certain short-term cost-cutting initiatives and acute response to the COVID-19 pandemic.\nWe are now on Slide nine.\nAdditional financial items of significance for the quarter not addressed on my previous slides are as follows: quarter two gross profit of $376.3 million was higher than 2020's comparable quarter by $61 million or 19.3%.\nGross margin of 15.4% is 30 basis points lower than last year's quarter due to shifts in revenue mix in both our U.S. Mechanical Construction and U.S. Building Services segment within the quarter.\nDiluted earnings per share in the second quarter of 2021 is $1.78 as compared to a loss per diluted share of $1.52 in the year ago period.\nOn an adjusted basis, after adding back the impairment loss on goodwill, identifiable intangible assets and other loan of assets recorded last year, 2020's non-GAAP diluted earnings per share was $1.44.\nWhen compared to our current year's when compared to our current quarter's performance, we are reporting a $0.34 or 23.6% quarter-over-quarter earnings per share improvement.\nThis 2021 quarterly diluted earnings per share of $1.78 represents a new all-time record for any quarterly period in our history despite some of the headwinds we continue to face.\nWith the quarterly commentary complete, I will touch on some high-level highlights with respect to EMCOR's results for the first six months of 2021.\nRevenues of $4.74 billion represent an increase of $427.9 million or 9.9%.\nOperating income of $250.4 million or 5.3% of revenues represent sizable increases from both 2020's reported and as-adjusted non-GAAP six-month results.\nYear-to-date diluted earnings per share was $3.32.\nAlthough not shown on this slide, and my last comment on our results for the first six-month period is with respect to our slightly negative operating cash flow as compared to 2020 strong cash flow performance during the first half of the year.\nWith substantial organic revenue growth in this year's second quarter, we have experienced an increase in working capital investment as both our accounts receivable and contract asset balances have elevated in concert with our project and service volumes.\nFurther, it is important to note that our cash flow for the prior year period was favorably impacted by certain government legislation passed in light of the COVID-19 pandemic, which allows for the deferral of the employer portion of social security taxes throughout the majority of 2020 and also extended the deadline for making estimated federal tax payments from the second to third quarter of last year.\nThese measures, along with the United Kingdom's deferral value-added tax in the prior year, favorably impacted both our second quarter and six-month operating cash flows in 2020 by almost $100 million.\nMy expectation for full year 2021 is that we will generate operating cash flow in excess of $300 million.\nEMCOR's balance sheet remains strong and liquid.\nCash on hand is down from year-end 2020, driven by cash used in financing activities of approximately $157 million, inclusive of $138 million used for the repurchase of our common stock and cash used in investing activities of approximately $71 million most notably due to payments for acquisitions net of cash acquired, totaling just shy of $56 million.\nWorking capital levels have increased modestly as increases in accounts receivable and contract assets resulting from our substantial organic growth during the period were offset by the decrease in our cash balance just referenced.\nThe increase in goodwill is predominantly a result of the three businesses acquired during the first six months of this year.\nNet identifiable intangible assets have increased slightly as the impact of additional intangible assets recognized, in connection with the previously referenced acquisitions, were largely offset by $31 million of amortization expense during the year-to-date period.\nTotal debt, exclusive of operating lease liabilities, is virtually unchanged since year-end 2020.\nAs a result of our consistent outstanding borrowings and the growth in our stockholders' equity due to our net income for the first six months of 2021, EMCOR's debt-to-capitalization ratio has reduced to 11.7% and from 11.9% at the end of last year.\nEMCOR remains in a position of strength which allows us to continue to invest in our business, return capital to shareholders and execute against our strategic objectives, both in the near and the long term.\nI'm going to be on Pages 12 to 13, I'm going to talk about remaining performance obligations by segment and market sector.\nI'll give you a top summer here.\nThey're at their highest level ever.\nWe have a strong mix.\nOur bookings were strong for both small and large projects.\nWe have a book-to-bill, 1:12.\nAnd what I'm going to do is I'm going to intermix comments from what would be Page 13 and we talk about some of those sectors we've been talking about into my overall RPO commentary.\nWe sort of had an RPO triple play here with RPOs increasing in three comparable periods.\nThe year period, that's versus 2020 -- for June 2021, June 2020, six-month period, 2021 June versus December; 21 and sequentially from March 2021.\nAll five of our business segments are RPO growth for each of these measurement periods.\nBut that, to be fair, we've said this many times, this is not a quarter-to-quarter or month-to-month business, movement is not something we draw sweeping conclusions from month-to-month or quarter-to-quarter.\nBut the reality is with the kind of bookings we had and the level we're at, we feel pretty good about the forward view of our business.\nAnd I had a quarter one statement where I talked about the nonres market.\nAnd I think I talked about it also as we moved through last year, that we wouldn't know what the impact of that second quarter would be until we got to the second quarter.\nAnd I think we can now say that we expect growth in the nonresidential market.\nI would guess that growth is going to be somewhere in the mid-single digits, and we're clearly outperforming that mid-single-digit growth.\nAs mentioned, total company RPOs at the end of the second quarter were just over $5.1 billion.\nThey're up $516 million or 11.2% when compared to the year ago level of $4.6 billion.\nThey increased $511 million for the first six months of the year.\nAnd really important to look at is the organic RPO growth, which increased $409 million or 8.9%.\nAnd again, I talked about our book-to-bill well over one.\nOur domestic construction segments had RPO growth in the quarter, $301 million since June 30, 2020, and that was both in the Electrical and Mechanical Construction segments.\nAnd we're seeing it being driven by strong overall bookings in data centers, manufacturing, industrial, water and wastewater, healthcare and logistical infrastructure work.\nWe also expect strength to continue in our small project short-duration work, and a lot of that centers on commercial and manufacturing, is where we see that work.\nBuilding Services is 13% of total RPOs in the second quarter, increased $202 million, $114 million of that $22 million was organic.\nPre-pandemic, small project demand is active.\nThere's one other way of saying it across the country.\nAnd you're also getting more value now because of the indoor air quality and air movement work that we're doing in addition to the energy efficiency work.\nOur customers are executing both types of these projects as a result of an expectation of increased energy costs, a desire to reduce their carbon footprint and a strong belief that IAQ solutions will improve their employees' productivity by approving their ease of mind and their safety.\nOne of the things I'd point out is we are one of the key problem solvers for energy efficiency work and IAQ work and as you demand, more energy efficiency from your facility.\nWe bring concepts from ideas and things that people think about to real projects for our owners and tenants.\nWe're uniquely positioned to help our customers reduce their carbon footprint, a key cost reduction goals and have better and cleaner buildings.\nEvery time we service repair or replacement an HVAC unit or install or service a newer or updated building control systems, and this is exactly what Mark told you we were growing in Building Services, we are making facilities, healthcare facilities, factories and office buildings, less carbon intense and more efficient.\nThe other thing we're seeing is the combination of these energy savings projects with more on-site generation.\nwhether it be renewable generation like solar or combined heat and power, which takes waste heat and turns it into either HVAC or power generation.\nIt is important to note that most of our Industrial Service segment field services work would not be in RPOs as it is executed via time and material contracts.\nAnd in that case, we're seeing strong demand for us to schedule for people as we go from the back half of this year into next year.\nWhat we're seeing across the RPOs is we're winning at a rate that we believe is much faster than the underlying nonresidential market growth and then we have durability to move within these sectors and flexibility and that will continue to benefit us as we move through the remainder of 2021 and into 2022.\nWith that, I'm now going to wrap up on Pages 15 and 16.\nAs we assess our performance at the half, we are performing very well across our business.\nAnd as a result of that performance through the first half we will be raising our earnings and revenue guidance for 2021.\nWe will raise our revenue guidance to $9.5 billion in revenues, which exceeds our previous range of $9.2 billion to $9.4 billion in revenues.\nWe will raise our earnings per diluted share guidance from $6.35 to $6.75 to a new range of $6.65 and to $7.05.\nPreviously, we had told you that we would know more at the conclusion of the second quarter.\nAnd with greater visibility that we now have, we can raise our guidance.\nFor us to achieve the middle to the top end of that guidance range, a large percentage of the following must happen.\nI think most of you know, I'd like to talk about what we control and what we don't control.\nWe like to focus on the things we don't control and prepare contingency plans for those things that we don't control.\nSo we focus on the things we control and have contingency plans for the things we don't control.\nWell, we like to think we control our costs.\nAnd we're known for keeping our costs in check, whether that be direct and indirect labor costs, material costs, we're pretty good at this.\nAnd it's been an operating fundamental here at EMCORE for a long time.\nWe need to continue to have success in navigating the supply chain challenge with respect to pricing and availability.\nI talked about that earlier in my opening commentary, it's a challenge.\nI mean I've listened to a bunch of calls, you listen to more calls.\nWe're positioned well to navigate it.\nWe think we'll continue navigating a well, but it is a challenge.\nWe also need to continue to be able to find the right labor at the right time.\nWe've always been very successful with that.\nIt's a question you all asked.\nI'll answer it for you now.\nWe expect to continue to be successful with that.\nWe will always struggle to find HVAC technicians in the summer like everybody else.\nAnd our route technicians and our operating engineers, we always are looking for because we're growing that business pretty healthily right now.\nAnd so those are the two areas we always look for people, but we have great labor relations at the local level, and we expect to be able to man our construction projects with the right people at the right time and the right skill mix.\nWe are an employer of choice.\nWe expect the booking momentum to continue, especially with respect to quick term project work.\nAnd for us, that means projects really less than $2.5 million or so.\nIt's very strong right now.\nWe expect that to continue.\nAnd that's what gives us conviction to talk about the underlying strength in the market overall.\nI'm humble enough that our team is home enough to know that there's a whole bunch of things we don't consume.\nWe don't control whether the nonresidential market will continue to be strong.\nWe expect it to be.\nBut if it's not, we will react and have a contingency plan to adapt to that.\nWe don't control what will happen in industrial services.\nWe know what we see with respect to what people want us to do.\nBut we've been doing this long enough to know that, that can change.\nAnd look, we're a little shy about being overly optimistic as what weather has done to us in the Gulf Coast over the last three years.\nWe don't expect any major COVID disruptions in our business or our geographies.\nI do expect that there will be increased demand from our customers for us to supply vaccinated people, and we are advocating that strongly in our business and for our employees, safety is one of our key corporate values.\nAnd we think keeping our employees safe and asking them to be vaccinated.\nWe've had pretty good success.\nWe need to have better success.\nWe also don't think the supply chain issues as of today will be more pronounced than they are.\nThey could be, but we do expect them to last for the balance of the year.\nAnd clearly, we don't control everything that goes on with the supply chain.\nAs far as capital allocation, we spent nearly $57 million on acquisitions year-to-date.\nThey were right down the pipe are the kind of things that we like to do.\nWe returned $138 million year-to-date on share repurchases, and Mark talked about.\nAnd we've also returned $14.2 million in dividends back to our shareholders.\nWe expect to continue to be balanced capital allocators as the year progresses, and we have a decent pipeline of acquisitions that we are working on.\nI will tell you unequivocally right now that one of the strengths of our company is our balance sheet.\nOur customers look to that balance sheet.\nIt's one of the reasons we can grow as fast as we can organically.\nAnd it's one of the reasons we've had so much success on a lot of the quick-term work in these large data center projects and healthcare projects because people know that we will have the working capital and the ability to fill the team on a very quick basis with the right labor at the right time and have the access to the capital to do that.",
        "summary": "compname reports q2 earnings per share of $1.78.\nq2 earnings per share $1.78.\nq2 revenue $2.44 billion versus refinitiv ibes estimate of $2.25 billion.\nsees fy earnings per share $6.65 to $7.05.\nsees fy revenue about $9.5 billion."
    },
    {
        "text": "This quarter, the battery category information includes both brick-and-mortar and e-commerce retail sales.\nIn our first quarter, strong demand, expanded distribution and execution in the holiday season led to a solid start to our fiscal year.\nWhile the operating environment remains challenging, our first quarter results are a testament to our team's preparation, resilience and commitment.\nBefore I go into detail on the quarter, there are three key points to take away from our call today.\nFirst, our team delivered in the critical holiday season and our categories remain strong.\nSecond, we continue to manage through a very challenging cost environment with increases in transportation, commodity and labor costs, as well as ongoing supply chain disruption.\nAnd third, as a result of our additional pricing actions and cost containment measures, we are reaffirming our outlook for net sales, adjusted earnings per share and adjusted EBITDA for the full year.\nAs we look specifically at the results for the quarter, we maintained strength in our top line, delivering revenue of $846 million.\nThis was roughly flat to prior year on an organic basis.\nGlobal price increases and expanded distribution in the battery business were offset by an expected decline in volumes as we comped elevated COVID demand from the prior year.\nAdjusted gross margin decreased 320 basis points as increased input costs were partially offset by price increases, synergies and the comping of prior year COVID costs.\nOn a sequential basis, gross margin was roughly flat to the prior quarter, consistent with our view for the start of the year.\nWith our solid topline performance and lower interest expense, we partially offset the gross margin decline and delivered adjusted earnings per share of $1.03 in the quarter.\nBefore John provides more details on the quarter, I want to provide some additional color on the performance of our categories, the rising cost environment, the resiliency of our supply chain and other actions we have taken to operate with excellence in an uncertain environment.\nFirst, our categories remain healthy with both battery and auto care showing robust demand versus pre-pandemic levels.\nSpecifically, the battery category benefited from two drivers: the increase in devices owned per household And an increase in usage of those devices, resulting in higher battery replacement frequency.\nThese trends have resulted in consumers using more batteries.\nOn a two-year stack basis, the global battery category has grown by 9.7% in value and 7.8% in volume.\nAs anticipated, we saw the category decline in the three months ending November 2021, which was down 3.5% in value and 8.4% in volume.\nThis was due to comping elevated demand in the prior year.\nAs we look to the long term, we anticipate category value to experience flat to low single-digit growth off a higher base.\nas the category has increased in size due to consumers' behavior during the pandemic.\nbeing the key driver.\nAs we turn to the auto care category in the latest 13 weeks, category value was up 9% versus a year ago and 20.6% on a two-year stack basis.\nAs with batteries, the growth is being driven by changing consumer behavior, including do-it-yourself habits, which were established during the pandemic, such as higher levels of cleaning and renewed interest in car care as a hobby, a higher number of cars in the car park and an increase in the age of vehicles given the shortage of new vehicles and a recovery in miles driven given the increase in personal travel by car.\nAs we look ahead, we anticipate that auto care category value will grow at low single digits once it has cycled through the COVID-related demand.\nEnergizer continues to be a leader in the auto care category through our strong portfolio of brands.\nSpecifically in appearance, the largest subsegment in which we compete, our Armor All brand outpaced the category in the U.S. due to distribution gains and the strength of our innovation.\nIn addition, our international auto care growth plan has resulted in growth ahead of the category in key markets, including Australia, Germany, New Zealand, the U.K., and Mexico.\nWhile our categories are healthy, the macro environment in which we are operating, remains difficult.\nThis leads me to the next important topic, operating costs.\nCommodities, transportation and labor costs continue to rise, resulting in increased cost pressures that are incremental to the outlook we provided in November.\nWe have moved quickly to offset these pressures through additional pricing actions, cost reduction initiatives and improved mix management.\nPricing actions in both our segments were announced within the last couple of weeks and are incremental to the increases discussed in November.\nThey will become effective late in the second quarter for North America and in the third quarter for international markets.\nWe expect the cumulative effect of these actions to offset the inflationary cost pressures on a dollar basis.\nIn addition to inflationary pressures, the global supply chain network remains stressed from pandemic-related disruptions, which includes port congestion and transportation delays, as well as availability challenges with respect to labor, sourced product and raw materials.\nAs a result of this dynamic, we took a proactive approach by investing in incremental inventory in the prior year and also in the current quarter.\nThis decision paid dividends as we were positioned to meet our customers and consumers' needs and delivered a successful first quarter.\nWe expect to operate with elevated safety stock for the foreseeable future while we monitor the supply network for signs of stability.\nAs you can see, the business is operating on solid footing and the underpinnings of our categories remain healthy, and in a stronger position than before the pandemic.\nEven with the difficulties we experienced, we delivered strong results and are on track to deliver another successful year.\nBefore expanding on the financial highlights, I would like to point out that our segment reporting has changed from two geographical segments to two product line segments.\nGoing forward, our two segments will be battery and lighting products and auto care, more accurately reflecting how we manage the operations.\nNow, turning to our results.\nReported and organic revenues were both essentially flat.\nIn battery and lights, strong demand and solid execution resulted in a modest decline in organic sales, while auto care continued its strong performance with organic growth of 1.3%.\nPricing actions globally delivered roughly 2% growth and additional distribution contributed another 1%.\nOffsetting these gains was a decrease in replenishment volumes driven by the timing of COVID-related demand in the prior year.\nAs a reminder, we executed price increases in our battery segment in the first quarter of this year, and we have taken pricing in auto care in both the second and third quarters of the prior year.\nThe impact of these pricing actions was reflected in our initial outlook for this year.\nAs Mark mentioned, we experienced significant incremental cost pressures during the first quarter and moved quickly to implement additional pricing that will benefit the second half of fiscal 2022.\nSequentially, adjusted gross margin was roughly flat versus the fourth quarter of fiscal 2020 as we expected.\nHowever, adjusted gross margin decreased 320 basis points to 37.5% versus the first quarter of 2021 as pricing, lower COVID-related costs and synergies were offset by more than 700 basis points of margin erosion from inflationary cost pressures.\nThis quarter also marks the conclusion of the integration of our battery and auto acquisitions.\nThe successful integration positions us well to focus on continuous improvement initiatives to offset inflationary pressures going forward.\nA&P as a percent of sales was 6.1% versus 5.8% in the prior year as a result of planned increased spend.\nWe remain committed to investing in our brands for the long-term health of our businesses.\nExcluding acquisition and integration costs, SG&A as a percentage of net sales was roughly flat at 13.2% but declined $2 million on an absolute basis as lower compensation expense was partially offset by increased travel and higher IT spending related to our digital transformation.\nLooking at segment profit.\nBoth battery and lights and auto care benefited from continued strong demand, pricing actions and distribution gains.\nHowever, the inflationary input cost pressures more than offset the stronger-than-expected top line performance.\nThis impact flowed through to the bottom line for each business, resulting in a segment profit decline of $12 million for battery and $18 million in auto care.\nInterest expense was $37 million or $10.3 million lower than the prior year, reflecting the benefits of significant refinancing activity of our debt capital structure over the past year.\nWe expect a similar quarterly run rate for interest expense over the remainder of the year.\nI would also like to point out changes to our shares outstanding for the quarter and the remainder of the year.\nIn the first quarter, we completed the accelerated share repurchase program that was announced last August.\nThe total number of shares purchased under this program was nearly 2 million.\nAdditionally, on January 18, our mandatory convertible preferred stock converted to approximately 4.7 million common shares.\nAbsent any additional share repurchase, weighted average shares outstanding for the remainder of the year will be approximately 72.\nAs we look at our outlook for 2022, we are facing a number of gross margin headwinds.\nWe continue to experience significant cost pressures in transportation, driven primarily by the global backlog of ocean freight.\nIn addition, labor availability is a major challenge across most U.S. sites, pressuring rates.\nAnd finally, many commodity markets remain at all-time highs impacting our raw material costs.\nThrough a combination of pricing actions, improved mix management and cost reduction efforts, we expect to offset the absolute dollar amount for these rising costs.\nHowever, due to the lag in timing between the recognition of these higher costs, and the successful rollout of our pricing actions and cost reduction efforts, we expect as much as 50 basis points of additional gross margin pressure to impact us for the full year 2022.\nThis is incremental to the 150 basis points provided in our outlook in November.\nWe expect to see the most significant impact to gross margin in our second fiscal quarter as we will absorb the full effect of these costs without the offset from our incremental pricing position.\nWith the benefit of the actions we are taking now, we expect gross margin to recover in the back half of the year.\nGiven the continued strength of demand in our categories and our efforts to offset the majority of these headwinds through pricing and cost reduction initiatives, we are maintaining our fiscal 2022 outlook for roughly flat net sales, adjusted earnings per share in the range of $3 to $3.30, and adjusted EBITDA of $560 million to $590 million.\nAs I mentioned at the beginning of the call, our team delivered well in the critical holiday season and our categories performed well globally.\nLike many companies, we also continue to face a rising cost environment and supply chain disruption.\nGiven these conditions, we are taking aggressive action to offset the most recent cost escalation, including an additional recently announced pricing action in North America battery and auto care.\nWe remain confident in our outlook for the year reflected in our reaffirmation of our guidance for net sales, adjusted earnings per share and adjusted EBITDA.\nI am incredibly proud of our team to continue to operate with excellence and deliver on our priorities and commitments.",
        "summary": "q1 adjusted earnings per share $1.03.\nreaffirms fiscal year outlook for net sales, adjusted earnings per share and adjusted ebitda.\nhad a strong start to year driven by resilient demand, increased distribution, pricing actions and improved fill rates.\nimproved inventory planning and supply chain durability enabled co to deliver in quarter.\ncontinue to see escalating input cost pressures in transportation, labor and materials."
    },
    {
        "text": "Against the backdrop of the reopening of the U.S., we are seeing consistent improvements in our business fundamentals.\nKey among these include accelerated cash collection levels and significant progress in our theater portfolio.\nOur increased cash collection levels reflect strengthening the businesses and an increasingly more positive environment for the experiences our properties deliver.\nAt a macro level, with the broad increase of vaccine deployment, we are seeing a meaningful improvement in consumer confidence and stabilization of the economy as is evidenced by employment and GDP data.\nSeparately, the new protocols from the CDC for fully vaccinated people reflect the opportunity to achieve increasing levels of normalcy and life as we once knew it.\nAcross our portfolio, consumers have been exhibiting their desire to experience out-of-home entertainment, and our tenants businesses have been beneficiaries of this pent-up demand.\nIn particular, during the quarter and continuing through April, consumers demonstrated their desire to return to theaters as we achieved new box-office high since the onset of the pandemic.\nImportantly, this momentum has been established in an environment with capacity constraints, limited content and direct-to-consumer streaming options, which provide the opportunity to view select features at home.\nSaid another way, even with the challenges and limitations of the current operating environment, these results indicate that consumers still value the theater experience for new movie titles.\nWe look forward to being able to fully maximize the reopening of theater exhibition as we expect that 98% of our theaters will be opened by the end of May, and consumers will have the opportunity to see a strong lineup of film titles for the remainder of 2021, many of which have been delayed several times.\nAs we continue to manage the business, we remain laser focused on our goals for 2021, including our exit from covenant relief, reestablishment of a dividend and a return to sustained growth.\nDuring the quarter, we also made progress on our strategic capital recycling activities and utilized proceeds from dispositions and stronger collections to pay off the remaining $90 million balance on our $1 billion unsecured revolving credit facility.\nThese steps of strengthening liquidity and optimizing the portfolio are supportive of our goals and should fuel growth as we move into the second half of the year.\nThis was an important quarter as we sustained ongoing positive trends in key business measures necessary for us to add our existing debt covenant waivers, most specifically, continued improvement of our cash collection levels.\nAs I stated earlier, the trends appear to be very favorable at this point, including vaccinations, consumer demand and exhibition recovery.\nHaving positive momentum across all these areas should propel us toward the achievement of our goals.\nAt the end of the first quarter, our total investments were approximately $6.5 billion with 354 properties in service and 93% occupied.\nDuring the quarter, our investment spending was $52.1 million, entirely in our experiential portfolio.\nThe spending included build-to-suit development and redevelopment projects that were committed prior to the COVID-19 pandemic, as well as the acquisition of a newly constructed TopGolf facility in San Jose, California, for $26.7 million, which was acquired primarily with cash received from TopGolf as payment of a portion of their deferred rent balance.\nEffectively, we acquired TopGolf, San Jose, using a portion of their deferred rent as currency, a creative and complementary outcome for both sides.\nOur experiential portfolio comprises 280 properties with 42 operators is 93% occupied and accounts for 91% of our total investments or approximately $5.9 billion of the total $6.5 billion.\nWe have four properties under development.\nOur education portfolio comprises 74 properties with eight operators and at the end of the quarter was 100% occupied.\nNow I'll update you on the operating status of our tenants, our deferral agreements and rent payment time lines.\n71% of our theaters were open as of April 30.\nUnder Regal's announced reopening schedule, all of our Regal theaters will be opened by May 21.\nAnd at that point, we anticipate 98% of our theaters will be open.\nFive of our theaters remained closed because of governmental orders.\nAll four of our Canadian theaters are closed at least through May 20 due to governmental mandate, and our dine-in theater in San Francisco is closed until July because of local indoor dining restrictions.\nWe have five vacant theaters not operated by any of our major exhibitors, which we are releasing and seven closed theaters, which we are selling, six of which are under contract.\nFinally, we are continuing to operate two theaters through a third-party manager, a former AMC in Columbus, Ohio, and the former Goodrich Savoy in Champagne, Illinois.\nApril's box-office performance exceeded industry expectations, led by King Kong versus Godzilla, Mortal Combat and Demon Slayer.\nThe outperformance of all three films drove box office to $189 million for April, a 66% increase from March's $113 million.\nThe strong results from these three films show the consumer is eagerly embracing the opportunity to get back to the movies.\nopenings and won't be fully open until late May and that less than 20% of Canadian theaters are open.\nWith increasing vaccinations, the approach of summer and easing restrictions, the primary challenge for exhibitors now is a lack of film supply.\nThe remaining film slate of high-quality, tent-pole films lines up nicely to drive increasing consumer demand through 2021, beginning at Memorial Day with A Quiet Place Part II and following with Venom: Let There Be Carnage, Dune, Cruella, Fast and Furious 9, Black Widow, Suicide Squad, Shang-Chi and the Legend of the Eternals, Ghostbusters: Afterlife, Top Gun: Maverick, Spider-Man: No Way Home, the Kingsman and Matrix 4.\nStudios, content providers and the consumer all value the big-screen experience.\nApril's performance bears that out.\nI want to briefly address lessons learned over the past year.\nThe studio's decision to delay the release of the vast majority of their tent-pole titles until theaters reopened in 2021 and 2022 is the best evidence of their commitment to the exhibition economic model and the importance of the theatrical window as a critical revenue driver for the studios and content providers.\nCOVID-19 forced studios and exhibitors to experiment.\nStudios understandably evaluated alternative content delivery options, including premium video on demand, PVOD; subscription video on demand, SVOD; hybrid models of theatrical release mixed with PVOD or SVOD; and selling movies to streaming services.\nWe believe the best indicator of the results of this experimentation is that the overwhelming majority of tent-pole films scheduled for theatrical release pre-COVID-19 will be released theatrically 2021 or 2022.\nIt made economic sense for the studios to wait until theaters were permitted's to reopen throughout the U.S., and they did.\nStudios and content providers do not consider PVOD, SVOD and other forms of at-home viewing as replacements for theatrical exhibition.\nConsumer subscribed to streaming services for all-you-can-eat buffet content and generally aren't interested in paying an upcharge for an individual release.\nThe relative lack of PVOD content during COVID-19 at a time when much of the country was looking for any entertainment option in their home demonstrates that studios don't see a big market for PVOD.\nStrong box-office numbers for Warner Bros.\nFilms released day and date to theaters and HBO Max without upcharge also bear this out.\nWhile streaming services need content, it's hard to make the math work for PVOD or direct to SVOD without a theatrical release for major motion pictures.\nAdditionally, major exhibitors continue their negotiations with the studios on the length of the exclusive theatrical window.\nIt appears to be coalescing around 45 days, down from the prior 90 days.\nFrom our perspective, there are positives.\nHistorically, over 90% of ticket sales occurred in the first 45 days.\nSo economically, the shift in the window is not that material.\nWith the reduced window and the need for studios, content providers and exhibitors to continue experimentation, we could see content from Netflix, Amazon and Apple shown theatrically before being moved to streaming services.\nJust this week, Cinemark and Marcus both announced announcement -- both announced agreements with Netflix to show Army of the Dead in theaters for one week, starting on May 14 before it's available on Netflix on May 21.\nThis follows Cinemark and Netflix's partnering to show Ma Rainey's Black Bottom, the Midnight Sky and the Christmas Chronicles 2 theatrically.\nThe consumers' desire to return to see movies on the big screen is reflected in the surprisingly strong performance of King Kong versus Godzilla, Mortal Combat and Demon Slayer.\nWhen theaters were allowed to reopen, box-office records were set in China, Japan and Australia.\nOur tenants are coming up with new and better ways to enhance the customer experience from touchless ticketing and concession ordering to private screenings.\nGoing to the movie still remains a remarkable value for an out-of-home consumer experience.\nTurning now to our other major customer groups.\nApproximately 96% of our non theater operators are open.\nOur seasonal businesses are closed in the normal course.\nWith increases in vaccinations and the fast approach of summer, we see continued strong performance in our drive-to value-oriented destinations.\nWe are pleased with the results from the ski season.\nPeople demonstrated they still want to ski, particularly in drive-to destinations.\nAcross the portfolio, attendance was in line with three-year averages, and revenues were down only slightly, reflecting restrictions on food and beverage in many locations.\nWe continue to see strong performance across Eat & Play.\nAll of our TopGolf locations, including our recently acquired San Jose location, are open.\nAll four of our Andretti Karting locations are open, and we're delighted that our fifth in view for Georgia will open in May.\nAll of our gyms are open and attendance continues to increase.\nWe are seeing very strong pent-up demand across our attractions and cultural holdings.\nWe expect this trend to continue throughout the summer as vaccinations increase and restrictions are lifted.\nThe City Museum, Santa Monica Pier and our Titanic Museums are open.\nWe expect all of our amusement parks and water parks to open in 2021.\nSeven are currently open.\nFive have confirmed May opening dates, and we're awaiting dates for the final two, subject to state restrictions in California and Washington.\nWe are likewise seeing strong demand in our experiential lodging portfolio and expect the trend will continue throughout the summer as well.\nPete Beach, all of our experiential lodging assets are open.\nKartriteremains subject to New York State phased reopening plans for water parks, and we are working toward an opening in the summer of 2021.\nWe are completing a substantial renovation of the Bellwether, and it will fully reopen by mid-June.\nResorts World Catskills is open.\nAll of our early childhood education centers are open, and we are seeing a steady increase in demand monthly as COVID restrictions ease and parents return to work.\nAll of our private schools are open, utilizing a combination of in-person, online and hybrid instruction models.\nOur primary capital recycling activity has been in the theater category.\nIn Q1, we sold one theater property and a vacant non-theater building for net proceeds of $13.7 million.\nWe're very pleased with our progress in disposing vacant theaters.\nSince Q1 -- Q3 2020, we have sold three theaters.\nAnd as I mentioned earlier, we have executed contracts for another six.\nIn Q4, we terminated all seven of our AMC transition leases and took back the properties.\nIn Q4, we sold one for an industrial use.\nWe have executed contracts for the remaining five.\nWe also have a former CMX theater, which was rejected in bankruptcy under contract.\nThese six projected sales are for industrial, multifamily, office, and theater reuse, and we anticipate closing on all six sales throughout 2021 and into 2022.\nFinally, I want to update you on the status of our cash collections and deferral agreements.\nThroughout the COVID-19 pandemic, our No.\n1 priority was to work proactively and diligently with our customers to structure appropriate deferral and repayment agreements.\nWe tailored each deal to give them the right amount of breathing room to reopen efficiently and help ensure their long-term health, all while protecting and improving our position in rights as landlord.\nWe wanted to and have helped them through a period where they had significantly reduced or no cash flow, allowing them to ramp back to a stabilized cash flow.\nOur agreements are generally structured with rent and mortgage payments, including deferred amounts, commencing and ramping up through 2021, and in some cases, after 2021.\nCash collections continue to improve in conjunction with reopenings.\nTenants and borrowers paid 72% of contractual cash revenue for the first quarter and 77% in April.\nWe're seeing results from these efforts, and I want to share two examples of this win-win approach.\nFirst, as noted earlier in my remarks, we are delighted to have acquired the brand-new TopGolf San Jose, which opened on April 16, using a portion of their deferred rent as currency.\nSan Jose is TopGolf's second location in California.\nIt's an outstanding location in a compelling DMA.\nThe transaction reflects our long and valued partnership with TopGolf and our creative approach throughout the pandemic to work with our tenants to address difficult issues.\nSecond, as noted, the ski season was strong.\nEarly in the pandemic, before anyone knew what the ski season would look like, we worked with CamelBak to ensure they had sufficient cash to weather what we all feared could be a rough winter.\nBecause Ski season was strong, in April, CamelBak repaid its entire deferred balance six months early.\nAgain, this demonstrates our commitment to taking the long view of our customers' ability to perform informed by the underlying strength of our underwriting and real estate.\nFinally, customers representing substantially all of our contractual cash revenue, which includes each of our top 20 customers, are either paying their contract rent or interest or have a deferral agreement in place.\nIn those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions.\nMark will provide additional color on the revenue recognition and cash collection implications for the second quarter of 2021.\nToday, I will discuss our financial performance for the quarter, provide an update on our balance sheet and strong liquidity position and close with some estimated forward information.\nI am pleased that I'll be briefer than I have been in the past few quarters.\nFFO as adjusted for the quarter was $0.48 per share versus $0.97 in the prior year.\nAnd AFFO for the quarter was $0.52 per share, compared to $1.14 in the prior year.\nTotal revenue from continuing operations for the quarter was $111.8 million versus $151 million in the prior year.\nThis decrease was due primarily to the accounting for restructured agreements with various customers, and revenue from certain tenants, which continue to be recognized on a cash basis, both as a result of the COVID-19 impact.\nThis decrease was also due to property dispositions and an increase in vacancies.\nAdditionally, we had lower other income and lower other expense of $6.9 million and $7 million, respectively, due primarily to the Kartrite Resort & Indoor Waterpark remaining closed due to COVID-19 restrictions.\nPercentage rents for the quarter totaled $2 million versus $2.8 million in the prior year.\nThis decrease related to lower percentage rents from tenants due to the impact of COVID-19 on their operations, as well as our disposition of certain private schools in December of 2020.\nThis decrease was partially offset by additional percentage rent from an early education tenant due to a restructured agreement.\nI would like to point out, as I did last quarter, that we are defining percentage rents here as amounts do above base rent and not payments in lieu of base rent based on a percentage of revenue.\nProperty operating expense of $15.3 million for the quarter was about $2.2 million -- was up about $2.2 million from prior year, due primarily to increased vacancy.\nInterest expense increased by $4.4 million from prior year to $39.2 million.\nThis increase resulted, in part, from a higher weighted average amount outstanding on our $1 billion revolving credit facility.\nAs you may recall, at the end of the first quarter of 2020, we borrowed $750 million as a precautionary measure to provide us additional liquidity during the uncertainty caused by COVID-19.\nAt December 31, 2020, due to stronger collections and significant liquidity, including proceeds from dispositions, we reduced the outstanding balance to $590 million and then further reduced the balance to $90 million in January of 2021.\nSubsequent to quarter end, we used a portion of our cash on hand to pay off the remaining balance.\nAdding to the increase in interest expense, we continue to pay higher rates of interest on our bank credit facilities and private placement notes during the covenant relief period of about 100 basis points and 125 basis points, respectively.\nWe also earned less interest income from short-term investments in the first quarter as we use cash on hand to pay down the revolver and deposit rates were also lower than last year.\nLastly, during the quarter, we reduced our allowance for credit loss on our mortgage notes and notes receivable, which resulted in a credit loss benefit of $2.8 million versus a loss of $1.2 million in the prior year.\nThis benefit resulted from changes in the macro environment due to signs of recovery from the pandemic, which reduced the allowance calculated using our third-party model.\nNote that this benefit is excluded from FFO as adjusted.\nNow let's turn to our balance sheet and capital markets activities.\nOur debt-to-gross assets was 39% on a book basis at March 31.\nAt quarter end, we had total outstanding debt of $3.2 billion, of which $3.1 billion is either fixed rate debt or debt that has been fixed-through interest rate swaps with a blended coupon of approximately 4.7%.\nAdditionally, our weighted average debt maturity is approximately five years, and we have no scheduled debt maturities until 2022 when only our revolving credit facility matures, which currently has a 0 balance.\nAs previously discussed, due to the impact of COVID-19 on our near-term financial results during 2020, we amended our bank credit facilities and private placement notes to waive certain covenants through the end of 2021, subject to certain conditions.\nThis provides us additional time and flexibility to work with our customers.\nNote that we can elect to get out of the covenant relief period early, subject to certain conditions.\nWe had $538.1 million of cash on hand at quarter end.\nAnd as I mentioned, we paid down our revolver to 0 in April.\nCash collections from customers continued to improve, and we're approximately 72% of contractual cash revenue or $98.1 million for the first quarter and 77% for April.\nDuring the quarter, we also collected $29.5 million of deferred rent and interest from accrual basis tenants and borrowers, including the payment received from TopGolf that was used to purchase its San Jose location.\nAnd the deferred rent and interest receivable balance on our books at March 31 was $59 million.\nSubsequent to the end of the quarter in April, we received an additional $10.5 million of such deferral payments, bringing the year-to-date total to $40 million.\nWe expect to continue to collect deferred rent and interest from accrual basis tenants and borrowers, primarily over the next 36 months.\nWe are encouraged by the positive signs we are seeing in our customers' businesses, and we anticipate the positive trajectory of cash collections to continue over the remainder of 2021 and into 2022.\nAs previously announced, due to the uncertainties created by the COVID-19 disruption, we are not providing any forward earnings guidance.\nHowever, we would like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the second quarter of 2021, as well as our expected collections that relate to that same period.\nThe expected range we expect to recognize in Q2 2021 of such contractual cash revenue is $109 million to $116 million or 80% to 85%.\nAdditionally, the expected range we expect to collect of such contractual cash revenue in Q2 of '21 is $102 million to $109 million or 75% to 80%.\nDifferences from the full amount of contractual cash revenue relate to deferrals granted and the associated accounting, as well as abatements.\nAs evident from our discussion today, we are very pleased with our results and the trajectory of the recovery.\nThe continued success of the vaccine deployment should further strengthen the momentum of experiential assets.\nAs we've discussed previously and today, we do not have a consumer demand issue but rather a restricted environment.\nAnd as these restrictions continue to be relaxed, our properties and tenants will benefit from this pent-up demand.",
        "summary": "qtrly ffoaa per share $0.48.\nqtrly affo per share $0.52."
    },
    {
        "text": "Third quarter was highly productive.\nWith our strong cash collection results and the meaningful steps we took to further solidify our balance sheet and strengthen our liquidity, we reinforced our position to pursue additional investment growth.\nWe were pleased to report cash collections, which exceeded our expectations, driven by the accelerated recovery across our experiential properties.\nWe believe that increased vaccination levels and new protocols have translated to increased levels of confidence as people are again going out and seeking memorable experiences.\nConsumers are returning to the theater in a significant way, driven by highly appealing content as studios reestablish a rhythm of releasing major titles and theaters.\nStrong momentum has been established with the box office with pandemic area of records being broken.\nThis demand for the theater experience has also provided studios much greater clarity around the economic value that box office contributes.\nWe look forward to seeing this momentum continue as studios have committed to exclusive theatrical releases and a strong slate of titles remain in 2021 and going into 2022.\nWe are also continuing to see a sustained rebound across our non-theater experiential properties.\nFrom eat and play to experiential lodging, the common attributes of value and drive two locations provide choice, allowing consumers to spend few hours or a few days outside the home.\nOn the capital markets front, we were pleased to once again receive an investment-grade rating with a stable outlook from S&P, while Moody's raised its investment-grade rating to a stable outlook in October, recognizing our meaningful progress.\nAdditionally, we further solidified our balance sheet as we completed a new $1 billion credit -- revolving credit facility and $400 million debt issuance.\nThese actions have certainly enhanced our liquidity profile and positions us well to reaccelerate our growth.\nMark will provide greater detail on this.\nAll of this progress established a strong backdrop for us to pivot to pursuing growth, and we made progress in reestablishing our investment spending momentum.\nAs Greg will speak to, we have reengaged in discussions across many of our experiential property types.\nLastly, I want to bring to your attention our updated company tag line in logo.\nThe new tag line, the diversified experiential REIT highlights diversification as an important attribute that we will continue to build on.\nWe believe we are uniquely positioned to capture these opportunities.\nWe are seeing ample evidence of consumer demand for experiential properties we have the only team in the industry with proven capabilities across the entire spectrum of experiential concepts.\nWith this backdrop of demand, combined with our team and focus we believe we truly offer a unique alternative for investors to gain diversified exposure to experiential real estate and the experiential economy.\nAt the end of the third quarter, our total investments were approximately $6.5 billion with 358 properties in service and 96% occupied.\nDuring the quarter, our investment spending was $39.3 million, bringing the year-to-date total through September 30 to $107.9 million in each case entirely in our experiential portfolio, the spending included in acquisition, build-to-suit development and redevelopment projects.\nOur experiential portfolio comprises 284 properties with 43 operators and accounts for 91% of our total investments or approximately $5.9 billion of the $6.5 billion, and at the end of the quarter was 95% occupied.\nOur education portfolio comprises 74 properties with eight operators, and at the end of the quarter was 100% occupied.\nNow, I'll update you on the operating status of our tenants.\nQ3 theater headlines were extremely positive.\nQ3 total box office was $1.37 billion.\nMajor film for release, customers returned to theaters and box office results steadily improved.\nThe first $100 million a three-day weekend in the pandemic era wasn't until July.\nSince then, North American box office has exceeded $100 million for a three-day weekend five times.\nShang-Chi and the Legend of the Ten Rings put an exclamation point on the quarter, establishing an all-time four-day Labor Day box office record at $94.7 million.\nVenom Let There Be Carnage, delivered the highest grossing opening three-day weekend during the pandemic era at $90 million.\nBox office momentum continues as we roll into Q4.\nNorth American box office through this past weekend is $3 billion compared to $2.1 billion for all of 2020.\nWe believe Q4 performance will deliver around $2 billion.\nAn instructive metric to evaluate box office recovery is to compare 2021 monthly grosses to the same month in 2019, which adjusts for the seasonality of the film schedule.\nQ2 box office growth was around 25% of 2019.\nSince then, box office has consistently improved month over month when compared to the 2019 comparable period.\nJuly was at 45%, August at 50%, September at 53%.\nAnd when final October numbers are in, we expect grosses will exceed $622 million or around 80% of 2019, the highest monthly gross since February 2020.\nAdditionally, the number of films released to exhibition is steadily increasing and should drive continued box office recovery.\nDuring 2018 and 2019, there were around 560 new titles released to theatrical exhibition annually.\nIn 2020, there were 327, a 42% decrease.\nThrough September 30, there have been 285.\nWe anticipate that number will grow to around 400 by the end of the year.\nThe release cadence will continue to grow in 2022.\nIncreased product will drive continued box office recovery.\nThe remaining Q4 film slate is strong.\nEternals, Ghostbusters: Afterlife, West Side Story, Spider-Man: No way Home, the Kingsman and Matrix: Resurrections.\nThe 2022 film slate is compelling with the potential for 20 titles to gross $100 million or more up approximately 50% from 2021, anchored by two Tom Cruise pictures, Top Gun Maverick and Mission Impossible 7, three Marvel Universe films and several highly anticipated sequels, including Aquaman 2, Avatar 2, John Wick 4, The Batman, and Jurassic World.\nFinally, the impact of premium video on demand and streaming on the theatrical window and exhibition and theatrical exhibition is clearer.\nAfter the day and date hybrid release of Black Widow, Disney announced the remainder of its 2021 film slate will have an exclusive theatrical release.\nhad already committed to an exclusive theatrical release for 2022.\nThe results of day in date premium video on-demand and streaming demonstrated the best way for studios to maximize revenue is through a multipronged approach anchored by the theatrical exhibition in an exclusive window.\nThe exclusive theatrical window is generally settling around 45 days with some variability for individual titles and exhibitors.\nHistorically, the majority of box office gross occurred in the first 45 days.\nThe reduction of the exclusive theatrical window will lead to more streaming services releasing more films theatrically.\nMore content in theaters is a positive for consumers.\nThis is already happening.\nIn May, Netflix released Army of the Dead theatrically in select theaters, including 600 Cinemark theaters for one week prior to its availability on Netflix.\nNetflix is continuing its experimentation.\nIn Q4, it will release 10 titles to theatrical exhibition before release to streaming.\nIt won't be a 45-day window, but Netflix understands the importance of theatrical release for both revenue generation and word-of-mouth marketing.\nThis is reinforced by the recent announcement that Netflix will operate the Bay theater in Pacific Palisades.\nTurning now to an update on our other major customer groups.\nWe see continued positive performance across all segments of our drive to value-oriented destinations.\nThe fewer the COVID restrictions, the better the performance.\nAcross all segments, our customers found many ways to improve their profitability despite fewer guests.\nConsumers want to engage in social activities.\nWe are seeing excellent performance across eat and play throughout the country with attendance approaching or exceeding 2019 levels and continued margin improvement and profitability.\nWe saw recovering demand across our attractions and cultural holdings throughout the summer.\nAttractions with fewer COVID restrictions performed well and several were significantly ahead of 2019 levels.\nOthers were negatively impacted by ongoing COVID restrictions with performance improving as restrictions were relaxed and eliminated and the impact of fewer group and school events.\nWe anticipate continued growth in demand in 2022, assuming no material COVID restrictions.\nThere is high demand across our experiential lodging portfolio with strong occupancy and ADR growth.\nThe Cartwright Resort and indoor water park reopened on July 1 and ramped up through the summer.\nWe're pleased with our progress.\nThe Margaritaville Nashville Hotel in downtown Nashville is benefiting from Nashville's rebound to its typical diverse and robust event calendar, including live performances at the Ryman Auditorium, Tennessee Titans, and Nashville Predators games, and an IndyCar race.\nThe RV portion of our Camp Margaritaville RV Resort and lodge in Pigeon Forge, Tennessee opened in June.\nWe saw strong demand through the summer and into the fall foliage season, which draws visitors to -- Great Smoky Mountains National Park, the most visited national park in the country with over 12 million visitors in 2020.\nWe the lodge will be completed in Q4.\nDespite the impact of reduced cruise business on Alaska, Alyeska Resort benefited from increased airlift and ground tours to Alaska and is performing well.\nOur Nordic Spa will open Q4.\nIn St. Petersburg, our repositioned bellwether Beach Resort is completely renovated with all rooms and venues open, driving ADR increases.\nWe're completing the second phase of the redevelopment at the beach comer.\nHeading into winter, we expect strong demand for our drive to value oriented ski destinations as evidenced by Vail's increased Epic Pass sales for 2021, '22.\nVail's recently announced $320 million capital plan will improve four of our properties.\nOur education portfolio continues to perform well.\nAfter a challenging 16 months, we are returning to growth and actively pursuing deals in all our experiential verticals other than theaters.\nIn Q3, we acquired the Jellystone Park Camp Resort in Warren's, Wisconsin, for $25.2 million in an unconsolidated joint venture, of which we own 95%.\nThis iconic family campground RV park features numerous experiential amenities, including a water park and a water slide.\nAlong with Camp Margaritaville, the Jellystone acquisition demonstrates our belief in the growth opportunities in the experiential RV park space.\nThe remainder of the quarterly investing spending was in build-to-suit development and redevelopment projects in our Eaton Play and experiential lodging categories.\nOur primary capital recycling focus remains on our vacant theaters, and we're pleased with the progress.\nSince Q3 2020, we've sold five vacant theaters for various uses, including one that closed yesterday for approximately $6.8 million at a slight gain.\nWe have five remaining vacant theaters.\nThree are under executed contracts for sale, and we're marketing the remaining two with multiple expressions of interest.\nIn the third quarter, we also completed the sale of two land parcels.\nAt the end of October, we sold our WISP and Wintergreen ski resorts to our tenant for $48 million or about a 9% cash cap rate with a gain on sale of $15.4 million.\nThis was a strategic decision to improve our portfolio and our credit profile.\nLocated in Maryland and Virginia.\nThey were the farthest south ski locations in our portfolio.\nAnd other than Alyeska, they were our only ski resorts not operated by Vail.\nFinally, I want to update you on the status of our cash collections.\nCash collections continue their upward trajectory.\nTenants and borrowers paid 90% of contractual cash revenue for the third quarter.\nIn addition, we collected a total of $11.3 million of deferred rent and interest during the quarter, as well as $5.3 million on a previously reserved note receivable.\nThrough September 30, we have collected a total of $59.5 million of deferred rent and interest from accrual and cash basis customers.\nMark will provide additional color on revenue recognition and cash collections for the third quarter and the remainder of the year.\nWe are excited by the prospect of each metric approaching 100% in the fourth quarter.\nToday, I will discuss our financial performance for the quarter, provide an update on our capital markets activities and strong balance sheet and close by reviewing our increase in 2021 earnings guidance.\nas adjusted for the quarter was $0.86 per share versus a loss of $0.16 in the prior year, and AFFO for the quarter was $0.92 per share compared to $0.04 in the prior year.\nTotal revenue for the quarter was $139.6 million versus $3.9 million in the prior year.\nThis increase was due primarily to improved collections and revenue from certain tenants, which continue to be recognized on a cash basis or were previously receiving abatements, as well as less receivable write-offs than in prior year.\nI will have more on collections later in my comments.\nScheduled rent increases, as well as acquisitions and developments completed over the past year also contributed to the increase.\nThis increase was partially offset primarily by property dispositions.\nAdditionally, we had higher other income and other expense of $7.9 million and $5.2 million, respectively, due primarily to the reopening of the Kartrite Resort and indoor water park after being closed due to COVID restrictions, COVID-19 restrictions, as well as the operations from two theater properties.\nPercentage rents for the quarter totaled $3.1 million versus $1.3 million in the prior year.\nThis increase related to higher percentage rents from an early education tenant due to a restructured agreement, as well as stronger performance than expected at two attraction properties and one ski property.\nThis was partially offset by the disposition of certain private schools in December of 2020.\nI would like to point out, as I have in recent prior quarters that we are defining percentage rents here as amounts due above base rent and not payments in leaf base rent based on a percentage of revenue.\nCosts associated with loan refinancing or payoff for the quarter of $4.7 million related to the write-off of fees and termination of interest rate swaps related to the repayment of our $400 million unsecured term loan facility during the quarter.\nInterest expense net for the quarter decreased by $5.2 million compared to prior year due to reduced borrowings offset by lower interest income on short-term investments.\nIn addition to the repayment of the term loan, we had no balance on our revolving credit facility during the quarter.\nYou may recall that in prior year, we had drawn $750 million on our revolving credit facility as a precautionary measure which provide us with additional liquidity during the early days of the pandemic.\nDuring the quarter, we continued to see improvement in the credit profile of our mortgage notes and notes receivable, resulting in a credit loss benefit of $14.1 million versus a loss of $5.7 million in the prior year.\nThe primary reason for the benefit this quarter was stronger-than-expected performance by a borrower, resulting in a partial repayment of $5.3 million on a fully reserved note and the release from an additional $8.5 million in funding commitments that also had been previously reserved.\nNote that this benefit is excluded from FFO as adjusted.\nLastly, income tax expense was $395,000 for the quarter versus $18.4 million in the prior year.\nThis variance related to the full valuation allowance recognized on all deferred tax assets during the third quarter of 2020 and which effectively eliminated the impact of deferred income taxes after that time.\nNow, let's move to our capital markets and balance sheet.\nWith a very productive quarter related to financing activities that resulted in several improvements in our balance sheet and a lower cost of capital for EPR.\nAs mentioned earlier, we repaid our $400 million unsecured term loan on September 13.\nAnd following this repayment, we received an investment grade rating from S&P on our unsecured debt with a stable outlook, which added to the existing investment grade rating from Moody's.\nAdditionally, Moody's raised its outlook to stable during October.\nOn October 6, we amended and restated our $1 billion revolving credit facility to extend the maturity to October 2025, with extensions at our option for a total of 12 additional months subject to conditions.\nWe are pleased that the new facility has the same pricing terms and financial covenants as the prior facility with improved valuation of certain asset types.\nOn October 27, we closed on $400 million of new 10-year senior unsecured notes at a coupon of 3.6%, the lowest in the company's history.\nThe offering was over 4.5 times subscribed, which allowed us to significantly tighten pricing and achieve a negative 5 basis points new issue concession.\nAs previously announced, the proceeds from this offering will be used in part to redeem all $275 million of our 5.25% senior unsecured notes at the make-whole amount on November 12.\nOur net debt to gross assets was 38% on a book basis at September 30.\nPro forma for the bond transactions, we will have total offsetting debt of approximately $2.8 billion, all of which will be either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%.\nAdditionally, our weighted average debt maturity will be approximately 6.5 years with no scheduled debt maturities until 2024.\nWe had $144.4 million of cash on hand at quarter end, which is expected to increase by approximately $95 million with the issuance of the new 10-year bonds net of the redemption of the 2023 bonds, and we have nothing drawn on our $1 billion revolver.\nWe continue to be encouraged by the positive signs we are seeing in our customers' businesses and the resulting positive trajectory we are experiencing in cash collections.\nCash collections from customers continue to exceed expectations and were approximately 90% of contractual cash revenue were $124.5 million for the third quarter.\nThis is -- this amount is more than the high end of the guidance range we had previously provided and was primarily driven by additional collections from cash basis customers.\nDuring the quarter, we also collected $7.7 million of deferred rent and interest from accrual basis tenants and borrowers and the deferred rent and interest receivable on our books at September 30 was $40.9 million, which we expect to collect primarily over the next 27 months.\nAdditionally, during the quarter, we collected $3.6 million in deferral repayments from cash basis customers that were recognized as revenue when received.\nAt September 30, we had about $126 million of deferred rent and interest owed to us not on the books.\nWe anticipate collecting some of this amount over the next two quarters.\nHowever, most of this amount is scheduled to begin to be collected over about 60 months beginning in May of 2022.\nRevenue will continue to be recognized on these amounts when the cash is received.\nFinally, as discussed previously, we also received a note repayment from a cash basis customer of $5.3 million, which resulted in credit loss recovery that is excluded from FFO as adjusted.\nAdding this all together, and as you can see on the slide, we collected more than 100% of contractual cash revenue for the quarter.\nWe are pleased to be increasing guidance for 2021 FFO as adjusted per share from a range of $2.76 to $2.86 to a range of $2.95 to $3.01.\nThe guidance for 2021 FFO as adjusted per share includes only previously committed additional investment spending of approximately $6 million for the last three months of 2021.\nGuidance for disposition proceeds has also been increased from $40 million to $50 million to $93 million to $103 million, primarily to reflect the sale of the two ski properties that Greg discussed.\nAs we have done in previous quarters, we would also like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the fourth quarter of '21, as well as our expected collections that relate to those same periods.\nThe range we expect to recognize in Q4 of such contractual cash revenue is $133 million to $138 million or 96% to 99%.\nAdditionally, the expected range we expect to collect of such contractual cash revenue in Q4 is $131 million to $135 million or 95% to 97%.\nDifferences from the full amount of contractual cash revenue related to deferrals granted and the associated accounting.\nPlease note that the definition of contractual cash revenue continues to exclude percentage rents straight line and other noncash revenue and revenue related to managed properties.\nI would also like to note that beginning in 2022, we expect both current quarter collections and revenue recognition to be at 100% of contractual cash revenue, and we expect to continue to collect deferral amounts from prior periods.\nFinally, I thought it would be helpful to provide a bridge from the midpoint of our previous FFO as adjusted per share guidance of $2.81 to the midpoint of our increased guidance of $2.98.\nAs you can see on the slide, the increase is driven by increased revenue recognition and percentage rents, as well as lower interest expense and G&A, partially offset by the impact from increased dispositions and lower operating profit from managed properties.\nDetails regarding all of our 2021 guidance can be found on page 22 of our supplemental.\nAs you've heard today, our recovery is nearly complete, and we are focusing on a return to growth.\nAs we've stated, we have the team, the balance sheet and equally important, the consumer demand to make that happen.\nWe look forward to demonstrating these efforts in the coming quarters.",
        "summary": "qtrly ffoaa per diluted common share $0.86.\nqtrly affo per diluted common share $0.92.\nincreasing its 2021 guidance for ffoaa per diluted common share to a range of $2.95 to $3.01."
    },
    {
        "text": "We are happy to be with you as we turned the calendar to 2021, and I sincerely hope that everyone is staying healthy and safe.\nJoining me on the call today are company's CIO, Greg Zimmerman; and company's CFO, Mark Peterson.\nFor the overview, clearly, 2020 was a year unlike any other we've experienced since the company was founded in 1997.\nEarly in the onset of the pandemic, we recognized the need to fortify the company's balance sheet to maintain sufficient liquidity for the long term.\nKey among early actions was to defer an anticipated gaming venue investment of approximately 1 billion, along with deferring other uncommitted investment spending of approximately 600 million.\nAdditionally, we accessed our unsecured credit facility as a precautionary measure and suspended our monthly dividend to common shareholders.\nWe determined that these actions were prudent due to the extremely challenging environment in which our tenants have been operating.\nAs we speak today, our liquidity remains in a strong position with cash on hand in excess of 500 million.\nThis large reserve of cash reflects the fact that we are to return to normalcy.\nHowever, as we announced in our quarterly disclosure on January 7, we generated positive cash flow in the fourth quarter and anticipate this trend to continue.\nThe recent paydown of our credit facility balance reflects this positive momentum and demonstrates our increased confidence.\nThroughout 2020, our team was focused on the many challenges brought on by the pandemic, including monitoring tenant performance, assisting in reopening plans and collaborating to develop plans that ensure long-term stability and success for both our tenants and EPR Properties.\nWe have seen the success of this strategy with our nontheater tenants, where approximately 94% are open and rent collections have improved materially.\nWhile our properties are still impacted by locally mandated closures and capacity restraints, performance and customer demand continued to improve, which we believe demonstrates our final thesis of people's desire for experiences.\nAs Greg will discuss in more detail, our theater tenants are still primarily challenged with limited film product, which should subside as we progress through 2021.\nHowever, early indications from around the world indicate that when product is available and flowing, there is robust consumer demand.\nOverall, we are pleased with both the progress and trajectory of our recovery as it is reflected in a continued increase in cash collections as we entered 2021.\nThroughout the year, we made continuous progress.\nAnd as I've stated before, I'm very proud of how our team has responded to the substantial challenges that they have faced.\nLooking ahead, as we look forward in 2021, we're encouraged by the accelerated rollout of vaccines.\nwill continue to be a phased process, yet we also believe that as a society, we are more than ready to return to a sense of normalcy.\nWe also continue to be encouraged by the resiliency displayed by many of our tenants and anticipate that theaters will follow a similar pattern when they open more widely and key titles are consistently released.\nAs the country begins the recovery process, we look forward to getting back on the path to growth.\nThis process requires continued improvement and stabilization of our cash collections, which will allow us to exit our existing debt covenant waivers.\nUpon achieving that goal, our focus will turn to reinstituting our common dividend and reinitiating our investment spending program.\nThe timing of achieving these milestones will be entirely dependent on a number of variables, including an effective vaccine deployment.\nHowever, as today's results indicate, our progress has measurably improved in the early months of 2021, and we are optimistic that our goals are achievable during the second half of 2021.\nAt the end of the first quarter, our total investments were approximately 6.5 billion with 356 properties in service and 94.2% occupied.\nDuring the quarter, our investment spending was 22.8 million and was entirely in our experiential portfolio, comprising build-to-suit development and redevelopment projects that were committed prior to the COVID-19 pandemic.\nFor the year, our investment spending was 85.1 million.\nOur experiential portfolio comprises 281 properties with 43 operators, is 93.8% occupied and accounts for 91% of our total investments or approximately 5.9 billion of the total 6.5 billion.\nWe have three properties under development.\nOur education portfolio comprises 75 properties with 12 operators, and at the end of the quarter was 100% occupied.\nAs the vaccine rollout accelerates, people are looking for safe and easily accessible ways to get out of their homes and come back together with friends.\nOur operators are working hard to offer entertainment experiences which create memories in safe environments.\nWe're seeing that as consumers become increasingly confident in safety measures and restrictions are reduced, they're returning to our properties.\nNow I'll update you on the operating status of our tenants, our deferral agreements and our rent payment time lines.\n60% of our theaters were open as of February 22nd.\nAs we have previously noted, Cineworld made the decision to close all of its U.S., U.K. and Ireland theaters because of the lack of tentpole films from Hollywood.\nToday, none of our 57 Regal theaters are open.\nTheaters continue to face significant headwinds from the lack of tentpole films and capacity and concessions restrictions implemented by state and local governments.\nThese challenges will slowly begin to abate during vaccination ramp up and with loosening restrictions throughout the country.\nBased on the current vaccine -- vaccination cadence, we believe major film releases and box office will begin to accelerate in the second half of 2021.\nThe 2021 film slate was strong before the pandemic.\nBecause a number of films scheduled for 2020 pushed to 2021, we believe the projected film slate will provide a strong content cadence for theaters to ramp up as vaccinations increase, normalcy returns and consumers feel more and more comfortable returning to the movies.\n2021 tentpoles currently scheduled for release beginning in May include Black Widow, the Fast & Furious 9, Top Gun: Maverick, Jungle Cruise, Death on the Nile, A Quiet Place Part II, Dune, No Time to Die, Ghostbusters: Afterlife and MI7.\nBox office strength will continue into 2022 with Jurassic World: Dominion pushing to mid-'22.\nAs demonstrated by consumer behavior in Asia and the Hollywood release schedule, we do not see evidence of structural changes in theater going habits as a result of the COVID-19 pandemic.\nIn Asia, the consumer bounced back quickly.\nChina's box office continues to perform solidly even in weeks without products.\nDuring the Lunar New Year holiday, Detective Chinatown three opened with the highest grossing opening day, $163 million and opening weekend, $398 million, in history outpacing Avengers: Endgame.\nOver the Lunar New Year holiday, Detective Chinatown three and Hi, Mom each grossed over $620 million.\nIn January, Demon Slayer became Japan's highest grossing movie ever.\nFurther, as provided by the continued recovery and resilience of our other experiential tenants, which I'll discuss in a moment, customers still want to engage in entertaining, affordable out-of-home experiences.\nOnce they know the operator is open and become comfortable with new protocols, we see that they are returning to experiential assets.\nWe are confident the same will hold true for theaters as vaccinations ramp up and normalcy returns.\nAs we have said throughout the COVID-19 pandemic, the studio's decision to push the vast majority of tentpoles to theatrical release in 2020 and 2022 is the best evidence of their commitment to the exhibition economic model.\nThe economics are straightforward.\nTentpole films cost well over $100 million to produce so the studios need theatrical release to maximize revenue for major pictures.\nOf the projected top 30 box office films scheduled for release beginning in February 2020, only six films were moved to nontheatrical release and one other, Wonder Woman 1984, was released simultaneously to theaters and HBO Max.\nIn uniquely trying times, studios took the opportunity to test alternative delivery channels and for those with streaming services to add subscribers.\nEven when in parts of the country, people could not leave their homes and theaters were either completely shut down or open with capacity and concessions restrictions, these releases had limited success.\nAfter a couple of major tests with Wonder Woman 1984's simultaneous theatrical and HBO Max release and the release of Mulan, Trolls World Tour and Soul to premium video-on-demand or streaming video-on-demand, the studios withheld the vast majority of top films from digital-only distribution to preserve theatrical release in 2021.\nOn its recent earnings call, Disney reaffirmed it will release Black Widow theatrically, subject to opening cadence and consumer sentiment about going back to the movies, proving that all things being equal, Disney continues to see the enormous power of theatrical release for major motion pictures.\nLikewise, Paramount recently publicly confirmed that Top Gun: Maverick will be released theatrically in July, again, subject to vaccination rollout.\nIn summary, despite the unique challenges presented by COVID-19, Hollywood continues to recognize that consumers still prefer to see movies on the big screen and don't embrace PVOD as a viable value alternative.\nThe decision to push theatrical release dates for the vast majority of major films, even after a unique period of experimentation, demonstrates that theatrical exhibition remains the preferred medium for consumers and the best format to deliver returns to the studios for major releases.\nI also want to update you on our other major customer groups.\nApproximately 94% of our nontheater operators are open or for seasonal businesses are closed in the normal course.\nThese businesses continue operating with appropriate safety protocols to comply with state and local requirements.\nPerformance remains fluid, depending on the impact of COVID-19 in each locale.\nHowever, at a high level, our operators are resilient and performance has generally exceeded their expectations in the face of this lengthy pandemic.\nFurthermore, we are seeing the benefit of owning drive-to value-oriented destinations.\nI'll now provide a brief update on each of our property types.\nThe ski season is under way.\nAll of our ski resorts are open, and we're pleased with the results to date.\nAll of our Topgolf locations, all of our Andretti carting locations and all of our family entertainment centers are open.\nAll but one of our U.S. gyms are open.\nAbout 61% of our attractions had opened for normal operations prior to normal seasonal shutdowns.\nAs we have indicated in past calls, a few of our attractions missed all or part of the season due to governmental health and sanitation measures and the financial feasibility of operating with reduced occupancy in a truncated season.\nAll of our cultural operators are open.\nExcept for the Kartrite Resort & Indoor Waterpark, all of our experiential lodging assets are open.\nKartrite remains subject to New York state's phased reopening plans, and we are planning for a Kartrite reopening in summer 2021.\nResorts World Catskills is open.\nFinally, turning to our education portfolio, all of our early education centers are open.\nWe are seeing a steady increase in demand monthly as COVID restrictions ease and parents return to work.\nAll of our private schools remain open, utilizing a combination of in-person, online and hybrid instruction models.\nVarying state and local requirements continue to influence each school's instruction model.\nVolatility in reopening plans for public school systems has benefited private schools, and we believe parents continue to see the value of private school instruction.\nWe continued progress in executing our strategy to reduce our overall education portfolio.\nIn December, we sold six private schools and four early childhood education centers for net proceeds of $201 million.\nThese assets were sold at cash and GAAP cap rates based on base rents of 8.1% and 9%, respectively.\nNote that over the past two years, we also collected average annual percentage rents of 6.3 million from three of the private schools based on total tuition levels.\nHowever, these percentage rents were scheduled to expire over the next few years.\nOverall, the assets included in this sale were an excellent investment for us with an unlevered internal rate of return of 13% over the life of our ownership.\nAdditionally, we sold four experiential properties and two vacant land parcels for net proceeds of around 23 million.\nTotal disposition proceeds in the quarter were 224 million.\nDuring the quarter, we terminated all seven of our AMC transition leases and took back the properties.\nWe are executing our plans for each location.\nIn December, we completed the sale of one of the transition lease properties for an industrial use.\nWe are in various stages of active negotiation to sell another 5.\nWe anticipate these will result in various uses, including industrial, multifamily, office, retail and theater reuse.\nWe also took over management of two of our theaters.\nOne of the transition lease properties in Columbus, Ohio; and the former Goodrich Savoy in Champaign, Illinois.\nWe have retained a well-respected experienced theater management company to operate both locations on our behalf and both are open for business.\nI want to take a moment to update you on the status of our cash collections and deferral agreements.\nCash collections have continued to improve in conjunction with reopenings.\nTenants and borrowers paid 46% of pre-COVID contractual cash revenue for the fourth quarter versus 29% and 43% in the second and third quarters, respectively.\nAs Mark will go over, we expect first quarter cash collections to significantly exceed fourth-quarter collections.\nIn January, we collected 66%.\nAnd in February, collections are currently 64%.\nIn each case, of pre-COVID contractual cash revenue.\nDuring the quarter, due to the continuing impact from COVID-19, we reserved the outstanding principal loan balance of 6.1 million and the unfunded commitment of 12.9 million for one of our attractions operators.\nCustomers representing approximately 95% of our pre-COVID contractual cash revenue, which includes each of our top 20 customers, are either paying their pre-COVID contract rent or interest or have deferral agreement in place.\nIn those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions.\nHowever, there can be no assurance that additional permanent rent or interest payment reductions or other term modifications will not occur in future periods in light of the continued adverse effect of the pandemic and financial condition of our customers, particularly with the ongoing uncertainty in the theater industry.\nAs we've discussed, our exhibition partners have faced and continue to face serious headwinds.\nIt goes without saying that the lack of product and reopening restrictions have weighed heavily on box office performance since early 2020 and continue to dramatically impact projected box office performance.\nOur goal has been to work diligently with all of our customers to structure appropriate deferral and repayment agreements to facilitate their ability to reopen efficiently and help ensure their long term health, while also protecting our position and rights as landlord.\nWe intended to help them through a period where they have significantly reduced or no cash flow, allowing them to ramp back up to stabilize cash flow.\nWe individually tailored each deal, considering the variables impacting each business and improved our position through various arrangements.\nThese agreements are generally structured with rent and mortgage payments commencing and ramping up through 2021 and in some cases, after 2021.\nRepayment of deferred amounts typically commences in 2021 and depending on the deferred amount to allow our customers some breathing room, the deferral repayment period generally extends beyond 2021.\nThe vast majority of our arrangements provide for repayment of all deferred rent.\nAs we have stated previously, in a few cases, we have provided rent concessions, but we've generally received equal or greater value through additional lease term, additional collateral or other benefits.\nIn most cases, our customers have paid and continue to pay third-party expenses, including ground rent, taxes and insurance.\nMark will provide additional color on the revenue recognition and cash collections implications for the first quarter of 2021.\nToday, I'll discuss our financial performance for the quarter and year, which continued to be impacted by the disruption caused by COVID-19, provide an update on our balance sheet and strong liquidity position and close with some estimated forward information.\nFFO as adjusted for the quarter was $0.18 per share versus $1.26 in the prior year, and AFFO for the quarter was $0.23 per share compared to $1.25 in the prior year.\nNote that the operating results for the prior year included the public charter school portfolio, which was sold during the fourth quarter of 2019 and are included in discontinued operations.\nTotal revenue from continuing operations for the quarter was 93.4 million versus 170.3 million in the prior year.\nThis decrease was due to the accounting for the various agreements with customers as a result of the COVID-19 impact similar to what we discussed last quarter.\nDuring the quarter, we wrote off 2.4 million in receivables related to putting two additional customers on a cash basis of accounting, bringing the total for the year for such write-offs to 65.1 million, including 38 million of straight-line rent.\nAdditionally, due primarily to the Kartrite Resort & Indoor Waterpark remaining closed due to COVID-19 restrictions, we had lower other income and lower other expense of 7.4 million and 8.7 million, respectively.\nPercentage rents for the quarter totaled 3 million versus 6.4 million in the prior year.\nThis decrease related primarily to the closure of properties due to COVID-19 restrictions.\nI would like to point out, as I did last quarter, that we are defining percentage rents here as amounts due above fixed rent and not payments in lieu of fixed rent based on a percentage of revenue.\nTherefore, AMC and other theater tenants that were in the fourth quarter making cash payments based on a percentage of their revenue against contractual rents are recognized as minimum rent.\nProperty operating expense of 16.4 million for the quarter was up slightly versus prior year, but was up about 2.5 million from the last quarter due to increased vacancy, including the terminated AMC leases that Greg described.\nTransaction costs were $0.8 million for the quarter compared to 5.8 million in the prior year.\nThe decrease is related primarily to lower costs incurred related to the transfer of early education properties to Crème de la Crème.\nInterest expense increased by 7.9 million from prior year to 42.8 million.\nThis increase was primarily due to the precautionary measure we took last March to draw 750 million on our 1 billion revolving credit facility, which provided us with additional liquidity during this uncertain time.\nDue to stronger collections and significant liquidity, including 224 million in net proceeds received from property dispositions in the fourth quarter, we reduced the outstanding balance by 160 million to 590 million at year-end.\nSubsequent to year-end, we used a portion of our cash on hand to further reduce this balance by 500 million, resulting in a current balance of 90 million on our revolver.\nAs I noted last quarter, we are also paying higher rates of interest on our bank credit facilities, as well as our private placement notes during the covenant relief period.\nThe next slide lays out fourth-quarter results reflecting the impact of the receivable write-offs I discussed earlier.\nThese write-offs totaled $0.03 per share for the quarter and $0.86 per share for the year.\nDuring the quarter, we had other items that were excluded from FFO as adjusted.\nGain on sale of real estate was 49.9 million and gain on insurance recovery, which is included in other income, was 0.8 million.\nWe recognized a total of 22.8 million in impairment charges because of shortening in our expected hold periods on four theaters as we expect to sell each of these properties.\nIn addition, we recognized net credit loss expense of 20.3 million that was due primarily to fully reserving the outstanding principal balance and unfunded commitment related to notes receivable from one borrower, as Greg discussed.\nWe also recognized severance expense of 2.9 million due to the retirement of an executive as previously announced.\nOur results for the full-year 2020 were clearly impacted by COVID-19 as FFO as adjusted per share was $1.43 versus $5.44 in the prior year, and AFFO per share was $1.89 versus $5.44 in the prior year.\nNote again that the prior period results included the public charter school portfolio that was sold during 2019 and those results, including 24.1 million in termination fees, are included in discontinued operations.\nAs discussed last quarter, we have classified our tenants and borrowers into categories based on how we accounted for them in the context of our annualized pre-COVID contractual cash revenue level of 624 million, which consists of cash rent, including tenant reimbursements and percentage rents and interest payments.\nThis annualized cash revenue excludes properties under -- properties operated under a TRS structure.\nThe changes of these classifications from last quarter were not very significant, but include a new category to reflect sold properties, most of which was previously classified under the first category titled, no payment deferral.\nThere was also a slight increase in the new vacancies category, primarily as a result of the terminated AMC leases.\nNow let's move to our balance sheet and capital markets activities.\nOur debt to gross assets was 40% on a book basis at December 31.\nAt year-end, we had total outstanding debt of 3.7 billion, of which 3.1 billion is fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.6%.\nAdditionally, our weighted average debt maturity is approximately five years, and we have no scheduled debt maturities until 2022 when only our revolving credit facility matures.\nAs previously announced, due to the continued pressure on near-term quarterly results, as a result of the impact of COVID-19, during the quarter, we further amended our bank credit facilities and private placement notes to obtain an extension through the end of 2021, subject to certain conditions, of the waivers of the same four covenants temporarily suspended in June.\nThis amendment provides us additional time and flexibility to work with our customers during this period of uncertainty.\nNote that we can elect to get out of the covenant relief period early, subject to certain conditions, and there was no change in the interest rate schedules from that agreed to previously.\nWe believe we have sufficient liquidity to see us through the market disruption caused by COVID-19.\nWe had over 1 billion of cash on hand at year-end.\nCash flow from operations was positive for the fourth quarter at approximately 6 million.\nAnd we expect our operating cash flow to be substantially higher as we move into 2021.\nThis positive trajectory and our substantial liquidity gave us confidence in our decision, subsequent to year-end, to pay down our 1 billion line of credit to 90 million, while still maintaining about 500 million of cash on hand.\nIn addition, subsequent to year-end, we reduced the balance outstanding on our private placement notes by 23.8 million to 316.2 million as a result of certain property sales and in accordance with the recent amendment to those notes.\nThere was no prepayment penalty on this paydown.\nAs previously announced, due to the uncertainties created by the COVID-19 disruption, we are not providing forward earnings guidance.\nHowever, we would like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the first quarter of 2021, as well as our expected collections for the same period.\nBecause there have been changes in the portfolio due to permanent rent reductions, acquisitions and dispositions, changes in the occupancy levels and other items, we are moving away from reporting against pre-COVID contractual cash revenue to current contractual cash revenue for purposes of our guidance and future reporting.\nThis slide shows a reconciliation of those amounts, which begins with pre-COVID contractual cash revenue, including percentage rents, for both the quarter and annualized of 156 million and 624 million, respectively, and then subtracts out pre-COVID percentage rents of 4 million and 15 million, respectively.\nFrom there, we make the additional adjustments to the portfolio I just described, to come to the current contractual cash revenue amount of 136 million for the first quarter and 545 million annualized.\nNote that both of these amounts are before the impact of any temporary abatements or deferrals.\nAccordingly, the expected range we expect to recognize in Q1 of '21 is 98 million to 105 million or 72 to 77% of such contractual cash revenue.\nAdditionally, the expected range we expect to collect in Q1 of 2021 is 87 million to 93 million or 64 to 68% of such contractual cash revenue.\nDifferences from the full amount of contractual cash revenue relate to deferrals granted and the associated accounting, as well as abatements.\nNo one is happier than EPR to put 2020 behind us, and we look forward like many consumers to begin again enjoying the experiences that our properties offer.",
        "summary": "qtrly affo per diluted common share $0.23.\nqtrly total revenue from continuing operations$93.4 million versus $170.3 million.\napproximately 94% of company's non-theatre and 60% of company's theatre locations were open for business as of february 23, 2021."
    },
    {
        "text": "Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer and Bob Garechana, our Chief Financial Officer.\nYour commitment and hard work got the company through 2020, and I know you are ready to drive our recovery in 2021.\nTurning to the business, we are encouraged by the recovery in demand in all of our markets, and especially in our urban sub-markets.\nIn real estate demand is the unsolvable problem, without it no other economic factor matters, and in our business both urban and suburban, we see plenty of it.\nThis positive trend in spite of a worsening pandemic, and renewed shutdowns in our markets gives us even more of a cause for optimism.\nIf demand is this strong now, we think that when the vaccines are more fully distributed, and cities reopen our business will really hum.\nThe fact that this is likely to coincide with our traditional leasing season with its higher seasonal demand, positions us especially well.\nAdmittedly though, pricing remains weak, but there are signs of the beginnings of improvement.\nWe also see declining forward concessions.\nWith occupancy firming and strong demand going into our busiest time of the year, we believe that we can recover considerable ground on the pricing side as 2021 plays out.\nWhile we see signs of recovery, our current results reflect the still challenging climate in many of our markets.\nYou may remember that on prior calls, I made clear that the impact of lower rents and higher concessions in 2020, and currently will take some time to fully manifest itself in our reported numbers.\nThat impact arrived in the form of our fourth quarter 2020 same store revenue results, as we continue entering into new leases, and renewing existing leases at lower rents, reflecting the post-pandemic leasing climate, as well as amortizing concessions from leases written in 2020.\nBut just as our reported results lagged our actual operating environment on the way down, they will also lag it on the way up.\nSo you should expect relatively weak same store revenue results in the first half of 2021, with a marked improvement in our revenue numbers in the second half of the year, as we benefit from improving pricing, higher occupancy, and lower concessions, plus easier post-pandemic comparable periods.\nThe interplay of our expectations of increasing occupancy, pricing that is improving, but will be lower than last year's pricing until mid-year or so and the amortization of 2020 and '21 concessions, creates considerable modeling complexity for us, and for our investors and analysts.\nBecause of this more complex picture than usual, we thought it was particularly important that we reinstate guidance to give investors a better idea of management's view of the year.\nOur guidance is at the wider than usual range to account for the multitude of factors, both positive and negative, that may impact our business in 2021.\nAll of this is of course premised on the continuing progress in controlling the virus, and an assumption that other general economic conditions remain supportive.\nTurning to the long term, we believe that the fundamental factors that have long made Equity Residential an attractive place to invest your capital remain just as true now as before the pandemic.\nFirst, our capital is invested in markets that will continue to be the centers of the knowledge economy, that drives the growth of this country, centers of Innovation and Technology, Finance, Entertainment, Medicine and Life Sciences.\nEven in the pandemic, we have seen announcements of new high quality jobs in our urban centers like Amazon's announcement that it's putting 3,000 new technology and software development jobs in the Seaport District of Boston, and with the recent commencement of construction on Disney's new building in Hudson Square in New York, that will lead to a significant influx of new content creation and technology jobs.\nAnd while the remote work trend may change the number of days that we are in the office we are by our nature social animals.\nOur need to interact with each other, to create, to share ideas, to manage our businesses and to start new ones is not being met by meetings on a video screen.\nSecond, we believe that the entertainment, cultural, and social attractions that fill the great urban centers in which we operate, will soon reopen, and will again prove to be magnets for affluent renters.\nWe believe that many renters desire both the work proximity I just mentioned, as well as easy access to the amazing entertainment, cultural and social opportunities our cities will provide once they are reopened, not to mention the ability to live in an exciting, dynamic, and diverse community.\nOur residents that live in our more urban properties do so because they value the lifestyle of our country's great urban centers.\nThird, we have a highly skilled, affluent customer base able to afford our rent and to accept future rent increases as conditions improve.\nOur residents are well-employed in growing industries like technology, biotech and new media.\nIndustries that we also think are less susceptible over time the job loss, from increasing waves of automation, and offshoring.\nIn the pandemic period overall unemployment rose to almost 15% and is now around 6%, while job losses for those with the Bachelor's degree or better, which is our target demographic peaked at 8.4% and is now gone down to 3.8%.\nOur resident base proved its quality again in the fourth quarter, as we collected 97% of our expected residential revenues.\nWe think the quality of our customer base is over the long haul one of our greatest strengths.\nFourth, the superior location and quality of our portfolio makes our properties attractive places for our residents to live, and also makes our properties attractive places for private investors to invest their capital.\nThis makes our properties liquid, and appreciating over the long-term.\nCapital has long been drawn to the higher quality properties we own, and that will continue to be the case, even in markets like New York and San Francisco, once the pandemic abates.\nWe also believe that the lower long-term capital spending required to maintain our properties and income stream compares favorably with that of older lower quality apartment buildings.\nBut our portfolio can always be improved and you should expect us to be more active recyclers of capital over the next few years.\nAs I have said on prior calls, even before the pandemic, in order to create the most stable and growing cash flow stream possible for our investors, we are inclined to further diversify our portfolio in the higher-end suburban locations in our current markets, as well as into a few select new markets with favorable long-term supply and demand characteristics, and a growing affluent renter base.\nThese affluent renters are found in abundance in our existing markets, but there are also increasing concentrations of them in denser suburbs near city centers of our existing markets, and in places like Denver, which is a market we reentered in 2016.\nYou've seen us do this over the last few years, as we have acquired properties in suburban Seattle in Washington, D.C. with strong resident demographics.\nWe are looking hard at several other suburban assets, as well as development and acquisition opportunities in Denver, that we find appealing long term.\nWe will fund this by lowering our concentration of assets in city centers in our existing markets, and by exiting assets elsewhere that do not meet our return parameters.\nTo close, we have the best team in the business, ready to maximize results as the pandemic ends, and a sturdy balance sheet that gives us ample flexibility.\nWe are tremendously optimistic about our company's future, because we believe that the markets in which we operate will thrive when we get to the other side of this pandemic, and with the rollout of vaccines we are on our way.\nSo 2020 has been the most challenging year that we have faced in our business.\nWorking together we got through 2020 by serving our customers, taking care of each other, and driving the best results possible given the circumstances.\nDespite the challenges we are excited that 2020 is behind us and optimistic that 2021 will be a year of recovery.\nAs Mark mentioned, we have begun to see improvement in both Physical Occupancy and pricing.\nNotably, this is the first time this has occurred since the beginning of the pandemic.\nWe continue to test price sensitivity in many markets by reducing both the value and quantity of concessions being granted, and beginning to raise rates.\nIn November, concessions averaged just over six weeks free on about 45% of our applications and recent weeks concessions have averaged just under six weeks and only about a third of our applications.\nAll that said, it will take some time to fully recover from the unprecedented events that have occurred, particularly in our hardest hit markets.\nWhile we are optimistic about the recovery, it is hard to handicap its pace, especially in New York and San Francisco, our hardest hit cities.\nDemand continues to be robust and has carried us through much of the winter season with increased move-in activity, well above seasonal norms.\nApplication count exceeded 2019 levels by 25% in the fourth quarter and we were able to generate sufficient front door activity that have move-in, outpace move-out despite higher turnover compared to the 2019 record low level.\nWe haven't seen this net gain and move-ins since the onset of the pandemic.\nApplications have remained robust in January albeit below December's levels but that isn't surprising since improved occupancy has allowed us to start testing pricing and we have fewer units available to sell.\nThe chart on pricing trend, which includes the impact on concessions is a good indicator of where rents are headed and it has been improving across both the urban and suburban markets for the last eight weeks or so.\nBlended rates, which combines new lease changes and renewal rates achieved, will continue to be negative for some time as this metric compares new leases written or renewed with those that were before the pandemic began.\nThat said, the rate of change of Blended rates has flattened and for the first time, we have seen modest sequential improvement in new lease rates which is helpful.\nWe continue to experience negotiation pressure on renewal rates and we are still renewing residents who signed leases pre-pandemic.\nWe have found some stability in the percent of residents renewing, which stands at approximately 52% in January, we expect that to improve to around 54% for February and March, which is still below our usual retention rates for this time of year.\nBefore moving to market commentary, I want to summarise that while the operating environment remains challenging, we continue to see good demand for our product and we are starting to see early signs of pricing improvement.\nWe have a long way to go, but recovery is in sight.\nNow let me provide some brief market commentary.\nStarting with Boston, strong application volume and improved retention through the fourth quarter resulted in steady gains in occupancy to position us to 95.5% today.\nThis market has been dialing back concession use and raising rates consecutively for the past four weeks.\nAt present concessions are being used on about 25% to 30% of our applications and averaging right at six weeks, which is compared to 50% use back in November.\nLong-term demand drivers remain positive with a very bullish outlook for biotech and pharma space fueling job creation.\nAt this point, it is hard to forecast exactly how some of the traditional demand drivers associated with Boston play out, notably students, both domestic and international and the jobs that support that infrastructure.\nWe expect to have a better view on these by late spring, early summer before the fall semester.\nAnecdotally, I will tell you that January did see a few applications from foreign addresses, which we haven't seen for several months.\nBoston will have its challenges in '21 but its performance over the last two months has definitely improved.\nIn 2021, we look to regain more occupancy, which will allow us to then recapture some of the rate we lost last year.\nNew York continues to feel the outsized impact from the pandemic, but there are early signs of recovery.\nWe recently had our best traffic week in the last 12 months and our best leasing weeks since August.\nLeasing activity is still driven by deal seekers and interest city movers, which is running about 10 points higher than normal.\nWe still see move-outs to the suburbs in New Jersey and Connecticut, but that number is normalizing.\nOccupancy has improved in the market and is just above 91.5%, which is the first time we have been over 90% since September of 2020.\nSome additional color on recent traffic includes that we are just now starting to have former residents reaching out to our property teams contemplating moving back to the city.\nLike in Boston, we are seeing the first signs of international students and specific to New York, UN workers looking to come back.\nAnd finally, we saw a few roommate type prospects emerging from their parents basements.\nMany of these prospects are looking for late spring or early summer time frames in anticipation of their offices opening back up.\nWe still see a good amount o f deal hoppers and upgraders as well as prospects from the outer boroughs who can now afford to live in Manhattan and many of them are telling our on-site teams they think the market bottom is near and they don't want to miss out.\nConcessions remain prevalent in this market was 70% of the applications receiving about two months free.\nRates are beginning to show signs of improvement and we are just starting to gradually dial back concessions.\nFor 2021, our focus in New York will be recapturing as much of the occupancy rate as possible while lowering and possibly eliminating the use of concessions.\nWhile the market will still produce a negative decline for the year, New York has upside potential given the dramatic declines we saw in 2020.\nRecovery in this market will be fueled by a lack of competitive new supply, the return to office and the continued growth of the big tech employers in the market.\nMoving to D.C. which has been our most resilient market on the East Coast, occupancy remained solid at 95.5%, but the market continues to feel the impact from the delivery of Class A multifamily product, which is not being absorbed as efficiently in previous years.\nFederal government employment has grown, but the overall job growth has declined.\nConcession use was up in the quarter with the largest amount focused in the district.\nThe good news, however, is that as fast as concessions came into the market during the fourth quarter, they have now been greatly reduced.\nSince mid-December we are only using concessions on 15% of the applications and they've been averaging just below one month.\n2021 will be focused on balancing occupancy and rate as we faced supply pressure from yet another 12,000 units being delivered into the market.\nRecent signs of improvement provide us more confidence in the market's ability to absorb the new units and allow for continued rate recovery, which could make D.C. one of our better performing markets in 2021.\nDenver, albeit a small portfolio for us is holding up well.\nFor 2021, all five of our Denver communities will be included in the same store results.\nOccupancy is sitting around 96% and both new lease change and renewal rates are improving.\nRenewals are showing positive growth rates in December and January and concession use is trending down.\nIn Seattle, we are seeing early indications that the bottom may be behind us.\nOccupancy continues to improve as traffic is up over January 2020 by about 6%, and we are seeing weekly application numbers that are closer to peak leasing season levels.\nConcessions remain common in the market, especially in the urban submarkets.\nDuring the fourth quarter, concessions averaged about six weeks free and about 55% of our applications.\nStrength in occupancy both at our properties and more generally in the overall market are allowing for a gradual reduction in concessions.\nWe have heard from our Seattle teams that many prospects are less concerned about the monthly rate right now as they are about getting a deal.\nWhile current rent freeze restrictions may limit renewal performance in the first half of the year, overall fundamentals for this market support a recovery.\nRecent home price appreciation and the increase in this quarter's job postings from the technology companies should continue to drive strong demand for our product.\nThe focus in Seattle in 2021 is maintaining the strong occupancy we currently have while pushing rate.\nSan Francisco remains our most challenged market, but even here there are some very early signs of recovery.\nOccupancy is just below 94% and has improved 150 basis points since the beginning of November.\nThe Downtown portfolio remains pressured on rate with concessions that average six weeks in the quarter and about two third of our applications.\nJanuary concessions improved to a one-month average on less than half the applications.\nAnecdotally, stories from our teams across the Bay are reporting that people who left to go to other areas like Denver and Sacramento are now looking to move back to be near their office or in desirable school districts.\nThe extent of the Bay Area recovery will improve as we get even more clarity on tech companies plans regarding return to office.\nThere have been headlines about corporate relocations at a state and clearly, that is not a positive for the market, but it is important to keep reading.\nThe Bay Area continues to attract venture capital and is yet to be replaced as the epicentre of the tech economy.\nBay Area tech companies are also feeling a bit more optimistic and their ability to receive H1B visas under the new administration, which could increase demand in this market.\n'21 will continue to be concentrated in Oakland and in the South Bay.\nFeedback from our local team was that the recent lifting of the stay-at-home order can definitely be felt in the downtown market with much more active streets and outdoor restaurant seating filled to the new lower allowed capacity levels.\nThese are the first signs of bringing life back to the city.\nOur focus in San Francisco in '21 is to build back our occupancy, particularly in the downtown submarket, get rid of concessions, and then push rate.\nWhile San Francisco will produce a revenue decline in '21, hit like New York has a lot of upside potential due to the steep decline in 2020.\nFinally, moving to Southern California, which continues to hold up much better than the Bay Area, despite some pretty difficult pandemic related headlines in the LA area.\nOur Los Angeles portfolio maintained occupancy above 95% through the quarter, concession use was modest and averaged just under one month on about 20% of our applications.\nOperationally, the story is similar to the third quarter with continued pressure from new supply in the Downtown, Korea Mid-Wilshire corridor.\nWest LA continues to feel the pressure from the slow restart of online content creation but new lease and renewal rates have shown some stability through the fourth quarter and into January.\nThe suburban portfolio has very strong occupancy at or near 97% and the submarkets of Inland Empire, Santa Clarita Valley and Ventura County continue to experience modest year-over-year gains in rental income.\nFor '21, LA should be one of our better markets.\nWe have recaptured our occupancy, concession use is already been dial back and now our opportunity is on increasing rate and managing delinquency.\nI will finish with Orange County and San Diego, which are primarily suburban markets for us and have averaged around 97% occupancy through the quarter.\nThese markets continue to demonstrate resilience and produced higher resident retention then in any of our other markets.\nBoth of these markets are presenting opportunities to increase rates and are expected to continue to perform well through 2021.\nIn closing, we remain optimistic that the early signs of recovery that we now see will continue.\nAnd that through '21, we will build occupancy on the back of strong demand leading to improved pricing power.\nOur efforts over the next several months will be focused on seeking out opportunities to maximize the trade-off between rate and occupancy while ensuring the well-being of our employees and residents.\nAs a result, our same store revenue, NOI, and normalized FFO ranges are wider than normal.\nLet's start with our full-year 2021 total same store revenue guidance range, which is between -9% and -7%.\nNote that this guidance is on a GAAP basis since we report same store revenues in the same manner and include the straight lining of concessions as required.\nThat said, let me take a moment to highlight the main drivers that will shape revenue performance for the year, along with our thoughts and how 2021 might play out.\nYou heard both Mark and Michael talk about the improvements we are already seeing.\nWe would expect this to continue and that as we get into the second quarter, occupancy should become a tailwind that begin to contribute to year-over-year improvement.\nMuch like occupancy, the middle and higher end of our guidance anticipate the pricing improvements discussed to continue both an improved leasing rates and reduce concessions.\nThis positive trend, however, will take a little longer to manifest itself in our reported numbers.\nFor leasing rates, it will take some time, not only to start writing new leases and renewing existing ones at levels above the prior year, but also to reset a meaningful part of the leasing book.\nThe good news is, that not only are we starting to see improving trends, these improvements may gain even more traction in time to coincide with our prime leasing season and resulting in positive year-over-year rates by mid-year.\nThe other element of pricing that is worth touching base upon is concessions.\nAs I mentioned earlier, we recognized concessions on a straight-line basis as required by GAAP.\nThat means as disclosed on Page 12 of the release, of the $31 million in cash residential concessions granted in 2020, we still have approximately $19 million of unamortized concessions that were reduced revenue in 2021, which is about 75 basis points of same store revenue.\nAny new concession granted in 2021 will also be straight-lined.\nSo the earlier in the year that the concession is granted, the more of it that will be recognized in the 2021 financial statements.\nWe expect concessions granted will taper off during the first half of the year.\nBut because of the combination that I just described, 2020 unamortized residuals and the timing of new 2021 concessions, this improvement will fully manifest itself in 2021 reported GAAP results.\nAnd finally some thoughts on bad debt.\nAs Mark mentioned, our collections have remained strong and consistent at approximately 97%.\nWe incurred in approximately $30 million reduction in revenues for the fourth quarter 2020 due to uncollected rent.\nThe middle range of our 2021 guidance assumes that this continues with only slight improvement very late in the year.\nWe hope that we can do better than that, but given the regulatory environment, we remain cautious in our assumptions.\nSpecifically, same store revenue performance will be sequentially negative from Q4 2020 to Q1 2021, and likely not improve until the second half of the year.\nAs fundamentals improve, consistent with our expectations, reported results will catch up from this improvement and benefit both sequentially and from a year-over-year comparison basis.\nWe expect same store revenue results in the second half of the year to be better than the first half results and to position us very well for continued growth and recovery.\nNow, some color on same store expenses.\nOur full-year guidance range for same store expenses is 3% to 4%.\nThe drivers of same store expenses remained largely unchanged.\nThe four largest expense categories continue to be real estate taxes, on-site payroll, utilities, and repairs and maintenance.\nAs you think about how this plays out quarterly, this comparison issue will especially be pronounced in the second quarter since many activities and corresponding expenses were halted in the first few months of the pandemic.\nNow a little color on the major categories.\nReal estate taxes are expected to grow in the mid 3% range, which is slightly lower than prior years.\nWhile municipalities continue to be stretched, we are seeing some jurisdictions provide relief on assessed values and that coupled with aggressive appeals activity should help control growth.\nPerhaps even more pronounced this year than usual will be the timing and success of this appeals activity which may present an outsized impact on where the number ultimately settles out.\nPayroll ended 2020 flat to 2019.\nThis is the second year in a row that payroll growth has been less than 1%.\nAnd while many of our efficiency initiatives were delayed because of the pandemic, our hard-working on-site colleagues have continued to gain in efficiencies.\nAs a result, 2020 makes for yet another difficult comparison for 2021.\nBy continuing our efficiency initiatives and keeping our eye on the ball, we should still be able to limit payroll growth for the full year to around 2%.\nThat leaves us with the final two categories of utilities and repairs and maintenance.\nBoth are estimated to have more meaningful growth in the 4% to 5% range.\nIn previous years, utilities benefited from a modest or declining commodity price growth.\nIn 2021, we're expecting higher natural gas prices, which is driving our forecasted growth.\nFor repairs and maintenance, a good amount of the growth encompasses catching up on activities that were delayed as a result of the pandemic, keeping in mind that this expense declined in 2020.\nOur guidance range for normalized FFO in 2021 is $2.60 per share to $2.80 per share.\nMajor drivers for the change between our 2020 normalized FFO of $3.26 per share and the midpoint of $2.70 from our 2021 guidance include a $0.60 decline in same store NOI based on the revenue and expense assumptions outlined.\nKeep in mind that nearly one third of that decline stems from the difficult comparable period in the first quarter of 2020.\nA $0.07 decline primarily due to disposition activity that occurred in 2020 which is more than offset by a positive $0.14 contribution from lower anticipated interest expense, predominant due to taking those disposition proceeds and paying down nearly $1 billion in debt in 2020, and finally a negative $0.03 in other items.\nThe backloaded nature of the recovery in our NOI will also of course impact our NFFO numbers, which should improve on the back half of 2021.\nA final note on the balance sheet, our financial position remains extremely strong, despite the impact of the pandemic.\nAs I just mentioned, in 2020 we paid down nearly $1 billion of debt using disposition proceeds, extended our already long weighted average maturities to nine years and continue to reduce our weighted average rate.\nThis activity has positioned us extremely well and in the year with net debt to normalized EBITDA of 5.0 times, nearly $2 billion in available liquidity, and very limited maturities until 2023.\nOur access-to-debt capital remains excellent, positioning us well for opportunities should they present themselves.",
        "summary": "sees full year 2021 normalized ffo per share of $2.60 to $2.80."
    },
    {
        "text": "escotechnologies.com, under the link Investor Relations.\nBefore we get into the financials, I'll provide a brief update on today's COVID environment.\nWe continue monitoring the situation on a regular basis, and our primary goals remain the same; stay ahead of the curve, provide a safe working environment and protect the health of our employees.\nThe decisive actions we've taken and the operating protocols we've implemented since the start of the pandemic were done with a clear focus, which was to protect our strong financial condition, to deliver products and services and support of our customers, all while keeping our employees safe and healthy.\nOur solid operating results in Q1 coupled with our strong liquidity position demonstrates that the measures we've taken will allow us to successfully navigate through this challenge.\nOur actions will benefit as we're going forward as things continue to move toward a more normal state.\nAnd I'm confident that our disciplined approach to operating the business will result in our continued success throughout the balance of fiscal 2021.\nWhile Gary will provide financial details, I'll offer top level comment by noting that while our Q1 A&D sales were lower than prior year due to COVID's impacts on commercial aerospace.\nOur portfolio diversity allowed us to overcome this headwind as we substantially increased our adjusted earnings per share from prior year, due to the strong performance from our other operating units.\nOur Navy business remained strong and well-funded.\nOur test business continues to outperform with increased margins and our USG business saw some meaningful calendar year-end spending across the utility customer base.\nCoupled with the cost reduction actions we recently implemented, USG delivered an adjusted EBITDA margin of nearly 25%, up from approximately 19% in the prior year's Q1.\nWe're fortunate to have strong and experienced leadership teams across the company, who continues to demonstrate their ability to effectively manage costs, to meet changing market demands.\nOur teams are actively addressing the challenges of today, while continuing to focus on being even stronger tomorrow.\nESCO will continue to benefit from our leadership positions in several niche markets, where we deliver set of unique and highly technical products and solutions, specifically designed to meet our customer needs.\nThis makes it difficult for our solutions to be replaced by alternative sources.\nThe fundamentals of our portfolio remain strong and our goal remains the same, to create long-term shareholder value.\nNavigating today's COVID world, our number one financial priority remains the same, maintaining our substantial liquidity.\nAs I said from the start of the pandemic, when challenging times pop-up unexpectedly, cash is king.\nI'm extremely pleased with the significant cash flow we generated in Q1, as normally our first quarter is the weakest quarter of the year, when it comes to cash generation.\nFollowing up on the strong cash flow performance of the past year, we kicked-off fiscal 2021 with a record amount of cash flow, resulting in a free cash flow conversion ratio of 127% of net earnings.\nClearly, our working capital initiatives are taking hold across the company, and while impressive today, we have set larger goals for the future.\nToday, we have approximately $740 million of liquidity at our disposal between cash on hand and available credit capacity while carrying a modest leverage ratio of 0.38.\nIn the release, we called out a couple of discrete items, which are described in detail and are excluded from the calculation of adjusted EBITDA and adjusted earnings per share in both Q1 periods.\nI'll briefly touch on a few comparative highlights.\nWe reported adjusted earnings per share of $0.55 a share, which increased $0.12 or 28% from the $0.43 we reported in prior year Q1.\nThe $0.55 also exceeded the consensus estimate of $0.45.\nGiven the backdrop of today's COVID operating environment, I'm pleased to report that we deliver Q1 adjusted EBITDA of over $29 million, which is approximately 4.5% higher than Q1 of last year, despite the noted sales decline in A&D that Vic mentioned, related to softness within commercial aerospace, which historically is one of our most profitable operating units.\nTotal sales in Q1 decreased $9 million compared to Q1 of last year, but Navy and space sales were up $4 million in A&D, which helped to mitigate the decline in commercial aerospace and Test and USG sales were up a combined $2 million.\nDespite the noted increase in USG's Q1 sales resulting from the release of some pent-up demand, Doble continues to expect some near-term deferrals of project deliverables and maintenance work as many utility customers, both domestic and international are continuing their COVID protocols, reflecting the various mandates restricting onsite personnel at customer locations.\nConsistent with their earlier communications, we believe the back half of 2021 will be stronger than the first half.\nAnd as vaccine rollouts continue to accelerate, this should allow Doble's customers to return to a more normal operating environment.\nWe took several cost reduction actions recently, and as a result, we increased our Q1 gross margin by 150 basis points to 39.4% and reduced our SG&A spending by nearly 3%.\nThese favorable outcomes were achieved despite adding the recent ATM acquisition in October, which is not fully operating at capacity during its transition to Crissair, and despite our continued spending on R&D and new product development to benefit our future.\nAmortization of intangibles, interest expense, and tax expense as a percent of pre-tax income also decreased in Q1, as we look at all costs and spending similarly.\nEntered orders were solid, as we booked $158 million in new business and ended the quarter with a backlog of $512 million with a book-to-bill of 97%.\nAs we move forward throughout 2021, I'll remind you that our DoD business, led by our participation on the Block V contract for additional Virginia class submarines, where we booked several large orders during fiscal 2020 will be delivering products against these large multi-year programs, which will mathematically reduce the optics of our book-to-bill going forward.\nAs we work through the year, COVID will continue to bring along some uncertainty, which makes it difficult to predict how our near-term operations will be affected using our normal forecasting methodologies.\nAnd as a result of this uncertainty, we'll continue our current protocol of not providing finite earnings per share guidance for the balance of the year.\nConsistent with our November communications, from a directional perspective, we can point to several areas where we see positive momentum.\nOur commercial aerospace and our utility end markets are showing some degree of customer stabilization, which supports our current outlook suggesting movement toward a recovery in the second half of 2021.\nThe increasing distribution of the COVID vaccine is anticipated to benefit and accelerate the recovery of commercial air travel and utility spending with customers resuming more normal buying patterns.\nWhile we solidly beat Q1, we still expect the first half of 2021 to be slightly down compared to the first half of 2020 and the outlook for the second half of 2021 is expected to be a favorable comparison to the second half of fiscal 2020, given the various elements of recovery that we are anticipating.\nWe expect to show growth in fiscal 2021 adjusted EBITDA and adjusted earnings per share compared to fiscal 2020 with adjusted EBITDA and adjusted earnings per share reasonably consistent with that reported in 2019.\nIf we complete any additional acquisitions during the year, it is expected they would contribute to these expectations.\nI won't spend much time recapping the first quarter.\nThe commentary and release captures my perspective, but I will offer some qualitative comments about our end markets and our expectations for the balance of the year.\nStarting with our A&D Segment, while we're seeing some signs of modest recovery in commercial aerospace, we expect continued softness over the next three to six months.\nWe are seeing some stabilization in OEM build rates and increase in airline passenger traffic, and flight miles evidenced by the fact that quite a few air carriers bringing more of their idle fleet back in the service, and daily TSA passenger boarding numbers are moving in the right direction.\nJust as we saw in Q1, the defense portion of our A&D business is and will continue to remain strong for the foreseeable future, given our backlog and platform positions.\nWe also see the current situation in aerospace market as an opportunity for ESCO and we continue to look at suppliers, our competitors where we may be able to provide assistance by a partnering or through an acquisition.\nOur Test business delivered a really solid Q1 by significantly beating our internal expectations and delivering an EBITDA margin of nearly 13% versus 11% last Q1.\nTest outlook remains solid, given the diversity of its served markets.\nWhile USG had a really strong first quarter coupled with favorable sales mix driving a solid EBIT margin, we now expect USG's sales outlook to be -- we do expect it to be soft for Q2 before returning to more normal levels in the second half of the year.\nAs COVID vaccine gets more widely distributed throughout utility service personnel, we expect USG market to come back on line more quickly as they can relax some of today's social distancing guidelines, utility service personnel can return to their normal site visit routines.\nWe continue to communicate with and support our utility customers remotely and our client service engineers are doing a really good job of capitalizing on their relationships with their utility counterparts to provide real-time solutions.\nThis has been accomplished through a lot of creative means and positions Doble for success when the current site restrictions are eased.\nI'm pleased with the enthusiasm surrounding USG's pipeline of new products and solutions and we continue to see NRG's end market is improving as new investments in renewable energy are increasing in both wind and solar.\nOur new solar product introductions have been growing far better than anticipated and we expect that trend to continue.\nMoving on to M&A, we continue to evaluate several opportunities and we'll continue taking a prudent and deliberate approach.\nWe expect to take action on these opportunities to grow our business as we have in the past.\nOur board is supportive of our M&A strategy and our current balance sheet provides us with plenty of liquidity to allow us to add to our existing portfolio.\nRegarding our recent acquisition of ATM, I am pleased to report the integration into our Crissair facility in Valencia, California is on track and should be completed within the next two to three months, which should further improve ATM's contribution margin.\nSo to wrap-up, we delivered a solid first quarter from both the cash flow and earnings standpoint.\nAs we move through the fiscal 2021, our plan is continue to focus on the fundamentals and look for opportunities to leverage our infrastructure through M&A, to create additional operating efficiencies, ensure we're well positioned for long-term success.\nSo with that, I'd be glad to take any questions.",
        "summary": "current business outlook for 2021 is consistent with commentary included in company's previous earnings release."
    },
    {
        "text": "technologies.com under the link, Investor Relations.\nThere continue to be a lot of challenges to overcome on a regular basis.\nWe're seeing some supply chain issues with delivering cost inflation, as well as the ongoing challenges from COVID.\nIn spite of that, we continue to see great efforts and contributions from our body across the company and for that I'm very appreciative.\nSince beginning of the pandemic, our primary goal has been the same to provide safe working environment and protect the health of our employees.\nWe continue to do that now and we appreciate everybody's efforts to create a safe and collaborative environment our facilities worldwide.\nOverall, we're very happy with how we finished fiscal 2021.\nThe fourth quarter showed some stabilization in our overall business with sales growth of two of the three business platforms and good margin improvement compared to our third quarter results.\nCash generation was also strong, as we continue to see benefits from our ongoing focus on working capital improvement.\nChris will get into some financial deals -- the details in a few minutes, but I wanted to start off with some top level commentary.\nFrom a segment perspective, there are several positives to report.\nWithin A&D, we're seeing signs of recovery in commercial aerospace as passenger boardings continue to solidify.\nMore importantly, we're starting to see some order momentum from this set of businesses.\nAll of our businesses in selling commercial aerospace sector saw a nice order improvement in the quarter.\nWe're also seeing good order strength in the military side of the business.\nSales of our commercial aerospace customers were still be down in fourth quarter, but the rate of decline was improved compared to what we saw in the first half of the year.\nOverall, our navy and space businesses remain strong and well-funded, but sales there were a little weaker in the quarter, which is mostly a function of a very strong fourth quarter last year by our VACCO subsidiary.\nOur Test business has seen a nice pickup in its overall piece of business, we had double-digit sales growth there in Q4, and we also saw order growth of over 30%, some exciting numbers.\nin the U.S., we have seen some sizable order growth from the power line filter business.\nThese are used in data centers to ensure clean power supply, and we've seen a lot of government activity driving the order increases.\nWe also had a strong quarter in Asia from a top line perspective and are excited about our prospects there, as we move forward.\nWe did experience a little margin pressure test during Q4, definitely seeing some impacts of inflation, we're all very aware of these days.\nThe team at the testing is very focused on managing our overall cost profile and also price execution, so that we see margin trends turn around in fiscal 2022.\nUSG business had an exciting quarter with the closing of two acquisitions.\nBy now, you've all heard a lot about Altanova and Phenix, but we're very excited to get these deals closed.\nThese businesses will strengthen USG for the long term and we're very excited to have these teams on board with our ESCO.\nThe business is going through the hard work of integration now doing a full product and channel assessment to gain proper alignment of the businesses on a global basis.\nThe acquisition to get the USG business a bit of a top line boost in the quarter and we look forward to more of that next year.\nThe underlying business did delivered growth in Q4 and that was good to see.\nThe core business -- core Doble business was a bit up and down in the fiscal '21 where we really finished the year strong.\nThe energy business grew 25% for the full year and the fourth quarter was consistent with that as well.\nUSG margins were a big part of our '21 story because the team took actions late last year to reduce cost, and we really saw good flow-through from that throughout the year and definitely saw in fourth quarter as well.\nOverall, the fundamentals of our portfolio remain strong.\nWe're excited about the outlook for '22.\nWe feel good about that and are ready for the return of growth after two tough years in COVID environment.\nI'll start briefly by touching on a few comparative highlights.\nSales in the fourth quarter were flat to prior year Q4 with A&D down 16%, USG was up 16% and Test grew 11%.\nSo we did see growth from two of the three businesses, but we do continue to fight some headwinds in the A&D Group.\nAdjusted EBIT margins were 13.7% in the quarter compared to 13.9% in the prior year quarter.\nThe margin decline was driven primarily by deleverage within the A&D Group, given the sizable revenue drop there.\nBelow the EBIT line, we saw interest expense of approximately $800,000 in the quarter compared to nearly $1.5 million in the prior year Q4.\nAdditionally, we saw tax rate favorability compared to prior year Q4.\nAll these items delivered adjusted earnings per share of $0.85 per share above prior year's $0.80 per share.\nSegment highlights in the quarter are as follows.\nA&D did see sales weakness in the quarter as previously mentioned, the group was down 16%, in the quarter we saw declines in all major markets with commercial aerospace down 15%, space down 10% and the Navy business down 27%.\nThe space and Navy reductions are a function of timing and comparisons, as our VACCO subsidiary was very strong in the prior year quarter.\nWe did see great strong order growth by the A&D Group in Q4.\nOrders were up over 25%, as we saw the commercial aerospace driven businesses pick up nicely during the quarter.\nPTI, Crissair and Mayday lead the order growth for Q4, a nice indicator as we head into fiscal '22.\nUSG saw sales growth of 16% in the quarter.\nIf you exclude the impact of the Q4 acquisitions, the growth was approximately 8%.\nThe core utility business from Doble was up approximately 4% in the quarter, the renewables business at NRG delivered 29% growth in the quarter capping off a very successful 2021.\nThe margins from USG were very good in the quarter with adjusted EBIT up to 24.3% in the quarter compared to 18.8% last year.\nWe continue to get good flow-through from prior cost reductions and we also had favorable mix on instrument, contract and service sales.\nWe saw good orders for USG in Q4 and including the recent acquisitions we move into fiscal '22 with a record backlog position of $92 million.\nThis compares to $51 million at the end of last year.\nThe test business also saw strong growth in the quarter with revenues increasing by 11% compared to prior year Q4.\nThis growth was led by strength in China, which was up over 30%, the Americas also experienced solid growth driven by the power filter business Vic mentioned previously.\nWe did see margin pressure in this business, during the quarter as adjusted EBIT margins went from 16.8% in the prior year to 15.3% in the current quarter.\nThe business is experiencing inflation driven by materials and labor, as they manage increasing demand.\nWe are very focused on driving cost containment, productivity and price increases to offset these impacts as we move forward.\nOn the orders front, we saw continued strength in the pace of business for test, orders were a record $74 million in the quarter, which is an increase of over 35% compared to last year's Q4.\nNow a few comments on the full year performance.\nThe A&D Group had a full year sales decline of 11%, the main driver of the sales drop was commercial aerospace, which was down 29% for the year, this was somewhat offset by 4% increase from the Navy business.\nUSG at a full-year sales increase of 6% excluding the fourth quarter acquisitions the growth was 4% and this was driven by 29% growth at NRG.\nTest grew by 6% during fiscal '21 and for the full year consolidated adjusted EBITDA was $131 million or 18.3% compared to $133 million and 18.3% in the prior year.\nWe were able to hold EBITDA margins on reduced sales.\nAdjusted earnings per share finished the year at $259 million compared to $267 million in the prior year overall of 3% reduction of earnings per share, which is consistent with the underlying sales decline that we experienced.\nOrders for the year were $767 million before considering the impact of fourth quarter acquisitions last year's orders were $798 million but included very large in Navy orders received by Globe during 2020.\nBacklog ended September 21, is at $592 million compared to $511 million at the end of September 2020.\nYear-to-date, operating cash flow achieved a record of $123 million in '21.\nGoing back to fiscal '18, we have seen steady improvement with operating cash flow increasing at a double-digit compound annual growth rate.\nWe continue to see great results from our focus on driving balance sheet improvements, operating capital turnover continues to improve, and we see overall balance sheet and cash flow management as a long-term value lever for ESCO.\nWe have a focus program with each subsidiary and will continue driving for long-term improvement of our returns on capital.\nOverall, while we continue to see some challenging conditions in a few of our end markets, we were still able to deliver solid results in 2021.\nOur balance sheet remains strong and gives us great flexibility moving forward, our overall net debt position and leverage ratios leave us with the strength to invest in our core business and to expand via acquisition.\nWe continue to aggressively look for new companies that can be added to our portfolio.\nWe will continue to aggressively pursue additional deals in 2022.\nAnd we told you last quarter, our number one focus remains the same increasing and maximizing our liquidity to position us for future M&A growth and continued investment in new products and solutions.\nWe still have ample capacity for further acquisitions and we obviously continue to invest in the core business to enhance the organic growth profile.\nOur significant cash generation this year is a testament to this focus on liquidity.\nWe delivered free cash flow conversion at 129% of net earnings in '21 and we'll continue to build on the momentum achieved from our working capital initiatives.\nIn the release, we provided earnings per share guidance for fiscal '22.\nWe have seen some good trends developing with orders and are excited to issue guidance that calls for earnings per share in the range of $310 million to $320 million or growth of 20% to 24% in fiscal '22.\nThis earnings per share range assumes '22 sales in the range of $810 million to $830 million or growth of 13% to 16%.\nWe expect A&D to grow sales in the range of 10% to 12%, USG to grow in the range of 28% to 32% and test to grow 3% to 5%.\nBacklog positions for all three businesses have solidified nicely during the fourth quarter and are supportive of these growth ranges.\nWe do have some headwinds next year with increased interest expense to $4 million in a projected tax rate of 23% to 24%, but the plan still deliver strong earnings per share in spite of these items.\nWe are now breaking out guidance by quarter for '22, but we do expect the Q1 results to be lower than Q2 to Q4.\nThe core utility-based business has been up and down over the last year and we see Q1 a little weaker there and while the test backlogs are strong right now, we don't see that growth kicking in until after Q1.\nSo, that's the financial summary.\nSince I touched on quite a few of my thoughts earlier in my commentary, I'll just offer a few more comments before we move into the Q&A.\nAs Chris mentioned we feel good about the year, we just finished, and are excited for 2022 and a return to growth.\nWe feel great about our end market exposure and a diverse portfolio allows us to manage through periods like we've just experienced over the last few years.\nWe've been able to continue investing in the core business and we know how important driving organic growth is, and these programs are key to achieving that.\nExamples of this across our portfolio include the F8000-series of power system simulators launched by Doble in 2021 in the Red Edge Power Lines Filters that are driving growth for test.\nWe've also been able to strengthen the portfolio with the ATM acquisition earlier in '21, Altanova and Phenix in the fourth quarter and then NEco in the first quarter of 2022.\nThese acquisitions all bring unique value to the ESCO and we're committed to delivering value to the shareholders, with these transactions.\nWe spent the last two days with their Board for our year-end meetings, we had a great set of meetings and covered a lot of important topics.\nWe appreciate all your hard work and are counting on you as we go into 2022.\nSo, with that, I think we're ready for Q&A.",
        "summary": "compname reports q4 adjusted earnings per share of $0.85."
    },
    {
        "text": "I'm Jeff Kotkin, Eversource Energy's Vice President for Investor Relations.\nThese factors are set forth in the news release issued yesterday.\nAdditionally, our explanation of how and why we use certain non-GAAP measures and how those measures reconcile to GAAP results is contained within our news release and the slides we posted yesterday and in our most recent 10-K and 10-Q.\nSpeaking today will be Joe Nolan, our President and Chief Executive Officer; and Phil Lembo, our Executive Vice President and CFO.\nAlso joining us today are John Moreira, our Treasurer and Senior VP for Finance and Regulatory; and Jay Buth, our VP and Controller.\nWe hope that all on the phone are safe and well, and we look forward to seeing you in person later this year.\nI know the most recent months have resulted in weather challenges across the country.\nIn the West, our peers have [Phonetic] to deal with heat and wildfires.\nin New England with an increased level of thunderstorm activity dropped off by a glancing blow from Tropical Storm Elsa.\nEmployees have worked around the clock many days restoring power to our customers from tree-caused damage to our overhead [Phonetic] system, while our implementation of new technology in vegetation management has limited the scope of many of the resulting power outages.\nOur dedicated crews continue to be on the front line completing a large amount of emergency restoration work, in fact, in humid conditions over the past month and a half and doing so in a safe and effective manner.\nThe work has been excellent and we continue to receive notes of appreciation from both our customers and municipal leaders.\nI was out all day in Connecticut.\nThe day also passed through and I cannot say enough about our team in preparing for and responding to storm damage in coastal regions of Connecticut in Massachusetts.\nWe greatly appreciate the recognition of those efforts that we received from Connecticut PURA Commissioners at the July 14 meeting.\nAs I mentioned during our first quarter earnings call, improving our relationship with Connecticut policymakers and customers is my top priority as CEO.\nEarlier this week, a number of Connecticut legislators joined several state community education and labor leaders at our Berlin Connecticut campus to celebrate the 1st class of students who are completing our new Lineworker certification program in partnership with the Hartford based Capital Community College.\nWe continue to see steady monthly improvements in our customer favorability ratings and we appreciate the positive feedback we are receiving from municipal leaders.\nBut we have to prove ourselves during the next major storm.\nI strongly believe that the changes we are implementing to our communication systems and processes will put us in a much better place the next time a multi-day storm cleanup effort occurs.\nNext I want to provide an update on the offshore wind partnership with Orsted.\nOver the past few months, we have continued to make significant progress on the three projects that I noted on Slide 3.\nPerhaps the most significant development was the agreement we reached with Dominion Energy to charter the Jones Act-compliant wind turbine installation vessel, currently under construction in Brownsville, Texas.\nOnce construction of the vessel was complete in late 2023, it will seal to New London, Connecticut where it will be used to install wind turbines for Revolution Wind and Sunrise Wind.\nThe vessel will be one of the largest, most advanced of its kind in the world and will provide a more efficient approach to construction and use the feeder barges.\nWork has recently begun at New London at the state-owned ocean facing Deepwater peer to convert into a major state area for offshore wind.\nAs you know, the primary variable in our construction timetable to siting approvals.\nWe continue to be on a good path to secure Federal Bureau of Ocean Management or BOEM approval of 132MW South Fork project in January of 2022, which will enable construction to begin early next year and will be completed before the end of 2023.\nDuring hearings spring [Phonetic] resulted in Rhode Island Coastal Resource Management Council approval of the project, we indicated that we would install 12 11-megawatt turbines in connection with this project.\nWe are making progress on the 2 larger projects as well.\nState permitting applications in Rhode Island for Revolution Wind and in New York for Sunrise Wind we're filed last December.\nIn April, the Rhode Island Energy Facility Siting Board issued a preliminary decision in order and Revolution Wind schedule with advisory opinions for local and state agencies to be submitted by August 26, 2021.\nEvidentiary hearings are due to begin by mid October.\nThe Sunrise Wind application was deemed complete by New York officials on July 1, initiating the formal review process for the project.\nAs we noted in May, BOEM was targeting the completion of the review of Revolution Wind for the third quarter of 2023.\nBased on that review schedule, we now expect to be able to achieve commercial operation in 2025.\nWe have not yet received the schedule for BOEM's review of the Sunrise project, but we are in a good position with our New London stacking area, our turbine installation ship and our suppliers.\nSo depending on the BOEM review schedule that we expect to receive within the next few months, we expect Sunrise will reach commercial operation in 2025 as well.\nThese dates are consistent with the vision of the Biden administration, which continues to accelerate to review of offshore wind projects proposed for the Atlantic Coast.\nIt is also consistent with the administration's target of having 30,000MW of offshore wind operating in the United States by 2030.\nOffshore wind is one of several initiatives underway to help our states achieve the greenhouse gas reduction targets.\nOn July 14, PURA took major -- took a major step forward in furthering the state's clean energy goals when it approved a comprehensive program to support the state's push for having at least 125,000 zero emission vehicles on the road by the end of 2025.\nThe order is described on slide 4.\nWe appreciate a number of the changes that PURA made to the draft decision to enhance the programs expected success.\nWe will submit the implementation plan based on the PURA order by October 15.\nAlso on that slide is a description of a proposal that Massachusetts Utilities submitted on July 14 to further develop the infrastructure that is needed to support rapid conversion of the states vehicles to zero emissions.\nAs you can see on the slide, by the end of this year, we will have invested $55 million in our Massachusetts Electric Vehicle program helping to connect about 4,000 charge ports.\nHowever since transportation is responsible for more than 40% of the states' greenhouse gas emissions, significantly more support is needed to help the state beat its targets of reducing greenhouse gas emissions by 50% by 2030 and 70% by 2040.\nMassachusetts had only 36,000 electric vehicles registered as of January 1, 2021 and in 2020, only 3% of the light duty vehicle sold in the state where EVs.\nWhile that percentages above average for the country as a whole, it needs to be enhanced significantly going forward since at the current pace, we will have fewer than 500,000 EVs in Massachusetts, as of 2030.\nWe need more than 1 million EVs by then for the state to reach its targets.\nWe have proposed spending more than $190 million on EV support from 2022 to 2025, including $68 million of capital investment.\nThese investments are described on the slide and include the expanded Charter infrastructure investment, some rate incentives in new opportunities to add EV infrastructure in environmental justice communities.\nOur support for our stage greenhouse gas reduction efforts is discussed at length in our 2020 Sustainability Report, which was posted on our website earlier this month.\nA link to the new report is included on Slide 5.\nThe revamp report has incorporated a number of enhancements to provide you with more visibility into our environmental, social and governance efforts.\nWe're also pleased to share updates on our 20:30 carbon neutrality goal, including our first third party verification of our 20-20 greenhouse gas footprint.\nWe have a number of teams within Eversource cast with making our 2030 goal a reality.\nThey include a team focusing on reducing emissions in 5 principal areas.\nAnother team working on developing the strategy to offset emissions that cannot be eliminated by 2030 and another team that's encouraging all 9,300 Eversource employees to contribute to their best ideas on how we could achieve our 2030 goal.\nThey've have already developed some truly innovative proposals that we are evaluating.\nTheir enthusiasm is just more evident on why I am so confident about Eversource's future.\nI'll start with our results for the quarter in slide 6.\nWe are in $0.77 per share for the quarter, including $0.02 per share of costs primarily relating to the transitioning of Eversource Gas Company of Massachusetts into the Eversource systems.\nExcluding these costs, we earned $0.79 per share in the second quarter and $1.87 per share in the first half of 2021.\nSo let's take a look at each of the segments performance in the quarter.\nOur Electric Transmission business earned $0.40 per share in the second quarter of 2021 compared with earnings of $0.39 per share in the second quarter of 2020, a higher level of necessary investment in our transmission facilities was partially offset by higher share count there.\nOur Electric Distribution business earned $0.35 per share in the second quarter of '21 compared with earnings of $0.34 per share in the second quarter of 2020.\nHigher distribution revenues were partially offset by higher O&M, depreciation and property taxes.\nThe higher O&M was largely driven by increased storm activity in the second quarter of 2021 and higher employee medical expenses.\nThe higher medical expenses is mostly due to the fact that in the second quarter of 2020, in the midst of the worst COVID in New England -- the worst of COVID in New England, many routine medical appointments were being canceled, but this is largely returned to normal now in our area.\nOur Natural Gas Distribution business earned $0.01 per share in the second quarter of both 2021 and 2020.\nAs you know, natural gas utilities in New England tend to have relatively neutral results in the second quarter.\nOur Water Distribution business Aquarion earned $0.03 per share in the second quarters of both 2021 and 2020.\nBeginning next year, we expect Aquarion revenues to be bolstered by previously announced acquisition of New England Service Company or any SC owns the number of small water utilities that serve approximately 10,000 customers in Connecticut, Massachusetts and New Hampshire.\nWe continue to expect to close the transaction before the end of this year.\nState regulators are currently reviewing the acquisition and its benefits to customers.\nOur parents in other company segment had modest second quarter losses in both years.\nTurning to Slide 7, you can see that we have reiterated our amended earnings guidance that we issued in May.\nWe continue to expect ongoing earnings toward the lower end of our $3.81 to $3.93 per share guidance.\nThis incorporates $28.6 million pre-tax charge relating to our performance in Connecticut, following the devastating impact of tropical storm Isaias last summer.\nWe recorded the charge in the first quarter of this year.\nWe also continue to project long-term earnings per share growth in the upper half of the range of the 5% to 7% through 2025 excluding the impact of our new offshore wind projects.\nFrom our financial results, I will turn to the status of various regulatory initiatives and I'll start in Connecticut.\nWe have updated summary of various proceedings in the appendix of our slides.\nI mentioned earlier that the Public Utilities Regulatory Authority or PURA has finalized the $28.6 million civil penalty associated with our storm performance last summer that follow the April 28 release of a final storm performance decision that we discussed on our first quarter call.\nAs you know we have appealed that April 28 decision in Connecticut Superior Court.\nDo not have a full schedule for those court proceedings, but expect the case to take many months before the court renders a decision.\nA scheduling conference will be held later next month.\nThe April 28 storm order also required a 90 basis point reduction in Connecticut Light and Powers distribution ROE on top of the $28.6 million penalty.\nThat pancaking of penalty forms, one of the principal basis of our appeal since we believe it violates the state law that was in effect at the time of the storm.\nAdditionally hearings in the temporary rate reduction docket commenced in May will continue next month.\nA supplemental hearing is scheduled for August 9, at which time additional testimonial evidence may be presented on certain issues including the applicability in term of the 90 basis point penalty.\nPure justice Week notified parties that written testimony on the applicability in term of that penalty may be filed in advance of the August 9 hearing, no later than August 4.\nCL&P's distribution ROE for the 12 months ended March 31, 2021 was 8.86% and its authorized distribution return was 9.25%.\nThe scheduled for this proceeding currently indicates a decision date of October 13.\nWe will continue to update you as this docket proceeds.\nRegardless of the status of this rate review, we and our regulators share a common goal of providing nearly 1.3 million Connecticut electric customers with safe, reliable service and to help the state meet its aggressive carbon reduction and clean energy goals.\nTurning to Massachusetts, Joe mentioned our electric vehicle initiative earlier.\nOn July 1, we submitted two other proposals to the Department of Public Utilities.\nAs you can see on slide 8, the first was an extension of the grid modernization plan that we began implementing with the DPU approval back in 2018.\nThe investments we've made on this first phase have allowed us to reduce the scope of outages, monitor power conditions much more closely and assist in the installation of distributed energy resources throughout the Massachusetts service territory.\nThe program is submitted to the Massachusetts DPU earlier this month, call for the investment of another $200 million from 2022 through 2025 to further improve substation automation, wireless communications and expand other programs that would have a number of other benefits including reducing peak demand in line losses.\nReducing line losses, an important element in achieving our 2030 carbon neutrality goal.\nIn the same docket, we're asking the DPU to take the first steps to allow us to embark on a 6-year effort to implement advanced metering infrastructure for our nearly 1.5 million Massachusetts Electric customers along with a new communications network, Meter Data Management System and Customer Information system.\nWe project capital investment associated with the full program to be in the $500 million to $600 million range over the period of 2023 through 2028.\nThese technologies are critical enabling investment that support the state's 2050 clean energy goals.\nCurrently, there is no full schedule for the docket at this time.\nFinally, I just want to cover recent financings and rating agency actions.\nIn recent months, both Moody's and Standard and Poor's have changed CL&P's outlook to negative.\nMoody's changed Eversource parent outlook to negative as well.\nWhile we're not happy with these developments, we understand these changes are primarily related to the ongoing regulatory proceedings in Connecticut, such as the temporary rate reduction docket and the ROE penalty stemming from the ESI's report.\nWe are pleased that Moody's recently affirmed PSNH, Public Service New Hampshire's rating and outlook recognizing the constructive outcome of last year's distribution rate proceeding in New Hampshire.\nAlso, we recently filed an application to issue up to $725 million of long-term debt at Eversource Gas Company of Massachusetts.\nSince we purchased the former Columbia Gas asset last year, Eversource Gas of Massachusetts has been borrowing long term exclusively through the Eversource parent.\nWe believe that borrowing at the subsidiary level ultimately will be less costly for customers and we expect DPU decision on this application later this year.\nLike NSTAR Gas and Yankee Gas, we would expect Eversource Gas of Massachusetts to borrow in the private markets.",
        "summary": "q2 earnings per share $0.77.\nqtrly earnings per share $0.79 excluding items.\nreaffirmed previously disclosed 2021 earnings per share projection toward lower end of range of $3.81 to $3.93 per share."
    },
    {
        "text": "I'm Hallie Miller, Evercore's Head of Investor Relations.\nAt this time, it is uncertain how long our business will be negatively affected by COVID-19 and the associated economics and market downturn.\nThese factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.\nWe continue to believe that it is important to evaluate Evercore's performance on an annual basis.\nAs we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings.\nIt is certainly a very different world today compared to our last earnings call in January.\nThe vast majority of our firm is working remotely, and we are conducting our earnings call from widely varied locations.\nI'll comment on our first quarter results in a few minutes; but first, I want to talk about our firm and how we have approached the COVID-19 pandemic from both an operational and a business standpoint.\nOur global team has performed extraordinarily well in very challenging conditions and adapted quickly to our remote working arrangements.\nDespite working from more than 1,800 offices globally, we are effectively communicating with our clients and each other.\nRoger, John, and I could not be more proud of our entire team.\nAs we settle into our current work arrangement and acclimate to the current environment, John, Roger and I, and the rest of the management team are focused on four very important priorities.\nFirst, assuring the health and safety of our team and their families.\nSecond, pivoting our services to address the evolving needs of our corporate, institutional investor, and wealth management clients.\nThird, operating collaboratively, effectively and securely, leveraging the technology in both new and old ways.\nAnd fourth, maintaining a strong and liquid balance sheet.\nThe economic issue that the United States and much of the world faces today is the rapid and unprecedented increase in unemployment, and the equally rapid decline in economic activity.\nThe statistics related to unemployment are truly sobering.\n22 million Americans alone have lost their jobs in the last four weeks and millions more around the world have been similarly affected.\nAll of us at Evercore feel deeply for those who are out of work because of this pandemic.\nTheir hardship pains us.\nThe sharp increase in unemployment undoubtedly pre-stages a substantial decline in global GDP, probably starting in the first quarter and most certainly a deep decline in the second quarter and potentially in the third quarter as well.\nWe have seen governments and central banks respond in an aggressive and unprecedented way with monetary and fiscal stimulus to mitigate and ultimately reverse the economic decline.\nAnd we are confident that over time the economies around the world will recover but it will take time and the recovery almost certainly will not be as sharp as the decline.\nAs a consequence, we expect that our business will be negatively affected in the coming quarters.\nAdvisory business, M&A is our largest revenue contributor and we expect that business to be negatively affected for some period of time.\nAs John will describe in his remarks, the conditions typically require for a strong M&A activity currently are not present.\nAdditionally, equity underwriting has virtually disappeared since mid-February.\nSo, we anticipate a strong return once market stabilizes, similar to what we saw in the second and third and fourth quarters of 2009, following the depths of the global financial crisis.\nSo, these are the negatives.\nOn the other hand, the current environment has created opportunities for us as we have rapidly redirected our advisory efforts to adjust to the evolving needs of our clients.\nThe investments that we have made in our platform over the last several years, both to broaden and diversify our capabilities and to expand our coverage of key sectors in geographies, have significantly expanded the scope of our expertise and are allowing us to continue to provide independent and trusted advice to our clients on the topics that are most relevant to them today.\nOur restructuring, debt and equity capital markets advisory businesses are going flat-out.\nAdditionally, the volatility and increased trading volume of the equity markets has driven a strong increase in secondary revenues in our equities business.\nThese businesses are smaller than our M&A advisory business and it will take time before the increase in revenue related to restructuring and debt and equity capital markets advisory activities are recognized.\nAs a consequence, the increase in activity in these areas will not come quickly enough or be of sufficient scale to offset the expected near-term weakness in M&A.\nNormally, at this point, I comment on our backlog.\nIt's way too early in this location to know the overall effect on our backlogs as they are in transition.\nRestructuring and debt advisory is building rapidly while M&A transactions are currently being delayed, postponed or put on hold, as buyers and sellers assess the duration and severity of the downturn.\nThe dialog around M&A however, certainly has not halted as the dialog with financial sponsors is increasing and well capitalized and liquid companies are opportunistically exploring either long sought after assets or new ideas.\nWhile we cannot be sure of the duration and severity of the downturn, I believe that as a relatively young and highly entrepreneurial firm, are ready for the challenges presented by the current environment and that we have already responded effectively.\nIf we continue to work collaboratively and adapt to the changing needs of our clients and communities, we will emerge from this period well positioned for future long-term growth and market share gain.\nLet me now talk about our financial performance in the first quarter.\nWe reported the second best first quarter revenues in our history, indicative of the revenue generating power of our franchise and our business model in more normal time.\nAdjusted net revenues of $435 million increased 4% versus the first quarter of 2019.\nIn aggregate, our total revenues of $436 million from our investment banking businesses, advisory, underwriting and commissions, increased 10% versus the first quarter of last year.\nAdvisory fees of $359 million, our largest revenue source, increased 10% compared to the first quarter of 2019, and held up very well compared to our larger competitors, almost all of whom experienced double-digit declines between 10% and 20% in their advisory revenues.\nAs a general matter, previously announced transactions closed as expected in the quarter.\nThese results are especially impressive considering the fact that the dollar value of announced M&A transactions globally declined 24% in the first quarter and the dollar value of closed M&A transaction fell by 37% compared to the quarter a year ago.\nDue to the strength of our advisory revenues compared to the declines experienced by our larger competitors, we expect to increase again our market share of advisory fees among all publicly reporting firms on a trailing 12-month basis, the 8.6% from 7.9% for the 12-month period ending March 31, 2019, and from 8.3% at the end of 2019.\nUnderwriting fees were $21.1 million, a decline of 22% from the first quarter of 2019.\nThis business had a very strong start to the year.\nBut as COVID-19 began to spread, activity in this business essentially halted in mid-February.\nCommissions and related fees of $55.4 million increased 32% versus the first quarter of 2019 or our best first quarter since 2016.\nOur Equities team benefited from the heightened volatility and equity trading volumes associated with the market downturn that began in mid-February.\nAsset management and administration fees from our consolidated businesses were $15.3 million, an increase of 7% versus the first quarter of 2019.\nOur first quarter compensation ratio of 62% was impacted by the revenue decline in other revenue, caused by the shift from gains to losses associated with the investment portfolio that hedges a portion of our deferred cash compensation plan.\nThe compensation ratios for the first quarter of 2020 and 2019 are essentially the same when the impact of these gains and losses are excluded.\nWe historically have reflected a compensation ratio in the first quarter based on our best estimates for the full year revenue expectations and compensation requirements and reassess that compensation ratio each quarter to address changes in these expectations.\nGiven the uncertainty of the current environment, our first quarter compensation ratio is reflective only of our first quarter performance.\nWe will reevaluate the appropriate amount of compensation and our compensation ratio on a quarterly basis, as we always have, but the likelihood of change will certainly be higher in the current year than in other years, due to the highly uncertain environment for the next two to three quarters.\nNon-compensation costs were $82.8 million, up 2.7% from the first quarter of 2019.\nThe increase reflects higher occupancy costs and expenses associated with certain technology initiatives, many of which are supporting our successful work from home operations today.\nThe increase in these costs was partly offset by lower professional fees and travel expenses.\nAs we have reported to you before, we have started a number of initiatives to reduce costs at the end of last year, and these results begin to demonstrate our progress.\nBob will comment further on this.\nAdjusted operating income and adjusted net income of $82.5 million and $57.8 million declined 14% and 29% respectively, and adjusted earnings per share of $1.21 declined 27% versus the first quarter of 2019.\nHere again, our change in operating income was affected meaningfully by the changes in the value of the hedges for our deferred compensation plans rather than any change in our compensation philosophy, and the larger change in net income and earnings per share was significantly affected by the higher tax rate in the first quarter of 2020 as compared to 2019.\nBob will discuss this in his remarks.\nWe remain focused on our capital management strategy, and returned $178.1 million to shareholders during the quarter through dividends and repurchase of 1.8 million shares at an average price of $76.57.\nOur commitment to offset the dilution associated with equity grants has been substantially completed for the year, so any additional share repurchases in 2020 will be dependent on future earnings and maintaining our strong liquidity position.\nOur Board declared a dividend of $0.58, consistent with prior quarters and reflective of our results for the quarter.\nOur Board and management will continue to evaluate the dividend on a quarterly basis, as the effect of COVID-19 virus on revenues becomes more clear.\nAlthough the current expectation, absent a steep decline in revenues and a significant reduction in our cash position, is that our current dividend will be maintained.\nOur first quarter results demonstrate the continued strength of Evercore's franchise in more normal time.\nIn each of the last two years, we have generated revenues in excess of $2 billion and experienced operating margins that averaged in excess of 25%.\nThese results were produced by essentially the same team that we have on the field today, and we really don't see any reason why those results can't be repeated when normal and less disruptive conditions return.\nThe market environment for much of the first quarter continued to be supportive of M&A and strategic capital raising transactions in most sectors and geographic regions.\nAs such, the rapid change in environment associated with the global spread of COVID-19 is not generally evident in our first quarter results.\nAs Ralph mentioned earlier, many of the transactions we announced continued to move toward completion throughout the quarter.\nYet today, the conditions necessary for a healthy M&A market, including stable equity valuations, readily available credit, and CEO confidence and optimism do not exist.\nDemand for restructuring and, more broadly, debt advisory and liability management advisory has dramatically increased in the current environment, as companies focus on their most immediate liquidity needs.\nFinancial sponsors continue to have record levels of dry powder.\nBut with valuation so uncertain, it is difficult for them to put money to work at the moment.\nHowever, opportunities for innovative assignments do exist and our investment in and build out of our financial sponsors team continues.\nThe cash equities business tends to perform better when volatility and volumes increase.\nThe VIX spiked dramatically late in the first quarter, and it remains elevated.\nClearly, three weeks into the second quarter, we faced challenging conditions.\nCEOs are assessing a volatile and uncertain environment and dialogues are more focused on operations and liquidity requirements as opposed to strategic and growth initiatives.\nVolatility in the market remains high and valuations are in flux.\nMany activists have dialed back on large campaigns and are starting fee renewal, paralleling the M&A slowdown, and access to public capital is challenging.\nDespite these more challenging conditions, we are confident that the breadth and capabilities that we have, position us well with clients to evaluate all situations, and our independent advice model will be of increasing value in the current environment.\nWe are focusing our efforts on maintaining constant and high quality dialogs with our clients to assist them in the areas where they currently seek advice, and are working hard to build relationships with new clients, looking to broaden their relationship with an independent advisor.\nWhen the markets begin to show sustained stability, we believe that we will begin to see an increase in proactive attention to strategic matters.\nUntil then, we are actively communicating and engaging with all of our clients to help them navigate the current environment and be there for them when the eventual recovery comes.\nOur performance during the first quarter was solid despite increasingly challenging conditions as the quarter progressed and came to a close.\nWe sustained our number-one ranking for volume of announced transactions over the past 12 months, both globally and in the U.S., among independent firms.\nAmong all firms, we were once again number-six globally and number-four in the U.S.\nWe continued to advise on a large number of the most prominent M&A assignments of the quarter, including three of the four largest transactions in the United States.\nOur underwriting business had a very strong first six weeks of the quarter and we are pleased to have served as a joint bookrunner on two of the top-three largest IPOs priced during the quarter.\nHowever, activity has significantly decreased since mid-February.\nOur Private Capital Advisory business performed well during the quarter and completed assignments already in progress.\nOur Equities business, had a very strong quarter as a result of the heightened volatility and volume associated with the market downturn precipitated by COVID-19.\nThe strategic investments in senior talent we made last year have contributed to our success.\nWe've been able to increase our connectivity with investors and advisory clients and provide valuable insights during a period of significant market dislocations.\nOur healthcare analysts are digging deep into the science of COVID-19 and collaborating with our macro and other fundamental analysts to determine investment implications across many different sectors.\nOur macro analysts are also providing insights on government stimulus programs and the overall state of the economies worldwide.\nWe've also found more ways to connect with institutional clients and interactions are 35% higher than in prior periods.\nOur Advisory clients have had an intense interest in our research, and over the past months we've added more than 1,800 corporate executives to our research distribution.\nAs we enter a slower market for M&A activity and a more restructuring, debt advisory and liability management focused environment, our business is pivoting to meet the changing needs of our clients.\nWith a number of sectors and markets badly impaired by COVID-19, our industry M&A bankers are collaborating with our restructuring and debt advisory teams to meet increased activity in these areas.\nWe've spoken about our flexible business model in the past and we are seeing it in full effect now.\nThe solutions we are exploring with our clients are broad-based, involving both in and out of court bankruptcies, exchange offerings, and amend and extend agreements and private placements.\nThe breadth of experience and talent of our independent team enables us to help clients analyze and execute their strategies and solutions.\nWhile major activist campaigns have dialed back, our shareholder advisory business has been working with clients to help them understand the issues they are currently facing, including potential stealth accumulations by activists and hospital raters, capital return decisions, what to do about guidance and balance sheet and liquidity issues.\nMany of our private capital advisory assignments are currently on hold as investors are sidelined and are resetting their expectations.\nWe believe many funds will need help raising money and managing their portfolios, as markets stabilize.\nLet me briefly touch on our talented team.\nOur greatest asset is our people and every one at Evercore has been working incredibly hard and diligently to make sure the firm is fully functioning in our current remote working environment, and they make sure that our clients are well served in this difficult time.\nOur efforts to uphold our core values of client focus integrity and teamwork, remains central to everything we do.\nWe are pleased with our two new Advisory SMDs we've recruited so far in 2020, and we will remain open to opportunistically adding other high-quality individuals who can bring value to our clients.\nWe are extremely proud of the promotions across all levels that were announced during the first quarter.\nAs we move forward, we are very much aware of the difficult road ahead.\nWe will continue to work together in support of our clients through this downturn and the inevitable recovery.\nWe are confident that if we continue to collaborate and communicate with each other and adapt quickly with the changing needs of our clients, we will emerge from this downturn, well positioned for future opportunities.\nFor the first quarter of 2020, net revenues, net income and earnings per share on a GAAP basis were $427 million, $31.2 million and $0.74 respectively.\nNet revenue of approximately $40 million was recognized in the first quarter as transactions that closed at the beginning of the second quarter of 2020.\nFor comparison purposes, net revenue was approximately $34 million in the first quarter of $2019 and $3 million for the first quarter of 2019.\nConsistent with prior periods, our adjusted results exclude certain items that relate to our acquisitions and dispositions, and also include the full share count associated with those acquisitions.\nOur adjusted results also exclude charges associated with the realignment strategy announced in January.\nSpecifically, we adjusted for costs associated with divesting of Class J LP Units, granted in conjunction with the ISI acquisition.\nFor the quarter, we expensed $1.1 million related to those units.\nOur adjusted results for the quarter also exclude costs related to the realignment strategy that began in the fourth quarter of 2019.\nAs we noted last quarter, we expect to incur separation and transition benefits and related costs of approximately $38 million, $22.1 million of which was recorded as special charges in the first quarter of 2020.\nThose charges are excluded from our adjusted results.\nLast quarter, we noted that we are continuing to pursue opportunities to restructure operations in certain smaller markets.\nWe have entered into an agreement with the leaders of our business in Mexico to purchase our broker-dealer there, which principally provides investment management services.\nCompletion of this sale, which is subject to regulatory approval, is expected to occur by the end of 2020.\nWe continue to review additional opportunities in smaller markets.\nAnd these opportunities could result in further charges in 2020, if pursued to completion.\nOur adjusted results for the quarter also exclude special charges of $1.5 million related to accelerated depreciation expense for leasehold improvements and our business realignment initiatives.\nFinally, during the quarter, we adopted the new accounting guidance for credit losses, the adoption did not have a material impact on our results.\nAs we noted, other revenue in the first quarter declined significantly compared to the prior year period as a result of losses on the investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program obligations.\nThis amount fluctuates as market values fluctuate and the significant market decline during the quarter drove the loss.\nAs you will recall from prior discussions, this loss is offset by lower compensation expense over the term of these awards.\nTurning to non-compensation costs, our firmwide non-compensation cost per employee was $44,000.1 [Phonetic] for the first quarter, down 6% on a year-over-year basis.\nThe decrease in non-compensation cost per employee versus last year primarily reflects lower professional fees and travel and related expenses.\nWe began reviewing our non-compensation costs before the COVID-19 pandemic became an issue.\nWe continue to adapt our operations in response to the current downturn and remain focused on reducing our non-compensation expense.\nWe are cutting nonessential costs, including in areas pertaining to travel and entertainment, research and subscriptions, and deferring certain capital projects, so that we are well positioned throughout the downturn as well as in the inevitable recovery.\nOur GAAP tax rate for the first quarter was 25.8% compared to 9.1% in the prior year period.\nThe effective tax rate is affected by a number of permanent differences, including the non-deductible treatment of certain compensation expenses.\nThe principal driver of the year-over-year difference in the effective tax rate is a lower deduction associated with the appreciation of the firm's share price upon vesting of employee share based awards above the original grant price, as the firm's share price at the time of vesting in 2020 was more in line with the share price or those at the time of grant.\nOn a GAAP basis, our share count was 42.3 million shares for the first quarter.\nOn an adjusted basis, the share count was 47.7 million, down versus the prior-year period, driven by share repurchases and a lower average share price.\nFinally, we hold approximately $588 million of cash and $264 million in investment securities as of March 31, 2020, with our current assets exceeding current liabilities by approximately $880 million.\nBy comparison, at year-end, we held $634 million of cash and $624 million in investment securities.\nThe sequential decline is in line with the seasonal trend driven by bonus payments in the first quarter.\nAs we continue to navigate in the downturn, we are focused on maintaining our strong and liquid balance sheet and we continue to monitor cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations regularly.\nEvercore celebrated its 25th anniversary in March.\nWhile we have never faced a dislocation like the one we are facing now, we have spent the last 25 years building a firm that has a broad range of capabilities and products to serve our clients in all kinds of markets, including the one that we are in now.",
        "summary": "compname reports qtrly adjusted earnings per share $1.21.\ncompname reports first quarter 2020 results; quarterly dividend of $0.58 per share.\nevercore inc - qtrly u.s. gaap revenue $427.0 million up 3%.\nevercore inc - qtrly u.s. gaap earnings per share $0.74.\nevercore inc - qtrly adjusted earnings per share $1.21.\nevercore inc - implementing cost reduction initiatives and downsizing or deferring capital investments.\nevercore inc - review of operations will generate reductions of about 6% of headcount.\nevercore inc - expect impact from covid-19 to be significant.\nevercore inc - expects to incur separation and transition benefits and related costs of about $38 million in q1 of 2020.\nevercore inc - continue to review additional opportunities in smaller markets."
    },
    {
        "text": "Just after the close of regular trading, Edwards Lifesciences released first quarter 2021 financial results.\nThese statements include but aren't limited to, financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters and foreign currency fluctuations.\nFinally, a quick reminder that when using terms underlying and adjusted, management is referring to non-GAAP financial measures, otherwise, they are referring to GAAP results.\nAs we anniversary our one year impact of the pandemic on our financial results, I'd like to briefly reflect on the current environment and to discuss our 2021 and longer-term priorities as a company.\nI'd also like to touch on Edwards' response to the pandemic and our efforts to better support our patients, employees and the community.\nRecall that our sales were dramatically impacted in the last few weeks of Q1 2020 as procedures fell due to COVID disruptions.\nOne year later, after an extraordinarily difficult global crisis, I'm encouraged by the signs of recovery and although we recognize that many people are still struggling around the world.\nOur sales growth this quarter was better than expected across all product lines.\nAlthough we expect the pandemic will impact the global healthcare system based on the environment as we exited the quarter, we have continued confidence in our positive 2021 outlook.\nWe continue to believe that 2021 will be an important growth year for Edwards with mid-teen sales growth highlighting the importance of treating structural heart patients even during this pandemic.\nWe also anticipate meaningful progress on expanding large under-appreciated and underserved transcatheter opportunities in 2021.\nRecently, we achieved several important milestones.\nLet me mention four.\nJust last week, in transcatheter aortic valve replacement or TAVR, we received approval to initiate a pivotal trial for patients suffering from moderate aortic stenosis.\nAlso earlier this month, we received approval to begin treating patients at low surgical risk in Japan with SAPIEN 3.\nAnd in Transcatheter Mitral and Tricuspid Therapies, or TMTT, I'm pleased to announce that the first patients were recently treated with EVOQUE Eos, our next-generation Transcatheter Mitral Replacement System.\nAlso in TMTT, we initiated the TRISCEND II US pivotal trial for transcatheter tricuspid replacement.\nLooking beyond 2021, we remain confident in our long-term strategy and our pipeline of innovative therapies.\nOur patient-focused culture drives us and motivates our employees around the world every day.\nOur R&D targets breakthrough therapies that can create significant value for patients and health systems enabling strong organic sales growth and exceptional shareholder returns.\nDespite COVID disruptions, we've continued to invest aggressively for future growth.\nAs a reminder, about a third of our research and development investments today are focused on generating a robust body of guideline changing clinical evidence and although clinical studies slowed during the pandemic, our dedicated clinician partners are eager to accelerate enrolment in this important research.\nRegulators have also been supported in addressing the impact of the pandemic and its impact on clinical studies.\nFinally, I want to provide some perspective on how we've maintained our focus on creating long-term value as we navigated the pandemic over the last year.\nWe continue to invest in our people, in our infrastructure.\nDuring a time when widespread uncertainty impacted many families across the globe, we have prioritized protecting our employees and have grown our team.\nWe enhanced employee benefits, rewarded performance and protected incentives.\nWe also moved ahead on expanding Edwards research and production facilities around the world.\nWe adjusted our agreements to support hospitals as they navigated COVID and additionally, we provided extra support to the communities where our employees live and work.\nIn fact, we recently converted one of our facilities into a mass COVID vaccination site to support the community of 3 million people, where our company is headquartered.\nAs a company, we expect that Edwards will be positioned even stronger and be able to help more patients than ever before as the world emerges from the pandemic.\nNow, turning to our first quarter results.\nWe reported $1.2 billion in sales this quarter, up 5% on a constant currency basis from a year ago.\nRecall that our guidance assumed Q1 sales would be in line with the first quarter of last year, which was largely unaffected by COVID.\nWe were pleased with how sales improved as the quarter progressed.\nIn TAVR, first quarter global sales were $792 million, up 4% on an underlying basis.\nThe SAPIEN 3 Ultra platform remains differentiated with low complication rates, ease of use and significant potential for length of stay efficiency.\nOur average selling prices were stable and we estimated that global TAVR procedure growth was comparable with our growth.\nIn the US, our Q1 TAVR sales were flat with fourth quarter and year-ago results and we estimate that overall US procedure growth was comparable.\nConsistent with our guidance on the Q4 earnings call in late January, COVID stressed the global healthcare system during the winter months.\nWe are encouraged, however, that US TAVR procedures grew as COVID hospitalizations decrease and vaccinations increased during the quarter.\nSmall and medium-sized centers played a valuable role in serving patients during the quarter.\nWe continue to activate new centers this quarter as we have been throughout the pandemic.\nThis demonstrates the clear interest of many smaller centers to provide state-of-the-art care for structural heart patients.\nOutside the US, in the first quarter, we estimated TAVR procedures grew in the low-double digits on a year-over-year basis and Edwards growth was comparable.\nAlthough we are off to a strong start, the slow vaccination progress outside the US provides uncertainty for the remainder of the year.\nEdwards underlying TAVR growth in Europe versus the prior year was in the mid-single digit range.\nEdwards growth in countries with lower TAVR adoption rates outpaced countries where the therapy is more established.\nAlthough TAVR centers were more prepared to treat patients, patient flow was disrupted due to regional lockdowns and uncertainty among patients about the urgency of their disease.\nSales growth in Japan and other countries was strong as aortic stenosis remains an immensely undertreated disease and we remain focused on increasing the availability of TAVR therapy.\nAs previously noted, we received approval earlier this month in Japan for SAPIEN 3 in patients at low surgical risk.\nWe anticipate increased treatment rates when reimbursement is approved later this year.\nIn addition to geographic expansion of our TAVR therapies, we remain dedicated to pursuing indication expansions.\nOur groundbreaking early TAVR trial is focused on patients who have severe aortic stenosis, but without recognized symptoms and who do not meet the current guidelines for valve replacement.\nWe expect enrollment to increase as we and participating sites are motivated to complete enrollment of the trial this year.\nI'm also pleased to report that we received FDA approval for a pivotal trial for TAVR in moderate AS patients as we expect enrollment to begin later this year.\nBased on recent trials, we're learning on what was once thought of as the benign precursor to severe aortic stenosis may actually be associated with higher rates of morbidity and mortality than previously recognized.\nThus, we believe TAVR may be a future treatment option for these patients.\nSeparately, last week, we received SAPIEN 3 CE Mark approval to begin treating patients with a previously repaired or replaced valve in the pulmonic position.\nLooking ahead to the upcoming virtual EuroPCR meeting next month, we expect long-term follow-up data from our European Registry on SAPIEN 3 as well as the late-breaking clinical trial results on low risk bicuspid patients.\nIn summary, based on the strength we saw at the end of the first quarter, we have confidence that the underlying TAVR sales will grow in the 15% to 20% range in 2021.\nWe expect continued near-term COVID-related regional disruptions and a more normalized second half of the year.\nWe remain confident that this large global opportunity will exceed $7 billion by 2024, which implies a compounded annual growth rate in the low double-digits.\nWe're enrolling five pivotal trials across our differentiated portfolio of technologies to support patients suffering from tricuspid and mitral valve disorders.\nThis quarter, we progress with the enrollment of our three CLASP pivotal trials for PASCAL.\nWe continue to expect approval for patients with DMR late next year.\nThis is expected to be the first commercial approval of the PASCAL system in the US.\nWe've also begun treating patients with EVOQUE TR in the TRISCEND II randomized pivotal trial in accordance with the FDA's breakthrough pathway designation.\nThis trial will evaluate the safety and effectiveness of the EVOQUE tricuspid valve replacement system for patients with severe tricuspid regurgitation.\nIn addition, the first patients were recently treated with our next-generation Transcatheter Mitral Replacement System called EVOQUE Eos through the MISCEND study.\nThis study will evaluate the safety and performance of EVOQUE Eos, which is designed to advance the treatment of patients with mitral regurgitation with low profile valve delivered through a sub-30 French transfemoral delivery system.\nWe believe our two platform replacement strategy with SAPIEN M3 and EVOQUE Eos strongly positions us to be the leader in treating these underserved patients.\nThese include longer-term outcomes for transcatheter mitral repair from our CLASP trial and the first report of 30-day outcomes with EVOQUE tricuspid replacement from our TRISCEND study.\nTurning to our results.\nFirst quarter global sales were $16 million, driven by continued adoption of our PASCAL system and activation of more centers across Europe.\nAssuming diminishing COVID-related impact, we expect to ramp up sales throughout the year.\nWe remain confident in our 2021 sales guidance of $80 million as we advance commercialization, staying focused on physician training, procedural success and patient outcomes.\nAdoption and favorable real-world clinical outcomes remain key drivers to transforming treatment.\nIn summary, we are making meaningful progress toward our 2021 milestones and we continue to estimate the global TMTT opportunity to reach approximately $3 billion by 2025.\nWe remain committed to transforming the treatment of patients with mitral and tricuspid valve disease around the world.\nIn Surgical Structural Heart, first quarter 2021 global sales was $213 million, increased 7% on an underlying basis over the prior year.\nDespite a soft start associated with COVID, we are encouraged by the improvement across all regions over the course of the quarter.\nNotably, growth was lifted by premium products and improved as declining COVID cases enabled more hospitals to resume treating surgical structural heart patients.\nWe remain very encouraged by the steady global adoption of Edwards RESILIA tissue valves, including continued adoption of the INSPIRIS RESILIA aortic surgical valve.\nWe anticipate that adoption will be bolstered by the five-year data from our COMMENCE clinical trial presented at the recent meeting of the Society of Thoracic Surgeon, which demonstrates the excellent durability of this tissue technology.\nAnd we're pleased that in the first quarter, we initiated sales of INSPIRIS in China.\nSales in the US also continue to gain traction with KONECT RESILIA, the first preassembled aortic tissue valve conduit for patients who require replacement of the valve, route and ascending aorta, a critical unmet patient need.\nFinally, we're pleased to announce that we received regulatory approval with reimbursement in Japan for our MITRIS RESILIA valve, a new mitral valve incorporating our newest tissue technology.\nYesterday, in Japan, we performed our first commercial cases with this differentiated innovation.\nIn summary, we have confidence in our full-year 2021 underlying sales growth in the high single-digit range for Surgical Structural Heart, driven by market adoption of our premium technologies.\nWe continue to believe the current $1.8 billion Surgical Structural Heart market will grow in the mid-single digits through 2026.\nIn Critical Care, first quarter sales of $196 million increased 4% on an underlying basis, driven by increased sales of technologies for both the operating room and intensive care units.\nHemoSphere orders increased as hospital capital spending began to show signs of recovery.\nDemand for our products used in high-risk surgeries remain strong and our ClearSight non-invasive finger cuff used in elective procedures also recovered to near pre-COVID levels.\nOur TruWave disposable pressure monitoring devices used in the ICU remained in demand due to elevated hospitalizations in both the US and Europe at the beginning of Q1.\nWe continue to expect full year 2021 underlying sales growth in the high single-digit range for critical care.\nWe remain excited about our pipeline of critical care innovations as we continue to shift our focus to smart recovery technologies designed to help clinicians make better decisions for their patients.\nWell, we are encouraged by the start to our year.\nDespite COVID still impacting the global healthcare system in the first quarter, we were able to post positive year-over-year sales growth across all of our product lines and regions as our advanced therapies helped patients globally.\nTotal sales grew 5% year-over-year on an underlying basis, which was better than the flat growth we expected when we gave guidance for the first quarter back in January.\nThis stronger-than-expected sales performance fell through to the bottom line, resulting in adjusted earnings per share of $0.54, which was 8% higher than the first quarter of 2020.\nThe improvement in our sales performance during the quarter was choppy, but we exited the quarter in a stronger position and that gives us continued confidence in our outlook for the balance of the year.\nWhile macro conditions remain variable across our key geographies, we're projecting total sales in the second quarter to grow sequentially to between $1.25 billion and $1.33 billion resulting in adjusted earnings per share of $0.54 to $0.60.\nAs our business continues to rebound from the impact of COVID, we expect sales to strengthen and expenses to grow as travel and clinical trials ramp up.\nWe are maintaining all of our previous sales guidance ranges for 2021.\nFor total Edwards, we expect sales of $4.9 billion to $5.3 billion; for TAVR, $3.2 billion to $3.6 billion; for TMTT, approximately $80 million; for Surgical Structural Heart, $800 million to $900 million; and for Critical Care, $725 million to $800 million.\nAnd based on our first quarter earnings, we are raising full year adjusted earnings per share guidance to $2.07 to $2.27, up from $2 to $2.20.\nSo, now I'll cover additional details of our results.\nFor the first quarter, our adjusted gross profit margin was 76% compared to 76.7% in the same period last year.\nThis reduction was driven by a negative impact from foreign exchange and incremental costs associated with responding to COVID, partially offset by improved manufacturing efficiencies.\nWe continue to expect our 2021 adjusted gross profit margin to be between 76% and 77%.\nSelling, general and administrative expenses in the first quarter were $331 million or 27.2% of sales compared to $308 million in the prior year.\nThis increase was primarily driven by the strengthening of OUS currencies, primarily the euro and personnel-related costs, partially offset by reduced travel spending resulting from COVID.\nAs I mentioned earlier, we anticipate our spending will increase during the year as travel restrictions subside and we resume a more normalized operating environment.\nWe continue to expect full year 2021 SG&A as a percentage of sales, excluding special items, to be 28% to 29%, similar to pre-COVID levels.\nResearch and development expenses in the quarter grew 10% to $207 million or 17% of sales.\nThis increase was primarily the result of continued investments in our transcatheter innovations.\nFor the full year 2021, we continue to expect R&D as a percentage of sales to be in the 17% to 18% range, similar to pre-COVID levels as we invest in developing new technologies and generating evidence to expand indications for TAVR and TMTT.\nTurning to taxes, our reported tax rate this quarter was 13.1%.\nThis rate included a 290-basis-point benefit from the accounting for stock-based compensation.\nWe continue to expect our full year rate in 2021, excluding special items, to be between 11% and 15%, including an estimated benefit of 4 percentage points from stock-based compensation accounting.\nForeign exchange rates increased first quarter reported sales growth by 280 basis points or $30 million compared to the prior year.\nAt current rates, we now expect an approximate $60 million positive impact or about 1% to full year 2021 sales compared to 2020.\nFX rates negatively impacted our first quarter gross profit margin by 150 basis points compared to the prior year.\nRelative to our January guidance, FX rates positively impacted our first quarter earnings per share by about $0.01.\nFree cash flow for the first quarter was $195 million defined as cash flow from operating activities of $301 million, less capital spending of $106 million.\nBefore turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities.\nWe continue to maintain a strong and flexible balance sheet with approximately $2.1 billion in cash and investments as of March 31, 2021.\nWe repurchased 3.6 million shares for $303 million during the first quarter and have approximately $300 million remaining in our share repurchase authorization.\nWe plan to continue to execute our strategy of offsetting dilution from incentive stock compensation as well as opportunistically reducing our shares outstanding over time.\nAverage shares outstanding during the first quarter were 631 million, down approximately 1 million from the prior quarter.\nWe continue to expect average diluted shares outstanding for 2021 to be between 630 million and 635 million.\nSo with that, I'll pass it back to Mike.\nWe remain confident in our long-term patient-focused strategy on our innovation pipeline.\nTo serve the many patients suffering from structural heart disease, we have never stopped investing in our people, our innovative technologies and our new growth capacity.\nAs a company, we expect that Edwards will be positioned even stronger and in a position to help more patients than ever as the world fully emerges from this pandemic.\nSo, Diego, with that, we're ready to take questions now.\nIn order to allow for broad participation, we ask that you please limit the number of questions to one, plus one follow-up.\nIf you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call.",
        "summary": "compname reports qtrly earnings per share of $0.54.\nqtrly earnings per share $0.54.\ncontinued confidence in sales outlook; fy 2021 adjusted earnings per share guidance of $2.07 to $2.27 increased $0.07.\nsees q2 2021 total sales to be between $1.25 and $1.33 billion & adjusted earnings per share of $0.54 to $0.60.\nqtrly sales grew 8% to $1.2 billion; underlying sales grew 5%.\noverall, full year 2021 sales guidance remains at $4.9 to $5.3 billion.\nqtrly global transcatheter aortic valve replacement sales of $792 million, up 7% on reported basis.\nremains confident that tavr global opportunity will exceed $7 billion by 2024.\ncontinues to anticipate underlying tavr sales growth in 15 to 20 percent range in 2021."
    },
    {
        "text": "Just after the close of regular trading, Edwards Lifesciences released second quarter 2021 financial results.\nThese statements include, but aren't limited to: financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters and foreign currency fluctuations.\nFinally, a quick reminder that when using terms underlying and adjusted, management is referring to non-GAAP financial measures.\nOtherwise, they are referring to GAAP results.\n\"We were encouraged by the clear signs of recovery during the second quarter.\nVaccine adoption in key regions have contributed to an increasing number of patients seeking and, most importantly, receiving treatment.\nAt Edwards, our dedication of providing innovative solutions for people fighting cardiovascular disease around the world motivates our employees every day.\nWe never stopped our aggressive pursuit of breakthrough technologies with the potential to help an even broader group of patients.\nLast year, we noted that we're in the midst of the onset of this tragic global pandemic.\nThere were more than 20,000 patients around the world who were treated with our SAPIEN valves in that second quarter.\nThis quarter, more than 30,000 patients were treated with SAPIEN valves, an indication that more patients are benefiting from our life changing technologies than ever before.\nThe comparisons of 2020 are challenging as last year marked an extraordinary time for structural heart patients, especially during the second quarter, when the COVID surge overwhelmed hospitals and undermined regular ongoing care.\nPatients and their doctors around the world were forced to weigh the risk of COVID versus the severe effects of progressive heart valve disease.\nFortunately, we are now experiencing encouraging signs of increased patient confidence to visit their position.\nTurning now to our recent results.\nWe are pleased to report better than expected second quarter sales of $1.4 billion, up 44% on a constant currency basis from a year ago period.\nAll four product groups delivered large increases in sales led by TAVR.\nTotal company sales increased sequentially versus Q1.\nAnd importantly, sales grew 11% on a two year compounded annual basis, compared to the strong pre-pandemic second quarter of 2019.\nWhile hospital heart teams have not been reporting significant backlogs, we believe that procedure rates in Q2 were lifted because patients who previously postponed their doctor visits returned and were treated.\nWe are raising our full year outlook for 2021.\nWe remain cautious about the mix trends of the recovery from the pandemic and additionally, we expect a more pronounced summer seasonality associated with the pent-up demand for vacations.\nYet, given the better than expected year-to-date performance and momentum exiting the quarter, we now expect total sales growth to be in the high teens versus our previous guidance of mid-teens.\nIn TAVR, second quarter global sales were $902 million, up 48% on an underlying basis versus the year ago period or 14% on a two year compounded annual basis.\nWe estimate global TAVR procedure growth was comparable with Edwards' growth in the second quarter.\nGlobally, our average selling price remains stable as we continue to exercise price discipline.\nWe continue to be optimistic about the long-term potential of TAVR because of its transformational impact on the many patients suffering from aortic stenosis and because many remain untreated.\nIn a recent article in the American Journal of Cardiology reported, it reported on the survival of severe AS patients since the introduction of TAVR in 2008.\nThe analysis included clinical data on 4,000 patients obtained at the mass general and concluded that in the TAVR era overall survival of patients with severe AS has doubled.\nThe long-term potential, along with the rebound in procedures reinforces our view that this global TAVR opportunity will exceed $7 billion by 2024, up from more than $5 billion today.\nAnd beyond 2024, bolstered by two pivotal trials currently being enrolled, we believe the impact of treating this deadly disease before symptoms and before the disease becomes severe has the potential to transform the lives of even more patients.\nIn the U.S., our TAVR sales grew sequentially over Q1 and over 50% on a year-over-year basis.\nOur U.S. TAVR volumes were well above pre-COVID levels as our two year compounded annual growth rate was in the mid-teens.\nWe estimate that our share of procedures was stable.\nWe are encouraged that U.S. TAVR procedures grew as vaccinations increase and patients decided to seek treatment during the quarter.\nGrowth was broad based across both high and low volume centers.\nOutside the U.S., in the second quarter, our sales grew approximately 40% on a year-over-year basis and we estimate that total TAVR procedure growth was comparable.\nOn a two year compounded annual basis, we estimate that sales grew in the low double-digits in the second quarter versus 2019.\nAnd although we are encouraged by the strong results, vaccination progress outside the U.S. creates uncertainty for the remainder of the year.\nLong-term goal, we see excellent opportunities for OUS growth as we believe international adoption of TAVR therapy remains quite low.\nTAVR procedure and Edwards' growth in Europe, also rebounded significantly on a year-over-year basis.\nEdwards' growth was driven by the continued strong adoption of our SAPIEN platform and was broad based across all countries.\nPatient flow recovered throughout the quarter, although it remains suboptimal in several countries and uncertainty among patients about the urgency of their disease.\nIn Japan, we continue to see strong TAVR adoption, driven by SAPIEN 3 and broad growth across centers of all sizes.\nWe remained focused on expanding the availability of TAVR therapy throughout the country, driven by the fact that aortic stenosis remains an immensely undertreated diseases among this large elderly population.\nAs previously announced, we received the approval earlier in the second quarter for SAPIEN 3 in patients at low surgical risk and we continue to anticipate increased treatment rates in Japan when reimbursement is approved in Q3.\nNow, turning to several recent TAVR clinical trial highlights, last week at the TVT Conference, data on the Vancouver's TAVR Economic Study were presented which further demonstrated the favorable economic value of our SAPIEN 3 platform, a comparison of 1100 patients was conducted to assess the economic impact of next day discharge.\nThe SAPIEN 3 platform with a minimalist approach achieved better patient outcomes 30-days post-procedure and enhanced resource utilization, which resulted in meaningful cost improvements.\nAlso at TVT, results from the PARTNER 3 bicuspid registry showed similar outcomes to other TAVR patients, as well as significant improvement in patient symptoms and quality of life.\nWe remain as optimistic as ever about the long-term growth opportunity as patients and clinicians increasingly understand the significant benefits of TAVR therapy, supported by the substantial body of compelling evidence.\nIn summary, based on the strength that we saw in the second quarter, we have confidence that the underlying TAVR sales will grow around 20% in 2021 versus our previous expectation of 15% to 20% growth.\nTurning to TMTT; we continue to be very pleased with our clinical outcomes as they remain a key driver to treating many patients in need and unlocking the significant long-term growth opportunity.\nWe continue to be committed to ensuring procedural success and employing a high touch clinical support model.\nWe are progressing in the enrollment of five pivotal trials across our differentiated portfolio to support therapy for patients suffering from mitral and tricuspid regurgitation.\nWe have initiated use of the PASCAL precision platform and are currently enrolling CLASP and early physician feedback has been positive.\nWe remain on track for U.S. approval of PASCAL for patients with DMR late next year.\nWe advanced our clinical experience with transcatheter replacement as we continued enrollment with our TRISCEND 2 pivotal trial for EVOQUE tricuspid replacement.\nWe also continue to treat patients with both our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 and the MISCEND Study for EVOQUE Eos.\nIn mitral, an analysis of EuroPCR of over 2,100 commercially treated patients provided further evidence of the efficacy, safety, and ease of use of the PASCAL platform.\nIn addition, two year results from the CLASP study of PASCAL highlighted strong and sustained MR reduction, as well as high survival rates for both FMR and DMR patients.\nAnd in tricuspid, 30-day outcomes for our TRISCEND study for the EVOQUE tricuspid valve replacement system demonstrated favorable technical feasibility and safety, along with significant improvements is tricuspid regurgitation and quality of life for patients.\nSimilarly, outcomes for PASCAL tricuspid valve repair resulted in significant TR reduction, low complication rates, and sustained functional and quality of life improvements at six months.\nTurning to the financial performance in TMTT, global sales of $22 million were driven by the continued adoption of our PASCAL platform, as we activated more centers across Europe.\nWe now expect 2021 TMTT sales of $80 million to $100 million, up from our previous sales guidance of $80 million.\nWe continue to estimate the global TMTT opportunity to triple to approximately $3 billion by 2025 and we are pleased with our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease.\nIn Surgical Structural Heart, record second quarter global sales of $237 million was up 42% on an underlying basis versus a year ago period.\nRevenue growth was lifted by increased adoption of our premium RESILIA technologies around the world and rebounding surgical aortic treatment rates in the U.S.\nWe were encouraged by steady improvement in global surgical procedure volumes, as we progress through the quarter.\nWe experienced strong year-over-year adoption of Edwards RESILIA tissue valves including continued adoption of the INSPIRIS RESILIA aortic surgical valve, the KONECT RESILIA aortic tissue valve conduit, as well as our new MITRIS RESILIA surgical mitral valve, which was launched in Japan in the second quarter.\nWe believe the adoption of RESILIA tissue valves will be further bolstered by the four year mitral data from our COMMENCE clinical trial presented at the recent meeting of the American Association of Thoracic Surgery, as well as the growing body of RESILIA clinical evidence, which demonstrates excellent durability of this tissue technology even in the high pressure mitral position.\nIn summary, given the strength of our year-to-date performance, we are raising our full year Surgical Structure Heart guidance, we now expect underlying sales growth in the mid-teens versus our previous expectation of high-single-digit growth.\nWe continue to believe the current $1.8 billion Surgical Structure Heart market will grow in the mid-single-digits through 2026.\nIn Critical Care, second quarter global sales were $215 million, up 27% on an underlying basis versus the year ago period.\nGrowth was driven by balanced contributions from all product lines led by HemoSphere sales in the U.S. as hospital capital spending continues to show signs of recovery.\nDemand for products used in high-risk surgeries remains strong, and demand for the ClearSight non-invasive finger cuff used in elective procedures accelerated following its recovery to pre-COVID levels in the first quarter.\nAnd Smart Recovery received FDA clearance for the software algorithm that powers our Hypotension Prediction Index, HPI on HemoSphere and the Acumen IQ cuff.\nThe non-invasive Acumen IQ cuff provides clinicians with an important new tool to reduce hypotension in a broader range of patients including those that do not require an arterial line.\nIn summary, given the strength of our year-to-date performance, we are raising our full year Critical Care guidance to low-double-digits versus our previous expectation of high-single-digit growth.\nWe remain excited about our pipeline of Critical Care innovations as we continue to shift our focus to smart recovery technologies designed to help clinicians make better decisions for their patients.\nI am pleased with the momentum we experienced as we exited the first quarter continued in the second quarter across all of our product lines.\nWhile we are expecting some headwinds due to the summer vacation schedule and flare-ups of COVID in various regions, we are optimistic about favorable business conditions for Edwards.\nTotal sales grew 49% year-over-year, as patients increasingly were more confident about pursuing treatment in the second quarter.\nOf course, the unusually high growth rate also reflects depressed sales in last year's second quarter due to COVID.\nOur underlying two year compounded growth rate in the second quarter was 11%, another indicator that conditions are improving.\nThe much stronger than expected sales performance lifted by unexpectedly high procedure volume fell through to the bottom-line resulting in adjusted earnings per share of $0.64.\nBased upon our strong start to the year and positive outlook, we are raising our previous sales guidance ranges for 2021.\nFor total Edwards, we now expect sales of $5.2 billion to $5.4 billion, for TAVR $3.4 billion to $3.6 billion, for TMTT, $80 million to $100 million, for Surgical Structural Heart, $875 million to $925 million, and for Critical Care, $800 million to $850 million.\nNow, regarding second half margins, we are intending to resume a higher rate of spending as commercial activities increase, especially as we continue to build our clinical and field teams to support our planned new product introductions in multiple regions.\nIn addition, we expect growth in research and development expenses as our clinical trial activities increase.\nThe combination of these actions contributes to our more moderated guidance for margins in the second half.\nWe expect our full year adjusted earnings per share guidance at the high-end of our previous range of $2.07 to $2.27.\nWhile public health conditions remain uncertain, we are projecting total sales in the third quarter to grow sequentially to between $1.29 billion and $1.37 billion resulting in adjusted earnings per share of $0.50 to $0.56.\nNow, I will cover additional details of our results.\nFor the second quarter, our adjusted gross profit margin was 75.9%, compared to 74.4% in the same period last year when we experienced lower sales and substantial cost responding to COVID.\nThis increase was also driven by a more profitable product mix, partially offset by a negative impact from foreign exchange.\nWe continue to expect our 2021 adjusted gross profit margin to be between 76% and 77%.\nSelling, general, and administrative expenses in the second quarter were $374 million or 27.2% of sales, compared to $275 million in the prior year.\nThis increase was primarily driven by personnel-related costs including performance-based compensation, increased commercial activities compared to the COVID impacted prior year, and the strengthening of OUS currencies, primarily the euro.\nWe are planning to see a ramp up in the expenses noted above in the second half as COVID-related restrictions subside to support continued growth.\nWe continue to expect full year 2021 SG&A expenses as a percent of sales, excluding special items to be 28% to 29%.\nResearch and development expenses in the quarter grew 24% to $225 million, or 16.4% of sales.\nThis increase was primarily the result of continued investments in our transcatheter innovations including increased clinical trial activity.\nWe are pointing ramp up expenses in the second half as we invest in developing new technologies and generating evidence to expand indications for TAVR and TMTT.\nFor the full year 2021, we continue to expect research and development expenses as a percentage of sales to be in the 17% to 18% range.\nDuring the second quarter, we recorded a $103 million net reduction in the fair value of our contingent consideration liabilities which benefited earnings per share by $0.14.\nThis gain was excluded from the adjusted earnings per share of $0.64 that I mentioned earlier.\nThis reduction reflects accounting adjustments associated with reduced expectations of making future milestone payments for previous acquisitions.\nThis accounting impact does not impact our 2021 guidance.\nTurning to taxes, our reported tax rate this quarter was 10.3%.\nThis rate included a larger than expected 590 basis point benefit from the accounting for stock-based compensation.\nWe continue to expect our full year rate in 2021 excluding special items to be between 11% and 15% including an estimated benefit of 5 percentage points from stock-based compensation accounting.\nForeign exchange rates increased second quarter reported sales growth by 450 basis points or $29 million, compared to the prior year.\nAt current rates, we now expect an approximate $70 million positive impact or about 1.5% to full year 2021 sales, compared to 2020.\nForeign exchange rates negatively impacted our second quarter gross profit margin by 180 basis points compared to the prior year.\nRelative to our April guidance, FX rates positively impacted our second quarter earnings per share by a penny.\nFree cash flow for the second quarter was $457 million, defined as cash flow from operating activities of $526 million, less capital spending of $69 million.\nBefore turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities.\nWe continue to maintain a strong and flexible balance sheet with approximately $2.6 billion in cash and investments as of June 30.\nAverage shares outstanding during the second quarter were 630 million, down from the prior quarter as we repurchased 1.3 million shares during the second quarter for $112 million.\nIn the first half of the year, we repurchased 4.9 million shares at an average price of $85.\nIn May, we obtained Board approval to increase our share repurchase authorization and currently have approximately $1.2 billion remaining under the program.\nWe now expect our average diluted shares outstanding for 2021 to be at the lower end of our 630 to 635 million guidance range.\nAnd with that, I'll pass it back to Mike.\nSo, we are pleased with our performance in the first half of 2021.\nTo serve the many patients suffering from Structural Heart Disease, we never stopped investing in our people, our innovative technologies and our new growth capacity.\nAs patients and clinicians increasingly recognize the significant benefits of transcatheter-based technologies, supported by the substantial body of compelling evidence, we remain optimistic about the long-term growth opportunity.\nOur foundation of leadership, combined with a robust product pipeline positions us well for continued success.\nThis event will include updates on our latest technologies, the use on longer term market potential, as well as our outlook for 2022.\nPlease look for more information on our website next month.\nWith that, we are ready to take questions now, Diego.\nIn order to allow for broad participation, we ask that you please limit the number of questions to one, plus one follow-up.\nIf you have any additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call.",
        "summary": "compname reports quarterly earnings per share of $0.78, quarterly adjusted earnings per share of $0.64.\nqtrly earnings per share $0.78; qtrly adjusted earnings per share was $0.64.\n2021 sales guidance raised to $5.2 billion to $5.4 billion from $4.9 billion to $5.3 billion.\nqtrly sales grew 49% to $1.4 billion; underlying sales grew 44%.\nqtrly reported transcatheter aortic valve replacement sales of $902 million, up 52% on a reported basis.\nprojects q3 sales to be between $1.29 billion and $1.37 billion, adjusted earnings per share of $0.50 to $0.56.\nedwards lifesciences sees fy underlying tavr sales growth of around 20% versus previous sales growth expectation of 15% to 20%.\nrecorded reduction in fair value of contingent liabilities in quarter, a $0.14 benefit that was excluded from adjusted eps.\nraising fy 2021 adjusted earnings per share guidance to the high end of the previous $2.07 to $2.27 range."
    },
    {
        "text": "Just after the close of regular trading, Edwards Lifesciences released fourth quarter 2020 financial results.\nThese statements include, but aren't limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations.\nFinally, a quick reminder that when using the terms underlying and adjusted, Management is referring to non-GAAP financial measures, otherwise they are referring to GAAP results.\nBefore we discuss fourth quarter's results and our expectations for 2021 and beyond, I want to spend a minute reflecting on 2020.\nStructural heart patients were severely impacted beginning in March, experiencing significant difficulties entering the system, which also had a profound impact on second quarter procedures and even though healthcare systems adapted to the challenge, the resurgence of COVID that began late in the year continues to impact structural heart patients, who need care.\nDespite unprecedented challenges throughout the year, I'm proud of our team's steadfast dedication to our patient-focused strategy.\nWe continue to invest in developing solutions that extend lives, improve the quality of life and offer greater value for the healthcare system.\nAlong those lines, we celebrated some exciting milestones in 2020 that directly impacted patients.\nIn TAVR, despite headwinds, more than 100,000 patients benefited from treatment with SAPIEN valves worldwide.\nIn Surgical Structural Heart, we launched our KONECT aortic valved conduit and Inspiris became the leading aortic surgical valve worldwide.\nWe've seen early positive clinical evidence across the TMTT platform, physician feedback is encouraging and patient outcomes have been distinguished.\nAnd in Critical Care, we met the increased demand for core pressure monitoring products due to the pandemic, and we're proud that we were able to help over 1 million patients globally with our monitoring technology.\nTo support our innovation and growth, we continued to invest in our people and our infrastructure.\nDuring the year when job losses impacted many families across the globe, Edwards prioritized protecting our employees and we grew our team to 15,000 worldwide.\nWe continue to make strategic R&D investments that enabled us to fuel progress and despite this unique environment and extraordinary prior year growth, underlying sales grew 1% in 2020 to $4.4 billion, which is a reflection of the life-threatening needs of the patients that Edwards serves.\nLooking into 2021, while we expect the pandemic to continue to impact the global healthcare system, we remain optimistic about the year ahead.\nAs we indicated at our investor conference, we expect full year sales between $4.9 billion and $5.3 billion representing mid-teens underlying growth on a year-over-year basis.\nBased on our year-to-date experience, we expect Q1 sales to be slightly down sequentially, although in line with the first quarter of last year, which was largely unaffected by COVID.\nOur 2021 guidance continues to assume COVID will stress the global healthcare system, it leads through the winter months with procedures ramping later in the year.\nThis expectation assumes that vaccines are effective and widely administered by mid-year 2021 and hospitals continue to improve their ability to treat non-COVID patients, who need care for conditions such as aortic stenosis and even though we expect the COVID impact on sales at the start of the year, we are continuing to invest now in our innovations that have the tremendous opportunity to enhance patients' lives and bring significant value to the healthcare system.\nWe recognize the uncertain impact and timeframe for recovery from this unique global challenge, but we remain confident that our patient-focused strategy of continued investment positions us well and even stronger when the world emerges from the pandemic.\nNow turning to our quarterly results, consistent with our guidance at our investor conference last month, fourth quarter sales of $1.2 billion were in line with the year ago period when Edwards' grew nearly 20% on an underlying basis, reflecting the strength, even during the ongoing pandemic.\nFull-year 2020 global sales -- global TAVR sales of 2.9 billion increased 4% on an underlying basis over the prior year.\n2020 growth reflected increased sales in every region lifted by greater awareness of the benefits of TAVR therapy and increased adoption of our leading technologies.\nBased on the strength of the SAPIEN platform, we retained our strong leadership position while also maintaining our disciplined price strategy.\nIn the fourth quarter, global TAVR sales were $776 million, up slightly from the year ago period.\nWe estimate global TAVR procedure growth was comparable with our growth and globally, average selling prices were stable.\nAlthough the rollout was somewhat impacted, SAPIEN 3 Ultra now represents more than two-thirds of our global TAVR sales and physician feedback on ease of use and improved paravalvular leak performance remains outstanding.\nIn the U.S., our Q4 TAVR sales were approximately level with the third quarter and declined in the mid-single digit range versus last year.\nWe estimate overall Q4 U.S. procedures declined at a comparable rate.\nRecall that our U.S. TAVR sales in the year ago period increased nearly 40% driven by the strong PARTNER 3 evidence that led to a third quarter 2019 indication expansion and improved patient access under an updated TAVR NCD.\nWe expect these factors to resume lifting treatment rates, as the pandemic subsides.\nGrowth at smaller TAVR centers, which are providing local access to aortic stenosis patients was more than offset by declines in larger accounts, where referrals have been disrupted by the resurgence of COVID.\nOutside the U.S., in the fourth quarter, we estimated total TAVR procedures grew in the high single digits on a year-over-year basis and Edwards growth was comparable.\nEdwards' underlying TAVR growth in Europe versus the prior year was in the mid-single digit range.\nGrowth was driven by continued strong adoption of our SAPIEN platform and was more pronounced in countries that were more severely impacted by the first wave of COVID in 2020.\nOutside of the U.S. and Europe, we continue to see very good TAVR adoption in the fourth quarter.\nSales growth in Japan, Australia, and Korea were strong, where therapy adoption is still low.\nIn Japan, we continue to anticipate providing SAPIEN 3 for low-risk patients prior to the end of this year.\nIn China, which was a minor contributor to Q4 sales, we remain focused on growing our dedicated clinical support team to assist leading hospitals, as they build their TAVR programs.\nIn addition to geographic expansion of our TAVR therapies, we remain focused on indication expansion.\nWe talked at our recent Investor Conference about our early TAVR trial, which is focused on the treatment of asymptomatic patients.\nEnrollment is now two-thirds complete and we remain optimistic that the trial will be fully enrolled in 2021.\nSeparately, we continue to plan to initiate an important pivotal trial for moderate aortic stenosis to determine the optimal time to treat patients, who have this progressive disease.\nWe believe that some patients may benefit from earlier treatment, when they have moderate AS rather than risking irreversible damage as the disease progresses.\nWe're optimistic about the potential of this trial and we anticipate FDA approval to begin enrollment this year.\nIn November 2020, we are pleased that the American Heart Association announced the launch of an initiative, called Target Aortic Stenosis, a quality improvement program aimed to develop optimal standards of care.\nThe program features a learning collaborative comprised of experts and volunteers from pilot hospital locations around the nation.\nAHA noticed that if left untreated, the condition worsens and patients with severe aortic stenosis have a survival rate as low as 50% at two years.\nAortic stenosis is also a risk factor for heart failure, a costly disease projected the cost the US Healthcare System $70 billion in 2030.\nIn summary, we continue to anticipate 2021 underlying TAVR sales growth in the 15% to 20% range, as we shared at our Investor Conference.\nWe expect continuing COVID related challenges early in 2021, turning to a more normalized growth environment in the second half of the year.\nWe remain confident in this large global opportunity will exceed $7 billion by 2024, which implies a compounded annual growth rate in the low double-digit range.\nTurning to Transcatheter Mitral and Tricuspid Therapies or TMTT, we've made meaningful progress moving from early stage development to clinical use across all of our platforms with over 3,000 patients treated to-date.\nTo transform treatment and unlock the significant long-term growth opportunity, we remain focused on three key value drivers, a portfolio of differentiated therapies, positive pivotal trial results to support approvals and adoption and favorable real-world clinical outcomes.\nIn Europe, PASCAL leaflet repair continues to deliver excellent results.\nIn Q4, we continued the introduction of PASCAL Ace for mitral and tricuspid patients and we're pleased with the early real world results and positive physician feedback regarding its differentiated features and narrower profile.\nWe plan to make both PASCAL Ace and PASCAL available on a single next generation platform called the PASCAL Precision System.\nThis new system is designed to elevate the user experience with enhanced maneuverability, navigation, and stability enabling improved procedural precision.\nFrom a clinical perspective, in this challenging near-term environment, we are experiencing a negative impact to clinical trial enrollment.\nHowever, our team and research partners are highly motivated to build on the differentiated data presented in 2020 and expand our body of clinical evidence in this exciting field.\nWe will look forward to presenting meaningful follow-up data across our portfolio at medical meetings later this year.\nWe progressed in the enrollment of our three CLASP pivotal studies.\nWe also received approval for use of the Edwards PASCAL Precision System in these pivotal studies.\nThe company is still expects U.S. approval of PASCAL for patients with DMR late next year.\nWe continue to enrolling SAPIEN M3 pivotal study and Circle designed to demonstrate strong safety and efficacy for transcatheter mitral replacement and we're on track to initiate our first clinical experience with our next generation EVOQUE Mitral Replacement System.\nThe EVOQUE tricuspid replacement study, TRISCEND continue to enroll in Q4 and we're on track to initiate the TRISCEND II randomized pivotal study based on FDA's Breakthrough pathway designation.\nWe look forward to bringing this important treatment option to more patients that are in significant need.\nTurning to recent news, we commenced CMS for ensuring mitral valve disease patients have improved access to therapy options through the updated NCD.\nThis update, which includes coverage with Evidence Development achieves the balance of patient access with high quality outcomes.\nFourth quarter global sales were $13 million, representing sequential improvement versus Q3.\nFull year 2020 sales were $42 million.\nWe expect continuing COVID related challenges early in 2021, but we anticipate a ramp up through the rest of the year.\nWe maintain our beliefs that the total TMTT sales will approximately double in 2021.\nWe continue to estimate the global TMTT opportunity to reach $3 billion by 2025 with significant growth beyond.\nWe remain committed to transforming the treatment of these patients and believe our portfolio strategy positions us well for ultimate leadership.\nIn Surgical Structural Heart, full-year 2020 global sales of $762 million decreased 10% on an underlying basis over the prior year, in line of our guidance, with our guidance of 5% to 15% decline.\nFourth quarter sales of $204 million held steady with Q3 and declined 2% year-over-year on an underlying basis, which was below our previous expectation for positive growth.\nOver the course of the quarter, hospitals experience an influx of COVID patients limiting surgical procedures.\nDespite this impact, we are encouraged that the U.S. achieve positive growth in Q4, driven by adoption of our newest premium technologies.\nWe remain very encouraged by the steady global adoption of Edwards Premium RESILIA tissue valves, including the Inspiris aortic surgical valve and the recently launched KONECT aortic valved conduit.\nIn the fourth quarter, Inspiris valve utilization grew in all regions, and we continue to add new centers.\nSales in the U.S. are ramping for KONECT, the first preassembled ready to implant aortic tissue valve conduit for patients, who require replacement of the aortic valve, root, and the ascending aorta, which is a critical unmet patient need.\nWe continue to focus on comprehensive physician training and robust data collection for the HARPOON Beating Heart Mitral Valve Repair System.\nWe are seeing favorable patient outcomes with faster surgery and recovery times with this minimally invasive therapy.\nThe U.S. pivotal trial is now under way and the first patient was treated in December.\nIn summary, we expect full-year 2021 underlying sales growth in the high single-digit range for surgical structural heart driven by market adoption of our newest technologies.\nAfter a challenging start, we expect improving year-over-year comparisons, as we progress through the year.\nWe are excited by our ability to provide innovative surgical treatment options for more patients and to extend our global leadership in premium Surgical Structural Heart technologies.\nWe believe the current $1.8 billion Surgical Structural Heart opportunity will grow mid single digits through 2026.\nIn Critical Care, full year 2020 global sales of $725 million decreased 3% on an underlying basis versus the prior year, in line with our guidance of flat to down 5%.\nFourth quarter Critical Care sales of $198 million decreased 2% on an underlying basis, driven by the decline in HemoSphere orders in the U.S., as hospitals limited their capital spending.\nSales of our TruWave disposable pressure monitoring devices used in the ICU were lifted by the increased COVID hospitalizations late in the fourth quarter in both the U.S. and Europe.\nDemand for our products used in more intense surgeries remains strong, but were more than offset by the impact of delayed elective procedures.\nIn summary, we expect full-year 2021 underlying sales growth in the high single-digit range for critical care.\nWe remain excited about our pipeline of Critical Care innovations, as we continue to shift our focus to smart recovery technologies designed to help clinicians make better decisions for their patients.\nNow, I'll ask Scott to provide some more detail on the company's financial results.\nToday, I'll provide a wrap-up of 2020 including detailed results from the fourth quarter as well as provide an update on guidance for the first quarter and full year of 2021.\nDespite the wave of COVID that began during the fourth quarter, we are pleased that we were able to achieve our sales guidance ranges across all product lines.\nSales in the fourth quarter were flat year-over-year on an underlying basis and adjusted earnings per share grew 2% to $0.50 versus the prior year.\nGAAP earnings per share was similar at $0.49.\nFor the full year 2020, sales increased 1% on an underlying basis to $4.4 billion, adjusted earnings per share was flat at $1.86 and we generated over $700 million of adjusted free cash flow.\nDuring 2020, we achieved cost efficiencies, but we intentionally did not take any actions to significantly impact our employees or reduce investments supporting our long-term strategy.\nI'll now cover the details of our results and then discuss guidance for 2021.\nFor the fourth quarter, our adjusted gross profit margin was 75.3% compared to 75.8% in the same period last year.\nThis reduction was driven by a negative impact from foreign exchange and incremental costs associated with responding to COVID, partially offset by lower performance-based compensation.\nWe continue to expect our 2021 adjusted gross profit margin to be between 76% and 77%.\nOur rate should be lifted by an improved product mix, partially offset by a negative impact from foreign exchange.\nSelling, general and administrative expenses in the fourth quarter were $339 million or 28.4% of sales, compared to $347 million in the prior year.\nThis decrease was primarily driven by reduced spending resulting from COVID and lower performance-based compensation, partially offset by the impact from foreign exchange.\nWe continue to expect full year 2021 SG&A as a percentage of sales, excluding special items to be 28% to 29%, which is similar to pre-COVID levels.\nResearch and development expenses in the quarter grew 1% to $196 million or 16.4% of sales.\nThis small increase was primarily the result of higher investments in TMTT and costs associated with discontinuing our SUTRAFIX program, partially offset by reduced performance-based compensation.\nFor the full year 2021, we continue to expect R&D as a percentage of sales to be in the 17% to 18% range, similar to pre-COVID levels, as we invest in developing new technologies and generating evidence to expand indications for TAVR and TMTT including enrolling seven clinical trials.\nTurning to taxes, our reported tax rate this quarter was 13.1% or 13.9% excluding the impact of special items.\nThis rate included a 350 basis point benefit from the accounting for stock-based compensation.\nOur full-year 2020 tax rate, excluding special items was 12.5%.\nWe continue to expect our full year rate in 2021 excluding special items to be between 11% and 15%, including an estimated benefit of 5 percentage points from stock based compensation accounting.\nForeign exchange rates increased fourth quarter reported sales growth by 150 basis points or $18 million compared to the prior year.\nAt current rates, we now expect an approximate $100 million positive impact or about 2% to full year 2021 sales compared to 2020.\nFX rates negatively impacted our fourth quarter gross profit margin by 150 basis points compared to the prior year.\nFree cash flow for the fourth quarter was $287 million, defined as cash flow from operating activities of $400 million, less capital spending of $113 million.\nNow turning to the balance sheet, we have a strong balance sheet with approximately $2.2 billion in cash and investments as of the end of the year.\nIn addition, we have an undrawn line of credit of up to $1 billion.\nWe have public bonds outstanding of about $600 million that don't mature until 2028.\nAverage shares outstanding during the fourth quarter were 632 million, relatively consistent with the prior quarter.\nWe now expect average diluted shares outstanding for 2021 to be between 630 million and 635 million.\nSo before turning the call back over to Mike, I'll finish with financial guidance for 2021.\nWe are maintaining all of our previous sales guidance ranges for 2021.\nFor total Edwards, we expect sales of $4.9 billion to $5.3 billion.\nFor TAVR, we expect sales of $3.2 billion to $3.6 billion.\nFor TMTT, we expect sales of approximately $80 million.\nWe expect Surgical Structural Heart sales of $800 million to $900 million and Critical Care sales of $725 million to $800 million.\nFor the full year 2021, we continue to expect adjusted earnings per share of $2 to $2.20.\nFor the first quarter of 2021, we project total sales to be between $1.1billion and $1.2 billion and adjusted earnings per share of $0.43 to $0.50.\nAnd so with that, I'll pass it back to Mike.\nWhile a year like 2020 could threaten to cause persistent disruptions, our strategy of patient-focused innovations remains unwavering.\nAs we look to 2021 and beyond, I'm as excited as ever about the work happening at Edwards and more importantly what we envision for the future of patient care.\nI continue to believe we are poised for success and that our innovation and cultural imperative to put patients first will drive strong organic sales growth and create long-term value.\nWith that, we're ready to take questions.\nIn order to allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up.\nIf you have additional questions, please reenter the queue and Management will answer as many participants as possible during the remainder of the call.",
        "summary": "compname reports q4 earnings per share $0.49.\nq4 adjusted earnings per share $0.50.\nq4 earnings per share $0.49.\nq4 sales $1.2 billion versus refinitiv ibes estimate of $1.19 billion.\nfull year 2021 sales guidance for edwards remains $4.9 billion to $5.3 billion.\ncontinues to expect full year 2021 adjusted earnings per share of $2.00 to $2.20.\nfor q1 of 2021, co projects total sales to be between $1.1 billion and $1.2 billion, and adjusted earnings per share of $0.43 to $0.50."
    },
    {
        "text": "This is Michael Haack.\nLet me start today by acknowledging that we had another solid quarter of increasing earnings, and while shaping up to be an exceptional fiscal year for Eagle Materials.\nOur results reflect that we are entering into a cyclical phase for our businesses, where the demand for all of our products are strong.\nThere are two overreaching reasons for this.\nOne relates to market conditions, which are on an improving trajectory in most respects.\nThe second relates to Eagle's high-performing, well thought geographically advantaged operations that can take advantage of these market opportunities.\nLet me start with some foundational comments about market conditions.\nHousing construction is an important driver for both sides of our business, and single-family starts are especially important for Gypsum Wallboard.\nThere are positive short-term, mid-term, and long-term dimensions to the robust housing-related demand for our materials.\nAs for the short term, Wallboard is installed on walls and ceilings in the later phase of the building construction process after framing has occurred.\nThis means that the recent increase in starts and permits will have the greatest impact in the months ahead.\nPandemic has resulted in a surge in home buying, and that demand that has been swelling over more than a decade of under-building is now being realized.\nWhat is more remarkable is, even with the improved rate of home construction, we as a nation, still do not have a balanced supply and demand picture for housing.\nHome inventories on the market remain at all time lows.\nWe believe the annual housing supply demand imbalance is unlikely to be rectified by new construction before 2022.\nThis is in part due to the pace of what is possible for homebuilders to get into production.\nThis supply demand pressure will challenge housing affordability, but given the Fed's commitment to keep interest rates low for an extended period, this should translate into a multi-year construct -- a continuation of favorable mortgage rates environment.\nAnother important end-use segment for us is repair and remodeling.\nResearch shows that purchasers of existing homes spend money on remodeling materials in the wake of their home purchase, to make the home their own and more fully conform to their needs and tastes.\nLonger-term trends also favor our geographic positioning.\nThe exodus from states such as California, New York, and New Jersey to states in the Sunbelt, from Carolina to Arizona and in the U.S. Heartland, including Texas and Colorado, is expected to continue.\nThis migration aligns well with our network of facilities within Eagle Materials.\nWe have the in-place capacity to flex with the demand growth for Wallboard without additional capital investment.\nWe expect to benefit from higher volumes, higher margins, and restrain cost due to our ownership positions in adjusting [Phonetic] raw materials and paper.\nNow let me turn to the market outlook, as it relates to the Heavy side.\nInfrastructure spend drives about half the U.S. cement demand, with residential being the next most important driver.\nState budgets have been the lion's share of infrastructure spend for many years.\nWe do not want to minimize the pressure that some state budgets are experiencing.\nBut our analysis of the sources of state revenue, including sales taxes, property taxes, income taxes, and corporate taxes suggest to us that many states and cities would not be as severely affected as some might fear.\nThis is especially relevant for many of the states in which we operate.\nWhat our analysis shows is that income and sales tax which account for more than half of the state and the local revenues fell in calendar Q2, but states developed pre-COVID levels in Q3.\nThe states still have choices on what to do with this money.\nBut we maintain our expectation that even without federal support to states and cities, trend demand for cement will be sustained in low single-digits across much of our footprint.\nOf course, state DOT's could receive further federal support with the new administration, and this would provide an uplift to infrastructure construction activity.\nTo be clear, that activity, that multi-year federal funding bills generate generally takes years to materialize, hence demand for our products.\nNon-residential is the smallest end-use segment for Heavy, and we continue to see short-term pressure.\nNon-residential construction continues to be depressed by the potential dangers posed by many indoor activities.\nThe pipeline for office projects has been significantly and involves a very geographic-dependent.\nSpending on manufacturing buildings is beginning to see some improvement, and warehouse construction trends to be strong in many of our geographies.\nNow let me address the second factor mentioned, which is the high-performing low-cost network of plants we have created to take advantage of the market opportunities that are presenting themselves to us.\nOpportunities which we do see [Phonetic] in our view should continue for some time.\nThe only limitations in our ability to capture these opportunities are in cement.\nWe are operating at very high levels of capacity utilization today, and we are facing a tightening cycle that would challenge our resourcefulness to squeeze out every bit of production through optimization of grinding, seasonal storage, and market selection.\nWhereas in Wallboard, we have headroom for earnings expansion through volume and price growth.\nGoing forward, we expect price will be the most important earnings growth lever for us in cement.\nAgainst this positive backdrop, uncertainties abound.\nThe most important of these relate to the pandemic and getting it under control.\nBecause of this, I do not have an update today on timing for the spin, and I won't until there are some increased visibility that we are past the potentially more disruptive effects of this pandemic.\nWe are hopeful that vaccines will be a game changer.\nThe optimist and we believe that risks for the business talk to the upside, and that the best is yet to come.\nEagle's third quarter revenue was $405 million, an increase of 18% from the prior year.\nThis increase primarily reflects contribution from the Kosmos Cement business we acquired in March.\nAnd adjusting for the acquisition in the sale of our Northern California Concrete and Aggregates business, organic revenue improved 7%, reflecting increased cement and Wallboard sales volume and price.\nThird quarter earnings per share from continuing operations were $1.94, an improvement of 87%.\nExcluding the non-routine charge, third quarter earnings per share increased 28%.\nTurning now to segment performance, let's look at Heavy Materials results for the quarter highlighted on the next page.\nThe Heavy Materials sector includes our Cement, Concrete, and Aggregates segments.\nRevenue in this sector increased 21%, driven primarily by the contribution from the Kosmos Cement business.\nOrganic cement sales prices improved 4%, and sales volume was flat with our facilities continuing to operate at very high utilization rates.\nOperating revenues increased 31%, again reflecting the addition of the Kosmos Cement business.\nAnd organic operating earnings increased 8%, reflecting primarily higher net cement sales prices.\nOur Concrete and Aggregates business continued to benefit from higher organic sales volume and lower diesel fuel costs, with the margins improving significantly from the prior year.\nMoving to the Light Materials sector on the next slide.\nThird quarter revenue in our Wallboard and Paperboard business was up 8%, reflecting record third quarter Wallboard sales volume and a 1% increase in Wallboard sales prices.\nFor a perspective, the December average price was [Indecipherable] per thousand square feet versus the quarterly average of $148.\nQuarterly operating earnings in the sector increased 1% to $48 million, reflecting the increased Wallboard sales volume and prices, partially offset by higher input costs, namely recycled fiber costs.\nLooking now on our cash flow, which remained strong.\nDuring the first nine months of the year, operating cash flow increased 69%, reflect the earnings growth, disciplined working capital management, and the receipt of our IRS refund.\nCapital spending declined to $46 million.\nFinally, a look at our capital structure.\nDuring the quarter, we continued to prioritize debt reduction as a primary use of cash, providing us significant financial flexibility in the light of pandemic-related uncertainties and potential opportunities.\nAt December 31, 2020, our net debt-to-cap ratio was 41%, down from 60% at the end of our fiscal year.\nAnd our net debt-to-EBITDA leverage ratio was well below 2 times.\nWe ended the quarter with $143 million of cash on hand, and total liquidity at the end of the quarter was $888 million, and we have no near-term debt maturities.\nWe'll now move to the question-and-answer session.",
        "summary": "compname reports third quarter results earnings per share from continuing operations of $1.94 on revenue of $405 million.\nq3 earnings per share $1.94 from continuing operations.\nq3 revenue $405 million versus refinitiv ibes estimate of $385.1 million."
    },
    {
        "text": "Joining us today will be our Chief Executive Officer, Dennis Gilmore; and Mark Seaton, Executive Vice President and Chief Financial Officer.\n2020 was another strong year for First American.\nOur revenues are running well above the prior year and then the pandemic hit impacting our business overnight.\nOur top priority is to protect our people and serve our customers and we achieved both.\nWe quickly transitioned the majority of our employees to working from home and still closed over a million real estate transactions in 2020.\nThis accomplishment testifies to the dedication of our people and their commitment to our customers.\nIt also validates our many digital investments we have made to improve the customer experience.\nI'd now like to shift my comments to the fourth quarter results.\nWe generated earnings per share of $2.49.\nExcluding realized investment gains, earnings per share were $2.11.\nRevenues in our Title Insurance segment were up 26% in the fourth quarter and we effectively managed our expenses, achieving a 53% success ratio, which contributed to a pre-tax margin of 18.9%.\nOur focus on automating Title production and digitizing and closing process paid off in 2020.\nIn a year of rapidly surging volume we closed 32% more orders this quarter than the prior year, with just 6% more employees.\nOur direct purchase revenue rose 32% in the fourth quarter.\nWe experienced an 18% increase in closed transactions and 11% increase in the average revenue per order.\nThis growth is a sign of a continued strength of the housing market.\nRefinance revenue continued to benefit from low mortgage rates with revenue rising 79% over the prior year.\nCommercial rebounded strongly in the fourth quarter.\nSince the onset of the pandemic commercial has been slow to recover than residential.\nCommercial revenue was down 39% in the second quarter, 29% in the third quarter and the fourth quarter improved to a 5% decline of an all-time high fourth quarter of 2019.\nWe are encouraged that the order momentum over the last few months has picked up and we expect to have a strong commercial year in 2020.\nTurning to our Specialty Insurance segment, revenues were $141 million, a 7% increase over the prior year.\nAs we disclosed in January, our Property and Casualty business entered into a book transfer agreement, which provide qualifying agents and customers an opportunity to easily transfer their policies.\nAs of February 1, we are no longer quoting new policies and expect to discontinue policy renewals in May.\nWe anticipate the transfer will be complete by the end of the third quarter of 2022.\nThis transaction enables us to maintain focus on our core business and redeploy the capital to areas with higher expected returns.\nIn the fourth quarter, we raised our quarterly dividend from $0.44 to $0.46 and we repurchased 1.3% of our shares outstanding at an average price of $49.20 and have continued our buying in 2021.\nWe believe both the short-term and long-term prospects of First American are stronger than the market is giving us credit for and as a result of aggressively repurchased shares.\nTurning to our outlook, early indications are that the real estate market will remain robust this year.\nThe strong open order pipeline we built in the fourth quarter is moving to the revenue at what is traditionally our slowest period.\nIn January, our purchase orders were up 17% and we opened 3,200 refinance transactions per day, continuing the same trend we experienced for the last several months.\nAnd as previously mentioned, we think this will be another good year for our Commercial business.\nWhile we are encouraged by the strength of our markets, we remain focused on the long-term opportunities of our business.\nIn 2021, we will continue to invest in automation of our title production process and in the refinement of our digital closing platform.\nWe plan to increase our technology spend in areas of product development, cloud migration, and security.\nAnd we are building digital solutions across our company to transform the customer experience.\nAn example of this is Endpoint, our title and escrow company that was built from the ground up to deliver a reimagined closing experience.\nWe believe these investments will enable us to continue to generate strong earnings for the years to come.\nIn the fourth quarter, we earned $2.49 per diluted share.\nThis includes net realized investment gains totaling $56 million or $0.38 per diluted share.\nExcluding these gains, we earned $2.11 per share.\nIn the Title Insurance and Services segment, direct premium and escrow fees were up 24% compared with last year.\nThis growth reflects the 32% increase in the number of closed orders, partially offset by a 6% decline in the average revenue per order.\nThe average revenue per order decreased to $2,500 due to a shift in the mix of direct title orders to lower premium refinance transactions.\nHowever, at the product level, we continue to see higher average revenue per order for all order types.\nThe average revenue per order for purchase transactions increased 11%, refinance increased 3% and commercial increased 2%.\nAgent premiums, which are recorded on approximately a one quarter lag relative to direct premiums, were up 25%.\nThe agent split was 79.1% of agent premiums.\nInformation and other revenues totaled $282 million, up 39% compared with last year.\nA number of factors contributed to this growth including growth in mortgage originations that led to higher demand for the company's title information products and our acquisition of Docutech, which isn't included in the prior year results.\nInvestment income within Title Insurance and Services segment was $52 million, down 26% primarily due to the impact of the decline in short-term interest rates on the investment portfolio and cash balances, partially offset by higher interest income from the company's warehouse lending business.\nThis quarter, our investment income benefited from a $4.4 million catch-up related to our Warehouse Lending business On a go-forward basis, we expect investment income to be somewhere in the neighborhood of $45 million per quarter with short-term rates at current levels.\nPersonnel costs were $515 million, up 14% from the prior year.\nThis increase is primarily due to higher incentive compensation and salary expense and higher costs as a result of recent acquisitions.\nOther operating expenses were $300 million, up 34% from last year.\nThe increase was primarily due to higher production-related costs as a result of the growth in order volume.\nThe provision for title policy losses and other claims was $81 million or 5% of the title premiums and escrow fees, an increase from a 4% loss provision rate in the prior year.\nTo recap, we raised our loss provision rate in the first quarter of 2020 from 4% to 5% due to the extreme economic uncertainty that existed.\nEconomic factors are a key variable in title claims experience.\nAnd given the deterioration in some of those factors, we raised the loss provision rate.\nBut the housing market and general economy have improved since then.\nBy raising the loss provision rate 100 basis points, we have added $52 million of additional IBnR reserves in our balance sheet.\nYet our incurred claims in 2020 were $49 million below our internal expectations set at the beginning of 2020.\nPaid title claims show a similar trend with claims $30 million below our expectation.\nAs always, we will monitor our claims experience and market conditions when evaluating our reserves and we'll evaluate it next in connection with our first quarter earnings report.\nDepreciation and amortization expense was $37 million in the fourth quarter, up 24% compared with the same period last year, primarily due to higher amortization of intangibles related to recent acquisitions.\nPretax income for the Title Insurance and Services segment was$377 million in the fourth quarter compared with $284 million in the prior year.\nPretax margin was a record 18.9% compared with 17.8% last year.\nExcluding the impact of net realized investment gains, pre-tax margin was 16.8%, equivalent to the prior year.\nIn the Specialty Insurance segment, pre-tax income totaled $27 million.\nWe recorded a benefit of $18.3 million related to a reversal of an impairment initially taken in the third quarter relating to our Property and Casualty business.\nIn the third quarter, this accrual was taken so the book value of our Property and Casualty business matched the expected proceeds from the sale.\nWe subsequently determined that a book transfer rather than a sale was a more attractive alternative.\nThis decision required us to reverse this accrual and our Property and Casualty business is currently carried at tangible book value.\nThe ultimate proceeds we'll earn in the book transfer will be immaterial.\nNet expenses in the corporate segment were $22 million, up $4 million compared with last year, largely due to higher interest expense associated with our $450 million senior notes transaction which closed in May.\nThe effective tax rate for the quarter was 26.4%, higher than our normalized rate of 23% to 24%.\nThe tax rate was adversely impacted by $7.4 million or $0.07 per diluted share due to a permanent tax difference related to the Property and Casualty business.\nI'd like to provide an update on matters arising from our 2019 information security incident.\nAs previously disclosed, we received a Wells Notice from the SEC in September 2020.\nWe submitted our response in October and have had no substantive communications with the Commission since.\nWe continue to believe that the SEC matter, along with all other matters relating to the security incident, will be immaterial from a financial perspective.\nFinally, turning to capital management, 2020 was an active year for our balance sheet.\nWe spent nearly $400 million on acquisitions, the largest of which being Docutech, which has been a great addition to our company.\nWe also returned significant capital to our shareholders.\nWe paid nearly $200 million in dividends and raised the dividend by 5% on two separate occasions during the year.\nPursuant to 10b5-1 plans, we also repurchased $139 million in stock at an average price of $43.44 in 2020.\nWe continued our repurchases under these plans early in 2021 deploying an additional $27 million at an average price of $52.97.\nDuring 2020, we also invested $83 million in venture investments in the Property Tech Ecosystem, which gives us insight into high growth technology companies, many of whom have become strategic partners.\nWe believe our capital management activities have created value for shareholders and will continue to hunt for opportunities with attractive risk-adjusted returns.",
        "summary": "q4 earnings per share $2.49.\nq4 revenue rose 24 percent to $2.2 billion.\nqtrly average revenue per order down 6 percent.\nboard of directors approved a new $300 million share repurchase plan."
    },
    {
        "text": "Joining you today from First Bancorp are Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and Chief Financial Officer.\nWe wish you all a healthy 2021.\nPlease let's move to Slide 4 to discuss the highlights of the year.\nWe're definitely very pleased with our results for the year.\nI'm truly proud of what our team was able to accomplish, overcoming all the many challenges posed by the pandemic in the operating environment.\nIt really was a transformational year for our Company with the acquisition that closed on September 1, which has further expanded our market share, solidified our position in Puerto Rico.\nWe have now over 30% growth in our customer base, reaching 675,000 customers.\nWe're also very pleased with the technological advancements on the year and our data preparedness.\nOur clients' adoption of digital channels continued to improve during 2020, reaching an increase of over 33% in logins and digital transaction increasing over 55% for the year.\nIt is a priority to continue investing in technology infrastructure projects on digital.\nAnd so, we continue driving efficiency as we progressed in parallel with the integration.\nWe are definitely very focused on the integration and has been running on schedule and it's planned to be completed by the end of the summer.\nOn the economic side, the macro and geopolitical landscape in Puerto Rico seems -- continue to be improving.\nEconomic measures stemming from additional stimulus and disaster relief funding will definitely provide additional support to those impacted by the pandemic and the overall environment.\nLockdowns continue at a different layer, but when we look at December activity, it was actually fairly healthy considering the limitations in operating hours.\nMost impacted sectors, as we know, continued to be hospitality and retail.\nOn the other hand, we are entering 2021 on very solid foot and a fortress balance sheet to support that economic recovery.\nWe have very strong liquidity, solid research coverage, and very strong capital to begin the year with.\nFor the year, we generated $102 million in net income, $0.46 per share, shy to the $167 million that we generated in 2019, definitely impacted by the economic effects on the pandemic and the increased provision driven by CECL and the acquisition.\nPre-tax preparation was strong, increasing 6% to $300 million, with actually only four months of our combined company.\nAnd in spite of COVID, actually loan activity -- COVID -- loan activity -- which impacted loan activity.\nWe'll cover that later.\nAnd obviously, in spite of the yield curve that the banks are operating, which definitely impact the topline revenue.\nLoan origination and renewal for the year reached $4.4 billion, and organic core deposit growth, a record growth of $2 billion.\nSo, it was really a very positive core year for the Company.\nNow let's move to Slide 6 to cover the highlights of the quarter.\nThis compares to $28 million in the past quarter.\nIt's important to highlight that this is the first full quarter of operation of the combined franchise.\nPPNR came in very strong with $86 million, up from $77 million in the prior quarter.\nAnd I think importantly, we are past the moratoriums, and we are very closely monitoring asset quality metrics.\nAsset quality metrics remain stable.\nAnd obviously, there is focus on those borrowers negatively impacted by the effects of the pandemic.\nWe really say it is early to predict final -- final inflows to NPA created by the pandemic, but when we look at initial metrics post-moratorium, delinquency metrics as of year-end still compared better when we look at December '19 pre-pandemic levels.\nAs I said, we continue to invest in technology to better share our customer.\nDuring this quarter, we implemented a new online and mobile platform for credit cards.\nWe also continue the rollout of our new branch digital one [Phonetic] platform.\nAnd then, when we look at capital, CET1 17.3%, definitely post acquisition impact still very strong and among the highest.\nSo please let's move to Slide 7.\nI'd like to expand a bit on loans and loan activity and deposits.\nAs I say, loan origination activity was robust for the quarter, $1.4 billion.\nThis excludes credit card activity.\nPrimarily, growth was in the commercial and the auto portfolio.\nI think we all know that commercial activity is seasonal, and yes we have a very solid quarter of deals that got delayed in the year.\nWe also have some volumes on the Main Street loan programs and PPP.\nSo, if we exclude Main Street and PPP, origination still increased by $278 million to $1.2 billion, so still strong.\nThe overall portfolio, now it's at $11.8 billion, declined slightly from prior quarter.\nI will say primarily due to strategic reductions in residential.\nWe continue to originate primary conforming loans, which has helped the non-interest income.\nAnd also we received repayments of about $49 million on the PPP loan forgiveness process.\nFor this quarter, we anticipate another approximately $100 million of repayment in PPP.\nObviously, it depends on the speed that SBA process, the forgiveness.\nAnd we are now, obviously as you know, working in Round 2 of PPP, which was recently approved.\nOur initial estimates are around $250 million in loans during the first half of 2021 on PPP loans.\nWe know that this could replace some of the normal commercial volume over the next months, as it happens in the first round of PPP.\nBut definitely, this is a great support to small businesses.\nWe expect loans -- this loans to be smaller, more granular and to be more focused on the smaller businesses.\nOn the deposit front, there is ample liquidity in the market.\nWe continue to see inflow of funds.\nWe continue to see deposit growth.\nAnd we expect the year to continue on that trend.\nSo, we really focus on increasing loan generation.\nWe have excess liquidity that we need to deploy.\nAnd when we look at the quarter, core deposits were up another $257 million.\nThe pipeline is growing.\nObviously, consumer and mortgage trends continue very solid and very consistent.\nAnd as always, commercial is always model-driven.\nSo, we're working hard to build that pipeline.\nNow let's please move to Slide 8.\nI think it's important to highlight that the earnings power of our franchise now reach a new high with $86 million of PPNR on the combined operation, again being only the first quarter of this.\nThe enhanced funding profile of the combined institution will also contribute to mitigating some of the yield curve impact on the overall yield of the portfolios.\nAnd obviously, now we have more customers to reach -- more customers to go after for loan generation.\nLooking into 2021, obviously, there is going to be some noise still because of the integration.\nThe first half of the year is definitely focused on integration.\nWe want to finish that by summer.\nSo, there is some expenses that are there to be able to achieve the full benefit of integration.\nSo, they will be primarily focused in the first half of the year.\nAnd then on the second half of the year, it's important to know that as we -- market recovers, everything reopens which is what we expect.\nAnd as we grow revenue, there is also some variable expense tied to these revenues that could bring some increase.\nWe are targeting a long-term efficiency ratio of 55% following the completion of the integration.\nI want to make comment that we really need to realize that -- recognize that it is challenging for banks to achieve mid-50s in the current yield curve environment.\nSo, we also expect hopefully some improvement in the curve at some point in time at the end of the year.\nLet's move to Slide 6 to slightly touch on the capital and the balance sheet.\nAgain liquidity continued to build in the quarter.\nSo we have -- we continued to see excess cash, reserve coverage remain at the similar levels of prior quarter, so very strong reserve coverage at 3.3%.\nAnd then, capital is again very strong with CET1 at above [Phonetic] 17%, after completing the acquisition.\nAs I said in the last call, capital deployment opportunities remain a priority and are the focus of management and Board.\nLast night, we announced the approval to increase the dividend this quarter to $0.07 per share, definitely driven by current and predicted earnings.\nAnd as I commented in the past earnings call, during this quarter, we're actively working on the data stress test, an updated capital plan to be presented to our Board in order to conclude on potential additional capital actions moving forward.\nAurelio mentioned we had a strong quarter, $50 million in the quarter, $0.23 a share, which compares with $28 million last quarter, $0.13 a share.\nAgain, keep in mind that the quarter does reflect the first full quarter effect of the acquired operations.\nWe only had one month of those results in the third quarter of 2020.\nThe quarter included still some merger and restructuring costs of $12.3 million this quarter compared with $10.4 million last quarter.\nAnd also keep in mind that last quarter, we had a Day 1 CECL allowance for the corporation [Phonetic] of almost $39 million and we recognized an $8 million reversal -- a partial reversal of the deferred tax asset valuation allowance, which also reflected on the results.\nNet interest income for the quarter, it's up $29 million.\nA lot has to do with the $1.7 billion higher average loan balance we have in the quarter, which includes the Santander acquisition, obviously the full effect, but also new originations on the commercial and consumer loans for the quarter.\nThose were partially offset by, as Aurelio made reference to also, the fact that we have continued to reduce the mortgage portfolio, which is down about $130 million [Phonetic] as compared to September 30, as well as the $49 million reduction in PPP loans.\nSome loans have been submitted for forgiveness, and they were paid off in the quarter.\nThe quarter also -- we recognized $1.1 million of interest income we collected on non-accrual loans, mostly charge-off non-accrual loans that were recovered.\nAnd the repayment of the PPP loans resulted in the acceleration of $700,000 of commissions on those loans.\nOn the quarter, we also had a reduction of over [Phonetic] $800,000 in interest expense.\nThis is even though the overall interest bearing liabilities went up $2 billion from the full quarter effect of the transaction and continued increase on deposits.\nSo that is significant.\nWe saw an 18 basis points reduction on the funding cost during the quarter as compared to last quarter.\nNon-interest income for the quarter is $30 million.\nIt is up $5 million.\nIf we consider that last quarter had $5 million of gains on loss -- the gain on sales of securities, we didn't have much this quarter.\nSo excluding that -- those $5 million, non-interest income went up again $5 million.\n$2.5 million was service charges on deposits, full quarter of Santander acquisition plus increases that we are starting to see on volume of transactions.\nThe second and third quarter expenses were lower.\nThe variable component of the expenses were lower in transaction related fees -- transaction related volume, therefore fees were also down.\nWe continue to see strong originations, lot of refinancings.\nSignificant part of it, it's a conforming paper that we end up selling.\nSo we had $500,000 increases in those gains on sales of some of those mortgage loans.\nAlso during in the quarter, we recognized $1.4 million on fees on Main Street loans we originated during the quarter.\n$184 million of loans were originated under the Main Street Lending Program.\nAnd we sold the 95% participation through the government as tabulated in the program.\nExpenses for the quarter were $134 million, almost $135 million, which is up from $107 million; again full quarter effect.\nThose expenses again include the $12 million in merger and restructuring costs for the quarter.\nSo far from the start of the process, we have incurred approximately $36 million in merger and restructuring costs.\nIt's part of the transaction.\nAnd we expect that there will be an additional somewhere between $26 million and $30 million happening mostly on the first half of 2021, as we complete integrations, conversions and a number of other things that are ongoing in the integration process.\nPandemic expenses, again, cleaning cost, additional security and things like that was -- were $1.1 million, basically similar to the $1 million we had in the third quarter.\nIf we exclude all these items, expenses went up $25 million, mostly again from having the full quarter of the acquired operations, but also the higher transaction volumes on debit, credit card and some other components increase cost, plus some additional items and some $900,000 in incentive compensation increases.\nWe had $2.3 million in technology fees.\nThe increased amortization of the intangibles associated with the transaction was about $1.5 million higher for the quarter.\nOn the other hand, if we look at credit-related expenses that were slightly down were $1.8 million compared to $2.2 million last quarter.\nThere is one item that has been affected by -- obviously by the moratorium programs and the delays on foreclosures and some other legal processes in the market.\nOver the next couple of quarters, we expect some increases in these categories as foreclosures and other legal processes come back to normal levels.\nAllowance for credit losses at December was $401 million, slightly down from about $402.6 million we had at September.\nHowever, the allowance for credit losses on loans was $385 million, $386 million almost, which is $1.2 million higher than September.\nThe ratio of the loans allowance was 3.28% as compared to 3.25% in September.\nThe provision for the quarter, as you saw on the release, was $7.7 million, which compares to almost $47 million in the quarter.\nBut again, third quarter included the $38.9 million provision, Day 1 provision we put in to comply with CECL requirements for non-PCD loans on the acquired operations.\nFor this quarter, the projected macroeconomic scenarios used for calculations of the allowance for credit losses showed improvements in many of the economic variables, including unemployment, which is a critical driver as compared to what we used in the third quarter.\nHowever, the CRA index shows deterioration in the quarter, mostly due to longer projected recovery time frames, especially on commercial retail real estate.\nAs a result of the required provision for credit losses for the commercial portfolios went up and we booked a provision of $22.3 million in the fourth quarter and the reserve or the allowance for credit losses increased $252.7 million or 2.7% of loans from our 2.3% of loans last quarter.\nIn the case of residential mortgages on the other hand, the improvement on macroeconomic variables combined with the reduction in the portfolio that I mentioned, the $130 million [Phonetic] reduction, resulted in a release of credit losses of $9.8 million for the quarter.\nAnd same thing on consumer side, the improvement on the macroeconomic variables resulted in a release of $2.3 million in reserves requirements.\nIf we exclude the PPP loans on a non-GAAP basis, the ratio of the allowance to loans would be 3.39%, which is still very healthy allowance coverage for possible losses at December.\nIt was 3.38% at September, so it stayed very consistent.\nIn terms of our asset quality, in non-performing, we're basically flat from last quarter, $294 million.\nNon-performing loans increased $3.80 million in the quarter, $2.6 million of the increase was in residential portfolio and $1.4 million in the consumer portfolio.\nOn the other hand, the other real estate owned came down by $6 million, driven by sales.\nWe sold $5.8 million of residential real estate, all the real estate that we had on the books.\nWith the expiration of the moratoriums, what we did see in this quarter was an increase in inflows.\nInflows of non-performing were $32.9 million compared to $18.4 million in the third quarter.\nBut if you compare the inflow -- this inflow level to pre-pandemic, these were very much in line to what we had -- what we saw in December of 2019 and the first quarter of 2020.\nEarly delinquency showed similar trends.\nWe also saw increases in early delinquency from September levels, but it still at levels that are below what we had at December of last year.\nSo, it's been still very consistent.\nRegarding capital ratios, I think that on the non-performing -- before we go to capital, I think that it's important to mention on the non-performing, the way we see it.\nWe do expect that there could be some increases, not major numbers, but some increases in non-performing on the first half of 2021, as we complete some of this process with the customers and win moratoriums and had impacts associated with the pandemic.\nAnd then by the second half of the year, those would get back to normal levels.\nSo it's temporary thing.\nWe feel it's going to be seen in the first half of 2021.\nRegarding capital again, Aurelio already touched, it's strong capital ratios.\nI do want to mention that leverage ratio shows a decrease from September, but it's all related to the fact that September we only had one month of acquired operation.\nTherefore, average balance which are used for the leverage were lower.\nThe level of leverage resulting of 11.3%, still very healthy and well in line with what we had expected at completion of the transaction.\nRegarding the year, again Aurelio touched on this.\nI don't want to go into a lot of detail, but clearly, the biggest impact was the provision.\nNet income for the year was $102 million or $0.46 a share, but it was affected by $130 million increase in provision, which includes pandemic impact and the fact that we did record the Day 1 CECL allowance of $39 million I mentioned before required for the loans -- the non-PCD loans we obtained under transaction.\nAdjusted pre-tax pre-provision for the year was up 6% to $300 million from $284 million.\nSo, it was a pretty good improvement.\nAnd that obviously includes some additional months from the acquired Santander operation.\nNPAs year over year decreased $24 million to $294 million, and we continue to work on the process of getting those numbers down.",
        "summary": "compname announces increase in quarterly cash dividend to $0.07 per share."
    },
    {
        "text": "As Lindsay mentioned, I am Christine Cannella, vice president, investor relations with Fresh Del Monte Produce.\nJoining me in today's discussion are Mohammad Abu-Ghazaleh, chairman and chief executive officer; and Eduardo Bezerra, senior vice president and chief financial officer.\nYou may also visit the company's website at freshdelmonte.com for a copy of today's release, as well as to register for future distribution.\nWith that, I am pleased to turn today's call over to Mohammad.\nThe message we want to deliver today is one of resiliency.\nFresh Del Monte Produce is driven by a team that understands there will always be challenges somewhere in the world and we operate under a model and philosophy in line with that understanding.\nEven with the new challenge brought on by the COVID-19 pandemic, our vertical integration and portfolio diversification strength helped to maintain our business continuity in the second quarter of 2020.\nAs a global business that operates in over 100 countries around the globe, each of our locations were impacted by COVID-19 in different ways to different degrees and at different times based on mandatory government shutdowns, including restaurants, schools, foodservice, and business closures.\nWhile we did benefit during the quarter from gradual reopenings in certain regions globally, in North America we continued to experience reduced demand from our customers in the restaurant and foodservice industries, as well as ongoing shifts in demand at retail that suffered our quarterly financial performance.\nDespite these challenges, our global firms, plants and distribution centers remained operational with minimal disruptions in our shipping and logistic operations.\nWe also strengthened our liquidity position and we were able to reduce our debt despite the market disruption.\nDuring the quarter as the pandemic took hold, we remained focused on our business transformation plan for 2020 and beyond to respond to the economic environment and position us for better performance as we work through the global impact of the pandemic.\nWe identified several opportunities to drive efficiencies and improve utilization of our assets that will de-leverage our business and provide liquidity to fund our investments with the potential sale of available properties we do not intend to use in the future.\nWe capitalized on our new avocado processing facility in Mexico, ramping up production four months sooner than expected.\nWe commenced our move to our new Gonzales, California facility, with the goal to have our Mann Packing operations consolidated under one roof by the end of the third quarter of 2020.\nThe consolidation also includes moving our fresh-cut facility from Fresno, California to Gonzales.\nThis will offer us the unique advantage of processing fresh-cut fruit and fresh-cut vegetables in one facility in the Salinas Valley.\nAnother highlight of our transformation is consolidating two facilities in Phoenix, Arizona, which we believe will offer significant savings.\nIn early July, we received the first of our six new containerized vessels.\nWe are scheduled to receive three additional vessels spread over the next five months, which will replace existing chartered vessels.\nWe believe these new containerized vessels will allow us to generate substantial savings in our sea logistics, expand our commercial cargo business, as well as ensure food chain optimization, increase quality and have a positive impact on the environment, getting us closer to our commitment to reduce our vessel emissions by 10%, with an estimated savings of nearly 19,000 metric tons of fuel each year.\nDuring the quarter, we aligned our sales, marketing and operations team in North America under one leader to further optimize the way we work as an organization.\nAnother example of our business transformation was taking steps to accelerate the expansion of our e-commerce strategy launched in the Middle East in the first quarter.\nI am pleased to share that in mid-July we launched a pilot of myfreshdelmonte.com in the Dallas, Texas area, bringing our e-commerce initiative to North America, our largest market.\nWe look forward to enhancing our offerings and expanding delivery to additional areas in the near future, allowing us to market and message our Del Monte brand of products directly to consumers.\nWe are extremely proud that we will introduce our new Del Monte pink glow pineapple on our e-commerce site in the coming weeks.\nOur initial test launch has gone well and we are excited to share this innovative product with consumers.\nIn summary, we remain intensely focused on continuing to execute our plan to further strengthen our operations and fortify our balance sheet.\nI'm extremely proud of our team for their focus and perseverance through an extraordinary set of circumstances brought about the COVID-19 pandemic and the unprecedented challenges presented by this situation.\nI want to highlight some key financial accomplishments.\nDespite continued disruption in foodservice sale and shifting demand at retail during the second quarter of 2020, we achieved a net income per diluted share of $0.38 per share versus net income per diluted share of $0.78 in the second quarter of 2019.\nExcluding among other things the effect of other product-related charges, which resulted in a $10.6 million gross profit impact related to inventory write-offs, which included donations of products to local communities, we delivered adjusted net income per diluted share of $0.54 compared with adjusted net income per diluted share of $0.72 in the second quarter of 2019.\nHowever, I would like to point out that if you apply the adjusted gross profit margin of 8.1% to the $132 million of net sales impacted by COVID-19, we estimate that we would have delivered an additional $10 million in adjusted gross profit.\nAdditionally, keeping strong liquidity has been a key focus for our team.\nDespite the headwinds of the COVID-19 pandemic, we generated $111 million in cash flow from operating activities during the second quarter, we reduced our long-term debt by $52 million since the end of 2019 and we reduced our long-term debt by $64 million compared with the end of the first quarter of 2020.\nDuring the quarter, we also focused on investing in critical, higher-margin capital projects to optimize our operations and we undertook a review of underperforming assets.\nAs Mohammad mentioned, the strength of our company and the diversity of our portfolio are most apparent in times like these, and I remain confident Fresh Del Monte will emerge stronger from the challenges imposed by this pandemic.\nWith that, I'll now get into the results for the second quarter of 2020.\nNet sales were $1.092 billion compared with $1.239 billion in the second quarter of 2020, with the unfavorable exchange rate negatively impacting net sales by $6 million.\nAdjusted gross profit was $89 million compared with $98 million in 2019.\nAdjusted operating income for the quarter was $44 million, compared with $53 million in the prior year, and adjusted net income was $26 million, compared with $35 million in the second quarter of 2019.\nIn regards to our business segment performance in the second quarter of 2020, in our fresh and value-added products net sales decreased $128 million to $636 million, compared with $764 million in the prior-year period.\nThe decrease in net sales was primarily the result of lower net sales in our fresh-cut food and vegetables, avocado, pineapple and prepared food product line.\nAs compared with our original expectation, the COVID-19 pandemic affected our net sales of fresh and value-added products by an estimated $117 million during the quarter when compared with our original expectation, driven by reduced demand for and price competition in the retail channel.\nAlso, the continuing effect of the November 2019 Mann Packing voluntary product recall affected our net sales in the second quarter of 2020.\nGross profit decreased $21 million to $37 million compared with $58 million in the second quarter of 2019.\nOther product-related charges represented $9 million for the segment primarily related to inventory write-offs, including donation of pineapples, fresh-cut vegetables and melons.\nIn our pineapple product line, net sales were $114 million compared with $126 million in the prior-year period, primarily due to lower selling prices and sales volume in North America and Europe.\nAlso contributing to the decrease in net sales was the impact of the COVID-19 pandemic, which resulted in lower demand for pineapples.\nPartially offsetting this decrease were higher sales volume in Asia and higher selling prices in the Middle East.\nOverall, volume was 5% lower, unit pricing was 4% lower and unit cost was 10% higher than the prior-year period.\nIn our fresh-cut food product line, net sales were $110 million, compared with $146 million in the second quarter of 2019.\nThe decrease in net sales was primarily the result of lower demand in our Big Box Club Store distribution channel as a result of social distancing measures imposed by governments around the world.\nOverall, volume was 26% lower, unit pricing was 2% higher and unit cost was 1% higher than the prior-year period.\nIn our fresh-cut vegetable product line net sales were $86 million compared with $119 million in the second quarter of 2019.\nThe decrease in net sale was due to the effect of the COVID-19 pandemic, which resulted in a significant reduction of most of our global foodservice business during the quarter, mainly in our Mann Packing subsidiary.\nWe also faced the continuing effect of our voluntary product recall in November 2019.\nVolume was 32% lower, unit pricing was 6% higher and unit cost was 11% higher than the prior-year period.\nIn our avocado product line, lower selling prices and decreased sales volume in North America as a result of COVID-19 led to net sales of $94 million compared with $125 million in the second quarter of 2019.\nVolume decreased 7%, pricing was 19% lower and unit cost was 23% lower than the prior-year period primarily due to favorable exchange rates and increased efficiencies as a result of our new processing facility in Uruapan, Mexico.\nIn our vegetable product line net sales were $35 million, compared with $43 million in the second quarter of 2019, primarily due to lower sales volume as a result of the COVID-19 pandemic and lower net sales due to the impact of the Mann Packing's voluntary product recall.\nVolume decreased 21%, unit pricing was 3% higher and unit cost was 9% higher than the prior-year period.\nIn our non-tropical product line, which includes our grape, berry, apple, citrus, pear, peach, plum, nectarine, cherry and kiwi product lines, net sales were $75 million compared with $70 million in the second quarter of 2019.\nVolume increased 14%, unit pricing decreased 5% and unit cost was 7% lower.\nIn our prepared food product line, which includes the company's prepared traditional products and meals and snacks product lines, net sales decreased primarily due to lower sales in the company's meals and snacks product line principally due to the impact of COVID-19 pandemic, the continuing impact of the 2019 product recall and product rationalization effort in our Mann Packing operations in North America.\nThe decrease was partially offset by higher sales volume and per unit selling prices of canned pineapple products due to increased customer demand and higher selling prices of pineapple concentrate due to lower industry supply.\nWe look for performance in our prepared food product line to improve as a result of entering into new contracts with higher selling prices versus prior-year contracts.\nIn our banana segment net sales decreased $10 million to $413 million, compared with $440 million in the second quarter of 2019 primarily due to lower net sales in North America and Europe as a result of decreased sales volume and lower demand due to COVID-19.\nThe decrease was partially offset by higher net sales in the Middle East and Asia.\nThe COVID-19 pandemic affected banana net sales by an estimated $15 million during the quarter versus our original expectations.\nOverall, volume was 1% lower, worldwide pricing decreased 1% over the prior-year period and total worldwide banana unit cost was 2% lower.\nGross profit increased to $39 million, compared to $37 million in the second quarter of 2019.\nOther product-related charges represented $1.6 million for the segment primarily related to inventory write-offs, including donations.\nNow, moving to selected financial data.\nSelling, general and administrative expenses during the quarter were in line with the second quarter of 2019.\nThe decrease in travel, administrative, and promotional expenses in most of our regions was partially offset by an increase in selling and marketing expenses recognized in the quarter.\nThe foreign currency impact at the gross profit level for the second quarter was unfavorable by $0.9 million compared with an unfavorable effect of $4 million in the second quarter of 2019.\nIn March 2020, we entered into several fuel hedges that extend through the end of 2021 to take advantage of lower fuel prices to reduce the exposure of our shipping costs in the Americas and Asia.\nThe fuel hedges are similar to the foreign currency hedges we have in place to reduce our exposure in different countries that will market our products.\nThese hedges are intended to minimize our financial exposure to volatility in the market.\nInterest expense net for the second quarter was $6 million compared with $7 million in the second quarter of 2019 due to lower average loan balances and lower interest rates.\nThe provision for income tax was $4 million during the quarter compared with income tax expense of $9 million in the prior-year period.\nThe decrease in the provision for income taxes was primarily due to lower earnings in certain taxable jurisdictions.\nFor the six months of 2020, our net cash provided by operating activities was $111 million, compared with net cash provided by operating activities of $65 million in the same period of 2019.\nThe $46 million increase in net cash was primarily attributable to lower payments of accounts payable and accrued expenses and lower levels of inventory and accounts receivable, partially offset by lower net income.\nOur total debt decreased from $599 million at the end of the first quarter of 2020 to $535 million at the end of second quarter of 2020.\nAs it relates to capital spending, we have postponed several projects to the second half of the year, as well as into 2021.\nWe invested $19 million in capital expenditures in the second quarter of 2020 compared with $36 million in the second quarter of 2019.\nFor the first six months of 2020, we invested $36 million compared with $70 million in the same period of 2019.\nWe continued to prioritize investments while keeping a strong liquidity position for the remainder of the year.\nOur investments in 2020 will be in key projects that were in the pipeline, including delivery of the four new container vessels, the consolidation of Mann Packing and our Fresno operation in our new Gonzales, California facility, and as Mohammad mentioned, the consolidation of our two distribution centers in Phoenix, Arizona.\nThis concludes our financial review.",
        "summary": "fresh del monte produce inc q2 adjusted earnings per share $0.54.\nq2 adjusted earnings per share $0.54.\nq2 earnings per share $0.38.\nq2 sales $1.092 billion versus $1.239 billion."
    },
    {
        "text": "As Lindsay mentioned, I'm Christine Cannella, vice president, investor relations with Fresh Del Monte Produce.\nJoining me in today's discussion, Mohammad Abu-Ghazaleh, chairman and chief executive officer; and Eduardo Bezerra, senior vice president and chief financial officer.\nYou may also visit the company's website at freshdelmonte.com for a copy of today's release as well as to register for future distribution.\n2020 is shaping up to be one of the most challenging periods ever for our industry and Fresh Del Monte Produce.\nThe difficulties we experienced in the third quarter of 2020 were driven by the continuing impact of the COVID-19 pandemic, which continued to hinder our performance with decreased demand as a result of mandatory government shutdowns, including schools, restaurants, food service and business closures being our biggest headwind.\nThese challenges continued to hamper our ability to achieve our financial targets for the third quarter.\nNet sales for the quarter were $990 million compared with $1.1 billion in the third quarter of 2019.\nWe reported adjusted gross profit of $69 million compared with $76 million in the third quarter of 2019, with gross profit margin improvements in our fresh and value-added products segments.\nDue to the early actions we took by adjusting our business in response to these challenges, we reported adjusted earnings per share of $0.35 compared with adjusted earnings per share of $0.38 in the third quarter of 2019.\nI'm pleased to report that during the quarter, we completed our move to our new Gonzales, California facility.\nToday, our three Mann Packing facilities and Fresno fresh-cut facility are now operating under one roof, which we anticipate will enable us to improve gross profit in our fresh and value-added products segment by approximately $10 million on an annual basis; a benefit which we expect to achieve over the next 12 months.\nWe also made progress with the optimization plan we announced in the second quarter of 2020, reducing underutilized facilities and land assets.\nWe believe this will allow us to shift assets that better serve the long-term growth of the company.\nWe identified assets across all of our regions that we plan to sell over the next 12 to 18 months for the total anticipated cash proceeds of approximately $100 million.\nSince we last spoke, we added two new containerized vessels to our new fleet, the Del Monte Rose and the Del Monte Harvester, replacing vessels we have previously chartered.\nThis important sustainability initiative reduces our carbon footprint and brings us closer to our 2025 commitment to reduce emissions by 10%.\nAlso during the quarter, we continued our efforts to diversify our product line and the channels we market our products in with the launch of our newest product, the pink glow Del Monte pineapple.\nThe variety is produced on our farms in Costa Rica.\nIn October, we published an update to our 2018-2019 corporate social responsibility report that includes progress toward our 2025 commitments.\nI encourage you to visit the Sustainability section of our website to learn more about our progress, including our recently announced partnership between our Del Monte Kenya operations and the United Nations Foundation to promote the health and empowerment of women employees and community members, along with the announcement from PR Daily that we were named to receive the best Green and Environmental Stewardship Award, which we were honored to accept.\nToday, I'm confident that the decisions made in 2020 will be a driving force behind our future performance.\nIn the third quarter, we demonstrated the value of our business model and generated improved cash flow and continue to reduce our debt in order to better position us to weather this pandemic and emerge stronger.\nDespite the COVID-19 disruptions during the third-quarter 2020, we achieved net income per diluted share of $0.37 versus net income per diluted share of $0.38 in the third quarter of 2019.\nExcluding, among other things, the effect of other product-related charges, which resulted in a $2.3 million gross profit impact related to inventory write-offs, we delivered adjusted net income per diluted share of $0.35 compared with adjusted net income per diluted share of $0.38 in the third quarter of 2019.\nHowever, I would like to point out that if you apply the adjusted gross profit margin of 7% to the $73 million of net sales impacted by COVID-19, we estimate that we would have delivered an additional $5.8 million in adjusted gross profit.\nAdditionally, despite the headwinds of the COVID-19 pandemic, we generated $63 million in cash flow from operating activities during the third quarter.\nWe reduced our long-term debt by $76 million since the end of 2019, and we reduced our long-term debt by $24 million compared with the end of the second quarter of 2020.\nAs Mohammad mentioned, we announced a $100 million asset sale program to be completed over the next 12 to 18 months to strengthen our cash flow position, reduce our debt and continue to reinvest in key areas of growth in our business.\nOur focus on our value-added business is also progressing well.\nMeasures we have taken over the past year demonstrates the significance of our goals to increase sales revenue, enhance margins and maintain our track record of improved cash flow generation.\nWe believe we are on-track to realize most of our cost savings actions planned for 2021.\nWith that, I will now get into the results for the third quarter of 2020.\nNet sales were $990 million compared with $1.1 billion in third quarter of 2019, with unfavorable exchange rates negatively impacting net sales by $2 million.\nAdjusted gross profit for the quarter was $69 million compared to $76 million in the third quarter of 2019.\nAdjusted operating income for the quarter was $25 million, in line with the prior-year period, and adjusted net income was $16 million compared with $18 million in the third quarter of 2019.\nIn regards to our business segment performance in the third quarter of 2020, in our fresh and value-added product segment, net sales decreased $52 million to $601 million compared with $653 million in the prior-year period.\nThe decrease was primarily due to lower net sales in our fresh-cut vegetable, avocado, fresh-cut fruit, vegetable and prepared product lines, partially offset by an increase in sales of our pineapple and nontropical product line.\nAs compared with our third quarter of 2019 performance for the segment, the COVID-19 pandemic affected our net sales of fresh and value-added products by an estimated $56 million during the quarter, driven by reduced demand in our foodservice channel and shifting demand at retail due to the pandemic.\nAlso, the continuing effect of the November 2019 Mann Pack voluntary product recall affected our net sales in the third quarter of 2020.\nGross profit increased to $54 million compared with $53 million in the third quarter of 2019, and other product-related charges represented $2 million for the segment, primarily related to inventory write-offs of pineapples due to volatile supply and demand condition, as well as additional cleaning and social distancing protocols associated with the pandemic.\nIn our pineapple product line, net sales were $116 million compared with $102 million in the prior-year period, primarily due to higher sales volume in all of our region, mainly as a result of lower production in the prior-year period due to adverse weather conditions in our growing regions.\nOverall, volume increased 15%, unit pricing decreased 1% and unit cost decreased 1% compared with the prior-year period.\nIn our fresh-cut fruit product line, net sales were $130 million compared with $145 million in the third quarter of 2019.\nThe decrease in net sales was primarily due to lower sales volume in North America as a result of the continued impact of the COVID-19 pandemic and a shortage of certain raw materials.\nOverall, volume decreased 11%, unit price increased 1% and unit cost increased 3% compared with the prior-year period.\nIn our fresh-cut vegetable product lines, net sales were $96 million compared with $122 million in the third quarter of 2019.\nThe decrease in net sales were primarily due to the effect of the COVD-19 pandemic, which resulted in a significant reduction of most of our global foodservice business during the quarter, mainly in our Mann Packing subsidiary.\nVolume decreased 27%, unit pricing increased 7%, and unit cost increased 15% compared with the prior-year period.\nIn our avocado product line, net sales were $77 million compared with $98 million in the third quarter of 2019, primarily due to lower selling price as a result of normalized industry supply in the market when compared with the prior-year period.\nVolume increased 13%, pricing decreased 31%, and unit cost decreased 37% compared with the prior-year period, primarily due to the improved capacity utilization at our new packing facility in Mexico, which opened in December 2019.\nIn our vegetable product line, net sales were $42 million compared with $46 million in the third quarter of 2019, primarily due to lower sales volume as a result of the COVID-19.\nVolume decreased 13%, unit pricing increased 5% and unit cost increased 26% compared with the prior-year period.\nIn our nontropical product line, which includes our grape, berry, apple, citrus, pear, peach, plum, nectarine, cherry and kiwi product line, net sales were $38 million compared with $32 million in the third quarter of 2019, primarily due to higher sales volume in Europe as a result of increased demand, along with higher sales volume in the Middle East in developing markets.\nAlso contributing to the increase in net sales was higher selling prices in the Middle East.\nVolume increased 13%, unit price increased 4%, and unit cost increased 7%.\nIn our prepared food product line, which includes the company's prepared traditional products and meals and snacks product line, the decrease in net sales was primarily due to lower sales in the company's meals and snacks product line, principally due to the impact of COVID-19 pandemic, the continued impact of the 2019 product recall and product rationalization efforts in our Mann Packing operations in North America.\nThe decrease was partially offset by higher per unit selling prices of pineapple concentrate due to lower industry supply and increased per unit selling prices of canned pineapple products due to increased customer demand.\nIn our banana segment, net sales decreased $24 million to $362 million compared with $386 million in the third quarter of 2019, primarily due to lower net sales in North America, Europe and the Middle East as a result of decreased sales volume and lower demand due to COVID-19.\nThe decrease was partially offset by higher net sales in Asia.\nThe COVID-19 pandemic affected banana net sales by an estimated $17 million during the quarter versus our third quarter of 2019 performance for this segment.\nOverall, volume decreased 4%, worldwide pricing decreased 3% over the prior-year period.\nTotal worldwide banana unit cost decreased 1% and gross profit decreased to $11 million compared to [Audio Gap] in the third quarter of 2019, primarily due to lower selling prices in North America as a result of increased demand, partially offset by lower cost, mainly lower ocean freight cost.\nOther products related charges represented $400,000 for the segment incurred as a result of the COVID-19 pandemic.\nNow moving to selected financial data.\nSelling, general and administrative expenses decreased $7 million to $44 million compared with $51 million in the third quarter of 2019.\nThe decrease was primarily due to lower selling and marketing expenses in the Middle East and cost savings initiatives in North America.\nThe foreign currency impact at the gross profit level for the third quarter was unfavorable by $3 million compared with an unfavorable effect of $2 million in the third quarter of 2019.\nInterest expense, net for the third quarter, was $5 million compared with $6 million in the third quarter of 2019 due to lower average loan balances and lower interest rates.\nThe provision for income tax was $5 million during the quarter compared with income tax expense of $3 million in the prior-year period.\nThe increase in the provision for income taxes was primarily due to increased earnings in certain higher taxable jurisdictions.\nFor the first 9 months of 2020, our net cash provided by operating activities was $174 million compared with net cash provided by operating activities of $130 million in the same period of 2019.\nThe increase was primarily attributable to lower payments of accounts payable and accrued expenses and lower levels of inventory due to our optimization efforts on working capital.\nThe increase was partially offset by lower net income and higher levels of prepaid expenses and other current assets.\nTotal debt decreased from $587 million at the end of 2019 to $511 million at the end of the third quarter of 2020.\nAs it relates to capital spending, we invested $57 million in capital expenditures in the third quarter of 2020 compared with $23 million in the third quarter of 2019.\nFor the first nine months of 2020, we invested $93 million compared with $94 million in the same period in 2018.\nOur investments in the third quarter of 2020 included the delivery of 2 new container vessels, the Del Monte Gold and Del Monte Rose.\nWe also completed the consolidation of four different facilities into our Mann Packing operations into our new Gonzales, California facility during the quarter.\nThis is an increase of $0.05 per share from our quarterly cash dividend paid on September 4, 2020.\nThis concludes our financial review.",
        "summary": "compname reports q3 adjusted earnings per share $0.35.\nq3 adjusted earnings per share $0.35.\nq3 earnings per share $0.37.\ncompname announces $100 million asset sales program and increases quarterly cash dividend.\nfresh del monte produce - made decision to sell non-strategic & under-utilized assets for total anticipated cash amount of about $100 million."
    },
    {
        "text": "As Chantal mentioned, I am Ana Miranda, vice president, Global FP&A, and investor relations with Fresh Del Monte Produce.\nJoining me in today's discussions are Mohammad Abu-Ghazaleh, chairman and chief executive officer; and Eduardo Bezerra, senior vice president and chief financial officer.\nOn the site, you can also register for future distributions.\nWith that, I'm pleased to turn today's call over to Mohammad.\nIn 2021, we posted robust double-digit operating income growth compared with 2020.\nWe demonstrated agility and industry leadership in navigating the current challenging macroeconomic environment as we focused on mitigating industrywide supply and labor headwinds.\nWe implemented inflation-justified price increases toward the end of the year, made investments targeted at automation, and focused relentlessly on productivity.\nIn the first half of 2021, despite these pressures, gross profit benefited from strong performance across all of our segments, particularly higher per-unit selling prices in our banana segment.\nThis higher pricing helped offset incremental production and procurement costs following the hurricanes in Central America in the fourth quarter of 2020 and higher demand on key product categories related to relaxed restrictions on social gathering in some of our main markets compared with 2020.\nHowever, in the second half of 2021, inflationary and other cost pressures intensified, negatively impacting gross profit.\nThe price increase, which took effect toward the later part of the year, resulted in improved performance as we moved through the end of the fourth quarter.\nOverall, during the year, we increased adjusted EBITDA to $207 million from $189 million in 2020.\nAs a result, adjusted EBITDA margin increased 40 basis points to 4.9% from 4.5%.\nAs a brief recap during the year, we made significant progress on our strategic initiatives, and I would like to focus on that.\nWe added two state-of-the-art refrigerated container vessels in the first half of the year, bringing our fleet to a total of 13 vessels.\nAs previously mentioned, six out of the 13 vessels are new, putting us in a stronger, more agile position as we continue to provide reliable quality service to our customers.\nThe fleet also enabled us to expand our third-party freight services.\nIn keeping with our shareholder accretion approach, in the second half, we increased our quarterly cash dividend from $0.10 per share to $0.15 per share, bringing our total dividend payout for the year to $0.50 per share, and the same approach will continue in 2022.\nIn 2021, we reduced long-term debt by approximately $23 million.\nThroughout the year, we also made progress on our strategic partnerships.\nWe successfully implemented a licensing agreement with one of Europe's top frozen goods retailer, the name is Iceland, whereby we offer a broad product mix generating consistent income stream.\nIn June, we invested in I Squared Capital Global InfraTech Fund.\nThe fund invests in innovative growth-stage companies, applying technology in various infrastructure sectors, including logistics, supply chain, and agriculture, which are complementary or adjacent to our business.\nIn November, through a partnership with SEMCAP Private Equity, we invested in Purely Elizabeth, a category-leading organic consumer products brand.\nTheir current offerings include granola, oatmeal, and pancake mixes.\nThe partnership is an opportunity to expand our business in the convenience category, providing the platform for us to work together on the development of unique and innovative products.\nAdditionally, we are excited to leverage our vertical integration to support our partners with supply chain and logistics services.\nDuring our progress into 2022, we announced today another brand partnership with Good Culture.\nFounded in 2014, the company focuses on high-quality cultured dairy products, specifically cottage cheese, and sour cream.\nThey have been an innovator and disruptor in this space, gaining significant market share since its inception.\nBoth investments, Purely Elizabeth and Good Culture, were facilitated by SEMCAP's food and nutrition team who searches for brands that have proven themselves in the market and ready to scale up their business through strategic alliances.\nAnd we are excited to announce a partnership with McCormick & Company, a global leader in flavor.\nThis agriculture product aligns very closely with our vision and strategy.\nWith this project, we are leveraging technology and data, coupled with our agriculture expertise to grow products while minimizing costs and preserving the environment.\nAt this moment, both companies have decided to keep the location and products and production undisclosed.\nIn 2021, we made great progress on our sustainability journey.\nWe were the first global marketer of fruits and vegetables to commit to the science-based targets, consistent with the levels required to meet the goals of the Paris Agreement.\nThe science-based targets initiative has since validated that our emissions reduction targets conforms with its criteria and recommendation.\nAnd we released our 2020 sustainability report.\nOn the people front, last month, we announced the appointment of Mohammed Abbas as executive vice president and chief operating officer.\nMohammed joined the company in 2009 and has served in various leadership roles, including head of our Asia and Middle East Regions.\nI'm excited to have him in his new role where I am certain he will add significant value to our operations.\nHaving said that, I'm confident in our team's ability to continue to execute on our long-term strategy of growing our core business; increasing the reach of higher-margin, value-added categories; implementing and leveraging technology solutions as we evolve into an agritech company; and expanding our customer and brand partnerships throughout our global operations.\nAt this point, I would like to move the call to Eduardo to talk about the financial results.\nI will start with our fourth quarter performance by product line, followed by a consolidated overview of our full fiscal year 2021.\nNet sales for the fourth quarter of 2021 increased $15 million or 2% compared with the prior-year period.\nThe increase was driven by higher net sales in our other products and services segment, which includes third-party freight services and poultry and meats category, and our fresh and value-added products segment.\nAs it relates to comparability between periods, the fourth quarter of 2021 consisted of 13 weeks compared with 14 weeks in the fourth quarter of 2020.\nThe additional week in the fourth quarter of 2020 contributed an estimated $72 million in net sales.\nOn a comparable basis, net sales increased $87 million or 9%.\nAdjusted gross profit for the fourth quarter of 2021 was almost $40 million compared with $49 million in the previous year.\nThe decrease was primarily driven by the continuation of inflationary and other cost pressures, which resulted in higher per-unit production and distribution costs, including packaging materials, fertilizers, inland freight, labor, and fuel.\nThe decrease was partially offset by an inflation-justified price increase effective toward the latter part of the fourth quarter.\nThe increase was implemented in an effort to maintain our continued supply and service levels with our business partners.\nHaving said that, during the fourth quarter, we realized sequential improvements in gross profit, specifically in December.\nAnd in addition to pricing, gross profit benefited from fluctuations in exchange rates.\nAdjusted operating income for the fourth quarter was a loss of $7 million, compared with a loss of $4.5 million in the prior-year period, primarily related to lower adjusted gross profit, partially offset by a decrease in selling, general, and administrative expenses.\nAnd adjusted net loss was $8.5 million, compared with a loss of $3.7 million in the prior-year period.\nOur diluted earnings per share for the fourth quarter was a loss of $0.24, compared with earnings of $0.02 in the prior-year period.\nAdjusted diluted earnings per share was a loss of $0.18, compared with a loss of $0.08 in the prior-year period.\nAdjusted EBITDA for the fourth quarter was $15 million, compared with $24 million in the prior-year period, and corresponding adjusted EBITDA margin decreased to 1.5% from 2.4% in the prior-year period.\nLet me now turn to segment results, beginning with our fresh and value-added products segment.\nNet sales for the fourth quarter of 2021 increased by $12 million or 2% when compared with the prior-year period.\nAs previously noted, the fourth quarter of 2021 consisted of 13 weeks, compared with 14 weeks in the fourth quarter of 2020.\nThe additional week in the prior-year period contributed an estimated $42 million in net sales.\nOn a comparable basis, net sales for the fourth quarter of 2021 increased $54 million or 10% compared with the prior-year period.\nThe primary drivers were increases in our melon and pineapple product lines.\nMelon net sales increased in North America driven by higher sales volume and per-unit sales prices, and pineapple net sales increased across most regions driven by higher per-unit sales price.\nAs an offset, sales of fresh-cut vegetables decreased during the fourth quarter compared with the prior-year period.\nFresh-cut vegetables net sales decreased primarily in North America, including in our Mann Packing operations.\nThe decrease was driven by lower sales volume and lower per-unit sales prices related to lower demand from foodservice channel and lack of sufficient labor availability.\nFor the quarter, adjusted gross profit in the fresh and value-added products segment was $28 million, compared with $32 million in the prior-year period.\nThe decrease was driven by inflationary and other cost pressures, which resulted in higher per-unit production and distribution costs.\nAs it relates to comparability, the additional week in the prior year contributed an estimated $2 million in gross profit.\nFrom a product view, the primary drivers of the variance were: in avocados, gross profit decreased primarily in North America, driven by lower sales volume, coupled with higher per-unit procurement and distribution costs; fresh-cut vegetables gross profit decreased in North America, primarily in our Mann Packing operation, mainly driven by lower net sales, coupled with higher per-unit production, and distribution costs.\nThe decrease was partially offset by higher gross profit across most of our other key product categories, including nontropical fruits, melons, and pineapples.\nMoving to our banana segment, for the fourth quarter of 2021, net sales decreased by $13 million or 3% compared with the prior-year period, primarily driven by North America and Asia.\nThe additional week in the prior-year period contributed an estimated $28 million in net sales.\nOn a comparable basis, net sales for 2021 increased $15 million or 4% compared to prior-year period.\nAdjusted gross profit for the fourth quarter of 2021 was $9 million, compared with $17 million in the prior-year period, primarily driven by North America and Asia.\nIn both regions, the decrease was driven by lower net sales.\nAs it relates to per-unit cost, North America gross profit was negatively impacted by higher production and distribution costs, while Asia was negatively impacted by higher production and ocean freight costs.\nNow moving to selected financial data.\nSelling, general and administrative expenses was $44.5 million, compared with $54 million in the previous year.\nThe decrease was driven by lower provision for credit losses and lower promotional and administrative expenses.\nNet interest expense was lower related to lower interest rates and lower average debt balance.\nIncome tax were a benefit of approximately $7 million during the quarter compared with a benefit of $4 million in the prior-year period, primarily due to the release of valuation allowance as it was determined deferred tax assets will be utilized.\nNow turning to our full year 2021 results.\nFor the full year 2021, net sales increased $50 million or 1% compared with the prior-year period.\nIn both periods, the increase in net sales was driven by higher net sales in our other products and services segment, which includes third-party freight services and poultry and meats category, and by our fresh and value-added products segment.\nThe additional week in the prior-year period contributed an estimated $72 million in net sales.\nOn a comparable basis, net sales for 2021 increased $122 million or 3%.\nAdjusted gross profit was $307 million, compared with $284 million in the prior-year period.\nAs previously mentioned by Mohammad, in the first half of 2021, despite inflationary and other cost pressures, gross profit benefited from strong performance across all of our segments.\nThe banana segment realized higher per-unit price -- selling prices.\nThe higher pricing helped to offset incremental production and procurement costs following the hurricanes in Central America in the fourth quarter of 2020.\nIn the second half of 2021, inflationary and other cost pressures intensified, coupled with seasonality, negatively impacting gross profit.\nAs it relates to exchange rates, gross profit was favorably impacted by fluctuations versus the euro, Costa Rican colon, and British pound, partially offset by stronger Mexican peso.\nFor the full fiscal year, adjusted operating net income was $112 million, compared with $89 million in the prior-year period.\nThe increase was primarily driven by higher gross profit and a decrease in selling, general, and administrative expenses.\nAdjusted net income was $81 million, compared with $55 million in the prior-year period.\nDiluted earnings per share was $1.68, compared with $1.03 in the prior-year period, while adjusted diluted earnings per share was $1.69, compared with $1.15 in the prior-year period, a 47% improvement year over year.\nMoving on to cash flow.\nFor the year, we generated $129 million in cash flow from operating activities, compared with $181 million in 2020.\nThe decrease was primarily attributable to higher levels of inventories as we proactively increased the inventory of key raw materials to secure costs and availability.\nInventory was also impacted by the increase in cost of goods, largely related to current cost pressures.\nPartially offsetting the decrease were higher net income and higher balances of accounts payable and accrued expenses.\nIn the second half of 2020, we announced our optimization program.\nThe program involves selling nonstrategic and underutilized assets, including land and facilities.\nThe program is improving our return on assets, shoring up our balance sheet, and reducing operational costs.\nSince the program was announced, we generated $57 million in cash proceeds, out of which $17 million came in 2021.\nWe expressed -- we expect progress toward achieving our target of $100 million in cash proceeds to continue in 2022.\nAs it relates to capital spending, we invested $99 million in capital expenditures in 2021, compared with $150 million in 2020.\nThe lion's share of the spend relates to the last two new container vessels added to our fleet, investments in Asia, North America, and Europe, and improvements to our banana and pineapple operations in Central America.\nAs mentioned by Mohammad, our capex investments are heavily focused on automation.\nTurning to long-term debt, we repaid approximately $23 million, bringing our balance from $542 million at the end of 2020 to $519 million in 2021.\nBased on a trailing 12-month period, our total debt stands at 2.5 times adjusted EBITDA.\nFor full fiscal year 2021, we declared four quarterly cash dividends totaling $0.50 per share.\nThis concludes our financial review.",
        "summary": "fresh del monte produce inc - net sales for q4 2021 increased 2% to $1,017.3 million compared with $1,002.3 million in the prior-year period.\nnet sales for q4 2021 increased 2% to $1,017.3 million compared with $1,002.3 million in the prior-year period.\nq4 loss per share $0.24."
    },
    {
        "text": "We continue to be in various remote locations today.\nWe may have some audio quality issues and we really appreciate your patience should we experience a disruption.\nA replay of today's call will be available via phone and on our website.\nTo be fair to everyone, please limit yourself to one question plus one follow-up.\nI'd now like to turn the discussion over to Phil Snow.\nI'm pleased with our solid second quarter and overall first half results.\nAnd the investments we've made to further advance our offerings in both content and workflow solutions are resonating.\nOver the past 12 months, we've proven our resilience and our ability to strengthen our value to clients and we begin the second half of this fiscal year with good momentum, greater visibility and continued confidence in our ability to execute.\nOur investments in content and technology are progressing at pace and we see market validation of our strategy with some key wins this quarter.\nOur content advances particularly in deep sector being well received by clients, especially across the sell-side, supporting workstation growth.\nAnd our focus on digital transformation allows us to offer more personalized solutions and an increasing number of ways to deliver value to clients.\nThe market is looking for solutions that are both easy to integrate and unite the front, middle and back office and we are well positioned to capitalize on this trend.\nOur shift to the public cloud is progressing according to plan with the majority of our new storage and collection centers successfully migrated.\nThis quarter, we are particularly pleased to see growth in our core workstation offering.\nThe efforts we've made through our investment strategy are starting to drive our top-line and we delivered a strong first half due to our ability to execute on our pipeline with continued discipline.\nIn our second quarter, our organic ASV plus professional services growth rate accelerated to 5.5%.\nThis acceleration was led by our sales team effectively growing wallet share with existing clients as well as capturing a higher price increase in the Americas.\nThis was partially offset by cancellations largely across asset management firms.\nWe are pleased that our performance resulted in increased adjusted operating margin and EPS, we have good momentum going into our second half.\nWe have reaffirmed our ability to deliver results within our guidance of fiscal '21 and are raising the lower end of our full-year organic ASV growth range to $70 million from $55 million.\nHelen will explain in more detail shortly.\nTurning now to the performance in our regions.\nThe Americas growth accelerated to 6%, driven by strong sales of workstations and research and wealth solutions and data feeds in CTS solutions.\nOur research solutions had a particularly good quarter supported by our digital transformation and the expansion of our deep sector content offering.\nThis was evident from wins with our large existing banking clients who benefited from our tailored workflows, which allow them a more connected and personalized experience.\nCTS also had a successful quarter as clients bought more of our core and premium data feeds.\nAnd in wealth, we're extremely pleased with the RBC win.\nThis was an entirely virtual roll out and I'm proud of how quickly and seamlessly our team integrated our Adviser Dashboard workflow and CRM solutions for RBC's entire wealth management team.\nAsia-Pac accelerated its growth rate to 9% due to strong performance in Hong Kong, Singapore and Australia.\nWe saw wins at institutional asset managers and data providers with our research and CTS solutions.\nEMEA's growth remained at 4% with wins across the region, most notably in France and the Nordics.\nThe region benefited from increased sales of CTS and wealth solutions to asset owners and institutional asset managers as well as accelerating new business.\nOur diversifying client base continues to seek mission-critical data and we see strong demand for our growing content offering.\nWe're pleased with the progress we are making in the ESG market as we further integrate our ESG products into clients' everyday workflows.\nWe've already expanded our ESG content suite with the launch of Truvalue's UN Sustainable Development Goals Monitor.\nThis is in addition to a new joint offering with Ping An Insurance Group, which offers ESG metrics on companies incorporated in mainland China.\nOverall, we see a long runway for growth as we execute more enterprisewide deals and believe that every touchpoint with clients today represents an opportunity to cross-sell in the future.\nThe conversations we are having combined with our sales team's execution make us optimistic that we will continue to grow our market share long-term.\nIn summary, our focus continues to be on achieving higher growth and providing clients with effective and efficient solutions across the entire investment workflow.\nWe remain committed to our investment strategy and to living our purpose, which is to drive the investment community to see more, think bigger and do the best work.\nAnd we are starting to see the rewards of the efforts we are making.\nWe continue to push ourselves to be a more diverse, inclusive and impactful organization.\nTo that end, I am pleased to say we recently hired our first Chief Diversity, Equity and Inclusion Officer as part of our strategy to strengthen our organizational accountability, increase diversity across all levels of our company and ensure workforce equity.\nWe know we have more work to do and remain committed to furthering our efforts.\nI'm pleased with our progress as we strive to be the best place to work and give our employees the flexibility they need to thrive in the new normal.\nI'm proud of the ways in which we are showing up for one another and for our clients every day.\nWith that, I'll now turn things over to Helen, who will take you through the specifics of our second quarter and first-half 2021 performance.\nI hope that you and your loved ones continue to be safe and healthy.\nI am proud of the FactSet team for finding new ways this past year to support both our clients and each other.\nToday, I will share more details on our performance to-date and to provide an update to our annual outlook.\nFor the first half of fiscal 2021, we grew our revenue by 6%, expanded our adjusted operating margin by 60 basis points and increased our adjusted earnings per share by 9% year-over-year.\nOur multi-year investment plan is on track and beginning to materialize in top-line growth.\nI am pleased to report that the integration of the team and of the ESG and technology assets is largely complete.\nAs with our previous acquisitions, we will exclude any revenue and ASV [Phonetic] associated with TVL while reporting out on organic related metrics for the fiscal year 2021.\nAs Phil stated earlier, we grew organic ASV plus professional services at 5.5%, an acceleration from the first quarter that reflects the diligent execution of our pipeline, powered by healthy demand for workstations and data feeds.\nOngoing investments in our core solutions continue to resonate with clients as reflected in our annual Americas price increase, which totaled $14 million, $2 million more than the prior year.\nAs with previous years, our annual price increase is a contributor to ASV and again this year, further accelerating our growth rate.\nFor the second quarter, GAAP revenue increased by 6% to $392 million, while organic revenue, which excludes any impact from foreign exchange, acquisitions and deferred revenue amortization increased 5% to $389 million.\nGrowth was driven primarily by our Analytics and CTS solutions.\nFor our geographic segments, revenue growth for the Americas was at 7%, EMEA at 3% and Asia-Pacific at 10%.\nAll regions primarily benefited from increases in our Analytics and CTS solutions.\nGAAP operating expenses grew 5% in the second quarter to $276 million, impacted by a higher cost of sales.\nCompared to the previous year, our GAAP operating margin expanded by 90 basis points to 30% and our adjusted operating margin increased by 80 basis points to 33%.\nThese improvements are largely due to net savings from continued productivity through workforce mix and a reduction in discretionary expenses, including those related to travel, office and professional services.\nThese benefits were partially offset by higher spend in both compensation and technology.\nAs a percentage of revenue, our cost of sales was 230 basis points higher than last year on a GAAP basis and 170 basis points higher on an adjusted basis.\nThis increase is driven by higher technology spend related to our shift to the public cloud and increased compensation expense for existing employees as well as new talent to support our multi-year investment plan.\nWhen expressed as a percentage of revenue, SG&A improved year-over-year by 320 basis points on a GAAP basis and 250 basis points on an adjusted basis.\nThe primary drivers include materially lower travel and entertainment costs and reduced spend due to office closures, offset in part by higher compensation costs.\nThese results are in line with our expectations as noted in our full year guidance.\nAs discussed on previous calls, we planned for an incremental investment spend of $15 million each year starting in 2020 through 2022.\nWhile realizing some benefits from productivity and a delayed ramp up in hiring last year, we are on track to spend around $26 million in our fiscal FY '21.\nAs noted on last quarter's call, we're also using a portion of the pandemic savings to invest further in both sales and new product development.\nMoving on, our tax rate for the quarter was 16% compared to last year's rate of 14%, primarily due to lower tax benefits realized from stock option exercises this quarter.\nGAAP earnings per share increased 9% to $2.50 this quarter versus $2.30 in the prior year.\nThe adjusted diluted earnings per share grew 7% to $2.72.\nBoth earnings per share figures were largely driven by improved operating results, partially offset by a higher tax rate.\nFree cash flow, which we define as cash generated from operations less capital spending was $130 million for the quarter, an increase of 75% over the same period last year.\nThis increase is primarily due to the timing of certain tax payments and lower capital expenditures as we have completed the majority of our office build-outs.\nFor the first quarter, our ASV retention continued to be above 95%.\nWe grew our total number of clients by 7% compared to the prior year, reaching over 6,000 clients for the first time in our history.\nThis growth reflects the addition of more wealth and corporate clients as well as data providers and asset owners, an ongoing trend as we continue to diversify our client base.\nOur client retention improved to 90% year-over-year, which speaks both to the mission criticality of our solutions and the solid efforts of our sales teams.\nOur user count grew 12% year-over-year and crossed the total of 150,000, largely due to additional wealth and research workstation users.\nFor the second quarter, we repurchased over 221,000 shares of our common stock for a total of $72 million at an average share price of $322.\nOur Board of Directors recently authorized an additional $206 million to our share repurchase program, bringing the total size to $350 million, in line with recent years.\nWe remain disciplined in our buyback program and committed to returning long-term value to our shareholders.\nGiven our solid first half performance and improved visibility for the rest of the year, we are bringing up the lower end of our organic ASV plus professional services growth guidance range from $55 million to $70 million, so our full range is now $70 million to $85 million.\nThis raises our mid-point from when what we first set this guidance six months ago.\nClient demand for our enhanced solutions, alongside the momentum built by our sales team, gives us greater conviction in our second half pipeline.\nBased on the first half results, we are encouraged by the client response to our enhanced product suite reflected in both growth in new clients as well as increased expansion with existing clients.\nWe do remain in an uncertain environment as different parts of the world begin to recover from this pandemic.\nOur full year views take into account that clients continue to perform in current market conditions and that additional delays in decision making and tightening client budgets could impact our short-term performance.\nThe global environment will continue to present challenges, but we believe we are well positioned for the longer-term.\nI'll turn this over to Jerald.",
        "summary": "compname reports qtrly adjusted diluted earnings per share $2.72.\nfactset research systems - board approved increase of $206 million to co's existing share repurchase program on march 23, 2021.\nqtrly diluted earnings per share $2.50.\nqtrly adjusted diluted earnings per share $2.72."
    },
    {
        "text": "Joining us on the call today are members of the media.\nDuring our question-and-answer session callers will be limited to one question in order to allow us to accommodate all those who would like to participate.\nI want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act.\nJoining us on the call today are Raj Subramaniam, President and COO; Mike Lenz, Executive Vice President and CFO; and Brie Carere, Executive VP, Chief Marketing and Communications Officer.\nAnd now, Raj will share his views on the quarter.\nAs expected, we are seeing strong levels of volume in our network given unprecedented levels of shopping and shipping this holiday season.\nFedEx Ground had an outstanding Cyber Week, with 100 million packages picked up during the first official week of peak.\nOur ability to handle this influx of packages has been years in the making as we have taken deliberate steps to enhance our unparalleled network to support customers, large and small.\nThis includes strategically adding more capacity across our network to support our growing customer base.\nFor example, at FedEx Ground, this means adding 14.4 million square feet to our network, the equivalent of 300 football fields since June of this year.\nIn Q2 alone, we brought online 24 major expansion projects, with nine of them starting operations in November just weeks before peak.\nWhile it was important that these facilities were up and running to add to a capacity in time for peak, experience tells us that they will operate with increasing efficiency in the weeks and months ahead.\nAs we shared on the Q1 call, overcoming staffing and retention challenges due to the constrained labor market has been a key focus.\nWe continued to take bold actions in Q2 to hire and invest in our frontline team members and thus increase network efficiency.\nThese actions including pay premiums, increased paid time off and tuition reimbursement.\nI am pleased to share that we have made considerable traction in recruiting frontline positions.\nLast week, we exceeded 111,000 applications, the highest level in FedEx history.\nTo put this in perspective, we had 52,000 applications the week of May 8.\nThis has led to appropriate staffing levels of peak, including having more than 60,000 frontline team members since we last spoke in September.\nWe delivered strong results for the quarter with an 11% increase in adjusted operating income, which exceeded our initial expectations shared during the Q1 call.\nSecond quarter results include outstanding performance by our team at FedEx Express, where operating income on an as-adjusted basis exceeded $1 billion for the quarter.\nThe ability we have at Express to flex our cost structure and network in response to changing market conditions positions us for long-term sustained profitability.\nFedEx Freight also delivered a strong quarter with an operating margin of 14.7%.\nI am proud of the team as they continue to focus on revenue quality and profitable growth.\nWe estimate the effect of labor shortages on our Q2 results was approximately $470 million, in line with our original expectations.\nAnd consistent with the first quarter, Ground once again, bore the majority of these costs to the tune of $285 million.\nWhile Ground's results were negatively affected by labor challenges in the first half of the year, we are encouraged by hiring momentum as we look to the second half and are focused on retaining recently hired team members after the peak season concludes.\nWe know we have an excellent value proposition for employees, which we are strengthening even further with technology that enables employee-friendly, flexible schedule options, including the ability to pick up extra shifts when convenient or swap shifts with a colleague all from the convenience of an app on their phone or computer.\nAll of this to say we anticipate cost pressures from constrained labor markets to partially subside in the second half of the fiscal year.\nNow, it's a good time to focus on what is ahead for FedEx.\nThe FedEx business has been built over nearly five decades.\nAnd during that time, we have built networks and capabilities that are differentiated from our competitors and nearly impossible to replicate.\nOur customers and their customers value these networks and capabilities as we enable global supply chains to stay connected.\nThis has never been illustrated more clearly than during the last two years of the global COVID pandemic.\nOur industry has proven to be absolutely critical in delivering during this pandemic, whether it is business-to-business or e-commerce.\nAnd within this industry, our strategy is unique.\nOur future growth and profitability will be driven by our strategy and we will drive total shareholder value over the immediate mid and long-term.\nThere is solid momentum in our base business as we continue to lean into the dynamic growth of e-commerce amid a robust pricing environment.\nIn addition, we have other levers for profitable growth, including number one, increasing collaboration and efficiency to optimize our networks and businesses; number two, driving improved results in Europe and international; and number three, unlocking value by digital innovation.\nOur expanded collaboration across operating companies will drive cost benefits, lower delivery and line-haul cost and better utilization of existing assets.\nSaid differently, we'll utilize our air and ground networks in a smarter, more calculated manner.\nFedEx Freight trucks have traveled four million miles while operating on behalf of FedEx Ground this year.\nFedEx Freight has also provided FedEx Ground with intermodal containers, which have already been dispatched nearly 50,000 times.\nWe will continue to look comprehensively at all assets in our network, including stations, hubs and equipment to put the right package in the right network at the best service for our customers.\nAnd as I highlighted earlier, the focus on collaboration also extends to our customers as we work to make their supply chains smarter.\nThis includes providing integration and common data platform opportunities and planning the best way to leverage our network flexibility for their volume needs.\nThe second lever is continuing to improve our international profitability.\nOur international business, particularly Europe, remains one of our biggest opportunities.\nI was in Europe in October, and I was happy to note the excellent progress there as we build upon the success of station integration, which was completed in May 2021.\nWe remain on track for the completion of our air network integration in April 2022, which will complete the physical integration of TNT into FedEx Express and enable full physical interoperability of these networks.\nAfter April 2022, Paris' Charles de Gaulle Airport will serve as the main hub for all European and intercontinental flights.\nLiege will connect specific large European markets and ensure we have the flexibility to scale our operations in response to market needs, thus enabling us to focus on international growth.\nBrie, will share more on what this enhanced value proposition means for our customers.\nFinally, we are unlocking value through digital innovation and our accelerated integration of data-driven technologies and enhanced digital capabilities ranging from increased network efficiency to customer experience improvements.\nFor example, early package visibility enhances visibility of third-party trailers as improving customer collaboration, information sharing and package prioritization.\nModel-driven estimated delivery date uses machine learning to provide a more accurate estimated delivery day of packages to customers and recipients.\nAnd trailer load scan automation eliminates the need for a manual scan enabling faster and more efficient loading while significantly reducing package touches.\nThese ongoing investments, network capacity, automation and technology, have helped FedEx build the most flexible and most responsive network in the industry, affording us significant competitive advantages.\nIn closing, the successful execution of our strategies continues to drive high demand for our differentiated services.\nWe remain confident in these strategies for the various reasons outlined.\nOur unparalleled portfolio of services powered by the strength and reach of our global network positions FedEx to deliver superior, sustainable financial returns and drive shareholder value for years to come.\nWith that, let me turn this floor over to Brie.\nQ2 delivered our second consecutive quarter of 14% revenue growth, demonstrating the strong demand for our differentiated portfolio and our ability to drive revenue quality as a result.\nConstrained capacity has continued to support a favorable pricing environment.\nWe are maintaining a brisk pace for repricing contracts, ensuring a high surcharge capture and yield improvements.\nWe are working with large customers to identify opportunities, to move their volume from our national network to our regional and local networks, freeing up additional capacity for small business customers.\nSmall businesses relied our market-leading transit times in our seven-day a week network to compete.\nThey cannot forward deploy inventory at the same scale as large retailers.\nOur domestic yield growth was 9.1% with fuel in Q2.\nOur general rate increase will take place in January and we expect a strong capture rate.\nIn January, the Ground Economy peak surcharge will be replaced by the new Ground Economy delivery surcharge at a $1, solidifying the price point for our Economy product.\nAnd as a reminder, FedEx Ground Economy was formerly FedEx SmartPost.\nThe landscape across the industry remains robust and positions us well for continued profitable growth.\nWe are forecasting that the U.S. domestic parcel market will reach 134 million pieces a day by calendar year 2026, a remarkable 70% growth from 2020.\nE-commerce is expected to drive 90% of the parcel market growth.\nWe have developed a tremendous portfolio of e-commerce solutions and we are very confident that our competitive value proposition will enable us to continue to take share smartly in the addressable e-commerce market.\nAs you all know, we have a diversified customer base globally as well as here in the United States.\nAnd as such, we can confidently grow without the risk of a very large and disruptive customer negotiation.\nThe U.S. domestic B2B market is also expected to grow.\nIt will grow at a 5% CAGR through 2026.\nWe are growing our digital capabilities to provide a range of visibility experiences that will give our B2B customers greater clarity, confidence and control over their deliveries, especially in high-value verticals such as healthcare.\nTurning now to international.\nOur successful commercial and operational execution in response to COVID demonstrates our ability to grow profitably in an uncertain environment.\nDemand out of Asia continues to contribute strong revenue and profit performance and our international economy embargo and peak surcharges are contributing to our yield growth there.\nQ2 Express international export yield grew 12% and volume grew 7.6%, which is outstanding year-over-year growth.\nInternational export composite yield grew to almost $54 per package, while average daily volume was more than 1.1 million.\nI am very proud of the international revenue quality results, especially given that we also had double-digit e-commerce growth internationally, which, of course, puts downward pressure on our package yield.\nInternational Priority Freight had a very strong quarter with 34% year-over-year revenue growth year-to-date.\nWith new variants of COVID causing uncertainty in the global recovery, we believe that air cargo capacity will remain constrained through calendar year 2022 and a full recovery is not anticipated until at least 2024.\nExport demand in Europe and APAC has fully recovered to pre-pandemic levels and capacity on international lanes remains scarce.\nWe anticipate a continued favorable pricing environment and an embargo on our deferred services out of Asia Pacific for the foreseeable future.\nWe are targeting both B2B and cross-border e-commerce market share internationally.\nWe have identified the target lanes for B2B growth where we have shared growth opportunity, most notably in and out of and across Europe.\nAs Raj alluded to, with the launch of our integrated air network in April, we will dramatically enhance our capabilities within and into Europe, creating benefits for customers around the world.\nMore European customers will have access to next-day and pre-noon delivery times for their intra-European shipments through our expanded portfolio of services.\nWe will be able to offer customers an option of mid-day or end-of-day service in-bound to Europe, giving our customers around the world more choice and flexibility while giving our global sales team more opportunities to pursue.\nThese enhancements, along with our intra-Europe road services and industry-leading Europe to U.S. service, position us with a very competitive portfolio.\nAs we approach the final stages of physical integration this fiscal year, we are increasing the FedEx brand presence on the road in Europe by approximately 30%, including the rebranding of vehicles and facilities.\nAdditionally, intercontinental e-commerce will contribute approximately half of the growth in the parcel market over the next decade.\nFedEx International Connect Plus, which launched across Europe, Asia Pacific and the United States, enables us to compete more effectively in this growing e-commerce market.\nIn addition to the improvements in our transportation portfolio, we are very focused on our digital solutions across the customer journey.\nWe have launched our new account opening application in eight countries with very great results.\nWe are seeing double-digit improvement in account openings and customers opting in for My FedEx Rewards, which, of course, is the only small business loyalty program in the industry.\nWe have also launched our new FedEx Ship Manager application in more than 100 countries.\nThis is the primary tool for our small business segment to ship with FedEx.\nWith the modern, easy-to-use interface, a small business can now create a label and get the package out the door more than a minute faster than they could previously.\nWe will launch this new FedEx Ship Manager in the United States in 2022.\nIn summary, we are very confident in our commercial strategies for revenue growth and yield improvement.\nGiven the historically challenging nature of peak season, along with the continued staffing challenges felt by numerous companies around the world, we are quite pleased with our second quarter consolidated financial results, with adjusted operating income up 11% year-over-year.\nWhile adjusted earnings per share was unchanged year-over-year, this year's effective tax rate was significantly higher as last year's earnings included a $0.71 per share discrete tax benefit from favorable guidance issued by the IRS.\nAs we anticipated, most of the headwinds we experienced in the first quarter persisted through the second quarter, which dampened our Q2 profitability by an estimated $770 million.\nTo further unpack our second quarter results, I will highlight several key drivers.\nThe difficult labor market once again had the largest effect on our bottom line, representing an estimated $470 million in additional year-over-year costs.\nAs I did last quarter, I'll separate the effect of the labor market into two components; higher rates and network inefficiencies resulting from labor shortages.\nOf the $470 million, we estimate $230 million was incurred in higher wage and purchase transportation rates.\nThis included higher wage rates and paid premiums for team members and higher rates paid for third-party transportation services.\nWe estimate network inefficiencies resulting from labor shortages, increased costs by approximately $240 million.\nThese costs include additional line-haul, higher usage of third-party transportation, cost to reposition assets in the network over time and recruiting incentives all to address staffing shortages.\nBeyond the labor effects, our results for the second quarter also included the following headwinds; $90 million related to investments in the ground network, as Raj outlined earlier, that are critical to improving service and adding capacity; an estimated $75 million in incremental air network costs at Express due to the continued effect of COVID restrictions on our operations; and lastly, a $70 million effect year-over-year from higher federal excise taxes as the waiver ended on December 31, 2020.\nWith that overview of the consolidated results, let's turn to the highlights for the segments.\nGround reported $8.3 billion in revenue, a 13% increase year-over-year, with operating margin at 5.8%.\nThe results at Ground in the second quarter with operating income and margin down are not where we would like them to be and our teams remain very focused on improving performance.\nGround operating income was down approximately $70 million and in addition to the $90 million I mentioned earlier, results were significantly affected by higher wage and purchase transportation rates and network inefficiencies amid the constrained labor market.\nExpress adjusted operating income increased to over $1 billion and reported an adjusted operating margin of 8.8%, which was driven by higher yields and international priority volume growth, which more than offset the negative effects of continued staffing challenges and COVID-19-related air network inefficiencies.\nFreight had another outstanding quarter with an operating margin of 14.7% as revenue for Q2 increased 17% year-over-year and operating income increased 33% year-over-year.\nOur Q2 results include a net pre-tax non-cash mark-to-market loss of $260 million related to the termination of the TNT Express Netherlands Pension Plan and a curtailment charge related to the U.S. FedEx Freight Pension Plan.\nNow, let's pivot to capital spending.\nYear-to-date, we spent $3.1 billion in capital as we continue to invest in our strategies for profitable growth, service excellence and modernizing our digital platforms.\nOur capital forecast for fiscal 2022 remains at $7.2 billion and less than 8% of anticipated revenue.\nWe ended our quarter with $6.8 billion in cash and are targeting approximately $3 billion in adjusted free cash flow for FY 2022, which puts us on pace to deliver over $7.5 billion in adjusted free cash flow for FY '21 and '22 combined, far exceeding our historical levels.\nThese cash flows have provided extensive flexibility as we continue to focus on balanced capital allocation and strengthening our balance sheet.\nAs a result of this flexibility, I am pleased to announce our Board has approved a new $5 billion share repurchase authorization.\nAnd as part of this program, we expect to enter into a $1.5 billion share repurchase program that will be completed by the end of the fiscal year, which is on top of the $750 million of repurchases in the first half of the year.\nThis new program highlights the tremendous confidence we have in our business and underscores our commitment to driving value for our shareholders.\nDuring Q2, we also made a $250 million voluntary contribution to our pension plan, which mitigates PBGC fees and further strengthens the funded status of our plan for our employees and we expect to make an additional $250 million contribution in February.\nAs for our FY2022 guidance, we are raising our full-year adjusted earnings per share range to $20.50 to $21.50 to reflect second quarter results and outlook for the second half of the fiscal year as well as the expected benefit from our ASR transaction.\nThis improved outlook represents another outstanding financial year with a year-over-year increase in adjusted earnings per share ranging from 13% to 18%, following our strong 2021 results.\nWhile the second quarter exceeded our expectations, uncertainty remains across many fronts, including the labor market.\nWe are closely monitoring developments related to the federal vaccine mandate, ongoing pandemic developments and inflation as we consider our outlook.\nLabor headwinds will persist in Q3, but the labor availability and network inefficiency component will continue to mitigate as we move through the quarter, given our progress to date and plans to address this.\nIn addition, we do not expect a recurrence of approximately $1 billion in notable second half headwinds from a year ago that included the timing of variable compensation expense, historic severe winter weather, a one-time express frontline bonus and our commitment to the Yale Carbon Capture initiative.\nIn summary, the successful execution during the second quarter of our strategies amid a very dynamic environment gives us confidence in our updated outlook for the remainder of fiscal 2022 and beyond.\nIn closing, I do want to take a moment of personal privilege here.\nWhile not on these calls, many of you are familiar with John Merino, our longtime Chief Accounting Officer, who signed our 10-Qs and 10-Ks.\nJohn has been integrally responsible for the quality and integrity of our financial information.\nAnd after 23 years with FedEx, he will retire at the end of this month.\nAnd now before we move to the Q&A, our Chairman and CEO, Fred Smith, has joined us and would like to share a few words.\nAs promised on the June Analyst Call, I am here to answer any questions specifically for me.\nThis time of year is challenging, especially for those working tirelessly on our frontlines, but your hard work and dedication to keep our purple promise for our customers is evident by the Q2 results, Raj, Brie and Mike have covered well today.\nI'm pleased to announce we will be hosting an Investor Meeting on Tuesday and Wednesday, 28, 29 June 2022 in Memphis.\nMickey will share details after the New Year.\nI'll now pass it back to him to begin the Q&A portion of the call.\nNow, I'd like to open our question-and-answer session, and please remember, callers are limited to one question, so we can accommodate everyone.",
        "summary": "new $5 billion share repurchase program authorized, including $1.5 billion accelerated share repurchase program.\nsees fy capital spending of $7.2 billion.\ncontinue to forecast improved earnings and margins for our fiscal year.\nin quarter challenging labor market affected availability and cost of labor resulting in network inefficiencies, and higher wage rates.\nfedex is unable to provide a fiscal 2022 earnings per share or effective tax rate (etr) outlook on a gaap basis."
    },
    {
        "text": "Our remarks today may contain information other than historical information.\nPlease note that we are relying on the safe harbor protections afforded by federal law.\nAll such remarks should be considered in the context of the many factors that affect our business, including those disclosed in our Form 10-K along with other SEC filings.\nManagement's statements may include non-GAAP financial measures.\nThe U.S. drilling rig count in the third quarter was down over 70% from the previous year and 35% from the second quarter 2020 to the lowest levels on record.\nDespite this collapse, Forum was able to limit our revenue decline to just 9% sequentially as our revenue from outside North America was up 14%.\nAlso, we were able to improve our EBITDA through further cost cuts and efficiencies and generate positive free cash flow.\nIt is important to note that Forum's operating results are directly related to the level of oil service drilling and completion activity.\nMost of our business is selling short cycle products to service companies to sustain, replace and upgrade their drilling and completion operations.\nWe believe the third quarter was clearly the bottom in oil service activity and drilling and completions activity are now rebounding.\nWe began to see an increase in our orders in the latter part of Q3, resulting in an 8% sequential increase in our bookings in the third quarter.\nWe expect a strong increase in our inbound orders in Q4 and as our customers put equipment back to work.\nWe are also participating in the new equipment orders in the Middle East and Asia as well as non-oilfield activity for our subsea business.\nThese increased bookings in Q3 and Q4 will drive higher revenue for Forum in Q4 with impressive incremental margins.\nWe have made dramatic progress in reducing our cost structure since we began these efforts at the beginning of 2019.\nOur cash costs, excluding our materials costs, are down almost 50% over this period as we have significantly reduced our overhead expense.\nI am also pleased with the progress on our debt structure and our liquidity position.\nIn August, we extended the maturity of our bonds from 2021 to 2025, and our ABL credit facility is undrawn.\nForum is positioned to benefit in the recovery in drilling and completions activity from the unsustainably low levels experienced recently.\nDuring the quarter, we transformed the company's balance sheet, and we have begun to see the benefits of our significant cost reduction efforts.\nFirst, let me speak to the improvements made to our capital structure.\nIn the beginning of the quarter, we successfully completed a par for par exchange of the majority of our 2021 notes for new convertible notes, extending the maturity to 2025.\nAt the end of the third quarter, we had $129 million of liquidity.\nThis should be sufficient liquidity to fund operating cash needs for the foreseeable future, even in a robust market recovery.\nSubsequent to the third quarter, we issued a call notice to redeem the remaining $13 million of 2021 notes.\nWhen these notes are retired, the maturity of our ABL credit facility will extend to October 2022.\nIn addition, we announced a 1-for-20 reverse stock split, and we'll begin trading next Tuesday, November 10, at the new ratio and higher stock price.\nWe anticipate that the higher trading prices will bring Forum into compliance with the NYSE's trading requirements.\nSecond, I want to highlight the significant progress during the quarter in respect of cost reductions and the benefits we are seeing.\nSince the beginning of 2019, we have reduced annualized cash costs by over $180 million, nearly 50%.\nThese reductions include $23 million in the third quarter alone.\nBecause of these cost reductions, EBITDA increased $2 million in the quarter despite a $10 million reduction in revenue.\nWhile we are pleased with this success of these savings results, our expectations for only a modest market recovery compel us to take additional cost reduction actions in the fourth quarter.\nWe believe with our leaner cost structure following these reductions, we can achieve breakeven EBITDA at levels of industry activity of about 325 working rigs in the U.S.\nThis is a significant improvement from our historical breakeven level and lays a foundation for high earnings torque on activity, and Forum revenues ultimately increased.\nIn summary, Forum's transformed balance sheet provides a long runway for the company to benefit from a leaner cost structure when activity levels and market share gains lift Forum's revenue.\nWith that context, let me cover our results for the quarter.\nNet loss for the quarter was $22 million, or $0.19 per diluted share.\nExcluding a $29 million gain on extinguishment of debt, $12 million of special items and $3 million of foreign exchange losses, adjusted net loss was $0.30 per diluted share.\nThe special items resulted from ongoing cost reduction efforts and include impairments of certain operating leases and other assets as well as restructuring charges.\nOur free cash flow after net capital expenditure in the third quarter was $6 million.\nWe benefited from the receipt of $14 million of tax loss carryback allowed under the CARES Act, which was partially offset by $9 million of cash interest paid in the quarter.\nProceeds from the disposition of certain capital assets, net of capital expenditures, generated $2 million of cash in the third quarter.\nWe expect asset dispositions to be a source of cash again in the fourth quarter, pending the completion of a few ongoing property sales.\nExcluding the tax benefit, we generated $12 million from decreases in our net working capital and expect reduction of working capital to continue.\nFor the fourth quarter, we expect our free cash flow to once again exceed EBITDA.\nInterest expense was $8 million in the third quarter, and depreciation and amortization and stock-based compensation were $12 million and $2 million, respectively.\nWe expect these expenses to remain at similar levels in the fourth quarter.\nAdjusted corporate expenses were $5 million in the third quarter, and we expect them to be up modestly in the fourth quarter.\nWe continue to have some tax expense, despite an overall net loss, as we are not recognizing tax benefits in loss-making jurisdictions, but continue to recognize tax expense for some international jurisdictions with income.\nOnce we turn profitable in jurisdictions that are currently loss-making, we expect to have a relatively low tax rate as we begin to use our net operating losses.\nThe face of our balance sheet shows a $122 million sequential decrease in long-term debt, comprised of the full repayment of $85 million of ABL credit facility borrowings and a $37 million reduction related to our debt exchange.\nThe $37 million is comprised primarily of a $33 million debt discount and additional decreases related to debt issuance costs.\nThe debt discount reflects the fair value discount on the 2025 notes under the accounting rules for debt extinguishments where we recorded the new debt at an estimated 90% of par.\nThis discount and additional debt issuance costs will be amortized as additional non-cash interest expense over the life of the notes.\nFor clarity purposes, the difference between the $33 million debt discount and the $29 million gain on extinguishment of debt recorded in the income statement relates to $3.5 million of early participation payments made to bondholders during the debt exchange.\nThe 35% sequential decrease in drilling activity in the U.S. had a meaningful impact on our Drilling & Downhole segment as demand for drilling rig components and well construction casing hardware was significantly impacted.\nHowever, we are already seeing green shoots of activity in these product offerings as drilling rig count has increased by about 50 rigs after bottoming in August.\nFurthermore, in these product families, our Permian Basin sales teams are making strides to improve our market share, and we anticipate growing revenues going forward.\nOur subsea product line continues to penetrate the defense industry and offshore wind development, which has helped sustain overall subsea revenues despite ongoing declines in the offshore oil and gas spending.\nIn the quarter, subsea revenues declined based on lower revenue recognized on the execution of existing backlog.\nOur artificial lift products are a bright spot for the segment.\nDemand for these products is more tied to well completion activity, and we saw a 30% increase in revenue for these products in the quarter.\nThe increase in U.S. well completion activity also benefited our Completions segment.\nAs our service company customers in pressure punting, wireline and coiled tubing services put their assets back to work, they increased spending on replacement and consumable items.\nWe saw a large increase in revenue for wireline products, in particular, our Enviro-Lite greaseless wireline cable which increases the efficiency of our customers' operations.\nDemand for our stimulation products also increased in the quarter as customers replaced consumable items to put their fleets back to work.\nFinally, in the Production segment, our valves product line continued to feel the negative impacts of slow underlying demand, compounded by reductions in inventory across distribution channels.\nOrders in revenue in almost every part of the valves product line were negatively impacted.\nWe believe the distributor destocking to be transitory and that underlying activity in the midstream and downstream markets will ultimately increase just as we have seen completions and drilling activity increase.\nThat said, the valves business team took decisive action in the quarter to reduce costs and actually increased EBITDA in the quarter despite a meaningful decrease in revenue.\nRevenues for our production equipment product line were down, primarily due to the slowdown in shipments to our customers in the Mid-Continent and Permian basins.\nOrders, however, were up significantly in the product line as customers placed orders for future shipments in both oil and gas focused basins.\nAs we head into the final quarter of a difficult year, I want to recognize Forum's incredible employees.\nThe challenges we have experienced within our society, industry and company have been monumental.\nThe Forum team has responded with resolve, persistence and determination.\nLooking back at the market during Q3, the trends between drilling and completion activities diverged a bit.\nAfter bottoming during Q2, and frac activity in the U.S. has more than doubled.\nWhile that increase was from a very low base, this contrasts with the U.S. drilling rig count, which bottomed halfway through the quarter but has increased far less from that point.\nThis divergence drove demand for completions-focused solutions while drilling and well construction products lag.\nWe saw the trend in Forum's bookings for products and solutions tied to well completions.\nThey significantly increased quarter-over-quarter.\nThis includes Enviro-Lite, our premium greaseless wireline cable, DURACOIL coiled tubing, and our natural gas production-focused GPU.\nWe expect to see further growth for these solutions in the fourth quarter, especially as customers bring equipment back into service.\nAnother product that witnessed increased demand in the quarter was SandGuard, our ESP sand management system SandGuard is part of our artificial lift offering, which is marketed as Forum Multilift Solutions.\nThis line offers sand management, gas mitigation and cable protection systems that extend the life of our customers' artificial lift program.\nThese solutions work on almost all types of artificial lift and are not tied to a certain brand of pump.\nAlso, a great characteristic of this line in that it is driven by production.\nDemand comes from new completions and workovers.\nIn fact, about 50% of our sales go into older producing wells.\nForum Multilift Solutions generates strong results regardless of the level of drilling and completion activity.\nAnother trend we continue to monitor is the buildup of drilling and completion equipment in the Middle East and Asia.\nThis activity slowed a bit during Q3 due to COVID-19 travel restrictions.\nHowever, we expect activity to recover in Q4 as national oil companies, the Big four service companies and local Middle East providers resume operations.\nThis will drive bookings and revenue for our premium drilling handling tools, mud pump consumables, blowout preventers and coiled tubing.\nShifting to the cost side, we have significantly reduced expenses across the board.\nAs Chris and Lyle have mentioned in their remarks, our cash costs have been reduced by nearly 50% since last year.\nHowever, in an environment where U.S. drilling rig count is expected to average between 300 and 400 units next year, more costs need to be taken out of the business.\nWe are continuing to review our portfolio of products.\nWe have a number of products that generate substantial profit even at low levels of activity.\nThese products also deliver significant economic value to our customers, they are differentiated with limited competition, and they will grow strongly through the next cycle.\nWe will continue to invest in these products to develop new technology and to take additional market share.\nConcurrently, given the expected level of activity next year, we will significantly reduce expenses for products that are not profitable with their current cost structures.\nWe have begun and will continue to simplify, consolidate and potentially exit certain of these products.\nThese actions are currently expected to be completed by early 2021 and will eliminate an additional $20 million to $30 million of annual expenses.\nAfter these actions are complete, we will have significantly lowered our breakeven EBITDA and enhanced our operating leverage.\nWhat a year 2020 has been for so many reasons.\nWho could have predicted negative oil prices resulting in a sudden stoppage in oilfield activity, driving the rig count to record low levels?\nBut the worst is behind us from an oil and gas perspective.\nOperators have begun to ramp up their drilling and completion activity so they can try to sustain their oil production levels.\nMeanwhile, the U.S. gas market is looking better than it has in years.\nAt Forum, our new orders turned up in Q3 for the first time in several quarters.\nThis is the necessary precondition for our revenue to increase, which we expect to occur in Q4.\nAs activity levels begin to recover, Forum's results will show a direct improvement.\nWe expect our Q4 revenue to be at least as high as the $113 million generated in Q2, and we also expect our sequential incremental EBITDA margins to exceed 35%.\nWith the recent changes to our debt structure, we now have a sustainable financial position and the cash resources to fund our growth.\nOur much more efficient cost structure means we will achieve an attractive earnings level at a much lower level of drilling and completion activity than in the past.",
        "summary": "q3 loss per share $0.19."
    },
    {
        "text": "We will also discuss certain non-GAAP financial measures.\nParticipants in today's call include our Executive Director, Chris Pappas; Acting Chief Executive Officer, Steve Strah; and Senior Vice President and Chief Financial Officer, Jon Taylor.\nWe also have several other executives available to join us for the Q&A session.\nFor those of you who do not know Chris, he has been an Independent Member of the FirstEnergy Board since 2011 and he retired in 2019 as President and Chief Executive Officer of Trinseo SA.\nI appreciate the opportunity to participate in today's call.\nI'm going to start out by discussing the leadership transition the company announced last week, my role with the company and the Board's governance efforts.\nFirst, I will note that the DOJ investigation prompted a number of shareholder and customer lawsuits, and we are also responding to a subpoena we received from the SEC on September 2nd, related to the investigation in the FirstEnergy by the SEC division of enforcement.\nWe are cooperating with the DOJ and the SEC.\nDuring the course of our internal review related to the ongoing government investigation regarding House Bill 6, the Independent Review Committee of the Board determined that three executives violated certain FirstEnergy Policies and its Code of Conduct.\nWhen we determine that employee conduct is inconsistent with our policy and values, no matter how senior the individual, we have a duty to take action, and that is what we have done here.\nAs a result, FirstEnergy announced on Thursday that CEO Chuck Jones, along with Dennis Chack, Senior Vice President of Product Development, Marketing and Branding; and Mike Dowling, Senior Vice President of External Affairs, were all terminated effective immediately.\nConcurrently, Steve Strah, who many of you know from his roles as FirstEnergy's President and previously CFO, was appointed acting CEO.\nSteve has the experience, credibility and the support of the Board in this role.\nSteve is a highly respected executive with deep knowledge of FirstEnergy's business and significant operational experience.\nHe became President in May 2020 as part of the company's ordinary course succession planning process.\nIn his various leadership roles at the company, including his recent tenure as CFO and President, Steve has supported the execution of FirstEnergy's long-term customer-focused growth strategy and demonstrated his commitment to delivering value to all stakeholders, including employees, customers, communities and shareholders.\nI look forward to working closely with him in my new role as Executive Director.\nIn this role, I remain an Independent Member of the Board and will also work closely with Don Misheff, our non-Executive Chairman, to assist management team's execution of strategic initiatives, to engage with the company's external stakeholders, including the investment community as appropriate, and to support the development of enhanced controls and governance policies and procedures.\nThe Board is already conducting a full review of its governance and oversight processes to look for areas of improvement going forward.\nThis is a serious matter for our Board and for FirstEnergy Management.\nIn order to address this in a timely and effective way, the Board has formed a new subcommittee of our Audit Committee, to quickly assess and implement potential changes as appropriate in the company's compliance program.\nThis effort will be led by independent Board member, Leslie Turner.\nLeslie retired as Senior Vice President, General Counsel and Corporate Secretary of The Hershey Company.\nShe joined our Board in 2018 and is a member of the Audit and Compensation Committees.\nThis new subcommittee will work with management, internal audit and also engage outside expertise for help and best practices.\nAs I previously mentioned, we have and will continue to cooperate with the DOJ and SEC investigations.\nWe have also reached out to company's key stakeholders, including the ratings agencies, banks, regulators, legislators and union leadership.\nWe believe the actions the Board has taken, represent an additional step toward addressing these matters and enable's FirstEnergy's management to continue to focus on running the business day to day.\nFirstEnergy embarked on a strategy several years ago to become a fully regulated company and grow through the substantial opportunities available in both the distribution and transmission businesses.\nThat strategy will continue.\nIt is working and the foundational drivers are intact.\nThe FirstEnergy organization at large has been delivering excellent results over the last few years and that continues with the strong performance year-to-date and the company's expectations for the full year.\nAs we look ahead, the Board has full confidence in Steve and the rest of the team's ability to ensure a seamless transition and to continue to execute the company's strategy.\nWhile I would have preferred to have assumed my new role under different circumstances, I agree with Chris that the actions taken by our Board of Directors last week, were absolutely necessary and are an additional step toward addressing this matter.\nThe management team is committed to working with the Board to assess and implement potential changes, as appropriate, with the company's compliance program.\nWe take this as a serious and important matter and we will begin to address this immediately.\nIn my 36 years with the company, we have faced challenges and changes, and we have always emerged stronger and even more dedicated to our mission.\nOur management team remains focused on keeping each other safe, providing reliable service to our customers and executing our growth initiatives.\nI am confident that we will continue to carry out this plan, finish the year strong and enter 2021 with momentum.\nI look forward to working with our team to achieve this.\nWith that, let me transition to a brief update on our operations and recent regulatory activity, then Jon will review our results and other financial matters.\nWhile the pandemic continues to impact our work protocols, our customers' lives, and the economy, I am extremely proud of the hard work and resiliencies our employees have demonstrated throughout this crisis.\nWe remain on pace to complete more than $3 billion in customer-focused investments across our system this year and our business model and rate structure continue to provide stability.\nThose results primarily reflect the successful implementation of our regulated growth strategies and favorable weather, together with a continuation of the pandemic-driven load trends we noted on our second quarter call.\nAs Jon will discuss in more detail, the earnings impact of higher weather-adjusted sales from residential customers more than offset the lower usage in our commercial and industrial sectors.\nBased on our strong performance year-to-date and the expectations for the next couple of months, we are affirming our guidance range of $2.40 to $2.60 per share, and currently expect to be near the top end of that range.\nIf decoupling is part of a House Bill 6 repeal, we would be closer to the $2.50 per share midpoint.\nWe have updated our funds from operations and free cash flow forecast for 2020, to reflect the impacts of higher storm costs of approximately $145 million and higher costs associated with the pandemic, including uncollectibles of approximately $120 million, most of which are deferred for future recovery.\nAlthough the events of this past week and the government investigations create additional uncertainty, we are affirming our expected CAGR of 6% to 8% through 2021 and 5% to 7% extending through 2023, along with our plan to issue up to $600 million in equity annually in 2022 and 2023.\nWith that said, we are mindful that the current situation may present additional challenges to meet this objective.\nJon will address some tactics we are taking to address uncertainty created by the investigation.\nNow, let's turn to regulatory matters.\nIn New Jersey, JCP&L filed an AMI implementation plan with the Board of Public Utilities in late August.\nIf approved, we would begin installing 1.15 million smart meters and related infrastructure across our New Jersey service territory, over a three-year period beginning in 2023.\nAlso, at JCP&L, last week, we were very pleased that the BPU approved our settlement in the distribution base rate case, as well as the sale of JCP&L's interest in the Yards Creek pumped storage hydro generation facility.\nThe settlement provides recovery for increasing costs associated with providing safe and reliable electric service for our JCP&L customers, along with the recovery of storm costs incurred over the past few years.\nIt includes a $94 million annual increase in distribution revenues, based on an ROE of 9.6%.\nThe settlement also includes an agreement to delay the implementation of the rate increase until November 1st, 2021, to assist our customers during the pandemic.\nPrior to then, the rate increase will be offset through amortization of regulatory liabilities totaling approximately $86 million, beginning January 1st.\nThe parties also agreed that the net gains from the sale of JCP&L's interest in Yards Creek, estimated at $110 million, will be used to reduce the regulatory asset for previously deferred storm costs.\nWe expect to close the Yards Creek transaction within the next few months.\nThis includes transmission assets in the West Penn Power territory in Pennsylvania, the Mon Power territory in West Virginia and the Potomac Edison territory in West Virginia, Maryland and Virginia.\nWe are requesting an effective date of January 1, 2021.\nIn addition, we created a new stand-alone transmission company, Keystone Appalachian Transmission Company or KATCo, to accommodate the new construction in this footprint.\nIn closing, while I find it disappointing that we have arrived at this point, I have great confidence not only in the management team but in the full support of the Board of Directors; and together, we're committed to lead this company out of it.\nI'd like to reiterate that our regulated growth strategy is strong.\nIt is working and it is moving forward, and I am committed to working with management and the Board to address changes to our compliance program.\nAs always, all reconciliations and other detailed information about the quarter can be found in the Strategic and Financial Highlights document on our website.\nWhile we traditionally file the 10-Q in connection with our call, we don't expect to file it this week, as we continue our review and closing procedures to ensure we provide appropriate disclosure.\nAlso, as we noted in Friday's 8-K, the violations of certain company Policy and Code of Conduct by the terminated executives, has caused us to reevaluate our controls framework and that could lead to identifying one or more material weaknesses.\nHowever, based on our review of these issues, we do not expect any impact to prior period financial results.\nAs Steve noted, operating earnings were a $0.01 above the top end of our earnings guidance range, largely reflecting the ongoing success of our regulated growth strategy, as well as benefits from weather.\nIn the distribution business, revenues increased compared to the third quarter of 2019, as a result of higher weather-adjusted residential usage and incremental rider revenue driven by our capital investment programs in Ohio and Pennsylvania.\nTotal distribution deliveries decreased compared to the third quarter of 2019, on both in actual and weather-adjusted basis.\nCooling degree days were approximately 21% above normal and relatively flat to the third quarter of 2019.\nTotal residential sales increased 5.3% on a weather-adjusted basis compared to the same period last year, as many people continued to work-from-home and spend more time at home due to the pandemic.\nIn the commercial customer class, sales decreased 5.5% on a weather-adjusted basis compared to the third quarter of 2019.\nAnd in our industrial class, third quarter load decreased 6.3% compared to the same period last year.\nConsistent with the trends we've seen for the past 12 months, the only sector showing growth in our footprint was shale gas.\nAs we discussed last quarter, the increased residential volumes more than offset the decrease in commercial industrial load from a revenue perspective.\nIn our transmission business, earnings were flat compared to the third quarter of 2019, as the earnings growth associated with our energizing the future transmission initiative were offset by higher net financing costs and the absence of a tax benefit recognized in the third quarter of 2019.\nAnd in our corporate segment, our results primarily reflect higher tax benefits compared to the third quarter of 2019.\nIn the fourth quarter, we will make our annual pension and OPEB mark-to-market adjustment.\nBased on the asset returns through September 30th and a discount rate ranging from 2.7% to 3%, we estimate that adjustment to be between an after-tax loss of $330 million to a gain of $40 million.\nAs a reminder, this is a non-cash item.\nYear-to-date, our return on assets is 9.2% versus our assumption of 7.5% and our funded status remains at 77%.\nAs Chris mentioned, we proactively reached out to the three rating agencies last week to discuss within the leadership transition and our path forward.\nWhile we believe the fundamentals of our business remain strong, we understand there are certain management and governance factors that the agencies consider in the risk assessment, which ultimately impact the credit ratings.\nThe rating agencies have taken numerous actions and we have provided all the details in the Investor Factbook.\nFE Corp remains at investment grade with both Fitch and Moody's.\nAt S&P, while we are not investment grade at FE Corp or FirstEnergy Transmission, all other subsidiaries remain investment grade at their issue-level ratings.\nWe will continue to maintain our open dialog with each of the agencies and remain in close contact with them as we chart our path forward.\nFinally, I'll take a few minutes to review other financial considerations and tactical changes we are making to address the uncertainty created by the investigations.\nFirst, from a liquidity perspective, I'll remind you that we continue to have access to $3.5 billion of credit facilities committed through December 2022.\nIn addition, we expect our holding company debt to remain around 35% of total adjusted debt and we have no plans to increase debt at the FirstEnergy HoldCo.\nTo further refine expectations for 2021, I want to make a few comments about the dividend and reaffirm our dividend policy.\nTwo years ago, at EEI, we announced a targeted payout ratio of 55% to 65% of our operating earnings.\nIn alignment with that policy, our Board raised a quarterly payout by $0.02 per share for dividends paid in 2019 and then by $0.01 per share for those paid in 2020.\nGiven our current yield of approximately 5%, we expect to hold our quarterly dividend at $0.39 per share or $1.56 per share on an annualized basis for next year.\nThis would represent a 59% payout ratio to our CAGR midpoint for 2021.\nThe Board will continue to review the dividend on a quarterly basis.\nFrom a tactical perspective, our 2021 base O&M is flat to 2020 levels, and we assume begin developing plans for reductions to operating expenses, if necessary.\nWith respect to our overall capital programs, for 2021, our capex programs will be at the $3 billion level and we will consider reductions if necessary.\nEquity continues to be a part of our overall financing plan.\nAs Steve said, we are reaffirming our plan to issue up to $600 million in equity annually, in 2022 and 2023, and we will take the necessary actions financially to weather this uncertainty and put the company in the best position possible.\nWe believe these steps are prudent to provide flexibility as we face uncertainty in the near term.\nI know you have many questions.\nWe are not going to provide more information at this time.\nThe Board and management view this as a serious and important matter, and our newly appointed subcommittee of the Audit Committee, led by Leslie Turner, as well as management and Internal Audit, will address this immediately.\nFirstEnergy strategy is working and delivering results as shown in our third quarter 2020 results and our outlook going forward, but matters related to the investigation will add uncertainties to the future financial results of the company.\nThe tactical financial changes that Jon described earlier, are prudent to provide flexibility as we face uncertainty in the near term.\nAnd now, we'll open to questions-and-answers.",
        "summary": "sees fy 2020 non-gaap operating earnings per share $2.40 to $2.60.\nremains on track to achieve 6% to 8% compound annual operating earnings growth from 2018 to 2021."
    },
    {
        "text": "We will also discuss certain non-GAAP financial measures.\nParticipants in today's call include our President and acting Chief Executive Officer, Steve Strah; Senior Vice President and Chief Financial Officer, Jon Taylor; and our Executive Director and independent Board member, Chris Pappas.\nWe also have several other executives available to join us for the Q&A session.\nBefore I get into our results, I wanted to kick off the call with a few words on a critical area of focus for FirstEnergy.\nTaking appropriate actions to address our recent challenges and fostering a strong culture of compliance, ethics and integrity, we are deeply committed to creating a culture in which compliance is endemic in second nature and where our leaders prioritize and encourage open and transparent communications with all of our stakeholders.\nThis focus is absolutely essential for our success as an organization.\nOur commitment starts at the top and extends throughout the organization.\nWe are working to ensure that every leader is actively engaged in setting the proper tone and creating an environment where not only our words, but our actions align with our core values and behaviors.\nWe're building a world-class compliance function to underpin this effort, including bringing on Hyun Park as our new Senior Vice President and Chief Legal Officer in January.\nHyun is the right person to step into this role at this time, and he will be instrumental in driving this cultural shift.\nWe will also be appointing a Chief Ethics and Compliance Officer, who will manage a dedicated team of compliance professionals and enhance our efforts to improve our compliance function by shifting from a decentralized to a more centralized model.\nIn addition, we'll be designating compliance ambassadors throughout the company to act as boots on the ground, ensuring the entire organization understands the critical importance of compliance and what it means for each individual.\nWe are also making significant changes in our approach to political and legislative engagement and advocacy.\nOur activity in this space will be much more limited than it has been in the past, with closer alignment to our strategic goals and with additional oversight and significantly more robust disclosure.\nWith this additional transparency, my goal is to make it crystal clear exactly what efforts we support.\nThese efforts, together with enhanced policies and procedures, will help to bring additional clarity around appropriate behaviors at FirstEnergy.\nAnd through enhanced communications, training, and most importantly, our actions, we are dedicated to reemphasizing that every employee at every level has the responsibility to consistently act in accordance with our core values and behaviors and to speak up if they see inappropriate behavior anywhere in the organization.\nAt the same time, we're taking decisive actions to rebuild our reputation and brand and focus on the future.\nThis includes the decisions recently made with respect to Ohio that I'll talk about shortly.\nAnd while we don't control the time line related to the DOJ and SEC, we will continue to cooperate fully with these government investigations and remain focused on the matters that we can control.\nBut be assured that both management and the Board will be relentless and take the steps needed to position our company for long-term success.\nNow turning to earnings.\nToday, we reported 2020 GAAP earnings of $1.99 per share and operating earnings of $2.39 per share.\nOn Tuesday, we announced several proactive steps we're taking to resolve a range of regulatory proceedings affecting our Ohio utilities.\nThese include our previously announced agreement with the Ohio Attorney General, along with the decision not to seek recovery of lost distribution revenues.\nThis resulted in a charge of $0.15 per share in the fourth quarter.\nAbsent this charge, our 2020 operating earnings would have been $2.54 per share.\nWell above the midpoint of our most recent guidance range and reflective of our strong performance last year.\nWhile this was a difficult decision, we are confident it was the right decision.\nWe believe resolving these matters in a comprehensive manner is a critical step to demonstrate our commitment to transparency and integrity in every aspect of our business, while taking steps toward removing uncertainty relating to our current Ohio regulatory matters.\nAnd in the interest of providing additional transparency, today's investor materials will include more information about regulatory ROEs in each of the states we serve.\nWe remain excited about the significant investment opportunities that will continue to drive solid earnings and growth in the years ahead.\nWhen we have further clarity in Ohio, and with the ongoing government investigations, we intend to resume providing a long-term growth rate that should be consistent with traditional utility growth rates and similar to what we have provided in the past.\nFor now, we are focusing on this year and we have introduced 2021 operating earnings guidance of $2.40 to $2.60 per share.\nBecause we have a lot of ground to cover today, including: our solid operational performance last year, even in the face of the pandemic; our strategy for 2021 and beyond, including our commitment to building shareholder value; and the work we're doing to position the company for the future.\nOur fundamental performance continues to be excellent.\nWe continued making demonstrable progress on our strategic goals, and we had an exceptional year from a safety perspective.\nEven with about half of our employees working from home and the others adopting new health and safety protocols, the FirstEnergy team has remained laser focused on providing safe and reliable service to our six million customers.\nI am deeply proud of the team's resilience and commitment, especially in light of the turbulence that marked the year.\nOur results in 2020 reflect our commitment to strong operations as well as the stability provided by our diverse footprint and our wires-focused platform.\nLast year, we also successfully executed our plan to invest $3 billion in our distribution and transmission systems as we continued our reliability in grid mod program to benefit customers.\nWe believe our robust long-term organic growth opportunities are well aligned with the focus on electrification and the critical role the grid plays in supporting the transition to a carbon-neutral economy.\nThese opportunities and our goals that support them are included in our strategic plan, published last month and available on our website.\nI hope you have taken some time to review it.\nThis updated plan addresses our unwavering commitment to transparency and accountability and identifies old goals for key areas of our business.\nThese goals are aligned with our core values and behaviors, our regulatory strategy and our commitments to our customers, communities and investors as well as environmental stewardship.\nAmong these objectives outlined in the plan is our pledge to achieve carbon neutrality by 2050.\nThis ambitious goal reflects our transformation to a regulated electric utility and our responsibility to help create a sustainable energy future.\nThe strategic plan also addresses our continued commitment to build a more diverse and inclusive workplace.\nWe've had a D&I-focused KPI for three years now and we are taking even more aggressive steps to make progress in this area.\nWe're excited to pursue a 30% increase in our number of racially and ethnically underrepresented employees by 2025, both overall and at the supervisor and above level.\nWe believe this will help accelerate our transformation into an innovative, diverse and sustainable company and drive an important shift in our corporate culture.\nWe recently completed our fourth companywide survey of all employees.\nOverall, I'm proud to say we scored relatively well on many fronts, but we certainly have more work to do.\nOne area identified for improvement is listening and valuing the opinions of our employees.\nWe want employees to feel empowered to voice their opinion on important issues and my team, with guidance and support from the Board of Directors, is addressing this head-on.\nWe view this work as central to strengthening our compliance program and a culture of ethics, integrity and accountability.\nI'd like to explain my approach to driving this change, and perhaps we could use the company's safety culture as an analogy.\nSeveral years ago, we had concerns that our safety culture was trending in the wrong direction.\nManagement led a significant effort with our employees to put in place new programs and training.\nAnd to consistently demonstrate that safety is and will always be an unwavering core value.\nThese efforts ultimately instituted a cultural shift in how we all understood the critical importance of safety.\nWe want that very same cultural shift to occur as it relates to compliance and ethics.\nAs we look ahead, I feel confident in our path forward.\nWe have a strong foundation.\nOur fundamentals are solid, and our strategies are proven.\nAnd we are building on that with a relentless focus on making FirstEnergy a better company as we work to rebuild trust, work to achieve financial results and deliver for our customers and investors.\nWe recognize that changes won't happen overnight.\nThey happen over time, just like the evolution in our safety culture I spoke about earlier.\nI'm confident we will emerge a stronger, better FirstEnergy.\nFirst, I'd like to reiterate the Board's strong support of Steve and recognize the hard work he and the rest of the team are doing.\nWe commend their willingness to learn from the past and their absolute commitment to take this company forward on a new path, all while executing the company's strategy and keeping operations and financial results on solid footing.\nThe Board and management team are focused on a critical objective: to move forward from the past actions of certain former executives; and to take the steps necessary to improve the tone at the top, culture of ethics and integrity and the way we do business.\nSteve talked about a lot of the important work that is being driven by the new management team.\nLikewise, the Board is committed to strengthening every part of FirstEnergy's culture and taking the necessary steps to reestablish credibility.\nTogether, we have made much progress on the issues that confronted the company several months ago.\nAnd at the same time, we recognize there is more work to do.\nI'd like to recap some of the steps that the Board has been actively engaged in to drive improvements in our culture of compliance.\nFirst, the Board promptly put in place an independent committee with external counsel to oversee the internal investigation and to monitor the status of the various regulatory and legal matters facing the company.\nThe independent committee, which currently is made up of the entire board, meets frequently and regularly.\nThe Board acted as swiftly in the removal of five executives, named Steve Strah as acting CEO, established an Executive Director role and expanded the role of the Board's share, all to assist management and the Board with the dynamics we faced in the first months of the investigation.\nThe Board unequivocally endorsed the principle of full cooperation with both the DOJ and the SEC on the matters related to the investigation.\nAnd through our own internal investigation, led by independent counsel, has supported intensive analysis.\nThe Board established a compliance oversight subcommittee of the Audit Committee with independent counsel and leading compliance advisors to analyze and improve the compliance policy and culture at FirstEnergy.\nSteve mentioned some initial output from this work earlier.\nIn addition, the Board established a number of working groups to oversee and support various work streams, including communications, recruiting and financial flexibility.\nAnd to that point, management has initiated a project called FirstEnergy Forward, a transformational effort to change the way the company does business.\nThe objective of this project is to transform the company for the future, but it will also provide near-term financial flexibility.\nJon will discuss this later on the call.\nWe know there is particular interest in the status of the internal investigation.\nHopefully, my earlier comments give you a sense of the intensity and the magnitude of the work that has occurred within the company and with the benefit of extensive external independent support.\nOur internal investigation continues to be thorough and robust.\nAnd includes assistance from external law firms who are supported by several other consultants.\nThe ongoing investigation has not resulted in any new material items not previously disclosed.\nIn the course of the internal investigation, we did identify certain transactions, which, in some instances, extended back 10 years or more, including vendor services that were either improperly classified, misallocated to certain of utility or transmission companies or lacked proper supporting documentation.\nThese transactions result in amounts collected from customers that were immaterial to FirstEnergy, and our utility and transmission companies will be working with the appropriate regulatory agencies to address these amounts.\nOur internal investigation will also continue to address any due developments in connection with the ongoing DOJ and SEC investigations.\nMore importantly, we are increasing our focus on another critical aspect of our work, moving FirstEnergy forward.\nThe fresh perspective of Hyun Park and a new Chief Ethics and Compliance Officer will be invaluable to creating an environment where the entire team is committed to embracing the right behaviors and embedding a strong culture of compliance.\nHe will also join the executive team on a transitional basis as Executive Director and act in advisory capacity to support efforts to achieve the company's priorities: restore its reputation and strengthen its overall governance and compliance functions.\nJohn is a 40-year industry executive with extensive energy experience in navigating complex challenges and driving strong corporate governance.\nBringing John into this full-time role means that I will step back from the Executive Director position I've held since October and return to my regular duties as an independent Board member by April 1.\nAnd importantly, we will continue to fully support the management team as it transitions FirstEnergy to the future as a more resilient company.\nDespite the challenges the company has faced, FirstEnergy's operating fundamentals are strong, and we have a great platform of assets.\nTogether, we have put in place a robust plan to move forward and to position FirstEnergy as an industry leader.\nOne, we know it can be and one that will deliver excellent value to its customers and shareholders.\nWe look forward to working together alongside with management in this effort.\nToday, I will review our financial results and expectations and provide an update on several other financial matters.\nOur operating results include the charge at our Ohio utilities that Steve mentioned earlier.\nAbsent this charge, our results reflect continued rate base growth related to our transmission and distribution investment programs, a favorable mix of customer usage reflecting the impact of our residential customers staying at home and higher expenses mostly associated with the pandemic.\nAdditional fourth quarter data is available in the supporting materials on our website.\nAs Steve mentioned, we reported 2020 GAAP earnings of $1.99 per share and operating earnings of $2.39 per share, which compared to 2019 GAAP results of $1.70 per share and operating earnings of $2.55 per share.\nIn our distribution business, in addition to the $0.15 charge at our Ohio utilities, results for 2020 as compared to 2019 reflect the absence of Rider DMR in Ohio, which was in place for the first half of 2019 and higher operating costs.\nThese were partially offset by higher revenues from increased residential usage as well as earnings from our distribution enhancement programs.\nAlthough total weather-adjusted sales decreased 2% in 2020, normal usage from our residential customers increased 5% for the year, which from an earnings perspective more than offset the 6% decrease in commercial and industrial loan.\nWhile this shift has moderated as the pandemic wears on, we have seen higher weather-adjusted residential usage relative to our latest forecast in the 2% to 4% range with flat to slightly higher C&I usage.\nIn our transmission business, approximately $550 million in rate base growth drove stronger results, which were partially offset by higher financing costs, the impact of transmission rate true-ups and the absence of tax benefits recognized in 2019.\nAnd finally, at our corporate segment, full year 2020 results primarily reflect higher corporate expenses, higher interest costs and a lower consolidated tax rate.\nToday, we are providing 2021 operating earnings guidance of $2.40 to $2.60 per share and first quarter operating earnings guidance in the range of $0.62 to $0.72 per share.\nOur expectations for the year include capital investments of up to $3 billion, with 100% of the $1.2 billion in transmission investment and approximately 40% of the $1.7 billion in distribution investment being recovered in a formula rate.\nOur transmission plan includes continued expansion of our Energizing the Future program.\nIn December, FERC accepted our proposed tariff revisions for the transmission assets of West Penn Power, Mon Power, and Potomac Edison as well as the new Keystone Appalachian Transmission Company known as KATCo, pending the outcome of the settlement and hearing process.\nOther key drivers for 2021 include the impact from the base distribution case at JCP&L, continued investment in our distribution enhancement programs and lower operating costs.\nWe expect these drivers to be partially offset by higher interest expense, which includes close to $0.04 per share associated with the step-up on $4 billion of holding company bonds, and $0.05 per share associated with our revolver borrowings that I'll address in a moment.\nAdditionally, our load forecast has a more typical usage profile for our residential customers and a slower recovery to pre pandemic levels for our C&I customers.\nEquity remains a part of our overall financing plan, and we are affirming our plan to issue up to $600 million in equity annually in 2022 and 2023, and we will flex these plans as needed.\nWe remain committed to maintaining adequate liquidity for our distribution and transmission subsidiaries.\nAt year-end, our liquidity was approximately $3 billion, with $1.7 billion of cash on hand and $1.3 billion of undrawn capacity under our credit facilities.\nWe currently have $2.2 billion of short-term borrowings, of which approximately $2.1 billion was incurred in November as a proactive measure to increase our cash position to preserve financial flexibility.\nAnd we have committed to our bank group that as we work through our financing plan, we expect to reduce short-term borrowings with the timing and amount dependent on a number of factors.\nOur current maturities of long-term debt remain manageable with only $74 million maturing in 2021.\nWe remain in close contact with the rating agencies who are intensely focused on governance and the actions we are taking to strengthen our compliance environment and controls.\nImproving our credit metrics at FirstEnergy, while committed -- committing to return to investment grade as quickly as possible and maintaining the strong credit ratings at our utilities are key priorities.\nWe are targeting future FFO to debt metrics in the 12% to 13% range at the consolidated level as we work to address some of the uncertainties that Chris and Steve mentioned.\nWe know how important the dividend continues to be for our investors in accordance with our target payout ratio of 55% to 65%.\nThe Board declared a quarterly dividend of $0.39 in December, payable March 1.\nAnd as we mentioned on our third quarter call, our intent is to hold the 2021 dividend flat to the 2020 level of $1.56 per share, subject to ongoing Board review and approval.\nThe Board will obviously need to consider the entire landscape of the investigation process before each quarterly dividend is declared.\nFinally, Chris mentioned that we've kicked off a project, FE Forward, that I see transforming FirstEnergy into a more efficient and effective industry leader, delivering superior customer value and shareholder returns.\nIn partnership with McKenzie, employees across FirstEnergy are challenging organizational traditions, conventional wisdom and cultural norms.\nAt the same time, we are focused on modernizing our management practices, processes and digital and technology platforms to deliver a superior customer experience and a much more nimble organization for the future.\nWhile we view this as a transformational effort, we expect to naturally deliver efficiencies that will help us address whatever comes our way in the future, while meeting all of our regulatory commitments.\nBeyond these benefits, we expect that this transformation will provide us the ability to reinvest in our business, our customers and our employees to become a better technology-enabled leader in the industry, committed to innovation, investments in emerging technologies and to support a smarter and cleaner electric grid.\nWhile this project is not the only step in our journey, it's a critical one.\nThe eight-week information gathering phase of the project included intense and robust employee engagement to better understand how we work and how we can do it better through the use of more modern technology, digital and mobility tools and the use of data and analytics.\nAs we enter into the next phase of this effort, we will again engage employees throughout the company to review and assess each opportunity and build out the plans to transform FirstEnergy.\nOver the next few months, we will build out specific actions for the future, which we look forward to sharing.\nWe received a letter dated February 16, 2021, from Icahn Capital, informing the company that Carl Icahn is making a filing under the Hart-Scott-Rodino Act and has an intention to acquire voting securities of FirstEnergy an amount exceeding $184 million, but less than $920 million, depending on various factors, including market conditions.\nWe do not know whether Carl Icahn and his affiliates have acquired shares of FirstEnergy common stock and/or derivatives, and we do not know his intentions with respect to our company.\nThe letter represents our only contact with Icahn Capital and we don't have any additional information to share.",
        "summary": "affirmed its plan to issue up to $600 million in equity annually in 2022 and 2023.\nsees fy 2021 non-gaap operating earnings per share $2.40 to $2.60.\nsees q1 non-gaap operating earnings per share $0.62 to $0.72."
    },
    {
        "text": "We really appreciate you joining us on such a busy day.\nYou can find our earnings materials on our website at ir.\nAdditionally, you need to be aware that our comments will refer to adjusted, results which exclude the impact of notable items.\nThese are non-GAAP measures.\nAnd last, but not least, you need to understand that our comments reflect our current views and that we aren't obligated to update them.\nAnd with that, I'll hand things over to Bryan.\nI'm pleased with the continued progress across our company this quarter and believe that our results demonstrate the benefit of our more diversified model.\nOur attractive base of specialty businesses and higher growth markets are starting to drive our performance.\nWe delivered earnings per share of $0.50 a share and a return on tangible common equity of over 18% on an adjusted basis, despite the near-term headwinds that the industry is facing with continued pressure on short-term rates and strong competition given growing levels of excess liquidity and muted loan demand.\nGiven the continued improvement in the macroeconomic environment as markets reopen, I'm increasingly confident that our client-focused value proposition with a broad product set positions us well to be nimble and focus on the key segments where we can differentiate.\nAs a result, there were several bright spots in the quarter that I think are worthy of noting.\nOur net interest income was down in the quarter given expected reductions in net merger-related and PPP portfolio benefits.\nWe generated core net interest income growth of 1% with underlying loan growth of 1%, which was driven by a commercial loan growth of 2%.\nWe continue to see momentum in our commercial pipelines and the quarter ended with unfunded commitments up 5% to just over $19 billion.\nOur team remains strongly focused on serving clients and anticipating their needs to continue to deepen relationships across our expanded footprint.\nOur net interest-bearing deposits declined 3 basis points -- our net interest deposit cost declined 3 basis points in the quarter.\nThe team is intensely focused on moving our costs toward peer median, and we think we are well positioned to hit the target sometime next year.\nIt's also important to note that we're well positioned to benefit in a rising rate environment and ended the quarter with interest rate sensitivity profile of a 16% increase in net interest income and a 100-basis point shock across the yield curve.\nAnd while we expected total fees to be down given relatively healthy levels of fixed income and mortgage banking fees last quarter, we also saw a return to more normalized levels in traditional banking fees, which were up 2% in the quarter with particular strength in wealth on strong annuity sales.\nCredit quality continues to be excellent with improvement in the overall quality of the loan portfolio highlighted by net charge offs of only 2 basis points and a 47% decrease in loan balances on deferral in the quarter.\nThat, coupled with improving macroeconomic environment, drove another robust reserve release with a provision credit of $85 million in the quarter.\nThis was a 26% decrease in the provision benefit this quarter versus last quarter.\nGiven the impact of CECL, as we look ahead, provision expense will likely be a headwind for us and the industry overall.\nAs our capital levels remain strong with a CET1 ratio of around 10.1%, we increased our capital return by nearly 60% in the quarter, repurchasing 9 million shares of common stock and ended the quarter with a tangible book value per share of $10.88.\nAnd despite the difficult decision to delay the systems integration until February of next year, we continue to execute on the objectives of the MOE, with strong progress on integrating systems and aligning products and capabilities, including piloting a new digital platform for treasury services, launching new relationship and banker profitability tools, and completing the first round of banking center consolidations.\nGiven some higher cost tied to integration of our platforms along with higher costs due to markets reopening, much of which is marketing, as well as the seasonality and the idiosyncratic items, our expenses were up 3% in the quarter.\nHowever, as Anthony will cover later, we expect expenses to moderate in the fourth quarter.\nAlongside our integration efforts, we continue to invest in technology and people to drive revenue synergies and expense efficiencies, and thus far we've identified approximately $35 million in revenue synergies tied to the merger.\nWe remain confident in our ability to deliver at least $200 million in net annualized savings by the fourth quarter of next year.\nAs we begin to look ahead in the next year, I'm increasingly optimistic about the pace of the macroeconomic recovery as the world emerges from the pandemic and that the power of our combined organization will continue to be increasingly evident.\nI'm very grateful for the dedication and hard work of our associates as they continue to work to deliver value for all of our constituents; clients, communities, and shareholders and help drive the momentum to achieve our long-term performance objectives.\nAnd now, Anthony will run through the financial details.\nSlide 6 provides the highlights of the quarter, most of which Bryan has already covered.\nOverall we continue to make solid progress across the combined organization, and we're pleased to see evidence of the power of the MOE starting to emerge.\nI'll briefly touch on slide 7 where we outline the notable items in the quarter which reduced our results by $51 million after-tax or $0.09 per share.\nIn addition to merger-related notable items of $44 million, we recorded $23 million of non-cash, pre-tax costs tied to retiring legacy IBERIABANK trust preferred securities in the quarter and expect to record an additional $3 million next quarter.\nThe redemptions will reduce interest expense by about $5 million annually with an expected payback of approximately five years.\nSlide 8 provides an overview of our adjusted financials for the quarter.\nWe generated PPNR of $284 million as underlying improvement in core net interest income and traditional banking fees was masked by the impact of expected declines in net merger-related and PPP non net interest income along with lower fixed income and mortgage banking fees.\nAdjusted expenses of $480 million moved higher largely reflecting idiosyncratic items tied to strategic investments and additional costs we incurred tied to markets reopening.\nGiven continued improvement in the macroenvironment, overall credit quality, and muted loan growth, we posted a credit to provision of $85 million, which was down from $115 million credit last quarter.\nThis reduction drove a $0.04 decline in EPS.\nBut overall, we continue to post healthy returns with an adjusted return on tangible common equity of 18.4% and 14% before the impact of the provision credit.\nAs Bryan mentioned, tangible book value per share came in at $10.88, up 1% as GAAP net income was largely offset by a $0.23 impact tied to the return of capital and a $0.07 decline tied to the mark-to-market on the security portfolio in OCI.\nMoving to slide 9, net interest income was down $5 million linked quarter given the expected decrease tied to lower merger accretion and PPP portfolio balances, core net interest income was up 1% as the benefit of lower deposit cost, day count, commercial loan growth, and higher investment portfolio income was partially offset by continued declines in consumer loan balances and overall loan spread compression, given the continued reductions in LIBOR and the competitive landscape.\nDuring the quarter, we ramped up our security purchases to put more excess cash to work and added around $400 million on a spot basis at a yield of around 1.5%.\nAs a result, our securities to interest-earning assets ended the quarter at 11%, up 1%.\nOur current plan is to put a total of $1 billion of excess cash to work in securities by year-end, and we will continue to reevaluate opportunities to redeploy additional cash as we move forward.\nReported NIM was down 7 basis points linked quarter with core NIM down 8 basis points, driven by a 5 basis point impact tied to higher excess cash.\nWe ended the quarter with excess cash of $14 billion, up from $12.7 billion in the second quarter.\nCore NIM was also lower given a 2 basis point reduction in interest recoveries on nonaccrual loans, as well as overall spread tightening with new origination spreads down around 15 basis points linked quarter, which collectively translated to about 3 basis points of pressure on the margin.\nWe also generated a 2 basis point benefit to the margin with further improvement in the deposit mix for the DDA and a decline in interest-bearing deposits.\nI would also note that this quarter we added disclosure to the relationship of core net interest income to risk-weighted assets to help illustrate the impact of NII, excluding the excess cash position.\nUnder this view, you can see that year-over-year, the metric is down about 10 basis points compared to the core margin, which is down about 40 basis points.\nAnd on slide 10, let's cover the puts and takes on fees.\nHeadline fees were down around 7% in the quarter.\nThis reflected anticipated declines in other non-interest income and fixed income and mortgage that were partially offset by growth in brokerage trust and insurance tied to higher annuity sales, as well as higher service charges and fees as an increase in transaction volume and higher leasing income tied to terminations helped to mitigate the impact of a recent change in our NSF pricing structure.\nFixed income average daily revenue came in at $1.3 million compared with $1.4 million last quarter.\nMortgage banking and title fees were down $4 million given continued spread tightening and our focus on driving more of our originations on balance sheet.\nWhile overall originations were down 11% for the quarter, portfolio originations were up 5%.\nThe reduction in our other non-interest income was driven by an $11 million decrease in security gains tied to a legacy IBKC investment in the second quarter.\nWith regard to service charges, we recently began aligning key features across the legacy institutions approach to service charges, with the goal of simplifying and streamlining the experience for our clients.\nThe new program was launched in late August at First Horizon, with the remainder of the change occurring following the system conversions in February for our IBERIABANK franchise.\nOver time, we expect the changes to reduce our overall NSF overdraft fees in the range of $9 million to $10 million annually, with changes going into production in August for First Horizon and with the February conversion for the IBERIABANK clients.\nAdjusted expenses totaled $480 million, up $15 million in the quarter, largely because of seasonality and some idiosyncratic costs related to strategic investments and additional costs related to markets reopening, which was slightly offset by $1 million tied to incremental merger cost saves.\nPersonnel expense decreased $4 million linked quarter with salaries and benefits stable as a $4 million FICA credit helped mitigate the impact of day count, seasonally higher medical cost, and labor supply constraints.\nIncentives and commissions remained relatively stable as a $3 million increase from pandemic-related vacation carryover partially offset lower revenue base payouts in fixed income and mortgage.\nI should note that as we continue to shift more of our mortgage originations on balance sheet, you will see a reduction in mortgage fee income without a corresponding reduction in incentives.\nAdditionally, higher contractor cost tied to investments in new systems, largely in areas like treasury solutions and business banking online, as well as increased advertising spend given our reopening of markets, pushed outside services up $9 million.\nAnd finally, other non-interest expense was up $11 million in the quarter driven by higher tax credit related contributions, a $2 million increase in fraud cost, and higher travel and entertainment costs also for markets reopening.\nWe are focused on driving efficiencies and identifying opportunities to redeploy expenses toward areas which provide higher growth for the organization, particularly post the systems conversions in February.\nOn slides 12 and 13, we cover our balance sheet profile.\nExcluding PPP balances, which were down $1.8 billion in the quarter, average loans increased 1% in the quarter.\nAnd as Bryan mentioned, this reflected commercial growth of 2%.\nOur pricing strategies in the mortgage warehouse business helped deliver a 7% increase in balances with purchase volume up 3 percentage points linked quarter to 56%.\nAdditionally, we continue to see traction in other specialty businesses with growth in asset-based lending, equipment finance, and franchise finance, somewhat offset by reduction in commercial real estate, given higher levels of refinancing activity from the capital markets.\nThis is being somewhat offset by continued pressure in retail real estate secured refinancings, which drove a 1% decline in consumer loans, but we're reviewing opportunities to increase our recapture of these with refi opportunities.\nOverall, we are pleased to see the path of the economic recovery and the increased activity levels across our footprint translate to this level of loan growth.\nOn the liability side, we saw a continued inflow of deposits, driven by a $1.1 billion average increase in DDA, or 4%, which helped to further improve the mix of deposits.\nAnd with interest-bearing deposit costs down 3.3 basis points to 17 basis points for the quarter, our total funding costs improved 2 basis points.\nAs Bryan mentioned, we are intensely focused on driving our interest-bearing deposit costs down toward peer median levels.\nOn slide 14 and 15 we provide information on the asset quality and reserves where we continue to see exceptional low levels of charge-offs in non-performing loans and our allowance coverage of loans is healthy at 1.45% and 1.65%, excluding loans to mortgage companies and the PPP portfolio.\nAdditionally, when you consider the unrecognized discount on acquired loans, our total loss absorption is roughly 2%, which is very strong.\nTurning to capital on slide 16.\nOur CET1 ratio of 10.1%, down from 10.3% in the second quarter tied to the accelerated share repurchases in the quarter, loan growth, and higher unfunded commitments.\nAs Bryan mentioned, we returned $224 million in capital to common shareholders during the quarter, including $142 million, or 9 million shares of common stock repurchases.\nMoving on to merger integration on slide 17.\nWhile we had to delay the core systems conversions to early next year, we continue to make substantial progress across a number of fronts.\nDuring the quarter, we completed a couple of conversion events and completed our wealth and trust and credit card conversions, finalized the mortgage system conversion, and launched a pilot of our new online banking platform for commercial customers.\nWe achieved $96 million in annualized run rate savings against our net target of $200 million.\nAdditionally, we continued making solid traction on revenue synergies and have thus far identified roughly $35 million of annualized revenue synergies that are tied to commercial loans and additional synergies tied to debt capital markets, mortgage, and private client wealth.\nWe are extremely focused on retaining and growing our client base by continuing to enhance or expand our set of products and services.\nOn slide 18, we provided our fourth quarter outlook.\nWe expect NII to be down at the high end of the low-single-digit range with average interest-earning assets and loans down modestly given the outlook for reduced merger accretion and PPP benefits and continued low rates.\nWe expect to continue to see modest loan growth, excluding PPP, and that we will see benefits as we continue to lower deposit costs.\nAt period end, we had a total of $2 billion in PPP loans, including $600 million related to Round 1 and total PPP fees of $45 million.\nWe expect the vast majority of the Round 1 portfolio to be forgiven by the end of the year and that the Round 2 will largely be forgiven by the third quarter of next year.\nRegarding non-interest income, we expect fee income to be down in the high and the mid-to-high single-digit range with additional decreases tied to our NSF pricing changes and seasonally lower mortgage and wealth fees, as well as further moderation in fixed income.\nWe expect non-interest expense to decrease in the low-single-digit range with higher third quarter levels, which included investments, seasonality cost tied to markets reopening, and some idiosyncratic items.\nAnd our outlook calls for charge-offs to be in the range of 5 to 15 basis points and that it's reasonable to see continued reserve outflows near term.\nFinally, we expect our CET1 ratio to remain in the 9.5% to 10% range.\nAs Bryan mentioned, we feel good about our positioning and our ability to perform well given the current economic environment.\nFinally, slide 19 includes our short- and long-term objectives.\nWe believe our more diversified model and highly attractive franchise will continue to deliver revenue synergies and loan growth.\nOur MOE objectives to complete the systems integration and to identify other expenses to redeploy to higher-growth and higher-return opportunities will allow us to continue to support the dynamic digital needs of our clients and associates and drive continuous improvement in productivity and efficiency beyond the integration.\nAnd as we continue to actively manage capital, our balance sheet, and credit quality performance position us well to continue to deliver attractive results near term and into the future.\nAnd with that, I'll give the call back to Bryan.\nI'm excited about the momentum in the results of the combined organization and what we've achieved this quarter.\nThe power of our attractive franchise, with the benefit of a more diversified business model in higher growth markets, is evident in our results.\nThe progress we have made toward our merger integration objectives continues to deliver revenue synergies, provide our clients with improved products and technology.\nAs the macroeconomic environment continues to improve, our capital structure and risk management infrastructure positions us to deliver higher growth and top-quartile returns into the future.\nI am grateful again to our associates for their dedication toward building and strengthening client relationships and supporting our communities, and I am confident in our ability to become a top-performing regional bank and to drive enhanced shareholder value.",
        "summary": "compname reports third quarter net income available to common shareholders of $224 million, or earnings per share of $0.41; $275 million, or $0.50, on an adjusted basis*.\nq3 adjusted earnings per share $0.50.\nqtrly net interest income of $492 million declined $5 million, or 1% from second quarter 2021.\nexpect to fully integrate systems in february 2022 given hurricane ida impact.\non track to deliver about $200 million of targeted annualized net cost saves by 4q22.\nqtrly provision for credit losses was a benefit of $85 million."
    },
    {
        "text": "Gary Norcross, our Chairman, President and CEO, will discuss our operating performance and share our strategy to continue accelerating revenue growth and maximizing shareholder value.\nWoody Woodall, our Chief Financial Officer, will then review our financial results and provide forward guidance.\nBruce Lowthers, President of Banking and Merchant Solutions will also be joining the call today for the Q&A portion.\nTurning to slide three.\nAlso, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow.\nThese are important financial performance measures for the company, but are not financial measures as defined by GAAP.\nI'm pleased to announce our fourth quarter and full-year results starting on slide five.\n2020 was an unprecedented year for the world and for FIS, with the COVID-19 pandemic impacting the world on a human as well as an economic level.\nDespite the extraordinary year, we leveraged our scale and resources to keep the global economy running, while delivering solid results.\nWe generated $12.6 billion in revenue as our balanced solution portfolio allowed us to offset weaker consumer spending trends with strong demand for our Banking and Capital Markets Solutions.\nAs we close out 2020, all three of our business segments ended the year with record annual sales, continuing to improve that our solutions and technologies are winning share around the globe.\nOur backlog grew 7% organically to $22 billion.\nThis gives us a exceptional visibility into our future growth trajectory and drives our confidence in accelerating organic revenue growth for our Banking and Capital Markets segments.\nFrom a merchant perspective, given the accelerating rollout of COVID vaccines globally and improving trends and economic indicators, we are confident we will see strong merchant revenue acceleration throughout 2021.\nOur team continues to execute at the highest level as demonstrated by our ability to expand adjusted EBITDA margins by 120 basis points for the full-year, despite near term COVID challenges.\nWe also made great progress with the Worldpay integration, remaining well ahead of plan and exited the year generating more than $200 million in revenue synergies, and more than $750 million in cost synergies.\nWith this impressive momentum, we are excited to build on our strengths as we look ahead to accelerating organic revenue growth in 2021.\nTurning to slide six.\nFIS has had a very successful year operating in the business, and I couldn't be prouder of the team's accomplishments and unwavering commitment to support our clients and communities.\nThe modernization and innovation investments we've made are paying dividends, enabling us to accelerate organic growth across our entire business.\nAmazon, a long-term merchant client added our capital markets industry-leading treasury management system to the growing portfolio of services that we provide them.\nFurther, Walgreens and Giant Eagle expanded their long-standing relationships with FIS.\nWalgreen selected our integrated payable solution and Giant Eagle selected a series of our back office financial solutions from our comprehensive banking suite.\nWe also recently developed an innovative benefits card solution with UnitedHealth Group.\nThe combined strengths from across FIS.\nIn this partnership, we created a fully in-house solution where we accept transactions as the merchant processor route them through our network and finish with our own authorization and settlement engine.\n2020 highlighted how our unique capabilities are being successfully combined to serve our clients and ways if they can't find anywhere else.\nWe continue to invest in cutting-edge technologies for the future, including contactless, voice-enabled and self-service solutions as well as AI and automation.\nWe launched over 60 new products in 2020 with a focus on enabling our clients to grow their revenues and operate more efficiently.\nAll of this enables FIS to emerge from the pandemic, and an even stronger competitive position.\nWe also continue to be relentlessly focused on improving our own operational efficiencies.\nWe made exceptional progress in integrating Worldpay as well as consolidating platforms and data centers with over 70% of our global compute now running in the cloud.\nTo continue our upward margin momentum, we are beginning the next phase of our enterprise transformation.\nWe will leverage data analytics and automation to reduce our cost and create new efficiencies by upgrading and consolidating our technology platforms as well as continuing to simplify our technology architecture.\nAs a result, FIS will be faster, more agile and deliver frictionless service by transforming our operating model and streamlining our organization.\nGiven the tremendous achievements from our data center consolidation program and ongoing cost synergies, I am confident in our ability to deliver 45% adjusted EBITDA margins this year and then continue to expand them in each year for the foreseeable future.\nFrom a market viewpoint, demand continues to increase.\nBoth our sales pipeline and backlog continue to grow and we are finding new sources of revenue synergies and cross-sell wins to accelerate our business further.\nTurning to slide seven.\nIn Banking Solutions, we continue to win share and accelerate revenue growth.\nOur investments have enabled us to build a differentiated offering, winning new logos across markets of all sizes and actively expanding wallet share with existing clients.\nAs a result, our backlog within the banking business expanded by 8% organically and generated $3.5 billion in new sales during 2020, which is our largest selling year ever.\nCross-selling of new solutions into our existing client base is also up, including a 23% increase in cross-selling solutions to our top 100 clients.\nIn addition, three of our recent modern banking platform wins are now live, and we project that the modern banking platform will generate in excess of $100 million of revenue in 2021.\nWe expanded our relationship with Bank of Hawaii to power their digital banking product offering.\nThey will implement our Digital One solution to bring modern, best-in-class capabilities to both self-service and banker-assisted channels.\nLastly, US Bank, a top-5 bank selected our bill-pay solution due to our simple integration and personalization across digital channels.\nOur multi-year sales success, strong revenue backlog, continued strength in the pipeline and ability to consistently drive innovation into the market lay out a clear path for banking to accelerate revenue growth in 2021.\nTurning to slide eight.\nIn merchant, we will leverage our technology advantage and leading competitive position to continue to win share, all while taking advantage of the revenue tailwind being presented by recovering economic and pandemic indicators.\nWe continue to outpace the industry regarding total volumes being processed, indicating not only the overall strength of our capabilities, but our continued ability to gain share throughout the pandemic.\nWe are also seizing the opportunity created by the rapid shift of consumer spending to online and digital channels, where e-commerce volume excluding travel and airlines grew 32%.\nWe provide advanced and highly differentiated omnichannel capabilities, including buy online and pick up or return in store, which merchants must have to compete in the digital economy.\nOur expanded relationship with Walmart to process e-commerce transactions is a great example.\nAnd we are also winning new business with innovative online providers like GrubHub.\nNortonLifeLock also selected FIS to provide global e-commerce acquiring using our Innovative Access Worldpay gateway, which is The Strawhecker Group just recognized for having the highest authorization rates in the industry.\nLooking forward, our global reach, tailored solutions and innovative technology will continue to drive share gains for us as changing merchant and consumer behaviors play to our strengths.\nMoving to slide nine.\nDemand is strong for our end-to-end, front, middle and back office solutions within capital markets and our leading regulatory compliance technology.\nWe continue to gain traction with our SaaS-based delivery model, which drove a 7% increase in new sales for reoccurring revenue in 2021, including a 19% increase in the fourth quarter.\nIn addition, new logos contributed to 26% of our fourth quarter new sales and average deal size grew 9% as we continue to add to our portfolio of leading buy side and sell side clients.\nAll of these are strong indicators for accelerating growth in 2021.\nA few sales highlights included BNP Paribas, who recently chose to expand our relationship.\nWe will transform their post-trade derivatives clearing platform, which will allow them to benefit from significant cost and operational efficiencies, as well as enhanced customer service, all while reducing risks.\nWe also signed an agreement with Allianz, a large global insurance companies provide payment and cash processing platforms.\nOn the buy side, Vanguard recently expanded their relationship with us to include outsource tax reporting, highlighting one of our leading RegTech solutions.\nOur differentiated end-to-end solutions are winning share and our transition to reoccurring SaaS-based revenue streams is also taking hold, which gives us confidence in our ability to further accelerate this business.\nI'd like to underscore that we are pleased with our full-year 2020 results across all of our business segments.\nWe expect this positive momentum to continue into 2021 and beyond.\nWoody will now provide additional detail on the financial results for the quarter as well as forward guidance.\nStarting on slide 11, I will touch on our fourth quarter results before transitioning to our forward guidance.\nWe remain excited about the trajectory of our Banking and Capital market segments and look forward to significantly rebounding growth in our Merchant segment as global economies reopen.\nOn a consolidated basis, organic growth was flat during the fourth quarter and adjusted EBITDA margins expanded by 60 basis points to generate adjusted earnings per share of $1.62.\nWe expect to exit 2021 generated $400 million of run rate revenue synergies based on strong client demand for our premium payback solution, growing distribution with new bank referral partners as well as geographic expansion and cross sell initiatives across the enterprise.\nThese revenue synergies will help supplement our organic revenue growth profile, giving us increased confidence in achieving 7% to 9% organic revenue growth on a sustained basis.\nWe also have line of sight to execute an additional $100 million of operating cost synergies, bringing net total to $500 million, exiting 2021 or 125% of the original opex target.\nTurning to segment results on slide 12.\nIn Banking, organic revenue growth accelerated to 5%, a strong execution more than offset lower termination fees.\nBased on our large and growing backlog as well as our growing pipeline of new opportunities, we continue to expect the Banking segment to accelerate into the mid to high single-digits.\nOur Merchant segment revenue declined 9% organically or 7% on a normalized basis, when excluding the step up in debit routing synergy that we achieve following the Worldpay acquisition.\nAs we begin to lap the impact of COVID-19 in the second quarter, we expect Merchant revenue growth to rebound sharply, driving mid to high teens growth for 2021.\nOur Capital Market segment continues to exceed expectations with organic growth of 3% in the quarter, which includes about a point of headwind associated with the timing of license renewals.\nThis segment is positioned for low to mid single-digit organic growth in 2021, driven by another strong year of new sales and recurring revenue growth.\nOn slide 13, we provide more detail about how client mix is affecting merchant revenue growth during the pandemic.\nThe significant difference in consumer spending trends between discretionary and non-discretionary verticals is creating an unusual revenue mix headwind for us.\nDiscretionary spending verticals, which typically carry higher yields experienced a sharp contraction during the pandemic.\nMeanwhile, non-discretionary verticals and most of e-com typically comprised of lower priced large enterprise and multinational clients experienced strong demand.\nAs a result, merchant revenue declined even as volumes continue to grow.\nBeginning in the second quarter, we expect these mix headwinds on yield to reverse as discretionary verticals rebound over easy comps.\nThis should create a significant yield tailwind for our merchant revenue growth that extends until these verticals rebound fully.\nTurning to slide 14.\nI want to touch on the strength of our balance sheet, cash flow and liquidity position.\nWe generated over $3 billion of free cash flow in 2020, which was up about 50% over last year.\nWe invest over $1 billion in capex in order to drive new technology and solutions to the market.\nWe made the strategic decision to maintain our capital expenditure budget through the pandemic as others were forced to retrench in order to continue to accelerate our new sales and competitive momentum relative to our peers.\nEven as we continue to invest in innovation and growth, our liquidity position continues to grow and reached $4.6 billion by the end of the fourth quarter, which is up by about $400 million sequentially.\nLooking forward, we expect free cash flow conversion to continue to improve, up from 24% of revenue in 2020, increasing to 25% to 27% of revenue in 2021, as we continue to drive integration and efficiency throughout the business.\nTurning to slide 15.\nI want to touch on our capital allocation priorities in light of the large share repurchase authorization and simultaneous dividend increase that we recently announced.\nOver the long-term, organic growth and M&A opportunities have been and will continue to be our first priority for the long-term success.\nWe will invest aggressively in our fastest growing businesses and target high growth assets for M&A to accelerate or extend our growth profile.\nIf it fits our overall strategy and drives accelerating growth for our company and is actionable, we will execute accordingly.\nNext, share repurchase will continue to be a primary tool for returning excess free cash flow, along with consistent 10% to 15% dividend increase each year.\nIn the short term, we believe that FIS shares are trading well below their intrinsic value, creating an opportune time to buy back stock.\nWe recently announced Board approval to buy back 100 million shares, which represents approximately 16% of our shares outstanding, or over $13 billion at current stock price.\nThe Board's decision to approve this program reflects continued confidence in the strength of our financial position and the durability of our business model.\nThere is no time limit on this authorization and we expect to begin buying stock as soon as we can.\nI'd like to begin our discussion of '21 guidance with a view into our adjusted EBITDA margin expectations on slide 16.\nWe expect to achieve 250 basis points to 300 basis points of adjusted EBITDA margin expansion in '21.\nThe biggest driver of this will be high incremental margins as revenue growth accelerates.\nWe anticipate approximately 100 basis points of margin expansion associated with our ongoing achievement of operating expense synergies.\nUnwinding our COVID-related short-term cost actions will create approximately 150 basis points of headwind in 2021, as these costs come back online.\nWe continue to anticipate meaning margin -- meaningful margin expansion beyond 2021, supported by our one to many operating model and ongoing efficiencies as we continue to optimize our infrastructure.\nTurning to our guidance on slide 17.\nIn the first quarter, we expect organic growth of 1% to 2% generating revenues of $3.13 billion to $3.16 billion.\nOnce we lap the COVID pandemic comps in late Q1, we expect revenue growth to accelerate materially, beginning with the second quarter and driving us to our full year expectations.\nWe expect to generate $1.25 billion to $1.28 billion of adjusted EBITDA for a margin of approximately 40% to 40.5%, as we begin to fund our bonus pool.\nThis will result in adjusted earnings per share of $1.20 to $1.25 for the quarter.\nFor the full-year, we anticipate revenue of $13.5 billion to $13.7 billion.\nThis represents 8% to 9% organic revenue growth, which is higher than the 7% to 9% range that we initially expected reflecting our increased confidence as Gary described.\nFurther, we expect to generate $6 billion to $6.15 billion of adjusted EBITDA for a margin of approximately 45%.\nAs a result of our accelerating revenue growth and expanding margins, we expect adjusted earnings per share to grow 14% to 17% to a range of $6.20 to $6.40.\nFinally, we provided some additional guidance assumptions in the appendix material.\nAs we enter 2021, I'm excited about our accelerating revenue growth and free cash flow generation.\nI believe we are uniquely positioned as a sustained higher growth large cap stock and we'll be able to drive consistent long-term shareholder value.",
        "summary": "q4 adjusted earnings per share $1.62.\nsees fy 2021 adjusted earnings per share $6.20 - $6.40.\nsees q1 2021 adjusted earnings per share $1.20 - $1.25.\ncovid-19 continued to impact our financial results in q4 of 2020."
    },
    {
        "text": "We appreciate you participating in our conference call today to discuss Flowserve's second quarter 2021 financial results.\nThese statements are based upon forecasts, expectations and other information available to management as of August 6, 2021, and they involve risks and uncertainties, many of which are beyond the company's control.\nWe are pleased with the performance and solid results in the second quarter, including adjusted earnings per share of $0.37, which represents a 32% sequential improvement and reflects our continued transformation progress.\nWe were encouraged by our bookings of $953 million, which is nearly an 18% year-over-year improvement.\nAt this level, Q2 was a momentum-building quarter for Flowserve, as our bookings inflected upward and we now have clear line of sight to earnings growth.\nThe higher level of bookings and our improved operational performance have provided us the confidence to raise our outlook further for the full year.\nOur revised adjusted earnings per share guidance is now $1.45 to $1.65 for 2021.\nSince the start of the pandemic, we indicated that recovery in our end markets was expected to be directly correlated with the progress being made with COVID-19.\nEach country and geography are at different stages in fighting the pandemic.\nBut on a global basis, a clear pattern has emerged as countries roll out vaccines, COVID cases decline dramatically and then mobility and consumption begin to improve.\nThis, in turn, drives customer spending for nearly all of our end markets.\nWe are confident in our ability to continue to grow the Flowserve enterprise and ultimately restore our bookings to pre-pandemic levels in the coming quarters.\nThere are several factors that contribute to our confidence in the outlook.\nFirst, we expect to continue to grow our MRO and aftermarket bookings.\nAs countries emerge from COVID, we are seeing higher utilization rates in our customers' facilities, which necessitates increased parts replacement units and service activity.\nAdditionally, our distribution partners are just now beginning to replenish their inventory levels.\nAfter about six quarters of destocking, we are now expecting these distributors to rebuild their inventory levels over the coming quarters.\nSecond, we believe major project activity will emerge and begin to recover in the back half of 2021 and into 2022.\nIn the early part of last year, we had very good visibility to a significant amount of project activity that was expected to be awarded during that year.\nMost of those projects were put on hold as operators were both assessing the COVID impact and reducing their capital spending budgets.\nToday, we are working with many of those same customers to bring those projects forward, as the economic environment has improved dramatically over the past several months and additionally, our activity with EPCs is increased significantly this year.\nFinally, we see energy transition theme as a significant opportunity for Flowserve.\nTo date, actual spending in this area is still very [Technical Issues] but we expect it to grow substantially in the quarters and years ahead based on the commitments of our customers -- the commitments that our customers are making as well as from the potential for increased regulation and costs associated with emissions.\nFlowserve is no stranger to this type of work, and I'll talk further about this growing market later in the call.\nEven as the outlook and trends look promising, predicting the exact timing associated with these opportunities is still challenging.\nThe Delta variant is causing concerns for Flowserve operations and for our customers.\nWe have remained diligent and focused on our safety protocols, and we have successfully limited pandemic impacts at most of our global facilities during the quarter.\nThe recent upturn in COVID cases in the Americas due to the Delta variant has the potential to impact our return to office.\nHowever, we do not believe that the latest COVID trends will negatively impact our business and growth outlook at this time.\nUnfortunately, we did experience significant disruption in our Indian operations during the quarter.\nAs a reminder, we have three large manufacturing facilities and several smaller locations in India.\nThe good news is that we have seen tremendous improvements over the past several weeks, and we are currently operating at about 80% associate participation in these facilities, which is up from 20% to 30% participation that we experienced for most of the second quarter.\nOur Indian-based suppliers were also challenged in the quarter, which presented modest headwinds for us, but our supply chain team has done a good job mitigating the impact and leveraging our global suppliers to minimize disruptions.\nLet me now turn to our second quarter bookings.\nWe are pleased with the 17.9% year-over-year increase, which brought this quarter's total bookings to $953 million.\nBoth original equipment and aftermarket bookings grew in the 17% to 19% range.\nWe were very pleased to have delivered almost $525 million of aftermarket awards this quarter, returning to pre-pandemic bookings levels for this part of our business.\nEach of our core end markets delivered year-over-year growth with the biggest drivers being oil and gas and chemical, which increased 39% and 19%, respectively.\nOn a regional basis, we saw solid growth across the globe with the exception of the Asia Pacific market, which was negatively impacted by India's COVID resurgence in a more difficult compare period.\nOur bookings performance this quarter was driven almost exclusively by our aftermarket and MRO business, which represented a large volume of small awards.\nIn fact, we only secured one award that exceeded $10 million, where FCD booked a $12 million nuclear power order in North America.\nTo achieve this level of bookings without any large projects in the mix is an encouraging sign for future growth.\nWe expected larger project spending to lag aftermarket and MRO work, and it has.\nAnd we are now confident in the return of project investment later this year and into early 2022 across our end markets.\nOur project funnel continues to grow and is up nearly 25% compared to this time last year, driven by the feedback we obtained from customer discussions, insights gains from EPC bidding and backlogs and our interaction on the delayed projects, which we originally expected to be released in 2020.\nWe continued to anticipate bookings in this $950 million range in this year's third and fourth quarters, assuming continued progress with COVID.\nAt this level, we should see significant bookings growth in the next two quarters relative to the 2020 comparative periods.\nDelivering these level of bookings or higher would position Flowserve well to deliver a strong 2022 financial performance.\nOur results this quarter also helped drive strong first half results for 2021.\nOur adjusted decremental margins for the first six months was just 13% with our improved market outlook.\nWe remain focused on returning Flowserve to growth while driving margin expansion and increased returns.\nLooking at Flowserve's second quarter financial results in greater detail, our reported earnings per share of $0.35 increased significantly over the prior year period.\nIn addition, the quality of our earnings also improved, with after-tax adjusted items declining from $61 million in the prior year period to just $3 million this quarter.\nOur adjusted earnings per share of $0.37, excluded just $0.02 of net items, including realignment expenses, the logo line FX charges and a gain on sale of business.\nWe were pleased with these results, particularly considering the impact of COVID-related headwinds of about $0.02, primarily from our Indian facilities, as Scott discussed.\nSecond quarter revenue of $898 million was down 2.9% or 7.1% on a constant currency basis.\nThe decrease was primarily due to the 6.1% decline in original equipment sales, driven by FPD's 19% decrease, but partially offset by FCD's 12% increase.\nAs a reminder, FPD entered 2021 with an OE backlog down roughly 25% versus the start of last year.\nAftermarket sales were relatively resilient, up 0.3%, but mix in composition as FCD's 11% increase was mostly offset by FPD's 1% decline.\nOur second quarter adjusted gross margin decreased 70 basis points to 31.4%, primarily due to OE sales decline and related under absorption, including the previously mentioned COVID impact, partially offset by a 2% mix shift toward higher-margin aftermarket sales.\nSequentially, adjusted gross margin increased 100 basis points on a solid 53% incremental margin performance.\nOn a reported basis, gross margin increased 180 basis points to 31%, primarily due to a $23 million decrease in realignment charges as we took significant cost actions in last year's second quarter.\nSecond quarter adjusted SG&A increased $13.9 million to $209 million versus prior year, due largely to foreign exchange movements as well as a return of certain temporary cost benefits realized in 2020, such as the absence of travel that has begun to return.\nReported SG&A decreased $18.5 million versus prior year, where realignment charges declined $27 million versus prior year.\nSecond quarter adjusted operating margins of 8.5% increased 40 basis points sequentially, but declined 280 basis points year-over-year, primarily due to increased under-absorption related to FPD's OE revenue decline.\nFCD's adjusted operating margin increased 10 basis points year-over-year to 13.3%, driven by revenue growth and top SG&A -- and tight SG&A cost control, which were partially offset by mix headwinds.\nSecond quarter reported operating margin increased 330 basis points year-over-year to 8%, including the $57 million reduction of adjusted items.\nOur second quarter adjusted tax rate of 14% was driven by our income mix globally and favorable resolutions of certain foreign audits in the quarter.\nThe full year adjusted tax rate is expected to normalize in the low 20% range.\nTurning to cash and liquidity.\nOur second quarter cash balance of $630 million decreased $29 million sequentially as solid free cash flow of $14 million was more than offset by a return of $38 million to shareholders in dividends and share repurchases.\nFlowserve's quarter-end liquidity position remained strong at nearly $1.4 billion, including $739 million of capacity available under our undrawn senior credit facility.\nTurning to working capital.\nIt was a $34 million use of cash in the second quarter, primarily due to accrued liabilities and timing of certain payments, partially offset by modest improvement in accounts receivable and inventory, including our contract assets and liabilities.\nThe performance was much improved from last year's second quarter when the COVID-related impacts and seasonal inventory build resulted in a use of cash $36 million higher than this quarter's.\nTaking a look at primary working capital as a percent of sales.\nWe saw a modest 20 basis point sequential decrease to 29.4%, driven primarily by accounts payable as well as a 4-day improvement in DSO versus the first quarter.\nDespite our backlog increase of $66 million, some progress delays due to COVID and the proactive purchasing of certain inventory items to mitigate potential supply chain issues, we were pleased that our inventory, including contract assets and liabilities, decreased a modest $4 million sequentially.\nWorking capital remains a top priority for us, and we're confident that the foundation has been laid for further improvement in the second half of the year as demand-related sales volumes increase result in further reduction of inventory levels.\nWe remain committed to delivering free cash flow conversion in excess of 100% of net income for the second consecutive year.\nTurning now to our outlook for the remainder of 2021.\nBased on the combination of our strong first half bookings, driven mostly by shorter-cycle aftermarket and MRO activities and visibility into improving end markets, Flowserve was pleased to increase our adjusted earnings per share guidance range for the full year to $1.45 to $1.65.\nIn terms of cadence, we expect volumes to increase sequentially in the third quarter and to deliver our typical fourth quarter seasonality.\nOur adjusted earnings per share target range continues to exclude expected realignment expenses of approximately $25 million as well as below-the-line foreign currency effects and the impact of potential other discrete items which may occur during the year.\nBeyond adjusted EPS, we now expect less of a revenue decline versus 2020.\nOur guidance is now for 2021 revenues to be 2% to 4% down compared to last year versus the prior guidance of down 3% to 5%.\nIn terms of other guidance metrics, our net interest expense remains unchanged at $55 million to $60 million, and we modestly lowered our adjusted tax rate guidance to 21% to 23%.\nFrom a booking standpoint, we now expect full year 2021 bookings to increase in excess of 10% year-over-year versus our previous outlook of mid-single-digit growth.\nAdditionally, we believe a majority of this increase will come from our aftermarket and shorter-cycle MRO original equipment products, where the associated revenue may be recognized in 2021.\nOur expected major cash usages in 2021 remain in line with prior guidance, including dividends and share repurchases of roughly $120 million, capital expenditures in the $70 million to $80 million range and funding our modest remaining realignment programs.\nIn conclusion, with our solid first half operating performance and improved market outlook, we look forward to continuing the momentum through the second half of 2021 and expect to be well positioned to drive margin expansion and earnings growth in 2022.\nLet me close with an update on our energy transition strategy and our outlook for the remainder of the year.\nAs I mentioned earlier, Flowserve is well positioned for energy transition.\nIn fact, energy transition and decarbonization activities have been a part of our offering for the last few decades, where Flowserve has a demonstrated foundation in product portfolio to capitalize on this growing market.\nWe estimate that even before the recent increased awareness driven by the global pandemic, Flowserve is delivering $100 million to $150 million annually of equipment and services into energy transition-related work, including areas like energy efficiency enhancements, upgrades, retrofits, carbon and emissions reductions, solar power facilities, biofriendly processes and lithium and hydrogen work.\nEqually important, we have been a valued partner to the customers and the industries that have among the highest opportunities available from energy transition, and we are absolutely committed to supporting them today and through their energy transition journey.\nWith increased government regulation and potential costs on greenhouse gas emissions, the financial community's increase focused on ESG metrics and the individual companies' public environmental commitments, it is clear to us that energy transition represents a substantial growth opportunity for Flowserve.\nThe International Renewable Energy Agency estimates that nearly $60 trillion will be invested over the next decade, with almost half of that amount focused on energy efficiency.\nEnergy efficiency is essentially a continuation of existing process industries, but conducting that business in a more environmentally friendly and efficient manner.\nYear-to-date, we have booked nearly $100 million of energy transition-related business.\nWe have held numerous discussions with our customers over the last year, which have confirmed our approach, validated our offering and these discussions support our growth ambitions.\nLet me now highlight some of our recent success stories.\nWe are supporting a large customer in the United States to convert a former petroleum refinery to a biodiesel facility.\nTo make the transition, a number of Flowserve pumps required upgrades to support the new application conditions and improve the operator's production and energy efficiency.\nOur work on the project will save the plant over $800,000 in electricity annually, which is equivalent to over 9,000 tons of CO2.\nLeveraging Flowserve's expertise in flow control solutions, pumps and valves, we successfully support our customer's shift to renewable fuel and their decarbonization efforts.\nAnother example comes from China.\nEarlier this year, Flowserve received a substantial order for over 150 SIHI Dry vacuum pumps for their production of polybutylene succinate, or PBS, which is a biodegradable plastic that naturally decomposes in the water and carbon dioxide.\nWith China's recent ban on several types of non-degradable single-use plastics, PBS and other biodegradable plastics will be preferred alternative materials due to their similar plastic attributes without the harmful impact to our environment.\nAs I mentioned earlier, we estimated that roughly $30 trillion of energy transition-related investment over the next 10 years will be focused on energy efficiency.\nOur RedRaven IoT offering launched earlier this year instruments pumps, valves and seal systems to provide the capability to assist our customers with a data-driven approach on how to improve their operations, increase asset uptime and reduce associated energy emissions.\nWe continued to incorporate our RedRaven functionality across additional valves and pumps in the quarter, increasing the coverage of our portfolio, where we can provide advanced analytics and predictive capabilities.\nCustomer interest levels remain high, and we continue to average roughly one order every week.\nWe believe RedRaven aligns well with our customers' objectives and expect to continue to grow this offering to a meaningful level in the future.\nA recent example of our value of our IoT solution comes from a longtime Flowserve customer who recently upgraded their monitoring solution to RedRaven.\nShortly after the upgrade, we detected that a critical pump motor was overheating.\nWe detected the temperature spike early, alerted the refinery and deployed resources to support their operations.\nAccording to the operator's estimates, had the pump failed they would have had to shut down the facility for over three weeks as they remove the damaged pump and install the commission and replacement.\nThis downtime would have cost the refinery upwards of $20 million.\nRedRaven is clearly adding value to Flowserve and to our customers.\nLet me now shift our focus to the remainder of the year.\nDuring the quarter, I was excited to resume a more normal travel schedule and visited a number of our U.S. and European facilities and many of our customers in these regions.\nDuring these business reviews, I came away highly encouraged by the operational progress we continue to make in our transformation journey.\nThe visits validated the improvement we're making in a number of key performance metrics, and I'm confident we are on the right path to fully embed the transformation work and activities into our daily processes.\nThe Flowserve 2.0 operating model is being driven throughout the enterprise, and we continue to expect the transformation to be fully embedded by the end of the year.\nAnd with our operations and functions now taking ownership, we expect continuous improvement to remain post-2021.\nOur improved model is expected to deliver a more consistent margin profile and ongoing productivity improvements, which would position Flowserve well to leverage and capture the value of the improved market opportunities.\nThe visits also confirmed that we are strongly positioned to shift our focus to growth optimization and strategic initiatives, including inorganic opportunities.\nThe success of our transformation in a consistent operating approach provides the confidence in our ability to integrate acquired businesses should we see the right assets and economics.\nOur operational and functional organizations have made significant progress throughout this journey, and we are now prepared to do more.\nIn closing, we began our Flowserve 2.0 transformation journey in 2008.\nAnd even as the pandemic required mid-course adjustments, we are approaching the full institutionalization of the playbooks and processes of our ongoing operating model.\nAnd we are increasingly well positioned to support our customers, capitalize on the improved market environment and create long-term value for our shareholders and other stakeholders.",
        "summary": "flowserve q2 adjusted earnings per share $0.37.\nq2 adjusted earnings per share $0.37.\nq2 earnings per share $0.35.\nraised full-year 2021 revenue and adjusted earnings per share guidance.\nsees fy revenues down 2.0% to 4.0%.\nsees fy adjusted earnings per share $1.45 - $1.65."
    },
    {
        "text": "Following their prepared comments, the operator will announce that the queue will open for the Q&A session.\nThis information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies.\nThese statements reflect the best information as of today.\nAll statements about our recovery, outlook, new products and acquisitions, expectations regarding business development and future acquisitions are based on that information.\nThey are not guarantees of future performance and you should not put undue reliance upon them.\nThese documents are available on our website and at sec.gov.\nUpfront here, I'll plan to cover three subjects.\nFirst, I'll share my perspective on our Q2 results, along with rest of your outlook.\nSecond, I'll provide an update on our two newest acquisitions.\nAnd then lastly, I'll talk about our fuel card business, including our latest view on EV, along with a couple of innovative developments underway in that business.\nLet me turn to our Q2 results.\nSo very pleased to report outstanding Q2 financial results meaningfully above our internal expectations.\nWe reported Q2 revenue of $667 million that's up 27% and cash earnings per share of $3.15, up 38%.\nBoth our Q2 2021 revenue and cash earnings per share exceeded our Q2 2019 results, so finally moving past our pre-pandemic baseline.\nOrganic revenue growth came in at 23% for the quarter, our full AP outsourcing platform segment, up 53% versus Q2 last year.\nThe trends in the quarter are really quite good.\nOur same-store sales metric improved to plus 18%, so hardness of 18%, many of the sectors in our client base recovering.\nRetention, record level, we reached nearly 94%, an all-time high since we've been reporting the metric.\nAnd interestingly, our global fuel card business reached 92% retention, also an all-time high.\nCredit losses remain very good, running at historic levels and sales outstanding in the quarter finishing up almost two times last year's Q2 and up 6% against 2019.\nOkay, let me transition to our view of the rest of the year.\nSo, today, we're raising guidance to $2.765 billion at the midpoint for full year revenue, raising cash earnings per share at the midpoint to $12.90.\nThat's driven by our Q2 beat, the AFEX close, and really the momentum that we have running into the second half.\nI do want to remind everyone we had previously guided to a pretty substantial second half sequential step-up already.\nAs a reminder, cash earnings per share guidance up nearly $0.60 from the start of the year.\nSo, we opened the year at $12.30; today, $12.90, so obviously, better than we outlooked.\nThe second half guidance implies a few things.\nSo, first, the revenue growth will run about 20% ahead of last year and high single-digits really above the second half 2019 baseline.\nSo, we are expecting the business to reach all-time highs again in both revenues and profits.\nOur Q4 earnings per share profit guidance implies nearly a $14 annualized cash earnings per share exit rate.\nOkay, let me transition now to an update on our recent acquisitions.\nSo as a reminder, we closed AFEX, that's the add-on cross-border deal, on June 1st.\nAnd then last week, we signed definitive documents to acquire ALE, which is a lodging provider to the insurance vertical.\nSo, let me start with ALE, really a highly complementary add-on to our existing lodging business and that company brings a whole set of specialized capabilities designed just to serve the insurance vertical.\nSo, we've got a pretty interesting synergy plan for that business and expect accelerated revenue and profit growth next year.\nWe're also well underway on our AFEX integration.\nWe've already exited about $10 million of run rate payroll expense.\nWe've implemented one unified cross-border management organization and we've designed an IT consolidation plan to move to a single system.\nThat will significantly reduce run rate IT and operations expense.\nSo, look, both of these acquisitions, classic FLEET wheelhouse deals.\nWe paid reasonable prices.\nThere are extensions of our existing business, so we know them well, and both have very rich synergy opportunities.\nWe're expecting the businesses to grow about 20% on the top on a pro forma basis next year and together deliver incremental cash earnings per share in 2022 in the $0.50 to $0.70 range, so big upside.\nSo, obviously, we are quite enthusiastic about the transactions.\nLet me shift gears now and talk a bit about our fuel card business, which we continue to love and which we think has a bright future.\nSo I'll talk a bit about EV, the latest and greatest, and then talk about innovation and specifically two new things that we're doing to improve the growth prospects of our fuel card business.\nSo starting out with EV.\nI mentioned last time, we're really embracing EV as an opportunity and in no way see it putting an end to our fuel card business.\nEmployers are going to need to reimburse employees for recharging electric vehicles much like they reimburse employees for refueling combustion engines.\nAnd I think you may find that it costs more to operate EV than people think.\nWe also think there'll be some new economics and that we've got an opportunity to achieve, very similar economics from EV measuring and reimbursing as we do from combustion engines.\nWe've included a couple of EV exhibits in our Q2 earnings supplement.\nYou'll see some comparisons of spend where the cost of public charging is about 70% of fossil fuel charging.\nAnd then because there's more attractive MDR rates, we believe that we can achieve pretty interesting revenue there as well.\nIn a nutshell, we expect the at-home software subscription fees to be pretty significant and augment a number of the other fees that we get in the revenue mix.\nWe are outlooking the commercial transition to EV to be slow, particularly here in the US, giving us ample time to build out our public charging network and implement recharging at home.\nWe expect mixed fleets to be how things start out.\nSo our incumbent position should give us quite an advantage in consolidating activity and data for our clients.\nSo look, in conclusion, we're outlooking EV to really just be a different way to serve commercial fleets but one in which we think can still be attractive.\nLet me leave EV and cut over to the couple of innovations that we're working in the fuel card business.\nSo first is digital and particularly digital selling, which now in Q2 has reached about 60% of all our new fuel card sales globally coming to us digitally.\nSo lots of improvements in our digital selling capabilities.\nWe've got automated keyword bidding now.\nWe've redesigned our maximize sales conversion, and we're beginning investments at the top of the funnel in the form of digital TV, radio, Facebook advertising, which is driving about 50% more visitors to our websites, so obviously leading to incremental sales.\nThe last innovation I'd like to touch on is our effort to transform our fuel card UI, which is used by over 100,000 clients, really into a broader payment platform.\nSo we're combining our newest cloud-based SMB bill pay platform with our fuel card UI, so that clients go on to pay us the fuel card bill that they'd have the option then of paying additional vendors with the same software platform.\nSo, this idea is really aimed at accelerating the number of active bill pay clients we can add to our platform and again beginning the transformation of the fuel card business into a corporate payments business.\nSo, we'll keep you updated there as we go.\nSo, look, in closing, three thoughts for you.\nSo, one, on 2021, again, we're pleased with Q2, particularly the record retention and record sales levels.\nAnd again, our second half outlook calls for new all-time highs again in revenue and profits.\nSecond, on the fuel card business, again, we think the prospects are bright for the business.\nWe do have a plan to monetize EV adoption by providing some new services and particularly measuring and reimbursing at-home recharging.\nWe've got an opportunity to keep stepping up digital sales and digital advertising at the top of the funnel.\nWe think we can drive incremental visitors and incremental sales.\nAnd we're launching a bill pay cross-sell opportunity to our fuel card clients again by turning our existing fuel UI into a broader payment platform.\nAnd lastly, although early, we're quite encouraged by our 2022 setup.\nOur second half guidance calls for nearly $7 in cash earnings per share for the second half or approximately $14 annualized, again, forecasting record sales for the full year, which will flow revenue into next year.\nWe'll roll off $1 billion in interest rate hedges in January.\nThat will free up about $0.20 of incremental cash EPS.\nAnd lastly, our two newest acquisitions, hoping to contribute in the $0.50 to $0.70 range of incremental cash EPS.\nSo, look, taken together a lot to like about our 2022 setup.\nHe'll provide some additional details on the quarter.\nI'm delighted to share with you the results of a very good quarter.\nFor Q2 of 2021, we reported revenue of $667 million, up 27%; GAAP net income up 24% to $196 million; and GAAP net income per diluted share up 26% to $2.30.\nAdjusted net income for the quarter, or ANI, increased 36% to $268 million and ANI per diluted share increased 38% to $3.15 as we finally lapped the worst of COVID.\nOrganic revenue growth improved 29 points sequentially to up 23% on a year-over-year basis, driven by strong sales, record retention levels, and same-store sales recovery.\nLooking at organic growth across the categories.\nCorporate payments was up 32% in the second quarter, led by our full AP solutions.\nWe are seeing very good success leading with our full AP and selling a more complete package versus just a stand-alone virtual card offering.\nFull AP is clearly what we prefer to sell, so we've reoriented our combined sales force with this focus, and it's paying off.\nT&E card revenue was up 58% year-over-year, rebounding significantly as business activity and travel began to resume.\nThis T&E description is a bit of a misnomer, as it's really a multipurpose card that can be used as either a purchasing card or is walk-around plastic, depending on how the customer wants to use it.\nAnd while spending within T&E-related categories has rebounded, it's still below historical levels.\nSo there's clearly room for further improvement there.\nCross-border revenue was up 25%.\nThese results do include one month of AFEX with pro forma results for Q2 last year, so which is if we owned it in both periods.\nAnd finally, virtual card revenue was up 13%.\nBoth of these areas are still affected by COVID softness in industries that we've discussed before, like airlines, cruise operators, hotels and restaurants, international trade and commercial construction to a lesser extent.\nWe do believe much of this softness is recoverable, but the timing is hard to predict.\nFuel was up organically 19% year-over-year with strong retention trends and record digital sales helping to drive the performance.\nWe still see opportunities for further softness recoveries in fuel once the labor shortage affecting our large trucking fleet customer subsides and offices reopen more broadly so our white-collar commuters can return to normal activity levels.\nTolls was up 9% compared with last year and showed impressive performance in light of the lockdowns in place for much of the quarter.\nThis growth was driven by record first half tag sales, demonstrating the value proposition and attractiveness of our offerings even when many folks aren't driving on the roads.\nAnd approximately one quarter of all consumer tags sold year-to-date are signed up to urban plans, which allow purchases beyond tolls, such as for parking, fueling and fast food.\nWe also added 25% more fuel stations to our tag acceptance network during the first half with plans to add another 50% during the second half.\nThe combination of urban tag sales and non-toll network expansion should produce beyond total volume growth as lockdowns ease and consumer activity increases.\nLodging was up 39%, with workforce up 36%.\nThe pace of improvement in workforce lodging has leveled off some as customers are being held back by the labor shortage, but we feel this volume will come back over time as the labor market normalizes.\nAirline lodging was up 49% as domestic air travel recovered faster than expected but still remains below historical norms.\nInternational airline lodging should come back as international air travel recovers.\nSo despite the sizable recovery in lodging, we still see upside potential here.\nGift organic growth was 22% year-over-year, benefiting from continued retailer embrace of the online sales channel.\nWe expect this trend to continue as we are experiencing success with gift clients using our proprietary platform to sell both digital and physical cards online.\nIn fact, we expect to double the number of clients utilizing this platform by year-end.\nMomentum in mobile wallet services and B2B sales, where third parties sell gift cards to companies for use as employee incentives and rewards, are also contributing to the improvement.\nLooking further down the income statement.\nOur operating expenses were up 18% to $370 million, totaling 55% of revenue.\nThe increase was primarily due to higher levels of business activity, the effect of currency translation impact on international expenses and acquisitions.\nWe've also made incremental investments in digital sales and top-of-funnel marketing efforts and incurred some non-recurring integration-related expenses for AFEX, such as severance and platform migration costs.\nOperating margins improved four points from last year to 45% due to recovering volumes that have higher margins, higher fuel prices, and solid expense control.\nIn the quarter, bad debt was $6 million or two basis points.\nCredit performance continues to be strong, although we do expect our bad debt to normalize as our new sales improve and grow.\nInterest expense increased 7% to $34.7 million due to a $6.2 million charge associated with our debt refinance, a higher balance on the new Term B note, partially offset by lower borrowings on our revolver and lower LIBOR rates on the unhedged portion of our debt.\nOur effective tax rate for the second quarter was 25.2%, similar to last year, and reflects a $6.5 million adjustment to our deferred tax position due to a rate change in the UK.\nIn our guidance, we are increasing our expected tax rate for the year given this adjustment and an assumed lower level of excess tax benefits on stock option exercises in the second half.\nNow, turning to the balance sheet.\nWe ended the quarter with $1.3 billion of unrestricted cash.\nWe also had approximately $1.2 billion of undrawn availability on our revolver.\nIn total, we had $4.1 billion outstanding on our credit facilities and $1 billion borrowed on our securitization facility.\nAs of June 30th, our leverage ratio was 2.62 times trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement.\nWe repurchased approximately 926,000 shares during the quarter for $246 million at an average price of $266 per share.\nThe Board increased our share repurchase authorization by $1 billion on July 27, which now gives us $1.6 billion of share buyback capacity.\nNow, even including the recent buybacks, the AFEX closing, and the pending ALE deal, we still have low leverage and ample liquidity for additional deals and/or buybacks.\nOur high margin, high cash flow business, which generated $268 million of ANI this quarter quickly replenishes capital, allowing us to pursue attractive buying opportunities as they present themselves.\nNow, let me share some thoughts on our outlook.\nWe are raising our full year revenue guidance to between $2.74 billion and $2.79 billion, which is up over $100 million at the midpoint.\nWe are also raising our adjusted net income per diluted share guidance to between $12.80 and $13 or $12.90 at the midpoint.\nAFEX is a big contributor as is a better macro environment in addition to volumes that improved faster than we expected in the first half of the year.\nWe continue to be encouraged by our strong sales and retention trends and currently expect COVID volume recovery to continue through the second half of the year.\nWe are being mindful of the potential impact from the Delta variant, and we'll adjust our outlook and operations as necessary.\nWe are expecting Q3 2021 adjusted net income per diluted share to be in the range of $3.35 to $3.55.\nI would note that our guidance does not include the impact of the ALE acquisition that we just announced.\nWe'll update for that when we actually close the transaction.",
        "summary": "sees q3 adjusted earnings per share $3.35 to $3.55.\nq2 adjusted earnings per share $3.15.\nq2 earnings per share $2.30.\nboard increased share repurchase authorization by $1 billion.\nsees fy adjusted earnings per share $12.80 to $13.00.\nsees fy revenue $2.74 billion to $2.79 billion."
    },
    {
        "text": "Following the prepared comments, the operator will announce that queue will open for the Q&A session.\nThis information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies.\nThese statements reflect the best information we have as of today.\nAll statements about our recovery, outlook, new products and acquisitions and expectations regarding business development and future acquisitions are based on that information.\nThey are not guarantees of future performance, and you should not put undue reliance upon them.\nThese documents are available on our website and at sec.gov.\nSo up-front here, I'd like to run through four subjects: first, I'll give you my take on our Q3 results along with the rest of your outlook; second, take you into a bit deeper dive into our sales results; third, give you an update on the three acquisitions that we've completed year-to-date; and then lastly, an early preview of 2022 and beyond.\nSo let me make the turn to our Q3 results.\nWe reported Q3 revenue of $755 million, up 29% and cash earnings per share of $3.52, up 25%, so both of those all-time record highs for the company.\nAlso, the Q3 results annualized, finally above $3 billion, so past the $3 billion mark in revenue and $14 in cash EPS.\nOrganic revenue for the quarter, up 17%.\nAnd inside of that, Corporate Payments business grew 22% organically.\nThe trends in Q3 are quite good.\nSales finishing at record levels, up over 50% versus Q3 last year and over 30% against the baseline of Q3 '19.\nRetention, steady as she goes at 93% for the quarter.\nAnd again, our global fuel card business inside of that also coming at 93%.\nSame-store sales strengthened plus 5% for the quarter, which further adds to the same-store sales rebound we saw in Q2.\nCredit losses low again at three basis points, continuing to run below historic levels.\nYou may notice our tax rate kind of four points higher than last year.\nThat did shave about $0.20 off the $3.52 that we reported for the quarter.\nSo look, overall, kind of pretty pleased with the quarter.\nSo in terms of rest of the year, we're raising guidance today.\nSo revenue guidance at the midpoint now, $2.795 billion, that's up $30 million from August.\nCash earnings per share at the midpoint to $13.05, that's up $0.15 from August.\nThis raise versus last time reflects, obviously, these Q3 results are beat the ALE acquisition, which closed September one and a bit more favorable fuel prices, all of those offset just a bit by slower-than-planned COVID recovery.\nIf you look at the Q4 on its own, it anticipates revenue and profit growth up about 20% versus Q4 last year and about 10% against Q4 2019.\nLet me make the transition into a bit deeper dive into our sales results.\nSo as I mentioned, new sales or bookings reached record levels in the quarter and are up sequentially, significantly and up dramatically over the prior periods.\nSo as I'm sure you're aware, sales reflect the market demand for our solutions but are also really the best leading indicator of future prospects.\nAnd so crazy record this quarter.\nWe signed up almost 50,000 new business clients globally in Q3.\nSo 50,000 new accounts joined the fold, so a record.\nOver 50% of all of our global fuel card sales now come to us through our digital channels.\nSo great because it's very low cost.\nWe continue to increase our digital advertising spend, and we're enjoying record levels of prospects visiting our websites.\nInterest in EV solutions increasing, so a number of large accounts signing on to our EV solution.\nSo that included Hertz, Volkswagen USA, Union Pacific, LeasePlan Europe and Siemens.\nBrazil toll sales rocked in the quarter.\nOur urban sales or kind of the city dwellers that are lower frequency toll users represented 23% of all new sales in the quarter.\nSo programs, whatever, two or three years old now, almost a quarter.\nAnd the active tags for the quarter reached a new milestone, six million, so six million active paying tags now in Brazil.\nWe are planning to launch our new bank JV this month with the largest bank in Brazil, who will be helping to promote our products.\nWe don't talk about it much, but our customer acquisition cost is really quite attractive, runs about 65% of the sales new revenue, so really super important for profitable growth.\nSo let me shift gears and talk a little bit about the three acquisitions that we've closed year-to-date and how they're doing.\nSo Roger, first up.\nWe've now rebranded Roger to be Corpay One, which is our entry into the Corporate Payments SMB space.\nSo we're underway now adding new SMB bill pay clients through digital channels and accounting channels, and have some early returns on cross-selling bill pay into our fuel card base.\nSo super early, but it looks like about 10% of our fuel card clients that pay their bills with our new Corpay One platform are choosing to pay a second non-fleet Cor bill with us, so effectively becoming bill pay customers.\nWe're looking at somewhere around 10,000 to 20,000 SMB bill pay clients coming online in 2022.\nAnd also interesting, we plan to launch what we call our 2-in-1 solution before year-end that will combine our smart business cards with our bill pay platform into one interface.\nSo an SMB client could potentially pay all of their nonpayroll expenses with us on a single platform.\nSecond deal this year, AFEX, which is a cross-border provide, very similar to our Cambridge business.\nSuper performance in '21.\nPro forma revenue growing mid-teens.\nEBITDA up almost 50% versus prior year.\nWell along on integration, we've already combined the management teams into one group, and are about halfway through migrating the AFEX customers onto the Cambridge IT platform.\nSo I hope to retire most of the AFEX IT system by year-end.\nLast deal up is ALE.\nThat's the lodging extension for the insurance vertical.\nIt helps homeowner insurance place policyholders into hotels and temporary housing.\nSo we closed at September one about 3.5 million incremental annual hotel rooms, will be added to our lodging business.\nUnderway with the synergy work.\nAnd early view is about $0.20 accretive to 2022.\nSo, so far, so good really across all three transactions this year.\nSo lastly, let me share our view, early view of 2022, and speak a little bit to the beyond '22 prospects for the company.\nSo for next year, encouraged by a few things.\nFirst, the run rate, we're exiting '21 with about $3 billion of annualized revenue and $14 of cash EPS.\nSo nose of the plane is up.\nSales again, running at record levels, which will drive incremental revenue into '22.\nWe also expect sales to grow again next year about 20%.\nMacro is on our side, helping us.\nObviously, fuel prices are high.\nFX is generally holding, so setting up well there.\nAnd then I mentioned the acquisitions, particularly AFEX and ALE, together contributing probably about $0.50 of incremental accretion next year.\nSo look, taken together, the early 2022 set up is quite good.\nIf we look just a little farther out into the midterm, we're kind of also encouraged there for a couple of reasons.\nSo first, we've expanded, via our Beyond strategy, the market segments or the served market segments in each of our five major lines of business.\nSo that's laid out on, I think, page 14 of the earnings supplement.\nSo for example, in Corpay, our Corporate Payments business, we've added cloud-based AP solutions to our original virtual card business.\nSo we did that a couple of years ago in the middle market with Nvoicepay, and then obviously, this year, in the SMB market with Roger.\nSo look, much, much better positioned now to attack the Corporate Payments TAM.\nAnd then again, if you look at our lodging business initially focused only on workforce or blue collar travelers going to economy hotels.\nSince we've added two new segments, the airline crew business and now the insurance policyholder business of the fold, that really triples the opportunity in terms of room nights for the lodging business.\nA second thing is we're on a path, as I mentioned, to combine our card business with our payables business into a single platform, which would do two things: first, give us differentiation in the marketplace, where we can help clients pay all their nonpayroll expenses with us, both walk-around purchases and supplier payables from a single account; and second, could help us turn our fuel card business into a Corporate Payments business by cross-selling our bill pay services to our hundreds of thousands of fuel card clients.\nSo as I mentioned, underway there.\nSo look, the combination of expanding our served market segments in our existing five businesses along with this idea of joining up our cards and bill pay onto a single platform is encouraging for us.\nSo look, in closing, just a few final wrap-up thoughts.\nSo again, a really good quarter, record revenue and profits for Q3, good trends, same-store sales up -- sales -- new sales up and retention steady, again, record sales and very attractive cost of acquisition of new accounts.\nthree acquisitions on track against our thesis, and our early '22 set up attractive.\nSo look, all-in-all, it feels like we're in a pretty good place.\nI'm delighted to share with you some more color on a very solid clean quarter.\nFor Q3 of 2021, we reported revenue of $755 million, up 29%; GAAP net income of $234 million, up 24%; and GAAP net income per diluted share of $2.80, up 28%.\nAdjusted net income for the quarter, or ANI, increased 22% to $294 million or roughly $1.2 billion annualized.\nANI per diluted share increased 25% to $3.52.\nOrganic revenue growth was 17%, driven by continued strong sales, solid retention levels and same-store sales recovery.\nLooking at organic growth across product categories.\nCorporate Payments was up 22% in the third quarter, highlighted by full AP, which grew over 50% again this quarter.\nCorpay One, our small business-focused full AP offering, grew 78%.\nSo our full AP solutions continue to sell well in the market.\nCross-border revenue was up 19%, which showed some softness from the lockdowns down under in Australia.\nWe do believe much of this softness is recoverable, but the timing is hard to predict.\nThe AFEX integration is progressing quite well, and we've converted more than half of its customers onto our existing cross-border payment systems.\nWe expect to convert the remaining customers before year-end.\nAnd within B2B, a lot of attention has been paid to new small entrants, several of which we enable with our partner program using our best-in-class virtual card.\nThe partners we enable own the customer relationship, do the marketing and take the credit risk, so they keep most of the economics.\nWe're more of a processor to them.\nSo our take rate is meaningfully lower than when we go direct to customers, which is really where we tend to focus most of our sales and marketing efforts.\nSo while these partners drive some volume growth, they still only represent about 13% of our Corporate Payments revenue.\nFuel was up organically 13% year-over-year, with strong retention trends and record digital sales continuing to drive the performance.\nWe're seeing some softness in same-store sales as Australia, New Zealand and parts of Continental Europe are still grappling with COVID-related lockdowns, and over-the-road trucking is facing the driver supply shortage that's been all over the news.\nBut despite these headwinds, our fuel businesses continued to grow in every geography as a result of our sales efforts and strong retention rates.\nTolls was up 14% compared with last year and showed impressive performance again this quarter, growing to above six million total tag holders, with five million consumer tags and one million business tags.\nNow just for context, the business had approximately 4.5 million total tag holders when we acquired it back in 2016.\nEconomic and business activity has returned to relatively normal levels in Brazil, which has increased customer mobility and sales traffic through retail and toll locations, helping us to achieve record Q3 sales.\nLodging was particularly strong, up 40%, with airline lodging up 61% on the back of the recovery in domestic air travel.\nWe hope to see more recovery in international airline lodging as borders reopen.\nGift organic growth was 25% year-over-year, benefiting from continued retailer embrace of the online sales channel.\nNow looking further down the income statement.\nOperating expenses were up 30% to $417 million and were 55% of revenue, stable with last year.\nThe increase was primarily due to higher levels of business activity, the effect of currency translation impact on international expenses and acquisitions.\nInterest expense decreased 7% to $29 million, primarily due to higher interest income earned on cash balances and lower LIBOR rates more than offsetting higher debt and securitization balances.\nAs Ron mentioned, our effective tax rate for the third quarter was higher than expected, coming in at 24.1%.\nThis was due to fewer stock option exercises during the quarter likely due to the low share price, which resulted in minimal excess tax benefits.\nWe currently expect our tax rate in Q4 to be back within our full year guidance range.\nNow turning to the balance sheet.\nWe ended the quarter with $1.3 billion of unrestricted cash, and we also had approximately $650 million of undrawn availability on our revolver.\nIn total, we had $4.6 billion outstanding on our credit facilities and $1.1 billion borrowed on our securitization facility.\nAs of September 30, our leverage ratio was 2.76 times trailing 12-month adjusted EBITDA, as calculated in accordance with our credit agreement.\nWe used $406 million to repurchase approximately 1.6 million shares during the quarter at an average price of $260 per share.\nWe still have $1.18 billion of share buyback capacity in our program.\nSo far this year, we've bought back 3.1 million shares and we've closed three deals, putting $1.7 billion of capital to work.\nOn top of that, we still have low leverage and ample liquidity for additional deals and/or buybacks, clearly demonstrating the earnings power and attractiveness of our high-margin, high-cash flow business.\nI would also like to mention that we expect to publish our latest ESG report to our Investor Relations website within the next few weeks, and we'd be happy to take your feedback on our ESG efforts after you've had a chance to review that report.",
        "summary": "q3 adjusted earnings per share $3.52.\nq3 revenue rose 29 percent to $755.5 million.\nsees fy earnings per share $13.05.\nq3 earnings per share $2.80."
    },
    {
        "text": "On a per share basis, first quarter earnings were $1.93 compared to a loss per share of $1.06 last year and earnings per share of $1.52 for the first quarter of 2019.\nThis year's quarter includes pre-tax charges of $2 million related to the impairment of one of the company's minority investments, and $2 million primarily related to severance costs in connection with the reorganization of certain support functions.\nExcluding these items, first quarter non-GAAP earnings were $1.96 per share, a significant reversal to the loss per share of $0.67 for the first quarter of last year and up 28.1% compared to earnings per share of $1.53 for the first quarter of 2019.\nWe're excited to have him on board.\nLast quarter, I talked about entering our fiscal 2021 momentum.\nThat was certainly the case in our first quarter.\nAnd the momentum gained strength as the quarter progressed, enabling us to deliver exceptional top line and bottom line results, even against the ongoing challenges of store closures in Europe and Canada and congestion at the U.S. ports, leading to abnormally lean inventory levels.\nOn a sequential basis, comps dramatically accelerated through the quarter, led by our stores.\nA mid-teens decline in February due mainly to launch calendar shifts and tax refund delays gave way to strong triple-digit gains in March and April as we lapped the onset of the COVID pandemic last year and the disruption caused by the shutdown of our store fleet.\nBut our stores weren't the only highlight.\nOur digital business also remained quite strong, up 43% on a comp basis and landing at a penetration rate of 25% of our total sales, which was higher than our expectations coming into the quarter.\nPerhaps more impressively, even with the challenges I mentioned, our sales performance was not only strong relative to last year's unprecedented first quarter, but also versus Q1 2019, where we saw low single-digit growth versus a strong result that year.\nAthleisure and fitness consumer trends continued to drive strong demand across genders and families of business.\nAlthough our inventory levels were lower than we would have liked, the composition and quality of goods was fresh, and our consumers responded very well to our merchandise assortments.\nThis resulted in higher inventory productivity and significantly less promotional activity, enabling us to deliver healthier margins and a truly impressive bottom-line performance.\nFinally, we believe U.S. government stimulus and tax refunds provided incremental positives in the quarter.\nThis stellar performance would not have been possible without all of the associates whose dedication to the success of our company and whose passion for creating incredible experiences for our customers drives our business every day.\nI often say we have the best team in retail, and our performance in Q1 serves as a testament to the strength of our team.\nAs we expected, COVID-related restrictions pressured our business in Europe throughout Q1, as the EMEA fleet was opened only 39% of possible operating days in the quarter.\nBut omnichannel growth was positive, nonetheless.\nAnd in pockets where lockdowns began to ease, such as the U.K., we saw pent-up demand drive growth at the store level as well, leaving us optimistic that the trend will continue as the region opens back up.\nTo that end, we continue to break exciting new ground in Europe, including today's opening of our first high-profile store in Barcelona.\nThe store features dedicated women's and kids' spaces, local artwork and curation and enhanced connectivity, including a digital interactive zone and BOPIS lockers.\nAdditionally, we refreshed several stores across EMEA during Q1, with upgrades to fixtures, layouts and light touch improvements as we anticipate the broader reopening of the economy in EMEA.\nLooking ahead, we continue to have strong product tailwinds, led by the culture of basketball and footwear, comfort trends in apparel and new and exciting strategic brands in our portfolio, which Andy will talk to in more detail.\nWhile we continue to manage against the remaining port delays and gradual reopening's in Europe and Canada, these are transient issues, and we remain optimistic about our prospects as we move through the year.\nAs it relates to the West Coast ports, there's some good news to share.\nInventory flow and receipt velocity did improve as delays began to ease through the first quarter, and we expect further improvement in Q2, which should reflect positively on our inventory levels.\nIn the meantime, we have been working with our vendor partners to utilize ultimate ports and expedited rail and truck services to accelerate the flow of goods.\nNow let me provide an update on our strategic initiatives and technology milestones.\nWe continue to see enrollment increase with over 20 million members now enrolled in the countries where the program is active.\nWe also continue to refine the KPIs that will define success for FLX moving forward, including customer retention and satisfaction.\nIn addition to growing membership in 2021, we will also focus on expanding into additional countries, driving engagement and incremental spend by connecting in more relevant ways with our customers and integrating FLX deeper into the customer experience at Foot Locker, Inc., adding value to programs like BOPIS and Launch Reservation.\nNow for some highlights on our key technology initiatives.\nFirst, we continued to build on our new payments platform, adding Adyen, Giropay, and Clearpay to our selection of payment options in Europe.\nProviding increased convenience and flexibility for our consumer remains an imperative for us, and these new options will complement the successful rollout of Apple Pay and Google Pay last quarter.\nSecond, as part of our digital commerce transformation, we deployed new websites in four additional European countries: the U.K., Netherlands, Germany and France, that build off the modernized platform we launched in North America last year.\nThe new sites are easier to personalize to local markets, less costly to maintain and better leverage data analytics.\nFinally, we expanded the SKUs we offer on Eastbay as part of the Nike dropship program we announced in February, and we're working toward getting additional banners up on the program in the coming months.\nHaving the right product at the right time is fundamental to our business.\nThis program is one step toward providing more flexibility to meet customer demand.\nNow I'd like to discuss an important update on our organizational evolution.\nWe've talked a lot about how the accelerated shift to digital throughout pandemic pushed us to more quickly adapt to our consumers' changing preferences and to create stronger connections with them.\nIt's also led us to proactively accelerate our initiatives to optimize our real estate portfolio in our best-performing banners and across the most valuable locations to competitively position our store fleet for the future.\nThe decision to shutter Runners Point in Europe during 2020 is an example of this ongoing effort, as was the decision in the U.S. to more closely align Champs Sports and Eastbay.\nWith that in mind, during the second quarter, we have made the strategic decision to wind down our Footaction banner over the next two years and focus our resources on our iconic concepts: Foot Locker, Kids Foot Locker, Champs Sports and Eastbay.\nWe are currently in the process of assessing the Footaction fleet to determine the best decision for each location.\nFirst, as we've discussed on prior calls, the flexibility we have with respect to our portfolio management will allow us to take advantage of a number of lease expirations over the next two years.\nSecond, we plan to convert approximately one-third of the top-performing Footaction locations into new Foot Locker stores, establishing a bolder women's and kids presence as well as new Champs Sports and Kids Foot Locker stores.\nWe are excited about the opportunities to expand our women's and kids presence within our Foot Locker and Champs Sports banners.\nBut a decision like this is never easy.\nThrough their contributions, we've gained valuable learnings and consumer insights.\nAs we look ahead, we see this as an opportunity to strengthen our global portfolio of brands, increase our value to our shareholders and vendor partners and ultimately position Foot Locker, Inc. to better serve our consumers in a post-COVID marketplace.\nAs part of our broader brick-and-mortar strategy, we will also continue to flex our powerful and expansive real estate portfolio to our advantage to accelerate our pivot off-mall, while continuing to invest in our community and Power Store assets.\nWe also intend to grow the Champs Sports homefield concept, with extended assortment for men's, women's and kids that will expand to include lifestyle and performance categories.\nIt truly speaks to the power of this category and our consumers' appetite for cool, premium product.\nFor over a year now, we have been tested by the COVID pandemic and have prevailed as a leader in our industry.\nMost importantly, COVID has taught us to innovate, to move faster and to go above and beyond for our consumers as we strive to inspire and empower youth culture.\nMany parts of the world are still dealing with lockdowns due to emerging COVID variants and the uneven vaccine distribution.\nWe continue to feel that impact on our business in Europe and Canada, where roughly 230 stores are temporarily closed.\nThat said, there's a lot to be excited about right now in our business and industry.\nTrends and momentum are strong.\nOur strategic direction and focus have never been sharper.\nOur financial position is in excellent shape and our bench of talent is deep.\nI'm confident in our team's ability to take advantage of the many opportunities we see as the year progresses and the world continues to recover.\nWith that, let me pass it over to Andy.\nI'm looking forward to the partnership ahead.\nThroughout the quarter, we remain focused on our strategies to strengthen our competitive advantages, while reinforcing our existing relationships and bringing new consumers into our business.\nWe did that by building on three key areas of strength: Our product leadership and diversity; continuing to create a pipeline of new products, new brands, new categories and new ideas to excite our consumers; our omni experiences, utilizing our global scale and investments to enhance and further connect the digital and physical journey for our consumers; and our commitments to our communities, being of the community and in the community, and personalizing our relationships to make a meaningful impact on our consumers' lives.\nAll of that was evident in the first quarter as we delivered new products, new content and new experiences to delight our consumers.\nIn total, all our families of business were strong.\nOur footwear business increased over 70%, while our apparel and accessory businesses were both up triple digits.\nBoth families of business also increased as compared to 2019.\nThe strength in footwear was broad-based with gains across all regions, led by North America and Asia Pacific.\nSimilarly, we saw strong double-digit increases across men's, women's and kids' footwear, with our women's business driving the largest gain.\nBy category, men's basketball continued to see healthy momentum, delivering a high double-digit increase led by the Jordan brand, key Nike icons and some compelling new initiatives by Puma and Reebok.\nAdditionally, we brought new consumers into the business with an increased focus on our seasonal category.\nThis helped to drive a triple-digit increase with gains in UGG, BIRKENSTOCK and new brand introductions, including Crocs.\nMeanwhile, men's running increased strong double digits, led by the key franchises of Max Air, Adidas Nomad, Puma RS-X and strong momentum in our partnership with New Balance.\nIt was also a strong quarter for our apparel business, which was up triple digits compared to the first quarter of last year and up double digits versus the first quarter of 2019.\nMen's and kids led the way up triple digits, while women's increased strong double digits.\nThe casualization of society remained the catalyst for our business, and we saw all major categories increase, with shorts driving the largest gain with momentum across many brands, including our own.\nAnd across all product areas, our customers continue to respond well to elevated storytelling, with our consumer concept offense delivering exciting exclusive programs.\nThese included, City to the World from Nike, and All Day I Dream About Sneakers with Adidas, which both feature unique versions of their respective iconic silhouettes.\nWe also partnered with We Need Leaders and New Balance to pay homage to the leaders of the street running movement, and we created some fun with our Sesame Street and Champion collaboration.\nLooking ahead, there's a lot coming to market to keep our consumers engaged.\nThe culture of basketball remains strong with new launches from Adidas, Puma and New Balance bringing further dimension to the category.\nWe are continuing our seasonal expansion with UGG, Crocs, Converse and Vans, and we have a very strong pipeline of ideas and inventory in apparel to maximize the ongoing momentum in the category.\nAnd we will continue to enhance our storytelling in Q2 through our celebration of the 25th anniversary of the Griffey 1 with our Nike concept and our second installment of All Day I Dream About Sneakers with Adidas.\nWe also have exciting collaborations in the pipeline with the likes of Kids of Immigrants and Vans, Louis de Guzman and New Balance, and Puma and White Castle, to name a few.\nBeyond product, I also remain enthusiastic about our community initiatives and how we continue to lead with purpose and extend our community stores across the globe and expand our local geo teams to ensure that we are more deeply rooted in the neighborhoods we serve.\nThat includes local experiences, local products and local give back.\nAnd we continue to bring this to life with the openings of Foot Locker and Kids Foot Locker in Old Spanish Trail in Houston and Champs Sports in the Oakbrook Mall in Chicago.\nWe also continue to fuel the future of our industry for the next generation of creators through our greenhouse incubator and our homegrown and lead initiatives.\nOn the latter, in addition to our work to advance education and economic opportunities for the black communities we serve, we have also established partnerships with 45 new black-owned brands and creators to provide a platform to showcase their design collaborations this year.\nNext to that, we also continue to invest in growing our membership and enhancing our consumer journey through the geographic rollout of FLX and adding millions of new members to our business in Q1, expanding our dropship initiative, elevating our mobile app experience, enhancing our buy online and pickup in-store journey, providing new payment options and much more, all to better serve our consumer.\nSo a lot of work against our key strategic initiatives as we continue to push our consumer offense forward.\nIt's a combination of product leadership and diversity, our enhanced omni capabilities and our focus on community and purpose that will keep us moving forward and strengthen our relationship with our consumers.\nLet me now pass the call over to Andrew.\nIt is my pleasure to join you today to discuss our first quarter results.\nAs a consumer of this brand, Foot Locker always stood out to me as a source of inspiration and empowerment of youth culture.\nNow as a member of the Foot Locker family, this is more evident than ever, and I see that passion in all that we do.\nIn my short time with the company, my observations have reaffirmed my belief that this is a very special organization, one that is positioned for ongoing success and value creation.\nIt's no secret that the retail environment is rapidly changing.\nThe pandemic has only accelerated the change.\nEverything from the customer journey, the process of discovery and the magnitude of digital engagement has evolved and intensified.\nIt's clear to me that our team is focused on key initiatives that amplify the consumer experience across all of our touch points.\nSupporting our transformative initiatives is our financial position, which is as strong as it's ever been and will allow us to remain opportunistic as we pursue our strategic plans.\nNo doubt, there are challenges that stand before us, as well as key strategic decisions, such as the rationalization of our real estate portfolio that Dick mentioned earlier.\nBut as we continue to emerge from the pandemic, our objectives will center around executing our growth strategy, amplifying our unique value proposition to our consumers and vendor partners and returning value to our shareholders.\nLet me say once again: I'm glad to be here working with Dick and the broader team, and I look forward to sharing more as we continue to evolve the omnichannel retail experience for our consumers.\nBefore we get into the numbers, I'd like to note that in addition to comparing our results to last year, I will also reference comparisons to the first quarter of 2019 where it's helpful.\nNow let's talk about our performance in the first quarter.\nWe delivered exceptionally strong top and bottom-line results in Q1, especially when considering the impact the pandemic continue to have on our operations.\nOur comp sales increased 80.3% in spite of store closures in Europe and Canada and supply chain pressures in the U.S. and EMEA.\nThe combination of robust demand for our assortment and lean with fresh inventory composition led to significantly lower levels of promotional activity this quarter.\nAs a result, we had strong gross margin recovery compared to Q1 of 2020 as well as expansion versus Q1 of 2019.\nThis, coupled with leverage on our SG&A expense, drove a meaningful swing in first quarter earnings per share versus last year's loss and a nearly 30% increase over Q1 of 2019.\nTaking a closer look at our results.\nTotal sales increased 83% over last year and 3.6% over Q1 of 2019.\nOn a constant currency basis, sales increased 79% over Q1 of 2020.\nThe strength was primarily driven by our stores, which increased 99%.\nLet me remind you that our fleet was open 83% of potential operating days in the quarter versus 48% last year.\nWhile our U.S. and Asia Pacific banners were essentially fully opened, EMEA and Canada continued to face pressure due to COVID restrictions, opened roughly 39% and 75% of potential operating days, respectively.\nOur direct-to-consumer channel remained quite healthy as well, with sales up 47% as customers truly embraced our omnichannel offering.\nDTC was 25% of total sales for the quarter compared to 31% last year.\nDespite being much less promotional, average selling prices were down low single digits in the quarter, while units nearly doubled.\nThe decline in ASP was driven primarily by product mix.\nWe had a higher level of apparel and accessories in our mix this year versus last year.\nIn general, apparel and accessories carry lower ASPs than footwear.\nIn addition, we lapped last year's strong digital performance, which was heavily penetrated in footwear.\nClicking down to our regions.\nNorth America saw impressive growth nearly across the board, led by Champs, where comps increased triple digits.\nThe rest of the U.S. banners follow with comps up over 90% and Foot Locker Canada posted a low 70% gain as it contended with store closures as we previously discussed.\nEastbay was up middle single digits for the quarter, which was an improvement from recent trends.\nThe gradual return to group sports participation sparks sales of hard goods and team performance products.\nRecall, that unlike our other banners, Eastbay did not comp against store closures last year.\nFoot Locker Asia delivered a triple-digit comp gain, while Foot Locker Pacific increased in the mid-90% range.\nDespite extensive COVID restrictions, Foot Locker Europe still posted a high 30% comp increase.\nSidestep, which experienced the most store closures, decreased in the high teens.\nEncouragingly, the direct businesses remained very strong for both banners.\nMoving down the income statement.\nGross margin was 34.8% compared to 23% last year.\nWhen compared to a more normal Q1 2019, gross margin improved 160 basis points.\nOur merchandise margin rate improved 250 basis points over last year and 80 basis points over 2019, as the meaningful reduction in markdowns more than offset the higher freight expense that comes with increased penetration of digital sales.\nLooking ahead, we expect the promotional environment to remain favorable through most of the year, but to a lesser extent than what we experienced in Q1.\nAs a percent of sales, our occupancy and buyer's compensation returned to more normal levels versus last year's abnormally high rate.\nInclusive of approximately $5 million of COVID-related rent abatements in the quarter, our occupancy costs leveraged 80 basis points over Q1 of 2019.\nOur SG&A expense rate came in at 19.4% of sales in the quarter, as our strong sales results provided us with 750 basis points of leverage over last year and 60 basis points of leverage compared to 2019.\nIn addition to careful expense control, we received approximately $10 million in government subsidies, which partially offset nearly $2 million of incremental PPE expense and 90 basis points of higher bonus expense.\nFor the quarter, depreciation expense was up slightly to last year at $45 million.\nNet interest expense increased $1 million compared to last year due to lower levels of interest income on our cash balance.\nWe previously disclosed, given the considerable improvement in credit markets, we amended our credit facility, which will result in lower fees moving forward.\nOur tax rate came in at 28.7% versus 22% in Q1 last year.\nWe ended the quarter in a strong liquidity position with over $1.9 billion of cash, an increase of $951 million as of the end of Q1 last year.\nOur higher inventory turn and slower receipt flow rate was a significant source of cash, building upon the cash we accumulated through our preservation efforts last year.\nWe currently have no outstanding borrowings on our $600 million credit facility.\nAt the end of Q1, inventory was down 30% compared to last year.\nHowever, keep in mind that at the end of Q1 2020, our inventory was up 20%, which was due to the elevated store closures resulting from the pandemic.\nWe expect our inventory levels to begin building back up in Q2.\nWe invested approximately $51 million into our business during the quarter.\nThis funded the opening of 12 new stores as well as the remodeling or relocating of 15 stores.\nWe also closed 58 stores in the quarter, primarily in the U.S., leaving us with 2,952 company-owned stores at the end of Q1.\nFor the full year, we now expect to open approximately 160 stores, remodel or relocate 120 and close 240.\nThese amounts reflect the Footaction stores we plan to close or reposition in 2021.\nLooking ahead, we are tracking toward approximately $275 million in capital expenditures this year, in line with our prior guidance.\nIn terms of shareholder returns, we paid out $21 million in dividends this quarter and repurchased approximately 620,000 shares for $34 million.\nGiven the ongoing uncertainty of the pandemic and its continued impact on our visibility across our global portfolio, we are not providing detailed guidance at this time.\nHowever, the following directional considerations for Q2 and the full year may be helpful.\nFor the second quarter, looking at sales, keep in mind that our comps were up nearly 19% last year in what is historically our lowest volume quarter of the year.\nThis was due to pent-up demand, high promotional activity and government stimulus.\nDue to delays in inventory receipts in Q1 of the current year, some sales have shifted into Q2; and as a result, we expect Q2 total sales to be relatively in line with last year.\nWith respect to gross margin, given the level and freshness of our inventory, we expect less promotional pressure on merchandise margins as compared to Q2 last year.\nPlease keep in mind that we face a $6 million headwind for rent abatements we obtained in Q2 last year.\nCompared to the second quarter of 2019, we expect to see some modest gross margin expansion.\nWith respect to SG&A, bear in mind, our strong Q2 sales last year helped to provide leverage beyond our expense management efforts.\nWe anticipate SG&A to be elevated compared to 2020 as we lap the unique elements that benefited Q2 last year, including $17 million in government subsidies and reduced store operating costs.\nGiven our strong start to fiscal 2021 and assuming a continued recovery from the pandemic, our current high-level expectations for the full year are as follows: total sales to increase at a low double-digit to low teens rate over fiscal 2020; meaningful gross margin expansion over fiscal 2020, largely reflecting a more rational promotional environment.\nWhen compared to fiscal 2019, we expect to see modest gross margin improvement.\nSG&A rates to be roughly in line with fiscal 2019.\nLooking at our non-GAAP tax rate, for the full year, we expect it to be lower than fiscal 2020 but somewhat higher than fiscal 2019.",
        "summary": "foot locker q1 non-gaap earnings per share $1.96.\nq1 non-gaap earnings per share $1.96.\nq1 earnings per share $1.93.\nq1 same store sales rose 80.3 percent.\nfoot locker - in q2 2021, company decided to convert about one third of its footaction stores into other existing banner concepts over course of year.\nco will close majority of remaining footaction stores as leases expire over next two years.\nnot providing detailed full-year 2021 guidance at this time."
    },
    {
        "text": "On a per share basis, second quarter earnings were $4.09 compared to earnings per share of $0.43 last year and earnings per share of $0.55 for the second quarter of 2019.\nDuring the second quarter of 2021, the company recorded adjustments to earnings, including $303 million of noncash gains related to our minority investments, of which $290 million was related to a higher valuation for the company's investment in GOAT and a $39 million charge was due primarily to the impairment review of Footaction.\nOn a non-GAAP basis, earnings were $2.21 per share, up over 200% compared to earnings per share of $0.71 for the second quarter of last year and compared to earnings per share of $0.66 for the second quarter of 2019.\nAndy Gray, Executive Vice President and Chief Commercial Officer, will then provide additional insights into the business drivers in the quarter.\nAndrew Page, Executive Vice President and Chief Financial Officer, will then review our second quarter results and provide guidance for the current fiscal year.\nWe are pleased to report that our momentum continued into the second quarter, leading to excellent top and bottom line results that reflect the health of our category, the deep engagement we have with our customers and the strategic nature of our vendor partnerships.\nThe broad-based growth was driven by strong performances in women's and kids footwear, coupled with strong demand across apparel and accessories.\nIn addition, with further gains in our inventory productivity and meaningfully low levels of promotional activity, we were able to deliver significant margin gains in a truly impressive bottom line performance.\nFor the second quarter, our global fleet was open for approximately 94% of possible operating days with temporary closures in Canada, certain markets in Asia and Germany.\nWith economies reopening to a greater extent throughout most of the markets in which we operate, we saw a low double-digit lift in traffic compared to fiscal 2020, which demonstrates the ongoing importance of our stores, where our customers enjoy spending time after connecting with us digitally.\nTogether with the strength of our stores, our digital channels also drove important connections with our customers.\nOur digital sales penetration rate was 20.1%, normalizing from the peak levels we saw in 2020 while remaining well above 2019 levels, a trend we expect to continue going forward.\nI'm proud of the great progress our teams have made against the ongoing challenges created by the COVID-19 pandemic, delivering great customer experiences despite lean inventory levels and temporary store closures in certain countries.\nTurning now to some highlights of our three geographies.\nIn North America, our Kids Foot Locker and Champs Sports banners led the way with double-digit comp gains on top of last year's double-digit increases.\nOur U.S. fleet was open close to 100% of the possible operating days, while our Canadian business was impacted by closures in Ontario, resulting in doors being opened approximately 70% of possible operating days.\nWe are also making meaningful progress on our North America portfolio and fleet transformation strategy.\nAs we discussed last quarter, we made the strategic decision to wind down our Footaction banner by the end of fiscal 2022 and focus our resources on our core concepts.\nWe just completed our first Footaction store conversion, reopening it as a Foot Locker format.\nAnd we have approximately 50 more conversions planned for the back half of the year, along with 130 Footaction store closures.\nIn EMEA, pent-up demand drove growth as stores reopened across all countries, leading to a double-digit comp gain at Foot Locker Europe.\nAltogether, our EMEA fleet was open 87% of possible operating days in the quarter compared to 70% in the second quarter of last year and a meaningful improvement from the 39% in the first quarter of this year.\nOur APAC region delivered another solid quarter, also overcoming challenges related to COVID, with the fleet opened approximately 80% of possible operating days compared to over 90% in Q2 last year.\nBut even with the decline in operating days, we saw a 30% comp increase in our Asia markets and a mid-single-digit gain in the Pacific region.\nWe continued to make progress in our expansion strategy within Asia in the second quarter.\nWe launched our local Foot Locker website in South Korea, which will help us connect with our customers and grow our social media following and create a stronger omnichannel business in the market.\nWe also opened two new stores in South Korea and one store in Singapore.\nIn addition, we are excited to announce that we have signed a licensing agreement to enter the Indonesia market in partnership with MAP Active, the leading brand commerce and athletic retailer in Southeast Asia.\nWe expect to launch the local Foot Locker website and open two Foot Locker locations, a power store and a core store this year, with the first store slated to open by early Q4.\nTurning to an update on FLX.\nWe continue to see our membership program gaining traction as enrollment increases.\nWe finished the second quarter with over 25 million members, up from over 20 million members at the end of the first quarter.\nWe are excited about the momentum and engagement in the program and the overall benefits it will provide to our business, including higher average spend for members versus nonmembers.\nIt's worth noting that members spent over 75% more than nonmembers in the second quarter as their average order values were approximately 10% higher than nonmembers and they shopped more frequently at our banners.\nWe are excited about where FLX is going, and we will continue to create new features and evolve the customer experience for members within existing markets while also working to launch the program in additional countries where we operate.\nOverall, these metrics are why we are optimistic about the strength of our portfolio, the power of our assortments and the loyalty of our customers.\nAndy will provide more detail around product highlights in the quarter and what we see in the pipeline for back-to-school and more broadly in Q3.\nBefore he does, I'd like to spend a few minutes discussing our recently announced agreements to acquire WSS and atmos and how we expect the addition of these two businesses to the Foot Locker Inc. family will advance our four strategic imperatives.\nYou may recall that on numerous occasions, we have articulated our commitment to our four strategic pillars in order to accelerate growth and drive greater value for our stakeholders.\nFirst, elevate the customer experience.\nSecond, invest for long-term growth.\nAnd fourth, leverage the power of our people.\nThe acquisitions of WSS and atmos fit our strategy to a tee while also tying back to our purpose, to inspire and empower youth culture and strengthening our connection to the sneaker community.\nEach transaction will be accretive, create disciplined growth and enable us to invest in platforms that will maximize value for Foot Locker shareholders.\nAs we discussed when we announced the two transactions, the addition of WSS and atmos to our brand portfolio will diversify our store footprint and product mix, provide access to complementary and differentiated customer bases and accelerate our growth both in North America and internationally.\nMoreover, together, these acquisitions will expand our ability to service the entire retail price value spectrum.\nToday, we would like to provide additional detail on how we expect these two terrific businesses to deliver significant financial benefits and drive additional value for shareholders.\nThe management team has built a strong and scalable business model, led by their off-mall real estate strategy, full family offerings, focus on the Hispanic customer and the commitment to elevating the communities that it serves.\nWe see a path to approximately $1 billion in sales in the next five years from the $425 million in fiscal 2020, driven by the differentiated WSS consumer concept that we can bring to new U.S. markets and favorable future demographics of the United States marketplace.\nIn addition to market expansion opportunities, we also have identified both revenue-generating and operating cost synergies.\nOur company's expertise in private label apparel design and sourcing, along with the utilization of our team additions speed-to-market apparel facility, present opportunities to generate incremental apparel sales for WSS.\nOur company will also deliver incremental supply chain capabilities and capacity, along with shared services operating synergies across the business.\nWSS is also well positioned for operating margin enhancements in light of its full family offering that increases basket size, a successful labor model that values outstanding customer service and expertise in choosing high-potential store locations that are well positioned to succeed.\nWe are excited to add this premium, globally recognized brand into our portfolio.\nOver the past two decades, Hommyo-san, the founder of atmos, and his team have built a digitally led and culturally connected premium lifestyle brand that sits at the center of sneaker culture in Asia and beyond.\nThis acquisition will represent a highly strategic entry point into the important Japanese marketplace with immediate scale as we continue our expansion across Asia Pacific and tap into youth and sneaker culture across the globe.\nAs many of you know, atmos has a long and storied history of iconic collaborations with a variety of strategic brand partners that create unrivaled hype in our industry.\nThey are also best-in-class when it comes to retail design and experiential stores located in key markets and shopping districts that serve as inspiring and critical touch points in the omni customer journey.\nAtmos generates over 60% of its revenue from their digital channels and has a strong global following across social media platforms.\nBoth WSS and atmos are high-growth businesses.\nWe expect that each will generate low double-digit sales growth annually over the next five years, that will, in turn, be accretive to the bottom line.\nAndrew will provide some additional color on the potential accretion in his remarks.\nWe are excited about welcoming both WSS and the atmos to the Foot Locker Inc. family and look forward to integrating these businesses for the benefit of all stakeholders.\nOne other call out I would like to make is regarding our investment in GOAT.\nDuring the quarter, GOAT closed $195 million Series F round of funding, again confirming the market's confidence in the broader sneaker category.\nWe continue to be excited about GOAT's success as they expand into new categories such as luxury apparel and accessories.\nAnd we'll continue to look for ways to work together and expand the ecosystem.\nIn short, the strength of our business has enabled us to invest in profitable growing businesses and deploy our capital effectively to drive shareholder value.\nAndrew will drill down into the numbers and discuss capital allocation and our outlook in a moment.\nBefore he does, here's my perspective as we look to the back half of the year.\nWe have positive momentum coming off of strong results from the first half.\nThat said, we're still facing several macro-level issues from the global pandemic to the knock-on effect that it is having in our supply chain.\nWe are also working closely with our strategic vendor partners to ensure our continued access to product amid the COVID-19 outbreak in Vietnam and other supply chain-related headwinds.\nBut for those things that we can control, we believe we're in a very good place to deliver positive results in the back half of this year.\nOur product pipeline, which continues to be very strong, is resonating well with our consumers.\nWe anticipate the culture of basketball will continue to be a key revenue driver in the third quarter.\nSeasonal offerings will also be very important as consumers look to diversify their footwear purchases.\nLastly, apparel trends continue to be very favorable as we enter back-to-school in the fall season.\nAnd as we consider the opportunities for back-to-school in comparison to the delayed back-to-school season last year, a more normalized cadence this year presents an opportunity to capture more of that demand earlier in the quarter.\nThat said, we are keeping a close eye on possible disruptions caused by the evolving COVID-19 situation.\nWe continue to monitor the temporary store closures across the countries in which we operate and will adhere to government mandates.\nWe look forward to getting our store fleet back to full strength and meeting the pent-up demand we expect to see from our customers as we fully reopen our stores.\nOur financial position remains strong.\nOur vendor relationships are very strategic in nature.\nAnd we continue to obsess around our customers, whether it's through our digital channels, social media, FLX or an in-store customer experience.\nIt is their dedication and hard work that made these outstanding results possible and will enable us to continue to drive our business forward and fulfill our purpose, to inspire in a power youth culture.\nOur second quarter results continue to showcase that our strategy to strengthen the relationship with our current customers and bring new customers into our business are working.\nThe three key objectives here are: to maximize our product leadership and diversity of brands, utilize our global scale and investments to elevate our store and digital experiences to get great product into the hands of our consumers, and to continue to double down on our commitment to the communities we serve.\nAnd we saw broad-based growth this quarter by following those objectives.\nOur footwear business increased low single digits.\nOur apparel and accessories businesses were both up double digits, with both families of business also up double digits compared to 2019.\nWe saw consumer diversity across departments, and our total men's business was relatively flat and we saw acceleration in women's and kids.\nEncouragingly, kids had the largest gain as we continue to recruit and bring in the next generation of sneaker head to start their lifelong journey with us.\nThe culture of basketball, led by the key Nike icons and new additions from Adidas and New Balance, continues to create excitement and drive momentum.\nHere, strength in women's and kids more than offset a mid-single-digit decline in men's that was going up against a double-digit comp of last year.\nAdditionally, we brought new consumers to our business with an increased focus on the seasonal category, delivering a high double-digit increase with gains in Crocs, UGG and Birkenstock along with an expanded balkanized offering in Vans and Converse, showcasing the variety our consumers want on their feet.\nAnother area of our business that continues to excite us and gain momentum is apparel, which was up double digits to last year and 2019.\nMen's, women's and kids all delivered gains over 20%.\nAnd again, our kids business had the largest increase as we bring in the next generation for apparel as well.\nTo add distinction to our assortments, we are thrilled to continue working with all of our partners to deliver a strong pipeline of exciting exclusive product concepts that resonate with all of our consumers.\nThis is a big part of how we bring energy every day.\nRecent examples would be our celebration of the 25th anniversary of the Griffin with Nike, our Adidas All Day I dream About Summer concept featuring unique executions of their key iconic silhouettes, and our Crocs and Party Animals concept where we partnered with Ron English to reimagine their icon for summertime.\nAll of these programs are significant in terms of scale and consumer engagement.\nOur powerful consumer concept offense continues into fall, including Puma and LameloBall, New Balance and Louis De Guzman, Vans and Kids of Immigrants and many more.\nIn addition to our product concept, there's a lot to be excited about for fall.\nThe culture of basketball momentum continues.\nWe are continuing our seasonal expansion with an increased focus on boots and fleece to maximize the season ahead.\nAnd we have a very strong pipeline of product and inventory in apparel.\nWhat is new to our business will be the launch of our own brands to maximize the ongoing momentum in the category.\nThese will feature brands like Locker and Cozy as well as exclusive partnerships with tastemakers and celebrity curators like Downs and Melody Ehsani.\nI'm also very pleased to see the results of our commitment to building community and driving meaningful and lasting change for our consumers.\nWe are building and enabling community in many ways, both through the continued expansion of our community stores and geo offense to ensure we are more deeply rooted in the neighborhoods that we serve, and the continued rollout and expansion of our FLX membership program, where we see significant runway to grow our 25-million member community as well as driving engagement and incremental spend through value-added enhancements and meaningful benefits that excite our consumers and drive leadership in the industry.\nFinally, with LEED, we continue to fight racial inequality and injustice.\nWe addressed our first year in June with a statement on our $200 million commitment.\nBut to be more specific here, for the quarter, we expanded our associate scholarship program and completed our first summer internship bridge program focused on our Black associates.\nWe launched the Designing with Sol program with PENSOLE and New Balance, which creates opportunity for underrepresented voices in the footwear industry.\nAnd we continue to bring in Black-owned brands and concepts to give them a platform to connect with our audience.\nWe have featured 20 brands since announcing this program with 25 more planned for the year.\nWe're extremely dedicated to this initiative and will continue to drive meaningful and lasting change across our company and within the communities we serve.\nAs we push our consumer-led offense forward, our strategy will continue to be the combination of product leadership and diversity, enhanced omni experiences and our focus on community and purpose that will guide our actions and make the difference in how we lead this industry.\nLet me now pass the call over to Andrew.\nBefore I begin, I would like to note that in addition to comparing our results for last year, I will also reference comparisons to the second quarter of 2019, where it is helpful.\nNow let's discuss our second quarter results.\nStarting with the top line.\nWe delivered a 6.9% comp gain on top of the 18.6% gain in the second quarter of last year.\nAlong with this strong demand, our focus on more full-price selling, combined with our disciplined expense management, yielded non-GAAP earnings per share of $2.21, an increase of over 200%.\nTaking a look at the second quarter.\nMay's comp gain was up over 50%.\nJune, which was up against the initial reopening last year, was pressured the most, down high single digits.\nWhile July was down low single digits with momentum improving as we move through the month.\nBreaking down our performance by region, North America experienced pockets of growth on top of robust comps from the second quarter of last year.\nKids Foot Locker led with comps over 20%.\nChamps Sports followed with a low double-digit comp gain.\nFoot Locker posted a mid-single-digit comp gain.\nAnd Footaction, in a wind-down mode, closed the quarter down low double digits.\nFoot Locker Canada posted a high single-digit comp decline as we continue to face temporary store closures in key markets.\nEastbay was down over 30% for the quarter.\nAs a digital-only banner, Eastbay did not benefit from store reopenings and was up against a double-digit comp gain in Q2 of last year.\nFoot Locker Asia delivered a roughly 30% comp gain, while Foot Locker Pacific increased in the low single-digit range.\nBased on easing COVID restrictions, Foot Locker Europe posted a low 20% comp increase.\nSidestep, which experienced the most store closures during the quarter, decreased low single digits.\nBy channel, the strength in our comp sales this quarter was driven by our stores, which increased 28.4%.\nLet me remind you that our fleet was opened 94% of potential operating days in the quarter versus approximately 70% last year.\nOur direct-to-consumer channel returned to a more normalized level, accounting for 20.1% of total sales for the quarter, down from 33.2% last year but up from 14.3% in the second quarter of 2019.\nReflecting on the more limited promotional environment, average selling prices were up mid-single digits in the quarter while units were up low single digits.\nIn addition, the higher sales penetration in our stores led to more full-price selling.\nMoving down the income statement.\nGross margin was 35.1% compared to 25.9% last year.\nWhen compared to a more normal Q2 of 2019, gross margin improved an impressive 500 basis points.\nThe trends we experienced in the first quarter continued in the second quarter with the combination of robust demand and fresher name inventory driving meaningfully lower levels of promotional activity.\nOur merchandise margin rate improved 870 basis points over last year and 170 basis points over 2019, driven primarily by the meaningful reduction in markdown.\nLooking ahead, we expect the promotional environment to remain favorable through most of this year but to a lesser extent than what we experienced in the first half.\nAs a percent of sales, our occupancy and bias compensation costs leveraged 50 basis points over Q2 of 2020 and 330 basis points over Q2 2019.\nThis is inclusive of approximately $6 million of COVID-related rent abatements in the quarter, which was unchanged compared to Q2 of last year.\nOur SG&A expense rate came in at 19.8% of sales in the quarter as we returned to more normalized store operating levels.\nThis yielded 120 basis points of deleverage over last year and 240 basis points of leverage compared to 2019.\nIn addition to careful expense control, we received approximately $4 million in government subsidies in the quarter, which is down from the $17 million we received in Q2 of 2020.\nWe also incurred $4 million of lower PPE expense.\nAnd bonus expense came in 40 basis points lower.\nFor the quarter, depreciation expense was $48 million, up from $44 million last year, while interest expense was $2 million, flat to last year.\nOur non-GAAP tax rate came in at 27.4%, below last year's rate of 30.7%.\nThe improved rate in the current quarter reflects the lower proportion of nondeductible items on the overall rate.\nTurning to our liquidity position.\nWe ended the quarter with $1.8 billion of cash, an increase of $472 million compared to Q2 last year, primarily driven by our higher inventory turns.\nWe currently have no outstanding borrowings on our $600 million credit facility.\nAt the end of Q2, inventory was down 9.5% to last year versus total sales increase of 9.5% as strong demand outstripped the increase in receipts during the quarter.\nOn a constant currency basis, inventory was down 10.4%, while sales increased 7.3%.\nWe invested approximately $36 million into our business in the form of capital expenditures during the quarter.\nThis funded the opening of 16 new stores as well as the remodeling or relocating of 23 stores.\nWe also closed 57 stores in the quarter, primarily in the U.S., leaving us with 2,911 company-owned stores at the end of Q2.\nFor the full year, we now expect to open approximately 120 stores, remodel or relocate 165 and close 345.\nThese amounts reflect about 190 Footaction stores we plan to close or reposition in 2021.\nLooking forward, we now expect to invest approximately $260 million in capital expenditures this year, down slightly from our prior guidance of $275 million.\nHowever, this number and the fleet update do not reflect any impact related to our announced acquisitions of WSS and atmos.\nAs Dick mentioned, we are excited about the strategic potential that both assets bring to the Foot Locker Inc. family.\nThey will provide us with the opportunity to expand into new markets, customer segments and price points as well as deepen our relationships with existing vendor partners, create new relationships with new vendors and diversify our retail footprint.\nIn addition, while both transactions are about growth, we also see opportunity for cost synergies with the WSS transaction.\nMore specifically, in 2022, we expect that we will begin to generate approximately $10 million in annualized cost synergies by leveraging our supply chain and operating capabilities.\nBased on the expected growth trajectory for both WSS and atmos, we expect each of these businesses to achieve low double digits to mid-teens EBITDA margins over the next five years.\nAs we previously communicated, we anticipate both WSS and atmos will be accretive to Foot Locker's earnings for fiscal 2021.\nWe anticipate that accretion on an annualized basis will be in the range of $0.44 to $0.48 in 2022.\nIn light of these strategic investments, we want to use this opportunity to reiterate our approach to capital allocation.\nWhile we made adjustments to our strategy over the past year as we tackle the effects of the pandemic on our business, we have historically maintained and communicated our balanced approach that includes: investing in our business to drive growth while also returning value to shareholders through dividends and opportunistic share repurchases.\nWhat you have seen so far this year is a reflection of exactly that approach, with a combination of thoughtful organic investments in our business and highly targeted M&A activity.\nAt the same time, we continue to focus on delivering meaningful returns of cash to our shareholders through our dividend and share repurchase program.\nWe believe the 50% increase to our quarterly dividend, which we announced earlier this week, signals our Board's confidence in the business and our financial strength.\nTo-date, in fiscal 2021, we have paid out $42 million in dividends and repurchased approximately 745,000 shares for $41 million.\nGoing forward, we and the Board expect to continue with this focused capital allocation strategy designed to maximize shareholder value.\nFinally, we are providing guidance for the current fiscal year.\nAs a reminder, our general practice is to only provide annual comp sales and earnings per share outlook and not quarterly guidance.\nAlso, please note that this color excludes any impact of the acquisition as they have not yet closed; and that we are still operating in an uncertain environment and seeing shutdowns in certain markets outside the U.S., along with changes closer to home due to the COVID-19 variance.\nFor fiscal 2021, we remain optimistic and expect to deliver a low to mid-teen increase in comp sales.\nFrom a cadence point of view, keep in mind that Q3 is up against a strong back-to-school period, and some of the enhanced government assistance programs are scheduled to end.\nWe are expecting the gross margin rate to be up 490 to 510 basis points for the full year versus 2020, mostly driven by a more rational promotional environment.\nOur SG&A expense rate is expected to leverage between 40 and 60 basis points year-over-year.\nIn terms of depreciation and amortization expense, we expect it to be approximately $185 million to $190 million.\nLastly, we expect our full year effective tax rate to be in the range of 28% to 28.5%.\nWe expect our non-GAAP earnings range to be approximately $7 to $7.15 per share.\nThis guidance reflects the strong performance in the first half of the year and our optimism around the back half of 2021 and while recognizing that we are going up against more normalized store operating days versus last year.\nOur financial position is strong, and it allows us to remain flexible as we seek to deliver against our strategic plans and drive shareholder value.",
        "summary": "compname reports q2 earnings per share of $4.09.\nq2 non-gaap earnings per share $2.21.\nq2 earnings per share $4.09.\nq2 same store sales rose 6.9 percent.\ncautiously optimistic about outlook for back-half of 2021.\ncontinue to keep a close eye on business, including temporary store closures and supply chain challenges.\nat july 31, 2021, co's merchandise inventories were $1,081 million, 9.5% lower than at end of q2 last year."
    },
    {
        "text": "Mark will review our second quarter results, provide our outlook for the remainder of 2021 and discuss our diamides business.\nAndrew will provide an overview of select financial items.\nInformation presented represents our best judgment based on today's understanding.\nActual results may vary based upon these risks and uncertainties.\nToday's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures.\nPlease note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA.\nA reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website.\nOur second quarter results, revenue up 8%, EBITDA up 2% and earnings per share up 5% year-over-year were slightly ahead of our guidance.\nThese results were fundamentally driven by volume, reflecting robust demand for FMC products around the world.\nInnovation continues to be a catalyst for growth.\nNew products introduced in the last 12 months contributed $30 million in sales growth in the quarter and our plant health products, including biologicals, posted Q2 sales growth in the high teens.\nWe continue to expect a very strong second half of 2021, driven by robust volume growth.\nWe have lowered our full year earnings guidance due to the continued acceleration of raw material, packaging and logistics costs.\nWe will go into this in more details later.\nI'd like to take a moment to provide a COVID-19 update on our business.\nAll our manufacturing facilities and distribution warehouses remain operational and properly staffed.\nOur research laboratories and greenhouses also have continued to operate throughout the pandemic.\nWe are resuming in-office operations work permitted by local authorities.\nAnd in June, we introduced flexible work arrangements to facilitate the return of all our staff to our headquarters in Philadelphia as well as some other locations in adherence with local guidelines.\nTurning to our Q2 results on slide three.\nWe reported $1.2 billion in second quarter revenue, which reflects an 8% increase on a reported basis and a 4% increase organically.\nAsia and Latin America posted the largest growth of 20% and 15%, respectively.\nOur fungicides grew over 50% in the quarter, driven by the Xyway launch in the U.S., and fungicides represented 8% of total sales in Q2 versus 5% of our sales in the prior year period.\nAdjusted EBITDA was $347 million, an increase of 2% compared to the prior year period and $2 million above the midpoint of our guidance range.\nEBITDA margins were 28%, a decrease of 150 basis points compared to the prior year, reflecting the impact of continued and accelerating cost headwinds.\nAdjusted earnings were $1.81 per diluted share in the quarter, an increase of 5% versus Q2 2020 and also $0.03 above the midpoint of our guidance range.\nThe year-over-year increase was primarily driven by the increases in EBITDA and lower interest expense.\nMoving now to slide four.\nDespite the unfavorable weather conditions in several regions, Q2 revenue increased by 8% versus the prior year, driven by a 4% volume increase and a 4% tailwind from foreign currencies.\nPricing was essentially flat year-over-year.\nSales in Asia increased 20% year-over-year and 13% organically, driven by double-digit growth in India, Australia, Indonesia and Pakistan.\nInsecticides contributed the greatest growth, including Altacor for cotton, and herbicide sales were also very strong, driven by share gains in India for soybean and sugarcane applications as well as robust sales in Australia.\nIn Latin America, sales increased 15% year-over-year and 12% organically.\nMexico and Colombia each posted double-digit growth, driven by strength of our products on specialty crops.\nWe also had a shift of diamide partner sales to Latin America from North America, similar to what occurred in Q1, which boosted the year-over-year growth rate.\nEMEA sales increased 3% year-over-year, but declined 3% organically as FX was a significant tailwind in the period.\nDiamides grew well, and we saw strong sales of herbicides for cereals and sugar beets.\nHowever, this wasn't enough to offset the late start of the spring, which resulted in lost applications for the FMC portfolio that will not be regained during the season.\nIn North America, sales decreased 7% year-over-year and 8% organically.\nSimilar to Q1, the year-over-year sales decline in Q2 was due to the shift of diamide partner sales from North America to other regions.\nExcluding revenue from our global diamide partnerships, our U.S. and Canada crop business grew greater than 20%, driven by an approximate $25 million contribution from two new products, Xyway fungicide and Vantacor insect control for specialty crops.\nTurning now to the second quarter EBITDA bridge on slide five.\nEBITDA in the quarter was up 2% year-over-year due to the volume contribution of $42 million, largely offset by a $35 million cost headwind.\nThe cost headwind continues to be driven by increases in raw material, packaging and logistic costs and the very modest reversal of some of the temporary cost savings from 2020.\nPricing was essentially flat versus prior year.\nTurning to our view of the overall market conditions for 2021.\nWe now expect the global crop protection market will be up mid-single digits on a U.S. dollar basis, which is slightly higher than our prior forecast and the most bullish we've been on the overall market for the past few years.\nThe reason for the change is our view that the Latin American market will now grow in the high single digits versus low single digits before.\nBasic crop fundamentals remain strong, especially in that region.\nWe continue to anticipate mid-single-digit growth in the EMEA market, low to mid-single-digit growth in the Asian market and low single-digit growth in the North American market.\nTurning to slide six and the review of FMC's full year 2021 and Q3, Q4 earnings outlook.\nFMC full year 2021 earnings are now expected to be in the range of $6.54 to $6.94 per diluted share, a year-over-year increase of 9% at the midpoint.\nThis is down $0.31 at the midpoint versus our prior forecast.\nConsistent with past practice, we do not factor in any benefit from future potential share repurchases in our earnings per share guidance.\nOur 2021 revenue forecast remains in the range of $4.9 billion to $5.1 billion, an increase of 8% at the midpoint versus 2020.\nEBITDA is now expected to be in the range of $1.29 billion to $1.35 billion, representing a 6% year-over-year growth at the midpoint.\nThis is a $50 million reduction at the midpoint compared to our prior forecast due to continued acceleration costs for raw materials, packaging and logistics.\nThis includes spending more to procure certain raw materials and intermediates from alternate sources where there is limited availability at our preferred suppliers.\nDespite dry and cold conditions in certain parts of Brazil during Q2, we are bullish for the second half in Latin America, especially for soybeans and cotton.\nIn Brazil, our channel inventories are at more normal levels for this point in the season following the actions we took in Q1 this year.\nAnd we already have received nearly 70% of the orders needed to deliver our full year forecast in Brazil.\nGuidance for Q3 implies year-over-year sales growth of 8% at the midpoint on a reported basis and 7% organically.\nWe are forecasting EBITDA growth of 5% at the midpoint versus Q3 2020, and earnings per share is forecasted to be up 7% year-over-year.\nGuidance for Q4 implies year-over-year sales growth of 20% at the midpoint on a reported basis with no FX impact anticipated.\nWe are forecasting EBITDA growth of 35% at the midpoint versus Q4 2020, and earnings per share is forecasted to be up 46% year-over-year.\nIt is worth noting that about half of this growth is going to be driven by the return of business we missed in Q4 2020 due to supply chain issues in North America and weather impact in Latin America.\nTurning to slide seven and full year EBITDA and revenue drivers.\nRevenue is expected to benefit from 6% volume growth, a 1% contribution from higher prices and a 1% benefit from FX.\nWe continue to expect broad growth across all regions except EMEA and a very strong second half of 2021.\nWe have raised our forecast for 2021 revenue contribution from products launched in the last 12 months to $130 million from $100 million before.\nThis includes launches of Overwatch herbicide, Xyway fungicide as well as Vantacor and Elevest insect controls.\nOur EBITDA bridge shows an increase of about $50 million in the expected impact from costs versus our May forecast.\nWe continue our cost control actions to limit the net cost headwind.\nAs we stated throughout the year, the R&D spending in our forecast is what is needed to keep our projects on a critical path to commercialization.\nBut this year-over-year increase will be closer to $20 million rather than the $30 million to $40 million we had previously indicated as we limit overall cost increases.\nRelative to our prior guidance bridge in May, we raised the anticipated volume contribution and lowered our benefit from pricing to reflect our decision to take volume with our high-margin portfolio.\nMoving to slide eight, where you see the Q3 and Q4 drivers.\nOn the revenue line for the third quarter, we are expecting a 6% contribution from volume, 1% contribution from price and 1% benefit from FX.\nWe had a very strong revenue outlook for Q4, driven by five main elements.\nFirst, we forecast a strong recovery for our U.S. and Brazil businesses following the weak Q4 2020 in those countries.\nThis contributes about half of the total growth in the quarter.\nSecond, new products will be a major factor.\nXyway fungicide, new diamide formulations Elevest and Vantacor, Fluindapyr fungicide for noncrop applications in the U.S., Overwatch herbicide in Australia and Authority NXT herbicide in India.\nThird, strong crop fundamentals.\nWe expect a strong Q4 in North America and Latin America, driven by good fundamentals for a variety of crops.\nIn Brazil, this includes cotton, as growers have indicated a 15% increase in hectares for the upcoming season.\nFourth, improved market access and expansion into new geographies and crops.\nThis is having a significant impact in India, Indonesia, the Philippines, Vietnam, Eastern Europe and Russia.\nAnd finally, fifth, price increases will help offset the FX headwind from last year and the higher costs from raw materials this year.\nWe are already holding orders for Brazil and U.S. that are at higher year-over-year prices.\nMuch of our forecasted Q4 EBITDA growth will come directly from the volume and pricing growth I just described.\nAlthough we are seeing a large increase in cost in Q4 on a year-over-year basis, we are taking actions to reduce SG&A and R&D to offset a portion of the raw material and supply chain cost headwinds we are facing.\nFX was a stronger-than-expected tailwind to revenue growth in the quarter at 4% versus our expectations of a 1% tailwind as the U.S. dollar weakened against all major currencies relevant to FMC.\nInterest expense for the quarter was $32.6 million, down $8.1 million from the prior year period driven by the benefit of lower LIBOR rates and lower foreign debt balances.\nWith continued low interest rates, we now expect interest expense to be between $130 million and $135 million for the full year.\nOur effective tax rate on adjusted earnings for the second quarter was 13.5% as anticipated and in line with our continued expectation for the full year tax rate.\nMoving next to the balance sheet and liquidity.\nGross debt at quarter end was $3.8 billion, up roughly $200 million from the prior quarter.\nGross debt to trailing 12-month EBITDA was 3.2 times at the end of the second quarter, while net debt to EBITDA was 2.6 times.\nThe difference between gross debt and net debt metric is much larger than usual this quarter as we had significant cash that we were not able to return to the United States prior to quarter end.\nWe are exploring repatriation alternatives for this cash in the third quarter.\nBoth levered metrics were above our targeted full year average leverage levels due to seasonality of working capital and will improve through the remainder of the year.\nMoving on to slide nine and cash flow and cash deployment.\nFree cash flow for the second quarter was $204 million, essentially flat to the prior year period.\nAdjusted cash from operations was lower than the prior year period, in large part due to timing changes of certain tax payments.\nInventory was higher, reflecting the accelerating cost of raw materials as well as increased inventory levels, particularly of diamide, as we prepare for a very strong second half.\nHowever, the growth in inventory was offset by increased payables.\nCapital additions were somewhat higher as we continue to ramp up spending following deferral of projects last year due to COVID.\nLegacy and transformation spending was down substantially with the benefit of the completion of our SAP program.\nWith the reduction in our outlook for full year EBITDA, we are similarly adjusting downward our expectations for free cash flow to a range of $480 million to $570 million, with the vast majority of this cash flow coming in the fourth quarter.\nOur outlook for adjusted cash from operations has weakened further the EBITDA, driven by somewhat higher-than-expected working capital due to shifts in timing of sales to the latter part of the second half of the year, which will shift some collections into the following year, as well as higher inventory driven partially by elevated raw material costs.\nOur outlook for capital additions as well as for legacy and transformation have improved slightly.\nWe returned $87 million to shareholders in the quarter via $62 million in dividends and $25 million of share repurchases, buying back 212,000 shares in the quarter at an average price of $118.10 per share.\nYear-to-date, we've returned $224 million to shareholders through dividends and repurchases.\nFor the full year, we continue to anticipate paying dividends of roughly $250 million, and now expect to repurchase a total of $350 million to $450 million of FMC shares this year, with the outlook for repurchases down slightly, reflecting the lower EBITDA guidance.\nAnd with that, I'll hand the call back to Mark.\nToday, we'll provide an update on the progress of our diamide growth strategy.\nSince we launched FMC as a pure-play agricultural science company, diamides have been a core part of our business.\nRynaxypyr and Cyazypyr have grown to be almost 40% of FMC sales today.\nTurning to slide 11 and some basic data on the insecticides market, which has grown by 83% from 2007 to 2019 and is approximately $17 billion in value today.\nFollowing the broad crop protection market drop in 2015, insecticides have grown 2% per year.\nWe expect this to accelerate in the next decade to about 3.3% compound annual growth rate, as higher-value technologies take more share from older insecticides that are being phased out by regulators.\nWe believe by 2030, the insecticide market will expand by about $7 billion versus 2019 to $24 billion in total.\nMoving to slide 12.\nWe show the year-by-year revenue of the major insecticide active ingredient classes from 2014 through 2019, as reported by AgbioInvestor, and the respective share gains and losses over the period.\nFMC diamides Rynaxypyr and Cyazypyr make up well over 80% of the entire diamides class, which includes a few other smaller active ingredients.\nOur diamides have grown to be about 10% to 11% of the total insecticide market, and the total diamides class has gained 2% share from 2017 to 2019 to reach 13% of the total insecticide market.\nConversely, organophosphates and neonicotinoids have lost overall share.\nTurning to slide 13.\nWe show the geographic breakdown of our $1.8 billion in diamide sales in 2020.\nThis is all Rynaxypyr and Cyazypyr sales and includes FMC sales of branded products and sales to our partners.\nAsia makes up nearly 40% of our diamides business today with North America a little over 1/4 of the sales and EMEA and Latin America between 15% and 20% each.\nFMC diamides have grown well above the market in all regions since we acquired them in 2017.\nOn the right is the crop breakdown for our diamides.\nIt should be no surprise that fruit and vegetables and rice make up about 50% of our current revenues.\nThis is why the diamides are so strong in Asia, since that market is about 30% rice and 30% fruit and vegetables.\nTurning to slide 14 and our diamides commercial strategy, which we've discussed many times over the past two years.\nWe have long-term supply agreements with five key multinational companies, including the UPL deal we announced in March of this year.\nWe also have 50 local agreements in various countries, and we have another 15 potential agreements currently under discussion.\nThese agreements are helping significantly expand the market for our diamides.\nOur partners give us access to customers we do not currently serve.\nThey also have access to certain active ingredients that can be formulated with our diamide to expand the market beyond what FMC has access to.\nThe $1.8 billion diamide revenue in 2020 was roughly 60% through our own commercial activities, which we label as FMC branded on these charts and 40% through our global and local partners.\nSince we acquired these products, our diamide growth has been evenly split between FMC-branded business and sales to our partners, which demonstrates how complementary these two routes to market are.\nWe've been very deliberate in driving our growth through our partnership model.\nThe success of this model is shown by the fact that the company EBITDA margins expanded 100 basis points from 2018 to 2020, even as these partners were growing significantly, confirming this strategy is not margin dilutive.\nThe other aspect to having sales to partners represent $700 million of our annual revenue can add more volatility in timing of demand.\nAs such, revenues can be impacted by shifts in partner demand across the geographies and in time periods.\nWe have structured the contracts with partners to have extended duration.\nMany of the agreements go through the end of this decade and some go beyond that time frame.\nMoving to slide 15.\nThere are several highlights of how we have grown our FMC-branded portion of our diamide sales.\nNew formulations, new registrations, label extensions and improved market access will drive growth not only for the diamides but for all FMC active ingredients.\nEarlier this year, we launched the novel patent-pending Vantacor formulation in the U.S., which has already exceeded our original forecast.\nVantacor provides a much higher concentration than prior Rynaxypyr formulation, offering improved mixing, less packaging and an improved sustainability profile.\nWe see compelling opportunities in several crops and plan to launch Vantacor around the world, including Australia, where we have just received regulatory approval.\nWe will continue to introduce other new mixtures and innovative formulations in all regions with 11 more launches expected by 2026.\nWe are also developing new products' offerings for our patented PrecisionPac and 3RIVE 3D systems, which are expected to launch during the next five years.\nFurthermore, we continue to expand our precision agricultural platform with additional services provided to growers and dealers through Arc Farm Intelligence.\nMoving to slide 16, where we provide an update on our registrations and label extension strategy for our FMC-branded diamides.\nA product registration from regulators is required in every country where we wish to sell, and each specific crop to be treated must be further approved by the regulators in that country.\nEvery product use approved by regulators equals a new slice of addressable market.\nToday, we have approximately 2,700 approved uses across all products based on Rynaxypyr, and 1,100 across all products based on Cyazypyr.\nWe currently have 600 regulatory submissions under review and another 230 that we plan to submit to regulators from 2021 to 2025.\nWe anticipate nearly 600 of these will achieve regulatory approval in the next five years.\nMoving to slide 17 and the diamide patent state.\nRynaxypyr is covered by 21 patent families with a total of 639 granted and pending patents.\nTogether with Cyazypyr active related patents, we have over 30 patent families and close to 1,000 granted and pending patents filed in 76 countries worldwide.\nRynaxypyr and Cyazypyr are complex molecules to produce.\nWe have patented many of these steps and several of these intermediate processes patents run well past the expiration of the active ingredient composition of matter patents.\nThe fastest route to market for a competitor to enter the market for generic Rynaxypyr or Cyazypyr is to register their product by relying on FMC's product data.\nTo do so, they will also be required to demonstrate that their product has the same profile as FMC's Rynaxypyr or Cyazypyr.\nTo meet these stringent regulatory requirements for such difficult-to-manufacture molecules, the AIs will have to be made the same way we are making it, which is protected by our FMC process patents.\nOur patent portfolio includes extensive coverage of key intermediate chemicals, commercial and alternative manufacturing processes, mixtures and formulations.\nslides 18 and 19 show the patent time lines for the top five markets.\nTaking into account our patents and regulatory requirements, we do not expect to see sales by a legitimate generic competitor that uses the approved manufacturing process, which would rely on our Rynaxypyr product data before 2026 in Europe, Brazil, India or in China, and 2027 for the U.S. Using that same approach for Cyazypyr on slide 19, we do not expect to see sales by legitimate generic competitors until 2026 for Brazil, China and India, 2027 for Europe, and 2028 for the U.S.\nIt is important to note that process and intermediate patents are critical as it is extremely difficult to produce these compounds without these intermediates.\nMoving to slide 20.\nWe are confident that our patent portfolio is impossible.\nThis is evident in a recent favorable injunction, restraining NATCO in India from making or selling any product containing Rynaxypyr.\nNotably, the court also ordered NATCO not to use our patented processes to make Rynaxypyr.\nWe anticipate that this is the first of many successful enforcements of our diamide process patents.\nTo date, we have enforced our patents and obtained preliminary injunctions or settlements against six infringers in India, and we have commenced litigation against four infringers in China.\nBeyond patent enforcement, we've also had a variety of other successful court decisions that support our strategy.\nFor example, we have obtained an injunction against the Brazilian regulators to respect our Rynaxypyr data exclusivity, which will postpone action on all generic Rynaxypyr applications filed while our data exclusivity was still in force.\nThis effectively delays their registration approval by years.\nIn addition to our legal strategy, we have also adopted a comprehensive regulatory advocacy strategy that includes notifying regulators about companies that do not have permission to produce.\nAs a result of these efforts, multiple countries have decided not to accept applications for registration of Rynaxypyr products prior to the active ingredients' patent expiration and others have decided to require additional data and proof of legitimate manufacturing rights in the source country as part of the application process.\nSo to recap on the diamides.\nFirst, the insecticide market continues to grow, and our diamides will continue to take share.\nSecond, our partner strategy is accelerating the growth of diamides and smoothing the transition to a post-patent business later this decade.\nThird, our patent state is strong and will remain in place for a long time.\nFourth, we are successfully defending our patents and we'll continue to enforce our IP.\nAnd fifth, diamides will continue to be a meaningful contributor to FMC's growth throughout this decade and beyond.\nOur mid- to long-term growth story is firmly rooted in the strength of our current portfolio, the diamide expansion we just outlined and the significant growth we anticipate from our new product pipeline over the next decade.\nThis is a bold step for our company and reflects our deep commitment to sustainability.",
        "summary": "fmc corp sees q3 revenue up 8%.\nsees fy adjusted earnings per share $6.54 to $6.94.\nsees q3 revenue up 8 percent.\nsees q4 revenue up 20 percent.\nsees fy revenue $4.9 billion to $5.1 billion.\nqtrly revenue of $1.2 billion, an increase of 8 percent versus q2 2020.\nqtrly consolidated adjusted earnings per diluted share of $1.81."
    },
    {
        "text": "Non-GAAP financial measures should be viewed in addition to, and not as an alternative for our reported results prepared in accordance with GAAP.\nGary will discuss asset quality and Vince will review the financials.\nToday, I'll touch on our 2020 financial highlights, review last year's accomplishments, and wrap up with a discussion about our strategic objectives.\nFirst, I'd like to highlight some key metrics from our 2020 financial results.\nDespite substantial challenges resulting from the pandemic, management took significant actions to protect our employees and preserve shareholder value, implementing measures to improve efficiency and increase profitability as we navigated the pandemic.\nLooking at the fourth quarter, FNB reported operating earnings per share of $0.28, and operating return on tangible common equity increased to 15% building on the upper quartile returns relative to peers through the first nine months of 2020.\nTurning to the income statement for fiscal year 2020, FNB reported record total revenue of $1.2 billion, operating net income of $314 million and operating earnings per share of $0.96, while building significant credit reserves to address economic risks associated with the pandemic.\nThese profitability levels resulted in strong internal capital generation driving our tangible common equity and the CET1 ratio to the highest levels in decades, and increasing tangible book value per share by 5% to $7.88.\nBecause of our performance in the prudent risk management culture, FNB continue to pay an attractive dividend.\nOur portfolios continue to expand with full year average loan and deposit growth of 11% and 14%, respectively.\nThis growth was due to the resiliency of our bankers and the success of the Paycheck Protection Program with balanced contributions across our legacy footprint and added growth in our Southeastern markets.\nOur leadership team prioritized a number of financial objectives during fiscal year 2020 designed to drive long-term results.\nReflecting on the 2020 operational initiatives we laid out in last year's letter to our shareholders, we made significant progress toward this objective in spite of a difficult operating environment.\nWe set out to deliver peer-leading returns on tangible common equity and drive internal capital generation and growth in tangible book value per share.\nOur 2020 return on average tangible common equity of 13% and 5% growth in tangible book value continue to track above others in the industry.\nSustaining this trajectory through execution of this strategy should increase our relative valuation over time compared to peers.\nIn tandem with delivering this financial performance in a challenging environment, we set out to protect our attractive dividend, while optimizing capital deployment.\nFor the full year, we paid out $165 million in cash dividends and repurchased nearly $40 million of stock under our current stock repurchase program, returning over $200 million directly to shareholders.\nFrom a capital planning perspective, we've now surpassed our previously stated target and completed the adoption of CECL, both leading to enhanced flexibility to optimize capital deployment in this environment.\nDuring the second half of the year, we took significant steps to enhance future risk-adjusted returns through prudent balance sheet actions, notably the auto loan sale in November, reducing exposure to COVID-19-sensitive industries and the prepayment of higher cost liabilities.\nThese actions reduced overall credit risk, reduced future interest expense and provides us with more liquidity moving forward.\nIn the fourth quarter, we resumed the inaugural FNB share repurchase program after activity was halted in the first quarter due to uncertainty related to the pandemic.\nWhen considering the total capital consumed by the dividend and share buyback combined, we are pleased to report an increase in year-end capital levels.\nApproximately 25% of the total shares repurchased were below tangible book value, resulting in accretion to that metric.\nThe overarching goal of our organization is to grow revenue by prudently increasing our loan and deposit portfolios, all while maintaining superior credit quality and FNBs risk management culture through this cycle.\nDuring a difficult operating environment, many of our teams exceeded loan and deposit origination targets, while improving our funding mix through a focus on bringing in low-cost deposits.\nAs a proof point, loans continue to grow even when excluding the impact of PPP and the auto loan portfolio sale.\nOn the deposit side, in addition to an improved deposit mix, non-interest bearing deposits surpassed $9 billion to end the year.\nAs a percentage of non-interest bearing deposits, our percentage of non-interest bearing deposits increased to 31%, up meaningfully from 24% five years ago.\nFNB is in a very strong liquidity position with a loan deposit ratio of 87% to fund future loan growth with strengthened capital and enhanced liquidity.\nDiversification and growth in our fee-based businesses, namely capital markets, mortgage banking and wealth management, contributed significantly to our record total non-interest income levels.\nOur fee-based businesses had an outstanding year with many groups setting all-time records for revenue.\nIn 2020, capital markets, mortgage banking and wealth management achieved revenues of $39 million, $50 million and $49 million, respectively.\nThe strong performance was driven by increased contributions due to our geographic expansion strategy and providing value-added solutions to borrowers.\nWe continue to look for ways to diversify our fee income streams by executing on strategic initiatives such as growing the mezzanine finance group and enhancing FNB's debt capital markets capabilities.\nTotal operating non-interest income exceeded $300 million in 2020.\nThrough our continuous investment in both our digital and physical delivery channels, we aspire to provide our customers with intuitive and efficient solutions to meet their banking needs.\nOn the digital front, adoption rates from mobile banking users have increased exponentially in 2020, attributable to 18% growth in new users added to the platform in the last nine months.\nLooking back over the last five years, we have now consolidated 111 branches, opened 12 de novo branches in attractive markets and expanded our ATM capabilities to exceed 800 locations.\nThese actions enabled FNB to optimize our overall footprint with limited disruption for our customers.\nWe have diligently invested in technology and risk management infrastructure by upgrading platforms in the retail bank and improving the customer experience.\nWe continue to evaluate our distribution network regarding consolidation efforts as we announced '21 consolidation to take effect in 2021.\nBuilding on FNB strategy to grow its market presence, particularly in metropolitan Baltimore and Washington DC, we entered an agreement with Royal Farms, a regional convenience store operator, that enables us to connect cash distribution services with a robust, online and mobile banking offering, providing convenient access to essential banking products and services throughout a broader geographic region with the deployment of more than 220 ATM locations in the Mid-Atlantic region.\nIn addition to withdrawals, transfers and balance enquiries, several of the Royal Farms ATM will also feature check and cash depositing capabilities to provide customers with even greater flexibility and increased access to broader product offerings.\nAs evidence of successful execution of our growth strategy, according to the most recent FDIC data, we experienced deposit growth in 50 to 53 MSAs across our footprint.\nFNB achieved top-5 share position in nearly half of those MSAs, further illustrating our ability to compete effectively in our market against a broad spectrum of competitors.\nAdditionally, we strive to continue to manage cost and improve efficiency.\nThis is evident by FNB achieving our stated 2020 cost savings floor of $20 million.\nIn addition to achieving the 2020 target, FNB also achieved its roughly $20 million cost target in 2019.\nWhen including a plan to reduce an additional $21 million in expenses during full year 2021, in total, this amounts to more than $60 million of expense reduction over the three-year period.\nBecause of our proactive expense management initiative, our efficiency ratio remained at a good level at 56% despite pressures on net interest income in a challenging rate environment and continued capital investment in technology.\nOur strategy is proven through varying cycles as evidenced by the solid performance and continued focus on improvement in many key asset quality metrics.\nTo expand on this topic, I'll ask Gary to comment on credit quality.\nOur credit portfolio continued to perform in a satisfactory manner in the fourth quarter and we are very pleased with the position of our portfolio as we move into 2021.\nOur key credit metrics showed improvement across a number of categories after we took steps during the quarter to proactively reduce exposure to borrowers most impacted in this COVID-sensitive environment, which drove a reduction in the level of delinquency and NPL.\nSpecifically we were successful in further reducing our limited exposure to the hotel and lodging industry by nearly 20%, which improved our position in this hardest-hit asset class that now stands at only 1.3% of the loan portfolio, exclusive of PPP loan balances.\nLet's now review some of the highlights covering both the fourth quarter and full year results, followed by some commentary around COVID-sensitive portfolios and deferrals.\nTurning first to credit quality, the level of delinquency came in at a very good level of 1.02% representing a 5 basis point improvement over the prior quarter.\nAnd when excluding PPP loan volume, delinquency would have ended December at 1.11%.\nThe level of NPLs and OREO totaled 70 basis points, an improvement of 6 bps linked-quarter, while the non-GAAP level excluding PPP loans stood at 77 basis points.\nWe saw very positive OREO sales activity this quarter, which contributed to the $10 million linked-quarter reduction for an ending OREO balance of $8 million, a historically low level.\nAdditionally, we were successful in moving several credits off the books during Q4 to proactively de-risk the balance sheet, thereby further reducing NPL levels.\nNet charge-offs for the quarter were $26.4 million or 41 basis points annualized, which reflects the actions taken to strategically move these select COVID-sensitive credits off the books, utilizing previously established reserves.\nOur GAAP net charge-offs for the full year came in at a very solid 24 basis points.\nProvision expense totaled $17 million for the quarter, ending December with the reserve position at 1.43%.\nExcluding PPP loan volume, the non-GAAP ACL stands at 1.56% or a 5 basis point linked-quarter decrease, again due to the reductions in exposure across these COVID impacted sectors.\nWhen including the remaining acquired unamortized discount, our total coverage stands at 1.8%.\nThe NPL reserve coverage position also remains favorable at 213%, reflecting a slight improvement linked-quarter.\nI'd now like to provide you with an update on our loan deferral levels and COVID-sensitive industry exposure.\nAs it relates to our borrowers requesting payment deferral, 1.7% of the loan portfolio, excluding PPP was under a COVID-related deferral plan at December 31.\nAs I mentioned earlier, we made significant progress during the quarter to further reduce the limited exposure we have to higher risk segments, including travel and leisure, food services and energy.\nOn a linked-quarter basis, exposure to higher risk segments declined by nearly $90 million to stand at only 3.1% of the total loan portfolio.\nThe primary driver of the decrease was led by a $65 million reduction in hotel exposure, which as noted earlier in my remarks, stands at only 1.3% of our total loan portfolio.\nLoan deferrals in the three higher risk segments ended the year at only 7%, down from the prior deferral level of 29% at the end of the third quarter.\nIn closing, we are very pleased with the progress made during the final quarter of the year in this COVID-sensitive environment with our credit metrics ending at very satisfactory levels as we enter 2021 very well-positioned.\nWe continue to closely monitor our book, and remain focused on managing risk in our COVID-impacted sectors as we work to further reduce portfolio exposure to these higher-risk industries that continue to face uncertainty in the current environment.\nAs we move into a new year, we look forward to an improving economy and an expanded lending opportunities ahead.\nToday, I will discuss our financial results and discuss some of our current expectations.\nAs noted on Slide 5, fourth quarter operating earnings per share totaled $0.28, an increase of 8% compared to the third quarter.\nFull year 2020 operating earnings per share totaled $0.96, after adjusting for $46 million of significant items.\nWhile this year brought unique economic challenges, we were well-positioned to adapt to the environment and provide strong internal capital generation.\nVince mentioned, we increased our tangible book value per share to $7.88, an increase of 5% from 2019.\nDespite a volatile year for equity markets, our combined dividend yield and share repurchases [Technical Issues] above pure median levels.\nLooking at 2021, we are confident that returning to generating core positive operating leverage on a quarterly basis will lead to better overall performance compared to 2020.\nLet's review the fourth quarter starting with the balance sheet on Page 10.\nAverage balances for total loans decreased 1.6% from the third quarter, largely due to the previously mentioned indirect auto sale of $500 million that was completed in November 2020.\nLinked-quarter, PPP balances decreased $377 million on a spot basis as we received forgiveness remittances from the SBA throughout December.\nCommercial loan line utilization rate is at 32%, which is about 8% or $0.5 billion in funded balances below what we would characterize as a normal level, creating upside for loan growth as the economy improves.\nAverage deposits grew 2%, with 4% growth in interest-bearing deposits and 3% growth in non-interest-bearing deposits, partially offset by an 8% decrease in time deposits.\nThis continued total deposit growth provided ample liquidity and afforded us the opportunity to pay down an additional $300 million in FHLB borrowings with a rate of 2.35% during the fourth quarter.\nExcluding the FHLB debt extinguishment from the third quarter, a total of $715 million in borrowings were terminated during the year with expense savings that will continue through 2022.\nAs Vince noted, FNB is in a very strong position to fund future loan growth, strengthen capital and enhance liquidity.\nTurning to the income statement.\nNet interest income increased $7.3 million or 3.2% compared to the third quarter and the net interest margin increased 8 basis points to 2.87%.\nPPP loans added 17 basis points to the net interest margin in the fourth quarter as the level of net interest income from PPP increased $8.8 million compared to the third quarter, offsetting 3 basis points of negative impact from higher average cash balances, and 3 basis points of lower purchase accounting benefit on acquired loans.\nInterest-bearing deposit costs improved 12 basis points to 43 basis points, and on a spot basis, were down another 7 basis points to 36 basis points.\nLet's now look at non-interest income and expense on Slides 13 and 14.\nOperating non-interest income totaled $81 million when excluding the $12.3 million loss and FHLB debt extinguishment.\nMortgage banking income remains strong at $15 million with large contributions from the Mid-Atlantic and Pittsburgh regions, and the results benefited from above average gain on sale margins compared to historical levels.\nFor the full year of 2020, mortgage banking increased 57%, reaching a record $50 million.\nWealth Management increased 5% from the third quarter due to the expanded footprint and positive market impacts on assets under management.\nCapital markets, wealth management, mortgage banking and insurance are businesses we have strategically invested in over the last five years, providing diversified revenue streams that have served us well in this low interest rate environment.\nIn the aggregate, revenue from these businesses increased $32 million or 24% to $162 million for the full year of 2020.\nLooking on Slide 14, non-interest expense totaled $199.3 million, an increase of $19.1 million or 10.6%, which included $10.5 million of branch consolidation expenses and $4.7 million of COVID-19-related expenses in the fourth quarter of 2020, compared to $2.7 million of COVID-19 expenses in the third quarter.\nExcluding these COVID-19 and branch consolidation expenses, non-interest expense increased $6.6 million or 3.7%, primarily driven by higher production-related commissions and incentives, as well as $2 million in outside services.\nRatio of tangible common equity to tangible assets increased 5 basis points to 7.24% compared to September 30, 2020, with net PPP loan balances negatively impacting the December 31 and September 30, 2020 TCE ratios by 45 and 56 basis points, respectively.\nCompared to the year ago quarter, the ratio decreased 35 -- 34 basis points due primarily to the PPP loan impact and the 2020 Day 1 CECL adoption impact.\nOn a linked-quarter basis, our CET1 ratio improved to an estimated 9.9% reflecting FNBs strategy to optimize capital deployment, increased over 40 basis points from year-end 2019.\nTurning to our outlook, we'll offer quarterly guidance for the first quarter of 2021 and some high-level expectations for the full year of 2021.\nI'll note that our assumptions do not take into account the impact of recently announced stimulus programs.\nFor the first quarter, we expect period end loans to decline low single-digits relative to December 31 assuming approximately $700 million of additional forgiveness for PPP loans in the first quarter.\nExcluding PPP and purchase accounting, we expect first quarter net interest income to be at a similar level compared to the fourth quarter.\nWe expect continued solid contributions from fee-based businesses with continued strength in capital markets and mortgage banking, resulting in total non-interest income in the mid-to-high $70 million range.\nWe expect expenses to be down slightly compared to the fourth quarter operating level.\nFor the full year of 2021, on a full year basis, we expect total revenues to decline low single-digits as top-line organic growth is offset by reduced contributions from purchase accounting compared to 2020.\nWe would expect loans to grow in the mid single-digits from the end of 2020, excluding impact of PPP forgiveness and net of any new PPP originations.\nI'll note, this does not account for any additional government stimulus and assumes some level of line of credit utilization increase throughout the year as the U.S. economic conditions are expected to improve from where we stand today.\nWe would expect transaction deposits excluding PPP and stimulus to increase mid single-digits from year-end 2020.\nWe expect full year provision for credit losses to be in the $70 million to $80 million range based on our current macroeconomic assumptions.\nWe expect full year expenses to be down slightly from the $720 million operating level in 2020 as we execute on our expense savings target of $20 million, while continuing to invest in technology and infrastructure in 2021.\nLastly, we expect the effective tax rate to be around 19%, assuming no change to the statutory corporate tax rate of 21%.\nThroughout the last year, we continued to focus our efforts on optimizing our online and physical delivery team to improve the customer experience, improve operational efficiency, as well as investing in our infrastructure and technology.\nOur commitment to reinvesting a portion of our cost savings initiatives in our digital delivery channels was instrumental in our success, serving our clients and growing loans, deposits and fee-based business.\nFNB will be adding a number of features to our mobile app in the first quarter, providing an improved offering to clients.\nOnce again, we received national recognition by S&P Global for having a top mobile application in terms of features and functionality for banks in the Northeast regional banking space.\nAs consumer preferences continue to evolve, our investment in our digital platform will enable us to reach new households in our expanded footprint.\nMoving forward, we are focused on increasing the number of interaction through our online and mobile channels.\nWe are confident our digital offering, robust omnichannel presence, and innovative customer interface will provide multiple ways for our clients to utilize our complete offering of FNB products and services.\nTheir efforts resulted in a safer work environment and the preservation of shareholder value and positions our company for better outcomes as we move into 2021.\nWe expect the resilient U.S. economy to perform at a higher level as the effect of expected stimulus and the rollout of the vaccine take hold, accelerating business activity and economic growth as we move through the year.\nWe will continue to serve our constituencies by actively engaging with communities, investing in our dedicated employees, and working continuously to deliver greater shareholder value.",
        "summary": "compname posts q4 adj earnings per share $0.28.\nq4 non-gaap earnings per share $0.28 excluding items."
    },
    {
        "text": "We'll begin with a brief strategic overview from Randy, Mike will review the title business, Chris will review F&G, and Tony will finish with a review of the financial highlights.\nThere is significant uncertainty about the duration and extent of the impact of this pandemic.\nBecause such statements are based on expectations as to future financial and operating results, and are not statements of fact, actual results may differ materially from those projected.\nIt will also be available through phone replay beginning at 3:00 p.m. Eastern Time today and through Wednesday, August 11.\nWe are excited about our second quarter performance as our title business continues to produce record results, and F&G set records for its retail annuity sales, while expanding into new institutional channels, further validating our decision to acquire the company just over one year ago.\nWe are building a company designed to deliver more stable earnings and cash flow as market conditions change and interest rates eventually rise and pressure our title business, and we can already see the early signs of our success.\nTheir dedication has allowed us to continue to lead the title industry in revenue, earnings, margins and market share, and produce the best performance in the history of not only the company, but the entire industry.\nIn the second quarter, we generated record adjusted pre-tax title margins of $688 million compared to $378 million in the year ago quarter and a 22.7% adjusted pre-tax title margin compared with 18.4% in the second quarter of 2020.\nOur margin for the quarter matches our record setting margin achieved in the fourth quarter of 2020 and benefited from our investments in technology, operations and automation over the years as we have worked to improve our efficiency in our title business and maximize our profitability over market cycles.\nTurning to F&G, when we closed on our acquisition in June of 2020, we expected F&G to provide a counterbalance to our earnings, which are highly sensitive to mortgage interest rates.\nWe also believe that our acquisition would accelerate F&G's ratings upgrades and open new channels of distribution to enhance their sales growth.\nF&G has far exceeded our expectations as we have gained significant momentum in the bank and broker-dealer channels in the first year of launch, as well as strong sales growth in existing channels.\nWhile delivering record retail sales, we have maintained attractive spreads despite the low interest rate environment that we continue to experience.\nF&G has also entered the institutional market with a $750 million funding agreement-backed note issuance, and was just awarded its first pension risk transfer deal over the past week.\nF&G ended the second quarter with nearly 320 -- three -- $32 billion in ending assets under management, which is a 20% increase since the acquisition, and it's well on its way toward achieving our goal of doubling assets as sales momentum accelerates.\nLooking forward, we will continue to evaluate our capital allocation strategy as we remain committed to long-term value creation for our shareholders, while also focusing on supporting the future growth of our business.\nGiven our strong earnings and cash flows through the first half of the year, yesterday we announced a quarterly cash dividend of $0.40 per share, an increase of 11% from our previous quarterly dividend and our Board authorized a 3-year share repurchase program of up to 25 million shares.\nAt the end of 2020, we announced a share buyback plan of $500 million, and during the second quarter, we purchased four million shares for $183 million at an average price of $45.74 per share.\nSince announcing the buyback plan, we have purchased 11 million shares for $452 million at an average price of $41.09 per share.\nRandy touched upon our record second quarter results as we continued to benefit from low interest rates, driving strong origination demand, the continued rebound in commercial real estate activity and the efforts and focus of our employees in taking care of our customers.\nFor the second quarter, we generated adjusted pre-tax title earnings of $688 million, an 82% increase over the second quarter of 2020.\nOur adjusted pre-tax title margin was 22.7%, a 430 basis point increase over the prior year quarter.\nWe had a 17% increase in direct orders closed, driven by a 57% increase in daily purchase orders closed and a 65% increase in total commercial orders closed, partially offset by a 5% decrease in daily refinance orders closed.\nTotal commercial revenue was a record $347 million compared with the year ago quarter of $184 million due to the 65% increase in closed orders and a 14% increase in total commercial fee per file compared with the year ago quarter.\nFor the second quarter, total orders opened averaged 10,900 per day with April at 10,700, May at 11,200 and June at 10,700.\nFor July, total orders opened were 11,000 per day as we continue to see strong demand and purchase activity, while the refinance market continues to moderate as compared with last year's robust levels.\nDaily purchase orders opened were up 41% in the quarter versus the prior year.\nFor July, daily purchase orders opened were up 4% versus the prior year.\nRefinance orders opened decreased by 25% on a daily basis versus the second quarter of 2020.\nFor July, daily refinance orders opened were down 32% versus the prior year.\nLastly, total commercial orders opened per day increased by 58% over the second quarter of 2020.\nCommercial orders opened per day were at all-time record levels through the second quarter.\nFor July, total commercial orders opened per day were up 15% over July of 2020.\nWe remain optimistic that the order volumes we have seen over the last several quarters will drive continued strong commercial performance in the second half of 2021.\nAs Randy mentioned, our strong results are a clear validation of the investments we have made into technology and how we integrate automation throughout our operations to improve efficiencies and enhance client satisfaction.\nWe have spoken often about our focus on expense management in real time as open orders rise and fall.\nBut we also believe that our longer-term focus on integrating automation has significantly improved our performance and profitability through market cycles.\nAdditionally, we continue to enhance our inHere Experience Platform, which transforms the real estate transaction experience by improving the safety and simplicity needed to start, track, notarize and close a real estate transaction.\nDuring the quarter, we reached an important milestone, as more than one million consumers completed our digital start here opening package, confirming our belief that customers are ready and eager for digital solutions for real estate transactions.\nLast week, we announced Notarize inHere, which ensures that the same level of service, security and integrity our customers demand during in-person notarial acts is available when completing their most significant financial transaction online.\nWe are focused on improving our customers' experience and believe the inHere platform will not only improve client satisfaction, but will also help us to improve our efficiency by reducing the hours spent on a transaction while also positioning FNF to take market share.\nAs Randy mentioned, one year into our acquisition by FNF, F&G is executing on diversifying our sources of premium, transforming a previously monoline business into a leading provider of solutions in both retail and institutional markets in the life and annuity space.\nAs we grow, we're focused on generating scale benefits by increasing assets under management, while leveraging Blackstone's unique investment management capabilities to deliver consistent spread.\nAdditionally, we've made significant investments in our operating platform to become a best-of-breed service provider and allowing us to leverage efficiencies as we scale.\nIn the second quarter, we had record annuity sales in our retail channel of $1.6 billion, up 80% from the second quarter of 2020 and 9% from the sequential quarter.\nWe continue to see success with core agent distribution and also with our two newer distribution channels, independent broker-dealers and banks, which generated over $900 million of new premium in the first half of 2021 and are on track to comfortably exceed $1.5 billion for the full year.\nIn the institutional channel, where we market to institutional clients, we have successfully entered the funding agreement-backed note market and secured our first pension risk transfer transaction over the last week.\nLet me provide a few brief details.\nIn June, F&G issued a $750 million funding agreement-backed note or FABN, at an attractive coupon of 1.75%.\nMarket reception to our initial FABN issuance was extremely strong, with an order book in excess of $2 billion.\nAnd going forward, we intend to opportunistically execute additional FABN issuances.\nAlso, we have successfully entered the pension risk transfer market, securing our first deal in late July.\nWe will assume approximately $65 million in pension liabilities and provide annuity benefits to over 1,200 retirees in a transaction expected to close this month.\nIn addition, we have a very robust pipeline of deals where we will be bidding on in the third quarter.\nBoth channels contributed to top line sales results that surpassed our expectations, driven by very strong growth in the retail channels and the launch into two additional institutional channels.\nTotal sales were $2.7 billion in the second quarter compared to $1.7 billion in the sequential quarter and $1.1 billion in the second quarter of 2020.\nFor the first half of the year, we achieved record sales of $4.3 billion, nearly double the $2.2 billion of total sales in the first half of 2020.\nWith these strong top line results, average assets under management or AAUM, has surpassed the $30 billion milestone driven by approximately $1.7 billion of net new business flows in the second quarter.\nNext, turning to spread, our results continue to be strong.\nTotal product net investment spread was 295 basis points in the second quarter and FIA net investment spread was 335 basis points.\nInvestment yield, an important driver of product margin, was above expectation, driven by onetime items in the quarter, primarily favorable investment income on CLO redemptions held at a discount to par.\nAdjusting for those notable items though, total product spread was 255 basis points, in line with our historical trend and consistent with our disciplined approach to pricing.\nAdjusted net earnings for the second quarter were $92 million.\nStrong earnings were driven by record AAUM and strong and consistent spread results as we have maintained disciplined pricing actions on both new business as well as our in-force book.\nNet favorable items in the period were $22 million.\nAdjusted net earnings, excluding those notable items were $70 million, up from $66 million in the first quarter.\nIn summary, it's been a defining first half of the year for F&G.\nOur profitable growth strategy is firing on all cylinders, and we have successfully diversified our sources of premiums, a key strategic focus.\nWe remain excited about the opportunity to further contribute to the overall FNF strategy in the years ahead.\nWe generated $3.9 billion in total revenue in the second quarter, with the title segment producing $3 billion, F&G producing $802 million and the corporate segment generating $56 million.\nSecond quarter net earnings were $552 million, which includes net recognized gains of $232 million versus net recognized gains of $162 million in the second quarter of 2020.\nThe net recognized gains and losses in each period are primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether the securities were disposed of in the quarter or continue to be held in our investment portfolio.\nExcluding net recognized gains and losses, our total revenue was $3.6 billion as compared with $2.3 billion in the second quarter of 2020.\nAdjusted net earnings from continuing operations were $592 million or $2.06 per diluted share.\nThe title segment contributed $526 million, F&G contributed $92 million and the Corporate and Other segment had an adjusted net loss of $26 million.\nIncluding net recognized losses of $30 million, our title segment generated $3 billion in total revenue for the second quarter compared with $2.1 billion in the second quarter of 2020.\nDirect premiums increased by 57% versus the second quarter of 2020, agency premiums grew by 60% and escrow, title-related and other fees increased by 28% versus the prior year.\nPersonnel costs increased by 32% and other operating expenses increased by 14%.\nAll in, the title business generated a 22.7% adjusted pre-tax title margin, representing a 430 basis point increase versus the second quarter of 2020.\nInterest and investment income in the title and corporate segments of $27 million, declined $14 million as compared with the prior year quarter due to decreases in dividends received on common and preferred stock, decreases in bond interest and a slight decrease in income from our 1031 exchange business.\nFNF debt outstanding was $2.7 billion on June 30 for a debt-to-total capital ratio of 23.2%.\nOur title claims paid of $56 million were $41 million lower than our provision of $97 million for the second quarter.\nThe carried reserve for title claim losses is currently $91 million or 5.8% above the actuary central estimate.\nWe continue to provide for title claims at 4.5% of total title premiums.\nFinally, our title and corporate investment portfolio totaled $6.3 billion at June 30.\nIncluded in the $6.3 billion are fixed maturity and preferred securities of $2.2 billion, with an average duration of 2.9 years and an average rating of A2, equity securities of $1.2 billion, short-term and other investments of $400 million and cash of $2.5 billion.\nWe ended the quarter with over $1.2 billion in cash and short-term liquid investments at the holding company level.",
        "summary": "compname reports second quarter 2021 diluted earnings per share from continuing operations of $1.90 and adjusted diluted earnings per share from continuing operations of $2.06.\ncompname reports second quarter 2021 pre-tax title margin of 21.5% and adjusted pre-tax title margin of 22.7%.\nq2 adjusted earnings per share $2.06 from continuing operations.\nq2 revenue $3.9 billion versus $2.4 billion."
    },
    {
        "text": "We'll begin with a brief strategic overview from Randy, Mike will review the Title business, Chris will review F&G, and Tony will finish with a review of the financial highlights.\nThere is significant uncertainty about the duration and extent of the impact of this pandemic.\nBecause such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected.\nIt will also be available through phone replay beginning at 3:00 p.m. Eastern Time today through November 12.\nIt is our goal to ensure the health and safety of our employees while maintaining the continuity and efficiency of our operations as we strive to meet our customers needs day in and day out.\nWe were able to accomplish these goals and achieve superior results in the third quarter while approximately 60% of our workforce continue to work remotely.\nFor the third quarter, we generated record adjusted pre-tax title earnings of $528 million compared with $407 million in the year ago quarter and a 21.2% adjusted pre-tax title margin compared with an 18.6% in the third quarter of 2019, and our best since the third quarter of 2003.\nWhile our financial results were robust, we also made strong gains advancing our technology initiatives, which are focused on improving the security, transparency and overall closing experience for FNF's customers.\nMike will go into this in more detail, but we believe that our unmatched national footprint and strong local market relationships provide FNF with a significant competitive advantage that we can further leverage with technology.\nTurning to our acquisition of FGL Holdings, F&G continues to execute on its growth strategy, producing excellent sales results in the quarter while maintaining pricing discipline.\nF&G's recent entrance into the bank and broker-dealer channel has surpassed expectations, and we continue to see strong momentum into the fourth quarter.\nFurthermore, F&G's investment portfolio continues to perform well in the current environment.\nChris and his team also had success during the third quarter, streamlining F&G's operations as they entered into an agreement to sell F&G Reinsurance to a Aspida Holdings, a subsidiary of Ares Management Corporation.\nThe rationale for this divestiture was largely tied to the tax advantage of this third-party offshore reinsurance platform, which was no longer available upon FNF's acquisition of F&G.\nIn connection with the transaction, F&G also entered into a mutually beneficial annuity flow reinsurance partnership.\nThe sale of F&G Reinsurance represents a terrific outcome for F&G, its clients, employees and FNF shareholders.\nThe transaction is expected to close prior to year-end.\nChris will go into more detail on F&G's third quarter results shortly.\nLooking forward, we continue to be committed to creating meaningful long-term value for our shareholders through our capital allocation strategy.\nMost recently, we announced a quarterly cash dividend of $0.36 per share, which reflects a fourth quarter dividend increase of 9%.\nIn conjunction with this announcement, we announced our plans for targeting $500 million in share repurchases based on market conditions over the course of the next 12 months.\nAs Randy mentioned, the third quarter was a record quarter for adjusted pre-tax title earnings and produced our best quarterly adjusted pre-tax title margin since the third quarter of 2003, as we benefited from the delayed spring selling season and sustained momentum in refinance.\nFor the third quarter, we generated adjusted pre-tax title earnings of $528 million, a 30% increase over the third quarter of 2019.\nOur adjusted pre-tax title margin was 21.2%, a 260 basis point increase over the prior year quarter.\nWe had a 40% increase in direct orders closed, driven by an 87% increase in daily refinance orders closed and 8% increase in daily purchase orders closed offset by a 16% decrease in total commercial orders closed.\nTotal commercial revenue was $216 million compared with the year ago quarter of $301 million due to the 16% decrease in closed orders and a 14% decline in total commercial fee per file.\nFor the third quarter, total orders opened averaged 13,200 per day, with July at 13,300; August at 13,500; and September at 13,000.\nFor October, total orders opened were over 11,800 per day as we continue to see a strong recovery in purchase activity and continued strength in the refinance market.\nDaily purchase orders opened were up 12% in the quarter versus the prior year.\nFor October, daily purchase orders opened were up 15% versus the prior year.\nRefinance orders opened increased by 83% on a daily basis versus the third quarter of 2019.\nFor October, daily refinance orders opened were up 71% versus the prior year.\nLastly, total commercial orders opened increased by 4% over the third quarter of 2019.\nWe continue to see steady improvement in commercial open orders per day during the quarter, with the third quarter up 32% sequentially from the second quarter.\nFor October, total commercial orders opened per day were up 1% over October 2019.\nOur third quarter was also marked by notable achievements as we continue to invest in our digital technology initiatives as Randy noted.\nWe have been investing in technology and innovation designed to further enhance our existing systems and improve our customers' experience working with FNF.\nOne example is our StartSafe initiative, which reached a significant milestone during the third quarter.\nWe passed 800,000 digital opening packages delivered to buyers and sellers of residential purchase and refinance transactions and are encouraged that 60% of all packages were completed.\nThis high completion rate is evidence that consumers are ready to adopt a new real estate experience and a new way of interacting with title companies.\nGiven the widespread pandemic and our current virtual environment, now is the time to accelerate this adoption.\nOur focus will continue to be centered on utilizing technology to drive efficiencies across the title life cycle, which will not only better meet the needs of real estate agents and lenders, but also improve their productivity while reducing fraud and improving security.\nLooking forward, we expect the fourth quarter to moderate seasonally from what was an unusually strong third quarter.\nWhile it remains difficult to forecast the impacts of COVID-19 on our business, we will continue to aggressively manage our expense structure orders while investing in technology to further reduce costs and increase market share.\nOur growth momentum continues here at F&G coming off the second quarter where we had record sales of fixed indexed annuities.\nWe again had strong sales in the third quarter while maintaining our pricing discipline.\nTotal retail sales of $1.1 billion in the third quarter were up 34% from the prior year, and core fixed index annuity or FIA sales were $815 million, up 38% from prior year.\nWe continue to see meaningful runway ahead of us as we continue to take market share in our primary independent agent channel, and we're gaining traction in new channels.\nIn late June, we successfully launched our expansion into the financial institutions channel with one of the largest independent broker dealers in the country, and our efforts are already bearing fruit.\nIn the third quarter, we generated $189 million in new annuity sales in this channel, and we believe we're just now scratching the surface of opportunities in the bank and broker dealer channels.\nWith solid sales results, we grew average assets under management, or AAUM, to $27 billion, driven by approximately $400 million of net new business flows in the period.\nRegarding spread results, total product net investment spread was 261 basis points in the third quarter, and FIA net investment spread was 347 basis points.\nOur spread results are above historical trends and demonstrate our continued pricing discipline to achieve targeted spread.\nThe solid spread result translated to adjusted net earnings of $74 million for the quarter.\nMost importantly, our investment portfolio continues to perform very well.\nAs of September 30, the portfolio's net unrealized gain position grew to $1.2 billion, increasing by approximately $600 million in the quarter.\nCredit quality within the portfolio also remained strong.\nFor the nine-month period ended September 30, we have taken credit-related impairments, which we view as true economic losses of only $17 million or six basis points of the total portfolio.\nThis is well below our product pricing assumption and demonstrates the portfolio is performing as expected.\nWe also remain confident in our capital position.\nWe came into the pandemic with a strong balance sheet, allowing us to effectively weather economic impacts while continuing to grow the business.\nYear-to-date credit impairments have resulted in a modest 5-point decrease in our RBC ratio.\nAdditionally, rating downgrades have resulted in a manageable 14-point decline year-to-date and we would expect this ratings migration to reverse as markets recover over the long term.\nEven with the anticipated cumulative effect of credit migrations and potential rating downgrades, we expect to end the year with a strong RBC ratio at or above our 400% target.\nSo in summary, our sales engine is firing on all cylinders.\nWe continue to consistently generate and manage stable net investment spread and earnings, and we're confident in our investment portfolio and capital position.\nWe generated $3 billion in total revenue in the third quarter.\nWith the Title segment producing approximately $2.5 billion, F&G producing $442 million and the Corporate segment generating $50 million.\nThird quarter net earnings were $378 million, which include net recognized gains of $73 million versus net recognized gains of $4 million in the third quarter of 2019, primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether these securities were disposed of in the quarter or continue to be held in our investment portfolio.\nExcluding net recognized gains, our total revenue was $2.9 billion as compared with $2.2 billion in the third quarter of 2019.\nAdjusted net earnings from continuing operations were $435 million or $1.48 per diluted share.\nThe Title segment contributed $391 million, F&G contributed $74 million, and the Corporate and Other segment had an adjusted net loss of $30 million.\nExcluding net recognized losses of $3 million, our Title segment generated $2.5 billion in total revenue for the third quarter compared with $2.2 billion in the third quarter of 2019.\nDirect premiums increased by 11% versus the third quarter of 2019.\nAgency revenue grew by 19%, and escrow title related and other fees increased by 14% versus the prior year.\nPersonnel costs increased by 7% and other operating expenses decreased by 2%.\nAll in, the Title business generated a 21.2% adjusted pre-tax title margin, a 260 basis point increase versus the third quarter of 2019.\nInterest income in the Title and Corporate segments of $31 million declined $26 million as compared with the prior year quarter due to the reduction of short-term interest rates on our corporate cash balances in our 1031 exchange business.\nIn September, we closed an issuance of $600 million of 2.45% senior notes due March 15, 2031.\nThe net proceeds have been used to repay all outstanding indebtedness under the one-year term loan agreement that we signed in April, which allowed us to secure the additional financing needed to close the acquisition of F&G.\nF&F debt outstanding was $2.7 billion on September 30 for a debt-to-total capital ratio of 27.1%.\nOur title claims paid of $50 million were $27 million lower than our provision of $77 million for the quarter.\nThe carried title reserve for claim losses is currently $55 million or 3.7% above the external actuary central estimate.\nWe continue to provide for title claims at 4.5% of total title premiums.\nFinally, our title investment portfolio totaled $5.3 billion at September 30.\nIncluded in the $5.3 billion are fixed maturity and preferred securities of $2.5 billion with an average duration of three years and an average rating of A2.\nEquity securities of $600 million, short-term and other investments of $300 million and cash of $1.9 billion.\nWe ended the quarter with just under $1 billion in cash and short-term liquid investments at the holding company level.",
        "summary": "compname reports third quarter 2020 diluted earnings per share from continuing operations of $1.39 and adjusted diluted earnings per share from continuing operations of $1.48.\ncompname reports third quarter 2020 pre-tax title margin of 20.4% and adjusted pre-tax title margin of 21.2%.\nq3 adjusted earnings per share $1.48 from continuing operations.\nq3 revenue $3.0 billion versus $2.2 billion."
    },
    {
        "text": "With me on the call today are Seamus Grady, Chief Executive Officer and Csaba Sverha, Chief Financial Officer.\nWe had another record quarter with Q2 results that exceeded our guidance and support our longer-term optimism.\nIn fact, based on our current outlook, we are positioned to deliver another record quarter in Q3 with strength across all key areas of our business.\nRevenue in the second quarter was a record $453.8 million, representing year-over-year as well as sequential growth.\nWe remain focused on driving efficiencies, which helped generate margins that were at their highest levels in over a year.\nAs a result, earnings per share also increased year-over-year and sequentially to a record $1.10.\nOur second quarter played out largely as anticipated combined with an unexpected positive surprise from automotive programs, which represented the most significant driver of upside in the quarter.\nIn fact, automotive revenue grew more than 30% from the first quarter and more than doubled from a year ago.\nWe continued to see a recovery from traditional automotive customers and even stronger growth from new automotive programs such as LIDAR, which are beginning to contribute to our growth in a more meaningful way.\nWe are optimistic that this momentum in the automotive space will continue into the third quarter revenue.\nRevenue from industrial lasers was approximately flat and was slightly better than expected.\nWe expect industrial laser revenue to improve in the third quarter and we remain optimistic about the longer-term potential for increased outsourcing from this market.\nIn optical communications, we had anticipated that continued telecom strength would offset continuing softness from datacom products that are deployed inside the data center.\nIn fact, we saw modest growth in optical communications revenue in the second quarter.\nDatacom revenue did moderate as we anticipated.\nHowever, this was more than offset by stronger telecom revenue.\nWe are optimistic that datacom revenue will show an improvement in the third quarter and that both datacom and telecom revenue should increase sequentially.\nPart of our telecom growth was driven by our optical transport systems program at Cisco, which we have discussed on past calls.\nThis transfer has been progressing very well and is ahead of plan.\nWe had been anticipating that the transfer would be largely complete by the end of our fourth quarter and we now believe we are nearly a full quarter ahead of expectations.\nThis faster ramp will also contribute to our anticipated growth in optical communications revenue in the third quarter.\nDue to the combination of the earlier Cisco ramp, growth from new automotive customers, and continuing optimism as we execute on our strategy, we are advancing our plans to expand our manufacturing footprint.\nWe recently broke ground on a new 1 million square foot building at our campus in Chonburi, Thailand.\nThis is twice the size of our originally contemplated expansion reflecting confidence in our ability to further scale our business over the longer-term.\nThis expansion will roughly triple our footprint in Chonburi and will increase our global footprint by approximately 50% to 3 million square feet, providing us with considerable capacity to serve our anticipated growth.\nWe expect construction to take approximately 1.5 years, which means we could start to see revenue from this facility in approximately two years.\nTo summarize, we are very pleased that our second quarter represented record revenue and earnings with results that once again exceeded our guidance.\nOur continual focus on efficiency helped produce improvements in gross margin and operating margin in the quarter.\nAs we continue to expand on our market leadership, we are optimistic that Q3 will be another record-breaking quarter for the company and we believe that growth from new products and programs will continue to demonstrate the success of our growth strategy as we look ahead.\nWe were excited to deliver a record performance that exceeded our guidance ranges.\nRevenue of $453.8 million was nearly $14 million above the high-end of our guidance range.\nThis was our strongest revenue beat in two years and a new record.\nOptical communications was $347.8 million or 77% of total revenue, up 1% from Q1.\nNon-optical communications revenue was $106 million or 23% of total revenue and increased 14% from Q1.\nWithin optical communications, telecom revenue was $273.2 million, up 5% from last quarter.\nDatacom revenue was $74.6 million, down 10% sequentially.\nWhile datacom revenue declined as expected, we were pleased to see growth in telecom more than offset this in Q2.\nWe are also optimistic that datacom revenue will return to growth in the third quarter.\nSilicon photonics revenue was $101.8 million, down 6% from a very strong Q1, but up 24% from a year ago.\nRevenue from 100-gig products saw a decline as faster data rate products saw very significant growth.\n100-gig revenue of $128.2 million was down 50% from Q1 while revenue from 400-gig and faster was $104.2 million, up 50% from last quarter and more than doubled from a year ago.\nLooking at our non-optical communications business, automotive has grown to become the largest category with record revenue of $47 million in the second quarter, up 34% sequentially and more than 100% from a year ago.\nAs Seamus mentioned, new automotive programs which include LIDAR saw strong growth and we continue to be optimistic in this market.\nIndustrial laser revenue was $33.7 million, down about 1 percentage point from Q1.\nSensor revenue was stable at $2.8 million and other non-optical communications revenue was up 5% to $22.5 million.\nNow turning to the details of our P&L.\nGross margin was 12.1%, up from 12% in the prior quarter.\nThis improvement was the result of our ongoing focus on manufacturing efficiencies and cost reductions.\nOperating expenses in the quarter were $12.8 million or 2.8% of revenue.\nThis produced record operating income of $41.9 million or 9.2% of revenue.\nTaxes in the second quarter were $1 million and our normalized effective tax rate was 3%.\nDue to tax incentives at our Chonburi facility, which represents a growing portion of our profit, we now expect our effective tax rate to be about 4% for the year.\nNon-GAAP net income was also a record at $41.5 million or $1.10 per share.\nOn a GAAP basis, net income was $35.4 million or $0.94 per diluted share.\nTurning to the balance sheet and cash flow statement.\nAt the end of the second quarter, cash, restricted cash and investments were $488.6 million.\nOperating cash flow was an inflow of $6.8 million, a decrease from the prior quarter primarily due to increased working capital in support of our strong revenue growth.\nWith capex of $10.1 million, free cash flow was an outflow of $3.3 million in the second quarter.\nAs Seamus mentioned, we have already broken ground on a new building at our Chonburi campus.\nWe expect incremental capex of approximately $50 million over an estimated 1.5-year construction period.\nThis investment is in alignment with our capital allocation strategy to invest in our longer-term growth.\nDuring the quarter, we repurchased approximately 102,000 shares at an average price of $69.64 for a total cash outlay of $7.1 million.\nThese repurchases are also consistent with our capital allocation strategy.\nAt the end of the quarter, we had 93 [Phonetic] million remaining in our share repurchase program.\nI would now like to turn to our guidance for the third quarter of fiscal year 2021.\nWe are optimistic that the positive trends we have been experiencing will continue in the third quarter and we expect revenue growth across all key categories.\nWe expect optical communication to grow sequentially.\nTelecom growth is being driven by continued demand at higher data rate products combined with the earlier than expected ramping of our Cisco transfer program.\nWe also believe that datacom trends are becoming more positive and we anticipate modest growth in this area.\nIn non-optical communications, we also anticipate sequential growth.\nWe expect trends we have seen with new automotive programs will continue in the third quarter.\nWe also anticipate industrial laser revenue to increase sequentially as well.\nWe expect total revenue in the third quarter to be between $455 million and $475 million and earnings per share to be in the range of $1.10 to $1.17 per diluted share.\nIn summary, we are pleased to deliver a record second quarter result and are optimistic that the third quarter will produce another record performance.\nWe are excited with the growth from new programs in multiple areas coupled with our ability to expand margins.\nWe continue to aggressively pursue new opportunities that will further our position and driving growing revenue and profitability and enhance long-term shareholder value.",
        "summary": "compname reports q2 revenue $453.8 mln.\nsees q3 revenue $455 million to $475 million.\nq2 revenue $453.8 million.\nsees q3 non-gaap earnings per share $1.10 to $1.17.\nsees q3 gaap earnings per share $0.94 to $1.01.\nq2 non-gaap earnings per share $1.10.\nq2 gaap earnings per share $0.94."
    },
    {
        "text": "These statements are based on management's expectations plans and estimates of our prospects.\nToday's statements may be time sensitive and accurate only as of today's date, Thursday, April 22, 2021.\nWe assume no obligation to update our statements or the other information we provide.\nOur call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer.\nAlso on the call today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.\nWe're very pleased with our first quarter performance and we're encouraged by the continuing strong economic growth supported by improving consumer confidence and significant government economic stimulus.\nSimilar to our fourth quarter call, we continue to see exceptionally strong fundamentals in the industrial market.\nFor the recent CBRE flash report, U.S. industrial net absorption totaled 100 million square feet in the first quarter.\nThis marks the first time ever that demand has exceeded 100 million square feet in consecutive quarters.\nNet absorption also significantly exceeded first quarter completions of 57 million square feet.\nAs you would expect, in response to this demand, high-occupancy levels and strong rent growth, we are continuing to invest in new development projects, which I will discuss shortly.\nBefore I recap first quarter results and activity, let me start by updating you in a couple of items since our last call.\nAs we announced earlier this month, David Harker will be retiring as Executive Vice President of our Central Region effective June 30.\nDavid has been a valued member of the FR team since 1998 when he joined the company as our Regional Director in Nashville.\nHe has served our company and our shareholders as Head of our Central region since 2009 helping to shape and grow our portfolio.\nWe will miss Dave's enthusiasm, tenacity, and energy, and wish him well in his retirement.\nWith David's departure, we will consolidate our regional structure into two regions with Jojo Yap and Peter Schultz each assuming responsibility, proportions of David's region.\nMarcus is a director MCSI, Inc. and was most recently the Director of Equity and the Portfolio Manager at MFS Investment Management.\nNow moving on to our portfolio results for the quarter.\nOccupancy at quarter-end was 95.7% and cash same-store NOI growth was 2.2%.\nFor the quarter, we grew cash rental rates 10.4%.\nAnd as of today, we have renewed approximately 72% of our 2021 expirations, with a cash flow rate increase of 12.7%.\nMoving on to sales; during the quarter, we sold three properties and two condo units for $67 million at an in-place cap rate of approximately 8.4%.\nThe vast majority of the sales total related to two larger properties leased at significantly above market rents to tenants we expect to move out.\nThus far in the second quarter, we sold the land parcel for $11 million, bringing our year-to-date total to $78 million, well on our way to our sales guidance of $100 million to $150 million.\nTurning now to new investments, as we continue to seek out profitable opportunities, development remains our primary means of new investment to drive future cash flow growth.\nAs most of you are aware, as part of our underwriting process and to manage risk, we operate with a self-imposed speculative leasing cap.\nBased on the strong fundamentals, combined with the growth of our company, our balance sheet strength, portfolio performance and our significant future growth opportunities, we believe it is prudent to increase our speculative leasing cap by $150 million to $625 million.\nWhen we first initiated this leasing cap nine years ago, it represented approximately 9% of our total market cap.\nThe new cap level represents a similar percentage.\nFurther, we are pleased to announce two new development projects scheduled to break ground in the second quarter.\nThese are in addition to the three first quarter starts in the Inland Empire, Nashville and Phoenix we told you about on our February earnings call.\nThe first project is at our First Park 121 in Dallas comprised of two buildings totaling 375,000 square feet with an estimated investment of $30 million and a targeted cash yield of 7%.\nThis is the third and final phase of our park in Lewisville, adding to the three previously completed buildings that totaled 779,000 square feet.\nWe pre-leased the 125,000 square foot building, so we're 33% leased on the new phase prior to groundbreaking.\nThe other start is the second building in our First Aurora Commerce Center project in the airport submarket of Denver.\nIt's a 588,000 square footer adjacent to the 556,000 square foot building we completed in the third quarter of 2019 which was 100% leased within a couple months of completion.\nEstimated investment is $53 million with a targeted cash yield of 6%.\nThis new building position us well to serve a significant demand for larger spaces we are seeing in that market and we look forward to future growth at that park on our remaining land on which we can develop three additional buildings totaling approximately 700,000 square feet.\nIncluding these two new developments starts, our developments in process today total 3.3 million square feet with a total estimated investment of $318 million.\nAt a cash yield of 6.2%, our expected overall development margin on these projects is a healthy 45% to 55%.\nMoving on to acquisitions, during the quarter, we bought one building and three land sites for a total purchase price of $24 million.\nThe existing asset is a 62,000 square foot distribution facility in the Oakland submarket.\nThe total purchase price was $12 million and the expected stabilized cash yield is 4.8%.\nThe three new land sites total 16.6 acres and are located in the Lehigh Valley in Pennsylvania, the Inland Empire East and the Oakland market of Northern California.\nTotal purchase price was $12 million and these sites can accommodate up to 275,000 square feet of future development.\nIn total, our balance sheet land today can support more than 10 million square feet of new investments and our two joint ventures can support 11 million square feet with our share of around 5 million.\nSo, we're well-positioned for future growth.\nAs always we continue to utilize the strength of our platform to secure profitable new investments.\nOur team is working around the clock to execute our capital deployment plan with a focus on growth.\nLet me recap our results for the quarter.\nNet refunds from operations were $0.46 per fully diluted share compared to $0.45 per share in 1Q 2020.\nAnd our cash same-store NOYI growth for the quarter, excluding termination fees and a gain from an insurance settlement, was 2.2% primarily due to an increase in rental rates on new and renewal leasing, and rental rate bumps embedded in our leases partially offset by lower average occupancy.\nSummarizing our outstanding leasing activity during the quarter, we commenced approximately 3.3 million square feet of leases.\nOf these, 600,000 were new; 2.3 million were renewals and 500,000 were for developments in acquisitions with lease-up.\nTenant retention by square footage was 76.5%.\nCash rental rates for the quarter were up 10.4% overall, with renewals up 8.3%, and new leasing, 17.8%.\nAnd on a straight-line basis, overall rental rates were up 21.4% with renewals increasing 17.6% and new leasing up 35.5%.\nNow on to a few balance sheet metrics; in March 31, our net debt plus preferred stock to adjusted EBITDA is 4.8 times and the weighted average maturity of our unsecured notes, term loans, and secured financings was 6.1 years, with a weighted average interest rate of 3.6%.\nKey assumptions for guidance are as follows: quarter-end average in-service occupancy of 95.75% to 96.75%, an increase of 25 basis points at the midpoint, helped by property sales in the first quarter; same-store NOI growth on a cash basis before termination fees of 3.5% to 4.5%, an increase of 50 basis points at the midpoint to the first quarter performance and property sales in the first quarter.\nPlease note that our same-store guidance excludes the impact of approximately $1 million from the gain from an insurance settlement.\nOur G&A expense guidance remains unchanged at $33 million to $34 million.\nIn total, for the full year 2021, we expect to capitalize about $0.05 per share of interest.\nAnd lastly, guidance also reflects the expected payoff of $58 million of secured debt in the third quarter, with an interest rate of 4.85%.\nWe're off to an excellent start in 2021.\nOur team's focused on capitalizing on the positive momentum generated by the recovering economy and the continuing evolution and growth in the supply chain.",
        "summary": "q1 ffo per share $0.46."
    },
    {
        "text": "These statements are based on management's expectations, plans and estimates of our prospects.\nToday's statements may be time-sensitive and accurate only as of today's date, Thursday, July 23, 2020.\nWe assume no obligation to update our statements or the other information we provide.\nAlso on the call today are Jojo Yap, our Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.\nI hope that you and yours are maintaining your health as we all work through these challenging times.\nBefore we discuss the quarter, we would like to express our gratitude and bid farewell to an important member of the First Industrial family.\nAs we previously disclosed, Bruce Duncan has retired from our Board.\nAs many of you know, Bruce has taken on a new challenge as CEO of another REIT.\nBruce joined First Industrial as our CEO in 2009 during a difficult period and provided tremendous leadership to help stabilize and transform our business model and portfolio.\nWe wish Bruce well in his new role.\nAs you may also have seen, seasoned FR Director, Matt Dominski, has taken over as Chairperson.\nMatt has been a highly productive member of our Board since 2010.\nWe are thrilled to have Matt as our new Chair and look forward to his continued counsel and leadership.\nMoving now to the quarter.\nWe produced strong results demonstrated in several different areas, including collections, leasing, investment and capital markets.\nOur regional teams have done a fantastic job in the second quarter on collections.\nAs of yesterday, we have collected 98% of 2Q monthly rental billings and so far, we've collected 97% of July billings, which is ahead of the pace we experienced in the second quarter.\nIf we include collections from government-related tenants that regularly pay at the end of the month, our collection rate for July would also be 98%.\nAbout 65% of the outstanding monthly rental billings in the second quarter were in jurisdictions that have moratoriums on the landlord's right to evict, which we believe, is a contributing factor toward the open receivables for this group.\nTo be clear, in our calculation of this collections percentage metric, the numerator reflects cash collections and we do not give ourselves credit under our methodology for the application of security deposit.\nIn addition, the denominator reflects the total monthly rental billings and is not reduced for any reserves for bad debt expense or rent deferrals.\nIncluding surrendered security deposits and bad debt reserves recognized in the second quarter, our outstanding accounts receivable related to our monthly rental billings in 2Q is only $550,000.\nRent relief requests have tapered off to a minimum.\nDuring the COVID-19 crisis to-date, we have established rent deferment agreements with 14 tenants totaling $750,000 or about 18 basis points of annualized billings.\nThe average term for these deferrals is 1.3 months.\nIt appears the government stimulus has helped a number of our customers and business leaders in general are more optimistic about their prospects.\nThe industrial business continues to perform well as commerce continues to flow through logistics facility.\nAs you've seen, economic activity has improved since March and April and our customers and prospects are moving ahead with new space requirements albeit with caution, in some cases.\nIn its second quarter preliminary flash report, CBRE reported 19 million square feet of net absorption versus 56 million square feet of completion.\nThese figures should not be a surprise given the economic slowdown attributable to COVID and the resulting drop in Q2 leasing activity.\nHowever, we are optimistic about our long term prospects given the acceleration of e-commerce adoption and the potential for additional safety stock, generating incremental demand for logistics space.\nThis view is supported by CBRE's recent forecast that annual net industrial absorption will total more than 333 million square feet by 2022.\nIf they are right, net absorption for the sector will exceed the high watermark, post a great financial crisis of 324 million square feet in 2016 and the all-time mark of 329 million square feet in 2000.\nDespite completions exceeding net absorption nationally in the quarter, our portfolio occupancy increased to 97.7% at quarter-end.\nWe also achieved a big leasing win at our Nottingham Ridge Logistics Center in the I-95 North submarket in Baltimore.\nWe leased 100% of the 585,000 square foot Building A to a leading e-commerce provider on a long term basis, which commenced in late June.\nConsidering we purchased this asset in the first quarter, we leased this property significantly ahead of the 12-month lease-up budgeted in our guidance.\nWith just 54,000 square feet remaining to lease, we are now 93% occupied at this 751,000 square foot two-building project.\nLooking more closely at our portfolio performance.\nAs of July 22nd, we have signed 83% of our 2020 lease expirations at a cash rental rate increase of 8.6%.\nFor the full year, we expect our cash rental rate change on new and renewal leasing to be approximately 10%.\nThe investment market has begun to awaken after a fairly quiet period in which we saw the bid-ask spread widen a bit.\nMost offerings had been shelved as participants saw more clarity on the direction of the economy and asset values.\nThe federal government stimulus actions certainly helped to quell some of those concerns and based on what we are seeing and hearing, pricing has returned to pre-COVID levels and in some cases is higher.\nWe were able to make a few acquisitions during the quarter in some high barrier markets.\nWe acquired a 39,000 square-footer in Fremont in Northern California and added an adjacent building comprised of 46,000 square feet.\nThe aggregate purchase price was $17.8 million with a weighted average initial yield of approximately 4.6%.\nWe also added a 9.7-acre covered land investment in the Inland Empire for $3.5 million.\nThe site has a 3% in-place yield for the next several years, generating some cash for us as we entitled the site.\nThe site will accommodate a 155,000 square foot development.\nThus far in the third quarter, we have closed on a 6.6-acre site in Seattle for $6.1 million that can accommodate a 129,000 square foot building.\nWe are also excited to launch a new build-to-suit development at our First Nandina II site in the Inland Empire.\nThe building will be 221,000 square feet and it's leased on a long term basis to a manufacturer of material handling systems.\nTotal investment is $22.4 million and the initial cash yield will be approximately 6.2%.\nWe are proceeding with all of our developments in process, which totaled 1 million square feet and a total investment of $94.7 million at June 30th.\nIn addition to our on-balance sheet developments, construction on the 643,000 square foot spec building in our Phoenix joint venture at PV303 is progressing well.\nOur portion of the investment is $21 million and our targeted yield is 7%.\nOur on-balance sheet land holdings will accommodate approximately 13 million square feet of future developments, the vast majority of which is entitled and ready to go.\nWe continue to move ahead on infrastructure work at several sites so that we are prepared to launch when we think economic conditions in the specific submarkets justify new starts.\nIn the second quarter, we sold three buildings totaling 211,000 square feet for $14.6 million.\nThese were comprised of a building in Detroit, one in Chicago and our last asset in Indianapolis.\nYear-to-date, we sold 437,000 square feet for a total of $41.1 million.\nAs a reminder, in the third quarter, we expect to close on the $55 million sale in Phoenix, in which the tenant exercised its purchase option in 2019.\nMoving to our recent capital markets activity.\nOn July 7th, we entered into a private placement agreement to issue $300 million in total of 10 and 12 year notes with a weighted average interest rate of 2.81%.\nOn July 15th, we closed on an extension of our term loan that was scheduled to mature in January of 2021.\nThese two executions provide us additional capital for new investment and lengthen our maturity schedule.\nSo all in all, a successful and very busy quarter with great execution by our team.\nI will begin with our earnings per share and FFO for the second quarter.\nDiluted earnings per share was $0.28 versus $0.31 one year-ago and NAREIT funds from operations were $0.46 per fully diluted share compared to $0.43 per share in 2Q 2019.\nSecond quarter 2020 FFO includes approximately $500,000 of cash bad debt expense related to tenant accounts receivable and $400,000 of non-cash bad debt expense related to the write-off of certain deferred rent receivables.\nPier 1 has paid July rents and we are assuming they pay August rent, which in total represents a $500,000 pick up from our prior guidance.\nOccupancy was strong at 97.7%, up 60 basis points from the prior quarter and up 40 basis points from a year-ago.\nAs for leasing volume during the quarter, we commenced approximately 2.9 million square feet of leases, 600,000 were new, 1.6 million were renewals and 700,000 were for developments and acquisitions with lease-up.\nTenant retention by square footage was 88.7%.\nSame-store NOI growth on a cash basis, excluding termination fees, was 6.3% helped by increase in rental rates on new and renewal leasing, a decrease in free rent and rental rate bumps embedded in our leases.\nThis was partially offset by increase in bad debt expense and slightly lower average occupancy.\nCash rental rates were up 11% overall with renewals up 8.9% and new leasing 16.7%.\nAnd on a straight-line basis, overall rental rates were up 32.4% with renewals increasing 30.6% and new leasing up 37.5%.\nAs Peter mentioned, we executed on two capital market transactions in the third quarter that extend and ladder our maturities at attractive rates.\nFirst, we entered into an agreement to issue $300 million of fixed rate senior unsecured notes in a private placement offering.\nThe notes are comprised of two tranches, $100 million with a 10-year term at a rate of 2.74% and $200 million with a 12-year term at a rate of 2.84%.\nWe expect to close on the offering on or about September 17th of this year.\nOn an interim basis, we will use these funds to pay down our line of credit, which will give us more liquidity to fund new investment and a secured debt maturity in 2021.\nWe also refinanced our $200 million unsecured term loan, previously scheduled to mature at the end of January 2021.\nThe new loan has an initial maturity date of July 2021, which we can push to July 2023 via two one-year extensions exercisable at our option.\nThe loan features interest-only payments and bears an interest rate of LIBOR plus 150 basis points.\nIn conjunction with the new term loan, we entered into new interest rate swap agreements that convert the loan to a fixed interest rate of 2.49%, beginning in February 2021.\nIn 2021, we will realize about a penny per share of savings due to this refinancing.\nAfter these two executions, one of our remaining 2021 maturities is the aforementioned $63 million of secure debt in the fourth quarter.\nWe can pay that off using our line, which will have additional capacity created by the proceeds from our private placement offering.\nThe other is our line of credit, which matures in October of 2021, but we can push that out another year through a one-year extension exercisable at our option.\nOur leverage is also in good shape with our net debt plus preferred stock to EBITDA at 5.2 times at January -- at June 30th.\nOur guidance range for NAREIT FFO and FFO before one-time items is now $1.76 to $1.84 per share with a midpoint of $1.80.\nThis is an increase of $0.02 per share compared to the midpoint of our guidance on our first quarter call.\nThe increase is primarily due to the early lease up of the 585,000 square foot building at the Nottingham Ridge Logistics Center as well as two months of additional rental income from Pier 1.\nThis is slightly offset by additional interest expense based on our assumption that we use the funds from our private placement offering to pay down our line of credit in the near term.\nOur assumption for the average -- for the range of average quarter-end occupancy remains 96% to 97% and our cash bad debt expense assumption remains $900,000 for each of the third and fourth quarters.\nPlease note that guidance does not include any potential write-offs of deferred rent receivables related to tenants that are having financial difficulties.\nOther key assumptions for guidance are as follows, same-store NOI growth on a cash basis before termination fees of 3.25% to 4.25%, an increase of 25 basis points at the midpoint and a tightening of the range.\nOur G&A guidance range remains at $31 million to $32 million and guidance also includes the anticipated 2020 costs related to our completed and under construction developments at June 30th, plus the third quarter start of First Nandina II.\nIn total, for the full year 2020, we expect to capitalize about $0.04 per share of interest related to our developments.\nThe impact of any future gain related to the final settlement of one insurance claim from a damaged property.\nAnd guidance also excludes the potential issuance of equity.\nOur company is built for the long term and we are well positioned to drive cash flow growth for shareholders by serving logistics needs of a range of essential and emerging businesses, while capitalizing on the secular drivers of e-commerce.\nWith that, we will now move to the question-and-answer portion of our call.",
        "summary": "compname reports second quarter ffo per share of $0.46.\nq2 ffo per share $0.46.\nq2 earnings per share $0.28.\n2020 ffo guidance increased $0.02 at midpoint to $1.80 per share/unit primarily reflecting portfolio performance."
    },
    {
        "text": "These statements are based on management's expectations, plans and estimates of our prospects.\nToday's statements may be time-sensitive and accurate only as of today's date, Thursday, February 11th, 2021.\nWe assume no obligation to update our statements or the other information we provide.\nAlso on the call today are Jojo Yap, our Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.\nWe hope you're doing well and staying healthy.\n2020 was a year unlike any other and one which we would each like to put in our very distant memory.\nNotwithstanding the turmoil, fear and uncertain operating environment, the FR team remain focused, executed the plan and performed admirably generating outstanding results for shareholders.\nOur portfolio performance was strong.\nWe maintained high occupancy levels, grew cash rents and collected over 99% of build rents, more on that in a moment.\nWe capped off 2020 with an excellent fourth quarter.\nWe delivered year-end occupancy of 95.7%, up 70 basis points from the guidance midpoint provided on our third quarter call.\nThis was driven primarily by leasing at our developments and one of our replacement tenants in Southern California taking occupancy earlier than anticipated.\nFor the full year, we grew cash rental rates 13.5%, which is the second highest in our company's history, just behind the 13.9% growth we achieved in 2019.\nThese metrics reflect consistently strong tenant demand for high-quality logistics space.\nIn our markets, we're seeing well located and highly functional space being absorbed by e-commerce and other traditional users and their efforts to optimize supply chain.\nThe positive fourth quarter leasing statistics nationally are consistent with our own experience as CBRE's preliminary figure for net absorption is 104 million square feet, the highest quarterly result in the last four years and exceeding the 69 million square feet of 4Q completions.\nFor the full year, net absorption was 224 million square feet, 15% higher than 2019.\nCompletions were 265 million square feet, an increase of 10% over 2019.\nIn 2021, we expect to capitalize on our current land holdings as well as new acquisitions to generate more growth and value creation.\nWe're also focused on making progress in realizing the three-year cash flow growth opportunity we laid out for you at our Investor Day this past November.\nI'm pleased to say we're off to a strong start as we've signed leases for approximately 54% of our 2021 rollovers and a cash rental rate increase of approximately 13%.\nThis early performance is consistent with the 10% to 14% increase we expect on our new and renewal leasing for the full year 2021.\nOur expirations for the balance of 2021 are fairly granular with our largest remaining rollover now a 400,000 square footer where the tenant is expected to vacate in May.\nI'd like to highlight several big leasing wins and some of our developments.\nAs evidence of the strength of the South Florida market, we're pleased to announce we have signed a long-term lease for 100% of the three-building First Cypress Creek Commerce Center with a single e-commerce tenant.\nThis project totals 377,000 square feet and the lease commenced right at completion on February 1st.\nOur total investment is $37.1 million and our first year stabilized cash yield is 6.6%.\nIn the Inland Empire at our First Redwood project, we signed and commenced leases for both the 358,000 and the 72,000 square foot facilities in the fourth quarter.\nAnd just this week, we fully leased the remaining 44,000 square foot building.\nGiven our own experience and the strong market dynamics reflected in CBRE's fourth quarter update report, which shows the Inland Empire vacancy rate at 1.9%.\nWe're excited to be readying our next start in that market, which I will discuss shortly.\nAlso in the fourth quarter in Dallas, we signed two leases at First Park 121 to bring a pair of buildings there to 100% occupancy.\nThe first was for the remaining 101,000 square feet at the 434,000 square foot Building E and the second was a 25,000 square foot expansion at Building B. Each of these leases is a reflection of the continued strong demand for high-quality logistics space and the effort and talent of our leasing teams across the country.\nTurning to new development starts.\nWe've broken ground PV 303 Building C in Phoenix on our wholly owned site.\nThis 548,000 square foot cross-dock facility is our fourth speculative development in this highly sought after size range since 2017.\nEach of our prior projects in this market was fully leased at or near completion.\nTotal investment for this new development is approximately $42.6 million with a targeted cash yield of 6.6%.\nTurning now to the new project in the Inland Empire I referenced.\nWe are planning to break ground in the coming weeks on First Wilson I, a 303,000 square foot facility in the I-215 corridor of the Inland Empire.\nThis is a $30.2 million development with a targeted completion at the end of December and a projected cash yield of 6.3%.\nLastly, we will be starting a 500,000 square foot development in Nashville known as First Rockdale IV.\nThe site is located within a park where we have successfully developed buildings over the years.\nTennessee was among the fastest growing states in the US during 2020 and Nashville is its largest city.\nWe've seen increased absorption and leasing activity for large distribution centers in this sub-market and are excited about this opportunity.\nTotal investment is approximately $26.8 million with a targeted cash yield of 7.2%.\nSumming up our development activity in 2020, we placed in service 10 buildings totaling 2.5 million square feet with an estimated investment of $222 million.\nThese assets are 79% leased at an estimated cash yield of 7.2% upon full lease up.\nThis represents an expected overall margin of 58% to 68%, which is about a $1 per share of NAV.\nOne additional item of note regarding our highly successful JV in Phoenix.\nAs we discussed on our third quarter call, we successfully leased the 644,000 square foot spec building at PV 303 to a single tenant.\nUpon completion in the fourth quarter, we negotiated the acquisition of our partners' interest in the building, reflecting a total purchase price of $42.6 million, which is net of our $5.2 million share of the joint venture's gain on sale and incentive fee.\nMoving now to dispositions.\nDuring the quarter, we sold 15 properties for $97.1 million at an in-place cap rate of approximately 6.4%.\nIn 2020, excluding the previously reported purchase option related sale in Phoenix, we sold 1.9 million square feet for a total of $153.4 million, essentially at the midpoint of our target sales guidance range for the year.\nFor 2021, our guidance for sales is $100 million to $150 million.\nIn the coming weeks, we anticipate selling a 664,000 square foot building in Houston at a sales price of approximately $42 million.\nGiven its very high probability of closing, we are including the impact of this sale in 2021 guidance.\nAside from the first quarter sale I just mentioned, we expect the majority of the remaining 2021 sales to be back-end loaded.\nBased upon our strong 2020 performance and 2021 outlook, which Scott will discuss shortly, our Board of Directors has declared a dividend of $0.27 per share for the first quarter of 2021.\nThis is a $1.08 per share annualized, which equates to an 8% increase from 2020.\nThis dividend level represents a payout ratio of approximately 69% of our anticipated AFFO for 2021 as defined in our supplemental.\nTo wrap it up, we had an excellent quarter to end the year on a high note.\nWe're very excited about the strength of our platform and our future development pipeline, both of which position us well to benefit from continued strong fundamentals in the industrial market and to take advantage of the growth opportunities that are to come in 2021.\nLet me recap our results.\nNAREIT funds from operations were $0.44 per fully diluted share compared to $0.45 per share in 4Q 2019.\nFor the full year, NAREIT FFO per share was $1.84 versus $1.74 in 2019.\nI remind you that our full year 2020 includes income related to the final settlement of two insurance claims for damaged properties recognized in prior quarters.\nThis was partially offset by a restructuring charge in costs related to the accelerated vesting of equity awards for retirement eligible employees.\nExcluding the impact of approximately $0.04 per share related to these items, 2020 FFO per share was $1.80.\nNow a quick update on our collection experience.\nWe have collected 99% of the 2020 monthly rental billings every month since April.\nAnd effectively it would be 100% if we factored in reserves.\nWe are also pleased to announce all tenants with deferral agreements and paid back those obligations in full and we currently have no other agreements outstanding.\nIn another bit of good news, we have closure on one of our last tenants on the watchlist that we discussed in our last call.\nThis tenant occupied a 137,000 square foot building in the Chino submarket of the Inland Empire West and vacated on December 31st.\nDue to the great work of our Southern California team, we were able to lease 100% of the building on a long-term basis with only one month of downtime at a cash rental rate increase of 28%.\nIn the fourth quarter, we also wrote off the $1.1 million of cash in straight-line rent receivable related to this tenant.\nIn doing so, we have taken care of the last material accounts receivable exposure related to our COVID-related watchlist.\nSummarizing our outstanding leasing volume during the quarter, we commenced approximately 4.4 million square feet of leases.\nOf these, 700,000 square feet were new, 1.6 million square feet were renewals and 2.1 million square feet were for developments and acquisitions with lease up.\nTenant retention by square footage was 80.6%.\nFor the quarter, same-store NOI growth on a cash basis, excluding termination fees, was 1.3% helped by an increase in rental rates on new and renewal leasing and rental rate bumps embedded in our leases, partially offset by lower average occupancy and an increase in free rent.\nFor the full year 2020, cash same-store NOI growth before lease termination fees was 4.4%.\nCash rental rates for the quarter were up 10.4% overall with renewals up 8.6% and new leasing 12.8%.\nOn a straight-line basis, overall rental rates were up 25.5% with renewals increasing 25.9% and new leasing up 25.1%.\nFor the year, cash rental rates were up 13.5%, which as Peter mentioned is the second highest in the company's history.\nOn a straight-line basis, they were up 29.7%.\nNow on to a few balance sheet metrics.\nAt December 31st, our net debt plus preferred stock to adjusted EBITDA is 4.8 times and the weighted average maturity of our unsecured notes, term loans and secured financings was 6.3 years with a weighted average interest rate at 3.7%.\nOur guidance range for NAREIT FFO is $1.85 to $1.95 per share with a midpoint of $1.90.\nKey assumptions for guidance are as follows; quarter end average in-service occupancy for the year of 95.5% to 96.5%; our cash bad debt expense assumption for 2021 is $2 million, consistent with last year's pre-pandemic assumption.\nSame-store NOI growth on a cash basis before termination fees of 3% to 4%.\nWe expect our G&A expense to approximate $33 million to $34 million.\nIn total, for the full year 2021, we expect to capitalize about $0.05 per share of interest related to these developments.\nGuidance reflects the impact from the $42 million sale in Houston, expected to close in the first quarter that Peter discussed, which could be as much as $0.02 per share of FFO impact in 2021 depending on redeployment of the anticipated proceeds.\nThe guidance also reflects the expected pay off of $58 million of secured debt in the third quarter with an interest rate of 4.85%.\nOther than previously discussed, our guidance does not reflect the impact of any other future sales, acquisitions or new development starts, the impact of any future debt issuances, debt repurchases or repayments and guidance also excludes the potential issuance of equity.\nBefore we open it up to questions, let me congratulate our team for their outstanding performance in 2020.\nIt was the kind of year that is impossible to prepare for.\nThere is no training for how to manage the business through a pandemic, especially one accompanied by social and political unrest not seen in decades.\nThe true leaders emerged during a crisis and when they have managed well and the crisis has passed, to most it may not have felt like a crisis at all.\nThis is what we experienced within our company across every role in every region.\nI couldn't be more proud to work with such a talented group of people nor more excited about the opportunities ahead.\nWith that, we will now move to the question-and-answer portion of our call.",
        "summary": "q4 ffo per share $0.44.2021 ffo guidance initiated at a range of $1.85 to $1.95 per share/unit."
    },
    {
        "text": "I'm going to give a very brief overview of our first quarter results and afterward I'll pass the call to George for his comments.\nWe reported funds from operations or FFO of $18 million or $0.17 per share for the first quarter of 2021.\nTurning to our balance sheet at March 31, 21, we had a total of $947.5 million of unsecured debt outstanding, including $27.5 million drawn on our line of credit.\nAt quarter end, between cash on hand and availability on our line, we had a total liquidity of about $577 million.\nAs a reminder, all of our debt is unsecured and we have no debt maturities until November 30, '21 when $155 million of term loans will become due.\nOur debt is at fixed rates, other than the $27.5 million that sits on our line of credit, which is a floating rate.\nAs the vaccinations against COVID-19 continue to steadily rise in the U.S., so too, are we seeing a slow but steady increase in existing office tenants personnel returning to work at our properties and corporate decision makers more actively considering there are future locational office space needs.\nTrying to determine the ultimate strength, timing and longevity of the post-pandemic U.S. and global economic reopening is a significant challenge for companies trying to make intelligent new leasing decisions today.\nBut real on the ground, very early activity surrounding potential new leasing prospects that FSPs portfolio properties has not been this robust since before the start of the COVID-19 pandemic.\nAs 2021 progresses, assuming continued successful vaccination efforts against the virus, FSP is optimistic that one of its two major objectives for 2021, that is leasing progress, will achieve positive results.\nOur other primary objective for 2021 is debt reduction.\nFrom a debt reduction perspective, we are actively working on the potential sale of select properties that we believe have their near-term value objectives, and where we believe such value may not be fully reflected in our share price.\nWe are reaffirming our previously announced 2021 disposition guidance to be in the range of $350 million to $450 million in aggregate gross proceeds.\nDisposition proceeds are intended to be used primarily for debt reduction.\nIf successful in our property disposition efforts during 2021 and along with our previously achieved sale of our f Emperor Boulevard property in the fourth quarter of last year, FSP is projecting it will reduce its total indebtedness by approximately 35% to 50% by the end of the year.\nAnd while losing some of the current positive FFO spread that is generated between rental constance and debt constance from the property disposition debt pay down plan, we believe shareholders should maintain our NAV per share with less risk to their NAV from lower debt levels capitalizing the remaining property portfolio, while the company gains more overall flexibility in it's ongoing real estate investing activities.\nWe also believe that along with meaningful dividends that may be distributed during 2021, the remaining lower leverage property portfolio moving into a post-COVID 2022, has a significant value-add proposition associated with it, that if achieved, could meaningfully enhance shareholder NAV values further from 2021 levels.\nAt this time, due primarily to the uncertainty surrounding the timing and the amount of proceeds from property dispositions, we are continuing suspension of net income and FFO guidance.\nFSP remains committed to its Sunbelt and Mountain West office focus that emphasizes markets and properties with compelling long-term population and employment growth potential.\nWe continue to look forward 2021with anticipation and optimism.\nAt the end of the first quarter, the FSP portfolio including redevelopment was approximately 81% leased.\nThe average leased occupancy of the portfolio for calendar 2020 was approximately 83.6%.\nRent collections were greater than 99.5% for the first quarter of 2021.\nThe physical occupancy of the majority of office buildings continues to increase with suburban assets leading the way, particularly in the Sunbelt markets.\nThe typical occupancy in FSPs suburban office buildings now exceeds 20%, with some buildings approaching 40%.\nUrban buildings in FSPs markets has not exceeded 20% occupancy on average yet.\nHowever, we expect that to change during the summer months as the new school year arrives in the fall.\nThe number of announcements for large companies that are inviting employees back to the offices by July have been increasing during the past month.\nThese are all positive signs and we expect this trend to continue.\nWe are extremely encouraged by meaningful growth in FSPs pipeline of prospective tenants.\nDuring the last two months, FSP has witnessed a significant increase in property tours, submitted RFPs and counter proposals.\nFSP is currently tracking approximately 800,000 square feet of new prospective tenants that have shortlisted FSP assets compared to approximately 300,000 square feet last quarter.\nFSP has been engaged with existing tenants and sub tenants for approximately 250,000 square feet of renewals and expansions.\nBarring any surprises, the potential for aggregate net absorption over the next six months to 12 months is approximately 600,000 square feet.\nThese figures are the highest we have witnessed since the first quarter of 2020.\nDuring the past six months, FSP has finalized renewals and expansions with tenants exceeding 870,000 square feet.\nAs a result, we have reduced the near-term rollover exposure of expiring leases through 2023 to approximately 18% of the total portfolio.\nThis equates to roughly 6% of annual lease expirations from 2021 through 2023.\nCoupled with improving demand in FSPs office markets, the foundation appears to be set for FSP to make meaningful progress regarding net absorption and higher leased occupancy.\nWe here at Franklin Street Properties hope that everyone remains safe and healthy.\nI wanted to discuss FSPs disposition goals for 2021 and our in-progress work to achieve these objectives and then shift gears to provide some insight as to what we are seeing on the ground at this early stage of our price discovery work in the marketplace.\nFirst, though, FSP is reaffirming our guidance of between $350 million and $450 million of select dispositions for calendar year 2021.\nThe objective of our disposition plan once again is primarily to pay down debt in order to gain greater financial flexibility and to position for stronger value and returns for our shareholders.\nThe key determinant for any dispositions will be an assessment of whether a property has met its respective near-term value objectives, which we also believe has the potential to capture embedded value for our shareholders that may not be accurately reflected within our current share price.\nWe also would like to reemphasize that FSP remains committed to our Sunbelt Mountain West strategic market focus, where we continue to believe long-term business and population growth has the potential to exceed the national average.\nLooking at potential dispositions for 2021, at this time, FSP is working on the following properties; River Crossing in Indianapolis, Timberlake Corporate Center in Greater St. Louis, Meadow Pointe in Northern Virginia, Innsbruck Corporate Center in Greater Richmond, Laven Tech Center in Northern Virginia, One & Two Ravinia Drive, and One Overton Park, all in the Greater Atlanta.\nFor both competitive purposes and reasons of confidentiality, we will not be discussing specific property pricing or targets, cap rates or related information at this time.\nHowever, we do anticipate that if we are successful with our efforts under way, that FSP would satisfy our disposition guidance for 2021.\nLastly, we wanted to share what we are seeing at least in an aggregate sense within the investment marketplace at this early stage of our price discovery process work, especially since the volume of office sales nationally has declined over recent quarters due to the pandemic, as FSP and our associated professionals work on price discovery, we have experienced solid initial interest.\nFeedback is generally fallen within three basic views with respect to investment in office properties.\nOne view is from a segment of investors who have a generally positive view of office at this time.\nAnd this group of investors are by and large bullish on the reopening of the economy and the potential power that the vaccine rollout across the nation and globe can have on office assets.\nGenerally, these investors, while selective, are looking at both multi-tenant and single-tenant profile assets in high-quality buildings and some also appear to be selectively underwriting value add upside potential.\nA second view comes from investors who are also interested in an office investment, but was a bit less conviction and our accordingly more focused on fully stabilized properties with compelling weighted average lease terms and high quality.\nWe are currently seeing interest from both of these two profiled groups via confidentiality agreements as well as from property tours, and largely coming from an array of mostly private investors.\nAnd we recognize and appreciate that interest is only their interest, it has not defined pricing yet, and certainly not actual closing numbers, but it is at least a gauge of potential activity at this early stage of our price discovery process work and so should be viewed within that context.\nA third segment of investors also exists, who're yet to be convinced of economic stabilization from the pandemic and so are reluctant to commit to investment at this time.\nThese three views are all being seen in our disposition work and show us that there is indeed a market to be made for price discovery and over the coming months, we will continue to keep the market posted as we learn more about true pricing and actual demand.\nAnd at this time, we'd like to open up the call for any questions.",
        "summary": "q1 ffo per share $0.17.\nmaintains 2021 disposition guidance."
    },
    {
        "text": "I'm Ian Hudson, the company's Chief Financial Officer.\nAlso with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.\nThese documents are available on our website.\nIn addition, we will file our Form 10-Q later today.\nI'm going to begin today by providing some detail on our second quarter results before turning the call over to Jennifer to provide her perspective on our performance, market conditions and thoughts on the rest of the year.\nIn summary, we delivered another outstanding quarter with operating results exceeding our expectations despite dramatic increases in commodity costs and ongoing supply chain disruption, including factors linked to the global shortage in semiconductors.\nAs a reminder, in the prior year quarter, we also took several cost saving actions in response to the uncertainty created by the pandemic, which reduced our costs in Q2 last year by approximately $14 million.\nWhile most of these savings were either temporary cost reductions or volume related, some were more permanent actions.\nIn Q2 this year, the return of many of these costs represented a year-over-year expense headwind of approximately $5 million.\nConsolidated net sales for the quarter were $335 million, up $65 million or 24% compared to last year.\nConsolidated operating income for the quarter was $38.5 million, up $7.2 million or 23% compared to last year.\nConsolidated adjusted EBITDA for the quarter was $51.9 million, up $6.5 million or 14% compared to last year.\nThat translates to a margin of 15.5% in Q2 this year compared to 16.8% last year.\nNet income for the quarter was $29.7 million, up from $21.4 million last year.\nThat equates to GAAP earnings per share for the quarter of $0.48 per share, up 37% from $0.35 per share last year.\nOn an adjusted basis, earnings per share for the quarter was $0.50 per share, an improvement of 19% compared to $0.42 per share last year.\nOrder intake for the quarter was again outstanding with orders of $361 million representing an increase of $159 million or 79% compared to Q2 last year.\nConsolidated backlog at the end of the quarter set a new company record at $437 million.\nThat represents an increase of $104 million or 31% compared to Q2 last year and an increase of $133 million or 44% from the end of last year.\nIn terms of our group results, ESG's net sales for the quarter were $281 million, up $67 million or 31% compared to last year.\nESG's operating income for the quarter was $38.5 million, up $9.9 million or 35% compared to last year.\nESG's adjusted EBITDA for the quarter was $50.6 million, up $9.7 million or 24% compared to last year.\nThat translates to an adjusted EBITDA margin for the quarter of 18% at the high end of our current target range but down a 110 basis points compared to last year.\nESG reported total orders of $300 million in Q2 this year, an improvement of $142 million or 90% compared to last year.\nSSG's net sales for the quarter was $53 million compared to $56 million in Q2 last year, which included a large fleet sale of public safety equipment to a customer in Europe.\nSSG's operating income for the quarter was $7.8 million compared to $10.4 million last year.\nSSG's adjusted EBITDA for the quarter was $8.7 million compared to $11.7 million last year.\nAdjusted EBITDA margin for the quarter was 16.3% compared to a record margin of 20.9% in Q2 last year, which included favorable sales mix and lower operating expenses.\nSSG's orders for the quarter were $61 million, up $17 million or 39% compared to last year, with most of the improvement resulting from higher demand for public safety equipment in both domestic and international markets.\nCorporate operating expenses for the quarter were $7.8 million compared to $7.7 million last year.\nTurning now to the consolidated income statement, where the increase in sales contributed to an $11.3 million improvement in gross profit.\nConsolidated gross margin for the quarter was 24.4% compared to 26% last year.\nAs a percentage of sales, our selling, engineering, general and administrative expenses for the quarter were down a 100 basis points from Q2 last year.\nOther items affecting the quarterly results include a $1.3 million reduction in restructuring charges, a $2.3 million decrease in other expense and a $700,000 reduction in interest expense.\nTax expense for the quarter increased by $1.9 million, largely due to the increase in pre-tax income levels, partially offset by higher excess tax benefits from stock compensation activity.\nIncluding the effects of these higher tax benefits, our effective tax rate for the quarter was 21.2% compared with 22.2% last year.\nAt this time, we expect our full year effective tax rate to be approximately 23%.\nOn an overall GAAP basis, we therefore earned $0.48 per share in Q2 this year compared with $0.35 per share in Q2 last year.\nTo facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters.\nIn the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses, pension-related charges, coronavirus-related expenses and purchase accounting expense effects.\nOn this basis, our adjusted earnings for the quarter were $0.50 per share compared with $0.42 per share last year.\nLooking now at cash flow, where we generated $13 million of cash from operations during the quarter, bringing the year-to-date operating cash generation to $39 million.\nDuring the quarter, we elected to accelerate the timing of certain tax payments to preserve tax planning flexibility in the event of a possible increase in U.S. corporate tax rate.\nWith this approach, we expect to see lower tax payments in the third and fourth quarters, while at the same time, creating the potential for future tax savings.\nIn addition, in Q2 last year, our cash flow benefited from certain deferrals that were permitted under the CARES Act.\nWe have also increased investments in our rental fleet, given the improving utilization levels we are experiencing.\nFor the rest of the year, we are expecting strong cash flow generation, and we continue to target cash conversion of approximately 100% on a net income basis.\nWe ended the quarter with $169 million of net debt and availability under our credit facility of $268 million.\nOur current net debt leverage remains low.\nWith our financial positioning rate remaining strong, we have significant flexibility to pursue strategic acquisitions, invest in organic growth initiatives and return cash to stockholders through dividends and opportunistic share repurchases.\nOn that note, we paid dividends of $5.5 million during the quarter, reflecting a dividend of $0.09 per share, and we recently announced a similar dividend for the third quarter.\nI'd like to start my comments with a quick update on a subject that we've been talking about for a long time, an infrastructure bill.\nThe reports from late yesterday were encouraging.\nIt finally appears that infrastructure legislation is likely.\nSome components reported to be part of the deal, which includes a total of $550 billion in new federal investment in U.S. infrastructure include: $110 billion for roads; $73 billion for power infrastructure; $65 billion to expand broadband access; $55 billion for water infrastructure; $46 billion for environmental resiliency; and $11 billion for transportation safety.\nWe are optimistic that an infrastructure package in these areas would provide funding that would support the use of the majority of our product offerings, including equipment sales and rentals of dump trucks and trailers, safe digging trucks, road marking equipment, sewer cleaners and street sweepers.\nTurning now to our performance in the quarter.\nOur teams again delivered impressive results with meaningful growth in both the top and bottom line, while achieving adjusted EBITDA margin toward the high end of our target range despite widespread supply chain disruptions and an unprecedented commodity cost environment.\nTop line growth was largely across the board, with particular strength in the sales of dump truck bodies and trailers, which were up around $15 million from Q2 last year.\nOver the last several years, we have successfully diversified our revenue streams and end market exposures through a combination of organic growth initiatives in M&A, and that helped us to partially mitigate the impact of these factors during the second quarter.\nAnother area of notable strength during the second quarter was in our aftermarkets business.\nWhile the second quarter is typically a seasonally strong period for aftermarkets, we originally had some concerns entering the quarter that rental activity in Canada would be adversely impacted by various shutdown measures taken in response to the pandemic.\nRental activity and demand for used equipment was higher-than-expected with rental utilization in Canada exceeding our targets and returning to pre pandemic levels.\nRental utilization in the U.S. is also improving.\nFor example, rental utilization of our Jetstream water blasting equipment exceeded the levels we saw in 2019.\nThe improved utilization followed a strong spring shutdown cleaning season, which has historically been a leading indicator of industrial end market recovery.\nIn June, with a combination of high rental utilization and strong used equipment sales, our JJE rental business reported the highest monthly revenue in its history.\nThose favorable trends have continued into July as well.\nOverall, our aftermarket revenues in Q2 this year were up $26 million or 46% year-over-year growing to represent a higher share of ESG revenues for the quarter at around 30%.\nThat shift in mix helped to partially mitigate the impact of higher commodity costs and production-related inefficiencies associated with supply chain disruption, helping ESG to deliver an adjusted EBITDA margin at the high end of the current range.\nAs we mentioned on our last call, following the suspension of chassis production at one of our suppliers, we made the decision to temporarily shut down production at our facility in Streator, Illinois for a two-week period around the 4th of July holiday.\nThe team worked tirelessly to mitigate the impact of this short-term disruption by effectively managing production schedules to meet record customer demand.\nWith the expansion of our Streator facility now complete, our production in May approached a record levels we experienced in 2019, helping us to deliver more units than anticipated ahead of the shutdown despite the inefficiencies associated with supply chain constraints.\nLike many companies, we are also experienced increased freight charges as we expedited the supply of certain components and higher commodity costs.\nAs they have done in the past, our procurement teams took several proactive measures, including securing availability of certain steel and locking in pricing based on forecasted needs.\nWe also work diligently to mitigate the impacts by implementing several price increases and surcharges.\nDespite these actions and with demand being significantly higher than we had expected, we experienced unfavorable price cost year-over-year headwind of approximately $3 million during the quarter, mostly within our dump truck and trailer business.\nIn Q2, we also realized the benefits from strategic investments we had made in prior quarters in building additional stock units and procuring additional chassis so that we had greater flexibility to meet customers' needs.\nThese investments have enabled us to deliver on customer expectations, in some cases, supplying chassis when they were unable to procure the chassis, which resulted in a higher concentration of low-margin chassis that we supplied as opposed to customer-supplied chassis.\nAlthough this unfavorable impact on margins this quarter, we are playing the long game by prioritizing customer deliveries and satisfaction.\nWe continue to believe that in these challenging times, the strong will get stronger, and we've seen this happen.\nWhile the current widespread macroeconomic factors could have some impact on our margins in the near term, we are taking this opportunity to try to leverage our competitive advantage to gain market share.\nDemand for our product offerings continues to be strong as demonstrated by our outstanding second quarter order intake of $361 million.\nOur teams are energized as we enter the second half of the year with a record backlog, reflecting strength across our end markets and continued confidence in a post pandemic recovery.\nThis sentiment has been widely shared by our customers and dealer partners and seems to be further solidified by recent economic stimulants.\nAs a reminder, the American Rescue Plan, COVID relief package passed earlier this year included $1.9 trillion of economic stimulus with approximately $350 billion earmarked for state, local and territorial governments for a variety of purposes, including the maintenance of essential infrastructure, such as sewer systems and streets.\nIn May, the first $175 billion tranche started to be distributed by the treasury department with a second tranche expected in 2022.\nRecent market planning sessions with our dealer channel highlighted early indications that the first tranche was starting to be allocated to essential service purchases.\nAs a provider of equipment used for these essential services like sewer cleaning and Street sweeping, we stand to benefit from additional aid that may be provided to state and local sources for these purposes.\nOn the municipal side, demand for sewer cleaners and street sweepers remains high.\nWithin our SSG public safety businesses, we are seeing benefits from new product introductions and our ability to meet customer demand.\nWe believe we are in a stronger position than many of our competitors and are gaining share.\nWe've also seen a notable uptick in our industrial end markets with improved orders for our Guzzler and Jetstream products.\nOrders within our dump body and trailer business in Q2 this year were more than double last year's orders with growth across all end markets resulting in a record backlog.\nThis is another area where we believe we are gaining share that will position us well for the future.\nWhile our backlog is at a record high, there are a few headwinds that we are -- we, like many other industrial companies will continue to monitor closely during the second half of the year.\nThe first factor that many of you will be aware of is the continued impact of the global semiconductor shortage, which is causing significant disruption regarding chassis delivery.\nThis situation changes weekly.\nBecause we do not rely on any one single chassis manufacturer and with the proactive actions we took, we have so far been able to pivot to alternative suppliers to minimize the financial impact.\nHowever, the situation remains fluid and ongoing chassis delivery delays are almost universal due to component shortages.\nBeyond chassis, we are experiencing other supply chain tightness ranging from reduced availability of paint epoxy within our road marking business to cylinders that are used in certain trucks.\nSo far this year, we've been able to successfully navigate through the difficulty, but it remains a challenging situation.\nThe second factor relates to the current commodity cost environment.\nWe currently expect the price cost impact in Q3 to be in the same neighborhood as we saw this quarter.\nBut with the pricing actions we have taken, we are expecting to see improvement beginning in the fourth quarter with more price realization expected as our backlog turns.\nOn a more positive note, we continue to have relatively good access to labor at many of our facilities, which has recently been an issue for many companies.\nOur ongoing commitment to environmental, social and governance initiatives is positioning us well in the communities in which we operate and is a differentiating factor in our ability to attract labor at many of our facilities.\nWe are still getting multiple quality applicants for open positions at our largest facility, and certain of our TBEI locations are starting to see traction from its recently introduced School of Weld program.\nOverall, our access to labor remains good.\nFurther, our companywide efforts to raise awareness about vaccines assist eligible employees and gaining access to vaccines and encourage participation levels are paying off with a companywide vaccination rate of approximately 50%.\nDomestically, about 2/3 of our businesses have achieved vaccination rates that are higher than the relevant state average.\nWe have also had notable improvements in Canada during the second quarter with greater vaccine accessibility.\nCOVID related disruptions have diminished as vaccination [Technical Issues].\nAnd most importantly, 100% of our employees that have been affected by COVID has since recovered.\nI now want to take a few minutes to provide an update on some of our strategic growth initiatives.\nOn the organic front, I've already touched on the success of our aftermarket initiative.\nWe also remain bullish about safe digging prospects and with noted industrial end market recoveries and infrastructure spend optimism throughout the channels, we are confident safe digging trends will continue to improve.\nOur TRUVAC safe digging product line portfolio includes a complete range of truck-mounted safe digging equipment, which can be used in a broad range of applications, included expanded application in utility markets.\nAs an example, one of the nation's largest utility companies recently announced plans to bury 10,000 miles of its power lines to reduce the risk of California wildfires.\nUse of safe digging technologies significantly minimizes chances of damaging underground infrastructure during the digging process and provides significant environmental benefits by minimizing damage to tree roots.\nWe've included a picture of our safe digging equipment in action while preserving trees at the same time in the accompanying slides.\nThe technology has also been utilized in recent bridge resurfacing infrastructure projects with the vacuum capabilities providing added efficiencies in the cleanup of related debris.\nTRUVAC product demonstrations for the quarter were up 4% from last year, and our education efforts are also having a positive impact on sewer cleaner demand with the inclusion of the optional safe digging package turning our sewer cleaners into a multipurpose vehicle.\nOn the new product development front, our R&D efforts continue to drive organic growth.\nAs an example, approximately 75% of our air sweeper orders in June were associated with recent product introductions.\nIn Q2, our SSG team launched the new low-cost ultra-low profile Reliant light bar as part of the group's strategic initiative to gain market share through the expansion of Lights & Sirens product offerings in the value tier.\nThe Reliant provides customers with an ultra-low profile light bar that is competitively priced while providing advanced programming features and excellent optical performance that enhances the warning effectiveness and appearance of the emergency vehicle.\nOur sales team is currently showing the Reliant to customers that are supplying distribution with sample bars for customer demonstrations.\nInitial feedback from the market has been excellent, and we've received orders and are currently shipping the new product to customers in the U.S. and Mexico.\nWe have several product launches in the pipeline with street sweeper electrification remaining a key area of focus.\nWe are actively working on our next vehicle in our electrification new product development road map.\nWe've also recently identified an additional battery partner and are continuing to receive positive feedback from customer demonstration.\nAs we have said before, M&A will continue to contribute meaningfully to our future growth.\nWe are pleased with the progress we are making at integrating OSW, and the teams are energized by the opportunities identified during the 80/20 improvement training sessions we recently have.\nOur current M&A pipeline continues to be very active.\nAs Ian noted in his comments, our financial position and liquidity are strong enabling us to pursue strategic acquisitions, and there are several M&A opportunities that our teams are currently reviewing.\nAlthough we may experience some temporary challenges in the near term, we have positioned federal signal in a manner in which we will fully participate in the economic recovery by increasing capacity within our facilities, investing in new product development and gaining market share.\nTurning now to our outlook for the rest of the year.\nDemand for our products continues to be high with our second quarter order intake, up 79% compared to the prior year, resulting in a backlog entering the second half of the year, which is at a record level.\nThe strength of our second quarter earnings, our record backlog and improving aftermarket demand in North America gives us increased confidence in the year.\nAssuming no significant delays in our receipt of chassis from our supplier, we are increasing our adjusted earnings per share outlook for the year to a new range of $1.78 to $1.9 from the prior range of $1.73 to $1.85.\nWe are also encouraged by the long-term opportunities that infrastructure legislation would create for almost all of our businesses.\nWith our recent capacity expansions, we would be well positioned to meet the associated increase in demand for our products.",
        "summary": "federal signal raises full-year outlook.\nfederal signal raises full-year outlook after reporting 79% increase in orders and record backlog in strong second quarter; expecting long-term benefits from infrastructure legislation.\nq2 adjusted earnings per share $0.50.\nq2 gaap earnings per share $0.48.\nq2 sales $335 million versus refinitiv ibes estimate of $302.5 million."
    },
    {
        "text": "First, a reminder that our comments today will include references to organic revenue, which excludes the impact of foreign currency translation on our revenues.\nWe believe that discussion of these measures is useful to investors to assist their understanding of our operating performance and how our results compare with other companies.\nUnless otherwise specified, discussion of sales and revenue refers to organic revenues and discussion of EPS, margins or EBITDA refers to adjusted non-GAAP measures.\nMany of these risks and uncertainties are and will be exacerbated by COVID-19 and resulting deterioration of the global business and economic environment.\nIn a world where there are unprecedented supply chain shortages and significant inflationary pressures impacting every portion of our business, H.B. Fuller delivered double-digit growth and met our bottom line commitments.\nLast evening, we announced strong third quarter results led by 20% year-over-year revenue growth.\nOrganic revenue was up 16% versus 2020 and was up 13% versus the pre-COVID-19 environment in the third quarter of 2019.\nThis top line performance reflects broad-based double-digit organic revenue growth in all three global business units and includes significant contributions from both volume and pricing.\nWe also reported adjusted EBITDA of $111 million and adjusted earnings per share of $0.79.\nThese results were slightly ahead of our implied guidance.\nOur margins in the quarter were reduced as expected and we expect to see significant margin recovery in Q4 and 2022 as our price increases begin to outpace raw material increases and other inflation.\nIn the third quarter, we continued to gain share in key market segments with our innovative solutions.\nWe are leveraging our technical capabilities and global footprint as well as our operational speed and agility so that our customers can continue to innovate and build new products.\nOur adhesives wins this quarter are in products ranging from new consumer electronics and globally produced solar panels to sustainable food packaging and electric vehicles.\nThese wins are driving our growth.\nAt the same time, our team is managing the raw material supply chain exceptionally well, enabling us to meet high customer demand without impacting our sales volumes.\nWe are also demonstrating our ability to price based on the value our critical adhesive solutions provider our customers.\nThrough the third quarter, we have implemented $225 million of price adjustments and we took the decisive step of announcing a September 1st increase and surcharge in order to offset further raw material cost increases.\nThese actions are expected to result in more than $400 million of pricing revenue on an annualized basis.\nWe anticipate a significant improvement in margins in Q4 and into 2022 as a result of these actions.\nWe are also prepared to take additional pricing actions as needed at the end of the year.\nThese pricing actions, coupled with our strong organic volume growth which is up 13% year-to-date, is the basis for our confidence that H.B. Fuller's innovative solutions and global network will continue to drive share gains and significant margin improvement in the quarters ahead.\nWe are demonstrating an outstanding ability to perform at a highly dynamic macro environment.\nShortages persist for many specialty chemical raw materials, for plastic and metal packaging and for international shipping containers.\nWe continue to see inflationary cost pressures in terms of materials, freight and labor.\nExtraordinary weather conditions during the year have caused shipping disruptions.\nUnplanned safety and governmental actions have caused factory closures.\nAnd we continue to navigate the uneven impact of the COVID-19 pandemic around the world.\nThrough all of this, we are serving customers, we are winning through innovation and we are protecting our margins.\nWe anticipated growth margin headwinds in the third quarter and we manage them well by controlling SG&A expenses.\nWe are now positioned to reestablish our margins through higher pricing over a larger base of business.\nWe've grown our base of business through exceptional support for existing customers, helping other customers in need when we can and by adding new customer business by winning through innovation.\nWhile we overcome these near-term challenges, our actions are aligned with our long-term strategy to grow our business through innovation and continue to build our position as the world's leading dedicated adhesive provider.\nWe're gaining share in our markets by focusing on providing new and innovative adhesives that enable hygiene and packaging products to be more environmentally friendly, buildings more energy efficient and durable goods stronger and more lightweight.\nOur largest customer wins in this quarter were in the areas of electric vehicles and solar panel production.\nWe are also actively investing to further differentiate our products and expand capacity.\nWe recently announced a strategic partnership in Europe with Covestro, one of the world's largest polymer suppliers to deliver adhesive with a reduced climate impact for the woodworking composites, textiles and automotive industries.\nThis partnership is one of our initiatives to advance our sustainability efforts and better enable customers to achieve their own sustainability objectives.\nWe also recently announced a strategic investment to build a new facility in Cairo to support customers' increased demand in the fast-growing markets of Egypt, Turkey, the Middle East and Africa.\nBecause of the resilience of our cash flows, we are able to make these investments while continuing to pay down debt, in line with our $200 billion target for 2021.\nNow, let me move on to discuss our GBU performance in the third quarter.\nHygiene, Health and Consumable Adhesives third quarter organic sales increased 13% year-over-year with strong growth across the portfolio, including very strong results in packaging applications, beverage labeling and tapes and labels.\nAs expected, HHC segment EBITDA margin of 12% was down versus last year's strong volume leverage and pricing gains were offset by higher raw material costs.\nWe expect HHC organic volume growth to continue to be solid in the fourth quarter with pricing gains driving significantly higher margins as we exit the year.\nConstruction Adhesives organic revenue was up 20% versus last year with strong growth in both flooring and commercial roofing as improving demand, share gains and pricing drove significantly improved top line performance versus 2020.\nWe saw a significant improvement in pricing contribution in the quarter with pricing contributing 8% of the organic growth in Q3.\nWe expect these pricing gains and the impact of the surcharge to drive 10% to 15% year-on-year growth in EBITDA in the fourth quarter.\nEngineering Adhesives top line results continue to be extremely strong in Q3 with organic revenue up over 19% versus last year, reflecting shared gains and strong pricing execution.\nSales increased versus last year in almost every market with exceptional growth in adhesives for woodworking, insulating glass and new energy.\nAnd looking back to the non-COVID impacted third quarter of 2019, organic revenues were up more than 15%.\nWe expect continued strength and double-digit full year growth in the segment.\nEngineering Adhesives third quarter EBITDA increased 11% year-over-year driven by exceptional volume performance and pricing gains.\nWe expect double-digit sequential EBITDA growth in the fourth quarter as pricing actions and the surcharge are fully implemented and further offset the impact of raw material cost increases.\nOur planning assumptions are that demand will remain strong across our business units.\nRaw materials will continue to be tight for the end of the year and pricing will remain elevated against a strong demand backdrop.\nWe anticipate that higher customer demand and share gains in each of our business units will drive strong year-over-year organic growth.\nAs a result, revenue in most of our end markets will exceed 2019 levels by double-digits.\nOverall, when considering our strategic pricing actions coupled with the solid volume growth in HHC, continued improving performance in Construction Adhesives and strong demand in Engineering Adhesives, we now expect full-year revenue growth of 17% to 18% versus 2020.\nI'll begin on Slide 5 with some additional financial details on the third quarter.\nNet revenue was up 19.6% versus the same period last year.\nCurrency had a positive impact of 3.2%.\nAdjusting for currency, organic revenue was up 16.4% with volume up 10.1% and pricing up 6.3%.\nAll three GBUs had double-digit organic growth versus 2020 with Engineering Adhesives and Construction Adhesives up over 19% year-on-year and HHC up 13%.\nTop line results were also strong when compared to the non-COVID-impacted third quarter of 2019, which we believe validates the strength of our top line performance.\nWhen compared to Q3 2019, organic revenue increased 13.1% for the total company with strong organic growth for all three GBUs.\nAdjusted gross profit was up 3.8% year-on-year but gross profit margin was down as volume growth and pricing gains were more than offset by higher raw material costs.\nAdjusted selling, general and administrative expense was down 220 basis points as a percentage of revenue, resulting from strong volume leverage and general expense controls.\nAdjusted EBITDA for the quarter of $111 million was up 5% versus the same period last year and adjusted earnings per share were $0.79, up 4% versus the third quarter of last year, driven by strong volume growth, pricing gains and good cost controls offset by higher raw material cost.\nCash flow continued to be strong with cash flow from operations in the quarter of $81 million, similar to the same period last year, despite higher working capital requirements to support the strong top line performance and higher raw material costs.\nAnd we continue to reduce debt, paying down $110 million in the first three quarters of 2021, keeping us on track for our full year debt paydown plan of $200 million.\nRegarding our outlook, based on what we know today, we now expect fourth quarter revenue growth to be between 15% and 17%.\nWe are narrowing our adjusted EBITDA guidance range to $460 million to $470 million, given our expectations for continued strong volume growth and accelerated pricing, offsetting raw material cost increases that we now expect to exceed 15% for the full year.\nThis would represent full year EBITDA growth in the range of 13% to 16%.\nWe expect cash flow to be strong for the rest of the year, allowing us to maintain our target to pay down approximately $200 million of debt during 2021.\nEarly in the year, we set three critical priorities for 2021, volume growth, pricing to value and releasing of greater productivity and operational capacity.\nOur double-digit volume growth versus both 2020 and pre-COVID 2019 reflects enduring demand for our critical adhesive solution, market share gains and the success of our global sourcing initiatives.\nOn pricing, we moved quickly to implement $225 million in pricing actions, which are aligned with the value customers derived from our adhesives.\nAnd we have implemented further increases, which will reestablish our margin profile in the fourth quarter.\nAnd we continue to enable productive efficient capacity to deliver at a high level for our customers with lower factory and overhead cost as a percentage of revenue than last year.\nOur execution of these three priorities reinforces that despite varying economic conditions, our clear strategic vision enables us to take rapid decisive actions to create value for our shareholders.\nOur performance through the pandemic in 2020 and now through the unique supply and inflationary challenges in 2021 demonstrates our resilience and flexibility as we outperform our competitors.\nOur performance consistency through these challenging periods reflects the power of our global team and our business model.\nIt demonstrates the strength of our cash flow generation and resiliency of our diverse customer set, including a strong and durable HHC business coupled with our substantial growth in Engineering Adhesives and Construction Adhesives.\nLooking ahead, innovation will continue to fuel multi-year growth opportunities, including an outsized percentage of our new product pipeline focused on electronics, electric vehicles, building and energy efficiency and more sustainable packaging and hygiene products.\nA strong debt paydown track record increases our optionality to deploy capital to acquisitions that add to our portfolio of specialized adhesive solutions.\nThe actions we have taken in the first three quarters of the year have delivered sizable double-digit top and bottom line growth.\nBut more importantly, they position us to exit 2021 with significant momentum.\nOur business is well positioned for further market share and volume growth, additional pricing gains and sizable margin improvement as we enter 2022.\nThe last couple of years have demonstrated to investors that the adhesive industry is a great investment, high customer demand for our solutions, high cash flow generation, pricing resiliency and recently announced valuation multiples for adhesive businesses reinforce the premium value adhesive solution providers delivered to customers across a wide range of markets.\nAs the only global pureplay adhesives provider of scale, we believe we are uniquely equipped to innovate with the speed and agility necessary to help our customers address their most pressing adhesive challenges and to deliver significant long-term value to our investors.\nH.B. Fuller is a stronger company today than ever before and we continue to take strategic actions to enhance our capabilities, our productivity, our speed, our agility and our financial profile.\nWe remain laser-focused on executing our priorities and creating value for shareholders and all stakeholders in the fourth quarter, in 2022 and throughout the years ahead.\nOperator, let's open up the call to take some questions.",
        "summary": "q3 adjusted earnings per share $0.79.\nbased on current assumptions, we have increased our estimated full-year revenue guidance.\nfor fiscal year 2021, adjusted ebitda is anticipated to be about $460 million to $470 million.\nfull-year revenue growth is now anticipated to be 17% to 18% versus fiscal 2020.\nsees q4 revenue growth of 15% to 17% versus q4 of 2020.\npricing actions have been implemented that are expected to restore margins in q4 and into 2022."
    },
    {
        "text": "Our speakers are Jim Owens, H.B. Fuller President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer.\nFirst, a reminder that our comments today will include references to non-GAAP financial measures and references to organic revenue, which excludes the impact of foreign currency fluctuation and the impact of acquisitions and divestitures.\nWe believe that discussion of these measures is useful to investors to assist the understanding of our operating performance and the comparability of results with other companies.\nMany of these risks and uncertainties are and will be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result.\nLast evening, we reported strong fourth quarter results with organic revenue up 5%, EBITDA up 9% and earnings per share up 21%.\nThese results exceeded our expectations and each of our segments delivered positive organic growth and strong margin performance in the quarter.\nThis performance is especially strong given its comparison against a pre-COVID environment and is a result of the work we've done to gain market share and reduce our cost structure.\nDuring today's call, and in the months ahead, we will explain and demonstrate why you should continue to expect differentiated performance from H.B. Fuller.\nThroughout the year, our portfolio of innovative adhesive solutions in hygiene, health and packaging has enabled H.B. Fuller to continuously meet high levels of demand for essential consumer products.\nWe outperformed the market in meeting these needs.\nDuring this time, we also worked with customers in other markets to accelerate our product qualification processes for electronics and durable goods.\nAnd as demand around the world strengthened and global industrial production improved, we capitalized on share gains across our diverse markets to deliver fourth quarter results ahead of our expectations.\nWe also realized significant operational benefits from the business realignment completed earlier in the year, which generated $30 million of annualized SG&A savings in 2020, including $10 million realized in the fourth quarter, resulting in strong profit growth and operating leverage.\nOur work in 2019, in advance of the pandemic, to reorganize into three GBUs, instead of five, has enabled us to grow faster while reducing costs.\nOur strong cash flow performance continued in the fourth quarter.\nCash flow from operations increased 27% year-over-year, and enabled us to pay down a total of $205 million of debt for the year, above our original $200 million target.\nOur results in the fourth quarter and throughout the year reinforced the resiliency of H.B. Fuller's strategy.\nOur culture of collaboration, our broad adhesive technology portfolio, our applications expertise and our global operational agility proved to be differentiators in this current environment.\nH.B. Fuller seamlessly supported the dynamic needs of our customers in a world transformed by the COVID-19 pandemic.\nThroughout the pandemic, several priorities have remained constant for us, ensuring the health and safety of our employees, leveraging our technology investments to find new ways of working and utilizing our vast global capabilities to ensure business continuity for our customers.\nAll companies have had to learn how to work differently in 2020.\nBut I can say that H.B. Fuller team has truly excelled in this environment.\nI can't emphasize strongly enough how proud I am of our employees around the globe for their unwavering focus on delivering our priorities throughout 2020.\nOur teams effectively collaborated with each other and with our customers to develop new products and solve supply issues, and they did it faster than ever.\nWe leveraged our digital technology in new ways to remotely qualify new applications and troubleshoot complex issues.\nThe result was an increase in the speed of our decision making, shortened sales cycles and improved customer support.\nOur new organizational structure enabled greater collaboration across our global teams, faster decision making and better flexibility.\nH.B. Fuller's dedicated focus on adhesive technologies and our global capabilities have positioned us to move first and fastest with a clear vision and mission, no distractions from other divisions, other priorities or regional issues.\nThese have proven to be critical competitive advantages resulting in increased share with existing customers and business wins with new customers.\nWith that as perspective, I'll move on to our segment results in the fourth quarter on slide three.\nStrong performance continued in our Hygiene, Health and Consumables segment, where organic revenues increased by 5%, including solid organic growth in most geographic regions.\nWe continue to meet high levels of demand for essential goods in the quarter, and our portfolio of adhesive solutions that enable more sustainable consumer products, drove strong growth in packaging, tissue and towel and tapes and labels.\nHHC segment EBITDA margins were strong at 15.3%, up 270 basis points year-over-year, reflecting volume leverage, favorable mix, savings from our business restructuring, and good overall cost control.\nConstruction Adhesives' organic revenue increased 1% versus the prior year with improvements in year-on-year performance for all markets when compared with the second and third quarters of the year.\nBoth the commercial flooring and roofing end markets improved in the quarter, albeit at a slower pace than residential construction markets.\nConstruction Adhesives' EBITDA margin was solid at 12.4%, down 80 basis points versus last year, reflecting unfavorable mix and an increase in variable compensation accruals as a result of the stronger top line results in the fourth quarter.\nFor the full year, EBITDA margin was roughly flat to 2019.\nNew product introductions and improved product mix related to last year's portfolio repositioning, as well as operational improvements from the GBU restructuring offset the impact of lower volume.\nThese operational improvements position this business for strong margins as construction activity increases in 2021.\nEngineering Adhesives continued to show strong improvement, with organic revenue up 5.6% year-on-year in the quarter, led by double-digit growth in electronics, recreational vehicles, woodworking and panels and solid results in insulating glass and automotive.\nEngineering Adhesives' EBITDA margin remained strong at nearly 17%, down 80 basis points versus last year, reflecting an increase in variable compensation as a result of the stronger top line results in the fourth quarter.\nLooking ahead to 2021, we will pursue growth opportunities and share gains in a business environment that is expected to continue to improve, but remain below normal levels.\nOur planning assumptions at this time are that COVID-related shutdown impacts will continue to lessen as vaccines are rolled out around the world.\nAlthough recessionary forces will continue to weigh on global economies throughout the year, we anticipate continued improvement in underlying demand, especially for electronics, storable goods and consumer goods, driving volume growth in 2021 versus 2020.\nGrowth in some end markets, such as commercial construction and aerospace will improve at a slower pace and may not yet return to 2019 levels of activity.\nElevated demand for hygiene and health products, packaging, paper tissues and towels will likely continue into 2021 as consumers continue to spend more time in their homes.\nThe spikes in demand that we saw in the second quarter, however, are unlikely to repeat.\nWe anticipate Construction Adhesives' end markets to continue to show steady improvement throughout 2021 with commercial activity improving throughout the year and residential activity remaining solid.\nEngineering Adhesives' end market demand will likely remain at elevated levels in early 2021, reflecting increased production activity to meet some pent-up demand, returning to more typical activity levels in the second half of the year.\nIn total, our base planning assumptions are for low to mid-single-digit organic revenue growth in 2021 with stronger growth from Engineering and Construction Adhesives versus 2020.\nWe expect volume leverage and savings from our restructuring and our operational improvement programs to drive solid year-on-year EBITDA margin improvement in 2021.\nSales growth, improving margins and continued working capital efficiency will enable us to continue to drive strong cash flow and deliver another year of strong debt paydown with a target of paying down another $200 million of debt in 2021.\nAgainst a challenging economic backdrop, our performance in 2020 demonstrates that our business is diverse and resilient, our operations are nimble, and we are executing our strategy well.\nAnd we expect to continue to outperform our markets again in 2021.\nI'll begin on slide four with some additional financial details on the fourth quarter.\nFor the quarter, revenue was up 5.2% versus the same period last year.\nCurrency had a positive impact of 0.5%.\nAdjusting for currency, organic revenue was up 4.7% with volume up 5% and pricing having a negative 0.3% impact year-on-year in the quarter.\nYear-on-year adjusted gross profit margin was 27.5%, down 10 basis points versus last year as higher volume was offset by higher variable compensation and unfavorable absorption due to a reduction in inventory.\nAdjusted selling, general and administrative expense as a percentage of revenue was down a full percentage point versus last year, reflecting savings associated with the business realignment and lower travel, which was partially offset primarily by higher variable compensation associated with strong fourth quarter results.\nAdjusted EBITDA for the quarter of $123 million was up 9.4% versus last year and above the high end of our planning assumptions, reflecting strong top line performance, particularly in Engineering Adhesives.\nAdjusted earnings per share were $1.06, up 21% versus the same period last year as strong volume growth, lower SG&A and lower interest expense associated with our debt reduction actions drove higher earnings per share than last year.\nFor the quarter, cash flow from operations of $139 million is up by 27% versus the same period last year, reflecting continued improvement in working capital performance.\nThis allowed us to continue to reduce debt, paying off $205 million for the full year ahead of our $200 million debt paydown plan.\nWith that, let me now turn to our guidance for the 2021 fiscal year.\nBased on what we know today, and the planning assumptions that Jim laid out earlier, we anticipate full year organic revenue growth to be in the low to mid-single-digits, and EBITDA to increase by approximately 10% as volume leverage, pricing, manufacturing and supply chain savings and carryover of the restructuring-related savings and SG&A offset higher raw material costs, variable compensation rebuild and higher travel expense.\nWe expect our 2021 core tax rate to be between 26% and 28% compared to our 2020 core tax rate of about 25%.\nA higher tax rate as a result of forecasted income by region and the tax impact related to global cash management.\nCapital expenditures are expected to be approximately $95 million in the 2021 fiscal year, and we expect to devote approximately $200 million of our cash flow after capex investments and dividends to the repayment of debt.\nIn 2020, we proved our ability to consistently and effectively execute our strategy in the toughest of times.\nAnd we reinforce the business resiliency that comes from our broad portfolio of adhesive applications and diverse end market exposure.\nMost importantly, we have created momentum as we head into 2021.\nRevenues increased and margins improved sequentially throughout the year, and in the fourth quarter, we delivered 5% organic revenue growth with positive organic growth in each of our segments.\nThe momentum we have created is enabling us to outperform our markets, and is a direct result of actions we've taken over the past few years to realign our organizational structure and strengthen our ability to grow.\nOur business realignment accelerated our market-focused innovation and enhanced our collaborative capabilities, enabling us to consistently meet customers' needs and capture growth opportunities.\nAnd the business realignment also enabled us to do this through a simpler, lower cost structure.\nLooking ahead, we are only just beginning to see the benefits from these actions.\nOur customer wins continue to grow, and we are still in the process of implementing changes and optimizing the business with a focus now on driving $20 million to $30 million of efficiencies across our manufacturing network by the end of 2022.\nWe are encouraged by share gains and new customer business we have won in 2020 that helped drive revenue growth as we exited the year.\nOur focus on innovation to drive new business continues in 2021, and our new product pipeline is stronger than it has ever been.\nWe continue to expand our portfolio of adhesive applications that enable more economical and environmentally sustainable buildings and products.\nSome examples include our single ply membrane sprayable roofing adhesive, our Fast 2K pole and post setting material, advanced adhesives for solar panels and insulating glass formaldehyde-free low monomer emission adhesives to support low VOC structural wood products and panels.\nAnd a growing portfolio of adhesives for electronics, including applications used in smartphones and wearables, touch panels and keyboards, and interiors and exteriors in both traditional and electronic vehicles.\nIn December, we announced our Advantra hot melt adhesive technology for extreme cold storage of vaccines and medical packaging, which provides a secure bond at minus 70 degrees Celsius.\nDemand also remains strong for sustainable packaging solutions, such as H.B. Fuller's closed sesame tapes that support easily returnable packaging systems, composable adhesives for paper and hygiene products, and our microsphere adhesive technology for removable signs and labels.\nThis high level of demand reinforces the importance of our HHC solution in today's world.\nThese are just a few examples of the innovation we are bringing to market.\nWith our strong product pipeline and the continued optimization of our operations, we are confident in our ability to build on our success, driving further share gains and continued margin improvement.\nWe exit an unprecedented year in 2020 as a much stronger company.\nAnd as the world's largest dedicated provider of adhesives, we are uniquely positioned to capture future growth opportunities and deliver for our shareholders strong sustainable results in the months and years ahead.\nOperator, please open up the call so we can take some questions.",
        "summary": "full year debt paydown of $205 million surpassed $200 million target.\nbase case outlook for low to mid-single digit organic revenue growth and approximately 10% adjusted ebitda growth for fiscal 2021.\nsees to pay down an additional $200 million of debt in 2021.\nqtrly adjusted earnings per share of $1.06."
    },
    {
        "text": "We will be referencing it today on the call as it provides you with additional detail on this quarter's performance.\nActual results and events could differ materially from those discussed today.\nIn addition, we will be discussing some non-GAAP and pro forma financial information during the call today.\nYou can find reconciliations of our non-GAAP measures to the most comparable GAAP measures in the earnings supplement.\nI'm very pleased to report that our first quarter highlights results in operations witnesses show significant progress against our stated strategy in almost all respects.\nFirst quarter financial results were ahead of internal expectations showing continued year-over-year growth and adjusted EBITDA and after normalizing for some structural changes in our year-over-year comparisons.\nWe also produced a sequential improvement from Q4 to Q1 in same-store revenue and adjusted EBITDA trends.\nWe're pleased to see that.\nMarch was our best month of the quarter, and we anticipate continued sequential trend improvement in Q2, as we start to cycle the largest impacts of the COVID-19 pandemic in 2020.\nWe expect to post a year-over-year total revenue growth of low to mid single digits in the second quarter, along with more than 30% adjusted EBITDA growth in the second quarter.\nAnd that is expected to lead to significant adjusted EBITDA growth for full year 2021 as compared to 2020 and that's we've mentioned that in our last couple calls, and we're a little bit ahead of pace so far under internal targets.\nWithin the quarter, we also continue to improve the capital structure of the Company and we significantly lowered the cost of debt in the first quarter.\nFor those that have been following the Company for a while now, we refinanced 11.5% term loan B with a LIBOR plus 700 term loan B during the quarter, and we also got shareholder approval for our converts issuance which we did in the Q4 time periods.\nAnd that was approved at the end of February in the first quarter and the converts have a rate of 6%.\nSo, we have lowered our overall cost of capital from 11.5% about 7.17%.\nLast point, I'll make on our financial statements and then Doug of course will go through them in much more detail.\nWe're showing a loss of 142.3 million on our income statement and we need to put that in perspective given the financing moves that we made in the first quarter, which significantly lower our cash outflows.\nThat's part of the convert steel before shareholders approve it.\nAccounting rules require the changes in the value of converts to the mark-to-market and run through the income statement because our share price went up significantly from the beginning of the year to the shareholder approval date.\nWe had to take a non-cash charge of 126.6 million on the income statement.\nNow that shareholders have approved that deal we won't have mark-to-market changes running through the income statement any longer.\nAlso, in order to get the refinancing done, we incurred 19.4 million of non-cash charges related to extinguishment of debt.\nAnd in order to get all those deals done, we incurred 10.2 million in costs associated with those transactions.\nIf you take those three charges into account, your net loss actually goes from 142.3 million to a net gain before taxes of 13.9 million, so a net gain of 13.9 million.\nThought that was worth noting for shareholders since that net loss is such a big headline number.\nNow turning to operations, our digital subscribers surpassed 1.2 million in the quarter as a fantastic and again, it outperformed our internal expectations.\nWe grew over 37% versus the prior year, and we had our single largest quarter for new paid digital subscribers adding over 120,000.\nFurther our digital the ownership relation revenue grew by more than 45% year-over-year.\nOverall in Q1, our digital revenues accounted for approximately 30% of total revenue in print advertising was less than 25% of total revenue, making real progress toward our goal of being a digital technology company combined with having a revenue streams primarily made up of subscription revenues.\nWe are pleased with our execution on synergies as well going back to the acquisition of Gannett November of 2019.\nWe've implemented a cumulative 300 million of annualize synergies.\nNow as of the end of the first quarter of this year, well ahead of our original goal of 300 million by the end of 2021.\nAnd we are confident in our ability to implement additional synergies by the end of 2021, resulting in a total of approximately 325 million or more of annualized synergies.\nWhen we spoke last on our Q4 earnings call in February, we outlined our commitment to a subscription led digital business strategy that drives audience growth and engagement by delivering deeper content experiences to our consumers while offering the products and marketing expertise our advertiser's desire.\nWe delineated five key pillars to our strategy and I'd like to spend a few minutes updating you on the progress of each of those during the first quarter.\nOur first pillar is accelerating digital subscriber growth.\nAs I mentioned, digital only subscriptions surpassed 1.2 million in the quarter of 37% year-over-year.\nAnd importantly, we delivered our largest quarter-over-quarter growth as a combined company with 120,000 net new subscribers.\nOur markets responded well to new and more consistent subscription offers and enhanced high performing and localized creative as well as the marketing of highly valued and unique content.\nWe anticipate that new subscription and product launches in the coming months will accelerate this growth on our path to reach a target of 10 million paid digital only subscriptions in the next five years.\nThe second pillar is driving digital marketing services growth by engaging more clients in a recurring revenue relationship and aggressively expanding our digital marketing services business into our local markets, both domestically and internationally.\nWe continue to see progress with our localized to digital marketing platform.\nThe platform enables subscription like opportunities through our core product set, which we expect to drive higher recurring revenue, more stable billing cycles, improved client retention, and stronger marketing performance for our clients.\nOur core sales team continued with year-over-year growth in revenue, returning to double-digit growth in the quarter, and achieving the highest productivity metrics since 2016.\nThe significant growth and record productivity that our team drove in Q1 is a prime example of the superior results we believe we can drive for all local businesses.\nThe third pillar is optimizing our traditional businesses across print, subscriptions and print advertising.\nWe continue to drive the profitability of our traditional print operation through economies of scale, process improvements and optimizations.\nThis includes maximizing the lifetime value of our print subscribers.\nThrough newly implemented retention and loyalty programs and expanding on the content we know our subscribers value most.\nOur print subscriber base has been quite stable over the past year.\nAnd while we do not expect to print subscriptions to grow over time, we are highly focused on retaining our current subscriber base.\nFourth pillar is prioritizing investments into growth businesses that have significant potential and support for our vision.\nBy leveraging our unique footprint, trusted brands, and media reach, we identify, test and invest in opportunities for growth.\nWe highlighted a couple examples in the last quarter.\nAnd we have a couple of new great examples to talk about this quarter, but going back to the last quarter, we highlighted our USA Today network ventures, which is our events and promotions business.\nWe've built this and continue to invest in.\nWe're slowly returning to live events.\nWe had a few in the first quarter.\nAnd while our events adventures revenue, that activity was lighter than typical during the first quarter, it reflects an intentional delay of several events until later in the year when in-person events are anticipated to be more widely allowed and widely accepted.\nBut I mentioned we have a couple of new areas to talk about that we're particularly excited about.\nThey could represent very significant opportunity for us.\nThe first is in the sports gaming sector.\nAnd we're exploring the sports gaming partnership that we actually expect to announce in the second quarter so very soon.\nOnline game is a sector that is poised to grow substantially in the U.S. over the next 5 to 10 years, as it continues to legalize across the country at the state level.\nWe believe we are well positioned to grow our business in tandem with this sector by leveraging our unparalleled ability to reach consumers at both the local and national level in the U.S. with deep community reach content and brands.\nOur sports readers are some of the most engaged audience and with our large network of dedicated and well known sports journalists.\nWe believe we offer access in local perspective that many of our national counterparts cannot and we plan to capitalize on that through a unique partnership.\nThe second area we are exploring is leveraging our massive media archives to create non-fungible tokens or NFT's one of our most important assets is our content.\nWe are excited about the NFT market because we believe it creates several new opportunities for Gannett.\nFirst represents a new way for consumers to enjoy an experienced Gannett's award winning coverage of historical events, monumental moments and areas of passion or special interest such as sports, turn event, the arts and pop culture.\nSecond, presents a new business opportunity for Gannett, as we see how this space continues to develop, and how our incredible archives could be monetized in new marketplaces.\nWe are excited about this opportunity and we'll be launching our first NFT in the upcoming weeks.\nFinally, pillar number five, we are committed to building upon our inclusive and diverse culture to center around meaningful purpose, individual growth and customer focus.\nInclusion, diversity and equity are core pillars of our organization.\nWe have previously shared our inclusion goals for 2025.\nAnd we just published our first workforce diversity report in March, outlining the steps we're taking to reach those goals.\nDuring the quarter, we were also recognized for two awards that we are proud of.\nFirst, for the fourth year in a row, we received a score of 100 on the Human Rights Campaign Foundation's Corporate Equality Index.\nAnd for the second year in a row Gannett has been recognized as one of America's best employers for diversity by Forbes.\nGannett is highly intent and focused on becoming a more inclusive, diverse and equitable workplace.\nAnd while we still have work to do, we are very proud to be recognized for the steps we are taking to get there.\nFor Q1 total operating revenues were $777.1 billion, a decrease of 18.1% as compared to the prior quarter.\nOn the same-store basis operating revenues decreased 16.5% as compared with the prior year quarter, due to the continued secular decline in print advertising and home delivery revenue, as well as the continued economic slowdown brought on by the pandemic.\nFirst quarter revenue trends were also impacted by the cessation of certain industry wide digital marketing incentives in 2020.\nThe incentives generated through the Digital Marketing Solutions segment totaled $13 million for all of 2020 with $9.2 million of that in the first quarter last year.\nThat negatively impacts the Q1 same-store trend by approximately 90 basis points.\nSo, on a comparable basis to Q1 2021, same-store trends improved slightly from the levels we saw in Q4 of last year.\nAdjusted EBITDA totaled $100.5 million in the quarter, which is up $1.4 million or 1.4% year-over-year.\nThis performance reflects the impact of lower revenues offset by cost reductions and synergy savings.\nThe adjusted EBITDA margin was 12.9% and growing 250 basis points over the prior year.\nIn the first quarter, expenses were lower by 20.4%, reflecting permanent expense savings put in place in response to the pandemic, regular way cost reductions as well as the continued synergies from the merger integration.\nNow moving on to our segments, the publishing segment revenue in the first quarter was $699.6 million.\nPrint advertising revenue decreased 24.9% compared to the prior year on a same-store basis reflecting the continued sector of pressures as well as the disruption from the pandemic.\nHowever, print advertising revenue continues to show improvement each quarter, with 200 basis points of improvement in Q1 as compared with the Q4 trend.\nDigital advertising and marketing services revenues decreased 10.4% on the same-store basis reflecting the ongoing impact of the pandemic, as well as cycling against strong comparisons in the first quarter last year.\nDigital media declined as compared to the prior year as we experienced record audience metrics in Q1 of 2020 tied to the onset of the pandemic, and Q1 2020 also benefited from certain large national digital media campaigns that did not recur in the current period.\nAdditionally, we continue to see declines in digital classified, reflecting both secular trends, as well as the tough comparison against the prior year period, which still benefited from our historical relationship with cars.com.\nDigital marketing services revenue in the segment continue to show improvement year-over-year on the same-store basis, improving 460 basis points from the Q4 trends as a results of ARPU growth year-over-year.\nCirculation revenues decreased 12.9% compared to the prior year on the same-store basis, which compares favorably with Q4 same-store trend of down 13.6%.\nHome Delivery trends declined slightly in the first quarter of 2021, reflecting the impact of more moderate pricing strategies.\nSingle copy while still significantly impacted by the ongoing pressure on the pandemic, as a result of lower travel and consumer activity started to show improvement in year-over-year trends in the first quarter.\nDigital only subscribers grew 37.2% year-over-year on a pro forma basis for approximately 1,219,000 subscriptions.\nAnd the digital only subscriber revenue grew 46.3% on the same-store basis as compared with the prior year.\nAdjusted EBITDA for the publishing segment total $102.2 million, representing a margin of 14.6% in the first quarter, an expansion of 170 basis points on a year-over-year basis.\nFor the Digital marketing solutions segment, total revenue in the first quarter was $102.3 million, a decrease year-over-year of 12.7% on the same-store basis.\nThe decline of 230 basis points from the Q4 trend can be attributed to the termination of the industry wide marketing incentive programs as I mentioned earlier, that was worth $9.2 million in Q1 of 2020.\nThe otherwise improving trend quarter to quarter was driven by our core ReachLocal business where we saw double-digit growth year-over-year, with March yielding the best new client productivity month in over five years.\nDespite the strong performance metrics client count declined slightly quarter-over-quarter primarily driven by plant system conversions as plants are being migrated onto a single platform as well as the sunsetting of certain product offerings.\nLong term we expect our core product set to drive higher recurring revenue and client retention while creating stronger performance for our clients.\nAdjusted EBITDA for the Digital Marketing Solutions segment totaled $9.2 million, representing a strong margin of 9% in the first quarter in line with our fourth quarter results, and well above margins in Q1 2020 of 6.5%.\nIn terms of our Q1 net loss attributable to Gannett was $142.3 million, which reflects a $19.4 million noncash loss on the early extinguishment of debt in connection with our term loan refinancing and a $126.6 million noncash loss and the derivative associated with the 6% convertible notes due 2027.\nNoncash impact was driven by the increase in the fair value of the derivative liability as a result of the increase in a company's stock price from year-end levels.\nAnd as Mike mentioned, given the fact that we received shareholder approval in February of 2021, there will not be any future mark-to-market activity related to the convertible notes and our operating results.\nOur net loss also reflected $58.1 million of depreciation and amortization.\nThe Company's effective tax rate for the quarter was primarily driven by the impact of the derivative loss, which is not deductible from a tax perspective, partially offset by valuation allowances associated with deferred tax assets related to interest expense.\nTurning now to the balance sheet.\nAs we outlined in our last earnings call, the Company has fully refinance our original 11.5% term loan earlier this year, putting our blended rate of debt outstanding at just over 7%.\nWe ended the quarter with approximately $1.54 billion of total debt and made $41.2 million of debt repayments in the quarter including $8.6 million of repayments post by refinancing.\nThese repayments were funded through cash on hand and $10.9 million of assets sales in the first quarter.\nWe expect to generate an incremental $90 million to $115 billion of assets sales this year with the intention to reach firstly net leverage below one times adjusted EBITDA by the end of 2022.\nOur cash balance at the end of the quarter was $163.5 million, resulting in net debt of approximately $1.374 billion.\nCapital expenditures totaled 7.6 million for the quarter reflecting investments related to digital product development, technology and operating infrastructure.\nFrom a cash perspective, please keep in mind that we will expect to make our first interest and principal payment on the new term loan on September 30th, and then we'll be making payments quarterly thereafter.\nLastly, in connection with the CARES Act, subsequent to March 31, 2021, the Company has received approval for approximately $16.2 million in PPP funding in support of certain of our locations that were meaningfully affected by the COVID-19 pandemic.\nAt the appropriate time, we intend to apply for forgiveness of the PPP loans in accordance with the program guidelines.\nAs Mike indicated earlier, we are pleased that our Q1 performance and believe that we are well positioned for Q2 as well as the second half of 2021.",
        "summary": "gannett q1 rev fell 18.1% to $777.1 mln.\nq1 revenue fell 18.1 percent to $777.1 million.\nq1 same store sales fell 16.5 percent.\npublishing segment revenues were $699.6 million in q1 of 2021.\nsame store circulation revenues decreased 12.9% in q1 of 2021."
    },
    {
        "text": "We will be referencing it today on the call as it provides you with additional detail on this quarter's performance.\nIn addition, we will be discussing some non-GAAP financial information during the call today.\nYou can find reconciliations of our non-GAAP measures to the most comparable US GAAP measures in the earnings supplement.\nOur results in the quarter evidence continued strong growth in our digital-only subscriber counts and in our digital marketing solutions segment.\nThese represent stable and recurring revenue streams that are growing very rapidly with big addressable markets that we are penetrating.\nThe increases in these digital categories in Q3 led to year-over-year same-store revenue growth and for the fourth consecutive quarter, year-over-year adjusted EBITDA growth.\nAlso, importantly our results are in line with previous guidance we had given at the end of the second quarter, and again, when we did our most recent refinancing about a month ago.\nQ3 adjusted EBITDA was $102.1 million with a margin of 12.8% for the quarter and that brings our last 12 months adjusted EBITDA to $467 million, up meaningfully from 2020.\nWe achieved positive net income in the quarter of $14.7 million and adjusted net income was a very strong $26.5 million in the quarter.\nFurther, I'm excited to report that our last 12 months digital revenues have now exceeded $1 billion and our overall digital revenues are growing at 15% to 20%.\nDuring the third quarter, we were able to meaningfully pay down principle on our 5-year term loan, reducing debt by $91 million in the third quarter.\nOur aggressive debt repayment this year, combined with strong financial performance has allowed us to opportunistically refinance our Term Loan B. This refinancing was completed in October, just last month.\nIn fact, this was our second refinancing in 2021.\nWe have been able to materially reduce the cost of our debt, our ongoing cash interest expense and we have continued to lower our leverage.\nWe continue to remain on our aggressive plan to delever our balance sheet.\nWe were able to post strong financial results this year along with multiple refinancings despite the lingering impact of the COVID-19 pandemic as well as the inflationary pressures that have risen here in the US and impacted so many.\nIt's worth highlighting that we have repeatedly shown that even in a challenging environment the compounding growth in our digital revenue businesses and our ability to strategically modulate our cost structure continues to allow us to produce stable growing adjusted EBITDA and free cash flow.\nWith regard to our strategy, in alignment with our first strategic pillar, accelerating digital subscription growth we have accumulated our three best quarters ever of digital-only subscriber growth here in 2021, with the third quarter being our biggest growth quarter ever.\nOur subscription-led strategy resulted in adding 164,000 net new digital-only subscribers in the third quarter, outpacing our previous high set in the second quarter of 2021.\nThe accelerating growth is built on new product launches such as USA TODAY Sports Plus, a new premium personalized sports subscription product that went live in early September.\nIn addition to growth in our recently launched paid Crossword app, as well as continued progress with our newly launched USA TODAY premium content subscription strategy.\nThese new products, combined with the continued strong growth in our local subscriber business has allowed us to begin to further accelerate our overall growth rates, more on that in a minute.\nThe USA TODAY Sports Plus, the immersive and interactive product gives subscribers access to augmented reality experiences, data visualization that the USA TODAY brand was built on podcast and access via live chats and text messages to the remarkable journalists across the USA TODAY Network, including Josina Anderson, an NFL expert and a veteran with over 20 years of experience who previously worked for ESPN that was named the Network's First Female National NFL Insider in 2015.\nSo happy to have her on board here at the USA TODAY.\nUSA TODAY Sports Plus is currently live in seven markets with more markets being added in the coming year.\nAn expanding product portfolio which includes digital subscriptions in our over 200 local markets and at the USA TODAY as well as ancillary products such as our Crossword app and Sports Plus App now allow us to test the impact of bundling on both subscriber growth and retention.\nIncreased rigor on content and brand marketing and on data intelligence led by our Chief Marketing and Strategy officer Mayur Gupta and our newly added Chief Data Officer, Nate Rackiewicz which who joined us in August have have also helped drive more new net subscribers in the last two quarters then in all of 2020.\nWe're really happy that Nate joined us as well.\nWhile we are excited about the growth this year, we firmly believe we are in the early stages.\nWith 179 million average monthly unique visitors and the sixth largest reach among all domestic media peers, our digital-only subscriber volume represents less than 1% of our audience reach.\nSo tremendous upside as penetration increases.\nWe expect to end 2021 with more than 1.65 million digital subscribers and that will represent growth of over 50% versus 2020.\nWith expectations of an expanding product portfolio and accelerated marketing flywheel and the application of rigorous data science, we are building plans to continue this accelerated growth rate going forward into 2022.\nThe success in our digital subscription efforts was complemented by success in our second strategic pillar, accelerating the growth in our digital marketing solutions segment.\nThe digital marketing solutions business, which operates a SaaS-like model on our proprietary local IQ marketing services platform, which now generates approximately $440 million of revenue annually with growth rates that are expected to outpace the competitive market.\nOur core platform revenue, which we view as customers using our proprietary digital marketing services platform, that are sold by either our direct or local market teams grew 26% year-over-year to $113 million in the third quarter.\nAnd importantly the segment recorded record adjusted EBITDA margins again this quarter at 12.9%.\nSequentially client count demonstrated modest growth and ARPU grew 7%.\nIn the quarter, we also augmented our current local and direct sales channels by enabling a new freemium digital marketing solutions offering on our platform, which will serve as a low friction tool for acquiring registered users, while providing small businesses immediate marketing value and exposing them to the proprietary functionality of our broader lcoal IQ platform.\nThe freemium offering will operate in close connection with our marketing efforts and inside sales capabilities to create an engaged segment of new customers, which may not have previously considered local IQ.\nThe first 2 phases were launched in Q3 which enables a registered user to receive a free assessment of their current marketing presence and to create a local IQ account with access to the local IQ University and the ability to connect with the salesperson.\nIn Q4 and in 2022 we will enable additional features that drive platform engagement and the ability to purchase solutions within the freemium experience either directly or via one of our sales channels.\nWe look forward to updating you in the coming quarters on the metrics generated by the premium channel and are excited by the potential to expand our TAM and reduce our customer acquisition costs through these efforts.\nThis could represent our biggest growth category within the DMS segment over the next five years.\nWe continue to invest in our local IQ platform with our product team consistently rolling out product improvements to what we believe is already a best-in-class solution to help businesses build web presence, drive leads and awareness and expertly manage leads and engage customers.\nIn the third quarter among other enhancements we added a competitor keyword automation as soon as campaigns go live through our improved smart algorithm, which uses over 100 million national and local US businesses to drive further optimization.\nWe also implemented the use of first-party data as we strive to help businesses reduce their dependence on third-party cookies.\nWe now allow businesses to leverage their own customer data to target look like audiences at both Google and Facebook.\nWe believe that ongoing investment in product and marketing combined with sales channel expansion are critical to sustaining the double-digit growth in our core platform business, and expanding our core client count from over 15,000 today to a more meaningful percentage of the over 30 million small businesses here in the US.\nOur third strategic pillar is optimizing our traditional print business across circulation and advertising.\nIn the coming year, we will be creating a focused regional effort on enhancing the performance of our Legacy print offering across the country.\nWe continue to have many levers to pull around our print business that we believe can improve the business performance coming from this segment despite the secular headwinds we face from data governance and intelligence impacts on customer acquisition and preferences to capitalizing on the standard systems and data analytics that have been put in place through the integration from our merger in 2019 to reinvigorating our single copy sales channel post pandemic.\nImproved customer service and the focus on the right pricing all will lead to improvement in our Legacy print business in 2022 and beyond.\nOur fourth pillar is prioritizing investments in our growth businesses.\nIn the third quarter, we announced our five-year agreement with Typical USA, the US-based sports of Typical Group Limited, the leading sports betting provider in Germany.\nWith this announcement Typical became the exclusive sports betting and i-gaming provider for Gannett in the US.\nThe 5-year agreement includes $90 million in media spend by typical incremental incentives payable to Gannett for customer referrals upon reaching certain thresholds, and the ability to acquire a minority equity stake in Typical US.\nIn September we officially launched content assets to support this exciting partnership and engaged the avid sports betting fan.\nThe team launch, Sportsbook Wire,BetFTW, Bet For The Win, a site dedicated to sports betting analysis we launched a video series on site and Bet For The Win 101 to help inform and educate betters.\nAdditionally, the video series Lorenzo's Locks is back for another football season and more video and podcast will be launching over the next several months.\nIn just the first two weeks these assets drove nearly 15 million page views.\nWe will continue to bet big on sports with a sports audience here at Gannett of over 53 million sports fans and and we have over 500 dedicated sports journalists to help expand our coverage of the growing sports betting market.\nThe events business remained under pressure in the third quarter with the resurgence of the COVID-19 pandemic with the Delta variant, which directly impacted our ability to host live events.\nWhile we initially saw live events accelerate in the second quarter, we largely returned to virtual events in the third quarter and expect to remain substantially virtual in the fourth quarter of this year.\nDespite these challenges events revenue still grew 33% year-over-year in the third quarter and our marquee events drove impressive engagement with just over 2 million virtual and live attendees within the quarter.\nRAGBRAI, the Des Moines Register's annual great bicycle right across Iowa returned in July of 2021.\nThe First National High School Sports Award Show was held this summer as well, featured host Michael Strahan and Rob Gronkowski and highlighted more than than 1,000 honores from 50 states.\nAnd earlier this week, we aired the American Influencer Awards, hosted by Andy Cohen.\nOur American Influencer Awards honors influential and talented social media personalities in categories, including beauty, fitness and lifestyle, and it drives significant engagement with over 5.8 million votes cast this year through our website.\nThis diverse portfolio of events brings a broad, engaged local to national audience into the Gannett ecosystem, and we remain firm in our belief that events will be able to generate 40%-plus year-over-year growth as we emerge from the pandemic.\nOur fifth and final strategic pillar is building on an inclusive and diverse culture.\nThis commitment is the core pillar of our organization and influences all aspects of our operations from hiring, onboarding and educating to aligning our culture around empowering our communities to thrive.\nLast year, we published our inclusion goal for 2025 and published our first companywide workforce diversity report earlier this year.\nIn addition, during the third quarter of 2020, our newsrooms published demographic metrics and pledge to build a workforce that mirrors the demographics of the nation and the communities we serve by the end of 2025, and to publicly report our staff demographics each year.\nThis September, our news organization published results from this year's survey, which reflects our Newsroom workforce as of July 13, 2021.\nSimilar gains were recorded in local newsrooms, including Detroit, Indianapolis, Louisville, Nashville, Phoenix and Rochester, New York.\nTo be sure, this work must continue in advance, but we remain committed to achieving our 2025 targets and to accurately reflect the interest, issues and lived experiences of the people we serve.\nI would also like to highlight the fantastic work that Gannett Foundation has done this year.\nIn October, the Gannett Foundation announced $5.4 million in grants through the company's A Community Thrives Program.\nIn its fifth year, A Community Thrives awards grants to worthy causes and organizations across the United States, aiming to improve their communities.\nSupported by the Gannett foundation, the program encourages nonprofits to promote their ideas and efforts on a national platform, leveraging the USA Today Network, including USA Today and over 200 local media brands to drive further awareness and support through donations.\nGannett's driving mission is to empower our local communities, and A Community Thrives is honored to support this year's recipients in their efforts to create change in their local communities.\nNow turning our attention to the fourth quarter, we are estimating same-store total revenues to decline in the low single digits.\nThis decline reflects the impact of small market newspapers we have sold or in rare cases closed during 2021, combined with the impact that pandemic continues to have on the Events business as well as cycling against a strong fourth quarter last year, both in terms of revenue and adjusted EBITDA.\nDespite small same-store revenue declines expected in Q4 for the reasons noted, our two-year CAGR continues to improve, and we expect that to improve again in Q4.\nWe are very encouraged by this improving trend.\nAs we march toward sustainable revenue growth, our two-year total revenue CAGR trend improved from down 12.8% in Q1 to down 12% in Q2 to down 10.1% in Q3, and we expect to be inside 10% in Q4.\nWith respect to adjusted EBITDA, we expect margins to be higher in the fourth quarter than the 12.8% we posted in Q3, we expect margin to be in the range of 14.5% to 16%.\nAs I mentioned before, we have repeatedly demonstrated our ability to modulate our cost structure in response to macroeconomic conditions.\nThe upcoming fourth quarter and early 2022 will be no different.\nWe consistently review our print portfolio and operations and optimize costs and strategies across a broad base of variable expenses that support our print operations.\nWith growing and recurring digital revenue streams and an improved capital structure with materially lower cost of debt, we are very confident in our ability to drive strong, stable adjusted EBITDA and cash flow even during periods of economic disruptions.\nFor Q3, total operating revenues were $800.2 million, a decrease of 1.8% as compared to the prior year quarter.\nOn a same-store basis, operating revenues increased 0.9% year-over-year.\nTotal digital revenues were $265 million, increasing 17.8% on a same-store basis year-over-year.\nAdjusted EBITDA totaled $102.1 million in the quarter, up $14.1 million or 16% year-over-year.\nThis strong performance was against the prior year adjusted EBITDA number that included $4.8 million of adjusted EBITDA associated with the print business that we disposed off in the fourth quarter of 2020.\nThe adjusted EBITDA margin was 12.8%, in line with our outlook and up 200 basis points from the 10.8% recorded in the prior year quarter.\nAdjusted EBITDA expenses of $713.2 million declined to 1.8% year-over-year and benefited from $15.1 million of PPP loan forgiveness in the quarter.\nOn the bottom line, we achieved $14.7 million of net income and $26.5 million of adjusted net income attributable to Gannett in the third quarter.\nOur net income compares favorably to the prior year, where we incurred a loss of $31.3 million.\nWe are benefiting in part year-over-year as a result of 40% lower interest expense as compared with the prior year.\nMoving now to our segments.\nThe Publishing segment revenue in the second quarter was $715.8 million, down 2.2% as compared to the prior year quarter and flat year-over-year on a same-store basis.\nPrint advertising revenue decreased 4.3% compared to the prior year on a same-store basis as a result of the continued secular decline in the print advertising category.\nDigital advertising and marketing services revenues increased 16.1% on a same-store basis, reflecting strong operational execution from our national and local sales teams.\nDespite reduced page view volumes as compared to last year's peak news cycle, digital media revenue increased 10.6% versus the prior year.\nNational sales of digital media grew 21% as compared to the prior year and 45.5% on a two-year basis.\nWe saw strong national demand for both our owned and operated and our off-platform properties, particularly surrounding our sports assets.\nDigital classified revenues increased 12.3% on a same-store basis, and we now have fully cycled the prior year expiration of the cars.com contract.\nAdditionally, we saw strong performance in our employment, obituaries and legal notice categories.\nDigital marketing services revenues in the publishing segment continued the strong performance with 36% same-store year-over-year growth.\nThe Publishing segment delivered its second consecutive quarterly record for digital marketing services revenue at $34.1 million as a result of robust operational productivity.\nOur solutions continue to resonate with our small business customers and our local sales force continues to improve its DMS productivity, resulting in client count growth of 4% over the previous quarter.\nMoving now to circulation, where revenues decreased 8.2% compared to the prior year on a same-store basis, which compares favorably with the Q1 and Q2 same-store trend of down 12.9% and down 9.2%, respectively.\nWithin circulation, home delivery trends also improved as we cycled some of the seasonal impacts we saw in the prior year as a result of the COVID-19 pandemic.\nSingle copy remains negatively impacted by the ongoing pressure of the pandemic as a result of lower business travel.\nThe resurgence in the COVID-19 pandemic early in the quarter contributed to single copy being down 5.6% on a same-store basis in the third quarter versus being down 5.1% in the second quarter.\nDigital-only subscriber growth yielded 27% growth in digital-only revenue.\nDigital-only subscribers grew 46% year-over-year to approximately 1,543,000 subscriptions.\nDigital-only ARPU declined slightly year-over-year as we continue to focus on growing the overall volume of our subscriber base.\nWe expect that ARPU will stabilize and begin to increase again in 2022 as a higher volume of digital-only subscribers will begin to roll off their introductory pricing plans.\nAdjusted EBITDA for the Publishing segment totaled $101 million, representing a margin of 14.1% in the third quarter versus the 14.8% we generated in the prior year.\nThe Publishing segment's Q3 margin was negatively impacted by the resurgence of the COVID-19 pandemic and the impact that it had on both single copy distribution as well as our Live Events business.\nAlso, we are experiencing increased delivery costs related to postage and contract labor as well as higher newsprint costs versus the prior year.\nFor the Digital Marketing Solutions segment, total revenue in the third quarter was $116.8 million, an increase of 16.5% year-over-year on a same-store basis.\nAs compared to Q2 of 2021, revenue grew $8 million or 7.7% primarily due to increases in ARPU.\nCore clients, those that utilize our proprietary Digital Marketing Services platform increased modestly from 15,300 clients in Q2 to 15,400 clients in Q3.\nThe increase in ARPU was largely attributable to a few seasonally large national customers, and we expect ARPU to return to previous levels in the fourth quarter.\nComparing to the prior year quarter, the core business, which accounts for over 95% of the revenue in the Digital Marketing Solutions segment increased 25.8% year-over-year.\nAverage client count held relatively flat year-over-year at $15,400, despite the fact that the prior year included approximately 2,000 low dollar accounts that were subsequently transitioned off the platform as a result of a strategic change in our product set.\nARPU growth of 26.4% over the prior year reflects not only the impact of large national clients, but a focused product portfolio, which drives more effective results for clients and higher ARPU and margins within the segment.\nAdjusted EBITDA for the Digital Marketing Solutions segment totaled $15 million, representing a strong margin of 12.9% in the third quarter, our second consecutive quarter of record adjusted EBITDA and adjusted EBITDA margin.\nOur Q3 net income attributable to Gannett was $14.7 million and includes $48.1 million of depreciation and amortization.\nThe company's effective tax rate for the quarter was impacted by the forgiveness of the PPP loans and the creation of valuation allowances on nondeductible interest expense carryforwards.\nNet income in the quarter benefited positively from our improved capital structure.\nIn Q3, our interest expense was approximately $35 million, which is down 40% from the prior year.\nLet's now turn to the balance sheet.\nOur cash balance was $141.3 million at the end of Q3, resulting in net debt of approximately $1.26 billion.\nCapital expenditures totaled approximately $11.4 million during Q3, reflecting investments related to digital product development, technology and operating infrastructure.\nFree cash flow in the third quarter was $29.3 million, which reflects interest payments of approximately $30.4 million.\nWe ended the quarter with approximately $1.4 billion of total debt, comprised primarily of $899.4 million of the five-year term loan and $497.1 million of 2027 convertible notes.\nDuring the quarter, we repaid $91.1 million of debt funded through $39 million of real estate and other asset sales as well as excess cash.\nWe expect to generate $40 million of incremental asset sales in the fourth quarter, which would bring our total asset sales for the year to approximately $100 million.\nAnd as Mike mentioned earlier, during October, the company secured a new $516 million five-year senior secured term loan.\nThe proceeds from the new senior secured term loan, together with the net proceeds from a private offering of $400 million first lien notes due in 2026, allowed us to fully repay the previous five-year term loan.\nThe refinancing reduced our cost of debt by nearly 200 basis points, lowering our blended rate of debt outstanding to approximately 5.8%.\nThe new senior secured term loan contains usual and customary covenants for credit facilities of this type and is substantially similar to the previous five-year term loan with one notable update.\nWe are pleased that the new term loan will permit the repurchase of outstanding junior debt or equity, including the existing convertible notes up to $25 million per fiscal quarter provided that the first lien net leverage ratio for that quarter is less than 2 times.\nFirstly, net leverage as of September 30, 2021, was 1.6 times.\nWe estimate that we will recognize a loss on the early extinguishment of the five-year term loan and the other refinancing fees of approximately $31 million during the fourth quarter of 2021.\nAs a result of these expenses as well as our forecasted tax revision, we are currently forecasting an overall net loss for the fourth quarter.",
        "summary": "q3 revenue fell 1.8 percent to $800.2 million.\nqtrly same store revenues increased 0.9% compared to q3 of 2020."
    },
    {
        "text": "These statements reflect the participants' expectations as of today, but the actual results could be different.\nParticipants also expect to refer to certain adjusted financial measures during the call.\nOur company began fiscal '22 with positive momentum following an incredibly challenging year battling the pandemic.\nIn each successive quarter, our people worked with great tenacity and success to improve top and bottom-line results to close the gap pre-pandemic levels, drive the recovery, and return to profitable growth.\nWe entered the pandemic year from a position of strength following 11 consecutive quarters of comp sales growth in our footwear businesses.\nOur overall performance in a difficult environment reflects the strong competitive positions of our retail and branded concepts, the strength of our Footwear Focus strategy, and our success capitalizing on opportunities to bolster these positions.\nAs a result, fiscal '22 is off to an incredibly strong start with the first quarter that meaningfully exceeded our expectations.\nOur outperformance was driven by better-than-anticipated results at every division, led by record first-quarter revenue and profitability at Journeys.\nEven as the pandemic continued to impact our businesses to varying degrees, the pace of our recovery accelerated each month and overall in Q1, reflecting stellar execution, combined with a temporary boost from U.S. government stimulus, and pent-up demand as the economy reopens faster than anticipated.\nI'd like to begin today by outlining some of the key highlights from the quarter.\nFirst, revenue and operating profit exceeded pre-pandemic levels, increasing 9% and 125%, respectively, over Q1 Fiscal '20 two years ago, even with our stores opened for a little less than 90% of the possible operating days in the quarter, given closures primarily in the U.K. and Canada.\nNext, higher operating profit, combined with pre-pandemic share repurchases delivered outstanding Q1 earnings per share of $0.79, compared with a loss of $3.65 last year with positive earnings per share of $0.33 two years ago, all on an adjusted basis.\nAnd finally, we achieved record first-quarter digital revenue and profit as we continue to capitalize on the accelerated shift to online spending.\nWe sustained last year's 64% growth and added another 43% on top of that.\nOther highlights include hitting our highest store traffic numbers compared to pre-pandemic level as the vaccine rollout increased shoppers' confidence to return to physical stores, increasing the gross margin of almost 500 basis points compared to last year as our merchandise assortments and inventory management continued to fuel strong full-price selling, leveraging SG&A significantly compared to pre-pandemic levels, and achieving greater capital efficiencies by managing inventories and capital spending effectively leading to a healthy balance sheet and solid cash position.\nWe were pleased that every business in every channel contributed to the beat versus expectations with the stores delivering the biggest gain.\nWe've always known our customers enjoy our differentiated store experience and the exceptional service they receive in person, and that has been so exciting to see the strength of our brands draw enthusiastic shoppers back in as economies reopen.\nIt was, however, the combination of the store and e-commerce results that led to the strength in the quarter.\nOur online business, from a strong foundation prior to COVID-19, generated double-digit operating margins due to our focus on full-price selling, disciplined marketing spend, and shipping-and-return policies to reinforce profitability.\nTo advance our digital capabilities at an even faster pace, we announced we promoted Parag Desai to the newly created position of chief strategy and digital officer.\nIn this new role, Parag will drive greater synergies and continue to integrate systems and digital best practices across our e-commerce portfolio, while also working with our divisions to deepen consumer insights and CRM capabilities.\nOur digital investments have been generating strong results and we are confident Parag's appointment will accelerate progress, ensuring that we take advantage of the many omni-channel opportunities the pandemic presented.\nTurning now to discuss each business in more detail beginning with Journeys, which again led the way delivering record first-quarter revenue and profit with 75% operating income growth versus pre-pandemic level.\nThere are several factors that shaped Journeys' exceptional Q1 performance starting with superb execution by its merchant team.\nThe pandemic has only magnified Journeys' industry-leading capabilities of anticipating, identifying, and securing the brands and styles most coveted by our team customers.\nThe combination of the right assortments and effective consumer engagement drove strong demand and full-price selling, including later in the quarter when we captured a healthy share of the increased consumer spending following the arrival of government stimulus checks and tax refunds.\nIn addition, Journeys' store team executed with excellence, achieving much higher conversion rates and increased transaction size, capitalizing on improving store traffic to drive store revenue above pre-pandemic levels.\nOn top of this, Journeys' online team delivered e-commerce sales that more than doubled pre-pandemic levels as new website visitors increased by almost 30% and generated close to 50% of Q1 online revenue.\nWith these incredibly strong vendor relationships, the Journeys team accomplished all of this while skillfully managing through the supply chain disruptions, which persisted in the industry throughout the quarter.\nJourneys' offering of casual products resonated strongly with consumers as comfort continue to rain as the fashion choice of the pandemic.\nWhile teens always have a big complement of fashion athletic footwear in their closets, we have talked about when fashion swings toward non-athletic or casual footwear, Journeys is especially well-positioned among its competition to deliver this assortment.\nMoreover, current teen fashion trends are diverse and playing into a number of Journeys' brand strengths.\nWhile fashion athletic grew nicely year over year, the gains in casual outpaces growth, including a strong start to the sandals season.\nCongratulations Journeys team on another record quarter as the destination for fashion footwear for teens.\nOver in the U.K., Schuh delivered a commendable performance under very difficult circumstances.\nStores were open for less than 20% of the possible operating days during the quarter due to government-mandated lockdowns that began around Christmas and continued until after Easter.\nDespite the substantial loss of store days, revenue was in striking distance of Q1 two years ago and operating income exceeded pre-pandemic levels, including some one-time gains.\nThe Schuh team leaned successfully into its best-in-class digital capabilities throughout the pandemic to take advantage of the shift to online purchasing.\nThe first quarter was no exception as direct comps grew by more than 70% on top of last year's 90% growth and constituted more than 80% of Schuh's total revenue.\nPrior to COVID-19, Schuh had the most advanced digital capabilities among our retail businesses, which have only strengthened over the past year through enhanced CRM capabilities, including more robust prospecting.\nSchuh implemented significant operational changes to facilitate this digital growth, including reconfiguring its DC and labor model to add more e-commerce, packing stations, extending the deadline for next-day delivery through new freight carrier arrangements, and using stores as many DCs by rotating store fulfillment of e-commerce orders.\nstores at the end of the quarter.\nWith seven of the top 10 best-performing brands in common, many of the trends driving Schuh's business were similar as usual to the ones driving Journeys, but with more of a fashion athletic tilt.\nBefore moving on from Schuh, I'd like to take a moment to congratulate the team on the official certification of its operations by Carbon Footprint Ltd as a carbon-neutral organization.\nIt has for a long time been a part of Schuh's DNA to operate in a socially responsible manner, consistent with its purpose pillars, and this accomplishment is the result of the team's efforts over several years.\nThis impressive achievement was realized ahead of schedule and provides the roadmap for our other businesses as we seek to reduce greenhouse gas emissions and work with our partners to reduce the carbon footprint of the products that we sell.\nFor Johnston & Murphy, the first quarter marked another positive step forward in its recovery.\nAs vaccines rolled out, consumers began their return to life phase more quickly than expected, gathering with family and friends in social outings and occasions.\nIn Q1, retail store traffic improved in each successive month, digital sales grew a notable almost 20%, attracting new customers to the brand, and wholesale revenue increased.\nThe announced recovery plan is centered around new product technology and innovation with 90% of new product development focused on expansion of its casual offering.\nWe were pleased that Q1's success was driven by high demand for newly developed casual styles, led by the athletic-inspired Amherst and Activ8 collections, and a new holistic marketing campaign in support of these launches.\nAt the same time, we saw continued gains in golf shoes and apparel this spring further validating our success extending J&M beyond its dress shoe roots.\nWhile sales lagged pre-pandemic levels, we are encouraged by these trends and expect the recovery to accelerate once America begins the return to office phase likely begin in earnest as we enter summer and move into fall.\nIn yet another highlight, license brands is now beginning to realize the benefits of the Levi's footwear license and Togast acquisition that closed in January 2020 right as the pandemic began.\nRevenue more than doubled to record Q1 levels, and operating profit improved considerably versus pre-pandemic levels as Levi's footwear was well received in accounts ranging from department stores to Journeys and Journeys Kidz to family footwear.\nThis progress reinforces our excitement about the potential to create value by combining powerful brands with our fully integrated footwear sourcing capabilities.\nTurning now to the current quarter.\nWhile Q2 is typically our lowest volume quarter as teams and consumers in general turn their attention to getting out-of-school and summer activities, the momentum from Q1 has continued into May.\nWhile we expect government stimulus and pent-up demand to ebb at some point, we expect Journeys' strength to continue, Schuh's strength to build with the opening of stores in the U.K. economy, and Johnston & Murphy's recovery to continue, but it will likely take until back to work in the fall to propel another step function improvement.\nVaccine rollout progress should benefit store traffic in the back half of the year, and we expect that a good amount of the digital business that we captured during the pandemic will be sticky and anticipate a much higher e-commerce penetration as compared to fiscal '20.\nWe're anticipating a more normalized back-to-school with a significant return to in-person learning and a more normalized holiday.\nSome COVID effects will linger, but with higher savings and continued government aid, the consumer is well-positioned to spend.\nWhile stimulus has been a positive, the strength we're seeing in our results goes well beyond this tailwind to the traction and momentum we're experiencing as a result of our strong portfolio of businesses and the strategic direction we embraced a couple of years ago with our footwear focused strategy.\nThe pace of our recovery only reinforces our belief that the path we were on prior to the pandemic and now is the right path forward.\nWhat we're most excited about is we see opportunities to solidify the digital gains we made and capitalize on the ongoing industry consolidation to further expand our market share.\nCOVID-19 has provided us the real opportunity to transform our business at a faster case, and our results demonstrate that's what we're accomplishing.\nQ1 results far exceeded both our expectations and last year across the board.\nFor comparison purposes, we believe that comparing to two years ago, our pre-pandemic fiscal '20 provides the most meaningful assessment of current performance is there is simply too much noise in fiscal 21's results for drawing informative comparisons.\nHowever, looking back at how our business has changed since fiscal '20, e-commerce has become a larger percentage, and our licensed brand segment has become a larger piece of the total as well due to the acquisition of Togast and strong Levi's sales.\nThese changes come with an overall lower gross margin rate due to the impact of direct shipping expense and the expansion of our wholesale volume, which should be more than offset with lower SG&A from these businesses, coupled with the impact of our cost reduction initiative once our business normalizes post-pandemic.\nWhile these changes will reshape the P&L, they have a positive impact on operating margins and an added benefit of a less capital-intensive business model.\nTurning back to Q1.\nI'm pleased to report that the first quarter continued the sequential improvement of our operating results since the onset of the pandemic.\nHigher revenue in excess of pre-pandemic levels, combined with SG&A that remains well managed, led to significantly higher operating income versus fiscal '20, and Q1 adjusted earnings per share of $0.79 compared to $0.33 in fiscal '20.\nIn terms of the specifics for the quarter, consolidated revenue was 539 million, up 9% compared to fiscal '20, driven by continued strength in e-commerce, up 144% versus fiscal '20 combined with strong results from Journeys and licensed brands compared to pre-pandemic levels.\nWe did not provide overall or store comp results in Q1 as our comp policy removes any stores that are closed for seven consecutive days, either this year or last year.\nAnd therefore, we feel that overall sales is a more meaningful metric.\nOverall digital sales increased to 25% of our retail business compared to 11% in fiscal '20, led by Journeys' penetration improvement, Schuh's ability to capture lost store sales online, and J&M's double-digit improvement compared to fiscal '20.\nLicensed brands revenue was up 122% versus fiscal '20.\nConsolidated gross margin was 47.8%, down 160 basis points from fiscal '20.\nAs we have experienced since the onset of the pandemic, increased shipping to fulfill direct sales pressure the gross margin rate in all our businesses, totaling 150 basis points of the overall decline, driven mainly by Schuh's much higher level of digital sales due to store closures.\nWhile e-com puts pressure on our gross margin rate, as I mentioned, it comes with a lower cost structure and a high operating income rate.\nJourneys' gross margin increased 130 basis points driven by lower markdowns in both stores and online.\nSchuh's gross margin decreased 1,030 basis points due largely to the higher shipping expense from the shift in channel mix since e-commerce accounted for so much issues revenue in the quarter.\nJ&M's gross margin decrease of 200 basis points was due to more closeouts at wholesale and higher markdowns at retail.\nHowever, it was a sizable sequential improvement.\nFinally, the combination of lower revenue at J&M, typically the highest gross margin rate of our businesses, and the revenue growth of licensed brands, typically our lowest gross margin rate negatively impacted the overall mix by 90 basis points.\nAdjusted SG&A expense was 44.3%, a 340-basis-point improvement compared to fiscal '20 as we leverage from higher revenue and ongoing actions around expense management.\ngovernment program, which provides property tax relief, rent abatements, and our ongoing rent savings on renewals.\nThe next largest areas of savings came from the reduction in store selling salaries, driven by the effective use of workforce management tools to drive higher conversion in the face of wage pressure.\nThese savings were partially offset by incentive compensation driven by improved profitability and increased marketing expenses needed to drive traffic to both stores and online.\nOver the past many years, our organization has been intently focused on a critical effort to reduce occupancy costs, given the shift of traffic online.\nAnd we continue to have even greater traction during the pandemic.\nIn Q1 this year, we negotiated 48 renewals and achieved a 29% reduction in cash rent or 27% on a straight-line basis in North America.\nThis was on top of a 23% cash rent reduction or 22% on a straight-line basis for 123 renewals last year.\nThese renewals are for an even shorter term, averaging approximately two years compared to the three-year average we have seen in recent years.\nWith over 40% of our fleet coming up for renewal in the next 24 months, this will remain a key priority for us going forward.\nIn summary, the first quarter's adjusted operating income was 18.8 million versus fiscal '20's 8.4 million.\nJourneys, Schuh, and licensed brands all achieved higher operating income compared to fiscal '20.\nOur adjusted non-GAAP tax rate for the first quarter was 36%, reflecting the impact of foreign jurisdictions for which no income tax benefits were recorded.\nTurning now to the balance sheet.\nQ1 total inventory was down 18% compared to fiscal '20 on sales that were up 9%, with all divisions showing improvement.\nOur ending net cash position was 214 million, 32 million higher than the fourth quarter's level, driven by strong cash generation from operations.\nCapital expenditures were 12 million as our spend remains focused on digital and omnichannel, and depreciation and amortization was 11 million.\nWe closed 17 stores and opened one during the first quarter.\nDue to limited visibility in the business of the impact of the pandemic, we will not be providing guidance for the second quarter or full fiscal 2022.\nThat said, I do want to share some high-level thoughts on how we are expecting the upcoming quarter to play out.\nAs I mentioned, we believe it is best to use the pre-pandemic fiscal '20 as the reference point.\nQ1 revenue benefited from stimulus and new Levi's business with headwinds from store closures at Schuh.\nAnd while J&M's trend is improving, it remained lower than fiscal '20.\nExpenses in Q1 benefited from rent abatements and some government relief programs.\nSelling salary dollars were lower in the quarter as Schuh stores were opened for less than 20% of the quarter.\nAs we transition into Q2, in May, we continue to feel the tailwind is stimulus but expected to wane as we progress through the quarter.\nAs we enter back-to-school late in Q2, we assume that schools will return to in-person learning this fall with which should be a more normalized back-to-school selling season for Journeys and Schuh.\nAround the same time, we expect more customers should begin returning to their offices which should further benefit J&M's trend.\nNow getting to more specifics of Q2, starting with revenue, we expect higher revenue compared to fiscal '20 levels.\nThis is mainly due to growth at Journeys, Schuh stores coming back online, and continued strength from the Levi's business.\nJ&M's trajectory is expected to improve but remain under fiscal '20's level.\nDirectionally, the overall sales increase for Q2 compared to fiscal '20 could be a little less than the 9% increase we experienced in Q1.\nOur view does not contemplate additional store closures or restrictions from COVID-19 beyond what we know today.\nGross margin rates for Q2 will be below fiscal '20 levels, but better than the 160-basis-point decline we experienced in Q1.\nThe sequential improvement is expected to come from better margin at Schuh, which will have a lower penetration of e-com compared to Q1.\nOverall, higher e-commerce penetration and the higher shipping costs that come with it continue to put pressure on our rate versus fiscal '20.\nAdditionally, we anticipate the pressure from J&M to continue into Q2, as well as the impact of the license brand's growth on our business model as previously discussed.\nWe expect that the adjusted SG&A rate in Q2 will be in the ballpark of the rate in fiscal '20.\nSequentially, we will not see the large SG&A leverage we saw in Q1 as the benefits from rent abatements and some government relief programs will be less than Q1.\nCompared to fiscal '20, higher revenue, combined with our ongoing cost reduction initiatives, will drive an improvement but will be offset by higher performance-based compensation.\nAs a reminder, our EVA program pays for year-over-year improvement and we paid no incentive compensation last year, which will have an impact in every quarter this year.\nIn summary, we expect operating income to be around breakeven for Q2, which is historically our lowest volume quarter of the year, making it difficult to turn a large profit.\nFor taxes, with operating income around breakeven in Q2, we expect a negligible tax expense.\nThe annual tax rate is expected to be approximately 32%.\nIn addition, thinking about the year, we'd also like to note we had a number of expense pick-ups like rent abatements in the back half of fiscal '21 during the pandemic we don't expect to repeat in the back half of this year.\nGiven the accelerated shift of our business from stores to digital and the impact from the pandemic, we continue to make progress on reshaping our cost structure with rent expense as a critical component.\nWe have good experience reducing our cost base.\nDuring fiscal '19 and '20, we identified 43 million in expense savings, and in addition, following the divestiture of Lids, we eliminated the 9 million stranded costs associated with that business.\nMore recently, in fiscal '21, during the pandemic, we reduced our adjusted SG&A expense by over 15%.\nWhile a good amount of this was temporary, there are also significant permanent dollar savings.\nThis has become a core competency of Genesco.\nAs a reminder, our initial target for this year is to identify savings in operating expenses of 25 million to 30 million or approximately 3% on an annualized basis.\nThese savings are coming from reduced occupancy costs and selling salaries and lower IT, transportation, and marketing costs from our procurement initiatives already under way.\nThese savings are before investing in the variable expenses necessary for our increased digital sales, as well as minimum wage and other new cost pressures, and increased inflation that time will tell whether it's temporary or permanent.\nTo date, we have made significant process on the targeted savings and we'll continue to provide updates as the year unfolds.\nThis cost-saving initiative is one part of a multipronged strategy to transform our business, all designed to reflect the more capital-efficient model.\nCombined with lower capital expenditures on stores, fewer lease obligations, and efficient use of inventory, it will drive further improvements and return on invested capital and allow for improved flexibility in our operating model.\nThe team has much to be proud of and remains aligned on delivering on our footwear-focused strategy.\nAs I said, the footwear-focused strategy we embarked on a couple of years ago is the right strategy for our business and the foundation of our strong performance.\nLet me briefly revisit the rationale behind this strategy and how it continues to drive results.\nAcross our company, we aspire to create and curate leading footwear brands that represent style, innovation, and self-expression, to be the destination for our consumers' favorite fashion footwear.\nOur strong strategic positioning in a specialty consumer markets we serve, close connections with our customers, and enduring leadership positions are what make each of our footwear businesses distinctive on their own, and the synergies they share make them stronger together.\nWe are best known for our retail platform, but we have an important and valuable side of our business that successfully owns and licenses brands, giving us another good platform for future growth.\nOur opportunity to unlock the full potential of Genesco is to accelerate the digital and omnichannel potential in our retail businesses and to meaningfully grow our brand inside.\nWe operate in an industry undergoing substantial change with the continued consumer adoption of digital commerce, positioning our company to effect transformational change.\nWe made substantial progress on this in fiscal '20, and the pandemic despite its challenges was an accelerant to this change.\nLooking at the retail side of our business, Journeys' understanding of teens and unrivaled access to merchandise they want equips Journeys uniquely well to serve this fickle customer and to navigate the shifts that are an advantageous and inherent part of fashion footwear in this market segment.\nSchuh occupies an essentially identical position in the UK.\nBoth brands have exceptional merchandising abilities and a passionate focus on customer service.\nBoth serve as key omnichannel distribution partners for the current most relevant youth footwear brands.\nGiven that they enjoy significant overlap in their vendor bases, their combined scale allows for stronger brand relationships underscored by activities like joint top to top global summit and shared special makeup product collections sold exclusively at Journeys and Schuh.\nVendor scale, along with product and consumer insights, provide great synergies, as well as strategic and operational initiative sharing.\nA strong example of this is Schuh entering into the kids' business and now a substantial, profitable, and growing part of Schuh by borrowing and leveraging Journeys' know-how and success.\nThe anchor of the branded side of our company is Johnston & Murphy, whose leadership position is founded on brand equity that has taken 170 years to build.\nThis heritage, ability to interpret and shape its customers' evolving fashion needs through time, and established omnichannel expertise provide a strong foundation for recovery from the pandemic.\nAs a complement to brands we own, licensed brands allows us to leverage our footwear capabilities and expertise across other well-known brands with strong brand equity and opens additional tiers of distributions.\nOur branded businesses benefit from common wholesale trade relationships and product trend inspiration exchange.\nAnd in addition, the global sourcing platform spanning across J&M and licensed brands provide some of the most meaningful benefits.\nFor example, licensed brands designs, develops, and sources product accounting for one-third of the casual footwear sold in J&M factory outlets, including the top-selling style overall.\nOur branded platform is Genesco's most promising platform for future growth.\nThis platform allows for leveraging of our robust direct-to-consumer capabilities, complemented by well-developed wholesale channel relationships, giving us the opportunity to add additional footwear brands that can plug into this infrastructure and capitalize on today's retail landscape where brands increasingly go direct to consumer.\nLicenses plugged into this infrastructure also add value, evidenced by the success we're having with Levi's and the enhanced capabilities Togast added to our footwear sourcing platform.\nIn addition, not only do we benefit from a North American shared services platform in areas like technology, logistics, finance, and HR, but size and scale matter even more in our now technology and digitally driven retail sector as the investments to keep pace with consumer expectations continue to grow.\nWhile Journeys and Johnston & Murphy go to market as separate and distinctive brands, they share almost all of their retail systems and services, providing significant cost-sharing and enhanced benefits.\nFrom point-of-sale software to merchandising systems to loss prevention and real estate, the retail technology and infrastructures of these two concepts are largely integrated.\nFor example, the point-of-sale software upgrade we're rolling out this year will serve both Journeys and J&M.\nLikewise, the wholesale technology infrastructures of J&M and license brands are significantly integrated as well.\nAs we look to the remainder of fiscal '22 and beyond, further leveraging these synergies within and across platforms is an important step in delivering increased value on top of the six strategic growth pillars driving our footwear-focused strategy.\nThese six pillars put in place prior to the pandemic emphasize continued investment in our digital and omnichannel capabilities, deepening our consumer insights, driving product innovation, and reshaping our cost base.\nOn future calls, like the last one, I'll provide an update on the significant progress we're making on these six pillars and corresponding strategic initiatives, which are having real impact to driving growth and profits for Genesco.\nNot only have we taken care of our customers and each other during the pandemic, but we began the year on a firm foundation that allowed us to grow and create tremendous value in our company.\nIn addition, over the last several months, we've added four very qualified and experienced directors to our board, whose perspectives will be invaluable as we shape our future.\nGenesco is on the right path.\nOur strategy is working.\nOur future is bright.\nAnd I have never been more excited about the people and potential in our business.",
        "summary": "q1 non-gaap earnings per share $0.79 from continuing operations.\nq1 sales $539 million versus refinitiv ibes estimate of $449.1 million.\nqtrly comparable direct sales increased 43%.\nco is not providing guidance at this time.\nas of may 27, 2021, co is operating in 96% of its locations, including about 1,100 journeys, 160 johnston & murphy, 123 schuh locations."
    },
    {
        "text": "These statements reflect the participants' expectations as of today, but actual results could be different.\nParticipants also expect to refer to certain adjusted financial measures during the call.\nA very strong holiday season concluded an outstanding year.\nThroughout fiscal '22, we accelerated our recovery from the pandemic and delivered record results for our footwear companies even as we navigated a number of acute challenges.\nDespite multiple COVID variants, bottlenecks across the supply chain, labor shortages, and higher costs, we capitalized on the opportunity of a strong consumer spending environment to drive our business forward.\nOur exceptional results underscore the earnings power of our business model, the solid foundation for growth we built through the strong competitive positions of our retail and branded concepts, and the successful execution of our footwear-focused strategy.\nThere are several key achievements that defined the year.\nWe grew revenue more than 35% over last year and 10% over fiscal '20.\nGross margin expansion and meaningful expense leverage drove record operating income for our footwear businesses as we achieved an operating margin above 6%.\nWe generated $240 million of operating cash flow, putting us in a great position to further invest in our business and return over $80 million to shareholders through share repurchases equal to 9% of outstanding shares, and we delivered record adjusted earnings per share of $7.62, an increase of more than 65% over fiscal '20.\nAdditional highlights include capitalizing on the accelerated shift to online spending and holding on to last year's almost 75% gain to reach almost $0.5 billion of digital sales, growing our branded wholesale business by almost $90 million versus two years ago, while improving profitability, adding new licenses and strengthening retail partnerships, and increasing store revenues over 40% from last year and nearly achieving fiscal '20 levels despite having 55 fewer stores.\nOverall, our results highlight the work we've done to create and curate leading footwear brands and importantly, to strengthen our position as the leading destination for teen and youth-branded fashion footwear.\nIn today's channel-less world, where the consumer can truly shop anywhere, Journeys' and Schuh's growth underscores the tremendous loyalty developed with existing customers and compelling proposition offered to new customers.\nTeens view us as the unparalleled fashion authority, choosing fashion-right brands and styles, validating whatever brands we're currently selling, and they are increasingly turning to our concept for their branded footwear needs.\nWe are not dependent on anyone brand for the majority of our revenue, but rather 10 or more brands typically constitute 80% of what we sell.\nTrend-driven teens who are looking for the most current assortment of fashion footwear that is always evolving, whether they want to make a statement to stand out or want to fit in and be just like their friends, come to Journeys and Schuh to buy multiple brands and seek advice from our knowledgeable fashion advisor salespeople in our youth-focused full-service environment.\nThe effects from the pandemic on how consumers shop rather than harming our business was instead the catalyst to reach new heights.\nShifting now to the fourth quarter.\nThe work we did to have the right assortment and the right holiday marketing campaigns helped deliver Q4 results well ahead of expectations.\nConsumer demand was robust, and we nonetheless believe our results would have been even stronger had we been able to maintain historic levels of inventory.\nOur performance over last year's Q4 was driven by store sales and, versus two years ago, by digital and branded wholesale sales.\nQ4 highlights include revenue up 14% over last year and 7% over two years ago.\nRemarkably, we achieved this despite overall inventory being down almost 20% versus last year and down by one-third compared with the fourth quarter two years ago during the key holiday period.\nWith much more limited promotional activity, coupled with price increases, full-price selling was very strong, fueling a 300-plus basis point increase in gross margin versus last year, and a 200 basis point increase compared to two years ago, much stronger than expected.\nHigher sales and this better-than-expected gross margin resulted in double-digit operating income expansion over pre-pandemic levels and record adjusted earnings per share of $3.48, an increase of more than 25% compared to last year's holiday season and 13% compared to two years ago.\nFrom a channel perspective, the power of our omnichannel strategy was on full display in the fourth quarter as consumer appetite to shop in person, especially in the days leading up to Christmas, drove an almost 20% increase in-store sales over the year-ago period.\nStrong demand in stores with many items selling as soon as they hit the store floor meant less store inventory than usual was available to service online demand.\nWe saw the biggest shift to in-store shopping in the U.K. as Schuh stores were open 100% of the quarter compared to roughly only a third of the days last year.\nDespite the strong in-store sales in both Journeys and Schuh, we held on to almost 90% of last year's digital sales in total.\nSo turning now to discuss each business.\nI'll start with Journeys and begin with a huge congratulations to the team on setting all-time records of sales and operating profit for the year.\nJourneys' performance underscores the competitive advantages the business has built and how it has leveraged those advantages to further separate itself as the destination for branded fashion footwear for teens.\nAll of Journeys' Top 10 brands experienced year-over-year growth in fiscal '22 with most notching significant gains.\nThe current fashion cycle, which I've been describing, is shifting more into casual away from fashion athletic, plays into Journeys' strength, positioning Journeys well among its competition to deliver this assortment.\nIn anticipation of continued supply chain pressure, we encouraged customers to shop early and they did and the holiday season got off to a very strong start.\nAt this peak volume time, as the season unfolded, while traffic remained solid, conversion, which had been robust, dropped off as Journeys was not able to quickly replenish in-demand products to match outsized holiday demand.\nWhile Journeys' talented store teams drove sales above last year's level, selling whatever was available, we believe Journeys' sales would have been meaningfully higher had we been able to get the inventory receipts we had ordered.\nAs a positive, tight inventory led to unprecedented levels of full-price selling with customers also willing to absorb price increases to secure desired product, driving further margin acceleration.\nFinally, the Journeys team continues to live its core values of being a family with an attitude that cares, partnering during the holidays with nonprofit candidates and customers at the register for its largest national community activation, and donating $600,000 for bikes for underserved youth across the United States.\nAs part of this initiative, Journeys' headquarters employees built and donated 300 bikes and helmets to two Nashville elementary schools just in time for the holidays.\nWe were incredibly pleased with holiday results as Schuh capitalized on pent-up consumer demand and delivered Q4 constant currency revenue up more than 30% versus last year and 12% versus two years ago.\nLike Journeys, Schuh's strength is its ability to deliver the fashion brands desired by its youth consumer and Schuh drove a nice growth across its diversified mix of both casual and fashion athletic footwear.\nAs a result of its stellar execution throughout the pandemic, navigating multiple store openings and closings, and making the most of its advanced digital capabilities, Schuh garnered improved product access being moved up a tier by a number of its high-profile brands.\nThis step forward in access, coupled with less severe supply chain disruptions and strong inventory management allowed Schuh to be in a better inventory position over the holidays.\nU.K. customers were more comfortable shopping in person, leading to better in-store traffic, Schuh retained much of its digital gains from when stores were closed last year, resulting in a Q4 46% digital penetration.\nLastly, less promotional activity and product mix also drove strong margin gains.\nTurning now to our branded side.\nOur plan to reimagine Johnston & Murphy for a more casual, more comfortable, post-pandemic environment continues to prove out in the marketplace with the biggest Q4 bottom-line gain over last year of all of our businesses.\nJ&M continues to expand its focus from not just the products consumers need for work, but the products people desire for everyday life.\nQ4's strong sell-through in boots, casual and casual athletic footwear, and equally strong performance in apparel and outerwear demonstrates just how far we've come, making J&M an attractive multi-category lifestyle brand.\nThis pivot has included new strategies for how and where we reach our customers.\nNew product story marketing campaigns have been very effective, and we've seen the most growth in our digital channel, up 14% compared to Q4 last year, and growth in our under-35 customer base, up 30% in Q4.\nMuch stronger demand and supply constraints pushed inventory more than 50% below pre-pandemic levels, hampering our ability to capture all of the demand during the holidays and return J&M to pre-pandemic sales.\nNevertheless, we're excited about J&M's trajectory and expect upside in the year to come.\nRounding out the discussion, momentum for Licensed Brands accelerated as the year progressed, notching impressive sales growth of 70% over last year as we successfully turned around the business and capitalized on the new capabilities we obtained with the Togast acquisition.\nWhile supply chain disruption and excess freight costs weighed on the P&L throughout the year, we saw growing demand for both Levi's and Dockers footwear in value and full-price channels, positioning the business for improved profitability as these challenges subside, and we continue to take advantage of the white space in the marketplace.\nIn conclusion, our footwear-focused strategy is delivering results.\nCOVID provided the real opportunity to transform our business at a more rapid rate.\nWe are a healthier company today and delivered growth and improved earnings as a result of higher digital sales and profits, a more profitable store channel, and growing branded wholesale sales.\nOur future is bright as we build upon the progress we have made.\nTurning now to the current year.\nFiscal '22 had headwinds I have discussed and also some unique tailwinds, namely: healthy consumer spending in the first half due to significant government stimulus; an unusually good environment for full price selling as a result of high demand and scarcity of supply; and we benefited from some onetime gains related to rent and government relief, mostly in the U.K. With respect to fiscal '23, sales have gotten off to a much stronger start versus last year, but a slower start versus pre-pandemic, driven largely by the lower inventory level and lagging tax refunds.\nWe are expecting year-over-year trends to moderate as we anniversary stimulus and the lack of inventory further pressures growth early in the new year, especially in the first quarter.\nLooking further into fiscal '23, we're working hard to overcome the cost pressures that are prevalent today, and we don't anticipate the factors that led to such a strong full-price selling environment to be sustained.\nTom will provide the financial details of our outlook momentarily, but we feel confident about delivering topline growth on top of a very strong fiscal '22.\nConsistent with what I have outlined, we are planning the back half to be much stronger than the first half as inventory levels improve, logistics cost pressure starts to ease, and continued price actions help offset higher costs.\nFiscal '23 will also be an investment year for J&M as we advance the work on the brand's repositioning.\nWe expect adjusted earnings per share for fiscal '23 to be between $7 and $7.75 and believe somewhere close to the middle of the range is where the year will land.\nWhile there are a number of variables at play, our results over what has been a very volatile past 24 months gives me great confidence in our team's ability to execute.\nFinally, our ESG program will achieve an important milestone early in the year with the completion of our inaugural enterprisewide carbon footprint assessment.\nOur work continues to progress with more to come when we publish a comprehensive ESG report later this spring.\nThroughout fiscal '22, our employees stepped up wherever needed, and I can't overstate how critical this work was to our success.\nCompanies succeed like we have because of strong teams and dedicated people who help them achieve new heights.\nI'm incredibly proud of what we accomplished together.\nI would like to echo Mimi's remarks regarding the continued success of our key strategies and our amazing people.\nWith the year now behind us, we feel even more confident in our portfolio and the ability of our footwear-focused strategy to drive strong results.\nThroughout the year, we saw continued strength in all our businesses, culminating in a strong Q4, which was driven by our team's ability to execute the strategies put in place.\nBefore I get into the details of the quarter, I want to again remind you as we have done throughout the year that we believe comparing to our pre-pandemic fiscal year '20, two years ago, typically provides the more difficult and often most meaningful assessment of our business.\nHowever, when comparing to fiscal year '20, keep in mind how our strategy has changed our business.\nE-commerce has become a larger percentage of sales along with wholesale sales for licensed brands.\nThese changes come with an overall lower gross margin rate due to the impact of direct shipping expenses and the expansion of our wholesale volume.\nHowever, this should be more than offset with lower SG&A from these businesses.\nWhile these changes are reshaping the P&L, they have a net positive impact on operating margins and an added benefit of a less capital-intensive business model.\nTurning now to the specifics for the quarter.\nConsolidated revenue was $728 million, up 7% compared to fiscal '20.\nJourneys grew 2%, while Schuh grew 12% on a constant currency basis, and we more than tripled our licensed brands business.\nAs for J&M, the quarter started off strong in November, but supply chain challenges led to a significant lack of inventory, which led to J&M sales being down 12% for the quarter.\nFrom a channel perspective, we experienced increases in both the e-com and wholesale channels.\nAnd while we drove robust growth in the store channel, sales remained 4% below fiscal year '20, as scarcity of inventory impeded sales.\nWorth noting as well is that we ended the quarter with 55 fewer stores than we had in fiscal year '20 as we optimized our store footprint.\nOn a year-over-year comp basis, however, total company comp-store sales were up 10% and were driven by comp sales of 6% at Journeys, 22% at Schuh, and 55% at J&M.\nFinally, e-commerce sales were up 36% to fiscal '20 and accounted for 22% of total retail sales, up from 17% in fiscal year '20, while we also held on to 88% of last year's gains even while having the majority of our stores open during the quarter.\nWe were again very pleased with gross margins, which were up 310 basis points to last year and 200 basis points versus two years ago.\nStrong full-price selling and price increases offset the channel mix impact of increased e-commerce and wholesale and increased logistics costs.\nIncreased logistics costs put approximately 120 basis points or $9 million of pressure on Q4 gross margin, and were the greatest drag in our branded businesses.\nJourneys' and Schuh's gross margins were up 330 and 250 basis points, respectively, to fiscal year '20, driven by more full-price selling and higher footwear ASPs.\nJ&M's gross margin was up 420 basis points to fiscal '20, also benefiting from strong full-price selling and price increases, which also drove the release of slow-moving inventory reserves.\nFinally, licensed brands' gross margin was down 190 basis points to fiscal year '20, as we experienced almost 1,000 basis points or almost $5 million of pressure from additional logistics costs, which more than offset margin improvements in the business.\nAdjusted SG&A expense was 39.8%, which was 170 basis points more than fiscal '20 as deleverage from investments in marketing and higher incentive compensation more than offset leverage in occupancy and selling salaries.\nAs a reminder, our incentive compensation plan is based on year-over-year performance.\nAnd comparatively speaking, we had a much lower bonus expense in fiscal year '20 Q4 than we did this year.\nThe other major driver of the deleverage was in marketing expense, which is due to our efforts to drive our digital footprint as well as brand awareness.\nThis coincided with price increases and digital marketing costs, including increased cost per click.\nIt's worth mentioning, last year's SG&A levels were unusually low, benefiting from 10s of millions of dollars of one-time COVID rent relief.\nRegarding our rent reduction efforts for fiscal '22, we negotiated permanent reductions through 181 renewals, which achieved a 16% reduction in rent expense in North America on a straight-line basis.\nThis was on top of a 22% reduction for 123 renewals last year.\nThese renewals are for an even shorter term averaging approximately two years, compared to the three-year average we have seen in recent years.\nWith 45% of our fleet coming up for renewal in the next couple of years, this continues to remain a key priority.\nFinally, we are pleased with our ability to leverage selling salaries, particularly in this higher cost and more difficult labor environment as we effectively utilized our workforce management tools.\nLast quarter, we reported that we had identified the full amount of our $25 million to $30 million cost savings target.\nA large part of these savings are from current and future reductions in store occupancy.\nWe will continue to focus our multiyear cost savings efforts on store channel profitability, including further efforts on reducing occupancy costs, gaining more efficiencies with selling salaries to mitigate the effects of wage pressures, and continually look for ways to further drive efficiencies, given the changing cost structure of the business.\nIn summary, fourth quarter adjusted operating income was $66 million, a 9.1% operating margin, compared to $59 million or 8.8% for fiscal year '20.\nVersus last year, operating income improved by $2 million or 2.6%.\nAgain, last year's SG&A levels were unusually low, benefiting from significant COVID rent relief.\nThe impact of this was greatest at Journeys and in large part led to lower operating income this year despite higher sales and gross margins as Journeys anniversaried these onetime gains.\nThe profitability achieved during the quarter provides strong evidence of the operating margin expansion that we are continuing to see with our footwear-focused strategy as well as our ability to execute our growth algorithm.\nAs Mimi mentioned, for the fiscal year, we achieved north of a 6% operating margin, which was an important milestone in our long-range plan.\nFor the quarter, our adjusted non-GAAP tax rate was 25%, which compares favorably to the 37% last year due to the impact of the Cares Act tax provisions in the fourth quarter of fiscal year '21.\nThis resulted in adjusted diluted earnings per share of $3.48 for the quarter, which compares to $2.76 last year and $3.09 in fiscal '20.\nTurning now to the balance sheet.\nQ4 total ending inventory was down 24%, compared to fiscal '20 on sales that were up 7%.\nAt the end of the quarter, all our business experienced inventory shortfalls versus fiscal '20 with the most impacted in Journeys and J&M, which were down 20% and 39%, respectively.\nOur strong net cash position of $305 million, an increase of over $120 million versus last year, was driven by our strong operating performance.\nAdditionally, we consolidated operations and sold a warehouse, realizing a sizable gain on the transaction.\nThis strong performance and our confidence in the business enabled us to continue to return cash to our shareholders through the repurchase of 840,000 shares of stock for $52 million at an average price of $62.22 per share during the quarter.\nTotal fiscal '22 share repurchases were approximately 1.36 million shares or 9% of outstanding shares at a cost of approximately $82.8 million and at an average price of $60.88 per share, which effectively used up our September 2019 $100 million share repurchase authorization.\nAs a reminder, to continue to support our capital allocation strategy, we recently announced the approval of an additional $100 million repurchase authorization in February of this year, which represents our current availability.\nRegarding capital allocation strategy, our immediate priority is to accomplish the substantial task of reinventorying, then invest in the business and continue to return cash to our shareholders through opportunistic share repurchases.\nCapital expenditures were $19 million, including our new headquarters, and depreciation and amortization was $11 million.\nWe opened two stores and closed 11 during the fourth quarter to end the quarter with 1,425 total stores.\nAs we look toward fiscal year '23 guidance, we are excited about the year ahead and the continued momentum of our business.\nBut we recognize that we are faced with supply chain delivery delays, increased product, and logistics costs and the lapping of significant stimulus last year in the first half.\nRegarding supply chain delays, we expect inventories to normalize late Q2 to early Q3.\nIn addition, we expect to experience wage pressures throughout the year.\nAfter considering these factors, we expect fiscal year '23 sales to grow 2% to 4%.\nFor adjusted earnings per share, we expect a range of $7 to $7.75 per share with our best current expectation that earnings per share will be near the midpoint of the range.\nNote that our full year guidance does not anticipate further significant supply chain disruptions or a more rapid escalation of inflation or geopolitical conflicts.\nRegarding our individual businesses, for Journeys, we expect first-half sales to be below comparable fiscal year '22 levels since Journeys benefited considerably from stimulus last year.\nWe then expect growth in the back half as we assume inventories will normalize to pre-pandemic levels and would benefit from further price increases.\nFor Schuh, we expect growth for the year driven by more normalized store openings.\nFor J&M, we expect to return to pre-pandemic sales levels, and we expect growth for licensed brands as well.\nRegarding gross margins, we expect gross margin rates to come down versus last year by roughly 40 to 50 basis points due mainly to increased markdown activity in the quarters in which markdowns normally occur as compared to essentially no promotional activity last year.\nWe expect adjusted SG&A as a percentage of sales to deleverage in the range of 10 to 40 basis points.\nThis is driven by leverage from reduced performance-based compensation being offset by anniversarying significant onetime rent abatements, primarily at Schuh, and selling salary wage pressure.\nIn addition, we will have increased marketing investments to drive our business forward.\nOur guidance assumes no additional share repurchases for the fiscal year, which results in fiscal '23 average shares outstanding of approximately 13.4 million, but we can repurchase opportunistically with availability under our most recent authorization.\nFurthermore, we expect the tax rate to be approximately 28%.\nIn summary, this all results in expected operating margin below fiscal year '22, which beyond cost pressures, in large part, is due to a difficult first quarter and our belief that factors that led to such a strong full-price selling environment will not be sustained.\nWhile we typically don't provide quarterly guidance, I want to provide some perspective on Q1.\nAs I said, we are lapping the benefits of fiscal year '22 stimulus, while at the same time experiencing delivery delays.\nAs a result, we expect Q1 sales to be below last year, which is the main driver of a good amount of SG&A deleverage in the quarter.\nWe are also anniversarying some onetime pickups like rent abatements in Q1 last year.\nRegarding gross margin, increased air freight logistics costs are driving pressure, particularly at J&M.\nThe good news is we expect overall gross margin to be just under last year's levels.\nWith all of this, we expect a small loss in the quarter even as first-half earnings return more to a pre-pandemic cadence.\nAlso, it is worth noting for Q1, we expect to incur a small amount of tax expense due to our inability to recognize tax credits for our international operations.\nThe results Tom detailed clearly demonstrate that our footwear-focused strategy is advancing our business in this ever-changing environment.\nThis strategy, implemented before the pandemic, leverages our team's significant direct-to-consumer expertise across footwear, retail, and brands and the synergies between platforms.\nDriving this strategy are six strategic pillars that emphasize continued investment in digital and omnichannel, deepening our consumer insights, driving product innovation, reshaping our cost base, and pursuing synergistic acquisitions, all to transform our business and exceed the expectations of today's consumer whose needs have rapidly advanced.\nWe continually refine our focus within the six pillars to take further advantage of the major changes underway in our industry.\nBefore we get to Q&A, let me walk you through the pillars and briefly highlight select initiatives for fiscal '23.\nThe first pillar is accelerate digital to grow the direct-to-consumer channel.\nThe investments we have made paid huge dividends and contributed meaningfully to our results these past two years as we achieved e-commerce sales growth of almost 80% over this time.\nImportantly, our online business generates operating margins well into the double-digits due to our focus on full-price selling, disciplined marketing spend, and shipping and return policies to reinforce profitability.\nThis year, we are increasing our IT investments and resources to support digital.\nWe also believe continued enrichment of the digital shopping experience through fit refinement, try-on augmented reality and shop-the-look features will further add to digital growth in fiscal '23.\nAfter a successful virtual try-on pilot program with Journeys this past year, we plan to roll out that program across all brands in the upcoming year.\nAdditionally, we accelerated automation to support omnichannel growth and we'll benefit from last year's go-live of our new carton-on-demand system and bespoke e-commerce packing module.\nLastly, we will add to our investment in digital marketing to drive traffic and attract new customers.\nWe expect marketing to be up more than 60% versus pre-pandemic spending, in large part, driven by these digital marketing increases.\nOur second pillar is maximize the relationship between physical and digital channels.\nDuring the pandemic, we increasingly saw the importance of these two channels working seamlessly together to provide consumers with their preferred shopping experiences, and we're building on and refining this relationship.\nOur research has told us that over 30% of Journeys' target consumers visit local non-mall shopping centers two to three times per month and enjoy the convenience of shopping closer to home, combined with enhanced omnichannel services like easier curbside pickup.\nWe piloted a number of these off-mall locations, and we're very pleased with the early sales and four-wall results.\nAs such, we are expanding our portfolio of Journeys' non-mall locations and opening up to 30 new locations this year.\nTools like our new real estate analytics platform will allow us to optimize our site selection as we build out this footprint.\nAt Schuh, we are opening a new distribution center in Ireland to better support omnichannel sales there.\nWith this new center, we will also increase the efficiency of our Irish operations, while reducing costs resulting from new duties imposed post-Brexit.\nMoving to our third pillar, building deeper consumer insights to strengthen consumer relationships and brand equity.\nData-driven consumer insights and more robust CRM capabilities are key to driving our next big wave of growth.\nBecause of the trusted relationship we have with our customers and their parents and the efforts to capture first-party data in our stores, we are currently able to identify 80%-plus of our Journeys and J&M customers.\nThis year, we will continue our investments in CRM and data analytics, particularly through database growth and loyalty program advancement.\nWe expect to fully launch our new Schuh loyalty program following a successful test in fiscal '22, grow our Johnston & Murphy program, which launched last year, and advance the work on a loyalty program for Journeys.\nWe will also invest to elevate the Journeys and Johnston & Murphy brands through increased marketing campaigns and spend to support this initiative.\nOur fourth pillar, intensifying product innovation, and trend insight efforts, we will be utilizing new consumer insights to further innovate Johnston & Murphy's product offering and its accelerated shift to casual.\nWe have made tremendous progress reimagining the brand, highlighting proprietary innovation involving performance, advanced cushioning, and breathability technologies in both footwear and apparel, and growing Johnston & Murphy into its position as the No.\n7 casual brand in the premium channel.\nIn addition, we will leverage our Togast capabilities and talent in connection with our new starter and Etonic licenses, which have shown strong presale demand and also build on the impressive growth achieved with the Levi's U.S. men's, women's, and kids' footwear license and category opportunities in areas like slippers, flip flops, and slides.\nFinally, we are investing in a new scalable wholesale enterprise resource planning system to support the growth of our branded platform.\nPillar five, reshaping the cost base to reinvest for future growth has been a continuous effort, and especially at the store channel in working with our landlord partners to find a solution to rightsize rents to match traffic levels.\nIn addition to the approach Tom outlined for rent reduction, we are improving efficiency wherever we have people-intensive activities.\nFor example, this year, we're investing in new receiving automation in our Journeys distribution center, which should lower labor costs and increase productivity, especially during peak receiving periods.\nAnd finally, pillar six, pursue synergistic acquisitions to enhance growth.\nAs we navigated an unprecedented environment over the last two years, acquisitions were not at the forefront of our strategy in spite of the success we're having with the Togast acquisition.\nNow that many of the challenges of the pandemic are behind us, we will concentrate our efforts on opportunities to leverage our powerful direct-to-consumer capabilities to grow our branded platform and leverage its synergies.\nSo now to close, while we are so pleased with the year we just finished, we are even more excited about driving our footwear-focused strategy to deliver additional growth and shareholder value.\nOperator, we're now ready to open the call to questions.",
        "summary": "q4 non-gaap earnings per share $3.48 from continuing operations.\nq4 sales rose 14 percent to $728 million.\nq4 same store sales rose 10 percent.\nsees fy adjusted earnings per share $7.00 to $7.75 from continuing operations.\nfor fiscal 2023, co sees sales to be up 2% to 4%, compared to fy22."
    },
    {
        "text": "These estimates are subject to some risks and uncertainties.\nAdditional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings.\nRevenue is up $640 million or 7.3% against the first quarter last year.\nOperating earnings are up $4 million, and net earnings are up $2 million.\nTo be a little more granular, revenue on the defense side of the business is up against last year's first quarter by $444 million, and aerospace is up $196 million.\nThe operating earnings on the defense side are up $45 million or 6.4%, while operating earnings in the aerospace side are down $20 million, but still nicely above consensus.\nI will have more to say about this a bit later.\nThe operating margin for the entire company was 10%, 70 basis points lower than the year-ago quarter.\nThis was driven by a 250-basis-point lower margin rate at aerospace, as was fully anticipated in our guidance to you, combined with $21 million more in corporate operating expense.\nFrom a slightly different perspective, we beat consensus by $0.18 per share.\nWe have roughly $500 million more in revenue than anticipated by the sell side and almost $50 million more in operating earnings.\nSo it's a pure operations beat.\nI must confess that we also beat our own expectations rather handsomely.\nThis is, in almost all respects, a very solid quarter.\nIt's hard to find something not to like about it.\nIt's a very good start to the year.\nAerospace enjoyed revenue of $1.9 billion and operating earnings of $220 million with an 11.7% operating margin.\nRevenue is almost $200 million higher than anticipated by us and the sell side.\nRevenue is also $196 million higher than the year-ago quarter.\nThe difference is almost exclusively more G500 and G600 deliveries than the year-ago quarter.\nThe 11.7% operating margin is lower than the year-ago quarter, but consistent with our guidance and sell-side expectations.\nFinally, we took some mark-to-market charges with respect to our G500 test inventory.\nWithout the charge, from a pure operating perspective, performance in the quarter was superb.\nAerospace also had a very strong quarter from an orders perspective with a book-to-bill of 1.3:1.\nGulfstream alone had a book-to-bill of 1.34:1.\nIn unit terms, this is the strongest order quarter for the last two years, excluding the fourth quarter of 2019 when we launched the G700.\nThe sales activity truly accelerated in the middle of February and continued on through the remainder of the quarter.\nThe momentum developed in the quarter appears to be rolling over into the second quarter as well.\nWe are experiencing a high level of interest and activity.\nIt is constructive to see this accelerated activity level without the benefit of the removal of travel restrictions and quarantine requirements in many countries outside the U.S. Demand should improve even further when these restrictions are ultimately removed.\nGulfstream experienced a 5.7% increase in service revenue.\nOn the other hand, Jet Aviation's FBOs and certain of its maintenance facilities are recovering more slowly.\nJet Aviation service revenue is down around $31 million, coupled with a modest increase in service operating earnings.\nThe FBOs and MRO sites will do much better as business travel accelerate.\nThe G500 and G600 continued to perform well.\nMargins are improving on a consistent basis, and quality is superb.\nAs of the end of last week, we have delivered 104 of these aircraft to customers.\nThe G700 has over 1,400 test hours on the five test aircraft, and the first fully outfitted G700 is flying.\nIts interior is absolutely beautiful.\nWe remain on track for entry into service in the fourth quarter of 2022.\nLooking forward, we expect the second quarter to be our most challenging from a delivery perspective.\nHowever, we also expect rapid improvement in the third and fourth quarters as we had planned for an increase in production and more delivery.\nCombat systems has revenue of $1.8 billion, up 6.6% over the year-ago quarter.\nWhile all three companies within the group contributed to the growth, the primary source was increased sales of our eight by eight-wheeled combat vehicles to Switzerland and Spain and sales of our six by six Eagle vehicles.\nSo all in all, good growth.\nIt is also interesting to observe that combat systems revenue has grown in 16 of the last 18 quarters on a quarter over the year-ago quarter basis.\nOperating earnings, at $244 million, are up 9.4% on higher volume and a 30-basis-point improvement in margin.\nThis was an impressive performance by any reasonable measure.\nYou may recall that a notable development for this segment in the year-ago quarter was the formal signing of the restructured contract on the Canadian international program, which settled all issues.\nThe parties continue to perform on that contract, as contemplated.\nThis was helpful to free cash flow last year and continues to be so this year.\nThis risk item appears to be behind us.\nTurning to marine systems.\nYou may recall that at this time a year ago, I was able to report that revenue in the first quarter of 2020 was up 9.1% against the first quarter in 2019.\nI am very pleased to report today that first-quarter 2021 revenue of $2.48 billion is up 10.6% against first-quarter 2020.\nThe growth was led by Block V Virginia-class and Columbia-class construction volume.\nWe also enjoyed nice increases in ESB and T-AO construction volume at NASSCO.\nThis is very impressive continued growth.\nIn fact, revenue in this group has been up for the last 14 quarters on a quarter versus the year-ago quarter basis.\nOperating earnings are $200 million in the quarter, up $16 million or 8.7% on an operating margin of 8.1%.\nWe will strive to improve our operating margin as we progress through the year.\nOn the order side, I should observe that total backlog was down only $231 million sequentially, leaving a powerful $49.8 billion in total backlog.\nThere was, obviously, significant order activity in the quarter, including the award of the 10th Block V Virginia-class submarine.\nThis segment have revenue of almost $3.2 billion in the quarter, up $95 million from the year-ago quarter or 3.1%.\nThe revenue increase was supplied by information technology, mostly associated with the ramp-up of new programs.\nIT alone grew 5% in the quarter.\nOperating earnings at $306 million or up $8 million or 2.7% on a 9.6% operating margin.\nThis is about 40 basis points ahead of consensus.\nEBITDA margin is an impressive 13.3%, including state and local taxes, which are a 50-basis-point drag on that result.\nMost of our competitors carry state and local taxes below the line.\nThis is a best-in-class EBITDA margin.\nTotal backlog grew $359 million sequentially, and total estimated contract value remained about the same.\nThere were also some notable items in GDIT's first quarter worth mentioning.\nOn the bid and proposal front, GDIT submitted the highest dollar value of proposals in any quarter since the acquisition of CSRA, 90% of which represent new business opportunities.\nThey ended the quarter with over $30 billion in proposals awaiting customer decision, most of which also represent new business opportunities versus recompetition of existing work.\nSo good order activity in the quarter with a book-to-bill of 1.1:1 and good order prospects on the horizon.\nThat concludes my remarks with respect to a very good quarter.\nAs you know, we never update guidance at this time of the year.\nWe will, however, give you a comprehensive update at the end of the second quarter, as is our custom.\nI'll start with our cash performance in the quarter.\nFrom an operating cash flow perspective, we essentially broke even for the quarter.\nIncluding capital expenditures, our free cash flow was negative $131 million.\nFor those of you who followed us for some time, you know we've been a fairly significant user of cash in the first quarter for the past several years.\nThis quarter was a marked improvement from that pattern due in large part to the strong order activity at Gulfstream and ongoing progress payments on our large international combat systems program, consistent with the contract amendment Phebe referenced earlier.\nSo the quarter was nicely ahead of our expectations and reinforces our outlook for the year of free cash flow conversion in the 95% to 100% range.\nLooking at capital deployment, I mentioned capital expenditures, which were $134 million in the quarter or 1.4% of sales.\nThat's down between 25% and 30% from the first quarter a year ago, but we're still expecting full-year capex to be roughly 2.5% of sales.\nWe also paid $315 million in dividends and increased the quarterly dividend by a little more than 8% to $1.19 per share.\nAnd we spent nearly $750 million on the repurchase of 4.6 million shares at an average price of just over $161 per share.\nAfter all this, we ended the first quarter with a cash balance of $1.8 billion and a net debt position of $11.4 billion, down $1.3 billion from this time last year.\nNet interest expense in the quarter was $123 million, up from $107 million in the first quarter of 2020.\nThe increase in 2021 is due to the incremental debt issued last year in conjunction with the refinancing of maturing notes.\nWe have $3 billion of outstanding debt maturing later this year, and we plan to refinance a portion of those notes to achieve a more balanced deployment of capital, but this will still result in a declining debt balance this year and beyond.\nDuring the quarter, Congress passed the American Rescue Plan Act.\nAs you may be aware, it contains two provisions that affect our business.\nFirst, it extends the provision of the CARES Act that allows reimbursement of contractor payments to workers who are prevented from working due to COVID-related facility closures.\nThis will continue to benefit our technologies business, although it does not provide for fee on those costs.\nSo that will have an ongoing dilutive impact on the segment's margins.\nSecond, the act provides pension funding relief by reducing the amount of required contribution to our pension plans this year by a couple of hundred million dollars.\nHowever, this same provision reduces the amount of pension costs we are reimbursed on our U.S. government contracts.\nAs a result, when coupled with the lower tax benefit from the reduced pension contributions, the impact on our 2021 cash flow is immaterial.\nWe expect the cash benefit from the act to increase modestly over the next couple of years, reinforcing our expectation that free cash flow can exceed 100% of net income over that period.\nThe tax rate in the quarter, at 16.2%, is consistent with our full-year expectation, so no change to our outlook on that front.\nFinally, order activity and backlog were once again a strong story in the first quarter with a 1:1 book-to-bill for the company as a whole, even as we grew by more than 7% in the quarter.\nAs Phebe mentioned, the order activity in the aerospace and technologies groups led the way with a 1.3 times and 1.1 times book-to-bill, respectively.\nWe finished the quarter with a total backlog of $89.6 billion.\nThat's up 4.5% over this time last year.\nAnd total potential contract value, including options and IDIQ contracts, was $131.4 billion, up 6% over the year-ago quarter.\nHoward, that concludes my remarks.\nAs a reminder, we asked participants to ask one question and one follow-up, so that everyone has chance to participate.\nOperator, could you please remind participants how to enter the queue?",
        "summary": "q1 earnings per share $2.48.\nq1 revenue rose 7.3 percent to $9.4 billion.\ntotal backlog at end of first-quarter 2021 was $89.6 billion, up 4.5% from year-ago quarter.\ntotal estimated contract value, sum of all backlog components, was $131.4 billion at end of quarter."
    },
    {
        "text": "This is Matt Eichmann.\nI'm joined by Pete Watson, Greif's president and chief executive officer, Larry Hilsheimer, Greif's chief financial officer, and Ole Rosgaard, Greif's chief operating officer.\nWe will take questions at the end of today's call.\nIn accordance with regulation fair disclosure, please ask questions regarding issues you consider important because we're prohibited from discussing material, non-public information with you on an individual basis.\nPlease limit yourself to one question and one follow-up before returning to the queue.\nActual results could differ materially from those discussed.\nWe appreciate your interest in Greif, and hope that you and your families are staying both safe and healthy during the pandemic.\nGreif delivered robust third-quarter results.\nWe executed with discipline to deliver record quarterly adjusted EBITDA of $238 million and adjusted class A earnings per share of $1.93, fueled by strong volumes and ongoing strategic pricing actions as we continue to experience strong demand across our global portfolio.\nOur leverage ratio fell at 2.8 times, and our board approved a $0.02 and a $0.03 increase to our class A and class B quarterly dividend, respectively, payable on October 1.\nWe're also increasing our adjusted earnings per share and adjusted free cash flow guidance, reflecting our strong year-to-date results and positive outlook for the remainder of the fiscal year.\nFinally, in late June, we announced a planned executive leadership transition that will occur next year.\nUpon my retirement on February 1, 2022, Ole Rosgaard will assume responsibility for Greif's next chief executive officer.\nUntil that time, Ole will serve as chief operating officer and work closely with me and our executive leadership team on his transition.\nOle is a servant leader and a proven team builder with demonstrated commitment to customer service excellence and disciplined operational execution.\nThose attributes, along with his extensive manufacturing and industrial packaging experience, makes him the ideal leader to take Greif forward.\nOle, I'd like to ask you to say a few words.\nIt's great to be with you.\nAs Pete mentioned, my name is Ole Rosgaard, and I'm excited and humbled to be named as Greif's next CEO.\nI look forward to joining these calls in the quarters ahead and to working more closely with all of you in the future.\nAs head of global industrial packaging, my focus was on driving and delivering the operating and business results that our customers and shareholders expect.\nAs COO, that focus continues across the wider Greif portfolio.\nAnd as Pete said, I'm working closely with the executive leadership team on our fiscal 2022 business plan and will share more about my priorities for the future after I assume my new role.\nOn slide four, global industrial packaging business delivered outstanding third-quarter results.\nOur global steel drum volume increased by 8% per day.\nOur global rigid IBCs and large plastic drum volumes both rose by more than 25% per day.\nWe also saw mid-teens improvement in our filling volumes versus the prior-year quarter, with demand accelerating specifically in APAC.\nThird-quarter average selling prices were up across all key global substrates year over year due to raw material pass-through arrangements and strategic pricing actions.\nIn Latin America, steel drum volumes rose by 15% on a per day basis versus the prior year and benefited from improved industrial trends and a strong agricultural and citrus season.\nIn EMEA, third-quarter steel drum and rigid IBC volumes increased by roughly 5% and 28% per day, respectively, with strong improvement across most key end markets.\nAnd finally, in APAC, steel drum volumes rose by 7% per day versus the prior year.\nDemand was solid in China, but a little softer in Southeast Asia due to COVID-19-related lockdowns that we continue to monitor across parts of that region.\nAcross GIP, we see little indication of customers rebuilding inventory.\nSupply chain conditions remain tight, and our team is managing this challenge very well.\nWhile we have not experienced any significant raw material shortage, some of our customers have, which has negatively impacted our demand in certain regions.\nLabor availability is becoming more challenging, which is not unique to Greif, and has impacted the productivity of some plants in both GIP and paper packaging.\nThese disruptions are not material at enterprise level, but certainly present operational challenges, nonetheless.\nGIP's key end markets are healthy.\nWe experienced a double-digit performance volume demand year over year for both chemicals, specialty chemicals and lubricants in most parts of our global portfolio.\nAnd volume demand for solid food and paste weakened versus the prior-year quarter, but this was largely a result of pricing and margin decisions on our part that impacted conical demand in Southern Europe.\nGIP's stronger volumes and higher average selling prices resulted in higher segment sales and gross profit year over year.\nGIP's third-quarter adjusted EBITDA was a record and rose by roughly $62 million due to higher sales, partially offset by higher SG&A expense, mainly attributed to higher incentive accruals.\nThe business also benefited from a $9 million operating tax recovery in Brazil and an $8 million FX tailwind.\nPlease recall that GIP's Q3 2020 results included an opportunistic sourcing benefit of $5 million that did not recur.\nLooking ahead, GIP is off to a solid fourth quarter, with August signs comparable to our trend in July.\nI'd also like to comment that our thoughts and prayers are also with those that were impacted by Hurricane Ida earlier this week.\nWhile the damage from Ida is extensive and dramatic, at this time, what we know, we do not anticipate a material impact to our fiscal '21 fiscal results from the storm.\nPaper packaging's third-quarter sales rose by roughly $120 million versus the prior year, attributed to stronger volumes and higher selling prices due to increases in published containerboard and boxboard prices.\nAdjusted EBITDA rose by roughly $18 million versus the prior year due to higher sales, partially offset by higher transportation and raw material headwinds, including a $24 million OCC drag.\nSG&A expenses rose year over year, primarily due to higher incentive accruals.\nWe are actively executing on price increases in response to robust demand and cost inflation.\nSince early June, we've announced five price increases, including a total of $100 a ton on CRB, $120 a ton in total on URB, and $70 a ton on containerboard.\nAs of August, the published indexes recognized $50 a ton on the CRB increases, $50 a ton on the URB increases, and a $50 and $60 a ton on linerboard and medium, respectively.\nDemand in our converting operations remain very, very strong.\nThird-quarter volumes in CorrChoice, our corrugated sheet feeder system, were up roughly 27% per day versus the prior year and are anticipated to stay strong through the fiscal fourth quarter.\nThird-quarter specialty sales, which includes litho-laminate, triple-wall bulk packaging, and coatings, were up more than 38% versus the prior year.\nPaper Packaging is off to a solid start in August.\nVolumes in CorrChoice and our tube and core business are comparable to July's actuals.\nSimilar to my comments about GIP, we do not anticipate damage caused by Hurricane Ida to have a material impact to our paper packaging results in Q4.\nBig picture, it was an outstanding quarter.\nThird-quarter net sales, excluding the impact of foreign exchange, rose 34% versus the prior-year quarter due to stronger volumes and higher selling prices and were a record.\nAdjusted EBITDA rose by $78 million and was also a record.\nAs Pete mentioned, EBITDA results include a $9 million Brazilian tax refund from overpayment of revenue-based taxes to the government that occurred in prior periods and were wrongly levied.\nThat refund reduced SG&A.\nKeep in mind, our adjusted EBITDA result overcame more than $50 million of combined OCC and incentive headwinds versus the prior year, making our performance that much more impressive.\nInterest expense fell by roughly $6 million versus the prior-year quarter due to lower debt balances, lower interest rates and a lower interest rate tier on our credit facility as a result of our substantial debt repayment.\nOur third-quarter GAAP and non-GAAP tax rate were both 22% and were flat to prior year.\nThird-quarter adjusted class A earnings per share more than doubled to $1.93 per share.\nFinally, third-quarter adjusted cash flow fell by roughly $43 million versus the prior year.\nWhile profitability improved significantly, working capital was a substantial cash use compared to a source in the prior year due to the run-up in raw material prices and corresponding cost increases.\nThat said, our team is executing with discipline and controlling what it can with superb results as trailing fourth-quarter working capital as a percentage of sales improved by 190 basis points year over year to 10.7%.\nAs Pete mentioned, we are increasing our adjusted earnings per share and adjusted free cash flow guidance, which reflects our strong year-to-date results and positive trajectory for the remainder of fiscal '21.\nAt the midpoint, we anticipate generating Class A earnings per share of $5.20, which is $0.50 per share more than our guide at Q2.\nThis improvement is largely due to stronger volumes and favorable pricing more than offsetting the additional OCC headwinds we expect to incur for the remainder of fiscal '21.\nWith our anticipated fiscal '21 result, we will more -- have more than doubled earnings per share since 2015 despite COVID-19's negative impact, the closure and/or divestiture of nearly 90 non-core or suboptimal plants and without any share repurchase benefit.\nAlso keep in mind that we currently have 600,000 more shares outstanding now versus the end of 2015.\nWe now anticipate generating between $335 million and $365 million in adjusted free cash flow, with a bias to the upside of that range.\nAt the midpoint, adjusted free cash flow has improved by $45 million relative to our Q2 guide due to improved earnings, slightly lower capital expenditures and cash tax savings, partially offset by higher working capital usage commensurate with our announced price increases to offset cost inflation.\nTo employ a consistent, three-pronged capital deployment strategy focused on business reinvestment, debt reduction and capital returns.\nWe have executed on an aggressive deleveraging plan and repaid $370 million in total debt since Q3 2020.\nOur compliance leverage ratio improved by nearly a full turn over that time period, and we now anticipate reaching the high end of our targeted leverage ratio range by the fiscal year-end.\nGiven the dramatic improvement in our leverage profile and confidence in strong future cash generation, the Board approved a 4.5% increase to our quarterly dividend effective this year.\nThis is a first step toward a practice of steadily increasing our dividend as we discussed in prior earnings calls.\nLooking ahead, we are well positioned to benefit from ongoing strength and improving trends in our key end markets.\nOur extensive global portfolio, differentiated service capability and sharp focus on operational execution enable us to best serve our customer needs while generating significant shareholder value.",
        "summary": "greif q3 earnings per share $1.93 excluding items.\nq3 earnings per share $1.93 excluding items.\nsees fiscal 2021 adjusted free cash flow $335 million- $365 million."
    },
    {
        "text": "We will conclude the call with a question-and-answer session.\nToday, we will discuss non-GAAP basis information.\nToday, we reported our fourth-quarter and full-year 2020 results and issued our final guidance for 2021.\nDuring the fourth quarter, our operating divisions continue to face challenges associated with the ongoing COVID-19 pandemic.\nOver the course of the pandemic, we experienced a decline in overall occupancy levels at several of our federal facilities.\nDue to the decline in the overall federal population, we have previously announced that the Federal Bureau of Prisons had decided not to renew three of our BOP contracts that are scheduled to expire during the first quarter of 2021.\nMore recently, the president issued an executive order directing the attorney general to not renew DOJ contracts with privately operated criminal detention facilities.\nWhile we continue to monitor the scope and implementation timeline for this order, we have assumed that it could result in additional nonrenewals of our BOP contracts in 2021 and coming years and we have incorporated this assumption into our guidance.\nMarshals Service, which is also under the U.S. Department of Justice, does not own and operate its facilities.\nThe U.S. Marshals Service contracts for bed capacity which is generally located in areas near the federal courthouses to house pre-trial offenders who have been charged with federal crimes under the laws passed by Congress.\nThe U.S. Marshals Service contracts for these facilities primarily through -- contracts primarily for this fiscal is through Intergovernmental Service Agreements and to a lesser extent on direct contracts.\nThe U.S. Marshal Service may determine to conduct a review of the possible application of the executive order on its facilities.\nOur GEO care segment has also been impacted by lower occupancy levels across our reentry centers, day reporting programs, and youth services facilities due to COVID-19.\nDuring the fourth quarter, we incurred a non-cash goodwill impairment charge associated with our reentry centers, primarily due to the negative impact the pandemic had on this segment.\nDespite these challenges, we believe our company remains resilient and is underpinned by long-term real estate assets and supported by contracts entailing essential government services.\nWe've provided these essential services to government agencies at the federal and state levels under both Democratic and Republican administrations and during times when either party has been in control of the legislative branch of the government.\nOur frontline employees remain focused on providing high quality services inhumane care for all those entrusted to us.\nDuring the past year, our employees have shown incredible commitment and resilience as our company has managed through unprecedented times and we are very proud of their dedication.\nFrom the outset of the pandemic, we have implemented companywide steps to mitigate the risks of COVID-19 to all those in our care and our employees and we continue to evaluate these steps.\nEnsuring the health and safety of all those in our facilities and our employees has always been our number one priority.\nWe also recognize that in addition to the challenges associated with COVID-19, heightened political rhetoric has led to a mischaracterization of our role as a government services provider and it's created concerns regarding our future access to financing.\nOur board of directors and our management team are aware of the importance of allocating capital to pay down debt in the current environment.\nConsistent with our previous guidance, we paid down approximately $100 million in net debt during 2020.\nTo continue our focus on paying down debt, our board recently reduced our quarterly dividend payment to $0.25 per share for the quarter.\nOur board will continue to evaluate our dividend and capital allocation strategy including our plan capital expenditures with a goal of targeting a minimum of $75 million to $100 million in net debt repayment in 2021 and annually thereafter.\nAdditionally, we continue to evaluate cost savings opportunities at the corporate and facility levels, and we have identified several company-owned assets that could potentially be sold.\nWe remain committed to balance our continued creation of value for our shareholders with prudent management of our balance sheet.\nToday, we reported fourth-quarter revenues of approximately $578 million and net income attributable to GEO of $0.09 per diluted share.\nOur fourth-quarter results reflect a non-cash goodwill impairment charge of approximately $21 million.\nThis goodwill impairment charges associated with our community-based reentry centers which have been negatively impacted by the COVID-19 pandemic.\nOur fourth-quarter results also reflect a $5.7 million pre-tax loss on real estate assets at $2.3 million pre-tax gain on the extinguishment of debt and $2.5 million in pre-tax COVID-19 related expenses.\nExcluding these items, we reported fourth-quarter adjusted net income of $0.33 per diluted share.\nWe also reported fourth-quarter AFFO of $0.62 per diluted share.\nMoving to our outlook, the COVID-19 pandemic continues to have a negative impact on several segments of our company.\nThe pandemic has resulted in lower occupancy levels at several of our facilities and programs beginning last March and continuing through the end of 2020.\nAs we have previously disclosed, the Federal Bureau of Prisons has decided that it will not renew our contracts for the D. Ray James, Georgia; Rivers, North Carolina; and Moshannon Valley, Pennsylvania facilities due to the decline in the federal prison populations more recently as a result of the COVID pandemic.\nThe D. Ray James facility contract expired on January 31st and the two other contracts are set to expire on March 31st, and our garden -- our guidance for 2021 accounts for these expirations.\nAdditionally, the administration has issued an executive order directing the U.S. attorney general to not renew DOJ contracts with privately operated criminal detention facilities.\nWhile we continue to monitor the scope and implementation timeline of this order, our guidance presently accounts for the potential non-renewal of three additional BOP contracts that have option periods expiring in 2021.\nThe COVID-19 pandemic has also resulted in lower occupancy levels across our other federal reentry and youth facilities.\nOur 20 21 guidance assumes the continued impact of COVID-19 in the first part of the year with a slow recovery to more normalized operations by the -- by year end.\nMarshals facility in Eagle Pass Texas which began last year.\nWe expect to achieve normalized operations at these four facilities over the course of 2021.\nTaking all these factors into account, we expect full-year 2021 net income attributable to GEO to be in a range of $0.88 to $0.98 per diluted share on total revenues of approximately $2.24 billion to $2.27 billion.\nWe expect full-year 2021 AFFO to be in a range of $1.98 to $2.08 per diluted share, and we expect full-year 2021 adjusted EBITDA to be in a range of $386 million to $400 million.\nFor the first quarter 2021, we expect net income attributable to GEO to be in a range of $0.18 to $0.20 per diluted share, our quarterly revenues of $579 million to $584 million.\nAnd we expect first-quarter 2021 AFFO to be between $0.48 and $0.50 per diluted share.\nMoving to our capital structure.\nAt the end of the fourth quarter, we had approximately $284 million in cash on hand and approximately $136 million in borrowing capacity available under our revolving credit facility.\nIn addition to an accordion feature of $450 million under our credit facility.\nWith respect to our capital expenditures, we expect total capex in 2021 to be approximately $104 million including $26 million for maintenance capex and $77 million in gross capex.\nOur estimated growth capex for the year includes $32 million to upgrade our BI electronic monitoring devices to the new 5G cellular network and $45 million for facility capex.\nTo continue our focus on paying down debt, our board reduced our quarterly dividend payment to $0.25 per share last month.\nIn 2020, we paid down approximately one $100 million in net debt consistent with our prior guidance.\nOur board will continue to evaluate our dividend and capital allocation strategy including our planned capital expenditures with a goal of targeting a minimum of $75 million to $100 million in net debt repayment in 2021 and annually thereafter.\nAdditionally, we continue to dialogue with our lenders and creditors and our monitoring credit market conditions.\nWe are also continuing to evaluate potential cost savings opportunities as well as the potential sale of a number of company-owned assets.\nDuring the first quarter of 2021, we completed the sale of our interest in the Talbot Hall reentry facility with net proceeds of approximately $13 million.\nI'd like to provide you a brief update on the 2020 operational highlights for our GEO secure services business unit.\nOver the last 12 months, our operational efforts have been focused on implementing mitigation strategies to address the risks associated with the COVID-19 pandemic.\nFrom the start of the pandemic, we began taking steps at our facilities to implement best practices consistent with the COVID-19 guidance that was issued for correctional and detention facilities by the Centers for Disease Control and Prevention.\nThese practices included the implementation of quarantine, cohorting, and medical isolation procedures.\nWe also have provided educational guidance to our employees and the individuals in our care and the best preventative measures to prevent the spread of COVID-19.\nWe have continuously exercised paid leave and paid time off policies to allow our employees to remain at home if they exhibit flu-like symptoms or to care for family members.\nWe remain focused on implementing increased sanitation measures and deploying personal protective equipment including face masks for all employees and all those in our care.\nWe have also taken steps to increase testing at our facilities including the deployment of Abbot rapid test devices.\nWe've administered over 51,000 COVID tests in our facilities at the close of 2020.\nWe continuously evaluate these steps and we'll make adjustments based on updated guidance by the CDC and other best practices.\nDespite the unprecedented challenges associated with the pandemic, our frontline employees have remained focused on providing high-quality services and delivering humane and compassionate care for all those in our facilities.\nDuring 2020, our employees and facilities achieved several important milestones.\nOur facility successfully underwent 100 audits including internal audits, government reviews, third-party accreditation, and certification under the Prison Rape Elimination Act.\nOur medical services staff undertook over 350,000 quality healthcare related encounters including intake health screenings, sick calls, and offsite medical visits.\nDuring the year, we achieved over 42000 employee training completions in our GTI transportation division safely completed over 14 million miles driven.\nWe are incredibly proud of our employees for their dedication and daily commitment to operational excellence.\nLast month, the president issued an executive order directing the attorney general to not renew DOJ contracts with privately operated criminal detention facilities.\nWhile we continue to monitor the order scope and implementation timeline as we have noted in our recent announcements, the Bureau of Prisons has experienced a decline in federal populations more recently due to COVID-19.\nAs a result, the BOP has previously announced that it would not renew or rebid three of our existing contracts with the agency.\nThat contract at our D. Ray James, Georgia facility ended on January 31st.\nAnd our contracts at our Rivers, North Carolina, and Moshannon Valley, Pennsylvania facilities expire on March 31st.\nWe have three additional company-owned facilities contracted with BOP that have current option periods expiring in 2021.\nOur Great Plains, Oklahoma facility at the end of May, and our Big Spring and Flightline facilities in Texas at the end of November.\nGiven the president's executive order and the decline in federal prison populations, we are preparing operationally for the potential that additional contracts with the Bureau of Prisons may not be renewed with their current option periods expire.\nThe BOP owns and operates approximately 90% of the beds housing federal inmates.\nAnd since the late 1990s, the agency has used contractor-operated facilities as the swing capacity it needed to deal with overcrowding conditions in the federal prison system.\nContractor-operated facilities have historically been used by the Bureau of Prisons to house almost entirely non-U.S. citizen criminal aliens serving sentences for federal crimes committed in the United States.\nMarshals Service which is also under U.S. Department of Justice does not own and operate its facilities.\nThe U.S. Marshal service contracts for bed capacity which is generally located in areas near federal courthouses to house pre-trial offenders who have been charged with federal crimes under laws passed by Congress.\nThe U.S. Marshal service contracts for these facilities primarily through Intergovernmental Service Agreements and to a lesser extent direct contracts.\nThe U.S. Marshal service may determine to conduct a review of the possible application of the executive order in its facilities.\nThe administration has also taken several executive actions related to immigration.\nHowever, at this time, there have been no directives related specifically to enforcement or detention policies.\nEarlier this month the president signed an executive order establishing an inter-agency task force on the reunification of families to identify migrant minors separated from their families.\nAs we have publicly stated in the past, we do not manage any facilities that house unaccompanied migrant minors.\nOur ICE processing centers are highly rated by National Accreditation Organizations and provide high-quality culturally responsive services in a safe and humane environment.\nTypical amenities at our centers include flat-screen TVs in the housing areas, multi-purpose rooms, outdoor covered pavilions, and artificial turf soccer fields.\nAll those entrusted in our care are provided culturally sensitive meals approved by a registered dietitian, clothing, 24/7 access to healthcare services, and full access to telephone and legal services.\nHealth care staffing at our ICE processing centers is approximately double than that of our state correctional facilities which is needed to provide appropriate treatment for individuals who have numerous and diverse health and mental health needs.\nWe have provided high quality services for over 30 years under Democratic and Republican administrations, including eight years under President Obama's administration.\nI'd like to briefly review the 2020 operational highlights for our GEO care business unit.\nConsistent with the efforts undertaken by our GEO secure services facilities, we have been focused on implementing COVID-19 mitigation strategies, all of our residential facilities and GEO reentry and GEO youth services issued guidance consistent with the guidance issued by the CDC.\nWe put in place quarantine and cohorting policies and procedures and provide educational and preventative guidance to our employees and all individuals in our care.\nWe have to focus our efforts on increased sanitation measures, testing, and deploying personal protective equipment including facemasks.\nWe have continuously exercises paid leave and paid time off policies to allow our employees to remain home if needed.\nWe have also implemented additional screening measures for entry into our facilities.\nWe continuously evaluate these steps and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices.\nDespite the challenges associated with the pandemic, we have had several recent positive highlights.\nDuring the second half of 2020, we completed the reactivation of our company-owned park youth center in Alaska under a new 112-bed contract with the Alaska Department of Corrections.\nWe also activated 11 new-day-reporting program sites with capacity to serve approximately 2,900 participants under a contract with the Tennessee Department of Corrections.\nAnd in Idaho, we activated four non-residential program locations to support up to 500 participants under a new partnership with the Idaho Department of Corrections.\nMore recently, we're pleased to have been awarded a new contract with the Federal Bureau of Prisons for a 118-bed Residential Reentry Center in Tampa -- and -- in the Tampa, Florida area which we expect to activate during the second half of 2021.\nThese positive milestones are indicative of the high-quality services delivered by our employees daily.\nWe are very proud of our frontline employees who have continued to deliver rehabilitation and reentry programming to those in our care through these difficult times, often in innovative ways including through virtual technologies.\nWe are particularly proud of our continued efforts of our GEO Continuum of Care program.\nOur Continuum of Care program integrates enhanced in-custody rehabilitation programs including cognitive-behavioral treatment with post-release support services such as transitional housing, transportation, clothing, food, and job placement assistance.\nWhile we were significantly challenged during most of our 2020, our COC sites achieved several very important milestones.\nOur academic programs award -- awarded more than 1,200 high school equivalency degrees and our vocational courses awarded close to 4,000 vocational training certifications.\nOur Substance Abuse Treatment programs awarded more than 7,600 program completions.\nAnd we achieved over 34,000 behavioral program completions and more than 31,000 individual cognitive-behavioral sessions.\nWe also provided post-release support services to more than 3,600 individuals returning to their communities with over 1,300 participants obtaining employment.\nWe believe that the scope of our Continuum of Care program is unparalleled and represents a significant contribution to criminal justice reforms.\nWe are very proud of our employees who have demonstrated incredible commitment and dedication during this unprecedented global pandemic.\nDespite the significant challenges associated with COVID-19 and new policy changes at the federal level, we believe our company remains resilient and is supported by long-term real estate assets and contracts entailing essential government services.\nWe've provided high-quality essential services for more than 30 years and they're both Democratic and Republican administrations.\nWe recognize that a heightened political rhetoric and the mischaracterization of our role as a government service providers created concerns regarding our future access to financing.\nAnd we are aware of the importance of allocating capital to pay down debt in the current environment.\nTo continue our focus on paying down debt, our board recently reduced our quarterly dividend payment and we'll continue to evaluate our dividend policy and capital allocation strategy.\nWe -- we remain committed to balance our continued creation of value to our shareholders with prudent management of our balance sheet and capital structure.",
        "summary": "geo group sees fy2021 revenue $2.24 billion to $2.27 billion.\nq4 adjusted ffo per share $0.48.\nsees fy 2021 revenue $2.24 billion to $2.27 billion.\nboard has taken steps to reduce qtrly dividend payments in order to apply excess cash flows toward debt repayment.\n'recognize that heightened political rhetoric has led to mischaracterization of our role as a government services provider'.\nrecognize that 'heightened political rhetoric' has created concerns regarding future access to financing.\nsees fy21 net income attributable to geo of $0.88-$0.98 per diluted share.\nsees fy21 affo of $1.98-$2.08 per diluted share.\ncompname reports q4 adjusted ffo per share $0.62.\nq4 adjusted ffo per share $0.62 ."
    },
    {
        "text": "Once again, I hope all of you and your families are safe and healthy during these unprecedented times.\nAs you know, Maurice Marciano was injured in a bicycle accident recently.\nHe is under great care, but we expect this will be a long recovery process for him.\nOn behalf of Paul, our Board and our entire Guess?\nfamily, we pray for his fast and full recovery.\nMaurice is an amazing person.\nHe is very strong.\nAnd we all hope to get him back soon.\nIn the next few minutes, I will speak about the overall environment and our Company, then I will touch on our second quarter results and I will close with how I see our outlook for this year and into the future.\n, we are managing through the situation with our eyes on the road and our hands firmly on the steering wheel.\nI'm very proud that our teams around the world continue to rise to the challenge imposed by this crisis in an extraordinary way.\nI believe that the progress we made in the second quarter, both with our financial results and with our initiatives to better position the Company for the future, demonstrates our team's strong leadership, their relentless hard work and their amazing commitment to our customers and our Company.\nSince we last spoke, a few things have changed in the world and in our Company, and some have stayed the same.\nAmong those things that changed, the most important one is visibility, which has improved meaningfully.\nStarting with our store reopenings in all regions, we have had relatively consistent performance for several weeks now.\nAlmost across the board, we have seen a significant reduction in customer traffic from the comparable prior-year period, partially offset by the improved conversion rates.\nImproved visibility is helping us size our expected demand more effectively, and as a result, we can project our inventory needs more accurately, which is key to optimizing future sales, margins and profitability.\nImproved visibility helped us to better assess our liquidity, enabling us to capitalize on share repurchases that we think offer a material long-term return opportunity for our shareholders.\nAnd improved visibility gave our Board the confidence to reinstate our quarterly dividend.\nThe second change relates to customers' lifestyles and shopping behaviors, which clearly have not returned to pre-pandemic conditions.\nThis, to us, signals that the changes may be more permanent than we originally thought.\nWhile many people feel more comfortable shopping online than in stores, those that do venture out are much more intentional to make a purchase when they visit.\nOur e-commerce business in North America and Europe delivered high single-digit revenue growth during the second quarter, and gross profit dollars grew more than 20% as margins improved significantly as a result of increased full price selling and improved IMUs.\nWe are confident that our e-commerce business will accelerate in the second half of the year as we increase our investment in marketing, continue to reposition our product offering and complete our Salesforce platform implementation.\nWe are encouraged with our digital business in August, which was up in the teens, and again, with improved margins, driven by strong performance in Europe and, to a lesser degree, in North America.\nWe continue to see that product priorities have shifted toward more casual dressing.\nWe expect this to evolve over time as people begin to go out again, but we believe that casual and comfortable clothes will remain a key priority for our customers.\nBased on this trend, we are investing in the development of a strong assortment of active apparel, outerwear, stretch and sustainable denim and an extensive line of tops and dresses in multiple colors that capitalize on high quality and comfortable knit fabrications.\nWe are also focused on seasonal lines and essential products and strong lines of accessories, including handbags.\nWhile we reduced marketing spend dramatically during the second quarter, we see an opportunity to increase our investment in the second half of the year to continue to strengthen our brand position and drive traffic.\nWe are planning multiple campaigns for the season featuring several of our product lines of women's, men's, accessories and kids'.\nhas recently engaged Italian actor and singer, Michele Morrone, as a new worldwide face of GUESS men's.\nMichele Morrone is a lead actor in the movie, 365 Days, one of the top movies of Netflix, currently streaming in 200 countries.\nHe will be featured in our fall/winter 2020 collection campaign.\nWe intend to intensify our global efforts in digital media, including social media, and have plans for direct mail, TV advertising and outdoor media, including billboards, buses and others.\nOne very positive industry development relates to inventory ownership in our market, which seems to be already rebalanced and better aligned with current customer demand.\nThis should result in a less promotional environment going forward, leading to improved product margins.\nWe continue to make inventory management a key strategic initiative and made good progress this quarter as we experienced a product margin increase and our inventories are in a good place.\nAt quarter-end, inventories were down 13%, and we own less clearance inventory than a year ago.\nFor the rest of the year, we continue to plan our inventory purchases based on expected demand and have built flexibility with fast-track processes and basic product ownership to react to potential higher demand.\nWe already see opportunities for increased business and believe that we will be able to capitalize on this strategy.\nWith respect to resource utilization and cost structure, I'm very impressed by our team's ability to do a lot more with less, achieving greater efficiencies and significant reductions in our cost structure, both temporary and permanent.\nKatie will spend more time on this later on.\nRegarding things that have stayed the same, unfortunately the pandemic is still with us, and we have seen new outbreaks in multiple countries.\nPeople are still very uncomfortable socializing and leaving their homes.\nAnd for now, tourism continues to be non-existent between countries as a result of restrictions and low willingness to travel.\nI recently read that in July, the amount of tourism spend in Europe was down 95%, with the Chinese spend down 98%.\nFor this reasons, we are approaching the second half of the year cautiously.\nWe continue to make our priority the safety and well-being of our teams, our customers and the communities that we serve.\nWe closed all California stores in enclosed malls after having them reopened, and we are now reopening many of them again.\nWe are happy to report that most of our stores worldwide are now reopened.\nOur headquarter buildings in North America and in Europe have been operating at 50% capacity and the remaining team members work remotely.\nAs we closed our second quarter, we were pleased with how we managed the business in light of the circumstances presented by the pandemic.\nOur retail sales were better than originally anticipated, and our wholesale businesses, which also performed better than expected, benefited from some product shipments pull-forward from the third quarter into the second quarter as many European customers requested products earlier than expected.\nMargins were better than planned as we managed inventories well and benefited from positive rent relief in Europe.\nWe also managed cost effectively during the period.\nAll in all, we reported a 41.7% revenue decline, and we almost broke even at the operating level for the period on an adjusted basis.\nAs we look into the second half of the year, we expect a slow recovery of our retail business, driven by similar metrics to those that we have seen since we have reopened our stores, but with a gradual improvement in customer traffic.\nWe believe that there is an opportunity to expand the holiday selling period and have worked on plans to begin the season earlier with direct mail, customer appointments, optimizing omnichannel capabilities and focusing on other initiatives to avoid customer congestion during peak periods.\nRegarding our wholesale business, during the last week of June, we launched our spring/summer sales campaign with a live event in Lugano, Switzerland, which was attended by over 200 people.\nPlus, the event was live-streamed and over 550 people participated.\nI believe this was unusual in our industry and was very well received by our customers.\nPaul, with the creative teams, have done an incredible job with the collection, and I believe that the product line is the best that I have seen in all my years with Guess?\nThe response to the line has been very positive, and the customers' interest in our brand is very strong.\nWe are very excited about the opportunities that we see to gain market share, even in the near term.\nThis year, we continue our strategic planning implementation work, and I'm very pleased with our progress.\nWe still believe that our Company is in a strong position to capture the 500 basis points improvement in operating margins that we had targeted last year as most of the improvements are expected to be driven by operational efficiencies that we are confident remain available to us in the near future.\nOur brand positioning work is in full force.\nOur commitment is to elevate our GUESS and MARCIANO brands, focusing on high quality materials, SKU rationalization and developing one global line for each brand, while addressing market needs with specific products by region.\nWe continue to believe that our brand DNA and our obsession for inclusivity, sustainability and celebrating customer diversity represent a significant strength in today's environment.\nRegarding our customer-centricity initiatives, we implemented Salesforce for our GUESS website in North America and in two European countries, France and the UK.\nTomorrow, we are launching 19 additional countries in Europe and 26 more will be rolled out through the rest of September and October.\nWe also launched the customer 360 project that I mentioned in our last call, and we continue to upgrade our omnichannel capabilities.\nThe entire plan should be fully implemented by the end of next year.\nWe continue to believe that our e-commerce business penetration will grow as a result of this strategic initiative to represent over 23% of our direct-to-consumer business in three to five years, up from 13% last year.\nWe plan to update our entire strategic business plan in the next few months and share it with you during the fourth quarter and an Investor and Analyst meeting.\nIn closing, while we are approaching the short term cautiously, we are focused on the long term and we see very bright days ahead.\nOur vision for our Company and our brand remain intact.\nI strongly believe that the long-term impact of this crisis in our Company will be extremely valuable as we reposition our brand and redesign our business model.\nThe crisis inspired our team to think differently to challenge every aspect of the business and to architect a simpler, more efficient and capital-light model.\nWe're building a business that will be better positioned to compete in the future and gain market share globally.\nWe have a true iconic global brand that has been relevant for consumers all over the world for 40 years.\nstayed relevant by adapting its model time and time again.\nI believe that companies that adapt their business models to actively embrace new consumer preferences, placing the customer at the center of everything they do, will gain share and overcome this crisis faster.\nWe fully expect to be one of those companies.\nWe have a strong team which is even more excited about our future today than I have seen it since I came back to Guess?\nI strongly believe that in the next few years we will deliver outsized returns to our shareholders.\nPaul and I and our entire leadership team couldn't be more excited about our future.\nWith that, let me pass it to Katie.\nThis is our second quarter navigating the Company through what is, no doubt, the most challenging period in our history.\nSo while consumers remain cautious, we were pleasantly surprised with the initial level of productivity that we saw as our stores reopened across each region during the quarter.\nThis is a sign not only of a macro recovery, but also the strength of our brand and the effectiveness of the business decisions that we have made over the last few months.\nOnce again this quarter, we have proven that we can successfully control the middle of the P&L with appropriate reactions to current environment, all while maintaining an emphasis on the long-term health of our brands.\nWe decreased operating expenses by $70 million, expanded product margins and maintained a very clean inventory position.\nAnd as a result, even with sales down over 40%, we were able to maintain almost breakeven adjusted net earnings and a solid balance sheet.\nI'm happy to report that our liquidity position remains strong.\nI believe this is a competitive advantage for us, allowing us the flexibility to make appropriate investments to drive our long-term strategy as well as return value to shareholders.\nIn the first quarter, at the beginning of the pandemic, we took strong actions to preserve our liquidity, not having a clear outlook into what the future held given the uncertainty of the global crisis.\nWe drew down on our credit facility, extended our ABL and secured additional low interest term loans in Europe.\nAs the situation began to stabilize during the second quarter, we paid back a significant portion of the borrowings on our drawn revolving lines and seized the opportunity to return incremental value to our shareholders with a $39 million repurchase of our shares.\nIn addition, we announced today that our Board has decided not to declare any cash dividends from the prior two quarters, and it has approved the resumption of our quarterly dividend program this quarter.\nOur long-term capital allocation policy has not changed.\nNow let me take you through some of the details on our performance for the quarter.\nLet's start with sales.\nSecond quarter revenues were $399 million, down 42% in US dollars and 41% in constant currency.\nRevenues were negatively impacted by store closures in all regions at the beginning of the quarter and lower productivity to prior year at stores once open.\nOur stores were closed for approximately 30% of the days in the quarter, and when they were open, traffic was roughly half of our customer flow in the prior year.\nOverall sales productivity for our retail stores since reopening for the quarter was down 21% in the US and Canada, down 31% in Europe and down 26% in Asia.\nWe have been seeing traffic declines, partially offset by significantly higher conversion.\nAnd our tourist-centric locations have been experiencing a tougher recovery.\nOur e-commerce business in North America and Europe was up [Phonetic] 9% for the quarter.\nOur wholesale and licensing partners were experiencing similar decreases in demand, resulting in lower sales in these areas in Q2 as well.\nGross margin for the quarter was 36.9%, 2% lower than the prior year.\nOur product margin increased 210 basis points this quarter primarily as a result of higher IMU as well as lower promotions.\nHowever, this was more than offset by occupancy deleverage of 410 basis points on lower sales.\nRegarding rent, we are still in negotiations with our landlords to appropriately adjust our rental expenses in line with the store closures and declines in traffic.\nAs a reminder, in general, we suspended rent payments for April, May and June that all rental expenses are accrued until final agreements are in place at which time the adjustments are made.\nThis quarter, we [Indecipherable] about $8 million in rent credits for fully negotiated rent relief deals, mostly in Europe.\nAdjusted SG&A for the quarter was $148 million compared to $218 million in the prior year, a decrease of $70 million.\nA little over half of these savings, we would consider one-time.\nFor example, we received government support in various countries across the globe like employee payroll stipends during closures.\nWe put in place value reductions that have since been reinstated.\nWe pulled back hard on advertising.\nAnd we also saved on some variable costs while our stores were closed like distribution and payroll at both the store and corporate level that we are filling back in to support a more normalized business.\nThe other half we will continue to benefit from on a go-forward basis.\nWe have decreased corporate headcount as well as travel and professional fees and other discretionary spending.\nWe have also adjusted how we staff our stores, allowing for significant savings in labor while maintaining the quality of our customer service and our selling culture on the floor.\nRight now, for the most part, we have more buyers than lookers relative to what we have historically seen in our stores.\nAnd these lower traffic levels help us optimize our labor spend while still capitalizing on demand.\nWe have assessed and continue to assess all aspects of our business to reduce redundancies that we have across regions, and are operating in a leaner and more agile model.\nOur eye will be on the middle of the P&L as we focus on maintaining a cost structure that makes sense for our organization in our new normal.\nAdjusted operating loss for the second quarter was $900,000 versus a profit of $48 million last year.\nOur second quarter adjusted tax rate was 156%, up from 28% last year.\nAs the total Company's adjusted pre-tax earnings is roughly breakeven for the second quarter, the tax rate changes over prior year and from quarter to quarter are more pronounced than in the past due to the mix of tax jurisdictions.\nInventories were $419 million, down 13% in US dollars and 15% in constant currency versus last year.\nAfter paying back $185 million of borrowings on our committed credit facilities, we ended the second quarter with $328 million in cash and had an incremental $236 million in borrowing capacity.\nCapital expenditures for the first six months of the year were $10 million, less than one-third of what we spent in the same period of the prior year.\nAs we have mentioned, we continue to invest in those initiatives that are mission-critical to our business plan like our digital capabilities.\nFree cash flow for the first six months of the year was an inflow of $29 million, an increase of $87 million versus an outflow of $59 million last year.\nThis improvement included the nonrecurring payment of last year's $46 million EU Commission fine as well as the adjustments this year to our payment terms with our vendors and unpaid rent to landlords while we finalize negotiations.\nGiven the continued level of uncertainty in the current environment, we are not going to provide formal guidance.\nHowever, let me walk you through some of our thoughts on how we're planning sales for the rest of the year.\nAs discussed, we were encouraged by our initial reopening performance which was stronger than expected.\nHowever, the continued recovery since opening is moving slower than we anticipated and in some cases, like the Americas, deteriorating from reopening level.\nConsumers remain cautious about shopping which will most likely not change for the end of the year given the nature of this crisis.\nIn August, we saw sales productivity at our retail locations of down 29% in the US and Canada, down 13% in Europe and down 33% in Asia.\nE-commerce has picked up quite a bit, driven by Europe, and we are tracking up double-digit there.\nWe see particular risk for the holiday shopping period where social distancing and consumer caution could impact our high in-store volumes during that time.\nAs Carlos mentioned, we are mitigating this risk by implementing strategies around elongating the holiday season and reducing congestion during peak times, while still capitalizing on the demand.\nOur wholesale and licensing businesses pretty much follow our retail business as our partners are experiencing similar headwinds.\nAs a result, we expect both Q3 and Q4 revenue performance to prior year to be in the negative mid teens range.\nWe are obviously hopeful that trends in the back half of the year will turn out better than that, but we are planning our business assuming they will not.\nWe are confident in our products and our marketing strategy and have the flexibility in our inventory to meet the demand should it exceed our expectations.\nIn closing, the work that has been done by our teams across the business and around the globe over the last few months has been grueling, to say the least.\nBut it's so rewarding for our team to see the fruits of their labor in our performance.\nAnd we can see it in our clean inventories, our strong liquidity position, our well-managed expenses and the ongoing sales recovery across our segments.\nThis fuels momentum and teamwork, and we feel that right now at Guess?",
        "summary": "q2 revenue $399 million versus refinitiv ibes estimate of $384.8 million.\ncontinued to tightly manage costs and inventory position.\nnot providing detailed guidance for q3 ending october 31, 2020 or full fiscal year ending january 30, 2021.\nexpect revenues for third and fourth quarters of fiscal 2021 to decrease in mid-teens range.\nduring q2 of fiscal 2021, continued to experience lower net revenue compared to the same prior-year period.\nfinished the quarter with a strong balance sheet and ample liquidity.\nended quarter with inventories down 13% compared to last year.\npandemic has had and is continuing to have a material impact on co's financial performance.\nwell positioned for second half of year.\nas of august 1, 2020 approximately 95% of our stores were open."
    },
    {
        "text": "including potential impacts from the coronavirus pandemic.\nComments will also reference certain non-GAAP or adjusted measures.\nBefore turning the call to Carlos, I would like to mention that we will be participating in the fireside chat at the Goldman Sachs Annual Global Retailing Conference on Friday, September 10 at 03:20 PM Eastern.\nWe hope to see you there.\nWe are very proud of our team and our accomplishments.\nWe just closed a great quarter and we plan to review what drove our performance in detail.\nBut most importantly, I want to share with you where we are today and how we see the future, both short and long-term.\nLet me start with our results.\nFor the second quarter, we reported adjusted earnings from operations of $89 million.\nThis compares to adjusted operating earnings of $48 million for the LLY period exceeding our pre-pandemic performance by 85%.\nThis was well ahead of our expectations.\nWe reported revenues of $629 million, 58% over last year and 8% below the LLY period.\nThe entire decline to LLY was due to a timing shift of European wholesale shipments into Q3 and permanent store closures, which are accretive to operating profit.\nThis is in spite of being significantly less promotional during the period in all of our direct-to-consumer businesses.\nFor the quarter, we delivered that 14% adjusted operating margin.\nWe expanded our operating margin by over 700 basis points from 7% in the LLY period.\nThe star of this quarter was the North America Retail segment that reported an operating profit of $38 million versus $6 Million in the LLY period and almost 540% increase.\nOur Wholesale and Licensing businesses also outperformed, and Europe and Asia delivered roughly flat operating performance to the LLY period.\nPaul and I continue to be thrilled with our team's performance all over the world, adjusting and reacting seamlessly to the fluidity of the current environment.\nWe are happy to see demand recovering and stores reopened across the globe.\nWe still see the pandemic's impact on customer traffic and on the supply chain globally.\nThe labor market has also been impacted as companies are challenged to rehire workers leading to labor shortages and higher wages.\nAt Guess, we remain laser focused on what we can control.\nAs a global brand, we have adapted quickly to the changing levels of demand and restrictions across our markets.\nWe are sizing our inventory buys accordingly, adjusting prices to the perceived value of our products, strategically managing promotional activity and increasing labor rates to attract and retain top talent.\nWe continue to keep cost very tight by eliminating redundancies and increasing efficiencies.\nWe have been relentless in mitigating supply chain disruptions.\nWe are strategically partnering with our vendors to accelerate deliveries when feasible, changing countries of origin when appropriate to increase speed to market and investing in faster transportation modes when it makes sense.\nOur strategy is working and our results reflect this.\nI am proud to share with you that we published our latest sustainability report this summer, focused on our three pillars to operate with integrity, empower our people and protect the environment.\nSome highlights include reaching gender pay parity, increasing our eco-smart Guess penetration to 20% and receiving approval in our ambitious science-based targets for greenhouse gas reductions.\nWe are confident in our actions here.\nIn fact, we successfully passed a reasonable assurance review by a big firm making Guess the first in fashion to subject our ESG data to such a high level operator.\nWe have increased our environmental quality score with the Independent shareholder services to a 1 out of 10, the highest rating possible, as a result of this work.\nLet me now spend a few minutes talking about what's going on in the different regions and channels of our business.\nIn North America, traffic has improved sequentially each quarter, but remains well below historical levels and we continue to see higher conversion rates and higher average spend.\nWe are in the midst of back-to-school and we have solid demand for denim, activewear and knits.\nIn addition, we have seen sequential sales growth for our dresses category, which was positive to LLY for the first time since that pandemic began.\nBoth our Guess and Marciano brands are experiencing increases in sales of dressing, apparel and accessories as the customer is returning to social life.\nWe have also been successful with our handbags and wear-now products and our men's business has been particularly strong.\nIn Europe, we had a stronger start to the second quarter, which leveled off as the delta variant spread in many countries there.\nActivewear continue to outperform in this region, both for women and men and we saw substantial pop in denim in Q2 as well as improved demand for dresses and outerwear.\nWe are encouraged by the progress that most countries in Europe have made with vaccination levels and we remain optimistic about the recovery of this region in the second half of the year.\nIn Asia, our customer traffic is the most challenged due to the virus and the trends remain relatively consistent in Q2 versus Q1.\nThe product categories that have performed better in this environment includes sweaters, denim and outerwear.\nWhile we have made good progress in several areas of the operation, our challenges with topline performance remain.\nWe are reassessing our team and we are making leadership changes to reorganize the business today.\nOur e-commerce business grew 11% in North America and Europe for the quarter versus last year.\nGrowth here was more moderate than prior quarters as we were a lot less promotional.\nI'm pleased that we continue to significantly improve profitability in this channel.\nIn the back half of the year, we will be strategically investing more in marketing to support further growth in this business.\nOur European wholesale business is performing well.\nWe are currently shipping our fall-winter season, which had orders up high-single digits.\nAs I mentioned, some of the products are delayed coming in.\nSo, they will ship in Q3 versus Q2.\nThe spring-summer season campaign is underway and we estimate that the order book will be higher than LLY with strong growth, particularly in our kids and footwear collections.\nWe're also very pleased with our Americas Wholesale business, which grew 19% in sales and 54% in operating profit versus LLY.\nDenim had a great quarter and delivered strong performance at Macy's.\nWe're also having success in apparel for both men and women and accessories, particularly handbags.\nOur global licensing business also recorded significant revenue growth of 18% versus the LLY period.\nWe have a big business here, primarily driven by handbags, eyewear, footwear and fragrances.\nRegarding our strategic plan, I want to spend a few minutes updating you on our progress with our brand elevation and customer centricity initiatives.\nI will start with our brand innovation strategy, which touches almost every aspect of our business.\nPaul has been driving this very ambitious initiative with our product and creative teams.\nHis strong leadership and the work that the teams put into this to transform our model have been extraordinary and many major milestones have already been conquered.\nWe are focused on higher quality and sustainability across the board.\nIn addition, the new assortments have been priced based on the products perceived value.\nOur visual merchandising on the images and photography in all the new marketing campaigns, catalogs and websites have been optimized to showcase our brand more effectively.\nAnd our product development, marketing, visual merchandising and buying are integrated more closely than ever before.\nWe [Indecipherable] deep in these key styles to increase full price selling and maximize sales.\nThe last important step for elevating the brand is to improve the customer experience across the Guess ecosystem, including our stores, our websites, wholesale distribution and through our licensees.\nWe are mobilizing our field and business units to address this and we plan to upgrade our technology and tools to deliver superior service to our customers.\nSome examples of these upgrades in store technology include enhanced WiFi networks, extended payment methods and mobile check outs.\nThese projects should be complete by the end of next year.\nRegarding customer centricity, let me start with our customer base.\nAs you know, we resonate across three distinct customer groups: heritage, Millennials and Generation Z and we develop our product assortment to support the unique lifestyle needs of these customers.\nWith Gen Z, specifically, we have a separate strategy including differentiated product development, marketing and customer engagement.\nThis is our brand partnerships group led by Nicolai Marciano.\nProduct collaborations and events drive this business.\nWe had great success here pre-pandemic with key collaborations such as J Balvin.\nBut as you can imagine, the pandemic impacted our ability to execute this event-driven marketing campaign.\nNow, we are able to restart these collaborations.\nIn fact, this past weekend, we had a successful event with Babylon and influential skate and streetwear label on our campus in LA where we hosted over 6,000 people over three days.\nRegarding our digital business, we continue to make progress in optimizing our user online experience via the e-commerce platform that we implemented last year.\nFor example, in Europe, we are seeing improved conversion rates, especially from mobile, which represents over 80% of our traffic.\nOur average web session duration increased over 20%, bounce rate decreased 10% and loading time versus our previous platform is 70% faster.\nAnd during the quarter, we implemented some upgrades to the platform resulting in an increase in our add to basket sessions of over 30%.\nWe continue to work on implementing omnichannel capabilities in Europe as well as upgrade North America's current capabilities.\nWe plan to complete this project by mid-year next year.\nThe last pillar of our customer centricity strategy is related to customer data capture, segmentation and analytics.\nWe have built out a high-performance platform, but we're still operating on an extremely limited capacity to process and utilize our customer data.\nWe're now working on a platform, which includes powerful tools to fuel data collection, consumer insight analysis, personalized marketing and client telling.\nWe can use these tools to maximize sales from our existing customer base, as well as efficiently target new customers.\nThis implementation is underway and will be completed by next year.\nThis will be a game changer, allowing us to use our data to unlock a ton of value.\nNow, let me talk about our outlook.\nWhen I came back in early 2019, we identified several opportunities for value creation.\nAt that time, the most significant of these were in margin expansion.\nWe laid out a plan to increase operating margin by about 450 basis points to 10% in five years.\nWe used the pandemic as an accelerator to transform our business and not only are we expecting to reach our 10% target this year, but we are now increasing our operating margin target to 12% by fiscal year 2024, when we plan to deliver $2.8 billion in revenue.\nI'm excited to share with you that this would yield a return on invested capital of over 30%.\nI'm confident in this outlook and this is why.\nWe see clear opportunities for revenue growth from category expansions in areas like denim, Marciano, handbags, dresses and outerwear to new store development to digital sales growth.\nOur margin expansion has come from concrete changes to our business model, including IMU improvements, store portfolio optimization and cost reductions.\nAnd while we are currently operating in what might be on abnormally low promotional period industry wide, this company will never go back to the levels of promotional activity that it had pre-pandemic.\nOur balance sheet is in a very good position, which allows us to fund our business needs, as well as return value to shareholders.\nWe announced today that our Board has authorized a share repurchase program of $200 million.\nIn closing, when I was invited to come back to Guess, I came back with high expectations, I knew that the company had an amazing global brand with tremendous potential and I felt that I could contribute to realize that potential.\nBut like Steve Jobs said I couldn't connect the dots looking forward and I had to trust my gut.\nWhen I look back at what happened in the last two and a half years, I couldn't be more proud of what we have accomplished in the face of a pandemic of my partnership with Paul and of the transformation of our business into a company with an elevated global brand and a strong business model.\nThis is a company that is poised to gain significant market share, a company ready to deliver high return on invested capital fueled by high margins and a capital-light model.\nA company with an amazing team ready to take the business to the next level of growth and profitability.\nToday, I am thrilled to connect the dots looking backward and I couldn't be happier I trusted my gut to come back to my home.\nWith that, let me pass it to Katie to review our financials in more detail.\nI want to start with something you can't see in the numbers.\nOf course, I'm thrilled that we almost doubled operating profit from pre-pandemic levels this quarter, even in the midst of a challenging environment.\nBut first I want to mention how proud I am to be part of this team at Guess.\nIt's a team that works hard and works smart to execute our strategy and achieve our goals.\nNow, let me take you through the details on the quarter.\nSecond quarter revenues were $629 million, up 58% to last year in U.S. dollars and 51% in constant currency.\nWe were down 8% compared to LOI.\nThis was slightly short of our expectations, as a result of timing in our European wholesale business worth about 4% to LLY, where delays in product receipts moved some shipments a few weeks into the third quarter.\nOverall, the 8% revenue decline to LLY was driven by the impact of permanent store closures worth roughly 5% of revenue and the shift in wholesale shipments in Europe.\nI want to note that our promotions were well below pre-pandemic levels across all of our direct-to-consumer businesses, which is impacting our sales level versus LLY, significantly driving our profit.\nLet me get into a bit more detail on sales performance by segment.\nIn Americas Retail, revenues were down 6% versus LLY, better than our expectations.\nThis decline was entirely driven by permanent store closures, which were worth about 8% of the sales to LLY.\nStore comps in the U.S. and Canada were up 5% in constant currency.\nSame-store sales were solid positive in the U.S., but the recovery in Canada is moving a bit more slowly.\nAlthough traffic is still materially negative, from Q1 to Q2, we saw improved trends there.\nOur conversion remains high and AUR increased substantially in Q2 with strategic price increases and more full price selling.\nThe gap between the performance of our tourist-centric stores and non-tourist-centric stores is still wide, but narrowed significantly in Q2 versus Q1.\nThis suggests that at least domestic travel is picking up, the total travel still remain significantly below historical levels.\nIn fact, our non-tourist stores in the U.S. and Canada had positive double-digit same-store sales growth this quarter.\nThe profitability that we have brought in the segment is super exciting and worth noting.\nOperating margin in Q2 was 20% versus only 3% two years ago and operating profit is 6 times what it was in LLY even on lower sales.\nThis is an incredible base of which to grow in North America.\nIn Europe, revenues were down 5% versus LLY.\nOur retail business continues to be pressured by pandemic-related traffic declines.\nStore comps for Europe were down 20% in constant currency, impacted by negative traffic; however, this was partially offset by solid conversion rates and significant AUR increases.\nAbsent the shift in shipment timing, that we mentioned earlier, our European wholesale business continues to show healthy trends with an order book above pre-pandemic levels.\nIn Asia, revenue was down 43% to LLY, almost half of this decline was driven by permanent store closures.\nOur store comps were down 30% in constant currency, with negative sales comps in South Korea and China, more moderate than other areas in the region like Japan, Taiwan and Hong Kong, Macau, where they're struggling more with the pandemic.\nOur Americas Wholesale sales were up 19% to LLY.\nWe are happy with our momentum in this business.\nOperating margin expanded almost 600 basis points to LLY here, resulting in a lift of over 50% for operating profit in this segment.\nLicensing revenues also outperformed and were up 18% to LLY in Q2 to provide strong performance in our perfume and footwear.\nAnd as you know, this is an extremely high margin business, which delivered a 92% operating margin this quarter.\nTotal company gross margin for the quarter was 46.8%, almost 800 basis points higher than two years ago.\nOur product margin increased 370 basis points this quarter versus LLY, primarily as a result of lower promotions and higher IMU.\nOccupancy rate decreased 420 basis points.\nThis quarter we booked over $7 million in rent credits for fully negotiated rent release deals, mostly in Europe.\nThe remainder of the decrease is attributable to lower rent and permanently closed stores.\nAdjusted SG&A for the quarter was $206 million, compared to $218 million two years ago, a decrease of $12 million or 6%.\nWe continue to benefit from changes to our expense structure and a decrease in expenses related to permanent store closures versus LLY.\nIn addition, there was a one-time benefit of about $4 million from government subsidies, namely in Europe, which was partially offset by higher variable expenses related to the growth of our e-commerce business.\nAdjusted operating profit for the second quarter was $89 million versus $48 million in Q2 two years ago.\nOur balance sheet continues to strengthen.\nI will take you through some details comparing now to last year, not LLY.\nWe ended the second quarter with $459 million in cash a $131 million higher than last year's balance at the end of Q2.\nInventories were $430 million, up 3% in U.S. dollars and 1% in constant currency versus last year.\nInventory management has been a key capability for us and we continue to act swiftly and strategically here.\nWe feel good about our inventory position and believe we have the right assortment to satisfy customer demand.\nYear-to-date capital expenditures were $22 million, up from $10 million in the prior year, but significantly below pre-pandemic levels.\nWe generated $18 million of free cash flow in the first half of the year.\nOur ability to generate cash gives us the runway to invest in our business, as well as return value to shareholders.\nWe announced today that our Board of Directors has authorized a new $200 million share repurchase program.\nThis new program includes the $48 million remaining under the Company's previously authorized repurchase program and we will use it opportunistically.\nSo, now let's talk about our go-forward expectations.\nThe current environment is still uncertain.\nSo, we will not provide formal guidance, but I will walk you through how we're thinking about both for short and longer term future.\nAgain, I'm going to anchor our commentary to LLY.\nWe are maintaining our revenue expectations for the full year at down mid-single digits.\nWe expect the third quarter to be slightly negative to flat with help from shifted wholesale shipments from Q2.\nIn terms of profit, adjusted operating margin for the third quarter is expected to be about 250 basis points better than LLY.\nGross margin is expected to expand by around 600 basis points to LLY, driven primarily by lower occupancy costs, lower promotions and improved IMU.\nWe anticipate that the adjusted SG&A rate will be at 350 basis points as cost savings are offset by business mix and reinvestments in business expansion initiatives including marketing.\nAnd with the rest of the industry, we are seeing some cost pressures, particularly in freight and labor, which are built into these numbers.\nFor the full fiscal year 2022, we are raising our expectations for operating margin and profit.\nWe now expect operating margins to reach approximately 10% for the year versus adjusted operating margin of 5.6% in LLY.\nThis represents margin expansion of roughly 450 basis points to our pre-pandemic business despite a lower revenue base and we are confident in our ability to sustain these profitability levels, as well as deliver top line growth.\nAs a result, we are raising our operating margin target and our long-term plan to reach 12% by fiscal year 2024 with revenues in that year expected to hit $2.8 billion dollars, consistent with our previous call.\nThis implies an operating income of $335 million in fiscal year 2024, $185 million more than adjusted operating profit in fiscal year 2020.\nAdjusted earnings per share is expected to be around $3.50 per share, versus a $1.45 in fiscal year 2020.\nThis would be a record level of adjusted earnings per share for the Company.\nOur team is motivated and I'm proud to say that we are running this company for the future, not just for now.",
        "summary": "increases share repurchase authorization to $200 million.\nincreasing long-term operating margin goal to 12% and adjusted earnings per share to $3.50 by fiscal 2024.\nguess inc - expect revenues in q3 of fiscal 2022 to be slightly negative to flat versus q3 of fiscal 2020.\nfor fy fiscal 2022, assuming no additional covid-related shutdowns past q2, expect revenues to be down mid-single digits versus fiscal 2020."
    },
    {
        "text": "With me on the call is Ronald Kramer, our Chairman, and Chief Executive Officer.\nSuch statements are subject to inherent risks and uncertainties that can change as the world changes.\nFinally, from today's remarks, we'll adjust for those items that affect comparability between reporting periods.\nWe are pleased with our third quarter performance, which was slightly above our expectations.\nRevenue increased 2% over the prior-year quarter of 4% excluding the impact of the SEG disposition.\nAdjusted EBITDA was $76 million, excluding unallocated costs and adjusted earnings per share was $0.43.\nWe are executing well in a very complex operating environment.\nI want to spend a minute discussing it before moving to the segments.\nDemand remained very healthy across our product categories supported by a strong housing market, repair and remodel activity, and consumer spending.\nWe're currently carrying record levels of backlog in both the CPP and HBP segments due to transportation disruptions and tight labor availability, which limited our ability to catch up with demand.\nWe implemented price adjustments and continually work through efficiency programs to mitigate rapidly rising input costs, and we'll continue to work with our suppliers and customers to implement further price adjustments.\nOur businesses are proven to be resilient and we are reiterating our full-year guidance.\nOur AMES strategic initiative that will consolidate operations, increase automation, support e-commerce growth, and create a new global data and analytics platform for AMES by the end of 2023 is on track.\nWe expect this to further improve margins in the years ahead.\nWe reiterate our expectation to realize annual cash savings of $30 million to $35 million and inventory reductions of the same magnitude when the benefits of the initiative are fully realized.\nAs we navigate through the second year of managing our businesses during the global pandemic, we continue to prioritize protecting employees even the restrictions in the United States, Canada, United Kingdom, and Australia are evolving.\nWe are closely monitoring the situation due to the spread of the COVID-19 delta variant and we'll make adjustments as needed to be responsive to government guidelines and to ensure the safety of our employees and customers.\nTurning to the segments, in Consumer and Professional Products, we saw a robust demand across all geographies and product lines, shipping delays related to the availability of transportation impacting US revenue and EBITDA was impacted by the implementation of price adjustments, which as expected lagged input cost increases.\nIn the Home and Building Product segment, we continue to see strong demand for both residential and commercial door products.\nSales increased from the prior-year quarter driven by increased volume and favorable pricing and mix.\nEBITDA also increased benefiting from the increased sales, partially offset by the timing of price adjustments versus increasing input costs.\nIn Defense Electronics, Telephonics revenue decreased from the prior year primarily driven by reduced volume resulting from the timing of deliveries on communications and radar systems as well as the divestiture SEG partially offset by volume increases in Naval and Cybersystems.\nEBITDA increased over the prior year's actions taken to reduce operating expenses took effect and performance in Naval and Cybersystem programs improved.\nBacklog in the quarter was $375 million compared to $341 million in June 2020 excluding SEG with trailing 12-month book-to-bill of 1.1 times.\nWe continue to see a bright future for the Telephonics intelligence, surveillance, and reconnaissance products in the years ahead.\nTurning to the balance sheet, we continue to have a solid capital structure with X1 flexibility.\nWe have $221 million in cash and $362 million available on our revolving credit facility, putting us in an excellent position to execute on our organic growth initiatives and to capitalize on an active pipeline of acquisition opportunities while returning cash to shareholders through our quarterly dividends.\nWe've delivered to 2.9 times marking 1.5 turns of improvement over the prior-year period.\nEarlier today, our Board authorized an $0.08 per share dividend payable on September 16, 2021, to shareholders of record on August 19.\nThis marks the 40th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated it in 2012.\nI'll start by highlighting our third quarter consolidated performance.\nRevenue increased 2% to $647 million or increased 4% when excluding the SEG divestiture.\nAdjusted EBITDA decreased 7% to $65 million and adjusted EBITDA margin decreased 100 basis points to 10%.\nGross profit on a GAAP basis for the quarter was $170 million, increasing 3% compared to the prior-year quarter.\nExcluding restructuring-related charges, gross profit was $171 million increasing 3.5% compared to the prior-year quarter with gross margin increasing 30 basis points to 26.4%.\nThird quarter GAAP selling, general and administrative expenses were during $126 million compared to $114 million in the prior-year quarter.\nExcluding restructuring-related charges, selling, general and administrative expenses were $122 million or 18.9% of revenue compared to $112 million or 17.7% in the prior-year quarter, primarily driven by restoration of selling and marketing expenditures and increased distribution and transportation costs.\nThird quarter GAAP net income was $17 million or $0.31 per share compared to the prior-year period of $22 million or $0.50 per share excluding items that affect comparability from both periods, current quarter adjusted net income was $23 million of $0.43 per share compared to the prior year of $26 million or $0.59 per share.\nKeep in mind, the equity offering in August 2020 impacted current quarter adjusted EBITDA by approximately $0.08.\nCorporate and unallocated expenses, excluding depreciation were $11 million in the quarter in line with prior-year third quarter.\nOur effective tax rate, excluding items that affect comparability for the quarter, was 31.2% and for the year-to-date period was 31.1%.\nCapital spending was $10 million in the third quarter compared to $12 million in the prior-year quarter, depreciation and amortization totaled $15.8 million compared to $15.5 million in the prior-year quarter.\nRegarding our balance sheet and liquidity.\nAs of June 30, 2021, we had net debt of $835 million and leverage of 2.9 times calculated based on our debt covenants.\nThis is a 1.5 turn reduction from our prior-year third quarter and a 0.5 turn reduction from our 2020 fiscal year end.\nAs a reminder, Griffon uses cash in the first six months of its fiscal year, which will be more than offset by the generation of significant cash flow in the second half.\nOur cash and equivalents were $221 million and debt outstanding was $1.06 billion.\nBorrowing availability under the revolving credit facility was $362 million subject to certain loan covenants.\nRegarding our 2021 guidance with our third quarter behind us, we're continuing to see strong demand for products across our portfolio recovering consumer activity and the strong housing markets are contributing to the constructive macro environment and homeowners continued to focus on outdoor living and repair and remodel projects continue.\nWhile we are seeing the expected headwinds from cost inflation, supply chain disruptions, and a tight labor market, we are managing through those effects and we expect an excess of $2.5 billion of revenue and continue to expect $320 million of adjusted EBITDA, excluding unallocated and one-time charges.\nAs we entered the final quarter of our fiscal year, we're seeing strong demand trends across all of our segments.\nWe continue to successfully manage through this dynamic environment, driven by the exceptional dedication perseverance, and performance of our 7,500 employees.\nOver the last three years since the sale of our plastics business in the purchase of ClosetMaid and CornellCookson, we fundamentally strengthened Griffon.\nDuring this period, our revenue and adjusted EBITDA have increased at a compounded annual growth rate of 11% and 20% respectively.\nAdjusted earnings per share have grown from $0.67 to $1.91 on a trailing 12-month basis, which is a 42% compound annual growth rate.\nMost importantly over this period, we've generated $212 million in free cash flow and reduced our leverage by almost three full turns to 2.9 times.\nWe're very pleased with our progress creating long-term shareholder value.\nWe expect significant additional benefits to come as we execute on our strategic initiatives to improve margins and take advantage of our balance sheet firepower to invest in our businesses and capitalize on acquisition opportunities.\nOur best is yet to come.\nOperator, we'll take any questions.",
        "summary": "q3 earnings per share $0.31.\nq3 adjusted earnings per share $0.43."
    },
    {
        "text": "I am Patrick Suehnholz, Greenhill's Head of Investor Relations.\nAnd joining me on the call today is Scott Bok, our Chairman and Chief Executive Officer.\nThese statements are based on our current expectations regarding future events that, by their nature, are outside of the firm's control and are subject to known and unknown risks, uncertainties and assumptions.\nOr a discussion of some of the risks and factors that could affect the firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.\nWe reported first quarter revenue of $68.9 million, operating profit of $7.2 million and net income per share of $0.09.\nOur quarterly revenue was 3% higher than last year and our operating profit and earnings per share compared to a loss last year.\nGiven that this quarter followed one where we had our best quarterly revenue ever, we see these as respectable results that mark a solid start to the year.\nWe are also pleased that after quarter end, we further accelerated the pay down of our debt and that we have made good progress toward our recruiting goals.\nI will now comment very briefly on our operations as we continue through the pandemic, then on the state of each of our businesses, then speak on each of our key financial metrics.\nAs I've said in each recent quarterly call, our firm has operated well throughout the pandemic.\nAt this point, most of our offices have at least some people back from home, and some are operating fairly normally.\nIn-person attendance will naturally grow as more people get vaccinated and the virus risk declines, both generally and particularly for our people, most of whom I expect have been or will be vaccinated.\nTo the extent people are still working from home and may be for some time to come, we have proven that we can be very effective at both executing for existing clients and winning new clients in that format.\nBut we do think working from the office is better for our team's productivity, efficiency, training, morale and other reasons.\nSo our goal is to get largely back to that over the next few months in most of our office locations.\nTurning to our businesses.\nM&A activity is stronger than it has been in recent years in each of our main markets.\nIt is particularly strong in the U.S. where it is running at a record pace.\nWe see this in the fact that we are winning a significantly larger number of assignments than we did last year just pre-pandemic or the year before, which benefited from a good economy and no unusual health risks.\nThe timing of deal announcements and completions is what determines quarterly results.\nSo those results vary as they always have, given the serendipitous nature of deal timing.\nBut we feel like we're off to a good start this year in all respects.\nConsistent with industrywide statistics, the U.S. is the most active part of the firm, but we are also very busy in place is the were less active last year, like Australia and Canada.\nOur hope and expectation is that as other countries emerge from the pandemic period as the U.S. appears to be now, we will see economic and deal activity rebound sharply there just as we are seeing it in the U.S. now.\nWith respect to restructuring activity, I said last quarter that activity had slowed considerably from last year's frenetic pace, and that continues to be the case.\nThere will come a time when financing markets will tighten simply because that's always the case.\nAnd there will then be another surge of restructuring activity.\nIn the meantime, we are supplementing our traditional restructuring activity with an increased emphasis on financing advisory work.\nThe debt markets have become far more diverse in recent years with the proliferation and growth of so-called alternative lenders.\nWe can be very helpful to our clients in accessing that market.\nLastly, after a very slow period last year, the market for private capital advisory transactions is again very active.\nIn our private capital advisory business, we are busy in Europe and Asia doing transactions in the secondary market, including many larger, more complex assignments for the general partner of a private equity fund, is accessing the secondary market to achieve strategic goals.\nIn the U.S., we've made good progress rebuilding our team.\nAnd as part of that, we have taken steps to build a primary fundraising business, which we think can be productive in its own right, but also highly complementary to the secondary business.\nWe expect very shortly to have a fully functioning global team for the private capital advisory business, encompassing primary capital raising, secondary sales and general partner-led fund restructurings.\nWe have other recruits well in progress and expect this year to be an important year in terms of M&A recruiting with an emphasis on the U.S. market and on adding incremental industry sector expertise.\nFor a wide range of reasons, we are seeing a lot of good candidates.\nNow turning to our costs.\nOur compensation costs were lower than last year in absolute terms, but our compensation ratio was higher than our target range.\nOur objective is to bring the ratio down to the target range for the full year.\nWhere we end up, as always, depends heavily on our revenue outcome for the year.\nOur non-compensation costs were lower than last year and are running at a rate consistent with our target.\nThere were a few unusual expenses this quarter, primarily related to foreign exchange losses, and we continue to look for opportunities to drive costs lower even post pandemic.\nOur interest expense continues to trend lower, given declining debt levels and continued low short-term interest rates.\nOur tax rate of 26% for the quarter after adjusting for the impact of charges related to the vesting of restricted stock is consistent with our guidance.\nWe ended the quarter with $87.9 million of cash and $326.9 million of debt.\nWe paid down another $20 million of that debt since quarter end.\nWe also declared our usual $0.05 quarterly dividend and bought back just under a million shares and share equivalents for a total cost of $14.5 million.\nWe have $35.5 million of repurchase authority available for the year ahead through next January.\nAs I said last quarter, our principal focus is on deleveraging, but we also intend to purchase shares in a prudent manner to further enhance the upside potential for continuing shareholders.\nOur employees currently own about half of the economics of the firm through stock and restricted stock and thus are fully aligned in trying to drive shareholder value in the quarters and years to come.\nWith that, I'll be happy to take any questions.",
        "summary": "compname reports q1 earnings per share of $0.09.\nq1 revenue rose 3 percent to $68.9 million.\nq1 earnings per share $0.09."
    },
    {
        "text": "I am Patrick Suehnholz, Greenhill's Head of Investor Relations.\nJoining me on the call today is Scott Bok, our Chairman and Chief Executive Officer.\nThese statements are based on our current expectations regarding future events that, by their nature, are outside of the firm's control and are subject to known and unknown risks, uncertainties and assumptions.\nFor a discussion of some of the risks and factors that could affect the firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.\nWe reported fourth quarter revenue of $140.7 million, which was our best quarterly performance ever, an operating margin of 57% and net income of $2.71 per share.\nFor the year, we had revenue of $311.7 million, an operating margin of 18% and net income of $1.36 per share.\nOur quarterly revenue was up 32% and earnings per share was up 158% from the same period last year.\nFor the full year, our revenue was up 4% and earnings per share was up 202% from the prior year.\nIn sum, we had a very strong finish to the year, resulting in very respectable pandemic year results on the top and bottom line, all consistent with our commentary on the past couple of quarterly investor calls.\nClearly, quarterly revenue, of the scale we achieved requires a lot of things to go right.\nWe generated multiple, very significant M&A completion fees, multiple very significant restructuring completion fees and a long list of smaller fees to go with them.\nWe also benefited more than usual from accounting rules in relation to revenue recognition that came into effect a few years ago and sometimes require revenue from completion fees to be booked before the transaction triggering that fee is fully completed.\nBut just to make clear that our very strong quarter was not simply a matter of transaction timing, our earnings per share for the quarter was greater than the analyst consensus forecast for the fourth quarter and the next four quarters ahead combined.\nIn other words, our profit in one quarter exceeded what was expected for five quarters.\nLooking at our full year results.\nWe benefited from particularly strong results from our European M&A business and our U.S. restructuring business.\nWe also benefited from an expanding array of financing advisory roles that are neither traditional M&A nor traditional restructuring.\nOur private capital advisory business made a meaningful contribution as well, albeit considerably less so than in the prior year.\nOur revenue for the year was highly concentrated in a few busy areas, as many regions and sectors were heavily impacted by the pandemic and related constraints in economic activity and thus produced only modest revenue.\nImportantly, we see nearly all of those areas has poised for significant improvement in 2021, given current market conditions and what we can see in our pipeline of assignments.\nTurning to our costs.\nOur compensation ratio for the year was 62%, moderately above our target level as we invested much of our non-compensation savings in rewarding our strong performers in what was the challenging year for all.\nFor the quarter, the compensation ratio was unusually low, as we work to achieve a reasonable full-year cost level.\nWe did similarly in last year's fourth quarter.\nAs noted in the past, we will have some quarterly volatility, but aim to manage annual compensation cost to a target level.\nOur non-compensation costs were down 18% from the prior year, despite the fact that we incurred rent expense on two New York headquarters locations for much of the year as we built out new space.\nSome of those cost savings flowed from reduced travel due to pandemic-related restrictions, and we believe those cost savings will continue for much of this year.\nEven after that, we expect to have considerably lower travel expense than we had historically.\nSeparate from travel, our cost savings resulted from a wide variety of management initiatives, and we expect the benefits of those moves to be sustained for the long-term.\nAs a result, we expect our 2021 non-compensation cost to be materially lower than they were in 2020, when it-turn they were substantially below the level in 2019.\nAs one example, the rent expense for our headquarters in 2021 should be $7 million less than it was in 2020, given we have both more expensive space and some months of duplication in the year just ended.\nNotwithstanding those savings, we will have a higher quality space and room for more bankers than we did in our prior headquarters location.\nGiven the significant opportunities we have found to reduce non-compensation costs, we see increased potential to attain our goal of a 25% operating margin like we achieved for many years of our history, and that is our goal.\nOur interest expense for the year was $15.5 million, well below last year's level, as we benefited from a lower interest rate premium post our refinancing last year, lower market interest rate levels, reduced debt outstanding, and the absence of a refinancing charge.\nFor the quarter, interest expense was $3.5 million, as we continue to benefit from low market rates and debt reduction.\nAnd our borrowing cost is currently around 3.4% and should remain low, based on market expectations of continued low interest rates and our interest expense should continue to decline in line with our pay down of debt.\nOur income taxes were considerably lower than last year, as our income was skewed to lower rate jurisdictions.\nThe opposite of last year when it was skewed to higher rate jurisdictions.\nWe also benefited to some degree from various tax law changes that were put in place during 2020 as a result of the pandemic.\nGoing forward, we continued to expect an effective tax rate of around 25%, excluding any charge or benefit relating to the impact of share settlements on vesting restricted stock and assuming no major changes in tax laws in the primary places we operate.\nThe actual rate could end up somewhat higher or lower in any given year, depending on where we earn most of our income in such year.\nWe ended the year with $112.7 million of cash and debt of $326.9 million, meaning we had net debt of $214.2 million.\nDuring 2020, we made principal payments of $38.8 million on our term loan, including a discretionary payment of $20 million at year-end.\nThere are no mandatory principal payments due until March of 2022, but we intend to continue paying down our debt on an accelerated basis as our cash flow allows.\nGiven the uncertainty created by the pandemic, we purchased only 489,704 shares in the open market in 2020, plus another 764,529 share equivalents in connection with tax withholding on vesting restricted stock units for a total cost of $23.3 million.\nOur Board has authorized $50 million in repurchases of shares and share equivalents for the year ahead through January 2022.\nWhile our principal focus will be on deleveraging, we intend to purchase shares on a prudent manner in an effort to further enhance the upside potential for continuing shareholders.\nIn that regard, note that, our employees own about half of the economics of the firm through stock and restricted stock.\nSo we are fully aligned with shareholders, as we seek to maximize value through the prudent use of the cash that we generate.\nWe also declared our usual quarterly dividend of $0.05 per share.\nWe entered 2021 in what feels like a favorable environment for our business.\nWith respect to M&A, a positive economic outlook, driven by unprecedented fiscal and monetary stimulus, combined with high stock prices, low borrowing costs, very substantial dry powder of private equity funds, a plethora of special-purpose acquisition companies looking for deals, and a variety of other factors should drive increased deal activity.\nIn particular, we expect increased M&A revenue in most of our international offices as well as in the certain sectors like industrials, where activity was low in 2020.\nAt the same time, while restructuring activity has cooled considerably from 2020's frenetic pace, more debt restructuring should be needed for the many industries and companies adversely affected by the continuing pandemic.\nIn addition, we are seeing significant opportunity to advise on various kinds of debt and equity financings and expect those assignments to provide a meaningful part of our near-term revenue.\nIn sum, we would be very disappointed if we fail to generate meaningful revenue growth in 2021.\nAnd given our expectations of lower cost, higher revenue should result in margin expansion and increased earnings.\nI will now make a few comments on our strategy.\nOur overarching objective is to increase the scale, diversity and consistency of our revenue sources, while maintaining appropriate discipline on expenses.\nAs always, we will look to recruit M&A bankers who bring us incremental industry sector expertise or regional capabilities.\nWe have an active pipeline of good prospects in that regard.\nWith respect to restructuring advice, we see our strategic initiative of the past few years to significantly expand our team as a major success but we believe, there remains the potential to expand even further.\nIn particular, we want to play more advisory roles on debt and equity financing transactions.\nWe've had increasing success in broadening the range of transactions on which we advice and we see this as an opportunity that will continue even in periods where there's much less bankruptcy-related activity than we have seen off-late.\nIn our private capital advisory business, we have strong teams in Europe and Asia, and are in the process of rebuilding in the U.S., with an increased focus on higher value-added transactions.\nIn terms of strategic initiatives, we are aiming to enhance our focus on advising financial sponsors on a wide variety of transactions.\nHistorically, we focused heavily on serving public companies and we've enjoyed great success with that constituency, However, over time, we came to realize though we've had increasing interaction with financial sponsors across our M&A, restructuring and private capital advisory businesses.\nWe are now aiming to organize those efforts in a more systematic way designed to generate more revenue and we have already put significant resources into this initiative.\nWe are hopeful that it will be at least as successful as the restructuring advisory team expansion, that was our primary strategic focus over the last couple of years.\nIn closing, I want to mention two landmark events in the life of our firm.\nFirst, this week, we are opening our new headquarters in the newly renovated Rockefeller Center building on Sixth Avenue, that is known to many as the old Time Life Building.\nWe look forward to welcoming clients there once the pandemic is subsided.\nSecond, a couple of weeks ago, we passed the 25-year mark in the life of our firm.\nIt is obviously not the time for celebrations of any kind, but it is worth noting the fact that our firm has proven resilient through numerous challenges over that quarter of a century, the dot com bubble bursting, the September 11 terrorist attacks, the financial crisis of 2008 and now a major pandemic.\nOur strong culture is the source of our resilience and both our global team and our brand will emerge from the pandemic stronger than ever.\nWith that, I'm happy to take any questions.",
        "summary": "compname reports q4 earnings per share of $2.71.\ncompname reports fourth quarter earnings per share of $2.71 and full year 2020 earnings per share of $1.36.\nq4 revenue rose 32 percent to $140.7 million.\nq4 earnings per share $2.71."
    },
    {
        "text": "We appreciate you joining us today to discuss Graham's Fiscal 2021 First Quarter Results.\nWe also have slides associated with the commentary that we are providing here today.\nIf you do not have the release or the slides, you can find them on the company's website at www.\nJeff will start with the financial overview of the period.\nWe will then open the lines for Q&A.\nThese documents can be found on our website or at www.\nI also want to point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance.\nThis is Jeff actually.\nAs Jim and I have noted on our update calls in March and June, due to COVID-19 the COVID-19 pandemic, we've reduced our facility staffing to approximately 10% in late March and after implementing new work practices, enhanced cleaning and safety procedures and educating all of our employees on these changes, we gradually began to increase our staffing.\nBy the end of May, we were back at near-normal on-site staffing and have continued at that level over the past two months.\nI want to compliment Alan Smith and his team for ensuring a safer production environment in this difficult time as well as our human resources team for their continued focus on improving safety in our workplace.\nAs a result of these proactive measures, our average production staffing and capacity for the first quarter was only 50%, and hence, our first quarter results suffered accordingly.\nSales in the first quarter were $16.7 million, which included a project in China, which had been delayed by COVID from the fourth quarter of last year into the first quarter of this year.\nThat project made up approximately 30% of the quarter's revenue.\nOn a positive note, our Defense or Navy sales were 21% of this total or $3.5 million.\nWe will be reporting the level of our Navy sales on a quarterly basis going forward, which for this year, we expect to be approximately 25% to 30% of total sales.\nIn the first quarter, we had a loss of $1.8 million or $0.18 per share.\nAs I noted, we ran at half capacity in Batavia.\nYet as discussed on prior calls, we continue to pay all of our employees their full benefits and wages.\nWe did not accept any PPP funding, so we consciously realized this type of loss would occur.\nAs Jim will discuss later, we view Q1 as a discrete event and assuming there are no significant impacts to our business or operations, the rest of fiscal 2021, we will be operating as normal in Q2 and beyond, and would expect far better results going forward.\nCash at the end of June was $67.2 million, and our backlog was $107.2 million, split evenly between defense and Commercial.\nThis strong backlog level supports our guidance for the rest of fiscal 2021.\nOn to slide five.\nSales in the first quarter were down $3.9 million.\nPlease note in Q1 of last year included $1.3 million from our Energy Steel business, which was sold in that quarter.\nGross profit, EBITDA and diluted earnings per share were all down significantly due to our low capacity level, yet more normal level of operating expenses, which occurred in the quarter.\nMoving on to slide six.\nOur cash position decreased to $5.8 million in Q1 to $67.2 million or $6.74 per share.\nWe expected this to occur, as I noted during our update call in late March, if we were shut down for a month, we would expect to utilize approximately $3 million of cash per month.\nAt 50% capacity in the quarter, this is equivalent to 1.5 months average shutdown, hence, the reduction in cash.\nAs with sales and profitability, we expect cash generation to be positive for the rest of fiscal 2021.\nWe paid $1.1 million of dividends in the quarter and it continues to be secure and an important part of our capital allocation provided directly back to shareholders.\nCapital spending in the quarter was light at $300,000.\nWe expect capital for the full year to be in the $2.0 million to $2.5 million range.\nFinally, our business development, management team and Board continue to be focused on utilizing our strong balance sheet to opportunistically identify and close on acquisitions, which have near and long-term benefits to our shareholders.\nI would ask that you refer to slide nine.\n$16.7 million of sales for the first quarter were negatively impacted by how we responded to the COVID-19 outbreak, which resulted in 50% reduction of our operating capacity.\nDuring the first quarter, we developed and implemented COVID-19 protocols, which ensures that we would not experience such a low utilization rate for the remainder of FY 2021.\nI am proud of the COVID return to work team and the entire company for returning the employees back to work safely and for following our newly implemented workplace safety practices.\nEveryone has stepped up and responded well to this new reality we find ourselves in.\nHighlights for the first quarter were that revenue from Defense projects was $3.5 million, which represents a year-on-year increase of $1.4 million.\nAs Jeff mentioned, we also completed a large project in China, which was responsible for approximately 30% of the quarter's revenue.\nYou may recall that this project due to COVID-19 fell out of the fourth quarter.\nMoving on to slide nine.\nWhile COVID-19 has impacted the demand for our products, there are several actions that are being implemented to ensure that we maximize the margin of the work that we will be converting this fiscal year.\nCOVID-19 has created a buyer's market for raw material.\nOur supply chain has been very successful in securing materials at reduced costs.\nI'm expecting that we will be able to continue to be in this position for the rest of the for the remainder of the year.\nWe are also focusing on growing our skilled workforce in order to increase our production volume.\nTo this end, we recently completed an expansion of our Weld School.\nWe now have the capacity to train up to eight welders up from 4.\nWe established our Weld School approximately five years ago, and it has proven to be a effective means to develop and grow our workforce.\nCurrently, we are prioritizing improving productivity in our Navy production area.\nThe company has completed many first time operations.\nThe productivity enhancements will stem from improved build flows, employee training, creating objective fixtures, and lastly, applying lessons learnt.\nThe IT department is developing tools, which will improve our ability to manage our global fabrication partners.\nA management dashboard is being developed to track all aspects of our outsourced project.\nThis dashboard will aggregate information in-store on several IT platforms and will greatly improve the productivity of our project managers.\nFinally, we are continuing efforts to grow our low-cost outsourcing capabilities, which will allow us to compete on projects where cost is the main decision driver.\nI see these end market disruptions as an opportunity, to be clear, I just like the disruptions.\nHowever, our attitude is to take advantage of them, invest in ourselves, improve our processes, gain productivity so that we come out stronger and performing better.\nOur attitude is let's not waste the downturn by being a victim of it, but rather let's play offense to create benefits because of it.\nI am referring to slide 11.\nJeff and Alan both provided good commentary about the impact to our financial results from the pandemic and price of crude oil.\nIt has also impacted order patterns.\nEnergy and petrochemical markets began to change adversely before the pandemic.\nFourth quarter of last year and first quarter of this year each had net orders of approximately $12 million.\nThere were no Defense orders during those two quarters.\nIncluded in the net orders is $4 million of canceled orders and the impact of change orders.\nIt was rather even with $2 million of backlog deductions in each quarter.\nThe underlying bookings for new orders were a bit better than what is shown, however, still down considerably.\nI have been through four downturns while at Graham, and now I'm in the fifth.\nThe each are challenging, went in them.\nHowever, this current downturn feels rather different.\nCustomer behavior is less predictable this time.\nI imagine that is because no one has experienced this type of demand disruption or turmoil in the past.\nA couple of examples can illustrate well what we face.\nWe initiated bidding to replace a 40-year-old surface condenser in 2018.\nIt was urgent for the end user and end-of-life situation where the customer did not know if the unit would last another year.\nSchedule was critical to meet a delivery window.\nOrder was finally ready to be placed this last quarter.\nIt was about a $2 million opportunity.\nDue to focus on preserving cash, the plant advised that they cannot procure the unit now.\nWe offered in response, very favorable cash flow terms, we worked our supply chain for better costs, as Alan had mentioned, that then resulted in a lower price to the end user.\nCorporate simply would not budge.\nThe risk of an unplanned shutdown or reduction in plant throughput is high, but cash preservation prevailed.\nAny other time this would have been an order placed, put into our backlog and be a contributor to current year revenue.\nAnother example is a larger project, that's about $5 million for a refinery revamp.\nHere too, we've been bidding it for a couple of years.\nLearned last quarter, it was to be pushed out another year.\nWhile four weeks ago, we got reengaged with the EPC that needed our engineering and to complete their plant layout and structural design.\nIn response, we proposed an engineering-only order.\nWe did a call this week that corporate is likely to sponsor final investment decision and now the full orders back in play for fiscal '22 revenue.\nThe order is now projected to close this quarter, and everything is hurried to get it done.\nWill it actually proceed or perhaps there might be an order placed that subsequently is canceled, like we have experienced in the recent couple of quarters?\nI simply don't know.\nIt's difficult to predict.\nI offer these two examples to convey order patterns may be unpredictable and lumpy.\nWe have no control over the direction of our end markets, and little influence over the decisions a customer may make regarding will a project received funding.\nI can convey, though, that we are on top of the available opportunities, controlling well that which we can control which is how we support customers, manage opportunities, differentiate from the competition with our speed, our knowledge sharing, options analysis that we provide, and ultimately, get our company in a position to win should an order get placed.\nWe may not take an order at a particular price, but the job of our sales team and that team does it well, is to get Graham in a position to accept or decline an order.\nEven today, our naval bid pipeline is unpredictable, more so over timing, but it's still as difficult to define within a quarter when an order is going to be placed from the U.S. Navy or their prime contractors.\nMoving on to slide 12.\nJust stepping through our different key end markets.\nRefining is down in North America across our three segments, which would be the integrated refiner, the independent refiner and also the MRO segment, spares and parts that's down.\nIn Asia, we do see a pretty active pipeline for new capacity that would be for India, China or elsewhere in Asia.\nFor the Middle East, or Latin America, there's really nothing significant in our pipeline right now.\nWe think those new capacity opportunities will present themselves after fiscal 2021.\nFor the U.S. Navy, we have a very healthy active bid pipeline across the three programs that we are in, the carrier program, the Virginia-class submarine program and also the Columbia-class program.\nWhat's great in certain of these bids are for new components that aren't currently in backlog that we've not done.\nSo our focus on expanding our share of wallet is presenting opportunities that we hadn't seen previously, and then we're going to go after those and hopefully win those.\nAcross the next three quarters, we anticipate somewhere between $30 million to $50 million of work would be placed by the Navy with the suppliers such as Graham, and hopefully, we will win a strong share of that.\nIn the chemical, petrochemical market.\nAs I cited with the one example of a bid opportunity, focuses on preserving cash, without demand had collapsed globally, this market is really focused on clamping down on capital spend expenditures, MRO expenditures and just conserving cash across 2021 sorry, calendar 2020 and across fiscal 2021.\nWe are beginning to see some early signs of the next wave of new ethylene capacity, and you might recall that we view ethylene as the as a surrogate for the overall chemical industry.\nAn important consideration at this point in time is we're trying to understand for the next wave, the relevance of North American investment.\nIt may not be as strong as this most recent wave that began in the 2012, 2013, '14 time frame.\nOn the short-cycle side, that seems to have pulled back 15% to 20%.\nWe are seeing some improvement on the spare parts side.\nHowever, the OEM work, again, this is short-cycle work that seems to be off correlated to the global economy and end market demand collapse.\nWe are also involving ourselves in new markets or emerging markets, if you will, alternative energy markets, hydrogen fuel cell market plus natural gas, and also supercritical fluids.\nWe have certain technology.\nThese are high-pressure applications where our product line fits extraordinarily well.\nThese are not large orders.\nThe ASP is probably under average selling price is probably under $100,000 for that type of sale.\nBut it's a very nice bread and butter work.\nAnd we're focused on our participation in securing a presence in these new emerging markets.\nLet's move on to the next slide, slide 13.\nOur balance sheet and also backlog position entering this downturn are both beneficial.\nAfter the first quarter, which we do consider an event isolated to that quarter, we get back into backlog conversion in the second quarter and hit stronger conversion in the third and fourth quarters.\n$107 million of backlog as of June 30 is terrific to have.\n70% to 75% of that backlog is planned to convert over the next 12 months.\nThat implies for fiscal 2021, $81 million of fiscal 2021 revenue is in hand, either converted during the first quarter or from current backlog.\nThis provided us the confidence to give full year guidance that I'll speak to in a moment.\nOur backlog is split roughly 50-50 between naval work and orders for our traditional end markets.\nAnd for the naval work, as we've been saying for the last several quarters, we are in all three programs and have backlog in full conversion mode.\nAgain, by programs, we mean one program for the carrier, another for Virginia-class submarine and the third program is Columbia-class submarine.\nLet's move on to the guidance slide.\nWe're coming out with full year guidance because of the confidence that we have with our backlog and how we see the remainder of the year shaping up.\nRevenue guidance is expected to be between for revenue to be between $90 million and $95 million.\nGross margin is projected to be between 20% and 22%.\nOur SG&A spend is projected to be between $17 million and $18 million, and the effective tax rate is 22%.\nImplicit in this guidance is that we continue to run that whole sorry, implicit in this guidance is that we continue to run at high production levels and don't have work stoppage or curtailments due to another COVID-related impact to our operations or those of our supply chain fabrication partners.\nThis is a risk that management will address and communicate about should it alter fiscal 2021 performance.\nOf course, the second risk is that a customer may place a large order on hold or cancel it, we are unaware of particular orders of backlog with that risk.\nAnd now moving on to slide 15.\nThis provides a quick snapshot of what we're focused on, what our strategic goals are and a bit of a progress update.\nWe have been focused for a number of years on increasing what we call our predictable revenue streams, our predictable base.\nA key component there is our work for the Defense because of the long live nature of that backlog that gives us a strong level of predictable revenue.\nFor a comparison, we are projecting that fiscal 2021 revenue compared to fiscal 2020 revenue for the Defense work will be up about 50%.\nWe're also focusing on our installed base.\nWe are an 80-plus-year-old company.\nWe have this massive installed base around the world, a very large installed base in North America, and we've been allocating resources toward focusing on that differently than our company had in the past.\nTo be candid with what's occurred with the pandemic, there's been a bit of a pause on our investment there and putting personnel into regions where the installed base is high, primarily because our customers aren't openly permitting access to their plants.\nThey're being very careful about admitting personnel into their facilities.\nSo we can't gain access to those sites.\nAnd also, we're very mindful about worker safety and having our people travel at this point in time and the consequences of being sequestered or isolated upon return.\nSo therefore, our investment this is a bit of a pause.\nIt doesn't reflect our commitment to this strategy is just the consequence of what we're currently facing.\nAnd of course, we're looking at M&A.\nIn our M&A program, we're focused on more stable revenue streams to support our expansion of the predictable base of our business.\nWe're also taking action and have taken action to reposition our company to be more successful in price-focused opportunities.\nWe participated in those opportunities before we more situationally secured those orders when it made sense to us.\nWe've now structured and are structuring and making investments to go in and carve-out a meaningful market share for ourselves in that underserved market previously.\nWe have seen these opportunities in the past.\nWe're still seeing them today.\nThe operations team is now structuring to how to go win those and execute within a lower market price at an acceptable return.\nWe've had a healthy level of that type of revenue in fiscal 2020, and we'll actually have a greater revenue level in fiscal 2021 compared to 2020.\nSo this strategy is being executed well.\nAnd I'm very pleased with our progress there and our ability to extract and realize the margins that we targeted.\nAlso, we're, of course, focused on strengthening our financial results.\nA key element here is to push more volume through our roof line and put less into our local supply chain with our fabrication partners.\nAlan and his team are, along with the HR team, are looking to continue to add to our skilled workforce, welders, machinists, assemblers.\nI'd like to see us with about 20 to 25 more direct laborers over the next one to two years, probably the next two years.\nAnd that will be very, very helpful in lifting our margins.\nIn the naval program, we need to earn our position as a sole source supplier.\nWe have some of that work now, which can come in sole source, but there's more of that through good performance, through strong execution, through program management, risk identification, risk mitigation and cost efficiency.\nWe may be able to secure additional work under sole source bidding.\nThat's earned, that's not given.\nAnd Alan and his team are doing a really good job to position us to be into that type of supplier category.\nAlso, for our naval work, Alan mentioned it in his remarks, we have had some of that work, that's first time articles for us, first time fabrications, and that has an aspect of cost structure that we've carried for that type of order.\nAnd that has a little bit of a headwind on the gross margin side, elevated cost of goods sold.\nHowever, as we get through those first article fabrications, and Alan and his team focus on workflow improvements, production optimization, reconfigure the operations to flow work more efficiently.\nNow that we've gone through the first article that will drop down to improved financial performance from that segment of our business.\nAnd also, we'll balance our near term realities with the reduction in demand on the order front.\nWith our long-term strategies to grow this business, we've chosen not to right size our costs for what was happening in our first quarter or to an extent, what's happening in our second quarter with where revenue is.\nBecause we believe in the long term and we believe in our strategies and we'll balance decisions we'll make around improving near term quarters that could be to the detriment of long-term value creation.\nSo we will be very mindful of that watch out fiscal 2022 begins to take shape.\nWith that, I think it's an appropriate time to open the call up for Q&A.\nDevin, would you please open the line?",
        "summary": "compname reports q1 loss per share $0.18.\nq1 sales $16.7 million versus refinitiv ibes estimate of $14.2 million.\nq1 loss per share $0.18.\nfiscal 2021 revenue guidance of $90 million to $95 million from expected improved performance for remainder of fiscal 2021.\naveraged about 50% of normal staffing capacity during quarter.\nencouraged by pipeline activity that co is addressing in both defense industry and emerging markets, specifically india."
    },
    {
        "text": "We appreciate you joining us today to discuss Graham's Fiscal 2021 Second Quarter Results.\nWe also have slides associated with the commentary that we are providing here today.\nIf you do not have the release or the slides, you can find them on the company's website at www.\nWe will then open the lines for Q&A.\nThese documents can be found on our website or at www.\nI also want to point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance.\nAs Chris mentioned, we're starting on slide four.\nIt was very nice to operate in Q2 a normal capacity after running at approximately 50% capacity in Q1 due to COVID-19.\nQ2 sales were $28 million, up from $21.6 million in Q2 of last year.\nSales in the defense, the Navy market were $9.4 million in the quarter.\nIn the quarter, we had a quick turn material order, which made up approximately half -- a little over half of the revenue in the Navy.\nWe expected this to occur in the quarter.\nWhile it is not a repeatable type sale, it was not a surprise.\nYear-to-date, defense sales were $12.9 million or 29% of sales.\nThis is slightly higher than we expect for the full year.\nWe would expect around 25% of our sales to be for the Navy for the full fiscal year.\nThe quarter also benefited from an acceleration of some work at one of our Asian subcontractors.\nThey had available capacity and pulled some work from Q3 into Q2.\nQ2 net income was $2.7 million or $0.27 per share, up from $1.2 million or $0.12 per share last year.\nStronger revenue and margins drove the improvement.\nCash is still good at nearly $68 million.\nFinally, orders in the quarter were $35 million, driven by strong international refining awards in Asia and defense in the United States.\nOur backlog improved to $114.9 million.\nThe conversion of a portion of our backlog provides the foundation for our improved guidance for the fiscal year.\nMoving on to slide five.\nI discussed the sale detail on the last slide with the quarter at $28 million.\nSales in the second quarter was 62% domestic, 38% in international.\nLast year's second quarter was 73% domestic, 27% international.\nGross profit in the quarter was -- increased to $7.7 million, up from $4.9 million last year, primarily due to volume.\nGross margins were 27.5%, up from 22.9%.\nEBITDA margins were 14.2%, up from 7.8% in last year's second quarter.\nAnd finally, net income was $2.7 million, up from $1.2 million last year.\nOn to slide six.\nFor the first half of fiscal 2021, sales were $44.7 million compared with $42.2 million in the first half of last year.\nThis increase was despite the challenging Q1 when our production capacity was at 50% due to COVID-19.\nYear-to-date sales are 60% domestic, 40% international compared with 71% domestic and 29% international last year.\nGross profit was $9.3 million, slightly off the $9.7 million last year, and gross margins were down 20.7% versus 22.9% last year, again, impacted by COVID-19 in the first quarter.\nYear-to-date EBITDA margins were 4.9% versus 4.5% in the first half of last year, and net income was $900,000 or $0.09 per share, down from $1.3 million or $0.13 per share last year.\nAgain, the first quarter loss due to COVID-19 was substantial, but we have more than recovered that in the second quarter.\nFinally, moving on to slide seven.\nCash is at $67.9 million, down from $73 million at the end of fiscal 2020, but this is simply timing of working capital namely accounts receivable and accounts payable.\nWe are expecting this to come back in the third quarter.\nOur quarterly dividend remains firm at $0.11 a share.\nCapital spending has been light in the first half of the year at $800,000 compared to $700,000 last year.\nAs we have seen in the last few years, our capital spending will increase in the second half of the year, and we still expect the total spend for the year to be between $2 million and $2.5 million.\nFinally, as we continue to work on our acquisition pipeline and activities, COVID has not had an adverse effect on our efforts as we have built some very good relationships over time, and these conversations continue.\nHowever, many of them are remote as opposed to in-person.\nBut there's still -- they are still occurring and still very active.\nI'd ask that you refer to slide nine.\nSales for the second quarter were $28 million.\nAs Jeff had mentioned in his remarks, the company completed a large material-only order for a defense customer, which required very little conversion resources.\nSales to defense industry were up $6.8 million year-on-year due to prior -- due to the prior mentioned materials order and greater defense conversion as we continue to grow our naval workforce.\nLastly, and importantly, due to the strength of our backlog, annual guidance has been increased from $90 million to $95 million to $93 million to $97 million.\nPlease move on to slide 10.\nWhile COVID-19 has impacted demand for our product, there are several actions that are being implemented to ensure that we maximize the margin of the work that is expected to convert during this financial year.\nDuring the first quarter conference call, I outlined several initiatives that the company was pursuing in order to maximize the realized margins.\nIn particular, we are focused on reducing our material costs, hiring and quickly onboarding welders, differentiating our company from our competitors in the defense industry through superior execution and leveraging IT tools to increase the productivity of our team.\nOn the material procurement front, the team has had success in reducing our costs.\nGraham is a relatively small buyer of carbon steel and stainless steel plate.\nTherefore, we typically procure our plates from distributors.\nHowever, we are finding in this time of low demand, the mills are willing to sell directly to us, thus reducing our cost.\nWe are also focused on growing our workforce in order to increase the production volume.\nTo this end, we have recently completed an expansion of our weld school.\nWe now have the capacity to train up to 10 welders up from 5.\nThe work for the Navy has higher welder content than does for other work.\nWelding is a critical skill set for the company, and we must expand our capacity.\nThe welds on our campus is a terrific addition for workforce development.\nCurrently, we are prioritizing improving our productivity in the Navy production areas now that the company has completed many of the first-time operations.\nProductivity enhancements will stem from improved bill flows, employee training, creation of jigs and fixtures, and lastly, applying lessons learned.\nOur IT department continues to develop tools, which will improve our ability to manage our global fabrication partners.\nA management dashboard is getting developed to track all aspects of our outsourced projects.\nThe dashboard will aggregate information that is stored on several IT platforms and will improve the productivity of our project managers.\nI'll begin my remarks starting with slide 12.\nOrder level in the quarter was strong, especially given the state of crude oil refining and petrochemical markets.\nThe strong order level in the quarter is the result of implementing effectively diversification strategy.\nWe discussed during the past couple of years actions taken to be successful in the more price-conscious segment of refining and chemical markets.\nBoth participation and market share were low, which afforded an opportunity to address this segment differently.\nOpportunity generation and bid management structure were modified and also execution strategy changed.\nReplicating the success in China, a subsidiary structure was established in India.\nIt is necessary within India, as an example, to localize selling certain technical resources and quality control personnel.\nWe have the best chance to secure large project orders when they are supported and followed for a long time.\nA local presence permits that.\nThis then allows for pulling a customer toward Graham rather than Graham having to move toward its competition.\nAlso, fabricating certain components locally within India is important.\nAs a result of this strategy, $10 million of new orders for India were secured in the quarter.\nThese orders were for both customers and end users that had not used Graham before.\nI am pleased with our success in India.\nWe plan to pursue principally large project work.\nAnd as of today, the company secured two of the three most recent large projects.\nI commend the team that initiated and drove the strategy and those now executing the orders.\nAnother highlight was securing additional work for the U.S. Navy.\nNavy find value in our engineering and fabrication capabilities, program management strengths, willingness to listen to feedback and implement improvements, our quality program and also that we will invest in facilities, modern machine tools, personnel and employee development.\nGeneral conditions in our crude oil refining and petrochemical markets is weak, while the pipeline for the U.S. Navy is strong.\nThis is noted by orders for our crude oil refining and petrochemicals being down compared with last year.\nLet's move on to slide 13.\nI want to discuss briefly market outlook and what we are seeing in our key markets.\nI plan to go clockwise, beginning in the upper left quadrant.\nThe sales team did well to secure a significant amount of work that is for Asia.\nThe Indian work mentioned a moment ago, plus approximately $10 million in additional orders fiscal year-to-date that are for Asia.\nThe pipeline must rebuild and move from early stage activity to procurement stage.\nWe expect the next few quarters to be about building the pipeline.\nWe are seeing COVID having an impact in Asia as one large project in the bid pipeline that was teed up to be placed, in order to be placed, had to be postponed due to workforce impact from the disease.\nWe believe it will be activated again once the country has the spread of the disease back under control.\nOur team in India, our team in China and those overseeing Southeast Asia point to COVID is on the rise again, resulting in slowing of activity along with heightened uncertainty.\nIn the Americas, it was quite slow for both revamp retrofit and also routine spare parts.\nRefiners, they are focused on preserving cash right now and are postponing MRO or capital projects.\nWe don't see this picking up until demand recovers following having COVID under control.\nThose projects that may proceed, we are carefully following.\nOn a positive note, an engineering-only order for a large crude oil refinery revamp was secured, that we hope proceeds within the next 12 months.\nFor that case, the refiner could fund only upfront engineering at this stage so that detailed layout is done, enabling the project to proceed quickly once it is ultimately released for fabrication.\nIf and when it proceeds into fabrication, we anticipate that a change order will exceed $5 million.\nCrude oil below $40 a barrel and pandemic-driven global disruption have resulted in activity being pulled in by most national integrated and independent oil refiners.\nMoving over to U.S. Navy.\nNavy in particular and defense overall is active.\nWe have a solid pipeline of activity.\nSome of it is for new components that we have not done before, while others are repeat components for upcoming vessels.\nSubmarine programs are vital for national defense and other strategic missions for our country.\nThere's terrific visibility into multiple year new vessel requirements that underpin this segment continuing to be strong.\nWe have identified and are pursuing $40 million to $60 million of opportunities for the Navy, and they should be placed with a selected vendor over the next nine months.\nWe have M&A target identification and development concentrated in the defense segment due to its strong long-term fundamentals.\nAs Jeff noted, relationships in certain cases were established prior to COVID, and we continue to nurture them with a combination of remote interactions along with selective visits.\nShort cycle work is off 20% to 30%.\nCrude oil refining and petrochemical markets are where the majority of spares revenue -- spare parts revenue was derived.\nThese markets, as I mentioned, are in cash preservation mode until the global economy is back on its feet and demand subsequently recovers.\nOn an upbeat note, there is step-up in short-cycle inquiries.\nHowever, that has not translated into an improved order level just yet.\nChemicals and petrochemicals are also down.\nProjects have been shelved or delayed.\nThe pandemic sent a demand shock that is not yet fully abated.\nGetting COVID behind in most regions throughout the world is the catalyst for demand returning.\nLet's now move on to slide 14.\nBacklog is a healthy $115 million, split evenly between commercial and defense.\nThe staging of backlog or work in process already provides an ability to state guidance at this extraordinary time when many companies cannot.\n60% to 65% of backlog is planned to convert during the next four quarters with approaching 40% of backlog planned to convert during the next two fiscal quarters.\nPlease go on to the next page.\nAs Jeff and Alan mentioned, we are updating our guidance.\nWe've increased the revenue range to between $93 million and $97 million, implying the second half should be between $48 million and $52 million for revenue.\nGross margin is expected to be between 21% and 23%.\nSG&A spend between $17 million and $17.5 million.\nAnd we're projecting the effective tax rate is approximately 22%.",
        "summary": "compname reports q2 earnings per share $0.27.\ncompname reports sales grew to $28 million for fiscal 2021 second quarter.\nq2 earnings per share $0.27.\nq2 sales $28 million versus refinitiv ibes estimate of $23.1 million.\nincreasing revenue guidance for fiscal 2021.\nsees fy 2021 revenue between $93 million and $97 million.\norders in q2 add to fiscal 2022 revenue potential.\nexpects 60% to 65% of backlog to convert to revenue within next 12 months."
    },
    {
        "text": "We certainly appreciate your time today and your interest in Graham Corporation.\nJoining me on the call are Dan Thoren, our President and CEO' and Jeff Glajch, our chief financial officer.\nIf not you can access the release as well as the slides that will accompanying your conversation today at our website, www.\nThese documents can be found on our website or@sec.gov.\nDuring today's call, we will also discuss non-GAAP financial measures.\nWe have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release in the slide for your information.\nThe addition of Barber-Nichols contributed $16.5 million in the quarter.\nOur legacy Graham manufacturing business offset part of the game.\nThere are two reasons; first, in the comparable quarter last year we had non-repeatable material only order.\nIn addition, we had a significant level of Chinese sub-contracting in the second quarter last year.\nThese two items made up approximately $10 million in lower revenue compared with last year.\nWe are pleased with our strategic expansion into the defense business evidence that with 58% of our quarterly revenue coming from this key market, while we await a recovery in the energy and petrochemical markets.\nAs we look to the second half of the year, we continue to expect strong performance from Barber-Nichols.\nFor the Batavia facility, we expect to see a significant shift toward higher profit defense jobs.\nIn our commercial markets, we expect to have a large increase in subcontract to production plans for both the United States and India which will measurably improve revenue and gross profit in the second half of the year.\nI would caution however, that this large increase in the amount of outsourcing while set up very nicely right now is dependent on our subcontracting partners and can occasion take longer -- can allocation take longer than planned.\nSo there is a risk a portion of this could shift out of the fiscal year into fiscal -- into Q1 of fiscal 2023.\nOrders increased to $31.4 million up from $20.9 million in Q1, orders were split evenly between the Graham manufacturing business and Barber-Nichols.\nOur $233 million backlog is strong with 78% of its coming from the defense market.\nIn the quarter gross margins and profitability were impacted by two Batavia based defense orders which utilize a significant amount of labor but had a very low revenue per labor hour.\nOne project was a first article order which had been one competitively The other was a fabrication order which has a significant portion of its profit recognized in previous years when the material portion of the project was executed out of separate order.\nBoth of these projects will make up a significantly lower portion of the expected revenue in the second half of the year.\nIn addition, we expect both of these projects to be nearly complete by the end of the fiscal year.\nWe did have a strong quarter in Barber-Nichols.\nI continue to be pleased with their performance through four months their business is at $20 million of revenue and $3 million of EBITDA.\nOur expectation for the full year remain at 45 to $48 million of revenue and at an 11% EBITDA margin or $5.2 million.\nSo they are ahead of pace to hit the fiscal year expectations for the 10 months of the business that will be part of Graham in this fiscal year.\nI do caution extrapolating in the form of numbers but I am encouraged about their performance and the integration within Graham.\nIn the second quarter, we have to one-time items, we had a pre-tax gain of $1.9 million related to the earned out of the Barber-Nichols acquisition.\nI will discuss this in a minute.\nWe also had a charge an offsetting charge of $798,000 related to the termination of our prior CEO.\nThe net of these two items $1.1 million, or approximately $882,000 after taxes are included in the reported results.\nRegarding the earn-outs adjustment for Barber-Nichols, we have made a change which we believe will further strengthen the long term incentives of the business.\nThe acquisition are now which was for $7 million to $14 million payout based on fiscal 2024 results -- fiscal 2024 EBITDA results has been cancelled.\nThis had represented a 10% to 20% addition to the original $70.1 million acquisition price.\nThis earn-out have been valued using a Monte Carlo accounting purchase, Monte Carlo purchase price accounting analysis at $1.9 million.\nTherefore, with the cancellation of this earn-out the economic value of that earn-out is now zero and the gain had to be recognized through the income statement in the quarter.\nSo we have initiated a new incremental bonus pool for a broader portion of the Barber-Nichols employees.\nThis pool will be an annual cash bonus pool -- an incremental annual cash bonus pool based on fiscal year results 2024, 2025 and 2026.\nFor each year, the pool will allow for a range of at the low end $2 million, once the EBITDA threshold is met at a maximum of $4 million if the maximum EBITDA is achieved within the year.\nTherefor across the three years, the maximum opportunity is $12 million.\nIn those years, this will be reported as a period cost.\nWe believe this bonus pool will be an excellent retention tool and will be in place for the third, fourth and fifth years following the acquisition of Barber-Nichols.\nWe can move on to Slide 4.\nMuch of Slide 4 and 5 I have already discussed.\nI will note that Q2 last year essentially including all the profit of the full fiscal year, obviously this quarter in the current year was challenged and however the challenges were completely within the Batavia operation.\nIn addition, those challenges are short term and many of them are behind us or mostly behind us.\nWe expect the next two quarters to see a noticeable improvement in profitability.\nYou will note, the GAAP and adjusted earnings per share are similar for Q2 along with the $1.1 million of one-time items that I mentioned earlier.\nWe also have adjusted out the purchase accounting amortization of $784,000 as well as $124,000 of acquisition related costs.\nThe full year reconciliation of GAAP to adjusted earnings per share are in the appendix of this deck.\nMoving on to Slide 5.\nFor the year-to-date results, the $9.6 million revenue gain came from $20 million of additional Barber-Nichols offset by the same items noted for the quarter earlier, namely last year having the benefit of a one-time material order and higher Chinese sub-contracting in the first half of the year.\nAs with the quarter results, the year-to-date GAAP and adjusted earnings per share are similar for the same reasons noted for the second quarter.\nAgain, this is reconciled in the appendix of the deck.\nYou may recall last year we had a big impact from COVID in the first quarter while we were shut down for approximately for three weeks and we were running at half capacity throughout the quarter.\nWhile this year's first quarter were impacted by the same lower margin defense orders that were noted for the second quarter.\nMoving on to Slide 6.\nAs many of you know, I was very pleased that we invested our formerly high cash balance by buying Barber-Nichols.\nI'm very pleased about their performance to-date and after seeing even more of their team in action, the future at Barber-Nichols is extremely exciting.\nThey are executing very well and the early returns which can often be a risk for an acquisition have been stellar.\nOur balance sheet with the term loan that was taken as part of the acquisition provides us flexibility for future investments.\nWe will continue to be willing to use our strong balance sheet for future internal and external growth opportunities.\nDan will talk further about our backlog, our strategy and our guidance for the full year.\nI'm starting on Slide 7.\nWe had a nice mix of orders in the second quarter, $12.5 million came from our defense customers almost $19 million from our commercial customers.\nDefense orders were for both new and existing programs and new and overhaul equipment, giving us full lifecycle exposure.\nSpace related orders were around $2 million and advanced energy orders were close to $2 million.\nOur commercial balance orders or spares are trending upwards.\nThe big change in backlog from fiscal year '21 to fiscal year '22 was mostly from the acquisition of Barber-Nichols.\nOf the $233 million backlog 78% or $182 million is in defense.\nFrom a backlog perspective, Graham has certainly made the transition from an energy and chemical business with some defense work to a defense company with an important contribution from energy and chemical.\nAbout one half the backlog is expected to convert to revenue in the next 12 months.\nThe remaining 12-month order graph does not include BN orders prior to the acquisition on June 1 to 2021.\nMoving to Slide 8; Graham's strategy started many years ago, has been realized through both organic and inorganic means.\nThe organic defense business supplying vacuum and heat transfer equipment on Navy carriers and submarines has been very successful.\nThe acquisition of Barber-Nichols has added more defense business that helps to offset the cyclicality in the heritage energy and chemical business.\nOur second quarter revenue in defense was $20 million, up $12.7 million from the first quarter where BNI contributed for one month.\nThe really nice thing about defense business is the visibility.\nShips and submarines take a long time to build.\nSo budgeting and plans are in place long before orders come.\nIn some cases, the Navy will place orders for multiple strategic assets at one time, giving us a large backlog that converts over several years.\nThese long-term orders provide good value for our customer and allows us to continually improve margins as the projects repeat in our shops.\nRevenue remains unchanged in the $130 million to $140 million range.\nAs discussed by Jeff, we started slow in the first half with $54 million of revenue and we are ramping up each quarter.\nBN is expected to contribute $45 million to $48 million for the year.\nOur gross margin will be 17% to 18%, reflecting lower margin maybe work at Batavia with SG&A around 15% or 16% of revenue.\nWe have tightened adjusted EBITDA from $7 million to $9 million to $7 million to $8 million.\nCapital expenditures remain unchanged at $3.5 million to $4 million.\nCertainly, we continue to track supply chain and COVID-19 related disruptions.\nThe biggest potential impact to our projections that we are tracking now is the executive order on ensuring adequate COVID safety protocols for federal contractors.\nThis requirement would be flowed down contractually to Graham manufacturing in Barber-Nichols.\nAnd would require that all of our employees that do not have exemptions, be vaccinated against COVID-19 effective December 8, 2021.\nSlide 10 summarizes how we are driving value for our shareholders.\nThe defense strategy has been successful and we see additional growth available.\nIn the energy market that refining and petrochem, we are seeing leading indicators of an upcycled expansion.\nWe are preparing our company and our supply base for the increase in business there.\nWe have several initiatives to enhance our market positions and brand recognition.\nThese range from marketing, so there's a one of the things we're doing is an upside -- website upgrade and also resuming our successful academics training program.\nWe're also taking different approaches to our markets.\nWe're leveraging our installed base, we're redeveloping our relationships with license or as customers and EPCs that has been strained through this COVID environment that we've been in.\nWe have made excellent progress with balance sheet efficiency over the last six months as Jeff has discussed.\nFinally, we're developing a multi-year strategic plan that will generate cash to enable more growth.\nI shared our first strategic plan iteration with our board yesterday and had some great feedback.\nThey are encouraged with what we're planning.",
        "summary": "qtrly orders increased to $31.4 million, up 50% sequentially."
    },
    {
        "text": "This is Ramesh Shettigar, Vice President of ESG, Investor Relations and Corporate Treasurer.\nOn the call today to present our thirds quarter results are Dante Parrini, Glatfelter's Chairman and Chief Executive Officer and Sam Hillard, Senior Vice President and Chief Financial Officer.\nThese statements speak only as of today and we undertake no obligation to update them.\nThe third quarter marks an important milestone in Glatfelter's ongoing transformation with the successful acquisition of Jacob Holm.\nThis business will significantly enhance the scale and diversification of our product and technology portfolio by introducing premium quality spunlace nonwovens to our offerings.\nWe also completed the first full quarter with Mount Holly under Glatfelter's ownership, which contributed to record operating profit for the Airlaid segment.\nSlide 3 of the investor deck provides the key highlights for the third quarter.\nWe reported adjusted earnings per share of $0.21 and adjusted EBITDA of $32 million.\nAirlaid Materials performed well above expectations, driven by the higher than anticipated demand for our tabletop and wipes products.\nThis strong demand positively impacted segment profitability in the quarter.\nWe also experienced sequential volume growth of 10% in our hygiene products category after being negatively affected in the first half of the year as consumers destocked.\nConsistent with our previous guidance, customer buying patterns in this category returned to more normalized levels during the quarter.\nAlso our contractual pass-through arrangements with customers allowed us to offset elevated raw material costs and maintain solid margins during this volatile inflationary period.\nComposite Fibers was challenged in the third quarter by significantly higher energy prices that were well above our expectations, along with continued inflation for raw materials and logistics.\nFor example, electricity prices more than doubled during the quarter in key European countries like Germany and the UK, where we have significant manufacturing operations.\nIn order to mitigate this unprecedented escalation of input costs, we announced in mid September an incremental 12% price increase across the Composite Fibers product portfolio.\nThis action was an addition to the 8% price increase announced earlier in the year.\nWe believe these price actions appropriately reflect the current market conditions as we continue to provide our customers security of supply of high quality products and responsive service during this very dynamic business environment.\nIn addition, we successfully executed a $500 million bond offering that is primarily being used to finance the Jacob Holm acquisition.\nThis transaction marks another significant step forward in our transformation by further broadening our Engineered Materials product and technology offerings, enhancing enterprise wide innovation capabilities with a focus on sustainability and adding meaningful scale to the company.\nWe will begin the process of enabling close collaboration and technology sharing among this expanded group of industry leading nonwovens experts.\nOur near-term priorities for this acquisition will be focused on successfully integrating Jacob Holm into Glatfelter's operating model, achieving the targeted $20 million of annual synergies and actively de-levering the balance sheet.\nSam will now provide a more detailed review of our third quarter results, as well as additional comments on the Jacob Holm acquisition.\nThird quarter adjusted earnings from continuing operations was $9.5 million or $0.21 per share, an increase of $0.05 versus the same period last year, driven primarily by strong earnings in the Airlaid segment and a favorable tax rate for the quarter.\nAlso noteworthy is that Q3 results included the first full quarter of the Mount Holly acquisition under Glatfelter's ownership.\nSlide 4 shows a bridge of adjusted earnings per share of $0.16 from the third quarter of last year to this year's third quarter of $0.21.\nComposite Fibers results lowered earnings by $0.05, driven primarily by higher inflationary pressures experienced in raw materials, energy, logistics and operations.\nAirlaid Materials results increased earnings by $0.02, primarily due to strong volume recovery in wipes and tabletop product categories, as well as from the addition of a full quarter of Mount Holly results.\nCorporate costs were $0.02 favorable from ongoing cost control initiatives and interest, taxes and other items were $0.06 favorable driven by a lower tax rate this quarter of 27% versus 48% in the same quarter last year.\nSlide 5 shows a summary of the third quarter results for the Composite Fibers segment.\nTotal revenues for the quarter were 3.4% higher on a constant currency basis, mainly driven by higher selling prices of approximately $6 million to mitigate the elevated inflationary pressures in energy, raw materials and logistics.\nShipments were 6% lower, primarily driven by softer demand in our wallcover product category from unexpected customer downtime in the middle of the quarter, although buying patterns began to stabilize as we exited the quarter.\nWe continued to see firm demand in our composite laminates and food and beverage categories, which were up 17% and 2% respectively.\nPrices of wood pulp, energy and freight continue to escalate in the third quarter and negatively impacted results by approximately $12.5 million versus the same quarter last year.\nSequentially from Q2 of 2021 this impact was $5.7 million, creating significant headwinds for this segment.\nAlthough we expected some inflationary pressures to continue into the third quarter, our pricing actions announced earlier in the year were unable to fully offset the magnitude of inflation.\nThe single biggest driver of the sequential inflation impact was energy prices, which increased sharply in Europe during the third quarter.\nAs Dante noted energy prices in the spot market more than doubled during the quarter.\nIn addition, we experienced higher inflationary pressures in raw materials, particularly wood pulp and in logistics cost driven by global supply chain disruptions.\nThis had a combined unfavorable impact sequentially of approximately $2.7 million.\nAs a result, we announced an additional 12% price increase in the middle of September for all product categories in Composite Fibers to offset the spiraling inflationary movements.\nWe expect input costs to remain relatively volatile in the near term and we'll continue to closely monitor these developments.\nWe will continue to assess a variety of mitigating actions in addition to our ongoing focus on managing costs, operational efficiencies and leveraging our global scale and integrated supply chain.\nOperations were favorable by $2.4 million, driven by strong production on our inclined wire machines to meet the growing customer demand.\nCurrency and related hedging activity unfavorably impacted results by $1.2 million.\nLooking ahead to the fourth quarter of 2021, we expect shipments to be flat on a sequential basis.\nSelling prices are expected to be $6 million higher versus Q3 of 2021.\nRaw materials and energy prices are projected to be $1 million to $2 million higher sequentially and operations are expected to be in line with the third quarter.\nSlide 6 shows a summary of third quarter results for Airlaid Materials.\nRevenues were up about 40% versus the prior year quarter on a constant currency basis, supported by the addition of a full quarter of Mount Holly and strong recovery in the tabletop and wipes categories.\nShipments of tabletop and wipes almost doubled when compared to the third quarter of last year.\nHowever, demand for hygiene products was 5% lower versus last year, although improved by 10% versus the second quarter of this year.\nAll Airlaid product categories returned to more normalized demand patterns in the third quarter after a trough in the first half of this year related to customer destocking.\nSelling prices increased meaningfully from contractual cost pass-through arrangements where we passed raw material price increases along to customers.\nHowever, energy is not part of most pass-through arrangements, which reduced earnings by $1.3 million.\nAnd we recently introduced a 10% price increase to those Airlaid customers that did not have cost pass-through arrangements to cover the additional inflation.\nOperations were lower by $2.5 million compared to the prior year, mainly due to relatively lower output this quarter as production rates last year were elevated to meet the high demand during the peak of the pandemic.\nAnd foreign exchange was unfavorable by $1.2 million, driven by the FX pass-through provisions in our customer contracts.\nFor the fourth quarter of 2021, we expect shipments to be 3% lower on a sequential basis with unfavorable mix, thereby impacting operating profit by $1 million.\nSelling prices are expected to be higher, but fully offset by higher raw material prices and energy prices are expected to unfavorably impact profitability by $1 million to $1.5 million compared to the third quarter.\nSlide 7 shows corporate costs and other financial items.\nFor the third quarter, corporate costs were favorable by $1.7 million when compared to the same period last year, driven by continued spend control.\nWe expect corporate costs for full year 2021 to be approximately $22 million, which is an improvement from our previous guidance of $23 million.\nInterest and other income and expense are now projected to be approximately $15 million for the full year, higher than our previous guidance of $11 million.\nThe increase is driven by the recently executed bond offering of $500 million, which was used to finance the Jacob Holm acquisition, as well as to pay down our existing revolver borrowings.\nOur tax rate for the third quarter was 27% lower than previously expected and driven by the release of certain tax valuation allowances.\nWe expect the fourth quarter tax rate to be approximately 42%, while our full-year 2021 tax rate is estimated to be between 38% and 40%, in line with our previous guidance.\nWith regard to guidance on our new spunlace segment, which is how we will be referring to and reporting results for the Jacob Holm acquisition.\nFor the two remaining months of the fourth quarter under Glatfelter's ownership, we expect shipments to total approximately 13,000 metric tons and operating profit to be approximately $1 million.\nThis includes D&A of approximately $3.5 million.\nPlease note these estimates are subject to change upon completion of purchase accounting.\nSlide 8 shows our cash flow summary.\nThird quarter year-to-date adjusted free cash flow was higher by approximately $9 million, mainly driven by lower working capital usage.\nWe expect capital expenditures for the year to be approximately $30 million to $35 million including the two months for Jacob Holm.\nDepreciation and amortization expense is projected to be approximately $63 million including Jacob Holm.\nSlide 9 shows some balance sheet and liquidity metrics.\nOur leverage ratio decreased to 2.8 times as of September 30, 2021 versus 3.0 times at the end of June, but higher compared to year-end 2020, mainly driven by the Mount Holly acquisition.\nOur pro forma leverage including the recent bond offering and Jacob Holm financials, synergies and transaction costs is approximately 4 times.\nWe still have ample available liquidity of more than $280 million.\nLooking ahead, we're optimistic about the prospects for the business as we continue building the new Glatfelter.\nDemand for Composite Fibers products is expected to remain robust in most categories and we expect that to continue for the foreseeable future.\nOur most recent pricing actions were implemented to mitigate additional inflation and should be a meaningful contributor to earnings during the fourth quarter.\nAirlaid Materials demand is steadily improving to pre-COVID levels as wipes and tabletop significantly improved in the third quarter, while destocking in the hygiene products is beginning to abate.\nOur continued aggressive stance on cost control is contributing to maintaining an efficient cost structure, thereby improving EBITDA and free cash flow.\nAnd we have significant value creation opportunities as we continue to optimize Mount Holly and begin the integration process for Jocob Holm.\nSo we're building scale and momentum as we accelerate the pace of expansion for the new Glatfelter.\nThis concludes my closing remarks.",
        "summary": "qtrly adjusted earnings per share from continuing operations $0.21."
    },
    {
        "text": "These factors are detailed in the company's financial reports.\nYou should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data.\nOur core performance measures are non-GAAP measures used by management to analyze the business.\nFor the first quarter, the largest difference between our GAAP and core results stemmed from noncash mark-to-market gains associated with the company's currency hedging contracts.\nWith respect to mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts and foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter even though those contracts will not be settled in the current quarter.\nFor us, this increased GAAP earnings in Q1 by $308 million.\nTo be clear, this mark-to-market accounting has no impact on our cash flow.\nOur currency hedges provide us -- protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth and our future shareholder distributions.\nOur non-GAAP or core results provide additional transparency into operations by using a constant currency rate aligned with the economics of our underlying transactions.\nWe're very pleased with our hedging program and the economic certainty it provides.\nWe received $1.7 billion in cash under our hedge contracts since their inception more than five years ago.\nA reconciliation of core results to the comparable GAAP value can be found in the investor relations section of our website at corning.com.\nYou may also access core results on our website with downloadable financials in the interactive analyst segment.\nWe encourage you to follow along.\nThey're also available on our website for downloading.\nToday, we reported a strong start to what we expect to be an outstanding year.\nFor the first quarter, we grew sales 29% year over year to $3.3 billion.\nWe grew earnings per share by 125% to $0.45.\nFree cash flow of $372 million builds on the momentum we established in the second half of 2020.\nAll five of our segments delivered double-digit sales and net income growth year over year, with sales growth rates ranging from 15% for display to 38% for environmental.\nBut last year was an easy compare.\nSo I think it's worth noting that total company sales are up 14% since the first quarter of 2019.\nNo question, we're in a strong position.\nI'll frame my remarks around three points.\nFirst, invention is fundamental to our long-term strategy.\nThrough our relentless commitment to R&D, we developed category-defining products that transform industries and enhance lives.\nSecond, as we partner closely with our customers to move their industries forward, we unlock new ways to integrate more Corning content into their ecosystems.\nThis is a powerful growth mechanism.\nAnd finally, we continue to build a stronger, more resilient company, one that is committed to rewarding shareholders while supporting our customers, our people and our communities.\nNow let me expand on my first point.\nWe're living in a world that Corning anticipated exactly a decade ago in our video, A Day Made of Glass.\nIt's a world where technology underpins every facet of human life; a world of communication and connection, where massive bandwidth facilitates real-time information and on-demand connections and people stay connected through a virtual environment that is literally at their fingertips.\nLet's think about what it means as displays and touchscreen devices make their way to the very center of daily life.\nThe demands we're putting on today's screens and the expectations we have for tomorrow's imply a very specific set of properties.\nThe requirements for precision glass and ceramics become more and more exacting.\nWe need a material that is strong, yet thin and lightweight, flexible and conformable, durable, damage-resistant and impermeable, stable enough to withstand hostile weather, extreme temperatures and cleaning agents.\nIt needs to be touch-friendly and look elegant.\nIt must scale for very large applications and yet be useful in the palm of your hand or on your wrist.\nThe material must also be operable with a world of technical capabilities that lie just below the surface, enabling complex electronic circuits and nano scale structure.\nAnd it must be mindful of the environment.\nWhen it comes to the critical components that enable high-technology systems in multiple markets that we serve, the bar just keeps getting higher.\nThis leads to a world where precision glass and ceramics win.\nAnd we have been winning.\nWhen we examine the growth in all our business today, we see key trends converging around our capabilities at a very exciting pace.\nIn short, we're vital to progress.\nWe succeed through sustained investments in R&D and years of material science and process engineering knowledge.\nEverything begins with our cohesive portfolio.\nCorning is one of the world's most proficient innovators in materials science.\nWe combine our unparalleled expertise in glass science, ceramic science and optical physics with our proprietary manufacturing and engineering platforms to develop category-defining products that transform industries and enhance lives.\nToday, our inventions clean the air we all breathe, connect people to information and each other, provide the window through which we access information and entertainment.\nAnd they help facilitate the discovery and delivery of new medicines.\nAnd we're building in each of these areas.\nWe're helping our customers move toward a world with nearly infinite and ubiquitous bandwidth; with large lifelike displays, where cars are cleaner, autonomous and connected; where medicines are individualized, effective and safe; and where you can do more right from your mobile device, protected by cover materials that can withstand even greater reviews.\nThat leads me to my second point.\nAs we work closely with our customers to advance these visions, we find ways to solve their toughest technology challenges.\nOur probability of success increases as we apply more of our world-class capabilities, and our cost of innovation declines as we reapply talent and repurpose our existing assets.\nAs we apply our focused portfolio, we invent solutions that add even more value to our customers' offerings, and this provides a powerful growth mechanism.\nWe aren't exclusively relying on people just buying more stuff.\nWe're putting more Corning into the products that people are already buying.\nNow through that lens, let's look at our progress across our market access platforms.\nIn mobile consumer electronics, we continue to help transform the way people interact with and use their devices.\nAnd we are capturing significant growth by increasing the value we offer on each of those devices.\nAs we advance state-of-the-art for cover materials, we drive sustained outperformance across up and down markets.\nWe've grown specialty sales every year from 2016 to today despite smartphone unit sales being roughly flat or down each year.\nOver that five-year period, we've added more than $750 million in sales on a base of more than $1 billion.\nFast Company recently recognized our achievements in this space.\nNoting both Ceramic Shield and Gorilla Glass Victus, the magazine named Corning, The Most Innovative Company in Consumer Electronics for 2021.\nWe see a similar growth story playing out in automotive since 2017, the peak year for car sales.\nOur auto sales are up more than 40%, while global car sales are down 20%.\nWe're helping customers navigate an industry that is expected to change more in the next 10 years than it has in the past 50.\nAnd as we do, we're working to capture and expand $100 per car content opportunity across emissions, auto glass solutions and other technical glass products, including our patented 3D ColdForm technology.\nWe were thrilled to see the world premier event for the all-electric EQS for Mercedes.\nIts hyper screen features a Gorilla Glass cover almost five-feet wide.\nWe've also launched a new generation of GPS.\nThey're helping vehicles, including hybrids, achieve even lower levels of fine particulate emissions.\nAnd they're helping us exceed a $500 million GPF business ahead of our original time frame.\nIn life sciences, we are delivering growth on two fronts.\nFirst, demand is growing based on COVID-19 vaccines and diagnostics.\nSecond, we're becoming increasingly relevant as we help the industry move toward cell- and gene-based therapies, and that shift translates into more of our content per drug sold.\nLooking longer term, we're making significant strides toward building a valor glass franchise, addressing a multibillion-dollar content opportunity in pharmaceutical packaging markets.\nWe doubled valor vial production in Quarter 1 versus Quarter 4.\nAnd to date, the company has shipped enough valor vials for hundreds of millions of doses of COVID-19 vaccines.\nCorning also expanded its agreement with the U.S. government to boost capacity for vials to $261 million, a $57 million increase from our initial June 2020 agreement.\nWe're leveraging our competitive advantages to deliver stable returns.\nI'm pleased to note that in Quarter 1, we experienced the most favorable first-quarter pricing environment in more than a decade.\nAnd we announced a moderate increase to our display glass substrate prices for the second quarter.\nStepping back, we are the lowest-cost producer of display glass, which makes us significantly more profitable than our competitors.\nOur superior products, innovation capabilities and deep customer relationships enable us to maintain our leadership position.\nAnd our flexible fusion manufacturing platform allows us to match operating capacity with demand.\nMeanwhile, the emergence of Gen 10.5 has given us a unique opportunity.\nDemand for large-sized TVs continues to grow.\n75-inch sets were up more than 60% last year.\nThese TVs are most efficiently made on the largest fabs, and Corning is well-positioned to drive more content into the market in 2021 with its Gen 10.5 plants in China.\nFinally, let's look at optical.\nI'm energized by the outlook for this business.\nWe gauge the market by three indicators.\nFirst is network need, and we can all see that demand on the network is only increasing.\nSecond is customer statements.\nBroadly, network operators are making encouraging announcements on capital investment for 5G and hyperscale data center deployments.\nAnd there's also good news on fiber to the home.\nAT&T's CEO, John Stankey recently said that fiber underpins the connectivity we deliver, serving both wired and wireless.\nHis company announced plans to increase its fiber-to-the-home footprint by an additional 3 million customer locations across more than 90 metro areas in 2021.\nVerizon CFO Matt Ellis said the fiber serves as the critical backbone to our 5G deployment.\nOur commitments with our vendor partners, such as Samsung, Nokia, Ericsson, and Corning, represent key strategic agreements to drive innovation in 5G.\nAnd finally, the third indicator that we watch is our order book.\nWe're seeing orders and sales increase.\nAnd we're also seeing multiple governments starting to shape policy that asserts broadband is a basic right.\nThey're developing action plans to take optical solutions to many more homes.\nThe White House is calling for more than $120 billion to bring high-speed Internet to every American.\nJust looking at the two biggest efforts, the Rural Opportunity Development Fund and the President's Infrastructure Plan, we see a multibillion-dollar opportunity for Corning.\nlaunched its GBP 5 billion Project Gigabit.\nThe plan is to bring next-generation broadband to more than 1 million hard-to-reach homes and businesses.\nAnd the European Commission is calling for EUR 135 billion to support the rollout of rapid broadband services to all regions and households starting in 2021.\nIn addition, we remain the unquestioned technology and market leader.\nWe consistently create new products and extend our lead by delivering solutions that help our customers realize their network visions faster, better and cheaper.\nSimultaneously, we're driving productivity improvements to increase capacity and lower our cost.\nIn total, we're feeling very good about optical.\nSo I've talked about how we invest to create and make innovations that solve tough challenges, deliver for our customers and grow.\nNow I want to add on my final point.\nAs we effectively build our strength as a company, we will continue to reward our shareholders.\nThe strength of our businesses results in significant cash generation.\nOur first priority is to invest for growth.\nAnd we are committed to return excess cash to shareholders in the form of dividends and opportunistic buybacks.\nIn the first quarter, we announced a 9% increase to our dividend.\nAnd earlier this month, we seized a great opportunity to resume share buybacks.\nThrough our recent transaction with Samsung display, we repurchased 4% of our outstanding shares.\nThis is a great deal for our shareholders, and it's great news for Corning that Samsung retained a 9% long-term ownership stake in the company.\nWe see their investment as validation of Corning's innovation road map and the value of our capabilities.\nAs we look ahead, this only adds to our confidence.\nShifting to a broader view of our stakeholder base, we are committed to sharing resources and leadership on a range of important issues.\nWe continue to support vital human services and emergency relief in our communities around the world.\nOur Office of Racial Equality & Social Unity has made significant strides.\nIn North Carolina, we've established a five-year partnership with N.C. A&T, the largest historically black university in the United States to provide scholarships through 2026.\nThe funding focuses on enhancing STEM education, helping students become community classroom teachers and boosting the number of graduates in other fields critical to the nation's workforce.\nIn New York, we're providing hands-on support on police reform.\nWe're also energized around our sustainability efforts.\nEPA has once again named Corning an ENERGY STAR Partner of the Year.\nRecently, Verizon publicly recognized our sustainable practices.\nAnd I am pleased to announce that we'll publish our first sustainability report in the coming months.\nOn all dimensions, Corning is operating exceptionally well, and our capabilities are vital to progress on multiple fronts.\nWe're succeeding at building a stronger, more resilient company.\nAnd I look forward to updating you on our progress throughout the year.\nI am pleased to reiterate that Corning had another excellent quarter.\nWe closed 2020 with strong momentum and built on that momentum by delivering sales, earnings per share and cash flow above our expectations.\nWe are off to a great start, and we expect that strong demand and positive momentum to continue throughout the year.\nNow let me walk you through our first-quarter performance.\nSales were $3.3 billion, which translates to a year-over-year increase of 29%.\nWe posted double-digit sales and net income growth year over year across all of our segments.\nEnvironmental technologies and specialty materials delivered particularly strong year-over-year growth, posting sales increases of 38% and 28%, respectively, and net income gains of 111% and 78%, respectively.\nOptical communications posted its second quarter of year-over-year growth, and we expect to see that trend continue.\nAnd notably, display experienced the most favorable first-quarter pricing environment we've seen in more than a decade.\nDuring the quarter, multiple events disrupted global supply chains.\nLike many other companies, we experienced elevated freight and logistics costs across our businesses, and we expedited shipments to meet our customers' expanding demand.\nThis ultimately reduced profits by approximately $50 million.\nAs a result, our margins were below normalized levels.\nThis was most pronounced in our environmental technologies, optical communications and display businesses.\nWe will continue to do what it takes to deliver for our customers.\nBut we'll also take steps to mitigate these costs, and we expect to see them begin to decline in the second quarter and normalize longer term.\nOperating margin was 17.1%.\nThat's an improvement of 730 basis points on a year-over-year basis.\nWe grew operating income 125% year over year.\nEPS came in at $0.45, which is more than double year over year.\nFree cash flow of $372 million was up $691 million versus first-quarter 2020, and it equates to 39% of our 2020 total.\nThis adds to our confidence that we will generate significantly more free cash flow than 2020.\nSo even with the disruptions from the Suez to storms, to continued COVID challenges, it was a very strong quarter.\nNow let's take a closer look at the performance of each of our businesses.\nIn display technologies, first-quarter sales were $863 million, up 3% sequentially and up 15% year over year.\nNet income was $213 million, up 40% year over year.\nNow net income declined slightly sequentially because of the timing and flows of incentives associated with expansions in China.\nCorning's volume grew by a low single-digit percentage sequentially, and Q1 sequential prices remain consistent with Q4 levels.\nNow we continue to see strong in-market demand.\nRetail demand for large-sized TVs and IT products, including notebook PCs, are both on track for another year of double-digit growth.\nAs a reminder, growth in large-sized TVs is the most important driver for us as we are well-positioned to capture that growth with Gen 10.5, which is the most efficient gen size for large TV manufacturing.\nPanel makers are running at high utilizations, and glass demand is robust.\nAnd we continue to expect the glass market to grow by a mid-single-digit percentage in 2021.\nAgainst this backdrop, issues at our competitors have created glass shortages in an already tight supply environment.\nOur primary operational focus is to supply our customers' demand.\nCorning experienced the most favorable first-quarter glass pricing environment in more than a decade.\nAnd we have increased cost in logistics, energy, raw materials and other operational expenses.\nAs a result, we are moderately increasing glass prices in the second quarter.\nWe believe the pricing environment will remain favorable going forward.\nThree factors will continue to drive this.\nFirst, we expect glass supply to remain short to tight in the upcoming quarters.\nSecond, our competitors continue to face profitability challenges at current pricing levels.\nAnd third, display glass manufacturing requires periodic investments in existing capacity to maintain operations.\nLooking ahead, we expect that glass supply will continue to be short to tight, and we will continue to partner with our customers to maximize our glass supply.\nIn optical communications, first-quarter sales were $937 million, up 18% year over year.\nSales were up in both enterprise and carrier networks, driven by the accelerated pace of data center builds and increased capital spending on network capacity expansion and fiber-to-the-home projects.\nNet income was $111 million, up 283%.\nThe improvement was driven by incremental volume and strong cost performance.\nThere are some extremely encouraging announcements coming from leading network operators, as well as governments around the world that point to the start of a strong investment phase across the industry.\nClearly, there is a lot of excitement surrounding network deployment and optical fiber's role in delivering both basic and next-generation services to end customers.\nWe are well-positioned to capture a significant amount of that upside in the market.\nCorning is the industry leader and the only large-scale end-to-end manufacturer of optical solutions, which allows us to innovate on important dimensions not available to competitors.\nThis puts us squarely at the center of growth trajectories in fiber to the home, 5G and hyperscale data centers.\nWe've returned to growth in optical communications, and we remain confident that we will continue to grow.\nIn environmental technologies, first-quarter sales were $441 million, up 38% year over year.\nNet income was $74 million, up 111% year over year.\nDiesel sales grew 44% year over year, driven by customers continuing to adopt more advanced after-treatment in China and by a stronger-than-expected North America heavy-duty truck market.\nAutomotive sales were up 34% year over year as the global auto market improved and GPF adoption continued in Europe and China.\nAnd we are well on our way and ahead of our original time frame to build a $500 million gas particulate filter business.\nEuropean regulations are in full effect, and adoption in China continues as China's 6a implementation of the regulations began during the first quarter.\nIn specialty materials, first-quarter sales of $451 million were up 28% year over year due to strong demand for premium cover materials, strength in the IT market and demand for semiconductor-related optical glasses.\nNet income was $91 million, up 78% from 2020 as a result of higher sales volumes and lower manufacturing costs.\nConnectivity and computation continues to grow in importance, creating strength and resilience in the smartphone, IT and semiconductor markets.\nAnd we outperformed that strong market.\nOur premium glasses and surfaces supported new phones and IT launches, including more than 25 smartphones and 12 laptops and tablets featuring Gorilla Glass.\nAnd we are capturing high demand for our industry-leading advanced optics materials, which are essential for deep and extreme ultraviolet or EUV lithography.\nIn 2020, EUV systems accounted for more than 30% of all semiconductor lithography equipment expenditures.\nOur customers believe these systems will grow significantly over the next five years.\nSo we see growth for our semiconductor-related materials well beyond resolution of the current and well-publicized capacity tightness.\nLife sciences first-quarter sales were $300 million, up 16% year over year and 9% sequentially, driven by continued strong demand for diagnostics, growth in bioproduction and recovery in lab research markets.\nNet income was $48 million, up 26% year over year and 14% sequentially, driven by the higher sales and solid operating performance.\nNow I'd like to turn to our commitment to financial stewardship and capital allocation.\nOur fundamental approach remains the same.\nWe will continue to focus our portfolio and utilize our financial strength.\nWe generate very strong operating cash flow, and we expect to continue going forward.\nWe will continue to use our cash to grow, extend our leadership and reward shareholders.\nOur first priority for our use of cash is to invest in our growth and extend our leadership.\nWe do this through RD&E investments, capital spending and strategic M&A.\nOur next priority is to return excess cash to shareholders in the form of dividends and opportunistic share repurchases.\nIn February, we announced a 9% increase to our quarterly dividend.\nIn April, share -- we resumed share buybacks by repurchasing 4% of our outstanding common shares from Samsung display.\nWe are pleased that Samsung will remain a significant shareholder.\nTheir ownership demonstrates confidence in the value of Corning's capabilities, our ongoing technology collaborations and our combined innovation leadership.\nThe repurchases will be immediately accretive to earnings per share starting in Q2.\nWe will remain opportunistic during the year surrounding additional share repurchases.\nIn closing, we had an excellent quarter relative to both 2020 and to 2019.\nDemand is high across our businesses.\nOur more Corning strategy is working, and we are operating very well with all segments growing year over year.\nWe are growing our top and bottom line and generating strong free cash flow.\nFor the second quarter, we expect core sales of $3.3 billion to $3.5 billion and earnings per share of $0.49 to $0.53.\nAnd for the rest of the year, we expect that momentum to continue.\nI look forward to sharing our progress with you as the year goes on.\nWith that, let's move to Q&A.\nOperator, we're ready for the first question.",
        "summary": "sees q2 core earnings per share $0.49 to $0.53.\nq1 core earnings per share $0.45.\nsees q2 core sales $3.3 billion to $3.5 billion.\ndisplay technologies, first-quarter sales were $863 million, up 3% sequentially and 15% year over year.\noptical communications, first-quarter sales were $937 million, up 18% year over year.\nanticipates strong demand and positive momentum across its businesses to continue throughout 2021.\ncorning - continuing to innovate to reduce cost and speed deployment of 5g, hyperscale data centers, and fiber-to-home.\nexpects freight & logistics costs will normalize longer term and will begin to decline in q2 as co takes mitigating actions."
    },
    {
        "text": "These factors are detailed in the company's financial reports.\nYou should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data.\nOur core performance measures are non-GAAP measures used by management to analyze the business.\nReconciliation of core results to comparable GAAP value can be found in the investor relations section of our website at corning.com.\nYou may also access core results on our website with downloadable financials in the interactive analyst center.\nWe encourage you to follow along.\nThey're also available on our website for downloading.\nToday, we reported third quarter results demonstrating that the company is strong, financially healthy and well positioned for growth.\nSales were $3 billion, up 16% sequentially.\nEPS grew 72% sequentially to $0.43, as higher sales and strong manufacturing execution resulted in operating margin expanding to 18.3%, up 710 basis points sequentially and 20 basis points year-over-year.\nWe generated $518 million of free cash flow and finished the quarter with $2.5 billion in cash.\nOur financial performance has improved significantly since April, and we expect a strong fourth quarter.\nNevertheless, we remain vigilant and continue to adapt appropriately to multiple disruptive forces playing out around the world from the pandemic, the civil unrest to recession and geopolitical struggles.\nWe've been rising to the challenges since day one, and our priorities remain clear.\nFirst, we must make our values evident in our actions.\nOur commitment to the health, safety, and well-being of our employees underlines every facet of our operations.\nWe're dedicating resources and providing leadership to support our communities around the world.\nWe've launched Unity campaigns as well as racial and social equality programs targeting the multitude of hardships people are confronting right now.\nAnd when it comes to the global health fight, we're all in, mobilizing our capabilities to combat the virus directly.\nWe must also safeguard our financial health.\nOur third-quarter results show that our decisive actions are providing clear benefits as we leverage cost savings and increase efficiencies across the company.\nRegardless of the depth or duration of global uncertainty, we're doing everything in our power to keep the company strong, and it's working.\nNow to ensure that we emerge even stronger, we're continuing to invest to create additional revenue streams.\nWe're inventing new-to-the-world materials and manufacturing processes as well as co-innovating new solutions in partnership with our customers.\nThe relevance of our portfolio puts Corning at the heart of ongoing innovation with industry leaders, and we continue to solve our customers' toughest technology challenges.\nYou may have seen Apple's recent promotion of ceramic shield for the iPhone 12.\nTheir featuring are new-to-the-world material, which is the world's first, highly transparent color-free glass ceramic with performance that meets the rigorous demands put on smartphone cover materials.\nThis latest innovation with Apple exemplifies our ongoing strategy of consistent, long-term value creation by combining our deep expertise in glass science, ceramic science and optical physics with our unparalleled manufacturing and engineering capabilities.\nCeramic shield melds the attributes that we love about glass, create optics and retain strength with the attributes we love about ceramics, most notably, it's toughness.\nCeramics shield consist of ceramic crystals within a glass matrix.\nThere were two big inventions here.\nThe first was keeping the best damage-resistant attributes of both glass and ceramics.\nThe second was ensuring high optical transparency by growing index-matched nanocrystals inside the glass matrix that are one-tenth the wavelength of late.\nAs you recall, Apple made two investments in Corning, totaling $450 million, as part of their advanced manufacturing fund and their commitment to foster innovation among American manufacturers.\nWe could not be prouder to be a key component in the iPhone 12.\nNow, it's important to note the iPhone 12, and many other flagship phones that we are also proud to be part of, support 5G.\n5G matters to us.\nThe density of fiber necessary to deliver its promise is yet another example.\nYou've seen us illustrate that up to 100x more fiber is required to deploy 5G in a city than 4G.\nThis week, we announced a new product design to help operators dramatically boost the speed and reduce the cost of their outdoor deployments.\nAnd we're embarking on new work to support Verizon's efforts to extend 5G indoors.\nThe relevance of our portfolio and our deep customer relationships, as illustrated by these advancements, keep us at the center of the inexorable shift to optical.\nStepping back, in all the industries we serve, important market trends offer new challenges.\nThe Corning is uniquely qualified to address and new opportunities to integrate more Corning content into products.\nThis is an especially powerful value creation lever in times of economic uncertainty, because we aren't exclusively relying on people buying more stuff.\nWe're putting more Corning into the products that people are already buying.\nWe are clearly seeing the benefits of this lever in today's results as innovation adoption drove specialty materials sales up 23% year-over-year despite a declining smartphone market.\nThis type of outperformance is not unique.\nFrom 2016 to 2019, we added $500 million in sales, or 42% cumulatively, while smartphone sales actually went down.\nAnd we're extending that growth streak this year.\nIn environmental technologies, we grew sales 16% in 2019, much faster than the underlying unit demand as automakers added gas particulate filters to cars.\nAnd we, again, saw outperformance this quarter with sequential sales up 68%.\nThese are additional examples of the more Corning strategy at work and why the content story is so powerful for us.\nI want to stress one additional point.\nYou often hear us say that our core technologies enable life-changing capabilities.\nIn these times, we're increasing focus on life-saving innovations.\nSafe widespread vaccine delivery is one of society's top priorities, and glass packaging is critical.\nOur Valor innovation will help enable faster filling line speeds and increased patient safety.\nRight now, we're expanding capacity and supplying glass vials for vaccines as part of operation work speed, all while leveraging our leadership in life sciences to help support COVID diagnostic testing and virus research efforts.\nAdditionally, reduced fine particulate pollution, the objective of our filtration products, appears to be helpful for reducing infection rates.\nAnd we're excited about recent university lab test, showing that our guardian antimicrobial glass particles, kill bacteria and viruses, including SARS-COV2.\nWe're also well-positioned to contribute as consumers continue to adapt to a world with social distancing.\nFor example, fiber increases the capacity and performance of networks, and glass provides the primary window to information and entertainment.\nWe're confident that we can bring further innovations to bear in many vital areas as the world addresses and recovers from these current challenges.\nOverall, we had a very strong quarter on almost every dimension.\nFrom an innovation perspective, I just reviewed our significant advancements.\nFinancially, we grew sales at double-digit rate sequentially and expanded margins to grow profitability even faster.\nOperationally, we performed well, and I'd like to share a few examples.\nIn the midst of the pandemic, we deployed expert engineering teams to start-up our Gen 10.5 melting operations in both Wuhan and Guangzhou.\nThese facilities are positioning on us well to capture the fast-growing demand for large TVs.\nIn mobile consumer electronics, we successfully scaled up a new-to-the-world manufacturing process and product to meet Apple's iPhone launch.\nIn automotive, we flexed our operations to adjust to the fast pace ramp-up at OEMs after they significantly reduced production in Quarter 2.\nIn optical communications, we successfully adjusted our cost to the current market environment, resulting in significant profitability expansion, despite flattish sales, on a quarter-over-quarter basis.\nWe also remain vigilant in our actions to safeguard the company's financial strength.\nWe're proud of our execution, especially given the current global uncertainties.\nClearly, our employees around the world are dedicated to living our values and giving their best every day.\nWe had a very strong third quarter.\nAs Wendell highlighted, we executed effectively, and we bolstered our healthy balance sheet despite the ongoing macroeconomic challenges.\nSales growth and cost actions led to strong sequential margin expansion, further demonstrating that our operational adjustments are working.\nWe've made significant adjustments to align our cost and operating plan with the lower anticipated sales.\nIn total, Corning continues to demonstrate that it has the resources to deliver on our commitments and extend our leadership as we continue to focus on operational excellence, cash flow generation, and prudent capital allocation.\nBefore I get into the details of our performance and results, I want to call out the changes at Hemlock during Q3 and cover the differences between GAAP and core results.\nOn September 9, Hemlock Semiconductor group redeemed DuPont's 40.25% ownership interest in the company, which transformed Corning's longtime ownership in Hemlock into a majority position.\nIn the second transaction, Hemlock purchased certain manufacturing assets from DuPont and gained control of a critical raw material, thereby becoming a leading, low-cost producer of ultra-pure polysilicon to the semiconductor industry.\nHemlock's leadership position is backed by attractive the long-term take-or-pay customer contracts with upfront payments.\nNow, we're very excited about these transactions.\nThey are good for Hemlock, good for Corning, and good for our shareholders.\nWe didn't put any money into the transaction, and Hemlock generates a lot of cash so its debt is mostly paid back in one year.\nCorning improves its financials by adding sales and earnings.\nIn the third quarter, we recognized $31 million of sales from the newly consolidated Hemlock.\nAnd Hemlock will add approximately $150 million in annual cash flow.\nPlease see our web disclosure for helpful consolidation details.\nNow on to GAAP.\nThe largest differences between our third-quarter GAAP and core results are a noncash gain associated with the Hemlock transaction, ongoing restructuring charges, which are primarily noncash, and a mark-to-market adjustment for our currency hedge contracts.\nNow with respect to the mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts and foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter even though those contracts will not be settled in the current quarter.\nFor us, this reduced GAAP earnings in Q3 by $103 million.\nTo be clear, this mark-to-market accounting has no impact on our cash flow.\nOur currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth, and our future shareholder distributions.\nOur non-GAAP or core results provide additional transparency into operations by using a constant-currency rate aligned with the economics of our underlying transactions.\nWe're very pleased with our hedging program and the economic certainty it provides.\nWe've received $1.7 billion in cash under our hedge contracts since our inception more than five years ago.\nNow, I'll walk through our third quarter performance.\nAt the outset of the pandemic, we committed to preserving our financial strength and positioning the company to emerge even stronger.\nIn Q1 and Q2, we told you we were responding to economic uncertainty by making significant operational adjustments.\nWe said we reduced cost and capital spend to align with lower anticipated sales.\nAnd while ramping down production and reducing inventory impacts margins, we said that when sales growth resumed, we expect improved profitability.\nNow, looking at the third quarter, we grew 16% -- sales grew 16% sequentially to $3 billion, and our operating margin expanded by 710 basis points sequentially, to 18.3%.\nThis resulted in net income of $380 million and earnings per share of $0.43, up 72% sequentially.\nWe also said we would maintain a strong cash balance and generate positive free cash flow for the year.\nIn the third quarter, free cash flow grew to $518 million, cumulative free cash flow for the first three quarters was $484 million.\nWe ended the quarter with a cash balance of $2.5 billion and expect to generate additional positive free cash flow in the fourth quarter as we continue to reduce cost, control inventory and execute well overall.\nAs a result, I'm confident that we will succeed on our free cash flow goals.\nThese actions -- the actions we're taking are clearly working.\nWe have delivered great operational improvements, which started to show results in Q2, and really accelerated in Q3.\nWe expect the benefit of these actions to continue in Q4, contributing to another strong quarter.\nNow, let's review the business segments.\nIn display technologies, third quarter sales were $827 million, up 10% sequentially, and net income was $196 million, up 29% sequentially.\nDisplay glass volume grew approximately 10% sequentially, as panel makers increase utilization, resulting in strong incrementals.\nSequential price declines were moderate, as expected.\nFrom an end-market perspective, it appears that the impact from COVID-19 has been a positive.\nIn developed markets, consumers are prioritizing in-home entertainment.\nGlobally, work and study from home trends are growing.\nThis is increasing demand for TV and IT products.\nOn the other hand, smartphone demand has been down.\nIn total, the retail market, as measured in square feet of glass, is up mid-single digits year-to-date through August.\nOf course, the upcoming holiday retail season will be a big factor in how the market actually plays out for the full year.\nLonger term, we remain confident that TV screen size will continue to grow.\nTVs at 65 inches or larger grew 40% year-to-date through August.\nAnd we are well positioned to capture the majority of that growth with Gen 10.5, which is the most efficient gen size for large TV manufacturing.\nWe continue to expect display pricing to decline by a mid-single-digit percentage in 2020.\nWe believe that three factors drive a favorable glass pricing environment: First, we expect glass supply/demand to be balanced to tight.\nFor Corning, we are ramping our Gen 10.5 tanks to align with panel makers' schedules.\nSecond, our competitors continue to face profitability challenges at current pricing levels.\nAnd third, display glass manufacturing requires periodic investments in existing capacity to maintain operations.\nGlass prices must support acceptable returns on those investments.\nIn optical communications, third-quarter sales grew 10% sequentially to $909 million, as carrier spending and deployments remain stable and enterprise sales grew slightly.\nNet income grew by $34 million or 42% to $115 million, driven by improving cost performance.\nLooking forward, demand on the network is at an all-time high, and we are seeing positive statements on capacity expansion from network operators.\nCurrently, COVID-related factors hampered the ability to invest broadly in networks, and operators are focusing efforts on addressing capacity bottlenecks.\nWe believe operators will begin additional investments to reestablish normal network headroom and expand offerings.\nLarge-carrier and enterprise capital projects are inevitable.\nBut as we've said before, it's always hard to predict the timing.\nEnvironmental technology sales in the third quarter were $379 million, up 68% sequentially as markets recovered and OEMs continued to adopt GPS in Europe and China.\nWe effectively adjusted our operations to pace with the market recovery and delivered net income of $69 million, compared to breakeven in the second quarter.\nThe business team did a great job over the last six months in reacting to the rapid shutdown and restart of auto production by controlling cost and maintaining flexibility.\nAutomotive sales increased 1% year-over-year as continued strong adoption of GPS helped us exceed vehicle production, which declined 6% year over year.\nIn the quarter, we saw continued strong market performance in China, up slightly year over year.\nNorth America and European OEMs more than doubled production sequentially, but declined 5% on a year-over-year basis.\nDiesel sales improved 49% from the second quarter, but we're still down 15% year-over-year.\nThe North American heavy-duty truck market improved, but remains in a cyclical downturn with vehicle production down 46% year-over-year.\nThird-quarter sales of heavy-duty vehicles in China, however, continue to exceed 2019 levels, and adoption of advanced content increased in preparation for China 6 regulations.\nNo doubt, this has been a challenging year for our automotive market access platform.\nHowever, we are recovering faster than the market due to increasing content, primarily GPS and advanced heavy-duty products.\nOur content-driven strategy continues to drive strong results.\nSpecialty materials sales were $570 million in the third quarter, up 23% year-over-year and in sharp contrast to the smartphone market, which declined.\nNet income grew 59% year over year to $146 million.\nSales growth was driven by Ceramic Shield, our new-to-the-world glass ceramic on the iPhone 12 as well as premium glass sales, IT and tablet glass sales in support of work from home trends, and strength in our advanced optic products.\nIn brief, strong adoption and commercialization of our innovations produced strong year-over-year results for the third quarter for specialty materials, and we expect that to be true for full year 2020 as well.\nIn life sciences, North America lab utilization is increasing, and the pandemic is driving demand for laboratory diagnostic test in consumables.\nAs a result, we are seeing increased demand for our products.\nIn July, we carried out our long-term plan to ramp a new, larger distribution center needed to support our growth and enhance our ability to address our customers' increased needs around the world.\nStarting up this center in the middle of a pandemic proved to be more difficult than we expected, which constrained third-quarter sales.\nSales declined 8% sequentially.\nNet income declined 10%, in line with the lower volume.\nWe have added resources where required implemented recovery plans and are confident that operations will support the required output in Q4.\nAs a result, we expect strong sequential life science growth in the fourth quarter.\nNow, I'll turn to our balance sheet and our dedication to financial stewardship.\nAs I mentioned at the outset of the pandemic, we committed to preserving our financial strength and positioning the company to emerge even stronger.\nI've discussed the operational improvements we've implemented and our strong free cash flow generation.\nIt is also important to note that we continue to maintain a conservative balance sheet with a strong cash position that ended the quarter at $2.5 billion.\nAnd we have a debt structure that is conservative by design and relatively unique.\nToday, our average debt maturity is about 25 years, the longest in the S&P 500.\nOver the next 15 months, we have under $70 million coming due.\nLess than half of our total debt is due within the next 20 years.\nAnd during this time, there is no single year with debt repayment over $500 million.\nOur balance sheet is built for times like these.\nAs I've previously mentioned, we expect to generate positive free cash flow in the fourth quarter and for the year.\nWe also expect to maintain a strong cash position and to maintain our dividend.\nWe have the financial resources needed for the duration of the economic slowdown.\nIn closing, we demonstrated outstanding operational performance in the quarter with significant sequential improvement in sales, net income, earnings per share and free cash flow.\nWe are successfully carrying out the operational and financial goals we set up to stay strong during the crisis.\nWe expect another solid quarter to end the year.\nWe remain aware of potential impacts from the pandemic, the global recession, civil unrest, and geopolitical tensions.\nRegardless of how long or what shape the recovery takes, Corning is effectively safeguarding its financial strength, our growth drivers are intact and we continue advancing important growth initiatives with leaders in industries we serve.\nWe are confident that our execution and market leadership positions us to emerge from the current global uncertainty even stronger.\nWith that, let's move to Q&A.\nWe're ready for our first question.",
        "summary": "q3 core earnings per share $0.43.\nqtrly display technologies net sales were $827 million versus $793 million.\nqtrly optical communications net sales were $909 million versus $1,007 million."
    },
    {
        "text": "These factors are detailed in the company's financial reports.\nYou should also note that we'll be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data.\nOur core performance measures are non-GAAP measures used by management to analyze the business.\nFor the fourth quarter, the largest differences between our GAAP and core results stem from noncash mark-to-market gains associated with the company's currency hedging contracts and noncash impairment charges.\nWith respect to mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts and foreign debt settling in future periods to be marked to market and recorded at current value at the end of each quarter, even though those contracts will not be settled in the current quarter.\nFor us, this increased GAAP earnings in Q4 by $86 million.\nTo be clear, this mark-to-market accounting has no impact on our cash flow.\nOur currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth, and our future shareholder distributions.\nOur non-GAAP or core results provide additional transparency into operations by using constant-currency rates aligned with the economics of our underlying transactions.\nWe're very pleased with our hedging program and the economic certainty it provides.\nWe've received more than $1.8 billion in cash under our hedge contracts since their inception more than five years ago.\nA reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com.\nYou may also access core results on our website with downloadable financials in the Interactive Analyst Center.\nWe encourage you to follow along.\nThey're also available on our website for downloading.\nToday, we reported fourth quarter and full year 2021 results.\nWe delivered another strong quarter of year-over-year growth.\nFor the fourth quarter, sales were $3.7 billion, up 12% year over year.\nWe generated earnings per share of $0.54 and free cash flow of $425 million.\nFor the full year, sales were $14.1 billion, up 23% year over year.\nWe generated earnings per share of $2.07, up 49% year over year.\nAnd we nearly doubled free cash flow.\nIn addition, we achieved double-digit ROIC, we expanded our operating margin by 230 basis points, we increased our dividend by 9% and we reduced our outstanding shares by 5% through the resumption of share repurchases.\nBy leveraging our fundamental capabilities and our More Corning strategy, we are capturing a compelling set of short- and long-term opportunities across our portfolio.\nWe are performing well in a challenging environment, and we have momentum entering the year.\nNow, all of that said, our gross margin is simply not where it should be.\nAs we said last quarter, throughout the pandemic, we had prioritized protecting our people and delivering for our customers in a complex, inflationary environment.\nAnd it has come at a cost.\nOver the last several months, we have negotiated with customers to increase prices in our long-term contracts to more appropriately share the increased cost we are experiencing.\nWe are focused on expanding our gross.\nWe are focused on expanding our gross margin and expect improvement in 2022 as our sales grow and our price actions take hold throughout the year.\nLast quarter, we also discussed our expectations for our Display business.\nI am pleased to report we had another strong quarter of Display revenues and profits in Quarter 4.\nDisplay glass pricing is expected to be flat sequentially in the first quarter.\nThe supply demand balance for display glass is tight.\nIn 2022, we expect overall glass supply to remain tight to balanced and the pricing environment to remain favorable.\nThen Tony and Ed will discuss our results, as well as our plan to enhance our profitability and overall financial strength.\nSo, let's dive in.\nWe've been delivering consistent growth.\nSales have been up for six quarters in a row.\nSince 2019, we've grown sales by 21% and earnings per share by 18% with more balanced and consistent contributions across our businesses.\nEverything begins with our cohesive portfolio.\nWe're the world leader in glass science, ceramic science, and optical physics along with our four proprietary manufacturing and engineering platforms.\nWe focus our strategy on capturing synergies among these capabilities and applying them to create disruptive innovations.\nAcross multiple industries, we work closely with many of the most influential and successful companies to bring our world-leading capabilities to bear on their toughest challenges.\nIn the process, we help move the world forward.\nAs we partner with our customers to advance their visions, our probability of success increases as we combine our capabilities, reapply our talent, and repurpose existing assets.\nThis provides a powerful value creation lever by unlocking new ways to integrate more of our content into our customers' ecosystems.\nWe aren't exclusively relying on people buying more stuff.\nWe're driving more Corning content into the products they're already buying.\nOur progress in 2021 illustrates the effectiveness of our approach, and it gives us confidence that we're building on a strong foundation for additional growth in 2022.\nIn Optical Communications, we've returned to growth with sales up 22% in 2021.\nAnd we expect strong growth to continue.\nOperators are expanding network capacity, capability, and access.\nThe pace of data center construction is accelerating as more applications move to the cloud and data creation continues to soar.\nAnd fiber-rich wireless deployments are underway.\nMeanwhile, governments around the world are initiating plans to extend the reach of broadband to more people in more places as network access is increasingly viewed as a human right.\nFor example, the recently passed U.S. infrastructure bill allocates $65 billion in new spending for broadband infrastructure, including $42 billion for new network builds.\nOur customers are stating their preferences for fiber to build these networks.\nAs the only large-scale end-to-end manufacturer of optical solutions, Corning plays a vital role in driving the continued expansion of connectivity.\nWe're working even more closely with industry players at the regional and national levels, including expanding our longtime collaboration with AT&T.\nStepping back, we're at the beginning of a large, multiyear wave of growth for passive optical networks.\nProject momentum is strong across our customer base.\ninfrastructure plans roll out, it could add as much as $1 billion a year to the market for four years starting as early as 2023.\nWe believe private carrier and public infrastructure investments will push the market into double-digit growth over the next few years.\nIn Life Sciences, we're delivering growth on multiple fronts with sales up 24% in 2021.\nWe're seeing ongoing demand in support of a global pandemic response.\nOur inventions are also helping the industry advance the transition to cell- and gene-based therapies.\nAnd we're making progress on our multibillion-dollar content opportunity in our pharmaceutical packaging business.\nAfter introducing Valor Glass vials in 2017, we recently introduced Velocity Vials.\nThese vials are helping industry-leading drugmakers increase efficiency and throughput to drive faster manufacturing of vaccines to help meet global demand.\nVelocity joins Valor and our glass tubing business as we build a comprehensive end-to-end pharmaceutical packaging portfolio.\nIn fact, our portfolio has enabled the delivery of nearly 5 billion doses of COVID-19 vaccines so far.\nAnd earlier this week, West Pharmaceutical Services, a global leader in injectable drug administration, announced a long-term supply agreement and technology investment in Corning to enhance injectable drug packaging systems.\nIn automotive, 2021 sales in our Environmental Technologies segment increased 16% to reach an all-time high $1.6 billion despite weakness in the automotive market related to chip shortages.\nWe're pursuing a $100-per-car content opportunity driven by trends that are reshaping the auto industry and reimagining the car.\nWe delivered multiple proof points in 2021.\nDaimler launched the Hyperscreen dashboard display in the Mercedes-Benz EQS.\nThe display features a Gorilla Glass cover nearly five feet wide.\nBuilding on this momentum, we entered a new automotive product category with our Curved Mirror Solutions.\nThis innovation is enabling the augmented reality head-up display in Hyundai's electric crossover, the IONIQ 5.\nAnd Jeep announced a product that brings our tough technical glass into their iconic vehicles.\nThe new Jeep performance parts windshield featuring Gorilla Glass is now a factory-installed option on the Wrangler and Gladiator.\nAdditionally, tighter emissions regulations continue to provide a strong content opportunity for our environmental solutions.\nOur newest generation of gasoline particulate filters help vehicles, including hybrids, achieve even lower levels of fine particulate tailpipe emissions.\nThe contributions of our GPF business provide a strong illustration of our More Corning strategy in action.\nSince 2017, Environmental Technologies sales have increased more than 40% while global car sales had decreased by 20%.\nLet's turn to mobile consumer electronics, where 2021 sales increased 7%, and we surpassed the $2 billion in sales for the first time.\nSince 2016, Specialty Materials has added nearly $900 million on a base of $1.1 billion in a smartphone market that has been flat to down.\nAs we help our customers deliver new value to their users, more of our content is deployed in each device sold.\nThat is another great illustration of More Corning in action.\nOur industry-leading innovations continue to garner widespread accolades.\nIn fact, Fast Company named Corning the most innovative company in the consumer electronics category for 2021, touting Ceramic Shield, the world's first transparent and color-free glass-ceramic, as \"virtually indestructible\" and recognizing Gorilla Glass Victus as the toughest Gorilla Glass yet.\nWe continue to see strong demand for both of these premium products.\nIn 2021, more than 125 devices, including smartphones, wearables, tablets, and laptops, launched featuring Gorilla Glass.\nAnd we expanded our capabilities into a new category by introducing Gorilla Glass with DX and DX+ to optimize mobile phone cameras.\nThese composite products create an attractive opportunity to increase our revenue per device.\nFinally, in 2021, Apple awarded Corning an additional $45 million from its Advanced Manufacturing Fund.\nTo date, Corning has received $495 million in total from Apple's fund.\nWe're investing in multiple new inventions and innovations for mobile consumer electronics, and we're excited about the potential in 2022 and beyond.\nOur leadership in large glass puts us in a position of strength.\n2021 sales grew 17% to $3.7 billion.\nOur volume exceeded glass market growth as we ramped Gen 10.5 facilities that supply glass for large-sized TVs, which are expected to grow at a high-teens compound annual growth rate over the next several years.\nIn 2022, we expect overall glass supply to remain tight to balanced and the pricing environment to remain favorable.\nWe continue to believe the retail market will grow, led by higher TV unit sales and growth in average screen size.\nAcross our markets, long-term growth drivers are strong, and our role is clear.\nWe lead in capabilities that are vital to progress.\nOur approach provides exciting opportunities for Corning inventions to make a positive impact on the world.\nAnd it underscores our commitment to moving the world forward in everything that we do.\nNow, let me give you some examples outside of the operational context.\nIn 2021, we hosted COVID-19 vaccination clinics at Corning sites around the world.\nIn Reynosa, Mexico, for example, we helped administer more than 100,000 doses of vaccines and boosters to employees and community members.\nAnd we provided more than 200,000 diagnostic tests for employees around the world.\nWe kicked off a five-year, $5.5 million partnership with the nation's largest historically black university, North Carolina A&T.\nOur work will prepare students for STEM careers.\nWe engaged our board of directors to provide guidance and resources to our Office of Racial Equality and Social Unity, utilizing our members' diverse experience, gender, age, and ethnicity to advance this new initiative.\nWe achieved gender pay equity globally for all salaried employees, and we expanded the reach of our DE&I office with regional business councils.\nAnd finally, we committed to greenhouse gas goals that align with the Paris Agreement.\nAnd we signed solar contracts at Hemlock that will help the world address its renewable energy goals.\nI feel very good about our efforts to bolster equality inside and outside the company and our progress on our sustainability initiatives.\nOverall, we continue to build a stronger, more resilient company.\nWe're in the early innings of exciting industry transformations, and key trends are converging around our capabilities.\nYou can see it in our results, you can see it in our outlook for 2022 and advancement of new businesses toward significant commercial sales over the next few years.\nOf course, to keep advancing during Corning's next 170 years, we must focus on growing and developing our leaders.\nWe have a new generation who are stepping up to guide this company through a very exciting phase of its history into the future, and I'm working closely with each of them.\nTo that end, I want to recognize Tony as he prepares to hand over the reins to Ed in just a few weeks.\nThe strong position we're in today certainly reflects the many contributions he has made throughout more than three decades of excellent service to Corning.\nEd has long played a key role in the growth and financial strength of our company.\nTony and I have worked closely with him during that time, and I look forward to the important contributions he will make in this new position.\nOur growth initiatives are succeeding, and we delivered another quarter of excellent year-over-year growth that capped off a truly exceptional year.\nFor the full year, sales increased 23% and earnings per share was up 49%.\nAll of our segments grew with four out of five increasing sales by a double-digit percentage.\nIt was a strong year even compared to pre-pandemic levels.\nSince 2019, we have grown sales by 21% and earnings per share by 18%.\nWe nearly doubled free cash flow to $1.8 billion, which is a conversion rate of 97% for the year.\nWe achieved double-digit ROIC, and we utilized our strong cash generation to reward shareholders.\nWe increased our dividend 9%, and we reduced our outstanding shares by 5% through the resumption of share repurchases.\nOn so many dimensions, we are feeling great.\nThat said, as you heard from Wendell, our gross margin percentage is not where it should be.\nIn the fourth quarter, gross margin was 36.5%, down 180 basis points sequentially.\nAs expected, below-normal auto production and seasonally lower sales in Specialty Materials reduced profitability.\nIn addition, we restarted idle polysilicon capacity to support Hemlock's new long-term solar contracts, thus incurring temporary start-up costs.\nWe expect to expand gross margin percent throughout the year.\nWe negotiated pricing increases in long-term customer contracts to more appropriately share the higher costs that we are experiencing.\nThese increases take effect and accelerate throughout the year.\nAs always, we expect to deliver on a robust cost reduction program.\nThe combined benefits of these efforts should offset the cumulative inflation we experienced over the last year and what we anticipate for 2022.\nOur gross and operating margins will also benefit from growing volume.\nOur operating leverage is such that additional volume drives good incremental profitability and becomes even more apparent as we offset inflation.\nWe expect volume increases throughout the year.\nAs our volumes increase and our pricing actions take effect, our gross margin percent will grow.\nAs a reminder, the first quarter is usually our lowest volume quarter of the year.\nWe expect Specialty Materials to improve on its normal cycle, with Q1 typically being the lowest quarter of the year.\nEnvironmental Technologies sales will improve with the resolution of the chip shortage, which we expect to happen later in the year.\nAnd Optical Communications will grow as we fill the capacity that we're adding to meet growing demand.\nFor the year, we expect price increases, cost reductions, and volume growth.\nPutting this all together, we expect Q1 to be the lowest gross margin percent quarter every year and for gross margin to grow from there.\nNow, let's take a closer look at performance in each of our businesses during the fourth quarter and the full year.\nLet's begin with Optical Communications.\nFourth-quarter sales were up 7% sequentially, exceeding $1.2 billion.\nNet income increased to 12%.\nFor the full year, sales grew 22% to $4.3 billion, and net income was up 51%.\nWe grew significantly faster than the passive optical market.\nNational and regional carriers increased capital spending on 5G and broadband projects.\nAdditionally, enterprise sales were up as customers increased spending on data center builds.\nFull-year net income grew 51% driven by the incremental volume despite cost headwinds related to materials and logistics.\nWe're entering 2022 with a sales run rate 25% higher than where we started in 2021, and we have a strong order book.\nWe continue to see significant public and private investments in fiber infrastructure as operators worked to expand capacity, capability, and access.\nAnd we expect a large, multiyear wave of growth.\nIn fact, we believe private carrier and public infrastructure investments will push the market into double-digit growth.\nWe're adding capacity to capture the growing demand, and we feel really good about our position as the only large-scale, end-to-end manufacturer of optical solutions.\nIn the fourth quarter, sales were $942 million, up 12% year over year, and net income was $252 million, up 16% year over year.\nFor the full year, sales were $3.7 billion, up 17% year over year.\nNet income reached $960 million, up 34% year over year.\nThe pricing environment was favorable throughout the year, and our excellent operational performance allowed us to continue to lead the market.\nIn the third quarter, we provided detail about our perspective on the display industry based on three main factors: retail demand, panel makers' production, and glass makers' ability to supply panel makers.\nOur fourth-quarter performance and first-quarter outlook reaffirm our expectations.\nWe continue to expect that glass at retail will grow in 2022 by high single digits driven by TV unit and screen size growth.\nWe expect display glass pricing to be flat sequentially in the first quarter and supply demand balance for display glass to be tight.\nWe expect glass supply demand to remain tight to balanced in 2022 and the pricing environment to remain favorable.\nOverall, we are very pleased with Display's performance in 2021, and we feel good about our outlook for 2022.\nWe're operating from a position of strength, and we intend to build on our momentum as we move forward.\nIn Environmental Technologies, fourth-quarter sales were $353 million, down 9% sequentially and 21% year over year.\nFourth-quarter net income was $54 million, down 10% sequentially and 42% year over year on lower sales volume.\nThese declines were driven by auto production constraints created by the semiconductor chip shortage that began in the second quarter of last year.\nAs expected, this negatively impacted profitability for the segment and the company.\nNow, even with this temporary setback caused by the chip shortage, for the full year, we were able to deliver double-digit sales growth, enabled by our content-driven growth strategy.\nFull-year sales were nearly $1.6 billion, up 16% year over year, primarily driven by strength in heavy-duty diesel and greater adoption of gas particulate filters.\nFor the full year, net income was $269 million, up 37% year over year.\nAs we look ahead, we're confident that our content-driven approach will continue to drive outperformance.\nAnd when the automotive market rebounds with the resolution of the chip shortage, we expect significant growth from current levels.\nTurning to Specialty Materials.\nSales were $518 million, down 7% sequentially on normal seasonality.\nSales were down 5% year over year versus a strong Q4 in 2020 following the launch of Ceramic Shield.\nFourth-quarter net income was $92 million, down sequentially and year over year, driven by the lower sales volume.\nFull-year sales were up 7% and exceeded $2 billion driven by continued strong sales of premium cover materials.\nDemand also remained strong for advanced optics content used in semiconductor manufacturing as the broader end market continues to experience robust growth.\nDespite sales being up, full-year net income was down as we invested strongly in new innovations that will be commercialized in the coming year.\nWe have grown sales every year since 2016 through our More Corning approach despite smartphone unit sales maturing.\nOver that five-year period, we've added nearly $900 million in sales on a base of $1.1 billion.\nLooking ahead, in 2022, we expect sales to grow faster than our underlying markets driven by continuing adoption of our innovations and growth in advanced optics, specifically in products for EUV lithography.\nAnd as I mentioned earlier, we expect sales to increase from the seasonal low levels we expect in the first quarter.\nAnd finally, turning to Life Sciences, we had a great year with total sales topping $1.2 billion, up 24% year over year.\nFourth-quarter sales were $317 million, up 16% year over year.\nThis strong performance was driven by ongoing demand to support the global pandemic response, continued recovery in academic and pharmaceutical research labs, and strong demand for bioproduction vessels and diagnostic-related consumables.\nFull-year net income was $194 million, up 40%.\nFourth-quarter net income was $49 million, up 17% year over year.\nLooking ahead to 2022, we expect our strong growth to continue driven by COVID-19 vaccine rollouts, strong research funding, lab utilization returning to pre-pandemic levels, and growth in the bioproduction segment.\nI also want to spend a minute on our other segment.\nAs a reminder, the majority of sales in our other segment are in Hemlock Semiconductor Group.\nDuring the year, Hemlock saw new demand for solar-grade polysilicon.\nWith the increased activity and interest in U.S.-based solar manufacturing, customers have turned to Hemlock, a leader in polysilicon manufacturing.\nSo, in addition to selling polysilicon for use in semiconductors, Hemlock was able to sell solar polysilicon from inventory.\nGoing forward, solar remains a strong revenue opportunity for Hemlock.\nIn the fourth quarter, we signed long-term take-or-pay supply contracts with customer deposits that start to shift in 2022.\nAs a result, we restarted idle capacity with minimal capital investment to meet this demand.\nAs I mentioned earlier, gross margins were impacted in the fourth quarter as we incurred temporary costs to restart solar polysilicon capacity.\nThis will improve throughout the year as solar production increases.\nAdditionally, our auto glass and pharmaceutical packaging emerging businesses are also in the other segment, and both businesses significantly grew sales during the year as well.\nStepping back, we made strong progress across all of our businesses in 2021.\nWe entered new product categories, announced collaboration with key industry leaders, and contributed to significant industry advancements.\nWe're building a strong foundation for future growth.\nThis, combined with our consistent focus on innovation and deep commitment to RD&E, is what continues to fuel and sustain Corning's leadership position across its markets.\nLooking ahead, we expect Corning sales and earnings per share to grow year over year in the first quarter.\nWe expect sales to be in the range of $3.5 billion to $3.7 billion and earnings per share in the range of $0.48 to $0.53.\nSales are down sequentially due to typical seasonal volume declines.\nFor the full year, we expect sales of approximately $15 billion and profit to grow faster than sales.\nBefore I turn things over to Ed, I'd like to take a moment to express my gratitude.\nFirst, to all Corning employees whose dedication and commitment to this great company is such an inspiration.\nSecond, to those of you on the call and all our shareholders for being with -- being on this journey with us.\nWe're working hard every day to maintain your trust and reward your confidence in us.\nI'm proud to have played a role in building the strong foundation Corning has today.\nIt's truly been a wonderful journey.\nAs Ed takes the reins in just a few weeks, I'm fully confident in his ability to build on this foundation and continue creating value for all our shareholders.\nI'm looking forward to connecting with you in the days and months ahead so we can expand on the thoughts I share today and address any questions you may have.\nBefore I start, I'd like to say that it's been an honor working alongside Tony all these years.\nUnder his tenure, we met or exceeded all the goals of our four-year strategy and capital allocation framework.\nAnd today, we're performing well against the subsequent goals we outlined in our strategy and growth framework in 2019.\nOur execution has created a stronger, more resilient Corning, and that provided vital -- proved vital as the pandemic unfolded.\nOur solid footing enabled us to preserve our financial strength throughout 2020, and it kept us well-positioned for growth in 2021.\nThroughout it all, Tony's focus on financial stewardship has been central to our results, and I plan to sustain that disciplined approach.\nSo, let me walk through my priorities as CFO as I work to ensure that Corning continues to be an excellent steward of capital.\nWe expect another strong year of cash generation in 2022, and our financial priorities remain unchanged.\nWe will continue to invest our cash to support organic growth, extend our leadership, and reward shareholders.\nFirst, we will continue to invest for growth primarily through RD&E and capex.\nRD&E is fundamental to our long-term success, and our allocation will be consistent with previous years.\nIn 2022, we expect to keep capex consistent with 2021.\nOur investments include adding capacity to meet growing demand, introduce new innovations and improve productivity.\nShareholder returns also remain a key priority.\nIn 2022, we expect to increase our dividend per share by approximately $0.10.\nAnd we expect to continue opportunistic share repurchases, building on the 5% of outstanding shares we repurchased in 2021.\nIn the near term, improving gross margin is my top priority.\nWe expect improvement throughout 2022 as sales grow and our pricing actions take hold.\nOverall, I'll close today saying that I'm optimistic about our growth trajectory for 2022 and excited to step into the CFO role.\nWe're building on a strong foundation.\nOur capabilities are relevant to major trends playing out across the industries we serve.\nOur More Corning approach is working.\nAnd we're executing effectively through some very volatile end markets, expanding relationships and commitments with our customers, and extending our leadership position.\nI look forward to updating you on our progress throughout the year.\nShannon, we are ready for the first question.\nAnd I ask that, folks, please try to keep it to one question, so we can get to as many as we can.",
        "summary": "qtrly optical communications sales grew 24% yoy to $1.21 billion.\nsees q1 core earnings per share $0.48 to $0.53.\nq4 core earnings per share $0.54.\nsees q1 sales $3.5 billion to $3.7 billion.\nsees q1 core earnings per share of $0.48 to $0.53.\nq4 core sales rose 12 percent to $3.7 billion.\ncorning - expects growth in optical communications on market access platform in 2022 & beyond, including from u.s. infrastructure investment & jobs act.\nqtrly display technologies sales were $942 million versus $841 million last year.\nsees fy 2022 sales about $15 billion.\n2022 capital expenditures are expected to remain at approximately 2021 level.\nin 2022, corning expects overall glass supply to remain tight to balanced and pricing to remain favorable.\nqtrly display technologies net sales $942 million, up 12%.\nrevised pricing terms take effect throughout 2022, and we expect gross margin to expand accordingly."
    },
    {
        "text": "Joining the call today are Gary Coleman and Larry Hutchison, our co-Chief Executive Officers; Frank Svoboda, our Chief Financial Officer; and Brian Mitchell, our General Counsel.\nSome of our comments may also contain non-GAAP measures.\nIn the second quarter, net income was $200 million, or $1.92 per share compared to $173 million or $1.62 per share a year ago.\nNet operating income for the quarter was $193 million or $1.85 per share, an increase of 12% per share from a year ago.\nOn a GAAP reported basis return on equity as of June 30 was 9% for the first half of the year and 9.7% for the second quarter.\nBook value per share was $83.59.\nExcluding unrealized gains and losses on fixed maturities, return on equity was 12.4% for the first half of the year and 13.5% for the second quarter.\nIn addition, book value per share grew 9% to $55.66.\nIn our life insurance operations, premium revenue increased 9% from the year ago quarter to $728 million.\nAs noted before, we have seen improved persistency and premium collections since the onset of the pandemic.\nLife underwriting margin was $179 million, up 11% from a year ago.\nThe increase in margin is due primarily to the higher premium and lower amortization related to the improved persistency.\nFor the year, we expect life premium revenue to grow between 8% to 9% and underwriting margin to grow 5% to 6%.\nIn health insurance, premium revenue grew 4% to $296 million and health underwriting margin was up 16% to $74 million.\nThe increase in underwriting margin was primarily due to improved claims experience and persistency.\nFor the year, we expect health premium revenue to grow between 4% and 5% and underwriting margin to grow around 9%.\nAdministrative expenses were $68 million for the quarter, up 10% from a year ago.\nAs a percentage of premium, administrative expenses were 6.6% compared to 6.5% a year ago.\nFor the full year, we expect administrative expenses to grow 8% to 9% and be around 6.7% of premium due primarily to increased IT and information security cost, higher pension expense, and a gradual increase in travel and facility costs.\nWe experienced strong sales growth during the second quarter and we continue to make progress on agent recruiting.\nI will now discuss current trends at each distribution channel.\nAt American Income Life, life premiums were up over the year ago quarter to $348 million and life underwriting margin was up 16% to $108 million.\nThe higher underwriting margin is primarily due to improved persistency and higher sales in quarters.\nIn the second quarter of 2020, sales were limited due to the onset of COVID.\nIn the second quarter of 2021, net life sales were $73 million, up 42%.\nThe increase in net life sales is primarily due to increased agent count and productivity.\nThe average producing agent count for the second quarter was 10,478, up 25% from the year ago quarter and up 6% from the first quarter.\nThe producing agent count at the end of the second quarter was 10,406.\nThe American Income Agency continues to generate positive momentum.\nAt Liberty National, life premiums were up 6% over the year ago quarter to $78 million, while life underwriting margin was down 16% to $16 million.\nThe decline in underwriting margin is due primarily to higher policy obligations.\nNet life sales increased 67% to $18 million and net health sales were $6 million, up 52% from the year ago quarter due primarily to increased agent count and increased agent productivity.\nThe average producing agent count for the second quarter was 2,700, up 13% from the year ago quarter, while down 1% from the first quarter.\nThe producing agent count at Liberty National ended the quarter at 2,700.\nWe continue to be encouraged by Liberty National's progress.\nAt Family Heritage, health premiums increased 9% over the year ago quarter to $85 million and health underwriting margin increased 18% to $22 million.\nThe increase in underwriting margin is due primarily to improved clients experience and improved persistency.\nNet health sales were up 41% to $19 million due to increased agent productivity.\nThe average producing agent count for the second quarter was 1,220, down 2% from the year ago quarter and down 5% from the first quarter.\nThe producing agent count at the end of the quarter was 1,171.\nThe agency emphasized Asia productivity during the first half of the year.\nThe focus is shifting more toward recruiting for the remainder of the year.\nIn our direct-to-consumer division at Global Life, the life premiums were up 6% over the year ago quarter to $249 million and life underwriting margin increased 22% to $34 million.\nThe increase in margin is due primarily to improved persistency.\nNet life sales were $42 million, down 14% from the year ago quarter.\nThis decline was expected due to the extraordinary level of sales activity seen in the second quarter of last year during the onset of COVID.\nWhile sales declined from a year ago, we are pleased with this quarter's sales activity as it was 23% higher than the second quarter of 2019.\nAt United American General Agency, health premiums increased 3% over the year ago quarter to $116 million and health underwriting margin increased 16% to $18 million.\nThe increase in margin was due to improved loss ratios and lower amortization.\nNet health sales were $12 million, up 1% compared to the year ago quarter.\nIt is still somewhat difficult to predict sales activity in this uncertain environment, but I will now provide projections based on trends we are seeing and knowledge of our business.\nWe expect the producing agent count for each agency at the end of 2021 to be in the following ranges: American Income Life, 3% to 6% growth; Liberty National, 1% to 8% growth; Family Heritage, a decline of 1% to 9%.\nNet life sales for the full year 2021 are expected to be as follows: American Income Life, an increase of 13% to 17%; Liberty National, an increase of 26% to 32%; direct-to-consumer, a decrease of 10% to flat.\nNet health sales for the full year 2021 are expected to be as follows: Liberty National, an increase of 12% to 18%; Family Heritage, an increase of 4% to 8%; United American Individual Medicare Supplement, a decrease of 1% to an increase of 9%.\nWe now turn to the investment operations.\nExcess investment income, which we define as net investment income less required interest on net policy liabilities and debt, was $60 million, a 2% decline from the year ago quarter.\nOn a per share basis, reflecting the impact of our share repurchase program, excess investment income grew 2%.\nFor the full year, we expect excess investment income to decline 1% to 2%, but to grow around 2% on a per share basis.\nIn the second quarter, we invested $116 million in investment grade fixed maturities, primarily in the financial, municipal and industrial sectors.\nWe invested at an average yield of 3.69%, an average rating of A, and an average life of 35 years.\nWe also invested $72 million in limited partnerships that invest in credit instruments.\nThese investments are expected to produce incremental yield and are in line with our conservative investment philosophy.\nFor the entire fixed maturity portfolio, the second quarter yield was 5.24%, down 14 basis points from the second quarter of 2020.\nAs of June 30, the portfolio yield was 5.23%.\nInvested assets are $19.1 billion, including $17.5 billion of fixed maturities at amortized cost.\nOf the fixed maturities, $16.7 billion are investment grade with an average rating of A- and below investment grade bonds are $764 million compared to $802 million at the end of the first quarter.\nThe percentage of below investment grade bonds to fixed maturities is 4.4%.\nExcluding net unrealized gains in the fixed maturity portfolio, the low investment grade bonds as a percentage of equity was 13%.\nOverall, the total portfolio is rated A- compared to BBB+ a year ago.\nConsistent with recent years, bonds rated BBB are 55% of the fixed maturity portfolio.\nWhile this ratio is in line with the overall bond market, it is high relative to our peers.\nHowever, we have little or no exposure to higher risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities.\nBecause we invest long, a key criteria in utilizing our investment process is that an issuer must have the ability to survive multiple signposts.\nWe believe that the BBB securities that we acquire provide the best risk-adjusted, capital-adjusted returns due in large part to our unique ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets.\nLow interest rates continue to pressure investment income.\nAt the midpoint of our guidance, we are assuming an average new money rate of around 3.45% for fixed maturities for the remainder of 2021.\nWhile we would like to see higher interest rates going forward, Globe Life can thrive in a longer lower for longer interest rate environment.\nExtended low interest rates will not impact the GAAP or statutory balance sheets under current accounting rules since we sell non-interest sensitive protection products.\nFortunately, the impact of lower new money rates on our investment income is somewhat limited, as we expect to have an average turnover of less than 2% per year in our investment portfolio over the next five years.\nFirst, I want to spend a few minutes discussing our share repurchase program, available liquidity and capital position.\nThe parent ended the second with liquid assets of approximately $545 million.\nThis amount is higher than last quarter, because in June, the company issued a 40-year $325 million junior subordinated note with a coupon rate of 4.15%.\nNet proceeds were $317 million.\nOn July 15, the company utilized the proceeds to call our $300 million 6.125% junior subordinated notes due 2056.\nThe remaining proceeds will be used for general purposes.\nIn addition to these liquid assets, the parent company will generate excess cash flows during the remainder of 2021.\nThe parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries less the interest paid on debt and the dividends paid to Global Life's shareholders.\nWe anticipate the parent company's excess cash flow for the full year to be approximately $365 million.\nOf which, approximately $185 million will be generated in the second half of 2021.\nIn the second quarter, the company repurchased 1.2 million shares of Global Life Inc. common stock at a total cost of $123 million at an average share price of $101.05.\nThe total spend was higher than anticipated as we took advantage of the sharp drop in share price at the end of the quarter and accelerated approximately $30 million of purchases from the second half of the year to repurchase shares at an average price of $95.62.\nSo far in July, we have spent $32 million to repurchase 343,000 shares at an average price of $93.81.\nThus, for the full year through today, we have spent approximately $246 million to purchase 2.5 million shares at an average price of $97.96.\nTaking into account the liquid assets of $545 million at the end of the second quarter, plus approximately $185 million of excess cash flows that we are expected to generate in the second half of the year, less the $32 million spent on share repurchases in July and the $300 million to call our junior subordinated note, we will have approximately $400 million of assets available to the parent for the remainder of the year.\nAs I will discuss in more detail in just a few moments, we believe this amount is more than necessary to support the targeted capital levels that's in our insurance operations and maintain the share repurchase program for the remainder of the year.\nAs noted on previous calls, we will use our cash as efficiently as possible.\nWe still believe that share purchases provide the best return or yield to our shareholders over other available alternatives.\nThus, we anticipate share repurchases will continue to be a primary use of the parent's excess cash flows.\nIt should be noted that the cash received by the parent company from our insurance subsidiaries is after they have made substantial investments during the year to issue new insurance policies, expand our information technology and other operational capabilities as well as acquired new long-duration assets to fund future cash needs.\nAs we progress through the remainder of the year, we will continue to evaluate our available liquidity.\nIf more liquidity is available than needed, some portion of the excess could be returned to shareholders before the end of the year.\nHowever, at this time, the midpoint of our earnings guidance only reflects approximately $120 million of share repurchases over the remainder of the year.\nOur goal is to maintain our capital at levels necessary to support our current rating.\nAs noted on previous calls, Globe Life has targeted a consolidated company action level RBC ratio in the range of 300% to 320%.\nAt December 31, 2020, our consolidated RBC ratio was 309%.\nAt this RBC ratio, our insurance subsidiaries have approximately $50 million of capital over the amount required at the low end of our consolidated RBC target of 300%.\nThis excess capital, along with the roughly $400 million of liquid assets we expect to be available at the parent, provide sufficient liquidity to fund future capital needs.\nAs we discussed on previous calls, the primary drivers of potential additional capital needs from the parent company in 2021 relate to investment downgrades and changes to the NAIC RBC factors related to investments, commonly referred to as C1 factors.\nTo estimate the potential impact on capital to changes in our investment portfolio, we continue to model several scenarios and stress tests.\nIn our base case, we anticipate approximately $370 million of additional NAIC 1 notch downgrades.\nIn addition, we anticipate full adoption by the NAIC of the new Moody's and NAIC C1 factors for 2021.\nCombined, our base case approximately $105 million of additional capital will be needed at our insurance subsidiaries to offset the adverse impact of the new factors and additional downgrades in order to maintain the midpoint of our consolidated RBC targets.\nBottom line, the parent company has ample liquidity to cover any additional capital that may be required and still have cash available to make our normal level of share repurchases.\nAs previously noted, we will continue to evaluate the best use of any excess cash that could remain, and we will consider returning a portion of any excess to shareholders before the end of the year.\nWe should be able to provide more guidance on that in our call next quarter.\nAt this time, I'd like to provide a few comments relating to the impact of COVID-19 on second quarter results.\nIn the first half of 2021, the company has incurred approximately $49 million of COVID death claims, including $11 million in the second quarter.\nThe $11 million incurred is $10 million less than incurred in the year ago quarter and is in line with our expectations for the quarter.\nThe total COVID death benefits in the second quarter included $4.6 million incurred in our direct-to-consumer division or 2% of its second quarter premium income, $1.5 million incurred at Liberty National or 2% of its premium for the quarter and $3.5 million at American Income or 1% of its second quarter premium.\nAt the midpoint of our guidance, we anticipate approximately 20,000 to 30,000 additional COVID deaths to occur over the remainder of 2021.\nAs in prior quarters, we continue to estimate that we will incur COVID life claims of roughly $2 million for every 10,000 U.S. deaths.\nWe are estimating a range of COVID death claims of $53 million to $55 million for the substantially unchanged from our previous guidance.\nFinally, with respect to our earnings guidance for 2021, in the second quarter, our premium persistency continued to be very favorable and was better than we anticipated, leading to greater premium, higher policy obligations and lower amortization as a percent of premium.\nAt this time, we now expect lapse rates to continue at lower than pre-pandemic levels throughout the remainder of 2021, leading to higher premium and underwriting income growth in our life segment.\nWe also increased the underwriting income in our health segment to reflect the favorable health claims experience we saw in the second quarter.\nFinally, the impact of our lower share price results in a greater impact from our share repurchases and results in fewer diluted shares.\nAs such, we have increased the midpoint of our guidance from $7.36 to $7.44 with an overall range of $7.34 to $7.54 for the year ended December 31, 2021.\nThose are my comments.\nThose are our comments.",
        "summary": "sees fy operating earnings per share $7.34 to $7.54.\nq2 operating earnings per share $1.85.\nq2 earnings per share $1.92.\nfor full year and at mid-point of our guidance, we estimate covid life claims will be between $53 million to $55 million."
    },
    {
        "text": "It's good to be with everyone today.\nI've had the chance to meet a number of team members across our stores, fulfillment centers, and home office, and I look forward to meeting more in the coming weeks and months.\nWe appreciate how everyone is stepping up and embracing GameStop's new operating principles.\nSince you last heard from us in June, our refreshed board of directors and new management team have settled in.\nWe now have unified leadership, fully focused on two long-term goals: delighting customers and delivering value for stockholders.\nIn addition to focusing on long-term opportunities, we took a number of steps over the past quarter to fortify the company's infrastructure and technology.\nWe are focused on positioning GameStop to scale while obsessing over competitive pricing, expansive selection, and fast shipping.\nOur actions included continuing to add technology talent across the organization, including individuals with experience in e-commerce, UI, UX, operations, and supply chain.\nWe also continued to expand our fulfillment network by adding a 530,000-square-foot facility in Reno, Nevada.\nThis new facility, which is expected to be operational next year, will position us to further expand selection and expedite shipping.\nWith this addition, the company's fulfillment network will span both coasts of the continental U.S. for the first time.\nOur new 700,000-square-foot facility in York, Pennsylvania also began shipping orders during the quarter.\nWe grew our catalog by adding new products and leading brands across consumer electronics, collectibles, toys, and more.\nWe signed a lease on a new customer care facility in South Florida and started adding talent to that team as we continue to build out customer care operation in the U.S. Lastly, we further strengthened our balance sheet and capital position by raising more than $1.1 billion in net proceeds from the June ATM program.\nLet me now turn to our financial results for the quarter.\nNet sales increased 25.6% to $1.183 billion, compared to $942 million during the same period in 2020.\nWe achieved this growth while overcoming a roughly 9% reduction in our global store fleet due to de-densification efforts and ongoing store closures across certain international markets due to the pandemic.\nWe believe net sales is the primary metric by which stockholders should assess the company's execution.\nSG&A was $378.9 million, or 32% of sales, compared to $348.2 million, or 37% of sales, in last year's second quarter.\nAdjusting for severance and certain other costs, our adjusted SG&A was $372.3 million, or 31.5% of sales, compared to $336.9 million, or 35.8% of sales, during the same period last year.\nThe 430 basis points of leverage was primarily driven by store reopening after widespread shutdowns due to the pandemic in Q2 2020.\nWe reported a net loss of $61.6 million, or $0.85 per diluted share, compared to a net loss of $111.3 million, or loss per diluted share of $1.71, in the prior-year second quarter.\nOur adjusted net loss was $55 million, or $0.76 per diluted share, compared to adjusted net loss of $92 million, or a loss of $1.42 per diluted share, in the fiscal 2020 second quarter.\nOur global store count was 4,642 at the end of the quarter.\nTurning to the balance sheet, we ended the quarter with cash and restricted cash of $1.775 billion, which is just over $1 billion higher than the end of the second quarter last year.\nAs we announced in June, we raised approximately $1.1 billion in net proceeds through the issuance of 5 million shares of common stock under an ATM.\nWe intend to continue using those proceeds for general corporate purposes, as well as for investing in growth initiatives and maintaining a strong balance sheet.\nAs a result of the ATM, total shares outstanding are now approximately 75.9 million.\nAt the end of the quarter, we had no borrowings under our asset-based revolving credit facility and no long-term debt other than a $47.5 million low-interest unsecured term loan associated with the French government's response to COVID-19.\nDebt levels compared to the second quarter of last year were down $424.7 million.\nCapital expenditures for the quarter were $13.5 million, bringing year-to-date capex investments to 28.2 million, a number we anticipate will increase as the company continues investing in growth initiatives.\nIn the second quarter, cash flow from operations was an outflow of $11.5 million, compared to an inflow of $192.8 million during the same period last year, largely due to the investments in inventory we are making to drive sales growth.\nIn terms of our outlook, we are not providing formal guidance at this time.",
        "summary": "q2 sales $1.183 billion versus refinitiv ibes estimate of $1.12 billion."
    },
    {
        "text": "It was an important period of foundation building, significant investment, and cultural change at GameStop.\nWhile we are still in the early stages of our transformation, we believe the steps taken over the last several months will be key value drivers for quarters and years down the road.\nThe first year of our transformation was about starting to turn GameStop into a customer-obsessed technology company, one that has wider offerings, more competitive pricing, faster shipping, stronger customer service, and an easier shopping experience.\nWith that said, here is a brief recap of what changed in fiscal year 2021: we installed a new management team comprised of technology veterans and introduced a more equity-focused executive compensation structure to increase alignment with stockholders; we refreshed the Board with stockholders and individuals who possess records of value creation, while reducing individual director compensation; we ended relationships with high-priced external consultants who were costing the company millions of dollars per year; we hired hundreds of new individuals with e-commerce, operations and technology experience, while eliminating many redundant and unnecessary roles; we recapitalized the company's balance sheet after raising approximately $1.67 billion in capital; we expanded our product catalog to seize more market share in areas such as PC gaming, personal electronics and virtual reality; we invested in our fulfillment network by standing up new facilities on the East Coast in York, Pennsylvania, and on the West Coast in Reno, Nevada; we invested in our systems and tech stack after years of decay and neglect; we invested in U.S.-based customer service and established a new facility in South Florida; we invested in a dedicated blockchain team and new capabilities to drive the development of initiatives such as our NFT marketplace, which we expect to launch by the end of the second quarter; we see significant long-term potential in the more than $40 billion market for NFTs.\nIn keeping with our focus on the customer, we are going to continue taking steps to create new offerings and make targeted bets in blockchain gaming and cryptocurrency.\nWe recognize that our special connectivity with gamers provides us a unique opportunity in the Web 3.0 and digital asset world.\nWe have learned from the mistakes of the past decade when GameStop failed to adapt to the future of gaming.\nIt is important to stress that GameStop had become such a cyclical business and so capital starved that we have had to rebuild it from within.\nWe've also had to change the way we assess revenue opportunities by starting to embrace, rather than run from, the new frontiers of gaming.\nAlthough there is a lot more hard work and necessary execution in front of us, GameStop is a completely different company today than it was at the beginning of the fiscal year.\nShifting to the fourth quarter, I want to briefly touch on a few areas.\nWe continued to establish new and expanded brand relationships, including with PC gaming companies such as Alienware, Corsair, and Lenovo.\nThis helped grow our PC gaming sales by 150% for the full year.\nWe also formed a partnership with Razer to support sustained growth in PC gaming and console accessories such as controllers and headsets.\nWe now have more than 100 Razer SKUs, including the company's latest laptop.\nWe grew PowerUp Rewards Pro members by 31.8% on a year-over-year basis, taking total membership to approximately 5.8 million.\nWe launched a redesigned app, which includes an enhanced user interface, improved scalability for a larger product catalog, and more functionality to support exclusive offers and promotions.\nWe entered into a partnership with Immutable X that is intended to support the development of our NFT marketplace and provide up to $150 million in IMX tokens upon achievement of certain milestones.\nWe have commenced discussions with an array of layer ones and layer twos about prospective partnerships that include development benefits and financial incentives.\nIf and when more deals come to fruition, we will announce them.\nLet me now turn to our financial results.\nNet sales were $2.25 billion for the quarter, compared to $2.12 billion in the fourth quarter of 2020 and $2.19 billion in the fourth quarter of 2019.\nThis was the first quarter in which our growth topped pre-pandemic levels.\nFor the full year, net sales were $6.01 billion, compared to $5.09 billion for fiscal year 2020.\nAs indicated in the past, long-term sales growth is the primary metric by which we believe stockholders should assess our execution.\nSG&A was $538.9 million for the quarter or 23.9% of sales, compared to $419.1 million or 19.7% of sales in last year's fourth quarter.\nWe reported a net loss of $147.5 million, or $1.94 per diluted share, compared to a net income of $80.3 million, or income per diluted share of $1.18 in the prior-year fourth quarter.\nFor the full year, SG&A was $1.71 billion, compared to $1.51 billion for the last fiscal year.\nWe had a net loss of $381.3 million for fiscal year 2021, relative to $215.3 million for fiscal year 2020.\nTurning to the balance sheet.\nWe finished the year with cash and cash equivalents of over $1.27 billion, roughly $760 million higher than the company's cash position at the close of last year.\nWe are maintaining a sizable cash position, even while continuing to invest heavily in inventory to drive pragmatic growth and meet demand amid global supply chain issues.\nWe intend to build up our cash position by the end of fiscal year 2022, assuming the operating environment permits.\nAt the end of the year, we had no borrowings under our ABL facility and no debt other than a $44.6 million low-interest, unsecured term loan associated with the French government's response to COVID-19.\nCapital expenditures for the quarter were $21.3 million, bringing full-year capex to $62 million.\nCapex may remain elevated as we make pragmatic investments in our infrastructure and tech.\nIn the fourth quarter, cash flow from operations was an outflow of $110.3 million, compared to an inflow of $164.8 million during the same period last year.\nIn order to meet customer demand throughout the holiday season, we maintained a higher inventory level.\nWe believe our inventory level remains prudent given our operating headwinds and increased customer demand.\nWe ended the year with $915 million in inventory, compared to $602.5 million at the close of fiscal year 2020.\nTo put things into context, the combination of supply chain issues and the omicron variant had a sizable impact on this past year's holiday season.\nWe made the conscious decision to lean in and absorb higher costs in order to meet customer demand.\nWe felt and continue to feel that investing in our customers and rebuilding brand loyalty right now is in the company's best interest over the long term.\nWith respect to an outlook, we're not delivering guidance at this time.\nWe do not feel it's prudent to provide guidance during the early stages of our transformation and with the current global backdrop.\nWhat we are comfortable saying is that we anticipate growth across our stores, e-commerce properties, and blockchain gaming offerings.\nIn closing, we know the investments and sacrifices made in fiscal year 2021 will take time to yield tangible value, but we are completely comfortable with that.\nIf GameStop is going to once again become a market leader in gaming and also realize new revenue opportunities across emerging communities, we needed to lay a lasting foundation rather than taking shortcuts.\nThat is what we did over the past year as we started to transform into a technology company.\nI'll wrap up there for today.\nAs always, we appreciate the enthusiasm and support from our customers, employees, and stockholders.",
        "summary": "qtrly diluted loss per share $1.94."
    },
    {
        "text": "Today, we will discuss our operational and financial results for the three months ended March 31, 2021.\nAvi Goldin, our Chief Financial Officer will follow with a deeper dive into the quarter's financial results.\nAs we discussed when we reported last quarter's earnings, the first quarter was impacted by unusually severe weather events that led to massive spikes in wholesale electricity prices in Texas and Japan.\nThe severe winter storms in Texas and Japan had an aggregate negative impact on income from operations of approximately $15.5 million.\nIn Texas, where the impact of the storm this quarter was approximately $13 million, our industry has borne a disproportionate share of the financial burden.\nWe remain hopeful that perspective legislation and regulatory changes and/or litigation will provide material relief.\nBecause of our ongoing commitment to financial strength and liquidity, while avoiding debt, our balance sheet remains in good shape.\nMoreover, we have set ourselves the goal of finishing the year with a stronger balance sheet than we had at the start, despite the impact of the first quarter's weather events.\nOur underlying business remain very strong.\nOn a consolidated basis, we achieved a record first quarter revenue and added to our meter and RCE counts, even though the first quarter is a historically slow quarter for customer acquisition.\nRCEs increased by 10,000 to 450,000 and meters increased by 7,000 to 572,000.\nAt Genie Retail, absent the Texas storms impact, our domestic business would likely have achieved record adjusted EBITDA despite the challenges of the pandemic environment.\nGRE's revenue reached a new high as consumption per meter again increased significantly compared to the year-ago quarter and churn remained subdued.\nAt GRE International, we ramped up our investment to expand our customer base in Sweden and dealt with wholesale price spikes, most notably in Japan, but to a lesser extent in Scandinavia.\nBut to put that in perspective, across all of our international markets, our businesses are maturing.\nAdjusted for the storms impact in Japan and gross margins increasing, and we expect that the growth capital requirements for these businesses will decline significantly during the year.\nWith that in mind, we are continuing our strategic review of our International business, carefully balancing the advantages of near-term cash generation with the need for capital to optimize long-term growth.\nWe expect to have more to say on that in the coming quarters.\nTurning now to our former Genie Energy Services segment, we have renamed it Genie Renewables.\nThe change reflects the increasing prominence of our solar-related businesses within the segment and the rapid growth of the renewables market.\nIn the first quarter, even though Genie Renewables revenue decreased, gross margin improved significantly, while SG&A decreased materially.\nThe improvements reflect our shift in focus toward our Renewables businesses with higher margins.\nLooking ahead, we are working to expand the geographic footprint for our solar solutions businesses and are evaluating opportunities to increase the vertical integration of those solutions.\nThis shift will enable us to capture more of the commercial solar value chain.\nWe believe that the segment's results will be the beginning of a continued trend of growth and profitability.\nWrapping up, I want to emphasize that had it not been for two exceptionally challenging winter storms, this would have been a terrific quarter.\nAcross the company, we are incredibly excited about the remainder of the year.\nOur underlying business remains strong.\nOur global customer base is at its all-time peak, our business is increasingly diversified and we are developing multiple promising growth opportunities with tremendous potential, while evaluating the best units in which to invest in continued growth.\nGiven our positive outlook, we were pleased to purchase nearly 147,000 shares in a private transaction following the quarter close.\nWhile we have paused our dividend, we will continue to consider alternative means to return value to our stockholders.\nMy remarks today cover our financial results for the three months ended March 31, 2021.\nThroughout my remarks, I compare first quarter 2021 to the results for the first quarter of 2020.\nFocusing on the year-over-year, rather than the sequential comparisons, removes some consideration of the seasonal factors that are characteristic of our retail energy business.\nAs Michael mentioned, our revenue in this quarter was the highest in our history.\nBottom line results would have been similarly strong had it not been for the losses incurred as a result of the winter storm Uri in Texas and extreme weather in Japan.\nNevertheless, our careful forward hedging and demand management programs, the diversification of our business operations and a strong balance sheet enable us to not only manage through the volatility, but to finish the quarter with sufficient capital and liquidity to finance and prioritize our growth initiatives.\nConsolidated revenue increased 30% to $135 million.\nRevenue at Genie Retail Energy increased 15% to $91 million.\nElectricity and natural gas consumption per meter increased, boosted by the shift to work-from-home as a result of COVID-19 pandemic, as well as colder winter weather, including the impact of winter storm Uri.\nThese factors more than compensated for decreased per unit average revenue on sales in both electricity and natural gas.\nAt Genie Retail Energy International, revenue increased to $42 million from $7 million in the year-ago quarter.\nThe $35 million increase predominantly reflects our purchase of the outstanding stake in our Orbit joint venture in the U.K. during the fourth quarter of 2020 and the consolidation of its results.\nFor comparison purposes, Orbit Energy generated $19.6 million in revenue in the year-ago quarter.\nAdditionally, expansion of our customer bases in Scandinavia and the U.K. also contributed meaningfully to the revenue increase.\nGenie Renewables revenue was $2.5 million, a decrease from $18 million in the year-ago quarter when Prism Solar delivered the bulk of a large solar panel order.\nConsolidated gross profit decreased $11.4 million to $17.5 million.\nWe estimate that the winter storms in Texas and Japan together impacted gross profit by approximately $15.5 million and, except for their impact, the quarter's results would have been very strong.\nConsolidated SG&A increased to $24.1 million from $19.5 million.\nThe increase was entirely incurred at GRE International and reflects the consolidation of Orbit Energy, including Orbit's customer acquisition expense.\nConsolidated loss from operations totaled $6.6 million compared to income from operations of $9.2 million in the year-ago quarter, a decrease of $15.8 million.\nAdjusted EBITDA was negative $4.5 million compared to positive $10.3 million in the year-ago quarter, a decrease of $14.9 million, primarily due to the Texas and Japan weather and the consolidation of Orbit Energy.\nAt GRE, income from operations decreased to $1.2 million from $13 million.\nAdjusted EBITDA decreased to $1.5 million from $13.3 million.\nAbsent the impact of winter storm Uri in Texas, GRE's adjusted EBITDA would have been approximately $14.5 million, a record for a domestic supply business.\nThe first quarter results again benefited from the increased consumption per meter we've seen since the pandemic as a result of the shift to work-from-home.\nAt GRE International, loss from operations was $6.7 million compared to $2.5 million in the year-ago quarter.\nFor comparison purposes, Orbit Energy's loss from operations in the first quarter of 2020 was $3 million.\nThe winter storm in Japan contributed approximately $2.5 million, a $4.1 million decrease.\nThe balance primarily reflected increased supply costs at Lumo.\nGenie Renewables income from operations increased to $559,000 from $342,000 a year earlier.\nIn the year-ago quarter, our gross margin was 9% primarily generated by the Prism Solar panel deliveries.\nAs Michael mentioned, we are now focusing on higher margin opportunities within Genie Renewables.\nThe first quarter 2021 results suggest there's some early success as our gross margin increased to 45%.\nGenie Energy's loss per diluted share was $0.09 compared to earnings per share of $0.20 in the year-ago quarter.\nTurning now to the balance sheet.\nAt quarter end, cash, restricted cash and marketable equity securities totaled $41.7 million.\nWorking capital was $35.4 million and non-current liabilities were $3.5 million.\nThat concludes my discussion of our financial results.\nAll in all, our financial standing is in good order and our underlying business is very strong.\nIn the balance of 2021, we expect to accelerate cash generation, strengthen our balance sheet and invest prudently in growth opportunities.\nNow, operator, back to you for Q&A.",
        "summary": "compname reports q1 loss per share of $0.09.\nq1 loss per share $0.09."
    },
    {
        "text": "Today we will discuss our operational and financial results for the three months ended June 30, 2020.\nAs in prior quarters, my remarks will focus on our operational results and key performance indicators.\nAvi Goldin, our Chief Financial Officer will follow with a deep dive into the quarter's financial results.\nGenie Energy generated the highest level of adjusted EBITDA of any second quarter in the Company's history and much improved financial results compared to the difficult year-ago quarter.\nOperationally, our businesses also performed very well despite the challenges of the COVID-19 impacted environment.\nGlobally, our retail energy provider businesses which generated 94% of our revenue added 64,000 RCEs year-over-year and 20,000 sequentially to reach 421,000 RCEs with solid growth in both our domestic and international markets.\nGlobal meters served increased by 88,000 year-over-year and 4,000 sequentially to 536,000.\nThe increases in meters served were driven by expansion at Genie Retail International, including those of our Orbit Energy joint venture in the UK.\nHere in the US, Genie Retail Energy added 25,000 RCEs year-over-year and 13,000 sequentially to reach 343,000 RCEs.\nDomestic meters served declined by 4,000 year-over-year and 10,000 sequentially to 374,000.\nThe robust increase year-over-year in domestic RCEs relative to the decrease in meters served reflect our sustained focus on acquiring higher consumption meters, warmer than average weather in the second half of the quarter and the COVID-19 driven shift to work from home.\nThese factors combined to increase electric per meter consumption by 26% compared to the year-ago quarter.\nThe COVID-19 pandemic has impacted several key aspects of GRE's business operations with a mixed financial impact.\nOur customer base is predominantly residential.\nSo, we benefited from the increased demand for electricity as customers work from their homes rather than offices.\nOn the other hand, like other retail providers, we suspended our face to face customer acquisition programs in March as public health measures were implemented to combat COVID-19.\nAs a result, gross meter adds decreased to 40,000 this quarter from 69,000 in the prior quarter and from 91,000 in the year-ago quarter.\nWhile we are in tenth [Phonetic] on growing GRE's meter base over the long term, the decline in meter adds has two positive short-term impacts, both customer acquisition expense and customer churn rates have decreased significantly.\nGRE's churn rate decreased to 3.9% in the second quarter from 4.7% in the first quarter.\nThat's partly because new customers tend to have higher rates of churn than longer tenured customers.\nSo we would expect to see churn rates fall after the pace of gross meter addition slows.\nBut also COVID-19 halted not just our own face to face customer acquisition programs, but also our competitors' programs.\nThis effectively eliminate the key churn driver.\nLooking ahead at GRE, we expect to see a modest rebound in meter acquisition beginning in the third quarter.\nPublic health restrictions have begun to ease in some of our markets, which allows us to resume face to face sales and marketing.\nWe'll also be entering some new utility territories.\nTurning now to Genie Retail Energy International.\nRCEs increased 40,000 year-over-year and 7,000 sequentially to 79,000.\nMeters served increased by 93,000 year-over-year and 14,000 sequentially to 161,000 meters.\nWe generated solid year-over-year growth in each of our overseas markets, the UK, Scandinavia and Japan.\nAt June 30, GRE International held 30% of our global meters served and nearly 18% of our global RCEs.\nI'm very pleased by the progress we made to diversify our customer base.\nAlso this quarter, we successfully leveraged Lumo's expertise and platform to enter the Swedish retail supply market and began acquiring customers there.\nAt Genie Energy Services, Genie Solar had a record quarter generating positive adjusted EBITDA for the first time, while Diversegy is close to breakeven.\nAs I mentioned last quarter, we are refining Prism Solar's business model to more closely align with the current business environment.\nGES recorded an impairment of $800,000 in the second quarter related to the writedown of an asset impacting income from operations but not adjusted EBITDA.\nAt GOGAS, we have had to again postpone the final well tests at OPEC [Indecipherable] drilling site.\nBecause of COVID-19 restriction in the central member of our technical team and not being able to get a visa.\nI'm reluctant to offer a new timeframe for completion of the test, when the execution depends on factors outside of our span of control, but I will provide an update for you when we discuss our third quarter results.\nBefore turning the call to Avi, I want to highlight that given our continued favorable outlook and strong cash generation in recent quarters and after raising our dividend last quarter, we resumed repurchasing our shares in the second quarter while continuing to pay the dividend at the increased rate.\nAnd also a big shout out to the Genie team that again an outstanding job of growing our business and significantly enhancing our bottom line results, although working from home.\nNow, here is Genie's CFO, Avi Goldin to discuss our financial results.\nMy remarks today cover our financial results for the three months ended June 30, 2020.\nThroughout my remarks I will compare second quarter 2020 results to the second quarter of 2019, focusing on the year-over-year rather than sequential comparison removes from consideration to seasonal factors that impact our retail energy business.\nKeep in mind that the second quarter is typically characterized by relatively low energy consumption.\nAfter the peak heating season in first quarter and before the third quarter's peak air conditioning months in July and August.\nResults are driven by the electric side of the business with minimal gas consumption.\nThe second quarter's financial results were strong, particularly in comparison to the year-ago quarter.\nAs you may recall, the second quarter of last year was heavily impacted by mild weather and a mark-to-market within our hedge book.\nWe express confidence that the business would rebound in our performance since then has justified that contents.\nIn the trailing 12-month period, the Company has achieved its highest level of consolidated operating income and adjusted EBITDA.\nAs Michael discussed, the COVID-19 pandemic has resulted in mixed operating impacts increasing electricity consumption while decreasing churn and slowing the pace of gross meter additions.\nIn addition, the decline in overall commercial industrial power consumption in our markets has helped mitigate price volatility.\nDespite the increase in residential consumption.\nAs we have noted before, predictable commodity price environments tend to favor our business model.\nConsolidated revenue in the second quarter increased by $15.1 million to $76.1 million.\nThe increase was powered by higher per meter electricity consumption resulting from the general acquisition of higher consumption meters, warmer weather than the year-ago quarter and increased residential electricity consumption from residential customers as part of the transition to work from home during COVID-19.\nAt Genie Retail Energy, revenue increased by $12 million to $66.5 million.\nElectricity sales accounted for nearly all of the increase.\nElectricity consumption increased 35% from the year-ago quarter, more than offsetting a modest decrease in revenue per kilowatt hours sold.\nOverseas, at Genie Retail Energy International, revenue increased by $2.2 million dollars to $5 million reflecting meter base growth at Lumo and Scandinavia and Genie Japan.\nDuring the quarter, we provided Orbit with an additional $1.5 million of capital, resulting in a net loss of Orbit Energy of that amount compared to a net loss of $867,000 a year ago quarter.\nOur Genie Energy Services division increased revenue by $859,000 to $4.6 million.\nConsolidated gross profit in the second quarter, more than doubled from the year-ago quarter increasing by $10.5 million to $19.5 million.\nAs I noted in my opening, we had a difficult quarter a year ago.\nThe operating environment was weak on lower consumption and mark-to-market loss on our forward hedge book.\nThis quarter we benefited from the strong consumption levels at Genie Retail Energy, and our consolidated gross margin rebounded to 25.6% from 14.7% in the year-ago quarter.\nThe decrease in meter acquisition expense of GRE helped us to reduce consolidated SG&A expense by $2.3 million to $16 million.\nThe rebound in GRE's margin and reduced customer acquisition spend helped drive a $12 month dollar improvement in our consolidated income from operations, which is $2.7 million compared to a loss from operations of $9.3 million in the year-ago quarter.\nAdjusted EBITDA reflects the equity net loss of equity method investees of $1.2 million was positive $3.5 million, compared to negative $9.1 million a year ago.\nEarnings per share was $0.06 per diluted per share compared to a net loss of $0.29 per share in the year-ago quarter.\nOur balance sheet continues to provide us with strategic flexibility.\nAt June 30, we had $51.8 million dollars in cash, cash equivalents and restricted cash and working capital of $49.1 million.\nCash provided by operating activities in the second quarter was $16.4 million compared to cash used in operating activities of $3.1 million in the second quarter of 2019.\nThe swing is attributable in large part to the change in year-over-year income as well as the unwind of cash collateral that was posted in the first quarter of 2020.\nThat was returned in the second quarter in support of the HELOC.\nAs Michael mentioned, we continue to be diligent about returning value to our shareholders.\nThis quarter, we repurchased over 200,000 shares of Genie Class B common stock for $1.5 million.\nTo wrap up, we met the various challenges of the COVID-19 environment, posted a strong second quarter, significantly improving on the financial results of the same period a year-ago, strong consumption per electricity meter and reduction in customer acquisition spend keyed substantial year-over-year improvement in our bottom line results.\nThis concludes my discussion of our financial results.\nNow operator, back to you for Q&A.",
        "summary": "compname reports q2 earnings per share $0.06.\nq2 earnings per share $0.06.\nq2 revenue rose 24.7 percent to $76.1 million."
    },
    {
        "text": "We encourage you to review all of these materials.\nToday, you will hear from our president and chief executive officer, Tom McInerney; followed by Dan Sheehan, our chief financial officer and chief investment officer.\nFollowing our prepared comments, we will open up the call for a question-and-answer period.\nOur actual results may differ materially from such statements.\nAlso, references to statuary results are estimates due to the timing of the filing of the statutory statements.\nWe reported a very strong operating performance in the second quarter, continuing the reasonable momentum across our businesses while making progress on our strategic plan to create long-term value.\nmortgage insurance business, now known as Enact, as well as in our long-term care insurance business.\nEnact reported very strong results with adjusted operating income of 135 million compared with 126 million in the prior quarter and an adjusted operating loss of 3 million in the prior-year period.\nRelative to the prior quarter, Enact reported higher new insurance written, lower earned premiums and a 32% decrease in new delinquencies.\nResults reflected a loss ratio of 12%, which compares favorably to the prior quarter due to lower losses from new delinquencies and higher reserve strengthening in the prior quarter.\nU.S. life insurance reported adjusted operating income of 71 million for the quarter compared with 62 million in the prior quarter and an adjusted operating loss of 5 million in the prior year.\nResults were primarily driven by LTC insurance, which reported adjusted operating income of 98 million, reflecting higher earnings from in-force rate actions, including benefit reductions related to a legal settlement and higher net investment income versus both the prior quarter and the prior year.\nWe successfully managed capital levels during the second quarter, ending the quarter with a very strong PMIERs ratio of 165% in Enact or nearly 2 billion above published requirements and risk-based capital in our principal life insurance company, GLIC, of approximately 270%.\nGenworth also ended the second quarter with a very strong cash position of 842 million in cash and liquid assets at the holding company level.\nOur strong performance over the past several quarters provide a solid foundation for us to write the next Genworth's chapter.\nAs our long-term shareholders know, Genworth's financial stability and flexibility have significantly improved over the past several years.\nWe are now on a more stable trajectory as a result of continued strong operating performance particularly at Enact.\nStrategic actions we've taken to reduce debt and excellent progress to further reduce risk associated with our legacy LTC insurance blocks.\nWe have adequate liquidity to meet our financial obligations, valuable expertise and capabilities and a focused strategy to drive long-term shareholder value creation.\nMoving forward, our primary strategic focus in the near term is to continue to reduce holding company debt.\nIn July, we fully retired our remaining 2021 maturities, reducing parent holding company debt by an additional 513 million to approximately 2 billion, including our previously disclosed liability to AXA of approximately 345 million.\nOur goal is to reduce holding company debt to a sustainable level of approximately 1 billion, creating more financial flexibility for Genworth to return capital to shareholders and make prudent investments in future growth.\nSince 2013, we have reduced wholly company debt by a total of approximately 2.2 billion.\nRelated to the obligation to AXA, I mentioned last quarter that AXA has initiated a lawsuit in the U.K. against an insurer seeking to recover payouts it made to policyholders for missed payment protection insurance, a significant portion of which Genworth agreed to reimburse as part of the 2020 settlement.\nAXA's lawsuit against an insurer is an ongoing matter.\nAnd as with typical litigation, we expect the process to pull out over the next 18 to 24 months.\nAs I've said before, Genworth is entitled to certain recoveries AXA may receive from Sendentera.\nWhile any recoveries will be very positive for Genworth, our plans are not reliant upon those potential reimbursements.\nBeyond that, we can't comment further on this litigation.\nTo further accelerate our efforts to reduce debt, and improve it, Enact and Genworth credit ratings, we remain focused on partially monetizing our ownership of Enact through a minority IPO of up to 19.9%.\nAs we have considered various options for Enact over the past several years, our objective has been to protect and ultimately unlock its value, enabling us to maximize value for Genworth's shareholders in any potential transaction.\nThe board and I continue to believe that a future IPO of Enact is the best option to do just that.\nWe maintain our positive long-term outlook for the MI sector based on the strong positive trends in the U.S. housing market and expected tailwinds as the economy continues to recover from COVID-19.\nWe continue to monitor the market and will remain prepared to recommence the IPO process, subject to various conditions and approvals when market conditions improve.\nHowever, as a reminder, we are currently in registration with the SEC.\nAnd as a result of applicable publicity restrictions, I won't provide any additional details about or discuss the timing of the potential offering.\nWe will be very limited in our comments about Enact other than reviewing its quarterly results.\nWe expect our majority ownership stake in Enact to generate a significant dividend stream in the future as we work to move our legacy LTC books to breakeven and build a profitable new LTC company.\nWe have received approval from the North Carolina Department of Insurance to dividend 200 million of capital from GMICO to Enact Holdings in the fourth quarter of 2021.\nSubject to market conditions, business performance, other regulatory approvals and compliance with applicable GSE requirements.\nThis increases our confidence in Enact, issuing a 200 million dividend in the fourth quarter.\nFollowing the planned IPO, we intend to maintain our ownership of Enact for the foreseeable future, while preserving the option to distribute the remainder to Genworth's shareholders and a tax-free spin-off with that as an attractive option in the future.\nNext, we are working toward stabilizing our legacy LTC portfolio through our multiyear rate action plan or MYRAP, which will enable us to focus on our long-term LTC growth strategy.\nwe have made exceptional progress on this effort with over 15.5 billion in net present value from LTC premium increases and benefit reductions achieved since 2012, including an incremental 49 million in rate actions approved during the second quarter.\nThese rate actions provided more options for policyholders, including reduced benefit and stable premium options, which continue to be selected at a higher frequency by our policies.\nWe are working to develop even more benefit options for our policyholders to choose from when faced with the rate actions.\nAs of June 30, 2021, approximately 59% of Genworth's LTC policyholders have accepted all premium increases in full, 27% have taken a reduced benefit option and 14% have opted for a non-forfeiture option.\nReducing our legacy LTC liabilities through the MYRAP and other rate action initiatives is critical to achieving breakeven on an economic basis with the legacy LTC business over time.\nOur current long-term cumulative improvement target on a net present value basis is roughly 22.5 billion in rate actions, which is the amount needed to address the current expected shortfall in our legacy LTC books of business.\nHaving achieved 15.5 billion against the current target of 22.5 billion means we are approximately two-thirds of the way toward achieving breakeven.\nI would note that we will complete our annual LTC assumptions review later this year, and this target could change over time as our experience evolves.\nGiven that state regulators have and will continue to spread LTC premium increases over several years, returning our legacy LTC portfolio to breakeven on an economic basis is likely five to seven years or more away.\nWe are proud of our steady progress toward this goal and the MYRAP remains an important strategic initiative for Genworth since achieving breakeven will expand optionality and increase the potential long-term value of our overall company to shareholders.\nWith these key initiatives underway, we have begun to focus our growth strategy on the future of LTC insurance and we are advancing our plans through a new insurance company to create a leading profitable LTC insurance business in the U.S As I said before, there is a great need for long-term care solutions in the U.S. with 54 million Americans, aged 65 and older, at the end of 2019, and with that number expected to increase to 95 million by 2060, while at the same time, care costs are rising rapidly.\nCOVID-19 has heightened the focus on long-term care among legislators and the general public.\nWe believe it also has accelerated the long-term trend of seniors increasingly seeking to receive care in our homes as was evident throughout the pandemic, if not well before, enabling more must be done to protect and empower seniors, enabling them to remain in the setting of their choice and receive the services and support they need to maintain their dignity as they age.\nUnfortunately, many older adults, especially those in the middle class, have limited options to pay for long-term care and the existing funding gap is simply is too large for either the public or private sectors to fill on their own.\nThat's why we believe partnership with the public and private sectors is critical.\nWe believe the government and private sectors can collaborate successfully to address the long-term care dilemma, and we are encouraged to see an acknowledgment of this necessary alliance and recently introduced legislation including the well-being insurance for seniors to be at home or WISH Act proposed by U.S. rep Tom Suozzi.\nWe are especially pleased to see that public education is a vital component of his legislation.\nFocusing greater awareness of the likelihood of requiring long-term care during one's later years, the programs that make cover care needs and the options available to enhance care, we encourage families to have the necessary conversations with our loved ones and take appropriate steps to ensure that resources are available to fund their long-term care needs.\nWe expect these recent developments, we will reignite conversations about reforming the long-term tariff system in the U.S. And we are eager to participate and lend our unique expertise in this effort.\nThere are only a few players in the LTC insurance market today due to severe financial challenges arising from our legacy LTC business.\nWe know the key to success in the future is to learn from the past, to design new insurance products with lower and more predictable risks.\nThrough our extensive experience with LTC, we've also identified several opportunities adjacent to insurance, including products and services that help people navigate a complex and fragmented support system to find the best care.\nWe believe a successful reinvigoration of the U.S. LTC market will address both financing and services and ultimately will hopefully reduce the likelihood of people needing care and/or lessening the care that they need.\nand are working hard on developing a new and improved go-to-market strategy.\nAs we've mentioned previously, we also see compelling long-term opportunities in China, but have decided to focus our efforts on launching a U.S. business in the near term.\nOur plan is to launch this new business sometime in 2022 in partnership with highly rated third parties.\nWhile Genworth's most significant contribution to any potential partnership would be our intellectual property and expertise, we may also invest a prudent level of capital.\nWe look forward to updating shareholders with more details in due course.\nTo sum up, we are laser focused on five key priorities.\nOne, reduce our holding company debt to approximately 1 billion.\nTwo, maximizing the value of an Enact.\nThree, returning capital to shareholders.\nFour, achieving economic breakeven and stabilizing the legacy LTC portfolio.\nAnd finally, preparing to launch a new LTC joint venture in the U.S I believe the current market value of our shares does not reflect Genworth intrinsic value and that the key to driving significant shareholder value will be our execution on these five priorities in the near term.\nAfter reaching our 1 billion debt target and realizing the resumption of dividends from Enact to the parent company, we expect to generate reliable and sustainable future cash flows that will enable Genworth to consider returning cash to shareholders through a regular dividend and through share repurchases.\nWe know this is an especially important step for our shareholders who've been extremely patient throughout the last several years of uncertainty.\nWe will also be in a strong position to continue to prudently invest and new LTC business opportunities where we are uniquely qualified and positioned to win.\nWe are extremely proud of the work we've done to put the company on this path.\nGenworth has an engaged board and leadership team, a skilled and dedicated workforce and the unparalleled experience and expertise to create long-term value.\nI'm pleased with the continued progress made during the quarter with strong earnings and capital ratios in our Enact U.S. mortgage insurance segment, strong results from our long-term care insurance business and increased liquidity at the holding company.\nWe ended the quarter with more than 842 million in holding company cash.\nSubsequent to quarter end, we retired our remaining September 2021 debt of 513 million, which reduced parent company debt to approximately 2 billion, including the AXA liability.\nWe reported net income available to Genworth shareholders for the quarter of 240 million and adjusted operating income of 194 million.\nIncluded in net income for the quarter was 46 million in non-operating items, mostly consisting of mark-to-market increases on limited partnerships in our investment portfolio.\nTurning to the Enact segment.\nThe U.S. mortgage and housing market continues to demonstrate positive momentum characterized by a large origination market, increasing home prices and the continuation of decreasing new delinquencies from their pandemic-driven peak.\nDespite the challenges of low housing inventory and rising home prices, affordability remains favorable, supported by prevailing low interest rates.\nDuring the quarter, we estimate the originations market accelerated its transition to purchase originations, which is a positive trend for the private mortgage insurance industry as we experienced approximately four times higher penetration in purchase originations versus refinances.\nFor the second quarter, Enact reported adjusted operating income of 135 million and a loss ratio of 12% compared to adjusted operating income of 126 million and a loss ratio of 22% in the prior quarter.\nThe improvement in results was primarily driven by lower new delinquencies compared to the prior quarter.\nIn addition, insurance in force grew approximately 10% versus the prior year, primarily driven by over 100 billion in new insurance written over the last four quarters.\nNew insurance written in Enact was 26.7 billion in the quarter, up 7% versus the prior quarter, driven primarily by a larger purchase origination market and down 6% versus the prior year, primarily driven by lower estimated market share.\nA healthy and prudent MI market has enabled us to continue to write new business at attractive low to mid-teen returns.\nWe see the market and underwriting conditions, including the pricing environment as being well within our risk-adjusted return appetite.\nUltimately, we expect our second quarter new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity going forward.\nOur persistency increased seven points compared to the previous quarter and four points compared to second-quarter 2020 driven by a modest increase in interest rates and the decline in the percentage of in-force policies with mortgage rates above prevailing rates.\nHowever, the overall low interest rate environment and resulting refinance activity continued to drive low persistency across our insurance portfolio.\nPremiums were lower versus the prior quarter and flat to the prior year, impacted by lower single premium cancellations, higher ceded premiums and lapse of older, higher-priced policies, offset by insurance in force growth.\nWhile single premium cancellations remain elevated, we did see a 6 million decline to 20 million this quarter versus 26 million last quarter and 35 million last year.\nCeded premiums were up 2 million this quarter to 18 million versus 16 million last quarter and reflect the expansion of our credit risk transfer program.\nSince June, we've been providing investors a monthly reported delinquency activity and have now seen four consecutive quarters of improving delinquency trends with sequentially lower new delinquencies and cures in excess of these delinquencies.\nFor the quarter, cures of approximately 14,500 were up 7% sequentially and continue to outpace new delinquencies.\nOur new delinquency rate or new delinquencies over policies in force, was 0.7%, which reflects a return to pre-pandemic levels.\nWe're encouraged by this milestone, which reflects ongoing recovery from the pandemic.\nNew delinquencies of approximately 7,000 during the quarter were down 30% sequentially with 45% reported in new forbearance plants.\nThese delinquencies resulted in 30 million in loss expense in the quarter.\nAdditionally, we released 4 million of IBNR reserves related to June delinquencies that have not yet been reported by services to us and which we expect will be lower than had been assumed in our prior IBNR reserves.\nThe release of IBNR reserves was offset by other losses.\nConsistent with the prior quarter, our expected ultimate claim rate on new delinquencies was approximately 8%.\nWe ended the quarter with approximately 33,500 total delinquencies or a delinquency rate of 3.6%.\nIn total, approximately 64% of our total delinquencies are in forbearance plans.\nImportantly, 94% of our delinquencies have mark-to-market loan to values, reflecting at least 10% borrower equity and 60% of mark-to-market loan to values, reflecting at least 20% borrower equity using March 2021 home prices.\nWe believe this level of embedded home price appreciation across our delinquencies could have a positive impact on future claim rates and severity of claims, as forbearance plans expire, and foreclosure moratorium ends.\nWe reported adjusted operating income of 71 million in the quarter, which compared to adjusted operating income of 62 million in the prior quarter and an adjusted operating loss of 5 million in the prior year.\nOverall results in this segment were driven by strong variable investment income and benefit reductions in long-term care.\nMortality was lower in the quarter as impacts related to the COVID-19 pandemic have lessened.\nIn long-term care, adjusted operating income was 98 million in the second quarter compared to 95 million in the prior quarter and 48 million in the prior year.\nI do want to remind investors, while we have a positive lifetime GAAP margin on our long-term care block, the emergence of profits over time is uneven.\nUnder GAAP, we deferred a portion of our LTC profitability by accumulating the profits followed by losses reserve to help cover projected losses in the future.\nAs of the second quarter, the pre-tax balance of this reserve was 957 million, up from 625 million as of year-end 2020.\nThis had an earnings impact of 125 million after tax during the quarter.\nFor the quarter, variable investment income in LTC was up 35 million after tax versus the prior quarter and 63 million after tax versus the prior year, reflecting higher limited partnership income, gains on treasury inflation protected securities and bond calls and prepayments.\nAs we look forward, we would expect this investment performance to moderate.\nTo remind investors, we had previously established a reserve of 158 million for mortality experience during the pandemic to reflect our view that the remaining claim population is less likely to terminate than the pre-pandemic average due to the pandemic impacting our most vulnerable claimants.\nHowever, with the significant decline in mortality in the second quarter, we did not establish additional reserves for this mortality adjustment or reduced a portion of the cumulative balance, leaving a remaining reserve of 143 million.\nAs the pandemic continues to develop, mortality experience may fluctuate in the near term and we would increase or decrease the COVID-19 mortality adjustment accordingly.\nAlthough new active claims trended up gradually in the first half of 2021, incidence remains lower than pre-pandemic levels, and drove continued favorable IBNR development during the quarter.\nPending claim submissions, which are a leading indicator of future new claim incidents increased during the quarter and based on this experience, we expect incidents to continue to trend higher in the quarters ahead.\nEarnings from in-force rate actions increased versus the prior year and prior quarter, driven primarily by benefit reductions, including the impacts of benefit reduction elections related to a legal settlement that favorably impacted this quarter by 71 million or 22 million after adjusting for profits followed by losses.\nAt this time, it's difficult to assess the overall impact the legal settlement will have going forward as full implementation of the settlement will take another two to three quarters.\nThis settlement applies to a subset of our choice on policyholders or approximately 20% of more than 1 million long-term care insurance policyholders and provides additional clarity into future rate actions with expanded benefit reduction at nonforfeiture options.\nWe also have an agreement in principle for a nationwide settlement on a basis similar to the Choice 1 settlement, subject to full documentation and court approval, which applies to our PCS 1 and PCS 2 policy forms that comprise approximately 15% of our long-term care insurance policyholders.\nShifting to in-force rate action approvals for LTC during the quarter, we received approvals impacting approximately 81 million of premiums with a weighted average approval rate of 60%.\nFor the first half of 2021, we received approvals impacting 477 million in premiums with a weighted average approval rate of 43% compared to 257 million in premiums and a weighted average approval rate of 30% for the first half of 2020.\nWhile quarterly approvals are uneven, we expect approvals in the second half of 2021 to be strong based on pending filings with a few large states.\nWe do expect to complete our claims assumption review in the fourth quarter.\nWe're monitoring emerging experience, particularly in mortality and benefit utilization.\nWhile this work is ongoing, preliminary indications are that our claim reserve assumptions are holding up in the aggregate.\nIn the fourth quarter, we also plan to complete our review of our active life reserve assumptions, including mortality, benefit utilization, interest rates and in-force rate actions, among other assumptions.\nAny assumption changes that result in pressure to our active life margins will be assessed for inclusion in our multiyear rate action plan.\nfor 2021 assumption updates, we're generally not including data from 2020 and setting any long-term assumptions as we do not yet have sufficient information around longer-term effects of the pandemic.\nTurning to life insurance.\nOverall mortality for the quarter continued to be elevated versus historical experience, although improved versus the prior quarter.\nThe second quarter included an estimate of approximately 9 million after tax in COVID-19 claims based upon death certificates received to date.\nDespite improvement versus the prior quarter from the decrease in COVID-19 claims, mortality remained higher than the prior year.\nThe impact of term life insurance products from shop lactis has moderated as a result of the reinsurance agreements in place related to the 20-year term block issued in 2001.\nTotal term life insurance stack amortization, reduced earnings by 12 million after tax versus 13 million after tax in the prior quarter and 27 million in the prior year.\nWe will likely see additional shock lapse amortization next year with a 20-year block issued in 2002, which is not reinsured, although the impacts are anticipated to be smaller than 2019 and 2020, given the smaller size of the block.\nIn our universal life products, we recorded a 13 million after-tax charge for DAC recoverability and down from 17 million in the prior quarter.\nThe charges in the first two quarters of this year reflected the unfavorable mortality experience and continued block runoff.\nSimilar to LTC, we'll also complete our annual review of life insurance assumptions, including mortality, persistency and interest rates in the fourth quarter.\nAs we complete our review, we're closely monitoring our elevated mortality experience, including older age mortality as well as mortality improvement and potential changes to our assumptions could negatively impact our earnings in the fourth quarter.\nIn fixed annuities, adjusted operating earnings of 13 million for the quarter was lower compared to the prior quarter and prior year, primarily from lower mortality and single premium immediate annuities and unfavorable impact from the decline in interest rates during the quarter.\nIn the runoff segment, our adjusted operating income was 15 million for the second quarter versus 12 million in the prior quarter and 24 million last year.\nEquity market performance was more favorable versus the prior quarter and less favorable versus the prior year.\nRounding out the results, corporate and others adjusted operating loss was 27 million and was improved from last quarter in the prior year.\nprimarily driven by lower interest expense.\nOur deleveraging efforts this year and moving forward are projected to decrease the losses in this segment in the quarters ahead.\nTurning to capital levels.\nIn the Enact segment, we finished the quarter with an estimated PMIERs sufficiency ratio of 165% or approximately 1.9 billion above published requirements.\nThe improvement in our PMIERs sufficiency versus the prior quarter was driven by strong business cash flows, lower required assets related to declining delinquent inventory, continued capital credit from our forward excess of loss reinsurance transaction and the execution of an insurance-linked note on a portion of our 2020 book, which provided approximately $300 million of PMIERs credit origination.\nAs Tom mentioned, subsequent to the second quarter, GMICO, our flagship MI entity, received approval from North Carolina Department of Insurance, our domestic regulator, to dividend 200 million in the fourth quarter.\nWhile subject to market conditions, business performance and other regulatory approvals, including compliance with the applicable GSE requirements, our confidence has increased in Enact, issuing a 200 million dividend in the fourth quarter.\nWe expect capital in Genworth life insurance company, or GLIC, as a percentage of company action level RBC to be approximately 270%, up from 254% at the end of the first quarter.\nU.S. life statutory earnings in the second quarter benefited from LTC earnings from the impact of in-force rate actions and claim experience.\nStatutory earnings for LTC are generally higher than GAAP earnings because the concept of profits followed by losses does not exist for statutory accounting.\nStatutory earnings are more aligned to taxable earnings, which has contributed cash tax payments to the holding company over the last few quarters and which we expect to continue.\nTurning to the holding company.\nWe're very pleased with the improvement in our liquidity and financial flexibility as we've retired more than 1.2 billion of debt through July while maintaining prudent cash buffers for forward debt service obligations.\nAs I mentioned earlier, we ended the quarter in a very strong cash position with 842 million in cash and liquid assets were 655 million above our targeted cash buffer.\nThis excludes approximately 284 million in cash held at Enact's holding company.\nAs we look forward, we believe that our liquidity and financial flexibility profile should improve even further.\nWith cash on hand, expected intercompany tax payments, the planned minority IPO of Enact and resumption of their dividends, our financial flexibility should improve meaningfully.\nOnce our parent debt level reaches approximately 1 billion, we'll be in a better position to return capital to shareholders and make prudent investments in future growth.\nIn closing, we've taken numerous steps to improve the liquidity and financial flexibility of our holding company and the position of our businesses.\nWe're pleased with our financial progress and remain focused on providing value to all key stakeholders.",
        "summary": "planned ipo of enact remains a key strategic objective for genworth."
    },
    {
        "text": "Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings.\nWe caution you not to place undue reliance on these statements.\nSome of the comments made refer to non-GAAP financial measures, such as adjusted net revenue, adjusted operating margin and adjusted earnings per share, which we believe are more reflective of our ongoing performance.\nJoining me on the call are Jeff Sloan, CEO; Cameron Bready, President and COO; and Paul Todd, Senior Executive Vice President and CFO.\nWe delivered record third quarter results, despite the incremental challenges that emerged during the period from COVID-19.\nHighlighting the resiliency of our business model and our ongoing track record of execution across market cycles.\nWe also surpassed $2 billion of quarterly adjusted net revenue for the first time in our history with record margins and produced all-time high quarterly adjusted earnings per share and adjusted free cash flow.\nAs we detailed at our investor conference just a short time ago on September 8th.\nThe trend toward accelerated digitization coming out of the pandemic has benefited our business by reinforcing that mode of competition, and this quarter provided further proof points of the wisdom of our approach to drive differentiated growth across the four pillars of our strategy.\nFirst, we extended long-standing relationships with both CITI and CIBC, as a reflection of our promise as a top quartile software-as-a-service or SaaS technology company with unmatched worldwide payments expertise.\nOur durable partnerships with some of the most sophisticated and complex institutions globally speak to our competitiveness, well into the remainder of this decade.\nStarting with CITI, we are delighted to have furthered our relationship with one of our largest commercial card customers for another eight years.\nThis agreement highlights a key element of what is already today a successful B2B business at scale.\nMore on this new pillars to our strategy in a moment.\nWe're also pleased to have renewed our issuer relationship with CIBC a top 10 customer in North America that spans both its consumer credit and debit portfolios for an extended term.\nAs we discussed in September, we also continue to build our pipelines with AWS to include additional fintechs, neobanks and embedded finance players spanning multiple geographies.\nWe now have 25 active prospects in our issuer pipeline with AWS, up from 20 last quarter and four at the end of 2020.\nWe also currently have 10 letters of intent with institutions worldwide, six of which are competitive takeaways; two of our recent LOI's have gone to contract.\nWe're also excited to announce that together with AWS, we signed an agreement with London based 10x to integrate its cloud native, core banking platform with TSYS is payments as service capabilities.\nAllowing us to collaborate on modern core banking and issuing solutions for neobank and traditional financial institution customers.\nAs we announced at our Investor Conference, we now have a terrific partner in Virgin Money for our first use case combining issuing and acquiring capabilities to offer transaction stream optimization solutions.\nIt's worth noting that Virgin Money is also a significant competitive takeaway for us.\nSimply put, we're winning in our Issuer Solutions business, because we are selling more market-leading technologies to more distinctive and defensible distribution channels in more markets than we ever have previously.\nAnd our vertical markets businesses where we lead with SaaS at top of the funnel, we were delighted to announce our new partnership with Mercedes-Benz Stadium in September.\nAs we highlighted, we believe that we were successful, because of our ability to seamlessly and uniquely combine software, hardware and payments across in-person mobile and online channels.\nWe expect to facilitate a best-in-class fan experience through market leading commerce enablement solutions.\nWe're now in pilot with Mercedes-Benz Stadium and we expect to be fully live early in 2022.\nWe're gratified that after combating the payments landscape an extensive RFP, including with a full spectrum of new markets entrance.\nThis sophisticated institution terminated their existing relationships and chose us for our software and payment technologies with a commitment well into the back half of this decade.\nFurther across our merchant technology enabled businesses, our POS software solutions generated revenue growth of nearly 70%, compared to 2019 in the third quarter.\nAnd our central education business in Australia grew over 50% versus 2019, despite lockdowns in that market.\nIn addition to the key win at Mercedes-Benz Stadium, our GO [Phonetic] business delivered record bookings in the third quarter and also had notable successes with Subway, Whataburger, Bojangles, RBI and Wendy's.\nSpanning software, hardware payments and data and analytics.\nThese results highlight the benefits we're seeing from the accelerated digitization in our markets.\nOur e-commerce and omnichannel businesses drove growth in excess of 20% again this quarter.\nThis business is another example of pandemic induced accelerate digitization benefiting us with current growth rates one-third faster than pre-COVID-19 levels.\nA few examples of durable success here this quarter: we broadened our relationship with Uber and Uber Eats into an additional market in Asia Pacific beyond Taiwan.\nWe expanded our long-standing relationship with the Swatch Group to now include e-commerce alongside the solutions we provide in-store today across North America and Asia Pacific.\nAnd we went live with Google as a merchant in multiple markets in Asia Pacific exactly as we said we would.\nWe remain on track to launch Google run and grow my business this quarter.\nAnd we're already working on the launch of the next phase to help our merchants grow faster by connecting additional Google services, including online ordering, retail inventory and reservation to our digital platform.\nThese solutions will over time drive more consumers to our merchants and dramatically expand our value proposition with one of the leading technology players worldwide.\nWe are also very pleased to announce today that we have extended and expanded the scope of our relationship with PayPal, one of the most sophisticated payments companies globally.\nThis multi-year partnership leverages our unparalleled e-commerce technology footprint across cross-border in North America, Europe and Asia Pacific.\nAnd it will dramatically expand our target addressable markets over its term.\nWe've added new geographies additional verticals and support crypto currencies for the first time.\nTogether with CITI, Mercedes-Benz Stadium, Virgin Money and CIBC, what better testament to our current and future competitiveness.\nAs we said in September, we continue to benefit from ongoing innovation in our ecosystem, including Buy Now Pay Later or BNPL Technologies.\nWe expect to enable more than 1.5 billion BNPL transactions this year alone and we anticipate issuing more than 15 million virtual cards with more than $23 billion in volume.\nIt's a market we know well, because it's a market that we've been serving for decades globally.\nAs BNPL continues to grow, we believe we're well positioned given our presence worldwide and our unique offerings the benefit.\nExamples of our exposure include through network initiatives, traditional issuers, private label or charge card and program management, virtual card issuance, non-traditional issuers, including fintech, start-ups and neobanks, unique collaborations with AWS and Google, large existing scale players looking to expand BNPL globally into new markets and with added functionality.\nAnd of course the acceptance from our unmatched virtual and physical footprint with BNPL is just one of the many services at the point of sale in our commerce enablement ecosystem.\nAt the end of the day, the entity is cash and check and further digitization including BNPL is the mode of competition.\nOur ability throughout the pandemic to sustainably expand our rates of growth relative to our markets has been indicative of our technology leadership.\nThis quarter was no exception with our global merchant acquiring businesses delivering 900 basis points of outperformance relative to the credit trends reported by the card networks last week.\nOur consistent track record of share gains during the pandemic is something we highlighted at our Investor Conference.\nI'm also delayed to report that we have successfully closed our acquisition of MineralTree in October.\nAfter having announced our formal entry into the B2B market in September.\nAs we highlighted, then we have many of the elements of a B2B offering post our merger with TSYS in 2019.\nAnd in addition at MineralTree's digitize payable solutions serves to enhance our B2B product suite and expands our opportunity set in one of the largest and most under penetrated markets in software and payments.\nWe intend to further scale our business rapidly.\nIn addition to MineralTree and the extension of our commercial partnership with CITI, we had several other notable B2B achievements in the third quarter.\nThese include a new relationship with WeatherTech in our Heartland business for B2B, as well as B2C acceptance.\nNear 50% payroll solutions growth in the third quarter, compared to 2019.\nAnd a 10-fold increase in the number of customer locations using our Tips solution from our business and consumer segment for disbursement, since the beginning of the pandemic.\nWe continue to have tremendous firepower to conduct strategic transactions with billions of available capacity.\nOf course this is on top of the $2.5 billion we have already invested over the last year.\nDuring the pandemic in acquisitions consistent with our strategic focus, including our emphasis on faster growth geographies.\nAnd it's in addition to the nearly $2 billion, we've returned to shareholders over the last year.\nTo that end, we are pleased to have now closed our acquisition of Bankia's merchant acquiring business together with our partners at CaixaBank last month, deepening our presence in one of the most attractive markets in Europe.\nAnd through our Erste joint venture, we also very recently closed the acquisition of Worldline's PayOne Austrian POS acquiring assets, enabling us to bring our distinctive distribution and market leading technologies at scale to get another attractive market.\nAnd our pipeline remains full, despite the investments we have already made over the last 12-months.\nThe majority of which has been in software assets in furtherance of our long-standing technology enablement thesis.\nOur financial performance in the third quarter of 2021 exceeded our expectations, despite incremental headwinds from COVID-19 and the delta variant during the period.\nSpecifically, we delivered record quarterly adjusted net revenue of just over $2 billion representing 15% growth, compared to the prior year and 10% growth, compared to 2019.\nAdjusted operating margin for the third quarter was a record 42.8%, a 170 basis point improvement from the prior year and a 420 basis point improvement relative to 2019.\nThe net result was record quarterly adjusted earnings per share of $2.18, an increase of 28%, compared to the same period for both the prior year and 2019.\nTaking a closer look at our performance by segment.\nMerchant Solutions achieved adjusted net revenue of $1.36 billion for the third quarter, a 21% improvement from the prior year and a 13% improvement, compared to 2019.\nWe are also pleased that our acquiring business is globally generated 22% and 19% adjusted net revenue growth, compared to the third quarter of 2020 and 2019 respectively.\nThis was led by continued strength in the US, while we also benefited from improving trends in international markets, including Spain, Central Europe and Greater China.\nFocusing on our technology enabled portfolio, we continue to see consistent growth in our Global Payments Integrated business as we deliver a vertically fluent suite of commerce enablement solutions across dozens of vertical markets.\nAs we highlighted at the Investor Conference, a number of our businesses, including our integrated business have grown right through COVID-19 and are now at levels that we would have otherwise expected them to achieve, absent the downturn.\nOur worldwide e-commerce and omnichannel solutions delivered growth in excess of 20% year-on-year, once again this quarter as we continue to benefit from our unique ability to seamlessly blend that difficult and virtual worlds and create frictionless experiences for our customers on a global basis.\nAs far, our own software businesses in the US, we are pleased that the overall portfolio delivered strong sequential improvement as the recovery begins to take root in some of the more impacted vertical markets.\nGiven the positive booking trends we have seen throughout the pandemic, including this quarter we are confident that the business is most impacted by COVID-19 in this portfolio remain on a path to recovery.\nWe delivered an adjusted operating margin of 49.3% in the Merchant Solutions segment, an increase of 200 basis points from the same period in 2020, as we continue to benefit from the underlying strength of our business mix and the realization of cost synergies related to the merger.\nMoving to Issuer Solutions, we are pleased to have delivered $458 million in adjusted net revenue, a 6% improvement from the third quarter of 2020.\nThis performance was driven by the continued recovery in transaction volumes, as well as growth in accounts on file, while non-volume based revenue increased mid single-digits during the period, including low double-digit growth in or out with services business again this quarter.\nIssuer adjusted operating margins of 43.4% were up slightly from the prior year.\nAs you may recall Issuer Solutions achieved margin expansion of 500 basis points in the third quarter of 2020 over 2019, fueled by our focus on driving efficiencies in the business.\nWe are also pleased that our Issuer team signed five long-term contract extensions during the quarter, and our strong pipeline, including the growing list of opportunities we have in collaboration with AWS continues to bode well for our future performance.\nFinally our Business and Consumer Solutions segment delivered adjusted net revenue of $208 million, representing growth of 2% on a reported basis for the third quarter.\nAdjusting for the stimulus benefits and higher unemployment volumes last year, our adjusted net revenue growth was in line with our targeted growth range for the quarter.\nAdjusted operating margin for Business and Consumer Solutions was consistent with the prior year at 25.6% after expanding more than 700 basis points during the third quarter of 2020, as a direct result of our efforts to streamline costs and drive greater operational efficiencies at Netspend.\nFurther, we are pleased with the early progress we are making on our strategic partnership we announced last quarter with AWS in this business.\nWhile we also launched and began selling our earned wage access solution to existing B2B clients and into new vertical markets during the period.\nThe outstanding performance we delivered across our businesses this quarter serves as a further proof point that we continue to gain share and that our four-pillared strategy positions us well to capitalize on the accelerating digital trend coming out of the pandemic.\nFrom a cash flow standpoint, we generated roughly $850 million during the third quarter and remain on track with our target to convert roughly 100% of adjusted earnings to adjusted free cash flow.\nWe invested approximately $132 million and capital expenditures during the quarter in line with our expectations.\nWe have now successfully closed our acquisitions of MineralTree, Bankia's Merchant Services business and Worldline's PAYONE Austrian assets consistent with our expectations.\nWe expect the contribution from these acquisitions to adjusted net revenue to be immaterial in the fourth quarter.\nWe are pleased to have also returned cash to our shareholders this quarter through the repurchase of approximately 4.2 million of our shares for approximately $741 million.\nWe ended the period with roughly $2.5 billion of liquidity after repurchase activity and funding of the Bankia Acquisition.\nOur leverage position was roughly 2.6 times on a net debt basis, consistent with the prior quarter.\nWe remain encouraged by the trends we are seeing in the business and we are raising the lower end of our guidance for adjusted net revenue to now be in a range of $7.71 billion to $7.73 billion, reflecting growth of 14% to 15% over 2020.\nWe are adding $10 million to the bottom of the range despite anticipating an incremental headwind from foreign exchange rates, since our last report and absorbing the impact of the delta variant of COVID-19.\nWe also continue to expect adjusted operating margin expansion of up to 250 basis points, compared to 2020 levels, excluding the impact of our already announced and closed acquisitions.\nAs previously discussed, we expect those transactions to result in a headwind to our margin performance and we now expect adjusted operating margin expansion of around 200 basis points for the year.\nAt the Segment level, we continue to expect Merchant Solutions adjusted net revenue growth to be around 20% for 2021.\nWe also continue to expect our Issuer business to deliver growth in the low to mid single-digit range and for our business and consumer segment to be in the mid to high single-digit range for the full-year.\nMoving to non-operating items, we still expect net interest expense to be slightly lower in 2021 relative to 2020, while we anticipate our adjusted tax rate will be relatively consistent with last year.\nPutting it all together, we now expect adjusted earnings per share for the full-year to be in a range of $8.10 to $8.20, reflecting growth of 27% to 28% over 2020, which is up from $8.07 to $8.20 previously.\nOur outlook presumes the macro environment remains stable worldwide over the balance of the year.\nAnd now includes an incremental headwind from currency.\nFinally, we are pleased that our unique strategy that capitalize on the acceleration of digitization impairments, our ongoing technology enabled mix shift, our exposure to expanding TAMs [Phonetic] including now B2B and our track record of disruptive M&A provided us with the confidence to raise our cycle guidance at our September 8th Investor Conference.\nIn particular, we continue to expect adjusted earnings-per-share growth in the 17% to 20% range over the next three to five years on a compounded basis.\nOur strategy has been centered on digitization, since we started running the company a little over eight years ago.\nBy accelerating the underlying trends toward technology enablement, the pandemic has reaffirmed the wisdom of our approach, and we now target three quarters of our business from these channels over the next cycle as we said in September.\nOur formal entry into the B2B market reinforces the existing legs of our stool, including software primacy, a leading e-commerce franchise and an unmatched presence in many of the most attractive markets worldwide.\nThese strategies are complementary and interrelated and provide us with substantial and incremental growth opportunities for years to come.\nThe record results for the third quarter that we reported today in our raised cycle guidance in September, our expressions of our confidence in our strategies and are the most recent examples and best evidence of their success.\nWe just delivered a record quarter and any number of basis in the best year in our history during the midst of a once in a century pandemic.\nI think you can see why we view the glass as full.\nWe exit the pandemic better off than we entered it, judge for yourself.\nBefore begin our question-and-answer session.\nI'd like to ask everyone to limit their questions to one with one follow-up to accommodate everyone in the queue.\nOperator, we will now go to questions.",
        "summary": "q3 adjusted earnings per share $2.18.\nprovides updated outlook for 2021.\nsees fy adjusted earnings per share $8.10 to $8.20.\nsees fy 2021 revenue $7.71 billion to $7.73 billion."
    },
    {
        "text": "We're pleased to be here today to provide an update on our progress after the second quarter of 2021.\nHopefully, everyone has had a chance to review the news release we issued earlier today.\nThese risks include those related to the impact of the COVID-19 pandemic and measures taken by governmental or regulatory authorities to combat the pandemic on our business and our operations as well as the business and operations of the consumer, our customers, suppliers, business partners and labor force.\nThese risks also include those detailed in our various filings with the SEC, which may be found on our website as well as in our news releases.\nGiven the short-term volatility of comparisons due to the impact of the COVID-19 pandemic, we have focused our comparisons to 2019.\nPlease note that unless otherwise stated, all comparisons are to 2019 results that have been rebased to reflect the move of our European innerwear business to discontinued operations as well as the exited C9 program at mass and the DKNY intimate apparel license.\nWith me on the call today are Steve Bratspies, our Chief Executive Officer; and Michael Dastugue, our Chief Financial Officer.\nI can't express enough how grateful and proud I am of their dedication, their focus on safety and commitment to serving our consumers and customers under extremely challenging circumstances.\nOur associates are our greatest strength, and I want to make sure they're recognized for all their hard work.\nTo that end, over the past month, I've finally been able to get out, see parts of the business and interact with some of our amazing associates.\nI'm inspired by their commitment and talent.\nThere is a lot of excitement around our Full Potential plan and our associates are fully engaged.\nI visited some of our retail stores and came away impressed by the knowledge of our associates and their energy around serving consumers.\nAnd let me tell you, consumers are out shopping.\nIt was exciting to see high levels of traffic in our stores.\nI also had the chance to tour our New York Design Center, spent time with that incredible team and see a wide range of innovative new products in our pipeline for both innerwear and activewear.\nIt's hard to believe it's been a year since my first day at HanesBrands.\nReflecting back, it's clear this is truly an amazing global company with a number of competitive advantages, iconic brands, distribution scale, owned manufacturing, a deep commitment to sustainability, a strong balance sheet and 61,000 passionate associates across more than 47 countries.\nWe've accomplished a lot in a relatively short period of time.\nWe refreshed the leadership team, which is setting a new pace and driving change.\nWe underwent a deep assessment of the business that not only highlighted competitive advantages I just mentioned, but also underscore the opportunities ahead of us and the changes we need to make.\nWe developed our Full Potential plan to unlock growth, which we shared with you in May, and we've taken action to simplify the portfolio, streamline decision-making and organize the business to optimize future growth.\nWe're still early in our journey.\nHowever, I am encouraged by the progress we've made, and I'm excited about the opportunities ahead as we execute our Full Potential plan to generate higher, more consistent levels of revenue and profit growth.\nToday, I'll focus my remarks on two key topics.\nFirst, our strong second quarter performance and our increased outlook for the remainder of the year; and second, a brief update on our Full Potential plan.\nLooking at the second quarter, we delivered strong results despite the increasingly challenged global environment and higher levels of inflation.\nRevenue, operating profit, operating margin and earnings per share all exceeded the high end of our guidance range.\nWe delivered strong operating cash flow performance in the quarter, and we further strengthened our balance sheet.\nWith the volatility from the pandemic impacting short-term comparability, like many of you, we are anchoring our comparisons to 2019.\nFor the quarter, sales and operating profit increased 15% and 14%, respectively, compared to the second quarter of 2019.\nRevenue momentum continued to build across both our innerwear and activewear businesses globally.\nIn U.S. innerwear, sales were 19% higher than second quarter 2019.\nOver this time period, we gained 160 basis points of market share with gains in each product category across basics and intimates.\nIn addition to the strong underlying performance of our brands, the category experienced above-average growth due to certain transitory items such as retailer inventory restocking, government stimulus and pent-up consumer demand.\nIn U.S. activewear, sales increased 15%, driven by growth in Champion.\nWe were pleased to see continued growth in Champion brand with global sales up 21% from 2019 levels.\nAnd In International, sales were 11% higher than 2019 with double-digit growth in Champion and high single-digit growth in innerwear in spite of COVID headwinds around the world.\nWith respect to our outlook, we raised our second half and full year expectations for sales, operating profit and earnings per share to reflect stronger-than-expected momentum in our business as well as benefits from the Child Tax Credit Payments in the U.S. What's most encouraging to me about our second half outlook, despite higher-than-expected inflation, we're well positioned to generate higher operating profit dollars while continuing to execute against our brand investment strategy.\nInvesting in our brands is critical to the long-term success and health of our business, and we remain committed to it.\nNow turning to the second topic, our Full Potential plan.\nThey were only in the early stages, we made progress in the quarter, and we're encouraged at how the plan is unfolding.\nWithout going through every initiative that we spoke to in May, let me provide a couple of updates.\nWith respect to our Champion growth initiative, in May, we told you we were going to do three things to grow the brand, grow our core sweats business, expand our women's and kids product offering and expand into adjacent categories.\nIn the U.S., we're introducing several new products in our core fleece category.\nWe've added a number of new performance and lifestyle products in our women's line.\nAnd in footwear, in the first half, we've more than doubled our points of distribution and the number of pairs sold as compared to 2019.\nWe believe the initial momentum in our footwear business underscores the consumers' affinity for the Champion brand, and their brand interest across product categories.\nWe feel good about the momentum we're seeing in Champion and there's a lot to be about around the globe.\nWe remain confident in our Full Potential plan to grow this brand to $3 billion.\nLooking at our U.S. innerwear initiative, we're encouraged by the underlying momentum and market share gains we've seen in both basics and intimates.\nOur latest Boxer brief innovation, total support pouch, continues to perform well, with a dedicated marketing effort that targets consumers differently than we have in the past.\nTotal Support Pouch is attracting a younger consumer to the Hanes franchise.\nWe've significantly outpaced our initial sales projections.\nAnd as we highlighted in May, we increased our second half marketing investment behind Total Support Pouch to build on our momentum.\nIn terms of our direct-to-consumer initiative, agile teams are deployed and driving improved site experience, conversion and speed as we continue the journey to know our consumers better.\nWe've increased our digital marketing investment at the top and bottom of the funnel with consistently better returns.\nAs a result, we're encouraged to see trends improving in certain digital metrics.\nAs compared to last year and 2019, conversion and average order value are both up.\nThe number and value of repeat consumers continues to increase across all of our brands.\nRepeat consumers not only spend more they're an important indicator of consumer engagement.\nWhile it's very early in our journey, we remain confident in the significant growth opportunity ahead.\nLastly, we're making progress on our cost savings initiatives.\nAs we mentioned in May, while we don't expect the savings and investments to match dollar for dollar in every period, we're confident that we can fully offset our investments over the course of our Full Potential plan.\nWe've identified a number of opportunities in SG&A and cost of goods.\nFor example, as we work through our SKU reduction initiative, one of the benefits is greater manufacturing and distribution efficiencies as we produce fewer, more profitable SKUs.\nWe're also working on a number of multi-global initiatives or big ideas that can generate large year-over-year savings, things such as global vendor consolidation and raw material platform.\nWe feel good about the opportunities we are finding, and we'll continue to update you along the way.\nThen I'll return with some closing comments.\nI'm excited to be finishing up my first three months here at HanesBrands.\nAs I evaluated this opportunity, there were three things that really attracted me to HanesBrands, the people, the brands, and the Full Potential plan to capture future growth opportunities, all are exceeding my initial expectations.\nIt's great to be able to speak to such strong results on my first earnings call.\nWe exceeded the high end of our expectations across all of our key metrics, driven by continued top line momentum in both global innerwear and activewear businesses.\nIn my remarks today, I'll be comparing our results to the second quarter of 2019.\nFor the quarter as compared to 2019, sales increased 15% with double-digit growth in each of the segments.\nOperating profit increased 14%, cash flow from operations increased 43% to $195 million, and our leverage improved to 2.9 times.\nWith that summary, let's turn to the details of the quarter's results.\nSales increased $233 million to $1.75 billion.\nThe impact from foreign exchange rates contributed approximately $26 million or 175 basis points to the quarter's growth.\nAdjusted gross profit increased $102 million or 18% compared to 2019, while adjusted gross margin increased approximately 75 basis points to 39%.\nThe margin expansion was driven by leverage from higher sales, the benefit from product mix and the impact from foreign exchange rates.\nThese items more than offset the higher expedite cost and sourcing premiums we experienced to meet the stronger-than-expected demand in the quarter.\nAdjusted operating profit increased $29 million or 14% to $236 million.\nAdjusted operating margin of 13.5% was approximately 15 basis points lower than the second quarter of 2019.\nHigher investments in brand marketing essentially offset the fixed cost leverage from the higher sales.\nAdjusted earnings per share from continuing operations increased 24% to $0.47, while GAAP earnings per share from continuing operations increased 2% to $0.42.\nNow let me take you through our segment performance.\nU.S. innerwear sales increased 19% or $123 million over 2019 with comparable double-digit growth in both basics and intimates.\nThe growth was driven by two factors: first, the strong underlying performance of our brands, which resulted in market share gains across our basics and intimates product portfolios.\nAnd second, the benefit of certain transitory items such as stimulus, restocking and pent-up consumer demand that drove category growth rates above historical levels.\nFor the quarter, innerwear operating margin of 23.8% was 150 basis points above 2019.\nThe margin improvement was driven by volume leverage and sales mix, which more than offset higher expedite cost and increased investments in brand marketing.\nTurning to U.S. activewear.\nRevenue increased 15% or $53 million driven by growth across the online, wholesale and distributor channels.\nOur sports and college licensing business increased significantly from last year.\nHowever, it remains below 2019 levels as on-campus attendance in the spring was still below pre-pandemic levels.\nLooking at Champion brand within the activewear segment, Champion increased 20% as compared to 2019.\nActivewear's operating margin of 10.2% declined 290 basis points compared to 2019 as the leverage from higher sales was more than offset by higher expedite and distribution costs to meet the higher-than-expected demand as well as increased investments in brand marketing.\nSwitching to our International segment.\nRevenue increased 11% compared to 2019.\nOn a constant currency basis, sales increased 5% or $22 million.\nWe experienced growth in Australia behind our Bonds brand.\nWe also saw growth in Europe and the Americas, while sales in Asia Pacific declined driven by ongoing COVID headwinds in Japan.\nFor the quarter, the International segment's operating margin of 12.9% was 250 basis points below 2019 levels, driven by increased investments in brand marketing as well as deleveraging Asia Pacific from lower sales.\nTouching briefly on Champion in the quarter.\nGlobal Champion sales increased 21% over 2019 on a reported basis and 18% on a constant currency basis.\nChampion sales in the U.S. which include all Champion brand sales in our activewear, innerwear and other segments increased 25%.\nChampion sales in our International segment increased 15% on a reported basis and 9% in constant currency as compared to the second quarter 2019.\nTurning to cash flow.\nWe generated $195 million of operating cash flow in the quarter driven by strong operating results and focused working capital management.\nLooking at the balance sheet, inventory is coming down, our turns are improving, and we're on track with our SKU reduction initiative.\nAnd our leverage at the end of the quarter improved to 2.9 times on a net debt-to-adjusted EBITDA basis as compared to 3.7 times a year ago.\nAnd now turning to guidance.\nHowever, I'd like to share a few thoughts to frame our outlook.\nSimilar to our prior remarks, my guidance comparisons will be to 2019.\nAt a high level, we increased our second half guidance for sales, operating profit and earnings per share by $375 million, $35 million and $0.08, respectively, compared to our prior outlook.\nAnd we have factored the following puts and takes of the current environment into our guidance.\nFirst, we're staying committed to our strategy that we rolled out in May.\nLong term, we believe it's the right thing to do for our business and our brands.\nWe're going to continue to increase the investment behind our brands, and we're excited about the consumer reaction that we're getting.\nSecond, we see stronger-than-expected demand in both our innerwear and activewear businesses, which is being further fueled by the benefits from the recent Child Tax Credit Payments in the U.S. And third, rising COVID cases continue to weigh on the macro environment.\nIt's creating headwinds from additional lockdowns, most recently in Japan and Australia.\nIt's also creating incremental disruptions to supply chains around the world.\nThis, in turn, is driving cost pressure as well as higher levels of inflation relative to our prior outlook.\nOne of the advantages to owning our supply chain is that we have very good visibility, which allows us to be proactive.\nOur supply chain team is doing a great job managing these challenges as well as identifying additional savings and efficiencies to partially offset the increased inflation pressures.\nThe estimated increase in cost and inflation pressure is approximately 40 basis points of operating margin pressure in the second half relative to our previous outlook.\nLooking at our key guidance metrics.\nFrom a revenue perspective, we raised our second half and full year outlook.\nFor the full year, we increased our revenue guidance by $550 million, bringing the range to $6.75 billion to $6.85 billion.\nWe also issued third quarter revenue guidance of $1.78 billion to $1.81 billion.\nAnd at the midpoint, our guidance now implies revenue growth of 11% for the third quarter, 15% for the fourth quarter and 13% for the full year as compared to 2019.\nThe higher revenue outlook is driving our increased operating profit and earnings per share guidance for the second half and full year.\nOur full year guidance for both GAAP and adjusted operating profit increased $65 million.\nWe now expect full year adjusted operating profit to be in the range of $880 million to $910 million.\nFor the third quarter, we issued adjusted operating profit guidance of $235 million to $245 million.\nOur full year guidance for adjusted earnings per share from continuing operations increased $0.17, bringing our range to $1.68 to $1.76.\nWith respect to our guidance for cash flow from operations, we now expect to generate approximately $550 million for the full year.\nI'm incredibly pleased to have you on the team.\nSo we certainly have a lot of good things going on in the business.\nAs I step back, the key highlights I see coming in the second quarter are we delivered strong results, which exceeded the high end of our expectations.\nWe're upbeat given the momentum in our underlying business, which is reflected in our increased outlook for the second half.\nWe plan to continue to increase investments in our brands in the second half despite the challenges in the global environment.\nWe remain committed to our growth strategy and investing in our brands is critical to the long-term success of HanesBrands.\nOur Full Potential plan is in place, and we're rapidly executing against it to generate higher, more consistent revenue and profit growth.",
        "summary": "q2 adjusted earnings per share $0.47 from continuing operations.\nq2 gaap earnings per share $0.42 from continuing operations.\nq2 sales $1.75 billion versus refinitiv ibes estimate of $1.59 billion.\nsees q4 adjusted earnings per share $0.37 to $0.42 from continuing operations.\nsees fy adjusted earnings per share about $1.68 to $1.76 from continuing operations.\nsees q3 gaap earnings per share $0.42 to $0.45 from continuing operations.\nsees q3 sales about $1.78 billion to $1.81 billion.\nsees fy sales about $6.75 billion to $6.85 billion.\nsees q4 sales about $1.71 billion to $1.78 billion."
    },
    {
        "text": "For the first quarter of 2020, net income on a GAAP basis was approximately $22 million or $0.42 per diluted share compared to net income of $110 million or $2.14 per diluted share in the first quarter of 2019.\nExcluding nonrecurring, other income and losses, non-GAAP adjusted net income for the first quarter was $20 million or $0.39 per diluted share compared to $2.30 per diluted share in the first quarter of 2019.\nAdjusted EBITDA was $62 million in the first quarter of 2020 as compared to adjusted EBITDA of $181 million in the same period of 2019.\nThe quarterly decrease was primarily driven by a 31% decrease in average net selling prices and a 13% decrease in sales volumes.\nOur adjusted EBITDA margin was 27% in the first quarter of 2020 compared to 48% in the first quarter of 2019.\nTotal revenues were approximately $227 million in the first quarter of 2020 compared to $378 million in the same period last year.\nThis decrease was primarily due to the decrease in average net selling prices and sales volumes in a weaker market environment than last year.\nThe average net selling price per short ton decreased approximately 31% in the first quarter of 2020 compared to the same period in 2019.\nAs you may recall, last year's first quarter saw stronger met coal demand and higher pricing.\nThe Platts Premium Low Vol FOB Australian Index averaged $51 per ton lower in the first quarter of 2020 compared to the same quarter last year.\nDemurrage and other charges reduced our gross price realization to an average net selling price of $122 per short ton in the first quarter of 2020 compared to $176 per short ton in the same period last year.\nMining cash cost of sales was $151 million or 68% of mining revenues in the first quarter compared to $182 million or 49% of mining revenues in the first quarter of 2019.\nCash cost of sales per short ton, FOB port, was approximately $83 in the first quarter compared to $87 in the same period of 2019.\nThe decrease is primarily due to lower price-sensitive costs such as transportation and royalties that vary with met coal pricing, offset partially by 13% lower sales volumes.\nSG&A expenses were about $8 million or 4% of total revenues in the first quarter of 2020 compared to approximately $9 million in the prior year period, primarily due to lower corporate expenses.\nDepreciation and depletion expenses for the first quarter of 2020 were $29 million compared to $22 million in 2019.\nThe increase quarter over quarter was primarily due to the high level of capital spending during 2019.\nNet interest expense was about $8 million in the first quarter and included interest on our outstanding debt plus amortization of our debt issuance costs associated with our credit facilities, partially offset by interest income.\nThis amount was $1 million lower compared to the same period last year primarily due to the early retirement of a portion of our debt in last year's first quarter.\nWe recorded noncash income tax expense of $3 million during the first quarter of 2020 and $28 million in the same period last year.\nThese results primarily reflect the utilization of our net operating losses, or NOLs, with a corresponding decrease in the balance sheet account deferred income taxes.\nWe paid no cash taxes in the first quarter of 2020 or 2019.\nWe continue to expect the utilization of our NOLs will reduce our federal and state income tax liability to 0 until the NOLs are fully utilized or expired.\nWe expect this will continue to drive significant free cash flow conversion over the next several years.\nTurning to cash flow.\nDuring the first quarter of 2020, we used $5 million of free cash flow, which was the result of cash flows provided by operating activities of $21 million, less cash used for capital expenditures and mine development costs of $26 million.\nFree cash flow in the first quarter of 2020 was negatively impacted by an increase in net working capital.\nThe increase in net working capital was primarily due to higher accounts receivable and inventory, partially offset by an increase in accounts payable.\nOperating cash flows were significantly lower in the first quarter of 2020 compared to 2019, primarily due to lower average net selling prices of 31% and lower sales volumes of 13%.\nCash used in investing activities primarily for capital expenditures and mine development costs was $20 million during the first quarter of 2020 compared to $30 million for the same period last year.\nCash flows provided by financing activities were $63 million in the first quarter of 2020 and consisted primarily of the draw on our ABL facility of $70 million as a precautionary measure, less payments for capital leases of $4 million and less payment of the quarterly dividend of $3 million.\nOf note, our balance sheet remains strong with a leverage ratio of 0.52x adjusted EBITDA.\nIn addition, we have ample liquidity without the fixed costs associated with legacy liabilities with the low and variable cost structure.\nOur total available liquidity at the end of the first quarter of 2020 was $303 million, consisting of cash, cash equivalents of $257 million and $46 million available under our ABL facility, net of borrowings of $70 million and outstanding letters of credit of approximately $9 million.\nAs I mentioned earlier, we drew $70 million on our ABL facility as a precautionary measure to increase liquidity and reduce risk during these unprecedented times.\nWe intend on retaining the funds and cash to preserve liquidity amid the growing uncertainty surrounding the COVID-19 outbreak.\nIn summary, the first quarter results for production and sales volumes turned out as expected and previously disclosed.\nThe overall financial results were primarily driven by lower net selling prices and slightly lower sales volumes compared to last year's first quarter.\nNow turning to our outlook for the remainder of the year.\nIn light of the uncertainties regarding the duration of the COVID-19 pandemic and its overall impact on the global economy and the company's operations, we are withdrawing our full year 2020 guidance issued on February 19 at this time.\nWe're also appropriately adjusting operational needs, including managing expenses, capital expenditures, working capital, liquidity and cash flows.\nFor example, as precautionary measures, we have delayed the $25 million budgeted for the development of the Blue Creek project until at least July 1, 2020, and have temporarily suspended our stock repurchase program.\nWe will continue to evaluate the impact of the COVID-19 pandemic on our business for the remainder of the fiscal year and expect to provide further updates to our financial outlook and the development of the Blue Creek project during our second quarter earnings call to be held in late July.\nWe're continuing to pay our quarterly dividend at this time, but we'll continue to monitor liquidity in light of the COVID-19 pandemic.\nBefore we move on to Q&A, I'd like to make a few more comments.\nWhile we were pleased with our first quarter results, the rest of the year is less certain.\nWe are clearly seeing the impact of COVID-19 on global steel production and overall met coal pricing in light of reduced automobile manufacturing and a slowdown of construction projects.\nAlthough we did experience some reduction in sales orders toward the end of the first quarter, it is now apparent that the full impact of COVID-19 on met coal demand erosion may not materialize until the second quarter of 2020 and possibly beyond.\nAnd as a result, the unprecedented level of uncertainty in our customers' markets has made the job of forecasting, which was already challenging, even more difficult.\nWe continue to regularly update our business continuity planning on global steel production and met coal demand for various potential developments related to COVID-19 and will continue to take precautionary measures as necessary or advisable.\nWe've kept and will continue to keep close contact with our customers during this period in order to optimize our sales orders and capitalize on opportunities if and when they appear in the marketplace.\nRegarding met coal pricing, we expect all indices to remain under pressure as long as the supply and-demand balance remains stressed by the uncertainty of current events.\nDespite the unknowns, there are a few important reasons that our business is well positioned to weather any prolonged economic challenge: one, we have a strong balance sheet and adequate liquidity; two, our low and variable cost structure enables us to drive high margins and free cash flow across most business environments; three, we've made significant investments in our operations over the past three years, allowing us to now reduce capital expenditures as needed without impacting operations; four, we maintain one of the world's highest quality met coal portfolios, and we have strong long-term customer relationships; and five, our highly talented workforce is committed to safely and efficiently driving results.\nAs a result of these factors, I'm confident we will emerge from this health crisis ready to achieve our long-term growth potential.",
        "summary": "q1 adjusted earnings per share $0.39.\nq1 earnings per share $0.42.\nwarrior met coal - withdrawing full-year 2020 guidance issued on february 19, 2020 at this time."
    },
    {
        "text": "After my remarks, Dell will review our results in additional detail, and then you'll have the opportunity to ask questions.\nDuring the first quarter we saw COVID-19 the Chinese fail on Australian calls have a continued impact on both pricing and demand across the mecole industry.\nWe continue to take the necessary measures to adjust our workplace environment to comply with social distancing, and personal hygiene guidelines set forth by various health organizations to protect the health and safety of our employees while maintaining our operations.\nDespite these challenging headwinds, especially on NET Core pricing, we were pleased to be free cash flow positive for the fourth consecutive quarter since the pandemic began.\nWe remain focused on preserving cash and liquidity while managing the aspects of the business that we can control.\nImportantly, we achieved our second lowest quarterly cash cost per tour done since going public.\nAs the Chinese ban on Australian coals continue during the forced first quarter, we were able to monetize our higher than normal inventories on Chinese spot volumes, which partially offset some of the impact of the depressed pricing environment experienced in our natural markets.\ngrowing market fundamentals persisted across all geographies during the first quarter, allowing our customers to benefit from record high steel prices and strong demand for their products.\nGlobal steel production remains on its recovery path to pre pandemic levels.\nThe world steel Association has reported a 6% increase in global pig production for the first quarter, with China leading the charge with a year over year increase of 8%.\nExcluding China the rest of the world grew at a more moderate pace of 2%.\nUnfortunately, the metco markets remain split in a two tier pricing system due to the ongoing Chinese ban of Australian coal imports.\nOn one side, you have non Australian premium hard coking coals imported into China benefiting from a stable and elevated CFR base index price that was range bound between 214 and $223 per metric ton for most of the first quarter.\nOn the other side, you have Australian base premium calls that have been impacted by high volatility and low pricing.\nWe saw the Australian index price climb from its low of $102 per metric ton at the start of the year, and peak at a high of $161 per metric ton in late January.\nAt this point, the price started its gradual decline, hitting its low of $110 per metric ton in late March.\nThe prolonged import ban by China has also created shifts in trade patterns, as more Australian calls are making their way into Japan, South Korea, India and Vietnam and also in our natural markets of Europe and South America.\nAs anticipated, Chinese by Nicolas was low, join there.\nNew Year's celebrations in February.\nHowever, it remained subdued for a longer period than expected following the holiday.\nHowever, an uptick in transactions and interest was observed prior to the end of the quarter and has remained active since.\nWe had expected contracted sales into our natural markets were strong for the entire first quarter.\nsales volume in the first quarter was 2 million short tons compared to 1.8 million short tons in the same quarter last year.\nOur sales by geography for the fourth quarter were 30% into Europe 14% into South America, and 56% into Asia.\nproduction volume in the first quarter of 2021 was 2.2 million short tons, compared to a similar amount in the same quarter of last year.\nThe mines ran well in the first quarter, and we built a little more inventory.\nAs planned and previously communicated, inventories remained elevated at the end of the first quarter compared to pre pandemic levels, call inventory levels increased to 220,004 times to 1.2 million short times at the end of the first quarter.\nThe higher than normal inventory levels allow us to continue to supply our valued customers during the rest of the year.\nOur gross price realization for the first quarter of 2021 was 95% of the Platts premium lowball fob Australian index price and was higher than the 89% achieved in the prior year period.\nOr better gross price realization was primarily due to a higher percentage of our sales to Chinese customers that the CFR index price or spot sales volume in the first quarter was approximately 48% of total volumes, compared to a normal expectation of approximately 20%.\nThe end of our first quarter also coincided with the exploration of our collective bargaining agreement with the United Mine Workers of America on April 1.\nWhile we continue to negotiate in good faith with the NWA to reach a new contract, the new NWA has initiated a strike that continues today.\nI'll now ask you to address our first quarter results in greater detail.\nThe company record a net loss on a GAAP basis of approximately $21 million, or a loss of 42 cents per diluted share, compared to net income of $22 million or 42 cents per diluted share in the same quarter last year.\nNon GAAP adjusted net income for the first quarter, excluding that non cash charge for Tax Valuation allowance was eight cents per diluted share, compared to 39 cents per diluted share in the same quarter of 2020.\nJustin EBITDA was $47 million in the first quarter of 2021 as compared to $62 million in the same quarter last year.\nThe quarterly decrease was primarily driven by a 13% decrease, in average net selling prices partially offset by higher sales volume.\nOur adjusted EBITDA margin was 22% in the first quarter of 2021, compared to 27% in the same quarter last year.\nrevenues were approximately $214 million in the first quarter of 2021, compared to $227 million in the same quarter last year.\nThis decrease was primarily due to the 13% decrease in average net selling prices, partially offset by an 8% increase in sales volume in a weak price environment as was noted earlier.\nThe Platts premium lowball fob Australian index price average $28 per metric ton lower or down 18% in the first quarter of 2021.\nCompared to the same quarter last year, the index price averaged $127 per metric ton for the quarter.\nThe merge and other charges reduced our gross price realization to an average net selling price of $106 per short term in the first quarter of 2021, compared to $122 per short term in the same quarter last year.\ncost of sales was $154 million, or 75% of mining revenues in the first quarter, compared to $152 million, or 68% of mining revenues in the same quarter of 2020.\nThe slight increase in total dollars was primarily due to higher sales volume, offset by lower variable cost and a focus on controlling cost of sales per short ton fob port was approximately $79 in the first quarter compared to $83 in the same period of 2020.\n$79 per short ton, was our second lowest quarterly amount in the last four years.\nCash costs and price sensitive costs such as wages, transportation, and royalties that vary with net co pricing were lower in the first quarter, along with a focus on cost control.\ntissue, the expenses were about $8 million, or 3.6% of total revenues in the first quarter of 2021.\nAnd we're 10% lower than the same quarter last year, primarily due to lower professional fees and employee related expenses.\ndepreciation depletion expenses for the first quarter of 2021, with $33 million, compared to $29 million in last year's quarter.\nIncrease quarter over quarter was primarily due to a higher amount of assets placed in service and higher spending levels.\nThe interest expense was about $9 million in the first quarter and included interest on our outstanding debt plus amortization of our debt issuance costs associated with our credit facilities, partially offset by interest income.\nThis was approximately $1 million higher compared to the same period last year, primarily due to incremental borrowings on our abl facility and lower returns on cash balances.\nWe record an income tax expense of $24 million during the first quarter of 2021, compared to inexpensive $3 million in the same quarter last year.\nThe first quarter is tax expense included a non cash charge, recognized upon the establishment of a valuation allowance against our state deferred income tax assets.\nThis result was due to a change in Alabama State tax law in February, that became effective as of the beginning of the year.\nIn essence, our export sales are no longer subject to Alabama state income taxes.\nAnd therefore the value of our state net operating losses have been written down to cash flow in the first quarter of 2021, we generate $23 million in positive free cash flows, which resulted from cash flows provided by operating activities the $45 million less cash used for capital expenditures in mind development cost of $22 million.\nfree cash flow in the first quarter of 2021 was positively impacted by a small decrease in net working capital.\nOperating cash flows were higher in the first quarter of 2021, compared to the same quarter last year, primarily due to higher sales volumes and lower cost.\npressures and invest investing activities for capital expenditures and mine development costs were $22 million during the first quarter of 2021, compared to $26 million in the same quarter last year.\nWe continue to rationalize spending during these unprecedented times.\nThe company spent $13 million per 58% less on capex in the first quarter of 2021 compared to the same period last year, which was largely offset by higher spending on mine development cost.\nCash Flows used by financing activities were $13 million in the first quarter of 2021 and consisted primarily of payments for capital leases of $8 million in the payment of a quarterly dividend of $3 million.\nBalance Sheet remains strong with a leverage ratio of 2.4 times adjusted e but we believe our liquidity is adequate to navigate these uncertain times.\nOur strong balance sheet with no near term debt maturities, combined with a low and variable call structure has allowed us to continue paying our quarterly dividend during the pandemic.\nTotal available liquidity at the end of the first quarter was $272 million consisting of cash and cash equivalents of $222 million with $50 million available under a abl facility which is net of borrowings of $40 million and now saying letters of credit for approximately $9 million.\nNow attorney drawer an outlook is the ongoing uncertainty related to our negotiations with the Union, the covid 19 pandemic, the Chinese ban on Australian coal and other potentially disruptive factors, we will not be providing full year 2021 guidance at this time.\nWe expect to return to providing guidance once there's further clarity on these issues.\nWe continue to appropriately adjust our operational needs, including managing our expenses, capital expenditures, working capital, liquidity and cash flows.\nWe have delayed the development of the blue Creek project, and our stock repurchase program also remains temporarily suspended.\nBefore we move on to q&a, I'd like to make some final comments.\nWe still do not have a clear view of when the trade of seaboard metals will return to normal and efficient market conditions.\nAlthough we continue to believe that a partial or full easing of a Chinese ban on Australian coal is most likely to happen at some point in time.\nWe expect current pricing bifurcation in the markets to remain in place as long as the band remains in place.\nWe expect the difference between the Australian fob and the China CFR indices to narrow once the ban is lifted, returning to normal levels.\nHowever, the correction may take some time.\nIs there a plenty of floating vessels of Australian calls off the coast of China, as well as large volumes of calls in the ports that have been offloaded but have not cleared customs.\nWe believe that the demand for coal to remain strong for the next few quarters, as indicated by our customers buying patterns.\nAlso, we believe that our markets remain vulnerable to COVID-19 related demand disruptions.\nMostly in Asia, Europe, South America will remain focused on serving our customers through the duration of our ongoing labor negotiations while taking advantage of spot volumes when possible.\nAs I mentioned earlier, our contracts with the NWA expire on April 1.\nAnd the NWA has initiated a strike that continues today.\nWe believe that we are well positioned to fill our customer volume commitments for 2021 of approximately 4.9 to 5.5 million short tons through a combination of existing coal inventory of 1.2 million short tons and expected production during the rest of the year.\nFor now, we have idle mind for we expect production to continue at mine seven, although at lower than usual rates.\nWhile we have business continuity plans in place to strike may still cause disruption to production, and shipment activities.\nAnd the plans may vary significantly from quarter to quarter in 2021.\nFinally, as we navigate through these headwinds, we will continue to execute our business continuity plans to meet our customer demands.",
        "summary": "will not be providing full year 2021 guidance at this time.\nwarrior met coal - has delayed development of blue creek project and its stock repurchase program also remains temporarily suspended."
    },
    {
        "text": "Joining us on our call today are Craig Menear, chairman and CEO; Ted Decker, president and chief operating officer; and Richard McPhail, executive vice president and chief financial officer.\nQuestions will be limited to analysts and investors.\nAnd as a reminder, please help yourself to one question with one follow up.\nThese risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission.\nReconciliation of these measures is provided on our website.\nI'm pleased to report that we had another strong performance in the third quarter.\nSales for the third quarter were $36.8 billion, up 9.8% from last year.\nComp sales were up 6.1% from last year with U.S. comps of positive 5.5%.\nDiluted earnings per share were $3.92 in the third quarter, up from $3.18 in the third quarter last year.\nHome improvement demand remains strong.\nOur customers remained engaged with projects around the home and we continue to focus on delivering the best experience in retail.\nAs we mentioned last quarter, we continue to see customers taking on larger home improvement projects as evidenced by the continued strength with our Pro customer, which once again outpaced the DIY customer.\nAs been the case for the last 18 months, the team is doing an outstanding job of navigating a fluid and challenging operating environment.\nUltimately, this is what has allowed us to respond to the strong home improvement demand that has persisted.\nWe had positive comps every week despite unprecedented comparison last year and grew sales by $3.3 billion in the third quarter, bringing total sales growth year to date to more than $15.5 billion through the third quarter.\nFrom a geographic perspective, all of our 19 U.S. regions posted positive comps versus last year and both Canada and Mexico posted positive comps.\nThese results were driven by our associates who have maintained a relentless focus on our customers, while simultaneously managing industrywide supply chain disruptions, inflation and a tight labor market.\nWhile these factors present challenges for retail as a whole, we will use our experience, tools and our scale to manage through this environment with the intent to deliver a strong value proposition to our customers.\nOur respective teams have worked tirelessly to build depth in key product categories and to flow products to our stores and distribution centers as quickly and efficiently as possible.\nBeyond the current environment, we are focused on positioning ourselves for growth.\nWe are investing in stores to drive further productivity, which Ted will discuss.\nWe are enhancing the interconnected shopping experience by investing to remove friction for our customers wherever possible.\nAnd the build-out of our supply chain vision continues to progress and we remain on track with our plans.\nWe are encouraged by the results that we're seeing from buildings that we have stood up as we optimize and assort these facilities to unlock their full potential.\nWe believe that the network we are building is unique to the market.\nIt will not only enhance the customer experience from a delivery standpoint, but also expand the opportunity to capture wallet share gains with both new and existing customers, drive efficiency end to end and leverage our scale to further extend our low-cost position in home improvement.\nIn the near term, we remain focused on being flexible and agile as we navigate this dynamic environment.\nBut we also continue to leverage the momentum of our strategic investments to further enhance the interconnected shopping experience in support of our goals to drive growth faster than the market in any environment, further strengthen our position as a low-cost provider and home improvement with a relentless focus on productivity and efficiency and deliver exceptional shareholder value.\nOur ability to invest for the future while also managing the most fluid environment in our company's history is a direct result of our associates and their extraordinary efforts.\nmilitary veterans since 2011.\nThis brings us closer to achieving our goal to invest $0.5 billion in veteran causes by 2025.\nWe had a great third quarter.\nThere is no question that pressures on global supply chains increased over the last 18 months.\nThat being said, we could not be more pleased with how our cross-functional teams responded.\nThe teams took a number of decisive actions to secure more product for our customers while continuing to find new and different ways to flow that product.\nBeginning in the second quarter of last year, our merchant inventory and supply chain teams leveraged tools and analytics and work with our vendor partners to adjust our assortments and in some cases, introduced alternative products.\nThe teams also built depth in job lot quantities and high-demand products.\nWe improved our in-stock levels in the back half of last year and we've been able to sustain and in some cases, improve our levels, even as home improvement demand remains elevated.\nIn addition to the challenging supply chain environment, we are also seeing rising cost pressures across several different product categories.\nOur seasoned teams of merchandising, finance and data analytics associates are working with our supplier partners to manage through these pressures.\nWe have effectively managed inflationary environments in the past and we feel good about our ability to continue managing through the current environment while being our customers' advocate for value.\nTurning to our comp performance during the third quarter, 12 of our 14 merchandising departments posted positive comps.\nAppliances, plumbing, electrical, building materials, tools, kitchen and bath, decor and storage, millwork and flooring had comps above the company average.\nPaint, outdoor garden and hardware were positive but below the company average.\nIndoor garden was essentially flat and lumber posted a high single-digit negative comp compared with lumber comps of more than 50% in the third quarter of 2020.\nOn a two-year basis, each of our departments posted healthy double digit positive comps.\nOur comp average ticket increased 12.7% and comp transactions decreased 5.8%.\nGrowth in our comp average ticket was driven in part by inflation across several product categories.\nOur commodity categories positively impacted our average ticket growth by approximately 70 basis points in the third quarter driven by inflation in copper and building materials, which was partially offset by deflation in lumber.\nOn a two-year basis, both comp average ticket and comp transactions were healthy and positive.\nBig ticket comp transactions or those over $1,000 were up approximately 18% compared to the third quarter of last year.\nDuring the third quarter, Pro sales growth continue to outpace DIY growth.\nOn a two-year comp basis, growth of both our Pro and DIY customers was consistent and strong.\nSimilar to the second quarter, we saw many of our customers turn to Pros for help with larger projects.\nWe see this in the strength of several Pro-heavy categories like drywall, pneumatics, pipe and fittings and several millwork categories.\nWe remain encouraged by what we are hearing from our Pros as they tell us their backlogs are healthy.\nSales leveraging our digital platforms grew approximately 8% for the third quarter, which brings our digital two-year growth to approximately 95%.\nOur customers continue to shop with us in an interconnected manner as approximately 55% of our online orders are fulfilled through our stores.\nWhile we navigate these challenging environment, we continue to invest in our business to enhance the customer shopping experience while also driving productivity and efficiency.\nWe believe we have a significant opportunity to further optimize space productivity in our stores by balancing the art and science of retail.\nThis is a continuous process that we believe leads to better, more productive assortments and space allocations, which ultimately drives value for our customers.\nLet me take a moment to comment on some unique capabilities we've built that showcase what I mean.\nMore than a year ago, we started to test in some of our higher-volume stores.\nThe idea was, how can we further drive space productivity and improve the shopping experience at the same time.\nOur cross-functional teams applied a combination of space optimization models in conjunction with the expertise of our local field merchants, many of whom have more than 30 years of tenure with The Home Depot to create store-specific outcomes that adjust assortments and improved space utilization.\nThe results exceeded our expectations.\nSales per square foot improved, on-shelf availability improved, Voice of the Customer scores improved, labor utilization improved.\nAnd during the process, we were able to add net new base to the stores.\nAs a result, we went from a small test to now targeting more than 400 stores this year with more in the pipeline for next year.\nI want to recognize all the teams helping drive this success.\nAs we turn our attention to the fourth quarter, we are excited about the upcoming holiday season.\nDuring the third quarter, we hosted our Halloween event and cannot be happier with the results.\nWe saw record sales and sell-through as customers responded to our exclusive product offerings and innovative approach to the category.\nDuring the fourth quarter, we intend to continue this momentum with our annual holiday, Black Friday and gift center events.\nLike last year, we extended these events to cover a longer period and not just focus on one day.\nIn the third quarter, total sales were $36.8 billion, an increase of $3.3 billion or 9.8% from last year.\nForeign exchange rates positively impacted total sales growth by approximately $190 million.\nDuring the third quarter, our total company comps were positive 6.1% with positive comps in all three months.\nWe saw total company comps of 3.1% in August, 4.5% in September and 9.9% in October.\nComps in the U.S. were positive 5.5% for the quarter with comps of 2.2% in August, 4% in September and 9.6% in October.\nIn the third quarter, our gross margin was 34.1%, a decrease of approximately 5 basis points from the same period last year.\nWhile there are many factors that impact gross margin, during the third quarter, our gross margin was negatively impacted by higher transportation costs and mix of products sold, which was partially offset by higher retail prices.\nDuring the third quarter, operating expense as a percent of sales decreased approximately 130 basis points to 18.4%.\nOur operating leverage during the third quarter reflects the lapping of significant COVID-related expenses that we incurred in the third quarter of 2020 to support our associates, as well as payroll leverage.\nOur operating margin for the third quarter was 15.7%, an increase of approximately 125 basis points from the third quarter of 2020.\nInterest and other expense for the third quarter was essentially flat with the same period last year.\nIn the third quarter, our effective tax rate was 24.5%, up from 24.1% in the third quarter of fiscal 2020.\nOur diluted earnings per share for the third quarter were $3.92, an increase of 23.3% compared to the third quarter of 2020.\nAt the end of the quarter, inventories were $20.6 billion, up $4.4 billion from last year and inventory turns were 5.4 times compared with 5.9 times this time last year.\nTurning to capital allocation.\nAfter investing in our business, it is our intent to return excess cash to shareholders in the form of dividends and share repurchases.\nAs we have mentioned on previous calls, we plan to continue investing in our business with capex of approximately 2% of sales on an annual basis.\nWe also plan to maintain flexibility to move faster or slower depending on the environment.\nA good illustration of this is what you heard from Ted.\nWe built capabilities to drive productivity across some of our higher-volume stores, we tested them, we saw strong results across key performance metrics and we moved quickly to expand the investment.\nDuring the third quarter, we invested approximately $700 million back into our business in the form of capital expenditures bringing year-to-date capital expenditures to approximately $1.7 billion.\nAnd during the quarter, we paid approximately $1.7 billion in dividends to our shareholders and we returned approximately $3.5 billion to shareholders in the form of share repurchases.\nComputed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 43.9%, up from 41.6% in the third quarter of fiscal 2020.\nAs you have heard from Craig, we're very pleased with the strong performance we saw during the third quarter, particularly as we lap the unprecedented growth we saw this time last year.\nCustomer engagement remains strong and demand for home improvement is healthy.\nWe've been pleased with our team's ability to navigate the challenging environment.\nHowever, we do not believe we can accurately predict how the external environment and cost pressures will evolve and how they will ultimately impact consumer spending.\nAs we've mentioned on previous calls, our teams are managing our business on a relatively short cycle and we will continue to execute with flexibility and focus on what has driven our successful performance to date.\nLonger term, we remain committed to what we believe is the winning formula for our customers, our associates and our shareholders.\nWe intend to provide the best customer experience in home improvement.\nWe intend to extend our position as the low-cost provider.\nAnd we intend to be the most efficient investor of capital in home improvement.\nIf we do these things, we believe we will continue to grow faster than our market and we will deliver exceptional value to our shareholders.",
        "summary": "compname announces q3 earnings per share $3.92.\nq3 earnings per share $3.92.\nq3 sales rose 9.8 percent to $36.8 billion.\nqtrly comparable sales in u.s. increased 5.5 percent.comparable sales for q3 of fiscal 2021 increased 6.1 percent."
    },
    {
        "text": "Their dedication to HEICO's customers and the safety of their fellow team members has been exemplary.\nI want each and every member of HEICO's global team to understand that the Board of Directors and I are humbled by your dedication and continued focus on safety and well-being during these challenging times.\nI am confident that our future is bright and we will exit this COVID-19 period as a stronger and more competitive Company.\nAt this time, I will take a few minutes to discuss the impact on HEICO's operating results from the outbreak for the three and nine months ended July 31, 2020.\nThe effects of the outbreak and the related actions by governments around the world to mitigate its spread have impacted our employees, customers, suppliers, and manufacturers.\nIn response to the economic impact from the outbreak, we at HEICO have implemented certain cost reduction efforts, including layoffs, temporary reduced work hours, temporary pay reductions within various departments of our business, including within our entire executive management team as well as our Board of Directors.\nWith respect to the results of operations, approximately half of our net sales are derived from defense, space, and other industrial markets, including electronics, medical, and telecommunications.\nDemand for products in that half of our business has not been fundamentally impacted and its operational results remain materially consistent with the financial expectations prior to the outbreak.\nWe have experienced and expect to continue experiencing periodic operational disruptions resulting from supply chain disturbances, staffing challenges, including at some of our customers, temporary facility closures, transportation interruptions, and other conditions, which [Technical Issues] or increased costs.\nWhile these issues have not yet been material overall, we have experienced disruption in some orders and some shipments during the third quarter.\nThe remaining portion of our net sales is derived from commercial aviation products and services.\n[Technical Issues] has caused significant volatility and a substantial decline in the value across global markets.\nMost notably, the commercial aerospace industry experienced an ongoing substantial decline in demand resulting from a significant number of aircraft in the global fleet being grounded during our third quarter.\nOur businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began in March of this year.\nConsolidated net sales for our businesses that operate within the commercial aerospace industry decreased by approximately 54% during the third quarter of fiscal '20.\nAs I previously mentioned, we have taken responsible measures to address these reductions in net sales at our affected businesses.\nOnce commercial air travel resumes, cost savings most likely will be a priority for commercial aviation customers, and we anticipate recovery in demand for our commercial aviation products, which frequently provides aircraft operators with significant cost savings.\nKeep in mind that historically we have been able to make up and possibly collect some of that $7.5 million.\nAt this point, we don't know how much that might be, if any.\nSo, we have, as normally do, taken the most conservative approach and reserved the whole amount that could go bad.\nWe believe that our cost savings solutions and robust product development programs will enable us to potentially increase market share and emerge with a stronger presence within the commercial aviation market.\nSummarizing the highlights of the third quarter, consolidated net income increased 4% to a record $251.7 million or $1.83 per diluted share in the first nine months of fiscal '20 and that was up from $242.2 million or $1.76 per diluted share in the first nine months of fiscal '19.\nWe continue to forecast positive cash flow from operations for the remainder of fiscal '20.\nCash flow provided by operating activities was consistently strong at $299 million and $313.4 million in the first nine months of fiscal '20 and '19 respectively.\nCash flow provided by operating activities totaled $93.1 million or 171% of net income in the third quarter of fiscal '20 as compared to $135.1 million in the third quarter of fiscal '19.\nOur net debt, which is total debt less cash and equivalents, of $344.8 million compared to shareholders' equity improved to 17.7% as of July 30 [Phonetic], down from 29.8% as of October 31, 2019.\nOur net debt to EBITDA ratio improved to 0.7 times, less than 1 as of July 31, '20, and that was down from 0.93 times as of October 31, '19.\nDuring fiscal '20, we have successfully completed six acquisitions, four of which were completed since the outbreak start.\nWe have no significant debt maturities until fiscal '23, and we plan to utilize our financial flexibility to aggressively pursue high-quality acquisitions to accelerate growth and maximize shareholder returns.\nI do want to point out that unlike some companies in the aerospace industry, HEICO did not have to go to the market to raise money at, what I consider, exorbitant rates of 8% or more.\nSo, we just went through this financially sound and I think that has really helped us and has proven to be an excellent strategy.\nIn July '20, we paid the regular semiannual cash dividend of $0.08 per share, and that represented our 84th consecutive semiannual cash dividend.\nWe did not cut that -- we did not have to cut the dividend and we were very proud of that.\nSome companies did cut dividend significantly because of cash flow pressures; we did not.\nIn July '20, we reported that our Sierra Microwave, VPT, 3D PLUS subsidiaries supplied mission critical hardware for the Mars 2020/Perseverance mission.\nThe Mars mission is designed to better understand the geology of Mars and seek signs of ancient life by collecting and storing rocks, soil samples for a future return to Earth, while also testing new technology for robotic and human space exploration.\nWe congratulate the many remarkable people who accomplished this first step in this incredible mission, and we are proud of the HEICO companies and team members who contributed to the effort and we are excited for the mission's next stage.\nTalking about acquisitions, in June 2020, we acquired 70% of the membership interest of Rocky Mountain Hydrostatics, which overhauls industrial pumps, motors, and other hydraulic units, with a focus on the support of legacy systems for the U.S. Navy.\nThe remaining 30% continues to be owned by certain members of Rocky Mountain's management team.\nAnd Rocky Mountain is part of our Flight Support Group, and we expect the acquisition to be accretive to earnings within the first 12 months following closing.\nIn August 2020, we acquired 75% of the equity interest of Intelligent Devices and Transformational Security.\nThese two companies design and develop and manufacture state-of-the-art technical surveillance countermeasures equipment used to protect critical spaces from exploitation via wireless transmissions, technical surveillance, and listening devices.\nIn summary, I'll say basically spying by unwanted people.\nThese acquisitions are part of Electronic Technologies, and we expect them to be accretive to earnings within the first 12 months following closing.\nThe remaining 25% interest was acquired by the non-controlling interest holders of a subsidiary in HEICO Electronic that is also a designer and manufacturer of the same type of equipment used basically for different applications.\nIn August '20, we acquired 90% of the equity interest of Connect Tech.\nConnect Tech designs, manufactures rugged small form factor embedded computing solutions.\nIts components are designed for very harsh environments and primarily used in rugged commercial and industrial, aerospace and defense, transportation, and smart energy applications.\nThe remaining 10% interest continues to be owned by a member of Connect Tech's management team.\nThis acquisition is part of the Electronic Technologies Group, and we expect it to be accretive to earnings within the first 12 months following closing.\nThe Flight Support Group's net sales were $731.2 million in the first nine months of fiscal '20 as compared to $915.5 million in the first nine months of fiscal '19.\nThe Flight Support Group's net sales were $178.2 million in the third quarter of fiscal '20 as compared to $320 million in the third quarter of fiscal '19.\nThe net sales decrease in the first nine months and the third quarter of fiscal '20 is principally organic and reflects lower demand across all of our product lines, resulting from the significant decline in global commercial air travel beginning in March 2020 due to the outbreak.\nNet sales in fiscal '20 follows a very strong 12% and 13% organic growth reported in the third quarter and full fiscal 2019 year respectively.\nThe Flight Support Group's operating income was $121.6 million in the first nine months of fiscal '20 as compared to $179.8 million in the first nine months of fiscal '19.\nThe Flight Support Group's operating income was $12 million in the third quarter of fiscal '20 as compared to $64.8 million in the third quarter of fiscal '19.\nThe operating income decrease in the first nine months and third quarter of fiscal '20 principally reflects the previously mentioned decrease in net sales, a lower gross profit margin mainly within our aftermarket replacement parts and repair and overhaul parts and services product lines, and an increase in bad debt expense, principally due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal '20 as a result of the financial impact of the outbreak.\nThese decreases were partially offset by lower performance-based compensation expense.\nThe Flight Support Group's operating margin was 16.6% in the first nine months of fiscal '20 as compared to 19.6% in the first nine months of fiscal '19.\nThe Flight Support Group's operating margin was 6.7% in the third quarter of fiscal '20 as compared to 20.2% in the third quarter of fiscal '19.\nThe decrease in the first nine months and third quarter of fiscal '20 principally reflects the previously mentioned lower gross profit margin and an increase in SG&A expenses as a percentage of net sales, mainly reflecting the impact of the outbreak in previously mentioned higher bad debt expense.\nThe Electronic Technologies Group's net sales increased 4% to a record $638.3 million in the first nine months of fiscal '20, up from $615 million in the first nine months of fiscal '19.\nThis increase is attributable to the favorable impact from our fiscal '19 and fiscal '20 acquisitions, partially offset by an organic net sales decrease of 1%.\nThe organic net sales decrease is principally due to lower sales of our space, commercial aerospace, and other electronics products, largely attributable to the outbreak, partially offset by increased sales of our defense products.\nThe Electronic Technologies Group's net sales decreased 2% to $210 million in the third quarter of fiscal '20 from $216.1 million in the third quarter of fiscal '19.\nThis decrease is attributable to an organic net sales decrease of 6%, partially offset by the favorable impact from our fiscal '19 and fiscal '20 acquisitions.\nThe organic net sales decrease is principally due to lower shipments of our defense and commercial aerospace products, mainly attributable to the outbreak, partially offset by increased sales of our space products in the third quarter.\nThe Electronic Technologies Group's operating income increased 2% to a record $184.9 million in the first nine months of fiscal '20, up from $181.2 million in the first nine months of fiscal '19.\nThe Electronic Technologies Group's operating income was $61.9 million and $62.2 million in the third quarter of fiscal '20 and fiscal '19 respectively.\nThe increase in the first nine months of fiscal '20 principally reflects the previously mentioned net sales growth, lower performance-based compensation expense, and a decrease in acquisition-related expenses, partially offset by a lower gross profit margin.\nThe lower gross profit margin is mainly due to a decrease in net sales of certain space products and the less favorable product mix of certain aerospace products, partially offset by increased net sales of certain defense products.\nThe Electronic Technologies Group's operating margin was 29% in the first nine months of fiscal '20 as compared to 29.5% in the first nine months of fiscal '19.\nThe decrease principally reflects the previously mentioned lower gross profit margin, partially offset by a decrease in SG&A expenses as a percent of net sales, mainly from lower performance-based compensation expense and lower acquisition-related expenses.\nThe Electronic Technologies Group's operating margin improved to 29.4% in the third quarter of fiscal '20, up from 28.8% in the third quarter of fiscal '19.\nThe increase principally reflects a decrease in SG&A expenses as a percent of net sales, mainly from lower performance-based compensation expense and a decrease in acquisition-related expenses, partially offset by a lower gross profit margin.\nThe lower gross profit margin was mainly due to a decrease in net sales and less favorable product mix of certain commercial aerospace and defense products, partially offset by increased net sales and a more favorable product mix of certain space products in the quarter.\nConsolidated net income per diluted share decreased 32% to $0.40 in the third quarter of fiscal '20 and that was down from $0.59 in the third quarter of fiscal '19.\nThe decrease principally reflects the previously mentioned lower operating income of the Flight Support Group, partially offset by lower income tax expense, less net income attributable to non-controlling interest, and lower interest expense.\nConsolidated net income per diluted share increased 4% to $1.83 in the first nine months of fiscal '20 and that was up from $1.76 in the first nine months of fiscal '19, and that increase principally reflects an incremental discrete tax benefit from stock option exercises, which were recognized in the first quarter of fiscal '20, less net income attributable to non-controlling interest and lower interest expense, partially offset by the previously mentioned lower operating income of Flight Support.\nDepreciation and amortization expense totaled $21.9 million in the third quarter of fiscal '20.\nThat was up slightly from $21.1 million in the third quarter of fiscal '19 and totaled $65.2 million in the first nine months of fiscal '20, up from $61.7 million in the first nine months of fiscal '19.\nThe increase in the third quarter and first nine months of fiscal '20 principally reflects the incremental impact from our fiscal '19 and fiscal '20 acquisitions.\nR&D expense was $15.1 million in the third quarter of fiscal '20 compared to $16.6 million in the third quarter of fiscal '19 and it increased 1% to $49 million in the first nine months of fiscal '20 and that was up from $48.7 million in the first nine months of fiscal '19.\nSignificant new product development efforts are continuing at both Electronic Technologies and Flight Support, and we continue to invest more than 3% of each sales dollar into new product development.\nConsolidated SG&A expense decreased by 20% to $75 million in the third quarter of fiscal '20, down from $93.4 million in the third quarter of fiscal '19.\nConsolidated SG&A expense decreased by 13% to $232.8 million in the first nine months of fiscal '20 and that was down from $267.9 million in the first nine months of fiscal '19.\nThe decrease in consolidated SG&A expense in the third quarter and first nine months of fiscal '20 principally reflects a concerted effort by both Flight Support and ETG to control their SG&A spend, and these efforts resulted in lower G&A expenses such as a decrease in performance-based compensation expense and a reduction in various selling expense, including outside sales commissions, marketing, and travel.\nThese decreases were partially offset by an increase in bad debt expense at Flight Support, which I previously mentioned was $7.5 million due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal '20 as a result of the financial impact of the outbreak as well as the increase from fiscal '19 and '20 acquisitions.\nConsolidated SG&A expense as a percentage of net sales increased to 19.4% in the third quarter of fiscal '20 and that was up from 17.5% in the third quarter of fiscal '19.\nThe increase in consolidated SG&A expense as a percent of net sales in the third quarter of fiscal '20 principally reflects the aforementioned increase in bad debt expense due to bankruptcy filings made by certain commercial aviation customers and higher other SG&A expenses as a percentage of net sales due to decreased sales volumes.\nThese increases were partially offset by lower performance-based compensation expense.\nConsolidated SG&A expense as a percent of net sales decreased to 17.1% in the first nine months of fiscal '20, down from 17.7% first nine months of fiscal '19.\nThe decrease in consolidated SG&A expense as a percentage of net sales is mainly due to again lower performance-based compensation expenses, partially offset by an increase in other SG&A expenses as a percentage of net sales and an increase in the bad debt expense, reflecting the previously mentioned bankruptcy filings.\nInterest expense decreased to $2.6 million in the third quarter of fiscal '20, down from $5.5 million in the third quarter of fiscal '19 and decreased to $10.6 million in the first nine months of fiscal '20 and that was down from $16.5 million in the first nine months of fiscal '19.\nThe decrease in the third quarter and first nine months of fiscal '20 was principally due to a lower weighted average interest rate on borrowings outstanding under our revolving credit facility.\nOur effective tax rate in the third quarter of fiscal '20 was 13.4%, compared to 22% in the third quarter of fiscal '19.\nThe decrease principally reflects a larger deduction related to foreign-derived intangible income, principally resulting from final tax regulations that were issued in the third quarter of fiscal 2020 as part of the Tax Cuts and Jobs Act that was enacted in December 2017 as well as a larger income tax credit for qualified R&D activities.\nOur effective tax rate in the first nine months of fiscal '20 was 3.5% compared to 17.1% in the first nine months of fiscal '19.\nAs previously mentioned, HEICO recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal '20 and '19, which accounted for a majority of the decrease in our year-to-date effective rate.\nThe decrease in the effective rate in the first nine months of fiscal '20 also reflects a larger deduction related to the previously mentioned foreign-derived intangible income deduction as well as larger income tax credits for qualified R&D activities.\nNet income attributable to non-controlling interest was $3.2 million in the third quarter of fiscal '20 and that compared to $8 million in the third quarter of fiscal '19.\nNet income attributable to non-controlling interest was $16.6 million in the first nine months of fiscal '20 compared to $25 million in the first nine months of fiscal '19.\nThe decrease in third quarter and first nine months of fiscal '20 principally reflects the impact of a dividend paid by HEICO Aerospace in June '19 -- 2019 that effectively resulted in the transfer of the 20% non-controlling interest held by Lufthansa Technik in eight of our existing subsidiaries back to the Flight Support Group and a decrease in operating results of certain subsidiaries of the Flight Support Group in which non-controlling interests are held.\nMoving on to the balance sheet and cash flow, our financial position and forecasted cash flow remain extremely strong.\nAs we mentioned earlier, cash flow provided by operating activities was consistently strong at $299 million and $313.4 million in the first nine months of fiscal 2019 respectively.\nCash flow provided by operating activities totaled $93.1 million or 171% of net income in the third quarter of fiscal '20 as compared to $135.1 million in the third quarter of fiscal '19.\nOur working capital ratio improved to 5 times as of July 31, '20, compared to 2.8 times as of October 31, 2019.\nOur day sales outstanding, DSOs of receivables improved to 43 days as of July 31, '20 and that compared to 45 days as of July 31, '19.\nWe monitor all receivable collection efforts and try to limit our credit exposure.\nNo one customer accounted for more than 10% of net sales and our Top 5 customers represented 25% and 21% of consolidated net sales in the third quarter of fiscal '20 and '19 respectively.\nInventory turnover increased to 154 days for the period ended July 31, '20 and that compared to 125 days for the period ended July 31, '19.\nThe increase in the turnover rate principally reflects certain long term and non-cancelable inventory purchase commitments based on pre-outbreak net sales expectations, and also, the necessity to support the backlog of certain of our businesses.\nNow, looking forward, the outlook.\nWe cannot estimate the outbreak's duration and magnitude and we cannot confidently predict when demand for commercial aerospace products will return to pre-outbreak levels.\nHowever, we do continue to forecast positive cash flow from operations for the remainder of fiscal '20.\nWe entered the outbreak with a healthy balance sheet that included a strong cash position and nominal debt.\nWe believe HEICO is favorably positioned for long-term success despite the short-term challenges created by the outbreak in the global economy.\nThis COVID pandemic will not last forever.\nOur time-tested strategy of maintaining low debt and acquiring and operating high cash generating businesses across a diverse base of industries beyond commercial aviation such as defense, space, and other high-end markets, including electronic and medical puts us in a good financial position to weather this uncertain economic period.\nOur executive team is focused on your safety and professional success.",
        "summary": "q3 earnings per share $0.40.\ncontinue to forecast positive cash flow from operations for remainder of fiscal 2020."
    },
    {
        "text": "These risks include those set forth in the Risk Factor section of Hess's annual and quarterly reports filed with the SEC.\nAlso, on today's conference call we may discuss certain non-GAAP financial measures.\nA reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.\nWe hope you and your families are all well.\nToday, I will review our continued progress in executing our strategy.\nThen Greg Hill will discuss our operations.\nAnd John Rielly will then review our financial performance.\nLet's begin with our strategy, which has been and continues to be to grow our resource base, have a low cost of supply and sustained cash flow growth.\nBy investing only in high return low cost opportunities, we've built a differentiated portfolio that is balanced between short cycle and long cycle assets.\nWith Guyana as our growth engine and The Bakken, Gulf of Mexico and Southeast Asia as our cash engines.\nGuyana is positioned to become a significant cash engine as multiple phases of low cost oil development come online, which we expect will drive our portfolio breakeven Brent oil price below $40 a barrel by the middle of the decade.\nAs our portfolio generates increase in free cash flow, we will first prioritize debt reduction and then cash returns to shareholders through dividend increases and opportunistic share repurchases.\nEven as we have seen oil prices recover since the beginning of this year, our priorities continue to be to preserve cash, preserve our operating capability and preserve the long term value of our assets.\nIn terms to preserving cash, at the end of March, we had [Technical Issues] billion cash on the balance sheet, a $3.5 billion revolving credit facility, which is undrawn and was recently extend by one year to 2024 and no debt maturities until 2023.\nWe've mainted a disciplined capital on exploatory budget for 2021 of $1.9 billon.\nMore than 80% of this year's capital spend is allocated to Guyana, where our three sanctioned oil developments have breakeven oil price of between $25 and $35 per barrel.\nAnd to The Bakken, where we have a large inventory of future drilling locations that generate attractive financial returns at $50 per barrel WTI.\nTo manage downside risk, in 2021 we have hedged a 120,000 barrels of oil per day with $55 per barrel WTI put options and 30,000 barrels of oil per day with $60 per barrel Brent put options.\nTo further optimize our portfolio and strengthen our cash and liquidity position, we recenly announced two asset sales.\nIn March, we entered into an agreement to sell our oil and gas interest in Denmark for a total consideration of $150 million effective January 1, 2021.\nThis transaction is expected to close in the third quarter.\nOn April 8, we announced the sale of our Little Knife and Murphy Creek nonstrategic acreage interest in The Bakken for a total consideration of $312 million effective March 1, 2021.\nThis acreage is located in the Southern most portion of Hess' Bakken position.\nAnd [technical issues] is connected to Hess Midstream infrastructure.\nThe sale of this acreage, most of which we are not planning to drill before 2026, brings material value forward.\nThis transaction is expected to close within the next few weeks.\nDuring the quarter, we also received $70 million in net proceeds from the public offering of a small portion of our Class A shares in Hess Midstream LP.\nThe Bakken remains a core part of our portfolio.\nIn February, as WTI oil prices moved above $50 per barrel, we added a second rig, which will allow us to sustain production and strong cash flow generation from our largest operated asset.\nIn terms of preserving the long term value of our assets, Guyana, with its low cost of supply and industry leading financial returns remains a top priority.\nOn the Stabroek Block, where Hess has a 30% interest, and ExxonMobil is the operator, we've made 18 significant discoveries to date, with gross discovered recoverable resources of approximately nine billion barrels of oil equvialent.\nAnd we continue to see multibillion barrels of future exploration potential remaining.\nWe have an active exploration and appraisal program this year on the Stabroek Block.\nYesterday, we announced the discovery of the Uaru-2 Well with encouraging results that further define the large aerial extent of this accumulation, underpinning a potential future oil development.\nIn addition, drilling activites are under way, for appraisal at the Longtail-3 Well and for exploration at the Koeb-1 prospect.\nProduction from phase 1 ran at its full capacity at 120,000 gross barrels of oil per day during the first quarter.\nIn mid April, production was curtailed for several days after a minor leak was detected in a flash gas compressor discharge silencer.\nProduction has since ramped back up and is expected to remain in the range of 100,000 to 110,000 gross barrels of oil per day until repairs to the discharge silencer are completed in approximately three months.\nFollowing this repair, production is expected to return to or above Liza Destiny's nameplate capacity of 120,000 barrels of oil per day.\nThe Liza Phase-II development is on track to achieve first oil in early 2022 with a capacity of 220,000 gross barrels of oil per day.\nOur third oil development on the Stabroek Block, at the Payara field, is expected to achieve first oil in 2024, also with a capacity of 220,000 gross barrels of oil per day.\nAnd we're nearing work for Yellowtail, a fourth development on the Stabroek Block is under way with anticipated start-up in 2025, pending government approvals and project sanctioning.\nWe continue to see the potential for at least 6 FPSOs, on the block by 2027 and longer term for up to 10 FPSOs to develop the discovered resources on the block.\nAs we execute our company's strategy.\nWe will continue to be guided by our long-standing commitment to sustainability and are proud to be an industry leader in this area.\nWe support the aim of the Paris agreement and also a global ambition to achieve net zero emissions by 2050.\nAs part of our sustainability commitment, our Board and our senior leadership have set aggressive targets for greenhouse gas emissions reduction.\nIn 2020 we significantly surpassed our five-year emission reduction targets, reducing the operated Scope one and Scope two greenhouse gas emissions intensity by approximately 40% and flaring intensity by approximately 60% compared to 2014 levels.\nWe recently announced our new five-year emission reduction targets for 2025 which are to reduce operated Scope one and Scope two greenhouse gas emissions intensity by approximately 44% and methane emissions intensity by approximately 50% from 2017 levels.\nIn addition, we are investing in technological and scientific advances designed to reduce, capture and store carbon emissions, including groundbreaking work being conducted by the Salk Institute to develop plants with larger root systems, that according to the Salk Institute are capable of absorbing and storing potentially billions of tons of carbon per year from the atmosphere.\nIn summary, our company is executing our strategy that will deliver increasing financial returns, visible and low risk production growth, and accelerating cash flow growth well into this decade.\nAs we generate increasing free cash flow, we will first prioritize debt reduction.\nAnd then the return of capital to our shareholders through dividend increases and opportunistic share repurchases.\nOverall, in the first quarter, we demonstrated strong execution and delivery across our portfolio.\nCompany wide net production averaged 315,000 barrels of oil equivalent per day, excluding Libya, which was in line with our guidance.\nThe Bakken experienced extreme weather conditions and higher NGL prices during the quarter, both of which led to lower volumes.\nHowever, the higher NGL prices resulted in significantly higher net income and cash flows.\nBakken net production in the first quarter averaged 158,000 barrels of oil equivalent per day, which was below our guidance of approximately 170,000 barrels of oil equivalent per day.\nOf this shortfall, approximately 8,000 barrels per day was due to the significant increase in NGL prices in the quarter.\nMuch of our third-party gas processing from our operated production is done under percent of proceeds or POP contracts where we charge a fixed fee for processing wet gas but take NGL barrels as payment instead of cash.\nPOP volumes from these contracts get reported as Hess net production.\nWhen NGL prices increase, as they did in the first quarter, it takes fewer barrels to cover our gas processing fees, hence, our reported NGL production was reduced.\nBut again, the higher NGL prices resulted in significantly higher earnings and cash flow.\nThe other fact that effected Bakken production in the quarter was related to winter storm Yuri, which brought power outages and average wind chill temperatures of minus 34 degrees Fahrenheit for two weeks in February.\nThese extreme temperatures were below safe operating conditions for our crews and led to higher non-productive time on our drilling rigs, significantly higher workover backlogs and lower non-operated production.\nAs discussed in our January earnings call, we added a second rig in the Bakken in February.\nIn the first quarter, we drilled 11 wells and brought four new wells online.\nIn the second quarter, we expect to drill approximately 15 wells and bring approximately 10 new wells online.\nAnd for the full year 2021, we expect to drill approximately 55 wells and to bring approximately 45 new wells online.\nFor the second quarter, we forecast that our Bakken net production will average approximately 155,000 barrels of oil equivalent per day.\nAnd for the full year 2021, between 155,000 barrels and 160,000 barrels of oil equivalent per day.\nThis forecast reflects the residual weather impacts, higher NGL strip prices, the sale of our non-strategic Bakken acreage, and the planned turnaround at the Tioga Gas Plant in the third quarter.\nWe expect net production to build in the second half of the year and forecast 2021 exit rate of between 170,000 barrels and 175,000 barrels of oil equivalent per day.\nMoving to the offshore.\nIn the deepwater Gulf of Mexico, first quarter net production averaged 56,000 barrels of oil equivalent per day, reflecting strong operations following hurricane recovery in late 2020.\nIn the second quarter, we forecast that Gulf of Mexico net production will average approximately 50,000 barrels of oil equivalent per day.\nFor the full year 2021, we maintain our guidance for Gulf of Mexico net production to average approximately 45,000 barrels of oil equivalent per day, reflecting planned maintenance downtime and natural field declines.\nIn the Gulf of Thailand, net production in the first quarter was 64,000 barrels of oil equivalent per day as natural gas nominations continue to increase due to strong economic growth.\nSecond quarter and full year 2021 net production are forecast to average approximately 60,000 barrels of oil equivalent per day.\nNow turning to Guyana.\nOur discoveries and developments on the Stabroek Block are world-class in every respect and with Brent breakeven oil prices of between $25 and $35 per barrel represent some of the lowest project breakeven oil prices in the industry.\nProduction from Liza Phase-1 averaged 121,000 gross barrels of oil per day or 31,000 barrels of oil per day net to Hess in the first quarter.\nAs John mentioned, production at the Liza Destiny was curtailed for several days following the detection of a minor gas leak in the flash gas compressors discharge silencer on April 11.\nProduction is currently averaging between 110,000 and 100,000 gross barrels of oil per day, and is expected to stay in that range while repairs are made to the silencer.\nUpon reinstallation and restart of the flash gas compression system, expected in approximately three months, poduction is expected to return to or above nameplate -- nameplate capacity of 120,000 barrels of oil per day.\nFor the second quarter, we now forecast net production to average between 20,000 barrels and 25,000 barrels of oil per day.\nAnd our full-year 2021 net production to average approximately 30,000 barrels of oil per day.\nSBM Offshore has placed an order for an upgraded flash gas compressor system, which is expected to be installed in the fourth quarter of 2021.\nProduction optimization work is now planned in the fourth quarter, which will further increase the Liza Destiny progression capacity.\nI think it's important to note that the overall performance of the subsurface in Liza-1 has been outstanding.\nWe have seen very strong reservoir and well performance that has met or exceeded our expectations.\nOnce the flash gas compressor is replaced, we are confident that we will see a significant improvement in uptime reliability.\nAt Liza Phase II, the project is progressing to plan with about 90% of the overall work completed and first oil remains on track for early 2022.\nThe Liza Unity FPSO with a production capacity of 220,000 gross barrels of oil per day is preparing to sale from the Keppel yard in Singapore to Guyana mid year.\nOur third development, Payara, is also progressing to plan with about 38% of the overall work completed.\nThe project will utilize the Liza Prosperity FPSO, which will have the capacity to produce up to 220,000 gross barrels of oil per day.\nThe FPSO Hull is complete and topsides construction activities had commenced in Singapore.\nFirst oil remains on track for 2024.\nFront-end engineering and design work continues for the fourth development on the Stabroek Block at Yellowtail.\nThe operator expects to submit a plan of development to the Government of Guyana in the second half of this year.\nPending government approval and project sanctioning, the Yellowtail project is expected to achieve first oil in 2025.\nThe Stabroek Block exploration program for the remainder of the year, will focus on both Campanian Liza-type reservoirs and on the deeper Santonian reservoirs.\nIn addition, key appraisal activities will be targeted in the southeast portion of the Stabroek Block to inform future developments.\nIn terms of drilling activity, as announced yesterday, the Uaru-2 well successfully appraised the Uaru well discovery and also made an incremental discovery in deeper intervals [Phonetic].\nThe well encountered approximately 120ft of high quality oil bearing sandstone reservoir and was drilled 6.8 miles from the discovery well, implying a potentially large areal extent.\nThe Stena DrillMax is currently appraising the Longtail discovery and additional appraisal is planned at Mako and in the Turbot area, which will help define our fifth and sixth developments on the block.\nThe Stena Carron has commenced exploration drilling at the Koeb-1 well and an exploration well at Whiptail is planned to spud in May.\nFurther exploration and appraisal activities are planned for the second half of 2021 with a total of approximately 12 wells to be drilled this year.\nThe Noble Tom Madden and the Noble Bob Douglas and the Noble Sam Croft, which recently joined the fleet, will be primarily focused on development drilling.\nNow shifting back to production.\nCompany wide second quarter net production is forecast to average between 290,000 barrels and 295,000 barrels of oil equivalent per day.\nFull year 2021 net production is now also expected to average between 290,000 barrels and 295,000 barrels of oil equivalent per day, compared to our previous forecast of approximately 310,000 barrels of oil equivalent per day.\nThis reduction reflects the following: approximately 7,000 barrels of oil equivalent per day, due to lower entitlements, resulting from the increase in NGL strip prices.\nAgain, this will be accretive overall to earnings and cash flow.\nSecond factor is approximately 6,000 barrels of oil equivalent per day was related to the sale of our interest in Denmark and non-strategic acreage in North Dakota, for which we brought full value forward.\nThe balance primarily reflect short term weather effects in The Bakken, from which we expect to catch back up over the course of the year and again forecast a 2021 Bakken exit rate of between 170,000 barrels and 175,000 barrels of oil equivalent per day.\nIn closing, our team once again demonstrated strong execution and delivery across our asset base under challenging conditions.\nOur distinctive capabilities and world-class portfolio will enable us to deliver industry-leading performance and value to our shareholders for many years to come.\nIn my remarks today, I will compare results from the first quarter of 2021 to the fourth quarter of 2020.\nWe had net income of $252 million in the first quarter of 2021, compared to an adjusted net loss of $176 million, which excluded an after-tax gain of $79 million from an asset sale in the fourth quarter of 2020.\nE&P had net income of $308 million in the first quarter of 2021, compared to an adjusted net loss of $118 million in the previous quarter.\nThe changes in the after-tax components of adjusted E&P results between the first quarter of 2021 and the fourth quarter of 2020 were as follows.\nHigher realized crude oil, NGL, and natural gas selling prices increased earnings by $192 million.\nHigher sales volumes increased earnings by $99 million.\nLower DD&A expense increased earnings by $88 million.\nLower cash costs increased earnings by $39 million.\nAll other items increased earnings by $8 million for an overall increase in first quarter earnings of $426 million.\nExcluding the two VLCC cargo sales, our E&P sales volumes were over lifted compared with production by approximately 300,000 barrels, which improved after-tax results by approximately $10 million.\nThe sales from the two VLCC cargoes increased net income by approximately $70 million in the quarter.\nThe impact of higher NGL prices improved first quarter earnings by approximately $55 million and reduced Bakken NGL volumes received under percentage of proceeds or POP contracts by 9,000 barrels of oil equivalent per day, compared with the fourth quarter of 2020.\nThe Midstream segment had net income of $75 million in the first quarter of 2021, compared to $62 million in the prior quarter.\nMidstream EBITDA before noncontrolling interest amounted to $225 million in the first quarter of 2021, compared to $198 million in the previous quarter.\nIn March Hess received net proceeds of $70 million from the public offering of 3,450,000 Hess owned Class A shares in Hess Midstream.\nNow turning to our financial position.\nAt quarter end, excluding Midstream, cash and cash equivalents were approximately $1.86 billion and our total liquidity was $5.5 billion, including available committed credit facilities.\nWhile debt and finance lease obligations totaled $6.6 billion.\nOur fully undrawn 3.5 billion revolving credit facility is now committed through May 2024 following the amendment executed earlier this month to extend the maturity date by one year.\nIn the first quarter of 2021, net cash provided by operating activities before changes in working capital was $815 million compared with $532 million in the fourth quarter of 2020, primarily due to higher realized selling prices.\nIn the first quarter, net cash provided from operating activities after changes in working capital was $591 million compared with $486 million in the prior quarter.\nThe sale of our Little Knife and Murphy Creek acreage in The Bakken for total consideration of $312 million is expected to close within the next few weeks and the sale of our interest in Denmark for total consideration of $150 million is expected to close in the third quarter of this year.\nNow turning to guidance.\nOur E&P cash costs were $9.81 per barrel of oil equivalent including Libya and $10.21 per barrel of oil equivalent, excluding Libya, in the first quarter of 2021.\nWe project E&P cash cost excluding Libya to be in the range of $12 to $13 per barrel of oil equivalent for the second quarter, primarily reflecting the timing of maintenance and workover spend.\nFull year E&P cash costs are expected to be in the range of $11 to $12 per barrel of oil equivalent, which is up from previous full year guidance of $10.50 to 11.50 per barrel of oil equivalent, due to the impact of updated production guidance.\nDD&A expense was $11.83 per barrel of oil equivalent, including Libya.\nAnd $12.36 per barrel of oil equivalent, excluding Libya in the first quarter.\nDD&A expense excluding Libya is forecast to be in the range of $11.50 per barrel to $12.50 per barrel of oil equivalent for the second quarter.\nAnd full-year guidance of $12 per barrel to $13 per barrel of oil equivalent is unchanged.\nThis results in projected total E&P unit operating costs, excluding Libya to be in the range of $23.50 per barrel to $25.50 per barrel of oil equivalent for the second quarter.\nAnd $23 per barrel to $25 per barrel of oil equivalent for the full year of 2021.\nExploration expenses excluding dry hole costs are expected to be in the range of $40 million to $45 million in the second quarter.\nAnd full-year guidance of $170 million to $180 million is unchanged.\nThe Midstream tariff is projected to be in the range of $260 million to $270 million for the second quarter.\nAnd full-year guidance of $1.90 million to 1.115 million is unchanged.\nE&P income tax expense excluding Libya is expected to be in the range of $25 million to $30 million for the second quarter.\nAnd $105 million to $115 million for the full year, which is up from previous guidance of $80 million to $90 million due to higher commodity prices.\nWe expect non-cash option premium amortization will be approximately $65 million for the second quarter and approximately $245 million for the full year, which is up from previous guidance of $205 million, reflecting additional premiums paid to increase the strike price on our crude oil hedging contracts.\nIn the second quarter, we expect to sell two one million barrel cargoes from Guyana, whereas we sold three one million barrel cargoes in the first quarter and we expect to sell five one million barrel cargoes over the second half of the year.\nOur E&P capital and exploratory expenditures are expected to be approximately $500 million in the second quarter, and the full year guidance of approximately $1.9 billion remains unchanged.\nFor Midstream, we anticipate net income attributable to Hess from the Midstream segment to be in the range of $60 million to $70 million for the second quarter and the full year guidance of $280 million to $290 million remains unchanged.\nFor corporate, corporate expenses are estimated to be in the range of $30 million to $35 million for the second quarter, and full-year guidance of $130 to $140 million is unchanged.\nInterest expense is estimated to be in the range of $95 million to $100 million for the second quarter, and full-year guidance of $380 million to $390 million is unchanged.\nThis concludes my remarks.\nWe will be happy to answer any questions.",
        "summary": "qtrly net production from bakken was 158,000 boepd compared with 190,000 boepd in prior-year quarter.\nnet production from bakken is forecast to be 155,000 to 160,000 boepd for full year 2021.\nqtrly net production from gulf of mexico was 56,000 boepd, compared with 74,000 boepd in prior-year quarter.\nfy 2021 net production, excluding libya, is now forecast to be 290,000 boepd to 295,000 boepd from previous guidance.\nqtrly oil and gas net production, excluding libya, was 315,000 boepd."
    },
    {
        "text": "We're grateful for the healthcare workers and the many others on the front lines providing supplies and services as we collectively weather this pandemic.\nToday I'll start with COVID-19 impacts in Hawaii plans for reopening our economy and how our companies are positioned.\nHawaii is facing an unprecedented challenge from COVID-19 and we're especially mindful of the essential roles our companies play.\nThrough our utility we provide reliable electricity to keep our hospitals homes and essential businesses running.\nAnd through our bank we help ensure money keeps flowing through our economy.\nContinuing to provide these vital services while protecting the health of our customers as well as our employees has been a core focus.\nIn Hawaii we talk about our special culture of Aloha and of Kuleana our responsibility to others.\nIt's a culture that we've described previously in terms of our community coming together to take care of each other and of the land and environment.\nAnd it's a culture that has served us well in managing the public health impacts of COVID-19.\nOur government's early actions to impose statewide stay at home work from home orders and mandatory 14-day quarantines for all incoming travelers both visitors and residents alike and a whole of community response have succeeded in flattening the curve in Hawaii.\nAs of May 4 we have had sadly 17 deaths and a total case load of 621 but also 16 days where new cases were in the single digits.\nOn our most populous island of Oahu where population density is comparable to cities like San Jose California.\nWe've even had multiple days of no new cases.\nThese numbers are encouraging and have enabled us to start reopening our economy.\nWhile this is a difficult time we believe we will get through this crisis.\nAlthough Hawaii's tourism industry has been significantly impacted by the stay at home orders and the travel quarantine the beauty of our state and the Aloha of Hawaii's people will not change.\nPost 9/11 and post the Great Recession tourism came back strongly.\nIt was clear that people still wanted to travel but they wanted to travel to a safe destination.\nIn this crisis we have the opportunity to rebrand Hawaii as the safest place on Earth.\nWe believe that we can demonstrate that our state will be a welcoming and safe place for visitors and that Hawaii will continue to be a very attractive place for tourism.\nHawaii will also remain continue to remain of strategic importance for the military and federal state and local government will continue to play a major role here.\nOur housing market has also proven resilient.\nIt was relatively stable during and after the Great Recession and continues to be characterized by robust demand for a limited supply.\nThe public and private sectors here are collaborating to responsibly reopen our economy for both residents and visitors and also to shape what we want our economy to look like in the future.\nOur company's leaders are deeply involved in these efforts.\nIn addition Alan Oshima former CEO of Hawaiian Electric who stepped down just a couple of months ago was appointed by our Governor Ige to coordinate and navigate our state's economic and community recovery in a collaborative fashion.\nThe overarching plan has three phases: Phase one stabilization of the number of COVID cases; Phase two a gradual reopening and recovery of our economy; and Phase theree making our economy even more resilient with strong business and job growth.\nParks and golf courses have reopened elective surgeries have resumed and low contact businesses such as car dealerships and automated service providers were allowed to reopen May 1.\nWe anticipate economic activity will increase over the coming weeks and months with meaningful activity resuming mid-to-late summer and significant recovery by year-end.\nYesterday our University of Hawaii Economic Research Organization updated their forecast for Hawaii's economic recovery.\nAnd they believe that local economic activity will return by 35% to 45% in May and June and 75% by year-end.\nTourism will take longer likely beginning to return late July with arrivals by year-end reaching half of their normal levels.\nThis reopening gives our state a unique opportunity to consider the future of our economy and there too we're looking at doing it responsibly and ensuring that the choices and investments we make move us toward a more sustainable economy.\nWe're thinking about the right level of tourism that ensures a good experience for visitors and is sustainable for our environment our lands our economy and our communities.\nAs a company we're working to support and advance our state's recovery.\nAt our bank we're focused on building the innovation economy to diversify and expand job opportunities.\nAt our utility we continue to partner with stakeholders to progress clean energy projects and identify opportunities to rebuild with Hawaii's green economy goals in mind.\nAnd we remain committed to our state's 100% renewable portfolio standard and carbon neutrality goals.\nProtecting the health and safety of our employees helping our customers and supporting our community through this time have been core goals for our companies.\nTo protect employees and customers we implemented a mandatory work from home policy for employees who are able and we instituted the use of discrete work teams to increase physical distancing for those employees who must be on the job such as our linemen and power plant operators.\nWe also scaled back our open bank branches and implemented extensive cleaning and physical distancing precautions for those that remain open.\nThe bank has seen strong increases in online account enrollments and mobile usage which is encouraging and should help keep reducing costs for routine transactions over time.\nAs the state and county stay-at-home orders get phased out over time we will likely phase back into full operations albeit with new practices to maintain health and safety.\nWe've been pleased that our liquidity and balance sheet strength of our utility bank and consolidated enterprise have enabled us to support our customers in this uncertain time.\nOur utilities has suspended disconnections for nonpayment through the end of June and urged customers experiencing hardship to reach out so we can help with payment arrangements.\nWe also remain very focused on affordability of customer bills.\nWe are mindful of the need to operate even more efficiently given the economy and how it may impact pending rate requests.\nOne bright spot has been fuel costs which are largely a pass-through item for our customers.\nOur customers are seeing some benefits of lower fuel prices just when they need it most.\nFor example on Oahu in May lower fuel costs would reduce a 500-kilowatt hour per month bill by more than $12 compared to March.\nWe expect lower fuel prices to continue to benefit customers for the next few months.\nBut longer term we remain concerned about the volatility of oil and its impact on customers.\nSo we're still focused on moving off oil as rapidly as possible.\nAt our bank we made a huge push with teammates working round-the-clock shifts to secure loans under the Paycheck Protection Program or PPP to help small businesses pay employees and other essential bills like utilities.\nWe're proud that Americans secured over $370 million for approximately 3600 small businesses employing roughly 40000 individuals.\nAnd that Hawaii banks in total obtained funding for 78% of our states eligible payrolls in the first round placing Hawaii in the top five states in the nation.\nAmerican is also helping customers by providing loan deferral and forbearance options and waiving a number of fees.\nLike Hawaii as a company our fundamentals remain strong and that serves us well to weather the challenges of COVID-19.\nOn a consolidated basis we're comprised of stable operating companies in essential industries.\nOur utility has delivered power for our state for over 125 years through many different economic and social conditions.\nDuring this COVID period we do expect higher bad debt expense and lower kilowatt hour sales.\nAnd indeed in the last week of March we saw lower loads 7% lower on Oahu and Hawaii Island and 14% lower on Maui.\nGiven the utilities fully decoupled regulatory structure the primary financial effect relates to liquidity.\nAlthough decoupling enables the recovery of target revenues approved by the PUC despite lower loads cash collections under that mechanism would be delayed until 2021 under the revenue balancing account.\nWe've taken steps to meaningfully strengthen the utility's liquidity position including through an expanded revolver and a private placement which priced last week and which included our first green bond offering.\nThe lower loads also impact our renewable portfolio standard or RPS performance albeit in a positive fashion since the lower kilowatt hour sales reduces the denominator in the RPS calculation and we expect to comfortably exceed our 2020 RPS goal of 30%.\nOur utility and regulators continue to move regulatory processes forward with minimal disruption.\nThe performance-based regulation or PBR docket remains on track for final decision by year-end with workshops proceeding remotely.\nOur Hawaiian Electric 2020 rate case is also moving forward although the schedule for an interim decision and order is now October rather than July.\nAs part of that rate case the PUC implemented a management audit.\nThat's been a constructive process and the audit report is still expected in May.\nOn April 29 the PUC published an order terminating the mandatory triennial rate case cycle.\nAs such we are no longer required to file a Maui Electric rate case and we're evaluating our options there.\nOur bank has served our state for 95 years and has a conservative risk culture lending practices and loan portfolio.\nThese attributes helped ASB perform well compared to other banks during the 2008 2009 financial crisis and position it well for the challenge at hand.\nWhile net interest income will decline due to lower rates across the curve and credit losses will rise due to the economic slowdown the bank remains a good contributor to HEI.\nASB independently maintains strong liquidity and capital and regularly conducts stress testing implemented after the banking crisis of the Great Recession including under scenarios more severe than what is anticipated from COVID-19.\nOur bank also has limited exposure to industries such as accommodations food services and retail with a commercial and industrial loan portfolio that is highly focused and secured by real estate.\nAt this point we do not see a scenario that would require HEI to inject capital into the bank.\nHowever to maintain its target leverage ratio while supporting increased lending under the Paycheck Protection Program the bank will retain capital it otherwise would have paid in dividends to the holding company.\nAt the holding company we have enhanced our liquidity to ensure that we can be a source of strength to our subsidiaries in the unlikely event that it is needed while maintaining our investment-grade capital structure and our shareholder dividend.\nWe have paid uninterrupted dividends since [1901 including during the Great Recession and maintaining the stability of our dividend is no less important today.\nWe have a strong leadership team with the experience and judgment to guide our companies through this period.\nI was CEO of HEI through 9/11 and the Great Recession.\nRich led a publicly traded Korean bank through that crisis.\nOur bank CFO led a recapitalization of another bank here in Hawaii and our utility and executive teams have decades of experience and are well versed in incident and crisis management.\nOur Board members with whom we've been very actively engaged in this period include former utility and bank executives who steered their companies through the financial crisis as CEOs CFOs and Chief Risk Officers.\nDespite our company's strengths and the essential services we provide we do expect impacts from COVID-19.\nWe saw the beginnings of those in the first quarter including higher bad debt expense at our utility and higher allowance for credit losses at our bank.\nWith the exception of bad debt COVID-19 related costs were not significant for the first quarter but may increase in the next few quarters.\nAs a result the utility has filed a request for deferral treatment of COVID-19 related costs and plans to seek recovery of those costs at a later time.\nThe first quarter was impacted by items other than COVID-19 in particular higher-than-planned utility O&M expense.\nUtility O&M expense management has been an area of focus for us.\nAnd while we have a number of efforts under way we do have more work to do.\nI'll now ask Greg to discuss our first quarter results our liquidity and our guidance.\nI'll speak briefly on our Q1 results before moving to our outlook.\nOn slide nine our Q1 earnings were $0.31 per share compared to $0.42 per share in the prior-year quarter.\nCOVID-19 expense impacted earnings at both the utility and the bank including $2.5 million higher utility bad debt expense pre-tax than Q1 of last year and additional provisioning for COVID-19 of over $4 million at the bank.\nBad debt expense at the utility also impacted utility ROE.\nAnd we expect that bad debt expense will continue to impact our income statement until deferral treatment is granted for future recovery.\nAlthough we did have negative impacts from COVID-19 during the quarter we also had a very strong start to the year prior to the pandemic.\nLoads were strong and showed increases over the prior year of nearly 5%.\nWe started the year with one of the nation's lowest unemployment rates and the strength of the pre-COVID Hawaii economy makes us optimistic about our future once we're through the crisis.\nOn slide 10 utility earnings were $23.9 million compared to $32.1 million in the first quarter of 2019.\nThe most significant drivers of the variance were: $3 million revenue increase from higher rate adjustment mechanism revenues $1 million revenue increase from the recovery of West Loch and Grid Modernization projects under the major project interim recovery mechanism; and $1 million lower interest expense due to debt refinancings at lower rates.\nThese items were offset by $7 million higher O&M expenses compared to Q1 2019 primarily due to increased bad debt expense due to COVID-19 the absence of onetime of a onetime benefit in Q1 2019 due to deferral treatment for certain previously incurred expenses and an increase in vegetation management work and higher outside service costs.\nIn addition we had approximately $1 million higher depreciation expense $1 million lower net income from the absence of renewable procurement performance incentive mechanism.\nAnd we received that we received in 1Q 2019 $1 million from the absence of mutual assistant work reimbursement from the first quarter of 2019 and $1 million lower AFUDC as there were fewer long duration projects in construction work in progress particularly after the West Loch was placed in service in November.\nTurning to the bank.\nAmerican's net income was $15.8 million in the quarter down from $28.2 million in the previous quarter.\nAlthough as a reminder 4Q the fourth quarter of 2019 included $7.7 million of net income from the sales of the former of former properties.\nNet income was also down by $5 million versus the first quarter of 2019 mostly due to the provision taken due to COVID-19.\nFollowing our adoption of CECL and the additional provision in the first quarter relating to COVID we believe we are well positioned and our allowance for loan and lease losses ratio of 149 basis points is above our local peers who average about 126 basis points.\nWe also saw a strong loan growth during the quarter of 4.7% annualized with solid loan growth in commercial and commercial real estate portfolios as well as strong deposit growth of 7.1% on an annualized basis.\nI'd like to spend some time on how we're prudently positioning ourselves to withstand the impacts of COVID as it runs its course.\nIn April we executed financing transactions at both the utility and the holding company that increased committed credit capacity and allowed us to migrate away from commercial paper markets.\nHEI issued $65 million a $65 million 364-day term loan freeing up the full capacity of our $150 million credit facility.\nThe strong pro forma holding company liquidity allows it to serve as a source of strength for the combined enterprise and ensures 2020 cash needs can be met.\nHawaiian Electric added $75 million of capacity through a new revolver and launched and repriced and priced $160 million private placement $95 million of which was used to free up credit capacity on its revolver.\nThe private placement also included a $50 million green bond portion.\nThe utility will be refinancing an existing 364-day term loan with an extended maturity into 2021 freeing up liquidity in 2020.\nWhen the customer challenges due to COVID will likely have the most impact.\nWith these transactions we will have increased liquidity at the utility by over three times.\nWith full availability of our credit facilities at both the utility and the holding company post-closing of the utilities private placement and ample liquidity at ASB through the Federal Home Loan Bank or FHLB.\nWe believe our consolidated company has ample liquidity.\nWe're in a strong position to support our state's economic recovery and maintain our commitment to investment-grade ratings.\nLooking at maturities over the our long-term debt maturities over the remainder of 2020 only $14 million remains at the utility.\nWe have a modest holding company maturity of $50 million in the first quarter of 2021 which we expect to refinance in advance of that maturity.\nTurning to the bank.\nASB's commitment to a strong balance sheet and conservative capital ratios is why it's so resilient during challenging times such as this.\nThe bank has strong liquidity with approximately $3 billion available from the combination of the FHLB and unencumbered securities.\nThe bank is self-funding and we don't expect it to need capital from the holding company under any scenario including very severe stress scenarios that we've refreshed during the quarter.\nWe expect ASB's dividend to the holding company this year will be reduced as we expect ASB to focus on retaining capital to support loan growth and important customer programs such as such as PPP and to cover higher credit costs during this period.\nOn slide 14 we don't expect our dividend from the utility to change meaningfully from the level previously communicated.\nAlthough the dividend from ASB is lower we expect that its profitable operations will continue to contribute to earnings.\nWe remain committed to investment-grade rating and can turn on our dividend reinvestment program if needed which can cost effectively generate about $30 million of cash and incremental equity annually based on historical levels.\nHowever we don't currently believe we have a need to issue equity this year.\nWe expect to maintain our external dividend while growing the dividend in line with longer-term earnings growth.\nAlthough we have run scenarios around the pandemic's impacts and we maintain a healthy capital liquidity and dividends under these scenarios.\nTurning to the outlook for the year.\nWe're currently forecasting approximately $22 million of COVID-19 related expenses at the utility.\nWhether we get deferral treatment is an important driver for the year we've requested a decision by June 30.\nOn the regulatory front timing for the Hawaiian Electric rate case interim decision has shifted to October.\nWe had originally requested 4% revenue increase or about $78 million.\nHowever we recognize how difficult the current economic environment is for customers and we recognize that we did not receive an increase in the Hawaiian Electric Light interim last year.\nAnd that some of our peers are not being granted increases by the regulators.\nWe are tightening our belts like everyone in our community to find expenses to offset and expense offsets for any lower revenue increase while maintaining our utility earnings to outlook.\nFull decoupling at our utility will help provide earnings stability for the year.\nCOVID-19 impacts were mainly in the latter half of March as stay-at-home orders and air travel quarantines went into effect.\nWhile we are insulated from the impacts of lower load on revenue we don't get true-ups for incremental bad debt expense which was up considerably in March versus last year.\nWe have had an unprecedented level of federal stimulus coming into the states including funds loan through the Paycheck Protection Program.\nAnd we expect that this will provide some upside as customers get more breathing room to pay bills.\nThe lower fuel prices are also bright spot for our customers.\nWe are now approximately we now forecast approximately $330 million to $360 million of Capex in 2020.\nAs we see about $30 million of potential downside due to COVID related delays.\nAs I mentioned we've delayed some scheduled maintenance to avoid outages for residential customers now working from home.\nHowever we're maintaining our longer-term Capex and rate base guidance.\nIn the 2021 through 2022 period we expect Capex to average approximately $400 million per year or about 2x depreciation.\nThis does not include potential self-build projects that made it through the first round of the Renewable Energy and Storage stage two RFP process.\nWe'll find out whether any of those projects are ultimately selected later this week.\nWe continue to expect the utility to be able to self-fund its forecasted Capex and through 2020 via retained earnings and access to debt capital markets.\nTurning to ASB's guidance and key drivers.\nOur bank guidance for the year of $0.73 to $0.80 is shown on the left on the left lower left.\nAnd that is and that included our standard elements including asset growth net interest margin provision and return on assets.\nI should say our prior bank guidance which is no longer in effect.\nExperience tells us that it's difficult to know how an event such as COVID-19 will impact asset quality until we have a better sense about the timing and manner in which our local economy will reopen.\nGiven that uncertainty it is too early to provide guidance on provision.\nAnd consequently we are unable to provide earnings per share or return on asset guidance as well for the bank.\nHowever we do have sufficient visibility to provide guidance on a pre-tax pre-provision level which is comprised of net interest income noninterest income noninterest expense which also provides you a snapshot of the continuing profitable operation of the bank in this economic environment excluding the credit impacts of COVID-19.\nWe estimate the pre-tax provision income range to be from $90 million to $110 million for 2020.\nThat income along with our existing bank reserves and strong capital position gives us significant headroom to absorb the uncertainty of COVID related credit impacts.\nWhile rate moves by the Fed in March had a modest impact in the first quarter we expect the low interest rate environment to have a greater impact on asset yields in Q2.\nAnd thus further pressure in net interest margins.\nFloating rate debt such as LIBOR-based and prime linked loans repriced based on the change in the benchmark to which they are tied.\nWe saw some effect in Q1 from lower LIBOR rates on our commercial portfolios and expect to see the full impact in Q2.\nWe also saw some Q1 impact from the lower prime rate to which our home equity line of credit those lines of credit are now at their floor price.\nAnd consequently we do not expect we would expect minimal incremental impact from further repricing of that portfolio.\nFixed rate debt such as 30-year fixed rate mortgages were really priced at a much more slowly through refinancing of existing mortgages.\nGiven our already very low-cost of funds at 24 basis points in the first quarter there is little room to move lower and improve to improve net interest margins.\nASB's net charge-offs have consistently been below the national average.\nThis was true during the financial crisis as Hawaii's residents continue to pay their mortgages and other loans.\nIf you look at the 2008 through 2011 period our provision expense averaged 0.52% of our loan portfolio and peaked at 0.81%.\nIf you apply that to a portfolio of our size today you'd have approximately you'd have an average credit cost of $27 million and a peak of $42 million.\nTurning to slide 20.\nWe've walked through each of the key drivers for our utility and bank.\nSo now I'll bring it all together.\nAt the utility we are reaffirming our guidance range and we currently expect the utility to be at or below the midpoint.\nThis assumes the deferral of COVID-19 related cost is granted during 2020 for later recovery at the bank because provision is tied to uncertainties regarding impacts of COVID-19 and the economic recovery we are providing guidance at the pre-tax pre-provision line.\nWe expect pre-tax pre-provision income which includes net interest income noninterest income and noninterest expense to range from $90 million to $110 million.\nWe continue to expect low to mid-single-digit earning asset growth.\nGiven our current low interest rate environment we expect net interest margin in the 3.45% to 3.55% range.\nOur holding company guidance is unchanged at $0.27 to $0.29 earnings per share loss.\nGiven that it's too early to determine the bank provision we are unable to provide consolidated earnings per share guidance at this time.",
        "summary": "compname reports q1 earnings per share of $0.31.\nq1 earnings per share $0.31.\nboard maintains quarterly dividend."
    },
    {
        "text": "We're continuing to follow social distancing procedures.\nSo our executives are in different locations today.\nPlease bear with us again if we have any delays or mixed audio quality during the call.\nOn the call, we'll use non-GAAP financial measures to describe our operating performance.\nAnd now Connie will begin with her remarks.\nI am very proud of the performance of our company and our employees during this COVID-19 pandemic.\nWhile all of us face uncertainties regarding the trajectory of the virus and its implications for our pace of economic recovery, what is clear is the strength and resilience of our businesses, the dedication of our employees and our commitment to supporting our customers and our economy throughout this period.\nOn last quarter's call, we talked about the strengths that would help our company navigate through COVID-19.\nOur long history of providing essential services for most of our state; our strong liquidity across our enterprise; the stabilizing effect of decoupling and other regulatory mechanisms at our utility; and our bank's conservative approach to risk, low-risk loan portfolio, low-cost core deposit base and strong capital position.\nThis strong foundation, coupled with other factors that benefited earnings, enabled us to deliver solid financial results for the second quarter, $0.45 per share compared to $0.39 per share in the same period last year, while achieving important progress on our long-term goals.\nI'll start with an update on the virus and economic conditions in Hawaii before turning to an update on our companies.\nThen Greg will review our financial results and outlook.\nWe're fortunate that Hawaii continues to have the nation's lowest COVID-19 mortality rate.\nWhile cases per capita in Hawaii have generally been lower than other states throughout the pandemic, we have seen an uptick in cases recently, which our state is working to address.\nWe're seeing the effects of reopening of our local economy and unprecedented federal stimulus, which is estimated to have delivered approximately $7.7 billion in funding to our state thus far.\nHawaii's unemployment rate improved to 13.9% in June after peaking at 23.8% in April.\nAt our utility, while sales were 11.6% below the same quarter last year, we've seen sales improve in some areas such as shopping centers and retail since opening of our local economy began.\nWe've also seen areas that have maintained stability throughout the COVID period such as our federal government and military presence.\nResidential real estate values have remained strong and are up from last year, showing continued strength for the collateral that secures much of our bank's lending.\nA key question for Hawaii's economy is when transpacific travel and tourism can resume.\nHawaii currently plans to allow travelers with a negative COVID test to forego the mandatory 14-day quarantine beginning September 1.\nRecognizing Hawaii's prudent management of COVID-19, Japan announced Hawaii's addition to a list of 12 global destinations deemed safe for Japan residents to resume travel.\nThis will help restart tourism, although it may take some time before we see tourism near pre-COVID levels.\nOf course, all of these plans are subject to the actual course of the virus and the effectiveness of mitigation.\nWhile tourism and federal stimulus developments will have a significant impact on the pace at which our economy rebounds, our state does have the ingredients for a solid recovery.\nWe continue to benefit from a robust federal government presence here as host to the U.S.-Indo Pacific Command, from which the U.S. watches 52% of the world's surface and all component service commands.\nWe also believe the unique environment and experience we offer here will continue to make our state a very attractive place for tourism.\nThere is a new energy to economic diversification efforts here as well, and our companies are actively supporting those efforts.\nTurning to our company.\nAt our utility, solid regulatory foundations have served both the company and our customers well and enabled us to be a source of strength for our community during this unprecedented time.\nOur decoupled regulatory structure has provided accrued revenue stability despite reduced sales in the second quarter.\nOn June 30, our commission approved our request to defer COVID-related costs to be considered for potential recovery in a future proceeding.\nTo help customers during this time, we extended our suspension of disconnections through September one and have offered a range of payment plans to help customers manage their bills.\nWorking closely with customers is a key focus for us.\nEnsuring our services are affordable is also a key focus now even more than ever.\nCustomer bills are lower now than last quarter due to lower fuel costs and a reduction in the RBA component of the bill due to higher-than-projected electricity sales in 2019.\nA customer using 500-kilowatt hours of electricity in July paid 14% less for that energy than in March.\nWe are also working to become a highly efficient utility.\nAnd as of June 30, we recorded $7.2 million in a regulatory liability account related to ERP benefits, amounts that are to be returned to customers as a reduction in O&M expenses included in rates.\nWe've also secured significantly lower and fixed priced renewable energy plus storage contracts through our recent RFPs, which will help lower and stabilize customer bills once those come online.\nLast week, the PUC issued a final decision in the Hawaii Electric Light rate case.\nResults were consistent with the interim decision maintaining current effective rates.\nIn recognition of financial challenges our customers face in this COVID period, in late May, we and the consumer advocate filed a settlement with the PUC to hold base rates flat in Hawaiian Electric's 2020 Oahu rate case.\nYou may recall that the PUC had commissioned a management audit as part of the rate case.\nThe audit report highlighted areas for improvement, including several we had identified and were working to address.\nIn response to the audit and as part of the settlement, we committed to ramp up to $25 million in annual savings by year-end 2022 to be delivered to customers beginning by 2023.\nWe have proposed to deliver those savings to customers through PBR.\nAn interim decision on the settlement is scheduled for October.\nIn addition, we are no longer planning to file a Maui Electric 2021 rate case.\nTo offset the lack of a base rate increase and achieve our $25 million by year-end 2022 commitment, we're developing and have begun implementing plans to reduce costs, including through overtime reductions, better scheduling and coordination, managed reductions of our workforce and reducing lower priority work.\nAnd in the second quarter, we already began to see some of these savings.\nAs we advance these important cost reductions, we, our commissions and other stakeholders continue to ensure that the renewable and regulatory transition moves forward.\nThere is great interest in our state in doing everything we can to make Hawaii's economic recovery a green and sustainable recovery.\nPerformance-based rate making, or PBR, continues on track for PUC decision this December, which we believe will lay out the core mechanisms and performance incentive mechanisms, or PIMs. A new step in the schedule has been added thereafter to enable development of tariffs to implement the new and changed mechanisms.\nThe commission will determine when the new changes will be effective in 2021.\nWe continue to aggressively advance efforts to help move our state toward 100% renewable energy and carbon neutrality.\nThese efforts will also help provide jobs and construction activity to help our state recover from the impacts of COVID-19.\nThis includes pursuing new sources of renewable energy through Hawaii's largest renewable procurements.\nIn May, we announced the final selection of projects for our Stage two renewable energy RFP.\nWe're excited to have 14 projects, all solar plus storage or storage only, from the original 16 selected moving forward through the contract negotiation and community engagement phase.\nIf all are completed, they could add about 450 megawatts of solar and about three gigawatt hours of storage to our system.\nTwo of the projects are company self-build storage projects on Maui and Hawaii Island.\nStage one RFP projects also continue to advance.\nWhile some developers provided force majeure notices as a preventive measure given the possibility of COVID-19 interruptions, so far, all stage one projects are still moving forward.\nLast month, the commission approved our application to rebuild the Puna Geothermal Venture, or PGV, transmission line.\nThis will allow us to bring PGV back on to our system under the existing PPA, while awaiting approval of our amended PPA.\nWith land at a premium in Hawaii, we'll need to use both open land and as many rooftops as are available to reach our renewable energy goals.\nWe're gathering information on parcels as small as one acre and rooftops of at least 3,200 square feet for future grid-scale solar and wind projects and community solar projects.\nWe also continue working to help reduce carbon emissions from the transportation sector.\nTo help accelerate this transition, we filed a pilot project for eBUS make-ready infrastructure.\nAnd just this week, Hawaiian Electric announced its commitment to convert its entire fleet of light-duty vehicles across the islands, nearly 400 sedans, SUVs, small vans and light trucks to be electric by 2035, leading the state of Hawaii in electric vehicle fleets.\nTurning to our bank.\nIn the second quarter, we stayed focused on doing the right things during this difficult time, ensuring employee and customer safety and well-being, supporting our customers, managing risk and controlling costs.\nWe've ramped up sanitation efforts and the use of PPE at all of our locations and workspaces, and we've rolled out a new contactless card for all of our debit cardholders to keep them safe.\nWe've been able to help our customers manage economic uncertainty, offering fee suspensions and loan deferral and forbearance options, and providing Paycheck Protection Program, or PPP loans.\nOur team worked aggressively to secure and deploy PPP funding, delivering $370 million in loans for approximately 4,100 small businesses that represent roughly 40,000 jobs in our state.\nThis accounted for the bulk of our loan growth in the quarter.\nAt the bank, we have a front-row seat to the effects of federal stimulus with federal stimulus checks, leading to significant deposit growth, 24% on an annualized basis.\nThis excess liquidity gives us added cushion during this COVID period, although it does pressure net interest margin.\nThe bank's net interest margin was also impacted by the lower interest rate environment and PPP loans.\nOur core focus has been prudently managing our risk.\nOur team has been working closely with commercial customers to understand their financial condition and ensure we provision at the right levels, and we're controlling costs despite additional COVID related expenses.\nWe're also taking advantage of new opportunities that this period presents.\nAs an example, we've seen rapid customer adoption of self-service options such as online banking and ATMs. This allows us to accelerate our plans for optimizing our branch footprint.\nWe've also started implementing our planned replacement of our ATM fleet with smart ATMs which will be the newest in Hawaii and will give customers even more capabilities outside the branches.\nNow Greg will review our results for the quarter and our outlook.\nTurning to our second quarter results on Slide 7.\nConsolidated earnings per share were $0.45 versus $0.39 in the same quarter last year.\nAt the utility, timing and management of expenses and the PUC's grant of deferral treatment for COVID-19 related expenses had a positive impact.\nAt the bank, strong mortgage production and a gain on sale of securities helped offset tighter lending margins and higher provision.\nAt the holding company, while costs were well in line with plan, we did see a slight increase due to an acceleration, an increase in our charitable giving during the quarter to support our local community organizations and those impacted by COVID.\nConsolidated 12-month ROE remains healthy at 9.4%.\nUtility ROE increased 10 basis points versus the same time last year to 7.9%.\nBank ROE, which we look at on an annualized rather than a trailing 12-month basis, was 8% for the quarter, down from last year due to economic impacts of COVID-19.\nTurning to the next slide.\nUtility earnings were $42.3 million compared to $32.6 million in the same quarter last year, reflecting, in part, savings due to process improvements and targeted cost reductions.\nThe most significant drivers of the variance were $7 million lower operations and maintenance expenses, primarily due to fewer generating unit overhauls, less generating station maintenance work associated with overhauls, the reclassification of COVID-19-related bad debt expense from the first quarter of 2020 to a regulatory asset as a result of the PUC approval to defer these expenses and lower labor costs due to lower staffing levels and reduced over time.\nThe lower generation overhauls and station maintenance work represented approximately $4 million of the $7 million O&M variance and are largely timing related as some of that work will be performed later this year or next year.\nEarnings also reflected a $5 million revenue increase from $4 million higher RAM revenues and $1 million for recovery of West Loch project and grid modernization projects under the MPIR mechanism.\n$1 million higher net income due to an unfavorable adjustment in 2019 related to reliability performance incentives and $1 million lower interest expense due to debt refinancings at lower rates.\nThese items were slightly offset by the following after tax items: $1 million lower allowance for funds used during construction as we were as there were fewer long-duration projects in construction work in progress; $1 million higher cost savings from ERP system implementation to be returned to customers; and $1 million higher depreciation due to increasing investments to integrate more renewable energy, improve customer reliability and strengthen system efficiency.\nTurning to the drivers of the utility's financial performance for the remainder of the year, the Public Utility Commission issued its final decision for our Hawaii Island Utility, confirming Hawaii Electric's 9.5% allowed ROE and 58% equity capitalization with no change to base rates.\nSeparately, if the PUC approves our settlement with the consumer advocate in the Hawaiian Electric rate case for Oahu, we should see a similar outcome, no increase in base rates with 9.5% allowed ROE and 58% equity capitalization.\nThe utility's multiyear strategy for greater operational efficiency and cost reductions should help offset the lack of base rate increases.\nThe PUC order approving deferral of COVID-related expenses covers expenses incurred from March 17 to year-end.\nIn the second quarter, we reclassified a pre-tax amount of $2.5 million in bad debt expense and incurred in the first quarter to a regulatory asset.\nCOVID related costs have been $6.5 million to date.\nA separate application will be filed to request recovery of such costs in the future.\nAlthough sales were down 11.6% versus the second quarter of last year, due to decoupling revenues, we were not significantly impacted.\nSubstantial decreases in fuel prices have been positive for both the utility and customers.\nSteel prices were down close to 30% in the quarter, and the average customer bill declined by over $20 per month monthly since the pandemic began.\nThe utility may qualify for rewards this year under the fuel cost risk-sharing mechanism as well.\nOn Slide 10, we continue to forecast approximately $360 million of CapEx during 2020.\nLast quarter, you may recall, we indicated the potential for up to $30 million below the forecast given potential COVID impacts.\nAfter a full quarter in the COVID environment, we have confidence in achieving the $360 million we forecast for the year.\nWe're maintaining our longer-term CapEx and rate base guidance.\nIn 2021 to 2022 period, we still expect CapEx to average approximately $400 million per year or about 2 times depreciation.\nAs you know, with capital projects, the timing of a specific project spend can sometimes shift between years.\nAnd the chart at the bottom left reflects some modest updates.\nThose updates don't change our overall guidance in the bar chart on the top left.\nWe continue to expect the utility to be able to self-fund its forecasted CapEx through 2020 via retained earnings and access to the debt capital markets.\nTurning to the bank.\nAmerican's net income was $14 million, down from $15.8 million in the prior quarter and $17 million in the same quarter last year.\nNet interest income was $56.7 million compared to $61.1 million in the linked quarter and $61.5 million in the second quarter of 2019.\nThe decrease was primarily due to lower asset yields given the lower interest rate environment.\nHigher amortization of premiums within the mortgage-backed securities portfolio also impacted investment portfolio yield.\nNet income was also impacted by a higher provision for the quarter.\nASB took an additional $7 million in credit reserves related to COVID as well as an additional $4 million for unfunded commitments.\nOn the net income noninterest income side, gains on sales of securities contributed positively to net income.\nWe realized $7.1 million gain related to the sale of Visa Class B restricted shares and $2.2 million gain on the sale of investment securities as we sold some legacy positions to reduce credit risk and yield volatility in our investment portfolio.\nThere were additional COVID-related expenses and savings within noninterest expense.\nAmerican incurred $3.7 million in COVID-related expenses, consisting of additional pay to frontline employees, the payout of excess vacation days for employees unable to use vacation while working through the pandemic, purchases of PPE and sanitation supplies and employee meals purchased to promote employee safety and support small business restaurants.\nThese higher COVID-related expenses were largely offset by lower travel, business development and marketing expenses.\nOn Slide 12, ASB's net interest margin declined to 3.21% this quarter from 3.72% in the first quarter.\nOn the upper right, we've detailed the elements of that decline.\nThe lower interest rate environment was the largest driver of the net interest margin compression, comprising 34 basis points of the decline.\nMuch of this reflected anticipated repricing in Q2 of most of our adjustable and floating rate portfolio.\nfour basis points was related to low-yielding PPP loans.\nFAS 91 amortization was also a large factor, reflecting a faster rate of prepayments due to lower rates at the long end of the curve.\nThis accounted for 15 basis points of compression.\nWe also realized strong deposit growth from the federal stimulus and unemployment benefits that added to cash deposit balances.\nWhile bolstering our liquidity and low-cost funding base, these temporary the temporary excess liquidity is low-yielding and pressured margins.\nAs noted, we did realize benefit from lower deposit costs, which contributed eight basis points to net interest margin.\nTurning to bank drivers for the remainder of the year.\nWe expect continued margin pressure, but at a more moderate pace than in the second quarter.\nIn the second quarter, NIM compression compressed quickly as variable rate loans repriced after the Fed lowered its benchmark rate to near 0 in March.\nApproximately 93% of our variable rate portfolio have now repriced and indices to which those variable rates are tied are at or near their floors.\nThus, we don't expect that part of our loan book to have materially impacted be materially impacted by further NIM compression.\nWe do expect continued refinancing of our fixed rate loan portfolio, such as home mortgages, as customers take advantage of historically low rates.\nThis type of repricing is more gradual.\nAside from continued low interest rates, we expect increased amortization in the investment portfolio to continue to impact net interest margin.\nAs a reminder of how that impacts NIM, we purchased bonds for the investment portfolio at a premium or discount, and that premium or discount is amortized over the expected life of the bond's cash flows.\nFor mortgage-backed securities, which comprise 90% of this portfolio, the amortization increases if prepayments accelerate.\nWe see this occur in low interest rate environments as refinance activity increases.\nWe expect excess liquidity to continue to pressure margins at similar levels to those realized this quarter as well.\nGiven these factors, we now expect net interest margin to be in the 3.35% to 3.25% range for the year.\nTurning to the provision.\nAs mentioned, we did have an additional provision further in the quarter related to COVID-19.\nThe total provision recognized during the quarter was $15.1 million as reflected in our on our income statement, which also included $4.3 million allowance related to unfunded commitments.\nAs noted on the slide, reserves for unfunded commitments are recorded in other liabilities on the balance sheet rather than the allowance for credit losses.\nWe believe we have approximately we have appropriately provided for future credit losses as of June 30.\nThe provision outlook for the balance of the year is dependent on the economic conditions, which at this point remain uncertain.\nWe are not currently providing full year bank provision guidance given the uncertainty created by the impacts of COVID-19 on our economy.\nSlide 15 provides an update on what we're seeing in our loan portfolio.\nOverall, we have a high-quality loan book that remains healthy with only 3% of our borrowers requesting or qualifying for additional deferral thus far.\nOur residential book comprises approximately 60% of the loan portfolio, and the loan-to-value of that portfolio remains conservative at 52%.\nOnly a small portion of that portfolio, roughly 8%, have requested payment relief.\nIn consumer loans, which make up just over 4% of the overall portfolio, we've seen a high-volume of deferment request but at low balances.\nWhile curtailment of supplemental unemployment benefits could result in increased deferment requests, we're closely monitoring what happens with additional federal stimulus.\nWe have moved all commercial markets and CRE loans with payment deferrals to what is called special mention, meaning that those are subject to enhanced monitoring.\nThese loans will be reevaluated for upgrade after successful resumption of payments.\nGiven the enhanced monitoring we have implemented for the commercial markets and CRE loans as well as the overall quality of our loan book, we feel we are well provisioned as of June 30.\nASB continues to maintain ample liquidity and healthy capital ratios despite the challenging economic condition.\nThe bank has strong liquidity with over $3 billion available from a combination of FHLB and unencumbered securities.\nASB's Tier one leverage ratio of 8.4% was comfortably above well-capitalized levels at the end of the second quarter.\nAs a reminder, the bank is self funding, and we don't expect to see a scenario in which it would need capital from the holding company.\nTurning to our consolidated liquidity.\nWe are well positioned to withstand the impacts of COVID through the remainder of the year and beyond.\nAs of June 30, we had $425 million of undrawn credit facility capacity, consisting of $150 million at the holding company and $275 million at the utility with just $16.5 million in commercial paper outstanding, all at the holding company.\nThe utility paid off $14 million in long-term debt when it matured in July with no other long-term debt maturities until 2022.\nAs of June 30, it had $65 million in unrestricted cash balances.\nIn 2021, the utility has $50 million in short-term bank loan maturity and expects to access the debt capital markets to help fund its capital investment program.\nAt the holding company, we have $50 million long-term debt and $65 million short-term bank term loan maturing in the first half of 2021, and we are currently planning refinancing options for those maturities.\nOn Slide 18, we expect our dividend from the from an equity investment in the utility to be consistent with our earlier projections as the utility continues to perform in line with plan and has sufficient retained earnings to support its capital investment requirements and adequate liquidity to support growth in the customer account receivable balances and payment programs for customers that are impacted by COVID-19.\nAlthough the dividend from ASB is lower than our pre-COVID outlook, bank dividends received to date are sufficient to maintain HEI's strong consolidated capital structure and liquidity.\nOn Tuesday, the Board approved our quarterly dividend of $0.33 per share at an annualized rate of $1.32 per share.\nWe expect to maintain our external dividend and do not expect the need for additional equity at this time.\nWe've talked through the key drivers for the utility and the bank.\nAnd on Slide 19, you'll see our resulting guidance for the year.\nAt the utility, we're reaffirming our guidance range and expect to be within the low end of the range.\nAt the bank, we are continuing to provide pre-tax pre-provision income guidance, which includes net interest income, noninterest income and noninterest expense to range from $90 million to $110 million.\nWe now expect mid-single-digit earning asset growth compared to low to mid-single-digit growth we previously forecasted.\nGiven the current low interest rate environment and excess liquidity, we expect interest margin in the 3.25% to 3.35% range.\nOur holding company guidance is unchanged at $0.27 to $0.29 loss.\nSince it is still too early to determine bank provision, we're unable to provide consolidated earnings per share guidance at this time.",
        "summary": "hawaiian electric industries q2 earnings per share $0.45.\nq2 earnings per share $0.45."
    },
    {
        "text": "Second quarter consolidated financial results were strong as Hawaii's economy improved and as we advanced key priorities across our enterprise.\nOur consolidated net income for the quarter was $63.9 million with earnings per share of $0.58, 31% and 29%, respectively, above the same quarter last year.\nThis followed a great first quarter, and for the first half of the year, our consolidated net income and earnings per share were up 56% compared to the first half of 2020.\nAt the Utility, our year-to-date results have benefited from our focus on cost management and efficiency and from timing items expected to reverse in the balance of the year.\nWe expect the Utility to remain within its full-year guidance range announced in February.\nThe improved Hawaii economy and strengthened credit quality of our Bank loan portfolio were key drivers of our results year-to-date and, in the second quarter, enabled the Bank to release a portion of its reserves for credit losses resulting in a negative provision for the quarter.\nWe are again increasing our full-year Bank and consolidated guidance, which Greg will cover shortly.\nWe've seen strengthening in Hawaii's economy with the reopening of our local economy and rebound of tourism.\nHowever, we are closely monitoring the recent increase in cases due to the delta variant, as well as how our community response.\nMore than 60% of Hawaii residents are now fully vaccinated and we expect that that will increase as more employers, including state and county government, are requiring employees to be vaccinated or subject to frequent testing.\nControlling virus levels will enable Hawaii to continue to be an attractive tourism destination and that will help us as our economy open.\nDaily visitor arrivals have increased strongly over the last couple of months, approaching, and sometimes exceeding, pre-pandemic levels with most of our arrivals continuing to be from the U.S. Mainland.\nIn June, arrivals from the U.S. West region were approximately 15% above June 2019 and their spending was 33% higher.\nUnemployment declined to 7.7% in June, the fifth month of improvement.\nHawaii real estate values and activity remain robust.\nFor July, median prices of Oahu's single-family homes were up 22% and sales volume was up 12% over last year.\nFor condos, prices were up 8% and sales were up 58%.\nAs of the May forecast, UHERO, the University of Hawaii Economic Research Organization, expected state GDP to increase 4% in 2021 and 3.1% in 2022.\nWhile we've seen great progress on the economy, we're still taking a cautiously optimistic approach, particularly with uncertainty due to the delta variant.\nAt the Utility, we remain focused on cost efficiencies as we make needed investments to continue to provide affordable, resilient and reliable electricity to reach Hawaii's climate goals.\nThe new Performance-Based Regulation or PBR framework is now fully in effect as of June 1, and we've begun returning cost savings to our customers under the management audit savings commitment and customer dividend component of the ARA or Annual Revenue Adjustment mechanism.\nAs we've discussed in the past, Performance Incentive Mechanisms or PIMs are an important part of the PBR framework.\nIn May, the Hawaii Public Utilities Commission approved the final details of a suite of PBR PIMs which are now in effect.\nThe Commission has now started a process to consider and develop additional performance incentives.\nThis includes PIMs and shared savings mechanisms relating to grid reliability, retirement of fossil fuel generation, interconnection of large renewable energy projects, and cost control for fuel, purchased power and other non-ARA costs.\nWe don't yet know when an additional performance mechanisms would come into effect or what the potential earnings impact could be.\nHowever, we always expected PBR would be a process of continued refinement, and we look forward to collaborating with stakeholders to develop new ways to align incentives with customer interests.\nAs we've always said, reaching our collective clean energy and decarbonization goals must be done in a way that is equitable and involve everyone working together.\nA lot of the progress we're seeing now across Utility scale and distributed renewable energy additions, grid modernization and the electrification of transportation are good examples of this.\nThe Powering Past Coal Task Force, convened by our Governor Ige, has brought together a range of stakeholders to ensure Commission-approved projects on Oahu are successfully brought online as we prepare for retirement of Hawaii's only coal plant.\nWe're pressing forward on Stage 1 and 2 renewable procurement projects with independent power producers.\nThree Stage 1 projects are now under construction with others slated to start construction this year or early next year.\nSix of 12 Stage 2 projects now have approved PPAs and the remaining six Stage 2 projects are pending approval.\nLast quarter, we sought clarification from the Commission regarding the interconnection docket and the Kapolei Energy Storage battery energy storage project.\nWe appreciated the Commission's work to respond quickly in both matters.\nIn the interconnection docket, the Commission clarified its intent for us to track costs to customers resulting from changes in project schedules rather than record such costs.\nAnd the Commission revised the conditions to its approval of the Kapolei Storage project, enabling us to now work with the developer to advance that project.\nWe are working to accelerate the addition of more distributed energy resources and are advancing programs to benefit all customers.\nAs of this June, we surpassed 90,000 cumulative installed customer-sited solar systems, which comprise most of the nearly 1 gigawatt of solar capacity on our grid.\nAnd now the Battery Bonus program launched last month incentivizes customers to add storage and benefit the overall system by allowing the Utility to use energy from those systems in the evening hours.\nGrid modernization is also progressing well with advanced meter deployment accelerating with the Commission's approval to shift from an opt-in to an opt-out approach, enabling greater operational efficiencies and more customer options.\nFinally, we are encouraged by recent developments that will accelerate electrification of transportation here in Hawaii and across the country.\nIn June, the Commission approved our eBus make-ready Infrastructure pilot project, which is projected to provide savings for bus fleet operators, while decreasing GHG emissions.\nGovernor Ige signed into law a bill to replace the state's light duty vehicles with a zero-emission fleet by 2035, consistent with our Utility's own fleet electrification goal and to allocate 3% of oil barrel tax revenues to finance construction of EV charging stations.\nPresident Biden's recently announced goal of 50% of vehicle sales being electric by 2030 will also help accelerate our electrification efforts, which will benefit our customers, our environment and our clean energy transition.\nTurning to the Bank.\nASB's strong results reflected the credit-driven reserve release and resulting negative provision for credit losses as the economy and credit quality improved.\nWe believe our reserve levels are appropriate, taking into account ongoing pandemic uncertainty.\nThe Bank's margin improved compared to the first quarter, benefiting from fees related to ASB CARES or Payment Protection Program, PPP loans, lower amortization of investment premiums and a continued record low cost of funds of 7 basis points.\nWe're still seeing margin pressures due to low asset yields and excess liquidity as strong deposit growth continues to outpace lending opportunities at present.\nEven so, earning asset growth is helping us grow net interest income consistent with our expectations and we're starting to see more in the loan pipeline with an uptick in home equity lines of credit, as well as continued strength in residential mortgages and commercial real estate.\nAs ASB's digital banking transformation continues, we're focused on strategic investments to keep the franchise strong and competitive, expand service levels and continue to deliver the personal touch that is a hallmark of who we are as a bank.\nAnn and the Bank team are upgrading the Bank's technology, data analytics and operating model to allow our team members to transition away from processing tasks and focus more on customer relationships and satisfaction.\nWe're getting great feedback from Bank customers on our digital offerings so far.\nNearly 50% of consumer deposits are now through our upgraded ATM fleet or mobile platform and customer satisfaction remains high.\nWe've opened three digital centers to date with a fourth opening today and are excited to see how this new concept, which merges our digital platforms with our warm in-person presence, performs in the coming months.\nAnd now, Greg will discuss our financial results and our outlook.\nTurning to our second quarter results.\nConsolidated earnings per share were $0.58 versus $0.45 in the same quarter last year, a 29% increase quarter-over-quarter.\nBoth the Utility and Bank performed well and contributed to our strong consolidated results.\nThe Utility delivered stable earnings even as quarterly results reflected higher O&M expenses, driven by an expected uptick in generation overhauls.\nThe Bank delivered solid financial performance that was enhanced by the reduction of reserves for credit losses and resulting negative quarterly provision, reflecting underlying improvements to the credit profile of its loan portfolio.\nAnd the holding company loss has remained in line with expectations.\nCompared to the same time last year, our consolidated trailing 12-month ROE improved over 100 basis points to 10.5% and the Utility realized return on equity increased levels of 100 basis points to 8.9%.\nAs you may recall from our Q1 earnings call, we indicated the Utility ROE expectations for the second half of 2021 would be impacted by the management audit savings commitment and customer dividend as O&M reductions that have improved earnings in the first half of 2021 are returned to customers under PBR, starting June 1.\nAlso of note, Bank ROE, which we look at on an annualized basis, more than doubled to 16.8%.\nOn Slide 8, Utility net income of $41.9 million was comparable with second quarter 2020 results of $42.3 million.\nThe most significant variance drivers were $6 million of higher O&M expenses compared to the second quarter of last year.\nThe main factors that drove higher O&M included $3 million due to more generating facility overhauls.\nThese were largely timing-related as some of the overhauls budgeted for late last year and earlier this year took place on a delayed basis this quarter.\nWe also had $2 million from lower bad debt expense in the second quarter of 2020 due to the recording of year-to-date amounts following the Commission's decision allowing deferral of COVID-19-related expenses last year; about $1 million from the write-off of a terminated agreement relating to a combined heat and power unit; and $1 million due to increase in an environmental reserve.\nOf note, O&M increases were partially offset by $1 million from lower staffing levels and efficiency improvements.\nWe also had about $1 million higher in depreciation.\nThe higher O&M and depreciation were offset by $5 million in higher RAM revenues, Rate Adjustment Mechanism revenues.\n$2 million of this increase related to a change in the timing for revenue recognition within the year with target revenues recognized on an annual basis remaining unchanged; $1 million from lower non-service pension costs due to the reset of pension costs included in rates as part of a final rate case decision; and $1 million lower expense -- lower Enterprise Resource Planning system implementation benefits to be passed on to customers as we have already fully delivered on our commitment to provide customer savings under this program for Hawaiian Electric.\nTurning to the drivers of Utility performance for the rest of the year.\nAll PBR PIMs from the December PBR order are now in effect.\nWe expect no material upside from the PIMs this year and are now tracking the potential for reliability PIM penalties and expected downside sharing under the fuel cost risk sharing mechanism.\nWe saw some reliability impacts related to prolonged repairs at one of our substations, which has been partially restored and full restoration is expected to be completed soon.\nIn addition, fuel costs have increased from our January benchmark and thus we expect there will be some downside sharing under the fuel cost risk sharing mechanism.\nWe currently have approximately $26 million of COVID-related costs, primarily estimated bad debt expense and deferred regulatory asset account.\nThe moratorium on customer disconnections expired on May 31 and we've requested continuation -- continued deferral of COVID-related costs until the end of this year.\nWe will file for recovery once we get a better idea of actual bad debt or realized amounts that requires some time so we can see how our work with customers on payment plans and other bill assistance alternatives plays out.\nAs mentioned, our O&M expense this quarter was impacted by an increase in overhauls, including some that were previously delayed.\nWe expect to incur more overhaul expenses in the second half of the year and those are included in our guidance.\nThe Utility's ability to achieve the accelerated management audit savings commitment is an important driver of results this year.\nTo date, we've been able to realize savings through increased efficiency and our cost management programs.\nThe Utility is on track to achieve savings to meet its annual $6.6 million commitment, which we started returning to customers on June 1.\nUtility capital investments to date have been lower than planned due to productivity improvements and efficiencies that have reduced certain project costs, delay from prolonged repairs of one of our substations limiting work that could be done on other parts of the system, and some supply chain delays due to the pandemic.\nWe now expect capex to be in the $310 million to $335 million range for the year compared to our prior capex guidance of $335 million to $355 million.\nWhile this means our forecasted rate base growth is now 3% to 4% from a 2020 base year, we don't expect this year's lower capex range to impact the long-term earnings growth.\nThat's because under PBR, earnings growth comes from three main sources: the Annual Revenue Adjustment mechanism, which covers O&M and baseline capex and our ability to manage our spending within that allowance; separate capex recovery mechanisms, such as EPRM, Exceptional Project Recovery Mechanism and our renewable energy recovery mechanism; and performance incentives.\nWe still expect to realize 4% to 5% Utility earnings growth, not including potential upside from PIMs starting in 2022, the first full year of PBR.\nRecovery of electrification of transportation and resilience projects could drive incremental growth from there.\nTurning to the Bank.\nASB's net income for the quarter was $30.3 million compared to $29.6 million last quarter and $14 million in the second quarter of 2020.\nThe negative provision for credit losses was the most significant driver of higher income.\nAmerican grew net interest income, while non-interest income was lower compared to the same quarter last year, where we had higher gains on sale of securities, including a $7 million after-tax gain from the sale of Visa Class B restricted shares.\nNow I'll go through the drivers in more detail.\nOn Slide 12, ASB's net interest margin expanded slightly during the quarter to 2.98% from 2.95% in the first quarter.\nFees related to PPP loans, lower amortization of investment premiums and a record low cost of funds helped soften the pressure from the low interest rate environment and continued strong deposit growth.\nWe recognized $5 million in PPP fees in the second quarter as ASB continues to actively assist customers through the forgiveness process.\nAmerican anticipates a slight reduction in PPP fee recognition for the second half of the year and continued tapering in 2022 and thereafter.\nTotal deferred fees as of June 30 were $9.6 million.\nLower amortization of investment premiums this quarter was driven by a slower pace of repayments as a result of lower refinance activity.\nThis quarter, we continue to see record low cost of funds at 0.07%, down 1 basis point from the linked quarter and 11 basis points from the prior year.\nOverall, we still expect that NIM for the year will range from 2.8% to 3%.\nHowever, we anticipate that that balance sheet growth should still lead to net interest income in line with expectations for the year despite the continued low interest rate environment.\nIn the second quarter, the allowance for credit losses declined $13.5 million, reflecting the improved local economy and credit quality with credit upgrades in the commercial loan portfolio, lower net charge-offs and lower reserve requirements related to the customer unsecured loan portfolio.\nThe Bank recorded a negative provision for credit losses of $12.2 million compared to a negative provision of $8.4 million in the first quarter and a provision expense of $15.1 million in the second quarter last year.\nASB's net charge-off ratio of 0.04% was the lowest since 2015.\nThis compared to 0.18% in the first quarter and 0.49% in the second quarter of 2020.\nNon-accrual loans were 1.03%, up slightly compared to 1% in the first quarter and 0.86% in the prior year quarter.\nThe increase in non-accrual loans was largely in the residential portfolio, which has a very low historical -- has very low historical loss rates and strong collateral positions.\nAs of June 30, nearly all previously deferred loans have returned to scheduled payments.\nWe believe we are appropriately provisioned in light of the ongoing uncertainty of the pandemic.\nOur allowance for credit losses to outstanding loans was 1.51% at quarter end.\nASB continues to manage liquidity and capital conservatively, maintaining ample liquidity and healthy core capital ratios.\nThe Bank has more than $4 billion in available liquidity from a combination of reliable resources.\nASB's Tier 1 leverage ratio of 8% was comfortably well above well-capitalized levels.\nGiven the current lower risk profile of our portfolio, we continue to target a Tier 1 leverage ratio in the 7.5% to 8% range to ensure competitive profitability metrics and growth of the ASB dividend, while maintaining strong -- a strong capital position.\nRegarding HEIs financing outlook for 2021.\nAt the holding company, we expect higher Bank dividends to HEI this year than reflected in the previous guidance given ASB's year-to-date performance, improved outlook and efficient capital structure.\nWe now expect Bank dividends of approximately $55 million to $65 million versus the previously estimated $50 million to $60 million.\nConsolidated capital structure and liquidity remains strong and we do not anticipate the need to issue external equity in 2021 unless we identify significant additional accretive investment opportunities.\nAnd we remain committed to maintaining an investment-grade credit profile.\nTurning to our guidance.\nWe're reaffirming our previously issued Utility guidance but expect to be in the lower half of the range due to headwinds from potential reliability PIM penalties and downside sharing under the fuel cost risk sharing mechanism.\nHowever, we're revising our Bank and consolidated HEI guidance.\nOur revised Bank guidance is $0.79 to $0.94 per share, up from our prior guidance of $0.67 to $0.74.\nThis reflects our updated provision range of negative $15 million to negative $20 million.\nGiven growing uncertainty due to the delta variant, we have not included any potential additional provision credits for the balance of 2021 in our guidance range.\nHowever, we will continue to monitor the economic data closely and make future reserve decisions based on third quarter data.\nWe expect the increased Bank profitability and dividend to the holding company to translate into higher consolidated earnings growth.\nAs a result, we're increasing our consolidated earnings per share guidance to $2 to $2.20 per share.\nTo wrap up, the second quarter was strong financially and operationally for our companies and we're positioned well to continue delivering value for all our stakeholders the rest of this year and beyond.\nAs we've always said, ESG is in our DNA, and as we work to integrate ESG further into our strategies, business planning, risk management practices and reporting, we're very focused on ensuring linkage to value for all stakeholders.",
        "summary": "q2 earnings per share $0.58."
    },
    {
        "text": "We hope you're safe and well.\nI have been deeply impressed by the dedication of our employees and the resilience of our customers and communities as we all adapt to the ongoing challenges of COVID-19.\nOur core strengths continue to serve us well in these unprecedented times.\nThat includes our long history of providing essential services for the State of Hawaii, strong liquidity, stabilizing utility regulatory mechanisms, our Bank's conservative approach to risk, its low risk loan portfolio and strong capital position.\nIn the third quarter, our financial stability enabled us to continue helping our customers, our economy and our communities and again to deliver solid financial results.\nNet income of $65 million and earnings per share of $0.59 compared to $63.4 million and earnings per share of $0.58 in the same quarter last year.\nI'll start with an update on the virus and economic conditions in Hawaii before turning update on our companies.\nThen, Greg will review our financial results and outlook.\nWell, there is still uncertainty regarding the course of the virus and the timing of economic recovery, we've seen some positive signs.\nFirst, daily new COVID cases are down significantly from the surge we saw this summer.\nThe seven-day average of new cases is down to 92 with about a 2% positivity rate after a second stay-at-home order on Oahu starting in late August.\nOahu's local economy largely reopened in late September, under a tiered framework and since then we've been able to move to the second tier allowing more business activity.\nOn October 15, Hawaii's tourism sector reopened with a program allowing domestic travelers with a negative COVID test to bypass the 14-day quarantine.\nSince then, we've seen an average of 5,600 arrivals per day, up from the roughly 2,000 a day that we saw before the 15th.\nStarting today, this program also includes travelers from Japan and Hawaii is working to extend it to other countries.\nWhile the tourism reopening is encouraging, the timing of a sustained reopening depends on how the virus plays out.\nThe federal government and military, our second largest economic driver, have maintained stability throughout the COVID period.\nResidential real estate values have also remained strong.\nYear-to-date September, Oahu's single family home prices were up 3.3% and compared to the month of September last year, Oahu's single family home prices were up more than 13% driven by low inventory and low interest rates.\nThe latest forecast from the University of Hawaii Economic Research Organization or UHERO whose outlooks have informed our own estimates, projects Hawaii's economic recovery starting in 2021 and accelerating into 2022.\nTurning to our companies.\nKeeping customer rates down has been a central focus for our utility.\nThat began before the onset of COVID and remains a core priority.\nFortunately, customers have seen some bill relief this year.\nLower fuel costs and a lower revenue balancing account component from higher-than-projected electricity sales last year meant that an Oahu residential customer using 500-kilowatt hours of electricity in October paid 13% less than in March.\nThe commission has extended the suspension of disconnections for non-payment through year-end.\nWe continue working with customers on repayment options and connecting them with services to help them through this time including with utility bills.\nLast month, the commission approved our settlement with the consumer advocate to not increase base rates in our Oahu rate case.\nIn improving the settlement, the Commission maintained Hawaiian Electric's current allowed return on equity of 9.5% and 58% equity capitalization, lifted the 90% cap on Schofield Generating Station project cost recovery, ended the 2017 rate case customer benefit adjustments and deemed the enterprise resource planning system benefits commitment to be flowed through to customers as part of the zero base rate increase.\nTo help offset the lack of a base rate increase and deliver on our commitment to ramp up to $25 million in customer savings by year-end 2022, our utility is executing on its multi-year efficiency improvement program, which began earlier this year.\nWhile we pursue cost efficiencies, we are also pressing forward aggressively on our clean energy goals.\nWe are on track to exceed the 2020 RPS milestone of 30% for the year.\nSince the RPS calculation divides renewable energy by sales, lower sales due to COVID temporarily pushed our RPS above 35% as of the second quarter.\nWith electricity sales expected to increase in the fourth quarter, we expect RPS to moderate, but still exceed 30% by year-end.\nIn the next few years, we anticipate strong RPS growth from our major renewable energy and storage procurements.\nIn the third quarter, we filed eight purchase power agreements for renewable energy and storage projects and to self-build storage applications as part of our Stage 2 procurement.\nTwo of the projects selected in that procurement are still under negotiation.\nLast month the PUC approved the 8th final PPA from our Stage 1 procurement for a solar-plus-storage project on Maui.\nIf all Stage 1 projects and the filed Stage 2 projects come online in anticipated timeframes, they would add nearly 600 megawatts of renewable energy and 3 gigawatt hours of storage to our system between now and the end of 2023.\nThis will help [indecipherable] Hawaii in 2022 with the expiration of one of our Oahu IPP contracts.\nThe Stage 2 projects together with our recently proposed Kahului synchronous condenser project will also help us retire one of our Maui fossil plants by 2024.\nWe are also preparing an RFP for up to 235 megawatts of community-based renewable energy.\nGiven the scale of our system, these procurements are significant.\nIf you add up what I've just talked about, you get over 800 megawatts, that's on a system with a total peak load of just 1,200 megawatts on Oahu and 200 megawatt each on Hawaii Island and Maui County.\nWhile timing for projects to come online can be affected by many factors, there is no question we are moving forward aggressively.\nAs you know, we, the commission and many stakeholders, have been working hard to align the regulatory framework with customer interest and Hawaii's renewable energy goals through the performance-based regulation or PBR docket.\nThe commission has kept the docket moving through COVID and appears on track for a December decision.\nThe guiding principles is set early on in PBR including maintaining financial integrity of the utility and the collaborative stakeholder based approach, the commission established has been consistent throughout the process.\nWe've generally summarized areas of consensus and divergence on Slide 30 of our deck.\nThe Commission's decision and order will confirm the way forward.\nThe Commission has been progressing other dockets too, and just last week approved a 50-year contract for Hawaiian Electric to own, operate and maintain the electric system serving the Army's 12 installations on Oahu.\nTurning to our banks.\nAmerican Savings Bank continues its solid execution of the dynamic COVID environment.\nAreas are returning to normal operations.\nWe've reopened six branches we had temporarily closed.\nWhile low interest rates continue to compress net interest margin in the third quarter, we were able to replace much of the prior quarter's gains on sales securities through core activities, including strong mortgage banking income and resumption of certain payments.\nWe remain focused on sound risk management, with the timing of a sustained tourism reopening uncertain, ASB's third quarter results again reflect elevated provision.\nWe think we are well-provisioned and continue proactively working with customers to understand how their financial health and outlook are affected by COVID.\nCost efficiency is and will continue to be our main focus particularly in the current low interest rate environment.\nIn addition to reducing COVID costs, we also closed five branches with two more scheduled in December.\nMost of these have been temporarily closed earlier in the pandemic.\nWe're continuing to roll out our new smart ATMs providing more customer options and convenience.\nWe've been impressed by how customers have conserved to manage their resources during this time.\nThe majority of customers who sought initial loan deferrals are returning to repayment while some customers and sectors are more impacted, overall we are seeing low delinquency rates and continued strong deposit growth.\nFor customers who received PPP loans, we're now working on forgiveness and have started submitting loans to the SBA for that process.\nWe've continued to see robust adoption of our online and mobile banking services and high customer satisfaction with our digital offerings.\nAnd now Greg will review our results for the quarter and our outlook.\nTurning to our third quarter results.\nConsolidated earnings per share were $0.59 versus $0.58 in the same quarter last year.\nAt the utility, timing and management of O&M expenses had a positive impact.\nAt the bank, tighter lending margins and COVID-driven provisioning continued to affect results while non-interest income from core activities improved compared to the linked quarter.\nWhile holding company loss is well in line with plan, we saw a modest increase due to lower income at Pacific Current and higher interest expense from higher short-term borrowing.\nConsolidated trailing 12 month ROE remains healthy at 9.4%.\nUtility ROE increased 80 basis points versus the same time last year to 8.4%.\nBank ROE, which we look at on an annualized rather than a trailing 12-month basis was 6.8% for the quarter down from last year due to the economic impacts of COVID and a low interest rate environment.\nTurning to the next slide.\nUtility earnings were $60.1 million compared to $46.8 million in the same quarter last year.\nThe most significant variance drivers were $10 million lower O&M expenses, primarily due to fewer generating unit overhauls, lower labor cost due to lower staffing levels and reduced over time and elevated vegetation management work in the third quarter of 2019.\nThe lower overhauls represented about $5 million of the $10 million O&M variance.\nOf the $5 million, $2 million was due to an elevated number of overhauls in the third quarter of 2019, and the remaining $3 million was timing as some overhaul work will be performed later this year or in 2021.\nWe also had a $5 million revenue increase from higher rate adjustment mechanism revenues and a $1 million increase in major project interim recovery revenues for the West Loch PV and Grid Modernization projects.\nThese items were partially offset by the following after-tax items.\n$1 million lower AFUDC as there were fewer long duration projects in construction work in progress.\n$1 million higher savings from enterprise resource planning system implementation, which are to be returned to customers and $1 million higher depreciation due to increasing investments to integrate renewable energy and improve customer reliability and system efficiency.\nLooking at the drivers of the utilities' financial performance for the rest of the year.\nWith the Commission's final decision in Hawaii Electric rate case, our rates, cost of capital and equity capitalization are now set across all three utilities.\nRecall that we received a final decision in July for no base rate increase in the Hawaii Electric Light rate case and are not filing a request a rate case for Maui Electric.\nThe utilities multi-year efficiency program will help offset the lack of base rate increases and achieve the Management Audit customer savings commitment.\nCost savings initiatives are well under way with additional efficiency opportunities to be identified.\nCOVID-related expenses from March 17 to year end are being deferred for the commission order we received in June.\nWe've requested an extension of that deferral through at least June 30 of next year.\nWe'll have to file separately for recovery at a later date.\nCOVID related costs have been $12.4 million to date, mostly related to bad debt expense.\nThe suspension of customer disconnections remains in place until year end.\nLower fuel prices have been good for our customers with a typical 500-kilowatt hour residential monthly bill on Oahu in October was down $21 since March, due to fuel price savings for customers.\nWith these savings, the utility may qualify for a reward under the fossil fuel cost risk sharing mechanism.\nOn Slide 11, based on year-to-date information, we are forecasting $340 million to $350 million of capex in 2020, down from $360 million communicated last quarter, primarily due to unexpected delays from COVID-19 and completion of some of our work at lower cost.\nSpecifically COVID-19 delayed our smart meter deployment, completion of a generating unit overhaul on Maui and impacted transmission structural replacement work when a helicopter contractor went out of business due to COVID-19.\nFortunately, we were able to bring some of that work in-house and completed at lower cost.\nWe also saw some other delays related to permitting.\nWe are maintaining our longer-term capex and rate base guidance in the 2021 to 2022 period.\nWe still expect capex to average approximately $400 million per year or about 2 times depreciation.\nWhile strategically important, we don't expect the recently approved Army Privatization contract to have a material impact on annual earnings, which will depend on a number of factors including the amount in timing of capital upgrades and capital replacements.\nWe continue to expect the utility to self-fund its forecasted capex through 2020 via retained earnings and access to the debt capital markets.\nTurning to the bank on Slide 12.\nAmerican's net income was $12.2 million in the quarter compared to $14 million in the prior quarter.\nAlthough yield on earning assets continued to be impacted by the low interest rate environment, we had improvements in a number of areas including record mortgage banking income, a record low cost of funds supporting net interest margin, increased fee income as we resumed certain fees suspended to help customers during the initial impact of COVID and lower non-interest expense.\nWe continue to see elevated provisioning this year given the ongoing COVID-19 related economic uncertainty, provision was down slightly versus the last quarter, which included amounts for unfunded commitments.\nImproved non-interest income from core activities and expense controls were key drivers of bank net income during the quarter.\nAs you may recall, we had a large one-time impact in the second quarter from $9.3 million in gains on sale of securities on a pre-tax basis.\nWe were able to replace much of that amount through a combination of record mortgage projection generating mortgage banking income of $7.7 million versus $6.3 million last quarter and resumption of previously suspended fees driving $9.6 million in fee revenue compared to $7.2 million last quarter.\nExpense controls were also helped to offset the second quarter's gain on sales.\nIn the second quarter, we incurred $3.7 million in COVID-19 related expenses consisting of additional -- paid to frontline employees, the payout of excess vacation days for employees unable to use vacation while working through the pandemic, purchases of PPE and sanitation supplies, the employee meals to promote employee safety and support Small Business restaurants.\nIn the third quarter, our COVID-19 related costs were down $3.1 million to $0.7 million consisting primarily of cleaning and sanitation costs.\nOn Slide 14, as expected ASB's net interest margin compressed more moderately in the third quarter than prior quarter, narrowing 9 basis points to 3.1%.\nRecord low cost of funds and lower FAS 91 amortization help to offset the impact of the low interest rate environment on asset yields.\nMost of our adjustable-rate loans repriced in the second quarter while fixed price loans, which are driving most of the repricing now, reprice more gradually.\nFor the remainder of the year, we expect continued margin pressure, but at a moderate pace.\nThis includes pressure from continued low interest rates and from excess liquidity due to strong deposit growth and lower reinvestment yields.\nFor the full year, we expect to be within our previously guided NIM range of 3.35% to 3.25%, year-to-date net interest margin was 3.34%.\nThis quarter's provision was $14 million compared to $15.1 million in the linked quarter.\nWith uncertainty regarding if we will realize a sustained gradual reopening of tourism and strengthening of our economy, this quarter's provision included $12.3 million in additional reserves related to potential economic impacts from the pandemic.\nCredit quality improved in our personal unsecured loan portfolio and we were able to release some reserves related to that portfolio during the quarter.\nNet charge-offs also improved and were lower than the last two quarters.\nWith the economic picture still in flux we are still holding off on providing provision guidance.\nSlide 16 provides an update on what we're seeing in our loan portfolio.\nOverall, we have a high quality loan book that remains healthy with only 3% of our portfolio on active deferral at the end of the quarter.\n76% of deferred loans have returned to payment.\nPreviously deferred loans, do have a somewhat higher delinquency rate of 1% compared to 0.3% for our portfolio as a whole.\nWe continue to carefully monitor our portfolio and are closely -- are working closely with our customers to understand their circumstances and outlook.\nGiven the enhanced monitoring, we have implemented for commercial loans as well as the overall quality of our loan book, we feel we are well-provisioned as of September 30.\nAs we continue -- ASB continues to maintain ample liquidity and healthy capital ratios.\nThe bank is over $3.2 billion in available liquidity from a combination of reliable sources.\nASB's Tier 1 leverage ratio of 8.35% was comfortably well above well capitalized levels as of the end of the quarter.\nAs a reminder, the bank is self-funding and we don't anticipate that it would need capital from the holding company even under more severe stress scenarios than we anticipate from COVID-19.\nTurning to consolidated liquidity, we're well positioned to withstand the impacts of COVID.\nAs of September 30, we had $425 million of undrawn credit facility capacity, consisting of $150 million at the holding company and $275 million at the utility, with just $23 million in commercial paper outstanding, all of which was at the holding company.\nWe recently executed transactions to further enhance liquidity and pre-fund upcoming debt maturities.\nAt the holding company in September, we executed a $50 million private placement to pre-fund a March 21 maturity.\nIn October, we launched and priced a subsequent transaction to pre-fund a term loan maturity coming up in April, 21.\nAt the utility, in October we executed $115 million private placement, which we can draw on at any time leading up to its January funding date.\nThe utility has no long-term debt maturities in '21.\nAt the holding company, all long-term debt maturities in '21 are now pre-funded and we maintain solid liquidity and financial flexibility and strength heading into 2021.\nAnd we remain committed to an investment-grade capital structure.\nOn the next slide, we expect our dividend from and the equity investment in the utility to be consistent with our earlier projections.\nThe utility continues to perform in line with plan, has sufficient retained earnings to support its capex and adequate liquidity to support growth in customer account receivable balances and payment programs for customers impacted by COVID.\nBank dividends received to date are sufficient to maintain HEI's strong consolidated capital structure and liquidity.\nWe expect to maintain our external dividend as reflected in HEI's recent dividend announcement.\nOn Slide 20, we've updated our guidance for the full year.\nAt the utility, we are reaffirming our guidance range of $1.46 to $1.54 per share, and expect the utility to be within the bottom half of that range.\nWhile second quarter and third quarter utility results were strong, that was partially due to timing of expenses, some of which are expected to be incurred in the fourth quarter.\nWe're also working to offset the lack of the Hawaii Electric base rate increase and as mentioned, we're expecting capex to be $10 million to $20 million lower than previously anticipated.\nAt the bank, given economic uncertainty and its effect on provision, we're continuing to provide pre-tax pre-provision income guidance.\nWe've revised our pre-tax pre-provision income guidance upward to $105 million to $115 million versus the previous range of $90 million to $110 million or $10 million increase from mid-point to mid-point.\nOur holding company guidance is unchanged at $0.27 to $0.29 loss.\nSince bank provision remains uncertain, we're still not providing consolidated earnings per share guidance.\nOverall, our companies continue to perform well during the pandemic.\nOur financial stability has enabled us to deliver value for all our stakeholders.\nIn that vein, I'd like to close with a comment on ESG.\nESG has been a focus for us for a long time.\nThat's why we say ESG is in our DNA.\nWe just didn't call it ESG before.\nWe've long talked about the linkage between the health of our state and that of our companies.\nOur renewable energy transition is central to our Company's strategy, and we talk about it on every call, along with the evolution of our regulatory framework to support that transition.\nFor our bank, key areas of focus include addressing affordable housing and financial fitness for our communities and customers as well as economic diversification and job creation.\nAnd you'll recall that Pacific Current was formed to advance sustainability through infrastructure investments here in Hawaii.\nWe're formalizing our ESG approach, integrating it more deeply in our businesses to the extent material to value creation.\nWe published our first FASB aligned report in September and plan to expand future reporting to include TCFD aligned disclosures.",
        "summary": "hawaiian electric industries q3 earnings per share $0.59.\nq3 earnings per share $0.59."
    },
    {
        "text": "Now, Connie, will begin with her remarks.\nIn 2020, we achieved consolidated net income of $197.8 million and earnings per share of $1.81.\nWhile down from 2019, our consolidated 2020 earnings include strong utility [Phonetic] results, driven by good regulatory mechanisms and the utilities focus on cost savings, while the bank performed well given pandemic-driven economic challenges.\nLast week, our Board approved our third consecutive annual dividend, raising the quarterly dividend per share from $0.33 to $0.34.\nThis reflects our continued financial performance and our confidence in our future prospects.\nI'm proud of the commitment of our employees as we work to support our customers through the challenges of 2020, protect fellow employees and care for our communities, all while continuing to deliver solid consolidated financial results and advance long-term priorities.\nWe have viewed our [Indecipherable] source of strength to help our state weather the challenges of COVID.\nThis has included extensive actions across our company, including at our utility suspending disconnections, providing payment options to help customers manage their bills and proposing to hold base rates flat on Oahu to help keep rates down.\nIn addition, based on the utility's strong financial results, at year-end, HEI provided $2 million for Hawaiian Electric to be the founding sponsor of the Aloha United Way, Hawaii Utility Bill Assistance Program to help families and all island pay utility bills.\nSimilarly, our bank offered loan deferrals, temporarily suspended fees and deployed $370 million in Paycheck Protection Program funding to support approximately 4,100 small businesses representing about 40,000 local jobs.\n2020 was a record year for our charitable giving, including the Utility Bill Assistance Fund I just mentioned, our companies and employees together made charitable commitments of $5.5 million, more than double our typical level.\nThese actions reflect who we are as a company and our long-standing ESG focus.\nIn 2020, we issued our first validated ESG report, which is aligned with SASB guidance.\nDespite the challenges presented by COVID, we remained focused on our strategic priorities, including at Hawaiian Electric, and those are to deliver a cost-effective clean energy portfolio, improve customer experience and offer innovative energy solutions, create a modern grid and technology platform, strengthen stakeholder relationships, work with stakeholders to align regulatory and market models, improve our company culture and ensure that we have the financial strength to deliver on our state's ambitious energy goals.\nWe outperformed our 2020 renewable energy portfolio milestone of 30% with 34.5% RPS for the year, while lower demand due to the pandemic contributed to that result, if electricity used had been the same as 2019, we would still have exceeded the milestone at 32%.\nThe RPS APM established in the performance base rate making docket incentivizes us to continue to focus on exceeding the statutory milestones, and we will talk about that in a moment.\nWe continue to aggressively advance renewable energy and storage procurement, filing nine Stage 2 RFP purchase power agreement.\nThree of those have now been approved by the PUC.\nWe also filed applications for our two self-build storage projects and continued moving Stage 1 RFP projects forward.\nTogether, Stage 1 and 2 projects, if completed as planned, are expected to add about 650 megawatts of solar and about 3 gigawatt hours of storage to our system by the end of 2023.\nLimited land, especially on Oahu, means that in addition to utility-scale projects, distributed energy resources' community-based projects and grid services are critical to achieving our goals.\n20% of our residential customers and 36% of single-family homes on Oahu have rooftop solar, by far the leading rooftop solar uptake per capita in the nation.\nThe pace of new rooftop solar additions also picked up in 2020 with 55% more installed in 2020 than in the prior year.\nImportantly, 78% of new rooftop solar applications also have battery storage.\nThis allows daytime excess solar production to be used to reduce fossil-based power at night.\nWe've launched our new Quick Connect program to enable customers to interconnect their rooftop solar faster, and we will soon launch our shared solar program, a new phase of community-based renewable energy to extend the benefits of clean energy to a wider range of residents, with priority to those who have been underrepresented in solar adoption, such as renters and customers with low-to-moderate incomes.\nAll of these clean energy efforts are contributing to our state's economic recovery and creating local jobs.\nWe continue to work together with our communities and stakeholders to find the best ways to achieve a clean energy future that's affordable, resilient and reliable.\nStakeholder engagement has been central to our integrated grid planning process, which is developing long-range plans to inform investment priorities for resilience, grid and generation resources.\nOur utility focused heavily on cost savings in 2020.\nBuilding on our One Company initiative, in 2020, we outlined a three-year program to reduce costs and increase efficiency, beginning well before the main management audit report that was part of our 2020 rate case.\nIn 2020, we achieved significant savings, including $7 million in O&M savings through better planning, coordination and execution of work; targeted staffing reductions; and continued efforts in strategic sourcing.\nWe also achieved the savings we committed to deliver to customers in connection with our Enterprise Resource Planning system, ERP.\nOur cost management focus enabled us to adjust to the flat base rates we proposed for our Oahu rate case and positions the utility well to deliver on its management audit savings commitment, customer dividend and operate under PBR.\nOur utilities' achievements in 2020 support our 2021 to 2025 strategic plan priorities, which include advancing decarbonization and resilience, both in our electric system and more broadly, in our state, driving a sustainable and equitable local economy, strengthening our company culture and demonstrating our commitment to safety and the highest level of performance in all that we do, engaging with our communities to develop solutions that are sustainable, reliable and affordable and ensuring we have the financial strength to invest in this decarbonized and sustainable future for our companies and our communities.\nIn December, the PUC issued its Phase 2 decision establishing the landmark PBR framework, capping a 2.5-year process that included extensive involvement by the utility and stakeholders.\nOverall, we view the new framework is providing a balanced approach designed to provide value for customers and opportunities for the utility, as we continue one of the nation's most ambitious energy transformation.\nThe PBR framework is designed to balance a number of important interests, including those the PUC identified in its Phase 1 PBR decision last year.\nFor example, PBR promotes cost control and affordability through the inflationary adjustment and customer dividend component of the annual revenue adjustment or ARA mechanism, advances customer equity through incentives to collaborate on low-to-moderate income or LMI energy efficiency initiatives, encourages innovation through a new pilot project process, incentivizes accelerated renewable energy additions through the RPS-A performance incentive mechanism or PIM and supports utility financial integrity by eliminating elements of structural regulatory lag, establishing new revenue opportunities through PIM, the new pilot process and the ability to earn on O&M-based as well as capital-based projects through the new EPRM mechanism, providing safeguards against extreme results.\nFrom an ESG standpoint, we view the PBR framework as providing a greater connection between our achievement of environmental and social goals and our financial performance.\nAs Greg will discuss further, 2021 is a transition year for the utility.\nOur 2021 guidance and implied ROE reflect moderated assumptions for earnings and ROE with the initial implementation of PBR midyear this year.\nMoving into 2022, we see strengthening financial opportunities for our company.\nAmong the key drivers of this 2021 transition are, first, most PBR elements, including the annual revenue adjustment, become effective June 1.\nSo we will see the full effect of PBR for the first time in 2022.\nFor example, the RAM lag we had will remain in 2021, but will be eliminated in 2022 and going forward.\nSecond, while we anticipate modest renewable energy additions in 2021, we expect that to pick up in 2022 and 2023 with more Stage 1 and Stage 2 RFP projects, which if completed as planned, will contribute to rewards under the new RPS-A PIM.\nThird, with accelerated delivery of our management audit savings commitment to customers in 2021, we are adjusting to a higher level of cost containment this year than originally planned.\nFinally, with our 2020 rate case settlement, a portion of 2019 and 2020 capital investment is not yet covered in rates and we will be working to address that.\nWe see increased opportunities for the company in 2022 and beyond as we work through these transition items and gain experience with the new PBR mechanism.\nTurning to the bank, American performed very well in a challenging banking environment.\nWhile its earnings were impacted by low interest rates and higher provision in light of COVID-driven economic uncertainty, the bank delivered solid profitability.\nAmerican had record mortgage production, gaining market share and new customer relationships.\nThe bank also worked to control costs to offset increased expenses related to COVID, while still investing in core priorities.\nThroughout the pandemic, the bank is focused on delivering for its customers, including through deferrals, fee waivers and PPP funding.\nAmerican is now working on round two of PPP with new technology in place to streamline the process for both customers and the bank.\nAmerican worked hard for other stakeholders as well, enabling a successful program to deploy CARES Act funds to help both unemployed families and our restaurant industry during the pandemic and continuing to support its teammates with an excellent workplace culture.\nAs we look ahead, we expect low interest rates to continue to pressure margins for the bank, although a steepening of the curve could provide some tailwinds.\nIn low interest rate environments, cost management becomes all the more important and that will be a central focus for us.\nAt the same time, we will be investing in key areas to advance our anytime, anywhere, digital banking transformation.\nWe continue to manage credit conservatively.\nWhile we are optimistic about the economy, there is still some near-term uncertainty, particularly in the first half of the year.\nSo we have maintained our strong provisioning to date.\nThat said, our loan portfolio remained strong with low net charge-offs and delinquencies.\nThe pandemic has altered customer behavior and expectations in profound ways.\nWe've seen a dramatic acceleration of customers migrating to our digital and self-service options.\nNon-branch transactions such as online and ATM transactions have increased from 19% prior to COVID to 40% in December.\nAnd we've been pleased to see very high levels of customer satisfaction with those options.\nWe want to continue our focus on making banking easy, be available to customers anytime, anywhere and encourage them to make American their primary bank.\nWe've rolled out new ATMs with increased capabilities, launched more online tools, including for mortgage applications in online deposit account opening.\nWith increased customer use of our digital channels, we've been able to consolidate eight branches and are introducing digital centers this spring.\nThese locations will leverage our digital capabilities, while still providing in-person interaction.\nThis refocusing of our branch network will provide savings over time.\nAs we enhance our digital offerings, deepening our relationships with our customers remains a cornerstone of our strategy.\nWe will also soon be launching additional online financial wellness tools for customers, empowering them with greater financial knowledge and providing increasing avenues engaged with and offer services to them.\nAnd now, Greg will provide an update on the economy, our financial results and our outlook.\nWhile 2020 was a challenging year for the Hawaii economy, there are signs of progress and our economy is on a path to recovery.\nDaily visitor arrivals are currently around 8,000 and still well below the roughly 30,000 per day on average in 2019.\nIt represents a significant improvement from the 2,000 to 3,000 we were seeing before Hawaii's reopening to tourism in October.\nOur state's pre-travel testing program has succeeded in keeping coronavirus cases low.\nHawaii's positivity rate is just 1% compared to the national average of 9.1%.\nArrivals are expected to continue improving with the nationwide roll-out of the vaccine.\nUnemployment has also improved significantly to 9.3% in December of 2020, down markedly from 24% at the nadir of the pandemic.\nHawaii's housing market has remained resilient with single family home sales up 2.3% in 2020 and Oahu median prices for the full year 2020 rising 5.2% to $830,000.\nYear-over-year sales volume and median prices remained strong in January at 14.7% and 9.8% respectively.\nWhile GDP is expected to have declined by 10.2% in 2020, it is expected to return to growth beginning in '21 at 0.1% and strengthening to 5.2% in 2022.\nTurning to our financial results.\nIn 2020, we achieved solid consolidated financial performance and advanced our longer-term priorities, despite the difficult economy.\nFull-year 2020 earnings were $197.8 million or $1.81 per share compared to $217.9 million or $1.99 per share in 2019.\nUtility earnings grew about 8% to $169.3 million and reflected efficiency improvements helping drive O&M lower.\nASB's full-year earnings were down $31 million or 35% versus a strong 2019 as financial results were impacted by both net interest margin compression and higher provision expense related to the economic shutdown.\nHowever, the low interest rate environment helped drive record mortgage originations and sales and strong deposit growth, good expense control enabled management to offset costs related to COVID-19 while still investing in our priorities.\nThe holding company and other segment loss was higher than 2019, primarily due to higher charitable contribution expenses to support our community during COVID.\nOur consolidated ROE for the last 12 months was 8.6%, down from 9.8% in 2019.\nUtility ROE for the last 12 months improved 30 basis points despite the settled rate case that resulted in certain capital expenditures not being included in base rates and contributing to a 90 basis points drag unrealized ROE in 2020.\nBank ROE was down significantly due to the impacts from the mid-pandemic.\nThe utility had a solid year, delivering 8% net income growth during the pandemic as Hawaiian Electric executed on its commitment to reduce costs and deliver customer savings from opportunities identified in the PUC's management audit, while also adjusting to a no base rate increase from a 2020 Hawaiian Electric rate case settlement, which also resulted in no incremental rate recovery for certain above baseline capital investments in 2019 and 2020 that were expected to be addressed in a general rate case.\nThe utility's higher net income was primarily driven by the following items, $17 million in revenues under the annual rate adjustment mechanism or RAM, which funds investments in resilience, reliability and the integration of renewable energy; $6 million from lower O&M expenses primarily due to fewer generating facility overhauls, efficiency improvements in planning and execution of work and reduced staffing levels offset in part by higher environmental reserves; $3 million from lower interest expense due to debt refinancings; and $2 million from the recovery of West Loch PV and grid modernization projects under the MPIR mechanism, partially offset by lower Schofield MPIR revenues.\nThese items were also partially offset by $5 million higher depreciation expense, due to increasing investments to integrate renewable energy and improve customer reliability and system efficiency, $4 million from higher Enterprise Resource Planning system implementation benefits to be returned to customers and $4 million lower AFUDC as there were fewer long duration projects in construction work-in-progress.\nIn 20 -- turning to Slide 11, 2021 is a transition year for Hawaiian Electric as the newly adopted PBR framework is implemented over the coming months.\nMost of the PBR mechanisms included in the annual revenue adjustment mechanism will become effective June 1 with the full effect of PBR in 2022.\nThree new PIMs will be effective for the full year of '21, while additional new PIMs identified in the PUC's PBR order are planned to go into effect in -- on June 1.\nOngoing working group meetings will develop tariffs and flesh out many of the details needed to implement the new PBR framework.\nOf note, the RAM lag, which in 2020 resulted in approximately 40 basis points of structural lag and in 2021, are projected -- a projected 20 basis points of ROE reduction or lag relative to authorized levels, will be eliminated beginning in 2022.\nAlthough newly identified PIMs provide limited financial opportunity during 2021, the commission has indicated its intent to work with the utility and other stakeholders to increase and expand the incentive opportunity over time.\nIn addition, PBR is likely to evolve over the initial multi-year plan as the PUC monitors its functioning and plans for a comprehensive review in 2024.\nOverall, we see PBR as a stable framework that can deliver reasonable earnings growth and returns, once fully implemented.\nManagement showed a strong ability to control expenses and deliver O&M reductions during 2020, while offsetting certain inflationary cost increases and costs incurred to achieve long-term savings.\nWe have a plan to deliver additional savings through improved scheduling leading to reduced over time, managed reductions in workforce, process improvements, strategic sourcing, and reducing our office footprint.\nUnder PBR, management's ability to effectively control expenses will be increasingly important in order to ensure strong financial performance over time.\nWhile PBR provides inflationary adjustments through the new annual revenue adjustment formula, ongoing savings will be required to offset above inflationary cost increases.\nIn addition, in 2021, Hawaiian Electric has agreed to an acceleration of planned audit management savings, which were originally planned to be delivered over time as realized.\nUnder our Levelized Management Audit Savings commitment, we are delivering $6.6 million more in customer savings in 2021 than originally planned.\nOur work to offset those customer savings through cost efficiencies is expected to be further reduced -- to further reduce O&M in 2021 resetting our base -- our O&M base.\nSlide 13 shows the performance incentive mechanisms under PBR with the exception of the RPS-A PIM, which I'll touch on shortly.\nUnder PBR, the PIMs are an ongoing component of future-earning opportunities.\nPerformance incentives aren't new to us.\nAs you can see on the left of the chart, we've already had numerous PIMs in place for reliability, customer service and renewable energy procurement among others.\nUnder PBR, we now have PIMs that reward the utilities' ability to achieve faster interconnection times for new renewable resources, efficiently acquire grid services' capabilities from distributed energy resources, collaborate to deliver energy savings for low-to-moderate income customers and effectively deploy and enable advanced meters.\nOnly one of these new PIMs, the interconnection PIM has the possibility of a penalty.\nWhile initial PIM opportunities in 2021 are modest and its December PBR order the PUC characterize the new PIMs is purposely conservative to make room for development of further PIMs, including in other dockets, such as the DER docket to potentially reach the 150 basis points to 200 basis points of opportunity referenced in the PBR docket.\nTurning to Slide 14.\nThe new RPS-A PIM established under PBR will likely be the most impactful of the new PIMs over the next several years, particularly as renewable projects from our Stage 1 and Stage 2 RFPs start coming online in 2022 and 2023 time frames.\nThe RPS-A PIM rewards based on the -- rewards are based on the achievement of what the commission calls a corrected RPS calculation.\nThe statutory calculation is total renewable generation, including customer-sited generation as a percentage of utility sales.\nCustomer-sited generation is not included in utility sales.\nYou can see on the right side of this slide that the RPS-A PIM measures total renewable generation over total net generation where both generation numbers include customer-sited.\nThe annual milestones are still based on the statutory RPS goals even the -- even though the PBR-based RPS-A calculation makes them more difficult to achieve.\nThe annual targets are an interpolation of the RPS goals for the 2020, 2030, 2040 and 2045 dates.\nWe are rewarded for outperformance on a dollar per megawatt hour basis with the rewards starting at $20 per megawatt hour in 2021 and 2022 and declining to $10 per megawatt hour by 2024 and thereafter.\nBased on our current projections, we think the reward this year could be up to $800,000.\nNext year, it could be up to $5 million.\nAnd in 2023, it could be up to as high as $14 million.\nIt's important to note that these projections are based on current assumptions surrounding our DER forecast, project commercial operation state's performance of third-party generators and many other variables.\nIn 2020, we invested $335 million in capital -- in utility capital investments.\nWe expect to be at or above this level in 2021 with over $300 million of baseline capital investments under way -- under the earning -- under the new annual revenue adjustment mechanism.\nIn addition, both the EPRM and renewable energy infrastructure recovery mechanisms provide for recovery of approved projects above the ARA and the EPRM allows recovery for value-added expense-based projects in addition to capital projects.\nWe have some large projects anticipated in 2022, including two self-build battery projects and a project to enable the retirement of a fossil fuel power plant on Mali.\nOverall, 2021 and 2022 capex is expected to average just under $400 million annually.\nWe expect the utility to fund its forecasted capex through retained earnings, HEI equity contributions and access to debt capital markets.\nUnder PBR, our investments should drive average annual base earnings growth in the 4% to 5% area over the next several years, excluding any upside for performance incentive mechanism achievements.\nTurning to the bank, higher provisioning and credit risk associated with the negative impacts of COVID-19 impacted 2020 earnings, which declined by about 35% year-over-year.\nBoth 2019 and 2020 included one-time gains.\n2019 included net gains from the sales of properties the bank exited when moving to its new campus.\nAnd 2020 included one-time gains from security sales.\nExcluding both, earnings were still down about $31 million.\nAlthough yield on earning assets was impacted by the low interest rate environment, we had strong performance in a number of areas, including record residential mortgage production, a record low cost of funds supporting net interest margin and strong loan and deposit growth.\nOn Slide 17, ASB's net interest margin or NIM stabilized in the fourth quarter, and full-year 2020 NIM remained healthy despite the challenging interest rate environment at 3.29%.\nRecord low cost of funds, along with PPP fees, helped soften the impact of low interest rate environment on asset yields.\nThe average cost of funds was 16 basis points for the full year 2020, 13 basis points lower than the prior year.\nFor the fourth quarter, the average cost of funds was a record low of 9 basis points.\nOn the loan side, in the current market, most of our adjustable-rate loans have already repriced at floors or market levels.\nOngoing declining loan yields are primarily driven by the differential between newly originated loans and existing prepaid or maturing loans.\nWe continue to -- we expect to continue to see pressure from low interest rates and from excess liquidity, due to strong deposit growth and lower reinvestment yields.\nIn 2021, we expect the net interest margin range -- to range from 2.9% to 3.15% for the full year.\nTurning to credit, provision for the year was $50.8 million or approximately $50 million compared to $23.5 million in 2019.\nThe increase reflected additional credit risk associated with the negative economic impact of COVID-19.\nProvision for the fourth quarter was $11.3 million, down from the $14 million in the third quarter, yet still elevated relative to $5.6 million in the same quarter last year.\nWe believe we are well provisioned going into 2021 given the uncertainty that remains as we continue to navigate through an expected multi-year recovery.\nTo date, we have not realized an elevated level of losses that have been provided for as 2020 net charge-offs were slightly lower than pre-COVID 2019 levels.\nSlide 19 provides an update on what we're seeing in our loan portfolio.\nOverall, we have a high-quality loan book that remains healthy with only 1% of our portfolio on active deferral at the end of the year.\nMost deferred loans have returned to payment.\nPreviously deferred loans do have a somewhat higher delinquency rate of 1% compared to 40 basis points for our portfolio as a whole.\nWe continue to carefully monitor our portfolio and are working closely with customers to understand their circumstances and outlook.\nASB continues to maintain ample liquidity and healthy capital ratios.\nThe bank has approximately $3.7 billion in available liquidity from a combination of reliable sources.\nASB's Tier 1 leverage ratio of 8.4% was comfortably above well-capitalized levels as of the end of the fourth quarter.\nAs a reminder, the bank is self-funding and we don't expect that it would need capital from the holding company even under more severe stress scenarios that we have evaluated under COVID-19.\nOn Slide 21, our financing outlook for '21 for the year reflects our strong financial position.\nThe bank remains competitive and profitable and remains self-funding with high levels of liquidity.\nWe expect this to continue into '21.\nIn 2020, ASB's dividend to the holding company was $31 million and in 2021, we expect this to increase about 35% to approximately $42 million.\nThe utility is expected to continue to support a 65% industry average dividend payout ratio, which, in 2021, will amount to about $112 million in dividends to the holding company.\nHEI remains well capitalized and will continue to ensure the utility has access to equity capital to meet its needs and maintain an investment-grade capital structure.\nWith improved cash distributions from the bank and utility, we do not anticipate the need to issue any external equity in 2021 unless we identify significant additional accretive investment opportunities.\nSolid 2020 results and our improved earnings and cash flow outlook have allowed us to grow our HEI dividend, while managing our capital structure to maintain our investment-grade rating.\nWe are initiating our 2021 consolidated earnings guidance of $1.75 to $1.95 per share.\nOur utility guidance of $1.53 to $1.61 per share assumes PBR implementation in June, consistent with the PUC's December order.\nWe also assume full recovery of COVID-19-related deferred expenses.\nWe expect utility capital investment to be at or above $335 million and mostly comprised of baseline capex covered by the ARA mechanism.\nWe do not expect PIMs to be a meaningful contributor to earnings this year given the conservative level of the initial PIM opportunity.\nAt the midpoint of our guidance range, we expect the utilities' realized ROE to be approximately 7.8% in 2021.\nOnce PBR is fully implemented in 2022 and we're able to effectively realize the benefit of the new ARA and EPRM mechanisms, along with existing mechanisms such as the renewable energy infrastructure mechanism, we expect average annual utility earnings growth of 4% to 5% with the potential for PIM achievement to enhance earnings growth and realized ROEs at the utility.\nOur bank guidance of $0.52 to $0.62 per share reflects continued profitability in a low interest rate environment and more normalized provision levels.\nAs economic conditions and credit quality improve, release of loan loss reserves could provide some upside, but are not currently in our guidance range.\nWe expect flat to low-single-digit asset growth, and we expect net interest margin to be 290 basis points to 315 basis points.\nWe expect holding company losses to be consistent with 2020 levels.\nAnd as we are continuing to build out the Pacific Current platform, we do not expect that it will contribute meaningfully to 2021 earnings.\nWe do not expect the need to -- for external equity in 2021.\nAnd we are targeting consistent dividend growth, in line with earnings growth and a long-term dividend payout ratio range of 60% to 70%.\nWe are proud of the accomplishments we made in 2020 and we look forward to continuing to work with our customers, communities and employees as we progressed through recovery this year.",
        "summary": "quarterly dividend increase to $0.34 per share."
    },
    {
        "text": "Yesterday, we reported results and posted all of the earnings-related materials on our website.\nFor the call today, our speakers are Chris Swift, Chairman and CEO of The Hartford; Beth Costello, Chief Financial Officer; and Doug Elliot, President.\nJust a few final comments before Chris begins.\nThese statements are not guarantees of future performance, and actual results could be materially different.\nA detailed description of those risks and uncertainties can be found in our SEC filings.\nOur commentary today includes non-GAAP financial measures.\nExplanations and reconciliations of these measures to the comparable GAAP measure are included in our SEC filings as well as in the news release and financial supplement.\nOnce again, our outstanding underwriting capabilities and consistent execution on strategic initiatives becomes increasingly evident with each quarterly earnings report and reinforces my confidence about the future for The Hartford.\nIn the third quarter, we reported core earnings of $442 million or $1.26 per diluted share; 8% growth in year-over-year diluted book value per share, excluding AOCI; and a trailing 12-month core earnings ROE of 12.5%.\nWe returned $634 million to shareholders in the quarter from share repurchases and common dividends and $1.6 billion for the nine months ended September 30.\nThe confidence we have in our business is also evidenced by the announcement that we have increased our share repurchase program by $500 million, bringing the total authorization to $3 billion through the end of 2022.\nAnd we increased our quarterly dividend by 10%, payable in January of 2022.\nWith strong cash flow generation, we will continue to have a balanced capital deployment approach to support growth and investments in the businesses with capital return to shareholders.\nLooking through to the underlying results.\nThe positive momentum continued with written premium growth, margin expansion, operating efficiencies and a significant return on alternative investments.\nHowever, results were impacted by Hurricane Ida, higher pandemic-related excess mortality in Group Benefits and the Boy Scouts of America settlement.\nCommercial Lines reported stellar margins with an industry-leading 87.2 underlying combined ratio and another double-digit top line growth, reflecting higher new business levels, continued strong retention and solid renewal price increases.\nOur teams continue to execute exceptionally well.\nIn Personal Lines, we are in the midst of a transformation to provide a more contemporary experience in product.\nThrough a modernized platform, in partnership with AARP, one of the largest affinity groups in America, we see the opportunity to capitalize on the growth in the mature market segment as this demographic is expected to grow 3 times as fast as the rest of the U.S. population over the next decade.\nI am pleased with the progress being made with the introduction of the new platform, and Doug will provide more commentary.\nAdditionally, in the quarter, we entered into a new agreement in principle with the Boy Scouts of America.\nThis agreement now includes not only the BSA, but local counsels and representatives of the majority of sexual abuse claimants who have now been asked to officially vote on the BSA bankruptcy plan.\nThe Hartford settlement becomes final upon the occurrence of certain conditions, which we expect to occur in early 2022.\nNow turning to Group Benefits.\nCore earnings for the quarter were $19 million, reflecting elevated life and short-term disability claims, partially offset by strong investment returns, improved long-term disability results and earned premium growth.\nThroughout the year, we have been reporting earned premium growth over prior year, and this quarter's positive trends continues.\nFully insured ongoing premium is up 4%.\nThis reflects growth in our in-force book and continued strong sales in persistency.\nPersistency was above 90% and increased approximately one point over prior year.\nThe group life industry has been impacted by excess mortality over the past six quarters.\nDuring our July earnings call, we were optimistic that trends would lead to an improvement in COVID-related mortality.\nOur optimism was short-lived as the number of U.S. deaths started increasing in August due to the Delta variant and continued through September.\nAs of this week, U.S. COVID deaths for the third quarter now exceed 112,000, and this number is likely to continue to increase in the weeks ahead due to reporting lags in the data.\nThe rapid increase in COVID deaths in the third quarter drove elevated mortality in our book of business and across the industry.\nAdditionally, the mortality experience from the Delta surge has a higher percentage impact on the under 65 population compared to prior periods.\nApproximately 40% of U.S.-reported COVID deaths in August and September were of individuals under age 65 compared to approximately 20% of COVID deaths in December of 2020 and January of 2021.\nSince younger age cohorts tend to carry higher face amounts, the combination of increased deaths and higher amounts of insured values resulted in a significant increase in total dollar levels of mortality claims.\nIn addition, we experienced higher levels of non-COVID excess mortality during the quarter, representing approximately 30% of reported excess mortality loss.\nThis is directionally consistent with the broader U.S. trends that saw elevated non-mortality in the third quarter.\nAs we look to the fourth quarter, forecasting excess mortality is a challenge.\nWhat we do know is that vaccinations are saving lives, and higher levels of vaccination rates should help mitigate mortality claims.\nBottom line, the fundamentals across the Group Benefits business remains solid, and we are confident and optimistic about our performance in the future.\nTurning to the economic backdrop.\nWhile there are conflicting signals, I remain encouraged on the '22 macroeconomic outlook and believe the environment will be one in which The Hartford's businesses perform well.\nHeadline inflation remains elevated, but core inflation is on the decline.\nI do not expect inflationary pressures to go away overnight.\nThe focus of global governments and the private sector on supply chain solutions as well as the normalization of hard-hit pandemic sectors causes me to believe inflationary pressure will begin to ease in the second half of 2022.\nWhile employment gains stalled in the last couple of months as the U.S. was impacted by the Delta surge, vaccination rates, therapeutics and growing levels of natural immunity provide confidence that COVID will become less of a deterrent for individuals to seek employment and return to the workforce.\nUnemployment is expected to continue a downward trend as borders increasingly reopen and pandemic-related benefits fully roll off.\nThis bodes well for The Hartford's business mix.\nAs I reflect on my tenure with The Hartford, I'm extremely proud of the progress we've made.\nOver the years, we fixed core businesses, exited underperforming or noncore segments, successfully integrated the new operations we added, positioning the company to capture even more opportunities in the marketplace going forward.\nThis is a direct result of our performance-driven culture and the significant investments we have made to transform the organization into one with exceptional underwriting tools and expertise, expanded product depth and breadth and industry-leading digital capabilities, complemented by a talented and dedicated employee base.\nHowever, the journey is not complete.\nWe will continue investing for the long term to become an even more differentiated competitor in the customer experience, all while producing superior financial results.\nAt our November 16 Investor Conference, I look forward to sharing how the business is positioned for continued outperformance and highlighting the talented senior leadership team.\nWith a high-quality franchise, growing revenues, strong margins, prudent capital management, I am very confident that The Hartford has never been better positioned to continue to deliver on our financial objectives and enhance value for all stakeholders.\nCore earnings for the quarter of $442 million or $1.26 per diluted share reflects excellent investment results with a 40% annualized return on limited partnership investments and continued strong underlying results, offset by $300 million of catastrophe losses with $200 million from Hurricane Ida and excess mortality of $212 million in Group Benefits.\nIn P&C, the underlying combined ratio of 88.3 improved 2.3 points from the third quarter of 2020, highlighted by excellent performance in our Commercial Lines segment.\nIn Commercial Lines, we produced an underlying combined ratio of 87.2, a 6.5-point improvement from the third quarter of 2020, and 15% written premium growth for the second consecutive quarter.\nIn Personal Lines, an underlying combined ratio of 91.8 compares to 81.4 in the prior year quarter, which reflects higher auto claim frequency from increased miles driven and higher severity.\nDoug will provide more detail on these results in Commercial and Personal Lines in a moment.\nP&C prior accident year reserve development within core earnings was a net unfavorable $62 million, driven by the new settlement agreement with BSA, partially offset by reserve reductions of $75 million, including decreases in workers' compensation, personal auto liability, package business and bond.\nIn the quarter, we ceded an additional $28 million of Navigators reserves to the adverse development cover primarily related to wholesale construction.\nAlthough these losses are economically ceded, the reserve development resulted in a deferred gain, representing a charge against net income in the quarter.\nGroup Benefits core earnings of $19 million decreased from $116 million in third quarter 2020, largely driven by higher excess mortality losses in group life, partially offset by increase in net investment income.\nAll-cause excess mortality in the quarter was $212 million before tax, which includes $233 million for third quarter deaths, offset by $21 million of net favorable development from prior periods, predominantly from the second quarter of 2021.\nThe percentage of excess mortality not specifically attributed to a COVID-19 cause of loss is more significant this quarter than it has been in the past and represents approximately 30% of the total.\nExcluding losses from short-term disability related to COVID-19 and excess mortality, the core earnings margin was 12.6%.\nThe underlying trends in disability remain positive with lower long-term disability claim incidents and stronger recoveries related to prior year reserves.\nThe disability loss ratio in this year's quarter was 3.1 points higher as the prior year loss ratio benefited from favorable short-term disability claim frequency due to fewer elective medical procedures during the early stages of the pandemic.\nAs Chris commented, the incidence in excess mortality claims going forward is hard to predict as it is dependent on a number of factors, including the vaccination rate, the potential spread of new COVID variants, the percentage of those infected who are in the workforce and the strain on the healthcare system impacting the treatment of non-COVID-related chronic illnesses.\nImproving operating efficiencies and a lower expense ratio from Hartford Next have contributed to margin expansion.\nThe program delivered $306 million in pre-tax expense savings in the nine months ended September 30, 2021, compared to the same period in 2019.\nWe continue to expect full year pre-tax savings of approximately $540 million in 2022 and $625 million in 2023.\nTurning to Hartford Funds.\nCore earnings for the quarter were $58 million compared with $40 million for the prior year period, reflecting the impact of daily average AUM increasing 27%.\nTotal AUM at September 30 was $152 billion.\nMutual fund net inflows were approximately $300 million compared with net outflows of $1.3 billion in third quarter 2020.\nHartford Funds continues to produce excellent returns, with growth in assets under management driven by net inflows and market appreciation.\nAs a low-capital business, its return on equity has been outstanding, consistently over 45% since 2018.\nThe Corporate core loss was lower at $47 million compared to a loss of $57 million in the prior year quarter, primarily due to a $21 million before tax loss in third quarter 2020 from the equity interest in Talcott Resolution, which was sold earlier in 2021.\nOur investment portfolio delivered another outstanding quarter of results.\nNet investment income was $650 million, up 32% from the prior year quarter, benefiting from very strong annualized limited partnership returns of 40%, driven by higher valuations and cash distributions within private equity funds and sales of underlying investments in real estate.\nLimited partnership returns continue to exceed expectations.\nWe continue to manage the investment portfolio with a focus on high-quality public investments while leveraging our capabilities to take advantage of attractive private market opportunities.\nThe total annualized portfolio yield, excluding limited partnerships, was 3% before tax compared to 3.3% in the third quarter of 2020, reflecting the lower interest rate environment.\nWe expect pressure on the portfolio yield to continue in the fourth quarter.\nThe portfolio credit quality remains strong with no credit losses on fixed maturities in the quarter.\nNet unrealized gains on fixed maturities before tax were $2.5 billion at September 30, down from $2.8 billion at June 30 due to higher interest rates and wider credit spreads.\nBook value per diluted share, excluding AOCI, rose 8% since September 30, 2020, to $49.64, and our trailing 12-month core earnings ROE was 12.5%.\nDuring the quarter, The Hartford returned $634 million to shareholders, including $511 million of share repurchases and $123 million in common dividends paid.\nYesterday, the Board approved a 10% increase in the common dividend and increased our share repurchase authorization by $500 million.\nWith this increase and the $1.2 billion of repurchases completed through September 30, there remains $1.8 billion of share repurchase authorization in effect through 2022.\nFrom October one through October 27, we repurchased approximately 1.5 million common shares for $108 million.\nCash and investments at the holding company were $2.1 billion as of September 30, which includes the proceeds from the September issuance of $600 million of 2.9% senior notes.\nThese proceeds will be used to repay our $600 million 7.875% junior subordinated debentures, which are redeemable at par on or after April 15, 2022.\nDuring the third quarter, we received $443 million in dividends from subsidiaries and expect approximately $445 million in the fourth quarter.\nWith top line growth, improving underlying margins, operating efficiencies, strong cash flow and ongoing capital management, we are positioned to consistently generate market-leading returns and enhance value creation for shareholders.\nAcross Property & Casualty, I continue to be extremely pleased with our execution and performance.\nIn the quarter, the underlying combined ratio was an outstanding 88.3.\nCommercial Lines achieved double-digit written premium growth for the second consecutive quarter.\nWritten pricing remained strong, largely consistent with second quarter, and our new Personal Lines product launch is accelerating with five new states rolled out in October.\nAs Beth mentioned, Commercial Lines produced a terrific underlying combined ratio of 87.2, with over five points of improvement coming from the loss ratio and another point from expenses.\nI've been doing these calls for a long time, and this is one of the stronger underlying quarters I have presented.\nBefore providing more color on commercial pricing and loss trends, let me spend a few minutes detailing another quarter of exceptional top line performance.\nSmall Commercial written premium of just over $1 billion was a third quarter record, increasing 14% over prior year.\nPolicy count retention was strong at 84%, and in-force policies grew 6% versus prior year.\nAs anticipated, we continue to benefit from an improved economy, with increases in payroll and wages contributing to the quarter's top line result.\nSmall Commercial new business of $165 million was up 28%, the fourth consecutive quarter of double-digit growth.\nOur workers' compensation and market-leading BOP product, Spectrum, contributed equally to the result.\nI'm particularly pleased with the growth we're achieving across each of our Small Commercial distribution channels.\nNew business from agents, payroll programs, alliances and direct all delivered double-digit growth and will meaningfully contribute to continued top line performance.\nThe breadth and depth of this distribution balance is unmatched by competitors.\nIn Middle & Large Commercial, we produced a second consecutive excellent quarter with written premium growth of 18%.\nMiddle Market new business of $139 million was up 6% in the quarter driven in large part by our industry verticals.\nPolicy retention increased 8% -- or eight points to 87%, one of the strongest retention quarters in quite some time.\nWe continue to balance the rate and retention trade-off while maintaining disciplined risk underwriting and leveraging our segmentation tools to drive profitable growth.\nGlobal Specialty produced another strong quarter with written premium growth of 14%.\nNew business growth of 26% was equally impressive, and retention remains strong in the mid-80s.\nIn the quarter, the breadth of our written premium growth was led by 14% in wholesale and 19% in U.S. financial lines.\nGlobal Reinsurance also had an excellent quarter with written premium growth of 39%.\nExecution to fully leverage our expanded product portfolio these past two years has been excellent.\nAcross our franchise, we continue to further develop our operating routines with broader risk solutions to meet customer needs.\nAs a proof point, third quarter cross-sell new business premium between Global Specialty and Middle & Large Commercial was $15 million.\nWith this result, we have now exceeded our initial transaction goal of $200 million, more than a year early.\nAfter years of development, our product portfolio has become a competitive strength, and our execution will only get stronger.\nLet's move to pricing metrics.\nU.S. Standard Commercial Lines pricing, excluding workers' compensation, was 6.5%, consistent with the second quarter.\nMiddle Market ex workers' compensation price change of 8.1% was essentially flat to quarter two and continues to exceed loss cost trend.\nIn Standard Commercial workers' compensation, renewal written pricing was in line with quarter two at 1.2%.\nGlobal Specialty renewal written price remained strong in the U.S. at 10% and international at 17%.\nTurning to commercial loss trends.\nOur casualty current accident year loss ratios are in line with expectations.\nIt was a pretty quiet non-CAT weather quarter in Small Commercial property.\nIn addition, we continue to monitor the adverse impacts of supply chain disruptions on loss costs and expect property severity trends to be elevated for the rest of the year and into 2022.\nEarned pricing is still exceeding loss trends within most lines, and we remain confident in our full year 2021 loss ratio expectations.\nBefore I move to Personal Lines, let me comment on the commercial pricing environment over the past two to three years.\nThere's no question we've experienced a healthy pricing environment and in several lines, one of the hardest markets I've experienced.\nThe combination of these rate actions and disciplined underwriting decisions are central drivers of our strong performance.\nContinued pressure from weather, supply chain and inflation lead me to believe that the current pricing environment will remain healthy well into 2022.\nMoving to Personal Lines.\nThe third quarter underlying combined ratio rose 10.4 points to 91.8.\nAuto frequency is up with increasing vehicle trips and miles traveled but still modestly below prepandemic levels.\nAuto severity is elevated, driven in part by the rising cost of used cars, parts and labor.\nThese inflationary factors will continue to be an industry headwind as we expect them to persist into 2022.\nIn home, we continue to experience favorable frequency versus our initial expectations, more than offsetting higher claim severity from elevated building material and labor costs.\nTurning to the top line.\nWritten premium declined 2%.\nPolicy retention was relatively stable at 84%, and new business premium was up 6% in the quarter.\nThis new business uptick occurred despite J.D. Power's survey results concluding that auto insurance shopping rates among the 50-plus age segment remains 6% below a year ago.\nOur new business growth was driven by higher marketing spend and improved conversion rates.\nI'm pleased with this quarter's momentum.\nWe're also encouraged by the early results from the launch of our new contemporary Personal Lines auto and home product, Prevail.\nThrough the third quarter, written premium responses and issue counts are exceeding expectations.\nBoth products are now available in seven states.\nWith our latest launch in early October, we also enhanced our auto and home bundling and telematics capabilities.\nOn the latter, we're excited to be partnering with the industry leader, Cambridge Mobile Telematics.\nThis is an important change as we continue to augment our models based on driving behavior.\nThe Prevail product will be in two more states over the next 90 days.\nBefore turning the call back to Susan for Q&A, let me conclude with a few final thoughts.\nProperty & Casualty had an incredible quarter.\nOur commercial top line produced a second consecutive quarter of superior performance.\nStrong pricing is earning into the book, driving lower current accident year loss ratios.\nGlobal Specialty is delivering strong execution and underwriting performance, and we continue to be excited about the launch of Prevail in Personal Lines.\nWe're clearly seeing the positive results of our multiyear road map with deeper and broader products, improved risk selection and outstanding execution.\nThis quarter is another demonstration of those capabilities.\nOur technology invest agenda has been significant, and the results are clear and sustainable.\nI'm thrilled with our continued progress and look forward to sharing more details with our business heads in November at Investor Day.\nWe'll now take questions.",
        "summary": "qtrly core earnings per diluted share of $1.26."
    },
    {
        "text": "Actual results may differ.\nAlso in the remarks today, Mike, Chris and Tom will refer to certain non-GAAP measures.\nI trust that everyone is staying healthy and safe.\nSales of $2.3 billion for the quarter were slightly higher than 2020.\nDiluted earnings per share was $3.68 for the quarter and pension adjusted earnings per share was $3.56, up from $2.43 in 2020.\nNew contract awards during the quarter were approximately $5.3 billion, resulting in a record backlog of approximately $49 billion, of which approximately $25 billion is funded.\nChris will provide some color on a few of the key awards for the quarter during his remarks.\nShifting to activities in Washington.\nWe were pleased that the recently released summary of the fiscal year 2022 President's budget request affirm that maintaining U.S. naval power is critical to reassuring allies and signaling U.S. resolved to potential adversaries.\nOf note, the budget summary cited continued recapitalization of the nation's strategic ballistic missile submarine fleet, investment in remotely operated and autonomous systems and funding for the next-generation attack submarine program.\nAnd we look forward to understanding budget details for these and other national security priorities when that information becomes available as well as funding levels requested for the Department of Energy and the Department of Homeland Security.\nWe also look forward to working closely with the Congress as the FY '22 President's budget request is considered during the current legislative cycle.\nRegarding portfolio shaping actions during the quarter, we completed the previously announced sale of our oil and gas business and also completed the contribution of the San Diego Shipyard to Titan Acquisition Holdings in exchange for a noncontrolling interest in this leading provider of ship repair and fleet sustainment services.\nCompletion of these transactions sharpens the focus of our Technical Solutions business into areas where we believe our unique capabilities and close customer relationships will drive strong organic revenue growth and margin expansion.\nAnd as I prepare to close, I'm very pleased with the operating rhythm the team is achieving, which led to the third consecutive quarter of solid program execution and financial results.\nAnd I am very confident that our strength, agility and positive momentum resulting from enduring the impacts of COVID-19 will serve as key catalyst to help us leverage our historic backlog, to generate strong free cash flow and create long-term sustainable value for our shareholders, customers and employees.\nAfter serving as President of Ingalls since 2014 and with more than 40 years of service, Brian Cuccias retired on April 1.\nBrian's career at Ingalls has been remarkable, and HII has truly benefited from his leadership.\nEffective April 1, Kari Wilkinson succeeded Brian as the new President of Ingalls and will report to Chris.\nKari has proven herself to be a strategic and visionary leader that is focused on operational excellence, and I am extremely confident that Ingalls is in very capable hands.\nOperationally, we had a solid quarter, making consistent progress across our shipbuilding and Technical Solutions programs.\nWith that, let me share a few key contract awards and programmatic highlights from the business segments for the quarter.\nAt Ingalls, the team was awarded a life-cycle engineering and support services contract for the LPD program with a cumulative value of approximately $214 million.\nThe scope of work includes engineering change management, supply chain management, training for new shipboard systems and the execution of post-delivery availabilities.\nRegarding program status, LHA eight Bougainville achieved a 25% complete milestone during the quarter, and the team remains focused on maintaining strong cost and schedule performance in support of their planned production milestones.\nOn the DDG program, the team remains focused on preparations for launch of DDG 125 Jack H. Lucas and sea trials for DDG 121 Frank E. Peterson, Jr., both planned for the second half of this year.\nAnd on the LPD program, LPD 28 Fort Lauderdale remains on track to complete sea trials later this year.\nAnd LPD 29, Richard M. McCool, Jr., remains on schedule for launch early next year.\nThe team at Ingalls is also working closely with the Navy to put LPD 32 and 33, along with LHA nine under contract.\nThis bundle acquisition approach is the most affordable method to buy these ships.\nAnd when complete, affords predictable savings for the Navy.\nAt Newport News, the team was awarded a $3 billion contract for the refueling and complex overhaul of CVN 74 USS John C. Stennis, and also received a contract modification for construction of the 10th Virginia-class Block V submarine.\nThese key awards are additional building blocks for a record backlog, which now stands at nearly $49 billion.\nShifting to program status, CVN 79 Kennedy is approximately 81% complete.\nThe team is finalizing plans to support the single phase delivery requirements while continuing to focus on compartment completion and key initial test milestones.\nCVN 73 USS George Washington is approximately 87% complete and continues to make progress with the crew recently beginning to move back aboard the ship.\nThis is another key milestone is supported redelivery to the Navy planned for next year.\nOn the VCS program, SSN 794 Montana continues test program activities in preparation for delivery to the Navy planned for later this year.\nIn addition, SSN 796 New Jersey remains on track to achieve the float off milestone as planned in the second half of this year.\nAt Technical Solutions, the team booked several key awards during the quarter.\nThis included a $175 million fleet to statement recompete and a position on a Naval Information Warfare Center Pacific, ISR and cybersecurity IDIQ contract.\nAdditionally, production of the first Orca XLUUV modules is now under way at our unmanned systems center of excellence.\nApproximately 75% of all structural components have been fabricated, and assembly has commenced with final unit delivery to Boeing plan later this year.\nAnd finally, our Nuclear and Environmental Services business continues to perform very well with strong performance across our Department of Energy contracts at Los Alamos, Nevada and Savannah River.\nToday, I will briefly review our first quarter results.\nThis was primarily due to growth at Newport News and Ingalls that was largely offset by a decline of Technical Solutions due to divestitures associated with the portfolio-shaping actions we have taken.\nSegment operating income for the quarter of $191 million increased $35 million from the first quarter of 2020 and segment operating margin, 8.4%, increased 149 basis points.\nThe improvement was driven by higher risk retirement at Ingalls and improved performance to Technical Solutions.\nOperating income for the quarter of $147 million decreased by $68 million from the first quarter of 2020 and operating margin of 6.5% decreased 35 basis points.\nThese decreases were primarily driven by a less favorable operating FAS/CAS adjustment, partially offset by the stronger segment operating results compared to the prior year.\nThe tax rate in the quarter was approximately 15% compared to approximately 20% in the first quarter of 2020.\nThe decline in tax rate was primarily due to the divestiture of our oil and gas business as well as the recognition of R&D tax credits for the current year and prior periods.\nNet earnings in the quarter were $148 million compared to $172 million in the first quarter of 2020.\nDiluted earnings per share in the quarter were $3.68 compared to $4.23 in the first quarter of 2020.\nExcluding the impact of pension, diluted earnings per share in the quarter were $3.56 compared to $2.43 in the first quarter of 2020.\nCash from operations was $43 million in the quarter and net capital expenditures were $59 million or 2.6% of revenues, resulting in free cash flow of negative $16 million.\nThis compares to cash from operations of $68 million and net capital expenditures of $66 million and free cash flow of $2 million in the first quarter of 2020.\nCash contributions to our pension and other postretirement benefit plan were $72 million in the quarter, of which $60 million were discretionary contributions to our qualified pension plans.\nDuring the first quarter, we paid dividends of $1.14 per share or $46 million.\nAs noted on our fourth quarter earnings call, we did reinitiate share repurchases earlier this year and continue to view the return of excess free cash flow via share repurchases as an integral part of our capital allocation strategy over the long term.\nDuring the quarter, we repurchased approximately 292,000 shares at a cost of approximately $50 million.\nMoving on to pension.\nWith the passage of the American Rescue Plan Act, we have reviewed the five-year pension outlook that we provided on our last earnings call and continue to believe that remains the most appropriate view.\nDue to the limited nature of our projected contributions and the impact of lower cash sensitivity with safe harbor implementation, the passage of the legislation does not have a meaningful impact on our outlook.\nWe plan to provide an update to near-term pension expectations on our Q3 call, consistent with our prior cadence.\nIngalls revenues of $649 million in the quarter increased $20 million or 3.2% from the same period last year, driven primarily by higher revenues on the DDG program.\nIngalls operating income of $91 million and margin of 14% in the quarter were up from the first quarter of 2020, mainly due to higher risk retirement on LHA, which was related to the 25% completion milestone that Chris mentioned earlier.\nNewport News revenues of $1.4 billion in the quarter increased to $66 million or 4.9% from the same period last year due to higher revenues in both aircraft carrier and submarine construction as well as fleet support services.\nNewport News operating income of $93 million and margin 6.6% in the quarter were down slightly year-over-year, primarily due to lower risk retirement on CVN 73 RCOH, partially offset by higher risk retirement on VCS Block IV boats.\nTechnical Solutions revenues of $259 million in the quarter decreased 18.3% from the same period last year, mainly due to the divestitures of both our oil and gas business in the San Diego shipyard on February one of this year, partially offset by a full quarter of results from Hydroid, which was acquired at the end of the first quarter of 2020.\nTechnical Solutions operating income of $7 million in the quarter compares to a loss in the first quarter of 2020.\nThis was driven primarily by improved performance in Defense and Federal Solutions and Nuclear Environmental Services as well as a gain related to the sale of our oil and gas business.\nTurning to Slide nine.\nWe continue to expect we will finish the year with strict building operating margin in the 7% to 8% range with the significant remaining risk retirement events weighted toward the end of the year.\nIn addition, we expect shipbuilding margin for the first half of 2021 to be around the midpoint of our annual guidance range.\nWe continue to view the remainder of our 2021 guidance as appropriate with the exception of the effective tax rate, which we now expect to be approximately 18%.",
        "summary": "compname reports q1 earnings per share $3.68.\nq1 adjusted earnings per share $3.56.\nq1 earnings per share $3.68.\nq1 revenue $2.3 billion."
    },
    {
        "text": "This is Brendan Maiorana.\nThe release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.\nWe are pleased with our solid financial and operational results in the third quarter.\nGiven the emergence of the delta variant, utilization across our portfolio did not increase as much in the third quarter as we anticipated, leveling off around 40%.\nWe now do not expect usage to meaningfully increase until the new year.\nWhile the progression of the pandemic and the resulting impact on office utilization remain difficult to predict, customers and prospects fortunately continue to sign leases and our parking revenues continue to recover nicely.\nAs I mentioned on our last call, leasing activity has been healthy, particularly for new deals.\nWe signed 672,000 square feet of second gen leases, including 245,000 square feet of new deals.\nIn total, we signed 96 leases during the quarter, including 46 new deals, consistent with our long-term average.\nSo far this year we've signed 140 new deals, which puts us on pace to eclipse our annual high watermark.\nPlus, we signed 83,000 square feet of first gen leases on the development pipeline.\nIn addition to healthy volume, rents on signed leases increased 19.3% on a GAAP basis and 4.3% on a cash basis.\nThe weighted average term was also solid at 6.3 years reflecting growing confidence in the long-term value of the office for our customers.\nLeasing Capex increased, but this was offset by higher face rents and longer terms.\nWe're often asked about the effect of the pandemic on net effective rents.\nWe don't track apples-to-apples net effective rent spreads.\nHowever, if we look solely at the change in second gen net effective rents on signed deals from 2019 to 2021 year-to-date, the decline is roughly at the midpoint of the 5% to 10% average decline across our markets we've mentioned previously, which in our experience is also consistent with the typical recessionary patterns.\nAs we noted last quarter, we continue to believe net effective rents have stabilized.\nAs you may have seen from local media reports, two customers in our top 20 announced this quarter plans to move out upon exploration and relocate to new developments.\nIn both cases, we have at least three years of lease term remaining, in-place rents are substantially below market and these buildings are among the best in their BBDs.\nAs the war for talent accelerates, we are strong believers that well-located office space in highly amenitized Best Business Districts, will become a competitive recruiting advantage for employers.\nThis flight to higher quality buildings in the best locations and with well capitalized owners, plays to our strengths.\nOur markets and our portfolio continue to generate activity and growth, further demonstrating the resilience and quality.\nTurning to our results, we delivered strong FFO of $0.96 per share in the third quarter.\nOur same property cash NOI growth was also strong at 6.4%, including the repayment of temporary rent deferrals agreed to during the first months of the pandemic.\nExcluding these repayments, same-property cash NOI growth would still have been a healthy 5.2%, consistent with last quarter.\nIn last night's release, we updated our 2021 FFO outlook to $3.73 to $3.76 per share, up $0.07 at the midpoint from our prior outlook and up $0.165 from our initial 2021 FFO outlook provided in February.\nWe also raised our same property cash NOI growth outlook to 6% to 7%, up more than 150 basis points at the midpoint from our prior outlook.\nMoving to investments, as we previously disclosed, we acquired the office portfolio from PAC in late July for a total investment of $683 million, including planned near-term building improvements.\nWe've already signed leases ahead of schedule at healthy rents and are seeing strong interest across the portfolio in Charlotte and Raleigh as well as to the development parcel in the Cumberland/Galleria BBD of Atlanta, around the corner from where the Braves are hosting the World Series at Truist Park.\nAs you know, we plan to bring our balance sheet back to pre-acquisition levels by accelerating the sale of $500 million to $600 million of noncore assets by mid-2022.\nWe closed two dispositions for $120 million in the third quarter, bringing our total to $163 million since we first announced the acquisition.\nWe are confident we'll end the year toward the high end of our outlook of $250 million to $300 million.\nTurning to development, we delivered our $285 million build-to-suit for Asurion in Nashville, the largest development project in Highwoods history.\nCompleting this project ahead of schedule and on budget in the midst of a pandemic, is a true testament to the strength of our development team in our partners of Brasfield & Gorrie and Hastings Architecture.\nWe delivered the keys on this incredible workplace to our new customer three months early.\nFollowing the delivery of the Asurion build-to-suit, our $109 million development pipeline consists of Virginia Springs II in the Brentwood BBD of Nashville and Midtown West in the Westshore BBD of Tampa.\nWe signed 83,000 square feet of leases on these developments during the quarter, bringing leasing to 59% for both buildings.\nWe have a pipeline of strong prospects to bring these properties to stabilization by the second half of next year.\nWe increased the low end of our development announcement outlook from 0 to $100 million, demonstrating the growing confidence we have in potential announcements before year-end.\nThe high end remains $250 million.\nWe continue to see strong interest from prospective build-to-suit and anchor customers.\nWe believe companies planning significant investments in physical workplaces is yet another sign of a return to healthy fundamentals across our markets.\nOur well-located land bank, which can support more than $2 billion of future development, is a true differentiator for Highwoods and will drive value creation over the long term.\nWe are thrilled to have acquired the remaining 77 acres of development land at Ovation in the Cool Springs district of Franklin, Tennessee, one of Nashville's BBDs, for a total purchase price of $57.8 million.\nWe will partner with the City of Franklin to reimagine Ovation as one of the premier mixed-use addresses in the country and anticipate working with high-quality retail, multi-family and hotel developers to realize the tremendous potential of this live-work-play property, while retaining full control of the development -- office development sites.\nWe delivered the $285 million Asurion project on budget and ahead of schedule; we acquired a $683 million portfolio of office properties with attractive long-term returns; since announcing the acquisition, we have sold $163 million of noncore properties at attractive valuations; we raised our quarterly dividend over 4%; we increased the midpoint of our FFO outlook $0.165 per share since the beginning of the year; and we did all this while maintaining a strong and flexible balance sheet with a debt-to-EBITDAre ratio of 5.6 times.\nWhile the economy bore the brunt of the delta variant's impact in the third quarter, we believe our positive results for the period are a product of the clear and consistent BBD strategy Highwoods has been focused on for a long time.\nDeveloping, operating and owning BBD-located and talent-centric workplaces has proved our portfolio's resiliency in the face of unprecedented times, provides a strong foundation for future growth.\nCustomers are returning to the office, some sooner than others.\nBut the common course we hear is that place matters and that while many see a more flexible workplace and perhaps more accurately, work week ahead, most of us have told us that they are the very best when they are together versus being remote.\nThis sentiment is inherent in the healthy quarterly leasing volume and metrics our team posted.\nThis is also consistent with our markets being highlighted in the most recent addition of ULI and PwC's emerging trends in real estate and where we have a significant best-in-class workplace options across 11.8 million square feet in the BBDs of Nashville and Raleigh, which ranked number 1 and number 2, respectively, and where 44% of our third quarter NOI was generated.\nThe great migration continues to accelerate as talented companies and individuals migrate to the SunBelt where cities and states are open for business, housing is affordable and commute times and modes, more manageable.\nAt 90.4%, occupancy increased 90 basis points from last quarter and we foresee occupancy holding steady for the balance of the year.\nTour and RFP activity is getting back to pre-pandemic levels as many organizations that delayed decision-making of any scope or scale since the spring of 2020 are now ready to discuss their long-term office plans.\nWith 140 new customers signing on to join the portfolio so far this year, led by engineering and healthcare/life science customers, we're enthusiastic about where their plans may take them with many new to the market and with plans for growth.\nNow, to our markets, which are increasingly being discovered by individuals, organizations and investors based on the prevalence of out-of-state license plates at the grocery store and the unending stream of housing sales above listings, sometimes sight unseen.\nThere continue to be more data points supporting our markets' open-for-business and let's-get-back-to-work mentality, such as JLL noting Atlanta, Charlotte and Nashville pushed above 2019 leasing levels and the Atlanta market posting a positive net absorption of 478,000 square feet for the quarter.\nIn Raleigh, we signed 135,000 square feet of leases for the quarter and activity there is off to a quick start in the fourth quarter.\nMarket vacancy decreased slightly year-over-year and market rents are up nearly 4%.\nWe expect Raleigh to be at or near the top of many lists for years to come with several additional new job announcements this quarter, including three new headquarter relocations, adding to the strong list of relocations from the first half of 2021.\nIn Nashville, we signed 76,000 square feet of second generation leases and achieved quarter-end occupancy of 95.3%.\nOur development team completed the new 553,000 square foot Asurion headquarters anchoring our Gulch Central mixed-use development that stretches the better part of three city blocks and is adjacent to Nashville's Amazon HQ2.\nIn addition, we had a strong leasing quarter in our development pipeline.\nWe signed 83,000 square feet of first generation leases at Virginia Springs II and Midtown West bringing the leased rate up from 59% from 24% last quarter.\nWe continue to see strong interest in both projects and are tracking well toward their projected stabilizations in the latter half of 2022.\nAs Ted mentioned, we have a sizable land bank that can support over $2 billion of future development.\nHaving completed nearly $1 billion of successful development since 2016, we're confident development will continue to drive future growth and value creation.\nTo this end, we're extremely excited about our purchase of the remaining acreage at Ovation in Nashville's suburban Williamson County, listed by Kiplinger as the tenth most affluent in the nation.\nThese 145 acres, already home to Mars PetCare's U.S. headquarters that we developed in 2019, represent one of the premier mixed-use opportunities in the nation and is where we can build an additional 1.2 million square feet of Class A office amid significant densities of complementary residential, retail and hotel uses.\nIn conclusion, we're fortunate to be weathering the storm well.\nWith our high-quality portfolio and our unmatched all-under-one-roof-team to develop, lease, operate and maintain it, we are supporting our customers' ability to achieve together what they cannot apart.\nBecause of this, our customers are growing more than they're not.\nThey're investing in new space and they see their workplaces as competitive currency to retain and recruit the very best talent available.\nOur development team has delivered the very best examples of our work-placemaking and is busy reloading the pipeline for the next generation of commute-worthy buildings.\nOur exceptional people and portfolio have produced results we're proud of this quarter and throughout the pandemic.\nIt truly is a team effort and each and every member of the Highwoods family plays a meaningful role in our success.\nIn the third quarter, we delivered net income of $72.1 million or $0.69 per share, and FFO of $102.8 million or $0.96 per share, an increase from $0.93 in the second quarter.\nAs Ted mentioned, we closed on the acquisition from PAC in late July, delivered the $285 million Asurion development in September and sold $120 million of noncore assets at the end of the quarter.\nWhile there were a lot of moving parts from investment activity in the quarter, there weren't a lot of unusual operational items that impacted our financial results.\nTurning to the balance sheet, our leverage obviously ticked up temporarily due to this quarter's acquisition.\nHowever, we are very pleased that our debt-to-EBITDAre was 5.6 times in the third quarter, less than half-a-turn increase at 5.2 times in the prior quarter.\nWe are making solid progress on our noncore disposition plan, having sold $163 million of the planned $500 million to $600 million, and are on track to return our balance sheet to pre-acquisition metrics by mid-2022.\nFurther, we have ample liquidity with $615 million currently available on our revolving credit facility, limited debt maturities until late 2022 and expected disposition proceeds over the next several quarters.\nDuring the quarter, we issued a modest amount of shares on the ATM at an average price of $45.81 per share for net proceeds of $6.8 million, consistent with the ATM activity in the second quarter.\nATM issuances remain one of the many arrows in our quiver and we continue to believe are an efficient and measured way to fund incremental investments, particularly our development pipeline on a leverage-neutral basis.\nAs Ted mentioned, we increased the low end of our development announcement outlook to $100 million, signifying our growing confidence in future development starts.\nThe modest ATM issuance so far in 2021 gives us a head start on funding these future investments.\nRegarding our expectations for the rest of the year, we've updated our 2021 FFO outlook to $3.73 to $3.76 per share, with the mid-point up $0.07 since July and up $0.165 from our original 2021 outlook provided in February.\nRolling forward from our prior outlook in July, the rationale for the increase was: $0.01 higher per share impact from the combination of the acquisition and corresponding noncore dispositions; $0.01 to $0.02 higher per share impact due to earlier-than-expected delivery of the Asurion build-to-suit; and $0.04 to $0.05 higher per share impact from core operations due to our robust third quarter results and the outlook for the remainder of the year.\nCompared to our original FFO outlook provided in February, here are the major moving parts: $0.05 to $0.07 higher per share impact from acquisition and disposition activity on a net basis; $0.03 to $0.05 from the early delivery of Asurion and faster-than-expected lease-up of the remainder of the development pipeline; approximately $0.02 from rising parking revenues, particularly transient parking; and $0.04 to $0.05 from better-than-expected core operations.\nIn addition to our improved 2021 FFO outlook, we also increased our same-property cash NOI growth outlook to a range of 6% to 7%, up more than 150 basis points at the midpoint from our July outlook.\nSince the onset of the pandemic, we've regularly commented on parking revenues and operating expenses given the reduced utilization rates.\nWe're still tracking below normal on both Opex and parking revenues, but recently we've seen a notable increase in transient parking revenue.\nThe trajectory of Opex and parking revenues continues to be challenging to forecast.\nBut with that said, we do expect an increase in both line items in the fourth quarter compared to our quarterly averages so far in 2021.\nIn addition to our solid FFO, our cash flows continue to strengthen.\nSince 2016, we've sold nearly $1.8 billion of noncore properties, we've acquired $1.3 billion of high-quality assets in the BBDs of our Sun Belt markets and delivered $940 million of development.\nWe are very proud to have consistently grown our FFO per share while simultaneously making meaningful improvements to the quality of our portfolio.\nThe strengthening of our cash flows since 2016 is evidenced by a 22% increase in average in-place cash rents, an 18% increase in our dividend, and a steadily declining payout ratio over that same time frame.\nOur strengthening cash flows and continuous portfolio improvement combined with a land bank that can support $2 billion of future development and our proven track record as a developer makes us confident about our long-term outlook.\nFinally, this is my 28th and last quarterly earnings call at Highwoods.\nI really appreciate all your interest in Highwoods and the great questions over the years.\nAs you know, Brendan is well qualified for the CFO role and will do a great job helping to continue Highwoods' strong track record of success.",
        "summary": "highwoods properties inc - qtrly ffo per share $0.96.\nqtrly ffo per share $0.96.\nupdates 2021 ffo outlook to $3.73 to $3.76 per share from $3.62 to $3.73 per share."
    },
    {
        "text": "We undertake no obligation to publicly update or revise these statements.\nWe certainly appreciate you all joining us today, and I hope everybody is staying well.\nI want to start with something difficult.\nI want to start by extending my most heartfelt condolences to the Sorenson family and the thousands of Marriott associates around the world following the heartbreaking news of Arne's passing.\nTo say I'm deeply saddened by that loss, it would be an understatement.\nAs many of you know, had the opportunity to work with Arne in a number of capacities throughout my career, including earlier on at Host.\nI think it's very fair to say he was an exceptional leader, but also an incredible person and a great friend.\nOur industry is better because of him, and I am a better professional and a better person because of him.\nOn behalf of everyone at Hilton family, the entire Marriott family are in our thoughts.\nAs we all know, this past year has presented unique challenges, including a pandemic that devastated lives, communities, and businesses across the world, widespread economic declines and acts of social injustice.\nDue to the extraordinary levels of disruption, our industry experienced demand declines we've never seen before in our 101-year history.\nGuided by our founding purpose, to make the world a better place through the light and warmth of hospitality, we acted quickly to ensure the safety and well-being of our people.\nWe also took steps to protect our business by rightsizing our cost structure and enhancing our liquidity position while continuing to drive net unit growth and increase our network effect.\nAs a result of these moves, we expect to recover from the pandemic as a stronger, higher-margin business that is even better positioned to deliver performance for our owners and strong free cash flow for our shareholders.\nWhile it's certainly been a very difficult year, we're proud of everything we've accomplished, but we certainly could not have done it without the support of all of our stakeholders.\nBecause of our amazing people, we've been able to lean on our award-winning culture, which earned the number one Best Place to Work in the United States for the second consecutive year and the number three World's Best Workplace to help get us through these trying times.\nFor the full year, systemwide RevPAR declined 57% with adjusted EBITDA down only modestly, more illustrating the resiliency of our fee-based model.\nWe also demonstrated the strength of our brands and power of our customer-centric strategy by achieving market share gains across every region, even in a distressed business environment.\nFor the quarter, systemwide RevPAR declined 59%, relatively in line with our expectations.\nThe positive momentum in demand that we saw through the summer and early fall was disrupted in November, December by rising COVID cases, tightening travel restrictions and further hotel suspensions, particularly in Europe.\nSimilar to the third quarter, drive to leisure travel drove an outsized portion of demand.\nBusiness transient and group trends showed modest sequential improvement versus the prior quarter, but overall demand remained quite muted.\nAs we look to the year ahead, we remain optimistic that accelerating vaccine distribution will lead to easing government restrictions and unlock pent-up travel demand.\nFor the first quarter, overall trends so far appear to be similar to the fourth quarter with modest increases in demand in the U.S., offsetting stalled recoveries in Europe and Asia Pacific.\nWe expect improving fundamentals heading into spring with essentially all systemwide rooms reopened by the end of the second quarter.\nWe expect a more pronounced recovery in the back half of the year driven by increased leisure demand and meaningful rebounds in corporate transient and group business.\nOver the last year, the personal savings rate in the United States has nearly doubled, increasing by more than $1.6 trillion to $2.9 trillion, with the potential to go even higher given additional stimulus.\nWe expect this to drive greater leisure demand as travel restrictions ease and markets reopened the tourism.\nAdditionally, conversations with our large corporate customers along with sequential upticks in business transient booking pace year-to-date indicate that there is pent-up demand for business travel that should drive a recovery in corporate transient trends as the year progresses.\nOn the group side, we saw a meaningful step-up in new group demand in January with our back half group position showing significant sequential improvement versus the first half of the year.\nWith roughly 70% of bookings made within a week of travel, overall visibility remains limited.\nHowever, we continue to see signs of optimism.\nIn fact, the vast majority of our large corporate accounts agreed to extend 2020 negotiated rates into this year.\nDespite the challenges in 2020, we opened more than 400 hotels, totaling nearly 56,000 rooms and achieved net unit growth of 5.1%, slightly ahead of guidance.\nFourth quarter openings were up nearly 30% year-over-year, largely driven by new development in China, where our focused-service brands continue to command a disproportionate share of industry growth.\nWe also celebrated our 1,000,000th room milestone and the openings of our 300th hotel in China, our 600th DoubleTree hotel and our 900th Hilton Garden Inn.\nWe ended up the year with 397,000 rooms in our development pipeline, up 3% year-over-year.\nWhile market disruption weighed on new development signings, conversion signings increased more than 30% versus the prior year.\nAs owners look to benefit from the strength of our network, we anticipate continued positive momentum and conversion activity, particularly through DoubleTree and our collection brands.\nDuring the quarter, we signed agreements to expand our Curio Collection in Mexico and bring our Tapestry Collection to Portugal.\nThis marks one of several new Tapestry hotels scheduled to open across Europe this year.\nWe also announced plans to debut LXR in the Seychelles with Mango House Seychelles.\nThe property will deliver a truly unique hospitality experience with spaces, guest rooms and suites and five world-class food and beverage venues.\nScheduled to open in the coming months, the hotel underscores our commitment to further expanding our resort portfolio.\nBuilding on that momentum, we kicked off 2021 with an agreement to bring LXR to Bali.\nAdditionally, we celebrated the openings of Oceana Santa Monica, which marked LXR's U.S. debut as well as the Waldorf Astoria, Monarch Beach Resort and the Hilton Vancouver Downtown, which was converted from a competitor brand.\nWith these notable openings and many exciting development opportunities in front of us, we are confident in our ability to continue delivering solid growth over the next several years.\nThe pandemic rapidly changed guest behaviors, priorities and concerns.\nWe listen to our customers and move quickly to launch modifications to our Honors loyalty program, deliver industry-leading standards of cleanliness and hygiene with Hilton CleanStay and provide flexible, distraction-free environments for remote work with WorkSpaces by Hilton.\nAdditionally, with an even stronger focus on recovery, last month, we implemented Hilton EventReady Hybrid Solutions, an expanded set of resources to help event planners address the dramatic shift toward hybrid meetings as group business rebounds.\nOur flexibility and innovation drove continued growth in our Honors network, ending the year with more than 112 million members who accounted for approximately 60% of systemwide occupancy.\nThroughout 2020, we also remained focused on our corporate responsibility and our commitment to our ESG initiatives.\nWe're proud to contribute to our communities, and we're honored to be named the global industry leader in the Dow Jones Sustainability Index for the second year in a row.\nAnd earmarked by challenge and change, we effectively executed our crisis response strategy, carefully managed key stakeholder relationships and continued to press forward on strategic opportunities.\nI'm confident that there are brighter days ahead and that we are in a stronger, more resilient, and we are better positioned than ever before.\nBefore I begin, I'd like to echo Chris' sentiments about Arne.\nDuring the quarter, systemwide RevPAR declined 59.2% versus the prior year on a comparable and currency-neutral basis as the pandemic continued to disrupt the demand environment.\nRelative to the third quarter, occupancy was modestly lower, partially due to seasonality and further tempered by rising COVID cases and associated travel restrictions.\nAdjusted EBITDA was $204 million in the fourth quarter, down 65% year-over-year.\nResults reflected the continued impact of the pandemic on global travel demand, including temporary suspensions at some of our hotels during the quarter.\nManagement and franchise fees decreased 50%, less than RevPAR decreased as franchise fee declines were somewhat mitigated by better-than-expected Honors license fees and development fees.\nOverall, revenue declines were mitigated by continued cost control at both the corporate and property levels.\nFor the full year, our corporate G&A expenses were down nearly 30% year-over-year at the high end of our expectations.\nOur ownership portfolio posted a loss for the quarter due to the challenging demand environment, temporary closures in Europe and fixed operating costs, including fixed rent payments at some of our leased properties.\nContinued cost control measures, coupled with onetime items mitigated segment losses.\nFor the fourth -- for the quarter, diluted loss per share adjusted for special items was $0.10.\nTurning to our balance sheet.\nWe continue to enhance our liquidity position and preserve our financial flexibility.\nOver the last few months, we opportunistically refinanced $3.4 billion of senior notes to extend our maturities at lower rates.\nIn January, we also repaid $250 million of the outstanding balance under our $1.75 billion revolving credit facility.\nOn a pro forma basis, taking these transactions into effect as of year-end 2020, we've lowered our weighted average cost of debt to 3.6% and extended our weighted average maturity to 7.2 years.\nWe have no major debt maturities until 2024 and maintain a well-staggered maturity ladder thereafter.\nWe would now like to open the line for any questions you may have.\n[Operator Instructions] Chad, can we have our first question, please?",
        "summary": "q4 adjusted loss per share $0.10.\nhilton worldwide - system-wide comparable revpar decreased 59.2 percent and 56.7 percent on a currency neutral basis for q4 and fy, respectively.\nhilton worldwide - in q4, there was both occupancy and revpar improvement in americas (excluding u.s.), middle east and africa and asia pacific regions."
    },
    {
        "text": "I'm Anvita Patil, Hecla's assistant treasurer.\nWith that, I will pass the call to Phil.\nWe're going to start with Slide 4, where you'll see there's four key messages that we're trying to communicate.\nFirst, silver as fundamental to the transition to the lower carbon energy, with solar power being a key renewable to make it happen.\nSilver demand for the use -- to be used for it, energy, has increased and is continuing to increase.\nThe United States Energy Information Agency projects that silver demand for solar will be half a billion ounces annually.\nRealize the current silver market is only a little more than a billion ounces, so that's a huge increase in the demand for silver for energy use.\nSecond message, for the transition to solar power to happen, you really have to have a reliable supply chain.\nAnd so to do that, you need silver mined in reliable countries.\nAnd most silver is mined in China, Peru, and Mexico.\nHecla has the United States largest reserve of any mining company and produces more than 40% of all the silver mined here.\nWe are the most reliable silver producer.\nOur third message is that on the ESG front, Hecla stands out with the safety record of our employees that is 40% below the national average, and we are also net neutral on greenhouse gas emissions for Scope 1 and 2 because we have among the smallest emissions in our industry.\nAnd that small amount allows us to use offset credits set at very, very low cost to get net neutral.\nAnd then the final message, and really what we'll spend the bulk of this conference call on is what a great year Hecla had operationally as well as financially.\nAside from our safety and environmental performance, our most significant achievement, though, was the implementation of the new underhand closed bench or the UCB mining method at the Lucky Friday.\nNow we mined 86% of our tons last year with the UCB method, but we we didn't speak about this until almost the end of the year because we wanted to make sure we understood how the cycle worked, confirmed how it would improve our seismicity management, determine how we manage dilution, and consider the impacts on the workforce.\nWe wanted to put ourselves in a place where we are now, which is where we're focusing on optimizing the method, not whether the method works or not.\nAnd it clearly works with the UCB method contributing to the 75% increase in the lucky Friday silver production over 2020.\nAnd 2022's silver production is expected to be 20% increase over 2021, and we'll have even more growth in '23 as the mine becomes a consistent 5 million ounce producer.\nNow, the Lucky Friday has been around for 80 years, but this new mining method fundamentally changes this long standing mine.\nWell, if you look at the history of the mine, Lucky Friday has never had sustained production about 2.5 million ounces.\nSo with the higher grade that we get as we go deeper and this new mining method, that production doubles and the costs stay relatively flat.\nAnd so what happens is the lucky Friday generates two or three times or more free cash flow than what we've done in the past.\nAnd so it's because of the innovation of this new mining method and our determination to make the mines safer to mine it better, that the lucky Friday provides this growth exposure to silver without the risk of large capital investment.\nAnd in this inflationary time, having growth with low capital is very unusual and you have so much less risk to get that growth.\nNow, Lauren is going to talk about the method more in detail, and I also encourage you to consider our technical report that was filed as an exhibit to the 10-K that describes the method and gives a lot of visibility into the Lucky Friday's strong economics.\nNow adding a strong Lucky Friday in 2021 led to a record financial year with revenues of $807 million and adjusted EBITDA of $279 million.\nCash flow from operations was $221 million and free cash flow was $111 million, and those were the second highest in our history.\nThis and last year's performance has allowed Hecla to generate in excess of $200 million in free cash flow over the past two years and further enhance our common stock dividend policy by lowering the realized silver price threshold to $20 per ounce.\nSo as a result of this, about 20% of our free cash flow went to shareholders last year.\nWe spent a little less than $50 million as drilling -- we were able to resume our drilling and our operations in sites after the slowdown that we had in 2020 due to COVID-19.\nSo as a result of that, our silver reserves increased 6% over last year, and they're now the second highest in our history at 200 million ounces, with Greens Creek's reserves at 125 million ounces.\nAnd it's -- that's its highest since 2002, and it's an increase of about 12% over 2020.\nThe chart on the left shows not only that we replaced mining depletion, but also converted 26 million ounces of resource to reserves.\nNow, our gold reserves at the end of 2021 were 2.7 million ounces.\nThe second highest in our history, and that's shown in the graph on the right.\nOur companywide measured and indicated resources declined largely due to reserve conversions.\nHowever, we did increase our silver inferred resources by 8% to 490 million ounces, with increases at Greens Creek, Lucky Friday, and San Sebastian.\nAnd we expect to continue to see increases in reserves and resources that should allow us to maintain our reserve lives of the 14-plus years that we have.\nI mentioned the technical report on the Lucky Friday.\nWe also filed reports for Greens Creek and Casa Berardi to give support for the reserves.\nAnd in those reports, there's an economic analysis that's in Section 19 that shows very strong economics of the reserves.\nAnd what it does is it assumes that the inferred resources that we mine, which is about 5% to 15% of what we typically mine at those two mines, that that was waste.\nAnd so what we've also done is we've included in Section 21 the summarized information, the supplemental information that gives our long-term plans that includes this inferred materials at their expected grade.\nLiven our long history of the two mines, we have a pretty good idea of what the mine will look like when you include the inferred material so that gives you a sense of what that looks like.\nAnd so I'd encourage you to look at Section 21 as Section 19.\nWith that, I'd like to pass coal over to Russell.\nTurning to Slide 7, as Phil noted earlier, we generated record revenue of more than $800 million, of which silver contributed 34% while gold contributed 42%.\nEach of our operations contributed significantly to our revenue, led by Greens Creek at about 50%, Casa Berardi at 30%, and Lucky Friday at 16%.\nWith the projected production growth at Lucky Friday, we anticipate its contribution to grow.\nRecord revenues, coupled with high margins, generated record adjusted EBITDA for the year of $279 million, resulting in our leverage ratio being 1.1 times, which is significantly below our target of two times.\nOur cash flow from operations at $221 million and free cash flow of $111 million were the second highest.\nAs a result of our consistent and strong operational performance, our balance sheet has continued to strengthen as we entered the year with $210 million in cash and excess of $440 million of liquidity.\nTurning to Slide 8, there's been a lot of discussion in the industry regarding inflationary pressures, both in the operating costs of companies as well as capital costs.\nAt Hecla, we are facing inflationary pressures, too.\nHowever, we anticipate those factors to be muted relative to the rest of the industry for a few reasons.\nFirst, for the most part, we operate high grade, high value but low tonnage underground mines.\nAnd since we don't move a lot of rock, our production comes from processing less tons than others within the industry.\nTherefore, making our mines less susceptible to some cost pressures.\nSecond, we are less exposed to increasing costs of energy as the majority of the power at our sites come from local utilities based on renewable energy sources.\nAnd third, we don't have any large capital expenditures to speak of.\nAs you look on Slide 8, we don't have any planned large capital expenditures as our capital ranges from a low of $91 million in 2020 to what we anticipate spending in 2022 of $135 million.\nIn 2021, our total capital and production costs were approximately $480 million, split approximately $370 million as production cost and $109 million for capital.\nOur 2022 total expected spend on production costs is about 6% higher than 2021.\nAnd while our guided capital spend for 2022 is slightly higher than 2021, it is primarily due to our investment at the Lucky Friday.\nA 5% inflation factor would add less than $7 million to the total capital spend.\nTurning to Slide 9, what record revenue generation, strong margins, and consistent capital spend add up to as a strong free cash flow at all our operating mines.\nYou can see all our minds generate positive free cash flow, and companywide, we generated more than 110 million in free cash flow during 2021, which was the second highest in the company's history.\nWith this strong and consistent free cash flow generation, we've seen an increase to our cash balance of 60% over 2020 and more than three times that of 2019.\nWith that, I'll pass the call to Lauren to go through operations.\nI will start on Slide 11.\nGreens Creek had another strong year as the mine produced 9.2 million ounces at an all-in sustaining costs of $3.19 per ounce, which was below our lower end of guidance at $3.25 per silver ounce.\nThe cost beat was due to higher byproduct credits and more favorable treatment charges than originally estimated.\nThe 2021 realized silver margin at the mine was approximately $22 per ounce, an increase of 75% over 2020.\nThese high silver margins drive the solid free cash flow generation at the mine.\nIn 2021, Greens Creek generated $185 million in free cash flow and over the past three years has generated more than $445 million in free cash flow.\nIn addition to the strong operational and financial performance, we increase reserves by 12%, and at 125 million ounces, the reserves are the second highest since 2002.\nThis high grade, high margin mine is among the best in the world.\nSilver production guidance for 2022 is 8.6 million to 8.9 million ounces as we will be mining lower grades for the production sequence.\nSilver cash costs are expected to be in the range of seventy $0.75 to $2.50 per ounce while the silver all-in sustaining cost guidance is $6.50 to $8.50 per ounce.\nMoving to Slide 12.\nIntroduction of the UCB mining method and anticipated higher grades depth have positioned the Lucky Friday for a strong decade ahead.\nWe are very excited about the UCB mining method, which is showing significant improvements in managing seismicity and improving productivity.\nLucky Friday has 75 million ounces in silver reserves, which translates to a reserve mine life plan of 17 years.\nThe Lucky Friday mine produced 3.6 million ounces of silver in 2021 with almost one million ounces produced in the fourth quarter.\nIn 2021, production was a 75% increase over 2020.\nAll-in sustaining costs for the year were $14.34 per ounce in line with our guidance.\nThe mine generated $32.7 million in free cash flow for the year with 86% of the tons mined using the UCB method.\nThe mine is expected to produce 4.3 million to 4.6 million ounces of silver in 2022 and cash costs of $0.75 to $2 per ounce, and all-in sustaining costs of $7.25 to $9.25 per ounce.\nProduction in 2022 is planned to be almost 20% greater than 2021 while the all in sustaining cost per ounce is expected to decline by more than 30% due to higher production and byproduct credits.\nTurning to Slides 13 and 14, the UCB mining method is a new productive mining method developed by Hecla in an effort to proactively control fault slip seismicity in deep, high stress narrow-vein mining.\nThe method uses bench drilling and blasting methods to fragment significant vertical and lateral extensive vein beneath a top cut, taking a long strike of the vein and under engineered backfill.\nThe method is accomplished without the use of drop raises or lower mucking drives, which may result in local stress concentrations and increased exposure to seismic events.\nLarge blasts using up to 3,500 pounds of a pumped emulsion and programable electronic detonators fragment up to 350 feet of strike length to a depth of approximately 30 feet.\nThese large blast proactively induce fault slip seismicity at the mine at the time of the blast and shortly after it.\nThis blasted corridor is then mined underhand for two cuts.\nAs these cuts are mined, little to no blasting is done to advance them.\nDilution is controlled by supporting the hanging wall and foot wall as the mining progresses through the blasted ore.\nThe entire cycle repeats and stoping advances down dip, under fill, and in the de-stress zone.\nThe method allows for greater control of fault slip seismic events, significantly improving safety.\nIn conjunction, a notable productivity increase has been achieved by reducing seismic delays and utilizing bulk mining techniques.\nMoving to Slide 15, the Casa Berardi mine achieved record throughput as the mill achieved 4,187 tons per day in 2021.\nOur investments in mill optimization continued to deliver results in 2021 with mill recoveries increasing four percentage points in conjunction with the increase in throughput.\nFor the year, the mine produced 134.5 thousand ounces of gold at cash costs of $1,125 per ounce and all-in sustaining costs of $1,399 per ounce while generating free cash flow of $13.7 million.\nFrom 2019 to 2021, the mine has generated more than $100 million in free cash flow.\nWhile our investments in optimizing production have yielded results, we are seeing increased costs is due to the greater volumes mined and processed, contractor costs and higher underground maintenance costs.\nFor 2022, our production guidance for the mine is 125,000 to 132,000 ounces at cash costs of $1,175 to $1,325 per ounce and all-in sustaining costs of $1,450 to $1,600 per ounce.\nOf note is a 16% increase in reserves at the mine to 1.8 million ounces, mainly attributable to additions at the 160 pit.\nWith these reserves, Casa Berardi has a reserve mine plan of 14 years.\nSlide 17 shows our consolidated production guidance, so it takes all of the production guidance that Lauren's given you on a mine by mine basis and aggregates it.\nAnd then we also give you guidance with -- for '23 and '24.\nAnd as we look at our business for the next few years, we anticipate seeing growth in the production of silver due to the high grade material we'll be mining at the Lucky Friday coupled with the productivity gains due to the UCB method.\nWith these improvements, we anticipate seeing margins and free cash flow generation at Lucky Friday continue to expand, and we expect that the mine will move to be in the best third of the cost curve of primary silver mines.\nCasa Berardi will hold its position as a top tier silver asset, continuing to deliver the significant margins and free cash flow.\nJust a comment on the guidance relative to the guidance that we gave a year ago, realize that with higher zinc prices, we're able to mine -- and remember, Hecla is the third largest zinc producer in the United States.\nSo as a result, we're able to mine lower grade silver and actually generate the same or maybe even better cash flow.\nSo that's why you see a little bit of a reduction in the production from a year ago to this year.\nOn the gold side, we anticipate production of -- over the next few years to grow slightly with our gold production coming from Casa and Greens Creek.\nSo we're going to remain a very low cost silver producer with our all-in sustaining cost guidance being $9.75 to $11.75.\nOn gold, we're guiding to a sic of $14.50 to $1,600 per ounce and we're going to continue to work to improve the operations at Casa and deal with the inflationary pressure that we see in the Abitibi.\nLooking to capital, we anticipate spending approximately $135 million, as Russell mentioned, which is slightly higher than previous years.\nRemember that this change is driven mainly from new equipment increasing the number of stokes at the Lucky Friday.\nAnd so just a slight increase as a result of that.\nCost and capital assumptions include costs associated with managing COVID and assume 5% inflation.\nWe also anticipate spending 45 million for exploration and pre-development of that.\nA quarter of that will be spent at Greens Creek and Casa.\nIn addition to extending reserves and resources, both properties have programs identifying testing new targets.\nThe Nevada program, which is about a third of the program, is going to focus on the two miles of the East Graben Corridor at Midas, where we've had some very high grade intersections.\nAnd we're going to complete the pre-development drift and exploration drilling at Hollister's Hatter Graben.\nAt San Sebastian, we're testing for deeper mineralization near the mine infrastructure to try to expand the huge zone type mineralization, as well as mining more for just silver and gold in an area called La Roca.\nOur programs for Republic and the [Inaudible] districts that have been on hold for a number of years will also have some drilling this year.\nI want to take a moment to speak about the reset that we are taking in our Montana assets.\nWe withdrew the previous owner's plan of operations on both properties since it was based on their view of what the mines would be, but they really didn't have the data to formulate what we need to do for a modern, innovative mine plan.\nSo we're submitting a new plan of operation limited to geologic and environmental activities for just the Montanore site so we can develop our own plans.\nAt this point, Rock Creek will only have care and maintenance activities with our mineral and property rights intact.\nthat host more than 300 million ounces of silver and 3 billion pounds of copper.\nGiven the growing importance of these two metals, we believe that this sort of one step back to allow two-step forwards approach will allow production to begin as early as next year and next decade.\nSo that has not changed our view that early in the next decade, we should be able to be in production there.\nBefore I open the line to questions, I want to take just a moment to remember my friend and predecessor, CEO R. Brown, who passed away recently.\nArtworks for Hecla for almost 40 years, and he was the CEO for Hecla for almost half of that.\nThe UCB method is only the most recent example of Hecla's culture of innovation.\nOur art had Hecla on the cutting edge of a number of new technologies.\nMany that are standard in many operations around the world like pace backfill and the circular shaft that we had at the Lucky Friday.\nHis legacy is continuing innovation not only at the Lucky Friday, but the automation advances that we've had at Greens Creek and Casa Berardi.\nHecla would not be the company that we are today without him.\nAnd so please keep his family in your in your thoughts.\nWith that operator, I would like to open the call to questions.",
        "summary": "sees 2022 capital expenditures of $135 million."
    },
    {
        "text": "Andy Simanek, head of investor relations for Hewlett Packard Enterprise.\nAlso, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website.\nThroughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of currency.\nI am amazed by the resilience of our customers, partners, and team members.\nAnd I'm incredibly proud of the way Hewlett Packard Enterprise continues to serve the needs of our global communities during such an unusual and evolving circumstances.\nWe delivered a very impressive third quarter at HPE with strong orders growth, expanded margins, and record free cash flow.\nOverall, I am pleased to see how our differentiated portfolio is resonating with the market and our edge-to-cloud strategy is driving improved momentum across our businesses.\nBased on the strength of our Q3 performance and our confidence about our momentum in the market, we are again raising our fiscal year 2021 earnings per share and free cash flow outlook, and we are also resuming stock repurchases.\nRevenue in Q3 was $6.9 billion, in line with our outlook and normal sequential seasonality.\nOur Q3 orders were up strong double digits year over year, and our year-to-date order volume has increased 11%, showing the strength of our edge-to-cloud offerings.\nWe significantly expanded our non-GAAP gross and operating margins, driving our year-to-date non-GAAP operating profit and earnings per share, up 28% and 27% year over year, respectively.\nWe generated record year-to-date free cash flow of $1.5 billion, up $1.1 billion year over year, putting us well ahead of the original outlook we announced last October.\nI am particularly pleased that we were able to deliver these results while mitigating against industrywide supply constraints by taking proactive inventory measures working closely with our suppliers and deploy our best-in-class engineering capabilities to establish specific response plans.\nThe impact of the pandemic continue to accelerate the shift we predicted years ago to an edge-centric, cloud-enabled, and data-driven world.\nNow more than ever, there is a greater need for secure connectivity, faster insights from data, and a cloud experience everywhere.\nWe expect these trends to continue.\nDigital transformation is no longer a priority but a strategic imperative.\nTo help our customers transform their businesses and be future-ready today, we have been focused on doubling down in key areas that are resonating strongly in the market.\nWe had a record number of orders in both our intelligent edge business and high-performance compute and mission-critical solutions business.\nDue to strong demand and execution, these growth businesses now make up nearly 25% of our total company revenue.\nOur intelligent edge business accelerated its momentum again in Q3, with 23% year-over-year revenue growth, driven by a record number of new orders.\nStrong customer demand for secure connectivity has generated a backlog five times greater than at the close of Q3 last year, as customers increasingly look for solutions to collect, connect, analyze, and act on data at the edge.\nWe are leaning into this demand and continue to invest and innovate at the edge.\nIn June, we announced new AI ops, IoT, and security features for our Aruba Edge Services Platform, or ESP, designed to streamline network operations, maximize IT efficiency, and more easily extend the network from the edge to the cloud.\nOur Aruba ESP continues to gain traction with customers in different verticals.\nIn the third quarter, customers including Save A Lot, Monument Health, and Circa Resort and Casino, all standardized their networks on Aruba ESP.\nIn our high-performance compute and mission-critical solutions business, revenue was up 9% year over year, driven by a record number of new orders.\nWe also generated a record order book, which now exceeds $2.5 billion.\nThe exponential growth in data, along with AI and big data analytics, are all driving an increased need for high-performance computing and mission-critical capabilities in enterprises of all sizes.\nTo meet this demand, we bolstered our artificial intelligence capabilities with the acquisition of Determined AI, a start-up that delivers a puzzle software stack that to train AI models faster at any scale using its open-source machine learning platform.\nWe also continued to see an increasing number of customers accessing our high-performance computer solutions as-a-Service through HPE GreenLake.\nWith our HPE GreenLake Cloud Services for HPC, customers gained powerful specialized computing and AI capabilities with a sustainable cloud experience.\nFor example, in Q3, HPE was awarded a $2 billion contract to be realized over a 10-year period with the National Security Agency to deliver high-performance computing solutions through the HP GreenLake platform.\nThe service will help the National Security Agency efficiently process data and unlock new insights in sustainable new ways.\nOur core businesses generated robust year-over-year orders growth, as well as strong profitability and free cash flow in the quarter.\nYear to date, compute and storage orders are up mid-single digits, with Q3 operating margins of 11.2% and 15.1%, respectively.\nWe continue to offer more of our core capabilities as-a-Service.\nIn Q3, we introduced unified compute operations as-a-Service through our HP GreenLake edge-to-cloud platform.\nThis new cloud-based management service simplifies provisioning and automates the management of compute infrastructure wherever it resides.\nOur storage business is transforming into a cloud-native software-defined data services business through organic innovation and targeted acquisitions.\nIn May, we introduced our new cloud data services available through HPE GreenLake, as well as a new HPE Alletra cloud-native data infrastructure.\nAnd just this week, we closed the acquisition of Zerto, an industry leader in cloud data management and protection, and run some way of data recovery services, which will be soon available as-a-Service through HPE GreenLake.\nThis acquisition immediately positions HPE GreenLake in the high-growth data protection market with a proven scale solution.\nHPE was the first to market four years ago in delivering and as-a-Service cloud experience on-premises in a colocation or at the edge with HPE GreenLake.\nToday, our HPE GreenLake edge-to-cloud platform has more than 1,100 customers.\nOur annualized revenue run rate this quarter was $705 million, up 33% year over year, driven by strong as-a-Service orders growth, up 46% year over year.\nOrganizations across sectors, including retail, healthcare, financial services, and public sector, are turning to HPE GreenLake.\nFor instance, we helped Liberty Mutual shift from a traditional capex IT spend to a new pay-as-you-go model, creating a cloud experience on-premises to provide transparency into consumption while improving their speed in adapting to capacity demands.\nThey standardized critical workloads on HPE Synergy delivered through HPE GreenLake, resulting in a reduced data center footprint and significant cost savings, including a monthly unit rate well below public cloud alternatives.\nWe also see in the power of the full HPE edge-to-cloud portfolio as customers are turning to HPE for integrated solutions that combine secure connectivity, data insight capabilities, and cloud experiences.\nWoolworths Group Australia and New Zealand's largest retailer selected HPE GreenLake to power its new Wpay payment platform.\nThey needed a solution that combines a powerful mission-critical architecture with the ability to scale and also provide a better cost efficiency back to Wpay and its merchant partners.\nDelivered through HPE GreenLake, their solution leverages our full edge-to-cloud portfolio, including HPE Aruba, HPE NonStop, HPE Primera, and HPE Synergy.\nHPE Pointnext Services also provided expertise to us over the company's digital transformation.\nI believe this is a great example of the power of our HPE edge-to-cloud portfolio.\nTo extend our leadership position in cloud services and further accelerate our pivot as-a-Service, we are relentlessly innovating.\nWe made several compelling announcements at HPE Discover in June.\nI am particularly excited about our new HPE GreenLake Lighthouse offering, a secure cloud-native stack built with HPE Ezmeral software to autonomously optimize different workloads across hybrid estate, reducing time to deployment and operating costs.\nWe also introduced Project Aurora to secure the enterprise, embedded in our HPE GreenLake edge-to-cloud platform.\nProject Aurora automatically and continuously verifies and attests the integrity of the hardware, freeware operating systems, platforms and workloads, while also detecting advanced threats.\nAnd finally, demonstrating our continued commitment to acquiring assets that complement our own capabilities, we acquired data platform developer Ampool.\nAmpool will accelerate HPE Ezmeral analytics run time to deliver high-performance analytics for engineers and business analysts.\nI am proud of HPE's performance in Q3 and year to date and the significant progress we have made in becoming the edge-to-cloud company.\nThe momentum we have in the market compels us to move even further and faster, and our ability to transform with increasing speed is imperative.\nThis transformation is my No.\nAt this pivotal moment, our purpose to advance the way people in the work has never been more important.\nOur vision to become the edge-to-cloud company is proving its tremendous relevance and our portfolio is winning in the marketplace.\nFueled by our purpose, vision, and portfolio, we have the opportunity to build a more digitally enabled inclusive world.\nWe have a mandate to imagine new digital transformation strategies that support our own ESG goals and those of our customers, leading to better business outcomes and societal impact.\nWe will never waver from our commitment to being a force for good and a strategic partner for our customers.\nWe will continue to bring bold new innovation to our customers, and we will continue to create value for our shareholders.\nAnd I'm grateful for the incredible team, and I'm confident in and excited about the future.\nI hope you will join us for our virtual Security Analyst Meeting on October 28 to hear more about our position in the market, our priorities, and our outlook for the year ahead.\nI'll start with a summary of our financial results for the third quarter of fiscal year 2021.\nAntonio discussed the key highlights on Slides 1 and 2.\nSo, now let me discuss our Q3 performance, starting with Slide 3.\nI'm pleased to report that we are experiencing very strong demand across all of our businesses.\nQ3 was marked by accelerating order growth, strong gross and operating margin expansion, and robust cash flow generation.\nBuilding on the strength from the last quarter, we delivered Q3 revenues of $6.9 billion, up 3% from the prior quarter and in line with normal sequential seasonality, also in line with our outlook that factored in some of the expected supply chain constraints we flagged.\nWe're working to ensure disruption is minimal by taking proactive measures and coordinating with our world-class suppliers to establish tailored recovery plans.\nI am particularly proud of our non-GAAP gross margin that hit another record level of 34.7%, up 40 basis points sequentially and up 420 basis points from the prior-year period.\nThis is driven by our deliberate actions to shift toward higher-margin software-rich offerings, strong pricing discipline, and cost takeout.\nAs previously indicated, we continue to invest in high-growth, margin-rich areas of our portfolio, both in R&D and go-to-market, particularly in Aruba Software and as-a-Service, which increased our non-GAAP operating expenses in the quarter.\nWe also booked two one-time charging totally $28 million for a legal settlement and bad debt associated with likely fraud involving a channel partner in APJ.\nEven with these investments and one-time charges, our non-GAAP operating margin was 9.8%, up 190 basis points from the prior year, which translates to a 25% year-over-year increase in operating profit.\nWe continue to be focused on driving further efficiencies in the business.\nWithin other income and expense, we benefited from stronger operational performance in H3C and strong gains related to increased valuations in our Pathfinder venture portfolio.\nAs a result, we now expect other income and expense for fiscal year '21 to be an income of approximately $50 million.\nWith strong execution across the business and despite two unanticipated one-time charges, we ended the quarter with non-GAAP earnings per share of $0.47, up 31% from the prior year and above the higher end of our outlook range for Q3.\nQ3 cash flow from operations was $1.1 billion, and free cash flow was $526 million.\nThis puts us at a record $1.5 billion of year-to-date free cash flow, up $1.1 billion from the prior year, driven primarily by an increase in operating profit.\nFinally, the strength of our business has positioned us to contribute substantial capital to our shareholders.\nWe paid $157 million of dividends in the quarter and are declaring a Q4 dividend today of $0.12 per share payable in October.\nWe are also announcing today the resumption of share buybacks as a result of greater free cash flow generation and visibility.\nI'll come back to capital allocation more broadly when we discuss the outlook.\nNow, let's turn to our segment highlights on Slide 4.\nOur growth businesses, which now represent nearly 25% of our total company revenue, are executing strongly and experiencing record order levels.\nIn the Intelligent Edge, we accelerated our top-line momentum with record levels of orders and 23% year-over-year revenue growth.\nSwitching was up over 20% year over year, whereas wireless LAN experienced more acute supply constraints and was up mid-single digits.\nAdditionally, the Edge-as-a-Service offerings were up triple digits year over year, which reflects enabling software platforms, as well as Network-as-a-Service.\nWe also continue to see strong operating margins at 15.8% in Q3, up 540 basis points year over year, which included a $17 million one-time legal settlement that impacted margins by 2 points.\nSilver Peak continues to perform strongly and contributed 7 points to the Intelligent Edge growth.\nIn addition, we started generating meaningful revenue synergies by cross-selling the Aruba portfolio, which reinforces the merits of the Silver Peak deal.\nIn HPC and MCS, demand strengthened even further with a record order level.\nRevenue grew 9% year over year as we continue to achieve more customer acceptance milestones and deliver on more than $2.5 billion of awarded contracts, including the contract that Antonio mentioned with the NSA worth $2 billion over 10 years.\nWe remain on track to deliver on our full-year and three-year revenue growth CAGR target of 8% to 12%.\nIn compute, revenue grew 4% quarter over quarter, reflecting normal sequential seasonality despite previously anticipated supply chain tightness.\nOperating margins of 11.2%, were up 190 basis points from the prior year, due to disciplined pricing and the rightsizing of the cost structure in this segment.\nWithin Storage, revenue grew 1% year over year and 3% quarter over quarter, ahead of normal sequential seasonality, driven by strong growth in software-defined offerings.\nNimble grew 10% year over year, with ongoing strong dHCI momentum, growing double digits year over year.\nAll-Flash Arrays grew by over 30% year over year, led by Primera.\nThe mix shift toward more software-rich platforms helped drive Storage operating margins to 15.1%, up 10 basis points year over year, offset by continued investments in our cloud data services.\nWith respect to Pointnext operational services, including Nimble services, revenue grew for the third consecutive quarter year over year as reported with both order and revenue growth expected for fiscal year '21.\nWithin HPE Financial services, revenue was flat year over year and sequentially.\nWhile our bad debt loss ratio did increase slightly to 94 basis points this quarter, it was entirely due to a one-time $11 million reserve charge related to the already mentioned likely fraud in APJ by a channel partner.\nAbsent this one-off event, our bad debt loss ratio would have improved to just 61 basis points aligned to pre-pandemic levels.\nMore importantly, we continue to see improved cash collections above pre-pandemic levels.\nOur operating margin was 11.1%, up 300 basis points from the prior year.\nAnd our return on equity at 18.3%, is well above the 15% plus target set at SAM.\nSlide 5 highlights the key metrics of our growing as-a-Service business.\nWe have made significant progress since our Analyst Day last October by adding over 200 new enterprise GreenLake customers to over 1,100 today and increasing our TCV by over $1 billion to a current lifetime TCV of well over $5 billion.\nFor Q3 specifically, our ARR was $705 million, which was up 33% year over year as reported, and total as-a-Service orders were up 46% year over year.\nIt is also important to note that the mix of our ARR is becoming more and more software-rich as we build out our GreenLake Cloud Platform, which is improving our margin profile.\nWe look forward to providing more disclosure around our software and services mix at our analyst day later this fall, which I believe reinforces the significant value add of GreenLake.\nOverall, based on strong customer demand and recent wins, I am very happy with how this business is executing and progressing toward achieving our ARR growth target of 30% to 40% CAGR from FY '20 to FY '23.\nSlide 6 highlights our revenue and earnings per share performance to date where you can clearly see the strong rebound from last year and sustained momentum for the last three quarters.\nThe demand environment continues to strengthen.\nAnd with the operational execution of our cost optimization and resource allocation program, we have increased non-GAAP earnings per share in Q3 by 31% year over year.\nTurning to Slide 7.\nWe delivered another record non-GAAP gross margin rate in Q3 of 34.7% of revenues, which was up 40 basis points sequentially and up 420 basis points from the prior year.\nThis was driven by strong pricing discipline and a positive mix shift toward high-margin software-rich businesses like the intelligent edge and next-generation storage offerings.\nWe have also benefited from our new segmentation we implemented beginning of fiscal year 2020, that gives us much better visibility into each business unit and enables the better resource allocation and discipline to drive operating leverage.\nMoving to Slide 8.\nYou can also see we have expanded non-GAAP operating profit margin substantially from pandemic lows to 9.8%, which is up 190 basis points from the prior-year period.\nWe are driving further productivity benefits and delivering the expected savings from our cost optimization plan, while simultaneously increasing our investment levels in R and D and field selling costs, which are critical to fuel our long-term innovation engine and revenue growth targets.\nAs mentioned previously, Q3 operating expenses also included one-time charges not included in our guidance, totaling $28 million for a legal settlement and the likely forgery involving a partner.\nExcluding these one-off charges, our operating margin would have been 10.2%.\nTurning to Slide 9.\nWe generated a record year-to-date levels of cash flow with $2.9 billion of cash flow from operations and $1.5 billion of free cash flow, which is up $1.1 billion year over year.\nThis was primarily driven by increased operating profit.\nI would like also to underscore that this year, our free cash flow seasonality will be different than in prior years.\nWe expect increased financial services volume that includes more than $150 million in Q4 financing for a very large deal that is predominantly GreenLake and will benefit our ARR margins for years to come.\nWe also have further restructuring payments and growing working capital needs as we continue to buffer our inventory levels in the light of the disruption in the global IT supply chain.\nNow moving on to Slide 10, let me remind everyone about the strength of our diversified balance sheet.\nAs of July 31, the operating company net cash balance turned positive due to our strong free cash flow.\nFurthermore, we made additional progress during the quarter, securitizing over $750 million of financial services-related debt through the ABS market.\nThe refinancing of higher cost unsecured debt with ABS financing allows us to boost access to financing market at a cheaper cost of debt capital, as well as diversify and segregate our balance sheet between our operating company and our financial services business.\nBottom line, our improved free cash flow outlook and cash position ensure we have ample liquidity to run our operations, continuing to invest in our business to drive growth and return capital to shareholders.\nNow turning to our outlook on Slide 11.\nI'm very pleased to announce that we are once again raising our full-year guidance to reflect the continued momentum in the demand environment and our strong execution.\nThis will be the fourth guidance increase since SAM in October 2020.\nWe now expect to deliver fiscal year '21 non-GAAP diluted net earnings per share between $1.88 and $1.96.\nWith respect to supply chain, as indicated last quarter, industrywide tightening somewhat constrained our supply as expected.\nWe continue to take proactive inventory measures where possible.\nAnd you can see our efforts in inventory balances that increased $1.3 billion year to date that also reflects the strengthening demand environment and a substantial order book we have across the business.\nWe expect the challenged supply chain conditions to persist until at least the middle of calendar year 2022 and have factored these into our revenues, costs, and cash flow outlook.\nFrom a top-line perspective, although we remain prudent given the challenged supply chain environment, we are very pleased with the accelerating Q3 order momentum across all segments of the business.\nMore specifically for Q4 '21, we expect revenue to be above our normal sequential seasonality from Q3 and are comfortable with current consensus levels.\nFor Q4 '21, we expect GAAP diluted net earnings per share of $0.14 to $0.22 and non-GAAP diluted net earnings per share of $0.44 to $0.52.\nAdditionally, given our record levels of free cash flow year to date and confidence in our raised outlook, I'm very pleased to announce that we are also raising fiscal year '21 free cash flow guidance to $1.5 billion to $1.7 billion, that is a $600 million increase at the midpoint from our original SAM guidance with the top end of this free cash flow guidance range at the peak levels attained in fiscal year '19.\nAs you recall, at the end of the first half of fiscal year 2020, we suspended our share buybacks to preserve liquidity in the context of the global pandemic disruption.\nAlthough we continue to operate in a challenged supply environment, our order momentum and improved cash flow generation visibility give us confidence to reinstate our share repurchase program.\nWe are targeting up to $250 million of share repurchases in Q4 of fiscal year '21, and we'll update investors on our capital management policy for fiscal year '22 at SAM in October.\nAs a reminder, we always follow a disciplined, return-based capital allocation framework to maximize long-term shareholder value.\n1 priority remains delivering sustainable profitable growth through both organic and inorganic M and A investments while remaining committed to paying dividends to our shareholders.\nIn addition, we will consider opportunistic share buybacks when we see a favorable return for doing so.\nSo, overall, and to conclude, I am very proud of the progress we have made year to date in fiscal year '21.\nIt's clear that our edge-to-cloud strategy is resonating with customers and driving improved momentum across all of our businesses.\nOur growth businesses in the Intelligent Edge and HPC/MCS have accelerated top-line performance with record levels of orders.\nOur core business of Compute and Storage is demonstrating momentum with robust orders and improved margins and our as-a-Service ARR is accelerating.\nAll of this translates to improving revenue momentum, strong profitability growth, and record levels of free cash flow.\nWe look forward to closing out our fiscal year much leaner, better resourced, and positioned to capitalize on the strong demand environment.\nLastly, as Antonio mentioned, we look forward to having you join us for our virtual Securities Analyst Meeting in late October, where we will provide an update on our strategy, business insights, and financial outlook.",
        "summary": "hewlett packard enterprise q3 adj earnings per share $0.47.\nq3 revenue $6.9 billion versus refinitiv ibes estimate of $6.93 billion.\nq3 non-gaap earnings per share $0.47.\nsees q4 gaap earnings per share $0.14 to $0.22.\nsees q4 non-gaap earnings per share $0.44 to $0.52.\nreinstating share repurchase program and targeting share repurchases of up to $250 million in q4 fy21.\nraises fy gaap diluted net earnings per share outlook to $0.80 to $0.88 and non-gaap diluted net earnings per share outlook to $1.88 to $1.96."
    },
    {
        "text": "Moreover, this quarter was once again included in certain disclosure prompted by COVID 19 business changes, which we will maintain as business operations further normalize.\nThey will be joined by other senior management during the Q&A portion of the call.\nAs we sit today, more than 18 months into the pandemic, the advantages of our focus on top tier tech and media markets on building and reinvesting in a state-of-the-art portfolio and are maintaining a strong balance sheet, have never been more evident.\nIn the 3rd quarter, we had a robust same property NOI growth as our office and studio tenants continue to pay rent and repay deferred rent.\nWe had another solid quarter of leasing activity on positive rent spreads.\nOur stabilized lease percentage remains over 92% for making good progress on our remaining 2021 and our 2022 expirations.\nWe also successfully executed on multiple city related acquisitions all in spite of the pandemic headwinds.\nThere is definitely growing momentum around our tenants return to the office.\nSome have already reiterated at least a portion of their employees over the last few months, while others are working toward either a year-end or early 2022 return.\nThe combination of record funding and fundraising by VCs, media can be spending of over $100 billion on content and significant national health and research spending has led to continued growth in hiring within the industries that drive demand for our assets, primarily tech media gaming and life science.\nAcross our markets, office leasing activity was notably elevated or showed healthy indicators such as a shift away from short-term renewals to new and expansion deals.\nSublease space contracted almost without exception as a result of tenants, both pulling listings or backfilling space.\nWe also saw a positive absorption around many of our metro areas in submarkets, and in most cases, for the first time since the pandemics onset.\nWe're obviously very focused on maintaining our leasing momentum as the office market recovers, which Mark is going to discuss further in a moment.\nWe also made several major announcements around the successful growth of our studio platform in the 3rd quarter.\nWe unveiled plans for Sunset Glenoaks, which will be the first purpose-built studio in Los Angeles area in more than 20 years growing our studio footprint in that market to a 1.5 million square feet in two stages.\nWe purchase a major site north of London to build Sunset Waltham Cross which will be a large scale purpose-built facility with 15 to 25 new stages and we expanded our services platform with the purchase of the transportation and logistics companies, Star Waggons and Zio Studio Services, enhancing our existing clients experience, while capturing significant additional production-related revenue.\nOur combined expertise with Blackstone, across transactions operations and development, is second to none and we're poised to deliver and operate purpose-built next-generation studios that will attract premium productions for years to come and create exceptional value for our shareholders.\nFinally earlier this month we received our GRESB 2021 real estate assessment results.\nIn addition to earning GRESB Green Star, the highest 5-star ratings for the 3rd year in a row, Hudson Pacific was named an office sector leader for the America's ranking first among the 22 companies in that category in terms of our development program.\nIn addition, we earned an A and ranked first among our US office peers in terms of public disclosure.\nI'm incredibly proud of these results as it showcases both the dedication and the ingenuity of our team as well as the commitment to being a leader on ESG issues.\nOur rent collections remained strong at 99% for our portfolio overall and 100% for office and studio tenants.\nWe've collected 100% of contractually deferred rents due to date and 57% of all contractual deferrals physical occupancy at our properties has stayed consistent over the last several months at around 25 to percent, while as Victor noted activity around a return to the office is accelerating across our markets.\nOur current office leasing pipeline that is deals and leases, LOI's and proposals stands at 1.8 million square feet, up over 20% quarter-over-quarter and also 20% above our long-term average.\nWe signed 318,000 square feet of new and renewal office leases in the third quarter at 8.3% and 5.1% GAAP and cash rent spreads, with the bulk of that activity, about 65% in the Peninsula and Valley.\nThat brings us to 1.4 million square feet of new and renewal deals year-to-date.\nOur weighted average trailing 12 months, net effective rents are up about 4% year-over-year, while our weighted average trailing 12 month lease term for new and renewal deals held steady at 5 years.\nDespite facing about 360,000 square feet of expirations heading in the last quarter our stabilized and in-service office lease percentages remained essentially stable at 92.1% and 91.2% respectively.\nRecall that the addition of Harlow to the in-service portfolio as of the second quarter, accounts for more than 30 of the 50 basis point drop in lease percentage since first quarter Harlow is 50% leased and we are in leases with the tenant for the balance of the building.\nWe only have 1.9% of our ABR in terms of our 2021 expirations remaining and those leases are over 20% below market.\nWith strong activity on our fourth quarter expirations and existing vacancy, we remain confident our year-end in service leased percentage will remain essentially in line with third quarter levels.\nWe also already have 30% percent coverage on our 2022 expirations.\nWe continue to work on our pipeline of world-class office and studio development projects.\nIn terms of office, we're on track to deliver our 584,000 square foot, One Westside office, adaptive reuse project in West Los Angeles to Google for their tenant improvements in the first quarter of next year.\nWe plan to close on the podium for our 530,000 square foot Washington 1,000 office development in Seattle, later in the fourth quarter.\nWe are in dialog with potential tenants and have 12 months post closing to finalize our construction timeline.\nWe also recently announced plans for Burrard exchange, a 450,000 square foot, hybrid mass timber building on the Bentall Centre campus in Vancouver.\nWe've submitted a development permit application and construction could start in early 2023.\nOn the studio side, we plan to begin construction for our 241,000 square foot, Sunset Glenoaks Studios Development in Sun Valley before year-end, with delivery anticipated in the third quarter of 2023.\nIn the third quarter, we generated FFO excluding specified items $0.50 per diluted share compared to $0.43 per diluted share a year ago.\nThird quarter specified items consisting of transaction-related expenses of $6.3 million or $0.04 per diluted share.\nOne-time debt extinguishment costs of $3.2 million or $0.02 per diluted share and one-time prior period supplemental property tax reimbursement related to Sunset Las Palmas of $1.3 million or $0.01 per diluted share, compared to transaction related expenses of $0.2 million or $0.00 per diluted share and one-time debt extinguishment costs of $2.7 million or $0.02 per diluted share a year ago.\nThird quarter NOI at our 45 consolidated same-store office properties increased 5.1% on a GAAP basis and increased 10.8% on a cash basis.\nFor our three same-store studio properties, NOI increased 49.8% on a GAAP basis and 45.5% on a cash basis.\nAdjusting for the one-time prior period property tax reimbursement, the NOI would have increased by 27.9% on a GAAP basis and 22.8% on a cash basis.\nTurning to the balance sheet.\nAt the end of the third quarter, we had approximately $0.6 billion in liquidity with no material maturities until 2023 and average loan term of 4.6 years.\nIn August we refinanced the mortgage loan secured by our Hollywood media portfolio, accessing additional principal, while lowering the interest rate and extending the term, we replaced the prior $900 million loan bearing LIBOR plus 2.15% per annum, with a $1.1 billion loan bearing LIBOR plus 1.17% per annum.\nThe new loan has a 2-year term with 3 one-year extension options and is non-recourse except as to customary carve outs.\nWe also purchased $209.8 million of the new loan which bears interest at a weighted average rate of LIBOR plus 1.55% per annum.\nOur Pro Rata net debt after this refinancing remained unchanged at $351 million.\nIn terms of our three studio related acquisitions completed during the quarter the Sunset Waltham Cross site in the U.K and Star Waggons and Zio Studio Services operating businesses.\nwe funded each with a combination of cash on hand and draws from our revolving credit facility.\nOn account of these three transactions and other corporate activity at the end of the third quarter, we have drawn $300 million under our revolving credit facility, leaving 300 million of undrawn capacity.\nThird quarter AFFO grew significantly compared to the prior year, increasing by $10.1 million or over 21%.\nBy comparison, FFO increased by 9% or $6 million during the same period.\nAgain, this positive AFFO trend reflects the significant impact of normalizing lease costs and cash rent commencements on major leases, following the burn off of free rent.\nNow I'll turn to guidance.\nAs always, our guidance excludes the impact of unannounced or speculative acquisitions, dispositions financings and capital market activity.\nIn addition, I'll remind everyone of potential COVID related impacts to our guidance including variance and evolving governmental mandates.\nClearly, uncertainty surrounding the pandemic makes projecting the remainder of the year difficult and we assume our guidance will be treated with a high degree of caution.\nAs noted many companies are still determining return to work requirements and the impact on space needs, because of this, for example, our guidance does not assume a material increase in parking and other related variable income.\nOverall, we assume full occupancy and related revenues will not return to pre-COVID condition levels in 2021.\nThat said, we are narrowing full year and providing fourth quarter 2021 guidance in the range of $1.95 to $1.99 per diluted share, excluding specified items.\nAnd $0.48 to $0.50 per diluted share excluding specified items respectively.\nThere are no specified items in connection with the fourth quarter guidance.\nI'll point out that we incurred $1.4 million of prior period supplemental property tax expenses, as noted in the first and second quarter SEC filings.\nNearly all of which was offset by the prior period supplemental property tax reimbursement of $1.3 million received during the third quarter.\nSo we're not identifying as specified item related to prior period taxes for the purposes of 2021 full-year guidance.\nWe appreciate your continued support.\nStay healthy and safe and look forward to updating you next quarter.\nAnd operator, with that, let's open the line for any questions.",
        "summary": "compname says q3 ffo per share $0.50 excluding items.\nsees ffo $1.95 to $1.99 per diluted share (excluding specified items) for full-year .\nq3 ffo per share $0.50 excluding items.\ncompname reports q3 ffo per share $0.50 excluding items.\nsees $1.95 to $1.99 per diluted share (excluding specified items) for full-year."
    },
    {
        "text": "Joining me are Jeff Jones, our president and chief executive officer; and Tony Bowen, our chief financial officer.\nFor a description of these risks and uncertainties, please see H&R Block's annual report on Form 10-K and quarterly reports on Form 10-Q as updated periodically with the company's other SEC filings.\nPlease note, some metrics we'll discuss today are presented on a non-GAAP basis.\nWe're really happy to be with you today and excited to talk about our first quarter, and we have a lot to share.\nOver the past several months, we've met with many investors and analysts.\nAnd today, beyond our thoughts on the quarter, we'll address many of the themes that have emerged.\nI'll begin by summarizing our results and providing thoughts on tax season '22.\nThen I'll share perspective on the value we have created over the last several years and the levers we have to achieve our long-term revenue growth target of 3% to 6%.\nFinally, Tony will review our financials, fiscal '22 outlook and provide his thoughts on the value of Block today.\nTurning to our first quarter results.\nWe continue to see momentum in the business.\nAs a reminder, given that the tax season extended through July 15 last year versus only May 17 this year, our quarter ending September 30 is not comparable and does not clearly depict our performance and progress as we're off to a great start.\nWe saw strong revenue growth from the Emerald Card and Wave and effectively managed costs while appropriately investing in our growth initiatives.\nOn the capital allocation front, which we'll dig into in a minute, we reduced shares outstanding by another 4% this quarter.\nAs we look to tax season '22, we are well-positioned for a number of reasons.\nOver the past several years, we've invested meaningfully in technology and digital capabilities and have made significant product and experience improvements via our Block Experience imperative.\nWe pivoted quickly and learned to operate more efficiently during the pandemic.\nAnd our customers have taken note as we have gained market share and just completed our best tax season in over a decade.\nOur value proposition is strong, and we are continuing to add product enhancements, including help for retail and crypto investors.\nOverall, we feel really good about the platforms we're building and our efforts to retain the clients we serve.\nWith that backdrop and before we dig into our growth plans, I want to highlight the progress we have made and where we are today.\nOur business is strong.\nWe have a proven track record of generating cash flow, driving earnings per share growth and returning capital to shareholders.\nSince 2016, we've averaged annual free cash flow of $465 million, an increase of 29%.\nIncluding the most recent quarter, we've grown the dividend by 35% and repurchased nearly 1/4 of shares outstanding.\nIn total, these actions have led to an adjusted earnings-per-share growth of 78%.\nWe've done all this while investing in the business and have strategically positioned ourselves for sustainable long-term growth.\nRegardless of year-to-year dynamics, our robust cash flow and capital allocation strategy are evidence of our ability to deliver shareholder value.\nWith that foundation, let's now discuss what we are doing to drive growth.\nWe have had our foot on the gas since announcing Block Horizons at our Investor Day last December where we shared our long-term revenue growth target of 3% to 6%.\nWhile we are in the early innings of this next phase of our transformation, we're focused on demonstrating meaningful progress to build investor confidence.\nWe have multiple levers in place to achieve our goal.\nLet's start with the industry.\nThe tax industry has grown consistently for a long period of time, averaging a historical CAGR of 1%.\nAs the industry grows, so will we.\nWe have proven we can hold and grow market share, which we've done in four of the last five years.\nWe have simultaneously increased customer satisfaction scores, and we will continue to make improvements to the Block Experience.\nWe anticipate that holding share at a minimum will add about 1 point of growth annually to our top line.\nNow let's discuss the revenue contribution from pricing.\nAs you recall, in 2018, we moved to an upfront transparent pricing model in our Assisted channel, and we have essentially held pricing flat since then.\nIn DIY, we have a 10% to 20% price advantage relative to our largest competitor.\nAs a result of our significant product and experience improvements, we plan to take modest price increases in Assisted this year, something we'll evaluate annually.\nIn DIY, our product is competitive.\nAnd because of our price advantage, we see additional opportunity over time.\nIn summary, we believe we can add a couple of points of revenue growth to our top line from price adjustments.\nWe have a long track record of acquiring franchise partners, which will remain part of our ongoing strategy.\nOver the past five years, we have purchased on average 125 locations annually, typically from franchisees who are ready to exit for family or retirement reasons.\nWe believe we can acquire a similar number each year through 2025, which will contribute nearly 1 point of growth to our top line.\nWe view this to be a good use of capital given we're able to repurchase locations at attractive EBITDA multiples, optimize our footprint and integrate the business into our company operations.\nNow let's walk through contributions from our three strategic imperatives.\nAs you have heard throughout our call, Block Experience is about modernizing and growing the consumer tax business.\nIt underpins much of the progress and ongoing strategy that we have discussed in our industry share and pricing assumptions.\nOur other two strategic initiatives, Small Business and Financial Products, layer on additional new growth levers.\nStarting with Wave, we're focused on increasing the value of the existing customer base and acquiring new clients.\nThe value of the customer as measured in average revenue per business has grown significantly as we continue to innovate with new products and position Wave money at the center of the experience.\nWave's total revenue continues to grow more than 30% year-over-year.\nThis is contributing about 1 point of growth annually to our consolidated top line.\nBeyond Wave, upside in the Small Business imperative exists as we lean into tax services and bookkeeping with an emphasis on human health.\nWe learned a lot last year and have evolved our marketing messaging in order to drive efficiency and better target customers who can benefit from these products.\nWe also see additional upside in our Financial Products imperative.\nThe mobile banking solution we announced as part of our strategy last year supports our goal of serving and engaging with clients year-round.\nWe've performed extensive market research to understand the consumer needs and, as a result, understand what it takes to succeed.\nWe know there are 35 million underbanked consumers in the United States alone, a group we view as financially vulnerable and financially coping.\nOf this population, 8 million are current Block customers.\nThey trust us with their most intimate financial details, use our existing products and have an unmet need for additional banking.\nThus, we're uniquely positioned as compared to other competitors who are starting from scratch to build brand awareness and trust.\nWe've launched the beta product internally and plan to launch nationally in the early part of next tax season with our marketing efforts focused on existing DIY clients.\nAs you would expect, we will leverage our interactions to incentivize clients to set up direct deposits.\nWe'll continue to roll out features throughout the year and look forward to sharing more once it has officially launched.\nIn summary, with respect to revenue growth, we have many levers working in tandem to reach our annual 3% to 6% growth target.\nAdditionally, we're able to leverage our fixed cost structure, so that EBITDA will grow faster than revenue.\nIt's also important to note that we're funding our investments by reducing expenses across the company as part of our Fund the Future initiative.\nI want to emphasize how great I feel about the progress we've made and the path that we're on.\nWe're continuing to execute against our strategic imperatives and are gaining momentum.\nI am more confident now than ever in our plans for Block Horizons 2025.\nLastly, I'd like to mention that we published our second annual corporate responsibility report in September.\nWe recognize the importance of environmental stewardship, social responsibility and sound corporate governance.\nSome of our initiatives include championing diversity and inclusion, understanding and reducing our climate impact, supporting the communities we live and serve in and transparent governance practices.\nTogether, these enabled us to achieve our long-term financial goals and benefit all our stakeholders.\nToday, I will review our results from the first fiscal quarter, recap our outlook and then provide thoughts on the value we have created in the business.\nAs you recall, this summer, we adjusted our fiscal year-end from April to June.\nIn August, we released a QT for the stub period of May and June 2021 to bridge the fiscal year.\nAnd today, we are reporting our first fiscal quarter of 2022, which ends September 30.\nAs Jeff shared, given that the tax season extended through July 15 last year versus only May 17 this year, Q1 is not comparable to the prior year and does not clearly depict our performance and the progress we are making.\nWe delivered $193 million of revenue, down 54% or $225 million.\nThis decline was entirely due to the estimated $246 million related to the tax season extension in the first quarter of last year.\nWe saw incremental Emerald Card revenue due to child tax payments and continued strong growth from Wave.\nRegarding expenses, we were disciplined in achieving our cost savings while appropriately investing in our Block Horizons imperatives.\nThe ongoing rigor to drive our Fund the Future initiative allows us to invest with the savings we generate versus spending incremental capital.\nTotal operating expenses in the quarter were $367 million, a decrease of 12%, primarily driven by lower tax pro compensation as a result of the prior year extension I just discussed.\nInterest expense was $23 million, a decrease of 34% due to lower draws on our line of credit.\nWe feel great about the changes we have made in our debt position to reduce interest expense by refinancing our line of credit and issuing long-term debt at very attractive rates, which will positively impact our P&L and cash flow.\nFor the quarter, our pre-tax loss was $197 million, compared to $33 million in the prior year.\nOur effective tax rate was 24%.\nWe continue to expect the tax rate to be in the 16% to 18% range for the full fiscal year as we realize the benefits of certain discrete items later in fiscal '22.\nTurning to share repurchases, we bought a total of $166 million in the quarter, allowing us to retire 6.8 million shares at an average price of $24.37.\nAs Jeff highlighted earlier, share repurchase is a core element of our commitment to returning capital to shareholders.\nSince taking over this post in 2016, we have now retired nearly 1/4 of our shares outstanding and have approximately $400 million remaining on our share repurchase authorization.\nLoss per share from continuing operations increased from $0.32 to $0.84, while adjusted loss per share from continuing operations increased from $0.24 to $0.78.\nIn summary, we feel good about the start to the year, and we are reiterating our fiscal year '22 outlook.\nRegarding discontinued operations, there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter.\nBefore closing, I'd like to provide some overarching thoughts on how we view H&R Block's value.\nA few years ago, we deliberately made significant changes that put short-term pressure on our financials yet were foundational to a better future.\nThese choices included major investments in technology, a pricing reset and operational improvements.\nOur actions have yielded robust results.\nWe've dramatically changed our Assisted business trajectory.\nAnd as Jeff reminded us, we just completed our best tax season in over a decade.\nWhile we have provided normalizations to make it easier to assess our results, the changing tax deadlines and fiscal year-end adjustment have created noise.\nBut the bottom line is we generate strong free cash flow, have grown our dividend and dramatically reduced shares outstanding.\nOver the past five years, we've returned nearly $2 billion to shareholders or approximately 84% of our total free cash flow.\nThese capital allocation principles will remain intact despite year-to-year nuances in the industry.\nFurther, we significantly reduced our effective tax rate and lowered our borrowing cost by refinancing our debt and line of credit.\nThese achievements have translated into adjusted earnings per share growth of 78%, and that's even after normalizing fiscal year '21 for the tax season extension.\nWe've derisked the business and created growth levers that didn't exist in the past.\nYet our trading multiple is compressed over this time period despite the broader market rally.\nH&R Block is on solid footing and will continue to drive earnings per share growth through disciplined capital allocation and core business performance.\nAnd as Jeff discussed earlier, we are creating additional upside opportunity with Block Horizons.\nI look forward to all that lies ahead.\nIn summary, we are proud of the progress that we have made, the momentum in the business and the opportunities to come.\nWe're confident in our ability to drive shareholder value with both our capital allocation approach and our future with Block Horizons.",
        "summary": "h&r block reiterates fiscal year financial outlook.\nqtrly adjusted loss per share$0.78."
    },
    {
        "text": "On the call today are Jeff Jones, our President and CEO; and Tony Bowen, our CFO.\nSome of the figures that we'll discuss today are presented on a non-GAAP basis.\nSuch statements are based on current information and management's expectations as of this date and are not guarantees of future performance.\nAs such, our actual outcomes and results could differ materially.\nYou can learn more about these risks in our Form 10-K for fiscal 2019 and our other SEC filings.\nDuring Q&A, we ask that participants limit themselves to one question with a follow-up after which they may choose to jump back into the queue.\nWhen we talked with you last quarter, we outlined our strategic objectives to digitally enable every aspect of our business to deliver our expertise to consumers in new and exciting ways, and we're seeing some positive results.\nWe're focused on serving Assisted clients with higher quality and better value and are on track to achieve our goal of holding share in the category.\nWe are seeing stronger demand for our Virtual product Tax Pro Go.\nWe continue to grow clients in DIY.\nClient satisfaction scores are up across all products following a year in which we saw unprecedented growth.\nAnd we continue to make strides in small business including another strong quarter from Wave.\nWhile I'm pleased with these early results we identified a couple of areas to improve DIY performance in the second half, that I will comment on later.\nFirst, I'll provide our perspective on what we've seen in the tax industry.\nThen I'll review our tax season to date results, discuss our expectations for the second half of the season and provide an update on small business.\nFinally, Tony will review our third quarter results and offer additional thoughts on our financial outlook for the fiscal year.\nStarting with the industry.\nOverall trends in filings are consistent with our expectations.\nAt this point the increase in DIY mix is at levels lower than last year.\nSo while there was speculation by some that the second year of the new tax law would cause more Assisted filers to switch to DIY, we aren't seeing any evidence of this in either our data or the industries and the change has actually moderated.\nTurning to our performance, I'd like to spend some time providing an update on our progress in each of the key areas we outlined last quarter.\nWe're focused on leading the industry with upfront transparent pricing, enhancing our standard operating procedures and digitizing how tax pros serve clients through Work Center.\nIn pricing, we're bringing upfront and transparent to life in an even stronger way this year through a new price estimator tool to help our tax pros provide clients a better estimate at the outset.\nUpfront transparent pricing is the key element of our recently launched No Surprise Guarantee, which also provides three audit assistance and a midyear tax check-in for clients across all of our products.\nWe've also improved Work Center which digitizes how our tax pros serve and communicate with clients, providing them with a superior experience.\nWe're seeing results from these efforts with higher retention for both new and prior clients as well as better conversions.\nClient survey scores increased 3 points for price for value and 2 points for overall quality, considering the 9 point improvement in these scores last season, these results are tremendous.\nThis has led to a significant improvement in client trajectory compared to this time last year.\nWith a lot of season left, we're confident that we will achieve our goal of holding share in the Assisted category.\nTax Sseason '20 marks the second year of Tax Pro Go.\nAn innovative product that provides clients with access to be unparalleled expertise of our tax pros from the convenience of their mobile device.\nThis year we redesigned the client experience to improve the product flow, simplified pricing, and made it easier to connect with our expert tax pros.\nWe're also highlighting the advantages of this product in our marketing, which is driving an increase in Tax Pro Go demand and mobile usage.\nWe're seeing the results of these efforts with improvements in key client service metrics and strong client growth.\nAnd while we're still in the early stages of this product, this continued growth gives us confidence that we can satisfy unmet needs and attract new clients to our brand.\nIn DIY, we've maintained our challenger strategy of investing to improve the product and user experience, pricing at a level that is competitive and provides value to clients, and communicating this value to grow awareness in compelled DIY consumers to switch to H&R Block.\nWe continue to utilize AI and machine learning to improve ease, speed and personalization in our product.\nWe've also increased the prominence of Online Assist, which provides DIY clients with on-demand access to a tax pro through chat, phone and screen sharing.\nThis product is priced competitively and is supported by the unmatched expertise of our extensive tax pro network.\nAnd our service levels have been tremendous this season, with most clients able to access the Tax Pro within one minute.\nCollectively, these efforts have led to strong results in our net promoter scores increasing over 3 points.\nThis is a significant -- this is significant considering the 9 point increase we saw last year.\nAnd our product has received a number of third-party accolades, including number one in thestreet.com's ranking of the best online tax software and NerdWallet's best software for simple returns.\nWhile we're excited about the progress we're making in our product and in the value we're delivering for our clients, we believe we can improve both our volume and net average charge result in the second half and have already taken the appropriate steps.\nFirst, we made changes to optimize our marketing investment to drive greater new client demand.\nAnd second, we have corrected an issue with a key online page that didn't allow clients to choose a different product, resulting in a loss of monetization.\nSince we have remedied the issue we have seen a 4% improvement in net average charge in DIY.\nWe're confident that we've made the appropriate changes and believe that our second half will be stronger.\nWe expect to end the year growing DIY clients in line with the category.\nFinally, in small business, starting with tax.\nWe've highlighted our expertise through new tools and a redesigned experience.\nWe're beginning to see traction from these new initiatives but believe it will take some time to increase awareness of our small business expertise.\nWith Wave, we continue to innovate to simplify the financial lives of small business owners.\nDuring the quarter, Wave continued to make progress on its strategic roadmap in a number of areas.\nWe're seeing demand grow for Wave advisors, where clients can get personalized help from our in-house bookkeepers.\nIn payroll, we're adding full service capabilities in more states to automatically file clients state and federal payroll taxes.\nAnd in payments, we've made key changes to streamline the client onboarding process to assist clients and getting the right product and to gather key information earlier in the process.\nAll of these improvements are fueling Wave's impressive performance which continued this quarter with year-over-year revenue growth of over 40%.\nTo summarize, we're on track to deliver our financial outlook for the year by digitally enabling our business, driving improved client trajectory in Assisted, innovating in Virtual, enhancing our award winning DIY product and expanding in small business.\nWe have clear visibility in the areas for improvement and are focused on executing in the second half to deliver stronger results by seasons end.\nWith that, I'll now hand the call over to Tony.\nBefore I get into the details of our results, as a reminder, we typically report a loss during the fiscal third quarter due to the seasonality of our tax business.\nTherefore, third quarter results are not representative of our full year performance.\nStarting with revenues, we saw a year-over-year growth of $51 million or 11% to $519 million.\nThis increase was primarily due to higher tax preparation fees due to volume growth in Assisted and DIY and the acquisition of just over 200 franchise offices this year which continues to be a good use of capital.\nThe volume growth also resulted in higher royalties as well as increased revenues related to our Tax Plus products.\nIn addition to increases in our tax business, Wave contributed $11 million, which represents a year-over-year increase of more than 40%.\nTotal operating expenses increased $65 million or 11% to $672 million.\nThe majority of this increase was anticipated as it was driven by Wave, increased compensation due to higher Assisted volumes, and planned investments related to our technology roadmap.\nWe also recorded $19 million of incremental marketing expense during the quarter that was entirely due to a pull forward of recognition from Q4 to Q3, and was not due to an increase in spend.\nBecause of this timing shift, we expect marketing expense to be lower in Q4.\nI'll discuss our full year outlook including expectations for operating expenses later in the call.\nInterest expense was $26 million, which reflects an increase from the prior year due to higher draws on our line of credit.\nThe changes in revenue and expenses resulted in an increase in pre-tax loss from continuing operations of $18 million.\nGAAP loss per share increased $0.08 to $0.66.\nAs we shared last quarter, we are now reporting GAAP and non-GAAP EPS.\nAdjusted loss per share increased $0.07 to $0.59 driven by the increase in pre-tax loss and lower shares outstanding, partially offset by an increased tax benefit.\nAs a reminder, while beneficial on a full year basis, the lower share count negatively impacts earnings per share in quarters in which we report a loss.\nIn discontinued operations there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter.\nRegarding capital, our priorities remain unchanged.\nAt the top of list is maintaining adequate liquidity for our operational needs to account for our seasonality.\nWe came into this year with a strong financial position after generating over $500 million of free cash flow in fiscal '19.\nWe then make strategic investments back in to the business that we believe deliver value to our clients, ultimately benefiting our shareholders.\nMaking prudent investments to drive sustainable growth remains a key element of our capital allocation.\nLast, we will deploy excess capital through quarterly dividends and share repurchases.\nWe've increased our quarterly dividend each of the last four years, resulting in a 30% increase over that time.\nRegarding share repurchases in the third quarter, we repurchased 2.8 million shares for $66 million at an average price of $23.35.\nYear-to-date, we have repurchased a total of 10.1 million shares for $247 million at an average price of $24.36.\nGoing forward, we will continue to be opportunistic in our share repurchase approach.\nI'd now like to provide thoughts on our financial outlook for the remainder of the year.\nStarting with the tax industry, we continue to expect overall return growth of around 1%, with Assisted volume flat to slightly up and DIY growing around 3%.\nThis is consistent with the trends we've seen over the last several years.\nFor H&R Block, as Jeff shared, we expect growth in DIY clients in line with the category, and an improvement in client trajectory in Assisted as we hold market share in that category.\nCombined this would be the third consecutive year of overall client growth.\nRegarding pricing, in Assisted we expect net average charge to remain consistent with last year, following a year in which we reset price.\nIn DIY, during the first half of the season, we saw a decrease in net average charge, due to the product issue that Jeff discussed.\nWe've remedied this and combined with anticipated growth in Online Assist, we expect mix to improve in the second half, resulting in net average charge similar to last year.\nConsistent with the outlook we provided last quarter, we expect these client growth and net average charge expectations along with Wave to result in revenue growth of 1.5% to 3.5%.\nFor the full year, we expect to grow revenue faster than EBITDA resulting in a decline in EBITDA margin compared to fiscal '19.\nThis year, we realized approximately $15 million of unplanned one-time expenses -- one-time expense increases, due to legal cost and Refund Advance fees, which will also impact our margin.\nDespite these expense increases, we continue to expect EBITDA margin to be within our previously provided range of 24% to 26%.\nGiven our year-to-date results, this full year outlook infers a significant increase in EBITDA in the fourth quarter.\nThis will be achieved through continued revenue growth as well as a reduction of certain expenses in the fourth quarter related to the timing of marketing expense recognition that I mentioned earlier and lower compensation related to accrued bonuses.\nAs we indicated last quarter, we expect the tax rate of 19% to 21% due to favorable settlements with tax authorities during the second quarter.\nThe rest of our financial outlook also remains unchanged with total depreciation and amortization of $165 million to $175 million, of which $70 million to $80 million will be amortization of intangibles related to acquisitions.\nThis amortization expense reflects both Wave and tax office acquisitions and is excluded from earnings per share for non-GAAP reporting.\nWe continue to expect interest expense of $90 million to $100 million and capital expenditures of $70 million to $80 million.\nTo conclude, I'm confident in our plans for the second half of the tax season, and we are on track to deliver our financial objectives for the fiscal year.\nTheir dedication to providing help and inspiring confidence in our clients and communities is what makes H&R Block the great company it is today.\nOverall, I'm excited about the progress we're making toward our long-term goals and I'm confident we're taking the steps necessary to deliver on our objectives for the fiscal year.\nI look forward to sharing more with you when we report our full-year result in June.",
        "summary": "compname reports q3 adjusted loss per share $0.59.\nq3 adjusted loss per share $0.59 from continuing operations.\nq3 loss per share $0.66 from continuing operations.\nq3 revenue $519 million versus refinitiv ibes estimate of $485.5 million."
    },
    {
        "text": "On the call today are Jeff Jones, our president and CEO; and Tony Bowen, our CFO.\nSome of these figures we'll discuss today are presented on a non-GAAP basis.\nSuch statements are based on current information and management's expectations as of this date and are not guarantees of future performance.\nAs a result, our actual outcomes and results could differ materially.\nYou can learn more about these risks in our Form 10-K and our other SEC.\nDuring Q&A, we ask that participants limit themselves to one question with a follow-up, after which they may choose to jump back into the queue.\nToday I'm excited to share our outstanding results.\nI'm proud of what our team has accomplished, including progress on our Block Horizons strategy and a very strong tax season.\nOur results show that our multi-year efforts to improve client trajectory are gaining traction.\nWe grew clients and achieved our largest overall and the largest assisted market share gains in over a decade.\nWe drove significant growth in DIY revenue and continued strong growth at Wave.\nWe increased the digitization of the business, advanced how we serve small businesses at Block Advisors and made meaningful progress in building our new mobile banking product.\nToday, we also announced another increase in our quarterly dividend.\nOur fifth in the past six years, further demonstrating the confidence we have in both our financial strength and outlook for continued long-term growth.\nWith that backdrop, let me provide more detail on what we've achieved with Block Horizons since our Investor Day in December, followed by additional color on the 2021 tax season Tony will then review our full-year financials and capital structure, discuss our fiscal year change, and provide thoughts on our fiscal year '22 outlook.\nSince our Investor Day in December where we laid out our Block Horizons strategy, we've had our foot on the gas to execute across our three strategic imperatives: small business; financial products; and Block Experience.\nSmall business and financial products are categories where we have a right to compete and advantages to help us win.\nBlock Experience represents our modernized approach to tax.\nI'll start with an update on each of these key areas.\nIn small business, we've gained traction on all elements of our strategy.\nFirst, we expanded our reach to more small business owners by improving our client experience in tax and amplifying our messaging.\nIn a few short months, we certified over 25,000 tax professionals to serve small businesses, relaunched the Block Advisors brand, and built a new Block Advisors product in DIY, which includes unlimited expert help.\nOur Block Advisors marketing campaign, which launched in mid-February, resonated with customers as it drove awareness of our ability to serve small business owners' unique needs and reinforced our expertise as a trusted year-round partner for this critical customer segment.\nSecond, we made progress in bookkeeping and payroll services, laying the foundation for future growth.\nAnd third, Wave continued exceptional growth of over 35% for the year, while also expanding Wave Money as the center of the experience.\nTurning to financial products, we've begun our journey to provide additional value to underbanked customers by offering a mobile banking alternative to meet their unique needs.\nWe've completed the design phase and are now building the beta version of our product, which we expect to launch by calendar year-end.\nRegarding Block Experience, we're continuing to infuse human help into our DIY offering and transform the assisted experience through digital tools as we meet our customers however and wherever they wish to be served.\nWe're already seeing positive signs in virtual adoption by our assisted customers and we also saw a great uptake of DIY clients requesting human help.\nI'll share more on this in a moment as I go through tax season details.\nThe theme of this year's tax season for H&R Block can be summed up in one word: growth.\nTo provide context on the strength of our results this year, I'd like to first frame the industry dynamics, particularly given this year's unique considerations.\nThis season included a delayed start from the IRS, a two additional rounds of related stimulus payments, mid-season changes to tax laws, added new policies regarding unemployment and recovery rebate credits, and finally, a one-month delay in the filing deadline to May 17, all in year two of the pandemic.\nThe industry in total saw an increase in filings when compared to last year's completed season, that is to the filing deadlines in each year.\nThere was also a mix shift from DIY to assisted, representing a reversal of prior-year trends.\nAs a reminder, the category also showed strength in 2020 as assisted returns were essentially flat in a year when the operating environment was far from normal.\nThe resilience and sustainability of the assisted category, even amid the pandemic reflects our conviction and its stability over time.\nThe bottom line continues to be that most Americans want personal help with their taxes and nobody is better-positioned than we are in delivering that expert help.\nWith the industry backdrop as an important context, I'd like to provide more detail on our results.\nTo clarify, when making comparisons, I will discuss the full tax season in 2021 versus the full tax season in 2020, despite the different filing deadlines.\nLater, Tony will share more about our fiscal-year results and how these were impacted by the extension.\nWe saw growth in overall clients, total share, assisted share, and strong revenue performance in DIY.\nWe estimate that we gained approximately 30 basis points of total market share when compared to last year's completed tax season.\nThis is our best result in over a decade.\nIn our assisted business, we grew clients by over 700,000 or approximately 7%, in estimate, we gained 70 basis points of market share.\nAgain, the best in over 10 years.\nBased on these results and the continued positive feedback we hear from customers, we know that our work to improve value, quality, and digital capabilities are helping consumers rediscover a new H&R Block.\nWe were the go-to source of help for many individuals who haven't normally been filing, but who this year had questions about unemployment or receiving the recovery rebate credit.\nThough some of these filings may be one-time in nature, we're committed to doing all we can to retain these additional clients.\nImportantly, our client satisfaction scores remained strong and our new client scores improved with high marks for being cared for, price for service, and intent to return.\nWith these dynamics, we held pricing flat in assisted.\nOur net average charge was down about 2% due entirely to mix as the majority of growth in new clients came from filers at lower price points.\nWhile these new clients caused a decrease in our average charge, they were additive to revenue.\nOur share gains show that our value is being recognized in the marketplace, giving us confidence to consider modest price increases.\nMoving to our DIY business, revenue grew nearly 20% due to an increase in the net average charge related to improved mix and pricing actions.\nAlso, significantly more clients chose to add human help, resulting in the second year in a row of tax pro review growing more than 50%.\nWe saw a slight share loss as we focused on more valuable returns, evidenced by our improved mix and an increase in NAC of over 20%.\nThe increasing use of human help by our DIY customers, along with the use of digital tools by our assisted customers demonstrates the importance of our Block Experience efforts to blend digital capabilities with human expertise and care.\nWe're confident we're on the right path to serving consumers in a modern way.\nAs a reminder, digital does not mean DIY and the increasing use of digital capabilities in the assisted business does not reduce our NAC.\nI'll now move on to small business, which includes our Block Advisors and Wave brands.\nWe grew assisted small business filers by 4%.\nAnd as I previously shared, Wave continues to produce strong results as we see increases in customers new to the brand, overall payments volume, and the use of payroll services.\nThis all led to revenue growth of over 35%.\nIn addition, our strategy of putting Wave Money at the core of our offering is picking up steam as Wave Money deposits have grown at a pace of 40% per month for the past six months.\nIn summary, our team provided help and inspired confidence for millions of consumers and small business owners this season.\nWe made tremendous progress in our first year of Block Horizons, running technology and digital tools with human expertise in tax to help achieve our largest market share gains in over a decade.\nWe improved our offerings in small business, drove significant growth of Wave, and are making progress on our new mobile banking platform.\nWe are confident about the journey we're on and I'm very excited about our future.\nToday, I'll provide color on our full fiscal-year results, discuss the impact of the filing extension beyond our fiscal year, recap our dividend and capital allocation strategy, provide details on our new line of credit, and share more about our fiscal year-end change.\nI'll also provide some more context about our baseline earnings and our outlook for fiscal '22.\nThe extension of the U.S. federal tax filing deadline to May 17 led to the tax season concluding beyond fiscal '21, causing a timing difference in our financial results.\nIf we were able to include these amounts in our fiscal 2021 results, we would have significantly surpassed the high end of our previous outlook for both revenue and earnings.\ntax return volumes due to the extension of last tax season into fiscal '21.\nWe also achieved improved monetization within DIY and increase in Emerald Card revenues related to federal stimulus payments, and strong growth from Wave.\nRegarding expenses, due to strong fiscal management, we outperformed our savings target while still investing appropriately in our Block Horizons strategic imperatives.\nTotal operating expenses were $2.6 billion, which increased by $82 million or 3% due to an increase in variable labor, which is partially offset by prior-year impairment charges, lower bank partner fees, and travel-related costs.\nInterest expense increased $11 million, which reflects the precautionary draw on our line of credit at the end of last fiscal year, partially offset by a lower interest rate on our debt issuance earlier in the fiscal year.\nAs a result, pre-tax income was $669 million, compared to a pre-tax loss of $3 million in the prior year.\nOur effective tax rate was just 12%, driven by favorable tax planning we implemented during the year.\nDiluted earnings per share from continuing operations increased from $0.03 to $3.11, while adjusted earnings per share from continuing operations increased from $0.84 to $3.39.\nRegarding discontinued operations, there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter.\nMoving to capital allocation, our strategy demonstrates current strength and confidence in our future, supported by strong free cash flow.\nOur priorities remain unchanged: first, maintain adequate liquidity; next, invest in our business; and then support the dividend and opportunistically repurchase shares.\nDue to the health of our business and our outlook, we announced today an increase in our quarterly dividend of 4% to $0.27 per share.\nThis marks the fifth time we've raised the dividend in six years, resulting in a 35% total increase over that time.\nRegarding share repurchases, we bought a total of $38 million in the fourth quarter.\nFor the full year, we repurchased $108 million at an average price of $16.29, allowing us to retire 11.6 million shares or 6% of our float.\nApproximately $564 million remains under our share repurchase authorization, which expires in June of 2022.\nI'm also pleased to announce that we just amended our line of credit to a new five-year facility.\nWe lowered the capacity to $1.5 billion, which is more appropriate for our business needs and result in lower costs.\nWe were able to renew at favorable rates and reduce our expected run-rate costs by approximately $3 million per year.\nFinally, we aligned our covenants to our new fiscal calendar, which I'll share more about in a moment.\nThis is yet another sign of our financial strength, which provides a solid foundation for growth.\nSwitching gears, I'd like to talk about our decision to change the fiscal year.\nGiven the lack of comparability in our results over the past couple of years due to tax season extensions, we felt it was appropriate to examine our fiscal year-end.\nAfter this review, we have made the decision to move from an April year-end to a junior -- June year-end effective immediately.\nThe change allows for better alignment of complete tax seasons in comparable fiscal periods and other related benefits.\nWe plan to file a report on Form 10-QT for the transition month of May and June later this summer.\nFiscal 2022 will begin on July 1 and end on June 30, 2022, with our first-quarter results through September 30 reported in early November.\nFinally, I'd like to discuss our outlook for fiscal '22 based on our new June year-end.\nBefore doing so, we know investors are seeking to better understand baseline results and thought it would be helpful to provide additional context for fiscal '21, including the change to the fiscal year.\nTo reset to the new fiscal year, we take our current fiscal year '21 results and remove May and June from 2020 at the beginning of the year, and then add May and June from 2021.\nWe then normalize the fiscal '21 for two things.\nFirst, given tax season 2020 concluded on July 15, we are backing out the activity related to tax season that carried into the new fiscal '21.\nSecond, we remove one-time impacts related to the pandemic.\nThese primarily consisted of incremental Emerald Card revenue related to stimulus payment loads and one-time expenses for associated benefits and supplies, both related to the pandemic.\nThis normalized view of fiscal '21 ending June 30 would result in an estimated revenue of $3.25 billion and EBITDA of $760 million.\nTurning now to fiscal '22, we considered a number of variables both for the tax industry and for us.\nThese include the potential industry loss of one-time filers who were motivated to file this tax -- past tax season for the recovery rebate credit, changes in unemployment-related benefits, and the expansion of the child tax credit.\nAfter considering these impacts, we expect industry volumes to be flat to slightly down in '22 and anticipate a similar trend for our volume.\nAs such, we now expect fiscal '22 revenue to be in the range of $3.25 billion to $3.35 billion.\nEBITDA is expected to be in the range of $765 million to $815 million.\nBoth of these are an improvement to the normalized fiscal year '21 results I shared with EBITDA growing faster than revenue.\nRegarding our outlook, the effective tax rate is anticipated to be between 16% and 18%, depreciation and amortization is anticipated to be between $150 million and 160 million, and interest expense is anticipated to be between $90 million and $100 million.\nOur projected results demonstrate solid growth despite comparing against very strong performance last year and are a sign that we have the right strategy under way.\nIn summary, I am very pleased with both our tremendous performance this season and the trends we are seeing in the business.\nWe are committed to our financial principles and are on a path to long-term sustainable growth.\nBefore we begin Q&A.\nI also want to reiterate how pleased I am about this year's results and the progress we've made, as well as our confidence in the Block Horizons strategy going forward.\nThe last two years have been incredibly complex and disruptive, and this success is made possible by our hardworking associates, franchisees, and tax pros, who once again demonstrated how H&R Block inspires confidence in our clients and communities.\nAs we open the line for Q&A, I want to make a note of transition in our Investor Relations role.\nColby Brown has been leading these efforts for more than eight years and has done a tremendous job.\nWe recognize the importance of supporting our investment community.\nAnd as Colby transitions out of the IR role, we have brought on Michaella Gallina, whose sole focus will be serving analysts and investors.\nMichaella has led IR at a number of companies and was also an analyst on the buy side.",
        "summary": "increases quarterly dividend by 4 percent to $0.27per share."
    },
    {
        "text": "If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investors section.\nOn our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer; and Jim Sheehan, Executive Vice President and Chief Financial Officer.\nJim Snee will provide a review of the Company's current and future operating conditions, commentary regarding each segment's performance for the quarter and update on the impact to the company of the COVID-19 pandemic and a perspective on the balance of fiscal 2021.\nJim Sheehan will provide detailed financial results and commentary regarding the Company's current and future financial condition.\nAs a courtesy to the other analysts, please limit yourself to one question with one follow-up.\nIt will also be posted on our website and archived for one year.\nBefore we get started, I need to reference the Safe Harbor statement.\nIt can be accessed on our website.\nAs we approach the one-year mark of the pandemic, I want to express my gratitude to our plant professionals for their continued dedication, energy and focus.\nThey continue to be the true heroes of our company during this time.\nOn our last earnings call in November, we were witnessing an increase of COVID-19 cases in the United States.\nOur number one priority has been to keep our team members safe, and we have been very focused on our best-in-class preventative measures and on educating our employees through our awareness campaign keep COVID out.\nAs the pandemic evolves and the vaccine becomes more widely available to our team members, we'll continue to keep the health and safety of our team members as the top priority.\nWe were among the first to offer a COVID pay program to allow those who are ill or had symptoms to stay home from work and still be paid.\nAdditionally, we paid $11 million in fiscal 2020 and unconditional bonuses to our team members to provide further financial security.\nOur program has resulted in minimizing the spread of COVID in our workplaces and our communities.\nRecently, we have been encouraged to see cases decline and the number of team members on our COVID pay program drastically decrease.\nThis gives us increased optimism as we head into the second quarter.\nWe were pleased to announce the entry into a definitive agreement to acquire the Planters business last Thursday.\nWe have many leading brands that Hormel and the acquisition of the Planters snack nut business will be an excellent addition to our Company.\nOver the past 10-years, we have made numerous acquisition, all of which are meeting our strategic objectives.\nThe performances of MegaMex, Wholly, SKIPPY, Applegate, Justin's, Ceratti, Fontanini, Columbus and Sadlers give us a high level of confidence in our ability to successfully integrate, operate and grow the Planters business.\nThe acquisition of Planters is the perfect strategic fit.\nThe addition of this iconic brand in high-margin business continues our evolution as a global branded food company, moving us further away from a commodity-oriented meat-centric company.\nAs one of our biggest brands, we will give it a high level of focus and attention.\nOur core competency and brand stewardship will be key to our success and unlocking the power of the Planters brands.\nWe know how to manage brands and Planters is right in our sweet spot as we know Planters is more than simply peanuts in the jar.\nPlanters also perfectly complements, enhances and expands our existing snacking business.\nJoining brands like Hormel Gatherings, Columbus, Wholly and Herdez.\nThere are numerous opportunities to leverage the consumer insights from both portfolios to drive further innovation and improve growth for our entire snacking business.\nThe Planters business gives us another iconic brand to grow and increases our scale in key areas such as center store and convenience stores.\nIntegration into our direct sales force is a high priority and we know there are immediate opportunities to improve distribution and drive sales growth.\nAnother priority for us is to integrate the business into our One Supply Chain and Project Orion platforms.\nWe expect synergies from this integration for the Planters business and for our existing business.\nThere is a lot to love about this acquisition and I'm excited for the transaction to close, so we can begin to give the Planters business the attention and focus it needs to grow.\nNow turning to our first quarter.\nOur team generated strong top line growth with sales increasing 3% to a record $2.5 billion all four segments delivered sales growth and achievement that hasn't been accomplished since 2016.\nIncremental supply chain costs related to COVID-19 of $15 million were the primary reason for a $13 million decline in pre-tax earnings.\nNet earnings and diluted earnings per share declined 9%, due primarily to incremental supply chain costs and higher tax expense.\nAs in prior quarters, we continue to strike a balance between the consumer demand we are seeing and our supply chains ability to meet that demand.\nWe increased production levels this quarter through a combination of improving efficiencies; bringing on new capacity and further leveraging our strategic supply chain partners.\nWe expect this steady improvement to continue throughout the year, we have been successful in a number of critical categories and we will continue to make progress across the portfolio.\nOur retail business continued to perform extremely well with sales increasing 13% for the quarter.\nBrands such as SPAM, SKIPPY, Hormel chili, Hormel Black Label, Applegate, Hormel pepperoni, Lloyd Hormel fully cooked entrees and Justin's all delivered very strong growth.\nMost encouraging was the sales growth we saw from the Jennie-O brand every major retail category, including Jennie-O lean ground, turkey burgers, Oven Ready items, Bacon and marinated meats grew.\nThe Jennie-O brand continues to resonate with consumers and the efforts we have made on gaining back customer distribution are paying off.\nOur e-commerce business continues to be a bright spot as it almost doubled in the last 12-weeks according to IRI.\nWe grew share in several key categories and have a high level of momentum in online grocery pickup, delivery and direct-to-consumer.\nOur deli channel sales increased 7% this quarter; Columbus branded products led the way with exceptional growth from grab-and-go items.\nThe opening of our new plant in Omaha this quarter, which produces Columbus charcuterie products will provide much needed capacity for this business.\nWhile the Columbus brand was the clear leader for us this quarter in the deli, our team generated growth in every deli segment they compete in, including grab-and-go, prepared foods, behind-the-glass and fresh sliced deli meats.\nOur party tray business also grew volume in sales over the holiday season, despite fewer group gatherings, a testament to our team's ability to keep this brand relevance.\nWe saw a positive signs of recovery in foodservice this quarter even as the business declined 17%, compared to last year, due to the continued impacts of the pandemic on the industry.\nWe continue to see strength in our business with an important segments such as Pizzeria, QSRs and convenience stores.\nOur direct sales force also made excellent progress pivoting to high growth areas, such as commissary's and ghost kitchens as they secured new distribution with both distributors and operators.\nTurning to the segments.\nGrocery Products delivered very impressive results this quarter.\nWe saw top line strength across many of our brands, including SPAM, SKIPPY, Hormel Compleats and Herdez, which led to volume increases of 4% and the sales increases of 7%.\nWe implemented a price increase for our SKIPPY business this quarter, once again demonstrating our ability to price in our categories.\nWe are also encouraged with the performance of our recent innovative new items, including SKIPPY Squeeze, SKIPPY No Sugar and SKIPPY with added protein spreads.\nOur MegaMex joint venture had a strong performance this quarter as well, but equity and earnings increasing by 31%.\nThis growth was led by our retail brands, such as Wholly, Herdez, CHI-CHI'S and La Victoria.\nIn addition to the MegaMex results, the 35% increase in segment profit was driven by higher sales and a favorable mix.\nRefrigerated Foods volume declined 2% and sales increased 1%.\nOur retail and deli teams overcame steep year-over-year declines in our foodservice business to deliver growth for our value-added business.\nApplegate had a particularly strong quarter with growth fueled by both category momentum and share gains across core categories such as Frozen Branded Chicken, Breakfast Sausage, Bacon and Hot Dogs.\nI continue to be optimistic about the momentum we are building in the Applegate business.\nWe also delivered excellent results in our Hormel pepperoni business both in foodservice and retail.\nOur teams continue to optimize the brand by focusing on our core products in the category and simultaneously leaning into our new Cup N' Crisp innovation.\nWe plan to maintain our advertising efforts for Hormel pepperoni to ensure we retain the households we gained during the initial pandemic buying.\nRefrigerated food segment profit declined by 16%, due to lower foodservice sales, a significant decline in commodity, profitability and increased supply chain expenses due to COVID-19, profitability was also impacted by one-time start-up expenses related to our new plant in Omaha.\nJennie-O volume decreased 2% and the sales increased 1%.\nWe saw exceptionally strong retail and whole bird sales, which overcame significant declines in the foodservice and commodity.\nOur retail business grew double-digits this quarter with growth coming from almost every category in which we compete.\nWe have taken price increases across our portfolio and expect those to be effective late in the second quarter.\nWhole bird volumes increased by strong double-digits, due to a very positive holiday season.\nOur foodservice business was impacted by lower K through 12 and college and university business in addition to continued weakness in the foodservice industry.\nJennie-O Turkey Store segment profit declined 30%, lower foodservice sales increased supply chain costs related to the COVID-19 pandemic and higher freight expenses were key drivers to the lower profitability.\nGrain prices increased significantly during the quarter, but only had a modest effect on earnings.\nWe expect the primary impact of higher grain prices to affect the coming quarters.\nIn addition the pricing action, we have taken additional actions to manage higher corn and soybean meal costs.\nInternational volume decreased 5%, sales increased 13% and segment profit increased 61%.\nOnce again the strong sales and earnings performance was led by our retail and foodservice business in China.\nSPAM, SKIPPY and beef jerky were all key drivers to growth in China, we remain very positive about the short and long-term prospects of our China business.\nWe also saw a strong branded exports for brands like SKIPPY and SPAM.\nSimilar to prior quarters, our affiliated businesses in the Philippines, South Korea and Europe continue to show high levels of growth.\nLooking to the balance of the year, I'm increasingly optimistic about delivering sales and earnings growth.\nAs such we are establishing fiscal 2021 guidance for the full-year at $1.70 to $1.82 per share.\nAs a reminder this guidance range does not include the impact of the acquisition of Planters.\nSimilar to prior quarters, we believe there are three key drivers to our near-term and long-term performance.\nRetail dynamics, the recovery in the foodservice industry and the performance of our supply chain.\nOur retail deli and International teams need to maintain their momentum and outperform their respective categories.\nOur brands continue to gain new households and our repeat rates remain very strong.\nThe depth of repeat, those consumers purchasing our brands multiple times is incredibly positive, but almost all new buyers for our brands making two or more repeat purchases during the first quarter.\nAs a whole, our brands continue to make household penetration gains with brands like Herdez, La Victoria and Columbus increasing household penetration by over 20%.\nFor the foodservice channel, we are optimistic about our foodservice recovery and confident in our ability to gain share during the recovery.\nDuring the pandemic operators have been looking for products to simplify their food preparation, save time and minimize labor, all while preserving the flexibility to add their own unique touch to a menu item.\nOur direct sales force continues to meet their needs with products like Hormel Fire Braised meats, Sadler's authentic smoke barbecue and Hormel, Bacon 1.\nThe recent trends we are seeing in our foodservice businesses are positive.\nWe have been able to react quickly to increase demand as cities and states have these dining restrictions, allowing patrons to return to their favorite restaurants.\nWe also anticipate our non-commercial business such as K through 12 schools, colleges and universities and healthcare to recover as the pandemic subsides.\nThe most encouraging signs we are seeing are in our supply chain.\nWe made excellent progress on increasing capacity to meet the high levels of demand from our customers.\nSteady week-over-week improvements, lower levels of absenteeism, new capacity and a continued vaccine rollout are all reasons we have a positive outlook.\nOur supply chain team hit two major milestones this quarter, with the opening of our new dry sausage production facility in Omaha, Nebraska and the opening of our pizza toppings expansion at Burke.\nBoth projects were on time and on budget, which is truly amazing considering both projects were constructed primarily during the pandemic.\nOur plant teams have made progress on labor availability and in almost every location, our labor situation has improved.\nWe expect that trend to continue into the second quarter and beyond, as the vaccine becomes widely available for our team members.\nWe now have a higher level of visibility into the coming quarters and remain confident in our team's ability to deliver our sales and earnings guidance this year.\nRecord sales for the first quarter were $2.5 billion, an increase of 3%.\nCOVID-related direct expenses of $15 million were the primary driver to pre-tax earnings declining $13 million or 5%.\nAbsent the COVID expenses pre-tax earnings would have increased; total COVID expenses have started to decline from the prior quarterly run rate of $20 million.\nThis was driven by higher volumes through our production facilities and improved efficiencies in our logistics network.\nEarnings per share for the first quarter was $0.41, compared to $0.45 last year.\nOn an after-tax basis, first quarter results reflected approximately $0.04 per share in incremental COVID-related costs and higher tax expense.\nSG&A, excluding advertising was 6.6% of sales, down slightly, compared to the prior year.\nAdvertising spend for the quarter was $34 million, compared to $35 million last year.\nWe continue to invest in our leading brands including SPAM, SKIPPY, Hormel pepperoni, Black Label and Jennie-O.\nOperating margins for the quarter were 10.9%, compared to 11.8% last year.\nThe decline was driven by COVID-related expenses and a continued to impact from lower foodservice earnings.\nUnallocated expenses included deferred compensation expenses related to tax settlement and deal fees.\nOur effective tax rate for the quarter was 19.7% last year's rate of 16.3% was affected by the large volume of stock options exercised in the quarter.\nExcluding the impact from the Planters acquisition, we expect the full-year tax rate to be between 20% and 21.5%.\nCash from operations was $206 million during the quarter, a 9% increase.\nEven with record sales inventory levels continue to gradually improve throughout the quarter, due to improvements in operations, labor availability, internal capacity expansions and increased use of strategic manufacturing partners.\nWe expect inventories to continue to build throughout the second quarter.\nThere is a risk for inflationary pressure on freight expense, both domestically and internationally.\nHowever, we expect improved efficiency factors to offset some of the higher freight costs.\nWe paid our 370th consecutive quarterly dividend effective February 16th at an annual rate of $0.98, a 5% increase over the prior year.\nDuring the quarter, the company repurchased 200,000 shares for $9 million.\nCapital expenditures were $40 million in the quarter, we opened the pizza topping expansion of Burke and the new dry sausage facility in Omaha.\nWork is also under way to expand our pepperoni capacity.\nThe Company's target for the capital expenditures in 2021 is $260 million.\nLast Thursday, we announced the definitive agreement to acquire the Planters snack nut portfolio for an effective purchase price of $2.79 billion.\nThe transaction was structured as an asset purchase and included a $560 million tax benefit.\nThe adjusted 2020 EBITDA multiple on the effective purchase price of $2.79 billion was 12.5 times.\nThis acquisition is financially attractive, our disciplined approach to valuation allowed us to secure our leading brand at a multiple below the industry average, take advantage of historically low rates, increase our company sales by 10%, improve the profitability of the portfolio with accretive margins and responsibly leverage our balance sheet.\nWe expect to finance the transaction with cash on hand and a combination of long-term and short-term debt.\nWe will be able to borrow the funds at approximately 1.5%, and expect to be able to significantly deleverage the debt in 18 to 24 months.\nWe are targeting a 1.5 times leverage by 2023, and are very focused on retaining a strong investment-grade rating.\nThe cash flows from our existing business along with Planters allows us to maintain our long-term capital allocation strategy.\nWe will continue to prioritize returning cash to shareholders in the form of annual dividend growth.\nIndustry operating efficiencies, labor availability and production levels continue to improve during the first quarter, driving less volatility in the hog market, compared to the back half of 2020.\nHog weights are currently at historically high levels, which has led to balanced market conditions.\nIn 2021, the USDA is projecting pork production to increase 1%.\nWith an expected recovery in the foodservice industry and higher grain prices for the balance of the year, we anticipate hog cost to increase.\nOur balanced mix of hog and pork supply contracts will help us manage the risk of higher prices.\nThe USDA composite cut out was in line with last year during the first quarter.\nRecently, we have seen strength in the cutout supported by strong demand for pork domestically and internationally.\nWe continue to monitor export demand and ASF in China, Southeast Asia and Europe.\nASF continues to be a risk in the pork industry.\nWe have seen the disease could be successfully managed in areas with modern agricultural practices.\nWe expect higher prices for pork with less volatility than last year.\nThe strength of our brands and balanced approach to procurement, continue to be a competitive advantage.\nPork trim markets are expected to remain higher during the second quarter of 2021 and declined in the back half, as labor availability and processing plants improves.\nBeef trim prices are expected to be lower in 2021.\nWe anticipate belly prices to be volatile in the near-term, driven by strong demand and foodservice industry growth.\nStrong Chinese demand and drought conditions in South America continue to generate higher grain prices, which is expected to negatively impact Jennie-O Turkey Store.\nLike the pork industry, we are closely watching the fundamentals for grain.\nThe primary factor, we are watching our global demand, planting intentions for the coming season and weather conditions in South America.\nWe managed grain costs through a combination of spot buying, derivatives and adjusting feed formulas.\nAdditionally, we have announced pricing action across all Jennie-O products to protect our profitability.\nWe are prepared to take additional actions as conditions change.\nFundamentals in the Turkey industry remain mixed, excess poult placements and cold storage are below year ago levels, while prices or commodity breast and thigh meat remain depressed, poult placements have been declining recently, which will likely lead to lower levels of supply.\nBecause the foodservice industry is a key outlook for breast meat as the foodservice industry recovers breast meat pricing is expected to improve.\nWe are finalizing the implementation plans for the Planters business.\nWe will have the HR and Payroll functions integrated by the closing date.\nThe finance and supply chain will be fully implemented within one year of closing.",
        "summary": "qtrly net sales of $2.5 billion, up 3%.\nqtrly diluted earnings per share of $0.41.\nsees fy earnings per share $1.70 to $1.82.\nqtrly grocery products volume up 4%.\nqtrly grocery products net sales up 7%.\nqtrly jennie-o turkey store volume down 2%.\nqtrly jennie-o turkey store net sales up 1%.\nhormel foods - international segment is poised to have a record year led by continued strength in china business, branded exports, global partnerships.\nexpect continued improvement throughout supply chain as labor availability improves and pandemic-related expenses begin to subside.\nexpect a recovery in foodservice business, given acceleration in shipments during recent weeks.\nqtrly international & other volume down 5%.\nqtrly international & other net sales up 13%.\ncontinued escalation in grain prices will require additional actions.\nqtrly international & other volume down 5% and net sales up 13%."
    },
    {
        "text": "If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investors section.\nOn our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer; and Jim Sheehan, Executive Vice President and Chief Financial Officer.\nJim Snee will provide a review of the Company's current and future operating conditions, commentary regarding each segment's performance for the quarter and a perspective on the balance of fiscal 2021.\nJim Sheehan will provide detailed financial results and commentary regarding the Company's current and future financial condition.\nAs a courtesy to the other analysts, please limit yourself to one question with one follow-up.\nIt will also be posted on our website and archived for one year.\nBefore we get started, I need to reference the Safe Harbor statement.\nIt can be accessed on our website.\nOnce again this quarter, I want to recognize the heroic work of our production team members.\nThis team deserves much of the credit for our record sales results this quarter as they continued working to produce safe high-quality food for millions of consumers and customers.\nOur number one priority has been to keep our team members safe and our cross-functional COVID-19 leadership team is ensuring we are on the leading edge of the country's vaccination efforts.\nTo date, we have fully vaccinated over 51% of our domestic workforce, which is well ahead of the country's vaccination rate.\nWe are encouraged by the rapid decline in cases in our communities.\nFrom a top-line perspective, our balanced business model has again proven to be a winning formula as our team delivered record sales for the second quarter and first half.\nIn total, sales for the quarter increased 8% compared to last year, and the sales increased over 5% for the first half of the year.\nA key driver of our sales performance is the rebound in our foodservice business.\nAs expected our foodservice team experienced a strong recovery and took numerous actions to properly position our organization to capitalize on the industry recovery.\nFor the quarter, foodservice sales increased 28%.\nThis reflects an increase of 1% over 2019 pre-pandemic levels.\nThis is a significant accomplishment, especially knowing where the industry was just a few short months ago.\nSince the beginning of the pandemic, our foodservice teams have been doing their part to support the industry.\nWithin days of the crisis, we worked closely with our distributor and operator partners to assist their businesses in many different ways; whether it was a rebate program to offset food costs, extending payment leniency, helping adjust to the new takeout delivery and pickup environment or simply being available to personally check in with the restaurant tour to see how they're doing.\nOur confidence in the industry recovery never wavered.\nWe know these actions benefited our distributor and operator partners and are playing a part in our outperformance of the broader industry trends.\nDuring this difficult labor environment, our experienced and tenured direct sales force is helping operators meet their accelerating demand with products that simplify their food preparation, save time and minimize labor, all while preserving the flexibility to add their own unique touch to a menu item.\nProducts like Hormel Fire Braised meats, Sadler's authentic smoke barbecue, Fontanini authentic Italian meat, Hormel Bacon 1 fully cooked bacon, Wholly Guacamole and Jennie-O Turkey are uniquely positioned to meet this need.\nThe brightest spot in our foodservice portfolio has been our pizza toppings business.\nPrior to the pandemic, we capitalized on the continued growth in this category, especially for premium products and invested heavily in capacity to meet future demand.\nWe've also been investing in plant-based offerings and are seeing growth from our plant-based pepperoni and crumbles products.\nWe are excited to leverage our expertise in the pizza toppings category to drive growth in plant-based toppings.\nWith our new capacity expansion effort and with additional pepperoni capacity set to open at the beginning of fiscal 2022, we are set up nicely to meet the consistent growth we have seen in this space.\nWith the foodservice industry recovery well under way, we will continue to strengthen our relationships with our valued partners, invest in our direct sales team and support the industry's return to growth with innovative, convenience and flavorful product solutions.\nIn addition to foodservice growth, our retail and deli businesses also remained healthy with demand elevated compared to pre-pandemic levels.\nTotal retail sales this quarter were flat to last year as we lapped the months when consumers were stocking their pantries in anticipation of the pandemic.\nSales finished up 16% compared to the second quarter of 2019.\nAnd we continued to see strength from our leading brands such as SPAM, Applegate, Jennie-O, Black Label, Herdez and Wholly.\nAs a reminder, we experienced an immediate and sustained demand surge for our shelf-stable products in the Grocery Products segment at the onset of the pandemic.\nThe second wave of demand that impacted our perishable and refrigerated items happened weeks later in the third fiscal quarter.\nSales in the deli channel increased 4% this quarter and are up 9% over pre-pandemic levels.\nHormel Gatherings party trays delivered strong growth as consumers started to spend more time with family and friends, and consequently, are purchasing more products to entertain their guests.\nThe Columbus brand remains a cornerstone for our deli business, and it is now benefiting from the opening of our new plant in Omaha, which is providing much needed capacity.\nColumbus is a leader in charcuterie, and we now have the capacity to continue expanding distribution.\nAcross the retail and deli space, our consumer takeaway metrics continue to be positive according to IRI.\nMany of our brands have made large gains in household penetration, overall buy rates are improving and we are seeing an expansion in cross purchasing across our brands.\nE-commerce sales grew double-digits in the last 12 weeks, according to IRI, and we are gaining share in important categories.\nWe will continue to increase our investment in this important channel.\nThroughout the quarter, our supply chain continued to improve as we were able to increase production levels through a combination of gaining efficiencies, increasing capacities and leveraging our strategic supply chain partners.\nAnother area we have made great strides is in our distribution network.\nOver the last year, we have opened a new Grocery Products distribution center, and, in recent weeks, have opened a Refrigerated distribution center serving the West Coast.\nThese strategic investments will reduce overall freight miles and costs, improve our customer service levels, support growth for our value-added businesses and reduce greenhouse emissions.\nFrom a bottom-line perspective, operating income showed a slight decline.\nWe saw raw material and feed prices rapidly increase throughout the quarter.\nWe have taken pricing actions in many categories, but did not see the full benefit of these actions during the quarter.\nAs we have previously discussed, in volatile market conditions, pricing will lag the markets, which will shift profits to subsequent quarters.\nNet earnings and diluted earnings per share were flat to last year.\nA higher tax rate negatively impacted earnings by $0.01 per share compared to last year.\nTurning to the segments.\nRefrigerated Foods volume increased 3% and sales increased 17%, with growth coming from almost every division.\nValue added sales increased 18%, driven by a significant recovery in the foodservice businesses.\nAs anticipated, we saw a rapid increase in foodservice demand as the quarter progressed.\nAlmost all categories within the foodservice grew sales, led by our pizza toppings portfolio and brands such as Fontanini and Bacon 1.\nIn fact, pepperoni, pizza toppings, Bacon 1 and Fontanini authentic Italian meats all showed growth compared to the second quarter of 2019.\nWe also experienced a recovery in the premium breakfast portfolio, with growth from our Old Smokehouse brand.\nAdditionally, we saw excellent growth from our premium prepared proteins, which include brands such as Austin Blues, Fire Braised, Cafe H and Sadler's.\nThese items are key to our pre-strategy, items that are pre-marinated, pre-cooked, pre-sliced and fully prepared.\nAs the industry recovery accelerates into the summer and labor remains the predominant challenge for most operators, our line of products offer convenient, safe, versatile and flavorful solutions.\nOur retail and deli teams delivered a strong quarter on the top line, with growth coming from products such as Black Label bacon, Hormel Gatherings, Applegate, Lloyd's Barbeque, Hormel Pepperoni and Columbus prepared foods items.\nRefrigerated Foods segment profit increased 32% due to higher foodservice sales, higher retail fresh pork profitability and decreased operational expenses due to abating COVID-19 cost pressures.\nInternational delivered its fifth consecutive quarter of record earnings growth, with sales increasing 17% and segment profit increasing 6%.\nThe performance of the team in China remains impressive.\nFoodservice volumes have recovered to pre-pandemic levels, driven by growth from SKIPPY, pizza toppings, and bacon items.\nRetail demand for the SPAM and SKIPPY brands has also been outstanding.\nThe Company's innovative offerings including beef jerky, SKIPPY snacking items and two new SPAM varieties are providing additional avenues for growth, and we remain confident in the long-term prospects for our China business.\nBranded exports also grew with growth coming from the SKIPPY and SPAM brands, higher foodservice sales and improved margins on the fresh pork items.\nIn addition, our partners in the Philippines, South Korea and Europe continued to experience elevated demand for shelf-stable products.\nGrocery Products results were strong given the difficult comparison to last year due to the extremely high levels of demand experienced at the onset of the pandemic.\nEven though volume declined 14%, sales declined 8% and segment profit declined 23%, we are encouraged by the segment's performance as we have seen sustained consumer demand for many of our brands compared to pre-pandemic levels.\nSales for center store brands such as SPAM, Hormel Chili, Compleats and Mary Kitchen hash were all over 20% higher compared to our second quarter of 2019.\nWe will continue to support our leading brands including SKIPPY, SPAM, Compleats, Herdez, Wholly, Justin's and Hormel Chili, and we're resuming promotional activity as inventory levels normalize.\nOur MegaMex joint venture performed well, as equity and earnings increased 26%.\nBoth Herdez and Wholly brands grew as consumers looked for authentic and convenient Mexican products to enhance their at-home eating occasions.\nThe Herdez brand continues to outperform the salsa category.\nThis brand has grown households by 3 million since the start of the pandemic and has introduced industry leading innovation to the marketplace in recent years.\nFollowing the highly successful performance of Herdez's Guacamole Salsa, we continue to expand distribution and grow share with two new product lines: Herdez Taqueria Street Sauces and Herdez Salsa Cremosas.\nRecently, Herdez also entered the hot sauce market with the introduction of Herdez Avocado Hot Sauce, another versatile offering that can enhance any meal.\nThe Wholly brand had a strong quarter as well, as it continues to target consumers looking for convenient solutions to enjoy avocado offerings.\nOur recent innovations, including Wholly Smashed and Wholly Diced Avocado products solve for that consumer need.\nAnd as we saw across many of our refrigerated foodservice businesses, demand for avocado products in the channel started to return during the quarter.\nJennie-O volume decreased 3% and sales increased 2%, a recovery in the foodservice business and higher whole bird sales drove the sales increase.\nFoodservice volumes were up double digits compared to last year.\nDemand for Jennie-O retail products such as Lean Ground Turkey remained above pre-pandemic levels.\nJennie-O Turkey Store segment profit declined 54% due to the impact from higher feed costs.\nGrain prices continued to increase significantly during the quarter, while pricing action had yet to be fully reflected in the marketplace.\nJim Sheehan will provide further commentary on the actions we have taken to manage higher corn and soybean meal costs.\nLooking to the balance of the year, we are increasing our full year sales guidance range to $10.2 billion to $10.8 billion, and reaffirming our earnings per share guidance range of $1.70 to $1.82 per share.\nAs a reminder, this guidance range does not include the estimated impact of the pending acquisition of the Planters snacks nuts business.\nOur diversified and balanced business model gives us confidence we can perform well in many different economic scenarios and market conditions.\nWe have a very positive outlook on the foodservice business as we head into the second half of the year.\nWe are well positioned from an inventory and capacity standpoint to meet the demand from our distributor partners and operators, and are confident in our ability to gain share throughout the recovery.\nAdditionally, we are increasingly confident that K-12 schools and colleges and universities will open and operate in a more traditional manner this fall.\nThis should benefit both Refrigerated Foods and Jennie-O Turkey Store.\nWe continue to see elevated demand in the retail, deli and international channels.\nWe expect to further benefit from pricing actions, increased capacities on key product lines and continued improvements in our supply chain.\nThis year, we have seen rapid increases in key input costs across our businesses, and we expect to operate in a high-cost environment for the remainder of the year.\nOur experienced management team has a proven ability to navigate and grow our business in volatile and inflationary market conditions.\nAnd once again, we will be leveraging our direct sales force to partner with our customers to mutually grow our businesses.\nAs a reminder, our operations were heavily impacted by plant shutdowns, supply shortages and lower production throughput caused by the effects of the pandemic in the back half of fiscal 2020.\nThis ultimately led to lower levels of inventory, which negatively affected the third and fourth quarters.\nThrough the strategic actions we have taken to improve all facets of our operations and based on our record first half performance, we expect to benefit from more normalized operations in the back half of fiscal 2021.\nI am confident in our ability to continue growing and I'm looking forward to closing the acquisition of Planters next month.\nRecord sales for the second quarter were $2.6 billion, an increase of 8%.\nFirst half sales increased 5% to $5.1 billion, also a record.\nPre-tax earnings increased 2% for the quarter compared to last year.\nDiluted earnings per share for the quarter was $0.42 per share, flat to last year.\nSecond quarter results reflected approximately $0.01 per share in incremental COVID-related costs and $0.01 in higher tax expense.\nSG&A, excluding advertising, was 6.5% of sales, down slightly to last year.\nAdvertising spend for the quarter was $31 million.\nOperating margins for the quarter were 11.1% compared to 12.1% last year.\nHigher raw material and feed costs negatively impacted margins, as pricing lagged input cost increases.\nWe have taken numerous pricing actions across the portfolio to protect profitability.\nThe actions will take place early in the third quarter with additional pricing actions likely.\nCOVID-related expenses were $6 million.\nThe impact of COVID expenses continued to decline.\nNet unallocated expenses decreased due to higher investment income.\nThe effective tax rate for the quarter was 22.1% compared to 20.6% last year.\nExcluding the impact from the Planters acquisition, we estimate the full year tax rate to be between 20% and 21.5%.\nWe built inventory during the quarter in preparation for higher demand and to support continued growth for the remainder of the year.\nOur strategic action to build inventory was the primary driver of lower operating cash flow during the quarter.\nWe paid our 371st consecutive quarterly dividend, effective May 17th, at an annual rate of $0.98, a 5% increase over the prior year.\nShare repurchases were minimal during the quarter.\nCapital expenditures were $45 million in the quarter.\nThe Company's target for capital expenditures in 2021 is $260 million.\nDuring the second quarter, we saw dramatic increases in pork and hog prices.\nUSDA composite cutout prices since January have increased more than $30, with all primals contributing to the increase.\nKey inputs such as bellies and trim increased 57% and 76%, respectively, during the quarter.\nPork exports also set an all-time record in March due to African swine fever outbreaks in China, Southeast Asia and Europe.\nWe anticipate strength in pork markets due to continued export demand and a foodservice recovery domestically.\nThe USDA is now projecting pork production for the year to be slightly lower than 2020.\nIndustry operating efficiencies are expected to improve as COVID pressures abate; however, labor availability, tighter hog supplies and reductions in the sow herd [Phonetic] support higher markets.\nOur balanced approach to hog import procurement mitigated cost volatility during the quarter.\nIn high-cost and volatile environment, the strength of our leading brands and balanced approach to procurement continues to be a competitive advantage.\nThe guidance range assumes elevated and volatile market conditions for the balance of the year, with some moderation heading into the fall.\nWe expect hog price in the USDA composite cutout to remain well above year-ago levels due to strong domestic and export demand, along with tighter hog supplies.\nWe anticipate prices to peak during the summer and gradually decline in the fall, consistent with the seasonal increase in harvest.\nDeli prices are projected to remain higher than last year in historical averages.\nWe anticipate markets to stabilize near the current levels, but volatility due to lower cold storage levels and strong demand in the foodservice channel could cause inflationary pressure.\nPork trim prices are expected to moderate from the current levels, but labor shortages across the industry remains a key risk to trim prices as limited boning capacity directly impacts trim supply and pricing.\nDue to the higher beef harvest levels in the summer months, beef prices are anticipated to be lower in the back half of 2020.\nIn response to global supply and demand imbalances in corn and soybean meal, we have taken strategic hedges to fully cover grain costs for the remainder of the year.\nThe positions also provide a benefit if markets decline.\nThese hedges, coupled with the previously announced pricing actions, are expected to protect Jennie-O's profitability.\nTurkey poult placements and egg sets have declined.\nInventory levels are lower compared to last year.\nThe tightening of supply has led to higher whole turkey and thigh meat markets.\nWe have also recently seen an increase in breast meat prices.\nA recovery in the foodservice industry remains the key driver for higher prices for this important market.\nWe anticipate inflationary pressure on freight in the back half of the year.\nThe tactical action to optimize our distribution network with two new DCs combined with improvements in load efficiencies will help mitigate a portion of the increase.\nWe have obtained the required regulatory approvals for the acquisition of the Planters snack nut business.\nThe scheduled close date is in June.",
        "summary": "hormel foods reaffirming fy earnings per share outlook range of $1.70 to $1.82 per share.\nreaffirming our fy earnings per share guidance range of $1.70 to $1.82 per share.\nqtrly net sales of $2.6 billion, up 8%.\nqtrly diluted earnings per share of $0.42.\nq2 refrigerated foods volume up 3%.\nq2 refrigerated foods net sales up 17%.\nqtrly volume of 1.2 billion lbs. , down 3%."
    },
    {
        "text": "If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investors section.\nOn our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer; and Jim Sheehan, Executive Vice President and Chief Financial Officer.\nJim Snee will provide a review of the company's current and future operating conditions, commentary and each segment's performance for the quarter, and a perspective on the balance of fiscal 2021.\nJim Sheehan will provide detailed financial results and commentary regarding the company's current and future financial condition.\nAs a courtesy to the other analysts, please limit yourself to one question with one follow-up.\nIt will be posted on our website and archived for one year.\nBefore we get started, I need to reference the Safe Harbor statement.\nIt can be accessed on our website.\nIn the third quarter, our team delivered the highest quarterly sales in the company's 130-year history, while operating in an environment, which included inflationary pressures and industrywide supply chain challenges.\nOur ability to deliver this performance demonstrates the strength of our balanced business model and strong consumer demand, as we grew sales in all four segments and all four sales channels on an organic basis.\nAlso in the third quarter, we completed the acquisition of the Planters snacks nut business.\nThis brand fits perfectly into our vision for Hormel Foods and is another step in our strategic evolution.\nThe integration has been smooth, which has allowed us to effectively operate the business with no disruptions.\nThese accomplishments were achieved by our team members who never lost sight of our long-term growth strategy in the face of unprecedented industrywide challenges.\nNow more than ever, our investments across all areas of our business are paying off and have allowed us to reach even more consumers when and where they are eating.\nWhether it is cooking a meal at home, snacking at work, eating at a local restaurant, hosting a gathering with family and friends or ordering food online, a Hormel Foods branded product will likely be an option.\nThe proof is in our performance this quarter.\nSales increased 20% on a volume increase of 1%.\nCompared to the third quarter of 2019, sales increased 25%.\nThis all-time record performance was led by an acceleration in our Foodservice business, sustained demand for our retail and deli products, continued growth from our international business and pricing actions taken across the portfolio.\nExcluding a partial quarter of the Planters business, organic sales increased 14% and volume declined 2%.\nFor the quarter, we saw an acceleration in our Foodservice business as sales grew 45% compared to last year.\nWhat is even more impressive is sales increased 17% compared to 2019 pre-pandemic levels.\nOur Enterprise Foodservice portfolio remains perfectly positioned to meet the most pressing need of today's foodservice operators, which is labor.\nOur products minimize labor, simplify food preparation and save time, all while preserving the flexibility to add their own unique touch to their menus.\nHormel Bacon 1 fully cooked bacon, Wholly Guacamole, Fontanini authentic Italian sausages and Hormel Fire Braised meats are all excellent examples of products that are succeeding in today's environment.\nOur retail business also showed 9% growth compared to 2020.\nCompared to pre-pandemic levels in 2019, this business delivered outstanding growth of 31%.\nBrands such as SPAM, Hormel Black Label, Applegate, Jennie-O and Herdez continue to resonate with consumers.\nSales in the deli channel increased 12% this quarter and are up 16% compared to pre-pandemic levels.\nHormel Gatherings, Party Trays and Columbus charcuterie items showed another quarter of growth as consumers return to entertaining and spending time with family and friends.\nAn important component of our growth in retail and deli is our e-commerce performance.\nWe continue to invest in the digital space, and we are seeing strong results compared to pre-pandemic levels.\nOur International channel delivered impressive growth of 36% compared to 2020 and is 33% above 2019 levels.\nImprovement was led by branded exports and strength from the Multinational businesses in China and Brazil.\nAgain, I cannot stress enough, how proud I am of our entire team, for delivering these impressive results, in the midst of an incredibly difficult operating environment, marked by significant inflation, labor challenges and supply chain disruptions.\nThis not only demonstrates the team's ability to execute our long-term growth strategy, but also reinforces the power of our brands.\nOn a consolidated basis, diluted earnings per share were $0.32, a 14% decline, compared to 2020.\nThe decrease was due to one-time transaction costs, and accounting adjustments, related to the acquisition of the Planters business.\nAdjusted earnings per share were $0.39, a 5% increase.\nOur team did an excellent job actively managing through inflationary pressures and supply chain challenges.\nDuring the quarter, we continue to see inflation in labor rates, freight, supplies, raw materials and many other inputs, with an acceleration compared to the second quarter.\nOf note, we saw a very high level of inflation in pork input costs.\nTo mitigate this inflationary pressure, we have taken pricing on almost every brand and product across our company.\nThis is a testament to our successful pricing strategy, the power of our brands and the hard work of our entire team, especially our direct salesforce.\nAs a reminder, there is a difference in how quickly pricing flows through by channel, and this can shift profits to later quarters.\nWe have a track record of improving profitability through a market cycle and we expect margins to improve in the coming quarters.\nWe also saw a drastic step-up in industrywide operational challenges, caused by labor shortages.\nThis has impacted both our facilities and the operations of supplier and logistics partners.\nThis has created a very complex operating environment, which led to an inability to fully meet customer demand.\nTo address labor availability in our facilities, we are taking swift actions to hire and retain team members, implement automation across manufacturing facilities and simplify the portfolio.\nOur entire team, from operations to our direct salesforce, has done an excellent job adjusting, prioritizing and managing through this dynamic environment.\nTurning to the segments, Refrigerated Foods volume decreased 2%, sales increased 19% and segment profit was flat.\nOrganic volume decreased 3% and organic sales increased 18%.\nVolume was lower, due to lower harvest levels and commodity sales, compared to last year.\nOur Foodservice business accelerated compared to the second quarter, with elevated levels of demand for all our branded products.\nNearly every category grew volume and sales compared to last year, with standout performances from products like Hormel Bacon 1, pizza toppings and sliced meats.\nBacon 1, Fire Braised, Fontanini, Applegate and pizza toppings were just some of the items that also grew volume and sales compared to 2019.\nSimilar to prior quarters, we saw excellent growth from premium prepared proteins, which are the cornerstone of our pre-strategy, offering versatile and flavorful items that come pre-marinated, pre-sliced or pre-cooked.\nThese items sold for the most pressing issues facing operators today, labor shortages.\nBrands like Bacon 1, Austin Blues, Fire Braised and Cafe H are designed to solve for this challenge and have never been as important or in higher demand than they are today.\nWe saw momentum continue for our retail and deli brands in Refrigerated Foods as well.\nProducts showing exceptional sales growth include Hormel Gatherings party trays, Hormel Black Label bacon, Hormel Fully Cooked entrees and Lloyd's Barbecue.\nThe Columbus brand has shown no signs of slowing down, as consumers look for premium, authentic charcuterie.\nI'm pleased with the performance of our new charcuterie plant in Omaha, as the team is quickly filling up the new production lines.\nWe are excited about the upcoming holiday season and expect a high level of demand for our innovative and premium Columbus product lines.\nInternational delivered its sixth consecutive quarter of record earnings growth, with volume up 2%, sales up 26% and segment profit up 18%.\nOrganic volume increased 1%, and organic sales increased 24%.\nTotal branded and fresh pork exports grew during the quarter.\nWe continue to see strong growth from SPAM, Skippy and many foodservice brands around the world.\nOur business in China continues to perform well led by foodservice and from retail brands such as SPAM and Skippy.\nOur new item launches of Beef Jerky and Skippy Snacking items have also been very successful.\nGrocery Products volume increased 4%.\nSales increased 20% and segment profit increased 1%.\nBrands, including SPAM, Hormel Complete and Wholly showed excellent growth in the quarter.\nWe continue to see strong growth relative to 2019 pre-pandemic levels for brands such as SPAM, Hormel Complete, Dinty Moore, Mary Kitchen and Herdez.\nOrganic volume decreased 6%, and organic sales were flat.\nOrganic volumes faced difficult comparisons due to the extremely high levels of demand during the early parts of the pandemic.\nAdditionally, we have rationalized capacity on numerous contract manufacturing items to support growth of our branded business.\nOur MegaMex joint venture delivered excellent results as equity in earnings increased 30%.\nThe growth from the Herdez and Wholly brands are being driven by the tremendous level of innovation from MegaMex, with products such as Herdez Cremosa, Herdez Guacamole Salsa and Wholly Smashed Avocado.\nWe are also extremely encouraged by our entry into the hot sauce space with Herdez Avocado Hot Sauce.\nJennie-O volume increased 9% and sales increased 22%, a combination of a foodservice recovery and higher whole bird and commodity volumes drove the volume increase.\nIncrease sales is due to higher volumes and pricing actions across the portfolio.\nJennie-O Turkey Store segment profit declined 17%, driven by the impact from significantly higher fee and freight costs.\nWhile spot grain markets remained elevated during the quarter, the hedging actions we took stabilize the cost increases.\nLooking to the balance of the year, we issued our full year net sales and earnings guidance to reflect the Planters acquisition.\nWe expect net sales to be between $11 billion to $11.2 billion and for diluted earnings per share to be between $1.65 to $1.69.\nThis guidance reflects the addition of the Planters business and includes the associated one-time transaction costs and accounting adjustments in addition to the impact from inflationary pressures on our business.\nWe expect a strong finish to the year as pricing actions continue to take effect, the foodservice industry continues to recover and from the addition of Planters.\nLooking beyond the fourth quarter, I feel very optimistic about the future.\nOur balanced portfolio with diversification across raw materials, channels and categories will allow us to perform well in many economic environments.\nFurther, we never wavered on our commitment to employee safety and on making disciplined and strategic investments to ensure we are positioned to deliver long-term sustainable growth.\nSince the onset of the pandemic, we have made the following strategic investments.\nWe opened a new Columbus charcuterie plant in Omaha, and we immediately invested in Phase 2, representing a major expansion of our pepperoni capacity.\nWe completed the Pizza Toppings expansion at our Burke plant in Iowa, which significantly increased our capacity for Pizza Toppings.\nWe have invested in R&D for plant-based products and launched our plant-based pepperoni and sausage crumble items at the Pizza Expo in mid-August.\nAdditionally, we bolstered our innovation efforts by investing in new R&D centers, both domestically and in China.\nWe expanded our distribution network for both the Shelf-Stable and Refrigerated businesses.\nWe made further progress on building out our one supply chain by investing in systems, people and processes.\nWe acquired Sadler's Smokehouse, which added capacity to support growth during the recovery in the foodservice industry.\nWe completed the HR and finance portions of Project Orion and continue to work toward the multi-phase implementation of our supply chain.\nWe continue to make investments in advertising for our leading brands.\nAnd finally, we made the company's largest investment ever, the acquisition of Planters.\nWe are already seeing the benefits that a large iconic and well-known brand can have on our business.\nThese are just some of the many investments we have made to further enhance our business and set us up for growth into the future.\nThird quarter sales were $2.9 billion, an all-time record for the company.\nNet sales and organic net sales increased 20% and 14%, respectively, compared to last year.\nSegment profit increased 2% for the quarter, driven by strong results in the International segment, Foodservice growth and the addition of Planters.\nEarnings per share were $0.32.\nAdjusted earnings per share, excluding one-time costs and accounting adjustments related to the acquisition of Planters was $0.39, a 5% increase.\nCOVID-related expenses during the quarter were immaterial.\nAdjusted SG&A was 6.9% of sales compared to 7.6% last year.\nAdvertising for the quarter was $31 million, an increase of 25%.\nAdjusted operating margins for the quarter were 8.7%, a decrease from 10.5% last year.\nWe expect margins to show sequential improvement in the fourth quarter as the impact of pricing actions continue to take effect.\nNet unallocated expenses increased as a result of the one-time acquisition-related costs for Planters and net interest expense.\nThe effective tax rate for the quarter was 13.3%.\nThe primary driver of the decline was a large volume of stock options exercised during the quarter and a one-time foreign tax benefit.\nThe revised guidance range assumes a full year tax rate between 19% and 20.5%.\nOperating cash flow declined compared to last year, impacted by working capital from the Planters acquisition and higher levels of inventory.\nInventory levels were unseasonably low last year during the third quarter.\nWe paid our 372nd consecutive quarterly dividend, effective August 16 at an annual rate of $0.98 per share, a 5% increase over 2020.\nThis completes the 93rd consecutive year of uninterrupted dividend payments.\nCapital expenditures were $54 million in the quarter.\nThe company's target for the capital expenditures in 2021 is $260 million.\nThe Planters acquisition represents a change to the company's capital structure.\nIn June, we issued $2.3 billion of notes in three, seven and 30-year tranches.\nThis debt was incremental to the $1 billion of 10-year notes we issued in 2020.\nIncluding the treasury locks, the weighted average cost of debt is 1.6% and the weighted average maturity is 10.4 years.\nThis attractive debt profile is an ideal balance for our business.\nWe will continue to use a disciplined waterfall approach to capital allocation, which includes three areas: required, strategic and opportunistic uses of cash.\nI expect no changes to dividend growth or our capex strategy.\nWe are committed to an investment-grade rating and plan to deleverage to 1.5 to 2 times debt-to-EBITDA over the next two to three years.\nThe business experienced significant inflationary pressures on pork input costs during the quarter.\nThe dramatic increase in pork and hog prices continued in the third quarter.\nHog prices were up 250% compared to 20-year lows last year.\nAdditionally, the prices of pork remained elevated caused by the recovery in the foodservice and the strong worldwide demand.\nThe USDA composite cutout was up 50% compared to last year and 20% compared to the second quarter.\nTrim and belly prices also experienced inflationary pressure with significant volatility.\nCompared to the prior year, belly prices were 62% higher and trim prices were 27% higher.\nThe business benefited from the balanced approach to hog and pork procurement as we purchased hogs in aggregate at prices lower than the market.\nHowever, the rate of the drastic rise in the total pork input costs negatively impacted profitability.\nThe latest estimates from the USDA indicate pork production for the year to decrease 2% compared to 2020.\nLower harvest levels, lighter carcass weights and labor shortages across the industry support higher markets near-term.\nWe're closely monitoring the discovery of African swine fever in the Caribbean and labor availability across the industry.\nBoth factors could impact input costs going forward.\nFundamentals in the turkey industry improved during the third quarter.\nHigher prices for commodity items, including breast meat, size and whole turkeys were a benefit to the quarter.\nAdditionally, egg sets and poult placements declined.\nCold storage remains significantly below historical averages.\nHigher operating costs offset the market benefits.\nInflationary pressure on corn and soybean meal have resulted in substantially higher feed costs.\nThe strategic hedges on corn and soybean meal have stabilized feed costs.\nWe also absorbed higher costs for freight, packaging, supplies and labor.\nWe are actively managing our logistics network and supplier partnerships to minimize cost increases.\nAcross the portfolio, pricing actions were effective, but from a timing standpoint, trailed inflation during the quarter.\nWe expect to recover lost profitability due to inflation in the coming quarters as conditions normalize and pricing actions expand.\nThe strong demand for our key products during the price increases is a testament to the strength of our leading brands.\nThe guidance issued for the remainder of the year includes the impact of Planters and the expectations of continued inflationary pressure and volatile market conditions.\nAlthough the third quarter had its challenges, it also included significant financial milestones.\nWe closed the largest acquisition in the company's history.\nWe financed the transaction by leveraging the balance sheet through an attractive debt structure in both interest rates and tenure, all while maintaining our investment-grade rating.\nWe move into the future with a more efficient capital structure, stronger brands and continued financial strength to invest in our business.",
        "summary": "q3 earnings per share $0.32.\nq3 sales rose 20 percent to $2.9 billion.\n, up 1%; organic volume down 2%.\nqtrly refrigerated foods volume down 2%; organic volume down 3%.\nqtrly refrigerated foods net sales up 19%; organic net sales up 18%.\nsees 2021 net sales guidance $11.0 - $11.2 billion.\nsees 2021 diluted earnings per share guidance $1.65 - $1.69.\nhormel foods qtrly refrigerated foods volume, net sales, segment profit were negatively impacted by production constraints due to labor shortages."
    },
    {
        "text": "Joining me on the call today are Todd Meredith, Bethany Mancini, Rob Hull and Kris Douglas.\nThese risks are more specifically discussed in a Form 10-K filed with the SEC for the year ended December 31, 2020.\nToday, I'll discuss current healthcare utilization trends, our second-quarter results and our external growth momentum.\nAnd I'll describe how our strategy delivers steady growth quarter after quarter.\nAnd I'll close by touching on a few of our internal initiatives.\nFirst, we're pleased to see that most providers are back to normal in terms of utilization.\nHealthcare providers have proven their ability to operate throughout the pandemic.\nPatients have returned to their doctors and we're hearing from our tenants that outpatient procedures are back to or above pre-pandemic levels.\nEven more encouraging, physicians and health systems are telling us their businesses are growing and they need more space to meet demand.\nThis underscores our view that healthcare utilization is poised to continue growing on a consistent annual basis propelled by aging demographics.\nTurning to our results; we reported same-store NOI growth of 2.9% for the second-quarter, which puts us back in line with our historical average of about 3%.\nLooking ahead, we're well-positioned to sustain these steady levels of internal growth.\nWe continue to see the benefits of operating in dense markets with high barriers to entry.\nThis insulates us from new supply and facilitates steady rent growth.\nAs rents rise, we're well-positioned to benefit from shorter lease terms which gives us the ability to increase rents more often.\nWith respect to external growth, we're truly firing on all cylinders.\nYear-to-date, we've acquired 21 properties for over $400 million.\nWe're well on our way to meet or exceed our 2020 acquisition volume, which was our best year ever.\nAnd we're confident in our ability to continue this momentum.\nToday we're seeing aggregators sell portfolios comprised of lower quality, often isolated assets at premium cap rates.\nThis is driving relative cap rate compression, especially on portfolios.\nWhat makes us different is that we're sourcing individual quality assets at attractive prices in better markets and building on our strategic clusters.\nOur ability to smoothly integrate properties into our existing operations reflects the value of our platform.\nAnother source of value creation is our development pipeline, which includes over $1 billion of embedded growth opportunities.\nAs an example, here in Nashville, we're starting an on-campus redevelopment project involving a property we've owned for over 15 years.\nSites of the existing building, we're constructing a larger lead-certified medical office building at the center of the Ascension St. Thomas Midtown campus.\nThis strengthens our relationship with St. Thomas and builds on our cluster of nearly 1 million square feet in Nashville.\nOur strategy is straightforward; we focus on markets with strong demographic trends and partner with leading health systems.\nIn today's competitive environment, our local market knowledge and industry relationships help us source new investments and attract new tenants.\nOur cluster strategy amplifies these benefits, and we gained scale and efficiency as we lease and manage more and more properties in close proximity.\nIn terms of location, we target properties on and adjacent to campus complemented with nearby off-campus facilities where we can drive incremental returns.\nWe're able to further enhance our yields by engaging in targeted development projects in utilizing our joint venture partnership which widens our opportunity set.\nThe strategy has paid off in contrast to many other REITs whose results were hard hit during the volatility of the last 18 months, we've delivered growth in FFO per share each quarter.\nOver the long term, our strategy creates value for shareholders through the steady compounding of cash flows.\nBefore I hand the call over to Bethany, let me take a few moments to highlight some recent initiatives.\nWe believe the depth and breadth of our team as well as the long tenure of our leadership is the driver of our success.\nI'm pleased to announce that we recently promoted Julie Wilson to Executive Vice President of Operations.\nJulie has been with us for over 20 years and this promotion highlights her leadership and the growth of our platform in that time period.\nJulie now has oversight of our portfolio operations, as well as marketing, technology and ESG groups.\nAnd with respect to ESG, we continue to dedicate resources to this important effort.\nOur ESG program will now be led full-time by Carla Baca.\nThis year, we completed our second gross survey [Phonetic] and later this year, we'll release our third Corporate Responsibility Report.\nHealth systems are reporting strong momentum in elective care and patient utilization across the Board.\nPerformance was better than expected in the second quarter for the public hospital companies.\nOne of the main drivers for their recovery and growth outlook is outpatient volume.\nPhysicians have been able to ramp up patient visits in surgeries more quickly than hospitals in most markets.\nMG&A reported positive average growth in physician compensation for 2020, a sign of strength amid the shutdown of routine care and elective surgeries.\nAmbulatory outpatient settings have also experienced strong employment growth throughout the recovery.\nIn 2021 physician offices continue to be a bright spot for job gains in the healthcare sector, which bodes well for medical office space demand.\nPhysicians are expanding into larger practice groups to lower administrative costs, increase market share and utilize external capital to fund growth.\nHealthcare providers are also benefiting from a public health policy environment that continues to support positive reimbursements and expanded health insurance coverage.\nMore than 2 million people gain insurance through ACA exchange marketplaces during a special enrollment period after Congress increased the availability of subsidies last year.\nCongress is focused now on extending the two-year expansion of ACA subsidies and exchange eligibility in the upcoming budget and infrastructure bill.\nThe legislative agenda should provide a stable backdrop for providers as they meet greater patient demand and pursue growth initiatives.\nOn the regulatory side, CMS is pursuing several avenues to lower healthcare costs.\nPresident Biden issued an executive order in July mandating the FTC to increase scrutiny of hospital consolidation and anti-competitive practices among providers.\nCMS also continues to implement regulations on price transparency, requiring a list of hospitals' prices to be published of their most common services.\nIt remains to be seen if consumer-friendly disclosures will change patient behavior when choosing their care.\nBut these efforts to lower cost growth and ensure competition should accelerate incentives for healthcare delivery in outpatient settings.\nThe correlation of health policy, hospital regulation and outpatient trends is continuing to advance the nation's demand for medical office facilities.\nThe opportunities that lie ahead position HR's portfolio and external growth prospects well within the rising tide of healthcare services.\nInvestor demand for MOBs has accelerated, highlighted by the resilience of the asset class over the last 18 months.\nAs a result, cap rates have continued to trend lower.\nWe have also seen an uptick in the number of portfolios in the market as MOB aggregators seek to capitalize on this demand in attractive pricing.\nIn our view, most of these portfolios of disparate assets are richly priced at 50 to 100 basis points over similar quality individual properties.\nIn contrast, our strategy is to curate a high-quality portfolio clustered in dense, growing markets by targeting the properties we won.\nWe have been busy on the acquisition front.\nWe closed on 14 buildings for $336 million since the end of March.\nThese acquisitions had a blended initial cap rate of 5.2% with another 30 basis points of embedded upside through lease-up.\nThree-quarters of these acquisitions are located directly on campus and all are located in existing markets.\nThe average 10-mile population density around these assets is over 900,000 and the projected growth of 5.4% is nearly double the US average.\nThese assets also illustrate our cluster strategy and the depth of our existing health system relationships.\nAs an example, we acquired five buildings associated with Centura Health, a leading system in Colorado, that we have worked with for over a decade.\nWe now have over 1 million square feet with Centura and expect to add more over time.\nYear-to-date; we have completed $412 million of acquisitions, adding 1.1 million square feet to our portfolio.\nGiven the strength of our activity year-to-date and a robust pipeline, we are raising our acquisitions guidance.\nThe increased range is now $500 million to $600 million.\nIn this competitive environment, we are also taking advantage of the strong pricing to recycle capital into investments with better long-term growth prospects.\nWe have closed on approximately $115 million of sales year-to-date.\nWe are raising our disposition guidance to $115 million to $175 million for the year.\nIn our development pipeline, we see increased momentum as hospitals expand their outpatient programs.\nIn Nashville, we kicked off a development that is highly integrated with Ascension St. Thomas Midtown Hospital.\nWe're building a 106,000 square foot LEED-certified MOB with a subterranean parking garage.\nAnd it will also include a new shared front entrance with a women's services tower of this leading hospital.\nOur budget is $44 million and construction will take approximately two years.\nAt completion, we will have almost 450,000 square feet on this campus and nearly 1 million in the dense healthcare corridor of Nashville.\nWhat's important is developments like these strengthen our provider relationships and our attractive avenue to create value.\nWe target development yields of 100 to 200 basis points above comparable stabilized assets.\nIn closing, our focus on relationships in clusters means that the investments we are making today will lead to more investments tomorrow.\nWith our increased acquisitions guidance, we are on pace to deliver robust accretive net investment activity for the year.\nOur second quarter results reflect the steady growth of our MOB-focused business.\nNormalized FFO per share was $0.43, up $0.01 from a year ago.\nThis is driven from the contribution of the $500 billion [Phonetic] and net acquisitions completed over the past 12 months along with meaningful same-store growth.\nSecond quarter same-store NOI increased 2.9%, which is in line with our long-term outlook.\nTrailing 12 months same-store NOI growth was 2.3%, up from 2% in the first quarter.\nThe year-over-year second quarter NOI growth benefited from a few key items.\nFirst, the 4.9% increase in expenses appears to be above normal.\nHowever, keep in mind, we're coming off of quarantine-impacted lows from last year.\nOn a compound annual growth rate basis from second quarter 2019, expenses grew just under 1%.\nThis is below our long-term expectation of 2% to 2.5%.\nSecond, parking income is essentially back to pre-pandemic levels.\nThe rebound generated year-over-year growth of 45% in parking income for the quarter.\nFinally, the $700,000 reserve for COVID rent deferrals booked in second quarter last year is boosting year-over-year -- the year-over-year comparison.\nAs a reminder, we reversed the majority of the reserves in the third and fourth quarter of 2020, as the deferrals were repaid.\nWhen you're updating your models, please keep in mind that this reversal together with normalizing expenses will dampen year-over-year growth in the next two quarters.\nBut the real takeaway is the consistent embedded growth in our portfolio.\nThe portfolio average in-place contractual rent increase is approaching 2.9%.\nFor our second quarter lease renewals, the average cash leasing spread was 2.8%.\nYear-to-date, cash leasing spreads have averaged 3.8%, which is at the high end of our 3% to 4% target range.\nReleases commencing in the second quarter, our average future contractual increase is 3.1%, 20 basis points higher than our in-place average.\nThis reflects our pricing power derived from our quality portfolio and attractive markets.\nWith respect to occupancy, we are still catching up from last summer.\nAnd like most in the real estate sector, we are working through the impact of delays and permitting and construction.\nOn average, we have seen build-out timelines increased by approximately 30%.\nIn some high-growth markets like Dallas, permitting timelines have more than doubled.\nAs a result, our same-store average occupancy was down 50 basis points year-over-year.\nWhile these delays may persist in the short run, we are optimistic about our ability to drive improvements in occupancy moving into next year.\nTours and interests are strong across our portfolio as physicians seek space for their expansions.\nAnd over the long term, the projected growth in outpatient care will drive the need for more medical office real estate.\nRegarding our balance sheet and liquidity, net debt to EBITDA was 5.1 times, down from 5.3 times in the first quarter.\nDuring the second quarter, we funded $223 million of investments with $66 million of dispositions, $38 million from our joint venture partner as well as the settlement of $160 million of forward equity contracts.\nAs we look ahead, we have ample liquidity to fund our growing pipeline of acquisitions.\nWe have $150 million of forward equity contracts remaining to be settled in addition to cash and other liquidity sources.\nThe year-to-date FAD payout ratio is 85% with moderate maintenance capex in the first half of the year.\nWe expect maintenance capex to increase as we move to the back half, but the payout ratio to remain below 90% for the year.\nThe events of the past 18 months more than proved the resilience of our portfolio.\nWe believe the strong underlying demand drivers for outpatient care will help drive internal and external growth.\nThese tailwinds when combined with low leverage and access to multiple sources of capital will continue to drive compounding per share growth.",
        "summary": "q2 adjusted ffo per share $0.43.\nqtrly normalized ffo per share totaled $0.43."
    },
    {
        "text": "Please note, that the information presented is preliminary and based upon data available at this time.\nExcept to the extent required by law, we expressly disclaim any obligations to update earlier statements as a result of new information.\nFor the fourth quarter 2020, Hilltop reported net income of $116 million or $1.35 per diluted share, representing an increase from the fourth quarter 2019 of $67 million or $0.81 per diluted share.\nThis included a final settlement from the sale of National Lloyds of $3.7 million or $0.05 per diluted share.\nReturn on average assets for the period was 2.8% and return on average equity was 21%.\nFull-year 2020 net income equated to $448 million or $5 per diluted share.\nThis was an increase from $225 million or $2.44 per diluted share in 2019.\nFull-year results reflect a discontinued operations from National Lloyds of $38 million.\nThe fourth quarter capped off remarkable year of growth for the organization.\nWe continued to capitalize on a tremendous mortgage market, as originations for the quarter totaled $6.8 billion, an increase over prior year of $2.4 billion.\nDriven by PPP loan balances, the Bank's average loans for the fourth quarter increased 8% from prior year, and average deposits grew by $2.3 billion or 26% from prior year as well.\nNet revenues at the broker-dealer increased for the same period by $37 million or 33%, primarily due to robust volumes in Structured Finance, Public Finance and Fixed Income businesses.\nOur strong capital position in 2020 enabled us to distribute $241 million in both dividends and share repurchases.\nThis includes the Dutch auction tender that was executed in the fourth quarter, were Hilltop paid $193 million to repurchase approximately 8 million shares of common stock.\nYesterday, our Board of Directors declared a quarterly cash dividend of $0.12 per common share, an increase of 33% from the prior quarter.\nThis dividend is payable on February 26th, 2021.\nDuring the period, we continued to support our impacted banking clients through the approval of COVID-related loan modifications.\nThe balance of total active deferrals as of December 31 was $241 million -- excuse me, $240 million, down from $968 million at the end of the second quarter.\nOur allowance for credit losses as of December 31 totaled $149 million or 2% of the Bank's loan portfolio.\nThis reflects a reduction in the reserve balance of $6.2 million from the third quarter, which was driven by fourth quarter payoff, lower-than-expected charge-offs and a shift in the economic outlook.\n2020 was a challenging year for all of us, where I believe made us a stronger and better company.\nI'm very proud of our teammates companywide and how they responded to take care of each other, as well as our clients and the communities we serve.\nAt the onset of the pandemic, our treasury and capital markets teams immediately pulled together to manage the volatility which occurred and to ensure our businesses had ample liquidity to serve the needs of our clients.\nAs well, the coordinated efforts of our technology, property management and human resources groups, enabled us to effectively transition 90% of our employees to a work-from-home model, in less than 30-days.\nAlthough the pandemic caused Hilltop to change the way we work, it did not deter our company from making progress on large and complex initiatives.\nAlso notable, our team at PlainsCapital Bank originated 2,800 PPP loans and deferred loan payments in a few short months, for their commercial and consumer clients that were most impacted by the pandemic.\nTheir efforts in partnering and supporting our banking clients, highlight the culture of PlainsCapital and the quality of our bankers.\n2020 was also a record-breaking year for the company.\nAs prime lending funded a record $23 billion in mortgage loan, Hilltop Securities generated record net revenues of $530 million and Hilltop produced record earnings.\nImportantly, we do not expect these favorable market conditions to continue indefinitely.\nAs we embark upon 2021, we believe that Hilltop is well positioned with established businesses, synchronized leadership and substantial capital.\nMoving to Slide 4.\nPlainsCapital Bank had a solid quarter, with pre-tax income of $59 million, as a negative provision of $3.6 million was recorded.\nNet interest income increased $11 million from Q4 2019, driven by fees and interest income from PPP loans.\nNet interest margin was 3.37% during the period, a linked quarter increase of 35 basis points, as the Bank utilized cash proceeds from PPP loan pay-offs to reduce sweep deposits from Hilltop Securities.\nPrimeLending had an outstanding fourth quarter and generated pre-tax income of $84 million, an increase of $76 million from Q4 2019.\nThat was driven by a 54% increase in origination volumes and a gain on sale margin of 448 basis points, a strong finish to an incredible year for the PrimeLending team.\nHilltopSecurities, also had an outstanding quarter with pre-tax income of $34 million, an increase of $10 million or 42% from the fourth quarter of 2019.\nStructured Finance grew net revenue by 92% from Q4 2019, driven by a 57% increase in TBA lock volume.\nPublic Finance Services grew net revenue by 32% and Fixed Income Services grew net revenue by 45%, both driven by robust volumes, improved capabilities and key talent addition.\nMoving to Slide 5.\nIn late 2017, we announced a broad set of initiatives to enhance our platform and streamline operations with the goal of lowering operating costs, and building a foundation for future growth.\nOur goal was to deliver $84 million and run-rate PPNR benefit by the end of 2021.\nThrough the end of 2020, we have completed projects that have resulted in $90 million in revenue and cost benefits.\nThis program was centered around three main areas.\nEnhanced Business Operations, Strategic Sourcing and Shared Services.\nIn the first area of Enhanced Business Operations, we streamlined front-end operations through the replacement of legacy core systems with the Blue Sage loan origination system at PrimeLending and with the FIS platform in HilltopSecurities.\nAlso, we improved the alignment of leadership and management through affecting succession plan and making certain large organizational changes, such as the PrimeLending staff reorganization in 2018 and the restructuring of Hilltop's [Indecipherable] organization in 2019.\nAdditionally, we established a agency MBS group at HilltopSecurities, which is a securitized product platform that complements our mortgage origination businesses.\nIn the second area of Strategic Sourcing, the focus was to take advantage of the size of our organization, in order to improve our pricing and discounts with all vendors.\nIn order to do this, we implemented an enterprise contract and procurement platform to better enable the organization to work effectively with contracts and across vendors.\nA single travel and entertainment platform to aggregate data and leverage our scale for better rates and discounts and a consolidation of supplier sourcing, which includes IT hardware and software, it's in janitorial services, and office supply.\nNotably, Strategic Sourcing has been a huge effort and is showing very positive results, that we will continue to leverage as we negotiate contracts.\nThe focus of the third and last area was to build a Shared Services organization to support the entire enterprise.\nWe had redundancy across the organization in most functional departments.\nAnd through the centralization of certain responsibility, we now have better controls, communication and run rate costs.\nMost importantly, our Shared Services organization has positioned us for enhanced scalability to support both organic and acquisitive growth.\nI'll start on Page 6.\nAs Jeremy discussed, for the fourth quarter of 2020, Hilltop reported consolidated income attributable to common stockholders of $116 million, equating to a $1.35 per diluted share.\nHilltop produced income from continuing operations of $113 million or $1.30 per diluted share during the fourth quarter.\nFor the full-year of 2020, Hilltop reported consolidated income attributable to common stockholders of $448 million or $5.01 per diluted share.\nIncome from continuing operations available to common stockholders equated to $409 million or $4.59 per diluted share.\nEarnings per share from continuing operations effectively doubled from $2.30 reported in 2019.\nDuring the fourth quarter, revenue related to purchase accounting was $5.7 million and expenses were $1.4 million, resulting in a net purchase accounting pre-tax impact of $4.3 million for the quarter.\nIn the current period, the purchase accounting expenses largely represent amortization of deposit and other intangible assets related to prior acquisitions.\nDuring the fourth quarter, the provision for loan losses reflected a net recovery of $3.5 million and included $2.7 million of net charge-offs.\nThe impacts of the improvements in the macroeconomic assumptions, as well as client pay-downs and pay-offs, yielded a net reduction in the allowance for loan losses during the quarter.\nAs a result of the earnings performance and capital actions taken in 2020, Hilltop's year-end capital ratios remain strong with common equity Tier 1 of 18.97% and a Tier 1 leverage ratio of 12.64%.\nMoving to Page 7.\nAs shown here on Page 7, Hilltop's allowance for credit losses declined by $6 million versus the third quarter of 2020, as modest improvements in the macroeconomic outlook versus the prior quarter and lower specific reserves resulting from payoffs, whereby clients were able to refinance their debt with other institutions, lowered our at-risk assets.\nYear-end allowance for credit losses of $149 million, yielded ACL to bank loans HFI ratio of 2.05% as of the year-end 2020.\nOf note, we continue to believe that the allowance for credit losses could be volatile and the changes in the allowance will be driven by net loan growth in the portfolio, credit migration and changes to the macroeconomic outlook over time.\nI'm turning to Page 8.\nNet interest income in the fourth quarter equated to $107 million, including $6.3 million of PPP origination fees and the previously referenced purchase accounting accretion.\nVersus the prior year -- quarter, net interest income decreased by $3.4 million or 3%.\nNet interest margin, which declined versus the prior year period, increased versus the third quarter of 2020 by 15 basis points, driven by the recognition of deferred PPP origination fees and a decline in our cash balances of approximately $500 million.\nLoan yields remain pressured and deposit cost remain somewhat elevated as a result of higher brokered deposit and CE balance.\nDuring the quarter, loan originations including credit renewals, maintained an average book to yield of 3.97%, which is lower than the third quarter of 2020 originations by approximately 7 basis points.\nAlthough interest bearing deposit costs declined by 5 basis points in the quarter, as we continue to lower customer deposit rates and return broker deposits where appropriate.\nWe expect that net interest income and net interest margin will remain pressured as overall market rates remain low, putting pressure on loan, held-for-sale yields and new production yields across the commercial portfolio and the competition could remain aggressive over the coming quarters.\nI'm moving to Page 9.\nTotal non-interest income for the fourth quarter of 2020 equated to $448 million.\nFourth quarter mortgage-related income and fees increased by $140 million versus the fourth quarter of 2019.\nDuring the fourth quarter of 2020, the environment in mortgage banking remained strong and our business outperformed our expectations in terms of origination volumes, principally driven by lower mortgage rates, which drove improved demand for both refinance and purchase mortgages.\nVersus the prior year quarter, purchase mortgages increased by $725 million or 25% and refinance volumes improved substantially, increasing by $1.7 billion or 116%.\nWhile volumes during the quarter were very strong, gain on sale margins also improved by 8 basis points to 448 basis points versus the third quarter of 2020.\nWhile we're expecting wholesale margins could be somewhat volatile during 2021, we expect full-year average margins to move within a range of 360 basis points to 385 basis points, contingent on market conditions.\nOther income increased by $31.5 million, driven primarily by improvements in sales and trading activities in both Capital Markets and Structured Finance businesses at Hilltop Securities.\nFavorable market conditions resulted in a 57% increase in TBA lock volumes versus the prior year period.\nThese businesses continue to realize the benefits of the investments we have been making to improve our securitized products, structuring, sales and distribution capabilities since the third quarter of 2018 and while we believe these investments will continue to provide ongoing benefits, it is important to recognize that these businesses can be volatile from period-to-period, as they are impacted by interest rates, overall market liquidity and production trends.\nTurning to Page 10.\nNon-interest expenses increased from the same period of the prior year by $94 million to $402 million.\nThe growth in expenses versus the prior-year were driven by an increase in variable compensation of approximately $79 million at HilltopSecurities and PrimeLending.\nThis increase in variable compensation was linked to strong fee revenue growth in the quarter, compared to prior year period.\nLooking forward, we expect that in 2021, our revenues will decline from the record levels of 2020, which will put pressure on our efficiency ratio.\nThat said, we remain focused on continuous improvement, leveraging the investments we've made over the last few years to aggressively manage fixed cost, while we continue to further streamline our businesses and accelerate our digital transformation.\nTurning to Page 11.\nTotal average HFI loans grew by 7% versus the fourth quarter of 2019.\nGrowth versus the same period in the prior year, was driven by growth in PPP loans, principally during the second quarter.\nEnd of period banking loans remained stable versus the prior year period, as commercial loan demand has remained tepid throughout the pandemic.\nAs we noted on our prior earnings call, we are planning to retain between $30 million and $50 million per month of consumer mortgage loans originated at PrimeLending, that have offset demand from our commercial clients, subject to market conditions.\nDuring the fourth quarter of 2020, PrimeLending locked approximately $145 million of loans to be delivered to PlainsCapital over the coming months.\nThese loans had an average yield of 2.79% and average FICO and LTV of 780% and 62% respectively.\nMoving to Page 12.\nThis page highlights the ongoing work our banking and credit teams have been doing to support our clients throughout this pandemic.\nAs noted, as of 12/31/2020, Hilltop had approximately $240 million of loans on an active deferral program.\nThis represents a decline of 75% from the active deferrals of $630 million.\nIn total, this portfolio of loans carries an allowance for credit losses of 17.3% and is concentrated in our Hotel and Restaurant portfolios.\nIt is important to note, that we are managing this portfolio of clients and exposure, consistent with our existing credit policies and as a result, during the third and fourth quarters of 2020, the credit rating of these clients were reviewed and in many cases were adjusted to reflect the current financial situation for each of these borrowers.\nAs a result, of the $240 million of loans on active deferrals, $202 million are currently rated as criticized loans.\nWe remain focused on supporting our clients through the challenging times, while continuing to protect the Bank's capital.\nTurning to Page 13.\nDuring the quarter, net charge-offs equated to $2.7 million or 15 basis points of total HFI loan.\nAs is shown on the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended 2020 at 2.05%, including both mortgage warehouse lending, as well as PPP loans.\nWe continue to believe that both mortgage warehouse lending, as well as our PPP loans, will maintain lower loss content over time.\nExcluding mortgage warehouse and PPP loans, the Banks' allowance for credit loss to loans HFI ratio equates to 2.48%.\nTurning to Page 14.\nFourth quarter average total deposits were approximately $11.2 billion and have increased by $2.3 billion or 26% versus the fourth quarter of 2019.\nThroughout the pandemic, we've continued to experience abnormally strong deposit flows from our customers, driven by government stimulus efforts and shifting client behaviors, as customers remain cautious during these challenging times.\nDuring the fourth quarter, customer deposits grew by approximately $392 million from 9/30/2020.\nOffsetting this growth in the fourth quarter, was the return of an additional $200 million in HilltopSecurities sweep deposits and the maturity of $272 million of broker deposits, which we have and will continue to allow them to enroll over the coming quarters.\nAt 12/31, Hilltop maintained $731 million of broker deposits and maintain a blended yield of 44 basis points.\nOf these broker deposits, $469 million will mature by 6/30 of 2021.\nThese maturity broker deposit maintain an average yield of 40 basis points.\nWhile deposit levels continue to remain elevated, it should be noted that we remain focused on growing our client base and deepening wallet share through our treasury products and services.\nThese efforts have been successful in 2020 and we expect that they will continue to accelerate in 2021.\nI'm moving to Page 15.\nDuring the fourth quarter of 2020, PlainsCapital Bank generated solid profitability producing $59 million of pre-tax income during the quarter.\nThe Bank benefited from the previously mentioned provision for credit losses recapture of $3.5 million and the recognition of $6.3 million of PPP dues.\nNon-interest expenses in the quarter reflect a writedowns on certain OREO assets of $3.8 million, which did cause the efficiency ratio to drift higher this period.\nThis year has presented a number of challenges for PlainsCapital, we were very pleased with the resiliency of our client and teammates across the business.\nAs Jeremy mentioned, the team delivered for our clients by providing approximately 2,800 PPP loans in 2020 and deferring payments for those customers that have been most impacted by the pandemic.\nThe work this year demonstrates a solid balance of customer support, while protecting the principle of the Bank and Hilltop.\nIn 2021, the team remains focused on providing great service to our client and delivering profitable growth, while maintaining a moderate risk profile.\nI'm moving to Page 16.\nPrimeLending generated pre-tax profit of $84 million for the fourth quarter of 2020, driven by strong origination volumes that increased from the prior year by $2.4 billion or 54%.\nAs noted earlier, gain on sale margins expanded during the fourth quarter.\nIn previous calls, we discussed the retention of MSRs during the second and third quarters.\nThis continued during the fourth quarter and the MSR asset ended the year with a value of $144 million.\nThroughout the second half of 2020, we reduced our retention percentage of servicing rights on sold loans for 57%.\nWe expect to continue to retaining servicing assets at these levels during the first half of 2021, subject to market conditions and we will be looking to potentially execute bulk sales throughout the year, if market participation is robust.\n2020 reflects a record year for PrimeLending by almost all measures.\nWe are grateful for the teamwork and effort put forth across Hilltop and PrimeLending to deliver these outstanding results for our customers and our company.\nIn 2021, PrimeLending will remain focused on generating profitable mortgage volume and continue to execute on delivering operational efficiencies across the business.\nMoving to Page 17.\nHilltopSecurities delivered a pre-tax profit of $34 million in the fourth quarter of 2020, driven by solid execution in Structured Finance, Capital Markets and Public Finance businesses, which have benefited from our ongoing investments in talent and infrastructure over the last few years and a constructive market backdrop.\nWhile activity was strong in the quarter, we continued to execute on our growth plan, investing in bankers and sales professionals across the business, to support additional product delivery, enhance our product offerings and deliver our differentiated solutions set to municipalities across the country.\nThis is highlighted in the fourth quarter in Public Finance Services, which was able to deliver net revenue growth of $8 million for 32% versus same period in the prior year, even as overall market issuance volumes declined.\nThe team at HilltopSecurities is focused on delivering profitable revenue growth, optimizing operating expenses, while managing market and liquidity risk within a moderate risk profile.\nTurning to Page 17.\nAs a result of the teams' work over the past few years, we were well positioned to take advantage of the opportunities the market presented, by leveraging our franchise and our enhanced infrastructure to serve customers, while keeping our teams and clients as safe as possible during some very challenging times and circumstances in 2020.\nIn 2021, we remain focused on remaining nimble, as the pandemic evolves, to ensure the safety of our teammates and our clients.\nFurther, our financial priorities for 2021 remains centered on delivering great customer service to our clients, attracting new customers to our franchise, supporting the communities where we serve, maintaining a moderate risk profile and delivering long-term shareholder value.\nGiven the current uncertainties in the marketplace, we are not providing specific financial guidance, but we are continuing to provide commentary as to our most current outlook for 2021, with the understanding of the business environment, including the impact of the pandemic, could remain volatile throughout the year.\nThat said, we will continue to provide further updates during our future quarterly calls.",
        "summary": "hilltop holdings inc qtrly earnings per share from continuing operations $1.30."
    },
    {
        "text": "Actual results may differ materially from those made or implied in such statements, which speak only as the date they are made and which we undertake no obligation to publicly update or revise.\nOur Chairman and CEO, Clarence Smith, will now give you an update on our results, and then our President, Steve Burdette, will provide additional commentary about our business.\nWe're very pleased with the results of the first quarter and I'm encouraged with the continuing momentum that we're seeing with increased written sales, higher traffic and higher closing rates and average tickets.\nEven though our undelivered backlog is up almost 4 times last year, our current incoming orders are continuing at the elevated pace we have seen since January.\nWe have not seen a slowing of orders or significantly higher cancellation rates even with the longer wait times for furniture.\nWhile we do not know how long we will see these dramatic increases in incoming orders, we believe that the importance and the value of the home has risen dramatically in the past year.\nWe believe this trend will continue for 2021 because of the large backlog of orders, the very strong housing market, the government cash subsidies and the increased demand for furniture and other home related products.\nWe also believe that the elevated importance of home is a longer-term sustainable trend in America.\nOur supply merchandising and distribution teams have been tirelessly working with our suppliers and shippers to bring in the product to fill orders and reduce our record backlog.\nThe delays in shipping challenges are well-known now, but they are well beyond anything that our industry has experienced.\nWe're planning to increase our inventories as the production and product flow improves and are investing in additional warehouse capacities in our distribution network.\nWe opened a new store in Myrtle Beach, South Carolina this past quarter.\nAnd are excited to open a design-oriented store in the villages in Central Florida this summer.\nWe expect to open a third store in Northeast Austin, Texas later this year.\nWe believe there are a number of good additional markets that we can serve within our distribution footprint and are actively investigating and pursuing new store opportunities.\nWe're very excited about the rollout of a major new multimedia marketing campaign in May, which we believe will more clearly separate Havertys from our competitors and raise the bar on service, quality furniture and design.\nWe'll be sharing more on the campaign early next month.\nI'd like to provide an update on our operations during the quarter, specifically, our supply chain efforts as well as our distribution, home delivery and service areas.\nOur supply chain team faced many headwinds during the first quarter, which included availability of container capacity as we approach Chinese New Year was difficult.\nContainer freight costs were unreliable as we face pricing surcharges due to scarcity.\nWe experienced port delays, especially at LA on some of our inbound product of up to three weeks.\nFebruary's winter storm impact to our Dallas distribution center caused us to close receiving operations for one week.\nThe same storm impacted two of the main chemical manufacturers for our foam suppliers, which caused our upholstery and bedding vendors to see further delays in their production.\nAnd finally, the Suez Canal situation caused some additional delays for products arriving in the early part of the second quarter.\nEven with all these headwinds, we were able to receive approximately 10% more product in Q1 versus Q4.\nWe expect that we will be able to match or exceed the same flow of product in Q2.\nWe are still experiencing some delays with container availability in the early part of Q2.\nHowever, we have been able to secure our new contracts with our freight carriers, which will bring stability to our freight cost.\nAlso, the flow of foam should resume back to normal production by the middle of May, which will be a big lift to the domestic production for upholstery and bedding in the back half of the quarter.\nOur distribution, home delivery and service teams did a masterful job adjusting to the headwinds we faced within the quarter.\nWe had to close deliveries for all stores serviced by our DC in Dallas and our cross docks in Memphis in Cincinnati, for one week due to the same winter storm in February.\nOur delivery schedules resumed back to normal the week after the storm.\nStaffing remains our #1 concern in this area.\nExtended unemployment benefits until September, along with the stimulus checks being distributed in December and March, have made it difficult to attract and retain talent in our warehouses and home delivery.\nThis challenge is not unique to our company as it is a challenge for many industries in this economy.\nOverall, I'm very pleased with the results of our operations in the first quarter of this year.\nI appreciate the efforts of the entire Havertys team as well as our vendor partners that made it happen.\nAnd looking at our financial results for the quarter.\nIn the first quarter of 2021, delivered sales were $236.5 million, a 31.8% increase over the prior year quarter.\nIf you recall, our retail operations were closed in the last two weeks of the first quarter of 2020 due to the COVID-19 pandemic.\nTotal written sales for the first quarter of 2020 were up 54.5% over the prior year period.\nComparable store sales were up 11.5% over the prior year period.\nThis includes stores that were open for a full month in both periods, so March is excluded.\nOur gross profit margin increased 160 basis points from 55.5% to 57.1% due to better merchandising, price and mix and less promotional activity during the quarter.\nThese improvements were partially offset by an increase in our LIFO reserve as we continue to see increased freight and product costs.\nSelling, general and administrative expenses increased $12.2 million or 12.5% to $109.8 million, primarily due to increased sales activity.\nHowever, as a percentage of sales, these costs declined 800 basis points to 46.4% from 54.4%.\nAs demonstrated in the past two quarters, our financial model has substantial operating leverage at these sales levels.\nIncome before income tax has increased $23.1 million to $25.4 million.\nOur tax expense was $6 million in the first quarter of 2021, which resulted in an effective tax rate of 23.5%.\nThe primary difference in the effective rate and the statutory rate is due to the state income taxes and the tax benefit from vested stock awards.\nNet income for the first quarter of 2021 was $19.4 million or $1.04 per diluted share on our common stock compared to net income of $1.8 million or $0.09 per share in the comparable quarter of last year.\nNow looking at our balance sheet at the end of the first quarter, our inventories were $103.6 million, which was up $13.7 million over the December 31, 2020 balance and down $6.9 million versus the first quarter of last year's balance.\nAt the end of the first quarter, our customer deposits were $104.7 million, which was up $18.5 million from the December 31, 2020 balance, and up $78.6 million versus the Q1 2020 balance.\nWe ended the quarter with $210 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of the first quarter of 2021.\nLooking at some of the uses of our cash flow.\ncapex for the quarter was $4.7 million.\nAnd we also paid $4 million of dividends during the first quarter of 2021.\nDuring the first quarter, we did not purchase any common shares in our buyback program.\nWe currently have $16.8 million remaining under authorization for this program.\nWe expect our gross margins for 2021 to be between 56.5% and 57%.\nWe anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes in our LIFO reserve.\nOur fixed and discretionary type SG&A expenses for 2021 are expected to be in the $265 million to $268 million range, a slight increase over our previous 2021 estimate due to rising benefit costs.\nThe variable type costs within SG&A for 2020 are expected to be in the range of 17.5% to 17.8%, a slight increase over the most recent quarter based on potential increases in selling and delivery costs.\nOur planned capex for 2021 remains at $23 million, anticipated new replacement stores remodels and expansions account for $12.9 million, investments in our distribution network are expected to be $6.4 million, and investments in our information technology are expected to be approximately $3.7 million.\nOur anticipated effective tax rate in 2021 is expected to be 24%.\nThis projection excludes the impact from vesting of stock awards and any potential new tax legislation.\nThis completes our commentary on the first quarter.",
        "summary": "compname reports q1 earnings per share $1.04.\nq1 earnings per share $1.04.\nq1 sales rose 31.8 percent to $236.5 million.\nq1 same store sales rose 11.5 percent.\nexpect gross profit margins for 2021 will be between 56.5% to 57.0%."
    },
    {
        "text": "Before beginning, let me cover the formalities.\nSuch factors are detailed in the company's SEC filings and last night's news release.\nIt cannot be recorded or rebroadcast without our express permission.\nThe purpose of the call is to review our First Quarter 2020 results detailed in our news release issued yesterday.\nThese numbers reflect the beginning of what we expect will be a gradual and steady recovery over the coming quarters as the world emerges from the economic effects of the pandemic and regains its confidence in air travel once again.\nThe results we reported in our news release, last night, represent a solid start to the year and were largely consistent with our expectations.\nAnd we were more than pleased with how well we performed in controlling costs and delivering stronger margins.\nOur Hexcel team has transformed this downturn in demand into an upturn in productivity, cash management, inventory control, and efficiency.\nWhile we have a few more months of restructuring ahead of us, especially in Europe, which is on track, we are already realizing meaningful results from our rapid and robust response to the pandemic and its unprecedented effects on our business.\nAs we have previously communicated, we expect to reduce overhead costs by the middle of this year on an annual basis by approximately $150 million.\nAnd I'm pleased to report a significant portion of those savings are reflected in our first-quarter results.\nWe expected that second half of 2020 and our first for this year would represent the troughs or the low point of the demand cycle resulting from COVID-19.\nNow, with Q1 behind us and a clearer view ahead, we're even more convinced that our expectations were correct, which we continue to validate via regular customer interactions, including customer site visits where this can now be accomplished safely.\nKeep in mind, however, the pandemic has triggered many challenges that the world has not yet fully overcome, and therefore, any substantial increases in build rates, air passenger demand, and even consumer spending remain uncertain.\nFor example, we anticipate that 2021 will continue to be impacted by pandemic headwinds, including inventory destocking, which we expect will wind down as we move through the second quarter and to be largely behind us as we move into the second half of the year.\nSome tightness in our supply chain is always a risk, and even more so with the ever-present threat of pandemic-related slowdowns, shutdowns, and shortages.\nThe rollout of vaccines is encouraging in some countries, yet, unfortunately, slow in others.\nDomestic travel in the US is showing signs of improvement and may boom by year-end.\nWhile other countries are entering their second, third, or fourth lockdowns with minimal domestic flights.\nInternational travel is still showing little sign of recovery.\nSo, for the aerospace industry, 2021 remains a transition period between the dramatic decline triggered by the pandemic and a return to strong growth in 2022.\nWe remain cautiously optimistic by both our demonstrated performance and the momentum we see building in the global economy as the air travel begins a gradual return to pre-pandemic levels.\nNow, let me highlight some of the results.\nFirst-quarter sales of $310 million were in line with our expectations.\nAdjusted first-quarter earnings per share was a negative $0.10 compared to a positive $0.64 last year.\nThroughout the pandemic, we have maintained a strong focus on cash, and in the first quarter, our free cash flow was a use of $6 million compared to a use of $19 million in Q1, 2020.\nDespite significantly lower sales, we continue to tightly manage cash by controlling spending, which includes capital expenditures.\nLiquidity at the end of the quarter was strong and included $82 million of cash and $536 million of revolver borrowing availability.\nOverall, our balance sheet remains robust.\nTurning to our three markets.\nAerospace sales of $147 million were down more than 59% compared to the first quarter of last year, which included sales before the effects of the pandemic began to dramatically impact Commercial Aerospace.\nSales were down significantly across all major platforms, which reflects pandemic induced build rate reductions by the aircraft OEMs and continued supply chain destocking.\nWhile one quarter does not make a trend, we did see sequential sales growth in the first quarter for narrow bodies.\nAdmittedly, Boeing 737 MAX sales continue to be at a low level as the supply chain works through channel inventory.\nThis may take some time and will be uneven as inventory levels vary across the supply chain.\nSales to other Commercial Aerospace, which include regional and business aircraft, were down 48% compared to 2020.\nBusiness Jets is the largest portion of this sector and while most business jet programs were down significantly year-over-year, there were a few select programs that increased modestly.\nWhile not getting into program specifics, we are confident business jet demand will return over time, likely led by the small and mid-sized classes.\nSpace and Defense sales were basically flat year-over-year at $112 million.\nWe have content on over 100 space and defense programs and they fluctuate by quarter.\nOur space business has been growing nicely over time, yet, paused in the first quarter with softer sales which was not usual.\nWe are -- not unusual.\nWe are beginning to benefit from the ramp in the CH-53K and we are pleased to see the growing international demand for this composite rich, heavy-lift helicopter.\nWe are encouraged with the initial outlook through proposed US defense spending, particularly as composite lightweighting [phonetic] supports the US military focus on longer-range aircraft and rotorcraft.\nWe expect to benefit from growth in Space and Defense throughout the year.\nTotal Industrial sales of $51 million in the first quarter were down more than 23% and 27% in constant currency.\nLower wind energy sales drove the decrease, yet were partially offset by stronger automotive sales, which may be an indication that consumer confidence is improving.\nWind energy sales, which is the largest submarket in Industrial, were down more than 40% compared to last year.\nAnd reflects a previously reported softening in customer demand, as well as the closure of our wind blade prepreg production facility in North America, last November.\nWind energy remains a good business for Hexcel and Vestas continues to be a great customer.\nMaterial manufacturing continues at our plants in Neumarkt, Austria; and Tianjin, China, as well as our continuing commitment to innovation in the wind energy market.\nDuring the quarter, we announced our new HexPly XF Surface Treatment Technology that significantly reduces show manufacturing time during the wind blade production process.\nIt's a product that has had a successful track record in prepreg blades and now is adapted for infusion processes.\nWe also received type approval certification for our HexPly M9 [Phonetic] prepreg materials, which adds to our growing portfolio of prepreg processing options for marine applications.\nTo finish, I'd like to provide a slightly longer-term perspective.\nAs sales recover in 2022 and beyond, we expect to deliver strong incremental margins as utilization of existing capacity increases.\nWhile we do not guide to incremental margins, what may be helpful is to review past sales levels and operating margin performance before the A350 reached peak rates.\nSpecifically, in the 2014 to 2015 timeframe Hexcel sales were in the range of $1.8 billion to $1.9 billion, with operating margins in the range of 17%.\nAnd what is noteworthy is that the A350 production rate was ramping to five per month during these years.\nWe believe that we can return to these margin levels when we attain similar sales levels.\nWhile our depreciation expense is now higher than during that prior time period, our focus is to more than offset this by efficiency improvements and our overhead cost reductions.\nOur cost base will expand with growth, but what is incumbent on our management team is to be extremely disciplined in managing cost growth and ensuring the depreciation headwinds is more than off overcome.\nTo state this succinctly, we expect to achieve strong, mid-teens plus operating margins, with sales of approximately $1.8 billion to $1.9 billion, and we are targeting to exceed prior peak margins when we return to previous peak sales levels.\nAs a reminder, the year-over-year comparison will be in constant currency.\nThe majority of our sales are denominated in dollars.\nHowever, our cost base is a mix of dollars, euros, and British pounds, as we have a significant manufacturing presence in Europe.\nAs a result, when the dollar strengthens against the euro and the pound, our sales translate lower while our costs also translate lower leading to a net benefit through our margin.\nAccordingly, a weak dollar, as we are currently facing, is a headwind to our financial results.\nWe hedge this currency exposure over a 10-quarter horizon to protect our operating income.\nQuarterly sales totaled $310.3 million.\nThe sales decrease year-over-year reflects production rate decreases by our Commercial Aerospace customers in response to the pandemic, combined with the continued Commercial Aerospace supply chain destocking.\nTurning to our three markets.\nCommercial Aerospace represented approximately 48% of the total first-quarter sales.\nCommercial Aerospace sales of a $147.6 million, decreased 59.7% compared to the third quarter of 2020 as destocking continues to impact our sales.\nWe continue to expect destocking to wind down during the second quarter of 2021, consistent with what we have communicated during our fourth quarter 2020 earnings call.\nWe don't expect to generally be aligned with OEM production levels entering the second half of 2021, with destocking largely behind us and recognizing the beneficial impact of the cost takeout actions that we have implemented.\nSpace and Defense represented 36% of first-quarter sales and totaled $111.7 million, basically unchanged from the same period in 2020.\nWe remain bullish for the outlook for our Space and Defense business globally.\nIndustrial comprised 16% for first quarter 2021 sales.\nIndustrial sales totaled $51 million, decreasing 27.1% compared to the third quarter of 2020 on weaker wins and recreation market, partially offset by stronger automotive.\nWind energy represented approximately 50% for first quarter Industrial sales.\nOn a consolidated basis, gross margin for the first quarter was 17.1% compared to 26% in the first quarter of 2020.\nThe sequential gross margin improvement from the fourth quarter of 2020 had three drivers, including greater impact from our cost reduction actions, improved sales mix, and a few more carbon fiber lines coming back online as our production levels and inventory becomes appropriately realigned with demand.\nWe continue to temporarily idle select carbon fiber assets.\nAnd as we bring further lines back into production over time to support this expected gradual and steady sales growth in future periods, this should help generate strong incremental margins.\nFirst-quarter selling, general, and administrative expenses decreased 17% or $8 million in constant currency, year-over-year, as a result of headcount reductions and continued tight controls on discretionary spending.\nResearch and Technology expenses decreased 19.7% in constant currency.\nThe other expense category consisted primarily of severance costs in Europe.\nWe continue to target approximately $150 million of annualized overhead cost savings, including indirect labor.\nAs Nick said, a significant portion of these savings have been achieved and were reflected in our Q1 2021 results.\nWe expect that most of the remainder of this cost and take-outs will be achieved by the end of the second quarter of 2021.\nAdjusted operating income in the first quarter was $1.9 million, which is the first positive operating income since the destocking began in earnest during the third quarter of 2020.\nThe year-over-year impact of exchange rates was negative by approximately 10 basis points.\nNow turning to our two segments.\nThe Constant Materials segment represented 76% of total sales and generated a 3% operating margin or an adjusted operating margin of 8% compared to 19.9% adjusted operating margin in the prior-year period.\nThe Engineered Products segment, which is comprised of our structures and engineered core businesses represented 24% of total sales and generated a 6.4% operating margin or a 5.4% adjusted operating margin compared to 6.6% adjusted operating margin in the first quarter of 2020.\nThe tax benefit for the first quarter of 2021 was $7.5 million, which included a discrete tax benefit of $3.2 million from the revaluation of deferred tax liabilities related to a favorable US state tax law change.\nThe pandemic and consequent mix of results across the countries in which we operate is expected to continue to have an impact on the Company's overall effective tax rate throughout 2021.\nNet cash used by operating activities was $1.2 million for the first quarter.\nWorking capital was a use of cash of $26.2 million in the quarter, primarily related to increased receivables as first-quarter sales were weighted toward the end of the quarter.\nCapital expenditures on an accrual basis were $4 million in the first quarter of 2021 compared to $21.9 million for the prior-year period in 2020.\nCapital expenditures continue to be tightly managed with a focus on improving existing asset efficiency and new technology flexibility.\nFree cash flow for the first quarter of 2021 was negative $6.1 million compared to negative $18.6 million in the prior-year period, which reflects tight spending control on significantly lower sales.\nIn late January 2021, we announced the second amendment to our revolver, which we've structured to accommodate the temporary economic impact of the pandemic.\nThe amendment temporarily replaces the leverage covenant with a minimum liquidity covenant.\nThe minimum required liquidity is $250 million, which includes unrestricted cash, plus unutilized revolver-based [Phonetic] availability.\nThis minimum liquidity requirement is through and including March 31, 2022.\nThe facility terms then revert to the prior leverage covenant, effective April 1, with the first measurement of leverage to occur as of June 30, 2022.\nAdditionally, the amount of the revolver is reduced to $750 million from $1 billion, previously.\nThis amendment preserves our access to liquidity during this period of market transition and reinforces our strong relationship with our bank's indication.\nWe remain within all covenant conditions.\nOur total liquidity at the end of the first quarter of 2021 was $618 million, consisting of $82 million of cash and an undrawn revolver balance of $536 million [Phonetic].\nOur revolver matures in 2024 and our two senior notes mature in 2025 and [Technical Issues] purchase program remains suspended and is also restricted by the previously referenced revolver amendment.\nOur Board continues to regularly evaluate capital allocation priorities.\nAs our earning release states, we are not providing financial guidance at this time, but I would like to reinforce and expand upon the information shared during our fourth quarter 2020 earnings call.\nWe continue to expect 2021 annual sales to be lower than 2020, in fact, largely in line with the current market consensus.\nWe expect the aerospace supply chain destocking to largely come to an end during the second quarter 2021.\nWhile some destocking may continue into the second half in select instances, it should be offset by strengthening narrow-body sales.\nSome additional restructuring costs are anticipated in the remaining quarters of 2021 but below the first-quarter level.\nWe expect the fiscal year 2021 adjusted operating margin percentage to be in the low single digits.\nCapital expenditure in 2021 will continue to be managed very tightly and is expected to be at a similar level to 2020.\nWe expect to generate free cash flow in 2021 and further reduce debt levels.\nThe tax assumption is more contrary to normal, but we expect the underlying effective rate to be approximately 25% in 2021.\nThis change from prior rates was due to a change in the mix of jurisdictions where we generate income.\nOver time, we expect the tax rates to return to pre-pandemic levels assuming no changes to existing tax rates in the major jurisdictions where we operate.\nOur first-quarter results give us confidence in our outlook for a steady recovery throughout 2021.\nWe believe that the aerospace industry will realize some upticks in demand beginning in the second half.\nAnd as it does, Hexcel is well-positioned to benefit from our leadership and much sought-after advanced lightweight composites from our strong customer relationships that have grown stronger throughout the pandemic, and from our continuous focus on continuous improvement through operational excellence.\nThis also is not the time to be shy about investment in R&T and we are continuing to realize a strong pull from our customers to further drive advancements in existing and new innovations that position us to win next-generation platforms.\nDespite all the turmoil and challenges that arose in 2020, the great strengths and values of Hexcel remain as robust as ever.\nWe still have leading positions on the world's largest aerospace programs with our advanced composite materials and the broadest technology portfolio in our industry.\nThe great job our team has done puts us in a position to return to substantial growth once this pandemic is behind us.\nFew companies are as efficient or as good at execution, or as committed to excellence as Hexcel.\nOur people are the most resilient and talented group that I've ever known and I'm always proud to share with you their accomplishments every quarter.\nFor several years, Hexcel has been building capacity to meet extraordinary ramp-ups in demand.\nSo the chance to pause with our customers, over the past few months, has afforded us a unique opportunity to ensure that we are aligned with them and in the strongest position possible to meet the growing demand at hand.\nHexcel has never been more focused on its customers, innovation, and operational excellence.\nWe expect to emerge from these challenges as a leaner and stronger company and even better positioned for strong growth and return to shareholders.",
        "summary": "compname reports q1 sales $310 mln.\nq1 sales $310 million versus $541 million.\nqtrly adjusted diluted net loss per common share $0.10.\ncontinues to withhold financial guidance due to market uncertainties arising from global pandemic.\nquarterly dividend remains temporarily suspended.\nshare repurchase program remains temporarily suspended."
    },
    {
        "text": "Before beginning, let me cover the formalities.\nSuch factors are detailed in the Company's SEC filings and last night's news release.\nIt cannot be recorded or rebroadcast without our express permission.\nThe purpose of the call is to review our second quarter 2021 results detailed in our news release issued yesterday.\nThe global COVID pandemic is far from over.\nBut with the growing availability of vaccinations, there is cautious yet positive momentum as domestic travel appears to be on the rebound and aircraft backlogs have started to grow again.\nWhile there remains uncertainty ahead, our focus has shifted toward a return to growth.\nAll of us recognize that the past year and a half has been unprecedented.\nThe global pandemic required Hexcel to take aggressive and swift restructuring actions, which we did.\nWe also took advantage of the lower production levels to drive cost and efficiency improvements.\nThese efforts have positioned us to exit the pandemic more focused and more efficient for a strong rebound.\nThe way our team responded to the challenges has been phenomenal and as reflected in the results we reported in our news release last night.\nOur robust start to the year continued into the second quarter with results in line with or slightly ahead of our expectations.\nWe achieved strong margin performance despite lower year-over-year sales as a result of a favorable margin mix from higher carbon fiber sales.\nCombined with the efficiency improvements and reductions in our overhead costs, we were able to deliver $0.08 of adjusted earnings per share for the quarter.\nIf you remember back to the second quarter of 2020, we also reported $0.08 of adjusted EPS.\nHowever, on sales, that were almost 17% higher in constant currency.\nThis demonstrates the cost controls actions that we took quickly in 2020 and that continue today are making a significant difference in the sustained value we offer to our shareholders.\nAs we anticipated last quarter, we believe inventory destocking is largely behind us as we move into the second half of the year.\nSpecifically, destocking for the A320 and 737 MAX are basically complete.\nThe widebody still have some inventory to burn through and we expect that will take a few more months to align with announced build rates.\nWe are encouraged that airlines such as United are placing orders with the commercial aerospace OEMs as revenue passenger kilometers continue to grow around the world.\nDeliveries climbed in June for both Airbus and Boeing, which we believe is further evidence that we, along with our customers, are beginning to emerge from the effects of this pandemic-driven downturn.\nHowever, while we anticipate gradual increases in build rates in the coming months, we recognize that it will take some time for rates to return to 2019 levels.\nEven with vaccines restoring confidence in travel, there are uncertainties with additional variants of the COVID-19 virus spreading.\nUS air travel is steadily increasing, but still about 25% lower than before the pandemic.\nEuropean travel is improving.\nHowever, the recovery is slower with flights remaining about 50% lower than pre-pandemic levels.\nSo while we see some encouraging signs and are planning for increased demand and a gradual recovery, we recognize that the effects of the pandemic on commercial aerospace and our business are likely to remain for some time.\nEven so, we are very excited about the future and pride ourselves on our relentless drive for continuous improvement.\nWith that in mind, we have taken full advantage of this time to deepen our customer relationships, which had never been stronger, to further improve our processes and to build our broad portfolio and our commitment to continued innovation.\nWe announced in May that we are building a flagship center of excellence for research and technology in the US to support next generation developments in advanced composite technologies.\nWhen it opens in 2022 at our Salt Lake City Campus, it will be our largest center for innovation and product development in North America and a showcase for our advanced composites technologies.\nEventually, about 150 scientists and other employees will work at the new center, including many of the experienced and talented R&T employees currently working in Dublin, California.\nWe will eventually sell the property in California, with the proceeds expected to fund a significant portion of our construction costs for the new center.\nWith about 100,000 square feet of laboratory and office space and the latest state-of-the-art testing equipment, it will allow us to expand our research to further develop new products and processes and provide an even greater opportunity for us to collaborate with our customers on the latest and advanced composites technologies to deliver innovative solutions and support future growth.\nDesign efforts are well underway and we expect to break ground in the fourth quarter of this year.\nWe're excited to make this investment in innovation today to ensure our continued leadership tomorrow.\nI look forward to inviting many of you to visit once the site opens toward the end of next year.\nI recently completed touring all of our US locations to conduct site readiness reviews.\nWhat I found during these site visits thrilled me.\nOur workforce is engaged, focused and highly motivated for a return to growth.\nThe caliber of site leadership and the shop forward teams across our plants is truly outstanding.\nI was shown numerous examples of increased productivity, significant process enhancements and a long list of continuous improvement projects our team has implemented across our manufacturing footprint during the pandemic to reduce costs, further enhance worker safety and job quality, and to position Hexcel to expand margins as growth returns.\nThe ability of the supply chain to ramp up remains a watch item for us and we are working very closely with our suppliers to successfully overcome any challenges that arise.\nThe same focus applies to our labor requirements, which I'm happy to say are growing once again.\nAt this point, we have been able to attract the labor we need.\nYet, we anticipate further challenges, which we'll address through robust recruitment, planning and continuing to stay in lockstep with our customers.\nNow, let me highlight some of the results from the quarter.\nAerospace sales of $154 million were down almost 25% compared to the second quarter of last year.\nNarrow-body demand is recovering quickly, with second quarter sales reaching their highest level since the first quarter of 2020.\nSales to Other Commercial Aerospace such as regional and business aircraft were down 27% compared to 2020.\nBusiness jets is the largest portion of this sector and sales continue to recover, but remain lower year-over-year.\nSpace and defense sales were about $107 million, which represents relatively flat year-over-year performance, affected primarily by pandemic-related production delays.\nAs you know, we have significant content on both the Lockheed Martin F-35 and Sikorsky CH-53 K, with these platforms receiving new orders within the past month.\nBoth will continue to be strong programs for us, as well as the 100-plus other defense and space programs in this sector.\nIndustrial sales were about $60 million during the quarter, which was a 15% decline in constant currency.\nWind energy sales, which is the largest submarket in Industrial, declined 44%, which reflects ongoing softer demand, along with the previously reported closure of our wind blade prepreg production facility in North America last November.\nIn addition, solid sales in other industrial markets, including automotive and recreation, helped offset reduced wind energy sales during the quarter.\nThroughout the pandemic, we have maintained a strong focus on cash and in the first half, our free cash flow was almost $30 million compared to just over $33 million for the first six months of 2020.\nSustainability is at the heart of Hexcel.\nInnovating and producing modern lightweight advanced composite materials enabling the evolution of more aerodynamic, fuel-efficient aircraft producing significantly lower emissions than older generation aircraft.\nMore broadly, responsibility has been one of our four primary values for many years and it calls on us to strive to be good citizens in the communities in which we live and work.\nWe continue to build on our sustainability goals highlighted in our sustainability report first published several years ago and we are now excited to participate in the Carbon Disclosure Project or CDP.\nInitially, the CDP report will be submitted selectively to some of our customers this year and we expect to share next year's submittal publicly.\nWe recognize that many of our investors evaluate our progress in relation to sustainability and especially, our ongoing work to reduce greenhouse gas emissions.\nAnd you can be assured of our continued strong focus and actions on this topic.\nAs a reminder, the year-over-year comparisons are in constant currency.\nThe majority of our sales is denominated in dollars.\nHowever, our cost base is a mix of dollars, euros and British pounds as we have a significant manufacturing presence in Europe.\nAs a result, when the dollar strengthens against the euro and the pound, our sales translate lower, while our costs also translate lower, leading to a net benefit to our margins.\nConversely, a weak dollar is a headwind to our financial results.\nWe hedge this currency exposure over a 10-quarter horizon to protect our operating income.\nQuarterly sales totaled $320.3 million.\nThe sales decrease year-over-year reflects production rate decreases by our commercial aerospace customers in response to the pandemic, combined with the continued supply chain destocking.\nYou will recall that in the second quarter of 2020, OEM production rates were only beginning to be reduced midway through the quarter and the supply chain destocking had not yet begun to any great degree.\nI say this is a reminder to consider when evaluating the year-over-year sales comparisons.\nTurning to our three markets.\nCommercial aerospace represented approximately 48% of total second-quarter sales.\nSecond quarter commercial Aerospace sales of $153,7 million decreased 24.8% compared to the second quarter of 2020 with destocking continued.\nWe believe the substantial destocking is now behind us as we enter the third quarter of 2021 and that our narrow-body production is generally aligned with OEM production rates.\nHowever, our widebody sales are still facing some lingering supply chain adjustments that are expected to conclude by the end of the summer.\nSpace and defense represented 33% of the second quarter sales and totaled $106.9 million, decreasing 2.7% from the same period in 2020.\nWhile the demand outlook remains favorable for composite secular growth to enhance performance and extend capabilities, quarter-to-quarter sales can fluctuate as we experienced in the second quarter.\nLockheed Martin has publicly commented the F-35 deliveries in 2021 will be lower than initial expectations on pandemic-induced disruptions, which impacts the supply chain and our deliveries.\nSales were also softer due to some short-term pandemic-related interruptions impacting other programs, including a number of space-orientated platforms with customers located outside of the United States.\nIndustrial comprised 19% of second quarter 2021 sales.\nIndustrial sales totaled $59.7 million, decreasing 15.1% compared to the second quarter of 2020.\nWind demand remained subdued, while other industrial markets, including automotive and recreation, witnessed growth in the second quarter of 2021.\nWind energy represented approximately 45% of second quarter industrial sales.\nOn a consolidated basis, gross margin for the second quarter was 19.3% compared to 14.5% in the second quarter of 2020.\nThe strengthening gross margin benefited in the quarter from a higher mix of carbon fiber sales and production.\nOur margin recovery will not be completely smooth quarterly progression though, as it will be impacted at times by step-ups in the utilization of major assets such as precursor and carbon fiber lines.\nSecond quarter selling, general and administrative expenses increased 24.3% or $7 million in constant currency year-over-year.\nResearch and technology expenses decreased 3.2% in constant currency.\nThe other expense category consisted primarily of restructuring costs in Europe.\nIn terms of the year-over-year comparison of SG&A expenses, the second quarter of 2020 was artificially low as pandemic-induced restructuring actions related to non-recurring reductions in stock compensation accruals as well as a temporary implementation of salary reductions.\nAs a point of reference, second quarter 2021 SG&A expenses are lower by approximately 21% or $8.4 million compared to the pre-pandemic second quarter of 2019.\nOur targeted $150 million of annualized overhead cost savings is being fundamentally achieved at the end of the second quarter.\nAs we now pivot to increasing sales and production levels, our focus will be to drive efficiencies and minimize the amount of cost as we can, while at the same time preparing for significant growth.\nAdjusted operating income in the second quarter was $19.3 million, reflecting strong variable margin performance and robust overhead cost control.\nThe year-over-year impact of exchange rates was favorable by approximately 70 basis points.\nNow, turning to our two segments.\nThe Composite Materials segment represented 75% of total sales and generated a 9.6% operating margin compared to 6.3% in the prior year period.\nAdjusting for non-recurring costs, the adjusted composite materials operating margin in the current period was 10.7% compared to 8.9% in Q2 2020.\nThe Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 25% of total sales and generated a 7.4% operating income margin or 7.6% adjusted operating margin compared to 2.6% adjusted operating margin in the second quarter of 2020.\nThe adjusted effective tax rate for the second quarter of 2021 was 18.8%.\nThe pandemic and consequent mix of results across the countries in which we operate is expected to continue to impact the Company's overall effective tax rate throughout 2021.\nNet cash generated by operating activities was $38.9 million year-to-date.\nWorking capital was a use of $19.6 million year-to-date, primarily related -- primarily due to increased receivables.\nCapital expenditures on an accrual basis was $3.8 million in the second quarter of 2021 compared to $11.5 million for the prior year period in 2020.\nCapital expenditures continue to be tightly managed with a focus on improving existing asset efficiency and new technology flexibility.\nFree cash flow for the second quarter of 2021 was $35.8 million compared to $51.8 billion in the prior year period.\nContinued tight cost control and lower capital expenditures are supporting free cash flow generation.\nLiquidity, at the end of the second quarter of 2021, consisted of $115 million of cash and an undrawn revolver balance of $543 million.\nOur liquidity remains well above the bank covenant minimum of $250 million and we have no near-term debt maturities.\nOur revolver matures in 2024 and our two senior notes mature in 2025 and 2027 respectively.\nOur share repurchase program is restricted through March 31st 2022 by the revolver amendment executed in January 2021.\nDividends also remain suspended at the current time.\nOur Board continues to regularly evaluate capital allocation priorities.\nAs our earning release states, we are not providing financial guidance at this time.\nHowever, I would like to reinforce and expand upon the financial outlook shared during the First Quarter 2021 Earnings Call.\nWe continue to expect 2021 annual sales to be lower than 2020 and below the current market consensus due to recent commercial aerospace production rate adjustments.\nThe remainder of our previously stated expectations remain largely unchanged, including some additional restructuring costs are anticipated in the remaining quarters of 2021 and are expected to be below first and second quarter levels.\nWe continue to expect the fiscal year 2021 adjusted operating margin percentage to be in the low single digits.\nCapital expenditure in 2021 will continue to be managed closely and are expected for the full year to be at a similar level to 2020.\nWe expect to generate positive free cash flow in 2021 and further reduce debt levels.\nWe expect the effective tax rate to be approximately 25% in 2021.\nLastly, repeating some broad context from the first quarter's earning call in April, we continue to target strong mid-teens-plus operating margins once we achieve sales in the range of $1.8 million to $1.9 million [Phonetic] and we are targeting to exceed prior peak margins when we return to previous peak sales levels.\nWe believe the worst is behind us and we are cautiously optimistic of a continued and steady recovery during the remainder of 2021 that will propel us into 2022 when we expect a significant return to growth, which will extend into 2023 and beyond.\nWithout a doubt, some of this growth will come from pent-up demand for air travel.\nYet, much of it also comes from airlines ready to replace older, less efficient aircraft with more aerodynamic and fuel-efficient solutions as the world demands long-term reductions in greenhouse gas emissions.\nNo company has a broader or more vertically integrated portfolio of strong, durable and lightweight advanced composite solutions that lead to fewer emissions than Hexcel.\nThe market is demanding lighter, yet high-performing materials and we anticipate strong pull for our entire portfolio from carbon fiber to prepreg to engineering core for many years to come.\nAdditionally, no team is better prepared to meet a quick ramp up than our Hexcel team.\nOver the past several months, while demand retracted, we planned for the inevitable rebound.\nWe have become more efficient, more cost effective and more competitive than ever.\nThroughout the downturn, we have improved our processes to ensure that we continue making gains, especially in employee safety, quality and on-time delivery.\nCertainly, there are risks ahead and especially so within the supply chain and the availability of raw materials and labor.\nIt comes down to staying focused and aligned with our customers and we intend to do just that.\nI'm excited about the path ahead.",
        "summary": "sees q2 adjusted earnings per share $0.08.\ncontinues to withhold financial guidance.\ncompname reports q2 adjusted earnings per share $0.08."
    },
    {
        "text": "These risks include, but are not limited to, the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunity, or grow its market share and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.\nWe have worked hard over the years to build the most experienced, industry-leading team, and I am very proud of their results.\nToday, I would like to start by reviewing a few of our first quarter highlights.\nThen, I will touch on how we are strategically approaching the important peak selling season, as well as discussing the meaningful opportunities in front of us to create growth and long-term shareholder value.\nAnd finally, Mike will review the financial results in greater detail and provide some color on the balance of the year.\nLet me start by reviewing the first quarter.\nOur top priority continues to be the health and safety of our team, customers and community as we serve our customers boating needs.\nWe are pleased that our first quarter results greatly exceeded the very impressive results last year.\nA year ago, we had very strong growth in the December quarter and set a record for revenue and earnings.\nThe MarineMax team significantly outperformed those results and raised the bar yet again.\nWe further strengthened our financial position during the quarter, while completing the very strategic acquisition of SkipperBud's, the largest acquisition for the company to date.\nAs we indicated on our last earnings call in October, we finished fiscal 2020 with the highest revenue and earnings in the company's history.\nThat momentum and industry demand has continued as shown by our results.\nOur record results continue to demonstrate our team's ability to evaluate customers' needs, act quickly and implement the right changes in how we operate our business.\nFor the quarter we are particularly pleased with our continued solid performance in same-store sales, which increased over 20% which is on top of 24% same-store sales growth a year ago.\nImportantly, our new unit growth was even stronger at 35%.\nFurthermore in the quarter, we had meaningful growth across essentially all brand, categories and geographic region.\nThe marine industry continues to experience a significant acceleration in new customers.\nThis new foundational layer of customers to the boating lifestyle is comprised of the combination of new first-time buyers and people that decided to get back into boating, which should help support future growth as they migrate to larger or different types of products in the coming years.\nOur team remains energized by the shift, and given our scale, we should continue to significantly benefit from this resurgence.\nDuring the quarter we also leveraged our investments in technology, driving leads in marketing analytics, which is converting into sales.\nWe continue to make investments in world-class customer engagement tools that improve our teams' efficiency and effectiveness and help us to take share and lead the industry.\nIn the quarter, we added SkipperBud's and its affiliate Silver Seas Yacht to our family.\nThe acquisition added 20 locations, including 11 marina and storage operations.\nWe have successfully integrated the business and believe many opportunities exists to share best practices, brands and resources to drive even greater growth in the years to come.\nFrom a profitability perspective, one of the best elements of the quarter was strong gross margin.\nWe benefited from increases in product margins, growth in our storage and service businesses, our asset light Fraser and Northrop & Johnson global charter businesses and our finance and insurance businesses.\nExpanding our margins has been a long-term strategic focus and recent acquisitions have contributed to that strategy.\nThe combination of gross margin expansion and focused expense management resulted in considerable leverage and a record $1.04 of earnings per share for the quarter.\nBut, even more impressive is that we believe there is incremental growth ahead.\nSo now let me touch on how we are approaching the important peak selling season.\nWe are well positioned and prepared to serve our customers.\nCOVID had changed all aspects of customer expectations, including the historically important Boat Show.\nOur team has adapted with greater digital capabilities and refocused marketing spend that leverages our stores and our online experience, generating exceptional results.\nBeyond leaner industry inventory, we continue to invest in training and tools to ensure our team is able to pivot to continue to meet the needs of our customers digitally.\nOur deep manufacturing relationships and nationwide shared inventory give us a competitive edge.\nWith the largest selling season ahead, we expect to build on a strong start to our fiscal year and deliver exceptional customer experiences.\nOur strategy to create long-term shareholder value is focused on driving top line growth, operating leverage, disciplined capital management and building on our strong culture.\nWe continue to effectively execute on our multifaceted growth strategy, supported by our global market presence, premium brands, exceptional customer service and ongoing investments in technology.\nOur focus on driving margins and improving costs continue to unlock significant leverage in our model.\nOur performance illustrates the power of our business model, specifically our scale, premium locations, and cash flow generating capability.\nMarineMax is a well-disciplined operator with a strong foundation from which to grow.\nWith that update, I will ask Mike to provide more detailed comments on the quarter.\nFor the quarter, revenue grew 35% to over $411 million due largely to same-store sales growth of 20%.\nThis exceptional growth was driven by even greater comparable new unit growth that exceeded 35%%.\nWhile our AUP declined in the quarter from seasonally very strong sales of smaller product, the demand for larger product is also robust.\nA big takeaway from our results this quarter is our ability to post very strong comps on top of already strong comps.\nOur gross profit dollars increased over $43 million, while our gross margin rose 370 basis points to 30%.\nOur record gross margin was due to a handful of factors.\nAmong these are improving margins on new and used boat sales, impressive service and storage performance of SkipperBud's, which has a long track record of performance in these categories, growth in our higher margin finance and insurance businesses, and growth in our brokerage business including our global Superyacht Services Organizations of Northrop & Johnson and Fraser Yachts.\nWe would note that the superyacht charter business has remained adversely impacted by travel bans around the globe.\nOur higher margin businesses has been a focus of ours for some time, including our acquisition strategy, which is helping to drive these results.\nRegarding SG&A, the majority of the increase was due to the increase in sales and the related commissions combined with the two mergers we have recently completed, SkipperBud's and Northrop & Johnson.\nInterest expense dropped in the quarter due to lower interest rates and a sizable reduction in short-term borrowings given the cash we have generated.\nOur operating leverage in the quarter was over 17% which drove very strong earnings growth setting another quarterly record with pre-tax earnings of almost $31 million.\nOur record December quarter saw both net income and earnings per share more than double with earnings per share hitting $1.04, more than twice the level of last year's previous record.\nMoving on to our balance sheet, we continue to build cash with about $121 million at quarter end versus $36 million a year ago.\nEven after paying cash for both Northrop & Johnson in July and SkipperBud's, October 1.\nAs discussed last quarter, given the attractive interest rate environment, we explored and did secure mortgages on a portion of our sizable real estate portfolio.\nBesides some slight rate arbitrage it further positions us to capitalize on opportunities as they develop.\nOur inventory at quarter end was down 23% to $379 million.\nHowever, excluding Skippers, our inventory is down closer to 36%.\nI illustrate this point to show how well our team has pivoted to selling in a lean inventory environment as proven by the very strong unit-driven same-store sales growth this quarter.\nLooking at our liabilities, despite added borrowings for Skipper's inventory, short-term borrowings decreased $171 million due largely to a reduction in inventories and increase in cash generation with the contribution from the roughly $53 million of mortgages that are outstanding.\nCustomer deposits, while not the best predictor of near-term sales because they can be lumpy, due to the size of deposits and whether a trade is involved or not, nearly tripled in size due to the timing of large yacht orders and more robust sales along with the contribution from Skipper's for future sales.\nOur current ratio stands at 1.74 and our total liabilities to tangible net worth ratio is 1.42, both of these are very impressive balance sheet metrics.\nOur tangible net worth was $339 million or about $14.92 per share.\nOur balance sheet has always been a formidable strategic advantage, and today more than ever, it continues to protect us in uncertain times, while providing the capital for expansion as opportunities arise.\nTurning to guidance, the December quarter exceeded expectations and the industry trends remained strong.\nThe industry estimates for 2021 retail units are beginning to rise from the low-single digits to the mid-single digits.\nSince we usually outperform the industry and grow our AUP on an annual basis, we now expect our annual same-store sales growth to be in the high single digits.\nThis is up from the mid-to-high single digits we guided to earlier in the year.\nGiven the strength in earnings in December, our guidance also assumes modest operating leverage improvement above our previous guidance.\nThis expectations assumes we reached the low end of our historical targeted leverage of 12% to 17% given we have the bulk of the year still in front of us along with continued uncertainty.\nAccordingly, we are raising our earnings per share guidance to the range of $4 to $4.20 for 2021 from our earlier guidance of $3.70 to $3.90.\nOur guidance excludes the impact from any potential acquisitions that we may complete.\nAs we progress through the year, we will provide updates as needed to our guidance.\nLooking at the remainder of 2021, remember that our March quarter is the easiest comparison with our toughest comparisons in the more meaningful summer quarters of June and September.\nOur guidance uses the share count of about 22.8 million shares and an effective tax rate of 26%.\nOur tax rate for the December quarter was meaningfully better than this, due primarily to equity compensation deductions which are hard to predict and are not typically forecasted when we give guidance.\nTurning to current trends, January will close with positive same-store sales and our backlog is meaningfully higher than last year.\nAs we have said, industry trends remain strong and we are generally outperforming these elevated levels.\nWe continue to feel good as we enter the important summer selling season that's early in the year and a lot of work remains.\nMarineMax continues to benefit and capitalize on the surge in demand and the desire of consumers to find a safe recreational activity.\nOur team's performance to start the fiscal year has shown continued excellent execution, even on top of very impressive same-store sales a year ago.\nWe are creating exceptional customer experiences through our team's services, products and technology.\nMost exciting is that we see significant opportunity in our brand expansion and also our higher margin businesses.\nWith about 30 locations globally, we believe our superyacht services business have considerable upside including their charter business, which should contribute in a much larger manner.\nWe remain committed to the long-term financial strength of the company by driving cash flow growth.\nImportantly, our acquisitions are integrated and contributing immediately to our business.\nLooking forward, we are focused on building our strong team culture, we are focused on executing on our growth strategy and we are focused on creating long-term shareholder value.",
        "summary": "raises fy earnings per share view to $4.00 to $4.20.\nmarinemax - revenue increased 35%, or over $107 million, to $411.5 million for quarter ended december 31, 2020 from $304.2 million in comparable period last year.\nqtrly same-store sales growth exceeds 20% driven by 35% comparable new unit growth.\nmarinemax sees fy earnings per share of $4.00 to $4.20.\nq1 earnings per share $1.04."
    },
    {
        "text": "These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings.\nThese risks could cause our actual results to differ materially from those expressed in or implied by our comments.\nWe closed on the acquisition of Apple Leisure Group on November 1, and we are collectively even more thrilled about the prospects for the combined company today than we were when we first announced our plans back in August.\nAs I reflect over the past several months during which I've gotten to know the ALG team much better, met with hotel owners and toured a number of stunning AMR collection resorts.\nI'm energized and really excited about the bright future for ALG as a part of Hyatt.\nThe cultural fit between our two companies with a joint focus of care could not be better.\nAnd the timing is proving to be very auspicious as leisure demand continues to be durable and a growing proportion of our segment mix.\nWe look forward to keeping you well informed on the progress of our integration efforts and performance of the ALG platform moving forward.\nTurning to our results.\nWe are another quarter into the recovery and have again produced results that demonstrate the strength of our business and reinforce that we are emerging from this challenging period as a more agile and stronger company.\nIn the span of just two quarters, our quarterly adjusted EBITDA has improved $130 million, recovering to nearly 70% of 2019 levels in the third quarter.\nWe've worked tirelessly to evolve and reimagine aspects of our operating model and the financial results and our momentum demonstrate our progress.\nImportantly, while we have been focused on preserving cash and managing expenses tightly, we've invested in areas that are driving growth, and we have not wavered from our long-term strategy.\nWith vaccination rates continuing to rise, travel restrictions around the world easing and borders reopening, I am as confident as I've ever been that we are on a path to full recovery.\nI'm optimistic that the most recent trends in our business and also the important developments over the past quarter, including, of course, the acquisition of ALG demonstrates significant progress toward realizing the benefits of our long-term strategy.\nBefore diving deeper into the progress on our strategy, let's take a look at the latest business trends.\nRevPAR in the third quarter continued to recover at a robust pace, accelerating nearly 30% compared to the second quarter and doubling RevPAR levels in the first quarter.\nAs discussed on our last earnings call, we experienced a wave of leisure demand during the summer with systemwide RevPAR eclipsing $100 in July, which was approximately 75% recovered as compared to 2019.\nAs we moved into August, RevPAR decelerated by approximately 10% as compared to July driven by seasonality, coupled with reimposed travel restrictions in certain markets related to the Delta variant.\nHowever, this deceleration was short-lived.\nDemand rebounded throughout September and has strengthened further as we move into the fourth quarter.\nAbsolute RevPAR in October is nearly as strong as July at $98.\nWhat is encouraging is that the recovery has broadened, whereas our strength in July was primarily driven by resort locations, the improvement more recently has been from urban locations, which experienced RevPAR growth of 10% in October as compared to July.\nFrom a segmentation perspective, Leisure Transient remains the top-performing segment.\nSystemwide Leisure Transient revenue was at 96% of fully recovered levels in the third quarter, an incredible performance when considering the significant restrictions that were still prevalent in many parts of the world.\nStrong leisure transient demand is proving to be far more than the summer surge as Leisure Transient revenue booked in October for all periods was over 20% ahead of 2019 levels.\nFurther, total transient revenue at our Americas resorts is pacing 25% ahead of 2019 levels for the last weeks of December.\nAt this pace, we anticipate the festive season could be one of the strongest we've ever experienced.\nWe've also been pleased with the progression of group and business transient demand.\nWhile demand did not accelerate immediately following Labor Day due to the Delta variant, the upward momentum has been steady throughout September and October.\nThe rate of improvement in group during October has been particularly meaningful after seeing elevated levels of cancellations in August and early September due to the Delta variant.\nSince that time, cancellations have receded while short-term group demand has strengthened.\nOverall, systemwide group revenue jumped 16% in October as compared to September and is trending at 50% of fully recovered levels.\nGroup bookings for 2022 are also showing significant improvement.\nIn October, our leads for 2022 grew by 38% as compared to September, and we're now 10% ahead of 2019 levels for group business that is likely to book.\nWhile group pace for 2022 is approximately 80% recovered, a bit weaker than what we reported last quarter.\nThe strong current level of group bookings, coupled with growing lead volume provides confidence that momentum will build as we head into 2022.\nAs for business transient, the recovery has been softer than group, but is still showing steady momentum with demand recovering to 46% of 2019 levels in October.\nWe continue to see stronger growth in our regional accounts as compared to our larger national accounts.\nHowever, that gap is narrowing.\nOur largest corporate accounts have grown by 50% since June and we continue to be encouraged by dialogue with our corporate customers who are returning to offices in bigger numbers with many planning on a more robust return to travel in 2022.\nThe recovery momentum has also expanded geographically.\nOne of the areas with the most pronounced improvements is Europe, which is now trending at roughly the same level as the United States after seeing RevPAR quadruple over the past five months.\nWe're also seeing occupancy of 70% in the Middle East, which is similar to 2019 levels, driven by very strong demand from the Dubai Expo, which kicked off in October and runs through March of 2022.\nLastly, occupancy in India, which was below 20% just a few months ago due to the Delta variant, is now trending at almost 60% as we exit October.\nWhen you add up the trends, both from a geographic and purpose of visit perspective, coupled with the most recent data on forward bookings, the underlying momentum in the business is clear, and it's consistent with our conviction that we are on a path to full recovery.\nTurning to our long-term strategy.\nAs I mentioned earlier, we've been actively positioning Hyatt for the future with intense focus on advancing three pillars of our long-term strategy, namely: first, to maximize our core business; second, to integrate new growth platforms; and third, to optimize our capital deployment.\nI cannot recall a quarter where we advanced our long-term strategy as much as we did in the third quarter of this year.\nLet me start with the first pillar of our strategy, maximizing our core business as it underpins everything that we do.\nWe've been particularly focused on three key areas within this pillar to drive performance.\nFirst, focusing on the high-end traveler going deeper into the segment, not extending outside the segment.\nSecond, driving more business to our direct channels through engagement supported by data and analytics.\nAnd third, operating with excellence through agility and responsiveness to market dynamics.\nOur progress in these areas is not only reflected in the third quarter financial results I commented on earlier, but is also demonstrated in the results of our core metrics as compared to the third quarter of 2019.\nSeveral highlights include market share growth, stronger direct channel mix, a higher percentage of arrivals to our hotels from existing loyalty members and better comparable O&L margins as compared to the same period in 2019.\nThe ultimate test is investment by owners and our brands, which is best demonstrated through our net rooms growth and pipeline.\nOur net rooms growth was 6.9% in the third quarter, again, leading the industry with notable openings, including the Thompson Hollywood, the Park Hyatt Toronto and the Hyatt Ziva Riviera Cancun.\nAnd our pipeline at 103,000 rooms again expanded from the prior quarter, represents an industry-leading 41% of our existing property portfolio.\nWe were also able to achieve significant progress; with the second pillar of our long-term strategy, integrating new growth platforms through our acquisition of Apple Leisure Group, an exciting new asset-light growth platform for Hyatt.\nALG now as part of Hyatt, immediately doubles the number of resorts in our portfolio, increases our European footprint by more than 60% and positions us as the world's largest operator of hotels in the fast-growing luxury all-inclusive resort segment.\nFurther, we expect it to increase our systemwide stabilized leisure transient revenue mix to over [50%].\nWe also expect the ALG brands to drive accretive rooms well into the future similar to what we've achieved with our Two Roads Hospitality acquisition in 2018, which has been a significant driver of growth for Hyatt this year, including conversions and expansion of our pipeline.\nIn 2021, ALG through the AMR collection is expected to finish the year with net rooms growth of 35% with the addition of 31 hotels and approximately 8,500 rooms and taking the AMR collection to 101 hotels in total with 33,000 rooms by the end of 2021.\nThe ALG acquisition represents a brand-defining moment in Hyatt's more than 60-year history, much like the company's international expansion into Hong Kong or the launch of the Park Hyde brand.\nWe are now marking the beginning of a new chapter for Hyatt.\nIn addition to the exciting growth the acquisition represents for Hyatt, and the new experiences the ALG platform provides our guests.\nThe earnings base from ALG also allows us to make significant progress on the third pillar of our long-term strategy, which is to optimize our capital deployment.\nWe are very encouraged that ALG is on track to outperform its 2019 results in 2021, exceeding the expectations of our underwriting.\nThis earnings base allows us to execute an essential part of our capital strategy to unlock the value of our real estate assets by selling assets over time and prioritizing the reinvestment of proceeds into growth opportunities for Hyatt.\nIn August, at the same time, as the acquisition announcement, we committed to a $2 billion expansion of our asset disposition commitment.\nThe proceeds from these future asset sales will allow us to deleverage our balance sheet on an accelerated basis as we reduce the debt incurred to fund the ALG acquisition.\nWe've initiated this effort with two properties currently in the market and other active discussions underway.\nWe feel very confident in our ability to execute on this expanded asset disposition commitment.\nWe've realized over $3 billion in proceeds since our original announcement in 2017 at a very attractive multiple, and we have a high quality and a highly desirable asset base that remains on our balance sheet today.\nAs a reminder, the $3 billion commitment was in two parts, $1.5 billion in 2017 and an additional $1.5 billion in 2019.\nDuring September, we completed the sale of two assets, the Hyatt Regency Lake Tahoe and Alila Ventana Big Sur, for approximately $500 million in gross proceeds and reached cumulatively over $3 billion in total gross proceeds from asset sales since 2017 at an average aggregate multiple of 17.4 times.\nWe retained long-term management agreements for both of the hotels that we recently disposed of and exceeded our disposition target well ahead of schedule.\nIn summary, we look forward to continuing our track record of realizing proceeds in excess of the valuation implied by the multiple for Hyatt and simultaneously transforming our earnings mix to an expected 80% fee-based proportion by the end of 2024.\nImportantly, with the earnings from our ALG acquisition, coupled with fees driven by our industry-leading growth, we'll be able to achieve this progress while maintaining investment capacity for future opportunities.\nOverall, I'm extremely pleased with the progress we are making toward our long-term strategy as we remain intently focused on executing the three key areas I've outlined as we position ourselves for the future.\nFinally, I want to touch upon the owner's meeting we recently held a couple of weeks ago at the beautiful Hyatt Regency Huntington Beach Resort.\nThe attendance was as strong as it's ever been, and the energy from gathering in person was truly palpable.\nI was struck by the collective optimism we share about the future and how our purpose of caring for people so they can be their best has resonated with and been felt by our owners during the most of year downturn this industry has ever experienced.\nTheir feedback centered on our attention to listening intently, focusing on the important issues and staying connected to their needs.\nWe have much to do to ensure we are attracting the best talent in a challenging labor environment, to ensure we're doing everything possible to drive market share and operating margins for our brands and owners, and to make sure our systems and services keep pace with quickly shifting trends in technology.\nI left the meeting feeling energized at the progress we are making and the opportunities ahead to continue to deliver value to all of our constituents.\nWe made significant progress toward realizing the benefits of our long-term strategy.\nAnd as the recovery continues to unfold, we have positioned Hyatt to emerge from this pandemic a stronger and more agile company.\nOur view to sustainable demand in the future continues to sharpen and with each passing month, our conviction and our enthusiasm grows.\nJoan, over to you.\nLate yesterday, we reported a third quarter net income attributable to Hyatt of $120 million and a diluted earnings per share of $1.15 with our results favorably impacted by gains on the sale of real estate of $307 million.\nAdjusted EBITDA was $110 million in the third quarter effectively doubling our adjusted EBITDA from the second quarter, again demonstrating our ability to translate improving demand into a strong increase in earnings.\nIn a RevPAR environment that is improving but still challenging, we were able to narrow our adjusted EBITDA decline to only 32% in the third quarter versus the same period in 2019, which is the same as our systemwide RevPAR decline of 32%.\nAdditionally, our adjusted EBITDA margin was 27.4% for the third quarter, an improvement of 50 basis points from the adjusted EBITDA margin of 26.9% we reported in the third quarter of 2019, serving as yet another marker of operating excellence in a lower demand environment.\nSystemwide RevPAR was $94 in the third quarter, representing a 29% increase compared to second quarter.\nBoth occupancy and rate contributed to the sequential growth with occupancy improving by 700 basis points and rate growing by 12%.\nThe improvement in rate is especially notable as it reached 96% of 2019 levels on a systemwide basis.\nOur base incentive and franchise fees totaled $96 million in third quarter reaching 71% of 2019 levels, with base and franchise fees more fully recovered than RevPAR as a result of our strong net rooms growth over the past two years.\nTurning to our segment results.\nOur management and franchising business delivered a combined adjusted EBITDA of $85 million, improving 33% from the second quarter.\nThe Americas segment accounted for the vast majority of the sequential growth and recovered to approximately 80% of 2019 segment adjusted EBITDA levels.\nHotels and resort locations were the primary driver of the recovery during the first two months of the quarter, with a more notable improvement from urban locations in September, driven by growing demand for business transient and group.\nOur Europe, Africa, Middle East and Southwest Asia segment also experienced material improvement in the third quarter as it benefited from the easing of travel restrictions and reopening of borders across Europe.\nFees from our European hotels more than doubled from the prior quarter with France and Southern Europe leading the recovery.\nThe Asia Pacific segment did not see the same level of improvement as our other two segments and the recovery in this part of the world remains uneven.\nMainland China RevPAR had a strong start to the quarter trending 4% ahead of 2019 levels in July before dropping to less than 50% of 2019 levels in August due to reimposed travel restrictions.\nDemand has improved since with RevPAR strengthening to 78% of 2019 levels in October.\nAdditionally, the recovery in Asia Pacific, excluding Mainland China, has progressed at a slower pace than other areas of the world as more stringent travel restrictions remain in place.\nHowever, we remain optimistic that results will improve in the region as vaccination rates continue to rise allowing for restrictions to be eased.\nTurning to our owned and leased hotels segment.\nThe business delivered $51 million of adjusted EBITDA for the third quarter representing an improvement of $39 million from the second quarter.\nThe performance was significantly ahead of expectation, driven by the ingenuity and responsiveness of our teams to market dynamics.\nOwned and leased RevPAR was $117 for the third quarter, improving 39% from the second quarter with notable improvement from group revenue, which jumped 87% sequentially and accounted for over 28% of the room night mix.\nWe previously discussed how strong performance has been in our resorts during the quarter and it's important to highlight outperformance in some of our larger owned convention hotels as well.\nIn the third quarter, Hyatt Regency Orlando, Hyatt Regency Phoenix and Grand Hyatt San Antonio, collectively had a stronger EBITDA contribution in the third quarter of 2021 as compared to 2019.\nThis is quite notable considering group business accounted for approximately 70% of the rooms revenue mix for these hotels during the third quarter of 2019.\nThis year, these hotels were still able to generate a significant amount of group business, representing 57% of rooms revenue and we're also able to grow transient revenue nearly 30% above 2019 levels through creative tactics such as repositioning the hotels for families and other leisure business.\nThis is a great example of how we are evolving go-to-market sales strategies real time to meet the current demand profile and maximize performance of our owned and leased hotels.\nOverall, excellent revenue management and strong operational execution have resulted in significant margin expansion for our owned and leased hotels.\nComparable operating margins were 20.3% in the third quarter, which is an improvement of 490 basis points relative to 2019 levels despite RevPAR that was only 75% recovered.\nOpen positions have also contributed to lower operating costs, and we continue to closely monitor the labor environment and are working hard to fill open positions.\nThe situation remains challenging, but we're making progress.\nAs we mentioned last quarter, we continue to see some pressure on wages, and our general managers have made significant adjustments based on competitive market factors and the challenge and our response varies by market.\nI'd also like to provide an update on our liquidity and cash.\nAs of September 30, our total liquidity inclusive of cash, cash equivalents and short-term investments and combined with revolver borrowing capacity was approximately $4.3 billion compared with $3.2 billion as of June 30.\nWe received a USD254 million tax refund in July, $491 million of net proceeds from the sale of Hyatt Regency Lake Tahoe and Alila Ventana Big Sur, and raised $575 million in net proceeds from our equity offering in September.\nWe also repaid $250 million in senior notes that matured in August.\nIn October, we raised $1.75 billion of short-term 2- and 3-year fixed and floating rate notes at an approximate weighted average interest rate of 1.48%.\nWe used $750 million of those proceeds to refinance our 2022 short-term prepayable bonds and successfully reduced our interest costs by $12 million annually on the refinancing.\nOur approximate total liquidity after the debt capital markets proceeds was $5.2 billion at the end of October.\nOn November 1, we closed on the acquisition of ALG and paid cash of $2.7 billion.\nAfter the acquisition and as of today, our total liquidity position remains strong at approximately $2.6 billion, with $1.3 billion of cash, cash equivalents and short-term investments, and $1.3 billion available under the revolver.\nFinally, I'd like to make a few additional comments regarding our 2021 outlook.\nConsistent with our communication in the second quarter, we continue to expect adjusted SG&A to be in the approximate range of $240 million, excluding any bad debt expense or ALG integration costs.\nWe're still refining the ALG integration cost estimate but expected to be in the range of $5 million to $10 million for the full year of 2021 with $2 million of that amount already included in the third quarter adjusted SG&A.\nIt's important to note that these costs are nonrecurring and our plan does not include an extensive or costly integration of systems and processes.\nWe continue to expect capital expenditures for 2021 to be approximately $110 million exclusive of any impact from ALG.\nWe mentioned on our last call that we are pulling forward selected renovation projects to take advantage of the timing of lower displacement during the fourth quarter and therefore, our capital expenditures could actualize slightly higher if our materials and labor needs are secured before the end of the year.\nTurning to net rooms growth.\nWe are reaffirming our expectation of rooms growth to be greater than 6% for the full year, exclusive of any impact from ALG.\nThere is some degree of uncertainty related to supply chain issues, which could push certain openings into the first quarter of 2022.\nHowever, greater than 6% remains our best estimate at this time and we're pleased to be delivering another very strong year of net rooms growth.\nAs we turn to 2022, we look forward to sharing more on the progress of our ALG integration efforts, and we'll be providing more detailed disclosures on the ALG business on our next earnings call.\nWe're proud of the accomplishments we achieved to advance our long-term strategy and are excited about the value creation ALG brings to Hyatt and are even better positioned today to drive asset light growth than ever before.",
        "summary": "q3 earnings per share $1.15.\nqtrly net rooms growth of 6.9% compared to q3 of 2020.2021 capital expenditures are expected to be approximately $110 million."
    },
    {
        "text": "I'm joined today on the call by Marcelo Fischer, IDT's chief financial officer.\nIDT delivered another strong quarter, including significant year-over-year increases in consolidated revenue, income from operations and EPS.\nConsolidated revenue increased $16 million to $340 million.\nIt is our third consecutive quarter of year-over-year increases in revenue and our sixth consecutive quarter of year-over-year increases in revenue less direct cost of revenue.\nConsolidated income from operations increased $11.6 million to $12.9 million this quarter, powered by a $9 million year-over-year increase in revenue less direct cost of revenue.\nConsolidated SG&A expense, meanwhile, was substantially unchanged year over year.\nWe are successfully reducing the overhead in our traditional communications segment and redeploying those resources to support and accelerate the growth of our higher-margin businesses in the Fintech and net2phone-UCaaS segments.\nFully diluted earnings per share increased to $0.51 from $0.04 in the year-ago quarter.\nThe quarter's results were highlighted by year-over-year revenue expansion from our three higher-margin businesses, National Retail Solutions, BOSS Revolution Money Transfer and net2phone-UCaaS.\nWithin our Fintech segment, NRS added over 1,500 units to its POS terminal network this quarter.\nIn the year-ago quarter, we added less than 800 units.\nWe've picked up the pace of network expansion significantly.\nAt January 31, NRS had over 13,700 billable units in the network.\nNRS' quarterly revenue increased by over 150% year over year to $5.2 million, led by growth in payment processing services and in digital out-of-home advertising sales.\nAlthough we are in the early stages of monetizing both of these offerings, they helped to drive a 50-plus percent increase in revenue per POS terminal over the past year.\nAlso within Fintech, our BOSS Revolution Money Transfer service increased revenue 73% to $13.3 million.\nWe continue to build out our global disbursement network, and this quarter passed an important milestone, opening corridors to Southern Asia with the addition of Pakistan and Nepal.\nLooking ahead, we are laying the groundwork for the first expansion of our origination market.\nThe reach of our disbursement network and significant transaction volumes into key destinations enable us to provide a highly competitive C2C service from a number of countries.\nWe expect to launch our expansion by offering BOSS Revolution Money Transfer in Canada and the U.K. in fiscal 2022.\nIn our net2phone-UCaaS segment, subscription revenue climbed 36% to $10.1 million.\nGrowth has been solid in all of our markets, the U.S., Canada, South America and Spain.\nOur continued growth validates our geographic strategy but also reflects the accelerated rate at which we have been able to develop and deploy enhancements to the offering itself, most notably adding integrations with some leading CRMs and communications platform.\nIn the second quarter, we launched our integration with Slack, the leading channel-based messaging platform, building on previous integrations with and Microsoft Teams.\nMore recently, we launched a powerful integration with Salesforce, the world's largest CRM.\nThese integrations enable net2phone to approach higher seat count customers and position us to strengthen revenue without sacrificing growth.\nThe increase in sophistication of our feature set and adaptability of our offerings prompted CIO Review, a publication for technology leaders, to name net2phone as one of its top 20 companies providing transformative solutions for retail businesses.\nIn our traditional communications segment, aggregate adjusted EBITDA less capex increased to $18.2 million, $4.6 million more than in the year-ago quarter.\nStrong year-over-year growth in international mobile top-up sales, in combination with stable BOSS Revolution calling revenue, more than offset a decline in carrier services revenues.\nLooking beyond our established businesses to new opportunities, we are preparing to relaunch the BOSS Revolution mobile initiative.\nOur initial MVNO effort in partnership with Sprint struggled but we are confident that this time around, we will do much better.\nAcross our businesses, the entrepreneurial spirit drives everything we do and will be a powerful source of value creation as we continue to build IDT.",
        "summary": "compname announces quarterly net income per diluted share of $0.51.\nidt corp - qtrly net income per diluted share of $0.51.\nidt corp - qtrly revenue of $340 million."
    },
    {
        "text": "By now, you have seen our announcement, and I think you would agree we had a great quarter.\nBroad-based momentum drove significant improvement in key financial and performance metrics in this quarter.\nRevenue grew more than 20% with double-digit gains in each business segment.\nLottery same-store sales rose 9% and were up 19% from the third quarter of 2019, demonstrating an improved underlying business growth profile.\nGlobal Gaming revenues increased over 30% and the segment profit margin reached the highest level in seven quarters.\nThis was helped by our OPtiMa cost-saving program, which I'm pleased to report we completed during the quarter ahead of schedule.\nWe are now breaking out our digital and betting business, that will provide you with a more comprehensive view of those activities, which delivered the strongest growth in the quarter.\nWe recently announced some high-profile new hires underscoring our increased focus on the segment and willingness to invest in this fast emerging business.\nWe delivered a significant profit in the period.\nOperating income was more than double than prior year's level.\nAdjusted EBITDA of $407 million yielded a margin of 41%, which is among the strongest we have achieved.\nLeverage improved to 3.8 times, the lowest level in the IGT PLC history and below the 4x threshold we have been targeting for some time.\nOn the heels of excellent year-to-date results and our solid financial condition, the board reinstated a quarterly cash dividend, signaling their confidence in the company's prospects.\nIt is an important milestone.\nWe are happy to be in the position of returning capital to shareholders.\nDiving a bit deeper into Lottery.\nSame-store sales were strongest in our main U.S. and Italy markets, both up double digits in the period.\nOur lottery momentum remains strong with the same-store sales up over 50% compared to last year and more than three times Q3 '19 levels.\nWe recently won several new contracts, including a 10-year facilities management contract with the Connecticut Lottery, where IGT is displacing an incumbent.\nWe are excited to become their trusted growth partner with our suite of world-class lottery solutions.\nWe entered a seven-year agreement to upgrade FDJ's current lottery central system to IGT's advanced Aurora platform, featuring enhanced omnichannel capabilities.\nThis builds on our over 20 years partnership with the operator of the French National Lottery, the fourth largest in the world.\nWe also secured a new instant ticket service contract with WestLotto.\nGermany is the largest lottery extending our 13-year partnership.\nOur cloud-based eInstants platform, the first of its kind went live in Georgia during the quarter.\nBuilding on that successful deployment, we intend to roll it out to our other high lottery customers over the next several months.\nOur investments in digital are being recognized.\nIGT's Mobile Lottery Solutions want Lottery Product of the Year at the 2021 International Gaming Awards.\nIt is a nice endorsement of our increased focus in this arena.\nThe year-over-year gains for our global gaming segment are impressive.\nWe also continue to see sequential improvement in many KPIs.\nThe global installed base were up, led by North American new and expansion activity and good progress with multilevel progressives.\nYields are also stronger.\nOn the product sales front, ASP were up nicely, helped by growing demand for our peak series of cabinets.\nThe improving KPIs are consistent with the overall recovery we are seeing in the market.\nThis, along with OPtiMa savings has driven substantial improvement in gaming profit margins.\nEveryone was excited to be back at G2E this year.\nWhile attendance wasn't that of previous [Inaudible] this year's attendees were serious in their intent and customer sentiment was quite good.\nIt was a productive show for us.\nAmong the key IGT highlights was the most robust offer of multilevel progressive we have ever showcased.\nWe had 18 in total at the show, a mix of both leased and for-sale games.\nHaywire and Wolf Run Eclipse were among the most popular MLP titles at the show.\nThere was a lot of excitement around our new hardware.\nWe are expanding the high-performing peak family with a supersized Peak65 cabinet, launched in conjunction with the 25th anniversary of the Wheel of Fortune's launch.\nThe new DiamondRS mechanical reel cabinet was another standout, and we expect will extend our leadership in the Stepper category.\nAnd there was tremendous interest in cashless.\nOur resort wallet and IGT cashless and payment solutions received a lot of positive feedback from potential customers.\nIGT is unique and well positioned in this area.\nWe are the only company offering a fully integrated turnkey cashless solution.\nIt marries convenience and ease of use, one wallet, one account, one step.\nThe strength of our offer received important industry recognition, recently being named Product Innovation of the Year at the Global Gaming Awards in Las Vegas, and Technology Provider of the Year at the International Gaming Awards.\nThe creation of a stand-alone digital and betting segment will help you all appreciate the scale, growth profile, and attractive margin structure of the business.\nWe are already a leader in the B2B ecosystem, and that is reflected in the results with revenue up over 50% year to date and reaching a 32% adjusted EBITDA margin.\nMargins should strengthen as the business gains scale even as we increase investments to support growth.\nSuccess in iGaming comes down to content.\nOur ability to leverage proven land-based titles in the digital space provides a competitive advantage.\nWe are seeing success -- we are seeing success with long-standing franchises such as Wheel of Fortune, along with the newer titles like Fortune Coin and, we are increasingly focused on developing digital native content to differentiate and enhance our leadership position.\nWe are also bolstering our offer with third-party content and recently signed a multiyear content distribution agreement with Yggdrasil, a leading creator of digital games.\nEarlier this week, we announced Gil Rotem joining the company as president of iGaming.\nIn the nearly two decades of industry experience with 888.com and bet365, will help drive the strong growth we expect over the next several years.\nWe have an equally impressive new hire in sports betting, where we recently appointed Joe Asher, a long-standing industry veteran, as president of the business.\nHis knowledge of the market will be a great asset as we focus on rolling out our third key retail in digital solutions across the U.S. Outdoor is an important part of the turnkey retail offer and interest in our CrystalFlex sports betting terminal and PeakBarTop is strong.\nPlayers can watch their favorite sports while easily placing sports wagers, enjoying the slots, playing video poker and Keno all on the same machine.\nIt provides a very rich player experience.\nThe CrystalFlex won top prize in the Best Consumer-Service Technology category at the GGB Gaming & Technology Awards.\nWith the strength of our year-to-date results, we are raising our product outlook.\nRevenue, profit margins, cash flows and leverage are all expected to be better than pre-pandemic levels.\nAnd with a compelling growth outlook across business segments, we are all-well positioned to create significant value for all stakeholders.\nOur results would not be possible without the tremendous dedication of the IGT team and their superb focus on our core values.\nWe asked a lot of our people during the pandemic.\nNow it is the time for us to recognize them.\nWe intend to provide a special bonus to employees not covered by existing incentive compensation plans who were impacted by furloughs and salary reductions last year.\nThis will amount to about 5% of the annual base salary for our -- sorry, workforce.\nSustainability, good corporate citizenship and ESG matters and have always been important to AGT.\nAnd our efforts were recently recognized with a reduced interest rate on our term loan facilities.\nAnd with today's news of restating a quarterly cash dividend, we are also giving back to shareholders.\nThis is an important signal of management and the Board's confidence in our financial condition and business outlook.\nWe look forward to expanding on our long-term outlook and providing additional insight into our capital allocation plans at the next week's investor day.\nWe delivered another strong quarter of financial results in Q3 as demand for our products and services drove revenue higher across all segments.\nOperating income increased more than 140% year-on-year on high profit flow-through of global Lottery same-store sales growth, including a positive mix impact from Italy lottery sales and strong operating leverage across business segments, primarily associated with savings from the OPtiMa program.\nA high-level summary of our key financial results as shown here on Slide 11.\nThe year-over-year comparisons on a quarterly and year-to-date basis highlight the outstanding resilience of our business.\nYear-to-date, cash from operations increased 78% to more than $600 million and free cash flow more than tripled to $445 million.\nOur quarter and year-to-date results have been impressive across several key financial metrics, driven by solid revenue growth as well as disciplined cost management including the achievement ahead of schedule of over $200 million in OPtiMa structural cost savings.\nDuring the quarter, IGT delivered nearly $1 billion in revenue, over $200 million in operating income and more than $400 million in adjusted EBITDA.\nOn a year-to-date basis, revenue and profit grew significantly over prior year levels and exceeded pre-pandemic 2019 levels.\nWe achieved operating income and adjusted EBITDA margins of 24% and 43%, respectively, bolstered by higher operating leverage.\nNow let's review the results of our business segments in detail.\nSustained strength in player demand drove global Lottery revenue up 14% to $652 million.\nGlobal same-store sales increased 9% year-on-year and 19% compared to Q3 2019, with growth across many geographies and games.\nItaly lotteries continue to benefit from strong demand, generating 16% same-store sales growth even after other gaming alternatives gradually return with the reopening of gaming halls at the end of the second quarter.\nThis was primarily fueled by increased instant ticket sales.\nWe also saw nice growth in iLottery revenue as a result of an expanding customer base.\nSame-store sales grew a solid 8% in North America and the rest of the world, driven by continued momentum and the benefit of higher jackpot activity.\nInstant ticket product sales revenue was also up nicely.\nStrong same-store sales as well as the higher mix of Italy business will generate more revenue per wager led to margins well above the normal range.\nOperating income increased 19% to $234 million, and adjusted EBITDA was 12% and to almost $350 million with a strong 53% adjusted EBITDA margin.\nThe progressive recovery continued during the quarter with Global Gaming delivering the highest quarterly revenue and profit levels since 2019.\nRevenue rose 34% to $289 million, driven by solid increases in active units, yield, number of machine units sold and ASPs.\nTerminal service revenue increased 44% on a higher number of active machines and growth in total yield.\nThe installed base in North America increased over 500 units sequentially, driven by North America new and expansion activity and additional placements of multiyear progressive units.\nIn the rest of world, the installed base was up over 400 units year-on-year and stable sequentially.\nCurrently, over 95% of our U.S. and Canada casino installed base is active with closures still impacting some cruise ships and capacity restrictions still limiting the number of active machines in Canada.\nWe sold around 5,700 units globally in the quarter compared to about 3,700 units in the prior year.\nUnit shipments were driven primarily by strong replacement demand from casino and VLT customers.\nProfitability measures were significantly higher in the quarter as revenue growth and savings realized from the OPtiMa structural cost savings program propelled higher operating leverage.\nToday, we are reporting the results of Digital & Betting as a dedicated segment for the first time.\nWe decided to create a stand-alone segment, given the leadership positions we hold as a B2B provider in the market, and in an effort to provide greater visibility to this high-growth business.\nDigital & Betting results were previously included as part of Global Gaming.\nWe recently filed recast historical financial information related to this resegmentation with the SEC, which you can find on the Investor Relations section of our website.\nIn the third quarter, revenue increased 37% year-on-year to $43 million, driven by double-digit increases across both iGaming and sports betting.\nGrowth in iGaming was primarily driven by expansion to new markets, including Michigan, Alberta, Finland, and Sweden, but also saw a nice contribution from existing customers in jurisdictions like New Jersey and Pennsylvania.\nWhile sports betting was mainly bolstered by existing customers in the quarter, we are rapidly expanding our footprint with many new customers recently announced.\nHigh flow through of revenue growth drove profitability significantly higher, with operating income doubling over the prior year to $12 million and adjusted EBITDA increasing 66% to $15 million.\nThe Digital & Betting segment delivered 36% EBITDA margins in the quarter bolstered by lower jackpot funding and the timing of marketing spend.\nThis is an impressive achievement from an emerging business.\nWe delivered $113 million in cash from operations and $66 million in free cash flow during the third quarter.\nCash flow in the quarter were impacted by the timing of collection cycles in Italy and higher cash outlays as working capital items returned to more normal levels.\nVery strong year-to-date free cash flow of almost $450 million, coupled with approximately $900 million in net proceeds from the sale of our Italy gaming business has allowed us to reduce our net debt by over $1.2 billion this year.\nWe received EUR 100 million payment on the Italy asset sale during the quarter, ahead of the December 2021 to date.\nAs a reminder, the final payment of EUR 125 million is due in September 2022.\nThe leverage has improved to 3.8 times, well below pre-pandemic levels and exceeding our target of four times.\nAnd as Marco mentioned, IGT board of directors has reinstated a $0.20 per share quarterly cash dividend to be paid in early December.\nOur credit profile has greatly improved over the last year due to a significant reduction in net debt increased liquidity and extended debt maturities.\nDuring the quarter, we successfully amended and extended our term loan facility, adding the unique feature of an ESG margin adjustment.\nThis is a sound testament to our sustainability commitment.\nI am proud and happy to say that we have already achieved an increase in our ESG rating, lowering our borrowing cost another $0.5 million on an annual basis.\nIn summary, I would like to highlight that we reached a significant milestone this quarter with the year-to-date revenue and profit exceeding pre-pandemic results during the same period in 2019.\nThe performance of each of our business segments has been impressive with Global Lottery achieving record results on strong player demand, global gaming delivering sequentially higher results each quarter since 2019 and Digital & Betting drives significant growth in a nicely profitable business.\nWe achieved our '21 goal of delivering over $200 million in OPtiMa structural cost savings ahead of schedule and expect more benefits to materialize as the Global Gaming segment continues to scale.\nWe'll talk a bit more about this next week during our investor day.\nWe generated record level of cash flow so far this year, which allowed us to significantly pay down debt and improve our leverage to 3.8x.\nAnd lastly, IGT board of directors have instated a $0.20 per share quarterly cash dividend, signaling my confidence in our long-term outlook and providing a nice return of capital to shareholders.\nOn the back of very strong year-to-date results, we are raising our outlook as we currently expect to deliver revenue of approximately $4.1 billion, operating income of about $900 million and total depreciation and amortization of between $700 million and $725 million.\nThis outlook reflects our expectation that Q4 revenue and profit will be pretty much similar to Q3.\nAs a reminder, the first half of 2021 benefited from some discrete items in our Lottery business between gaming hall closures in Italy, elevated multi-stage app productivity and LMA performance in the U.S.\nThis represents a positive impact of about 300 basis points on our operating income margin for the full year.\nFree cash flow for the full year is expected to reach record or near record levels with cash from operations expected to range between $850 million and $900 million and capex coming in below $300 million.\nWe also expect leverage to remain below four times, given the profit and cash flow guidance I just mentioned.\nWhile it is unfortunate that we cannot be physically together next week for our investor day, we are still very much looking forward to the virtual event where Marco and I, along with other members of the IGT senior management team, will share the company's business strategy, long-term growth prospects and capital allocation plans.\nOperator, would you please open line the questions.",
        "summary": "raising 2021 operating income outlook on strong business trends.\nreinstatement of $0.20 per common share quarterly cash dividend.\nsees fy21 revenue from continuing operations of $4.1 billion.\nsees fy21 capital expenditures below $300 million.\nfy21 outlook does not factor in any additional impact from covid-19 restrictions."
    },
    {
        "text": "With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer.\nIf not, you can access the release on our website.\nBefore I get started, I would like to review World Fuel's safe harbor statement.\nA description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission.\nAs with prior conference calls, we have set members of the media and individual private investors on the line participate in listen-only mode.\nThis is Ira Birns.\nBefore Mike begins, operator, we've been informed that we still have music playing while Glenn was speaking.\nCould you please ensure that, that's shut off ASAP before Mike begins?\nWe'll be with you in a few minutes.\nSorry for the delay.\nCan you hear the music?\nSo I give us a couple more minutes.\nOur sincere apologies, we're still try to work -- working how with the conference call [Indecipherable] shut off the music.\nWe'll be with you in a minute or two.\nI'm not hearing music on my end.\nIs anyone still hearing music?\nOkay, we're back on.\nSorry for the delay.\nSo it's the music, but hopefully, everybody can hear.\nIf not please figure out a way to contact us.\nSo we're assuming everyone's hearing.\nIt's good to be here today.\nAs we all know, it's been a year like no other.\nIt was a year when our company, our country and the world were challenged in ways never before experienced.\nIt was also a year in which we learned a lot about ourselves and each other, about how we respond to emergencies, to rapid change, to having our personal and business lives turned upside down, and the health of our family and employees put at risk.\nThe pandemic impacted some businesses more than others.\nPlease support the industries that have been among the most impacted.\nThe World Fuel was the ultimate stress test, and I could not be more pleased with and proud of the incredible job our global teams did during this extraordinarily challenging year.\nWe did not miss a beat for our customers or suppliers in any part of our business activity or in all part of our global operations, not one.\nWe absorbed risk, performed our operations with excellence and improved our safety metrics along the way.\nWe maintained and enhanced our commercial, operational and financial position as the counterparty of choice to the global aviation marine and land-based industries.\nI could not be more proud of the dedication and efforts of our team and the outcomes they drove in this difficult, risky and volatile year.\nWe have been fire-tested and are stronger for it.\nToday, all of our businesses are strong, healthy employees to respond to the resurgence in passenger travel and commercial activity in aviation, marine and land as local and global markets reopen.\nThe work that we have done over the year on talent, leadership and culture has better positioned us to execute on delivering and scaling our existing diverse energy and last half-mile logistic solutions to end users.\nOur aviation, marine and land businesses continue to refine and enhance their offerings and expand their global networks.\nWe have clearly demonstrated -- they clearly demonstrated there's strategic value in their markets during the most successful -- I'm sorry, stressful time in history.\nOur energy management business continued to evolve its natural gas, power, wind, solar, carbon and renewables activities, and as I said last quarter, this business is breaking into stide.\nWe provided robust energy management advisory services to a broad base of locally rolled businesses in 55 countries.\nWe sourced renewable energy from our portfolio of 190 renewable power plants.\nWe concluded solar power agreements with various communities as well as agreements with utility-scale solar projects for Fortune 500 companies.\nWe've managed and sold growing volumes of electricity and natural gas.\nThroughout all of our businesses, we were supporting our clients' pathways to lowering their carbon footprint and meeting their growing ESG agendas by procuring and selling carbon credits, sustainable aviation fuel and renewable diesel.\nAs I said last quarter, the reception from the market to our sustainability offerings did accelerate.\nSociety has passed the tipping point on climate action, and we are well positioned to serve the sustainability needs of the market.\nLast quarter, I mentioned our generated military activity and the synergy of our commercial activities.\nWhile our core in-theater business has experienced substantial declines as a result of troop withdrawals in Afghanistan, I am confident we will be building out a more diverse portfolio of business activities within this sector, which leverages our commercial, operational and expeditionary capabilities.\nAs I have said in the past, our military activity and expertise has positively influenced our commercial practices.\nAnd the military veterans that work shoulder to shoulder within their organization continue to help us drive operational excellence.\nWe are grateful for your service and contribution to our success, and are committed to hiring and supporting military service members throughout our global organization.\nIn addition to participating in what is rapidly moving from an energy transition to an energy revolution, we are also participating in the digital transition.\nWe are digitizing more transactions, documents and communications every day and moving hundreds of suppliers and customers to our PPIs and portal solutions, all with the purpose of reducing costs, lowering ours and our customers' and suppliers' partner footprint and increasing the value by improving operational integration with the markets we serve.\nWe are taking our large and liquid analog transportation fuel marketplace and turning it into a digital energy ecosystem, and we're doing this with smaller teams and better performance as a function of focusing on diverse talent and thinking, and a collaborative culture.\nIn 2020, our global team showed great strength of character, tremendous resilience, uncountered grit and a relentless determination and burning desire to do well.\nLadies and gentlemen, I hope you enjoyed the extra music.\nSorry about that again.\nBut before I begin my financial review, I would also like to reiterate Mike's sentiments.\nLast year was one that brought unforeseeable challenges to our business in the markets we serve.\nBut we couldn't be prouder of what our company has accomplished in the face of such extraordinary challenges.\nWhile uncertainty still looms, the proverbial light at the end of the tunnel seems to be creeping a bit closer.\nAnd we are very confident that our resilience business model will bounce back as the markets we serve begin to recover.\nMore positive news is coming out every day regarding vaccination rates and trends in COVID activity and the progress that is being made should be very encouraging to us all.\nI'll provide additional details regarding what we have done to strengthen our company during 2020 as I give a more detailed review of our fourth quarter and full year financial results.\nAs usual, please note that the following figures exclude the impact of nonoperational items as highlighted in our news release.\nThe nonoperational income and expense items for the quarter and full year, principally relate to the gain on the sale of our multi-service business, most of which was recorded in the third quarter, as well as our acquisition, divestiture, impairment and restructuring-related expenses.\nNow let's begin with some of the fourth quarter and full year highlights.\nConsolidated volumes for the fourth quarter increased 3.5% sequentially to 3.5 billion gallons.\nFor the full year, our consolidated volume was 14.4 billion gallons, that's down approximately 26% compared to 2019, mostly related to the pandemic's impact on our commercial aviation business.\nAdjusted fourth quarter net income and earnings per share were $1 million and $0.02 per share, respectively.\nAnd adjusted full year net income and earnings per share were $74 million to $1.15 per share for seven weeks.\nAdjusted EBITDA was $45 million in the fourth quarter and $261 million for the full year.\nAnd lastly, we generated another $114 million of cash flow from operations during the fourth quarter which contributed to a record $604 million of cash flow from operations for the full year, further strengthening our balance sheet amid the ongoing and pandemic.\nAnd now consolidated revenues for the fourth quarter was $4.7 billion, again, negatively impacted by the continued effects of COVID-19 on our segment volumes as well as a 25% decline in average fuel prices compared to 2019.\nFor the full year, consolidated revenue was $20.4 billion that's a decrease of $16.5 million or 45% when compared to 2019, with the decline driven by the same factors as the fourth quarter.\nOur aviation segment volume was 1.1 billion gallons in the fourth quarter, to actually up 12% sequentially, but still well below pre-COVID activity levels.\nStrength in cargo operations and business aviation was offset by continued weakness in global commercial passenger aviation activity.\nFourth quarter spikes in COVID activity led to a reinstitution of mandated quarantines and other forms of travel restrictions in much of Europe, the Americas and even Asia.\nThese restrictions are expected to remain in place for the balance of the first quarter.\nHowever, COVID cases, hospitalizations and vaccination rates all seem to finally be trending in the right direction, which should begin to result in relaxed travel restrictions.\nThis is all leading to growing optimism for a reasonable recovery of commercial aviation activity, potentially beginning as early as sometime during the second quarter and into the third quarter of this year.\nFor the full year, volume in our aviation segment was 4.7 billion gallons, that's a 3.8 million gallon decline or 45% compared to 2019, again, for the same obvious reasons.\nVolume in our earnings segment for the fourth quarter was 4.2 million metric tons and approximately 17% year-over-year and 3% sequentially.\nThe year-over-year declines were principally driven by weaker demand across the core resale in physical businesses.\nFor the full year, our segment filing was 17.5 million metric tons, that's a decline of 3.4 million metric tons or 16% compared to 2019.\nOur land segment volume was 1.3 billion gallons or gallon equivalents during the fourth quarter.\nThat's a decrease of only 11% year-over-year and an actual increase of 2% sequentially, generally good results considering the broad economic impact of the pandemic on our markets our land business serves.\nWe experienced year-over-year COVID-related volume deployments in our retail, commercial and industrial and wholesale operations, which were partially offset by increases in our drilling power, natural gas and sustainability platform.\nOur land team remains focused on expanding our C&I power and natural gas and sustainability platforms and has done a great job managing our land business through the pandemic over the course of 2020.\nFor the full year, volume on our land segment was 5.1 billion gallons, that's a decline of 390 million gallons or 7% compared to 2019.\nAnd consolidated volumes for the full year was 14.4 billion gallons, down 5.1 billion gallons or 26% year-over-year.\nConsolidated gross profit for the fourth quarter was $165 million, that's a 42% decrease compared to the fourth quarter of 2019 and a 23% decrease sequentially.\nFor the full year, consolidated gross profit was $852 million, down $260 million or 23%, both declines driven by the impact of the pandemic on our aviation and marine results.\nOur aviation segment contributed $70 million of gross profit in the fourth quarter, down 50% year-over-year and 28% sequentially.\nThe reason for the year-over-year decline again is obvious, but we also experienced a sequential decline due in part to renewed travel restrictions in the fourth quarter, as mentioned earlier.\nThese restrictions most significantly impacted our iron ore volumes that are serviced by our physical operating network in Europe.\nAlso, our inventory business was negatively impacted by fuel price volatility during the quarter, and we also experienced a modest sequential decline in government-related activities related to well pump size Afghanistan troop withdrawals, mandated by the prior U.S. administration.\nAs we look ahead to the first quarter of 2021, we anticipate that aviation gross profit will remain flat sequentially, driven principally by continued lockdowns in many parts of Europe and other areas of the world, which, again, we expect will last through the balance of this quarter.\nFor the full year, aviation gross profit was $353 million, a decline of $188 million or 36% year-over-year.\nThe marine segment generated fourth quarter gross profit of $23 million, a 60% year-over-year decline and a 29% decline sequentially.\nThe COVID-related year-over-year decline in core retail activity, including the [Indecipherable] sector, was compounded by a comparison to a very strong fourth quarter in 2019, and which has benefited from the lead out to the January one very [Indecipherable] IMO regulations.\nIn addition to seasonality, the sequential decline related to lower margins we expected in our core retail activity and weakness in our physical business, impacted in part by COVID-19.\nAs we look ahead to the first quarter, based on what we've experienced year-to-date, we expect marine gross profit to increase sequentially, driven by a rebound in our higher-margin physical business and an increase in customer derivative-related activity.\nFor the full year, the marine segment generated $151 million of gross profit, which is down $30 million or 17% compared to 2019.\nOur land segment delivered gross profit of $72 million in the fourth quarter, up 3% year-over-year and 11% sequentially when excluding profitability related to multi-service, which we sold at the end of the third quarter.\nWhile core domestic activity declined, land experienced sequential increases in our power and gas business as well as the benefit of seasonality in the U.K., again, a good outcome for land considering the impacts of COVID-19 on the markets they serve.\nLooking ahead to the first quarter, we expect land gross profit to be sequentially higher, principally related to the increase in activity in the U.K. as we expect people strength in our oil distribution activities, which began in the fourth quarter to continue through the first quarter, driven in part by assumed higher usage as a result of continuing pandemic-related lockdowns.\nAnd some additional potential upside related to the recent volatility in the natural gas markets in parts in the U.S. For the full year, the land segment contributed gross profit of $348 million, after excluding the impact of multi-service, the land year-over-year decline was only $9 million or 3%.\nCore operating expenses, which exclude bad debt expense, were $135 million in the fourth quarter, which is well below the range that we provided on our last quarter's call, as we remain focused on managing our variable costs during this period of continuing uncertainty.\nLooking ahead to the first quarter, operating expenses, excluding bad debt expense, will likely be a bit higher in the range of $138 million to $142 million.\nIf we look at the full year 2020, core operating expenses were $613 million that stand at $152 million or 20% when compared to 2019.\nBy taking swift action to reduce our costs to better align the economic realities of 2020, we were able to mitigate more than 50% of the full year decline in gross profit.\nThis is another testament of our team's focused effort to manage through the challenges the pandemic.\nSpeaking of the challenges with pandemic, the debt expense in the fourth quarter was $5.8 million, returning to a more normalized level after two quarters of COVID-related elevated expenses.\nWe continue to navigate challenging markets well.\nOur credit team continues to do a fantastic job underwriting risk with credit lines remaining well below historical levels.\nAs we look to 2021, we expect bad debt expense to return to levels at or below those experienced in 2018 and 2019, unless market conditions somehow deteriorate substantially from here.\nAdjusted income in operations for the fourth quarter was $25 million, down significantly from 2019 and sequentially, again, due to the impact of the pandemic on our aviation and marine segments, most specifically.\nFor the full year, income from operations was $176 million, also down significantly, principally driven by the impact of COVID expenses.\nFourth quarter interest expense was $12 million, which is down 30% year-over-year.\nWhile [Indecipherable] success continues to benefit from lower average borrowings and significantly low interest rates, interest expense increased sequentially as we ramped up our accounts receivable sales facility, which is further strengthening our liquidity profile.\nAt the end of the fourth quarter, we again had no borrowing with outstanding under our revolver, and we ended the year in a net cash position.\nWe expect interest expense for the first quarter to be in the range of $10 million to $11 million.\nOther expenses were also elevated in the fourth quarter, principally related to foreign exchange losses driven by significant currency volatility during the quarter.\nAs a result of the impact of the pandemic on our operations, we were required to post a fairly significant amount of valuation allowances against our deferred tax assets in various foreign jurisdictions during the fourth quarter.\nThis resulted in a higher effective tax rate for the fourth quarter and even the full year.\nThese noncash adjustments are required under tax accounting standards and procurements from recording a tax benefit on certain legal equity loss results which, again, will continue to be driven principally by the decrease in demand associated with travel restrictions imposed globally due to COVID-19.\nThe recorded devaluation allowance has no cash flow impact and our net operating loss carryforward assets remain available to offset future taxable income from these legal entities once they become profitable to get close to identical since we did not be able to recognize any tax benefit, and so we start showing profitability in these jurisdictions, our effective income tax rate may remain higher than we would like in the short term.\nIf we normalize our rate for the impact of these allowances, our fourth quarter effective tax rate would have been somewhere in the low 30s.\nBased on what we know today, we expect our effective tax rates to be in a very similar range in 2021, unless the local market conditions change materially.\nOur total accounts receivable balance declined to about $1.2 billion at the end of the year, down more than 50% or approximately $1.7 billion from December of 2019, driven principally once again by volume declines and lower fuel prices.\nOur continued focus on carefully managing working capital resulted in fourth quarter operating cash flow of $114 million.\nFor the year, we generated more than $600 million of cash flow from operations, which have enabled us to repurchase $68 million of our shares and pay $26 million of dividends while still strengthening our balance sheet substantially, again during the midst of the pandemic.\nThis provides us with a significant amount of available liquidity to invest in organic growth initiatives, a robust pipeline of strategic investments, additional share repurchases and dividends, all intended to drive greater shareholder value.\nIn closing, as we all know, 2020 is a very tough and unprecedented year, not only for us as a company, but for the markets we participate in just about everybody else.\nWhile we do not control in business demand recoveries from COVID-19, operating remotely for almost the entire year now, our global team did an exceptional job focusing and executing on [Indecipherable] within our control.\nSpecifically, managing our expenses and cash flows and credit exposure to customers and other [Indecipherable] margins.\nAnd while EBITDA was still significantly impacted by the pandemic, these prudent actions further strengthened our balance sheet, reducing net debt by more than 578 million -- $575 million, bringing us in a net cash position at year-end.\nLooking forward, any state of crisis is a terrible thing to waste, and we worked very, very hard in 2020 to ensure we did not reach this horrible crisis.\nI believe we will comment to much strong and efficient business.\nWith our balance sheet stronger than has been in a very long time, we are well positioned to hit the ground running as demand recovers post pandemic with significant capital available to invest to further strengthen multiple areas of our business with the greatest opportunities for growth and operating leverage.",
        "summary": "q4 adjusted earnings per share $0.02.\nqtrly revenue $4,702.1 million versus $9,358.1 million."
    },
    {
        "text": "With me on the call today is Intrepid's co-founder, executive chairman, president and CEO, Bob Jornayvaz.\nThese statements are based on the information available to us today, and we assume no obligation to update them.\nThese risks and uncertainties are described in our periodic reports filed with the SEC, which are incorporated here by reference.\nDuring today's call, we will refer to certain non-GAAP financial and operational measures.\nSolid cash flow and EBITDA highlighted our fourth quarter and put a positive end on a unique year.\nThe encouraging trends we saw emerging in the fourth quarter are continuing into spring as commodity markets show strength across both our fertilizer and oilfield segments.\nThe last couple of months, we have seen gradual yet sustained improvements in our ability to combat the COVID-19 pandemic, we are optimistic that the good news will continue as cities begin to relax restrictions now that significant portions of our most vulnerable populations are protected.\nWe wish the world well.\nOur nutrient business ended the year with significant momentum and hasn't slowed down in the first quarter.\nWe called the bottom in the potash market on our November earnings call and recent pricing and demand has exceeded our expectations.\nWe announced another potash price increase in February, up $50 per ton, increasing our posted potash prices $140 per ton above summer fill levels.\nTrio has also seen strong demand and has currently posted $60 per ton higher than the summer fill values.\nCustomers have been eager to secure product as prices continue to move up and have locked in some volumes through second quarter with additional spot buying occurring throughout the spring and farmers who are eager to replenish nutrients at today's crop prices.\nStrong commodity pricing in soybeans, corn, wheat, palm oil, sugar, cotton and bottoms in the cocoa market in the coffee market, all in strength to a continuing global demand.\nDuring the fourth quarter, we continue to position ourselves to capitalize on the return of the oilfield demand in the Delaware Basin, leading ESG initiatives with a clear emphasis on full cycle water management.\nFull cycle water management means minimizing traditional source water use and produced water disposal with environmentally friendly treated produced water recycling.\nWith environmental and sustainability goals, front and center for so many oil and gas management teams, regulatory bodies and governments, the need for responsible and innovative use and reuse of water is the key to capturing the full potential of the Delaware Basin.\nIntrepid is uniquely positioned with its variety of assets and water rights in Southeast New Mexico, to become a leader in the space, touching every aspect of the market from fresh and brine water delivery to recycled and produced water handling and disposal.\nWe are in the early stages of construction of a produced water disposal system adjacent to our South Ranch and should have our first produced water well drilled in the first half of this year.\nAs we finalize our capital plans, we are also working on minimum volume commitments with operators that will provide a solid base of demand to support our investments.\nWe expect to produce water well will cost approximately $2 million and will complete incremental capital for the surface facility at the appropriate time.\nTotal capital for our first well and surface facilities is estimated at $7 million.\nWe expect additional wells can be added as demand and volume commitments require at a cost of approximately $2 million each.\nIn addition to produced water, we're investing in recycling infrastructure and expanding our capabilities to deliver the services and products necessary to operate in an increasingly ES&G focused environment.\nWe are currently in talks with multiple companies about partnering in new and exciting areas of oilfield and full cycle water management business that will leverage our unique position and inherent optionality of our Intrepid freshwater and brine water assets across the Northern Delaware Basin.\nThe Northern Delaware is full of long-term-focused, well capitalized operators, and we are seeing many of these operators revisit their expectations for 2021 as oil prices have improved significantly in recent months.\nFrac demand is increasing and source water demands per completion are higher than ever.\nDuring the first quarter, we sourced water from third parties had positive margins to supplement our own water rights and existing infrastructure to meet the increasing volume requirements of operators.\nOur strong relationships with those operators and our ability to meet significant refresh rights sets us apart from many other source water providers in the Delaware Basin.\nThe next few quarters are pivotal for Intrepid, as we will execute on our strategy to expand our oil and gas midstream business in the Delaware Basin and tap into the significant opportunity that full cycle water management offers.\nProper water management and the ability to provide operators with a single source capable of meeting both their operating and ESG goals will be essential in unlocking the potential value of this business over the coming months.\nOur fourth quarter was highlighted by strong improvements in earnings and EBITDA compared to the third quarter as good fertilizer fundamentals and an improving oilfield outlook drove increased gross margin across all our business segments.\nWe recorded fourth quarter adjusted EBITDA of $9.7 million, an increase of over $8 million compared to the third quarter of 2020.\nAs Bob noted, the potash market really took off in the fourth quarter with three announced price increases, good weather across the country and rising commodity prices.\nCustomers look to replenish potash inventories after a strong fall application season that was evidenced by the 78,000 tons of potash sold in the quarter up significantly from the prior year.\nLooking toward 2021, we still expect first half potash volumes to exceed prior year by about 5% to 10% despite the large volumes in the fourth quarter.\nAverage net realized sales price will continue to increase into the second quarter as we've layered in ag sales at varying price levels throughout the spring.\nWe have fully realized the fourth quarter price increases in our second quarter volumes and expect some additional spot tons at our current pricing.\nAll said, we expect our net realized pricing to increase from $248 per ton in the fourth quarter of 2020 to 300 to $310 per ton for the second quarter of 2021, with the first-quarter net realized sales price about halfway between the two.\nGoing forward, we continue to focus significant effort on expanding our specialty potash sales, specifically into the premium armory and feed markets, areas where we saw significant growth in 2020.\nFor the trio segment, our domestic market saw great early season demand in the fourth quarter as we continue to grow sales in key markets throughout the U.S., total fourth quarter sales volumes were down slightly compared to last year.\nDue to large international sales in the fourth quarter of 2019.\nOur posted price is now up $60 per ton compared to the summer fill levels, and we are seeing good subscription at current pricing into the spring.\nWe expect our net realized sales price will increase to approximately 220 to $230 per ton in the first quarter and 230 to $240 per ton in the second quarter of 2021.\nThe oilfield segment improved significantly over Q3 as water sales increased from our higher-margin sources and contracts, benefiting the bottom line.\nTotal water sales, including byproducts, were $5.8 million in Q4 an increase of $2.2 million compared to the third quarter of 2020.\nOperators are adding more crews than they expected just a few months ago and commodity pricing is clearly supportive of the world-class reserves in the Northern Delaware Basin.\nOur debt position is unchanged since the third quarter with $55 million outstanding, of which $10 million relates to the PPP loan.\nOur forgiveness application is being reviewed by the SBA with our 90-day review period ending in April.\nAvailability under our credit facility was $20 million at year-end.\nCash flow from operations was $12.7 million in the fourth quarter and $31 million for the full year.\n2020 capital investment ended the year at $16.4 million.\nWe estimate 2021 capital investment of 25 to 35 million, of which 12 to 15 million will be sustaining capital with the remainder as potential opportunity capital projects.\nWe have significant discretion over our opportunity capital investments in 2021, and we may adjust our investment plans as our expectations for 2021 change.\nWith a strong early start to the spring season, our cash position today is $28 million with no change in our outstanding debt from year-end.\nOperator, we're ready to take questions.",
        "summary": "q4 sales $5.8 million."
    },
    {
        "text": "We apologize for this error.\nWe will review how we closed 2020 and discuss 2021 financial guidance.\nI'm pleased to report, we finished the year with a very strong quarter.\nWe delivered double-digit growth in all key financial metrics, and once again reported results above our financial targets.\nThis is all the more remarkable since last year's fourth quarter was so strong.\nAs you know, [indecipherable] this difficult year and as we navigated through the pandemic, we tried to be as transparent as possible and provide you visibility to our expected financial performance.\nIn such highly unusual circumstances, the default reaction would normally be to draw guidance and watch from the sidelines.\nBut as you know, we tried our best to share with you what we saw.\nSo we did the same at the end of the third quarter when we decided to provide 2021 outlook as soon as we had some visibility, which was a full quarter earlier than usual.\nToday, this outlook has become clearer and we've decided to update and raise the guidance.\nLet's start by reviewing our fourth quarter results.\nThe revenue for the fourth quarter came in at $3,298 million, which was $108 million above the high end of our guidance range.\nA little over 70% of this beat came from strong organic performance, less than 30% from favorable foreign exchange.\nRevenue growth was 13.9% on a reported basis and 12.2% at constant currency.\nFourth quarter adjusted EBITDA of $735 million grew 14.5% reflecting our revenue growth and productivity measures.\nThe $25 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance.\nFourth quarter adjusted diluted earnings per share of $2.11 grew 21.3%.\nThe beat here entirely reflects the adjusted EBITDA drop through.\nOur strong fourth quarter financial results were driven by numerous operating achievements during 2020.\nAnd a little bit more color on those achievements, starting with technology.\nDemand for our technology offerings remain strong in 2020.\n60 new clients decided to deploy OCE last year, bringing our total number of OCE client wins to 140 since launch.\nAs you know at the beginning of 2020, a top 15 global pharma client begun deployment of OCE in the US.\nThis client has now decided to begin global OCE deployment for their medical teams mainly their almost 2,000 medical science liaisons worldwide.\nThe same client is also expanding its use of IQVIA technologies through our HCP Engagement Management platform.\nWe launched this platform during 2020.\nHCP Engagement Management works in conjunction with OCE to ensure global commercial activities are executed in compliance with all global regulations.\nIn addition to HCP Engagement Management, you would have seen that during 2020 we also launched OCE Optimizer.\nOCE Optimizer is a real-time map-based territory and sales rep alignment solution, which helps our clients plan their sales rep activity and improve their marketing plans.\nSwitching to our Real World business.\nOur Real World business has been relatively well insulated from the impact of the virus, and it has strong growth for the year.\nThe business is advanced in the use of secondary data, remote monitoring and virtual research approaches, which helped the team pivot quickly to working in the new remote world at the onset of the pandemic.\nOur rich clinical data assets are key to our real world differentiation.\nThe team has continued to invest in these rich clinical data assets and these assets now include over 1 billion active non-identified patients globally.\nAnd the team is busy integrating these rich clinical data into research.\nIn 2020, we launched CARE, our COVID Active Research Experience registry to help communities and public health authorities better understand the impact of COVID-19 on the population.\nWe are leveraging this platform along with our vast experience of registries and analytics, to partner with the FDA, to support a better understanding of how people are affected by exposure to COVID.\nThis work will help identify which symptoms individuals experienced, the length and severity of symptoms, and were there any medications or supplements they are taking affect the severity of those symptoms.\nIt's a perfect application of our real world capability.\nSimilarly, we have become the partner of choice around the world to receive various governments and healthcare authorities with large scale diagnostic testing and monitoring of COVID patients.\nThese new series of offerings which leverages our connected capabilities, contributed incrementally to the strong sequential growth in our TAS segment.\nAs you know the R&DS team responded quickly in 2020 to support our clients with the development of vaccines and therapies for COVID-19.\nWe've been involved in more than 300 clinical trials and studies for the virus, including four of the five vaccine trials that made it through Phase III and were funded by the US Government in Operation Warp Speed.\nTo help speed recruitment, we leveraged our direct-to-patient solutions, which include the use of patient registries and IQVIA sponsored advertisements.\nTo-date, we recruited over 100,000 patients to COVID trials.\nThe pandemic has accelerated the need for remote and risk-based monitoring in clinical research, which in turn has accelerated the adoption of our Virtual Trials technology.\nIn total, we've won over 60 new studies using our Virtual Trials solutions across 10 therapeutic areas, including awards with five top 10 pharma clients.\nThe technology suite combined eConsent, telemedicine, eCOA and digital communication, and its platform on health cloud, the Salesforce platform that is purpose-built for healthcare and life sciences.\nThis technology has been deployed to speed vaccine development, and was an important factor in helping the team secure the two Phase III full-service COVID trials that we are working on.\nThe environment for R&D and outsourcing remains very healthy.\nBiotech funding remains strong, with the National Venture Capital Association reporting a record number of deals for the year.\nThe pipeline of late-stage molecules continues to expand, and is at an all-time high.\nIt is these healthy environment combined with our differentiated capabilities that has resulted in strong new business awards for the R&DS team.\nOur contracted backlog, including pass-throughs grew 18.5% year-over-year to $22.6 billion at December 31, 2020.\nAs a result, our next 12 months revenue from backlog increased to $5.9 billion, up 13.5% year-over-year.\nWe continue to build on our strong momentum in the fourth quarter, with the team delivering a contracted net book-to-bill ratio of 1.41, including pass-throughs and 1.42 excluding pass-throughs.\nWe exited the year with an LTM contracted book-to-bill ratio of 1.53 including pass-throughs and 1.44 excluding pass-throughs.\nWe expect continued strong activity going forward as our pipeline of R&DS opportunities is growing double-digits in both volume and dollars across a very wide range of therapy.\nAs Ari mentioned, this was a strong quarter to close the year.\nLet's start by reviewing revenue.\nFourth quarter revenue of $3,298 million grew 13.9% on a reported basis and 12.2% at constant currency.\nRevenue for the full year was $11,359 million, which was up 2.4% reported and 2.3% at constant currency.\nTechnology & Analytics Solutions revenue for the fourth quarter of $1,425 million increased 17.4% reported and 15.1% at constant currency.\nThe sequential bump in growth this quarter versus the 9.2% growth in the third quarter was due to the COVID related work that Ari mentioned.\nFull year Technology & Analytics Solutions revenue was $4,858 million, up 8.3% reported and 8.1% at constant currency.\nR&D Solutions fourth quarter revenue of $1,684 million was up 14.5% at actual FX rates and 13.2% at constant currency.\nPass-throughs were a tailwind of 220 basis points to fourth quarter R&DS revenue growth due entirely to COVID work.\nBut you should note that R&DS delivered double-digit organic growth on both the services and a fixed FX basis.\nAgain, strong performance, especially considering the tough comparison to the fourth quarter of 2019, when organic service revenue also grew at a double digit rate.\nFor the full year, R&D Solutions revenue was $5,760 million essentially flat on both the reported and constant currency basis.\nExcluding the impact of pass-throughs, R&D Solutions' full year reported revenue grew 2.2%.\nCSMS revenue of $189 million were down 10% reported and 11.9% on a constant currency basis in the fourth quarter.\nFor the full year, CSMS revenue of $741 million was down 9% at actual FX rates and 9.2% at constant currency.\nDemand for field reps continues to be soft in the current environment.\nAs a result, business development activity has slowed but the businesses performed modestly better than we expected as the clients have largely retained existing field reps.\nNow moving down to P&L, adjusted EBITDA was $735 million for the fourth quarter, which was growth of 14.5%.\nFor the full year, adjusted EBITDA was $2,384 million.\nFourth quarter GAAP net income was $119 million and GAAP diluted earnings per share were $0.61.\nFor the full year GAAP net income was $279 million and GAAP diluted earnings per share was $1.43.\nAdjusted net income was $411 million for the fourth quarter and $1,252 million for the full year.\nAdjusted diluted earnings per share grew 21.3% in the fourth quarter to $2.11.\nFull year adjusted diluted earnings per share was $6.42.\nNow as Ari highlighted, R&DS new business activity remains strong, backlog grew 18.5% year-over-year to close 2020 at $22.6 billion.\nWe expect $5.9 billion of this backlog to convert to revenue over the next 12 months, which represent a year-over-year increase of 13.5%.\nAnd this provides the basis for our 2021 guidance, which I'll be discussing shortly.\nNow let's go to the balance sheet.\nAt December 31, cash and cash equivalents totaled $1.8 billion and debt was $12.5 billion.\nSo, our net debt was $10.7 billion.\nOur net leverage ratio at December 31 improved to 4.5 times trailing 12 month adjusted EBITDA and that compares to a peak of 4.8 times at the end of the second quarter and 4.7 times at the end of the third quarter.\nAnd you'll recall that we've committed to deleveraging between 3.5 times and 4 times net leverage as we exit 2022 and you can expect that we'll make good progress toward this target in 2021 due to our double-digit adjusted EBITDA growth and improved free cash flow conversion.\nThe cash flow continues to be a bright spot, cash flow from operations was $750 million in the fourth quarter, up 29% year-over-year.\nCapex was $176 million, resulting in free cash flow of $574 million.\nFor the full year free cash flow was $1.34 billion, up 61% year-over-year.\nWe resumed share repurchase activity during the fourth quarter, repurchasing $102 million of our shares.\nFull year share repurchases were $423 million.\nWe ended the year at 194.8 million diluted shares outstanding, and currently have $918 million of share repurchase authorization remaining under our program.\nAs a result of our strong free cash flow performance actions we took at the onset of the pandemic to access capital markets and capital allocation decisions during the year, we now have $3.3 billion of dry powder on our balance sheet between the undrawn revolver of $1.5 billion and the cash balance of $1.8 billion.\nWe will continue to be judicious in how we use it for liquidity, consistent with our goal of reducing net leverage.\nLet's turn to guidance now.\nWe're raising our full year guidance by $250 million for revenue at the low end of the range and by $300 million at the high end of the range.\nThe new revenue guidance is $12,550 million to $12,900 million, a little under half of that increase is driven by a stronger outlook for the business and the remainder is from favorable FX new events versus the guidance we provided on our third quarter call.\nI note that the revised guidance includes about 200 basis points of FX tailwind versus the prior year.\nWe're also raising our full-year profit guidance.\nWe've increased our adjusted EBITDA by $35 million at the low end of the range and by $40 million at the high end of the range, resulting in full-year guidance of $2,760 million to $2,840 million.\nThe change in FX versus our prior guidance actually had a slightly negative impact on profit due to the unusual mix of currency fluctuations versus the historic norm.\nSo the adjusted EBITDA increase that you see in our guidance is more than entirely the result of the stronger organic revenue outlook.\nWe're raising our adjusted diluted earnings per share guidance by $0.12 at the low end of the range and by $0.13 at the high end of the range to $7.77 to $8.08.\nThis represents year-over-year growth of 21% to 25.9%.\nAnd let me go little deeper to provide you with a color to help you with your models.\nFirst, when you're modeling quarterly revenue, keep in mind that the second quarter will be easiest comparison and the fourth quarter will be the toughest comparison.\nAnd within our adjusted diluted earnings per share guidance we've assumed interest expense of approximately $415 million, operational depreciation and amortization of slightly over $400 million, other below the line expense items such as minority interest of approximately $50 million and a continuation of share repurchase activity.\nOur guidance also assumes that the effective tax rate will remain largely in line with 2020.\nOur full-year 2021 guidance assumes that current foreign exchange rate remain in effect for the balance of the year.\nNow, before turning to first quarter guidance, let me give you a look at the segment growth rates for 2021.\nWe currently expect Tech & Analytics Solutions reported revenue growth to be between 9% to 12%; R&D Solutions reported revenue growth to be between 14% and 17% which includes a 100 basis point headwind from pass-throughs; and CSMS reported revenue growth is expected to be down about 2% weaker earlier in the year and recovering later in the year.\nNow, as in the past, we're also providing guidance for the coming quarter and this assumes that FX rates remain constant through the end of the quarter.\nOn that basis, first quarter revenue is expected to be between $3,150 million and $3,200 million representing reported growth of 14.4% to 16.2%.\nAll three segments should deliver similar constant currency growth rates to what we saw in the fourth quarter.\nAdjusted EBITDA is expected to be between $660 million and $675 million representing reported growth at 17.4% to 20.1%.\nAnd finally, adjusted diluted earnings per share is expected to be between $1.81 and $1.87 up 20.7% to 24.7%.\nSo to summarize, we delivered strong fourth quarter results with double-digit growth in all key financial metrics, and that's on top of a strong fourth quarter in 2019.\nWe posted mid-teens revenue growth for both our TAS and R&DS segments.\nR&DS backlog improved to $22.6 billion, up 18.5% year-over-year.\nWe posted strong free cash flow for the fourth quarter and the full year of $574 million for the quarter and $1.34 billion for the year.\nWe closed 2020 with net leverage of 4.5 times trailing 12 month adjusted EBITDA in a very healthy liquidity position, including an undrawn revolver and $1.8 billion of cash.\nAnd as we look to 2021, we see double-digit revenue growth, margin expansion, adjusted diluted earnings per share growth of over 20%, continued robust R&DS bookings activity and a further reduction in our net leverage ratio.\nAnd with that, let me hand it back over to our operator for the Q&A session.",
        "summary": "compname posts q4 adjusted earnings per share $2.11.\nq4 adjusted earnings per share $2.11.\nq4 gaap earnings per share $0.61.\nfull-year 2021 guidance raised for revenue, adjusted ebitda and adjusted diluted eps.\nsees fy adjusted diluted earnings per share $7.77 - $8.08.\nsees fy revenue $12,550 million - $12,900 million.\nsees q1 adjusted diluted earnings per share $1.81 - $1.87.\nsees q1 revenue $3,150 million - $3,200 million."
    },
    {
        "text": "We have provided the user-controlled slides on our Investor Relations website.\nWe are joined here today by Bill Meaney, president and CEO; and Barry Hytinen, our EVP and CFO.\nToday, we plan to share a number of key messages to help you better understand our performance, including how we have successfully navigated the COVID-19 pandemic, how we continue to execute on Project Summit and the resulting transformation across the organization, how we have accelerated momentum in our data center business, and how we are increasing our commitment to diversity and inclusion and other sustainability initiatives.\nIn addition, we use several non-GAAP measures when presenting our financial results.\nWe have included the reconciliation to these measures as required by Reg G in our supplemental financial information.\nWith that, Bill, would you please begin?\nLet me start by saying I hope you and your families are safe and well.\nAs we close out a year, which has been marked by a first quarter, delivering near record growth growth to a remaining year where we had to manage headwinds from COVID, I want to take a few minutes to reflect on where we've been and where we're also going.\nWhilst we are optimistic of the positive impact the rollout of vaccines will have, we continue to believe that 2021 will look similar to 2020, albeit in reverse in terms of the macroeconomic landscape.\nHowever, 2020 was also a year where there was much to celebrate now, which came out of the creativity and resiliency demonstrated by our teams.\nI couldn't be more proud of my fellow mountaineers around the world in terms of the way we responded to the COVID-19 pandemic.\nIn a phrase, we managed the crisis, the crisis didn't manage us.\nWe continue to serve our customers where throughout the depths of the crisis, more than 96% of our facilities remained open.\nWe maintained our focus on Project Summit, where we have increased our targeted sustained annual cost savings from $200 million to $375 million, and have already achieved over $200 million on an annual run rate by the end of 2020.\nWe accelerated our growth in data center with 58.5 megawatts of new leases announced in 2020 versus 16.9 megawatts in 2019.\nWe continued our investment in new products and innovation with a focus on supporting our customers' remote workforces.\nThese services led to growth in some of our digital solutions year on year of 8%, excluding FX.\nAnd we continue to see good returns from our global strategic accounts organization and maintained our focus on shifting our culture as part of Project Summit to be one more in-tune with accelerating our revenue growth through new services and solutions.\nThis continued focus on expanding our service offerings to our customer base of 225,000 customers and organizations, in spite of COVID, has allowed us to guide to organic revenue growth of 2% to 6% in 2021, the highest level of our growth in the past decade.\nThis significant investment in innovation and new product development is supported by our purpose to be our customers' most trusted partner for protecting and unlocking the value of what matters most to them in innovative and socially responsible ways.\nOur strategy is highlighted by an important balance between accelerating growth, driven by developing end-to-end solutions to help our customers unlock value from their content as well as sustaining growth in physical storage and data center.\nIn other words, being both the lock and this is key to many of our customers' physical and digital data assets.\nThe strategy is underpinned by our high-performance, customer-obsessed culture and our strong customer connection with not only 225,000 customers, but over 950 of the world's largest 1,000 companies.\nIt is not simply investment in products that has given us accelerated revenue growth but a deliberate focus on shifting our culture as part of Project Summit.\nThis shift in culture is also marked by a singular focus on our customers as our north star; an acceleration in our commitments around diversity and inclusion, not just because it is just, but also because it is a key to our strategic success in being a more creative and dynamic organization, which can deliver more value in tune with our customer needs; and an increase in our commitments to carbon neutrality.\n2020 stars continue to secure renewable energy to meet the power needs of 100% of our data centers, even with the rapid increase in bookings in new facilities operating.\nSome examples of our laser focus on how we have responded to our customers' needs in more creative ways, including processing these unemployment benefits to get them into the hands of people in need during the crisis and setting up 12 digital mail rooms around the globe for customers who didn't know how they were going to stay connected with their remote workforce.\nIn a phrase, we helped our customers when they needed it most.\nWhat that all means to me is that we came out of 2020 stronger than ever, a company with a new sense of momentum that will also fuel both our top and bottom line growth.\nFor the next few minutes, allow me to illustrate for you what I mean by momentum.\nIf resilience was the word for 2020, growth is the word for 2021.\nWe're already seeing evidence of this growth in data centers, for example, and then expect this to continue.\nAs we have discussed before, we are also seeing good growth in digital solutions as well as physical storage, both from the continued durability of our records management business, together with an expanding consumer business and believe this growth should continue.\nThis change in revenue growth trajectory is a direct result of the investments we have made in new product areas, coupled with changes we have made in our commercial engine.\nOne of the fundamental changes we have made in our commercial approach is that we have invested in creating more time for our salespeople to engage differently with our strategic customers.\nThis extra time with customers has allowed us to uncover new revenue opportunities, not just for additional physical storage and new data center customers, but for digital services, which provides both greater visibility for doc data as well as driving much more value from data both physically and digitally.\nAs a result, you can see, both from our performance last year as well as the guidance we have provided today for 2021, our company is more and more seen by our customers as a real partner who, yes, protects and manages all their physical and digital assets, but also gives our customers the key to integrating their information, unlocking its value as well as accelerating their own digital transformation journey.\nFor 70 years, we've offered protection for the assets our customers value most.\nWe now more and more catalog, index, govern and manage complete information across physical and digital domains, securely storing what customers need, disposing of what they down and helping them unearth the insights that drive business transformation.\nLet's now explore some exciting growth opportunities ahead of us.\nThese are areas where we see great opportunities for growth as we position ourselves to unlock greater value for our customers and include data centers, fine arts and entertainment services, consumer storage, secure IT asset disposition or SITAD, small and medium business, content service platform, or CSP, think of this as electronic content management or ECM on steroids and to secure offline storage for a highly secure air gap data storage for cost-effective protection against ransom attacks.\nLet's go into a little bit more detail about a couple of these areas.\nIn data center, we have built a strong global platform with 15 operating facilities across three continents since 2017.\nAnd we just announced an agreement, which once closed, will mark our entry into the very fast-growing Indian market through some of our investment in the Web Werks.\nThe total addressable market for our data centers globally is $20 billion, and is growing at over 10% for co-location or retail customers in over 40% for our hyperscale segment.\nIf you look at fine art storage and entertainment services, it's roughly a $2 billion market for both together.\nAnd just two months ago, the L.A. Times wrote an article about our entertainment services business.\nThey called us the Fort Knox of Hollywood.\nThe article highlighted how we are driving a different level of growth in that business through not just storage, but how we facilitate more opportunities for the studios and artists in distributing their assets to viewers and listeners.\nIn consumer, we've grown the business in one year from about 2 million cubic feet of storage to more than 7 million cubic feet of storage, so 3x as big in just 12 months.\nThe total addressable market for consumer storage is more than $35 billion, and it is growing at about 5% to 6% per year.\nI'd note that our segment focus is on valet storage, where our logistics expertise gives us strong competitive advantage as well as being a nice submarket, which represents a significant opportunity for future growth.\nOur SITAD business has an addressable market of $10 billion, and we have seen strong growth in this business over the course of 2020.\nMore importantly, we have found that our strong heritage around data security and chain of custody is proving a differentiator as we recently took on the global responsibility for SITAD on behalf of two large financial institutions.\nSo hopefully, this helps you appreciate now why we are so excited about the growth opportunities as we look to 2021 and beyond.\nTaken together, the seven areas I highlighted earlier represent a significant market opportunity for us.\nLet me put some context around that.\nIf you look back to 2015, the total addressable market we competed in was $10 billion.\nAnd on average, those markets had low growth rates.\nOver the last five years, as we've listened to customers, built expertise and developed new products and solutions, the addressable market that we now compete in is over $80 billion, yes, $80 billion.\nAdditionally, those products and services that we've developed expertise in are growing at a 13% organic growth rate.\nSo not only has the addressable market for our expanded service has grown by over eight times, but these new areas have double-digit industry growth rates, which helps facilitate our entry.\nLet me now shift gears and briefly review our performance in the fourth quarter and throughout 2020.\nAt a high level, we couldn't have been more pleased with the way our mountaineers navigated the challenging environment in 2020 brought on by COVID-19.\nThroughout the pandemic, we were laser-focused on execution and then controlling those factors that we could, leading to outperformance against our own internal expectations through the last 3 quarters of 2020.\nThis resulted in continued strength in total storage rental revenue, which grew nearly 4% on a constant currency basis and 2.4% organically.\nWhile service revenue declines continued to offset the solid storage growth, we grew adjusted EBITDA 1.3% when adjusting for some currency, and our margin expanded 110 basis points in 2020.\nThis, all in spite of total revenue being down $115 million due to service activity declines.\nOur success is a reflection of our mountaineers' dedication, and most importantly, I have been inspired by the way our teams looked after both the physical and the mental health of each other as they also navigated the threats from COVID, both at work and at home.\nTurning now to our physical storage business.\nTotal global organic volume was essentially flat compared to the third quarter.\nContributing to this was a 1.9 million cubic foot increase in consumer and adjacent businesses, offset by a similar decrease in records and information management volume.\nFor the full year, total global organic volume was also flat, which is a good outcome considering the environment in which we were operating.\nThis year, we expect total global organic volume to be flat to slightly up.\nLooking more specifically at RIM organic volume, this was down 1.9 million cubic feet sequentially.\nFor the full year, organic volume declined 1.1%.\nIn our Global Digital Solutions business in 2020, and we were actually able to grow service revenue 8% year over year, excluding FX.\nDespite the pandemic, our team grew revenue.\nThis goes back to the different mindset I mentioned earlier.\nWe see a further acceleration in our digital solutions business going into 2021 and expect to exceed about $300 million in revenue for the year.\nTurning now to our Global Data Center segment.\nThe team had a phenomenal year, blowing its leasing targets out of the water quarter after quarter.\nFor the full year, we leased more than 58 megawatts remember, our target coming into 2020 was 15 to 20 megawatts.\nI want to underscore that, that success was not just the result of leasing to hyperscalers.\nWe had very good commercial momentum in our core enterprise retail location business, which represented 12 megawatts of the 58 megawatts or close to 40% of our bookings, excluding Frankfurt.\nWe attracted 73 new logos to our platform during 2020, adding to our broad and diverse base of more than 1,300 data center customers.\nThis should enable us to strengthen our network ecosystem and increase the stickiness of our deployments.\nWe also had this busy year in terms of development with more than 10 megawatts commissioned across multiple data centers and geographies increasing our leasable megawatts to 130.\nOur team is actively adding to our development pipeline to ensure we have the right capacity in the right markets to meet robust customer demand, and we are excited for the opportunities we see ahead of us in 2021, where we expect to end the year with over 170 leasable megawatts.\nOne of those opportunities is further expanding our data center footprint into our new fast-growing markets.\nThe data center market in India is projected to grow rapidly in the coming years, and India is the second largest telecommunications market in the world.\nWe are very excited to be an early mover into an emerging market where the demand is high and the supply is low.\nTurning to Project Summit, we generated adjusted EBITDA benefits of $165 million in 2020, consistent with our most recent expectations and significantly ahead of our initial estimates of $80 million, reflecting strong execution in swift and decisive actions activity and I think -- that actions are early initiatives.\nThis gives us an exit rate of annual savings of over $200 million heading into 2021.\nAs you will hear from Barry in more detail, we are fully on track to recognize the estimated $375 million of adjusted EBITDA benefiting this year, and we are expecting as this -- and we are excited for the tangible benefits we will experience this year as we continue to enhance our technology and processes.\nBefore I wrap up, I'd like to provide a little more detail about our continued commitment to cut our carbon emissions I referenced earlier.\nWe were one of the first 100 or so corporations worldwide to have an ambitious carbon reduction goal approved by the science-based targets initiative as being aligned with the Paris Climate Accord.\nAlready then in 2019, we reported that our goal to cut 25% was more than doubled by delivering a 52% reduction six years sooner than our 2025 commitment.\nAs we did this while growing our global data center business, one of the most energy-intensive industries in the world.\nWe will continue to flex our innovation muscle around energy consumption as well as having introduced the Green Power Pass to our customers.\nThis is the first solution of its kind and allows us to pass the benefits of 100% renewable energy data center platform to our customers for them to use to meet their sustainability targets.\nWe are confident based upon the momentum we are building in this area that we can achieve 100% carbon neutrality well before 2050 in spite of our very rapidly growing data center business.\nTo summarize, I've never been more optimistic about our opportunities for growth at any other time in our history, even with the anticipated continued headwinds due to COVID impacting our traditional service areas.\nAnd I've never been more proud of how we've behaved as an organization over the course of 2020 and through the pandemic.\nWe also went above and beyond for our customers and our teams and embrace new collaboration tools and change how we work.\nOur mountaineers truly lived our values day in and day out.\nI'm excited to be on this journey with you all, and I can't wait to see the future together.\nIn a challenging macro environment, our team delivered solid performance across each of our key financial metrics.\nFor the full year, revenue of $4.1 billion declined 2.7% on a reported basis, which includes a 100 basis point impact from foreign exchange.\nTotal organic revenue declined 3.3%.\nOrganic service revenue declined 12.8%, reflecting the continued COVID impact on some of our activity levels.\nDespite the macro headwinds, total organic storage rental revenue grew 2.4%, driven by more than 2 points of revenue management.\nOn a constant currency basis, adjusted EBITDA increased 1.3% year on year to $1.48 billion.\nReflecting the team's strong progress with Project Summit and revenue management, EBITDA margin expanded 110 basis points to 35.6%, representing the best margin performance in the company's history.\nImportantly, we see opportunity for profitability to continue to expand this over time.\nAFFO increased 2.4% to $888 million or $3.07 on a per share basis.\nWe have made some refinements to our non-GAAP measures, spurred by feedback from the investment community that some of our non-GAAP measures are difficult to compare to peers.\nThis includes changes to how we account for unconsolidated ventures, stock-based compensation and a portion of growth capital.\nTo ensure comparability and transparency, we have provided this -- our results on both the former and new methodology.\nOf course, the prior method will be comparable to current consensus estimates.\nFor example, under our former methodology, full-year 2020 adjusted EBITDA was $1.45 billion, which compares to the current consensus of $1.446 billion.\nMore detail is available in our earnings slides and on our Investor Relations website.\nAnd now turning to our results for the quarter, which are based on our updated non-GAAP definitions.\nOn a reported basis, revenue of $1.1 billion declined 1.8%, which includes a 40 basis point impact from foreign exchange.\nTotal organic revenue declined 3.4%.\nOrganic service revenue declined 12.1%.\nOverall, we continue to see service declines moderate with the fourth quarter reflecting a modest improvement in service trends.\nOur total organic storage rental revenue grew 1.7%, driven by revenue management.\nAdjusted EBITDA was $374 million under both our new and former definition.\nWe exceeded the projections we shared on our last call as revenue trends, both in storage and service, were better than planned.\nFourth-quarter EBITDA reflects progress on our Summit transformation, revenue management, and favorable mix, offset by COVID-driven impacts to the business.\nAFFO was $191 million or $0.66 on a per share basis, in line with our prior projections.\nAFFO reflects an increase in recurring capex that have been deferred earlier in the year in higher cash taxes.\nTurning to the segment performance, in the fourth quarter, our global RIM business had strong storage revenue growth, driven by volume growth in our faster-growing markets and revenue management.\nThis was offset by declines in service revenue, albeit at moderating levels compared to earlier in the year, leading to total organic revenue decline of 3.6%.\nIn our shred business, the combination of lower tonnage and an 8% decline in the paper price versus last year resulted in a net $3 million reduction in adjusted EBITDA.\nWhile there's been a slight step-up in the index prices in January, recycled paper prices have remained low.\nAt recent levels, we anticipate paper prices will result in EBITDA headwind of slightly over $10 million in 2021.\nWe are pleased with the continued momentum in consumer storage business as it becomes a more meaningful contributor to our overall physical storage volume growth.\nGlobal RIM adjusted EBITDA margin expanded 40 basis points, driven by revenue management and the Project Summit.\nSo, in the fourth quarter, we continue to see fixed cost deleverage as we ensure we are staffed to the appropriate level to fully support our customers.\nWe also had a step-up in facility expense as we invested in maintenance that we had delayed over the prior two quarters.\nTaking a look at headline numbers for our Global Data Center business, full year bookings came in at 58.5 megawatts.\nExcluding the full building lease in Frankfurt, we leased 31.5 megawatts, representing bookings growth of 26%.\nTotal revenue grew 9% year over year.\nIn 2021, we expect to lease 25 to 30 megawatts, which, at the midpoint, would result in more than 20% annual bookings growth.\nWe feel good about the state of our pipeline, both from a hyperscale perspective as well as our core retail colocation.\nWe project full year revenue growth in the range of low double digits to approaching mid-teens.\nWith our strong prior year bookings, we have good visibility to revenue.\nFor the first quarter, we expect growth rates similar to the fourth quarter as the bulk of our 2020 bookings commence in the second quarter and beyond.\nTurning to Project Summit, as a reminder, we expect total program benefits of $375 million, of which we delivered $165 million in 2020.\nWe expect an additional $150 million benefit in 2021 with the balance in 2022.\nThis quarter, the team delivered $52 million of adjusted EBITDA benefit.\nAs to capital expenditures, in the fourth quarter, we invested $163 million, bringing the full year to $446 million, in line with our prior expectations.\nIn 2021, we expect total capital expenditures to be approximately $550 million, consisting of approximately $410 million of growth capex, of which we plan to allocate approximately $300 million to data center development.\nWe expect $140 million of recurring capex.\nTurning to capital recycling.\nIn the fourth quarter, our program generated approximately $451 million of proceeds, which includes the Frankfurt data center joint venture we have mentioned last quarter.\nAnd for the full year, our capital recycling program generated approximately $475 million.\nI would like to call out the sale-leaseback transaction we announced in December, in which we sold a portfolio of 13 industrial facilities, generating gross proceeds of $358 million.\nThis portfolio was sold at a cap rate slightly below 4.5%.\nThis was a compelling opportunity for us to monetize a small portion of our owned industrial assets while effectively maintaining long-term control of the facilities through an initial 10-year lease with multiple renewal options, among other favorable terms.\nSo, on a leverage-neutral basis, this transaction freed up approximately $260 million of investable capital that we intend to redeploy into faster-growing areas, including our data center business.\nWe plan to make these investments in 2021, so our year-end net debt balance reflects these proceeds.\nWith a highly favorable market backdrop in the strong data center development pipeline, we are planning to continue the -- to recycle industrial assets.\nIn 2021, we are planning for $125 million of recycling.\nTurning to the balance sheet.\nAt year-end, we had approximately $2 billion of liquidity.\nWe ended the year with net lease-adjusted leverage of 5.3 times, down from 5.7 times at year-end 2019.\nThe pro forma, excluding the investable proceeds from our leaseback, leverage would have been just slightly under 5.5 times.\nAs we have said before, we are committed to our long-term leverage range of 4.5 to 5.5 times.\nFor 2021, we expect to end the year within our target range near the high end.\nWith our strong financial position, our Board of Directors declared a quarterly dividend of $0.62 per share to be paid in early April.\nAs we have said before, we are fully committed to some of our dividend at this sustainable level.\nOur long-term target for payout ratio is low to mid-60s as a percentage of AFFO.\nNow to give you more details as to our outlook for 2021, we are pleased to reinstitute financial guidance reflecting the strength of our business, our team's strong execution and improved visibility.\nAnd for the full-year 2021, we currently expect revenue of $4.325 billion to $4.475 billion.\nWe expect adjusted EBITDA to be in a range of $1.575 billion to $1.625 billion.\nAt the midpoint, this guidance represents revenue growth of 6% and EBITDA growth of 8%.\nAt the midpoint, our guidance implies about 75 basis points of EBITDA margin improvement year on year.\nWe expect AFFO to be in the range of $945 million to $995 million or $3.25 to $3.42 per share.\nAt the midpoint, this represents 9% growth for both metrics.\nOur guidance assumes global physical volume will be flat to slightly positive, revenue management will be a significant benefit for us in 2021.\nAnd I will note the majority of our actions have already been taken as we speak to you today, and nearly all of them will be in place by the end of the quarter as we are seeing in digital solutions, combined with a slight recovery in our service activity that's across the year.\nIn terms of EBITDA, our expectations include the benefit from revenue management and top line growth as well as Project Summit savings.\nPartially offsetting those benefits is a prudent outlook for inflation, a step-up in cost from prior COVID-driven discretion, rent from some sale-leaseback transactions and innovation spend.\nWhile we do not typically guide quarterly, with the pandemic, we felt it would be helpful to share our expectations for the first quarter.\nAnd on a dollar basis, we expect revenue and adjusted EBITDA to be consistent to slightly up from the fourth-quarter results.\nIn summary, our team is executing well, visibility is improving, and our pipeline across our business has been strengthening over the last several months.\nWe feel well-positioned as we move into 2021.\nI am confident in the team's ability to really continue to build our momentum.\nAnd with that, operator, please open the line for Q&A.",
        "summary": "q4 revenue fell 1.8 percent to $1.06 billion.\nqtrly affo per share $0.66.\ncontinues to expect project summit to generate $375 million of adjusted ebitda benefits exiting 2021.\nsees fy 2021 affo per share to be $3.25 - $3.42."
    },
    {
        "text": "I'm Chris Miorin, Vice President of Investor Relations, and joining me is Vicente Reynal, President and Chief Executive Officer; and Vik Kini, Chief Financial Officer.\nBoth are available on the Investor Relations section of our website, www.\nIn addition, a replay of this conference call will be available later today.\nIn addition, in today's remarks, we will refer to certain non-GAAP financial measures.\nFor today's Q&A session, we ask each caller keep to one question and one follow-up to allow time for other participants.\nAnd as you can see on Slide 3, anchoring to our purpose, we're realizing the achievement of our desired targets.\nYou will hear three key themes today: First, we're effectively allocating capital to advance our portfolio transformation to generate significant value for our shareholders; second, you will hear about how we are outperforming and raising guidance, which illustrates our organic investments in new product development and demand generation are also working; and third, we will touch on our ESG journey.\nI have never been more excited about the state of Ingersoll Rand.\nThe combination of a highly engaged workforce who think and act like owners, and the use of IRX is what makes us highly unique.\nWe continue to support our employees with an unwavering focus on health, safety and mental well-being.\nMoving to Slide 4.\nOur five strategic imperatives are how we stay grounded on priorities and areas of focus.\nYou will see on the right-hand side, during Q2, we have achieved substantial traction in all five imperatives.\nWithin our operate sustainably strategic imperative, we achieved another major milestone that I'll touch on the next slide.\nMoving to Slide 5.\nA couple of weeks ago, we published our 2020 sustainability report.\nThe report reflects our 2020 ESG data, celebrates our progress and details our further goals with a high focus on measurable targets and accountability.\nWe'll spend more time on this next Friday, during our scheduled ESG and sustainability report investor update.\nWhat I want to emphasize right now is the team's strong bias for action over the last year, as you can see on this page.\nWe have focus and deliver on diversity within our Board and extended leadership team, which is now 50% and 43%, respectively.\nWe have launched aggressive 2030 and 2050 goals and improve our new product development process to address these goals.\nWe expanded a stockholder rights through corporate governance changes.\nAnd one of the things I am most proud of on behalf of our employees is granting $150 million in equity to our employees, which we believe is the largest employee equity grant ever provided by an industrial company.\nWe see broad-based employee ownership as a game changer.\nWe know underrepresented populations increase our earnings on wealth if they're employed in organizations that offer equity grants.\nAnd that's a powerful aspect of our thinking and acting like an owner that even ties into how directly impact global ESG efforts.\nAnd I look forward to sharing more with you next week.\nMoving to Slide 6.\nThe signing of definitive agreements to acquire Seepex and Maximus Solutions, both of which will become part of the Precision and Science Technologies segment, a representative of the key characteristics we're targeting to drive our inorganic growth strategy.\nSeepex is, by our estimation, the #2 global progressive cavity pump manufacturer, and it is a highly recognized brand as a premium player in the market that adds a new positive displacement pump technology to our portfolio.\nMaximus Solutions is a leader, player in the agritech software and controls market.\nWith technology, we intend to pull through to other markets and leverage across the Ingersoll Rand portfolio.\nBoth of these companies have shown strong high single-digit to double-digit organic growth since at least lease 2017, and our focus on sustainable end markets that tend to grow well above GDP rates.\nIn addition, both have strong aftermarket profiles enhanced by digital revenue streams, including software as a service.\nWe anticipate both acquisitions to yield single-digit post-synergy adjusted EBITDA purchase multiples by year three of ownership.\nWith these two acquisitions, we're expecting to add approximately $3.8 billion to PST addressable market, which is an impressive 40% expansion.\nThe profiles and characteristics of this high-quality, high return on capital and highly strategic acquisitions are indicative of how we're structuring our M&A funnel, which leads us to Slide 7.\nWe continue to execute our M&A funnel using IRX at its backbone.\nOur funnel is comprised of six stages and its probability-weighted according to likelihood of closing when we calculate our funnel size.\nFor instance, Seepex has been in our funnel for some time.\nAnd it was not until the owner became actively engaged, and we were in active negotiation that it was moved from 0% weighted revenue contribution to 50% and then 100% assigning.\nAnd now it is out of our funnel calculation.\nLast quarter, we described how our M&A funnel has grown materially since the Ingersoll Rand Gardner Denver transaction was completed.\nAt its current state, the funnel size remains approximately 5 times the size it was versus Q2 of 2020, with average revenue larger and velocity accelerating minutely.\nAnd to be clear, this describes the funnel even after removing the 32 targets we passed on in the second quarter as well as our signed deals of Seepex and Maximus, and it also excludes SPX Flow.\nAs you can see, we have significant momentum in the funnel but our flywheel is in full motion.\nOur $85 per share offer was pre-emptive, and fully accounted for SPX Flow's Investor Day plan, which is ahead of consensus estimates.\nIn terms of SPX Flow's strategic alternative presence, if we participate, we intend to remain disciplined in our approach as we do with all of our M&A transactions, and there can be no assurances that we will confirm our pre-emptive offer as part of any such process.\nIt is important -- it is very important also to note that when we received the second rejection from SPX Flow more than a month ago, we pivoted to executing on other funnel opportunities.\nWe have always demonstrated a very decisive and highly disciplined approach with everything we do.\nAnd we believe it is much more important now in this current environment.\nAs stated, even with SPX Flow excluded, our funnel remains as robust as it did last quarter, which exemplifies the volume and quality of our future potential opportunities.\nAnd we have sufficient cash on hand to execute on these opportunities with $4.7 billion in liquidity.\nHowever, as noted, we intend to remain very disciplined in this environment.\nIt is also important to know that we continue to review our capital allocation priorities with our Board and plan to communicate more formally on this topic later in the year.\nMoving to Slide 8.\nWe continue to be pleased with the performance of the company in Q2.\nQ2 saw a strong balance of commercial and operational execution fueled by the use of IRX with continued performance across industrial end markets.\nTotal company orders and revenue increased year-over-year 48% and 25%, respectively, with strong double-digit organic orders growth across each segment.\nAnd we are very pleased with the momentum we are seeing as organic orders in Q2 were up 9% and 6% on a quarter-to-date and year-to-date basis, respectively, as compared to 2019.\nOur organic growth on both orders and revenue in the quarter were records for the company, eclipsing Q1 and setting us up well as we move into Q3.\nOur commitment to delivering $300 million in cost synergies attributable to the Ingersoll Rand Industrial segment acquisition remains intact as we continue to drive performance on productivity and synergy initiatives using IRX as the catalyst.\nThe company delivered second quarter adjusted EBITDA of $292 million, a year-over-year improvement of $75 million and adjusted EBITDA margin of 22.8%, a 160 basis point improvement year-over-year.\nWe will not report on either segment moving forward.\nFree cash flow for the quarter was $136 million, yielding total liquidity of $4.7 billion at quarter end, up approximately $2 billion from Q1 as we received the gross proceeds from both divestitures in Q2.\nThis takes our net leverage to 0.2 times, a 1.7 times improvement from Q1.\nTurning to Slide 9.\nFor the total company, orders increased 40% and revenue increased 19%, both on an FX-adjusted basis.\nThe IT&S and P&ST segments both saw strong double-digit organic orders growth in the quarter.\nOverall, we posted a strong book-to-bill of 1.14 for the quarter, an improvement from the prior year level of 0.96.\nWe remain encouraged by the strength of our backlog moving into Q3 and beyond.\nThe company delivered $292 million of adjusted EBITDA, which was an increase of 34% versus prior year.\nAnd the IT&S and P&ST segments both saw year-over-year improvements in adjusted EBITDA and strong margin expansion.\nFinally, corporate costs came in at $38 million for the quarter, up year-over-year, primarily due to higher incentive compensation costs as well as targeted commercial growth investments in areas like demand generation and other targeted strategic investments.\nWe expect corporate costs to remain elevated at comparable levels in both Q3 and Q4 due to the same drivers.\nTurning to Slide 10.\nFree cash flow for the quarter was $136 million on a continuing ops basis, driven by the strong operational performance across the business and ongoing prudent working capital management.\ncapex during the quarter totaled $12 million and free cash flow included $12 million of outflows related to the transaction.\nIn addition, free cash flow also included $36 million in cash tax payments related to the historical earnings profile of the HPS and SVT segments.\nAs is customary in these types of divestitures, cash tax payments are included in flows from continuing operations due to the complexities involved in specific attribution with consolidated returns.\nHowever, the $36 million represents our best quantification of the impact.\nFrom a leverage perspective, we finished at 0.2 times, which is a 1.7 times improvement as compared to prior quarter, and this included the gross cash proceeds received from both the HPS and SVT divestitures.\nWe expect to pay the cash taxes for both divestitures later in 2021, and if you were to pro forma the Q2 leverage to account for these tax outflows, leverage would have been closer to 0.6 times.\nOn the right side of the page, you can see the breakdown of total company liquidity, which now stands at $4.7 billion based on approximately $3.7 billion of cash and nearly $1 billion of availability on our revolving credit facility.\nWe have considerable balance sheet flexibility to continue our portfolio transformation strategy with M&A coupled with targeted internal investments to drive sustainable organic growth.\nMoving to Slide 11.\nWe continue to see strong momentum on our cost synergy delivery efforts.\nDue to the funnel we have built that stands in excess of $350 million and strong execution, we are reaffirming our stated $300 million cost savings target.\nTo date, approximately $250 million of annualized synergies have already been executed or are in motion, which is slightly higher than 80% of the overall target.\nAs a reminder and consistent with previous guidance, we delivered approximately 40% of our $300 million target in 2020, which equaled approximately $115 million of savings.\nIn addition, we expect to deliver an incremental $100 million of savings in 2021, which would bring the cumulative total to approximately 70% at the end of this year.\nWe expect a cumulative 85% to 90% up to $300 million in savings by the end of 2022 with the balance coming in 2023.\nThe bottom of the page shows the progress we've made across the different areas of synergy delivery, with the most notable progress coming from direct material initiatives in procurement as well as I2V.\nIn addition, we're starting to see some of the initial wave of savings from our footprint actions, and we expect these savings to ramp into 2022.\nOn the right side of the page, we did want to highlight that despite the headwinds we have seen on the cost side, largely coming from direct material and logistics as well as some of the expected return of onetime and discretionary costs and strategic growth investments, we do continue to expect to be positive from a price versus cost perspective on a total year basis.\nThis is entirely due to the team's use of IRX to proactively implement and deploy targeted pricing actions in the first half of the year.\nIn addition, we continue to evaluate the overall landscape, particularly with regards to inflation, and are evaluating potential incremental pricing actions for the second half of the year.\nOverall, we expect to achieve further adjusted EBITDA margin expansion for the total company in the second half of the year, although not at the same levels we delivered in the first half.\nAnd moving to Slide 12.\nStarting with Industrial Technologies and Services.\nOverall, organic orders were up 41% and revenue up 17%, leading to a book-to-bill of 1.15.\nIn addition, the team delivered strong adjusted EBITDA of 41% and adjusted EBITDA margin of 24.7%, up 250 basis points year-over-year, with incremental margin of 34%.\nLet me provide more detail on the order performance.\nStarting with compressors, we saw orders up in the mid-40%.\nA further breakdown into oil-free and oil-lubricated products shows that orders for both were up above 40%.\nFrom a regional split for orders on compressors, in the Americas, North America performed strong at up low 40%, while Latin America was up in the mid-70%.\nMainland Europe was up low 50%, while India, Middle East, saw continued strong recovery with order rates up in excess of 100%.\nAsia Pacific continues to perform well with orders up low 30% driven by low 30% growth in both China and high 20% across the rest of Asia Pacific.\nFrom a vacuum and blower perspective, orders were up in mid-40s, on a global basis with strong double-digit growth across each of our regions.\nIn power tools and lifting, the total business was up high 50% in orders and so continued positive growth driven mainly by our enhanced e-commerce capabilities and improve execution on new product launches.\nOn the right-hand side, we're highlighting one of our new exciting products, which is a result of our continued commitment to organic investments in our portfolio.\nIn this case, during Q2, we completed the launch of our new line of refrigerated drive portfolio.\nThat's a bit of a background.\nThe basic function of the air dryer is to remove moisture from the air by cooling it with a refrigerant.\nDoes the water vapor is condensed and the air can be easily compressed.\nThe result is dry compressed air, which can be used in compressed air equipment without causing any damage.\nAir dryer technology is sold as an accessory to all rotary oil-lubricated and oil-free air compression technology.\nSo it is a great adjacent technology that increases the total quality of air provided to the customer.\nThis is a very important requirement, especially in oil-free compression where customers demand high air quality in terms of dryness and particulate.\nIt is also good to note that it is a great aftermarket generator as the filters or desiccant need to be changed often.\nIn this case, we leverage a technology developed at [Indecipherable], which was accompanied owned by legacy Ingersoll Rand.\nSince the merger of Gardner Denver and IR, not only we have accelerated our organic investments in new products [Indecipherable], but we're now leveraging the technology in order to serve Gardner Denver, Ingersoll Rand and in the future, even our champion compressor customers.\nThe even more exciting piece here is that we're doing this while helping the environment.\nThis new driver portfolio is 20% more energy-efficient and reduces greenhouse gas emissions by over 50%.\nMoving to Slide 13 and the Precision and Science Technology segment, overall, organic orders were up 20% driven by, i.e., the Medical and Dosatron businesses, which serve lab, life science, water and animal health markets.\nThese businesses were up double digits.\nAnd we also saw strong performance in our ARO and Milton Roy product lines.\nThe momentum in our Haskel Hydrogen Solution business continues to build, and we saw some strong funnel activity.\nRevenue was up 12% (sic) [13%] organically, which is encouraging, as we have some tough comps due to COVID-related orders and revenue in Q2 2020 for the Medical business.\nAdditionally, the PST team delivered strong adjusted EBITDA of $71 million, which was up 20%.\nAdjusted EBITDA margin was 30.7%, up 40 basis points year-over-year, with incremental margins of 33%.\nToday, we want to highlight our hydrogen refueling business to give you an update on where we are and investments we're making.\nAs we have discussed before during our Q4 earnings call, we made investments in developing a hydrogen dispensing unit leveraging our Haskel high-pressure technology, and we're now ready to capture the growth in this business.\nWe have line of sight to about $45 million in organic investments over the next five years to both build out our capacity and fund ongoing product development in the hydrogen refueling space, with approximately $10 million of this investment expected in the next 12 months.\nSince our last call, we have seen our funnel grow 3 times to over $250 million in potential projects.\nAnd we still feel confident that this is a business where we will see meaningful growth for years to come, driving our decision to expand two of our factories in Europe to support anticipated growth.\nIn addition, we want to highlight that Ingersoll Rand is designing and developing a state-of-the-art hydrogen refueling stations to support the power and remote joint venture.\nMoving to Slide 14.\nGiven the comp performance in Q2 and continued strong outlook, we're increasing guidance for 2021.\nOur guidance excludes both the High Pressure Solutions and the Specialty Vehicle Technology segments as well as the pending acquisition of Seepex and Maximus.\nOur prior revenue guidance was up low double digits on a reported basis, comprised of high single-digit organic growth across both of our segments.\nAnd we're now open guiding up to be mid-teens in total with low double-digit organic growth across both segments.\nThis reflects approximately 250 to 300 basis point growth in organic growth for the total company as compared to prior guidance.\nFX is expected to continue to be a low single-digit tailwind, and based on these revenue assumptions, we're increasing 2021 adjusted EBITDA guidance to $1.15 billion to $1.18 billion, which represents approximately a $30 million improvement from power guidance at the midpoint of the range.\nWe also highlight that these also includes the increased corporate cost of approximately $6 million per quarter for both Q3 and Q4 as compared to prior guidance, as mentioned on the right-hand side of the slide.\nIn terms of cash generation, we expect free cash flow to adjusted net income conversion to remain greater than or equal to 100%.\ncapex is expected to be approximately 1.5% of revenue.\nAnd finally, we expect our adjusted tax rate for the year to be approximately 20%, and this does include a $35 million benefit due to a tax restructuring plan that was recently completed, that is reflected approximately 40% in the Q2 rate with the balance in the second half of the year.\nMoving now to Slide 15.\nAs we wrap today's call, Ingersoll Rand brand is in an outstanding place.\n2021 is poised to be a great year.\nWe take our role as sustainably minded industry leader seriously, and our employees eagerly embrace IRX to put us in that leadership position.\nI am confident we will continue to transform Ingersoll Rand and deliver increased value to all of our shareholders.",
        "summary": "raising fy 2021 adjusted ebitda guidance to $1.15 billion to $1.18 billion.\nsees full-year 2021 revenue growth expectation to mid teens."
    },
    {
        "text": "All such statements should be evaluated together with the safe harbor disclosures and the risks and other uncertainties that affect our business, including those discussed in our Form 10-K and other SEC filings.\nActual results may vary materially from the assumptions presented today.\nThese results exclude certain non-operating and non-recurring items, including, but not limited to, asbestos-related charges, restructuring, asset impairment, acquisition-related items and certain tax items.\nAll adjustments in the quarter and expected for the full year 2021 are detailed in the reconciliations in the appendix.\nBefore we begin, I'd like to provide a brief overview of our first quarter GAAP results compared to prior year.\nQ1 revenue increased 5.3% to $698 million.\nSegment operating income increased 52.5% to $119 million, and reported earnings per share increased 4.2% to $0.99.\nI continue to be extremely proud of the way our teams have responded to the crisis.\nYour hard work is the reason why ITT has been able to effectively serve our customers throughout the pandemic.\nEarlier this week, I spoke to our colleagues in India.\nBefore we discuss our quarterly results, let's spend a minute recapping how we got where we are today.\nThis is important as it sets the foundation on which Q1 results are based.\nThe health of our people has been our top priority from day 1.\nEarly in the pandemic, we implemented Ready, Safe, Go across ITT.\nThis allowed us to safely and effectively serve and support our customers faster than our competitors.\nWe further strengthened our balance sheet through smart cash management.\nToday, we have nearly $1.5 billion of liquidity at our disposal.\nMoody's recognized our cash performance with an upgrade to our credit rating in the third quarter.\nEarly on, we executed a plan to significantly lower our fixed costs.\nThis resulted in structural reductions in 2020 of nearly $65 million.\nOur productivity and cost actions helped to offset the impact of materially lower volumes in 2020.\nToday, we continue to drive footprint optimization and sourcing excellence at both Industrial Process and Connect and Control Technologies, while remaining diligent on cost controls.\nThis has resulted in a step-up in profitability above 2019 levels.\nAll the actions taken over the past year, combined with ITTers collective commitment and grit, have positioned us well to win in the recovery.\nWe will continue to invest in innovation and growth, including important green projects to become a more sustainable ITT.\nWe are aggressively and diligently pursuing acquisitions in our core markets to put our cash to work effectively and build on our strong businesses.\nI am invigorated by the progress across our businesses and the momentum, which is accelerating.\nNow moving to Q1.\nWe delivered a strong quarter and an encouraging start to 2021.\nLet's get into it.\nITT's first quarter sales were higher than 2019.\nOrganic sales in Motion Technologies were up 17% after 10% organic sales growth in the fourth quarter of 2020.\nThe new auto platforms that we won and Friction's ability to deliver for our customers drove 1,500 basis points of outperformance versus global auto production.\nAnd we secured positions on 9 new platforms with EV content during the quarter, 8 of which are in China, the largest automotive market in the world.\nThis is building on the 42 EV platforms wins in 2020.\nConnectors grew sales in all regions, and orders were up 20% organically with strength primarily in the distribution channel.\nThis is encouraging for Connect and Control Technologies heading into Q2.\nFrom a profitability perspective, ITT generated adjusted segment operating income growth of 27% and margin expansion of 300 basis points on 2% organic sales growth.\nIncremental margin was above 70% for the quarter.\nIP's margin was nearly 16%, driven by net productivity as we continue to drive supply chain improvements and better manufacturing performance.\nThis follows a 15%-plus margin performance in Q4 of 2020.\nAs a result of the revenue growth and margin expansion, ITT delivered adjusted earnings per share of $1.06, a sequential and year-over-year increase.\nEven more telling is the fact that earnings per share was $0.15 above the first quarter of 2019.\nFree cash flow was up 70%, representing a margin of nearly 16%.\nOn capital deployment, we repurchased ITT shares totaling $50 million early in Q1, executing on our repurchase plan and achieving half of our full year plan of $100 million.\nAs a result of our strong Q1 performance and our confidence in ITT's ability to outperform, we are raising our outlook for 2021 across all facets of our guidance.\nOn organic sales, we now anticipate growth of 5% to 7%, a 300 basis point increase on both the low and high end of our original guidance.\nThis is driven by continued share gains in Motion Technologies amid the broader auto market recovery, stronger growth in Connectors and demand in the Industrial Process short cycle.\nOn adjusted earnings per share, the increased sales volume and the strong productivity expected in 2021, combined with the carryover impact of our 2020 cost actions, will generate earnings per share in the range of $3.80 to $4 at the high end, which equates to 19% to 25% growth versus prior year.\nThis is a $0.30 improvement at the midpoint from our prior guidance and puts ITT on pace to surpass 2019 EPS.\nFrom a top line perspective, Motion Technologies delivered a solid performance driven by strong auto growth and continued share gains in our 3 main regions.\nOur Friction OE business grew nearly 30% organically with impressive 42% growth in North America.\nWe drove high single-digit organic growth in Connectors, mainly through distribution.\nTogether with Ryan Flynn, our CCT President, in April, I visited our U.S. distributors and sales representative in the Northeast and on the West Coast to work on our ongoing initiatives.\nWe saw clearly that we have many opportunities to grow this business from a product and customer service standpoint.\nAnd while some of the Q1 growth may have been due to pent-up demand, especially in North America, our dedicated teams continue to work on the optimal commercial actions to gain market share.\nOur focus on operational excellence produced 280 basis points of net productivity in Q1.\nThese included $50 million of savings from our 2020 cost actions.\nIndustrial Process grew margin 450 basis points to 15.8% despite a 12% organic sales decline.\nAnd Motion Technologies expanded margin nearly 300 basis points to 20.6%.\nThis included triple-digit margin expansion at both KONI and Wolverine.\nThis quarter, I was fortunate to visit our world-class Friction plant in Barge, Italy.\nI saw firsthand the continuous improvement in plant productivity.\nOur team there has improved its processes to increase machine utilization and to respond more quickly to ever-changing order patterns from customers impacted by supply chain challenges.\nThe strong MT and IP performances offset Connect and Control Technologies' margin decline driven by the pandemic's impact on aerospace.\nRising raw material costs partially offset the strong productivity.\nThe impact was 100 basis points this quarter, substantially higher than what we were expecting.\nWe believe this trend will continue to affect our results for the remainder of 2021.\nEmmanuel will speak further about this in a moment.\nWe continue to reinvest in our businesses to drive future organic growth.\nWe are funding the most promising growth initiatives in key markets, including EVs, to ensure we keep winning in the marketplace.\nWhen I was in Barge, I also saw the expansion of our state-of-the-art Friction R&D center, including the testing and fast prototyping capabilities, which will be powered by solar panels later this year.\nThis smart growth investment drove roughly 50 basis point impact this quarter.\nRounding out the story of the quarter with free cash flow, we saw a substantial improvement in Q1.\nThis was mainly driven by higher operating income generation in the segment and slightly lower capex.\nOur plan for the year still assumes approximately $100 million of capex, an increase of over 50% relative to 2020.\nIn summary, ITTers around the world delivered a strong performance.\nWe drove positive organic growth at an incremental margin of over 70%.\nWe generated nearly 300 basis points of productivity and invested in ITT's future.\nWe repurchased ITT shares worth $50 million and raised our dividend 30%, the ninth consecutive dividend increase.\nAnd we surpassed 2019 first quarter results in revenue, segment margin, earnings per share and free cash flow.\nLet me begin with Motion Technologies.\nQ1 organic revenue growth of 17% was primarily driven by strength in auto.\nOur strong momentum from last year carried forward as Q1 grew 5% sequentially over Q4 2020.\nFriction OE grew 29% organically, and we outperformed global auto production by 1,500 basis points.\nSegment margin expanded 280 basis points versus prior year and 110 basis points versus Q4 2020.\nThis was mainly due to higher volumes and productivity benefits, partially offset by higher commodity costs.\nWe are very pleased with the performance at KONI and Wolverine.\nBoth delivered triple-digit margin expansion from operational efficiencies and higher volumes, and we continue to see more room to grow these margins.\nFor Industrial Process, revenue was down 12% organically, driven by short-cycle declines, primarily in oil and gas and chemical markets.\nHowever, we continue to see steady sequential progress in short-cycle orders with 9% sequential growth from Q4 and a strong book-to-bill of 1.1.\nWe continue to see healthy customer quoting activity, especially in the Middle East and North America.\nIn fact, we have seen sequential strength versus the lower Q4 bookings.\nHowever, this quarter, we saw sales and order declines as large project spend continues to be slow.\nIP margin expanded 450 basis points to a segment record of 15.8%.\nThis represents $6 million of operating income growth on $25 million of lower sales.\nMargin expansion was driven mainly by productivity benefits, including our global sourcing performance, significant cost actions taken in 2020 and favorable nonrecurring items, which collectively more than offset the decline in volume.\nAs an example of our progress in IP, when we visited our Seneca Falls site last month, we were really pleased to see the strategies deployed by the manufacturing and engineering teams to reduce machining bottlenecks and accelerate output.\nWe continue to drive further footprint optimization.\nAnd this quarter, we announced a third consolidation project in IP.\nLastly, in Connect and Control Technologies, we generated sustained orders progress.\nOur Connector business was up 20% versus prior year and up 3% sequentially, driven by continued North American distribution strength.\nAs expected, sales in aerospace continued to be weak on lower OE production and commercial passenger traffic.\nWe expect that aero demand will remain low in Q2, but will begin to pick up in the second half of 2021.\nCCT margin decline was the result of lower volumes, partially offset by the benefits of our aggressive cost structure reset in 2020.\nAs Luca mentioned, we are seeing early signs of performance improvement in CCT as we deploy MT's operational excellence playbook from shop floor productivity and improved on-time delivery to customer intimacy.\nAnd we delivered a much improved 29% decremental margin in Q1.\nAs a reminder, for both our CCT and IP businesses, the impact of the COVID-19 pandemic was minimal until early Q2 2020.\nWe expect favorable compares to peak in Q2.\nJust a few additional comments on earnings per share for the quarter.\nIn addition to lower corporate costs, we also saw a benefit from both the CARES Act and foreign currency.\nPartially offsetting the share count benefit was a roughly $0.01 headwind from a higher-than-planned effective tax rate of 22%.\nOur end markets are continuing to show signs of recovery.\nGlobal auto production is increasing, albeit constrained by the global semiconductor shortage causing inventory levels to remain relatively low.\nWe expect that demand will continue to be strong in the next few quarters, especially in North America and Europe despite headwinds related to supply chain challenges and rising raw material costs.\nWeekly run rates in our short-cycle businesses, primarily in Industrial Process and Connectors, showed encouraging signs of recovery in Q1, and April orders are in line with expectations.\nWe believe that there is some pent-up demand from 2020 that has carried over into 2021.\nGiven our Q1 performance and momentum in certain end markets, our outlook is more favorable than we anticipated in February.\nWe expect that Connectors growth as well as the stronger growth in Friction stemming from continued share gains in auto will be partially offset by declines in pump project activity and commercial aerospace.\nOur assumption is that commercial aerospace may begin to recover in the second half of the year as passenger air traffic continues to increase.\nWe are not anticipating a recovery in oil and gas in 2021, consistent with our initial outlook.\nThe increase in adjusted segment margin expansion by 40 basis points across our range reflects our expectations for higher volumes and continued productivity generation in addition to the stronger-than-planned margin expansion from Q1.\nWe expect this will be partially offset by inflation and higher raw material costs, driven by steel, copper and to a lesser extent, tin.\nAs you will see on Slide 7, our revised guidance assumes the incremental impact from this global trend will be $0.25 to $0.30 for the remainder of 2021.\nHowever, we remain optimistic in our team's ability to continue to mitigate this impact through strategic pricing and demand generation.\nWe will continue to monitor this closely throughout the year.\nOur revised earnings per share guide reflects a $0.30 improvement at the midpoint of our range to $3.90, which would put us $0.09 above 2019.\nSome other items to note.\nGiven the strengthening of the U.S. dollar, the foreign currency benefit contemplated in our guidance is less than originally planned.\nOur 4-year effective tax rate is now expected to be approximately 22%.\nThis will likely be partially offset by a slightly higher benefit from share repurchases given the execution in Q1.\nOur guidance also continues to assume a reduction of approximately 1% in our 4-year weighted average share count.\nWe are raising our free cash flow guidance by $25 million at the midpoint to reflect the impact of higher operating income, and we now expect free cash flow margin of 11% to 12%.\nOur higher growth outlook will require further working capital investment.\nHowever, we expect working capital to continuously decline as a percent of sales during the year and over the long term.\nOn Slide 7, let's look at the components of our revised 2021 adjusted earnings per share guidance.\nAs you can see, the majority of our earnings growth will be generated by stronger volumes and net productivity, partially offset by the incremental headwinds from rising raw material costs and our continued investment for growth.\nThe deltas in the second quarter will likely look incredibly strong given the pandemic impact in Q2 of 2020.\nOrganic sales growth is expected to be above 20%, driven by MT's strong performance and an easy 2020 compare.\nThis will be partially impacted by the global semiconductor chip shortage.\nThe other segments are each expected to grow mid-single digits with anticipated strength in IP's short cycle.\nOur outlook for CCT has improved, given the strong organic sales and orders growth in Connectors in Q1.\nThe margin expansion is expected to be several hundred basis points, driven by MT and to a lesser extent, CCT.\nFrom a total ITT perspective, adjusted segment margin should be equal or slightly above second quarter of 2019 of 16.1%, which we believe is a more representative comparison.\nThe combined impact of higher sales and strong productivity will drive significant adjusted earnings-per-share growth.\nOn a dollar basis, we expect Q2 will be slightly below the second quarter of 2019, and the second half of the year may look very similar to 2019.\nAs a reminder, Q4 of 2020 was especially strong, therefore, we will have a tough comparison in the fourth quarter.\nWith that, let me pass it back to Luca for closing remarks.\nI am very pleased with ITT's results in the first quarter.\nWe see signs of a recovery in our end market, and our people continue to differentiate ITT from the competition.\nWe are leveraging and building upon the cost actions we executed in 2020 to drive solid incremental margins as sales volumes increase.\nAnd we are investing our capital effectively.\nAs we said before, Friction continues to win in the marketplace and will be the springboard for growth in 2021.\nThis performance should continue throughout the year, notwithstanding some of the macro headwinds related to supply chain and rising raw material costs that we will need to manage effectively.\nFrom an operational standpoint, we made further progress in our transformations at both Industrial Process and Connect and Control Technologies.\nI'm encouraged by what I saw during my visits over the past few months and what I heard in my conversations with employees, customers and shareholders about the strength of ITT.\nWe also appreciate the partnership with our distributors and sales reps, working as a team with ITT to deliver these results.\nWe are laser-focused on growing ITT through acquisitions while funding high-return growth investments, and the momentum is accelerating.\nOur financial health is as strong as ever, and this will allow ITT to effectively deploy our capital on all fronts.\nWe continue to deliver on our commitments, and Q1 has positioned us to surpass 2019.\nWith that, Stephanie, please open the line for Q&A.",
        "summary": "q1 adjusted earnings per share $1.06.\nq1 earnings per share $0.99.\nqtrly organic revenue up 2%.\nnow expect revenue growth of 8% to 10%, or up 5% to 7% on an organic basis for 2021.\nsees adjusted earnings per share of $3.80 to $4.00 per share for 2021."
    },
    {
        "text": "Today's call will cover ITT's financial results for the three months period ending July 3, announced yesterday evening.\nThese statements are not guarantees of future performance or events and are based on management's current expectations.\nActual results may vary materially, due to, among other items, the factors described in our 2020 Annual Report, on Form 10-K and other recent SEC filings.\nThese adjusted results exclude certain non-operating and non-recurring items, including but not limited to asbestos-related charges, restructuring, asset impairment, acquisition-related items and certain tax items.\nBefore we begin, I'll provide a brief overview of our second quarter GAAP results.\nRevenue increased 34% to $692 million.\nSegment operating income increased 206% [Phonetic] to $114 million, which equates to segment operating margin of 16.5%.\nReported earnings per share decreased 15% to $0.45, driven primarily by a $28 million after-tax loss on the divestiture of InTelCo Management LLC, formerly a wholly owned subsidiary that holds legacy asbestos liabilities and related insurance assets, as well as prior-year income tax benefits, and increased corporate and environmental costs.\nWe are all focused on ensuring ITT delivers on its commitments hour after hour, while taking care of each other, our families, and our customers.\nThis has been a pivotal quarter for ITT.\nOn July 1, we divested a subsidiary that holds all of our legacy asbestos liabilities to a portfolio company of Warburg Pincus.\nImportantly, ITT is indemnified from any further responsibility for all pending and future legacy asbestos claims.\nThis transaction follows the successful transfer of our U.S. pension liability in October 2020 and will allow us to focus more on growing the core business organically and through acquisitions.\nWe are now beginning the next chapter in ITT's history.\nOn the operational front, over the past few months, I've had the privilege of meeting our teams in person at our sites in Italy, California, the Netherlands, and the Northeast.\nI continue to be encouraged by the progress we are making, by the opportunities that remain, and by the commitment and the passion I see from our workforce.\nBefore reviewing our results, let me talk a little bit about ITT's sustainability efforts.\nIn the coming weeks, we will be releasing our 2021 Sustainability Report Supplement, which will show our commitment to environmental, social, and governance initiatives.\nIt is clear that while we have made significant progress in 2020 despite the impact of the pandemic, there is still more that we can do.\nOur employees' efforts during the pandemic to take care of each other and our customers have strengthened our resolve to continuously improve our ESG practices and this is what we will do.\nSome of our accomplishments, which you can soon read about it in the supplement, include a 25% reduction in greenhouse gas emissions and a 25% reduction in workplace incidents.\nFurther, we maintained an A rating for our ESG profile, as measured by MSCI, a recognized leader in global ESG assessment.\nNow, let's review our results for the second quarter, beginning with sales.\nFriction continued to outperform global auto production growth.\nIn fact, the outperformance we drove this quarter was significantly above our historical average.\nThe auto businesses in MT grew organic revenue nearly 80% and MT's revenue exceeded pre-COVID levels from 2019 once again this quarter.\nMore importantly, we continue to win key awards in both conventional vehicles and our new electric vehicle platforms, which will fuel future outperformance.\nThis quarter we were awarded content on 10 new electric vehicle platforms, seven of which were in China and two on key strategic platforms in the growing North American market.\nWe also continue to differentiate ourselves from the competition.\nIn July, Friction's outer ceramic brake pads sold in the aftermarket were ranked the highest among five competitors according to ADAC, Europe's largest motoring association based in Germany.\nThis is a testament to the supplier excellence and innovation of the Friction team.\nLet's get back to the quarter.\nBuilding on the first quarter momentum, our connectors business in Connect and Control Technologies grew sales by 17% organically, after 8% organic in Q1.\nWe saw continued strength in the North American distribution channel; and sequentially, industrial connectors in Q2 grew 6% versus Q1, due to distribution strength worldwide.\nWe also drove 8% organic revenue growth in Industrial Process, driven by strong pump project deliveries, which were up 52% organically in the quarter due to strength in the chemical and oil and gas markets.\nWe achieved this by remaining focused on serving our customers and ensuring we commission their projects on time, despite significant supply chain disruptions.\nTurning to orders, I'm energized by the growth our commercial teams generated this quarter across all three segments.\nIn total, we drove 47% organic orders growth across ITT with order levels surpassing 2019, positioning us well for the second half of the year and for 2022.\nFirst, Motion Technologies grew orders by 76% organically, driven mainly by auto, and we also saw a strong performance in valve [Phonetic], which grew over 20% organically.\nSecond, in Industrial Process, orders were up 18% organically and up 7% sequentially, driven by continued recovery in our short-cycle business, where orders grew 24% across parts, valves and service.\nOur pump project orders were relatively flat year-over-year.\nHowever, we are increasingly confident that project activity in the funnel is strengthening and we expect to successfully leverage this momentum in the second half.\nFinally, in CCT, orders were up 47% organically, driven largely by industrial connectors and aerospace components.\nAs we mentioned last quarter, we saw some positive signs in commercial aerospace, which we expect it will start to pick up in Q2, and we are seeing the momentum in orders today.\nFrom a profitability perspective, despite increasing pressure from commodity costs and supply chain disruptions, we delivered nearly 400 basis points of adjusted segment margin expansion, with triple-digit margin expansion in each segment.\nThis was a result of the incredible growth in volumes, I mentioned earlier, and the team's ability to generate productivity, net of inflation, while successfully navigating challenging market conditions.\nThis was aided in part by the actions we took in 2020 to reduce our structural costs.\nAs a result of the revenue growth and margin expansion, ITT delivered adjusted earnings per share of $0.94, growing 65% and surpassing our pre-COVID adjusted earnings per share levels in Q2 2019.\nGiven the strong first-half performance and our confidence in ITT's ability to outperform, we are again raising our outlook for 2021.\nWe now anticipate organic revenue growth will be 8% to 10% for the year, a 300 basis point increase on both the low- and high-end of our already increased guidance from the first quarter.\nThese will be driven by the strength in Friction, and short-cycle orders growth in both IP and CCT.\nThe increased sales volume and strong productivity expected in 2021 will generate adjusted earnings per share in the range of $3.90 to $4.05 at the high end, which equates to 22% to 27% growth versus prior year.\nThis is an $0.08 improvement at the midpoint, after a $0.30 increase after the first quarter, and this puts ITT on pace to comfortably surpass 2018 adjusted earnings per share despite significant inflationary pressure.\nFrom a top line perspective, Motion Technologies delivered a solid performance, driven by strong growth in the OE business and continued share gains despite the global chip shortage and supply chain disruptions.\nOur Friction and Wolverine OE businesses grew over 60% organically.\nAs I always do, this quarter, I traveled to a number of our facilities, including our world-class friction plant in Barge, Italy.\nHere, I saw the teams' engineering expertise on full display, which will enable us to continue winning an outsized share of global EV platforms.\nOur continued investment in automation in all our plants and hour-by-hour management allows us to continuously meet customer demand, despite constantly changing production schedules; and we continue to invest in and develop new technologies to address the needs of a new and more environmentally friendly automotive braking system.\nIn CCT, we drove nearly 19% organic revenue growth in industrial connectors, mainly through distribution, continuing the momentum we saw in the first quarter.\nDemand in commercial aerospace is increasing, exhibited by the nearly 70% growth in aerospace orders.\nThe book to bill in CCT was an impressive 1.18 for the quarter, which positions us well for the future.\nNow, moving to operating margins.\nOur focus on operational excellence produced 250 basis points of expansion in Q2 at the ITT level and 390 basis points at the segment level.\nBy segment, MT grew margin 660 basis points, Connect and Control 230 basis points with an incremental margin of 37%, and Industrial Process grew margin 100 basis points to nearly 15% once again.\nThe strong performance was a combination of higher sales volume, commercial actions and productivity, offset by raw material inflation and unfavorable mix, given the growth in pump projects and continued investments for growth, which are critical to sustain ITT's outperformance.\nRegarding raw materials' inflation, the impact this quarter was approximately 240 basis points, which was higher than what we expected.\nAnd while we are deploying pricing actions with our customers, based on current prices for material purchases for the remainder of 2021, we expect this phenomenon will have a significant impact in the second half.\nFree cash flow for the quarter was impacted by the sale of our legacy asbestos liabilities.\nExcluding this one-time non-recurring item, adjusted free cash flow was $131 million.\nThe decline compared to prior year was the result of higher operating income generation in the segments that was more than offset by strategic investments in working capital to support growing customer demand.\nWrapping up, our ITTans [Phonetic] around the world delivered another outstanding performance in Q2.\nOrganic growth was strong across all three segments and we converted to higher sales at good margins.\nWe generated over 400 basis points of productivity while investing for future growth and successfully navigated challenging market conditions; and our nearly 50% organic growth in orders position ITT for a strong second half.\nMotion Technologies' Q2 organic revenue growth of 64% was primarily driven by strength in auto.\nAs you know, the second quarter of last year was down significantly, due to the pandemic.\nHowever, Friction continued to outperform global auto production by a very wide margin.\nAnd from an operating standpoint, our OE business performed very well, with 99%-plus on-time performance.\nThis was a key reason MT's revenue eclipsed pre-COVID levels in the second quarter of 2019 by 8%.\nThe strong orders growth in MT, this quarter, was a combination of both auto and valve, where we continue to gain share.\nSegment margin expanded 660 basis points versus prior year to 18.8%, mainly due to higher volumes and productivity, offset by the impact of higher raw material costs for steel, tin, and copper.\nAs we indicated last year, MT's margins declined sequentially in the second quarter, given the increasing commodities pressure.\nHowever, MT delivered almost 30% incremental margin, in spite of these headwinds.\nWolverine sales growth was over 60%, driven by OE shims in North America and Europe, and in sealings, while KONI grew by double digits organically.\nMargins in Wolverine, KONI and Axtone were all double digits in the quarter.\nFor Industrial Process, revenue was up 8% organically.\nThis was driven partially by an easy prior-year comparison, stemming from steep declines in project shipments, which resulted in over 50% revenue growth this quarter.\nWe also saw minor short-cycle declines, driven by lower service sales and flat growth in baseline pumps, due to the materials' shortage.\nAs we have indicated, given the order trends we see across IP, we continue to expect the short-cycle businesses to accelerate in the second half.\nFrom an end market perspective, growth was spread across general industrial, oil and gas, and chemical markets.\nIP grew 18% organically and 7% sequentially, due to the short cycle; namely, parts, valves and service.\nOur daily order rates continue to be strong into the third quarter.\nOrders in all product categories, except baseline pumps, were above 2019 levels, and the month of June was our largest month of project orders since 2015.\nWe believe this positions us well for the remainder of 2021.\nIP's margin expanded 100 basis points to 14.7%, with an incremental margin of 24%.\nThis was partially impacted by unfavorable mix, given the higher proportion of project versus short-cycle sales.\nWe expect the mix to improve from here as short cycle continues to recover.\nLastly, in Connect and Control Technologies, we continued to turn the corner with incremental margins of 37% this quarter.\nThis was the result of continued volume leverage and strong productivity, despite inflationary headwinds and continued declines in commercial aerospace, while OE production continues to improve our largest aerospace customers and managing through elevated inventory levels on key platforms which will delay a significant recovery in aero components demand until 2022.\nSimilar to the rest of ITT, orders growth was incredibly strong, driven by our connector business, with continued North American distribution strength and growth in aerospace OE and aftermarket.\nThe book to bill was largely above 1 and backlog was up 16% compared to year-end 2020, which again position us well heading into 2022.\nBefore we move on, just a few additional comments on earnings per share for the quarter.\nAs you can see on the Q2 adjusted earnings per share walk on Slide 11, the year-over-year comparisons were negatively impacted by prior-year benefits, related to environmental, temporary cost actions, and CARES Act credits.\nPartially offsetting these items was a roughly $0.03 benefit from foreign currency, consistent with our outlook, and a roughly $0.01 benefit from a lower-than-planned effective tax rate of 21.5%.\nOn July 1, ITT divested 100% of its equity of a subsidiary that holds legacy asbestos liabilities and related insurance assets to Delticus, a portfolio company of Warburg Pincus.\nAt closing, ITT contributed $398 million in cash and Delticus contributed $60 million in cash to InTelCo.\nAs a result of the transaction, ITT removed all asbestos obligations, related insurance assets, and associated deferred tax assets from our consolidated balance sheet as of the second quarter.\nThe benefits of this transaction include the indemnification for all legacy asbestos liabilities and stronger free cash flow generation in the absence of asbestos-related payments that we previously estimated at $20 million to $30 million per year on average over the next 10 years, prior to the divestiture.\nAdditionally, the transaction freeze up management time and resources to focus more on growing the core business and executing other more strategic initiatives, including ESG and M&A.\nCoupled with our successful U.S. pension plans transfer executed in October 2020, we are well positioned to grow with a flexible balance sheet and without the risks and uncertainty of managing these legacy liabilities.\nAs we saw in Friction's results, global auto production is increasing, albeit constrained by the global semiconductor shortage which is causing inventory levels to remain low.\nAnd while we expect demand will remain strong throughout 2021, the impact of higher raw material prices will weigh on margins and adjusted earnings per share during the second half.\nThe growth we're seeing in IP orders is mainly in short cycle.\nOn projects, however, we continue to expect the large project spend, particularly in oil and gas, will not fully recover until 2022.\nIn the meantime, we're seeing continued momentum in weekly run rates in our short-cycle businesses in Industrial Process and connectors, which we believe will drive organic revenue growth to a new range of 8% to 10% for the year.\nOur assumption regarding commercial aerospace is that a substantial recovery will not occur until early 2022, given the level of inventory at our largest OE customers.\nHowever, we see encouraging signs in orders, as production levels continue to increase.\nOur outlook for adjusted segment margin remains at approximately 17.1% at the midpoint.\nWe expect a pronounced impact from raw material inflation, mainly in Motion Technologies.\nHowever, our teams are driving commercial actions and additional productivity to minimize the impact.\nWe're planning for raw materials to remain at these elevated levels throughout 2021.\nAs you will see on Slide 7, our revised guidance assuming the incremental impact from this trend will be $0.09 at the high-end for the remainder of 2021.\nOur revised adjusted earnings per share guidance reflects an $0.08 improvement at the midpoint of our range, eclipsing 2019 levels and our previous high end.\nThe net impact of all other items is roughly $0.01 benefit to full-year adjusted EPS, including a slightly lower-than-planned effective tax rate.\nForeign currency and other items will be a minor benefit, compared to our previous guidance.\nAnd we continue to expect a 1% reduction in the weighted average share count, given our share repurchases to date.\nAdditionally, we are raising our adjusted free cash flow guidance by $5 million at the low- and high-ends of our previous range to reflect the higher operating income generated in the first half, offset by further working capital investments to support future growth, especially given the supply chain disruptions we are experiencing today.\nIn summary, we are again raising our outlook for 2021 across sales, earnings and free cash flow.\nAnd with this raise, we now expect to eclipse 2019 levels in terms of adjusted segment margin and adjusted earnings per share.\nAs you can see, the majority of the improvement in adjusted earnings per share is operational in nature.\nThe higher volumes will likely be partially offset by incremental headwinds from rising raw material costs, which we have already discussed; the remaining changes to our outlook are rather immaterial.\nFrom an end market perspective, the trends we saw in the second quarter have remained largely consistent throughout July.\nAuto and the short cycle businesses in IP continue to perform well and CCT remains comfortably on path to recovery from both a sales and margin perspective.\nOn the other hand, our outlook reflects increased commodity pressure and we do not see any near-term improvements related to the supply chain.\nOrganic sales growth is expected to be in the mid-teens range, driven by growth across the portfolio and led by MP's strong performance.\nIP and CCT should both improve to approximately high-single-digit organic growth, driven by short cycle.\nSegment margin should be approximately flat sequentially to Q2 and above prior year, even with the significant raw material headwinds we anticipate primarily in MT. This negative impact on MT's margin will largely be offset by margin improvements in CCT, followed by Industrial Process.\nDespite the margin challenges in Q3, we still expect all three businesses to be up over 100 basis points for the full year, which will eclipse ITT's segment margin for 2019.\nThe combined impact of higher sales and strong productivity will drive adjusted earnings-per-share growth in the low- to mid-teens.\nWith that, let me pass it back to Luca for closing remarks.\nITT continues to execute on its strategic priorities to position the company for long-term success.\nThe actions we took to eliminate our legacy asbestos liabilities will allow our teams to drive better growth in the core and up our game in capital deployment.\nWe are now even more laser-focused on growing ITT organically and through acquisitions while funding high-return growth investments, given our capital flexibility and strengthened cash flow profile.\nWe continue to outperform across all our businesses and we see encouraging signs in our orders growth, which will position us well for the remainder of 2021, 2022 and beyond, and simultaneously [Phonetic] continue to drive strong cash generation through increased income and effective working capital management.\nThe second half of 2021 will be challenging, given the supply chain disruptions, commodities pressure and emergence of COVID variant around the world.\nHowever, I'm confident in ITT's ability to navigate these headwinds effectively, and drive growth and profitability, while leveraging our optimized cost structure and doing it all in a safe sustainable and efficient manner.\nCrystal, please open the line for Q&A.",
        "summary": "itt q2 earnings per share $0.45.\nq2 earnings per share $0.45.\nsees fy adjusted earnings per share $3.90 to $4.05.\nq2 adjusted earnings per share $0.94 excluding items."
    },
    {
        "text": "I'm joined by our Chairman and CEO, Scott Santi; and our Vice Chairman, Chris O'Herlihy.\nSenior Vice President and CFO, Michael Larsen, is recovering from a sports-related injury and is not available to participate in today's call.\nDuring today's call, we will discuss ITW's second quarter financial results and update our guidance for the full year 2021.\nIn the second quarter, we saw continued recovery momentum across our portfolio, and we delivered strong operational execution and financial results.\nRevenue was up 43% with organic growth up 37%, and we saw double-digit growth in every segment and geography.\nEarnings per share of $2.45 was up 143%, 108% if you exclude the onetime tax benefit of $0.35 that we recorded in the quarter.\nIn this strong demand environment and in the face of very challenging supply conditions, our teams around the world leveraged our long-held close to the customer manufacturing and supply chain approach, and the benefits of staying fully staffed and invested through our winter recovery positioning, to continue providing world-class service levels to our customers while also continuing to execute on our long-term strategy to achieve and sustain ITW's full potential performance.\nWe're certainly encouraged by our organic growth momentum as order intake rates remained pretty much strong across the board.\nAnd during the second quarter, we saw multiple examples of how our ability to sustain our differentiated delivery capabilities by remaining fully invested through the pandemic resulted in incremental share gain opportunities for our businesses.\nWhile there's no doubt that the raw material supply environment is as challenging as we have experienced in a long time, maybe ever in my 38 years at ITW, we are as well positioned as we can be to continue to set ourselves apart through our ability to respond for our customers.\nWe've worked hard over the last nine years to position ITW to deliver differentiated performance in any environment, and I have no doubt that the ITW team will continue to execute at a high level as we move through the balance of the year and beyond.\nNow for some more detail on our performance in the second quarter.\nAs I mentioned, organic growth was 37% with strong performance across our seven segments.\nThe two segments that were hardest hit by the pandemic a year ago led the way this quarter, with Automotive OEM up 84% and Food Equipment up 46%.\nBy geography, North America was up 36% and international was up 38%, with Europe up 50% and Asia Pacific up 20%.\nGAAP earnings per share of $2.45 was up 143% and included a onetime tax benefit of $0.35 related to the remeasurement of net deferred tax assets in the U.K. due to a change in the statutory corporate tax rate there.\nExcluding this item, earnings per share of $2.10 grew 108%.\nIt was a Q2 record and was 10% higher than in Q2 of 2019.\nOperating income increased 99% and incremental margin was 40% at the enterprise level.\nOperating margin of 24.3% improved 680 basis points on strong volume leverage, along with 150 basis points of benefits from our enterprise initiatives.\nYear-to-date, our teams have delivered robust margin expansion, with incremental margins for our seven segments ranging from 37% to 48%, inclusive of price/cost impact.\nSpeaking of price/cost, price/cost headwind to margin percentage in the quarter was 120 basis points.\nWhile the pace of raw material cost increases accelerated in the second quarter, our businesses have been active in implementing pricing actions in response to rising raw material costs since early in the year, consistent with our strategy to cover raw material cost inflation with price adjustments on a dollar-for-dollar basis.\nIn Q2, we ended up just short of that goal due to some timing lags, and as a result, net price/cost impact reduced earnings per share by $0.01 in the quarter.\nWe continue to expect price/cost impact to be EPS-neutral or better for the year, and I'll come back and provide more color on the price/cost environment a little later in my remarks.\nIn the quarter, after-tax return on invested capital was a record at 30.8%.\nFree cash flow was $477 million, with a conversion of 72% of net income when adjusted for the onetime tax benefit I mentioned earlier.\nAnd that was due to the additional working capital investments necessary to support our strong organic growth.\nWe continue to expect approximately 100% conversion for the full year.\nWe repurchased $250 million of our shares this quarter as planned.\nAnd finally, our tax rate in the quarter was 10.1% due to the onetime tax benefit.\nExcluding this item, our Q2 tax rate was 23%.\nNow moving to Slide four for an update on price/cost.\nWe continue to experience raw material cost increases, particularly in categories such as steel, resins and chemicals and now project raw material cost inflation at around 7% for the full year, which is almost five percentage points higher than what we anticipated as the year began.\nAnd just for some perspective, this is roughly 2 times what we experienced in the 2018 inflation tariff cycle.\nWe learned a lot from that experience.\nAnd as a result, the timeliness and pace of our price recovery actions are well ahead of where we were in 2018.\nAs I mentioned, we expect price/cost impact to be EPS-neutral or better for the full year, with pricing actions more than offsetting cost increases on a dollar-for-dollar basis.\nPrice/cost will continue to have a negative impact on our operating margin percentage, however, in the near term, as we saw in Q2, and that impact will likely be modestly higher in Q3 versus Q2 before it starts to go the other way.\nFor the full year, we expect price/cost impact to be dilutive to margin by about 100 basis points, which is 50 basis points higher than where we were as of the end of Q1.\nThat being said, margin benefits from enterprise initiatives and volume leverage will provide us with ample ability to offset the negative effect of price/cost on margin percentage and deliver strong overall margin performance for the year.\nAnd beyond the near-term price/cost impact, we remain confident that we have meaningful additional structural margin improvement potential from the ongoing execution of our enterprise initiatives.\nStarting on Slide five, the table on the left provides some perspectives on the growth momentum in our businesses with a look at sequential revenue from Q1 to Q2.\nAs you would expect, the pace of recovery in our Auto OEM segment has been dampened by the well-publicized shortage of semiconductor chips despite very strong underlying demand.\nAnd for that reason, we added a row to the table to show portfolio demand trends ex Auto.\nOur Q2 revenue ex Auto increased 8% versus Q1.\nThis year, Q2 had one more shipping day than Q1, so on an equal days basis, our Q2 versus Q1 revenue growth ex Auto is 6%, which is 2 times of our normal Q2 versus Q1 seasonality of plus 3%.\nIn addition, we added more than $200 million of backlog in Q2.\nBoth of these factors show that demand accelerated meaningfully in Q2 across our portfolio.\nSo let's go to a little more detail for each segment, starting with Automotive OEM.\nDemand recovery versus prior year was most evident in this segment with 84% organic growth.\nThis, of course, was against easy comps versus a year ago when most of our customers in North America and Western Europe were shut down from mid-March to mid-May.\nNorth America was up 102%, Europe was up 106% and China up 20%.\nWe estimate that the shortage of semiconductor chips negatively impacted our sales by about $60 million in the quarter.\nOperating margin of 18.8% was up 26.6 percentage points on volume leverage and enterprise initiatives.\nPrice/cost with a significant headwind of more than 200 basis points due to the longer cycle time required to implement price recovery actions in this segment.\nGiven the ongoing semiconductor chip supply uncertainty, we now expect full year organic growth in Automotive to be approximately 10% versus our original range of 14% to 18% at the beginning of the year.\nTo be clear, this is not lost revenue but simply delayed into next year.\nFurthermore, the slower-than-expected growth in Auto is offset by strength elsewhere in the enterprise.\nIn Food Equipment, organic revenue rebounded 46%, with recovery taking hold across the board and the backlog that is up significantly versus prior year.\nNorth America was up 39% with equipment up 42% and service up 33%.\nInstitutional revenue was up more than 30%, with healthcare and education growth in the low to mid-30s and lodging up in the mid-20s.\nRestaurants were up about 60% with the largest year-over-year increases in full service and QSR.\nRetail grew in the mid-teens on continued solid demand and new product rollouts.\nInternational recovery was also robust at 58%, with Europe up 66% and Asia Pacific up 29%.\nEquipment sales were strong, up 66% with service growth of 39%, which continued to be impacted by extended lockdowns in Europe.\nOperating margin was 22% with an incremental of 46%.\nTest & Measurement and Electronics revenue of $606 million was a Q2 record with organic growth of 29%.\nTest & Measurement was up 20%, driven by solid recovery in customer capex spend and continued strength in semicon.\nElectronics grew 38%, continued strength in consumer electronics and automotive applications and the added benefit in timing of some large equipment orders in electronic assembly.\nOperating margin of 28.1% was 240 basis points -- was up 240 basis points and a Q2 record.\nMoving to Slide seven.\nWelding growth was also strong in Q2 at 33%.\nEquipment revenue was up 38% and consumables growth of 25% was the first time in positive territory since 2019.\nOur industrial business grew 52% on increased capex spending by our customers, and the commercial business remains solid, up 26%, following 17% growth in the first quarter.\nNorth America was up 38% and international growth was 13%, primarily driven by recovery in oil and gas.\nPolymers & Fluids organic growth was 28%, led by our automotive aftermarket business up 33% on robust retail sales.\nPolymers was up 34% with continued momentum in MRO applications and heavy industries.\nFluids was up 8% with North America growth in the mid-teens and European sales up low single digits.\nOperating margin was an all-time record 27.3% with strong volume leverage and enterprise initiatives partly offset by price/cost.\nMoving to Slide eight.\nConstruction organic growth of 28% reflected double-digit growth and recovery in all three regions.\nNorth America was up 20%, with 16% growth in residential renovation and with 26% growth in commercial construction.\nEurope grew 61% with strong recovery versus easy comps in the U.K. and Continental Europe.\nAustralia and New Zealand organic growth was 13%, with continued strength in residential and commercial.\nOperating margin in the segment of 27.6% was up 390 basis points and was a Q2 record.\nSpecialty organic revenue was up 17% with North America up 15%, Europe up 24% and Asia Pacific up 14%.\nOur flexible packaging business was up mid-single digits against a tougher comp than the rest of this segment.\nThe majority of our businesses were up double digits, led by appliance up more than 50%.\nConsumable sales were up 19% and equipment sales up 12%.\nLet's move on to Slide nine for an update on our full year 2021 guidance.\nWe now expect full year revenue to be in the range of $14.3 billion to $14.6 billion, up 15% at the midpoint versus last year, with organic growth in the range of 11% to 13% and foreign currency translation impact of plus 3%.\nThis is an increase in organic growth of one percentage point at the midpoint versus the updated guidance that we provided at the end of Q1, driven largely by the incremental revenue impact of pricing actions implemented in Q2 in response to accelerating raw material cost increases.\nWe are raising our GAAP earnings per share guidance by $0.35 to a range of $8.55 to $8.95 to incorporate the onetime tax benefit realized in the second quarter.\nThe midpoint of $8.75 represents earnings growth of 32% versus last year and 13% over 2019.\nFactoring out the onetime Q2 tax item, the midpoint of our 2021 guidance is 10% higher than 2019.\nWith regard to margin percentage, as discussed earlier, the incremental cost increases that we saw in Q2 will result in full year margin dilution of 100 basis points versus the 50 basis points that we projected as of the end of Q1.\nAnd we are adjusting our margin percentage guidance accordingly to a range of 24.5% to 25.5%, which would still be an improvement of more than 200 basis points year-over-year and an all-time record for the company.\nAnd again, we expect zero earnings per share impact from price/cost for the full year.\nWe expect free cash flow conversion to be approximately 100% of net income, factoring out the impact of the onetime noncash tax benefit we recorded in Q2.\nThrough the first half, we have repurchased $500 million of our shares and expect to repurchase an additional $500 million in the second half.\nFinally, we expect our tax rate in the second half to be in our usual range of 23% to 24% and for a full year tax rate of around 20%.\nLastly, today's guidance excludes any impact from the previously announced acquisition of the MTS Test & Simulation business, which we expect to close later this year.\nAnd once that acquisition closes, we'll provide you with an update.",
        "summary": "compname reports q2 earnings per share of $2.45.\nq2 gaap earnings per share $2.45.\nsees fy gaap earnings per share $8.55 to $8.95.\nraising full year organic growth guidance to a range of 11 to 13 percent.\nsees full year gaap earnings per share of $8.55 to $8.95 per share."
    },
    {
        "text": "During today's call, we will discuss ITW's fourth quarter and full year 2021 financial results and provide guidance for full year 2022.\nIn Q4, the ITW team delivered another quarter of excellent operational execution and strong financial performance.\nSix of our seven segments combined delivered 12% organic growth, while our Auto OEM segment continued to be impacted by near-term limitations on auto production due to component supply shortages and, as a result, was down 16% in the quarter.\nAt the enterprise level, we delivered organic growth of 5%, GAAP earnings per share of $1.93, operating margin of 22.7%, and free cash flow of $695 million or 114% of net income.\nThroughout the entirety of 2021, our teams around the world did an exceptional job of delivering for our customers while responding quickly and decisively to rapidly rising input costs and aggressively executing our Win the Recovery strategy to accelerate profitable market penetration and organic growth across our portfolio.\nAs a result, for the full year, we generated organic growth of 12%, with each of our seven segments delivering organic growth ranging from 6% to 18%.\nAnd despite a seemingly constant barrage of input cost increases, we expanded operating margin by 120 basis points to 24.1%, with another 100-basis-point contribution from enterprise initiatives.\nGAAP earnings per share was an all-time record at $8.51, an increase of 28% versus the prior year.\nAnd in 2021, we also raised our dividend by 7%, returned $2.5 billion to our shareholders in the form of dividends and share repurchases, and closed on a very high-quality acquisition in the MTS test and simulation business.\nMost importantly, we delivered these results while continuing to drive meaningful progress on our path to ITW's full potential through the execution of our long-term enterprise strategy.\nAs you may recall, early in the pandemic, we made the decision to remain fully invested in our people and in our long-term strategy.\nThe people that we retained and the marketing, innovation, and capacity investments that we continue to fund as a result of that decision are fueling the results that ITW is delivering today and have the company very well positioned to continue to accelerate organic growth, add high-quality bolt-on acquisitions and sustain our best-in-class margins and returns in 2022 and beyond.\nTheir performance throughout 2021 provides another proof point that ITW is a company that has the enduring competitive advantages, the agility, and the resilience necessary to deliver top-tier performance in any environment.\nThe strong growth momentum that we experienced in the third quarter continued into the fourth quarter as revenue grew 5.9% year over year to $3.7 billion, with organic growth of 5.3%.\nThe MTS acquisition added 1.3% and foreign currency translation impact reduced revenue by 0.7%.\nSequentially, organic revenue accelerated by 6% from Q3 into Q4 on a sales per-day basis as compared to our historical sequential of plus 2%.\nBy geography, North America grew 9% and international was up 1%.\nEurope declined 2%, while Asia Pacific was up 7%, with China up 2%.\nGAAP earnings per share of $1.93 included $0.02 of headwind from the MTS acquisition and related transaction costs.\nOperating margin was 22.7%, 23.1% excluding MTS.\nAs expected, in the fourth quarter, we experienced price cost margin headwinds of 200 basis points, the same as in the third quarter.\nOur businesses continue to respond appropriately and decisively to rising raw material costs.\nAnd in the fourth quarter and the full year, we were positive on a dollar-for-dollar basis.\nOverall, for Q4, excellent operational execution across the board and strong financial performance in what remains a pretty uncertain and volatile environment.\nOK, let's go to Slide 4 for segment results, starting with Automotive OEM.\nAs expected, organic revenue was down 16%, with North America down 12%, Europe down 29%, and China down 3%.\nDespite these near-term pressures on the top line, operating margin was resilient and remained solidly in the mid-teens.\nWhile supply chain challenges continue to persist for the industry in the near term, we are confident that the inevitable recovery of the auto market will be a major contributor to organic growth for ITW over an extended period of time as these issues ultimately get resolved.\nFood Equipment led the way this quarter with the highest organic growth rate inside the company and 21%.\nNorth America was up 22%, with equipment up 26% and service up 15%.\nInstitutional growth of 28% was particularly strong in education and restaurants were up around 50%.\nInternational growth was strong and on par with North America at 20%, mostly driven by Europe, up 23%, with Asia Pacific, up 9%.\nBoth equipment and service grew 20%.\nTurning to Slide 5 for Test and Measurement and Electronics.\nOrganic growth was 11% with Electronics up 4% and Test and Measurement up 17% driven by continued strong demand for semiconductors and capital equipment, as evidenced by our organic growth rate of 17% in our install business.\nScott said, in December, we closed on the MTS acquisition, which we're excited about as it's a great strategic fit for ITW and highly complementary to our Instron business.\nWe acquired Instron in 2006, and today it's a business growing consistently at 6% to 7% organically, with operating margins well above the company average.\nWe're confident that MTS has the potential to reach similar levels of performance over the next five to seven years through the application of the ITW business model.\nMoving to Slide 6.\nWelding delivered broad-based organic revenue growth of 15%, with 30% operating margin in Q4.\nEquipment revenue grew 14% and consumables were up 16%.\nIndustrial revenue grew 18%, and the commercial business grew 8%.\nNorth America was up 15%, and international growth was 14%, driven by 18% growth in oil and gas.\nPolymers and Fluids organic growth was 3%, with 8% growth in Polymers, with continued strength in MRO and heavy industry applications.\nFluids was down 5% against a tough comp of plus 16% last year when demand for industrial hygiene products surged.\nAutomotive aftermarket grew 4% with continued strength in retail.\nOn to Slide 7.\nConstruction organic revenue was up 12% as North America grew 22%, with residential renovation up 23%, driven by continued strength in the home center channel.\nCommercial construction, which is about 20% of our business, was up 21%.\nEurope grew 2% and Australia and New Zealand was up 10%.\nSpecialty organic growth was strong at 7%, with North America up 10% and international up 2%.\nWith that, let's go to Slide 8 for a summary of 2021.\nOperationally, the teams around the world continue to execute with discipline in a challenging environment as they sustained world-class customer service levels, implemented timely price adjustments in response to rapidly rising raw material costs, and executed on our Win the Recovery initiatives to accelerate organic growth across the portfolio.\nAs a result, revenue grew 15% to $14.5 billion, with broad-based organic growth of 12%, 14% if you exclude Auto OEM, where growth was obviously very constrained due to component shortages at our customers.\nOperating income increased 21% and operating margin was 24.1%.\nThe incremental margin was 32%, which is below our typical 35% to 40% range due to price cost.\nExcluding the impact of price cost, incremental margin was 40%.\nGAAP earnings per share increased 28% and after-tax ROIC improved by more than 300 basis points to 29.5%.\nFree cash flow was $2.3 billion with a conversion rate of 84% of net income which is below our 100% plus long-term target for free cash flow due to higher working capital investments to support the company's 15% revenue growth and the strategic decision that we have made to increase inventory levels on select key raw materials, components and finished goods to help mitigate supply chain risk and sustain service levels to our key customers.\nMoving to Slide 9 for our full year 2022 guidance.\nSo, we're headed into 2022 with strong momentum and the company is in a very good position to deliver another year of strong financial performance, with organic growth of 6% to 9% and 10% to 15% earnings growth.\nPer our usual process, our organic growth guidance is established by projecting current levels of demand into the future and adjusting them for typical seasonality.\nAs you can see by segment on the next page, every segment is positioned to deliver solid organic growth in 2022 with organic growth of 6% to 9% at the enterprise level.\nOur total revenue growth projection of 7.5% to 10.5% includes a 3% contribution from MTS, partially offset by 1.5% of foreign currency headwind at today's exchange rates.\nSpecific to MTS, guidance includes full-year revenue of $400 million to $450 million, the expectation that margins are dilutive at the enterprise level by approximately 50 basis points and, finally, consistent with what we've said before, EPS-neutral.\nOperating margin, excluding MTS, is forecast to expand by about 100 basis points to 24.5% to 25.5% as enterprise initiatives contribute approximately 100 basis points.\nWe expect price cost headwind of about 50 basis points.\nIncremental margin is expected to be about 30%, including MTS.\nAnd our core incremental margin, excluding MTS, is in our typical 35% to 40% range.\nWe expect GAAP earnings per share in the range of $8.90 to $9.30, which is up 10% to 15%, excluding one-time tax items from last year.\nThe tax rate for 2022 is expected to be 23% to 24% as compared to 19% in 2021.\nWe are forecasting solid free cash flow with a conversion rate of 90% to 100% of net income, with further working capital investments to support the company's growth, mitigate supply chain risk, and sustain service levels to our key customers as needed.\nOur capital allocation plans for 2022 are consistent with our long-standing disciplined capital allocation framework.\n1 remains internal investments to support our organic growth efforts and sustain our highly profitable core businesses.\nSecond, an attractive dividend that grows in line with earnings over time remains a critical component of ITW's total shareholder return model.\nThird, selective high-quality acquisitions, such as MTS, that enhance ITW's long-term profitable growth potential, have significant margin improvement potential from the application of our proprietary 80-20 front-to-back methodology and can generate acceptable risk-adjusted returns on our shareholders' capital.\nLastly, we allocate surplus capital to an active share repurchase program, and we expect to buy back $1.5 billion of our own shares in 2022.\nIn addition, we have reactivated our previously announced divestiture plans.\nAnd in 2022, we will reinitiate divestiture processes for five businesses, with combined annual revenues of approximately $500 million.\nWhile these businesses are performing quite well coming out of the pandemic, they operate in markets where growth expectations are not aligned with ITW's long-term organic growth goals.\nWhen these divestitures are completed over the next 12 to 18 months, we expect approximately 50 basis points of lift to ITW's organic growth rate and operating margins.\nGiven the timing uncertainties associated with these divestiture transactions, 2022 guidance assumes we own them for the full year.\nFinally, last slide is Slide 10 with the organic growth projections by segment.\nYou can see that based on current run rates, we are expecting some solid organic growth rates in every one of our seven segments, with organic growth of 6% to 9% at the enterprise level.\nFor Automotive OEM, our guidance of 6% to 10% is based on a risk-adjusted forecast of automotive production in the mid-single digits, plus our typical penetration gains of 2% to 3%.",
        "summary": "q4 gaap earnings per share $1.93.\nq4 revenue rose 6 percent to $3.7 billion.\nsees fy gaap earnings per share $8.90 to $9.30.\nsees fy total revenue growth of 7.5% to 10.5% with organic growth of 6 to 9% including mts."
    },
    {
        "text": "Kathie will be reviewing our second quarter 2021 financial results and providing investors with an update on our full year outlook.\nFurther information can be found in our SEC filings.\nStarting on Slide three, we entered the year with confidence that our second quarter will be a pivotal quarter moving beyond the going to grow revenue.\nI'm pleased to announce that we achieved constant currency net sales growth of 7.8%, with increases in all key product categories.\nImportantly, mobility and seating products rebounded strongly at constant currency net sales growth of nearly 18% in Europe and over 12% in North America.\nBy region, net sales in both Europe and North America achieved significant growth that Healthcare has improved in key markets and customers showed strong interest in new products.\nWe continue to see increasing demand for all of our products as evidenced by strong order intake in quote rates and higher than normal backlog.\nAs a result, in addition to strong sales in the second quarter, demand continues to support elevated order backlog.\nWe ended the second quarter with $15 million of higher backlog than normal, similar to the level at the end of the first quarter.\nThe continued higher backlog is expected to convert to sales over the next two quarters as we work to fulfill higher demand in the enrolling supply chain disruption.\nOn the cost side, we saw a good improvement in gross margin from favorable sales mix and the benefit of prior actions to optimize the business.\nThese were more than offset by supply chain-related disruptions as our factories ended more changeovers and shifting production plans to deal with intermittent part shortages and chipping plays, which accounted for 80% of the margin decline.\nHigher material, freight and logistics costs, offset by variable sales is accounted for the other 20%.\nOur operations team is very focused on improving efficiency and costs.\nWe view the impact on gross margin is temporary and are taking actions to rectify it.\nImportantly, we expect gross margin to rebound through the remainder of the year.\n[Indecipherable] cash flow to support sales growth during the quarter, usage increased due to higher accounts receivable balances and elevated inventory levels, which Kathie will expand on later.\nWe expect working capital to normalize by the end of the year cash is collected and inventory is converted to sales.\nOverall, second quarter results were largely in line with expectations with strong revenue growth both year-over-year and sequentially in all major product lines in Europe and North America.\nWe're please with the progress we're making year-to-date and look forward to even stronger results in the second half.\nTurning to Slide four, the business environment and access to healthcare continue to improve and remain well positioned to achieve our full year guidance.\nAs a reminder, while the economy and in variance of the world continues to reopen, we're still flattish in North America and Europe, where access to our key customers and challenge some of the [Indecipherable].\nAs we experienced this quarter, we anticipate sales will continue in the back half of the year.\nInterest in recently launched products in helping invasive customers to provide end users with even more capable devices.\nEarly in the third quarter, we launched a new rear-wheel drive power wheel share in North America, the AvivaSTormRx, which complements our full portfolio of best-in-class seating across all drive segment.\nOur [Indecipherable] wheelchairs allows end users the best in seating and complex control solutions and the best driving front or percent we drive share for their environment.\nIn addition, in respiratory, our new T5 NXG visionary oxygen cone is now commercially available in the United States with plans to roll out further in the coming months.\nAs we focus on sales growth and increased customer demand, we look forward to meeting our customers with new tools and our expanding IT platform, especially with more modern customer self-service features.\nAt the same time, we're very focused on improving operating efficiency by reducing friction and removing costs from our business system.\nWhile we expect the global supply chain will persist in the near term, we're taking proactive measures to offset them, such as investing in additional inventory, looking and planning freight further into the future to ensure time in receipt and delivery and more precisely planning manufacturing schedules to better match the anticipated reliable component.\nAs these mitigation efforts become more effective, we expect gross margin to expand significantly from second quarter results, which, coupled with sales growth should meet profitability.\nAll things taken together, we remain confident in our ability to achieve our full year guidance as we continue to see strong demand across all product categories to convert our excess order backlog into sales with actions to sustain gross margin and leverage SG&A.\nAll of these positive indicators support our conviction that Invacare is pivoting to a period of long-term gorwth.\nTurning to Slide six.\nReported net sales increased 15.1%, with growth in all product categories and in all regions.\nConstant currency net sales increased 7.8% driven by double-digit growth in both mobility and seating and respiratory products.\nWe are pleased to have achieved strong sales growth, driven by new orders received during the quarter.\nAnd for mobility and seating, we are also seeing increased revenue from new products.\nGross profit increased $4.2 million due to higher revenue and the benefit of favorable sales mix.\nAs Matt mentioned, gross margin was significantly impacted by supply chain-related client disruptions and to a lesser extent, higher freight and material costs.\nThe company has taken and continues to implement various actions to reduce the impact on the business, including reduced work hours in certain locations, into the anticipated timing of the receipt of components and investing in increased inventory, much of which was received in the latter part of the second quarter.\nSG&A expense returned to a more normalized and was higher than the prior year as the second quarter 2020 benefited from reduced commercial expenses and discretionary spending given the significant impact of the pandemic on the business.\nThis year, SG&A expense includes increased funding for sales, marketing and commission programs to support and drive revenue growth.\nAs sales strengthened, free cash flow was also impacted higher levels of accounts receivable that we expect to be collected during the second half of the year.\nIn addition, as previously disclosed, the company increased inventory levels to mitigate supply chain disruption and to prepare for the expected sequential sales growth in the latter half of the year.\nWe anticipate this investment in inventory will convert to cash in the second half 2021 and enable us to achieve our free cash flow guidance.\nTurning to Slide 7.\nReported net sales in all product lines improved year-over-year despite supply chain challenge, which limited the conversion of orders for shipments and resulted in excess order backlog of $15 million, primarily in Europe.\nMobility and seating products achieved net sales growth of 15% to strong growth in both Europe and North America, benefiting from the increased adoption of new products introduced over the past 18 months.\nConstant currency net sales increased 2.9% for lifestyle products even compared to a particularly strong Q2 2020 that benefited from pandemic-related bed sales.\nGrowth this quarter was led by higher sales of manual welters, hygiene products as well as growth.\nRetinal respiratory products was driven by continued strong demand in North America related to the pandemic.\nTurning to Slide eight.\nEurope constant currency net sales increased 7% driven by an 18% growth in mobility and seating and over 6% increase in lifestyle products, partially offset by lower sales of respiratory products.\nGross profit increased $507 million due to strong revenue growth and favorable sales mix, offset by supply chain-related plant disruptions and higher freight costs, resulting in flat gross margin.\nDriven by higher net sales, operating income increased by $2.8 million.\nOverall, we are encouraged by the improving healthcare access in key European markets, which helped drive our significant rebound in sales and profitability.\nTurning to Slide nine.\nNorth America achieved constant currency net sales growth of 10.1%, driven by increased revenues in all product categories.\nMobility and seating products generating constant currency net sales growth of 12.6% and respiratory products grew by 24%.\nWe achieved exceptionally strong growth in the quarter for mobility and seating products, benefiting the increased adoption of new products.\nGross profit declined $900,000 as favorable sales mix was more than offset by previous mentioned supply chain challenges, driving 150 basis points decline in gross margin.\nOperating income decreased $3.2 million due to reduced gross profit and higher SG&A expense to support revenue growth.\nTurning to Slide 10.\nConstant currency net sales in the Asia Pac region decreased 7.7% due to lower sales in lifestyle and mobility and seating products partially offset by growth in respiratory products.\nWhile the Asia Pacific region continues to see strong demand, net sales growth was impacted by global shipping issues to stabilate the receive of products.\nOperating loss increased by $1.8 million, primarily due to lower profitability in the Asia Pacific region impacted by lower net sales favorable gross margin and higher SG&A expense.\nMoving to Slide 11.\nAs of June 30, 2021, the company had total debt of $322 million excluding financing and operating rate obligations and $78 million of cash on the balance sheet.\nAs a result of revenue growth, the company had higher receivable, which led to an increase of 7.4 days in sales outstanding as compared to the end of the first quarter of 2021, impacted by the timing of collections from revenue recognized in the quarter.\nIn addition, the company had higher inventory levels to mitigate supply chain challenges and to prepare for the expected sales growth in the second half of the year.\nAs discussed, we anticipate both metrics to normalize by the end of the year and drive positive free cash flow for the full year of 2021.\nTurning to Slide 12.\nBased on our visibility into the third quarter, we are reaffirming our full year guidance for 2021, consisting our constant currency net sales growth in the range of 47%, adjusted EBITDA of $45 million and free cash flow of $5 million.\nConstant currency net sales are anticipated to increase sequentially in the third and fourth quarters of 2021.\nOur outlook is supported by positive sales trends such as strengthening order demand, mobility and seating product sales, which historically peak in the summer months, the conversion of excess backlog in the sales, increased adoption of new products and the continuing reopening of key markets and channels.\nIn addition, gross margin is expected to improve driven by revenue growth, favorable sales mix and actions to resolve supply chain challenges at our [Indecipherable].\nOver the next few quarters, we are taking steps to mitigate this impact where possible.\nAs a result, improvements in adjusted EBITDA and free cash flow could accelerate for the second half of 2021.\nTurning to Slide 13.\nAs we enter the second half of the year, I'm incredibly excited about the positive trends in our favor, which bodes well for a strong finish for the year.\nWe anticipate the continued easing of healthcare restrictions, combined with strong demand, favorable sales mix and the fulfillment of excess backlog will drive robust revenue growth and profitability.\nAs seen in previous years, Invacare has a long history of generating a substantial majority of its adjusted EBITDA in the second year, and this year is expected to be similar.\nTaken together, we have continued confidence in our ability to meet our 2021 goals and to remain focused on executing our long-term growth strategy.\nWe'll now take questions.",
        "summary": "full year 2021 financial guidance reaffirmed."
    },
    {
        "text": "But before I begin, I'd like to take a minute to recognize the hard work of our team at Invesco, like most everybody, our employees have been working in a work-from-home or hybrid environment for more than a year now, and they've achieved these results in a very challenging environment.\nAnd with the success of the virus, many of us have been coming back to the office and working together in the last few months and I can tell you, it's good to see our colleagues once again.\nAnd we are in different stages of reopening around the globe and one thing that I hear from everybody that is able to get back to the offices upgraded us to see one another and work together.\nAnd as always, we'll follow the status of COVID and local guidelines as we transition back to the office, meeting client needs, helping them ensure continued health and well-being of our employees.\nSo now, let me turn to the results.\nWe achieved a new record in the second quarter for long-term net inflows totaling $31 billion.\nThis follows net inflows of $24.5 billion last quarter and up nearly $18 billion in the second half of last year.\nGrowth was led by net inflows into institutional ETFs, fixed income, and but as alternative capabilities.\nAnd as you can see on Slide 3, the key capability areas where we have scale, investment readiness, competitive strength, drove growth again in the quarter.\nThese are areas where our investment performance is strong, we're highly competitive and well-positioned for growth.\nLooking at our ETFs, excluding the Qs, they generated net long-term inflows of $12 billion during the quarter.\nNet long-term inflows from alternatives during the quarter were $4.3 billion, including strength in our private markets business.\nWe launched two CLOs during the period, raising $1 billion and generated net inflows into our real estate business of a billion dollars.\nWe continue to focus and invest in our alternative capabilities space where we also see the benefit of our partnership with MassMutual which we highlighted last quarter.\nMassMutual has committed over $1 billion to various alternative strategies, materially increasing the speed with which [Phonetic] we can get to market for the benefit of our clients.\nWe continue to innovate with strategies for retail investors through the launch of products such as INREIT and the partnership we announced with UBS, in which we will provide bespoke Global Property Investment Services for management clients of UBS in Switzerland, other parts of EMEA and Asia.\nWe also have $5 billion in direct real estate capital available for deployment.\nWe had net long-term inflows of $8.8 billion into active fixed income and within the active global equities, our $52 billion [Phonetic] developing markets fund, a key capability that came with the Oppenheimer combination, continued to see net inflows of nearly $1 billion dollars during the quarter.\nSecond-quarter flows included net long-term inflows of $3 billion from Greater China and our Chinese joint venture continues to be a source of strength and differentiation for us as an organization.\nIn addition, our solutions enable institutional pipeline accounts for 35% of the pipeline at quarter-end, this following the funding of a large passive mandate from Australia in the second quarter which was enabled by our Solutions team.\nAllison will add more information in a moment on flows, the pipeline results in the quarter, including the continued progress toward our net savings target.\nBut I would note, the growth we are experiencing is driving positive operating leverage producing an adjusted operating margin of 41.5% for the quarter.\nStrong cash flows being generated from our business improved our cash position, helping build a stronger balance sheet and improving our financial flexibility for the future.\nOur investment performance was strong in the second quarter with 72% of actively managed funds in the top half of peers or feeding benchmark on a five-year and a 10-year basis.\nThis reflected continued strength in fixed income, global equities, including emerging market equities and Asian equities.\nAll areas where we continue to see demand from clients globally.\nMoving to Slide 5.\nWe ended the quarter with $1.525 trillion in AUM.\nOf the $121 billion in AUM growth, approximately $66 billion is a function of increased market values.\nOur diversified platform generated gross inflows in the second quarter of $114.4 billion.\nThis [Technical Issues] 82% improvement from one year ago.\nNet long-term inflows in the second quarter were $31.1 billion, representing 10.6% annualized organic growth.\nActive AUM net long-term inflows were $2.1 billion and passive AUM net long-term inflows were $29 billion.\nThe retail channel generated net long-term inflows of $9.5 billion in the quarter, driven by positive ETF flows.\nThis represents a $24.1 billion improvement in net long-term inflows from one year ago, driven by significant improvement in equities in the Americas.\nThe institutional channel generated net long-term inflows of $21.6 billion in the quarter, augmented by the funding of the nearly $18 billion Australian passive mandate.\nLooking at retail net inflows, our ETF, excluding the QQQ, generated net long-term inflows of $12.1 billion.\nOur global ETF platform, again excluding QQQ, again captured flows in excess of its market share of AUM in the second quarter and for the first half of 2021 with net ETF inflows in the United States included a continued high level of interest and our S&P 500 equal weight ETF, which generated $2.6 billion in net inflows in the second quarter, following $4 billion of net inflows in the first quarter.\nLooking at flows by geography on Slide 6.\nYou'll note that the Americas had net long-term inflows of $5 billion in the quarter, driven by net inflows into ETFs, various fixed income strategies, private market CLOs, and the direct real estate net long-term inflows that Marty mentioned.\nAsia-Pacific again delivered another strong quarter with net long-term inflows of $28.3 billion.\nNet inflows were diversified across the region, nearly $18 billion was from the large passive Australian mandate that funded from our institutional pipeline in May.\nThe balance reflects $4.8 billion of net long-term inflows from Japan, $3 billion in inflows from Greater China of which the majority was from our China JV, $1.8 billion from Singapore, and the remainder arising from other areas across the region.\nLong-term inflows for EMEA excluding the UK were $1 billion driven by retail flows including net inflows into alternative [Phonetic], particularly our US and European senior loan funds.\nETFs, the net inflows in EMEA were $2.2 billion in the quarter.\nAnd finally, the UK experienced net long-term outflows of $3.2 billion in the second quarter, driven largely by net institutional outflows in multi-asset and investment-grade capabilities.\n$2.4 billion of these net long-term outflows relate to our Global Targeted Return capability, which had $10.2 billion globally in AUM at the end of June.\nThe overall UK net long-term outflows in the second quarter were an improvement of $2.7 billion as compared to the first quarter net long-term outflows of $5.9 billion.\nThis improvement was driven by UK Retail, primarily inflows into the European Equity Funds and lower net outflows during the quarter across a number of fixed income and UK equity capabilities.\nTurning to flows across the asset classes.\nEquity net long-term inflows of $15 billion [Phonetic] reflect a good portion of the Australian mandate and ETF, including our S&P 500 equal weight ETF that I mentioned.\nWe continued to see broad strength in fixed income in the second quarter with net long-term inflows of $13.6 billion.\nDriver to fixed income flows include institutional net flows into investment-grade strategies and retail net long-term inflows, and the various municipal funds and fixed maturity products in Asia.\nIt's worth noting that although we did have fund launches in China in the second quarter, they were not at the pace of what we experienced in the first quarter.\nYou see this largely reflected in the $9.1 billion decrease in the net flows in the balance asset class during the quarter to net outflows of $1.8 billion.\nOur alternative asset class has many different capabilities, and this is reflected in the flows we saw in the second quarter.\nNet long-term flows in alternative improved by $4.5 billion over the first quarter, driven primarily by our private markets business through a combination of inflows from the newly launched CLOs, direct real estate, senior loan and commodity capability.\nIncluded in these alternative flow results is also the GTR net outflow that I just noted.\nIf you do exclude the global GTR net outflows, alternative net long-term inflows were $7.2 billion, quite significant in the quarter.\nMoving to Slide 7.\nOur institutional pipeline was $33.3 billion at June 30, reflecting the funding of the large passive indexing mandate in Asia Pacific, assisted by our custom solution advisory team.\nExcluding the impact of the $18 billion passive mandate in the first quarter, the pipeline has increased in size and remained relatively consistent to prior quarter levels in terms of asset and fee composition.\nOverall, the pipeline is diversified across asset classes and geographies and our solutions capability enabled 35% of the global institutional pipeline and created wins in customized mandates.\nThis has contributed to meaningful growth across our institutional network, warranting our continuing investment and focus.\nTurning to slide 11 [Phonetic], you'll note that our net revenues increased $52 million or 4.1% from the first quarter as a result of higher average AUM in the second quarter.\nThe net revenue yield, excluding performance fees of 34.8 basis points, a decrease was 0.90 of a basis point from the first quarter yield level.\nThe decrease was driven mainly by asset mix shift, including higher QQQ and money market average balances, as well as the impact of the large passive of Australian mandate that funded in May.\nThis decrease was partially offset by the improvement in markets in the quarter.\nThe incremental impact relative to Q1 of higher discretionary money market fee waivers was minimal in the second quarter, but the full impact on the net revenue yield for the second quarter was 0.70 of a basis point.\nWe do expect fee waiver to remain in place for the foreseeable future until rates begin to recover to more normalized levels.\nTotal adjusted operating expenses increased 1.9% in the second quarter.\nThe $14.4 million increase in operating expenses was mainly driven by variable compensations and marketing.\nHigher variable compensation as a result of higher revenue offset by the reduction in payroll taxes and certain benefits from the seasonally higher levels that we experienced in the first quarter.\nWe also recognized sales -- excuse me, we also further recognized savings in the quarter, resulting from our strategic evaluation.\nMarketing expenses increased $9.8 million in the second quarter, mainly due to seasonally higher levels relative to the first quarter, which is typically the low point for marketing spend annually.\nWe also reevaluated the timing of various branding campaigns and launched targeted initiatives in the quarter across the globe.\nOperating expenses remained at lower than historic activity levels due to pandemic driven impact to discretionary spending, travel, and other business operations.\nHowever, we did reduce some client activity and business travel late in the second quarter, which is reflected in both marketing and G&A expense.\nAs we look ahead to the third quarter, our expectations are for third-quarter operating expenses to be modestly higher compared to the second quarter, assuming no change in markets and FX levels from June 30.\nWe expect that the higher AUM levels driven by net inflows and market improvement in the second quarter will have a modest carryover impact on both revenues and associated variable expenses in the third quarter.\nWe also expect a modest seasonal increase in marketing-related expenses, as spend [Phonetic] typically increases in the third and fourth quarters.\nOne area that's still more difficult to forecast at this point is when COVID impacted travel and entertainment expense levels will begin to normalize.\nWe are engaging in more domestic travel and in-person engagements and we do expect to see continued modest resumption of these activities across the third quarter.\nAdditionally, our US mutual funds Board has approved certain changes to the pricing of transfer agency services that we provide to our fund.\nAs a result, we anticipate that our outsourced administration costs which we reflect in property, office, and technology expenses, will increase by approximately $25 million on an annual basis.\nOffsetting this will be a corresponding increase in service to distribution revenues, resulting in a minimal impact to operating income.\nWe expect this new pricing structure to go into effect in the third quarter and to be fully in place by the fourth quarter.\nMoving to Slide 9.\nWe update you on the progress we've made with our strategic evaluation.\nAs we've noted before, we are looking across four key areas of our expense base, our organizational model, our real estate footprint, management of third-party spend, and technology and operations efficiency.\nThrough this evaluation, we will continue to invest in key areas of growth, including ETF, fixed income, China Solutions, alternatives, and global equities.\nIn the second quarter, we realized $7.5 million in cost savings.\n$2 million of the savings was related to compensation expense and $5 million related to property, office, and technology expense.\nThe $7.5 million in cost savings or $30 million annualized, combined with the $95 million in annualized savings realized through the first quarter of '21 brings us to $125 million in total or 63% [Phonetic] of our $200 million net savings expectations.\nAs it relates to timing, we still expect approximately $150 million or 75% of the run rate savings to be achieved by the end of this year, with the remainder realized by the end of '22.\nOf the $150 million in net savings by the end of this year, we anticipate we will realize roughly 70% of the savings through compensation expense.\nThe remaining 30% would be spread across occupancy, tech spend, and G&A.\nWe expect the total program savings to be 65% in comps -- in compensation and about 35% spread across the other categories.\nSo the $125 million of the expected $150 million in net savings by the end of this year already in the quarterly run rate, the degree of net savings per quarter, we will continue to moderate going forward.\nIn the second quarter, we incurred $20 million of restructuring costs.\nIn total, we recognized nearly $170 million of our estimated $250 million to $275 million in restructuring costs that were associated with this program.\nWe expect the remaining transaction costs for the realization of this program to be in a range of $85 million to $105 million through the end of 2022.\nAs a reminder, the cost associated with the strategic evaluation are not reflected in our non-GAAP result.\nMoving to Slide 10.\nAdjusted operating income improved $38 million to $541 million for the quarter, driven by the factors we just reviewed.\nAdjusted operating margin improved 130 basis points to 41.5% when compared to the first quarter.\nMost importantly, our degree of positive operating leverage reflected in our non-GAAP results was 1.8 times for the quarter, underscoring our focus on driving scale and profitability across our diversified platform.\nI'll also point out that our adjusted operating margin back in the third quarter of 2019, which was our first full quarter following the Oppenheimer acquisition, was 40.9%.\nAt that time we reported a net revenue yield excluding performance fees of 40.7 basis points.\nAt the end of the second quarter of 2021, our net revenue yield ex-performance fees was 34.8 basis points, yet our adjusted operating margin was 41.5%.\nWe have been building out our product suite to meet client demand and client demand has been a lower fee product.\nWe're focused on aligning our expense base with changes in our business mix, enabling the firm to generate positive operating leverage and operating margin improvement.\nNon-operating income included $42 million in net gains for the quarter, compared to $26 million in net gains last quarter, primarily from increased unrealized gains on seed money and co-investment portfolios.\nThe effective tax rate for the second quarter was 22.8% as compared to 24% in the first quarter.\nThe effective tax rate on net income was lower in the second quarter, primarily due to a change in the mix of income across taxing jurisdictions.\nWe estimate our non-GAAP effective tax rate to be between 23% and 24% for the third quarter.\nThe actual effective rate may vary from investments due to the impact of non-recurring items on pre-tax income and discrete tax items.\nFew comments on Slide 11.\nBalance sheet cash position was $1.3 billion at June 30 and approximately $750 million of this cash is held for regulatory requirements.\nOur cash position has improved considerably over the past year, increasing by nearly $350 million, largely driven by the improvement in our operating income.\nOur debt profile has improved considerably as well with no draws on our revolver at quarter-end.\nAs a result, we've substantially improved our net leverage position.\nDuring the quarter, we repaid the remaining $177 million forward share repurchase liability in April.\nAnd there are no remaining share repurchase contract liabilities.\nIn terms of future cash requirements, in the second quarter, we recorded an adjustment for the MLP liability associated with the Oppenheimer purchase, reducing this liability from our original estimate of nearly $385 million, down to $300 million.\nWe anticipate funding this liability in the fourth quarter of '21, but we do anticipate a degree of insurance recovery related to the matter.\nThe insurance claims process is inherently complex and we do not have an update at this stage of the timing or size of that recovery.\nOverall, we believe we're making solid progress in our efforts to improve liquidity and build financial flexibility.\nIn summary, we continue to see growth in our key capabilities.\nWe remain focused on executing the strategy that aligns all these areas while completing our strategic evaluation and reallocating our resources to position us for growth.\nAnd finally, we remain prudent in our approach to capital management.\nWe're in a strong position to meet client needs, run a disciplined business, and to continue to invest in and grow our franchise over the long term.\nAnd with that, I'll ask the operator to open up the line for Q&A.",
        "summary": "net long-term inflows were $31.1 billion for q2 of 2021, compared to inflows of $24.5 billion in q1 of 2021.\nqtrly gaap operating revenues $1,721.4 million versus $1,659.7 million in q1 2021."
    },
    {
        "text": "To follow along with the slides, please visit jabil.com within our investor relations section.\nAt the conclusion of today's call, the entire call will be posted for audio playback on our website.\nThese statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.\nAn extensive list of these risks and uncertainties are identified on our annual report on Form 10-K for the fiscal year ended August 31, 2021 and other filings.\nWith that, I'd now like to shift our focus to our strong quarter and outstanding results.\nFirst off, the team delivered $400 million of core operating income on roughly $8.6 billion in revenue, resulting in a core operating margin of 4.7%.\nThese results were primarily driven by broad-based strength in several key end markets, including healthcare, industrial and semi cap, and of course, mobility, as customary for our first fiscal quarter.\nAnd finally, it's worth noting that our team was able to accomplish all of this in spite of the chaotic global supply chain environment.\nIn summary, we delivered strong results, grew in key end markets, and successfully navigated a dynamic global supply chain, clearly demonstrating the power of Jabil by way of our scale, tools, team, and relationships.\nIn a few moments, both Mike and Mark will provide more details on the quarter, while also addressing our improved outlook for the year.\nBut before I hand it over, I'll pass along some thoughts from Jabil's procurement and supply chain team, as you may find it helpful when modeling our year.\nIn short, demand continues to outstrip supply, particularly as it relates to semiconductors, an issue that has persisted since 2019.\nThat said, Jabil continues to leverage best-in-class tools and relationships to maximize our allocation and keep the factories in production to the best of our ability.\nSo far, we have been extremely successful.\nAs we move ahead, we anticipate continued supply chain challenges, which have been incorporated in our guidance similar to previous quarters.\nWe do expect some relief toward the back half of the fiscal year, but the general consensus is that demand will remain ahead of supply for the next six months.\nAs Adam just highlighted, Q1 was an exceptional quarter.\nThe team delivered strong results on three fronts: revenue, core operating income, and core diluted earnings per share.\nOur results were better than expected due to a combination of continued end-market strength and excellent operational execution by the entire Jabil team, along with lower tax and interest expense.\nNet revenue for the first quarter was $8.6 billion, up 9.4% over the prior-year quarter.\nGAAP operating income was $350 million, and our GAAP diluted earnings per share was $1.63.\nCore operating income during the quarter was $400 million, an increase of 9.6% year over year, representing a core operating margin of 4.7%.\nCore diluted earnings per share was $1.92, a 20% improvement over the prior-year quarter.\nNow turning to our first quarter segment results on the next slide.\nRevenue for our DMS segment was $4.7 billion, an increase of 11.1% on a year-over-year basis.\nThe strong year-over-year performance in our DMS segment was broad-based, with strength across our healthcare, automotive, and mobility businesses.\nCore margin for the segment came in at 5.4%.\nRevenue for our EMS segment came in at $3.9 billion, an increase of 7.4% on a year-over-year basis.\nThe stronger year-over-year performance in our EMS segment was also broad-based, with strength across our digital print and retail, industrial and semi cap, and 5G wireless and cloud businesses.\nCore margin for the segment was 3.8%, 40 basis points higher than the prior year, reflecting solid execution by the team.\nTurning now to our cash flows and balance sheet.\nIn Q1, inventory days came in at 66 days, a decline of five days sequentially.\nThe management team continues to be fully focused on this metric, particularly in the current environment.\nAnd I expect over the medium to longer term, our inventory days to normalize below 60.\nCash flows used in operations were $46 million in Q1 and net capital expenditures totaled $73 million.\nWe exited the quarter with total debt-to-core EBITDA levels of approximately 1.3 times and cash balances of $1.2 billion.\nDuring Q1, we repurchased approximately 2.1 million shares or $127 million.\nTurning now to our second quarter guidance on the next slide.\nDMS segment revenue is expected to increase 4% on a year-over-year basis to $3.8 billion, while the EMS segment revenue is expected to increase 14% on a year-over-year basis to $3.6 billion.\nWe expect total company revenue in the second quarter of fiscal '22 to be in the range of $7.1 billion to $7.7 billion.\nCore operating income is estimated to be in the range of $290 million to $350 million.\nGAAP operating income is expected to be in the range of $266 million to $326 million.\nCore diluted earnings per share is estimated to be in the range of $1.35 to $1.55.\nGAAP diluted earnings per share is expected to be in the range of $1.19 to $1.39.\nThe tax rate on core earnings in the second quarter is estimated to be approximately 24%.\nNext, I'd like to take a few moments to highlight our balanced portfolio of businesses by end market.\nToday, both segments are in incredibly good shape.\nIn September, I highlighted several long-term sustainable secular trends in strategically important end markets, such as Healthcare, Automotive, Cloud, Semi-Cap, 5G Infrastructure, and the associated connected devices, along with power generation and energy storage.\nFor the remainder of FY '22 and beyond, we continue to expect these secular trends to drive strong growth.\nOur electric vehicle business in particular continues to outperform in spite of global supply chain issues as the transition to ED accelerates.\nAnd importantly, our broad-based growth associated with these secular trends is expected to drive solid year-over-year core operating margin expansion in both segments.\nAll of which gives us confidence in our ability to deliver strong financial results for FY '22.\nAnd a balanced capital allocation framework approach is aligned and focused on driving long-term value creation to shareholders.\nI would like to wish each and every one of you a safe and happy holiday.\nI'd also like to recognize their hard work and tireless commitment, which drove solid results for our first fiscal quarter.\nNot only did our team deliver a favorable first quarter, but the diversification of our business was fundamental to the results, with each sector having a material contribution in the solutions we offer our customers and with each sector having a material contribution to our financial results.\nSpecifically, the four sectors in our DMS segment focus on margins while offering reliable cash flows, while the four sectors in our EMS segment focus on cash flows, while offering reliable margins, a perfect complement as the well-diversified construct of Jabil continues to drive our execution.\nIf we dig a little deeper, we find secular trends embedded within certain sectors, secular markets where we now play and have a substantial presence.\nWe believe these markets will drive our growth, with the overwhelming majority of such growth occurring organically as we place our attention on secular opportunities, opportunities such as 5G, electric vehicles, personalized healthcare, cloud computing, and clean energy.\nFurthermore, our commercial portfolio is intentional, and we think quite special.\nEach slice of this pie harbors domain expertise, affording us an essential collection of valuable capabilities.\nAlthough what's most impactful is the way in which we merge these capabilities with precision and speed as we serve our customers.\nOur approach is further enhanced by seamless collaboration across the organization, combined with our unique Jabil structure.\nAnd when done correctly, we simplify the complex for many of the world's most remarkable brands.\nAnd we do so as we lean into a massive market, where things need to be built and supply chains need to be optimized.\nOne of the key outcomes of our approach is the fact that with each passing year, our results become less dependent on any single product or product family, which improves our resiliency, especially during times of macro disruption and cyclical demand.\nI'll now take you through an update to our fiscal '22 financial plan where you'll see the continued earnings power of the company.\nWe've increased core earnings per share to $6.55 for the year, up $0.20 from our September outlook.\nWe've also increased revenue to $31.8 billion, up from our initial guide of $31.5 billion.\nIn addition, we're committed to delivering free cash flow in excess of $700 million, while maintaining a core margin of 4.5% for the year as we navigate this challenging environment.\nIn concert with these strong numbers, please note that our path forward is well understood throughout the company and what needs to be done remains crystal clear.\nQuite simply, what we're doing is working a positive testament on how our team is managing the business.\nMoving on from the financials, I'd like to talk about purpose.\nAt Jabil, purpose serves as our guidepost.\nWhen we think about purpose, we think about our behaviors, behaviors such as keeping our people safe, servant leadership, DE&I, protecting the environment, and giving back to the many communities where we live.\nPlease note that these behaviors, as displayed by our team, are exceptional.\nIn closing, our improvement is steady and our strategy is consistent.\nAnd as a team, we value our role as a responsible and reliable partner to those we serve.\nAll in all, I feel good about where we've been, but I feel even better about where we're going.\nIn simple terms, at Jabil, we build stuff, and we do so really, really well.\nWe also solve problems over and over again.\nI want each of you to always be your true self without fear or anxiety as you care for one another.\nTo everyone on the call today, I wish you a safe and peaceful holiday.\nBefore we begin our Q&A session, I'd like to remind everyone on our call that we cannot address customer or product-specific questions.\nOtherwise, we're now ready for your Q&A.",
        "summary": "compname posts q1 earnings per share of $1.63.\nq1 non-gaap core earnings per share $1.92.\nq1 gaap earnings per share $1.63.\nq1 revenue $8.6 billion.\nsees q2 net revenue $7.1 billion to $7.7 billion.\nsees q2 core diluted earnings per share $1.35 to $1.55 per diluted share.\nsees q2 u.s. gaap diluted earnings per share $1.19 to $1.39 per diluted share.\nsees fy22 revenue $31.8 billion.\ncore earnings per share will increase to $6.55 for fy22."
    },
    {
        "text": "We have a great session planned for you today.\nAnd as an organization, we're excited to provide you with a little extra detail about our business as typical for our September call.\nOver the next 60 minutes or so, we will review our strong fourth quarter and fiscal 2021 results, followed by yet another great outlook for fiscal 2022.\nAs usual, you will hear from both Mark Mondello, our CEO; as well as Mike Dastoor, our CFO.\nAlong this journey, we'll discuss our approach to the end markets we serve, the uniqueness of our supply chain solutions, and the innovation underway within our global network of factories.\nAnd we'll kick that right off with the following brief video.\nSuch a great video.\nAs we all know, the world is complex and only getting more so each and every day.\nBut as Mark often says, our people are our greatest differentiator and that couldn't be more apparent as you visit our global network of factories and meet the roughly 260,000 people that make Jabil's foundation so strong.\nOur foundation is solid.\nThrough over 50 million square feet of manufacturing space and 100-plus sites, our people strive to make anything possible and everything better for over 400 of the world's most recognizable brands.\nOur agility and global scale enable us to respond quickly and flexibly to meet customer needs in key end markets, like mobility, industrial and semi cap, automotive, and healthcare, just to name a few.\nThese wide-ranging end markets represent a diverse and thoughtfully designed portfolio that, over the years, has helped reduce volatility and improve the reliability of our financial results.\nTo help illustrate our diversification strategy over the past few years, I'd now ask that you turn to the next slide, which shows our revenue growth and the end markets we serve.\nAs you may know, the EMS industry has long struggled with customer concentration, and this dynamic has created a lot of variability in operating performance from one year to the next.\nIn 2016, our management team concluded that our model was missing an important characteristic if we were going to deliver upon our financial priorities consistently and sustainably.\nThis important characteristic was product diversification.\nSo beginning roughly in the 2017 time frame, we embarked on a journey to grow and diversify our business in areas such as 5G, cloud, healthcare, packaging, connected devices, automotive, and semi-capital equipment.\nAs a result of our efforts to diversify the business, revenue has grown rapidly.\nAnd since 2017, we have added more than $10 billion in revenue across several key end markets.\nAnd it's important to note this growth has been very intentional and focused.\nMoving to the right side of the chart, you'll see the composition of our $29.3 billion in revenue, and you'll likely notice that no end market dominates our diverse portfolio.\nIn each of these areas, Jabil partners with some of the world's most recognizable companies to accelerate their speed to market through product engineering, supply chain design and, of course, manufacture.\nIn healthcare, think of drug delivery systems, such as inhalers and insulin pens, diagnostics, medical devices, orthopedics, and instruments that all meet exacting FDA standards.\nOur healthcare business serves programs and products with long stable life cycles of 10 to 20 years with high cost of change, thus providing stable earnings and cash flows.\nIn packaging, we design and manufacture highly engineered rigid plastic packaging for many leading consumer brands, bringing to bear capabilities in ideation, product design, material scientists, and eco-friendly barrier technologies.\nWithin mobility and connected devices, we generally focus on machining, tooling, and molding of highly engineered plastic and metal parts, leveraging a strong product development skillset.\nIn areas such as digital print and retail, we're focused on 3D print, large form factor printing, and retail automation.\nAnd in industrial and semi cap, 5G wireless and cloud, and networking and storage, we participate in the design, product development, industrialization, and manufacturing of some of the most sophisticated tech products on the marketplace today.\nAnd then in automotive, the bulk of our business focuses on the electrification of auto supported by a nearly 10-year relationship with the world's leading EV company.\nSo from mobility to retail automation to complex heavy industrial equipment, Jabil helps customers navigate large complex material supply chains while effectively managing change, mitigating risks, and delivering quickly and efficiently.\nIn summary, our business has grown rapidly over the last several years to serve a diverse blend of end markets that today are benefiting from long-term secular trends.\nAnd again, this gives us the confidence and comfort to not only provide financial guidance more than one quarter out but also invest in things like factory innovation.\nAnd when you drill down one level deeper, you'll again notice an incredibly diverse set of customers, representing some of the largest, most innovative, and successful organizations in the world today.\nThis by no means is a complete list of the customers we serve, but it's certainly impressive by any standard, especially when considering many of these customers rely on Jabil as the sole source for their products.\nI'm sure most of you recognized some of our incredible partners such as Apple, HP, Ericsson, Amazon, Cisco, John Deere, Tesla, and J&J.\nIn all of our customer relationships, we're incredibly focused on delivering consistent value and reliable value from early in the product life cycle, like product innovation and design, to more mature products where we offer planning, automation, supply chain management and, of course, manufacturing.\nAt the end of the day, we build stuff at Jabil, and we do it really, really well.\nThis leads me to our financial priorities as a management team.\nWe're squarely focused on three areas: expanding operating margins, increasing earnings per share, and generating strong cash flows.\nIn fact, this focus has been further sharpened as we've embedded core margins, core earnings per share, and free cash flow within our short-term and long-term compensation programs as we believe this effectively aligns management and shareholders.\nAnd over the next several minutes, we plan to provide you with a credible plan to improve all of these three metrics in fiscal '22.\nFollowing me today will be Mike who joined Jabil in 2000 as a regional controller based in Hong Kong.\nMike will walk you through our fiscal '21 results and our robust financial plan for fiscal '22.\nHe will also spend some time highlighting our end markets and discussing some of the trends which should drive our business for many years to come.\nThen Mark, who joined Jabil in 1992 as a manufacturing supervisor, will share some of the value that Jabil provides to its customers through our people, our culture, and our best-in-class manufacturing capabilities.\nThese statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.\nAn extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2020, and other filings.\nAs Adam highlighted, our business model is fundamentally structured to deliver core margin expansion and strong predictable cash flows, and our capital structure has been optimized to maximize our flexibility.\nThis flexibility has enabled us to reshape our end-market portfolio over the last several years, and in the last 18 months, our strategy has been pressure tested.\nAnd our diversified, well-balanced portfolio performed extremely well evidenced by a solid Q4 and exceptionally strong FY '21 results.\nIn Q4, the teams in both segments successfully managed to navigate an incredibly dynamic supply chain environment.\nDuring the quarter, demand continued to be broad-based and robust, but revenue came in slightly lower than expected due to some incremental tightness in the supply chain, mainly in healthcare, industrial, and cloud.\nThis was partly offset by upsides in connected devices and networking and storage.\nDespite this, our core operating margin performance in the quarter was quite strong coming in at 4.2%, approximately 10 basis points higher than expected, a testament to our team's execution in the quarter, solid cost optimization, and our ever more resilient end-market portfolio.\nIn Q4, our interest and tax expense also came in better than expected, which when combined with the strong margin performance allowed us to deliver strong core diluted earnings per share in Q4, putting it all together on the next slide.\nNet revenue for the fourth quarter was $7.4 billion, up 1% over the prior-year quarter.\nGAAP operating income was $265 million, and our GAAP diluted earnings per share was $1.16.\nCore operating income during the quarter was $314 million, an increase of 23% year over year, representing a core operating margin of 4.2%, a 70-basis-point improvement over the prior year.\nNet interest expense in Q4 was $36 million, and core tax rate came in at approximately 22.3%.\nCore diluted earnings per share was $1.44, a 47% improvement over the prior-year quarter.\nNow turning to our fourth-quarter segment results on the next slide.\nRevenue for our DMS segment was $3.9 billion, an increase of 9.7% on a year-over-year basis.\nThe strong year-over-year performance in our DMS segment was broad-based with strength across our healthcare, automotive and mobility businesses.\nCore margin for the segment came in at 4.1%, 20 basis points higher than the previous year.\nRevenue for our EMS segment came in at $3.5 billion, down 6.4%, primarily driven by our previously announced transition to a consignment model.\nCore margin for the segment was 4.3%, up 120 basis points over the prior year reflecting solid execution by the team.\nFor the year, our DMS segment revenue was $15.4 billion, an increase of 17% over the prior year, while core operating income for the segment was up an impressive 49% year over year.\nThis resulted in core margins expanding 110 basis points to 4.8%, reflective of our improved mix.\nIn EMS for the year, core margins were also up strong, coming in at 3.7%, 100 basis points higher than the prior year on revenue of $13.9 billion.\nTurning now to our cash flows and balance sheet.\nNet capital expenditures for the fourth quarter were $202 million and for the full fiscal year came in better than expected at $793 million or 2.7% of net revenue.\nWe sometimes hear from investors seeking clarification on our net capex, so I'd like to take a moment to walk you through the components.\nAs a reminder, our customers sometimes co-invest in plant, property, and equipment with us as part of our ongoing business model.\nWe often pay for these co-investments upfront, which are then subsequently reimbursed to us by customers.\nThe line item acquisition of property, plant, and equipment on our statement of cash flows includes the full upfront payment made by us.\nThe reimbursements by our customers are reflected as a sale of assets in the line item proceeds and advances from sale of property, plant, and equipment on our statement of cash flows.\nThe net of these two items reflects our true spend and what we refer to as net capital expenditures.\nIn Q4, inventory days came in higher than expected at 71 days, an increase of three days sequentially, driven by the previously mentioned incremental tightness in the supply chain.\nWhile these higher inventory days may continue in the short term, we expect it to normalize below 60 over the mid- to longer term.\nThe management team continues to be fully focused on this metric, particularly in the current environment.\nIn spite of this, our fourth quarter cash flows from operations were very strong, coming in at $762 million.\nAs a result of the strong fourth-quarter performance and cash flow generation, adjusted free cash flow for the fiscal year came in higher than expected at approximately $640 million.\nWe exited the quarter with total debt to core EBITDA levels of approximately 1.4 times and cash balances of $1.6 billion.\nDuring the fourth quarter, we repurchased 2.9 million shares, bringing total shares repurchased in FY '21 to 8.8 million shares or $477 million.\nThis brings our cumulative shares repurchased since FY '13 to approximately 90 million shares at an average price under $27, bringing our total returns to shareholders, including repurchases and dividends, to approximately $3 billion, reflective of our ongoing commitment to return capital to shareholders.\nIn summary, I'm extremely pleased with the resiliency of our portfolio and sustainable broad-based momentum underway across the business, which has allowed us to deliver exceptionally strong results in fiscal '21.\nNext, I'd like to take a few moments to highlight Jabil's unique position across multiple end markets benefiting from long-term secular trends and the convergence of technology in our day-to-day lives.\nWe believe these trends will continue to drive sustainable growth and margins across the enterprise in FY '22 and beyond.\nIn healthcare today, on the next slide, the industry is undergoing tremendous change due to rising costs, aging populations, the demand for better healthcare in emerging markets, and the accelerated pace of change and innovation.\nConsequently, we're witnessing healthcare companies shifting their core competencies away from manufacturing toward innovative and connected product solutions.\nWe continue to be in the early days of outsourcing of manufacturing in the healthcare space.\nOur strategic collaboration, which we have highlighted in previous years, has enhanced our credibility within the industry and has further enabled Jabil to benefit from this outsourcing trend.\nOn top of this, we are also seeing the impact of connectivity, digitization, and personalized care across healthcare.\nI expect these trends to accelerate over the next few years.\nOur deep domain expertise within the healthcare industry uniquely positions us to build technology-enabled products which help our customers excel in today's evolution of healthcare.\nAnother end market experiencing a rapid shift in technologies is the automotive market.\nClimate change, fuel efficiency, and emissions are ongoing concerns, and regulatory policies worldwide are beginning to mandate more eco-friendly technologies.\nAs a result, OEMs are making substantial investments into vehicle electrification efforts.\nThe bulk of our automotive business is focused on electrification of cars, which we believe still has plenty of room to grow.\nOver the next three years, we expect the fastest-growing area of our auto business will be in what's known as ACE, autonomous, connectivity, and electrification.\nToday, electric vehicles account for a small fraction of total vehicles in the market, but the EV segment overall is growing rapidly and gaining a larger share of the total vehicle market.\nJabil's long-standing capabilities and over 10 years of experience and credibility in this space have positioned us extremely well to benefit from this ongoing trend.\nWe are also extremely well-positioned to build the infrastructure that will power tomorrow, be it cloud, semi cap, 5G infrastructure, and the associated connected devices, or power generation and energy storage.\n5G is expected to transform the way we live, work, play and educate.\nAs the underlying infrastructure continues to roll out, 5G adoption is accelerating.\nJabil is well-positioned to benefit from both, the worldwide infrastructure rollouts and with the devices, which will be needed to recognize the full potential of a robust 5G network.\n5G is also accelerating secular expansion of cloud adoption and infrastructure growth.\nThis, coupled with the value proposition Jabil offers to cloud hyperscalers, is helping us gain market share in an expanding market, evidenced by the significant growth over the last three years.\nIn power generation and energy storage, we offer differentiated solutions across the entire energy value chain from energy generation, power conversion, transmission, storage, and metering to the management of power inside of homes and buildings.\nIn this space, we serve a diversified set of customers across numerous markets, including oil and gas, wind, power inverters and converters, smart meters, smart grid communications, building automation, home automation, and energy storage.\nAs the convergence of technology in our day-to-day lives accelerates, demand for semiconductors has increased exponentially, which has generated a huge backlog in this industry.\nJabil is well-positioned to help customers in the semi cap space with end-to-end solutions spanning the front end with design and complex fabrication equipment along with the back end with validation and test solutions.\nSo what do all these trends translate to in terms of Jabil?\nYou can see our revenue growth expectations by end market in the coming fiscal year.\nIn FY '22, in spite of supply chain headwinds, we expect incredibly strong growth in automotive and continued solid growth in healthcare and packaging, industrial, semi cap, 5G wireless, and cloud.\nToday, both segments are in great shape.\nWe've repositioned our business to serve critical and long life cycle products while also providing the foundation for predictable, yet strong cash flows and margins.\nFor FY '22, we expect both gross profit margins and core operating margins to improve 30 basis points over the prior year, mainly driven by our end market growth and improved mix of business.\nWe also expect the investments to be made in areas such as IT, automation, and factory digitization will drive improved optimization across our footprint, which will translate to higher margins.\nWe expect these gains will be slightly offset by continued tightness in the supply chain, especially in the first half of our fiscal year.\nHowever, we're incredibly confident in our team's ability to successfully execute in this market given our track record over the last several years.\nKey to executing amid an incredibly dynamic environment is our expertise and the investments we made in our IT and supply chain.\nWe've got the tools and technologies that allow us to progressively manage with analytics and data some of the most complex supply chains in the world.\nThis has certainly been evident over the last two years.\nLet's hear from our supply chain leaders and how they're executing for our customers.\nTurning now to our capex guidance for FY '22.\nNet capital expenditures are expected to be in the range of $830 million or 2.6% of net revenue.\nThis will come through a combination of both maintenance and strategic investments for future growth.\nLet's talk about our maintenance capex for a moment.\nWe now have 100 sites in more than 30 countries.\nAt this scale, our factories require approximately $500 million in annual maintenance investments.\nAreas of investment are inclusive of IT and data analytics, automation, and factory digitization, which will drive innovation across our footprint.\nThis, along with upgrading of our equipment sets based on appropriate cost-benefit analysis, will improve first-pass yields and help reduce ongoing maintenance costs.\nWe are also investing in strategic growth in targeted areas of our business that are expected to deliver strong margin expansion and free cash flow.\nThe bulk of our strategic growth capex will be in the healthcare, automotive, 5G wireless, power generation and energy storage, semi cap, and eco-friendly packaging end markets.\nAll of this positions us well to deliver higher margins as highlighted earlier in my margin waterfall slide.\nOur improved profitability, strong operational performance, and disciplined investments have yielded significant cash flows over the last few years, which has allowed the company to strategically invest in higher return areas of our business.\nMoving forward, we expect to continue generating strong cash flows in spite of higher working capital associated with our robust growth in targeted areas I highlighted earlier.\nThis is possible as a result of earnings expansion, along with our team's disciplined approach and ability to execute.\nIn FY '22, we expect to generate adjusted free cash flow of $700 million.\nAs I mentioned earlier, we've intentionally targeted higher return areas.\nIn doing so, we're focused on end markets that offer higher profitability and good cash flow dynamics.\nThis discipline has translated to much higher returns on invested capital.\nMoving forward, we will continue to prioritize investments in areas of our business with higher margins, which we expect will translate into strong returns.\nAnother key aspect of delivering higher returns and delivering long-term value to shareholders is ensuring our capital structure is appropriately balanced and optimized.\nOver the last few years, our team has done an outstanding job of building a solid and flexible debt and liquidity profile with current maturities appropriately staggered and at very attractive interest rates.\nWe ended FY '21 with committed capacity under the global credit facilities of $3.8 billion.\nWith this available capacity, along with our year-end cash balance, Jabil ended the year with access to more than $5.3 billion of available liquidity, which we believe causes forges ample flexibility.\nAnd importantly, we are fully committed to maintaining our investment-grade credit profile.\nTurning now to our capital allocation framework.\nIn fiscal '22 and beyond, we expect to generate significant free cash flow.\nGiven this dynamic, I thought it would be appropriate to reiterate our capital allocation priorities and at a high level how we plan to deploy our capital over the next two years.\nAs a reminder, in July earlier this year, we announced a $1 billion buyback authorization from our Board of Directors over the next two years.\nOur capital return framework beyond organic investments will continue to prioritize commitment to our dividend, share repurchases, and a combination of targeted M&A and capital structure optimization.\nMoving forward, we are comfortable with our ability to generate strong cash flows and will remain balanced and thoughtful in how we allocate our capital.\nTurning now to our first-quarter guidance on the next slide.\nDMS segment revenue is expected to increase 10% on a year-over-year basis to $4.7 billion, while the EMS segment revenue is expected to be $3.6 billion, consistent with the prior year.\nWe expect total company revenue in the first quarter of fiscal '22 to be in the range of $8 billion to $8.6 billion.\nCore operating income is estimated to be in the range of $365 million to $425 million.\nGAAP operating income is expected to be in the range of $321 million to $381 million.\nCore diluted earnings per share is estimated to be in the range of $1.70 to $1.90.\nGAAP diluted earnings per share is expected to be in the range of $1.40 to $1.61.\nThe tax rate on core earnings in the first quarter is estimated to be approximately 25%.\nAs we transition to my final slide, you can really begin to see the earnings power of a diversified and balanced Jabil.\nToday, our business serves a diverse blend of end markets in areas that provide confidence in future earnings and cash flows.\nWe have deep domain expertise complemented by investments we made in capabilities, all of which give us confidence in our ability to deliver 4.5% in core margins in FY '22 along with $6.35 in core earnings per share and $700 million in free cash flow.\nAnd importantly, our balanced capital allocation framework approach is aligned and focused on driving long-term value creation to shareholders.\nI appreciate everyone taking time to join our call today.\nYour attitude is amazing and your stamina is incredible.\nIt was your collective body of work that drove the terrific results we just posted.\nResults you delivered while overcoming COVID quarantine mandates, supply chain challenges, factory inefficiencies, and in many cases, a lack of face-to-face interaction.\nFiscal '21 came in well ahead of plan, resulting in a core operating margin of 4.2%.\nAll in all, a really nice year across all fronts.\nToday marks our fourth annual investor session, a session where we take a little extra time to lay out the groundwork for the upcoming year.\nAs you heard earlier from Adam and Mike, our business is strong and what we're doing is working.\nMuch of our progress comes from the construct and the pedigree of our company.\nSo let's start with our approach, beginning with diversity, equity, and inclusion.\nWe know that each employee is critical to our success and has the right to be treated with dignity and respect each day and every day.\nAt Jabil, we operate our business in 30-plus countries.\nWe employ people that don't look the same, don't talk the same, people that practice different religions, have different sexual orientations, people with physical limitations and neurodiversities.\nWe understand that the current diversity of our team simply makes us better, but we have so much more work to do, and we're holding ourselves accountable through actions.\nAn example of the type of actions we're taking is the addition of our internal DE&I council, which was established in 2020, a nine-person council which guides us and advocates for the broader Jabil.\nWe also co-chaired an external DE&I certification program, a program attended by 165,000 participants, of which the vast majority earned their formal certificates.\nAnd one other example is around the upcoming 2022 Special Olympics, where Jabil is a premium sponsor for the U.S. games.\nAnd the best part of our partnership with Special Olympics is that it offers our employees the opportunity to spend time with the athletes and their coaches.\nSo in summary, our team continues to safeguard our work environment and does so with the acceptance of individual differences.\nA second aspect of our approach pertains to the area of ESG, where we aim to always do what's right.\nMuch like our effort with DE&I, our behavior around ESG is grounded on actions.\nAn example of one of our actions is our greenhouse gas emissions, where our goal is a 25% reduction by 2025 and a 50% reduction by 2030.\nAnother set of actions that we have underway are directed toward our heightened focus on mental health, a topic that impacts most all of us, either directly or indirectly.\nAnd one final action worth mentioning is our commitment to giving back.\nOur employees will look to complete 1 million volunteer hours in aggregate during calendar 2022.\nWhat a positive difference this will make throughout the communities where we work and we live.\nAs you might sense, DE&I and ESG are important elements of who we are, and they set the foundation for our approach.\nNext, I'd like to talk about our solutions and how they're enabled by our structure, our investments, and our customers.\nOur structure enables our collaboration, which allows us to move with precision and speed.\nOur investments enable our execution which allows us to take the ordinary and apply the extraordinary.\nAnd our customers enable our obsession, which allows us to solve the complex.\nSo not to be overly simplistic, but at the center of Jabil's core, we build stuff.\nThat's just what we do.\nTherefore, we'll continue to be aggressive with our investments in the areas of factory automation, robotics, and machine learning.\nAnd to help illustrate how we apply and leverage these investments, I'd now like to share a short video.\nAs we move to our next slide, you'll see a colorful pie chart which illustrates the current makeup of our commercial portfolio.\nToday, our business is diversified and diversified at scale.\nThis provides Jabil a real competitive advantage when we consider the performance and balance of earnings.\nI'd now like to go a degree deeper into the makeup of our business.\nThese eight sectors exhibit the diversified nature of our revenue, with each sector having a material contribution to our results.\nWe've been very diligent in pursuing the end markets we serve.\nWe've also spent significant time successfully positioning the company to capture possible tailwinds offered by various secular trends.\nThis portfolio is a wonderful mix of cash flows and margins.\nAnd for sure, the composition of our business is a catalyst for our FY '22 outlook.\nAs we now look at our plan for fiscal '22, you can see the earnings power of the company.\nWe look to deliver a core operating margin of 4.5% on revenues of $31.5 billion, a 30 basis point expansion when compared to fiscal '21.\nThis translates to $6.35 in core earnings per share or 13% earnings growth year on year.\nIn wrapping up our fiscal '22 forecast, I'd like to note that our strategy is well understood across the company.\nand what needs to be done is crystal clear.\nIf we take our FY '21 results and our FY '22 guidance and step back just a bit, this aperture suggests that what we're doing is in fact working.\nThis slide offers a fantastic backdrop to our ongoing story.\nAll in all, I feel good about where we've been, but I feel even better about where we're going.\nMoving on from our financials.\nI'd like to talk a bit about our purpose.\nAs a management team, we have a purpose that serves as our ultimate guidepost.\nOur purpose enables our path and does so with an emphasis on caring, integrity, and proper intentions.\nSpeaking of our path, our path forward is formed by the beliefs shown on this slide.\nFor FY '22, we'll trust in these beliefs as we work to deliver to our commitments.\nFor me, we'll measure our success based on financial performance.\nBut we'll also measure our success based on keeping our people safe, customer care and improving in the areas of ESG and DE&I.\nIf our team accomplishes all of the above, it will be another year of humble achievement.\nAs we consider our outlook for fiscal '22 and the current trajectory of margins and cash flows, it's clear that our journey is nowhere near complete.\nIn closing, we've made tremendous progress as customers and shareholders remain at the forefront of our actions.\nMost importantly, I want each of you to always be your true self without fear or anxiety, without harm or recourse.\nI'm honored to serve such a trustworthy team.\nAs planned, we shared quite a bit over the past hour.\nTo summarize, we began by describing how Jabil has undergone deep and sustainable improvements to its business model.\nAnd we highlighted the solid foundation upon which Jabil sits today.\nThen Mike walked you through our financial results and outlook, which demonstrate the strength of our portfolio, which has been structured to navigate varying fluctuations in demand while also benefiting from long-term secular tailwinds.\nAnd finally, Mark shared with you our unique approach, solutions, portfolio, and path forward.\nThese truly are exciting times at Jabil.\nOperator, we're now ready for Q&A.",
        "summary": "jabil q4 gaap earnings per share $1.16.\nq4 non-gaap core earnings per share $1.44.\nq4 gaap earnings per share $1.16.\nq4 revenue $7.4 billion versus refinitiv ibes estimate of $7.67 billion.\nsees q1 net revenue $8.0 billion to $8.6 billion.\nsees q1 u.s. gaap diluted earnings per share $1.41 to $1.61 per diluted share.\nsees q1 core diluted earnings per share (non-gaap) $1.70 to $1.90 per diluted share."
    },
    {
        "text": "Joining me on the call today are Johnson Controls' Chairman and Chief Executive Officer, George Oliver; and our Chief Financial Officer, Olivier Leonetti.\nIn discussing our results during the call, references to adjusted earnings per share, EBITA and EBIT exclude restructuring and integration costs as well as other special items.\nAdditionally, all comparisons to the prior year are on a continuing ops basis.\nI'm going to start off with a quick look back at 2021 and update you on a few of our long-term strategic priorities.\nOlivier will provide a detailed review of our fourth quarter results and provide you with our fiscal 2022 guidance.\nLet's get started on slide three.\nWe rounded out fiscal '21 with another quarter of solid financial results, having met or exceeded all of our original commitments for the year, in what turned out to be a much more difficult environment than originally planned.\nThe ability to deliver these results, while navigating through unprecedented levels of inflation and supply chain disruptions, is a testament to the operational discipline and agility demonstrated throughout the organization.\nAnd for that, I am incredibly grateful for the efforts of the entire Johnson Controls team.\nDespite the challenging external environment, our end market demand remains strong.\nRobust retrofit activity, coupled with a pickup in new nonresidential construction we are starting to see, creates a strong future demand trend.\nThis is evidenced by the continued momentum we are seeing in our order books and the record backlog we have built.\nWe also remain focused on the big picture, moving ahead with bold new commitments, doubling down with ambitious new ESG goals set earlier this year, embarking on a substantial new productivity program designed to drive a step-function change in profitability.\nAnd just recently, at our Investor Day in September, we committed to a new set of three year financial commitments.\nWe made significant progress in advancing our growth strategy, scaling our OpenBlue digital platform, launching eight new major offerings and greatly expanding our partner ecosystem, investing in the refresh of our product portfolio, focusing on accelerating our service growth and improving our attachment rate.\nAnd we are capitalizing on strong secular trends for healthy buildings, decarbonization and smart connected equipment and buildings.\nAs end markets continue to recover and the adoption of these trends continue to expand globally, I am confident we are uniquely positioned from a competitive standpoint to continue to outperform.\nIn addition to the strong financial results and advancement on our strategic initiatives, we have also continued to lead in ESG, including continued progress toward both our 2025 sustainability goals and our new ESG commitments.\nThis is not, by any means, an exhaustive list, but I am extremely pleased with what our teams have accomplished in the last year.\nWe are committed to net zero, committed to reducing emissions within our own operations and that of our customers.\nOur science-based targets have been approved.\nOur leadership team is aligned from a governance perspective, and we are extending our leadership in sustainable financing as well.\nTomorrow, I travel to COP26 in Glasgow.\nWe made great progress in driving home the understanding that buildings represent approximately 40% of global greenhouse gas emissions, and there is no tackling climate change without substantial investment in buildings.\nGovernments are now acting on this and mobilizing billions to upgrade buildings.\nAnd Johnson Controls is perfectly positioned to deliver those solutions.\nAt COP26, I will meet with government and business leaders to build momentum and ensure action.\nTurning to slide five.\nI wanted to take a few minutes to highlight several new strategic developments in the quarter.\nMost recently, we signed an MOU with two significant technology leaders, Accenture and Alibaba, to address sustainable infrastructure needs.\nThis collaboration will focus on an estimated multibillion-dollar market for digital solutions serving data centers in China.\nWe also signed a foundational technology agreement with Tempered Networks, building upon our recent cybersecurity partnerships with Pelion and DigiCert.\nEach of these partnerships embeds a critical layer of trust, security and operational capability into our OpenBlue platform and connected devices.\nThese elements differentiate our products and services to help protect the integrity of our customers' operations and data.\nTempered brings an industry-leading zero-trust secure network capability that helps us drive customer confidence and, in turn, accelerate the adoption of OpenBlue services.\nOur partnerships with UL, Safe Traces and with Phylagen are powerful examples of how we are innovating to extend our Healthy Buildings leadership, providing new indoor environmental quality solutions to address our customers' most pressing challenges.\nOur near-term focus is on the education vertical as there is a clear and compelling need to help those customers optimize their investments.\nWith an estimated $195 billion in government stimulus earmarked for K-12 spending, this provides a significant opportunity.\nAdditionally, we entered into an exclusive joint development agreement and investment with Phylagen, a leading biotech company working on the identification of indoor bacteria and viruses that are all around us in buildings.\nOur work with Phylagen is a commitment to developing the cutting-edge capabilities to deliver and maintain healthy buildings.\nAt our Investor Day, we shared with you our three pillars for delivering above-market growth over the next three years and beyond.\nOne of those pillars related to gaining share through innovative product development centered around digital and sustainability.\nAs planned, we launched over 150 new products in fiscal 2021, spanning nearly all business units, resulting in continued share gains in both Q4 and the full year.\nIn 2022, we are well positioned to gain share with another 175 new products across four main categories: sustainability, smart buildings, digital and residential, with heat pumps central to our product development strategy.\nThese are just a sample of what is expected to launch over the next 90 days, with a steady pipeline behind us.\nTurning to slide seven.\nService plays a central role in everything we do.\nOver the last 18 months, we have strengthened our market-leading capabilities to best position ourselves for the shifting industry demographics and evolving digital technologies that are enabling outcome-based solution models.\nAt the start of last year, we began articulating our intentions to accelerate service growth to a couple of points above market levels, part of which would be the result of increasing our attachment rate by leveraging our large installed base and the digital transformation of our business.\nIn fiscal 2021, we saw the early benefits of our efforts shine through.\nWe exited the year with service revenues up 8% in the fourth quarter with high single-digit growth in all three regions in nearly all business domains.\nFor the full year, service revenue grew 4%, which is up two to three points over 2019 levels, despite a slow start to the year as we manage through lingering site access restrictions and abnormal customer budget pressures.\nLooking ahead, we see service accelerating through fiscal 2022, in line with our goal to outpace the market.\nThe order strength we've seen in the second half of the year bolsters that view.\nService orders were up 7% in Q4 and, importantly, up low single digits organically versus 2019 levels.\nAdditionally, we improved our attach rate to approximately 40%.\nTurning to slide eight.\nThe third pillar is our vectors of growth, which we believe, on a combined basis, represents an incremental market opportunity of $250 billion over the next decade.\nOur unique portfolio is a competitive advantage across all three areas.\nAnd from a financial performance perspective, we have significantly increased both revenue and orders in fiscal 2021.\nThis positions us very well for continued strong performance as we move forward.\nNext, on slide nine, I wanted to highlight a key customer win related to one of our key vectors of growth.\nIn Q4, we were awarded a Buildings as a Service project by one of our long-standing customers, the University of North Dakota.\nThis is the second long-term Performance Infrastructure contract we have been awarded with this university in the last two years.\nIt leverages not only our expertise in Performance Contracting, but also the OpenBlue Enterprise Manager software.\nThe total contract value was nearly $220 million over the life of the project, with a smaller portion of that booked during the quarter.\nBefore I turn things over to Olivier, let me conclude with a few thoughts.\nI remain extremely encouraged by the demand patterns we are seeing across most of our end markets and the ability of our teams to capitalize on more than our fair share of that demand.\nWe see this decade as being one of the most exciting for the smart building industry, which Johnson Controls is positioned to lead.\nUnderlying momentum in our short-cycle businesses continues to improve despite pressure from ongoing supply chain and component availability constraints.\nOur longer-cycle install business, driven by the new buildings market, also continues to recover, although extended lead times and inflation are delaying some investment decisions, particularly on larger projects.\nRetrofit activity remains an important driver of our business, and we see plenty of opportunity to capitalize on this activity going forward.\nAll of that said, we are very mindful of the macro backdrop and our outlook does not assume any significant near-term improvement in supply chain conditions or inflation over the next couple of quarters.\nOn price/cost, given the progressive rise in inflation for almost all input costs throughout the year, we took decisive steps on pricing and cost to stay ahead of the curve.\nAnd I am confident we will continue to manage through these challenges.\nLooking ahead to fiscal 2022, our focus turns to accelerating and demonstrating our growth capabilities.\nOur proven product technology leadership, combined now with OpenBlue, truly differentiates the solutions we can bring to our customers.\nIn fact, we believe we are best positioned to lead the revolution of smart buildings, and we are fully committed to creating healthier, safer and more sustainable buildings.\nLet me start with a brief financial summary on slide 10.\nSales in the quarter were up 5% organically, led by Global Products, which is truly a reflection of the team's strong execution.\nUnderlying momentum in this business continue to improve, as evidenced by mid-single digits growth on a two year stack basis.\nOur longer-cycle field business continue to recover, led by strong growth in services, up 8% in the quarter.\nSegment EBITA increased 10% versus the prior year, margin expanding 30 basis points to 15.9%.\nBetter leverage on higher volumes, favorable mix and the incremental benefit of our SG&A actions more than offset the headwind from the reversal of temporary cost reductions and price/cost, including significant supply chain disruptions.\nEPS of $0.88 was at the high end of our guidance range and increased 16% year-over-year, benefiting from higher profitability as well as lower share count.\nFree cash flow in the quarter was approximately $300 million, reflecting the reversal of timing benefits experienced in the first three quarters of the year, as expected.\nOn a full year basis, we achieved 105% free cash flow conversion.\nOrders for our field businesses increased 9%, led by low double-digit growth in install on strong double-digit growth in retrofit activity.\nWe are also seeing continued strength in our service business, with orders up 7%, driven by strong growth in North America and EMEALA.\nBacklog grew 10% to more than $10 billion, with service backlog up 5% and install backlog up 11%.\nThe sequential improvement was led by strong retrofit activity as new construction continues to recover from depressed level in fiscal '20, particularly in North America.\nTurning to our earnings per share bridge on slide 12.\nLet me touch on a few key items.\nOverall, operations contributed $0.09 versus the prior year, including a $0.04 benefit from our SG&A productivity program, achieving our targeted savings in fiscal '21.\nWe are well on track to achieve our SG&A and COGS savings in fiscal '22 and beyond.\nSimilar to last quarter, excluding the headwind from the prior year temporary actions, underlying incrementals in Q4 were approximately 30%.\nCorporate was a $0.03 headwind year-over-year and other items netted to a $0.06 tailwind, primarily related to lower share count, lower net financing charges and FX.\nLet's discuss our segment results in more details on slide 13.\nMy commentary will also refer to the segment end-market performance included on slide 14.\nNorth America revenue grew 4% organically, led by strength in services, which was higher in all domain.\nInstall revenue was up low single digits, primarily due to strong demand from shorter-cycle retrofit and upgrade projects, and positive growth in new construction.\nBoth our internal and customer supply chain restrictions negatively impacted our North America install business.\nBy domain, Commercial Applied HVAC revenue grew mid-single digits, while Fire & Security increased low single digits in the quarter.\nWe had another strong quarter in Performance Infrastructure, which grew revenue low double digits, the fifth consecutive quarter of double-digit growth, a good reflection on our customers' demand for decarbonization solution.\nSegment margin decreased 20 basis points year-over-year to 15.2%, primarily due to the reversal of temporary cost from the mitigation actions in the prior year.\nOrders in North America were up 11% versus the prior year, with high single-digit growth in both Commercial HVAC and Fire & Security.\nPerformance Infrastructure orders were up nearly 40%.\nApplied HVAC orders increased 10% overall, driven by strong retrofit activity, with another strong quarter of equipment orders up over 20% in Q4.\nBacklog of $6.5 billion increased 10% year-over-year.\nRevenue in EMEALA increased 3% organically, led by continued strength in our service business, particularly in our Applied HVAC and Industrial Refrigeration businesses.\nFire & Security, which account for nearly 60% of segment revenues, grew at mid-single digits rate in Q4, with strength across our enterprise accounts and residential security businesses, including a rebound in our retail platform.\nIndustrial Refrigeration also grew mid-single digits, while Commercial HVAC & Controls declined low single digits.\nBy geography, revenue growth was broad-based, with strength in Europe and Latin America, partially offset by low double-digit decline in the Middle East.\nSegment EBITA margins declined 30 basis points, driven by a prior year gain on sales.\nUnderlying margin performance improved as favorable mix, positive price/cost and the benefit of SG&A savings this year more than offset the temporary mitigation actions taken in the prior year.\nOrder in EMEALA continued to accelerate, increasing 7% in the quarter, with strong mid-teens growth in Commercial HVAC and high single-digit growth in Fire & Security.\nAPAC revenue increased 7% organically, led by low double digits growth in Commercial HVAC & Controls.\nEBITA margins expanded 80 basis points year-over-year to 15.5%, driven by a favorable reserve adjustment.\nAPAC underlying margin declined year-over-year as volume leverage and net productivity was offset by unfavorable mix and negative price/cost.\nAPAC orders grew 4%, driven by continued strength in Commercial HVAC.\nGlobal Products revenue grew 7% on an organic basis in the quarter, with broad-based strength across the portfolio.\nOur Global Residential HVAC business was up 5% in the quarter.\nNorth America Resi HVAC grew 4% in the quarter, benefiting from both higher volume and pricing.\nOutside of North America, our Residential HVAC business grew mid-single digits, led by strong double-digit growth in Europe and driven in part by the launch of our new Hitachi air-to-water residential heat pump, which was well received by the market.\nIn APAC, Residential HVAC declined low single digits as a result of softer industry demand in Japan, given the COVID-related state of emergency in place for much of the quarter.\nWe continue to gain shares in Japan, up more than 100 basis points in the quarter, as we continue to launch new premium products with indoor air quality technologies.\nAlthough not reflected in our revenue growth, our Hisense JV revenue grew over 40% year-over-year in Q4, expanding our leading position in China.\nCommercial HVAC product sales were up low double digits overall, led by mid-teens growth in our indirect Applied business, including strong chiller demand within the data center end market.\nLight Commercial grew high single digits overall, with North America unitary equipment down 2% and VRF up high single digits.\nOur Light Commercial business in Asia was up low double digits, including a significant win in Taiwan to supply high-efficiency ductless unit with indoor air quality technology to all schools across the country.\nFire & Security products grew high single digits in aggregate, led by our access and control and video solutions business and return to pre-pandemic levels for parts of our fire suppression business.\nEBITA margin expanded 90 basis points year-over-year to 18.7% as volume leverage, higher equity income and the benefit of SG&A actions more than offset the temporary cost action in the prior year and price/cost, including the significant supply chain disruptions.\nTurning to slide 15.\nCorporate expense increased significantly year-over-year off an abnormal low level to $83 million.\nFor modeling purposes, we have included an outlook for some of our below-the-line items in financial year '22.\nI will point out that amortization expense reflects the full year run rate impact of Silent-Aire as well as additional software R&D.\nNet financing charges returned to a more normal level as fiscal '21 benefited from significant FX gain.\nNoncontrolling interest reflects continued growth in our Hitachi JV.\nTurning to our balance sheet and cash flow on slide 16.\nOur balance sheet remains in great shape.\nWe ended the year with $1.3 billion in available cash and net debt at 1.8 times, still below our targeted range of two to 2.5 times.\nOn cash, we generated a little over $300 million in free cash flow in the quarter, bringing us to nearly $2 billion year-to-date and achieving our target of 105% conversion for the year.\nAs you will recall from our guidance last quarter, we expected a reversal in some of the timing benefits we experienced earlier in the year.\nI am extremely pleased with our cash performance and remain confident that we will sustain 100% conversion over the next several years.\nDuring the fourth quarter, we repurchased a little over four million shares for approximately $300 million, which for the full year, brings us to around 23 million shares or $1.3 billion.\nAs you can see, Q1 typically represents less than 15% of our full year earnings per share given our normal seasonality.\nFor Q1 of fiscal '22, we expect to be above that level, with Q1 guidance representing about 16% of our full year at the midpoint.\nAdditionally, we expect an improving first half, second half versus historical seasonality.\nAs we look at fiscal '22 overall, on slide 18, we are entering the year with record backlog, and underlying markets are continuing to improve.\nWith that said, we do expect supply chain constraints and the inflationary environment to continue, at least over the next couple of quarters.\nOn a full year basis, we expect high single-digit organic revenue growth, with 70 to 80 basis points of segment EBITA margin expansion.\nAlthough we expect to remain price/cost positive on an earnings per share basis, the inflated level of pricing will result in margin headwinds of approximately 40 basis points for the year.\nUnderlying margins are expanding to 110 to 120 basis points.\nAdditionally, we expect another year of strong earnings growth, with adjusted earnings per share in the range of $3.22 to $3.32, which represents year-over-year growth of 22% to 25%.\nTurning to slide 19.\nWe can see that our expectations for fiscal '22 are very much in line with the growth expectations we provided at our recent Investor Day, and we are accelerating growth in each area.\nLast, on slide 20, I want to reiterate that we are well on our way to our '24 targets.",
        "summary": "q4 adjusted earnings per share $0.88 from continuing operations excluding items.\nsees fy adjusted earnings per share $3.22 to $3.32 excluding items.\ninitiates fiscal 2022 adjusted earnings per share guidance of $3.22 to $3.32.\nqtrly sales of $6.4 billion increased 7% compared to prior year on an as reported basis.\nsees 2022 organic revenue growth of mid-to-high single digits year-over-year.\nsupply chain disruptions and inflation headwinds are expected to continue near term.\njohnson controls - sees q1 organic revenue up mid-single digits year-over-year."
    },
    {
        "text": "During the call, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors.\nA transcript of this conference call will also be posted on our website.\nThe recovery we have seen over the past year continues to accelerate, led by strength in our leasing and capital markets businesses.\nOur closely integrated One JLL philosophy and market-leading products and services are resonating with clients.\nI would like to express my gratitude to all JLL employees for the outstanding service they provided to our clients in 2021.\nThis dedication to serve our clients has led us to transform JLL into a more efficient global enterprise.\nThree years ago, we embarked upon an ambitious multiyear transformation to enhance the seamless global integration of our services and expertise.\nDuring this time, we made several organizational design changes, orientating around business lines in set of geographies.\nThese realignments will enable JLL to reduce structural complexities and leverage best practices while accelerating growth.\nToday, we are announcing the final phase of this transformation process, which will align our external reporting with how we internally manage our business.\nThis new reporting structure will make JLL easier for investors to understand and will provide enhanced transparency of our business line.\nKaren will discuss the reporting change in more detail shortly.\nTurning to the current market environment.\nConditions continue to improve, but still significantly vary by geography.\nAnd the global office leasing market, the emergence and rapid spread of the Omicron variant has brought additional uncertainty to the return to office time line.\nDespite this uncertainty, we have not noticed a discernible impact in our leasing numbers as companies continue to take a longer-term view of the future office needs.\nChannels research indicates that in the fourth quarter, all three global regions registered positive net absorption in the office market for the first time since the onset of the pandemic, creating a solid foundation for the ongoing recovery.\nremained slightly below 2019 levels, but continued to show improvement.\nIn the U.S. specifically, fourth quarter office leasing volumes were down 23% compared to pre-pandemic levels.\noffice leasing volumes were down 44% just two quarters ago.\nOverall, we continue to believe office demand will recover to pre-pandemic levels and that the office will remain the center of the word ecosystem.\nShifting to other sectors.\nActivity in the industrial and multifamily markets remain robust in the fourth quarter.\nHigh demand and tight supply continued to define the industrial space, leading to rent increases and record low vacancy rates.\nThe scarcity of land near ports and other key logistical areas is driving a supply demand imbalance and additional supply will be needed to meet growing demand in these industrial markets.\nGlobal capital markets transactions volumes reached an all-time high in 2021.\nInvestment activities served 54% to $1.3 trillion, supported by an improving global economy and high levels of liquidity.\nCross-border capital flows, which were at a depressed level in 2020 accelerated throughout 2021 and closed the year at record high levels.\nThe combination of accelerating cross-border capital flows and significant levels of dry powder bode well for sustaining recent growth rates within capital markets.\nSimilar to the trends in leasing, strong performance in the industrial logistics and multifamily sectors benefited capital markets volume in 2021.\nThe office and retail sectors improved as the year went on, although their share of transaction volume remains below pre-pandemic levels.\nFundamentals in the multifamily market remained strong and show no signs of cooling off.\nUrban markets are recovering while rent increases in suburban markets persist.\nGlobal investor interest in multifamily assets remained high in the fourth quarter.\nThis is evidenced by two of the sector's largest ever deals being completed in Germany during the quarter.\nInstitutional investors remain active in Asia Pacific, particularly in Japan and Australia.\nLet's now shift our attention to JLL's performance.\nAs I mentioned at the beginning, fourth quarter and full year financial results were very strong and broad-based.\nFourth quarter consolidated revenue rose 23% to $5.9 billion, and fee revenue increased 42% to $2.8 billion in local currency.\nFee revenue benefited from strong performance in our leasing and capital markets businesses, which recorded growth of 68% and 62%, respectively.\nAdjusted EBITDA of $622 million represented an increase of 50% from the prior year, with adjusted EBITDA margin expanding from 21.3% to 22.4% in local currency.\nAdjusted net income totaled $447 million for the quarter, and adjusted diluted earnings per share was $8.66.\nOur adjusted EBITDA results in the fourth quarter benefited from $103 million of equity earnings, primarily a result of an increase in the market value of our strategic technology investments.\nTechnology is a key differentiator for JLL, and our focus continues to be to bring the best technology to our clients and raise the productivity of our brokers and account managers.\nFor the full year, consolidated revenue rose 15% to $19.4 billion, and fee revenue increased 31% to $8.1 billion in local currency.\nAdjusted EBITDA for the year rose 73% to $1.5 billion, reflecting a margin of 18.6%.\nOur full-year adjusted EBITDA margin was toward the upper end of our 16% to 19% target range, driven by the strong gains in our higher-margin transactional businesses investment gains in JLLT and LaSalle and disciplined cost management.\nWe continue to repurchase shares in the fourth quarter, returning over $150 million to shareholders.\nThis brings our full year return of capital to over $340 million, up significantly from $100 million in 2020 and $43 million in 2019.\nIn addition, I am pleased to announce that the Board has authorized a new $1.5 billion share repurchase program.\nWe remain committed to investing in the business to drive future growth while also returning capital to shareholders.\nFourth-quarter results reflect a strong finish to a year that began with considerable uncertainty.\nOur investments in our people and global platform over the last several years allowed us to enhance our competitive position, capitalize on accelerating business momentum and deliver full-year results that were well ahead of both our initial expectations and 2019 levels.\nOver the course of 2021, we made significant progress on our strategic priorities, investing to meet the evolving needs of our clients while also accelerating our return of capital to shareholders.\nThe robust business fundamentals, along with our continued efforts to improve our operating and capital efficiency resulted in nearly $800 million of free cash flow in 2021, reflecting a cash conversion ratio of approximately 80%.\nMoving to a detailed review of operating performance.\nOur fourth-quarter consolidated real estate services fee revenue increased 42%, driven by strength in the Americas and transaction-based revenues globally.\nCompared to a strong fourth quarter 2019, real estate services fee revenue grew by 19%.\nThe real estate services adjusted EBITDA margin of 21.8% compared with 21% a year earlier and 20.1% in the fourth quarter of 2019.\nThe growth of our transaction-based revenues and $83 million of equity earnings from JLL Technologies more than offset higher commissions and incentive compensation related to differences in business mix, the impact of COVID-related discrete items, the expected reduction of certain 2020 nonpermanent savings, and incremental investments in our people and technology.\nTurning to the Americas.\nCapital Markets and Leasing led broad-based fee revenue growth.\nFee revenue increased by 56% compared to the fourth quarter of 2020 and with growth across most service lines.\nCompared to the fourth quarter of 2019, fee revenue increased by approximately 31%, which is an acceleration from the third quarter increase of 25% relative to 2019.\nWithin Americas capital markets, unprecedented strength in industrial, multifamily and alternative along with improving activity in the retail, office and hotel sectors and the surge in cross-border capital flows led to record transaction activity that drove 75% growth in fee revenue over the prior year quarter, and a 62% increase compared with fourth quarter 2019.\nFee revenue from U.S. investment advisory sales more than doubled and U.S. debt and equity advisory increased approximately 60% from the prior year quarter.\nOur multifamily debt origination and loan servicing businesses maintained strong momentum, highlighted by loan servicing fee revenue growth of approximately 34%.\nOur full year 2022 U.S. capital markets pipeline is up 47% compared with this time last year, supporting our optimism for healthy growth opportunity in the year ahead.\nAmericas leasing fee revenue growth of 74% over the prior year quarter was led by a rebound in the office sector and continued strength in industrial.\nCompared with fourth quarter 2019, Americas leasing fee revenue increased 22%, with strong industrial sector growth more than offsetting a not fully recovered office sector.\nWe saw a significant increase in transaction size versus both a year ago and the comparative 2019 quarter with average deal size up 33% and 25%, respectively.\nDeal volume, as measured by the number of transactions has also increased meaningfully versus last year, up 35%, and return to the 2019 level.\nFrom a profitability standpoint, the Americas adjusted EBITDA margin increased to 27.5% from 25% in 2020 and 22.5% in 2019.\nStrong growth in transactional revenues and JLLT equity earnings more than offset the expense pressures impacting the consolidated real estate services margin.\nAnemia, fee revenue grew 24% over fourth quarter 2020 and 1% versus the comparative 2019 quarter, driven primarily by higher leasing and capital markets volumes as economic activity and investor sentiment improved.\nLeasing fee revenue increased 55% versus fourth quarter 2020 and 22% over fourth quarter 2019 with growth across all asset classes, most notably the office and industrial sectors.\nFor the quarter, EMEA Capital Markets grew 45% versus 2020 and 14% compared with 2019, driven by accelerated recovery in our key markets and a significant increase in the number of large deals.\nEMEA's fourth quarter profitability declined versus the prior year due to several factors, including the expected reduction of certain 2020 nonpermanent savings and discrete items, higher incentive compensation due to differences in business mix, and incremental investments in our people and technology platform.\nWe are encouraged by the growth within EMEA and remain focused on improving the margin profile for the region.\nWithin Asia Pacific, quarterly fee revenue grew across all service lines, except property and facility management, which was flat compared to the prior year.\nLed by the office sector, Asia-Pacific leasing fee revenue was particularly strong as growth accelerated to 49% from 33% in the third quarter and was up 20% versus fourth quarter 2019.\nHigher commissions due to differences in business mix, the expected reduction of certain 2020 nonpermanent cost savings and incremental investments in our people and technology platform drove a decline in Asia Pacific's profitability, partially offset by the growth in our higher-margin transaction-based revenue.\nBuilt primarily by new client wins and contract extensions in the Americas and EMEA, our global work dynamics fee revenue grew 7% versus the prior year, with growth of its annuity-like business more than offsetting the absence of COVID-related project work in 2020.\nWork Dynamics fee revenue was up 3% compared with 2019.\nThe global real estate services outsourcing market opportunity remains compelling, and we believe JLL is well-positioned for continued growth.\nValuation increases and continued robust capital raising drove an 11% increase in assets under management and translated to advisory fee revenue growth.\nIn addition, strong investment performance across the platform, led to $56 million of incentive fees in the quarter.\nConsidering LaSalle's approximate $12 billion of dry powder at year-end, and $8.2 billion of capital raised over the past year, including $1.8 billion in the fourth quarter, we expect a continuation of the recent LaSalle advisory fee growth trends in 2022.\nEquity earnings on LaSalle's approximate $350 million co-investment portfolio totaled $18 million in the quarter, about half of which was cash.\nI'll expand briefly on our JLL Technologies investment as I discuss the strategic rationale of our early stage PropTech investment on prior earnings calls.\nAt year-end, the fair value of our JLLT investment totaled approximately $350 million, up from nearly $100 million a year earlier, driven in part by approximately $140 million of valuation increases.\nBeyond the investment returns, which were substantially a function of subsequent financing rounds at higher valuation, the investments in former strategic direction allow us to evaluate and test technology solutions for our clients.\nand generate incremental revenue.\nShifting now to an update on our balance sheet and capital allocation.\nAlong with the growth in our business and resiliency of our cash flow, our balance sheet remains solid, as indicated by our net leverage at 0.2 times and liquidity of $3.2 billion at year-end.\nThis provides a strong foundation to execute on our strategic priorities, which are: first, to invest in our business and capabilities to better serve our clients and drive long-term profitable growth; and second, to return capital to shareholders.\nAs Christian mentioned, we did both in 2021.\nWe invested in our people and global platform, completed acquisitions totaling approximately $450 million and made strategic investments of over $100 million, net of distributions and our JLLT initiative and LaSalle co-investments.\nIn addition, we repurchased $343 million of shares representing about 43% of free cash flow generated in 2021.\nInvestment opportunities remain dynamic and we intend to maintain flexibility to capitalize on organic investments and select M&A opportunities alongside continued share repurchases to drive long-term shareholder value.\nLooking ahead, our underlying business fundamentals and investments in growth initiatives, along with positive industry trends and the global economic outlook, provide an attractive backdrop for continued business momentum and fee revenue growth in 2022.\nWe continue to expect to operate within our 16% to 19% adjusted EBITDA margin target for the full year 2022, effectively managing a return of certain expenses and inflation while also investing in growth initiatives.\nLike 2021, business mix, the pace of economic growth and evolution of the pandemic and the amount of equity earnings, among other factors, will influence where we will land within our target margin range.\nWe expect our 2022 full-year effective tax rate to be similar to 2021 at approximately 22%, based on our assumptions that meaningful changes to tax code will not be implemented until later this year.\nI also note that we are closely monitoring the escalation and geopolitical events in Ukraine, but it is too early to comment on a potential business implications.\nOur focus is the safety and well-being of our people, clients and suppliers.\nBefore closing, I'll briefly elaborate on the segment recording change Christian announced in his remarks.\nBeginning with the first quarter 2022, we will transition our reporting to five business line segments, comprising markets advisory, capital markets, work dynamics, JLL Technologies and LaSalle.\nAdditional service line revenue detail will be provided within each segment.\nProfitability will continue to be reported at the segment level.\nThe new financial reporting structure better aligns with how we've evolved our management structure over the past several years and improved transparency, making it easier for investors to understand our performance and our key drivers.\nIn closing, I'd like to express deep gratitude to my JLL colleagues for their astounding collective efforts in 2021, embracing our One JLL philosophy to deliver exceptional service to our clients and generating a substantial long-term value for all stakeholders.\nChristian, back to you.\nImproving global economic trends, increasing allocations of capital to the CRE industry and positive investor sentiment provide a favorable market backdrop as we enter 2022.\nGeopolitical turbulences continue to be the main limiting factor to an ongoing growth of our target markets.\nThe outlook for 2022 is less tied to the pandemic than the past two years.\nLabor markets are tight and attracting and retaining top talent will be a key focus point for organizations in the coming years.\nInflation is likely to remain high in 2022.\nReal interest rates will stay deeply negative despite all the expected rises of interest rates by relevant central banks.\nAnd that environment, real estate continues to be a standout asset class.\nThe tight labor markets, combined with the significant inflation have resulted in rising compensation costs.\nWe take every effort to make use of our global platform and our superior tech infrastructure to hire the talent wherever we can find it streamline our processes and support the productivity of our producers to continue to raise the revenue per head.\nIn closing, our fully integrated suite of services and industry-leading technology platform makes JLL a preferred partner for clients around the globe.\nWe remain well-situated to capitalize on the continued macroeconomic recovery and favorable underlying trends altering the commercial real estate industry.\nI continue to be very optimistic in JLL's ability to achieve sustained growth and create meaningful shareholder value not only in 2022, but also for the years to come.\nOperator, please explain the Q & A process.",
        "summary": "q4 adjusted earnings per share $8.66.\nconsolidated fourth-quarter revenue and fee revenue increased 23% and 42%, respectively.\nqtrly revenue $5,945.7 million versus $ 4,845.4 million.\nqtrly fee revenue $2,772.3 million versus $1,962.6 million."
    },
    {
        "text": "With me on the call today is Jeff Powell, our President and Chief Executive Officer.\nBefore we begin, let me read our safe harbor statement.\nThese non-GAAP measures are not prepared in accordance with generally accepted accounting principles.\nFollowing the remarks, I will give an overview of our financial results for the quarter and the year, and we will then have a Q&A session.\nI'll begin by discussing our operational highlights and our fourth quarter financial results.\nThe fourth quarter was a solid finish to a challenging year.\nDespite the uncertainties brought about by the pandemic, we had a solid execution during the quarter and generated strong cash flow while safeguarding our employees.\nStrong capital project activity across all our operating segments and robust demand for our Parts & Consumables led to record bookings and cash flow in the fourth quarter.\nI'll provide more details about this activity when I discuss the results of our operating segments.\nOur balance sheet remains healthy and our liquidity position has strengthened throughout the year.\nRobust cash flows have always been a strength of Kadant, and we expect this will continue as economies recover from the effects of the pandemic.\nTurning now to our Q4 performance.\nWe achieved a notable turnaround from the prior quarter's weak business levels.\nOur Q4 bookings were a record $197 million, up 23% compared to the prior year, with our Industrial Processing segment driving this growth.\nStrong demand led to a 9% sequential increase in Parts & Consumables revenue, which made up 67% of total Q4 revenue.\nTotal revenue was down 8% compared to the fourth quarter of 2019.\nWe were particularly pleased that our adjusted EBITDA margin increased to 19.1%, and our free cash flow was up 7% to a record $38 million in the fourth quarter.\nOverall, the quarter was better-than-expected and I'm pleased with how our employees delivered these solid operating results.\nWhile 2019 was a record year on many fronts, and we began 2020 with positive momentum, no one could have anticipated the full impact that the pandemic would have on the world and the global economies.\nFull year revenue declined 10% to $635 million, while our bottom line performance benefited from a favorable product mix along with cost containment measures and government systems programs.\nCash flow from operations strengthened throughout the year, and free cash flow was near a record $85 million for the full year 2020.\nOur diluted earnings per share was $4.77 and on an adjusted basis, declined 7% to $5 compared to our record of $5.36 per share in 2019.\nOur workforce around the globe deserves a tremendous amount of credit for these results as they adapted to a new way of work and performed exceptionally well under very challenging circumstances.\nI'm extremely proud of our talent and dedicated employees for the work they've done and continue to do to serve our customers.\nNext, I'd like to review the performance of our three operating segments.\nOur Flow Control segment benefited from a rebound in capital project activity in the fourth quarter, which led to bookings increasing nearly 9% compared to the prior year period.\nOur quarterly bookings performance moved in the right direction as the year progressed and positions us well for a solid start to 2021.\nOur Parts & Consumables revenue was up 5% sequentially and made up 68% of total Q4 revenue.\nAs many of you know, our aftermarket parts business has a more favorable margin profile compared to capital business, and the product mix combined with improved operating leverage led to a 13% increase in adjusted EBITDA compared to Q4 of 2019 and represented 26% of revenue.\nLooking ahead, we expect the first quarter of 2021 to show stability in terms of both capital project bookings and demand for Parts & Consumables.\nWe believe market conditions are improving and will continue to strengthen as the COVID-19 vaccine becomes more widely available and businesses are permitted to fully reopen.\nTurning now to our Industrial Processing segment.\nWe continue to experience strong demand for our wood processing equipment and also for our stock prep equipment, with capital bookings in this segment more than doubling compared to the prior year.\nThis demand was largely driven by two factors.\nOne was a robust U.S. housing market, which saw single-family homebuilding, the largest share of the housing market, increased 12% in December.\nThe other was a significant increase in our stock prep capital project activity in China and North America, which more than doubled compared to the prior year.\nRevenue in this segment declined 13% to $69 million year-over-year, but increased 11% sequentially.\nParts & Consumables revenue was up 12% compared to the same period last year, and made up 70% of total revenue in the fourth quarter.\nA favorable product mix and good execution led to a 250-basis point improvement in our adjusted EBITDA margin.\nWhile government systems programs were significantly reduced in the fourth quarter, we did have some remaining benefit that helped allow us to retain our talented workforce.\nIn our Material Handling segment, we continue to see relatively stable yet moderate order activity.\nRevenue was down 7% to $39 million, and Parts & Consumables revenue in the fourth quarter made up 58% of total revenue.\nCapital bookings in our Material Handling segment increased 23% compared to the same period last year and were up 18% sequentially.\nWe are encouraged to see our customers showing increased confidence in the economic outlook by awarding us these larger capital orders.\nAs in all other segments, we are seeing increasing market activity.\nLooking ahead to 2021, we believe this segment will continue to strengthen throughout the year.\nAs we look ahead to the first quarter of 2021 and the full year, we are seeing signs of increased project activity and expect industrial production to continue its modest rebound.\nOur strong cash flows combined with a strengthening balance sheet have us well positioned to capitalize on opportunities that may emerge with the improving global economy.\nWhile we are hopeful the worst of the pandemic is behind us, there is still a great amount of uncertainty, particularly in Europe, regarding how economies will respond to pandemic given the unevenness in the vaccine distribution.\nThis uncertainty limits our ability to forecast the timing of orders and as a result, we will not be providing guidance at this time.\nI would like to pass the call over to Mike for a review of our Q4 performance.\nI'll start with some key financial metrics from our fourth quarter.\nConsolidated gross margins were 44.1% in the fourth quarter of 2020 compared to 40.9% in the fourth quarter of 2019, up 320 basis points.\nThe increase was primarily due to higher gross margins on Parts & Consumables in the quarter and a higher percentage of Parts & Consumables.\nOur overall percentage of Parts & Consumables revenue increased to 67% of total revenue in the fourth quarter of 2020 compared to 60% in the fourth quarter of 2019.\nAlso contributing to the increase in gross margins was approximately 50 basis points due to the receipt of government assistance benefits related to the pandemic.\nSG&A expenses were $47.4 million in the fourth quarter of 2020, down $0.2 million from the fourth quarter of 2019.\nSG&A expense as a percentage of revenue was 28.1% in the fourth quarter of 2020 compared to 26.1% in the fourth quarter of 2019.\nThere was an unfavorable foreign currency translation effect, which increased SG&A expenses by $1.1 million, and we received government assistance benefits of $0.4 million in the fourth quarter of 2020.\nExcluding these items, along with backlog amortization and the SG&A from our acquisition, SG&A expenses for the fourth quarter of 2020 were down $1.3 million or 3% compared to the fourth quarter of 2019, primarily due to reduced travel-related expenses.\nOur GAAP diluted earnings per share was $1.40 in the fourth quarter compared to $0.76 in the fourth quarter of 2019.\nOur GAAP diluted earnings per share in the fourth quarter includes $0.12 from an intangible asset impairment charge, $0.01 of restructuring costs and $0.01 of acquired backlog amortization.\nIn addition, our fourth quarter results included pre-tax income of $1.2 million or $0.07 net of tax attributable to government employee retention assistance programs.\nOur tax rate in the fourth quarter was 20.4% and included approximately $0.12 of tax benefits related to the following items.\nA reversal of tax reserves associated with uncertain tax positions, the exercise of previously awarded employee stock options and return to provision adjustments.\nExcluding these items, our tax rate would have been 27%.\nFor the full year 2020, gross margins increased 200 basis points to 43.7% compared to 41.7% in 2019.\nExcluding the government assistance benefits, which contributed approximately 60 basis points to the 2020 gross margins and the amortization of profit and inventory in 2019, gross margins were up 90 basis points, primarily due to higher gross profit margins on Parts & Consumables and a higher overall percentage of Parts & Consumables.\nOur percentage of Parts & Consumables revenue increased to 66% in 2020 compared to 63% in 2019.\nSG&A expenses decreased $10.6 million or 6% to $181.9 million in 2020 compared to $192.5 million in 2019.\nAs a percentage of revenue, SG&A expenses were 28.6% in 2020 compared to 27.3% in 2019.\nWe had $0.6 million of SG&A from our acquisitions in 2020 and incurred acquisition-related costs of $1 million and $2.2 million in 2020 and 2019, respectively.\nIn addition, there was a favorable foreign currency translation effect of $0.4 million and we received government assistance benefits of $2.2 million in 2020.\nExcluding SG&A from our acquisition, acquisition-related costs, the impact of foreign currency translation and government assistance benefits, SG&A expenses were down $7.4 million or 4% compared to 2019, primarily due to a decrease in travel-related costs.\nOur GAAP diluted earnings per share in 2020 was $4.77, up 5% compared to $4.54 in 2019.\nOur GAAP diluted earnings per share in 2020 includes $0.12 from an intangible asset impairment charge, $0.07 of restructuring costs, $0.04 of acquired backlog amortization, $0.03 of acquisition costs and $0.03 from a discrete tax benefit.\nIn addition, our 2020 results included pre-tax income of $6.1 million or $0.39 net of tax attributable to government employee retention assistance programs.\nIn the fourth quarter of 2020, adjusted EBITDA was $32.1 million or 19.1% of revenue compared to $32.2 million or 17.6% of revenue in the fourth quarter of 2019.\nOn a sequential basis, adjusted EBITDA increased 7% due to increased profitability in our Material Handling segment.\nFor the full year, adjusted EBITDA was $115.9 million or 18.3% of revenue compared to the record set in 2019 of $127.1 million or 18% of revenue.\nIn the fourth quarter of 2020, operating cash flow was a record $40.3 million and included a positive impact of $12.8 million from working capital compared to operating cash flows of $39.2 million in the fourth quarter of 2019, which included a positive impact from working capital of $17.9 million.\nFor the full year, operating cash flow was $92.9 million, down 5% compared to the record of $97.4 million in 2019.\nWe had several notable nonoperating uses of cash in the fourth quarter of 2020.\nWe repaid $30.1 million of debt, paid a $2.8 million dividend on our common stock and paid $2.2 million for capital expenditures.\nFor the full year, we repaid $72 million of our debt.\nFree cash flow was a record $38.1 million in the fourth quarter of 2020, increasing 69% sequentially and 7% compared to the fourth quarter of 2019.\nFor the full year, free cash flow was $85.3 million, down $2.2 million or 2% compared to the record of $87.5 million in 2019.\nLet me turn to our earnings per share results for the quarter.\nIn the fourth quarter of 2020, GAAP diluted earnings per share was $1.40 and adjusted diluted earnings per share was $1.54.\nThe $0.14 difference relates to an intangible asset impairment charge of $0.12, restructuring costs of $0.01 and amortization of acquired backlog of $0.01.\nThe $0.12 intangible asset impairment charge is associated with our timber harvesting product line, which is part of our Wood Processing Systems business.\nThis is an ancillary product line that was part of our acquisition of NII FPG's Forest Products business in 2017 and represents less than 1.5% of our consolidated revenues in 2020.\nWe experienced a decrease in demand for these products in 2019, which continued into 2020 due to several factors including a general softening in demand for equipment used in steep slope logging due to reduced availability of timber, higher stumpage fees and the resulting closure of some sawmills in Western Canada.\nWe evaluated the recoverability of the intangible asset related to this business, which resulted in a pre-tax impairment charge of $1.9 million in the fourth quarter of 2020 and $2.3 million in the fourth quarter of 2019.\nAfter these impairment charges, the remaining intangible asset for this product line is $0.5 million.\nIn the fourth quarter of 2019, GAAP diluted earnings per share was $0.76 and adjusted diluted earnings per share was $1.32.\nThe $0.56 difference relates to a $0.55 charge for the settlement of a pension plan, an intangible asset impairment charge of $0.16, and restructuring costs of $0.01, which were partially offset by a $0.16 tax benefit associated with the exercise of previously awarded employee stock options.\nThe increase of $0.22 in adjusted diluted earnings per share in the fourth quarter of 2020 compared to the fourth quarter of 2019 consists of the following: $0.21 due to higher gross margins, $0.15 from a lower recurring tax rate, $0.07 due to government assistance programs, $0.06 due to lower interest expense, $0.02 due to lower operating expenses and $0.01 from the operating results of our acquisition.\nThese increases were partially offset by $0.29 due to lower revenue and $0.01 due to higher weighted average shares outstanding.\nCollectively, included in all the categories I just mentioned was a favorable foreign currency translation effect of $0.03 in the fourth quarter of 2020, compared to last year's fourth quarter due to the weakening of the U.S. dollar.\nNow turning to our earnings per share results for the full year on slide 17.\nWe reported GAAP diluted earnings per share of $4.77 in 2020, and our adjusted diluted earnings per share was $5.\nThe $0.23 difference relates to an intangible asset impairment charge of $0.12, restructuring costs of $0.07, amortization of acquired backlog of $0.04, acquisition costs of $0.03 and a discrete tax benefit of $0.03.\nWe reported GAAP diluted earnings per share of $4.54 in 2019 and our adjusted diluted earnings per share was $5.36.\nThe adjusted diluted earnings per share excludes $0.55 from a pension settlement charge, $0.32 for the amortization of acquired profit and inventory and backlog, an intangible asset impairment charge of $0.16, acquisition costs of $0.06, $0.01 of restructuring costs and $0.29 of tax benefits from the exercise of previously awarded employee stock options.\nDecrease of $0.36 in adjusted diluted earnings per share from 2019 to 2020 consists of the following: $1.87 from lower revenue and $0.05 from higher weighted average shares outstanding.\nThese decreases were partially offset by $0.45 from lower operating expenses, $0.39 from government assistance programs, $0.35 due to lower interest expense, $0.33 from higher gross margins, $0.03 from the operating results of our acquisition and $0.01 from a lower recurring tax rate.\nCollectively, included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of $0.04 in 2020 compared to 2019.\nNow let's turn to our liquidity metrics, starting on slide 18.\nCash conversion days measure, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, was 125 at the end of the fourth quarter of 2020, down from 140 at the end of the third quarter of 2020, but up from 104 days in the fourth quarter of 2019.\nThe increase in cash conversion days from the prior year was driven by a higher number of days in inventory and lower number of days in accounts payable due to a number of factors, including delays in capital project deliveries, weakness in capital project activity and delays in maintenance spending by our customers.\nAs I've noted on past calls this year, our subsidiaries managed their inventory supply to ensure that critical components are available for our customers as needed and the timing of these purchases has been difficult to predict in the current environment.\nWorking capital as a percentage of revenue was 14.2% in the fourth quarter of 2020 compared to 15.6% in the third quarter of 2020 and 12.2% in the fourth quarter of 2019.\nNet debt, that is debt less cash, at the end of 2020 was $166.8 million compared to $232.8 million at the end of 2019.\nWe were able to lower our net debt by $66 million due to the excellent free cash flow generated in 2020.\nOur interest expense decreased 42% or $5.4 million to $7.4 million in 2020 compared to $12.8 million in 2019 due to our ability to successfully leverage cash generated around the world to pay down debt and lower interest rates.\nOur leverage ratio calculated defined in our credit agreement was 1.61 at the end of the fourth quarter of 2020, down from 2.03 in the fourth quarter of 2019, as we continue to make excellent progress in paying down debt.\nRegarding guidance, our current environment continues to make forecasting difficult.\nGiven the current uncertainty, we'll not be providing formal guidance at this time for 2021.\nWe will reevaluate providing guidance as we progress through the year.\nWhile we are not providing guidance, I would like to provide a few directional comments on our outlook for 2020.\nWe had a significant increase in demand for our Parts & Consumables and especially our capital products in the fourth quarter, and we anticipate an overall increase in bookings in 2021.\nWe currently anticipate an overall increase in revenue of 9% to 12%, with stronger performance in the second half of the year.\nWe anticipate the first quarter will be our weakest quarter and the fourth quarter will be our strongest.\nI would caution here that this is predicated on the COVID-19 vaccination rollout improving business conditions in the second half of 2021.\nWe also anticipate the mix will be weighted more toward capital in 2020.\nExcluding the government assistance programs, our gross margins came in at 43.1% in 2020.\nFor 2021, despite the heavier mix toward capital, we anticipate gross margins will be close to this level.\nAs a percentage of revenue, we anticipate SG&A will be approximately 27% to 28%, while the percentage of R&D expense will be the same as 2020.\nOverall, we expect minimal benefit from government assistance programs in 2021 compared to the $0.39 we received in 2020.\nWe expect our recurring tax rate will be approximately 27% to 28% in 2021.\nOur recurring tax rate in the first quarter of 2021 may be lower than the remaining quarters as we anticipate receiving a tax benefit from the vesting of equity awards.\nWe anticipate capex spending in 2021 will be approximately 2% of revenue.\nIn addition, we expect depreciation and amortization will be approximately $30 million to $31 million in 2021.\nWe hope these directional comments will help provide insight into how we see our current business environment.",
        "summary": "q4 adjusted earnings per share $1.54.\nq4 gaap earnings per share $1.40.\nqtrly revenue decreased 8% to $168 million.\nwill not be providing guidance at this time."
    },
    {
        "text": "Today, we will discuss the financial performance of KAR Global for the quarter ended March 31, 2021.\nAfter concluding our commentary, we will take questions from participants.\nLet me also mention that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures.\nToday on the call, we have Jim Hallett, Executive Chairman; Peter Kelly, CEO; and Eric Loughmiller, CFO.\nConsistent with our announcement earlier this year, Peter Kelly has transitioned into the role of CEO of KAR Global beginning April 1.\nIt has been my pleasure getting to know so many of you and sharing KAR's story with you.\nI also want to congratulate Peter Kelly and all of KAR on what I would call a seamless leadership transition.\nPeter has been an inspirational leader in our company for over a decade and is a true industry pioneer.\nHe has been the architect of our digital transformation and has a clear bold vision for KAR's future, which I know he will begin sharing with you today.\nThis is the right time for this transition, and Peter is the right leader for our customers, for our investors and for our employees.\nI appreciate that, Jim.\nI will then provide some insights on the dynamics in our industry and what I believe we can expect to see over the rest of this year.\nBut I plan to spend most of my time focused on my vision for the future of KAR Global.\nI'm going to start with the first quarter.\nI was pleased with our first quarter performance.\nDespite operating in an environment of constrained supply across our industry, we achieved the following results.\nWe facilitated the sale of 753,000 vehicles, representing gross auction proceeds of $11.4 billion.\nWe generated $582 million in total revenue and $489 million in net revenue.\nWe generated a total gross profit of $251 million, representing 51% of net revenue.\nAnd we generated adjusted EBITDA of $123 million, an increase of 39% versus Q1 of last year.\nPerhaps even more importantly, we saw our strongest performance to date by far in our digital dealer-to-dealer marketplaces, BacklotCars and TradeRev.\nWe completed the migration from TradeRev to BacklotCars in the U.S. in the first quarter ahead of our schedule.\nOn a combined basis, we facilitated the sale of over 100,000 vehicles on these marketplaces within Q1, representing growth of 81% compared to Q1 of 2020.\nThis is very encouraging.\nEric will provide more detail around these and other financial and operating results later in the call.\nI would now like to speak to what we can expect over the rest of this year.\nI mentioned that in Q1, we were operating in an environment of constrained vehicle supply across the wholesale used vehicle market.\nThis is particularly the case when it comes to the commercial vehicle category, affecting repossessed vehicles, off-lease vehicles and rental vehicles.\nThe root causes vary, but they all originate in the COVID pandemic.\nThese supply side dynamics for commercial vehicles are industrywide and they're not in our control.\nHowever, there is a silver lining.\nFirst, I believe that these dynamics are temporary and volumes will return to normal over time.\nWhen that happens, I believe KAR will be a strong beneficiary given our market position, our technology platforms and our strong relationships with commercial consignors.\nUntil that happens, we will continue to run the business prudently recognizing and adjusting to the volumes that are available to us.\nThe dealer consignment category has been less impacted by these dynamics, although many dealers are more likely to keep their trade-in vehicles given the current high demand and prices on used vehicles.\nSo given that fact, I am even more encouraged by our strong performance in dealer consignment in the first quarter.\nThe second piece of good news is that even with these shortfalls in supply, our business continues to perform well.\nWe have meaningfully and permanently adjusted our cost structure and streamlined our operations in every corner of our organization.\nThis has enabled us to react to downward changes in the market, while remaining well prepared for when supply increases again.\nA focus on cost management is part of our corporate culture, and it is important for us to continue to demonstrate strong unit economics during this period of supply constraint.\nSo with that, I'd like to spend the balance of my time sharing some perspectives on the business and what I believe is the significant opportunity that exists for KAR as we look to the future.\nKAR operates leading used car digital marketplaces, serving business-to-business customers in North America and Europe.\nWe do this through an off-premise model, which means cars are launched for sale that are not physically at our sites, as well as through an on-premise model, which means cars are physically on our sites, to efficiently enable our business-to-business customers to sell, buy, service, transport and finance used vehicles.\nWe provide these services using our digital platforms, our proprietary data developed from tens of millions of transactions, our unique inspection tools and capabilities, our transport and logistics expertise, our ability to value and finance vehicles and our ability to store and service cars from a North American footprint of over 70 locations.\nCore of this business are a long-standing relationships with dealers, motor manufacturers, finance companies, fleet operators and rental car companies.\nAnd as you know, we report our business in two segments: ADESA and AFC.\nAs I see at the ADESA segment has two components.\nThe first component is our North American used vehicle marketplaces.\nThere were close to 20 million wholesale used vehicle transactions in the U.S. and Canada in 2020.\nIn our marketplaces, OPENLANE, BacklotCars, ADESA.com and TradeRev facilitated approximately three million of those.\nThe marketplace gross auction proceeds of those transactions was approximately $44 billion.\nAnd we served over 30,000 unique sellers and over 60,000 unique buyers in 2020.\nWhile we are number two in terms of our overall market share, we are number one in a number of important categories, such as our open lane powered private label marketplaces that support over 80% of North America's off-lease inventory.\nThe second component within ADESA is our international used vehicle marketplace.\nWe entered the European market some years ago through CarsOnTheWeb and via ADESA in the U.K.\nWe continue to pursue opportunities to serve our global customers and to grow our international presence and market share.\nAnd within our AFC business segment, we are the number two by volume of loan transactions with total outstandings of $1.9 billion.\nWe provided 1.5 million loans to over 14,000 dealer customers in 2020.\nWith that as a backdrop, I'd like to comment on our strategy.\nAnd I'm going to focus the remainder of my remarks today on the North American marketplaces, and I will cover AFC and International in future calls.\nSo the market for buying and selling used vehicles is undergoing significant change.\nOur customers are evolving.\nSome are eager to embrace the power of digital technology and the shift to digital marketplaces that COVID has accelerated.\nOther customers are adapting to transition to off-premise sales more slowly.\nOur goal is to provide all customers, buyers and sellers with a full range of capabilities to meet their needs and to help them to be more successful.\nToday, we are no longer running vehicles in lane, and we have no plans to do so.\nHowever, we have the ability to inspect and launch for sale vehicles from any location or alternative to bring them to any of our 70-plus sites to store, inspect and if need be, service them before selling them.\nAs a result of this, 100% of the cars we sold in Q1 were sold digitally, and 54% of them were sold off-premise compared to 46% sold off-premise a year ago.\nI know that some investors are concerned that this shift to digital could erode our profit margins.\nI would point out that we were able to increase our gross profit per vehicle sold in the ADESA segment to $264 in Q1 of this year versus $228 in Q1 of last year and $242 in Q1 of 2019.\nI believe digital marketplaces are the future of the business-to-business vehicle marketing industry and that they offer superior outcomes for customers.\nSome competing auctions are running cars in lane, appealing to what was familiar to buyers and sellers pre-pandemic.\nHowever, this gives us an opportunity to run real-life experiments to demonstrate to buyers and sellers that our digital marketplaces offer superior outcomes for both sides.\nBenefits of our digital marketplace model include: for buyers, greater convenience, greater choice and selection and lower costs; for sellers, increased buyer participation with more buyers viewing and bidding on your vehicles, greater geographical reach, reduced days to sale, reduce time to cash and improve proceeds.\nWhile off-premise sales are likely to continue to increase, and we are well positioned for this, there is still a role for bringing vehicles on-premise to our facilities and for providing related services.\nThis is particularly true for commercial sellers, who have the greater need for these services and who have typically been the principal customers for these services in the past.\nSo this leads me to our overall competitive position and our points of differentiation.\nWholesale automotive industry remains a network effect business, where like any other marketplace business, scale and breadth of capabilities to get success.\nIn this context, my belief is KAR is better positioned than anybody else.\nWe offer buyers and sellers a broader set of marketplace offerings tailored to their specific needs.\nFor example, The OPENLANE platform provides our OEM and captive finance customers with a highly customizable platform for their marketing of their off-lease vehicles.\nOur BacklotCars and TradeRev marketplaces are also strongly differentiated platforms for the off-premise dealer segment in their respective geographies.\nWe believe that our physical infrastructure is a strong differentiator and will remain one even in the more digital world of the future.\nWe offer the ability to sell cars either on-premise or off-premise.\nAnd we have the capability to deliver value-enhancing services, such as detailing, reconditioning and vehicle repair for those vehicles at our facilities.\nWe also offer our customers a larger base of market participants and counterparties, meaning more buyers and more sellers, and a broader suite of ancillary services, such as transportation, financing, buy back guarantee products, etc.\nFinally, the data from our entire digital marketplace with over three million vehicle sales transactions annually, creates unique opportunities for our business.\nSo when I think about our competitive position, I think we have a strong positive differentiation in the eyes of our customers.\nVersus our physical auction competitors, KAR offers superior digital capabilities, with best-in-class offerings, such as BacklotCars, TradeRev, OPENLANE, Simulcast Plus.\nWe strengthened these digital capabilities further this week with the acquisition of Auction Frontier.\nFinally, we also have considerably broader reach than any stand-alone independent auction versus newer vendors who offer point solutions for the digital off-premise dealer segment.\nJust looking at that off-premise dealer segment by itself, we have a similar scale to our leading competitor.\nBut taking the market as a whole, we have considerably more scale.\nWe also offer our buyers and sellers a broader set of marketplace offerings, a choice of on-premise or off-premise, a larger base of counterparties, a broader suite of ancillary services, such as reconditioning, transportation, land, data, financing, etc.\nSo I'd like to speak to where we're going to as a company and to our key initiatives.\nIn the simplest form, we intend to grow our volumes and grow our share.\nThe automotive marketplace is large and relatively stable.\nTotal new and used vehicle retail transactions in the United States alone amount to 50 million to 60 million vehicle transactions in most years.\nWe estimate well over 20 million retail -- used vehicle trade-in transactions per year as well.\nAnd also another 20 million wholesale used vehicle transactions.\nWe believe that a more digital model significantly expands our addressable market to include all of the approximately 20 million wholesale used vehicle transactions currently taking place each year and potentially vehicles in some of the other marketplace categories.\nSo we will be focused on growing our volumes and increasing our share in this larger addressable market that now exists for our services.\nWe also aim to achieve a tighter integration of services across our marketplace platforms.\nWe'll create a one-of-a-kind value proposition for buyers and sellers.\nToday, we have a number of best-in-class technology and data capabilities and other service offerings that may be only available on select platforms that we offer.\nWe are working to integrate those across all of our platforms so that all of our customers can benefit from them.\nDigital will also allow for a more streamlined cost structure for our operations.\nWe will preserve the digital sales model that we have transitioned to during COVID, and I believe this will allow us to sustain the cost reductions that we have already achieved.\nHowever, we will also continue to adjust our fixed cost structure to reflect the fact that as we grow our business, an increasing percentage of our sales will likely be off-premise.\nWe will constantly evaluate where we have had the opportunity to become more efficient and where we need to invest to accelerate our growth.\nOur physical auctions of the past will evolve into our vehicle logistics centers of the future.\nWe also intend to grow our ancillary services businesses, including AFC, by increasing the cross-selling and increasing the attach rate for these services on the vehicles sold within our marketplaces.\nGreater use of our services by existing customers provide a meaningful opportunity for financial growth, and I believe that digital will help raise awareness, interest, engagement and the attach rate of these offerings by our customers.\nWe intend to measure and report on our progress using our fresh set of key metrics that reflect our transition to a digital marketplace company.\nThere are five key metrics that we will use for the ADESA segment.\nThe first metric is total vehicles sold and total gross auction proceeds.\nIn Q1, we sold 753,000 vehicles, representing $11.4 billion in proceeds.\nNotwithstanding the near-term supply constraints that I discussed earlier, our intention is to grow our volume of vehicles transacted over time.\nWe will measure our performance based on growing the volume of cars sold in the aggregate across all of our marketplaces.\nSecond metric is the percentage of vehicles sold off-premise, and in Q1, this was 54%.\nWe believe this metric gives investors the opportunity to understand how our customers are evolving and is an indicator of our transition to a more asset-light model.\nThe third metric is the number of vehicles sold on the TradeRev and BacklotCars platforms on a combined basis.\nAgain, in Q1, this was 100,000 vehicles, representing 81% growth versus Q1 of last year.\nThis metric will provide insight on this important and growing segment in our business.\nIt will make it easier for investors to compare our volumes with those of competitors.\nA fourth key metric, gross margin per vehicle sold within the ADESA segment.\nIn Q1, this metric was $264.\nThis is a key metric that will help investors understand how we are navigating the mix shift from on-premise to off-premise.\nThe on-premise and off-premise models have different fee structures, but they also have different cost structures, and ultimately, those get reflected in an overall gross profit per vehicle sold.\nAnd the fifth metric, SG&A per vehicle sold within the ADESA segment.\nIn Q1, this was $186.\nWe believe this metric provides investors with an understanding of how we are transitioning our fixed cost base to align with our transition to a digital marketplace-driven business, one that is more asset-light.\nIn addition to those metrics within the ADESA segment, we will also be focused on the following key metrics at AFC.\nThe number of loan transactions in Q1, 372,000 loan transactions.\nAnd the revenue per loan transaction, which in Q1 was $177.\nFinally, two key metrics relating to KAR overall.\nAdjusted EBITDA, Q1 $123 million, I believe that adjusted EBITDA remains the most relevant metric of KAR's earnings performance and will continue to be a key metric for myself and the management team.\nFinally, cash flow from operations.\nIn Q1, $165 million.\nWe will continue to highlight the strong cash generation power of the KAR business model, and we'll continue to view this as a key performance metric.\nMore importantly, I'm pleased with our progress of our digital transformation, our successful integration of TradeRev and BacklotCars platforms and the continued growth in our off-site or off-premise sales mix.\nAs we look to the rest of 2021, we should expect a continuation of the supply constraints that I described.\nWhen it comes to our future vision and our performance, I believe we have a significant opportunity to grow this business and substantially increase the value of this company for all of the reasons that I've mentioned earlier.\nI will be excited to deliver on that in the months and years to come.\nOur growth will be propelled by a relentless focus on our customers, consistent with our stated purpose, which is to make wholesale easy so that our customers can be more successful.\nAnd finally, I want to be very clear.\nWe have crossed the digital chasm, and we are operating as a digital marketplace business with industry-leading platforms, solutions and infrastructure that clearly differentiates us from our competitors.\nWe will build on our strong position, and we intend to extend our lead in operating the most active, technologically advanced and data-driven marketplaces within our industry, consistent with our vision of building the world's greatest digital marketplaces for used vehicles.\nWith that, I will hand over to Eric for a more detailed review of the financial results from the first quarter.\nAnd let me start by stating our results for the first quarter were much improved over the fourth quarter despite continued supply constraints.\nThe results were driven by our focus on controlling costs, both direct and SG&A and taking advantage of the full suite of KAR Global offerings to optimize performance across all of our digital marketplaces.\nIn addition, we realized the benefit from minority investments in early stage auto retail businesses.\nI will talk more about the strategy behind these investments in a few moments.\nWe are pleased with the increase in auction fees per vehicle sold, increasing 6% to $313 from $296 last year.\nThis metric was also up sequentially from $304 in Q4.\nThe auction fees per vehicle sold reflect the increase in the average selling price for vehicles across all of our platforms.\nI consider this quite an accomplishment given the strong performance in our private label platforms that have the lowest auction fees per car sold.\nAnother positive that I don't believe is obvious is the sequential improvement in services revenue despite the continued shortage of supply on our on-premise marketplaces.\nNot surprising, services revenue is down 21% from the prior year, but on-premise volume was down 25% for that same period.\nI will admit that high wholesale used car prices and low supply do put a premium on time to market, which often results in lower attachment rates for ancillary services.\nHowever, we have offset some of the negative impact of these factors by increasing our revenue and services provided to buyers of wholesale used vehicles.\nMany retailers are using our reconditioning services to prep cars for retail sale or delivery, as our capacity and service capabilities provide a faster, more cost-effective reconditioning capability than the alternative's retailers may have available internally or in their local market.\nWe consider this a growth opportunity for ADESA going forward.\nPeter has covered some of the key metrics that demonstrate the strength of our performance, including gross profit as a percent of net revenue and gross profit per vehicle sold for the ADESA segment.\nThe strong gross profit performance reflects our ongoing focus on managing costs in line with the volumes sold and services delivered.\nWe did benefit from the strength in used car pricing, confirming our view that the losses on sale of ADESA Assurance and inherited vehicles in North America that we experienced in Q4 were transitory.\nDespite a 23% year-over-year increase in revenue from purchased vehicles, we experienced a 100 basis point improvement in gross profit due to decreased losses on purchased vehicles.\nTo be clear, we incurred a loss reflected in our gross profit for the quarter from the sale of these vehicles, but these losses were in line with normal trends we typically experience.\nNet losses on the sale of vehicles returned under the ADESA Assurance program were approximately 33% of the premiums earned in the first quarter.\nWe have recently expanded the reach of our ADESA Assurance offering and see this as a growing contributor to our performance.\nStaying on the ADESA segment, I am often asked about the run rate of SG&A.\nI consider the first quarter a fairly clean quarter within SG&A at ADESA.\nSG&A includes 25% of a full year bonus and a full quarter of BacklotCars' expenses.\nWe did complete the migration of the TradeRev U.S. platform to BacklotCars and may have the opportunity to realize additional synergies in future quarters that may offset additional costs as we enter new markets.\nThe AFC segment also performed well in the first quarter.\nOperating profit was essentially flat with the prior year.\nAdjusted EBITDA for the first quarter was up 10% year-over-year.\nWe saw our loan portfolio decline through most of 2020 and are now seeing the portfolio grow, as strong wholesale prices result in higher average loan balances per vehicle floored.\nWhile lower transaction volumes in all auction channels were clearly a headwind for AFC, we saw strong unit economics with revenue per loan transaction up to 177 from 155 a year ago.\nWe also have reduced total SG&A in the AFC segment by 12% compared to the first quarter of 2020.\nWe had a significant decline in the provision for credit losses in the first quarter as compared to the prior year as well.\nThis decline reflects the strength in the wholesale used car market despite the constraints on supply.\nI will also point out that the allowance for credit losses was increased $3.5 million over the year-end balance in this allowance.\nWe recognize in the allowance the expected losses for loans originated.\nI consider this a conservative position given the strong credit performance we are seeing in the market today.\nA strength of the KAR business model is the cash-generating characteristics of the business.\nAs you can see in our statement of cash flows, we generated $165 million in cash from operations.\nTypically, we see the first quarter as a consumer of working capital through most of the quarter, but a characteristic of a tight supply environment is faster turn times for services and reduced cycle times for the sale of vehicles.\nThis creates a very positive situation for our cash position.\nAs Peter mentioned previously, the outlook for the remainder of the year is likely to be constrained supply of vehicles.\nOne of the positives in this supply environment is it will be very good for generating cash from operations.\nWith our strong cash position and our outlook to continue generating strong free cash flows, it is important that we continue to have a balanced prioritization of capital allocation.\nIn the first quarter, we purchased $80 million of KAR stock in the open market at an average price of $15.47 per share.\nOur open window was very limited in the first quarter, and this represented the maximum number of shares we could purchase during the open window.\nTo the extent we acquire shares in the open market at attractive prices, we can offset the dilution created by our issuance of the preferred stock last year.\nWe are being disciplined in our share repurchase program and have approximately $210 million remaining on our share repurchase authorization.\nWe also utilized $80 million of cash for the purchase of Auction Frontier this week.\nThis acquisition is clearly aligned with our strategy, as the Auction Frontier technology is an integral part of the digital marketplaces we operate, as well as others operated in our industry.\nIn addition to the cash paid at closing, the transaction includes $15 million in contingent consideration tied to customer retention.\nThe contingent consideration is payable in two years if the terms of the contingency are met.\nWe still want to be conservative, as it relates to our cash balances and deploying capital.\nWe think it is a real asset right now to have a strong cash balance.\nWith that said, we will continue to generate strong cash flows in our businesses while investing in growth, especially in the digital dealer-to-dealer marketplace.\nNow let me speak to the gains on investments we had in the first quarter.\nOver the past several years, we have taken the opportunity to develop strategic relationships with certain early stage retail used car businesses.\nThese strategic relationships were centered around providing our services to support the development and growth of these businesses.\nIn some cases, we have taken the opportunity to participate in investing in capital raises by these businesses to demonstrate our commitment to supporting them.\nThese investments have all been minority positions.\nTwo of these investments that have been publicly disclosed are CarLotz, and most recently, Ravin AI.\nWe have made other investments that have not been publicly disclosed, and those investments were all less than $5 million each.\nThe primary goal when making investments in these enterprises is to establish a strong strategic relationship.\nAnd we feel this goal has been achieved in each situation we have deployed capital.\nAnd now we are seeing the recognition of the value of the businesses created by these early stage enterprises in significant appreciation of our investments.\nAll of these investments are carried at cost until the underlying securities become quoted on an established stock market or the investment is monetizing cash through an alternative transaction.\nIn the first quarter, we realized approximately $17 million in realized gains from proceeds from the sale of equity securities.\nWe have an additional $43 million in unrealized gains on equity securities that are now publicly traded.\nWe are currently restricted on the sale of these equity securities and those restrictions lapse later this year.\nFor clarity, both realized and unrealized gains are included in operating adjusted net income.\nAs adjusted EBITDA excludes noncash items, we have excluded the unrealized gains in the computation of adjusted EBITDA.\nWe will continue to periodically invest in early stage businesses that we see operating in our marketplace.\nHowever, we do not expect these situations to be common and are not expected to be a material use of capital.\nAt that time, Peter will provide a detailed review of our strategy and what the future of KAR holds for our investors.\nWe will get a safer date out as soon as the details are finalized, but we continue to -- we wanted to give you early notice of this event.\nThis will give Peter the opportunity to go into much more detail on our strategy, what our business model will look like in a fully digital world and highlight the many competitive advantages KAR Global has, as we look forward.",
        "summary": "q1 revenue fell 10 percent to $581.6 million.\npreviously stated 2021 guidance remains unchanged."
    },
    {
        "text": "Today we'll discuss the financial performance of KAR Global for the quarter ended June 30 2021.\nAnd after concluding our commentary we'll take questions from participants.\nLet me also mention that throughout this conference call we will be referencing both GAAP and non-GAAP financial measures.\nI will also go into some detailed vehicle supply dynamics in our industry and what we can expect to see over the rest of this year and into 2022.\nAnd I will also provide updates on the continued growth of our dealer-to-dealer platforms BacklotCars and TradeRev the solid performance of our finance business AFC and our continued diligence and management of a KAR's overall cost structure.\nSo I'll start with the second quarter.\nI was pleased with our second quarter performance particularly given the supply headwinds in our industry.\nDespite operating in an environment of very constrained vehicle supply especially from commercial sellers we achieved the following results.\nFor KAR overall we generated $585 million in revenue an increase of 40% from Q2 of last year.\nWe generated total gross profit of $252 million which represents 51.7% of revenue excluding purchased vehicles.\nWe generated $116.5 million of adjusted EBITDA which was a 46% increase compared to Q2 of last year.\nWe had another strong quarter of cash generation.\nCash flow from operations for the quarter was $131 million.\nWithin the ADESA segment we facilitated the sale of 711000 vehicles representing for $11 billion in gross auction proceeds.\n53% of our Q2 sales were from off-premise locations.\nThat was similar to our experience during Q1.\nWe sold 119000 vehicles on the TradeRev and BacklotCars platforms on a combined basis.\nThis represents our strongest performance to date in our digital dealer-to-dealer marketplace.\nIt represents a growth of 65% compared to Q2 of last year and sequential growth of 19% versus Q1.\nI continue to be encouraged by our performance as part of the business.\nWe generated $277 in gross profit per vehicle sold in the ADESA segment.\nThat represented an increase from the $264 in Q1.\nSG&A for KAR overall was $140 million for the quarter.\nSG&A for the ADESA segment was $131 million which was down $9 million from Q1 resulting in SG&A of $185 per vehicle sold.\nSo I'd now like to speak about the supply dynamics of used vehicles within our marketplaces the headwinds that we faced in Q2 and why I believe the medium and longer-term outlook is much more encouraging.\nIn our last earnings call I mentioned that KAR was operating in an environment of constrained vehicle supply across the wholesale used vehicle market particularly in regard to volumes being offered by commercial sellers.\nI said that the root causes varied but they all originated with the COVID pandemic.\nThose supply constraints worsened during Q2 and they represented a significant headwind to our performance during the quarter.\nThat's why I'm encouraged by our performance in spite of those headwinds.\nI also believe there's increasing evidence that we're now at the bottom of the cycle and that we should expect to see some recovery in those commercial volumes.\nAnd when that happens it should be a very positive thing for KAR.\nTo help explain all of this I'd like to look back to Q2 of 2019 and to what a more normal supply dynamic looks like for our company and our industry pre-COVID.\nSo in Q2 of 2019 KAR facilitated a sale of 994000 vehicles.\nOver 70% of those approximately 700000 vehicles were sold by commercial sellers.\nThe remainder which was approximately 275000 vehicles were sold by dealer sellers.\nSo from that statistic alone we can see that historically commercial sellers have represented the majority of KAR's used vehicle supply over 70%.\nThis is more so than our industry overall which is more like 50-50.\nOne challenge that KAR has faced over the past few quarters is that those commercial seller volumes have been under much greater pressure than the dealer volumes for reasons I will discuss here in a moment.\nI believe that pressure is cyclical in nature and I believe that we are now at the bottom of that cycle.\nDuring Q2 of this year the volume sold on behalf of commercial sellers was approximately 420000 vehicles a decline of over 40% versus Q2 of 2019.\nSo that's a significant and painful decline.\nHowever a key question is how does that compare to the market overall?\nA good basis for comparison is to look at the total volume of vehicles sold by commercial sellers at all U.S. auctions that is at ADESA and its competitors.\nThis data is published by Auctionet.\nIn Q2 of 2021 the volume of vehicles sold by commercial sellers at all U.S. auctions was down by 48% versus Q2 of 2019 in our industry according to Auctionet.\nBased on that statistic KAR's decline in total commercial volume across all channels was less than the industrywide decline in commercial vehicles at U.S. auctions.\nSo that tells me that we did not lose share with these commercial sellers.\nOur performance in Q2 should be judged against what I would consider to be historically low industry volumes of vehicle supply from commercial sellers.\nAnd viewed through that lens I am pleased with the performance.\nI also mentioned that there is evidence that we're currently at the bottom of the cycle.\nThe dynamics relating to off-lease vehicles repossessed vehicles and rental vehicles all point to an improving commercial supply picture over time.\nI believe that when this happens it will be very positive for KAR given our digital shift our streamlined operations and our resulting lower cost structure.\nAnd I'd like to go through that in a little bit more detail.\nI'm going to start with off-lease vehicles.\nKAR sells significant volumes of off-lease vehicles through OPENLANE and also at ADESA.\nThe volume of off-lease vehicles flowing through both of these marketplaces has been severely impacted by the disruption to new car production brought on by the shortage in semiconductors.\nIn the face of this supply shortage of new vehicles market values for used off-lease vehicles have increased by as much as 40% versus one year ago.\nThis means that consumers now have considerably more equity in their off-lease vehicles than at any point in history.\nBased on our internal analysis the average equity in an off-lease vehicle increased to an all-time high of close to $8000 per vehicle in Q2 and that was up from an average of less than zero two years ago.\nThis makes lessees much less likely to return the vehicle from the lease sense.\nAnd if the lessee does return the vehicle it makes it much more likely that the grounding dealer will purchase the vehicle since many grounding dealers have a contractual option to purchase the vehicle at residual value.\nWe saw both of these trends in Q2.\nThe positive equity situation for lessees resulted in a reduction of over 50% in off-lease vehicles being returned versus what we would normally expect.\nFor those vehicles that were returned we saw upstream conversion reach an all-time high of approximately 80% in Q2.\nSo while we enjoy nearly 80% market share in the upstream off-lease segment in North America a record number of vehicles were kept up by consumers where we received no fees or by the grounding dealers where we generate lower revenue.\nThe results of both of these changes was that considerably fewer vehicles flow deeper into the marketing process where they would have generated stronger economics.\nSo as we look ahead we believe that the semiconductor production issues are now being addressed and we expect production of new vehicles to start to improve starting in the second half of this year.\nWhile we believe it will take time ultimately this increased production will drive a normalization in supply and demand and a moderation in used vehicle values.\nThis should in turn result in increased volumes of off-lease vehicles being returned and processed through our private label platforms and flowing into our higher-margin channels like adesa.com and our on-premise sales.\nBut clearly this will take time.\nIn the meantime we also know that lease originations continue to be strong meaning that off-lease vehicles will continue to be a strong source of supply for our industry well into the future.\nThe second category of vehicles is repossessed vehicles.\nWe sell a significant of repossessed vehicles at ADESA given the large number of banks and lenders in our commercial seller portfolio.\nIn just about every prior economic dislocation event our industry has experienced an increase in repossession volume.\nHowever this did not happen during the COVID pandemic and I believe that the unprecedented level of government stimulus served to avert it.\nGovernment stimulus coupled with other consumer protections has meant that consumers could continue to make their monthly payments and avoid repossession.\nIn Q2 based on our data repossession volume across our industry continued to be about 35% below what we would consider to be normal levels.\nLooking ahead after the current wave of government stimulus ends I think it's reasonable to expect that repossession volumes will trend back toward normal levels over time and that our volumes in that segment should correspondingly improve.\nAnd finally there are rental vehicles.\nWe have less exposure to this category but we still have a meaningful customer base in the segment and this segment offers us an opportunity for volume and profit when the rental market strengthens.\nRental supply within our wholesale marketplaces was very close to zero during Q2.\nIn fact a number of rental companies were actively buying used vehicles within our marketplaces because they were unable to source new vehicles from motor manufacturers owing to the semiconductor shortage.\nThe post-COVID increase in travel has caused rental car companies to start rebuilding their fleets.\nI take this as a positive signal for our industry and our company.\nsince it points to return toward normal at some point in the future.\nSo as we look to all of these three segments off-lease repo and rental I believe that the fundamentals lead us to conclude that compared to our Q2 experience we should expect to see considerably increased volumes over time.\nThe key question is when will this happen and to what extent?\nMy best assessment is that it will take time but there are some key factors that we're watching that may be predicted.\nThe most significant factor in my mind is new vehicle production.\nWe're also monitoring used vehicle values and seeing the unprecedented high prices starting to moderate and even decline a little.\nLower used vehicle prices will help drive more off-lease supply into our marketplaces.\nFinally we are monitoring for any further government stimulus and its impact on the repossession market.\nSo now I'd like to provide an update on our progress in the dealer vehicle category.\nWe sold 292000 dealer vehicles in Q2 of this year.\nThat was an increase of 6% versus the 276000 dealer-owned vehicles that we sold in Q2 of 2019.\nEven if we were to include backlog cars in the 2019 number our total dealer volumes have increased versus Q2 of that year.\nSo our total dealer volumes have now recovered back to what we would consider normal and I'm pleased that we're showing modest growth.\nIf we look at the digital dealer category only Q2 represented our strongest performance yet with 119000 vehicles sold representing year-over-year growth of 65%.\nAnd by the way that includes BacklotCars volumes in the prior year number.\nI was pleased with this performance.\nQ2 represented our first full quarter in the U.S. where we had migrated to the BacklotCars platform.\nWe saw record numbers of participating sellers and buyers and increased volumes of vehicles posted for sale.\nAlthough these higher volumes of vehicles posted were offset by a slightly weakening conversion as the quarter progressed due to the high used vehicle value trends that I talked about earlier.\nIn Canada our TradeRev business performed very well in Q2.\nIt delivered strong volumes and strong profitability.\nThe fact that TradeRev has delivered profitability in Canada which is a more mature digital dealer-to-dealer market makes me encouraged for our prospects in the U.S. market and at an even greater scale.\nOur own analysis of the trends in both the U.S. and Canadian markets also demonstrates that our offerings are helping us address a segment of vehicles that was not coming to our auctions in the past.\nWe are attracting new sellers and new buyers on a daily basis and this reinforces our belief that the digital solution expands the total addressable market available to our business.\nI'd like to spend a few moments talking about our cost structure.\nOver the last several calls we have discussed our strategic focus on reducing our cost structure to reflect our transition to a digital marketplace company.\nThe lower volumes in Q2 coupled with the high percentage of offsite sales continue to reinforce the need for KAR to be very focused on its operating model and its cost structure.\nSo delivering that level of performance in that environment reflects our focus on operations and costs.\nI believe that this focus is reflected in our strong gross profit performance in the quarter both as a percentage of net revenue and also in terms of the gross profit per vehicle sold.\nOur cost focus has also been reflected in the close management of our SG&A.\nThis management of costs has enabled the business to deliver a stronger operating performance off of lower volumes.\nOver the course of the quarter we've also identified further savings opportunities principally relating to SG&A.\nThese have now been acted on or are in the process of being addressed.\nI also believe that as we look to the future there will be opportunities to further refine our processes increasing our efficiency improving the customer experience and reducing our costs going forward and this will continue to be a focus.\nI want to stress however that these reductions have not come and will not come at the cost of strategic investments or of our customer commitments.\nWe continue to invest in the technology the people and infrastructure necessary to extend our lead in the digital transformation and position our company for long-term growth.\nFinally I'd like to provide some updates relating to our finance business AFC.\nI've been pleased with AFC's performance in the present quarter but also over the past 18 months since the onset of the pandemic.\nAFC continues to have healthy margins with gross profit for the quarter right at 80% and with SG&A of under 13% of revenue.\nIn terms of its key metrics AFC had 356000 loan transactions in the quarter.\nThis was in line with the levels that we had expected.\nRevenue per loan transaction was strong at $193 for the quarter.\nKey drivers of this were higher vehicle values and lower risk levels.\nAnd finally speaking of risk we continue to experience lower-than-expected risks driven by current market conditions combined with strong operating processes at AFC.\nSo to summarize my key messages for today I am pleased with our performance for the quarter.\nSpecifically I am pleased that we were able to deliver this level of performance despite historically low levels of commercial seller vehicles which has always been our core business segment.\nI believe we are now likely at the bottom of the curve in terms of commercial vehicle supply.\nI believe that the outlook for off-lease repossessed and rental vehicles will be one of increasing volume over time ultimately returning toward historical levels.\nThis recovery will take time but it's clear to me that we should be a strong beneficiary of this when it happens.\nAnd I think that we're now starting to see the very first signs that that recovery is nearing.\nWhen I look at dealer consignment we sold more dealer consigned vehicles in the same quarter pre-COVID and we delivered our best quarter yet in terms of volumes in our digital channels.\nOur TradeRev business had a strong profitable quarter in Canada.\nAnd our data suggests that our digital model is expanding our addressable market across North America.\nI also believe that our Q2 results and strong unit economics demonstrate that KAR has the ability to be more profitable at lower volumes than was the case historically.\nWhat is important about this is that it also means that as we see the cyclical return of these commercial seller volumes we have the opportunity to be more profitable in the future than we have been in the past.\nFinally notwithstanding the growth levers that exist for us we continue to be very focused on costs finding opportunities in Q2 to further improve our operating model.\nWe intend to maintain that focus and discipline going forward also.\nWith that I will hand over to Eric for a more detailed review of the financial results for the quarter.\nLet me start by highlighting a few items that stand out this quarter.\nAdjusted EBITDA of $116.5 million represents approximately 20% of operating revenue.\nGiven the volume and related revenue headwinds this was a solid performance for the quarter.\nGross profit for the quarter was 51.7% of revenue net of purchased vehicles.\nThe primary drivers of this strong performance gross profit per unit at ADESA $277 up from $224 in the prior year and $264 in the first quarter.\nAFC revenue per loan transaction was $193 up from $115 in the prior year and $177 in the first quarter and this more than offset a decline in the number of loan transactions compared to the prior year and the first quarter.\nPeter mentioned the sequential decline in SG&A.\nHowever SG&A was up from the prior year as we had a substantial number of our employees on furlough for all or part of the second quarter of 2020 and many employees had temporary reductions in compensation last year as well.\nOperating adjusted net income per share of $0.15 was negatively impacted by a reduction in net unrealized gains on publicly traded securities and an increase in our effective tax rate to 44% primarily driven by nondeductible expenses related to the increased contingent consideration recorded for the CarsOnTheWeb acquisition.\nAnd last the working capital generated at KAR continues to be a strength of our operating model.\nWe have generated $296 million of cash from operating activities in the first six months of 2021 of which $131 million was generated in the second quarter.\nThe free cash flow conversion of our business is worth pointing out.\nAs our markets return to normal in the near future I am confident we have sufficient capital available to support our business and its growth for the foreseeable future.\nNow let me give some color on the highlights of our performance.\nFirst our total volumes sold at ADESA was up 10% over the prior year.\nGiven the industry headwinds particularly around the commercial vehicles as Peter mentioned we are pleased with 10% year-over-year growth.\nI am not providing a same-store growth rate because we have integrated all of our U.S. digital dealer-to-dealer business on the BacklotCars platform.\nIf I include the BacklotCars volume for the second quarter of 2020 in our denominator our growth in volume is 4%.\nI think most impressive in our performance is the 65% growth rate in digital dealer-to-dealer for the U.S. and Canada.\nI have included the BacklotCars volume in both years so this is an organic growth rate for the business.\nWe benefited from strong auction fees in the ADESA segment.\nAuction fees per vehicle sold of $333 was up 21.5% from the prior year.\nWe benefited from strong used car pricing in our marketplaces.\nAverage selling price for all vehicles in the second quarter was $16400 compared to $14800 one year ago.\nAs I dug into the details of our auction fees I found that increased average selling prices was not the biggest impact on average auction fees per vehicle sold.\nAverage auction fees on off-premise transactions increased from $119 in 2020 to $153 for 2021.\nThis increase was accomplished even though average selling prices for total off-premise transactions declined slightly as we grew the digital dealer-to-dealer channel 65% while the off-premise commercial volumes declined 15% in the second quarter.\nThe average auction fees for the digital dealer-to-dealer marketplace our fastest-growing marketplace was $268 per vehicle sold an increase of only $1 from the prior year.\nI point this out as some may believe our increased auction fees is completely driven by record high used car values.\nWhile increased used car values is a factor it is not the most significant contributor as some of our digital marketplaces do not have auction fee structures that are highly correlated to used car values.\nOur services revenue has also rebounded even though it is not near fully recovered due to the limited supply of commercial vehicles.\nThe mix of revenues is contributing to our improved gross profit.\nOur services revenue mix is less concentrated on the low-margin transportation revenue and more concentrated on value-added ancillary service.\nWe have all seen the strong used car performance of public retailers.\nIn some ways this is confusing when you look at the wholesale markets and we discuss a lack of supply.\nHowever this situation is creating an opportunity for ADESA.\nA number of used car retailers have called upon us to provide retail-ready levels of reconditioning to help them meet consumer demand.\nBased on our early successes with various retailers we expect to grow revenue from this service offering.\nAFC's strong performance was driven by tremendous growth in revenue per loan transaction as the provision for credit losses is a contra revenue account for a finance entity the significant reduction in the provision for credit losses was a key factor to improved revenue.\nHowever another key contributor was interest and fee income per loan transaction that increased to $191 per loan transaction from $155 per loan transaction last year.\nThis demonstrates the impact of having over 50% of the revenue for AFC from fees creating less dependence on interest rates to drive revenue.\nLower interest rates on floorplan loans were offset by higher average loan balances due to the record high used car values.\nAlso contributing to the strong second quarter results for AFC was lower direct cost and disciplined control over SG&A.\nNow let me speak to the items that impacted operating adjusted net income per share.\nWe currently hold a common stock of CarLotz a publicly traded company that requires us to mark-to-market our investments.\nCarLotz went public through a SPAC transaction in late January and this resulted in us recording our investment at market instead of costs.\nAs the stock price of CarLotz has declined since March 31 we have reduced the unrealized gain on investments by $11.9 million.\nThis required adjustment to the carrying value resulted in a reduction of net operating adjusted net income per share of $0.04 net of income taxes.\nWe also recorded $4.5 million of accrued contingent consideration related to the CarsOnTheWeb transaction as the performance of ADESA Europe formerly CarsOnTheWeb has exceeded the amounts recorded using a Monte Carlo simulation of possible outcomes at the time of purchase.\nOur performance in Europe continues to be strong despite the lack of supply and I expect we will record additional contingent consideration through the end of this year when the earn-out period ends.\nThe earn-out is capped and we are recognizing the increase to the maximum earn-out payment amount ratably over the year so the quarterly expense should not increase from $4.5 million.\nThis is purchase price and will be paid to the previous owners but GAAP requires the adjustment to contingent consideration be recorded as other expense.\nIt is not included in SG&A in our financial statements.\nLet me close with comments on our capital situation.\nWe continue to have a strong balance sheet with our focus on controlling costs and managing the business through a low point in supply in our industry.\nWe deployed $100 million to purchase KAR stock in the open market at an average purchase price of $17.77 in the second quarter.\nYear-to-date we have repurchased $180.8 million of KAR stock in the open market at an average purchase price of $16.66.\nWe have just under $110 million left on our share repurchase authorization.\nWe have sufficient working capital available to support the business through the current economic cycle and also invest in strategic growth as opportunities arise.\nThrough the first half of 2021 our capital expenditures totaling $50.7 million have been focused primarily on our digital marketplaces.\nAnd preparing our platforms for growth we expect to be driven by a cyclical recovery over the next several years.\nWe will continue to invest responsibly in the future of our business through capital projects and maintain or improve our leadership position in the wholesale used car digital marketplaces.\nAlthough the root cause and duration of the current environment in our industry is much different than 2009 and the period that followed I also see many similarities in the impact on volumes trends in used car pricing and the prospects for recovery following a period where we are at the bottom of the down cycle in our industry.\nI continue to see great opportunity for KAR and its investors once the cyclical recovery begins in the near future.\nStephanie you can open the line.",
        "summary": "q2 adjusted operating earnings per share $0.15."
    },
    {
        "text": "Today, we'll discuss the financial performance of KAR Global for the quarter ended September 30th 2021.\nAfter concluding our commentary, we will take questions from participants.\nLet me also mention that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures.\nI'll provide an update on the commercial seller volumes and what we expect to see between now and the end of next year.\nI'll also provide updates on the continued growth in our dealer-to-dealer business with a focus on our digital dealer-to-dealer businesses, BacklotCars and TradeRev.\nI'll provide an update on our acquisition of Carwave and the solid performance of our finance business, AFC.\nAnd I'll close out with some updates relating to our cost structure.\nSo, I'd like to start with the third quarter.\nAnd there is no question but that the third quarter was a challenging quarter, and the challenges were volume related and principally tied to the commercial seller category, specifically to off-lease vehicles.\nThese industrywide volume challenges are tied to the disruption of new vehicle production, and I spoke to these dynamics in detail at our Analyst Day event back in September.\nHowever, I will say that the situation remains largely as I described at that time.\nSo in the third quarter, despite operating in an environment of very constrained vehicle supply from commercial sellers, we achieved the following results.\nFor KAR overall, we generated $535 million in revenue, which was a decline of 10% from Q3 of last year.\nWe generated a total gross profit of $222 million, representing 50.1% of revenue, excluding purchased vehicles.\nWe generated $96.6 million in adjusted EBITDA.\nCash generated from operations for the quarter was $57 million.\nWithin the ADESA segment, we facilitated the sale of 586,000 vehicles, representing over $9 billion in gross auction proceeds.\nNow, these volumes are down 33% versus Q3 of last year.\nWithin that, our total commercial volume was down by 51% versus Q3 of last year and our total dealer consigned volume actually increased by 20%.\n51% of our sales in the third quarter was from off-premise locations, and this is similar to our experience in the first half of this year.\nWe sold 118,000 vehicles on the TradeRev and BacklotCars platforms on a combined basis.\nWe also set new records in terms of total active sellers and total active buyers on these digital dealer-to-dealer platforms in both the U.S. and Canada in the third quarter.\nWe generated $274 in gross profit per vehicle sold in the ADESA segment.\nThis was driven in part by strong auction revenue per vehicle sold and is higher than the gross profit per vehicle generated in the first half of this year and 10% greater than the same statistic from Q3 of last year.\nSG&A for KAR overall was $134 million for the quarter and SG&A for the ADESA segment was $126 million and that was down $14 million from Q1 of this year.\nI continue to be pleased with the performance of our AFC business segment.\nAFC had 351,000 loan transactions in the quarter.\nThis was an increase of 8% versus the same quarter last year and it was in line with the levels that we'd expect.\nRevenue per loan transaction was also higher, 20% higher than Q3 of last year, at $215 for the quarter.\nKey drivers of this were higher vehicle values and lower credit losses.\nAFC continues to experience lower-than-normal levels of risk, driven by the current market conditions combined with strong operations.\nAFC continues to grow its volume of business, as well as reengineered business processes to have a more efficient service delivery.\nAnd for all those reasons, I expect to see continued strong performance from AFC, given the current environment.\nSo, I'd like to speak for a few moments about the supply dynamics of used vehicles within our marketplaces, particularly supply from commercial sellers.\nSo, as I see it, our challenges in the quarter were tied to the lack of commercial seller volumes across our marketplaces.\nAs I mentioned, commercial seller volumes were down by 51% versus the same quarter last year.\nIn our last earnings call and subsequently in our Analyst Day, I went into quite a lot of detail on the drivers of commercial vehicle supply within our industry.\nMy fundamental assessment has not changed.\nI do believe that we're at the bottom in terms of the disruption with the supply of off-lease vehicles and rental vehicles at physical auctions, being very close to zero in both categories.\nMost meaningful to KAR is the disruption in the off-lease volumes, which historically have represented approximately 60% of our total commercial seller volumes.\nNow, volumes of repossessed vehicles also remain below normal.\nI would say that repossession volumes are relatively stable at about 70% of normal levels right now.\nAnd our analysis of the quarter's results indicate that we have maintained our market share with commercial sellers in the quarter.\nSo while we may be at the bottom, I still believe we should expect to remain here for some time.\nIn order for the volumes in our marketplaces to increase, we need to see an increase in new vehicle production, sufficient to reduce the very high used vehicle values and allow more off-lease vehicles to flow into the wholesale channel.\nIn our Analyst Day, we said that we expected new vehicle production to start to improve toward the end of the first half of next year and to continue to improve in the second half, but that we expected it to remain below normal throughout 2022.\nBased on our continued analysis, as well as our ongoing conversations with customers, that assessment has not changed.\nWhat that implies for our business is that we expect the current commercial seller volume constraints to continue through the first half of next year and we expect to see a small improvement in the second half.\nWe expect to see an acceleration in the volume recovery in 2023 and beyond.\nSo now, I'd like to provide an update on our progress in the dealer-to-dealer vehicle category.\nSo first of all, if we look at our total dealer consignment volumes at KAR, and by which I mean digital and physical combined, we sold 274,000 dealer consigned vehicles in the third quarter.\nThat represented an increase of 20% compared to KAR's total dealer volume in Q3 of last year.\nSome of that increase is driven by the acquisition of BacklotCars, but I'm pleased that we were able to increase our overall volume by 20%, given the tight supply dynamics that exist across our industry.\nIf we look at the digital dealer-to-dealer category only, our Q3 volume of 118,000 -- was 118,000 vehicle sold.\nThe comparable metric for Q3 of last year was 58,000.\nSo, we grew our total digital dealer-to-dealer volume by 105%.\nHowever, BacklotCars was not part of KAR in Q3 of last year.\nAnd if we include BacklotCars in last year's number, the growth is approximately 19%.\nWe saw record numbers of participating sellers and buyers on our digital dealer-to-dealer platforms in both the U.S. and Canada in Q3.\nWe also saw continued growth in average vehicle value sold on both TradeRev in Canada and BacklotCars in the U.S. And finally, in Canada, our TradeRev business continued to perform very well, delivering strong volumes in the second consecutive quarter of solid profitability.\nI'd like to spend a few moments on the acquisition of Carwave.\nWe closed on the acquisition of Carwave in early October.\nSo, our Q3 volumes do not reflect any volume from Carwave.\nThe Carwave acquisition has approximately 100,000 vehicles sold per annum.\nCarwave originated in California and is the leading platform for dealers in that market.\nCalifornia, as you might imagine, is a large automotive market.\nIf we look at new vehicle registrations statistics, there are more new vehicle registrations in California each year than in the smallest 20 states combined.\nAlso, California has almost as many new vehicle registrations as the next two largest markets, which are Texas and Florida, combined.\nIt's in our diligence that Carwave platform delivers excellent performance for the sellers and buyers.\nThe average vehicle value sold on Carwave is higher than that sold on BacklotCars, and it also generates a higher revenue per vehicle sold and is profitable.\nAnd of course, the acquisition of Carwave also brings a strong team.\nI believe the acquisition strengthens our map and increases the network effect for digital dealer-to-dealer business in the U.S. Carwave's strength out West and BacklotCars's strength in the middle of the United States means that we now have a stronger footprint than ever before in terms of both geography and depths within any given market.\nUltimately, we see an opportunity to combine those two businesses, bringing the best of both and creating an ever more powerful offering for sellers and the buyers.\nWe also see an opportunity to continue to move up market and sell a larger number of higher value vehicles.\nThis in turn will help drive further increases in revenue per unit sold and stronger margins.\nSo, our integration planning is ongoing.\nBut ultimately, we envision a single solution in the market; a solution that aligns with the needs and preferences of our dealers and that leverages the best technology, features, functionality and economic model of both platforms.\nNow, given the strength of both businesses and the positive momentum that both businesses have, we would likely take a little longer to execute this than was the case with the TradeRev migration.\nWe want to make sure that we don't disrupt our customers and that to the extent we make changes, we're delivering an experience that is better than before for all of our customers.\nAnd finally, the addition of Carwave means that our current run rate with digital dealer-to-dealer transactions is now very close to 600,000 vehicles sold per annum and continuing to grow.\nSo, we are well on our way toward achieving the target that I established in -- on our Analyst Day of 1.2 million digital dealer-to-dealer transactions annually by 2025.\nSo, I'd like to spend a few moments talking about our cost structure.\nOn recent earnings calls and, again, on the Analyst Day event, we've discussed our strategic focus on reducing our cost structure to reflect our transition to a more digital marketplace.\nThe reality of lower-than-normal commercial seller volumes likely persisting through much of 2022 means that our continued focus on cost remains a top priority for me and for the management team.\nSo, I'd like to provide an update on that.\nDuring this last quarter, we initiated a project into prioritizing and accelerating key areas for growth while refining our operating model toward a more digital future and also to address the lower-than-normal commercial seller volumes that we are currently experiencing.\nWe've committed significant resources toward that initiative and there are four principal work streets.\nI referred to these in our Analyst Day, but to recap them here, they're are as follows.\nOur sales and go-to-market opportunities, the evolution of our service operations, our technology investments and the overall management of our SG&A.\nSo, I believe we've made very good progress on this project and we're now nearing the end of the assessment phase.\nIn fact, it will be completed within the next couple of weeks.\nNow, I expect that you will be all interested to know the scale and the timing of all this.\nRather than committing to a number before I have the full report, I'd like to allow our team the opportunity to complete their work and I look forward to providing more in-depth assessment on our future call.\nHowever, I am comfortable enough with the preliminary analysis to report the following.\nFirst, in terms of the sizing of these opportunities.\nOur Analyst Day materials pointed to an SG&A opportunity of $30 million.\nI'm confident that our SG&A opportunity will be at least that amount.\nHowever, SG&A is just one part of the mix.\nWe're also looking at opportunities to reduce our direct costs.\nI believe that we have opportunities to do so and that these will be in addition to that number.\nAnd finally, we're also looking at opportunities to improve revenue and improve the monetization of our services, while also accelerating growth in key areas.\nThese will be an important part of the overall target as well.\nIn terms of the timing.\nFirst of all, I want to be clear that what I'm describing here are not short-term or temporary cost cuts.\nWhat we're looking at are permanent changes in our operating model and our cost structure, reengineering the way we do business and ultimately, reducing our cost to serve over the long term.\nI don't expect to see an impact from this in the current quarter, but I do expect to see positive impacts in 2022 and in all of the years following from that.\nAnd finally, in terms of our strategy to manage and communicate these initiatives, we will be setting specific goals and there will be a clear process in place to measure the impacts to make sure we stay on track.\nAnd of course, I expect myself and the management teams to be held accountable to those.\nSo, I look forward to providing greater detail and more precise metrics in a future call.\nMy last point is to make a few remarks on our expectations for the current quarter.\nAs discussed in September, it is difficult to predict the supply of vehicles in the wholesale market at this time.\nWe withdrew our guidance in September and I'm not providing guidance until our visibility into volume improves.\nWith that said, we typically experienced some seasonal impacts in the fourth quarter and I would expect that our fourth quarter performance, by which I'm referring to adjusted EBITDA, will be less than our Q3 levels.\nSo to summarize my key messages from today, clearly, the commercial volume challenges continue.\nI believe that we're at the bottom now, but I think the volume challenges will continue well into next year.\nHowever, I also expect we will see some improvement before the end of next year.\nMy longer-term view has not changed.\nI believe that the outlook for off-lease, repossessed and rental vehicles will be one of increasing volume over time, ultimately returning to historical levels.\nThe recovery will take time, but it's clear to me that we should be a strong beneficiary of this when it happens.\nIn terms of dealer-to-dealer, we are growing our volume with our combined digital and physical volume up 20% versus the same quarter last year.\nIn terms of our digital dealer-to-dealer platform, we delivered solid growth in transactions and we had a record quarter in terms of marketplace participation in both the U.S. and Canada.\nThe addition of Carwave means that we're now at an annual run rate of close to 600,000 vehicles sold per annum and growing.\nI'm pleased that despite lower volumes, we were able to deliver our best quarter yet in terms of gross profit per vehicle sold.\nWe also saw solid profitability for TradeRev in Canada and a strong performance at AFC.\nNotwithstanding the growth levers that exist for us, we continue to be very focused on costs.\nWe have initiated a significant initiative, and we are committed to following through with it.\nWe look forward to providing more updates going forward.\nSanjeev became an observer on our Board through Periphas Capital's participation in our 2020 pipe transaction, and he previously served on our Board from 2007 to 2013.\nYou can read more about Sanjeev's background in our 8-K.\nWe are very fortunate to have his deep industry knowledge and his strategic mindset on our Board, and I'm confident he will continue to be a vocal advocate for KAR Global and for our stockholders.\nSo with that, Eric will now provide a more detailed review of our financial results for the quarter.\nI have a few things to add to Peter's commentary today.\nFirst, I would like to point out some bright spots in the current situation we are facing.\nWe all know that the supply of wholesale vehicles is constrained primarily for our commercial vehicle business.\nHowever, this has led to strong used car pricing.\nGross auction proceeds are at record levels in all segments of our business.\nThe average selling price in our commercial off-premise segment primarily openly was $21,500 in the third quarter compared to $19,400 per vehicle in the third quarter of 2020.\nDigital dealer-to-dealer representing BacklotCars and TradeRev had an average sale price of $10,400 in Q3 compared to $8,900 last year.\nAnd our on-premise auctions, which includes a mix of commercial and dealer consignment, had an average selling price of $15,000 per vehicle compared to $13,300 one year ago.\nThis strong pricing situation has led to higher option fees per transaction across all of our marketplaces.\nThe only marketplace that has been -- has seen a significant decline in fees is the OPENLANE private-label programs.\nThe high percentage of transactions being grounding dealer purchases caused auction fees per transaction on this platform to decline 20% year-over-year in the third quarter.\nAnother positive in the third quarter was the gross profit per vehicle in the ADESA segment, achieving $274 gross profit per car sold in Q3 compared to $249 in the prior year, and this was a strong performance.\nThis reflects a positive mix of revenue with more of our revenue coming from higher margin auction services than other lower-margin services.\nThe lack of commercial supply, especially off-lease vehicles, reduces revenue from lower margin services like transportation and end-of-lease inspections.\nI want to be clear though.\nWhile we are very focused on improving our cost structure and increasing gross profit per unit over historical levels, our business prospers when there are more transactions, even if gross profit per unit were lower than $274.\nThe third quarter did benefit from royalty revenue received from Insurance Auto Auctions based on the number of non-insurance vehicles sold by IAA over the previous 12 months.\nAnd a positive in Q3 was performance at AFC.\nConsistent with the growth in volume in the dealer-to-dealer channel at ADESA, AFC saw an increase in the number of loan transactions, 8%; an increase in revenue per loan transaction, 20%; and an increase in adjusted EBITDA, 63%.\nThe AFC segment was able to improve all of its key performance metrics and reduced SG&A as compared to last year.\nWhile the current supply situation has put pressure on the wholesale used car remarketing industry, these same factors have made floorplan lending perform at very high levels of profitability.\nAverage loan values are increasing due to higher used car prices.\nLow used car inventories at retailers means faster turns in our floorplan lending has a majority of its revenue in fees and not interest earnings.\nAnd most importantly, loan losses are at very low levels.\nIn fact, in the third quarter, recoveries of previously written off loans exceeded the loan losses experienced during the quarter.\nAs a reminder, our floor plan lending business is collateralized by the vehicles and typically all assets of the dealer principles.\nWe obtained personal guarantees on substantially all floorplan lines.\nWhen losses are realized, we set judgments for recovery of the losses when assets, including real estate, are monetized by the dealer principles.\nWe are currently benefiting from the strong real estate market and high real estate values.\nThis allows us to recover past losses.\nMost recoveries are losses that occurred one to three years prior to the actual recovery.\nNow despite the positives in our performance that I have highlighted, our overall performance was still challenging due to the low number of transactions completed.\nAs Peter pointed out, the pressure is on our commercial volumes as we have begun to see year-over-year growth in our dealer-to-dealer volumes due to the strong growth in digital dealer-to-dealer.\nEven though gross profit per unit at ADESA was $274, the gross profit as a percent of revenue, excluding purchased vehicles, declined to 43% in Q3 as compared to the prior year's 49% gross profit.\nMy first concern is to determine this is not a change in our cost structure going forward.\nAfter analyzing our costs, I have determined that most of the decrease relates to fixed direct costs that just could not be leveraged with the low volumes in Q3.\nThe largest contributor to the decline in gross profit percent was supervisory labor and facilities costs that is included in cost of services.\nWe also experienced increased losses on purchased vehicles, primarily inherited vehicles, which are acquired through arbitration activities.\nWe believe the increased losses were unique to Q3, as we pushed to sell these vehicles quickly to meet customer demand.\nThe one item that will be a permanent increase in our costs as compared to the last 18 months is the loss of the Canadian employee wage subsidy.\nWe have been benefiting from the Canadian program since early 2020 and approximately $1.5 million to $4 million of direct cost per quarter going back to the second quarter of 2020 were subsidized in Canada.\nChanges in the requirements to receive these subsidies were made effective July 1 2021, and our Canadian business is no longer qualified for the subsidy.\nThis represents about a 70 bps increase in gross -- increase in cost or decrease in gross profit percent that will be recurring.\nI do expect the impact on gross profit to be less though, as volumes begin to increase going forward.\nTurning to our balance sheet and capital allocation.\nOur total leverage is at 3.2 times adjusted EBITDA.\nThis has moved above 3 times due to the low performance over the past 12 months.\nOur last 12 months adjusted EBITDA is $404 million.\nWe continue to have a leverage target of three times or less.\nSubsequent to quarter end, we completed the acquisition of Carwave.\nWe funded the $450 million purchase price with cash on hand.\nWe did not purchase any KAR shares in Q3.\nWe have $109 million remaining on our share repurchase authorization that was set to expire at the end of October.\nThe Board of Directors has extended our existing share repurchase authorization through December 31, 2022.\nWe have used a substantial amount of our available cash for the Carwave acquisition and our total net leverage is temporarily above three times.\nEven after funding the Carwave acquisition, our cash balances remained strong though.\nIn times of supply constraint, the free cash conversion of our business generally improves.\nThat concludes my remarks.",
        "summary": "q3 revenue fell 10 percent to $535.2 million."
    },
    {
        "text": "On the call are Jeff Mezger, Chairman, President and Chief Executive Officer; Matt Mandino and Rob McGibney, Executive Vice Presidents and Co-Chief Operating Officers; Jeff Kaminski Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Treasurer.\nAnd with that, here's Jeff Mezger.\nOur performance in the third quarter reflected significant year-over-year increases across the majority of our key metrics as we produced solid results in housing market, experiencing great demand, while also facing industrywide challenges in getting homes completed and delivered.\nThese results will help drive our returns focused growth as we continue to expand our scale, while generating a higher return on equity.\nBefore I get into the highlights for the quarter and there are many, I want to address our shortfall in deliveries and revenues.\nDisruptions to our supply chain intensified as the quarter progressed and along with municipal delays resulted in our build times extending by about two weeks sequentially.\nThis pushed many deliveries into our fourth quarter and will similarly delayed some fourth quarter deliveries into our 2022 first quarter.\nWe are taking aggressive steps to manage through these delays, including expanding our subcontractor base, partnering with our national suppliers and simplifying our products to stabilize our build times.\nWe produced total revenues of $1.47 billion, up nearly 50% as compared to the prior year period and diluted earnings per share of $1.60.\nWe achieved an operating income margin of 12.1% excluding inventory related charges, which grew 250 basis points year-over-year, driving a 40% expansion in our profitability per unit to nearly 52,000.\nThis was accomplished even with the leverage we lost from the delayed deliveries.\nOur related gross margin of 22% was a particular highlight and demonstrates that we are effectively managing pace, price and starts to optimize each asset.\nAs to capital allocation, we continue to take a balanced approach with disciplined investments in growth remaining our top priority.\nIn the third quarter, we invested about $780 million in land acquisition and development.\nWe expanded our lot position to almost 81,000 lots owned or controlled, with our inventory continuing to rotate into a higher quality portfolio of communities.\nIn addition to these investments, we returned a significant amount of cash to stockholders through both our regular quarterly cash dividend and the repurchase of $188 million of our stock.\nThese repurchases will further enhance our return on equity in 2022 beyond this year's expected 20% level, especially when combined with our projected increase in scale to over $7 billion in revenue and higher operating and gross margins.\nSince we embarked on our returns focused growth strategy, we have produced meaningful expansion in our ROE.\nWhile we recognized that returns across the industry have expanded, our rate of improvement is meaningful and we believe our return on equity in the low to mid 20% range is sustainable.\nDuring the quarter, we announced the promotion of Rob McGibney to Executive Vice President and Co-Chief Operating Officer, a role he shares with Matt Mandino.\nWe created a Co-COO structure with two simple objectives in mind: to accelerate the profitable growth of our business in order to drive increasing returns on equity and to enhance our execution.\nRob is responsible for our West Coast and Southwest regions and Matt is responsible for our Central and Southeast regions.\nIn addition to their regional responsibilities, Matt and Rob each have oversight of key strategic corporate functions as well.\nThe operating environment within our industry has become more complex over the past 18 months, given the supply chain issues and municipal delays that I mentioned earlier and their impact on build times.\nHaving two proven leaders running our operations, will allow for a more hands on approach that is geographically focused, enabling greater day-to-day collaboration with our regional and division leadership.\nWe successfully opened over 40 new communities in the third quarter, marking the start of a sequential improvement in ending community count that we anticipate will continue over each of the next five quarters.\nWith the strong and growing lot pipeline that I referenced, driving an acceleration in new communities, we expect to expand our community count to roughly 260 by year-end 2022.\nOur monthly absorption per community accelerated to 6.6 net orders during the third quarter from 5.9 in the year ago quarter and reflecting a more typical seasonal pattern sequentially, while remaining at historically elevated level.\nNet orders were 4,085, represented a small decline year-over-year, against the strong results in the prior year quarter.\nHowever, with our actions in taking price and moderating pace, our net order value was up more than 20% year-over-year.\nWe continue to manage our selling pace to production, limiting our lot releases to prevent our backlog from getting over extended and started over 4,000 homes during the quarter.\nThis compares to starts in the year-ago quarter of about 3,400.\nWe currently have approximately 9,000 homes in production with 93% of these homes already sold.\nOnly 240 of these homes are unsold past the foundation stage and our focus right now is on compression our build times to deliver our backlog.\nWith the rise in our net order value to $2 billion, we are laying the foundation for future margin growth.\nOur pricing power is solid, while our pace remain strong and the demand for our homes at higher prices tells us that our price points remain attainable.\nThe credit profile of our buyers is above our historical level with an average FICO score of 7.31 and down payment of 14%, translating to almost $60,000, which is noteworthy for our first time buyer.\nIn addition, the internal indicators that we monitor for changes in customer behavior, including the square footage of homes purchased or spending in our design studios remain stable.\nOur backlog now stands at roughly 10,700 homes, representing future revenues of over $4.8 billion.\nOur backlog value is up nearly 90% year-over-year with significantly higher margins within this backlog.\nThis is an excellent position from which to finish 2021 and support another year of growth in revenues and expansion of margins in 2022.\nHomeownership remains compelling and attainable and we believe the drivers are in place to support healthy market conditions for the foreseeable future.\nAn insufficient level of supply exist at our price points to meet the demand for millennials and Gen Zs, which together number roughly $140 million.\nThese two cohorts value the personalization and choice in our built-to-order business model, which is a significant factor in why our absorption rates have consistently been among the highest in the industry.\nThis together with our experience in serving first time buyers, who represent 61% of our deliveries in the third quarter, has us well positioned to capture demand going forward.\nSwitching gears for a moment.\nI want to highlight our recent achievement in sustainability.\nKB Home received a record 25 ENERGY STAR Market Leader Awards from the EPA, further demonstrating our leadership position as the most energy efficient national homebuilder.\nWe are proud to continue moving our environmental program forward, which is helping to lower the total cost of homeownership for our buyers, while doing our part to reduce the carbon footprint of our homes.\nWe have a remarkable team that is focused on execution and committed to customer service.\nIn closing, we are growing into a bigger business that is operating at meaningfully higher margins and generating considerably improved returns.\nWe anticipate a return on equity this year of about 20% and further expansion in 2022, supported by double-digit growth in revenues and community count, with higher margins, as well as our recent share repurchase.\nBeyond next year, we believe our return on equity is sustainable in a low to mid 20% range.\nI will now review highlights of our financial performance for the 2021 third quarter, discuss our current outlook for the fourth quarter and summarize expected improvements in several 2022 metrics.\nIn the third quarter, we produced measurable year-over-year improvements in nearly all our key metrics, including a 49% increase in housing revenues that drove a 93% expansion in our earnings per diluted share.\nWe also made substantial investments in land and land development to support continued growth and completed a significant share repurchase that among other things will enhance future returns and per share earnings.\nOur housing revenues grew to $1.46 billion for the quarter from $979 million for the prior year period.\nThis improvement reflected a 35% increase in the number of homes delivered and an 11% rise in our overall average selling price.\nAs Jeff discussed, our current quarter deliveries were tampered by industry wide building material shortages and labor constraints that extended build times in most of our served markets.\nWe anticipate similar challenges will apply to our fourth quarter and have considered these factors in our outlook.\nOur ending backlog value expanded 89% to over $4.8 billion, driven by strong increases in each of our four regions.\nConsidering our quarter-end backlog, the status of our homes under construction and expected construction cycle times, we anticipate our fourth quarter housing revenues will be in the range of $1.65 billion to $1.75 billion.\nIn the third quarter, our overall average selling price of homes delivered rose to approximately $427,000 from approximately $385,000, reflecting the strength of the housing market.\nFor the fourth quarter, we are projecting an overall average selling price of approximately $450,000, which would represent a year-over-year increase of 9%.\nOur third quarter homebuilding operating income improved to $169.9 million as compared to $88.9 million in the year-earlier quarter.\nOperating income margin increased 270 basis points to 11.6% due to improvements in both our gross profit margin and SG&A expense ratio.\nExcluding inventory related charges of $6.7 million in the current quarter and $6.9 million in the year-earlier quarter, our operating margin was up 250 basis points year-over-year to 12.1%.\nFor the fourth quarter, we expect our homebuilding operating income margin, excluding the impact of any inventory related charges, will be approximately 11.8% compared to 10.7% in the year-earlier quarter.\nOur housing gross profit margin for the quarter was 21.5%, up 160 basis points from 19.9% for the prior year period.\nThis margin expansion mainly reflecting a favorable selling price environment supported by healthy housing market dynamics and lower amortization of capitalized interest.\nExcluding inventory related charges, our margin for the quarter was up 140 basis points year-over-year to 22%.\nOur adjusted housing gross profit margin, which excludes inventory related charges, as well as the amortization of previously capitalized interest was 24.5% for the third quarter compared to 23.7% for the same 2020 period.\nAssuming no inventory related charges, we believe our fourth quarter housing gross profit margins will be in the range of 21.6% to 22%, reflecting the impact of peak lumber prices when our forecasted fourth quarter whole deliveries were started.\nOur selling, general and administrative expense ratio of 9.9% for the quarter improved by 110 basis points as compared to 11% for the 2020 third quarter, primarily due to increased operating leverage, partly offset by higher costs associated with performance-based employee compensation plans and additional resources to support growth.\nAs we position our business for growth in 2022 housing revenues, we believe that our fourth quarter SG&A expense ratio will remain roughly the same as the second and third quarters of this year or approximately 10%.\nThis would represent an improvement from 10.3% in the 2020 fourth quarter.\nOur effective tax rate for the quarter was approximately 14%, reflecting $24.1 million of income tax expense, net of $21.5 million of federal energy tax credits.\nWe expect our effective tax rate for the fourth quarter to be approximately 24% including a small favorable impact from energy tax credits compared to approximately 16% for the year-earlier period.\nOverall, we reported net income for the third quarter of $150.1 million or $1.60 per diluted share, compared to $78.4 million or $0.83 per diluted share for the prior year period.\nTurning now to community count, our third quarter average of 205 decreased 14% from the year-earlier quarter.\nWe ended the quarter with 210 communities open for sales, as compared to 232 communities at the end of the 2020 third quarter.\nOn a sequential basis, as anticipated, we were up 10 communities from the end of the second quarter.\nWe are planning to achieve continued sequential quarterly increases in our community count through 2022.\nWe believe our 2021 year-end community count will be up slightly from the third quarter, resulting in a high single-digit decrease in the average fourth quarter count as compared to the prior year.\nWe invested $779 million in land, land development and fees during the third quarter with $467 million or 60% of the total representing new land acquisitions.\nIn the first three quarters of this year, we invested $1 billion to acquire over 16,000 lots.\nWe ended the quarter with a strong supply of nearly 81,000 lots owned and controlled, then we expect to drive a significant number of new community openings and steady growth in community count.\nAt quarter end, we had total liquidity of over $1.1 billion, including $350 million of cash and $791 million available under our unsecured revolving credit facility.\nIn early June, we issued $390 million of 4.00% 10-year senior notes and used a portion of the net proceeds to redeem approximately $270 million of tendered 7.00% senior notes due December 15, 2021.\nWe recognized a $5.1 million loss on this early redemption of debt in the third quarter.\nThe remaining $180 million of the 7% senior notes, we redeemed as senior notes, partially offset by the new issuance, will result in annualized interest savings of nearly $16 million, contributing to our continued trend of lowering the interest amortization included in our housing gross profit margins.\nIn addition, we see the $350 million maturity in September 2022 of 7.5% senior notes as an another opportunity to reduce incurred interest and enhance future gross margins.\nDuring the third quarter, we repurchased approximately 4.7 million shares of common stock at a total cost of $188.2 million.\nThe shares repurchased represented approximately 5% of total outstanding shares and will drive an incremental improvement in our earnings per share and return on equity going forward.\nFor purchases of calculating diluted earnings per share, we estimate a weighted average share count of $91 million for the 2021 fourth quarter and $93.5 million for the full year.\nFor 2022, we are forecasting housing revenues of over $7 billion, supported by our anticipated 2021 year-end backlog, community count growth and an ongoing strong demand environment throughout next year.\nWe expect approximately 200 new community openings over the next five quarters to drive sequential increases in ending community count.\nConsistent with the forecasted double-digit growth that we have discussed during the past two quarters, we believe our 2022 year-end community count will be up about 20% year-over-year and the full year average count will be about 10% higher as compared to 2021.\nWe also believe that gross margin expansion to a level above our guidance for next quarter, along with improvement in the SG&A expense ratio, will result in a measurable year-over-year increase in operating margin.\nFurther, the anticipated increase in scale combined with a higher operating margin and the benefit of the recent share repurchase, should drive a meaningful improvement in return on equity relative to be approximately 20% expected for 2021.\nIn summary, we believe we are well positioned to achieve our targets for the both 2021 fourth quarter and 2022 fiscal year.\nOur forecasted 2021 full year results represent significant improvements across virtually all our key metrics with notable increases in our scale, absorption pace, housing gross margin and operating margin.\nIn addition, we are particularly pleased with the forecast expansion in our full year return on equity and our anticipated further improvement in 2022.\nWe believe our ongoing focus on accelerating profitable growth and expanding our returns by leveraging our larger scale, attractive inventory profile and uniquely compelling built-to-order business model, will produce measurable enhancements in both book and stockholder value in future periods.\nAlex, please open the lines.",
        "summary": "compname reports q3 earnings per share of $1.60.\nq3 earnings per share $1.60.\nq3 revenue $1.47 billion versus refinitiv ibes estimate of $1.57 billion.\nqtrly homes delivered increased 35% to 3,425.\nqtrly net order value up 22% to $2.01 billion.\nco's ending backlog value increased 89% to $4.84 billion at quarter end.\nlooking ahead to 2022, anticipate another year of profitable growth.\nqtrly net orders 4,085 versus 4,214."
    },
    {
        "text": "Joining us today are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer.\nStuart and Mark will provide highlights from the quarter and then open the call for your question.\nThese risks are discussed in our most recent Form 10-K available on our website.\nI will start on slide four.\nNow you should all be very familiar with those Zero Harm sustainability program by now under 10 pillars that fit within it across the ESG spectrum.\nAt our recent Investor Day, we highlighted that being a good corporate citizen was the floor and not the ceiling at KBR, and I wanted to prove on that side a little bit more today.\nThe symbiotic relationship between shareholder value and KBR helping our clients achieve their sustainability goals is an absolutely key differentiator for KBR.\nAnd we wanted to build on that just a little on to slide five.\nKBR has a suite of recycling technologies that enable secular processing and the broader secular economy.\nAt the Investor Day, Dow introduced Mura'srevolutionaryHydroPRS technology that closes the loop on the secular plastics economy.\nThis is very exciting on its own right and this excitement I think was compounded with the recent announcement that Dow is also investing unimportantly committing to off-take.\nThis obviously is a huge endorsement on the sustainability aspects and of course, a huge endorsement on the technology itself and is an important step forward.\nBut at KBR, we have many recycling technologies as outlined on the slide.\nAll are proprietary, differentiated, disruptive and market-leading.\nAnd we could spend the entire call and I don't plan to do that talking about these technologies.\nBut today I'll highlight just one example to give you a flavor and that's on sustainable fibers.\nOur global retailer from Scandinavia came to a few years ago to help them solve a big problem.\nHow to recover valuable chemicals and water from what would have been a waste stream at the end of their process to produce manmade fibers.\nOur sustainable technology team applied our proven of operation on crystallization technology to essentially recover and purify critical ingredients and water such that they can be reintroduced right at the front of the process.\nClosing the loop on the secular processing.\nAnd this solution has many benefits as I'm sure you can appreciate, it reduces processing cost, it saves finite elemental resources and water, and it eliminates a wasting.\nSo overall it's great value for the client.\nObviously for KBR and our shareholders and of course the planet.\nSo like you've heard me say before, advancing our clients' ESG objectives, its core to KBR strategy and this example is just one of the many that demonstrates that tenant.\nSo on to slide and some key highlights from the quarter.\nThe key takeaway here is overall revenue, EBITDA margin, adjusted earnings per share and cash were all in line with full-year guidance, and I'd say a little bit above our expectations for Q1.\nYou'll recall that we stated that first half versus second half would be circa 40-60 split at the earnings per share level.\nThat has now shifted to the circa 45-55 split with a couple of things happening in Q1, that were expected to happen in Q2 and Q3.\nAnd this was especially the case in Sustainable Tech and Mark will give you some more details on this later.\nMargins were bang on at the Group level with some discrete items some puts and takes that Mark will cover later within the segments.\nBut to be clear, full-year margin guidance at the Group and within the individual segments is not changing and I'll say that again the Q1 puts and takes do not change full-year margin guidance.\nFree cash conversion at over 100% was again strong and importantly the team brought and over $1.6 billion in backlog and options during the quarter in high-end technical top market areas increasing our total backlog with options to $90.3 billion more on some of these wins in a moment, but super exciting.\nSo, Q1 was a relatively clean quarter at the group level.\nAs the overall business continued its momentum from 2020 and 2021 guidance remains unchanged.\nSo, on to slide seven.\nThe market outlook in GS was dominated by the release of the President's proposed 2022 budgets.\nThe DoD budget was aligned with what we presented at Investor Day.\nSo no surprises there.\nAnd KBR was very well positioned opposite national security and DoD strategic priorities.\nA few of the areas are highlighted on the slide.\nArtificial intelligence and machine learning, cyber, trusted microelectronics and directed energy.\nAnd you can see on the right hand side, prove the site.\nWe're especially excited this quarter by the trusted microelectronics win to conduct advanced R&D, prototyping, laboratory testing and supply chain verification on critical Microchip's and components.\nThis is really important work done by top tier scientists and PhDs to ensure major military systems and platforms operate as intended and have not been compromised.\nWe also won new work with the U.S. Space Force Rapid Capabilities Office or RCO to support the development and acquisition of new space capabilities and the modernization of the military space infrastructure.\nAgain this is highly advanced work centered around technical R&D and critical military space domain.\nShifting a little bit over to the civil space side.\nThe NASA budget request was also released and shows a marked increase and continue to support for the return to main and beyond.\nAnd of course increased funding across a range of Fed spend activities focused, as you would expect initially on COVID, climate change an area of differentiation as you know for KBR and social justice.\nThe proposed infrastructure plan was also released and was very R&D heavy, very technology-driven on climate focused lining up well with KBR's R&D capability and technology portfolio.\nThis quarter we saw some great wins also in the international government business.\nAs you can see on the right hand side of the slide both in the U.K. and in Australia.\nAnd there was also good news from a budget perspective in the U.K. and this follows on from Australia increasing its defense budget last year.\nAs an aside, and his team in Australia are off to another good start, posting top organic growth rates again at over 30% year-on-year this quarter.\nAnd this is a nice example of a great team doing things that matter within a healthy budget environment.\nOne aspect not on the slide, but worth mentioning was the announcement on troop withdrawal from Afghanistan.\nAs most of you are aware, we took a very conservative view in this area, which has proven to be prudent.\nSo in short, no red flags coming from recent announcements, no red flags from the budget priorities, in fact very much aligned to what we presented in Investor Day, so very much aligned with our expectations.\nThe market and our strategic positioning reaffirm our ongoing momentum.\nNow on to slide eight on sustainable technology.\nThe market and key strategic themes shown on the slide continue to gather momentum.\nIt's a hot market.\nThe recent announcement from the Biden administration are fully aligned with these themes as we discussed at Investor Day.\nOur suite of technologies remains in high demand and I'm also pleased to announce a disruptive PDH technology K-PRO that was actually launched last year has secured its first commercial scale order.\nThere are details on this on the right hand side of the slide, but to put it simply, this technology takes low value propane and converts it into high value propylene and it does so in a more sustainable and more cost effective manner than the competition.\nIt is worth noting that the book-to-bill of heritage technology was 1.5 in the quarter.\nLed by important sales of exciting new disruptive technologies K-PRO, K-COT and K-SAAT.\nAnd bookings of these technologies dominated the tech book-to-bill as clients look to meet growing demand for propylene and high value clean refining solutions with our disruptive differentiated and in our view, often superior technologies.\nNow we've talked a lot about K-SAAT technology in the past and obviously I've just covered K-PRO.\nBut I'd be remiss if I did not touch on K-COT and the K-COT win in the quarter which was a substantial booking by the team.\nNow K-COT is KBR catalytic olefins technology, it is the only and I repeat only technology of its kind in the market.\nNow this technology is unique and that it produces meaningfully higher volumes of propylene versus fastest competing technologies and as you know, propylene is in very, very high demand.\nAdditionally K-COT is the only commercially proven continuous operating process on the market, which means the both capex and opex costs are substantially lower and the energy consumption and thus environmental impact are also greatly reduced.\nSo in other words, it's highly monetizable at lower investment and operating costs translating into a higher ROI for our clients and at the same time advancing their sustainability agenda altogether very compelling.\nSo staying on the right hand side of the slide, as you would expect the cadence of awards and our energy transition advisory business also increased and is a great early indicator of activity in that market.\nBut it's clearly a step change in this activity and the cadence of new opportunities and awards has actually been above our expectation.\nTechnology led industrial solutions also had a fantastic start to the year and the pipeline for our digital solutions that leverages our IP and our domain expertise and helps our customers reduce cost, enhance throughput, increasing efficiency while also advancing their own sustainability goals is resonating.\nAs Mark will show you in a moment sustainable technology has come out of the gate strong in Q1, and we remain confident in delivering our 2021 guide that they will be a business that do sucker $1 billion in revenue, likely a bit more and with EBITDA margins in the mid teens, the high-end government business is a sustainable tech kicker.\nSo on to slide nine on the pipeline.\nIn Q1, we had some really nice wins and strategic areas as we just touched on so really following through on winning the right work.\nIt starts on the right you will be familiar with you know the stellar recompete win rate, the balanced portfolio of opportunities over $1 billion and multiple sizable opportunities over $100 million showing both the overall scale of opportunity, but also a minimal concentration risk.\nThe team has done a nice job across the customer set picking over $1.6 billion in awards and options in the quarter, a pleasing result and a typically like bookings quarter.\nThe key message here is that the recent budget announcements we expect to see our pipeline remain robust.\nAnd the momentum we have is expected to continue.\nNow I'll remind you we have a low recompete year in 2021 and in 2022 and you can probably see why we're so bullish on the outlook.\nNow, when we announced guidance in late February, we stated that we had already secured over 70% seven zero percent of the work required to deliver the 2021 plan.\nIn Q1, we had excellent execution, especially in sustainable technology and this combined with Q1 bookings has driven the level of secured revenue closer to 80% eight zero percent.\nSo in short the markets and budgets remain very favorable.\nWe continue to deliver while also and on that I'd just like to have big shout to our people who do an incredible job and do things that really matter.\nWe are winning work and the differentiated areas we set out to do.\nOur ESG commitment and direct linked to shareholder value is super exciting and compelling and Q1 was a great start to what is shaping up to be a great 2021 and beyond.\nI now will hand over to Mark, who will give you some more color on the segments.\nI will pick up on Slide 11.\nSo as you just heard, Q1 performance was generally in line with our 2021 guidance expectations and also our long range targets that we presented to you last month in our Investor Day.\nRevenues of $1.5 billion and $135 million of adjusted EBITDA are right in line with our fiscal 2021 guide of $6 billion top-line and 9% EBITDA margin.\nCash was once again very strong out of the gate with free cash flow conversion coming in at 109% for the quarter.\nStuart also said it was particularly encouraging is the quality of the work that's coming in, in new orders.\nWe are winning high technology content defense, research and development and modernization contracts in line with our upmarket strategy.\nTrusted microelectronics, rapid research and development and prototyping and others that Stuart cited earlier and also in our release are really good examples.\nThese programs are high priority high barrier to entry and in some cases leverageable to greater opportunities in the future.\nThe same is true in sustainable tech a stellar quarter in bookings for proprietary process technologies, including strong bookings across our new disruptive sustainability focus technologies like you heard from Stuart K-COT, K-PRO and K-SAAT and measured progress on energy transition advisory and smart operations and maintenance awards.\nAs I'll cover later, we did have some acceleration of profit in the first quarter, which were modestly relate our first half to second half earnings more toward the 45%, 55% mix versus our initial guide of 40%, 60%, but the bottom line here is, we are on track on all measures and thus reaffirming our guidance for the year.\nOn to Slide 12.\nFirst as planned, we have collapsed into two segments Government Solutions, GS and Sustainable Technology Solutions STS.\nHighlights on the GS side include 19% top-line growth, 5% of which was organic.\nWe absorbed a headwind from reduced of Middle East activity compared to last year with new growth areas, predominantly in sustaining and doing programs.\nWe have underscored to reduce dependency on the Middle East contingency work and the 15% growth in Readiness & Sustainment highlights the enormous success of our team in driving growth from new more recurring sources that will carry forward.\n15% net organic growth in light of the reduced of Middle East activity is one of the top success stories this quarter and hats off to Ella Studer and her team for delivering not only excellent service in the Middle East through all the transitions going on and through a global pandemic, but also at the same time amazingly capturing and realizing tremendous growth and baseline recurring programs elsewhere in the world truly remarkable.\nGrowth came from sustaining O&M funded areas such as the important work our team does to plan, schedule and support training rotations at the National Training Center.\nWe were pleased with a really nice new award that the team, one in the U.K. Stuart also mentioned that earlier and that will start contributing to earnings later this year.\nI'll also point out the nice balance of top-line contribution across all four business areas within GS, which is consistent with our strategic intentions of having low concentration risk, access to multiple funding channels and access to faster streams of funding growth as national priorities change.\nGS margins were a percentage point off of our long-term guide and this is primarily driven by timing items and provisions that we took for a legal matter.\nWe do expect to achieve 10% EBITDA margins for the full year with strong contributions in the back half of the year driving that home.\nNow for STS, we're off to a great start in Q1 and are on track to meet the full year guide of $1 billion plus of revenue at mid-teen margins.\nAs planned margins are vastly improved over last year, mostly from the fundamental improvement in business mix toward higher margin offerings and also the cost reductions we made last year in the overhead structure of that area.\nAs Stuart mentioned profit was amplified in the first quarter by several percentage points on the favorable delivery of a sustainable technology project as well as an R&D investment recovery.\nThese results were originally planned over several quarters this year, but due to good execution, early closeout and also accelerated cash collection of those items we recognized all of it in Q1, which is still be a great result from the team.\nOverall, while we likely had some margin variability this year due to timing and mix.\nWe're confident as I said earlier, our full year guide of revenue and $1 billion plus zip code and margins in the mid-teens will be attained.\nNow on to Slide 13.\nJust a brief update here, there is no real change to our capital structure and deployment strategy, which we fully covered in the Investor Day just a few weeks ago.\nNet leverage edged down just one tick driven from growth in EBITDA to 2.3 and in case you missed it we bumped up our dividend for the second year in a row now at $0.11 per quarter, up 10% from the 2020 dividend level.\nAnd finishing up on Slide 14.\nAs stated, we are reaffirming guidance on all measures for the full year 2021, the guide reflects a repositioned revenue profile in both our Government and Sustainable Tech businesses.\nOn the government side, the guide reflects essentially an immaterial amount of Middle East contingency operations contribution replaced by upmarket advanced technology work and defense modernization, military and civil space, cyber security and a surge in growth from sustaining readiness and sustainment programs.\nOn the STS side, the guide reflects lower overall revenues, but much higher barrier work areas with stronger margin attributes particularly fueled by our proprietary sustainable process technologies.\nThese technologies R&D benefiting from much more commitment to greater energy efficiency and improved environmental outcomes across our entire contract base.\nThis is now complemented with an attractive front end advisory offering which is gaining traction and a recurring smart operations and maintenance offering which leverages the large installed base of industrial and government customers we have worldwide.\nAltogether, the changes have produced a higher margin, strong cash flow business with well-established and reliable solutions in attractive end-markets.\nAnd on to our final slide, Slide 15.\nOur people continue to deliver, they really do an execution was again exemplary and we started 2021 well, a super strong performance across the entire business.\nCash conversion, really important was again terrific and our balance sheet and liquidity position as Mark demonstrated our both healthy.\nThe circa 80% eight zero percent of the work secured to deliver our 2021 guide under the strong Q1 now behind us, we are very confident of delivering 2021 and we reaffirm that guidance today.\nNow remember that guidance reflects a 20% plus increase in adjusted earnings per share from a very, very resilient 20 actual.\nAs we reiterated at Investor Day, we continually endeavor to do that simple thing doing what we said we would do.",
        "summary": "compname announces q1 revenue of $1.5 bln.\nq1 revenue $1.5 billion.\nreaffirming fy 2021 guidance."
    },
    {
        "text": "Joining me on the call today are Don Kimble, our chief financial officer; and Mark Midkiff, our chief risk officer.\nI'm now turning to Slide 3.\nOur first quarter was a strong start to the year as we executed our strategy and delivered positive operating leverage relative to the year-ago period.\nWe continued to grow the number of clients across our franchise.\nIn the first quarter, we experienced the strongest growth in consumer households in five years.\nAdditionally, we continue to add commercial clients and deepen existing relationships.\nWe leverage the strength of our business model by raising over $13 billion for our commercial clients of which we retained approximately 19% on our balance sheet.\nAnd let me just say that's exactly the way our model is designed to work, taking advantage of attractive markets for the benefit of our clients while maintaining our credit discipline with that which we place on our balance sheet.\nWe also launched our National Digital Bank, Laurel Road for doctors at the end of March.\nI will comment more on that shortly.\nIn addition, we announced the acquisition of AQN Strategies, a client-focused analytics firm with deep expertise in the financial services industry.\nThe acquisition aligns to Key's relationship strategy and underscores our commitment to a data-driven approach to grow our business.\nWe also identified 70 branches for consolidation representing approximately 7% of our network.\nWe continue to lean into digital.\nMost of these closures will take place in the second quarter.\nMoving to our financial results for the quarter.\nWe reported net income of $591 million or $0.61 per share for the first quarter.\nOn a per share basis, this is an increase of 9% from the fourth-quarter results and up significantly from the year-ago period.\nWe generated record first-quarter revenue, which reflected broad-based growth across our company, driven by our fee-based businesses.\nOur investment banking business achieved record first-quarter revenues with growth across the platform.\nThis is an area where we have invested in our teammates and made targeted acquisitions to enhance our capabilities, including such areas as healthcare and technology.\nWe have grown this business in eight of the last nine years, including having a record year in 2020, and we expect to grow this business again in 2021.\nWe reached a new milestone in our consumer mortgage business with record loan originations of $3 billion for the quarter.\nIn addition to adding high-quality loans to our balance sheet, consumer mortgage fees were up 135% from the year-ago period.\nOur outlook for this business remains positive as we continue to grow and take market share.\nWe reported a record $8.3 billion of originations in 2020, and we expect to eclipse that level this year.\nOther contributors to fee income this quarter were trust and investment services and cards and payments income.\nCredit quality remains strong.\nNon-performing loans, net charge-offs and criticized loans were all down from the prior quarter.\nWe continue to support our clients while maintaining our moderate risk profile, which has and will continue to position the company to perform well through the business cycle.\nFinally, we have maintained our strong capital position while continuing to return capital to our shareholders.\nOur common equity Tier 1 ratio ended the quarter at 9.8%, which is above our targeted range of nine to nine and a half percent.\nOur strong capital position enables us to execute against our capital priorities, organic growth, dividends and share repurchases.\nThis quarter, we repurchased $135 million of common shares.\nOur board of directors also approved our first-quarter common stock dividend of 18 and half cents a share.\nNow turning to Slide 4.\nWe acquired Laurel Road, a born digital company in April of 2019.\nThe acquisition has exceeded all of our expectations.\nIt has accelerated our digital transformation and has been a great complement to our existing healthcare platform.\nSince our acquisition, Laurel Road has generated over $4.6 billion in high-quality loan originations adding high-value digital relationships with healthcare professionals.\nWe also have the opportunity to continue to scale this business.\nAt the end of March, we took the next step on this journey with the launch of our Digital Bank, Laurel Road for Doctors, serving the healthcare segment and expanding our consumer franchise nationally.\nImportantly, our approach to our Digital Bank is differentiated.\nHistorically, many offerings have been product-centric or focused on deposit gathering.\nOurs is a fully -- is fully aligned with our relationship strategy.\nThe launch broadened our offering for Laurel Road clients to include deposits, additional lending products and other value-added services created to meet the unique financial needs of healthcare professionals.\nThe launch was an important milestone in our digital journey, which brings together critical elements of our strategy, targeted scale, digital, healthcare and primacy.\nRight now, we are focused on physicians and dentists, but soon, we will expand to other medical professionals.\nImportantly, this launch is not the end goal but rather just the beginning.\nI will close my remarks by restating that I am pleased with our results for the quarter and our strong start for 2021.\nI am proud of what we have achieved as a team and remain optimistic about the future as we emerge from the pandemic and the economy continues to recover.\nKey is well positioned to grow and deliver on our commitments for all of our stakeholders.\nI'm now on Slide 6.\nAs Chris said, it was a strong start to the year with net income from continuing operations of $0.61 per common share, up 9% from the prior quarter and over four times from the year-ago period.\nThe quarter reflected a net benefit from our provision for credit losses.\nThe reserve release was largely driven by expected improvement in the economic environment.\nImportantly, we generated a record first-quarter revenue, driven by the strength in our fee-based businesses.\nTurning to Slide 7.\nTotal average loans were $101 billion, up 5% from the first quarter of last year, driven by growth in both commercial and consumer loans.\nCommercial loans reflected Key's participation in PPP, partially offset by decreased utilization.\nPPP loans had an impact of $7 billion in the first quarter of 2021 average balances.\nConsumer loans benefited from the continued growth from Laurel Road and as Chris mentioned, record performance from our consumer mortgage business with $3 billion of consumer mortgage loans this quarter.\nThe investments we have made in these areas continue to drive results and importantly, add high-quality loans and relationships.\nLinked quarter average loan balances were down 1%, reflecting lower commercial utilization rates and a reduction in average PPP balances.\nWe had just under $1 billion of PPP forgiveness in the current quarter.\nConsumer loans were up 1% from the prior quarter, again related to continued production from consumer mortgage and Laurel Road.\nContinuing on to Slide 8.\nAverage deposits totaled $138 billion for the first quarter of 2021, up $28 billion or 25% compared to the year-ago period and up 1.5% from the prior quarter.\nThe linked quarter and year-ago comparisons reflect growth in both commercial and consumer balances, which benefited from government stimulus.\nThe growth was offset by continued and expected decline in time deposits.\nThe interest-bearing deposit costs came down another 3 basis points from the fourth quarter of 2020, following an 8-basis-point decline last quarter.\nWe continue to have a strong, stable core deposit base with consumer deposits accounting for over 60% of our total deposit mix.\nTurning to Slide 9.\nTaxable equivalent net interest income was $1.012 billion for the first quarter of 2021 compared to $989 million a year ago and $1.043 billion for the prior quarter.\nOur net interest margin was 2.61% for the first quarter of 2021 compared to 3.01% for the same period last year and 2.7% from the prior quarter.\nBoth net interest income and net interest margin were meaningfully impacted by significant growth in our balance sheet compared to the year-ago period.\nThe larger balance sheet benefited net interest income but reduced the net interest margin due to the significant increase in liquidity driven by strong deposit inflows.\nCompared to the prior quarter, net interest income decreased $31 million and the margin declined 9 basis points.\nThe decrease in net interest income was caused by the day count of approximately $14 million, lower loan fees of $8 million and lower loan balances resulting in an additional $8 million reduction to NII.\nNet interest margin also reflected a 4-basis-point reduction due to the increases in our liquidity position.\nMoving on to Slide 10.\nWe have continued to see growth in our fee-based businesses.\nNon-interest income was $738 million for the first quarter of 2021 compared to $477 million for the year-ago period and $802 million in the fourth quarter.\nCompared to the year-ago period, non-interest income increased 55%.\nWe had a record first quarter for investment banking and debt placement fees, which reached $162 million driven by broad-based strength across the platform.\nThis quarter, both debt and equity markets were especially strong.\nRecord mortgage originations drove mortgage -- consumer mortgage fees this quarter, which were up $27 million or 135% from the first quarter of '20.\nCards and payments income also increased $39 million related to higher prepaid card activity from state government support programs as well as the growth in the core platform.\nOther income in the year-ago period included $92 million of market-related valuation adjustments.\nCompared to the fourth quarter, non-interest income decreased by $64 million.\nLargest driver of the quarterly decrease was seasonality in our investment banking line coming off an all-time high record quarter.\nThis was partially offset by the strength in trust and investment services income and cards and payments income.\nI'm now on Slide 11.\nTotal non-interest expense for the quarter was $1.071 billion compared to $931 million last year and $1.1 billion in the prior quarter.\nThe increase from the prior year is primarily in personnel expense related to higher production-related incentive compensation, which increased $58 million and the increase in our stock price resulting in a $36 million increase compared to last year.\nEmployee benefit costs also increased $15 million.\nYear over year, payments-related costs reported in other expense were $32 million higher, driven by higher prepaid activity.\nComputer processing expense this quarter was elevated related to software investments across the platform, accounting changes and timing differences.\nCompared to the prior quarter, non-interest expense decreased $57 million.\nThe decline was largely due to lower production-related incentives and severance costs.\nMoving now to Slide 12.\nOverall, credit quality continues to outperform expectations.\nFor the first quarter, net charge-offs were $114 million or 46 basis points of average loans.\nOur provision for credit losses was a net benefit of $93 million.\nThis was determined based on our continued strong credit metrics as well as our outlook for the overall economy and loan production.\nNon-performing loans were $728 million this quarter or 72 basis points of period-end loans, a decline of almost $60 million from the prior quarter.\nAdditionally, criticized loans declined and the 30- to 90-day delinquencies also improved again quarter over quarter with a 5-basis-point decrease, while the 90-day plus category remain relatively flat.\nNow on to Slide 13.\nKey's capital position remains an area of strength.\nWe ended the first quarter with a common equity Tier 1 ratio of 9.8%, which places us above our targeted range of nine to nine and a half perccent.\nThis provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders.\nImportantly, we continue to return capital to our shareholders in accordance with our capital priorities.\nOur board of directors approved a first-quarter dividend of $0.185 per common share.\nWe also repurchased $135 million of common shares under the share repurchase authorization we announced in January of up to $900 million.\nThis leaves us with a capacity of up to $765 million for the next two quarters.\nOn Slide 14, we provide our full-year 2021 outlook, which we've adjusted to reflect our strong start to the year, positive momentum in our business and more favorable revenue outlook.\nConsistent with our prior guidance, we expect to deliver positive operating leverage for the year.\nAverage loans are expected to be relatively stable, reflecting continued momentum in our consumer areas, the impact of PPP and stronger commercial growth in the second half of the year.\nThe first quarter should be the low point of the year with expected growth from here.\nWe expect deposits to be up mid-single digits and that we will continue to benefit from our low-cost deposit base.\nNet interest income should be up low single digits.\nOur net interest income will benefit from higher loan fees related to PPP forgiveness and continued deployment of some of the excess liquidity, offset by the ongoing impact of low rates.\nnon-interest income should be up mid-single digits, reflecting the growth in most of our core fee-based businesses.\nNon-interest expense should be relatively stable, reflecting higher production-based incentives related to our improved revenue outlook.\nOur continuous improvement efforts and branch consolidation plans remain on track and will help support our ongoing investments in talent and to stay at the forefront of our digital offerings.\nMoving on to credit quality.\nWe have reduced our net charge-off guidance, which is now expected to be in the 35 to 45-basis-point range for the year.\nThis reflects the quality of our portfolio and our current outlook.\nAnd our guidance for our GAAP tax rate remains unchanged at around 19% for the year.\nFinally, shown at the bottom of the slide are our long-term targets, which remain unchanged.\nWe expect to continue to make progress on these targets by maintaining our moderate risk profile and improving our productivity and efficiency, which will drive returns.\nOverall, it was a good start to the year, and we remain confident in our ability to deliver on our commitments to all of our stakeholders.",
        "summary": "compname reports record q1 2021 net income of $591 million, or $.61 per diluted common share.\ncompname reports record first quarter 2021 net income of $591 million, or $0.61 per diluted common share.\ntaxable-equivalent net interest income was $1.0 billion for q1 versus taxable-equivalent net interest income of $989 million.\naverage loans were $100.7 billion for q1 of 2021, an increase of $4.6 billion compared to q1 of 2020.\nqtrly net loan charge-offs $114 million versus $84 million.\nqtrly provision for credit losses was net benefit of $93 million versus an expense of $359 million in q1 2020."
    },
    {
        "text": "I'm pleased to report that Korn Ferry once again achieved all-time financial performance highs.\nRevenue was up 47% and our diluted and adjusted diluted earnings per share were $1.38 and $1.53, respectively.\nAnd our adjusted EBITDA margin was 21.1%.\nI think our performance over recent quarters has reached a new level of scale and it speaks to the resiliency and agility of our colleagues, as well as our operational excellence, amid a time of enormous transition and secular change.\nAnd this aligns with our businesses.\nToday, wherever and whenever strategy meets talent, Korn Ferry is at that cross section, enabling agility in a world that will undoubtedly be in transition for the next several years.\nOur strategy in the New Year will be to continue to innovate, replicate, and scale, allowing people and organizations to exceed their potential in this rapidly changing world.\nElements of our strategy will include driving a top-down go-to-market strategy, through our Marquee and Regional Accounts, which represent about 36% of our portfolio and that not only facilitates growth and enduring partnerships, but is also key to more scalable and durable revenues.\nFor example, in the quarter, about 30% of our revenue was driven by cross referrals within our firm, demonstrating the effectiveness of our go-to-market strategy.\nAlthough our search businesses, both Pro Search and Executive Search combined represent about 45% of our revenue, we believe there is still substantial market opportunity ahead, given the acceleration of an increasingly nomadic labor market.\nIt's one of the reasons we acquired the Lucas Group during the quarter, a move that adds breadth and depth to Korn Ferry's search portfolio.\nLooking at our digital and consulting businesses, we will continue to innovate, marrying Korn Ferry's capabilities with tomorrow's opportunities.\nFrom ESG to DE&I to M&A services and we're also going to further push the monetization of our IP and move more of our digital business to a subscription offering.\nWe're going to also scale our learning development outsourcing or LDO capabilities, leveraging our Korn Ferry Advance platform, in which we now have completed 50,000 development and coaching sessions.\nAnd lastly, we're going to deploy a balanced capital allocation strategy, including a disciplined approach to M&A.\nLooking ahead, I truly feel we have the strategy, the people, the diversity of solutions and expertise to help our clients drive performance in this new world and our results clearly reflect this reality.\nWe look forward to keeping up the momentum in the New Year ahead.\nAnd with that, I am joined by Bob Rozek and Gregg Kvochak.\nLet me start with a few comments before I jump into the second quarter results.\nSo, I've always felt that the best way to measure success is through performance and if you look at our performance coming out of the COVID recession, it's really been and continued to be exceptional and that's reflected in our Q2 results.\nThere's no doubt that the world we live in has changed for good.\nToday, more than ever, our clients are facing unprecedented organizational and human capital challenges as workforces are transformed and digitized, as corporations are called upon to have greater environmental, social and governance responsibilities, as organization strive to have work environments that are inclusive and free from bias, so even as companies are challenged to grow in a post-COVID environment.\nThese are real secular changes, creating real and challenging business issues for companies across the globe and it's a fact that no business issue has ever been solved without the involvement of people and that's really where Korn Ferry comes in.\nI mean that's our sweet spot, right.\nOur core and integrated solutions line up perfectly with the secular changes that companies across the globe are wrestling with today, whether it's finding the right talent in a dislocated labor market to accelerating the top line growth or to even keeping employees engaged, motivated, appropriately rewarded and retained in this new and evolving work and social environment.\nAs these forces continue to shape the workplace, our clients, in growing numbers, continue to recognize the role that our people and our solutions play in helping them solve their most pressing business issues through their most precious asset, their people.\nI would also say that this is not our 15 minutes of fame.\nI mean these secular changes that we're all feeling are real and they are here to stay.\nIn my view, I think, I really believe that we're in the first inning of a long ball game.\nNow just as market demand has been strong, our execution has been stronger, driving our fee revenue, earnings and profitability to new all-time highs.\nNow I'm going to turn to Q2 results.\nSo as Gary mentioned, fee revenue in the second quarter grew $204 million or 47% year-over-year and $54 million or 9% sequentially, reaching an all-time high of $639 million.\nFee revenue growth in the quarter for our consolidated Executive Search business was up 59% year-over-year and up 9% sequentially while our RPO and Professional Search business was up 76% year-over-year and 8% sequentially.\nGrowth for our Consulting and Digital businesses was also very strong.\nConsulting grew 30% year-over-year and 11% sequentially, while Digital was up 18% year-over-year and 10% sequentially.\nTurning to earnings and profitability, they also grew to new highs in the quarter.\nOur adjusted EBITDA grew $69 million year-over-year and $13.5 million or 11% sequentially to $135 million with an adjusted EBITDA margin of 21.1%, both are new quarterly highs.\nOur earnings and profitability continue to benefit from both higher consultant and execution staff productivity and lower G&A spend.\nAdjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to a $1.53, which was up $0.99 compared to adjusted fully diluted earnings per share in the second quarter of fiscal '21 and actually up $0.16 or 12% sequentially.\nWhen you compare our business today through the first six months to the same period in fiscal year '20 and that's the pre-pandemic period just two years ago, both our scale and our profitability are up dramatically.\nOur firm's fee revenue for the fiscal year '22 Q2 year-to-date period is up 25% with double-digit growth in every line of business.\nOur adjusted EBITDA over the same comparison period is up 67%, that's nearly 3 times greater than fee revenue growth and our adjusted EBITDA margin is up 530 basis points to nearly 21%.\nOur earnings power has never been higher.\nAs I look at new business, that also accelerated in the quarter, reaching new highs for each of our lines of business.\nOn a consolidated basis, new business awards, excluding RPO, were up 40% year-over-year and up approximately 8% sequentially.\nRPO new business was also extremely strong with a record $136 million of total contract awards.\nThis consolidated record level of new business across the -- all of our business lines in the second quarter really provides us with a very solid backlog, entering the fiscal third quarter.\nOur investable cash position also remained strong.\nAt October 31, the end of the second quarter, cash and marketable securities totaled $997 million.\nNow, when you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance at the end of the second quarter was approximately $591 million and that's up about $133 million or 29% year-over-year.\nIt should be noted that this investable cash position includes approximately $90 million that was used to acquire the Lucas Group on November 1.\nWe continue to take our balanced approach to allocation of capital.\nIn addition to the Lucas Group and investing in the hiring of additional fee earners and execution staff, year-to-date, we've repurchased approximately $14 million of our stock and have paid cash dividends of approximately $14 million as well.\nWith that -- excuse me.\nI'm going to start with KF Digital.\nGlobal fee revenue for KF Digital was $88.6 million in the second quarter, which was up 18% year-over-year and up 10% sequentially.\nThe subscription and licensing component of KF Digital fee revenue grew to $26 million in the second quarter, which was up 16% year-over-year and up 7% sequentially.\nAdditionally, global new business for KF Digital in the second quarter grew 29% year-over-year to a new high of $114 million with $44 million or 39% related to subscription and license services.\nEarnings and profitability also continued to grow for KF Digital in the second quarter with adjusted EBITDA of $28.6 million and a 32.2% adjusted EBITDA margin.\nNow turning to Consulting.\nIn the second quarter, Consulting generated $164.9 million of fee revenue, which was up approximately $38 million or 30% year-over-year and $16 million or 11% sequentially.\nFee revenue growth continued to be broad-based across all solution areas and strongest regionally in North America, which was up over 43% year-over-year.\nConsulting new business also reached a record high in the second quarter, growing approximately 17% year-over-year and 2% sequentially.\nRegionally, new business growth was also broad-based in the second quarter with continued strength in North America and improving trends in EMEA and APAC.\nAdjusted EBITDA for Consulting in the second quarter improved to $30.1 million with an adjusted EBITDA margin of 18.2%.\nGrowth for RPO and Professional Search continued to improve in the second quarter.\nGlobally, fee revenues grew $150.4 million, which was up 76% year-over-year and up approximately $11 million or 8% sequentially.\nBoth RPO and Professional Search continued to take advantage of post-recession dislocation in the labor market for skilled professionals.\nRPO fee revenue grew approximately 69% year-over-year and 10% sequentially, while Professional Search fee revenue was up approximately 88% year-over-year and 5% sequentially.\nSequentially, both the number of new search assignments and the average fee per assignment were up double digits for Professional Search.\nNew business wins for both RPO and Professional Search were also extremely strong in the second quarter, reaching new all-time highs.\nProfessional Search new business was up 13% sequentially and RPO was awarded a record $136 million of new contracts, consisting of $28 million of renewals and extensions and $108 million of new logo work.\nAdjusted EBITDA for RPO and Professional Search continued to scale with revenue improving to $36.3 million with an adjusted EBITDA margin of 24.1%.\nFinally, in the second quarter, global fee revenue for Executive Search reached another new all-time high of $235 million, which was up 59% year-over-year and up 9% sequentially.\nGrowth was also broad-based and led by North America, which grew 74% year-over-year and over 14% sequentially.\nFee revenue in our international regions remained steady in the second quarter.\nEMEA and APAC were up approximately 34% and 36%, respectively, measured year-over-year, and essentially flat sequentially.\nWe continue to invest in expanding our team of consultants in the second quarter.\nThe total number of dedicated Executive Search consultants worldwide at the end of the second quarter was 570, up 58% year-over-year and up 5%, sequentially.\nAnnualized fee revenue production per consultant in the second quarter improved to a record $1.66 million and the number of new search assignments opened worldwide in the second quarter was up 37% year-over-year and 5% sequentially to a new all-time high of 1,830.\nIn the second quarter, global Executive Search adjusted EBITDA grew to approximately $66 million, which was up $38 million year-over-year and up $4.5 million or 7% sequentially.\nAdjusted EBITDA margin in the second quarter was 28.1%.\nAs I mentioned earlier, new business in the second quarter grew to a new all-time high and it actually accelerated each consecutive month in the quarter and that positions us with a very strong backlog entering our third fiscal quarter.\nIn fact, as we ended the quarter, October and September were our first and second highest new business months ever.\nWhile our third quarter is usually our most seasonal quarter as both our clients and colleagues take time off during the year and holiday seasons.\nHowever, November was also an excellent month for new business, actually eclipsing September as the second highest month ever, and that was up 37% year-over-year.\nNow if monthly trends in each of our lines of business are consistent with our historical patterns and the market conditions remain strong, we would expect December to be seasonally slower than November with demand accelerating and peaking at a quarter high in January.\nAdditionally, we will continue to make investments in consultants and execution staff to fuel future growth, and we expect employee productivity to remain strong and G&A spend to remain at current levels in the third quarter, keeping both earnings and profitability strong.\nNow assuming no new major pandemic-related lockdowns or changes in worldwide economic conditions, financial markets, and foreign exchange rates, and including fee from the Lucas Group, we expect our consolidated fee revenue in the third quarter of fiscal '22 to range from $640 million to $660 million and our consolidated adjusted diluted earnings per share to range from $1.42 to $1.58 while our GAAP diluted earnings per share should range from $1.38 to $1.56.\nAs we look ahead to the New Year, we see a great opportunity to continue to build on our strong financial performance.\nBased on the strength or I should say the continuing strength of our new business trends, it is evident to us that our portfolio of solutions will have a continuing relevance as companies address the secular changes I previously discussed.\nWe will continue to execute at a high level and there is little doubt that we are well positioned to take more than our fair share of the growing market.\nKorn Ferry has never been better positioned to serve all of its constituencies; colleagues, clients, candidates and shareholders for years to come.\nWith that, we would be glad to answer any questions you may have.",
        "summary": "q2 earnings per share $1.38.\nfee revenue of $639.4 million in q2 fy'22, an increase of 47%.\nq3 fy'22 fee revenue is expected to be in range of $640 million and $660 million.\nqtrly adjusted diluted earnings per share was $1.53.\nq3 fy'22 diluted earnings per share is expected to range between $1.38 to $1.56.\nq3 fy'22 adjusted diluted earnings per share is expected to be in range from $1.42 to $1.58."
    },
    {
        "text": "That release has further information about these adjustments and reconciliations to comparable GAAP financial measures.\nLet me start with the headlines for the quarter.\nOrganic sales increased 3% with good underlying momentum and benefits from increased demand related to COVID-19.\nWe significantly increased our growth investments and improved our market positions.\nWe had another strong quarter of achieving cost savings and returning cash to shareholders.\nAnd finally, while earnings were down as expected, we are increasing our full-year outlook.\nNow let's look at the details of our results, starting with sales.\nOur third quarter net sales were $4.7 billion.\nThat's up 1% from year ago and includes a two-point drag from currency rates.\nVolumes were up 2% and the combined impact of changes in net selling prices and product mix increased sales by 1%.\nBy segment, organic sales rose 10% in Consumer Tissue and 5% in Personal Care, but declined 15% in K-C Professional.\nMike will talk more about our top-line and our market share performance in just a few minutes.\nMoving on to profitability.\nThird quarter adjusted gross margin was 36.2%, up 40 basis points year-on-year.\nAdjusted gross profit increased 2%.\nWe had excellent cost savings performance in the quarter.\nCombined savings from our FORCE and restructuring programs totaled $140 million, including continued strong productivity improvements.\nCommodities were a benefit of $25 million in the quarter driven by pulp and other raw materials.\nOther manufacturing costs were higher year-on-year that included incremental costs related to COVID-19.\nForeign currencies were also a headwind reducing operating profit by a high single digit rate in the quarter.\nMoving further down the P&L.\nBetween the lines spending was 18.9% of sales.\nThat's up 180 basis points and driven by a big step up in digital advertising.\nG&A also increased including capability-building investments and higher incentive compensation expenses.\nWe expect between the lines spending will rise further sequentially in the fourth quarter.\nOur SG&A spending is typically high in the fourth quarter and this year we'll also have project activities that were temporarily delayed because of COVID-19.\nAll in all, for the fourth quarter-for the third quarter, sorry, adjusted operating profit was down 6% and operating margin was 17.2%, down 130 basis points versus year ago.\nBy segment, operating margins were up in Consumer Tissue and Healthy and Personal Care.\nK-C Professional margins were down significantly, including an approximate 600 basis-point drag from fixed costs under absorption.\nOn the bottom-line, adjusted earnings per share were $1.72 in the quarter, compared to $1.84 in the year-ago period.\nTurning to cash flow and capital efficiency.\nCash provided by operations in the third quarter was $559 million compared to $886 million in the year-ago quarter.\nThe decrease was as expected and driven by the timing of tax payments and higher working capital.\nWe continue to allocate capital in shareholder-friendly ways.\nThird quarter dividends and share repurchases totaled approximately $560 million.\nAnd for the full year, we expect the total will be $2.15 billion.\nSo let me now turn to the full year.\nThe overall headline is that we're raising our top and bottom-line outlook.\nOn the top-line, we now expect organic sales growth of 5% compared to our prior target of 4% to 5%.\nThrough nine months, organic sales are up nearly 6% and we expect a solid fourth quarter.\nOn average, we expect slightly less headwinds from currency rates than previously anticipated.\nIn addition, we'll begin consolidating the Softex Indonesia business into our results on November 1 on a one-month lag.\nAll in all, we expect net sales will grow 2% to 3% this year.\nThat's one point better than our previous estimate.\nOn the bottom-line, our new outlook is for adjusted earnings per share of $7.50 to $7.65.\nThat represents year-on-year growth of 9% to 11%.\nOur prior outlook was for adjusted earnings per share of $7.40 to $7.60.\nThe increase in our outlook is driven by improved top line, partially offset by higher incentive compensation expense and other manufacturing costs.\nOverall, I'm encouraged that we're improving our near-term outlook and investing significantly in the business for longer-term growth.\nI'll begin by reinforcing that we remain focused on three near-term priorities that we established since the outbreak of COVID-19.\nFirst, we're focused on protecting the health and safety of our employees and our consumers.\nSecond, we're proactively managing our supply chain to ensure supply of our essential products.\nAnd third, we're prudently managing the business through near-term volatility, while continuing to strengthen the long-term health of Kimberly Clark.\nOur 40,000 employees continue to do heroic work in this COVID environment.\nOur supply chain operations have remained online with strong productivity gains and fewer COVID-related disruptions over the last three months.\nThe environment is still dynamic and we're closely monitoring virus hotspots.\nAnd thus far, our supply chain has been resilient and our teams have done a great job overcoming daily challenges.\nNow turn to our results focusing on organic sales category conditions and our market shares.\nAs Maria mentioned, organic sales increased 3% in the quarter.\nIn North American consumer products, organics sales rose 8%.\nNow within that Personal Care grew 6% driven by broad-based volume growth in baby and child care.\nWe improved our market shares on diapers, baby wipes, and in child care.\nIn late July, we launched Pull-Ups New Leaf training pants which features super-soft natural materials and is our most premium training pants.\nThis is another example of our elevate the core strategy and action.\nAnd New Leaf is off to a very good start.\nIn North American consumer tissue, organic sales increased to 11% and that reflects strong demand due to the COVID-19 work from home environment and strong momentum on Kleenex facial tissue.\nBathroom tissue shipments benefited from our efforts to restore customer inventory levels.\nIn the fourth quarter, we expect more benefit from those efforts and from people continuing to spend more time at home.\nOur market share performance in North American consumer products was strong in the third quarter; shares were upper even in six of eight categories.\nTurning to K-C Professional North America, organic sales declined 15%.\nSales were down about 35% in washroom products.\nAnd as you'd expect, the category has been significantly impacted.\nThere are fewer people working in offices and lower levels of business activity, including in travel and lodging.\nSales were a bit better in September, but we're planning for only a modest near-term improvement in the environment.\nOn the other hand, KCP sales were up double digits in wipers, safety and other products.\nOur efforts to expand our face mask business by leveraging our superior non-wovens technology is off to a good start.\nWe're also expanding our wipers line-up with Scott 24-Hour, which delivers long-lasting surface protection from bacteria.\nMoving to D&E markets, organic sales were up 2% that was driven by 7% growth in Personal Care.\nIn terms of key personal care markets, organic sales were up mid-teens in China, mid-single digits in both Latin America and Eastern Europe and strong double-digits in India.\nOrganic sales were down mid-single digits in ASEAN.\nWe also improved our market shares in many countries in the quarter.\nAnd that includes Brazil, China, throughout Eastern Europe, India, and Peru.\nWhile category conditions remain difficult in many D&E countries, government restrictions on social mobility and store operations have eased somewhat since the last quarter.\nFinally, in developed markets, organic sales were up 3% driven by strong growth in consumer tissue.\nLooking ahead, we're launching Kleenex Proactive Care in the UK and other markets in EMEA.\nThis lineup includes hand towels, anti-bacterial hand and face wipes, sanitizing gel, and face masks.\nNow in terms of market share performance, we continue to make good progress.\nWe're on track to grow or maintain share in approximately 60% of the 80 category/country combinations that we track.\nThis is a result of higher investment levels, innovations, and strong in-market executions.\nOur capabilities are driving our results and our investments are working hard for us.\nThrough nine months, I'm very encouraged with our performance, how we're navigating this environment and how our teams are taking care of each other and our customers.\nBefore closing, I'd like to comment on our recent acquisition of Softex.\nThis transaction is a strong strategic fit with our focus on accelerating growth in personal care in D&E markets.\nSoftex expands our presence in a high-growth market where we had limited exposure.\nThe diaper market in Indonesia is already the sixth largest in the world, and that's projected to nearly triple in size over the next decade.\nOur Softex team has built a strong business with deep local market knowledge, excellent brands and market positions and strong profitability.\nThis transaction improves our underlying growth prospects, and we're looking forward to leveraging our combined strengths in innovation, marketing, and go-to-market.\nIn conclusion, we're managing through the COVID environment safely and effectively.\nWe remain optimistic about our opportunities to generate long-term growth and create shareholder value.\nWe're investing in our brands and improving our market positions.\nWe are raising our full-year outlook and are on track to achieve excellent financial results.\nAnd we continue to operate our business with a balanced and sustainable approach as we execute K-C strategy 2022.",
        "summary": "compname announces q3 adjusted earnings per share $1.72.\nq3 adjusted earnings per share $1.72.\nq3 sales $4.7 billion versus refinitiv ibes estimate of $4.59 billion.\nsees fy 2020 adjusted earnings per share $7.50 to $7.65.\nnow targeting full-year 2020 organic net sales growth of 5 percent and adjusted earnings per share of $7.50 to $7.65.\nq3 personal care segment sales of $2.3 billion increased 1 percent.\ndelivered solid organic sales growth in q3, with good underlying performance and increased demand because of covid-19.\nq3 consumer tissue segment sales of $1.6 billion increased 9 percent.\nqtrly consumer tissue segment sales of $1.6 billion increased 9 percent.\nsees fy adjusted operating profit growth of 8 to 10 percent.\noutlook continues to assume no significant impact from potential supply chain disruptions as a result of covid-19.\nsees fy net sales increase of 2 to 3 percent."
    },
    {
        "text": "We will be referring to that slide deck throughout today's call.\nI'm Kelly Boyer, Vice President of Investor Relations.\nJoining me on the call today are Chris Rossi, President and Chief Executive Officer; and Damon Audia, Vice President and Chief Financial Officer.\nAnd as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements.\nRisk factors and uncertainties are detailed in Kennametal's SEC filings.\nIn addition, we will be discussing non-GAAP financial measures on the call today.\nReconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website.\nI'll start today's call with some general comments on our strong results this quarter and some recent strategic wins as well as our expectations for Q2 and the full year.\nWe posted strong results this quarter by successfully executing our commercial and operational excellence initiatives as underlying demand continued to improve.\nOur sales performance was in line with our expectations, increasing 19% organically year-over-year and outpacing our normal quarter-over-quarter seasonal trend.\nYear-over-year, we experienced growth in all regions and end markets due to our strategic initiatives and improvement in underlying demand.\nWithin our end markets, the strongest performance was in general engineering, energy and aerospace, with aero returning to growth this quarter after eight quarters of decline.\nTransportation increased as well with 14% growth year-over-year and outpaced the normal sequential decline.\nThat said, increasing production cuts due to chip shortages and other supply chain challenges limited transportation customer demand in the quarter.\nOur strong operating leverage resulted in adjusted EBITDA margin improving significantly by 730 basis points to 18.6%, demonstrating the benefits of the investments we have made over the last few years.\nOperating expense as a percentage of sales decreased year-over-year to 21% and sequentially was flat on lower sales.\nOur target for operating expense remains at 20%.\nAdjusted earnings per share improved significantly to $0.44 compared to $0.03 in the prior year quarter.\nFree cash flow was approximately breakeven, which is significantly better than our typical Q1 use of cash.\nAs a reminder, cash flow in the first quarter of the fiscal year is affected by the payment of performance-based compensation.\nWe also began our recently announced share repurchase program, buying back $13 million of shares in the quarter, reflecting the high level of confidence we have in our growth and margin improvement initiatives and free cash flow generation.\nLooking ahead, we believe the underlying market demand is strong.\nHowever, some customers' production levels in the near-term are being affected to varying degrees by supply chain bottlenecks and other uncertainties.\nFor example, there's not yet been a notable improvement in the supply of semiconductor chips, which affects the metal cutting operations of our transportation and associated general engineering customers.\nAnd although we do not expect the situation to get worse, we believe it is likely to continue to constrain customer production levels in Q2.\nHowever, public comments for auto companies suggest the situation may start to improve in the second half of fiscal year 2022.\nSo, we expect revenue growth in transportation and associated general engineering to improve when our customers are able to increase production to meet the pent-up demand.\nAnother source of uncertainty is related to potential power disruptions in certain regions like China, where they are rationing power to varying degrees in some provinces, which could affect customer production levels.\nThus far, we've not seen a material effect on customer demand, but it is a source of uncertainty going forward.\nNevertheless, despite the production slowdowns related to the chip shortages and other uncertainties, we expect Q2 sales to be up 9% to 14% year-over-year and in line with the normal sequential growth pattern of 1% to 2%, which highlights the relative strength of our other end markets outside of transportation.\nNow, as it relates to our own operations, inflation, supply chain bottlenecks and other uncertainties are presenting some challenges, but we believe to a far lesser extent than some of our customers and other manufacturers.\nWe're benefiting from our in-region/for-region local supply chain setup and inventory planning geared toward increasing on-time performance and availability levels.\nAnd our proactive pricing approach, we believe, will continue to be effective in dealing with inflationary pressures.\nSo, as always, we'll continue to focus on what we can control.\nAnd despite the existing market and supply chain uncertainties, we remain confident in driving strong underlying operating leverage for the full year.\nWe've always had world-class application engineering expertise and product innovation, and we continue to leverage these core strengths to win with customers.\nIn addition, the investments we've made over the last few years have improved quality and delivery performance, resulting in higher levels of customer service.\nAs you can see from the slide, our commercial excellence initiatives continue to deliver.\nThrough our innovation and leadership in machining electric vehicle components, we continue to win business with auto manufacturers as they add more hybrid and electric vehicles to their product portfolios.\nOur focus on channel access and fit-for-purpose video brand tooling, we have seen success in displacing competitors at aero tier suppliers in Asia Pacific.\nWe continue to deliver innovative solutions for machining components and renewable energy equipment like wind turbines, where we provided a new drilling solution, improving productivity by 200% and extending tool life by 700%.\nFinally, we continue to drive share gains through our focus on expanding our wear-resistant solutions to mining adjacencies like surface mine.\nSo, collectively, our product innovations and commercial and operational excellence are a winning value proposition, driving share gains and strong operating leverage.\nI will begin on slide four with a review of Q1 operating results on both the reported and adjusted basis.\nAs Chris mentioned, we leverage our modernizes footprint to drive strong results this quarter.\nSales increased by 21% year-over-year and 19% on an organic basis with foreign currency contributing 2%.\nOn a sequential basis, sales declined only 6%, which is less than our normal Q4 to Q1 seasonal decline.\nAdjusted gross profit margin increased 650 basis points to 33.5%.\nAdjusted operating expense as a percentage of sales decreased 210 basis points year-over-year to 21.2%, approaching our target of 20%.\nAdjusted EBITDA and operating margins were up significantly by 730 and 870 basis points, respectively.\nThe strong year-over-year margin performance was due to significantly higher volume and associated absorption as well as strong manufacturing performance, including some simplification/modernization carryover benefits.\nPrice and mix were also positive contributors.\nThese factors were partially offset by the removal of $15 million of temporary cost control actions taken in the prior year and a slight headwind from higher raw material costs beginning to flow through the P&L.\nThe adjusted effective tax rate in the quarter of 26.9% was lower year-over-year, primarily as a result of higher pre-tax income.\nWe reported GAAP earnings per share of $0.43 versus an earnings per share loss of $0.26 in the prior year period.\nOn an adjusted basis, earnings per share was $0.44 per share versus $0.03 in the prior year.\nThe main drivers of our improved adjusted earnings per share performance are highlighted on the bridge on slide five.\nThe effect of operations this quarter were $0.33, which included approximately $0.04 of simplification/modernization carryover benefits and the negative effect of approximately $0.12 from temporary cost control actions taken last year.\nThe factors contributing to a substantial improvement are the same as the drivers of our strong margin performance this quarter that I just reviewed.\nTaxes and currency contributed $0.04 and $0.02, respectively.\nSlide six and seven detail the performance of our segments this quarter.\nMetal Cutting sales in the first quarter increased 19% organically year-over-year compared to a 23% decline in the prior year period.\nA foreign currency benefit of 2% was partially offset by fewer business days, which amounted to 1%.\nAll regions posted year-over-year sales growth with the Americas leading at 22%, followed by EMEA at 21%.\nAsia Pacific posted more modest growth at 7%, reflective of the timing of the economic recovery from the pandemic, reduced government subsidies for wind energy year-over-year as well as lower industrial activity, mainly in transportation.\nYear-over-year, all end markets also posted gains this quarter with general engineering, leading with strong growth of 23%.\nAerospace grew 19% year-over-year and transportation, 14%.\nEnergy grew 1% year-over-year.\nAdjusted operating margin increased substantially to 10.2%, a 920 basis point increase over the prior year quarter.\nThe increase was driven by higher volume, mix, favorable pricing versus raw material increases and manufacturing performance, including benefits from simplification/modernization carryover.\nThese were partially offset by temporary cost control actions taken in the prior year.\nTurning to slide seven for Infrastructure.\nOrganic sales increased by 19% year-over-year compared to a decline of 18% in the prior year period.\nA foreign currency benefit of 3% was partially offset by fewer business days of 1%.\nAgain, all regions were positive year-over-year, with the Americas leading at 28%, EMEA at 8% and Asia Pacific at 7%.\nThe strength in the Americas was driven mainly by the improvement in the U.S. oil and gas market as seen in the continued increase in the U.S. land only rig count.\nBy end market, energy was up 37% year-over-year and general engineering was up 23%.\nEarthworks was also up 3%, but down sequentially, reflecting the typical seasonal decline we experienced in Q1 related to the traditional road construction season.\nAdjusted operating margin improved by 760 basis points year-over-year to 14.1%.\nThis increase was driven by higher volume, favorable pricing exceeding raw material increases and manufacturing performance, including some simplification/modernization carryover benefits, partially offset by temporary cost control actions taken last year.\nNow, turning to slide eight to review our balance sheet and free operating cash flow.\nWe continue to maintain a strong liquidity position, healthy balance sheet and debt maturity profile.\nAt quarter end, we had combined cash and revolver availability of $807 million and we're well within our financial covenants.\nPrimary working capital decreased year-over-year to $608 million and was effectively flat on a sequential basis.\nOn a percentage of sales basis, primary working capital was 32.1%, a decrease both year-over-year and sequentially.\nNet capital expenditures were $17 million, a decrease of approximately $22 million from the prior year.\nWe continue to expect fiscal year '22 capital expenditures to be in the range of $110 million to $130 million.\nOur first quarter free operating cash flow was negative $2 million, an improvement of $27 million from the prior year quarter, reflecting the strong sales and operating performance this quarter.\nWe also paid the dividend of $17 million in the quarter.\nAnd finally, as Chris noted, we repurchased $13 million of shares during the quarter under our recently announced repurchase program.\nThe full balance sheet can be found on slide 14 in the appendix.\nStarting with the second quarter, we currently expect sales to be up approximately 9% to 14% year-over-year and in the range of $480 million to $500 million.\nAs Chris mentioned, this implies sequential growth in line with our normal seasonality of around 1% to 2%, reflecting the challenges in the transportation end market and continued uncertainty in the general macro environment, offsetting strength in aerospace, energy and general engineering.\nAt the midpoint, we've assumed transportation sales to be approximately flat sequentially, given the continued production challenges our customers are dealing with due to the chip shortage.\nAdditionally, we do not expect disruptions due to supply chain or energy issues to worsen.\nLastly, given that we believe customers will continue to maintain their cautious behavior, we aren't forecasting meaningful restocking.\nAdjusted operating income is expected to be a minimum of $46 million, implying continued strong operating leverage year-over-year, excluding $10 million of temporary cost actions taken last year.\nSequentially, higher raw material costs will begin to flow through the P&L as expected.\nWhen coupled with the timing of annual merit increases and incremental D&A, the sequential increase in costs will be approximately $10 million.\nLastly, for Q2, we expect the adjusted effective tax rate to remain in the range of 25% to 28% and free operating cash flow to be positive.\nTurning to slide 10 regarding the full year.\nWe believe the recovery is still underway, but the uncertainties we discuss make the pace and trajectory difficult to forecast.\nThat said, we expect sales in the second half to exceed normal sequential patterns, assuming that transportation starts to recover in Q3 and other market uncertainties do not worsen.\nOn that basis, as Chris mentioned, we expect year-over-year growth and strong operating leverage on an annual basis, excluding temporary cost control headwinds from the prior year.\nIn terms of the sequential cadence, we continue to expect operating leverage to be more favorable in the first half due to the timing of strong net price versus raw material benefits and simplification/modernization carryover benefits.\nOn a year-over-year basis, the second half will be affected by the above normal leverage we saw in the fourth quarter last year due to net price versus raw material benefits.\nThe second half will also be affected by other inflationary pressures.\nNevertheless, we remain committed to driving strong operating leverage for the full year.\nThe above average leverage in the first half and these effects in the second half serve as a reminder of the unevenness that can occur in year-over-year operating leverage comparisons from quarter-to-quarter.\nThis is why, as we've discussed, looking at leverage over a longer time frame, such as the full year, is more representative of the underlying performance of the business.\nMoving on to other variables, they are essentially unchanged from last quarter.\nThis includes depreciation and amortization increasing $15 million to $20 million year-over-year to a range of $140 million to $145 million, capital expenditures to be in the range of $110 million to $130 million and working capital to trend toward our 30% goal by fiscal year-end.\nTogether, over the full year, these assumptions translate to free operating cash flow generation at approximately 100% of adjusted net income, in line with our long-term target, further demonstrating our progress transforming the company.\nTurning to slide 11.\nLet me take a few minutes to summarize.\nWe posted an excellent quarter and is demonstrated by our strong operating leverage, simplification/modernization investments are contributing to improved financial performance.\nFurthermore, our product innovations and commercial and operational excellence initiatives have well positioned us to drive share gain and improve margins as markets continue to recover.\nAnd although supply chain bottlenecks and other uncertainties are limiting visibility, we currently expect to exceed normal sequential quarterly growth patterns in the second half of fiscal year 2022 and are confident in driving strong full year operating leverage.\nStrength of our balance sheet and free operating cash flow gives us the flexibility to both continue investing in our strategic initiatives and optimize capital allocation.\nAnd I remain fully confident we will meet our adjusted EBITDA profitability target of 24% to 26% when sales reached the range of $2.5 billion to $2.6 billion.",
        "summary": "q1 adjusted earnings per share $0.44.\nq1 earnings per share $0.43.\nq1 sales rose 21 percent to $484 million.\nsees q2 sales up 9 to 14 percent.\nq2 sales expected to be up 9 - 14 percent compared to prior year quarter."
    },
    {
        "text": "We will be referring to that slide deck throughout today's call.\nI'm Kelly Boyer, Vice President of Investor Relations.\nJoining me on the call today are Chris Rossi, President and Chief Executive Officer, and Damon Audia, Vice President and Chief Financial Officer.\nThese risk factors and uncertainties are detailed in Kennametal's SEC filings.\nIn addition, we will be discussing non-GAAP financial measures on the call today.\nReconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website.\nI'll start today's call with some general comments and a brief review of the quarter, and then discuss our expectations for Q3 and strategic initiatives.\nThese solid results were driven by improving sequential sales, reflecting both market improvement and growth from our strategic initiatives, as well as increasing benefits from simplification/modernization.\nSales this quarter increased sequentially by 10%, outpacing the 1% to 2% increase from Q1 to Q2 that we typically see.\nTransportation and General Engineering end-markets, although still declining year-over-year, continued to show the highest levels of recovery.\nAs a reminder, those two end-markets totaled more than 65% of our sales.\nEnergy and Aerospace, as you know, continue to be challenged.\nOn a year-over-year basis, organic sales declined 14% on top of a 12% decline in the prior year.\nHowever, through disciplined execution of our strategic initiatives and cost control actions, we were able to improve profitability despite the drop in volume and associated under-absorption.\nAdjusted EBITDA margin improved by 160 basis points to 13% versus 11.4% in the prior year quarter.\nThe year-over-year improvement in EBITDA margin was driven by lower raw material costs, increasing benefits from simplification/modernization, and effective cost control actions.\nOperating expense as a percentage of sales increased year-over-year to 22% due to lower sales, however, in dollar terms, decreased 9%.\nOur target for operating expense remains at 20%.\nAdjusted earnings per share of $0.16 was essentially flat versus $0.17 in the prior year quarter, reflecting the factors I just mentioned.\nLooking ahead, visibility in this environment continues to be limited; however, there are some reasons for optimism, such as recent end-market momentum and some modest indications of restocking, as well as the early stages of the vaccine rollout.\nNevertheless, with possible additional shutdowns being contemplated in some regions due to recent spikes in COVID-19 cases, it remains difficult to forecast how end-markets and our customers will be affected.\nTherefore, similar to the last couple of quarters, we will not be providing a full-year outlook for fiscal year '21.\nHowever, I will provide some color on what we expect in the third quarter.\nBased on monthly sales in Q2, early indications from our January sales and assuming that there are no additional significant COVID-19 related shutdowns in the quarter, we expect Q3 sales to see mid to high-single digit growth sequentially with part of the sequential sales growth coming from FX.\nWe expect the underlying organic growth, excluding the effect of FX, to be in the mid-single digits, which is modestly above our typical sequential growth pattern of 3% to 4%.\nRegardless of the pace and trajectory of the recovery, we will continue to focus on the things we can control, such as executing our operational and commercial excellence initiatives to gain share and improve profitability levels throughout the economic cycle.\nOn the operational excellence side, simplification/modernization initiatives delivered $23 million this quarter, a 117% year-over-year increase and are on track to deliver approximately $80 million in benefits this year as expected.\nAs a reminder, we expect to complete our original footprint rationalization activities with the closure of the Johnson City, Tennessee plant, and downsizing the Essen, Germany plant, by the end of this fiscal year.\nTotal cumulative savings from inception of the program are expected to be $180 million by the end of this fiscal year, which is within the original target range we laid out in December 2017 and will be achieved despite much lower volume levels than originally planned.\nThis is a major accomplishment and sets us up well for the recovery.\nCapital spending associated with simplification/modernization is essentially complete, and as such, will result in more normalized capex levels going forward.\nTotal capex is expected to be between $110 million and $130 million this year, a 50% reduction year-over-year.\nFree operating cash flow was $29 million for the quarter, bringing the year-to-date figure to approximately breakeven.\nThis was excellent performance by the team as they remained focused on working capital without compromising customer service.\nBased on the year-to-date performance and current second half outlook, we now expect positive free operating cash flow for the second half and total year, which Damon will go into more detail on.\nAs you recall, at the end of fiscal year '20, we announced two important changes as part of our commercial excellence strategy.\nFirst, the combination of our two Metal Cutting business segments to better direct our commercial resources, products and technical expertise on capturing a larger share of wallet.\nAnd second, repositioning the Widia brand and portfolio to address the multibillion-dollar fit-for-purpose application space within Metal Cutting that we had not previously focused on.\nThis approach opens up a 40% increase in served market opportunity while offering better service in tooling options for our customers.\nOverall, progress on these initiatives is tracking with our expectations.\nAnd I'm very encouraged by the wins we are seeing in fit-for-purpose applications as we roll the program out globally.\nWe presented this slide on the last earnings call and have updated the graphs to reflect this quarter's results.\nAs a reminder, the last time the Company experienced a sales decline close of the one we are currently experiencing was during The Great Recession in 2009.\nGraph show trailing 12 month sales on the left and the corresponding adjusted operating margin on the right.\nAs you can see, we have been able to maintain significantly higher levels of profitability throughout this downturn.\nAnd in this quarter, the 12 month profitability level is approximately the same, but on a much lower revenue.\nThis is due to the benefits of simplification/modernization that we have already captured combined with stronger and more timely cost control actions.\nTwo additional points to note.\nFirst, the present day numbers do not yet include the full run rate effect of simplification/modernization.\nWe are anticipating an additional approximately $40 million in savings by the end of this fiscal year.\nAnd secondly, we have not yet exited the downturn.\nThe previous downturn lasted about five quarters.\nThis downturn has already lasted seven quarters, and we are just now starting to see early signs of recovery.\nIn summary, I'm very encouraged by these results.\nWe have maintained higher profitability throughout this downturn and are well positioned to outperform as markets recover due to the initiatives we've executed over the last several years.\nI will begin on Slide 4 with the review of Q2 operating results, both on a reported and an adjusted basis.\nAs Chris mentioned, the sequential performance of our sales outpaced our expectations and the typical seasonal pattern.\nOn a year-over-year basis, total sales declined 13% and 14% organically.\nForeign currency and business days each contribute approximately 1% and a business divestiture had a negative effect of 1% in the quarter.\nAdjusted gross profit margin of 28.2% was up 140 basis points year-over-year.\nAdjusted operating expenses of $98 million were down $10 million or 9% year-over-year.\nAdjusted EBITDA margin of 13% was up 160 basis points from the previous year quarter.\nSequentially, despite rolling back many temporary cost control actions in the quarter, which should amounted to close to $10 million, our adjusted EBITDA margin improved by 170 basis points due to the improving market conditions and continued simplification/modernization savings.\nAdjusted operating margin of 5.3% was up 50 basis points year-over-year and 240 basis points sequentially.\nThe improved year-over-year performance in our margin was primarily due to the positive effect of raw materials as expected, which contributed approximately 590 basis points, incremental simplification/modernization benefits, and temporary cost control actions, partially offset by lower volumes and associated under-absorption.\nThe adjusted effective tax rate in the quarter of 24.7% was lower year-over-year due to the effects of higher pre-tax income and geographical mix.\nOur current expectation is for the adjusted effective tax rate for the fiscal year to be approximately 30%.\nLonger-term, we continue to expect our adjusted effective tax rate to be in the low 20% range as profitability levels increase beyond fiscal year '21.\nWe reported a GAAP earnings per share of $0.23 versus an earnings per share loss of $0.07 in the prior year period.\nOn an adjusted basis, earnings per share was $0.16 per share versus $0.17 in the prior year.\nThe main drivers for our adjusted earnings per share performance are highlighted on the bridge on Slide 5.\nEffective operations this quarter amounted to negative $0.20.\nThis compares positively to both the negative $0.62 in the prior year quarter and the negative $0.28 last quarter.\nThe largest factor contributing to the $0.20 was the effect of lower volumes and associated under-absorption, partially offset by positive raw materials of $0.25 and temporary cost control actions.\nThe negative effect of operations this quarter was basically offset by $0.19 or $23 million of benefits from simplification/modernization, a significant increase from $0.10 in the prior year quarter.\nThis brings the cumulative benefits of simplification/modernization to $145 million since inception.\nAs Chris mentioned, our expectation continues to be that simplification/modernization benefits for the total year will be approximately $80 million, driven by actions already taken or announced, bringing the total expected cumulative savings to $180 million by the end of fiscal year 2021.\nSlide 6 and 7 detail the performance of our segments in this quarter.\nMetal Cutting sales in the quarter declined 14% organically on top of a 10% decline in the prior year period.\nAll regions posted year-over-year sales decreases with the largest decline in the Americas at negative 20%, followed by EMEA at 12%, and Asia-Pacific at 6%.\nSequentially, however, we saw improvement across all regions.\nThe performance in Asia Pacific relative to other regions reflects more positive economic activity led by China, which was flat year-over-year and an improvement in India, which was down low-single digits.\nFrom an end-market perspective, we experienced the best performance in Transportation and General Engineering, which declined 4% and 12%, respectively.\nEnergy declined 18% year-over-year with the declines in the oil and gas portion of the Energy end-market more than offsetting continued strength in renewable energy, mainly in Asia Pacific.\nAerospace continues to be our most challenged end-market with sales down 43% in Q2 as COVID-19 continues to affect production levels and air travel.\nSequentially, the increase in Metal Cutting was mainly driven by the Transportation and associated General Engineering end-markets.\nAdjusted operating margin of 6.1% was down 280 basis points year-over-year, but well above the 1% we experienced in the first quarter.\nYear-over-year decrease was primarily driven by a decline in volume and mix, partially offset by incremental simplification/modernization benefits, temporary cost control actions, and raw materials that contributed 230 basis points.\nTurning to Slide 7 for Infrastructure.\nOrganic sales declined 14% on top of a 14% decline in the prior year period.\nOther factors affecting Infrastructure sales were divestiture of 1%, partially offset by a benefit from business days of 1% and FX of 1%.\nRegionally, again, the largest decline was in the Americas at 18%, then EMEA at 12%, followed by 1% growth in Asia Pacific.\nBy end-market, the results were primarily driven by Energy, which declined 24% year-over-year, due mainly to the roughly 60% decline in the US land only rig count.\nSequentially, our sales in the Energy end-market improved as customers increased their orders with the increasing rig count.\nEarthworks was down 10% year-over-year driven by underground mining and construction weakness in the US.\nGeneral Engineering was down 7% year-over-year, an improvement from the 14% decline we experienced in Q1.\nAdjusted operating margin of 4.4% was up 620 basis points year-over-year.\nThis increase was mainly driven by favorable raw materials, which contributed 1,230 basis points as expected, simplification/modernization benefits, and temporary cost control actions, partially offset by lower volumes and associated under-absorption.\nOur expectation is that raw materials will be neutral year-over-year for Q3 and Q4 given the tungsten prices have been relatively stable for around six quarters.\nNow turning to Slide 8 to review our balance sheet and free operating cash flow.\nWe continue to believe that maintaining a conservative financial profile is appropriate to ensure the Company has ample liquidity, particularly in this environment, as well as the ability to continue to execute on our strategy.\nOur current debt profile is made up of two $300 million notes, maturing in February of 2022 and June of 2028, as well as the US $700 million revolver that matures in June of 2023.\nAt quarter end, we had $25 million outstanding on the revolver with combined cash and revolver availability of approximately $780 million and we were well within our financial covenants.\nPrimary working capital decreased year-over-year to $638 million, given our continued focus on inventory.\nOn a percentage of sales basis, primary working capital increased to 37.3% as sales remained depressed.\nOur target primary working capital to sales ratio remains 30%.\nCapital expenditures were $29 million, a decrease of $46 million from the prior year as expected, as our capital spending on simplification/modernization is substantially complete.\nYear-to-date, we have spent $69 million and continue to expect capital expenditures for the year to be in the range of $110 million to $130 million.\nFree operating cash flow for the quarter improved year-over-year to $29 million.\nSequentially, free operating cash flow also improved due to lower capex and stronger profitability.\nYear-to-date, our free operating cash flow is approximately breakeven and $59 million more favorable compared to last year.\nConsistent with prior quarters, we paid the dividend of $17 million.\nThe full balance sheet can be found on Slide 13 in the appendix.\nAs a reminder, this slide details how we expect key factors to affect earnings per share and free operating cash flow.\nThe slide has been updated to show how these factors will affect the second half on a year-over-year basis and highlights meaningful sequential differences where appropriate.\nStarting with simplification/modernization, as we already mentioned, we expect to achieve benefits of approximately $80 million in FY '21, which implies around $40 million of incremental year-over-year savings in the second half.\nTemporary cost control actions, unlike in the first half, will be a significant year-over-year headwind of $50 million to $55 million, with $40 million to $45 million in the fourth quarter.\nThese headwinds are reflective of the aggressive cost control actions implemented last year that are not expected to repeat this year.\nGiven the phase out of cost control actions in the second quarter, Q3 will face a sequential headwind of approximately $10 million relative to Q2.\nDue to the significant level of temporary cost control actions in place last year in the second half, year-over-year leverage will be distorted and not accurately reflect the underlying improved operational performance.\nBased on current material prices, particularly tungsten, we do not expect raw materials to have a material effect either year-over-year or sequentially in the second half.\nAlthough depreciation and amortization were only modestly higher year-over-year in the first half, we still expect them to be approximately $10 million higher for the full year as new equipment comes online.\nLastly, for the earnings per share drivers, we have lowered our adjusted effective tax rate expectations for fiscal year '21 to approximately 30% from our previous estimate of 33%, which was also the effective tax rate last year.\nThis improvement is reflective of the higher pre-tax income and geographical mix.\nIn terms of free operating cash flow drivers, as Chris and I already mentioned, capital spending for the year is expected to be in the range of $110 million to $130 million.\nThis implies lower capex both year-over-year and sequentially in the second half.\nWe expect cash restructuring to be slightly higher both year-over-year and sequentially in the second half.\nAnd we now expect the full year cash restructuring to be higher by $20 million to $25 million versus the approximate $40 million spent in FY '20.\nThis represents a modest decrease versus our original expectation.\nGiven our strong inventory reductions year-to-date and continued improving market conditions, we now expect working capital to be a modest use of cash in the second half.\nWith our focus on working capital, combined with improved market conditions, we now expect free operating cash flow to be positive in the second half and the full year.\nFinally, as it relates to Q3, as Chris mentioned, we expect sales to be up mid to high-single digit sequentially with part of the sequential sales growth coming from FX.\nWe expect the underlying organic growth, excluding the effect of FX, to be in this mid-single digits and above our typical sequential growth pattern of 3% to 4%.\nTurning to Slide 10, let me take a few minutes to summarize.\nI'm encouraged by our results this quarter despite the ongoing challenges in our end-markets.\nOur commercial excellence initiatives are progressing well to drive growth and market share gain, and our operational excellence initiatives are on track with simplification/modernization nearing completion.\nThe strength of our balance sheet and cash flow allows us to continue to optimize capital allocation, while further improving profitability and customer service throughout the economic cycle.",
        "summary": "compname reports q2 earnings per share $0.23.\nq2 earnings per share $0.23.\nwill not be providing an fy21 outlook at this time, outside of capital spending, which is unchanged."
    },
    {
        "text": "I'm Quynh McGuire, Vice President of Investor Relations.\nYou may access this announcement via our website at www.\nAs indicated in our announcement, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call.\nReferences may also be made today to certain non-GAAP financial measures.\nJoining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer.\nI'll now turn over this discussion to Leroy.\nAs the pandemic continues, I hope that you and those you care about remain safe and healthy.\nAnd I'd also like to wish all of you a happy healthy and prosperous 2021.\nOur next call will be on February 24th, to report final 2020 results and provide our view into 2021 at that time.\nAs the starting point for today is shown on Slide 4, Koppers has continued to retain its designation as an essential business as determined by the U.S. Cybersecurity and Infrastructure Security Agency or CISA within the Department of Homeland Security.\nI mean, we've been able to continue operating during the pandemic to transport critical goods, provide power and connectivity to homes and businesses, and keep our infrastructure running reliably.\nWe at Koppers, take great pride in carrying out this critical responsibility.\nIn many ways, last year, seemed like a whirlwind of activity as we work to adapt to the many changes brought on by the pandemic while serving our essential customer base with critical products and services.\nThrough a different lens, there were also periods where it seems the time stood still as many team members adjusted to the different stress points of working virtually.\nCollectively, we're all happy to move past 2020 and step closer to seeing return to our new normal.\nSame time there is a lot to look back on fondly, as it relates to Koppers' performance last year, and I'd be remiss if I didn't point out some of the highlights.\nSo let's move to Slide 6.\nAs I usually do, I'd like to start with an update on a number of achievements related to our Zero Harm culture.\nI'm proud to announce that operationally, we finished 2020 with our lowest total recordable rate for any 12-month period in our company's history.\nWe have been successfully holding firm and emphasizing the importance of leading activities such as hazard identification to driving down exposure in injury rates.\nThroughout 2020, we saw a 30% increase in leading activities and a corresponding 20% decrease in recordable cases, which is quite significant.\nIn November, we held a modified virtual version of our Leadership Forum with key team members worldwide who are responsible for the care and well-being of our team members.\nKoppers' primary focus was on aligning the expectations of leadership at Koppers to ensure we are working toward a safer, stronger, and more inclusive workplace.\nIn December, we held our annual safety, health, and environmental coordinator conference also virtually, providing interactive training on best practices to reduce harm to the environment and better protect our people.\nDespite what has been a chaotic year due to the unexpected challenges associated with COVID-19, these accomplishments prove that our team is not slowing down our efforts to ensure safety, but rather figuring out new and innovative ways to keep us pushing down the path to zero.\nOn the financial side of things, we also expect to finish the year on a positive note in spite of much in our world being turned on its head.\nOur consolidated sales for the year at $1.67 billion represents a new high in the fourth consecutive year of growth when we exclude KJCC from prior results.\nNow, while not yet final, we do expect to finish the year with a new high for operating profit of approximately $161 million, which would represent a 28% increase from 2019.\n2020 will also represent a new-high watermark for adjusted EBITDA excluding KJCC as we expect to finish between $211 million and $212 million.\nNow this compares to $201 million earned in 2019 and exceeds both our recent guidance range of $204 million to $210 million and even more incredibly exceeds our original pre-pandemic guidance for the year of $200 million to $210 million of EBITDA.\nThat level of EBITDA equates to a margin of 12.6% to 12.7%, which will be our highest margin since 2017.\nIt will also be the fifth straight year with adjusted EBITDA margins between 12% and 14% after seven straight years with margins hovering between 8% and 11%, just another indication of how we have truly transformed our business model.\nFor the year, we expect adjusted earnings per share to be between $4.10 and $4.20 per share, which again would represent a new high for Koppers beating our previous high of $3.68 per share back in 2017.\n2020's expected result would represent an approximate 30% increase over 2019 adjusted earnings per share of $3.18.\nFinally, we will have saved approximately $9.5 million in SG&A cost compared to 2019.\nThat's about $2.5 million shy of our original goal of $12 million, which was primarily due to our better-than-expected performance resulting in higher bonus accruals, and special bonuses paid out to our team members at year-end for their extraordinary efforts in extraordinary times.\nOur balance sheet and cash flow perspective is outlined on Slide 7.\nIn addition to receiving $65 million of net proceeds from selling our KJCC coal tar distillation facility in China at the end of September, we also had one of our strongest cash flow years generating over $120 million of cash, which will go down as our second-best cash flow year ever.\nNow, doing so enabled us to reduce net debt by $131.5 million, which represents our largest net-debt reduction in any given year in our public company history.\nFinally, the combination of the higher EBITDA generation and strong-debt reduction allowed us to reduce our net leverage ratio to 3.5 as of year-end compared to 4.3 at the end of 2019.\nThis is the first year-end since 2017 that we finished the year with net leverage below 4 times as we continue to remain focused on reducing leverage to average between 2 and 3 times.\nWe spent just under $70 million of capital for the year, which was near the high-end of our most recent guidance and was primarily due to the treatment expansion project North Little Rock.\nOn a final note, the book value per share of our equity has never been higher as we finish out 2020.\nIt was truly an extraordinary year for Koppers in 2020.\nWe look forward to providing more insight into what we expect in 2021 on our February call coming up in less than a month.\nUntil then, I'll update you briefly on a number of other things going on at Koppers before handing it over to Mike to review the quarterly results in more details.\nMoving to Slide 9, currently, we have 20 employees or about 1% of our total employee population self-quarantining for the coronavirus.\nTo date, we have had 232 employees worldwide, or 11%, who'd have tested positive.\nAnd on a cumulative basis, we've seen close to 2,000 occurrences of employees testing positive or having -- of employee testing positive or quarantining, many of them more than once.\nConsistent with national worldwide trends, we have seen an increase in cases throughout the last quarter and early part of 2021.\nAnd while we continually reinforce the importance of practicing safe behaviors and are diligent in ensuring the proper safety measures like thoroughly cleaning and disinfecting any affected areas, the virus has proven to be a formidable obstacle to overcome in our operating environment.\nFace coverings are required at all North American facilities and we provided these to our employees.\nOur strict protocols governing personal protection into processes such as social distancing and diligent hygiene have also continued and includes using rapid self-administered saliva testing kits at our locations in North America.\nWe also recently began using a pool-testing method to screen all U.S.-based plant employees on a periodic basis as that is the employee base where 99% of our infections have come from.\nIn the screenings done to date, we've identified multiple asymptomatic employees and we're able to mitigate the potential spread of infection at those plants by keeping the virus outside of our fence lines.\nGiven the importance of effectively addressing COVID, Koppers has established a new life-saving role that's designed to raise awareness of infection hazards, bind more discipline to our routines and identify job tasks that have higher risk.\nFor the higher-risk job tasks, we'll require more stringent standards of respiratory protection which include N95 masks and advanced level respirators.\nRegarding our communications efforts, we began holding our quarterly all-employee meeting in three time zones to better accommodate our employees in the U.S. and Europe, and in Australia, New Zealand.\nThe new format has encouraged discussion of topics most relevant to each geographic region.\nBeyond that, we continue to hold virtual chat with employees in our plants and those working remotely, and also I continue to provide updates and encouragement to our employees worldwide through weekly videos, which were also posted on Koppers' Facebook and LinkedIn pages.\nLooking at our operations continuity on Slide 11, we see that all worldwide Koppers manufacturing facilities remain operational with no furloughs or layoffs.\nTravel continues to be restricted to essential business only.\nWe continue to carefully evaluate potentially holding a limited number of in-person facility visits, but only if necessary in order to reinforce health and safety goals.\nOur office employees are strongly encouraged to keep working remotely with a return to the office postponed until April 1st of '21 at the earliest.\nNow, of course, anyone working on site is required to follow all face-covering and other COVID-prevention protocols.\nAnd on the vaccines front, we do not plan to require employees to be vaccinated to enter our facilities but we are strongly encouraging it to the extent that we plan to offer financial incentives through our employee-wellness program to those that supply proof of their vaccination.\nGetting as many of our employees through the vaccination process is the quickest way for us to move forward without the specter of COVID-19 and its effects hanging over us.\nNow, as another example of technology enabling us to run our business even better, we recently implemented a fleet safety dashboard in order to improve the safety and efficiency of our trucking operations.\nAlso, we're deploying new visitor management system at our facilities to help with keeping our employees and visitor safe.\nWe also continue to leverage every available technology to conduct meetings, make virtual facility visits, conduct virtual training programs, and conduct virtual ISO audits.\nSlide 13 illustrates our continuing efforts to engage employees in meaningful ways.\nThree of our female members of Koppers' leadership council were featured in the first installment of an empowerment series for employees, which was held virtually in the fourth quarter.\nAs we hired our Chief Sustainability Officer, Stephanie Apostolou, our General Counsel and Corporate Secretary, and Quynh McGuire, our Vice President of Investor Relations participated in a panel discussion that covered topics such as carving their path to success, discovering their individual leadership styles, building their support networks, and managing their work-life balance.\nHosted by LINKwomen, one of our employee resource groups, the event was well attended and will serve as a model for similar programs to be held in the future.\nIn the fourth quarter, we launched our annual global employee engagement survey, which gives everyone the chance to provide me and our leadership team with open, honest, and confidential feedback about what it's like to work at Koppers and how we can further enhance the employee experience.\nWe've been parsing through the results, and we'll shortly be implementing certain changes to better address areas where we fall short.\nIt remains a core commitment to create positive change based on employee input.\nWe strive to differentiate Koppers as an employer of choice and to use that as a competitive advantage in an environment where talent is at a premium.\nSlide 15 shows two tangible examples of our employees caring for the environment.\nDuring our 2019 safety, health, and environmental conference, participants traveled to our Newsoms, Virginia facility to create floating wetlands or man-made rafts that float on the water surface and house native wetland plants, providing homes to beneficial water cleaning microorganisms.\nA year later, our team checked in during the fourth quarter of 2020, and the wetlands are growing well to successfully do their job.\nOur facility in Stickney, Illinois, employees recently planted hardwood to enhance soil quality and create a more attractive green space for the community at a neighboring terminal, where we began a phytoremediation project in 2019.\nPhotos show the new hardwoods, along with the growth of many other plants since the start of the project.\nGoing to Slide 17, here are some of the examples of how Koppers' teams are serving our neighbors.\nFor the fifth year, Koppers Railroad Structures participated in the Leukemia & Lymphoma Society's virtual Light The Night event in Madison, Wisconsin, bringing its cumulative impact to more than $91,000 in donations.\nAdditionally, Vice President of Railroad Structures, Mike Tweet, a bone marrow recipient, has worked with the University of Wisconsin in Madison to support Be The Match, which brings donors and recipients together.\nOur utility and industrial products group continued with deploying its storm response teams in August, restoring power to 25 million utility customers affected by devastating winds sweeping across Iowa.\nIn November, our UIP team again implemented its 24/7 storm recovery program to help those in Georgia, affected by Hurricane Zeta.\nAt roughly the same time, our UIP crews also responded to a major ice storm in Oklahoma, supplying more than 3,500 poles and crossties to aid in post-storm recovery.\nThe feedback that we've received from key municipal and utility customers has been uniformly positive and highly appreciative.\nOver the holidays, at year-end, Koppers' employees across our worldwide footprint continue making a difference by reaching out to those in need, as shown on Slide 18.\nThose at our Ashcroft, British Columbia facility donated 600 pounds of food to the Ashcroft community food bank, 150 pounds of household items to The Equality Project, and funds to the Jackson House Assisted Living facility.\nOur Rock Hill employees donated more than 300 pounds of canned goods to their local food pantry and supported the local Toys for Tots campaign.\nAnd at our Queen City facility, employees donated gently used clothing to a local shelter as part of clean out your closets for the homeless.\nOur people and our company have been making headlines over the past quarter, as seen on Slide 20.\nIn November, our Performance Chemicals business purchased land adjacent to its plant in Rock Hill, South Carolina to be used for future expansion.\nThe announcement led to local Rock Hill Herald to write a feature on plant manager, Ida Luchey, about the expansion in her career as one of the few female chemical manufacturing plant managers in the industry.\nAlso, I'm proud to say that Koppers was recently named the Newsweek Magazine's listing of America's Most Responsible Companies for 2021, placing among the top half, number 179 of 400 companies selected and ranking 30th overall in the social category, which scored us on items, including Board diversity, employee engagement, and community giving.\nNewsweek and Statista compiled the list based on a rigorous vetting process.\nThis recognition stands as a testament to the incredible work that our employees have done to exemplify our sustainability mindset and our Zero Harm culture of putting the care of people, environment, and communities first, while providing safe and responsible solutions to our customers.\nThis financial discussion is based on these preliminary results.\nOn Slide 22, consolidated sales were $393 million, an increase of $11 million from sales of $382 million in the prior-year quarter.\nSales for RUPS were $168 million, flat as compared to the prior-year quarter.\nPC sales rose to $130 million from $105 million, and CM&C sales came in at $95 million, down from $108 million.\nOn Slide 23, adjusted EBITDA for RUPS was $10 million, which was the same as the prior year.\nEBITDA for PC increased to $23 million from $14 million.\nCMC EBITDA was $14 million compared with the prior year of $16 million.\nMoving on to Slide 24, sales for RUPS were $168 million, relatively flat again year-over-year.\nThis was primarily due to lower crosstie volumes, offset by higher utility pole demand in the U.S. as well as Australia.\nWe also saw increased maintenance-of-way projects in the United States.\nOn Slide 25, adjusted EBITDA for RUPS was $10 million, also flat for the -- from the prior-year quarter, but which is in line, however, with the expected year-end slowdown in crosstie treating demand.\nThis is reflect -- this reflects our ability to main profitability due to increased pole demand and favorable conditions in our maintenance-of-way businesses.\nSales for the PC segment, as shown on Slide 26, were $130 million compared to sales of $105 million in the prior year.\nThis reflects continued strong demand for copper-based preservatives in the U.S., also driven by a strong housing market and higher demand in home remodeling and the increased use of discretionary funds for home improvement projects.\nOverseas, reopening markets also helped PC sales through increased industrial and agricultural demand.\nAdjusted EBITDA for PC on Slide 27 was $23 million compared with $14 million in the prior-year quarter.\nHigher sales volumes, a favorable product mix, and better absorption on higher production volumes all contributed to these positive results.\nMoving on to Slide 28, as this shows CM&C sales at $95 million compared to sales of $108 million in the prior-year quarter.\nSales were lower in every region, except Europe, but were in line with overall expectations.\nThe pandemic has meant lower average oil prices and a general market slowdown, which translates into lower pricing for carbon pitch globally and weaker U.S. demand for phthalic anhydride, which was partially offset by improved demand for carbon pitch in Europe and for carbon black feedstock in Australia.\nOn Slide 29, adjusted EBITDA for CM&C was $14 million compared to $16 million in the prior-year quarter, reflecting an expected decline due to the ongoing weak-end market demand.\nHowever, Q4 performance reflects continued margin recovery, year-to-date adjusted EBITDA margins were only 7.5% at June 30th but as we predicted CM&C margins rebounded strongly in the second half of the year and year-to-date margins for the full year increased to 11.7%, reflecting a very, very strong second half of 2020.\nNow let's review our debt and liquidity.\nAs seen on Slide 31, at the end of December, we had $737 million of net debt, with $346 million in available liquidity.\nWe reduced net debt by $131.5 million in 2020, which included the proceeds received from the KJCC divestiture.\nWe also remain in compliance with all debt covenants and do not have any significant debt maturities until 2024, when our revolver matures.\nAs of December 31, 2020, total debt was at $784 million.\nIn summary, I'm proud to say that every indication shows that Koppers will meet or exceed all major goals that we had set for 2020 prior to the pandemic.\nDue to all the hard work and dedication of our global workforce, we are on track to achieve a new high of profitability post KJCC to surpass the high-end of our initial 2020 earnings target, to exceed our original net-debt reduction objective of $120 million, and to reduce our net leverage to 3.5, below our pre-pandemic 2020 goal of 3.6 to 3.8.\nThese 2020 achievements are all the more impressive given that our people had to deal with the pandemic and all that came with it and yet they dug deep and persevered.\nMore than ever, we're confident that placing people first leads to a stronger commitment to our customers, which in turn leads to success in all aspects of our business.\nEven with everything that was going on in 2020, we improved our underlying safety rates to an all-time best performance, initiated our sustainability journey, strengthened our inclusion and diversity focus, and supported our team members and communities during a shared crisis.\nTaken together, it makes for a truly historical year.\nWe are also on a curveball in 2020 but faced with such an unusual an unanticipated set of circumstances, at Koppers, we're still able to deliver strong performance while also working on pushing forward several initiatives focused on the future growth and success of the business in 2021 and beyond, which I look forward to sharing with you in a month's time.\nWith that, I'd like to open it up for any questions.",
        "summary": "expects to invest $105 million to $115 million in capital expenditures in 2021.\nin 2021, koppers plans to reduce debt by approximately $30 million."
    },
    {
        "text": "At the outset, I need to say that some of the information we will be discussing is forward looking in nature.\nJohn will start the call with an update on our market conditions and review our operational and strategic activities.\nI will discuss third quarter financial results and provide you with updated earnings guidance for 2021.\nI'll start with some macroeconomic comments before getting into our leasing and capital allocation.\nIt's been just over 1.5 years since the pandemic began, and we are really starting to see the revitalization of cities across the West Coast.\nCity drillers are returning to their urban apartments and once again embracing city life.\nAfter a tough 2020, residential net absorption is approaching 100,000 units in our five markets driven in large part by high density areas like Hollywood, South of Market, Downtown Seattle and Downtown Austin.\nRestaurants, bars, coffeehouses are full, concerts and sporting events have returned and slowly but surely, more companies are coming back to the office.\nThe recent easing of the San Francisco mask mandate is another step in the right direction that we believe will continue to encourage more infers and gatherings and collaborations.\nThe technology and life science companies that make up so much of our portfolio continue to thrive.\nStock prices are near all time highs and VC fundraising is on track for a record year, which is translating into a war for talent, growth in job postings and additional real estate procurement.\nImproving market conditions helped to drive a strong and productive leasing quarter for Kilroy.\nWe signed more leases in the third quarter than the first two quarters of 2021 combined.\nSince the second quarter, we have signed just under 600,000 square feet of development, new and renewal leases.\nFor the 510,000 square feet in the stabilized portfolio that were signed, GAAP rents were up on average 26% and cash rents were up 14%.\nAdditionally, we have a number of leases under documentation.\nAnd in Austin, we're very encouraged with the market and our early stage lease negotiations.\nA few facts according to recent reports about Austin, there are 185 people moving to Austin on average each day, and interest among companies wanting to move to Austin and those that want to expand in Austin is above pre-pandemic levels.\nLet's look at some of these transactions.\nIn the office sector, we signed a long-term 71,000 square foot lease in the UTC submarket of San Diego.\nThe lease is for a new development projects, which we commenced construction on just last month.\nSo now it's 100% leased just a month after starting construction.\nThe competition between technology tenants and life science tenants remains healthy.\nBoth sectors continue to grow and seek more modern, efficient work environments.\nIn life science, the third quarter was particularly active for us.\nWe signed three leases totaling 330,000 square feet of headquarters space with publicly traded companies in San Diego, including Tandem Diabetes Care, DermTech and Sorrento Therapeutics.\nThe mark to market rent increases on these three leases were approximately 45%, with an average term of approximately 12 years.\nIn residential, we now have fully leased all 608 units in our One Paseo project at rent levels that have increased 25% since the beginning of the year.\nJardine, our Hollywood luxury tower that was completed last quarter is now more than 60% leased, well ahead of projections.\nWith respect to leasing, I'd like to highlight the following trends, which we feel bode well for the future of our enterprise.\nSentiment among corporate real estate executives is more positive than it has been in the past 18 months.\nWe're experiencing significantly more tours and requests for proposals within our portfolio.\nThis is both for existing and development projects, rental rates and strategically located modern buildings are on the rise as the result of tenants seeking the best space in the market.\nVibrant and distinctive office, curated retail and residential experiences are drawing a talented labor force back to metropolitan areas.\nMoving to our capital allocation activities.\nWe made two significant announcements during the quarter.\nFirst, in September, we completed the off-market acquisition of West 8th in the Denny Regrade submarket of Seattle for $490 million.\nWest 8th is a 539,000 square foot lead platinum office tower situated on a full city block just steps from Amazon's five million square foot headquarters campus.\nWe like the opportunity for a number of reasons.\nThe location is terrific with unmatched transit access and proximity to numerous retail amenities, rents continue to increase in this submarket, and we see significant rental upside.\nAnd given the quality and condition of the building, we expect limited capital investment in any releasing scenario.\nyear to date, this brings our total acquisitions to $1.2 billion, which have been funded by our $1.1 billion dispositions.\nThe second announcement relates to our continued allocation of capital to our life science platform.\nEarlier this year, we commenced construction on the second phase of our approximately 50 acre, three million square foot Oyster Point project, which is a life science campus in South San Francisco.\nKOP 2, which totals just under 900,000 square feet across three buildings will be a home to numerous amenities that will serve all phases.\nWe are particularly excited about phase two, given the strong demand, rising rental rates and timing.\nNo other competitive project will be delivering in this time frame.\nWe are in early discussions with multiple prospective tenants interested in securing major portions of the project and expect even more interest in the buildings once construction goes vertical in the first quarter of next year.\nIn addition to KOP, we are expanding our San Diego life science significantly.\nAvailability for top-tier space in the region's most sought after life science submarkets is essentially nonexistent.\nBarriers to entry are high and rental rates are at historic levels.\nAnd we are capitalizing on these dynamics in Del Mar, UTC and the I-56 corridor, where we have modern, highly convertible assets and a land pipeline.\nIn the UTC and Del Mar submarkets, as I noted in my earlier remarks, we signed 330,000 square feet of pre-leases across three buildings, which will be converted to life science use.\nAnd just a few miles east on the 56 corridor, we expect to commence construction next year on the first of two phases of our Santa Fe Summit project.\nEach phase consists of approximately 300,000 square feet.\nTo summarize, we will deliver 2.5 million square feet of state of the art life science facilities over the next 30 months.\nAnd over time, the three future phases of Kilroy Oyster Point will expand our life science portfolio by another 1.5 million to two million square feet.\nWhen completed, we have assembled a best in class life science portfolio in the strongest locations, which will total 5.5 million square feet with an average age under five years.\nWith full buildout, life science and healthcare tenants will be 25% to 30% of our NOI.\nLastly, delivering our in-process development and positioning our future development projects remain a high priority in our capital allocation strategy.\nWe have $2.6 billion of in-process projects on track for completion over the next two years.\nThis pipeline is 52% leased and 74% leased when excluding the just commenced KOP 2, which we started five months ago.\nThey will generate approximately $170 million in incremental cash NOI when stabilized, which will grow our current annual NOI by more than 20%, all else being equal.\nThe cost is fully funded through the year end 2022.\nI'll wrap up with a few final observations.\nIn nearly every conversation we were having these days with our tenants and potential tenants, one big theme emerges, companies want a work environment that attracts, excites and motivates their workforce.\nThey want location, scale, a contemporary design, a healthy environment and relaxed ambience that will draw people in and support their creativity and productivity.\nThis is the most profound impact the pandemic has had on the office sector, and we think KRC is well positioned to capitalize on these conditions.\nOver the last 10 years, we created the youngest best in class platforms across office, life science and residential and we are poised to deliver strong growth and value creation over the coming decade.\nWe're more encouraged every day about our market's recoveries.\nThe reopening is going to happen in fits and starts, but it is happening.\nAnd a final comment on sustainability.\nIn GRESB rankings, we have been named number one in sustainability across all publicly traded companies across all asset classes in the Americas for the eighth year running.\nThat completes my remarks.\nFFO was $0.98 per share in the third quarter.\nQuarter over quarter, the $0.10 increase was largely driven by the acquisitions to date, NOI contribution from our One Paseo office and our residential projects as well as $0.015 of lease termination fees.\nOn a year over year basis, as a reminder, the sale of the exchange had an impact of approximately $0.13 of FFO per share.\nOn a same store basis, third quarter cash NOI was up 16.6%, reflecting strong rent growth and a $17 million cash termination payment.\nGAAP same store NOI was up 3.2%.\nThis termination payment is related to the new 12 year lease we executed at 12400 High Bluff for 182,000 square feet of space.\nOn an earnings basis, approximately $7 million, which is a net amount after lease write offs, will be amortized over the next three years.\n$700,000 of it was included in the third quarter.\nAdjusted for termination payments, same store cash NOI was 3.7% and same store GAAP NOI was up 2.2%.\nAt the end of the third quarter, our stabilized portfolio was 91.5% occupied and 93.9% leased.\nThird quarter occupancy was down 30 basis points from the prior quarter, driven by approximately 90,000 square feet of move outs, offset by the West 8th acquisition and the Cytokinetics lease at KOP 1, which was added to the stabilized portfolio at the end of the quarter.\nRevenue recognition for 100% of this 235,000 square foot building commenced October first.\nTurning to the balance sheet.\nAfter funding the West 8th acquisition for $490 million, issuing $450 million of green bonds, which closed October seven and the redemption of $300 million of 3.8% bonds, which was completed earlier in the week, our liquidity today stands at approximately $1.5 billion, including $390 million in cash and full availability of the $1.1 billion under the revolver.\nWe have no material debt maturities until December 2024.\nOur net debt to Q3 annualized EBITDA was 6.7 times, pro forma for the bond activities noted above, which should decline as we continue to deliver our lease development projects, all else being equal.\nLastly, our expirations over the next five years remain modest with an annual average expiration of 7.2%, excluding any impact from DIRECTV.\nWe do not have an update to provide on the DIRECTV matter at this time.\nIn 2022, we only have one lease expiration greater than 100,000 square feet in San Diego.\nThis tenant is likely to, this tenant is expected to vacate in early 2022.\nTo begin, let me remind you that we approach our near term performance forecasting with a high degree of caution, given all the uncertainties in today's economy.\nOur current guidance reflects information and market intelligence as we know it today.\nAny COVID-related restrictions or significant shifts in the economy, our markets, tenant demand, construction costs and new supply going forward could have a meaningful impact on our results in ways not currently reflected in our analysis.\nProjected revenue recognition dates are subject to several factors that we can't control, including the timing of tenant occupancies.\nWith those caveats, our assumptions for 2021 are as follows.\nCap interest is expected to be approximately $80 million.\nSame store cash NOI growth is expected to be between 5% and 5.5% for the year.\nWe expect year end occupancy of approximately, sorry, of approximately 91.5% for the office portfolio and north of 80% for residential.\nOur guidance does not assume a material increase in transient parking.\nBut as we've noted on prior calls, we expect to pick up $1 million a month when we get back to pre-COVID levels.\nWith respect to the three San Diego life science transactions, we will be adding them to the redevelopment portfolio and capping interest in phases as follows.\nOn average, we are modeling six to nine months of redevelopment, which are estimates based on what we know today and could be impacted by a variety of factors, including tenant modifications.\nAt 12340 El Camino Real, which is 100% leased to DermTech, we expect to add this 96,000 square foot building to the redevelopment pipeline this quarter.\nAt 12400 High Bluff, which is approximately 85% leased to Tandem Diabetes, we expect to add 75% of this 182,000 square foot lease to the redevelopment pipeline in late 1Q next year.\nAt 4690 Executive Drive, which is 100% leased to Sorrento Therapeutics, we expect to add this 52,000 square foot lease to the redevelopment pipeline in two phases, half in late 1Q next year and the remainder in early 2023.\nWe do not have any additional acquisitions in our forecast.\nTaking into account all these assumptions, we project 2021 FFO per share to range between $3.74 to $3.80 with a midpoint of $3.77.\nThis updated midpoint is the same as our prior guidance, even after including the debt redemption costs of $0.115 in the fourth quarter.\nThis is largely driven by the acquisition of West 8th, which contributed $0.06 to our results and earlier revenue recognition of Cytokinetics and better operating results, including $0.015 of lease termination fees, all totaling 5.5%, $0.55.\nExcluding the $0.115 of debt redemption cost, the midpoint of our guidance would have been up 3% or $3.89 of FFO per share.\nThat completes my remarks.",
        "summary": "q3 ffo per share $0.98."
    },
    {
        "text": "Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference.\n2021 was a pivotal year for the company.\nWe achieved record earnings per share and successfully launched several key strategic initiatives that position us to drive growth for years to come.\nI am proud of how our team has remained agile and focused in a challenging environment during the past couple of years.\nWe've proven that Kohl's is an incredibly strong and resilient company and has a very bright future.\nDuring today's call, I want to leave you with three things.\nFirst, we have fundamentally restructured our business to be more profitable.\nIn 2021, we delivered an all-time record adjusted earnings per share of $7.33, eclipsing our previous high of $5.60 in 2018.\nAnd our operating margin of 8.6% exceeded our goal of 7% to 8% two years ahead of plan.\nSecond, our strategy is building momentum.\nSephora is driving impressive results, which gives us a lot of confidence as we expand the partnership to more than half of our store base this year.\nWe are also pleased with the ongoing strength in our active business, which grew more than 40% relative to last year.\nAnd third, we are returning a significant amount of capital to shareholders.\nWe continue to see a lot of value in our company and are reinforcing our commitment to driving shareholder value in 2022.\nThe board has approved a 100% increase in our dividend, which equates to an annual dividend of $2 per share.\nIn addition, the board has authorized a $3 billion share repurchase program, and we plan to repurchase at least $1 billion this year, of which $500 million is expected to be repurchased through open market transactions or an accelerated share repurchase program executed in Q2 2022.\nIn addition, we are focused on running our business the right way.\nWe have a long-standing commitment to ESG stewardship, including a strong environmental platform, diversity and inclusion strategy and focus on giving back to communities.\nWe continue to raise the bar in all of these areas and look forward to releasing our 2021 ESG Report in the spring, which will include details on our ESG goals, progress to date and SASB and TCFD reporting.\nWe remain extremely confident in driving profitable future growth and cash flow generation, and we look to build on this past year's success in 2022 and beyond.\nI'll start by adding more color to our Q4 results.\nWe drove strong margin improvement and delivered fourth-quarter earnings per share ahead of expectations.\nFollowing a strong sales start to the quarter, we experienced significant additional inventory receipt delays and were unable to fulfill all of the customer demand during this critical holiday time.\nWe estimate that our sales growth was impacted by approximately 400 basis points as a result of the worsening of supply chain disruption to our business.\nWe also experienced a softening in-store traffic in January due to omicron.\nOur ability to navigate these challenges and still report strong earnings is a testament to how we fundamentally restructured our business to be more profitable, with an assortment that has a higher margin profile and an expense structure that is more efficient.\nIn terms of the top line, Q4 sales increased 6% to last year, led by a double-digit increase in-store sales.\nWe saw the best performance in categories where we had sufficient inventory, such as active, and conversely, weaker results in areas with inventory challenges, like women's.\nThis gives us confidence that as we improve our inventory position in 2022, we will be able to better capture customer demand and drive sales growth.\nStores remain extremely important to our business.\nThe vast majority of our customers shop our stores, and the stores play a central role in our omnichannel model.\nDuring the fourth quarter, more than 40% of digital sales were fulfilled by stores.\nAs it relates to digital, sales increased 21% to the same period in 2019 and were down 1% to 2020.\nAs a percentage of total sales, digital sales were 39% in the quarter.\nFor the year, relative to 2019, digital sales increased 30% and accounted for 32% of total sales.\nFrom a category perspective in Q4, active continues to be a key growth driver of our business, with sales increasing more than 25% to both last year and on a two-year basis.\nKohl's continues to assert itself as a leading destination for the overall active category, including performance, athleisure and outdoor, through its differentiated portfolio of national and private brands.\nWe saw strength across all active categories in Q4: women's, men's, and children's apparel as well as in footwear.\nFrom a brand perspective, our key active national brands of Nike, Under Armour, adidas, and Champion all experienced exceptional growth.\nIn addition, our national brands of Levi's, Vans, Ninja, Koolaburra by UGG, LEGO, and Hurley also outperformed.\nFrom a private brand standpoint, we saw strength in brands like Tek Gear, Sonoma and SO.\nJill will share more color on the quarter in a moment.\nLet me now provide an update on our strategy and key 2022 initiatives.\nWe made important progress in our pursuit of becoming a leading destination for the active and casual lifestyle in 2021.\nCore to this strategy is our product, building a meaningful beauty business, continuing to grow our active category, improving women's and introducing iconic relevant brands to further differentiate our brand portfolio.\nMany of these major initiatives were launched late in 2021 and are just starting to scale, with most of the upside opportunity still ahead of us.\nLet me start with our game-changing partnership with Sephora.\nAs we've shared before, this introduction will propel Kohl's into a leading beauty destination.\nIt also is a great example of how we are investing in profitable future growth by elevating our product assortment and the overall experience.\nSephora drove significant beauty sales in its first holiday season at Kohl's.\nWe are continuing to see increased levels of traffic and a mid-single-digit sales lift in the first 200 stores that have Sephora as compared to the balance of the chain.\nWe continue to see strong new customer acquisition in our Sephora stores who are younger and more diverse.\nNew customers represent more than 25% of Sephora at Kohl's shoppers.\nCustomers are shopping across a wide range of price points and categories such as makeup, skincare, and fragrance.\nSome of the top-selling brands during the holiday season included Sephora Collection, Fenty, Too Faced, Charlotte Tilbury, OLAPLEX, and tarte.\nSephora at Kohl's customers are also shopping across the store.\nMore than half are attaching at least one other category in their purchase, with women's, accessories, and active being the most prevalent.\nThe frequency of customer return trips is also building the longer the Sephora shops have been opened.\nSephora will be a key driver of our growth in 2022 with the opening of another 400 new shops, reaching half of our store base.\nAnd in 2023, we will open another 250 Sephora shops.\nWe are working closely with Sephora to test and launch additional opportunities to grow our collective business.\nWe look forward to highlighting some of these at next week's Investor Day.\nIn conjunction with the Sephora openings, we are also investing to elevate the overall store environment.\nWe are repositioning categories to deliver against our new strategy, such as moving active to the front of the store.\nWe continue to improve our merchandising efforts and offer an ongoing pipeline of newness and discovery.\nBy the end of 2022, more than half of our store base will have Sephora and the new elevated experience, which is an important milestone in our evolution.\nIn addition to moving active to the front of the store, we will be driving growth through further expansion in our assortment and elevated merchandising across all of our key national brands.\nWe're also growing our outdoor business.\nFollowing the successful launch of Eddie Bauer, we will expand the brand offering from 500 stores to all stores in 2022.\nWe will also increase distribution of Under Armour Outdoor from 400 stores to all stores and remain committed to growing our business with Columbia and Lands' End.\nAnd we're focused on further growing our plus size and big and tall businesses, which continue to resonate with our customers.\nIn addition to Sephora and active, let me share some of our other key initiatives, starting with men's.\nOur men's business has continued to be a strong performer and benefit from our recent brand introductions of Tommy Hilfiger, Calvin Klein, and Hurley.\nWe look to build on this momentum in 2022 by dedicating more space and expanding each of these brands.\nLet me now turn to women's, which is an important business for Kohl's.\nAs you know, we have taken a number of steps to reposition the women's business.\nWe entered 2021 with a conservative plan given the uncertainty of the year ahead and the significant transformation of that business.\nAs the macro environment improved, we were challenged to sufficiently replenish our inventory levels given the worsening supply chain disruption.\nAs a result, the core women's business operated with an average inventory down nearly 45% to 2019 during the fourth quarter.\nWhile 2021 included many challenges, the women's business delivered multiyear highs for sell-through, turn, and margins.\nYou'll hear more about our women's strategy at next week's Investor Day.\nWe are also focused on other initiatives across the business.\nWe will inject more discovery into our stores with more frequent use of capsules such as: Draper James RSVP, a collection from the brand founded by Reese Witherspoon; and a premium denim offering, including Buffalo and Levi's SilverTab.\nLeveraging the reach of our strong omnichannel platform, we will also be introducing dozens of emerging products and brands on a rotating basis, including brands such as Colors for Good and Love Your Melon that have a philanthropic mission.\nLet me now provide a quick preview of what to expect at next week's Investor Day event.\nWe are looking forward to sharing with you how we are evolving Kohl's into a focused lifestyle concept with a clear mandate on driving profitable growth.\nIn addition to Jill and I, several other members of our executive leadership team will join us to discuss key initiatives across merchandising, marketing and technology.\nWe will also review our long-term financial plan and highlight our ESG efforts.\nBefore I hand it off to Jill, let me briefly summarize my comments today.\n2021 was an important and pivotal year for Kohl's.\nWe accomplished a great deal strategically and financially as we've highlighted today.\nGiven the strong growth initiatives in front of us, we have great confidence in the future.\nWe are focused on driving shareholder value and are reinforcing our commitment to returning capital to shareholders.\nWe are doubling our dividend, and our Board has approved a $3 billion share repurchase authorization, with a plan to repurchase at least $1 billion in shares in 2022.\nAs we close out this important year for the company, I want to express my sincerest gratitude to all of our associates across the country for their tremendous commitment and hard work.\nIt has been an extraordinary couple of years, and this team continues to foster a strong culture, deliver exceptional service to our customers and create a bright future for Kohl's.\nI want to start by reiterating the three key takeaways from today's call: one, we have fundamentally restructured our business to be more profitable, and this is showcased by a record year of EPS; two, our strategy is building momentum, and this will continue in 2022; and three, we are reinforcing our commitment to driving shareholder value, doubling our dividend and planning to repurchase at least $1 billion in shares in 2022.\nFor today's call, I'm going to review our fourth-quarter results, discuss our capital allocation plans and then provide details on our 2022 guidance outlook.\nFor the fourth quarter, net sales increased 6% to last year, and other revenue, which is primarily credit revenue, also increased 6%.\nAs Michelle indicated, following a strong start to the quarter, the sales trend worsened due to inventory receipt delays and the spread of omicron.\nWe estimate that our sales were impacted by approximately 400 basis points in the fourth quarter as a result of supply chain challenges.\nTurning to gross margin.\nQ4 gross margin was 33.2%, up 124 basis points from last year, driven primarily by higher inventory turns and regular price selling, reduced sourcing costs, and pricing and promotion optimization strategies.\nThis was partially offset by higher transportation costs as freight expense was more than 140 basis point headwind to gross margin in Q4 and was $40 million higher than we expected.\nNow let me discuss SG&A.\nIn Q4, SG&A expenses increased 5% to $1.7 billion, driven principally by our top-line growth.\nAs a percentage of revenue, SG&A expenses leveraged by 15 basis points to last year, with improved store labor productivity and lower technology expenses more than offsetting increased wage investments across our stores and fulfillment centers.\nDepreciation expense of $207 million was $11 million lower than last year due to lower capital spend.\nIn total, our Q4 operating margin was 6.9%, representing an increase of 172 basis points to last year.\nLast, let me touch on some additional financial items.\nInterest expense was $5 million lower than last year due to lower average debt outstanding during the quarter based on steps we took in 2021 to return our balance sheet to its healthy prepandemic debt structure.\nNet income for the quarter was $299 million, and earnings per diluted share was $2.20.\nThis compares with last year's adjusted earnings per share of $2.22, which included $1.15 of tax benefits.\nAs evident in our performance during 2021, our strategic actions over the past 18 months to enhance our gross margin and improve the efficiency within our expense structure are working.\nFor the full year, we achieved a gross margin of 38.1%, which exceeded our 36% target, and we have managed expenses tightly, lowering marketing and technology spend each by more than $100 million since 2019.\nThese were key drivers in our ability to deliver an operating margin of 8.6% in 2021, exceeding our 2023 target of 7% to 8% two years ahead of plan.\nAnd we reported an all-time record earnings per share of $7.33, well ahead of our prior high of $5.60 in 2018.\nTurning to the balance sheet.\nWe continue to be in a strong financial position.\nWe ended the quarter with $1.6 billion of cash and cash equivalents.\nAs it relates to inventory, we continue to deliver very strong inventory turnover in Q4, resulting in a 4.1 times turn for the year, achieving our goal of four times or more.\nOur inventory balance at year end was 13% lower than 2019.\nHowever, this was not reflective of our position during the holiday period.\nWe entered the quarter with inventory trending down 25% to 2019 and slightly worse on an available-for-sale basis, and we expect it to maintain this level through the holiday.\nHowever, a strong start to November, coupled with unexpected receipt delays, led to significantly less inventory in stores than planned during the key shopping weeks.\nAverage available-for-sale inventory was down nearly 40% to 2019 during November and December, and our position in stores was even worse than this.\nIn assessing our results, it was clear that our challenged inventory position hindered our ability to drive the intended sales.\nWe saw a distinct correlation between inventory and sales growth across our store base and across our categories.\nOur inventory position began improving in January as receipts began arriving, though was still down approximately 30% on average during the month.\nLooking ahead, we feel good about our overall inventory composition.\nAlthough certain receipts were late, we don't believe we have a margin liability as we will continue to work through inventory in Q1 in core merchandise items like fleece and use pack and hold strategies on seasonal goods such as sleep sets and pajamas.\nAnd we've taken additional proactive steps to ensure we are better positioned.\nTurning to cash flow.\nWe continued our strong cash flow generation with $497 million of operating cash flow and $296 million of free cash flow in Q4.\nFor the full year 2021, we generated operating cash flow of $2.3 billion and free cash flow of $1.6 billion.\nCapital expenditures for the year were $605 million, driven mainly by Sephora build-outs, refreshes, and fixtures for new brand launches as well as the completion of our six e-commerce fulfillment centers.\nFor 2022, we are planning capital expenditures of approximately $850 million.\nThis is higher than 2021 due to our continued investment in enhancing our store experience, including 400 Sephora build-outs and store refreshes as well as five new stores and four relocations.\nNow let me discuss our capital allocation actions.\nDuring the fourth quarter, we further accelerated our share repurchase activity, buying over 10 million shares for $548 million.\nFor the full year, we repurchased 26 million shares for $1.35 billion and ended the year with approximately 131.3 million shares outstanding.\nAs it relates to our dividend, we paid $147 million to shareholders in 2021.\nIn total, we returned $1.5 billion to shareholders in 2021.\nThe board has approved a 100% increase in our dividend, which equates to an annual dividend of $2 per share, and a $3 billion share repurchase authorization.\nIn 2022, we plan on repurchasing at least $1 billion, illustrating the confidence we have in our business and in our key strategic initiatives.\nNow let me provide details on our outlook for 2022.\nAs you've heard today, we are confident in our strategies to continue our growth in 2022.\nOur guidance assumes that our business will strengthen as the year progresses, given the timing of our key strategic growth initiatives, specifically the rollout of our 400 Sephora shops.\nFor the full year, we currently expect net sales to increase 2% to 3% versus 2021; operating margins to be in the range of 7.2% to 7.5%; and earnings per share to be in the range of $7 to $7.50, excluding any nonrecurring charges.\nLet me share some additional guidance details and notes.\nWe are expecting higher G&A and interest expense in 2022 due to lease accounting.\nAs we have stepped up our investment in stores with Sephora and refreshes, it has resulted in a number of leases being reclassified to finance leases from operating leases.\nAccounting treatment for finance leases recognizes expense in G&A and interest expense rather than rent expense.\nAs a result, we expect G&A to be approximately $860 million and interest expense of approximately $300 million in 2022.\nAnd lastly, we expect a tax rate of approximately 24%.\nI want to highlight some additional guidance items.\nFirst, from a net sales perspective, we expect Sephora to be a key driver of our growth in 2022 with the opening of another 400 new shops.\nGiven the timing of the Sephora store openings and inventory flow normalizing, we are expecting sales growth to build as the year progresses, with the second half stronger than the first half.\nSecond, we are expecting significantly higher freight and product cost inflation in 2022.\nWhile we will benefit from our ongoing sourcing initiatives and some pricing actions, we do not expect to fully mitigate the headwind.\nAs a result, we are planning gross margin to contract by approximately 100 basis points in 2022 relative to 2021.\nThird, from an SG&A expense perspective, we are planning expenses to be higher in Q1 and Q2 driven by the opening of 400 Sephora stores and the related store refresh costs.\nAnd fourth, our guidance assumes our plan to repurchase at least $1 billion of shares in 2022, of which $500 million is expected to be repurchased through open market transactions or an accelerated share repurchase program executed in Q2 of 2022.\nFor modeling purposes, please note that we ended 2021 with 131.3 million shares.\nIn summary, our business remains financially strong.\nWe delivered record earnings per share in 2021 and returned $1.5 billion in capital to shareholders.\nWe will build on this performance in 2022 as we scale key initiatives and improve our inventory positions.\nI will now hand it back to Michelle.\nBefore we move to Q&A, I want to address some of the uninformed and inaccurate commentary regarding the Board's openness to maximizing value.\nWe have a strategic and financial plan that will deliver substantial value.\nThe board is testing and measuring that plan against other alternatives.\nAs we announced on February 4, the company retained Goldman Sachs to engage with interested parties.\nThat effort continues and has included engaging with unsolicited bidders as well as proactive outreach.\nEngagement with those parties is ongoing.\nOur proxy, when filed, will provide more detail.\nThe board is committed to fulfilling its fiduciary duties and will choose the path it believes will maximize the value to shareholders.\nSo contrary to what others might say, the Board's approach is robust and intentional.\nWe won't be commenting further on this topic during today's call.",
        "summary": "q4 earnings per share $2.20.\nsees fy earnings per share $7.00 to $7.50 excluding items.\nsees fy sales up 2 to 3 percent."
    },
    {
        "text": "Joining me virtually today, as we are all working from home, are Mary Hall, our CFO; Robert Traub, our General Counsel; and Shane Hostetter, our Head of Finance and Chief Accounting Officer.\nWe have slides for our conference call.\nYou can find them in the Investor Relations section of our website at www.\nA great deal has changed in the world with the COVID-19 pandemic since our last quarter's conference call.\nFor us, our top priority is to protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' needs.\nAll of our 34 plants around the world are operating and we are meeting our customers' needs.\nI am very proud of what the Quaker Houghton team has done to continuing servicing our customers as well as continuing with our integration, which has not missed a beat.\nIn our last conference call, we knew China was being impacted by COVID-19, which really started impacting us in February.\nBut in the second half of March, we began experiencing impacts everywhere around the world.\nAnd toward the end of March, many of our customers had significantly reduced production or shut down altogether, especially in the automotive sector.\nOverall, we estimate that COVID-19 impacted our sales by about 4% in the first quarter.\nWe were also impacted by Boeing temporary halting the 737 MAX production, which impacted sales by approximately 1%.\nThese were the two main drivers of our volume decline in our pro forma comparisons.\nWe have gone through a customer-by-customer analysis to see what our gains and losses and market share were at the customer and product levels.\nThis analysis continues to show that we took share in the marketplace as we estimate total organic volume growth due to net share gains was approximately 2% in the first quarter of this year versus the first quarter of last year.\nConcerning gross margins, you may recall from our comments in the past that the combined gross margins of Quaker Houghton were expected to be about 1% lower than stand-alone Quaker.\nIn the first quarter comparison, you can see this difference is only 0.5 percentage point.\nThis is indicative of our raw material savings from our integration starting to come through.\nWhile crude was also decreasing during this period, we do not see any material benefits from this as of yet, as our raw material costs were relatively stable.\nSo overall, the first quarter results were somewhat better than expected when considering the COVID-19 impact.\nOur first quarter pro forma adjusted EBITDA grew 10% versus last year due to our integration savings, the impact of the Norman Hay acquisition last quarter, and the additional cost control measures we put in place to combat the global effect of COVID-19 on our volumes.\nThis event has been similar in many ways to what we went through in late 2008.\nJust like then, we took fast action to save cost in numerous ways.\nEssentially, all discretionary expenses have been eliminated.\nWe stopped new hires, executive pay cuts were implemented, some positions were furloughed, and our planned capital expenditures have been cut by over 30%.\nAnd very importantly, we reviewed our integration's synergy plans in light of this situation and took additional actions as well as accelerated other synergies where possible.\nWe have now increased our guidance on synergy achievement.\nFor 2020, our new estimate is $53 million of cost synergies achieved versus our previous estimate of $35 million.\nAnd the total synergies that we estimate will be achieved by 2022 have been raised from $60 million to $75 million.\nOne question we have been asked about is if this pandemic has impacted our integration.\nAnd the answer is that it really hasn't negatively impacted our integration in any way, especially in the timing.\nI give our people a tremendous amount of credit for being able to do plant shutdowns, product manufacturing site transfers, and ERP implementations during these challenging work conditions that we're currently operating under.\nFor instance, we successfully implemented our [Indecipherable] at two sites recently and has done such all remotely due to the current working conditions.\nOur two years of planning are paying off and we're fortunate that we had this integration execution ongoing during this period of time to help us offset the volume impacts that we're experiencing.\nEven with these additional cost synergies, we have not done anything that will impact our business execution or strategic initiatives, including our ability to service our customers well, continue to grow above the market into the future, and further develop and execute on our strategic platform.\nLooking forward to the rest of the year, we expect the second quarter to be the most challenging quarter.\nMany of our customers has significantly reduced production or shut down.\nFor example, our April revenues were down in the order of 30%.\nWe do anticipate that in the second half of the year, we will begin to see a gradual sequential improvement in business through the rest of the year.\nHowever, we do not expect our business to return to the levels expected pre-COVID-19 by the end of the year.\nGiven how clouded the economic environment is to the COVID- 19, we will not be providing specific guidance at this time.\nHowever, in order to try to give some direction for the remainder of the year, I can say that we're currently see that the second quarter's adjusted EBITDA could be down by nearly half of the first quarter's adjusted EBITDA.\nFor the full year, we expect our adjusted EBITDA to be more than $200 million.\nAnd we do not expect to have any liquidity or bank covenant issues.\nOverall, our higher expected synergies, additional cost saving actions, the improvement in our gross margins, and the expected release in cash via working capital reductions are expected to continue to help us during this period of time when our volumes are down.\nAnd if we look forward to 2021 and 2022, I continue to be optimistic in our future, and I do expect us to achieve significant increases in our adjusted EBITDA, as we complete our integration cost synergies, continue to take share in the marketplace, and benefit from a projected gradual rebound in demand in our end markets over this period of time.\nI am so proud of how our team has performed in servicing our customers, meeting their needs, and successfully continuing on with our execution of our integration, which is so critical for us this year.\nPeople are everything in our business and by far our most valuable asset, and ensuring their safety and well-being is and will continue to be a priority for us.\nI'm very happy with our Quaker Houghton team and what we have and will be able to accomplish for our customers, both now and going forward.\nI will now hand it over to Mary so that she can review some of the key financials for you for the quarter.\nThese are available on our website.\nPlease also note that we updated the risk factors in yesterday's first quarter 10-Q to address COVID-19-related issues and these risk factors should be reviewed along with those in our 2019 Form 10-K.\nReconciliations are provided in the appendix of this investor deck.\nWe followed a similar review format for this deck as the one we used for our last couple of calls post Combination, where our comparison periods show actual and non-GAAP results as well as pro forma sales and pro forma adjusted EBITDA as if we've been combined with Houghton throughout the periods presented.\nSo please see Slides 6 and 7 and also the chart on Slide 8, while I review some highlights.\nWhen we had our Q4 earnings call in early March, we noted that we continued to face strong headwinds from global automotive and general industrial weakness that surfaced the latter half of 2019, as well as a stronger U.S. dollar.\nCOVID-19 at that point was generally considered a China issue.\nAs March unfolded, COVID-19 became a global pandemic as Mike noted, significantly exacerbating the auto and industrial weakness already seen.\nSo, while our actual sales are up significantly to $378.6 million in Q1, this is due to the inclusion of Houghton and Norman Hay.\nOn a pro forma basis, as if Houghton was also in Q1 of 2019, net sales were down 3%, which reflects negative impacts from lower volumes and foreign exchange, partially offset by additional sales from Norman Hay.\nDespite the challenges we faced in Q1, the Company generated good cash flow and adjusted EBITDA, which was up 10% on a pro forma basis and non-GAAP earnings per share of $1.38 was well above consensus of $1.\nGross margin of 35.4% for Q1 was down from 35.9% Q1 of last year, which is in line with our expectations and communication.\nWe previously noted that somewhat lower gross margins in the legacy Houghton business due in part to the accounting treatment for Fluidcare, the chemical management business.\nIf Houghton was included in the prior year, we estimate that our prior year gross margin would have been approximately 1% lower.\nThis indicates improvement in the current quarter's gross margin, which largely reflects the procurement savings related to the combination that Mike mentioned.\nIn the table on Slide 8, you can see a reported operating loss of $12.4 million in the GAAP section but in non-GAAP operating income of $36 million in the middle section.\nThe main non-GAAP adjustments are combination and restructuring charges totaling about $10 million and a $38 million non-cash impairment charge in Q1 to reflect the writedown of our Houghton trademark indefinite-lived intangible assets to their estimated fair value.\nThese were recorded at fair value at close of the Combination on August 1, 2019 and tested for impairment during the fourth quarter of 2019.\nHowever, given the recent changes in business conditions as a result of COVID-19, we determined that these assets needed to be tested again and confirm their carrying value exceeded their current estimated fair value by approximately $38 million.\nAs we noted in our 10-Q, as business conditions evolve, we will continue to reevaluate all our long-lived assets as necessary.\nIn non-operating items, we reported a non-cash charge of $22.7 million for final settlement and termination of legacy Quaker's U.S. defined benefit pension plan, a process we previously disclosed.\nThe offset is reflected in the accumulated other comprehensive income/loss account in the equity section of the balance sheet.\nConcurrent with this termination, the Company paid approximately $1.8 million, subject to final adjustment.\nOur reported effective tax rate was a benefit of 31.1% in Q1 2020 versus an expense of 26.8% in Q1 of last year.\nAdjusting for all one-time charges and benefits, we estimate our ETR would have been 22% this Q1 and 24% in Q1 last year.\nWe currently expect our full-year ETR, excluding all one-time charges and benefits, to be between 22% and 24%.\nOur non-GAAP earnings per share of $1.38 is down from $1.41 in Q1 last year, due primarily to the additional shares issued in the Combination, partially offset by the inclusion of Houghton and Norman Hay.\nSequentially, non-GAAP earnings per share is up from $1.34 in Q4 of 2019, which included Houghton and Norman Hay and the additional shares.\nOn Slide 9, we show the trend in pro forma trailing 12 months adjusted EBITDA, which reached $239 million as of Q1, up from $234 million at the end of 2019.\nThis increase reflects the strong adjusted EBITDA performance in Q1 of $60 million, up 10% from pro forma Q1 last year of $55 million due to the inclusion of Norman Hay and the benefits of cost savings realized in the quarter from the Combination.\nOn Slide 10, we provide an update on our leverage and liquidity.\nPlease note that we drew down most of the available liquidity on our revolving credit facility in March in an abundance of caution as COVID-19 went global and created significant uncertainty and volatility in all global markets.\nThis drop was leverage neutral as the additional cash in our balance sheet is a direct offset to our debt.\nIn fact, our reported net debt to adjusted EBITDA declined to 3.40 times from our year-end level of 3.47 times as a result of good cash flow and the cost savings mentioned earlier.\nOur bank covenant ratio also improved from about 2.94 at year-end to 2.76 at the end of this quarter per the definitions in our borrowing agreement.\nWe expect to continue to be in compliance with our bank covenants and we have strong liquidity to support these uncertain times.\nOur capital allocation decisions reflect these priorities, including an approximately 30% reduction in previously planned capex.\nAs you know, we have a very asset-light business model and we also expect a release of working capital at sales decline to generate good cash flow similar to the global crisis in 2008/2009.\nOur cost of debt continues to benefit from declining interest rates and was estimated at approximately 2.4% at March 31 versus about 3% at year-end.\nAs Mike mentioned, we're encouraged by the additional cost synergies realized to date and expected to be achieved overall.\nThe increase in expected realized synergies this year from $35 million to $53 million in addition to the cost reduction actions we have taken to address the global crisis and our history of generating good cash flow in downturn all give us confidence in our ability to weather this storm.",
        "summary": "q1 non-gaap earnings per share $1.38.\nq1 sales $378.6 million versus refinitiv ibes estimate of $362.8 million.\nquaker chemical - qtrly net sales negatively impacted by volume declines due to boeing's decision to temporarily stop production of 737 max aircraft.\nqtrly net sales also negatively impacted by volume declines primarily attributed to initial impact of covid-19.\nexpects to realize combination cost synergies of $53 million in 2020, $65 million in 2021 and $75 million in 2022.\nexpect our q2 adjusted ebitda to be down by nearly half of q1 adjusted ebitda.\nexpect full year adjusted ebitda to be more than $200 million.\nexpects reductions in headcount and site closures to continue to occur during 2020 and into 2021 under restructuring program.\ncurrently does not expect to see significant net cash outflows for 2020.\nhas no material debt maturities until august 1, 2024.\nas we look forward to 2021 and 2022, we expect to achieve significant increases in our adjusted ebitda."
    },
    {
        "text": "We have slides for our conference call, you can find them in the Investor Relations section of our website at www.\nA great deal has changed over the past year with the COVID pandemic for us.\nOur top priority is and has been the protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' requirements.\nAll of our plants around the world are operating and we are continuing to meet our customers' needs.\nDespite the challenging conditions caused by COVID as well as the current year global supply chain pressures that have impacted raw material availability.\nI'm very proud of what the Quaker Houghton team has done the continue to service our customers, as well as continue our integration.\nOur results for the second quarter were stronger than we expected.\nThis was primarily being driven by continued strong sales.\nWhile sales volumes were down 3% from the first quarter, the first quarter was unusually strong as we believe some of our customers were replenishing their inventories.\nIf we compare our second quarter sales to the fourth quarter of 2020, which was another strong quarter for us, our current quarter sales volumes were up 4%.\nYou can see from chart 8 where we show our sales volume trends that our sales volumes were up 35% from the second quarter of last year and has sequentially improved at a steady rate since then with the first quarter being unusually high as I mentioned earlier.\nOverall, our top line revenue was up 52% from the second quarter of 2020 with all segments showing strong growth since 2020 was particularly hard-hit from COVID.\nOn a sequential basis sales were up 1% from the first quarter with 3 of our 4 segments showing growth, but our Asia Pacific segment was down 5%.\nOverall sales were great for Asia Pacific continue to be strong, but did sequentially declined compared to the first quarter due to unusually strong demand in the first quarter in our China metalworking business, but this is largely due to certain customers replenishing their supply chain in the first quarter.\nWe are also seeing higher selling prices, which we estimate increased an overall 6% in the quarter, with increases in all 4 segments.\nI also want to point out that our ability to gain new pieces of the business and take market share also contributed to the strong performance as our analysis shows, we had total organic sales growth due to net share gains of approximately 4% in the second quarter of 2021 versus the second quarter of 2020.\nSo we continue to feel good about our ability to deliver on our historical performance of consistently growing 2% to 4% points above the market due to our share gains.\nAnd looking forward, we continue to feel good about these levels of share gains given the opportunities we have recently won or or actively working on.\nWhile strong sales were a positive for us in the quarter, a clear negative was the continued increase in our raw material costs.\nWhile we knew raw material costs we're increasing the last time we talked, the increases have continued longer and at a higher level than we expected.\nOverall, our cost of raw materials have increased an additional 10% since our last call in May when our original expectation was that it will begin to stabilize in June.\nThis has not been the case, there is tremendous stress on the supply chain of raw materials and logistics.\nFurther, the availability of raw materials has impacted us at times for I'm proud to say that we've navigated this so far and have ensured that all our customers' businesses continue to operate.\nThe increase in raw material costs did put downward pressure on our gross margin in the second quarter and this increase in raw materials will continue into the 3rd quarter, just given the sheer magnitude and duration of the additional increases and the lag effect we experience between the time raw material cost increase and the time we have to fully implement price increases to offset them.\nSo overall, we're very pleased with the quarter given the raw material issues we are facing as we achieved our second highest quarterly adjusted EBITDA ever.\nOur trailing 12-month adjusted EBITDA is now $277 million compared to the $222 million in 2020.\nSo we are already experiencing the step change we projected in our profitability.\nSynergy achievement also was a factor in our results as we achieved $18.5 million in the current quarter compared to $12.5 million last year.\nRelated to our liquidity.\nWe did increase our net debt in the quarter due to increases in our working capital related to raw material costs and availability.\nHowever, our leverage ratio of net debt to adjusted EBITDA continued to improve from 3.1 at the end of the first quarter to 2.7 now.\nAs we look forward to the 3rd quarter, we expect short-term headwinds from higher raw material costs and additional impacts in the automotive market due to the continued semiconductor shortage and some typical seasonality impacts.\nI do now see the 3rd quarter as our lowest quarter of the year, both in terms of gross margin and profitability.\nHowever, we do expect our margins and profitability to sequentially improve in the 4th quarter.\nWe expect raw material prices to stabilize by the end of the 3rd quarter and we expect our product margins to get back to their targeted levels as we exit the year.\nAs I think about our full year, we are continuing with our previous guidance, which is the floor or the low end of our expected adjusted EBITDA.\nHowever, a more optimistic on the year than I was several months ago, while we may end up the year in the same place or slightly better based on our strong first half.\nThat the shape of our years expected profitability trend has changed.\nEssentially, we are seeing higher demand for the year but greater margin pressures in the near term, which is expected to be largely offset this higher demand.\nHowever, the margin pressures are expected to be short-term in nature once our price increases are fully implemented.\nSo we are currently expect to exit the year at a better-than-expected demand for our products and our product margins largely returning to our expected levels.\nSo, we now expect the year's profitability to be in a similar or slightly better place compared to our previous expectations.\nI feel better about the scenario than the already positive one I envisioned a few months ago.\nWe will have a step change in our profitability essentially complete our integration cost synergies continue to grow above the market by taking share and reach our targeted net debt to adjusted EBITDA leverage of 2.5%.\nI'm so proud how our team has performed in servicing our customers, meeting their needs and successfully continuing with our integration execution, which is both critical and difficult for us given the conditions we face.\nPeople are everything in our business and by far and was valuable asset and ensuring their safety and well-being is and will continue to be a top priority for us.\nSo I can't help but reemphasize my pride for our Quaker Houghton team and what we have and will be able to accomplish for our customers and investors both now and going forward.\nLooking at our second quarter performance, we had another strong quarter.\nAnd as Mike mentioned, it was really the story of a positive solid top-line performance but tempered by a negative higher input cost due to the global supply chain disruption that we and the rest of the world are currently facing.\nAs I begin to discuss our quarterly performance, I'll point you to Slide 6, 7 and 8 in our call charts, which provide a further look into our financials.\nAnd also I want to remind everyone that our prior year comparison was heavily impacted by COVID-19 hitting us the hardest.\nIn the second quarter of 2020.\nOur record net sales of $435.3 million increased 52% from the prior year and this was driven by 35% higher volumes, 8% from foreign exchange, 5% percent from acquisitions and 4% from price and mix.\nWhen looking sequentially, we were up 1% from the first quarter as increases from our pricing initiatives offset about 3% lower volumes quarter-over-quarter.\nAs the first quarter enjoyed some additional volumes due to customers replenishing their inventories.\nTurning to our gross margin trend, our second quarter margin ended at 35.5% which as we expected, was down roughly 1% sequentially due to the pricing lag that Mike previously discussed.\nThat said we did show improvement compared to 34% in the prior year, but this 1.5% improvement year-over-year is really due to the impact of fixed manufacturing costs on prior year volume levels as well as the benefit of strong execution of integration synergies, which offset higher raw material costs in the current quarter.\nWe expect 3rd quarter gross margin to be at or somewhat below our second quarter level before beginning to increase in the 4th quarter.\nAs we exit the year, we do expect our product pricing to catch up to the current year raw material increases.\nHowever, the impact of price increases to our top line will naturally impact our overall gross margin levels as we priced to ensure we retain our product margins, at least on a per-kilo basis to ensure we maintain our levels of gross profit in dollars rather than percent.\nSG&A was up $22 million compared to the prior year quarter as we had additional direct selling costs due to our increase in sales, higher labor and other costs that were directly impacted by COVID last year.\nAdditional costs associated with our recent acquisitions, and higher SG&A due to the impact of foreign exchange, which were partially offset by additional savings from integration cost synergies.\nThe net of this performance resulted in our second highest ever adjusted EBITDA of $70.1 million for the quarter, up 118% compared to the prior year COVID impacted, $32 million.\nAs you could see in chart 9, this increased our trailing 12-month adjusted EBITDA to a record $277 million.\nFrom a segment perspective, these results were really driven by higher operating earnings in each of the company's segments year-over-year.\nThis was certainly attributable to the prior year weak performance due to COVID but this quarter also benefited from recent acquisitions higher integration cost synergies as well as the market share gains Mike previously mentioned.\nWhen looking at our segment's sequential performance each segment's top line was above the first quarter as global pricing initiatives offset some volume decline quarter-over-quarter with the exception of Asia Pacific, who had a decline in sales as they experienced a very strong first quarter specifically in certain China metalworking markets.\nEach segment's top line performance drove their sequential operating performance to be relatively consistent compared to the first quarter in the Americas, EMEA and GSP.\nAs the pricing initiatives largely offset lower volumes and the impacts of higher raw material costs.\nWhereas, Asia Pacific did have a sequential decline in earnings, which was largely due to the exceptional first quarter that I previously mentioned.\nFrom a tax perspective, we had an effective tax rate of 32.2% in the quarter compared to 57.9% in the prior year.\nExcluding various one-time items in each period, our tax rate would have been 24% for the current quarter compared to 18% in the prior year, which was a bit low due to the impacts from COVID on our effective tax rate.\nTo note, we do expect both our 3rd quarter and full-year effective tax rates will be in the range of 24% to 26%.\nOur non-GAAP earnings per share of $1.82 grew over 700% compared to the prior year as our strong operating earnings, coupled with over $1 million of interest savings due to lower borrowing rates or partially offset by slightly higher tax expense.\nAs we look to the Company's liquidity summarized on chart 10, our net debt of $759.2 million increased about $9 million in the quarter, which is primarily driven by $7.1 million of dividends paid, $6 million of additional investments in normal CapEx as well as a small acquisition, which were partially offset by $3 million of operating cash flow.\nThe quarter's low operating cash flow was driven by further investment in the company's major working capital requirement.\nSpecifically, the company had considerable increases in the inventory, which were due to higher raw material costs, restocking of low levels given past impacts of COVID as well as bulk purchases to ensure safety stock given the disruption in our global supply chain.\nLooking ahead to the second half of the year we believe our operating and free cash flow will return to the typical levels we've demonstrated in the past, as we don't believe we will have such dramatic increases in working capital to sustain our day-to-day operating requirements.\nDespite an increase in net debt, the company was able to significantly improved our reported leverage ratio to 2.7 times as of Q2 2021 compared to 3.1 times at the end of March.\nOverall, I want to emphasize we are committed to prudent allocation of our capital.\nThis includes prioritizing debt reduction, while continuing to pay our dividends, which we just to get out the 5% increase as well as investing in acquisitions that provide growth opportunities which make strategic sense.\nAnd all while remaining committed to reducing our leverage, which we still expect to be at our target of 2.5 times by the end of the year.\nSo, to summarize Quaker Houghton had another strong quarter that was above our expectations due to continued strength in demand, and good market share gains, which partially offset higher input costs.\nOur liquidity remains very healthy, and we remain committed to our overall capital allocation and deleveraging strategy.\nThat concludes my remarks.",
        "summary": "q2 non-gaap earnings per share $1.82.\nq2 sales $435.3 million versus refinitiv ibes estimate of $392 million."
    },
    {
        "text": "This is Devan Bhavsar, and joining us today from Kennedy-Wilson are Bill McMorrow, Chairman and CEO; Mary Ricks, President; Matt Windisch, Executive Vice President; and Justin Enbody, Chief Financial Officer.\nPlease see the Investor Relations website for more information.\nI'm very pleased with our strong third quarter results, which saw EBITDA -- adjusted EBITDA increased over 165% compared to Q3 of 2020 and the record results we have posted for the first nine months of the year.\nAdjusted EBITDA totaled $741 million thus far in 2021, compared to $261 million for the first nine months of 2020.\nWe've made tremendous progress this year on our two key initiatives, growing our in-place annual NOI and growing our fee-bearing capital.\nWe had a very active quarter, completing $1.8 billion of investment transactions, bringing our year-to-date total to $4.4 billion.\nOur assets under management has grown by 17% in 2021 to a record $20.5 billion, from $17.6 billion at the end of 2020.\nWe have a strong pipeline of new transactions that we expect to close by the end of the year, which would further increase our AUM and result in a record year of capital deployment for KW.\nI'd like to start by providing some perspective on what we are seeing in our markets, as real estate fundamentals continue to improve in the quarter.\nGlobal transaction volumes remain healthy, with Q3 volumes in the U.S. increasing 150% from last year's levels, according to Real Capital Analytics.\nInstitutional demand for real estate remains high, with trillions of dollars of capital globally that continue to search for sound risk-adjusted returns.\n2021 operating metrics continue to improve for us.\nIn our U.S. market, we saw continued impressive apartment rent growth, with rents increasing at one of the fastest rates in recent memory across all our regions.\nInvestor demand for high-quality rental housing remained very strong and has resulted in cap rate compression and further increases to the value of our real estate portfolio.\nOur Mountain West apartment portfolio, which is our largest region, with almost 11,000 units, outperformed once again, driven by very attractive migration trends and relative affordability.\nWe also saw significant improvements in our Pacific Northwest and California portfolio, as pandemic-related moratoriums began to burn off, and we expect meaningful rent growth in all of these areas over the next 15 months.\nIn Europe, we saw outstanding performance in our U.K. and Dublin properties.\nOn July 19, the U.K. removed all COVID restrictions.\nAnd in Dublin, essentially all travel reopened on July 26, and we saw a gradual return to office that we expect will accelerate over the next six months and have a positive impact on our portfolio.\nStrong leasing demand in our Dublin multifamily portfolio resulted in occupancy growing by over 400 basis points in Q3 to 96.6 occupancy.\nThe key acquisitions in the quarter were three wholly owned with multifamily assets totaling 879 units that we acquired for a total of $399 million.\nTwo of these assets are located in suburban Seattle, and the third asset is located in suburban Denver.\nWe look forward to implementing our value-add programs at these communities, which has consistently shown our ability to drive outsized returns.\nOur multifamily portfolio globally grew to a record 33,400 units at quarter end, including almost 5,000 units under development, which we expect to complete at yields well above current market cap rates.\nWe're on track to increase our global unit count to 35,000 by year-end.\nMary will speak later on the impressive growth of our European logistics portfolio.\nOur Q3 transactions grew estimated annual NOI to $413 million, an increase of $19 million in the year, and we increased our fee-bearing capital to $4.8 billion, representing a 23% growth year to date.\nI'm also pleased to announce that yesterday, our board of directors authorized a 9% increase to our quarterly dividend, which now annualizes to $0.96 per share.\nLooking ahead, I believe the key drivers of our business will be -- are well positioned with our multifamily portfolio, the reopening of our European markets, the growth of our investment management platform, and the completion of our development projects.\nBefore we discuss these initiatives in more detail, I'd like to pass the call over to our CFO, Justin Enbody, to highlight our Q3 financial results.\nIn Q3, we had GAAP earnings per share of $0.47 per diluted share, compared to a loss of $0.18 in Q3 of last year.\nAdjusted net income in the quarter grew to $112 million, compared to $27 million last year.\nAnd adjusted EBITDA grew to $203 million in the quarter, compared to $76 million in 2020.\nFor the year, we've had GAAP earnings per share of $1.96 per share, adjusted net income of $424 million, and as Bill mentioned, adjusted EBITDA of $741 million, representing record results for the first nine months of the year.\nIn our co-investment portfolio, which includes our unconsolidated funds and joint ventures, we continue to see appreciating asset values, driven by strong NOI growth and further cap rate compression.\nThis strong performance led to $79 million in gains and $46 million of accrued performance fees in the quarter.\nFor the quarter, including promotes, total adjusted fees were $56 million, up from $8 million in Q3 of last year.\nTurning to our balance sheet, in August, we issued $600 million of unsecured bonds maturing in 2030.\nThe proceeds were used to fully pay off our line of credit, as well as the remaining $296 million of our KWE bonds due in 2022, which was completed in October.\nWe have significantly improved our maturity schedule, with no unsecured debt maturities until 2025 and nothing outstanding on our $500 million revolving credit facility.\nOur debt has a pro forma average interest rate of 3.6% and a weighted average maturity of 6.5 years, which has improved by 2.5 years since the beginning of the year.\nDuring the quarter, we bought back $25 million of stock at an average price of $21.55.\nSince the beginning of 2018, we've now returned $750 million, or approximately $5.40 per share, to shareholders in the form of dividends or share repurchases, which includes repurchasing 15.7, million shares or approximately 10%, of our outstanding share count.\nWe still have $213 million on our $500 million buyback authorization remaining, a portion of which was utilized in October.\nOur global multifamily portfolio continues to outperform, due to our market selection and our hands on asset management style.\nOur assets are experiencing improving market conditions, lower delinquencies and increasing rents.\nPositive migration trends and affordability continue to create outsized demand, in particular for our Mountain West portfolio, which saw same-property revenues grow by 11% and NOI grew by 15%.\nWe think there remains strong upside in our Mountain West portfolio, where average rents are $1,366 per month, and as people continue to seek a higher quality of life and migrate out of higher rent, higher tax states.\nWe are also starting to see improving trends from our Pacific Northwest and our California assets.\nOffices began to reopen, which has been a positive for renter demand.\nRent concessions in the U.S. were down 63% in Q3 compared to Q3 of 2020, and we saw leasing spreads average a record 27% on new leases across our U.S. portfolio.\nWe also continue to work with our tenants and take advantage of the rent relief measures that are available.\nThe combination of these factors resulted in robust same-store revenue growth across our U.S. market rate multifamily portfolio of 8% and NOI growth of 12% versus Q3 of 2020.\nThis represents our best quarter of NOI growth in the last five years.\nSequentially, from Q2 of this year, revenues grew by an impressive 6% and NOI by 8%.\nIn-place rents in our U.S. portfolio are now 6% above pre-pandemic levels.\nAnd with an average loss to lease of 15%, we believe our portfolio is set up for strong growth in 2022 and beyond.\nSimilarly, at our Dublin apartment portfolio, we continue to see strong demand, as people begin returning to the city.\nThis led to Clancy Quay being stabilized in Q2.\nAnd currently, Capital Dock is 77% leased and on track to be stabilized in Q4.\nOverall occupancy is now returning to pre-pandemic levels in Dublin.\nIn addition to the mega-cap tech companies that have been large employers in Dublin for many years, other high-growth tech companies are looking to expand their presence in Dublin, such as Stripe, TikTok, ServiceNow, and First Data.\nWe continue to believe in the long-term prospects of the Irish apartment market, driven by a young and growing population.\nAdditionally, there are a large number of multinational companies with their European headquarters in Dublin, with a workforce that is more likely to rent than buy.\nTurning to our office portfolio, as tenants begin to return to the workplace, we are seeing improvements in the operational environment, including a growing number of firm requirements, requests for tours, and deals being executed.\nQuality in both design and construction and staff wellness continues to be an important factor as tenants are drawn toward amenity-rich buildings with ESG credentials.\nThematically, we continue to focus on office tenants in high-growth and essential business sectors, including life sciences, media, and technology.\nWhen you include our suburban apartment and growing logistics assets, we believe this thematic approach positions our overall portfolio well for future cycles.\nA great recent example is at one of our largest office assets, 111 Buckingham Palace Road in London, where by October, we transacted on approximately 100,000 square feet of lease transactions, including 20,000 square feet under offer, which in total represents 45% of the building.\nThese transactions will improve the occupancy significantly, from 80% to 100% in Q4, deliver 26% growth above in-place rents and 40% of the income at pre-COVID top rents in excess of GBP70 per square foot, compared to 15% in Q3 of 2020.\nMajor tech firms represented 80% of the new leases, illustrating that top tenants are active in the market and willing to make decisions for the right space.\n71% of our office NOI is from our European portfolio, which saw Q3 same-property revenue grow by 4% and NOI grow by 5%.\nThese results were driven by strong rent collections, lower bad debt, and the burn-off of free rent in the quarter.\nWith an even larger focus on employee retention, large corporate tenants are taking advantage of the benefits of modern, low-rise suburban offices, such as affordability, shorter commute times, and outdoor amenities.\nWe continue to see this play out in our own portfolio, with approximately 90% of the NOI from low and midrise properties.\nWe completed 585,000 square feet of leasing in the quarter, bringing our year-to-date total to 1.5 million square feet, with a WALT of 7.6 years.\nOur leasing pipeline remains strong, with 152,000 square feet of leasing completed thus far in Q4 and another 600,000 square feet in legals that we're actively working on closing out, giving us good momentum heading into next year.\nTurning to our investment management platform, we continued to see strong growth in the quarter, with our fee-bearing capital growing to $4.8 billion.\nThis has now increased over 160% since the beginning of 2018.\nOur fast-growing global credit platform continued to lead the charge in Q3.\nIn July, we announced a new GBP500 million commitment focused on European loans, bringing total global commitments to $3 billion.\nIn Q3, we completed $440 million of loan investments, including our first loans in Europe on a few large industrial portfolios.\nOur debt platform grew by 24% to $1.4 billion in loans outstanding, with $140 million in future unfunded commitments.\nWe've been able to attract institutional-quality borrowers with high-quality assets to our debt platform, with an average loan size of $70 million and weighted average maturity of four years.\nWe continue to see a strong macroeconomic environment in the European logistics sector.\nOccupational demand has driven vacancy to an all-time low in the U.K. of 3.4%, and yields continued to compress across Europe, due to accelerating rent growth.\nOur thesis from the start when we launched this platform was that last-mile logistic properties in close proximity to transit centers would have strong demand, as they allow for companies to get their products to the end customer in an efficient manner.\nCOVID has accelerated the thesis, as online sales penetration continues to grow, with online sales making up 28% of total retail sales in the U.K.\nOur industrial portfolio has grown rapidly, and including assets under offer, our portfolio has a gross value of approximately $1.1 billion today across 59 assets, with KW's share at approximately 20%.\nWe look forward to further growing both our debt platform and our logistics platform in the fourth quarter and continued expansion of our investment management business, which has, in total, $2.1 billion in future commitments from our various strategic partners.\nAnother important area of growth for KW will be the completion of our development and lease-up projects, where we continued to make progress throughout the pandemic.\nOur developments, totaling $2.7 billion at cost, are being delivered with strong sustainability credentials, with environmental improvements and tenant wellness at the center of our focus.\nOnce these assets are completed and stabilized, we expect an incremental $105 million of estimated annual NOI to KW, which represents an initial yield on cost of approximately 6%.\nWe are nearing completion of two office properties in the heart of Dublin, Hannover Quay and Kildaire Street, which total 134,000 square feet that are expected to complete in Q4 and Q1, respectively.\nWe remain on track to complete the majority of our construction projects in 2023 and 2024, on time and on budget.\nLast month, we announced a new project that we are extremely excited about in a public-private partnership with Cal State Channel Islands.\nWe are going to develop 589 residential units as part of a master-planned community in Camarillo, California.\nThe project will have 310 wholly owned market-rate units, 170 affordable units built through our vintage housing joint venture, and 109 for-sale townhomes sold by Comstock Homes.\nThis development sits adjacent to a 386-unit wholly owned community, which we acquired in 2016.\nA project of this nature was a natural fit for KW, given our broad multifamily expertise in developing both market-rate and affordable units.\nWe are aiming to complete construction in 2024 and look forward to breaking ground in Camarillo later this month.\nWith that, I'd like to pass it back to Bill.\nAs you can see that we have a combination of ways to further drive earnings and cash flow growth at Kennedy-Wilson.\nAs I mentioned on the last call, we have a clear path to grow our stabilized NOI at the rate of 10% to 15% a year over the next three years, driven by strong organic NOI growth, new acquisitions, and the completion of our construction.\nWe also plan to grow our fee-bearing capital and resulting fees by 15% to 20% per year over the next three years.\nThe combination of these factors should lead to significant growth in both our net asset value per share and our assets under management.\nAs we look ahead to 2022, I'm very optimistic in our ability to continue expanding our business for a number of reasons.\nFirst, business conditions have rebounded as economies reopen, and we have a very healthy transaction and financing market, perhaps the strongest we've seen in the last decade.\nSecond, over the last 18 months, we either grew or establish new investment platforms with well capitalized, extremely liquid, global strategic partners who have a keen desire to expand their relationship with Kennedy-Wilson.\nWe can now creatively allocate capital across the entire capital structure and in a wide range of asset classes.\nFinally, our global investment team remains intact, and our global communication has never been better.\nI'm very pleased with the progress our team has made not only in Q3, but over the course of 2021.\nI'm also reminded of the importance of long-term relationships, both internally and externally to KW.\nAlthough I'm biased, we have an exceptional global team that has been working together for decades and our internal communication, as I mentioned, is the best it's ever been.\nThis fact, combined with very high-quality properties in the right product category, located in diversified and growing markets, has set up KW for excellent long-term growth.\nAnd with that, Daven, I'd like to open it up to any questions.",
        "summary": "kennedy-wilson holdings inc - qtrly earnings per share $0.47."
    },
    {
        "text": "I am Alexandra Deignan, the company's Head of Investor Relations and Corporate Sustainability.\nToday's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance.\nHosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer.\nEvan will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business.\nAfter that, we'll open the call to questions.\nToday, we reported record operating revenue for the second quarter and first half of 2021, driven by strong results across the firm.\nSecond quarter revenue was a record $821 million, up 51% from a year ago, and first half revenue was a record $1.5 billion, up 33% from a year ago.\nRevenue for the last 12 months was a record $2.9 billion.\nThis high performance underscores the strength of our franchise and the breadth and depth of our business.\nIn financial advisory, record second quarter revenue of $471 million increased 61% from last year's period, reflecting broad based activity across sectors, market cap and regions.\nM&A completions in the second quarter increased substantially in the Americas, Europe and Asia as did private equity transactions.\nOur advisory revenue reflects a growing percentage of financial sponsor activity.\nOur Global Private Capital Advisory franchise also had a strong quarter serving financial sponsors with new fundraising and innovative secondary market solutions.\nOur second quarter restructuring revenue was down from last year's elevated level, and we expect lower levels of restructuring to continue in the second half of the year, given the strong liquidity across markets.\nOur sovereign and capital markets businesses continue to be active, advising governments and corporations on financing strategy and capital raising.\nOverall, our advisory business is experiencing unprecedented activity levels.\nAssuming current macroeconomic conditions, as we said last quarter, we expect that our Financial Advisory revenue in the second half of 2021 will be higher than the first half.\nAsset Management operating revenue reached an all time high for the quarter and first half of the year with second quarter revenue of $343 million, up 40% from a year ago.\nThis reflected management fees on a larger base of assets under management, as well as strong incentive fees, primarily from European equity strategies.\nAverage AUM for the second quarter reached a record high of $276 billion, 32% higher than a year ago and 6% higher on a sequential basis.\nAs of June 30th, we reported AUM at a quarter end record level of $277 billion, 29% higher than last year's period and 5% higher on a sequential basis.\nThe increase was primarily driven by market appreciation and positive foreign exchange movement with $0.8 billion of net outflows.\nThe quarter's net outflows were limited to our equity platform, particularly in emerging markets.\nThese were partly offset by net inflows in our fixed income and alternatives platforms.\nGross inflows continue to be healthy across our platforms.\nAs of July 23rd, AUM increased to approximately $278 billion driven primarily by market appreciation of $2.5 billion, partly offset by negative foreign exchange movement of $1.3 billion and net outflows of approximately $1 billion.\nWe continue to see demand for global and international equities as well as our quantitative and fixed income strategies.\nWe are investing for growth across the firm.\nIn Asset Management, we continue to invest in people, technology and our distribution effort, as well as the development of new and existing funds and the scaling up of our platforms.\nIn the second quarter, we launched an investment grade convertible bond fund, our fifth long only strategy in the convertible space, an area where we are gaining significant traction.\nIn addition, this week we announced the senior hire to build and launch an investment strategy focused on sustainable private infrastructure.\nWe continue to see substantial opportunities to recruit talented investment teams adding strategies that are complementary to our existing platforms.\nIn financial advisory, we are driving growth with an elevated pace of strategic recruiting.\nYear to date, we have made more than a dozen senior hires, including several high level senior advisors to increase the firm's breadth of revenue sources and connectivity.\nNow turning to expenses, even as we invest for growth, we are maintaining our cost discipline.\nOur adjusted non-compensation ratio for the second quarter was 14.5%, compared to 18.3% in last year's second quarter.\nNon-compensation expenses were 19% higher than the same period last year, reflecting increased business activity over the last year's depressed levels.\nWe continue to accrue compensation expense at a 59.5% adjusted compensation ratio in the second quarter.\nRegarding taxes, our adjusted effective tax rate in the second quarter was 25.2%.\nFor the first half of the year, it was 26.7%.\nWe continue to expect this year's annual effective tax rate to be in the mid 20% range.\nLazard continues to generate strong cash flow, which supports return of capital to shareholders.\nIn the second quarter, we returned $161 million, which included $111 million in share repurchases.\nWe expect to continue our share repurchase program utilizing our cash flow from operations.\nOur total outstanding share repurchase authorization is now approximately $339 million.\nKen will now provide perspective on our outlook.\nThe global macroeconomic environment continues to strengthen and market conditions remain excellent for both our businesses.\nEven if the course of the pandemic remains uncertain, business conditions in most of the developed world are normalizing.\nEconomic recovery continues to be underpinned by unprecedented support from central banks and fiscal policy.\nAs CEOs, Boards and investors look past the short-term uncertainties, they are increasingly confident in the longer-term outlook.\nThe forces driving global strategic activity remain in place.\nTechnology driven disruption continues to be a catalyst for M&A across industries.\nThe global push to lower carbon emissions is an emerging catalyst.\nThe pandemic is driving structural changes in the real economy.\nShareholder activism continues to evolve globally and there is an abundance of private capital being put to work alongside strategic capital and specs.\nOur advisory business is in high demand in this environment.\nWe are serving clients with the most sophisticated capabilities and deep insights into local markets, reinforced by expertise from global sector and specialty teams.\nIn Asset Management, we entered the second half of the year with a record level of assets under management.\nLow interest rates continue to drive demand for risk assets including equities and corporate and emerging market debt as well as alternative investments.\nInstitutional investors continue to seek sources of differentiated alpha.\nOur Asset Management business is especially well positioned in this environment with a diverse array of innovative strategies and solutions for a sophisticated client base.\nWe see significant opportunities for productive growth across our businesses, and we continue to invest in people, capabilities, technology infrastructure to enhance our competitive edge.\nWe remain focused on serving our clients well, while managing the firm for profitable growth and shareholder value over the long-term.\nLazard's people are returning to the office and meeting clients in person with greater regularity, which is boosting spirits across the firm.\nEven as we hope for a continued lifting of quarantines and travel restrictions, we have proven our ability to serve clients in both fully remote and hybrid environments.\nThey are serving our clients with outstanding financial advice and solutions and they continue to be remarkably productive.\nThey are improving day in and day out that Lazard's greatest asset is our people.\nNow, let's open the call to questions.",
        "summary": "q2 revenue $821 million versus refinitiv ibes estimate of $660.5 million.\naverage assets under management (aum) for q2 of 2021 was $276 billion.\nqtrly financial advisory operating revenue was $471 million, 61% higher than q2 of 2020.\naum as of june 30, 2021, was $277 billion."
    },
    {
        "text": "Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO.\nOther members of Lear senior management team have also joined us on the call.\nThe agenda for today's call is on Slide 3.\nFirst, Ray will review highlights from the quarter and provide a business update.\nJason will then review our third quarter financial results and our full-year 2021 outlook.\nFinally, Ray will offer some concluding remarks.\nNow I'd like to invite Ray to begin.\nThe third quarter was marked by the continuation of supply chain challenges the auto industry has been facing.\nOur financial results were negatively impacted not only by significant volume reductions versus last year but also by low visibility from our customers leading to short notice production shutdowns.\nSlide 6 highlights numerous achievements in the quarter, including innovation, quality, awards, and strategic investments in both business segments.\nIn the third quarter, Lear's sales growth outpaced the market by 9 percentage points with strong growth over market in both Seating and E-Systems, continued new business wins as well as products that are favorably aligned with the industry shift to electrification are expected to deliver continued growth above market over the next several years.\nLast week, we announced the acquisition of substantially all of Kongsberg Automotive Interior Comfort Division, which will further strengthen our industry-leading Seating business.\nOn the E-System side, we announced agreements to form two separate joint ventures, which will further enhance our capabilities in electrification.\nThe joint venture with Hu Lane, which we expect will close later this year will further enhance our growing portfolio of connectors capabilities for both high voltage and low voltage applications.\nThis joint venture -- The joint venture with Shinry, when agreed on complementary portfolios of advanced onboard chargers from Lear and Shinry and increased access to a broad range of customers.\nWe also continue to be recognized across both of our business segments for excellence and innovation and quality.\nWe won our third consecutive Automotive News PACE award and two PACEpilot awards, more than any other supplier.\nLear has long been known as a leader in Seat quality and this year we won more than twice as many Seat Quality awards from J.D. Power as any other company.\nWe increased cash returns to shareholders in the quarter by doubling our dividend and buying back more stock.\nIn total, we returned $100 million to shareholders during the quarter.\nWe also increased our credit agreement to $2 billion and extended the maturity to 2026.\nWith respect to capital allocation, we continue to follow a balanced plan that includes organic investment, inorganic investment, and returning excess cash to our shareholders.\nTurning to Slide 7, our seating business continues to grow faster than the market, reflecting our strong position in SUVs, CUVs in luxury vehicles.\nIn the third quarter seating growth over market was 8 percentage points, reflecting new business and the Ford Bronco and Bronco Sport, the Hyundai Tucson and strong performance on the luxury brands in Europe, the seating also benefited from strong demand from GM's full size SUVs.\nDuring the quarter, we were awarded key programs with GM, BMW, Stellantis, Nio and Great Wall.\nAnd there are additional programs we expect to be sourced prior to the year-end.\nWe also received a new development award for our award winning configure plus product.\nThis award is with the European OEM and is expected to launch in 2026.\nCustomer interest in our patent protected configure plus product remains very high.\nWe continue to move forward on key launches in the quarter, including a new plant in Canada to supply seats for GM's large pickup trucks, at the reopened Oshawa plant.\nOther key ongoing launches are highlighted on this slide.\nA few weeks ago, we broke ground on our new energy-efficient jet facility in Detroit to supply seats for GM battery electric truck programs.\nI've already touched on the Innovation and Quality awards we received in Seating, but I want to spend a little bit more time explaining the PACEpilot award for thermal comfort.\nThis new product that was developed jointly with Gentherm integrates, intelligent climate control software into a complete seating system.\nThe algorithms and software controls were developed by Lear.\nThey use a combination of occupant temperature data, seat position and cabin temperature to optimize energy usage within the vehicle and keep passengers at an optimal temperature.\nKongsberg is a recognized automotive supplier specializing in luxury comfort seating solutions, with strong market positions in massage, lumbar, seat heat and ventilation systems, comfort features continue to be of increasing importance as automakers look to improve the driving experience through product differentiation in Increased efficiency and improved performance, especially in luxury SUV in electric vehicle segments.\nThe company has almost 50 years of experience in seating comfort solutions.\nTechnical centers and sales offices in three different continents, and an experienced and dedicated team with approximately $300 million of annual revenue.\nKongsberg has well-balanced customer portfolio built on long-standing relationships with leading premium automakers.\nKongsberg is a global leader in-seat massage and he has a number 3 position in lumbar and adjustable comfort.\nThe company is a technology leader with expertise in Pneumatic Comfort Systems and patented technology that enables superior performance, weight reduction in packaging flexibility In addition to performance benefits, there also much player, which is even more important in electric vehicles where noise will be much more noticeable.\nKongsberg also has a strong market position as the number 2 player Heat Mats and the number 4 player in Vent Systems for thermal comfort.\nOn Slide 9, I will highlight how Kongsberg will enhance our competitive advantage in Seating.\nThis acquisition is consistent with other acquisitions we have made over the past decade to enhance our vertical integration capabilities.\nThese moves have enhanced growth in margins and extend our market leadership in luxury and premium seating.\nThis acquisition extends our capabilities in Comfort Systems Solutions.\nFurther, solidifying our position is the most vertically integrated seating supplier while bringing additional price of a content to our offerings.\nIt strengthens our ability to serve EV, luxury, SUV customers and to provide them with the next level vertically integrated design solutions.\nIntegrating Kongsberg in Lear's operations solidifies our strategy to offer a complete suite of luxury comfort seating solutions to our OEM customers and ultimately to the consumer.\nThis combination will enable Lear to improve overall seat system performance by offering more efficient, lower weight, and flexible packaging design solutions.\nThe total addressable market for massage, lumbar heat, ventilation products is estimated at $2.5 billion to $3 billion.\nIHS trend data indicates this market will grow about 2 percentage points faster than the vehicle production over the next five years.\nBased on our assessments of industry, mega trends, we expect the market to grow even faster in that timeframe and beyond.\nCustomers are looking for features to improve the driving experience.\nAs cars become smarter, a higher emphasis is being placed on interior comfort.\nWe are already seeing this with luxury in EV customers.\nAnd we anticipate this trend and focus on interior comfort to further increase when a autonomous cars come to market.\nWe also expect increased adoption of seating comfort products beyond the luxury segments into higher volume vehicle segments.\nIn addition, we believe that by creating a more efficient packaging solution, we will see more proliferation of seating comfort systems in the rear seats.\nAnd perhaps the biggest opportunity which will unfold over a longer term will come with the acceleration in electrification, which requires more efficient, heating and cooling systems in the cabin.\nOur expertise in software and algorithms combined with heating and cooling products from Kongsberg and our other partners will position us as one of the leaders in this area.\nSlide 10 highlights Lear's leading performance in the latest J.D. Power US seat quality of sales section study.\nFor years, Lear has consistently been recognized is by the industry experts and our customers as a leader in seat quality.\nIn the latest J.D. Power seat quality survey, Lear was the only seat supplier to win two first-place awards.\nWe also won five additional awards and more than twice as many total awards as any other seat supplier.\nOur leadership in luxury and SUVs was evident by the multiple awards in both categories.\nThe bread of our wins was notable as well, with awards for products with six different OEMs and in six of the seven different categories.\nIn the third quarter, new system sales grew 9 percentage points faster than the market, reflecting new business on the Ford Bronco Sport in the Mustang Mach-E in North America and strong performance in connection systems in Europe and with Geely and the Great Wall in China.\nWe have one -- over $1 billion in business awards so far this year.\nOver 80%, which are new for Lear.\nBased on awards to date, our 2022 to 2024 backlog is expected to be higher than our prior three-year backlog.\nWe will update and provide details on our backlog in our next earnings call.\nWith the momentum of new business wins, we expect our E-Systems business to continue to grow faster than market for the next several years.\nDespite the industry slowdowns, we remain busy executing launches with Mercedes, Volvo, Jaguar among others.\nWe also are launching our initial programs with GM and Audi on our recent award-winning battery disconnect unit and our first to market 5G Telematics Control Unit.\nOur Connection Systems Business is on track to grow to approximately $600 million next year.\nGrowing this part of our business is part of our strategy to increase the size and strength of our Electrical Distribution Systems business and increase our margins.\nIn addition to organic investments, we are entering into joint ventures and partnerships and making acquisitions to enhance our capabilities in connection systems.\nWe already are seeing benefits from our M&N acquisition, and our developing new high-speed connectors with IMS. And we are looking forward to closing the whole lane joint venture by the end of the year, which will increase our presence in connector catalogs.\nWe're also making progress in our plan to grow our connection systems business to $900 million to $1 billion by 2025.\nWe will continue to identify and pursue additional acquisitions or partnerships to accelerate this growth.\nOn the power electronics side joint venture announced yesterday was Shinry will expand our capabilities to improve manufacturing and design efficiencies for onboard chargers.\nThey are, one our third consecutive Automotive News PACE Award for the battery disconnect unit we designed for GM, this product controls all power switching in and out of the battery pack.\nOur design incorporates breakthrough thermal management innovations, which improves the efficiencies of large and high performance electric vehicles.\nWe will be supplying this part on the GMC Hummer EV, the Chevrolet EV Silverado and other vehicles on GM battery electric truck programs.\nWe also are pursuing opportunities on strategic EV platforms with other customers.\nWe also won a PACEpilot Award for our 5G V2X Telematics Control Unit.\nA single state of the art installation featuring nine antennas integrated onto one printed circuit board to support all next-generation wireless technologies.\nOur design removes the Shark Fin external antenna required on many vehicles today, reducing complexity in improving styling capabilities in aerodynamics, which is particularly important for EV's were every element that increases range is critical.\nWe have received interest from numerous customers to commercialize this technology.\nWe also have been recognized by our customers for quality.\nA few weeks ago, we received the World Excellence Award from Ford for our plant in particular Argentina and earlier this year, we received two Plant Quality Award from General Motors.\nAnd now, I'd like to invite Jason to review our third quarter financial results and full-year outlook.\nSlide 14 shows vehicle production and key exchange rates for the third quarter.\nThe impact of continuing component shortages led to a significant reduction in global industry production in the third quarter particularly in our two largest markets North America and Europe.\nAs a result, global vehicle production in the third quarter decreased by 19% compared to 2020 and on a Lear sales weighted basis global production declined by approximately 25%.\nFrom a currency standpoint, the U.S. dollar continued to weaken against the Euro and RMB compared to 2020.\nSlide 15 highlights Lear's growth over market in the third quarter.\nOverall company growth over market was a strong 9 percentage points with E-Systems growing nine points and seating growing eight points above market respectively.\nGrowth over market in North America of 12 points reflected the benefit of new business in both segments and strong production on GM's full-size SUVs as well as Mercedes SUVs.\nIn Europe, growth over market of five points was driven primarily by new businesses while strong performance in the luxury segment and seating.\nIncreased business in connection systems in Europe also contributed to the growth over market performance.\nIn China growth over market of four points resulted from strong production on BMW programs and seating and new business with GLE and Great Wall and E-Systems.\nYear-to-date Lear's sales have grown faster than the market by nine points that was above market growth in both segments.\nSlide 16 highlights our financial results for the third quarter of 2021 compared to 2020.\nOur sales declined 13% year-over-year to $4.3 billion.\nExcluding the impact of foreign exchange, commodities, and acquisitions sales were down by 16% primarily reflecting lower production and Lear platforms partially offset by the addition of new business.\nSemiconductor shortages in the quarter negatively impacted our revenue by approximately 24%.\nCore operating earnings were $98 million compared to adjusted operating earnings of $327 million last year.\nThe reduction in earnings resulted from the impact of lower production volumes and higher commodity costs partially offset by positive operating performance in addition of new business.\nAdjusted earnings per share were $0.53 as compared to $3.73 a year ago.\nThird quarter free cash flow was negative $157 million compared to $474 million in 2020.\nFree cash flow was negatively impacted by lower earnings, higher capital expenditures, and an increase in working capital.\nWorking capital was higher in the quarter as volatility and customer production schedules resulted in elevated inventory levels.\nSlide 17 explains the third quarter year-over-year variance in sales and adjusted operating margins in the seating segment.\nSales in the quarter were $3.2 billion, a decrease of $526 million or 14% from the third quarter of 2020.\nExcluding the impact of foreign exchange, acquisitions and commodities sales were down 16% reflecting lower production partially offset by the benefit of new business.\nIn seating production downtime in the third quarter related to semiconductor shortages reduced our sales by approximately $1.1 billion or 25%.\nCore operating earnings were $144 million, down $142 million from the third quarter of 2020.\nLower volume on their platforms and higher commodity costs partially offset by positive net operating performance in margin accretive backlog.\nSlide 18 provides details for the third quarter year-over-year variance in sales and adjusted operating margins in our E-Systems segment.\nSales in the third quarter were $1.1 billion, a decrease of 9% from the third quarter of 2020.\nExcluding the impact of foreign exchange, acquisitions and commodities, sales were down 15% driven primarily by lower volumes somewhat offset by a strong backlog.\nIn E-Systems production downtime in the third quarter related to semiconductor shortages reduced our sales by approximately $300 million or 21%.\nCore operating earnings were $23 million or 2.1% of sales compared to $93 million in 2020.\nThe decline in earnings resulted primarily from lower volumes, higher commodity costs, and semiconductor and COVID related premium cost, the decline was partially offset by margin accretive backlog and positive net performance.\nLast week our treasury team took advantage of favorable market conditions and our strong financial position to opportunistically increase and extent our revolving line of credit.\nThe credit agreement was increased to $2 billion and the maturity was pushed out by more than two years to October of 2026.\nOur strong balance sheet supports investments in innovation and growth and positions Lear to quickly execute bolt on acquisitions such as the pending acquisition of Kongsberg Automotive's Interior Comfort Division expected to close in the first quarter of 2022.\nWe continue to analyze additional organic and inorganic investments to strengthen both of our business segments.\nAt the same time, we remain fully committed to returning excess cash to shareholders.\nIn the third quarter we returned $100 million through continued share repurchases and the doubling of our quarterly dividend of $0.50 per share.\nSlide 20 provides the assumptions for global vehicle production volumes and currencies that form the basis of our 2021 full year outlook.\nWe've based our production assumption on several sources, including internal estimates, customer production schedules, and IHS forecasts.\nDue to the ongoing supply disruptions we expect full year 2021 global vehicle production to be roughly the same as 2020 and generally in line with the most recent IHS forecast.\nFrom a currency perspective, our 2021 outlook assumes an average Euro exchange rate of $1.19 per Euro, and an average Chinese RMB exchange rate of RMB6.46 to the dollar.\nSlide 21 compares our updated outlook to our prior outlook for sales and core operating earnings.\nWe are reducing our outlook to reflect the impact of significant additional reductions in customer production schedules that have resulted from continuing component shortages.\nWe are forecasting sales in the range of $18.8 billion to $19.2 billion and operating income in the range of $750 million to $850 million.\nOur 2021 outlook for core operating earnings at the midpoint was down $215 million to $800 million, primarily reflecting lower volumes and modestly higher commodity costs partially offset by net performance improvements.\nSlide 22 highlights a more detailed view of our updated financial outlook.\nDespite the reduction to our revenue outlook, we are projecting the company to deliver full year growth over market of approximately eight percentage points.\nThis reflects both the strength of our new business backlog, as well as our strong customer program and product portfolio.\nAdjusted net income is expected to be in the range of $420 million to $500 million, down $180 million at the midpoint from our prior guidance reflecting lower sales.\nOur outlook for free cash flow for the year is expected to be approximately $175 million, which is lower than our prior outlook by $250 million reflecting both lower earnings and higher working capital.\nFull year free cash flow could be further impacted by continuing production disruptions, which may lead to temporarily higher working capital.\nWhile our outlook reflects our best insight into customer production plans for the remainder of the year, the production environment remains volatile.\nAs we've done in the past, we plan to provide an update on our financial outlook during an investor conference in early December, reflecting new developments and industry conditions.\nWhile it's too early to provide guidance for next year, we thought this slide might be a little bit helpful to indicate what trends we are tracking.\nThere are many positive drivers as we head into next year and beyond, most importantly, customer demand is strong and dealer inventories are extremely low.\nThis positions the industry for a strong recovery once we get beyond the short-term supply constraints.\nWe have a strong product lineup, which is driving new business wins.\nWe are laser-focused on driving operational excellence and improvements that we have made in both business segments this year will support margin improvements going forward.\nThe challenges are very similar to those we've faced over the last few quarters; limited visibility on production schedules, commodity and labor inflation, and supply chain disruptions are expected to continue to impact the auto industry into 2022.\nWhile no one in the industry is immune and it is difficult to predict when production volumes will normalize, I know that we have the right team and we have the right strategy in place to capitalize when the industry conditions do improve.\nThe strength of our balance sheet, along with the cash-generating capabilities of our business will continue to provide us with financial flexibility to support investments in our business while returning capital to our shareholders.\nIn closing, I want the team to know how proud I am of their performance and for focusing on the things we can control.",
        "summary": "q3 adjusted earnings per share $0.53.\nq3 sales fell 13 percent to $4.3 billion.\nlear - at midpoint of fy guidance range, have assumed that global industry production will be roughly in-line with 2020, lower than prior guidance.\nsees fy capital spending about $600 million."
    },
    {
        "text": "Earlier today, we reported strong first quarter results, building on last year's progress with solid execution across all financial metrics.\nOrganic revenue is up approximately 2% with mid-single-digit growth in our core government businesses, partially offset by COVID-related impacts of about three points from our commercial businesses, consistent with our expectations.\nThis should be the last quarter of tough compares due to the pandemic, which our team has managed incredibly well, and we anticipate more stability in the affected businesses ahead.\nMargins expanded a robust 140 basis points to 18.9%, resulting in earnings per share of $3.18, up 14% and ahead of internal targets.\nFree cash flow was $630 million supported shareholder returns in excess of $900 million, including repurchases of $700 million from our recently authorized $6 billion program, with a balance from dividends following our 20% increase in March.\nBefore handing over to Chris, with the transition occurring as planned on June 29, this quarter marks my 38th and final earnings call leading Harris and L3Harris as CEO.\nIt's been rewarding nearly 10 years with the hard work and dedication of our employees.\nHarris grew from a small, niche, defense company to a leading mission solutions defense prime post the acquisition of Exelis and the merger with L3 with revenue today of over $18 billion.\nI'm especially proud of the people at L3Harris who work hard every single day to support our customers' critical missions and deliver value to shareholders.\nThe performance culture and the work environment we created is really special, and we recently were recognized for it by Fortune as a 100 best company to work for in 2021 and earlier this year as a world's most admired company.\nAs you know, I'll continue as exec Chair of the Board for another year, working closely with Chris as he becomes CEO.\nLast week, the independent directors of the Board unanimously endorsed the transition occurring as planned in the merger agreement, indicating their confidence and mind in Chris' ability to lead this company going forward.\nThe results today speak to the momentum we have in the company and the strong foundation we've built for the future.\nAnd I'm excited and optimistic about what L3Harris can accomplish in its next phase under Chris' leadership.\nAs you heard at our investor briefing last month, we're excited about the potential for the company and the value creation opportunities in front of us.\nThe strategic priorities we develop together, as shown on Slide three, are the foundations on which we'll deliver sustainable top line growth, steady margin expansion and robust free cash flow with industry-leading capital returns.\nAll areas where we showed great progress in the first quarter.\nIn terms of the top line, our Q1 results, coupled with the Biden administration's announcement that the defense budget will continue to grow in FY '22, about 1.5 points versus FY '21, reinforces our optimism for growth.\nWe are encouraged by the continued focus on National Security and support for our military within the budget and believe L3Harris is well aligned with priorities that emphasize the return to peer competition and operations in increasingly contested environments.\nThis backdrop provides us opportunities to offer our advanced and affordable solutions across all domains.\nWe're watching closely for more details in the coming months and expect to consistently grow through our strong DoD portfolio, revenue synergies and international expansion, which stem from our R&D investment.\nIn the first quarter, we gained traction as we grew 4.8% in our core government businesses with international up double digits, driven by solid growth in aircraft ISR and Tactical radios.\nTurning to revenue synergies.\nWe received eight new awards, maintaining our healthy win rate of about 70% with total awards to date of approximately $400 million.\nWe anticipate sustaining our momentum given notable prime level awards across all domains that represent multibillion-dollar opportunities.\nOn the space side, in addition to our recently highlighted HBTSS Responsive Satellite award with the Missile Defense Agency, our five decades of experience building space-based imaging systems has led to our down-select for the initial concept and design of next-generation weather imagers.\nThis award supports NOAAs future satellite system recapitalization.\nThe administration's focus on climate initiatives, supported by a nearly 30% FY '22 budget increase for NOAA, reinforces the opportunity set for L3Harris as we are a leader in weather payload and ground systems, creating an opportunity of $3 billion over the next decade.\nOn the air side, we had strong orders on both new platforms such as the F-35 and legacy platforms, including the F-18 and F-16.\nIn particular, we leveraged our experience with providing F-16 systems and our expertise in software-defined open systems architecture to secure a contract to develop the next-generation electronic warfare suite on international aircraft.\nWe can further expand our global footprint with opportunities in more than a dozen countries in the Middle East, Asia and Europe.\nThis adds to our recent success with the U.S. Navy's Next Generation Jammer Low-Band award, for the EA-18G Growler.\nWe're quickly establishing ourselves as a global leader in electronic warfare and aircraft survivability.\nWe also closed on the ISR aircraft contract with the NATO customer to missionize a series of G-550s that was still pending parliamentary approval last quarter, and we continue to work on similar opportunities for other customers, which when combined with the NATO award demonstrates our ability to expand our international footprint and represents over $3 billion in potential value over the next several years.\nMoving over to the land side.\nWe continue to make progress supporting modernization efforts on both the domestic and international fronts, including a follow-on production order under SOCOM's $255 million multichannel manpack IDIQ contract.\nWe also received orders for our advanced radio and night vision products from Western Europe, the Middle East and Central Asia, further strengthening our international leadership.\nAnd finally, in the sea and cyber domains, our maritime team was successful in winning two new prime level programs to provide imaging systems on submarines for international customers.\nThese strategic wins highlight our ability to expand our global maritime solutions to new customers with additional follow-on opportunities to come.\nAnd while limited in what we can say due to its classified nature, our $1 billion intel and cyber business received a follow-on order to provide end-to-end mission solutions within its ground-based adjacency franchise as we continue to deliver against our customers most challenging cyber requirements.\nThese wins provide long-term visibility and support for our funded book-to-bill of 1.10 in the quarter.\nOur total backlog remains above $21 billion, up 6% year-over-year when adjusted for divestitures.\nIn addition, with considerable recent bid and proposal activity, we're aggressively going after our three-year $125 billion pipeline to deliver sustainable top line growth.\nShifting over to margins.\nThis quarter, we saw the healthiest results since the merger at nearly 19%, which puts us in a strong position to meet the upper end of our full year guidance.\nCost synergies of $33 million, primarily attributable to supply chain and facilities consolidation, put us well on track to deliver up to $350 million of cumulative net benefits in 2021, a year ahead of schedule.\nOur E3 program also gained traction through strong program performance, factory productivity and supply chain savings, and we continue to believe that there is considerable potential beyond this year to enable another phase of cost opportunities to sustain margin expansion for L3Harris.\nLastly, we're maximizing cash flow through continued working capital and capex discipline, driving shareholder-friendly capital deployment.\nAnd while we're holding off on updating our $2.3 billion share repurchase target for the year based on our announced and potential divestitures, we still see considerable upside to the plan.\nAs an update on portfolio shaping, we've recently cleared the U.S. antitrust waiting period on both the previously announced military training and combat propulsion systems divestitures and are on track to close in the second half of the year.\nWe're progressing on other portfolio shaping opportunities, and we'll provide more details over the coming months.\nAnd to reiterate, inclusive of divestitures, we remain on track to deliver on our $3 billion free cash flow commitment in 2022, along with double-digit cash growth on a per share basis, excluding potential tax policy impacts.\nSo we're pleased with the execution against our strategic priorities and progress we've made at the start of the year, which gives us confidence to raise the bottom end of our earnings per share guidance.\nSo with that, I'll hand it over to Jay.\nFirst, let me begin with a brief recap of the quarter before I get into segment results.\nOrganic revenue was up about 2% as growth in IMS, SAS and CS was partially offset by the expected decline in AS due to the pandemic.\nOverall, our core government businesses were up 4.8% reduced by about three points of COVID-related impacts in our commercial businesses.\nMargins expanded 140 basis points to 18.9%, with expansion in all four segments, primarily from operational excellence, integration benefits and cost management.\nWe did better-than-expected in the quarter from stronger E3 and cost synergies of roughly 70 basis points as well as some timing benefits from lower R&D and program mix of approximately 50 basis points.\nThis, along with share repurchase activity led to earnings-per-share growth of 14% or $0.38 to $3.18, as shown on Slide six.\nOf this growth, synergies and operations contributed $0.34, along with a lower share count, pension and interest totaling $0.23, which more than offset divested earnings and headwinds from pandemic-impacted end markets.\nFree cash flow of $630 million was the result of solid net income drop-through as well as capex and working capital discipline, with days roughly steady at 55.\nAnd shareholder returns of $909 million were comprised of $700 million in share repurchases and $209 million of dividends.\nIntegrated Mission Systems revenue was up 5.9%, with growth in all three businesses.\nDouble-digit growth in maritime from a ramp on manned platforms, including the Columbia class submarine in Constellation-class Frigate, was complemented by growth in ISR from the NATO award carryover from last year and an Electro Optical from deliveries of our WESCAM airborne turrets to the U.S. Army.\nOperating income was up 19%, and margins expanded 180 basis points to 16.5% from cost management, integration benefits and operational excellence.\nFunded book-to-bill was impressive at over 1.3 in the quarter.\nIn Space and Airborne Systems, organic revenue increased 4.1%.\nFrom responsive programs, including SDA tracking in HBTSS, driving high single-digit growth in space, as well as growth from the F-35 platform in mission avionics and double-digit classified growth in Intel and cyber.\nThe strength was partially offset by program timing and electronic warfare.\nOperating income was up 8.6%, and margins expanded 90 basis points to 19.4% from cost management including R&D timing, operational excellence and higher pension income.\nFunded book-to-bill was a solid 1.15 for the quarter from strong bookings in our Space and Electronic Warfare businesses.\nNext, Communication Systems organic revenue was up 2.9% with high single-digit growth in Tactical Communications, primarily from the continued ramp in U.S. DoD modernization.\nThat also drove integrated vision solutions and global communication solutions up double digits.\nConversely, volume was lower on legacy unmanned platforms within broadband due to the transition from permissive to contested operating environments.\nAnd within public safety, due to anticipated COVID-related impacts, they are now showing signs of stabilization.\nOperating income was up 12%, and margins expanded 240 basis points to 25.3% from operational excellence, cost of management and integration benefits.\nFunded book-to-bill was 0.92 for the quarter.\nFinally, in Aviation Systems, organic revenue decreased 8.3%, primarily driven by COVID-related impacts in our commercial aviation business, consistent with expectations and from program timing in military training.\nHigh single-digit growth in mission networks from higher FAA volume paired with fusing and ordinates growth in defense aviation helped to offset these effects.\nAs we move past the first quarter, we're anticipating a return to growth in this segment as we lap COVID effects while our combined government businesses continue to grow.\nOperating income was down 13%, primarily from the sale of our airport security and automation businesses.\nMargins expanded 120 basis points to 15.7% is operational excellence, cost management, including R&D timing and integration benefits more than offset COVID-related headwinds.\nFunded book-to-bill was 0.84 for the quarter.\nLet's shift over to 2021 guidance.\nWe're off to a strong start with our first quarter results and performance, and we're confident in our integration and operating expectations, as well as our top line growth of 3% to 5%, supported by a solid 1.10 book-to-bill this quarter.\nThis puts us in a position to raise the bottom end of our full year earnings per share guidance by $0.10 inclusive of announced divestiture impacts.\nWe'll provide a more comprehensive update later in the year.\nIn the interim, I'll provide some color now on the moving pieces, specifically on margins, portfolio shaping and capital returns.\nOn margins, this strong start will likely push us toward the upper end of our range of 18% to 18.5%.\nWe do expect margins to normalize for the balance of the year due to increases in R&D, and stronger growth in new programs with lower initial margins.\nOverall, the expected upside for the year from our prior midpoint is due to strong program execution and cost performance, and will be a key factor in our 2021 earnings strength.\nOn portfolio shaping, we now expect about $0.10 of dilution from announced divestitures net of buybacks from proceeds.\nAnd there are a few remaining businesses that are in various stages of the divestiture process, which could have a modest incremental earnings per share impact for the year.\nLastly, as highlighted at our investor briefing.\nWe have another significant year planned for capital returns.\nEmbedded in our guidance is $2.3 billion of share repurchases from cash generation, which will be further augmented by over $1 billion in net divestiture proceeds.\nSo overall, for 2021, we're confident in delivering on our commitment of double-digit annual growth in earnings and free cash flow per share.",
        "summary": "q1 revenue fell 1.3 percent to $4.6 billion.\nqtrly adjusted earnings per share $3.18.\nsees 2021 revenue $18.5 billion - $18.9 billion, excluding effect of divestitures, up organically 3.0% - 5.0%.\nsees about $2.3 billion in share repurchases in 2021, excluding use of divestiture proceeds."
    },
    {
        "text": "Some of these factors are set forth in detail in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and in the company's other filings with the SEC.\nAt Labcorp, we continue to leverage innovation, science and technology to accelerate our strategy as we work to improve health and improve lives around the world.\nWe serve as a trusted source of health information that helps customers advance healthcare and guide medical decisions.\nAt the same time, we've remained focused on helping the world through the pandemic.\nIn the third quarter, we delivered strong results.\nRevenue totaled $4.1 billion, adjusted earnings per share reached $6.82, and free cash flow was $650 million.\nAs a result of our strong performance and our improved outlook, we're raising full year guidance for revenue, adjusted earnings per share and free cash flow.\nGlenn will cover those in more detail in a few minutes.\nThe Base Business for both Diagnostics and Drug Development performed well with 10% and 22% growth, respectively.\nWe saw consistent recovery across both businesses.\nIn Diagnostics, we experienced broad geographic recovery in our Base Business and across our testing portfolio.\nEsoteric and routine testing demonstrated solid year-over-year growth for the quarter.\nThe trailing 12-month net book-to-bill for Drug Development remains strong at 1.34.\nDrug Development continues to recover with nearly 85% of sites now open.\nThe business also saw decentralized trials increasing by more than 50% versus prior year.\nNow I'd like to turn to our ongoing role in the pandemic response.\nLabcorp continues to support the fight against the pandemic in every way possible through both our diagnostic and our drug development capabilities.\nWe experienced greater-than-anticipated COVID testing volumes in the quarter, although levels were below the same period last year.\nTime to results for COVID test remains an average of one to two days, with results typically available within one day.\nPCR testing volume averaged 85,000 per day in the quarter, up from 54,000 per day in the second quarter.\nWe averaged 114,000 tests per day in September, with volumes declining week-over-week since that time.\nWe will continue to break out COVID testing from Base Business revenue and volume as it remains difficult to forecast.\nWe will also continue to maintain high capacity levels to be prepared for potential future scenarios.\nWe also had another successful quarter of bringing new innovations to market.\nNotably, we recently received Emergency Use Authorization for a combined COVID and flu-at-home collection kit.\nWith flu season upon us, the kit offers a convenient way to test for both viruses.\nThis new offering will be available for adults and children ages two and over and no upfront cost for those who meet clinical guidelines.\nIn addition, we collaborated with AstraZeneca on both a COVID prevention and treatment trial of its new long-acting antibody combination.\nIn the trial, the investigational antibody combination demonstrated statistically significant benefit in preventing symptomatic COVID and in reducing severe COVID or death in outpatients with mild to moderate COVID, promising milestones in the development of new treatments.\nAlso earlier this month, Merck filed for FDA Emergency Use Authorization for its investigational oral antiviral medicine for the treatment of mild to moderate COVID in at-risk adults, a treatment that we supported through Phase I, Phase II and Phase III clinical trials.\nI'll now discuss progress on our strategy, and I'll start with oncology.\nThe OmniSeq integration is going as planned, and their leading pan-cancer diagnostic capabilities extend our portfolio of solutions in this area.\nAdditionally, we launched clonoSEQ, the first and only FDA-cleared test for monitoring residual blood cancer.\nAs part of our efforts to address healthy equity -- health equity issues, we recently partnered with the Community Clinical Oncology Research Network to assess social and economic impacts of cancer care disparities.\nAnd we also recently began work with Pillar Biosciences to enhance our next-generation sequencing and plan to offer a specialty oncology assay.\nDuring the quarter, we advanced our commitment to intensifying our customer focus and embedding technology and data throughout our business.\nWe acquired Ovia Health, a leading digital platform trusted by millions of women for family planning, pregnancy and parenting support.\nOvia Health extends our position as a go-to source for women's health insights through our deep expertise in diagnostic, genetic and specialty testing.\nAdditionally, we are working with several organizations to begin deploying Labcorp Diagnostic Assistant, which delivers comprehensive lab results and clinical insights directly to the point of care.\nWe're also using technology to improve health for low-income individuals and families.\nWe partnered with Medical Home Network to incorporate lab testing results into the records of Medicaid safety net patients.\nAnd lastly, through a collaboration with Medidata, we are utilizing digital biomarkers with drug, vaccine and device trials to enhance our decentralized clinical trialing offers.\nPursuing opportunities with long-term, high-growth potential remains a focus.\nOur recent acquisitions, including OmniSeq, Myriad's Vectra test for rheumatoid arthritis and Ovia Health advance our position in key growth markets.\nOur M&A pipeline remains robust.\nWe expect continued activity on this front for the balance of fourth quarter and into the first quarter of 2022.\nImportantly, Labcorp continues to be recognized for the significant work we do.\nJust this month, we were named by Forbes as one of the world's best employers in 2021.\nIn addition, Informa Pharma Intelligence selected Labcorp as a finalist for Best Contract Research Organization of the Year.\nLastly, I'd like to provide a brief update on the Board and management team's ongoing assessment of the company's structure and capital allocation strategy.\nWe remain committed to ensuring Labcorp is best positioned to unlock shareholder value while offering patients and customers the support that they've come to expect.\nWorking closely with our advisors, we have made significant progress on assessing both our capital allocation and our structure.\nAnd as previously shared, we expect to update you on our conclusions in this quarter.\nTo summarize, our Base Business in both Diagnostics and Drug Development had a strong third quarter and is well positioned for continued success.\nWe remain dedicated to the fight against COVID, all while delivering on our strategy and carrying out our mission.\nI'm excited by the progress we've made and for what lies ahead.\nWith that, Glenn will take you through the details of our third quarter results.\nI'm going to start my comments with a review of our third quarter results, followed by a discussion of our performance in each segment and conclude with an update on our full year guidance.\nRevenue for the quarter was $4.1 billion, an increase of 4.3% over last year due to organic growth of 3.4%, acquisitions of 0.4% and favorable foreign currency translation of 50 basis points.\nThe 3.4% increase in organic revenue is driven by a 10.2% increase in the company's organic Base business partially offset by a 6.8% decrease in COVID testing.\nOperating income for the quarter was $767 million or 18.9% of revenue.\nDuring the quarter, we had $92 million of amortization and $48 million of restructuring charges and special items.\nExcluding these items, adjusted operating income in the quarter was $907 million or 22.3% of revenue compared to $1.2 billion or 29.7% last year.\nThe decrease in adjusted operating income and margin was due to a reduction in COVID testing as well as higher personnel costs resulting from increased Base Business demand and a tight labor market as the company continues to invest in its workforce.\nPartially offsetting these headwinds were the benefit from organic Base Business growth and LaunchPad savings.\nThe tax rate for the quarter was 23.5%.\nThe adjusted tax rate, excluding restructuring charges, special items and amortization, was 24.4% compared to 25.7% last year.\nThe lower adjusted rate was primarily due to the geographic mix of earnings.\nWe continue to expect our full year adjusted tax rate to be approximately 25%.\nNet earnings for the quarter were $587 million or $6.05 per diluted share.\nAdjusted EPS, which exclude amortization, restructuring charges and special items, were $6.82 in the quarter, down from $8.41 last year.\nOperating cash flow was $767 million in the quarter compared to $786 million a year ago.\nThe decrease in operating cash flow was due to lower cash earnings partially offset by favorable working capital.\nCapital expenditures totaled $118 million or 2.9% of revenue compared to $77 million or 2% of revenue last year.\nAs a result, free cash flow was $650 million in the quarter compared to $709 million last year.\nDuring the quarter, we used $300 million of our cash flow for our share repurchase program and invested $292 million on acquisitions.\nNow I'll review our segment performance, beginning with Diagnostics.\nRevenue for the quarter was $2.6 billion, a decrease of 3.2% compared to last year due to organic revenue being down 3.9%, partially offset by acquisitions of 0.4% and favorable foreign currency translation of 30 basis points.\nThe decrease in organic revenue was due to a 9.7% reduction from COVID testing partially offset by a 5.8% increase in the Base Business.\nRelative to the third quarter of 2019, the compound annual growth rate for Base Business revenue was 4.7%, primarily due to organic growth.\nTotal volume increased 0.2% over last year as acquisition volume contributed 0.2% and organic volume decreased by 0.1%.\nThe decrease in organic volume was due to a 5.9% decrease in COVID testing partially offset by a 5.9% increase in the Base Business.\nAs a reminder, we do not include hospital lab management agreements in our volume, which would have added approximately 1.1% to our organic Base Business volume growth.\nPrice/mix decreased 3.4% versus last year due to lower COVID testing of 3.8% partially offset by currency of 0.3% and acquisitions of 0.2%.\nDiagnostics organic Base Business revenue growth was 9% compared to its Base Business last year, with 7.7% coming from volume and 1.3% coming from price/mix, which was primarily due to an increase in test per session.\nDiagnostics adjusted operating income for the quarter was $775 million or 29.6% of revenue compared to $1 billion or 37.1% last year.\nThe decrease in adjusted operating income and margin was primarily due to a reduction of COVID testing and higher personnel costs partially offset by organic Base Business growth and LaunchPad savings.\nRelative to the third quarter of 2019, Base Business margins were down slightly due to the negative impact from PAMA.\nDiagnostics three year LaunchPad initiative remains on track to deliver approximately $200 million of net savings by the end of this year.\nNow I'll review the performance of Drug Development.\nRevenue for the quarter was $1.5 billion, an increase of 17.5% compared to last year due to organic Base Business growth of 19.9%, acquisitions of 0.4% and favorable foreign currency translation of 100 basis points.\nThis was partially offset by lower COVID testing performed through its central lab business of 3.5% and divestitures of 0.3%.\nDrug Development's Base Business benefited from broad-based growth across all businesses, including COVID vaccine and therapeutic work.\nRelative to the third quarter of 2019, the compound annual growth rate for Base Business revenue was 11.4% primarily driven by organic growth.\nAdjusted operating income for the segment was $226 million or 15.5% of revenue compared to $210 million or 16.9% last year.\nThe increase in adjusted operating income was primarily due to organic Base Business growth and LaunchPad savings partially offset by lower COVID testing and higher personnel costs.\nThe decline in adjusted operating margin was due to lower COVID testing.\nExcluding the impact from COVID testing, operating margins would have been up compared to last year.\nFor comparability to peers, Drug Development earnings exclude $36 million of expense related to the enterprise component of its bonus, which is included in unallocated corporate expense.\nWe expect full year margins to be up over 2020, which were up over 2019.\nFor the trailing 12 months, net orders and net book-to-bill remained strong at $7.8 billion and 1.34, respectively.\nDuring the quarter, orders were negatively impacted by approximately $150 million due to a significant scope change, which decreased the book-to-bill.\nBacklog at the end of the quarter was $14.4 billion, an increase of 15.4% compared to last year.\nWe expect approximately $4.9 billion of this backlog to convert into revenue over the next 12 months.\nNow I'll discuss our 2021 full year guidance, which assumes foreign exchange rates effective as of September 30, 2021, for the remainder of the year.\nWe are raising our full year guidance to reflect the company's strong third quarter performance and improved outlook for the remainder of the year.\nWe expect enterprise revenue to grow 13% to 14% from prior guidance of 6.5% to 9%.\nThis includes the benefit from foreign currency translation of 90 basis points.\nThis guidance range also includes the expectation that the Base Business will grow 18.5% to 19.5%, while COVID testing is expected to be down 11% to down 6%.\nWe are raising our expectations for revenue to grow in Diagnostics by 8% to 10% from prior guidance of minus 1% to plus 2%.\nThis guidance range includes the expectation that the Base Business will grow 16% to 17%, while COVID testing revenue is expected to be down 11% to down 6%.\nWe're also raising our growth expectations for revenue in Drug Development to 19.5% to 20.5% from prior guidance of 17% to 19%.\nOur current guidance includes the benefit from foreign currency translation of 170 basis points.\nThis guidance range also includes the expectation that the Base Business will grow 21.5% to 22.5%.\nGiven the improved top line growth expectations, we are raising our adjusted earnings per share guidance to $26 to $28, up from prior guidance of $21.5 to $25.\nFree cash flow is now expected to be between $2.45 billion to $2.6 billion, up from prior guidance of $1.95 billion to $2.15 billion.\nFor additional comparison purposes, we've also included in the supplemental deck on our Investor Relations website a view of 2021 third quarter results and full year guidance compared to 2019 results.\nIn summary, the company had another quarter of strong performance.\nWe remain focused on performing a critical role in response to the global pandemic while also growing our Base Business.\nWe expect to drive continued profitable growth in our Base Business, while COVID testing volumes are expected to decline through the remainder of the year.\nWe expect to continue to use our free cash flow generation for acquisitions that supplement our organic growth while also returning capital to shareholders through our share repurchase programs.\nOperator, we will now take questions.",
        "summary": "q3 earnings per share $6.05.\nq3 adjusted earnings per share $6.82.\nq3 revenue $4.1 billion.\nrevenue: q3 of $4.1 billion, versus $3.9 billion last year.\ncompany raises full-year guidance.\nqtrly diagnostics revenue for quarter was $2.62 billion, a decrease of (3.2%).\ndrug development revenue for quarter was $1.46 billion, an increase of 17.5% over $1.24 billion in q3 of 2020.\nqtrly drug development revenue was $1.46 billion, an increase of 17.5%.\ndiluted eps: q3 of $6.05, versus $7.17 last year."
    },
    {
        "text": "Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference.\nLinde employees delivered another solid quarter, continuing Q2's record earnings per share performance, despite increasingly challenging market conditions.\nOperating cash flow and return on capital reached record levels, and our project backlog nearly doubled, providing a strong foundation for high quality, long term growth.\nWe also stepped up our commitment to reducing our greenhouse gases emissions footprint, and Sanjiv will share that road map with you.\nBut frankly, this isn't something new.\nIt's what we committed to our shareholders since the merger and had been delivering on ever since, irrespective of the macro environment.\nMost of you know this, but I think it bears repeating: our operating culture runs deep at Linde, our people take great pride in demonstrating continuous improvement across the key operating metrics in their business.\nThe best day of the month for our management team is when we review the operating performance of each of our regional business units.\nThis is what we do for fun in Danbury, among other things.\nWhile I'm sure you've seen the announcement earlier this week where I will become the Chairman of the Board, and Sanjiv will become CEO effective March first.\nHis appointment is the culmination of a diligent three year succession planning process, in which Sanjiv clearly demonstrated he was the right choice to lead this company going forward.\nI will continue to provide guidance, both from the perspective of a Director and a significant shareholder.\nBut my primary responsibility shifts to chairing the Board of Directors, while Sanjiv takes over day to day management of the company.\nSupporting Sanjiv is a highly capable and experienced leadership team.\nI have been CEO for 15 years, and I have never felt better about how the company is positioned.\nObviously, our strategy is working well and the team is executing at a high level.\nSome say we are a well oiled machine.\nWe are a company for all seasons, and I'm confident Linde's best days lie ahead.\nI'll now hand the call over to Sanjiv.\nI'm honored to be given the opportunity to lead this outstanding company into the future.\nI appreciate your confidence and support over the years.\nBefore I jump into the slides, I wanted to build on Steve's comment of a seamless leadership transition.\nHere at Linde, we are proud of our industry leading performance, which starts with living our core values while maintaining a disciplined execution culture.\nAs CEO, I fully intend to build upon our foundation.\nMy focus will be on areas that are aligned with the interest of our shareholders: profitable growth, optimize the business, cash generation and, of course, the truth serum for our industry, ROC.\nLinde will remain focused on the things that create value for Linde owners such as strong pricing and productivity culture, an active commitment to sustainability, a disciplined investment philosophy, a shareholder friendly capital policy, and of course, pursuing high quality and sustainable growth initiatives with emphasis on ROC.\nUltimately, it's about being the best performing industrial gases and engineering company in the world.\nStated differently, you can expect a seamless transition with minimal change.\nNow with that said, let's move on to slide three for an update on our growth initiatives.\nLast quarter, I mentioned some key growth drivers, including the secured project backlog, accretive base capex investments and the strength of our growth in low capital intensity areas such as healthcare, food and beverage, engineering and our packaged gas business.\nToday, I'm happy to report that our project backlog has increased from $7.5 billion to $13.4 billion or up 81% sequentially from the last quarter.\nYou will recall, this backlog only includes contractually secured incremental growth with fixed payments to ensure targeted returns.\nWe're also beginning to see a return of the capital cycle, especially in upstream operations, such as natural gas production that bodes well for our overall pipeline of opportunities.\nOn top of that, the electronics sector continues to be very active.\nWe recently announced a $600 million investment, sale of gas investment indeed to supply a world class fab in Phoenix, Arizona.\nThis will supply only the first phase of this project, and we expect to see further opportunities as that area builds out.\nOverall, I'm pleased to see how the entire Linde team has come together and is leveraging our combined strengths to secure high quality growth opportunities through our leading high density industrial gas network combined with the world class engineering capabilities.\nThis backlog, combined with our supply network density, enables profitable and secured growth for years to come.\nNow before moving to the quarterly results, I want to update you on Linde's new and more ambitious greenhouse gas emission goals.\nA good way to stop this is to first explain the role our products play in people's lives and the overall economy.\nYou'll find this on slide four.\nWe make products that are critical for society, products such as medical oxygen for hospitals, ultra high purity nitrogen for semiconductors, liquid nitrogen for food freezing, krypton to insulate windows and hydrogen to produce cleaner fuels to give you just a few examples.\nIn order to make these products, we expect to have a total of 39 million metric tons of Scope one and Scope two emissions this year.\nAs you know, the production of gases require significant amounts of electricity.\nWhen such electricity is generated using hydrocarbons, we're penalized for those indirect emissions called Scope two emissions.\nWe also have Scope one emissions, which are significantly lower than our Scope two emissions, but are significant nonetheless.\nNow these emissions are largely as a result of using natural gas to make hydrogen, which is used by refiners to produce cleaner fuels.\nOur gases play a critical role in the economy.\nIn addition to saving lives, improving energy efficiency, increasing shelf life, our products also help our customers eliminate or reduce greenhouse gas emissions.\nIn 2020, we generated a total of 37 million metric tons of emissions to make products that helped our customers avoid more than twice our emissions or 85 million metric tons of CO2 equivalent.\nIn other words, without Linde's products, there would be significantly higher net carbon emissions in our world.\nAt Linde, we have been doing our part to support our planet for many decades, but we know we need to do more.\nIn 2019, we set a goal to reduce the carbon intensity of Linde 35% by 2028.\nWe are well ahead of that goal and expect to exceed it, which is, of course, good news.\nBut an intensity goal doesn't fully address the absolute Scope one and Scope two emissions.\nSo we are determined to continue on our mission of making our world more productive, enabling our customers to decarbonize and commit to reducing our own carbon footprint.\nWith that in mind, I'd like to announce Linde's new medium and long term emission goals, which you will find on slide five.\nThe first goal is to achieve a 35% reduction in our Scope one and Scope two emissions by the year 2035 or simply 35 by 35.\nTo achieve this goal, we must materially reduce our Scope one emissions, which are driven by hydrogen production.\nWe will do this by focusing our efforts on carbon capture and sequestration, developing blue and green hydrogen production and progressively transitioning to a zero emission fleet.\nOur Scope two emissions are related to electricity consumption.\nToday, we consume approximately 45 terawatt hours of power, a 1/3 of which is from renewable and low carbon sources.\nIn order to achieve the 35 by 35 goal, we will triple, triple our renewable and low carbon power sourcing by 2035 through new PPAs and by supporting renewable energy projects with offtake agreements and even co-investment.\nTo put this goal in perspective, the amount of renewable energy we were planned to purchase is equivalent of all the power consumed annually in New York City.\nThat's a big number.\nOf course, in addition to that, we will continue improving the energy efficiency of our plants as well.\nThese goals are being embedded across the entire global organization, being reviewed as part of our operating rhythm and will be incorporated into our annual variable compensation.\nThis is what gives me the confidence in our ability to deliver these goals, which is no different than how we would approach anything of importance in our company.\nNow in addition to the 35 by 35 goal, we are also committed to pursuing our goal of becoming climate-neutral by 2050.\nWe will do our part to achieve this goal, but we also need strong policy support and regulatory support.\nLet me summarize this journey on slide six.\nWe have defined a road map to reach climate neutrality.\nThe road map is underpinned by numerous initiatives and milestones, which will be embedded into our operating system, providing us the greatest opportunity for success.\nGoing forward, we will continue to share our progress, ensuring accountability and transparency for our stakeholders.\nSales of $7.7 billion increased 12% over last year, and 1% from the second quarter.\nCost pass through, which represents the contractual billing of energy cost variances, primarily in the on site business, rose 3% over last year and 2% sequentially.\nRecall that cost pass-through has no effect on profit dollars, but will impact profit margins as we gross up or down sales and variable costs.\nForeign exchange was a 2% tailwind versus prior year, but a 1% headwind sequentially, as most currencies have recently devalued against the U.S. dollar.\nExcluding these items, underlying sales grew 11% over prior year and 1% sequentially.\nThe 8% volume increase over last year was broad based across all geographies and end markets, as we continue to see recovery from the pandemic.\nSequentially, volumes are flat as contribution from project start-ups were mostly offset by lower volumes in China.\nPricing levels are up 3% from last year and 1% from the second quarter, as we continue to adjust merchant and packaged gas product pricing in line with local inflation.\nNote that some of these contracts have lagging recovery mechanisms, which may not take effect for two to six months, depending upon the terms and conditions.\nOperating margin of 23.6% is 150 basis points above 2020, but 60 basis points below the high mark set in the second quarter.\nExcluding the impact of cost pass-through, operating margin would have increased 220 basis points above last year and had a negligible decline sequentially.\nAs mentioned, merchant and package cost recovery can lag one to two quarters.\nSo going forward, I expect continued pricing momentum.\nEPS of $2.73 is up 27% over last year from higher volumes and price over a relatively stable cost base.\nAs both Steve and Sanjiv mentioned, Linde has a strong productivity culture, which enables consistent profit growth, irrespective of the economic climate.\nThis is also evident in the 16.7% return on capital, which represents another record as profit continues to grow double digit percent over a flat capital base.\nThe reason we've been able to maintain such a steady capital base is due to a combination of disciplined capital management and healthy cash generation, which I'll cover on slide eight.\nYou can see to the left, our operating cash progression resulting in a record level of $2.6 billion in the third quarter.\nThe three main drivers are stronger earnings, timing benefits from last quarter and engineering contract prepayments.\nIn light of the record sale of plant backlog, I anticipate further project repayments into the next few quarters.\nAs far as how we allocated year to date cash, the pie chart to the right shows $2.3 billion invested into the business and $4.8 billion distributed back to shareholders through dividends and stock repurchases.\nNote that investments exclude sale of plant since we are paid in advance for engineering projects, which means that we are committing much larger amounts toward contractually secured growth than what's shown on this chart.\nIn addition to generating significant surplus cash we have access to very attractive capital through the debt markets.\nIn September, we issued almost EUR two billion at five, 12 and 30 year maturities, with all-in coupons of 0%, 0.38% and 1%, respectively.\nOverall, the combination of excess cash generation and low cost incremental debt gives us a high degree of confidence to maintain shareholder friendly allocation policies over the long term.\nI'll wrap things up with guidance on slide nine.\nThe fourth quarter earnings per share guidance range of $2.60 to $2.70 is 13% to 17% above last year and 38% to 43% above 2019.\nConsistent with prior quarters, we believe it's important to distinguish true multiyear growth from mere recovery of 2020 recessionary conditions.\nVersus the third quarter, this range represents a sequential decrease due to normal seasonal declines plus an estimated 1% foreign currency headwind.\nUnderlying volumes are assumed to be roughly in line with the third quarter, but if current conditions hold, I'd expect to be at the upper end of this range.\nThis quarterly update results in a new full year guidance of $10.52 to $10.62, which represents a growth rate of 28% to 29% over 2020 and 43% to 45% over 2019.\nIn summary, another solid quarter despite some challenging conditions.\nAnd regardless of the macro, we remain confident in Linde's ability to continue delivering industry-leading performance.",
        "summary": "increased full-year 2021 adjusted earnings per share guidance to $10.52 - $10.62, representing 28% to 29% growth.\nq3 operating profit margin 16.8%; adjusted operating profit margin 23.6%, up 150 basis points.\nq3 sales $7.7 billion, up 12% versus prior-year quarter.\nq3 operating cash flow $2.6 billion, up 36%.\noutlook 2021: has updated its adjusted diluted earnings per share guidance to be in range of $10.52 to $10.62, up 43% to 45% versus 2019 and 28% to 29% versus prior year.\noutlook 2021: guidance assumes 3% currency tailwind versus 2020."
    },
    {
        "text": "Anatol Feygin, Executive Vice President and Chief Commercial Officer; and Zach Davis, Senior Vice President and CFO.\nAnd actual results could differ materially from what is described in these statements.\nIn addition, we may include references to certain non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow.\nAs part of our discussion of Cheniere's results, today's call may also include selected financial information and results for Cheniere Energy Partners LP, or CQP.\nWe do not intend to cover CQP's results separately from those of Cheniere Energy, Inc. the call agenda is shown on slide three.\nJack will begin with operating and financial highlights, Anatol will then provide an update on the LNG market, and Zach will review our financial results and guidance.\nBefore covering our results and outlook, I want to spend a minute addressing winter storm Uri and its impact on Cheniere.\nAs we described back in February, we were impacted by the widespread power outages in Texas, which resulted in our Corpus Christi facility being down for a few days.\nI'm extremely proud of our operating personnel at both Sabine Pass and Corpus Christi for rising to yet another weather challenge and working so diligently to manage our operations smoothly throughout the freeze event.\nFrom hurricanes to fog to now historic freezes, the Cheniere platform has withstood whatever mother nature throws our way and our focus on safe and reliable operations continues to benefit our customers, shareholders and other stakeholders.\nAs a result of the winter storm, there was no material impact on our assets or operations, and we were able to fill some cargoes at Sabine Pass and restore Corpus Christi to normal operating levels quickly to mitigate impacts on our delivery obligations.\nWe did recognize a financial benefit as a result of some optimization activity in the period leading up to the storm.\nBut the magnitude of that benefit is not material, which to our expected full year 2021 financial results.\nMore importantly, the global LNG market has recovered significantly for 2021 and beyond as demand has outstripped supply, resulting in higher prices even during the shoulder and summer months.\nI continue to believe in the long-term viability and sustainability of LNG as an essential fuel source in the low-carbon future.\nAfter delivering on our 2020 guidance, despite a myriad of challenges, we continued our momentum into the first quarter and are off to a fast start.\nNow full year 2021 is looking even better for us than it did on our last call in February.\nFor the first quarter, we generated approximately $1.5 billion of consolidated adjusted EBITDA, approximately $750 million of distributable cash flow and almost $400 million in net income on revenue of approximately $3.1 billion.\nWe've often described 2021 as Cheniere's cash flow inflection point, and you can see progress on that early in the year in our first quarter financial results.\nZach will cover these numbers in more detail in a few minutes.\nDuring the first quarter, we exported a quarterly record of 133 cargoes of LNG from our two facilities, with production incentivized by strong global LNG margins during the quarter, and we had the benefit of Corpus Christi Train three commissioning volumes.\nThis record production is also despite Corpus being down a few days as a result of the winter storm in February.\nA sustained stronger LNG margin environment, together with our results for the first quarter, contribute to our ability to raise our full year 2021 financial guidance for the second consecutive quarter.\nOur outlook for the balance of the year has improved since our last call in February, with a slightly higher production forecast, augmenting the impact of the improved LNG margins we see throughout the balance of the year.\nWe now forecast consolidated adjusted EBITDA of $4.30 to $4.6 billion, and distributable cash flow of $1.60 to $1.9 billion for the full year 2021.\nNear the end of the quarter, Train three at Corpus Christi achieved substantial completion within budget and in line with the accelerated time line we've previously communicated, with the completion of train three, the Cheniere and Bechtel relationship has now delivered eight LNG trains ahead of schedule and within project budgets, which is truly world class execution.\nAnd that execution excellence continues with our ninth Train.\nAs construction on Train six at Sabine Pass continues to progress against accelerated schedules.\nThe estimated substantial completion timeline has accelerated once again.\nSubstantial completion is now projected to be achieved in the first half of next year.\nThe carbon offsets covered full life cycle emissions.\nFrom the wellhead through consumption, with Cheniere delivering the cargo to Shell FOB at Sabine Pass and Shell delivering the cargo to a our European regasification facility.\nThis first carbon neutral cargo is another step in Cheniere's environmental efforts I've discussed over the past several months.\nOur efforts emphasize enhanced transparency as a critical step toward improving environmental performance, and maximizing the benefits of our LNG for Cheniere, our customers and our value chain partners.\nToday's carbon neutral cargo announcement follows our February announcement of cargo Emissions Tags development.\nThe response to our CE tax from current and prospective customers has been extremely positive and has spurred further engagement.\nOur focus is to ensure the long-term benefits of natural gas as an affordable, reliable and clean energy source for the world.\nTurn now to slide six.\nWhere I'll discuss what I'm seeing in the market today and why I'm so optimistic about Cheniere's future prospects.\nIn the short term market, we're beginning to see the impact of the structural shift to natural gas as a primary energy source for the world, as evidenced by the global LNG demand growth we saw in 2020 despite the pandemic.\nThere was constructive LNG demand tension between Europe and Asia earlier this year that left some countries short of natural gas.\nIn addition, South America is entering its winter demand month and is contributing to the tightness in the global LNG market.\nWith natural gas storage below normal levels in Europe and precious little new supply entering the market this year, we also have a constructive backdrop in the LNG market for the balance of this year and into next year in 2023.\nWith Corpus Christi Train three completed very early and the completion time line for Sabine Pass Train six recently accelerated again to the first half of next year.\nWe are ideally positioned to benefit from these near-term market dynamics.\nIn the longer term, the supply and demand fundamentals in the global LNG market are even stronger and reinforce our confidence in the value of our existing platform and in our ability to commercialize our Corpus Christi Stage III expansion project.\nIn the four year period from 2017 to 2020 and the global LNG market added almost 120 million tons of capacity, an average of almost 30 million tons per year.\nIn the subsequent four year period, that average is expected to drop to approximately 11 million tons a year, a significant slowdown in supply growth, which will be amplified by output declines from older legacy projects.\nOn the demand side, the structural shift to gas on a global basis is evidenced by the near-term doubling of LNG importing nations in the last 10 years, and hundreds of billions of dollars of natural gas oriented infrastructure being built around the world today.\nLNG consumers recognize and value LNG's flexibility, reliability, affordability and the critical role natural gas plays in improving environmental performance and achieving decarbonization goals.\nWe forecast that global LNG trade will approximately double, expanding by approximately 350 million tons per annum to over 700 million tonnes per annum by 2040, which would support additional, approximately 225 million tons per annum of incremental global supply.\nOur constructive long-term view on the LNG market was recently reinforced for the results of a comprehensive climate scenario analysis we conducted with a leading global management consulting firm.\nWe published this analysis last month, and it's available on our website.\nThis study analyzed Cheniere's business over the long-term under various energy transition scenarios and concluded that even under the most aggressive energy transition scenario analyzed.\nDemand for LNG and natural gas is expected to grow for decades to come.\nIn that not only are Cheniere's existing assets well positioned to take advantage of that, but new LNG capacity will be needed to meet that demand.\nWith regard to Cheniere specifically, our accomplishments and progress over the past five years of LNG operations have been nothing short of transformative and position the company to take full advantage of the constructive market we see in front of us.\nWe have established ourselves as a premier LNG operator, demonstrating LNG buyers worldwide the reliability and certainty associated with a long-term supply agreement with Cheniere.\nIn addition, our continuous improvement efforts have yielded efficiency gains and debottlenecking has unlocked a significant amount of extremely cost-effective volume across our projects, which further improves our competitive position and increases financial returns.\nAs construction ramps down, the long-awaited financial results of our multiyear capital programs are bearing fruit as evidenced by today's results.\nThis year, we expect to generate well over $1 billion of free cash flow, and we are quickly approaching our expected run rate metrics.\nOur run rate forecast of $11 per share and distributable cash flow not only has a high degree of visibility but also empowers us to execute on an all of the above strategy for capital allocation, which includes achieving investment-grade credit metrics, funding a significant portion of Corpus Christi Stage three with cash flow after that project is commercialized and returning significant capital to shareholders via buybacks and dividend.\nZach and his team and I are working diligently with the Board and the rest of management on our detailed capital allocation plans, which we will communicate to you later this year.\nI'm excited about what we are seeing in the LNG market, how Cheniere is positioned to capitalize with our portfolio volumes, a shovel-ready brownfield expansion project commercial offerings tailored to customers' needs and an improving credit and cash flow profile.\nThe global LNG market exited 2020 on a positive note as cold weather across Asia and continued economic expansion in China helped contribute to an increase in Asian LNG imports in Q4.\nAs non-U.S. supply was slow to respond, markets tightened as Asia pulled cargoes from Europe, a trend which continued in Q1 of 2021.\nThe in the first quarter, global LNG supply showed positive year-on-year growth for the first time since the first quarter of 2020, but net growth was modest as a healthy 17% growth in U.S. exports was largely offset by declines at several LNG facilities around the globe, which were either shut down or underperforming, including facilities in Norway, Nigeria, Australia, Trindad, Tobago and Russia.\nExtreme cold weather in Asia and then Europe during the first quarter, combined with the supply constraints and a tight shipping market, caused unprecedented price spikes in JKM in the early part of the quarter to all-time highs of over $30 in January.\nSince then, extreme temperature conditions have passed and JKM prices have moderated.\nHowever, price levels are still well above where they were a year ago with March JKM settling at $8.26 and June trading above $9 currently.\nWell above prices around the $2 in MMBtu level a year ago, indicating an underlying structural tightening of the market, supported by strengthening demand fundamentals.\nAs I just mentioned, in Asia, LNG imports were very strong in Q1, up over seven million tons or 11% year-on-year.\nChina added nearly five million tons of LNG demand despite robust domestic gas production and increased Russian pipeline gas imports.\nEarly reports of total gas demand in China show an increase of approximately 15% year-on-year in Q1.\nWeather, continued coal-to-gas switching and a remarkable over 18% increase in Q1 GDP drove the demand increase.\nIn the Japan, Korea, Taiwan area, LNG imports increased 8% or three million tons year-on-year due partly to scheduled nuclear and coal outages.\nFrom a structural demand level, 10 years after the Fukushima earthquake, most Japanese nuclear plants remain offline with only nine units, totaling 9.1 gigawatts resuming operation as of Q1 '21 compared with 42 gigawatts in 2010, solidifying LNG as a critical fuel for the stability of the energy system in Japan and in the region as a whole.\nIn Europe, gas demand in major markets rose by 9% year-on-year during Q1 and stronger heating and gas-fired power demand.\nSignificant drawdowns from storage through winter and into April has left European storage approximately 34 bcm or around 50% lower than the prior year by the end of April and approximately 11 bcm or approximately 375 Bcf below the five year average.\nTo attract LNG volumes away from Asia to help replenish storage, TTF prices remain elevated.\nApril TTF settled higher than JKM at $6.46 an MMBtu that was 13% higher on the month and up almost 200% year-on-year.\nCurrent prop margins are in the $3 range, inclusive of a dramatic upward shift in charter rates from the $30,000 a day range well above the $80,000 a day range today.\nBased on these demand fundamentals, although specific conditions during the first quarter led to some dramatic LNG price volatility, we believe we have also seen indications that the structural tightening that we've been predicting for some time is now under way.\nAs such, we have continued to transact incremental volumes aligned with our midterm strategy.\nThe team has secured an additional approximately 1.7 million tons, locking in over $200 million in fixed fees across 2022 and '23.\nWe see strong appetite for midterm agreements as both intermediaries and end users add diversity, security and flexibility to their portfolios.\nTurning now to slide nine, where I will discuss some longer-term aspects of the market.\nWe've discussed over the last few years that we viewed 2021 as a transition year to a tight market.\nAnd as we just described, that has played out so much faster than we expected.\nForward margins today during the Northern Hemisphere Spring shoulder season, are higher than they have been at any point for this season since we began operating just over five years ago.\nA number of market conditions that have been headwinds to entering into long-term commitments have more recently become tailwinds.\nAnd such as oil price, prompt margins and forward supply growth, just to name a few.\nWe remain quite sanguine on the long-term contracting market for our products over the coming quarters and years as the demand for LNG will continue to increase over time with many current markets expanding and new markets continuing to be added.\nSpecific to Asia, along with China and India, markets in South and Southeast Asia have shown keen interest in expanding their natural gas infrastructure.\nFrom pipelines to power plants to support their rapidly growing economies.\nIn power generation, forecast suggests that gas is expected to be the second highest growth segment after renewables in terms of capacity additions.\nThe need to expand access to reliable energy across the region means that natural gas is expected to play a crucial role in ensuring sustainable economic growth while reducing emissions intensity.\nOf the roughly 3,000 gigawatts of forecast incremental power generation capacity in Asia by 2040, over 300 gigawatts is expected to be gas fired.\nJust for reference, a gigawatt of combined cycle natural gas generation operated as baseload, requires approximately one million tons of LNG per annum.\nA significant portion of that sum will be in China, but almost half of it is expected to satisfy growth in South and Southeast Asian countries, such as India, Indonesia, Bangladesh, Vietnam and the Philippines.\nSome of these countries are already well-established gas users with indigenous resources, which are mature and declining.\nData from Wood Mackenzie suggest that the region could lose more than 20 Bcf a day of domestic output by 2040, and while current upstream developments are considered unlikely to offset more than just a small fraction of that decline.\nIn addition, gas demand in the region is currently expected to grow by at least 18 Bcf a day during the period to 2040, creating a gap of more than 35 Bcf a day of gas, which we expect to be satisfied in large part by LNG.\nAgain, for reference, 35 Bcf a day is equivalent to approximately 250 million tons per annum of LNG.\nLNG demand growth across the various markets of South and Southeast Asia is in aggregate very significant.\nLNG demand growth in South and Southeast Asia is expected to accelerate and potentially grow fivefold by 2040, adding between 160 million and 200 million tons to global trade.\nWe believe that over the next two decades, over 20% of the growth in Asian demand will come from China, and approximately 70% will come from South and Southeast Asia as these countries prioritize gas over coal to secure economic growth and meet their climate goals.\nThis region consumed over 17% of global coal and was responsible for more than 1/3 of global greenhouse gas emissions in 2019.\nWhile most net zero pledges came from outside the region, we believe that nations in South and Southeast Asia have been increasingly determined to improve environmental performance and find ways to fuel growth in a more environmentally sustainable manner.\nWe see Cheniere's LNG as a secure, reliable and cost-effective fuel for the region and which, along with renewables, will displace more polluting fuels.\nJack already touched on our leadership and initiatives in ESG and I'll just add that we are seeing increasing interest and engagement from both existing and potential customers on the environmental opportunities we are developing.\nCheniere stands ready to work with customers in the region and all over the world to create practical solutions that fit their commercial needs and satisfy global environmental imperatives.\nWe believe our low emitting LNG standards will play a role in supporting the region's environmental goals and its energy priorities.\nI'm pleased to be here today to review our first quarter financial results and key financial updates as well as our increased 2021 guidance.\nTurning to slide 12.\nFor the first quarter, we generated net income of $393 million, consolidated adjusted EBITDA of approximately $1.5 billion and distributable cash flow of approximately $750 million.\nOur financial results for the first quarter were positively impacted by increased global LNG prices and margins, particularly margins realized on spot and short-term cargoes sold through our marketing affiliate and a higher-than-normal contribution from LNG and natural gas portfolio optimization activities due to significant volatility in LNG and natural gas markets during the quarter.\nAs we have discussed in prior quarters, our IPM agreements, certain gas supply agreements and certain forward sales of LNG qualify as derivatives and require mark-to-market accounting meaning that from period to period, we will experience noncash gains and losses as movements occur in the underlying forward commodity curves.\nThe impact of shifts in these curves on the fair value of our commodity and FX derivatives, during first quarter 2021 was a net loss of approximately $120 million, which was substantially all noncash.\nFor the first quarter, we recognized an income 456 TBtu of physical LNG, including 442 TBtu from our projects and 14 TBtu from third parties.\n84% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements.\nDuring and after this winter storm, we were able to work with our long-term customers on cargo schedules as well as shift some volumes from Corpus to Sabine, leading to no material impact to our production for the quarter.\nWe received no cargo cancellation notices and had no revenue related to cargo cancellations in the first quarter.\nHowever, we previously recognized $38 million of revenues during fourth quarter 2020 and related to canceled cargoes that would have been lifted in the first quarter.\nCommission activities for Corpus Train three went well, as Jack discussed, and we received $191 million related to sales of commissioning cargoes in the first quarter, corresponding to 25 TBtu of LNG.\nAs a reminder, amounts received from the sale of commissioning cargoes are offset against LNG terminal, construction and process, net of the costs associated with production and delivery of those cargoes.\nsix TBtu of LNG-related to commissioning activities was on the water at the end of the first quarter and will be recorded as an offset to construction in process upon delivery.\nTurning to the balance sheet.\nWe prioritized debt reduction since raising the Cheniere loan to refinance convertible notes last year and have committed to pay down at least another $500 million of outstanding debt in 2021.\nThe we made good progress toward that goal during the first quarter when we paid down $148 million in outstanding borrowings under the Cheniere term loan.\nI'll provide some additional color in a few moments.\nBut we are in an excellent position to reach, and likely surpass, our minimum debt reduction target this year.\nIn February, we locked in an approximately $150 million private placement of long-term amortizing fixed rate notes at SBL that are committed to fund in late 2021.\nAnd at a rate of 2.95%, the lowest yielding bond ever secured across the Cheniere complex.\nIn March, CQP opportunistically issued $1.5 billion of 4% senior notes through 2031, the proceeds of which, together with cash on hand, were used to extend the maturity and accretively refinance all of CQP's 5.25% senior notes due 2025.\nOur efforts on execution, performance and prudently managing the balance sheet throughout the Cheniere structure continue to be recognized by the credit rating agencies.\nAs we mentioned on our last call, in February, Fitch revised the outlook of SPL's senior secured notes rating to positive from stable while reaffirming its existing BBB minus investment-grade rating.\nIn April, S&P revised the outlook of both Cheniere Engineered Partners BB ratings to positive from negative, a signal that ratings upgrades may be coming.\nIn addition, S&P's commentary indicated a leverage level of 4.5 to five times on a debt-to-EBITDA basis in the next couple of years could be consistent with an investment-grade rating.\nCommentary, which is in line with, and supportive of, our deleveraging plan and goal of investment-grade credit metrics throughout the structure.\nTurning now to slide 13.\nAs Jack mentioned, today, we are again increasing our guidance ranges for full year 2021 consolidated adjusted EBITDA and distributable cash flow by $200 million, bringing total increases to $400 million above the original ranges we provided in November of last year.\nOur revised guidance ranges are $4.30 to $4.6 billion in consolidated adjusted EBITDA and $1.6 to $1.9 billion in distributable cash flow.\nToday's increase in guidance is largely driven by our strong results in the first quarter.\nThe continued improvement in global LNG market pricing and our ability to execute additional higher-margin forward sales into the stronger pricing.\nSince the last call, we have continued to lock in additional volumes for the remainder of the year.\nThough those sales have been offset by an upwardly revised production forecast driven by maintenance optimization, some favorable weather and a much faster than expected ramp-up to steady Train three volumes.\nWe currently forecast that a $1 change in market margin would impact EBITDA by approximately for full year 2021.\nAs we have now sold almost all of our production for the remainder of the year and have completed and placed Corpus Spring III into service, in line with our previously forecasted timing.\nOur remaining exposure this year is not material, and we only plan to provide another update if that were to change.\nWe are confident in our ability to deliver results within these upwardly revised guidance ranges for the full year.\nWith Train three now in operation, we've also now passed the free cash flow inflection point we have long discussed with our stakeholders.\nWe expect to generate meaningful free cash flow this year for the first time in Cheniere's history of well over $1 billion.\nWe originally committed to $500 million in debt reduction this year, but we now think $500 million is conservative due to our strong performance and cash flow generation year-to-date and the forward sales of LNG we have executed in a strong LNG market.\nWe are continuing to work on our long-term capital allocation strategy with our Board, and we anticipate communicating this multiyear plan to you in the second half of the year.\nIncluding more comprehensive plans for the remainder of free cash flow this year after meeting our initial 2021 debt reduction goal of $500 million.",
        "summary": "cheniere increases full year adjusted ebitda guidance.\ncheniere energy - increasing 2021 consolidated adjusted ebitda guidance to $4.3 - $4.6 billion and 2021 distributable cash flow guidance to $1.6 - $1.9 billion."
    },
    {
        "text": "Total revenues for the third quarter of fiscal 2021 of $161.9 million increased $38.8 million or 32% compared to $123.1 million in the same quarter last year.\nNet earnings for the quarter were $17.8 million or $1.61 per diluted share compared to net earnings of $10.1 million or $0.93 per diluted share in the prior year.\nIrrigation segment revenues for the third quarter of $140.2 million increased $44.7 million or 47% compared to the same quarter last year.\nNorth America irrigation revenues of $87.4 million increased $24.5 million or 39% compared to the same quarter last year.\nThe increase resulted from a combination of higher irrigation equipment sales volume and higher average selling prices.\nThis increase was partially offset by lower engineering services revenue of approximately $4.5 million related to a project in the prior year that did not repeat.\nIn the international irrigation markets, revenues of $52.8 million increased $20.2 million or 62% compared to the same quarter last year.\nThe increase resulted primarily from higher irrigation equipment sales volumes in most international markets.\nThere was also a favorable foreign currency translation impact of $2.3 million compared to the prior year.\nTotal Irrigation segment operating income for the third quarter was $23.9 million, an increase of $8.5 million or 55% compared to the same quarter last year.\nAnd operating margin improved to 17.1% of sales compared to 16.1% of sales in the prior year.\nImproved margins were supported by higher irrigation equipment sales volume and was partially offset by the continuing impact of higher raw material and other costs.\nIn North America, margin headwinds are diminishing as multiple price increases implemented over the past several months are being realized.\nHowever, as Randy mentioned, we have also experienced significant cost increases in Brazil that have compressed margins and will continue to do so as we work through a large backlog of orders.\nWe expect this margin pressure to continue through the first quarter of fiscal 2022 until price increases are fully realized.\nInfrastructure segment revenues for the third quarter of $21.8 million decreased $5.8 million or 21% compared to the same quarter last year.\nThe decrease resulted from lower Road Zipper system sales, which were partially offset by higher Road Zipper lease revenue and increased sales of road safety products.\nThe current quarter did not have any significant Road Zipper sales, while the prior year included over $9 million in revenue related to the Highways England project and Japan order.\nInfrastructure segment operating income for the third quarter was $3.8 million compared to $8.2 million in the same quarter last year.\nAnd operating margin for the quarter was 17.3% of sales compared to 29.5% of sales in the prior year.\nCurrent year results reflect lower revenues, coupled with a less favorable margin mix compared to the prior year.",
        "summary": "q3 earnings per share $1.61.\nq3 revenue $161.9 million versus refinitiv ibes estimate of $146.4 million.\nexpect raw material inflation and supply chain challenges to persist through balance of our fiscal year.\nremain optimistic about outlook for co's infrastructure business."
    },
    {
        "text": "My name is Aaron Howald, and I'm LP's Director of Investor Relations.\nAll these materials are available on LP's Investor Relations website, www.\nRather than reading those statements, I will refer to you to those supplemental materials.\nRobust customer demand for all of LP's products has continued, driven by ongoing strength in homebuilding and remodeling, resulting in an outstanding quarter for LP.\nSmartSide net sales grew by nearly 50% versus Q1 of last year to $283 million and EBITDA more than doubled to $90 million.\nSmooth and ExpertFinish volumes more than doubled, with those innovative products reaching 8% of total SmartSide volume.\nOSB prices continued to climb throughout Q1, with the result that LP's OSB segment generated extraordinary cash flow.\nLP's South American segment also had a very strong quarter, with 50% more sales and 3 times more EBITDA than the first quarter of last year.\nAs a result, LP exceeded $1 billion in sales, generated $461 million in EBITDA and $314 million in operating cash flow and earned $3.01 per share, all of which are quarterly records.\nLast quarter, we announced a phased integrated capacity expansion plan that included converting our mill in Houlton, Maine from LSL and OSB to SmartSide, the restart of our Peace Valley OSB mill in Fort St. John, British Columbia, and plans to convert our OSB mill in Sagola, Michigan Society.\nLet me briefly update you on those projects.\nHoulton conversion is under way and on schedule despite some expected difficulties with travel and contractor access presented by COVID.\nWe expect to begin SmartSide production at Houlton less than a year from now in late Q1 of next year.\nWe are excited about the capacity expansion of these investments in Houlton represent, and we are gratified by the enthusiastic responses from local and regional suppliers and community stakeholders.\nGiven the strength of SmartSide demand, we are exploring options to accelerate the conversion of Sagola.\nWe're also evaluating and prioritizing subsequent projects to add capacity by conversion and/or expansion of existing facilities as well as growing prefinishing capacity.\nSmartSide has a long runway for growth ahead as we innovate, capture share, expand addressable markets and execute an aggressive capacity expansion strategy.\nProcess to resume OSB reduction in Peace Valley is also going quite well.\nI want to complement the small containment has maintained the mill since we idled it in the summer of 2019.\nThey have kept the equipment in excellent condition, and we anticipate minimal impediments to an efficient restart.\nLast quarter, I spoke about the challenges presented by shortages of MDI, the resident use and manufacture of SmartSide and OSB.\nMDI availability has improved significantly, and we are essentially back to normal levels of supply with OSB mills once again using planned levels of MDI.\nThis episode has highlighted the strategic value of having Siding and OSB integrated in LP's portfolio.\nSmartSide uses MDI exclusively, but OSB can use alternate rests.\nWhen supply has become constrained, we were able to allocate scarce MDI from OSB to Siding.\nWithout which Siding, we have struggled to achieve another outstanding quarter of growth.\nWhile the MDI supply has improved, global shortage of vital asset tape-based adhesives has forced decreased production of TechShield, LP's Radiant Barrier sheeting product in the second quarter.\nThe vinyl acetate supply situation is improving, and we expect to be back to normal levels of textile production by the end of the quarter.\nHowever, as COVID subsides in North America and the broader county rebounds a tremendous supply chain disruptions and type logistics availability are likely to present challenges going forward.\nWe recognize the difficulties this creates for LP's customers, particularly in an environment with such strong demand.\nWe're doing everything we can to mitigate the impact of these issues through strategic sourcing and network optimization, and we are adding SmartSide and OSB capacity as safely, efficiently and quickly as possible.\nFinally, I'm happy to announce that LP is in the initial phases of returning to our national headquarters after more than a year of working from home.\nAnd while COVID-19 vaccines are now widely available in the U.S. and Chile, vaccination rates continue to lag in Canada and Brazil.\nThe situation is improving, but we are not out of the woods yet.\nOngoing diligence in care exercised by LP's pandemic response team and mill employees are helping minimize operational impacts from COVID, enabling LP to supply our customers the products they need to build and renovate homes.\nI encourage all of them and all of you on the call to continue to exercise appropriate precautions and get vaccinated as soon as possible.\nLP had a remarkable first quarter.\nAnd while challenges remain, very strong housing in RNR markets resulting in intense demand for SmartSide and OSB, keeping our near-term outlook exceptionally positive.\nSlide six shows summarized results for the quarter, which, much like the fourth quarter, are clean and straightforward with ongoing SmartSide growth and higher OSB prices as the most significant drivers.\nCompared to the first quarter of last year, net sales increased by 74% to just over $1 billion, driven by 49% growth in SmartSide and over $330 million of significantly higher OSB prices.\nThe resulting EBITDA of $461 million is more than 5 times last year's result.\nWe generated $314 million of operating cash flow, including increased capital investments and heavy spending on logs, common practice for LP in the first quarter.\nThe $3.01 per share of adjusted earnings is 10 times that in the first quarter last year.\nIn terms of capital allocation, we paid $17 million in dividends in the first quarter and spent $122 million to repurchase 2.4 million shares.\nWe've continued buying back shares through the second quarter and as of the close of business yesterday, had just $32 million remaining of our existing $300 million buyback authorization.\nAll else equal, that remaining authorization will be exhausted by the end of this week.\nI'm therefore, delighted to report that LP's Board of Directors has authorized a further $1 billion of share repurchases, which we plan to launch immediately.\nLP's Board also declared a dividend of $0.16 per share payable on June 1.\nSlide seven highlights the cleanliness of the quarter from a reporting perspective.\nContinued SmartSide growth and OSB price appreciation resulted in $93 million and $333 million, respectively, of incremental revenue for the quarter, compared to which everything else is really just a rounding error.\nAll $333 million of the incremental OSB pricing and 55% of the incremental SmartSide revenue translated into EBITDA, with everything else aggregating to a net negative of $6 million.\nSlide eight provides an update on our transformation.\nOn a trailing 12-month basis, SmartSide revenue grew at twice the rate of single-family housing starts.\nConsequently, and as the table on the right shows, SmartSide growth dominates the first quarter, accounting for $53 million or $65 million transformation in the quarter.\nThe resident substitution, which Brad referenced earlier, accounts for the negative $4 million in efficiency.\nGiven that SmartSide growth contributes the lion's share of our transformation dollars in the quarter, Slide nine looks a little deep into that growth.\nThe bar chart on the left is not repeat of Slide 8.\nThis chart shows SmartSide revenue growth for just the quarter relative to single family starts.\nThe pie chart on the right provides more resolution of the also SmartSide growth.\nWhile total volume grew by 39%, the volume of the more innovative smooth prefinished and shrink products grew to 140%.\nAs such, their share of the total volume increased under 5% to just over 8%.\nThe substantially higher average selling prices of these new products also contributed one point to overall price growth in the fourth quarter.\nThe waterfalls on Slides 10 and 11 show year-over-year revenue and EBITDA growth in the Siding and OSB segments for the quarter.\nSlide 10 covers Siding.\nThe 49% revenue growth for SmartSide is the result of 39% volume growth compounded by 7% price growth and at $93 million in sales and $51 million in EBITDA, for an incremental EBITDA margin of 55%.\nOEE and sales and marketing efficiencies offset increased costs for freight and the dwindling nonrecurrence of fiber sales reduced revenue by $20 million and EBITDA by $2 million.\nThe resulting Siding segment EBITDA of $19 million on $285 million of revenue, yields an EBITDA margin of 32%.\nSlide 11 shows the quarter in more detail for OSB and is dominated by ongoing record high OSB prices.\nWe estimate the impact of MDI scarcity and alternate resin substitution at roughly 80 million square feet or 7% of volume due to reduced operating efficiency for OEE.\nAnd as Brad said, the supply chain for that resin seems to have stabilized.\nWe will, of course, continue to monitor that situation and other potential supply chain interruptions closely.\nLP's ability to substitute alternate resins for OSB production and therefore, to be able to strategically allocate all available MDI to the Siding was a unanticipated benefit of having these segments under the LP umbrella.\nOSB prices will continue to grab headlines for sure, but OMP's results this quarter are no small measure of testament to the agility of the Siding and OSB operations team and LP's strategic sourcing team as they collaboratively navigated the MDl shortage.\nAnd this is almost entirely the result of OSB prices raising accounts receivable balances and the normal seasonal accumulation of logs I mentioned earlier.\nThe bridge from the $314 million of operating cash flow to the net change in cash is similarly uneventful.\nWith buybacks, capex, dividends and payments associated with refinancing, our long-term debt as the only material items.\nReconciliations of net income to both adjusted EBITDA and adjusted income are also straightforward with depreciation and a rather large but appropriately proportional provision for taxes as the only items I've not already mentioned.\nSlide 12 provides updated guidance for capital expenditures for the year.\nAs Brad said, we are exploring opportunities to accelerate our siding capacity expansion.\nThe Houlton conversion, restarting Peace Valley, other growth capital and the basis of sustaining maintenance, altogether, bring our capital expenditures for the full year in the range of $230 million to $250 million.\nIn other words, we're raising our tax guidance by about $10 million.\nAnd with extremely robust housing and repair and remodel markets, fueling intense demand for SmartSide and OSB, our order files give us some visibility into the remainder of the second quarter.\nFor the OSB segment, prices continue to climb, with the result that we believe OSB revenue will be at least 30% sequentially higher in the second quarter than in the first.\nWe also expect another strong quarter of SmartSide growth with revenue for the second quarter, at least 30% higher than last year, which would mark the fourth consecutive quarter of growth above 20%.\nAssuming the Siding and OSB scenarios I just detailed and given all the usual caveats about certain demand shocks or other unforeseeable events, we expect EBITDA for the second quarter to be at least $580 million, another quarter of record results and outstanding cash flow generation.\nBefore handing the call over for Q&A, I do want to discuss our expectations for full year revenue growth for SmartSide.\nDemand continues to be very strong, and we expect to continue running our mills at or near capacity at for the remainder of the year.\nAlso, ExpertFinish, Smooth and Shakes, should continue to grow as a percentage of total Smartside volume and revenue.\nHowever, given the acceleration of growth in the second half of last year, we simply cannot increase year-over-year revenue by much more than 10% in the second half of 2021.\nSo all said, this would bring full year SmartSide growth to roughly twice our previous long-term guidance of 10% to 12% per year.",
        "summary": "compname announces an additional $1 billion share repurchase authorization.\ncompname reports first quarter 2021 results, provides second quarter outlook, and announces an additional $1 billion share repurchase authorization.\nq1 sales rose 74 percent to $1.0 billion.\nq1 adjusted non-gaap earnings per share $3.01.\nsees adjusted ebitda for q2 2021 to be greater than $580 million.\nsees q2 smartside sales to be more than 30% higher than last year.\nosb sales in q2 2021 to be sequentially higher than q1 2021 by more than 30%."
    },
    {
        "text": "We all appreciate what a difficult year this has been.\nEven in the face of this incredible adversity, Stride has been able to thrive.\nWe've only been able to do so because of the commitment of our thousands of team members.\nThese folks have been dedicated to our customers and the families that need an alternative approach to education, now more than ever before.\nThis is also a year in which the country and the world took notice of online and distance learning in a mainstream way, but the experience is not always positive.\nAcross the country, many schools struggled with uncertainty and inconsistency for students and families, as they vacillated between online and in-person instruction.\nOur teachers, platforms, content and curriculum are all developed to meet this need.\n[Technical Issues] many have not embraced it.\nOthers realize its potential if done the right way.\nWe stand-alone, having served millions of students in our online bundle.\nAnd while many schools struggled with learning loss and deteriorating test scores, our result outpaced them in the phase of on-boarding a record number of families for our programs.\nI will get to how we are turning to this formula.\nFirst, I am going to review some of our fiscal 2021 accomplishment.\nBy almost any measure, we had a record year, by a long-shot.\nWe helped over a quarter of a million full-time learners and millions of other users became interested in our programs.\nLearning loss became the norm, except in the schools we managed.\nNo wonder the national data showed an overall enrollment decline of [Technical Issues].\nWe published our first ever ESG report backed by a number of key initiatives.\nA new partnership with National Association of Black Male Educators designed to increase the diversity of teachers across the country.\nA program with Teach for America to share practical online experience to student and teachers.\nOur We Stand Together College Scholarship, a $10 million multi-year commitment to support underrepresented students.\nBut we are not relying on the tailwinds of the pandemic to set our long-term path forward.\nWe rebranded our company from K12 to Stride to ensure that our name better reflects the commitment to providing educational opportunities for learners of all levels.\nWe acquired two high growth, higher margin companies to expand our adult Career Learning offers.\nWe held an Investor Day to outline our strategy and growth trajectory through fiscal year 2025, a trajectory that I believe we are well on track to hit and we raised almost $360 million through a convertible note offering to facilitate further investment in both organic and inorganic growth.\nIn our General Education business, we saw student enrollment increase by almost 50%.\nWith all the uncertainty this past year, we saw dramatic improvements in retention, in both our General Education as well as our Career Education business.\nAnd we did not see the mass withdrawal of students in the second half of the school year, as many states began to reopen their brick and mortar schools.\nThis is a testament to the stickiness and value propositions of our programs.\nAs we've mentioned previously, students who enrolled in our Career Learning programs tend to retain at a higher level than our General Education students and we believe this trend will continue.\nWe also had a record number of reregistration families, indicating that they will be returning for the fall.\nOur Career Learning business finished the year with over $250 million in revenue.\nThis is an increase from less than $10 million just four years ago, a 150% compounded annual growth.\nThis year, we saw a growth of over 125% to almost 30,000 students.\nThese programs offer a career path without the need for expensive college degree.\nAnd we're increasing the programs from our MedCerts acquisition that we will offer the high school students the certificates in the healthcare industry.\nBoth our MedCerts and Tech Elevator acquisitions continue to grow and contribute to the bottom line and are exceeding our expectations from when we purchased.\nThey are high growth, high margin market opportunity platforms for us that we will continue to leverage into other areas of our business, particularly our high school programs.\nWe will continue our focus on IT and healthcare training because these industries are projected to add more than 2.5 million new positions in the US by 2029.\nOn the other hand, our Galvanize acquisition has not performed according to our plan.\nWe've restructured this business and believe we now have a glide path to both renewed growth and profitability heading into next year.\nWe will also look for ways to invest behind and expand our adult learning offerings with a lens for making Career Learning a $1 billion plus business.\nIn June, we released our inaugural ESG initiatives report.\nAs an Education and Career Learning company, we have a significant opportunity to help achieve global education, workforce and diversity and inclusion goals.\nAll of our ESG initiatives are based on the four cornerstones; extending lifelong learning for today's competitive workforce; supporting racial and socio-economic equity and inclusion; fostering transparent leadership, governance and professional development; and contributing to a more sustainable world.\nFor me, our focus on learning outcomes is the most important aspect of all our ESG efforts.\nStride is in a unique position to influence the lives of millions of students of all ages.\nNot many of our companies have that kind of impact or carry that responsibility.\nWe don't take that responsibility lightly.\nBy now, everyone is aware of the significant shortages impacting the workforce.\nStride is well-positioned to help alleviate that shortage.\nTo that end, we have set 10-year goals that are driven by learner outcomes.\nSo by 2030, our goals are to graduate over 100,000 students from our Stride career high school program, to graduate hundreds of thousands of students from our adult programs, and to achieve leading graduation of learning growth rates for over a million students.\nOur report contains a lot more specific information on our ESG efforts.\nI encourage everyone to read it.\nNow I want to turn to fiscal year '22.\nThe long-term trends, prospects for our General Education and Career Learning businesses, both remain tremendous.\nThe COVID-19 pandemic has raised consumer awareness around the need for and the benefits of online education in grades K through 12 and in adult learning.\nWhile it doesn't work for everyone, many students and families have realized that online learning and the flexibility it provides is a preferred alternative.\nIncreased awareness and openness to different options to meet educational needs fundamentally provides for a long-term tailwind for all aspects of our business.\nAs we do every year, we will try to provide formal fiscal '22 guidance during our first quarter earnings call in October.\nSo while we're not providing guidance right now, I do want to provide some insights into how the current enrollment season is trending.\nEven now in August, we're still less than halfway through the volume of our typical enrollment season.\nAnd this means that these trends could shift in the coming weeks.\nAdditionally, the pandemic has increased uncertainty around all these metrics, so please do not extrapolate what I am about to say.\nWe have not seen the massive return to brick and mortar school [Technical Issues].\nWe are currently exceeding the number of reregistrations that we saw during fiscal '21 and in previous years.\nRight now, we're well ahead of where we would be normally in enrollments versus pre-pandemic levels.\nAwareness for our offerings is at an all-time high, the pandemic helped to drive awareness [Technical Issues] and now they just need to choose.\nConversion rates from our new leads are an all-time high.\nSo when families seek us out, they're more likely to enroll.\nWe believe that health and safety continue to be top priority for families and we're seeing that and we're seeing even stronger demand in states where the Delta variant has surged.\nOur goal is clear, is to grow every year and importantly, we remain on track to achieving the long-term revenue and profitability targets that we outlined during the Investor Day last fall.\nWe still anticipate achieving revenue of $1.9 billion to $2.2 billion, adjusted operating income of $250 million to $350 million by the year 2025.\nNow I'll hand the call over to Tim to discuss our full year 2021 results.\nFirst, let me recap our reported results.\nRevenue for the full fiscal year 2021 was $1.54 billion, an increase of 48% over the prior fiscal year.\nAdjusted operating income was $161.4 million, up 160% compared to the prior year.\nCapital expenditures were $52.3 million, an increase of $7.3 million over last year.\nIn each case, these results met or beat the expectations we provided in our guidance last quarter.\nThe outperformance was primarily driven by favorable revenue for enrollment and retention.\nLooking ahead to fiscal 2022, it is still too early to confidently forecast our current date enrollments for the reasons James just outlined.\nGiven where we are in the process, there remains variability around two key factors; firstly, ongoing reregistration and new enrollments and secondly, the retention of these enrollments once school starts and through the month of September.\nNow here's what I can say today about fiscal year 2022.\nWe expect to grow adjusted operating income and adjusted EBITDA year-over-year compared to our strong fiscal year 2021 results.\nFurthermore, we believe that the increased awareness and acceptance of online and hybrid education accelerated by the COVID-19 pandemic has sustainably reset the baseline for the General Education business.\nTherefore, we are confident that General Education revenue in fiscal year 2022 will be significantly larger than it was in fiscal year 2020.\nAs we have done in the past, we will refrain from providing guidance until we report our first quarter fiscal 2022 results in October.\nBy that time, we will have much greater visibility into enrollments for the new school year.\nReturning to our results for fiscal year 2021.\nRevenue from our General Education business increased $346 million or 37% to $1.28 billion.\nThis is due primarily to higher enrollments, partially offset by lower revenue per enrollment.\nGeneral ed enrollments rose 45% year-over-year to more than 156,000, while revenue per enrollment declined 5%.\nThe decline in revenue per enrollment was due primarily to state budgetary pressures, resulting from COVID-19 and a higher mix of lower funded states.\nAs we stated last quarter, we expect revenue per enrollment to improve next year, given what we know today about state budgets and policy.\nCareer Learning revenue rose to $256.6 million in FY '21, an increase of 140%.\nThis growth was driven by significantly higher volumes in our Stride Career Prep Programs, as well as organic growth and new acquisitions in our adult learning businesses.\nWe expect to continue growing our Stride Career Prep Programs in FY '22 with plans to open four new programs and expand eight existing programs in FY '22.\nGross margins were 34.8%, up 140 basis points compared to fiscal 2020, driven by an increased contribution from the higher margin adult learning businesses and lower costs from efficiencies and automation initiatives.\nWe expect margin improvement to continue into fiscal 2022.\nWe are confident that we will achieve our 36% to 39% gross margin targets much sooner than fiscal 2025, which was our original target communicated during our November 2020 Investor Day.\nSelling, general and administrative expenses were $424.4 million, up 35% from fiscal 2020.\nThe increase in SG&A was driven primarily by higher costs associated with our enrollment growth and increase in stock-based compensation expense and the annualization of expenses for our adult learning businesses.\nAdjusted EBITDA of $239.9 million reflects an increase of 87% over FY '20.\nAdjusted EBITDA margin improved 400 basis points from 12% of revenue in FY '20 to 16% in FY '21.\nThe margin improvement and growth in adjusted EBITDA are driven by higher revenue and improved operating leverage.\nStock-based compensation expense came in at $39.3 million, up 67% year-over-year, driven by the timing of certain stock-based grants tied to our Career Learning business.\nWe currently expect stock-based compensation expense to decline to a range of $30 million to $34 million in FY '22.\nInterest expense totaled $18 million for fiscal 2021, in line with the expectations we provided last quarter.\nThis consisted of approximately $5 million in cash interest and $13 million in non-cash amortization of the discount in fees on our convertible senior notes.\nIn the first quarter of fiscal 2022, we early adopted new accounting guidance related to our convertible notes.\nThis will result in the elimination of the non-cash debt discount expense among other impacts.\nAs such, we expect our interest expense in FY '22 to be materially lower and more in line with the cash interest we recognized in FY '21.\nOur full year tax rate for FY '21 was 26%, below the guidance range we provided last quarter.\nWe had some positive tax benefits related to stock-based compensation and had the effect of lowering our tax rate for the year.\nIn FY '22, we anticipate an increase in non-deductible compensation that will cause our tax rate to be closer to the 28% to 30% range.\nCapital expenditures for the year totaled $52.3 million, up 16% from the prior year, due mainly to higher capitalized software development costs associated with adult learning, automation and improvements to our platforms.\nCapex, as a percent of revenue was 3.4% and that is lower than our historical average of approximately 4% to 5% over the past few years.\nFree cash flow defined as cash from operations less capex totaled $81.9 million for FY 2021.\nThis was approximately $45 million below the expectations provided at Investor Day last November due entirely to the timing of receipts, which drove lower than expected cash from operations.\nSome of the timing issues were associated with our growth in states that regularly pay in the following year and some were related to delayed payments due to COVID.\nIn fiscal 2022, we expect to have significantly higher free cash flow, reflecting these timing issues from fiscal 2021.\nFinally, we ended the year with cash and cash equivalents of $386.1 million, an increase of $173.8 million compared to the same period a year ago.\nWe believe that our strong free cash flow generation and liquidity will continue to provide the financial flexibility to fund our existing operations and pursue strategic acquisitions.\nTo summarize, fiscal 2021 was a landmark year for Stride.\nWe saw record enrollments in both our General Ed and Career Learning businesses, which drove double-digit growth in revenue, adjusted operating income, and adjusted EBITDA.\nOur Career Learning assets, which accounted for less than $7 million of revenue four years ago, generated over a quarter billion dollars in revenue during the year, a sign of the tremendous demand for Career Education offerings, and Stride's innovation and leading position within this market.\nIn addition, we continue to improve our margin profile and bolster our cash and liquidity position while maintaining a low level of indebtedness.\nAs James mentioned, we could not be more excited about the prospects for our business and we'll continue to execute on our high growth, career learning strategy and margin expansion initiatives.",
        "summary": "compname posts career learning revenue of over $250 million."
    },
    {
        "text": "I'm excited that we also have Mark Parkinson from the American Health Care Association with us to discuss how our industry is responding to the COVID-19 crisis, specifically as it relates to the CARES Act and government support in the seniors housing and skilled nursing space.\nIt bears repeating that we could not be more in awe of their responses to the extraordinary challenges they have faced over the last many months.\nAnd we know they will valiantly face several months to come as some areas experience resurgence of cases and we enter the winter and flu season.\nI would also like to quickly update you on the story we told you last quarter about Mary Daniel, the wife of an Alzheimer's patient at one of our communities.\nMary took a part-time dishwashing job so that she could spend time with her husband amid visitation restrictions.\nBecause the Governor of Florida recently eased COVID-related restrictions for senior housing and care visitation, Mary completed her professional dishwashing career and can now visit her husband at will, adhering to all proper safety protocols, of course.\nThe community Rosecastle at Deerwood, which is operated for us by ALG Senior, has maintained close ties with Mary.\nShe continues to be active in the media, speaking positively about Rosecastle as well as advocating for families across the nation who are trying to find ways to see and visit their loved ones.\nWe wish Mary and Steve nothing but the best.\nUnfortunately, there has not been a consistent meaningful decrease in COVID-19 cases around the country.\nIn fact, many states and regions are seeing spikes in new cases.\nSome states, however, have been able to flatten the curve with several easing restrictions as they pertain to senior housing and care.\nWhile our industry continues to face cost challenges, related to supplies, testing and staffing, I believe our operating partners now have better tools and a much better understanding of how to manage in the world of COVID.\nLTC is continuing to provide support where we are needed.\nFor example, we're in the process of rolling out a new program called Smart Design, which was conceived by our Executive Vice President and Managing Director of Business Development, Doug Korey; and our Vice President, Marketing and Investor Relations, Mandi Hogan.\nThis initiative comes from LTC's desire to assist operators in upgrading their buildings for state-of-the-art infection control protocols.\nWhile some of the biggest operators in the country may have the resources to take on such projects on their own, smaller regional operators often don't have the same bandwidth.\nWith that in mind, we are partnering with Avenue Development to assist our operators with turnkey and customized retrofitting options.\nSome features of Smart Design include air filtration, including bipolar ionization, UV sanitation devices, custom dividers and touchless equipment, among others.\nAvenue will be responsible for the retrofitting, while LTC will work with our partners to finance implementation of the program into current leases or providing a line of credit with attractive rates and flexible terms.\nWhile COVID was the catalyst for the program, we believe the benefits will serve us well over the long term by helping ensure our portfolio includes safer, more updated assets.\nMark is going to spend his time talking about government initiatives and relief for our industry.\nSo I'll comment just briefly.\nAfter a considerable lobbying effort, private pay operators are now receiving government aid.\nThey, along with skilled nursing operators, also received point-of-care testing equipment from the government.\nMost recently, the government released Phase three of its CARES Act, which includes an additional $20 billion in funds earmarked to help cover lost revenue to healthcare providers.\nGovernment support has been and will continue to be vital for our industry.\nMark will provide more insight in greater detail.\nMoving now to more LTC-specific discussions.\nWhile the quarter did not include significant new investments, our focus on structured finance opportunities resulted in us committing nearly $20 million in preferred equity, some of which has already been funded, and the remainder of which is expected to be funded in the fourth quarter.\nPam and Clint will provide additional details.\nAlthough restrictions regarding visits to care facilities are starting to loosen in some parts of the country, we are cognizant of the fact that the fall and winter could bring surges of the virus and with that, restored or additional constraints.\nWe look forward to ramping up our engagement with potential acquisition targets when safe and as restrictions are lifted.\nThe market remains challenging, but I firmly believe that LTC has built a strong reputation as a creative financing partner in the seniors housing and care space by thinking outside of the REIT box to create solutions that provide our operating partners with the financing they need to help grow their business.\nThe reputation serve us well over the long term.\nMoving to rent deferrals and abatements.\nWe collected 94% of third quarter rent.\nExcluding Senior Lifestyle, which I'll discuss in a moment, third quarter rent collected was 97%.\nThe rent deferrals and abatements were granted to private pay operators.\nI believe I have mentioned my dislike of the GAAP requirement to recognize straight-line rent.\nSubsequent to our reporting second quarter results, Genesis reported that they had a going-concern issue.\nGenesis is current on rents with us, and they have not requested any rent deferrals.\nStill, LTC has had to report a reduction in this quarter's revenue for the straight-line rent write-off related to this lease.\nAnother operator, not in our top 10, who has been a go-to operator for challenging properties and has historically performed well, has been adversely impacted by COVID-19 and began short paying rent in the third quarter and requested deferrals.\nDespite receiving government financial support, this operator is reluctant to actually use those funds to pay rent for fear that there may be a government payback provision.\nAs a result, we put them on the cash basis and wrote off their straight-line balance.\nAdditionally, in support of this operator, we agreed to close an assisted living facility in Florida that had drawn the attention of certain plaintiffs' attorneys and was damaged by one of the recent Florida storms.\nThis closure required us to record a realization reserve of $941,000.\nWe have not released the operator of the obligation to pay contractual rents going forward, and I believe we will eventually recover our deferred rents and contractual rents that Pam tells me my belief is not GAAP.\nI'll now provide a quick update on our Senior Lifestyle portfolio.\nAs I mentioned last quarter, we placed the portfolio on a cash basis due to a shortfall in May and June rent payments.\nSince that time, while recent rent payments are trending up, Senior Lifestyle remains in arrears.\nFor the 2020 third quarter, we received rent payments of approximately $3.3 million against their quarterly contractual rent obligation to LTC of approximately $4.6 million.\nAt September 30, Senior Lifestyle owed us $3.8 million for second and third quarter rents, $2.5 million of which is recorded in our financial statements and is covered by an undrawn letter of credit, which we hold.\nIn October, we received rent of approximately $1.3 million against Senior Lifestyle's contractual rent obligation for the month of approximately $1.6 million.\nIn cooperation with Senior Lifestyle, we are actively working to make changes to the 23-property portfolio, which may include bringing in new operators, pursuing sales of some of the buildings or retaining Senior Lifestyle in a few of the properties.\nWe are currently in negotiations with several parties and expect to have resolution for the majority of the portfolio in the first quarter of 2021.\nAs we discussed previously, transitioning this portfolio provides LTC with the opportunity to build relationships among several different regional operators, some of whom will be new to LTC and others with whom we have an existing relationship.\nAs a result, we will further reduce portfolio concentration, one of our key strategic focuses.\nWith respect to guidance, we are not providing it at this time due to ongoing COVID-related uncertainties.\nTotal revenue decreased $8.9 million compared with last year's third quarter, primarily resulting from the $5.5 million write-off that Wendy discussed, a result of transitioning two leases to cash basis accounting as of September 30, 2020.\nGenesis disclosed in its most recent 10-Q that there was substantial doubt about its ability to continue as a going concern.\nLTC continues to collect all contractual rent due from Genesis.\nHowever, the level of certainty regarding the collectibility of future rent from Genesis through lease maturity does not meet the threshold required to maintain it on an accrual basis.\nThe other operator did not pay its full contractual rent for the third quarter of 2020 due to COVID-19, and we wrote off their straight-line rent balance.\nDuring the quarter, we provided this operator with rent support in the form of deferrals and abatements totaling $756,000.\nAs with Genesis, the level of certainty regarding the collectibility of this operator's future rent through lease maturity does not meet the threshold required to maintain it on an accrual basis.\nDecreased rent from Preferred Care resulting from the sale of that portfolio earlier this year, lower rent from Senior Lifestyle, deferred and abated rent and a reduction in property tax revenue also contributed to the decline in total revenue.\nOffsetting these reductions were contractual rent increases related to acquisitions and completed development projects and higher rent payments from Anthem.\nInterest income from mortgage loans increased $244,000 due to the funding of expansion and renovation projects.\nInterest and other income decreased $535,000 due to the partial paydown of an outstanding mezzanine loan as well as a reduction in miscellaneous income.\nIncome from unconsolidated joint ventures decreased $704,000 in the third quarter due to the repayment of a mezzanine loan accounted for as a joint venture and the dissolution of our preferred equity investment in a joint venture with an affiliate of Senior Lifestyle, which occurred in the second quarter.\nInterest expense decreased $466,000 due to lower outstanding balances and lower interest rates under our line of credit in 3Q 2020, partially offset by the sale of $100 million of senior unsecured notes in 4Q 2019.\nProperty tax expense decreased $919,000 due to Preferred Care property sales and our Senior Lifestyle portfolio, offset by increases related to acquisitions and completed development projects.\nDuring the third quarter, we recorded a $941,000 impairment charge related to the closed assisted living property in Florida.\nWe also received $373,000 in insurance proceeds for roof damage related to a property we sold in the first quarter of this year.\nNet income available to common shareholders for the third quarter of 2020 decreased $15 million primarily due to the straight-line rent write-offs and the decreased rent from Preferred Care and Senior Lifestyle that I discussed earlier.\nDeferred and abated rent, the impairment charge, lower income from unconsolidated joint ventures and a $6.2 million gain on sale in last year's third quarter also contributed to the decline.\nThe offsets included increases due to acquisition and completed development projects, contractual rent increases and an increase in Anthem's rent, lower interest expense and the gain from insurance proceeds.\nNAREIT FFO per fully diluted share was $0.58 for the 2020 third quarter compared with $0.77 last year.\nExcluding the nonrecurring items already discussed in the current period, FFO per fully diluted share was $0.71 this quarter compared with $0.77 for last year's third quarter.\nThe $0.06 decrease in FFO, excluding nonrecurring items, resulted from lower revenues related to property sales, reduced rent from Senior Lifestyle, deferred and abated rent and lower income from unconsolidated joint ventures, partially offset by lower interest and property tax expense.\nFunds available for distribution, excluding the $373,000 nonrecurring insurance proceeds gain, decreased $2 million due to Senior Lifestyle and deferred and abated rents in the third quarter of 2020.\nDuring the third quarter, we invested $6.3 million of preferred equity to develop and own an assisted living and memory care community.\nThis investment earns an initial cash rate of 7%, increasing to 9% in year four until the IRR reaches 8%.\nAfter achieving an 8% IRR, the cash rate drops to 8% with an IRR ranging between 12% and 14% depending on the timing of redemption.\nThe investment is accounted for as an unconsolidated joint venture.\nWe also entered into a preferred equity agreement to invest $13 million to develop and own an independent and assisted living community.\nWe expect to fund this investment after certain conditions are met, the deadline for which is December 1.\nIt will earn an initial cash rate of 8% and an IRR of 12%.\nThis investment is also accounted for as an unconsolidated joint venture.\nClint will discuss these transactions in greater detail shortly.\nIn the third quarter, we also funded $3.9 million in development and capital improvement projects on properties we own, $1.6 million under mortgage loans and paid $22.4 million in common dividends.\nDuring the quarter, the development of our 90-bed skilled nursing center in Missouri was completed under budget by $1.3 million.\nWe anticipate funding the remaining $3.1 million of project costs in the 2020 fourth quarter.\nThe initial yield on our investment is 9.25%, escalating annually by 2%.\nWe currently have remaining commitments under mortgage loans of $2.3 million related to expansions and renovations on four properties in Michigan.\nWe received $2.6 million in the 2020 third quarter related to the partial paydown of an outstanding mezzanine loan.\nAt September 30, we had $22.8 million in cash.\nWe also had more than $510 million available under our line of credit and $200 million under our ATM program, providing LTC with ample liquidity of approximately $733 million.\nOur long-term debt to maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk.\nAnd we have no significant long-term debt maturities over the next five years.\nAt the end of the 2020 third quarter, our credit metrics compared favorably to the healthcare REIT industry average, with net debt to annualized adjusted EBITDA for real estate of 4.6 times, an annualized adjusted fixed charge coverage ratio of 4.7 times and a debt to enterprise value of 32.9%.\nThe effect of the economic fallout from COVID-19 on the real estate capital markets has resulted in our debt to enterprise leverage metric being higher than our long-term target of 30%.\nHowever, at 4.6 times, we are still comfortably below our net debt to annualized adjusted EBITDA for real estate target of below five times.\nI'll finish my comments with a brief discussion of rent deferrals and abatements.\nAs Wendy mentioned, we collected 94% of third quarter rent.\nOf the rent not collected, $690,000 related to rent abatements, $326,000 related to rent deferrals and $1.3 million related to delinquent rent from Senior Lifestyle.\nDuring the second and third quarters of 2020, rent deferrals and abatements totaled approximately $1.4 million, net of $502,000 in deferred rent repayments or 1.8% of contractual rent for the period.\nIn October, rent deferrals were $566,000.\nAbatements were $120,000, and delinquent rent was $264,000.\nAdditionally, we received deferred rent repayments of $51,000 in October.\nAs a reminder, our rent deferral agreements generally require the deferred rent to be paid within six to 24 months.\nNow I'd like to turn things over to Clint.\nI'd like to start today with our two recent investment commitments totaling nearly $20 million.\nFirst, as Pam mentioned, we invested $6.3 million in preferred equity in an entity that will develop and own a 95-unit assisted living and memory care community in Arlington, Washington, a suburb in Seattle.\nMagnolia Place at Smokey Point is being developed by Field's Senior Living in conjunction with RJ development, both of whom we have successfully worked with in the past.\nField's will operate the community, which is currently scheduled for completion by the first quarter of 2022.\nWhen complete, LTC will have five investments with Field's, two in California, two in Oregon and one in Washington.\nLTC's investment represents approximately 15.5% of the total $40.8 million estimated project cost.\nThe second transaction is a $13 million preferred equity commitment Pam discussed.\nLocated in Vancouver, Washington, University Village at Salmon Creek is an independent living and assisted living community with a total of 267 units being developed by Koelsch Communities, the current operating partner.\nKoelsch is also working with RJ Development.\nKoelsch will operate the community, which is currently scheduled for completion by the end of 2022.\nAt completion, LTC will have three investments with Koelsch, two in Texas and one in Washington.\nLTC's initial investment represents approximately 11.6% of the total $112.3 million estimated project cost.\nIn the current environment, we have focused our efforts on deploying capital in structured finance projects.\nAnd these preferred equity deals with Field's and Koelsch demonstrate our ability to successfully transact in this market.\nWe are continuing to identify additional investment opportunities, including mezzanine loans, bridge loans and unit tranche loans.\nIn this environment, we like their shorter duration and what we believe to be better risk-adjusted returns.\nMoving now to our developed projects.\nOur joint venture project with Field's Senior Living for Weatherly Court in Medford, Oregon began accepting residents in September after putting an infection control protocol in place.\nAt October 23, occupancy was 10%.\nAs a reminder, this community includes 78 assisted living and memory care units.\nIt is adjacent to Weatherly Inn, an independent living community the joint venture acquired in 2018.\nOur development project set with Ignite Medical Resorts for Ignite Medical Resorts Blue Springs in Independence, Missouri received licensure and began welcoming patients in early October.\nOn October 23, occupancy was 23%.\nThis is a 90-bed property and is one of two Kansas City area skilled nursing centers we own that are operated by Ignite.\nBefore getting to the portfolio numbers, I'd like to provide some additional visibility into rent support we have committed from November through the first quarter of 2021.\nThere are three private pay operators in our portfolio for whom we are providing either rent deferrals or abatements.\nFor one of these operators, we have provided two months of deferred rent totaling $280,000 or $140,000 in December and $140,000 in the first quarter of next year.\nFor the second, we have provided abated rent for November and December in the amount of $120,000 per month, which is 50% of contractual rents.\nThe third operator was provided the ability to defer rent as needed subject to cash flow through March 31.\nThis operator's rent obligation is approximately $430,000 per month.\nSome buildings in our portfolio with these operators were in lease-up before the pandemic begin.\nThese properties were making progress pre-COVID, but the pandemic negatively impacted operations.\nWe believe that the path to stabilization will remain elongated, especially when compared with pre-COVID timetables.\nAdditionally, given new government relief efforts that include private pay as money is made available through the provider relief fund, we could see more repayments of outstanding deferred rent.\nNext, I'll discuss our portfolio numbers.\nGiven the pandemic and the challenging environment it has created, we don't believe coverage is a good indicator of future performance at this time.\nAnd we are focused on occupancy trends, which I'll discuss shortly.\nQ2 trailing 12-month EBITDARM and EBITDAR coverage using a 5% management fee was 1.27 times and 1.06 times, respectively, for our assisted living portfolio.\nThese metrics are the same with and without stimulus funds as no operators allocate these funds to their P&L statements.\nExcluding Senior Lifestyle from our assisted living portfolio, EBITDARM and EBITDAR coverages would increase to 1.41 times and 1.18 times.\nFor our skilled nursing portfolio, EBITDARM and EBITDAR coverage was 1.85 times and 1.38 times, respectively, including stimulus payments made available through distribution of the provider relief fund allocated and reported to us by our operators but specifically excluding PPP funds.\nIf those stimulus payments are excluded, EBITDARM and EBITDAR coverage was 1.64 times and 1.19 times, respectively.\nI'd now like to update you on some occupancy trends in our portfolio, which is as of October 16.\nAs a reminder, for our private pay portfolio, occupancy is as of that date specifically.\nAnd for our skilled portfolio, occupancy is the average for the month-to-date.\nBecause our partners have provided October data to us on a voluntary and expedited basis before the month is closed, information we are providing includes approximately 71% of of our total private pay units and approximately 88% of our skilled nursing beds.\nFor additional context, we are also sharing comparative information about occupancy as of June 30, 2020, and September 30, 2020, for the same population used for the October data.\nPrivate pay occupancy was 78% at June 30, 77% at September 30 and 76% at October 16.\nFor skilled nursing, our average monthly occupancy for the same time period, respectively, was 72%, 70% and 70%.\nWe are actively continuing to build and enhance operator relationships so that we can return to more standard acquisition and development investments when the time is right and when those investments meet our underwriting criteria.\nWe have always been interested in creating and enhancing growth-oriented partnerships with strong regional operating companies, and that has not changed.\nWith the market remaining constrained, we are not sure when those opportunities will present themselves.\nBut we are confident in LTC's ability to actively source new deals.\nOur ability to complete smaller one-off deals by providing flexible solutions to our operators' changing needs is a competitive advantage.\nWe'll be ready to strategically deploy capital as soon as practical and beneficial for LTC and for our shareholders.\nDespite the write-offs we have experienced so far in 2020, we continue to see signs of progress within our portfolio and throughout the industry as a whole.\nOur operators have learned a lot during the last several months, and I believe they understand the steps required to safely expand visitation and accept new admissions while still focusing on the care of their residents, patients, families and staff.\nI also want to express my gratitude to the LTC team, which has seamlessly transitioned to a virtual workplace that allows our employees and their families to remain safe without missing a beat relative to their duties and responsibilities to LTC.\nThe population is aging, and their need for care is growing.\nThis is a constant that will not change for years to come.\nAs we look forward to the time when there is greater sense of normalcy, I am confident in LTC's ability to build our portfolio and our diversification of investments and more importantly, generate new opportunities to further secure our long-term path as a REIT done differently.\nMark is currently CEO and President of the American Health Care Association, the nation's largest association of long-term and post-acute care providers.\nAHCA has long advocated for quality care and services for the frail and elderly Americans and has played a large part in lobbying the government for the much-needed COVID-19 aid.\nEarlier in his esteemed career, Mark was the Governor of the State of Kansas.\nBy way of background, I'm the President and CEO of the American Health Care Association and the National Center for Assisted Living, which is the largest long-term care trade association in the country.\nWe represent 10,500 skilled nursing facilities, almost 70% of them across the country, and another 4,000 assisted living buildings.\nAnd in addition to my political background, my professional background is that my wife and I built, developed, owned and then operated both skilled nursing facilities and assisted living facilities in the Midwest.\nI'm happy to make some comments about the whole COVID situation, the D.C. response and where I see that headed in the future.\nAt the outset, it was very clear eight months ago that the COVID crisis presented both the most significant clinical challenge and the most significant business challenge that the sector had ever faced.\nOn the clinical side, we have never faced a virus or a disease process that killed 15% to 20% of our residents who become affected that infected literally hundreds of thousands of people, many of them living in long-term care facilities.\nIt is a clinical challenge that we have never faced before.\nAnd on the business side, we knew that we had our hands full as soon as the Kirkland incident occurred, and we saw what happened there, both on the census side and on the regulatory side.\nAnd then as cases started spreading across the country, we knew that from a business perspective, this was going to be an enormous challenge.\nThere were many unanswered questions back in March.\nWould the sector collapse?\nWould residents flee the buildings?\nWould the employees flee the buildings?\nAnd what we now know eight months later is that the answer to all of those questions is no.\nThe system didn't collapse.\nThe facilities held together, certainly faced enormous challenges.\nBut unlike facilities in some parts of the world where the employees literally did flee and the residents were forced to fend for themselves, our long-term care system has held it together.\nThere were also multiple unanswered questions about the business side of this and about the congressional response.\nWould we receive a funding that we needed to keep going?\nHow bad would the census situation get?\nAnd again, from the business side, would this completely collapse?\nAnd while it has certainly been bumpy over the last eight months, the answers to all of those questions have, for the most part, been favorable.\nYes, there has been a devastating business impact that I'll talk about here in just a few minutes.\nBut for the most part, assistance both from the federal and state level has filled in the gaps for many of the providers and allowed the business side, although quite lumpy, has allowed the business side to continue.\nThere were clearly times as the markets were trading in March and April where investors were betting on a collapse of the entire system, and that clearly did not occur.\nSo what I'm going to talk about today is I'm going to talk about three different areas that I think you may be interested in.\nFirst, I'm going to talk about the D.C. response on the skilled nursing side and where it has put the sector right now.\nSecondly, I'm going to talk about the D.C. response on the assisted living side and where assisted living stands.\nAnd then finally, I'm going to talk about what do things look like for the future for upcoming months post election getting into 2021?\nAnd where is this whole thing headed?\nLet's first of all talk about on the skilled nursing side.\nI think on the skilled nursing side, the report would be all good.\nThe response at the federal level has really probably surpassed what most people thought would occur.\nEarly on, the help was there, but really not material.\nSome of the first things that happened, for example, was a lifting of the federal sequester, the 2% cut that facilities, all providers incurred about eight or so years ago.\nThat 2% cut was taken away through the end of this calendar year.\nAnd in a normal year, that would be a big deal, but in a pandemic year, 2% really is not a material number.\nThe next thing that occurred started to get close to material help.\nAnd that was when in the second stimulus act, the government provided some additional Medicaid money to the states through the FMAP match, which is just kind of a D.C. way of saying the Feds are giving the states more money for Medicaid.\nNow the states were given discretion on how to spend those funds.\nAnd in some of the states, there were material amounts of those funds that were provided to skilled nursing facilities.\nAnd in some states, there was no help at all.\nSo whether the Medicaid increase and the FMAP increase helped the facility is completely dependent upon the state that it was in.\nBut in some very large states like Texas and California and Florida, there has been help provided.\nUnfortunately, in states like New York and New Jersey, there's been very little help.\nSo whether the Medicaid increase was helpful or not is very much a business-by-business type question, and it's completely dependent upon the state that they're in.\nIf you're in California, if you're in Texas, it's extremely helpful.\nAnd I think that it's important for you to know that this FMAP increase will continue as long as the public health emergency is in effect.\nIt is tied to the public health emergency.\nPublic health emergency is declared by the Secretary of HHS.\nThey only have the authority to declare it for 90 days at a time.\nIt was set to expire on October 22, but fortunately, we were able to get HHS Secretary Azar to extend it.\nIt is now extended to January 22, and the FMAP increase is actually tied to the end of the quarter when the public health emergency ends.\nSo if, for example, the public health emergency ends on January 22, the FMAP increase will continue until the end of the first quarter.\nWe're pretty confident that we're going to be able to get the public health emergency extended again in January out until April, which means that this FMAP extension would occur at least through the second quarter of 2021.\nAfter those two things, there then began some things that occur that were and are very material to the sector.\nOne is that we've received yet another rate increase on Medicare, and there were no changes made to PDPM.\nWe received that news on May 1, and that rule has now been finalized, which means that there's been another 2.3% increase in Medicare payments, but probably more important than the increase is the fact that PDPM was not adjusted.\nAnd as you may recall, coming into the pandemic, PDPM was working quite well for providers and giving all of us a lot of hope about the future.\nThe next thing that occurred was that CMS waived the 3-day stay requirement that's necessary in order to skill a resident to a Medicare payment.\nUnder the normal rules, as I'm sure you're aware, a person has to stay into -- in a hospital for three days and then get discharged to a facility before they can become a Medicare resident.\nCMS waived the three-day stay requirement, which has allowed providers to skill people without sending them to the hospital.\nIt's been extremely important as folks have been diagnosed with COVID.\nWe haven't had to send them to the hospital to skill them under a Medicare rate.\nAnd what it's done for many providers is that even though they have had a decline in census in their general population, because they've had the ability to skill Medicaid residents into a Medicare rate, they've been able to keep their heads above water.\nThat 3-day stay waiver is also tied to the public health emergency.\nSo when we got that extended to January 22, we also got the three-day stay waiver extended to January 22.\nAnd we are optimistic that we'll be able to get it extended another 90 days to April 22 as we approach 2021.\nThe final two things that I want to talk about have been the most material help to the sector.\nThe first is the decision by HHS to allow people to receive a Medicare advanced payment.\nHHS and CMS have the authority to provide every Medicare provider with a three-month advance on their Medicare payments.\nIt's a material amount of money to any provider, and virtually all skilled nursing providers took advantage of this in March and April.\nThat immediately solved the cash problem that any provider would have, suddenly having in your bank three months of Medicare cash solves a heck of a lot of problems.\nNow the challenge is that this is not a grant.\nAnd under the normal rules, this would have had to been start being repaid in August of 2020, a few months ago.\nFortunately, we were able to get that extended so that the repayment now does not start until April of 2021.\nAnd when it does start, the repayment comes back on a pretty favorable basis.\nWe believe that we will be able to get Congress to further delay the repayment of those funds.\nAnd there is even the possibility that's being widely discussed of Congress waiving the repayment of part of the advance, not just for skilled nursing facilities, but for other Medicare providers, most notably hospitals who are also lobbying very hard on this issue.\nAnd then the final area of help has been the most helpful, and that's been the CARES Act funding.\nThe most significant lobbying victory we had actually wasn't any specific grant of money, it's when we were able to convince Congress in the first stimulus bill that the so-called $100 billion hospital fund shouldn't just be for hospitals, it should be for all providers.\nThat was really the pathway that we've had to the success that we have subsequently achieved.\nAnd the subsequent success has been a multiple rounds of money out of that CARES act for skilled nursing facilities, now totaling over $12 billion.\nAnd we believe that there is more to come.\nThose payments that have been made out over time have solved a lot of the cash flow issues that providers normally would have experienced, and we continue to receive those funds.\nNext week, for example, on Monday, will be the first payment of $2 billion in additional payments that are being paid out to providers who are particularly successful in keeping COVID out of their buildings.\nWhen you add up all of these things that have occurred for skilled nursing facilities, whether it's the FMAP Medicaid money, the sequester, the CARES Act funding, the three-day stay waiver, you add it all up, and we believe that there's been over $20 billion in relief to the skilled nursing sector.\nWhat does that mean?\nWell, it means that those that thought that the sector was going to disappear back in March and April were wrong.\nIt has not collapsed.\nAnd in fact, the cash position of most providers is as good as it would have been prior to the pandemic.\nI think that for the overwhelming number of providers, when you add all of the things that have occurred, they're in a pretty good cash position heading into 2021 and feel, I think, pretty comfortable that if we can get a vaccine in early 2021 and census can rebound that they're going to be OK.\nNow there are still a number of providers, it's a minority, but it is a sometimes a visible group who are fumbling.\nAnd the basic profile of those is that they fall into two categories and often, unfortunately for them, hit both.\nThe first are companies that were struggling financially coming into the pandemic, and this appears to be particularly the case of folks that were highly leveraged.\nIf they were struggling coming into the pandemic, it has probably exacerbated their problem over the last eight months.\nAnd secondly, facilities that happened to be in the Northeast, which was particularly hit hard by COVID early on at a time when there was virtually no PPE, virtually no testing, the mortality rates were very high.\nThose providers are struggling.\nThey have experienced a loss greater than the national average of 10% or so.\nAnd so you will hear about some folks that are out there, and some of them are highly visible that are continuing to struggle.\nBut I don't think it's representative of the vast majority of the sector.\nAnd my belief is that if we can get a vaccine by the end of the year, get folks vaccinated in January and February and census can rebound, the overwhelming part of the sector is going to make it through this.\nLet's secondly now talk about assisted living.\nThe news is not as good.\nAnd what I mean by that is we haven't been able to achieve the kind of lobbying success for assisted living that we have been for skilled nursing.\nI do think that has some important breakthroughs recently and that there will be more successes down the road.\nI think a lot of people wonder, why in the heck is assisted living not received the funding that skilled nursing has?\nAnd it's not because HHS doesn't like assisted living or just philosophically doesn't think that private pay should be reimbursed.\nIt's not because they believe that assisted living folks don't have needs and don't have the same kind of problems that people that live the nursing homes have.\nIt's really none of those things at all.\nWhat it comes down to is that the federal government doesn't regulate assisted living.\nIt doesn't know very much about assisted living.\nHHS provides no federal funds to assisted living and certainly doesn't regulate that.\nWhen HHS was given the assignment to pass out what ended up being $175 billion in funds, it started working with the groups and the providers that it was used to working with, which did not include assisted living.\nSo as we were pounding the door to say, \"Hey, assisted living needs help as well,\" they were really saying, \"Well, let's get through to these Medicare providers first, and then we'll hear what you have to say,\" and they did that.\nThey made some initial Medicare payments, and then they let us make our case, and we were successful.\nWe were able to eventually convince the policymakers that assisted living needed help as well.\nBut then we ran into a very unique problem.\nBecause they don't regulate assisted living and because they don't pay, they make money, they told us, \"Hey, we don't even know who the assisted living providers are.\nWe don't have a list of companies to send funds to\".\nAnd so at that point, all of the long-term care trade association, ours and others, went to work and developed a database of all the assisted living companies in the country, the buildings, the taxpayer ID numbers, etc.\nAnd we began working with HHS.\nAnd it worked, but it took a long time.\nIt wasn't until September seven that the first funds went out to assisted living when the decision was made that both for folks that take Medicaid waiver and for straight pure private pay AL, they will all receive 2% of their 2019 revenue.\nNow that's not enough, and the needs are still much greater, but it opened the door now to us pursuing additional relief.\nAnd so as we talk today, the third phase of the HHS funds are under application, what they're calling the Phase three Portal, where they have specifically said that assisted living can apply.\nAnd they're trying to figure out how to hand out an additional $20 billion.\nAssisted living providers, again, can apply and are a part of that.\nSo we are hopeful and optimistic that as the weeks and months continue, now that we kind of broken through with assisted living, we'll be able to have greater success down the road.\nNow let me talk a little bit about the future, what's next?\nAnd as investors, what should you be looking at?\nAnd where is all of this headed?\nFirst of all, let's talk about the election.\nObviously, it's right around the corner, and it will have enormous implications on everything, including long-term care.\nI believe, first of all, it will have an impact on the stimulus bill.\nThe last -- what was going to be the last stimulus bill, obviously, did not pass before the election.\nAnd folks threw up their hands this week and said, \"Let's come back after the election\".\nThe conventional view in D.C., and I agree with it, is that there is a 100% chance that there will be another stimulus go.\nSo the outcome of the election is irrelevant.\nThere will be a bill.\nThere will be a bill either way.\nWhat it is relevant to is the size of the bill.\nIf Republicans retain one part of the apparatus, whether it's the presidency or the Senate, the stimulus bill is very likely to be of the size that was being discussed when the discussions fell apart this week, somewhere around $1.8 trillion to $2.2 trillion.\nAnd of that, significant additional funds will be added to the CARES Act funding that will then be available for both skilled nursing and assisted living.\nOn the other hand, if the Democrats win everything, it's possible that there won't be a stimulus bill in the lame duck.\nThey may want to wait until they take over.\nBut whenever there is a stimulus bill, if the Democrats take over, it will be larger than the $1.8 trillion to $2.2 trillion.\nIt will be more like the $3 trillion bill that they passed back in August, and that may just be the beginning.\nThey are clearly wanting to spend significant amounts of money to stabilize the economy in their view to fight COVID.\nSo it's not really a question of whether there will be a stimulus bill.\nIt's just a question of how large will the bill be, and there will be important things in the bill that will help both skilled nursing and assisted living.\nSo first thing to look forward to is some pretty good additional relief in the form of stimulus.\nSecond area is the whole discussion of vaccines.\nYou're probably following the science on vaccines.\nThe drug companies seem to be making really, really good progress.\nAs much as we failed on the public policy side to contain COVID, the scientists have done a spectacular job on therapeutics and it looks like on the vaccine front.\nThe good news is that we've been able to convince the policymakers that not only should assisted living and skilled nursing be a priority for the vaccine, they've actually created a turnkey program for us to distribute the vaccine.\nAnd you probably read about the agreement with Walgreens and CVS to provide vaccinations for all assisted living buildings and all skilled nursing buildings across the country.\nIf, in fact, we have a vaccine that's approved by the end of the year, I think there is a possibility that all of our residents and all of our staff will be vaccinated in January and in February.\nAnd it will create this wonderful time that I'm certainly looking forward to where we will be able to say to people the safest place in the country for an older person right now is in one of the long-term care facilities that are out there.\nThe third thing that I would talk a little bit about is testing.\nTesting is continuing to get better, and it's getting cheaper.\nAnd we're being prioritized for it.\nSo when you kind of look at where are we headed over the next few months, I think over the next few months, there will be robust testing, a clear understanding in our -- in the long-term care building who has COVID and who doesn't and quarantining and safety and containment and all of that.\nAnd then hopefully, we will get into the vaccine phase, we'll get people vaccinated.\nAnd as all of this is going, we'll continue to receive the funding that we need from the state and federal level to keep our heads above water.\nNow there are two remaining questions that I'm sure are at the forefront of your thoughts as you think about investing in this space.\nThe first is a liability situation.\nAnd the answer to whether or not there will be a federal liability solution is highly tied to the election.\nAs long as the Republicans maintain one part of the federal apparatus, whether it's the presidency or the Senate, I believe that they will continue -- I think that the Republicans will continue to maintain that any future stimulus bill needs to have the kind of liability protection that all healthcare providers need to function going forward.\nIf there is a Democratic sweep next Tuesday, there is a possibility that this liability discussion will be set by, set aside.\nNow there is another school of thought.\nAnd the other school we thought is that if the Democrats sweep everything, they have an understanding for the economy to move forward, there's got to be some kind of liability protection.\nSo there are some who believe that even if the Democrats win everything, that in the lame duck, they will want to get out of their way a smaller stimulus bill to be followed up by a bigger one in January or February and as part of the smaller stimulus bill would be some level of liability protection.\nLong story short, we'll know after the election, whether not liability protection at the federal level is a possibility or not.\nAnd if it is, what it will look like.\nAnd then secondly, the whole issue of the business case of long-term care.\nThe good news on census is that although it initially declined about 10% on the skilled nursing side, it hasn't collapsed any further.\nNow the bad news is this hasn't gotten any better either.\nThe conventional thought among the operators that I talk with every single day is that once we get a vaccine and people feel more comfortable coming into buildings, we'll be able to rebuild the census.\nIf that's true, we will be OK.\nAnd that is because the federal funding will be sufficient enough to get us to a vaccine.\nIf once we get to a vaccine, we can start rebuilding census 0.5% or 1% a month, the numbers work out.\nOn the other hand, if we get to a vaccine and census doesn't recover, we got a real problem.\nAnd so I think everybody is aware that it's all about census, and our belief and our hope that it will gradually improve once we get past the vaccination.\nAnd finally, I'd just remind the folks that are on the call of something that you're clearly aware of or you wouldn't be interested in this space at all, and that is that the demographics are finally on our side.\nWe went through this demographic trough in the 2010s, where the number of people between 80 and 85 really wasn't increasing in the U.S. Well, we're past that now.\nWe got past that in 2017, and the pandemic hasn't ended that.\nThere will continue to be dramatic growth of the population group that needs our services.\nAt the same time, the pandemic will lead to a discouragement of new investment.\nThere will be less new capacity out there.\nAnd you combine those two together, and I think optimistic case, medium and long term, can be made for the space.\nI'm not here to tell you, you should absolutely continue to invest in the space.\nBut I am saying that I am continuing to invest in the space.\nI continue to believe in the space.\nAnd as horrific as this looked back in March, we're in a much better spot right now.\nSo with that, I'll end my comments, and look forward to any questions that people have.",
        "summary": "q3 ffo per share $0.58."
    },
    {
        "text": "Lexington believes that these statements are based on reasonable assumptions.\nAny references in these documents to adjusted company FFO refers to adjusted company funds from operations available to all equity holders and unit holders on a fully diluted basis, operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of Lexington's historical or future financial performance, financial position or cash flows.\nExecutive Vice Presidents Lara Johnson and James Dudley will be available during the Q&A portion of our call.\n2020 was an outstanding year for Lexington and our fourth quarter results were excellent across all our business lines.\nIn the fourth quarter, we generated adjusted company funds from operations of $0.19 per diluted common share to end the year at $0.76 per diluted common share, the high end of our guidance range.\nFollowing a robust quarter of $182 million of industrial purchases and $292 million of sales, our industrial exposure increased to 91% of our gross real estate assets excluding held for sale assets.\nPortfolio operations have been very strong during the pandemic with fourth quarter cash base rent collections averaging 99.8%.\nAlso during the quarter, leasing volume was healthy at 1.7 million square feet, consolidated same-store NOI was up 1.6% and industrial cash renewal rents increased 3.4% with overall fourth quarter cash renewal rents down roughly 2.5%, due to office lease renewal roll downs.\nWe recently announced a dividend increase of 2.4%, supported by our positive results throughout the year, which equates to an annualized dividend of $0.43 per common share.\nOur plan is to continue growing our dividend annually.\nOur company has evolved considerably over the last five years and we have mostly transitioned out of the office sector into the industrial sector, an asset class that we believe, continues to have strong fundamentals and an expanding opportunity set.\nAlong the way, we disposed of 127 consolidated non-industrial assets for $2.5 billion and purchased 60 industrial assets for approximately the same amount.\nThroughout this transition, our investment strategy has targeted purchases, build-to-suits and select development opportunities in primarily warehouse and distribution assets in markets across the Sunbelt and lower Midwest.\nWe had an active year on the investment side, purchasing $612 million of primarily Class A industrial assets and investing $60 million into development projects.\nAs we near completion of our portfolio transition, we will continue to focus on acquiring and developing primarily single-tenant Class-A warehouse and distribution properties in our target markets.\nWhile we expect to be active in the purchase market, we intend to allocate more capital to development opportunities in 2021 relative to 2020.\nIn our view, this is the best way to achieve higher returns without compromising on quality when it comes to building characteristics, markets and locations.\nJust to highlight a couple of recent successes on the development side, during the fourth quarter, we had value creation events in our first two development projects located in the Columbus, Ohio market.\nThese included selling a land position in one of our Etna parcels to Kohl's department stores and executing a full-building lease on our Rickenbacker project, these are two great outcomes for us and we're excited about the opportunities in our development pipeline going forward, which Brandan will discuss in more detail later in the call.\nMoving to sales, 2020 volume totaled $433 million of predominantly non-core assets at average GAAP and cash-cap rates of 5.8% and 5% respectively.\nAn excellent result that was consistent with our prior disposition plan forecast.\nWe were particularly pleased with the sale outcome of our Dow Chemical office building in the fourth quarter as we retired a substantial amount of secured debt and de-leveraged the balance sheet.\nAdditionally, we sold two office properties in January for approximately $20 million, while the office sales market continues to be impacted by the pandemic, we remain committed to selling our remaining office properties in an orderly manner and we'll continue to give regular updates on our progress in the forecasted sales results.\nThe remaining office and other asset portfolio consists of 18 properties, which generated 2020 NOI of approximately $33.5 million.\nWe expect to market for sale most of this portfolio in 2021, which we currently value at around $300 million.\nTurning to leasing, we leased over 5.2 million feet during 2020 and at year-end, our portfolio was 98.3% leased, representing a slight decline compared to the previous quarter, primarily as a result of a year-end lease expiration in our Statesville in North Carolina, industrial facility.\nWe were very pleased with industrial cash base renewal rents in 2020, which increased 17.5%.\nAt year-end we had 3.7 million square feet of space expiring in our single-tenant industrial portfolio in 2021, of which we expect at least a third to be renewed with the expiring rents below market, on average.\nOf the remaining leases, the two most significant expirations are our Olive Branch Mississippi facility occupied by Hamilton Beach through June 2021 and our lower-end South Carolina facility occupied by Michelin through November 2021.\nThe Laurens location has multiple prospects interested in the property for either lease or sale, including the potential for further extension with Michelin.\nAdditionally, the Olive Branch location is experiencing significant leasing interest from full building users, which could result in minimal downtime.\nOur balance sheet remains in excellent shape, with leverage at 4.8 times net debt to adjusted EBITDA at year-end.\nOur strong cash position forward ATM contracts, retained cash flow and proceeds from dispositions provide us considerable capacity to fund future growth initiatives.\nIn 2020, we began building-out an ESG platform for our operations.\nWe understand the importance in doing so and have begun to establish a program that is appropriate for our portfolio given the limited control we have over many of our properties due to their net lease single-tenant nature.\nOur 10-K and website will contain a summary of our initiatives, goals and performance and we expect to report on ESG matters going forward, as our platform evolves.\nTo conclude, we were very pleased with our fourth quarter and 2020 results.\nWe have succeeded in monetizing much of our office portfolio while constructing a high quality industrial platform.\nOur focus remains on acquiring and developing well-located warehouse and distribution assets and disposing of our remaining non-core assets.\nWhile we will continue to experience some near-term dilution as we sell these assets, we believe that industrial property is demonstrably superior in terms of long-term cash flow growth.\nWe had another active year on the investment front, acquiring 16 industrial properties totaling 6.6 million square feet or $612 million at average GAAP and cash cap rates of 5.4% and 5% respectively.\nThese assets have an average age of two years and an attractive weighted average lease term of 8.3 years, with average annual rental escalations to 2.3%.\nOur overall industrial portfolio continues to be shaped with a focus on building quality, age and user versatility, and targeted growing industrial logistics markets in the Sunbelt and lower Midwest.\nFourth-quarter purchase activity was consistent with these attributes end markets and comprised of four warehouse distribution properties totaling 1.4 million square feet and two Dallas-Fort Worth logistics submarkets, as well as submarket in Phoenix and Greenville, Spartanburg.\nThese properties all feature modern specs, good highway access and ample trailer parking, with an average lease term of 9.4 years and annual rental escalations of 2% or higher.\nDuring the quarter we also closed on and began funding a build-to-suit industrial project in Phoenix, which we expect to be completed in the third quarter of 2021.\nSubsequent to year-end, we purchased three recently constructed Class A warehouse distribution facilities for approximately $51 million, totaling 520,000 square feet, further adding to our holdings in the Indianapolis and Central Florida markets.\nWe are currently reviewing over $600 million of existing deals in the market.\nPricing continues to be very competitive.\nAnd as evidenced by our 2020 purchases, cap rates have compressed from a year ago.\nWhile the industrial market opportunity is vast, we are unlikely to compromise on asset quality and save our current return.\nOur increased development focus with long-standing development partners will allow for potentially greater value creation compared to purchases and complements our existing industrial portfolio.\nWill mentioned earlier, that we have secured a full-building lease at our 320,000 square foot Rickenbacker project in Columbus late in the fourth quarter with a subsidiary of PepsiCo for three years.\nThe base building was substantially completed this quarter.\nOur expected development cost basis in the fully completed project is estimated to be about $20 million.\nWe were pleased that pre-lease for full building prior to completion at an attractive development yield, with anticipated stabilized GAAP and cash cap rates of 7.8% and 7.6% respectively.\nAlso in the fourth quarter at our ETNA West development site in Columbus, we sold the ground position under the 1.2 million square foot e-commerce distribution center leased to Kohl's department stores, which exercised its two-year purchase option for $10.6 million.\nThis transaction resulted in a gain on sale of $5.9 million.\nOur Shugart Farms development projects, a Class A 910,000 square foot distribution center in the I-85 South submarket of Atlanta, is slated for substantial completion around the end of the first quarter of 2021 and is currently available for lease.\nMarket absorption in the Atlanta industrial market in 2020 exceeded total absorption in both 2018 and 2019 and remains market with high user demand.\nLastly, our future pipeline includes three development projects in which we are in late-stage negotiations and due diligence.\nThese projects are in Indianapolis, Central Florida and Phoenix, target markets where we intend to continue building a larger presence.\nAdjusted company FFO for the fourth quarter was approximately $55 million or $0.19 per diluted common share.\nWe achieved the high-end range of our 2020 adjusted company FFO guidance at $0.76 per diluted common share.\nOur 2020 adjusted company FFO payout ratio was 55.6% and continues to provide us ample retained cash flow.\nWe generated revenues of approximately $83.3 million in the fourth quarter, which represented a slight increase compared to the same-time period in 2019.\nOverall, in 2020, gross revenues increased $4.5 million year-over-year.\nThis increase was primarily attributable to new acquisitions, partially offset by sales.\nProperty operating expenses was relatively flat year-over-year.\nHowever, tenant reimbursements increased to 84% for 2020, compared to 72% for 2019.\nOur 2020 G&A of $30.4 million was in line with our revised target range of $30 million to $31 million, and we expect 2021 G&A to be within a range of $31 million to $33 million.\nSame-store NOI increased 1.6%, primarily as a result of a 2% increase in same-store industrial NOI.\nYear-over-year, our consolidated same-store leased portfolio decreased 140 basis points to 97.6%, primarily due to the year-end lease expiration of our Statesville, North Carolina property.\nAt year-end approximately 86% of our industrial portfolio had escalations with an average rate of 2.1%.\nOur 2020 rent collections were among the best in the REIT sector.\nWe collected 99.8% of cash base rents throughout the year, and as of the end of 2020, we'd only granted two rent relief requests in our consolidated portfolio, which we have discussed on previous calls.\nBad debt expense was minimal during the fourth quarter, with only $212,000 of bad debt expense incurred.\nCapital markets activity during the quarter included the sale of an additional 1.1 million common shares under the forward delivery feature of our ATM program.\nThese shares increased our forward sales contracts to 5 million common shares for the year, with an aggregate settlement price of $55 million as of year-end 2020.\nOur balance sheet remains exceptionally strong with leverage at a low 4.8 times net debt to adjusted EBITDA at year-end.\nWe had substantial cash of $179 million on the balance sheet at year-end and nothing outstanding on our unsecured revolving credit facility.\nIn connection with the sale of the Dow Chemical office building, we satisfied $178.7 million of secured debt with an interest rate of 4%.\nThis contributed to an increase to our unencumbered NOI to over 89% at year-end.\nAt year-end, our consolidated debt outstanding was approximately $1.4 billion with a weighted average interest rate of approximately 3.3% and a weighted average term of 6.9 years.",
        "summary": "q4 revenue $83.3 million versus $83 million.\nqtrly adjusted company ffo $0.19 per diluted common share.\nestimates adjusted ffo for year ended december 31, 2021 will be within expected range of $0.72 to $0.76 per share."
    },
    {
        "text": "I'm joined today by Bob Patel, our Chief Executive Officer; and Michael McMurray, our Chief Financial Officer.\nThe pass code for both numbers is 13723396.\nDuring today's call, we will focus on third quarter results, the current environment, our near-term outlook and provide an update on our growth initiatives.\nBefore turning the call over to Bob, I would like to call your attention to the noncash lower of cost or market inventory adjustments, or LCM, that we have discussed on past calls.\nThese adjustments are related to our use of last in, first out or LIFO accounting and the volatility in prices for our raw material and finished goods inventories.\nDuring the third quarter of 2020, we recognized a non-cash impairment of $582 million that reflected our expectation for reduced profitability from our Houston refinery.\nI'm pleased to join for my 28th and last earnings call as CEO of LyondellBasell.\nPer our usual practice, we will review our results from the quarter.\nAs I prepare to leave the company at the end of the year, I've taken some time to reflect on the strong company we have built and our outlook for the future.\nWithout a doubt, LyondellBasell's future is very bright.\nBecause of the efforts of our incredibly talented and hard-working global team, we've built a company that has proven it can perform under a range of conditions.\nDuring an event like a global pandemic, that no one could have predicted or imagined, we were able to fund our dividend with cash from operations and grow our company through accretive M&A.\nI'm confident that LyondellBasell will continue to deliver for its stakeholders in the future.\nThis is a company that is focused on building value for the long term and one that is built to stand the test of time.\nWith that said, let's review our third quarter results.\nLyondellBasell's businesses are continuing to benefit from robust global demand and tight market conditions.\nIn the third quarter, our company delivered $5.25 per share of earnings, more than 4 times higher than the same quarter last year.\nEBITDA was approximately $2.7 billion, a year-over-year quarterly improvement of $1.8 billion.\nEfficient cash conversion generated $2.1 billion in cash from operating activities, a new quarterly record for our company.\nThese results are indicative of strong markets, the discipline with which we approach running our business and the increased earnings power from our value-driven investments and accretive growth over the past several years.\nWe remain focused on improving LyondellBasell's cash generation through all stages of the business cycle.\nWhile our portfolio delivered $2.7 billion of EBITDA, this quarter's results reflect a sequential decline of 11%.\nIncreased costs for natural gas, ethane, naphtha and butane compressed margins for many products from the highs seen in the second quarter.\nThis, however, does not change how we see the future.\nWe continue to see very solid demand for our products and remain highly constructive on the outlook for our businesses as global reopening continues to play out over the coming quarters.\nWe expect a combination of a well-funded economy and pent-up consumer demand for durable goods as well as the nondurable goods associated with travel, leisure and other in-person activities will continue to underpin attractive markets.\nIn short, we remain confident that a reopening global economy and eventual normalization of global supply chains will support continued growth for our businesses over the coming quarters.\nOur year-to-date total recordable incident rate for employees and contractors rose to 0.24 during the third quarter.\nMuch of this increase is associated with the tragic incident at our acetyls facility in La Porte, Texas, during July.\nWe remain committed to learning from this incident and incorporating the learnings from the investigations to help prevent such tragedies from ever happening again.\nLooking more closely at the chart, we are encouraged by the notable improvement in chemical industry safety performance during 2020.\nWe are watching to see if this is a durable trend or perhaps a onetime benefit from reduced in-person work hours during the height of the pandemic.\nAt LyondellBasell, continuous learning and a self-improving culture are key focus areas in our pursuit of GoalZERO safety performance for both our employees and our contractors.\nOn slide six, I would like to highlight LyondellBasell's increased commitments to help address the global challenge of climate change.\nIn late September, we announced accelerated targets and a goal to achieve net zero Scope one and Scope two greenhouse gas emissions from our global operations by 2050.\nWe now aim to reduce absolute emissions from our global operations by 30% relative to a 2020 baseline.\nWe plan to achieve these goals by advancing progress on several fronts.\nFirst, we are improving energy efficiency in all our plants and reducing our need for high carbon content fuel sources, such as coal.\nWe are already moving on this front.\nIn September, we announced our plan to phase out coal from the power plant at our site in Wesseling, Germany.\nSecond, we intend to procure at least 50% of our electricity from renewable sources by 2030.\nThird, we are focusing on minimizing flare emissions from our clients, particularly during shutdowns and start-up events.\nIn addition, we're evaluating a portfolio of technology options across the company's manufacturing footprint, including sustainable hydrogen increased electrification and carbon capture for storage or reutilization in our processes.\nWe believe this strategy puts us on an achievable pathway toward our net zero goal.\nIn the near term, we do not expect significant increases in our overall capital budget as reduced spending associated with the completion of our PO/TBA project in 2022 will be offset by an increasing share of climate-related investment.\nBefore I begin, I would like to share my sincere gratitude to Bob for his tireless work, inspirational energy and thought partnership in leading and growing LyondellBasell for nearly 12 years.\nWe are all sad to see you go, Bob, but we will be eagerly watching your progress and wishing you continued success.\nIn the third quarter, LyondellBasell generated a record $2.1 billion of cash from operating activities that contributed toward the $5.4 billion of cash generated over the last 12 months.\nOur free operating cash flow for the third quarter improved by more than 10% relative to the second quarter, and our free operating cash flow yield was 15% over the last 12 months.\nWe expect this chart will continue to improve during the fourth quarter as 2020 results drop off from our trailing performance.\nAs I have mentioned during previous calls, we are highly focused on shareholder returns.\nA strong and progressive dividend plays a fundamental role in our capital deployment strategy.\nIn addition to our dividend, we also resumed share repurchases during the third quarter and reduced our share count by approximately one million.\nWe continue to invest in maintenance and growth projects with more than $500 million in capital expenditures.\nStrong cash flows supported debt reduction of nearly $700 million, bringing our year-to-date debt reduction to $2.4 billion.\nWe closed the third quarter with cash and liquid investments of $1.9 billion.\nIn July, S&P Global Ratings recognized the improvement in our balance sheet by upgrading our credit ratings and indicating a stable outlook.\nDuring the fourth quarter, we expect that robust cash generation and an anticipated tax refund will enable continued progress on our goal to reduce debt by up to $4 billion during 2021, and further strengthen our investment-grade balance sheet.\nAfter the quarter closed, we repaid an additional $650 million of bonds in late October.\nWe do not foresee the need for additional debt repayment in 2022.\nConfidence around our deleveraging targets enabled us to resume share repurchases in September, and we continued to opportunistically repurchase shares during October.\nAs of October 22, we have repurchased a total of 1.6 million shares.\nNow I would like to highlight the results for each of our segments on slide nine.\nIn the third quarter of 2021, LyondellBasell's business portfolio delivered EBITDA of $2.7 billion.\nOur results reflect strong margins supported by robust demand for our products and tight market conditions, offset by higher costs, primarily in our O&P Europe, Asia, international segment and our I&D segment.\nLet's begin the individual segment discussions on slide 10 with the performance of our Olefins and Polyolefins-Americas segment.\nRobust demand drove EBITDA to about $1.6 billion, slightly lower than the second quarter.\nOlefins results decreased approximately $75 million compared to the second quarter due to lower margins and volumes.\nDespite relatively stable benchmark ethylene margins, our margins declined as we purchased ethylene to supplement production and meet strong derivative demand.\nVolumes decreased due to unplanned maintenance, resulting in a cracker operating rate of 89%.\nPolyolefins results increased more than $75 million during the third quarter as robust demand in tight markets drove spreads higher with polyolefin prices increasing slightly more than monomer prices.\nIn fact, our polypropylene spreads reached a historic high.\nWe continue to see strong demand for our products as we begin the fourth quarter.\nHowever, higher energy and feedstock costs, along with typical seasonality demand softness toward the end of the year are likely to compress margins for our O&P-Americas businesses.\nHigher feedstock cost and lower seasonal demand during summer holidays reduced margins and volumes in our EAI markets resulting in a third quarter EBITDA of $474 million, $234 million lower than the second quarter.\nOlefins results declined about $50 million as margins decreased driven by higher feedstock costs despite the higher ethylene and co-product prices.\nWe operated our crackers at a rate of 92% of capacity due to planned maintenance.\nCombined polyolefin results decreased approximately $120 million compared to the prior quarter.\nLower seasonal demand drove declines in polyolefin price spreads relative to monomer cost and reduced volumes.\nDeclining polyolefin spreads also affected our joint venture equity income by about $35 million.\nDuring the fourth quarter, we expect to see further margin declines from higher energy and feedstock costs along with end-of-year seasonality.\nOur ethylene volumes are expected to decline due to planned maintenance.\nRising feedstock and energy costs drove margin declines in most businesses resulted in third quarter EBITDA of $348 million, $248 million lower than the prior quarter.\nResults were impacted by approximately $25 million due to site closure costs associated with the exit of our ethanol business.\nThird quarter propylene oxide and derivatives results decreased about $15 million as margins declined slightly from the historical highs of the second quarter.\nDurable goods demand remained strong, resulting in increased volumes.\nIntermediate Chemicals results decreased approximately $140 million.\nMargins declined in most businesses, primarily styrene and volumes decreased as a result of downtime in our acetyls business.\nOxyfuels and related products results decreased about $40 million as increased butane feedstock prices more than offset the increased volume from improved gasoline demand.\nIn the fourth quarter, we expect volumes to increase with the restart of our La Porte acetyls facility and continued strength and demand for durable goods.\nMargins are likely to moderate with fourth quarter seasonality and higher raw material costs for our I&D segment.\nNow let's move forward and review the results of our Advanced Polymer Solutions segment on slide 13.\nCustomer supply chain constraints continue to hinge results with third quarter EBITDA of $121 million, $8 million lower than the second quarter.\nCompounding and solutions results were relatively unchanged.\nMargins were higher but partially offset by a decrease in volume due to restricted production in downstream markets, including the automotive sector, appliance manufacturing and other industries affected by semiconductor shortages.\nAdvanced Polymer results decreased about $10 million driven by lower margins and volumes primarily due to plant maintenance.\nWe expect results will be similar in the fourth quarter as it will likely take several quarters before supply chain constraints begin to improve.\nMargins improved significantly in the third quarter, resulting in an EBITDA improvement of $122 million to a positive $41 million.\nIn the third quarter, prices for byproducts increased, costs for renewable identification number credits, or RINs, decreased and the Maya 2-11 benchmark increased by $1.65 per barrel to $23.11 per barrel.\nThe average crude throughput at the refinery increased to 260,000 barrels per day, an operating rate of 97%.\nImproved demand from increasing mobility should be supportive for our refining margins and could enable continued profitability during the fourth quarter.\nLet's finish the segment discussion on slide 15 with the result of our Technology segment.\nIncreased licensing revenue drove third quarter EBITDA to a record $155 million, $63 million higher than the prior quarter.\nWe expect that fourth quarter profitability for our technology business will return to similar quarterly levels as the first half of this year based on the anticipated timing of licensing revenue and catalyst demand.\nOur approach is to pursue prudent and accretive investments that chart a clear path for increasing EBITDA.\nIn 2018, we expanded our compounding business by acquiring A. Schulman and forming the Advanced Polymer Solutions segment from both legacy and acquired businesses.\nWith integration complete, we have a solid platform for future growth and synergies should become increasingly visible as volumes recover in the markets served by this segment.\nIn the second quarter of 2020, we started a 500,000 ton per year polyethylene plant in Houston, utilizing our next-generation Hyperzone HDPE technology.\nAt full nameplate capacity and average margins from 2017 to 2019, we estimate this asset is capable of generating $170 million of annual EBITDA.\nIn September of 2020, we established a new integrated cracker joint venture in Northeastern China.\nThis investment is capable of generating $150 million of annual EBITDA for our company, again based upon full capacity and historical industry margins.\nIn December of 2020, we closed the transaction for the integrated polyethylene joint venture in Louisiana.\nAt full capacity and historical margins, this investment is capable of contributing $330 million in EBITDA for our company.\nIn our Intermediates and Derivatives segment, the combination of two new propylene oxide investments in China and Houston starting in 2022 and 2023 could together add almost $500 million of annual estimated EBITDA.\nTaken together, we estimate these initiatives could add up to $1.5 billion of EBITDA to our mid-cycle earnings.\nSlide 17 provides a historical view of LyondellBasell's profitability over the course of the first complete business cycle for our company.\nOver the period from 2011 to 2019, we delivered a little over an average of $6.5 billion of EBITDA, excluding LCM and impairment.\nIn fact, we reached $8.1 billion in 2015 during my first year as CEO of our company.\nIn today's strong market and with many of our growth initiatives providing strong contributions, our last 12-month performance was $8.6 billion, exceeding our previous record and reaching nearly 30% above the historical average.\nWhile no two cycles are exactly alike, our performance during prior business cycles provides valuable context on how these growth initiatives might perform and reposition LyondellBasell during the next cycle with a larger asset base.\nLet me summarize our view of current conditions and the outlook for our business with slide 18.\nIn the near to midterm, further progress with vaccination rollouts should continue to support solid demand and margin for our products.\nWith seven billion doses of vaccines administered worldwide, approximately 1/2 of the world's population has now received at least one dose of a COVID vaccine.\nNew cases in the U.S. have fallen to less than half the level seen during the delta-driven spike of August and September.\nWe are keeping a watchful eye on rising case rates in the U.K. and parts of Europe, but most virus indicators are trending in the favorable direction.\nOver the coming months, margins are expected to face headwinds from typical fourth quarter seasonality and combined with increasing feedstock and energy prices, we anticipate some margin compression, but expect markets to remain relatively strong.\nLogistics constraints and the pace of vaccination are currently hindering demand.\nEventually, consumers will have more options when purchasing a new car, back order furniture will become available, and all of us will find a way to resume traveling, whether for business or leisure.\nPent-up demand is tangible and consumers have ample liquidity to drive purchases of both services and manufactured goods.\nMonetary stimulus may taper but the unprecedented levels of stimulus deployed during the pandemic will have lasting effects that are typically supportive for commodities.\nLet me close with slide 19.\nAs I think about the coming weeks and prepare to pass the baton to the next leader of LyondellBasell, I draw comfort from the knowledge that the broader team we have in place is incredibly talented and has created great momentum that will endure for many years.\nIn the end, our assets don't run themselves and decisions don't get made by spreadsheets.\nI'm confident that this remarkable team will continue to take our company to greater heights.\nOur company has never forgotten our core values built upon safety, reliability and cost efficiency.\nThese attributes form the basis for leading and advantaged positions in our industry.\nWith these strong foundations in place, we are deploying our business model across a larger asset base with embedded growth through projects such as our PO/TBA facility and further expansions of our global joint venture partnerships.\nIn tandem with our investment to reduce carbon emissions, we are also building innovative business models that will increase our utilization of plastic waste as a circular feedstock.\nMy belief is that over the next decade, LyondellBasell will become a global market leader in the exciting and rapidly growing market for sustainable plastics.\nWith strong markets and new sources of EBITDA, our team works diligently to maximize cash conversion and we have taken care to reinvest that hard-earned cash into accretive investments that add value and drive future growth.\nAll of this work is underpinned by a disciplined financial strategy.\nWe stand by our dual commitments to a growing dividend and an investment-grade credit rating through cycles.\nWe are confident that we can complete our deleveraging and achieve our target of reducing debt by $4 billion before the end of this year.\nWith strong cash flows and no need for further debt reduction, we expect to continue reinvesting in our company through the opportunistic repurchase of LyondellBasell shares.\nI hope you share my sincere enthusiasm about the future of our company.",
        "summary": "compname reports q3 earnings per share $5.25.\nq3 earnings per share $5.25.\nlyondellbasell - expect strong demand for co's products to continue as roll out of vaccines drives improvement in economic activity around the world.\nlyondellbasell - third quarter results reflect robust demand for lyondellbasell products and tight market conditions."
    },
    {
        "text": "Melinda will open and close the call, and Bob will speak to segment performance and the financials midway through.\nWe'll then open the call to questions.\nAlthough we believe these statements to be reasonable, our actual results could differ materially.\nThe most significant risk factors that could affect our future results are described in our annual report on 10-K -- on Form 10-K.\nWe encourage you to review those risk factors as well as other key information detailed in our SEC filings.\nWith that, I'll now turn over the call to Melinda Whittington, La-Z-Boy's President and Chief Executive Officer.\nAcross the La-Z-Boy enterprise, we delivered all-time record high sales of $525 million, making and selling more furniture in the quarter than we ever have in modern history, even with production running only 12 weeks in the quarter, due to our annual one week maintenance shutdown in July, versus 13 weeks in most quarters.\nDemand across all businesses also remained high and backlog remains at record levels.\nWritten same-store sales for the La-Z-Boy Furniture Galleries network increased 10% versus the prior year quarter, and has grown at a compounded annual growth rate of 13% across the last two years since pre-pandemic, demonstrating the continued strength of demand for our La-Z-Boy branded products.\nWritten same-store sales for our Company-owned Retail segment increased 22% versus the prior year period, and at a compounded annual growth rate of 16% over the last two years.\nAnd Joybird continued on its strong growth journey writing 31% more business than in last year's first quarter and growing at a compounded annual growth rate of 35% across the last two years.\nOn the manufacturing front, we continued to increase capability to build and deliver more furniture to better service continued strong demand, and are in the process of increasing our cell count across the La-Z-Boy branded business.\nAnd also during the quarter, we continued to return value to shareholders with a dividend payment and $36 million of share repurchases, and we've recently expanded our repurchase authorization.\nAt the same time, we are experiencing challenges in our wholesale business.\nWe continue to have inefficiencies at the plant level, as we open additional upholstery capacity and hire, train and work to retain what is currently about one-third more workers versus pre-pandemic.\nAnd we are continuing to invest to increase flexible capacities due the remainder of this fiscal year in order to work through our backlog.\nAlso, as expected, we experienced significant short term margin compression on the wholesale business, primarily due to higher raw material and freight costs, which have risen at unprecedented rates and speed over an extended period.\nAs we've talked previously, we made the decision to not take action on the backlog with our first four rounds of price increases since the pandemic began.\nWith wait times extending up to seven months for the La-Z-Boy branded business, that has resulted in delayed recognition of those price increases until they work their way through to our delivered sales.\nBut looking to the future, during the quarter, we also made several strategic decisions to take us through this unprecedented period and ensure we emerge stronger, post pandemic.\nRecognizing the commodity prices are expected to remain at the highest levels in recent history, in July, we took our fifth price increase since the pandemic began, but this time also took a surcharge on our backlog.\nGiven the unparalleled nature of rising material costs, we are asking our business partners to share in the financial impact during a period where we are all experiencing record demand.\nSince our first price increase last October, cumulative price increases and surcharges, now add up to the high-teens versus pre-pandemic.\nSecond, on the practical side, our procurement team has significantly increased inventory for key component parts to minimize future supply disruptions and ensure a steady stream of furniture is manufactured and delivered.\nThird, we launched Project Century [Phonetic], our long-term strategic path for strong growth and profitability as we head toward our centennial anniversary in 2027.\nAt a high level, key components include a focus on growing market share for our strong consumer brands, specifically La-Z-Boy and Joybird.\nIn an extremely fragmented industry, the iconic La-Z-Boy brand enjoys an unparalleled identity for comforting quality, while being a leader in motion.\nWe believe we can fully leverage these attributes to grow our business, and will invest to expand our reach to a broad range of consumers including younger consumers through consumer insights, product innovation, new experiences and messaging.\nAt the same time, we will continue to expand and strengthen our omnichannel presence.\nWe will offer a state-of-the-art e-commerce experience and a strong brick and mortar footprint to ensure we easily reach consumers wherever they prefer to shop.\nAnd now that we have a sustainably profitable direct to consumer model with Joybird, we'll increase investment to expand consumer awareness and accelerate profitable growth.\nAt the same time, we'll enhance Joybird's omnichannel offering by opening additional small footprint brick and mortar stores in high traffic urban areas.\nOur first three stores in Brooklyn, Chicago and Washington DC have met with great success, and there is exciting potential for additional stores, including one in Los Angeles planned to open in the fall.\nAs the final pillar of Project Century, we'll enhance our corporate capabilities and leverage the balance of the enterprise portfolio to efficiently support these initiatives and over time enable the potential for tack-on acquisitions that can benefit from our supply chain expertise and accelerate the La-Z-Boy Incorporated growth story.\nWith these initiatives in place, over time, we envision sales growth outpacing industry averages while delivering industry-leading margins as we complete our first century in 2027.\nAs a reminder, we present our results on both a GAAP and non-GAAP basis.\nOn a consolidated basis, fiscal '22 first quarter sales increased 84% to a record $525 million, reflecting strong demand, capacity increases, and a comparison to the fiscal '21 first quarter when we restarted our plants at reduced capacity after a month-long shutdown and most retailers were closed for a portion of the quarter due to COVID-19.\nSequentially, from fiscal '21 Q4, first quarter sales increased even with our annual one week maintenance shutdown in July.\nCompared with the pre-pandemic fiscal '20 first quarter, sales increased 27% for a compounded annual growth rate of about 13%.\nConsolidated GAAP operating income increased to $34 million and non-GAAP operating income increased to $35 million.\nConsolidated GAAP operating margin was 6.5% and non-GAAP operating margin was 6.6% reflecting expected significant short-term pressure on wholesale margins as the realization of previously announced pricing actions trailed escalating input costs, and we continue to invest in capacity expansion.\nGAAP diluted earnings per share was $0.54 for the fiscal 2022 first quarter versus $0.10 in the prior quarter.\nNon-GAAP diluted earnings per share was $0.55 in the current year quarter versus $0.18 in last year's first quarter.\nMy comments from here will focus on our non-GAAP reporting unless specifically stated otherwise.\nI will now turn to a result -- to a review of our results by segment.\nDemand for product across all businesses remains robust.\nStarting with our wholesale segment, delivered sales for the quarter grew 76% to $393 million compared with the prior year period, compared with the pre-pandemic fiscal '20 first quarter, sales were 23% higher for a compounded annual growth rate of 11%.\nNon-GAAP operating margin for the wholesale segment was 4.7%, reflecting expected gross margin pressure as raw material and freight cost increases outpaced the realization of previously announced pricing actions and we continue to invest in bringing online new capacity.\nNow let me turn to the retail segment, which produced excellent results.\nFor the quarter, delivered sales doubled, increasing 100% to our first quarter record of $182 million and delivered same-store sales increased 92% versus the year ago quarter, which was impacted by COVID.\nCompared with the pre-pandemic fiscal '20, first quarter, sales increased 27% for a compounded annual growth rate of 13%, reflecting strong execution at the store level.\nNon-GAAP operating margin increased to 11.2%, another first quarter record, driven primarily by fixed cost leverage on the higher delivered sales volume.\nLast year's first quarter margin was negative 6.8% with the period marked by a significant reduction in delivered sales due to delays in product deliveries and COVID-related manufacturing shutdowns in April as well as retail closures, with some stores closures extending into June.\nAs Melinda noted, we are continuing to invest in the La-Z-Boy Furniture Gallery store system with new stores, remodels and relocations.\nWe have approximately 25 project scheduled this fiscal year for the Company-owned stores, out of a total of approximately 35 projects across the network.\nAdditionally, we are pleased to announce that earlier this week, we closed on the acquisition of three stores on Long Island, New York and look forward to expanding and strengthening the business there.\nSales for Joybird which was reported in corporate and other, increased 188% to $39 million, almost tripling from the prior year first quarter.\nFrom the pre-pandemic fiscal '20 first quarter, delivered sales increased 125% for a compounded annual growth rate of about 50%, reflecting Joybird's strong positioning in the direct-to-consumer marketplace as well as excellent end-to-end execution by the team.\nFor the period, Joybird increased its gross margin primarily from higher sales volume, product pricing actions, and increase in average ticket, and synergies due to its integration into our broader supply chain.\nIt also experienced increased conversion on the website and a significant increase in retail store traffic.\nWe have achieved sustained, structural profitability at Joybird, and will continue to increase our marketing spend to expand awareness, improve customer acquisition and accelerate growth.\nPulling all this together, consolidated non-GAAP gross margin for the fiscal '22 first quarter decreased 270 basis points versus the prior year quarter, primarily driven by significant increases in commodity and freight costs, in addition to start-up costs associated with the expansion of our manufacturing capacity and labor challenges on our wholesale businesses.\nThese items were partially offset by changes in our consolidated sales mix driven by the faster growth of retail and Joybird which carry a higher gross margin than our wholesale businesses, and from an improved gross margin performance at Joybird.\nConsolidated SG&A as a percentage of sales for the quarter decreased 620 basis points, primarily reflecting fixed cost leverage on the higher sales volume, mainly in our retail segment.\nOur effective tax rate on a GAAP basis for the fiscal '22 first quarter was 25.9% versus 19.8% in the first quarter of fiscal 2021.\nThe increase in our effective tax rate for this year's first quarter versus last year's first quarter was primarily due to additional tax benefits from stock compensation in fiscal 2021 which did not occur in fiscal 2022.\nAbsent discrete adjustments, our effective tax rate would have been 25.3% and 26.1% in the first quarters of fiscal 2022 and 2021 respectively.\nWe expect our effective tax rate for the full fiscal 2022 year to be between 25.5% and 26.5%.\nTurning to cash, we generated $6 million in cash from operating activities in the quarter.\nWe invested $39 million in higher inventory levels to protect against supply chain disruptions and support increased production in delivered sales.\nAdditionally, during the quarter, we made seasonal incentive compensation payments related to the last fiscal year.\nWe also spent $19 million in capital, primarily related to improvements to our retail stores, upgrades at our manufacturing and distribution facilities, new upholstery manufacturing capacity in Mexico, and technology upgrades.\nWe ended the period with $336 million in cash and no debt compared with $337 million in cash at the end of fiscal 2021 first quarter, which included $50 million in cash proactively drawn on our credit facility.\nIn addition, we held $33 million in investments to enhance returns on cash, compared with $16 million last year.\nRegarding cash returned to shareholders, during the quarter we continued to aggressively buy back shares, spending $36 million repurchasing more than 900,000 shares of stock in the open market under our existing, authorized share repurchase program.\nOver the past two quarters, we have returned $79 million to shareholders via share repurchase.\nWe also paid $7 million in dividends to shareholders in the last quarter.\nEarlier this week, demonstrating its confidence in the Company's ability to grow profitably and continue to generate strong cash flow from operations, the Board of Directors approved an increase of 6.5 million shares to the Company's existing share repurchase authorization, with a 2.5 million shares available for repurchase under the program as of the end of the fiscal 2022 first quarter.\nThis increase brings the total share repurchase authorization to $9 million, representing approximately -- I'm sorry, 9 million shares, representing approximately 20% of shares outstanding.\nThis equates to approximately $320 million at Monday's closing stock price.\nThe Company expects to execute the repurchase program over a three year to four year period, subject to market conditions, operational performance, cash flow from operations, cash balances, potential M&A activity and other business investments.\nAdditionally, the Board approved a dividend of $0.15 per share to shareholders of record as of September 2nd, 2021.\nAs we look to the future, from a capital allocation perspective, over the long term, we will target to invest approximately half of operating cash flow back into the business primarily via capex and M&A, and return the remainder to shareholders via dividends and share repurchases.\nBefore turning the call back to Melinda, let me highlight several important items for the remainder of fiscal 2022.\nAs noted, demand trends remained strong across the business and remain significantly higher than pre-COVID levels.\nWith robust written order trends, our backlog remains at a record level setting us up for a strong year of shipments as we continue to increase production capacity sequentially each quarter.\nWe improved product mix capability and worked through our wholesale and retail backlogs.\nWhile raw material and freight cost prices remain high and global supply chain disruptions continue, pricing actions taken to date including the recent surcharge on our backlog will begin to flow through our numbers in Q2.\nAs a result, we expect to finish the fiscal year with a consolidated full year non-GAAP operating margin at or near double digits, more consistent with our performance in the fiscal 2021 fourth quarter.\nFinally, as we make investments in the business to strengthen the Company for the future, we expect capital expenditures to be in a range of $65 million to $75 million for fiscal 2022.\nSpending will support updating our La-Z-Boy Furniture Gallery stores, updates to our plants and distribution facilities in Neosho, Missouri, new upholstery manufacturing in Mexico and investments in technology solutions across the organization.\nWe continue to operate in a very volatile environment with COVID uncertainties, high input costs, ongoing supply chain disruptions and continued strong demand curves.\nOur team is doing an outstanding job of managing the competing priorities of our various stakeholders, including our customers, shareholders and employees.\nWe expect capacity expansion efforts will enable strong business growth as we move forward, and we are focused both on near-term tactics while designing our future for our 100th year and beyond.\nI believe the best is yet to come for La-Z-Boy Incorporated.\nWe'll will begin the question-and-answer period now.\nTerran, please review the instructions for getting into the queue to ask questions.",
        "summary": "la-z-boy q1 adj earnings per share $0.55.\nq1 non-gaap earnings per share $0.55.\nqtrly written same-store sales in company-owned retail segment increased 22%.\nq1 gaap earnings per share $0.54.\nco's board of directors approved an increase of 6.5 million shares to its existing share repurchase authorization.\nexpects to execute repurchase program over a three-to-four-year period."
    },
    {
        "text": "regional and global economy, and the financial condition and results of operations of the company and its tenants.\nJoining us today are Tom O'Hern, chief executive officer; Scott Kingsmore, senior executive vice president and chief financial officer; and Doug Healey, senior executive vice president, Leasing.\nWe had releasing spreads of 5% and occupancy at nearly 91%.\nAt the end of the third quarter, most of our town centers were open with only our three closed centers in Los Angeles remaining closed by government mandate.\nThose centers reopened in early October.\nSo as of today, all of our centers are open and our tenants are eagerly planning for a busy holiday season.\nMost of the results were better than the second quarter, but we were obviously adversely impacted in the quarter due to COVID in general and specifically due to the protracted California and New York City closures.\nI'm very appreciative of the entire Macerich team that did a tremendous job of getting our centers reopened safely in some cases for a second time.\nSome of the self-health and safety measures we took went way beyond CDC recommendations that included significantly upgrading our air filtration systems to include hospital quality air filtration with [Inaudible] filters; engage the clinical head of Infectious Disease at UCLA Medical Center to review and advise us on our protocols and policies.\nWe hired a nationally renown engineering firm to advise us on advanced HVAC systems and protocols.\nWe implemented modified hours, increased cleaning and sanitizing protocols, CDC guidelines, and approved products that are baseline for our services.\nIn terms of rent collections, we are much better off in the third quarter compared to the second quarter.\nDuring the third quarter, our average rent collections were 80%.\nOctober is trending above 80%.\nFor most of the tenants not paying rent during the closure period, we would generally come to terms with them.\nIn general, we agreed to rent relief usually in the form of deferred rent for the closure months with repayment in 2021.\nIn many cases, in exchange for landlord-favorable amendments to leases.\nThere were some large reserves for uncollectible rents in the quarter, which Scott will comment on.\nCash flow continues to improve by the month as we move into the fourth quarter, and I expect that to continue.\nAs of today, we have significant liquidity and currently have approximately $675 million of cash on the balance sheet.\nThe tenant reactions to reopening has been good.\nOur tenants, almost without exception, were eager to get reopened.\nBy October, for centers opened at least eight weeks, sales were up to 90% of pre-COVID levels.\nThe consumer is shopping with a purpose and there has been pent-up demand.\nOur second quarter was more about getting centers opened and getting our tenants open safely and less about leasing.\nThe focus in the third quarter was collecting past due rents and started to shift back to leasing.\nLooking at traffic, in general, it's running about 80% compared to a year ago.\nSome of that has to do with capacity limits, particularly for restaurants and also for having no seating in the food court.\nSales, on the other hand, are running on average 90% of a year ago, which means there, I'd say, higher capture rate.\nThis year will be a different holiday season.\nWe believe it's going to start earlier.\nOperating hours will be shorter.\nThere will be capacity limits.\nWith consumers not spending money on vacations and entertainment during COVID, most of our consumers in our markets have money to spend this holiday season.\nTop categories are expected to be fitness and wellness, home furnishings, electronics and athletic leisure.\nThere will be [Inaudible] but with lots of social distancing.\nWe've got a number of questions about potential for property tax increases in California, although small in the political scheme of things.\nThere was a proposition in California that would have increased property taxes on commercial property.\nIt is known as Proposition 15.\nThat proposition would have removed the protection of Prop 13 from commercial properties in California.\nFor us, generally, we structure our leases to pass-through taxes to the tenant as a recoverable expense with a significant bottom line impact that the [Inaudible] shows Prop 15 passing.\nAs of today, it is trailing.\nThe yes votes stand at 48.7%, the no are at 51.3%.\nSo hopefully, that means no increase for commercial taxes in California.\nLooking at the balance of 2020.\nThe pandemic has shown that good retail is not going away, especially in A quality centers.\nDigitally native brands appreciate, more than ever, the profitability of their physical stores.\nBig format retailers got active again in the third quarter, and you'll hear some of the specifics from Doug.\nAlthough we are still in the midst of COVID, our centers are operating at 90% capacity, sales levels of 90% pre-COVID.\nAnd even if you look at one of the more challenging categories, restaurants, in our portfolio, we have 247 restaurants and 94% of those are open today.\nThe second quarter was an extremely unique quarter and some of the second quarter challenges carried into the third quarter and may even carry partially into the fourth quarter.\nBut many metrics got better in the third quarter, specifically collections.\nAnd the number of tenants opened and the progress we are making on leasing activity.\nThe impact on reserves for adoption accounts was less than 20 — second quarter of '20, but still much higher than normal.\nWe expect to gradually improve to a more normal level in the first quarter of '21.\nAlthough there are still too many uncertainties to give guidance, we expect the fourth quarter of 2020 and the year 2021 to be much better than the second and third quarters of 2020.\nDisruption from COVID-19 continued to severely impact 2020 results in the third quarter.\nFunds from operations for the third quarter was $0.52 per share, down from the third quarter of 2019 at $0.88 per share.\nSame-center net operating income for the quarter was down 29%, and year to date, it was down 17%.\nChanges between the third quarter of 2020 versus the third quarter of 2019 were driven primarily by the following factors and the numbers I'm going to cover [Inaudible] for the company: One, $20 million — $21 million in bad debt allowance in the form of the $14 million of increased net debt expense versus the third quarter of 2019, coupled with $7 million of lease revenue reverse for tenants, that are accounted for on a cash basis per GAAP within the third quarter; two, over $20 million of short-term nonrecurring rental assistance; three, a $9 million decline in common area and ancillary revenue as well as percentage rents; four, a $4 million decline in parking income driven by protracted property closures and reduced parking utilization at our urban centers in New York City and Chicago primarily; five, interest expense increased $4 million due to a decline in capitalized interest; six, net operating income declined from the Hyatt Regency Hotel [Inaudible], it was about a $2 million decline; seven, a negative $0.03 per share dilutive impact from shares issued in the second quarter relating to our stock dividend issued in the second quarter.\nThese factors were all offset by increased lease termination income of $7 million and land sale gains totaling $11 million net impact.\nRevenue declines from occupancy loss also contributed to declines in both net operating income and FFO for the third quarter.\nAs Tom mentioned, we are not providing updated 2020 earnings guidance given continued uncertainties.\nWe do anticipate continued volatility operating results in the fourth quarter.\nWhile we're not providing guidance for 2021, as we mentioned last quarter, we still believe that 2020 will be a trough in the company's operating results including primarily to the following factors: The pandemic has effectively accelerated the financial troubles with numerous [Inaudible], resulting in a wave of bankruptcy filings that were funneled and due 2020.\nWe do not anticipate this volume to recur in 2021.\nThe majority of the filings have resulted in reorgs and not full fleet liquidations.\nWe do expect approximately a 3% cumulative drop in occupancy from lease rejections, approximately half of which is already embedded within the 90.8% reported occupancy [Inaudible] third quarter, and the balance of these stores will close within the fourth quarter.\nYear to date, we have reported $57 million in additional bad debt reserves versus 2019, including $50 million of bad debt expenses and $7 million of lease revenue reversals for tenants accounted for on a cash basis.\nSimilar levels of reserves are certainly not anticipated going forward.\nWe've recorded well over $20 million in nonrecurring short-term rental assistance year to date and we expect those to continue into the fourth quarter of 2020.\nAnd then lastly, we anticipate increases to transit revenue line item going forward into 2021, namely the percentage rent, temporary tenant income, parking garage revenue, advertising, sponsorship, vending and other ancillary property driven revenue.\nWe look forward to providing 2021 guidance on our typical cadence this time next quarter.\nGiven the continued improvement in rent collections of 80% in the third quarter and over 80% in October, liquidity continues to improve.\nCash on hand has increased from $573 million at June 30 to $630 million at September 30.\nAnd as Tom noted, liquidity continues to improve to this day.\nThis improved liquidity is solely due to improved operating cash flow and is a testament to the herculean efforts by our people to both secure the right to open all of our properties and to negotiate thousands of agreements with our retailers.\nWith continued progress in these negotiations, which Doug will soon elaborate upon, we anticipate further improvement to operating cash flow throughout the year.\nWe are closing on a 10-year $95 million financing on Tysons Vita, the residential tower at Tysons Corner.\nThe loan will have a fixed rate of 3.3% and will include interest-only payment during the entire loan term.\nThis will provide approximately $47 million of liquidity to the company, and we expect the loan closing to occur within the next several weeks.\nWe secured a short-term extension on Danbury Fair through April 1, 2021.\nThe loan amount and interest rate remain unchanged following that extension.\nWe have agreed to terms with the loan servicer for a three-year extension on Fashion Outlets of Niagara, which will extend the loan maturity through October of 2023.\nWe expect the loan amount and interest rate also to be unchanged following that extension.\nAnd then lastly, we continue to work with our lenders to secure loan extensions for the nonrecourse mortgages on each of FlatIron Crossing, Green Acres Mall and the power center adjacent to that Green Acres Commons, and we anticipate securing extended term within the coming weeks.\nLike the second quarter, the majority of our efforts in the third quarter involved getting our retail partners open as quickly and as safely as possible once our centers were allowed to reopen.\nTo date, all of our properties are open, and I'm happy to report that 93% of the square footage that was opened pre-COVID is now open today.\nAs I discussed on our last call, it has been the case in the third quarter, much of our time and energy was spent working with those retailers that did not have the ability to pay rent while closed.\nAnd we've made great progress.\nIn fact, as we look at our top 200 rent paying retailers, we've either received full rent payment or secured executed documents with 147 and are in LOI with another 23, all of which totals approximately 93% of the total rent these top 200 pay.\nConsequently, collections continue to improve.\nThird quarter saw an average collection rate of 80%, that's compared to 61% in the second quarter.\nAnd as of today, as Tom mentioned, our collection rate for October stands at about 81%.\nBut the third quarter wasn't all about collection.\nAs our centers continue to open and as our retailers opened and were able to trade with some consistency, the leasing climate began to improve.\nRetailers began executing leases that have been out since before COVID.\nBut most importantly, the retailers began committing to new deals again.\nA true sign that for the first time in months, we're now looking forward rather than solely focusing on the past.\nI'll expand on this in a moment, but first, let's take a look at some of the third-quarter metrics.\nPortfolio-related sales for the third quarter were $718 per square foot, and that's computed to exclude the period of COVID closures for each tenant.\nThe $718 is down from $800 per square foot at the end of the third-quarter 2019.\nFor centers opened the entire month, sales in September were actually 92% of what they were a year ago, once we exclude Apple and Tesla.\nOccupancy at the end of the third quarter was 90.8%.\nThat's down 50 basis points from last quarter and down 3% from a year ago.\nThis is primarily due to store closures for bankruptcies and from our local tenants that couldn't survive the pandemic.\nTemporary occupancy was 5.7%, that's down 70 basis points from this time last year.\nTrailing 12-month leasing spreads were 4.9%, that's down from 5.1% last quarter and down from 8.3% in Q3 2019.\nAverage rent for the portfolio was $62.29, down from $62.48 last quarter, but up 1.8% from $61.16 one year ago.\nAs I mentioned earlier, the leasing environment continues to improve.\nIn the third quarter, we signed 120 leases to 342,000 square feet.\nThis is over 3x the number of deals and square footage that was signed in the second quarter, and these stats do not include any COVID workouts.\nSome leases signed in the third quarter of note include Gucci, Fashion Outlets of Chicago, Ducati Paris at Scottsdale Fashion Square; Kids Empire and State 48 Brewery at SanTan; Barbarie's Grill at Danbury Fair; Starbucks at Fashion District Philadelphia; Madison Reed at 29th Street; Polestar at The Village at Corte Madera; finally, Lucid Motors at Scottsdale Fashion Square and Tysons Corner.\nBoth Lucid and Polestar are new additions to the electronic car category and first to the Macerich portfolio.\nAs we head toward the end of the year, much of our focus is on our 2021 lease expiration and finalizing deals in order to secure as much expiring square footage in 2021 as possible.\nAt this point in time, by virtue of COVID workouts and through the normal course of leasing, we have commitments on 26% of our 2021 expiring square footage with another 67% in the LOI stage.\nThis brings our total leasing activity on 2021 expiring square footage to just over 90%.\nTurning to openings in the third quarter.\nWe opened 44 new tenants and 276,000 square feet, resulting in total annual rent of $11.3 million.\nThis represents 65% of the openings we had at the same quarter last year, but with 15% more square footage and virtually the same total annual rent.\nGiven the conditions our industry has faced over the last several months, I think this speaks volumes to the strength of the leasing pipeline we had pre-pandemic.\nNotable openings include adidas and Tory Burch at Fashion Outlets of Niagara Falls; Aerie at Vintage Faire; West Elm at La Encantada; and Golden Goose, Capital One Cafe and a new Levi's store at Scottsdale Fashion Square.\nIn the large-spread — in the large-format category, we opened Dick's Sporting Goods at Deptford Mall, in a portion of a former Sears store; Saratoga Hospital at Wilton Mall, also in a former Sears store; a new and spectacular looking restoration hardware gallery at The Village at Corte Madera.\nAnd all of this was in the third quarter.\nIn October, we finished the repurposing of Sears at Deptford with the opening of Round One.\nAnd also in October, we remained active with Dick's Sporting Goods, opening them at Vintage Faire in a portion of Sears, and at Danbury Fair in the former Forever 21 box.\nThe digitally made of and emerging brands continue to expand their omnichannel presence by opening stores.\nAnd the third quarter was no exception.\nWe opened Amazon 4-Star and Indochino at Scottsdale; two Warby Parker stores at Scottsdale and 29th Street, along with Amazon Books and Tempur-Pedic at FlatIron Crossing.\nAnd our pipeline remains strong.\nAt this point, we have signed leases with 190 retailers scheduled to open throughout the remainder of 2020 and into 2021.\nThis totals 1.7 million square feet for a total annual rent of $63 million.\nAnd since the pandemic, only nine of these retailers with signed commitments have informed us that they won't be reopening — they won't be opening.\nTotal impact of this is only 60,000 square feet of the 1.7 million square feet and only $3 million of the $63 million in total rent.\nLastly, I want to address the issue of traffic.\nThere's been a ton of focus on traffic and the fact traffic is down compared with last year, and it is.\nThere's no arguing that.\nHowever, I struggle with the notion that traffic seems to be perceived as the sole means to a retailer's success.\nWhy aren't we talking more about conversion or sales or the combination of both?\nDespite less traffic, the Macerich portfolio is seeing tremendous success in the reopening of stores that were forced to close due to COVID, like Primark at Danbury, being the No.\n1 store in its region since reopening; or like Bath & Body Works at Freehold, beating last year's sales three months in a row with capacity limited to 50%; or HomeGoods at Atlas Park, outperforming last year by 15% while also at 50% capacity; or Burlington, reopening at Kings Plaza and selling through inventory that took a month to replace; or Sephora at Broadway Plaza, is currently ranked as one of the top stores in the company by virtue of conversion rates that are 20% to 30% higher than last year; or Round One at Deptford and Valley River, operating at full capacity with hour-long waits at night and on weekend; luxury retailers at Scottsdale Fashion Square such as Gucci, Louis Vuitton and Golden Goose, all exceeding planned by 25% to 40%; or North Italia, a restaurant at La Encantada, back to pre-COVID sales even at 50% occupancy; and Tillys at Arrowhead, reported double-digit sales increases since reopening in May and is expecting their best holiday season ever at this location.\nAnd the list goes on and on.\nUnfortunately, these success stories are too often overshadowed by the overwhelming focus on the effect this pandemic has had on traffic in the short-term and pre-vaccine.\nMake no mistake, traffic is important.\nThere's no denying that.\nHowever, I do think it's time we stop thinking so one dimensionally and focus on other metrics in addition to simply traffic.\nAnd when we do, I think we'll all find that we are in a much better place than many think.",
        "summary": "macerich q3 ffo per share $0.52 excluding items.\nq3 ffo per share $0.52 excluding items.\nmall portfolio occupancy, including closed centers, was 90.8% at september 30, 2020, compared to 91.3% at june 30, 2020."
    },
    {
        "text": "I will start by going through some of the highlights of the quarter, and Jack will go through the second quarter results and guidance for the third quarter.\nI will then share some concluding thoughts before we start our Q&A session.\nBut before we proceed, Jack will now cover the safe harbor language.\nThese statements are based on management's current expectations or beliefs.\nHalfway through 2021, I am increasingly optimistic about the strength of the global recovery.\nAs vaccine rollouts gain momentum and lockdown restrictions ease, we're seeing dramatic increases in hiring optimism.\nThe pace of the recovery is strong, with the hiring intent picking up much faster than after the previous economic downturn.\nAnd although the recent infection increases are concerning, we do not believe they will materially impact the positive recovery trajectory.\nI spent a considerable amount of time during the second quarter in Europe with our market leaders, teams and clients.\nThis included time with our French team at Viva Tech, one of the world's largest technology conferences in Paris, which I will talk about later as part of our innovation update.\nAnd together with other global leaders, I also spent time with President Macron and his government at the Choose France event.\nI believe that the future for France looks bright as the government continues on its path to make France more competitive, and our business is very well positioned to benefit as their economy grows.\nIt is clear from my discussions with clients that demand is coming back very strongly for our services across all of our brands.\nThis is evidenced in temporary and permanent placement activity as well as demand for workforce solutions.\nCompanies increasingly need our help in finding and reskilling talent to enable them to leverage the fast-improving economic recovery and accelerate the digital transformation to emerge stronger post-pandemic.\nTurning to our financial results.\nIn the second quarter, revenue was $5.3 billion, up 31% year-over-year in constant currency.\nWe grew revenue significantly in our key markets, and this resulted in better-than-expected financial performance.\nOur operating profit for the quarter was $170 million, Operating profit was up significantly as we anniversary the depth of the pandemic's financial impact.\nOperating profit margin was 3.2%.\nAnd after excluding special charges in the prior year, operating profit margin increased 260 basis points.\nEarnings per diluted share was $2.02.\nOur most recent talent shortage survey of 42,000 employers in 43 countries found that 69% of employers globally, a 15-year high, are reporting difficulties hiring skilled workers across many industries.\nAlthough vaccinations are more widespread, workers are still dealing with issues created by the pandemic, such as healthcare and child care concerns.\nUnemployment benefits and related programs are also having a lingering effect on worker supply.\nWe expect the pandemic-related talent shortages to ease over the coming quarters.\nBut over the medium- to- long-term, the impact of digitization and other structured labor market changes are here to stay.\nThis means hiring of skilled talent and supporting people to reskill and upskill for growth roles will be a driver of demand into the foreseeable future.\nIt is a workers market right now.\nAnd as a result, we're also beginning to see employers respond to what workers want: wage increases in places, more flexibility, skills development and a clear commitment to ESG, especially clarity around an organization, social and climate impact.\nRevenues in the second quarter came in at the high end of our constant currency guidance range.\nGross profit margin came in well above our guidance range.\nOperating profit was $170 million, representing a significant increase from the prior year period, which was heavily impacted by the pandemic.\nOperating profit margin was 3.2%, which was 80 basis points above the midpoint of our guidance.\nBreaking our revenue trend down into a bit more detail, after adjusting for the positive impact of currency of about 10%, our constant currency revenue increased 31%.\nAs the impact of net dispositions and slightly more billing days was very minor, the organic days-adjusted revenue increase was also 31%.\nComparing to pre-pandemic revenues, our second quarter revenues were below 2019 levels by 4% on an organic days-adjusted constant currency basis, representing a 1.5% improvement from the first quarter trend on the same basis.\nTurning to earnings per share bridge on Slide 4.\nEarnings per share was $2.02, which significantly exceeded our guidance range.\nMarking from our guidance midpoint, our results included improved operational performance of $0.55, slightly higher than expected foreign currency exchange rates, which had a positive impact of $0.03, and slightly better than expected effective tax rate that added $0.02, and favorable other expenses which added $0.02.\nLooking at our gross profit margin in detail.\nOur gross margin came in at 16.3%.\nStaffing margin contributed 60 basis point increase, which included 20 basis points related to direct cost accrual adjustments in France, representing a 40 basis points underlying improvement in staffing margin.\nPermanent recruitment contributed 50 basis point GP margin improvement as hiring activity was strong across our largest markets.\nOur Experis Managed Services business in Europe contributed 10 basis point margin improvement.\nThese increases were partially offset by other business mix factors, primarily involving a lower mix of Right Management career transition business.\nNext, let's review our gross profit by business line.\nDuring the quarter, the Manpower brand comprised 64% of gross profit.\nOur Experis Professional business comprised 21% and Talent Solutions comprised 15%.\nDuring the quarter, our Manpower brand reported an organic constant currency gross profit year-over-year growth of 51%.\nOur Manpower business experienced the biggest decline a year ago, and as a result, experienced the biggest increase this period in the recovery.\nCompared to pre-pandemic levels, this represented a decrease of 4% from the second quarter of 2019 on an organic constant currency basis.\nGross profit in our Experis brand increased 23% year-over-year during the quarter on an organic constant currency basis.\nThis represented a decrease of 1% from the second quarter of 2019 on an organic constant currency basis.\nTalent Solutions includes our global market-leading RPO, MSP and Right Management offerings.\nOrganic gross profit increased 27% in constant currency year-over-year.\nThis represented an increase of 12% from the second quarter of 2019 on an organic constant currency basis.\nOur RPO business posted double-digit GP growth during the quarter on significant growth and hiring activity.\nOur MSP business, which has performed well for several quarters, continued to experience double-digit growth in gross profit in the quarter.\nOur Right Management business continues to see a runoff in outplacement activity as the recovery strengthens and experienced a reduction in gross profit of about 9% year-over-year.\nOur SG&A expense in the quarter was $690 million and represented a 10% increase on a reported basis from the prior year.\nExcluding goodwill and other impairment charges in the prior year, SG&A was 17% higher on a constant currency basis.\nThis compares to an increase in gross profit of 40% in constant currency and reflects balanced investment, allowing for strong gross profit flow-through during the quarter.\nOperational costs increased by $96 million and net dispositions represented $1 million reduction.\nCurrency changes reflected an increase of $42 million.\nSG&A expenses as a percentage of revenue represented 13.1% in the second quarter, representing ongoing improvement in our efficiency as revenue recovers.\nThe Americas segment comprised 20% of consolidated revenue.\nRevenue in the quarter was $1 billion, an increase of 23% in constant currency.\nOUP was $56 million.\nExcluding impairment costs in the prior year, OUP increased 116% in constant currency and OUP margin increased 230 basis points to 5.4%.\nThe U.S. is the largest country in the Americas segment, comprising 60% of segment revenues.\nRevenue in the U.S. was $629 million, representing 22% increase compared to the prior year.\nAdjusting for franchise acquisition in days, this represented a 21% increase.\nExcluding impairment charges in the prior year, OUP for our U.S. business increased 149% year-over-year to $38 million in the quarter.\nOUP margin was 6%.\nWithin the U.S., the Manpower brand comprised 35% of gross profit during the quarter.\nRevenue for the Manpower brand in the U.S. increased 36% during the quarter.\nWhile the U.S. Manpower business continues to recover, we have noted softness in candidate supply during the second quarter and expect this to continue during the summer months.\nThe Experis brand in the U.S. comprised 32% of gross profit in the quarter.\nWithin Experis in the U.S., IT skills comprise approximately 80% of revenues.\nExperis U.S. revenues grew 5% during the quarter.\nWe are encouraged by the current trends in our U.S. Experis business and anticipate continued improvement into the third quarter.\nTalent Solutions in the U.S. contributed 33% of gross profit and experienced revenue growth of 14% in the quarter.\nThis was driven by RPO, which experienced dramatic revenue growth as hiring programs continued to strengthen.\nMSP business continued to perform well and experienced double-digit revenue growth in the quarter.\nIn the third quarter, we expect ongoing underlying improvement in revenue growth for the U.S. in the range of 11% to 15% year-over-year.\nComparing estimated third quarter revenues to precrisis levels in constant currency, this represented a 2% decline compared to 2019 levels in the third quarter using the midpoint of our guidance.\nOur Mexico operation experienced revenue growth of 6% in constant currency in the quarter.\nOn April 23, the Mexican government passed labor legislation that will prohibit certain types of temporary staffing not considered specialized services beginning on July 23.\nAs such, companies operating in Mexico will be prohibited from using temporary staffing for functions that are already deemed to be in-house core competencies of their workforce.\nWe have been working with our clients as the market absorbs this legislation and anticipate that we will have a reduction in revenues in our Mexico business beginning in the third quarter as clients navigate through the legislation and shift their workforce strategies accordingly.\nAlthough this will result in revenue reductions over the next few quarters, we believe the mix shift toward more specialized staffing will improve the margin profile of our Mexican business.\nWe also believe there may be additional revenue opportunities over time as clients adjust their workforce strategies.\nAlthough it is difficult to forecast based on how quickly the legislation is being enacted, we are currently estimating a revenue decrease for the Mexican business in the third quarter in the range of minus 28% to minus 32% in constant currency.\nMexico represented 2.8% of our 2020 revenues.\nRevenue in Canada increased 22% in days-adjusted constant currency during the quarter.\nRevenue in the other countries within Americas increased 40% in constant currency.\nThis was driven by significant constant currency revenue growth in Argentina, Colombia, Peru and Chile.\nSouthern Europe revenue comprised 46% of consolidated revenue in the quarter.\nRevenue in Southern Europe came in at $2.4 billion, growing 51% in constant currency.\nThis reflects ongoing improvement driven by France and Italy.\nOUP equaled $115 million and OUP margin was 4.8%.\nFrance revenue comprised 56% of the Southern Europe segment in the quarter and increased 67% in days-adjusted constant currency.\nCompared to the same period in 2019, France revenues were down 12%.\nAlthough restrictions had an impact on the rate of revenue improvement during the quarter, the French business continued to perform well in a challenging environment, and we expect ongoing improvement now that the majority of the restrictions have been lifted.\nOUP was $66 million in the quarter and OUP margin was 4.9%.\nAs previously referenced, direct cost accrual adjustments, representing approximately $10 million, benefited France's results.\nAs we begin the third quarter, we are estimating a year-over-year constant currency increase in revenues for France in the range of 12% to 16%.\nComparing estimated third quarter revenues to precrisis levels in constant currency, this represents a 5% decline compared to 2019 levels in the third quarter using the midpoint of our guidance.\nRevenue in Italy equaled $469 million in the quarter, reflecting an increase of 57% in days-adjusted constant currency.\nThrough the second quarter, revenues in Italy continued to exceed 2019 levels.\nOUP equaled $32 million and OUP margin was 6.8%.\nWe estimate that Italy will continue to perform very well in the third quarter with year-over-year constant currency revenue growth in the range of 20% to 24%.\nRevenue in Spain increased 12% in days-adjusted constant currency from the prior year, and revenue in Switzerland increased 33% in days-adjusted constant currency.\nOur Northern Europe segment comprised 22% of consolidated revenue in the quarter.\nRevenue increased 23% in constant currency to $1.2 billion, driven by all major markets.\nOUP represented $18 million and OUP margin was 1.5%.\nOur largest market in the Northern Europe segment is the U.K., which represented 37% of segment revenues in the quarter.\nDuring the quarter, U.K. revenues grew 30% in days-adjusted constant currency, which included significant new business.\nThe U.K. continued to perform above 2019 levels in the second quarter.\nWe expect continued strong growth in the 34% to 38% constant currency range year-over-year in the third quarter.\nIn Germany, revenues increased 9% in days-adjusted constant currency in the second quarter.\nAlthough Germany continues to be a difficult market for our industry, we expect to see ongoing revenue improvement in Germany in the third quarter.\nIn the Nordics, revenues grew 17% in days-adjusted constant currency.\nRevenue in the Netherlands increased 9% in days-adjusted constant currency.\nBelgium experienced days-adjusted revenue growth of 24% in constant currency during the quarter.\nRevenue in other markets in Northern Europe grew 41% in constant currency in the quarter.\nThis was driven by strong revenue growth in Poland, Russia and Ireland.\nThe Asia Pacific Middle East segment comprises 12% of total company revenue.\nIn the quarter, revenue grew 6% in constant currency to $620 million.\nOUP was $22 million and OUP margin was 3.6%.\nRevenue in Japan grew 10% in days-adjusted constant currency, which represents an improvement from the 6% growth rate in the first quarter.\nOur Japan business continues to lead the market in revenue growth, and we expect ongoing mid- to high single-digit revenue growth in the third quarter.\nRevenues in Australia were down 11% in days-adjusted constant currency.\nRevenue in other markets in Asia Pacific Middle East grew 9% in constant currency.\nI'll now turn to cash flow and balance sheet.\nDuring the first six months of the year, free cash flow equaled $171 million compared to $577 million in the prior year quarter, reflecting significant accounts receivable declines in the prior year period.\nAt quarter-end, days sales outstanding decreased year-over-year by almost two days to 56 days.\nCapital expenditures represented $12 million during the quarter.\nDuring the second quarter, we purchased 432,000 shares of stock for $50 million.\nOur year-to-date purchases stand at 1.5 million shares of stock for $150 million.\nAs of June 30, we have 1.9 million shares remaining for repurchase under the 6 million share program approved in August of 2019.\nOur balance sheet was strong at quarter-end with cash of $1.46 billion and total debt of $1.09 billion, resulting in a net cash position of $368 million.\nOur debt ratios at quarter-end reflect total gross debt to trailing 12 months adjusted EBITDA of 1.79 and total debt to total capitalization at 31%.\nOur debt and credit facilities did not change in the quarter.\nIn addition, our revolving credit facility for $600 million remained unused.\nNext, I'll review our outlook for the third quarter of 2021.\nOur guidance continues to assume no material additional lockdowns or business restrictions impacting our clients in any of our largest markets beyond those that exist today.\nOn that basis, we are forecasting earnings per share for the third quarter to be in the range of $1.86 to $1.94, which includes a favorable impact from foreign currency of $0.04 per share.\nOur constant currency revenue guidance growth range is between 12% and 16%.\nThe midpoint of our constant currency guidance is 14%.\nA minor decrease in billing days in the third quarter and the slight impact of net dispositions impact the growth rate slightly, resulting in an outlook for organic days adjusted revenue growth of 15% at the midpoint.\nAdding the context of comparisons to precrisis activity levels, this would represent a third quarter organic constant currency range of 1% to 3% compared to 2019 revenues.\nWe expect our operating profit margin during the third quarter to be up 50 basis points at the midpoint compared to the prior year.\nThis reflects another quarter of continued strong sequential underlying improvement.\nWe estimate the effective tax rate in the third quarter will be 33%.\nBased on our improved earnings mix, we are now estimating the full year effective tax rate will approximate 33%, a 1% improvement from our previous estimate of 34% provided last quarter.\nAs usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares will be 55.2 million.\nWe continued to invest in technology and are making great progress on our acceleration plans to diversify, digitize and innovate.\nWe've been recognized again for our award-winning RPO business within our Talent Solutions brand, scoring highly for our strong tech ecosystem, our consulting capabilities, data-driven solutions and business intelligence.\nThis is the 11th year we have been named a global leader in RPO in the Everest Group PEAK Matrix Assessment.\nWe've also just been named MSP leader for the eighth consecutive year by Everest, recognizing us at the top in market impact.\nThey also recognized our global leadership and tech as well as our workforce strategies, data-driven approach and scope of solutions, including Right Management and our consulting capabilities.\nI congratulate our Talent Solutions colleagues for our leadership in the RPO and MSP space, which is an important component of our diversification strategy to grow higher-margin value business.\nWe continue to rapidly execute our technology and web transformation.\nOur power suite tech stack is helping us to grow our competitive advantage as we shift to cloud platforms, improving our customer experience while streamlining our candidate management.\nOur approach ensures we're always current, able to plug in with the best tech and the capability to scale while turning our data into a key asset.\nWe continue to move at speed.\n19 market deployments have been completed and another 16 are in flight.\nWe look forward to providing a further update on this at year-end.\nWe're also making great progress in innovation.\nIn June, we joined the biggest names in tech at the World Famous Viva Technology Conference in Paris.\nAs the conference is only HR partners since its launch five years ago, this is a great opportunity for us to showcase our newest innovation and work with more than 30 HR start-ups on how we're using AI, machine learning and data-driven predictive performance tools, together with our human expertise to upskill people at speed and scale and match people to jobs with better accuracy and speed than either humans or machines could do on their own, building a better, brighter future of work across bold, disruptive ideas and collaboration across business, government and education.\nThis is how we will create sustainable skills, resilient communities and greater prosperity for all.\nI'd now like to open the call for Q&A.",
        "summary": "manpowergroup sees q3 total revenue up 14% to 18%.\nmanpowergroup in - sees q3 total revenue up 14%-18% - presentation.\nmanpowergroup inc - sees q3 americas revenue up 9%-13% - presentation.\nmanpowergroup inc - sees q3 northern europe revenue up 28%-32% - presentation.\ncompname reports q2 earnings per share $2.02.\nsees q3 earnings per share $1.86 to $1.94.\nq2 earnings per share $2.02.\nq2 revenue $5.3 billion versus refinitiv ibes estimate of $5.14 billion.\nfinancial results in quarter were impacted by weaker u.s. dollar relative to foreign currencies compared to prior year period."
    },
    {
        "text": "After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10-K, quarterly operating supplements, and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation.\nWe also posted updates to the listings of our insurance portfolios.\nRegarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10-K and other SEC filings as our company's definitive disclosures are incorporated in those documents.\nWe urge investors to read our 10-K as it contains our most current disclosures about the company and its financial and operating results.\nThe definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K as well as our financial results report and our quarterly operating supplements.\nNow, I'll read our safe harbor disclosure statement.\nRisk factors are detailed in our 10-K, which is available on our website at mbia.com.\nFor our call today, Bill Fallon and Anthony McKiernan will provide some introductory comments and then a question-and-answer session will follow.\nNow, here is Bill Fallon.\nRemediating our Puerto Rico credits continues to be our main priority.\nDuring the 2019, we were able to resolve and then fully extinguish our Puerto Rico sales tax bond or COFINA exposure.\nOur COFINA exposure accounted for approximately one half of our total insured Puerto Rico debt service.\nAs a result of the restructuring and the extinguishment of our COFINA exposure, along with claims payments that we have made on our other insured Puerto Rico exposure, our total insured debt service on Puerto Rico bonds has declined from $7.9 billion at year-end 2018 to $3.3 billion at the end of 2019.\nOur remaining Puerto Rico exposure is largely comprised of three Puerto Rico credits: the Commonwealth pre-2011 General Obligation PBA bonds; the Puerto Rico Electric Power Authority or PREPA; and the Puerto Rico Highways & Transportation Authority or HTA.\nAt year-end 2019, our exposure to the General Obligation and PBA bonds was about $655 million of gross par or about $833 million of total debt service.\nOur PREPA exposure was just under $1 billion of gross par or $1.3 billion of total debt service.\nAnd our HTA exposure was about $600 million of gross par or $1 billion of total debt service.\nAt this time, there is a restructuring support agreement for the PREPA bonds that has been approved by the Federal Oversight Management Board in over 90% of the PREPA creditors.\nThe court hearing for the related 9019 motion is scheduled for June.\nGovernor Vazquez and the Puerto Rico Legislature have stated publicly that they do not support the agreement.\nThere is also a planned support agreement between the Oversight Board and a group of Commonwealth bondholders, representing approximately 54% of the par amount.\nWe and the other monolines do not support the proposed agreement and neither does the Commonwealth government.\nAs yet, there are no specific agreements related to the HTA debt.\nThe GO plan of adjustment does include some proposed payments to the credit, such as HTA, that have callback rights against the Commonwealth but we believe that the amount allocated for these rights understates what HTA is entitled to.\nWe'll pursue these rights through the court process.\nThe other credit in National's insurance portfolio continue to perform in line with our expectations, and the outstanding par of the insured portfolio continues to reduce each quarter.\nNational's insured portfolio declined to $49 billion of gross par outstanding, down $9 billion or 15% from year-end 2018.\nNational's leverage ratio of gross par to statutory capital declined to 21 to one, down from 23 to one at year-end 2018.\nDuring the fourth quarter, National purchased 800,000 shares of MBIA common shares at an average price of $9.25 per share.\ncommon stock at an average price of $9.12 per share.\nSubsequent to year-end, through February 20, National purchased an additional 3 million shares at an average price of $9.18 per share.\nWe continue to believe that repurchasing our shares at attractive prices is an effective way to increase long-term value for our shareholders.\nAs of February 20, 2020, we had approximately $74 million remaining under our existing share repurchase authorization.\nNow, Anthony will cover the financial results.\nI will begin with the review of our fourth-quarter 2019 and full-year 2019 GAAP and non-GAAP results, then cover the holding company balance sheet, and lastly walk through our statutory results for National and MBIA Insurance Corp.\nThe company reported a consolidated GAAP net loss of $243 million or a negative $3.21 per share for the quarter ended December 31, 2019, compared to a consolidated GAAP net loss of $7 million or negative $0.08 per share for the quarter ended December 31, 2018.\nThe results for the quarter were driven by several factors: increased loss and loss adjustment expense at National related to its remaining Puerto Rico exposures, reflecting both views of the credits and the effect of higher discount rates on the present value of estimated future recoveries; increased loss and loss adjustment expense at MBIA Corp.\n, primarily due to a reduction in expected recoveries on claims paid on the Zohar CLOs; net investment losses due to the impairment of a legacy remediation municipal security, which was subsequently sold in January; fair value VIE loss related to the accelerated $66 million payoff of the remaining COFINA trust certificates, which also eliminated our remaining COFINA exposure.\nThat fair value loss was equity neutral as losses were reclassified from other comprehensive income into earnings, and higher operating expenses due to legal expenses associated with National's litigation filed in 2019 against a number of investment banks that underwrote Puerto Rico debt.\nThe tax expense for the quarter reflects the early adoption of a new tax accounting guidance, which removed the requirement to allocate taxes between earnings from continuing operations and other comprehensive income and which is equity neutral.\nGoing forward, GAAP quarterly tax expense should be negligible, reflecting the full valuation allowance against our deferred tax asset.\nThese negative earnings impacts were somewhat offset by higher gains on financial instruments at fair value due to higher interest rates benefiting the swaps associated with the GIC book of business and VIE gains due to an increase in our estimate for our RMBS putback recoveries from Credit Suisse.\nAlso, in the fourth quarter of 2018, there were elevated realized losses related to the deconsolidation and termination of five second-lien RMBS VIEs.\nFor the 12 months ended December 31, 2019, the company reported a consolidated GAAP net loss of $359 million or a negative $4.43 per share, compared to a consolidated GAAP net loss of $296 million or negative $3.33 per share for the year ended December 31, 2018.\nThe results for the year were also driven by several factors: increased loss and loss adjustment expense at MBIA Corp.\n, primarily related to a reduction in expected Zohar recoveries and increased first lien RMBS losses; lower premium earnings due to the continued reduction of the insured portfolio; the previously mentioned muni legacy credit net investment losses and higher operating expenses.\nThese negative impacts were somewhat offset by higher gains on financial instruments at fair value due to the sales of uninsured PREPA and new COFINA bonds during the year, net mark-to-market gains on insured derivatives, and higher total VIE gains related to the consolidated COFINA trusts, higher estimated Credit Suisse RMBS recoveries and elevated realized losses for 2018 due to the deconsolidation and termination of second lien RMBS VIEs.\nThe company's adjusted net loss, a non-GAAP measure, was $95 million or negative $1.25 per share for the fourth quarter of 2019, compared with adjusted net income of $106 million or $1.20 per share for the fourth quarter of 2018.\nThe unfavorable change was primarily due to the loss and loss adjustment expense at National in Q4 2019 compared to a loss and loss adjustment expense benefit in Q4 2018, which were both related primarily to National's insured Puerto Rico exposures.\nFor the year ended December 31, 2019, the company's adjusted net loss was $17 million or negative $0.21 per share, compared with an adjusted net loss of $38 million or negative $0.42 per share for the year ended December 31, 2018.\nThe favorable change for the year was primarily due to the lower loss and loss adjustment expense at National in 2019.\nBook value per share decreased to $10.40 as of December 31, 2019 versus $12.46 as of December 31, 2018, primarily due to the net loss for the year, partially offset by unrealized gains on investments and 10 million fewer net shares outstanding due to share repurchases.\nI will now spend a few minutes on the corporate segment balance sheet and the insurance companies.\nThe corporate segment, which primarily includes the activity of the holding company, MBIA Inc., had total assets of approximately $1 billion as of December 31, 2019.\nWithin this total are the following material items: unencumbered cash and liquid assets held by MBIA Inc. totaled $375 million as of year-end 2019 versus $457 million at December 31, 2018.\nThe decrease year-over-year was primarily due to the voluntary call at par in August of $150 million of MBIA Inc.'s 6.4% notes due in 2022.\nIn the fourth quarter of 2019, MBIA Inc. received as-of-right dividends from National totaling $134 million, with $110 million paid in October and another $24 million paid in November.\nThe additional $24 million resulted from excess as-of-right dividend capacity under regulatory guidelines, measuring a three-year look back of dividends paid versus investment income.\nDue to the November 5th filing of our Q3 2019 financials versus the three-year look back start date of November 8, 2016, we were able to dividend an additional quarter of investment income.\nWe do not expect this scenario to recur for the foreseeable future and the 2020 as-of-right dividend will now be paid in November.\nThere were approximately $490 million of assets at market value pledged to the GICs and the interest rate swaps supporting the GIC book.\nAnd as of December 31, 2019, there were $61 million of cumulative front contributions remaining in the tax escrow account, which represented National's 2018 and year-to-date 2019 tax payments.\nIn January of 2020, due to a full-year 2019 tax loss at National, MBIA Inc. returned National's 2019 tax deposits of $7 million and $26 million of National's 2018 tax year deposits.\nFollowing the returns, $28 million remained in the tax escrow account.\nThe holding company is not expected to receive meaningful liquidity from any future distributions.\nTurning to the insurance company's statutory results, National reported statutory net income of $4 million for the fourth quarter of 2019, compared to net income of $9 million for the prior year's comparable quarter.\nThe unfavorable result was primarily due to higher loss in LAE, somewhat offset by a tax benefit generated in December of 2019 when National elected to prepay our remaining insurance obligation with respect to our COFINA exposure in the amount of $66 million, thus reducing the trust obligations to 0.\nIn fiscal year 2019, in addition to the prepayment of our COFINA exposure, National paid $393 million of Puerto Rico-related insurance claims on a gross basis related to the January and July scheduled debt service payments.\nIn January of 2020, National paid $59 million in gross Puerto Rico-related claims, which brings inception-to-date gross claims to $1.2 billion.\nAs of December 31, 2019, National's total fixed income investment portfolio, including cash and cash equivalents, had a book adjusted carrying value of $2.5 billion.\nStatutory capital was $2.4 billion and claims paying resources totaled $3.5 billion.\nInsured gross par outstanding reduced by $2.3 billion during the quarter, and now stands at $48.9 billion.\nTurning to MBIA Insurance Corp.\n, the statutory net loss was $73 million for the fourth quarter of 2019, compared to statutory net income of $13 million for the fourth quarter of 2018.\nThe unfavorable result was primarily due to higher loss in LAE related to the Zohar credits in the current-year quarter.\nAs of December 31, 2019, the statutory capital of MBIA Insurance Corp.\nwas $476 million versus $555 million as of December 31, 2018.\nClaims paying resources totaled $1.2 billion and cash and liquid assets totaled $124 million.\n's insured gross par outstanding was $10 billion at year-end 2019.",
        "summary": "compname reports qtrly loss per share $3.21.\nmbia inc qtrly loss per share $3.21.\nmbia inc - book value per share was $10.40 as of december 31, 2019 compared with $12.46 as of december 31, 2018.\nmbia inc qtrly adjusted net loss $1.25 per share.\nmbia inc - as of december 31, 2019, mbia inc.’s liquidity position totaled $375 million.\nmbia inc qtrly premiums earned (net of ceded premiums of $1, $1, $5 and $5) $20 million versus $24 million."
    },
    {
        "text": "Today, I'm joined by Brian Tyler, our chief executive officer; and Britt Vitalone, our chief financial officer.\nBrian will lead off, followed by Britt, and then we will move to a question-and-answer session.\nToday, we reported third quarter fiscal 2022 results, another quarter with double-digit adjusted operating profit growth in all four segments, reflecting strength in the fundamentals across our businesses.\nOur focus and execution against our company priorities positions us to consistently generate strong financial results despite fluidity we continue to see in the macroeconomic environment.\nBefore I discuss the business performance, I would like to just quickly remind everyone of our company priorities.\nWe have been sharing with you our strategic transformation to a diversified healthcare services company centered around a set of four enterprise priorities.\nWe believe the execution against these priorities is critical to our ability to generate long-term sustainable growth, and we want to reiterate our focus and commitment to each one of them.\nOur first priority is our people, our teams and our culture.\nThrough our diversified portfolio of assets and operations, we as a company touch and impact many aspects of health and the healthcare system, including patients.\nEmbedded in our daily operations is our purpose: advancing health outcomes for all and our mission of building an impact-driven organization.\nWe have been focused on enabling change in three areas: improving access to healthcare, advancing health equity and protecting our environment.\nIn the past year, our employees came together and shared countless moments of impact, finding new ways to get involved and to contribute.\nIn 2021 alone, we completed more than 26,500 volunteer hours and supported nearly 1,500 charities.\nI couldn't be more proud of what we have achieved so far, and I'm confident in our ability to build a brighter future that, in fact, offers greater health outcomes for all.\nPart of our focus on culture is our continued improvement in diversity and inclusion.\nWe put a particular focus on hiring, developing and promoting what we call a best talent strategy at McKesson.\nRecently, we were recognized as one of the best places to work for LGBTQ equality, the ninth year in a row we've received this honor.\nOur commitments to diversity and refreshment includes our board of directors.\nBoth James and Kathleen have served in multiple senior leadership roles within the healthcare industry.\nCurrently, Jim serves as an operating partner for the private equity firm, Welsh, Carson, Anderson & Stone.\nAnd prior to that, he held the role of chief executive officer at Baylor Scott & White Health.\nAnd Kathleen most recently held the role of executive vice president and global chief human resource officer at Walgreens Boots Alliance, where she led the human capital strategy, including merger integration and HR transformation through digitization.\nAdditionally, we announced today that Don Knauss has been elected as the next independent chairman of our board, which will go into effect on April 1, following a planned transition led by our current independent Chair, Edward Mueller.\nHe brings deep leadership expertise and shares McKesson values, culture, strategy and vision, including his commitment to board diversity.\nWe look forward to his leadership and stewardship.\nOur next priority is to drive sustainable growth in our core pharmaceutical and medical distribution businesses.\nWe have a vast scale distribution network and deep expertise in global supply chain management, which have been a critical and foundational part of our long history.\nWe're proud of our operational excellence and our ability to capture efficiency and deliver consistent and high-quality service to our customers while optimizing operating margin.\nBuilding off of this core capability, we've been very successful in expanding into new product categories and new adjacent markets, like our lab solutions and our government partnership strategies.\nOur scaled assets and capabilities also enable us to play an integral role in the response to the COVID-19 pandemic.\nWe're proud to serve as the centralized distributor of vaccines and ancillary supplies for the U.S. government.\nWe've also been working closely with our partners, suppliers and manufacturers to navigate the complex supply chain system.\nThese relationships have allowed us to continue to provide stability of supply and low cost for our customers.\nAnd as a result, we've been able to manage through some of the challenges that the market has been seeing.\nOur third priority is to streamline the business, which includes initiatives like the split off of Change Healthcare and our strategic intent to fully exit the European region.\nWe recently announced the sale of our Austrian business, which was completed on January 31, and we have agreements to sell 10 of the 12 countries where we operate.\nAs a reminder, Norway and Denmark remain the only countries that we have not entered into an agreement to sell.\nWe continue to work toward the closing of the other pending divestitures.\nThese transactions are the result of our intentional effort to evaluate and assess our portfolio for strategic alignment.\nWe believe that by fully exiting the Europe region, we'll be able to better focus our human and financial capital into higher-growth and higher-margin areas, which leads me naturally to our next company priority.\nThe last company priority is our strategic growth pillars, oncology and biopharma services.\nOver the past few years, we set out to accelerate the growth in these two areas and build out what we refer to as ecosystems.\nAs we shared at our Investor Day in December, these are both large and growing markets that have significant unmet needs and opportunities, and we are tackling some of the most complex problems in the healthcare system with the goal to bring efficiency and benefits to all stakeholders across these ecosystems.\nWith the reach of over 1,400 physicians, The US Oncology Network treats 15% of all new cancer patients in the U.S. at one of its 500 sites of service.\nOne of The US Oncology Network's important initiatives is its participation in the oncology care model, which is a five-year experimental payment model with the goal of bringing down the cost of cancer.\nBased on the latest results, The US Oncology Network practices participating in the program achieved high marks on quality metrics and provided significant cost savings to Medicare.\nBy representing approximately one-fourth of all providers participating in the program, The US Oncology Network demonstrated its leadership role in transitioning healthcare to a more value-based approach.\nBuilding upon our deep reach in the community oncology space, we're creating an oncology ecosystem with multifaceted service offerings that are all interconnected.\nAt the center of this connectivity is Ontada, an oncology, technology and insights business dedicated to help advance cancer research and advance patient care.\nWe recently highlighted this business at our Investor Day.\nSince its launch in December of 2020, the team has made great progress transforming ideas into realities.\nOntada signed two agreements with strategic partners to improve patient outcome and quality of patient care, and it was instrumental in the launch of the MYLUNG Consortium, which through real-world research and study provides critical information to improve the patient's journey.\nWithin our biopharma ecosystem, we've built a set of differentiated assets and capabilities, including businesses like RelayHealth Pharmacy, CoverMyMeds and RxCrossroads.\nThey're combined under the Prescription Solutions business with a shared goal to improve access, adherence and affordability of medicines.\nOne of the key customers of our business is biopharma companies.\nThrough our scaled and interconnected technology network, we provide biopharma a range of commercialization services and by automating and simplifying the process of prior authorization, we reduced prescription abandonment and provide biopharma access to new patients.\nOur unique technology capabilities also generate insights into patients' needs and challenges, enabling greater ability to impact patient actions and get better outcomes.\nWe support over 650 brands today, covering 94% of the therapeutic areas, and we're connected to all the major insurance companies and most of the regional payers in the United States.\nThe reach of our network is deep and broad, which is why it's the foundation of our biopharma ecosystem, and we are incredibly excited about the market opportunities it brings.\nOur progress with each of the company priorities has been truly outstanding, and we see the strategy is working.\nThe strong conviction in these priorities will be our North Star as we seek to advance and win in the marketplaces as a diversified healthcare service company and to drive long-term sustainable growth for our shareholders.\nNow before I turn to our third quarter results, I want to provide a brief update on the progress made toward the broad resolution of governmental opioid-related claims.\nTo date, 46 states, all five U.S. territories and Washington, D.C., have joined the proposed settlement.\nThe sign-on period for political subdivisions in participating states to join the previously announced proposed opioid settlement agreement ended on January 26.\nWe have now entered into the evaluation period.\nThe deadline for our decision is February 25, 2022.\nWe continue to work with all parties to bring meaningful relief to affected communities and toward resolutions, which will allow us to further focus on the strategic priorities of our business.\nNow let me get to the results.\nWe're pleased to report a strong third quarter with total company revenues of $68.6 billion and an adjusted earnings per diluted share of $6.15, ahead of our expectations.\nAs a result of our performance in the underlying business and the contribution from COVID-19-related items, we are raising our adjusted earnings per diluted share guidance to $23.55 to $23.95.\nThis is from the previous range of $22.35 to $22.95.\nThe third quarter was another example of the nonlinear nature of the recovery from the pandemic.\nAt the beginning of the quarter, volume and utilization trends were recovering as COVID-19 cases continued to decline across the country.\nAlthough we expected a nonlinear recovery trend, the emergence in the spread of the Omicron variant in December was unexpected.\nSince then, we've been closely monitoring its impact.\nOne thing we've learned in the past two years is the resilience of our business and our communities.\nRegardless of the trajectory of the pandemic, we're confident about our ability to adjust and adapt to support our customers and their patients in these challenging times.\nLet's turn to the U.S. Pharmaceutical segment.\nPharmaceutical segment saw 12% adjusted operating profit growth, which was underpinned by the contribution from COVID-19 vaccine distribution and increased specialty volume.\nThrough the third quarter and into January, branded pharmaceutical pricing has tracked in line with our original expectations and consistent with our experience over the past several years.\nFor generics, we continue to benefit from the success and strength of our sourcing operation with ClarusONE.\nWe have not only the scale but the procurement expertise to consistently source products at low cost while protecting the integrity and the safety of the supply chain.\nWe are also proud of our role in supporting the U.S. government's pandemic response effort as the vaccine and booster recommendations for various age groups continues to expand and evolve.\ngovernment's international donation mission.\nIn January, the U.S. government extended the existing COVID-19 vaccine distribution contract through July of 2022, which is roughly in line with the first quarter of our fiscal 2023.\nIn Prescription Technology Solutions, the segment had excellent momentum and delivered an 11% increase to segment adjusted operating profit in the third quarter.\nAs I mentioned earlier, we offer a range of commercial services primarily to biopharma companies.\nAnd this quarter, the growth was led by third-party logistics services and our access adherence and affordability solutions, including our access for more patients product.\nThis segment aligns with our focus on developing the biopharma services ecosystem.\nThe market that we're focused on presents many exciting opportunities, and we estimate the total addressable market to be around $15 billion with good growth potential and an attractive margin profile.\nWe are pleased with the financial performance and expect to continue to drive growth and innovation for McKesson.\nIn Medical-Surgical, we're navigating a dynamic market while growing the business.\nWith surging demand and a complex supply chain, our employees are working tirelessly to secure and deliver key products, playing an important role in the fight against the pandemic.\nThe dedicated team in MedSurg is the foundation to our business growth, and we continue to invest to ensure operational continuity and excellence.\nAs it relates to our International segment, we continue to benefit from COVID-19-related programs in our European operations and Canada.\nThrough December, we've distributed over 81 million vaccines to administration sites in select markets across our international geographies.\nAs we look forward to fiscal 2023, I'm most excited about the progress on the four company priorities.\nSince the rollout of these multiyear strategic initiatives in our fiscal 2019, we've been very focused on execution, making impact and delivering results.\nWhile the pandemic continues to present unknowns, what is certain is that fiscal 2023 will be another year in which we focused on strong execution and strategic advancement.\nOur continued progress toward these four priorities will be a key driver to our sustainable profit growth, strong cash flow and shareholder value creation.\nWe continue to focus on the things that matter most, most to our customers, to our patients, to our employees and to our shareholders.\nIn closing, we continue to be excited about our future growth prospects as we meet the opportunity as a diversified healthcare services company.\nWe have unique and differentiated assets in oncology and biopharma services with unmatched scale and connectivity, and we're strategically positioned to win in these growing markets.\nWe share a mission to improve healthcare in every setting, and that will be achieved only with the dedication and the commitment from our people.\nAnd for the opportunity to work alongside this amazing team, I continue to be humbled and deeply grateful.\nBritt, I'll toss it to you.\nI'm pleased to be here today to discuss our fiscal third quarter results, which reflect another quarter of strong performance across the business driven by operational execution against our growth strategies.\nIn the third quarter, we delivered overall growth compared to the prior year results across each of our segments, including growth over the prior year when excluding COVID-19-related programs.\nLet me start with an update on Europe.\nWe remain committed to fully exit the European region, and the progress of our exit activities are on track.\nToday, we announced that the transactions to sell our Austrian business to Quadrifolia Management and the sale of McKesson's remaining share of our German joint ventures to Walgreens Boots Alliance closed on January 31, 2022.\nThe assets involved in the Austrian transaction contributed approximately $1.5 billion in revenue and $50 million in adjusted operating profit in fiscal 2021.\nThe earnings related to our German joint venture were immaterial.\nNext, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, we anticipate the pending divestiture to sell McKesson's U.K. retail and distribution businesses will close in the fourth quarter of fiscal 2022, and the transaction to sell certain European assets to the PHOENIX Group will close in the first half of fiscal 2023.\nThe net assets included in these transactions are classified as held for sale.\nOur fiscal 2022 guidance includes approximately $0.49 of adjusted earnings per diluted share accretion related to these pending transactions, which is recorded within our International segment.\nThis $0.49 of accretion resulting from the held-for-sale accounting will conclude once each transaction is closed.\nFor fiscal 2023, we currently anticipate approximately $0.10 of adjusted earnings per diluted share accretion related to the held-for-sale accounting based on their current estimated close date for the Phoenix Group transaction.\nNorway and Denmark remain the only countries that we have not entered into an agreement to sell.\nAs previously discussed, we anticipate we will deploy capital to offset dilution resulting from all European divestitures, principally through share repurchases.\nBefore I provide more details on our third quarter adjusted results, I want to point out one additional item that impacted our GAAP-only results in the quarter.\nWe reported a GAAP-only after-tax charge of $829 million related to the sale of retail and distribution businesses in the U.K. to account for the remeasurement of the net assets to the lower carrying amount of fair value less cost to sell.\nThese charges were largely driven by declines in the British pound sterling.\nMoving now to our adjusted results for the third quarter, beginning with our consolidated results, which can be found on Slide 7.\nAs discussed at our Investor Day event in December, we manage the business for the long term, and our financial and strategic framework is focused on shareholder value creation.\nOur financial framework combines three key elements to generate sustainable adjusted earnings per share growth: organic growth, operating leverage and capital allocation.\nThis framework is once again demonstrated by our strong third quarter fiscal 2022 results.\nAdditionally, our leadership supporting the U.S. government's COVID-19 domestic and international vaccine and kitting efforts continues to contribute to growth and the momentum we have built across the business.\nThird quarter adjusted earnings per diluted share was $6.15, an increase of 34% compared to the prior year.\ngovernment; COVID-19 tests and fiscal 2021 impairments for personal protective equipment and related products; and a lower share count.\nConsolidated revenues of $68.6 billion increased 10% above the prior year, primarily driven by growth in the U.S. Pharmaceutical segment, largely due to higher volumes from our retail national account customers; and branded pharmaceutical price increases, which were in line with our initial guidance partially offset by branded-to-generic conversions.\nAdjusted gross profit was $3.4 billion for the quarter, an increase of 8% compared to the prior year, which benefited from the increased contribution from our strong operational performance and previously mentioned COVID-19 programs and related items.\nAdjusted operating expenses in the quarter increased 1% year over year.\nExcluding the impact of held-for-sale accounting on announced divestitures in the International segment, adjusted operating expenses increased 2% year over year.\nAdjusted operating profit was $1.3 billion for the quarter, an increase of 19% compared to the prior year, led by strong operational performance across the segments.\nMoving below the line.\nInterest expense was $41 million in the quarter, an improvement of 25% compared to the prior year.\nOur adjusted tax rate was 19.6% for the quarter.\nIn wrapping up our consolidated results, third quarter diluted weighted average shares were 153.5 million, a decrease of 5% year over year.\nRevenues were $55 billion, an increase of 11% year over year, driven by higher volumes from our retail national account customers and branded pharmaceutical price increases, partially offset by branded-to-generic conversions.\nAdjusted operating profit increased 12% to $735 million, driven by the contribution from COVID-19 vaccine distribution and growth in the distribution of specialty products to hospitals and community commissions.\ngovernment for the distribution of COVID-19 vaccines provided a benefit of approximately $0.26 per share in the quarter, which was in line with our expectations.\nIn the Prescription Technology Solutions segment, revenues were $1 billion, an increase of 33%, driven by higher volume growth related to biopharma services, including third-party logistics services and increased technology service revenue, partially resulting from the growth of prescription volumes.\nAdjusted operating profit increased 11% to $145 million, driven by growth from access and adherence solutions.\nWe continue to experience growth across our broad spectrum, higher-margin capabilities and offerings in this segment.\nWe're pleased with the increased transaction volumes related to our access and adherence solutions and the increasing number of brands that joined our platforms this year.\nWe also experienced increased volumes in our logistics and hub services due to the continued recovery of prescription volumes.\nMoving now to Medical-Surgical Solutions.\nRevenues were $3.1 billion, an increase of 1%, driven by growth in the primary care business and the contribution from kitting storage and distribution of ancillary supplies for COVID-19 vaccines, partially offset by lower revenue from COVID-19 tests in our Primary Care and Extended Care businesses as compared to the prior year.\nAdjusted operating profit increased 18% to $330 million, driven by the contribution from kitting, storage and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program, the prior year impact of an inventory impairment charge related to PPE that incurred in the third quarter of fiscal 2021 and growth in the Primary Care business.\nThe contribution from our contract with the U.S. government related to the kitting, distribution and storage of ancillary supplies for COVID-19 vaccines provided a benefit of approximately $0.31 per share in the quarter, which was above our original expectations.\nNext, let me address our international results.\nRevenues in the quarter were $9.5 billion, an increase of 2%, driven by new customer growth in our Canadian business and volume increases in the pharmaceutical distribution and retail businesses across the segment, which were partially offset by the contribution of McKesson's German wholesale business to a joint venture with Walgreens Boots Alliance.\nOn an FX-adjusted basis, adjusted operating profit increased 41% to $223 million, driven by the reduction as compared to the prior year of depreciation and amortization on certain European assets classified as held for sale, the distribution of COVID-19 vaccines and tests in Europe and strong distribution results in our Canadian business.\nThe held-for-sale accounting in the International segment contributed $0.18 to adjusted earnings in the quarter.\nMoving on to corporate.\nAdjusted corporate expenses were $159 million, an increase of 1% year over year.\nWe incurred opioid-related litigation expenses of $33 million for the third quarter, and we anticipate that fiscal 2022 opioid-related litigation expenses will be approximately $135 million.\nLet me now turn to our cash position, which can be found on Slide 14.\nWe ended the quarter with a cash balance of $2.8 billion.\nFor the first nine months of the fiscal year, we generated free cash flow of $1.2 billion.\nYear-to-date, we made $380 million of capital expenditures, which included investments to support our strategic pillars of oncology and biopharma services.\nFor the first nine months of the fiscal year, we returned $2.2 billion of cash to our shareholders, which included $2 billion of share repurchases and the payment of $206 million in dividends.\nAt our Investor Day event in December, we announced that our board of directors approved an increase of $4 billion to our existing share repurchase program.\nAt the end of our third quarter, $4.8 billion remains on our share repurchase authorization.\nWith this increased authorization, the completed sales of the Austrian business and remaining share in the German joint venture and the anticipated fiscal fourth quarter closure of the sale of the U.K. business, we anticipate executing share repurchases of up to $1.5 billion in the fourth quarter.\nAs a result, we now anticipate returning approximately $3.5 billion to shareholders through share repurchases in fiscal 2022.\nOur strong operating performance, combined with our return of capital to shareholders, reinforces our commitment to driving shareholder value.\nLet me transition and speak to our outlook for the remainder of fiscal 2022.\nA full list of our fiscal 2022 assumptions can be found on Slide 16 through 18.\nWe continue to anticipate a full recovery of prescription volumes.\nHowever, the persistence of COVID-19 and its variants such as Omicron is leading to a nonlinear trajectory.\nIn the U.S. Pharmaceutical segment, we anticipate revenue to increase 8% to 11% and adjusted operating profit to deliver 8% to 10% growth over the prior year.\nWe continue to see stable fundamentals in our U.S. Pharmaceutical business.\nSpecifically, our outlook for branded pharmaceutical pricing of mid-single-digit increases in fiscal 2022 remains consistent with both our original guidance and prior year.\nAnd our view of the generics environment remains competitive yet stable.\nOur guidance remains aligned to the volume distribution schedule provided by the CDC and U.S. government and includes the contribution related to our role as the centralized distributor for the U.S. government's COVID-19 vaccine distribution program.\nWe'll continue to update you on the progress and contribution from this program.\nWhen excluding COVID-19 vaccine distribution in this segment, we anticipate approximately 3% to 6% adjusted operating profit growth.\nAnd as a reminder, our investments in our leading and differentiated position in oncology will continue to represent an approximate $0.20 headwind in fiscal 2022.\nIn our Prescription Technology Solutions segment, we anticipate revenue growth of 32% to 36% and adjusted operating profit growth of 24% to 28%.\nThis growth reflects the strong momentum in the business as we project increased volumes across new and existing biopharma solutions and customers.\nOur outlook assumes 15% to 19% revenue growth and adjusted operating profit growth of 51% to 55% over the prior year.\nOur outlook includes $0.85 to $1.05 related to the contribution from the U.S. government's distribution of ancillary supply kits and storage programs and $0.75 to $0.95 related to the net impact of COVID-19 tests and PPE impairments and related products.\nWhen excluding the impacts of these items in this segment, we anticipate 22% to 26% growth over the prior year.\nOne additional reminder related to our U.S. distribution businesses.\nOn our earnings call in November, we discussed the highly competitive labor market, which continues to persist.\nWe also outlined an assumption for a modest labor-related expense impact to ensure support of our talent strategy and continued service continuity through the second half of our fiscal year.\nBased on labor market trends experienced in the third quarter and our expectations for the remainder of the fiscal year, we continue to anticipate approximately $0.10 to $0.20 of adjusted operating expense impact in our U.S. distribution businesses in the second half of the year, weighted slightly higher in our medical segment.\nFinally, in the International segment, our revenue guidance is 2% decline to 1% growth as compared to the prior year.\nAnd as a reminder, this reflects the impact from the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance in the third quarter of fiscal 2021.\nFor adjusted operating profit, our guidance reflects growth in the segment of 43% to 47%.\nThis includes approximately $0.49 of adjusted earnings accretion in fiscal 2022, resulting from held-for-sale accounting related to our agreement to sell certain European assets.\nTurning now to the consolidated view.\nOur increased guidance assumes 8% to 11% revenue growth and 24% to 27% adjusted operating profit growth compared to fiscal 2021.\nOur full year adjusted effective tax rate guidance of 18% to 19% remains unchanged.\nAnd we anticipate corporate expenses in the range of $570 million to $620 million, an improvement from the previous range of $610 million to $660 million related to our focus on operating leverage, which we highlighted at our recent Investor Day event.\nLet me now turn to cash flow and capital deployment.\nWe expect our businesses to continue to drive strong free cash flows and returns on capital even as we continue reinvesting to support sustainable long-term growth.\nThis strong free cash flow generation provides the financial flexibility to execute a balanced capital allocation approach, including investing in our strategic growth pillars of oncology and biopharma services, while remaining committed to returning capital to shareholders through our growing dividend and share repurchases.\nOur investment-grade credit rating remains a priority, and it underpins our financial flexibility.\nFor fiscal 2022, we continue to anticipate free cash flow of approximately $3.5 billion to $3.9 billion, which is net of property acquisitions and capitalized software expenses.\nAs a reminder, historically, we generate a larger portion of our cash flows in the fourth quarter of our fiscal year.\nOur working capital metrics and resulting cash flows vary from quarter to quarter, impacted by timing, which could include the timing of planned European divestiture activity.\nWe also now anticipate diluted weighted shares outstanding to range from 154 million to 155 million for fiscal 2022.\nThis includes the impact of the anticipated $1.5 billion of fourth quarter share repurchases mentioned earlier.\nAs a result of our strong year-to-date performance and our outlook for the remainder of the fiscal year, we are raising and narrowing our previous adjusted earnings per share guidance range to $23.55 to $23.95, which is above our previous range of $22.35 to $22.95.\nOur updated outlook for adjusted earnings per diluted share reflects 37% to 39% growth compared to the prior year.\nFiscal 2022 adjusted earnings per diluted share guidance also includes $2.99 to $3.59 of contribution attributable to the following items: $0.90 to $1.10 related to the U.S. government's COVID-19 vaccine distribution; $0.85 to $1.05 related to the kitting, storage and distribution of ancillary supplies; $0.75 to $0.95 related to COVID-19 tests; and the fiscal 2021 impairments for PPE and related products, which is an increase from the previous range of $0.50 to $0.75; and approximately $0.49 from gains and losses associated with McKesson Ventures' equity investments, which are within our corporate segment.\nExcluding the impacts of these items from both fiscal 2022 guidance and fiscal 2021 results, this indicates 27% to 33% forecasted growth over the prior year.\nWhen you pull it all together, our strong performance and our outlook equates to an adjusted earnings per diluted share guidance increase of $1.10 compared to our previous fiscal 2022 outlook provided at Investor Day.\nThe $1.10 adjusted earnings per diluted share increased includes the following: approximately $0.45 driven by strong underlying business performance and operating leverage, approximately $0.22 related to COVID-19 tests, approximately $0.22 related to held-for-sale accounting and reduced opioid litigation expenses, and approximately $0.20 related to MCI interest expense and lower weighted average shares outstanding.\nLet me spend just a minute providing some initial thoughts on fiscal 2023.\nI want to point out that we are not providing fiscal 2023 guidance at this time.\nHowever, I thought it would be instructive to walk you through some of the items that could impact fiscal 2023 as we sit here today.\nFirst, the COVID-19 pandemic continues to present many unknowns.\nWe continue to expect a full recovery.\nHowever, it is likely to continue to be nonlinear into fiscal 2023, and it could impact the quarterly cadence.\nIn the U.S. Pharmaceutical and Medical-Surgical Solutions segments, our contracts with the U.S. government to serve as the centralized distributor of COVID-19 vaccines and to assist with the kitting, storage and distribution of ancillary supplies are scheduled to expire in July of 2022.\nOutside of the contract with the U.S. government for COVID-19 vaccine distribution, we anticipate normal customer renewal activity in the U.S. Pharmaceutical segment.\nAs it relates to COVID-19 tests, we continue to anticipate that demand will be closely associated with the rate of COVID case levels, and impact from variants will moderate from prior year levels.\nFor the International segment, we anticipate $0.10 of adjusted earnings per diluted share accretion in the first half of fiscal 2023 related to the held-for-sale accounting based on the current estimated close date for the PHOENIX Group transaction.\nWe will no longer report revenue, adjusted operating profit or held-for-sale accounting benefits related to these transactions once the transactions close.\nWe anticipate that opioid litigation expenses will remain relatively in line with our fiscal 2022 guidance until we have a completed assessment of government entity participation in the proposed settlement and a final determination regarding that settlement.\nWe'll continue to update you on the outcome of that determination and remaining opioid litigation expenses.\nWe anticipate further investment to support the growth of our two key strategies of oncology and biopharma services.\nOverall, we continue to see strength and stability in the underlying fundamentals of the business heading into fiscal 2023, and we remain optimistic about future growth opportunities.\nWe'll share more details with you about our fiscal 2023 outlook in our fourth quarter earnings call in May.\nIn closing, we are pleased with the results of our fiscal third quarter, and we have a strong financial outlook.\nMcKesson continues to deliver strong results as we successfully executed against our strategic and financial framework.\nWe continue to focus on the things that matter most to our customers, patients and shareholders as a diversified healthcare services company.",
        "summary": "compname reports qtrly total revenues of $68.6 bln, up 10%.\nqtrly total revenues of $68.6 billion increased 10%.\nqtrly adjusted earnings per diluted share of $6.15.\nincreased fiscal 2022 adjusted earnings per diluted share guidance range to $23.55 to $23.95."
    },
    {
        "text": "At this time, all participants are in a listen-only mode.\nPlease note that this conference is being recorded and will be available for replay.\nFor information on how to access the replay, please visit our website at mdcholdings.com.\nThese and other factors that could impact the company's actual performance are set forth in the company's first quarter 2021 Form 10-Q, which is expected to be filed with the SEC today.\nIt should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures.\nMDC Holdings delivered another quarter of strong profitability in the first quarter of 2021 generating net income of $111 million or $1.51 per diluted share.\nOur teams did an excellent job executing in their respective markets, leading to double-digit year-over-year increase in closings, orders and quarter-end backlog for our company.\nWe also expanded our home sales gross margins by 200 basis points and improved our SG&A leverage by 180 basis points.\nThese results are a testament to the favorable housing fundamentals that exist today as well as the strategic focus of our company, which targets the more affordable segment of the market and adheres to a build-to-order operational model.\nWe ended the quarter with 7,686 homes in backlog, a 65% increase over the first quarter of 2020.\nOn a dollar value basis, our backlog stood at $3.9 billion and represents the highest quarter end backlog value in our company's history.\nThis gives us great visibility into our closings for the remainder of the year and allows us to focus more on our efforts to maximize profitability with our existing sales efforts.\nThe demand for new homes during the quarter remained strong and continued to be broad-based in nature as we witness positive trends across the number of markets and price points.\nOur unit orders increased 34% year-over-year, mainly due to the acceleration in orders per community, which averaged 5.6 per month in the quarter.\nThis figure could have been even higher were not for our efforts to balance orders and pricing to best manage our backlog.\nWe continue to see particular strength at our more affordably priced communities as homebuyers from all demographic segments look for alternatives to the lack of availability in the high cost of existing homes in most markets.\nThis has been a focus for ours for the last several years and the response has been incredible.\nToday's homebuyers are looking to get more out of their homes than ever before.\nThey want something that is tailored to suit their needs, whether it be a home office, a place to exercise or an entertainment venue.\nOur home offerings are intended to cater to the desire for personalization and our home galleries provide even more options for our buyers.\nWe believe this approach leads to a higher customer satisfaction and better results for our company over time.\nAnother benefit to our build-to-order model is that it's more consistent and stable to run the business.\nBuilding out speculative inventory can be lucrative during periods of heightened demand, but it can also be a result in a glut of completed homes and a lack of pricing power when the market turns.\nWe feel a more prudent strategy is to start the build process once the contract is in hand.\nThis is part of our ongoing strategy to be a builder that operates through housing cycles rather than is consistently chasing market then.\nAnother way in which we operate in housing cycles is by maintaining a strong balance sheet.\nOur total availability liquidity at the end of the first quarter was over $1.9 billion, with cash and cash equivalents representing over $750 million of that figure.\nOur debt-to-capital ratio was 38.6% and our net debt-to-capital ratio was 22.3%.\nRecently, S&P, a global rating, recognized this financial strength as well as our consistent operational performance by upgrading our credit rating to investment-grade.\nHaving access to low cost capital is a key ingredient for success in our industry.\nAnd the fact that we are one of the few builders with an investment-grade rating is a competitive advantage.\nOur strong balance sheet also gives us the ability to pay out an industry-leading quarterly dividend of $0.40 per share, which is up 31% from the first quarter of last year.\nReturning capital to shareholders via dividends has been a hallmark for our company for years now and we believe it is a great way to attract and reward long-term shareholders.\nWe ended the first quarter with the largest backlog on a dollar value basis in our company's history, giving us great visibility into the remainder of the year and supporting our decision to make significant investments in land that will serve as a foundation for the growth in the coming years.\nWe delivered another quarter of strong profitability generating net income of $111 million or $1.51 per diluted share.\nThis represented a 201% increase from the first quarter of 2020.\nHome sale revenues grew 49% year-over-year to over $1 billion, while homebuilding operating margin improved by 380 basis points from the prior-year quarter.\nThe growth in home sale revenues and margin expansion resulted in a 129% increase in pre-tax income from our homebuilding operations to $113.5 million.\nIn addition, our financial services pre-tax income increased to $30.8 million compared to a loss of $1.1 million in the first quarter of 2020.\nThe increase was driven by our mortgage business, which continues to benefit from the increased volume generated by our homebuilding operations.\nOur mortgage business further benefited from a year-over-year improvement in capture rate and profit margin on loans originated.\nAdditionally, our financial services pre-tax income in the first quarter of 2020 was negatively impacted by $13.9 million of unrealized losses on equity securities, whereas no such loss was incurred in the first quarter of 2021.\nOur tax rate decreased from 24.3% to 23.3% for the 2021 first quarter.\nThe decrease in rate was primarily due to an increase in the estimated amount of energy tax credits to be recognized during the year.\nFor the remainder of the year, we currently estimate an effective tax rate of 24%, excluding any discrete items and not accounting for any potential changes in tax rates or policy.\nHomes delivered increased 41% year-over-year to 2,178, driven by an increase in the number of homes we had in backlog to start the quarter.\nThis was slightly below our previously estimated range of 2,200 to 2,400 closings.\nFrom a construction standpoint, we completed enough homes to reach the top end of our range.\nHowever, with cycle times extending by about two weeks from the fourth quarter, we had an unusually high volume of closings for the final week of March that caused a delay in the timing of certain pre-closing activities.\nAs a result, we moved some of our expected first quarter closings into the month of April.\nIn spite of these minor delays, we remain confident in reaching our full-year target range for closings of between 10,000 and 11,000 units.\nFor the second quarter, we are anticipating home deliveries to reach between 2,500 and 2,700 units.\nWe continue to see lower backlog conversions year-over-year as a result of considerable year-over-year increases in net orders and, to a lesser extent, increased cycle times.\nWe believe that cycle times could increase further due to longer lead times for various building products and high demand for labor required to build homes.\nThe average selling price of homes delivered during the quarter increased 6% to about $478,000.\nThis increase was the result of price increases implemented across the majority of our communities over the past 12 months as well as a shift in the mix of homes closed from Arizona and Florida to Southern California and the Mid-Atlantic.\nWe expect the average selling price for our 2021 second quarter unit deliveries to approximate $500,000.\nGross margin from home sales improved by 200 basis points year-over-year to 21.9%.\nWe experienced improved gross margin from home sales across each of our segments on build-to-order and spec home deliveries, driven by price increases implemented across nearly all of our communities over the past 12 months.\nGross margin from home sales also benefited from a 40-basis-point improvement in our capitalized interest in cost of sales as a percentage of the home sale revenues, which is a great example of how our business continues to benefit from increasing scale.\nWe continue to closely monitor building costs, which have increased as a result of the pandemic.\nHowever, we have been successful to this point in offsetting most of these increased costs through home price increases.\nGross margin from home sales for the 2021 second quarter is expected to be approximately 22.5%, assuming no impairments or warranty adjustments.\nWe continued to benefit from improved operating leverage during the first quarter as our SG&A expense as a percentage of home sale revenues decreased 180 basis points year-over-year to 11%.\nGeneral and administrative expenses increased $12.1 million due to increases in compensation-related expenses, including higher average headcount during the quarter.\nFor each of the remaining quarters of 2021, we currently estimate that our general and administrative expense to be at or above the $57 million we just recognized during the first quarter.\nMarketing expenses increased $4.3 million due to variable marketing costs such as deferred selling amortization and master marketing fees as well as increased online advertising costs.\nOur commission expenses as a percentage of home sale revenues decreased 20 basis points as we have taken steps to control these costs during this period of strong demand for new housing.\nAs previously mentioned, our homebuilding operating margin, defined as gross margin from home sales, minus our SG&A rate, grew by 380 basis points year-over-year to 10.9%.\nOn the strength of this improvement, as well as the success of our mortgage operations, our last 12 months pre-tax return on equity increased by more than 1,000 basis points year-over-year to 27.6%.\nLet's look at our net new home order information for the quarter on Slide 9.\nThe dollar value of our net orders increased 50% year-over-year to $1.64 billion and unit net orders increased by 34%, driven by a 30% increase in our monthly absorption rate to 5.6.\nAs David mentioned, demand continued to be broad based in nature with particular strength at our more affordably priced communities.\nAlso, as previously noted, our net new home orders for the first quarter could have been even higher were it not for our efforts to balance orders and pricing to best manage our backlog.\nThe average selling price of our net orders increased by 12% year-over-year, driven by price increases implemented over the past 12 months as well as decreased sales incentives.\nWe ended the quarter with 186 active subdivisions and expect this number to remain relatively consistent throughout the second quarter before seeing growth in our active subdivision count during the second half of the year.\nThe average selling price of homes in backlog increased 9% due to price increases implemented over the past 12 months, decreased incentives and a shift in mix to California.\nThese factors were slightly offset by a shift in mix to lower-priced communities, consistent with our ongoing strategy of offering more affordable home plans.\nI will turn now to land activity on Slide 11.\nWe approved 4,347 lots for acquisition during the quarter, a 108% increase from the prior-year, reflecting our confidence in market conditions and our focus on continued growth.\nWe acquired 3,231 lots during the quarter across 60 subdivisions, which is a 90% increase from the prior year.\nThis included the acquisition of our first lots within our newly formed division in the Boise market.\nLand acquisition and development spend for the quarter totaled $358.7 million.\nAs a result of our recent land acquisition and lot approval activity, our total lot supply to end the quarter exceeded 32,000 lots, representing an 18% increase from the prior-year.\nWe believe that this lot supply, combined with continued lot approval and acquisition activity, provides us with a solid platform to meet our growth targets.\nIn summary, we are pleased with our start to 2021 and believe that housing backdrop remains favorable as we look forward to the rest of the year.\nWe are mindful that there are many risks to achieving our goals for 2021.\nWith that said, we are confident that our talented employees across the country will continue to be successful in mitigating these risks as we work to execute our strategic plan.\nWith respect to the pandemic, we are encouraged by the increase in vaccinations occurring in the United States and other parts of the world.\nHowever, we are keenly aware that much uncertainty remains.\nAs such, we remain firmly committed to ongoing safety protocols that keep our customers, subcontractors and employees safe.",
        "summary": "q1 earnings per share $1.51.\nqtrly home sale revenues grew 49% year-over-year on a 41% increase in closings and 6% rise in average selling prices.\nqtrly home sale revenues increased 49% to $1.04 billion from $697.1 million.\nsees home deliveries for 2021 q2 between 2,500 and 2,700.\nsees average selling price for 2021 q2 unit deliveries of approximately $500,000.\nsees full year 2021 home deliveries between 10,000 and 11,000."
    },
    {
        "text": "[Operator Instructions] For information on how to access the replay, please visit our website at mdcholdings.com.\nThese and other factors that could impact the company's actual performance are set forth in the company's second quarter 2020 Form 10-Q, which is expected to be filed with the SEC today.\nIt should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures.\nThe combination of low interest rates, constrained existing home supply and a heightened interest in single-family home ownership has resulted in a very favorable environment for our industry.\nFollowing a steep decline, marked by slower traffic and increased cancellations at the outset of the pandemic, we began to see order activity return to pre-COVID levels in May.\nThis momentum continued into June, with net orders eclipsing last year's June totals by 53%.\nFor the quarter, net orders were up 5%, given the uncertainties and sales obstacles we faced at the end of the first quarter.\nThe strong demand trends we experienced in the quarter were broad based, both from a buyer segment and a geographic standpoint.\nThe strongest part of the market continues to be at the more affordable price points, which has been a strategic focus of ours for some time now.\nWe're seeing an increased number of millennials who are entering their prime home-buying years, and this trend has only been accelerated by the pandemic.\nThe new home industry is also benefiting from market share gains versus the existing home market, as the combination of low existing supply and the increased preference for new construction has served as tailwinds.\nAnother driver of our order success has been our continued focus on a build-to-order model.\nEven with a heightened sense of urgency to own a home, many homebuyers continue to prefer the flexibility of personalization that comes in a home built with their preferred finishes and selections.\nWe believe this is especially true for our core buyer demographic, who are looking not only for value but also a home that fits their needs.\nThe benefits of this strategy for MDC are that it allows for higher-margin revenues from our home galleries, reduced volatility in our results and proves a competitive advantage relative to spec-focused builders.\nOur build-to-order operating model is also limits the need to use price discounts or heavy incentives.\nIn fact, in most markets, we have been actively raising prices and scaling back incentives due to the strong demand we've experienced.\nOur homebuilding gross margin in the quarter increased to 20%, reflecting this pricing discipline.\nIn addition to maintaining price discipline, with respect to our homes, we also exercised cost discipline across our organization during the quarter, leading to a 90 basis points year-over-year improvement in our SG&A ratio.\nThis improvement can be attributed to the higher revenue we generated in the quarter, as well as certain cost reduction measures taken during this period of uncertainty.\nIn summary, I'm very pleased with our results this quarter, particularly in light of all that has transpired over the last four months.\nOrder activity improved as the quarter progressed, and we posted significant increases to both revenues and profits relative to last year.\nGiven these favorable market conditions, we are now targeting 8,000 home deliveries for the 2020 full year.\nIn addition, we ended the current quarter in great financial shape, giving us the financial flexibility to continue to invest in our business and pay the industry-leading dividend.\nThe current pandemic has far-reaching impact on how we live and work.\nAnd I could not be more impressed on how our team members have adopted to and excelled in this new environment.\nI am truly appreciative of all of their efforts.\nNow I'd like to turn over to Bob Martin for more detail on the results of this quarter.\nAs you can tell from Larry's comments, we were pleased with our performance during the second quarter as the initial shock of the pandemic in March and April gave way to a renewed consumer interest in homeownership in May and June.\nThe combination of our diverse selection of affordable homes, combined with our increasingly distinct build-to-order business model, has proven to resonate with homebuyers.\nBefore getting into more detail on current market conditions and order trends experienced during the quarter, I would like to provide some commentary on what was ultimately a very resilient second quarter.\nNet income increased 55% to $84.4 million or $1.31 per diluted share for the second quarter of 2020.\nBoth our homebuilding and financial services businesses contributed to these year-over-year improvements as pre-tax income from our homebuilding operations increased $23.3 million or 38%, and our financial services pre-tax income increased $14 million or 110%.\nThe increase in homebuilding pre-tax income was the result of a 21% increase in home sale revenues and a 160 basis point improvement to our homebuilding operating margins.\nThe increase in financial services pre-tax income was due to our mortgage business, which experienced higher interest rate lock volume, an increased capture rate and increased net interest income on loans originated during the quarter.\nOur tax rate decreased from 26.6% to 24.4% for the 2020 second quarter.\nThe decrease in rate was primarily the result of a windfall benefit on equity awards as well as energy tax credits related to homes closed during the quarter.\nFor the third and fourth quarters, we currently estimate a 25% tax rate, excluding any discrete items.\nHomes delivered increased 25% year-over-year to 1,900, driven by an increase in the number of homes we had in backlog to start the quarter.\nThe increase was slightly offset by a decrease in our backlog conversion rates due to construction delays in certain markets as a result of the pandemic.\nThe increase in units delivered was slightly offset by a 4% decrease in our average selling price to about $467,000.\nThis decrease was in line with our strategic focus on affordability as a percentage of our deliveries for more affordable product collections rose to 54% for the second quarter of 2020 versus 44% for the same period a year ago.\nWe are anticipating home deliveries for the third quarter of 2020 to be between 1,902 and 2,100.\nBacklog conversion for the third quarter may be slightly lower than the third quarter of 2019 as a result of the significant increase in June orders compared to the prior year, which we are unlikely to deliver in the third quarter.\nFor the full year, we are estimating to deliver between 7,700 and 8,000 homes.\nAs previously mentioned, our gross margin from home sales improved by 70 basis points year-over-year to 20.2%.\nGross margins increased on both build-to-order and speculative home deliveries, driven by price increases implemented across the majority of our communities over the past 12 months.\nIt should be noted that during the second quarter of both 2020 and 2019, we recorded decreases to our warranty accrual, which positively impacted gross margins by 20 basis points in each period.\nGross margin from home sales for the 2020 third quarter is expected to again approximate 20%, excluding impairments and warranty adjustments, consistent with the 2020 second quarter.\nWe demonstrated solid operating leverage for the quarter as our SG&A expense as a percentage of home sale revenues decreased 90 basis points year-over-year to 10.4%.\nOur total dollar SG&A expense for the 2020 second quarter was up $9.6 million year-over-year, mostly due to variable selling and marketing expenses that increased in line with the 21% increase in home sale revenues during the period.\nOur general and administrative expense was up only modestly for the second quarter as increases in stock-based compensation and bonus expense, driven by strong operating results during the quarter, were partially offset by cost reduction measures implemented at the outset of the pandemic.\nFor the third and fourth quarter of 2020, we may see a significant increase to our general and administrative expense relative to the $40.4 million expense we just recognized in the second quarter.\nThis would be, in large part, related to an increase in stock-based compensation expense for performance share units, if market conditions and our performance remain strong.\nWe saw this type of increase in 2019 from the second to the third quarter based upon a significant acceleration in net order activity.\nWe may also see salaries and other compensation-related expenses rise based on additional headcount that may be necessary to facilitate growth.\nThe dollar value of our net orders increased 8% year-over-year to $1 billion.\nUnit net orders increased by 5%, driven by a 2% increase in our monthly absorption rate to 4.2%, and a 2% year-over-year increase in average active subdivisions.\nThe average selling price of our net orders increased by 3% year-over-year, driven by price increases implemented over the past 12 months as well as a shift in mix to California, which has our highest average price.\nOn the next slide, we've provided some detailed information on the monthly pace of sales and cancellations during the second quarter.\nAs Larry noted earlier, we experienced a sharp rebound in order activity during the latter part of the second quarter, culminating with June net new home orders increasing 53% year-over-year.\nWe also saw the rate of cancellations decrease as the quarter progressed.\nSome of the improvement is likely the result of pent-up demand after stay-at-home orders kept many buyers away from our communities.\nHowever, other favorable demand drivers, such as low interest rates and constrained existing home supply, have played an equally important role.\nWe believe that these factors, combined with the recent migration away from expensive high-density urban areas, will continue to provide a tailwind for demand as we head into the second half of the year.\nTo that end, our third quarter sales have already started strong.\nBased on the activity we've seen to date, we expect our July 2020 net orders to exceed our July 2019 orders by at least 50%.\nWe ended the quarter with an estimated sales value for our homes in backlog of $2.4 billion, which was up 23% year-over-year.\nThe average selling price of homes in backlog increased 3% due to price increases implemented over the past 12 months, decreased incentives and a shift in mix to California.\nThese factors were slightly offset by a shift in mix to lower-priced communities, consistent with our ongoing strategy of offering more affordable home plans.\nWith the uncertainty created by COVID-19, especially during the first half of the quarter, we approved only 1,244 lots for purchase during the second quarter of 2020.\nThis was a significant drop from each of the past four quarters.\nHowever, even with the drop in lot approvals, our lot supply to end the quarter was 6% higher than at the same point in 2019.\nAdditionally, given the strong demand that we have seen in recent months, we have significantly accelerated our lot approval activity to start the third quarter.\nWe recognize that there are many uncertainties with regard to the pandemic and its ultimate impact on the U.S. economy, which have the potential to cause future disruption to our industry.\nHowever, we believe that our strong balance sheet is built to counter such disruptions, if they do occur.\nThat said, we believe that MDC is well positioned for strong results in the second half of 2020, given an improved backlog, favorable industry trends and a strong strategic positioning.\nOur build-to-order business model will remain a key fixture for our value proposition, providing a competitive advantage with homebuyers looking for a quality home, personalized to their unique preferences.\nMost importantly, we remain committed to the safety of our employees, customers and subcontractors as we work to provide much-needed housing supply to families in the markets we serve.",
        "summary": "compname announces q2 earnings per share $1.31.\nq2 earnings per share $1.31.\nqtrly home sale revenues increased 21% to $886.8 million.\nqtrly average selling price of deliveries down 4% to $466,700.\nqtrly dollar value of net new orders increased 8% to $1.04 billion.\nsees home deliveries for 2020 q3 between 1,900 and 2,100.\nsees full year 2020 home deliveries between 7,700 and 8,000.\nqtrly dollar value of ending backlog up 23% to $2.37 billion."
    },
    {
        "text": "I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations.\nJoining me are Geoff Martha, Medtronic's, Chairman and Chief Executive Officer; and Karen Parkhill, Medtronic's Chief Financial Officer.\nGeoff and Karen will provide comments on the results of our second quarter, which ended on October 29th, 2021, and our outlook for the remainder of the fiscal year.\nToday's event should last about an hour.\nUnless we say otherwise, all comparisons are on a year-over-year basis and revenue comparisons are made on an organic basis.\nSecond quarter organic revenue comparisons adjust only for foreign currency, as there were no acquisitions or divestitures made in the last four quarters that had a significant impact on total Company or individual segment quarterly revenue growth.\nReferences to sequential revenue changes compared to the first quarter of fiscal '22 and are made on an as reported basis.\nAnd all references to share gains or losses refer to revenue share in the third calendar quarter of 2021 compared to the third calendar quarter of 2020 unless otherwise stated.\nAnd finally, our earnings per share guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.\nWith that, let's head into the studio and get started.\nObviously, our end markets were impacted by the COVID-19 resurgence and the healthcare system staffing shortages, particularly in the US, which affected our quarterly revenue growth.\nProcedure volumes were lighter than expected in markets, where our technology is used in more deferrable procedures like our spine business or those that require ICU bed capacity like TAVR.\nYet in markets, where procedures are less deferrable like pacing, we experienced stronger growth.\nWhile the US market was a headwind, many of our international markets were much stronger.\nWe delivered 6% revenue growth outside the US, including mid teens growth in emerging markets.\nAnd our emerging market growth is up 9% versus pre-pandemic levels in Q2 fiscal '20.\nIn the midst of these market headwinds, we focused on managing what was in our control and executed to advance our pipeline, launched new products and win share.\nAnd when you look at our sequential revenue performance, our 2% decline was slightly better than most of our large cap medtech competitors.\nWhile the pace of the recovery from pandemic headwinds is hard to predict, our markets will recover, and as that happens, Medtronic is one of the best-positioned companies in healthcare.\nThe underlying health of our business is strong,and it's getting stronger.\nWe have an expansive pipeline of leading technology, a robust balance sheet and an expanding roster of proven top talent.\nCoupled with our revitalized operating model and new competitive mindset, we remain poised to accelerate and sustain growth.\nAs I've done in prior quarters, let's start with a look at our market share performance.\nYear-over-year market share is an important metric that our teams are evaluated against in their annual incentive plans, along with revenue growth, profit and free cash flow.\nAnd right now, the majority of our businesses are winning share, driven by our innovation and increased competitiveness.\nAnd this is exactly the sort of market share performance that gives us confidence in the deep strength of our businesses.\nAnd to avoid any confusion about how we're performing when we talk about our share dynamics, we'll refer to revenue share in the third calendar quarter to keep it directly comparable to our competition.\nShare momentum in our three largest businesses continued.\nIn the Cardiac Rhythm Management business, we extended category leadership, adding over a point of share year-over-year, driven by our differentiated Micra family of pacemakers, Cobalt and Crome high power devices and our TYRX antibacterial envelopes.\nIn surgical innovations, we outperform competition with strong performances in endo stapling and sutures, and our Signia powered stapling system, and Tri-Staple technology continues to see great market adoption.\nIn Cranial & Spinal Technologies, we're winning share and launching new spine implants that enhance the overall value of our ecosystem of preoperative planning software, imaging, navigation and robotic systems, and powered surgical instruments, which is transforming care in spine surgery.\nOur new implants also go directly at the competition.\nStarting this past quarter with our Catalyft expandable interbodies to specifically attract Globus users.\nIn addition to our three largest, a broad array of our other businesses have increased their competitiveness, are launching new products and winning share in their end markets.\nSo for example in patient monitoring, we're winning share with our Nellcor pulse oximetry sensors and our monitors.\nIn respiratory interventions, we picked up four points of share in premium ventilation, due to our ability to respond quickly to spikes in demand from COVID resurgence.\nAnd in neuromodulation, we won share across our product lines, including pain stim and DBS, as we continue to launch new products.\nIn pain stim despite the sequential slowdown in the market, we're gaining share with our Intellis with DTM technology and our Vanta recharge-free system.\nIn DBS, we had a very strong quarter, winning over six points of share.\nWe're executing on the launch of our Percept neurostimulator with brain sense technology paired with our SenSight Directional Lead, and we continue to be the only company with sensing capabilities.\nSince launching SenSight in the US earlier this fiscal year, we surged ahead of the competition in new implant share.\nSensing has redefined what it takes to compete in DBS.\nOur competitors don't have it, and as a result, we're expecting a long runway of share gains, as we build upon our category leadership.\nNow, while the majority of our businesses are winning share, we do have a few businesses that are flat or losing share, and we're focusing our efforts and our investments to grow above the market.\nIn cardiac diagnostics, we're focused on improving supply to reverse share declines, and we're investing in new indications and novel AI detection algorithms to expand the market and drive growth.\nIn cardiac ablation solutions, we expect to win share, as we expand the rollout of our DiamondTemp RF Ablation System and drive awareness and adoption of our Arctic Front Advance Pro cryoablation, as a first line treatment for paroxysmal AF.\nIn diabetes, while we lost share again this quarter, we remain pleased with the momentum we're building outside the US, not only with the 780G insulin pumps, but also with the positive customers' feedback we've heard on our extended infusion set and fingerstick free Guardian Sensor 4.\nAnd we expect our US results to turnaround, as we launch these new products.\nNext, let's turn to our product pipeline.\nI've already talked about the impact, our strong flow of new products is having in the market.\nWe've launched over 180 products in the US, Western Europe, Japan, and China in the last 12 months.\nAt the same time, we continue to advance new technologies that are in development.\nWe're heavily investing in this pipeline with a targeted R&D spend of over $2.7 billion this fiscal year, which is an increase of over 10%, the largest dollar increase in our history.\nWe're expecting these investments to create new markets, disrupt existing ones and accelerate the growth profile of Medtronic.\nLet's start with our Symplicity Renal Denervation procedure for hypertension.\nWhile we weren't able to end our ON MED study early, we remain confident in our program, in our ability to serve the millions of patients, who make up this multi-billion dollar opportunity.\nAs a reminder, our previous three sham-controlled simplicity studies, all reached statistical significance, including the pivotal OFF MED study.\nAnd the ON MED study remains powered to detect a statistically significant and clinically relevant benefit at the final analysis.\nWe expect that ON MED follow-up will complete in the second half of next calendar year, and then, we'll submit the PMA to the US FDA for approval.\nWhen we think about renal denervation, let's start with the patients, who have indicated that they want options like the simplicity blood pressure-lowering procedure to treat their hypertension, as confirmed by our patient preference study presented earlier this month at TCT.\nWe believe demand will be high and we continue to expect this to be a massive opportunity that we will lead.\nAnother opportunity for Medtronic is surgical robotics, where we are entering the soft tissue robotics market, as a second meaningful player.\nWe achieved a major milestone when we received CE Mark for Hugo last month, and we also completed our first procedures with Hugo in our Asia-Pacific region at Apollo Hospitals in India.\nThe first surgeons to use Hugo in the clinical setting have told us they believe Hugo addresses the cost and utilization barriers that have held back the growth of robotic surgery.\nLook, demand is high, and we're building a long list of hospitals that want to join our partners and possibility program and be among the first in the world to use Hugo and participate in our global registry, which will collect clinical data to support regulatory submissions around the world.\nOur robotic program is making progress toward a broader launch, and we remain well-positioned in this critical field relative to every other potential new entrant.\nAs we prepare for this broader launch, we're working hard to ensure an outstanding customer experience.\nWe're also focused on optimizing our supply chain, manufacturing and logistics to prepare for scaling this business.\nWe're making steady progress on these activities, but not at the pace that we had originally planned.\nAnd as a result sales this fiscal year are likely to come in below our $50 million to $100 million target.\nNow, that said, we still expect double digit millions in sales this fiscal year, and we continue to expect a strong ramp in FY '23.\nWe're off schedule, but we're not off track.\nAnd while we're disappointed in the revenue push out for this important program, we're confident that we have line of sight to the solutions we need to be successful and to optimize the customer experience.\nDemand remains high, surgeons continue to do cases, our order pipeline continues to build, and we're looking forward to starting our US IDE soon.\nWe remain confident in the success of this program, and we believe that we're poised to meaningfully expand the soft tissue robotic market and drive growth for years to come.\nIn Cardiac Rhythm, we just launched our Micra AV leadless pacemaker in Japan earlier this month.\nWe also completed the US pivotal study enrollment for our EV ICD, which follows our CE Mark submission in Q1.\nJust as we disrupted the pacing market with Micra, we intend to do the same in the implantable defibrillator space with our EV ICD.\nOur device can both pace and shock without any leads inside the heart and veins, and it does this in a single device that is the same size, as a traditional ICD.\nIn structural heart, we're starting the limited US launch of our next-gen TAVR system, the Evolut FX this month with a full market launch planned for fiscal Q4.\nEvolut FX enhances ease of use with improvements and deliverability, implant visibility and deployment stability.\nWe're also making progress on our transcatheter mitral program.\nAt TCT earlier this month, we presented very encouraging early data of our transfemoral delivery system for our intrepid mitral valve, and we will be rolling that system into our APOLLO pivotal trial.\nIn diabetes, our MiniMed 780G insulin pump combined with our Guardian 4 sensor continue to be under active review with the FDA.\nWhen approved and launched in the US, we expect the 780G system to drive growth, as it will be highly differentiated and further address the burden of daily diabetes management.\nAnd for the first time ever, is helping hard to manage pediatric and adolescent patients achieve outcomes mirroring well-controlled adults.\nThe user experience has also improved markedly, and these outstanding results were achieved with our 780G paired with our Guardian 3 sensor.\nSo we expect the experience will be even stronger with Guardian 4.\nAnd the value of our offering will be further enhanced when we bring our Synergy sensor, which is now called Simplera [Phonetic] to market.\nIt's easier to apply and half the size of Guardian 4, and we expect to submit it to FDA later this fiscal year.\nIn pelvic health, we're awaiting FDA approval for our next-gen InterStim recharge-free device, which we expect in the first half of next calendar year.\nWith its best-in-class battery, constant current, and full-body MRI compatibility at both 1.5 and 3 Tesla, we expect this device will extend our category leadership in this space.\nIn neuromodulation, we recently submitted our ECAPs closed-loop spinal cord stimulator to the FDA.\nWe're calling this device Inceptiv SCS, and we expect it to revolutionize SCS with closed-loop therapy to optimize pain relief for patients.\nWe also continue to make progress on expanding indications for SCS into non-surgical refractory back pain, painful diabetic neuropathy and upper limb and neck chronic pain.\nFinally in DBS, we continue to enroll patients in our ADAPT-PD trial studying our closed-loop adaptive DBS therapy in patients with Parkinson's.\nWe're expecting enrollment in the trial to complete later this fiscal year.\nMedtronic is advancing a pipeline of meaningful innovation that we believe will not only enhance our competitiveness, but will accelerate our total Company growth going forward.\nOur second quarter organic revenue increased 2%, reflecting the market impact of COVID and health system staffing shortages on procedure volumes, primarily in the United States.\nDespite the softer end markets, our team executed to deliver strong margin improvement and earnings growth.\nIn fact, our adjusted earnings per share increased 29% significant growth, reflecting the pandemic impact last year, and our adjusted earnings per share was $0.03 better than consensus with $0.02 from stronger operating profit and a penny [Phonetic] from a lower than expected tax rate.\nOur second quarter revenue growth came in lower than we were expecting back in August.\nWe did see improving trends in our average daily sales each month of the quarter, as COVID hospitalizations declined.\nThat said, the bounce back in the US wasn't as fast as we had expected or had seen in prior waves.\nWe've recognized many of our customers are dealing with staffing shortages on top of increased COVID patients, and we believe that had an increasing effect on procedure volume.\nLooking down our P&L, we had strong year-over-year improvement in our margins, 360 basis points on gross margin, as we continue to recover from the significant impacts from COVID last year and 470 basis points on operating margin, given savings from our simplification program tied to our operating model.\nConverting our earnings into strong free cash flow continues to be a priority.\nOur year-to-date free cash flow was $2.4 billion, up 58% from last year, and we continue to target a full year conversion of 80% or greater.\nTurning to capital allocation, we continue to allocate significant capital to organic R&D, and we continue to seek attractive tuck-in acquisitions to enhance our businesses.\nFor example, Intersect ENT, we announced our intent to acquire back in August.\nIntersect's assets complement our own and are accretive to our WAMGR, plus, we believe we can accelerate their growth around the globe.\nWe're also returning capital back to our shareholders with a commitment to return greater than 50% of our free cash flow, primarily through our dividend.\nYear-to-date, we paid $1.7 billion in dividends.\nAnd as a dividend aristocrat, our attractive and growing dividend is an important component of our total shareholder return.\nLooking ahead, although, the environment remains fluid, we are seeing some improvement in procedures and our average daily sales in the first few weeks of November.\nSo we're encouraged that the negative impact of the pandemic and healthcare system staffing shortages on our markets could be moderating.\nAnd while our operations team has done a terrific job managing our supply chain to-date like other companies, we are dealing with an elevated risk of raw material supply shortages.\nAs a result of these potential headwinds and given we're only mid way through our fiscal year, we believe it is prudent to update our fiscal '22 organic revenue growth guidance to 7% to 8% from the prior 9%.\nIf recent exchange rates hold, foreign currency would have a positive impact on full year revenue of $0 million to $50 million, down from the prior $100 million to $200 million I gave last quarter.\nBy segment, we expect Neurosciences to now grow 9% to 10%, Cardiovascular and Medical Surgical to grow 7.5% to 8.5%, and Diabetes to be down low single digits, all on an organic basis.\nDespite the headwinds, we face on revenue, we will manage well what we can control, which includes expenses not directly tied to our future growth.\nWe will continue to invest heavily in R&D and market development.\nAnd on the bottom line, we reiterate our non-GAAP diluted earnings per share guidance range of $5.65 to $5.75.\nThis continues to include a currency benefit of $0.05 to $0.10 at recent rates.\nFor the third quarter, we're expecting organic revenue growth of 3% to 4% year-over-year.\nThis assumes no real pickup in organic comp adjusted growth versus pre-pandemic levels from what we saw in the second quarter despite the improving trends we saw in September and October.\nWhile we are encouraged by those trends and by what we're seeing in November, we wanted to err on the side of caution with near term guidance given the dynamic macro environment.\nAt recent rates, we're expecting a currency headwind on third quarter revenue of $80 million to $120 million.\nBy segment, we expect Cardiovascular to grow 5% to 6%, Neuroscience 4% to 5%, Medical Surgical 2% to 3%, and Diabetes to be down mid single digits, all on an organic basis.\nWe expect earnings per share between $1.37 and $1.39, with a currency tailwind of $0.02 to $0.04 at recent rates.\nWhile we expect our markets will continue to be affected by the pandemic in the back half of our fiscal year, we remain focused on delivering solid revenue growth, strong earnings growth, and investing in our pipeline to fuel our future.\nWe also remain confident about the underlying strength and competitiveness of our business and our ability to accelerate revenue growth ahead.\nI also want to recognize a new member of our team, who many of you know.\nWe couldn't be more excited to have Bob Hopkins, the top rated medtech analyst over the past three years join our team, as Head of Strategy.\nAnd we look forward to a strong contribution and influence in the years ahead.\nBack to you, Geoff.\nAnd yes, it is great to have Bob here at Medtronic.\nFor the last few quarters, I've been closing by commenting on the progress the Company is making in various areas of ESG, our environmental social and governance impacts.\nPart of the S in ESG is our focus on inclusion, diversity and equity and high employee engagement, which I discussed last quarter, and this makes Medtronic, an attractive destination for top talent.\nIn the release we issued last week, you read about how Bob Hopkins and other highly sought-after world-class leaders chose to join Medtronic and drive our transformation to become the undisputed global leader in healthcare technology.\nIt's very important for our culture that we're bringing in new ideas and diverse perspectives to add to those of our talented leadership and employees across the Company.\nOn the E front of ESG, as you know, we set an aggressive goal last year to be carbon-neutral in our operations by the end of the decade.\nAnd two weeks ago, we upped our game announcing our ambition to achieve net-zero carbon emissions by FY '45 across our value chain.\nThis ambition outlined in our FY '45 decarbonization roadmap will focus on operational carbon neutrality, supply chain greenhouse gas emissions reductions and ongoing logistics improvements.\nTo support our progress, as well as progress across our entire industry, we joined the International Leadership Committee for a net-zero NHS in the UK, and we're taking a leadership role with the US National Academy of Medicine action collaborative to decarbonize the US healthcare sector.\nOur ESG efforts are gaining recognition, as last week, Medtronic was elevated from being a constituent of the Dow Jones Sustainability North America Index to joining a select group of companies in the Dow Jones Sustainability World Index.\nLook, we are really proud of this achievement.\nIn addition, I hope, many of you were able to watch our inaugural ESG Investor Briefing last month, and if you haven't, I encourage that you watch the replay on our Investor Relations website.\nNow, let me close on this note, the lingering effects of the pandemic combined with healthcare system staffing shortages impacted our Q2 revenue more than we originally anticipated.\nWe have both puts and takes on the timing of our pipeline and the supply chain dynamics pose near term challenges, but our challenges will be manageable.\nOur pipeline is delivering, and we're poised to deliver more innovation over the coming quarters and the next several years.\nWe have to show you that we can deliver, but robotics is coming, RDN is coming, closed-loop SCS is coming and our diabetes turnaround is coming and Evolut FX and mitral and EV ICD, and the pending acquisition of Intersect ENT, these are all coming.\nWe're ready to execute and capitalize on these opportunities.\nWe're in good markets, and we're focused on innovating, winning share and maintaining and/or achieving true category leadership across our businesses.\nI know we have more to prove, but I'm confident that our organization, our talented and dedicated 90,000 plus global employees are up for the challenge.\nWe're focused, we're hungry and ultimately we're going to deliver on these opportunities to accelerate our growth.\nAnd as always, we remain deeply committed to creating value for you, our shareholders.\nAnd with that, let's now move to Q&A.\nNow, we're going to try to get as many analysts as possible, so we ask that you limit yourself to just one question.\nAnd if you have additional questions, you can reach out to Ryan and the Investor Relations team after the call.\nWith that, Wynne, [Phonetic], can you please give the instructions for asking a question.",
        "summary": "reaffirms fy non-gaap earnings per share view $5.65 to $5.75 including items.\nmarket procedure volumes impacted by covid-19 resurgence.\nq2 revenue results reflect unfavorable market impact of covid-19 and health system labor shortages on medical device procedure volumes.\nqtrly revenue of $7.8 billion increased 3% reported.\nqtrly cardiovascular revenue of $2.827 billion increased 4% as reported and 3% organic.\nexpect markets to continue to be affected by pandemic in second half of our fiscal year.\nexcluding impact of ventilator sales declines, qtrly medical surgical revenue increased 6% organic.\nqtrly neuroscience revenue of $2.136 billion increased 4% as reported and 3% organic."
    },
    {
        "text": "In today's remarks by management, we will be discussing non-GAAP financial metrics.\nIn fact, in the second quarter, patient volumes across our total span of services has now exceeded pre-pandemic levels.\nOn a same-unit basis, total volume was up 1.3% versus the second quarter of 2019 with hospital-based services up by 10 basis points and office-based services up by 5.2%.\nI'll add that other key metrics that were particularly volatile through last winter continued to show stable improving trends coming into the summer.\nPayer mix remained favorable on a year-over-year basis for the second consecutive quarter and the rate of admission into our NICU did so as well.\nAs a result, our revenue for the quarter of $473 million was above our internal expectations, as was our adjusted EBITDA of $66 million.\nThere are, of course, the risks that we face, most importantly, the recent rise in COVID-19 cases driven by the Delta variant.\nBut that said, our updated view for the full year includes our experience to date.\nLooking forward beyond 2021 and count for the same risks, there are a number of factors that give me increased confidence that we'll see additional growth in adjusted EBITDA in 2022 that will get us pass the $270 million run rate we achieved pre-COVID.\nI'll expand on these in three areas.\nFirst, we're building momentum in our core.\nWhile demand has recovered faster than we had anticipated earlier in the year, we are also helping to drive additional growth across our practices.\nI talked earlier this year about the investments we've made in improving patient access, better scheduling and a drive for increased pace and efficiency.\nQ2 is the first quarter where we can estimate the impact of these initiatives, and we think we've just begun by adding roughly $2 million to the top line in the quarter.\nI'm very confident that this is just the beginning of a long-term payoff.\nAnd please remember that we call this initiative patient access because it's really just that.\nWe want to make sure that patients that need our care receive our care as soon as possible.\nOur reengineered and focused sales efforts are accelerating our pipeline of organic growth.\nWe have such a superb focused and organized team that make this a reality.\nHalfway through this year, our new business bookings and by that, I mean new contract sales have already approached our total bookings for 2020.\nOur win rate has increased.\nOur time to close has decreased, and our pipeline remains robust and diversified across multiple specialties.\nOur M&A pipeline also continues to build with several acquisitions of important specialty groups completed for the year-to-date.\nAs an example, last week, Child Neurology Consultants of Austin joined the MEDNAX family.\nThis group of 12 physicians and three nurse practitioners are among the premium groups of neurologists in the country.\nThe lack of local neurology coverage is a major reason in time to transfer the way from the birth hospital.\nThis is the most recent example of investing to further support our hospital-based practices with subspecialty consultation to allow infants to stay near their homes.\nBut we believe this is also a plan for growth, both geographically and via telehealth.\nSecond, we're still in the early stages of building our presence in children's primary and urgent care.\nFollowing our acquisition of NightLight, we're now in the planning stages for new clinic openings outside of NightLight's hometown of Houston.\nWe're also working on additional investments and initiatives for primary urgent care that we believe will meaningfully accelerate this expansion.\nWe also believe that our breadth and depth in women's and children's health will enable us to actually change nationally many aspects in pediatric care.\nI look forward to doing the calls to cataloging our progress.\nThird, we're making significant progress on improving the efficiency of our practice support infrastructure.\nMark Richards will detail some of this progress, but I'll highlight our previously announced agreement with R1 to transfer our RCM operations to them, which not only gives us immediate G&A savings, but also enables improved bottom line results that I'm certain would not have been possible had we continued on our own.\nTo put these things together, I think you should view our expectations for 2021 as far from the finished products.\nBeyond this year, we believe the full benefit of our efficiency improvements will be paired with our ongoing and compounding growth initiatives that today are only just beginning to bear incremental fruit.\nThese factors together support our confidence that in 2022 we can achieve adjusted EBITDA above the $270 million that I just referenced.\nOf course, none of this is possible without the strength in our core and a singular unwavering focus on our top priority, taking great care of the patients.\nIt's so timely to me to reiterate this to you today.\nBut the fact is that in talking to our clinicians and clinical leadership, it's becoming clear that as the country continues to evolve through this pandemic period, the need for many, many of the highly specialized services our doctors provide is only increasing, which makes it that much more important that these doctors are able to operate as part of a highly integrated collaborative network in order to ensure that patients have access to the services they need exactly at the time they need them.\nThat's why I'll ask Mack, who is a longtime neonatologist and pediatrician, to talk about the why behind the resurgence in volumes we've seen across many specialties as well as the why behind the importance of having access to the full continuum of care for expecting parents, newborns and children.\nI'll start with what we're seeing across the country today.\nAnd then for the benefit of all of our stakeholders, give some thoughts about what we truly are as a national medical group, and how MEDNAX is uniquely positioned to address this current and future environment.\nI would describe the market trends we see today as twofold.\nFirst, as isolation measures became less restrictive, our pediatric specialists are seeing a surge in respiratory illnesses during the summer, illnesses that we typically see during the winter months.\nWe've also seen a significant number of behavioral health issues that have resulted in both pediatric intensive care and pediatric hospital service admissions.\nIn addition to that, the American Academy of Pediatrics now recommends that any child with COVID has a cardiac evaluation prior to returning to sports.\nOur pediatric cardiologists, hospitalists, critical care physicians, surgeons, urgent care physicians and other pediatric specialists are all seeing the near- and long-term consequence of COVID-19.\nRegardless of the immediate rate of infection in our communities, we believe the consequence of isolation and delayed healthcare will continue to require access to the entire spectrum of our pediatric specialty services.\nThese services are scarce national resources and access to them is filed for the health of the children and our communities.\nSecond, alongside the significant increases in total births and NICU admissions we reported this quarter, our maternal fetal medicine volumes have now far surpassed pre-pandemic levels.\nHere, too, for at least the near term, it's clear that trends in pregnancies and deliveries have turned upward.\nAnd across the country, access to highly trained obstetrical specialists is vital for the health of expecting parents facing a high-risk pregnancy.\nAnd in fact, a number of states have highlighted the risk of higher child-work complications that can result from insufficient access to proper care.\nAnd all the payers we work with, both commercial and governmental, stress the importance of access to high-quality maternal care.\nTo put some statistics behind these two phenomena, I'll point out that compared to the second quarter of 2019 on a same-unit basis, volumes in our pediatric intensive care units were up 11.5% and pediatric hospitalist volumes were up 4%.\nOn the office space side, pediatric surgery volumes were up 8% and maternal-fetal medicine was up 9%.\nPediatric cardiology volume is still down slightly by 2%, but we anticipate that, that could increase as we move into the fall.\nAll of these statistics went to the breadth of specialty services provided across our organization and across the country, and the demand for these services has been increasing in this rapidly evolving environment.\nBut beyond these numbers, I'll speak to you now as a physician who's been fortunate to have been a leader of MEDNAX for many years.\nThere's a broad spectrum of care that is absolutely essential for prenatal, newborn and pediatric populations.\nAnd that is exactly what our pediatrics at Stafford's medical groups provides every day of every year.\nWe are far more than a collection of practices and clinicians to ensure our clinicians trust for lives of thousands of women and children every year.\nBut more than that, we are a highly integrated group of affiliated maternal pediatric practices that work together to deliver care across the whole spectrum of pregnancy, childhood and in some cases, even adulthood.\nThis includes maternal-fetal medicine doctors, or the hospitalists and neonatologists, all working closely to provide diagnostic care to mothers who are at risk of the complicated pregnancy and to provide routine and emergency triage evaluation and care to pregnant patients presenting to the hospitals as well as to provide a complete inpatient spectrum of maternal in the neonatal care.\nIt includes pediatric hospitalist to cover smaller community pediatric services to large tertiary referral services, emergency medicine physicians who see patients in dedicated pediatric emergency departments, and pediatric critical care physicians who care for severely ill children and adolescence with a large range of medical and surgical problems, including patients requiring cardiac surgery.\nWith the addition of NightLight Urgent Care, it now includes pediatric urgent care clinicians who see pediatric patients at a time and place convenient for parents in an environment that's the right place for their child.\nAs Mark spoke to earlier, we see an enormous opportunity at MEDNAX to change the way pediatric primary and urgent care is practiced in our country, and this is totally complementary to our core business.\nIt includes developmental medicine specialists who evaluate and treat disorders of development and you see many of our former NICU patients.\nIt includes pediatric cardiologists who evaluate and treat the entire spectrum of childhood cardiac disease as well as adult congenital heart disease patients, and additionally support both neonatology and hospitalized pediatric patient population, including intensive caring cardiac intensive care patients.\nWe continue to add multiple other pediatrics specialties, include neurology, endocrinology, gastroenterology, hematology and infectious disease to better serve our patients and their families.\nAnd this includes rapidly growing pediatric surgical services across general surgery, urology, ophthalmology, orthopedics, E&T and plastic surgery.\nEach of these represents a scarce and highly specialized surgical specialty that's very important to our pediatric communities in their own right, but are also supportive to our inpatient services.\nI hope all of this can help you appreciate how interconnected our organization is.\nIt is this network of care from pregnancy to delivery to childhood and sometimes even beyond that makes what we do special and, in fact, essential.\nAnd of course, we do this in a very close partnership with our hospitals.\nWhen they choose us, the vast majority of the time they stay with us because of our shared commitment to our patients, because of our work to maintain strategic alignment with them, and because they rightly expect and demand the robust resources we at MEDNAX provide to our affiliated clinicians everyday.\nRather than going through each line of our P&L, I'm going to focus today on our G&A restructuring and stabilization efforts during the quarter and our expectations as we move through the second half of this year.\nAnd then, I'll touch on our financial position as it stands today.\nWe had a lot of activity during the quarter that I'll globally describe as the culmination of efforts to refine our support services and create efficiency going forward, all while keeping a priority on service to our practices.\nFirst, as previously disclosed, in May, we finalized an agreement with R1 to transition our RCM functions to them.\nThis agreement followed a thorough decision-making process, from which we concluded that R1's scale, technology investments and dedicated focus on revenue cycle can give our affiliated clinicians capabilities we would never match.\nUnder the terms of our agreement, we realized near-term G&A savings.\nAnd we also expect to benefit over time from future improvements in RCM performance, yield and revenue enhancements.\nIn terms of the impact of this transition on our P&L for the second quarter, it was a net savings to our G&A.\nBut as with any major transformational project, we did record certain onetime expenses within our transformational and restructuring line item, primarily related to expected terminations of other existing third-party RCM contracts.\nIn addition to this agreement, we passed two other important milestones related to information technology and infrastructure modernization.\nWe completed a significant data center consolidation, and we went live on our Oracle ERP solution that represents a far more advanced financial platform.\nThe planning and implementation of both of these have been in the works for some time.\nBut we did incur a surge of IT-related spend in the second quarter to bring all of this over the finish line, which all sized, is roughly $3 million to $4 million over the year-over-year increase in our total G&A when compared to last year.\nThird, we have substantially completed the support services related to the PSA arrangement attached to last year's sale of our anesthesia organization and plan to wind down any remaining services through Q3.\nAs I noted in the past couple of quarters, there will still be some period of time when we're still incurring some of those expenses, but not being reimbursed for them.\nFinally, we sold a secondary corporate office building in Florida during the quarter.\nWe received $25 million in cash proceeds and recorded a $7 million gain on the sale.\nAnd on a go-forward basis, we'll realize approximately $2 million to $3 million in annual G&A savings from the building sale.\nWith all of these actions moving toward in our rearview mirror, we expect our dollar G&A spend for the second half of this year to be below $137 million we incurred during the first half.\nI'll finish with a comment on our financial position.\nWe generated a strong $70 million in operating cash flow for the second quarter.\nWe ended up the quarter with $338 million in cash, up from $270 million at the end of the first quarter, and net debt of $662 million, implying leverage of less than three times.\nIn addition, you'll see on our balance sheet that we also have a $29 million income tax receivable primarily related to the tax elections made with respect to the sale of our Anesthesiology Medical group last year, and we anticipate receiving that cash sometime in late '21 or early '22.\nBased on our expectations of second half adjusted EBITDA and cash flow, this tax receivable and normal uses of cash for capex and M&A, we would expect to end this year with leverage below 2.5 times.\nWe are ready to respond to any questions.",
        "summary": "q2 revenue $473 million versus refinitiv ibes estimate of $448.9 million."
    },
    {
        "text": "In today's remarks by management, we will be discussing non-GAAP financial metrics.\nTotal births at the hospitals where we provided NICU services were up 2.8% on a same-unit basis, and our NICU days were up 5.6%.\nKey metrics such as payer mix and rate of admissions continue to be favorable compared to last year.\nIn fact, for MEDNAX as a whole, our patient volumes, revenue and adjusted EBITDA were all ahead of the same period in 2019, which suggests that at this time, our business has more than recovered from the significant negative impact to the COVID-19 pandemic that we experienced in 2020 and earlier this year.\nMark will give some details of our comparisons to pre-pandemic levels.\nOur revenue for the quarter of $493 million was above our internal expectations as was our adjusted EBITDA of $73 million.\nBased on our results, we now expect that our 2021 adjusted EBITDA will exceed our prior internal expectation of being above $240 million, and we now expect 2021 adjusted EBITDA of at least $250 million.\nWe also fully expect adjusted EBITDA next year to exceed $270 million, absent any major external events.\nThis is still a preliminary view into 2022, and we'll be in a better position to provide a more specific outlook after we finish our budgeting process, but I believe we're building momentum in our business.\nDemand for the critical services that our affiliated clinicians provide not only recovered from last year's disruptions, but continues to grow.\nWe also estimate that the broader growth efforts we have in place have supplemented this demand so far in 2021.\nI'll give some detail here as we see our growth concentrated in several areas.\nFirst, we target opportunities to expand practices or add practices and enhance our hospital relationships and also directly improve care through the coordination of different subspecialties that many patients need to access.\nSecond, in our daily operations, we strive to provide the best 24/7 support possible to our practices, which combines our patient service access initiatives, improving technology support, improving revenue cycle management efficiency, recruiting the best talent and old-fashioned focused managerial actions.\nAnd third, we look for acquisition opportunities where we see a clear combination of bolstering hospital relationships, adding to our patient care and support and a demonstrable growth path within that acquisition.\nAcquisitions haven't been a major part of our activity so far this year, but they could play just as important role as organic growth when we do see them strategically.\nThe sum of these efforts is continuing to ramp up post-COVID.\nAnd importantly, after all of our reorganization activities, pre-COVID.\nFor the 2021 year-to-date, we estimate that we have added approximately three percentage points to our adjusted EBITDA growth versus 2020, over and above the pure same-store growth that our affiliated practices have experienced.\nIn addition to all this activity, we recently announced our investment in Brave Care, and I want to explain why this is actually a very key piece of our growth plan.\nWe again believe that we are totally uniquely positioned to grow in the combined pediatric and primary emergent care space.\nIn our major markets, MEDNAX, under our pediatrics brand alone has the concentration of pediatrician population density, hospital relationships and partnerships and an enormous and growing base of vital patient relationships and our market managerial support that's already in place in our major markets.\nWith our NightLight acquisition in place and in fact, thriving, we have a nucleus from which recent growth.\nBut for this to grow, we needed the engine and the talent to enable building something really meaningful.\nBrave Care brings scalable internal controls and patient-facing technology, systems and protocols that will otherwise take us years to create.\nThe proprietary technology systems and operating platform that Brave's team has built over a two-plus-year period gives patients and their parents a truly seamless experience when they visit.\nIt also gives great remote connectivity to clinicians through an extremely user-friendly remote mobile app, so parents always have a resource at their fingertips.\nBrave Care systems are integrated with all facets of clinical operations.\nAnd my view of the power of the Brave system is not theoretical.\nIt's proven and up and running in their existing clinics in the Northwest.\nOur investment in Brave the company by an operating partnership agreement that provides Brave a long-term incentives to help us plan, develop, equip and open pediatric clinics over the coming years.\nThe clinic will be ours, and will be led and managed by our team working alongside the Brave team.\nAt a high level, looking at our geography of existing services, we believe that there's an opportunity for us to open more than 100 pediatric clinics across our footprint within a few years.\nAnd as we move forward, we'll share with you how this will materialize.\nWe believe that our growth will include both De novo development and acquisitions, and we're already in discussions with certain existing platforms that we think overlap well with us and they can integrate into our strategic growth.\nIn summary, looking at all these factors, strength in our core of amazing patient relationships served by our sector leading clinicians, strength in our balance sheet, our growth efforts, efficiency and a smart strategic expansion into primary urgent care that together gives me confidence in our diversified growth potential in '22 and beyond.\nNow, Mark will provide additional details on our third quarter activity.\nI'll begin by providing some detailed volume comparisons to 2019 to flesh out Mark's earlier comments.\nI'll then walk through where we stand on the number of projects we've discussed so far this year and how they flow through the income statement and finish with our financial position as it stands today, and how we're looking at our capital structure as we look forward.\nCompared to 2019 on a same unit basis for the quarter, our hospital volumes were up 4.4%, and office-based volumes were up 2.8%.\nWithin hospital-based services, our NICU days were up 1.4%, pediatric intensive care was up 42% and pediatric hospitalist volumes were up 14%.\nOn the office-based side, maternal fetal medicine volume was up 8.6%, while pediatric cardiology was down 9%, with this decline likely reflecting some deferrals of appointments during the quarter due to the surge in Delta cases.\nTurning to G&A, our overall spend in Q3 was down about $4 million sequentially.\nThis primarily reflects sequential reductions in certain operating and legal expenses as well as RCM savings related to our agreement with R1, which should increase further in Q4.\nIn terms of the transition of our revenue cycle activities to R1, to date, our metrics reflect that there hasn't been any disruption in service to our practices.\nDSOs and cash collection activity in the third quarter were in line with our expectations and with the prior quarter.\nI'll also reiterate that under the terms of our agreement, we realized near-term G&A savings, which are reflected in our current P&L.\nAnd we also expect to benefit over time from future improvements in RCM performance, yield and revenue enhancements.\nDuring the third quarter, we also completed the support services related to the PSA arrangement attached to last year's sale of our anesthesia organization.\nOur Q3 G&A still reflects a comparable run rate of cost to what we were incurring previously, and we'll refine our views on an appropriate G&A level as we finish up our budgeting for '22.\nBut you'll see that our reimbursement for those costs in Q3, which we record in our investment in other income line, declined substantially.\nIt was $0.5 million this quarter versus about $9 million in a year ago period.\nHowever, the strength of our core operations more than offset this decline, and in fact, enabled both year-over-year and sequential growth in adjusted EBITDA.\nFinally, our transformational and restructuring expense in Q3 was $4.2 million, which predominantly reflects the cost of terminating other third-party agreements as part of the R1 transition.\nAll told, within our updated internal expectation of 2021 adjusted EBITDA, we expect our fourth quarter G&A expense to be flat to down compared to third quarter, based largely on our expectation of RCM cost savings.\nThis reinforces our prior view that the second half G&A will be lower than the $137 million we incurred in the first half of the year.\nTurning to our capital structure, we continue to improve our leverage position in the third quarter.\nWe generated $67 million of operating cash flow, which exceeded the investments we made in capex, acquisitions and our Brave Care transaction.\nBased on 9/30 debt of $642 million and our 2021 adjusted EBITDA expectation, net leverage stands at about 2.5 times.\nAnd we would anticipate that to decline by year-end based on fourth quarter cash flows.\nDuring the quarter, we also reduced our revolving credit facility capacity from $1.2 billion to $600 million, all of which is currently available to us with no remaining covenant restrictions.\nAs most of you know, we have $1 billion in outstanding 6.25% coupon senior notes due 2027, making our debt structure fairly inefficient given our cash position and current net leverage.\nGiven that our notes are callable in January of '22, we will be reviewing the best debt structure for our size, profitability and growth in capital plans.\nWhile we haven't made any determinations yet, I anticipate that we'll be able to achieve meaningful savings and interest expense once we determine the most appropriate capital stack for our business as it exists today,and in the foreseeable future.",
        "summary": "q3 revenue $493 million."
    },
    {
        "text": "These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors, including those described in MFA's annual report on Form 10-K for the year ended December 31, 2019, and other reports that it may file from time to time with the Securities and Exchange Commission.\nBefore we begin, I want to again recognize our entire MFA team.\n2020 was obviously a very challenging year on many levels, and our team powered through the adversity and persevered.\nThere is no quit in this group.\nAnd I think we made extraordinary progress in the second half of 2020 and particularly in the fourth quarter.\nSo the fourth quarter of 2020 on a macro level was very much an extension of the third quarter.\nInterest rate volatility was again muted, and accommodative Fed monetary policy continued to provide support for risk assets with little indication that this will change materially in 2021.\nThe short end of the curve remains firmly anchored, consistent with the lower for longer narrative.\nTwo-year rates inched into the high teens very briefly in mid-November, but are barely in double digits so far in 2021.\nThe yield curve does continue to surreptitiously steepen as the 10-year backed up 23 basis points in the fourth quarter and another almost 45 since year end.\nWith two 10s at approximately 125 basis points, this hardly qualifies as a steep yield curve by historical standards, but it has steepened by about 45 basis points since the end of the year.\nThis is not surprising in light of political developments as the expectation of additional stimulus will continue to raise concerns about inflation.\nI do have to smile a little when I hear this recent chatter about higher rates, however, with 10s yielding 135 as 10s were above 3% less than two and a half years ago.\nYes, we're off the lows at least for 10 years, but let's not kid ourselves.\nWe are still in an extraordinary and unprecedented low-interest rate environment.\nAgency origination crowded out nonconforming production for much of 2020.\nBut with even a modest increase in agency eligible mortgage rates, we've seen an increase in production from non-QM and business purpose loans in recent months, with rates at particularly low levels and credit spreads very tight, suffice to say there are no cheap assets out there.\nHowever, these same market conditions have pushed yields on issued securities to all-time lows.\nSo while it is a difficult period for assets, it's an extremely attractive one for liabilities.\nAnd MFA has taken advantage of this opportunity to lock in low-cost, term, nonrecourse debt, which will substantially reduce interest expense in the future.\nIn addition, a strong housing market, together with our ability to actively manage residential mortgage credit assets, has also been reflected in our financial results as we have achieved better-than-expected results on credit-sensitive assets resulting in reversals of prior credit reserves and sales of REO properties at attractive levels.\nPlease turn to Page 4.\nWe reported GAAP earnings of $0.08 per share in the fourth quarter.\nThese results were driven by continued price appreciation of loans held at fair value and by further improvement in credit leading to credit loss reserve reversals.\nOn the other hand, fourth-quarter earnings were reduced by expenses related to the acceleration of discount in connection with our payoff of the $500 million, 11% Apollo/Athene senior note in September and October.\nWe also closed out the outstanding warrant position of Apollo/Athene during the fourth quarter through straight warrant repurchases and a warrant exercise via a combination of cash and cashless exercise.\nThere are no more outstanding warrants.\nAnd the overall dilution associated with these transactions was less than 4%.\nObviously, our GAAP book value would have been up by approximately 2.4% for the quarter had it not been for these warrants.\nEconomic book value also negatively impacted by 3.9% by the warrants was nevertheless unchanged at $4.92 during the fourth quarter as our loans held at carrying value appreciated further.\nWe repurchased 14.1 million common shares for an aggregate purchase price of a little over $50 million during the quarter at an average price of less than 80% of September 30 GAAP book value and less than 75% of economic book value.\nWe viewed these purchases as among the best available investments in the fourth quarter.\nOur leverage declined modestly over the quarter to 1.7:1, primarily due to the payoff of the Apollo/Athene debt.\nAnd we paid $0.075 dividend to shareholders on January 29.\nPlease turn to Page 5.\nOur net interest income for the fourth quarter nearly doubled versus the third quarter, despite slightly lower overall interest income as our interest expense reductions began to meaningfully drive results.\nInterest expense reductions are due to some repo borrowing cost spread reductions, securitizations, which replaced repo and non-mark-to-market financing with substantially cheaper funding and the payoff of the Apollo/Athene note.\nThe impact of these efforts was not fully reflected in the fourth quarter, as they were all done at varying points within the quarter.\nWe also took advantage of a strong housing market to opportunistically liquidate REO properties, which we own mostly through resolution of nonperforming loans purchased years ago.\nThese sales totaled over $270 million for the year and were executed at prices well above our carrying value.\nWe believe that the hard work that we've done since emerging from forbearance at the end of June has benefited stockholders as our total shareholder return was 62% from June 30 to December 31.\nClearly, we still have wood to chop, but we are committed to continuing to rebuild shareholder value.\nWe illustrate our investment portfolio and summarize our asset-based financing on this slide.\nThe investment portfolio has not changed materially since September 30.\nWe did add $111 million of loans in the fourth quarter.\nJust to review this pie chart, the loans held at carrying value on our balance sheet are represented in three slices of the pie chart.\nThe purple section, PCD, or purchased credit deteriorated loans, this is accounting speed for reperforming loans and other loans are seasoned performing loans.\nThe gray section, business purpose loans, are fix-and-flip and single-family rental loans.\nAnd the red section is the non-QM loans.\nOn the financing side, you can see that 67% of our asset-based financing is non mark to market.\nWith the SFR securitization that we closed at the beginning of February, this is now over 70%.\nPlease turn to Page 7.\nAgain, continuing the theme of aggressively taking advantage of available market opportunities, we've executed three additional securitizations on $1.2 billion of UPB at successively tighter levels.\nAs you can see on this page, AAA yields on bonds sold on the most recent two deals were below 1%, and the blended cost of debt sold was in the low ones and was in some cases almost 200 basis points lower than the cost of borrowing we replaced.\nAlso noteworthy is that while some of the financing that we replaced with these securitizations was non mark to market, the securitized debt is similarly non mark to market, nonrecourse, and term.\nSo we actually increased the amount of this more durable financing, while substantially lowering the cost.\nBonds sold generated cash of between 91% and 94% of UPB, which also produced approximately $250 million of additional liquidity.\nPlease turn to Page 8.\nPage 8 provides the details of the repurchase and exercise of the previously outstanding warrant position.\nThrough a straight repurchase of warrants on December 10 for $33.7 million.\nIn an exercise through a combination of cash and cashless exercise on December 28, we were able to limit the dilution of warrants granted, which was 7.5% at the time of grant to less than 4%.\nApollo/Athene holds 12.3 million shares or about 2.7% of outstanding shares, and we continue to maintain a strong partnership with both Apollo and Athene.\nThat said, we think that the elimination of any uncertainty around an outstanding warrant position should have a positive impact on our stock.\nPlease turn to Page 9.\nWe announced on our third-quarter earnings call that our board had authorized a $250 million stock repurchase program and we executed this during the open-window period in the fourth quarter by purchasing 14.1 million shares at an average price of $3.61, which was accretive to GAAP and economic book value by $0.03 and $0.04, respectively.\nIn addition, the $33.7 warrant repurchase was included under this plan.\nSo, all in, we deployed almost $85 million during the quarter and still have $165 million available under this authorization.\nPlease turn to Page 10.\nWe announced the redemption of our $100 million 8% senior notes due in 2042.\nThese $25 par bonds were issued in 2012.\nThis redemption, which was completed shortly after year end will save $8 million in annual interest expense.\nWe did book a noncash charge of $3.1 million in the fourth quarter for unamortized issuance expenses.\nThese $25 par bonds were sold primarily to retail investors, similar to 20 firms, and hence, the relatively high issuance expense.\nPlease turn to Page 11.\nSo in the feel-good department and just to demonstrate that it's not solely about the numbers, I'm happy to report two significant accolades for MFA.\nFor the second year in a row, MFA was included in the Bloomberg Gender Equality index.\nWe were recognized as one of 380 public companies across 44 countries and regions for our commitment to and support of gender equality.\nAdditionally, MFA has been certified as a Great Place to Work by the Great Place to Work Institute.\nThis award is based on anonymous employee feedback through an engagement survey that we conducted through this organization.\nThis important validation of our culture is a testament to our people.\nManagement does not make MFA a Great Place to Work, our people do.\nIf management has a role, it's simply to hire great people, and our team collectively creates our culture.\nIn today's work-from-home world, this recognition is also an important distinction for us for hiring as almost all recruitment is virtual these days.\nWhile we have certainly appreciated the support of Apollo, Athene, and our other financing counterparties during the challenging times of forbearance and over the past six months, we are pleased to close out 2020 with a significantly more durable mix of financing and having paid off most of our higher-cost debt.\nFurther, the execution of the warrant transactions has eliminated with a relatively modest solution, a potential source of uncertainty in our future results.\n2020 was certainly a year of significant and unusual items, and while earnings have become more stable since June, there were some residual nonrecurring items in Q4 that I will discuss further shortly.\nMSA entered 2021 with all significant items related to forbearance period financing effectively behind us.\nOur continuing efforts to pursue securitization and other forms of non-mark-to-market financing have lowered our cost of funds and generated liquidity while maintaining relatively low leverage.\nThese efforts are already meaningfully benefiting net interest spreads, and we expect it to continue for at least the short to medium term.\nMoving now to the detail of our Q4 results.\nNet income to common shareholders was $37.6 million or $0.08 per share.\nNet income includes $25.3 million or $0.06 per common share of expenses recognized on the repayment of the senior secured term loan from Apollo/Athene.\nRecall that as we elected to account for this financing at fair value, GAAP required us to allocate a portion of the day 1 loan-to-value or approximately $14 million of the associated warrants.\nThis was recorded in shareholders' equity, while the residual loan value of approximately $481 million is recorded on our balance sheet as a liability.\nDue to changes in interest rates and market spreads, the fair value of this liability declined in Q3.\nHowever, as the loan was repaid at par, rather than at fair value, expenses are recorded on payoff related to the reversal of prior unrealized gains and the difference between par and the previously recorded carrying value.\nThe subsequent execution of the associated warrant transactions did not impact earnings directly, but they did result in modest book value dilution, as Craig has already discussed.\nAway from the impact of the repayment of the senior secured debt and warrant transactions, our results for the quarter primarily reflect the ongoing recovery in residential mortgage asset valuations, a net reduction in our CECL credit loss reserves, and the previously mentioned improvement in net interest income.\nSpecifically, the key items impacting our results are as follows: net interest income for Q4 was $19.4 million, almost double Q3, and it reflects the following.\nFirstly, higher net interest spreads, primarily on our residential whole loan portfolio as the impact of financing initiatives start to take hold.\nThe payoff of the senior secured debt resulted in high net interest income by approximately $12 million.\nAnd as Craig noted, we redeemed our 8% senior notes early in January '21.\nQ4 net interest expense includes a noncash charge of $3.1 million for unamortized deferred expenses that we incurred when this debt was originally issued in 2012.\nIn addition, future quarterly interest expense will be $2 million lower as a result of this note redemption.\nI would also note that since exiting forbearance in June, we have lowered our cost of funds across our entire portfolio by 140 basis points to 3.1% December 31, 2020, and this falls even further to 2.9% with the senior note redemption.\nAlso, we reduced our overall CECL allowance in our current value loans to $86.8 million, primarily reflecting lower estimates of future unemployment used for credit loss modeling purposes, but also partially due to lower loan balances.\nThis reversal and other net adjustments to our CECL reserves positively impacted net income for the quarter by approximately $16 million.\nAfter the initial significant increase in CECL reserves taken in Q1 and uncertainty related to COVID-19 economic impacts were at the highest, we have reduced our CECL reserves by almost $60 million in the past three quarters.\nActual charge-off experience to date remains very modest, with less than $2.5 million of net charge-offs taken in 2020.\nNonetheless, we continue to take a cautious approach in making our estimates for credit losses given uncertainty in the U.S. economic outlook as the time line to a post-COVID-19 impacted economy remains unclear and given the current political environment.\nOnce again, our loans at fair value performed strongly this quarter.\nNet gains of $49.8 million were recorded, including $30.9 million of market value increases and $18.9 million of interest payments, liquidation gains, and other cash income.\nBy the end of 2020, our fair value loan portfolio recovered all of the market value declines that were recorded in the first quarter.\nFinally, our operating and other expenses were $20.4 million for the quarter.\nThis reflects a lower run rate than we would normally expect primarily due to adjustments to lower incentive compensation accruals that were finalized in the fourth quarter.\nWe continue to estimate that annualized G&A expenses to equity should run at about 2% each quarter.\nTurning to Page 13.\nThe fourth quarter for the non-QM space was a continuation from where the third quarter left off.\nOrigination volume increased over the quarter, and loan premiums paid have risen to levels seen prior to the pandemic.\nWe were able to purchase approximately $80 million in the fourth quarter and are on track to purchase over $100 million in the first two months of 2021.\nWe saw prepayment speeds increase over the quarter as mortgage rates for non-QM loans have come down in recent months.\nThe reduction in rates lagged conventional loans as non-QM originators had to rebuild capacity after reducing staff at the onset of the pandemic.\nWe closed on a minority investment in one of our origination partners in the quarter, providing the needed capital for them to be able to grow originations.\nWe believe the strategy of aligning our interest with select origination partners will allow us to effectively grow our portfolio over time, while ensuring loan quality.\nWe executed on two additional securitizations in the fourth quarter, bringing the amount of collateral securitized in 2020 to approximately $1.25 billion.\nAs Craig mentioned previously, the securitizations have lowered our financing costs and at the same time have provided additional stability to our borrowings.\nSecuritization, combined with non-mark-to-market term -- a non-mark-to-market term facility, has resulted in over 75% of our non-QM portfolio financed with non-mark-to-market leverage.\nAnd we expect to continue to be a programmatic issuer of securitizations.\nTurning to Page 14.\nA significant percentage of our borrowers in our non-QM portfolio have been impacted by the pandemic.\nMany of our borrowers are owners of small businesses that were affected by shutdowns across the nation.\nWe instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis.\nThrough our services, we granted almost 32% of the portfolio temporary payment relief, which, we believe, helps put our borrowers in a better position for long-term payment performance.\nSubsequent to June, we reverted to a forbearance program instead of a deferral as the economy opened up.\nForbearance program instituted are largely now determined by state guidelines.\nFor clarity, the deferral program, tax on the payments missed to the maturity of the loan has a balloon payment.\nForbearance requires the payments missed to be repaid at the conclusion of the forbearance period.\nIf those amounts are unable to be paid in one month, we allow for the borrower to spread the amounts owed over an extended period of time.\nOver the fourth quarter, we saw an improvement in delinquencies compared to the third quarter as 60-plus day delinquencies dropped almost a full percentage point.\nIn addition, approximately 30% of delinquent loans made a payment in December.\nThe current state of affairs is unique as although we have seen economic stress and increase unemployment levels, home values have been improving, as low levels of supply combined with low mortgage rates have supported the market.\nIn addition, our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies.\nIn many cases, borrowers, which no longer had the ability to afford their debt service, will sell their home in order to get the return of their equity.\nTurning to Page 15.\nOur RPL portfolio of $1.1 billion has been impacted by the pandemic but continues to perform well.\n81% of our portfolio remains less than 60 days delinquent.\nAnd although the percentage for the portfolio 60 days delinquent in status is 19%, over 24% of those borrowers continue to make payments.\nPrepayment speeds in the fourth quarter continued to rise as mortgage rates continue to be historically low.\nAnd while 30% of our RPL borrowers were impacted by COVID, we have worked with our servicers to provide assistance to borrowers and have seen improvement in delinquency levels over the quarter.\nTurning to Page 16.\nOur asset management team continues to drive performance of our NPL portfolio.\nThe team has worked through the pandemic in concert with our servicing partners to maximize outcomes on our portfolio.\nThis slide shows the outcomes for loans that were purchased prior to the year ended 2019, therefore, owned for more than one year.\n36% of loans that were delinquent at purchase are now either performing or paid in full.\n45% have either liquidated or REO to be liquidated.\nWe have significantly increased our activity, liquidating REO properties, selling 87% more properties as compared to a year ago.\n19% are still in nonperforming status.\nOur modifications have been effective as almost three-quarters are either performing or have paid in full.\nWe are pleased with these results as they continue to outperform our assumptions at the time of purchase.\nTurning to Page 17.\nThe fourth quarter saw a continuation of the trend we have experienced in 2020 of large principal paydowns in our fix-and-flip portfolio.\nA strong housing market, supported by record-low mortgage rates and limited housing inventory has allowed many of our borrowers to successfully complete the projects and sell quickly into a strong market.\nThis, combined with the seasoned nature of our portfolio, currently at weighted average loan rates of 17 months, led to us receiving $141 million of principal payments in the fourth quarter and a total of approximately $650 million for all of 2020.\nWe expect this trend to continue in 2021.\nMSA's fix-and-flip portfolio declined $118 million to $581 million in UPB at the end of the fourth quarter.\nPrincipal paydowns were $141 million, which is equivalent to a quarterly paydown rate of 59 CPR on an annualized basis.\nWe advanced about $11 million of rehab draws and converted $3 million to REO.\nWe began purchasing fix-and-flip loans again in the fourth quarter and acquired approximately $15 million UPB of new loans in the quarter.\nThe average yield for the fix-and-flip portfolio in the fourth quarter was 5.97%.\nAll of our fix-and-flip financing is non-mark-to-market debt with the remaining term of 18 months.\nAfter declining by approximately $40 million in the third quarter, the total amount of seriously delinquent fix-and-flip loans increased $19 million in the fourth quarter to $162 million.\nSo far in the first quarter, delinquency trends have been good, and we've seen delinquencies trend down again closer to third-quarter levels.\nSimilar to the third quarter, improved economic expectations and a strong housing market contributed to a decline in fix-and-flip loan loss reserves.\nLoan loss reserves declined by $4 million to approximately $18 million at the end of the fourth quarter.\nTurning to Page 18.\nSeriously delinquent fix-and-flip loans increased $19 million in the quarter to $162 million at the end of the fourth quarter.\nIn the quarter, we saw $25 million of loans paid off in full, $3 million cured to current of 30 days delinquent pay status, and $3 million of loans converted to REO, while $50 million became new 60-plus day delinquent loans.\nDespite the increase in delinquency in the quarter, we are pleased that delinquency levels have declined from the high levels we saw in the second quarter of 2020 and with the continued robust level of full payoffs we've seen from loans in serious delinquency.\nAs mentioned previously, we have seen delinquencies trend down in the first quarter, closer to the third-quarter delinquency loans.\nApproximately two-thirds of the seriously delinquent loans are either completed projects or bridge loans where limited or no work is expected to be done, meaning these properties should be in generally salable condition.\nIn addition, approximately 15% of the seriously delinquent loans are already listed for sale potentially shortening the time until resolution.\nWhen loans pay off in full from serious delinquency, we often collect default interest, extension fees, and other fees of payoff.\nFor loans, where there's meaningful equity in the property, these can help.\nSince inception, we have collected approximately $2.6 million in these types of fees across our fix-and-flip portfolio.\nWe believe that our experienced asset management team gives us a tremendous advantage in loss mitigation and the term non to market -- non-mark-to-market financing of our fix-and-flip portfolio allows us to efficiently work through our delinquent loans.\nWe believe that recent economic trends, in particular, the strong housing market with robust home price appreciation, combined with our loss mitigation efforts, can lead to acceptable outcomes on our delinquent loans.\nTurning to Page 19.\nOur single-family rental loan portfolio continued to perform well in the fourth quarter.\nThe portfolio yielded 5.27% in the quarter.\nThat number does not include prepayment penalties with our feature of almost all of our rental loans and are recorded in other income.\nWhen including those, the SFR portfolio yield was 5.99% in the fourth quarter.\nPrepayments increased in the quarter to a three-month CPR of 33%.\nThis was primarily due to payoffs on some of our three-year balloon loans that were approaching maturity.\nSo far in Q1, prepayments have trended back down to mid-teen CPR loans.\n60-plus state delinquencies increased modestly in the quarter to 5.6%.\nWe resumed our acquisition of rental loans in the fourth quarter and purchased $12 million of loans in the quarter.\nAs Craig mentioned earlier, we closed our first securitization consisting solely of business purpose rental loans in the first week of February.\nApproximately $218 million of loans were securitized.\nWe sold approximately 91% of the bonds at a weighted average coupon of 106 basis points.\nThis transaction lowers the funding rate of the underlying asset by over 150 basis points and increases the percentage of SFR financing that is non mark to market to 77%, up 54% from 23% at the end of the fourth quarter.\nI believe that MFA has made great strides since July 1st of last year.\nSignificant asset price appreciation drove earnings and book value.\nWe made substantial progress in moving our asset-based financing from expensive durable debt to equally durable, but materially cheaper securitized debt, paying off other expensive debt, repurchasing MFA common stock at material discounts to book, and most recently, the settlement and elimination of the outstanding warrant package.\nConsiderable market uncertainties still exist as the country and the world continues to face challenges around the pandemic, politics, and monetary and fiscal policy, but MFA is well-positioned to weather these uncertainties, respond to opportunities as they arise, and we are taking proactive steps to further position our company to thrive in the future.",
        "summary": "q4 earnings per share $0.08."
    },
    {
        "text": "Financial Inc., which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations.\nThese types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors, including those described in MFA's annual report on Form 10-K for the year ended December 31, 2020, and other reports that it may file from time to time with the Securities and Exchange Commission.\nThe fourth quarter of 2021 was a stark wake up call for the fixed income market.\nAfter languishing in a 15 basis point to 25 basis point range for nearly 18 months since late March of 2020, 2-year treasuries rose 50 basis points from the end of September to the end of December, and the curve flattened significantly as 10 years ended the quarter, essentially unchanged from September 30.\nThe first six weeks of 2022 have been even more volatile, with 2s higher by 75 basis points, 5s by 55, and 10s by 40.\nThe rate environment had an inevitable negative impact on our fair value assets.\nBut MFA nevertheless turned in a respectable fourth quarter in a very strong 2021.\nWe added so for interest rate swaps in the fourth quarter and have continued to manage our duration exposure into this year.\nWe are certainly not immune to interest rate risk.\nWe're still waiting for that vaccine, but between a relatively short duration assets or successful execution of $2.6 billion of securitizations last year, and our nimble hedging response to a dramatic rate moves more recently, we think we've weathered the storm reasonably well.\nThat said, this is no time for complacency.\nWith inflation seemingly raging, the Fed on the move in a very tense geopolitical environment, making it impossible to predict interest rate movements, particularly in the short-term.\nAway from rates, MFA focus on residential mortgage credit serves as a terrific offset to interest rate risk.\nAs continued, very strong housing trends bolster the value of the underlying assets, securing the mortgages we own and lower LTVs.\nRobust housing prices have also created a strong tailwind for delinquent mortgages and REO properties.\nAs these trends lead to improved resolutions and outcomes.\nPlease turn the Page 4.\nWe reported GAAP earnings of $35.9 million dollars, or $0.08 per share for the fourth quarter.\nThese results were driven largely by $42.6 million of unrealized and non-cash net losses on fair value loans.\nLima One had a strong contribution to our earnings for the second consecutive quarter.\nDespite the volatile quarter, book value was relatively stable, with GAAP book value down less than 1%, an economic book value down less than 2%.\nEconomic return for the quarter was 1.5% for GAAP and essentially flat on economic book value.\nPlease turn to Page 5.\nWe acquired $1.4 billion of loans in the fourth quarter, and we grew our loan portfolio by $830 million to$7.9 billion after portfolio runoff.\nThese purchases included $950 million of non-QM loans and $500 million of business purpose loans.\nWe completed 3 securitizations totaling $937 million during the fourth quarter, including two agency eligible investor loan deals and one-single family rental loan deal, or net interest income increased versus Q3 by 13% to $70.1 million in the fourth quarter.\nWe continue to make excellent progress in liquidating REO properties as we capitalize on strong housing trends, selling over $50 million of REO properties for a net gain of over $10 million.\nAnd finally, we've opportunistically continued to repurchase MFA common shares, adding $8.5 million shares at an average price of $4.42 during the fourth quarter.\nPlease turn to Page 6.\nTo briefly review the full year 2021, we achieved extraordinary portfolio growth, particularly considering the paucity of investments available in the early part of the year.\nOur purchase of Lima One was a transformational, and timely transaction as we fortified our ability to source attractive assets.\nWe completed 8 securitizations totaling $2.6 billion, locking in very attractive fixed rate term financing.\nAs we pointed out every quarter, we continued to grow our net interest income, increasing this important and reliable earnings driver by 47% for the year to $242 million and $70 million in the fourth quarter.\nMortgage investors rarely talk about let alone brag about their REO portfolios, but we sold almost $190 million of REO properties in 2021 for a net gain of $23.5.\nAs a rule, REO property resolutions tend to be the least desirable and profitable outcomes when working out non-performing loans, but our asset management team turn this into a profit generating enterprise in 2021.\nOur book value increased by about 5% during the year 2021, despite a rough fourth quarter in rates in our economic returns for the year, we're also very respectable.\nWe also purchased just over $20 million shares during the year at an average price of $4.26.\nPlease turn to Page 7.\nThis slide illustrates the components of our investment portfolio, and also the nature of our asset based financings.\nWhile the liability pie chart shows $2.6 billion of mark-to-market borrowing, about half of this borrowing is that a significant discount to our available borrowing amount.\nThis under levering, creates a cushion that increases the amount of asset price decline that would need to occur before we receive a margin call.\nSo while this borrowing is technically mark-to-market or conservative borrowing practice produces a considerable synthetic margin buffer.\nPlease turn to Page 8.\nSo finally, in the feel good department and just to demonstrate that it's not solely about the numbers, I'm happy to report three significant accolades for MFA.\nFor the third year in a row, MFA was included in the Bloomberg Gender-Equality Index.\nWe were recognized as one of 418 public companies across 45 countries and regions for our commitment to and support of gender equality.\nAdditionally, MFA has been certified for the second consecutive year as a great place to work by the Great Place to Work Institute.\nThis award is based on anonymous employee feedback through an engagement survey that we conducted through this organization.\nThis important validation of our culture is a testament to our people.\nManagement does not make MFA a great place to work or people do.\nIf management has a role, it's simply to hire great people, and our team collectively creates our culture.\nIn today's work from home world, this recognition is also an important distinction for hiring, as recruitment is virtually all virtual these day.\nAnd lastly, MFA has again been recognized by 50/50 women on boards, and we have achieved their highest rating level for gender balance.\nMFA's results for the fourth quarter was solid overall, particularly given the challenging rate environment.\nWe continue to see the impact of the successful execution of our asset aggregation strategy and financing initiatives with another quarter of loan portfolio and net interest income growth.\nIn addition, second consecutive record quarter for originations at Lima One resulted in another meaningful contribution to our overall results.\nEarnings of $0.08 per common share were impacted by valuation changes on loans, partially offset by gains on hedges and securitized debt held at fair value, as well as a significant gain on a minority investment.\nAfter removing the impact of these items from the quarterly results, the residual net income of $47.3 million, or $10.8 per common share, is in line with our fourth quarter dividend of $0.11 per common share.\nI will now provide some additional details for the key components of our Q4 results, which include; Net interest income of $70.1 million was $8.3 million, or 13% higher sequentially; Residential whole loan net interest income again increased this quarter by 7%, again, reflecting portfolio growth and the ongoing impact of securitizations, which has lowered the cost of financing; And net interest spread came in at 2.98% unchanged from the prior quarter.\nOur overall CECL allowance and our carrying value loans decreased for the seventh quarter in a row and at December 31, was $39.5 million down from $44.1 million at September 30 and less than half where it began the year.\nThe decrease reflects continued run off of our carrying value loan portfolio, and adjustments to macroeconomic and loan prepayment speed assumptions used in our credit loss modeling.\nThis reversal and other net adjustments to [Inaudible] some reserves positively impacted net income for the quarter by $3.5 million.\nActual charge-offs experience continues to be relatively low.\nFor the full year, charge-offs for $3.4 million.\nIn 2020, charge-offs were $2.4 million.\nPricing across our residential whole loan portfolio was impacted by the volatile rate environment.\nFor loans held at fair value, net losses of $42.6 million were recorded.\nIt should be noted that for the full year, loans held at fair value generated $16.7 million of net gains.\nFurther, in the fourth quarter, unrealized losses on the fair value loan portfolio were partially offset by $7.2 million of gains on TBAs, swap hedges, and securitized debt held at fair value.\nIncluded in this quarter results is a $24 million gain on a minority investment in one of our residential whole loan origination partners.\nDuring the quarter, this company successfully completed a capital transaction with a third party unaffiliated to MFA.\nAs a result of this transaction, GAAP required that we revisit the carrying value of our minority stake.\nWe recorded a significant impairment write-down and investment back in Q1 of 2020, when COVID related uncertainties were very high and in origination companies were essentially shut down.\nBased on the terms of this new capital investment, which included a $4 million principal repayment to MFA, we adjusted the carrying value of our investment to the fair value implied by the transaction.\nThis resulted in a significant reversal of the prior impairment, as well as a gain for the amount of principal repayment received.\nLima One also contributed $13 million of origination, servicing, and other fee income during the quarter, reflecting a second consecutive record quarter for origination volumes.\nGudmundur will discuss this in more detail shortly.\nFinally, our operating and other expenses excluding amortization of Lima One intangible assets, were $41 million for the quarter.\nThis includes approximately $13.7 million of expenses, primarily compensation related at Lima One.\nLima utilizes a sales commission structure where incentives increase as cumulative production targets are achieved.\nThis will typically result in higher incentive compensation in Q3 and Q4 each year, particularly given the record production volumes achieved by Lima since acquisition.\nMFA only G&A expenses were approximately $15 million for the quarter, which is in line with the prior quarter.\nOther loan portfolio related costs, meaning those not related to Lima One loan origination and servicing, were $12.3 million, which is higher than a typical quarterly run rate, as it includes approximately $5.2 million of securitization deal related expenses.\nBecause we have elected the fair value option on recently completed securitization deals, GAAP does not permit us to capitalize these costs.\nTurn to Page 10.\n2021 was one of the hottest years for home prices in over two decades.\nPrices increased year-over-year rate of almost 20%, fueled by historically low rates, coupled with limited supply.\nIn recent months, we have seen rates move higher with the 30-year conforming mortgage rate hovering around 4%.\nIncreased mortgage rates should have a dampening effect on home prices.\nHowever, the severe lack of supply may still continue to push prices higher, albeit at a reduced rate.\nLabor market is strong.\nUnemployment is at 4%, and wages are rising at some of the fastest levels in recent history.\nMFA is focused on mortgage credit, continues to perform well and benefits from the current economic tailwinds.\nTurning to Page 11.\nMFA was active in the fourth quarter, adding $950 million of nine-term loans to the portfolio.\nWe grew our base of originators over the quarter and strengthened existing relationships.\nCurrently in the market with securitization and although we have seen widening in spreads, we expect to continue to be a programmatic issuer of securitizations as it is still the most efficient form of non-mark-to-market term financing.\nThe credit on our portfolio has improved significantly from the onset of COVID in 2020.\n60 plus day delinquencies are now down to 3.5%.\nWe have yet to suffer a credit loss on our non-QM portfolio, as a few loans taken to REO were subsequently sold for gains.\nMany loans that experienced delinquencies end up getting paid in full as our borrowers have equity in the property to sell their property themselves.\nThe weighted average original LTV for borrowers that are 90 plus days delinquent is 65, and that does not account for any potential home price appreciation post origination.\nTurning to Page 12.\nAfter September's announcement from the FHFA and Treasury to suspend the 7% cap on investor loan purchases for Fannie Mae and Freddie Mac for at least one year.\nPricing for agency investor loans became less attractive and we significantly slowed purchases in the fourth quarter.\nWe utilize TBA hedges against his portfolio, which helps protect against rate moves and spread widening over the quarter.\nWe executed on our second securitization of this collateral in the fourth quarter of 2021, and expect to execute a third in the coming months.\nWe do not expect further growth to this segment of the portfolio out of more favorable environment relating to loan pricing and or securitization execution.\nTurning the Page 13.\nOur REO portfolio of approximately $900 million continues to perform well, 81% of our portfolio remains less than 60 days delinquent.\nAnd although the percentage of the portfolio 60 days delinquent and status was 19%, almost 30% of those borrowers continue to make payments.\nPrepay speed in the fourth quarter increased further to a three month CPR of 18%, combination of the length of time our borrowers have remained current on their mortgage and home price appreciation and unlocked refinancing opportunities for many of our borrowers.\nWe have a small amount of borrowers still receiving COVID assistance and believe that any impact from COVID will be minimal on the retail portfolio going forward.\nTurning to Page 14.\nOur asset management team continues to drive strong performance of our NPL portfolio.\nThe team has worked in concert with our servicing partners to maximize outcomes on our portfolio.\n38% of loans that were delinquent at purchase are now either performing or paid in full.\n49% have either liquidated or REO to be liquidated.\nOur sales of REO properties have continued at an accelerated pace at advantageous prices.\nOver the quarter, we again sold almost 3 times as many properties as the number of loans converting to REO.\n13% still a non-performing status.\nOur modifications have been effective, It's almost three quarters are either performing or have paid in full.\nWe are pleased with these results as they continue to outperform our assumptions at the time of purchase.\nTurning to Page 15.\nWe closed the acquisition of Lima One on July 1, 2021, and realized an immediate impact on MFA's results in the second half of the year.\nAs Lima One originated approximately $1 billion of high yielding business purpose loans in the second half of 2021, all of which were absorbed MFA's balance sheet.\nFourth quarter activity was particularly robust, with over $600 million originate and in the fourth quarter, a 50% increase, over third quarter origination, and a record quarter for the company.\nFirst quarter is usually the slowest month in the BPO space, but we maintain strong momentum into 2022 with approximately $200 million originated in January.\nA key benefit of the acquisition is Lima's ability to provide MFA with a reliable flow of high quality, high yielding asses, that are difficult to source in the marketplace.\nWhen we announced the transaction in May, we mentioned that we believe that Lima had the potential to grow substantially beyond the run rate at the time of $1.2 billion in annual origination, that has played out faster than we expected as Lima originated over $1.6 billion in 2021, about 33% more than we expected at the time of acquisition.\nThis tremendous result is in many ways due to the time and energy we spent around the deal closing to develop a clear strategic plan for Lima One business, including short and long-term goals for the management team, as well as exceptional execution by the management team throughout the second half.\nWe have improved financing costs, and expanded financing options by adding multiple new warehouse lines and issuing securitizations.\nWe passed some of those efficiencies onto Lima's borrowers in more competitive pricing across most of Lima's product offerings.\nThis is a lot of Lima to be more competitive, and grow volumes across all of our loan product offerings.\nWith Lima track record, increased volume, and strategic marketing efforts, we continue to see Lima's brand in the BPO space grow.\nThey're widely recognized as one of the nation's leading BPO lenders, and uniquely offer a diverse set of BPO products for short and long term investment strategies.\nThe increased volume would not be possible without the strong operational infrastructure Lima One has built, which has shown an impressive ability to scale up origination volume quickly while maintaining origination quality.\nWe are excited about the progress we have made this year with Lima One, and continue to see great opportunities to grow their origination footprint and gain market share.\nAs you mentioned earlier, the first quarter is off to a great start, and we expect origination volume in 2022 to exceed 2021.\nIn addition to the benefit of adding assets to our balance sheet, Lima has a profitable company.\nThe amount generated $10.2 million of net income from origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%.\nAnd finally, we closed our second business purpose master loan securitization in the fourth quarter, with approximately 90% of the collateral consisting of Lima One originated loans.\nWith increased rental loan acquisition volume from the Lima One acquisition, we expected to our third business purpose rental loan securitization in the first half of 2022.\nTurn to Page 16.\nHere we will discuss the fix and flip portfolio.\nThe portfolio grew by $137 million, or 23% in the quarter.\nLoan acquisition activity rate remained elevated due to Lima One acquisition as we added approximately $220 million UPB with over $370 million max loan amounts in the fourth quarter, and have added over $110 million max loan a month in January.\nAs a reminder, fix and flip loans financed the acquisition, rehabilitation, and construction of homes.\nTypically, a certain amount of the loan is held back in the form of a construction hold back, which explains the difference between UPB on day one and the max loan amount, which represents a fully funded loan at the completion of projects.\nWith a persistent increase in fix and flip acquisition activity, we are actively exploring securitization options for our fix and flip portfolio, and expect to make securitization a consistent part of our fix and flip financing strategy.\nThe UPB of 60 plus days delinquent loans were relatively unchanged at $109 million in the fourth quarter, but declined significantly in 2021 as it dropped by over $50 million.\n60 plus days delinquency as a percentage of UPB declined 3% to 15% at the end of the fourth quarter.\nA few things to note here is that, all the loans that are 60 plus days delinquent except one were originated prior to April 2020, and are simply working their way through the appropriate loss mitigation activities.\nAnd, Lima one originated fix and flip loans held by MFA have only about 4% 60 plus days delinquency, speaking to the quality of the origination and servicing.\nThe strong housing market, generally favorable economic conditions, and the efforts of our BPO and asset management teams have led to good progress and seriously delinquent loans.\nWe continue to see a sizable amount of loans pay off and full out of serious delinquency.\nAnd loans payoff in full from serious delinquency, we often collect default interest, extension fees, and other fees of payoff.\nFor loans where there's meaningful equity in the property these can add up.\nSince inception, we have collected approximately $6.5 million in these types of fees across our fix and flip portfolio.\nTurning to Page 17.\nOur single-family rental loan portfolio continues to deliver attractive yields, and accepted strong credit performance, with 60 plus day delinquencies declining 90 basis points in the quarter to 2.6%, and fourth quarter portfolio of 5.16%.\nPurchase activity remained elevated in the fourth quarter as we added approximately $250 million of single family rental loans in the quarter.\nAs a result, our portfolio grew by 29% in the quarter to over $920 million at the end of the year.\nAcquisition activities have remained robust in the first quarter, as we've already added over $80 million in the month of January.\nThe acquisition of Lima One has significantly boosted our ability to source single family rental loans, and we believe that we will continue to grow our single family rental loan portfolio in the near future.\nWe issued our second rental on securitization in the fourth quarter.\nThe deal was backed by approximately $284 million of loans, we sold bonds representing about 91.5% of loan UPB with the weighted average coupon of approximately 2.15%.\nApproximately 75% of our single family rental portfolios financed with non-mark-to-market financing almost 60% through securitizations.\nWe've done two single family rental securitization, and expect to continue to programmatically execute securitizations to efficiently finance our single family rental loss.\nWe believe that we produced solid results in a difficult fourth quarter of 2021, and we're very pleased with our results and the successful execution of our strategic initiatives for the year.\nOur portfolio growth coupled with securitization financing, should enable us to continue to produce consistent net interest income.\nA thriving Lima One will continue to provide us with the means to generate high quality assets at attractive yields.\nAnd MFA's focus on residential mortgage credit should position us well as we enter a year that will surely challenge investment strategies that are dependent solely on rates.",
        "summary": "q4 earnings per share $0.08.\nqtrly net interest income increased on a sequential quarterly basis to $70.1 million."
    },
    {
        "text": "As with last quarter, let me first begin with some comments on the current state of the market and what we've seen so far and briefly update you on the actions that Mistras has taken to keep our employees, customers and partners safe while simultaneously mitigating these challenging conditions.\nFirst, let me say that I'm extremely proud of how our team has responded to current conditions.\nThey have remained focused on the safety and well-being of our associates, clients, and partners.\nThey are continuing to deliver outstanding services which is helping our clients best manage through these unprecedented times, all the while positioning Mistras to emerge from this global pandemic stronger and better prepared to further our industry leadership.\nIn the first quarter, we posted solid operating results with revenues better than forecasted and our asset-light business model has continued to generate positive cash flow for which we have become well-known.\nWe have achieved this despite a quarter that experienced the dual impacts of a weak energy market continuing from late last year and the global pandemic that began to take root toward the end of the first quarter.\nAs it became clear that we were entering a period of incredible uncertainty, we took immediate action to adjust to these new realities.\nThe immediate focus was on things that we could control, with our goal being to preserve and protect our reputation and to reinforce our position as our customer's preferred partner.\nSo we doubled down our efforts to provide our customers with the high quality of service in which they have come to rely upon from Mistras.\nWe found innovative new uses for our technology.\nMISTRAS Digital to help customers lower their cost and this is currently getting a high level of interest.\nWe believe this dedication to the needs of our clients not only enhances our franchise today but establishes a solid foundation on which to build upon the market’s eventual recovery.\nAt the same time, we took decisive actions in response to this new business environment.\nWe have significantly reduced cost, we've cut capex in line with revenue expectations and are more effectively managing working capital to maintain and enhance our positive cash flow.\nWe have accelerated some of the structural changes to improve margins while deploying technology to further improve productivity.\nI and other members of the executive team along with nearly all salaried employees have taken pay cuts and our Board has also forgone some of their compensation.\nAdditionally, we have made adjustments to our variable headcount and broadly rationalize our assets to align with anticipated future levels of activity.\nWe are taking these actions while maintaining our commitment to delivering superior services which help our customers increase their efficiency, reduce their costs, and improve their outcomes.\nConsequently, we continue to forge ahead in areas that offer the greatest returns.\nFor instance, customers are anxious to adapt digital technology that will help them improve efficiencies, as well as transition to more predictive solutions.\nIn this respect, we continue to work with our customers to leverage our MISTRAS Digital solution that helps reduce non-productive time and improve labor and asset efficiency.\nComplementary to MISTRAS Digital is our industrial Internet of Things offerings such as remote sensor monitoring where we are having great success as our MISTRAS Digital ruggedized tablets are that are revolutionizing field reporting and we are seeing a steady increase in our mechanical work.\nAll of these actions and initiatives are helping diversify our revenue streams and significantly strengthen our foundation for long-term growth and profitability.\nAnd while our customers in the energy industry are trying to stretch their dollars just like everyone else's, they nevertheless have an obligation to keep their facilities in compliance with regulations and operating at top efficiency.\nSo we are sensing new opportunities in even this environment of demand contraction.\nWe believe the second quarter should represent the largest deviation with our revenues potentially down as much as the high 30% range from a year ago.\nApril looks like it should be a peak revenue decline as we are already sensing that May will be better and June could potentially see further improvement if oil prices continue to recover and states continue to relax shelter-in-place orders.\nThe third quarter and fourth quarter will then be expected to rebound nicely.\nGiven the impact of COVID-19 to our business, we did perform an assessment of the carrying value of goodwill and other intangibles in the first quarter of 2020 and the result was that we recorded non-cash impairment charges of $106 million.\nEd will go through the details.\nWith our expectation of positive operating cash flow, each quarter this year, limited capital expenditure needs and our amended credit agreement, we have sufficient liquidity to support our operations and this would be while simultaneously reducing outstanding debt by the end of the year, including $4.5 million already paid down in the second quarter.\nOur job is to build on the legacy Mistras has created over the years and it is our vision to take Mistras to the next level through more integrated programs and more predictive intelligence that will define our industry in the future.\nFirst quarter revenues were somewhat better than expected, down a little less than 10% from a year ago.\nAs anticipated, our oil and gas revenues in our Services segment saw the largest decline, which was somewhat offset by nearly $2 million improvements in domestic aerospace and defense.\nConversely, revenues in our International segment were impacted by a decline in European aerospace revenues where production at our large facility in France was hampered by that country's complete shutdown, as well as a continued run-off of the staff leasing business in Germany.\nGross profit for the quarter was $40.6 million or 25.5% with margins down from a year ago, mostly due to underutilization resulting from the decrease in revenues.\nTo a much lesser extent, margins reflected a somewhat tighter pricing environment.\nOn a segment basis, both Services and International revenues were down.\nServices primarily due to the weakness in energy markets, while International experienced a decrease in aerospace revenues, driven by the wind-down of staff leasing and the adverse foreign currency translation impact.\nGross margins were also down from a year ago, consistent with the decrease in revenues.\nSelling, general and administrative expenses decreased from a year ago despite the addition of New Century's overhead to this year's cost.\nEarly in the second quarter of 2020, we initiated a cost reduction and efficiency program, which should reduce the run rate of overhead by approximately 10% beginning in the second quarter, a reduction we believe is consistent with our outlook for the year.\nThis program includes temporary adjustments to capital spends, reduction in travel and certain R&D, limiting of new hires, and the scaled reduction for salary expenses for essentially all overhead positions.\nAlso, note that all non-employee members of our Board also took a reduction in their compensation during the second quarter.\nWe typically review goodwill for impairment each October 1 or whenever events or changes in circumstances indicate that the carrying value of goodwill and intangibles may not be recoverable.\nCOVID-19 and the related impact to crude oil prices was deemed to be a triggering event requiring us to perform an interim assessment.\nAs a result, we recorded a non-cash charge of $106.1 million for permits in the first quarter of 2020, comprised of $77.1 million related to goodwill and $29 million related to primarily intangible assets.\nOn an after-tax basis, this was $92.1 million or $3.18 per diluted share exclusive of a $0.02 per diluted share benefit from other special items or $3.16 per diluted share on a net basis for all special items.\nAlthough we were in compliance with our bank covenants as of March 31, 2020, we nevertheless executed an amendment effective May 15, 2020, to gain additional covenant flexibility.\nWe maintained the remaining maturity of our existing credit agreement through December 2023, including a $93.75 million term loan, but we reduced our revolving credit line to a maximum of $175 million to save cost related to the unused commitment, while ensuring a sufficient level of liquidity to fund our business.\nWe additionally maintained a $100 million uncommitted accordion within the amended credit agreement for potential expansion in the future.\nOur net debt, total debt less cash, and cash equivalents was $241 million at March 31, 2020, compared to $239.7 million at December 31, 2019.\nGross debt increased by $3.3 million during the first quarter of 2020 from $254.7 million at the end of the year to $258 million at March 31, 2020.\nAs Dennis mentioned, we have already paid down an additional $4.5 million of debt in the second quarter of 2020.\nReiterating one of our key themes.\nOur business has historically generated strong cash flow.\nIn the first quarter of 2020, we further enhanced that reputation with cash from operating activities of $6.1 million.\nWe did utilize a little over $4 million for capital expenditures in the first quarter, in line with our goal to reduce total capex this year from our typical run rate, in line with revenue expectations.\nWe recorded a net loss of $98.5 million for the first quarter of 2020 compared with a net loss of $5.3 million in the prior-year period, due primarily to the aforementioned non-cash impairment charges.\nBut we did nevertheless generate adjusted EBITDA of $5.4 million for the second quarter of 2020 and our goal remains to maintain adjusted EBITDA as well as positive operating cash flow in each quarter of this year.\nOngoing macro concerns attributable to the impact of COVID-19 coronavirus continue to put crude oil prices under intense pressure.\nGiven the continuing economic uncertainty, we are not providing guidance for the full year of 2020.\nWe do anticipate revenues for the second quarter of 2020 to decrease up to a high 30% range from the prior-year period level although cash from operations and adjusted EBITDA are expected to remain positive.\nWhile it is extremely difficult to forecast with any degree of certainty at this time, we are optimistic that consolidated revenue in the second half of 2020 will be higher than that of the first half of 2020 with corresponding improvements in both cash flow and adjusted EBITDA.\nThis outlook is contingent on continuing macroeconomic improvements, including stabilization in crude oil prices and relaxing of certain stay-at-home mandates.\nWe are confident in our sustainable business model and we remain firmly committed to carrying on our strategy today and over the long term.\nMistras is essential to global energy infrastructure as well as to the aerospace, alternative energy, and other industries whether at our facilities or those of our customers' our teams are hard at work ensuring the safety and security of valuable assets, while observing today's coronavirus inspired rules of engagement.\nWe are far from out of the woods.\nWe intend to keep a consistent eye on our expected revenues and be sure we match our resources accordingly.\nThe crude oil prices have recently stabilized and are beginning to improve and more states around the country are beginning to relax some stay-at-home restrictions.\nConversations with our customers have become more constructive.\nThese are all positive signs and much different than the signals we were hearing in mid to late March.\nMistras intends to emerge from this pandemic stronger, determined and prepared to capitalize on the opportunities, which we believe exist within our industry.\nCustomers know they can count on Mistras to be there when they need us.\nWe have deep relationships built over years of dedicated service delivering on time and on budget and we are developing new age tools that customers know they're going to need as budgets shrink and we all have to learn how to do more with less.\nWe are excited about Mistras's future and are committed to our success.\nOur industry is under intense pressure to optimize the efficiency of their assets and to continue to comply with increasingly complex safety, environmental, and other regulations.\nThis is creating a growing demand for our services.\nIn the short run, that trend may be disrupted, but over the long-term, we think these factors will drive growth in our markets and we intend to outpace that growth.\nOur utmost concern remains safety of our employees as well as those of our customers and the many other Mistras associates.\nLet me again state my deep appreciation for the hard work all the Mistras technicians and professionals are doing to keep our customers' assets safe while facing all the challenges, they must endure to get the work done.\nLet me also commend all the administrative and management Mistras folks for finding a way to make this new normal work for us.\nOur focus on cash generation, collection, and normal administrative processes has not diminished one bit and we are as strong and nimble as we ever have been.\nI also want to sincerely recognize the patience of our long-term shareholders who continue to support us through this journey.\nGigi, please open up the phone lines.",
        "summary": "mistras group not providing guidance for full year 2020.\nstrategic actions implemented to lower costs further in 2020.\ncovid-19 and related impact on crude oil prices trigger non-cash impairment charges of $106.1 million in quarter.\nnot providing guidance for full year 2020.\ndoes anticipate revenues for q2 to decrease up to high 30% from prior period level.\noptimistic that consolidated revenue in h2 of 2020 will be higher than h1 of 2020."
    },
    {
        "text": "This is Kasey Jenkins, Vice President of McCormick Investor Relations.\nWe will begin with remarks from Lawrence Kurzius, Chairman, President and CEO; and Mike Smith, Executive Vice President and CFO, and we'll close with a question and answer session.\nThese include information in constant currency as well as adjusted gross profit margin, adjusted operating income, adjusted income tax rate, adjusted income from unconsolidated operation and adjusted earnings per share that exclude the impact of special charges, transaction and integration expenses related to the acquisitions of Cholula and FONA and a gain realized on sale of our unconsolidated operation.\nIn our comments, certain percentages are rounded.\nActual results could differ materially from those projected.\nI will now turn the discussion over to Lawrence.\nThroughout the pandemic, we remained steadfast in our focus on our growth performance and people strategies, while ensuring the health and safety of our employees and positioning McCormick to emerge stronger from the crisis.\nWe continue to execute from a position of strength with the combination of our business model, the strategic investments we have made and capabilities we've built as an organization.\nOur broad and advantaged global flavor portfolio, the acceleration of consumer trends that our strategies capitalize on and the effective execution of those strategies as well as our recent acquisitions of two fantastic businesses, and importantly, the engagement of our employees have positioned us well to drive differentiated growth despite challenging comparisons as we lap very strong growth last year.\nOur second quarter results were strong on top of our exceptional second quarter performance last year and also reflect our robust growth momentum on a two year basis, as seen on Slide 4.\nWe delivered significant double-digit two year growth rates for sales, adjusted operating income and adjusted earnings per share and expanded adjusted gross profit and adjusted operating margins.\nEven considering increased COVID-19 and inflation costs as well as planned brand marketing investments, we are driving growth through executing on our long-term strategy, actively responding to changing consumer behavior and capitalizing on new opportunities.\nWe are emerging stronger.\nAs we enter the second half of the year, we continue to be confident in the effectiveness of our strategies, our growth trajectory and that we are well positioned to deliver another year of differentiated growth in 2021 with an even stronger outlook.\nAs seen on Slide 5, we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels.\nThe breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings, creates a balanced and diversified portfolio to drive consistency in our performance in a volatile environment, as evidenced again by our second quarter results.\nDuring last year's second quarter, the onset of the pandemic drove a surge in consumers' cooking and eating more at-home, at-home consumption, resulting in a substantial increase in our Consumer segment demand as well as increases with our packaged food customer -- food company customers in our Flavor Solutions segment.\nLast year, we also experienced a sharp decline in demand from our restaurant and other foodservice customers for the away-from-home products in our portfolio.\nOur second quarter results reflect the lapping of these year ago comparisons as well as the sustained shift to consumer at-home consumption higher than pre-pandemic levels and the robust recovery from away -from -home customers.\nOur second quarter results also included strong contributions from our Cholula and FONA acquisitions, which further extended the breadth and reach of our portfolio with new product offerings, channels and customers.\nTaken together, these impacts continue to demonstrate the strength and diversity of our offering, and we are confident in our balanced portfolio that will continue to differentiate McCormick and sustainably position us for growth.\nNow let me cover the highlights of our second quarter results.\nTurning to Slide 6.\nTotal second quarter sales grew 11% from the year ago period and constant currency sales grew 8% attributable to substantial growth in our Flavor Solutions segment, partially offset by a decline in our Consumer segment, both impacted by the factors I've mentioned a few moments ago.\nThe considerable shift in sales between segments resulted in an adjusted operating income decline of 1% or 4% in constant currency.\nAt the bottom line, our second quarter adjusted earnings per share was $0.69 compared to $0.74 in the year ago period, driven lower primarily by a higher tax rate.\nAs we stated in our March earnings call, we expect growth to vary by quarter in 2021 given 2020's level of demand volatility and the pace of COVID-19 recovery.\nImportantly though, we started the first half of the year with outstanding performance.\nYear-to-date, we've grown sales and adjusted operating income 16% and 14% year-over-year respectively, both of which include 3% favorable impact from currency, and we've grown adjusted earnings per share 10%.\nWhile Mike will provide more details in a few moments, I'd like to comment on our outlook.\nWith our first half results and our robust operating momentum, we are increasing our 2021 outlook for sale, adjusted operating income and adjusted earnings per share.\nWe are operating in the dynamic cost environment and we're certainly not unique in experiencing cost pressures.\nWe're seeing broad-based inflation across our various commodities, packaging materials and transportation costs.\nTo offset rising costs, we are raising prices where appropriate, but usually there are the lag times associated with pricing, particularly with how quickly costs are escalating.\nTherefore, most of our actions won't go into effect until late 2021.\nAs pricing discussions are ongoing, we can't provide further specifics.\nWe have a demonstrated history of managing through inflationary period with the combination of pricing and cost savings.\nNow let's turn to our second quarter segment business performance, which will include comparisons to 2019 pre-pandemic levels as we believe these to be more meaningful than the comparisons to 2020 given the dramatic shift in consumer consumption between at-home and away-from-home experienced in the year ago period.\nStarting on Slide 7, with our Consumer segment comparing to the highly elevated demand levels in the second quarter of last year, sales declined by 2% or in constant currency, 5%.\nOur Consumer segment organic sales momentum on a two year basis was up double-digits, highlighting how sustained shift in consumer consumption continues to drive increased demand for our products, and importantly, outpaces pre-pandemic levels.\nOur Americas constant currency sales declined 7% in the second quarter with incremental sales from our Cholula acquisition contributing 3% growth.\nOur total McCormick U.S. branded portfolio consumption, as indicated in our IRI consumption data and combined with unmeasured channels, declined 26%, following a 55% consumption increase in the second quarter of 2020.\nThe difference between year-over-year shipment and consumption changes is attributable to two factors.\nFirst, we under-shipped consumption in the second quarter of last year.\nSecond, we continue to replenish retailer and consumer pantry inventories that were completed throughout last year, demand has remained high, and we continue to realize the benefit of our U.S. manufacturing capacity expansion.\nThroughout our first half of the year, we restored products which had been suspended at the end of last year and continue to see service levels improve, and we are refilling the inventory pipeline.\nAs we have said previously, inventory replenishment will progress throughout the year.\nThrough working with our customers on improving shelf conditions, we estimate approximately 90% of suspended products are now back on shelf.\nWe know the categories most impacted by supply constraints, spices and seasonings and dry recipe mix, there is a high correlation between our share performance and the shelf conditions resulting from product suspension or allocation.\nProducts that had strong supply and remained on shelf performed well.\nAnd as suspended products are restocked on shelf, we are seeing improved performance.\nThis improvement is somewhat masked due to the lapping of significant overall share gains in the second quarter of last year.\nImportantly, we continue to anticipate regaining share as conditions continue to improve.\nFocusing further on our U.S. branded portfolio, our IRI consumption data, combined with unmeasured channels, indicates consumption of the portfolio grew 18% versus the second quarter of 2019 led by significant growth in spices and seasonings and hot sauces, and also includes triple-digit pure-play growth in e-commerce with McCormick-branded consumption outpacing all major categories.\nThis is the third consecutive quarter our U.S. branded portfolio consumption grew double-digits in the mid -to-high-teens versus the two year ago period, which reflects the continuation of consumers cooking and using flavor more at home and the strength of our categories.\nOur key categories continue to outpace the center of store growth rates, favorably impacting not only the McCormick brand, but smaller brands as well.\nHousehold penetration and repeat buyer rates have also growth versus 2019.\nAnd when our consumers shop, they are buying more of our products than they were pre-pandemic.\nAnd finally, for the Americas, our initiative to reinvent the in-store experiences for spices and seasonings consumers with new merchandising elements to improve navigation and drive inspiration is yielding great early results.\nWhere implemented, the category and McCormick-branded growth is outpacing the rest of market as we plan to implement this in thousands of additional stores in the third quarter.\nNow turning to EMEA, which has continued its outstanding momentum.\nWe had strong market share performance in the second quarter versus last year, maintaining or gaining share in our core brands and markets following the strong gains in the second quarter last year.\nNotably, both Schwartz and Ducros spices and seasonings as well as Frank's RedHot grew consumption during the second quarter against a strong comparison to double-digit growth last year.\nAnd not only are we retaining new households we gained last year, but we are also continuing to increase household penetration for the fifth consecutive quarter.\nOur investments in brand marketing in the EMEA, which significantly increased in the second quarter compared to last year, are proven to be effective as evidenced by the metrics I just discussed as well as are achieving above benchmark rates for reach, engagement and click there for instance in our digital marketing.\nAdditionally, the creativity of our Vahine Half-py Birthday Campaign received national media attention in France as well as the prestigious award for its excellence in advertising the design.\nOn a two year basis, compared to the second quarter of 2019, we drove double-digit consumption growth and market share gains in our core categories and markets, including total EMEA region spices and seasonings, Vahine homemade desserts, France, and both Schwartz recipe mixes and Frank's RedHot in the U.K. Since the beginning of the pandemic, our EMEA supply chain has been very well positioned to meet the elevated demand and has contributed to our ability to grow share across the region.\nIn the Asia Pacific region, second quarter sales growth was strong.\nDuring this time last year, China's Hubei province, where our Wuhan operations are located, remains in lockdown in part of the second quarter.\nAnd our results reflect the recovery from that as well as the recovery of branded foodservice sales in China.\nChina's foodservice has almost fully returned to pre-pandemic levels with restaurant home delivery increasing at popularity.\nOur consumer product demand declined due to lapping significant growth last year.\nIn Australia, we continue to see elevated consumption and share gains versus the second quarter of 2019 with Frank's RedHot and Stubb's consumption growing triple-digits and gaining share.\nThe Gourmet Garden, McCormick and Keen's spice and seasonings outpacing the categories with double-digit consumption growth.\nAcross all our regions, our new products continue to be integral to our growth, and we're gaining significant momentum with our recent launches.\nFor instance, our Grill Mates all-purpose seasoning and our Frank's frozen appetizers are driving growth in the Americas as consumers have shifted their thinking about convenience from no cooking to cooking easily.\nAnd in EMEA, the rollout of our first choice glass bottle into the Eastern European market is going very well, increasing our relevance with consumers and driving share gains, as they perceive the glass bottle as a premium to sachet.\nMoving forward, while we know we will be lapping challenging year-over-year consumption comparisons in the second half of the year, we are confident that we continue to capture the momentum in our Consumer segment.\nWe have more consumers than pre-pandemic.\nThey have come into our brands, are having a good experience and are buying our products again.\nWe are excited about our growth trajectory and expect continued and long-lasting growth from the sustained shift to consumers cooking more at home, fueled by our brand marketing, new product and category management initiatives as well as growth from our Cholula acquisition.\nTurning to Slide 8.\nOur Flavor Solutions second quarter results include not only recovering from the significant curtailment of away-from-home dining during last year's second quarter, but also the growth momentum we are gaining with our restaurant and other foodservice customers as well as the continued strong momentum with our packaged food and beverage customers.\nIn the second quarter, our sales rose 39% or 34% at constant currency with double-digit growth in all three regions.\nAnd on a two year basis, our sales also increased double -digits in all three regions.\nIn the Americas, our FONA and Cholula acquisitions made a strong contribution to our significant growth in the second quarter, and we are executing on our strategy to shift our portfolio to more value-added and technically insulated products.\nWe continue to see strong growth in our consumer packaged food customers, while executing on our portfolio migration through new products and base business strength.\nCompared to last year's second quarter, snack seasonings grew double-digits with strong growth in core iconic products as well as new products, and the innovation pipeline continues to be robust.\nConsumers' rising global demand for hot spicy flavors is driving growth for our customer snacks and for our seasonings that flavor them.\nAnd with the flavor hard seltzer trend accelerating, we are winning new business and growing our flavor sales for beverages considerably, up triple-digits in the second quarter.\nDemand from our Americas away-from-home customer base or branded foodservice and restaurant customers increased significantly due to the recovery I mentioned a few moments ago.\nOur away-from-home rebound in this region is at a slower pace as our customer base is more skewed to branded foodservice.\nWe anticipate our demand from this channel will strengthen as the year progresses and more dining options reopen.\nIn EMEA, as we cycle the significant decline in last year's second quarter from regionwide shutdowns, our growth was substantial.\nTurning to our consumer packaged food and beverage customers.\nWe had strong second quarter performance on top of last year's strong growth.\nThe growth in flavors for sweet beverages and the hot and spicy trend fueling both base and new product growth in snack seasonings.\nOur sales growth in the Asia Pacific region was partially due to the recovery from lockdowns, closures and curfews in countries outside of China during the second quarter of last year as well as continued momentum in Australia from QSR customers' limited time offer.\nAdditionally, China, where QSRs were open in the second quarter of last year, delivered double-digit growth due to significant momentum and limited time offers as well as strength in the core business.\nAcross all regions, we recognize a large part of our second quarter Flavor Solutions results were due to the comparison to abnormally low away-from-home demand last year.\nImportantly though, our growth also includes contributions for FONA and Cholula, strong growth with packaged food and beverage customers both in the base business and the new product wins, driven by our differentiated customer engagement and continuing momentum with QSRs, partially from their limited time offers and promotional activity.\nWhile we know a portion of our second half growth will still be impacted by recovery, our second quarter results and our effective growth strategies bolster our confidence in returning to our robust pre-pandemic growth trajectory in our Flavor Solutions segment.\nNow for a brief update on how we're driving growth with Cholula and FONA, starting with Cholula on Slide 9.\nIn our Consumer segment, Cholula continues to outpace category growth and gained share, growing consumption 54% since the second quarter of 2019.\nWe're using our category management expertise to expand distribution points, including with the two ounce bottle size and expansion into new channels, optimize shelf assortment and placement and gain momentum in e-commerce where Cholula has been underpenetrated.\nOur initiatives are yielding results.\nWe have grown total distribution points 11% and household penetration 5% since the second quarter of 2020.\nWe recently launched Cholula wing sauces and also relaunched the green pepper in Chipotle flavors with cleaner formulas.\nAnd in our Flavor Solutions segment, we're using our culinary foundation and insights on menu trends to grow our back of house foodservice penetration by increasing Cholula's menu participation.\nSince the beginning of the year, we've driven a 63% increase in U.S. national chain restaurant locations, activating a Cholula-branded limited time offer.\nWe are winning in foodservice.\nNow moving to FONA, we are excited by year-to-date double-digit sales growth compared to last year.\nBeverages with particular strength in the fast growing performance nutrition category continue to drive significant growth for FONA, 14% on a year-to-date basis.\nWe're driving growth with our global footprint.\nFor example, by leveraging Giotti's infrastructure, we are expanding flavors for top FONA customer into the EMEA region, with the first order being manufactured this month.\nWe are also leveraging McCormick's sustainability leadership to create new opportunities with FONA customers.\nCombination of our capabilities has created new opportunities to bid on customer breeds that capitalize on core strengths across McCormick and FONA, including McCormick's culinary focus and FONA's speed to market.\nFONA's year-to-date new product wins and its pipeline potential has hit record highs fueling future growth.\nWe have also identified longer term opportunities to optimize our combined assets and technologies across the network to expand our capacity and drive further solutions for our customers.\nCustomer reaction has been extremely positive.\nThey are impressed with our early collaboration, and excitement about our increased customer value proposition continues to build.\nOur enthusiasm for Cholula and FONA and our confidence will deliver on our acquisition plans, accelerate growth with these portfolios and drive shareholder value continues to strengthen.\nIn fact, we're now projecting the incremental sales contribution of these acquisitions to be at the high end of our 3.5% to 4% guidance range.\nNow I'd like to share some of our insight of long-term consumer trends.\nAs seen on Slides 11 and 12, global demand for flavor remains the foundation for our sales growth.\nWe are capitalizing on the growing consumer interest in healthy flavorful cooking, trusted brands as well as digital engagement and purpose-minded practices.\nThese long-term trends and the rising global demand for great taste are as relevant today as they have been in the past with the younger generations continuing to fuel the demand for flavor at a greater rate.\nAs we've shared previously, our proprietary consumer survey data, supported by external research, tells us that consumers are enjoying the cooking experience.\nIt provides a creative outlet, makes them feel adventurous, reduces stress and connects the family, and they feel home-cooked meals are healthier.\nIn our recent consumer survey from May, 68% of U.S. consumer survey state they are cooking more today than pre-pandemic and 78% claims they would maintain or increase their level of cooking at home as things return to normal next week with no meaningful difference between those vaccinated and those not.\nResearch indicates a continued increased level of cooking in other countries as well.\nConsumers have formed new habit.\nThey invested in new kitchen appliances and want to try new things.\nThey want to cook versus have to cook with the majority of food from restaurants being consumed at home and over 70% of U.S. consumers are adding their own spices, seasonings and condiments to further flavor their takeaway or deliver food, channels have become orders and lunch is the new meal to prepare at home with hybrid workplace models more common post-pandemic, allowing employees to split time between the office and home.\nResearch indicates, at-home lunch occasions increasing up 30%.\nWe believe consumer behavior and sentiment driving accelerated and sustained preference for cooking at home will continue globally and persist beyond the pandemic.\nAnd combined with the effective execution of our growth strategies, will further drive consumer demand for our products in 2021 and beyond.\nMoving to Slide 13.\nWe are making transformative investments which will enable us to sustainably meet increasing demand both for our products and our customers' product.\nWe are investing in our supply chain to expand our capacity and capabilities as well as increase our resiliency.\nFor example, we are increasing our condiment and seasoning capacity.\nWe plan to optimize our distribution network for the new Northeast U.S. distribution center, our largest in the world.\nAnd we are in the final stages of building a new U.K. Flavor Solutions manufacturing facility, which is on track to become McCormick's first net zero carbon building.\nThese investments will enable us to remain agile and scalable and deliver the future growth that we expect.\nNow for some summary comments.\nFirst, I'm pleased to share an important milestone for McCormick.\nWith our overarching focus on growth and successful execution of our strategy, we have consistently driven industry-leading revenue growth, resulting in McCormick being named to the latest Fortune 500 list of companies by Fortune Magazine.\nWe are proud of our sustained performance and being included on this prestigious list.\nWe take pride in delivering our industry-leading financial performance of doing the right thing with responsibility for the long-term vitality of people, communities and the planet we share.\nIn May, we were named The Diversity Inc. Top 50 Company for the fifth consecutive year.\nThis recognition is a testament to our emphasis on embracing and leveraging diversity and inclusion globally as well as our broader ESG efforts.\nIn summary, our fundamentals, momentum and growth outlook continue to be stronger than ever.\nOur alignment with long-term consumer trends, the breadth and reach of our portfolio and a robust operating momentum combined with the successful execution of our strategy, bolsters our confidence in delivering another strong year of growth and performance in 2021.\nFollowing an extraordinary year in 2020, our 2021 outlook reflects both our strong underlying base business performance and acquisitions driving significant sales growth as well as strong operating income growth even considering extraordinary COVID-19 costs and our business transformation investments.\nOur top-tier long-term growth objectives remain unchanged, and we are sustainably positioned for growth.\nThey've done a tremendous job navigating this past year's volatile environment and ensuring we emerge stronger.\nWith their agility, teamwork and passion for flavor and winning, they drive our momentum and success.\nFor the reasons Lawrence mentioned, my comments will also include comparisons to 2019.\nOur second quarter performance was very strong.\nStarting with our top-line growth, as seen on Slide 17, we grew constant currency sales 8% during the second quarter compared to last year with incremental sales from our Cholula and FONA acquisitions contributing 5% across both segments.\nHigher volume and mix drove the 3% increase in organic sales with Flavor Solutions growth offsetting a decline in the Consumer segment.\nVersus the second quarter of 2019, we grew sales 18% in constant currency.\nDuring the second quarter, our Consumer segment lapped exceptionally high demand for our products driven by the surge in consumers cooking more at home at the onset of the pandemic.\nAs such, versus last year, our second quarter Consumer segment sales declined 5% in constant currency, which includes a 2% increase from the Cholula acquisition.\nCompared to the second quarter of 2019, Consumer segment sales grew 22% in constant currency.\nOn Slide 18, Consumer segment sales in the Americas, lapping the demand surge in the year ago period, declined 7% in constant currency, including a 3% increase from the acquisition of Cholula.\nCompared to the second quarter of 2019, sales increased 26% in constant currency with significant broad-based growth across the McCormick-branded portfolio.\nIn the EMEA, constant currency Consumer sales declined 4% from a year ago, also due to lapping the high demand across the region last year.\nNotably, this decline includes growth in our U.K. and Eastern European markets on top of their significant growth last year, which was more than offset by declines in the region's other markets.\nOn a two year basis, sales increased 21% in constant currency versus 2019 pre-pandemic levels with double-digit growth in all markets across the region.\nConsumer sales in the Asia Pacific region increased 15% in constant currency due to the recovery of branded foodservice sales as well as recovery from the extended disruption in Wuhan last year with a partial offset from the decline in consumer demand as compared to the elevated levels in the year ago period.\nSales were comparable to the second quarter of 2019, including a sales decline in India, resulting from a slower COVID-19 recovery.\nTurning to our Flavor Solutions segment and Slide 21.\nWe grew second quarter constant currency sales 34%, including a 9% increase from our FONA and Cholula acquisitions.\nThe year-over-year increase was primarily due to a higher sales of away-from-home products in our portfolio across all regions.\nCompared to the second quarter of 2019, Flavor Solutions segment sales grew 13% in constant currency.\nIn the Americas, Flavor Solutions constant currency sales grew 30% year-over-year with FONA and Cholula contributing 13%.\nVolume and product mix increased driven by significantly higher sales to branded foodservice customers as well as growth to packaged food and beverage companies, with particular strength in snack seasonings and beverages.\nOn a two year basis, sales increased 12% in constant currency versus 2019 with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business.\nIn EMEA, constant currency sales grew 65% compared to last year due to increased sales to QSRs and branded foodservice customers as well as continued growth momentum with packaged food and beverage companies.\nConstant currency sales increased 16% versus the second quarter of 2019 driven by strong sales growth with packaged food companies and QSR customers.\nIn the Asia Pacific region, Flavor Solutions sales rose 23% in constant currency versus last year led by growth for QSRs in China and Australia, partially due to new products and our customers' limited time offers and promotional activities as well as a recovery from COVID-19 lockdowns in countries outside of China in the year ago period.\nSales grew 15% in constant currency versus the second quarter of 2019.\nAs seen on Slide 25, adjusted operating income, which excludes transaction and integration costs related to the Cholula and FONA acquisitions as well as special charges, declined 1% or in constant currency 4% in the second quarter versus the year ago period.\nAdjusted operating income in the Consumer segment declined 24% to $177 million or in constant currency 26% driven by -- primarily by lower sales.\nIn the Flavor Solutions segment, adjusted operating income rose 183% to $81 million or 175% in constant currency, driven primarily by higher sales.\nBoth segments were favorably impacted by product mix and CCI-led cost savings with a partial offset from cost inflation, including transportation costs.\nCOVID-19-related costs were comparable to the year ago period.\nAdditionally, in the Consumer segment, brand marketing expenses increased 15% in the second quarter of last year.\nAs seen on Slide 26, our selling, general and administrative expense as a percentage of sales increased 10 basis points with the increase in brand marketing partially offset by leverage from sales growth.\nAdjusted gross profit margin declined 190 basis points and adjusted operating margins declined by 200 basis points.\nIn addition to the factors I just mentioned, the sales shift between segments unfavorably impacted both margins.\nImportantly, versus the second quarter of 2019, we expanded adjusted gross profit margin 40 basis points and adjusted operating margin 10 basis points even considering incremental COVID-19 costs, cost inflation and higher brand marketing investments.\nTurning to income taxes.\nOur second quarter adjusted effective tax rate of 22.2% compared to 18% in the year ago period.\nBoth periods were favorably impacted by discrete tax items with a more significant impact last year due to discrete tax item related to the refinement of our entity structure.\nAdjusted income from unconsolidated operations declined 2% in the second quarter of 2021.\nAt the end of March, we completed the sale of our minority stake in Eastern Condiments, one of our joint ventures in India.\nFor 2021, we now expect a low-single-digit decline in our adjusted income from unconsolidated operations, partially due to the elimination of ongoing income from Eastern.\nPreviously, we were projecting a low-single-digit increase.\nAt the bottom line, as shown on Slide 29, second quarter 2021 adjusted earnings per share was $0.69 compared to $0.74 for the year ago period.\nThe decline was primarily driven by a higher adjusted income tax rate.\nAs compared to the second quarter of 2019, our sales growth drove a 19% increase in adjusted earnings per share.\nOn Slide 30, we summarize highlights for cash flow and the quarter end balance sheet.\nOur cash flow from operations was $229 million through the second quarter of 2021 compared to $355 million in the second quarter of 2020.\nThis change primarily resulted from a lower level of cash generated from working capital associated with increased sales, higher incentive compensation payments and the payment of transaction and integration costs related to our recent acquisitions.\nWe returned $182 million of this cash to our shareholders through dividends and used $113 million for capital expenditures through the second quarter.\nWe expect 2021 to be another year of strong cash flow driven by profit and working capital initiatives.\nAnd our priority is to continue to have a balanced use of cash funding investments to drive growth, returning a significant portion to our shareholders through dividends and paying down debt.\nNow turning to our 2021 financial outlook on Slides 31 and 32.\nWith our broad and advantaged flavor portfolio, our robust operating momentum and effective growth strategies, we are well positioned for another year of differentiated growth and performance.\nFor 2021, we are projecting top-line and earnings growth from our strong base business and acquisition contribution, with earnings growth partially offset by incremental COVID-19 cost and the ERP investment as well as the prior projected adjusted effective tax rate.\nWe expect there will be an estimated 3 percentage points favorable impact of currency rate on sales, an increase from 2% previously.\nAnd for the adjusted operating income and adjusted earnings per share, we continue to estimate a 2 percentage point favorable impact of currency rates.\nAt the top-line, due to our strong year-to-date results and robust operating momentum, we are increasing our expected constant currency sales growth to 8% to 10% compared to 6% to 8% previously.\nThis includes the incremental impact of the Cholula and FONA acquisitions, projected to be at the high end of the 3.5% to 4% range.\nWe anticipate our organic growth will be led by higher volume and product mix driven by our category management, brand marketing, new products and our customer engagement growth plans.\nPricing, taken to partially offset cost inflation, is also expected to contribute to sales growth.\nWe are now projecting our 2021 adjusted gross profit margin to be 80 to 100 basis points lower than 2020.\nOur previous projection was comparable to 2020.\nWe are increasing our inflation expectation for the year to a mid-single-digit increase as compared to a low-single-digit increase previously.\nOverall, our projected adjusted gross margin compression reflects unfavorable impacts from sales mix between segments, COVID-19 costs and cost inflation, partially offset by pricing as well as margin accretion from the Cholula and FONA acquisitions.\nAs a reminder, we price to offset cost increases.\nWe do not margin up.\nOur estimate for COVID-19 cost remains unchanged at $60 million in 2021 versus $50 million in 2020 and weighted through the first half of the year.\nReflecting the changes in our sales and gross profit margin outlooks, we are increasing our expected constant currency adjusted operating income growth.\nOur adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions, projected to be 12% to 14% constant currency growth, partially offset by a 1% reduction from increased COVID-19 costs compared to 2020 and a 3% reduction from the estimated incremental ERP investment.\nThis results in a total projected adjusted operating income growth rate of 8% to 10% in constant currency.\nThis projection includes the inflationary pressure I just mentioned as well as our CCI-led cost savings target of approximately $110 million.\nIt also includes an expected low-single-digit increase in brand marketing investments.\nWe also reaffirm our 2021 adjusted effective income tax rate projected to be approximately 23%.\nThis outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings-per-share growth of approximately 4%.\nWe are also increasing our 2021 adjusted earnings per share expectations to 6% to 8% growth, which includes a favorable impact from currency.\nThis increase reflects our higher adjusted operating profit outlook and lower adjusted income from unconsolidated operations, as I mentioned earlier.\nOur guidance range for adjusted earnings per share in 2021 is now $3 to $3.05 compared to $2.97 to $3.02 previously.\nThis compares to $2.83 of adjusted earnings per share in 2020.\nThis growth reflects strong base business and acquisition performance growth of 12% to 14% in constant currency, partially offset by the impact I just mentioned related to COVID-19 cost, our incremental ERP investment and the tax headwind.\nNow that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways, as seen on Slide 33.\nIn the second quarter, we drove exceptional growth despite a challenging year-over-year comparison.\nWe delivered significant double-digit year-to-date and two year growth rates for sales and profit, reflecting a robust growth momentum.\nWe have a strong foundation and a balanced portfolio, which drives consistency in our performance.\nWe expect higher at-home consumption will persist beyond the pandemic.\nAnd we are well positioned to capitalize on long-term consumer trends, which accelerated during the pandemic, while continuing the momentum we are gaining in away-from-home consumption.\nOur enthusiasm for Cholula and FONA and our confidence we'll deliver on our plans has only strengthened.\nOur 2021 outlook reflects another year of differentiated growth and performance, while also investing for the future growth we expect.\nWe are confident we will continue on our growth trajectory in 2021 and beyond.",
        "summary": "q2 adjusted earnings per share $0.69.\nq2 sales rose 11 percent.\nsees fy sales up 11 to 13 percent.\nincreased its projected 2021 earnings per share to be in range of $2.83 to $2.88.\nexcluding impacts, company projects 2021 adjusted earnings per share to be in range of $3.00 to $3.05.\nqtrly net sales $1,556.7 million versus $1,401.1 million."
    },
    {
        "text": "This is Kasey Jenkins, Vice President of McCormick Investor Relations.\n[Operator Instructions] We'll begin with remarks from Lawrence Kurzius, Chairman, President and CEO and Mike Smith, Executive Vice President and CFO.\nDuring our remarks, we will refer to certain non-GAAP financial measures.\nThese include information in constant currency, as well as adjusted gross margin, adjusted operating income, adjusted income tax rate, adjusted earnings per share and adjusted leverage ratio that exclude the impact of special charges, transaction and integration expenses related to the acquisitions of Cholula and FONA, and for 2019, the net non-recurring benefit associated with the U.S. Tax Act.\nAs a reminder, we completed a 2-for-1 stock split at the end of our fiscal 2020.\nIt is important to note, these statements include expectations and assumptions, which will be shared related to the impact of the COVID-19 pandemic.\nIt is now my pleasure to turn the discussion over to Lawrence.\nStarting on Slide 4, our fourth quarter results completed a year of strong financial performance.\nWe delivered strong results in 2020 despite great disruption proving the strength of our business model, the value of our product, our capabilities as a company, as well as the successful execution of our strategy.\nI am incredibly proud of the way McCormick has performed in this unprecedented operating environment.\nWe drove outstanding underlying operating performance while protecting our employees in recognizing their exceptional performance, making important investments in our supply chain and brand building to fuel future growth and supporting our communities through relief efforts.\nWe're also excited about the recent acquisitions of Cholula and FONA, two fantastic businesses that will continue to support differentiated growth and performance, positioning McCormick for success in 2021 and beyond.\nAs seen on Slide 5, we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels.\nThe breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings it's a balanced and diversified portfolio to drive consistency in our performance during volatile time, as evidenced by our fourth quarter and fiscal year results.\nThe sustained shift at consumer behavior to cooking and eating more at home or at-home consumption drove substantial increases in our Consumer segment demand, as well as increases with our packaged food company customers in our Flavor Solutions segment.\nOn the other hand, we experienced declines in demand from our restaurant and other foodservice customers in the away from home products in our portfolio.\nThe impact of this shift to more at-home consumption has varied by region due to differing levels of away from home consumption in each, as well as the pace of each regions' COVID-19 recovery.\nTaken together, these impacts continue to demonstrate the strength and diversity of our offering.\nHeading into 2021, I'm confident our operating momentum will continue.\nIn our 2021 outlook, our continued underlying business momentum and the Cholula and FONA acquisitions are expected to drive robust sales, adjusted operating income, and earnings growth and fund our investments in business transformation.\nTurning to Slide 6, starting with the fourth quarter results, which were in line with the guidance we provided for sales, adjusted operating profit, and adjusted earnings per share on our last earnings call on our top line versus the year ago period, we grew total sales 5%, including a 1% favorable impact from currency.\nIn constant currency, we grew total sales 4%, with both segments contributing to the increase.\nAdjusted operating income declined 4%, as growth from higher sales and CCI-led cost savings were more than offset by higher planned brand marketing investments, COVID-19-related costs, and higher employee benefit expenses.\nOur fourth quarter adjusted earnings per share was $0.79 compared to $0.81 in the prior year, driven primarily by lower adjusted operating income for the partial offset from lower interest expense.\nTurning to our fourth quarter segment business performance, starting on Slide 7 in our Consumer segment, we grew fourth quarter sales by 6%, or constant currency 5% driven by consumers cooking and eating more at home.\nOur Americas constant currency sales growth was 6% in the fourth quarter.\nOur total McCormick U.S.-branded portfolio, as indicated in our IRI consumption data, grew 14% which reflects the strength of our categories as consumers continue to cook more at home.\nSimilar to previous quarters, our sales increase was lower than the U.S. IRI consumption growth, which is attributable to service level pressures and an increased level of pricing in scanner data.\nAs mentioned in our earnings call at the end of September, we expected service level pressures in the fourth quarter due to the sustained increase in demand.\nTo protect our top selling holiday items, we had to suspend or curtail production on some secondary product, which importantly drove our strong holiday execution, and consistent with previous quarters, scanner data includes higher pricing growth due to the channel shift with grocery outpacing mass merchandisers and closed stores, as well as some impact from lower promotional activity.\nFocusing on the U.S. branded portfolio in spices and seasonings and other key categories, excluding dry recipe mixes, we grew fourth quarter consumption at double-digit rate and again, increased our household penetration and repeat buy rates.\nOur fourth quarter dry recipe mix consumption was impacted by supply constraint this has double-digit growth for the year, as with spices and seasonings and the other key categories.\nIn the fourth quarter, we continue to gain share in categories less impacted by supply constraints, including hot sauces, stocks and broth, barbecue sauce, wet marinate, and Asian products.\nThe majority of our categories, continue to outpace the total store and center of store growth rates favorably impacting not only the McCormick brand, but smaller brands as well, such as Stubb's, Lawry's, Simply Asia and Thai Kitchen.\nAnd in e-commerce, we had triple-digit pure-play growth with McCormick branded consumption outpacing all major categories.\nWhile we do not expect consumption to continue at the highly elevated level of our fourth quarter, we do expect continued and long-lasting growth from the increase in consumers cooking more at home the most recent IRI scanner sales data for the five-weeks ending January 17th show total McCormick U.S. branded portfolio consumption is still growing at approximately 11.5% with continued strength in spices and seasonings.\nConsumers are continuing to come to our brand, have a good experience and buy our products again.\nIn the fourth quarter, we increased our brand marketing investments in all regions, as planned, with the Americas messaging and promotional activities focused on a holiday proving to be successful.\nWith our high level of effective brand marketing investments and our initiatives to deepen our digital engagement with consumers we're capitalizing on the opportunity to build long-term brand equity, capture trial and increased usage by existing consumers.\nAnd with the manufacturing capacity we've recently added, we're well-positioned moving into 2021, and we'll continue to drive growth with strong brand marketing, category management initiatives and new product innovations.\nNow turning to EMEA, our constant currency sales rose 10% in the fourth quarter with broad-based growth across the region.\nOur largest markets continue to drive double-digit total branded consumption growth with market share gains across the region at several categories.\nSpices and seasonings consumption was strong in all markets and our Vahine brand in France again had strong consumption growth and outpaced the homemade desserts category.\nAand in U.K., Frank's RedHot drove the hot sauce category growth and gained share with over 50% consumption growth.\nIn EMEA, our household penetration and rate of repeat buyers increased significantly across our major brands and markets during the fourth quarter and the full year compared to last year.\nImportantly, for the full year, we gained total EMEA region's market share in spices and seasonings and dry recipe mixes.\nIn the Asia-Pacific region, our constant currency sales declined 10% driven by softness in branded foodservice products, which are included in our Consumer segment in this region.\nThe foodservice industry is continuing to recover, but at a gradual pace.\nGrowth in China was also impacted by a shift to a later Chinese New Year in 2021, which in turn impacted shipments at the end of our year.\nExcluding those impacts, consumer consumption in the region was strong, particularly at Gourmet Garden and Frank's RedHot in Australia.\nTurning to Slide 8, our sales performance in Flavor Solutions return to growth in the fourth quarter with a constant currency sales increase of 3% and all three regions contributed to the sales growth.\nIn both our Americas and EMEA regions, we experienced increased demand from our consumer packaged food customers or at-home customer base with the strength in the base business, as well as momentum with new products.\nAlso in both regions, we experienced demand declines in our away from home customer base for branded foodservice and restaurant customers.\nThe net impact of this demand volatility, along with pricing actions to cover cost increases drove EMEA's fourth quarter constant currency sales growth of 5% and then the Americas, which is more skewed to branded foodservice growth of 2%.\nIn the Asia-Pacific region our constant currency sales grew 7% driven by Australia and China's growth with quick service restaurant for QSR customers, but we continue to see momentum at limited time offers and the core business partially driven by the customers' promotional activities.\nMoving from our fourth quarter results, I'm pleased to share our full fiscal year accomplishments.\nIt's not only highlight what we've achieved during 2020, but fuel our confidence to drive another year of strong operating performance in 2021.\nNow starting with our 2020 financial results as seen on Slide 9, we grow 5% constant currency sales growth with 10% growth in our Consumer segment led by consumers cooking and eating more at home.\nPartially offsetting this growth was a 2% constant currency sales decline in the Flavor Solutions segment as COVID-19 restrictions in most markets, as well as consumer reluctance to dine out, reduced demand from restaurant and other foodservice customer.\nWe achieved $113 million of annual cost savings driven by our CCI program, our fuel for growth and there continues to be a long runway in 2021 and beyond to deliver additional cost savings.\n2020 was the ninth consecutive year with record cash flow from operations ending the year at over $1 billion, a 10% increase from last year.\nWe're making great progress with our working capital improvements.\nAt year-end, our Board of Directors announced a 10% increase in the quarterly dividend marking our 35th consecutive year of dividend increases.\nWe have paid dividends every year since 1925 and are proud to be a dividend aristocrat.\nNow I would like to comment on some of our 2020 achievements beyond our financial performance.\nE-commerce growth accelerated significantly in 2020, which we were well prepared for from our past investments and investments we activated early in the year.\nOur 2020 growth of 136% was outstanding, with triple-digit growth in all categories, including pure-play, click and collect and our own direct-to-consumer properties.\nWe expect the consumer shift increased online shopping to continue and we are well-positioned for the opportunities still ahead.\nWe continue to build long-term brand equity through our brand marketing investments, increasing at 7% in fiscal 2020.\nMost recently, with a double-digit increase in the fourth quarter across all regions, which will continue to drive strong growth momentum into 2021.\nWe designed targeted media and messaging focused on cooking at home and connecting with consumers digitally more than ever in 2020.\nOur digital leadership was again recognized, as we were ranked as the number 1 food brand with the highest designation of genius by Gartner L2 research in their Digital IQ U.S. ranking.\nThis is the seventh year in a row, we were ranked in the top five food and beverage brands.\nWe continue to be recognized for our efforts for doing what's right for people, communities and the planet.\nDuring 2020, we were recognized for the fourth consecutive year, as a DiversityInc Top 50 company.\nAnd earlier this week, Corporate Knights ranked McCormick in their 2021 Global 100 Most Sustainable Corporations Index, as a number 1 in the food products industry for the 5th consecutive year, as well as the number 1 U.S. company overall and globally number 6 overall.\nFinally, during the year, we continue to invest to expand our global infrastructure.\nIn the Americas, we broke ground on a new state-of-the-art Northeast Distribution Center in Maryland, which will optimize our distribution network.\nIn our EMEA region, we began construction on the new Flavor Solutions' manufacturing facility in the U.K. to support the region's strong and growing customer base.\nIn China, we are investing in flavor capabilities to further drive Flavor solutions' growth.\nThese investments will create both capacity and capability, which will further drive our growth momentum.\nTurning to 2021, Mike will go over our guidance in a few moments.\nBut I'd like to comment on our recent acquisition announcements and provide highlights related to our growth momentum and 2021 plan.\nStarting on Slide 11, in addition to the accomplishments I just mentioned, we have reinforced our global flavor leadership and accelerated our condiment and flavors growth platforms with the recent acquisitions of Cholula and FONA.\nCholula, an iconic brand and a high growth category is a leading Mexican hot sauce and highly complements our existing hot sauce portfolio, broadening our flavor offerings to consumers and food service operators.\nFONA, a leading North American manufacturer of flavors increases the scale of our global flavors platform, with the addition of its highly complementary portfolio to our Flavor Solutions segment, expanding our breadth and accelerating our portfolio migration, more value-added and technically insulated products.\nWe're excited about the 2021 growth contributions we expect from Cholula and FONA, which closed at the end of November and December respectively.\nFor both acquisitions, our transition and integration activities are progressing according to our plans and the alignment of our organizations is under way to deliver on opportunities quickly and to aggressively drive growth.\nWe have a proven playbook and unmatched expertise to effectively and efficiently unlock Cholula's significant growth potential.\nIn our Consumer segment we will leverage our operational expertise and infrastructure to elevate Cholula's brand presence, increase the availability of its products and extended its product offerings into new flavors, formats and eating occasions to drive trial and household penetration.\nBuilding our enthusiasm is an outstanding momentum Cholula carried into 2021 continuing to outpace category growth with strong consumption.\nIn our Flavor solutions segment with our broad presence across all foodservice channels we'll be focusing on strengthening Cholula's go-to-market model.\nThere are opportunities to expand Cholula's distribution and its existing foodservice channel, as well as increase new restaurant penetration, which we are uniquely positioned to realize and drive growth.\nMcCormick's reach across customers combined with our culinary foundation and deep insights on menu trends expands the recipe inspiration and Flavor Solutions that we offered to operators.\nTurning to FONA, which in addition to accelerating our portfolio migration will be the cornerstone for accelerating our Americas flavor platform.\nBy expanding our breadth and depth in developing flavors, while also combining our infrastructures to provide greater scale and increase our manufacturing capacity and technical bench strength, we are providing our customers with a more comprehensive product offerings, bolstering our competitive position and creating more opportunities for growth.\nWith the addition of FONA, we're advancing our health and wellness portfolio.\nWe're expanding our research and development capabilities and technology platform, with additional proprietary and cancellation methods including expertise in flavoring health and performance nutrition product across a variety of applications.\nOur clean and natural platform is meaningfully enhanced with the addition of FONA's predominantly natural portfolio as well as their expertise, particularly in citrus fruit flavors.\nCombination of our technology platforms and capabilities will provide a long runway for growth, enabling us to remain at the forefront of flavor development and expand our ability to create better for you, the consumer preferred flavor solutions across a diverse range of applications for our customers.\nOur complementary customer base is a global and mid-tier customers provide growth opportunities for our collective portfolios.\nBonus customer-centric culture is very similar to ours and with the combined power of our organizations we're well positioned to reach a broader customer base, deepening existing customer relationships by cross-selling and establish inroads with new customers while driving innovation.\nCustomer response to the acquisition has been favorable, as they recognized our combined power increases our customer value proposition.\nWe're confident we'll deliver on our acquisition plans.\nThis confidence is bolstered by our proven track record of successfully integrating and increasing the performance of our businesses, such as our acquisition of Frank's and French's.\nAcquisitions are a key part of our long-term growth strategy in both Cholula and FONA will add to our strong history of creating value through acquisitions.\nNow, I'd like to briefly comment on the conditions we're seeing in our markets, their potential impact and our 2021 organic growth plans starting on Slide 14.\nGlobal demand for flavor remains a foundation for our sales growth.\nWe're capitalizing on the growing consumer interest in healthy flavorful cooking, trusted brands as well as digital engagement and purpose-minded practices.\nThese long-term trends have only accelerated during the pandemic.\nOur alignment with these consumer trends combined with the breadth and reach of our portfolio sustainably positions us for continued growth.\nThese underlying trends, current market conditions and our robust 2021 plan position us well to successfully execute on our growth strategies in both segments.\nStarting with our Consumer segment.\nAround the world, we continue to experience sustained elevated consumer demand, which is real incremental consumption and reflects the trends of consumers cooking more at home.\nAcross our APZ region, consumer demand continues to be strong.\nIn China, consumer consumption remains strong and we continue to see recovery in foodservice within China is in our consumer segment, as well as optimism about the Chinese New Year holiday, which was significantly disrupted last year by the COVID-19-related lockdown and then, Australia, either with restaurant restrictions eased and away from home demand increasing at-home consumption has remained elevated.\nIn EMEA, many of our largest markets have recently implemented more restrictive COVID-19 measures, further fueling at-home consumption and we're seeing sustained levels of demand, and of course, we'd see the same in the Americas.\nConsumers cooking more from scratch and adding flavor to their new locations is a key long-term trend, which has accelerated during the pandemic.\nOur proprietary consumer survey data supported by external research indicates consumers are enjoying the cooking experience and feel meals prepared at home are safer, healthier, better tasting and cost less.\nAnd while there has been great advances in vaccine development and distribution there is a significant amount of uncertainty regarding the pace of vaccination in the upcoming months.\nWe believe, the consumer behavior and sentiment driving an increased and sustained preference for cooking at home will continue globally and will persist beyond the pandemic, further driving consumer demand for our products, fueled by robust marketing, differentiated new product and our strong category management initiatives.\nOur categories across the globe experienced the sustained elevated level of demand for most of 2020 because of this shift preference, which coupled with added employee safety measures that initially reduced manufacturing capacity, depleted finished goods inventory levels, both for us and our customers and challenged our operation.\nThe real pressure has been on our U.S. manufacturing operations where the latter part of 2020, we added significant capacity.\nWe ended the calendar year with considerable incremental capacity through the expansion of our workforce, scaling up partnerships with third-party manufacturers and other measures in line with our previously shared plan.\nIn December, our Americas' consumer production output was approximately 40% higher than last year.\nCurrently, service levels are improving and restoration plans have begun on most of the secondary items, which were suspended in order to meet the significant demand for our top selling products.\nWe've now resumed shipping approximately two-thirds of the products, which had been suspended with the balance to be added over the next several weeks, and we expect shelf conditions to improve considerably over the next few weeks.\nWe're continuing to work through a stabilization period and inventory replenishment will progress through the first half of the year.\nWe're confident, we're well positioned for success in 2021, and have implemented efficient long-term solutions and strengthened our supply chain resiliency longer-term to support continued growth.\nAlso in the U.S. in 2020, we began our initiative to reinvent the in-store experience our spices and seasonings consumer by introducing new merchandising elements to improve navigation and drive inspiration.\nOur rollout will continue in 2021, and with increased cooking at home expected to continue, this initiative is even more exciting to drive both category and McCormick branded growth.\nTurning to global brand marketing, we continue to increase our investments across our entire portfolio, which have proven effective and achieved high ROI.\nWe will continue to connect with consumers online, turning real-time insights into action by targeting messaging, focused on providing information and inspiration.\nFor instance, with tips, tricks, new recipes and products to keep their meals exciting and cooking easy.\nWe expect our brand marketing investments combined with our valuable brand equities and strong digital consumer engagement will continue to drive growth with existing consumers and the millions of consumers gained in 2020.\nNew products are also integral to our sales growth, in 2020, 7% of our total McCormick sales were from products launched in the last three years.\nIn our Consumer segment, new product innovation differentiates our brands and strengthens our relevance with consumers.\nOur 2020 launches provides significant momentum going forward with exceptional trial.\nOverall, the sell-in of our new product launches and big bet innovation from our Flavor Solutions' customers slowed in 2020 due to the focus on keeping core items on retail shelves.\nMoving into 2021, we're excited about the strong pipeline both we and our Flavor Solutions' customers are carrying into the year.\nIn our Flavor Solutions segment we have a diverse customer base, we have seen various stages of recovery.\nFrom a food at home perspective our Flavor Solutions' growth varies by packaged food customer, but overall, as we mentioned last quarter, we've returned to pre-COVID growth rates.\nWe're carrying our growth momentum of packaged food customers into '21 driven by strength in their core iconic product, as well as new product and bigger-best innovation in 2021.\nOur away from home portion of this segment, our restaurant and other foodservice customers are still impacted by government imposed COVID-19 restrictions in most markets.\nSome areas, our restaurant customers including quick service restaurants have been faced with an increase in restrictions due to case resurgences.\nAlthough, the impact has not been as significant as at the beginning of the crisis even many customers have adapted their operating models for delivery carried out.\nThe recovery of our branded foodservice customers continues to be slow and is also impacted by COVID-19 resurgences.\nOverall, there is significant disruption experienced in 2020, recovery has begun and we're expecting it to continue in 2021.\nAs QSR customers are oriented less to dine-in their recovery will be at a faster pace than the rest of the restaurant and foodservice industry.\nWe have positive fundamentals in place to navigate through this period and are excited about the recovery momentum.\nWe were advantaged by a differentiated customer engagements in Flavor Solutions, and plan on driving further wins for both us and our customers in fiscal 2021.\nWith our customer intimacy approach we will continue to drive new product wins, collaborate on opportunities and solutions, manage through recovery plans, and importantly further strengthen our customer partnerships.\nAdditionally, the execution of our strategy to migrate our portfolio to more technically insulated and value-added categories will continue in 2021.\nWith top line opportunities gained from our investments to expand our flavor scale our momentum in flavor categories, as well as opportunities from our FONA acquisition, we expect to realize further results from this strategy.\nIn summary, we continue to capture the momentum we have gained in our Consumer segment as positive fundamentals in place to navigate through the Flavor Solutions' recovery and are excited about our Cholula and FONA acquisition, all of which bolster our confidence for continued growth in 2021.\nWe expect sales growth to vary by region and quarter in 2021 given 2020's level of demand volatility and the pace of COVID-19 recovery, but importantly, we expect we will drive overall organic sales growth in both of our segments.\nOur fundamentals, momentum and growth outlook are stronger than ever.\nOur achievements in 2020, our effective strategies, our robust operating momentum reinforce our confidence in delivering another strong year of growth and performance in 2021.\nFollowing an extraordinary year in 2020, our 2021 outlook reflects both our strong underlying base business performance and acquisitions driving significant sales growth, as well as strong operating income growth even considering extraordinary COVID-19 costs and our business transformation investments, which highlights our focus on profit realization.\nOur top-tier long-term growth objectives remain unchanged and we're positioned for continued success.\nImportantly, McCormick employees around the world drive our momentum and success.\nNow, Mike will share additional remarks on our 2020 financial results and 2021 guidance.\nI will now provide some additional comments on our fourth quarter performance and full-year results, as well as detail on our 2021 outlook.\nStarting on Slide 19, during the fourth quarter sales rose 4% in constant currency.\nSales growth was driven by higher volume and mix in our Consumer segment with volume and mix in our Flavor Solutions segment comparable to last year.\nPricing, to partially offset cost inflation also contributed favorably to both segments.\nThe Consumer segment sales grew 5% in constant currency, led by the Americas and EMEA regions.\nA sustained shift to at-home consumption and cooking more at home, as well as consumers adding flavor at home to their restaurant carryout and delivery meals continues to drive increased demand for our consumer products, resulting in higher volume and mix in these regions.\nOn Slide 20, Consumer segment sales in the Americas increased 6% in constant currency versus the fourth quarter of 2019, driven by higher volume and product mix across many brands including Simply Asia, Thai Kitchen, Frank's RedHot, French's, Lawry's, Zatarain's, Gourmet Garden and Stubb's, to name a few.\nPartially offsetting these increases were volume declines in McCormick's branded spices and seasonings and recipe mixes, as well as private label products due to capacity constraints.\nIn EMEA, constant currency consumer sales grew 10% from a year ago with strong growth in all countries across the region.\nThe most significant volume and mix growth drivers were our Schwartz and Ducros branded spices and seasonings, our Vahine homemade dessert products and our Kamis branded products in Poland.\nConsumer sales in the Asia-Pacific region declined 10% in constant currency driven by lower branded foodservice sales and a shift to a later Chinese New Year as Lawrence mentioned.\nTurning to our Flavor Solutions segment in Slide 23, we grew fourth quarter constant currency sales 3% with growth in all three regions.\nIn the Americas, Flavor Solutions' constant currency sales grew 2% driven by pricing to cover cost increases offset partially by lower volume and product mix.\nVolume and product mix declined due to a reduction in demand from branded foodservice and other restaurant customers.\nPartially offsetting this decline was higher demand for packaged food companies with particular strength in snack seasoning.\nIn EMEA, constant currency sales increased 5% attributable to pricing to cover cost increases, as well as higher volume and product mix.\nVolume and product mix increased driven by sales growth with packaged food companies, with strength in snack seasonings partially offset by lower sales to branded foodservice and other restaurant customers.\nIn the Asia-Pacific region Flavor solutions' sales rose 7% in constant currency, driven by higher sales to QSRs in China and Australia, partially due to our customers' limited time offers and promotional activities.\nAs seen on Slide 27, adjusted operating income, which excludes transaction cost related to the Cholula and FONA acquisitions and special charges declined 4% in the fourth quarter versus the year-ago period with minimal impact from currency.\nAdjusted operating income declined in the Consumer segment by 2% to $221 million or in constant currency, 3%.\nIn the Flavor Solutions segment, adjusted operating income declined 9% to $70 million or 8% in constant currency.\nGrowth from higher sales and CCI-led cost savings were more than offset in both segments by several drivers.\nIn the Consumer segment, an 18% increase in brand marketing from the fourth quarter of last year unfavorably impacted adjusted operating income growth and in the Flavor Solutions segment, unfavorable product mix due to the decline in branded foodservice sales contributed to it's adjusted operating income decline.\nBoth segments were also unfavorably impacted by COVID-19-related costs and higher employee benefit expenses, including incentive compensation.\nAs seen on Slide 28, gross profit margin in the fourth quarter was comparable to the year-ago period, as we have planned.\nAdjusted operating margin declined 180 basis points compared to the fourth quarter of last year driven by the net impact of the factors I've mentioned a moment ago, as well as higher distribution and transportation costs.\nFor the fiscal year, gross margin expanded 100 basis points driven by CCI-led cost savings and favorable product mix resulting from the sales shift between segments, which more than offset COVID-19-related costs.\nAdjusted operating income increased 5% in constant currency and adjusted operating margin was comparable to last year.\nThe Consumer segment grew adjusted operating income 16% at constant currency primarily, due to higher sales and CCI-led cost savings, partially offset by 7% increase in brand marketing, higher incentive compensation expense and COVID-19-related costs.\nIn constant currency, the Flavor Solutions segment's adjusted operating income declined 20% driven by lower sales, unfavorable product mix and manufacturing costs, COVID-19-related costs and higher incentive compensation expense with a partial offset from CCI-led cost savings.\nTurning to income taxes on Slide 29, our fourth quarter adjusted effective tax rate of 22.9% compared to 24.7% in the year-ago period was favorably impacted by discrete items.\nFor the full year our adjusted tax rate was 19.9% as compared to 19.5% in 2019.\nIncome from unconsolidated operations declined 9% in the fourth quarter of 2020 and the full year was comparable to 2019.\nAt the bottom line, as shown on Slide 31, fourth quarter 2020 adjusted earnings per share was $0.79, as compared to $0.81 for the year-ago period.\nThe decline was primarily, driven by our lower adjusted operating income partially offset by the lower interest expense and a lower adjusted income tax rate.\nFor the year, our 5% constant currency increase in adjusted operating income combined with a lower interest expense drove a 6% increase in adjusted earnings per share to $2.83 for fiscal 2020, including the impact of unfavorable currency exchange rates versus last year.\nOn Slide 32, we summarized highlights for cash flow and the year-end balance sheet.\nOur cash flow from operations ended the year at a record-high of more than $1 billion, a 10% increase compared to $947 million in 2019, primarily driven by higher net income.\nWe finished the fiscal year with our cash conversion cycle, down 9% versus our 2019 fiscal year-end, as we continue to execute against programs to achieve working capital reductions.\nWe returned $330 million of this cash to our shareholders through dividends, and we are very pleased that we fully paid off the term loans related to the acquisition of the Frank's RedHot and French's brands.\nFollowing the acquisitions of Cholula and FONA, we have a pre-synergy pro forma net debt to adjusted EBITDA ratio of approximately 3.9 times, and we expect to delever to approximately three times by the end of fiscal 2022.\nBased on our demonstrated track record of debt paydown and or anticipate a strong cash flow generation we are confident that we will deliver on our plan.\nOur capital expenditures were $225 million in 2020 and included growth investments and optimization projects across the globe, including our ERP business transformation investment and beginning the supply chain global infrastructure investments that Lawrence mentioned earlier.\nIn 2021, we expect our capital expenditures to be higher than 2020, as we continue to spend on the initiatives we have in progress, as well as support our investment to fuel future growth.\nWe expect 2021 to be another year of strong cash flow driven by profit and working capital initiatives and our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends and paying down debt.\nNow, I would like to discuss our 2021 financial outlook on Slides 33 and 34, with a brief update on our ERP replacement program first.\nStarting with our ERP replacement program, we remain committed to this business transformation initiative and have recently completed our rephasing of the program.\nWe're now projecting the total cost of our ERP investment to range between $350 million and $400 million from 2019 through the anticipated completion of our global rollout in fiscal 2023, with an estimated split of 50% capital spending and 50% of operating expenses.\nAs such, the total operating expense impact for the program to be incurred from 2019 through 2023 is estimated to be between $175 million and $200 million, slightly lower than our previous estimate.\nIn fiscal 2021, we are projecting our total operating expense to be approximately $50 million, which is an incremental $30 million with our fiscal 2020.\nAnd at this time, we are not anticipating any significant rollouts in 2021.\nBy the end of 2021, we will have spent approximately $90 million of the total program operating expense.\nWe are excited to continue moving forward with this investment to enable us to further transform our ways of working and realize the benefits of a scalable growth platform.\nMoving to our 2021 outlook with our broad and advantaged flavor portfolio, our robust operating momentum and effective growth strategies, we are well-positioned for another year of differentiated growth and performance.\nIn our 2021 outlook, we are projecting top line and earnings growth from our strong base business and acquisition contribution with earnings growth partially offset by the incremental COVID-19 cost and the ERP investment, as well as a higher projected effective tax rate.\nWe also expect that there will be an estimated 2 percentage point favorable impact of currency rates on sales, adjusted operating income and adjusted earnings per share.\nAt the top line, we expect to grow the constant currency sales 5% to 7% including the incremental impact of the Cholula and FONA acquisition, which is projected to be in the range of 3.5% to 4%.\nWe anticipate our organic growth will be primarily, led by higher volume and product mix, driven by our category management, brand marketing, new product and customer engagement growth plans.\nAs Lawrence mentioned earlier, we expect sales growth to vary by region and quarter in 2021, given 2020's level of demand volatility and the pace of the COVID-19 recovery, but importantly, we expect we will drive our overall organic sales growth in both of our segments.\nOur 2021 adjusted gross profit margin is projected to be comparable to 25 basis points higher than 2020, which reflects margin accretion from the Cholula and FONA acquisitions, as well as unfavorable sales mix between segments and COVID-19 costs.\nWe have to make COVID-19 cost to be approximately $60 million in 2021, as compared to $50 million in 2020 and weighted to the first half of the year.\nFiscal 2021's COVID-19 costs are largely driven by third-party manufacturing costs, and of course, could vary based on demand fluctuations.\nOur adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions, which is projected to be 10% to 12% constant currency growth, partially offset by a 1% reduction from increased COVID-19 cost and a 3% reduction from the estimated incremental ERP investment.\nThis results in a total projected adjusted operating income growth rate of 6% to 8% in constant currency.\nThis projection includes low-single digit inflationary pressure and our CCI-led cost savings target of approximately $110 million.\nIt also includes an estimated low-single digit increase in brand marketing investments, which will be heavier in the first half of the year.\nOur 2021 adjusted effective income tax rate is projected to be approximately 23% based upon our estimated mix of earning by geographies, as well as factoring in a low -- level of discrete impacts.\nThis outlook versus our 2020 adjusted effective tax rate is expected to be a headwind for our 2021 adjusted earnings-per-share growth of approximately 4%.\nOur 2021 adjusted earnings per share expectations reflect strong base business and acquisition performance growth of 9% to 11% in constant currency, partially offset by the impact I just mentioned related to COVID-19 cost, our incremental ERP investment and the tax headwind.\nThis resulted an increase of 3% to 5% or 1% to 3% in constant currency.\nOur guidance range for adjusted earnings per share in 2021 is $2.91 to $2.96 compared to $2.83 of adjusted earnings per share in 2020.\nBased on the expected timing of some expense items, such as COVID-19 cost and brand marketing investments, as well as a low tax rate in the first quarter of last year, we expect our earnings growth to be weighted to the second half of the year.\nWe have a strong start to the year and recognize we are lapping a very strong second quarter of 2020.\nIn summary, we are projecting strong underlying base business performance and growth from acquisitions in our 2021 outlook, with earnings growth partially offset by incremental COVID-19 cost and the ERP investment, as well as our higher projected effective tax rate.\nNow that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways as seen on Slide 35.\nWe delivered strong results in 2020 despite great disruption, proving the strength of our business model, the value of our products and our capabilities as a company, as well as the successful execution of our strategies.\nWe have a strong foundation.\nWe're confident in the sustainability of at-home consumption and with the investments we've made to strengthen our supply chain resiliency, we are even better positioned to capitalize on accelerating consumer trends.\nWe are excited about the recent acquisitions of Cholula and FONA, which reinforced our global flavor leadership and accelerate our condiments flavors growth platform.\nWe are confident these investments further position us for continued success.\nOur fundamentals, momentum and growth outlook are stronger than ever, our 2021 outlook reflects another year differentiated growth and performance while also making investments for the future.\nWe are confident, we will emerge stronger from these uncertain times.",
        "summary": "q4 adjusted earnings per share $0.79 excluding items.\nq4 sales rose 5 percent.\nin 2021, company expects to grow sales by 7% to 9% compared to 2020.\noperating income in 2021 is expected to grow by 4% to 6% from $1.00 billion in 2020."
    },
    {
        "text": "Please remember that such statements are only predictions.\nActual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our annual report on Form 10-K.\nManagement uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons.\nAnd with that, I'll hand the call over to Rick.\nThe company's operating income margin was 11.8% for the quarter.\nOur better-than-expected results were driven by the high level of COVID response work revenue in the U.S. segments and employment services work in Australia, which experienced higher-than-expected volumes of activities.\nSince our February 4th call, we have continued to win a substantial amount of new work as MAXIMUS plays an integral role helping government customers serve their citizens during the pandemic.\nOur revenue attributable to COVID response activities, such as contact tracing, unemployment insurance, CARES Act communications and vaccine communications were $242 million for the second quarter and $402 million year-to-date.\nWe project COVID response revenue will now range between $800 million and $850 million for the full fiscal year.\nOur Australia Employment Services business achieved a high level of performance in the quarter as job seekers were able to find and sustain work as the Australian economy opened up.\nThe performance on this contract has improved faster than we projected, resulting in higher second quarter revenue and profit for our Outside the U.S. segment.\nThe organic growth rate for the second quarter of fiscal 2021 was 12.8% or 29% excluding the census contract revenue reduction.\nResults for the quarter included one month of Attain operations from the acquisition date of March 1st, which added approximately $20 million of revenue and $3 million of operating income after the expense related to amortization of intangible assets.\nI will now take you through our segment results, starting with U.S. Services.\nSecond quarter fiscal 2021 revenue in the U.S. Services segment increased to $448.2 million, driven by an estimated $175 million of COVID response work.\nThe segment operating income margin was 18.5% and reflects better-than-expected operating results for the COVID response programs that offset the significant revenue and profit headwinds to some core programs related to the pandemic.\nThe segment continues to be affected by the pause in eligibility redeterminations for Medicaid and the timing of some core programs returning to pre-pandemic levels remains uncertain.\nI would like to emphasize that we cannot predict the relationship between core program improvement and the conclusion of the COVID response work.\nOur full year expectations for the U.S. Services segment remain unchanged with a 17% to 18% full year operating margin predicted.\nRevenue for the second quarter of fiscal 2021 for the U.S. Federal Services segment decreased to $330 million due to the conclusion of the census contract, which contributed $133 million less revenue this quarter as compared to the prior year period.\nAs I mentioned earlier, segment results included a 1-month contribution from Attain of approximately $20 million.\nExcluding census, organic growth for the segment was 13% and driven by an estimated $56 million of COVID response work revenue.\nCOVID response work continues to backfill some of the temporary pandemic related shortfalls created by reduced volumes, revenue and profit from accretive performance-based contracts in this segment.\nThe operating income margin for U.S. Federal was 7%.\nWe announced two acquisitions in the quarter for U.S. Federal services.\nAs we disclosed on March 1st, Attain is estimated to contribute $120 million to $140 million of revenue for the seven months of the fiscal year.\nThe pro forma trailing 12-month adjusted EBITDA for Attain is approximately $32 million, which indicates Attain is expected to be accretive in fiscal 2021.\nWe present adjusted EBITDA in the management's discussion and analysis section of our Form 10-Qs and 10-Ks.\nThe full year segment operating income margin expectations for the U.S. Federal Services segment has improved from 6% to 7% previously forecasted to approximately 8%.\nThis is before including the acquisition of Veterans Evaluation Services or VES that we announced on April 21st, with an expected close date in our third fiscal quarter.\nDue to their fixed price nature, the VES contracts will naturally carry an operating income margin that is greater than our U.S. Federal historical average over the past three years.\nAdding NBES, our full year fiscal 2021 guidance for the U.S. Federal Services segment improved to between 9% and 10% for segment operating income margin.\nTurning to Outside the U.S. segment, revenue for the first quarter of fiscal 2021 was $180.9 million.\nThis segment experienced the most pronounced negative impacts from the pandemic, and last year's second quarter resulted in an operating loss of $26.7 million.\nThis year, the segment's second quarter operating income was $15.1 million, and the margin was 8.3%.\nAs I mentioned, the better-than-expected results for the Outside the U.S. segment were largely due to Australia, where market conditions continue to create and sustain job opportunities in conjunction with our team, pushing performance and efficiency initiatives.\nOn our February four call, we noted that there was strong demand for employment services in the Outside the U.S. segment.\nOur employment services contracts typically experience start-up losses in the early phases of their operations, and our prior guidance included our best estimate at that time.\nSince then, we have won more new employment services work than we projected.\nOn April 26, we announced a significant win in the U.K. on a program named U.K. Restart, where we secured two of our preferred regions.\nIn addition to this win, the Outside the U.S. segment has exciting new employment services programs in Saudi Arabia, Sweden, South Korea and Italy.\nDue to the start-up nature of these contracts, there will be start-up losses incurred in the third and fourth quarters in the Outside the U.S. segment as revenue ramps into the next fiscal year.\nThe U.K. Restart is responsible for the largest share of the incremental start-up loss.\nThese start-up losses are more heavily weighted to the fourth quarter of fiscal 2021.\nThe profitability of all of these Outside the U.S. start-up contracts is expected to exceed 10% over the life of the contracts, given their performance-based nature and the strong demand for employment services.\nThese contracts range in length from one year to six years.\nWe expect significant improvement to the financial contribution from these contracts in fiscal 2022.\nWith the start-up losses, the fiscal 2021 full year margin for Outside the U.S. is expected to be in the low single digits, with the fourth quarter swinging to a loss as activity picks up on the U.K. Restart program.\nLet me turn to cash flow items and the balance sheet.\nAt March 31, 2021, we had $240 million of borrowings on our $400 million corporate credit facility.\nWe had cash and cash equivalents of $101.7 million.\nDSO was 70 days at March 31, 2021, including Attain on a pro forma basis.\nThis compares to 75 days at December 31, 2020, and 72 at March 31, 2020.\nCash flows were strong in the quarter, with cash from operations of $181.6 million and free cash flow of $167.1 million for the three months ended March 31, 2021.\nGiven the two significant acquisitions we recently announced, I will expand on my usual capital allocation remarks.\nThe financing required for the VES transaction will result in initial leverage estimated to be approximately 2.7 times debt over pro forma adjusted EBITDA.\nPro forma adjusted EBITDA is calculated by using the last 12 months of EBITDA for MAXIMUS in accordance with our existing credit facility, plus estimated EBITDA for Attain and for VES, assuming the acquisitions were included in our operating results for the entire trailing 12-month period.\nTraditionally, MAXIMUS has maintained low leverage.\nWe strive to be good stewards of shareholder capital and believe that we are appropriately selective in the acquisitions we pursue, focusing on those that we believe are both consistent with our strategy and will enable us to drive future organic growth.\nOn the April 21st VES announcement call, I indicated that we would pause significant M&A activity while we integrate Attain and VES.\nWe want to prioritize integrating these two respected companies.\nAccordingly, we'll use most of our free cash flow for the next several quarters to pay down debt.\nOur aim is to maintain our leverage ratio below 2.5 times.\nWe have long-term contracts and longer-term relationships with customers, solid rebid win rates and satisfactory new work win rates to assure reasonable and stable operating cash flows in the future.\nOur expected future cash flows permit us to comfortably pay the debt service, to execute selective tuck-in M&A transactions, to invest in our business organically, and to pay the quarterly dividend, which we evaluate each quarter.\nWe will continue to search for and execute tuck-in transactions that are accretive, deliver good value and have a strong potential to drive future organic growth.\nGuidance for the remaining half of fiscal 2021 is complicated by four factors.\nOne, the nature and longevity of COVID response work that we have been winning and performing.\nTwo, the two acquisitions we announced.\nThree, the impact of the significant start-up contracts Outside the U.S. And four, the negative impact of the COVID pandemic on some of our core programs.\nLet me address these factors in that order.\nFirst, the COVID response work we have earned to date and project to earn in fiscal year 2021 is much greater than anticipated when we communicated our first quarter results on February 4th.\nI as I mentioned, we are now forecasting $800 million to $850 million of COVID response work in the full fiscal year 2021.\nWe expect this work to diminish over time and accordingly, project a drop in the fourth quarter as compared to the third quarter.\nSecond, we have included the acquisition of VES in our guidance, assuming the transaction closes in the beginning of June.\nWhen we announced the deal on April 21st, we disclosed the estimated revenue from June through September to be $160 million to $175 million.\nThere are one-time expenses of approximately $13 million for the VES transaction.\nThere is interest expense tied to the term loan borrowings that we will use to finance the acquisition.\nWe are still finalizing the intangible valuation.\nBut based on what we are seeing today, the VES acquisition will be slightly dilutive to earnings per share for the remainder of fiscal 2021.\nThird, we have start-up losses planned Outside the U.S. with a more meaningful effect felt in the fourth quarter.\nFourth, we are assuming the negative impacts related to the public health emergency persist through the remainder of the fiscal year 2021, as signaled by the January 22nd letter from the then Secretary of the Department of Health and Human Services to the U.S. governors.\nWe are assuming the public health emergency will continue past our fiscal 2021 yearend.\nAll of that together, we now expect total company revenue to be in the range of $4 billion to $4.2 billion for fiscal '21, and our estimated diluted earnings per share to be in the range of $4.20 to $4.40 per share.\nCash from operations is expected to be between $400 million and $450 million and free cash flow is expected to be between $360 million and $410 million.\nThe guidance range is wider than typical at midyear, but is necessary to account for the volatility in the COVID response work.\nThe midpoint of our guidance range for revenue indicates an expected organic growth rate of 9.9% for fiscal '21 as compared to fiscal '20.\nWe also considered the impact of the COVID response work and the census contract and calculated an expected adjusted organic growth rate of approximately 6% for fiscal '21.\nOur effective income tax rate should be in the range of 26% to 27% for the full fiscal year 2021 and weighted average shares outstanding in the range of 62.2 million and 62.3 million shares.\nOur effective income tax rate is being impacted by the high level of income in Australia and the reduced income in the U.K. caused by the start-up contracts.\nThe $4.30 midpoint of updated guidance implies reduced earnings in the second half of fiscal 2021 as compared to the first half.\nWe anticipate a step down of third quarter earnings compared to second quarter results, which is primarily driven by some one-time costs for the VES transaction.\nWe anticipate an additional step down of fourth quarter earnings compared to the third quarter created by the increased impact of the start-up contracts in the Outside the U.S. segment and the reduced forecasted levels of COVID response work.\nLet me make a few comments as we consider fiscal 2022.\nThe amount of revenue we expect from the two acquisitions is estimated to be between $700 million and $750 million.\nWhile we do expect some of the COVID response work to continue into fiscal year 2022, it is extremely difficult to predict.\nEqually hard to predict is the timing and impact of the public health emergency on Medicaid redeterminations and the resulting increase to MAXIMUS revenue.\nOur forecasting precision remains limited due to ongoing volatility created by the pandemic as you see with the results announced today as compared to our estimates three months ago.\nBruce and I are grateful to our busy and hard-working teams around the world.\nWe are responding quickly to customers needing help with vaccine administration, working hard on large scale, existing and new employment services programs and beginning to integrate two important acquisitions with valued team members.\nSince I transitioned into the CEO role in 2018, I've spoken about our 3-pronged strategy to accelerate our progress and drive the next phase of our growth through first, digital transformation within the Government Services market, enabling new solution offerings to address the mission requirements of our customers and improve overall service delivery across our operations.\nThis began with improved tools for citizen engagement and process automation and is evolving to include new capabilities in artificial intelligence and machine learning, natural language processing and advanced analytics to enhance our competitive position.\nSecond, clinical evolution to address long-term macro trends driving demand for independent and conflict-free business process management, or BPM services, with a more clinical dimension, while maintaining the foundational elements of our business, operating customer engagement centers and providing case management services.\nAnd third, market expansion as we evaluate adjacent and emerging markets, organically grow the portfolio and acquire capabilities and contracts to establish a foothold in these markets.\nWe also consider our customers' longer-term visions for reengineering social program delivery models and, of course, macro trends.\nWe aim for expansion that's a natural complement to our core services globally.\nToday, I will focus on how recent efforts are aligning with these three strategic priorities, including the two acquisitions, recent wins and COVID-19 implications.\nAs you know, in March we announced the acquisition of the federal business of Attain, furthering two of our primary strategic pillars.\nBy first, accelerating our digital transformation by strengthening our technology capabilities in application development and modernization, enterprise business solutions, cybersecurity and the data sciences, including advanced analytics and machine learning.\nThese capabilities address federal IT spending imperatives and priorities while also being applicable to our BPM solutions.\nAnd secondly, expanding further in the U.S. Federal market into new departments and agencies, such as the Securities and Exchange Commission and Department of Homeland Security as well as within our common clients such as the Department of Health and Human Services.\nWhile our integration is still in its early days, already I'm pleased to see how our teams are working together to address pipeline opportunities with our strongest capabilities and to share experience and skills to improve the solutions we're delivering to our federal customers.\nAs I spoke of briefly when we first announced the transaction, Attain brings innovation and experience in many competencies that are in greatest demand in federal, while MAXIMUS brought scale in highly desirable contract vehicles like Alliant 2.\nTogether, we can now address opportunities where neither company would have previously been competitive.\nFurther executing on our strategy, we most recently announced an agreement to acquire privately held Veterans Evaluation Services or VES, a premier provider of medical disability examinations, or MDEs, to the U.S. Department of Veterans Affairs, the VA.\nThis significantly advances our strategic aim of clinical evolution while meaningfully expanding our presence in the VA.\nAs Rick stated, we expect to close this transaction in the third quarter.\nWhile our independent clinical assessments business has been growing at the U.S. state level through our 2016 acquisition of Ascend and subsequent organic growth primarily in Medicaid related long-term care assessments, VES' expertise will create an opportunity for such growth at the federal level.\nAs a result, the independent health and disability assessments and appeals portion of our business will comprise a larger share of our overall portfolio and pipeline, lending further credibility to our organic growth efforts with other federal departments and in nonfederal markets.\nThe acquisition comes at an important time for the VA as the Veterans Benefits Administration, or VBA, has been focused on reducing the inventory of exams that naturally has grown during the pandemic, while preparing for the future needs of veterans with qualifying conditions.\nTo that end, and as they've done periodically in the past, the VBA recently launched a market assessment to better understand industry capacity and capabilities.\nThrough our combination, we believe MAXIMUS and VES bring the credibility and quality of an established partner and ability to rapidly add clinical capacity and invest in technology innovation that will benefit veterans and the VBA.\nOur goal is to both contribute to the timely reduction of pandemic related inventory and be the partner of choice as the MDE program continues to develop.\nOur acquisitions of Attain and VES as well as Acentia in 2015 and Citizen Engagement Center Operations from GDIT in 2018 help us play a more meaningful role in the U.S. Federal market as we build scale, expand and diversify our customer base and improve our competitive advantage.\nConcurrent with these acquisition efforts, we continue to win COVID-19 related work at the state and federal level, as Rick discussed in his remarks.\nThis includes the recently posted CDC Vaccination Hotline Award, illustrating the trust that government places in MAXIMUS based on our historical performance.\nWhile COVID-19 work is generally planned to be shorter-term in nature, we remain well positioned to adjust as the pandemic related needs of our customers continue to evolve.\nThese efforts also allow us to meet new customers, expand into new areas of service with existing customers, and increase our impact on their behalf.\nThrough this work, we build longer-term references and past performance credentials that are advantageous in future bidding.\nFor instance, in areas like unemployment insurance, the demonstrated value of our model is creating opportunity for longer-term relationships with state Departments of Labor as they see the benefits of the flexibility and accountability we can provide in delivering outcomes that matter in more routine program areas.\nFurther, our ability to stand up solutions quickly during challenging times, using effectively our modular capabilities, makes event-driven work, a beneficial element of our business model in response to less predictable but regularly recurring government needs.\nOur investment in the digital transformation of Citizen Services, coupled with our decades-long experience, have been recognized by our government customers during this pandemic as we responded to real-time requests to quickly deliver support and services.\nOur Outside the U.S. teams are securing some exciting new wins as well.\nAs Rick mentioned, in the United Kingdom, we were recently awarded two prime contracts in our preferred regions to deliver the Restart program, which provides 12 months of tailored and community-based support for people that have been unemployed long-term and directly impacted by the pandemic.\nThis contract was procured through the CARES framework, which I mentioned in my remarks in the fourth quarter of the last fiscal year, and is used for contracting national employment support programs.\nAdding emphasis to Rick's earlier point, start-up costs are typical with significant new contracts like this one.\nTherefore, we anticipate Q3 and then Q4 earnings will step down sequentially as a result, followed by a subsequent rebound driving earnings estimates upward in fiscal year 2022.\nThese programs create long-term shareholder value and will operate within our expected corporate range of profitability.\nThis is not the first time we've accepted start-up losses for a longer-term and more significant future benefit.\nIn total, the two contracts, the maximum that could be won by a single provider, are valued at more than USD960 million, GBP690 million over the base and option periods totaling six years.\nMAXIMUS U.K. will be recruiting more than 1,500 people to deliver the program.\nWe have a long history of supporting workforce services in the U.K., establishing our foothold in the U.K. employment and training marketplace in 2008 during the economic recession.\nThis solid platform, history of excellent performance and strong client relationships have provided the necessary credentials to expand employment focused programs, as illustrated by this award.\nWhile this new work has provided some positive offset, our core operations in the U.K. continue to face disruption as a result of the pandemic.\nThis negative impact continues to be driven by temporary volume and revenue declines as well as a pause on face-to-face assessments.\nAlthough we continue to face decreased volume across some of our geographies, in Australia we are seeing strong volumes as the economy reopens.\nDemand is holding more than we anticipated during the holiday season and serves as an example of anticipated volume return as certain countries slowly begin to emerge from the pandemic.\nAll in all, we will remain dedicated to addressing COVID-19 implications with our customers while driving organic growth opportunities across the business.\nIn that spirit, I will now turn to new awards and pipeline as of March 31st.\nAs of the second quarter of fiscal 2021, signed awards were $1.11 billion of total contract value at March 31st.\nFurther, at March 31st, there were another $1.28 billion worth of contracts that have been awarded but not yet signed.\nI should note that the CDC Vaccination Hotline and U.K. Restart contract awards were subsequent to our March 31st cutoff.\nLet's turn our attention to our pipeline of addressable sales opportunities.\nOur total contract value pipeline at March 31st was $35.6 billion compared to $31.6 billion reported in the first quarter of fiscal 2021.\nOf our total pipeline of sales opportunities, 67.4% represents new work.\nThe hardest thing to get right in any integration is culture, and we've been very focused as an integrated leadership team on getting that right for all employees.\nOur goal for our colleagues from both Attain and VES is that you will have more opportunities to take on new challenges to advance your careers and to be rewarded for quality work.\nWe have been fortunate to have been well positioned to respond to the needs of government at a very challenging time.\nThis has been possible only through the efforts of more than 35,000 colleagues worldwide and tens of thousands of delivery partner staff.\nAnd with that, we will open the line for Q&A.",
        "summary": "anticipates fiscal 2021 revenue will range between $4.0 billion and $4.2 billion.\nanticipates fiscal 2021 diluted earnings per share will range between $4.20 and $4.40 per share.\nfor fiscal 2021, cash from operations expected to range between $400 million and $450 million and free cash flow between $360 million and $410 million."
    },
    {
        "text": "I'd like to remind everyone that a number of statements being made today will be forward looking in nature.\nPlease remember that such statements are only predictions.\nActual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-Q and 10-K.\nManagement uses this information internally to analyze the results and believes that may be informative to investors in gauging the quality of our financial performance, identifying trends and providing meaningful period-to-period comparisons.\nAnd with that, I'll hand the call over to Rick and David.\nAs we announced in January, I will retire at the end of this month and David Mutryn will become the Chief Financial Officer on December 1.\nI am confident that David is the right person to succeed me as CFO to help guide Maximus in the future.\nIt has been a privilege to be the CFO for Maximus and a great place to finish my career.\nI am proud of all that we accomplished together as a team during my time here.\nWhile we have been diligently reporting our contributions to shareholders, we have not discussed in this forum, the substantial commitments to ESG and our accomplishments in this area over the last five years.\nMaximus is a unique company dedicated to delivering better than average returns to all stakeholders, while simultaneously aligned with core ESG principles by making vital government services more accessible to millions of people.\nIf you look at our progression on the MSCI framework, we began with a B rating in 2016 and currently hold a BBB rating for 2021.\nWhile BBB is a good score, we believe there is more progress to be made.\nOur commitment to ESG is a journey of continuous improvement.\nWe view our ISS governance score of 2 as solid and we are quite pleased with our latest ISS social score of 1, both as of October 2021.\nOur recent ESG report includes our updated ESG materiality assessment and ongoing commitment to provide essential services to the most vulnerable citizens in the communities we serve.\nFiscal year 2021 was the dynamic here with the COVID pandemic creating both challenges and opportunities.\nMaximus accomplished significant milestones this year, including winning and operating over $1 billion of COVID response work and closing two large and strategic acquisitions.\nWe completed another significant acquisition in early October with the student loan servicing business for $5.6 million U.S. Department of Education owned borrower accounts, which we have branded as Aidvantage.\nThe revenue increase was primarily attributable to COVID response work, which grew about $0.9 billion year-over-year and totaled approximately $1.1 billion for the year.\nRevenue also increased as a result of the Attain Federal and VES acquisitions, which together contributed $323 million of revenue in the year.\nOn the bottom line, our full year operating income margin was 9.6% and diluted earnings per share were $4.67.\nAs you know, operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the two acquisitions that closed during the year.\nExcluding the amortization expense, our operating margin would be 10.6% and our adjusted diluted earnings per share would be $5.19.\nLet me point out a few items specific to fourth quarter results.\nNumber one, as expected, short-term COVID response work declined and totaled $225 million in the fourth quarter, which is $246 million less than in the third quarter.\nNumber two, the fourth quarter included a write-off of fixed assets, leased assets and deferred contract costs pertaining to a contract in its start-up phase in the U.S. Services segment.\nWhile there are often puts and takes in our results, this was a $12 million detriment to pre-tax earnings or $0.14 diluted EPS, and the most significant reason, our results were below the midpoint of our guidance range.\nNumber three, implied in our previous guidance was the low fourth quarter tax rate, but our tax expense was slightly more favorable.\nAnd number four, adjusting for COVID response work and revenue from the Census contract, our fourth quarter revenue showed normalized organic growth of 3.4% over the comparable prior year period.\nI'll now take you through segment fiscal 2021 results.\nFor the U.S. Services segment, revenue increased to $1.66 billion as compared to $1.33 billion in the prior year.\nThe segment experienced strong demand for COVID response work, which contributed an estimated $618 million of revenue to the segment in fiscal 2021 compared to an estimated $129 million of this type of work in the prior year.\nThe segment operating income margin was 15.3% for the full year and 12.2% in the fourth quarter, which fell short of our expectations, due primarily to the single contract write-off I mentioned earlier.\nExcluding the write-off, the U.S. Services margin would be 16% for the full year and 15.2% in the fourth quarter.\nThe segment's COVID response work helped offset the negative operating income impact on core programs, most notably, the pause in Medicaid redeterminations.\nThe public health emergency has had multiple extensions, most recently of which occurred on October 15 and will remain in effect for 90 days.\nDespite the prolonged negative impact, the guidelines for assuming this work, as communicated by the Centers for Medicare and Medicaid Services, give us confidence that redetermination activities should resume in fiscal 2022.\nFor the U.S. Federal Services segment, fiscal 2021 revenue increased 15.9% to $1.89 billion.\nThe segment benefited from COVID response work and the two acquisitions, partially offset by the lower revenue due to the end of the Census contract.\nCOVID response work contributed an estimated $466 million of revenue to the segment in fiscal 2021 compared to an estimated $71 million of this type of work in the prior year.\nAs I mentioned, the two acquisitions contributed $323 million this year.\nThe Census contract contributed $448 million less revenue than in the prior year.\nThe operating income margin for U.S. Federal Services was 10% in fiscal 2021 as compared to 8.1% in the prior year.\nThe segment's fourth quarter margin was 9.2% and fell short of our estimates.\nThis was driven by several non-recurring investments made in the quarter that are expected to benefit our future operating results.\nThe Outside the U.S. segment experienced strong demand for employment services in fiscal 2021 as it rebounded from the most pronounced impacts of the pandemic.\nRevenue for this segment increased approximately $200 million or 40% to $699 million.\nOperating income was positive $20 million or a 2.9% margin compared to a $34 million operating loss in the prior year.\nAs we noted on the August earnings call, the fourth quarter of fiscal 2021 realized anticipated start-up losses, most notably, due to the U.K. restart program ramping.\nLet me turn to the balance sheet and cash flow items.\nAs of September 30, 2021, we had gross debt of $1.52 billion and we had unrestricted cash and cash equivalents of $135 million.\nThe ratio of debt net of allowed cash to pro forma EBITDA for the full year ended September 30, 2021, as calculated in accordance with our credit agreement is 2.3 times.\nThis compares to 2.4 times at June 30, 2021.\nAs we stated on our third quarter call, we used our free cash flow in the fourth quarter to reduce our debt.\nCash flows from operations totaled $517 million and free cash flow was $481 million for fiscal 2021 as compared to $245 million and $204 million respectively for the prior year period.\nIn addition to improved earnings, strong cash flows resulted from the decrease in the investment and working capital of more than $100 million.\nThis was driven by good collections combined with advanced payments on new work and deferral of payroll taxes as permitted by the U.S. government.\nPro forma DSO was 68 days at September 30, 2021 compared to 77 days for the same day last year.\nOur DSO target remains 65 to 80 days.\nTurning to fiscal year 2022 guidance.\nRevenue is projected to be between $4.4 billion and $4.6 billion.\nDiluted earnings per share is projected to be between $4 and $4.30.\nThe midpoint of this guidance implies an operating income margin of 8.4%, which includes approximately $90 million of estimated amortization expense.\nExcluding the amortization expense yields adjusted diluted earnings per share of $5.07 to $5.37 and the implied operating income margin excluding amortization expense is 10.4%.\nWe expect cash flows from operations to range between $275 million and $325 million and free cash flow between $225 million and $275 million.\nWe are projecting that the investment in working capital will increase in fiscal 2022 as the payroll tax deferral is eliminated and the new work matures.\nWe expect interest expense to be between $30 million and $33 million and the effective income tax rate assuming no change in U.S. federal rates should be between 25% and 26%.\nAbsent share purchases, we would expect the weighted average shares to be between 62.5 million and 62.6 million.\nTurning to segment margins.\nWe expect our U.S. Services segment to be between 13% and 14% for the year.\nWe expect the U.S. Federal Services margin to be in the 10% to 11% range.\nThis expectation includes the Aidvantage program, which we expect to deliver margins in line with similar BPO contracts in our federal portfolio over time.\nHowever, as with many of our contracts, we expect the Aidvantage contract to start with lower margins and increase as the program matures.\nFinally, we expect Outside the U.S. operating income margins in the 3% to 5% range.\nLet me provide some commentary on the guidance.\nOn our top-line, the first notable item is COVID response work, which began winding down in the later stages of fiscal year 2021 and is currently expected to contribute about $250 million of revenue in fiscal 2022.\nCOVID response work is predominantly tied to unemployment insurance support and vaccine administration with shorter periods of performance.\nIt is important to note the relationships that began with COVID work are now leading to some longer term work, particularly related to unemployment insurance support.\nThe second item is the start-ups Outside the U.S., including U.K. Restart.\nWe forecast that these start-ups will add $150 million of revenue to fiscal 2022, which is unchanged from our thinking on the prior earnings call.\nThe third item is acquisition.\nThere will be full period revenue contributions from the Attain Federal, VES and the Aidvantage acquisitions.\nCombined, these three acquisitions make up approximately $1 billion of our forecasted fiscal 2022 revenue.\nIf you separate out the COVID work, the acquisitions and a small amount of Census contract revenue in fiscal 2021, our top-line guidance reflects normalized organic growth of 18% with a profile that increases over the course of the year.\nThis demonstrates that our core business growth engine is accelerating driven by new contract awards in fiscal 2021.\nWe were successful in winning new work awards in the year with a total contract value of $3.5 billion.\nOf that, less than $1 billion was associated with COVID response work.\nOur largest single award was the U.K. Restart Programme with a total contract value of more than $960 million over six years.\nIn addition, the U.S. segments were awarded several new contracts, all of which are longer term work.\nOn the bottom line, we anticipate a slow start to fiscal 2022, but also a solid line of sight to a strong second half.\nThere are two primary factors causing this.\nNumber one, the continued delays in our core programs returning to pre-pandemic levels creates depressed earnings in the first half of fiscal 2022.\nAs a reminder, we previously noted that the COVID work may decline before we see the corp programs return, which is what we are now experiencing.\nNumber two, the start-up contracts in the Outside the U.S. segment, most notably U.K. Restart, will continue to ramp with operating losses in the first half of fiscal 2022.\nWe continue to anticipate these programs will achieve breakeven by the midpoint of the year and significant financial improvement in the back half with performance in our corporate guideposts of 10% to 15% operating income margins over their lives.\nThe start-up contracts are progressing well and are currently meeting our expectations.\nTo quantify the steeper ramp in earnings, we forecast 60% to 65% of our operating income and earnings to be realized in the second half of fiscal 2022.\nWhile our earnings profile suggests a valley for the first half of the fiscal year, we anticipate exiting the year at a strong run rate.\nI noted the expected segment margin ranges earlier.\nThe margins in all three segments are expected to improve over the course of the year as the quarterly revenue profile is expected to be less deep than earnings.\nWe do not provide quarterly guidance, but I will share that the first quarter of fiscal 2022 is forecasted to look similar to the fourth quarter of fiscal 2021 after normalizing for the lower tax rate in the fourth quarter.\nOur guidance does reflect our expectation that the public health emergency will conclude and that redeterminations will restart in our third fiscal quarter.\nThe Outside the U.S. start-ups are ramping up, and we have other portions of the fiscal 2021 new work awards that are scheduled to begin generating revenue in fiscal 2022.\nDelays to any of these items, many of which are outside our control, may cause revenue and earnings to move to the right and to potentially fall short of guidance for fiscal 2022.\nIn closing, Bruce, Rick and I, along with the broader leadership team, are proud of how Maximus rose to overcome the unique challenges in the last two years and emerge a stronger company.\nWe are pleased to see the underlying organic growth improving as we come out of the pandemic and our recent acquisitions performing well.\nOn behalf of the management team, we offer Rick our deep appreciation for your leadership.\nYou have led Maximus through many accomplishments during your tenure as CFO, including leading our M&A strategy development with six major acquisitions, beginning with Acentia in April 2015; closing a new corporate credit facility and funding the VES acquisition through new debt sources for the company; helping navigate our international growth into new geographies as we grew from four countries to nine; pushing us to think and operate as a company at scale, including maturing our corporate back office capacity, which proved vital to supporting our inorganic and organic growth; mentoring and sponsoring many of our rising stars and building a talent pipeline not only in the finance division, but across the company at large; and championing our ESG strategy development and advancements.\nI should note that when we ended fiscal year 2014, we had revenues of $1.7 billion and diluted earnings per share of $2.11.\nToday, we are reporting $4.25 billion in revenue and diluted earnings per share of $4.67, a compound growth rate of 14% and 12% respectively.\nYour expertise helped us continue our growth as a leading partner to government in the delivery of critical programs on a global scale.\nSince the beginning of fiscal year '21, Maximus has completed four acquisitions, realized several large wins, transitioned leadership in our U.S. Federal segment and more.\nI will spend my time today talking about the progress we've made toward executing the strategy I have articulated since April 2018, how these four acquisitions support those goals and some refinements we're making to that strategy.\nOn October 6, we closed a contract innovation with Navient Corporation, which the Department of Education Federal Student Aid or FSA approved on October 20 to begin servicing student loans in January 2022 under the new brand name Aidvantage.\nAs a long-term partner and provider of consumer engagement services to government, Maximus will focus on the end-to-end borrower experience and help fulfill FSA's mission, while remaining independent and conflict-free as we do not and will never provide loan origination, consolidation or collection services.\nWe view student loan servicing as an opportunity to apply our insights, expertise and quality-driven approach through support of both the FSA and the agency's customers, student borrowers.\nAidvantage is an extension of a long-standing partnership to support FSA and is in line with our core business.\nThis development demonstrates the availability of increased scope for companies that can successfully manage citizen interactions at scale and our ability to build on trusted relationships with government, a core component of our business model.\nAs you may recall, we have a position on the FSA NextGen contract vehicle to which this work will likely transition in future contract periods.\nOur immediate priority is to successfully transition the 5.6 million Navient borrower accounts to provide stability and high quality service as student loan repayment obligations resume on February 1, 2022.\nWe subsequently will focus on the FSA's stated goals of improving the borrower experience through improved performance, transparency and accountability under the loan servicing contract.\nTo that end, our plan includes implementing best practices and continuous review, performance management and quality monitoring to promote greater transparency and maintain compliance.\nAgain, our role is solely to support student borrowers as they navigate repayment, and for many, options related to available authorized loan forgiveness programs.\nAs an independent and conflict-free partner to FSA, we will not own, consolidate or originate loans.\nMeanwhile, the integration of our VES and Attain acquisitions are going as planned, operating as expected and delivering financial results that are consistent with our acquisition analysis.\nTo provide a bit more color, I'm particularly proud of our Attain colleagues' recent success, including securing the rebid and expansion of critical work for the Securities and Exchange Commission and supporting the U.S. customs and immigration services client at a critical juncture in their mission.\nLikewise, our VES colleagues have achieved record volumes recently in scheduling veterans for critical disability benefit evaluations as that program moves closer to its pre-pandemic operating model.\nAs for our fourth acquisition in the United Kingdom, I'm pleased to share that Connect Assist, a market-leading provider of citizen engagement centers and digital services has joined Maximus U.K.\nThis combination strengthens our program administration capabilities and enables our expansion into adjacent markets.\nAs we previously lacked contact center capabilities in country, a pre-requisite for many government procurements.\nMaximus now employees more than 4,500 people in the United Kingdom, including approximately 1,400 healthcare professionals across more than 270 locations, serving as one of the largest providers of employment, health and disability support program administration in the country.\nThe tireless work of our team this past year resulted in several new contracts and opportunities across the segments.\nThis includes approximately $1.1 billion of COVID response work to help governments respond to the pandemic.\nOur ability to respond quickly and effectively for our clients has provided the proof points and enhanced our relationships now driving additional work opportunities such as unemployment insurance program support services for several states beyond the pandemic.\nThis fiscal year, we won more new employment services start-up work outside the U.S. than we projected.\nThis includes the notable U.K. Restart Programme where Maximus provides tailored support to help people back into work.\nThus far, thousands of people have been supported by our delivery of the Restart Programme with nearly 1,500 people finding sustainable employment since we began delivery at the end of June 2021, tracking very favorably against our forecast.\nTurning to new awards and pipeline as of September 30.\nFor the fourth quarter of fiscal year 2021, full fiscal year signed awards were $5.62 billion of total contract value at September 30.\nFurther, at September 30, there were another $721 million worth of contracts that have been awarded but not yet signed.\nOf the $5.6 billion of signed work, $3.5 billion represents new work awards with less than $1 billion associated with COVID response work, illustrating a healthy level of new work in our core business.\nLet me turn our attention to our pipeline of addressable sales opportunities.\nOur total contract value pipeline at September 30 was $33.9 billion compared to $33.6 billion reported in the third quarter of fiscal 2021.\nThe September 30 pipeline is comprised of approximately $8.8 billion in proposals pending, $1.4 billion in proposals and preparation and $23.7 billion in opportunities tracking.\nOf the total pipeline, 69% represents new work opportunities.\nIt has been 20 long months since the start of the Public Health Emergency or PHE.\nWe anticipate that PHE will expire at the end of the first calendar quarter of 2022.\nWith this in mind, as David noted, we expect a solid second half of FY '22, which means, we should exit the year at a strong run rate.\nTaken together, our view is that the market and company operating dynamics anticipated in the second half of FY '22 create a positive environment and momentum for the business.\nThese dynamics include not just the anticipated conclusion of the PHE and resumption of pre-pandemic activities, including redeterminations, but also the start-up contracts exiting that phase, new organic wins in U.S. Services coming online, the FY '21 acquisitions maturing in their integration and contribution and the benefits of a substantial new work pipeline.\nI also want to address an area that has received national attention.\nIn September, President Biden signed an executive order requiring U.S. based employees or federal government contractors to be fully vaccinated against COVID-19 with limited exemptions for medical and religious reasons.\nEarlier this month, per the President's direction, OSHA also mandated vaccination or weekly testing for employers with 100 or more employees, which goes into effect in January 2022.\nWe are planning for implementation of these requirements, which includes extensive employee education and resources, paid time off to receive a vaccination and frequent reminders regarding timelines and options.\nAs we have throughout the pandemic, we have prioritized employee safety and well being, and we actively monitor guidance and update our procedures accordingly.\nDemand for talent is highly competitive.\nOur implementation of these requirements may result in some workforce attrition and difficulty meeting our existing or future hiring needs.\nThat being said, Maximus has a strong talent brand that was if anything strengthened as a key differentiator over the past 20 months with the many benefits and programs we quickly implemented to support and protect our people.\nDuring FY '21, we hired more than 42,000 employees around the world.\nTo support the training and development of our employees, over 165,000 online learning resources and tools are available, in addition to other development opportunities.\nWe continue to operate in a hybrid environment, recognizing that some employees are required to be on site due to customer requirements.\nWe are imagining new ways of working that put us in an even better position over the long-term to attract the necessary talent for our business through workplace flexibility and outside of historical geographical bounds.\nOn a final note, I am pleased that our execution on our three-pronged strategy of expanding our clinical business, driving digital transformation for our customers and the citizens we serve and expanding to adjacent markets has successfully led to balanced organic and inorganic growth since I became CEO and set the table for future organic growth in our expanded core and new markets.\nWith this as the backdrop and our current focus on delivering shareholder value through our FY '21 acquisitions, we have concurrently kicked off a three to five year strategy refresh initiative with participation from across the business.\nNot only do we seek to define what the next phase in our clinical and technology journey will look like, but we are looking further over the horizon than we would in our annual planning process.\nI'm excited about the energy and ideas that this collaborative process has already yielded and look forward to sharing more formal insights with our shareholders and the analyst community during our planned Investor Day in 2022.\nAnd with that, we will open the line for Q&A.",
        "summary": "sees fy earnings per share $4.00 to $4.30.\nsees fy revenue $4.4 billion to $4.6 billion.\nin fy 2022, excluding amortization, diluted earnings per share is expected to range between $5.07 and $5.37."
    },
    {
        "text": "We advise listeners to review the risk factors discussed in our Form 10-K annual report for the 2020 year filed with the SEC as well as the risk factors listed in our Form 10-Q and our Form 8-K filings with the SEC.\n[Operator Instructions] Lastly, we want to invite you to attend our Virtual 2021 Investor Day meeting scheduled for Friday, September 17, where we will share more about our future growth plans and longer-term strategy.\nToday, we will provide you with updates on several topics.\nWe will present our financial results for the second quarter 2021.\nWe will update our 2021 guidance, and we will summarize the status of our growth initiatives and outlook for the future.\nLet me start with the second quarter highlights.\nLast night, we reported adjusted earnings per diluted share for the second quarter of $3.40, with adjusted net income of $199 million and premium revenue of $6.6 billion.\nThe 88.4% medical care ratio demonstrates solid performance while managing through pandemic-related medical cost challenges that increased the ratio by 110 basis points.\nThe net effect of COVID decreased net income per diluted share by approximately $1.\nWe managed to a 6.9% adjusted G&A ratio, reflecting continued discipline in cost management, which allowed us to harvest the benefits of scale produced by our substantial growth.\nWe produced an adjusted after-tax margin of 2.9%, meeting our second quarter expectations.\nOur six month year-to-date performance, highlighted by an 87.6% MCR, a 7% adjusted G&A ratio and a 3.4% after-tax margin were all squarely in line with our year-to-date expectations.\nThis allowed us to produce, as projected, 60% of our full year earnings guidance in the first half of the year.\nAnd we accomplished all of this as we generated approximately 50% year-over-year premium revenue growth and successfully integrated businesses, representing approximately $5 billion in annual revenue.\nIn summary, we are pleased with our second quarter performance.\nWe executed well, delivered solid operating earnings and continue to drive our growth strategy.\nLet me provide some commentary highlighting our second quarter performance.\nFirst, I note that year-over-year comparisons are less meaningful than they would be in a typical year.\nThe second quarter of last year was the first full quarter of the COVID pandemic and was distorted by the significant positive net effect of COVID that characterized that early phase of the crisis.\nIn contrast, the current quarter was negatively impacted by the net effect of COVID.\nIn the second quarter, we produced premium revenue of $6.6 billion, a 4% increase over the first quarter of 2021, reflecting increased membership across our portfolio.\nWe ended the quarter with approximately 4.7 million members, an increase of 91,000 members over the first quarter of 2021.\nOur Medicaid enrollment at the end of the quarter was approximately 3.9 million members, an increase of 69,000 over the first quarter of 2021.\nThis increase was due primarily to the continuing suspension of Medicaid redeterminations, although this growth catalyst seems to have moderated.\nOur Medicare membership was 130,000 at the end of the quarter, an increase of 4,000, and in line with our growth plan.\nOur Marketplace membership were 638,000 at the end of the quarter, representing growth of 18,000 over the first quarter of 2021 due to lower-than-expected attrition rates and membership additions during the extended open enrollment period.\nTurning now to our medical margin performance in the second quarter by line of business.\nOur Medicaid business achieved a medical care ratio of 89%.\nWhile we are dealing with the impacts of the pandemic on utilization and medical cost, as well as the continuing temporary impact of the risk corridors, we continue to execute on the underlying fundamentals.\nOur well-diversified portfolio of state contracts across all dimensions of the Medicaid product suite is performing well.\nWe continue to deliver high-quality care at a reasonable cost, particularly to high acuity populations.\nThe underlying rate environment is stable.\nOur hallmark medical management capabilities continue to deliver appropriate clinical outcomes for our members, while achieving strong financial results.\nOur Medicare results were excellent, having posted a medical care ratio of 87.6%.\nWe continue to produce excellent MCRs and margins in this portfolio of high-acuity lives in both our D-SNP product and the MMP programs.\nAlthough our results were moderately depressed due to COVID utilization and despite the temporary risk score softness for the current year, the underlying results were squarely in line with our expectations.\nOur Marketplace results have been significantly impacted by direct cost of COVID-related care as we posted a medical care ratio of 84.8% in the quarter.\nMany of the new members we attracted were in regions disproportionately affected by COVID, including California, Michigan, Texas and Washington.\nWith nearly 500 basis points of pressure on the MCR in each of the first two quarters, we can and should achieve mid-single-digit pre-tax margins as the pandemic subsides.\nIn short, our second quarter and first half results across the entire portfolio continue to demonstrate our ability to produce excellent margins while growing top line revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic.\nTurning to our 2021 guidance, beginning with premium revenue.\nFor 2021, we now project premium revenue to be more than $25 billion, a 37% increase over the full year 2020 and a $1 billion increase from our previous guidance.\nSpecifically, our premium revenue guidance now includes Medicaid enrollment benefiting from the expected extension of the public health emergency period, and the associated pause on membership redeterminations, which we are now projecting through the end of the fourth quarter.\nRecall, that for each month the public health emergency has extended, beyond the month of September, it increases our full year revenue outlook by $150 million.\nOur updated guidance also contemplates the impact from retaining pharmacy-related premium revenue in California, New York and Kentucky due to postponement of, and changes to their respective pharmacy carve-out initiatives, and updated Marketplace revenue reflecting the strong enrollment and retention performance mentioned previously.\nWe expect to end 2021 with approximately 590,000 marketplace members.\nWe have excluded from our premium revenue guidance any impact of the Affinity and Cigna acquisitions.\nWe expect the Affinity acquisition to close in the fourth quarter, representing upside to our premium revenue guidance in 2021, and we expect the Cigna acquisition to close in January 2022.\nTurning now to earnings guidance.\nWe are raising our full year 2021 earnings guidance and now expect to end the year with adjusted earnings of no less than $13.25 per share, an increase from our prior guidance of no less than $13 per share.\nWe remain on track for full year after-tax margins of at least 3%.\nSpecifically, the increase to our 2021 earnings guidance reflects our underlying outperformance, the increase in our revenue guidance and the associated margin, offset by a $1 increase in the net cost of COVID, which we now expect to be $2.50 per share for the full year.\nWe have been cautious in projecting our back half earnings due to a variety of exogenous factors.\nThe delta variant adds variability to any utilization forecast.\nWhile highly contagious, the Delta variant disproportionately affects the unvaccinated.\nOlder and more vulnerable population cohorts have significantly higher vaccination rates.\nAs a result, the Delta variant cases result in proportionately fewer hospital admissions and lower per admission costs, moderating the potential impact.\nIn addition, it remains unknown how quickly and to what extent utilization will return to normal levels.\nThis will depend upon the strength of the economy, consumer behavior, provider capacity and the emergence of any new COVID variants.\nThere is an inherent level of uncertainty with regard to new marketplace member acuity levels and their susceptibility to COVID infection and the COVID-related risk-sharing corridors create an added element of variability.\nTurning now to an update on our growth initiatives.\nWe continue to see many actionable opportunities in our acquisition pipeline, which remains an important aspect of our growth strategy.\nOur M&A team is fully deployed and is working an active list of health plan targets in our core businesses.\nOur acquisition strategy remains focused on buying stable membership and revenue streams, particularly focused on underperforming properties.\nOur M&A integration team is also fully deployed and successfully migrating our acquired properties to Molina operating infrastructure and cost structure to ensure we deliver the earnings accretion we expected.\nTo date, we are on track to meet or exceed our earnings accretion commitments.\nWe continue to pursue to new Medicaid procurement opportunities.\nWe have contract winning capabilities, an aggressive in-state ground game and a winning proposal writing platform.\nWe are confident that we will continue to win new contracts that will contribute to our growth trajectory in 2022 and 2023.\nFinally, some comments about the longer-term outlook for our business.\nThe current rate environment is stable and rational.\nWe now have confirmed data points to support the continued belief that the Medicaid risk sharing corridors, related to the declared public health emergency, will be eliminated as the COVID pandemic subsides.\nPandemic-related corridors have already been eliminated for the 2022 state fiscal years in California, New York, South Carolina and Michigan, with momentum toward similar outcomes in other states.\nThe current Medicare risk score shortfall phenomenon is temporary as our 2022 bids did fully account for the current assessment of next year's risk scores.\nWe continue to be bullish about the performance of our acquired businesses.\nThe operational integrations are proceeding as or better than planned, and we have high confidence in achieving our original accretion estimates and possibly even exceeding them.\nIn the context of the pandemic subsiding and our acquisitions maturing, the incremental embedded earnings power of the business as it exists today is meaningful.\nWith the increased outlook for the net negative effect of COVID, our incremental embedded earnings power is now more at $5 above our 2021 adjusted earnings per share guidance.\nIn short, our pro forma run rate after the natural relaxation of these temporary constraints would produce adjusted earnings per share comfortably in the mid-teens and an after-tax margin of approximately 4%.\nI look forward to sharing more about our future growth plans and longer-term strategy at our Investor Day on September 17.\nAt our Investor Day, we will provide you with an initial 2022 revenue outlook.\nWe will also provide you with an updated view of our long-term targets for revenue growth for our three lines of business, operating metrics for our three lines of business and enterprise margin, net income and earnings per share expectations.\nAnd, as importantly, as has been our hallmark style, we will provide you with our detailed playbook for achieving those results.\nWe will continue not just to declare our goals, but to show you the transparency and specificity how we will achieve them.\nSuffice it to say, we are an inherently high-growth businesses and have demonstrated an ability to grow the top line and maintain an attractive margin profile even during a global pandemic.\nThe political legislative and regulatory environments are all positive catalysts, and the social demographic profile of the U.S. population remains in significant need of the social safety net we manage.\nAs I conclude my remarks, I want to express my gratitude to our management team and our nearly 13,000 Molina colleagues.\nTheir skill, dedication and steadfast service continue to form the foundation for everything we have achieved and everything we will achieve in the years to come.\nbeginning with some detailed commentary about our second quarter results.\nThe net effect of COVID negatively impacted second quarter results by $77 million or approximately $1 a share.\nThis increased the second quarter MCR by 110 basis points to 88.4%.\nThe impact was higher than our expectations and negatively affected all three lines of business.\nWe experienced high COVID-related inpatient costs early in the quarter, which tapered off as the quarter progressed.\nWe also saw increases in professional and outpatient costs, which we attribute to what may be the return to normal pre-COVID utilization patterns.\nIn Medicaid, the net effect of COVID was a cost of approximately $25 million and accounted for a 40 basis point increase that is included within our reported 89% MCR.\nThe first quarter Medicaid MCR had a 150-basis-point benefit due to COVID, which substantially explains the sequential increase in MCR.\nWe continue to expect the full year Medicaid MCR to be in the high 80s.\nIn Medicare, the net effect of COVID was a cost of approximately $17 million, increasing the MCR by 200 basis points to 87.6% in the quarter.\nThe first quarter, Medicare MCR was increased by 400 basis points due to COVID.\nSequentially, the MCR improved driven by this lower net effect of COVID and improved underlying performance compared to the first quarter.\nWe anticipate a full year Medicare MCR in the high 80s.\nIn Marketplace, the net effect of COVID was a cost of approximately $35 million, increasing the MCR by 480 basis points.\nThe first quarter Marketplace MCR included a similar impact from the net effect of COVID, which increased the first quarter MCR by approximately 500 basis points.\nThe resulting sequential increase in MCR versus the first quarter reflects the normal seasonality associated with members reaching their policy deductible limits.\nDue to the higher-than-expected impact from the net effect of COVID in the first half of the year, we now expect Marketplace pre-tax margins to moderate to low single digits.\nWe expect that when the COVID pandemic subsides, our Marketplace pre-tax margin will be squarely on target with our mid-single-digit pre-tax margin expectations.\nTurning now to our balance sheet.\nWe received $145 million of subsidiary dividends in the quarter, which brought our parent company cash balance to $564 million at the end of the quarter.\nWe have ample capacity to fund the announced acquisitions.\nAt our current margins, we generate significant excess cash and additional debt capacity.\nAfter funding our announced pending acquisitions, we will have year-end acquisition capacity of over $1.4 billion.\nAt the multiples we have paid in recent transactions, this gives us the ability to drive $3 billion to $4 billion in annualized revenue growth.\nMore importantly, at our current level of performance, this level of acquisition capacity is generated each year.\nOur reserve approach remains consistent with prior quarters, and our reserve position remains strong.\nDays in claims payable at the end of the quarter represented 48 days of medical cost expense, unchanged from the first quarter.\nPrior year reserve development in the second quarter of 2021 was modestly favorable, but any P&L impact was mostly absorbed by the COVID-related risk corridors.\nDebt at the end of the quarter is 2.2 times trailing 12-month EBITDA.\nOur debt-to-cap ratio was 50%.\nHowever, on a net debt basis, net of parent company cash, these ratios fall to 1.7 times and 43%, respectively.\nThese metrics reflect a conservative leverage position.\nA few additional comments related to our earnings guidance.\nWe raised full year 2021 adjusted earnings per share guidance to be no less than $13.25 per share, which reflects the following: our underlying outperformance, an increase in our revenue guidance and the associated margin, the net effect of COVID expectations, which has increased by $1 per share and is now expected to be approximately $2.50 per share for the full year, and continued caution in forecasting utilization trends in the remaining six months of the year due to the COVID pandemic.\nIn a typical year, the seasonality of utilization and timing of open enrollment periods resulted in third quarter earnings being higher than fourth quarter earnings.\nHowever, this year, we expect second half earnings to be distributed more evenly between the quarters due to the net effect of COVID and particularly the impact of risk sharing corridors.\nAs Joe discussed, we believe the incremental embedded earnings power of the company is in excess of $5.\nThis is composed of several items.\nThe increased net effect of COVID, which is now expected to create a $2.50 per share decrease that should dissipate as the pandemic subsides.\nMedicare risk score disruption that created approximately $1 a share overhang; and as we obtain our target margins on Magellan Complete Care and Kentucky, and once Affinity and Cigna acquisitions are closed and synergized, we expect to achieve additional adjusted earnings per share of at least $2.\nThis embedded earnings power does not represent 2022 guidance, but rather an accounting of the dynamic impacts that are temporarily depressing our earnings profile.\nThere are many other items that will affect our actual earnings guidance for 2022, including several possible scenarios for the impact of Medicaid membership redeterminations.\nIn short, our 2021 earnings jump-off point into 2022 is very strong.\nOperator, we are now ready to take questions.",
        "summary": "q2 adjusted earnings per share $3.40.\nsees fy adjusted earnings per share $13.25.\npremium revenue was approximately $6.6 billion for q2 of 2021, an increase of 51% compared to q2 of 2020."
    },
    {
        "text": "During our call today, unless otherwise stated, we're comparing results to the same period in 2020.\nFuture dividend payments and share repurchases remain subject to the discretion of Altria's board.\nAltria reports its financial results in accordance with U.S. generally accepted accounting principles.\nToday's call will contain various operating results on both a reported and adjusted basis.\nAdjusted results exclude special items that affect comparisons with reported results.\nFinally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older.\nIn the third quarter, Altria continued to balance maximizing profitability from our core tobacco businesses with investing to realize a vision of responsibly leading the transition of adult smokers to a smoke-free future.\nOur tobacco business has performed well against difficult year-over-year comparisons, and we are encouraged by the significant retail share growth from on!\nin the third quarter.\nWe also continue to reward shareholders with a strong and growing dividend and announced today the expansion of our share repurchase program to $3.5 billion.\nBoth Altria and the tobacco industry are evolving and with transformation comes opportunity.\nIt also brings uncertainty and adversity, including the recently International Trade Commission decision related to IQOS.\nWe knew our journey to a smoke-free future would not be easy, but our determined and talented employees have demonstrated they are up to the challenge.\nThe pursuit of our vision is not based on a single brand or product platform.\nOur vision is built on our understanding of tobacco consumers, their capabilities as a leading tobacco company and a portfolio of smoke-free brands and product formats.\nWe make progress through the performance of our current smoke-free portfolio and advancements in regulatory sciences, data analytics and a robust consumer engagement system.\nOur tobacco businesses remain strong, and our vision keeps us focused and guides us forward.\nLet's now turn to our business results.\nAltria grew its third quarter adjusted diluted earnings per share, 2.5% despite a backdrop of challenging comparisons and unfavorable year-over-year trade inventory movement.\nFor the first nine months of the year, adjusted earnings per share grew 4.5%, primarily driven by the strong financial performance of our tobacco businesses and higher ABI adjusted earnings.\nOur smokeable products segment continues to generate significant cash and return -- return to shareholders in fuel or vision.\nThird quarter adjusted operating company's income decreased 2.2%, reflecting the impact of trade inventory swings, but grew 2.6% to $7.9 billion for the first nine months, while Marlboro remained strong.\nThe oral tobacco product segment continued to deliver robust profit margins, while Copenhagen maintained its leadership position.\nIn all nicotine pouches, we have accelerated investment behind Helix and believe that the on!\nportfolio is well positioned in this fast-growing category.\nWe're advancing the sophistication of our analytics across our companies.\nThe Helix team uses this capability to evaluate the impact of promotional tools on tobacco consumers and understand what actions effectively drive trial, repeat purchase and adoption.\nretail share of oral tobacco increased a full share point sequentially, reaching 3 share points for the third quarter and nearly tripling since the end of last year.\nThese strong results were driven by increased smoker trial and repeat purchase from existing on!\nWe're excited by the performance of on!\nduring the first nine months of the year and believe consumer insights, disruptive retail executions and consumer engagement will continue to fuel its growth.\nLast year, we submitted premarket tobacco applications to the FDA for the entire on!\nWhile the FDA has made substantial progress in reviewing millions of PMTAs they received, our applications for on!\nA week ago, the FDA authorized the marketing of four of our oral nicotine products, Verve discs and Verve chews in the flavors of green mint and blue mint and determined that the marketing of these products is appropriate for the protection of public health.\nThis is the first flavored product authorization issued by the FDA for newly deemed tobacco products.\nWhile our Verve products are not currently in market, we believe the learnings we gained from developing our Verve submission were critical in filing compelling and timely submissions for on!\n, which we completed in only nine months after closing the on!\nWe're also actively working on modified risk product applications for on!\nWe believe an MRTP would be an impactful point of differentiation for the brand and an important tool in educating and ultimately transitioning smokers to less harmful products.\nIn e-vapor, we estimate that the total category volume increased 17% versus the year ago period and increased 2% sequentially as a result of continued elevated levels of competitive activity.\nWhile we had hoped for clarity on the category's outlook as manufacturers receive PMTA decisions, the future of e-vapor is still uncertain.\nFor most of the leading e-vapor products, the applications are still pending, including those submitted by JUUL.\nMoving forward, we expect e-vapor volume trends to be influenced by regulatory activity, which has the potential to impact the degree of cross-category movement.\nRecently, the CDC published an update from their National Youth Tobacco Survey.\nWhile caution is warranted when comparing results year-over-year due to the impact of the pandemic on the surveys methodology, underage e-vapor use, including use of JUUL, shows continued signs of decline.\nWe're encouraged by the progress, but more still needs to be done, and we remain committed to continuing our work to drive down underage use.\nTurning to heated tobacco.\nThe IQOS team continued to refine its go-to-market approach for new and innovative products.\nAcross the four states where IQOS is available, total Marlboro HeatSticks volume continue to grow, with repeat purchase accounting for approximately 85% of sales.\nAccording to IQOS consumers, our IQOS experts program played a significant role in their repeat purchases.\nThe program offers smokers personalized support and encouragement through consistent tailored engagements.\nIn the Northern Virginia lead market device penetrations as a percent of the smoker population continue to exceed the performance of previous rollouts.\nIn the last four weeks of the third quarter, Marlboro HeatSticks achieved a cigarette category retail share of 1.8% in Northern Virginia stores with distributions.\nAs we mentioned earlier, the International Trade Commission recently imposed an importation ban and issued season desist orders on IQOS, Marlboro HeatSticks and infringing components.\nWe're disappointed in this decision as IQOS is the only inhalable tobacco product to have received FDA authorization as a modified risk tobacco product.\nThe ITC's importation ban will make the product unavailable for all consumers have switched to IQOS, reduce the options for over 20 million smokers looking for alternatives to cigarettes and ultimately is detrimental to public health.\nWe continue to believe the plaintiff's patents are invalid and that IQOS does not infringe on those patents.\nThe ITC's decision is currently under 60-day review by the administration's U.S. Trade Representative.\nIn the event that the administration does not reject the decision, we're preparing to comply with the order.\nWe've been focused on our contingency plans surrounding sales and distribution and have been in communication with PMI on their domestic manufacturing plans.\nWe view the ITC's decision as a frustrating obstacle, but we are not deterred from the work required to realize our vision.\nWe remain committed to the heated tobacco category and believe it can play an important role in transitioning smokers to a smoke-free future.\nGoing forward, we expect to apply the knowledge and capabilities we gained from introducing and responsibly marketing a brand-new product category.\nFor example, we've learned how to blend behavioral science, data insights and consumer engagement to support smokers on their smoke-free journey, leverage MRTPs to educate consumers on the benefits of reduced risk products and establish a robust post-market surveillance system as required to monitor FDA-authorized products.\nI'm optimistic about the future for tobacco harm reduction in the U.S.\nWe have an unprecedented opportunity to lead the way in shifting millions of smokers away from cigarettes if we follow the science and foster innovation with the support of reasonable regulation.\nLet's turn to our financial outlook.\nWe're raising the lower end of our full year 2021 guidance and now expect to deliver adjusted diluted earnings per share in a range of $4.58 to $4.62.\nThis range represents a growth rate of 5% to 6% from a $4.36 base in 2020.\nThey bring significant combined expertise in operations, business strategy, consumer insights, and public policy and will be tremendous assets as we pursue our vision.\nI'd like to begin by discussing the macroeconomic factors we believe influence the tobacco consumer.\nWe believe rising gas prices, inflation and the conclusion of COVID-19 relief programs led to a decrease in disposable income versus the previous quarter.\nIn addition, increased consumer mobility offer consumers more options for their discretionary spending.\nAt retail, trends were unchanged sequentially.\nWe estimate that compared to pre-pandemic levels, the number of tobacco consumer trips to the store continue to be depressed, but tobacco expenditures per trip remained elevated.\nWe continue to monitor tobacco consumer behaviors and will provide our insights on the factors impacting those behaviors as we move forward.\nMoving to our businesses.\nThe smokable products segment expanded its adjusted OCI margins to 58%, an increase of 0.5 percentage point for the third quarter and more than 1 percentage point for the first nine months.\nThis performance was supported by strong net price realization of 11.3% in the third quarter and 9.2% for the first nine months.\nSmokeable segment reported domestic cigarette volumes declined 12.9% in the third quarter and 8% in the first nine months.\nWe believe reported volumes reflect an absolute wholesale inventory swing of 1.5 billion sticks as wholesalers build inventory in the third quarter of last year, but depleted inventories this quarter.\nWhen adjusted for trade inventory movement, calendar differences and other factors, domestic cigarette volumes for the third quarter and first nine months declined by an estimated 7% and 5%, respectively.\nAt the industry level, we estimate that adjusted domestic cigarette volumes declined by 6.5% in the third quarter and by 5% in the first nine months.\nMarlboro remains strong and resilient despite a widening price gap in a dynamic macroeconomic environment.\nIn the third quarter, Marlboro retail share of the total cigarette category was unchanged, both sequentially and versus the year ago period at 43.2%.\nAnd in discount, total segment retail share in the third quarter continued to fluctuate, increasing 0.3 percentage points sequentially to 25.3%.\nIn cigars, we continue to believe Black & Mild is the most profitable brand in the large mass machine-made cigar category.\nReported cigar shipment volume increased by 2.7% in the first nine months of 2021.\nTurning to the oral tobacco products segment.\nAdjusted OCI and adjusted OCI margins contracted for the third quarter and first nine months primarily due to increased spending behind on!\nand shifting mix between MST and oral nicotine pouches.\nWe're pleased with the strong overall margins for the segment and continue to be excited about the opportunity for on!\nin the oral nicotine pouch category.\nTotal reported oral tobacco products segment volume decreased by 3.8% for the third quarter and by 0.5% for the first nine months.\nWhen adjusted for trade inventory movement in calendar differences, segment volume decreased by an estimated 2.5% for the third quarter and 0.5% for the first nine months.\nOral tobacco products segment retail share for the third quarter was sequentially unchanged as strong share gains for on!\noffset declines in MST. The segment declined 2.2 percentage points versus the third quarter last year due to the continued growth of the oral nicotine pouch category.\nLooking ahead, we're monitoring several factors as we move toward the end of this year and into the next.\nMany industries are experiencing rising input costs and supply chain disruptions.\nFor Altria, we foresee modest inflation in the year ahead.\nThis could have some impact on the input costs and the inflation adjustment to our Master Settlement Agreement payments.\nHowever, our tobacco businesses remain strong, and we are confident in our ability to manage through short-term economic challenges.\nAs a reminder, we contemplate an array of scenarios in our financial forecast and intend to incorporate these factors into our 2022 earnings per share guidance, which we expect to provide in January.\nTurning to our investment in ABI.\nThe five-year lockup on our restricted shares expired earlier this month.\nWe've been an investor in the beer category since 1970 and our original investment of $230 million has served us extremely well over the past half century.\nIn fact, since 2003, our beer investment has served as a diverse income stream that contributed over $12 billion of adjusted equity earnings, contributed over $10 billion of cash from both dividends and 2016 merger proceeds and strengthened our balance sheet.\nWe've performed rigorous analyses regarding the ABI investment.\nFirst, as part of the preparation of our third quarter financial statements; and second, in anticipation of the expiration of the lockup.\nIn preparing our third quarter financials, we assessed the latest outlook for ABI's business under the applicable accounting guidance and recorded an impairment to the asset.\nWhile we continue to believe ABI's share price will recover, we now do not expect it to fully recover to its carrying value as soon as previously expected.\nAs a result, we have written our investment in ABI down to its September 30 market value of $11.2 billion.\nRegarding our decisions around the lockup, we view our ABI stake as a financial investment, and our goal is to maximize the long-term value of the investment for our shareholders.\nWe consider several factors as we analyze the investment, including the strategic rationale of continuing as a long-term investor in the beer category.\nABI's share price, which has declined by more than 30% since October 2019, due in large part to impacts of the COVID pandemic.\nOur expectations of ABI's business, alternative uses of capital and tax considerations.\nWe have determined that selling our ABI investment at this time would not maximize long-term shareholder value.\nTherefore, we continue to plan to maintain our ABI investment.\nWe continue to have confidence in ABI's long-term strategies, premium global brands, experienced management team and capability to successfully navigate near-term challenges.\nWe will continue to monitor and evaluate market conditions and the analytical factors mentioned previously on a regular basis, consistent with our goal of maximizing the long-term value of this investment for our shareholders.\nWe remain committed to creating long-term shareholder value through the pursuit of our vision and our significant capital returns, which we demonstrated in the third quarter by paying approximately $1.6 billion in dividends and raising the dividend for the 56th time in 52 years, selling Ste.\nMichelle Wine Estates and expanding our share repurchase program from $2 billion to $3.5 billion and repurchasing 6.7 million shares totaling $322 million.\nWe have approximately $2.5 billion remaining under the newly expanded $3.5 billion share repurchase program, which we expect to complete by December 31, 2022.\nWith that, we'll wrap up.\nWe've also posted our usual quarterly metrics, which include pricing, inventory and other items.\nLet's open the question-and-answer period.\nOperator, do we have any questions?",
        "summary": "qtrly total cigarette shipment volumes $24.05 billion (not $24.50 billion), down 12.9%.\nraises fy adjusted earnings per share view to $4.58 to $4.62.\nnarrows its 2021 full-year adjusted diluted earnings per share (eps) guidance.\naltria narrows its guidance for 2021 full-year adjusted diluted earnings per share to be in a range of $4.58 to $4.62.\naltria group -continue to monitor impact of covid-19 on juul’s business, including near-term supply chain constraints and component part shortages.\naltria group - during 2020 and the first nine months of 2021, cronos has been adversely impacted by the covid-19 pandemic."
    },
    {
        "text": "Those documents can be found on our website at marathonoil.com.\nWe'll also hear from Dane and Mike today before we go to our question-and-answer session.\nNot only have our teams continue to manage through the COVID-19 pandemic as critical essential infrastructure providers, they also successfully overcame the challenges of Winter Storm Uri during first quarter, maintaining their focus on safety while still delivering on all of our core operational and financial objectives.\nThough 2020 was a challenging year for our industry, it also brought with it opportunity.\nAnd Marathon Oil chose to leverage the supply demand crisis to further optimize and enhance our business model.\nWe high-graded and focused our capital program.\nWe lowered our cost structure, and we further improved our financial strength and flexibility.\nAs a result, we have dramatically enhanced the resilience of our company, driving our free cash flow breakevens consistently below $35 per barrel WTI and building on a multiyear trend of sustainable free cash flow and getting that cash back in the hands of our investors.\nAnd we have dramatically enhanced our ability to sustainably deliver robust financial outcomes.\nFinancial outcomes that can compete with any sector in the S&P 500 and do so across a much broader and lower range of commodity prices.\nWe recognize that given the inherent volatility of our commodity business that we must offer outsized free cash flow generation, coupled with investor-friendly actions to make a compelling investment case.\nTo that end, first-quarter '21 results are a testament to the strength of our business model and how we have positioned our company for success.\nDuring first quarter, we generated over $440 million of free cash flow.\nDespite the challenges associated with Winter Storm Uri, production volumes were in line with the midpoint of our full-year 2021 guidance, and we are fully on track to meet the annual production, capex, and cost guidance we provided at the beginning of the year.\nAnd we are on track to exceed our free cash flow objectives.\nFor $1 billion of capital spending, we now expect to generate $1.6 billion of free cash flow at $60 per barrel WTI, up from the prior guidance of around $1.5 billion.\nThis corresponds to a free cash flow yield approaching 20% and a sub 40% reinvestment rate.\nAll at an assumed oil price that is below the current forward curve.\nWe remain committed to our $1 billion capital program.\nThere will be no change to our capital budget even if oil prices continue to strengthen.\nWe will simply generate more free cash flow and further solidify our standing as an industry leader when it comes to capital discipline, a hard-earned reputation we have established over multiple years.\nWe have accelerated our balance sheet and return of capital objectives, the specifics of which Dane will cover in just a few minutes.\nImportantly, everything that we are doing is sustainable.\nOur peer-leading capital efficiency, our outsized free cash flow generation, our competitive cost structure, our investment-grade balance sheet, and our rising return of capital profile.\nThe proof point for this sustainability is our five-year benchmark maintenance scenario that can deliver around $5 billion of free cash flow from 2021 to 2025 and a flat $50 per barrel WTI price environment or closer to $7 billion of free cash flow at the current forward curve, along with a corporate free cash flow breakeven of less than $35 per barrel throughout the period.\nAnd the foundation for these differentiated financial outcomes is our multi-basin U.S. portfolio with well over a decade of high-return inventory, complemented by our integrated gas position in EG.\nFinally, we are leading the way in our approach to ESG excellence and are committed to continually enhancing all elements of our company's ESG performance.\nSafety remains our top priority, we are building on the record safety performance we delivered last year with a very strong start to 2021, as measured by total recordable incident rate.\nBest-in-class governance remains at the forefront of everything we do.\nWe have appointed two new directors to the board this year and remain committed to ongoing refreshment, independence, and diversity.\nWe also reduced and redesigned executive and board compensation for improved alignment with investors, as I highlighted early this year.\nAnd last but not least, we remain committed to reducing our greenhouse gas emissions intensity.\nWe made tremendous strides during 2020, reducing our overall GHG intensity by approximately 25%.\nWe are hard at work to achieve our GHG intensity-reduction target of 30% in 2021, a metric hardwired into our compensation scorecard, as well as our goal for a 50% reduction by 2025, both relative to our 2019 baseline.\nAnd we have included $100 million of investment over the five years of the benchmark scenario to support this goal.\nAt the center of our capital allocation and reinvestment rate framework is our objective to return at least 30% of our cash flow from operations back to our investors.\nOur capital return strategy prioritizes balance sheet enhancement through gross debt reduction and direct return of capital to equity holders through our base dividend and over time, likely through other return vehicles as well.\nWe have a strong track record of generating free cash flow and directing that cash back to our investors, are fully committed to this model, and are well-positioned to meaningfully beat our objectives in 2021.\nWhen considering our updated debt-reduction target on recent base dividend increase, we're actually on track to return well over 40% of our cash flow back to investors this year.\nFirst, we accelerated our 2021 gross debt-reduction objective of $500 million, fully retiring our next significant maturity and we're now targeting at least another $500 million of gross debt reduction, bringing our total 2021 debt-reduction target to $1 billion.\nReducing our gross debt is entirely consistent with our goal to further enhance our balance sheet, our investment-grade credit rating.\nMore specifically, our goal has been to reduce our net debt-to-EBITDA to below 1.5 times, assuming more of a mid-cycle $45 to $50 per barrel WTI environment.\nWe're making rapid progress toward achieving this milestone by the end of the year.\nAnd in parallel, our aim is to significantly reduce our gross debt moving toward a $4 billion gross debt level.\nBeyond the obvious benefit to our financial flexibility, the interest expense reductions associated with the structural gross debt reduction have the added potential to fund future dividend increases at no incremental cost to the company, thereby preserving our very competitive post-dividend corporate free cash flow breakeven.\nAlong with reducing our gross debt, we also raised our quarterly base dividend by 33%.\nOur objective is to pay a base dividend that is both competitive relative to our peer group in the S&P 500 and sustainable throughout commodity price cycles.\nOur decision to raise our dividend is a sign of our confidence in the strength and sustainability of our financial performance, and we see potential for disciplined, sustainable, and competitive base dividend growth over time.\nWe're targeting up to 10% of our cash flow from operations toward the base dividend, assuming $45 to $50 price environment, and we currently have ample headroom to progress under this framework.\nAnd to ensure sustainability through the price cycle, we're focused on maintaining our post-dividend breakeven well below $40 a barrel WTI.\nIn fact, even with the recent dividend increase, our post-dividend free cash flow breakeven currently sits around $35 per barrel of WTI.\nIn summary, we are well-positioned this year to return over 40% of our cash flow to investors through gross debt reduction and our base dividend, our top near-term priorities.\nAs we make significant progress toward our $4 billion gross debt objective, we will likely take the balance of 2021 to accomplish.\nAnd as we continue to advance further base dividend growth in line with our framework, we'll look to transition toward simply retiring debt as it matures and focusing more on alternative shareholder return mechanisms, including share buybacks or variable dividends, all funded through sustainable free cash flow generation.\nWe are not a cash taxpayer in the U.S. this year.\ncash federal income taxes until the latter part of this decade.\nThis holds true even if the tax rules for intangible drilling costs or IDCs are changed or if the corporate tax rate has increased.\nWe have significant tax attributes in the form of net operating losses, approximately $8.4 billion on a gross basis, in addition to foreign tax credits of over $600 million.\nThese attributes will be used to offset future taxes.\nNeither of these items is energy sector-specific, so we don't expect any new tax legislation to threaten them.\nThe bottom line is we don't expect to be a U.S. cash taxpayer until the latter part of this decade.\nMy key message today is that we're on track to achieve all of our 2021 operational objectives that we set at the beginning of the year, including our $1 billion capital program, and that we are on track to exceed the free cash flow objectives.\nOur strong performance is due to tremendous execution from our asset teams during first quarter, despite the significant challenges associated with Winter Storm Uri.\nFlat quarter on quarter, total oil production of 172,000 barrels per day was quite an accomplishment in light of the operational challenges we experienced and the impact to production you've seen reported by peer companies.\nOur teams did an exceptional job keeping our volumes online and delivering much-needed production at a time when utilities and households were in critical need.\nOur success began with extensive preplanning efforts and continued with a hands-on approach to managing our operations throughout the storm.\nWe did not proactively shut in our volumes as a preventative measure, rather we fully leveraged our digital infrastructure to prioritize protecting our highest volume, highest rate wells, intelligently routing operators to our highest-priority locations.\nAll the while, we kept the safety of our people as our top priority.\nOur hands-on approach clearly paid off, and our operational and financial results speak for themselves.\nOur capital spending during 1Q came in slightly below expectations, reflecting solid well-cost execution but also the shift in timing of some capital from first to second quarter largely due to storm-driven delays.\nLooking ahead to 2Q, we expect a slight sequential decline in our oil production, the result of fewer wells to sales in the first quarter, particularly in the Bakken.\nThis is simply a function of the timing of our wells to sales, reflecting a natural level of quarter-to-quarter variability.\nWe will continue to prioritize maximizing our capital efficiency and free cash flow generation sustainably over time, not the production output of any individual quarter.\nWe do expect the significant increase in our second-quarter wells to sales to translate to an improving production trend as we move into third quarter.\nWith the increase in wells to sales and shifting capital from 1Q to 2Q, we expect 2Q capex to rise to the $300 million range, likely representing the peak capex quarter for the year.\nStill, our capital program is fairly well-balanced and ratable, split almost 50-50 between the first half and second half of the year.\nMore importantly, our full-year capital spending and production guidance remain unchanged.\nAs the most capital-efficient basins across the Lower 48, the Bakken and Eagle Ford will still receive approximately 90% of our capital this year.\nHowever, both our Oklahoma and Permian assets have high-return opportunities that can effectively compete for capital today.\nBoth assets provide capital allocation optionality, commodity diversification, and incremental high-quality inventory.\nConsistent with what we previously disclosed in our five-year maintenance case and our plan entering the year, our objective is to reintroduce a disciplined level of steady-state activity back into Oklahoma and the Permian by 2022 at 20% to 30% of the total capital budget.\nWhen we do, our expectation is that both assets will support accretive corporate returns and incremental free cash flow to the enterprise.\nI will now pass it back to Lee, who will provide a few more comments before we move to Q&A.\nI would like to briefly put the 2021 capital program, Mike just discussed, into context by comparing our capital efficiency, our cost structure, and our free cash flow generation to peer disclosures from the fourth-quarter earnings season.\nAs highlighted by Slide 10 in our earnings deck, our 2021 capital program is among the most capital-efficient and free cash flow generative of any company in our peer space.\nThe top two graphics summarize peer reinvestment rate normalized to a $50 and $60 WTI price environment.\nAs you can see, our reinvestment rate, which is a reasonable proxy for both operating and capital efficiency in a maintenance or flat production scenario is among the lowest in our peer group.\nFor every dollar of capital we are spending, we are delivering more cash flow than virtually any of our peers.\nSimilarly, our 2021 capex per barrel of production on either an oil or oil equivalent basis is among the lowest in our space.\nIn the current more disciplined environment, operating and capital efficiency are paramount and, in fact, represent our competitive differentiators.\nMost importantly, as shown by the bottom right graphic, our free cash flow generation relative to our current valuation remains compelling and outsized against our peers and the broader market with a free cash flow yield approaching 20%.\nWe continue to believe that we must deliver outsized free cash flow generation relative to the S&P 500 to effectively compete for investor capital.\nThis is why we remain so focused on sustainably reducing our corporate free cash flow breakeven, now an integral part of our compensation scorecard, and continuing to optimize our cost structure.\nWith a free cash flow breakeven comfortably below $35 per barrel, we can generate free cash flow yield competitive with the S&P 500, assuming an annual oil price down to approximately $40 per barrel WTI.\nWe never rest when it comes to our structure.\nIn a commodity business, the low-cost producer wins, and Slide 11 provides additional details around our ongoing efforts and reinforces our multiyear track record of cash cost reductions.\nWe have opted to use an all-in cost basis that normalizes peer-reported data and avoids the challenges of how each operator categorizes their respective cost.\nAs you can see from the data, our all-in 2020 unit cash costs are well below the peer average.\nOn a more apples-to-apples comparison basis, our all-in unit cost are top-quartile among our direct multi-basin peers.\nSpecific cost-reduction actions already taken this year are broad-based, including a 25% reduction to CEO and board compensation, a 10% to 20% reduction to other corporate officer compensation, a workforce reduction to more appropriately align our headcount with a lower level of future activity, a full exit from corporate-owned and leased aircraft, and various other cost-reduction initiatives.\nFinally, I would like to again underscore the sustainability of all that we are doing.\nThe sustainability of our sector-leading capital efficiency and free cash flow generation is underscored by the financial strength of our previously disclosed five-year benchmark maintenance capital scenario.\nAnd our maintenance scenario is underpinned by well over a decade of high-quality inventory that competes very favorably in the peer group as validated by credible third-party independent analysis shown on Slide 13.\nThe quality and depth of our inventory, in combination with our reinvestment rate capital allocation approach, provides us with visibility to continued strong financial performance.\nFurther, we have a demonstrated track record of ongoing organic enhancement and inventory replenishment.\nEven in our maintenance scenario, we continue to direct capital toward resource play exploration and targeted organic enhancement initiatives, including our redevelopment program in the Eagle Ford.\nIn conclusion, I truly believe our combined actions have positioned Marathon Oil for success not only relative to our E&P peer group but relative to the broader S&P 500 as well.\nAnd our long-term incentives now reflect that conviction explicitly.\nOur company was among the first to recognize the need to move to a business model that prioritizes returns, sustainable free cash flow, balance sheet improvement, and return of capital.\nWe also led the way in better aligning executive compensation to this new model and with investor expectations.\nWe are positioned to deliver both financial outcomes and ESG excellence that are competitive, not just with our direct E&P peers but also the broader market.\nWith that, we can now open up the line for Q&A.",
        "summary": "q1 oil production of 172,000 net bopd and q1 oil-equivalent production of 345,000 net boed.\nno change to 2021 production guidance.\nnow targeting at least $500 million of additional gross debt reduction, bringing total debt reduction target to at least $1 billion in 2021.\nminimal production impact from winter storm uri in q1."
    },
    {
        "text": "Joining me on the call today are Nish Vartanian, Chairman, President and CEO; and Ken Krause, Senior Vice President, CFO and Treasurer.\nThese risks, uncertainties and other factors are detailed in our Form 10-K filings with the SEC.\nYesterday, I reviewed our annual employee engagement scores and was really pleased to see the overall scores improved from our high levels a year ago.\nThe connection our associates have with our mission was a highlight of the survey.\nToday, I'll provide a quick overview of the quarter then I'll highlight three areas that give me confidence in our business.\nBeginning with the quarter.\nIt was a challenging start to the year.\nQuarterly revenue was down 10% from a year ago.\nKeep in mind, Q1 2020 reflects a pre-pandemic environment for MSA.\nSo it's a challenging comparison.\nIn addition, our business is seasonally lower in Q1.\nEconomic conditions and COVID impacts created additional pressure.\nWe saw that pressure in January and February, followed by a strong recovery in March.\nI'm optimistic that recent trends in our order book support a much brighter outlook and also recognize the road to recovery might not be a straight line.\nBased on economic stimulus and vaccine deployment, the U.S. is leading the recovery in our business.\nAt the same time, the situation remains challenging in Europe, Latin America and some other smaller markets with COVID lockdowns.\nThat said, on the whole, we're optimistic that the worst is behind us from a demand perspective.\nWe're staying close to the challenges associated with the supply chain.\nWe expect resin supply to improve in Q3 and anticipate continued challenges with electronic components throughout the year.\nWe've managed through effectively with limited constraints in production.\nWe recognize this as an evolving situation, and we've experienced inflation in these areas, and we'll manage that effectively.\nAs macroeconomic conditions become more favorable, I'm very confident in our position to create value for all of our stakeholders.\nAs you've heard me say before, there are three key areas that continue to support my confidence in the future of MSA.\nWe've made progress in each of these areas in the first quarter.\nFirst, MSA's innovation engine is stronger than ever.\nIn Q1, we continue to launch technologies that solve our customers' toughest safety challenges.\nSecond, our continuous improvement culture positions us to achieve our long-term margin aspirations as revenue growth returns.\nWe've made some nice progress with our manufacturing footprint.\nThird, we're using our balance sheet to make strategic acquisitions that strengthen our position in key markets.\nIn Q1, we closed the acquisition of Bristol and the integration work is on track, and our M&A pipeline remains healthy.\nStarting with the first area.\nMSA's innovation engine and R&D pipeline, which is really the lifeblood of our business.\nOur engineering excellence has never been more evident than our breakthrough innovations in connected firefighter technology and connected industrial technology.\nI'm pleased to report that our team has celebrated exciting milestones in both of these areas.\nOn the fire service side, we launched the LUNAR firefighter location system.\nIt's a big accomplishment for teams of associates across MSA that worked on this system and it's the most technologically advanced product and software system that we've ever unveiled.\nLUNAR is a handheld device that uses cloud technology to deliver fire scene management capabilities for incident commanders.\nIt also helps search and rescue teams locate a separated firefighter, and it's a thermal imaging camera.\nI know the fire service is excited about this product.\nIt will help them tremendously with their work.\nOur connected platform also provided competitive advantage in industrial markets.\nWe recently began delivery to supply one of the largest utilities in the U.S. with connected gas detection, utilizing our cloud-based grid software.\nThis customer is now able to use databased insights to manage their gas detection program with greater effectiveness.\nThey ordered thousands of ALTAIR 5 timesR portable gas detectors with safety IO subscriptions.\nOver the next few years, this will result in a total order value of over $5 million.\nThese are just some of the indicators I'm seeing in Q1 that our innovation engine is running strong, achieving the milestones we've expected.\nLong-standing investments in connected technology position us to deliver new to world products for our customers.\nThis is timely as the pandemic has accelerated connected applications that will help workers become safer and more efficient.\nOur team is always striving to drive higher levels of productivity and efficiency throughout the organization.\nAlong those lines, we continue to execute our gas detection manufacturing consolidation project.\nAs we announced in 2020, we're making capex investments to expand our Cranberry township gas detection center of excellence.\nConsolidation -- production -- consolidating production will help with inventory management and having our engineering and operations teams under one roof will certainly drive greater effectiveness and efficiency, which will improve margins.\nAs part of the program, we remain on track to close a manufacturing operation in California in the third quarter of this year.\nAs you know, I worked with the team out there when we acquired General Monitors, and I'm very proud how our associates have managed through this process.\nThe third area I want to discuss today is using our balance sheet to make strategic acquisitions that strengthen our leadership position in key markets.\nAt the start of the quarter, we closed the acquisition of Bristol Uniforms.\nOur integration plans are off to a good start.\nWe've spoken before about the U.K. fire service market being a potential growth opportunity for MSA.\nWe're investing organically and inorganically to penetrate this opportunity.\nBoth the recent launch of the M1 SCBA and now Bristol are great examples of the investments we've made.\nAnd will see benefits across the entire international fire service market by having a greater range of head to toe solutions for our customers.\nIn addition to having strengthened our balance sheet, we continue to move forward with an M&A pipeline focused on evaluating assets that align with our safety mission.\nSo to summarize, there are three key areas that give me confidence in MSA's future: First, MSA's innovation engine is stronger than ever; second, our continuous improvement culture is positioning us for long-term success; and third, we're effectively using our balance sheet to grow our business.\nI'll start the discussion with financial highlights centered on revenue, profitability and cash flow.\nFirst, looking at revenue.\nWe expected the first quarter to present challenges versus the record quarter a year ago.\nWe also talked about COVID lockdowns pressuring demand in Europe and labor constraints in certain factories due to precautionary contact tracing.\nWith that, I am pleased to say that our order pace strengthened in March and into April.\nFire service order activity is healthy, and the order pace in industrial-related markets started to show year-over-year growth in March.\nThat strength has continued into April, and that gives us good momentum moving into Q2.\nSecond, our profitability was pressured based on the lower revenue and trends that unfolded within gross profit, and I'll provide more detail on that shortly.\nAnd third, I continue to be pleased by our cash flow performance.\nWe generated cash flow conversion in excess of 100% of net income.\nThe strength of our balance sheet positions us very well to pursue additional growth opportunities across the portfolio.\nNow let's take a closer look at the financial results in the first quarter, and let's start with a focus on revenue.\nQuarterly revenue of $308 million was down 10% from a year ago or 11% in constant currency.\nIn constant currency, revenue in the Americas was down about 9%, while international was down 16%.\nThe more severe international decline partially reflects the impact of COVID lockdowns in key geographies like France and Germany.\nExpanding on my earlier comment, we saw challenging comparisons in three key areas: FGFD, industrial PPE products and respiratory protection.\nFirst, our FGFD business declined 16% compared to our very strong Q1 of last year, while much of this business is project-based and will respond slower to economic recovery.\nWe are seeing good growth opportunities with orders up in April.\nThe business trends in this area take time to ship and while one month is not indicative of a longer-term trend.\nI am encouraged by the uptick in orders in April and pipeline of new opportunities.\nSecond, we knew industrial PPE revenue in the quarter would provide a challenging comparison.\nWe did not start to see the impact of the pandemic until April a year ago in the industrial PPE lines.\nTurning to page and looking at the first quarter of this year, we had a slow start in January and February but we saw return to growth in March and April.\nOrders across these areas were up 9% in March and were up double digits in April versus a year ago.\nWe know the pace of deliveries and revenue performance could be impacted by the challenges in our supply chain but I am especially encouraged by the improvement in demand levels across our international or -- I'm sorry, our industrial-related products.\nAnd third, our air purifying respirators presented another tough comparison due to the initial pandemic surge last year.\nThis landscape continues to evolve as stimulus packages are allocated to enhance PPE supplies for workers.\nWhile the pace of incoming business in 2021 has been a bit disappointing thus far, we continue to stay ready to supply these products when called upon, consistent with the MSA mission.\nTouching on fire service, backlog remains very healthy in this area.\nIt was also encouraging to see that funding allocated to our first responders and municipalities was included in the U.S. stimulus packages.\nThis funding and the mission-critical nature of our products provides a healthy outlook for the fire service business.\nGross profit declined 240 basis points from a year ago.\nThe decline is related to three primary areas: first, lower demand led to lower throughput in our factories, which drove inefficiencies and inventory charges.\nThe inventory charges were primarily related to lower demand for respiratory protection.\nSecond, a less favorable product mix and higher input costs impacted margins.\nWe've made adjustments to certain pricing actions already, and we will continue to evaluate additional pricing opportunities as we navigate the inflationary pressures.\nAnd last, our Bristol turnout gear business was about 50 basis points dilutive to overall gross profit.\nGross margins for turnout gear are lower than our corporate average.\nAnd that said, we expect to improve Bristol margins as we execute our integration plans.\nNow I'll shift to SG&A expense.\nOur expense of $75 million was down 6% or about $5 million from a year ago, and this includes $2 million of costs associated with the recent acquisition of Bristol.\nWe delivered $7 million to $8 million of savings from restructuring programs and discretionary cost savings associated with reduced travel, controlled hiring, professional services and other costs.\nAbout half of these savings are temporary, and I expect these will return to some extent as the business improve and travel opens up.\nThe other half, however, of the savings are structural in nature.\nOverall, I remain confident in our ability to deliver the cost savings we've committed to for 2021 across the income statement.\nIn the second quarter, we will continue to manage our cost structure very closely.\nHowever, we expect the year-over-year SG&A comp to become more difficult.\nI say that because our SG&A in the second quarter of 2020 was $69 million, and that number reflects the initial cost reduction activities that occurred at the onset of the pandemic.\nOur quarterly adjusted operating margin was down 330 basis points on the gross profit headwinds and overall lower revenue volume.\nLooking at our segment performance, International margins were down 270 basis points to about 8.8% of sales.\nWhat we're seeing here is the impact of the lower revenue.\nOur cost reductions and pricing programs remain very much on track.\nBut it's difficult to get leverage on the double-digit sales decline.\nBristol, which is our operating -- which is in our International reporting segment, was dilutive to the international margins by about 120 basis points.\nAnd looking ahead, I know we remain well positioned in this area.\nI say that because I believe we will see continued margin expansion in the international segment as the volume comes back online and COVID lockdowns ease.\nAmericas margins were down about 420 basis points to 21.7%.\nThe gross profit challenges that I mentioned previously drove this decline.\nWe are focused on driving improvements in our Americas segment margin performance, and I am confident in our ability to drive improvements in this area going forward.\nFrom a cash flow and capital allocation perspective, quarterly free cash flow conversion was about 100% of net income.\nIn fact, operating cash flow was up more than 200% compared to a year ago.\nWe generated strong cash flow despite the P&L challenges, and I'm encouraged by the strong performance across working capital, which declined about 100 basis points as a percentage of sales from year-end without the impact of Bristol.\nAs I've noted on many different occasions, growth continues to be a top priority in our capital allocation strategies.\nWe deployed $63 million for the Bristol acquisition in the first quarter, and leverage remains very healthy at 0.7 times EBITDA on a net basis.\nWe remain active in pursuing M&A opportunities as well as funding organic projects that drive long-term growth for MSA.\nAs we look ahead, we're operating in a very dynamic environment.\nThere are a number of evolving factors that will continue to influence our revenue outlook.\nThese factors include, among other things, the effectiveness of the vaccine rollout, risk of additional COVID lockdowns, industrial employment rates, the pace of economic recovery and the extent of supply chain challenges as economies open back up.\nCollectively, all of these variables make the outcome very hard to predict, but we know our order trends have improved in March and April, and they've improved across a number of key areas in our business.\nSo today, I do have a greater sense of confidence heading into the second quarter.\nTo wrap up, my optimism is based upon our March and April order book performance.\nWhile near-term supply chain challenges could impact revenue performance, demand levels are improving.\nOur market positions have never been stronger, and we continue to invest in growth and productivity programs across our business.\nFurther, I remain confident that the steps we're taking to improve our competitive position and our business model will be beneficial for MSA as conditions continue to improve.\nWhile it was a challenging start to the year, the improving order book in March and April provides more optimism for the second quarter and beyond.\nI'm very confident that our long-term focus areas will position MSA for success in the years ahead.\nAt this time, Ken and I will be glad to take any questions you may have.\nPlease remember that MSA does not give guidance.",
        "summary": "q1 revenue fell 10 percent to $308 million."
    },
    {
        "text": "Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A.\nThese materials include GAAP to non-GAAP reconciliations for your reference.\nThese statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties.\nInformation about factors that could cause such differences can be found in today's earnings news release and the comments made during this conference call, in the Risk Factor section of our 2020 annual report on Form 10-K and in our other reports and filings with the SEC.\nI'm going to start off by sharing a few thoughts about the overall business before Jason takes us through our results and our outlook.\nFirst, Q3 results highlight the continued strong demand we're seeing across the business.\nWe grew revenue 13%, earnings per share 21% and expanded operating margins by 150 basis Additionally, we ended the quarter with a record Q3 backlog of $11.4 billion, up 7% from last year.\nSecond, we saw strong growth in all three technologies during the quarter.\nIn LMR, revenue was up 11% while navigating a very challenging supply chain environment and video security and access control revenue was up 26%, driven by strong broad-based demand for both our fixed and mobile video offerings.\nAnd in Command Center Software revenue was up 13% as we continue to expand within our existing installed base and win new customers.\nAnd finally, based on our strong Q3 results and our expectations for the remainder of the year, we're again raising our full year guidance for both sales and EPS.\nOur Q3 results included revenue of $2.1 billion, up 13%, including $15 million from acquisitions and $25 million from favorable currency rates.\nGAAP operating earnings of $451 million and operating margins of 21.4% compared to 18.9% in the year ago quarter.\nNon-GAAP operating earnings of $555 million, up $92 million or 20% from the year ago quarter and non-GAAP operating margins of 26.3% of sales, up from 24.8%, driven by higher sales, higher gross margins and improved operating leverage in both of our segments.\nGAAP earnings per share of $1.76 compared to $1.18 in the year ago quarter.\nThe increase was primarily due to higher sales, higher gross margins and improved operating leverage as well as a loss related to the refinancing of long-term debt that occurred in the third quarter of 2020.\nNon-GAAP earnings per share of $2.35 compared to $1.95 last year, primarily due to higher sales, higher gross margin and improved operating leverage again in both segments.\nOpex in Q3 was $496 million, up $41 million versus last year, primarily due to higher compensation related to incentives and higher expenses related to acquisitions.\nTurning to cash flow.\nQ3 operating cash flow was $376 million compared with $392 million in the prior year, while free cash flow was $315 million compared with $343 million in the prior year.\nThe decrease in cash flow was primarily due to an increase in working capital, inclusive of our higher inventory, partially offset by higher earnings.\nYear-to-date operating cash flow was $1.1 billion, up $225 million compared with last year, and free cash flow was $959 million, up $201 million over last year.\nThe increase in cash flow year-to-date was primarily driven by higher earnings, partially offset by higher cash taxes paid during this year.\nOur capital allocation in Q3 included $137 million in share repurchases at an average price of $234.18, $120 million in cash dividends and $61 million of capex.\nAdditionally, during the quarter, we closed the acquisition of Openpath, a leader in cloud-based access control solutions for $297 million, we invested $50 million in equity securities of Evolv, whose technology powers our concealed weapons detection solution.\nAnd subsequent to quarter end, we acquired Envysion, a leader in enterprise video security and business analytics for $124 million net of cash.\nMoving next to our segment results.\nQ3 Products and Systems Integration sales were $1.3 billion, up 14%, driven by strong growth in LMR and video security.\nRevenue from acquisitions in the quarter was $12 million.\nOperating earnings were $273 million or 20.6% of sales, up from 18.9% in the year prior on higher sales, higher gross margins and improved operating leverage.\nSome notable Q3 wins and achievements in this segment include $72 million of P25 orders from a large U.S. federal customer, a $70 million TETRA order from the German Navy, a $45 million TETRA upgrade from a large EMEA customer, a $43 million P25 order from a large North America customer, a $22 million P25 upgrade from Metro Sao Paulo in Brazil.\nAnd also during the quarter, we grew our Video Security and Access Control product revenue by 23%.\nMoving to the Software and Services segment.\nQ3 revenue was $782 million, up 11% from last year, driven by growth in LMR services, video security and command center software.\nRevenue from acquisitions in the quarter was $3 million.\nOperating earnings were $282 million or 36% of sales, up 140 basis points from last year, driven by higher sales, higher gross margins and improved opex leverage.\nWithin this segment, some notable Q3 wins included a $41 million command center software contract with a large U.S. state and local customer, $31 million P25 multiyear extension with a customer in North America, a $17 million push-to-talk over broadband multiyear renewal with a large U.S. customer, a $7 million Command Central suite and video security order with the city of Yonkers, New York, which expanded off of a prior body-worn camera win.\nDuring the quarter, we grew our video security and access control software revenue by 32%.\nAdditionally, we launched the M500, the first in-car video system enabled by artificial intelligence.\nMoving next to our regional results.\nQ3 North America revenue was $1.4 billion, up 14% and growth in LMR, video security and command center software.\nInternational Q3 revenue was $658 million, up 10%, also driven by LMR, video security and command center software.\nWe saw strong growth in EMEA and Latin America during the quarter, while in Asia Pac, we continue to experience headwinds related to COVID-19 lockdowns in various countries.\nEnding backlog was a Q3 record of $11.4 billion, up $710 million compared to last year, driven primarily by growth in North America.\nSequentially, backlog was up $144 million, also driven primarily by growth in North America.\nSoftware and Services backlog was up $6 million compared to last year, driven by a $479 million increase in multiyear services and software contracts, partially offset by revenue recognition on Airwave and ESN over the last year.\nSequentially, backlog was down $112 million, driven primarily by revenue recognition for Airwave and ESN during the quarter, partially offset by growth in services and software contracts in North America.\nProducts and SI backlog was up $704 million compared to last year and $256 million sequentially, driven primarily by LMR growth in both regions.\nTurning next to our outlook.\nWe now expect full year sales to be up 10% to 10.25% compared to prior guide of 9.5% to 10%.\nAnd we now expect full year earnings per share between $9 and $9.04 per share, up from our prior guide of $8.88 to $8.98 per share.\nThis increased outlook includes the video security and access control technology growing greater than 30%.\nIt also includes our current view of supply chain conditions, FX at current spot rates and an effective tax rate of 21.5%, along with a diluted share count of 174 million shares.\nAnd finally, we now expect full year opex to be $1.95 billion, inclusive of our two latest acquisitions, Openpath, and Envysion, and we expect full year operating cash flow to be approximately $1.825 billion, up $25 million from our prior estimate.\nFirst, our results for the quarter were outstanding, and I'm extremely proud of how the team is executing through a very tough supply chain environment.\nWe achieved record Q3 sales, operating earnings and earnings per share and expanded operating margins by 150 basis points and finished the quarter with a record Q3 ending backlog.\nSecond, I want to share some color on what we're actually seeing in the two segments.\nIn Products and SI, demand for both our LMR and video security remained robust, highlighted by the strong revenue growth in Q3 and record ending backlog.\nSupply chain constraints continue to impact our LMR business and in particularly, our PCR business as demand outpaced our ability to obtain supply in Q3, and we expect we'll continue to do so in Q4.\nIn software and services, we continue to see strong demand, which is driving revenue growth and improved profitability.\nIn fact, as we finish the year, we now expect operating margin to increase by 200 basis points year-over-year for the segment.\nOur customers continue to increase their investment in our value-added services.\nAnd in software, while we now expect Command Center Software revenue growth to be low double digits, our video security and access control software revenue growth will likely be greater than 35% this year and is the fastest growing area within our software portfolio.\nFinally, as I look ahead, I'm encouraged by how we're positioned.\nOur strong Q3 backlog in both segments provides us with significant demand visibility.\nWe're expanding our relationships within our existing installed base to provide more software and services.\nThe customer funding is as good as I've seen it.\nAnd our NDAA compliant manufacturing in North America is providing a key differentiator for our fixed video solutions.\nAnd while we expect the challenging supply chain environment to be with us through at least the first half of next year, we're still planning for another year of strong revenue, earnings and cash flow growth in 2022.\n[Operator Instructions] Operator, would you please remind our callers on the line how to ask a question.",
        "summary": "compname posts q3 sales of $2.1 billion.\nsees fy revenue up 10 to 10.2 percent.\nq3 sales rose 13 percent to $2.1 billion.\nqtrly gaap earnings per share (eps) of $1.76.\nqtrly non-gaap eps* of $2.35.\nraises full-year revenue and earnings per share guidance again.\nsees fy non-gaap earnings per share $9.00 to $9.04.\nsees fy revenue growth of 10% to 10.25%."
    },
    {
        "text": "Erik Gershwind, our chief executive officer; and Kristen Actis-Grande, our chief financial officer, are both on the call with me.\nAs we continue working remotely at MSC, please bear with us if we encounter any technical difficulties.\nFor many years, the concept of doing the right thing has driven everything we do in all of our stakeholder interactions at MSC.\nI invite you to learn more about our community relations, diversity and inclusion, corporate governance, and environment and sustainability efforts by visiting our website.\nThis is only the very beginning of our ESG journey, but we are committed to progress and continually striving for excellence.\nLet me reference our safe harbor statement under the Private Securities Litigation Reform Act of 1995.\nThese risk factors include our comments on the potential impact of COVID-19.\nI hope you enjoyed your holiday weekend.\nI'm excited to update you today on our progress this quarter.\nWe are seeing the benefits of the strategic pivot that's been made by our company over the past few years.\nWe made significant investments across the organization to transition from a leading spot-buy provider to a mission-critical partner on the plant floor augmented by our spot-buy capabilities.\nWith the bulk of the less visible changes completed, we outlined our plan to return to historic levels of revenue and earnings growth, consistent with the legacy of our company.\nMission Critical is our program to translate those investments into superior financial performance.\nAnd we shared with you two goals that underpin our efforts: first, to accelerate market share capture with a target growth rate of at least 400 basis points above IP by the end of our fiscal 2023; second, to return ROIC into the high teens powered not only by leveraging growth, but also by structural cost takeout of 90 to $100 million also by the end of fiscal 2023.\nThis year, our fiscal 2021 began our proof of concept with our fiscal third quarter serving as the latest encouraging data point.\nWith respect to revenues, we committed to achieve a minimum of 200 basis points of positive spread versus the IP by our fiscal fourth quarter.\nQ3 is muted by PPE comps, but the non-safety and non-janitorial business grew about 21% year over year, and we expect our total company growth to meet or exceed our fiscal Q4 commitment.\nThis year, with the help of numerous structural cost reductions, we increased our customer-facing sales headcount and will continue doing so into fiscal 2022.\nWe've grown share in metalworking through investment and innovation that improve our customers' businesses.\nAt the tail end of fiscal 2021 and into fiscal '22, we're implementing improvements in e-commerce.\nWe started with a new production information system earlier this year and are now rolling out enhanced search capabilities, new user interfaces for both desktop and mobile, a new transactional engine, and overall improved functionality.\nWe've committed to maintaining our gross margin through a series of initiatives, and excluding the writedown for PPE, we have done so.\nThe macro environment is driving price increases.\nAnd given our inventory turns and innovative merchandising and pricing programs, we expect strong realization to continue.\nFinally, we've picked up the pace on structural cost takeout.\nWe've already exceeded our $25 million cost takeout goal for fiscal 2021 for the full year.\nLooking ahead, fiscal 2022 is setting up even better than the current year.\nWe will build on our momentum and continue making progress toward our goal of 400 basis points or more of market outgrowth as measured against the IP index.\nOn the gross margin line, we expect inflationary pressures to continue.\nWhile purchase cost increases are beginning to make their way into our P&L, they will be offset by ongoing price realization, yielding a stable gross margin outlook year over year.\nOn the structural cost front, we'll deliver roughly $20 million of incremental savings on top of that, which has been achieved over the past two years.\nAnd that will include benefits from existing initiatives, which will deliver incremental savings during the first half of '22 plus benefits in the second half from new initiatives that we have yet to execute, along with a handful of more transformational projects that will deliver additional savings in '23 and beyond.\nWe will once again reinvest a portion of these incremental savings into our five growth initiatives to build upon market share capture.\nNonetheless, we expect incremental margins at/or above 20%.\nHow far north they go will be a function of how high we can get revenue growth and how much price realization we see.\nWith all of this as the backdrop, I'll now turn to the specifics of the quarter beginning with the external landscape.\nThe economic environment improved significantly.\nMost of our manufacturing end markets turned positive during the quarter, and this evidenced itself in IP readings that turned to double-digit growth in April and May and in sentiment readings, such as the MBI index, which are at very high levels.\nAll of this is supported by our customers' outlooks, which are robust.\nAt the same time, the industrial economy is experiencing very real supply chain shortages and disruptions.\nThese disruptions are evidencing themselves in product scarcity, freight delays, and extreme labor shortages that are resulting in significant availability and inflationary pressures.\nAnd we are certainly not immune to these challenges.\nAnd in fact, we're seeing them play out.\nThat said, we are very well-positioned to navigate the current environment, particularly when compared to the local and regional distributors who make up 70% of our market.\nMSC's broad multi-brand product assortment, our high inventory levels, strong supplier relationships, and next-day delivery capabilities position us well to accelerate market share capture.\nAdditionally, the supply chain challenges are resulting in significant and growing inflation that is producing the most robust pricing environment we've seen in years.\nTurning now to our performance.\nYou can see our reported numbers on Slide 4 and adjusted numbers on Slide 5.\nRevenues were up 2.2% on an average daily sales basis as we're seeing continued sequential improvement in our sales levels.\nMost notably, non-safety and non-janitorial product lines improved through the quarter from mid-single-digit declines in our second quarter to 21% growth in our third quarter.\nSales of safety and janitorial products, as expected, given the significant surge during the pandemic last year, declined just over 40% for the quarter.\nLooking at our performance by customer type and excluding for a moment, the safety and janitorial product lines, all of our customers, all types, were up strong double digits.\nHowever, including all product lines and given the extremely difficult comparisons, government sales declined nearly 40%.\nNational accounts returned to growth by posting a low single-digit increase, while our core customers improved and grew in the mid-teens.\nCCSG grew mid-single digits.\nJune showed continued improvement with total company year-over-year growth estimated at 15.4%.\nOur non-safety and non-janitorial growth is estimated at roughly 20%, while safety and janitorial are estimated to be down roughly 10% against last year's continued PPE surge.\nWe expect strong growth rates in non-safety and non-janitorial products for the balance of the fiscal year.\nOn the pricing front, we've seen solid realization of the March price increase that we mentioned last quarter.\nAnd as a result, we saw a sequential lift in gross margin from our fiscal second quarter's adjusted rate of 42%.\nSince that last call, we've seen continued significant pricing activity from our suppliers.\nAnd as a result, we've implemented a June price increase.\nThis is earlier than normal but certainly warranted given the environment.\nWe will not hesitate to move again if suppliers continue raising their prices.\nBeyond the numbers, we had a couple of positive developments during the quarter.\nOne was the recovery of the nitrile glove impairment, which Kristen will touch on in just a bit.\nThe other was the acquisition of a majority stake in the William Hurst Company in June.\nHurst is a metalworking distributor based in Wichita, Kansas with a heavy focus on the aerospace sector, and this deal is meaningful to MSC in several ways.\nHurst goes to market with a highly specialized and highly technical sales force.\nIt fills out a geography in which MSC was underpenetrated and, more importantly, brings technical capabilities that we can leverage across the entire MSC business.\nAerospace is roughly 10% of total MSC sales today.\nIt's an industry that is poised for strong growth coming out of the pandemic, and the Hurst platform will considerably enhance our effectiveness in serving and growing that portion of our business.\nHurst has been led by CEO, John Mullen, who remains at the helm and retains a meaningful ownership stake in the business.\nI'll now turn things over to Kristen to cover the financials and our mission-critical progress.\nI'll begin with a review of our fiscal third quarter and then update you on the progress of our mission-critical initiatives.\nSlide 5 reflects our adjusted results.\nOur third-quarter sales were 866 million, up 3.8% versus the same quarter last year.\nWe had one more selling day this year in our third quarter.\nSo on an average daily sales basis, net sales increased 2.2%.\nErik gave some details on our sales growth, but I'll just reiterate that our non-safety and non-janitorial sales grew 21% in the quarter, while our safety and janitorial sales declined 42%.\nMoving to gross margins.\nExecution and realization on our midyear price increase was solid.\nOur gross margin for fiscal Q3 was 42.3%, up 30 basis points sequentially after adjusting our inventory writedown from last quarter and down just 10 basis points from last year.\nLooking ahead, we took our summer increase in early June in response to the continuing inflation we are seeing from our suppliers.\nWe expect the recent trending to continue and aim to achieve a gross margin for fiscal 2021 that is flat with fiscal 2020.\nOperating expenses in the third quarter were 257.3 million or 29.7% of sales versus 242.8 million or 29.1% of sales in the prior year.\nOur third quarter includes just 400,000 of legal costs associated with the loss recovery, which I'll discuss shortly.\nSo OPEX as a percent of sales, excluding those costs, was the same as the GAAP figure or 29.7%.\nLet me share a few more details on our third-quarter OPEX.\nAs I mentioned on our last call, we expected OPEX to increase sequentially from our second quarter, not only by the variable operating expenses associated with higher sales but also due to expected higher incentive compensation, as well as growth investments related to Mission Critical.\nRecall that our adjusted OPEX for Q2 was 244 million.\nA 90 million increase in sales means roughly 9 million of variable-related OPEX.\nThe remainder of the increase was primarily related to higher incentive compensation.\nWhile mission-critical growth investments did increase sequentially, this was offset by an increase in mission-critical savings, which I'll speak to in more detail in a few moments.\nWe're pleased to report that last month, we received a 20.8 million loss recovery of the original 26.7 million impairment loss recorded in Q1.\nThat recovery is below the operating expense line in the P&L, but it does increase our GAAP operating income such that our GAAP operating margin for the quarter was 14.8%.\nExcluding the 20.8 million loss recovery and associated legal fees, as well as restructuring charges during the quarter of 1.3 million, our adjusted operating margin was 12.6%, down 70 basis points from the prior year.\nGAAP earnings per share were $1.68.\nAdjusted for the loss recovery, as well as restructuring and other charges, adjusted earnings per share were $1.42.\nTurning to the balance sheet and moving ahead to Slide 7.\nOur free cash flow was 3 million in the third quarter, as compared to 49 million in the prior year.\nThe largest contributors were our increasing inventory and accounts receivable balance as our sales picked up significantly in the quarter.\nI would also note that we repurchased 47 million of stock during the quarter or about 507,000 shares at an average price of 92.92 per share.\nThis underscores our ongoing commitment to a balanced capital allocation philosophy and our goal to maximize total shareholder returns.\nIn fact, to date in our fiscal Q4, we repurchased another 229,000 shares at an average price of $89.07.\nLastly, when it comes to cash flows, please note that the 20.8 million loss recovery was received in June and will therefore be reflected in our fiscal fourth-quarter cash flows.\nAs of the end of fiscal Q3, we were carrying 598 million of inventory, up 66 million from last quarter.\nWe're actively managing inventory levels to ensure we can support our customers as sales continue accelerating.\nTherefore, inventory levels are likely to continue climbing in the fourth quarter.\nWe still expect capital expenditures for the fiscal year of approximately 55 million, and we still expect our cash flow conversion or operating cash flow divided by net income to be above 100% for fiscal 2021.\nOur total debt as of the end of the third quarter was 759 million, reflecting a 75 million increase from our second quarter.\nRoughly two-thirds of that increase was used to repurchase shares under our ongoing share repurchase program.\nAs for the composition of our debt, 187 million was on our revolving credit facility.\nAbout 200 million was under our uncommitted facilities, 20 million was short-term fixed-rate borrowings, and 345 million was long-term fixed-rate borrowings.\nCash and cash equivalents were 27 million, resulting in net debt of 732 million at the end of the quarter.\nLet me now provide you with an update on our Mission Critical productivity goals.\nOn Slide 8, you can see our original program goals of 90 to a hundred million of cost takeout through fiscal 2023, and that is versus fiscal 2019.\nOur cumulative savings for the first half of fiscal '21 were 17 million, and we saved another 12 million in our third quarter bringing our year-to-date savings to 29 million against our goal of 25 million by the end of this year.\nWe also had invested roughly to 7 to 8 million in the first half of fiscal '21, and we invested another $7 million in our third quarter, bringing our total year-to-date investments to 15 million, which compares to our original full-year target of 15 million.\nGiven the success of the program through the first three quarters, we now expect to achieve savings for fiscal 2021 of roughly 40 million.\nRegarding total investments for fiscal '21, we now expect roughly 25 million, which would result in net savings of 15 million for this year.\nWith respect to sales, the difficult safety and janitorial comparisons will ease in our fiscal fourth quarter and into fiscal '22.\nWe expect double-digit growth rates for the total business in our fiscal fourth quarter and continued strength into fiscal '22.\nFor fiscal '21, we expect a low single-digit total company growth, and we aim to achieve gross margins that are flat with fiscal '20.\nIn terms of adjusted operating expenses, sequentially from our third to fourth quarters, we will see a decline due to volume-based expenses from sequentially lower sales dollars and lower incentive compensation.\nWith that in mind, we remain on track with our adjusted annual operating framework for fiscal 2021, which you can see on Slide 9.\nFurthermore, and as Erik mentioned earlier, we expect to achieve 20% or higher incremental margins in both fiscal '22 and fiscal 2023.\nFiscal 2021 is finishing on a high note, and we expect that momentum to continue into fiscal '22.\nWe are gaining steam internally, and our end markets are strengthening as evidenced by IP readings.\nThe inflationary environment, along with our ongoing price realization should continue to support gross margins.\nOn the structural cost front, we've made strong progress on our Mission Critical program and will deliver further savings over the next two years and beyond.\nAll of that should translate into incremental margins at/or above 20% for the next two years.",
        "summary": "q3 earnings per share $1.68.\nquarterly adjusted diluted earnings per share $1.42."
    },
    {
        "text": "Erik Gershwind, our chief executive officer; and Kristen Actis-Grande, our chief financial officer, are both on the call with me.\nAs on our last call, we are all remote, so bear with us if we encounter any technical difficulties.\nThe risk factors include our comments on the potential impact of COVID-19.\nAnd let me start by saying that I hope everyone remains safe and healthy.\nAfter that, we're going to look forward and we're going to look forward to the next three years to discuss what is the next stage of our transformation journey.\nWe've completed the heavy lifting of our sales force transformation and are now focused on accelerating market share capture and improving profitability.\nThis is a companywide effort that we're calling Mission Critical.\nAnd Mission Critical is more than just a project name, it's reflective of our business strategy of serving as a mission-critical partner to our customers on their plant floors.\nAnd it also reflects the fact that accelerating market share capture and improving profitability and doing so with urgency is mission critical for our organization and our stakeholders.\nA lot more is coming on this shortly, but I'll first turn to the quarter, and we've provided some highlights on Slide 3.\nOur fiscal fourth-quarter financial results continue to reflect solid execution in a tough environment.\nVersus the prior year period, overall sales were down 11.3% or 12.7% on an average daily sales basis.\nGross margin was down 40 basis points and operating margin was 9.8% as compared to 10.7% in the prior year.\nExcluding one-time adjustments, our operating margin was 11.2%, down just 30 basis points from 11.5% in the prior year due to implementing effective cost controls.\nThis all resulted in solid earnings for the quarter.\nAs we noted in our August sales release, sales of our nonsafety and nonjanitorial product lines have continued to improve sequentially through the quarter.\nSales of safety and janitorial products also continued growing, with year-over-year growth of roughly 20% each month on average and for the quarter.\nLooking at our performance by customer type.\nNational Accounts declined slightly more than 20%, while our core customers declined mid-teens and CCSG was down in the low double-digits.\nGovernment sales and that's both state and federal, were up significantly due to the surge in large safety and janitorial orders, partially offsetting the declines in the other customer types.\nAll of this shows that sales levels have continued to lift and have seen a slight increase in the rate of improvement over the past couple of months.\nMost manufacturing end markets, while showing sequential improvements in the quarter, are still soft.\nMany national accounts are running one shift as opposed to the two or three shifts they were running pre-pandemic.\nOur job shop and machine shop customers continue carrying smaller-than-normal backlogs.\nThese customers remain cautious about spending and they're burning off inventory as much as possible, given continued uncertainty.\nThe persistence of COVID-19 and its potential for future surge is certainly playing a role in all of this.\nAnd this caution is reflected in recent sentiment indices, such as the MBI, which remains negative on a rolling 12-month average.\nThat said, the readings have improved over the past couple of months and actually reached neutral territory in September.\nShould this improvement continue, it would bode well for our business and should translate into continued sequential lift in our revenues.\nIn terms of end markets, the softness in industrial demand was broad-based, with acute weakness in heavily metalworking-centric end markets such as aerospace and oil and gas.\nThere are some pockets of strength in certain areas, but not in our core end markets which remain suppressed.\nWe continue to hear that local distributors are suffering.\nAnd the longer that the weak conditions persist, the more pressure they're coming under.\nThis continues to create market share capture opportunities and we are focused on capitalizing on them.\nMoving now to gross margins.\nI remain pleased with our performance.\nIn particular, we're executing well on both the pricing and the purchase cost fronts.\nWe're seeing strong realization from our annual price increase and we're continuing to benefit from supplier programs on the purchase cost line.\nYou'll note that our sequential drop from the third quarter to the fourth quarter in gross margin was on the higher side of the typical seasonal decline.\nThis was strictly the result of mix and, in particular, the sale of PPE-related SKUs.\nAbsent this headwind, we maintained underlying gross margin stability.\nSeptember and October gross margins continued our recent trending.\nPrice and costs are performing well, but will likely have continued PPE mix pressure in the first quarter, similar in size to that of our fourth quarter.\nLooking beyond the first quarter, as we move past the PPE-related mix noise, we expect gross margins to remain at levels close to or at prior year.\nCash flow in the quarter remained strong and allowed us to repay a significant amount of debt.\nHe and the team did an exceptional job over the past few months, particularly during the COVID crisis.\nWe're grateful, Greg, for your hard work.\nAnd of course, you continue to be an integral part of our future efforts.\nIt's great to be here, and I am looking forward to the work ahead of us.\nOver the coming months, hopefully, I'll have an opportunity to meet those of you on the phone who I haven't met already, although that will probably be virtual, of course.\nAs Erik mentioned, I'm going to run us quickly through the numbers for our fiscal fourth quarter and then, we'll devote time to discussing Mission Critical.\nOur fourth-quarter sales were $748 million, a decline of 11.3% versus the same quarter last year.\nOur average daily sales in the fiscal fourth quarter were $11.7 million, a decrease of 12.7% on an ADS basis versus the same quarter last year.\nOur operating margin was 9.8% compared to 10.7% in the same period last year.\nExcluding severance and other costs, our adjusted operating margin was 11.2% versus an adjusted 11.5% in the prior year.\nWithin our operating profits, Erik touched on the items impacting our gross margin, which was 41.6% or 40 basis points below the prior year.\nSo I'll go a little deeper now into our operating expenses.\nTotal operating expenses in the fourth quarter were $238 million or 31.9% of sales versus $263 million or 31.2% of sales in the prior year.\nThis also includes about $11.2 million of costs related to severance and the review of our operating model mentioned on previous calls.\nYou'll see a sizable drop in our total company headcount in our operating statistics.\nThis was the result of actions tied to our structural cost initiative and explains the severance costs in the quarter, which were $8.1 million of the $11.2 million.\nExcluding those costs, operating expenses as a percent of sales were 30.4% in the prior year, excluding $6.7 million of costs related to severance, operating expenses were also 30.4% of sales.\nOur results for the quarter reflect the swift cost containment measures we implemented due to COVID-19, including temporary reductions in variable hours, in executive and management salaries, temporary suspension of our 401(k) match, a hiring freeze, and virus-related travel restrictions.\nWe've now reversed some, but not all of these temporary actions.\nFor example, in our fiscal first quarter, we restored our 401(k) match.\nAll of this resulted in earnings per share of $0.94.\nAnd adjusted for severance and other costs, earnings per share was $1.09.\nTurning to the balance sheet on Slide 7.\nWe achieved strong free cash flow of $171 million in the fourth quarter.\nA key driver was the $32 million decrease in inventory from last quarter to $543 million.\nThis reflects typical contraction in a soft environment, but also maintains levels that support share capture.\nWe also benefited from a large reduction in receivables.\nWe continue to manage our liquidity very closely.\nGiven the stabilizing environment, we paid down over $300 million of our revolving credit facility in August, as well as, $20 million of maturing private placement debt.\nOur total debt as of the end of the fourth quarter was $619 million, comprised primarily of a $250 million balance on our revolving credit facility, $20 million of short-term fixed rate borrowings, and $345 million of long-term, fixed-rate borrowings.\nCash and cash equivalents were $125 million, so our net debt was $494 million.\nIn September and October, we deployed our strong cash flow by paying down another $120 million of our revolving debt.\nOverall, our balance sheet and liquidity remain very healthy.\nTurning to Slide 8.\nMany of you know that over the past couple of years, we've been working hard to reposition MSC from a spot-buy supplier to a mission-critical partner on the plant floor of our industrial customers.\nOur focus now turns to implementing Mission Critical to deliver reaccelerated market share capture and a step change in improving profitability over the next three years.\nWe plan to do so with the same sense of urgency that we demonstrated during the pandemic.\nI'll start with reaccelerating market share capture, which is on Slide 9.\nOur target is to outgrow the markets in which we compete by at least 400 basis points over the cycle.\nThis market share growth capture is indexed against industrial production or the IP Index.\nOur analysis shows that IP is highly correlated with our growth rate over a cycle and it's a good proxy for the relative health and performance of the end markets that we serve.\nThis is shown on Slide 10.\nIP is not perfect over shorter timeframes as the aggregate IP Index includes some of our noncore end markets as well.\nNonetheless, we're going to use it going forward as our primary benchmark, as it gives us the opportunity to better measure our performance over time.\nThis does not mean that sentiment indices, such as the MBI, are no longer important indicators to gauge the state of our markets.\nThey are, but they're less indicative of outgrowth or share capture since they're purely sentiment service.\nCompetitor and supplier growth rates also remain relevant, but differences in end market and product line exposure result in different levels of market growth for each of us.\nSpread above IP over a cycle is, we believe, the best gauge for outgrowth of our markets.\nLooking over extended periods of time, average IP growth is in the 2% to 3% range.\nSo this implies MSC growth of at least 6% to 7% over a cycle.\nWe believe that the actions we've taken recently, and those that we're taking now and into the near future, build to this level of outperformance over time.\nAt the same time, we think that we can outgrow the market over the nearer term as well.\nAnd so our goal is to exit fiscal 2021 at roughly 200 basis points above IP.\nMost forecasts indicate a return to low single-digit positive growth for IP and during calendar 2021.\nAdjusting for our fiscal calendar, and assuming that these forecasts are accurate, it would mean that we would expect to be growing in the mid single-digits in our fiscal fourth quarter.\nBut that would still be slightly down for the full fiscal '21, taking into account the PPE headwind that we will face primarily in our fiscal third quarter.\nThere are five growth priorities that will deliver this above-market growth.\nAnd none of these should surprise you, given that they're aligned with the work that I've spoken about pre -- previously.\nWhat you should take away from this discussion, though, is the details within each and the specific actions and investments that we're making to produce measurable returns.\nLet me spend a moment on each one.\nThis is the core of our business, a position where we have leadership today and where we think we can widen our lead.\nWe will do this by building on our talented team of metalworking specialists through hiring and training.\nWe've begun this effort in earnest and plan to add about 25% to our metalworking specialist team over the course of the year.\nWe'll also continue adding to our industry-leading product and supplier portfolio, and we'll introduce value-added services to our customers such as MSC MillMax, an exclusive technology that we just brought to market.\nIt's a proprietary product that, with a simple tap on a machine, uses data and analytics to optimize our customers' machining operations.\nEarly customer response has been very good.\nAnd more importantly, MSC MillMax is delivering improvements to their operations.\nWe're now making it available to all of our customers.\nThe second lever, selling the strength of our broad portfolio.\nThis encompasses investing in our CCSG or Class C consumables business, leveraging the cross-selling that results from it, and leveraging the programs that we've put in place with those supplier partners who have recently invested with MSC and stepped-up programs.\nOur joint opportunity funnels are growing nicely along each of these dimensions and we are focused on converting those into new business.\nThe third lever, expanding our solutions footprint and that includes: vending, VMI, and our growing implant solutions program.\nWe're finding that bringing these solutions to our customers consistently produces higher growth, better retention rates, and stronger lifetime value.\nAs a result, we're increasing investments into each of them and we're raising our performance expectations.\nOur goal for implant solutions program sales is to double them over the next three years.\nOur fourth lever is digital.\nE-commerce has long been a strength of ours and represents roughly 60% of our sales today.\nHowever, standing still is not an option and so we're raising the bar on ourselves to produce a better experience for our customers.\nWe have hired a new leader, who is staffing a new team with deep digital expertise.\nTheir focus will be on our website and on other digital tools that bring us closer to our customers and build higher levels of loyalty and retention.\nThis will include a new product information system, a new search engine, a new user experience, and the new front-end transactional engine.\nThe fifth lever is diversified customer end markets.\nWhile the core of the business is selling into durable metal-cutting manufacturers, we're also focused on building scale in other areas that are countercyclical and that still leverage many of our strengths.\nGovernment is a good example of this.\nIt's no secret that we had some execution issues there a couple of years back.\nWe've worked hard to rebuild our team and our business, and we're seeing the payoff in the form of accelerated growth rates, which of course, have been aided by COVID relief.\nWe plan to continue building on this momentum.\nTowards that end, we'll be adding hunter roles that are specific just to government.\nI'll now turn to our second goal, as summarized on Slide 11, to deliver ROIC, return on invested capital, in the high teens within the next three years.\nThis would imply profit growth of at least the high single digits and it would also imply incremental margins in the high teens.\nAgain, all of this assumes that IP grows in the ranges that I mentioned earlier on.\nWe launched an operational cost and productivity initiative to deliver on this goal back in fiscal 2020.\nAs you've heard me mention, we expect this initiative to deliver about 200 basis points in cost down on an operating expense-to-sales ratio basis over the next three years.\nI'm going to now turn things over to Kristen, who will give you more details on the actions that will define our productivity runway.\nAs Erik mentioned, a significant part of the Mission Critical program is to reduce operating expenses as a percent of sales.\nThe cost takeout is going to come from an assortment of programs aligned to three separate tracks.\nSo the first is sales and service, the second is supply chain, and the third is general and administrative costs.\nErik covered some of the sales and service initiatives, so I'll elaborate a little bit more on supply chain and the G&A tracks.\nLet me first say that the productivity comes from a number of projects and we are tracking each of them closely, with several already announced or even executed.\nFor example, under supply chain, we recently announced that we will be closing one of our smaller distribution centers located in Dallas and moving the service to the remainder of our distribution network.\nWe are also stepping up our use of automation and robotics at several of our customer fulfillment centers for packaging.\nThis was started last year in Harrisburg and is now being expanded to Elkhart.\nThese moves will improve our productivity and allow associates to perform greater value-added services.\nWe have also renegotiated our freight contracts and will realize significant savings over the next three years.\nWhen it comes to G&A, in our fiscal fourth quarter, we completed a process redesign of our talent acquisition function, which resulted in outsourcing that function.\nThis is allowing us to find talent at a faster pace and reduced cost.\nAnother example is the voluntary retirement program we offered in our fourth quarter.\nThe take-up on the program was very good, as is evidenced by the significant headcount drop in our fiscal fourth quarter.\nWhile we will likely reinvest some of these cost savings over time into the five growth initiatives that Erik mentioned earlier, the program will still produce meaningful overall cost reduction.\nWe've also revised our travel policy such that a significant portion of the COVID-related temporary travel cost savings will become permanent.\nAnd finally, we're renegotiating indirect spend contracts, where we'll see an opportunity for further savings.\nStepping back from these examples, just kind of thinking about the overall operating expense dollars.\nIn fiscal '20, we reported operating expenses of $993 million.\nIn fiscal '21, the add-back of costs associated with the temporary cost reduction measures roughly offsets the reduction in variable costs from slightly lower sales.\nAs Erik mentioned, Mission Critical includes growth investment, and that will be in the range of about $15 million in our first year of the growth program which is 2021.\nThis will be more than offset by total structural Mission Critical savings in 2021 in the range of $25 million.\nAnd by the way, this is in addition to approximately $20 million of savings that we've already achieved in 2020.\nPutting all of this together means that we would expect operating expenses to be slightly down if sales are flat to slightly down in fiscal '21.\nNow let's dig into 2021 a little bit more to supplement what Erik mentioned earlier on the growth line.\nOn gross margin, we expect the full year to be flat to down 50 basis points year over year.\nAn operating margin framework is shown on Slide 13 for GAAP and 14 for adjusted figures.\nOperating margins will naturally vary based on the sales level.\nIf sales are down slightly on an adjusted basis, we would expect operating margin to be in the range of 11.2%, plus or minus 20 basis points.\nIf sales are flat, we would expect operating margin to be in the range of 11.4%, plus or minus 20 basis points.\nAnd finally, if sales are slightly up, we would expect operating margin to be in the range of 11.7%, plus or minus 20 basis points.\nOver the next three years, we are implementing a change equation that we believe will accelerate market share capture and improve profitability.\nOn the growth side of that equation, we're targeting growth rates of at least 400 basis points above market over the cycle by investing in the five growth levers I described earlier.\nOur investments will be funded by costs being taken out of the business and we're looking to grow profits faster than sales.\nThis will enable us to improve returns on invested capital into the high teens.\nAll of this is aligned with our ongoing work to reposition MSC from a spot-buy supplier to a mission-critical partner on the plant floor of our industrial customers.\nThe results will not come overnight, particularly, given that we're still dealing with the uncertainty being driven by COVID-19.\nHowever, you saw some early actions being taken in the fiscal fourth quarter and more is to come.\nAs we move into fiscal 2021, despite the uncertain environment, we're going to press ahead with urgency.\nThis is going to be a year of taking measurable action to change the course of this business over the long-term.\nIt will be a year of investment, investment that will be more than funded through cost savings.\n2021 is also going to be a year about recommitting to our values: doing the right thing, being humble, putting our customers first, embracing differences, being transparent, transforming, and most importantly, delivering results.",
        "summary": "compname reports q4 adjusted earnings per share $1.09.\nq4 adjusted earnings per share $1.09.\nq4 earnings per share $0.94.\nquarterly net sales of $747.7 million, decrease of 11.3% yoy."
    },
    {
        "text": "I'm excited to have Kirsten Lynch, our current chief marketing officer and incoming chief executive officer, joining Michael Barkin, our chief financial officer, and me on the call today.\nWe undertake no duty to update them as actual events unfold.\nToday's remarks also include certain non-GAAP financial measures.\nSo with that said, let's turn to our fiscal 2021 and fourth-quarter results.\nGiven the continued challenges associated with COVID-19, we are pleased with our operating results for the year.\nOur results highlighted our data-driven marketing capabilities, the value of our pass products, the resiliency of demand for the experiences we offer throughout our network of world-class resorts, and our disciplined cost control.\nResults continued to improve as the 2020-2021 North American ski season progressed, primarily as a result of stronger destination visitation at our Colorado and Utah resorts.\nExcluding Peak Resorts, total skier visitation at our U.S. destination mountain resorts and regional ski areas for fiscal 2021 was down only 6% compared to fiscal 2019.\nand the resort closing earlier than expected on March 30, 2021, following a provincial health order issued by the government of British Columbia.\nWhistler Blackcomb's total skier visitation for fiscal 2021 declined 51% compared to fiscal 2019.\nOur ancillary lines of business were more significantly and negatively impacted by COVID-19-related capacity constraints and limitations throughout the 2020-2021 North American ski season.\nWe generated a resort reported EBITDA margin of 28.5%, driven by our disciplined cost controls, as well as a higher proportion of lift revenue relative to ancillary lines of business, compared to prior periods.\nFor the fourth quarter, we are pleased with the strong demand across our North American summer operations, which exceeded our expectations, and we believe, highlights our guests' continued affinity for outdoor experiences.\nIn Australia, we experienced strong demand trends at the beginning of the 2021 Australian ski season.\nHowever, subsequent COVID-19-related stay-at-home orders and temporary resort closures negatively impacted financial results for the fourth quarter by approximately $8 million relative to our guidance expectations issued on June 7, 2021.\nFourth-quarter results were also negatively impacted relative to our June 7, 2021, guidance by a one-time $13.2 million charge for a contingent obligation with respect to certain litigation matters.\nI am pleased to be joining our earnings call today and look forward to speaking more regularly with our investors and analysts as we move toward the CEO transition on November 1.\nWe are pleased with the results of our season pass sales to date, which continue to demonstrate the strength of our data-driven marketing initiatives and the compelling value proposition of our pass products, driven in part by the 20% reduction in all pass prices for the upcoming season.\nPass product sales through September 17, 2021, to the upcoming 2021-2022 North American ski season increased approximately 42% in units and approximately 17% in sales dollars as compared to the period in the prior year through September 18, 2020, without deducting for the value of any redeemed credits provided to certain North American pass holders in the prior period.\nTo provide a comparison to the season pass results released in June, pass product sales through September 17, 2021, for the upcoming North American ski season increased approximately 67% in units and approximately 45% in sales dollars as compared to sales for the 2019-2020 North American ski season through September 20, 2019, with pass product sales adjusted to include Peak Resorts pass sales in both periods.\nPass product sales are adjusted to eliminate the impact of foreign currency by applying an exchange rate of 0.79 between the Canadian dollar and U.S. dollar in all periods for Whistler Blackcomb pass sales.\nWe saw strong unit growth from renewing pass holders and significantly stronger unit growth from new pass holders, which includes guests in our database who previously purchased lift tickets or passes, but did not buy a pass or a lift ticket in the previous season; as well as guests who are completely new to our database.\nOur strongest unit growth was from our destination markets, including the Northeast.\nAnd we also had very strong growth across our local markets.\nThe majority of our absolute unit growth came from our core Epic Pass and Epic Local Pass products.\nAnd we also saw even higher percentage growth from our Epic Day Pass products.\nCompared to the period ending September 18, 2020, effective pass price decreased 17% despite the 20% price reduction we implemented this year and the significant growth of our lower-priced Epic Day Pass products, which continue to represent an increasing portion of our total advanced commitment product sales.\nWe are very pleased with the performance of our pass product sales efforts to date, which exceeded our original expectations for the impact of the 20% price reduction, particularly in the growth of new pass holders and in trade-up, as we are seeing from pass holders, into higher-priced products.\nAs we enter the final period for pass product sales, we feel good about the current trends we are seeing.\nHowever, it is important to point out that we know a portion of the growth we have seen to date represents certain pass holders purchasing their pass earlier in the selling season than in the prior-year period.\nAnd we saw strong growth in the late fall in the prior-year period due to concerns about COVID-19, including questions about our resort access as a result of our reservation system.\nGiven these factors and the other changing economic and COVID-related dynamics, it is difficult to provide specific guidance on our final growth rates, which may decline from the rates we reported today.\nAs Rob mentioned, we're pleased with our results for fiscal-year 2021.\nAs a reminder, in the prior year, we announced the early closure of the 2019-2020 North American ski season for our ski areas, lodging properties, and retail and rental stores as a result of the COVID-19 pandemic beginning on March 15, 2020.\nThese actions had a significant adverse impact on our results of operations for fiscal-year 2020.\nAdditionally, the ongoing COVID-19 pandemic and the resulting limitations and restrictions on our operations continued to have an adverse impact on our results for fiscal-year 2021, including the early closure of Whistler Blackcomb on March 30, 2021, and stay-at-home orders and periodic resort closures impacting our ski areas in Australia.\nNet income attributable to Vail Resorts was $127.9 million or $3.13 per diluted share for fiscal-year 2021, compared to net income of $98.8 million or $2.42 per diluted share in the prior fiscal year.\nResort reported EBITDA was $544.7 million for fiscal-year 2021, an increase of $41.3 million compared to fiscal-year 2020.\nFiscal 2021 includes the impact from the deferral of $118 million of pass product revenue and related deferred costs from fiscal 2020 to fiscal 2021 as a result of the credits offered to 2020-2021 North American pass product holders, a one-time $13.2 million charge for a contingent obligation with respect to certain litigation matters and approximately $2 million of favorability from currency translation from Whistler Blackcomb, which the company calculated on a constant-currency basis by applying current period foreign exchange rates to prior period results.\nMoving now to our fiscal 2022 outlook.\nWe're encouraged by the robust demand from our guests, the strength of our advanced commitment product sales, and our continued focus on enhancing the guest experience while maintaining our cost discipline.\nOur guidance for net income attributable to Vail Resorts is estimated to be between $278 million and $349 million for fiscal 2022.\nAnd we estimate Resort reported EBITDA for fiscal 2022 will be between $785 million and $835 million.\nUsing the midpoint of the guidance range, we estimate Resort EBITDA margin for fiscal 2022 to be approximately 32.1%, which is negatively impacted as a result of COVID-19 impacts associated with Australia in the first quarter of fiscal 2022 and the anticipated slower recovery in international visitation and group and conference business.\nThe guidance assumes normal weather conditions, a continuation of the current economic environment, and no material impacts associated with COVID-19 for the 2021-2022 North American ski season or the 2022 Australian ski season other than an expected slower recovery for international visitation, which is expected to have a disproportionate impact at Whistler Blackcomb and group and conference business, which is expected to have a disproportionate impact in our Lodging segment.\nAt Whistler Blackcomb, we estimate the upcoming winter season will generate approximately $27 million lower Resort reported EBITDA relative to the comparable period in fiscal 2019, primarily driven by the anticipated reduction in international visitation.\nFiscal 2022 guidance includes an expectation that the first quarter of fiscal 2022 will generate a net loss attributable to Vail Resorts between $156 million and $136 million and Resort reported EBITDA between negative $118 million and negative $106 million.\nWe estimate the negative impacts of COVID-19 in Australia and the associated limitations and restrictions, including the current lockdowns, will have a negative Resort reported EBITDA impact of approximately $41 million in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2020.\nWe are providing guidance for the first quarter of fiscal 2022 as a result of these negative impacts of COVID-19 in Australia, and we do not intend to provide quarterly guidance on a go-forward basis.\nDespite the significant investment we made by increasing our minimum and entry wages this year and the headwinds that we expect to face from Australia, Whistler Blackcomb, and our group and conference business, we are expecting to drive margin expansion in fiscal 2022 through continued cost discipline, including significant cost savings that are a continuation of our focus on operating as efficiently as possible coming out of COVID-19.\nOur liquidity position remains strong, and we are confident in the free cash flow generation and stability of our business model.\nOur total cash and revolver availability as of July 31, 2021, was approximately $1.9 billion, with $1.2 billion of cash on hand, $418 million of revolver availability under the Vail Holdings Credit Agreement, and $195 million of revolver availability under the Whistler Blackcomb Credit Agreement.\nAs of July 31, 2021, our net debt was three times trailing 12 months total reported EBITDA.\nGiven our strong balance sheet and outlook, we are pleased to announce that the company plans to exit the temporary waiver period under the Vail Holdings Credit Agreement effective October 31, 2021, and declared a cash dividend of $0.88 per share payable in October 2021.\nThe dividend payment equates to 50% of pre-pandemic levels and reflects our continued confidence in the strong free cash flow generation and stability of our business model despite the ongoing risks associated with COVID-19.\nOur board of directors will continue to closely monitor the economic and public health outlook on a quarterly basis to assess the level of our quarterly dividend going forward.\nAs previously announced, we are on track to complete several signature investments in advance of the 2021-2022 North American ski season.\nIn Colorado, we are completing a 250-acre lift-served terrain expansion in the signature McCoy Park area of Beaver Creek, further differentiating the resort's high-end family focused experience.\nWe are also adding a new four-person lift at Breckenridge to serve the popular Peak 7, replacing the Peru lift at Keystone with a six-person high-speed chairlift and replacing the Peachtree lift at Crested Butte with a new three-person fixed-grip lift.\nAt Okemo, we are completing a transformational investment, including upgrading the Quantum lift to replace the Green Ridge three-person fixed-grip chairlift.\nIn addition to these investments that will greatly improve uphill capacity, we are continuing to invest in companywide technological enhancements, including investing in a number of upgrades to bring a best-in-class approach to how we service our guests through these channels.\nWe are encouraged by the outlook for our long-term growth and the financial stability we have created.\nThe success of our advanced commitment strategy, the expansion of our network, and our focus on creating an outstanding guest experience remain at the forefront of our efforts.\nToward that end, we are launching an ambitious capital investment plan for calendar year 2022 across our resorts to significantly increase lift capacity and enhance the guest experience as we drive increased loyalty from our guests and continuously improve the value proposition for our advanced commitment products.\nThese investments are also expected to drive strong financial returns for our shareholders.\nThe plan includes the installation of 19 new or replacement lifts across 14 of our resorts and a transformational expansion at Keystone, as well as an additional -- as well as additional projects that will be announced in December 2021 and March 2022.\nAll of the projects in the plan are subject to regulatory approvals.\nAt Keystone, we are planning a significant terrain expansion into Bergman Bowl, which will create an incremental 555 acres of lift-served terrain and provide a significant capacity increase to the resort with a new six-person high-speed lift.\nWe are also planning the renovation and expansion of the Outpost restaurant with an incremental 300 indoor seats and 75 outdoor seats.\nAt Vail, we plan to significantly upgrade the capacity and experience for guests in the legendary Back Bowls.\nWe plan to replace the existing four-person high-speed Game Creek Bowl lift with a new six-person high-speed lift.\nAnd we also plan to install a new four-person high-speed Sun Down Express lift.\nThese investments will provide guests with better circulation and an additional lift to move between the Back Bowls and the front side of the mountain with better access to the lines at base area.\nAt Whistler Blackcomb, we plan to meaningfully increase capacity and circulation from the Creekside base area by replacing the six-person Creekside Gondola with a new eight-person gondola and replacing the existing four-person high-speed lift with a new six-person high-speed lift.\nAt Park City, we plan to significantly enhance capacity at the Park City base area and improve mid-mountain capacity and circulation.\nWe plan to install our first eight-person high-speed lift, replacing the current six-person Silverlode lift.\nWe also plan to install a new six-person high-speed Eagle lift, replacing two existing lifts to significantly improve the guest experience from the Park City base area for beginners and for our ski school guests.\nAt Breckenridge, we plan to replace the existing three-person fixed-grip Rip's Ride lift with a new four-person high-speed lift.\nThis upgrade will improve the beginner and ski school experience at Peak 8 with increased out-of-base circulation capacity, along with easier loading and unloading.\nWe expect our capital plan for calendar year 2022 will be approximately $315 million to $325 million, excluding any real estate-related capital or reimbursable investments.\nThis is approximately $150 million above our typical annual capital plan based on inflation and previous additions for acquisition and includes approximately $20 million of incremental spending to complete the one-time capital plan associated with the Peak Resorts and Triple Peaks acquisition.\nGiven our recent financing and strong liquidity, the outlook for our business, driven by the growth of our advanced commitment strategy and the tax benefit in 2022 from additional accelerated depreciation on U.S. investments, we believe this is the right time for our company to make a significant investment in the guest experience at our resorts and expect this one-time increase in discretionary investments will drive an attractive return for our shareholders.\nWe also intend to return our capital spending to our typical long-term plan and our calendar year 2023 capital plan with the potential for reduced spending, given the number of projects we will complete in calendar year 2022.\nWe will be providing further detail on our capital plan in December 2021.\nWe are incredibly grateful for the collective efforts of the firefighters, first responders, community members, and our employees who worked tirelessly to protect our Tahoe resorts and surrounding communities.\nWe remain focused on the safety and wellbeing of our employees as we support the recovery effort of the greater Lake Tahoe area.\nThis will be my 63rd and final earnings call, and I could not be prouder about where the company stands today and how it's positioned for the future.\nThroughout my time as CEO, one of my top priorities has been to identify and prepare a CEO for the next chapter in the company's growth and success, and I'm fully confident that Kirsten is that person.\nAs Chief Marketing Officer for more than 10 years, Kirsten has been responsible for the transformation and success of Vail Resorts' data-driven marketing efforts and is a primary driver of the company's growth, stability, and value creation.\nKirsten is also an incredibly skillful leader and developer of talent and has had an amazing track record of building very strong teams.\nWith our company just having navigated the most challenging period in its history and coming out stronger than when it began, this is the right time for me to take a step back and play a different role at Vail Resorts and the right time for Kirsten to step into the CEO role to continue driving the strategy and growth of the company.\nI'm very excited to remain fully active and engaged in Vail Resorts' key strategic decisions and activities as Executive Chairperson.\nAnd I'm very proud that we are continuing to focus on our strategy of internal leadership development across all levels of the organization.\nI am fully confident in the depth of our entire management team, and I'm very excited for this next chapter in the company's success story.\nIt has been an honor to be a part of an incredible group of leaders across all levels and locations of our company.\nWhen I look across the company and see how much has changed and how much we have accomplished, it reminds me what an incredible journey it has been, a true experience of a lifetime.",
        "summary": "announced a $315 million to $325 million capital plan for calendar year 2022.\nsees q1 of fiscal 2022 net loss attributable to co between $156 million and $136 million.\nthere continues to be uncertainty regarding the ultimate impact of covid-19 on business results in fiscal year 2022.\nnet income attributable to vail resorts, inc. is estimated to be between $278 million and $349 million for fiscal 2022."
    },
    {
        "text": "I'm Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries.\nIf you've not yet received a copy of the release, you can access it on our website at www.\nMyersIndustries.com, it's under the Investor Relations tab.\nThese comments are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.\nSuch statements are based on management's current expectations and involve risks, uncertainties, and other factors, which may cause results to differ materially from those expressed or implied in these statements.\nFurther information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings.\nFirst, I want to say how proud I am of our employees, especially how they pulled together to deliver solid results during a challenging quarter while also staying safe.\nDue to the focus and dedication of our teams, we were able to deliver sales and operating results that were better than we had originally expected.\nAs we noted in today's release, our businesses performed well during the quarter.\nWe continue to meet our customers' needs, we delivered higher than anticipated sales despite challenges the complexities resulting from the COVID-19 crisis.\nSales in our consumer end market increased significantly year-over-year as a result of higher demand for our fuel containers.\nWe were also encouraged by the increase in demand that took place in our auto aftermarket sector, once stay at home restrictions were lifted and more vehicles returned to the road.\nOur businesses delivered gross margin expansion again this quarter.\nAdjusted gross profit margin increased to 36% in the second quarter of 2020 compared with 35% a year ago.\nThis was due to solid operational execution and favorable price-cost margin, which more than offset the lower sales volume during the quarter.\nAs a result, of the gross margin expansion and SG&A cost reductions, our operating margin was flat during the quarter despite the 12% decline in sales.\nWe're also pleased that we generated positive free cash flow of $3.7 million during the quarter.\nAs a result, our balance sheet remains strong and we continue to have significant liquidity to support our operations and our growth initiatives.\nOur entire team remains dedicated to staying safe while meeting our customers' needs and profitably growing our businesses.\nWe remain confident that our company has the financial strength, a high-quality product, and the right growth strategies to emerge as a stronger organization in the future, once this crisis subsides.\nMost importantly, our second-quarter performance-as our second quarter performance demonstrates we have an industry-leading team capable of generating strong results even in the most challenging of circumstances.\nNet sales for the second quarter were $118 million, a decrease of 12% compared with the second quarter of 2019.\nThe increases we saw from the fuel container sales in the consumer end market, and the Tuffy acquisition in the distribution segment were more than offset by sales decreases across the rest of our end markets.\nGross profit margin increased 100 basis points to 36%, this was primarily due to favorable price-cost margin and lower operating costs.\nOur adjusted operating income decreased 14% to $12.3 million for the quarter.\nThe adjusted operating income margin was flat despite the lower sales volume.\nThis was the result of the higher gross profit margin, as well as lower adjusted SG&A expenses year-over-year due primarily to lower variable compensation and cost reductions.\nAdjusted diluted earnings per share were $0.23 compared to $0.27 for the second quarter of 2019.\nIn the Material Handling segment, net sales decreased by 15.7%.\nAs anticipated the challenging business environment led to sales declines in the Food and Beverage, vehicle, and industrial end markets.\nThese declines more than offset large sales increase in the consumer end-market.\nHowever, the lower overall sales volume was partially offset by favorable price-cost margin, a positive sales mix, and lower operating costs.\nAs a result, the segment's adjusted operating income margin increased to 19.5% compared with 18.3% for the second quarter of last year.\nIn the Distribution segment, sales decreased 2.2% as the incremental sales from the August 2019 acquisition of Tuffy Manufacturing partially offset a decline in sales across the remainder of the segment.\nAs Mike mentioned earlier, demand in this end market improved throughout the quarter as stay at home restrictions were lifted, closures eased and more vehicles were on the road.\nConsequently, sales during the quarter were better than we had anticipated.\nDistribution's adjusted operating income decreased to $1.6 million for the second quarter of this year, compared with $3.3 million a year ago, primarily due to unfavorable sales mix.\nThis was the result of two factors.\nFirst, an unfavorable product mix due to higher sales of equipment versus consumables during the quarter.\nAnd second, an unfavorable mix of acquisition versus base sales volume.\nAs a result, the segment's adjusted operating income margin was 4.4% compared with 8.7% for the second quarter of 2019.\nTurning to slide six, I'll review our balance sheet and cash flow.\nFor the second quarter of 2020, we generated free cash flow of $3.7 million compared with $9.4 million last year.\nWorking capital as a percent of sales at the end of the second quarter was 9.9%, which was higher than in previous quarters.\nThe increase in working capital was primarily due to higher accounts receivable and inventory balances due to strong sales in June, and strategic investments in inventory to protect our supply chain during the crisis.\nWe expect working capital to return to normal levels by the end of the year.\nCash on the balance sheet at the end of the second quarter was $72 million and our debt to adjusted EBITDA ratio was 1.2 times, which is consistent with previous quarters.\nIt's important to note that this outlook is based on current and projected market conditions, and there is still a lot of uncertainty around these projections.\nFor the full year, we now anticipate a percentage sales decline in the mid to high single-digit range, which is a slight improvement from our previous expectation of an approximate 10% decline year-over-year.\nNow let's review our current outlook for each of the end markets.\nStarting with our consumer end market, the increase in demand during the second quarter was even greater than what than we had anticipated.\nAs a result, we now expect the sales increase in the mid-single digits for the year in this market compared with our previous outlook about low single-digit increase.\nIn our Food and Beverage end-market we continue to anticipate a mid-single-digit increase in revenue for the full year.\nBecause last year's demand for seedboxes was unfavorably impacted by a late spring season and customer consolidations.\nWe anticipate improved demand in the upcoming season which as a reminder, will occur in the fourth quarter of 2020 and first quarter of 2021.\nTurning to our vehicle end market while demand in the RV market has begun to improve, we do not anticipate that the second half improvement will be enough to offset the decline in sales that we experienced during the first half of the year.\nAdditionally, demand in the automotive end market continues to be soft, therefore, as a result of the anticipated full-year decline in both RV and automotive customer sales, we continue to expect vehicle end-market sales to be down double-digits for the full year 2020.\nIn our industrial end market, we continue to expect a soft demand environment in industrial manufacturing throughout the remainder of the year.\nAs a result, we have maintained our industrial end market outlook of our percentage to be pretty in the low teens for the full year.\nAnd finally, in our auto aftermarket, because demand begin improving more quickly than we had anticipated once stay at home restrictions were lifted, we are now forecasting sales to decline in the low single-digit range, compared with our previous outlook of our high single-digit decline.\nTurning to slide eight, you can see our guidance for 2020.\nAs I just discussed, we anticipate sales for the full year will be down mid to high single digits, which is a slight improvement over our previous forecast of an approximate 10% decline.\nWe continue to expect depreciation and amortization to be approximately $21 million, net interest expense to be $4 million, a diluted share count of approximately 36 million shares, and capital expenditures to be roughly $15 million.\nLastly, we anticipate an effective tax rate of 26%, which is slightly lower than our previous guidance of 27%.\nAnd before we take questions, I'd like to close with a few comments.\nIn the coming months, we'll have a sharp focus on delivering profitable growth and increasing shareholding value.\nIn our Material Handling segment, we intend to use a disciplined M&A process to acquire businesses that build on our technological strength in plastics manufacturing.\nIn addition to M&A, we aim to grow organically, building out our commercial, sales, and marketing capabilities.\nWe are strengthening our teams and our focus in these areas and expect to see positive results in the future.\nIn Distribution, we will continue to execute our transformation and continuous improvement initiatives.\nThese include winning new business, growing key accounts, enhancing and expanding our e-commerce platform, and optimizing our supply chain to lower costs, while improving service level.\nFocusing on our strategy and driving an execution mindset, we will continue to deliver solid results into the future.\nI'm excited to be on this journey and I believe our teams are well-positioned for growth.",
        "summary": "compname reports q2 adjusted earnings per share $0.23 from continuing operations.\nq2 adjusted earnings per share $0.23 from continuing operations.\nq2 gaap earnings per share $0.23 from continuing operations.\nprovides slightly improved 2020 revenue outlook.\nmyers industries - for full-year total revenue, now expects a percentage decline in mid-to-high single digits."
    },
    {
        "text": "I am Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries.\nIf you have not yet received cast on our website and will be archived along with the transcript of the call shortly after this event.\nThese comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.\nSuch statements are based on management's current expectations and involve risks, uncertainties and other factors which may cause results to differ materially from those expressed or implied in these statements.\nFurther information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings.\nI am pleased to share that we had another quarter of strong sales growth and continue to make good progress in advancing our long-term vision.\nThe second quarter was defined by continued recovery across our key end markets and strong operational execution in a challenging environment.\nOn top of that, earlier this week, we announced the acquisition of Trilogy Plastics, which marks our second acquisition in the last nine months and another proof point in the execution of Horizon one of our long-term strategy.\nThe acquisition of Trilogy continue to grow our rotational molding platform, and we have included a slide in the appendix of our slide deck today with more background for you.\nI will review Trilogy and provide some additional updates on our strategy in my closing remarks.\nContinued strong demand across our Material Handling and Distribution segments drove a 58% year-over-year growth in sales, and we delivered a second consecutive quarter of year-over-year revenue growth in excess of 20% on an organic basis, with all end markets supplying solid growth.\nDemand from our customers is strong and looks to continue.\nWe have the leading market share of high-quality, well-regarded products, and we have seen that the demand for these products is durable and lasting, even in a pandemic.\nI am pleased with our niche market focus and approach.\nIt provides us a solid foundation on which to build and grow Myers.\nDespite our exciting long-term vision, however, we have had some short-term headwinds, increasing raw material prices and other inflationary pressures continued throughout this quarter.\nAnd in some cases, were more than we anticipated.\nWhile we expect them to be temporary in nature, the short-term raw material issues around supply and cost escalations have been unprecedented.\nWe have taken swift action, announcing and implementing price increases in March and April and again in July.\nUnfortunately, our finished good prices were not able to keep up with the pace of cost increases, and we experienced margin compression during the quarter.\nAs we have said before, we are committed to restoring and expanding our margins across the enterprise.\nThis is one of the key objectives of the self-help component of Horizon 1.\nLike many companies, we are also seeing tightness in the labor market.\nAnd while we are working to mitigate the impact, labor cost increases and scarcity have been a headwind in 2021 that will likely persist in the near-term.\nOver the coming months, we remain diligent in monitoring and adjusting our actions to mitigate the impact of inflation.\nWe are working to ensure we strike a fair, long-term mindset with our customers, doing our best to ensure they have supply, while ensuring our products are priced appropriately for the value they provide.\nOur self-help efforts are delivering results, and were headed in the right direction strategically and operationally.\nWe are transforming Myers and are successfully executing against our long-term vision and strategy.\nLet us begin with a review of our second quarter financial results on slide four.\nNet sales were up $69 million, an increase of 58%.\nExcluding the impact of the Elkhart acquisition, organic net sales increased 26% due primarily to higher volume mix.\nFavorable price contributed 5% and FX 1%.\nSales increased in both our Material Handling and Distribution segments in all key end markets.\nAdjusted gross profit was up $12.5 million, while gross margin decreased from 36% in the prior year to 29.4% in the quarter.\nMargin was negatively impacted by higher raw material costs, primarily resin, which continued to increase sequentially during the quarter.\nThese costs were not fully offset by higher prices, which led to an unfavorable price to cost relationship.\nAdjusted operating income increased $2.80 million to $15.1 million.\nThe increase in gross profit was mostly offset by higher SG&A expenses, driven by the addition of Elkhart, higher salaries and incentive compensation costs and higher legal fees.\nAdjusted EBITDA was $20.5 million, an increase of $2.4 million compared to the prior year, and adjusted EBITDA margin was 10.9%.\nAnd lastly, adjusted earnings per share was $0.29, an increase of $0.06 or 26% compared to the prior year.\nTurning now to slide five for an overview of segment performance.\nBeginning with material handling, net sales increased $56 million or 70%, including the Elkhart acquisition.\nOn an organic basis, material handling net sales increased 24% due to strong volume mix.\nWe gained an additional 6% due to favorable price and 2% in FX.\nMaterial handling adjusted operating income increased approximately 8% to $17 million, driven by higher volume mix and the addition of Elkhart, which were partially offset by an unfavorable price to cost relationship due to escalating raw material costs and higher SG&A expenses.\nThe increase in SG&A expenses was primarily due to the addition of Elkhart, higher salaries and incentive compensation costs, increased travel cost and legal fees.\nIn the Distribution segment, sales increased $12.6 million or 34%, driven by both equipment and consumable sales.\nDistribution's adjusted operating income more than doubled from the prior year to $4.2 million.\nThe growth was driven by higher volume mix that was partially offset by higher incentive compensation costs.\nTurning to slide six.\nFree cash flow was $11.7 million in the quarter, an increase of $8.1 million over the prior year, driven by higher cash from comps.\nOn a year-to-date basis, free cash flow was $13.1 million.\nCash on hand at quarter end was $13.5 million.\nOur balance sheet remains strong.\nAt the end of the second quarter, leverage was one times.\nOur capital structure continues to provide the flexibility needed to execute our growth strategy.\nAnd on July 30, we utilized our revolving credit facility to finance the Trilogy acquisition.\nTurning to slide seven.\nBefore providing an update on guidance, let me take a moment to discuss the ongoing macroeconomic environment.\nAs Mike mentioned, and similar to many other industrial manufacturers, we are facing what we believe are temporary disruptions in the supply chain, which have led to unprecedented increases in raw material costs this year.\nWe have continued to take pricing actions to mitigate these significant increases.\nBut due to a lag in price realization, we have not been able to keep up with the pace of cost increases.\nAs a result, we expect to remain in an unfavorable price to cost position for the third quarter.\nWe believe many factors, including additional supplier capacity should result in resin costs moderating and potentially easing as we continue through the year.\nAs such, we expect our price to cost relationship to turn favorable in the fourth quarter.\nLet me now provide an update on our outlook for fiscal 2021, which includes expected results of the Trilogy acquisition completed on July 30.\nReported net sales are anticipated to increase in the mid-40% range.\nOur previous sales guidance was in the high 30% range.\nNote that a little more than half of the expected increase over the prior year is due to the impact of both the Elkhart and Trilogy acquisitions.\nElkhart's annual net sales at the time of acquisition were approximately $100 million.\nAnd Trilogy's annual net sales are roughly $35 million.\nWe are reaffirming our 2021 outlook for adjusted earnings per share of $0.90 to $1.05 per share.\nOur guidance reflects a weighted average share count of 36.5 million shares.\nAnd also note that Trilogy is expected to be slightly accretive to earnings per share in the current fiscal year.\nOther key modeling assumptions include depreciation and amortization expenses of approximately $23 million and capex of approximately $15 million to $18 million.\ncapex is expected to trend higher than past years with our renewed focus on investing in our facilities and improving our capacity, along with the addition of Elkhart and Trilogy.\nInterest expense is forecasted to be between four and $4.5 million, and the effective tax rate is forecasted to be 26%.\nIn closing, while the short-term is being pressured by significant inflationary headwinds, our long-term fundamentals are intact.\nWe continue to manage cost increases through pricing actions, while balancing the potential impact on volume.\nOur teams are working extremely hard in this dynamic environment, and we appreciate all of their efforts.\nI introduced our long-term road map in October of last year.\nIn a short period of time, we have made meaningful progress against the current phase of this road map Horizon one and our transformation of Myers is well underway.\nWe have a shareholder focused, value-creating vision for our company.\nI believe we have the right team in place with the right strategic plan and the right focus on execution to make it a reality.\nWe are off to a strong start, and we continue to execute against our goal of transforming our Material Handling segment into a high-growth business that's a true innovator of engineered plastic solutions, while we also continue to grow and optimize our Distribution segment.\nHorizon one of our strategy is rooted in the execution of three areas: number one, self-help initiatives, which includes improvements in purchasing, value-based pricing and SG&A optimization.\nnumber two, organic growth fueled by sales and commercial excellence, and one important component of which is to build out our e-commerce channel.\nAnd number three, bolt-on M&A to build out our existing businesses.\nContinued execution across these three elements will propel us into Horizon two, where we plan to use our cash flow and knowledge gained from Horizon one to pursue enterprise level M&A in North America.\nThe focus on Horizon three will be to pursue enterprise level M&A on a global scale.\nThis vision and roadmap is supported by our four strategic pillars outlined in slide nine.\nBecause I have described each pillar in detail on previous calls, I will move to slide 10 and give an update on the recent progress we have made with respect to each.\nOn the organic growth front, we continue to make headway in implementing our improved commercial structure that standardizes and strengthens our focus in sales, marketing and product management.\nWe are installing a world-class commercial organization at Myers.\nAnd while this will take some time, we are moving the needle with new additions and new training.\nExamples of our areas of focus include improving our capability and processes and account planning and account management and demand planning and in optimizing how we run our supply chain and planning processes.\nAdditionally, through critical investments in talent and infrastructure, including the summit we held last quarter, we have fortified a stand-alone e-commerce organization, and we are seeing good traction with that group.\nOn Pillar two, as it relates to M&A, we are very pleased to have closed our second bolt-on acquisition to supplement our plastics business.\nTrilogy Plastics is well aligned with our strategic objectives and culture and has an exemplary track record of providing high-quality products to its customers with superior service and on-time delivery.\nWe are targeting approximately $1 million of annual cost synergies, which we expect to realize by the end of 2022.\nMost of this will be through supply chain cost reductions.\nThis is on top of the $4 million to $6 million of cost synergies we expect from Elkhart.\nIn addition to these cost synergies, we are seeing growth opportunities and synergies with Elkhart, and we expect the same from Trilogy.\nAs expected, and as part of our Horizon one approach, as we pursue more acquisitions our organization is learning.\nWe are fine-tuning our playbook and our capabilities to identify and complete deals as well as to integrate and obtain synergies.\nThis plan and approach are working.\nWe are gaining capability and speed as we move forward.\nTrilogy was an important step in our journey, and we continue to seek opportunities to acquire complementary businesses, and we currently have numerous actionable targets in our pipeline.\nMoving on to operational excellence.\nThis pillar has been integral to our growth over recent quarters.\nIn the midst of global supply chain issues, our newly centralized procurement team has done a good job sourcing the necessary raw materials to meet most of our customers' needs.\nThe last several months have been a challenge on raw material cost and availability.\nJeff Baker and his team in procurement and supply chain have done a nice job on both issues.\nOver the past months, we positioned Myers as a value-added solutions provider.\nWe have made thoughtful decisions on price and supply to ensure we create long-term goodwill and value for our customers as well as all of our stakeholders.\nAs you may have seen, Myers recently unveiled its new brand identity logo website.\nWe consider this new visual identity to be much more than aesthetic change, but rather strategic choice to reflect our One Myers vision and reinforce our key values of integrity, optimism, customer focus and a can-do attitude.\nWe are changing signs, business cards, the website, name badges, all to a single one team mindset.\nWe are no longer a collection of smaller brands, we are coming together as one company.\nWe have more critical mass, more capability to serve our customers and our employees.\nWith that, I will turn to our fourth pillar, which is our high-performance culture.\nIn order to execute and achieve breakthrough performance, we need to have a high performing culture.\nTo that end, we recently launched our new Learning Management System, which is comprised of live and online classes to help drive growth, improvement and continuity in our employee base.\nWe see that this -- we see that LMS will help us win the war on talent.\nOur employees see that we are investing in them, in their careers and in their development.\nWe want our employees to grow here at Myers.\nWe are creating a culture of employee success within the company.\nThis includes the type of training and employee development programs in career and succession planning typically found at larger world class companies.\nWe seek to replicate that here.\nOur people are and will be a key competitive advantage.\nWe are serving our customers in this very fast-paced economic environment, while managing quality and service.\nOur long-term strategy is gaining considerable momentum.\nIt is producing tangible results that we believe will create significant long-term value for our customers, our employees, our communities and our shareholders.",
        "summary": "q2 adjusted earnings per share $0.29.\nmyers industries -sees 2021 net sales growth in mid 40% range, with about half due to elkhart and trilogy acquisitions.\nsees fy 2021 adjusted earnings per share $0.90 to $1.05."
    },
    {
        "text": "Joining me on the call today are Mike Hayford, president and CEO; Owen Sullivan, COO; and Tim Oliver, CFO.\nI will begin with some of my views on the business, including an update on the Cardtronics transaction and the LibertyX acquisition we announced yesterday.\nTim will then review our financial performance and an outlook into the second half of 2021.\nLet's begin on Slide 4 with some highlights from the second quarter.\nNCR delivered strong performance that included accelerated revenue growth, significant margin expansion and strong cash flow production.\nThe team drove solid execution across all segments and we are continuing to build momentum in our NCR-as-a-Service strategy.\nIn the second quarter, we delivered 13% total revenue growth.\nThis includes 11% growth for NCR stand-alone and an incremental 2% growth for the 10 days following the close of the Cardtronics transaction.\nNCR stand-alone recurring revenue growth grew 11% over second quarter of 2020.\nAdjusted EBITDA increased 40%, while adjusted EBITDA margin expanded 330 basis points to 16.8%.\nWe delivered strong free cash flow.\nWe generated $142 million of free cash flow in the quarter.\nThis is the fifth consecutive quarter of positive free cash flow.\nAnd finally, we closed the Cardtronics transaction and announced a definitive agreement to acquire LibertyX, a leading cryptocurrency software provider.\nThe combination of NCR, Cardtronics and LibertyX will accelerate our digital-first strategy and enable NCR to offer a digital currency solution to our customers.\nNow moving to Slide 5.\nI want to provide an update on the Cardtronics transaction.\nAlthough the transaction closed on June 21, it is still as we expected under U.K. antitrust regulatory review.\nWhile under review, we are required to operate independently.\nAnd although integration activities have been planned, execution of these integration activities will not start until we have received CMA approval.\nWe remain very excited about the transaction as the addition of Cardtronics will accelerate our NCR-as-a-Service strategy and is expected to be accretive to non-GAAP earnings per share for the first full year by 20% to 25%.\nIt will enhance our scale and cash flow generation while advancing our 80/60/20 strategic target by roughly two years.\nWe believe the combination of NCR and Cardtronics will drive significant value for our customers and our shareholders.\nIn the second quarter, Cardtronics contributed $32 million of revenue and $8 million of adjusted EBITDA to NCR results for the 10 days following the close of the transaction.\nTim will provide more color on Cardtronics performance during his remarks.\nNow moving to Slide 6.\nThe second-quarter execution was strong, both tactically and strategically as we executed on our financial objectives while continuing our strategic progress toward NCR-as-a-Service.\nAs we enter the second half of the year, we have strong momentum across all segments.\nIn banking, our digital banking platform signed eight new deals in the second quarter, including a long-term agreement with TruMark Financial, a leader in the credit union industry with $2.7 billion in assets.\nWe also had success cross-selling new products to existing clients, including digital business banking and online digital account opening.\nWith digital account opening, which we obtained through the acquisition of Terafina in the first quarter, NCR can now onboard a broad array of accounts across multiple channels.\nDuring the second quarter, Terafina signed the largest deal in its history and also won the 2021 Javelin Research Award for best-in-class business account opening.\nIn retail, we continue to gain traction with our NCR Emerald offering, which is our next-gen cloud-based retail point-of-sale solution.\nWe have positive momentum in winning upgrade imperative for retail POS software.\nWe recently signed a new NCR Emerald deal with a top five U.S. grocer.\nThis is our largest Emerald deal to date and includes POS software, self-checkout, NCR Commerce platform API module for pharmacy and the NCP API module for fuel.\nDuring the quarter, we signed 13 contracts where our digital-first retail front-end app, Freshop, which we also acquired in the first quarter of this year.\nIn self-checkout, we are also seeing continued adoption of our market-leading solutions.\nWe are experiencing demand across customers and geographies driven by labor shortages, wage pressures and changing consumer preferences.\nIn hospitality, the momentum of Aloha Essentials, which bundles software, services, hardware and payments into a single offering, continued in the second quarter.\nThis model is proving itself in our ability to attract new customers and better service existing customers.\nDuring the second quarter, we increased the number of restaurant payment processing sites by 50% from the first quarter.\nOur strategy to run the restaurants saw a significant win with Firehouse Subs recently entering into a five-year contract for NCR support Firehouse Subs across 1,100 locations with subscription-based point-of-sale software, consumer marketing software and end-to-end managed services.\nAs we focus on executing our NCR-as-a-Service strategy and drive business transformation, we will strive to become an even more efficient steward of our resources.\nWe continue to focus on taking care of our customers and advancing our product capabilities with investments in our strategic growth platforms.\nIn addition, we will continue tuck-in acquisitions like LibertyX, Terafina and Freshop, which strengthened our digital engagement with creating better consumer experiences for our clients.\nWith that, let me pass it over to Tim.\nAs Mike mentioned, our second-quarter results are reflective of strong operational execution, accompanied by significant strategic progress.\nWe closed the Cardtronics transaction on June 21.\nWe In the 10 days that followed, Cardtronics contributed $32 million of revenue and $8 million of adjusted EBITDA that is included in our Banking segment.\nWhile our financial results will only include those 10 days for context, where Cardtronics have reported a stand-alone second quarter on their historical basis, they would have described a very successful quarter with approximately 26% revenue growth and 77% EBITDA growth year over year.\nThey would have reported gross margin of more than 40% and record EBITDA margins of 28%.\nMy first slide is Slide 7, which presents a top level overview of our second-quarter financial performance.\nSo starting in the top left.\nConsolidated revenue was $1.68 billion, up $193 million or 13% versus the 2020 second quarter, driven by very strong growth in both our retail and Hospitality segments and more modest growth in Banking.\nOur software and services businesses grew in the high single digits, while hardware paced by SCO and POS grew faster than that for the quarter.\nRevenue was up $133 million or 9% sequentially.\nOn an NCR stand-alone basis, revenue increased 11% year over year and 7% sequentially.\nImportantly, our strategy to shift to recurring revenue streams again accelerated.\nRecurring revenue was up 11%, calculated on a stand-alone basis, and comprised 55% of our revenue in the quarter.\nIn the top right, adjusted EBITDA increased $80 million or 40% year over year to $281 million, including $8 million from Cardtronics.\nAdjusted EBITDA margin rate expanded 330 basis points to 16.8%.\nThis improvement is a direct result of the more than $150 million in recurring cost savings executed at the end of 2020.\nDirect cost productivity from cost reductions and volume leverage together allowed us to more than offset significant cost inflation related to materials, labor and freight, all caused by the strained global supply chain.\nReductions in indirect costs were more than sufficient to offset the dramatic short-term actions that we launched in the depths of the pandemic-induced uncertainty in the year-ago quarter.\nSimilar to the discussion on revenue, we are driving improved linearity in profitability.\nAdjusted EBITDA was up 9% sequentially and adjusted EBITDA margin expanded 10 basis points.\nIn the bottom left, non-GAAP earnings per share was $0.62, up $0.35 or 130% from the prior-year second quarter.\nNCR's stand-alone non-GAAP earnings per share was $0.02 higher at $0.64.\nThe tax rate of 26.6% is in line with our full-year guidance of 26%.\nAnd finally, and maybe most importantly, we delivered another strong quarter of free cash flow with generation of $142 million adjusted for the effects of the closing process.\nThis compares to $160 million in the second quarter of 2020, which benefited from the cash preservation actions we put in place at the beginning of the pandemic and an insurance payment from the Nashville tornado last year.\nConsistent with our goal to drive modest sequential improvement and more linear free cash flow production, our free cash flow was up from $93 million in the first quarter of '21.\nAnd free cash flow during the first six months of 2021 is up more than 60% over 2020 results.\nMoving to Slide 8 for our Banking segment results, which includes 10 days of Cardtronics operations.\nBanking revenue increased $46 million or 6% year over year, with Cardtronics comprising $32 million or 4% of that increase.\nOn a stand-alone basis, software and services revenues both increased in the high single-digit percentages to more than offset the decline in ATM hardware revenue.\nWe continue to successfully replace our one-time revenue that was traditionally recognized with the sale of ATM hardware with more durable, predictable and valuable software and services revenue streams.\nSubscription total contract value signed in this segment more than doubled from the prior year with significant increases in both annual value and duration.\nBanking adjusted EBITDA increased $21 million or 16% year over year with Cardtronics adding $8 million.\nAdjusted EBITDA margin rate expanded by 170 basis points to 18.7%.\nOn a sequential basis, revenue was up 7%, while adjusted EBITDA decreased 2%, and the adjusted EBITDA margin rate declined 170 basis points against the extremely strong Q1.\nThe sequential decline was driven by a less favorable mix of hardware, by geography and by customer, as well as escalating supply chain costs.\nThe bottom of the slide shows our key metrics for the Banking segment.\nOn the left, while current-quarter wins have a typical lag to conversion and eventual revenue generation, prior-period wins at Digital Banking drove an 8% year-over-year growth rate in the second quarter.\nThe rate of growth in Digital Banking has accelerated in the last several quarters.\nWe expect Digital Banking to generate roughly 8% revenue growth in the second half of 2021 and to exit the year at double-digit revenue growth rates as we lap most of the attrition caused by the 2019 customer losses.\nDigital Banking registered users increased 11% compared to Q2 of 2020, and we are seeing commensurate growth in recurring revenue, which increased 12% year over year and 4% sequentially.\nMoving to Slide 9, which shows our retail segment results.\nRetail revenue increased $93 million or 19% year over year, driven by strong self-checkout and point-of-sale solutions revenue.\nRetail adjusted EBITDA increased $43 million or 88% year over year, while adjusted EBITDA margin rate expanded by 590 basis points to 16%.\nThe second-quarter performance demonstrates the power of double-digit revenue, growth accompanied by cost absorption and control.\nIncremental EBITDA conversion was $0.46 on every dollar.\nLower on the page, we depicted the three key metrics for retail.\nSelf-checkout revenue increased 42% year over year to $273 million, with particular strength in hardware due to a customer request to accelerate an order that would otherwise have been delivered in Q3.\nFor the full year, we expect low double-digit growth for SCO with revenue split almost evenly between hardware and the accompanying software and services.\nPlatform lanes increased 63% compared to the prior-year second quarter, and we expect this rate of growth to continue to accelerate in the second half.\nAnd importantly, recurring revenue in this business increased 14% versus the second quarter of last year.\nSlide 10 shows our Hospitality segment results, which is participating fully in the recovery of the restaurant industry.\nHospitality revenue increased $55 million or 34% as restaurants reopen, rework existing locations and expand.\nOur signed subscription total contract value in this business tripled from the year-ago second quarter.\nOur sales pipeline is getting stronger, and we continue to hire to increase our feet on the street and catalyze growth.\nSecond-quarter adjusted EBITDA increased $30 million, double from the second quarter of last year.\nWhile adjusted EBITDA margin rate expanded by 460 basis points to 14%, this improved profitability was driven by higher revenue and lower operating expenses.\nHospitality's key metrics on the bottom of this slide include Aloha Essentials sites and recurring revenue.\nAloha Essentials sites grew 88% when compared to the prior-year second quarter and grew 18% sequentially.\nWe expect this rate of growth to also accelerate in the second half of the year.\nIn the graph at the bottom right, recurring revenue increased 7% from last year and 5% sequentially.\nTurning to Slide 11.\nWe provide our second-quarter results for 80/60/20 strategic targets.\nNote that this is the last time we will present these metrics as NCR stand-alone as next quarter, we will reflect our combined results, including Cardtronics.\nFirst, we strive to generate 80% of our revenue from software and services or less than 20% of our revenue from discrete hardware sales.\nIn the second quarter, software and services represented 69% of our revenue, which is a modest decrease from the 72% in the year ago driven by SCO and POS hardware revenue this year.\nThe pandemic-induced spending pause in 2020 was particularly severe in hardware, and similarly, the recovery is heavy in pent-up demand for that same hardware.\nWe aim for 60% of our revenues to be recurring to drive more resilient, more predictable and more valuable revenue.\nRecurring revenue represented 55% of total revenue this quarter, flat compared to last year's second quarter.\nOur recurring revenue streams outpaced growth during the pandemic, and the growth rates are now converging as hardware spending returns.\nAnd we aspire to a 20% adjusted EBITDA margin rate.\nWe made significant progress in this metric with an adjusted EBITDA margin of 16.6%, compared to 13.5% in the second quarter of 2020.\nOn Slide 12, we present free cash flow, net debt and adjusted EBITDA metrics to facilitate leverage calculations.\nWe continued the trend of strong, more linear free cash flow.\nWe generated total free cash flow of $142 million, including 10 days from Cardtronics and excluding the items associated with the closing of that transaction.\nFrom a working capital perspective, versus Q2 of 2020, all categories of inventory were down in aggregate 11%, with days on hand down 11 days.\nNCR stand-alone receivables were down 5%, with an eight-point improvement in those longer than 90 days, and days sales outstanding improved by 11 full days to 65 days.\nThis slide also shows our net debt to adjusted EBITDA metric with a pro forma leverage ratio of 4.2 times.\nWe are pleased to report that our pro forma leverage is well below the 4.5 we estimated when we announced the Cardtronics transaction due to higher-than-forecasted cash generation by both companies.\nWe ended the second quarter with $449 million of cash and remain well within our debt covenants, which include a maximum pro forma leverage ratio of 5.5 times.\nWe have significant liquidity with over $1 billion available under our revolving credit facility.\nAnd my last slide is Slide 13, which provides an outlook for the second half of '21 for both NCR stand-alone and Cardtronics, and then I combine them.\nRemember that both NCR and Cardtronics suspended guidance during the pandemic.\nWhile Cardtronics is currently operating separately and independently from NCR, pending the completion of the merger review by the U.K. Competition and Markets Authority, we have received sufficient information from them to provide an outlook for Cardtronics.\nFor revenue, we expect NCR stand-alone of $3.43 billion to $3.48 billion, representing 6.5% to 7.5% year-over-year growth.\nThis growth rate is negatively impacted by about a point and a half due to the elimination of revenue for sales from NCR to Cardtronics.\nCardtronics operations are expected to generate revenue of about $600 million, representing approximately 8% year-over-year growth for them.\nTotal company revenue then is expected to be $4 billion to $4.1 billion, including intercompany eliminations.\nFor adjusted EBITDA margin, we expect NCR stand-alone rate of approximately 16%, slightly below the rate we demonstrated from our very hot start to the first half, anticipating higher second-half supply chain costs.\nAnd we expect Cardtronics rate of approximately 28%, very similar to their historically high Q2 level.\nTotal company adjusted EBITDA is then expected to be between $700 million and $750 million.\nFor EPS, we expect a range of $1.30 to $1.50, which includes the immediate accretion for Cardtronics of more than 10%.\nThat accretion will increase to our targeted 20% to 25% within the first full year of the combination.\nWe expect strong free cash flow generation in the range of $325 million to $375 million.\nThis performance should allow us to reduce leverage more quickly than our plan at the time of the acquisition.\nTo calculate this guidance, we have assumed a few things.\nFirst, OIE of approximately $150 million, a tax rate of 26%, and a share count of 148 million shares.\nThis share count is higher due to the conversion of shares owned by Cardtronics employees.\nThe recently announced LibertyX transaction could put a little more upward pressure on share count.\nBoth of these uses of equity will align and retain key employees in these two very important strategic acquisitions.\nI do want to highlight some assumptions as outlook around some obvious risk factors.\nFirst, we've assumed that we will continue to prioritize customer delivery and revenue growth over temporal cost increases from supply chain challenges in materials, labor and freight.\nWhile we absorbed about $20 million of premium costs in the first half, we were able to meet customer commitments or even accelerate delivery on request.\nWe expect $40 million of further escalation in these same costs in the second half as we continue to maintain availability and meet customer needs.\nWe are hopeful that further productivity efforts, strong vendor relationships and price increases can help offset some of the impact to both profit and cash flow.\nSecond, it's not lost on any of you that there remains uncertainty regarding the pace of the global post-pandemic recovery.\nEach new cycle brings more discussion of regional challenges, vaccination efficacy and uptake and consumer disposition.\nWe are assuming that the current state of play in the U.S. remains as is and that other key markets like Canada and the U.K. begin to reopen as is currently scheduled.\nBy this time next quarter, we expect to be more articulate on the combined entity, have a more integrated outlook and have more to say about the progress of the integration effort and its synergy execution.\nNow turning to Slide 14.\nI want to provide an update on the definitive agreement to acquire LibertyX, which is a software-based cryptocurrency solution.\nThis is a unique opportunity that will enable NCR to provide a complete digital currency solution, including the ability to buy and sell cryptocurrency, conduct cross-border remittance and accept digital currency payments across digital and physical channels.\nLibertyX has one of the largest deployment footprint through partnerships with ATM operators like Cardtronics at physical locations including convenience stores, pharmacies and supermarkets.\nOur key markets are very complementary and will help both companies grow.\nThis acquisition continues our strategy to digitally engage with consumers and provide retailers and banks additional solutions for their customers to pay, transact and remit.\nNow turning to Slide 15.\nLooking forward, our key priorities are clear.\nFirst, we are eager to capitalize on the opportunities that Cardtronics brings us.\nWe are excited to leverage Cardtronics to accelerate ATM as a Service, broaden our retail business and increase our payment offerings.\nSecond, we will expand our solution portfolio to include a complete cryptocurrency offering.\nOur digital currency platform will allow consumers to buy and sell cryptocurrency across digital and physical channels.\nIncreasingly, retailers are looking for a broader set of financial transaction capabilities, which we are uniquely positioned to deliver on financial kiosks and ATMs. Third, we will continue to allocate capital to the highest growth and return opportunities with the goal of driving free cash flow and increasing returns for our shareholders.\nFourth, we will continue to focus on customer satisfaction initiatives.\nSince I arrived at NCR three years ago, we have been keenly focused on improving customer satisfaction with the simple belief that happy customers will buy more.\nWe strive to garner a larger share of wallet with the mission to help our customers run the store, run the restaurant and run self-directed banking.\nOur focus is paying dividends as our Net Promoter Score saw significant improvement last year and we continue to strive for further improvements.\nAnd lastly, I'd like to extend an invitation to each of you to participate in our Investor Day, which is scheduled for December 9, 2021.\nWe are looking forward to the event and intend to take a deep dive into our strategy and update on our strategic goals.\nAnd operator, please open the line.",
        "summary": "q2 non-gaap earnings per share $0.62.\ncompname says in second half of 2021, expects revenue to be $4.0 billion to $4.1 billion.\ncompname says in second half of 2021, expects non-gaap earnings per share of $1.30 to $1.50."
    },
    {
        "text": "As a reminder, Gulf Power legally merged into Florida Power & Light Company effective on January 1, 2021.\nGulf Power will continue as a separate reporting segment within Florida Power & Light and NextEra Energy through 2021, serving its existing customers under separate retail rates.\nNextEra Energy delivered strong second quarter results and is well positioned to meet its overall objectives for the year.\nAdjusted earnings per share increased more than 9% year-over-year, reflecting continued strong financial and operational performance across all of the businesses.\nFPL increased earnings per share by $0.04 year-over-year, driven by continued investments in the business.\nFPL's major capital initiatives remain on track and FPL's focus continues to be on identifying smart capital investments to lower costs, improve reliability and provide clean energy solutions for the benefit of our customers.\nIn June, FPL demolished its last coal-fired plant in Florida, with plans to replace it with more clean emissions-free solar energy facilities.\nDuring the quarter, FPL also successfully commissioned approximately 373 megawatts of new solar, including the FPL Discovery Solar Energy Center at Kennedy Space Center.\nWith these new additions, FPL surpassed 40% completion of its groundbreaking 30x30 plan to install 30 million solar panels by 2030.\nFPL expects to have installed more than 15 million panels by early 2022, which would put the company more than 50% on the way toward completing a 30x30 plan and just over three years since the initial announcement.\nTo support its solar build-out, FPO recently began installing the first components of the world's largest integrated solar-powered battery system, the 409-megawatt FPL Manatee Energy Storage Center, which is expected to begin serving customers later this year.\nGulf Power also continued to execute on its growth initiatives during the quarter with its strong financial performance driven primarily by continued investment in the business and further improvements in operational cost effectiveness.\nExcluding the COVID-19-related expenses, which were subsequently reversed and booked into a regulatory asset in the third quarter of 2020, Gulf Power's year-to-date O&M costs declined by approximately 9% versus the prior year comparable period and have now declined by approximately 31% relative to 2018.\nGulf Power's operational performance metrics also continued to improve, with the reliability of the generation fleet that we operate and service reliability, improving by 71% and 63%, respectively, year-to-date versus the first half of 2018.\nWe continue to expect that the cost reduction initiatives and smart capital investments that we've previously outlined will generate significant customer and shareholder value in the coming years.\nAt Energy Resources, adjusted earnings per share increased by more than 7% year-over-year.\nThe Energy Resources team continues to capitalize on the terrific market opportunity for low-cost renewables and storage, adding approximately 1,840 megawatts to its backlog since the last earnings call.\nThis continued origination success is a testament to Energy Resources' significant competitive advantages, including our large pipeline of sites and interconnection queue positions, strong customer relationships, purchasing power and supply chain execution, best-in-class construction expertise, resource assessment capabilities, cost of capital advantages and world-class operations capability.\nMoreover, Energy Resources, advanced data analytics and machine learning capabilities allow us to utilize the nearly 40 billion operating data points, our fleet provides every single day for predictive modeling, further extending our best-in-class O&M and development capabilities.\nWe continue to believe that no company is better positioned than Energy Resources to capitalize on the best renewables development period in our history.\nWe are pleased with the progress we've made at NextEra Energy so far in 2021 and headed into the second half of the year, we are well positioned to achieve the full year financial expectations that we've previously discussed, subject to our usual caveats.\nNow let's look at the detailed results beginning with FPL.\nFor the second quarter of 2021, FPL reported net income of $819 million or $0.42 per share, which is an increase of $70 million and $0.04 per share, respectively, year-over-year.\nRegulatory capital employed increased by approximately 10.7% over the same quarter last year and was the principal driver of FPL's net income growth of more than 9%.\nFPL's capital expenditures were approximately $1.6 billion in the second quarter, and we expect our full year capital investments to total between $6.6 billion and $6.8 billion.\nOur reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended June 2021.\nDuring the quarter, we utilized $100 million of reserve amortization to achieve our target regulatory ROE, leaving FPL with a balance of $473 million.\nAs a reminder, rather than seek recovery from customers of the approximately $240 million in Hurricane Dorian storm restoration costs, in 2019, FPL utilized its available reserve amortization to offset nearly all of the expense associated with the write-off of the regulatory asset related to Dorian cost recovery.\nEarlier in the year, FPL and Office of Public Counsel entered into a settlement regarding the prudence of FPL's Hurricane Dorian storm restoration costs and activities, which was approved by the Florida Public Service Commission in May.\nWe are pleased by the commission's determination that all of FPL's Hurricane Dorian restoration costs were prudently incurred and we believe the settlement agreement fairly and reasonably balances the interest of FPL and its customers.\nEarlier this month, FPL responded to Tropical Storm Elsa with a restoration workforce of approximately 7,000 FPL employees and contractors.\nFPL safely and quickly restored power to nearly 100,000 customers who were impacted by Elsa as the hardening and automation investments that FPL has made since 2006 to build a stronger, smarter and more storm-resilient energy grid continued to benefit customers.\nElsa was the earliest that a fifth named storm has formed in the Atlantic Basin, and we remain prepared in advance of what is forecasted to be another active hurricane season in 2021.\nLet me now turn to Gulf Power, which reported second quarter 2021 net income of $63 million or $0.03 per share.\nDuring the quarter, Gulf Power's capital expenditures were approximately $150 million and we expect its full year capital investments to be between $800 million and $900 million.\nAll of the major capital -- the Gulf Power capital projects, including the North Florida Resiliency Connection that is expected to be in service in mid-2022, continue to progress well.\nAnd Gulf Power's regulatory capital employed grew by approximately 17% year-over-year as a result of these smart capital investments for the benefit of customers.\nGulf Power's reported ROE for regulatory purposes will be approximately 10.3% for the 12 months ended June 2021.\nFor the full year 2021, we continue to target a regulatory ROE in the upper half of the allowed band of 9.25% to 11.25%.\nEarlier this month, Florida Public Service Commission also approved a settlement agreement between Gulf Power and the Office of Public Counsel for cost recovery of the approximately $13 million in COVID-19-related expenses, primarily reflected in incremental bad debt and safety expenses as a result of the pandemic.\nWe are pleased with this outcome and believe it demonstrates the continued constructive regulatory environment in the state of Florida as we work to improve Gulf Power's value proposition of low cost, high reliability, excellent customer service and clean energy for our customers.\nAs we anticipated, Florida's economic activity has rebounded since the onset of the COVID-19 pandemic last year as reflected by a wide range of positive economic indicators.\nFlorida's current unemployment rate is 5%, which remains well below the national average.\nRolling three-month average of new building permits are up approximately 46% year-over-year, which is the highest growth rate in nearly eight years and are the second highest new building permits in the nation.\nAs another indicator of health in Florida's economy, Florida's retail sales index was up over 40% versus the prior year.\nThe Case-Shiller seasonally adjusted index for South Florida home prices is up over 14% on an annual basis.\nRecent population growth estimates indicate that Florida remains one of the top destinations for relocating Americans, with Florida adding nearly 330,000 new residents between April of 2020 and April of 2021.\nWe expect this trend to continue with Florida's population projected to grow at an average annual rate of 1% through 2023; and FPL, including Gulf Power, forecasts adding almost 500,000 new customer accounts from 2018 through 2025.\nDuring the quarter, FPL's average number of customers increased by approximately 70,400 from the comparable prior year quarter driven by continued solid underlying population growth.\nFPL's second quarter retail sales increased 0.1% from the prior year comparable period.\nPartially offsetting customer growth was a decline in weather-related usage per customer of approximately 2.8%.\nOn a weather-normalized basis, second quarter sales increased 2.9%, with continued strong underlying usage contributing favorably.\nFor Gulf Power, the average number of customers grew roughly 1.5% versus the comparable prior year quarter.\nAnd Gulf Power's second quarter retail sales decreased 1% year-over-year as strong customer growth was more than offset by an unfavorable weather comparison relative to 2020.\nAs we previously stated, on March 12, we initiated Florida Power & Light's 2021 base rate proceeding.\nThe four-year base rate plan we have proposed has been designed to support continued investments in clean energy generation, long-term infrastructure and advanced technology, which improves reliability and keeps -- helps to keep customer bills low.\nToday, FPL's typical residential bills remain well below the national average and the lowest among the top-20 investor-owned utilities in the nation.\nWith the proposed base rate adjustments and current projections for fuel and other costs, FPL's typical residential bill is expected to be approximately 20% below the projected national average and typical Gulf Power residential bills are projected to decrease approximately 1% over the four-year rate plan.\nAs always, we are open to the possibility of resolving our rate request through our care settlement agreement and our core focus remains on pursuing a fair and objective review of our case that supports continued execution of our successful strategy for customers.\nEnergy Resources reported second quarter 2021 GAAP losses of $315 million or $0.16 per share.\nAdjusted earnings for the second quarter were $574 million or $0.29 per share.\nEnergy Resources adjusted earnings per share in the second quarter increased more than 7% versus the prior year comparable period.\nThe effect of mark-to-market on nonqualifying hedges, which is excluded from adjusted earnings, was the primary driver of the difference between Energy Resources second quarter GAAP and adjusted earnings results.\nContributions from new investments added $0.04 per share versus the prior year and primarily reflects growth in our contracted renewables and battery storage program.\nAdjusted earnings per share contributions from existing generation and storage assets increased $0.01 year-over-year, which includes the impact of unfavorable wind resource during the second quarter.\nAnd NextEra Energy transmissions adjusted earnings per share contribution also increased $0.01 year-over-year.\nOur customer supply and trading business contribution was $0.03 lower year-over-year, primarily due to unfavorable market conditions.\nAll other impacts decreased results by $0.01 per share versus 2020.\nThe Energy Resources development team continues to capitalize on what we believe is the best renewables development environment in our history during the second quarter, with the team adding approximately 1,840 megawatts of renewables and storage projects to our backlog.\nSince our last earnings call, we've added approximately 285 megawatts of new wind and wind repowering, 1,450 megawatts of solar and 105 megawatts of battery storage to our backlog of signed contracts.\nWith nearly 3.5 years remaining before the end of 2024, we have already signed more than 75% of the megawatts needed to realize the low end of our 2021 to 2024 development expectations range.\nSince the last call, we have also executed a 310-megawatt build-owned transfer agreement, which is not included in our backlog additions.\nOur customer intends to use the solar plus storage project to replace existing coal generation and we are excited to be able to continue supporting the industry's transition away from old and efficient forms of generation into clean, reliable and low-cost renewables and storage.\nOur engineering and construction team continues to perform exceptionally well, commissioning approximately 330 megawatts during the quarter and keeping the backlog of wind, solar and storage projects that we expect to build in 2021 and 2022 on-track.\nWe are well positioned to complete our more than $20 billion capital investment program at Energy Resources for 2021 and 2022.\nLast month, the IRS extended safe harbor eligibility on production tax credits and investment tax credits, providing projects that began construction between 2016 and 2019 with six years to complete construction and projects that started construction in 2020 with five years to achieve their in-service dates and qualify for federal tax credits.\nWe believe the extension reflects the strong support of the Biden administration for new renewables and may enable an incremental 1 to 1.5 gigawatts of new wind and wind repowering opportunities.\nWe now have more than $2.2 billion of safe harbor wind and solar equipment, which could support as much as $45 billion of wind, solar and battery storage investments across all of our businesses from 2021 to 2024.\nTurning now to the consolidated results for NextEra Energy.\nFor the second quarter of 2021, GAAP net income attributable to NextEra Energy was $256 million or $0.13 per share.\nNextEra Energy's 2021 second quarter adjusted earnings and adjusted earnings per share were $1.4 billion and $0.71 per share, respectively.\nAdjusted earnings from Corporate and Other segment were roughly flat year-over-year.\nOver the past few months, NextEra Energy issued nearly $3.3 billion in new financings under its innovative new NextEra Green bond structure.\nFunds raised with NextEra Energy -- NextEra Green bonds are designated for specific renewable energy and store projects under development across our businesses.\nAnd if funds are not used to bring the renewable projects online within two years, there is a step-up in the interest rate on the debt.\nOur inaugural NextEra Green issuance was 4.5 times oversubscribed, priced at a premium to the market and was well received by investors.\nWe believe that NextEra Green will set a new standard for green issuances moving forward.\nNextEra Energy has raised more than $9 billion in new capital year-to-date on very favorable terms as we continue to execute on our financing plan for the year.\nFinally, in June, S&P affirmed all of its ratings for NextEra Energy and lowered its downgrade threshold for its funds from operation or FFO to debt metric from the previous level of 21% to the new level of 20%.\nWe believe this favorable adjustment reflects the strength of our business as well as recognition of NextEra Energy's leading position in the utility and renewable energy sectors on environmental, social and governance, or ESG factors.\nI believe that this is the first time that S&P has formally recognized the benefits to business risk profile related to ESG factors by allowing more constructive financial metrics since it began its practice of identifying the specific ESG metrics that drive a company's overall credit position.\nNotably, S&P also revised NextEra Energy's management and governance assessment from \"Satisfactory\" to \"Strong\", to reflect its views on our comprehensive enterprisewide risk management standards and successful track record of consistently implementing our strategic planning efforts.\nOur long-term financial expectations through 2023 remain unchanged.\nFor 2021, NextEra Energy expects adjusted earnings per share to be in a range of $2.40 to $2.54.\nFor 2022 and 2023, NextEra Energy expects to grow 6% to 8% off of the expected 2021 adjusted earnings per share.\nAnd we will be disappointed if we are not able to deliver financial results at or near the top end of these ranges in 2021, 2022 and 2023, while at the same time, maintaining our strong credit ratings.\nFrom 2018 to 2023, we continue to expect that operating cash flow will grow roughly in line with our adjusted earnings per share compound annual growth rate range.\nWe also continue to expect to grow our dividends per share at roughly 10% rate per year through at least 2022 off of a 2020 base.\nAs always, our expectations assume normal weather and operating conditions.\nLet me now turn to NextEra Energy Partners.\nNextEra Energy Partners portfolio performed well and delivered financial results generally in line with our expectations after accounting for the below-average renewable resource.\nOn a year-to-date basis, adjusted EBITDA and cash available for distribution have increased by roughly 9% and 11%, respectively, versus 2020.\nThis strong operational and financial performance highlights that NextEra Energy partners remains well positioned to continue to deliver on its outstanding growth objectives.\nYesterday, the NextEra Energy Partners Board declared a quarterly distribution of $0.6625 per common unit or $2.65 per common unit on an annualized basis, up approximately 15% from a year earlier.\nInclusive of this increase, NextEra Energy Partners has now grown its distribution per unit by more than 250% since the IPO.\nFurther building on that strength, today, we are announcing that NextEra Energy Partners has entered into an agreement to acquire approximately 590 net megawatts of geographically diverse wind and solar projects from NextEra Energy Resources.\nI will provide additional details on the transaction in a few minutes.\nNextEra Energy Partners also completed multiple financings during the second quarter to secure funding for its recently announced 2021 acquisitions and further enhance its financing flexibility.\nIn June, NextEra Energy Partners raised approximately $500 million in new 0% coupon convertible notes and concurrently entered into a capped call structure.\nIt is expected to result in NextEra Energy Partners retaining the upside from up to 50% appreciation in its unit price over the three years associated with the convertible notes.\nNextEra Energy Partners also drew the remaining funds from its 2020 convertible equity portfolio financing, which was upsized by approximately $150 million during the quarter, evidencing continued investor demand for exposure to the high-quality, long-term contracted renewables projects and the underlying portfolio of assets that was established last year.\nFinally, NextEra Energy Partners has successfully completed the sale of approximately 700,000 NEP common units year-to-date through its recently expired at the market or ATM program, raising roughly $50 million in proceeds.\nGoing forward, we will continue to seek opportunities to use the ATM program depending on market conditions and other considerations.\nAnd in the near term, NextEra Energy Partners intends to renew the program for up to $300 million in issuances and over the next three years to permit additional financing flexibility.\nAs a result of these financings and the strong cash flow generation of its existing portfolio, NextEra Energy Partners ended the quarter with more than $2.2 billion in liquidity, which includes funds raised in the second quarter financing activities and existing partnership debt capacity to support its ongoing growth initiatives, including the acquisition of the approximately 590 net megawatts of renewables from Energy Resources as well as previously announced acquisition of approximately 400 megawatts of operating wind projects, both of which are expected to close later this year.\nLet me now review the detailed results for NextEra Energy Partners.\nSecond quarter adjusted EBITDA of $350 million was roughly flat versus the prior year comparable quarter, driven by favorable contributions from the approximately 500 megawatts of new wind and solar projects acquired in 2020.\nWeaker wind and solar resource in the second quarter, which reduced this quarter's adjusted EBITDA contribution from existing projects by roughly $22 million was partially offset by positive contributions to adjusted EBITDA from last year's repowerings and the Texas pipelines.\nWind resource for the quarter was 93% of the long-term average versus 100% in the second quarter of 2020.\nCash available for distribution of $151 million for the second quarter was also reduced for existing projects due to the distributions for the convertible equity portfolio financing entered into late last year.\nAs a reminder, this convertible equity portfolio financing recapitalize NextEra Energy Partners existing Genesis Solar project and other assets and the proceeds were used to fund last year's acquisition from Energy Resources.\nAdditional details of our second quarter results are shown on the accompanying slide.\nWe remain on-track for the strong full year growth consistent with our long-term growth objectives of 12% to 15% distribution per unit growth through at least 2024.\nAs I previously mentioned, we continue to execute on our plan to expand NextEra Energy Partners portfolio with an agreement to acquire assets in a diverse portfolio of long-term contracted wind and solar projects from Energy Resources.\nThe portfolio consists of approximately 830 megawatts of renewables, of which NextEra Energy Partners will be acquiring an approximately 590-megawatt net interest.\nNextEra Energy Partners interest in the portfolio will consist of approximately 510 megawatts of the universal scale wind and solar projects and approximately 80 megawatts of distributed solar projects, which is NextEra Energy Partners first acquisition of distributed generation assets.\nThe portfolio to be acquired by NextEra Energy Partners has a cash available for distribution, weighted average contract life of approximately 17 years and a counterparty credit rating of Baa1 at Moody's and BBB+ at S&P.\nEnergy Resources currently owns the country's largest portfolio of distributed generation assets with commercial and industrial customers and expects to triple its capital investment in distributed generation from 2020 through 2024.\nNextEra Energy Partners expects to benefit from this expansion over the coming years through future acquisitions from Energy Resources.\nNextEra Energy Partners expects to acquire the portfolio for a total consideration of $563 million, subject to working capital and other adjustments.\nNextEra Energy Partners share of the portfolio's debt and tax equity financing is estimated to be approximately $270 million at the time of closing.\nThe acquisition is expected to contribute adjusted EBITDA of approximately $90 million to $100 million and cash available for distribution of approximately $41 million to $49 million, each on a five-year average annual run rate basis beginning on December 31, 2021.\nThe purchase price for the transaction is expected to be funded with existing liquidity and the transaction is expected to close prior to year-end and be immediately accretive to LP distributions.\nNextEra Energy Partners continues to expect to be in the upper end of our previously disclosed year-end 2021 run rate adjusted EBITDA and CAFD expectation ranges of $1.44 billion to $1.62 billion, and $600 million to $680 million, respectively.\nAs a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR fees as we treat these as an operating expense.\nFrom the base of our fourth quarter 2020 distribution per common unit at an annualized rate of $2.46, we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024.\nWe expect the annualized rate of the fourth quarter 2021 distribution that is payable in February of 2022 to be in the range of $2.76 to $2.83 per common unit.\nIn summary, we remain as enthusiastic as ever about the long-term growth prospects both NextEra Energy and NextEra Energy Partners.\nAt NextEra Energy, we were honored to be named on Time Magazine's first-ever list of top-100 most influential companies, which highlights businesses making an extraordinary impact around the world.\nWe are proud to be leading the clean energy transformation in our sector and remain focused on executing upon the opportunities presented by the significant growth in wind, solar and various forms of energy storage in the U.S. over the coming decades.\nAt FPL, including Gulf Power, that means continuing to deliver on our best-in-class customer value proposition of low bills, high reliability and clean energy solutions.\nAt Energy Resources, our competitive advantages position us well to capture a meaningful share of the significant and expanding market for renewables.\nAnd at NextEra Energy Partners with its continued access to low-cost capital and accretive acquisition opportunities is well positioned as ever to take advantage of the clean energy transformation reshaping the energy industry.",
        "summary": "compname says second-quarter adjusted earnings were $0.71 per share.\nreported 2021 second-quarter net income attributable to nextera energy on a gaap basis of $0.13 per share.\non an adjusted basis, nextera energy's 2021 second-quarter earnings were $0.71 per share.\nfor 2021, nextera energy expects adjusted earnings per share to be in the range of $2.40 to $2.54."
    },
    {
        "text": "As a reminder, Gulf Power legally merged into Florida Power & Light Company effective on January 1, 2021.\nGulf Power will continue as a separate reportable segment within Florida Power & Light and NextEra Energy through 2021, serving its existing customers under separate retail rates.\nNextEra Energy delivered strong third quarter results with adjusted earnings per share increasing by approximately 12% year-over-year.\nBoth the principal businesses executed well on major initiatives and we continue to advance our opportunity set for new renewables and storage.\nBuilding upon the solid progress made in the first half of the year, NextEra Energy is well positioned to meet its overall objectives for 2021 and beyond.\nEarlier this month, we were honored to be named on Fortune's 2021 Change the World list, the only electric utility in the world to be recognized.\nThis recognition is a testament to NextEra Energy's best-in-class position in the renewable energy sector and our continued commitment to the customers and communities that we serve.\nAt FPL, net income increased approximately 10% versus the prior-year comparable period, reflecting contributions from continued investment in the business.\nMost notably, during the quarter, we reached what we believe is a fair and constructive long-term settlement agreement with a number of intervenors in our rate case, continuing a long history of negotiated outcomes that benefit both customers and shareholders.\nWe believe the agreement, if approved, should enable us to continue to focus on operating the business efficiently while investing in the future to ensure resilience, reliability, affordability and clean energy for generations to come in Florida.\nWe expect the Florida Public Service Commission to vote on our agreement at its agenda conference on October 26, and I'll provide more details on the proposed agreement in a few minutes.\nFPL's major capital initiatives continue to progress well, including what will be the world's largest integrated solar power battery system, the 409-megawatt FPL Manatee Energy Storage Center that is now 75% complete and on track to begin serving customers later this year.\nGulf Power also had a great quarter of execution, and its strong year-to-date financial performance is attributable to continued successful implementation of the cost reduction initiatives and smart capital investments that we previously outlined.\nGulf Power's year-to-date net income contribution increased approximately 14% versus the prior-year comparable period.\nAnd we remain focused on improving Gulf Power value proposition by providing lower costs, higher reliability, outstanding customer service and clean energy solutions for the benefit of our customers.\nAt Energy Resources, adjusted earnings for the quarter increased by approximately 12% year-over-year.\nOur development team had another terrific quarter of new renewables and storage origination, adding approximately 2,160 megawatt to our backlog since the last earnings call, marking the best quarter of overall origination and the best quarter of new wind additions in Energy Resources' history.\nThese backlog additions include approximately 225 megawatts of combined solar and storage projects and a 500 megawatt wind project that is intended to power an adjacent new green hydrogen facility, which I'll provide some additional details on in just a few minutes.\nWe continue to expect that our competitive advantages will drive meaningful growth in renewables and various forms of energy storage at Energy Resources in the coming years, as the trend toward broad decarbonization across many facets of the US economy takes hold.\nOverall, with three strong quarters complete in 2021, we are pleased with the progress we are making at NextEra Energy, and we are well positioned to achieve the full-year financial expectations that we have previously discussed subject to our usual caveats.\nNow, let's look at the detailed results, beginning with FPL.\nFor the third quarter of 2021, FPL reported net income of $836 million or $0.42 per share, which is an increase of $79 million and $0.04 per share, respectively year-over-year.\nRegulatory capital employed increased by approximately 10.5% over the same quarter last year and was the principal driver of FPL's year-over-year net income growth of approximately 10%.\nFPL's capital expenditures were approximately $1.5 billion in the third quarter and we expect its full-year capital investments to total between $6.6 billion and $6.8 billion.\nOur reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended September 2021.\nDuring the quarter, we restored $124 million of reserve amortization, leaving FPL with a balance of $597 million.\nAs you know, much of the East Coast of the US was recently impacted by Hurricane Ida, which made landfall on the Gulf Coast as a Category 4 hurricane and also caused catastrophic flooding across the Northeastern US.\nOur deepest sympathies are with those that have been impacted by Ida's widespread destruction.\nWe value deeply the industry's commitment to mutual assistance and we were fortunate to be in a position to assist other utilities this year.\nAs part of our assistance efforts, we sent more than 1,250 of our employees and contractors as well as transmission equipment and other supplies to help rebuild the grid to support the restoration efforts of the impacted utilities.\nLet me now turn to Gulf Power, which reported third quarter 2021 net income of $91 million or $0.05 per share.\nGulf Power's third quarter earnings per share contribution was flat versus the prior-year comparable quarter.\nAs a reminder, the third quarter of 2020 benefited from the reversal of COVID-19 related expenses that had occurred earlier in that year.\nDuring the quarter, Gulf Power's regulatory capital employed grew by approximately 13% year-over-year.\nGulf Power's capital expenditures were approximately $200 million during the third quarter and we expect its full-year capital investments to be roughly $800 million.\nFor the full year 2021, we continue to expect Gulf Power's regulatory ROE to be in the upper half of the allowed band of 9.25% to 11.25%.\nAll of our major capital initiatives at Gulf Power are progressing well.\nGulf Power anticipates bringing approximately 150 megawatts of cost effective zero emission solar capacity online within the next six months.\nThe North Florida Resiliency Connection, which among other things, will allow customers to benefit from greater diversity in solar output across the two different time zones, is expected to be in service in mid-2022.\nThese continued smart capital investments in renewables and core infrastructure are expected to drive customer benefits for many years to come.\nDuring the quarter, Gulf Power was impacted by Tropical Storm Fred, which experienced an unexpected change in path before striking the service territory.\nThrough a restoration workforce of roughly 1,700 personnel, Gulf Power was able to restore its service to essentially all of the approximately 20,000 customers impacted by Fred in Northwest Florida in less than 24 hours.\nMoreover, the average customer outage was restored in less than 2 hours.\nOur culture of preparation, including our annual storm drills and the team's focused execution helped ensure an efficient, timely and safe response to the tropical storm.\nThe economy in Florida continues to grow at a healthy pace and remains among the strongest in the nation.\nFlorida's labor force participation rate has recovered to its highest level in nearly 18 months reflecting the ongoing recovery, following the onset of the COVID-19 pandemic last year.\nThe real estate sector in Florida also continues to grow with a three-month average new housing starts up over 40% year-over-year.\nIn August alone, there are -- there were twice as many new housing starts in Florida than in the average over the last 10 years.\nFlorida building permits, a leading indicator of residential new service accounts, are up 47% year-over-year and have outpaced the nation's quarterly growth by 32%.\nAs another indicator of Florida's economic health, Florida's retail sales index is up nearly 60% versus the prior year.\nDuring the quarter, FPL's average number of customers increased by approximately 77,500 or 1.5% from the comparable year prior quarter driven by continued solid underlying population growth.\nFPL's third quarter retail sales decreased 1.4% from the prior-year comparable period.\nA decline in weather related usage per customer of approximately 2.7% offset the benefits of customer growth.\nOn a weather-normalized basis, third quarter sales increased 1.3% with continued strong underlying usage contributing favorably.\nFor Gulf Power, the average number of customers grew 1.6% versus the comparable prior-year quarter.\nAnd Gulf Power's third quarter retail sales increased 0.6% year-over-year with strong usage from increased customer growth contributing favorably.\nAs a reminder, on March 12th, we initiated Florida Power & Light's 2021 base rate proceeding for rate relief beginning in January of 2022.\nAfter months of negotiation, we reached a proposed settlement agreement in early August with a number of intervenors in the proceeding.\nThe Office of Public Counsel, The Florida Retail Federation, The Florida Industrial Power Users Group, The Southern Alliance for Clean Energy, Vote Solar, The CLEO Institute and The Federal Executive Agencies all joined the agreement, reflecting a broad set of constituents across our customer base.\nThe four-year proposed agreement, which begins on January 2022 provides for retail base revenue adjustments as shown on the accompanying slide and allowed regulatory return on equity of 10.6% with a range of 9.7% to 11.7%, and no change to FPL's equity ratio from investor sources for the combined system.\nShould the average 30-year US Treasury yields be 2.49% or greater over any consecutive six-month period during the term of the agreement, Florida Power & Light's allowed regulatory ROE would increase to 10.8% with a range of 9.8% to 11.8%.\nAdditionally, if federal or state permanent corporate income tax changes become effective during the term of the proposed agreement, Florida Power & Light would be able to prospectively adjust base rates after review of the impacts on base revenue requirements.\nThe proposed agreement also includes flexibility over the four-year term to amortize up to $1.45 billion of depreciation reserve surplus.\nConsistent with the rate plan filed in March, the proposed settlement agreement would unify the rates and tariffs of FPL and Gulf Power by implementing a five-year transition rider and credit mechanism to address the initial differences in cost of serving the existing FPL and Gulf Power customers.\nAdditionally, the proposed settlement agreement also provides for Solar Base Rate Adjustments or SoBRA, upon reaching commercial operations of up to 894 megawatts annually of new solar generation in each of 2024 and 2025, subject to a cost cap of $1,250 per kilowatt and showing an overall cost effectiveness for FPL's customers.\nFPL would also be authorized to expand its SolarTogether voluntary community solar program by constructing an additional 1,788 megawatts of solar generation through 2025, which would more than double the size of our current SolarTogether program and is expected to save our customers millions of dollars over the lifetime of the assets.\nIn addition to solar energy, the settlement agreement would support FPL's green hydrogen pilot project in Okeechobee County.\nThis innovative technology could one day unlock 100% carbon-free electricity that's available 24 hours a day.\nThe proposed settlement agreement also introduces several electric vehicle programs and pilots designed to accelerate the growth of electric vehicle adoption and charging infrastructure investment across Florida with a total capital investment of more than $200 million.\nUnder the proposed agreement, FPL would continue to recover prudently incurred storm costs consistent with the framework in the current settlement agreement.\nFuture storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that could produce a surcharge of no more than $4 for every 1,000 kilowatt hour of usage on residential bills in the first 12 months of cost recovery.\nAny additional costs would be eligible for recovery in subsequent years.\nIf storm restoration costs were to exceed $800 million in any given calendar year, FPL could request an increase to the $4 surcharge.\nWe believe the proposed settlement is fair, balanced and constructive and supports our continued ability to provide highly reliable, low cost service for our customers through the end of the decade.\nFPL's typical resident bill is lower today than it was 15 years ago and is well below the national average.\nThe proposed agreement would keep typical residential bills well below the national average and among the lowest in Florida through 2025.\nLet me now turn to Energy Resources, which reported third quarter 2021 GAAP losses of $428 million or $0.22 per share.\nAdjusted earnings for the third quarter were $619 million or $0.31 per share, which is an increase of $68 million and $0.03 per share, respectively year-over-year.\nThe effect of mark-to-market on non-qualifying hedges, which is excluded from adjusted earnings, was the primary driver of the difference between Energy Resources' third quarter GAAP and adjusted earnings results.\nContributions from new investments added $0.03 per share relative to the prior year comparable quarter, primarily reflecting continued growth in our contracted renewables and battery storage program.\nThe contribution from existing generation assets increased $0.01 per share year-over-year.\nOur customer supply and trading business contribution was $0.02 higher year-over-year due to favorable market conditions in our retail supply and power marketing businesses.\nAll other impacts decreased results by $0.03 per share versus 2020, driven primarily by miscellaneous tax items.\nAs I mentioned earlier, Energy Resources' development team had a record quarter of origination success, adding approximately 2,160 megawatts to our backlog.\nSince our last earnings call, we have added approximately 1,240 megawatts of new wind projects, 515 megawatts of new solar projects and 345 megawatts of new storage assets to our renewables and storage backlog.\nIn addition, our backlog increased by Energy Resources' share of NextEra Energy Partners' planned acquisition of an approximately 100 megawatt operating wind project that the partnership is announcing today.\nThrough the three -- first three quarters of 2021, we have added more than 5,700 megawatts to our renewables and storage backlog.\nEnergy Resources' backlog of signed contracts now stands at approximately 18,100 megawatts.\nAt this early stage, we have made terrific progress toward our long-term development expectations with more than 7,600 megawatts of projects already in our post 2022 backlog.\nOur backlog additions for the third quarter include a 500 megawatt wind project, the majority of which is contracted with a hydrogen fuel cell company.\nThe project's customer intends to construct a nearby hydrogen electrolyzer facility that will use the wind energy production to supply up to 100% of the facility's load requirements.\nThe hydrogen manufactured by the facility would enable commercial and industrial end users to replace their current gray hydrogen and fossil fuel purchases with emissions-free green hydrogen, further accelerating the decarbonization of the industrial and transportation sectors.\nEnergy Resources also add nearly 300 megawatts of battery storage projects in California, and we continue to experience significant demand from California based utilities and commercial and industrial customers for reliable energy storage solutions.\nWe are currently developing nearly 2,400 megawatts of additional co-located and stand-alone battery storage projects in California with the potential to be deployed in 2023 and 2024, to enhance reliability and help meet the state's energy storage capacity requirements and ambitious clean energy goals.\nMore than 30 years, we have been investing in clean energy in California and are proud to help the state lead the country to a carbon-free sustainable future.\nConsistent with our focus on growing our rate regulated and long-term contracted business operations, during the third quarter, Energy Resources entered into an agreement to acquire a portfolio of rate regulated water and wastewater utility assets in eight counties near Houston, Texas.\nThe proposed acquisition expands our regulated utility business in an attractive market with significant expected customer growth and furthers our strategy to build a world class water utility in the coming years.\nSubject to regulatory approvals, the acquisition is expected to close in 2022.\nEnergy Resources is also currently in construction on an innovative water reuse and reclamation project that would help our customer achieve significant savings on its water supply needs and make its operations more efficient and sustainable while at the same time, delivering attractive returns to Energy Resources.\nWhile the roughly $45 million total equity investment for these transactions is small in context of our overall capital program, we are optimistic about the strong growth anticipated in this new market and the potential for clean water solutions to generate additional contracted renewables opportunities going forward.\nTurning now to the consolidated results for NextEra Energy.\nFor the third quarter of 2021, GAAP net income attributable to NextEra Energy was $447 million or $0.23 per share.\nNextEra Energy's 2021 third quarter adjusted earnings and adjusted earnings per share were $1.48 billion and $0.75 per share, respectively.\nAdjusted results from corporate and other segment increased by $0.01 year-over-year.\nOur long-term financial expectations through 2023 remain unchanged.\nFor 2021, NextEra Energy expects adjusted earnings per share to be in the range of $2.40 to $2.54 and we would be disappointed not to be at or near the high-end of this range.\nWhile we are pleased with our year-to-date results, which have exceeded the top end of our growth rate expectations so far for the year, we expect the fourth quarter results to include impacts from certain liability management activities that we are currently reviewing to take advantage of the low interest rate environment.\nThese initiatives could generate negative adjusted earnings per share impacts of as much as $0.08 to $0.10 in the fourth quarter before translating to favorable net income contributions in future years and an overall improvement in net present value for our shareholders.\nLooking further ahead, for 2022 and 2023, NextEra Energy expects to grow 6% to 8% off of the expected 2021 adjusted earnings per share, and we would be disappointed if we are not able to deliver financial results at or near the top-end of these ranges in 2022 and 2023.\nOur earnings expectations are supported by what we believe is the most attractive organic investment opportunity set in our industry.\nFrom 2018 to 2023, we continue to expect that operating cash flow will grow roughly in line with our adjusted earnings per share compound annual growth rate range.\nWe also continue to expect to grow our dividends per share at roughly 10% rate per year through at least 2022 off of a 2020 base.\nAs always, our expectations assume normal weather and operating conditions.\nLet me now turn to NextEra Energy Partners, which performed well and delivered third quarter results generally in line with our expectations.\nYesterday, the NextEra Energy Partners Board declared a quarterly distribution of $0.685 per common unit or $2.74 per common unit on an annualized basis, continuing our track record of growing distributions at the top-end of our 12% to 15% per year growth range.\nInclusive of this increase, NextEra Energy Partners has now grown its distribution per unit by more than 265% since the IPO.\nNextEra Energy Partners continues to execute against its growth initiatives during the quarter.\nSince the last earnings call, NextEra Energy Partners closed on its previously announced acquisitions of approximately 400 megawatts of operating wind projects from a third party and approximately 590 net megawatts of geographically diverse wind and solar projects from Energy Resources.\nIn addition, today, we are announcing an agreement to acquire an approximately 100 megawatt operating wind asset in California from a third party to further expand NextEra Energy Partners portfolio and enhance its long-term growth visibility.\nThe project is located in a strategic market with strong expected growth in renewables demand, and it also offers significant optionality to NextEra Energy Partners in terms of operational savings and long-term value creation.\nNextEra Energy Partners intends to purchase the asset for a total consideration of approximately $280 million, subject to closing adjustments, which includes the assumption of approximately $150 million in existing project finance debt estimated at the time of closing.\nNextEra Energy Partners expects to recapitalize this project finance debt in 2022 as it executes on its overall financing plan for the year.\nWe expect to fund the approximately $130 million balance of the purchase price using existing debt capacity.\nSubject to regulatory approvals, the acquisition is expected to close later this year or in 2022.\nFollowing the project debt paydown next year, the asset is expected to contribute adjusted EBITDA and unlevered cash available for distribution of approximately $22 million to $27 million, each on a five-year average run rate -- annual run rate basis beginning December 31, 2022.\nNextEra Energy Partners continues to leverage its competitive advantages to be successful in third-party M&A and extend its long runway of growth.\nConsistent with our long-term growth prospects, today, we are also introducing year-end 2022 run rate expectations, which are built upon its strong existing portfolio cash generation and continued ability to access low cost capital to acquire accretive renewable energy projects.\nOverall, we are pleased with the year-to-date execution at NextEra Energy Partners and we believe we are well positioned to continue delivering LP unitholder value going forward.\nNow, let's look at the detailed results.\nThird quarter adjusted EBITDA was $334 million, up approximately 7% from the prior year comparable quarter due to growth in the underlying portfolio.\nNew projects, which primarily reflect the asset acquisitions that closed at the end of 2020 and the recently closed acquisition of 391 megawatts of operating wind assets from a third party, contributed $23 million.\nExisting assets contributed $7 million, primarily driven by the wind repowerings that occurred in the fourth quarter of last year and an improvement in wind resource.\nWind resource for the third quarter was 101% of the long-term average versus 96% in the third quarter of 2020.\nThese favorable impacts were partially offset by lower solar resource in the third quarter of this year.\nCash available for distribution of $158 million for the third quarter declined by $4 million versus the prior year, primarily as a result of lower year-over-year PAYGO payments after a weaker wind resource period in the second quarter of this year.\nAs a reminder, NextEra Energy Partners recapitalized its Genesis Solar project and other existing assets at the end of last year and the impact of this new project level financing cost versus the prior year was offset by an associated reduction in corporate level interest expense as reflected in our other category.\nAdditional details of our third quarter results are shown on the accompanying slide.\nOn a year-to-date basis versus 2020, adjusted EBITDA and cash available for distribution have increased by roughly 9% and 6%, respectively.\nAnd NextEra Energy Partners remains well positioned to continue to deliver on its outstanding growth objectives.\nWe continue to expect NextEra Energy Partners portfolio to support an annualized rate of fourth quarter 2021 distribution that is payable in February of 2022 to be in the range of $2.76 to $2.83 per common unit.\nFrom a base of our fourth quarter 2020 distribution per common unit at an annualized rate of $2.46, we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024.\nNextEra Energy Partners continues to expect to be in the upper end of our previously disclosed year-end 2021 run rate adjusted EBITDA and cash available for distribution expectation ranges of $1.44 billion to $1.62 billion and $600 million to $680 million, respectively.\nWe expect to achieve our 2022 distribution growth of 12% to 15% while maintaining a trailing 12-month payout ratio in the low 80% range.\nBy year-end 2022, we expect the run rate for adjusted EBITDA to be in the range of $1.775 billion to $1.975 billion and run rate for cash available for distribution to be in the range of $675 million to $765 million.\nAt the midpoint, these revised expectations ranges reflect estimated growth in adjusted EBITDA and cash available for distribution of roughly 23% and 13%, respectively, from the comparable year-end 2021 run rate expectations.\nThese growth rates are supported by our strong execution against our long-term growth objectives in 2021, including opportunistic third-party transactions that were not previously in our plan.\nAs a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR fees as we treat these as an operating expense.\nFinally, during the quarter, S&P updated its ratings methodology for NextEra Energy Partners.\nAnd in particular, it will now evaluate NextEra Energy Partners debt metrics on a funds from operations or FFO to debt basis with a downgrade threshold of 14% instead of a debt-to-EBITDA basis.\nWe believe that the combination of S&P's updated methodology, its assessment of NextEra Energy Partners improving diversity and its use of less conservative assumptions in the portfolios and renewable generation cash flows will allow for several hundred million dollars more of financing flexibility relative to our previous assumptions, providing the partnership with even greater flexibility going forward to finance accretive acquisition for the benefit of our unitholders.\nIn summary, we continue to believe that both NextEra Energy and NextEra Energy Partners have some of the best opportunity sets and execution track records in the industry and we remain as enthusiastic as ever about our future prospects.",
        "summary": "compname says qtrly gaap earnings per share $0.23.\nqtrly adjusted earnings per share $0.75.\ncompname says for 2021, expects adjusted earnings per share to be in the range of $2.40 to $2.54.\nannouncing agreement to acquire about 100-mw operating wind asset in california from a third party.\nsees 2022 run-rate expectations, of roughly 23% & 13% growth, respectively, from 2021 run-rate adjusted ebitda, cafd midpoints.\nintends to purchase an about 100-mw operating wind asset for total consideration of about $280 million.\ncontinues to expect to be in upper end of previously disclosed year-end 2021 run-rate adjusted ebitda, cafd expectations ranges."
    },
    {
        "text": "All of whom are also officers of NextEra Energy Partners, as well as Eric Silagy, president and chief executive officer of Florida Power and Light Company.\nAs a reminder, Gulf Power legally merged into Florida Power and Light Company effective on January 1, 2021.\nGulf Power continued as a separate reportable segment within Florida Power and Light and NextEra Energy through 2021, serving its existing customers under separate retail rates.\nBoth NextEra Energy and NextEra Energy Partners had an outstanding year in 2021 and are well positioned to capitalize on the substantial opportunities that lie ahead.\nNextEra Energy's performance was strong both financially and operationally and we executed the largest capital program in our history.\nContinuing our long track record of delivering value for shareholders, NextEra Energy achieved full year adjusted earnings per share of $2.55, up more than 10% from 2020.\nOver the past 10 years, we've delivered compound annual growth and adjusted earnings per share of approximately 9%, which is the highest among all top 10 U.S. power companies who have achieved, on average, compound annual growth of roughly 3% over the same period.\nAmid this significant growth, the company has maintained one of the strongest balance sheets and credit positions in the industry.\nIn 2021, we delivered a total shareholder return of more than 23%, significantly outperforming the S&P 500 Utilities Index and continuing to outperform both the S&P 500 and the S&P 500 Utilities Index in terms of total shareholder return on a three, five, 10 and 15-year basis.\nOver the past 15 years, we've outperformed nearly all of the other companies in the S&P 500 Utilities Index and quadrupled the average total shareholder return of the index.\nOver the same period, we've outperformed 80% of the companies in the S&P 500 while nearly tripling the average total shareholder return of the index.\nWe are proud of our long-term track record of providing growth and value creation opportunities for our shareholders and we remain intensely focused on execution and continuing to drive shareholder value over the coming years.\nAt FPL, net income increased nearly 11% year over year while continuing to deliver on its commitment to making smart, long-term investments in innovative technology, clean energy and strengthening our electric grid for the benefit of our customers.\nWe were pleased the Florida Public Service Commission unanimously approved the settlement agreement in October, an agreement, which we believe is a fair and balanced outcome in our base rate case.\nwhile keeping FPL's typical residential bills well below the national average and among the lowest in Florida through the end of 2025.\nFor customers in Northwest Florida, typical customer bills are projected to decline over the next four years.\nAmong the long-term infrastructure investments anticipated in the new agreement, new solar generation is expected to grow through the expanded SolarTogether community solar program which is expected to more than double over the next four years as well as through new base rate solar generation, including the nearly 1,800 megawatts to be recovered under solar base rate adjustment or SoBRA upon reaching commercial operations in 2024 and 2025.\nIn total, our current solar build-out expectations are for approximately 4,800 megawatts of new solar over the term of the settlement agreement.\nIn early 2019, FPL announced its groundbreaking role to install 30 million solar panels in Florida by 2030.\nWith the anticipated solar additions approved under the settlement agreement, I am pleased to announce that we now expect to reach this milestone by 2025, five years earlier than previously anticipated.\nIncluding the solar additions anticipated through 2025, this ambitious 30 by 30 initiative is expected to have generated approximately $2.5 billion in fuel cost savings for customers and created more than 20,000 construction jobs while supporting the Florida economy with more than $700 million in property taxes over the life of the assets.\nDuring 2021, FPL successfully executed on its strategic initiatives, including placing another 671 megawatts of cost-effective solar and service, completing the first roughly 1,500 megawatt phase of our SolarTogether community solar program.\nAdditionally, last month, we commissioned the world's largest integrated solar-powered battery system, the 409-megawatt Manatee Energy Storage Center, which will allow our customers to benefit from low-cost solar energy even during times when the sun is not shining.\nFPL has also continued to provide exceptional service reliability, achieving its best-ever reliability rate in 2021.\nAnd FPL was recognized for the sixth time in seven years as being the most reliable electric utility in the nation.\nMoreover, FPL was ranked No.\n1 in both residential and business customer satisfaction in the Southern U.S. among large electric providers by J.D. Power in 2021 and we are completely committed to continuing to provide clean, affordable and reliable service to our customers for many years to come.\nenergy resources also had a terrific year in 2021, delivering adjusted earnings growth of 13% versus the prior year.\nThe team also had an outstanding record year of renewables and storage origination, adding approximately 7,200 megawatts to our backlog during the year as we continue to capitalize on the ongoing clean energy transition that is occurring in our nation's generation fleet.\nOur backlog additions have grown more than 20% compound annual growth rate since 2017 and we are well on our way to meeting our current development expectations for new signed contracts.\nWith the significant additions to our backlog of signed contracts over the last year, we've now signed nearly 80% of the megawatts needed to realize in the midpoint of our 2021 to 2024 development expectations range, with significant time remaining to sign additional power purchase agreements.\nOur supply chain and engineering and construction teams also continued to execute in 2021, commissioning approximately 3,800 megawatts of new wind and wind repowering, solar and storage projects.\nOver the past two years, energy resources has constructed more than 9,500 megawatts of renewables and storage projects, demonstrating the strength and resiliency of its execution expertise, even in the midst of a global pandemic and industrywide supply chain disruptions.\nFinally, during 2021, NextEra energy transmission its efforts to grow America's leading competitive transmission company and had its best year ever.\nDuring the year, the business delivered a record earnings contribution by increasing net income by nearly 20% over its previous earnings contribution record in 2020.\nto support this transition to a low-cost, low-carbon economy fueled by renewable energy.\nWe anticipate that NextEra energy transmission will continue to capitalize on the growing opportunity set to both deploy capital profitably as well as to enable further renewables deployment.\nThe tremendous execution in both the major businesses in recent years, including '21, gives us great visibility to the longer-term outlook of NextEra Energy.\nLet me start with our opportunity set, which I would not trade with anyone in our industry.\nAt Florida Power and Light, the settlement agreement allows us to focus on operating the business efficiently, reliably and affordably for the benefit of our customers.\nUnder the new agreement, we expect our average annual growth in regulatory capital employed to be between 8% and 9% over the four-year term through 2025.\nWhen you put it all together, low bills, best-in-class reliability, award-winning customer service and a clean emissions profile are what helped FPL provide what we believe is one of the best customer value propositions in the nation.\nAt energy resources, our outlook for new renewables and storage development remains as strong as ever and we are excited to be able to continue supporting the industry's transition away from old inefficient forms of generation and into clean, reliable, low-cost renewables and storage.\nWe believe that the rapidly accelerating trend toward electrification and decarbonization of a broad range of sectors across the U.S. economy has significantly increased the total addressable market for new renewables and storage, even beyond our expectations just a few years ago and is now measured in trillions of dollars of capital investment opportunity in the coming decades.\nWe believe that energy resources is uniquely positioned to advance its market leadership position in this environment.\nWe have been in the renewables business for more than 30 years and have the experience, resources, balance sheet, talent and advanced data capabilities necessary to execute complex renewable energy generation and storage integration projects at scale.\nWe believe we have an excellent opportunity set for continued growth ahead of us at energy resources and we will further discuss our long-term plans for deploying renewables at both energy resources and Florida Power and Light and the associated impact to our overall emissions profile and future goals at our upcoming investor conference, which we plan to hold on June 14 in New York City.\nWith the anticipated continued strength of the investment opportunities at both Florida Power and Light and NextEra energy resources, I am pleased to announce that we are increasing our adjusted earnings per share expectations for 2022 and 2023 and introducing our expectations for 2024 and 2025.\nFor 2022, we are now expecting our adjusted earnings per share to be in a range of $2.75 to $2.85, up from our prior range of $2.55 to $2.75.\nFor years 23 through 25, we expect to grow our adjusted earnings per share by roughly 6% to 8% per year off the expected 2022 adjusted earnings per share.\nFor 2023, this translates to a new range of $2.93 to $3.08, up from our prior range of $2.77 to $297 million.\nOur new adjusted earnings per share expectations for 2024 are $3.13 to $3.33.\nAnd for 2025 are $3.35 to $3.60.\nAs always, our expectations assume our usual caveats, including normal weather and operating conditions.\nIn summary, we continue to remain as enthusiastic as ever about NextEra Energy's long-term growth prospects.\nBased on the strength and resiliency of our underlying businesses, we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectation ranges in each of 2022, '23, '24 and 2025, while at the same time, maintaining our strong credit ratings.\nLet me now turn to NextEra Energy Partners, which delivered a total unitholder return of approximately 30% in 2021, bringing its two-year total unitholder return up to more than 72% and further advancing its history of value creation since the IPO in 2014.\nFor 2021, the NextEra Energy Partners grew its LP distributions per unit by 15% year over year and has now grown its distributions per unit by nearly 280% since the IPO.\nNextEra Energy Partners achieved its distribution growth objectives while maintaining a trailing 12-month payout ratio of approximately 80% as of year-end 2021.\nNextEra Energy Partners had a terrific year of execution in '21 and we are increasing our year-end 2021 financial expectations to reflect this better-than-expected growth execution.\nNextEra Energy Partners delivered year-end run rate adjusted EBITDA and cash available for distribution in excess of our prior expectations, including delivering more than 13% year-over-year growth in run rate cash available for distribution at the midpoints.\nThis execution is supported by NextEra Energy Partners' outstanding portfolio of clean energy assets, which was further diversified in 2021.\nDuring the year, NextEra Energy Partners acquired interests in approximately 1,900 net megawatts of long-term contracted renewables and storage assets from energy resources.\nIn addition, during the year, NextEra Energy Partners successfully completed two acquisitions of renewable energy assets from third parties, adding nearly 500 megawatts of operating wind projects to its portfolio.\nThese transactions demonstrate NextEra Energy's ability to leverage the operational expertise of NextEra energy resources, low-cost sources of capital and our strong industry relationships to be successful in third-party acquisitions.\nThe combination of a growing portfolio at energy resources and a growing set of opportunities to acquire renewables from third parties as well as significant organic growth opportunities, further supports the partnership's long-term growth visibility.\nNextEra Energy Partners also continued to demonstrate its ability to access attractive sources of capital to finance its growth investments, including executing on the lowest-cost convertible equity portfolio financing in its history.\nThe roughly $820 million convertible equity portfolio financing carries a low implied cash coupon to the investor and partially funded NextEra Energy Partners acquisition of a 50% interest in a renewables portfolio, consisting of approximately 2,520 megawatts of newly constructed or in construction renewables projects and approximately 115 megawatts of integrated battery storage.\nNextEra Energy Partners was able to demonstrate the benefits to LP unitholders of the convertible equity portfolio financing structure during the fourth quarter when the partnership exercised its right to purchase 100% of the outstanding minority equity interests in the portfolio of wind and solar assets, supporting its 2018 convertible equity portfolio financing.\nRelative to issuing the same amount of common equity in 2018 to fund our growth needs.\nThis financing allowed us to reduce unit issuance by more than 50% and save more than $140 million or roughly 75% in nominal cash costs while retaining the more than 80% increase in the net unit price over the last three years.\nNextEra Energy Partners public float has increased approximately 50% since 2019.\nWe believe our strategy of using low-cost convertible equity products to efficiently layer in common equity over time has created significant value for existing LP unitholders.\nI continue to believe that the combination of NextEra Energy's partners clean energy portfolio, growth visibility and financing flexibility offers LP unitholders a uniquely attractive investor value proposition.\nAs with NextEra Energy, we remain intensely focused on continuing to execute and deliver that unitholder value over the coming years.\nThese changes are part of a long-term succession process undertaken by the board and me over the better part of the last six years.\nEffective March 1, John Ketchum will price me as president and CEO of NextEra Energy.\nRebecca will succeed John as president and CEO of NextEra energy resources.\nKirk Crews, currently vice president, business management for NextEra energy resources will succeed Rebecca as executive vice president and chief financial officer of NextEra Energy.\nJohn, Rebecca and Kirk will also be appointed to the respective roles at NextEra Energy Partners.\nIn addition, Eric Silagy, president and chief executive officer of Florida Power and Light Company has been named chairman and chief executive officer of Florida Power and Light.\nIt has been an honor and a privilege to serve as CEO for nearly 10 years.\nI'm as excited as I've ever been about the future prospects of NextEra Energy and NextEra Energy Partners.\nA big part of a CEO's legacy is the new leader in the next-generation leadership team that follows.\nAnd I couldn't be more thrilled about turning over the CEO role of this great company to John.\nI know he will be as focused on creating value for you, our owners, as I have been over the last two decades.\nJohn has been an incredible partner to me and a senior leader in this company for more than 19 years and I can think of no better person to succeed me as CEO.\nJohn's breadth of experience across all aspects of our company, including commercial, operational, financial and legal as well as the significant leadership capabilities and vision position him exceptionally well to lead NextEra Energy to even greater heights in the coming years.\nI also want to congratulate Rebecca, Eric and Kirk on their new roles.\nOne of the defining characteristics of this company over the last 30 years has been the quality and strength of its leadership team and I'm very proud of and excited for the team that will leave this company into the future.\nAs the announcement mentioned, I'm going to remain as executive chairman for a transition period to support John in his new role.\nI have been privileged to have worked with and learned from Jim during an incredible period of growth for our company and I am honored to have the opportunity to lead this company in the years ahead.\nAs CEO, I intend to remain intensely focused on delivering value for our shareholders and building upon our long track record of success.\nI believe there is no company better positioned to lead our country's energy transformation than NextEra Energy.\nAnd I am humbled by the opportunity to lead this team through such an exciting period for our company.\nI am fortunate to have a broad leadership team with the experience and capability that I too believe is the best in the industry.\nI am very excited to have Eric, Rebecca and Kirk take on these expanded and new roles in the company.\nThey, along with our broader leadership team and all of our approximately 15,000 employees worked tirelessly every day to serve our customers in Florida and across North America.\nJim has been an unbelievable steward of this company over his nearly 10 years as CEO, growing the leading, most profitable electric utility and renewable energy company in North America.\nOur total shareholder return during Jim's tenure has been more than 500% and it is great evidence of Jim's exceptional vision, leadership and commitment to excellence.\nI know I speak for all of our employees that we are deeply grateful for everything Jim has done for our company.\nLet's now turn to the detailed results, beginning with FPL.\nFor the fourth quarter of 2021, FPL reported net income of $560 million or $0.28 per share, up $0.03 per share year over year.\nFor the full year 2021, FPL reported net income of $2.94 billion or $1.49 per share, an increase of $0.14 per share versus 2020.\nRegulatory capital employed increased by approximately 11% for 2021 and was the principal driver of FPL's net income growth of nearly 11% for the full year.\nDuring the fourth quarter, net income was impacted by a number of factors, including an approximately $32 million pre-tax contribution to our charitable foundation that will allow it to continue to support the communities that we serve.\nFPL's capital expenditures were approximately $2.2 billion in the fourth quarter, bringing its full year capital investments to a total of roughly $6.8 billion.\nFPL's reported ROE for regulatory purposes is expected to be 11.6% for the 12 months ended December 31, 2021.\nDuring the fourth quarter, we utilized approximately $137 million of reserve amortization, leaving FPL with a year-end 2021 balance of $460 million.\nAs a reminder, our new four-year settlement agreement became effective this month and includes the flexibility over the four-year term to amortize up to $1.45 billion of depreciation reserve surplus, which is inclusive of $346 million in reserve amount that we previously anticipated to be remaining at year-end 2021 under FPL's now expired 2016 rate agreement.\nConsistent with the terms of the 2021 settlement agreement, half of the $114 million in excess reserve balance at year-end 2021 will be used to reduce our outstanding capital recovery asset balance and the other half will increase FPL's storm reserve to offset future restoration costs.\nAs a reminder, the new agreement limits reserve amortization to $200 million in 2022, which we will treat as a limitation in any given quarter during the year.\nGiven the historical shape of our customer usage, we typically use more reserve amortization in the first half of the year and reverse reserve amortization in the hotter summer months.\nWe currently expect FPL to initially earn below our target regulatory ROE in the early part of 2022.\nAlthough for the full year, we are targeting the upper end of the allowed range of 9.7% to 11.7%.\nAs a result, we also expect FPL's earnings growth to be lower in the first half of the year and higher in the second half.\nAs always, our expectations assume our usual caveats, including normal weather and operating conditions.\nOur overall capital program at Florida Power and Light is progressing well.\nWe continue to advance one of the nation's largest solar expansions and met our solar deployment objectives at both FPL and Gulf Power in 2021, including commissioning more than 800 megawatts of new solar across the combined system.\nBeyond solar, construction on the highly efficient roughly 1,200 megawatt Dania Beach Clean Energy Center remains on schedule and on budget, as it continues to advance toward its projected commercial operations date later this year.\nThe North Florida Resiliency Connection remains on track to be in service by mid-2022.\nLet me now turn to Gulf Power, which, as a reminder, was legally merged into FPL on January 1, 2021, but continue to be reported as a separate regulated segment during 2021.\nGulf Power reported fourth quarter 2021 GAAP earnings of $60 million or $0.03 per share.\nFor the full year, Gulf Power reported net income of $271 million or $0.14 per share an increase of $0.02 per share year over year.\nBase O&M reductions and investments in the business were the primary drivers of Gulf Power's approximately 14% year-over-year growth in net income.\nGulf Power's capital expenditures for the full year were roughly $800 million and its reported ROE for regulatory purposes is expected to be approximately 11.25% for the 12 months ending December 2021.\nGiven that this is the last time we will be talking about Gulf Power's financial results, let me take a moment to summarize the team's execution over the past three years.\nGulf Power has delivered significant improvements in all key financial and operational metrics, while meaningfully improving its customer value proposition.\nThe execution of the NextEra Energy playbook at Gulf Power, which is focusing on reducing costs and making smart capital investments for the benefit of customers, has been a remarkable success.\nGulf Power has realized a nearly 40% reduction in O&M costs since the acquisition.\nSince 2018, Gulf Power improved service reliability by nearly 60% and it was awarded national recognition for its outstanding reliability performance in the Southeast suburban and rural service area for the second year in a row in 2021.\nOver the same period, Gulf Power realized an approximately 60% improvement in safety among our employees who have worked tirelessly to help us execute on our plans.\nRegulatory capital employed has grown by approximately 16% compound annual growth rate since 2018.\nWe have invested approximately $2.5 billion in long-term improvements to Gulf Power's existing system and generation fleet.\nAs a result of our clean power modernization investments at Gulf Power, we have already delivered an approximately 25% reduction in CO2 emissions over the last three years and we look forward to further expanding the opportunity for our customers to access clean, low-cost solar and storage in the years to come.\nThis high level of performance across the board could not have been possible without the hard work and commitment of all of the Gulf Power employees.\nExecution of the plans that we laid out at Gulf Power has generated great outcomes for our shareholders as well.\nGulf Power's net income has grown by a compound annual growth rate of approximately 19% since 2018, an outcome that was even better than our expectations when we announced the acquisition.\nOur performance with Gulf Power is a clear validation of our strategy and our conviction that you can be clean, reliable, affordable and profitable at the same time.\nThe Florida economy remains strong.\nOver the last 10 years, Florida's GDP has grown at a roughly 5% compound annual growth rate.\nThe GDP of Florida is roughly $1.2 trillion, which is up approximately 8% from pre-pandemic levels and would make Florida the 15th largest economy in the world.\nAt the same time, Florida's population continues to grow at one of the fastest rates in the nation.\nAccording to recent Census Bureau data, more people moved to Florida from other parts of the country than to any other state in 2021.\nWe believe this is a reflection of Florida's unique proposition in terms of great weather, low taxes and a pro-business economy, all of which should support ongoing customer growth at Florida Power and Light.\nOver the past year, Florida has created more than 485,000 new private sector jobs and Florida's labor force participation rate has improved significantly.\nThree months average Florida building permits, a leading indicator of residential new service accounts are up 15% year over year and have outpaced the nation's quarterly growth in new building permits by roughly 13%.\nOther measures of confidence in the Florida economy have meaningfully improved versus the prior year, including a 34% improvement in Florida's retail sales index and a 2.6% decline in mortgage delinquencies while mortgage delinquencies across the U.S. have remained roughly flat.\nDuring the quarter, FPL's average customer growth was strong, increasing by nearly 82,000 customers from the comparable prior-year quarter.\nFPL's fourth quarter retail sales were down 1.5% versus the prior-year period, driven by an unfavorable weather comparison.\nFor 2021, FPL's retail sales increased 1.7% from the prior year on a weather-normalized basis, driven primarily by ongoing strong customer growth and a 1.5% year-over-year increase in underlying usage per customer.\nAdditional details are shown on the accompanying slide.\nEnergy resources reported fourth quarter 2021 GAAP net income of $851 million or $0.43 per share.\nAdjusted earnings for the fourth quarter were $414 million or $0.21 per share.\nenergy resources contribution to adjusted earnings per share in the fourth quarter is up $0.04 versus the prior-year comparable period.\nFor the full year, energy resources reported GAAP earnings of $599 million or $0.30 per share and adjusted earnings of approximately $2.21 billion or $1.12 per share.\nEnergy resources full year adjusted earnings per share contribution increased $0.13 or approximately 13% versus 2020.\nFor the full year, growth was driven by continued new additions to our renewables and energy storage portfolio as contributions from new investments increased by $0.12 per share.\nContributions from existing generation and storage assets decreased $0.04 versus the prior year due primarily to underperformance in our existing wind fleet as a result of extreme market conditions in Texas in February of last year.\nNextEra energy transmission and gas infrastructure contributed favorably, increasing results by $0.01 and $0.02, respectively, year over year, while the contribution from our customer supply and trading businesses decreased $0.02 versus 2020.\nAll other impacts increased results by $0.04 year over year.\nAs Jim mentioned, energy resources had an outstanding year, delivering our best year ever for origination, adding approximately 7,200 net megawatts of new renewables and battery storage projects to our backlog.\nIn 2021, we commissioned approximately 3,800 megawatts of wind, solar and storage projects, including a 110-megawatt build-own-transfer project that was not included in our backlog.\nIn addition, since the last call, we have added approximately 1,500 megawatts of renewable projects to our backlog, including approximately 70 megawatts of new wind and wind repowerings, 300 megawatts of solar and 500 megawatts of battery storage.\nOur origination performance in 2021 reflects continued high demand among all customer classes for clean energy solutions that not only help achieve their renewable energy goals but perhaps more importantly, allow our customers to save energy -- save money on energy costs, while switching to lower cost forms of generation like wind, solar and solar plus storage.\nOur renewables backlog now stands at more than 16,600 megawatts, which is roughly the size of our entire renewables generation portfolio at the end of 2017 and nearly 25% larger than our backlog at year-end 2020 and this provides terrific visibility into the strong growth that lies ahead for energy resources over the next few years.\nThe accompanying slide provides additional details on where our development program in energy resources now stands.\nWe remain optimistic about the expanded investment opportunities that the broad decarbonization of the U.S. economy presents for energy resources.\nWe believe that there are many new market opportunities where our industry-leading development platform will provide a competitive advantage to further grow our core long-term contracted renewables and storage business.\nAs we have previously discussed, green hydrogen presents a particularly compelling new market for energy resources.\nDuring the fourth quarter, a clean energy technology company in which we are a minority equity investor and that has developed a proprietary process to decarbonize the industrial production of hydrogen at economic prices.\nOne, a conditional approval for an approximately $1 billion DOE, Department of Energy loan to expand its clean hydrogen and carbon black production facilities in Nebraska.\nOur agreement with this company provides energy resources the opportunity to be its preferred renewable energy supplier for the facility and we are encouraged by the acceleration of the facility build-out that is expected to occur as a result of this new loan.\nSimilarly, early in the year, we completed the strategic investment in a liquid fuels company with a proprietary process to produce 0 emissions synthetic fuels by combining green hydrogen with concentrated carbon dioxide streams captured from industrial processes.\nOur strategic partnership with this company includes the opportunity for energy resources to provide up to 3,000 megawatts under a preferential energy supply agreement.\nFinally, as part of our efforts to help our commercial and industrial customers achieve their substantial goals for both energy savings and decarbonization, we recently announced an agreement with J.P. Morgan Chase that allows for use of our proprietary state-of-the-art smart energy software to optimize its energy use and reduce its carbon footprint.\nEnergy resources advanced software platform uses artificial intelligence and blockchain technology and leverages data from the industry-leading renewables and storage fleet owned and operated by energy resources.\nTwo, among other things, match energy demand with clean energy resources available on the market in real time.\nWe recently signed a similar agreement that allows a large university to use our advanced software platform to manage and optimize more than 100-megawatt solar plus storage asset in California.\nThrough these initiatives, energy resources is leveraging its best-in-class renewable energy expertise to provide significant value to its customers in a market with meaningful growth potential.\nWe are at the vanguard of building a sustainable energy era that is both clean and affordable and we are driving hard to continue to be at the forefront of the disruption that is occurring within the energy sector and broader parts of the U.S. economy.\nConsistent with our long-term track record, we will remain disciplined as we take steps to be at the forefront of these developing markets while taking a leadership role in clean energy transition expected to drive tremendous growth for energy resources over the next decade and beyond.\nTurning now to the consolidated results for NextEra Energy.\nFor the fourth quarter of 2021, GAAP net income attributable to NextEra Energy was $1.2 billion or $0.61 per share.\nNextEra Energy's 2021 fourth quarter adjusted earnings and adjusted earnings per share were $814 million or $0.41 per share, respectively.\nFor the full year 2021, GAAP net income attributable to NextEra Energy was $3.57 billion or $1.81 per share.\nAdjusted earnings were $5.02 billion or $2.55 per share.\nFor the corporate and other segment, adjusted earnings for the full year decreased $0.05 per share compared to the prior year, primarily as a result of higher interest and refinancing costs associated with certain liability management initiatives completed during the fourth quarter to take advantage of the low interest rate environment.\nOur fourth quarter refinancing activities reduced nominal adjusted net income by roughly $140 million.\nWe expect these initiatives to translate into favorable net income contribution in future years and an overall improvement in net present value for our shareholders.\nSpecifically, during the fourth quarter, NextEra Energy successfully refinanced approximately $5.2 billion in existing debt and hybrid securities and proactively issued roughly $4.9 billion in replacement funding.\nThis combination of redemptions and new issuance extended its maturity profile by over six years and is expected to generate an approximately $30 million after-tax reduction in annual interest expense in the near term.\nCapital recycling remains an important part of our financing plan as we continue to execute on the tremendous growth opportunities in front of us.\nDuring the fourth quarter, energy resources closed on its previously announced agreements to sell a portfolio of newly constructed and under construction renewable assets to NextEra Energy Partners and to a third-party infrastructure investor.\nThrough the sale of this 2.5 gigawatt renewables portfolio, energy resources was able to recycle nearly $3.5 billion of capital, including the tax equity proceeds, an accretive matter -- manner and take advantage of the strong market for wind, solar and storage assets.\nWe believe that our renewables development platform at energy resources is second to none and our ability to continue to harness market demand for renewables and recognize the value of that platform is a key competitive advantage for NextEra Energy as it continues to grow its portfolio of long-term contracted operating renewables and storage assets at energy resources.\nTurning now to our financial expectations for NextEra Energy.\nAs Jim discussed, today, we are increasing the ranges of our adjusted earnings per share expectations for 2022 and 2023 and introducing our expectations for 2024 and 2025.\nFor 2022, NextEra Energy now expects adjusted earnings per share to be in a range of $2.75 to $2.85.\nFor 2023 through 2025, NextEra Energy expects to grow roughly 6% to 8% off of the expected 2022 adjusted earnings per share range.\nAnd we will be disappointed if we are not able to deliver financial results at or near the top end of these ranges for each year.\nDetails of our new financial expectations are included on the accompanying slide.\nFrom 2021 to 2025, we expect that our average annual growth in operating cash flow will be at or above our adjusted earnings per share compound annual growth rate range.\nWe also continue to expect to grow our dividends per share at roughly 10% per year through at least 2022 off of a 2020 base.\nAs always, our expectations assume our usual caveats.\nLet me now turn to the detailed financial results for NextEra Energy Partners.\nFourth quarter adjusted EBITDA was $322 million and cash available for distribution was $91 million.\nAdjusted EBITDA growth versus the prior-year comparable quarter was primarily due to the growth in the underlying portfolio.\nFor the full year 2021, adjusted EBITDA was $1.36 billion, up 8% year over year and was primarily driven by the full contribution from new projects acquired late in 2020.\nOur existing projects portfolio, favorable performance from NextEra Energy Partners natural gas pipeline investments and contributions from the wind repowerings that we added at the end of 2020 were partially offset by weaker wind resource and lower generation at our Genesis Solar project as a result of outages for major maintenance in the first and fourth quarters of 2021.\nFor the full year, wind resource was 98% of the long-term average versus 100% in 2020.\nCash available for distribution was $584 million for the full year.\nThe benefit to cash available for distribution from lower corporate level interest expense was partially offset by a comparably higher project level financing costs on our Genesis solar project and other existing assets that were recapitalized to fund the acquisition of approximately 500 net megawatts from energy resources at the end of 2020.\nOver the past three years, NextEra Energy Partners cash available for distribution has grown at a compound annual growth rate of approximately 20%.\nAs a reminder, these results include the impact of IDR fees, which we treat as an operating expense.\nAdditional details are shown on the accompanying slide.\nYesterday, the NextEra Energy Partners board declared a quarterly distribution of $0.775 per common unit or $2.83 per unit on an annualized basis, up 15% from the comparable quarterly distribution a year earlier and at the top end of the range we discussed going into 2021.\nDuring the quarter, NextEra Energy Partners closed on the initial funding of its approximately $820 million convertible equity portfolio financing with Apollo Global Management and use those proceeds along with existing NextEra Energy Partners debt capacity to fund its acquisition of approximately 1,300 net megawatts of renewables and storage from energy resources.\nUnder the terms of the agreement, NextEra Energy Partners is expected to benefit from a low implied initial cash coupon over the first 10 years, despite only providing approximately 4% of the upfront capital needed to purchase the assets.\nWhile we expect to allow NextEra Energy partners to achieve a full return of its capital invested into this acquisition in less than two years.\nAdditionally, the financing will provide NextEra Energy partners the flexibility to periodically buy out the investors' equity interest between the five and 10-year anniversaries of the agreement at a fixed pre-tax return of approximately 5.6% inclusive of all prior distributions, making this NextEra Energy Partners lowest cost convertible equity portfolio financing to date.\nNextEra Energy Partners will have the right to pay up to 100% of the buyout price in NEP common units issued at no discount to the then current market price.\nNextEra Energy Partners also issued approximately 7.25 million new NEP common units during the fourth quarter to acquire the remaining equity interest in a portfolio of 1,388 megawatts of wind and solar assets associated with the convertible equity portfolio financing that NEP entered into in 2018.\nNextEra Energy Partners funded the remaining roughly $265 million of the approximately $885 million of total consideration for the acquisition of equity in the portfolio, with project level debt issued on a subset of the underlying assets.\nThe nearly $650 million project financing supported by these assets, which was also the lowest cost project level debt financing in the partnership's history is reflective of the strong performance of the underlying assets in the portfolio and also supportive financing of other growth opportunities executed in 2021.\nFrom an updated base of our fourth quarter 2021 distribution per common unit at an annualized rate of $2.83, we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024.\nWe expect the annualized rate of the fourth quarter 2022 distribution that is payable in February of 2023 to be in a range of $3.17 to $3.25 per common unit.\nWe continue to expect to achieve our 2022 distribution growth of 12% to 15%, while maintaining a trailing 12-month payout ratio in the low 80% range.\nGiven the successful execution of the recent acquisition from energy resources as well as the approximately 100-megawatt operating wind facility from a third party, year-end December 31, 2021 run rate adjusted EBITDA and cash available for distribution exceeded our previous expectations ranges.\nAs a result, today, we are introducing new year-end 2021 run rate expectation ranges for adjusted EBITDA and cash available for distribution of $1.635 billion to $1.795 billion and $640 million to $720 million, respectively.\nWith a combination of strong cash flow generation from existing NextEra Energy Partners portfolio, including the approximately 2,400 net megawatts of new renewables and storage added during 2021 and its relatively low payout ratio, NextEra Energy Partners has significant flexibility in terms of acquisitions in the coming year.\nAlthough acquisitions could occur at any time during 2022, for modeling purposes, it may be practical to assume that any new unannounced asset additions occur late in 2022 and therefore, have limited contributions to the calendar year 2022 expectations implied by the year-end 2021 run rate for adjusted EBITDA and cash available for distribution for the portfolio that we just discussed.\nNextEra Energy Partners run rate expectations for adjusted EBITDA and CAFD at December 31, 2022, remain unchanged.\nYear-end 2022 run rate adjusted EBITDA expectations are $1.775 billion to $1.975 billion and CAFD in the range of $675 million to $765 million, respectively, reflecting calendar year 2023 expectations for the forecasted portfolio at year-end 2022.\nAs a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR fees as we anticipate -- as we treat those as an operating expense.\nIn summary, we continue to believe that both NextEra Energy and NextEra Energy Partners have excellent prospects for growth, both in the near and longer term.\nFlorida Power and Light, energy resources and NextEra Energy Partners each have outstanding set of opportunities across the board.\nThe progress we made in 2021 reinforces our longer-term growth prospects.\nAnd while we have a lot to execute on in 2022, we believe that we have the building blocks in place for another excellent year.",
        "summary": "nextera energy partners lp qtrly loss per common unit attributable to nextera energy partners, lp assuming dilution $0.12.\nnextera energy partners lp - increases year-end 2021 run-rate financial expectations for adjusted ebitda and cash available for distribution.\nnextera energy partners lp - for year-end 2022, nextera energy partners' run-rate expectations for adjusted ebitda and cafd remain unchanged.\nnextera energy partners lp - introducing revised year-end dec.\n31, 2021, run-rate adjusted ebitda expectation ranges of $1.635 billion to $1.795 billion.\n31, 2021, cafd expectation ranges of $640 million to $720 million.\ncompname says on an adjusted basis fourth-quarter earnings were $814 million or $0.41 per share.\n2021 fourth-quarter net income attributable to nextera energy on a gaap basis of $1,204 million, or $0.61 per share.\non an adjusted basis, nextera energy's 2021 fourth-quarter earnings were $814 million, or $0.41 per share.\nnextera energy - extended its long-term outlook of roughly 6% to 8% compound annual growth in adjusted earnings per share by two years, through 2025.\nnextera energy - for 2022, nextera energy now expects adjusted earnings per share to be in the range of $2.75 to $2.85.\nnextera energy - for 2023 through 2025, nextera energy expects to grow roughly 6% to 8% per year off the expected 2022 adjusted earnings per share."
    },
    {
        "text": "With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Karen Camiolo, Treasurer and Principal Financial Officer; and John McGinnis, President of Seneca Resources.\nWe may refer to these materials during today's call.\nWhile National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially.\nNational Fuel's first quarter was a great start to our fiscal year, with operating results up 5% year-over-year.\nOperationally, we had a really strong quarter, particularly at Seneca and NFG Midstream, where in spite of 4 Bcf of pricing-related curtailments, production and the associated gathering throughput was up 36% over last year.\nMost of that growth was the result of last year's Tioga County acquisition, which continues to trend better than our initial expectations.\nThe team has been focused on high-grading our consolidated development program, optimizing our firm sales and transportation portfolio and driving down unit costs.\nYou can see our success in Seneca's updated guidance.\nWe increased the midpoint of our production range and lowered our forecasted unit costs, all while holding our capital range constant.\nSeneca added a second drilling rig in January, with first production permit scheduled to come online in early fiscal 2022.\nThe goal is to fill our Leidy South capacity as soon after it goes in service, and thereby, capture the premium winter pricing in the East Coast markets.\nThe second rig will focus principally on Tioga County.\nWe're at $2 netback prices, our consolidated returns on Utica wells are north of 65%.\nLooking beyond fiscal 2022, absent new firm takeaway capacity, Seneca's program will likely average between 1.5 and 2 rigs, which will keep our production flat to slightly growing.\nOur focus will be on generating free cash flow.\nAs you can see from our updated slide deck at a $2.75 NYMEX price, we expect our Upstream and Gathering businesses will generate approximately $115 million to $125 million in free cash flow in 2021.\nAs our production grows in 2022 and 2023, we expect this level of free cash flow to similarly increase.\nObviously, our ability to generate cash is heavily dependent on the direction of commodity prices.\nAs you know, we have an active hedging program and continue to methodically layer in hedges with the goal of protecting our investment in PDPs and locking in the strong rates of return generated by our unique integrated development program.\nSwitching gears, our FERC-regulated pipeline businesses had a great quarter, with earnings up nearly 25%.\nThis was driven by the Supply Corporation rate case settlement that went into effect last February, coupled with the new revenues from our Empire North expansion project that was placed in service at the end of fiscal 2020.\nOur FM100 expansion and modernization project is on track to continue this momentum into fiscal 2022 and 2023.\nAs a reminder, this project will add $50 million in annual revenue, once it goes in service, which I expect will occur late in this calendar year.\nWe're waiting on a few remaining state permits, which we anticipate receiving in the next few weeks.\nAll of the necessary federal permits have been received.\nWe've awarded the job to contractors in order for the necessary long lead time items, including pipeline and compressor units.\nOnce all permits are in hand, we'll file for our notice to proceed with FERC and start construction shortly thereafter.\nWith respect to the recent change in leadership at FERC, we don't see any cause for concern on FM100.\nAs you know, FM100 is a companion project to Transco's Leidy South expansion.\nAnd though the latter project is a little ahead of ours in the permitting process, FERC views them as essentially one project.\nJust last week, Transco received the notice to proceed from FERC for a portion of their project, which gives us confidence that ours will receive similar treatment when we file for our notice to proceed in the next few weeks.\nSwitching to the Utility, warmer-than-normal weather and the impact of the pandemic on our operating costs weighed on earnings for the quarter.\nThese were somewhat offset by the continued growth in revenues from our New York jurisdiction's system modernization tracking mechanism.\nAs we continue to face the COVID pandemic, the safety and well-being of our employees, customers and communities are our highest priorities.\nWe remain focused on business continuity and providing the safe and reliable service our customers expect.\nWith the change in administration in Washington, there has been increased focus on the role of natural gas in the nation's energy complex.\nNatural gas has already played a significant role in the decarbonization of the economy.\nThe displacement of coal-fired power generation and fuel switching for residential heating drove a 12% reduction in total US greenhouse gas emissions since 2008.\nThe importance of natural gas to the economy cannot be understated.\nFor example, in our New York utility service territory, nearly 90% of households use natural gas to heat their homes.\nAnd on a day like today, nearly 50% of New York State's electricity is being generated using natural gas.\nIn the near-term, that role is not going to change overnight.\nBut longer-term, it's clear we're moving toward a lower carbon world.\nI firmly believe the cost and reliability advantages provided by natural gas will ensure it has a future serving the energy needs of the country.\nHeating a home in the Northeast using natural gas costs less than half of what it would using electric heat.\nAnd LDCs are incredibly reliable.\nThis past winter, natural gas service at our Utility was available 99.9% of the time.\nIt makes little sense to forfeit these benefits in favor of more expensive, less reliable alternatives.\nBut to make sure we have a place in the energy complex, we must dramatically lower our emissions footprint and National Fuel is committing to do so.\nHow will we get there?\nOn my view, there are three main avenues to pursue.\nFirst is improving the emissions profile of our operations.\nWe've already made great progress here.\nFor example, through our modernization program, greenhouse gas emissions on our utility system have dropped by more than 60% from 1990 levels.\nBut we're not done.\nAt the current pace of the program, we expect a more than 80% reduction by 2040.\nWe have to encourage our customers to use less.\nOur conservation incentive program has resulted in end-use emissions reductions of over 1.3 million metric tons since its implementation in 2007.\nAnd lastly, we need to embrace technology across all aspects of our business, including our own operations, the equipment used by our customers and alternative fuels like RNG and hydrogen.\nWe're proud to be an anchor sponsor of the Low-Carbon Resources Initiative, which is researching new technologies that lower the carbon footprint of pipelines, LDCs and their customers.\nI'm excited for the future of natural gas.\nWe have some work to do.\nBut at the end of the day, I'm very confident natural gas will have a prominent role in meeting our country's energy needs, and that National Fuel's operations, from the wellhead to the burner tip, will remain an important part of the energy solution.\nIn closing, National Fuel had a great first quarter.\nAs I've said on prior calls, fiscal '21 should be a big growth year for us.\nThe first quarter delivered on that expectation, and the outlook for the remainder of the year continues to be strong.\nGas prices have been volatile, but our strong hedge book helps protect from those swings.\nAs we look toward '22 and beyond, we're well positioned for both growth and meaningful cash flow generation, a combination that many of our peers cannot match.\nOur balance sheet is in great shape.\nAnd our integrated, yet diversified business model, provides a level of downside protection to help us navigate the ebbs and flows that we'll inevitably face.\nAs you've probably seen, John McGinnis is retiring effective May 1 of this year.\nOver the course of his 14 years with the Company, John has been instrumental in the growth of Seneca, taking it from a small conventional operator that produced less than 50 Bcfe annually to the key player in the Appalachian Basin that Seneca has become.\nAlso, John Pustulka, our Chief Operating Officer, is retiring effective May 1.\nThere isn't an individual that I've met who has been more dedicated to the Company and the industry.\nOver his 47-year career, he led by example and was a main driver of our corporate culture, particularly as it relates to employee safety.\nI wish them both the best in retirement.\nWhile they'll be missed, I'm certain the Company won't miss a beat under the leadership of Ron Kraemer, who will assume the role of COO; and Justin Loweth, who will become the new President of Seneca.\nSeneca had a strong first quarter.\nWe produced a Company record, 79.5 Bcfe, despite approximately 4 Bcf of price-related curtailments in October and early November.\nOur nearly 40% production increase in Appalachia was largely due to the Company's fourth quarter fiscal 2020 acquisition of upstream assets in Tioga County, as well as production from our ongoing development program.\nWe continue to see the benefits of our recent acquisition, with increased scale and operational synergies driving a collective $0.10 per Mcfe decrease in G&A and LOE expenses from the prior year's first quarter.\nWith about six months of operations now under our belt, we are seeing additional cost reductions above our initial expectations.\nAs an example, LOE reductions of over $50,000 a month have been realized by releasing unneeded equipment rentals and contract services on the acquired assets.\nAdditionally, we achieved between $300,000 to $500,000 per well in reduced water cost on our recent Tioga 007 pad completions through the use of acquired water withdrawal points and storage facilities.\nIn line with our plans discussed on last quarter's call, we added a second drill rig in early January, which will focus on our EDA assets, including the deep inventory of acquired Utica locations in Tioga.\nThis activity will allow Seneca to bring online additional volumes in early fiscal '22, commensurate with the expected availability of our capacity on the Leidy South project, reaching premium markets during the winter heating season.\nWe expect Seneca's other rig to remain focused in the WDA, maintaining relatively balanced activity between these two operating areas longer term.\nAlthough pricing in fiscal '21 has not been as strong as we initially projected during this winter, the supply and demand fundamentals, whether notwithstanding, remain constructive over the next 12 to 18 months.\nLooking out beyond the current year, the fiscal '22 strip is around $2.80 an Mcf, a price where we realized strong returns from our Appalachia program.\nAs always, we have maintained our disciplined approach to hedging and are already well positioned in fiscal '22, with over 180 Bcf of fixed price firm sales, NYMEX swaps and costless collars in place.\nThis provides Seneca with downside protection, but leaves the potential to generate significant additional free cash flow, should prices move up.\nWe'll keep a close eye on pricing dynamics and look for opportunities to layer in additional hedges as we move through this fiscal year, closer to the in-service date of Leidy South.\nWe are maintaining our fiscal '21 capex guidance, which remains in the $350 million to $390 million range.\nBased on our strong first quarter well results and solid execution by our operations team, we are revising our production guidance to range -- to a range of 310 Bcfe to 335 Bcfe, a 2.5 Bcfe increase at the midpoint.\nMost of our production growth in fiscal '21 should occur during the first half of the year, with flat to slightly declining production during the back half as we defer completion and flowback activity until the winter season when our new FT capacity is targeted to be in service.\nFor the remainder of the fiscal year, we have 186 Bcf or around 80% of our East Division gas production locked in physically and financially.\nWe have another 30 Bcf of firm sales providing basis protection, so over 90% of our forecasted gas production is already sold.\nWe currently estimate that we'll have around 17 Bcf of gas exposed to the spot market.\nSo, as always, these volumes are potentially at risk for curtailment.\nAnd in California, we have around 67% of our remaining oil production, is hedged at an average price of around $57 per barrel.\nJustin Loweth, our Senior VP of Seneca, will be promoted to President.\nJustin has been with Seneca for 10 years and has been instrumental in much of our success over the past decade, and I am confident in his ability to lead the Company forward.\nWe pay a lot of attention to our succession planning across the organization, and I am pleased to be leaving Seneca with an experienced and strong management team.\nNational Fuel's first quarter GAAP earnings were $0.85 per share when you back out items impacting comparability, including a ceiling test charge and the impact of a gain related to the sale of our timber properties, operating results were $1.06 per share.\nThis increase of 5% over last year was on the strength of our Pipeline & Storage segment results, as well as the impact of the Upstream and Gathering acquisition in Appalachia.\nDave and John already hit on the high-level drivers, so I'll focus on a few other details from the quarter and discuss our outlook for the remainder of the year.\nFirst, in line with our expectations, we closed on the sale of our timber properties in December, receiving net proceeds of $105 million after closing adjustments.\nAs a result, we recorded an after-tax gain of $37 million.\nWe made the decision to divest substantially all of these properties to fund a portion of our Appalachian acquisition.\nThe timing of the sale allowed us to structure the transaction as a like kind of exchange, which defers a relatively sizable tax gain over the life of the Appalachian reserves that we acquired last year.\nThe other large item impacting comparability during the quarter was the $55 million after-tax non-cash ceiling test charge.\nGiven where prices are today, we would not expect to record another ceiling test impairment in the fiscal year.\nMoving to operating results for the quarter.\nJohn and Dave hit the high points in our Upstream and Pipeline businesses, so let me touch briefly on earnings at the Utility, which were down $3.5 million versus last year's first quarter.\nWarmer weather, particularly in our Pennsylvania service territory and an additional accrual for bad debt, likely to result from the pandemic, impacted this business during the quarter.\nWhile we haven't witnessed a material deterioration and customer payment trends, we are in the midst of the winter heating season, and customers are only just beginning to see larger monthly bills.\nAs a result, we continue to conservatively accrue additional expense to reserve against the potential for increased bad debts, and would expect to do so at least through the remainder of the winter.\nSwitching to our outlook for the rest of the year, we've revised our guidance range higher, now projecting earnings to be between $3.65 and $3.95 per share, a $0.10 increase at the midpoint.\nThis increase was driven by strong results during the first quarter, modest decreases in Seneca's cash unit costs and a reduction in our expected DD&A rate as a result of the additional ceiling test charge and reserve bookings during the first quarter.\nThese are expected to be somewhat offset by revisions to our commodity price assumptions for the remaining nine months of the year, with our NYMEX natural gas guidance decreasing to $2.75 per MMBtu and WTI guidance increasing to $52.50 per barrel.\nWith respect to consolidated capital spending, all of our segment ranges remain the same, and we are still projecting between $720 million and $830 million for the fiscal year.\nAt the midpoint of our guidance ranges, we'd expect funds from operations to exceed our capital spending by approximately $50 million for the year.\nIncorporating that with the proceeds from the sale of our timber properties, we expect to be able to cover our dividend without any material incremental short-term borrowings.\nWe are well hedged for the remainder of the year, so any changes in commodity prices should have a muted impact on earnings and cash flows.\nSwitching to the balance sheet.\nWe have $500 million of long-term debt set to mature in December.\nWe expect to access the capital markets in fiscal 2021 to replace this maturity.\nWith our next maturity thereafter, not until fiscal 2023, we have a nice runway without any major refinancing requirements.\nOn our short-term credit facilities, we enhanced our liquidity by increasing the size of our 364-day credit facility and extending its maturity through the end of calendar 2022.\nThis now gives us $1 billion in committed unsecured credit facilities that are almost entirely undrawn today.\nFrom an overall leverage standpoint, our balance sheet is in great shape.\nWe are well within the investment-grade targets set forth by the rating agencies.\nAnd as we look to fiscal 2022 and finish construction on the FM100 project, we expect to see further improvement in these metrics.\nIn closing, we had a solid first quarter, and the outlook for the year remains strong.",
        "summary": "compname reports q1 gaap earnings per share $0.85.\nq1 gaap earnings per share $0.85.\nqtrly adjusted operating results $1.06 per share.\nsees 2021 earnings, excluding items impacting comparability, will be within range of $3.65 to $3.95 per share.\nco now assumes that wti oil prices will average $52.50 per bbl for remainder of 2021."
    },
    {
        "text": "With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Karen Camiolo, Treasurer and Principal Financial Officer; and Justin Loweth, President of Seneca Resources.\nWe may refer to these materials during today's call.\nWhile National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially.\nNational Fuel had an excellent second quarter with operating results of $1.34 per share, up 38% year-over-year.\nDuring the quarter, we saw the benefits of the ongoing expansion of our FERC-regulated interstate pipeline systems including significant incremental revenues from our Empire North project, which went into service last September.\nIn addition, last summer's Tioga County acquisition continues to exceed our expectations with gathering throughput and Appalachian production up over 45%.\nIncreased [Technical Issues] to $4.05 per share, at the midpoint an increase of 35% in the prior year.\nAcross all our operations, we continue to successfully execute on our near-term growth plans.\nOur FM100 expansion and modernization project received its notice to proceed from FERC in late February and construction commenced in early March.\nWe finished the critical path tree clearing on schedule and construction is under way on both compressor stations.\nWe expect to begin construction on the pipeline portion of the project later this month.\nBased on our progress to date, we're confident the project will be finished on time for a late calendar '21 in-service date.\nOnce complete, this project will generate about $50 million of annual revenue for us.\nAnd along with Transco's companion Leidy South project will provide Seneca with another valuable long-term outlet for its Appalachian production.\nWith limited additional Appalachian takeaway capacity slated to come online in the near term, we believe that Seneca's firm transportation portfolio which accesses diverse and liquid markets will provide significant value in the years ahead.\nTo maximize the value of this new capacity, Seneca is operating two drilling rigs in Pennsylvania with first production from its recent rig addition in our Eastern Development Area scheduled to come online just ahead of the Leidy South in-service date.\nThis timing will allow Seneca to capture the premium winter pricing typically seen in the Transco Zone 6 market.\nThis next leg of growth underpinned by the FM100 project positions us differently from our Appalachian peers.\nThis project will enhance scale and profitability across our upstream gathering and regulated pipeline businesses and is a great example of the value of our integrated business model.\nSwitching gears, the Utility also had a good quarter though warmer than normal weather did have an impact on earnings.\nBad debt expense, which continued to trend a little higher, was also a factor.\nKaren will have more to say on that later on the call.\nNow this is an impressive achievement that's a testament to the hard work of our dedicated workforce.\nAcross the nation policy makers are seemingly in a race to transition the nation's energy supply toward intermittent renewable resources.\nHowever, the events that transpired during February's super storm Yuri in Texas and the Midwest clearly underscore the need for an all-of-the above energy strategy.\nAnd this is particularly the case in National Fuel's operating footprint where the low temperatures that crippled Texas for just a few days are really pretty much the norm for the three coldest months of winter.\nIt becomes readily apparent that there is a long-term need for reliable, weather-hardened infrastructure to serve the energy needs of our region and I firmly believe that natural gas with its resilient and safely operated pipeline delivery infrastructure, will remain an important part of the nation's energy solution.\nIn March, we published our Utility's Pathways to a Low-Carbon Future report, which demonstrates pretty convincingly that natural gas and associated infrastructure can in fact have a role in a low-carbon world.\nThe report, which was developed using the findings of a study performed by Guidehouse, an independent consulting firm, evaluated scenarios for meeting New York state's aggressive decarbonization targets focusing on the interplay of energy efficiency, electrification, hybrid heating solutions and low carbon fuels to leverage existing utility infrastructure and provide cost-efficient solutions.\nThis study validates that by focusing policy on an all-of-the-above carbon reduction approach, we can achieve significant decarbonization that meets emissions goals while preserving access to low cost, reliable and resilient energy for consumers.\nAlso in March, our Utility announced greenhouse gas emissions reduction targets for its delivery system of 75% by 2030 and 90% by 2050, both from 1990 levels.\nThe targets rely on our commitment to the continued modernization of our utility infrastructure which today has led to a reduction in EPA Subpart W emissions of well over 60%.\nImportantly, our regulators have been supportive of these ongoing modernization efforts, particularly in New York where our system modernization tracker has allowed us to recover these investments in our system on a timely basis.\nWhile we started with the Utility, National Fuel is in the process of developing a plan to reduce its overall carbon footprint across the rest of our operations.\nThis plan will include establishing credible emissions reductions targets for our midstream and upstream businesses as well as enhancing our sustainability disclosures to include additional climate-focused information in line with the TCFD framework.\nIn conclusion, National Fuel is in great shape.\nOur FM100 project is under construction and on schedule, which positions our pipeline, upstream, and gathering businesses for significant near-term growth.\nAt the same time, our Utility business continues to modernize its infrastructure, which will drive meaningful emissions reductions and provide an opportunity for ongoing rate base growth.\nLooking to fiscal '22 and beyond, our capital spending requirements will be substantially reduced, particularly in our FERC-regulated pipeline business, which will lead to significant free cash flow and increased financial flexibility.\nAdd to that, half a century of dividend growth and a solid investment grade balance sheet and I think you'll find it tough to match National Fuel's long-term value proposition.\nI'd like to start by expressing my excitement to step into the President role at Seneca.\nSeneca couldn't be in a better place with a best-in-class group of employees, decades of economic development inventory, an attractive portfolio of takeaway capacity and the benefits of integration with National Fuel's other subsidiaries providing a firm foundation.\nFurther we are aligning Seneca's organization around sustainability and environmental leadership and are working toward targets for reducing the environmental impact of our operations.\nIn summary, the outlook for Seneca is bright.\nMoving on to the second quarter.\nSeneca produced a Company record 85.2 Bcfe, driven by increased Tioga County volumes from the acquisition completed last summer as well as growth in solid production results from our ongoing Appalachian development program.\nDuring the quarter we brought online [13] new wells in Pennsylvania, all of which were in our Western Development Area.\nOur operations team did a great job turning these recent wells online a few weeks ahead of schedule allowing us to accelerate production during the winter months capturing premium winter pricing.\nThis increased our second-quarter production.\nHowever, over the balance of the year and as planned, we expect modestly declining volumes with only one new pad scheduled to come online in late fiscal '21.\nDuring the quarter we also drilled 14 new wells, 10 in the WDA, four in the EDA.\nAs we approach the online date for Leidy South and the winter heating season, we expect to accelerate our completion operations and we plan to delay turning in line most of these new wells until early fiscal 2022, coinciding with the expected in-service date of our new capacity.\nWith respect to capital, we are forecasting the second half of the year to be heavier due to the increased completion activity that I just mentioned.\nHowever, our capital guidance range is unchanged.\nWe also continue to see the benefits of our increased scale with cash operating expenses dropping to $1.09 per Mcfe, a 14% decrease from the prior year.\nOf note, we have realized a significant decrease in per unit G&A expense, dropping roughly 25% over the past year, driven by our acquisition and ongoing development in Appalachia.\nAs to service costs, we have experienced limited cost inflation over the past few months, mostly in tubulars, and at this point we do not anticipate meaningful increases into 2022 based on conversations with our contractors and suppliers.\nIn addition, we continue to make strides in improving our operational efficiencies, particularly in Tioga County, where our operations team has cut Utica drilling time by 25% compared to our last Tract 007 Pad.\nGiven our significant inventory of highly economic development locations in Tioga County and long-term development plans, we expect to realize the benefits of these efficiencies for years to come.\nOn the marketing front, although pricing has been relatively volatile, Seneca is very well hedged for the balance of the fiscal year with 88% of our East Division gas production locked in physically and financially.\nWe also have firm sales providing basis protection.\nSo all in, about 95% of our forecasted gas production is already sold.\nThat leaves a relatively small amount of production, less than 10 Bcf, exposed to in-basin spot pricing.\nI also want to point out a recent project our sister company NFG Midstream completed tying together the Covington Gathering System with the recently acquired Tioga Gathering System.\nThis has significantly increased Seneca's flexibility to move more gas to premium Dominion and Empire markets versus the weaker TGP 300 Zone 4 market.\nIt's another great example of the significant value we can capture as an integrated business.\nAs we look a bit further out, we have maintained our disciplined approach to hedging and already have 188 Bcf of fixed price firm sales, NYMEX swaps and costless collars in place for fiscal 2022.\nThis provides Seneca with downside protection, that leaves the potential to generate significant additional free cash flow should prices move up.\nOverall, we remain constructive on long-term natural gas prices with LNG exports near all time highs, Mexico exports near all time highs, and storage levels below both last year and five-year inventories.\nWe expect these factors, together with continued capital discipline by producers, to lead to further strengthening of the natural gas script in 2023 and beyond.\nAs Dave mentioned, FM100 and Leidy South both remain on track for a late calendar 2021 in-service date.\nAnd once complete, we will provide a valuable, long-term outlet for Seneca's production from each of its core development areas.\nThis additional capacity sets us up for further production growth throughout fiscal 2022.\nThereafter, absent the ability to enter into additional long-term firm sales or firm capacity that would result in strong realized prices, Seneca expects to shift into a maintenance to low-growth production mode.\nOur focus will continue to be on generating significant free cash flow, especially when combined with the cash flows of the Company's wholly owned gathering assets.\nMoving to the regulatory front.\nWhile there has been some recent pronouncements in California related to oil production and extraction, I think it's important to note that Seneca's California operations do not utilize fracking.\nAnd thus while we are closely monitoring the regulatory and legislative landscape, we do not expect any significant impact to our operations based on these recent developments.\nAs has long been the case, California can be a challenging regulatory place to conduct business.\nHowever, we have been able to successfully navigate a changing regulatory environment while generating strong returns on our oil-producing assets and anticipate that to remain the case.\nWe expect our annual capital levels in California will be in the $10 million to $20 million range over the next few years absent further increases in the longer-term oil strip.\nAdditionally Seneca continues to look for opportunities to invest in solar facilities in California to power our production operations and to reduce our carbon footprint.\nAt present, we have solar facilities already online at our North Midway Sunset field and at our Bakersfield office.\nAnd we are constructing another facility in South Midway Sunset which will provide about 30% of our field electricity use.\nAnd with our Appalachian natural gas operations centered on what most would consider to be the lowest emitting shale basin in the US, we are well positioned to be an upstream leader in ESG.\nNational Fuel's second quarter GAAP earnings were $1.23 per share.\nWhen you back out items impacting comparability, principally related to the premium paid for the early redemption of our $500 million December '21 maturity, our operating results were $1.34 per share, a significant increase over last year.\nDavid and Justin already hit on the high-level drivers.\nSo I'll focus on a few other details from the quarter and discuss our outlook for the remainder of the year.\nFirst, as I alluded to, we were active in the capital markets a few months ago.\nIn February, we issued $500 million of 2.95% 10-year notes, the proceeds from which were used to fund the early redemption of our $500 million, 4.9% coupon December '21 maturity.\nThat transaction was very well received by the market with our order book reaching more than eight times oversubscribed.\nThat level of demand allowed us to achieve our lowest ever coupon for 10-year notes.\nTreasuries have moved materially higher since then.\nSo overall, this looks like a great transaction for us.\nWith our next maturity not until early 2023, we have a nice window where we don't need to be active in the capital markets.\nCombining this with our $1 billion in short-term committed credit facilities and our expectation on meaningful future cash flow generation, we're in a great spot from a liquidity position.\nWhile this debt issuance will translate into $2.5 million of interest savings per quarter going forward, the fiscal 2021 impact is somewhat muted by the overlapping period during the second quarter where both the redeemed notes and the new issue were on our balance sheet.\nBefore turning to our outlook for the remainder of the year, just a brief update on customer payment trends in the Utility.\nAs we stated from the beginning of the pandemic more than a year-ago, we expected the biggest headwind on customer payment trends to occur as we got through the winter heating season.\nOver the past few months, we have seen a modest increase from historic levels of customer non-payment.\nAs a result, we have continued to accrue incremental bad debt expense and intend to do so for the remainder of the year.\nAt this point, we believe that additional reserve will be adequate to handle potential collection challenges we may face in the coming quarters.\nAs it relates to the rest of the year, based on our strong second quarter results, we've increased our earnings guidance to a range of $3.85 to $4.05 per share, up $0.15 at the midpoint.\nGiven we are now more than halfway through the year, we continue to refine our guidance assumptions.\nAt our regulated companies, consistent with our earlier guidance, we anticipate O&M expense to be up approximately 4% in both our Utility and Pipeline and Storage segments.\nIn the Utility, as I mentioned earlier, we are projecting a more conservative expense assumption as it relates to our bad debt reserve that is being largely offset by ongoing expense savings as we remain focused on keeping our cost structure low.\nIn the Pipeline and Storage business, the bulk of the year-over-year increase is back-loaded in the second half of the fiscal year.\nFor our non-regulated businesses, we now expect Seneca's full year LOE to range between $0.82 and $0.84 per Mcfe, a $0.01 lower at the midpoint of our revised guidance range.\nWhile our LOE-rate was lower than this for the first half of the year, as we look to the balance of the fiscal year, we expect to see slightly higher LOE due to the increased levels of maintenance over the spring and summer months.\nOn the gathering side of our business costs were in line with prior expectations and we still anticipate O&M to be in line with our earlier $0.09 per Mcf guidance.\nLastly, on the expense side of the equation, similar to a couple of our other assumptions, we'd expect Seneca's per unit DD&A to increase in the second half of the year relative to the first two quarters.\nWe had some positive revisions to our reserve bookings in the quarter that had the effect of reducing DD&A expense.\nAs we look to the back half of the year and beyond, we would expect that DD&A trends closer to the low $0.60 per Mcfe area.\nWith respect to consolidated capital spending, All of our segment ranges remain the same and we are still projecting between $720 million and $830 million for the fiscal year.\nThere hasn't been any other material changes from a cash flow perspective.\nAnd as a result we expect to live within cash flows this year when you consider the proceeds of our timber sale and our expected dividend payments.\nWe are well hedged for the remainder of the year.\nSo, any changes in commodity prices should have a muted impact on earnings and cash flows.\nIn closing, we had a solid first half of the year and are optimistic about the direction we're heading.",
        "summary": "compname posts q2 earnings per share of $1.23.\nq2 gaap earnings per share $1.23.\nqtrly adjusted operating results of $123.2 million, or $1.34 per share.\nincreasing its fiscal 2021 earnings guidance to a range of $3.85 to $4.05 per share."
    },
    {
        "text": "Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended March 31, 2020.\nsec.gov or on NHI's website at www.\nFirst and foremost, we are deeply grateful to all the front-line heroes that are tirelessly combating COVID-19 every day, despite the great risk to themselves and their families.\nAt NHI, we have long admired the senior housing and skilled nursing organizations and their staff that go to great lengths to keep our senior population safe and smiling.\nNever has this been truer than today.\nAs a tribute, we have published some of our favorite caregiver and resident photos on the cover of our supplemental.\nI hope you'll take a look.\nReputations are made during a crisis and I see operators making good decisions and taking action based on the principles they value, selflessly caring for their residents, nurturing a company culture that appreciates employees, and providing leadership and comfort to the employees and families of their residents.\nI believe that when history reflects back on our industry and its practices during this time, there will be operators that are hailed as heroes.\nThat said, the challenges posed to our operators and our business by this pandemic are very real and it is difficult to say with any degree of accuracy, when we will return to a more normal operating environment.\nOur operators have done an admirable job in limiting the spread of COVID-19.\nAs of May 5th, we had 192 active resident cases in 37 buildings.\nTo put that in some perspective, NHI has over 20,000 residents being cared for in all of our properties; so, less than 1%.\nAs our operators have implemented their protocols and taken appropriate actions to prevent or limit the spread of the virus, the result has been a significant downturn in inquiries, tours and move-ins.\nThis is having a negative impact on occupancy.\nKevin will give details on that later.\nOn the cost side of the equation, it should not surprise anyone that our operators are spending more, particularly for labor and PPE suppliers.\nThis is obviously pressuring our operators' margins and we are prepared to help them weather this storm, where and when necessary.\nIn April, NHI received 99.7% of its contractual rent, and so far in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month depending on underlying lease terms.\nAs this pandemic unfolds, NHI is committed to transparency with the investment community.\nTo that end, we have enhanced occupancy disclosure on Bickford, Holiday and Senior Living Communities, which Kevin will touch on in more detail.\nWe were the first to detail the incident of COVID-19 in our communities and we will continue to provide weekly updates to our website as long as it is material.\nBut given that the scope and spread of COVID-19 is so uncertain, NHI has limited visibility to the financial impact it could cause.\nAnd as a result, we are withdrawing our previously issued 2020 guidance.\nRegarding the dividend, our Board is committed to our dividend policy and we will consider the August dividend in mid-June.\nBeginning with our net income per diluted common share for the quarter ending March 31, 2020 we achieved $1.37 per share in earnings, inclusive of the gain on sale, compared to $0.83 per share for the same period in 2019.\nTurning to our three FFO performance metrics for the first quarter, NAREIT FFO increased 3.1% to $1.35, normalized FFO increased 3.8% to $1.36 and adjusted FFO or AFFO increased 5.7% to $1.29.\nCash NOI is the metric we use to measure our performance.\nWe define cash NOI as GAAP revenue excluding straight-line rent, excluding escrow funds received from tenants, and excluding lease incentive and commitment fee amortizations.\nFor the quarter ending March 31, cash NOI increased 9.2% to $76.3 million compared to $69.8 million in the prior year.\nOur increase in first quarter 2020 cash NOI was reflective of our organic NOI growth from lease escalators and the effects from our post-Q1 2019 investments including the recent Timber Ridge joint venture investment, as well as the continued fulfillment of our commitments.\nA reconciliation of cash NOI can be found on Page 17 of our Q1 2020 SEC filed supplement.\nG&A expense for the 2020 first quarter increased 7.4% over the prior first quarter to $4.3 million.\nThe increase in G&A was spread across several areas, including the expansion of our asset management team, other payroll expense increases and expenses associated with a higher use of outside consultants.\nTurning to the balance sheet, we ended the quarter with $1.55 billion in total debt, of which a little over 90% was unsecured.\nAt March 31, we had $142 million of capacity on our $550 million revolver.\nNHI also had $46 million in cash, resulting in a net debt of $1.5 billion or $67.6 million [Phonetic] higher than our net debt at December 31.\nThis increase was largely due to the Timber Ridge acquisition, which closed at the end of January.\nAt quarter end, we also had approximately $24.2 million in restricted 1031 account, not included in our cash equivalents, but recorded in other assets, which originated from the sale of eight Brookdale properties in January.\nOur debt capital metrics for the quarter ending March 31, were net debt to annualized EBITDA of 4.7 times, which is unchanged from the fourth quarter, weighted average debt maturity of 3.7 years and our fixed charge coverage ratio at 5.8 times compared to 5.7 times in the fourth quarter of 2019.\nFor the quarter ending March 31, our weighted average cost of debt was 3.3%.\nStock combined markets over the last month are not where we'd like them to be.\nHowever, during the first quarter, we filed a new automatic shelf registration and refreshed our ATM program, giving us $500 million in new ATM capacity.\nTogether, our investment-grade credit ratings, including a recently affirmed stable outlook from Fitch, our new shelf also includes an indenture, which positions us during [Phonetic] a novel public debt offering when market conditions improve.\nWhile currently very expensive, we do consider the public equity and debt markets is open to us and another source of liquidity.\nDavid brings 23 years of accounting experience to NHI with his recent CAO roles at MedEquities Realty Trust and Healthcare Reality Trust and through his experiences as Audit Senior Manager at Ernst & Young.\nWe have been updating active resident cases in our communities on a weekly basis, but I wanted to add a little more context.\nAs Eric mentioned, we had 37 buildings with one or more active resident cases, including 20 senior housing properties and 17 SNFs.\nWithin the 20 senior housing properties, 14 were need-driven properties and six were discretionary properties.\n37 properties span 13 unique operators in 18 different states.\nWe had a total of 192 active resident cases, which included 97 cases in our SNFs, 40 cases in the skilled nursing wings at our CCRCs and senior living campuses, and 55 cases at our senior housing properties.\nWe are in constant contact with our operating partners and are confident they are following their own infectious disease protocols and are acting in accordance with CDC guidelines, state health agency regulation and in some case, more so.\nOverall, we have been very pleased and grateful for the efforts of our operators to prevent or limit the spread of COVID-19 in their communities.\nThe relatively low incidence is not surprising to us and is really a testament to our operators, whose mission is to keep our senior population safe.\nRegarding the CARES Act, several of our operators -- of our senior housing operators have been approved for have received funds from the Paycheck Protection Program.\nAs it turns out, the triple net lease structure is beneficial when applying for these loans.\nOur SNF operators are also benefiting from the CARES Act.\nPayments from the Provider Relief Fund averaging approximately $150,000 per building, the 2% Medicare sequestration suspension and the 6.2% increase in the FMAP help improve near-term liquidity for the SNFs.\nTurning to collections, April collections were 99.7%, and so far in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month depending on the underlying lease terms.\nAt this point, nobody is past due.\nWe speak frequently with our operators and are working to creatively find solutions that benefit them at this unprecedented time and that makes sense for our shareholders.\nWe do have credit enhancements in our leases with many of our senior housing operators, which total approximately $38.7 million in cash in addition to guarantees and we have excellent credit from our SNF operators.\nTurning to the performance of our different asset classes and larger operators, our needs-driven senior housing operators were early to act to this pandemic and have limited the spread of the virus so far.\nAs of our last weekly update, 14 assisted living and senior living campuses had active resident cases with most of the communities limited to less than five cases per community.\nBickford, which represents 17% of our annualized cash revenue, has seen a slight downtick in their move-out rates, but like much of the industry, their lead volume and tours were down more than 40%, which impacts the rate of new move-ins and occupancy.\nBickford's average occupancy on a same community basis was 87.3% in the first quarter and 86.6% for March.\nOccupancy further declined in April by 130 basis points to 85.3%.\nOur entrance fee communities have fared somewhat better as the resident turnover is much lower and the residents tend to be younger and healthier relative to other property types.\nBut they are not immune to the impact of COVID-19 and we have had four entrance fee communities with active resident cases as of our last weekly update, though like assisted living, the number of cases per community is limited.\nSenior living communities, which represents 16% of our revenue had first quarter average occupancy of 80.4%, which ticked up slightly to 80.6% in March, but dropped to 79% in April as multiple entrance fee sales have been delayed due to the pandemic.\nOur independent living communities have experienced a similar decline in leads, tours and move-ins as our assisted living operators.\nThe incidence of COVID-19 is relatively low in independent living and we had only two properties with active resident cases as of the last update.\nHoliday Retirement, which represents 11% of our annualized cash revenue, had an average occupancy of 87.3% in the first quarter and 86.7% in March.\nThe April average occupancy declined by 170 basis points to 85%.\nBickford, SLC and Holiday represent approximately 56% of our senior housing units.\nOn a combined basis, those three saw average occupancy decline by 150 basis points from March to April, which is a good proxy for the rest of the senior housing portfolio.\nThe skilled nursing portfolio, which represents 26% of our annualized cash revenue is anchored by two excellent credits in NHC and The Ensign Group.\nAs of our last weekly update, 17 of our 78 SNFs had active resident cases.\nWe have seen more instances of outbreaks in some of our SNFs, which is expected given the higher acuity patient population and the more frequent contact caregivers have with the patients and residents.\nGiven the short average length of stay for Medicare patients and the temporary stay on elective procedures, SNF occupancies have generally declined by more than what we are seeing in senior housing.\nHowever, there is more government financial support for the SNF industry.\nNHC, which accounts for 12% of annualized cash revenue, has received funds from the Provider Relief Fund.\nThe company also expects to gain liquidity through the Medicare Accelerated Payment Program, the Medicare sequestration suspension, the payroll tax deferral and supplemental Medicaid payments.\nOverall, we feel very comfortable with the credit in our SNF portfolio.\nThe pace of deals have stalled and everything indicates that this will continue for the next several months as true price discovery is near impossible to determine right now.\nOur focus for the more immediate future is to continue funding existing commitments and extreme asset management by creatively providing guidance and assistance to our operators, if needed.\nFor the longer term, we continue to have conversations with existing and new operators and expect that our pipeline will be ready to support significant external growth when some normalcy returns to the market.\nI do want to express my gratitude and admiration for all of our operators and the front-line heroes that accomplished truly amazing acts of courage and their residents and patients every day.\nWith that, I'll hand the call back over to Eric.\nLooking internally, you should know that NHI's management team and Board have deep experience managing during times of crisis.\nI believe our balance sheet and liquidity, together with strong lender and market relationships, puts us on firm footing.",
        "summary": "compname posts q1 earnings per share of $1.37.\ncompname says q1 2020 gaap net income attributable to common stockholders of $1.37 per diluted common share - sec filing.\nqtrly affo of $1.29 per diluted common share.\nwithdrawing its full year 2020 guidance."
    },
    {
        "text": "Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended September 30, 2020.\nWe hope that everyone is staying healthy and positive in these most interesting of times.\nI want to express my deep gratitude and admiration to all our operating partners and their heroic employees that knowingly put themselves in harm's way every day as they work to care for our country's most vulnerable population.\nTo date, our operators have held up relatively well, as occupancy declines generally slowed in the third quarter aided by a pickup in move-ins and the leveling-off of COVID-related expenses.\nWe collected nearly 97% of rents in the quarter and nearly 98% in October.\nIn the third quarter and for the year to date, we reported AFFO per share growth of 1.5% and 4.5% respectively.\nIt should also be noted that we were tracking on the lower end of the range for the first nine months of 2020 in terms of our numbers, formerly known as guidance.\nWe think this is a testament to the stability of the triple-net lease strategy, the needs-driven nature of the properties we invest in, as well as the underlying strength of our operating partners.\nDepending on the timing and effectiveness of the vaccine, we expect the impact of the pandemic to be more uneven across our property types, as winter approaches.\nThus far, our entrance fee communities and skilled nursing properties, which together generate over 50% of our revenue, have been quite resilient.\nHowever, our freestanding assisted living memory care and independent living operators are experiencing greater challenges, as COVID cases are spiking in many parts of the country, which is slowing the pace of move-ins while move-outs are accelerating in what is typically a seasonally weak period.\nWe are very encouraged that the HHS has included assisted living operators as eligible participants in the Provider Relief Fund, which will help with the financial hardships inflicted by the pandemic.\nWhile we are hopeful that more federal assistance is on the way, we cannot solely rely on this to resolve all the issues.\nThis includes deferring up to $3 million of November rent.\nThey have additional deferrals of $750,000 available for each of December and January, all of which if exercised will accrue interest at an 8% rate with repayment expected over 12 months beginning in June 2021.\nWe are also continuing to work with prospective lenders and Bickford on the previously disclosed sale of nine properties, which we estimate will improve Bickford's annual cash flow by approximately $3 million.\nBickford has applied for grants under Phase 2 and 3 of the Provider Relief Fund, which we expect that they will receive before year-end, which will also improve their financial position.\nThese measures will improve Bickford financially and create a long-term solution, but we will continue to work with them closely over the coming months and take further measures if needed.\nAs the pandemic unfolded, we expected that there would be deferrals as we head into 2021.\nWe have other tools at our disposal as well, including the use of deposits and other reserves and some personal and corporate guarantees.\nWe are willing on a tenant-by-tenant basis to help our operators bridge the gap to a more stable operating environment within certain commercial norms.\nThat said, we believe these challenges presented are temporary.\nSo, we're hesitant to make longer-term decisions that would have a more permanent impact on our future cash flow.\nWhile we certainly did not anticipate the pandemic, our Board and senior management have been disciplined in adhering to our conservative financial metrics, which puts us in a strong position to weather this storm and to take advantage of growth opportunities as they emerge.\nOur big picture outlook has not changed.\nWe continue to see tremendous opportunities for growth in senior housing and skilled nursing real estate and will be opportunistic with our capital deployment to help drive shareholder value.\nDuring the third quarter, we began to experience more direct financial impacts due to the pandemic.\nAs we position the Company for the pandemic's future unknowns, we continue to be proactive and not over-reactive to the crisis, which we believe is resulting in solid and even surprisingly strong financial performance.\nWhile we cannot remove all the uncertainty that we will continue to experience for the next few quarters, we are confident that we have the strategy, operator quality and financial tools necessary to transition through this period.\nBeginning with our net income per diluted common share.\nFor the quarter ending September 30, 2020, we achieved $0.95 per share in earnings.\nThat compares to $0.97 per share for the same period in 2019.\nFor the nine months ending September, we achieved $3.31 per share in earnings compared to $2.72 per share for the same period in 2019, which is reflective of the gains we recorded during 2020 for real estate dispositions.\nFor our three FFO performance metrics per diluted common share for the third quarter compared to the prior year quarter, NAREIT FFO and normalized FFO were both flat at $1.42 and adjusted FFO increased 1.5% to $1.34 per share.\nCash NOI is the metric we use to measure our performance.\nA reconciliation to NHI's cash NOI can be found on Page 18 of our Q3 2020 SEC filed supplemental.\nFor the quarter ending September 30, cash NOI increased 1.2% to $75.3 million compared to $74.4 million in the prior year period.\nHowever, reflecting Q3 rent deferrals, cash NOI was down 2.8% sequentially from the second quarter.\nWhile our triple-net strategy continues to mitigate the cash NOI effects from COVID, and more importantly, our operators continue to soundly execute on our infectious control protocols, as Eric just mentioned, a subset of our senior housing portfolio experienced more pronounced COVID occupancy declines in the third quarter than what we saw over the summer.\nAs a result, today, we're announcing additional rent deferrals for Bickford, which together with other previously announced rent deferrals, will impact cash NOI growth by up to approximately $5.5 million over the next two quarters or approximately 3.5% of our trailing six-month cash NOI before deferrals.\nAs we negotiate rent deferrals, we are seeking to accomplish two outcomes.\nThe first outcome is to provide our operators the confidence that we are committed to their success and the care of their residents.\nAnd the second outcome is to equitably structure the deferrals on behalf of the best interest of our stockholders.\nWe cannot predict the continuing impact the pandemic will have on our operators for the next few quarters.\nHowever, between our operators' exceptional capabilities, additional federal support and our other cash sources that we can make available to our operators under our leases such as deposits and escrows, we do continue to be confident that any additional occupancy loss or coverage decline will not necessarily translate into additional dollar-for-dollar rent deferrals.\nTurning to the balance sheet.\nOur debt capital metrics for the quarter ending September 30 were our net debt to annualized EBITDA at 4.8 times, weighted average debt maturity at 2.9 years and our fixed charge coverage ratio at 6.3 times.\nWe ended the quarter with $1.53 billion in total debt, of which 91% was unsecured.\nFor the quarter ended September 30, the weighted average cost of debt was 2.96%.\nAt the beginning of the third quarter, we added liquidity to the balance sheet through a new $100 million one-year -- with one-year option to extend term loan.\nLoan carries a variable interest at a rate of LIBOR plus 185 basis points with a 50 basis point LIBOR floor.\nAt October 31, we had $252 million in availability under our $550 million revolver and $38.2 million in unrestricted cash.\nIn addition, during the third quarter, we sold 79,155 shares in NHI's stock through our ATM program at an average price of $65.35 per share, raising approximately $4.8 million in net proceeds.\nWe have approximately $495 million capacity remaining under our ATM program, which was filed together with our shelf in February of this year.\nI'm pleased to also announce that last Thursday, we received an investment-grade Baa3 rating from Moody's.\nOur three [Phonetic] investment-grade ratings now position us to begin exploring public debt and begin a regular program for managing our maturities moving forward.\nIn mid-September, we declared our third quarterly -- quarter dividend of $1.1025, which was just funded November 6.\nI'm pleased to report to you that we continue to pay our dividend with an AFFO payout ratio in the low-80% range without significant further cash flow burdens from routine capital expenditures.\nThe pandemic continues to keep us mindful toward meeting both our financial and dividend policies.\nOur Board is committed to our financial policies, including our commitment to maintain our leverage between 4 times and 5 times net debt to EBITDA.\nSo, we're very pleased to date, we've been able to balance our dividends, our leverage ratios and our commitments to our operators.\nOur management team will continue to work hard to continue this track record moving forward toward the conclusion of this crisis.\nStarting with an update on the COVID.\nActive resident cases peaked in late July at 483 cases across our portfolio and then trended down to 161 cases in early October.\nIn our last two updates, cases have started to climb again, and we're at 367 active resident cases across 81 communities.\nThe active cases represent about 1.5% of our unit capacity.\nNearly 75% of the cases are in our SNFs, some of which are actively admitting COVID patients.\nOn the senior housing side, our operators continue to limit the spread as active resident cases per community was at 2.4 last week, which matches the average since we started reporting the data in mid-March.\nWe think this firmly demonstrates the value proposition of seniors housing whose mission it is to keep the senior population safe.\nWe received 96.6% of our third quarter contractual rent and 97.8% of October rent.\nWe expect to provide a November update mid-month, which will obviously be impacted by the Bickford deferral that Eric discussed.\nIn addition to the Bickford deferral, we agreed to defer or abate approximately $570,000 of rents for the remainder of 2020, with another tenant that will also grant that tenant the option to defer approximately $450,000 of rents related to the first quarter of 2021.\nAny deferred rent payments will accrue interest from the date of the deferral until paid in full and are due no later than December 31, 2022.\nWe do have credit enhancements in our leases with many of our senior housing operators, which totaled approximately $37.1 million in cash or letters of credit in addition to guarantees, and we have excellent credit from our SNF operators.\nTurning to the performance of our different asset classes and larger operators.\nOur needs-driven senior housing operators, which account for 32% of our annualized cash revenue, were hit hard at the onset of the crisis, but did level-off through the second and third quarters as move-in activity picked up enough to slow the pace of occupancy losses.\nAs Eric mentioned, assisted living operators are now included as eligible providers beginning with Phase 2 of the Provider Relief Fund, which equates to approximately 2% of 2019 revenue, which most of our operators have or expect to receive.\nPhase 3 applications were due by November 6.\nSo, we should know more about those distributions soon.\nThese funds are much needed and help shorten the gap to a more normal operating environment.\nBickford, our largest assisted living operator representing 15% of annualized cash revenue, experienced an 80 basis point sequential decline in third quarter average occupancy, which compared to 270 basis point decline in the prior quarter comparison.\nWe talked last quarter about our cautious optimism on stabilizing trends, which largely proved out in the third quarter.\nHowever, more recently move-ins have slowed as COVID cases throughout the Midwest spiked.\nAs described by Eric, we have taken initial steps to help improve Bickford financially, and we'll continue to inform you on any future steps if and as they occur.\nOur entrance fee communities, which account for nearly 25% of our annualized cash revenue, have proven to be resilient as the average length of stay at these properties ranges from six years to 10 years and the residents are often younger and healthier than what is typical in our other discretionary senior housing models.\nSenior living communities, which represent 16% of our cash revenue, had third quarter average occupancy of 79%, which was down just 10 basis points from the second quarter.\nSeptember average occupancy was 78.9%.\nWhile SLC's entrance fee sales are down year-to-date, we are encouraged by recent developments as entrance fee sales actually increased year-over-year in both September and October, which is helping to bolster coverage.\nEBITDARM coverage for SLC was unchanged sequentially at 1.06 times.\nOur rental independent living communities, which account for 13% of our annualized cash revenue, have experienced a more pronounced and sustained occupancy decline than our needs-driven and CCRC assets.\nHoliday Retirement, which represents 11% of annualized cash revenue, had average occupancy of 79.6% in the third quarter, which was down 390 basis points sequentially.\nThis followed a 380 basis point decline in the second quarter.\nThe occupancy continued to decline throughout the quarter and September's average occupancy was 78.5%.\nA significant percentage of our Holiday units are located on the West Coast where limitations on visitation and residents' ability to travel outside the community are more limited, which we believe is having an outsized negative impact on occupancy.\nEBITDARM coverage slightly ticked down from 1.2 times to 1.18 times as of the second quarter.\nWe do have solid credit support behind this lease, but we continue to monitor the situation closely.\nThe skilled nursing portfolio, which represents 27% of annualized cash revenue, is anchored by two strong tenants in NHC and the Ensign Group who contributed 12% and 8% of annualized cash revenue respectively.\nEBITDARM coverage for the trailing 12 months ended June 30 was 2.89 times, which improved from 2.81 times reported in the prior quarter.\nThis coverage is inclusive of funds received from the CARES Act, which seems to be working as designed as it is helping SNF operators bridge the gap to a more stable operating environment.\nTurning to our business development activities.\nWe have announced $204.7 million in year-to-date investments.\nDuring the third quarter, we exercised our purchase option to acquire The Courtyard at Bellevue for $12.3 million.\nThis is a 43-unit assisted living and memory care community in Bellevue, Wisconsin, which was opened in March 2019 and was 100% occupied upon our acquisition.\nThe long-term triple-net lease on Bellevue replaces a $3.9 million second mortgage that we had secured in January of this year.\nThe property is operated by 41 Management, which is a growing operating partner of ours that now includes eight properties.\nWhile there have been plenty of deals to evaluate throughout the year, we characterize the pipeline as more actionable today than in recent past quarters.\nWith our balance sheet in good shape, we are looking at deals that run the gamut, including triple-net leases with existing and new operators, as well as opportunities in short-term higher yielding products like mezzanine debt and development financing.\nWe are encouraged by the depth of the current pipeline, as we expect we will have plenty of capital to recycle in the next 12 months from sources, including the previously mentioned Bickford portfolio sale, loan repayments, purchase options and other select dispositions.\nWith that, I'll hand the call back over to Eric.\nThis year has presented unique challenges to say the least.\nWe have managed through the crisis with few lasting scars to this point, but know that we were not out of the woods yet.\nThat said, our strong balance sheet and liquidity and our diverse mix of operators and properties position us relatively well as we try to bridge to a more stable operating environment.",
        "summary": "compname posts qtrly normalized affo per diluted common share $1.34.\nnational health investors inc - qtrly normalized affo per diluted common share was $1.34.\nnational health investors inc - qtrly normalized ffo per diluted common share was $1.42.\nnational health investors inc - qtrly nareit ffo per diluted common share was $1.42."
    },
    {
        "text": "Slides for today's call are available on nisource.com.\nInformation concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.\nStrong execution of NiSource's significant renewable energy investments continues to be the highlight of our foundation for future growth and we continue to expect that our core infrastructure programs and renewable generation investments will drive industry leading compound annual growth of 7% to 9% in diluted net operating earnings per share through 2024, growth driven by our commitments to safety, reliability, customer affordability and sustainability.\nAs we begin to refine our outlook for longer-term growth, the preferred path from NIPSCO's 2021 Integrated Resource Plan identifies additional investment opportunities, while advancing the retirement of remaining coal-fired generation between 2026 and 2028 and it supports our plan to reduce greenhouse gas emissions 90% by 2030.\nLet's turn now to Slide 3 and take a closer look at our key takeaways.\nWe are updating our guidance for 2021 to target the top end of the range of a $1.32 to a $1.36 per share in non-GAAP diluted net operating earnings or NOEPS.\nWe are also initiating guidance for 2022 of a $1.42 to a $1.48 and that is consistent with our 5% to 7% near term growth commitment.\nOur long-term diluted NOEPS guidance of 7% to 9% through 2024 is now based on the expected top end of our 2021 guidance range and we reaffirm 5% to 7% growth in 2023.\nAs I mentioned a moment ago, the preferred plan from NIPSCO's 2021 IRP, advances our plans to retire remaining coal-fired generation between 2026 and 2028 as we shift to lower cost, clean and reliable generation.\nInvestments of up to $750 million will be required to replace retiring coal-fired generation.\nThe NIPSCO portion of this investment will be better understood following further evaluation of the proposals we solicited associated with the IRP.\nOur regulatory execution progresses with a proposed order approving a settlement in Pennsylvania, a settlement filed in Kentucky and a proposed order in Maryland.\nIn addition, we filed a gas rate case in Indiana in September.\nWe achieved non-GAAP diluted NOEPS of $0.11 in the third quarter of 2021 versus $0.09 in 2020.\nNow let's look at some NiSource utilities highlights for the third quarter, starting with our gas operations on Slide 9.\nColumbia Gas of Ohio rate case continues to progress.\nNet of the trackers being rolled into base rates, the filing requests an annual revenue increase of approximately $221 million.\nPending its decision next year from the Public Utilities Commission of Ohio, new rates would be effective in mid 2022.\nNIPSCO filed a gas rate case on September 29th requesting a revenue increase of $115 million annually.\nThe case is focused on infrastructure modernization and providing safe, reliable service, while remaining in compliance with state and federal safety requirements.\nIn Pennsylvania, an Administrative Law Judge issued a proposed order recommending that the Pennsylvania Public Utility Commission approved the settlement in our rate case.\nThe settlement would increased revenue by $58.5 million with new rates effective December 29th of this year.\nThe adjusted rates will help to continue investments in infrastructure upgrades, system reliability and maintenance enhancements.\nWe expect the Commission's final order by mid-December.\nIn Kentucky, we have filed a proposed settlement of our rate case.\nThe settlement includes an overall increase in revenues of $18.6 million to support continued investments in safety and replacing aging infrastructure.\nColumbia Gas of Maryland received a proposed order from an administrative law judge on Friday, recommending an increase of approximately $2.56 million in revenues as compared to our request of approximately $4.8 million.\nWe expect a final order from the Maryland Public Service Commission in December.\nBefore we move on, I'd like to note the Columbia Gas of Ohio, our largest LDC, is ranked number 1 in the Midwest region in J.D. Power's 2021 Gas Utility Business Customer Satisfaction Study.\nAlso congratulations to our customer experience team for the successful launch of the Columbia Gas and NIPSCO mobile apps.\nThey are an important step forward in building our connected digital customer experience.\nLet's now turn to our electric operations on Slide 10.\nNIPSCO's electric TDSIC plan is pending before the Indiana Utility Regulatory Commission or IURC.\nThis is a five-year $1.6 billion proposal that would replace the previous plan, which NIPSCO filed in April to terminate.\nThe pending plan includes newly identified projects aimed at enhancing service and reliability for customers as well as some previously identified projects.\nThe selection of the preferred path from NIPSCO's 2021 IRP is a significant milestone in our transition from coal-fired generation toward cleaner and reliable forms of generation, all of which are expected to save NIPSCO customers' approximately $4 billion over the long term.\nThe preferred path from the 2021 IRP refines the timeline to retire coal-fired generation at the Michigan City Generating Station to between 2026 and 2028.\nIt also calls for retirement of two vintage gas peaking units 16A and 16B, which are both located at the Schahfer Generating Station site.\nThe most viable replacement option calls for our portfolio of resources, including incremental solar, stand-alone battery storage and natural gas peaking resources.\nWe estimate that investments of up to $750 million will be required to support the retirements of these units.\nWe expect to be able to quantify the NIPSCO portion of this investment opportunity in the first half of next year after further evaluating bids and the request for proposals and completing due diligence on projects, which align with the preferred path.\nMeanwhile, we continue to execute on the plan for retirement of remaining coal-fired generation at Schahfer.\nUnits 14 and 15 retired as of October 1st and units 17 and 18 are on track to retire by 2023.\nWe are making steady progress on the renewables project build out, informed by the preferred path from NIPSCO's 2018 IRP.\nOur partners on these projects are some of the strongest developers in the renewable energy space and we remain in close contact regarding the progress of these projects.\nWe continue to expect to invest approximately $2 billion in renewable generation by 2023 to replace the retiring capacity at Schahfer.\nAs part of the execution of this plan, construction continues on the Indiana Crossroads I wind project, which is on track to become operational in the fourth quarter of this year.\nConstruction has also started on a pair of solar projects Dunns Bridge Solar I is being constructed by a subsidiary of NextEra Energy Resources under a build transfer agreement.\nEDP Renewables North America is building the Indiana Crossroads Solar project, which will be operated as a joint venture.\nBoth are expected to enter service next year.\nThe IURC provided regulatory approval of the Indiana Crossroads II wind project on September 1st and with that action, all 14 renewables projects needed to replace the retiring capacity of Schahfer Generating Station, have now received approval.\nIn addition to the slate of renewables projects we have announced, NiSource plans to evaluate hydrogen in emerging storage technologies.\nIt's important for us to gain a risk informed understanding of the options and technologies that may emerge as pathways toward further decarbonization.\nBefore getting into the specific results, I'd just like to highlight the solid execution and progress that now has us guiding to the top end of our 2021 guidance range of a $1.32 to a $1.36.\nThis new 2021 expectation also serves as the starting point for both our near-term and long-term commitment.\nWe have also initiated 2022 guidance of a $1.42 to a $1.48, which at its midpoint represents a growth rate of over 6.6% from the 2021 top end.\nTurning to our third quarter 2021 results on Slide 4.\nWe had non-GAAP net operating earnings of about $47 million or $0.11 per diluted share compared to non-GAAP net operating earnings of about $36 million or $0.09 per diluted share in the third quarter of 2020.\nThe 2021 results reflect our ongoing execution of infrastructure investments, offset somewhat by the sale of Columbia Gas of Massachusetts, which closed in October of 2020.\nLooking more closely at our segment three-month non-GAAP results on Slide 5, gas distribution operating earnings were about $18 million for the quarter, representing an increase of approximately $8 million versus last year.\nOperating revenues, net of the cost of energy and tracked expenses were down nearly $18 million due to the sale of CMA.\nOperating expenses also net of the cost of energy and tracked expenses were lower by about $26 million, mostly due to the CMA sale, offset slightly by higher employee-related costs and outside services spending.\nIn our Electric segment, three-month non-GAAP operating earnings were about $130 million, which was nearly $3 million lower than the third quarter of 2020.\nNet of the cost of energy and tracked expenses, operating revenues decreased slightly by about $2 million due to slightly lower residential usage, offset by increased TDSIC revenues.\nOperating expenses net of the cost of energy and tracked expenses were nearly flat compared to 2020.\nNow turning to Slide 6, I'd like to briefly touch on our debt and credit profile.\nOur debt level as of June 30 was about $9.6 billion of which about $9.2 billion was long-term debt.\nThe weighted average maturity on our long-term debt was approximately 14 years and the weighted average interest rate was approximately 3.7%.\nAt the end of the third quarter, we maintained net available liquidity of about $1.7 billion, consisting of cash and available capacity under our credit facility and other accounts receivable securitization programs.\nAs we know, last quarter, all three major rating agencies have reaffirmed our investment grade credit ratings with stable outlooks in 2021.\nTaken together, this represents a solid financial foundation to continue the support for our long-term safety and infrastructure investments.\nAs you can see on Slide 7, we've narrowed our 2021 capital investment estimate to approximately $2 billion and reiterated our 2022 capital forecast of $2.4 billion to $2.7 billion.\nTaking a quick look at Slide 8, which highlights our financing plan.\nThere are no changes to our plan since April's equity unit issuance.\nI would highlight that this balanced financing plan continues to be consistent with all of our earnings growth and credit commitments.\nas I mentioned earlier, we have updated our 2021 earnings guidance, issued guidance for 2022 and reaffirmed our long-term growth commitments.\nI would also remind everyone that we're planning to provide an extension to our growth plan at an Investor Day during the first half of next year.\nSo please stay tuned.",
        "summary": "q3 non-gaap operating earnings per share $0.11.\nnow expects to achieve top end of its 2021 non-gaap diluted net operating earnings guidance of $1.32 to $1.36 per share.\ncompany also expects to make capital investments of approximately $2 billion in 2021, and $2.4 to $2.7 billion in 2022.\nnon-gaap diluted net operating earnings per share expected to grow by 7 to 9 percent through 2024 on a compound annual growth rate basis.\non track to complete installation of automated shut off valves for all low pressure gas systems by year end 2021."
    },
    {
        "text": "Additionally, the content of the conference call may contain time-sensitive information that is accurate only as of the date hereof.\nWe do not undertake and specifically disclaim any obligation to update or revise this information.\nAs a reminder, Annaly routinely posts important information for investors on the company's website at www.\nPlease note, today's event is being recorded.\nToday, I'd like to highlight a number of current corporate initiatives, provide an update on the market and discuss portfolio activity across our core businesses during the quarter, and finally, provide our outlook for the balance of the year, and then I'll hand it off to Serena to discuss the financials.\nOf note, while last quarter, each of our credit leaders providing an in-depth look at their respective markets and portfolios to be efficient.\nI'll provide those updates today.\nBut as Purvi noted, each of our business heads are here as well to join in Q&A.\nNow, to begin with, I wanted to touch on a few strategic and corporate actions we've taken as of late.\nAt quarter end, we closed our previously announced internalization transaction, which marks a significant step in the series of measures and only is implemented as an industry leader from a governance standpoint.\nAs an internally managed REIT, we look forward to demonstrating increased transparency and alignment with our shareholders, who will benefit from our ability to be more nimble in the way we do business in order to generate long-term value.\nWe also announced two leadership changes, Steve Campbell was appointed as chief operating officer, and Glenn Botek will retire from his role as senior advisor at the end of August, while remaining a director on our board.\nAs COO, Steve will expand on the work he has been doing as head of business operations and work closely with the executive team to help oversee Annaly's overall operations and risk management functions.\nAdditionally, during the second quarter, we utilized our share buyback program and have now repurchased 175 million in common stock year to date.\nThis underscores our belief that the stock is undervalued relative to our book value and affirms our support of the value of our stock through the various capital allocation tools we have on hand.\nThese initiatives are a testament to our focus on driving shareholder value ensuring that the firm as a whole, our structure, as well as our portfolio is positioned to continue outperforming as our second-quarter results demonstrate.\nFollowing one of the most challenging and unforeseen operating environments and Annaly's history, we were pleased with our performance during the second quarter.\nWe delivered an economic return of nearly 15% and achieved core earnings well in excess of our rightsized dividend.\nOur measured approach to weathering the crisis served us well, and we feel very good about our positioning as the recovery progresses, as I'll get into in more detail.\nSo the economic slowdown brought on by the pandemic has obviously created considerable uncertainty, and this is a different kind of recession than that which we have experienced in the past, given the unprecedented speed and magnitude of the downturn.\nSocial distancing and mandated shutdowns to damage certain sectors of the economy and the corresponding impact on the labor market has been substantial.\ndemonstrates the fragile nature of the recovery.\nNevertheless, financial conditions have improved considerably.\nThe market dysfunction that occurred amid the initial COVID outbreak in the U.S. has dissipated, and we have seen significant improvement in liquidity and asset pricing.\nThis is in large part due to the ongoing decisive actions taken by the Federal Reserve, which have been successful in restoring markets and easing credit strains.\nLiquidity tools have sufficiently supported funding markets.\nThe credit facilities have opened channels to credit for businesses, households and local governments, the temporary adjustments to regulations have somewhat encouraged bank lending, and most impactful to Annaly's portfolio, the asset purchases have supported the smooth functioning of treasury and agency markets.\nNow, turning specifically to the agency market.\nThe Fed's purchased an upwards of 850 billion MBS in just over four months has dramatically altered the supply and demand picture for the sector.\nAfter a pace of purchases at the height of the volatility that reached nearly 50 billion per day to help stabilize the sector, the Fed has transitioned to a steady run rate of 40 billion per month, net of portfolio runoff, which on a gross basis, equates to roughly 40% current agency issuance.\nFed is largely taking delivery of the most negatively convexed MBS, which has resulted in a shift to the TBA deliverable across production coupons to more newly originated pools and as a result, nominal carry on production coupon TBAs has improved dramatically, thereby adding to returns for TBA holders.\nGiven this dynamic, we increased our TBA position in the quarter and gravitated further down in coupon.\nThe lower coupon holdings are predominantly in TBAs and higher coupons are concentrated in specified pools in light of the meaningful elevation and prepayment speeds in this environment.\nWhile our portfolio speeds did experience an increase on the quarter, prepays on our overall portfolio were notably lower than the GSE universe, which paid roughly eight CPR faster despite the higher average coupon of our portfolio relative to universe.\nAnd with respect to our hedges, we added to our swap portfolio, primarily in the front end, the short-term swaps with pay rates close to 0%, provide an attractive hedge to our financing.\nThis reduced our pay rate, as well as shortened the maturity of our swap portfolio.\nWe further reduced the LIBOR footprint of our hedge portfolio with our swap book now 80% in OIS and we reinitiated our treasury future short position that was unwound in the first quarter.\nWe also continue to take advantage of the attractive low levels of volatility to answer the tail risk of a sharp rise in rates in the long end of the yield curve, and as such, we replaced much of our legacy swaption position with additional out of the money payer swaptions.\nShifting to residential credit, the sector saw significantly more activity as market dynamics began to improve following the crisis.\nThe housing market remains strong given long-term positive fundamentals, which we believe will help the ultimate recovery.\nWe're experiencing a meaningful imbalance between supply and demand as the cyclically low number of housing units meets continued strong household formations.\nAn anecdotal evidence suggests that pandemic disruptions have had limited impact on the home buying and refinancing processes.\nNon-agency securities across legacy, CRT, Jumbo 2.0 and non-QM have seen substantial recovery.\nImprovement signals that the market currently believes that the majority of forbearance cases, which have stabilized over the past couple of months, will ultimately be resolved.\nHowever, non-agency lending has been somewhat slow to redevelop as credit standards have tightened relative to pre-pandemic underwriting and mortgage originators tend to be focused more on agency originations in light of fewer frictions in a wide primary secondary spread.\nOur residential portfolio was roughly unchanged quarter over quarter at 2.6 billion as modest purchases and mark-to-market increases largely offset sales and portfolio runoff.\nSecuritization market started to show signs of life in mid-May, and we issued nearly 500 million of expanded prime securities earlier this month, subsequent to quarter end.\nAggregate issuance under our OBX shelf has now reached 4.5 billion across 11 transactions since 2018.\nAs I mentioned last quarter, we expect to see more growth in this segment as markets continue to normalize, and we are encouraged by the steady pace of securitization activity to support our asset generation strategy.\nIn the commercial sector, we are slowly beginning to see activity pick up, but volumes do remain somewhat muted.\nJune, however, did bring about an increase in new refinancing requests with some new acquisition activity at post-COVID purchase prices.\nAnd simultaneously, we have seen a significant number of warehouse providers begin to close new loans, although pricing levels have been reset higher.\nCross sectors within commercial, the operating fundamentals remain challenged in hospitality as the average national occupancy rate hovers around 40%.\nAnd in retail, the prolonged shutdown and increasing number of retailer bankruptcies is continuing to weigh on that sector.\nOn a more positive note, multifamily remains strong throughout the quarter as the latest data indicates over 90% of renters made a full or partial rent payment as of June.\nAnd in the office sector, although new leasing has slowed significantly, office REITs have reported strong rent collections above 90% throughout the back end of the second quarter.\nWith respect to our CRE portfolio, specifically, total assets at quarter end of 2.5 billion represented a slight decrease, while economic interest remained essentially flat.\nThe decline in portfolio size was driven by approximately 53 million in loan payoffs, as well as securities sales.\nOn the financing side, our weighted average cost of borrowing decreased by roughly 60 basis points to 2.7%, driven largely by a reduction in LIBOR given Fed cuts.\nOverall, we feel good about the conservative positioning of the portfolio across sectors and the strength of our relationships with best-in-class sponsors and operating partners to mitigate any further disruption.\nShifting to middle market lending, activity has also picked up as of late as spreads have tightened and sponsors have refinanced transactions that have exhibited improving underlying leverage profiles.\nNew deal activity is primarily relegated to more broadly syndicated loans.\nHowever, for context, first lien executions on larger transactions have tightened 75 to 100 basis points over the past quarter.\nWhile traditional middle market has shown less movement in pricing.\nUnit tranches and second lien loans within middle market are experiencing more notable price discovery than its larger market brethren, and we expect these gaps to remain as traditional middle market participants grapple with their portfolios.\nConsistent with our communication last quarter, we continue to speak actively with sponsors, borrowers and agents to closely monitor performance.\nDespite the challenging environment, we are pleased with how the portfolio has performed during the period, ending the quarter essentially unchanged at 2.2 billion in assets.\nAs we gain further clarity around the long-term implications of COVID, we are reassured by the stable and defensive nature of our portfolio and remain confident in its ability to withstand prolonged bounce and market volatility.\nWe believe our focused industry-specific positioning within nondiscretionary defensive and mission-critical names will generate the outperformance versus peers that will further differentiate our brand in the sector.\nIn fact, some of our industry concentrations have materially benefited from the current environment.\nFor example, government mandates at all levels have created an even greater dependency on technology while also driving demand and behavior in ways that is made once boring annuity businesses into growth sectors.\nPortfolio construct has been protected against broader sectors that have witnessed demand destruction and we maintain meaningful exposure where pockets of spend remain resilient.\nNow, additional note with respect to our direct lending portfolios, we have taken what we believe to be a very conservative approach regarding reserves and CECL adjustments, which Serena will discuss in further detail.\nAnd finally, shifting to our outlook.\nAs we think about our capital allocation out of the horizon, we've been focused on preserving flexibility, given uncertainty in the greater economy related to the COVID shutdown.\nWe maintain the view that the agency sector represents the most attractive investment opportunity currently, while also providing strong liquidity.\nWe have entered a more normalized environment with Fed action serving as a key driver.\nMBS spreads have retraced much of the widening experienced in March.\nWe do remain positive on the sector, given ample funding availability at low rates, subdued rate volatility and a complete reversal of an inferior technical backdrop that characterized the sector at the outset of this year.\nWhile our allocation agency may increase modestly, we do continue to evaluate opportunities to deploy capital across our three credit businesses.\nAnd we are beginning to develop a better lens into how each credit sector is evolving, and we expect to shift to a more offensive posture in the coming months as we gain more clarity on the economic and real estate landscape.\nWe were certainly careful to take prudent steps during the early phase of the market recovery to ensure we are well positioned to capitalize on the opportunities that are sure to arise.\nAnd as part of our preparation, we have chosen to be conservative with our leverage, as well as our dividend.\nOur goal has been to maintain optimal liquidity thresholds and to manage the portfolio within conservative risk parameters to produce the highest level of quality earnings in this smart environment.\nConsequently, we reduced leverage during the quarter from 6.8 to 6.4 times and made the prudent decision to set our quarterly dividend at $0.22.\nThe dividend represents a 10.5% yield on our book value, which is in line with our historical average, while being competitive relative to our peers and various fixed income benchmarks.\nAs I mentioned, we outearned the dividend by $0.05 this quarter, and absent another market dislocation or other unforeseen developments, we expect Q3 core earnings to also exceed the dividend.\nOverall, we maintain a more constructive view of the operating environment and our ability to deliver compelling returns as each of our businesses, respective sectors begins to emerge from the initial volatility and disruption caused by the pandemic.\nAnd now with that, I'll hand it over to Serena to discuss the financials.\nAs David mentioned earlier, the stabilizing actions of the Fed, coupled with our active portfolio management, resulted in improved fair value of our agency assets and significant improvement in financial performance.\nOur book value per share was $8.39 for Q2, a 12% increase from Q1, and we generated core earnings per share, excluding PAA, of $0.27, a 30% increase from the prior quarter.\nBook value increased on GAAP net income of 856 million or $0.58 per share, which includes $0.05 related to CECL and specific reserves, and higher other comprehensive income of 721 million or $0.51 per share on improved valuations on agency MBS, resulting from lower market rates.\nGAAP net income improved this quarter as a result of higher GAAP net interest income of 399 million, primarily due to lower interest expense from reduced repo rates and balances, and we also experienced lower losses on our swap portfolio of $92 million.\nLast quarter, I noted that most of our assets and liabilities are at fair value.\nAnd that our book value decline was not a function of fourth asset sales, but rather unrealized mark-to-market losses with potential full recruitment.\nThis point was evidenced this quarter with the improvement in fair value measures and resulting improved book value.\nWhile financial conditions have stabilized, there is still significant uncertainty around the long-term economic picture.\nThis makes analysis regarding CECL reserves particularly challenging.\nAs a result, we ran numerous scenarios in excess of 20 to determine the appropriate amount of CECL reserves for the quarter and ultimately booked reserves that were considerably more conservative than our base case scenario.\nIn comparison, our base case scenario resulted in a modest release of reserves, which we felt inappropriate given the continued economic uncertainty centered around the evolving pandemic.\nWe recorded reserves associated with our credit businesses of 68.8 million on funded commitments during the second quarter, consisting of 22 million of additional reserves during the quarter, primarily resulting from the impact of COVID-19 on our borrowers.\nAnd more general reserves related to forecasts for a deterioration in economic conditions and market values of 46.8 million.\nTotal reserves now comprise 5.32% of our ACREG and MML loan portfolios as of June 30, 2020.\nAs a reminder, the impairment model introduced by the new CECL standard is based on expected losses rather than incurred losses, which was the previous measurement for reserve historically.\nUnder the standard, an entity recognizes its estimate of lifetime expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses.\nAnd while changes in economic scenarios and asset performance in the future will impact CECL reserves in subsequent quarters.\nCurrent reserve levels should not be considered as a pervasive credit issue within the portfolio or an indication of what reserves may be recorded in the future.\nWe have previously discussed our methodology and our thorough and thoughtful approach to CECL reserves.\nAs always, we spent time analyzing the results of the reserve calculations and ensuring our expectations align with the quality of the portfolio and the performance of the borrowers.\nWe continue to think it critical in the current environment to consider the adverse economic scenarios available in this process and to err on the side of conservatism, given the significant uncertainty in the economic and market value scenarios.\nWe remain comfortable with our existing credit portfolios and the associated CECL reserves, and we'll continue to monitor specific asset performance and economic projections as we determine future reserves.\nThe largest factor quarter over quarter to core earnings ex PAA, were lower interest expense of 186 million versus 503 million in the prior quarter.\nDue to lower average repo rates and balances, as well as higher TBA dollar roll over income of 96 million versus 44 million in the prior quarter.\nDue to higher average balances, partially offset by higher expense from the net interest component of interest rate swaps of 65 million versus 14 million in the prior quarter on higher average notional balances.\nAs David touched on, our economic leverage declined to 6.4 times from 6.8 times quarter over quarter, which was mainly due to a decrease in repo balances of 5.4 billion and an increase in our equity base of 1.1 billion.\nThat was partially offset by an increase in TBA contracts of 5.8 billion and an increase in net payables for investments purchased of 1.5 billion.\nOur treasury function is the best in the business, and their expertise and exemplary market timing was a key component that helped us weather the market dislocation last quarter and our ability to deliver strong core earnings this quarter -- additionally, as noted above, core did benefit from a reduction in financing costs with lower average repo rates down to 79 basis points from 1.77%, combined with lower average repo balances, down to 68.5 billion from $96.8 billion.\nAnd we achieved these results while opportunistically extending our repo book term, increasing our weighted average days to maturity by 50% from 48 to 74 days.\nSignaling from the Fed on continued low rates, combined with considerable injection of additional reserves in the financial system through repo operations and asset purchases have led to very stable funding conditions with repo markets experiencing no signs of stress through the quarter, even on pivotal month end and quarter end reporting dates.\nAnd access to repo financing remains ample.\nWith the improved stability in the financial market, we have been an improvement in lenders appetite to finance credit assets, particularly in the residential space.\nIn anticipation of the expiration of our FHLB membership in February of 2021, we are executing an alternate financing strategy involving committed funding facilities for our residential credit business.\nAnd as David mentioned, we maintain a strong presence in residential securitization market.\nConsistent with that strategy, since the beginning of the second quarter, we added 1.125 billion of capacity across two new credit facilities for our residential credit group for permanent nonrecourse financing.\nThe portfolio generated 188 basis points of NIM, up from Q1 of 118 basis points, driven primarily by the decrease in cost of funds that I mentioned a moment ago.\nAnnualized core return on average equity, excluding PAA, was 12.82% for the quarter in comparison to 9.27% for Q1.\nOur efficiency metrics changed modestly relative to Q1 being 2.01% of equity for the second quarter in comparison to 1.98%.\nAlso, as David mentioned, our internalization transaction closed at the end of the quarter, and we anticipate generating cost savings over the long-term as we embark on being an internally managed company.\nAnnaly ended the quarter with excellent liquidity profile with 7.9 billion of unencumbered assets, an increase of 1 billion from prior quarter, including cash and unencumbered agency MBS of 5.3 billion.\nAnd finally, the company has performed exceptionally well given the challenges faced from remote work and market uncertainty.\nWe continue to be impressed by the resiliency of our workforce and the exemplary service that our IT infrastructure team has provided to every one of us during this time of remote work.\nEveryone at Annaly contributes to our success, and we are proud of the results that we have reported for the second quarter and expect to continue providing best-in-class results for our shareholders.",
        "summary": "q2 gaap earnings per share $0.58.\ncore earnings (excluding paa) of $0.27 per average common share for the quarter."
    },
    {
        "text": "Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date hereof.\nWe do not undertake and specifically disclaim any obligation to update or revise this information.\nAs a reminder, Annaly routinely posts important information for investors on the company's website, www.\nPlease also note this event is being recorded.\nToday, I'll provide an update on the broader market, our capital allocation trends, including credit activity, and our outlook.\nIlker Ertas, our head of securitized products will follow-up with specific commentary on our agency and hedging activity, and Serena will review our financial results.\nAnd as Sean noted, our other business heads are also present to provide additional context during Q&A.\nThe primary themes, the dominated markets in the fourth quarter are largely consistent with our third-quarter narrative.\nThe Fed's monetary policy accommodation provided considerable support for risk assets and contained interest rate volatility.\nThis backdrop, coupled with active portfolio management, drove our strong performance to close out the year as we delivered an economic return of 5.1% for the quarter, ensuring a positive return for our shareholders for 2020 which is particularly notable given the historic disruption we all faced in March.\nNow turning to the macro environment.\nThe yield curve bears steepened in the fourth quarter in light of optimism about the post-COVID economic recovery which outweighed the negative developments of record virus cases and the resulting lackluster economic growth to end the year.\nWe have seen a continuation of this rate move into 2021 largely due to the results of the January runoff election and democratic control of each branch of government, leading to greater prospects' further stimulus.\nwitnesses a meaningful recovery in labor markets and higher inflation readings.\nThus, the Fed is expected to continue purchasing assets at their current pace through 2021 while forward guidance will keep the front end anchored.\nWe do think the shift to higher longer-term rates will be gradual.\nNonetheless, it remains prudent to hedge the tail risk of a spike in rates as we'll discuss shortly.\nNow to address how this landscape influences our positioning and capital allocation, monetary policy tailwinds maintain agency as the primary vehicle for reinvestment of portfolio runoff.\nAnd we remain comfortable with the agency market for reasons Ilker will discuss, but the continued spread tightening does leave us cautious on higher levels of leverage.\nFiscal stimulus should ensure healthy consumer spending once the economy reopens more broadly and service consumption can resume which should be a constructive backdrop for credit.\nOur allocation to credit marginally increased to 22%, as we began the fourth quarter at the lower end of our range.\nAnd targeted opportunities, largely in residential credit and middle market lending modestly tilted the relative value equation back toward certain pockets of credit.\nIt should be noted, however, that risk assets continue to see strong sponsorship and associated spread contraction, given liquidity in the system, and optimism for a cyclical recovery which necessitates a very disciplined approach to asset selection as our investment teams consistently employed.\nWith respect to our residential credit business specifically, we found the unrated NPL and RPL securities sector attractive, as we discussed last quarter which drove much of the $400 million growth in our residential securities portfolio during the quarter.\nWithin the CRT universe, we have rotated our investments up the capital structure with a focus on very short spread duration assets that have strong deleveraging profiles in light of elevated prepayment speeds.\nSpreads on our non-agency securities purchased in the fourth quarter have rallied over 100 basis points, given the strength of the market to date this year.\nAlthough securities remain an important part of our portfolio as they provide opportunistic relative value, we were encouraged to see volumes once again gained traction within the non-QM loan market.\nOur expanded prime whole loan effort continues to be a priority and we are focused on new strategic relationships to grow our sourcing capabilities which builds further optionality for us within residential finance.\nTurning to middle market lending.\nActivity picked up in the fourth quarter as liquidity reentered the sector and we were able to grow our portfolio nearly 10% to $2.2 billion.\nOf the nearly $400 million of gross activity in the quarter, 80% was first lien and included both new and existing borrowers.\nAs discussed on recent earnings calls, our targeted investment strategy continues to differentiate our portfolio relative to our peers, and our middle market lending group's disciplined credit focus has proven itself out through strong fundamentals with underlying borrower LTM EBITDA, increasing by 14% on average since initial close.\nWe continue to maintain an active dialogue with our borrowers and sponsors, and our watch list performance improved by 43% this quarter, underscoring the health of our portfolio.\nOur commercial real estate portfolio decreased somewhat quarter over quarter.\nWhile we were able to resume origination activity this past fall, volume did not offset the $108 million in pay downs, as well as, an opportunistic sale in our healthcare portfolio.\nThe $150 million sale price for a portion of our skilled nursing facilities which closed in the fourth quarter, resulted in an IRR of 35% for the portfolio and then nearly 2 times equity multiple.\nNow shifting to the financing of our portfolio which Serena will discuss in greater detail, I would just like to note that borrowing conditions that exist today are the best we've seen during the company's two-plus decade history.\nThe liquidity in the system has shifted the market advantage to the borrower, much more so than in past periods of monetary accommodation.\nIt's not just the absolute low level of rates, but also the flat term structure of the repo curve which signals the persistence of an ample borrowing capacity and also affords us the ability to fund agency MBS out a year inside of a mere 20 basis points.\nAdditionally, on the financing front, securitization markets have rebounded substantially, resulting in execution inside of pre pandemic levels.\nThis continued momentum provides attractive nonrecourse term financing to bolster our asset generation strategy and diversify funding for our whole loan business.\nNow prevailing financing and securitization dynamics have made both balance sheet and structural leverage more attractive than capital structure leverage in the current environment as evidenced by our recent preferred stock redemption which was prudent from both the capital management and efficiency standpoint and follows a series of transactions since 2017 to reduce our cost of capital and preferred equity.\nWe have differentiated ourselves from others in the REIT sector by growing capital structure leverage more slowly and maintaining a relatively stable amount of total leverage on common equity which is important as we've seen a higher portion of capital structure leverage lead to higher volatility in returns, if not well managed.\nAnnaly is unique in that our size, expense ratio, and liquidity afford us the flexibility to manage our capital exclusively in an accretive fashion.\nProactive capital management remains a priority and we renewed our common stock repurchase program authorization following $209 million in repurchases in 2020.\nLastly, despite the attractiveness of balance sheet leverage and funding, we remain disciplined with respect to our overall leverage profile.\nWe've reduced leverage in each quarter since the end of 2019 through last year and maintained leverage at 6.2 times quarter over quarter, the lowest we've had since the first quarter of 2017.\nWe strive to deliver the highest risk-adjusted return for our shareholders and I'm confident our current risk construct is appropriate to yield book value and earnings stability going forward.\nNow with that, I'll hand it over to Ilker to dive deeper into our agency portfolio activity.\nAs David mentioned, the agency portfolio had a strong quarter, supported by healthy investor demand, both low in-flight and realized interest rate volatility, and steepening yield curve.\nLower coupon TBAs were the strongest performing part of the agency market as they benefited directly from Fed purchases.\nHowever, in contrast to prior episodes of QE, specified pools have also demonstrated solid performance.\nGiven the current elevated prepayment environment, the desire for more cash flow certainty and a strong bid for longer duration mortgage assets, we are seeing the level of pay-ups which stand higher rates and steeper curve experienced over the quarter and into 2021.\nApart from Fed, Agency MBS demand remains robust, led by notable appetite from commercial bank community.\nIn the current environment, banks are seeing strong deposit growth while C&I loan growth remains muted.\nIn fact, the loan-to-deposit ratio for the sector is the lowest we have seen in the past 50 years.\nWith deposits continuing to rise, banks have chosen to grow their securities portfolios which directly benefits MBS valuations and strengthens the specified pool market.\nLooking at 2020 data, banks [Inaudible] set net bought over $1 trillion MBS in aggregate which was more than twice the available net agency supply last year.\nTurning to composition of our MBS portfolio.\nOur lower coupon holdings remain largely in TBAs while our higher coupons are predominantly improved.\nThis barbell approach maximizes liquidity and benefits from high levels of nominal care in the dollar roll market while providing cash flow stability across diverse interest rate environments from our pools.\nApproximately, 86% of our pool portfolio consists of higher coupon quality specified pools which provides us with improved convexity and prepayment protection, while the remainder is mainly concentrated in seasoned pools, which are beginning to experience prepayment burnout.\nThe value of our asset selection is evidenced by the prepayment speeds on our portfolio of just under 25 CPR or roughly 10 CPRs slower than the MBS universe over the quarter.\nIn terms of portfolio activity, portfolio runoff was reinvested in lower coupon TBAs and we also rotated out of some of our higher coupon TBAs into specified pools.\nOn the hedging side, we added to our treasury features and swaption positions, mostly in the 10-year part of the yield curve which benefited from the steepening in the fourth quarter.\nHedging costs remain relatively inexpensive in this low rate and low volatility environment.\nWe also want to be positioned for further rising yields under the scenario, where optimism on the economic recovery leads to higher long end interest rates in the medium-term.\nGiven how well risk assets have performed since the second half of 2020, the agency reinvestment landscape is somewhat less attractive than earlier in the year.\nHowever, our outlook for agency MBS remains constructive due to a number of factors.\nFirst, the availability of attractive funding in the repo and dollar roll markets.\nDavid addressed the repo market.\nAnd as for rolls, as we forecasted on the last call, gross specialness has moderated somewhat with market being repopulated with new collateral beyond that, which has been delivered to Fed.\nWe still achieved a net negative financing cost for our TBAs over the quarter and we expect current production coupon rolls will remain modestly special over the near-term.\nSecondly, we expect the technical backdrop of strong demand for agency MBS to persist over the course of this year given nominal carry and continued bank demand.\nAnd finally, there is a -- there is potential for improved prepayment profile, resulting from steeper yield curve and very early signs of burnout in prepayments.\nTo expand on that point, we observed from recent data that the primary secondary spread is narrowing despite more than 75% of the universe having greater than 50 basis points of refinancing incentive.\nIn addition, average time to refinance loans has steadily increased from 40 days this past spring to almost 60 days as of late.\nThis suggests that [Inaudible] of easily refinanced target is decreasing for originators, requiring incremental efforts to find eligible borrowers.\nSo for the first time since last spring, the prepayment environment may not be as big of a headwind for higher coupon MBS.\nAs a final point, we note that we cannot look at Agency MBS in isolation.\nDuring previous QEs, other risk assets like the MBS tightening and gave private investors opportunity to rotate into these asset classes.\nIn contrast, during the current QE, nearly all spread products tightened in line, if not more than agency MBS.\nAs a result, we remain constructive on the outlook for agency MBS.\nBefore I get started with the numbers, I just wanted to comment that December 2020 marks my first year with the company as CFO.\nOver the year, the company performed exceptionally well given the challenges we faced.\nOur results and performance during 2020 reinforced the reasons I was compelled to join the Annaly team which include our human capital, differentiated risk culture, and robust infrastructure built around the businesses in terms of finance, legal, technology, and other support functions.\nDuring 2020, Annaly demonstrated a 23-year old company's steadfast nature while exhibiting an adept industry leaders agility.\nSo with that as a backdrop, today I'll provide brief financial highlights for the quarter ended December 31st, 2020 and discuss select year-to-date metrics.\nAs David mentioned earlier, the primary drivers of performance were an extension of themes from last quarter.\nWe took advantage of the interest rate and financing environment to generate strong results while prudently managing leverage.\nTo set the stage with some summary information, our book value per share was $8.92 for Q4, a 2.5% increase from Q3.\nBook value increased on GAAP net income, partially offset by the aggregate common and preferred dividends of $344 million or $0.25 per share and other comprehensive loss of $215 million or $0.16 per share.\nWe generated core earnings per share, excluding PAA, of $0.30, a decrease of 6% or $0.02 per share from the prior quarter.\nOur core earnings also represent 140% of our dividend and we saw back-to-back quarters of 13% plus of core ROE.\nCombining our book value performance for the $0.22 common dividend we declared during Q4, our quarterly economic return was 5.1%.\nWe generated a full-year economic return of 1.76% and a total shareholder return of 2.43%.\nWhile down compared to prior years, we are proud of our positive 2020 return given the unprecedented market conditions we faced earlier this year.\nDelving deeper into the GAAP results, we generated GAAP net income of $879 million or $0.60 per common share for Q4, down from $1 billion or $0.70 per common share in the prior quarter.\nGAAP net income decreased primarily due to lower realized gains on investments resulting from fewer agency MBS sales in Q4 versus Q3.\nHowever, GAAP net income benefited from higher unrealized gains on interest rate swaps driven by higher rates.\nAdditionally, we recorded higher gains on other derivatives, largely futures, offset by lower gains in fair value option loans and securities, and lower interest expense on lower average repo rate, down to 35 basis points from 44 basis points, and lower average repo balances down to $65.5 billion from $67.5 billion.\nMoving on now to CECL reserves.\nIn the current quarter, we continue to see a general improvement in market sentiment and the economic models we use in this process.\nTotal CECL and specific reserves were relatively consistent with prior quarters.\nWe recorded an immaterial increase in reserves, primarily associated with our commercial real estate business of $1.5 million on funded commitments during Q4, driven by an increase in specific reserves, partially offset by a decrease in the general CECL reserve.\nTotal reserves, net of charge-offs, now comprise 4.48% of our ACREG and MML loan portfolios as of December 31st, 2020, versus 4.56% as of the prior-quarter end.\nWe remain comfortable with our existing credit portfolios and the associated CECL reserve, and we'll continue to monitor specific asset performance and economic projections as we determine future reserves.\nTurning back to earnings.\nI wanted to provide more details surrounding the most significant factors that impacted core earnings quarter over quarter.\nFirst, consistent with my commentary around GAAP drivers, interest expense of $94 million was lower than $115 million in the prior quarter due to lower average repo rates and balances.\nTBA dollar roll and CMBS coupon income of $99 million was lower than $114 million for the third quarter due to slightly more modest specialness in the fourth quarter.\nWe had increased expenses related to the net interest component of interest rate swaps of $67 million relative to $63 million in the prior quarter as the swap portfolio reset to lower market receive rates and two high strike receive swaps expired.\nAnd finally, we experienced a continued improvement in G&A expenses.\nOn the financing front, our all-in average cost of funds this quarter was 87 basis points versus 93 basis points in the preceding quarter.\nThe fourth quarter brought the full-year average cost of funds to 1.34% versus 2.25% in the prior year.\nOur weighted average days to maturity are down, compared with the prior quarter at 64 days versus 72.\nOur Q4 weighted average days, slight reduction compared to Q3, results from the natural roll down from our longer-duration repo trades we executed in prior quarters.\nOur treasury group's view in the latter part of last year was that term curve would continue to flatten.\nWhat I can tell you is that we set this view based upon the Fed's forward guidance on remaining at the zero lower bound into 2023, as well as, a meaningful increase in already abundant reserves in the system in 2021 from both continued QE and a drawdown in treasury general account balances.\nAs we've entered the new year, this view has come to fruition as one year bilateral term repo for agency MBS can be locked in, in the upper high-teens currently.\nConsequently, we are beginning to add duration to our repo book this quarter.\nConcerning credit financing, we see further improvement in repo terms for our credit securities with increasingly lower hiccups and tighter spreads.\nWe have also renegotiated our warehouse facilities to support our direct lending businesses proactively and have realized cost savings accordingly.\nThe portfolio generated 198 basis points of NIM, down from 205 basis points as of Q3, driven primarily by the decrease in average asset yields and reduced dollar roll income offset by the decline in the cost of funds that I mentioned a moment ago.\nAnd as a management team, we focus on providing value to our shareholders, including a keen eye on the company's expenses.\nHaving said that, we continue to see improvements in our efficiency ratios, being 1.27% of equity for the fourth quarter in comparison to 1.32% in Q3 of 2020 and 1.62% for the full year, compared to 1.84% for the prior year.\nThe 2020 annual opex results are within the range of expected cost savings disclosed in Q1 with our internalization transaction announcement.\nAnd I would reiterate the 1.6% to 1.75% opex target we disclosed last year as an appropriate benchmark.\nAnd to wrap things up, Annaly ended the quarter with an excellent liquidity profile with $8.7 billion of unencumbered assets, consistent with prior quarters of $8.8 billion, including cash and unencumbered agency MBS of $6.3 billion.\nLastly, before we move on to Q&A, I thought I'd provide broader perspective in two areas.\nFirst, there is an abundance of metrics that underscore a growing disconnect between valuations and fundamentals.\nBroadly, market indices are reaching historical records and consensus calls for them to continue to rise.\nThe S&P 500 at 40 times earnings, high-yield credit, and the proximity of all-time tight spreads and the $81 billion of SPACs raised last year as liquidity has flowed further out the portfolio balance channel.\nAnnaly, however, continues to be a source of responsible yield in a market where it's increasingly challenging to deploy capital.\nAs I mentioned at the outset, the fundamentals are positive for Annaly investors with a low-cost, stable financing environment, an upward sloping yield curve, low interest rate volatility, and a strong supply and demand backdrop for our assets.\nWe've seen our book value continue to strengthen into 2021 and have outearned our dividend for the past few quarters.\nWe are delivering a dividend yield of over 10%, in line with our historical average while the S&P 500 earnings yield of 2.5% is the lowest it's been in the past decade.\nAnnaly represents one of few countercyclical or acyclical yield strategies that are less at risk to the pace of economic recovery.\nAdditionally, we provide equity portfolio diversification without sacrificing returns while money market funds are zero and real treasury yields are at near-record lows.\nAs unforeseen events will once again shift investors focused to fundamentals, balance sheet strength and earnings stability will be coveted.\nNow secondly, we have talked about leading with purpose this year in response to the trying societal and economic climate that marked 2020.\nAnd at Annaly, our mission is to utilize our capital to generate attractive returns and support the American homeowner.\nTo that end, we have kept our focus on the individual needs of our borrowers and supported government policies to extend forbearance periods.\nWe have also used our human capital to meaningfully contribute to the communities where we live and work.\nThrough our corporate philanthropy initiatives, we have focused on partnerships with high-impact programs that seek to combat homelessness, provide food security, and advance women and underrepresented groups in the workforce.\nAnnaly employees have volunteered their time and energy to serve vulnerable New Yorkers in their hour of need and our culture of responsible investment with respect to where we invest, both our dollars and time is something we're very proud of, and it has undoubtedly yielded considerable impact for our overall stakeholders.\nAnd with that, operator, we can open it up to Q&A.",
        "summary": "q4 gaap earnings per share $0.60.\ncore earnings (excluding paa) of $0.30 per average common share for quarter."
    },
    {
        "text": "Given our strong start to the year, we're pleased to announce an increase in our guidance for 2021 core FFO by approximately 6% from a range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share.\nKevin will have more details on this increase in his remarks.\nTurning to the highlights of our first quarter financial results.\nOur portfolio of 3,161 freestanding single-tenant retail properties continued to perform exceedingly well.\nOccupancy was 98.3% at the end of the quarter, which remains above our long-term average of 98% and while our occupancy rate ticked down 20 basis points from December 31, we're seeing impressive activity in our leasing department including interest by a number of strong national tenants in some of our vacancies.\nWe also announced collection of 97% of rents due for the first quarter as well as collection of 98% of rents due for the month of April.\nOur impressive collection results continue to compare very favorably to other retail real estate companies, including those with a significantly higher percentage of investment-grade tenants.\nThe majority of the remaining uncollected rent in the first quarter was simply deferred rent that we expect to collect when the tenant's repayment obligation kicks in later this year.\nNotably, we only forgave 0.1% of our first quarter rents.\nRecently, our two largest bankruptcies were resolved in favorable fashion.\nChuck E. Cheese's affirmed all 53 of our leases, in exchange for a 25% temporary base rent reduction that will expire at the end of this year and Ruby Tuesday's affirmed 26 of our 34 leases, accounting for over 80% of our annual rent from Ruby Tuesday, again in exchange for a comparable temporary base rent reduction.\nThese impressive post-pandemic occupancy, leasing and rent collection outcomes have once again validated our consistent long-term strategy of acquiring well-located parcels, lease to strong regional and national operators at reasonable rents, while maintaining a strong and flexible balance sheet.\nAlthough we continue to be prudent in our underwriting, we acquired 29 new properties in the quarter for just under $106 million, at an initial cash cap rate of 6.4% and with an average lease duration of 17.5 years.\nAlmost all of our acquisitions were from relationship tenants with which we do repeat programmatic business.\nIn an unsettled post-pandemic environment, where cap rates remain at all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our relationship tenants.\nWe also reported that during the first quarter, we sold 11 properties, raising $17.6 million of proceeds to be reinvested into new acquisitions and our balance sheet remains rock solid.\nDuring the quarter, we issued $450 million of unsecured 30-year interest-only bonds at a rate of 3.5%.\nKudos to Kevin and his team for once again raising well-priced capital when it's available.\nA portion of those bond proceeds were used to redeem our 2023 debt maturities.\nSo we ended the first quarter with $311 million of cash in the bank, a 0 balance on our $900 million line of credit, no material debt maturities until 2024 and an average debt duration of over 13 years.\nThus, we're well-positioned to fund all of our 2021 acquisition guidance with the available capital on hand.\nThat's up $0.06 from the preceding fourth quarter $0.63 and down $0.01 from the prior year's $0.70 per share.\nResults for the first quarter included two nonrecurring type items totaling $5 million.\nFirst, we collected $2.2 million of receivables from cash basis tenants that relate to prior quarters.\nAnd second, we received $2.8 million of lease termination fee income, which is more than typical.\nFor context, full year 2020 was $2 million of lease termination fee income.\nSo these two items, totaling approximately $5 million, added just under $0.03 per share to our results.\nToday, we also reported that AFFO per share was $0.76 per share for the first quarter, which is $0.07 per share higher than the preceding fourth quarter $0.69.\nWe did footnote this amount included $9.4 million of deferred rent repayment and our accrued rental income adjustment in the first quarter AFFO number.\nRent collections continue to drift higher.\nAs Jay mentioned, we reported today rent collections of approximately 97% for the first quarter, 98% for April rent collection.\nMost notable collections from our cash basis tenants, which represent approximately $50 million or 7% of our annual base rent, improved to approximately 80% for the first quarter.\nPreviously, we projected these cash basis tenants would pay at their historical payment rate of about 50% of rent.\nSo improving to 80% added about $4 million of revenues in the first quarter versus our prior guidance.\nAs Jay mentioned today, we increased our 2021 core FFO per share guidance from the range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share.\nThis incorporates the better-than-expected rent collections and the results from Q1.\nThe driver for the increase in full year guidance is the $5 million of first quarter nonrecurring items I previously mentioned and the assumed higher rent collection rates more in line with current collection rates.\nSo while we previously assumed 50% rent collections from the $50 million of cash basis tenant annual base rent, we are now assuming 80% rent collection.\nSo that incremental 30% amounts to $15 million for the full year and for the remainder of our tenants, we previously assumed 2% potential rent loss, and we now assume 1% rent of potential rent loss, which equates to approximately $6 million of improvement for the year.\nSo compared to prior guidance, current guidance incorporates approximately a total of $21 million in improved rent collection, plus $5 million of onetime items in Q1 or a total of $26 million, and that all equates to about $0.15 per share.\nAs Jay noted, we ended the fourth quarter with $311 million of cash on hand.\nNothing outstanding on our $900 million bank line.\nWe did execute a $450 million 30-year debt offering, with a 3.5% coupon on March 1, and used a large portion of those proceeds to pay off our $350 million of 3.3% notes due in 2023.\nWhile time will tell, given where we are in the 40-year declining interest rate cycle, it felt like it was a good time to continue to push out debt maturities at these rates.\nOur weighted average debt maturity is now 13.3 years, with a 3.7% weighted average fixed income interest rate.\nOur next debt maturity is $350 million, with a 3.9% coupon in mid-2024.\nSo on very good liquidity and leverage position, I have no need to raise any additional capital to meet our 2021 acquisition guidance.\nNet debt to gross book assets was 34.7% at quarter end.\nNet debt-to-EBITDA was 5.0 times at March 31.\nInterest coverage was 4.6 times and fixed charge coverage 4.1 times for the first quarter of 2021.\nOnly five of our 3,161 properties are encumbered by mortgages totaling about $11 million.\nSo 2021 is off to a good start as the economy and retailers seem to be catching wind in their sales from the several trillion-dollar stimulus injected by the government, which feels like it will continue into 2022.\nOur focus remains on the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years.\nAnd Melinda, with that, we will open it up to any questions.",
        "summary": "national retail properties sees 2021 core ffo per share $2.70 to $2.75.\nqtrly core ffo per common share $0.69.\nsees 2021 core ffo per share $2.70 to $2.75."
    },
    {
        "text": "Before discussing the details of this past year, I want to once again offer my sincere gratitude to all the associates at National Retail Properties for their hard work, perseverance, flexibility, collegiality, professionalism and dedication in 2020.\nI could not be prouder of how this talented team worked tirelessly to create shareholder value and support each other during this past crazy year.\nAs I've said before, perhaps the best word to describe National Retail Properties is consistent: consistent investment focus on single-tenant retail properties; consistency of people and culture; consistently raising the dividend for 31 consecutive years; consistent conservative balance sheet philosophy that maintains flexibility and dry powder; consistent long-term tenant relationships.\nAnd although our long-term track record of consistent per-share growth was disrupted in 2020 due to the pandemic, we remain committed to our multiyear business plan.\nHighlights for National Retail Properties in 2020 include: increasing the common stock dividend for the 31st consecutive year, a feat matched by only two other REITs and by less than 1% of all U.S. public companies; raising $700 million of well-priced debt capital early in the year, which put us in a strong liquidity position as the pandemic began to spread and enabled us to end 2020 with $267 million of cash in the bank and nothing drawn on our $900 million line of credit; reaching collaborative rent deferral agreements during the early stages of the pandemic with a number of our relationship tenants, which solidified our relationships and set us up for future acquisition business; collecting 95.7% of our rents due for the fourth quarter and 89.7% of our annual base rent for the year 2020; supporting our associates and our community with programs and activities to advance associate well-being, employee engagement and community involvement; and lastly, enhancing our executive leadership team with the appointment of Steve Horn, a 17-year veteran with the company, as our Chief Operating Officer.\nLet me now turn to some details about our fourth quarter and 2020.\nAs highlighted above, our rent collections continued to trend positive during the quarter, resulting in collections of 95.7% of fourth quarter rents.\nFor the year 2020, we collected just under 90% of rents due for the year.\nAnd for the month of January 2021, we have collected approximately 95% of the rents due for the month.\nThese collection numbers compare very favorably with other retail real estate companies and are similar to the reported rent collections by companies with a significantly higher percentage of investment-grade retail tenants.\nI'd also like to highlight that we forgave zero rent in the fourth quarter and only forgave less than 0.5% of our annual rents for the entire year.\nConsistent with our long-term practice and multiyear business model, we do not anticipate reporting monthly rent collections in 2021.\nNotwithstanding the impact of the pandemic, our broadly diversified portfolio of 3,143 single-tenant retail properties ended the year with an occupancy rate of 98.5%, which continues to exceed our long-term average of 98%.\nOur high lease renewal rate also continued in 2020.\nApproximately 80% of our expiring leases were renewed by the current tenants at approximately 100% of the expiring rent without material investment of lease incentive or tenant improvement dollars and with an average lease renewal term of over six years.\nIn our opinion, this impressive statistic validates the high demand for our well-located real estate sites.\nA reminder that our tenants are typically large, well-capitalized, regional and national operators with the scale, financial wherewithal and management expertise to weather significant disruptions in the business environment.\nAdditionally, the majority of our properties are located in suburban markets, largely in the southern half of the United States, which have been somewhat less impacted by the pandemic than urban city centers.\nWe're pleased to see that many of our tenants' businesses are bouncing back more quickly than we had initially anticipated.\nAnd as our relationship tenants return to growth mode in the fourth quarter, we ramped up our acquisition activities as well.\nDuring the fourth quarter, we invested $102 million in 42 new single-tenant retail properties at an initial cash yield of 6.2% and at an average lease duration of 20 years.\nFor the year 2020, we invested a total of $180 million in 63 new properties at a weighted average initial cash yield of just under 6.5% and with an average lease duration of over 18 years.\nAn important strategic advantage of our business model is the long lease durations we achieve through our focus on sale leasebacks with our relationship tenants.\nWe also had an active fourth quarter of dispositions, selling 13 properties for $12 million.\nAnd for the year 2020, we sold 38 properties, raising over $54 million of capital to be redeployed into our business.\nOur balance sheet remains strong.\nWe ended the year with $267 million of cash in the bank and zero balance drawn on our $900 million line of credit.\nKevin will provide more details on the $120 million of equity capital we raised in 2020 via our ATM.\nAs we enter 2021, we're well positioned to take advantage of the right opportunities when they present themselves and/or weather further choppiness in the economy if that may occur.\nConsistent with our long-term focus and culture, we approached guidance with a conservative mindset.\nAlthough our portfolio continues to perform well and our relationship tenants are returning to growth mode, the pandemic is not yet behind us, and there may be additional turmoil in the economy ahead.\nKevin will review the details of our guidance in his remarks.\nLooking ahead to 2021 and beyond, you should expect us to continue to adhere to the core strategic drivers of National Retail Properties' long-term success, including: first, a consistent focus on single-tenant net leased retail properties.\nThe real estate attributes of single-tenant retail properties are far superior to the attributes of other property types, and the universe of opportunities to acquire these properties remains vast.\nSecond, a broadly diversified portfolio of single-tenant retail properties that generates a stable, growing cash flow from long-term leases.\nAs noted above, our tenants are primarily large regional and national operators in lines of trade that provide customer services and e-commerce-resistant consumer necessities.\nThird, a fortress-like balance sheet that provides us with the capability to withstand economic turbulence and positions us to be able to continue our long history of consecutive annual dividend increases.\nFourth, a relationship-oriented acquisition model that results in high-quality investments.\nOur proprietary tenant relationships allow us to obtain higher investment yields, superior lease documents, longer lease duration and better quality real estate.\nFifth, an active asset management that focuses on maximizing the value of each individual property.\nOur deep real estate expertise enables us to get the most out of our portfolio and to recycle capital through thoughtful, disciplined dispositions.\nAnd last, but not least, a commitment to ESG, including a deep commitment to our team of great people in a supportive culture, which is the true backbone of our success.\nAlmost 3/4 of our associates have been with the company for at least five years, and approximately half have been with us for 10 years or more.\nThe executive leadership team averages almost two decades of tenure at the company.\nThat level of commitment to culture and institutional knowledge is invaluable.\nWe believe that as we continue to execute on these strategic drivers in the post-pandemic world, we will consistently deliver core FFO per share growth and outperform REIT averages on a multiyear basis.\nThat's up $0.01 from the preceding third quarter's $0.62.\nAnd AFFO per share was $0.69 per share for the fourth quarter, which is $0.07 per share higher than the preceding third quarter's $0.62.\nAdditionally, we recognized $2.5 million of deferred rent repayment that was repaid in the fourth quarter and was included in calculating AFFO.\nAs Jay noted, occupancy was 98.5% at quarter end, up 10 basis points from the prior quarter.\nG&A expense for the fourth quarter was 5.7% of revenues and -- for the fourth quarter and then 5.8% for the full year 2020, which is fairly flat with 2019's G&A levels.\nRent collections, as Jay noted, continue to improve throughout the fourth quarter.\nToday, we reported rent collections of approximately 95.7% for the fourth quarter and 95% for the month of January 2021.\nSo we have seen steady incremental improvement on the rent collections front over the past eight months.\nTo be clear, these rent collection percentages are for the regular original rent owed for those respective periods, meaning that it does not include collections of previously deferred rent.\nIn the fourth quarter, we also collected, as I mentioned, $2.5 million of rent that was previously deferred, which represented approximately 100% of the deferred rent repayment that was due in the fourth quarter of 2020.\nAs we've previously noted as well, the majority of deferred rent is due in 2021, and the very early indications suggest good collection results for those deferred rents.\nWe have included on page 22 of today's supplemental, which is on our website, some disclosure on the amounts and timing of the anticipated repayment of deferred rent over the next couple of years.\nAt the end of the fourth quarter, we had approximately $50 million or about 7.4% of our annual base rent being recognized on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payments.\nSo this classification required us to write off all outstanding receivable balances for these tenants, which in the fourth quarter was $2 million of rent receivables and $5 million of accrued rent balances totaling $7 million or approximately $0.04 per share for the fourth quarter.\nSo without this noncash write-off, FFO results would have been notably better.\nHowever, please note that despite this GAAP accounting write-off, we will be pursuing these receivables and ongoing rent payment with the usual vigor.\nRent receivables from cash-basis tenants totaled approximately $10 million as of December 31.\nAgain, these receivables are not reflected on our balance sheet.\nNow over to receivables that are on our balance sheet.\nFirst, rent receivables of $4.3 million were -- was fairly flat with September 30 levels and now very much in line with our pre-pandemic rent receivable levels of $3 million to $4 million.\nThese rent receivables include a general reserve of 16% or $835,000 at December 31.\nSecondly, accrued rental income receivables decreased slightly to $54 million and had a general reserve of 11% or $6.9 million at December 31.\nIn the fourth quarter, we collected $2.5 million of previously deferred rent, which would -- reduces the accrued rental income receivable.\nThis collection of previously deferred rent is excluded from GAAP earnings, FFO and core FFO results.\nWe did note that -- what AFFO would have been if we had excluded the pandemic-related accrued rent, both via deferral and the subsequent repayment.\nWe have currently less than 1% of our annual base rent coming from tenants in bankruptcy, and that primarily consists of Ruby Tuesday today.\nI will note, Chuck E. Cheese exited bankruptcy during the fourth quarter.\nAnd while we agreed to a 25% rent reduction for 15 months ending December 2021, none of our 53 leases were rejected in bankruptcy.\nAs Jay noted, today, we initiated 2021 core FFO per share guidance of $2.55 to $2.62 per share.\nWhile our rent collections materially improved throughout 2020, compared to many previous years, we have assumed there would be some continued uncertainty in this variable going forward into 2021.\n$50 million of our $675 million of total annual base rent as of 12/31/2020.\nWe've assumed these cash-basis tenants pay 50% of the rent due in 2021 in our guidance, and that's relatively consistent with what they've been paying in recent months.\nAdditionally, on top of this, we have assumed 2% rent loss from the remainder of our annual base rent, which equates to about $12 million or $13 million in rent.\nThis rent loss or vacancy estimate is not made with any particular tenant concerns and on its face feels like a conservative assumption, meaning the actual rent loss could be better than guidance.\nBut given this is our first issuance of guidance in this pandemic, it seemed prudent to be more conservative than not.\nAnd those of us -- those of you who have known us for the past 25 years are probably not too surprised by that approach.\nWe ended the fourth quarter with $267 million of cash on hand and no amounts outstanding on our $900 million bank credit facility.\nWe did not draw down our bank line as many companies did in 2020.\nWe raised $60 million of equity in the fourth quarter at just over $40 per share.\nOur next debt maturity is in April 2023.\nIt's $350 million with a 3.3% coupon.\nSo we're in a very good liquidity position.\nOur weighted average debt maturity is now 10.2 years with a weighted average interest rate of 3.7%.\nSo the balance sheet and our leverage profile remains very strong.\nA couple of numbers.\nNet debt to gross book assets was 34.4%.\nNet debt-to-EBITDA was 5.0 times.\nInterest coverage was 4.5 times and fixed charge 4.0 times for the fourth quarter of 2020.\nOnly five of our 3,000-plus properties are encumbered by mortgages totaling only $11.4 million.\nSo 2021 seems the beginning of where 2020 left off with sustained rent collection levels and incremental improvement in tenant health, which allows us to continue to shift to a more offensive posture.\nAs our focus remains on the long term, we will continue to endeavor to give NNN the best opportunity to succeed in the coming years.\nAnd Matthew, with that, we will open it up to any questions.",
        "summary": "compname reports qtrly ffo per common share $0.62.\nqtrly ffo per common share$0.62.\nqtrly affo per common share $0.69.\nsees 2021 core ffo per share $2.55 - $2.62 per share."
    },
    {
        "text": "Joining me are Bill McDermott, our president and chief executive officer; and Gina Mastantuono, our chief financial Officer.\nDuring today's call, we will review our third-quarter 2020 financial results and discuss our financial guidance for the fourth quarter of 2020 and full-year of 2020.\nThe guidance we will provide today is based on our assumptions as to the macroeconomic environment in which we will be operating.\nThose assumptions are based on the facts we know today.\nMany of these assumptions relate to matters that are beyond our control and changing rapidly including, but no limited to, the time frames for and severity of social distancing and other mitigation requirements, the continued impact of COVID-19 on customers' purchasing decision and the length of our sales cycle particularly for customers in certain industries.\nWe'd also like to point out that the company reports non-GAAP results in addition to and not as a substitute for financial measures calculated in accordance with GAAP.\nAll financial figures we will discuss today are non-GAAP except for revenues, net income and remaining performance obligations.\nA replay of today's call will also be posted on the website.\nI hope you and your loved ones are healthy and safe.\nWe continue to be ServiceNow strong in support of our employees and communities in these challenging times.\nWe also remain passionately focused on delivering for our customers, partners and shareholders.\n2020 has brought unimaginable change to the world.\nCompanies have to operate in new and faster ways, pivoting their business models.\nEveryone is adapting to new employee and customer expectations.\nIt's all about people.\nGetting teams to collaborate across the enterprise is now more important than ever.\nThe workplace of the future will be distributed.\nManaging complex digital workflows will be critical.\nEnterprises need innovation without disruption.\nIt's clear that speed has become the differentiator.\nServiceNow is leading this once-in-a-generation opportunity to make work, work better for people.\nAnd this is what we're seeing.\nAll value chains are being split apart.\nThey are being reformed into modern digital workflows across the enterprise.\nMore than $3 trillion have been invested in digital transformation initiatives.\nBut as IDC research shows us, only 26% of the investments have delivered meaningful ROI.\nMassive investment is simply not creating massive change.\nThis is fueling the workflow revolution.\nThe missing link is integration.\nSystems, silos, departments and processes must come together into holistic, cross-enterprise workloads.\nThe Now Platform unlocks this ROI by offering speed, agility and resilience.\nCompanies need it now.\nIt gives companies the ability to deliver at scale the experiences employees and customers demand.\nThat's the power of the Now Platform, a single architecture and data model that serves as the enterprise platform for all other platforms.\nIn other words, it's the platform for digital business.\nAs one CIO said to me, my goal with the Now Platform is to enable my colleagues to perform their top 50 tasks in a single environment that provides a consumer-like experience.\nThe momentum of the workflow revolution is unstoppable.\nDespite the COVID operating environment, our team delivered outstanding Q3 results.\nGina will provide the details.\nHere are the headlines.\nWe beat expectations across the board.\nWe surpassed 1,000 customers with ACV over $1 million.\nWe landed our largest deal ever with our largest customer who has now crossed over $40 million in ACV.\nAnd we're raising full-year guidance today.\nWe're driving sustainable growth well on our way to $10 billion and beyond.\nI'm incredibly proud of our team.\nIn the most challenging of times, we are focused, disciplined committed to helping our customers succeed above all other priorities.\nThe speed at which we're innovating has never been faster.\nOur team is leading the future of work.\nWe are releasing new innovations every two weeks with our Safe Workplace suite to help our customers safely return their employees back to the workplace.\nOther new product introductions include Hardware Asset Management, Financial Services Operations, Telecom Service Management, Legal Service Delivery, Workplace Service Delivery and Connected Operations.\nI could go on.\nIn addition, our platform innovations are differentiated for the direct-to-consumer industry where subscribers demand flawless customer service.\nOne of the largest streaming services in the world seamlessly upgraded their ServiceNow environment this past weekend with 0 downtime.\nThere was no impact to any of their active subscribers.\nHow's that for customer service.\nSuch innovation demonstrates the power of the Now Platform.\nWe were honored in Q3 to be named a leader in the 2020 Gartner Magic Quadrant for enterprise low-code application platforms.\nWe believe this is yet another example of the agility of the Now Platform to help customers quickly workflow any challenge.\nWe think our Gartner recognition validates the breadth of our IT solutions, putting ServiceNow in a leader position in the two 2020 Magic Quadrants: IT risk management and IT vendor risk management tools.\nAnd of course, we remain the leader on both completeness of vision and highest in ability to execute for our ITSM core business.\nNow let's look at Q3 performance.\nHighlights across our portfolio, here we go.\nOur top 20 deals included three or more products.\nOur core remains ever strong.\nITSM was included in 17 of the top 20 deals with customers choosing ITSM Pro in 16 deals.\nThe embedded AI and machine learning capabilities are helping IT organizations scale and automate, reduce complexity, cost and risk, while enabling people to work from anywhere.\nITOM was included in 18 of the top 20 deals.\nWe won deals with Mount Sinai and the Federal Defense Information Systems Agency.\nOur customer workflows continue to be a growth driver.\n13 of the top 20 deals included CSM.\nEight of those deals were greater than $1 million.\nOur customer wins in Q3 demonstrate how ServiceNow is becoming the enterprise workflow standard.\nFor example, Q3 was our largest federal quarter ever.\nWe now have nine federal customers over $10 million in ACV.\nArmy and the U.S. Department of Veteran Affairs.\nAnd we had new customer wins with agencies such as the U.S. Senate and Federal Claims Court.\nIn our largest deal ever, the Department of Veteran Affairs is modernizing its enterprise service management and IT capabilities.\nThey are using the Now Platform to have real-time visibility into the health, availability and costs of their critical business services.\nThis will deliver significant benefits to our heroic veterans.\nWith ITSM Pro, VA will automate its manual workflows with AI and machine learning capabilities to free up employees to better serve veterans.\nAs the U.S. Air Force has publicly described, they are deploying the Now Platform as part of their digital Air Force of the Future vision.\nWe are helping them deliver Genius Bar-like self-help services to the women and men serving our country around the globe.\nIn addition to federal, state governments also are leveraging the Now Platform.\nTennessee's Department of Human Services expanded its relationship with ServiceNow.\nThey are using CSM to reopen state offices for public services, while keeping health and safety a priority.\nThey quickly adopted our latest Now Platform Paris release, utilizing a new feature that enables the public to self-schedule appointments and digitally check in when arriving for appointments.\nThe state of Alaska's governor issued a directive to protect workers and ensure that the state can continue operating in a pandemic environment.\nTheir existing systems, manual processes and dispersed population created numerous issues to work effectively.\nThe HR department is transitioning to a centralized operating model, and ServiceNow will solve their manual onboarding issues and enable employee workflows to be digitally transformed.\nOutside of federal and state and customers across industries, the Now Platform is the standard for driving enterprise digital transformation.\n2020 has brought significant changes to Dell's work-from-home model.\nOur HR product will support this new way of working by providing enterprise onboarding and transitions.\nAnd the Now Platform is helping Dell in its mission to provide the best customer experience in the markets they serve.\nLeading managed services provider, TPx, became the first customer of our new telecom industry-specific product.\nServiceNow is going to run TPx' customer portal, enabling, onboarding, project management, customer servicing and IT support.\nA major Indian financial institution chose ServiceNow to give them complete visibility to better control enterprise risks, replacing legacy solutions that were stitched together.\nThis is another example of the movement we are seeing in the industry to replace legacy solutions and consolidate on the Now Platform.\nIn Q3, we continued to see strong momentum with our Safe Workplace suite of apps.\nThis quarter, we added two new apps into the Safe Workplace suite: Employee Travel Safety and Health and Safety Testing.\nOur Safe Workplace apps demonstrate our ability to innovate quickly and deliver fast time to value in weeks, not months and years.\nWe've seen nearly 800 downloads of our Safe Workplace apps.\nCustomers include Standard & Poor's, Raymond James and Rutgers University.\nAt Rutgers, our Safe Workplace apps are being used for health screening, contact tracing and room reservations to ensure a safe environment for all students and faculty.\nHere's my favorite customer win.\nI'm a huge basketball fan.\nAs many of you know, my grandfather, Bobby McDermott, was a Hall of Famer.\nSo I couldn't be more proud of how ServiceNow helped pro basketball have a successful restart season.\nThe NBA and WNBA were able to implement ServiceNow's employee workflows in under a week to manage the complex manual processes associated with restarting.\nServiceNow helped the league facilitate screening for more than 2,600 league staff, vendors and guests who entered the NBA and WNBA bubble in Florida and successfully processed more than 13,000 essential documents.\nUsing ServiceNow technology, the league demonstrated that a safe, careful return to professional sports was possible with the right tools and protocols in place.\nWe are very proud to become the official workflow partner of the NBA and WNBA, and we look forward to helping the league continue to drive digital transformation to deliver great employee player and fan experiences.\nAs we drive great customer wins, our partner ecosystem is growing even stronger.\nWe are grateful for the investments our partners are making to grow their ServiceNow businesses and to serve our customers.\nWe recently announced a go-to-market partnership between IBM and ServiceNow.\nThis new business opportunity combines ServiceNow's ITSM and ITOM capabilities with IBM's Watson AI ops to help customers automate IT and scale, reducing cost and risk.\nLast week, we announced an expanded partnership with Accenture.\nThe new Accenture ServiceNow business group will accelerate digital transformation programs for customers in telecom, government, financial services, manufacturing, healthcare and life sciences.\nHey, in summary, Q3 was another great outperform quarter.\nWe are confident in our ability to succeed in this environment.\nWe are bullish on our long-term outlook and our path to $10 billion and beyond.\nOur leadership is expanding our reach and opportunities with marquee partnerships, such as the NBA and WNBA, IBM and Accenture.\nThere are many more.\nOur brand is resonating.\nWe are becoming an essential C-suite strategic partner.\nOur ecosystem is growing fast.\nOur go-to-market capabilities are stronger than ever.\nOur product innovation is second to none.\nWe are deeply committed to attracting, retaining and developing the best talent in this industry.\nWe are a big tent company dedicated to diversity, inclusion and belonging.\nDiversity makes us stronger, making ServiceNow the destination company where the best talent belongs and thrives.\nAnd this is what's going to make us unstoppable.\nOur new board member and new chief global talent officer were announced today, and it demonstrates the caliber of people we are attracting.\nI could not be more thrilled to have Larry Jackson joining our board and Gaby Toledano joining our leadership team.\nBoth are exceptional leaders.\nLarry is leading the music industry revolution for Apple Music.\nHis experience using technology to create innovative, market-leading consumer experiences will be invaluable as we drive innovative employee and customer experiences for the global marketplace.\nLikewise, Gaby brings deep tech industry and talent leadership experience, building world-class organizations at scale for some of the best-known companies in the world.\nWe were humbled to recently be recognized as the company with the best leadership team in an anonymous survey of more than 10,000 employees across the industry.\nGaby is a great addition who will only make us stronger.\nIn so many ways, we are just getting started.\nThis year's unprecedented headwinds have only strengthened our digital transformation tailwinds.\nWe have the platform businesses need to workflow standard for enterprise transformation, the missing link for integration of existing technology investments and the creation of modern enterprise workflows.\nRemember, behind every great experience is a great workflow.\nWhatever challenge a business is facing, we workflow it.\nWe will make workflow a verb.\nServiceNow is incredibly well positioned to become the defining enterprise software company in the 21st century.\nWe will not slow down in pursuit of this goal.\nWe couldn't be more fired up to finish this year very strong.\nQ3 was a fantastic quarter for ServiceNow as the team continued to execute very well despite the challenges created by COVID-19.\nWe exceeded the high end of our subscription revenues and subscription billings guidance, and that top line beat carried through to our robust operating margin and strong free cash flow generation.\nQ3 subscription revenues were $1.091 billion, representing 29% year-over-year constant currency growth.\nQ3 subscription billings were $1.081 billion, representing 24% year-over-year adjusted growth driven by the great execution from our sales team.\nRemaining performance obligations, or RPO, ended the quarter at approximately $7.3 billion, representing 28% year-over-year constant currency growth.\nAnd current RPO was approximately $3.8 billion, representing 30% year-over-year constant currency growth.\nOur top line strength demonstrates the power of our product portfolio and our ability to meet the evolving needs of our customers.\nThe Now Platform is uniquely positioned to deliver exceptional time to value and provide workflows that create great experiences for customers, employees and partners.\nWe are solving customers' challenges and playing a key role in accelerating their digital transformation.\nThe Now Platform enables the missing integrations that link together systems, silos, departments and processes into unified workflows.\nOur best-in-class renewal rate improved quarter-over-quarter to 98%, demonstrating the resilience of our business as the Now Platform remains a mission-critical part of our customers' operations.\nAs Bill highlighted, our sales teams continued to win bigger deals in Q3, including our largest ever $13 million ACV deal.\nWe closed 41 deals greater than $1 million in ACV in the quarter, and what's more, nine of those were with net new customers.\nOur ability to land new logos despite the macro uncertainty that COVID has introduced is a testament to our amazing products and our brand that continues to resonate with the C-suite.\nWe now have over 1,000 customers paying us more than $1 million of ACV.\nQ3 operating margin was 26%, a 400 basis point beat versus our guidance driven by our strong top line outperformance, lower T&E expenses as a result of COVID and about 150 basis points of marketing spend that shifted from Q3 into Q4.\nYear over year, our Q3 operating margin was consistent with last year as lower T&E expenses were offset by planned incremental investments in R&D and marketing spend of pipeline generation.\nOur free cash flow margin was 19%, up 500 basis points year over year driven by lower T&E spend in capex in the quarter as well as strong collections.\nTogether, these results demonstrate the strength of our business model and our ability to drive a balance of growth and profitability.\nBefore I move to guidance, I want to give a brief update on the trends we are seeing in our business.\nOverall, we see strong momentum heading into the last quarter of the year.\nThe highly affected industries we outlined earlier in the year, which represented about 20% of our business and include areas such as transportation, hospitality, retail and energy, continue to see macro headwinds but remain steady customers of ServiceNow.\nWe closed six new deals over $1 million in these affected industries.\nAnd while we do expect some headwinds in severely impacted industries like airlines, renewals of existing customers have remained very strong.\nFurthermore, we've also seen very healthy payment terms and DSOs.\nCollections have been strong, helping drive free cash flow upside in Q3, and we expect that trend to continue into Q4.\nEnterprises are realizing that they need to quickly adapt to the workplace of the future, and ServiceNow is providing a smarter and faster way to workflow.\nOur pipeline generation has remained robust, and our pipeline coverage ratio for the remainder of the year gives us confidence in our ability to deliver a strong finish to 2020.\nAs a result, we are raising guidance for the full year.\nWe're raising our subscription revenues range to between $4.257 billion and $4.262billion, representing 31% year-over-year constant currency growth.\nWe are raising our subscription billings range to between $4.78 billion and $4.8 billion, representing 26% to 27% year-over-year adjusted growth.\nWe continue to expect 2020 subscription gross margin of 86%, and we are raising our full-year 2020 operating margin from 24% to 24.5%.\nThis reflects additional savings from lower T&E expenses related to COVID.\nLet me note that while we expect many of these expenses to return at some point in the future, we're taking our learnings from the current environment and leaning into the future of work.\nThese learnings will have lasting effects on our overall efficiency, giving us the ability to redeploy savings elsewhere.\nWe plan to take advantage of the incremental leverage and make disciplined investments for growth.\nWe're reinvesting in R&D and quota-bearing resources to drive innovation and pipeline to fill our tremendous organic growth engine, ensuring that we maintain our market leadership and are well positioned to take advantage of the digital acceleration heading into 2021 and beyond.\nTurning to free cash flow.\nWe're raising our full-year 2020 free cash flow margin 200 basis points from 29.5% to 31.5%, reflecting the increase in our operating margin.\nAnd our expectations for better than originally forecasted collections for the year.\nWe expect subscription revenues between $1.155 billion and $1.160 billion, representing 27% year-over-year constant currency growth.\nWe expect subscription billings between $1.625 billion and $1.645 billion, representing 24% to 26% year-over-year adjusted growth.\nMoving on to profitability.\nFor Q4, we expect a 21% operating margin, which includes about 150 basis points of marketing spend that shifted from Q3 into Q4 and some incremental investment into pipeline-generating activities to set us up for a strong and successful 2021.\nFinally, we expect fourth quarter and full-year 2020 diluted weighted average outstanding shares of 201 million and 199 million, respectively.\nIn summary, ServiceNow is the strategic workflow authority.\nAs enterprises are adapting to the workplace of the future, CXOs are using the Now Platform to create new workflows for new value chains, transforming experiences across siloed systems and functions across the enterprise.\nThe Now platform is the missing integration layer that multiplies the power of enterprises' existing technology investments and delivers exceptional time to value.\nI'm extremely proud of our team's performance as we focus on addressing these needs for our customers.\nOur ecosystem partners are efficiently expanding our capabilities and our reach.\nAnd more and more enterprises are recognizing the strength of our one architecture model and its ability to deliver great, scalable experiences with speed and efficiency.\nWe are the platform company for digital business.\nI'm very excited about the traction we are seeing in our journey toward becoming a $10 billion revenue company and the defining enterprise software company of the 21st century.\nWe know everyone has a lot going on in their lives, juggling work and caring for your families at home.\nAnd we just want to express how appreciative we are of your contributions.\nServiceNow wouldn't be in the position of strength it is without each and every one of you.\nYou make us ServiceNow strong.",
        "summary": "subscription revenues of $1,091 million in q3 2020, representing 31% year-over-year growth.\nraises full-year guidance."
    },
    {
        "text": "These statements involve a number of risks and uncertainties, including the impacts from the COVID-19 pandemic and related governmental responses and their impact on the general economy as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q.\nAlso during the call, we will reference a number of non-GAAP financial measures.\nThe impact of foreign exchange rate changes subsequent to the end of the second-quarter impacts from further spread of COVID-19 and other variants and environmental and litigation charges.\nWe appreciate you joining us today and hope you and your families are all staying healthy and safe.\nI want to begin by saying how honored I am that the board of directors has placed their trust in me to lead EnPro as interim president and CEO.\nI also want to recognize Marvin for his contribution to EnPro over the last several years.\nOn behalf of the board and management team, I wish him the best in his future endeavors.\nBy the way of background for those who may be unfamiliar, I have been with EnPro for the better part of 12 years.\nAnd over that time, have had the opportunity to work in a variety of leadership positions across our sealing technologies segment.\nI most recently served as president of sealing technologies, a segment which I'm proud to say delivered an exceptional quarter.\nI also have had the pleasure to serve as a member of the EnPro executive counsel, which is a team of leaders from across EnPro focused on developing and implementing our commercial, strategic, financial, and operational objectives.\nServing in these positions has given me the opportunity to experience firsthand what is truly so special about this organization.\nOur collaboration and focus on empowering our colleagues.\nI know as well as anyone that the success of our organization is built on the hard work, dedication and tireless execution and commitment of our 4,400 employees around the world.\nAs we will discuss throughout today's call, our team has continue to deliver for each other, our customers, and our shareholders in the second quarter.\nAnd I know I speak for the entire leadership team when I say I'm incredibly proud of what we have accomplished.\nMy goal is to continue to work with our leadership team to encourage and position our employees to unleash their full potential as we continue the clear strategy articulated over the past year.\nWe are excited about what is ahead.\nWith that introduction, let's move on to our second quarter highlights.\nAs I noted, and as our results show, we had another exceptional quarter.\nIn the second quarter, sales of $298.6 million increased 20.9% year over year, with organic sales increasing 27.1%.\nWe saw a sequential growth of 6.9% from the prior quarter.\nOur strong top-line results were driven by organic revenue growth and the addition of Alluxa.\nImportantly, our growth was broad-based, as we experienced positive momentum across all of our businesses.\nOur second-quarter adjusted EBITDA of $57.2 million increased 52.5% year over year, and the adjusted EBITDA margin expanded 400 basis points to 19.2%.\nThis strong performance reflects the sustainable benefits of our portfolio reshaping actions, operating leverage, and pricing strategies, partially offset by higher incentive compensation accruals and raw material inflation.\nAll three business segments contributed to our adjusted EBITDA growth year over year.\nIn the past year, we took action to increase the level of collaboration between supply chain, manufacturing, and our commercial teams.\nThis enhanced focus and coordination throughout our organization have helped us improve customer engagement and respond quickly to mitigate raw material issues.\nNevertheless, the raw material environment remains highly dynamic due to pandemic-related impacts.\nAnd we expect these conditions will likely persist at least through year end.\nOur order trends in the quarter were extremely strong, surpassing our solid first quarter and are at the highest level in three years.\nAs we look ahead, we continue to see broad-based strength across our businesses and are encouraged by what we are hearing from our customers, particularly in the general industrial, semiconductor, heavy-duty truck, food and pharma, automotive, and petrochemical markets.\nNow, I will hand the call over to Milt for a deeper dive into our financial results for the quarter.\nAs Eric mentioned, we had another exceptional quarter, positive momentum across most major end markets as well as the addition of Alluxa contributed to strong top-line results, partially offset by the reduction in sales due to last year's divestitures.\nAs reported, sales of $298.6 million in the second quarter increased 20.9% year over year.\nOrganic sales for the quarter increased 27.1% compared to the second quarter of 2020.\nAs Eric noted, sequentially, sales were up 6.9%.\nGross profit margin of 39.2% increased 580 basis points versus the prior-year period.\nThe increase was driven primarily by strong organic sales volume and the benefit of divesting lower-margin businesses.\nAdjusted EBITDA of $57.2 million increased 52.5% over the prior-year period as a result of higher operating leverage from solid organic sales growth, the addition of Alluxa, and increased pricing, partially offset by increased raw material costs and higher incentive compensation accruals.\nAdjusted EBITDA margin of 19.2% increased approximately 400 basis points compared to the second quarter of 2020.\nCorporate expenses of $12.8 million in the second quarter of 2021 increased from $7.1 million a year ago.\nThe increase was driven primarily by higher incentive compensation accruals, reflecting the stronger year-over-year performance companywide.\nAdjusted diluted earnings per share of $1.56 increased 77.3% compared to the prior-year period.\nAmortization of acquisition-related intangible assets in the second quarter was $11.3 million, compared to $9 million in the prior-year period, reflecting the addition of Alluxa.\nWe anticipate amortization of acquisition-related intangibles will be between 44 and $46 million in 2021.\nAs a reminder, our estimated normalized tax rate used in determining adjusted earnings per share is 30%.\nMoving to a discussion of segment performance.\nsealing technologies sales of $162.5 million increased 7.9% compared to the prior-year period despite the impact of divestitures in 2020.\nExcluding the impact of foreign exchange translation and divested businesses, sales increased 25.3%, driven by strong demand in the heavy-duty truck, general industrial, food and pharma, and petrochemical markets, offset partially by power generation and aerospace markets.\nSequentially, sales increased 10.9% as we saw momentum accelerate in our heavy-duty truck, general industrial, aerospace, and petrochemical markets.\nFor the second quarter, adjusted segment EBITDA increased 39% to $42.4 million, and adjusted segment EBITDA margin expanded 580 basis points to 26.1%.\nThe margin expansion was driven primarily by operating leverage commensurate with strong volume, portfolio reshaping, select pricing actions, and continuous improvement initiatives.\nExcluding the impact of favorable foreign exchange translation and divestitures, adjusted segment EBITDA increased 45.6% compared to the prior-year period.\nTurning now to advanced surface technologies.\nSecond-quarter sales of $59.2 million increased 48%, driven by continued strong growth in semiconductor and the addition of Alluxa.\nExcluding the impact of foreign exchange translation and the Alluxa acquisition, sales increased 23.8% versus the prior-year period.\nSequentially, sales increased 8.2%, driven by growth in semiconductor markets.\nFor the second quarter, adjusted segment EBITDA increased 41.8% to $15.6 million, and adjusted segment EBITDA margin contracted from 27.5% a year ago to 26.4%.\nExcluding the impact of Alluxa and foreign exchange translation, adjusted segment EBITDA remained unchanged.\nResults for the quarter were impacted by increased operating costs related to the standup and qualification of the third LeanTeq facility in Taiwan and by foreign exchange transactional charges.\nAs a reminder, LeanTeq is a highly differentiated cleaning, coding, and related service provider with industry-leading solutions that support the most advanced technology nodes within the semiconductor industry, a high-growth market that has strong secular tailwinds.\nThe new facility nearly doubles our capacity in Taiwan.\nMore broadly, across the entire AST segment, we continue to see secular growth signals and expect sustained organic revenue growth and strong profitability over the long term.\nIn engineered materials, second-quarter sales of $80 million increased 36.5% compared to the prior year, driven by stronger sales in all major markets, including general industrial, automotive, oil and gas, and petrochemical.\nExcluding the impact of foreign exchange translation and the divestiture of GGB's bushing block business completed in the fourth quarter of last year.\nSales for the quarter increased 34.2%.\nSequentially, sales were flat when compared to a very strong first quarter.\nWe saw a quarter-over-quarter sales growth in petrochemical and oil and gas markets, offset by slower automotive production environment due to the supply chain constraints affecting that market.\nBased on conversations with automotive customers, we believe that sales growth will resume in the latter part of the second half of the year as supply chain shortages are resolved and production schedules normalize.\nSecond-quarter adjusted segment EBITDA increased 165% over the prior-year period to $13 million, and adjusted segment EBITDA margin expanded 790 basis points to 16.3%.\nThe strong year-over-year increase in EBITDA and EBITDA margins was driven primarily by the brisk volume recovery from the pandemic low, partially offset by increased material costs.\nExcluding the favorable impact of foreign exchange translation and the impact of the bushing block business divestiture, adjusted EBITDA increased 155% compared to the prior-year period.\nNow, let's turn to the balance sheet and cash flow.\nWe ended the quarter with cash of $262 million and full availability of our $400 million revolver, less $11 million in outstanding letters of credit.\nAt the end of June, our net debt to adjusted EBITDA ratio was approximately one times, a sequential improvement from the 1.4 times reported at the end of the first quarter.\nOur balance sheet remains solid, and we have ample financial flexibility to execute our strategic growth initiatives.\nFree cash flow for the first six months of 2021 was $48 million, up from $25 million in the prior year, driven primarily by higher operating profits, offset partially by working capital investments supporting stronger sales.\nDuring the second quarter, we paid a $0.27 per share quarterly dividend.\nFor the first six months of the year, dividend payments totaled $11.3 million, a 4.6% increase versus the prior year.\nMoving now to 2021 guidance.\nTaking into consideration all the factors that we know at this time, including current order patterns, we are increasing our guidance for 2021 adjusted EBITDA to be in the range of $200 million to $210 million, up from our previous guidance of $190 million to $200 million.\nThe updated adjusted EBITDA range is based on sales growth of 9% to 14% over 2020 pro forma sales of $983 million, up from a previous range of 7% to 12% growth.\nWe expect adjusted diluted earnings per share from continuing operations to be in the range of $5.16 to $5.50, up from a range of $4.74 to $5.08 provided last quarter.\nOur guidance assumes depreciation and amortization expense, excluding amortization of acquisition-related intangible assets in the range of $30 million to $32 million and net interest expense of $14 million to $16 million.\nLike each of you, we continue to monitor developments around COVID-19 and new variant.\nAnd we'll evaluate potential impacts of such developments on our business, while focusing on the health and safety of our colleagues.\nOur second-quarter results again demonstrate the benefits of our clear and consistent strategy.\nThe sustained benefits of our portfolio reshaping actions and our intention to continue investing in organic growth opportunities.\nWe expect this momentum to continue as we focus on driving safety, commercial and operational excellence throughout the company.\nWith a strong financial foundation in place, I am confident that our experienced leadership team, diverse and dedicated workforce, and compelling profitable businesses will lead to continued growth and increase shareholder value.\nI'm proud to be in a position to lead this organization forward, and I look forward to speaking with many of you over the coming months.\nWe'll now open the line to questions.",
        "summary": "enpro - q2 adjusted earnings per share $1.56.\nq2 adjusted earnings per share $1.56.\nq2 sales $298.6 million versus refinitiv ibes estimate of $273.6 million.\nraising 2021 guidance ranges: sales of $1.075 to $1.125 billion, and adjusted diluted earnings per share from continuing operations of $5.16 to $5.50."
    },
    {
        "text": "Our second quarter results reflect another step forward in our strategy execution as we continue to reshape and position the company for sustainable and profitable growth.\nConsolidated revenues improved 1% sequentially to $142 million with a 28% increase in international Fluids Systems and a 15% improvement in Industrial Solutions rental and service revenues, offsetting the previously anticipated pullback in Industrial Solution product sales that we discussed on our prior quarter call.\nSecond quarter EBITDA generation was $7 million.\nTurning to the specifics of the segments.\nOur Industrial Solutions business continues to demonstrate the value of our diversification efforts as we expand our presence in the power transmission and other industrial end markets.\nAs anticipated, coming off the exceptionally strong first quarter product sales, segment revenues declined 15% sequentially to $45 million in the second quarter as site access product sales pulled back to $10 million for the quarter.\nPartially offsetting the product sales reduction, rental and service revenues improved 15% sequentially, contributing $33 million of revenue in the second quarter, including a record $25 million contribution from the power transmission and other industrial end markets, reflecting strong performance both in the United States and in the United Kingdom.\nIndustrial Blending revenues also pulled back to $2 million in the second quarter, reflecting the anticipated impact of product transition with our primary customer.\nWith the lower revenue, our Industrial Solutions operating margins declined modestly to 22% in the second quarter, generating $15 million of EBITDA.\nReflecting on our first half 2021 performance, it's worth highlighting that the power transmission and other industrial end markets contributed $75 million of our Site and Access Solutions revenues.\nThis annualized run rate of $150 million represents a 30% improvement over the previous high of $115 million achieved in 2018, illustrating the continued momentum in our market penetration.\nMeanwhile, our historical upstream oil and gas end market contributed less than 20% of the first half 2021 segment revenues, reflecting the lower industry activity and our focus on the more stable industrial end markets.\nIn the Fluids Systems segment, revenues improved 11% sequentially, benefiting from project start-ups and the early phases of recovery within certain international markets following the COVID-related disruptions that significantly impacted the previous four quarters.\nOur international revenues improved 28% sequentially to $35 million in the second quarter, benefiting primarily from improvements in Europe and North Africa.\nIn North America, revenues improved modestly to $62 million with a 19% improvement in the U.S., largely offset by the seasonal pullback in Canada.\nDespite the revenue growth and positive earnings contributions from our international businesses, the Fluids segment remained below EBITDA breakeven in the second quarter, impacted by elevated operating expenses, including employee severance and cost associated with our ongoing inventory rationalization efforts.\nIn addition, the quarter is impacted by an unfavorable sales mix on U.S. land, which we expect to normalize going forward.\nDuring the second quarter, I'm very pleased to highlight that we won two notable fluids contracts, including a three year award in Thailand to provide drilling and completion fluids on land, which reflects our first entry into the Southeast Asian market.\nThis contract is expected to provide approximately $25 million of revenue over the three year term with work scheduled to begin in the third quarter.\nIn addition, as part of the latest Shale Oil tender in the Gulf of Mexico, we were awarded a contract to continue providing drilling fluids, reservoir drilling fluids and related services for two deepwater drillships, which we expect will generate approximately $30 million of revenue annually.\nWe believe the recent contract awards are a direct result of our continued focus on providing differentiated technology and superior customer service.\nAs global activity improves in the energy market, we feel we are well positioned to capture our fair share of the value chain, while also continuing to reshape our cost structure to generate profitable growth and provide an acceptable return on capital.\nAnd with that, I will hand the call over to Gregg to discuss in more detail the financials for the second quarter.\nI'll begin by covering the specifics of the segment and consolidated financial results for the quarter before providing an update on our near-term outlook.\nTotal revenues for the Industrial Solutions segment declined 15% sequentially to $45 million in the second quarter, which includes a $43 million contribution from the Site and Access Solutions business and $2 million from Industrial Blending.\nThe sequential decline primarily reflects the anticipated $10 million reduction in product sales following the exceptionally strong Q1 performance along with a $3 million decline in Industrial Blending product sales.\nRental and service revenues improved 15% on a sequential basis, coming in at $33 million for the second quarter, which reflects our strongest quarter in nearly two years.\nThe sequential growth was driven by robust demand in both the U.S. and the United Kingdom with the U.S. benefiting from a few large scale utility projects completed in the second quarter.\nAs a result of the $8 million decline in revenues, the Industrial Solutions segment operating income declined by $3 million sequentially to $10 million, contributing $15 million of EBITDA in the second quarter.\nComparing to the second quarter of last year, revenues from the Site and Access Solutions business increased $16 million or 59%.\nThis increase includes an $11 million or 50% improvement in rental and service revenues along with a $5 million improvement in product sales.\nLooking at the first half 2021 for the Industrial Solutions business, as Paul touched on, it's notable that we're continuing to see a significant shift within our segment revenue mix.\nMore specifically, the power transmission end market contributes more than half of our Industrial Solutions segment revenues, while our historical E&P market activity accounts for less than 20%.\nTurning to Fluids Systems.\nTotal segment revenues improved by 11% sequentially to $97 million in the second quarter.\nRevenues from U.S. land increased $10 million or 24% sequentially, reflecting the benefit of the 16% improvement in market rig count along with an increase in market share, which stands at roughly 20%.\nAll U.S. land regions contributed to the sequential revenue improvement.\nRevenues from the Gulf of Mexico declined modestly, contributing $8 million in the second quarter.\nIn Canada, revenues followed the typical seasonal pattern through spring breakup, declining 61% sequentially to $5 million in the second quarter.\nOutside of North America, as Paul noted, we are beginning to see the early signs of recovery, particularly in Europe and North Africa.\nInternational revenues improved $8 million sequentially to $35 million in the second quarter as delayed projects moved forward, although it's worth noting that COVID-related restrictions continue to suppress customer activity, particularly in the Middle East.\nAs Paul touched on, while our international Fluids business performance was relatively in line with our expectations, our U.S. operations were negatively impacted by elevated expenses in the quarter along with an unfavorable sales mix.\nOn a year-over-year basis, our Fluids Systems revenues increased $22 million or 30%.\nU.S. land revenues increased by $21 million or 74%, which significantly outpaced the 16% increase in market rig count over this period.\nThe strong revenue growth primarily reflects our increased market share and improvements in customer spending per well along with higher barite sales and our continued expansion into stimulation chemicals.\nGulf of Mexico revenues declined $6 million or 44% year-over-year, driven primarily by the changes in customer drilling and completion plans, including a strong contribution from completion fluids in the prior year quarter.\nInternational revenues improved $6 million or 22% year-over-year, benefiting from new project start-ups and the recovery of customer activity in several European markets and Algeria, while the Middle East remains roughly $2 million below prior year levels, reflecting the ongoing COVID challenges.\nSG&A costs were $23 million in the second quarter, which includes $6.9 million of corporate office expenses, reflecting a $2 million increase from both the prior quarter as well as the second quarter of last year.\nThe sequential and year-over-year increase is primarily attributable to higher long-term incentive expense, including awards tied to our relative share price performance as well as the April 1 restoration of certain austerity measures, including the company matching contributions to our U.S. retirement plan.\nInterest expense decreased modestly to $2.2 million in the second quarter, nearly half of which reflects non-cash amortization of facility fees and discounts.\nOur weighted average cash borrowing rate on our outstanding debt is approximately 3.5%.\nThe second quarter includes a $400,000 income tax expense despite reporting a pre-tax loss.\nWe are currently unable to recognize the tax benefits on our U.S. losses, and therefore, the income tax expense primarily reflects taxes on foreign earnings.\nOur net loss in the second quarter was $0.07 per share, which compares to a net loss of $0.06 per share in the first quarter and a net loss of $0.29 per share in the second quarter of last year, which included $0.09 of charges.\nTurning to cash flow.\nNet working capital changes used $7 million of cash in the second quarter as we saw DSOs return as anticipated to a more typical level from the unusually strong performance achieved in the prior quarter.\nWith the higher working capital, cash used in operating activities was a modest $2 million for the quarter.\nInvesting activities again used less than $1 million of cash in the second quarter with $2 million of capital investments largely offset by proceeds from sales of used mats from our rental fleet and other underutilized assets.\nWe ended the second quarter with a total debt balance of $78 million and a cash balance of $35 million, resulting in a modest 14% debt to capital ratio and 8% net debt to capital ratio.\nAs such, the convertible notes are now classified as long-term debt in the June 30, 2021 balance sheet.\nNow turning to our near-term outlook.\nAs we look ahead, we are encouraged by the improving longer term fundamentals in both business segments, but we continue to see significant inflationary pressures on raw materials and transportation.\nWe are also closely monitoring the evolving situation with the COVID variants around the world.\nIn the Site and Access Solutions business, while we are very pleased with the strong growth rate in targeted end markets, we expect the near-term market activity in the utility sector will face the typical seasonal slowdown seen in past years as utility companies reduce project activity during the period of high electricity demand associated with the elevated summer temperatures.\nAlthough we are continuing to execute our geographic expansion efforts, we anticipate that Q3 rental and service revenues will return to near Q1 levels.\nLooking beyond Q3, we continue to be encouraged by the robust pipeline of opportunities as we execute our growth strategy.\nOn the product sales side, although it is always difficult to predict the timing of sales activity, we expect revenues will remain relatively in line with Q2 in the near-term, with the fourth quarter expected to benefit from the year end strength in the utility sector.\nIn total, we expect Q3 revenues for the Industrial Solutions segment will pull back modestly to roughly $40 million.\nAnd with the seasonal slowdown in rental project activity as well as our ongoing investments to support our growth strategy, we expect operating margins to decline into the low to mid-teens for the third quarter, which should reflect the softest quarterly results for the year.\nBeyond Q3, we expect both revenues and operating margin will rebound in Q4, benefiting from the year end product sales demand and our ongoing penetration in the power transmission and other industrial markets.\nIn Fluids Systems, we continue to expect our international markets will recover through the second half of 2021, ultimately returning to pre-COVID levels by the end of the year.\nWith the lingering effects of COVID, particularly in the Middle East, we expect international revenues will increase by roughly 10% in Q3 with a more pronounced improvement in Q4.\nIn addition, we expect to see strong quarter-over-quarter growth in North America in Q3, led by our robust recovery in Canada from the seasonal trough and the continued improvements in U.S. land.\nIn the Gulf of Mexico, we expect Q3 revenues will remain fairly in line with the second quarter as a Q3 start-up on the second deepwater drillship will likely offset the decline in completion fluids products which are excluded from the recent contract award.\nIn total, we anticipate our Fluids segment revenues will grow by a low-teens percentage in Q3, which should bring the segment closer to breakeven operating income for the quarter with a return to positive income expected in Q4.\nWith regard to capex, we expect expenditures in the near-term will remain fairly limited with investments focused on growth opportunities within the Industrial Solutions segment.\nCorporate office expense is expected to increase by roughly $1 million from the Q2 level, largely reflecting the timing of long-term performance-based incentive expense along with the full lifting of salary austerity measures put in place during 2020.\nOverall, I'm pleased with the continuing progress we've made in the second quarter.\nLooking ahead, there are obvious ongoing market hurdles to navigate, including meaningful cost inflation as well as the elevated uncertainty regarding the impact of the COVID variants around the world.\nWith that said, we remain encouraged by the longer term market fundamentals in all of the key industries that we serve, which we believe provides the opportunity for sustainable and profitable growth over the long-term.\nFurther, with our very modest debt level and our capital-light Fluids business model, we are well positioned to fund growth objectives and generate strong free cash flow over the long-term.\nOur key priorities remain unchanged, beginning with our expansion and diversification of the Industrial Solutions business.\nAs we continue to execute on our strategy, we're very pleased with the growing market awareness of the unique value proposition that we provide within the multi-billion dollar power transmission market.\nBenefiting from our strong utility sector growth, our Industrial Solutions segment contributed 35% of our first half revenues, while consistently generating strong profitability and returns.\nExpanding this business remains our highest priority, including expansion of our geographical reach and invest in the necessary capital to support our targeted growth plans.\nOn the Industrial Blending operations, although we are disappointed by the shift in outlook that our primary customer is seeing in the demand for disinfectants and cleaning products, it's important to highlight that we view this reduction in near-term demand as a typical challenge for a new business.\nOver the past year, the surge in cleaning product demand associated with the fight against COVID, provided us an opportunity to quickly penetrate the Industrial Blending market and showcase our agility and capabilities.\nDuring a period of extreme urgency, our ability to move quickly, execute every facet of the manufacturing process and deliver quality and consistent products was met with extremely high praise from our customers.\nOur near-term priority for this business remains unchanged to capitalize upon our proven capabilities to build a diversified industrial and specialty chemical blending business.\nIn Fluids Systems, we are proud of the efforts of our global team in reshaping the business, while maintaining the highest quality of service for our customers.\nInternationally, with the worst of COVID hopefully behind us, we feel we are well positioned to benefit from what many expect to be a robust multi-year growth cycle.\nIt's important to note that prior to COVID, our international operations maintained a long history of stable and profitable performance.\nAnd despite the challenges of the past 18 months, we've continued to build upon our global relationships, expanding in key markets where we expect to play a meaningful role going forward.\nWe've also added to our extensive resume and geothermal drilling, a small but growing area that we believe will see a tailwind in the energy transition.\nWe expect our international Fluids growth will outpace North American market in the years to come, driven primarily by our extensive geographical footprint in the EMEA region and our expanding presence in Asia Pacific.\nIn the U.S. Fluids business, while the market outlook continues to strengthen, we are taking further actions to scale the business for what we expect to remain a structurally smaller market in the future.\nIn addition, with the U.S. oil and gas industry now benefiting from stronger commodity prices, our near-term focus also includes driving the much-needed price increases.\nWe expect both of our cost and pricing actions on U.S. land will continue through the second half of the year as we strive to generate consistent cash flow and acceptable return on invested capital.",
        "summary": "qtrly loss per share $0.07."
    },
    {
        "text": "They are based on management's [Technical Issues].\nWe expect to file our 10-Q later today.\nAs mentioned, this teleconference is being recorded and will be available on our website following the call.\nNews media may also contact me.\nWe look forward to see many of you at the American Gas Association Financial Forum in a few weeks.\nPlease also contact me if you have any questions about the event or meeting with our management team.\nWell, our year is off to a great start.\nOur financial results are solid, and we continue to make progress on all key objectives.\nWe reported net income of $1.94 per share in the first quarter that compares to net income from continuing operations of $1.58 per share for the same period last year.\nNew rates in Oregon drove results of the Gas Utility along with continued healthy customer growth and improved results from our interstate storage business.\nI'm pleased with how all of our systems operated over the winter and specifically during the widespread cold snap in February.\nOur extensive resource planning and the value of our gas storage assets were proven once again.\nOur team successfully managed gas supplies to mitigate the impact of the event on customers and additionally through a third-party, we were able to optimize our gas supply portfolio, capturing asset management revenues, which aid results but also offset higher gas cost for our customers.\nWhile many areas of the country will experience significantly elevated bills, our customers are going to fare quite well.\nOur commitment to safety and reliability served Northwest Natural Water customers well in February also.\nOur water utilities operating in the Pacific Northwest served customers through the February event without disruption.\nIn Texas, power outages resulted in freezing and bursting pipes on roughly half of our systems, but we were able to restore water service within 24 to 48 hours to all customers.\nNow a few notes on the economy.\nThe COVID vaccine has been rolled out in all states that we operate, economic reports for our region continued to show good recovery and growth in several important areas.\nOregon's unemployment rate was 6.1% in February, which is comparable to the national rate.\nSingle-family housing activity remained strong.\nIn the Portland metro region, home sales were up 7.4% from 2020 with price growth of about 12% on average.\nAnd new single-family permits issued were up 5.7% in Oregon over the last 12 months compared to the prior period.\nWe continue to see good customer growth.\nNew construction plus conversions translated into connecting over 11,000 meters during the 12 months ended March 31, which equates to a growth rate of 1.4%.\nOur water and wastewater utilities also continue to grow.\nStrong residential housing construction primarily in Idaho, Texas and Washington translated into a strong 3% growth rate.\nWe also closed on tuck-in acquisitions this past year, leading to an overall customer growth rate of almost 6% -- actually 5.8% to be exact.\nFrank, over to you.\nI will begin today by discussing the highlights of first quarter 2021 results and conclude with guidance for the year.\nI'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%.\nAs a reminder, Northwest Natural's earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.\nFor the quarter, we reported net income of $59.5 million or $1.94 per share compared to net $48.3 million or $1.58 per share of net income from continuing operations for the same period in 2020.\nThe Gas Utility posted an increase of $0.19 per share and our other activities contributed an additional $0.17 per share compared to last year.\nHigher earnings at the Gas Utility were primarily related to new rates set in Oregon in November of 2020, offset in part by higher depreciation and general tax expense.\nUtility margin in the Gas Distribution segment increased $13.6 million as a result of the new rates and customer growth, which were partly offset by the $1.8 million greater loss from the gas cost incentive sharing mechanism as we purchased higher gas -- priced gas during the February cold weather event than was forecasted for the year.\nUtility O&M increased $2.1 million in the quarter, reflecting higher compensation and non-payroll expenses.\nDepreciation expense and general taxes increased $3.3 million.\nIn addition to the impact of the higher pre-tax income, tax expense increased $1.7 million due to the net effect of the Oregon Corporate Activity Tax and the ongoing amortization of tax benefits from the Tax Cuts and Jobs Act.\nThis impact is largely a timing matter, which will correct over the course of the year with no significant expected effect on net income.\nNet income from our other businesses increased $5.3 million due to $4.6 million of higher asset management revenues from the weather event as David mentioned.\nIn addition, other businesses benefited from higher earnings at the water and wastewater utilities, from assets we acquired in Washington and Texas last year, as well as lower expenses at our holding company.\nCash provided by operating activities was $137 million or an increase of $32 million compared to last year.\nWe reinvested $64 million into the business, most of which was Gas Utility capital expenditures.\nOur balance sheet remains strong with ample liquidity.\nFrom an earnings perspective, the ongoing effects of COVID are largely limited to commercial customer disconnects and slightly lower usage from non-decoupled customers, as well as late fee revenues that will be recognized at a future date when we begin recovery.\nAnd as David noted, commercial customer accounts remained steady during the first quarter, even as we began normal collection practices.\nFurthermore, we have a good -- had a good response to past due notices with a substantial reduction in delinquent balances.\nWe will continue to closely monitor usage levels and commercial customer losses and be disciplined in cost management.\nWe are pleased to note that 97% of our commercial and industrial customers are current with their bills.\nThe company reaffirmed 2021 earnings guidance today for net income in the range of $2.40 to $2.60 per share.\nThe guidance assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant changes in laws, legislation or regulations.\nWhile our business model allows us to adapt to unforeseen challenges such as the coronavirus pandemic and the most recent weather event, while also delivering on our commitments to all of our stakeholders, our decisions are guided by our long-standing core values and those values inform our environmental, social and governance goals and actions.\nSo today, I'll walk you through just a few of our priorities and progress.\nIt's our greatest responsibility to our customers, our employees and the communities we serve.\nIn the 1980s, Northwest Natural proactively created a pipeline replacement program with our public utility commissions.\nAnd by 2015, we had replaced all of our cast iron and bare steel pipe.\nWe are one of the first local distribution companies to completely remove those legacy pipelines and, today, as a result, operate one of the most modern and tightest systems in the nation, but we remain vigilant.\nFor example, we performed safety inspections on our transmission system at nearly three times the rate required by federal and state regulations.\nOur long-standing core value of environmental stewardship is also a driving force behind the choices we make every day in our operations in planning for the future.\nWe believe climate change requires rapid innovation and collective action, which is why we're committed to reimagining the role of our system and the fuel we deliver.\nIn 2016, we established a 30% carbon savings goal to be achieved by 2035 starting from a 2015 baseline.\nThis goal is for our own operations and importantly, the use.\nIt also includes the use of natural gas by our customers and I want to underscore, this is a very unique and aggressive voluntary goal as compared to others.\nIt has been a catalyst for us to lead beyond our walls by building public policy coalitions that support innovation and new thinking.\nOne example of that is the groundbreaking Oregon Senate Bill 98, which allows us to procure renewable natural gas, including hydrogen, for our customers here in Oregon.\nThis law goes further than any other current law in the U.S. by outlining goals for adding as much as 30% renewables on the system by 2050.\nI'm proud to report that we made good progress on our carbon savings goal and results through 2020 show we are on track to meet or exceed that original target.\nEnergy efficiency contributed nearly half of the savings achieved, with our voluntary carbon offset program also providing significant savings.\nAnd finally our producer emissions screening tool allows us to prioritize purchases from lower and medium producers and also contributed to the goal.\nThe benefits we're reaping today are from programs and efforts that we began many years ago.\nIt's a good reminder that having a vision and a commitment to pursue it is critical to realizing significant change, which is why we're not stopping there.\nWe believe we can leverage renewables in our existing modern system along with other innovations to further decarbonize our system.\nOur vision forward is to be carbon-neutral energy provider by 2050.\nWe know the current tools for driving to carbon neutrality, but this year, we are modeling multiple scenarios to better understand the different pathways.\nWhile we expect this analysis to evolve over time, having a start to specific roadmaps and options will allow us to begin advocating for additional policy support and putting programs and people in place for long-term success.\nWe know our customers and communities value finding the right environmental solutions along -- among many other priorities, which is why we monitor customer satisfaction carefully to inform our work.\nAnd I'm pleased to report this is an area our employees continue to excel.\nLast year, Northwest Natural scored second in the West for large utilities in the J.D. Power Gas Utility Residential Customer Satisfaction Study and were named a Customer Champion by Escalent after placing second in the nation among electric and gas utilities in their most recent study.\nAnd finally, just a few weeks ago, Northwest Natural was also named an Environmental Champion among 140 of the largest utilities in a national study by Cogent.\nI am so proud of customers' recognition of our dedication and leadership in this area and extremely proud of our employees.\nNow a few items on our water utilities.\nAs part of our focus to build a healthy, growing water business, we regularly invest in infrastructure improvements, such as pipe replacements, new wells and execute on multi-year plans for larger upgrades.\nIn 2020, we worked to upgrade technology across our water platform, making it possible to proactively detect and fix issues that caused service interruptions.\nTo build a culture of safety, we began implementing consistent safety standards and trainings across all locations.\nAll of this preparation came into play with good results.\nIn 2020, our water systems experienced no COVID-related service interruptions.\nAnd as I mentioned, our employees in Texas were able to quickly get systems back up and running during the February 2021 winter event.\nWe're also staying focused on supporting our water utilities with a comprehensive analysis and assistance during rate cases.\nIn 2020, we filed three rate cases and have already concluded one of those in Idaho.\nAt the same time, we continue acquiring water utilities and expanding our water family.\nI continue to remain very excited about the investment potential and the growth opportunities in this business.\nAnd with that, Nick, I think we're ready to open it up for anybody that has any questions.",
        "summary": "compname reports q1 earnings per share $1.94.\nq1 earnings per share $1.94.\ncompname says reaffirmed 2021 earnings guidance in range of $2.40 to $2.60 per share."
    },
    {
        "text": "They are based on management's assumptions, which may or may not occur.\nIn addition, some of our comments today reference non-GAAP adjusted measures.\nWe expect to file our 10-Q later today.\n[Operator Instructions] and will be available on our website following the call.\nPlease note these calls are designed for the financial community.\nI hope you, your families, your work colleagues are safe and well.\nLike all of you, we continue to navigate these unusual times.\nCities within our service territory began reopening in the second quarter.\nAnd like many parts of our country, we began seeing an increase in COVID cases in late July.\nBut it has appeared to plateau lightly.\nNow more than ever, we are tapping into our core value of caring for each other and the communities we serve.\nFrom a business perspective, we continue to focus on providing safe and reliable service while ensuring the health and safety of our employees.\nWe continue to benefit from a conservative business model with stable utility margins.\nA majority of our revenues have recovery mechanisms in place to weather normalize and to decouple margins.\nWe also remain focused on efficient operations.\nThat, combined with the decline in natural gas prices, has led to natural gas bills that are about 40% lower today than they were 15 years ago, which is very good news for our customers.\nThe third leg to our strategy is to look for growth that fits our conservative risk profile.\nMost recently, this has been a new contractual revenue stream from the North Mist gas storage expansion and, of course, our water and wastewater businesses.\nOur solid business strategy allows us to adapt to unforeseen challenges, such as the coronavirus.\nAnd our core values of integrity, safety, caring, service ethic and environmental stewardship are the foundation and guiding principles for all we do.\nSafety continues to be a value at the forefront of our minds, and we remain vigilant during this pandemic regarding the safety of our 1,200 employees and, of course, the 2.5 million people that we serve.\nOur natural gas and water utilities are critical infrastructure.\nWe've continued all essential options to provide reliable service while following relevant health and safety guidelines, including guidance from OSHA and the CDC.\nWe've created a specialized field team that takes extra precautions when responding to calls where there's a known or suspected case of COVID.\nIn the vein of caring and customer assistance, we temporarily stopped disconnecting customers and charging late fees on past-due bills.\nWe are also providing financial assistance through a variety of programs, including our corporate philanthropy fund, easy for me to say, our gas assistance program, several state and federal programs and, of course, a special employee giving campaign.\nIn June, we issued a $17 million bill credit to Oregon customers, which is a record amount under this sharing mechanism.\nAt the same time, we continue to see strong customer growth.\nNew construction plus conversions translated into connecting over 13,000 new customers during the last 12 months, which equated to a growth rate of 1.7%.\nWhile we can't predict the full economic effects of the pandemic, we continue to see mitigating factors for our business with our resilient business model, the timing of the onset of the pandemic and our conservative and efficient business operations.\nNot only do we care for customers, we also care deeply about our employees, and I am proud of how quickly our employees have adapted adopted rather, new safety procedures and embraced working remotely, all the while they have maintained the highest service and productivity levels.\nDuring this excuse me, we're also reminded of the importance of social justice in our workplace.\nAs a company, we have publicly stated that racism in any shape or form is not tolerated at Northwest Natural.\nAnd for years, we have actively progressed in the anti-racism and equity agenda, not only internally with our employees, but also founding and supporting wider community diversity initiatives and meeting aggressive goals to provide business opportunities to minority and female-owned businesses.\nToday, our culture is one of accountability, creativity and collaboration that is inclusive and supports opportunities for all employees.\nThis work is not easy, and there are no shortcuts.\nWe are focused on continuous improvement and we'll keep fostering such an environment, building diverse workforce across all levels in our organization, providing equity in pay and development opportunities and ensuring inclusion so all voices are heard and respected.\nNow turning to the progress we've made related to environmental stewardship.\nI'm pleased to share that in July, we've reached an important milestone here in Oregon.\nRulemaking was completed on groundbreaking renewable natural gas legislation, what we call Senate Bill 98, which enables us to put renewable natural gas, or RNG, on our system and take the next step in our state's energy transition.\nRNG is a zero-carbon resource produced from organic materials like food, agriculture and forestry waste, wastewater or landfills that can be added into the existing natural gas system.\nAll forms of RNG are supported in the law, including renewable hydrogen.\nThe law enables us to acquire RNG on behalf of Oregon customers and goes further than any other law by outlining goals for adding as much as 30% RNG into the state's pipeline system by 2050.\nIt allows up to 5% of a utility's revenue requirement to be used to cover the incremental costs of RNG.\nCurrently, that equates to about $30 million annually for Northwest Natural.\nGas utilities are also allowed to rate base interconnections with the gas system and could include RNG facilities and rate base, if that is the lowest-cost option for customers.\nWe're pleased to take this significant step forward with the support of the legislator legislature, governor and regulators.\nLast week, Northwest Natural and all parties in the Oregon general rate case filed a comprehensive stipulation with the Public Utility Commission of Oregon.\nThe filing includes a $45.8 million increase in revenue requirement compared to a requested $71.4 million amount.\nThis stipulation is based on the previously settled capital components, including a capital structure of 50-50 debt and equity and a return on Equity of 9.4% and a cost of capital of just under 7%.\nIn addition, the stipulation reflects average rate base of approximately $1.45 billion.\nNorthwest Natural's filing is subject to OPUC approval.\nAnd if approved, new rates are expected to take effect on November one this year.\nThis is also the time that our revised purchased gas adjustment, or PGA, takes effect.\nThis year's PGA forecasts a reduction to customers' bills, which offset the majority of this base rate increase we just settled on.\nWe commend the commissioners and parties for their ability to continue working virtually under less-than-ideal conditions.\nI'll begin with a summary of our second quarter and year-to-date financials, and then discuss the key metrics and financial implications of COVID-19 on our business and guidance for 2020.\nI'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%.\nOur effective tax rate for the quarter was 24.6% as a result of the return of excess deferred income taxes to our Oregon customers.\nAlso note that earnings per share comparisons were impacted by the issuance of 1.4 million shares in June of 2019 as we raised equity to fund investments in our gas utility.\nFor the quarter, we reported a net loss from continuing operations of $5.1 million or $0.17 per share compared to net income of $2.1 million or $0.07 per share for the same period in 2019.\nThe decline in earnings for the quarter reflects two key drivers.\nFirst, the second quarter results reflect the financial impacts of COVID-19 on margin, O&M and interest expense.\nWe estimate the total impact of COVID-19 to be in about approximate to be approximately $4 million or $0.12 per share, most of which hit in the second quarter.\nWe have recorded a deferral for a portion of these costs with an offsetting reserve until we have more clarity with regulators as to the recoverability of these costs.\nSecond, last year's second quarter results benefited from the reversal of an earnings test reserved for environmental remediation expenses that we booked in the first quarter equal to $0.11 per share.\nLooking at the gas distribution segment.\nUtility margin decreased $1 million.\nHigher customer rates in Washington, customer growth and revenues from the North Mist expansion project contributed $2.9 million, which was more than offset by a $3.2 million increase in environmental remediation expense due to the reserve release in the prior year.\nCOVID impacts on margin are estimated to be $1.5 million, including a $700,000 decline in revenues from lower late charges and disconnection fees as we temporarily and voluntarily suspended these charges in March.\nIn addition, we experienced slightly lower usage from industrial and commercial use customers that were not decoupled.\nUtility O&M increased $2.8 million in the quarter as we incurred higher contractor service costs related to pipeline and meter safety as well as moving expenses as we transition to a new headquarters and operations center.\nIn addition, compensation costs increased related to additional IT staff and higher wages under the new five-year union contract.\nFinally, O&M increased $200,000 due to the higher reserve for bad debt related to COVID.\nDepreciation expense and general taxes increased $2 million related to our continued investment in our system, including the North Mist gas storage facility, which was placed into rates in May of 2019.\nInterest expense increased $1.1 million related to several financings undertaken in March to increase cash on hand as a precautionary measure during a significant market period of significant market volatility amid the early stages of the pandemic.\nFor the first six months of 2020, we reported net income from continuing operations of $43.1 million or $1.41 per share compared to net income of $45.5 million or $1.56 per share for the same period in 2019.\nLast year's results included a regulatory disallowance of $0.23 per share related to an Oregon Commission order.\nExcluding that disallowance, on an adjusted non-GAAP basis, earnings per share from continuing operations was $1.79 for 2019.\nThe $0.38 per share decline is largely due to year-over-year growth in expenses and the effects of COVID-19.\nIn the gas distribution segment, utility margin increased $100,000.\nHigher customer rates in Washington, customer growth and revenues from the North Mist expansion project contributed an additional $10.1 million.\nThis was partially offset by lower entitlement and curtailment fees related to pipeline constraints in 2019 and warmer weather in 2020 compared to 2019, which collectively reduced margin by $4.9 million.\nThe remaining $5.2 million decline in utility margin is a result of the March 2019 Oregon order related to tax reform and pension expense.\nWith the exception of the first quarter pension disallowance, this order has no impact on net income as offsetting adjustments were recognized through expenses and income taxes, as I'll describe in a moment.\nUtility O&M and other expenses declined $6.9 million during the first six months of 2020.\nThis decrease is the result of accounting entries associated with the 2019 Oregon order, which resulted in $14 million of additional expense in the first quarter of 2019, as discussed previously.\nThis was offset by a $5.8 million increase in underlying O&M related to the cost drivers I described in the quarterly results.\nOver the last several years, we have invested in our gas system at historically high levels, and we placed the North Mist gas facility into service.\nAs a result, depreciation expense increased $4.9 million.\nFinally, 2019 utility segment tax expense included a $5.9 million benefit related to implementing the March order with no significant resulting effect on net income.\nNet income from our other businesses declined $1.5 million from lower asset management revenues due to less favorable market conditions.\nNow regarding the financial effects of COVID-19.\nWhile our business model is resilient and the initial timing of the event occurred after Northwest Natural's peak heating season, we are experiencing some financial impacts related to the pandemic.\nThrough June 30, we have an estimated $4 million of combined incremental costs and lower revenues.\nBased on our experience to date and expectations for the future, we'll closely monitor the following items.\nFirst, we continue to track commercial customer losses as a result of businesses closing their doors and today have not seen a significant change or near-term implications on customer growth, but it is still very early in the economic contraction.\nSecond, we are also monitoring the loss of late fee revenue and potential bad debt expense.\nWe have doubled our reserve for bad debts from $800,000 in June 2019 to $1.6 million at June of 2020.\nThird, we have experienced some decline in industrial and large commercial customer usage, but have not seen a substantial reduction to date.\nAs discussed, we took several steps to improve our liquidity position by increasing cash on hand.\nAs a result, we had over $470 million of cash at the end of the first quarter.\nAs market conditions have improved, we reduced that to $137 million.\nWhile there is an incremental interest costs associated with these financings, we believe it is relatively inexpensive insurance given the volatility in the market.\nWe've applied for regulatory deferrals to recover certain of these costs and are working closely with our regulators to reach agreement on the type and amount of costs that will be eligible for recovery.\nIn addition, we are taking actions to ensure we are operating effectively and efficiently, and these savings also moderate the impact of COVID.\nIn summary, second quarter results are coming in about where we expected them to be, and we continue to monitor this evolving situation as we approach the next heating season.\nToday, we reaffirm guidance for the continuing operations in the range of $2.25 to $2.45 per share and guide toward the lower end of the range due to the potential implications of COVID-19.\nGuidance also assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant laws, legislation or regulations.\nFinally, this guidance excludes any gain related to the sale of Gill Ranch and associated operating results.\nThese items are reported in discontinued operations.\nWe continue to monitor the impact of the pandemic on our capital programs.\nAt this time, we do not expect a material change in our capital expenditure range of $240 million to $280 million.\nWe are anticipating some lower expenditures related to customer acquisition due to the economic downturn, but the majority of our capex is maintenance in nature and includes some large projects that have already begun.\nWhile we continue to focus on day-to-day operations, we're also advancing key long-term objectives.\nAs I mentioned earlier, we strive to provide stable earnings while adding new earnings streams with similar risk and cash flow profiles as our regulated gas utility.\nWe believe the regulated water utility sector fits this profile and aligns with our core capabilities.\nFurthermore, the investment potential is promising as the water industry is highly fragmented, and in many cases, these utilities have not been able to adequately invest in their infrastructure.\nTo that end, in 2017, we began building our water utility business, and I'm very proud of the progress we've made to date with regulatory policies, mechanisms.\nWhile we've seen some decline in activity lately due to travel restrictions related to COVID, so far, in 2020, we closed several transactions, including Suncadia in Washington State and our first water utility in Texas.\nIn addition, we continue to execute on our tuck-in strategy and around our existing systems.\nJust a few days ago, we closed our first municipal transaction in Idaho, acquiring water and wastewater utilities near our falls water system in Idaho Falls and signed another agreement to acquire a small water system in the region.\nCumulatively, we've invested $110 million in this space.\nOperationally, the water utilities continue performing well amid the pandemic.\nWe leveraged our natural gas expertise to follow best practices regarding health and safety guidance for COVID, provide centralized resources and planning as well as provide a larger, stronger balance sheet.\nThe ability of our water utilities to work together along with our gas utility during this crisis further validates our roll-up strategy.\nIn closing, our company has weathered many things in the last 162 years, and I'm confident in our ability to handle the challenges at hand.\nI stand behind our commitment to customers to provide safe and reliable service, and I believe in our regulated business strategy and the resilience of this team.",
        "summary": "compname reports q2 loss per share $0.17 from continuing operations.\nq2 loss per share $0.17 from continuing operations.\nnorthwest natural - reaffirmed 2020 gaap earnings guidance from continuing operations in range of $2.25 to $2.45 per share."
    },
    {
        "text": "I'll now discuss the financial results.\nWe reported revenue of $230.1 million during the first quarter of 2021, which represents an increase of 17.1%, compared to $196.6 million during the first quarter of 2020.\nThe increase was primarily the result of increased demand for our products across all product lines and operating segments.\nWe reported net income of $7.9 million or $0.24 per diluted share for the three months ended January 31, 2021, compared to $10,000 or $0.00 per diluted share during the three months ended January 31, 2020.\nThe increase in net income was somewhat offset by a $6.7 million increase in SG&A during the quarter, $4.6 million of which was related to the valuation of our stock-based comp awards, mainly due to an increase in our stock price, and $1.6 million of which was due to higher medical claims.\nOn an adjusted basis, net income increased to $9 million or $0.27 per diluted share during the first quarter of 2021, compared to $1.2 million or $0.04 per diluted share during the first quarter of 2020.\nThe adjustments being made to earnings per share are for restructuring charges, certain executive severance charges, loss on the sale of plant, accelerated D&A, foreign currency transaction impacts and transaction and advisory fees.\nOn an adjusted basis, EBITDA for the quarter increased by 55.4% to $24.3 million, compared to $15.7 million during the same period of last year.\nThe increase is largely due to operating leverage from higher volumes.\nFrom a margin standpoint, this increase represents adjusted EBITDA margin expansion of approximately 260 basis points.\nMoving on to cash flow and the balance sheet.\nCash used for operating activities was $3.4 million during the three months ended January 31, 2021, and compared to $3.7 million for the three months ended January 31, 2020.\nWhile our free cash flow was negative, this is typical for the first quarter of each year, and we did show improvement compared to last year.\nIn fact, we did not need to borrow on our revolver during the quarter and still managed to both repay $5 million in bank debt and repurchase approximately $1.9 million of our stock.\nOur balance sheet is strong, our liquidity position is solid, and our leverage ratio of net debt to last 12 months adjusted EBITDA is unchanged at 0.6 times as of January 31, 2021.\nWe will remain focused on managing working capital and generating cash as the year progresses.\nWe will also continue to be opportunistic with respect to repurchasing our stock.\nBased on our strong first-quarter results and ongoing conversations with our customers, we are raising our expectations for the year and now expect approximately 12% sales growth in our North American fenestration segment, approximately 5% sales growth in our North American cabinet components segment and approximately 22% sales growth in our European fenestration segment.\nWe're now comfortable providing the following full-year 2021 guidance: Net sales of $945 million to $965 million; adjusted EBITDA of $112 million to $122 million; depreciation of approximately $33 million; amortization of approximately $14 million; SG&A of approximately $105 million.\nNote that this is higher than previously expected due to an increase in stock-based comp expense and more normalized medical costs; interest expense of $3 million to $4 million; a tax rate of 26% to 27%; capex of about $30 million; and then free cash flow of approximately $60 million.\nIf you adjust for the expected increase in SG&A, the implied incremental adjusted EBITDA margin is in the mid-20% range.\nSo we feel it would be necessary to provide some direction on a quarterly basis.\nFrom a cadence perspective for Q2, on a consolidated basis, we expect net sales to be up approximately 25% year over year.\nWe believe the strongest revenue growth and margin expansion in Q2 will likely come from our European fenestration segment, since our plants in the U.K. were shut down in March of last year and didn't come back online completely until May.\nLooking ahead, on a consolidated basis, we currently expect net sales growth of approximately 12% year over year in Q3.\nAnd due to the tough comp, we may not see any growth in Q4.\nIn addition, again, on a consolidated basis, it could prove challenging to realize margin expansion in the second half due to inflationary pressures, increased stock-based comp expense and a normalization of medical expenses.\nTo summarize, on a consolidated basis for the full year, we currently expect to generate net sales growth of approximately 12% year over year to the midpoint of guidance, while maintaining adjusted EBITDA margin in the low 12% range.\nDemand for our products during the first quarter of 2021 proved to be even stronger than our expectations.\nAnd I'm very pleased with the results in what is traditionally our weakest quarter.\nWe remain steadfast in our pursuit of operational excellence, cash flow optimization and improving return on invested capital throughout all segments of our business.\nContinued success on all these efforts will create further value for our shareholders and should position the company well for any opportunities that may arise in the future.\nPrior to discussing the segment detail, I'd like to provide some color on the macroeconomic conditions of the markets we serve.\nOverall, we are still experiencing high demand across all of our product lines.\nIn North America, the new construction market remains strong and sales of existing homes, which is a key indicator for repair and remodel also remains healthy.\nSpecific to cabinet components, the semi-custom segment, which is the main segment we serve, is starting to show growth above that of the stock segment.\nAs a matter of reference, there was a significant shift in market share away from the semi-custom segment to the stock segment over the past few years.\nSo the recent KCMA data is encouraging in that it shows the semi-custom segment gaining ground over stock.\nand Germany remains robust despite the strict and ongoing COVID-related measures.\nWe believe the demand is strong because many international markets remain underbuilt with an infrastructure that is aging, and regulatory requirements on energy efficiency align very well with our product offering.\nWe also believe demand in Europe and the U.K. is being favorably impacted by the continued shift of the discretionary income away from travel and leisure activities into home improvement projects.\nAlthough we remain optimistic on macroeconomic conditions in all the markets we serve, we also see some challenging headwinds.\nWe are seeing increased inflationary pressures on most of our major raw material input costs, as well as some large dollar expense items such as freight.\nThese pressures were recently exasperated due to the severe winter weather in Texas and along the Gulf Coast, which caused delays and shortages of key chemicals, feedstocks and energy supply.\nAs a reminder, for the most part, we have contractual pass-throughs for the major raw materials we use in North America, but there is often a lag depending on the contract, anywhere from 30 to 90 days.\nWe do not have these contractual pass-throughs in Europe and the U.K. So our ability to pass on any increases through price becomes more important.\nAnd for the most part, we've been very successful in doing just that.\nAnother current headwind is the availability of labor.\nCompany wide, we have approximately 400 open positions, which equates to roughly 10% of our global workforce.\nThis is an issue that is not unique to Quanex, and it's impacting manufacturing operations in many different markets and industries.\nIn some of our plants, this issue has resulted in high levels of overtime, extended lead times and even customer allocations in some limited circumstances.\nI will now provide my comments on performance by segment for our fiscal first quarter.\nAnd as a general statement, results were outstanding in each of these operating segments.\nOur North American fenestration segment generated revenue of $128.1 million in Q1, which was $17.7 million or approximately 16% higher than prior-year Q1.\nStrong demand across all product lines, share gains in our screens business and increased capacity utilization on our vinyl extrusion assets, all contributed to the above market performance.\nAdjusted EBITDA of $16.4 million in this segment was $7.7 million or approximately 88% higher than prior-year Q1.\nVolume-related operating leverage, the implementation of annual pricing adjustments, operational improvements and lower SG&A, all contributed to the improved performance year over year.\nOur European fenestration segment generated revenue of $49.1 million in the first quarter, which is $12.3 million or approximately 34% higher than prior year.\nExcluding foreign exchange impact, this would equate to an increase of approximately 28%.\nand Continental Europe remains strong.\nAdjusted EBITDA of $10.7 million, resulted in margin expansion of approximately 660 basis points year over year.\nVolume-related impacts, timing of pricing actions and operational improvements more than offset inflationary pressure toward the end of the quarter.\nOur North American cabinet components segment reported net sales of $54 million in Q1, which was $4 million or approximately 8% better than prior year.\nDemand for our cabinet components products was solid throughout the quarter as the market continued to see strength in new construction and R&R.\nAdjusted EBITDA was $3.3 million in this segment which represents margin expansion of approximately 330 basis points compared to prior year.\nIncreased volume and benefits realized from new assets put into service last year were the primary drivers of improvements in the quarter.\nUnallocated corporate and other costs were $6 million for the quarter, which is $5.4 million higher than prior year.\nAs Scott mentioned, the primary drivers of this increase were stock-based compensation expense related to share price appreciation, along with higher medical expenses, as our employees have started to feel more comfortable going back to their doctors.\nIt is also worth noting that we realized the benefit for medical cost in Q1 of last year.\nAs I mentioned earlier, we remain focused on operational excellence, cash flow optimization and improving return on invested capital throughout all segments of our business.\nOur continued progress on these fronts is driving results and has allowed us to continue to strengthen our balance sheet by paying down debt further during a quarter where we have historically been a net borrower.\nIn summary, macro data points for our business are positive.\nWe are executing on our plan and performing well from an operational standpoint, and our orders remain strong.\nAs such, on a consolidated basis, we are confident in our ability to deliver low double-digit revenue growth this year while maintaining adjusted EBITDA margins in the low 12% range, despite the increasing inflationary pressures.\nAnd with that, operator, we are now ready to take questions.",
        "summary": "compname posts quarterly earnings per share of $0.24.\nquanex building products corp qtrly diluted earnings per share $0.24.\nquanex building products corp qtrly adjusted diluted earnings per share $0.27.\nquanex building products corp- qtrly net sales $230.1 million versus $196.6 million.\nquanex building products - raising expectations for year and now expect approximately 12% sales growth in north american fenestration segment.\nquanex building products corp sees fiscal 2021 net sales of approximately $945 million to $965 million.\nquanex building products corp - expect will generate between $112 million and $122 million in adjusted ebitda in fiscal 2021."
    },
    {
        "text": "I'll now discuss the financial results.\nNet sales increased by 6.3% during the fourth quarter of 2020, mainly due to increased demand for our products across all of our operating segments.\nConversely, net sales decreased to $851.6 million for the full-year 2020, compared to $893.9 million in 2019.\nThe decrease was largely due to lower volume-related to the COVID-19 pandemic in 2Q and 3Q.\nMore specifically, in addition to softer demand in North America and Continental Europe during the early stages of pandemic.\nwere closed in compliance with government orders in late March.\nAnd manufacturing operations at those plants did not restart until mid- to late May.\nHowever, volume increased significantly in June across all product lines and net sales in July through October exceeded prior year on a consolidated basis.\nWe reported net income of $22.2 million or $0.68 per diluted share for the three months ended October 31, 2020, compared to a net loss of $30.9 million or $0.94 per diluted share during the three months ended October 31, 2019.\nFor fiscal 2020, we reported net income of $38.5 million or $1.17 per diluted share, compared to a net loss of $46.7 million or $1.42 per diluted share for fiscal 2019.\nThe reported net losses in 2019 were primarily attributable to a $44.6 million noncash goodwill impairment in the fourth quarter of last year and a $30 million noncash goodwill impairment in the second quarter of last year both in the North American cabinet components segment, mainly due to lower volume expectations related to the shift in the market from semi-custom to stock cabinets and customer-specific strategy changes.\nOn an adjusted basis, net income was $22 million or $0.67 per diluted share during the fourth quarter of 2020, compared to $14 million or $0.42 per diluted share during the fourth quarter of 2019.\nAdjusted net income was $40.7 million or $1.24 per diluted share for fiscal 2020, compared to $31.4 million or $0.95 per diluted share for fiscal '19.\nThe adjustments being made to earnings per share are for restructuring charges, certain executive severance charges, noncash asset impairment charges, accelerated D&A, foreign currency transaction impacts and transaction and advisory fees.\nOn an adjusted basis, EBITDA increased by 14.3% to $39.4 million in the fourth quarter of 2020 and compared to $34.4 million in the fourth quarter of last year.\nFor the full-year 2020, adjusted EBITDA increased by almost 2% to $104.5 million, compared to $102.7 million in 2019.\nThe increase in earnings for the three months ended October 31, 2020, were mainly due to higher volumes, improved operating leverage and lower raw material costs.\nThe increases in earnings for the 12 months ended October 31, 2020, were primarily driven by a decrease in SG&A expenses, mainly due to lower medical costs.\nI'll now move on to cash flow and the balance sheet.\nCash provided by operating activities was $100.8 million for the 12 months ended October 31, 2020, which represents an increase of 4.6% when compared to $96.4 million for the 12 months ended October 31, 2019.\nWe generated free cash flow of $75.1 million in 2020, compared to $71.5 million in 2019.\nAs a result of our strong free cash flow profile, we repurchased $7.2 million in stock and repaid $39.5 million of bank debt during fiscal 2020, $35 million of which was repaid in the fourth quarter alone.\nOur balance sheet is healthy.\nOur liquidity position is strong and getting stronger, and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to 0.6 times as of October 31, 2020, which is 50% lower than where we exited fiscal 2019.\nIn fact, the interest rate on our revolver will drop by another 25 basis points to the lowest tier, which is LIBOR plus 125 basis points.\nOverall, on a consolidated basis, this should equate to net sales of approximately $900 million to $920 million, and we expect to generate between $108 million and $118 million in adjusted EBITDA in fiscal 2021.\nThis guidance assumes no adverse impact from the ongoing COVID-19 pandemic.\nWe intend to concentrate on executing our 2021 plan with a continued focus on creating shareholder value.\nFor modeling purposes, it's appropriate to make the following assumptions for 2021.\nDepreciation of approximately $33 million, amortization of approximately $14 million, SG&A of $95 million to $100 million, interest expense of $3.5 million to $4.5 million and a tax rate of approximately 26%.\nFrom a capex standpoint, we expect to spend about $30 million in 2021.\nWe've been very good at managing working capital and have implemented a number of successful systemic changes over the past two to three years.\nHowever, now that all of these fundamental systemic changes are in place, it will be more difficult to realize a benefit from working capital moving forward.\nOur goal is to generate free cash flow of approximately $60 million in fiscal 2021.\nWe are extremely pleased with our fourth-quarter and full-year 2020 results, especially considering the uncertainty that has existed since the beginning of the pandemic.\nThe full-year 2020 results were like a roller coaster ride.\nThe year started very strong before COVID began to impact operations during our second quarter.\nThe pandemic caused uncertainty at all levels of our business, slowdowns across all of our product lines and temporary plant closures in the U.K. Then volumes rebounded swiftly midway through the third quarter, which has continued through year-end.\nWe ended 2020 with record order and sales levels in October.\nAs Scott mentioned, we generated net sales of $851.6 million in 2020, which was 4.7% lower than 2019.\nHowever, even with the lower volume in sales in 2020, we were able to increase adjusted EBITDA on a consolidated basis.\nThe increase was driven by our continued focus on operational improvements, along with SG&A reductions.\nAlso, in a renewed effort to improve our return on invested capital metric over time, we have implemented various processes designed to improve capital efficiency, reduce costs and really scrub the expected returns on our capital projects.\nIn fact, over the course of the last three years, we have significantly improved ROIC, and we plan to stay the course and expect further improvement in this metric in the coming years.\nIt has been a challenging year for everybody.\nAnd I am very proud of what the Quanex team has accomplished.\nFrom a macro perspective, the markets we operate in are all showing robust activity despite the ongoing challenges presented by COVID.\nPre-pandemic, we strongly believe that the U.S. housing market was underbuilt.\nFast forward to today, and you can see a growing migration from urban to suburban living, low existing housing inventory, low mortgage rates, and what appears to be a pickup in millennial household purchases.\nGiven all these factors, we believe the stage is set for what should translate into continued high demand for building products for the foreseeable future.\nIn addition, travel restrictions and quarantine requirements have impacted discretionary spending choices and funds that historically might have been used for travel and leisure, appear to now be getting diverted into the repair & remodel of existing home spaces.\nIn the cabinet markets, we continue to see growth in total cabinet demand, as well as stabilization in the shift from semi-custom to stock segments.\nAccording to KCMA data, the semi-custom cabinet market grew by 5.7% in the quarter, which compares favorably to the 5.9% growth we reported in our North American cabinet components segment.\nIf you adjust for the customer that exited the cabinet business in late 2019, this operating segment grew by over 9% in 4Q.\nYear to date through October, the semi custom market is down 3.9% versus the same period of 2019, primarily due to the negative demand impact the pandemic had in 2Q and 3Q.\nRevenue in our North American cabinet components segment decreased by 8.5% year over year.\nBut if you adjust for the customer that exited the business, we were well in line with the market for the full year.\nand Continental Europe markets remain at record levels.\nThe repair and replacement market in Europe is being fueled by dynamics that are similar to the U.S., both in terms of being underbuilt and in terms of benefiting from ongoing travel restrictions and diversion of discretionary spending.\nThe repair and replacement market is a clear beneficiary of these dynamics and that is the market we primarily serve.\nIn addition, our products fulfill the governmental energy efficiency mandates that exist in these markets, so windows and doors that are replaced, our products meet all specifications and requirements.\nDespite Brexit and COVID-related concerns, we still anticipate mid single-digit growth in our European fenestration segment in 2021.\nI will now discuss quarterly segment results, which are highlighted by the fact that we saw margin expansion in each of our three operating segments.\nOur North American fenestration segment reported revenue of $142 million in Q4, which was down only slightly from prior-year fourth quarter.\nSolid demand across all product lines was offset by the loss of one vinyl profile customer that occurred on January 1, 2020.\nAbsent this loss, the segment grew at 3.9% year over year in Q4, which compares favorably to industry shipments.\nAdjusted EBITDA of $23.8 million in this segment was $1.1 million or 4.8% better than prior-year fourth quarter.\nvolume-related impacts, favorable material costs and lower SG&A more than offset the higher levels of overtime and start-up costs associated with our new screens plant in Pennsylvania.\nWe generated revenue of $56.8 million in our European fenestration segment in Q4, which was $13 million or 29.6% higher than prior year or up 36.6% after excluding the foreign exchange impact.\nAs mentioned on our third-quarter call, sales rebounded quickly in June and July after the COVID-related shutdowns expired.\nThe uptick in volumes continued throughout Q4 and resulted in record quarterly revenue levels for the segment.\nAdjusted EBITDA of $13.4 million in Q4 was also a record quarter and represents margin improvement of approximately 460 basis points over prior year.\nThis margin expansion was driven by higher volumes in the related operating leverage plus favorable material pricing.\nOur North American cabinet components segment reported net sales of $57.5 million in Q4, which was 5.9% better than prior year.\nStrong demand, combined with opportunities created by supply chain disruptions in the cabinet Component import markets continued into the quarter, and we have been successful in capitalizing on some of those opportunities.\nAdjusted EBITDA for the segment was $4.6 million, which represents an increase of 53.8% compared to prior-year fourth quarter.\nVolume benefits, combined with favorable raw material pricing, better wood yields and lower-than-anticipated medical expenses all contributed to favorable performance during the period.\nFinally, unallocated corporate and SG&A costs were $2.9 million higher than prior-year fourth quarter.\nThe primary drivers of the higher expenses were higher incentive true-ups, combined with the decision to make a discretionary bonus payment to all of our employees that do not participate in a formal incentive plan.\nAs we look ahead to 2021, we remain very optimistic on our view of market dynamics and macro fundamentals.\nLike everyone else, we know we will need to continue navigating pandemic-related challenges in the near term.\nBut we are encouraged by the recent vaccine news and excited to finally begin seeing some light at the end of this tunnel.\nAs Scott stated earlier, we expect to deliver net sales of $900 million to $920 million and adjusted EBITDA of $108 million to $118 million in 2021.\nWe will continue to invest in the business while still expecting to generate approximately $60 million of free cash flow.\nWe've worked very hard to position Quanex to succeed, and with our strong balance sheet and cash flow profile, our focus will remain on improving returns on invested capital and generating free cash flow.\nWe will also have a renewed focus on revenue growth since we now have a more stable base and tailwinds in the markets that we serve.\nIn summary, we have continued to execute successfully on our strategy, which has put us in a strong financial position to capitalize on potential future opportunities, even in this uncertain pandemic environment.\nWe feel the macroeconomic indicators should provide us with tailwinds that when combined with our expected operational execution, will make for another solid year in 2021.\nWe look forward to another year of strong performance as we continue to focus on ways to create further shareholder value.\nAnd with that, operator, we are now ready to take some questions.",
        "summary": "qtrly diluted earnings per share $0.68.\nqtrly adjusted diluted earnings per share $0.67.\non a consolidated basis, believe net sales to be about $900 million to $920 million in fiscal 2021.\non a consolidated basis, expect co will generate between $108 million and $118 million in adjusted ebitda in fiscal 2021."
    },
    {
        "text": "On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Roland Caputo, Executive Vice President and Chief Financial Officer.\nThese statements are based on our current expectations and assumptions, which may change over time.\nOur actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2020 10-K and subsequent SEC filings.\nGiven the impact of the COVID-19 pandemic had on our business in 2020, we will also present certain comparisons of our operating results in 2021 to 2019, which we believe, in many cases, provides useful context for our current year results.\n[Technical Issues] on our path to scaling direct, paying subscriber relationships.\nWe now have more than eight million paid subscriptions across our digital and print products, a testament to the success of our strategy, the strength of the market for paid digital journalism and our unique opportunity to meet that demand.\nThat milestone follows the second quarter with strong revenue and profit growth, modest net subscription additions and progress on our -- advancing our underlying model.\nTotal subscription revenue grew 16% in the quarter, the largest year-on-year subscription revenue gain in more than a decade.\nAdvertising revenues surged compared with the same period last year.\nThe combined strength in these two revenue streams more than offset cost growth, and as a result, we recorded $93 million in adjusted operating profit, a 78% improvement compared to the same quarter in 2020.\nWe saw moderated growth in net subscription additions in the second quarter, which we expected given that Q2 is traditionally our softest of the year, and we were comparing against last year's historic results at the beginning of the COVID crisis.\nWe added 142,000 net digital subscriptions with roughly half in News and the balance in Cooking and Games.\nWe continue to expect that our total annual net subscription additions will be in the range of 2019, although that remains difficult to predict with precision.\nOur advertising performance was better than expected, with total revenue up 66% year-on-year.\nAs with subscriptions, the biggest factor in the gain in advertising amortize up nearly 80% year-on-year and more than 22% over the same period in 2019.\nIt was also another strong quarter for demonstrating the breadth, reach and impact of our journalism with unparalleled coverage of the devastating events in South Florida, the political crisis in Haiti and the still surging pandemic.\nPulitzer prizes were announced in June and The Times was the only news organization to win more than one this year.\nPulitzer writer Wesley Morris won the Pulitzer for commentary for his urgent and moving essays exploring the intersection of race and culture.\nAnd for the seventh time in our history, The Times won the Pulitzer Prize for Public Service, journalism's highest honor, for our coronavirus beverage.\nThis body of work is the quintessential example of the expansive journalism The Times can uniquely deliver.\nMore than 1,000 journalists contributed to our coronavirus reporting, as did many others across the company, including engineers, data scientists, product designers and product managers.\nThe work of our data journalism team, in particular, is worth noting.\nThe Times launched an around-the-clock effort to track every known coronavirus case in the U.S. and made that data publicly available.\nThat coverage continues to fill a vacuum that has helped local governments, healthcare workers, businesses and individuals better prepare through each stage of the pandemic and has also brought us new audiences who rely on and return to our products repeatedly.\nDemonstrating the strength of our journalism across platforms and subject matters, in mid-July, The Times was nominated for the Primetime Emmy Award for Best Documentary for our film, Framing Britney Spears.\nThe film ignited intense scrutiny of court-ordered conservatorships and continues to resonate with audiences globally.\nWe produced it as part of our New York Times Presents series, a partnership with FX that was recently extended.\nI'll turn now to our underlying revenue drivers in the quarter and share some specifics about the work ahead.\nAs we've said in prior calls, we expect to feel the effects of comparing our results against last year's heightened news cycle for the remainder of the year.\nAnd we believe that while the news cycle will continue to have significant effects on our subscription growth, we are increasing our control over the levers of the model.\nOur audience in the second quarter was below the historic highs of 2020, driven largely by declining engagement with the COVID story domestically.\nBut as we saw last quarter, our average weekly audience was larger than in the same period in 2019 and every prior period.\nFor the second quarter in a row, we were also pleased to see readers engage across a broader range of storylines than they did last year.\nWe view this as a positive leading indicator of future net subscription additions as we have seen that experiencing the breadth of our report correlates with paying and staying.\nWe're leaning into that breadth both within our core news experience and across our adjacent products like Cooking, Games and Wirecutter, by experimenting more aggressively with programming to expose more of our audience to the full value of The Times.\nWith sustained strength relative to 2019 and prior years in overall audience and with more than 100 million registered users, we are also experimenting more aggressively and we believe more successfully on our customer journey and access model.\nAnd as our pace of new registrations continues to be healthy, we have now begun to focus even more on getting registered users to subscribe and to engage more deeply once they do.\nThat experimentation with our access model has given us increasing insight into when our readers are ready to subscribe, which in turn is leading to higher conversion rates.\nAs a result, our digital monthly net subscription additions have grown each month since lows in March.\nWe believe we have additional room to optimize conversion as we strengthen engagement in key areas like newsletters and our growing body of live experiences.\nLast quarter, we noted that the newest cohort of news subscriptions appear to be retaining slightly less well than in the past, which contributed to a small increase in overall churn.\nQ2 domestic news churn was unchanged from the first quarter and remains at a comfortable level.\nWhile we experienced an uptick internationally in noncore markets, we believe our churn overall is generally at a healthy level.\nWe also believe that our increased focus on subscriber engagement and on making the subscriber experience clearly superior to registered and anonymous experiences will help maintain healthy churn levels.\nAnd we remain confident in our overarching approach to graduating subscribers from promotional prices to step up and full prices.\nWe continued in the last quarter to lay the groundwork for a more strategic bundled subscription offering that has the potential to be more widely appealing and uniquely valuable to millions of people in their daily lives.\nThroughout the quarter, we ran tests on our all digital access bundle, which combines News, Cooking and Games.\nThese tests demonstrated that there is meaningful demand for the bundle and that those who choose it are better at retaining than those who subscribe to only one product.\nBuilding on these promising results, we plan to do more testing around pricing, positioning and marketing of the all digital access bundle in the second half of the year.\nAnd this fall, we plan to launch our paid subscription product for Wirecutter and experiment further with Audm, both of which over time have the potential to widen the appeal and value of a Times bundle.\nGiven the opportunity we see, an addressable market of at least 100 million people who are expected to pay for English language journalism and a unique moment in which daily habits are up for grabs, we are continuing to invest in the value of our individual products and the broader bundle.\nThat includes investing thoughtfully into our news operations to cover the most important stories of our time and to meet more news needs.\nIt means investing into our adjacent products to meet a broader array of life needs as we have done with Cooking and Games, each of which is now closing in on one million subscriptions.\nAnd it means investing to build the underlying tech product experience and company culture required for us to scale.\nWe believe these investments will enable us to grow our market share and also to build a larger and more profitable company over time.\nI'll turn briefly now to the drivers of advertising growth.\nOur ad business is no doubt benefiting from an advertising market recovery, but we also believe we're seeing the effect of the groundwork we laid to build competitive advantages.\nThose advantages include our robust first-party data targeting capabilities, our large and growing suite of hit podcasts and our ability to create unique multi-platform collaborations that help marketers launch new ideas and products into the world.\nNow before I turn things over to Roland, let me share an update on the company's ongoing emphasis on an investment in building out a world-class digital product development team.\nAs we focus on scaling our strategy of journalism worth paying for, our ability to attract, develop and retain top talent in areas well beyond journalism is paramount.\nThis is especially the case in engineering, which is now one of our largest business side functions.\nJason joins our other highly talented Times leaders who is steering our digital product development work to its next phase of growth.\nWhile subscription unit growth was modest in the quarter, substantial growth in both subscription and advertising revenues, which were a result of fundamental strength in the underlying business, delivered strong financial results, especially when compared with the muted results from the second quarter of 2020.\nAdjusted diluted earnings per share was $0.36 in the quarter, $0.18 higher than the prior year.\nWe reported adjusted operating profit of approximately $93 million, higher than the same period in 2020 by $41 million and higher than 2019 by $37 million which is an important comparison point given the impact that the pandemic had on our 2020 results.\nWe added 77,000 net new subscriptions to our core digital news product and 65,000 net new subscriptions to our stand-alone digital products for a total of 142,000 net new digital-only subscriptions.\nAs of the end of the quarter, we had approximately 930,000 Games subscriptions and approximately 830,000 Cooking subscriptions.\nThe international share of total new subscriptions remained at 18% as of the end of the quarter.\nTotal subscription revenues increased 15.7% in the quarter.\nAs Meredith said, this is the highest rate of subscription revenue growth in well over a decade, with digital-only subscription revenue growing more than 30% to $190 million.\nDigital-only subscription revenue grew as a result of the large number of new subscriptions we have added in the past year, continued strength and retention of the $1 per week promotional subscriptions who graduated to higher prices, and finally, the positive impact from our digital subscription price increase, which began late in the first quarter of 2020.\nDigital news subscription ARPU for the quarter increased approximately one percentage point compared to the prior year and nearly five percentage points compared to the prior quarter, which marks the first quarter with a positive year-over-year result since 2013.\nThis improvement was primarily a result of subscriptions graduating from their introductory price to either a full price or an intermediate step up price in the quarter as well as the continued benefit from price increases on our more tenured full price subscriptions.\nARPU related solely to domestic news subscriptions increased approximately 1.5 percentage points versus the prior year and nearly five percentage points versus the prior quarter.\nWe continue to expect to demonstrate pricing power throughout 2021 as the impact from subscriptions graduating from discounted promotions and the price increase on tenured digital subscription continues to provide a tailwind to digital news ARPU throughout the year.\nPrint subscription revenues increased more than 1% as home delivery revenues benefited from the first quarter price increase, which more than offset declines in subscription volume.\nTotal daily circulation declined 4.5% in the quarter compared with prior year, while Sunday circulation declined approximately 1%, which represents a significant improvement in the recent trend following the steep declines experienced as a result of the widespread business closures and a decrease in commuting of travel as a result of the pandemic.\nAs compared with 2019, print subscription revenues declined 5.5%, as single-copy and international bulk sale copy declined, while revenue from domestic home delivery subscriptions was flat.\nTotal advertising revenues increased more than 66% in the quarter as digital advertising grew nearly 80%, while print advertising increased by 48%, largely as a result of the impact of the comparison to weak advertising revenues in the second quarter of 2020 caused by reduced advertising spending during the COVID-19 pandemic.\nDigital advertising was also growing by our proprietary first-party targeted ad products and expanded audio product portfolio.\nVersus 2019, digital advertising grew 22% as a result of higher direct sold advertising, including traditional display and audio.\nSecond quarter digital advertising revenue exceeded the guidance we gave in early May, largely as a result of better-than-expected performance from larger technology and financial services advertisers spending heavily on our targeted and audio products.\nMeanwhile, print advertising increased 48% as compared with 2020, primarily driven by growth in the luxury, media, technology and entertainment categories.\nDespite this impressive level of year-on-year growth, print advertising revenue lagged 2019 by 33%.\nOther revenues increased nearly 9% compared with the prior year to $47 million, primarily as a result of an increase in Wirecutter affiliate referral revenue.\nIt's worth noting that midway through the second quarter, we began printing The Wall Street Journal, Barron's and The New York Post out of our College Point production facility significantly increasing utilization of the company's wholly owned printing plant.\nAdjusted operating costs were higher in the quarter by approximately 15% as compared with 2020 and 6.5% higher than 2019.\nCost of revenue increased approximately 9% as a result of growth in the number of newsrooms, games, cooking and audio employees, other costs associated with audio content, a higher incentive compensation accrual and higher subscriber servicing and digital content delivery costs.\nThis was partially offset by lower print production and distribution expenses.\nSales and marketing costs increased approximately 35%, driven primarily by higher media expenses, which has been reduced dramatically last year in light of the historically strong organic subscription demand experienced in the early months of the COVID-19 pandemic.\nWhen compared to 2019, sales and marketing costs decreased 14% as a result of lower advertising sales costs, partially attributable to a workforce reduction that we enacted in the second quarter of 2020, as well as lower media expenses.\nMedia expenses in 2021 was 14% lower than in 2019.\nIt's worth noting that third quarter 2020 media expenses were also significantly favorable compared to 2019, which will make for another difficult comparison in the third quarter of 2021.\nProduct development costs increased by approximately 28%, largely due to growth in the number of engineers employed and a higher incentive compensation accrual than we had recorded in the second quarter of 2020.\nI'll again reiterate that we plan to continue adding to head count in this area over the foreseeable future, as we expect to continue leaning into investments in product development as well as on our core news and stand-alone products to drive growth.\nGeneral and administrative costs increased by 6%.\nAnd when you control for severance and multiemployer pension withdrawal obligation costs, G&A costs would have increased by 19%, largely due to increased head count in support of employee growth in other areas, higher outside services and a higher incentive compensation accrual.\nOur second quarter cost growth came in at the low end of the guidance we issued on our first quarter call in early May, largely as a result of slower-than-expected hiring for our growth initiatives in a tight labor market.\nWe had one special item in the quarter and nearly $4 million charge resulting from the early termination of one of our tenant's leases in our headquarters building, as we add space to accommodate growing head count to support our growth initiatives.\nOur effective tax rate for the second quarter was approximately 25%.\nAs we've said previously, we expect our tax rate to be approximately 27% on every dollar of marginal income we record with significant variability around the quarterly effective rate.\nMoving to the balance sheet, our cash and marketable securities balance ended the quarter at $947 million, an increase of $56 million compared to the first quarter of 2021.\nCompany remains debt-free with a $250 million revolving line of credit available.\nNow let me conclude with our outlook for the third quarter of 2021.\nTotal subscription revenues are expected to increase approximately 13% to 15% compared with the third quarter of 2020 with digital-only subscription revenue expected to increase approximately 25% to 30%.\nOverall advertising revenues are expected to increase approximately 30% to 35% compared with the third quarter of 2020 and digital advertising revenues are expected to increase approximately 40% to 45%.\nOther revenues are expected to increase approximately 5%.\nBoth operating costs and adjusted operating costs are expected to increase approximately 18% to 20% compared with the third quarter of 2020 as we continue investment into the drivers of digital subscription growth and comp against another quarter of low spending last year as a result of actions taken during the first year of the pandemic.\nAnd with that, we'd be happy to open it up to questions.",
        "summary": "q2 adjusted earnings per share $0.36 from continuing operations.\npaid digital-only subscriptions totaled about 7,133,000 at end of q2 2021, net increase of 142,000 subscriptions versus end of q1 2021.\ntotal subscription revenues in third quarter of 2021 are expected to increase about 13% to 15% versus third quarter of 2020.\ntotal advertising revenues in third quarter of 2021 are expected to increase about 30% to 35% compared with third quarter of 2020.\nother revenues in the third quarter of 2021 are expected to increase about 5% compared with the third quarter of 2020.\ncontinue to expect that total annual net subscription additions will be in the range of 2019."
    },
    {
        "text": "Speaking on the call will be Ocwen's chief executive officer, Glen Messina; and Chief Financial Officer June Campbell.\nYou should bear this uncertainty in mind when considering such statements and should not place undue reliance on such statements.\nWe believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition and an alternate way to view certain aspects of our business that is instructed.\nNon-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.\nSo we'll get started with some highlights for the third quarter.\nI'm really proud of what our team has accomplished and really appreciate all their hard work.\nWe delivered strong GAAP net income and adjusted pre-tax income, and our ROE exceeded guidance largely due to strong top-line performance.\nI believe this demonstrates the strong operating leverage we have in our business.\nThis was our eighth consecutive quarter of positive adjusted pre-tax income.\nOur team continues to execute well against our operating objectives, strong originations growth and servicing additions, solid operational execution, and performance.\nCost reduction is tracking ahead of targets.\nWe also closed our planned call rights transaction for the third quarter and have deployed more than 50% of MAM's investment commitment.\nOctober as well, we had some milestones.\nSo in October, we closed our acquisition of the RMS reverse mortgage servicing platform.\nAnd also in October, I'm pleased to announce that we exceeded our recapture rate objective.\nWe continue to make solid progress on our actions to expand our addressable market.\nWe're growing in higher-margin channels, services, and products giving us strong momentum, and the RMS platform acquisition gives us access to a potential $86 billion reverse mortgage subservicing market, which is an exciting new growth opportunity for us.\nAnd finally, we continue to navigate a volatile and unpredictable environment, and I'll talk a bit more about that later.\nOriginations again delivered really solid performance against our operating objectives.\nWe closed $20 billion in total servicing additions in the third quarter with very strong performance in subservicing additions.\nWith the closing of the TCB acquisition, correspondent volume doubled versus last quarter.\nThe TCB team is off to a really strong start, and I'm so glad to have them with us and appreciate the contributions they're making to the business.\nWe're seeing great results from our actions to grow subservicing.\nWe secured $20 billion in new awards and expect this volume to commence boarding in the fourth quarter.\nOur subservicing pipeline has never been more robust.\nOur top 10 prospects represent roughly $63 billion in opportunity, and our total prospect pipeline has grown to slightly over $200 billion.\nWe're excited about this activity level and believe we have a very compelling value proposition.\nI'll spend a little bit more time on our subservicing value prop a little bit later.\nOur enterprise sales approach and the TCP acquisition have allowed us to grow our base of sellers to 700 at the end of Q3.\nThat's roughly 2.5 times over third quarter last year, and we're continuing to grow.\nNondelegated and Best Efforts delivery services were rolled out as expected, and we're seeing steady adoption as well.\nOur Ginnie Mae product mix is improving.\nIt's up to about 10% of total originations, excluding co-issue, we're still well below industry mix in Ginnie Mae.\nSo I believe we have room for improvement here.\nWe recently attended the MBA, Mortgage Bankers Association Annual Convention and client attendance at our meeting room exceeded our expectations, and the response to the quality of our team and operating execution was very positive.\nWe look forward to serving them and supporting new clients as we expand our addressable market.\nOur Consumer Direct team continues to improve recapture performance.\nWe did see a little bit of slippage in the third quarter versus the second quarter due to accelerated runoff in select client portfolios versus Q2.\nThat said, we saw a very strong recovery in October with refinance recapture rate achievement of 36%, which is a milestone for us and a huge congratulations to our recapture team.\nWe believe we're on track to meet our 30% refinance recapture rate objectives in the fourth quarter.\nOverall, our originations team is making terrific progress against their objectives for this year, and they're energized for the fourth quarter and for 2022.\nThe team continues to make strong progress growing higher-margin products, channels, and services.\nThese actions do help us expand our addressable market, as well as deflect margin pressure, as industry buying mobiles contract.\nYear over year, consumer direct volume in both forward and reverse is up 61%, both forward and reverse delivered record retail funding and lock volumes in October.\nThe marketing eligible population for our forward recapture business increased about 43% from the second quarter to the third quarter.\nAnd we now have roughly 174,000 loans where borrowers could save $100 or more per month by refinancing, and our team will be focused on trying to help these borrowers.\nTotal reverse originations were up 86% year over year.\nTeam is executing very well.\nOur reverse market share is up from 6.5% in third quarter 2020 to 7% in third quarter 2021, and this compares to about 4.2% in the third quarter of 2019.\nSo great progress by the team, growing our share and our business.\nIn forward correspondent, we have meaningful opportunity to grow our best efforts and non-delegated delivery services.\nOur team is focused there, and we've launched those recently.\nToday, these services are just a fraction of the levels we see across the industry generally.\nOur long-term goal is to get best efforts in non-delegated to roughly 25% to 30% of volume and about 40% to 50% of our gain on sale revenues.\nIn servicing, continuing to improve cost and customer experience are the key objectives for us, and the team is performing really well.\nTo achieve these objectives, we're focused on moving the needle in four key areas: technology, process simplification, scale, and portfolio composition.\nThe results have been good so far.\nOverall, servicing operating costs are down roughly 25% from third quarter 2020 levels, and we've already achieved our full year target for 2021.\nTechnology is a big driver for us, and our technology agenda has a three-part focus.\nThat's reduce cost, improve execution and improve the customer experience.\nWe believe our actions to improve client borrower and investor experience are critical elements to support our growth and recapture rate objectives over the long run.\nAnd with technology as the enabler, we can reduce cost and improve execution at the same time.\nIn terms of scale, we've increased our total servicing UPB about 33% versus the third quarter of 2020.\nAnd our percentage of prime servicing is now 70% of our total servicing UPB.\nIn terms of portfolio composition, increasing the percentage of agency loans is helping to increase average loan balance and decrease delinquencies, both of these trends will improve our ratio of operating expenses as a percent of UPB.\nWe believe we have tremendous operating leverage in our servicing platform, and we're focused on increasing scale by growing our own servicing and subservicing.\nAgain, here, the team continues to perform very well in several areas.\nAverage beat of answer and call abandonment rate continued to outperform the industry average as reported by the MBA.\nOur average speed of answer is just a fraction of the MBA average, and abandonment rates are roughly half the industry average.\nWe continue to be laser-focused on supporting borrowers who are exiting forbearance and helping them understand their options.\nWe believe the best path for the homeowner and the investor is to find what works within investor guidelines to keep the consumer in their home.\nIn this regard, we outperformed the industry as reported by the MBA, relating to the percentage of borrowers with an agency loan who exit forbearance with the reinstatement or loss mitigation solution in place.\nBetween September 2020 and June 2021, roughly 93% of our borrowers who exited forbearance had a reinstatement or loss mitigation plan in place, and that compares to the industry average of 83%.\nAnd what that means is about 7% of our borrowers on forbearance have exited without a reinstatement plan or a loss mitigation solution versus over 17% for the industry.\nBased on the MBA data, we're delivering 20% more loss mitigation solutions for homeowners versus the industry average.\nAnd again, I believe this demonstrates how our servicing capabilities deliver superior performance for homeowners and investors.\nNPS is up 6 points over third quarter 2020, and that's even with the impact of boarding over 280,000 loans in the third quarter onto our servicing platform and helping over 4,700 borrowers exit forbearance.\nAlso worth noting, Moody's and S&P upgraded our servicer quality assessment as Master servicer, along with Fitch -- and along with Fitch, all three affirmed our servicer ratings.\nSome of the key strengths noted by the agencies were our reporting and remitting processes, proactive servicer oversight in master servicing, management and organization, industry experience, multiple levels of internal controls, and our diligent response to the pandemic, as well as our enterprisewide risk and compliance management framework.\nWe've put significant effort into diversifying our servicing revenue streams over the last two years.\nOur focus has been on growing own servicing, growing our subservicing, and taking advantage of ancillary or intrinsic revenue streams in our business, Ginnie Mae EBO gains at call right opportunities.\nThese efforts have paid off as the percentage of our servicing revenue derived from the NRZ subservicing agreement has been reduced by more than 50%.\nIt's now just 17% of our revenues.\nFrom a loan count perspective, the NRZ loans are down to 33% of the total as, compared to 54% in third quarter of last year, and the NRZ loans also comprise about two-thirds, 67% of our total nonperforming loans as of the third quarter of 2021.\nEBOs and call rights continue to be an opportunity for us.\nWe settled our planned call rights transaction in the third quarter, involving seven deals, and we're pleased with the results.\nAs of the third quarter of 2021, our call rights, our owned call rights were approximately 121 deals.\nAnd we estimate the near-term opportunity for call rights that could potentially be actionable is about 30 to 40 deals.\nMarket appetite for seasoned non-agency loans remain strong, and there is sustained activity from other legacy non-agency servicers.\nWith respect to our previously announced fourth quarter transaction, we received a request from the trustee Deutsche Bank asking us to pause the cleanup calls.\nThey wanted to confirm the call price, met the requirements of underlying PSAs.\nWe believe the call price we've calculated is consistent with the applicable PSAs in our course of conduct with Deutsche Bank and relevant third parties and with established industry practice.\nWe intend to work with Deutsche Bank in their analysis, including if Deutsche Bank chooses to seek input from a court of competent jurisdiction.\nMeanwhile, we have agreed to pause our calls to allow that analysis to take place.\nRegarding EBOs, we realized $12.3 million in EBO gains year-to-date third quarter with loans now emerging from forbearance, we expect to see an increase in EBO activity as loans are modified throughout 2022.\nWe believe we've built a best-in-class servicing platform for performing and special servicing with capacity for growth that can offer a compelling value proposition to existing and prospective clients.\nDuring 2020 and 2021, we performed an end-to-end review of our platform and capabilities against what we believe are client expectations.\nBased on this review, we believe our platform delivers best-practice performance levels for clients across six C's of performance.\nThese include competency, putting the client first, customer centricity, technology-enabled capabilities, a well-staffed bank-grade risk, and compliance model and a strong value-based culture that underpins everything we do.\nWe've made several investments in bar and client-facing technology to address the needs of clients and consumers and to streamline our business and improve the ability for consumer and client self-service.\nWe can offer swift onboarding, responsive service to our clients and consumers.\nAnd as we covered on Pages 7 and 8, industry-leading operating performance.\nWe believe our operations can deliver superior total cost and service-level performance versus our peers.\nAnd we've been rewarded for the investments we've made in our platform.\nWe've secured $28 billion of subservicing additions in the last 12 months.\nWe secured $20 billion in new awards in the third quarter, and we have a $63 billion opportunity with our top 10 prospects and a potential prospect pipeline of $200 billion and growing.\nWith the closing of RMS as well, we are positioned to enter the $86 billion reverse mortgage servicing market once the integration is complete.\nSo while these opportunities do have a longer sales cycle, I'm nonetheless very excited about the opportunity we have here.\nGenerally, this year, industry volume levels continue to be very robust, certainly as compared to historic levels of both forward and reverse.\nWe continue to deal with incredible interest rate volatility in August.\nThe 10-year treasury rate was trading at 117 basis points.\nBy quarter end, it was 153.\nIt's now in the high 140s.\nSo it's been volatile.\nWe are seeing non parallel interest rate movements, as well as mortgage to treasury spread compression, and discount margin volatility in reverse as well.\nThese risks are not covered by our hedging program, and we did feel the effects of this in the third quarter.\nJune will talk a little bit more about that later.\nConsensus industry forecast is for rising rates and about a 28% average reduction in industry origination volumes.\nThis is based upon the consensus of Fannie Mae, Freddie Mac, and MBA forecast.\nThat said, 2022 projected volume levels are still relatively high compared to historic levels, especially in the 2018, 2019 time frame.\nReverse mortgage endorsement volume remained strong and is expected to remain strong compared to last year.\nIn a contracting market, we would expect some continued pressure on originations margins until capacity -- excess capacity in industry could be eliminated.\nThat said, margins were roughly stable in the third quarter.\nWith rising rates, we would expect increased servicing profitability and MSR values as payoffs and runoff -- portfolio runoff decreases.\nAnd we also expect perhaps some M&A and bulk purchase opportunities may emerge as market participants consider exiting as the origination market contracts.\nAnd we also expect to see the agencies buy box expand a bit with higher loan limits and support for first-time and low- to moderate-income buyers.\nTo address the dynamic environment, we're focused on a few straightforward strategies, prudent growth by expanding our client base, product, services, and addressable markets.\ncontinuing to drive best-in-class operating performance to deliver superior value proposition to clients, investors, and consumers, providing a service experience that delivers on our commitments, enhancing our competitiveness through scale and low cost aggressively pursuing our subservicing opportunity pipeline, and expanding into reverse subservicing.\nAnd lastly, continuing to be prudent in bulk purchases through MAV and M&A opportunities to increase scale and capabilities.\nBy now, you're familiar with our key operating objectives for 2021, and we're well on our way to achieving our targets.\nIn each of the five categories, we believe we've got strong momentum.\nAnd our key operating objective framework will remain the same for 2022.\nWe are targeting over $100 billion in total owned servicing and subservicing additions.\nWe're targeting to maintain recapture rates over 30% with the long-term objective of industry best practice levels by investor type.\nContinuous cost and process improvement is part of our DNA, and we're driving base cost and variable cost productivity improvement to support our competitiveness.\nWe're targeting roughly another 1-basis-point reduction in servicing and overhead opex as a percent of UPB from third quarter 2021 levels.\nIndustry-leading operation execution and delivering on our commitments to clients, borrowers, and investors is a critical component of our value proposition.\nSo this will continue to be a focus and emphasis for us in 2022 and beyond.\nAnd for 2022, we're targeting about 50% growth in subservicing additions and harvesting embedded EBO and call rights income to diversify and grow our revenue.\nConsistent with our operating objectives this year, we continue to target low double-digit to mid-teen after-tax operating ROEs in 2022.\nWe reported $37 million in adjusted pre-tax income and 32% in adjusted pre-tax ROE.\nThis is the eighth consecutive quarter of positive adjusted pre-tax income.\nNet income in the quarter was $22 million, including $27 million in unfavorable notables, largely driven by MSR fair value changes from higher actual prepayments than modeled, Negative effects of basis risk, partially offset by higher market interest rates net of hedging.\nWe achieved 19% after-tax GAAP ROE exceeding our low double-digit to mid-teen guidance.\nOur earnings per share was $2.35, beating analyst consensus by over two times.\nOn the top right bar chart, you can see that we're delivering on our growth objectives and cost leadership.\nRevenue increased 38% year over year, largely due to higher servicing fees on an additional $66 billion in UPB and executing the call right transactions.\nOperating expense as a percentage of average UPB was favorable year over year after absorbing cost to maintain capacity for both the new bulk volume reported in August and September, incurring temporary interim subservicing expense on MSR bulk acquisitions and as I mentioned previous quarters, carrying excess costs during foreclosure moratorium and expectation of borrower need.\nEquity increased to $470 million, and book value per share increased $2 to $51 per share.\nThis slide demonstrates that our balanced business model is operating well with originations growth replenishing our servicing portfolio more than offsetting runoff.\nThe replenishment rate in the quarter was 170%.\nOn the left side of the slide, you can see that volume is up across all channels, approximately 77% versus the same quarter last year.\nAdjusted pre-tax income was impacted by lower revaluation gains on MSR cash window and flow purchases and expected margin normalization.\nYou can see on the margins graph, Consumer Direct margins increased slightly versus last quarter but lower than this time last year.\nMix-adjusted correspondent lending margins were relatively flat versus last quarter.\nThe adjustment in the second quarter correspondent margins is attributed to gains recognized in the second quarter on certain loans that were acquired under favorable circumstances, resulting in higher than market average margins for these loans.\nAdjusting for these loans, second quarter margins were consistent with the first quarter at approximately 12 basis points.\nAs Glen mentioned, we're growing higher-margin products, channels and services, which we believe will help deflect margin pressure as industry volume levels contract.\nOn the right side of the slide, you can see the results in our Servicing segment from building scale.\nThird quarter total servicing UPB is $248 billion, a $62 billion increase over the third quarter of 2020.\nThe Subservicing plus NAV UPB, and as you know, we began subservicing NAV this quarter, doubled year over year, largely replacing the NRZ UPB decline.\nNRZ UPB concentration dropped from 46% to 24% year over year.\nWe expect this trend to accelerate as we grow subservicing for other clients in NAV.\nServicing adjusted pre-tax income of $41 million was largely driven by higher servicing fees from higher UPB, expanding servicing revenue with approximately $23 million in call right gains, as well as cost leadership.\nYou saw earlier that servicing operating costs are down 3 basis points year over year, and we expect continued improvement, which I'll show you on the next slide.\nThis is our road map page.\nWe told you last quarter that we were positioned for a step function change in profitability in the second half of the year, and we delivered on this in the third quarter with GAAP earnings and 19% ROE.\nThis is our operating framework for 2022 assuming a stable interest rate environment and no adverse changes in market conditions or legal and regulatory environment.\nThe page is broken down by our operating objectives in the origination, servicing, and corporate segments.\nI'll provide a few highlights, but please let me know if any of you want to review in more detail separately, and I'd be happy to.\nWe reflect the full quarterly impact from the bulk transactions closed in June we talked about last quarter.\nflow MSR volume was redirected to MAV in the third quarter, and we continue to grow performing subservicing, which results in a mix shift to higher-margin consumer direct and reverse channels.\nWe expect EBO, call rights, and other revenue diversification in the range of $20 million to $25 million, and the segments continue to achieve productivity targets.\nA couple of comments just to wrap up before questions.\nWe had a great quarter, delivered really strong financial performance.\nI'm proud of how the team is executing and we're excited about the opportunities ahead.\nWe're demonstrating a solid track record of delivering on our operational and financial commitments and continued development of our balanced and diversified business model.\nWe're focused on a few straightforward strategies to navigate this dynamic market environment, prudent growth by expanding client base product services to expand addressable markets.\nsuperior value proposition to clients, investors, and consumers through best-in-class operating performance, providing a service experience that delivers on our commitments and enhancing our competitiveness through scale and low cost.\nI'm proud of what our team accomplished in the third quarter and very appreciative of all their efforts.",
        "summary": "ocwen financial q3 earnings per share $2.35.\ncompname says subservicing sales pipeline grew to more than $200 billion in quarter.\nq3 earnings per share $2.35."
    },
    {
        "text": "Speaking on the call will be Ocwen's chief executive officer, Glen Messina; and chief financial officer, June Campbell.\nWe believe these non-GAAP financial measures provide a useful supplement to analysis of our financial condition and an alternate way to view certain aspects of our business that is instructive.\nNon-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.\nThese statements are based on currently available information and reflect our current estimates and assessments.\nThe company has not finished its fourth-quarter financial closing procedures.\nThere can be no assurance that actual results will not differ from our current estimates and assessments, including as a result of fourth-quarter financial closing procedures and any such differences could be material.\nLet's get started today on Slide 3.\nWe're really energized by the great progress we've made across the company.\nWe've executed an incredible business transformation.\nWe're a better balanced and more diversified mortgage originator and servicer.\nWe're stronger, more efficient, and better aligned with future market opportunities.\nWe've concluded our strategic review and are excited to announce an expansion of our strategic alliance with Oaktree Capital with their investment in OFC Holdco notes.\nWe believe our alliance with Oaktree can enable a level of growth and earnings per share accretion, and potential value creation that we cannot achieve on a stand-alone basis, as well as, support the refinancing of our corporate debt.\nIn the fourth quarter, we continued to improve profitability.\nWe delivered record growth in originations and we continued to reshape and diversify our servicing portfolio.\nAs we look ahead, we believe we are well-positioned to capitalize on potential future growth opportunities in multiple market segments and we're focused on executing five straightforward operating objectives to drive improved value for shareholders.\nLet's jump to Slide 6 to discuss the outcome of our strategic review process.\nOur expanded strategic alliance with Oaktree marks the conclusion to our strategic review process that we announced in May 2020.\nThe objective of our strategic review was to maximize long-term value for Ocwen's shareholders.\nOur review of alternatives which was overseen by our board and with the support of Barclays and Credit Suisse was fulsome and robust.\nOur outreach was aided by our public announcement of the strategic review process which also resulted in inbound increase by parties not included in our initial outreach.\nNow we had discussions with numerous parties and all options were considered.\nAnd at the end of the day, there were really no actionable change of control or merger opportunities that emerged from these discussions.\nIn the absence of a change of control transaction, we believe we need to accelerate our originations and servicing growth, and address the upcoming corporate debt maturities to maximize our value as a stand-alone company.\nWe concluded through our strategic review that our ability to increase the leverage of the total company using the assets of the operating company was limited by a number of factors, including proposed regulatory requirements that may increase capital and liquidity requirements for nonbank mortgage companies.\nSo to address our growth and refinancing objectives with these constraints, we focused our structured financing solutions that would provide incremental capital to accelerate our growth and position the company to successfully refinance our upcoming corporate debt maturities without encumbering the assets necessarily of PHH, our operating company.\nWe're excited to announce that we've executed definitive agreements with Oaktree for $250 million in incremental capital through Holdco notes issued by Ocwen Financial Corporation.\nThis is our holding company and this incremental capital is in addition to our joint venture with Oaktree MAV.\nWhen combined with MAV, we expect the over $460 million in capital provided by Oaktree can enable us to potentially increase our earnings per share by 65% or more once the proceeds are fully invested.\nWe believe the Holdco notes also support our corporate debt refinancing on more favorable terms while increasing capacity for secured financing and share repurchases.\nNow for these reasons, the board found the Oaktree offer to be the most compelling opportunity to enable a level of growth, earnings per share accretion, and potential long-term value creation that we could not achieve on a stand-alone basis.\nWe believe the Oaktree investment enhances our ability to compete and prosper, as well as, demonstrates their confidence in and commitment to Ocwen's long-term success.\nYes, starting with the Holdco notes.\nThese are structured with the collateral package limited to a second lien on the assets of OFC, the holding company.\nThere is no lien on the PHH assets or guarantees from PHH.\nThis is a substantially reduced collateral coverage and more deeply subordinated position in our capital structure versus our existing high-yield notes.\nThe limited collateral package and deep subordination enables us to treat the proceeds from the Holdco notes that gets contributed to PHH, our operating company, as equity.\nAnd we expect this will increase our ability to leverage the assets of PHH with first lien debt and secured financing.\nYou know this deeply subordinated position in our capital structure relating to the Holdco notes does translate into pricing that's close to equity.\nThe Oaktree notes have a face value of $285 million with a $35 million original issue discount for net proceeds of $250 million.\nThe coupon is 12%, plus about 2% for the effective annual cost of the OID.\nIn addition, Oaktree will receive warrants for 12% of the fully diluted shares of Ocwen.\nIn terms of use of proceeds, we intend to use $100 million of the proceeds to pay down and support the refinancing of our existing corporate debt in a concurrent refinancing transaction.\nWe expect less restrictive covenants, eliminating amortization, and relative to existing corporate debt, extending the maturity with an expected tenure of six years on the Holdco notes.\nConcurrent with the refinancing, we'll pay off our existing corporate debt per their respective terms.\nThe remaining $150 million in proceeds from the Holdco notes will be used to support our on book growth objectives through MSR purchases and funding a portion of the MAV investment.\nWe do expect the incremental capital in the operating company will allow us to improve the terms of our existing MSR financing which can create up to about $75 million in additional capital from our existing MSRs.\nThe proceeds from Oaktree will come in two tranches.\nThe first tranche is $175 million and that will come in concurrently with the closing of the corporate debt refinancing.\nThe remaining $75 million will come in concurrent with the closing of MAV.\nMoving on to MAV.\nAs we announced in December, we formed a partnership joint venture with Oaktree Capital to launch an MSR asset vehicle.\nThis vehicle will purchase MSRs.\nOaktree will own 85% and Ocwen will own 15%.\nYou know, MAV expects to leverage up to $250 million in capital that will be contributed by Oaktree and Ocwen, respectively, based on our relative shares to purchase MSRs and this will be leveraged up roughly one for one with secured MSR financing.\nSo that gives us the capacity for up to about $60 billion in MSR UPB.\nNow PHH will be the sole provider of originations, subservicing, and recaptured administrative services to MAV.\nAnd Ocwen will also earn MSR investment returns on its capital contribution and from profit sharing on returns in MAV above 12%.\nNow MAV is expected to close in the first half of 2021, subject to GSE and regulatory approvals.\nIn terms of benefits, MAV supports our servicing and subservicing growth objectives on a capital-efficient basis and will help generate increased cost efficiency through increased origination and servicing scale.\nMoving on to Slide 8.\nIn terms of the financial impact of the Oaktree investment in Ocwen, we estimate that a -- on a combined basis, the Holdco notes and MAV can contribute up to $78 million in annualized pre-tax income from full deployment of the capital provided by these two structures.\nWe estimate full deployment of the proceeds can generate roughly $5 per share in incremental earnings on a fully diluted basis.\nThis translates to over a 65% increase above our potential baseline earnings per share range which assumes an after-tax ROE range of roughly 10% to 15% on about $414 million of equity.\nUsing a PE multiple range of some of our peers of roughly 4 times to 6 times forward earnings, the potential incremental value creation is roughly $20 to $30 per share.\nThis is a 7 times to 10 times multiple of the potential book value per share dilution, assuming the warrants are fully issued and the corresponding increase to our equity from the proceeds related to issuing the warrants.\nThe incremental investment capital will allow us to further expand our originations activities and expand our participation in the bulk purchase market.\nWe expect to source roughly up to $200 billion in incremental total volume over the next couple of years.\nAnd again, it's estimated to source up to $200 billion in incremental volume over the next two years.\nThe total growth in volume will allow us to grow our total subservicing portfolio to roughly $300 billion by the end of 2022, assuming the NRZ subservicing contract does not renew.\nSo again, strong growth in the servicing portfolio resulting from the originations.\nWe believe it's a great time to invest in MSRs.\nPretax cash IRRs in our MSRs generated in December were about 12% before MSR financing, that translates to roughly 18% after MSR secured financing.\nNow in addition, we'll continue to opportunistically evaluate M&A transactions to expand our originations and servicing capabilities which might provide enhanced returns versus MSR investments.\nThese estimates are based on the judgment of management and based on our current assumptions which may be subject to change based on market and industry conditions, among other things.\nLook, the bottom line here is, we're really excited about our alliance with Oaktree and the opportunity it provides to enable a level of growth and earnings per share accretion and potential value creation that we could not achieve on a stand-alone basis.\nMoving on to Slide 9, maybe a little bit about the fourth quarter.\nSo look, during 2020, we demonstrated exponential total volume growth, total cost improvement and built a scalable and efficient platform to support our future growth.\nAdjusted pre-tax profitability was up roughly 15% in the fourth quarter over the third quarter despite declining origination margins.\nAnnualized adjusted pre-tax profitability has improved over $380 million over the second-quarter 2018 baseline for Ocwen and PHH combined.\nOur multichannel origination platform continued to deliver really strong results.\nFlow origination volume in the fourth quarter was up 49% over the third quarter and up over 7 times as compared to 2019.\nSo again, just really great performance by the originations team.\nAnd as we talked about earlier, we're focused on accelerating our growth trajectory in 2021.\nYeah, we are focused on driving efficiency in our operating expenses.\nAnd as a result of that efficiency and our continuous cost improvement, operating expenses are down 44% over the second-quarter 2018 baseline for Ocwen and PHH combined.\nThat's over a $400 million cost reduction.\nSo again, just great performance by the team in really rethinking and reimagining our business infrastructure.\nYou know, we're disappointed that settlement discussions with the CFPB did not resolve this matter and especially since we've resolved all state regulatory actions filed against Ocwen in 2017.\nWe engaged with the bureau in good faith throughout the course of mediation and numerous related discussions and took all actions in an attempt to reach a fair and reasonable resolution.\nWe increased our legal and regulatory accrual related to the CFPB matter by $13 million in the fourth quarter, resulting from our efforts to resolve the matter in mediation.\nWe remain steadfast in our belief that the CFPB's claims regarding Ocwen's past servicing practice are unsubstantiated and the bureau settlement demands do not reflect the merits of this case.\nWhile we remain committed to attempting to resolve the matter prior to trial, our pending motion for summary judgment which was filed on June 5th, 2020, supports our position on this matter, and we expect to continually -- continue to vigorously defend ourselves going forward.\nLook, it was a great quarter, the fourth quarter, a great year in 2020, and I could not be proud of the team of what they accomplished.\nYeah, moving to Slide 10.\nMaybe a little bit about the originations platform.\nWe delivered a record total volume of $30 billion in the fourth quarter.\nIt translates to roughly an annualized run rate of about $60 billion from our flow channels and about $60 billion annualized from bulk.\nTotal volume for 2020 was $59 billion versus $26 billion last year, so we've doubled total volume.\nFull-year flow and co-issue originations were up 8 times over last year.\nFull-year bulk and subservicing adds were up over 48% as compared to last year.\nOur correspondent and flow seller base increased about threefold since the fourth quarter of 2019.\nYou know, all of our channels delivered strong double-digit growth quarter over quarter.\nAs I mentioned before, cash yields and MSRs continued to be very strong, and our portfolio replenishment was exceptional.\nIn addition, in the fourth quarter, we were awarded multiple subservicing contracts with projected volume of $16 billion to $24 billion that we expect will board in the first and second quarter.\nNow margins as well continued to contract in the fourth quarter.\nWe had expected that.\nThe average margins fell to about 56 basis points versus our expectation of 77 basis points for Q4.\nThis is really solely due to higher-than-expected third party volume.\nMargin compression by each channel was actually slightly less than expected.\nAgain, here, great performance by our originations and capital markets teams and I believe we've got more room to grow.\nWe'll talk about that in a minute.\nTurning to Slide 11.\nOur servicing platform continued to deliver very strong performance in the fourth quarter.\nOur servicing leadership team is doing a great job of driving continued improvement in efficiency and effectiveness and helping customers navigate through the crisis.\nOur call center continued to outperform the MBA reported industry averages.\nOur key claims metrics also continued to perform with nearly 100% effectiveness.\nWe continued to invest in technology to lower unit costs, improve performance for investors and enhance the customer experience.\nDespite almost all of our people working remotely, we've continued our unparalleled track record of helping homeowners in need.\nIn 2020, we provided forbearance relief for over 180,000 consumers and we completed about 40 virtual borrower outreach events to reach consumers potentially impacted by the pandemic.\nThe strength of our originations have allowed us to grow our servicing portfolio slightly in the fourth quarter.\nAnd we achieved roughly a 50-50 mix of owned servicing and subservicing.\nAgain, here, I'm really proud of how our servicing team has transformed their operation.\nAll our hard work over the last two years really positions us well for profitable growth, leveraging a scale -- a scalable and efficient platform for 2021.\nTurning to Slide 12.\nIn 2021, looking ahead, the market, we expect the total originations will be down roughly about 17%, with much decline in the second half of the year.\nYou know Black Knight is reporting that there's still about 16 million to 17 million borrowers who are eligible for refinancing which should continue to drive the refi market in the near-term.\nAs well, the millennial generation is driving significant growth in the number of first-time potential homebuyers which should, long-term, also bode well for the purchase market.\nOur reverse origination platform is positioned to support the financial needs of our growing senior population by tapping into an estimated $7.8 trillion of untapped home equity.\nOur special servicing expertise and track record of creating non-foreclosure outcomes for consumers, you know, positions us to support the roughly 1.8 million homeowners who are still on forbearance who may need loss mitigation assistance.\nWe estimate that roughly 85% of these borrowers are delinquent and we further estimate that about 25% will need loss mitigation assistance.\nWe expect the increase in Ginnie Mae workouts as foreclosure alternatives will drive increased EBO, early buyout gain opportunities, in Ginnie Mae servicing, and the current low interest rate environment can create opportunities to drive increased realization of gains for executing call rights.\nAs most of you know, as rates rise, total industry volume will decline.\nWe also expect margins will contract and we've seen some of that this year.\nHowever, rising rates can increase the value of our owned MSRs by extending duration and MSR amortization will slow as prepayments decrease.\nThe increase in MSR values, this rate rise will positively impact book value per share.\nTurning to Slide 13.\nYou know, our focus for 2021 will be on executing five key business initiatives that we believe will help us capitalize on the opportunities that are available in the market ahead.\nThose are accelerated growth, strengthen our recapture performance, improve our cost leadership position, maintain high-quality operational execution, and expand servicing revenue opportunities.\nYeah, from a regulatory perspective, we are monitoring and we'll continue to evaluate the impact that the Biden administration's key agenda items may have on our industry.\nWe'll also closely monitor -- be monitoring statements from the CFPB regarding any planned priorities or areas of focus.\nAnd the President has already signed an Executive Order calling for various federal agencies to extend foreclosure and eviction moratoria, and the administration's enhanced stimulus plans could include additional protections with respect to forbearance and foreclosure, and eviction moratoria.\nAny changes at the federal level will, obviously, be uniform across all competitors in the industry, and thus far, Ocwen alone, as well as, the industry has proven to be adaptable in a dynamic regulatory environment.\nWe expect the successful execution of our key initiatives will allow us to deliver positive GAAP earnings in 2021, with low double-digit to mid-teen after tax ROEs again by mid-2021, assuming no adverse changes in the market, industry or business conditions or legal and regulatory matters.\nAnd June will take us through our road map for 2021 later.\nAnd maybe I'd like to share a little bit more about each of these initiatives for 2021 on the next few pages.\nTurning to Slide 14.\nIn 2021, our goal is to achieve over $100 billion in volume with the 40-60 mix of owned servicing and subservicing, respectively.\nOur fourth-quarter run rate kind of puts us on track for those levels.\nWe focused on several actions to accelerate our growth trajectory by leveraging our multichannel platform.\nNow we're targeting to grow our seller base again, over 450 sellers in 2021 to support our growth in correspondent and flow volume, as well as, performing and special subservicing opportunities.\nWe believe our broad portfolio of services, including subservicing, specialty servicing, MSR purchase through multiple delivery methods, provides a compelling value proposition.\nWe're also focused on expanding our product reach, so expanding our share in the Ginnie Mae market through correspondent, in the Ginnie Mae co-issue market and correspondent.\nWe're also working to introduce Jumbo and non-QM products, as well as, expanding our service to include best efforts and non-delegated delivery methods.\nIn subservicing, we're expanding our small balance commercial loan business.\nThat's begin to grow nicely for us.\nAnd finally, MAV will allow us to expand our participation in the bulk market significantly which will help us create synthetic subservicing.\nAnd finally, as I mentioned earlier, we continue to evaluate opportunities to enter higher-margin channels based on market conditions.\nNow turning to Slide 15.\nWe continue to target achieving at least a 30% recapture rate for our recapture platform and we believe our recapture performance is only limited by our operating capacity to address available opportunities.\nAnd our recapture team has consistently, over the last four or five quarters, grown our closings quarter over quarter and has marched up the recapture rate quite nicely, but we've still got more room to grow.\nSo we expect to increase staffing levels by over 40% through the course of 2021.\nWe're continuing to hire and train new team players in every position and intend to do so throughout the year.\nWe are focused on process and technology as well.\nWe're focused on helping new team players improve their productivity as they mature in their roles.\nWe're also driving continuous process improvement with our process improvement teams, leveraging our global workforce, and we're focused on implementing new technology to support expanding our capacity across the entire loan origination life cycle.\nYeah, moving to Slide 16.\nWe remain focused on driving productivity to improve our cost leadership position while maintaining high-quality operational execution.\nWe're targeting to reduce our servicing operating cost by roughly 2 basis points of UPB in this year and reducing corporate overhead expenses by roughly 1 basis points of UPB.\nWe're executing over 60 technology-enabled projects across the business to drive productivity, cost reduction, improved customer experience, and support growth.\nWe'll continue to focus on high-quality execution at our operations relative to comparative industry benchmarks to further improve our customer experience and create value for investors and clients.\nAnd as we did in 2020, we stand ready to support consumers in need of forbearance relief and loss mitigation assistance as they come off forbearance.\nOn Slide 17, finally, we're focused here on several actions aimed to expand our servicing revenue opportunities.\nWe're preparing for a surge in loss mitigation related to expiring Ginnie Mae forbearance plans.\nWe expect this will also create a potential surge in early buyouts and modification related redelivery gains.\nWe're tracking roughly $300 million in RMBS call right opportunities.\nWe expect roughly $125 million will be eligible to call in 2021 and we'll continue to evaluate the variables that impact eligibility and economics of executing these calls throughout the year.\nAnd finally, we continue to evaluate opportunities to expand our capabilities in both forward and reverse servicing.\nThis is our fifth consecutive quarter of positive adjusted pre-tax income.\nRevenue decreased quarter over quarter, driven primarily by lower NRZ subservicing fees, resulting from UPB transfer and runoff.\nWe've been awarded multiple subservicing contracts with projected volume $16 billion to $24 billion and closed approximately $15 billion of MSR bulk purchases which should largely offset the lost revenue.\nMSR adjustment decrease is driven by fair value calibration for higher one-off which reduced the fair value of MSRs in the third quarter.\nWe also recorded $3 million of higher gain during the quarter, largely driven by higher MSR purchase volumes.\nOperating expense improvement is from leveraging technology and productivity actions as we continued to invest in our originations platform.\nAdjusted pre-tax income is $15 million, $2 million higher than prior quarter, as favorable MSR valuation and lower expenses offset lower revenue.\nNotables in the fourth quarter include a $13 million additional CFPB accrual and $4 million in other legal accruals.\nWe had higher income tax expense during the quarter which excludes tax benefit on fourth-quarter legal accruals which we expect to recognize when paid in 2021 and fourth-quarter period adjustment to the CARES Act benefit for higher pre-tax income than previously estimated for the year.\nWe reported a GAAP net loss of $7 million, $2 million improvement over prior quarter and after the $13 million of additional CFPB accrual I previously mentioned.\nOur balanced business model is operating well.\nOriginations growth and profitability is replenishing the servicing portfolio and offsetting one-offs.\nOn the left side of the slide, you can see that our multichannel platform is fueling strong originations volume with growth up 164% quarter over quarter.\nServicing originated volume is up almost 4 times quarter over quarter, driving strong replenishment of 267%.\nAdjusted pre-tax income was $35 million, $2 million lower than the prior quarter as higher volume was offset by expected margin normalization and $5 million of investment in our platform.\nOn the right side of the slide, our servicing segment is demonstrating strong performance through the refinance cycle, delivering improved results quarter over quarter.\nUPB runoff is being replenished through newly originated servicing and subservicing despite a $16 billion transfer of the NRZ portfolio previously terminated in 2020.\nWe have a strong subservicing pipeline with our top 15 prospects at approximately $85 billion, with additional opportunities from MAV.\nWe continue to optimize our cost structure through rigorous process redesign and increased automation, driving improved efficiency.\nOur total exposure to loans on forbearance continues to diminish and tracks favorable to our forecast.\nYou can see on the left that both the total number of forbearance plans and the forbearance plans where we have ultimate responsibility to advance continue to decline.\nAs the chart reflects, there's a significant difference between total forbearance plans and the amount where we have ultimate responsibility to advance.\nThis is a function and a benefit from our strategy to maintain a mix of owned servicing and subservicing.\nOn the upper right chart, you can see that our owned servicing portfolio is performing favorable to other nonbank servicers in terms of percent of loans on forbearance.\nWe are seeing roughly 53% of our borrowers on maturing forbearance plans reinstate and 40% extend.\nRoughly 4% have progressed to loss mitigation and we are awaiting decision for direction from the borrower on about 3% of plans that have matured.\nOur expectation is roughly 75% of borrowers on forbearance will reinstate and less than 25% will need some form of loss assistance.\nWe ended the quarter with $285 million in liquidity.\nWe have made significant investments in bulk MSR market opportunities and originations during the quarter.\nWe invested $190 million in cash before financing to fund $25 billion of MSR originations, $18 billion higher than the prior quarter, largely driven by opportunistic bulk MSR acquisitions.\nOur originations generated strong cash-on-cash unlevered yields of approximately 12% across all channels.\nServicing advances continue to track favorably and actual advances were 29% lower than forecast.\nLower advance originations were largely driven by higher prepayments and more forbearance plans performing.\nWe're focused on our five operating objectives, as highlighted by Glen earlier to achieve our profitability goals.\nWe expect to generate positive GAAP earnings in 2021 with low- to mid-teen after-tax ROE by mid-2021.\nThis page is a road map to achieving these results broken down by operating objectives in originations, servicing, and corporate segments.\nI won't go through the details on the call here today, but please let me know if you'd like to review at another time as we have to go through the details.\nYou know, wrap up, let's turn to Page 24.\nAs I said at the onset, I'm just energized about the opportunities and our potential for 2021 and beyond.\nWe've radically transformed Ocwen.\nIt's a better balanced, diversified mortgage originator and servicer.\nOur strategic alliance with Oaktree can provide almost $0.5 billion of incremental capital to enable a level of growth, earnings per share accretion, and potential value creation that we could just not achieve on a stand-alone basis.\nWe're stronger, more efficient, and better aligned to future market opportunities as a result of all the hard work of the Ocwen global team.\nWe're delivering record growth in originations and we continue to reshape and diversify our servicing portfolio.\nAs we look to the opportunities ahead, we believe we're fairly well-positioned to capitalize on the potential future growth opportunities in multiple market segments.\nYou know in 2021, we're focused on executing five straightforward objectives to drive improved value for shareholders and achieve our goal of low double-digit to mid-teen after-tax return on equities by mid-2021.\nAnd you know, none of this would be possible without all the hard work of our global Ocwen team.",
        "summary": "ocwen financial - executed agreement with special purpose entities owned by funds and accounts managed by oaktree capital management, l.p.\nocwen financial - executed agreement with special purpose entities owned by funds and accounts managed by oaktree capital management, l.p..\nocwen financial - agreement with oaktree for a debt investment in co that would generate $250 million in proceeds.\nocwen financial - intends to utilize $100 million of proceeds from agreement with oaktree to pay down & support refinancing of existing corporate debt."
    },
    {
        "text": "Joining us today are: Brian Chambers, Owens Corning's Chairman and Chief Executive Officer; and Ken Parks, our Chief Financial Officer.\nRefer to the Investors link under the Corporate section of our homepage.\nPlease reference slide 2 before we begin, where we offer a couple of reminders.\nWe undertake no obligation to update these statements beyond what is required under applicable securities laws.\nI hope all of you on the call are staying healthy and safe.\nOver the past year, I'm pleased to say that our team has consistently risen to the challenges that fundamentally impacted not only our businesses and markets, but the ways we work and live.\nWhile many of those challenges continue to affect our daily lives, they are no longer unprecedented.\nWe've learned to be more agile to adapt and respond to changing market condition, demonstrating that strong execution and an uncompromising commitment to our people and our customers can drive exceptional performance even against this backdrop.\nWe certainly demonstrated this in the first quarter, delivering great operational and financial results by leveraging our market leading positions, unique product and process technologies and enterprise operating model to capitalize on strong or improving market conditions.\n, before turning it over to Ken, who will provide additional details on our financial performance.\nI will then come back to talk about our business outlook for the second quarter and share our perspective on key markets.\nAs always, I will begin my review at safety, where our collective focus remains working together to keep each other, our customers and our suppliers, healthy and safe.\nDuring the first quarter, we maintained a very safe environment with an RIR of 0.64, which is in line with our full year 2020 performance.\nMore than half of our facilities across the globe have remained injury-free for more than a year.\nFinancially, we delivered record first quarter revenue of $1.9 billion, an increase of 20% compared with the first quarter of 2020, up 18% on a constant currency basis; and adjusted EBIT of $282 million, which is more than double what we reported for the same period last year and a record for any first quarter historically.\nOur global teams continue to execute well, delivering outstanding financial results in a dynamic market environment, demonstrating the earnings power of our company.\nOur performance during the quarter was driven by good volumes, broad price realization and strong manufacturing efficiencies across all our businesses, resulting in an adjusted EBIT margin for the company of 15%, with all three of our businesses posting double-digit EBIT margins for the third consecutive quarter.\nDuring the quarter, we saw broad strength across many of our end markets.\nSpecifically, the US residential housing market continues to run at a robust pace, with both repair and remodeling activity and new construction growth driving strong demand for our products.\nIn addition, we continue to see many of our global markets as well as our commercial and industrial end markets improved throughout the quarter.\nWhile market conditions have certainly turned more favorable, our operating priorities, investments and execution have positioned us to deliver these strong financial results.\nAcross the enterprise, we continue to invest in select growth and productivity initiatives to service our customers and improve our operating performance.\nWithin Insulation, we are investing in automation and process technologies to create a lower cost, more flexible manufacturing network in our residential insulation business as we commercially position ourselves to benefit from a strong housing market.\nIn addition, we continue to invest in new Insulation materials and systems in nonresidential applications to expand our global product offering.\nIn our Composites business, we are investing to grow in higher-value downstream applications, such as building and construction, wind energy and infrastructure.\nAnd we remain focused on optimizing our low-cost manufacturing network to service key markets such as North America, Europe and India.\nAnd in roofing, we continue to leverage our vertical integration model to develop innovative products and systems, while expanding our roofing components offering and strengthening our partnerships with contractors and distributors, to help grow their businesses with our products and brands.\nAll of this work is enabled by our enterprise operating model, which leverages our commercial strength, material science capabilities and global operating scale, to expand our growth opportunities, improve our operating efficiencies and generate strong free cash flow.\nOn the talent front, we recently announced the appointment of two great executives.\nFirst, I'd like to congratulate Dr. Jose Mendez Andino on his recent promotion to Chief Research and Development Officer.\nMaterial science research and product and process innovation are fundamental to what we do and how we deliver value as a company.\nJose will play a key role in leading our efforts to increase our innovation pipeline and ensure we are helping our customers win and grow in the market.\nShe joins us from Nordson Corporation where she served for 8 years, most recently as their General Counsel.\nGina brings more than two decades of experience working across multiple industries and will be a valuable partner to both me and our entire executive team.\nAnother highlight I would like to share is the recent publication of our 15th annual sustainability report titled, Beyond Today Shaping Tomorrow.\nWe began our sustainability journey nearly 2 decades ago.\nAnd over the years, our goals have evolved and expanded well beyond environmental sustainability.\nToday, they are built on three key pillars: expanding the positive impact of our products, reducing our environmental footprint and increasing our social impact.\nWe are proud of our progress and our accomplishments over the past decade across all of our 2020 sustainability goals, particularly our progress on climate action, where we have reduced absolute greenhouse gas emissions from our operations by 60% since our peak year despite adding several material acquisitions along the way.\nIn our recently published 2030 goals, we are committed to further reduce these emissions by another 50%.\nThis will result in 2030 absolute greenhouse gas emissions being 75% below our peak.\nAt the same time, we are also committed to a 30% reduction in our scope 3 emissions as we focus on making a positive impact throughout our supply chain.\nSustainability is core to our purpose and will continue to be an important driver and differentiator for our company moving forward.\nAs Brian commented, Owens Corning delivered outstanding financial results in the first quarter.\nStrong top line growth, 400 basis points of gross margin expansion and continued operating expense discipline drove record first quarter adjusted EBIT, along with an adjusted EBIT margin of 15%.\nThe stronger earnings, combined with a continued focus on working capital management and capital investments, resulted in healthy free cash flow generation in the quarter.\nWhile benefiting from market conditions that are broadly stronger than they were a year ago, continued solid execution across the business was fundamental to driving this performance.\nAs anticipated, we're managing a more inflationary environment, primarily related to materials and transportation.\nPositive price realization and manufacturing productivity more than offset the inflation headwind in the quarter.\nMaintaining this positive balance remains a focus as we move through this inflationary environment.\nNow turning to slide 5.\nWe can take a closer look at our results.\nFor the first quarter, we reported consolidated net sales of $1.9 billion, up 20% over 2020 with double-digit revenue growth in all 3 segments, reflecting the robust US residential housing market and the continued strengthening of commercial and industrial markets.\nAdjusted EBIT for the first quarter of 2021 reached $282 million, up $166 million compared to the prior year and was highlighted by all 3 segments continuing to deliver double-digit EBIT margins.\nAdjusted earnings for the first quarter were $183 million or $1.73 per diluted share compared to $67 million or $0.62 per diluted share in Q1 2020.\nDepreciation and amortization expense for the quarter was $119 million, up slightly compared to the prior year.\nOur capital additions for the first quarter were $60 million, up $6 million as compared to Q1 2020.\nWe'll continue to be disciplined in our capital spending as we focus on delivering strong free cash flow and prioritizing investments that drive growth and productivity.\nSlide 6 reconciles our first quarter adjusted EBIT of $282 million to our reported EBIT of $301 million.\nDuring the quarter, we recognized $20 million of gains on the sale of certain precious metals.\nOngoing progress on our productivity initiatives and manufacturing process technology has enabled us to further modify the designs of our production tooling and reduce certain precious metal holdings.\nIn addition, we recorded $1 million of restructuring costs associated with the Insulation network optimization actions that we initiated in the fourth quarter of 2020.\nThese items are excluded from our adjusted first quarter EBIT.\nSlide 7 provides a high-level overview of our first quarter adjusted EBIT comparing 2021 to 2020.\nAdjusted EBIT of $282 million was a new first quarter record for the company and increased $166 million over the prior year.\nRoofing and Insulation more than doubled their EBIT and Composites grew by 80%.\nBefore turning to the review of each of our businesses, I want to speak to the onetime financial impacts we had from the winter storms in February.\nEach of our businesses faced operational disruptions related to the storms.\nHowever, these were offset in each of the businesses by gains on renewable energy settlements.\nAs we discussed at the time of our year-end call, these impacts were contemplated in our first quarter guidance.\nNow, turning to Slide 8.\nI'll provide more details on the performance of each of the businesses.\nThe Insulation business executed well to deliver strong growth on both the top and bottom lines.\nSales for the quarter were $700 million, a 16% increase over first quarter 2020.\nWe saw volume strength across the business as US new construction continued to be robust, and many of the commercial end markets we serve globally continue to strengthen.\nIn North American residential Fiberglas Insulation, we continue to ship all we can produce as the US new residential market remains very healthy.\nWe saw volumes up in line with the expectations we had at the time of our last call and continue to see positive pricing as a result of the actions that we've taken over the past three quarters.\nI'm happy to share that we started up our batts and rolls lines in Kansas City in February and continued to ramp up production as we move through the quarter.\nIn technical and other insulation, we saw volume up across the business with our highly specified products, continuing to see growth in demand in North America and Europe.\nPricing continues to be stable, and we saw a benefit from currency translation in the quarter.\nFor the Insulation business overall, good execution in our manufacturing operations partially offset continued transportation headwinds and accelerating material inflation.\nWe delivered margins of 12% and EBIT of $82 million more than double the $39 million of EBIT in the first quarter of last year.\nThe Composites business had a strong start to the year.\nSales for the first quarter were $559 million, up 13% compared to the prior year.\nStronger-than-expected volume growth in the quarter resulted from demand for downstream applications serving the building and construction and wind markets as well as demand in key geographies where our local supply for local demand model is being valued by customers and drove higher volumes compared to the prior year.\nWe also saw positive price realization in Composites, resulting from our most recent contract negotiations and the strength of the markets.\nOperationally, solid manufacturing performance offset headwinds from material and transportation inflation.\nFor the quarter, Composites delivered $79 million of EBIT and EBIT margin of 14%.\nSlide 10 provides an overview of our Roofing business.\nThe Roofing business produced its strongest first quarter top and bottom line performance as we continue to operate in a sold-out environment.\nSales in the first quarter were $711 million, up 28% compared to the prior year.\nThe US asphalt shingle market grew 26% for the quarter as compared to the prior year with our US shingle volumes, slightly outperforming the market.\nWe're seeing strong realization on our announced price increases and price costs remained positive as asphalt deflation continued to narrow through the quarter, and we started to face into transportation inflation.\nSimilar to the other 2 businesses, strong manufacturing performance was a fundamental element of the Roofing business results.\nFor the quarter, EBIT was $156 million, up $92 million from the prior year, achieving 22% EBIT margins.\nTurning to Slide 11.\nI'll discuss significant financial highlights for the first quarter and full year 2021, continued discipline around management of working capital, operating expenses and capital investments resulted in strong cash flow.\nIn addition, we didn't experience the seasonal working capital build that we typically see in the first quarter of the year due to robust demand across our businesses.\nFree cash flow for the first quarter of 2021 at $120 million, up $264 million compared to the first quarter of 2020.\nIt was a record for a first quarter.\nDuring the first quarter of 2021, we repurchased 1.6 million shares of our common stock and returned $197 million of cash to shareholders through stock repurchases and dividends.\nWith the strong cash performance and last year's deleveraging activities, we maintain a solid investment-grade balance sheet and are operating within our target debt to adjusted EBITDA range with ample liquidity.\nAt quarter end, the company had liquidity of approximately $1.7 billion, consisting of $605 million of cash and nearly $1.1 billion of combined availability on our bank debt facilities.\nWe remain focused on consistently generating strong free cash flow, returning at least 50% to investors over time and maintaining an investment-grade balance sheet.\nNow, turning to 2021 outlook for key financial items.\nI'll point out that there are no changes from our initial outlook provided in February.\nGeneral corporate expenses are expected to range between $135 million and $145 million.\nCapital additions are expected to be approximately $460 million, which is below expected depreciation and amortization of approximately $480 million.\nWe continue to focus on opportunities to support our businesses at a sustained lower level of capital intensity over time.\nInterest expense is estimated to be between $120 million and $130 million.\nAnd we expect our 2021 effective tax rate to be 26% to 28% of adjusted pre-tax earnings and our cash tax rate to be 18% to 20% of adjusted pre-tax earnings.\nWe're closely monitoring potential changes to the US tax landscape and will be proactive to mitigate the long-term effect on our cash tax rate.\nOur first quarter performance provided a strong start to the year.\nAs we look forward, we expect the US residential repair and remodeling and new construction end markets to remain robust with our commercial and industrial markets continuing to strengthen.\nWhile the COVID-19 pandemic continues to create market uncertainty, our teams are performing at a high level, producing results that demonstrate the earnings power of our company and position us well to continue building on this outstanding performance.\nGiven the strength of our key markets and our continued operational performance, we expect the company to generate another quarter of significant revenue and earnings growth in the second quarter versus prior year.\nConsistent with prior practice, I'll focus my business outlook comments on our expectations for Q2.\nIn each business, we expect prior year comparisons to be impacted by pandemic-related market responses, which affected our production and volume shipments last year.\nStarting with Insulation, we continue to see strength in new U.S. residential construction.\nGiven the decline in North American residential Fiberglas Insulation shipments last year during the second quarter, we expect those sea shipments to grow about 25%, with pricing continuing to improve from realization of our April increase.\nGiven our outlook for inflation, we have also recently announced an 8% price increase effective June 28.\nIn our technical and other building insulation businesses, we are seeing volumes recover to pre-COVID levels.\nIn the second quarter, we expect our volumes to be up mid-teens as we see increasing demand for our products in global building and construction applications.\nPricing in these businesses is expected to remain relatively stable to slightly up.\nIn terms of inflation, we expect material and transportation cost increases we faced in Q1 to continue in a more meaningful way in the current quarter, partially offset by ongoing strong manufacturing productivity.\nAdditionally, we anticipate benefits of approximately $30 million from better fixed cost absorption on higher production volumes.\nGiven all this, we expect EBIT margins to improve sequentially, approaching mid-teens for the quarter.\nMoving on to Composites; we expect our volume growth to continue at a strong pace, up approximately 30% versus the prior year.\nPricing is also expected to improve low to mid-single digits year-over-year.\nMargins should benefit from the reversal of roughly $30 million of curtailment cost we saw in the second quarter of 2020.\nConsistent with the broader industry trend, inflation will represent a more meaningful headwind for the business, which we would expect to partially offset through productivity gains.\nOn a sequential basis, EBIT margins in Q2 are expected to be similar to the first quarter.\nAnd in Roofing, we expect the market to be up between 15% and 20%, with our volumes up mid to high single digits.\nWe anticipate our volume growth will trail the market growth due to the strength of our shipments in Q2 of last year.\nRoofing pricing is expected to improve with the announced increase of 5% to 7% that was effective at the beginning of this month.\nFrom an inflation standpoint, we expect to face more significant headwinds in asphalt cost and other material inputs, particularly resin used in our components business.\nGiven this, we have recently announced an additional price increase of 4% to 6% effective in mid-June.\nOverall, we expect EBIT margins to increase sequentially from Q1, approaching mid-20%.\nWith that view of our businesses, I'll turn to a few key enterprise areas.\nOur team remains committed to generating strong operating and free cash flow.\nIn terms of capital allocation, our priorities remain focused on reinvesting in our business, especially productivity and organic growth initiatives.\nReturning at least 50% of free cash flow to shareholders over time through dividends and share repurchases and maintaining an investment-grade balance sheet.\nIn addition, we are also evaluating investments in bolt-on acquisitions that leverage our commercial, operational and geographic strengths and expand our building and construction product offering.\nOverall, we are well positioned to capitalize on near-term market opportunities as well as several longer-term secular trends that provide multiyear growth opportunities, including the demand for new housing in the US which has been underbuilt for several years and continued remodeling investments as homeowners renovate their living spaces and upgrade their homes.\nWe are also seeing growing opportunities to benefit from the drive for increased energy efficiency in homes and buildings, a greater importance being placed on sustainability and material durability and additional investments being made in renewable energy and infrastructure.\nEach of tease trends creates opportunities for Owens Corning to leverage our material science, building science and unique product and process technologies to partner with our customers and help them grow with additional products, systems and services.\nAs I noted at the beginning of today's call, our team is proud of the outstanding operational and financial performance we delivered in the first quarter and are excited by the opportunities we have to grow our company, help our customers win in the market and deliver value to our shareholders.",
        "summary": "compname reports q1 adjusted earnings per share of $1.73.\nq1 adjusted earnings per share $1.73.\nqtrly consolidated net sales of $1.9 billion, an increase of 20% compared with 2020.\nsees 2021 capital additions to be about $460 million."
    },
    {
        "text": "Throughout this past quarter, our global team has demonstrated tremendous resiliency, continuously adapting to changing market conditions and maintaining an incredible focus on taking care of each other, supporting our customers and maximizing our financial performance relative to the market opportunity.\nPrith will then provide additional financial details on the second quarter, and then I'll come back to discuss our outlook for the third quarter and the remainder of the year.\nI will start with safety and our second quarter results.\nAn unconditional commitment to safety has long been our guiding principle at Owens Corning, and this has served us well to address the challenges of COVID-19.\nIn the quarter, our recordable incident rate was 0.69, a slight improvement compared with the second quarter of 2019.\nI'm pleased with this performance and that everyone has kept safety and caring for each other the forefront of everything we do.\nOver the past several months, our executive team and dedicated COVID-19 response team have worked with our global enterprise to ensure our operations remain safe and effective for our employees, their families and other key stakeholders.\nWe remain vigilant in our use of personal protective equipment, health screenings, robust cleaning procedures, restrictions on business travel and work-from-home options as we actively monitor local health conditions and update our operating protocols as risk levels change.\nI would like to now move to our financial performance in the quarter.\nThrough the strength of our market-leading businesses, innovative product and process technologies and unique enterprise capabilities, the company delivered financial results better than what we outlined during our last earnings call as we capitalize on a faster recovery in residential end markets, particularly in the U.S., improved manufacturing leverage and strong cost controls.\nFor the second quarter, revenues were $1.6 billion, down 15%, 14% on a constant currency basis compared with the same period last year, and adjusted EBIT was $167 million.\nSince the start of the pandemic, we've been focused on four key areas to ensure the strength and continuity of our business.\nFirst, keeping our employees and other key stakeholders, healthy and safe, as I just discussed.\nSecond, staying closely connected to our customers, our suppliers and our markets.\nThird, rapidly adapting our businesses to near-term changes in market conditions, while remaining focused on positioning us for long-term success.\nAnd fourth, ensuring a strong balance sheet with access to capital as needed.\nI remain confident that by managing these four priorities well, we will continue to deliver strong performance for the remainder of this year and position the company well for 2021.\nDuring this time of increased demand uncertainty, we have stayed closely connected with our customers and suppliers to understand and respond to shifting market conditions.\nAfter experiencing a significant drop in order volumes at the start of the quarter, we continue to see our business improve in May and June as shelter-in-place restrictions began to lift, and demand for our products in most of our end markets increased.\nAs mentioned earlier, we have seen residential markets in the U.S. and also in parts of Europe recover at a faster pace than many had anticipated, which positively impacted our second quarter results.\nIn our Roofing business, after temporarily curtailing operations earlier in the quarter, we ramped up production to run at full capacity to service increasing demand.\nAnd in Insulation, we have experienced solid demand in our North American residential fiberglass business due to the strong recovery in U.S. new construction housing.\nWithin most of our commercial and industrial end markets, the recoveries has been slower, and we continue to take the necessary actions to balance our production with expected near-term demand.\nGiven the essential products we provide and the localized nature of our supply chain, we've been able to operate our manufacturing network effectively and productively, quickly adjusting to the changing needs of our customers while managing our inventories.\nIn addition, our team has delivered great results during the quarter around cost control.\nWe have focused on minimizing or postponing discretionary expenses and reduced operating expenses in the quarter by over $30 million compared with last year.\nWe are also realizing benefits from the longer-term structural changes we made prior to the pandemic in our Insulation and Composites businesses.\nIn insulation, we are clearly seeing the impact of the network optimization actions implemented late last year.\nAnd in Composites, we have maintained a consistent focus on manufacturing productivity and network optimization to lower our cost, which is evident in the results we delivered in the quarter despite the challenging market conditions.\nWe maintained a strong balance sheet with access to liquidity and a well-structured debt maturity profile.\nWhile our financial position at the beginning of the quarter was strong, in May, we took advantage of favorable capital markets and successfully completed a 10-year $300 million bond issuance.\nThis, along with our working capital management and opex and capex controls, led to an increase in our available liquidity to approximately $1.5 billion, including almost $600 million in cash.\nDuring the second quarter, we paid down $210 million on our existing revolving credit facility.\nOur only near-term debt maturity is the remaining $150 million from our term loan due in February 2021.\nBefore turning it over to Prith to discuss our second quarter financial results in more detail, there's one other item I would like to highlight.\nLast month, Owens Corning ranked number one on the 100 Best Corporate Citizens list for 2020, and is one of only a small number of companies that have earned this honor twice.\nThe list ranks companies in the Russell 1000 index for standout global environmental, social and governance performances.\nWe were honored by this recognition, which is evidence of our continuing commitment to integrate high ESG standards into all that we do.\nWe believe our commitment and that of the entire business community to improving environmental, social and governance issues is critical to addressing the extraordinary challenges we all face today with racial inequalities and other social injustices which have been compounded by the economic and health uncertainties associated with the COVID-19 pandemic.\nThese issues have and will continue to have a tremendous impact on how we work and live.\nAt Owens Corning, we believe in the power of our diversity and aspire to create an environment where all of our employees' voices are heard and appreciated for their unique value.\nOur team has been and will continue to be active, vocal and promote meaningful reform.\nAs a company, I'm proud of our people, the work we've done so far and what I know we will accomplish in the future.\nThrough the collective agility and resilience of our 19,000 colleagues, Owens Corning delivered solid financial performance in the second quarter in the face of a challenging environment.\nWe have continued to respond to dynamic market conditions by adjusting production and maintaining discipline on operating expenses and capital investments throughout the quarter.\nIn addition, we have taken a number of actions to increase liquidity and reinforce our cash position, which gives us the financial strength and flexibility to navigate uncertainty caused by COVID-19.\nThe tables in today's news release and the Form 10-Q include more detailed financial information.\nFor the second quarter, we reported consolidated net sales of $1.6 billion, down 14% versus 2019 on a constant currency basis.\nRevenues were down in all three segments as a result of the demand decline from COVID-19.\nAlthough the recovery in residential end markets in the U.S., particularly in May and June, has been more robust than what many would have expected from the initial slowdown due to shelter-in-place restrictions.\nAdjusted EBIT for the second quarter of 2020 was $167 million, down $64 million compared to the prior year, largely driven by a $61 million decline in Composites.\nNet earnings attributable to Owens Corning for the second quarter of 2020 were $96 million compared to $138 million in Q2 2019.\nAdjusted earnings for the second quarter were $96 million or $0.88 per diluted share compared to $141 million or $1.29 per diluted share in Q2 2019.\nDepreciation and amortization expense for the quarter was $116 million, up slightly as compared to Q2 2019.\nOur capital additions for the second quarter was $47 million, down $60 million versus 2019.\nOn slide six, you will see our adjusting items, reconciling our second quarter 2020 adjusted EBIT of $167 million to our reported EBIT of $171 million.\nDuring the second quarter, we took actions to reduce personnel costs in our Composites segment and recorded $5 million of restructuring costs associated with these actions.\nIn addition, we recognized $9 million of gains on sale of precious metals used in our production tooling.\nAs we discussed in last quarter's call, our productivity initiatives and further developments in our manufacturing process technology have enabled us to modify the designs of our production tooling by reducing the precious metal needed and thus allowing us to sell certain precious metal holdings in the second quarter of 2020.\nAdjusted EBIT of $167 million was down $64 million as compared to the prior year.\nRoofing EBIT decreased by $3 million.\nInsulation EBIT decreased by $10 million.\nAnd Composites EBIT decreased by $61 million.\nGeneral corporate expenses of $19 million were down $10 million versus last year, primarily due to our disciplined cost controls.\nSales for the second quarter were $595 million, down $9 million from Q2 2019 on a constant currency basis.\nDuring the quarter, our overall volumes were impacted throughout the segment by COVID-19, and selling prices were down $6 million year-over-year.\nWithin North American residential fiberglass insulation, sales volumes were largely consistent with Q2 2019 and some favorable price realization on the January price increase helped to partially offset negative price carryover from last year.\nIn technical and other building insulation, volumes were down.\nHowever, we saw sequential improvement within the quarter.\nWe were encouraged by the resiliency of our mineral wool businesses in Europe and in the U.S., which maintained flat volumes year-over-year.\nEBIT for the second quarter was $32 million, down $10 million as compared to 2019, primarily due to lower sales volumes.\nWe are continuing to proactively balance production with expected demand.\nIn the quarter, higher curtailment costs in technical and other insulation were largely offset by favorable manufacturing performance and better production leverage in North American residential fiberglass insulation, allowing us to see stronger results versus prior downturns.\nSales in Composites for the second quarter were $398 million, down 23% on a constant currency basis, primarily due to lower sales volumes.\nThe remaining decline in sales was driven by unfavorable customer mix and slightly lower selling prices.\nVolumes in our downstream specialty applications, including wind and specialty nonwovens, outperformed volumes in other glass fiber applications.\nEBIT for the quarter was $6 million, down $61 million from the same period a year ago, primarily due to lower sales and production volumes.\nThe negative impacts from production curtailments were slightly offset by manufacturing productivity improvements in the quarter.\nThe benefit of lower transportation costs was more than offset by lower selling prices and negative foreign currency translation.\nDespite these difficult global market conditions, the Composites business still delivered positive EBIT margins and strong cash flow performance in the quarter due to continued focus on operating performance and initiatives around costs and productivity that we have discussed previously.\nslide 10 provides an overview of our Roofing business.\nRoofing sales for the quarter was $677 million, down 13% compared with Q2 2019 due to lower shingle volumes, $23 million of lower selling prices and lower third-party asphalt sales.\nOur shingle volumes tracked relatively close with the overall U.S. asphalt shingle market.\nWe believe the market decline was driven by destocking at distribution early in the second quarter, coupled with lower out-the-door demand in April.\nEBIT for the quarter was $148 million, down just $3 million from the prior year, and yielding 22% EBIT margins for the quarter.\nThe negative impact of lower sales volumes and early quarter production curtailments was partially offset by lower marketing and administrative expenses.\nIn addition, we realized a $10 million onetime gain that benefited our margins by 150 basis points related to an exclusion on certain tariffs paid over the last two years.\nThe U.S. government recently provided a tariff exclusion covering certain components products that we imported from China dating back to late 2018.\nInput cuts deflation and lower transportation costs more than offset the negative impact of lower year-over-year selling prices.\nAs a result, we maintained a favorable price/cost relationship in the quarter, and cash contribution margins were solid as we exited the quarter.\nGiven the unpredictable market environment, we are continuing to take actions to manage our working capital balances and reduce both operating expenses and capital investments.\nAs a result, first half free cash flow in 2020 was $15 million higher as compared to the first half of 2019 on lower year-over-year earnings.\nWe are proactively managing inventories and will temporarily curtail operations that have adequate inventory to service near-term market demand.\nWe continue to be focused on managing our liquidity through this period of high uncertainty.\nIn May, we took advantage of favorable capital markets to reinforce our cash position and successfully completed a 10-year $300 million bond issuance with a yield below 4%.\nWe also generated cash in the second quarter through the sales of precious metals that I discussed earlier and cash settlements related to certain U.S. dollar-euro cross-currency swaps.\nNear the end of the first quarter, we drew $400 million on the revolver to increase our cash balance.\nWith our good year-to-date free cash flow and the financial actions I described a moment ago, we paid down $210 million of the revolver balance in the second quarter.\nAs of June 30, the company had liquidity of approximately $1.5 billion, consisting of $582 million of cash and equivalents and nearly $900 million of combined availability on our revolver and receivable securitization facility.\nAs a result of the proceeding, we currently expect interest expense to be between $125 million and $130 million in 2020 compared to our previous guidance of $120 million to $125 million.\nMoving forward, we are focused on ensuring a strong balance sheet with access to capital as needed.\nWe continue to evaluate the possibility of paying the remaining $150 million term loan balance in 2020.\nAs we move into the second half of the year, our financial performance will continue to be impacted by the depth and duration of the market disruptions caused by the COVID-19 pandemic.\nGiven the continued uncertainties we face with the pandemic and potential government responses, I'll focus my comments on our short-term outlook based on July trends that could impact the third quarter results for each of our three businesses.\nI'll then close with my perspectives on a few key enterprisewide initiatives that will impact our full-year performance.\nBroadly speaking, we have experienced a faster recovery in our residential end markets, while commercial and industrial end markets are following at a slower pace.\nGiven this continued recovery, we expect the company to generate sequentially higher revenues and earnings in the third quarter.\nI'll provide some additional details by business, starting with Insulation.\nWithin our North American residential business, we saw the impact from shelter-in-place restrictions in the second quarter delay the completion of housing starts, creating a backlog, which will continue to be worked through in the third quarter.\nWe expect this backlog of work, along with normal seasonal increases, could lead to relatively flat volumes in Q3 versus last year, which we are seeing in our order book so far in July.\nIn our technical and other building insulation businesses, July volumes are down high single digits versus July 2019.\nWhile we anticipate sequential improvement versus Q2, we expect year-over-year volumes will continue this trend through the third quarter based on a steady but slower recovery in commercial and industrial end markets.\nPrices in July have remained relatively stable in both our North American residential and our technical and other insulation businesses.\nGiven market uncertainties, we continue to proactively balance production with expected demand and to tightly control our inventory levels.\nOverall, for our Insulation business in the third quarter, we expect to realize incremental margins of approximately 50% versus the second quarter.\nIn Roofing, second quarter industry shingle shipments were down about 9%, with our volumes tracking relatively close to the market.\nWhile we have seen positive momentum in recent months, we believe it will be difficult for demand, which has been delayed due to COVID-19, to fully recover in 2020.\nOur July shipments have started the quarter higher than prior year.\nBased on current trends, we could see market volumes up mid-single digits versus the third quarter of 2019, depending on storm volume and assuming states remain open.\nWhile the current pricing environment has remained relatively stable, in the third quarter, we expect to continue to face an increasing year-over-year headwind from the lack of a spring price increase.\nWe have recently announced an August increase that could partially offset some of this impact.\nAlthough there was a significant drop in oil prices in March and April, asphalt costs did not trend down at the same level.\nSince then, WTI costs have steadily increased, resulting in asphalt costs beginning to increase as well.\nWhile we do expect to realize additional asphalt deflation in Q3, low refinery utilization rates, combined with strong paving demand will impact asphalt cost as we move through the quarter.\nBased on all these factors, Roofing EBIT margins in the third quarter could be slightly better than our second quarter margins, normalized for the 150 basis point benefit from the tariff recovery that Prith mentioned in his remarks.\nIn Composites, while we expect overall volumes to improve versus the second quarter, the global impact of COVID-19 is having a greater impact on demand than in our other businesses.\nOur July volumes are down low double digits versus last year, and we expect this trend will continue in the near term.\nVolumes in our specialty nonwovens business, which is primarily focused on building and construction applications, and our wind business have continued to perform better than some of our other industrial end markets such as automotive.\nIn terms of pricing, we came into the year expecting some headwinds due to contract negotiations completed at the end of last year.\nSimilar to other businesses, transactional pricing has remained relatively stable.\nWe reported a decline of $5 million in Q2 and expect a slightly higher impact in Q3 based on improving volumes.\nWe remain committed to tightly managing our inventory levels, which will continue to impact our manufacturing performance in the third quarter as we curtail production to meet demand.\nSequentially, from Q1 to Q2, we experienced decremental margins of about 35%.\nWith our current outlook of sequential volume growth, we expect incremental margins to be in a similar range in the third quarter.\nWith that view of our businesses, I'll discuss a few key enterprise focus areas.\nWe continue to closely manage our operating expenses and capital investments.\nWe expect corporate expenses for the company to be in the range of $105 million to $115 million and capital investments to be in the range of $250 million to $300 million, both broadly consistent with prior guidance.\nWe remain committed to generating strong free cash flow and to our target of returning at least 50% to investors over time.\nSo far this year, we have returned $133 million through share repurchases and dividends, and we'll pay our second quarter dividend of approximately $26 million next week.\nAs we move through the second half of the year, we will continue to evaluate our liquidity needs based on market conditions and prioritize deleveraging the balance sheet and maintaining our dividend.\nAs I stated at the beginning of the call, our current operating environment is extremely dynamic.\nOur focus is on taking thoughtful, decisive actions, being responsive to the current conditions and quickly capitalizing on our market opportunities.\nOur team remains committed to operating safely, servicing our customers and creating value for our shareholders.",
        "summary": "compname reports q2 adjusted earnings per share $0.88.\nq2 adjusted earnings per share $0.88.\nq2 earnings per share $0.88.\nq2 sales $1.6 billion versus refinitiv ibes estimate of $1.53 billion.\ncapital additions are estimated to be between $250 million and $300 million in 2020."
    },
    {
        "text": "Our unique investment strategy of clustering assets or our newest defense installation supporting national security activities continues to generate strong high-quality earnings.\nSecond quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by a $0.01.\nIt was driven primarily by same property results.\nAdditionally, NOI from real estate operations in the quarter was up 8% and AFFO increased 17% from a year ago.\nThrough the second quarter, we completed total leasing of 1.7 million square feet, which included 815,000 square feet of renewals, 205,000 square feet of vacancy leasing and 641,000 square feet of development leasing.\nSo far in the third quarter we've executed 53,000 square feet of development leasing and we are in advanced negotiations on another 250,000 square feet that should close this quarter.\nBased on this activity we're highly confident we will achieve our 1 million square foot growth for the year.\nRegarding our large renewal at DC-6, we have not finalized the lease yet.\nWe reached agreement on business terms in June and expected documentation would follow quickly.\nThe tenant is controlling the pace and progress of the actual lease document preparation and that process continues to labor.\nBased on their deployment, power usage and the nature of other activities, we are conducting with them we have every confidence they will remain in our building.\nDuring the quarter, we placed 197,000 square feet of development projects in the service including Project EL, 107,000 square foot specialized facility we built for a defense contractor in San Antonio.\nWe completed this project full quarter earlier than forecasted and we expect to deliver two additional projects ahead of schedule later in the year thereby accelerating lease commencements.\nWe expect to deliver NoVA C in 610 Guardian Way earlier than planned, which combined with Project EL are adding nearly $0.03 to this year's FFO per share.\nStronger same property operations and accelerated development completions drivers that once again increased the midpoint of our full year guidance for FFO per share as adjusted for comparability.\nThe $2.26 midpoint of updated 2021 guidance is $0.07 above our original midpoint and 6.6% higher than 2020 results.\nMetrics and trends in our Defense IT Locations exhibit strength and we continue to capture strong demand as shown in our lease accomplishment to-date.\nIn the second quarter, we leased 1.4 million square feet including 661,000 square feet of renewals for a very strong retention rate of 89%.\nCash rents on renewals rolled up 0.1% and annual escalations averaged 2.6%.\nFor the 6-month period, we completed 815,000 square feet of renewal leasing with a 78% retention rate and average lease term of 4.3 years and cash rents rolling down 0.2%.\nLate in the quarter, we learned that a tenant at Redstone Gateway did not win the recompete of a large contract and at the end of the year will vacate RG 1200, a 121,000 square feet building.\nThis will be our first opportunity in 10 years to demonstrate the strength of demand for second-generation space at the park.\nWe already have strong interest from multiple defense contractors looking to move to Redstone Gateway, including two that have 2022 occupancy requirements and want to gain control of the full building.\nThe strength of demand we continue to see demonstrates Redstone Gateway's position in the market as the essential location for serving government customers on Redstone Arsenal.\nIn terms of vacancy leasing, we completed 111,000 square feet in the quarter, representing 10% of our available space at the beginning of the period.\nFor the first half of the year, we completed 205,000 square feet of vacancy leasing.\nOur leasing activity ratio is 105%, the highest level since well before the pandemic demonstrating continued growth in demand across our portfolio.\nAs such, we expect to accomplish healthy volumes of vacancy leasing in the remainder of this year.\nRegarding development leasing, second quarter achievement was a robust 630,000 square feet and consisted of a 265,000 square foot data center shell in Northern Virginia for our cloud computing customer and 179,000 square feet at Redstone Gateway in the form of two major pre-leases with KBRwyle.\nWe also executed a 183,000 square foot build-to-suit at the National Business Park.\nThe tenant is a Fortune 100 company and an important defense contractor that provides secure infrastructure, artificial intelligence and cloud computing services to U.S. Defense and Intelligence agencies.\nTheir selection of the National Business Park for their local headquarters further reinforces the dominance of our location for serving the missions at Fort Meade.\nSo far in the third quarter we have executed a 53,000 square foot lease in 8000 Rideout Road with i3, a defense contractor that specializes in software engineering, systems integration and IT.\nAs a result, that project is now 73% leased and we are in advanced negotiations on leases that will stabilize the building.\nLastly, we are in advanced negotiations with a defense contractor for a two-building campus at Redstone Gateway for 250,000 square feet.\nThese leases would bring our total development leasing for the year to 950,000 square feet.\nBased on the 1.8 million square feet of opportunities in our development leasing pipeline, we are highly confident we will meet our 2021 development leasing goal.\nSecond quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by $0.01 driven primarily by stronger same property results.\nLower operating costs due to effective expense management and the timing of R&M projects boosted second quarter same property cash NOI by nearly $0.02 above our second quarter forecast.\nWe expect to complete these R&M projects in the third and fourth quarters, which will impact quarterly same property cash NOI and FFO per share as shown on page 18 of the results deck.\nThat being said, for the second consecutive quarter, operating savings and better than expected leasing outcomes are pushing our same property cash NOI forecast higher.\nWe now expect same property cash NOI for the year to either be flat or increase as much as 1%, which at the midpoint is a 150 basis point increase relative to our original guidance.\nWe are maintaining our full year occupancy guidance of 90% to 92%, which continues to incorporate the negative impact of joint venturing fully occupied wholly owned datacenter shells to raise equity as well as the unexpected vacancy of the 121,000 square foot contractor building at Redstone Gateway in December.\nIn early June, we sold two data center shells to a new 90%/10% joint venture with Blackstone Real Estate, which generated proceeds of $107 million.\nThe assets were valued at $119 million, which represented a 48% profit and demonstrated the value we create through development.\nIncluding three properties under development, we wholly own 10 data center shells that we estimate represent more than $750 million of equity value we can monetize to fund the equity component of future development.\nLastly, and for reasons already discussed, we are increasing our full year guidance from a previously elevated range of $2.19 to $2.25 to a new range of $2.24 to $2.28.\nOur updated guidance range implies 5.7% to 7.5% growth over 2020 results and 6.6% at the midpoint.\nIt is important to note that early development deliveries are driving most of the increase to guidance and that the NOI from these developments expected in 2022 remains unchanged.\nFor the third and fourth quarters we are establishing ranges for FFO per share guidance as adjusted for comparability of $0.54 to $0.56 and $0.56 to $0.58 respectively.\nThe $0.55 midpoint in the third quarter reflects a full quarter's dilution from the two data center shells we joint ventured in June and executing additional R&M projects.\nAt mid-year, our FFO achievement has outperformed our business plan significantly.\nThis quarter's FFO result is the fifth time in the past six quarters that we exceeded our plan and the third time in which we elevated full-year FFO guidance.\nOur key performance metrics such as vacancy leasing and development leasing are tracking at or above plan.\nClearly our strategy of concentrating investments adjacent to priority Department of Defense missions and creating value through low risk developments at these locations is delivering FFO growth and lowering our cost of capital.\nOur strategy continues to provide over a million square feet of new development opportunities annually and by expansion, high value Defense IT assets that benefit our shareholders long term.\nThis year, our development capability excellence is not only delivering projects on budget and on time, in several instances we're completing projects ahead of schedule and accelerating our bottom line results.\nOur property operations excellence is ringing out additional performance from our portfolio and improving our same property results.\nOur highly durable operating portfolio, strong balance sheet and reliable, low-risk development program combined to create the very visible growth we are delivering.\nWe have a strong set of development and leasing opportunities before us and the balance sheet and access to capital to seize upon them.",
        "summary": "compname reports second quarter 2021 results; raises midpoint of full year guidance by 4-cents, implying 6.6% growth in ffops, as adjusted for comparability.\nq2 adjusted ffo per share $0.58.\ntotal leasing of 1.4 million sf in quarter included 630,000 sf of development leasing.\nsees fy ffops, as adjusted for comparability $2.24-$2.28."
    },
    {
        "text": "We had another outstanding performance in the third quarter earning $0.81 per share.\nThis reflects, several factors, our consistently growing repairing net income, our larger scale, our focus on increasing digital utilization and customer service differentiation, and Puerto Rico's nascent economic and post-pandemic recovery.\nAll this continues to validate our optimism on Puerto Rico's economy and OFGs future.\nOur third quarter results confirm this across all businesses.\nTotal core revenues were $135 million, a 4% annualized increase compared to the second quarter.\nNet interest income increased to $103 million, in part that benefited from a 17% decline in cost of funds.\nBanking and financial services revenues rose 3%.\nProvision for credit losses was a $5 million net benefit as asset quality continue to trend to levels closer to U.S. peer banks.\nNon-interest expenses fell 5%, reflecting in part reduced credit-related expenses.\nAnd pre-provision net revenues increased to $56 million from $52 million in the second quarter.\nLooking at the September 30th balance sheet, customer deposits increased $154 million to $9.2 billion, reflecting even greater liquidity on the part of both commercial and consumer customers.\nAs a result, both cash and assets grew.\nLoans held for investment declined $87 million.\nExcluding PPP loan forgiven, they increased $5 million.\nNew loan origination remain strong at $556 million.\nEx-PPP originations now total more than $1.6 billion as of the nine months, that is up 69% compared to the same period last year and 79% compared to the same period in 2019 pre-COVID.\nDuring the third quarter, we also successfully executed on our capital actions.\nWe acquired $40.2 million of shares as part of our current $50 million buyback program.\nWe increased our common stock dividend to $0.12 per share from $0.08 in the first and second quarters, and $0.07 in the year ago quarter.\nAnd we completed our $92 million redemption of all preferred stock.\nPlease turn to Page 4.\nAt OFG, we believe better banking is built upon fulfilling our purpose, mainly helping our customers, our people and our communities achieve their financial well-being.\nDuring the third quarter, for our customers, we continue to demonstrate our agility by launching the first digital residential mortgage process in Puerto Rico.\nWith one click, in just minutes, a customer can get a pre-qualification letter, access valuable information about the mortgage process and apply online all in one place.\nWe also quickly process forgiveness for our PPP customers.\nWe have now processed forgiveness for 91% of first and 25% of second loan PPP loans using our proprietary all digital system.\nWe believe faster, better solutions like these, show our retail and commercial customers the value of doing business with Oriental.\nOnline and mobile banking 30 and 90-day utilization levels continue well above pre-pandemic levels.\nThese continues to validate our long-standing digital strategy and its growing acceptance by our customers in the market in general.\nFor our people, we have decided on a mandatory COVID vaccination policy to keep our customers and people safe.\nWe have also implemented a hybrid work model to increase flexibility for our people.\nAnd as we mentioned on the previous slide, we have increased the hourly base pay rate for non-salaried staff.\nFor our communities, PASH Global and Oriental closed on a $15 million financing for a joint venture between PASH and Puma Energy.\nThis is enabling 200 Puma gas stations in Puerto Rico to install solar panels to produce and consume solar energy.\nThis project is the first of its kind and scale on the island.\nWe have also been working on several new corporate social responsibility programs, one program launched in the third quarter is a farming developing program with the Puerto Rico conservation trust to help several communities achieve economic sustainability.\nWe are extremely proud of these achievements.\nAt the end of the day, there is nothing more rewarding them being part of a team that delivers on its purpose.\nThis quarter's overall performance energizes us at OFG to work harder and to aspire for more.\nNow, here's Maritza to go over the financials in more detail.\nPlease turn to Page 5 to review our financial highlights.\nTotal core revenues were $135 million.\nThere is an increase of about $1.4 million or about 4% analogized from the second quarter.\nThis is as a result of positive impact of $1.8 million declining in cost of funds, a $1 million increase in core non-interest income and $800,000 increase from cash and investment securities and $730,000 as a result of one additional day.\nThis more than offset a $2 million decline from B2B loans and a $700,000 loan prepayment that benefited fee income in the second quarter.\nThe PCD decline was due to a combination of lower volume, mainly from mortgage pay down on lower rates.\nNon-interest expenses totaled $79 million.\nThere is a decrease of $3.8 million from the second quarter.\nThe third quarter included a $2.2 million benefit in credit-related expenses.\nThis was mainly driven by gains on sales of real estate.\nThe second quarter included a $2.2 million technology project write down.\nThe third quarter also included a combination of increased compensation from hourly staff on our previously announced cost savings.\nOverall, we continue to see recurring operating expenses in line with our previously announced plans for the year.\nThe higher revenues and lower net-interest expenses resulted in increased operating leverage.\nThe efficiency ratio improved to 58.6%.\nThis compares to 62% in the second quarter.\nOur goal is to continue to improve our efficiency ratio to the mid to lower 50% range.\nReturn on average assets was 1.6%, return on average tangible common equity was 70.7%.\nWe continue to build capital.\nTangible book value per share was $18.59.\nThis is an increase of 3% from the second quarter.\nPlease turn to Page 6 to review our operational highlights.\nAverage loan balances totaled $6.5 billion.\nThere is a decline of $133 million from the second quarter.\nThis was due primarily to residential mortgage pay downs on PPP loan forgiveness.\nIn turn, this was partially offset by new commercial and auto loans.\nThe change in mix resulted in a 7 basis point decline in loan yields.\nHigher levels of residential mortgage breakdowns reflected increased liquidity on the part of consumers.\nOur residential mortgage portfolio consists of legacy Oriental mortgage loans and mortgage loans from the BBVA and Scotiabank acquisition.\nThose are new origination worth $556 million, ex-PPP that is down $85 million from the second quarter, but it is up $109 million year-over-year.\nWe believe we are continuing to see generally a strong trends in mortgage, commercial and auto.\nWe continue to see increase in demand from commercial loans to expand business operations, with the new stores and warehouses, buying inventory or making acquisitions.\nCommercial portfolio [Indecipherable] ex-PPP has increased two consecutive quarters.\nAverage core deposits totaled $9.1 billion.\nThere is an increase of 1.6% or $140 million from the second quarter.\nIncreases in non-interest bearing accounts, savings accounts and non-accounts were partially offset by the decline in customer CDs.\nCore deposit costs continue to fall.\nThey were 30 basis points in the third quarter.\nThat is a reduction of 8 basis points from the second quarter.\nThis reflects general rate reductions and the continued maturity of older, higher price CDs.\nAs a result of the increase in deposits, average cash balances totaled $2.7 billion billion.\nThere is an increase of 7% or $180 million from the second quarter.\nThe average investment portfolio was $750 million that increased $100 million or 70% from the second quarter.\nThat includes the partial impact of $250 million of MBS purchases at the end of the quarter, taking advantage of market conditions.\nNet interest margin was 4.12%, a decline of 10 basis points from the second quarter.\nThey increased amount of cash, reduced NIM by 6 basis points.\nOur current strategy is to continue to look for opportunities to deploy excess liquidity through lending, capital actions for investments.\nPlease turn to Page 7 to review our credit quality and capital strength.\nAsset quality metrics continue trend positively.\nOur net charge-offs were 37 basis points.\nThird quarter net charge-off of $6 million [Phonetic] included $6.5 million for our previously reserved amount on our commercial loans.\nThe early and total delinquency rates were 2.06% and 3.82% respectively, some of the lowest levels in the last five quarters.\nThe non-performing loan rates on the non-PCD loan portfolio was 1.93%.\nIt's lowest level in the last five quarters.\nAs a result of all of these, provision for credit losses was a net benefit of $5 million, that reflects $4.3 million of net reserve release.\nOur allowance coverage was 2.82% on a reported basis and 2.88% excluding PPP loans.\nThe CET1 ratio remains high compared to our U.S. peers at 13.52%.\nStockholders' equity was $1.05 billion, a decline of $26 million from the second quarter.\nThis reflected the redemption of Preferred Stock Series D and the common stock buyback, a good portion of this was offset by the increase in [Indecipherable].\nThe tangible common equity ratio was 8.86%.\nPlease turn to Page 8 for our conclusion.\nAs I mentioned earlier, we had a strong performance this quarter at all levels.\nOur performance and credit metrics continue to be equal to or better than Mainland peers.\nWe executed most of our stock buyback program in addition to increasing our common share dividend and redeeming our preferred stock.\nLooking at the big picture, Puerto Rico continues to benefit from federal reconstruction and COVID stimulus.\nBut the relative economic impact here is more meaningful than in other U.S. jurisdictions, given the size of our economy and average incomes.\nAs a result, we continue to see incremental business sector optimism, confirming Puerto Rico's economic revival.\nOur plan is to continue to take advantage of our momentum in this improved economic environment.\nWe intend to deploy excess liquidity for loan growth and/or capital return initiatives.\nWe also intend to accelerate the speed of our transformation, further simplify operations and improve efficiencies, all part of our effort to serve customers faster and better, while helping them achieve their financial well being.\nWe at OFG are more than ready.\nOperation, please begin the question-and-answer session.",
        "summary": "compname posts q3 earnings per share $0.81.\nq3 earnings per share $0.81."
    },
    {
        "text": "I'm Jason Bailey, Director of Investor Relations.\nIn addition, the conference call and accompanying slides will be archived following the call on that same website.\nBryan started with us on January 1, and we couldn't be happier to have him with us.\nSo turning to the business.\nOver the course of a couple of weeks, the region, including our service territory, experienced an unprecedented prolonged cold spell that disrupted natural gas supplies, resulting in extreme natural gas prices.\nThe cold spell also resulted in a record winter peak demand for electricity.\nWhile our service territory experienced record snowfall and record temperatures, our customers experienced minimal disruptions.\nThrough the efforts of our employees, our generation fleet performed admirably over the course of the week.\nAnd so did our customers, heeding the call to conserve natural gas and electricity so that more serious shortages could be avoided.\nEvery day, we had generation online at each of our power plants.\nOur fuel and purchase power costs for this event alone were more than all of our fuel and purchase power costs in 2020.\nWe anticipate the regulatory asset that will be created as a result of the storm to be in the range of approximately $800 million to $1 billion.\nWe have secured $1 billion of additional bank financing or liquidity to cover these costs.\nWe certainly understand the pressure that this event will have on our customers, and we will work with our commissions to help mitigate the impact to our customers' bills.\nTo that end, yesterday, we filed an application at the Oklahoma Corporation Commission, requesting an intra-year fuel adjustment for a portion of the weather events cost.\nTo help mitigate the impact on OG&E customers, we are requesting alternative regulatory treatment to avoid our customers having to bear the entire cost of the 2021 weather event over the balance of the calendar year.\nWe proposed to continue to carry the remaining balance on our books and defer the cost to a regulatory asset to be amortized over a 10-year period and collect it through our fuel adjustment clause beginning in January 2022.\nWe requested that the regulatory that the asset included a carrying charge at a weighted average cost of capital, and we believe this approach will significantly lessen the monthly impact of the weather events cost to our customer.\nWe expect to quickly make a similar filing in Arkansas as well.\nBryan will discuss the financial effects of the February 2021 weather event in a moment.\nWe made an announcement last week with our support of the proposed merger between Enable and Energy Transfer, which is an important step in our repositioning as a pure-play utility.\nFrom an investment return perspective, Enable has been very successful for our shareholders.\nSince Enable's formed in 2013, we returned a modest investment into over $1 billion after-tax benefit to shareholders, which is equivalent to a 2.5 times after-tax return.\nWhen the merger closes, we will own approximately 3% of the much more liquid limited partnership units of Energy Transfer.\nEnergy Transfer will acquire the general partner interest from us at some point for $10 million in aggregate cash consideration, and also CenterPoint will pay us $30 million.\nWe expect the transaction to close later this year.\nThe strength of our balance sheet allows us to be thoughtful on how and when we exit taking into consideration taxes, distributions and market considerations.\nBut let me be clear, we will exit our midstream investment, and we will do so in a responsible way that does not create overhang to the Energy Transfer units, allows us to achieve our goal of lower credit downgrade thresholds from the rating agencies.\nTurning to our financial results.\nWe also reported earnings of $1.70 at the high end of our revised guidance, and ongoing earnings from OGE holdings of $0.37 per share.\nOur 2021 utility guidance range is $1.76 to $1.86 per share.\nThe midpoint of this guidance is $1.81 per share and is based off 2.4% normalized load growth from 2020 and is equivalent to a 5% earnings per share growth rate.\nSo let me take a moment to discuss an item from the February weather event that does impact 2021.\nObviously, due to the extreme temperatures, kilowatt-hour sales were higher.\nHowever, offsetting this is one of our customer programs, the Guaranteed Flat Bill program, which is a voluntary annual program and is largely subscribed by senior citizens and lower-income households and provides uncertainty around their monthly bill.\nWe will incur the incremental fuel expense under this program.\nBryan will go into more details when he discusses our 2020 results and 2021 guidance.\nTurning to our economy.\nWe continued our impressive customer growth rate, and our customer base grew by 1.1%.\nThe Oklahoma and Arkansas economic recoveries remained strong.\nIn December, the U.S. Bureau of Labor and Statistics reported at Fort Smith, Arkansas had an unemployment rate of 4.4%.\nOklahoma City had the seventh lowest unemployment rate for large metropolitan areas at 4.8% and while the state of Oklahoma's unemployment rate came in at 5.3%, showing the strength and resilience of the economies across our service territory.\nOur economic development efforts are certainly paying off.\nIn 2020, we had 25 projects, 8,000 additional jobs in our service territory and $725 million of capital investment by businesses in our service territory.\nTurning to our accomplishments in 2020.\nCOVID was certainly not anything the world was expecting, but we adjusted our way of life and quickly set up processes to support our customers and communities and protect our employees.\nThe weather played a crucial role last year in how we energize life for customers.\nFrom an unusually mild summer weather to the most destructive ice storm in the company history in late October to New Year's Eve snowstorm to close out the year, the effects of weather this year were unmistakable.\nWe did not miss a beat.\nHowever, as our teams continue to excel through the challenges, recording a number of significant accomplishments.\nThe company recorded its second safest year in history in 2020, making each of the last five years our safest ever.\nWe kicked off our grid enhancement projects in Oklahoma, including securing a mechanism for recovery of our investments, which will provide a more resilient and reliable system for our customers.\nWith these grid enhancements, we expect to provide our Oklahoma customers the same positive results that we've seen in Arkansas, including fewer outages and much faster restoration times.\nIn Arkansas, we filed our third formula rate plan last year.\nWe successfully negotiated a constructive settlement in that case that allowed for the maximum increase permitted and are awaiting a final order by the commission, and these new rates are expected in April.\nLooking ahead to '21, we have several exciting items in the works, including the continuation of our Oklahoma and Arkansas grid enhancement projects.\nWe'll file an integrated resource plan in both Oklahoma and Arkansas later this year.\nWe will file our fourth formula rate plan in Arkansas, and we'll plan our filing for our next Oklahoma general rate review, which has to be filed no later than the first quarter of '22.\nWe are constructing our first solar farm in Arkansas and expect it to be operational later this summer.\nWe have a lot, and I want to make sure you understand that we have a lot really exciting projects that we've been working on for some time, working in and around our communities, and we'll certainly announce these are they're finalized over the next couple of months.\nSo I'm proud of what we've accomplished in the last five years and what lies ahead for our company.\nWe've invested $3.3 billion in our system.\nOur O&M cost per customer is lower now than it was at the end of 2015.\nIf you look at our '21 guidance for O&M, it's approximately $29 million below our original guidance in 2020.\nThat's real long-term structural savings that will benefit our customers.\nWe returned $1.4 billion of cash for shareholders in the form of dividends and delivered a 5% compound annual growth rate at Utility.\nAnd on top of that, we have some of if not the lowest rates in the nation, and they're lower now than they were in 2011.\nWe've cut our CO2 emissions by greater than 40%.\nAnd those are real, consistent results, delivering to our shareholders what we said we would deliver year-over-year.\nWe're more active in advancing our ESG objectives and initiatives.\nWe're deeply embedded in our communities and are a key driver of growth and economic development for the communities we serve.\nWe've always been committed to be responsible stewards.\nWe'll be sharing these stories more regularly going forward.\nWe have a solid and compelling investment thesis backed by a track record of performance.\nWhen you look over the last five or 10 years, we've delivered compounding annual growth rates between 5% and 6%, and we expect to keep true to our commitment to deliver on our earnings growth target of 5% by investing in lower-risk investments that improve our customers' experience.\nWe have one of the strongest balance sheets in the industry, which protects our dividend, and we operate in jurisdictions that are experiencing real load and customer growth and have delivered increasingly supportive regulatory outcomes.\nYou, our shareholders, should be confident in your decision to own and invest in OG&E.\nBefore I close, OG&E is celebrating its 119th anniversary this month.\nBy honoring our frontline healthcare heroes, our healthcare workers have earned the title Hero, especially throughout the last year, and we're proud to make a $100,000 donation this month to support their critical efforts.\nI can think of no better way to mark this occasion.\nWe are proud of our accomplishments in 2020 and poised to continue to deliver those results in 2021.\nWhile COVID has impacted all of us.\nI want all of you to be confident that we're not focused on winning the downturn, but winning the recovery.\nStarting on slide 10 and before we discuss 2020 results and this year's outlook, I'd like to update you on the financial effects from the extraordinary February 2021 weather events, which will likely have a negative impact to our current year earnings.\nAs Sean mentioned, in order to keep life-sustaining power on for our customers during the 11 days when temperatures were between 23 and 45 degrees below average, the company incurred in the range of $800 million to $1 billion in fuel and purchase power costs.\nWe will be able to firm up these estimates once we receive settlement statements from the Southwest Power Pool in the coming weeks.\nFrom a funding standpoint, while we already have a $900 million credit facility in place, we felt it important to obtain an incremental funding source.\nAnd this week, we closed on a $1 billion credit commitment agreement that will allow for ample liquidity.\nWith respect to cost recovery, the company has fueled tracker mechanisms in both Oklahoma and Arkansas.\nIn Oklahoma, we are allowed to file for intra-year adjustments to the cost once fuel and purchase power costs exceed $50 million and under or over collections in a year.\nThus, this week, as Sean mentioned, we filed an application in Oklahoma, requesting an intra-year fuel adjustment for a portion of the weather events fuel cost.\nWe expect this revised tariff to become effective in rates this spring, providing support to our credit metrics.\nFor the remaining cost, our filing in Oklahoma seeks commission approval to place the deferred cost in a regulatory asset accruing at our weighted average cost of capital.\nWe will work with the commission to obtain an order as quickly as possible.\nSwitching gears to 2020 results.\nOn slide 11, you can see that for the full year 2020, we achieved ongoing net income of $416 million or $2.08 per share as compared to net income of $434 million or $2.16 per share in 2019.\nOn a GAAP basis, OGE Energy Corp. reported a loss of $174 million or $0.87 per share, reflecting the impairment charge recorded on our Enable midstream investment in the first quarter of 2020.\nOG&E's ongoing 2020 results were $0.04 lower than 2019 as unfavorable late summer weather lowered earnings compared to the prior year by $0.11.\nTo mitigate the headwinds of mild weather and the economy, our employees were relentless in pursuing cost reductions and work deferrals, resulting in significant O&M savings compared to 2019 and our original plan.\nResults were also favorably affected by a full year of new rates from the Oklahoma rate review that was implemented in July of 2019.\nWe also continued to see steady earnings growth from our Arkansas formula rate plan, which contributed $0.02 of earnings in 2020.\nOn our third quarter call, we revised our 2020 OG&E utility guidance through a narrowed range of $1.68 to $1.70 per share.\nAnd due to strong O&M management in the fourth quarter, we were able to hit the top end of that range.\nOur strong finish to 2020 sets us up nicely for 2021 and beyond.\nTurning to load on slide 12.\nIn on our third quarter call, we indicated an expectation of full year load declines of 1.6%, and we finished the year at about that level.\nOver the last four months of 2020, we continue to see month-over-month improvements in all customer classes.\nThe residential class, our most profitable, remained resilient at levels we've seen throughout the pandemic.\nImportantly, customer growth was 1.1% in 2020, providing a solid foundation for load growth in 2021.\nOn slide 13, we look ahead to 2021 load expectations and forecast customer load to be 2.4% above 2020 levels and about 0.5% above 2019 levels.\nResidential load is expected to exceed 2020 levels early in the year, but is then forecasted to be below 2021 -- below 2020 levels for the full year as more residential customers return to the workplace.\nFor our commercial, industrial and public authority customers, we expect load growth in the second half of 2021 to be strong as vaccinations become commonplace and the economy continues its recovery.\nOverall, we believe load will have a positive contribution to 2021 earnings in comparison to 2020, as illustrated on the next slide.\nAs we headed into February, we had great confidence in our ability to deliver $1.81 of earnings per share at OG&E, which is in line with our previous guidance of a 5% growth annually off of our 2019 baseline of $1.65.\nWe continue to have confidence in our ability to grow at 5% long term and expect 2022 earnings per share to be in line with the 5% growth from the midpoint of our 2021 guidance of $1.81.\nOur initial $1.81 earnings per share guidance for 2021 assumes normal weather, solid load growth, as I just discussed, along with earnings contributions from our grid enhancement and other recovery mechanisms in Oklahoma.\nWe also expect to see the steady earnings contribution from revised formula rates in Arkansas.\nLastly, we will build on our O&M cost reduction achievements in 2020.\nNow when we finalized our initial 2021 plan, we did not foresee this unprecedented February weather event.\nThere are three primary earnings impacts that we are evaluating.\nFirst, we expect higher retail volumes will contribute to earnings during the month, but those will be more than offset by fuel costs associated with the Guaranteed Flat Bill program.\nApproximately 3% of our load is associated with this program, whereby variabilities in fuel and purchase power costs are not trued up.\nThe net effect on margins for the month of February is expected to be an unfavorable $0.06 of EPS.\nLastly, we expect to incur approximately $0.03 to $0.04 of incremental financing costs associated with the aforementioned $1 billion debt facility.\nWe will refine these estimates in the coming weeks while also exploring ways to mitigate this $0.10 of earnings per share headwind, and we'll provide an update on 2021 guidance during our first quarter call.\nFor the midstream business, Enable has not issued earnings guidance for the year given the appending merger.\nTherefore, we will not be providing consolidated guidance at this time.\nTurning to future growth.\nOn slide 15, you will see our updated capital plan through 2025.\nThe investment needs of our system continue to grow.\nAnd the October 2020 ice storm highlighted the importance of investing in our grid for not only enhancing technology and communications but for the grid resiliency and reliability our communities absolutely count on.\nAnd while our five-year capital plan is 15% higher than one we shared with you a year ago driven by the infrastructure needs of our communities, we expect to see additional investment opportunities evolve over the planning period.\nOur growing customer base and constructive regulatory framework provide us confidence in our ability to achieve a 5% OG&E earnings per share growth rate through 2025.\nOur balance sheet continues to be one of the strongest in the industry, and we remain confident that there is no equity needed to fund our five-year investment plan.\nOur credit metrics are estimated to be between 18.5% and 20% over the next three years, and we believe we will receive constructive regulatory treatment on the fuel and purchase power costs recently incurred and that the result of credit metrics will remain strong.\nFinally, we remain committed to maintaining and prudently growing the current dividend, which alongside earnings growth from our Utility will drive an attractive risk-adjusted total return proposition for shareholders.",
        "summary": "2021 og&e earnings guidance is $1.76 to $1.86 per average diluted share."
    },
    {
        "text": "During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD and EBITDA.\nReconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures are available under the Financial Information section of our website at www.\nIn addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega.\nToday, I will discuss our fourth quarter financial results, skilled nursing facility industry trends and operator liquidity issues.\nOur fourth quarter adjusted FFO is $0.77 per share and funds available for distribution are $0.72 per share.\nWe have maintained our quarterly dividend of $0.67 per share.\nDividend payout ratio continues to have cushion at 87% of adjusted FFO and 93% of funds available for distribution.\nTurning to skilled nursing facility industry trends.\nThe Omicron COVID area has paused the skilled nursing facility occupancy recovery and created further labor force stress.\nOmega SNF occupancy has been virtually flat for the three months ended December 31, and the preliminary January occupancy is slightly down.\nOne interesting item is that in December, 21% of our facilities are at or above pre-COVID occupancy levels, which may indicate that full occupancy recovery is achievable over time.\nUnfortunately, the already difficult labor shortage grew increasingly worse as staff became infected and were forced to quarantine.\nThese staffing shortages have limited many facilities ability to admit new residents, which has had the knock-on effect of backing patients up in the hospital systems.\nAlthough the impact of Omicron appears to be rapid and transitory, it is impossible to predict how quickly the industry occupancy recovery will regain traction or how rapidly the current labor force pressures will subside.\nTurning to operator liquidity issues and restructuring.\nDan will provide detail regarding specific operator, current liquidity and restructuring issues.\nIn general, these efforts include one or more of the following actions: one, rent deferrals; two, asset sales or transitions to a new operator; and three, in certain cases, rent resets with other amended lease provisions.\nExamples include elimination of purchase options, future upward potential rent resets, lease extensions or revisions of renewal rights and collateral enhancements adjustments or usage.\nHistorically, in many of our restructurings, one or more of the actions that I have outlined are sufficient to protect the value of our assets and most, if not all, of the long-term cash flow generation from the restructured assets.\nWe continue to remain hopeful that the outcome of our covered restructurings will yield a similar result.\nTurning to our financials for the fourth quarter.\nOur NAREIT FFO for the fourth quarter was $124 million or $0.50 per share on a diluted basis, as compared to $173 million or $0.73 per diluted share for the fourth quarter of 2020.\nRevenue for the fourth quarter was approximately $250 million before adjusting for certain nonrecurring items, compared to $264 million for the fourth quarter of 2020.\nThe year-over-year decrease is primarily the result of $16 million of straight line and lease inducement write-offs in the fourth quarter of 2021 related to Guardian and one other operator both placed on a cash basis in the fourth quarter of 2021.\nIn our last quarter's earnings call, in answer to a question, I provided a revenue commentary on Gulf Coast, Agemo and Guardian.\nI want to provide an updated revenue status and a Q1 2022 outlook on those operators.\nDan will be providing operational updates on these tenants in his prepared talking points.\nFirst, regarding Gulf Coast.\nIn Q4, we recorded $14.8 million of revenue based on our continued ability to offset any unpaid rent against the balance of the sub debt obligations owed by Omega.\nTo be consistent with prior quarters, only $7.4 million of revenue was included within adjusted FFO and FAD.\nAt December 31, the sub debt balance was fully exhausted and therefore, we will not recognize revenue related to Gulf Coast in Q1 2022.\nIn Q4, we applied the remaining security deposit balance of $115,000 in October to partially cover October's rent.\nAgemo additionally paid rent and interest in November of approximately $4.6 million.\nQ1 2022 contractual rent and interest of $15 million will only be recognized to the extent Agemo makes any additional payments as they are on a cash basis.\nIn Q4, Guardian failed to make any rent or interest payments, and as a result, no revenue was recognized in Q4.\nIn Q1 2022, we will only record revenue to the extent Guardian makes any payments as they were placed on a cash basis in Q4 2021.\nIf the operator does not make any rental payments during the first quarter and remains on a straight-line basis for revenue recognition, we would include $9 million of revenue for Q1 for adjusted FFO purposes only.\nHowever, we will only recognize FAD based on cash received.\nIn Q4 2021, we recorded a $50 million provision for credit losses primarily driven by the funding and reserve of the $20 million Gulf Coast DIP loan and a $38 million reserve related to Guardian's mortgage loan.\nMoving on to the balance sheet.\nOn the debt side, in March of 2021, we issued $700 million of 3.25% senior notes due April of 2033.\nOur note issuance was leverage neutral as proceeds were used to repurchase to a tender offer $350 million of our 4.375% notes due in 2023 with the balance used to repay LIBOR-based borrowings.\nWe currently have no bond maturities until August of 2023.\nIn March of 2020, we entered into $400 million of 10-year interest rate swaps at an average swap rate of 0.8675%.\nThese swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bond maturity.\nIn April of 2021, we closed on a new four-year $1.45 billion unsecured credit facility and a $50 million unsecured term loan that both mature in April of 2025.\nAt December 31, we had no outstanding borrowings on our revolving credit facility, and we also had approximately $21 million in cash at December 31 over 99% of our $5.3 billion in debt was fixed and our net funded debt to adjusted annualized EBITDA was 5.3 times, and our fixed charge coverage ratio was 4.2 times.\nIt's important to note similar to NAREIT FFO, adjusted FFO and FAD, EBITDA on these liquidity calculations includes our ability to apply collateral and recognize revenue related to our operator nonpayments previously discussed.\nHowever, when the collateral fully exhausted, a decrease in EBITDA will impact our liquidity ratios.\nOn the equity side, in May of 2021, we established a new $1 billion ATM program.\nThroughout 2021, we issued 7.6 million common shares of Omega stock generating $282 million in gross cash proceeds primarily through our ATM program.\nAs previously disclosed, in January 2022, our board of directors authorized a repurchase of up to $500 million of Omega's outstanding common stock through March of 2025.\nWe believe the actions taken to date provide us with significant liquidity and flexibility to weather the continued impact on our business, primarily driven by COVID-19.\nThe steps taken over the past 12 months also provide us with the tools we need to continue to evaluate and act upon any additional actions that may be needed to further enhance our liquidity or improve shareholder value.\nAs of December 31, 2021, Omega had an operating asset portfolio of 939 facilities with approximately 96,000 operating beds.\nThese facilities were spread across 63 third-party operators and located within 42 states in the United Kingdom.\nTrailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio, as of September 30, 2021, decreased to 1.52 times and 1.18 times, respectively, versus 1.63 and 1.28 times, respectively, for the trailing 12-month period ended June 30, 2021.\nDuring the third quarter of 2021, our operators cumulatively recorded approximately $26 million in federal stimulus funds, as compared to approximately $49 million recorded during the second quarter.\nTrailing 12-month operator EBITDARM and EBITDAR coverage would have decreased slightly during the third quarter of 2021 to 1.21 and 0.88 times, respectively, as compared to 1.22 and 0.89 times, respectively, for the second quarter when excluding the benefit of federal stimulus funds.\nEBITDA coverage for the stand-alone quarter ended September 30, 2021, for our core portfolio was 1.04 times including federal stimulus and 0.92 times excluding the $26 million of federal stimulus funds.\nThis compares to the stand-alone second quarter of 1.2 times and 0.99 times with and without the $49 million in federal stimulus funds, respectively.\nOccupancy for our overall core portfolio continue to slowly trend up throughout 2021, reaching a high of 75.8% in December, up from a low in January of 2021 of 72.3%.\nJanuary 2022, mid-month occupancy actually fell off slightly to 75.4%, mainly as a result of the robust Omicron variant.\nTurning to our senior housing portfolio.\nToday, our overall senior housing investment comprises 155 assisted living, independent living and memory care assets in the United States and the United Kingdom.\nThis portfolio on a pure-play basis, had its trailing 12-month EBITDAR lease coverage fall 1 basis point to 0.97 times at the end of the third quarter as compared to the end of the second quarter.\nBased on what Omega has received in terms of mid-month occupancy reporting for January to date, this portfolio is averaging approximately 86%.\nTurning to portfolio matters.\nOn October 14, 2021, Gulf Coast and operator representing approximately $30 million or 3% of annual revenue, filed for Chapter 11 bankruptcy in Wilmington, Delaware.\nAs part of that filing, the betters and Omega agreed upon and entered into a restructuring support agreement.\nSince that time, on December 1, 2021, the management of Omega's 23 of the 24 Gulf Coast facilities were transferred via management and operations transfer agreement to an unrelated third party and Inspire Healthcare.\nSubsequently, on December 31, 2021, Omega entered into a purchase and sale agreement for the sale of 22 of the 24 Gulf Coast facilities to a separate unrelated third party.\nThe sale of the properties, along with the change of ownership of the operations, is anticipated to close sometime early in the second quarter of 2022, subject to the usual closing conditions.\nAs referenced on our previous earnings call, Omega has two other large operators that have ceased paying all or a material portion of their contractual rent.\nThe first, Agemo representing approximately $53 million or 5.5% of annual revenue, stopped paying rent and interest in August of 2021 and with the exception of November every month since.\nAccordingly, Omega drew upon existing security deposits of approximately $9.5 million to pay all rent due for August, September and a portion of October, thereby exhausting our deposits.\nWe are in ongoing discussions with Agemo, which discussions may involve the releasing or sale of a material portion of their portfolio.\nThe other operator, Guardian, representing approximately $37 million or 3.8% of annual revenue, has failed to pay its contractual rent and interest since October of 2021.\nWe have been and continue to be in active ongoing discussions with Guardian to transition a significant portion of this portfolio to an unrelated third party.\nThe exact number of facilities involved and the timing of such transitions is still being finalized.\nTurning to new investments.\nIn 2021, Omega has made new investments totaling $841 million, including $164 million for capital expenditures.\nSubsequently, on January 1, 2022, Omega completed an $8 million purchase lease transaction for one skilled nursing facility in Maryland.\nSeparately, on January 31, 2022, Omega completed an $8 million purchase lease transaction for one Care Home in the United Kingdom.\nIn 2021, Omega divested a total of 48 facilities for approximately $319 million, including three facilities for $8 million in the fourth quarter.\nThe COVID case surge over the last month from Omicron has resulted in case counts of both residents and staff combined at levels we have not seen since January 2021.\nHowever, the severity, hospitalizations and death rates are nowhere near where they had been pre vaccine.\nSo while Omicron is not proving to be as much of an issue clinically, it is exacerbating the already severely strained staffing environment in the long-term care industry, which in turn is impacting occupancy recovery while also substantially increasing staffing and staffing-related expenses.\nAgency expense itself continues to increase.\nAnd on a per patient day basis for our core portfolio for third quarter 2021 was more than 5 times what it was in 2019.\nVaccination rates in the industry continue to improve with residents and staff at approximately 87% and 83%, respectively, according to CMS data with the staff percentage seeing meaningful movement given the impending federal mandate.\nFor the states that were not a part of preliminary injunction, the deadline for full vaccination is late February with the other states with a deadline is mid-March.\nCMS intends to enforce the mandate via the survey process starting in March, with achievement of certain benchmarks and proof of a plan to reach 100%, providing the potential to push any enforcement action out up to 90 days.\nOf the $25.5 billion release from the Provider Relief Fund that HHS announced in September, nearly $7.5 billion of the $8.5 billion American Rescue Act funds have been paid out starting in November with approximately 96% of applications having been processed.\nAnd nearly $11 billion in phase 4 payments have been paid out starting in December, with approximately 82% of applications having been processed.\nApproaching what will be almost two full years of dealing with this pandemic day in and day out, the long-term care industry has forever changed as it continues to face new and increased challenges every day.\nGovernmental support is needed now more than ever to deal with unprecedented staffing shortages and other increased costs.\nAnd we are hopeful that this latest round of funding will prove to be just a first step in the right direction.",
        "summary": "q4 adjusted ffo per share $0.77."
    },
    {
        "text": "Our call today will be led by our president and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' executive vice president and chief financial officer.\nTo the extent that our remarks today contain information other than historical information, please note that we are relying on the cafe harbor protection afforded by federal law.\nAny such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K, along with other SEC filings.\nDuring the third quarter of 2021 the company generated revenues of $141 million and adjusted consolidated EBITDA of $8.5 million.\nWe were on track through August for sequentially stronger results given the ongoing improvement in oil and gas industry fundamentals.\nHowever, our results in the operations were negatively impacted by Hurricane Ida, following its landfall on August 30th, along the Louisiana Gulf Coast.\nOur personnel remained safe through this devastating storm and our facilities did not sustain major damage.\nHowever, with power not fully restored until late September, results of operations within our Offshore/Manufactured Products and Well Site Services segments were affected by temporary facility closures and local workforce challenges.\nWe have also incurred delays in the production and shipment of goods to our customers and services in the Gulf of Mexico were suspended for approximately one month.\nReported results have not been adjusted for the estimated impacts of Hurricane Ida.\nHowever, on a consolidated basis, we estimate that Hurricane Ida resulted in our third quarter revenue and EBITDA shortfalls of approximately $6 million and $3 million, respectively, offsetting the benefit of increased U.S. land based completion activity.\nFortunately, these hurricane-related delays are considered transitory and should be recovered in future quarters.\nHighlighting our quarter was a 64% sequential increase in our Offshore/Manufactured Products segment of bookings, yielding a book-to-bill ratio of 1.5 times for the period.\nExpanding economic activity and increasing backlog level support a stronger outlook going into 2022.\nIn September, Oil States was recognized by the Energy Workforce & Technology Council, formerly known as PESA, with the ESG Accelerator Award for significant advances in ESG reporting, score improvement, and industry leadership.\nSo as a company, we are very proud to have been recognized for our ESG efforts and practices.\nLloyd will now review our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segments.\nDuring the third quarter, we generated revenues of $141 million while reporting a net loss of $13 million or $0.22 per share.\nThe quarterly results included noncash inventory impairment charges of $2.1 million, along with $0.7 million or $700,000 of severance and restructuring charges.\nAs Cindy mentioned, our adjusted consolidated EBITDA totaled $8.5 million, which excluded the inventory impairment and restructuring charges incurred in the quarter.\nAnd as of September 30 and June 30, 2021, no borrowings were outstanding under our asset-based revolving credit facility.\nWe continued to build cash with $68 million on hand as of September 30, compared to $63 million at the end of the second quarter.\nAs of September 30, the amount available to be drawn under the revolving credit facility totaled $61 million, which together with cash on hand resulted in available liquidity of $129 million, compared to $113 million at June 30.\nAt September 30th, our net debt totaled $111 million yielding a net debt to total net capitalization ratio of 14%.\nWe spent $3.7 million in capex during the third quarter with approximately $15 million expected to be invested for the full year 2021.\nFor the third quarter, our net interest expense have totaled $2.6 million, of which $0.5 million was noncash amortization of debt issue costs.\nOur cash interest expense as a percentage of average total debt outstanding was approximately 5% in the third quarter.\nIn terms of our fourth quarter 2021 consolidated guidance, we expect depreciation and amortization expense to total $19 million, net interest expense to total $2.7 million, and our corporate expenses projected to total $8 million.\nOur Offshore/Manufactured Products segment reported revenues of $69 million and adjusted segment EBITDA of $8.6 million in the third quarter of 2021, compared to revenues of $77 million and adjusted segment EBITDA of $10.3 million reported in the second quarter of 2021.\nRevenues decreased 10% sequentially, driven primarily by some lower connector products sales and the effects of Hurricane Ida, which caused a temporary closure of our manufacturing and service facility in Southeast Louisiana in September.\nThis revenue shortfall is considered transitory and should be recouped in future quarters.\nExcluding the estimated effects of Hurricane Ida, revenues and adjusted segment EBITDA would have totaled $74 million and $10.7 million, respectively, for the segment.\nBacklog in total is $249 million as of September 30, 2021, a 16% sequential increase.\nThird quarter 2021 bookings totaled $106 million, yielding a quarterly book-to-bill ratio of 1.5 times and a year-to-date ratio of 1.2 times.\nDuring the third quarter, we booked two notable project awards exceeding $10 million, which will leverage our major project revenues in future quarters.\nOur third quarter bookings have been broad based across many product lines and regions.\nApproximately 5% of our third quarter bookings were tied to non-oil and gas projects, bringing our year-to-date non-oil and gas bookings to 9%.\nDuring the third quarter we completed several strategic initiatives, including the second rental of our proprietary Merlin high-pressure drilling riser equipment to a customer in Southeast Asia, the full third-party qualification on our new managed pressure drilling equipment, the award of a multiyear carrying contract that provides long-term utilization for one of our Southeast Asian facilities, and the successful running of our first Merlin Deepsea Mineral Riser Systems.\nFor nearly 80 years, our Offshore/Manufactured Products segment has endeavored to develop leading-edge technologies while cultivating the specific expertise required for working in highly technical, deepwater, and the offshore environments.\nAs the world expands investment in alternative energy sources, we will be working diligently to expand our core competencies into the renewable and cleantech energy space.\nRecent product development should help us leverage our capabilities and support a more diverse base of customers going forward.\nWe continue to bid on potential award opportunities that's supporting our traditional subsea, floating, and fixed production systems, drilling in military clients while experiencing an increase in bidding to support multiple new clients actively involved in subsea minerals, offshore wind developments, and other renewable and cleantech energy systems globally.\nIn our Downhole Technologies segment that we reported revenues of $26 million and adjusted segment EBITDA of $1.4 million in the third quarter of 2021, compared to revenues of $27 million and adjusted segment EBITDA of $2.4 million reported in the second quarter of 2021.\nWhile improved year over year, segment revenues were down 5% sequentially due to delays in perforating product orders for some of our international customers.\nOffsetting these delays, our completions product line revenues increased 7% sequentially, driven by a 33% increase in customer demand for our SmartStart and Quickstart tow valves.\nIn the Well Site Services segment, we generated revenues of $46 million in the third quarter of 2021 and adjusted segment EBITDA increased sequentially to $5.9 million, excluding severance and restructuring charges in the comparable periods.\nland-based activity while Hurricane Ida adversely impacted customer activity in the Gulf of Mexico and our international service demand also lagged.\nExcluding the estimated effects of Hurricane Ida, revenues in adjusted segment EBITDA would have totalled $47 million and $6.8 million, respectively.\nWe remain focused on streamlining our operations and pursuing profitable activity in support of our global customer base.\nWe will also continue to focus on core areas of expertise in this segment and are actively developing improved service offerings to differentiate our completion service offerings.\nCOVID-19 disruptions and supply chain challenges continue to hamper activity in the domestic and international markets but these disruptions appeared to be easing.\nGlobal oil inventories are now below their pre-pandemic, five-year seasonal averages, leading to higher commodity prices, along with an increase in U.S. customer spending.\nfrac spread count, which favorably impacted all our other segments.\nAs we are now a month into the fourth quarter of 2021, we continue to see favourable trends in the U.S. shale regions, which should continue to support our product and service offerings.\nRevenues in our Offshore/Manufactured Products segment are expected to grow sequentially have given higher backlog levels entering the quarter, expected strong short-cycle products sales, and increased service and repair activities, coupled with a recovery in revenues generated in our Southeast Louisiana manufacturing facilities.\nOn a consolidated basis, and we expect that revenues will grow 15%-plus sequentially in the fourth quarter of 2021 led by our Offshore/Manufactured Products segment.\nFrom a bookings perspective, we expect our Offshore/Manufactured Products segment to achieve a one time or greater, book-to-bill ratio depending on the timing of award for several projects currently expected in the fourth quarter of 2021.\nSo now I'd like to offer some concluding comments.\nCOVID uncertainty has negatively impacted certain global regions but the pandemic appears to be winding with delta hospitalizations and case counts on the decline.\nU.S crude oil inventories grew considerably during 2021 with some of the expanding economic activity, leaving the U.S. at 420.9 million barrels in inventory as of September 30th, which is about 7% below the five-year range.\nAlready declining inventories were further reduced by Hurricane Ida's extensive and unexpectedly lingering disruption to output.\nCrude oil prices have responded in spot WTI crude oil approximating $84 per barrel.\nWell Sites will continue to conduct site operations and will remain focused on providing technology leadership in our various product and service offerings with value-added products and services available to meet customer demands globally.\nIn addition, we will continue product development efforts in support of emerging renewable and cleantech energy investment opportunities.\nThat completes our prepared comments.",
        "summary": "q3 loss per share $0.22."
    },
    {
        "text": "As always, we appreciate your continued trust and investment in ONEOK.\nONEOK's solid first-quarter results are providing positive momentum as we enter warmer operating months.\nVolumes on our system and our outlook for the year continues to improve, supporting the increase to our financial guidance which we announced yesterday.\nEven without the weather-related earnings impact in the first quarter, our base business earnings increased compared with the fourth quarter.\nBut while the quarter's results were positive, Winter Storm Uri did provide us with significant operational challenges that I want to highlight.\nOur employees' preparation before the extreme weather event and hard work during it enabled us to operate with very few interruptions.\nOperations teams ensured our assets were weatherized for extreme conditions, and that our employees were on-site and prepared to make the necessary adjustments to keep our assets running.\nMany of our employees were faced with challenges of their own, including limited or no heat, running water or electricity at their own homes, but still worked to help ONEOK provide essential natural gas and NGLs when needed most.\nDespite these extraordinary winter -- weather conditions, we continued to meet the critical needs of our customers, including natural gas utilities and electric power plants.\nOur natural gas pipeline and storage assets were particularly well positioned to address the needs for natural gas.\nThe segment's ability to continue providing reliable service helps meet increased natural gas demand and contributed to higher adjusted EBITDA during the quarter.\nKevin will provide more details in a moment.\nDespite weather-related volume impacts across our operations, strength in our base business was evident in our Rocky Mountain region NGL and natural gas volumes during the quarter.\nThe Williston Basin continues to outperform expectations and provide us with solid and stable earnings.\nAs I've said before, ONEOK's earnings growth in 2021 is not dependent on increased rig activity or increasing commodity prices.\nThe opportunities available to us are from a robust drilled but uncompleted well inventory, increased natural gas capture and rising gas to oil ratios in the Williston Basin and increasing ethane demand.\nThe opportunity for earnings growth without the need for significant investment is unique to ONEOK and our strategic assets in key operating areas.\nWith yesterday's earnings announcement, we raised expectations for 2021 and now expect adjusted EBITDA growth of more than 17% compared with 2020.\nOur higher guidance expectations include the latest producer forecasts and drilling plans, and our earnings range also includes the potential impact from a shutdown of the Dakota access pipeline.\nIncreasing producer activity, higher commodity prices and strengthening energy markets have further enhanced our view of 2021 and are setting up to provide positive momentum as we exit the year.\nAs we look toward 2022, high single to low double-digit growth in EBITDA appears reasonable in the $50 to $70 per barrel price range when you adjust 2021 for the approximately $90 million weather impact to revised guidance.\nWe also continue to look for opportunities outside of our traditional growth drivers to enhance our businesses.\nOur sustainability and renewables teams continue to actively research opportunities that will complement our extensive midstream assets and expertise.\nThey're focusing on opportunities to lower our greenhouse gas emissions while enhancing profitability, further strengthening the vital role we expect to play in a low-carbon economy.\nOpportunities under evaluation include the further electrification of compression assets, potential carbon capture and storage projects, sourcing renewable energy for operations and other longer term investments, such as hydrogen transportation and storage.\nAnd as always, we'll remain disciplined in our capital approach as we develop these opportunities.\nDemand for the products we transport remain strong.\nThe pandemic and recent weather events have further highlighted the importance of natural gas, NGLs and the many end-use products they help create, which all play a vital role in helping us to lead safer and healthier lives.\nOur ability to transport these products safely and responsibly to markets is key to their ultimate end use.\nThis quarter once again proved our ability to do that, even in the most extreme conditions.\nWith yesterday's earnings announcement, we increased our 2021 net income and earnings per share guidance 10% and adjusted EBITDA guidance 5% compared with our original expectations provided in late February.\nWe now expect a net income midpoint of $1.35 billion or $3.02 per share, and an adjusted EBITDA midpoint of $3.2 billion this year.\nAt the segment level, we increased 2021 adjusted EBITDA guidance for the natural gas gathering and processing and natural gas pipeline segments, primarily due to increasing producer activity from higher commodity prices and incorporating the results of the first quarter.\nAdjusted EBITDA guidance for the natural gas liquids segment decreased slightly, primarily due to reduced volumes and lower ethane demand in the first quarter related to Winter Storm Uri.\nTotal capital expenditures for 2021, including growth and maintenance capital, remain unchanged from our original expectations of $525 million to $675 million, a more than 70% decrease compared with 2020.\nThis range includes capital to complete the Bear Creek plant expansion and associated field infrastructure in the fourth quarter of this year and a low-cost expansion of the Arbuckle II pipeline in the second quarter.\nNow a brief overview of our first-quarter financial performance.\nONEOK's first-quarter 2021 net income totaled $386 million or $0.86 per share.\nFirst-quarter adjusted EBITDA totaled $866 million, a 24% increase year over year and a 17% increase compared with the fourth quarter of 2020.\nDistributable cash flow was more than $660 million in the first quarter, a 27% increase year over year and a 28% increase compared with the fourth-quarter 2020.\nFirst-quarter dividend coverage was nearly 1.6 times, and we generated more than $245 million of distributable cash flow in excess of dividends paid during the quarter.\nOur March 31 net debt to EBITDA on an annualized run rate basis was 3.98 times compared with 4.6 times at the end of 2020.\nWe ended the quarter -- the first quarter with no borrowings on our $2.5 billion credit facility and more than $400 million of cash.\nEarlier this month, the board of directors declared a dividend of $0.935 or $3.74 per share on an annualized basis, unchanged from the previous quarter.\nHealthy earnings in the first quarter provided momentum for 2021 and helped to accelerate our deleveraging efforts.\nAs Terry mentioned, increasing producer activity, ample capacity on our systems, and the continued opportunity for flared gas capture and strong gas to oil ratios in the Williston Basin and increasing ethane demand continue to support our base business and increase financial expectations this year.\nWinter Storm Uri impacted operations across all three of our business segments in February.\nReduced volumes due to well freeze-offs, especially in the Mid-Continent and Gulf Coast Permian regions, increased electricity cost and customer facility outages presented challenges during the quarter.\nHowever, our ability to meet increased demand for natural gas and NGLs during the period helped to more than offset the volume impacts.\nVolumes across our operations returned quickly following the extreme weather with NGL raw feed throughput and natural gas processing volumes in the Rocky Mountain region in March exceeding our first-quarter 2021 averages.\nLet's take a closer look at each of our businesses.\nStarting with the natural gas pipeline segment.\nThe safe and reliable operations of our pipeline and storage assets through the storm provided critical transportation services and storage withdrawals for our customers.\nIn addition, we sold 5.2 Bcf of natural gas, which we previously held in inventory, into the market in the first-quarter 2021 to help meet the increased demand.\nThis compares with 1.2 Bcf that we sold in the first quarter of 2020.\nOur ability to provide reliable service throughout the extreme weather conditions highlights the importance of market-connected pipelines and storage assets and the value of these vital services.\nSince the storm, we've received increased interest from customers seeking additional long-term transportation and storage capacity on our system.\nIn our natural gas liquids segment, first-quarter 2021 earnings increased compared with the fourth quarter of 2020 despite the volume impact from Winter Storm Uri.\nSystemwide volumes were reduced by an average of approximately 64,000 barrels per day during the quarter, with the largest impacts in the Mid-Continent and Gulf Coast Permian regions.\nDuring the first quarter, increased optimization and marketing activities in the segment related primarily to higher commodity prices and wider spreads between Conway and Mont Belvieu prices, presented opportunities to utilize our integrated NGL pipeline and storage assets to meet market needs, helping to partially offset volume and cost-related impacts.\nFirst-quarter raw feed throughput from the Rocky Mountain region increased 4% compared with the fourth quarter of 2020 and 20% year over year despite an 11,000 barrel per day impact from Winter Storm Uri.\nAs we sit today, volumes from the region have reached more than 300,000 barrels per day.\nDuring the quarter, ethane volumes on our system in the Rocky Mountain region increased compared with the fourth-quarter 2020 as we incented some ethane recovery, which we have talked about in the past.\nOn a short-term basis, we were able to incent recovery by purchasing ethane at several gas plants at a premium value to natural gas, selling it into the Mont Belvieu ethane market and collecting the difference while increasing producer netbacks and NGL volumes on our system.\nContinued ethane recovery from the region will depend on regional natural gas and ethane pricing and is not included in our updated guidance.\nEconomics in the Mid-Continent region also provided the opportunity to incentivize ethane recovery and we continue to expect partial recovery in the region throughout the remainder of the year, which is included in our guidance.\nIn the Permian Basin, we saw increased ethane rejection in the first quarter.\nOverall, petrochemical facility outages related to Winter Storm Uri reduced demand for ethane during the quarter.\nWe expect ethane recovery in the Permian Basin to continue ramping back up as petrochemical demand returns following February storm impacts with a return to near full recovery in the second half of 2021.\nDiscretionary ethane that can be recovered on our system in both the Mid-Continent and Rocky Mountain regions remains approximately 100,000 barrels per day.\nIn the Rockies region, full recovery would provide an opportunity for $400 million in an annual adjusted EBITDA at full rates.\nOur opportunity for recovery in either region at any given time will fluctuate based on regional natural gas pricing, ethane economics and potential incentivized recovery.\nMoving on to the natural gas gathering and processing segment.\nIn the Rocky Mountain region, first-quarter processed volumes increased 5% year over year despite colder-than-normal weather in February.\nIn March, volumes exceeded 1.2 billion cubic feet per day, a level we can maintain even without increased producer activity.\nOur ability to capture additional flared gas, rising gas to oil ratios and a large inventory of drilled but uncompleted wells on our acreage are the key drivers of our 2021 volume expectations.\nRecent producer M&A activity in the Williston Basin has highlighted new drilling plans on acreage that, in some cases, may not have been developed in the near term, but now likely will be.\nAnd indications from several of our producers in the basin point to increasing activity in the second half of 2021, particularly in Dunn County.\nIn response to this, we've resumed construction on our Bear Creek processing plant expansion and expect it to be complete in the fourth quarter of this year.\nOnce complete, we will have approximately 1.7 Bcf per day of processing capacity in the basin, and we'll be able to grow our volumes with minimal capital as producer activity levels increase.\nIn the first quarter, we connected 38 wells in the Rocky Mountain region and expect to connect more than 300 this year.\nBased on very recent producers completion schedules, we expect a significant increase in well connects in the second and third quarter as completion activity picks up with improved weather.\nThere are currently 16 rigs operating in the basin with eight on our dedicated acreage, and there continues to be a large inventory of drilled but uncompleted wells with more than 650 basinwide and approximately 350 on our dedicated acreage.\nWith eight completion crews currently operating in the basin, no additional activity or crews are needed to hold natural gas production flat on our acreage or reach our well connect guidance for the year.\nAny additional completion crews would present upside to our guidance.\nAs the current DUC inventory gets worked down, we expect producers to bring rigs back to the basin to replenish the inventory levels, providing tailwinds as we move into 2022.\nAdditionally, as of February, approximately 100 million cubic feet per day of natural gas flaring remained on our dedicated acreage, presenting a continued opportunity for us to bring this volume onto our system and help further reduce flaring in the basin.\nThe gathering and processing segment's average fee rate remained $1.04 per MMBtu during the quarter, unchanged from the fourth-quarter 2020.\nWinter Storm Uri reduced Mid-Continent volumes by approximately 30 million cubic feet per day for the quarter, causing the average fee rate mix to shift more toward the Rocky Mountain volumes, driving the higher average rate.\nWe now expect the fee rate for 2021 to average close to the high end of our $0.95 to $1 per MMBtu guidance range.\nThe segment's 2021 guidance does not assume increasing producer activity levels in the Mid-Continent region or the Powder River Basin.\nHowever, both areas have received attention as commodity prices have strengthened.\nAny increasing activity in those areas would be an added tailwind to our 2021 expectations and provide volume momentum into 2022.\nTerry, that concludes my remarks.\nGood overview of a challenging but encouraging quarter that has positioned us well for the rest of 2021.\nWith volumes trending upward and strength in our base business, our outlook continues to improve.\nBut we remain disciplined in our approach and focus on what matters most for the long-term sustainability of our business.\nEnhancing our financial stability, participating in the innovation necessary for a transition to a low-carbon economy and serving our customers' needs safely and responsibly continue to be our focus.\nThe first quarter showcased many of these focus areas, and we have many more great things to look forward to in the remainder of this year and beyond.",
        "summary": "sees diluted earnings per common share midpoint increase to $3.02 for 2021.\nsees adjusted ebitda midpoint increase to $3.2 billion for 2021."
    },
    {
        "text": "We appreciate your interest and investment in our company.\nFor 32 of my almost 40-year career, I had the good fortune to work with the assets and the people through various companies that are now a part of ONEOK.\nI'm excited and honored to be back.\nThis company has a strong experienced management team and a talented workforce, and we are all looking forward to the future.\nI'm also looking forward to reacquainting or meeting many of you in the near future.\nONEOK has seen tremendous growth and success under Terry's leadership the last seven years as he's navigated the company through several growth cycles and industry challenges, including delivering strong results during a pandemic.\nTerry championed many companies' successes, the transition to higher fee-based business model with less commodity price exposure, significant improvements in companywide safety and environmental performance, the successful ONEOK Partners merger transaction and the completion of more than $10 billion in capital growth projects to name just a few of his many accomplishments.\nThe company has grown in many ways since I was here last, and I'm looking forward to building on what Terry, the board, the leadership team and ONEOK's 3,000 employees have achieved.\nDuring this first month on the job, I've been refamiliarizing myself with our business, holding strategy and planning meetings with the team and most importantly, listening.\nI've met with my leadership team and many employees to hear more about their focus areas.\nThese introductions and conversations are very important and will continue.\nWhat you can expect from me as a CEO is that we will be disciplined and intentional in all that we do and continue to encourage a culture that promotes safety, reliability, employee engagement, value creation and environmental responsibility.\nThese principles have served ONEOK well for decades and will continue to be a key element of our daily operations and business decisions going forward.\nThe energy systems today were designed to operate on the consumers' requirements for affordability, reliability and, resiliency.\nWe will continue to focus on meeting our customers' needs while also transforming these energy systems to drive the overall lowering of greenhouse gas emissions.\nYesterday, we reported a strong second-quarter financial result, supported by increasing volumes across our system.\nThe energy and economic backdrop continue to improve with producer activity accelerating and demand for NGLs and natural gas strengthening.\nKevin will talk more in detail about how we're addressing those needs.\nWith yesterday's earnings announcement, we updated our 2021 financial guidance expectations.\nOur view of 2021 continues to improve as we now expect 2021 adjusted EBITDA to be above the midpoint of our guidance range of $3.05 billion to $3.35 billion that we provided back in April.\nOur outlook for growth in 2022 has continued to strengthen.\nHigher commodity prices, accelerating producer activity and the rising gas to oil ratio in the Williston Basin provide a tailwind into next year.\nWith available capacity across our operations and the completion of our Bear Creek plant expansion later this year, significant earnings power remains across our assets without the need for significant capital investment.\nThe strengthening momentum going into 2022 makes us confident that we will achieve or exceed the '22 outlook we have discussed on previous calls.\nNow, for a brief overview of our second-quarter financial performance.\nONEOK's second-quarter 2021 net income totaled $342 million or $0.77 per share.\nSecond-quarter adjusted EBITDA totaled $802 million, a 50% increase year over year and a 3% increase compared with the first-quarter 2021 after backing out the benefit from winter storm Uri.\nWe ended the second quarter with a higher inventory of unfractionated NGLs due to planned and unplanned outages at some of our fractionation facilities.\nWe expect to recognize $12.5 million of earnings in the second half of 2021 as our current inventory is fractionated and sold, the majority of which will be recognized in the third quarter.\nDistributable cash flow was $570 million in the second quarter and dividend coverage was nearly 1.4 times.\nWe generated more than $150 million of distributable cash flow in excess of dividends paid during the quarter.\nOur June 30 net debt-to-EBITDA on an annualized run rate basis was 4.3 times.\nAnd we continue to work toward our goal of sub-four times.\nWe ended the second quarter with no borrowings outstanding on our $2.5 billion credit facility and nearly $375 million in cash.\nIn July, the board of directors declared a dividend of $0.935 or $3.74 per share on an annualized basis, unchanged from the previous quarter.\nOur strong balance sheet, ample liquidity and increasing EBITDA from volume growth in our system provides a solid financial backdrop and flexibility as we enter the second half of the year.\nOur second-quarter NGL raw feed throughput and natural gas processing volumes increased compared with the first-quarter 2021 and driven by increasing producer activity, ethane recovery and gas to oil ratios that continue to rise in the Williston Basin.\nWe expect these tailwinds to carry into the second half of the year and into 2022.\nIn our natural gas liquids segment, total NGL raw feed throughput volumes increased 17% compared with the first-quarter 2021.\nSecond-quarter raw feed throughput from the Rocky Mountain region increased 18% compared with the first-quarter 2021 and more than 85% compared with the second-quarter 2020, which included significant production curtailments resulting from the pandemic.\nAs a reference point, volumes reached approximately 330,000 barrels per day in this region early this month.\nAt this volume level, we still have more than 100,000 barrels per day of NGL pipeline capacity from the region, allowing us to capture increasing volumes on our system including volume from a new 250 million cubic feet per day third-party plant that came online in early July and expansion of another third-party plant that is underway, and our Bear Creek plant expansion, which is expected to be complete in the first half of the fourth quarter this year.\nTotal mid-continent region raw feed throughput volumes increased 16% compared with the first-quarter 2021 and 10% compared with the second-quarter 2020.\nThe Arbuckle II expansion was completed in the second quarter, increasing its capacity up to 500,000 barrels per day, adding additional transportation capacity between the mid-continent region and the Gulf Coast.\nIn the Permian Basin, NGL volumes increased 16% compared with the first-quarter 2021, primarily as a result of increased ethane recovery and producer activity.\nPetrochemical demand continues to strengthen and has seen support from a continuing global pandemic recovery.\nThis led to increased ethane recovery across our system in the second quarter.\nEthane volumes on our system in the Rocky Mountain region increased compared with the first-quarter 2021 as we continue to incent some ethane recovery on a short-term basis.\nContinued ethane recovery in the Rockies in the second half of 2021 will depend on regional natural gas and ethane pricing.\nWe have not included ethane recovery from the Rockies for the remainder of the year in our updated financial guidance.\nEthane volumes on our mid-continent system increased compared with the first-quarter 2021 due to both favorable recovery economics and some incentivized recovery.\nWe continue to forecast partial ethane recovery in our guidance for the second half of the year in this region.\nEthane volumes in the Permian Basin increased in the second quarter compared with the first quarter of 2021.\nWe continue to expect the basin to be in near full recovery in the second half of the year.\nDiscretionary ethane on our system or said differently, the amount of ethane that we estimate could be operationally recovered at any given time but is not economic to recover at current prices without incentives, is approximately 225,000 barrels per day.\nOf that total opportunity, 125,000 barrels per day are available in the Rocky Mountain region and 100,000 barrels per day in the mid-continent.\nFull recovery in the Rockies region would provide an opportunity for $500 million in annual adjusted EBITDA at full rates.\nMoving on to the natural gas gathering and processing segment.\nIn the Rocky Mountain region, second quarter processed volumes averaged more than 1.25 billion cubic feet per day, an increase of 6% compared with the first-quarter 2021 and more than 50% year over year.\nAn outage at one of our plants, which has since come back online, decreased second-quarter volumes by approximately 15 million cubic feet per day.\nTowards the end of June, volumes reached 1.3 billion cubic feet per day, and we have line of sight to even higher processed volumes later in the year given the recent increase in completion crews and rigs in the basin.\nConversations with our producers in the region continue to point to higher activity levels in the second half of 2021 and 2022, particularly in Dunn County, where construction on our Bear Creek processing plant is on track for completion in the first half of the fourth quarter of this year.\nOnce in service, we will have approximately 1.7 billion cubic feet per day of processing capacity in the basin, and we'll be able to grow our volumes with minimal capital.\nIn the second quarter, we connected 84 wells in the Rocky Mountain region and still expect to connect more than 300 this year.\nBased on the most recent producer completion schedules, we expect a significant increase in well connects in the second half of the year with some producers aligning the timing of well completions closer to the completion of Bear Creek.\nThere are currently 23 rigs operating in the basin with nine on our dedicated acreage, and there continues to be a large inventory of drilled but uncompleted wells with more than 650 basinwide and approximately 325 on our dedicated acreage.\nWe expect the current DUC inventory to get work down before we see producers bring back more rigs to the basin to replenish inventory levels.\nAs we said last quarter, the eight completion crews currently operating in the basin is enough to reach our well connect guidance for the year.\nAny additional completion crews would present upside to our guidance.\nRising gas to oil ratios and natural gas flaring in the basin continue to present opportunities for volume growth without the need for additional producer activity.\nSince 2016, GORs have increased more than 75%.\nRecent projections from the North Dakota Pipeline Authority show that even in a flat crude oil production environment, GORs could increase an additional 45% in the next seven years.\nThis could add 1.3 billion cubic feet per day of gas production and approximately 150,000 barrels per day of C3+ NGL volume to the basin during that same time period.\nAgain, this growth in natural gas is only based on increasing GORs and assumes flat crude oil production.\nAny growth in crude oil would be upside to those projections.\nWe've added a new slide in our earnings materials to show these latest North Dakota projections, which include various production scenarios.\nDuring the second quarter, the gathering and processing segment's average fee rate increased to $1.06 per MMBtu, driven by higher Rocky Mountain region volumes.\nWe now expect the fee rate for 2021 to average between $1 and $1.05 per MMBtu.\nThe mid-continent region average process volumes increased 4% compared with the first-quarter 2021 as volumes returned following freeze offs in the first quarter.\nWhile the region has received some attention as commodity prices strengthened, producer activity has been more moderate than other areas.\nIn the natural gas pipelines segment, the segment reported a solid quarter of stable fee-based earnings, the decrease in earnings year over year was driven by a onetime contract settlement that provided a $13.5 million benefit to earnings in the second quarter of 2020.\nWe continue to see increased interest from our customers for additional long-term transportation and storage capacity on our system following the extreme winter weather events earlier this year.\nSince the first quarter, we have renewed or recontracted additional long-term storage capacity in both Texas and Oklahoma, including a successful open season for more than 1 billion cubic feet of incremental firm storage capacity at our West Texas storage assets.\nWe'll continue to work with customers to contract additional long-term capacity as we head into the winter heating season.\nPierce, that concludes my remarks.\nThe results achieved so far this year, only 12 months removed from the unprecedented conditions in the second quarter of 2020 are nothing short of amazing.\nThe resiliency of our assets and our employees and the caliber of our customers, we're able to work with and provide a long-term runway of many opportunities.\nBut key to our success will continue to be operating safely, sustainably and responsibly with the health and safety of our communities and employees at the forefront of all that we do.\nTo learn more about our commitment to responsible operations, I encourage you to review our most recent corporate sustainability report, which was just published to our website last week.\nThe report details our most recent environmental, social and governance related to performance and programs and highlights key initiatives underway across the company.\nIt's ONEOK employees who carry out these initiatives every day and who prioritize the safety and well-being of their fellow employees, customers and the public.\nAgain, I'm excited to be back at ONEOK and looking forward to the opportunities and the challenges ahead.",
        "summary": "q2 earnings per share $0.77.\noneok sees 2021 net income, adjusted earnings before interest, taxes, depreciation, amortization to be above midpoints of ranges provided on april 27, 2021."
    },
    {
        "text": "I'd also like to call your attention to supplemental slides related to our 2021 outlook posted on our website in the Investor Relations section.\nThe company has explained some of these risks and uncertainties in its SEC filings included in the Risk Factors section of its annual report under Form 10-K and quarterly reports on Form 10-Q.\nAdditionally, in our discussion today, we will reference certain non-GAAP financial measures.\nToday, I'm joined by Ed Pesicka, our President and Chief Executive Officer; and Andy Long, our Executive Vice President and Chief Financial Officer.\nThis effort and focus has reinforced our position in the healthcare industry as a trusted partner by delivering on our mission of Empowering our Customers to Advance Healthcare.\nIn addition, I am extremely pleased to be here today and report another strong quarter and close out of a record year.\nThe strong performance in the quarter as well as the full year was a result of the successful execution and implementation of the key initiatives discussed during the previous quarterly earnings calls, which included two major items: one, infrastructure investments, with a focus on current and long-term profitable growth; and two, operational improvements, with a focus on enhancing the customer experience and increasing operating efficiencies.\nStarting with our Global Products segment, let me remind you of the infrastructure investments and operational improvements we shared previously during the past year.\nAt a high level, we expanded our manufacturing output to align with the volume commitments of our customers.\nHere are just a few examples of these investments and operational improvements: one, the installation of new N95 production lines in our U.S.-based manufacturing facilities; two, we added nonwoven fabric manufacturing in our Lexington, North Carolina facility; three, we continued to expand our isolation and surgical gown production capacity; and four, we optimized the operational process to maximize output of the production lines.\nThese investments and operational improvements enabled us to strengthen our position as one of the world's largest vertically integrated manufacturer of healthcare PPE.\nWe manufacture a full range of healthcare PPE categories and subcategories, primarily manufactured in the Americas.\nThese products are manufactured in our factories with our teammates, with our technology, with our fabric, with our patents, with our processes and with our quality and regulatory oversight.\nAnd then they're delivered through our network of distribution centers, with our teammates and our technologies.\nAlong those lines, let me remind you of the infrastructure investments and operational improvements we shared previously during the past year related to our Global Solutions segment.\nOne, we expanded our low-unit-of-measure warehouse infrastructure system.\nTwo, we improved our inventory planning processes and algorithms.\nThree, we enhanced our data management service offering through QSight and the launching of myOM.\nWe improved our B2B and B2C offerings in our home healthcare business.\nAnd lastly, we optimized the operational process to continue to improve our controllable service metrics.\nThe combination of these investments and operational improvements in our Global Products and our Global Solutions segment continue to strengthen our position in supporting our customers across the entire value chain, with our products and our distribution network delivering what is needed to both the hospital as well as the home, while utilizing our services and data management to increase customer efficiency.\nThe compelling results in Q4 and the full year of 2020 were driven by these investments and operational improvements, along with the dedication of our teammates and our overall commitment to enhancing the customer experience.\nLet me now share a few items from Q4 that validate our solid results.\nOne, we achieved an increase of nearly 400% in adjusted net income per share compared to the fourth quarter in 2019.\nTwo, we realized an increase of more than 200% in adjusted operating income versus the fourth quarter of the prior year.\nThree, we expanded our Q4 adjusted operating margins by 340 basis points versus the prior year.\nFour, we launched and successfully executed an upsized follow-on equity offering of nearly $200 million.\nFive, we reduced the debt by over $300 million in the fourth quarter.\nSix, and specifically related to Global Solutions segment, we grew revenue by 5% sequentially from Q3 to Q4, while maintaining industry-leading service levels.\nSeven, specifically related to Global Products segment, we grew revenue by 21% sequentially from Q3 to Q4.\nAnd since the beginning of the year, we manufactured record levels of PPE with approximately five billion units produced, with materials manufactured in our American factories or Owens & Minor-owned facilities.\nEight, we generated operating cash flow of $71 million as a result of the increased earnings and working capital improvements.\nAnd lastly, we continued to make investments in infrastructure, service and technology.\nAs you can tell, the fourth quarter was a remarkable close to 2020.\nIt is, in fact, an extension of our track record of strong performance during the entire year.\nHere are some of the highlights from the full year of 2020.\nOne, for the full year, adjusted earnings per share increased 265% from $0.62 to $2.26.\nTwo, we continued the trend of recording year-over-year gross margin expansion, with gross margin expanding by 285 basis points.\nThree, we more than doubled our operating cash flow to $339 million as a result of increased earnings and working capital improvements.\nFour, we paid down debt by $534 million during the year, and it should be noted that we have reduced debt by more than $700 million over the past seven quarters.\nFive, we achieved year-over-year gross margin expansion in every quarter of 2020, making it seven consecutive quarters of year-over-year gross margin expansion.\nSix, we generated positive operating cash flow in every quarter of 2020, also making it seven consecutive quarters of positive operating cash flow.\nNext, we delivered year-over-year adjusted earnings per share growth on a constant currency basis in every quarter of 2020, making it five consecutive quarters of year-over-year adjusted earnings per share growth on a constant currency basis.\nAnd finally, we reached a milestone in the COVID-19 fight, with nearly 12 billion units of PPE delivered during the year.\nLook, I'm extremely pleased with our incredible results in 2020, which signify our stellar operating performance across the board.\nIt is our Americas owned and operated facilities, along with the strong distribution network, that provides Owens & Minor with the unique ability to support the entire value chain.\nThis differentiates us and puts us in a strong position for long-term profitable growth.\nLet me now shift to 2021 and focus on the areas that will shape the year and the future of Owens & Minor.\nThese areas of focus will be investments, operational improvements and financial strength.\nLet me begin with financial strength.\nDuring 2020, we significantly deleveraged our balance sheet, implemented sustainable operational improvements and made investments for growth.\nWe expect 2021 to be an extension of these actions, enabling continued deleveraging of the balance sheet and profit improvement.\nAs a result of the deleveraging achieved in 2020, we now have greater latitude to make investments in our business for future growth.\nSo moving on to investments.\nWe will focus our investments on both organic and inorganic growth.\nOur investment strategy will remain disciplined, and we'll continue to focus on infrastructure, technology and operational improvements.\nOur organic growth investments will consist of: one, product portfolio expansion within our PPE, surgical infection and prevention categories and subcategories; two, product portfolio expansion outside of our PPE, surgical infection and prevention categories and subcategories; three, expansion into new verticals that utilize our product portfolio and expanded product portfolio; four, enhanced technology, utilizing the data and services we provide to our customers; five, harnessing our enterprisewide offerings to further enhance our customer experience; and six, complete the build-out of our continuous improvement team.\nRelated to inorganic growth investments, our focus will be primarily on portfolio and end-market expansions.\nLet me now discuss operational improvements.\nWe have begun the implementation of the Owens & Minor business system that is an enterprisewide business discipline consisting of the following: one, continuous improvement, continuous improvement, which is focused on delivering an enhanced customer experience while providing efficiency, improved output and financial achievements; two, standard management systems, which is based on definable metrics that will be measured and evaluated; and finally, program management, which will be utilized for alignment and execution of our strategic priorities and key initiatives.\nThe Owens & Minor business system is the next step in the formalization of the actions utilized over the past two years to significantly improve our medical distribution service levels, to increase our manufacturing output to record levels, to develop and implement new technology and to deliver our strong performance.\nLet me now close with our 2021 outlook.\nFirst, we expect a strong momentum from Q4 to carry into 2021 related to the demand for our manufactured PPE.\nSecondly, we expect elective procedures to continue to improve throughout the year.\nAnd finally, we expect continued increase in demand for our home healthcare business, which is positioned well in one of the fastest-growing healthcare market segments.\nAs I have discussed earlier, we had a strong fourth quarter and successful 2020.\nAnd I'm immensely proud of our accomplishments and the dedication of the Owens & Minor teammates.\nAnd we expect this momentum to continue into 2021.\nIt is clear that our robust operational execution, combined with strategic investments, have fueled increased output and improved efficiency across the entire business, thus enabling us to better serve our customers.\nContinuing with this approach as a foundation of our strategy, we are well positioned to address the needs of healthcare for years to come based on our strong value proposition.\nAccordingly, I am pleased to state that we expect 2021 adjusted earnings per share to be in the range of $3 to $3.50.\nToday, I'll review our fourth quarter and full year financial results as well as the key drivers for our better-than-expected quarterly and annual performance.\nLater in my remarks, I'll share details regarding our expectations for 2021.\nClearly, we finished 2020 in a very strong fashion, with good revenue growth in the fourth quarter and exceptional increases in operating income and earnings per share.\nI'll elaborate on each of these next.\nFor the quarter, revenue was $2.4 billion compared to $2.2 billion for the prior year.\nThis represents 8% growth and was driven by greater sales of PPE across both segments as well as growth in sales in our home healthcare business line and stabilization of the Medical Distribution business.\nElective procedures were better than expected, but overall continue to trail pre-pandemic levels.\nGross margin in the fourth quarter was 16.9%, an improvement of 390 basis points over prior year as a result of higher-margin sales from our Global Products segment, driven by continuing PPE demand as well as an improved operating efficiency.\nFor the full year, gross margin was up 285 basis points to 15.1%.\nDistribution, selling and administrative expense of $283 million in the current quarter was $29 million higher than in the fourth quarter of 2019 as a result of top line growth and ongoing investments across all business lines, net of productivity gains.\nInterest expense of $17 million in the fourth quarter was down 23% or $5 million versus the same period in the prior year.\nFor the full year, interest expense was lower by 15% or $15 million.\nThese improvements are the result of continued reduction in debt, along with lower base rates and utilization of our accounts receivable securitization program.\nOur strong execution in serving our customers, along with very high demand for PPE, growth in home healthcare and productivity gains across the company, led to very strong bottom line results.\nOn a GAAP basis, income from continuing operations for the quarter was $51 million or $0.72 a share, and $88 million or $1.39 per share for the full year.\nAdjusted net income in the fourth quarter was $80 million, and adjusted earnings per share was $1.14, about a fivefold increase compared to the prior year.\nFor the full year, adjusted income from continuing operations was $144 million, which equates to an adjusted earnings per share of $2.26, a significant increase from the $0.62 in 2019.\nForeign currency impact on earnings per share for the fourth quarter was $0.06 favorable, and for full year 2020, it was $0.08 favorable.\nNext, I'll discuss our fourth quarter highlights by segment.\nGlobal Solutions revenue was $1.95 billion compared to $1.94 billion in the fourth quarter of last year.\nThis slight increase in revenue was due to growth in our home healthcare business, coupled with higher levels of PPE sold through Medical Distribution, partially offset by the negative impact of COVID-19 on elective procedures versus the prior year.\nThe typical seasonal growth in this segment was muted by the pandemic.\nOperating income for the segment was $22 million compared to $19 million last year.\nDespite the negative impact of COVID-19, growth in home healthcare and our productivity and efficiency gains helped drive nice growth in bottom line operating results, particularly in the back half of the year.\nIn our Global Products segment, net revenue in the fourth quarter was $575 million compared to $363 million last year, an increase of 58%, which was driven by growth in volume of PPE sales, slightly offset by the impact of lower elective procedures.\nGlobal Products operating income for the quarter was $100 million, more than a fourfold increase versus the $22 million in the prior year's fourth quarter.\nHigher revenue through capacity expansions for PPE products, productivity initiatives, favorable product mix and improved fixed cost leverage, as we ramped up production throughout the year, all contributed to the very strong improvement in performance.\nForeign currency impact was favorable on a year-over-year basis by $5.4 million.\nMoving now to cash flow, the balance sheet and capital structure.\nIn the quarter, we generated $71 million of operating cash flow.\nAnd for the full year, we generated $339 million of operating cash flow, which was more than two times the prior year.\nIncreased profitability and disciplined working capital management were the primary drivers of the progress in this area.\nThe strong cash flow was achieved despite our investment in a seasonal inventory build to ensure continuity of supply for our customers.\nWe expect cash flow to continue to be strong in 2021.\nDuring the course of 2020, we accomplished several milestones in our financial strategy.\nWe strategically divested Movianto for $133 million to remain focused on our core assets and used the proceeds from the sale to pay down debt.\nWe entered into an accounts receivable securitization program to provide additional lower-cost financing that enhances our financial flexibility.\nWe issued new equity in an upsized offering, netting $190 million to strengthen our balance sheet.\nAnd finally, we fully retired our 2021 notes with cash, further reducing our debt.\nAs a result, total debt was $1.03 billion at December 31, reflecting a significant reduction of 34% or $534 million during the year.\nAs we exit 2020, our balance sheet is in very good shape, and our leverage is down to around three times EBITDA.\nGoing forward, we intend to further deleverage the balance sheet, while we continue to reinvest in our businesses for future growth.\nIn fact, in early January, we paid off the remainder of our term A loans.\nThe work we did during the course of 2020 by deploying cash generated by the business to pay down debt, while maintaining ample liquidity, has helped to create a strong foundation to execute our growth strategy.\nOur success was recently rewarded with another credit upgrade by Moody's.\nWe plan to further strengthen that foundation in 2021.\nTurning to guidance for the year.\nGiven the complexity and uncertainty of the markets we serve, I'd like to provide you with as much color as possible as I walk you through the assumptions that went into developing our guidance range.\nStarting with the top line.\nWe expect revenue to be in the range of $9.2 billion to $9.7 billion, which is expected to be driven by several factors.\nThe throughput from PPE-related capacity expansions will continue to benefit 2021.\nTo date, demand for PPE remains very high, and we believe a great deal of runway remains due to post-COVID changes in practices and protocols in the healthcare industry.\nAlso, throughout 2021, we will remain focused on driving productivity and increasing operating efficiency through existing and incremental capacity.\nNew patient capture and growth from existing customers at Byram, our home healthcare business, will drive growth as investments toward improving B2B and B2C offerings pay off.\nAlso, revenue will benefit from the number of elective procedures returning to pre-pandemic levels in the second half of the year.\nWe assume there will not be a repeat of shutdowns in elective procedures as we saw in Q2 of 2020.\nIt's critically important to understand the final component of our revenue growth projection.\nDuring 2020, continuing into 2021, significant cost increases from glove producers are translating to higher-end user prices in the market.\nThis is particularly true for the portion of gloves we don't produce in our own facilities.\nTo date, we have successfully passed through these cost increases, which are reflected on the revenue line and should be noted for their extraordinary impact.\nOur revenue forecast for 2021 includes a glove cost pass-through in the range of $300 million to $500 million.\nHowever, there will be minimal bottom line impact resulting from this revenue lift.\nGross margin rate is expected to be in the range of 14.9% to 15.4% in 2021 as we continue to expand our breadth and scale.\nThe gross margin rate will be negatively impacted by the pass-through of glove cost increases as I just described.\nDistribution, selling and administrative expense is expected to trend higher than last year.\nOur ongoing investments in infrastructure, technology and services to enhance the customer experience, along with volume, is fueling this increase and should be partially self-funded with ongoing productivity efforts.\nWith substantially lower debt, our interest expense will follow suit.\nWe'll continue our drive to reduce leverage and plan to be in the range of two to 3 times.\nAs a result, interest expense is expected to be between $60 million and $65 million for the year.\nLet me talk about the market dynamics that frame our projection for 2021.\nBased on our current line of sight, the 2020 trend of demand-supply imbalances in the PPE market are expected to continue in 2021.\nLooking ahead, we expect to benefit from PPE supply contracts that are multiyear in duration.\nWe're increasingly confident that the post-pandemic demand for PPE will land above historic usage, but clearly below peak pandemic levels.\nIt's also very important to understand the expected calendarization of earnings in 2021.\nThe dynamics that helped drive our strong fourth quarter results remain in place heading into 2021.\nGiven this momentum carrying into Q1, we do not expect to see the typical pattern of earnings throughout the year.\nSpecifically, we expect Q1 earnings to be more in line with the back half of 2020.\nPlease note that these key modeling assumptions for full year 2021 have been summarized on supplemental slides filed with the SEC on Form 8-K earlier today and posted to the Investor Relations section of our website.\nWhile I look back on our performance in 2020, it's one where we showcased our ability to adapt to changing customer needs and deliver really strong results.\nI also see a track record of consistently improving financial results that have positioned us well for the future.",
        "summary": "q4 adjusted earnings per share $1.14.\nq4 gaap earnings per share $0.72.\nexpects adjusted net income for 2021 to be in a range of $3.00 to $3.50 per share."
    },
    {
        "text": "Hosting the call, today are Doron Blachar, our Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; Smadar Lavi, Vice President of Corporate Finance and Investor Relations.\nActual future results may differ materially from those projected as a result of certain risks and uncertainties.\nFor a discussion of such risks and uncertainties, please see Risk Factors section as described in Ormat Technologies annual report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC.\nIn addition, during the call, the company will present non-GAAP financial measures, such as adjusted EBITDA.\nBecause these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP.\nDoron, the call is yours.\nThis was a productive quarter for Ormat.\nAs we are progressing with our plans to grow our Electricity and Energy Storage segment, the quarter was highlighted by execution of our organic and M&A growth strategies.\nWe completed the expansion of the McGinness Complex in Nevada with higher generating capacity than originally planned, and made significant progress ramping up generation of the Puna plant in Hawaii.\nSimultaneously, we closed a significant acquisition of two operating power plants and two other assets, which should contribute to our future growth.\nIn the Energy Storage segment, we continue with our BD efforts to secure new interconnection in land position to support our pipeline and we recently released two storage asset for construction.\nThe progress in our growth reinforces our belief that we can achieve our stated goals of increasing Ormat's combined geothermal energy storage and solar generating portfolio to more than 1.5-gigawatt by 2023.\nWhile we continue to view 2021 is a buildup year in which we lay additional groundwork to accelerate our growth.\nThe increased backlog and sales pipeline, along with the -- I guess the only tailwinds and significant portfolio growth coming from our Electricity and Energy Storage segment support our target of an annual run rate of more than $500 million in adjusted EBITDA toward the end of 2022.\nLet me start my review of the financial results on Slide 5.\nTotal revenue for the second quarter were $146.4 million, down 16% from the prior year.\nThe driver for the decrease were the product segment, which was impacted by low product backlog.\nSecond quarter 2021 consolidated gross profit was $52 million, resulting in a gross margin of 35.4%, 200 basis point lower than in the second quarter of 2020, mainly driven by the reduction in the Electricity segment.\nThis quarter, we experienced mostly temporary issues related to the Olkaria, Steamboat and Brawley complexes.\nThese issues reduced our Electricity gross profit by approximately $8 million.\nFor the six months, gross margin was 40.1%, similar to the same period last year.\nWe delivered net income attributed to the company stockholders of $13 million or $0.23 in the quarter compared to $23 million or $0.45 per share for the same quarter last year.\nOur effective tax rate for the second quarter of 2021 was 22.6%, which is lower than the 33% effective tax rate from the second quarter of 2020, mainly due to the movement in the valuation allowances for each quarter.\nWe now expect the annual effective tax rate to stand by approximately 33% for the full-year 2021, assuming no material one-time impacts.\nAdjusted EBITDA decreased 13.6% to $84.5 million in the second quarter, impacted mainly by gross profit reduction and higher G&A expenses, driven by increased legal costs.\nMoving to Slide 6; breaking the revenue down, Electricity segment revenues increased 4% to $134 million, supported by contribution from new added capacity at our Steamboat and McGinness Hill complexes, as well as Puna resumed operation.\nIn addition, our Steamboat Complex had a mechanical issue, it was resolved few days later.\nAnd in Brawley, we experienced a surface leak in one of the injection wells, which reduced generation.\nIn the Product segment, revenue declined 83% to $7.4 million, representing 5% of total revenue in the second quarter.\nThe decline year-over-year is expected to continue throughout '21, due to the lower backlog and the beginning -- from the beginning of the year.\nEnergy storage segment revenues increased nearly 124% year-over-year to $5.6 million in the second quarter, representing 4% of our total revenue for the quarter.\nThe growth was mainly driven by revenues from the acquired Pomona energy storage asset and the contribution of our Vallecito facility in California, which started commercial operation in April of 2021.\nLet's move to Slide 7.\nGross margin for the Electricity segment for the quarter decreased year-over-year to 37.4%.\nThis was the result of a higher cost related to the repair of the recovery of the Olkaria, Steamboat, and Brawley complexes.\nIn addition, in the second quarter last year, we did record a business interruption insurance recovery of $2.7 million related to Puna complex compared to zero this year.\nIn the Product segment, gross margin was 20.1% in the second quarter compared to 20.6% in the same time last year.\nThe Energy Storage segment reported again a positive gross margin compared to a negative gross margin in the second quarter last year.\nThe improvement was primarily driven by the acquisition of the Pomona Energy Storage assets.\nTurning to Slide 8.\nAdjusted EBITDA decreased 40% to $84.5 million in the second quarter, impacted mainly by gross profit reduction and higher G&A expenses, driven by increased legal costs.\nThe Electricity segment generated 94% of the total Adjusted EBITDA in the second quarter and the Product segment generated 4%.\nThe Storage segment reported adjusted EBITDA of $2 million, which represent 2% of the total adjusted EBITDA.\nReconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide.\nOn Slide 9; our net debt as of June 30, 2021, was $1.40 billion.\nCash and cash equivalent and restricted cash and cash equivalent as of June 30 was approximately $330 million compared to $537 million as of year-end.\nIn addition, we had $46 million of marketable securities.\nSlide 9 breaks down the use of case for the six months and illustrates our ability to reinvest in the business, service debt, and return capital to our shareholders in form of cash dividends.\nAll from cash generated by operation and our strong liquidity position.\nOur long-term debt as of June 30, 2021, was $1.4 billion, net of deferred financing costs and its payment schedule is presented on Slide 30, in the appendix.\nThe average cost of debt was 4.9%.\nDuring July, we closed two new corporate loan raising approximately $175 million out of which $50 million are green bonds provided HSBC bank.\nFunds were used to finance the Terra-Gen acquisition.\nOn August 4, 2021, the company Board of Directors declared approved and authorized payment of quarterly dividend of $0.12 per share pursuant to the company's dividend policy.\nThe dividend will be paid on September 1, 2021, to shareholders of record as of the close of business day on August 18, 2021.\nIn addition, we expect to pay dividend of $0.12 per share in the next quarter.\nThat concludes my financial overview.\nTurning to Slide 12, for a look at our operating portfolio.\nPower generation in our power plants increased by approximately 2.4% compared to last year.\nIn the second quarter, we see the continued contribution of Steamboat related started operation in mid-2020.\nThe incremental contribution of McGinness Hill for approximately one month and the generation from Puna that is operating still in passive capacity.\nThese were partially offset by continued curtailment in low performance of the field in Olkaria power plant and other operational issues in the US that I will elaborate shortly.\nWe recently completed the expansion of our McGinness Hill facility and are now providing electricity for approximately 6,000 homes, while offsetting approximately 63,000 tons of CO2 emissions, delivering the highest level of efficiency and safety in the geothermal industry.\nWith the addition of the acquired operating assets, we are running one-gigawatt electricity portfolio, an increase of 83-megawatt in the second quarter.\nAs noted on Slide 13, Puna resumed operation in November 2020.\nWe have ramped Puna generation to approximately 28-megawatts, following the repair of a turbine, up from 20-megawatts in our last quarterly report.\nWe expect to reach 30-megawatts by year-end.\nWe have continued discussions with HELCO and the PUC about our new PPA and continue selling electricity under our existing PPA, which is in effect until the end of 2027.\nTurning to Slide 14.\nLet me discuss some of the challenges we experienced this quarter in a few of our operating assets.\nAnd I would start with the known one in Kenya.\nOur revenue in Olkaria complex was down year-over-year, as a result of continued curtailment and a reduction in the performance of the resource.\nThe combination of which has resulted in approximately a reduction of generating capacity of 25-megawatts.\nThis reduction in capacity reduced our quarterly gross margin by approximately $2.7 million.\nWe are operating to restore the complex generating capacity through our continuous drilling campaign in Kenya, and are optimistic we will see an increase in production through and by the end of the year.\nWe expect a similar quarter reduction in revenue until capacity is fully restored.\nWe also experienced a mechanical failure at our Steamboat Complex, resulting in revenue loss and interest expenses that reduced gross margin by approximately $2 million.\nThe Steamboat complex is now back to full operation.\nIn the Brawley Complex, we had a leak in one of the injections well and a pump failure in one of the production well which caused the reduction of the generating capacity to three-megawatt.\nWe are working to restore full production in Brawley.\nThe second half of 2021 will be impacted by the low performance of the Olkaria and Brawley power plant.\nAnd we have updated our annual guidance accordingly.\nTurning to Slide 15.\nIn July, we closed the acquisition Terra-Gen asset.\nThis acquisition added a total net generating capacity of approximately 67.5-megawatts to our portfolio.\nIn addition, we bought the greenfield development asset adjacent to Dixie Valley with high resource potential.\nAnd an underutilized transmission line capable of handling between 300-megawatts to 400-megawatts on 230-kilowatt electricity, connecting Dixie Valley to California.\nWith this acquisition, we now own 10 operating plants in Nevada, generating a total of 443-megawatt.\nThe proximity of this plant to population centers in both Nevada and California is important.\nCalifornia remains at the forefront of driving the adoption of renewable energy with supportive mandates and requirements already in place and more being considered.\nUtility companies in California are increasingly looking for affordable and reliable renewable energy.\nThis dynamic made the acquired transmission lines increasingly important.\nTurning to Slide 16 for an update on our backlog.\nWhile the results of our product segment continue to be impacted by the lower backlog at the beginning of the year, we are starting to see encouraging signs of recovery.\nWe have seen clear signs of improvement in this business, including an expansion of our backlog, reinforcing our confidence that this is a short-term phenomenon.\nAs of August 4, 2021, our product segment backlog increased 59% by $22 million to reach $59 million compared to $37 million in early May this year.\nWe signed a few contracts during the quarter, including a new contract with Star Energy Geothermal to supply products to a new 14- megawatt Salak geothermal power plant in Indonesia and then other contract to supply equipment to the project in Japan.\nDespite the recent improvements in this segment, we anticipate continued weakness in our product revenue during 2021 and have adjusted our annual guidance accordingly.\nPartially offsetting the weakness of the product segment, there has been a consistent improvement in our Energy Storage segment.\nAs I mentioned earlier and as discussed in Slide 17, this business continues to become a more important part of our consolidated results.\nThis quarter our projects in both the East Coast and Texas enjoyed higher revenues due to higher market prices.\nThe Storage Segment again generated positive EBITDA and we released two new project for construction in Ohio and California.\nMoving to Slide 18.\nAs previously mentioned, the supported mandates being implemented in California and the increasing demand for affordable and reliable renewable energy in this state.\nOne example is the recent ruling by CTC [Phonetic] require electrical load service entities LLCs to procure 11.5-gigawatt of new clean electricity by 2026.\nOne gigawatt of this procurement must deliver thermal power with an 80% capacity factor produce zero onsite emission and be weather- independent.\nNo form of renewable energy generation is more poised to fill this slate than geothermal, with a 95% capacity factor and thermal flexible generation.\nGeothermal energy is not only an excellent complement to intermittent resources, but the natural replacement for baseload fossil fuels and nuclear generation.\nCalifornia efforts to achieve its goal of 100% carbon free electricity by 2045, through massive deployment of renewable energy and energy storage resources enable us to sign new contracts for geothermal and we did this quarter with CPA for 14-megawatt Heber South geothermal power plant in the Imperial Valley, California.\nWe also issued our first ever request for the -- for the 26-megawatt Heber 2 and actively look for opportunities for our storage platform.\nMoving to Slide 20 and 21.\nAs we have communicated, 2021 will be a significant buildup year, comprised mainly of geothermal project.\nThis build up support of robust growth plans, which is expected to increase our total portfolio by almost 50% by the end of 2023.\nOur medium-term goal in the electricity segment is to add an additional 240-megawatts to 250-megawatts by year-end 2023, above the 80-megawatts added since the beginning of 2021.\nAnd in our rapidly growing energy storage portfolio, we plan to enhance our growth and to increase our portfolio by 200-megawatts to 300-megawatts by year-end 2022.\nAchieving this growth target is expected to help us reach an annual run rate of more than $500 million in adjusted EBITDA toward the end of 2022 that we expect to continue to grow as we move forward with our plans in 2023 and onwards.\nSlide 22 displays 13 projects underway that comprise the majority of our 2023 growth goals.\nWhile we are experiencing some delays in the permitting process, we are still on track to meet our growth target for the end of 2023.\nMoving to Slide 23 and 24, the second layer of our growth has come from the energy storage segment.\nSlide 23 demonstrates the energy storage facilities, we have announced or started construction.\nWe released two new projects for construction Boeing grant and Pomona [Phonetic].\nThe other projects included our growth plan are in different stages of development and their release will require site control and execution of an interconnection agreement, all obviously subject to economic justification.\nAs you can see on Slide 24, our energy storage pipeline extends two-gigawatt and plus [Phonetic] include 36 name, potential projects, mainly in Texas, New Jersey, and California.\nMoving to Slide 25, the significant growth in both our electricity and storage segment will require robust capital investment over the next couple of year.\nTo fund this growth, we have over $750 million of cash and available lines of credit.\nOur total expected capital spend for the remainder of 2021 includes approximately $280 million for capital expenditures as detailed on Slide 31 in the appendix.\nOverall, Ormat is well positioned with excellent liquidity and ample access to additional capital to fund future initiative.\nWe expect total revenues between $650 million and $685 million with Electricity segment's revenues between %585 million and $595 million.\nWe expect Product segment revenues between $400 million and $60 million.\nGuidance for Energy storage revenue are expected to be between $25 million to $30 million.\nWe expect adjusted EBITDA to be between $400 million and $410 million.\nWe expect annual adjusted EBITDA attributable to minority interest to be approximately $31 million.\nAs noted in previous quarter, adjusted EBITDA guidance for 2021 includes insurance proceeds of approximately $10 million.\nOperator, if you please?",
        "summary": "q2 earnings per share $0.23.\nincreases 2021 revenue annual guidance.\nsees 2021 total revenues of between $650 million and $685 million."
    },
    {
        "text": "Both of the documents are available at Old Republic's website, which is www.\nRisks associated with these statements can be found in the Company's latest SEC filings.\nSo I'll kick things off here.\nORI produced another terrific quarter with General Insurance and Title Insurance each posting exceptional results that drove the strong consolidated results that we posted.\nCompared to the second quarter of 2020, total net premium and fees increased to just under $2 billion, up almost 30%, pre-tax operating income increased to $275 million, and that's up 80% and the consolidated combined ratio improved to 90.6%, a 5.5 percentage point improvement.\nAgain, comparing to the second quarter of '20, General Insurance saw growth return with net written premium increasing by 13% and in Title Insurance we grew net premiums and fees earned by 57%.\nSo our specialty strategy with our diverse portfolio of specialty products in both the General Insurance and Title Insurance groups continue to deliver strong growth and strong profitability.\nSo with that introduction, I'll now turn the discussion over to Frank, to discuss some of the per share figures along with our investment portfolio, and then he'll turn things back to me to cover General Insurance, and that'll be followed by Carolyn, who will discuss Title Insurance, and then of course, we'll open it up to Q&A after that.\nSo Frank, I hand it over to you.\nFor the first six months of this year net operating income was $427 million, which was up 61%.\nResults for both periods were driven by substantial growth and underwriting profitability within our General and Title Insurance segments, and you'll hear more about that shortly.\nAdditionally, shareholders' equity rose to just under $6.8 billion, resulting in book value per share growing to a record $22.59.\nSo taking into account dividends, this was an 11% increase from last year-end.\nThis growth was driven by a combination of our strong earnings along with further market appreciation within the investment portfolio.\nAt June 30th, that investment portfolio consisted of approximately 68% of highly rated bonds and short-term investments with the remaining 32% allocated to large-cap stocks that have a long history of not only paying dividends, but increasing them.\nThe fair value of the equity portfolio improved by another $120 million during the quarter and ended with an unrealized gain of nearly $1.3 billion.\nNet investment income decreased slightly for the quarter and almost 5% year-to-date, as the impact of lower yield on new investment purchases more than offset a modest increase in the average investment base.\nThe average maturity on the bond portfolio remained consistent at approximately four years, and the book yield was 2.6% compared to a market yield of 2.5%.\nNow turning to the liability side of the balance sheet, claim reserves grew to just over $11 billion at June 30th, all three operating segments recognized favorable claim reserve development for the quarter.\nIn total, the consolidated claim ratio benefited by 1.8 percentage points for both this year's second quarter and first half, compared to 0.3 and 0.6 percentage points for the same period a year ago.\nFinally, our mortgage run-off operations continue to generate results aligned with our expectations.\nThe group paid another $25 million dividend to parent, bringing the total to $50 million for the year.\nWe expect that pace of dividends to continue through the remainder of the year.\nTotal GAAP shareholders' equity for the mortgage companies ended the quarter at just under $220 million.\nSo turning to General Insurance.\nAs I already noted, we saw growth return with net written premium increasing by 13% and net premiums earned increasing 6%.\nCompared to second quarter of 2020, pre-tax operating income rose by almost 45% primarily from our improved claim ratios.\nThe overall combined ratio improved 4.4 percentage points from 98.4% to 94%.\nThe claim ratios we reported were of course inclusive of favorable prior year development and that came in at 2.9 percentage points for the quarter.\nNet premiums written in commercial auto grew by 13% with the tailwind we have from continued rate increases in auto liability and those rate increases right now are coming in, in the 15% range.\nOur second quarter commercial auto claim ratio improved 75.4% compared to 83.4% in the second quarter of '20.\nAs far as frequency, claim frequency is returning, but still lower than pre-pandemic levels.\nAnd, however, offsetting that is higher severity that continues due to greater speeds and the continued pressure on settlement values.\nTurning to workers' compensation, net premiums written were even compared with the second quarter of '20.\nHowever, that's a notable improvement from recent quarters where we've experienced some declines.\nRates in work comp were slightly negative and that's fluctuated between quarters, between a range of plus or minus 2% over the most recent quarters.\nSo relatively flat trend there.\nThe workers' compensation, second quarter claim ratio came in at 59.6% and that compares to 65.7% in the second quarter of 2020.\nClaim frequency here in workers' comp is trending back toward pre-pandemic levels.\nGiven that we typically provide commercial auto, workers' comp and general liability together in our product offering.\nThis combined claim ratio came in at 69.1% compared to 74.6% in last year's second quarter.\nHighlighting the results in financial indemnity, property and other coverages, which we show in the financial supplement, we've expanded our product offering in these areas, and collectively in those three areas we grew net written premium by 25% this quarter and the favorable claim ratios help contribute to the improved combined ratio in the General Insurance Group.\nSo we -- in General Insurance, continue to enhance our underwriting excellence through better segmentation, improved risk selection, pricing precision and increased use of analytics and we feel confident that these efforts will continue to facilitate strong underwriting profitability as we move through the year.\nThe marketplace is generally disciplined and it's therefore favorable for us to continue to obtain appropriate prices for our products while maintaining our high retention ratios.\nSo that will wrap it up for the General Insurance Group for the time being.\nI'll now turn the discussion over to Carolyn, who along with the rest of her team have put together a string of terrific quarters.\nSo Carolyn, I'll let you take it from here.\nTotal premium and fee revenue for the quarter of $1.1 billion was up nearly 57% from the prior year.\nThis is a combination of strong contributions from both agency business, up 61% and our direct production channels up 44%.\nFor the six-month year-to-date period premium and fee revenue has already surpassed the $2 billion mark, a 48.6% increase from the comparable period last year.\nOur pre-tax operating income of a $138 million for the quarter compared to $65 million in last year's second quarter, an increase of approximately $73 million or 112.3%.\nThe second quarter also marks four consecutive quarters in which the $100 million pre-tax operating income threshold has been exceeded.\nThe high premium and fee volume provide greater leverage of our expense structures noted in our 85.4% expense ratio for the second quarter this year.\nAn 86.3% for year-to-date June results, versus 89.6% and 90.6% for the comparable prior periods.\nFor the Mortgage Banker Association full year 2021 mortgage originations are expected to be one of the top years on record, although, trailing by 10.5%, the record-setting 2020 results.\nSince second quarter 2020, refinances have made up the lion share of the mortgage origination growth and this trend continue through the second quarter of 2021.\nThere is a marked decrease expected in refinances for the second half of the year, as compared to the strong volumes experienced during the second half of 2020.\nHowever, on the flip side, the purchase market is expected to increase by over 15% in 2021, which helps the title insurance industry with a higher fee profile.\nTechnology continues to be a cornerstone for advancement in our industry, as well as a key piece of Old Republic's ability to deliver on our business goals and objectives.\nDuring the third quarter 2020 earnings call, we introduced a Proof of Concept project we had initiated around Robotic Process Automation or RPA, while creating our first spot.\nThis Proof of Concept proved measurable ability to reallocate human hours of work.\nMore importantly and really more exciting, the early metrics are showing a 35% reduction and the time to complete the processes, while providing elasticity to handle changes in volume.\nThis elasticity allows for increases in volume without an increase in corresponding expense.\nThe Proof of Concept created the results, we were hoping for and we will continue to deploy and leverage this technology.\nWe know that we are only starting to tap the potential of RPA and other automation technologies, and are excited to implement their capabilities.\nThis represents just one initiative in our portfolio of technology projects that we are working on.\nThe last year showed the increased usage of our digital solutions and platforms, we saw a similar trend with the usage of our digital closing platform Pavaso.\nIn fact, we remain the clear market leader in this space, as the majority of the digital closings and e-notes completed nationwide occur on Pavaso.\nAs a result, we constantly reinvest in improvements that will continue to expand the adoption of digital closings in the industry.\nOne other quick example of our technology focus that I would like to share with you is that one of the major challenges identified in the industry was the work required to tag documents, to allow electronic signatures by all parties in the transaction.\nHistorically on the title side it required manual and time-consuming preparation to apply the tags.\nTo address this, we released the recent enhancement of text tagging, which allows for the reduction of or even eliminates manual tagging efforts.\nThough this is specifically targeted for the title industry, it will be used by any party that doesn't currently have a document tagging standard.\nWe are committed to easing the challenges to adoption and will have a continued focus on that.\nEssentially, our business roadmap and our technology roadmap have converged into one as they must, to achieve our results.\nI look forward to continue to share the results of these with you in the future.\nOur plan is to blend the history of Old Republic solid business practices procedures and expertise with technology to fully unlock their measurable benefits across our business units.\nAs we enter the second half of the year our order counts remained strong mortgage rates are projected to remain low, and continued improvements in the unemployment rate are all drivers that should equate to a healthy real estate market to finish off the year.\nI'd like to close with my appreciation to all our employees and customers, as they continue to meet the high demands of the current real estate market.\nAs always, our guiding principles of integrity, managing for the long run, financial strength, protection of our policyholders and the well-being of our employees and customers who'll be at the forefront of all that we do.\nWell, again, we're very pleased with another quarter of exceptional operating result, and we're also very pleased with our specialty strategy providing specialty insurance and products to core industry served by General Insurance and Title Insurance, which in turn produces value for our shareholders.",
        "summary": "compname reports q2 earnings per share of 73 cents per share."
    },
    {
        "text": "Earlier today, we published our second quarter 2021 results.\nA copy of the release is available on our website at oshkoshcorp.com.\nOur presenters today include John Pfeifer, President and Chief Executive Officer and Mike Pat, Executive Vice President and Chief Financial Officer.\nWe're happy to announce outstanding second quarter results, highlighted by sales of $1.9 billion and adjusted earnings per share of $1.48, both of which exceeded the prior year and our expectations.\nDemand across the company and particularly in our Access Equipment segment has come back stronger and faster than we expected as a result of positive vaccination progress and the confidence that, that brings to the marketplace.\nOur production rates are back to pre-pandemic levels across the company and our 14,000 dedicated team members continue to do an exceptional job of rapidly adapting to changing situations as we recover from the pandemic.\nCompanies across the globe are facing significant supply chain challenges as the economy rebounds, including a global semiconductor shortage, record high steel prices and resin shortages from the deep freeze in Texas back in February.\nOur supply chain team members and third-party suppliers have worked hard to maintain production, but supply chain disruptions will likely remain a risk, we will continue to manage for the duration of 2021.\nIn addition to our strong second quarter performance, we received some great news on February 23, when we were notified that we won the Next Generation Delivery Vehicle program with the United States Postal Service.\nI am very proud of the efforts of our team over the past several years that culminated in this historic win, which supports President Biden's goal to electrify the federal fleet with zero-emission vehicles and create new sustainable manufacturing jobs in America.\nOur Defense segment will supply the Postal Service with as many zero-emission battery electric vehicles or BEV units that they desire as they upgrade their fleet to be increasingly sustainable.\nThis award is the latest accomplishment in our 25 years of continuous innovation in electric drive and BEV engineering.\nI will discuss this exciting contract win in more detail a little later.\nWe are also proud to be included in the S&P Global Sustainability Yearbook once again in 2021.\nThe inclusion in the yearbook highlights top 15 performance for Oshkosh in our industry category and underscores our commitment to creating a more sustainable future and culture that is centered on a safe and inclusive workplace.\nAdditionally, we have pledged to further reduce greenhouse gas emissions and energy consumption as we continue to make investments in technology, including the development of battery electric products in all of our businesses.\nI am also pleased to announce our expectations for 2021, adjusted earnings per share to be in the range of $6.35 to $6.85 as we return to our practice of providing quantitative guidance.\nMike will share more details in his section.\nThe improvements we started to see in our markets back in December and January, following positive vaccine news, rapidly accelerated over the past few months and helped drive the strong performance we are reporting today.\nRevenue increased by 6.5% over the prior year, leading to a solid adjusted operating margin of over 11%.\nWe previously expected a return to growth in the second half of the year, so we are pleased to be ahead of schedule.\nThese strong results would not be possible without the access team's disciplined execution through the pandemic, which has enabled the business to quickly respond to changing customer demand, particularly in North America.\nOrders were also strong, leading to a solid backlog of $1.5 billion for this segment, up 80% versus last year.\nSince most forecasts project nonresidential construction to be down in 2021, we have -- we believe replacement demand is driving access equipment sales growth.\nAs we've discussed for the past several quarters, fleet ages are elevated throughout the North American market, and we believe the need to replace these aged fleets will be a significant driver for new equipment sales in the coming quarters.\nWe are further encouraged that demand has returned for a broad cross-section of customers, not just the largest and most visible rental companies.\nThis is important as we believe it signals a healthy and robust market.\nAs we noted on the last earnings call, JLG's U.S. production facilities returned to full production levels in March.\nWhile the threat of absenteeism in our operations has significantly decreased due to lower COVID infectivity rates and robust contact tracing, we are closely managing supply chain challenges that could impact production in the second half of the year.\nAs part of the coalition of American Manufacturers of Mobile Access Equipment, we also took action during the quarter against some unfair competition practices by foreign companies in the United States.\nWe believe this is good for the long-term health of the industry.\nSteel prices remain at record highs, and we took further actions during the quarter to mitigate the risk, including additional cost locks on portions of our planned steel purchases as well as price increases for new units ordered beginning in early March.\nMuch like we experienced in 2018 when steel costs increased significantly, there will be a lag in the benefit until we work through orders that were in our backlog prior to the price increase.\nI'd also like to share some good news on our Tianjin China facility.\nConstruction is largely complete for our expanded operations, and we expect to begin shipping product out of the new capacity later this year.\nThis is an important step in our long-term strategy to drive profitable growth in China and other Asian markets.\nWe're proud to be the supplier of the next-generation delivery vehicles for the United States Postal Service.\nRecall that this competition has been a rigorous five-year process and our world-class engineers really stepped up to the challenge to provide the postal service with a vehicle that meets or exceeds all of their current and future needs.\nThe program covers the purchase of 50,000 to 165,000 units over 10 years as part of the postal services plan to significantly modernize their delivery fleet with improved safety, reliability, sustainability, cost efficiency and a much better working experience for our nation's postal carriers.\nOur offering provides the postal service with both zero-emission BEV units and fuel-efficient, low-emission ICE units with the option of delivering any combination up to 100% of either model.\nThe vehicle design also provides the postal service with the flexibility of converting ICE units to BEV units in the future.\nWe expect to begin delivering production vehicles in the second half of calendar 2023.\nWe are also pleased with the progress of integrating Pratt Miller into the company, following the close of the acquisition in January.\nWe look forward to leveraging their speed, agility and expertise as we intensify our innovation focus across the company.\nOur operations team at Defense continues to work hard to deliver the JLTVs, FMTVs and FHTVs that support our U.S. armed forces.\nDuring the quarter, we established a new production line for a portion of our volume.\nThe new production line incorporates industry-leading technology to further optimize the manufacturing process.\nWe did experience higher onetime costs and onetime inefficiencies during the quarter as part of the move, which supports the long-term success of the segment.\nBefore we leave the Defense segment, I'm pleased to announce that the National Advanced Mobility Consortium has selected Oshkosh Defense and our partner, ST Engineering, to participate in the prototype phase for the U.S. Army's cold weather all-terrain vehicle, or CATV.\nThe CATV is a new program for tracked vehicles that operate in arctic conditions and are designed to replace the small unit support vehicles that have been in service since the early 1980s.\nWe believe the program represents another solid opportunity in an adjacent product space for our defense business.\nThe Fire & Emergency segment delivered another quarter of outstanding performance with both strong sales growth and an operating income margin over 15%.\nLast year, we faced a significant supplier challenge, combined with customer final inspection limitations as the pandemic struck, but the team recovered quickly and continues to deliver industry-leading performance.\nWe've also moved past concerns we had discussed surrounding absenteeism, and our operations have returned to pre-COVID levels.\nWe often talk about the strength and capabilities of our strong Pierce dealer network.\nDespite the pandemic, our dealers have continued to increase investments in their sales and service networks, demonstrating their commitment to customers.\nWe believe this is the type of commitment that ensures sustainable success going forward.\nThe segment finished the quarter with another solid backlog of $1.3 billion, basically on par with last year's all-time record.\nOrders in the quarter were lower year-over-year as we expected, largely due to the pandemic-related impacts.\nAs we've said previously, we will monitor municipal budgets, and we believe that the North American fire truck market will decline modestly over the next few quarters as a result of the pandemic.\nHowever, we don't believe this will be much of an impact on the long-term success story that we are building with our Fire & Emergency business.\nAnd as Mike will discuss, our outlook for this business in 2021 is strong.\nOur Commercial segment delivered a solid quarter with higher operating income on lower sales.\nOur simplification and innovation strategy in this segment is working, which gives us confidence that margins can continue to improve over the long term.\nDuring the quarter, we continue to make excellent progress on our focused factory approach of transitioning mixer production to London, Ontario.\nI want to commend the team on their efforts as it hasn't been easy due to cross-border travel restrictions with Canada as a result of COVID.\nWe are also making great progress in building a high flow refuse collection vehicle line in Dodge Center, Minnesota, leveraging the space freed up from the move of mixers.\nThis modernization and automation investment brings added capacity and efficiencies as part of our strategy.\nMoving to our markets, we are seeing solid recovery in order activity for mixers and refuse collection vehicles as business improves as we move beyond the pandemic.\nWe believe the reopening of the U.S. is driving increased refuse collection, and construction is picking back up again, as evidenced by our higher year-over-year backlog.\nWe believe these trends will continue as we work through 2021.\nAs you might expect, supply chains also pose risks in the Commercial segment.\nFor instance, the availability of third-party chassis from truck manufacturers as a result of semiconductor and other component shortages is an issue that we are managing closely, and it could have some impact on our deliveries in the back half of 2021.\nOur supply chain teams are doing a great job of responding to these challenges and keeping our production lines running, and we are staying vigilant.\nWe remain on track to deliver the electric refuse collection vehicles we talked about last quarter to our customer in Boise.\nThese units will provide valuable insights on opportunities and challenges when BEVs are used on a daily basis for refuse collection.\nThe development of these products is part of our long-term electrification journey across the company that we believe will generate significant benefits for our customers and the environment.\nThis wraps it up for our business segments.\nWe delivered a strong quarter that well exceeded our expectations.\nAs the quarter unfolded, demand increased sharply in the Access Equipment segment, leading to consolidated sales of $1.9 billion, $92 million higher than the prior year and approximately $140 million above our expectations.\nThe growth over the prior year was driven by a 29% increase in Fire & Emergency sales and a 6.5% increase in Access Equipment sales, offset in part by a modest sales decrease in the Defense segment.\nAccess Equipment sales increased due to improved market demand in Asia and North America.\nLast year, demand was negatively impacted late in the second quarter as the COVID-19 pandemic drove shelter-in-place restrictions around much of the globe.\nDefense sales decreased in the quarter due to lower FMTV sales and lower cumulative catch-up adjustments as we received FHTV and JLTV contract awards in the second quarter last year, offset in part by higher FHTV sales and Pratt Miller sales for a portion of the quarter following its acquisition in January.\nFire & Emergency sales increased as a result of both higher fire truck and ARFF vehicle sales.\nIn the prior year, fire truck sales were negatively impacted by the combined effects of COVID-19-related customer travel restrictions and a supplier quality issue that impacted our truck delivery schedules.\nOur sales benefited from the delivery of vehicles under two multiunit contracts in the current year quarter.\nAnd Commercial segment sales were down primarily due to lower refuse collection vehicle demand caused by the COVID-19 pandemic and the impact of divesting our concrete batch plant business in the fourth quarter of 2020, offset in part by an increase in concrete mixer volume.\nFront discharge concrete mixer sales were muted in the prior year as the new S-Series 2.0 was still ramping up.\nConsolidated adjusted operating income for the second quarter was $143.3 million or 7.6% of sales compared to $133.6 million or 7.4% of sales in the prior year quarter.\nAccess Equipment adjusted operating income increased as a result of higher sales volume, lower spending as a result of the COVID-19 pandemic and improved product mix, offset in part by higher incentive compensation expense.\nDefense adjusted operating income decreased as a result of unfavorable cumulative catch-up adjustments as well as costs and labor inefficiencies associated with the start-up of the new manufacturing line during the quarter.\nFire & Emergency operating income increased in the current year quarter, primarily as a result of the increased sales volume, favorable price cost dynamics, improved product mix and improved manufacturing performance.\nAnd Commercial segment operating income increased due to lower product liability costs, lower spending as a result of the COVID-19 pandemic and lower warranty costs.\nAdjusted earnings per share for the quarter was $1.48 compared to adjusted earnings per share of $1.25 in the prior year.\nWe are pleased with our solid performance in the first half of 2021 as well as the improved visibility we have for the second half of the year, which has positioned us to once again provide quantitative expectations.\nWe have solid backlogs in all four segments and have seen a significant reduction in COVID-19-related absenteeism.\nAs John said, we faced supply chain risk for the remainder of the year, just like most companies around the globe.\nOur supply chain teams have done an outstanding job of keeping our manufacturing lines running.\nHowever, it is possible that supplier shortages could interrupt production in the back half of the year.\nOur expectations that follow assume no major production interruptions as a result of supply chain shortages.\nOn a consolidated basis, we are estimating sales of $7.75 billion to $7.95 billion compared to $6.9 billion in 2020.\nWe are also estimating adjusted operating income of $610 million to $655 million compared to $496 million in the prior year and adjusted earnings per share of $6.35 to $6.85 compared to adjusted earnings per share of $4.94 in 2020.\nAt the segment level, we are estimating access equipment sales of $3.15 billion to $3.35 billion, a 25% to 33% increase compared to 2020.\nWe expect growth to be led by North America, although we expect sales growth in most regions as the world comes out of the pandemic.\nWe are estimating that access equipment adjusted operating margin will be 10.5% to 11.25%, included in our expectations is an approximately $30 million net headwind from elevated steel prices that we expect will primarily impact the fourth quarter.\nWe believe the headwind will decrease in 2022, as we begin to more fully realize the benefit of pricing actions implemented in the second quarter.\nThe full year impact of last year's temporary cost reductions returning to our expected run rate this year has declined versus prior expectations due to lower spending in the first half of the year as travel, trade shows and other discretionary spending have returned slower than anticipated.\nTurning to Defense, we're estimating 2021 sales of approximately $2.5 billion, an 8% increase compared to 2020.\nThis estimate includes increased JLTV production and the benefit of Pratt Miller sales.\nBacklog remains robust at $3.5 billion, providing solid visibility into 2022.\nWe are estimating our defense operating margins will be approximately 8%, consistent with our comments over the past several years of high single-digit operating margin percentages.\nThis estimate reflects higher new product development spending, manufacturing inefficiencies associated with the start of the new production line and lower cumulative catch-up adjustments compared to 2020.\nWe expect Fire & Emergency segment sales will be approximately $1.2 billion, roughly $90 million higher than 2020.\nThe increase in revenue is primarily due to a return to more normal production and customer deliveries as interruptions due to COVID-19 decline.\nWe expect operating margin in the Fire & Emergency segment to increase to approximately 14% as a result of increased sales volume.\nWe are estimating sales of approximately $925 million in the Commercial segment, down slightly from 2020 as a result of the prior year scale of the concrete batch plant business.\nAnd we are expecting operating margins for this segment of approximately 7%.\nMargins will be impacted the second half of the year in this segment as a result of the rapid increase in steel costs as well as disruption in the supply of third-party chassis.\nSimilar to access equipment, we expect this unfavorable impact to wane as we begin to realize the benefits of price increases in early 2020 June.\nWe estimate corporate expenses will be $150 million to $155 million, an increase of $25 million to $30 million as a result of the return of higher incentive compensation levels.\nWe estimate the tax rate for 2021 will be approximately 22%, and we are estimating an average share count of 69.3 million shares.\nFor the full year, we are estimating free cash flow of approximately $650 million, reflecting an expected strong year of cash generation.\nWe also estimate capital expenditures will be approximately $120 million.\nLooking at the third quarter, we expect consolidated sales to be up approximately 40% over the prior year, with access equipment and defense up most significantly.\nWe expect commercial sales to be up high single digits as our markets rebound, and Fire & Emergency sales are expected to be essentially flat.\nLast year, we benefited from approximately $60 million of temporary cost benefits in the third quarter.\nThis will be a headwind to incremental margins during the quarter as our spending begins to return to more typical levels in the third quarter this year with increased business activity.\nWe just announced a great quarter, and we have a strong outlook for the remainder of the year with expected growth in revenue, adjusted operating income and adjusted earnings per share compared to 2020.\nWe expect to exit the year in a strong position as we look forward to the next several years.\nSupply challenges remain, but we believe we are in a great position to take advantage of the many opportunities open to us through the recovery as we continue to innovate, serve our customers and advance our company going forward.",
        "summary": "sees fy adjusted earnings per share $6.35 to $6.85.\nsees fy revenue $7.75 billion to $7.95 billion.\nq2 adjusted earnings per share $1.48 excluding items."
    },
    {
        "text": "Due to the material impact of COVID-19 on our business in fiscal 2020, we will also include comparisons to our fiscal 2019 results.\nOur performance was strong across all of our brands, particularly in our direct-to-consumer channels of distribution.\nWhile we are benefiting from some favorable market conditions, the numbers that we delivered are the direct result of our team's ongoing efforts to navigate through the short-term challenges posed by the pandemic, while staying focused on our long-term strategic objective of delivering happiness to our customers.\nOur excellent results are attributable to the strength of our brand portfolio and how we communicate our aspirational upbeat brand messages through beautiful inventory, differentiated products and exceptional customer experiences.\nTo deliver superior customer experience in today's market, we need to stay focused on our long-term North Star Objective of continuing to improve our customer centric, digitally driven, seamless, cross channel shopping experience, with an emphasis on mobile.\nWe continue to invest heavily in further improving the customer experience, with enhancements to our mobile apps, search engine optimization, customer data and insights, customer service and much more.\nThe boundaries between our retail and e-commerce businesses are becoming increasingly blurry.\nWe recognize that an ever-growing number of customer journeys to purchase, include both physical and digital elements.\nMost consumers no longer distinguish between the relationship with the digital aspect of the brand and their physical relationship with our brands, they simply think of their relationship with our brands.\nThey want and expect to be able to mix and match digital and physical elements at will.\nWe are determined to fulfill this desire and continue to invest in the people, processes and technology, that will allow us to do so.\nWe have talked many times about our ability to ship from store, as an example of the blending of these two channels.\nWe have also routed capabilities, such as drive-to-store digital marketing; buy online, pickup in store; reserve online, pickup in store; virtual shopping appointments; and cross-channel customer service, to better meet the needs of our customers.\nThe better we are at providing a truly seamless omnichannel experience, the better our customers' overall experience will be, which will ultimately result in increased brand loyalty, and a stronger business over the long term.\nOur team's relentless focus on improving our customer experience is evident in our numbers, which exceeded 2019 levels.\nDuring the second quarter, our combine to direct-to-consumer, full price store and e-commerce comp grew by an impressive 22% compared to 2019 with 15% growth in our biggest brand, Tommy Bahama and a remarkable 31% growth in Lilly Pulitzer.\nGrowth in our direct-to-consumer channel was led by our highly profitable e-commerce business, which grew by 49% over the second quarter of 2019.\nIn addition to the impressive top line growth, we were able to simultaneously expand our e-commerce gross margin.\nOur e-commerce business has been enhanced by our ship from store capability, which allows us to leverage inventories located in stores, to serve the e-commerce demand, as well as demand from other stores.\nFor the year, we expect our total e-commerce business to be roughly a third of consolidated sales, compared to 23% in fiscal 2019.\nWhile e-commerce is our fastest growing channel, physical stores remain an incredibly important part of our direct-to-consumer business.\nIn certain instances, there is no substitute for the personal interaction and high level of service that we are able to provide in stores.\nOur retail stores grew top line during the quarter, modestly over 2019 levels, despite lower traffic with sequential improvement through the second quarter across all regions of the country.\nAs we did in e-commerce, we were also able to expand retail store gross margins during the quarter, driven by full price selling and higher IMUs.\nFor this year, we expect retail stores to be just under 40% of our total business.\nWe further differentiate our omnichannel approach to delivering happiness to our customers, with our food and beverage offering.\nRestaurant and bar sales grew 26% during the quarter compared to 2019.\nWe have positive comp growth in all locations as compared to second quarter of 2019, with all, but a couple at double-digit levels.\nFor this year's second quarter, we have five additional Marlin Bar locations as compared to 2019.\nOur food and beverage capabilities give us a unique and powerful way to build relationships with new customers as well as reinforce the love that existing customers have for our Tommy Bahama brand.\nBased on the strong start to 2021 and our growing footprint, we expect our restaurant and bar business to achieve close to $100 million in revenue this year.\nFinally, while our wholesale business only comprises about 20% of our total sales, it remains an important channel of distribution.\nIn situations, where both we and our wholesale partner can be profitable, wholesale can be an important vehicle for exposing new customers to our brands, and another way in which we can serve our customer, when and how she wants to be served.\nThe excellent performance across the enterprise for the quarter was driven by stellar achievements within each of the individual brands.\nStarting with Tommy Bahama, the brand delivered double-digit top line growth over 2019.\nHigher sales combined with improvement in gross margin and excellent expense control, drove 1,000 basis points improvement in operating margin to a very strong 22.7%.\nDuring the quarter, much of the growth was driven by knit tops and shorts in both men's and women's, including many of our IslandZone Performance styles.\nThe strength in these categories is a terrific example of how Tommy Bahama benefits from and is capitalizing on the long-standing trend toward casual, easy care and easy-to-wear product.\nAt the same time, Lilly Pulitzer achieved top line growth, up 16% over 2019, expanded their gross margin and also controlled expenses well.\nCombined, these results drove a 230 basis point improvement in the operating margin to an impressive 29.5%.\nFrom a product perspective, we have seen a nice rebound in woven dresses, which has been a historical strength for Lilly, but the biggest growth category has been our Lilly Luxletic activewear, which is now about 12% of our business.\nIn our Southern Tide business, excellent growth in e-commerce, plus the addition of our new retail stores, drove 17% sales growth, which, combined with expanded gross margins, resulted in a 21% operating margin.\nWhile it is early in Southern Tide's retail journey, operating just a handful of company-owned stores in Florida, we are encouraged by the results that we are seeing.\nFinally, our early stage businesses, The Beaufort Bonnet Company and Duck Head, while currently small, are an important part of our overall enterprise growth strategy.\nWith our strong e-commerce businesses and growing wholesale businesses, both The Beaufort Bonnet Company and Duck Head delivered strong growth and expansion in both gross and operating margin.\nIn addition, we are thrilled to have signed our first lease for a company-owned store for The Beaufort Bonnet Company, and look forward to opening later this year.\nAs we head into the second half of the year, while being mindful of the ongoing COVID-related challenges in supply chain and store and restaurant operations, we believe that our focus on executing our long-term strategic initiatives will continue to drive strength in our business.\nWe have built a powerful and profitable, seamless, digital and mobile-first omni-channel platform, that is driving growth by providing a superior, modern customer experience.\nFrom a product perspective, the trend toward casual, easy care and easy-to-wear, plays right into the sweet spot of our brands, and we are doing a great job of capitalizing on the market opportunity.\nAs Tom just mentioned, outstanding performances in each of our brands in the second quarter, resulted in record breaking revenue, gross margin, operating margin and earnings.\nOn the top line, demand for our products remained high, and revenue exceeded 2019 levels in each of our direct-to-consumer channels, and in each of our brands.\nConsolidated sales in the second quarter were $329 million, compared to $302 million in the second quarter of 2019.\nOur gross margin continue to track significantly higher than 2019.\nOn an adjusted basis, gross margin expanded 450 basis points over 2019 to 64% in the second quarter.\nDriving this improvement was a higher proportion of full price sales, our overall shift in our sales mix to higher margin direct-to-consumer channels of distribution and improved IMUs.\nHigher freight costs put some pressure on margin in the quarter, partially offsetting some of the improvement.\nWe gained SG&A leverage in the second quarter, improving from 47% of sales in 2019 to 44% of sales.\nSG&A dollars increased modestly from 2019 levels, with the increases in performance based incentive compensation and marketing expense, partially offset by decreases in other employment costs, due to headcount reductions and lower occupancy cost.\nIn the second quarter, our consolidated adjusted operating margin expanded 820 basis points over 2019 to 22%, with operating margin expansion in all operating groups.\nOur business is well supported by our solid balance sheet and strong cash flow from operations.\nOur liquidity position is strong with $180 million in cash and no borrowings outstanding under our revolving credit facility at the end of the second quarter.\nCash flow remains very strong.\nIn the first half of 2021, cash provided by operating activities was $149 million compared to $24 million in the first half of 2020.\nOn a FIFO basis, inventory decreased 34% compared to the end of the second quarter of 2020.\nExcluding Lanier Apparel, which we are exiting, FIFO inventory decreased 26% as compared to the end of the second quarter of 2020.\nTommy Bahama, Lilly Pulitzer and Southern Tide each lowered inventory levels year-over-year, conservative purchases of seasonal inventory and higher than expected first half sales.\nOngoing enhancements to enterprise order management systems were also contributing to a more efficient use of inventory.\nOn a LIFO basis, inventory decreased 48%, and excluding Lanier Apparel, decreased 39% compared to the end of the second quarter of 2020.\nOur outlook for the back half of the year reflects our expectation of strength in our full price direct-to-consumer business.\nWe expect full price direct-to-consumer sales growth and consolidated gross margin expansion over 2019.\nWhile we have raised our outlook for the second half, year-over-year improvement in our full price direct business is expected to be partially offset by a handful of specific headwinds in the back half of the fiscal year.\nThe strong first half full price sales has left us with less inventory for our second half clearance events, including an expected $15 million reduction in Lilly Pulitzer's third quarter flash clearance sale, compared to 2019.\nIn addition, initial spring wholesale shipments, which have historically shipped in the fourth quarter, are likely to ship in the first quarter of 2022, due to supply chain delays.\nFinally, the exit of Lanier Apparel is expected to impact revenue in both the third and fourth quarters.\nWe expect sales from Lanier Apparel to be approximately $25 million lower than 2019's third quarter, and $20 million lower than 2019's fourth quarter.\nFor the full year, we now expect sales in a range of $1.085 billion to $1.105 billion, as compared to sales of $1.12 billion in 2019.\nAdjusted earnings per share is expected to be between $6.45 and $6.70, a significant increase from our previous guidance.\nThis compares to earnings of $4.32 per share on an adjusted basis in 2019.\nFor the full year, sales from Lanier Apparel are expected to be $25 million in 2021 compared to $95 million in 2019.\nFor the third quarter, we expect sales to be between $220 million and $230 million, compared to sales of $241 million in the third quarter of fiscal 2019.\nIn the third quarter of fiscal 2021, we expect earnings of $0.20 to $0.30 per share on an adjusted basis compared to earnings of $0.10 per share on an adjusted basis in the third quarter of 2019.\nOur outlook includes strong quarter-to-date results, with August as the most impactful month of the quarter in 2021.\nThe company's effective tax rate for the full year is expected to be approximately 23%.\nWe continue to support our business in fiscal 2021 with investments for future growth.\nCapital expenditures are expected to be approximately $40 million in fiscal 2021, as we focus on technology related to digital marketing, customer service, mobile enhancements and improve distribution.\nIn addition, we will be investing in additional brick-and-mortar locations with our newest Marlin Bar at Town Square in Las Vegas slated to open tomorrow.\nThis Marlin Bar is replacing the recently closed full service restaurant in the same center.\nFinally, we are proud of our long history of returning value to our shareholders through dividends, which we have paid every quarter since going public in 1960.\nThis quarter, our Board of Directors has declared a dividend of $0.42 per share.",
        "summary": "oxford industries sees fy adjusted earnings per share $6.45 to $6.70.\nsees q3 sales $220 million to $230 million.\nsees fy sales $1.085 billion to $1.105 billion.\nsees fy adjusted earnings per share $6.45 to $6.70.\nq2 sales $329 million versus refinitiv ibes estimate of $308.2 million.\nsees q3 adjusted earnings per share $0.20 to $0.30."
    },
    {
        "text": "These are important to review and contemplate.\nAs everyone on the call today is well aware, business environment uncertainty remains heightened due to duration and impact of COVID-19.\nThese impacts include an uncertain shut down timeframe for many areas of our economy, ongoing changes to consumer purchasing habits, the potential for a disrupted supply chain, heightened unemployment and many other economic factors.\nThis means the results could change at any time, and the forecasted impact of risk considerations is a best estimate based on the information available as of today's date.\nAdditional information concerning risk factors and cautionary statements are available on our most recent SEC filings and the most recent Company 10-K.\nI'll now hand it over to our CEO, Ron Lombardi.\nLet's start on Slide 5.\nLast quarter, we were experiencing the very early innings of the COVID-19 pandemic.\nAt the time, we outlined several factors our organization began focusing on in real-time to adapt to the changing environment.\nAs a result of these actions, I'm pleased to report a solid Q1 earnings results and better than expected revenues.\nThis is a testament to our preparedness and the strategy that we outlined.\nFor starters, our long-term strategy continues to work.\nOur mission to provide consumers brands they know and trust is unwavering.\nEven with the challenging environment being experienced due to COVID-19, our consumers continue to turn to our leading brands to meet their healthcare needs.\nSecond, our robust continuity plans continue to have us well positioned to service our retail partners.\nOur investments in selecting the right manufacturing partners and maintaining ample inventory has paid off in this tight supply environment.\nThird, embracing our company culture of leadership, trust change and execution has paid off in a big way.\nIt's allowed us to be agile marketers, pivoting quickly to efforts that optimize our brands in this very unique environment.\nThe end result is that we are winning and growing channels like e-commerce and our portfolio continues to be well positioned for the long term.\nAnd finally, our strong operating model and disciplined capital strategy continue to reward stakeholders.\nOur strong Q1 free cash flow and industry-leading financial profile enabled further debt reduction in the quarter.\nIn summary, we are not sitting still.\nWe are learning from what is happening and adjusting our go-forward strategy in real time.\nWe are doing this through the guide of our proven three-pillar strategy, which remains intact.\nIt drives our long-term success, and Q1 was yet another example of it.\nI'll now hand it over to Chris to review Q1 financial results.\nQ1 revenue of $229.4 million declined 60 basis points on an organic basis versus the prior year, which excludes the effects of foreign currency.\nBy segment, in North America, revenues were essentially flat, positively impacted by the Women's Health, Oral Care, and Skin categories, but offset by lower Cough and Cold, Eye & Ear Care, and GI shipments, as categories we participate in faced declines in incidence levels and usage rates related to COVID-19.\nOur International business declined in the high single digits after excluding foreign currency.\nThis decline was attributable to both a difficult comparison in the prior year for a number of products as well as significantly lower sales of Hydralyte in Australia, as a result of COVID-19's impact to lowering both general consumer illness and activities such as athletics.\nEBITDA and earnings per share for the first quarter grew 12% and 32% respectively versus the prior year.\nSolid earnings per share growth was attributable to positive contributions across our operating expense line as well as lower interest expense and share count from our strong free cash flow and strategic capital allocation.\nAs I mentioned on the prior slide, first quarter fiscal '21 revenue decreased 60 basis points versus the prior year, excluding the effects of foreign currency.\nConsumption declined just over 4%.\nThis was better than we had anticipated back in early May, driven by strong e-commerce growth as consumers continued to shift to online purchasing.\nThat said, we continue to experience consumption declines in certain categories as a result of COVID-19.\nAs expected, these consumption declines were partially offset by inventory replenishment efforts as retailers refilled their supply following strong March consumer demand.\nTotal company gross margin of 58.4% increased 70 basis points versus prior year's first quarter.\nWe experienced early benefits from the transition to our new third-party logistics provider that was completed at the end of fiscal '20, which offset negative product mix.\nFor Q2, we anticipate a gross margin of approximately 58%.\nAdvertising and marketing came in at 12.1% of revenue, down in dollars versus the prior year as expected, as we eliminated ineffective spending during the unique pandemic environment.\nFor the second quarter, we anticipate a more normalized rate of A&M spend of approximately 15%.\nPlease note, this line item was previously shown as A&P or Advertising & Promotion but has been relabeled to Advertising & Marketing to better reflect the nature of our long-term brand building expenses.\nThere have been no changes to what we are included in the numbers.\nOur G&A spend for first quarter fiscal '21 was approximately $20 million or just under 9% of revenue, down from the prior year, owing to disciplined cost management and lower costs resulting from the current environment.\nFor Q2, we anticipate G&A expense of approximately $21 million.\nLeft, as stated on the prior page, earnings per share grew approximately 32% versus the prior year.\nLower operating costs, lower interest expense and lower share count were all factors to growth.\nFor Q2, we expect interest expense to approximate $21 million and a corporate tax rate of around 25%.\nIn the first quarter, we generated $72.6 million in free cash flow, which represent over 40% growth versus the prior year, driven in part by the timing associated with strong retailer reorders placed in April, following the March consumption spike.\nFor Q2, we would anticipate free cash flow below the prior year as we invest in capex of approximately $10 million.\nDespite this, total free cash flow for the first half of fiscal '21 is expected to exceed that of the prior year.\nIn the first quarter, we continued to focus on debt reduction and paid down $111 million in debt.\nAt June quarter-end, we had approximately $1.6 billion in net debt, which equated to a leverage ratio of 4.4 times.\nWe expect to continue to prioritize debt pay down as our primary use of free cash flow.\nLastly, we would like to remind investors of our continued focus on liquidity in the current environment.\nWe ended the quarter with over $50 million in cash on hand with ample access to our revolving credit line of well over $100 million.\nAs I touched on earlier, despite the uncertainty caused by COVID-19, we are pleased with the plan we implemented and our results in Q1 performance to-date.\nThere are a number of important factors shown here, each of which underpin the financial results Chris just touched on.\nWe continue to prioritize putting our employee's safety first through various proactive measures.\nWe have numerous manufacturing partners which are all operating in a similar capacity.\nAll of these employees are the enablers to our success.\nIn the middle of the slide is our supply chain.\nWe've continued to work with our third-party partners closely on continuity of supply.\nAlthough dynamic, we continue to avoid any material out-of-stock positions at retail.\nThe results of this is continued and reliable inventory supply and engaged workforce and committed partners, enabling us to maintain superior service levels with our retail partners.\nIn doing so, we have set ourselves up for both short- and- long-term success.\nInvesting in our leading portfolio of brands remains the number one principal in our three-pillar strategy.\nOur leading brands have heritage in connections with consumers.\nWe are also diversified, which positions us well to navigate the impact of COVID-19, as we realized in Q1.\nWe continually invest in our key brands over the long-term through a wide-ranging brand building toolkit.\nCritically, it features various efforts which differentiates us from other brands and private label.\nThis playbook has not changed.\nWhat has changed, as outlined last quarter, is where consumers are shopping as well as which categories they are using with frequency.\nThis is truly a unique attribute of the COVID-19 pandemic versus prior recessions.\nThis impacts all of our brands in unique ways.\nJust over one quarter into this new landscape, we are learning and adapting to the changes it brings for each of our brands in real time.\nWhere we've experienced the largest opportunities, at the right end of the spectrum, is from channel shifting into e-commerce.\nOur early investments in this channel had us well positioned to capture growth as consumers transitioned to digital shopping during the pandemic.\nThe second opportunity our portfolio is experiencing is consumer focus on self-care at home.\nExamples here include avoiding a doctor's visit and increasing focus on everyday hygiene and wellness.\nEach of these factors are benefiting many of our brands shown toward the right of the slide.\nWe'll discuss a few of these in greater detail later on.\nTowards the left, we highlight some challenges we are navigating due to COVID-19.\nMany activities remain at suppressed levels including time spent outdoor, travel and sports activities.\nFurthermore, less time spent with people means less overall illness, which is impacting certain brands such as Hydralyte, during Australia's winter season.\nWe've also seen reduced convenience channel traffic temporarily impact incremental to-go purchases like Clear Eyes Pocket Pal and powdered analgesics.\nDespite these category challenges our brands maintain leading positions and many have actually expanded share in the impacted categories.\nAn example here is mix.\nAs the head lice category is currently declining due to children not in school or attending summer camps, our brand has expanded share through our ongoing brand building efforts.\nWith a wide range of impacts, it remains critical that we continually adapt to the changing conditions.\nWe are doing just that by allocating investments to the opportunities we have identified here.\nAs seen on the previous slide, our diverse portfolio positions us to do well even in this challenging environment.\nOur marketing efforts have moved rapidly to target the shifting needs of consumers and help us to connect with them in a pandemic world.\nThe page here shows just a few of the many new initiatives that kicked off recently.\nOn the left of the slide is Compound W. We are focused on expanding our leading position with Compound W by using marketing that reminds consumers of the ability to treat warts rapidly at home.\nWe believe this message and our brands efficacy is resonating with consumers, further expanding our number one market position.\nIn the middle of the page is Clear Eyes.\nWe've had several new messages from the brand since the pandemic began.\nMost recently, we are activating digital efforts focused on at-home usage and the feel-good benefit of having Clear Eyes for video calls.\nThe results are positive.\nWe're seeing higher than average click-through rates on Google and our brand remains as resilient as ever.\nThe last example we have here is BC and Goody's.\nThese brands, which are concentrated in the Southeast, historically focused marketing efforts in sponsorship activities like Southern League Baseball and NASCAR.\nWith these events abbreviated or temporarily suspended, we reallocated our spending into various digital opportunities.\nTwo examples shown here are a refresh of our web pages and marketing of new products like the recently launched Goody's Hangover.\nIn summary, we are quickly identifying opportunities like the ones discussed here through consumer insights.\nFrom there, our nimble marketing strategy looks to address the shifting consumer habits.\nIt's all part of our brand-building playbook that is built for long-term success.\nInvestments in e-commerce has meaningfully paid off as we were able to successfully engage and transact with consumers as their spending patterns shifted online.\nThese investments began several years ago as we invested in digital content and bringing external resources in-house.\nE-commerce traffic continues to increase.\nAnd as a result of these actions, we believe our market shares are actually above our average brick and mortar share in many categories.\nOur established business is a leader in e-commerce consumer healthcare and poised to continue benefiting from the growing interest in the channel.\nIn Q1, consumers increased online purchasing with the goal for many to minimize person-to-person contact during the pandemic.\nE-commerce grew triple digits and now accounts for over 10% of our total retail sales with no signs of slowing.\nThis growth is broad ranging across many major retail partners.\nIt also does not include omnichannel solutions like click-and-collect, which have also seen impressive growth.\nBut we aren't sitting still.\nWe continue to reallocate investments into this opportunity.\nOur three largest brands in the e-commerce channel are shown on the right side of the slide.\nEach of the brands, Summer's Eve, Monistat and DenTek have unique strategy that continued to build successful momentum for each in Q1.\nFor Summer's Eve, consumers are at home more than ever.\nThey are exercising at home as well.\nWe therefore refocused marketing efforts around home workouts and highlight our recently launched Summer Eve's active products.\nFor DenTek, we recently launched a Beyond Brushing campaign that reminds consumers the benefits of a broad oral healthcare routine.\nBeyond Brushing remains consumers the benefits of flossing, dental guards and other medical devices for self-care.\nIt's early, but the campaign is resonating with consumers as they shop online and elsewhere.\nLeft, for Monistat, we're reminding home shopping consumers about quick and easy shipping to the home.\nEffective advertising has successfully reminded consumers of Monistat's largely superior proposition to an in-person doctors visit.\nAs a result, we are seeing a doubling of visits to our monistat.com website.\nAs consumers research the category, these digital investments deepen the incidence association with Monistat, consistent with our long-term strategy.\nIn summary, by being early and actively investing in the e-commerce channel, our brands are winning.\nAs the pandemic shifts consumer preferences, this provides a great positioning for our brands to benefit.\nBy continuing to execute our proven strategy and focusing on our leading brands, we are well positioned to continue to weather the storm.\nFor the second quarter, we anticipate revenue of $225 million or more.\nWithin this outlook, we expect consumption to decline low- to- mid-single digits due to certain categories that are being affected by COVID-19.\nDespite this challenge, our brands continue to hold leading positions and many have expanded share in these declining category cases.\nMost importantly, our investments continue to position these brands for the long-term growth and categories returned to more normalized levels.\nOur assumption also includes a modest inventory reduction expectation at retail.\nOver the last month, heightened week-to-week consumption variability has declined.\nAs a result, we believe certain channels and retail partners may begin to adjust their inventory levels to reflect this more stable performance.\nWe also anticipate earnings per share of $0.70 or more in Q2.\nOur focus on cost management efforts along with the benefit of our capital allocation strategy and debt reduction is expected to more than offset the anticipated Q2 revenue decline compared to the prior year.\nLeft, our strong and stable free cash flow remains the company's strength.\nFree cash flow is expected to increase for the first half versus prior year.\nAnd as always, we intend to execute a disciplined capital allocation strategy with a near-term focus on debt reduction to drive shareholder value.",
        "summary": "q1 revenue $229.4 million versus refinitiv ibes estimate of $221.3 million.\nsees q2 earnings per share $0.70.\nsees q2 revenue $225 million."
    },
    {
        "text": "These are important to review and contemplate as everyone on the call today is well aware, business environment uncertainty remains tightened due to COVID-19.\nThese items include shutdown impacts from many areas of the economy, ongoing changes to consumer purchasing habits, the potential for disruptive supply chain, heightened unemployment and many other economic factors.\nThis means that results could change at any time and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date.\nAdditional information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K.\nI'll now hand it over to our CEO, Ron Lombardi.\nLet's start on slide five.\nI'm pleased to report our long-term strategy and business positioning continued to deliver solid results as seen in Q2, where we experienced strong earnings growth and a stable revenue performance.\nWe continue to focus on the critical near-term factors that I've previously discussed in order to successfully navigate the pandemic environment.\nFor starters, our long-term strategy of providing consumers with a wide range of brands they know and trust continues to work.\nIn this unique time, we continue to see consumers turn to our leading brands to meet their healthcare needs.\nMeanwhile, our business continuity efforts have been paying off.\nWe continue to work closely with our manufacturing partners to ensure consistent service levels in this tight supply environment.\nIn Q2, we continue to find effective ways to optimize our brands during the pandemic as consumer habits have begun to stabilize.\nWe are benefiting from these agile investments in channels such as e-commerce, and our portfolio remains well positioned for the long time.\nFinally, our strong operating model and disciplined capital strategy continue to reward stakeholders.\nWe continue to use our industry-leading financial profile to further reduce debt in the quarter.\nWe have reduced leverage levels to the lowest point since 2014, which continues to increase our capital allocation optionality.\nSo to recap, we continue to feel good about our positioning and the agile adjustments made during COVID-19.\nQ2 performance reinforces the strength of our business, and we look forward to further benefits.\nI'll now hand it over to Chris to review Q2 financial results.\nQ2 revenue of $237.4 million declined 50 basis points on an organic basis versus the prior year, which excludes the effects of foreign currency.\nBy segment, North America revenues were up 1.3%, positively impacted by the women's health analgesics, Oral Care and ear and eye care categories, partially offset by lower cough and cold and GI shipments at certain categories we participate in face declines in incidence levels and usage rates related to COVID-19.\nOur international business declined approximately 16% after excluding foreign currency.\nThis decline was primarily attributable to significantly lower sales of Hydralyte in Australia as a result of COVID-19's impact to lowering both general consumer illness and activities such as athletic.\nWe anticipate headwinds for the brand and the region to persist for the remainder of the fiscal year.\nAdjusted EBITDA and earnings per share for the second quarter grew approximately 5% and 15%, respectively, versus the prior year.\nSolid earnings per share growth was attributable to lower G&A costs and lower interest expense from debt paydown.\nLet's turn slide eight for more detail around consolidated results and first half performance.\nFor the first half, our revenues were down 60 basis points, excluding foreign currency.\nRevenue growth continued to benefit from strong consumption trends in the e-commerce channel as consumers continue to shift to online purchasing.\nWe broadly benefited from strength in many brands in our portfolio, but did experience consumption declines in certain categories as a result of COVID-19, most notably the cough, cold and motion sickness categories.\nTotal company gross margin of 58% was flat to last year's adjusted gross margin and stable to recent quarters.\nThis was in line with our expectations for Q2 and also what we anticipate for the remainder of fiscal '21.\nAdvertising and marketing came in at 16.1% of revenue in Q2 and 14.2% for the first six months.\nAs anticipated, A&M returned to normalized levels in the second quarter.\nWe expect A&M for the full year to be just under 15% as a percent of sales as we continue at a normalized rate of spend in the second half.\nG&A expenses declined both for Q2 and the first six months of fiscal '21 versus the prior year, owed largely to disciplined cost management.\nFor the full year, we anticipate G&A expenses to approximate 9% and remain below prior year in absolute dollars.\nEPS for the first six months of fiscal '21 grew approximately 23% versus the prior year.\nLower operating costs, lower interest expense and lower share count were all contributors to the strong growth.\nFinally, I'd like to provide a few additional comments on below the line items for your modeling purposes.\nMoving forward, we anticipate our ongoing tax rate to approximate 24%, reflecting the recent finalization of tax code changes.\nFor the full year fiscal '21, we expect interest expense to approximate $83 million.\nIn the second quarter, we generated $43.1 million in free cash flow, which was lower than last year due to planned capex investments.\nFirst half fiscal '21 total free cash flow of $115.7 million grew 18% versus the prior year.\nIn the second quarter, we continued to focus on debt reduction and paid down $74 million in debt.\nAt September quarter end, we had approximately $1.5 billion in net debt, which equated to a leverage ratio of 4.3 times.\nWe expect to continue to prioritize debt pay down as our primary use of free cash flow, followed by other opportunistic capital allocation decisions.\nDespite the uncertainty caused by the pandemic, a few key factors underpin our strong financial results in the first half and have us well positioned for the balance of the year.\nWe continue to remain focused on safety and business continuity.\nOur team members have adapted impressively to this vulnerable environment faced today.\nThis extends to our third-party suppliers who we continue to work closely with in a dynamic supply chain environment.\nUltimately, the objective of these efforts is to maintain a laser focus on service levels to our retail partners.\nAlthough a continuing effort, I'm pleased to report that we've maintained a strong supply chain that's enabled to remain well stopped at retail.\nOur broad and diverse portfolio is an invaluable core strength of our business.\nNot only are we diversified, as shown on the left side of the page, but the vast majority of our key brands have a deep heritage in connection with consumers.\nThe majority of our key brands are number one in their category, which allows us to focus on meeting evolving consumer needs.\nThese factors provide us a great starting advantage as we navigate the impact of COVID-19.\nWe are leveraging these attributes and investing in our key brands for long-term success.\nThe strategy is working and is evident in our stable results for the first six months, where these factors helped to offset declines in certain categories like travel, sports activities and cost.\nThis diversification and leading positions have also found great tailwinds from various consumer trends during COVID-19.\nFor example, consumers have increased the use of health and hygiene-related products, while at the same time, being more cautious around time spent in public.\nThe result of this is an accelerated shift to e-commerce shopping, along with consumers increasing purchases of self care products.\nEven further, consumers are seeking brands they know and trust during this recession.\nWe are well positioned to from these shifts.\nFirst, we have the benefit of having many leading brands that help consumers treat health incidences at home.\nWe've reallocated marketing dollars to opportunities to help with self-care, like Monistat, Compound W and DenTek.\nOur toolkit is wide ranging.\nIn this example, the end goal is to remind consumers how our leading brands help them avoid a doctor's visit.\nSecond, we benefited in a big way from consumers shifting additional purchases into e-commerce.\nOur early investments in this channel over the last several years continues to pay off.\nFinally, with 10 of our top dozen brands holding number one market shares, we have the fortunate position of being the trusted go-to brand for consumers in many categories.\nWe continue to benefit from these strengths, resulting in a stable business performance during the pandemic thus far.\nOur multiyear investments around e-commerce are delivering impressive results.\nThese investments have led us to achieve market shares above our brick-and-mortar share in many categories.\nIn the second quarter and first six months, we were able to successfully engage with consumers as their spending patterns continue to shift online.\nWe experienced solid results that are direct results of our efforts and positioning with Q2 consumption e-commerce growing triple digits once again.\nWe've also experienced success in omnichannel consumer shopping.\nAs a leader in consumer healthcare e-commerce, we are pleased to continue to benefit from the growing interest in this channel by consumers.\nWe are continuing to make investments behind online content broadly with the goal of expanding our share of consumers.\nThe examples on the right side of the page are useful reminders that our investments are wide ranging.\nOur Monistat.com web page was recently refreshed.\nAnd since the refresh, the Monistat site has seen, on average, 300,000 visitors a month, including helping about 90,000 women a month self-diagnose infection with the brand's symptom checker.\nThis online tool is one of many examples where we go beyond supplying a product being a consumer's trusted connection as they research their healthcare needs.\nWe have also enhanced the marketing and communications around our brands that consumers are using at home.\nCompound W is one example of this.\nWe are focused on expanding our leading position by using simple to understand marketing that reminds consumers of the ability to treat works effectively at home.\nThese strategies have resonated with consumers, enabling and expanding our strong number one market share position.\nTo recap, by remaining active and investing around e-commerce, our brands are set up for success.\nAs the pandemic continues to shift consumer preferences, this provides a great positioning for our brands to benefit.\nWe have achieved portfolio stability by rapidly transitioning our marketing efforts to adapt to the current environment.\nWe continue to adjust our brand-building strategy in real-time, focusing investments around current brand opportunities.\nOur largest brand, Summer's Eve, is engaged in a multi-pronged marketing effort designed to grow household penetration with women over time.\nWith consumers staying at home, we refocused marketing efforts around home workouts for the recently launched Summer's Eve active product.\nOmnichannel efforts have driven consumer awareness and positive feedback and Summer's Eve active is often listed as a best choice by Amazon when consumers research feminine wash.\nThis is just one of many efforts that is driving Summers Eve solid sales growth year-to-date.\nOn the right of the page, is Clear Eyes.\nBrand messaging has evolved during the pandemic to emphasize the brand promise of having brighter, lighter and more comfortable eyes.\nWe focused on the concept of at home usage and are using time-tested brand building tactics.\nMost recently, we have a new spokesperson, Supermodel Hilary Rhoda.\nAs a Clear Eyes user, she demonstrates the ability Clear Eyes has of giving a consumer great redness relief at a great price.\nMore than halfway through the year, our business positioning and execution of the strategy behind it have resulted in a stable top line performance that is driving meaningful cash flow and earnings growth.\nThe portfolio diversity and our business strategy highlighted today, position us to continue to maintain and grow market share across our key brands in coming quarters.\nGiven our recent stability, we are offering full year guidance based on the trends we are seeing today.\nFor the full fiscal year '21, we anticipate revenue of approximately $925 million.\nThis outlook reflects our assumption that the business trends and stability experienced in Q2 continues into the second half, along with a headwind in the second half during the peak season for cough and cold products.\nMost importantly, we remain committed to our long-term brand building and investment strategy to position our portfolio for long-term sales growth.\nWe also anticipate adjusted earnings per share of approximately $3.18 in fiscal '21.\nOur cost management efforts, along with the benefit of our capital allocation strategy and debt reduction, enabling full year earnings growth of high single digits.\nLast, our strong and stable free cash flow remains a company's strength.\nFree cash flow is expected to be at or above last year's level of $207 million.\nAs always, we intend to execute a disciplined capital allocation strategy with a near-term focus on debt reduction to drive shareholder value.",
        "summary": "q2 revenue $237.4 million versus refinitiv ibes estimate of $227.4 million.\nfor revenue, anticipate fy'21 revenue of about $925 million."
    },
    {
        "text": "These are important to review and contemplate.\nAs everyone on the call today is aware, business environment uncertainty remains heightened due to COVID-19.\nThese items include shutdown impacts for many areas of the economy, changes to consumer purchasing habits potential for a disruptive supply chain and various other economic factors.\nThis means that results could change at any time and the forecasted impact of risk consideration to the best estimate based on information available as of today's date.\nAdditional information concerning risk factors and cautionary statements are available on our most recent SEC filings and the most recent Company 10-K.\nI'll now hand it over to our CEO, Ron Lombardi.\nAnd let's start on Slide 5.\nOur proven business model continues to set us up for long-term success and the strong earnings performance and a stable topline year-to-date results is continued evidence of this as we have raised our full year revenue and earnings targets.\nThe business strategy we have in place is a highly adaptable one, which positions us to create value during the pandemic.\nOur strategy of offering consumers a wide range of easily accessible brands they know and trust continues to work.\nThe ongoing objective is to grow categories while connecting with consumers over the long term.\nWe'll share one example of this long-term strategy, Compound W on the next slide.\nDespite the long-term nature of these investments, we are also quick to target near-term opportunities.\nThis important nuance allows us to adjust our brand-building strategy in real time finding additional ways to deliver brand growth.\nFor example, as discussed the last two quarters, we have focused on prioritization on where consumers are shopping.\nA result of this is that we are winning big in e-commerce where we've seen triple-digit growth and many of our brands actually have a higher share in the channel compared to brick and mortar.\nMeanwhile, our nimble business continuity efforts continue to do well during COVID-19.\nWe continue to work strategically with our manufacturing partners to ensure consistent service levels in this dynamic supply environment.\nFinally, our consistent operating model and disciplined capital strategy continue to reward shareholders.\nWe anticipate solid earnings and free cash flow growth for the full fiscal year, which continues to increase our capital allocation optionality.\nSo, to recap, our business positioning remain solid and our strategy of delivering consistent results as we close out our fiscal year.\nUtilizing our brand-building toolkit and taking time to understand consumer insights, the goal is to drive long-term growth for our leading brands.\nShown on the page we have Compound W, which is a great example of this objective.\nIt's a brand with a long history with consumers and we've invested steadily behind it through a wide range of tools over time.\nOne tool used is innovation.\nAll of our brands operate with a multi-year pipeline of product development concepts to ensure we continue to match the needs of consumers.\nCompound W NitroFreeze is a great recent example with its extreme freezing technology that is not found in other OTC treatments.\nWe are also connecting with consumers, as they think about treatment with content that helps explain their wart treatment options.\nFor example, during the pandemic, we've reminded consumers of the ability to treat warts effectively at home and the solutions Compound W offers.\nThe result of our investment behind Compound W is clear.\nWe have a trusted source for retailers for insights into the wart category and how to drive long-term category growth.\nThis has enabled our brand to continue to gain shelf space and share.\nOur results have been solid.\nOver the last five years, Compound W has grown at a double-digit compound annual rate.\nThat's free outpacing category growth and solidifying its number one market position with consumers as a preferred brand for wart treatment.\nWith that, I'll now hand it over to Chris to review our financial results.\nQ3 revenue of $238.8 million declined 1.6% on an organic basis versus the prior year, which excludes the effects of foreign currency.\nBy segment, North American revenues were down 2%.\nSeveral segment categories grew with the largest increases in Women's Health and Oral Care.\nAs expected, however, these gains were offset by lower Cough and Cold as well as motion sickness and head lice as these categories faced declines in incidence levels and usage rates related to changes in consumer behavior due to COVID-19.\nOur international segment increased approximately 2% after excluding the effects of foreign currency.\nThe increase was primarily attributable to higher sales of Hydralyte in Australia as certain shelter at home restrictions were lifted related to COVID-19.\nAs a reminder, due to its distributor model, the timing of international segment orders can be difficult to predict as can the uncertainty around pandemic-related restriction.\nAdjusted EBITDA declined approximately 6% in the quarter versus the prior year, primarily driven by the timing of A&M spend.\nEBITDA margin remained consistent with our long-term expectations in the mid-30s.\nEPS for the quarter was $0.81 per share, flat to the prior year as a result of lower interest expense from debt pay down, offsetting the lower revenue and A&M timing.\nFor the first nine months revenues were down 90 basis points.\nOur diverse portfolio has enabled a stable revenue performance with strength in many brands in our portfolio, helping to offset COVID-19 impacted categories.\nOur broad channel diversity continues to help drive revenue performance as we experienced strong triple-digit consumption growth in the e-commerce channel year-to-date, as consumers continue to shift to online purchasing.\nTotal company gross margin of 58.2% in the first nine months was largely flat to last year's adjusted gross margin of 57.9% and has been stable across quarters.\nThis was in-line with our expectations and we continue to anticipate a gross margin of about 58% for the remainder of the year.\nAdvertising and marketing came in at 15.9% of revenue in Q3 and 14.8% for the first nine months.\nWe still expect A&M for the full year to be you just under 15% as a percent of sales as we continue at a normalized rate of spend in the fourth quarter.\nG&A expenses were flat in Q3 down for the first nine months of Fiscal 2021 versus the prior year [Indecipherable] largely to disciplined cost management.\nFor the full year, we anticipate G&A expenses to approximate 9% of sales and remain below prior year in absolute dollars.\nLastly, we realized strong 15% earnings per share growth for the first nine months of Fiscal 2021 versus the prior year.\nLower operating costs, lower interest expense and lower share count were all factors to the growth.\nIn the quarter, we generated $43.5 million in free cash flow, which, as expected, was lower than last year due to both timing of working capital and CapEx investments.\nFor the first nine months of Fiscal 2021, free cash flow of $159.2 million grew over 3% versus the prior year.\nWe continue to anticipate full year 2021 free cash flow at or above prior year levels.\nAt the end of Q3, we had approximately $1.5 billion of net debt, which equated to a leverage ratio of 4.2x.\nDuring the quarter, we repurchased approximately $9 million in shares opportunistically leaving the remainder of our cash generation on the balance sheet in anticipation of a potential bond refinancing event in Q4 to opportunistically capitalize on the attractive debt rate environment.\nThe cash accumulation was temporary to the quarter.\nThere has been no change to our strategy of prioritizing debt pay down as our primary use of free cash flow.\nWith less than two months to go, in our fiscal year, we are confident with our business performance and objectives and are increasing our outlook for both sales and EPS.\nFor the full year Fiscal 2021, we now anticipate revenues of approximately $935 million.\nFor Q4, we anticipate consistent trends to what we have realized over the past few quarters.\nHowever, the period will face a unique comparison to the prior year as we experienced a significant lift in March of 2020 as consumers stocked up on items as a result of COVID-19.\nWe now anticipate adjusted earnings per share of approximately $3.22 for Fiscal 2021.\nDisciplined cost management and the benefit of our capital allocation strategy and debt reduction continue to drive a solid earnings growth.\nThese attributes to translate into free cash flow as well and we continue to anticipate free cash flow of $207 million or more, which is at or above the prior year's level.\nWe continue to prioritize debt reduction while balancing other disciplined capital allocation efforts to drive shareholder value.\nLooking ahead, we continue to have confidence that our business is well-positioned heading into Fiscal 2022.\nWe will begin to lap the effects of COVID-19 that began in the spring of last year, while our long-term brand building strategy continues to set us up for long-term success.\nWe continue to target 2% to 3% long-term organic sales growth, which translates into mid to high single-digit earnings growth driven by our stable and solid financial profile and disciplined capital allocation strategy.\nIt's a proven strategy and we remain confident in its ability to drive value for stakeholders.",
        "summary": "compname posts q3 revenue $238.8 million.\nq3 revenue $238.8 million versus refinitiv ibes estimate of $231.5 million.\nq3 non-gaap earnings per share $0.81.\nq3 earnings per share $0.81.\nraising full-year fiscal 2021 outlook for revenue and earnings per share.\nsees 2021 revenue approximately $935 million.\nsees 2021 adjusted e.p.s. approximately $3.22."
    },
    {
        "text": "pb.com and by clicking on Investor Relations.\nAdditionally, we have provided slides that summarize many of the points we will discuss during the call.\nThese slides can also be found on our Investor Relations website.\nWe got off to a solid start to the year with every business making an important contribution to the quarter.\nOverall, revenue at constant currency grew 14% and every business improved their EBIT performance.\nFor the second consecutive quarter, SendTech improved EBIT on a year-to-year basis.\nAs I mentioned before, the transformation of SendTech from a business in secular decline to a business well positioned to capture new value in the shipping market is one of the most impressive transformation I've ever seen.\nThe business has leveraged digital technologies to transform our offerings and our go-to-market strategy.\nSendTech's platform is built on IoT technologies that are delivered on a fast chassis and this business is very well positioned going forward.\nOur Presort business continued with the momentum we saw at the end of last year with both revenue and EBIT improving on a year-to-year basis.\nGlobal Ecommerce revenue at constant currency grew 40% for the quarter and EBIT margins improved nearly 400 basis points on a year-to-year basis.\nImportantly, profit performance improved throughout the quarter as our labor model continued to mature and pricing changes kicked in.\nIn the month of March, Domestic Parcel Services per unit labor cost delivered the best performance compared to any quarter since second quarter of last year.\nWe expect unit labor cost to continue to improve and transportation and automation efficiencies are primarily still in front of us.\nTransportation cost remain high in both our Ecommerce and Presort businesses.\nSo further insourcing our transportation, as well as the deployment of automation will benefit both businesses.\nA lot of opportunity in front of us as we continue to invest in areas that will yield future productivity benefits.\nWe also made several important additions to our Global Ecommerce team.\nWhile I'm sure the team will continue to evolve, we have a group of professionals and consultants guiding our business who have built business to consumer networks centered on induction to the USPS system.\nCash performance for the quarter was also relatively strong compared to prior year off of an improved working capital performance.\nThe team continue to demonstrate strong operational discipline.\nWe also executed a successful refinance in the quarter.\nThere are two objectives to the refinancing.\nFirst, we wanted to push out the maturities, further decreasing our refinancing risk.\nSecondly, and more important in my perspective, we created strategic flexibility.\nWe achieved both those objectives.\nI've described four chapters of transformations, quick wins, sustained investment, revenue growth and finally, profitable revenue growth.\nLast quarter, I said we are poised to enter that fourth chapter, profitable revenue growth.\nIt's hard to call the first quarter an inflection point given the nominal EBIT increase but revenue and profit did increase and are very much like our position going forward.\nEach business is poised to continue to make progress during this year and for that matter, going forward beyond this year.\nAll in all, I'm quite pleased with the quarter.\nIt turned in another strong revenue performance and improved EBIT across each segment compared to the prior year.\nAs the revenue compares get more difficult as the year goes on, growth will inevitably moderate but the trend is quite clear and are very much like the way we are positioned.\nBefore I get into the details of the quarter, this being my first earnings call with the team, I want to share with you a few thoughts on what attracted me to Pitney Bowes.\nThe first thing that attracted was the growth trajectory.\nNow that I have had a chance to go deeper into the business, I am confident that we are on the right path of achieving what Marc referred to as the fourth chapter of our transformation, which is profitable revenue growth.\nThe second item is culture.\nI can feel a true sense of team, pride and passion for continuously innovating and winning in the marketplace.\nThese are concepts that you cannot necessarily teach, they are ingrained and I consider them to be imperative to our success.\nAnd last, what I did not realize or quickly learned is how much technology is deeply needed in everything we do.\nIt's not as evident when you look at the business from a distance, but I believe it's one of the major enablers to the company's transformation.\nNow, let me turn to our first quarter results.\nRevenue was $915 million and grew 14% over prior year.\nAdjusted earnings per share was $0.07 and GAAP earnings per share was a loss of $0.18.\nGAAP earnings per share includes a $0.22 loss on the refinancing of our debt as well as a $0.02 loss from discontinued operations and $0.01 on restructuring charges.\nFree cash flow was a net use of $1 million and cash from operations was $66 million, both an improvement from prior year due to favorable working capital changes largely around the timing of accounts payable and accounts receivable along with improved collections.\nThis was partially offset by lower customer deposits at our PB Bank.\nDuring the quarter, we paid $9 million in dividends and made $4 million in restructuring payments.\nWe invested $43 million in capex as part of our plan to drive future operational efficiencies.\nWe ended the quarter with $697 million in cash and short-term investments.\nTotal debt was $2.4 billion.\nWe took several actions during the quarter to refine our capital structure along with reducing overall debt by $126 million from prior year.\nThese actions further reduce refinancing risk with the reduction of our near-term bond maturities.\nWe also improved the pricing up and substantially paid out our term loan B, improved our covenants which provides us greater strategic flexibility and extended the duration across our capital structure.\nWhen you take our finance receivables and cash into account with our debt, our implied operating debt is $690 million.\nLooking at the P&L, starting with revenue versus prior year.\nBusiness services grew 28%, equipment sales grew 12% and rentals were flat to prior year.\nWe had declines in Support Services of 4%, supplies of 10% and financing revenues of 14%.\nGross profit was $299 million and gross margin was 33%, which was down from the same period last year largely due to the mix and shift of the portfolio, but is an improvement from the fourth quarter.\nSG&A was $238 million or 26% of revenue.\nThis is an improvement of $10 million and 5 points respectively from prior year.\nWithin SG&A, corporate expenses were $57 million which was up about $14 million over prior year largely due to benefits recognized last year around employee variable-related costs and a sales tax credit.\nR&D was $11 million or 1% of revenue and down slightly from prior year.\nAdjusted EBIT dollars were $50 million, which was a slight improvement over prior year.\nAdjusted EBIT margin was 5%.\nInterest expense, including finance interest was $37 million.\nOur tax provision on adjusted earnings was a benefit of about $400,000 and includes a benefit associated with an affiliate reorganization.\nCompared to prior year, our tax provision benefited earnings per share by about 1.5%.\nFor purposes of determining adjusted EPS, shares outstanding are approximately $179 million.\nLet me now turn to each segment's performance starting with Ecommerce.\nRevenue for the segment was $413 million and grew 40% over prior year.\nRevenue continues to benefit from the strong demand along with the pre-pandemic comparison.\nVolumes grew year-over-year across all lines of service.\nDomestic Parcel Services volumes grew 23%, Cross Border volumes were more than doubled and our Digital Services volumes grew 36%.\nEBIT was a loss of $26 million and EBITDA was a loss of $8 million.\nCompared to prior year, EBIT improved $3 million and EBIT margin improved nearly 400 basis points.\nWe made progress through the quarter where earlier on we were still dealing with the receivable of peak holiday season.\nWe continue to work to improve service levels in our Domestic Parcels Network balancing cost and quality which are all headed in a positive direction.\nAs with the industry, we all continue to see relatively high transportation costs and a competitive labor market.\nHowever, as we move through the quarter, our Domestic Parcel Network improved parcel process per hour by approximately 45% as our labor model continued to mature.\nMargins continue to be healthy in our Digital and Cross Border services.\nOf the $26 million EBIT loss in the quarter, we saw a loss of $4 million in March and reported positive EBITDA for the month.\nWithin our Domestic Parcel Service, our initiatives to improve productivity are still largely in front of us.\nAs we have discussed in the past, investments will include new automated sorters along with streamlining our processes to improve productivity.\nWe placed one new sorter in a high volume site in the first quarter and expect to roll out more over the next 12 to 24 months.\nIn addition, we are implementing modern sortation processes in each of our facilities before the upcoming holiday peak season this year.\nThis investment and related productivity actions are expected to more than double our [Indecipherable] process per hour our over time.\nIn addition, our transportation team continues to execute on the strategy of migrating outsourced lane into our own PBC.\nIn the first quarter, we insourced several of these lanes with more plans for the second quarter, all which will improve cost and service.\nWe also brought in third-party industry expertise to help support our execution in the area of transportation.\nWe believe that optimizing our transportation will yield significant productivity benefits.\nFinally, we are in the process of opening two new sites and upgrading another which we expect to have completed prior to the peak season.\nThis will allow us to handle volumes more efficiently and deliver deeper into the USPS network.\nUltimately, we expect transportation and labor productivity along with optimizing final mile solutions to be critical drivers in obtaining our long-term e-commerce margins.\nWe expect these to account for approximately 75% of the margin improvement.\nOur Presort Services saw the momentum from the second half of 2020 continue into the first quarter.\nThe business turned in a solid performance growing revenue, EBIT and EBIT margin over prior year.\nRevenue was $143 million and grew 2%.\nOverall, average daily volumes were flat to prior year where First Class Letter Mail declined 2%, Marketing Mail grew 11% and Marketing Mail Flats and Bound Printed Matter grew 30%.\nEBIT was $19 million and EBIT margin was 13%.\nEBITDA was $27 million and EBITDA margin was 19%.\nEBIT and EBITDA improved from prior year due to both revenue growth and lower expenses.\nWe have been able to maintain double-digit margin in the Presort Business even as we continue to invest in our talent and equipment.\nCompared to prior year, we improved pieces fed per labor hour by 4% resulting in 85,000 less processing hours.\nWithin SendTech, we also picked up on the momentum from the second half of 2020 as we continue to soften the decline in our revenue and maintain strong EBIT margins.\nRevenue was $359 million and declined 3%.\nWe continue to differentiate ourselves in the market with our end-to-end mailing and shipping offerings to enterprise and small office providers that are attractive to both existing and new clients.\nWe have a growing revenue stream around office shipping that carries with it high margins approaching that of our legacy mailing business and a software business.\nAnd like the legacy mailing business, the shipping opportunity in SendTech provides multiple paths for us to add profit and revenue like supply, financing and professional services.\nSendTech's shipping related revenues grew at a low double-digit rate to approximately $30 million in the quarter.\nThe number of labels printed through our shipping offerings grew over 40% and paid subscriptions grew approximately 80%.\nAdditionally, we are seeing good growth in shipping volumes that our US clients are financing which grew nearly 80% over prior year.\nThese positive metrics show that our clients are adopting and using these new offerings as they see the value it brings to their business.\nEquipment sales grew 12% over prior year driven by strong placement of our SendPro C, which include a large government deal and we continue to see good placements of our new central mail station, multipurpose device.\nIt is important to point out that like others, we have experienced transportation issues related to our supply chain.\nWe have been able to properly manage our inventory and grow our equipment sales despite these challenges and it is an area that we are closely monitoring.\nWe are also keeping a close eye on the semiconductor industry and are looking to mitigate any potential second half supply shortage by repositioning our solutions as necessary.\nWe turned in a strong EBIT performance of a $114 million which represents growth of $8 million over prior year and is the second consecutive quarter of EBIT growth.\nEBIT margin was 32%, which improved 250 basis points over prior year.\nEBITDA was $122 million, EBITDA margin was 34%, both improving over prior year.\nAs you may recall, prior year included an increase to our credit-loss provision to reflect macroeconomic conditions resulting from COVID-19 in connection with the application of the CECL accounting standards.\nOne other point that I would like to make is that this team has done a tremendous amount of work, not only to transform its products and offerings, but also its channel.\nToday, about 80% of all US sales transactions are happening through our web or inside sales channel.\nThis has allowed our field team to concentrate on larger enterprise deals and this has been a great contributor to maintaining the very healthy margins that we see in this business.\nI am pleased with the performance of our key trend in the first quarter.\nWe entered the year with good momentum and continued to concentrate on the opportunities in front of us, and we expect to make good progress throughout the year.\nAs discussed during our last earnings call, we continue to expect annual revenue at constant currency to grow over prior year in the low to mid-single digit range making this our fifth consecutive year of constant currency revenue growth.\nWe also continue to expect adjusted earnings per share to grow over prior year.\nFree cash flow is expected to be lower from prior year primarily due to specific items which benefited 2020 such as higher customer deposits, lower finance receivable and lower capex, which are not expected to continue at the same level in 2021.\nWithin our segments, we expect Global Ecommerce revenue growth to be stronger in the first half compared to the second half as the revenue comparisons will get more difficult as we move through the year.\nWe also expect e-commerce to demonstrate significant profit improvement and deliver positive EBITDA for the full year.\nWithin SendTech, we expect the momentum we saw in the second half of 2020 and first quarter to continue, particularly around our shipping capability and new multipurpose devices and help partially offset the decline in reoccurring related revenues.\nWe also expect the improvement in volume trends we saw in Presort in the second half of 2020 and first quarter to continue through 2021.\nThere are a few headwinds to be aware of on a year-to-year basis that will partially offset the overall business unit improvements.\nIn 2020, we recorded write [Phonetic] insurance proceeds.\nIn 2021, we expect higher employee-related costs as it relates to variable compensation.\nAdditionally, we expect a higher tax rate in 2021.\nLooking at the timing through the year, our portfolio continues to shift to markets that are growing particularly around shipping.\nAs a result, the fourth quarter will continue to be our largest quarter of the year for revenue and earnings.\nFor the second quarter, we expect revenues to grow in the mid to high single-digit range.\nSimilar to first quarter, we also expect adjusted earnings per share to grow modestly over prior year.\nThat concludes my remarks.",
        "summary": "q1 adjusted earnings per share $0.07.\nq1 gaap loss per share $0.18 including items.\nq1 revenue rose 15 percent to $915 million.\nfull year 2021 expectations are consistent with what was communicated last quarte."
    },
    {
        "text": "Joining us today are Patti Poppe, our Chief Executive Officer; and Chris Foster, Executive Vice President and Chief Financial Officer.\nThese statements are based on assumptions, forecasts, expectations and information currently available to management.\nWe also encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30, 2021.\nThis quarter, we delivered non-GAAP core earnings of $0.24 per share.\nWe are reaffirming our 2021 non-GAAP core earnings per share guidance of $0.95 to $1.05, and we no longer expect to issue equity in 2021.\nWe continue to see rate base growth of 8.5% and longer-term earnings-per-share growth of 10%.\nChris will provide more details on the financials in just a bit.\nAs you saw at Investor Day, our experienced team is driven and focused on delivering clean energy safely every day.\nWe have a very sophisticated and continually improving PSPS algorithm year-over-year.\nIn fact, when we backcast our current model to the previous utility caused fires between 2012 and 2020, we would have prevented 96% of the structure damage had the current model been in place.\nThis year, we also implemented enhanced power line safety settings to address wildfire risk we faced from extreme drought conditions.\nIn fact, since the end of July through mid-October, we saw 46% decrease in CPUC reportable ignitions in high fire threat districts and an 80% reduction in ignitions on enabled circuits.\nThese enhanced safety settings make our system and our customers safer.\nWe're delivering on the 2021 wildfire mitigation plan with our lean operating system and deploying it across the entire Company to deliver predictable outcomes for customers and investors.\nIn addition to quarterly operational, financial and regulatory updates, I'd like to spend some time on the work done and the changes made since 2019 that make our system safer and more resilient.\nLet's start on slide 4, with how we've improved our PSPS program since 2019.\nIn 2019, we had seven events that impacted over 2 million customers.\nSince then, we've installed approximately 1,300 weather stations, 500 high definition cameras and over 1,100 sectionalizing devices to better pinpoint exactly where we need to initiate PSPS.\nOur 2021 PSPS algorithms are informing -- are informed by more granular weather forecasting and we're using Technosylva software to incorporate machine learning into our fire spread modeling, so we can better predict where the risk is on our system in real time.\nOur continuous improvement approach applies to addressing safety risks while minimizing disruption to our customers.\nAs you can see on slide 5, our model shows that by backcasting our new 2021 PSPS algorithm on to 2012 through 2020, we would have prevented 96% of the structure damage from fires caused by overhead electrical equipment in our service area.\nAs you know, this year, we experienced extreme drought conditions in our service area.\nDue to these conditions, we saw fire spread on non-red flag warning days.\nWe assess these risks and identified where we needed to focus.\nGuided by former CAL FIRE and local fire authority personnel who now work for PG&E, we implemented additional wildfire mitigation in our high fire threat areas.\nYou can see the results of our safety focus on slide 6.\nWe've compared the data since we implemented our enhanced powerline safety settings against the most recent three-year averages.\nWhat we've seen is a 46% reduction in CPUC reportable ignitions in our high fire threat districts from the end of July through mid-October.\nOn the specific circuits where we first implemented the enhanced powerline safety settings, we've seen an 80% decrease in ignitions over the same time period.\nWe're working hard to reduce the customer impact from these new necessary protocols.\nWe've optimized our protective device settings on all circuits that have enhanced powerline safety settings and we've adjusted our circuit restoration procedures.\nThese enhancements are making outages smaller and faster to restore, while still removing the ignition risk.\nWe're communicating transparently, our commitment to preventing fires of consequence to communities where enhanced powerline safety settings are in place.\nLet me make it real with one story.\nOn Monday, October 11, we initiated a PSPS event that affected about 20,000 people.\nThe wins came in as forecasted, and in 33 instances, outside of the PSPS zones and the highest wind areas, our lines automatically de-energized due to the unpredictable disturbances and potential risk was mitigated.\nWe know our protocols are working.\nWe will continue to work around the clock to make these solutions less disruptive to customers and know that we are keeping them safe while we do that.\nOur experience since implementing these settings in late July will serve as an important guide for our 2022 planning.\nAs we continue to keep people safe each day, I want to talk a bit about the risk reduction work we've completed since 2019.\nLet's start on slide 7 with our enhanced inspection.\nAs you can see, we're on track to complete our enhanced inspections on 0.5 million assets in 2021 in our high fire threat areas.\nThese inspections are scheduled to be conducted every year on all assets in Tier 3 and every three years for all assets in Tier 2.\nAt the bottom of this slide, you'll see a couple of points on our routine inspection program.\nWe get a lot of attention internally, but really isn't well known outside of PG&E.\nAs you can see in the green box, we conduct vegetation management inspections across our entire system annually and in high fire threat areas, we patrol those conductors twice a year.\nIn 2021, we plan to complete 1800 miles of enhanced vegetation management work, combined with what we completed in 2019 and 2020 adds up to over 6,000 miles by the end of this year.\nWhile we are focused on keeping people safe with inspections and vegetation management, we're also focused on the longer-term hardening of our system.\nIn the last three months, we've made great progress against our multi-year 10,000 mile undergrounding program.\nOur engineering team is scoping out the work as you'll begin to see in our 2022 wildfire mitigation plan.\nOur goal is to engage the entire community around the imperative of undergrounding and we are succeeding.\nWe are engaging stakeholders through undergrounding advisory group with representatives from environmental groups, labor, telecom, consumer advocacy groups, county tribes among others.\nAnd we're gathering ideas on innovations in engineering, equipment and construction from the world's best through our RFI process.\nWe're continuing to work on system hardening as you can see here and we'll provide an update on how we're thinking about that work as we further develop our undergrounding program.\nAs a sneak peek, I'll share one project we completed this year.\nIn September, we completed undergrounding powerlines in Santa Rosa, which resulted in 11,000 customers who will no longer be impacted by PSPS.\nThis is one of many projects.\nThis is the right solution for our customers in that area and that's why we did it.\nSimple solutions based on customer needs.\nAs I mentioned, more to come on our undergrounding plans as we move into early 2022.\nAt PG&E, effective implementation of our wildfire mitigation plan is enabled by our lean operating systems, which we're deploying across the entire Company.\nThese brief 15-minute huddles provide daily visibility on the metrics that matter most, help us identify gaps and quickly develop plans to support our teams closer to our customers giving us control and predictability of our operations.\nAs you know, this summer, we were challenged by the Dixie fire and the impact of fire had on all of our customers.\nI'll repeat what we said since Investor Day, our actions around Dixie were those of a reasonable operator and we're confident in the framework created by AB 1054.\nAB 1054 resulted in a wildfire fund to provide liquidity for resolved claims, a maximum liability cap for reimbursement by investor-owned utilities and enhanced prudency standards when determining that reimbursement amount.\nWe're reflecting that view in our financial statements which show a gross charge of $1.15 billion.\nWe booked an offsetting $1.15 billion receivable that reflects our confidence to recover costs.\nAs I highlighted, PG&E is working hard every day to deliver clean energy safely.\nWe're building on the mitigation programs we started in 2019.\nWe're staying nimble to respond to current conditions.\nAnd we are improving our performance enterprisewide.\nFor example, our team just last week responded to an atmospheric river weather event that included among the highest rainfall totals observed in a 48 hour timeframe ranging from 16 inches at Mount Tam [Phonetic] to 5 inches in downtown Sacramento.\nThe strongest wind gust recorded was 92 miles per hour from Mines Tower in Alameda County with at least a dozen other locations experiencing gust greater than 69 miles per hour.\nEven in the face of these difficult conditions, we completed our work without any serious safety incidents while returning service to 632,000 of the 851,000 customers impacted within 12 hours.\nI am very proud of the safe and rapid response of our team.\nNow, I'll hand it over to Chris to cover financial and regulatory items.\nAs Patti referenced earlier, our financial plan remains on track and is supported by a regulatory construct [Phonetic].\nI'll cover the highlights first, then go into more detail.\nToday, we are announcing [Phonetic] that we no longer see a need for equity in 2021.\nWe are reaffirming our non-GAAP core earnings per share guidance for this year and we anticipate issuing our 2022 guidance on our Q4 earnings call.\nAdditionally, we are seeing progress on recoveries related to prior wildfire risk reduction investments to help the balance sheet.\nLet's start with the share count used for Q3 2021 and year-to-date GAAP and non-GAAP core earnings per share.\nWe're in a GAAP loss position for both Q3 2021 as well as year-to-date 2021 due to our grantor trust election this quarter.\nAs a result, we're required to use basic shares outstanding to calculate both GAAP earnings per share and non-GAAP core earnings per share for Q3 and year-to-date.\nOur full year guidance as always assumed a GAAP positive year and our full year non-GAAP core earnings per share of $0.95 to $1.05 per share, reflects our fully diluted share count.\nSo there is no impact there.\nI'll start with our Q3 result.\nWe continue to be on track for the 2021 non-GAAP operating earnings per share of $0.95 to $1.05.\nThis is calculated using our fully diluted share count I just mentioned, consistent with our assumption when we initiated guidance.\nSlide 9 shows our results for the third quarter.\nNon-GAAP core earnings per share for the quarter came in at $0.24.\nWe recorded a GAAP loss of $0.55 including non-core items.\nThis quarter, we recorded a $1.3 billion charge we've previously guided to as a result of our grantor trust election.\nAs you recall, this charge is expected to reverse over time as the Fire Victim Trust sells shares.\nMoving to slide 10.\nAs Patti mentioned, we took a $1.15 billion charge this quarter for the Dixie fire.\nWe also recorded a $1.15 billion of offsetting receivables.\nAnd the receivables reflect our confidence to recover cost based on the facts of information available to us today.\nAnd as a reminder, we recognize a receivable if we believe recovery is probable under the applicable accounting standard and due to the fact currently available, we're not yet probable for recovery of amounts exceeding insurance for the 2019 Kincaid and 2020 Zogg fires.\nTherefore, we hasn't recorded offsetting receivables for either of those fires.\nOn slide 11, we show the quarter-over-quarter comparison for non-GAAP core earnings of $0.24 per share for Q3 2021 versus $0.22 per share for Q3 2020.\nEPS increased due to $0.03 of growth in rate base earnings, $0.02 from using basic share count as a result of the GAAP loss I mentioned earlier and $0.01 from lower wildfire our litigation costs, partially offset by $0.01 decrease due to timing of taxes that will net to zero over the year.\nWe expect a stronger fourth quarter due to timing of the regulatory revenue and efficient work execution.\nMoving to slide 12.\nWe are reaffirming our non-GAAP core earnings per share of $0.95 to $1.05.\nOn the debt side, we expect to complete an initial AB 1054 securitization transaction this month, for $860 million.\nOur separate rate neutral securitization has also been approved by the CPUC.\nAnd once we resolve the final legal steps, we anticipate will start issuing bonds early next year.\nNow some updates on regulatory matters.\nI'll specifically highlight important filings reflecting both our focus on timely cost recovery for historical spend and our focus on the planet supporting California's clean energy future.\nTurning to slide 13.\nAt the end of the third quarter, we've requested cost recovery for approximately 80% of the unrecovered wildfire related costs on our balance sheet.\nAnd we already have final decision, settlement agreements or interim rates for roughly 60%.\nIn September, we filed a settlement agreement for our 2020 wildfire mitigation and catastrophic event application.\nOur request was $1.28 billion comprised of prior wildfire expense including costs that were incurred in 2018.\nGiven some of these cost predate the wildfire mitigation plan construct, we feel that settlement of $1.04 billion is a reasonable outcome.\nMost recently on this front, in September, we felt the recovery of $1.4 [Phonetic] billion of additional wildfire mitigation and catastrophic event costs.\nMost of the costs were incurred last year, and under our proposal, most of the revenue will be recovered in 2023 and 2024.\nYou should expect to see similar filings in the coming years as we seek timely recovery of any incremental spend in these areas.\nNext, I'll cover a brief update on our cost of capital application.\nIn late August, we filed the cost of capital application for rates starting in January 2022.\nThe request was filed off-cycle as a result of the disconnect between lower interest rate and the increase in cost of capital for California utilities as seen from higher interest costs and equity issuance costs.\nAt this stage, we'll follow the recent direction by the administrative law judge and for our materials that would have been included in the cost of capital adjustment mechanism advice letter by next Monday.\nThe filing will include calculations of the ROE, cost of debt and the resulting overall return on rate base from the operation of the adjustment mechanism.\nDOJ's order asked to submit the relevant information into the cost of capital proceeding rather than requesting us to file an advise letter.\nOur focus on triple bottom line of people, planet and prosperity is also not slowing down.\nJust last week, we filed for key transportation electrification investment and we'll accelerate technology adoptions for underserved communities, and of course support California's greenhouse gas reduction goals.\nEV Charge 2 is an extension of our fully subscribed and successful EV Charge Network Program.\nWe are requesting a total revenue requirement for roughly $225 [Phonetic] million from 2023 through 2030.\nThis phase of the program will provide the infrastructures to support 16,000 new charging ports which is just scratching the surface to meet the demands of our customers.\nTill [Phonetic] today are driving nearly 20% of the electric vehicles in the country.\nWe are proud to serve the largest base of customers owning and purchasing EVs in the US.\nI'll close by reiterating that we are delivering against the financial plan for 2021.\nOur focus continues to be on addressing the critical need to reduce wildfire risk in the near term, while running the business effectively to the long term.\nWe're investing in needed [Phonetic] wildfire mitigation and we've eliminated our 2021 equity need.\nWe'll continue to focus on improving our balance sheet while making the right investments to deliver clean energy safely to our customers.\nWith that, I'll hand it back to Patti.\nEvery day, we are more and more excited about the future we're creating here at PG&E.\nWe can see the difference that's been made and the value to be unlocked.\nWe continue to reduce wildfire risk and we're encouraged by the protections we have in place for our investors and the hometowns where we live and operate.\nOur 2021 PSPS protocols are the right solution on high wind days, and our enhanced powerline safety settings are necessary and effective and reductions ignitions and the resulting damage, given our current drought conditions.\nWe're focusing our work to make our system safer every day.\nWe're adapting based on what we learn so we can best serve our customers and you, our investors.\nWe'll deliver on the financials and we'll continue to implement the necessary processes to run a high performing utility.\nJenny, please open the line for Q&A.",
        "summary": "pg&e corp - recorded gaap losses were $0.55 per share for q3 2021.\nrecorded gaap losses were $0.55 per share for the third quarter of 2021.\nnon-gaap core earnings were $0.24 per share for the third quarter of 2021.\n2021 earnings per share guidance adjusted for gaap earnings to a range of $(0.12) to $0.07 and reaffirmed non-gaap core earnings of $0.95 to $1.05 per share."
    },
    {
        "text": "Today's presenters are Chris Martin, Chairman, President and CEO; and Tom Lyons, Senior Executive Vice President and Chief Financial Officer.\nNow I'm pleased to introduce Chris Martin, who will offer his perspective on our second quarter.\nAs we begin the summary of our second quarter, it is our sincere hope that you and yours are safe and healthy.\nSecond quarter earnings were impacted by COVID and CECL as the provision for loan losses and expenditures related to providing a safe environment for our customers, employees took priority as we phased our staff-back-to-office process and afforded our customers full branch access.\nOn a positive yet related note, we had expenses for the planned acquisition of SB One of $683,000 during the quarter and look to complete the closing tomorrow.\nWe remain comfortable with our capital structure and balance sheet strength.\nOur capital ratios continue to be strong, given our business mix and risk management processes.\nIn view of our capital and pre-tax pre-provision earnings expectations, the Board approved a $0.23 cash dividend.\nNet income for the quarter was $14.3 million or $0.22 per share.\nNet interest margin decreased 23 basis points linked quarter to 2.97% as the impact of lower rates and higher cash balances was partially offset by lower deposit costs and above-average growth in noninterest-bearing deposits.\nThe impact of PPP loans on our margin was two basis points.\nAnd we continue to experience a reduction in our all-in cost of deposits to 41 basis points for the quarter ended June 30, 2020, versus 62 basis points from the trailing quarter.\nBorrowing costs also improved to 1.31% from 1.80% in the trailing quarter.\nThe decrease in earning asset yields of 45 basis points linked quarter reflects falling benchmark interest rates on adjustable rate loans, accompanied by modest growth in new originations at lower rates and the $403 million in PPP loans.\nAnd of the PPP loans, we are assuming that approximately 75% to 80% will be forgiven once the government provides the vehicle and forms to complete this.\nThe impact on our net interest margin from the short end of the curve is now largely behind us, but historically low long-term rates will continue to put pressure on asset yields as our loan and investment portfolio is repriced at lower coupons.\nThe loan pipeline remains robust at $1.3 billion, and activity continues to provide us with growth potential as payoffs have added during COVID.\nWe are also placing interest rate floors on most of our commercial loans.\nResidential mortgage originations have spiked as rates hit historical lows and neighborhoods experience an upsurge in activity with more individuals working from home and assimilating to the new work environment, which we see as continuing well into the future.\nUnlike some banks, we did not experience a high level of line draws during the course of the economic shutdown as line usage remained at 36%.\nWe view this as indicative of the stability of our customer base and their assurance in our capacity to support their funding needs.\nNow Tom will go into more details on loan deferrals.\nBut suffice it to say, the initial phase of 90-day deferrals peaked at approximately $1.3 billion or 16.8% of the loan portfolio.\nThis has been reduced to $395 million or 5.1% of loans.\nThis includes second deferrals to date of $343 million.\nThe increase in deposits is difficult to parse as much of the growth can be attributed to PPP loans, along with stimulus checks from the government.\nBut in any event, significant growth in noninterest-bearing deposits helped reduce our funding costs.\nNoninterest expense declined during the quarter due to decreased deposit-related fees as much of our market was under the stay-at-home executive orders, which impacted debit card revenue due to reduced volumes.\nWealth management income was also affected by the market declines in the value of assets under management, which has since recovered.\nOn the noninterest expense front, the majority of the $5.6 million increase was due to CECL and the credit loss expense for off-balance sheet credit exposure of $5.3 million in the quarter.\nWe also had increases in data processing expenses related to our digital platform improvement, along with transaction costs associated with the SB One acquisition.\nAsset quality improved, and we experienced net recoveries for the quarter.\nOur allowance for credit losses now stands at 1.11% of total loans from 0.76% at December 31, 2019.\nThe provision in the quarter was significantly impacted by Moody's baseline economic forecast, including a negative shift in the outlook for commercial real estate.\nExposures to hotels, retail, restaurants and skilled nursing facilities are under heavy scrutiny.\nOn June 30 June 30 reported credit metrics remained remarkably stable given the ongoing level of economic stress, as borrowers were aided by the impact of government stimulus and loan modification and deferral programs.\nWe envision continued pressure on credit as we anticipate the continuation of a challenging business environment due to the pandemic.\nAnd we anticipate meeting all of our cost saves from the combination of SB One Bancorp, which closes tomorrow, and all of them we'll provide to our customers and our employees while also increasing long-term growth and stockholder value.\nNow Tom will provide more detail on our financial results.\nAs Chris noted, our reported net income was $14.3 million or $0.22 per diluted share compared to $24.4 million or $0.38 per diluted share for the second quarter of 2019 and $14.9 million or $0.23 per diluted share in the trailing quarter.\nEarnings for the current quarter were again adversely impacted by elevated provisions for credit losses under the CECL standard and the recessionary economic forecast attributable to the COVID-19 pandemic.\nIn addition, we incurred costs specific to our COVID response, including supplemental pay for customer-facing employees, PPE equipment and security costs and costs related to the upcoming merger with SB One.\nCore pre-tax pre-provision earnings were $35.9 million, excluding $16.2 million in provisions for credit losses on loans and commitments to extend credit, $1 million of COVID costs and $683,000 of professional fees related to the SB One merger.\nThis compares with $36.4 million in the trailing quarter, excluding provisions for credit losses, and merger-related charges and $42.7 million for the second quarter of 2019.\nOur net interest margin contracted 23 basis points versus the trailing quarter and 45 basis points versus the same period last year.\nAs declining market interest rates, cash collateral pledged against that and money swaps, excess liquidity and PPP loans all produced lower earning asset yields.\nTo combat margin compression, we continue to reprice deposit accounts downward.\nThis deposit rate management, coupled with a continued emphasis on attracting noninterest-bearing deposits, resulted in a 21 basis point decrease in the total cost of deposits this quarter to 41 basis points.\nNoninterest-bearing deposits averaged $1.8 billion or 25% of the total average deposits for the quarter.\nThis was an increase from $1.5 billion in the trailing quarter with a sizable portion of that growth attributable to PPP and stimulus funding.\nNoninterest-bearing deposit levels remained elevated at $1.9 billion on June 30.\nAverage borrowing levels increased $92 million, and the average cost to borrow funds decreased 49 basis points versus the trailing quarter to 1.31%.\nWe will continue to thoughtfully manage liability costs as the rate environment evolves.\nQuarter end loan totals increased $294 million versus the trailing quarter as growth in C&I, CRE, multifamily and residential mortgage loans was partially offset by net reductions in construction and consumer loans.\nThe growth was largely driven by PPP loans, which totaled $400 million at June 30.\nLoan originations, excluding line of credit advances, totaled $774 million for the quarter.\nThe pipeline at June 30 was consistent with the trailing quarter at $1.3 billion.\nPipeline rate has increased 26 basis points since last quarter to 3.43% at June 30.\nOur provision for credit losses on loans was $10.9 million for the current quarter compared with $14.7 million in the trailing quarter.\nThe decrease in the provision reflects the significant reserve build required in the trailing quarter, and CECL model estimates for life of loan losses as impacted by the ongoing severe economic forecast.\nWe had annualized net recoveries as a percentage of average loans of one basis point this quarter compared with annualized net charge-offs of 16 basis points for the trailing quarter.\nNonperforming assets declined to 37 basis points of total assets from 39 basis points at March 31.\nThe allowance for credit losses on loans to total loans increased to 1.11% or 1.17%, excluding PPP loans from 1.02% in the trailing quarter.\nLoans with short-term COVID-19 payment deferrals declined from their peak of $1.31 billion or 16.8% of loans to $395 million or 5.1% of loans.\nLoans and deferral consists of $52 million that are still in their initial deferral period and another $343 million that have been or are expected to be granted a second 90-day deferral.\nIncluded in this total are $130 million of loans secured by hotels with a pre-COVID weighted average LTV of 53%, $124 million of loans secured by retail properties with a pre-COVID weighted average LTV of 66% and $25 million of loans secured by restaurants with a pre-COVID weighted average LTV of 59%.\nOf the $912 million of loans that have concluded their deferral period, $380 million have resumed regular contractual payments with the majority of the remainder expected to resume payments at their August one due date.\nNoninterest income decreased $2.6 million versus the trailing quarter to $14 million as reductions in deposit and wealth fees resulting from consumer restrictions from COVID mitigation efforts and volatile asset values and lower swap fee income was partially offset by greater bank loan life insurance benefits and gains on sales of real estate owned.\nExcluding provisions for credit losses on commitments to extend credit, COVID-related costs and acquisition-related professional fees, noninterest expenses were an annualized 1.86% of average assets for the quarter.\nThese core expenses decreased $4.4 million versus the trailing quarter.\nThe decrease in core expenses versus the trailing quarter was primarily attributable to $1 million of executive severance and normal first quarter increases and compensation and related payroll taxes recognized in the trailing quarter.\nAnd increased deferral of salary expense related to PPP loan originations in the current quarter.\nThis improvement was partially offset by increased FDIC insurance costs as the remaining $267,000 in small bank assessment credit was utilized in the current quarter.\nOur effective tax rate decreased to 20.6% from 26% for the trailing quarter.\nAs a result of reduced forecast of taxable income in the current quarter, and an adverse discrete item related to the vesting of stock compensation in the trailing quarter.\nWe are currently projecting an effective tax rate of approximately 23% for the balance of 2020.\nWe'd be happy to respond to questions.",
        "summary": "compname reports q2 earnings per share $0.22.\nq2 earnings per share $0.22."
    },
    {
        "text": "Today's presenters are Chairman and CEO, Chris Martin; President and Chief Operating Officer, Tony Labozzetta; and Senior Executive Vice President and Chief Financial Officer, Tom Lyons.\nNow it's my pleasure to introduce Chris Martin, who will offer his perspective on the third quarter.\nProvident's third quarter results were strong, and we believe the business climate is promising as we look into Q4.\nEarnings of $0.49 in the quarter exceeded last year's results by 32%.\nAnd performance was augmented by several factors, including an improving economy as it continues to decline out of COVID restraints, better credit metrics and the achievement of earnings acceleration from the acquisition of SB One.\nThe quarter was marked by growth in net interest income and a strong return on average assets of 1.11% and return on average tangible equity of 12.04%.\nBased on their confidence in our earnings outlook, our Board approved an increase in our quarterly cash dividend to $0.24 per share, representing an increase of 4.3%.\nAnd during the quarter, we also repurchased approximately 630,000 shares of our common stock at an average price of $22.04 per share.\nOur capital position is strong and comfortably exceeds well capitalized levels.\nAs Tony and Tom will detail in their remarks, we are dealing with excess liquidity, not unlike many other financial institutions.\nWe have diligently deployed a portion of that liquidity into securities, but obviously, loan growth would be our preferred investment.\nWe anticipate the Fed will commence tapering their quantitative easing purchases in the fourth quarter, which we hope will result in a steepening of the yields curve.\nThis always takes a while to make an impact, but would signal positive economic outlook, and a moderate amount of inflation would be positive for the bank.\nWith a fairly neutral interest rate, risk position, excess liquidity and stable low-cost deposit funding, we continue to be well positioned to benefit from a rise in interest rates, while remaining well protected if rates remain low.\nThe focal point for Provident was our loan growth ex-PPP, which contributed to increased net interest income, and our strong quarter end loan pipeline, which reflects customer confidence and provides positive momentum for respectable growth going into the fourth quarter.\nIn terms of pricing, the weighted average rate on our loan pipeline has increased, reflecting movement in the treasury curve.\nThe market remains aggressive and our lenders face competition on rates from banks and on structure from nonbanks.\nIn spite of the challenging environment, we win deals because of our relentless focus on delivering a best-in-class customer experience.\nOur core deposit growth continues to be strong in both the consumer and commercial areas, and our cost of deposit remains one of the best in our markets.\nAnd we're also seeing growth in the wealth management and insurance businesses, and we'd expect that organic growth to continue.\nAsset quality improved and charge-offs were negligible as the economy continues to improve.\nAnd core operating costs are well controlled as reflected in our adjusted noninterest expense to average asset ratio of 1.85% and an efficiency ratio of 54.5% for the quarter.\nI remain highly enthusiastic about the prospects within our markets and the drive and motivation of our banking teams will continue to spur growth and enable us to continue to deliver long-term shareholder value.\nWith that, I'll ask Tony to add more context.\nI would like to share with you thoughts about our performance of our key lines of business and areas of focus.\nBased on certain trends that we are observing, we believe the economic outlook for the fourth quarter and leading into 2022 looks promising.\nThis supports improved growth and continued solid profitability for the remainder of the calendar year.\nOur commercial lending group continues to demonstrate strong productivity.\nIn the third quarter, we closed $514 million of new loans, an increase of 29% from the prior quarter.\nWhile prepayments adjusted for PPP are down from the prior quarter, they remain higher than we desire.\nOf note, nearly half of our commercial loan prepayments were driven by the sale of the underlying business or asset.\nIn addition, our line of credit utilization percentage remains roughly 28% compared to the historical average of approximately 40%, which equates to about $190 million of potential additional outstanding loan balances.\nNevertheless, our production exceeded the pressures of the current operating environment, and as such, we grew our commercial loan portfolio, excluding PPP, at an annualized rate of 9.4%.\nNotwithstanding our significant loan production and the fierce competition, at quarter end, our pipeline remains robust at approximately $1.6 billion.\nThe pull-through adjusted pipeline, including loans pending closing, is approximately $1 billion.\nOf note, our expected pipeline rate increased 12 basis points from the last quarter.\nWe project good pull-through, and if prepayments are stable, we should meet or exceed our loan growth expectations for the remainder of the year.\nWe continue to experience good growth in our core deposits, particularly noninterest-bearing demand, which grew at an annualized rate of 12% and presently comprise 24% of our total deposits.\nOur total cost of deposits for the quarter declined three basis points to 23 basis points and is among the best in our peer group.\nWhile we are in a rate and liquidity cycle that has driven margins lower throughout the industry, our growth and low-cost deposit franchise continue to drive value, which is demonstrated by our continued increase in net interest income.\nWe continued to grow fee revenue, largely through Beacon Trust and SB One insurance.\nAdjusting for nonrecurring items related to the SB One merger, SB One Insurance increased its operating profit 10% from the same quarter last year, driven largely by a strong retention ratio of 96.4%.\nBeacon Trust also had good performance, with assets under management increasing approximately 17% to about $4 billion, and revenue increasing 16% over the same quarter last year.\nAs I have mentioned in the past, both Beacon Trust and SB One insurance are value-add for our clients and the bank.\nWe are seeing increased opportunities and referrals among all of our lines of business, which make our growth prospects more exciting.\nLooking forward, our focus is to enhance our asset mix and deploy more of our excess liquidity, which should improve our margin, and more importantly, grow net interest income.\nOur fee-based businesses are important to us, and we want to accelerate their growth and strengthen the synergies with the bank.\nLastly, we have a number of initiatives that will modernize certain business processes that are aimed at reducing friction and improving the digital journey for our employees and customers.\nAs we accomplish our goals, we will increase our franchise value and improve our total return to our shareholders.\nOur net income for the quarter was $37.3 million or $0.49 per diluted share compared with $44.8 million or $0.58 per diluted share for the trailing quarter.\nEarnings for the current quarter included $2 million of provisions for credit losses on loans and off-balance sheet credit exposures, while the trailing quarter benefited from $8.7 million of net negative provisions.\nPretax pre-provision earnings were a quarterly record $52.1 million or an annualized 1.55% of average assets.\nCurrent period earnings featured record quarterly revenue, including record net interest income and noninterest income.\nWhile we did experience modest net interest margin compression as a result of ongoing elevated liquidity, earnings on the $166 million increase in average interest-earning assets partially offset the impact of declines in yields and lower PPP income.\nIncome recognized from PPP loan forgiveness fell $402,000 versus the trailing quarter to $2.5 million, and remaining PPP -- deferred PPP fees totaled $3.2 million at September 30.\nMeanwhile, funding costs fell as average deposits increased and average borrowings declined.\nAverage noninterest-bearing deposits increased $74 million versus the trailing quarter and the total cost of deposits declined 3 basis points to just 23 basis points.\nPull-through adjusted loan pipeline at September 30 was consistent with the trailing quarter at $1.1 billion, and the pipeline rate increased 12 basis points since last quarter to 3.4%.\nExcluding PPP loans, period-end loan totals increased $153 million or an annualized 6.4% versus June 30.\nLoan growth occurred primarily in the CRE category.\nOur provision for credit losses on loans was $1 million for the current quarter compared with the benefit of $10.7 million in the trailing quarter.\nAsset quality metrics, including nonperforming loan levels, early stage and total delinquencies criticized and classified loans and all related ratios improved versus the trailing quarter.\nWe had net charge-offs of $1.9 million or an annualized 8 basis points of average loans this quarter.\nNonperforming assets decreased to 51 basis points of total assets from 62 basis points at June 30.\nExcluding PPP loans, the allowance represented 0.85% of loans compared with 0.88% in the trailing quarter.\nNoninterest income increased to $23.4 million, helped by income recognized from a $3.4 million reduction in contingent consideration related to the earn-out provisions of the 2019 purchase of registered investment advisor, Tirschwell & Loewy.\nWe became subject to the interchange fee limitations of the Durbin amendment this quarter, which reduced revenue by $1.1 million compared with the trailing quarter.\nExcluding provisions for credit losses on commitments to extend credit and merger-related and COVID expenses in 2020, operating expenses were an annualized 1.85% of average assets for the current quarter compared with 1.84% in the trailing quarter, and 1.92% for the third quarter of 2020.\nThe efficiency ratio was 54.51% for the third quarter of 2021 compared with 54.12% in the trailing quarter and 56.2% for the third quarter of 2020.\nOur effective tax rate was 25.7% versus 25.4% for the trailing quarter, and we are currently projecting an effective tax rate of approximately 25% for the remainder of 2021.\nWe'd be happy to respond to questions.",
        "summary": "compname reports q3 earnings per share of $0.49.\nq3 earnings per share $0.49."
    },
    {
        "text": "Joining me on the call today are Jon Moeller, currently Vice Chair and Incoming President and Chief Executive Officer as of November 1; and John Chevalier, Senior Vice President, Investor Relations.\nThe July to September quarter provides a good start to the fiscal year, putting us on track to deliver our guidance for organic sales growth, core earnings per share growth, free cash flow productivity and cash returned to shareholders.\nWe experienced the full impact of rising commodity and transportation costs this quarter, but healthy top-line growth and strong cost savings kept earnings per share growth nearly in line with the prior year.\nEarnings growth should improve sequentially through the balance of the fiscal year as price increases go into effect and productivity programs ramp up.\nSo moving to first quarter results, organic sales grew 4%, volume contributed two points of sales growth, pricing and mix each added one point.\nGrowth was broad-based across business units with nine out of 10 product categories growing organic sales.\nPersonal Health Care up double-digits; Fabric Care grew high-singles; Baby Care, Feminine Care and Grooming up mid-singles; Home Care, Oral Care, Hair Care and Skin and Personal Care organic sales each up low-single-digits.\nFamily Care declined mid-singles comping very strong growth in the base period.\nOrganic sales were up 4% in the U.S. despite 16% growth in the base period.\nOn a two year stack basis, U.S. organic sales are up 20%.\nGreater China organic sales were in line with prior year due to strong growth in the base period comp and due to intra-quarter softness in beauty market growth.\nOn a two year stack basis, organic China -- China organic sales are up 12% in line to slightly ahead of underlying market growth.\nFocused markets grew 4% for the quarter and enterprise markets were up 5%.\nE-commerce sales grew 16% versus prior year.\nGlobal aggregate market share increased 50 basis points.\n36 of our top 50 category country combinations held or grew share for the quarter.\nOur superiority strategy continues to drive strong market growth and in turn share growth for P&G.\nAll channel market value sales in the U.S. categories in which we compete grew mid-single-digits this quarter and P&G value share continued to grow to over 34%.\nWe are up more than a point and a half versus first quarter last year.\nImportantly, the share growth is broad-based.\nNine of 10 product categories grew share over the past three months with the 10th improving to flat versus year ago over the past one month.\nConsumers are continuing to prefer P&G brands.\nOn the bottom line, core earnings per share were $1.61, down 1% versus the prior year.\nOn a currency neutral basis, core earnings per share declined 3% mainly due to gross margin pressure from higher input costs, which we highlighted in our initial outlook for the year.\nCore gross margin decreased 370 basis points and currency neutral core gross margin was down 390 basis points.\nHigher commodity and freight cost impacts combined were a 400 basis point hit to gross margins, mix was an 80 basis points headwind, primarily due to geographic impacts.\nProductivity savings, pricing and foreign exchange provided a partial offsets to the gross margin headwinds.\nWithin SG&A, marketing expense as a percentage of sales was in line with prior year level for the quarter, increasing more than 5% in absolute dollars, consistent with all-in sales growth.\nCore operating margin decreased 260 basis points.\nCurrency neutral core operating margin declined 270 basis points.\nProductivity improvements were 180 basis points help to the quarter.\nAdjusted free cash flow productivity was 92%.\nWe returned nearly $5 billion of cash to share owners, $2.2 billion in dividends and approximately $2.8 billion in share repurchase.\nIn summary, in the context of a very challenging cost environment, good results across top-line, bottom line and cash to start the fiscal year.\nOur team continues to operate with excellence and stay focused on the near-term priorities and long-term strategies that enabled us to create strong momentum prior to the COVID crisis and to make our business even stronger since the crisis began.\nWe continue to step forward into these challenges and to double down our efforts to delight consumers.\nAs we continue to manage through this crisis, we remain focused on the three priorities that have been guiding our near-term actions and choices.\nFirst is ensuring the health and safety of our P&G colleagues around the world.\nSecond, maximizing the availability of our products to help people and their families with their cleaning, health and hygiene needs.\nThird priority supporting the communities, relief agencies and people who are on the front lines of this global pandemic.\nThe strategic choices we've made are the foundation for balanced top and bottom line growth and value creation.\nA portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice.\nIn these performance-driven categories, we've raised the bar on all aspects of superiority, product, package, brand communication, retail execution and value.\nSuperior offerings delivered with superior execution drive market growth.\nIn our categories, this drives value creation for our retail partners and builds market share for P&G brands.\nWe've made investments to strengthen the health and competitiveness of our brands, and we'll continue to invest to extend our margin of advantage and quality of execution improving solutions for consumers around the world.\nThe strategic need for investment to continue to strengthen the superiority of our brands, the short-term need to manage through this challenging cost environment and the ongoing need to drive balanced top and bottom line growth, including margin expansion, underscore the importance of ongoing productivity.\nWe're driving cost savings and cash productivity in all facets of our business.\nNo area of cost is left untouched.\nEach business is driving productivity within their P&L and balance sheet to support balance top and bottom line growth and strong cash generation.\nSuccess in our highly competitive industry requires agility that comes with the mindset of constructive disruption, a willingness to change, adapt and to create new trends and technology that will shape the industry for the future.\nIn the current environment, that agility and constructive disruption mindset are even more important.\nOur organization structure yields a more empowered, agile and accountable organization with little overlap or redundancy flowing through new demands, seamlessly supporting each other to deliver against our priorities around the world.\nThese strategic choices on portfolio, superiority, productivity, constructive disruption and organization structure and culture are not independent strategies, they reinforce and build on each other.\nWhen executed well, they grow markets, which in turn grows share, sales and profit.\nThese strategies were delivered -- were delivering strong results before the crisis and have served us well during the volatile times.\nWe're confident they remain the right strategy framework as we move through and beyond the crisis.\nMoving on to guidance.\nWe will undoubtedly experience more volatility as we move through this fiscal year.\nAs we saw this quarter, growth results going forward will be heavily influenced by base period effects along with the realities of current year cost pressures and continued effects of the global pandemic.\nSupply chains are under pressure from tight labor markets, tight transportation markets and overall capacity constraints.\nInflationary pressures are broad-based and sustained.\nForeign exchange rates add more volatility to this mix.\nWe have also experienced some short-term disruptions in materials availability in several regions around the world.\nOur purchasing, R&D and logistics experts have done a great job managing these challenges.\nThese costs and operational challenges are not unique to P&G, and we won't be immune to the impacts.\nHowever, we think the strategy -- strategies we've chosen, the investments we've made and the focus on executional excellence have positioned us well to manage through this volatile -- volatility over time.\nInput costs have continued to rise since we gave our initial outlook for the year in late July.\nBased on current spot prices, we now estimate a $2.1 billion after-tax commodity cost headwind in fiscal 2022.\nFreight costs have also continued to increase.\nWe now expect freight and transportation costs to be an incremental $200 million after-tax headwind in fiscal '22.\nWe will offset a portion of these higher costs with price increases and with productivity savings.\nAs discussed last quarter and in the more recent investor conferences, we've announced price increases in the U.S. on portions of our Baby Care, Feminine Care, Adult Incontinence, Family Care, Home Care and Fabric Care businesses.\nIn the last few weeks, we've also announced to retailers in the U.S. that we will increase prices on segments of our Grooming, Skin Care and Oral Care businesses.\nThe degree and timing of these moves are very specific to the category, brand and sometimes the product form within a brand.\nThis is not a one-size-fits-all approach.\nWe're also taking pricing in many markets outside the U.S. to offset commodity, freight and foreign exchange impacts.\nAs always, we will look to close couple of price increases with new product innovations, adding value for consumers along the way.\nAs we said before, we believe this is a temporary bottom line rough patch to grow through, not a reason to reduce investment in the business.\nWe're sticking with the strategy that has been working well before and during the COVID crisis.\nOur good first quarter results confirm our guidance ranges for the fiscal year across all key metrics.\nWe continue to expect organic sales growth in the range of 2% to 4%.\nOur solid start to the fiscal year increases our confidence in the upper half of this range.\nWe expect pricing to be a larger contributor to sales growth in coming quarters as more of our price increases become effective in the market.\nAs this pricing reach the store shelves, we'll be closely monitoring consumption trends.\nWhile it's still early in the pricing cycle, we haven't seen multiple changes in consumer behavior.\nOn the bottom line, we're maintaining our outlook of core earnings-per-share growth in the range of 3% to 6% despite the increased cost challenges we're facing.\nForeign exchange is now expected to be neutral to after-tax earnings compared to the modest tailwind we estimated at the start of the year.\nConsidering FX was a modest help to first quarter earnings, we're projecting it to be a headwind for the balance of the year.\nIn total, our revised outlook for the impact of materials, freight and foreign exchange is now a $2.3 billion after-tax headwind for fiscal '22 earnings or roughly $0.90 per share, a 16 percentage point headwind to core earnings per share growth.\nThis is $500 million after-tax of incremental cost pressure versus our initial outlook for the year.\nDespite these cost challenges, we are committed to maintaining strong investment in our brands.\nSo while we are not changing our core earnings per share guidance range, please take note of these dynamics as you update your outlook for the year.\nWe'll face the most significant cost impacts in the first half of the fiscal year as pricing goes into effect, as savings programs ramp up and as we begin to annualize the initial spike in input costs, earnings growth should be sequentially stronger in the third and fourth quarters of the year.\nWe are targeting adjusted free cash flow productivity of 90%.\nWe expect to pay over $8 billion in dividends and to repurchase $7 billion to $9 billion of common stock.\nCombined, a plan to return $15 billion to $17 billion of cash to share owners this fiscal.\nThis outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates.\nSignificant currency weakness, commodity cost increases, additional geopolitical disruptions, major production stoppages or store closures are not anticipated within the guidance ranges.\nTo conclude, our business exhibited strong momentum well before the COVID crisis.\nWe've strengthened our position further during the crisis, and we believe P&G is well positioned to grow beyond the crisis.\nWe will manage through the near-term cost pressures and continued market level volatility with the strategy we've outlined many times and against the immediate priorities of ensuring employee health and safety, maximizing availability of our products and helping society overcome the COVID challenges that still exist in many parts of the world.\nWe'll continue to step forward toward our opportunities and remain fully invested in our business.\nWe remain committed to driving productivity improvements to fund growth investments, mitigate input cost challenges and to maintain balanced top and bottom line growth.",
        "summary": "compname reports qtrly earnings per share of $1.61.\nq1 (not q4) earnings per share $1.61.\nqtrly grooming segment organic sales increased four percent versus year ago.\nqtrly fabric and home care segment organic sales increased five percent versus year ago.\nmaintains fiscal year 2022 guidance.\nqtrly beauty segment organic sales increased two percent versus year ago.\nqtrly organic sales increased 4%.\nqtrly health care segment organic sales increased 7%.\nqtrly baby, feminine and family care segment organic sales increased two percent versus year ago.\nqtrly core earnings per share $1.61.\ncurrent fy 2022 outlook estimates headwinds of $2.1 billion after-tax from higher commodity costs."
    },
    {
        "text": "As Jonathan said, this is Todd Leombruno, chief financial officer speaking.\nI'd like to direct you to Slide No.\nReconciliations for all non-GAAP financial measures are included in today's materials.\nAs usual, today, Tom is going to begin with highlights of the quarter and a few comments on the company's transformation.\nTwo comments before we begin today.\nFirst, as a reminder, regarding the pending Meggitt acquisition, we are still bound by the requirements of the U.K. Takeover Code in respect to discussing certain transaction details.\nAnd secondly, we are announcing a date and time change to our upcoming virtual investor day due to a scheduling conflict with another company's investor day.\nOur meeting will now be held on Tuesday, March 8 from 9 am to 12 pm Eastern.\nIt will be a virtual event.\nAnd among the topics that we'll cover will be the release of our new long-term financial targets.\nI want to start with the title of this slide, which is exceptional execution in a challenging environment.\nWhen you look at the performance of the company in aggregate, safety, sales growth, the margin expansion, EPS, it was an extremely strong quarter.\nThis is against arguably one of the most difficult operating environments that we've all faced in our careers when you add up the cumulative effect of inflation, supply chain challenges and the Omicron virus.\nLet's start with the first bullet.\nFocus on safety continues.\nIt is our No.\nWe're leveraging our high-performance teams, the combination of the natural work teams that we have in our plants and warehouses as well as the Star Point teams and Kaizen.\nAnd it's really this combination, this team structure plus Kaizen, that is driving an ownership culture within the company.\nSo ownership of safety, but also ownership of quality, cost, delivery and engagement.\nSales growth was 12% year over year.\nOrganic growth was 13%.\nIt was nice across all the external reporting segments as well as every region participating.\nTotal sales was a second quarter record as well as total segment operating margin.\nEBITDA margin was 18.2% as reported or 22.7% adjusted.\nIt was 180 basis points.\nIt's a big move versus prior year.\nRobust demand environment continues.\nWe had over 90% of our end markets in the growth phase, which we're very excited about.\nAnd this execution, what you're seeing, is really the cumulative effect of win strategy 2.0 and 3.0 driving this kind of performance.\nWhen you add the strategy changes on top of the portfolio, things we've done, adding those great acquisitions that we've done over the last number of years and the powerful secular trends that I'm going to talk about here momentarily, we see the future has much longer cycle and more resilient and faster growing.\nSo if you go to the next slide, Slide 4, I've touched on this before.\nThis kind of frames all of our thinking and our strategies for the company to around trying to achieve these three key drivers.\nLiving up to our purpose, that higher calling, that North Star that we're driving for, to be great generators and deployers of cash, to be a top quartile performer versus our proxy peers.\nIf you go to Slide 5, which is the little expression that a picture is worth a thousand words, this kind of sums up how the company has changed over the last number of years.\nWe've updated this slide for FY '22 numbers.\nAnd I'm going to just reframe this slide for you.\nOn the left-hand side is adjusted EBITDA, adjusted earnings per share and on the right-hand side is adjusted EBITDA margin.\nSo if you look on the left and you go to FY '16, so we worked real hard as a company for 100 years to get to $6.99 EPS.\nAnd then the last six years, we've grown it by 2.5x to a little over $18 in our current guide.\nIf you just look at the gain that we've had since the pandemic, FY '20 to FY '22 guide, it's almost another $6 just in those two years.\nIt happens to be and I don't think it's coincidental, that we launched win strategy 3.0 at the beginning of FY '20.\nAnd you can see what it's done to propel performance.\nIf you look on the right-hand side and we don't guide on EBITDA margin, but we put in our EBITDA margin year to date to 22.4%.\nIf you look at that from FY '16 to that, it's 770 basis points improvement, just remarkable improvement.\nReally the how behind these results, it's been our people, portfolio changes that we've done and has been, again, a cumulative effect of win strategy 2.0, 3.0.\nSo if you go to the next slide, give you a quick update on the Meggitt transaction.\nWe continue to make progress.\nThere's really four main work streams that we're working.\nThere's two, the economic and national security review that we're working on with the U.K. government.\nI would characterize those as constructive and positive and on track.\nAnd then the antitrust and FDI filings are proceeding as we had anticipated.\nWe're still anticipating a Q3 calendar 2022 close and we're really excited about this.\nThis is obviously a compelling combination.\nIt doubles the size of our aerospace business, highly complementary technologies.\nAnd we're at the beginning of a commercial aerospace recovery with great synergies as we put these two companies together.\nAgain, coming -- bringing this on with everything else we've been doing, a much longer cycle, less cyclical, faster growing company.\nAnd then on Slide 7, in addition to the strategic acquisitions that we've been making, we are uniquely positioned with our eight motion and control technologies to benefit from the four secular trends that you see on this page.\nNow I touched on aerospace and the recovery and momentum of Meggitt plus Parker.\nBut if you look at electrification, ESG, digitization, what you have here are long-term multiyear growth enablers and content growth for us is going to grow, both onboard as well as infrastructure.\nAnd we're excited that this is going to be a big part of what we'll talk about at investor day and we look forward to sharing more about these secular trends on March 8 with you.\nI'll ask everyone to move to Slide 9 and I'll start with our FY '22 Q2 results.\nAs Tom mentioned, this was just an outstanding quarter.\nJust another reminder that our operations leaders are really driving the company to significantly higher levels of performance.\nOur sales increased 12% versus the prior year.\nWe did hit a record level of $3.8 billion.\nTom mentioned this, but organic sales were very healthy at 13%.\nCurrency was about a one point drag on sales.\nThat's how we got to the 12% reported sales increase.\nDemand just remains robust.\nOur backlogs are healthy.\nGrowth remains very broad-based across all of our industrial businesses.\nIf you look into the aerospace business, commercial demand continues to trend positive.\nAnd we talked about this before, but the acquisitions of CLARCOR, LORD and Exotic continue to outperform our expectations.\nWhen you look at the segment operating margins, it's a Q2 record on an adjusted basis.\nWe did 21.6% segment operating margin.\nThat's 120 basis points improvement from prior year.\nAnd our teams are really managing through the well documented supply chain issues, the inflationary environment.\nI really just want to commend them on our team's swift actions to manage these costs and inflationary actions, still while achieving record sales in the quarter.\nTom mentioned this, but adjusted EBITDA margin was 22.7%.\nThat's up 180 basis points from last year.\nBoth our adjusted net income and our adjusted earnings per share has improved by 29% versus prior year.\nNet income is $582 million or 15.2% return on sales.\nAnd adjusted earnings per share was $4.46.\nThat's $1.01 increase versus the prior year of $3.45, just a really solid quarter.\nIf we jump to Slide 10.\nThis is just a bridge on adjusted earnings per share and I'll just detail some of the components that generated the $1.01 increase in EPS.\nAnd as you can see really, operating execution is the major driver in this increase.\nAdjusted segment operating income did increase by $132 million.\nThat's 19% greater than prior year.\nAnd that really accounts for 80% of the increase in our earnings per share this quarter.\nWe did have some other favorable items that was $0.19 favorable.\nThere were some currency gains that were favorable.\nWe did sell a few facilities that we restructured.\nThose closed in the quarter.\nAnd we do have reduced pension expense versus prior year.\nAll of that added up to $0.19.\nAnd then you could see the other items on the slide that all netted to $0.04 favorable.\nBut really, the story here is just a very strong operating quarter.\nIf we go to Slide 11, I'll make a few comments on our segment performance.\nTom mentioned those secular trends.\nWe are seeing growth from those trends across our segments.\nEvery single one of the segments has a record adjusted segment operating margin this quarter.\nWe did maintain a cost-price neutral position.\nWe're very proud of that.\nIncrementals were 32% versus prior year.\nAnd I just want to remind everybody, that is against a headwind of $65 million of discretionary savings that we had in the prior year.\nIf you exclude those discretionary savings, our incrementals were 48%.\nSo really fantastic performance across the board from our teams.\nIt really highlights the power of the win strategy and really demonstrates our ability to perform through this current climate.\nIf you look at orders, orders are plus 12 and really the demand continues to be robust across our businesses.\nJust a little color on Diversified Industrial North America, sales reached $1.8 billion.\nOrganic growth in that segment was 15% versus prior year.\nAnd listen, we're really pleased with the performance in this region.\nWe've talked a lot -- I've read -- I know everyone is familiar with the well documented supply chain issues.\nTom mentioned the Omicron spike.\nWe are not immune to that.\nBut we did keep operating margins at a very high level of 21.3% in this segment and we're proud of that.\nOrder rates continued to be very high at plus 17.\nOur backlog is strong.\nAnd Tom mentioned this, 91% of our markets are in growth mode.\nSo great things in the North American businesses.\nIndustrial international is a great story.\nSales are $1.4 billion.\nOrganic growth is up 14% in this segment.\nAnd I want to note that across all the regions within our International segment, organic growth was mid-teen positive in every region.\nSo really robust activity there.\nMaybe more impressive is the adjusted operating margins, 22.4%.\nThis is an increase of 210 basis points versus the prior year.\nAnd certainly, we have volume.\nWe've talked a lot about our growth in distribution internationally.\nWe are benefiting from some product mix.\nAnd really, the team is doing a great job controlling cost.\nAnd this has been a really long-term effort over a long period of time from that team.\nSo I'm really happy that they're able to put up these continued high level of margin performance.\nOrder rates there were plus 14%, ample backlog and really solid international performance.\nIf we look at aerospace systems, really continued signs of a rebound there.\nSale were $618 million.\nOrganic sales are positive at almost 6%.\nAnd we did see very strong demand in our commercial OEM and MRO markets.\nGreat margin performance here as well.\nOperating margins have increased 270 basis points that finished the quarter at 20.7%.\nAnd again, I just want to remind everyone that, that is still at pre-COVID volume levels.\nSo great margin performance from our aerospace team.\nAerospace orders on a 12-month rolling rate did decline 7%.\nBut one item I want to make clear for everybody is we did have a few large multiyear military orders in the prior period that really created a tough comp just in aerospace.\nIf we exclude those orders, aerospace orders would be plus mid-teens positive.\nSo we're seeing continued signs of steady improvement in aerospace.\nOur order dollars in aerospace in the quarter were at the highest level they've been in the last three quarters.\nSo great quarter out of aerospace.\nBut if you really look at the segments, it's really outstanding operating performance.\nWe've got positive growth, strong order dollars, robust backlogs, record margins and really just solid execution across the board.\nSo great segment performance.\nIf I take you to Slide 12 and talk about cash flow on a year-to-date basis, we did exceed $1 billion in cash flow from operations.\nThat is 13.3% of sales.\nFree cash flow is $900 million or almost 12% of sales.\nAnd conversion on a year-to-date basis is now 107%.\nWe still continue to diligently manage working capital across the company.\nWe really are just responding to these increased demand levels that we have.\nThe working capital change did improve in the quarter as we forecasted.\nIn the quarter, it was a 1.9% use of cash.\nVersus last year, it was a 4.1% source of cash.\nSo for the full year, I just want to reiterate, we continue to forecast mid-teens cash flow from operations and free cash flow for the full year will exceed 100%.\nIf we go to Slide 13 now, I just want to make a few comments on our capital deployment activity.\nI'm sure many people have seen this, but last week, our board approved a dividend declaration of $1.03 per share.\nThat is fully supportive of our long-standing 65-year record of increasing dividends paid.\nAnd I want to give an update on the Meggitt financing.\nWe continue to make progress on our financing plan.\nOur plan is flexible.\nI did mention on the last call that we secured a deal contingent forward hedge contract in the amount of GBP 6.4 billion.\nAccounting rules require us to mark those contracts to market.\nThat impact in the quarter was a non-cash charge of $149 million.\nWe booked that in the other expense line and we are treating that as an adjusted item.\nWe now have $2.5 billion of cash deposited in escrow to fund the Meggitt transaction.\nThat is listed on our balance sheet as restricted cash.\nAnd that was funded from a combination of commercial paper and some cash on hand.\nA result of that, our gross debt-to-EBITDA ended up being 2.7 times in the quarter.\nNet debt was 2.5 times.\nIf you account for the $2.5 billion of restricted cash, net debt-to-EBITDA would be 1.8.\nFull year adjusted earnings per share is raised by $0.75.\nWe did guide to $17.30 at the midpoint last quarter.\nWe have moved that to $18.05 and that is at the midpoint.\nWe've also narrowed the range.\nRange is now $0.25, up or down.\nAnd sales is also raised.\nWe're raising the midpoint to a range of 10% at the midpoint.\nWe've got a range of 9% to 11%.\nAnd the breakdown of that sales change at the midpoint is organic growth is 10 and a half percent.\nCurrency will be about one point unfavorable.\nAnd of course, there's no impact from acquisitions.\nAs Tom said, we don't expect Meggitt to close in our fiscal year.\nIf we look at the full year adjusted segment operating margin, we're also raising that 20 basis points from the prior guide.\nFull year now, we expect that to be 22.1% at the midpoint.\nThere is a 20 basis point range on either side of that.\nAnd corporate G&A and other is expected to be $656 million on an as reported basis, but $435 million on an adjusted basis.\nSo of course, there's a couple of adjusted items in there.\nThe acquisition-related intangible assets, that is a standard adjustment, the realignment expenses standard adjustment, the lowered cost to achieve standard adjustment.\nBut we are adjusting these transaction-related expenses for Meggitt.\nYear to date, we've got $71 million worth of transaction costs and of course, that $149 million non-cash mark-to-market loss that I just mentioned.\nWe're going to continue to adjust for the transaction-related expenses as they are incurred.\nIf you look at tax rate, tax rate is now going to be slightly lower than what we had forecasted just based on first half activity.\nWe expect that to be 22% now.\nAnd finally, guidance for the full year assumed sales, adjusted operating income and earnings per share all split, 48% first half, 52% in the second half.\nAnd just a little bit more color, Q3, FY '22 Q3 adjusted earnings per share guide, we have at $4.54.\nSo with that, Tom, I'll hand it back to you for closing comments and I'll ask everyone to go to Slide 15.\nWe've got a highly engaged team around the world living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow.\nYou've seen what 3.0 has done, as I referenced in that earnings per share chart, describing our current performance that's going to drive our future performance.\nIt's the early days of win strategy 3.0 and I would characterize it as having long legs, lots of potential ahead with win strategy 3.0.\nThe portfolio transformation continues.\nWe've acquired three great companies, are in the process of a fourth that will make us longer cycle and more resilient.\nAnd if you put that on top of the secular trends that I highlighted, we feel very, very positive about the future.\nSo it's been our portfolio changes.\nIt's been the strategy changes.\nBut it really starts with our people, 55,000 team members that are thinking and acting like an owner, so 55,000 owners that are driving this transformation.\nAnd then I'm going to hand it back to Todd for a quick comment just to set up the Q&A before we get started.\nJonathan, I just want to want to ask the participants of the call just as a reminder to ask one question, follow up if needed and then jump back into the queue just so we can try to get everyone on the call to to have a shot at answering a question.\nWe do appreciate your cooperation.",
        "summary": "q2 adjusted earnings per share $4.46.\nq2 sales rose 12 percent to $3.82 billion.\nqtrly orders increased 12% for total parker.\nfy22 guidance assumes organic sales growth of approximately 10% to 12% compared with prior year.\nfor remainder of this fiscal year, we expect positive demand trends to continue."
    },
    {
        "text": "I'm Mark Kowlzan, Chairman and CEO of PCA and with me on the call today is Tom Hassfurther, the Executive Vice President, who runs the Packaging business and Bob Mundy, our Chief Financial Officer.\nAfter that, I'll then wrap things up and then would be glad to take questions.\nYesterday, we reported third quarter net income of $251 million or $2.63 per share, excluding the special items, third quarter 2021 net income was $257 million or $2.69 per share compared to third quarter 2020 net income of $149 million or $1.57 per share.\nThird quarter net sales were $2 billion in 2021 and $1.7 billion in 2020.\nTotal company EBITDA for the third quarter excluding the special items was $464 million in 2021 and $323 million in 2020.\nThird quarter net income included special items expenses of $0.06 per share primarily for certain costs at the Jackson Alabama mill for paper to containerboard conversion related activities while last year's third quarter net income included special items expenses of $0.11 per share that were related primarily to the impact of Hurricane Laura on the DeRidder, Louisiana mill.\nExcluding the special items, the $1.12 per share increase in third quarter 2021 earnings compared to the third quarter of 2020 was driven primarily by higher prices in mix of $1.58 and volume $0.62 in our Packaging segment.\nHigher production volume of $0.06 in prices in mix of $0.05 in our Paper segment and lower non-operating pension expense $0.03 and lower interest expense $0.01.\nThe items were partially offset by operating costs, which were $0.84 per share higher, primarily due to inflation-related increases, particularly in the areas of labor and benefits expenses, recycled fiber costs, energy, repairs, materials and supplies, as well as several other indirect and fixed cost areas.\nWe also had inflation-related increases in our converting costs, which were $0.10 per share higher.\nFor the last several quarters, freight and logistics costs have risen, and were $0.23 per share higher compared to last year, driven by significant increases in fuel costs, tight truck supply, driver shortages, and the higher mix of spot pricing to keep up with box demand.\nAnd finally, scheduled outage expenses were $0.04 per share higher than last year.\nAnd sales volume in our Paper segment was lower by $0.02 per share.\nLooking at the packaging business.\nEBITDA excluding special items in the third quarter of 2021 of $467 million with sales of $1.8 billion, resulted in a margin of 26% versus last year's EBITDA of $324 million with sales of $1.5 billion and a 22% margin.\nPackaging segment demand remained strong and the teams did a tremendous job of implementing their previously announced containerboard and corrugated products price increases.\nThe containerboard mills set an all-time quarterly sales volume record and our box plants set new third quarter record for total corrugated product shipments, as well as shipments per day.\nBy utilizing the capability of both machines at our Jackson Alabama mill to produce containerboard, we were able to reach our desired inventory levels to better serve our customer demand, help minimize the transportation challenges we continue to experience, and build some inventory ahead of the DeRidder mills fourth quarter outage.\nWe manage very effectively, the execution of numerous initiatives and capital projects to reduce cost through efficiency, productivity, and optimization improvements across our manufacturing locations.\nWe continue to put tremendous effort into managing certain material, equipment, and labor availability issues to keep our customers supplied and their needs and their capital projects on track.\nWith no relief from the supply chain obstacles that we, our customers, and our suppliers continue to face along with unprecedented inflation-related challenges, the combination of all of these efforts are critical to our success going forward.\nThe improvements in execution our employees deliver constantly across many fronts is what allows us to continuously improve margins.\nAfter successfully completing the planned maintenance outage at the Jackson mill during the third quarter, the mill restarted with the number 1 machine making corrugated medium rather uncoated freesheet grades, utilizing a mix of Virgin Kraft and DLK fiber based on the needs of our customers.\nThis was required to help meet continued strong demand from our box plant customers, meet our targeted inventory levels prior to year-end, and help supply the needs of our box plant acquisition that we anticipate acquiring later this quarter.\nSimilar to the number 3 machine at Jackson, the smaller number 1 machine is highly efficient.\nIt's a versatile machine and with minimal capital required to repurpose a deinking plant to handle DLK.\nThe machine was very quickly able to produce high-quality medium for the box plants.\nAlthough still capable of producing uncoated freesheet products, we plan to continue producing medium on the machine over the next several months as our internal and external packaging demands warrants.\nThis gives us the opportunity to further evaluate the machine's capabilities and to process -- and process changes that might be required to potentially produce medium permanently in a cost-effective manner.\nWe'll also use the period to further refine our estimates and assumptions to fully understand the potential of the entire mill to produce containerboard on both machines at their optimal cost and quality.\nThis will also allow us to evaluate our strategic containerboard supply capabilities for providing the necessary runway to grow our Integrated Downstream box demand.\nWe are committed to being fully integrated and we have a track record of ramping up our internal capacity according to our customers' demand requirements.\nThe previously announced conversion of the J3 machine to linerboard remains on track with no changes to the schedule we discussed on last quarter's call.\nWe will continue to serve our paper customers with both machines at our International Falls mill, which is capable of producing all of Jackson's paper grades as well as available inventory produced on the number 1 machine at Jackson.\nWe continue to get excellent realization from the implementation of our previously announced price increases across all product lines.\nDomestic containerboard and corrugated products prices and mix together were $1.40 per share above the third quarter of 2020 and up $0.55 per share compared to the second quarter of 2021.\nExport containerboard prices were up $0.18 per share compared to the third quarter of 2020 and up $0.06 per share compared to the second quarter of 2021.\nAs Mark mentioned, we achieved a new all-time record for containerboard shipments with continued strong demand in our box plants as well as our domestic and export containerboard markets.\nWe had record third quarter corrugated products shipments, which were up 2.3% in total and per workday over last year's very strong third quarter.\nThrough the first three quarters of 2021, our box shipment volume is up 6.7% on a per day basis versus the industry being up 4.5%.\nIn addition to supplying the record internal needs of our box plants, our outside sales volume of containerboard was 73,000 tons above last year's third quarter and 37,000 tons higher than the second quarter of 2021.\nRegarding our third quarter demand and our outlook, I'd like to reemphasize some points I made on previous earning calls and what Mark alluded to earlier, the same issues that impact our ability to get more volume out of our box plants like labor shortages, truck availability, driver shortages, raw material availability issues, and supply chain bottlenecks also persist with our customers.\nThey are telling us they have higher demand and could ship more if not for these issues.\nThere is no doubt we view demand is strong and we expect this to continue even with the economic obstacles most companies are facing.\nAnd keep in mind the fourth quarter will have three less shipping days in the third and fourth quarter comparisons will be against last year's all-time quarterly record for the industry.\nRegarding the box plant acquisition, Mark mentioned, last week we entered into a definitive agreement to acquire substantially all of the assets of Advanced Packaging Corporation, an independent corrugated products producer in a cash-free transaction.\nUnder the terms of the agreement, PCA will acquire a modern full line 500,000 square foot corrugated products facility located in Grand Rapids, Michigan.\nThe transaction is structured as a purchase of assets, resulting in a full step-up of the assets to fair market value.\nThis acquisition is consistent with one of the key strategic focus areas we have discussed many times regarding increasing our vertical integration of containerboard through organic box volume growth and strategic box plant acquisitions.\nAfter completion of the acquisition, our containerboard integration is expected to increase by almost 80,000 tons.\nThis also will allow for further optimization and enhancement of our mill capacity and box plant operations, as well as other benefits and synergies that we expect to begin realizing soon after closing.\nAlthough we won't get into financial details at this point, we expect the acquisition to be accretive to earnings immediately with a bottom line purchase price multiple similar to the average of our last four acquisitions.\nClosing subject to certain customary conditions and regulatory approval is expected later this quarter and we will finance the transaction with available cash on hand.\nAdvanced Packaging is a well-capitalized full service provider of corrugated packaging products, including high-end graphics, retail displays, sustainable shipping containers, and protective packaging.\nThey utilized started state-of-the-art technology, structural and graphic design, and engineering capabilities, and an ISTA certified test laboratory to provide customers a solution for nearly any packaging need.\nWith the commitment to continuous improvement, innovation and safety in their operations, Advanced Packaging is a great strategic fit for PCA and our culture with an excellent management team, highly skilled and dedicated employees, and an outstanding reputation in the marketplace.\nLooking at the Paper segment.\nEBITDA excluding special items in the third quarter was $18 million with sales of $150 million or 12% margin compared to third quarter 2020 EBITDA of $17 million and sales of $178 million or 9% margin.\nPrices and mix were up 4% from last year's third quarter and also moved 4% higher from the second and into the third quarter of 2021 as we continue to implement our previously announced price increases.\nAs we mentioned last quarter, we finished goods inventory now at optimal levels for the paper business, sales volume, which was 19% below last year's level, is fairly reflective of our production capability.\nAs I said earlier, while the Jackson number 1 machine is running medium, we will continue to service our paper customers' needs from both of the International Falls machines, which are capable of producing all of the Jackson paper grades.\nWhile we've maintained our capability to produce uncoated freesheet on both machines at Jackson, we'll will continue to monitor market conditions and run our paper system accordingly.\nCash provided by operations during the quarter totaled $284 million with free cash flow of $134 million.\nThe primary payments of cash during the quarter included capital expenditures of $150 million, common stock dividends totaled $95 million, $68 million for federal and state income tax payments.\nPension and other post-employment benefit contributions of $51 million, and net interest payments of $7 million.\nDuring the third quarter, we issued $700 million of 30-year, 3.05% notes and used the proceeds from these notes to redeem our 4.5%, $700 million, 2023 notes in early October.\nThis transaction will lower our average annual cash interest rate from 3.8% to 3.4%, lower our annual interest expense by $11 million per year, and extend our average debt maturity from 8.5 years to 16.3 years.\nBased on the timing of closing the new bonds in September and the redemption of the old bonds occurring in October, our quarter-end cash on hand balance included the new bond proceeds.\nExcluding this transaction, our quarter-end cash on hand balance was just over $1 billion or $1.2 billion, including marketable securities with liquidity at September 30th of $1.5 billion.\nOur planned annual maintenance expense for the quarter is still expected to be about $0.41 per share or about $0.06 per share primarily due to the DeRidder mill outage.\nThis will result of negative impact of $0.25 per share moving from the third quarter to the fourth quarter and $0.18 per share higher than last year's fourth quarter.\nFinally, as Mark mentioned previously, we continue to put tremendous effort into managing certain material equipment and labor availability issues to keep our capital projects on track.\nWhile we are managing to keep the key milestones of our more significant projects on schedule, our capital spending across the entire company is now expected to come in below the range we provided previously.\nWe currently expect to end the year with total capital spending around $550 million.\nLooking ahead, as we move from the third into the fourth quarter, we will continue to implement our previously announced price increases for domestic containerboard, corrugated packaging, and paper and will also expect average export containerboard prices to move higher.\nPackaging segment volume will be lower due to three less shipping days, as well as the scheduled outage at our DeRidder mill and Paper segment volume will be lower as the Jackson mill is not expected to produce any paper grades.\nWith higher energy prices and anticipated colder weather, energy costs will increase.\nWood costs, especially in our Southern mill system, will be higher due to the previous wet weather.\nLow-inventory and high-demand will also impact wood.\nWe also expect inflation to continue with most of the other operating and converting costs along with higher freight and logistics expenses.\nAnd lastly, as Bob mentioned, we expect scheduled outage cost to be approximately $0.25 per share higher than the third quarter.\nConsidering these items, we expect fourth quarter earnings of $2.04 per share.\nWith that, we'd be happy to entertain any questions.\nThe statements were based on current estimates, expectations and projections of the company, and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our Annual Report on Form 10-K and in subsequent quarterly reports on Form 10-Q filed with the SEC.\nAnd with that, Josh.",
        "summary": "packaging corp of america sees q4 earnings per share of $2.04.\nsees q4 earnings per share $2.04.\nq3 earnings per share $2.69 excluding items.\nexpect inflation to continue with most of other operating & converting costs,alongwith higher freight and logistics expenses.\nexpect average export containerboard prices to move higher.\nwith higher gas prices and anticipated colder weather, energy costs will increase.\nwood costs, especially in co's southern mills, will be higher due to previous wet weather, low inventory and high demand."
    },
    {
        "text": "I'm Mark Kowlzan, Chairman and CEO of Packaging Corporation of America.\nAnd with me on the call today is Tom Hassfurther, Chief -- Executive Vice President, who runs the Packaging business; and Bob Mundy, our Chief Financial Officer.\nI'll then wrap things up and we'd be glad to take questions.\nYesterday, we reported fourth quarter 2020 net income of $124 million or $1.30 per share.\nExcluding the special items, fourth quarter 2020 net income was $127 million or $1.33 per share compared to the fourth quarter of 2019's net income of $163 million or $1.71 per share.\nFourth quarter net sales were $1.7 billion in both 2020 and 2019.\nTotal company EBITDA for the fourth quarter, excluding special items, was $293 million in 2020 and $335 million in 2019.\nFourth quarter net income included special items of $3 million primarily for facilities closure and restructuring costs.\nIn addition, we also reported full year 2020 earnings excluding special items of $550 million or $5.78 per share compared to 2019's earnings excluding special items of $726 million or $7.65 per share.\nNet sales were $6.7 billion in 2020 and $7 billion in 2019.\nExcluding the special items, total company EBITDA in 2020 was $1.23 billion compared to $1.45 billion in 2019.\nExcluding special items, the $0.38 per share decrease in fourth quarter 2020 earnings compared to the fourth quarter of 2019 was driven primarily by lower prices and mix in our Packaging segment of $0.30; the Paper segment, $0.05; lower volumes in our Paper segment of $0.27 and higher scheduled maintenance outage costs of $0.08.\nHigh demand for trucks due to low inventories along with driver shortages and rail rate increases drove higher freight expenses of $0.07 and our tax rate was $0.05 per share higher primarily due to some of the benefits we had in 2019 that were not repeated in 2020.\nThese items were partially offset by higher volumes in our Packaging segment of $0.40 per share and excellent management of costs during the quarter, which resulted in lower operating costs of $0.01 and lower other costs of $0.03 per share.\nLooking at the Packaging business.\nEBITDA excluding special items in the fourth quarter of 2020 of $303 million with sales of $1.54 billion resulted in a margin of 20% versus last year's EBITDA of $303 million and sales of $1.46 billion or a 21% margin.\nFor the full year 2020, Packaging segment EBITDA excluding special items was $1.2 billion with sales of $5.9 billion or 21% margin compared to full year 2019 EBITDA of $1.3 billion with sales of $5.9 billion or 22% margin.\nDemand in our Packaging segment remained very strong as sales volumes in both the containerboard mills and the corrugated products plants set all-time records.\nAlthough we were able to replenish some inventory during the quarter by postponing a large discretionary outage at the DeRidder mill and utilizing the Jackson mill for additional containerboard production, we again ended the period with inventory levels lower than planned and at a new low from a weeks of supply standpoint due to much stronger-than-expected demand.\nAs we mentioned on the last quarter's call, during the fourth quarter, we did begin producing high-performance virgin linerboard on the number three machine at Jackson, Alabama to help meet the continued strong demand from our box plant customers and also to build some much-needed inventory prior to the year-end.\nThe machine's capabilities met our expectations for the quarter, producing excellent quality, lightweight, high-performance grades for the months of November and December.\nAlthough as we said previously, these tons are currently at a very high cost, we were able to refine our previous studies and assumptions in order to more accurately estimate the future capital investment and process changes required in a phased approach to fully utilize the potential of the mill to produce containerboard at an optimal cost and quality.\nIn order for us to address our strategic integrated containerboard supply needs capable of providing the necessary runway to grow our downstream box plant demand, this analysis along with other options we've been evaluating will be reviewed by the Board of Directors in our February meeting.\nWe'll then be able to discuss this further with you.\nAs Mark mentioned, our corrugated products plants established new all-time quarterly records for total box shipments up 9.9% compared to last year's fourth quarter as well as shipments per day up 11.7% compared to last year.\nSaid another way, although there were three less shipping days this quarter compared to the third quarter, our total fourth quarter shipments exceeded the third quarter by 2.2%.\nFor the full year, annual corrugated shipment records were set as well, both in total and per day, up 5.8% and 5.4%, respectively, with one more shipping day compared to 2019.\nOutside sales volume of containerboard was 16,000 tons below last year's fourth quarter as we ran our containerboard system to supply the record needs of our box plants.\nDomestic containerboard and corrugated products prices and mix together were $0.31 per share lower than the fourth quarter of 2019 and down $0.11 per share versus the third quarter of 2020 primarily due to a less rich mix as the graphics and point-of-purchase display business as well as the produce business in the Pacific Northwest tails off during this period.\nExport containerboard prices were $0.01 per share above both the fourth quarter of 2019 as well as the third quarter of 2020.\nAs expected, late in the quarter, we began to see the initial benefit of our recently announced Packaging segment price increases.\nWhile we don't comment on forward pricing specifics, we would expect to realize the vast majority of the increases during the first quarter of 2021.\nLooking at the Paper segment, EBITDA excluding special items in the fourth quarter was $10 million with sales of $156 million or 6% margin compared to fourth quarter 2019 EBITDA of $53 million and sales of $244 million or a 22% margin.\nFor the full year 2020, Paper segment EBITDA excluding special items was $73 million with sales of $675 million or an 11% margin compared to the full year 2019 EBITDA of $213 million with sales of $964 million or a 22% margin.\nMarket conditions in the Paper segment continued to be challenged due to the nationwide responses to help control the spread of the pandemic.\nAs expected, sales volume was below seasonally stronger third quarter levels and over 30% below the fourth quarter of 2019.\nAs mentioned previously, with the scheduled outage at our International Falls mill, the Jackson mill was restarted on white paper in October and produced both paper and containerboard during the fourth quarter.\nWe'll continue to assess our outlook for paper demand and optimal inventory levels and will run our paper system accordingly.\nAverage paper prices and mix were 1% below the third quarter of 2020 and approximately 3% below the fourth quarter of 2019.\nFor the fourth quarter, we generated cash from operations of $271 million and free cash flow of $103 million.\nThe primary uses of cash during the quarter included capital expenditures of $168 million.\nCommon stock dividends totaled $75 million, $51 million for federal and state income tax payments and net interest payments of $40 million.\nWe ended the year with $975 million of cash on hand or just over $1.1 billion, including marketable securities.\nOur liquidity at December 31 was just under $1.5 billion.\nFor the full year 2020, cash from operations was $1.03 billion.\nWe had capital spending of $421 million.\nFree cash flow was $612 million.\nOur final recurring effective tax rate for 2020 was 25% and our final reported cash tax rate was 18%.\nRegarding full year estimates of certain key items for the upcoming year, we expect total capital expenditures to be between $500 million to $525 million, which excludes any potential capital spending related to the Jackson conversion since that is still being evaluated, as Mark indicated earlier.\nDD&A is expected to be approximately $407 million.\nPension and post-retirement benefit expense of approximately $2 million, which is net of a nonoperating pension benefit of almost $20 million primarily due to our pension asset performance in 2020.\nWe also expect to make cash pension and post-retirement benefit plan contributions of $52 million.\nBased on the recent 27% increase to our dividend, we expect dividend payments for the year of $380 million.\nOur full year interest expense in 2021 is expected to be approximately $95 million and net cash interest payments should be about $93 million.\nThe estimate for our 2021 combined federal and state cash tax rate is about 20.5% and for our book effective tax rate, approximately 25%.\nCurrently, planned annual maintenance outages at our mills in 2021 will result in approximately 81,000 less tons of containerboard production compared to 2020.\nThe annual earnings impact of these outages, including lost volume, direct costs and amortized repair costs, is expected to be $0.90 per share compared to the $0.65 per share we had in 2020.\nThe current estimated impact by quarter in 2021 is $0.10 per share in the first quarter, $0.25 in the second, $0.13 in the third quarter and $0.42 per share in the fourth.\nAs they've done through this pandemic, our employees demonstrated tremendous resiliency to overcome adversity in both their personal and work lives to deliver significant accomplishments throughout the company, not the least of which was running our manufacturing and office locations safely during these times of constant change and distraction.\nWithout question, we experienced difficulties and unique challenges during the year.\nHowever, our employees never lost their resolve to succeed.\nOur manufacturing and sales organizations continued to successfully adapt to the needs of our customers during this period of unprecedented demand in our packaging business and also effectively manage the market challenges in our paper business brought on by the pandemic as well as working through the impact of multiple hurricanes.\nOur engineering and technology organization has stayed on track with the key capital projects and process improvements for our box plants and mills and our corporate staff groups found innovative solutions for remote working conditions to ensure we continue to manage the company effectively as well as perform all of the necessary administrative activities that are necessary for our employees or are required as a public company.\nI'm very proud of our accomplishments and the strong partnerships we've built with our customers and suppliers over the many years.\nLooking ahead, as we move from the fourth into the first quarter, our Packaging segment demand should remain strong with shipments exceeding those of last year's record first quarter.\nThis will require us to continue producing containerboard at our Jackson mill in addition to an appropriate amount of white paper to maintain optimal inventory levels for servicing the paper customers.\nAs Tom mentioned, we expect to realize the majority of our recently announced Packaging segment price increases during the first quarter and we expect average export prices to move higher as well.\nHowever, higher freight costs are expected to continue and labor costs will be higher with annual wage inflation and timing related increases to fringes and benefits as we start the new year.\nSeasonally colder weather will increase energy and wood costs.\nAnd we also expect higher prices for recycled fiber.\nFinally, scheduled outage expenses should be lower although inflation-related increases with our operating supplies and repair costs are expected to offset much of that benefit.\nShelter-in-place and lockdown conditions are constantly changing across the country.\nAnd with the new federal administration in place, we expect that guidelines and requirements will continue to evolve.\nThere continues to be numerous events and actions that could significantly impact our expectations and assumptions for the upcoming quarter in both our Packaging and Paper segments.\nThis is true not only for the operation of our facilities but also for the needs of our customers and the availability of services and products we rely on for our -- from our suppliers.\nAs a result, we are not able to appropriately quantify our guidance for the first quarter.\nWith that, we'd be happy to entertain any questions.\nThese statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC.\nAnd with that, Holly, I'd like to open up the call to questions, please.",
        "summary": "compname reports q4 earnings per share $1.30.\nq4 earnings per share $1.33 excluding items.\nq4 earnings per share $1.30.\nq4 sales $1.7 billion versus refinitiv ibes estimate of $1.73 billion."
    },
    {
        "text": "I'm standing in for Tracy today.\nThe supplemental document is available on our website at prologis.com under investor relations.\nThese statements are based on current expectations, estimates and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions.\nAnd in accordance with Reg G, we have provided a reconciliation to those measures.\nTom, will you please begin?\nThe fourth quarter closed out a year of record-setting activity across our business.\nCore FFO was $1.12 per share, with net promote earnings of $0.05.\nFor the full year, core FFO was $4.15 per share, with net promote earnings of $0.06.\nExcluding promotes, core FFO grew 14% year over year.\nNet effective rent change on rollover accelerated to 33%, up 510 basis points sequentially and was led by the U.S. at over 37%.\nAverage occupancy was 97.4%, up 80 basis points sequentially.\nCash same-store NOI growth remained strong at 7.5% for the quarter and 6.1% for the full year.\nI want to point out that we're modifying our in-place to market rent disclosure to standardize this metric among logistics REITs.\nThis collaboration is an extension of the work we've done to harmonize other property operating metrics.\nWe have collectively defined net effective lease mark-to-market of our operating portfolio as the growth rate from in-place rents to market rents.\nThis now aligns with how rent change on rollover is expressed.\nUsing this new definition consistently applied, our net effective lease mark-to-market at year-end jumped almost 800 basis points sequentially to 36%.\nThis current rent spread represents embedded organic NOI of more than $1.2 billion or $1.55 per share that we will capture without any further market rent growth.\nTurning to strategic capital.\nThis business continues to drive tremendous growth in value.\nIn Q4, we completed the early wind up of our highly successful UKLV venture.\nUKLV's $1.7 billion of operating assets were contributed to our PELF and PELP Ventures, we earned net promote income of $0.05 in connection with the closeout of this venture and our percentage of infinite life vehicles has consequently grown to 95% of our $66 billion of third-party assets under management.\nFor the year, our team raised $4.4 billion of third-party equity.\nAfter drawing down $1.9 billion in our open-ended funds for acquisitions during the year, equity Qs stood at a record $4 billion at yearend.\nOn the deployment front, we had a very productive and profitable year.\nDevelopment starts totaled $3.6 billion with margins of 32%.\nWe continue to maintain a long development runway with a land portfolio able to support $26 billion of future starts.\nStabilizations totaled $2.5 billion with estimated value creation of $1.3 billion and average margin of 53%, both all-time highs.\nRealized development gains were $817 million for the year, also an all-time high.\nThese results are the product of our highly disciplined team and an incredibly strong operating environment.\nFor our customers, the importance of the health of their supply chain and the real estate that underpins it has never been so critical.\nWe believe the current global supply chain challenges will continue well beyond this year.\nFortunately, the scale of our 1 billion square foot portfolio puts us in a unique position to help our customers address these current supply chain challenges.\nThis includes shortening construction delivery times by navigating raw material shortages and leveraging our Essentials platform to procure warehouse equipment and services, so our customers can focus on their core operations.\nWe're also investing in technology and talent to support our industry-leading sustainability objectives, including our efforts around renewable energy.\nMarket dynamics today are highly favorable and demand has never been stronger.\nDuring the quarter, we signed 62 million square feet of leases and issued proposals on 90 million square feet.\nDemand is diverse across a range of industry end customers.\nE-commerce made up 19% of our new leasing this quarter, with further broadening of customer diversity.\nWe signed 357 new leases, with 265 unique e-commerce customers in 2021, both of which are high watermarks.\nDemand is fueled by three forces.\nFirst, overall consumption and demographic growth require our customers to expand.\nSecond, customer supply chains are still repositioning to address the massive shift to e-commerce as well as preparing for higher growth and service expectations.\nAnd third, the need to create more resiliency in supply chains.\nInventory to sales ratios are more than 10% below pre-pandemic levels.\nOur customers not only need to restock at this 10% shortfall but build additional safety stock of 10% or greater.\nThis combination has the potential to produce 800 million square feet or more of future demand in the U.S. alone.\nCollectively, these forces have placed a premium on speed to market and flexibility, driving demand for years to come.\nis approximately 70% pre-leased, which is well above the historical average.\nWe believe demand will balance out with supply in 2022, and vacancy rates will remain at record lows in both our U.S. and international markets.\nCompetition for limited availabilities produced yet another quarter of record rent and value growth.\nIn the fourth quarter, rents in our portfolio grew 5.7% globally and 6.5% in the U.S., bringing full year growth to records 18% and 20%, respectively, far exceeding our initial forecast.\nThis growth, paired with continued compression in cap rates, is translating to record valuation increases.\nOur portfolio posted its highest quarterly value increase, rising more than 12.5% globally, bringing the full year increase to a remarkable 39%.\nNow moving to guidance for 2022, here are the components on an our share basis.\nWe expect cash same-store NOI growth to range between 6% and 7% and average occupancy to range between 96.5% to 97.5%.\nWe are forecasting rent growth in our markets to be 11% in the U.S. and 10% globally.\nFor strategic capital, we expect revenue, excluding promotes, to range between $540 million and $560 million.\nWe expect net promote income of $0.55 per share for the year, almost all of which will occur in the third quarter and is driven by our PELF venture.\nWhile a record, given the significant increase in rents and valuations, we would expect to see similar or higher promote levels in 2023.\nIn response to continued strong demand, we are forecasting development starts of $4.5 billion to $5 billion, with approximately 35% build-to-suits.\nDispositions will range between $1.5 billion and $1.8 billion, two-thirds of which we expect to close this quarter.\nWe're forecasting net deployment uses of $2.3 billion at the midpoint, which we plan to fund with $1.6 billion of free cash flow after dividends and a modest increase in leverage.\nWe project core FFO, including the $0.55 of net promote income, to range between $5 and $5.10 per share, representing 22% year-over-year growth at the midpoint.\nCore FFO, excluding promotes, will range between $4.45 and $4.55 per share or year-over-year growth of 10% at the midpoint.\nSince our Investor Forum in 2019, our three-year earnings CAGR has been 13%, excluding promotes, well ahead of the 8% to 9% CAGR forecast we originally provided.\nBefore closing out, I want to spend a minute on the quality of our earnings drivers and differentiators, which set Prologis apart from other real estate companies.\nWe continue to drive strong organic growth and aren't reliant upon external growth to achieve sector-leading results.\nIn fact, approximately 75% of the increase to our core FFO for 2022, excluding promotes, is derived from organic growth, principally same-store NOI and strategic capital fee-related earnings.\nIt's important to point out that in 2022, our strategic capital revenue, including promotes, will be over $1 billion, a new milestone.\nThis high-margin business generates very durable fee streams with asset management fees marked to fair values each quarter, all while requiring minimal capital.\nIn addition, we see growing earnings from our Essentials business, which allows us to expand our services and solutions beyond rent.\nWhen we introduced this business back in 2018, we set a target of $300 million from procurement savings and Essentials revenue.\nWe will hit that target this year with more than $225 million from procurement and $75 million from Essentials.\nIn light of our success with procurement and the fact that we have embedded this initiative into our platform, we will not provide specific procurement reporting going forward, instead focusing on Essentials.\nWe also have a long development runway of $26 billion, much of which comes from our international opportunity set, positioning us for continued strong value creation well into the future.\nLastly, these differentiators are all underpinned by the lowest cost of capital among REITs and unmatched scale that minimizes operating costs.\nIn closing, while 2021 was a year of many records, the bulk of the benefit from the current environment will be realized in the future, providing a clear tangible runway for sector-leading growth for many years to come.\nWe are confident our best years are still ahead of us.",
        "summary": "core funds from operations (core ffo)* per diluted share was $1.12 for quarter.\nsees 2022 net earnings per diluted share $4.40 to $4.55.\nsees 2022 core ffo per diluted share $5.00 to $5.10.\nsees 2022 core ffo, excluding net promote income $4.45 to $4.55."
    },
    {
        "text": "For the fourth quarter 2021, PMT reported a net loss attributable to common shareholders of $27.3 million or $0.28 per common share, driven primarily by fair value declines in its interest rate sensitive strategies.\nThese impacts were partially offset by strong returns in our credit sensitive strategies, which consist of investments in GSE credit risk transfers and investments in non-agency subordinate bonds.\nDuring the quarter, we repurchased 2.2 million common shares of PMT common stock for $39 million.\nPMT paid a common dividend of $0.47 per share.\nBook value per share decreased to $19.05 from $19.79 at the end of the prior quarter.\nOur high quality loan production continues to organically generate assets for PMT and this quarter, $17.2 billion in UPB of conventional correspondent production led to the creation of $239 million in new, low-coupon mortgage servicing rights.\nWe continue to create new credit investments in the form of subordinate bonds from non-agency investor loan securitizations, also sourced from PMT's production volumes.\nThis quarter, PMT successfully completed two securitizations with an aggregate UPB of $713 million.\nIn total, the fair value of PMT's investments in investor loan securitizations, net of associated asset-backed financing was approximately $87 million at the end of the year.\nThe origination market is projected to decline substantially in 2022.\nInside mortgage finance estimates the 2021 origination market was $4.8 trillion and current forecasts for 2022 total $3.1 trillion, a reduction of 35% year over year.\nHowever, purchase originations are expected to remain strong at $2 trillion in 2022.\nThe smaller origination market, combined with significant levels of competition for conventional loans in the correspondent channel, including from the GSEs, is expected to result in headwinds for PMT's correspondent production business in the near-term.\nDespite these headwinds, however, we believe PMT's scale and purchase market orientation positions it well over the long-term for continued organic asset creation.\nPMT went public in July of 2009 and in our more than 12-year history we have delivered shareholder returns that have exceeded comparable REIT indices.\nAdditionally, our book value over the same period has remained relatively stable, with an average of $20 per share.\nThis performance can be attributed to PMT's organic business model led by the deep and talented management at PFSI, with years of experience successfully navigating changing mortgage markets and the associated risks.\nOrganic asset creation remains a competitive advantage for PMT relative to other mortgage REITs.\nCombined with the platform and management team provided by PFSI, we believe PMT is uniquely positioned to capitalize on opportunities as they arise and evolve.\nAn example of this is our recent success aggregating and securitizing investor loans while investing in the subordinate tranches of the resulting bonds.\nIn fact, over the last several months we have invested in subordinate tranches of investor loan securitizations with a total UPB of over $1.5 billion.\nImportantly, the most recent transactions we completed in the quarter were securitized by PMT, and we expect to be a programmatic issuer of investor and second home securitizations throughout 2022.\nAs we look ahead, we see additional opportunities for private label securitizations and subsequent investments for PMT, bolstered by recent GSE fee increases on certain loans as mandated by the FHFA.\nLoan level price adjustments for second homes and certain high balance loans have provided incentives for originators to sell these loans through the correspondent channel for securitization, particularly to scaled aggregators like PMT, rather than directly to Fannie Mae or Freddie Mac.\nTurning to CRT, PMT is a leader in lender risk share transactions with nearly $120 billion in UPB of loans sold to Fannie Mae from 2015 to 2020.\nWhile we are not currently delivering loans into CRT transactions, we are actively engaged in discussions with the GSEs regarding the potential resumption of lender risk share investments.\nWe believe we are well-positioned to lead broadly on this effort given our history, platform, and expertise.\nBecause of the greater capital relief CRT provides the GSEs under the amended Enterprise Regulatory Capital Framework, and the additional private capital CRT provides to the housing ecosystem, we remain optimistic for the future of lender risk share.\nMost importantly, the alignment of interest as acquirer and servicer of the loans should be compelling for the GSEs, given we can work directly with our borrowers in times of hardship.\nOn Slide 8, we illustrate the run-rate potential from PMT's investment strategies, which represents the average annualized return and quarterly earnings potential that PMT expects over the next four quarters.\nIn total, we expect the quarterly run-rate for PMT's strategies to average $0.37 per share or 7.7% annualized return on equity.\nThis run-rate potential reflects performance expectations in the highly competitive, transitioning mortgage market.\nIn our credit sensitive strategies, CRT returns reflect credit spreads that have tightened over time.\nIn addition, we expect to increase investments in non-agency subordinate MBS at attractive returns through private label securitizations.\nIn the interest rate sensitive strategies, we expect more consistent returns as prepayment speeds stabilize.\nIn correspondent production, the expected returns reflect our view that significant levels of competition to acquire conventional loans will result in lower volumes and margins than we have experienced in recent quarters.\nThis analysis excludes potential contributions from opportunities under exploration, such as new investments in CRT or the introduction of new products other than investor loans.\nIt is also important to note important our forecast for PMT's taxable income and liquidity continues to support the common dividend at its current level of $0.47 per share over this period.\nLet's begin with highlights in our correspondent production segment.\nTotal correspondent acquisition volume in the quarter was $32.8 billion, down 25% from the prior quarter, and down 42% from the fourth quarter of 2020.\n52% of PMT's acquisition volumes were conventional loans, down from 65% in the prior quarter.\nWe maintained our leadership position in the channel as a result of our consistency, competitive pricing, and the operational excellence we continue to provide to our nearly 770 correspondent sellers.\nConventional lock volume in the quarter was $14.7 billion, down 50% from the prior quarter, and down 63% year over year as we maintained our pricing discipline despite significant competition for conventional loans in a smaller origination market, including the GSE cash window.\nPMT's correspondent production segment pre-tax income as a percentage of interest rate lock commitments was three basis points, down from nine basis points in the prior quarter.\nAcquisition volumes in January were $7.6 billion in UPB, and locks were $7.5 billion in UPB.\nPMT's interest rate sensitive strategies consist of our investments in MSRs sourced from our correspondent production, and investments in agency MBS, non-agency senior MBS, and interest rate derivatives with offsetting interest rate exposure.\nThe fair value of PMT's MSR investments at the end of the fourth quarter was $2.9 billion, up slightly from $2.8 billion at the end of the prior quarter.\nThe increase reflects newly originated MSRs resulting from conventional production volumes that more than offset fair value declines and prepayments.\nSimilarly, the UPB of loans underlying PMT's MSR investments totaled $216 billion, up from $212 billion.\nNow I would like to discuss PMT's credit sensitive strategies, which primarily consist of investments in CRT.\nThe total UPB of loans underlying our CRT investments as of December 31st was $30.8 billion, down 13% quarter over quarter.\nFair value of our CRT investments at the end of the quarter was $1.7 billion, down from $1.9 billion at September 30th due to declines in asset value that resulted from prepayments.\nThe 60-plus day delinquency rate underlying our CRT investments continued to improve and declined to 3.06% from 3.79% at September 30th.\nAnd the outlook for our current investments in CRT remains favorable, with the current weighted average loan-to-value ratio of approximately 64% at year end, benefiting from the home price appreciation experienced in recent years.\nPFSI's position as the manager and servicer of loans underlying PMT's CRT investments gives PMT a strategic advantage, since we can work directly with borrowers who have loans underlying PMT's investments that have experienced hardships.\nPFSI uses a variety of loss mitigation strategies to assist delinquent borrowers, and because the scheduled loss transactions, notably PMTT1 through 3 and L Street Securities 2017 PM1, trigger a loss if a borrower becomes 180 days or more delinquent, we have deployed additional loss mitigation resources and continue to assist those borrowers at risk.\nWith respect to PMTT1 through 3, which comprises 6% of the fair value of PMT's overall CRT investment, if all presently delinquent loans proceeded unmitigated to 180 days or more delinquent, additional losses would be approximately $11 million.\nThrough the end of the quarter, losses to-date totaled $13 million.\nMoving on to L Street Securities 2017-PM1, which comprises 19% of the total fair value of PMT's CRT investment, such losses will become reversed credit events if the payment status is reported as current after a forbearance period due to COVID-19.\nPMT recorded $17 million in net losses reversed in the fourth quarter, as $19 million of losses reversed more than offset the $2 million in additional realized losses.\nWe estimate that an additional $18 million of these losses were eligible for reversal as of 31st subject to review by Fannie Mae and we expect this amount to continue to increase as additional borrowers exit forbearance and reperform.\nWe estimate that only $17 million of $48 million in losses to-date had no potential for reversal.\nThis market expectation of significant future loss reversals resulted in the fair value of L Street Securities 2017-PM1 exceeding its face amount by $12 million at the end of the quarter.\nAs David mentioned earlier, we continued to invest in securitizations collateralized by investor loans.\nDuring the quarter, we added $42 million in fair value of new investor loan securitization investments and ended the year with $87 million of such investments.\nIn total, this year we have successfully deployed the runoff from elevated prepayments on CRT investments and on Slide 7 you can see $1.1 billion of net new investments in long-term mortgage assets offset by $1.1 billion in runoff from prepayments on CRT assets.\nAdditionally, we opportunistically deployed $56.\n9 million to repurchase 3.1 million of PMT's common shares in 2021.\nUnder our current program, capital remains available for repurchases at attractive price levels.\nPMT reports results through four segments: credit sensitive strategies, which contributed $33.2 million in pre-tax income; interest rate sensitive strategies, which contributed $43.2 million in pre-tax loss; correspondent production, which contributed $4.6 million in pre-tax income; and the corporate segment, which had a pre-tax loss of $14 million.\nThe contribution from PMT's CRT investments totaled $31.3 million.\nThis amount included $1.6 million in market-driven value gains, reflecting the impact of slight credit spread tightening and elevated prepayment speeds.\nAs a reminder, faster prepayment speeds benefit PMT's CRT investments as payoffs of the associated loans reduce potential for realized losses.\nNet gain on CRT investments also included $26.9 million in realized gains and carry, $14.5 million in net losses reversed, primarily related to L Street Securities 2017-PM1 which Vandy discussed earlier, $100,000 in interest income on cash deposits, $11.7 million of financing expenses, and $200,000 of expenses to assist certain borrowers in mitigating loan delinquencies they incurred as a result of dislocations arising from the COVID-19 pandemic.\nPMT's interest rate sensitive strategies contributed a loss of $43.2 million in the quarter.\nMSR fair value decreased a total of $84 million during the quarter and included $49 million in fair value declines due to changes in interest rates, primarily due to a significant flattening of the yield curve, and $35 million of valuation decreases due to increases to short-term prepayment projections.\nThe fair value on agency MBS and interest rate hedges also declined by $7 million largely due to elevated hedge costs during the quarter.\nPMT's correspondent production segment contributed $4.6 million to pre-tax income for the quarter.\nPMT's corporate segment includes interest income from cash and short-term investments, management fees and corporate expenses.\nThe segment's contribution for the quarter was a pre-tax loss of $14 million.\nFinally, we recognized a tax benefit of $2.6 million in the fourth quarter driven by fair value declines in MSRs held in PMT's taxable subsidiary.\nAnd with that, I'll turn the discussion back over to David for some closing remarks.\nAs the market transitions to a higher rate environment, we believe the return volatility of our investments will stabilize and the competitive climate will improve as correspondent aggregators adjust capacity to the new market.\nUntil that takes place, we expect headwinds for the return potential of PMT's strategies.\nHowever, there are significant investment opportunities we are pursuing in the form of private-label securitization and the potential to resume new CRT investments and we are encouraged by our continued active discussions with the GSEs and FHFA on that front.\nAs a public company in our 13th year of operations with a very seasoned management team, we have been disciplined through numerous mortgage cycles and have a strong track record of performance throughout our history.\nWe encourage investors with any questions to reach out to our investor relations team by email or phone.",
        "summary": "q4 loss per share $0.28.\nbook value per common share decreased to $19.05 at december 31, 2021 from $19.79 at september 30, 2021."
    },
    {
        "text": "Jim Hatfield, Chief Administrative Officer; Daniel Froetscher, APS' President and COO; Barbara Lockwood, Senior Vice President, Public Policy; and Jacob Tetlow, Senior Vice President, Operations, are also here with us.\nFirst, I need to cover a few details with you.\nIt will also be available by telephone through May 12, 2021.\n2021 has started off in line with our financial expectations.\nAnd so, before Ted discusses the details of our first quarter results, I'll provide a few updates on our recent operational and regulatory developments.\nAnd I'll also touch on our progress toward achieving our 2021 goals.\nSpring is an important time of year for our summer preparedness work.\nAnd while we've always had a robust summer preparedness program, resource adequacy has recently become a more visible topic, given the events in neighboring states over the past year.\nTo serve our customers with top-tier reliability, each year we perform preventative maintenance, emergency operation center drills, acquire critical spare equipment, conduct fire mitigation line patrols and execute a comprehensive plan to support public safety and first responders.\nWe're also procuring an additional 450 megawatts of seasonal peaking capacity, including hydro power, and we expanded our contract up to 60 megawatts for demand response from our commercial and industrial customers to help ensure that we've got adequate resources through the 2021 summer season.\nOur procurement process is another important way that we help ensure long-term resource adequacy.\nLast year, we announced the addition of 141 megawatts of battery storage to be located on six of our APS-owned solar sites.\nDevelopment has begun and this project is on track to meet the expected 2022 in-service date.\nWe also announced two RFPs last year, including an all-source RFP and a battery RFP.\nThe response to these solicitations was robust and we're in the process of reviewing the proposals.\nWe expect to narrow the potential projects under review to a smaller pool soon.\nOn the regulatory front, the Commission continues to evaluate the clean energy rules preliminarily approved last year.\nIn fact, the Commission is scheduled to discuss the clean energy rules at their open meeting today.\nThe Commission may hold their final vote today or they may choose to continue the discussion.\nFor our rate case, the hearing concluded in March and initial briefs were filed on April 6 and reply briefs were filed on April 30.\nThe ACC is scheduled to discuss at their open meeting today whether to reopen the evidentiary record in our pending case to include additional evidence, including evidence regarding adjusted cost recovery mechanisms.\nWe believe the rate case record is sufficient and that adjustors provide substantial benefit to customers by supporting both critical programs and reflecting changes in utility cost that can be properly passed on to customers.\nPending this decision, the next steps in this rate case are that the administrative law judge will issue a recommended opinion and order and the Commission will schedule the case for an open meeting to vote.\nWe currently expect a decision on the rate case will be issued during the third quarter of 2021.\nTurning to our 2021 goals.\nOn the fourth quarter 2020 earnings call, we highlighted improving our customer communication and engagement, enhancing our regulatory relationship and continuing to execute our clean energy commitment as three key priorities.\nWe've made progress toward these objectives during the first quarter, but we recognized there is more work to do.\nCustomer enrollment in our Cool Rewards program surpassed 36,000 connected smart thermostats.\nWe're also working on a customer bill redesign project to simplify customer bills.\nAnd a lot of the work that we're doing in the customer communication and education space is the result of collaboration with an input from our customer advisory and our stakeholder advisory boards.\nI can say, we truly appreciate the individuals and organizations that participate in these forums and they provide us with tremendous feedback.\nIn the regulatory space, we appreciate the Commission's balanced decision to implement our annual power supply adjusted rate change, 50% in April and 50% in November, instead of our typical February 1 implementation date.\nThis decision recognizes and balances the ongoing COVID impacts on customers providing rate gradualism and helping to ensure that the company remains financially secure.\nI already covered some of the progress we've made on procuring additional clean energy.\nI'm also proud to share that the US Environmental Protection Agency selected APS as a 2021 Energy Star Partner of the Year in recognition of our demand-side management programs.\nThese programs contributed to our overall 2020 energy efficiency savings of nearly 586,000 megawatt hours and they will contribute to reducing lifetime carbon emissions by an estimated 2.1 billion pounds.\nIn addition, we continue to explore partnerships with our customers to expand our microgrid offerings.\nI'll close my comments by sharing that Daniel Froetscher, President and Chief Operating Officer, will retire this August after serving nearly 41 years with the company.\nDaniel has been instrumental in the success of this company over the past four decades.\nIn particular, he served as a respected and admired leader both within the companies and in the communities that we serve and as a mentor to many.\nI can't express in words my gratitude and appreciation for Daniel's contribution.\nI join my colleagues in congratulating Daniel on his retirement.\nAs Stephanie mentioned, Jacob Tetlow, Senior Vice President of Operations, is here today and he'll be joining our earnings calls going forward.\nJacob has a wealth of experience in both transmission and distribution operations and fossil generation here at APS.\nAnd Jacob's extensive experience as well as the company's robust succession planning position us well to continue operating with top-tier reliability.\nWith Jeff having covered our operational and regulatory updates, I'll cover our first quarter 2021 financial results.\nI'll also provide additional details around our customer and sales growth.\n2021 started strong, earning $0.32 per share compared to $0.27 per share in the first quarter of 2020.\nHigher pension and other post-retirement non-service credits, higher transmission revenue and weather, all contributed to the increase in earnings, partially offset by a higher operations and maintenance expense due to higher planned outage expense compared to the prior year period.\nWe also experienced 2.1% customer growth and positive weather-normalized sales growth, both within our expected guidance for the first quarter compared to the same period in 2020.\nEconomic development continues to support our customer and sales growth as headlines regarding new companies moving to our state are becoming even more frequent.\nChris Camacho, the Greater Phoenix Economic Council President and CEO, said the organization is working with 291 companies that are considering relocating or expanding in the Phoenix area.\nTo support the expansion of businesses, Phoenix is projected to add 18.4 million square feet of new industrial space in 2021, placing the valley second nationwide after Dallas according to a study by CommercialSearch.\nThis represents a 76% increase over last year for industrial construction.\nThe influx from business for relocation also adds to the residential population growth we have experienced.\nTurning to our financial health.\nWe are following the status of President Biden's infrastructure and tax plan, including the potential for new tax incentives and we'll integrate any necessary changes to our resource procurement plans and capital if the proposal passes.\nWith regard to the potential for a corporate tax rate increase, we are well positioned to address future changes through our existing TEAM adjustor mechanism.\nAs an update on our customer delinquent account balances, the cumulative total dollar amount of all residential accounts in arrears has decreased 30% since December 31, 2020.\nWe see this trend continuing as customers are paying down past due balances.\nWe expect the Commission's preliminary vote at the April open meeting to implement a permanent summer disconnect moratorium will result in this continuing trend of increasing delinquent balances through the summer and decreasing balances after the expiration of the annual moratorium.\nFor 2021, we expect the increased bad debt expense associated with the summer disconnect moratorium and COVID-19 disconnect moratorium will result in a negative impact to our 2021 operating results of approximately $20 million to $30 million pre-tax compared to prior years that did not have a disconnect moratorium.\nThis is consistent with the results we experienced in 2020.\nIncluding the impacts from COVID and the summer disconnect moratorium, we continue to maintain a strong balance sheet, solid investment grade credit ratings, a well-funded pension and sufficient liquidity.\nIn addition, our focus and progress on cost saving initiatives continues to result in improvements.\nAs a recent example, our supply chain team installed a new inventory optimization software.\nThe software uses scenario-based service level-driven methodologies to establish optimal inventory policies.\nSince implementation in August of last year, this software has reduced our inventory by nearly $9 million, which mitigates potential inventory write-off risk in the future.\nOur Lean efforts continue for managing costs, combined with the key initiatives Jeff highlighted for 2021.\nThey all support our commitment to provide long-term value to both shareholders and customers.",
        "summary": "compname reports q1 earnings per share of $0.32.\nqtrly earnings per share $0.32."
    },
    {
        "text": "First, I need to cover a few details with you.\nNote that the slides contain reconciliations of certain non-GAAP financial information.\nThey will also be available by telephone through November 6, 2020.\nWe continue to navigate through the extraordinary events of 2020 and so, as part of my operations update, I'll share with you our success in managing the hottest July and August on record in the Valley.\nI'll also provide an update on our regulatory dockets and our focus as we prepare for 2021.\nTed will explain our earnings expectations for the year are higher due to the significantly above average temperatures.\nAnd so, first, I want to recognize our field team for doing an exceptional job in maintaining reliable service for our customers this summer.\nThe extreme heat this year contributed to a challenging energy market across the entire desert, Southwest.\nThe lack of available capacity and the resulting declarations of energy emergencies by other utilities across the west, served as a reminder of the importance of long-term resource portfolio planning, vigilance over day-to-day energy supply and responsible energy policy.\nOur ability to avoid an energy emergency this summer was the result of careful long-term planning, resource adequacy, flexibility and innovative customer programs.\nWe relied heavily on our base load and fast ramping assets including Four Corners, Ocotillo and Palo Verde, and those assets were ready when we needed them.\nOur fossil fleets equivalent availability factor which is the percentage of time that a fossil generation unit is available and ready to perform when called upon was 95.3% from June through September.\nAnd Palo Verde Generating Station capacity factor for the same timeframe was 100.2%.\nNot only were our generation plants there when we needed them, our customers were as well.\nOut of an abundance of caution and to better prepare for potential unforeseen events, on August 18th and the 19th, we asked our customers to voluntarily conserve energy during peak hours.\nIt came as no surprise to me that our customers were an amazing partner.\nTheir response reduced peak demand on August 18th by approximately 240MW, creating a meaningful reduction on a day when the entire western grid was challenged.\nIn addition to successfully navigating the capacity shortfalls that were created by the heat, we also used our careful planning in close coordination with the Forest Service and first responders to mitigate the potential impact from wildfires this season.\nTo reduce fire risk, our teams performed vegetation management activities, we held wildfire prevention training and we continue to expand our clearance around poles program, and it was an incredibly active wildfire season with over 900,000 acres burned to-date compared to an average over the last five years of 250,000 acres.\nDespite the above average wildfire activity, we actually experienced minimal impact to our assets, and I think that was due in part to our effective planning and risk management program.\nDespite a worldwide pandemic, a record hot summer, regional capacity shortage and wildfires, our team continues to focus on how to make lasting impacts that benefit our customers, our shareholders and the company.\nPalo Verde consistently provides examples of this type of continuous improvement and forward thinking, as a recent example, Steve is a Palo Verde procurement engineer challenged our traditional procurement process and conducted a cost analysis in engineering evaluation for a micro switch replacement.\nThe technical evaluation allowed Palo Verde to purchase commercial grade switches at approximately 7 times lower than the alternative.\nOver the next three years alone, this change is expected to save the company $2.5 million.\nHis leadership and innovation earned him a nomination for an EPRI Technology Transfer Award, and I can't emphasize enough that it's our team who drives the success for this company, and I'm proud to recognize Steve for his innovation.\nShifting gears to regulatory.\nStaff and Intervenors filed testimony in our current rate case on October 2.\nStaff's initial testimony recommended a 9.4% return on equity, and that compares to our current authorized 10% return on equity.\nStaff also recommended approval of our actual capital structure at the end of the test year, that's consistent with our request and that would result in a 54.7% equity layer.\nThe total revenue increased recommended by staff is $89.7 million compared to our request for a $184 million increase.\nWe'll file our Rebuttal testimony on November 6 and Staff and Intervenors will file Surrebuttal testimony on November 20.\nThe hearing is scheduled to begin on December 14 and I expect it to continue into 2021.\nWhile testimony is certainly an important part of the process and it does provide visibility in each party's priorities, we're still very early in the case and we expect that many of the issues will certainly be discussed further as the case progresses.\nI do want to note that yesterday the commission voted on several amendments to a proposed energy rules package.\nThe amendments include new carbon reduction standard of 100% by 2050 with interim targets of 50% by 2032 and 75% by 2040.\nThe reductions are based on a 2016 to 2018 carbon emissions level benchmark.\nThe amendments also require electric utilities to install energy storage systems with the capacity equal to 5% of each utilities 2020 peak demand by 2035.\nAnd 40% of the required energy storage must be customer owned or customer leased distributed storage.\nAnother approved amendment modifies the resource planning process including requirements for the ACC to approve utilities load forecast and resource plan and for utility to perform an all sorts requests for information to guide its resource planning.\nEarlier this month, the commission also voted on another amendment to establish a new energy efficiency standard.\nThe standard requires electric utilities to implement demand side management resources equivalent to 35% of their 2020 peak load by 2030.\nEligible demand side management resources include energy efficiency, demand response and load shifting, and just importantly the commission must vote and I expect they will vote soon to approve a final energy rules package before any of these amendments can take effect.\nAs we look to wrap up 2020, we will continue to work with the commission on implementing a clean energy transition for the benefit of their constituents and for our customers.\nRecall that we've spent an aspirational goal of 100% carbon free by 2050 and 65% clean by 2030.\nTo do so we'll require a strong regulatory partnership support for an organized transition away from coal and fossil fuels and regulatory and financial support for the expansion of renewables, batteries and energy efficiency within our portfolio.\nI think yesterday was a strong indication of alignment with both the commission and other stakeholders to achieve a cleaner energy vision and energy future for Arizona.\nNear term, our focus and priorities remain on improving our customer communications, rebuilding our regulatory relationships by reestablishing trust, moving toward a reasonable resolution of our rate case and continuing to engage with stakeholders to build alignment on priorities to support our goal of providing clean reliable and affordable service to our customers.\nAs Jeff mentioned, I will cover our third quarter results and the impact from weather.\nI'll also provide additional details around our customer and sales growth, economic development and financing activities.\nLastly, I'll cover our expectations for the remainder of 2020.\nTurning now to the third quarter.\nThe significant tailwind from hotter than normal weather supported earnings of $3.07 per share compared to $2.77 per share in the third quarter of '19.\nJuly set a new record for the hottest month recorded in Phoenix until August.\nAugust then surpassed July setting another new record for the hottest month.\nThe above average temperatures this quarter added $0.26 to earnings year-over-year.\nFor the nine months ended September 30, 2020, weather added $91 million of pre-tax gross margin or $0.61 per share year-over-year.\nWe also experienced 2.3% customer growth and 1.3% weather normalized sales growth in the third quarter 2020 compared to the same period in 2019.\nFrom May 13, when business started reopening after the COVID closure period through September 30, weather normalized sales increased 1% compared to the same period last year.\nWe continue to see a reduction in weather normalized commercial and industrial sales of 5%, offset by an increase in weather normalized residential sales of 6% during this period.\nThe strength and speed of our return for positive growth numbers reflects the continued expansion of our local economy, following the full COVID closure period earlier this year.\nFurther evidence of our recovery can be seen in the increased number of single-family building permits and commercial construction activity.\nIn 2020, we expect a total of 32,000 housing permits, an increase of about 1,200 compared to last year and the highest number since 2006.\nThe labor market in Arizona has also started to gradually recover from the pandemic impacts as well.\nFor 2020 through the end of August the employment in Metro Phoenix decreased 1.7% compared to 5.6% across the entire US.\nAnd while manufacturing employment Metro Phoenix decreased 1.2%, construction employment increased by 0.9%.\nThe ongoing growth of new businesses and residential properties and the 18 construction cranes that are currently visible here in Downtown Phoenix are evidence of our continued growth.\nTo serve our growing customer base and support investments in clean energy, in September, we issued $400 million of 30 year 2.65% green bonds at APS.\nThe 2.65% coupon represents the lowest 30-year rate in the APS bond portfolio.\nTurning to our full-year 2020 guidance, as a result of the above average weather, we are increasing our 2020 consolidated earnings range from $4.75 to $4.95 per share to $4.95 to $5.15 per share.\nThe weather benefit has more than offset the additional costs and the reduction in sales due to COVID-19.\nWe are also increasing our 2020 weather normalized year-over-year sales growth expectations to be between zero and 1%.\nIn light of the weather benefit, we have accelerated the timing of near term O&M initiatives.\nFor example, we're pulling forward some spend in 2020 that was previously anticipated for future years, particularly around project work and customer experience initiatives as well as one time opportunities, like our $10 million contribution to the APS Foundation, which supports our community non-profits.\nOur revised 2020 O&M guidance range of $870 million to $890 million reflects these items.\nWhile we believe this increase in O&M demonstrates prudent, planning and flexibility through this challenging year, we do remain focused on our lean initiatives and continue to see our core O&M trend down.\nWe are executing our plan to reduce 2020 O&M expense by $20 million, including $10 million through improved procurement and contract management activities, and another $10 million in several small operating efficiencies across the enterprise.\nWe also continue to partner with Arizona State University to train our workforce on lean skills and are excited about the long-term potential in continuing to streamline our business.\nWhile we don't enter a year counting on whether it would be a driver, we do enter the year prepared to take advantage of above normal weather when it makes sense to do so.\nThis can help us mitigate the impacts of mild weather in future years, while also enabling our investment in certain key initiatives that improve customer experience, a focus area for our company.\nOur resource planning and capital expenditure forecast have also been revised.\nThe delay in our clean energy procurement impacted by the McMicken investigation, slightly reduced our 2020 capital expenditure forecast by $68 million.\nHowever, we do remain committed to our clean energy commitments that have made progress with our resource acquisition activities.\nIn September, we executed a 200 megawatt wind PPA with a 20-year term.\nThis is a repower of an existing wind facility and is expected to be fully upgraded with additional capacity in 2021.\nWe also plan to issue two new RFPs.\nOne outsourced RFP and an additional utility owned energy storage RFP at our existing solar facilities.\nWhile it was an exceptionally hot summer, we are grateful the weather tailwind allowed us to further increase financial assistance to customers struggling to pay their bills as a result of COVID-19, and to accelerate investments that will enhance the quality of our service and maintain our record for providing top tier reliability.\nAs Jeff mentioned, we will continue to focus on our regulatory outcomes in the near term, while executing our long-term plan to deliver value for our customers, shareholders and community stakeholders.",
        "summary": "compname says co increased 2020 consolidated earnings guidance to $4.95 to $5.15 per diluted share.\nq3 earnings per share $3.07.\nsees fy 2020 earnings per share $4.95 to $5.15.\nincreased 2020 consolidated earnings guidance to $4.95 to $5.15 per diluted share."
    },
    {
        "text": "Ted Geisler, CFO; Daniel Froetscher, APS' President and COO; and Barbara Lockwood, Senior Vice President, Public Policy are also here with us.\nFirst, I need to cover a few details with you.\nNote that the slides contain reconciliations of certain non-GAAP financial information.\nIt will also be available by telephone through February 28.\nBefore I review our 2019 achievements and provide operating and regulatory updates, I want to look forward to the future and share more information about our focus areas and priorities.\nOur strategy is anchored by four concepts that align with industry trends and shape the way we do business.\nThose concepts can most simply be stated as clean, affordable, reliable and customer-focused.\nLet me talk briefly about each one.\nClean is about decarbonizing our generation mix with our new goal to deliver 100% clean carbon-free energy by 2050.\nAffordable is planning and operating our business to maintain reasonable electricity prices for the people, businesses and communities we serve.\nReliable means serving our customers with dependable power safely and efficiently.\nAnd customer-focused is about developing new solutions, products and services to meet the changing needs and expectations of our customers.\nWith these in mind, we created a long-term plan and targets to track our progress along the way.\nFirst, we recently announced our goal to deliver 100% clean carbon-free electricity to customers by 2050.\nThis goal includes a near-term target of 65% clean energy with 45% coming from renewables by 2030 and a commitment to exit coal by 2031.\nImportantly, our plan includes flexibility to ensure that we're able to execute in a way that maintains affordability for customers.\nAs Jim will discuss, we expect this plan will require considerable capital investment.\nWe believe a carbon-free future as possible while keeping customer rates over time at or below the rate of inflation with timely recovery of clean energy investments.\nTo support the affordability of our transition to a carbon-free resource mix, we will have a sharp focus on economic development in Arizona.\nGrowing our customer base, allocates these costs across more customers, which helps keep rates affordable and increase the shareholder value by growing our Company.\nSupporting an internal culture focused on reducing costs and maintaining a financially strong company to access low cost capital are also key in delivering a 100% clean energy future affordably.\nIn the area of reliability, we believe putting the responsibility on the utility to maintain high-performing well-run resources is important.\nIn pursuit of our clean energy plan, we will acquire resources that appropriately balance reliability, cost and flexibility for our customers.\nThis includes both owning new resources and considering supplemental generation from purchase power as appropriate.\nOur fourth concept reinforces that customers are at the core of what we do every day.\nWe're committed to providing options that make it easier to do business with us.\nWe plan to continue developing innovative programs that connect customers with advanced technologies to help manage their bill.\nIn addition, we'll be convening an advisory panel of customers to gain a deeper understanding of the customer experience through individual perspective, so a little design basis thinking.\nAs we work to execute in all these strategic areas, we'll focus on strengthening our relationships with stakeholders.\nGoing forward, we plan to continue working collaboratively with those who have vested interest in Arizona's future and our Company's role as the state's largest electricity provider.\nFor our regulators, we are committed to maintaining an open dialog, listening and ensuring transparency.\nWe have a lot of important work ahead of us, and we'll be sharing information about our progress as we advance through the year.\nAnd while I'm excited about our future opportunities, I also want to recognize our team and the hard work completed last year.\nWe finished 2019 with our best-ever reliability performance, if you exclude outages from voluntary proactive fire mitigation efforts, and Palo Verde once again achieved a capacity factor above 90%.\nOur goal to reach 100% clean carbon-free energy by 2050 is new, but our efforts to move toward a cleaner energy mix are not.\nIn 2019, we maintained our environmental, social and governance A rating from MSCI, and we were ranked in the electric utility sectors top quartile by Sustainalytics.\nNotably, APS was one of 10 American companies and the only U.S. utility to make CDP's A List for both climate change and water security in 2019.\nAnd we accomplished all this while reducing the average residential bill by 7.8% or $11.68 on average since January of 2018 due primarily to savings from federal tax reform and operating cost savings that have been passed on to customers.\n2019 was also a busy year for our state regulatory team.\nSome of the work that we began in 2019 will continue this year.\nKey dockets for 2020 include our rate case, retail choice, disconnection rules and modifications to the commission's energy rules.\nA number of workshops have already been scheduled to discuss these topics, and you can find a list of key dates in the appendix to our slides.\nThe next milestone in our rate case proceeding is May 20, the date the commission staff and other interveners file testimony.\nHowever, I would note that commission staff has indicated that they may need an extension to watch that proceeding.\nOutside of our regulated operations, our Bright Canyon subsidiary acquired minority equity stakes in two wind farms being developed by Tenaska.\nThe 242 megawatt Clear Creek wind farm in Missouri and the 250 megawatt Nobles 2 wind farm in Minnesota.\nWe expect these wind farms to be operational in Q1 and Q4 of this year, respectively.\nOur objective with these investments is to gain experience in the construction, ownership and operation of wind assets, and to partner with a proven developer in Tenaska.\nOur overall strategy with Bright Canyon is to develop, own, operate and acquire infrastructure within the electric energy industry.\nInvestments in renewables, electric transmission and microgrids represent some of the opportunities that Bright Canyon has been evaluating, and I want to emphasize that these are close adjacencies.\nWe will continue to pursue attractive growth opportunities consistent with our core strength.\nWe have ambitious goals and a talented team to achieve them.\nAt the officer level, I recently made changes to our organizational structure that better aligns our experience and talent to our strategic focus areas and to strengthen our succession pipeline.\nI'm excited about our future, all the possibilities and the team I have the privilege of working with.\nFirst, to the team at Palo Verde for their work on a short notice outage at Unit 3 in getting the necessary work done safely and the unit back online ahead of schedule.\nAnd second, to our T&D Engineering and Construction team for their outstanding work on the new substations associated with the Microsoft datacenter build out.\nAnd third, to the Arizona State Sun Devils for their win last night over 14 Oregon.\nSo Jim, go ahead and take it away.\nBefore I review the details of our 2019 results, let me briefly touch on some of the key factors from the quarter, which can be found on Slide 3.\nFor the fourth quarter of 2019, we earned $0.57 per share compared to $0.23 per share in the fourth quarter of 2018.\nOur results were largely impacted by a one-time tax refund to customers related to the TEAM III refund and lower adjusted O&M expenses.\nWe also experienced another quarter of mild weather.\nFor the full-year 2019, we earned $4.77 per share compared to $4.54 per share in 2018.\n2019 earnings reflect our growing infrastructure to support the strong Phoenix economy and 2% customer growth.\nOther key items for 2019 was negative weather, which decreased gross margin by $37 million or $0.25 per share.\nThe negative impact was more than offset by lower O&M.\nYear-over-year lower adjusted O&M expense increased earnings $0.52 per share, primarily driven by lower planned outage expenses and lower public outreach costs at the parent level.\nAs I mentioned last quarter, we are committed to enhancing our customer and shareholder value through cost management.\nThe implementation of Lean Sigma will be the mechanism that allows us to improve the customer and employee experience while eliminating waste.\nAs a result of our cost management efforts, we made great strides in reducing O&M in 2019, allowing us to reach the low end of our original guidance range, despite the mildest Metro Phoenix cooling season on 10 years.\nWe expect to continue our cost savings efforts by reducing O&M approximately $20 million in 2020.\nAs Jeff mentioned in his comments, we are on a path to deliver 100% clean carbon-free electricity.\nPart of that plan includes ending our use of coal-fired generation seven years earlier than previously projected.\nAs a result, the reduction in fuel costs as we use less fossil fuels and more renewables will be a source of cost savings to our customers in the future.\nOur journey to a carbon-free future will require intelligent investments in renewable resources and developing technologies.\nAs you can see on Slide 14, we rolled forward our capex forecast for one year.\nOur 2022 capex forecast reflects nearly $800 million of investment related to new clean generation resources and reflects our conservative mix of owned resources.\nWhile we don't know the exact mix of ownership versus purchase power at this point, we will need an appropriate mix to ensure long-term value and reliability for customers.\nThat said, we believe there is potential upside to our capital investments, especially as we get past 2022.\nAs Jeff alluded to, customer affordability will be top of mind.\nWe would expect customer rates to increase no more than the rate of inflation over time.\nIn terms of financing our clean energy future, we would expect that we will issue equity sometime after 2020.\nWhile the exact amount has not yet been determined, we would expect the amount to be in the $300 million to $400 million range.\nThe timing of the offering around the next rate case minimizes dilution and is ultimately accretive for our shareholders.\nOur financial health, including a solid equity layer, will continue to provide our customers the benefits of low-cost access to capital and competitive returns to our shareholders.\nIn 2020, we expect to issue up to $1 billion of term debt at APS and $450 million that Pinnacle West.\nOverall liquidity remain strong.\nIn the fourth quarter, APS issued $300 million of new 30-year unsecured debt at 3.5%.\nWe used the proceeds to repay commercial paper and to fund a $100 million of our $250 million par value 2.2% notes which matured in mid-January.\nAt the end of the fourth quarter, Pinnacle West had a $115 million of short-term debt outstanding and APS had no short-term debt outstanding.\nDue to the tax benefits associated with both the TEAM Phase II and Phase III and optimized use of income tax incentives, our effective tax rate for 2019 was a negative 2.9%.\nWe anticipate an effective tax rate in 2020 of 14%.\nContinued use of income tax incentives, including tax credits associated with clean generation investments, will reduce cash taxes in the year projects -- our projects are placed in service.\nA quick note on pension.\nThe funded status of our pension remains healthy at 97% as of year-end 2019.\nThis is due to strong portfolio returns during 2019, continued contributions and the continued success of our liability-driven investment strategy, which has helped mitigate risk to our benefit plan funded status.\n2019 was a great year for economic development in our service territory.\nWe saw high-profile data centers and manufacturing plants break ground in the West Valley.\nWe successfully connected two new data centers to our power grid included in the Microsoft data center and begin prep work to add an additional six data center feeds in 2020.\nIn addition to growth from the commercial sector, Arizona is benefiting from residential population growth.\nAccording to a December 2019 report from the U.S. Census Bureau, Arizona ranked third in population growth behind Texas and Florida.\nArizona's population grew by approximately 120,000 people between July 2018 and July 2019.\nReflecting the steady improvement in economic conditions, APS' retail customer base grew 2.2% in the fourth quarter of 2019.\nWe expect that this growth rate will continue in response to the economic trends in our service territory.\nThe Metro Phoenix area continues to show strong job growth and has consistently been above the national average.\nIn 2019, employment in Metro Phoenix increased 2.9% compared to 1.6% for the entire U.S. Construction employment in Metro Phoenix increased by 9.6% and manufacturing employment increased by 5.2%.\nAccording to the U.S. Bureau of Labor Statistics, Arizona's job growth ranked second in the nation in 2019.\nThe Metro Phoenix residential real estate market has also continued its upward trend.\nIn 2020, we expect a total of 31,100 housing permits, driven by both single-family and multifamily permits.\nWe continue to expect Pinnacle West's consolidated earnings for 2020 to be in the range of $4.75 to $4.95 per share.\nA complete list of key factors and assumptions underlying our 2020 guidance can be found on Slide 6 and 7.\nIn closing, our long-term rate base growth outlook remains intact at 6% to 7% and we expect to achieve a weather-normalized annual consolidated earned return on average common equity of more than 9.5% in 2020.\nThe new year is off to a great start with the announcement of our bold clean energy plan, coupled with organic growth in our service territory.\nWe are excited to embark on a path that will help create a healthy and prosperous Arizona that benefits our customers, communities and shareholders.",
        "summary": "compname reports qtrly earnings per share of $0.57.\npinnacle west capital corp - qtrly earnings per share $0.57.\npinnacle west capital corp - reaffirms 2020 estimated consolidated earnings will be within a range of $4.75 to $4.95 per diluted share."
    },
    {
        "text": "I'm pleased that you are able to join us today.\nThe slides are available on our website at investors.\nReferring to Slide 2.\nLeading our discussion are Maria Pope, president and CEO; and Jim Ajello, senior vice president of finance, CFO and Treasurer.\n2021 was a year of strong growth and execution.\nAgainst the backdrop of the ongoing pandemic, the historic ice storm and record heat.\nWe focused on grid hardening and new technologies to improve reliability and resiliency.\nTurning to Slide 4.\nFor the full year 2021, we reported net income of $244 million, or $2.72 per share.\nThis compares with $155 million, or $1.72 per share for the full year 2020.\nFor the fourth quarter, net income was $66 million, or $0.73 per share.\nThis compares with $52 million or $0.57 per share for the fourth quarter of 2020.\nOur region is growing, particularly the tech and digital sectors driving overall revenue growth.\nNet variable power costs were also higher, reflecting regional power market volatility, particularly in the third quarter.\nOperating administrative expenses increased due to higher wildfire and vegetation management expenses, and the cost of several storms outside of the large major storm deferral.\nFinally, employee wages and benefit expenses were higher, reflecting inflation pressures, and improved performance over 2020.\nGiven our region's attractive environment for high tech and digital companies, and ongoing in migration, we expect growth to remain very strong.\nPower market challenges will also likely continue.\nWe've taken several steps to reduce our exposure.\nThrough first, forward pricing updates to the annual update tariff mechanism.\nSecond, new forecasting methodologies that better reflect wind and other volatility reflected through our rate case.\nAnd third, plant operating improvements.\nAnd finally, fourth, procurement of additional forward capacity.\nOperating efficiency is the focus.\nAnd as we address rising customer expectations as well as inflationary pressures will be increasingly important.\nAll of this combines to inform our 2022 earnings guidance of $2.75 to $2.90 per share.\nLater in the call, Jim will go into much more detail on both 2021 results, and our 2022 outlook.\nI would like to now talk to a couple of highlights that were significant from an operational, legislative and regulatory standpoint.\nFirst, opening the new Integrated Operations Center, and launching the advanced distribution management system were key milestones.\nThese investments establish the foundation for Intelligent Energy Network that enables the integration of greater amounts of renewable energy, distributed energy resources, and increases system flexibility, and resiliency.\nSecond, we advanced our digital capabilities across the enterprise to improve performance and deliver exceptional customer experiences.\nWe simplified our work and reduce costs by equipping field crews with new digital tools, upgrading supply chain systems, and increasing call center performance.\nTogether, these advances allow us to get more work done and drive operational efficiency.\nThrough advanced data analytics and smart grid technologies, we're increasing the reliability of our system, even under uncertain, and extreme weather conditions.\nFirst, a path to decarbonization was further catalyzed by the passage of Oregon's clean energy legislation, working with a broad coalition of stakeholders.\nAggressive carbon reduction goal targets were established that are consistent with our goals and aligned to the International Panel on Climate Change or IPCC's sixth report.\nPGE was also the first utility in the country to sign the climate pledge, committing to achieving net zero emissions across our company operations by 2040.\nAnd for the 13th consecutive year, our Voluntary Renewable Energy Program was ranked number one in the U.S by the National Renewable Energy Laboratory.\nForth, we initiated an RFP in April for up to 500 megawatts of renewable energy and 375 megawatts of non-emitting capacity.\nInitial bids were submitted in January, with a short list expected to be issued in the second quarter and a final decision by the end of the year.\nWhile many of you have lots of questions on the bids, we are in the very early stages of evaluation, and all this are subject to NDAs.\nAlso, in collaboration with customers and stakeholders, we issued our inaugural Distributed System Plan focused on modernizing our grid to accelerate distributed energy resources, and maximize grid benefits for all customers and community members.\nFifth, as part of our 2022 general rate case, we recently reached an agreement that subject to OPC final approval will resolve the annual revenue requirement, average rate based, capital ratios, and a corresponding increase in customer prices.\nAnd finally, this year we relaunched our guiding behaviors.\nFirst established more than 25 years ago, and our ongoing and long standing commitment to diversity, equity inclusion.\nWe're also continuing our long-standing focus on environmental stewardship, and during the past year, PG employees completed over 15,000 hours of community service, and employees retirees, the PG Foundation, and our company donated $4.8 million to support our communities.\nAs we look to the future, we anticipate continued economic growth and load increasing 2% to 2.5% in 2022.\nWith longer term growth of approximately 1.5%.\nOngoing focus on digital and other technologies, operational improvements, and efficiencies which could help mitigate inflationary cost pressures.\nOverall, we're well prepared with improved reliability, resiliency, and operating performance as we rapidly transform to address urgent climate change challenges and lead a clean energy future across our region.\nOur 2021 results reflect the continued economic growth in our service territories and the opportunities, and challenges of our path to decarbonization.\nWe experienced strong load growth from higher residential and industrial demand, while also navigating challenging power markets, and inflationary cost pressures.\nTurning to Slide 5.\nThe continued recovery from the initial economic downturn due to COVID-19 is reflected in our strong year-over-year load growth of 4% weather adjusted.\nIn 2021, we experienced growth across all customer classes, with residential demand increasing 1% weather adjusted, which reflects ongoing economic growth.\nCommercial load increased 4.2% weather adjusted as the sector rebounds from the decreased activity in 2020.\nIndustrial deliveries increased 8.5% weather adjusted as our service territory continues to attract growth from high tech and digital customers, including data centers, customer expansion, and new site development activity, all point to strong growth in the sector.\nThe favorable weather we experienced contributed an additional 1.1% to the overall growth rate of 5.1% in 2021.\nBased on recent trends in our service territory, primarily driven by industrial growth, and anticipated distributed energy resources growth, including transportation, electrification adoption, we are raising our long-term growth guidance from 1% to 1.5%.\nOur quarterly earnings per share increased from $0.57 per share in 2020 to $0.73 per share in the fourth quarter of 2021.\nThe increase was primarily due to a $0.17 adjustment to a non-utility asset retirement obligation liability in the fourth quarter of 2020, including fourth quarter results full year GAAP earnings per share was $2.72 for 2021, compared to GAAP EPS of $1.72 for 2020.\nNon-GAAP earnings per share for 2020 was $2.75 after removing the negative impact of the energy trading losses.\nI'll cover our financial performance year-over-year on Slide 6.\nBeginning with a GAAP net income of $1.72 per share in 2020, which we add back the $1.03 per share impact of the energy trading losses.\nWe experienced a $0.78 increase in total revenues, primarily due to the strong economy driving growth in our service territory, with the balance due to more favorable weather.\nOffsetting this was $0.58 of unfavorable power cost.\n2021 saw a significantly higher power prices, particularly in the summer, due to warmer weather and increased regional demand for capacity.\nWe have deferred $29 million of incremental power cost under our [Inaudible] mechanism, which represents 90% of the variance above the threshold.\nWe anticipate the regulatory process related to this deferral will begin late in the Quarter 2 of 2022, and continue through the year.\nThere was an $0.18 decrease to earnings per share from cost associated with our transmission and distribution expenses, including $0.05 for enhanced wildfire mitigation, $0.05 of additional vegetation management, and $0.08 of service restoration costs related to storms in 2021.\nThere was a $0.41 decrease to earnings per share from administrative expense, including $0.12 in adjustments to incentive programs, including $0.06 for 2020 decreases and incentives following the trading losses.\n$0.07 from increases in wage and salary expenses and $0.16 for outside services to strengthen risk management, improved customer facing technology, and improve our supply chain management systems.\n$0.03 from higher insurance expenses, partially due to higher wildfire insurance premiums and then, $0.03 from miscellaneous other expenses.\nGoing to DNA, a $0.32 increase due to lower DNA expenses in 2021, including $0.22 increase due to the impact of a non-utility asset, our retirement obligation revision to 2020, an $0.18 increase due to the impact of plant retirements in 2020.\nAnd these increases were partially offset by an $0.08 decrease due to higher plant balances in 2021.\nA $0.05 decrease from the impact of higher property taxes.\nAnd then finally, there was a $0.09 increase primarily driven by the recognition of a benefit from a local flow through tax adjustment in Q1 of 2021.\nTurning to Slide 7.\nLast month, we reached an agreement with stakeholders that resolved several significant aspects of our 2022 general rate case.\nIn addition to the previously agreed upon 50:50 capital structure and 9.5% allowed ROE, we agreed to a final annual revenue requirement, average rate base, and a corresponding increase in customer prices.\nA final rate base of $5.6 billion, an increase of $814 million, or 17%, which represents a constructive outcome for investments made on behalf of customers.\nWhile the $10 million increase in the annual revenue requirement net of power cost represents a modest 0.5% increase in customer prices.\nWe also agreed to end our decoupling mechanism.\nThe operation of the existing decoupling mechanism is misaligned to the current policy framework in Oregon, especially as it relates to supporting decarbonization.\nSo the parties agreed to eliminate it.\nParties agreed to accelerate colstrip depreciation to fully depreciate our interest in that plant by 2025.\nWhile certain policy elements remain outstanding in all settlements remain subject to final PUC approval, we are pleased with the potential outcome for our customers and stakeholders.\nA final order is expected by the end of April.\nOn the resource plans, we made several regulatory filings in which we shared our plans to advance the strategy to meet our targets, reducing greenhouse gas emissions in the power we served customers.\nMaria discussed our resource plans earlier in the call and we look forward to working through the RFP process, and expect to share an update in Quarter 2 .\nTurning to Slide 8, which shows our updated capital forecast through 2026.\nWe increased our capital expenditure forecast for 2023 to 2026 from $550 million to $650 million per year to more clearly reflect our fundamental plans to invest in the system.\nFor reference, in 2021, we exceeded our target guidance of $655 million with the total capital expenditures of $680 million.\nOver the next five years, we expect to invest roughly $3 billion on top of the recently settled $5.6 billion in the incident rate case.\nTo be clear about this increase, I want to point you to the distribution service plan that Maria referred to.\nThis plan anticipates significant growth in load, new connects, new projects for customers, system expansion, substations, and grid modernization, which primarily explain the increase in the capex.\nThe increases primarily represent group grid resiliency and transportation and electrification investments plan for future years, but do not include expenditures related to the possible RFP ownership options.\nWith the recent settlement in the GRC, subject to approval by the OPUC, this affirms that we will not need to issue equity to meet our capital requirements in 2022, unless there is a significant renewable addition stemming from the RFP.\nThe RFP process for energy and capacity resources, with bids submitted in January and a shortlist targeted in Quarter 2 final selection of winning bids is expected by the end of 2022.\nThe RFP will be a competitive process, and we'll share more details as we move through the procedural calendar.\nWe continue to maintain a solid balance sheet, as you can see on Slide 10, including strong liquidity investment grade credit ratings accompanied by a stable credit outlook.\nTotal available liquidity at December 31, 2021, $843 million and we remain one of the least levered [Audio gap] sector.\nPlan to fund investments with cash from operations, and issuance of up to $250 million of debt in the second half of 2022.\nAs we did in 2021, we will apply our green financing framework, continue to seek out opportunities to take our long-term debt to our sustainability strategy through capital investments.\nTurning to Slide 11.\nWe are initiating full year 2022 earnings guidance of $2.72 to $2.90 per diluted share.\nAs a reminder, we established our base year and growth rate in 2019 with earnings per share of $2.39 per diluted share.\nThe midpoint of this guidance range represents a 5.8% compounded annual growth rate from the $2.39 base.\nI'd like to walk through a few key drivers that will prove that we're confident we'll grow to this 46% range in 2022.\nThe drivers of our long-term guidance remain strong load growth from in-migration and industrial expansion, operational efficiencies, and potential investment opportunities in our system with renewable resources.\nWe expect continued strength and energy deliveries with 2% to 2.5% weather adjusted retail load growth.\nI would like to address our 2022 O&M guidance midpoint of $600 million, which represents a 7% decrease from 2021 levels.\n2021 O&M included significant work to accelerate our digital and customer strategies, we expect these efforts to create sustainable efficiencies in our operations in 2022 and beyond.\nIn 2021, we also accelerated our vegetation management efforts, implemented new customer interface system, automate many aspects of customer service.\nWe continue to deployment of distribution, automation technology, and we made significant investments to build risk awareness, and mitigation into our operations.\nLooking forward to 2022, we will increase efficiencies by accelerating adoption of digital technologies, and investments made in 2021.\n[Inaudible] leverage increased recent grid investments to strengthen our operations.\nI am confident as we continue to identify and implement efficiencies in 2022, we can't continue to grow.\nWe are reaffirming our long-term earnings growth guidance of 46% of 2019 this year.\nWith respect to dividends, our board recently declared a dividend of $0.43 per share.\nOur 2021 full year dividend was $1.68 per share, this dividend, we completed our 15th consecutive year of dividend growth in the last five years, growing at 6.1% compounded annual growth rate.\nWe also plan to continue our limited share buyback program to offset any dilutive effects of shares issued under our compensation programs.\nThe combination of strong growth trends, clear decarbonization targets, and significant opportunities to invest in our customers electrification needs create a compelling case for delivering value by serving clean, affordable, safe, reliable, and equitable energy.\nTo execute our long term financial targets for customers and investors alike.\nI'd like to note that today we announced that Lisa Kaner, our VP general counsel chief compliance officer, plans to retire in early July, and we'll transition to the role of chief compliance officer effective mid-March.\nWe're grateful for Lisa's insights, expertise wise counsel, as we navigated the challenges of the last five years.\nRecently, Lisa was instrumental in resolving all of the litigation associated with the 2020 energy trading matter.\nLisa sets high standards for leadership and integrity, and we wish her well in retirement.\nAt the same time, I'm pleased to announce that Angelica Espinosa, who has served as deputy general counsel and corporate secretary, has been appointed as VP general counsel effective mid-March.\nPrior to joining PGE, Angelica held multiple roles at Sempra Energy, including vice president of gas acquisition, vice president and chief risk officer of SoCal gas, chief counsel for the Sempra International businesses, she joined Sempra in 2014 from GE, where she had multiple legal leadership positions in their oil and gas division.\nCongratulations, Lisa and Angelica.\nLisa, we wish you well, and are grateful for all you've done for PGE, and Angelica, we're excited about the broad expertise and experience that you bring to our executive team and the company.",
        "summary": "compname reports q4 gaap earnings per share of $0.73.\nsees fy earnings per share $2.75 to $2.90.\nq4 gaap earnings per share $0.73.\ninitiating 2022 earnings guidance of $2.75 to $2.90 per diluted share.\nsees capital expenditures of $660 million in 2022 and $650 million in 2023 through 2026."
    },
    {
        "text": "Before we get started, I'll draw your attention to Slide 2 and a brief cautionary statement.\nWe appreciate you joining us for our third quarter investor update.\nMoving to Slide 3 and the agenda for today's call.\nI'll also share some current initiatives underway to advance PPL's clean energy strategy and provide a brief operational and regulatory update.\nJoe will then provide a financial update, including a detailed review of third quarter financial results.\nTurning to Slide 4.\nWe continue to make excellent progress on our key initiatives to strategically reposition PPL for long-term growth and success.\nIn September, we received FERC approval for our planned acquisition of Narragansett Electric.\nWith FERC's approval, we now have four of the five approvals necessary to close on the transaction.\nWe continue to make progress on securing the final approval from the Rhode Island Division of Public Utilities and Carriers.\nIn its procedural schedule, the division has established February 25 as the target date for a decision.\nThis would put PPL and National Grid on a path to close on the transaction by March of next year as originally expected.\nAs we pursue the final regulatory approval, we continue working closely with National Grid on planning to ensure a smooth transition for Rhode Island customers and Narragansett employees upon closing.\nTogether, we've collaborated through 30 functional integration teams to plan and execute a safe, effective and minimally disruptive transition of the Rhode Island operations.\nThese teams have built robust Day 1 integration plans to execute on identified business requirements; extracted transition service agreements that will be key to providing a stable, seamless transition for customers; redesigned critical business processes to enable the TSAs to effectively operate; designed a new Rhode Island operating model and organization from the ground up, with over 1,100 National Grid employees accepting employment offers pending the close of the transaction.\nWe've initiated an integrated change management and communication strategy to engage our future employees, customers and Rhode Island stakeholders to begin to build relationships for the long term.\nAnd all three labor unions have ratified their new contracts that will be effective under PPL's ownership.\nAs we work to secure final approval, we look forward to partnering with the talented team in Rhode Island to deliver safe, reliable, affordable and sustainable energy.\nAnd we are very excited about the opportunity the acquisition presents to build one of the nation's most advanced clean energy-enabling grids in support of Rhode Island's ambitious decarbonization goals.\nFinally, on this slide, I'm excited to highlight a new valuable addition to PPL's Board of Directors, Heather Redman.\nHeather is the co-founder and managing partner of Flying Fish Partners, a venture capital firm that invests in early stage artificial intelligence and machine learning start-ups, including energy-related applications.\nShe brings expertise in disruptive technology, industry transformation, energy development and energy technology at a time when PPL is squarely focused on driving innovation and positioning our company for growth in the clean energy transition.\nI am confident that Heather will be a fantastic addition to our diverse and experienced board.\nWith Heather's addition, our board now has 10 directors, 60% of whom are diverse, and 30% of whom are women.\nTurning to Slide 5.\nIn advancing our strategic repositioning, we also continue to make progress in deploying proceeds from the sale of our U.K. assets to maximize shareowner value.\nAnd while we recognize cash is fungible, we are showing the major buckets for the use of proceeds on this slide.\nAnd today, we've announced two updates.\nFirst, as we continue to develop our business plan, we've identified at least $1 billion in incremental capital investments in Pennsylvania and Kentucky through 2025 to support grid resilience and modernization in advance of sustainable energy future for our customers.\nWe identified capex opportunities, predominantly in the T&D areas, include continued application of smart grid technologies, which improve overall system reliability and reduce O&M costs at the same time.\nIt also includes further hardening of the system to support reliability and resilience in the face of more frequent and stronger storms.\nWe'll look to make these same types of investments in Rhode Island once we close the transaction and work with Rhode Island stakeholders on the pace of change to the clean energy economy in the state, keeping in mind the cost impacts for customers.\nIn addition to our updates on capex opportunities, we've also revised our expectations for share repurchases and have allocated an additional $500 million to buybacks.\nWe now expect to repurchase a total of approximately $1 billion of PPL common stock by year-end, effectively doubling the amount previously announced on our Q2 call.\nWe've already completed $550 million in share repurchases through October 31.\nWe're pleased about the progress we've made in evaluating our capital plans and look forward to sharing additional details at an analyst day following the closing of the Narragansett acquisition.\nIn the meantime, we'll continue to review our business plans for additional opportunities that will drive value for both customers and shareowners.\nWe are also providing an update on the timing of an expected change to PPL's dividend and reiterate the planned dividend policy following the closing of the Narragansett acquisition.\nThe dividend has and will remain an important part of PPL's total shareowner return proposition.\nGiven the procedural schedule in place for the required regulatory approval in Rhode Island, we expect to maintain the current quarterly dividend rate through the January 3, 2022, payment.\nAfter that date, we plan to realign the dividend, targeting a payout ratio of 60% to 65% of the repositioned PPL earnings as previously communicated.\nThe final decision regarding the dividend will be made by the board of directors after the Narragansett closing.\nMoving to Slide 6.\nWe continue to advance our clean energy strategy as we pursue our goal of net zero carbon emissions by 2050.\nIn October, our Kentucky Utilities filed renewable power purchase agreements with the Kentucky Public Service Commission to provide a combined 125 megawatts of solar power to five major customers.\nUnder the 20-year agreements, which will support customer participation in LG&E and KU's green tariff, LG&E and KU will procure 100% of the power from a new solar facility that will be built in Western Kentucky.\nThe agreements reflect our continued efforts to support the growth of renewable energy and economic development in the state.\nutilities committed to supporting the growth of electric vehicles as we seek additional opportunities to enable third-party decarbonization.\nThe Electric Highway Coalition will focus on development of a seamless network of rapid electric vehicle charging stations, connecting major highway systems from the Northeast to the Midwest down to Texas.\nThe goal is to create convenient options for long-distance EV travel to reduce range anxiety for consumers.\nWe also continue to expand investments in R&D needed to achieve net zero.\nOur Kentucky Utilities recently announced a partnership to study the capture of carbon dioxide emissions.\nThe partnership with the University of Kentucky Center for Applied Energy Research, or CAER, will seek to develop cost-effective, scalable technology to capture carbon dioxide from a natural gas combined cycle plant.\nWe'll be working with CAER and using the carbon capture infrastructure we've already built at our Brown coal facility in 2014 to simulate emissions from a natural gas plant.\nThe project will also support a study aimed at direct air capture of CO2, potentially creating a negative emissions power plant.\nIn addition to capturing CO2, the system aims to produce two value-added streams, hydrogen and oxygen, that can be sold to offset the cost of capturing and storing the CO2.\nAdditional partners in this R&D initiative include Vanderbilt University and EPRI and GTI through their low carbon resources initiative.\nThe carbon capture unit we've built at the Brown plant is one of only a few carbon capture systems in operation today at power plants in the United States.\nFurthering our R&D-related efforts, PPL recently acquired an ownership interest in the SOO Green project, a 350-mile underground transmission project that seeks to connect the MISO and PJM power markets and support growing demand for clean energy.\nWe recognize that expanding the nation's transmission grid will be critical to connecting more wind and solar power and reducing greenhouse gas emissions.\nBreaking through siting, permitting and other barriers to build this transmission quickly and cost effectively will be key.\nSOO Green seeks to tackle these challenges by developing high-voltage transmission lines underground along major rail corridors.\nPPL's investment in the SOO Green project will enable us to gain valuable insight into this innovative approach.\nWe look forward to lending our capabilities and transmission expertise to support this project's success.\nTurning to Slide 7.\nOn October 19, LG&E and KU submitted their triennial joint Integrated Resource Plan to the Kentucky Public Service Commission.\nThe IRP provides the commission with information regarding our potential generation sources over the next 15 years to meet forecasted energy demand in a least cost manner.\nThe IRP is submitted for informational purposes and represents a moment-in-time look at ongoing resource planning, using current business assumptions and long-term forecasts.\nLG&E and KU's 2021 IRP projects a significant reduction in coal's contribution to our generation mix, declining from over 80% of the expected electricity produced in 2021 to about half of the total power produced in 2036.\nIn our base case scenario for load and fuel prices, we show the retirement of nearly 2,000 megawatts of coal capacity as we economically advance a clean energy transition.\nThese projected retirements are consistent with the depreciation study filed in our last rate case, as well as the estimates used in developing our net zero goal announced last quarter.\nThe IRP base demand and base fuel price scenario envision solar power playing a growing role in meeting our customers' demand for energy over the next 15 years, accounting for nearly 20% of all the power we supply to our Kentucky customers by 2036.\nThis scenario shows an additional 2,100 megawatts of solar combined with 200 megawatts of battery storage, along with simple cycle gas units needed for reliability purposes by the end of the planning period to replace that 2,000 megawatts of expected coal plant retirements.\nWe've also added a high-case scenario to this slide, which reflects the implications of higher demand and higher fuel prices due to several factors.\nUnder the high-case scenario, we would expect there to be significantly more energy needed by 2036, requiring additional capacity.\nBased on our assumptions, that would primarily be met with an additional 5,500 megawatts of incremental renewable and storage resources above the base case scenario through that time period.\nFurther, that would result in more than twice as much output from renewable resources by 2036, reflecting approximately 40% of generation output primarily replacing natural gas from the base case scenario.\nWe expect the next IRP, which will be filed in 2024, to be an extremely important plan based on the current timing of our next coal plant retirements, which are expected to begin again in 2024.\nMoving to Slide 8.\nOn August 20, PPL Electric Utilities announced a constructive settlement with an alliance of industrial and municipal customers that had challenged the company's FERC-approved base transmission return on equity.\nThe settlement, which must be approved by FERC, would change PPL Electric's base ROE from 11.18% to 9.9% from May 2020 to May 2022 with the rate stepping up to 10% by June 2023.\nThe settlement also updates the equity component of PPL Electric's capital structure to be the lower of its actual equity component calculated in accordance with the formula rate template or 56%.\nThe settlement also allows PPL Electric to modify the current formula rate, which is based on a historic test year and move the company to a projected rate year.\nFurther, PPL's formula rate could also be modified to be based on the calendar year moving forward rather than the current rate year that begins June 1.\nWe expect these changes to help reduce regulatory lag as we continue to make additional investments in transmission infrastructure.\nOverall, the settlement is expected to reduce net income by approximately $25 million to $30 million per year.\nIn other operational developments, our utilities continue to be recognized for our award-winning customer service and innovation.\nPPL Electric Utilities and Kentucky Utilities were once again listed as two of the most trusted utility brands in the United States based on a recent study performed by human behavior firm Escalent.\nThe results of the study show that communications played a vital role in building brand trust between utilities and our customers in 2020 during the pandemic.\nIt was the third consecutive year PPL Electric received this recognition and the second consecutive year for Kentucky Utilities.\nAlso, the Association of Edison Illuminating Companies selected PPL Electric Utilities as a winner of one of their 2021 achievement awards for revolutionary work in vegetation management.\nTrees are a common cause of outages.\nWithin PPL Electric Utility service territory, it's estimated that about a third of distribution outages over the past five years were caused by trees contacting overhead wires.\nBy using a new approach that leverages data analytics and other new technologies, PPL Electric Utilities found ways to trim and remove the right trees at the right times across 28,000 miles of overhead lines to help prevent outages.\nThis has led to improved reliability despite an increase in more severe weather without increasing overall vegetation management costs.\nBy using smart sensors that collect real-time information like wind speed and line temperature, operators can relieve transmission congestion and increase the electricity sent over those lines.\nPPL Electric Utilities has been recognized for its leading-edge approach to integrating DLR into core operations and using data from the sensors to make prudent investment decisions.\nAnd finally, we continue our efforts to support economic development in the regions we serve.\nOne recent major development in this area is Ford's announcement of plans to construct a $6 billion electric battery complex within our LG&E and KU service territory.\nIt is one of, if not the largest economic development announcement in Kentucky's history and will have far-reaching positive impacts on communities around the commonwealth.\nIn fact, 2021 has been a record year for Kentucky in terms of economic development growth with over $10 billion in new investments being announced within the state.\nOther recent developments in addition to Ford's announcement include a $460 million investment by Toyota and a $450 million investment by GE at its Appliance Park in Louisville.\nThese decisions exemplify the strengths that Kentucky has to offer large industrial customers.\nSpecifically, we are known for exceptional reliability to deliver energy 24 hours a day, 365 days a year.\nFurther, we have some of the lowest retail rates in the country, an important characteristic for large industrial customers and something we remain keenly focused on maintaining.\nKentucky also has the third lowest business cost in the country and is home to three global shipping hubs.\nAnd our Kentucky service territories are located in a centralized region that is well protected from intensifying coastal storms and other natural disasters.\nWe are excited to support the energy needs of these developments and their prospective impact on our surrounding communities.\nBefore we move to the next slide, in the broader context, I would also note that Kentucky Governor Andy Beshear in the state's Office of Energy Policy unveiled a new energy strategy on October 20 called E3.\nThe strategy considers three Es as key pillars to the strategic vision of a resilient economy in the state: energy, the environment and economic development.\nAnd this strategy aligns very well with PPL's clean energy transition strategy.\nWe're encouraged by several areas included in the strategy where our utilities will play a vital role and we expect will provide future opportunities, including ensuring a transmission grid that supports growing renewable resources; ensuring an electric distribution grid that is self-healing, self-sufficient and auto-sensing; supporting a diversified energy supply that is fuel secure, sustainable and resilient; incentivizing sustainable business investments, including hydrogen and other renewable fuels; supporting the development of carbon capture utilization and sequestration industries; and supporting alternative fuel transportation infrastructure.\nLG&E and KU participated in working groups associated with affordability and economic development in the lead up to the state announcing its strategy.\nWe believe the strategic framework represents a comprehensive approach to positioning Kentucky for success in a changing energy landscape.\nWe look forward to engaging with the Kentucky administration and other stakeholders as the state further develops its strategy to support sustainability, boost competitiveness and spur job growth and innovation in local and regional economies.\nToday, we announced third quarter reported earnings of $0.27 per share.\nThis reflects special items of $0.09 per share primarily related to losses on the early extinguishment of debt associated with the recapitalization of the balance sheet post the sale of WPD.\nAdjusting for special items, third quarter earnings from ongoing operations were $0.36 per share compared with $0.30 per share a year ago.\nOur third quarter results bring our year-to-date earnings from ongoing operations to $0.83 per share.\nNow let's move to Slide 10 for a more detailed look at our third quarter segment results.\nOur Pennsylvania regulated segment recorded $0.16 per share for the third quarter, which was $0.01 per share lower compared to a year ago.\nThe decrease was primarily due to higher operation and maintenance expense, primarily related to higher storm and support costs and reserve recorded for a reduction to the return on equity in the transmission formula rate.\nPartially offsetting these items were returns on additional capital investments in transmission.\nTurning to our Kentucky regulated segment.\nThird quarter results were $0.21 per share, a $0.04 per share increase compared to Q3 2020 results.\nThe increase was primarily driven by higher base retail rates effective July 1 and lower interest expense, primarily due to interest costs that were previously allocated to the Kentucky regulated segment.\nPartially offsetting this increase was higher operation and maintenance expense related to support and generation-related cost factors that were not individually significant.\nResults at corporate and other were a loss of $0.01 per share, which was $0.03 higher compared to a year ago.\nIn summary, as we work to complete our strategic repositioning, I remain incredibly excited about our future.\nWe continue to build momentum throughout 2021 and executing our strategic objectives.\nenergy company stronger, more agile and better positioned to advance the clean energy transition, to deliver utilities of the future and to drive long-term value for all of our stakeholders.",
        "summary": "qtrly earnings per share $0.27.\nqtrly earnings from ongoing operations (non-gaap) $0.36 per share.\nannounced update to its planned share repurchase program, increasing targeted repurchases to approximately $1 billion by year-end."
    },
    {
        "text": "We appreciate you joining us for our 2020 year-end earnings call today.\nWith me as usual are Joe Bergstein, our chief financial officer; Greg Dudkin, the head of our Pennsylvania utility business; Paul Thompson, the head of our Kentucky utility business; and Phil Swift, who heads up our U.K. utility business.\nMoving to Slide 3.\nI'll also share a few updates on regulatory and ESG matters.\nLater, Joe will provide a more detailed overview of year-end and fourth-quarter financial results.\nI'll then share some closing thoughts on our key focus areas for 2021.\nTurning to Slide 4.\nI'm incredibly proud of how PPL performed in 2020, a year unlike any we've seen in our lifetimes.\nIt was a year that tested our resolve, our resilience and our ability to adapt very quickly to dynamic conditions.\nImportantly, we provided electricity and natural gas safely and reliably to more than 10.5 million customers when it mattered the most.\nThis included the hospital workers and the first responders who were on the front lines.\nAnd it included customers whose homes became offices, whose kitchens and bedrooms became classrooms and who were counting on us to deliver without fail.\nWe're extremely honored that our continued operational excellence resulted in further recognition from these very same customers in 2020.\nThis included topping all large utilities in the east for the ninth straight year for residential customer satisfaction and all mid-sized utilities in the Midwest for both residential and business customer satisfaction.\nIn the U.K., at the end of 2020, we again finished with scores of over nine out of ten in all four of our DNOs and are on track to receive the maximum incentive reward under Ofgem's broad measure of customer satisfaction.\nWe also received the U.K.'s customer service excellence award for the 28th time since 1992.\nAs we focused on our commitment to provide a superior customer experience, we also recognized the need to support our local communities and assist customers struggling with COVID-19.\nWith that in mind, we continued to offer payment assistance programs, flexible payment options and referral services to help customers manage their energy bills.\nShifting to our financial performance.\nWe achieved financial results that are within our original earnings guidance range, despite the challenges of COVID-19.\nThis achievement included overcoming a $0.12 per share unfavorable impact from COVID, due primarily to low sales volumes in the U.K. and lower commercial and industrial demand in Kentucky, as well as a $0.05 per share unfavorable impact due to mild weather compared to normal conditions.\nWe were able to offset some of the impact through effective cost management and several other factors without negatively impacting the long-term strength of the business.\nregulatory construct provides recovery for any under-collected revenues from lower sales volumes, which was a significant portion of the 2020 impact.\nWe also maintained a strong financial position and delivered on our commitment to return capital to share owners, something PPL has done each quarter for 75 consecutive years.\nTurning to Slide 5.\nAs we dealt with the challenges of COVID-19 during the year, we also remained very focused on the future.\nBuilding on the $27 billion we had invested over the prior decade to improve service to our customers, during 2020, we completed more than $3 billion in infrastructure improvement, in line with the original expectations we outlined for you at the beginning of the year.\nThe vast majority of this investment, nearly 90%, was focused on transmission and distribution infrastructure to strengthen grid resilience, incorporate new technology and advance our clean energy strategy.\nShifting to a few sustainability highlights.\nWe continued to advance our clean energy strategy in 2020.\nAt the outset of the year, we set a more aggressive carbon reduction goal.\nAnd throughout the remainder of the year, we invested in our networks to enable increased electrification and large-scale additions of distributed energy resources in the future.\nIn Kentucky, we secured regulatory approval for a 100-megawatt solar power purchase agreement to meet increasing customer demand for clean energy solutions.\nWe also continued to expand customer participation in our Solar Share Program, securing full subscription for two additional phases of Solar Share construction that will begin this spring.\nIn addition, our Safari Energy business also added more than 90 megawatts of solar capacity to its portfolio, increasing its own capacity to 110 megawatts.\nThis new capacity is all contracted via long-term power purchase agreements.\nAnd in August, we joined a five-year industry initiative to accelerate the development of low-carbon energy technology and advance affordable pathways to economywide decarbonization.\nWe recognize that going even further, faster than the goals that we've set to address climate change requires new ideas, technology and systems that can be delivered safely, reliably and affordably.\nThat's why we're partnering with EPRI and GTI on their new Low-Carbon Resources Initiative.\nAs part of our sustainability efforts, we also remained focused on advancing a culture of diversity, equity and inclusion across PPL and supporting meaningful change in progress in the communities we serve.\nTo build on PPL's prior momentum in this area, the company adopted a new enterprisewide DEI strategy with five supporting DEI commitments.\nIn the wake of the killings of George Floyd, Breonna Taylor and others in 2020, PPL led focused discussions with our employees and in our communities on race and social justice that will continue to guide our efforts moving forward.\nIn addition, we provided initial contributions to support local organizations focused on DEI initiatives and launched a new scholarship program that aims to award $1 million over the next decade to support minorities and females pursuing careers in engineering, IT, technical and trade roles.\nAs a reflection of PPL's continuous focus on embracing diversity, inclusion and advancing equity for all, we were named a Best Place to Work for LGBTQ equality by the Human Rights Campaign Foundation, once again earning a perfect score.\nLastly, on this slide, I would note that we continued to enhance our ESG disclosures in 2020, demonstrating our ongoing commitment to transparency, and to keeping stakeholders informed.\nThis included our disclosures around political spending, an area in which the Center for Political Accountability and the Zicklin Center for Business Ethics Research gave PPL their Trendsetter ranking on the CPA-Zicklin Index.\nTurning to Slide 6 for some regulatory updates.\nIn November, we took steps at our Louisville Gas and Electric and Kentucky Utilities businesses to support continued infrastructure investments that benefit our customers.\nLG&E and KU filed rate requests with the Kentucky Public Service Commission on November 25, seeking approval for a combined revenue increase of about $331 million in electricity and gas base rates.\nThe requested increases will support continued modernization of the grid to strengthen grid resilience, as well as upgrades to LG&E's natural gas system to enhance safety and reliability.\nIn addition, we are seeking approval for full deployment of advanced metering infrastructure, faster electric vehicle charging stations and an updated net metering tariff.\nIf approved by the Commission, LG&E and KU's requested revenue increases would take effect July 1, 2021.\nGiven the COVID pandemic and in an effort to reduce the near-term impact of the rate adjustment for our customers, we sought to minimize the size of the requested increase and have included in our request for approval a $53 million economic relief surcredit to help mitigate the impact of the rate adjustment until mid-2022.\nIn addition, we have proposed to implement AMI in a manner, which based on current projections will not require an increase in the combined revenue of LG&E and KU in this rate case or in the future as operating cost savings are projected to more than offset the incremental capital cost of the project.\nAdditionally, pending the outcome of the proceeding, it's our goal not to request another base rate adjustment for several years.\nIn other notable Kentucky updates, LG&E and KU on January 7 issued a request for proposal for generation capacity to meet a potential energy shortfall that may be created by the anticipated retirements of 1,000 megawatts of coal-fired generation during this decade.\nBrown Unit 3 are expected to be retired by 2028 as they reach the end of their economic useful lives.\nWe've also included in the appendix a slide that details the projected economic lives with our baseload generation plan.\nThe utilities are seeking 300 to 900 megawatts of capacity beginning in 2025 to 2028.\nAdditionally, we're asking for proposals for at least 100 megawatts of battery storage.\nProposals are due March 31, and we anticipate making a decision by mid-2021 and potentially filing for regulatory approvals in early 2022.\nLastly, in the U.K., Ofgem issued its RIIO-ED2 sector-specific methodology decision in mid-December.\nThe decision was largely in line with our expectations and underscores the vital role DNOs will play in supporting decarbonization in the U.K. to achieve a net zero economy.\nIn January, WPD became the first DNO to issue a draft business plan for RIIO-ED2.\nThat draft plan proposes GBP 6 billion in new investments to support decarbonization, digitalization and enhanced network utilization.\nTurning to Slide 7 and the 2021 to 2025 capital plan.\nWe've outlined more than $14 billion from 2021 to 2025 to support continued modernization of our transmission and distribution networks and to advance a cleaner energy future.\nThis forecast spending represents $1 billion of incremental capex from 2021 to 2024 compared to our prior plan.\nThose increases include $400 million in Kentucky to support full deployment of advanced metering infrastructure, $300 million in Pennsylvania for additional transmission investments, as well as incremental funding for IT initiatives focused on digital transformation investments in work optimization, smart grid technology and the customer experience and $200 million in the U.K. due to a shift of certain investments from 2020 to 2021 as a result of COVID-19, additional funding for telecommunications projects and updates to our RIIO-ED2 capital plan.\nI'll begin with a brief overview of our fourth-quarter results on Slide 9.\nPPL delivered fourth-quarter 2020 earnings from ongoing operations of $0.59 per share compared to $0.57 per share in the fourth quarter of 2019.\nWeather in the quarter was about $0.01 unfavorable compared to 2019, as our Kentucky segment experienced slightly milder temperatures.\nThe estimated impact of COVID on our fourth-quarter results was about $0.02 per share, $0.01 due to lower U.K. sales volumes and $0.01 driven by lower demand in Kentucky.\nWe continue to experience improvement in this area as C&I demand steadily improves across our service territories.\nOverall, these results were in line with our expectations.\nMoving to our full-year 2020 earnings results on Slide 10.\nWe achieved 2020 earnings from ongoing operations of $2.40 per share compared to $2.45 per share a year ago.\nAs Vince mentioned earlier, our 2020 financial results reflect an estimated $0.12 unfavorable variance due to COVID-19.\nDuring 2020, we also experienced a $0.06 unfavorable variance due to weather compared to 2019, primarily in Kentucky.\nIn terms of dilution for the year, we experienced $0.11 per share of dilution year over year, primarily reflecting the impact of the equity forward settlement in late 2019.\nMoving to the segment drivers, excluding impacts from weather and dilution.\nregulated segment earned $1.33 per share, a $0.01 year-over-year decrease.\nThe decrease in U.K. earnings was primarily due to lower adjusted gross margins, driven by lower sales volumes primarily due to the impacts of COVID-19, lower other income due to lower pension income, higher operation and maintenance expense and higher depreciation expense.\nThese decreases were partially offset by higher foreign currency exchange rates compared to the prior period with 2020 average rates of $1.47 per pound compared to $1.32 per pound in 2019.\nIn Pennsylvania, we earned $0.65 per share, which was $0.07 higher than our results in 2019.\nOur Pennsylvania results were primarily driven by higher adjusted gross margins, primarily resulting from returns on additional capital investments in transmission and lower operation and maintenance expense.\nThese increases were partially offset by higher depreciation expense and other factors that were not individually significant.\nTurning to our Kentucky segment.\nWe earned $0.55 per share in 2020, a $0.03 increase over comparable results one year ago.\nThe increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective May 1, 2019, and lower operation and maintenance expense.\nPartially offsetting these items were lower commercial and industrial demand revenue, primarily due to the impact of COVID-19 and higher depreciation expense.\nResults at corporate and other were $0.03 higher compared to the prior year.\nFactors driving earnings results at corporate and other primarily included lower overall corporate expenses and other factors not individually significant.\nTurning to Slide 11.\nWe outlined the trends we observed in weather-normalized sales for each segment by customer class since the beginning of the pandemic.\nOverall, lower demand in the C&I sectors continued to be partially offset by higher residential load in each of our service territories.\nWe also experienced a steady recovery in the C&I space as certain restrictions were eased during the year.\nIn Pennsylvania, residential usage steadily declined following the sharp spike we experienced at the onset of COVID, yet remains up about 3.5% compared to last year, signaling strong demand from customers still working from home.\nAs for the C&I sector, we saw incremental recovery from the lows experienced in the second quarter.\nAnd by year-end, we're tracking less than 3% behind prior year levels.\nThe largest declines remain primarily in the retail trade and services industry, which we expect will remain depressed until restrictions are lifted.\nIn Kentucky, residential usage was up about 7% in Q4 compared to the last year, consistent with what we experienced in Q3.\nWe continue to experience a moderate recovery in the C&I sectors in Kentucky, up substantially from the second quarter.\nC&I volumes were down 3.5% from last year's usage in Q4, which was an improvement from the 7% decline observed during Q3.\nSimilar to Pennsylvania, the largest declines in the C&I sector continue to be seen in the services industry.\nHowever, sales to the manufacturing sector returned closer to the 2019 levels in Q4.\nAnd finally, in the U.K., residential usage also remained higher, with volumes being up about 6% compared to last year.\nC&I sectors has lagged our domestic jurisdictions overall, but has continued to make a strong comeback, down about 9% versus the prior year, a substantial improvement from the second-quarter lows of over 20%.\nWhile additional incremental lockdowns were put in place during the fourth quarter, these impacts did not restrict the construction and housing industries, and we have not seen a slowdown in operational activity in these sectors.\nAnd as a reminder, any revenue shortfall in the 2020-2021 regulatory year will be recovered by WPD in the 2022-2023 regulatory year adjusted for inflation.\nBefore I briefly highlight our 2021 strategic priorities, I just want to reiterate how proud I am of what we were able to achieve in 2020 under truly remarkable circumstances.\nOperationally, we didn't miss a beat, delivering very strong results.\nFinancially, we overcame stiff headwinds to achieve our earnings guidance and returned capital to share owners.\nInternally, I saw our businesses collaborate like never before, as we worked to keep each other safe and tackle COVID-19.\nAnd at the end of the day, I truly believe we made a positive impact on society, and that's the common purpose that really unites employees at all levels across PPL.\nIn 2020, we demonstrated PPL's tremendous resilience and agility.\nAnd as I've shared with our employees, I truly believe we will emerge from this pandemic stronger and more united than ever before.\nWith that in mind, our clear focus moving forward is on delivering long-term value for our customers and our share owners.\nIn 2021, that includes completing the process to sell our U.K. utility business and repositioning PPL as a purely U.S.-focused utility company.\nI'm pleased to report that the process to sell WPD remains on track, and we continue to expect to announce a transaction in the first half of this year.\nAs we shared previously, we believe the sale of the U.K. business will simplify our business mix, strengthen our balance sheet and enhance the company's long-term earnings growth rate.\nIn addition, we believe it will give the company greater financial flexibility to invest in sustainable energy solutions.\nAnother top priority of ours this year is, as always, delivering electricity and natural gas safely, reliably and affordably.\nNo job we do is more important than that.\nAnd this year, we will remain focused on continuous improvement, innovation, benchmarking and best practice sharing as we seek to once again deliver industry-leading operational performance and provide a superior customer experience.\nOther notable priorities for 2021 include advancing our clean energy strategy and reducing PPL's carbon footprint, further enhancing the DEI culture I spoke about earlier and building strong communities through philanthropy, volunteerism and customer assistance.\nIn conclusion, as we look to 2021 and beyond, I'm excited about the opportunity we have to reposition PPL for future success.\nAnd I'm confident we will continue to deliver long-term value for our customers, our share owners and the communities we serve.",
        "summary": "sees fy 2020 earnings per share $2.40 to $2.60.\nqtrly earnings from ongoing operations per share $0.59.\nnot providing future earnings guidance at this time as a result of formal process to sell its u.k. utility business.\nexpects to announce a transaction regarding u.k. utility business in the first half of 2021."
    },
    {
        "text": "Joining our call today are Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rad.\nWe also reference certain non-GAAP measures, which we believe will provide insight into the company's operations.\nSecond quarter results were very strong, reflecting continued progress in both our term life and our Investment and Savings segments.\nLeveraging the fundamental strengths of our business model, we are positioned to meet the middle market's increased demand for financial security, which has been revealed by the COVID pandemic.\nStarting on slide three.\nAdjusted operating revenues of $654 million increased 25% compared to the second quarter of 2020, while diluted adjusted operating income per share of $3.25 rose 33%.\nROAE also increased to 27.8% compared to 25.6% during the same quarter last year.\nTurning to slide Four.\nWe attracted nearly 90,000 new recruits during the quarter.\nYear-over-year comparisons are difficult to evaluate because of the varying impact of the pandemic in each period and the tailored recruiting incentives we deployed each quarter.\nLooking beyond this noise, we believe that we are using the right mix of messaging and incentives to continue to drive recruiting and to increase the appeal of our business proposition.\nMore than 10,000 individuals obtained a new life insurance license during the quarter, and we are encouraged by those results.\nWe have seen some improvement in the licensing process over the last few months.\nTesting windows are now generally available and many states have called up on processing backlogs, although there remain some pockets where processing is still taking longer than usual.\nLicensing candidates today also have more flexibility to access pre-licensing classes in both in-person and remote options widely available.\nWe continue to see a higher success rate for candidates choosing to attend in-person classes, but there is some hesitancy about assembling in classrooms.\nAs COVID social distancing measures eased, we noted a greater degree of distraction among our licensing candidates.\nAfter a prolonged period of lockdown, some people are prioritizing social activities and travel over the pursuit of their life license.\nSince the beginning of the year, our message to the field has been focused on getting new recruits engaged and licensed.\nWe provide resources and coaching to assist new recruits on the most effective path to licensing.\nWe also offer incentive credits and consistent messaging on the importance of new licenses and growth of the sales force.\nWe believe our prioritization and support will help overcome the recent obstacles to the licensing process over the next few months.\nWe ended the quarter with about 132,000 life license representatives, including a total of 2,400 individuals with either COVID temporary licenses or a license with an extended renewal date.\nAs time wears on, we believe the majority of these licenses will largely age out.\nExcluding all 2,400 of these licenses from our total sales force provides a more appropriate and conservative understanding of the underlying size of our sales force and the foundation for future growth.\nThe pandemic presented us with numerous unique challenges over the last year, yet we were able to navigate these obstacles by adapting quickly to a remote framework -- remote work environment and by embracing web conferencing tools that will have a lasting benefit to our sales force.\nWe remain committed to growing our sales force and expect to end the year at around 131,000 life licensed representatives after all the COVID-temp licenses and extended renewals have expired compared to a normalized count of 130,700 at the end of 2020.\nTurning to slide five.\nConsumer sentiment for the value of life insurance remains strong, which is most evident in our persistency levels.\nSales are also robust.\nHowever, we are finding that some individuals, both clients and reps, are also focused on resuming normal everyday activities, which competes with their urgency to obtain insurance coverage.\nNonetheless, we issued nearly 90,000 new life insurance policies during the quarter, a figure that is slightly below last year's second quarter record levels yet outstanding by historical standards.\nProductivity remains above our historical range at 0.23 policies per life license representative per month and total face amount grew to $887 billion in force at quarter end.\nLooking ahead, as we see trends normalizing, we project full year-over-year life sales to decline approximately 5% versus last year's elevated levels.\nTurning to slide six for a review of our Investment and Savings Products segment results.\nSales exceeded $3 billion for the first time in history with solid demand from both the U.S. and Canada clients and across all product lines, including mutual funds, annuities and managed accounts.\nStrong equity markets continue to contribute to investors' confidence and help drive sales.\nNet inflows at $1.2 billion during the quarter were twice the level in the prior year period and slightly above the $1.1 billion in the first quarter of 2021.\nThis level of sustained net inflows is a function of strong sales and investors' decisions to stay invested.\nWe believe our redemption levels remain well below the industry rates.\nWe ended the quarter with client asset values of $92 billion, a 34% increase year-over-year, combining strong equity markets and nearly $3.5 billion of net new inflows over the last 12 months.\nBarring an unforeseen period of market uncertainty, which would have a negative impact on investor sentiment, we expect third quarter investment sales to grow in the 30% to 40% range versus last year's third quarter.\nWe're making steady progress in our U.S. mortgage distribution business and continue with our deliberate efforts to expand distribution.\nWe are now actively engaged to do business in fiftheen states with about 1,000 license representatives.\nWe estimate the mortgage business will earn around $4 million in pre-tax earnings during the second half of 2021 for a full year total of $7 million.\nBecause of the positive impact, we believe the mortgage business brings to recruiting, life and ISP sales and client satisfaction.\nWe've begun a mortgage referral program in Canada.\nWhile providing similar positive overall business dynamics, this referral program does not require licensing of our representatives in Canada and provides much smaller economics for the company.\nWe're seeing good response from our reps and clients to this offering, which rounds out the full-service client experience.\nOur acquisition of e-TeleQuote closed on July one and we're excited about adding senior health offerings to Primerica's financial solutions for middle-income families.\nIn addition to e-TeleQuote's existing distribution model, we're in the process of rolling out a pilot referral program, leveraging Primerica's strong relationships between our sales force and our clients.\nI look forward to updating you on our progress in the coming quarters.\nStarting with our Term Life segment on slide seven.\nThis quarter marks the first period where COVID impacted both the current and prior year periods.\nSegment results were very strong and operating revenues of $384 million increased 17% and pre-tax operating income of $117 million rose 23% year-over-year.\nAs Glenn discussed, term life sales were down slightly from last year's highly elevated levels.\nConsumer sentiment for protection products continues to be favorable as reflected in record levels of policy retention.\nPersistency improved across all durations over the prior year period, which was already at historically elevated levels.\nGiven more context, lapse rate in last year's second quarter was 50% lower than 2019 levels, while the current quarter lapses were an estimated 25% lower than 2019.\nThe compounding impact of sustained higher sales and policy retention over the last five quarters drove 16% growth in adjusted direct premiums year-over-year.\nadding $11 million to pre-tax income over baseline 2019 levels.\nThe similar contribution in 2020 was $3 million.\nThe higher persistency lowered DAC amortization by $14 million, which was partly offset by $6 million in higher benefit reserves for a net contribution of $8 million to pre-tax income for the quarter.\nThe net contribution in the prior year period was $4 million.\nCurrent period claims remained elevated in comparison to our historical experience.\nWe incurred about $6 million in COVID claims and an additional $3 million of claims that were not identified as COVID for a total of nine million excess claims for the quarter.\nThis compares to $10 million of excess claims in the prior year quarter, which were fully attributable to COVID debt.\nThe $6 million of COVID claims was in line with our expectations but increased our experience from $10 million per 100,000 population deaths to $13 million per 100,000 population deaths.\nThe increase was caused by higher COVID-related deaths in Canada, which has historically had lower reinsurance coverage and therefore, a higher average retained face now.\nIt's not unusual for us to experience normal claims volatility in the $3 million range in the quarter.\nAnd at this point, we believe this to be the case.\nThat being said, there was a lot of discussion in the news about the impact of delayed medical care and the behavioral health crisis, which could have impacted recent claims activity.\nWe continue to monitor our experience for any emerging trends.\nThe level of vaccinations and their efficacy against strains of the virus are key to determining the ongoing level of COVID-related deaths.\nLooking at the third quarter, we estimate $6 million in COVID claims for the quarter based on an estimated 57,000 population deaths, including 500 deaths in Canada.\nWe expect lapses to begin normalizing later in 2020 -- excuse me, 2021.\nHowever, we have yet to see movement in that direction, and it remains difficult to predict the extent to which we will see a permanent improvement in persistency from pre-COVID levels.\nAny such improvement in persistency would be favorable to margin, resulting in a benefit ratio being higher and the DAC ratio being lower than pre-COVID levels.\nIf the improvement is in the 10% range, margins would likely increase 80 to 100 basis points from where they were prior to the pandemic.\nInsurance expense ratio remained below its pre-COVID historical average during the quarter at 6.6% compared to 6.8% in the prior year period as higher adjusted direct premiums led to greater fixed cost absorption.\nTurning to the ISP segment on slide eight.\nOperating revenues of $238 million increased 45% and pre-tax income of $71 million was 52%.\nThese year-over-year comparisons reflect continued strong sales, which Glenn discussed earlier and significant asset appreciation over the last year.\nThe 67% increase in sales base revenues was somewhat lower than the growth in revenue generating sales due to an increase in large dollar trades, which have a lower commission rate.\nMany of the large dollar trades are coming from retirement plan rollovers with job turnover on the line and a greater number of baby boomers deciding to retire.\nAsset-based revenues increased 39%, largely in line with the higher average client asset value.\nOur sales and asset-based commission expenses increased in line with the associated revenue.\nOther operating expenses grew by 11%, largely driven by fees based on client asset value.\nCanadian segregated fund DAC amortization for the quarter was at a normal run rate, but was $1.7 million higher than the prior year due to a significant market correction that occurred during the second quarter of 2020.\nMoving next to our Corporate and Other Distributed Products segment on slide nine.\nThe adjusted operating loss increased by $5.2 million compared to the prior year excluding $2.1 million in transaction-related expenses incurred during the quarter as a result of the acquisition of e-TeleQuote.\nThe year-over-year change results reflects around $3 million higher employee and technology-related costs as well as $1.6 million of higher reserves on a block of discontinued business due to the low interest rate environment and improved persistency.\nAllocated net investment income in the segment declined by $2 million largely driven by a higher allocation to the Term Life segment to support growth in that business, along with lower overall yield on the invested asset portfolio.\nOur growing mortgage business added a net $1.6 million to pre-tax income during the quarter year-over-year.\nConsolidated insurance and other operating expenses on slide 10 were in line with expectations that are $113 million during the second quarter, rising 13% or $13 million over the prior year.\nThe increase was largely driven by growth in our businesses.\nWe anticipate third quarter insurance and other operating expenses in our three existing segments to be approximately $119 million or 12% higher than the prior year period.\nBeginning next quarter, our disclosures will be expanded to including four segments: senior health, which will capture revenues and expenses associated with the distribution of Medicare-related insurance policies by e-TeleQuote, including earnings generated from sales force by Primerica labs.\nOur intent is to continue to remove transaction-related costs, which are specific to the purchase of e-TeleQuote and that we view as onetime in nature from our operating results.\nThese costs include fees necessary to close the transaction.\nOther onetime costs that assist us in integrating e-TeleQuote into our organization and the adjustments to certain items recognized for purchase accounting.\nOther integration-related costs that are ongoing in nature will be shown as operating expenses in the Senior Health segment.\nTurning to slide 11.\nThe unrealized gain on our invested asset portfolio at the end of June was $123 million, up from $98 million at the end of March as rates declined and credit spreads tightened.\nThe portfolio remains of high quality and well diversified across sectors and issuers.\nThe NAIC recently adopted new bond factor to be used in the calculation of RBC that go into effect for 2021 year-end reporting.\nModeling our June 30 RBC ratio using these factors, we estimate our ratio will be reduced by approximately ten to fifteen basis points.\nWe believe this change is small enough to not require significant changes to our invested asset portfolio.\nWith the new bond factors, Primerica Life estimated risk-based capital ratio is about 410% at the end of the second quarter, and we plan to remain above 400% for the rest of the year as we continue to fund business growth and take ordinary dividends to the holding company.\nOn slide 12, holding company liquidity at June 30 was $656 million reflecting the buildup in anticipation of the e-TeleQuote acquisition and includes the $125 million draw against our revolving credit facility.\nImmediately following the closing on July 1, holding company liquidity was approximately $169 million.",
        "summary": "primerica q2 adjusted operating earnings per share $3.25.\nq2 adjusted operating earnings per share $3.25.\nq2 revenue rose 25 percent to $654.7 million."
    },
    {
        "text": "Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand.\nWe will also reference certain non-GAAP measures, which we believe will provide additional insight in the company's operations.\nOur strong results continue to reflect our ability to adapt to the changing business environment.\nSince the emergence of COVID-19, Primerica has been educating and assisting clients in choosing the right protection products to meet their family's insurance needs.\nAs a reaction to the pandemic phase, we are helping guide clients' investment decisions and assisting families as they prepare for a more financially secure future.\nThese last 18 months are a perfect example of the balance and resilience of our business model.\nI'm proud how quickly our sales force is adapted to a combination of virtual and in-person client interactions to continue serving middle-income families when they need us most.\nOver the same 18 months, we've delivered on our strategic goal of expanding our product offerings.\nWe moved from pilot to full rollout of the new mortgage business, which continues to grow as we gain experience.\nWe also launched our senior health referral program during the third quarter, further rounding out a balanced product platform to help clients through every financial step of their life journey.\nLooking at the third quarter, we continue to set new records with Investment and Savings sales up more than 50% year-over-year.\nAt $8.7 billion, total sales during the first 9 months of 2021 have already eclipsed full year 2020 levels, and we're on pace to break $10 billion in annual sales for the first time in our history.\nAs anticipated, sales in our Term Life segment have started to normalize versus their COVID peak.\nAnd while sales are down versus the record levels, we forecast full year sales to be about 10% above pre-pandemic levels.\nWe also expect to surpass $900 billion of face amount in force by the end of the year, another milestone in our corporate history.\nStarting on Slide 3, adjusted operating revenues of $692 million increased 22% compared to the third quarter of 2020 and diluted adjusted operating income per share of $2.98 increased 7%.\nThese results include an adjusted net operating loss of $4.6 million or $0.12 per diluted adjusted operating earnings per share for our newly acquired interest in e-TeleQuote.\nROAE at 24.1% during the quarter remained strong.\nTurning to Slide 4.\nWe added nearly 92,000 new recruits during the quarter, down from the third quarter of last year when focus and urgency driven by the pandemic created tailwind.\nIt's worth noting that recruiting remains strong compared to pre-pandemic levels.\nWe believe our success and proven track record continue to make our business opportunity attractive to aspiring entrepreneurs.\nDisruption and discontent in the job market create more people looking for alternatives to their current career paths, and these individuals may be interested in joining our business.\nThroughout the COVID-19 pandemic, the process for licensing new recruits has been impaired.\nEarly on, the impact was overshadowed by states implementing short-term accommodations.\nNow that these programs have ended, current licensing numbers reflect the difficulties.\nKey among the issues is the difficulty in getting new recruits to complete training class.\nIn-person classroom training provides the greatest completion rates.\nHowever, distractions associated with the reopening of the economy and a degree of hesitancy by some to congregating classrooms is impeding progress.\nOnline training alternatives offer ease of access, but often do not have high completion rates due to their lack of disciplined and accountability.\nWe continue to adapt in order to overcome this dilemma by offering more classroom options that appeal to a variety of schedules, increasing our messaging and incentives and better equipping our field leaders to overcome resistance.\nA total of 9,381 individuals obtained a new life license during the quarter, which is below our historical pull-through rate.\nWe believe this is a reflection of the current COVID environment rather than an underlying challenge in our ability to get new recruits licensed.\nA key part of our messaging to the field leadership includes the importance of keeping new recruits engaged and moving toward a permanent license.\nWe ended September with approximately 130,000 Life licensed representatives included in the total of about 800 individuals with either a co-contemporary license or a license with an extended renewal date.\nAs we noted last quarter, we now expect the majority of these licenses to age out, placing the normalized size of the sales force around 129,200.\nNormalizing all periods to provide an apples-to-apples comparison, we ended June 2021 with 129,600 life licenses and December 2020 with 130,700 life licenses.\nAt this time, we expect to end 2021 with a sales force size roughly equal to the prior year end's normalized number, which would be a significant achievement given the numerous challenges we've navigated.\nTurning to the next slide to review our Life Insurance segment.\nWhile a pullback from COVID heightened sales levels was expected, we also believe that clients continue to place a higher value on financial protection for their families as sales remained above their pre-pandemic levels.\nDuring the third quarter, we issued nearly 76,000 new life insurance policies with productivity at 0.19 policies per life license representative per month well within our historical range.\nTotal face amount of $894 billion in force rose 6% year-over-year.\nWe project fourth quarter sales to decline between 13% and 15% year-over-year.\nWhile full year results would be down approximately 8% versus 2020's elevated levels, it will still represent more than a 10% increase over pre-COVID 2019 full year results.\nHighlights from our Investment and Savings Products segment are presented on Slide 6.\nSales of $2.8 billion were up 52% year-over-year.\nThe strength of equity markets continues to support investors' confidence to invest for the future.\nSolid demand persisted across all our investment products, including mutual funds, annuities and managed accounts.\nNet inflows of $1 billion during the quarter remained well above historical levels.\nDespite these robust inflows, significant equity market volatility during the quarter kept ending asset levels largely unchanged versus June levels.\nBarring an unexpected change in market sentiment, we expect the fourth quarter investment sales to grow between 20% and 25% year-over-year and more than 40% full year 2021 versus 2020.\nAs I noted earlier, we've made significant strides in expanding our product offering over the last 2 years.\nIn our new mortgage business, we continue to make steady progress and are now actively doing business in 17 states through more than 1,200 license representatives.\nWe have closed nearly $1 billion in U.S. mortgage volume through the third quarter of this year, eclipsing the $442.5 million closed in the entire 12 months of 2020.\nDuring the third quarter, we started to roll out the senior health referral program to Primerica representatives.\nWe've had broad acceptance of the launch from field leaders and Primerica reps are excited about how well the program serves their clients' needs.\nWe're seeing encouraging lead generation results since the Medicare annual election period began in mid-October.\nAfter our first quarter of ownership, we were excited by the opportunities and are gaining experience in leading our senior health business.\nCurrent headwinds caused by labor market issues have caused e-TeleQuote to experience recruiting and retention issues with the Senior Health sales center employees.\nGiven the lower staffing levels coming into AEP, we expect fourth quarter approved policy levels to be around 36,000 to 40,000 or approximately double third quarter levels.\nWe believe this labor market imbalance is temporary and expect the return to more favorable conditions, which will improve our ability to attract quality agents that are essential to scaling the e-TeleQuote business.\nWe're investing in technology and talent consistent with our pre-acquisition plans.\nWe believe in the long-term attractiveness of both e-TeleQuote and the senior health industry, and we are positioning ourselves to take advantage of this growing market.\nAs we look forward to 2022, we have confidence that we will continue to thrive in any business environment and be better positioned for ongoing success.\nOur plans for the new year include a powerful live senior field leader event in early January to set an energetic tone for the year.\nIn June, we returned to the Mercedes-Benz Stadium for our biannual convention and the opportunity to cast our vision for the future, introduce product improvements and recognize our success.\nToday, I will take you through third quarter results, including those for our new Senior Health segment, and highlight key additions to our financial metrics and disclosures introduced as part of the acquisition of 80% of e-TeleQuote on July 1.\nStarting on Slide 7 with our Term Life segment, Topline growth remained strong with operating revenues up 12% to $401 million, driven by 13% growth in adjusted direct premiums.\nThe compounding impact of 18 months strong sales and policy persistency continues to drive adjusted direct premium growth and added $12 million pre-tax income during the quarter.\nThis compares to $5 million added in the prior year period.\nThird quarter net COVID-related death claims were $14 million, up from $8 million in the prior year period.\nThis was above our prior estimate as the Delta wave led to higher COVID-related population deaths in the U.S. and Canada.\nThe rate of COVID mortality in our insured population also increased from around 11 million to 14 million per 100,000 deaths.\nThe increased rate was largely driven by deaths impacting younger individuals who are more heavily represented in our insured population and higher volume of claims in states where vaccination rates have been low.\nCOVID claims continue to be linked to older policies with less than 1% of claims coming from policies issued since the onset of the pandemic.\nWe incurred about $2 million of excess death claims in the quarter, not specifically identified as COVID, but that we believe are indirectly tied to the pandemic, either through delayed medical care, societal issues such as crime or the behavioral health crisis.\nWe continue to monitor our experience for any emerging long-term trends.\nFrom a P&L perspective, this excess mortality was fully offset by a reduction in the reserves held for policy riders that provide for premiums to be waived if an individual becomes disabled.\nMain drivers of the reductions were higher death claims in the waived population, along with expanding our third-party disability claims management to include Canada.\nDuring the third quarter, lapses remained around 25% to 30% lower in pre-COVID levels for all durations except duration one, which was about 15% lower.\nCompared to the pre-pandemic baseline, DAC amortization was favorable by $11 million, offset by $6 million in higher benefit reserves due to strong persistency for a net favorable impact of $5 million to pre-tax income.\nThe third quarter of 2020 experienced record persistency with lapses around 35% lower than pre-COVID across all durations, including Duration one for a net contribution to pre-tax income of $14 million.\nLast year, we highlighted that these levels were unsustainable and as such, expected lapses to normalize over time.\nYear-over-year DAC amortization was higher by $11 million and benefit reserves were lower by $2 million due to persistency changes with the increase in DAC amortization largely driven by duration one.\nGiven the higher COVID-related death claims and lower net contribution provided by persistency, pre-tax income growth was compressed to 2% year-over-year with margins remaining around 20%.\nLooking to the fourth quarter, we expect adjusted direct premiums to grow by approximately 12% year-over-year and future growth rates to taper as we layer our new business and transact the pre-pandemic activity levels.\nCOVID-related deaths are estimated at $14 million based on 100,000 projected population deaths in the U.S. and Canada.\nWe expect strong persistency to continue lapses that are 20% to 25% lower than pre-pandemic levels across all durations except duration 1, where we expect lapses to be around 15% lower.\nThis translates to a similar persistency-related impact as seen this quarter.\nWe do not expect the new business assumption review performed annually in the fourth quarter to have a notable impact on earnings.\nOverall, we anticipate Term Life margins in the range of 19% to 20% for the fourth quarter.\nTurning next to the results of the ISP segment on Slide 8.\nOperating revenues of $233 million increased $57 million or 32% year-over-year.\nOur pre-tax income of $69 million increased 35%.\nThird quarter results continue to reflect the combined benefit of strong sales volumes across all products and the positive impact of equity market appreciation.\nSales-based revenues increased 45%, slightly slowed the growth in revenue-generating sales due to a higher proportion of sales volumes in large dollar trades, which have a lower commission rate.\nAsset-based revenues increased 31%, reflecting a similar increase in average client asset value.\nBoth sales and asset-based commission expenses increased in line with the associated revenue.\nAs Glenn mentioned, we expect fourth quarter ISP sales to grow between 20% and 25% year-over-year.\nBased on the current sales mix, this would increase sales-based net revenue by approximately $4 million over the prior year period.\nAssuming no significant market movement during the quarter, average assets under management would be approximately 20% higher year-over-year and asset-based net revenues would increase $7 million.\nTurning to Slide 9.\nThis quarter, we are introducing our Senior Health segment as a result of the acquisition of 80% of e-TeleQuote.\nThe acquisition is being counted for as a business combination in accordance with GAAP, which generally requires the purchase price in excess of the estimated fair values of net assets acquired to be recorded as goodwill.\nThe table on Slide 9 shows the preliminary purchase price allocation, which is subject to change at fair values of the net assets acquired or finalized.\nThe most significant assets acquired were renewal commissions receivable for policies sold by e-TeleQuote prior to the acquisition date and identified intangible assets.\nThe key identified intangible asset is relationships with health insurance carriers of $159 million, which will be amortized over its estimated useful life of 15 years.\nIn the current period, we had intangible amortization expense of $2.9 million related to acquired intangible assets recognized in the operating results of our Senior Health segment.\nThe e-TeleQuote purchase agreement provides for the payment of contingent consideration in the form of earn-out payments to the Term shareholders based on e-TeleQuote's achieving earnings results as defined in the purchase agreement for the calendar year ending 2021 and 2022.\nGiven the substantial earnings required to achieve the earn-out, we do not anticipate nor did we expect many payments will be made.\nAs such, we have not recognized the liability for the earnout in our preliminary purchase price allocation and do not anticipate recognizing any expense associated with it.\nWe will acquire the remaining 20% interest at e-TeleQuote, which is held by or for the benefit of e-TeleQuote's management through a series of puts and calls based on formulaic price defined in the purchase agreement.\nWe have recognized the remaining interest outstanding in the preliminary purchase price allocation in 2 categories: redeemable non-controlling interest; and liability classified share-based compensation based on the terms and conditions of the individual shares.\nAnd post-acquisition share-based compensation expense for the applicable shares as well as adjustments for change in the fair market value of liability classified shares subsequent to the acquisitions are excluded from our operating results as they represent acquisition-related expenses that will not reoccur subsequent to the exercise of the protocol.\nThe key areas of focus as we evaluate Senior Health performance going forward will be approved policies, commissions and fees, which includes both the lifetime commission revenues recognized at point of sale and any subsequent tail commission adjustments for changes in estimates on policies issued in previous periods and contract acquisition costs.\nOther drivers include marketing development revenues reflected in other revenues and other operating expenses.\nEach of these items is defined further on Page 13 of the financial supplement, where we also highlight the non-controlling interest and other purchase-related accounting items discussed earlier.\nAs the post-acquisition business matures, we plan to add cash collections by cohort to track the time it takes for the cohort of approved policies to become cash positive to our quarterly earnings discussion.\nThe Senior Health business experiences some notable seasonality with the fourth quarter being the strongest due to the annual election period or AEP, which runs from mid-October early December.\nAEP generally has peak levels of demand, and as a result, e-TeleQuote has higher agent count.\nThe open enrollment period or OEP, during the first quarter is generally another strong period as individuals have an opportunity to switch between Medicare Advantage plans.\nThe second quarter tends to be a period of focus on individual to qualify for both Medicare and Medicaid, those who are allowed a special enrollment period and those aging into Medicare or coming from an employer sponsor plans.\nBefore of potential sales opportunities in the second quarter decreases relative to OEP and AEP, however, volumes are adequate to avoid laying off of quality agents.\nThe third quarter is typically the weakest quarter of the year financially with growing agent counts leading into AEP and lower lead volume, a basic supply and demand imbalance.\nDuring the quarter, the Senior Health segment had an adjusted operating loss before taxes of $6.6 million, including purchase accounting adjustments.\nAs Glenn referenced, throughout COVID, there has been pressure around hiring and retaining the quality of agents e-TeleQuote typically attracted prior to COVID.\nWhile there are generally third quarter hiring and preparation for AEP, heightened turnover early in the year led to higher-than-usual levels of hiring, training and licensing in the third quarter.\nThe cost associated with this drove contract acquisition costs per approved policy up to $1,287, which when combined with the low supply of leads typical in the quarter resulted in a loss for the period.\nWhile staffing challenges remain in the fourth quarter, we believe the lead supply benefits of AEP, along the incremental Primerica generated leads will provide a positive impact to profitability.\nWe anticipate pre-tax operating earnings to be in the $20 million range fourth quarter with lifetime value commissions around $1,170 and contract acquisition costs around $640 per approved policy.\nMoving next to Slide 10 in our Corporate and Other Distributed Products segment, the adjusted operating loss increased by $1.5 million year-over-year to $13.5 million.\nCommissions and fee revenue were higher by $6 million, including $3.7 million from mortgage sales.\nThis was partially offset by $3.7 million lower net investment income as portfolio yields were lower and the allocation to the Term Life segment increased in support of the growing book of business.\nAdjusted benefits and expenses increased $3.7 million, largely due to the expansion of the mortgage program, including $2.6 million higher sales commissions and operating expenses.\nOperating results for the Corporate and Other segment excludes certain costs related to the acquisition of e-TeleQuote, most notably $9.6 million in transaction-related expenses.\nTurning to Slide 11.\nConsolidated insurance and other operating expenses increased $17.3 million or 16% year-over-year with $7.5 million coming from Senior Health and the remainder due largely to growth in our businesses.\nExpenses were lower than projected last quarter, in part due to the timing of certain technology projects, lower licensing costs and savings on miscellaneous items.\nLooking ahead, we expect fourth quarter insurance and other operating expenses to be around $129 million, including the layering unit e-TeleQuote other operating expenses of $8 million.\nTurning to Slide 12.\nConsolidated net investment income was $20 million, down slightly from the prior year period due to lower effective yields, partially offset by an increase in the size of the portfolio.\nThe portfolio had unrealized gains at the end of September of approximately $108 million, down slightly from the end of June as rates rose during the quarter.\nThe portfolio remains of high quality and well diversified across sectors and issuers.\nOn Slide 13, liquidity at the holding company remains strong, with invested assets in cash of $192 million.\nThe Primerica Life statutory risk-based capital ratio is estimated to be 420% at quarter end using the new NAIC bond factor approach.\nWe estimate that funding needed to support the Senior Health business in 2022 to be in the high $70 million range, up from earlier expectations of the mid-$40 million range.\nThe increase in negative cash flow is driven by lower-than-anticipated marketing development funds from carriers, elevated charge backs on the 2020 AEP book of business as seen throughout the industry and higher agent related costs as described earlier.\nGiven anticipated growth in this business, we expect negative cash flow to decline over time and approach breakeven in about 6 years.\nGiven our current liquidity and strong capital generation from our other businesses, this increase can be easily absorbed without any changes to our capital deployment plan for operations.",
        "summary": "q3 adjusted operating earnings per share $2.98.\nq3 revenue rose 22 percent to $693.2 million."
    },
    {
        "text": "Actual results could differ materially from such statements and our forecast.\nIn particular, there remains significant uncertainty around the duration and impact of COVID-19.\nThis means that results could change at any time, and the contemplated impact of COVID-19 on the Company's business results and outlook is the best estimate, based on the information available as of today.\nAs a reminder, during the call we will discuss non-GAAP metrics.\nBefore I hand the call over, I'd like to remind our investors and analysts about our upcoming virtual Investor Fireside Chat, taking place on November 17th from 1:30 PM to 3:00 PM Central Time during the 2021 PROS Outperform conference.\nWe ended the quarter with significant outperformance on our guidance ranges for profitability and cash flow, and delivered revenue results in line with our expected ranges.\nWe did see impact from the Delta variant in our Q3 results and our Q4 outlook.\nStefan will expand on this later.\nOur strategy is to accelerate market adoption of the PROS Platform, deliver an incredible experience and drive significant value for our customers.\nDespite the challenges we faced because of COVID-19, our team continues to execute well against our strategy.\nWe continue to drive incredible value for customers, evident by our expanding partnerships and best-in-class gross revenue retention rates.\nWe received industry recognition of our leadership in both CPQ and Price Optimization and Management.\nWhen I look at all of this and the progress of the recovery, I couldn't be more excited for what is to come.\nIn Travel, we're starting to see international restrictions ease, and some carriers are seeing significant increases in passenger demand as a result.\nFor example, when the announcement was made that the Europe to U.S. travel ban would be lifted in November, carriers saw an immediate 140% increase in ticket sales in a single week for European travelers.\nThis demonstrates the pent-up demand for travel, both leisure and business, and energizes us for the pace of recovery heading into 2022, as more borders open.\nHistorically, this market segment didn't have access to the best-of-breed, AI-powered revenue management solutions.\nWe designed our PROS RM Essentials edition on the PROS Platform to enable teams of any size to adopt to our industry-leading AI and grow with PROS over time.\nWith PROS RM Essentials, customers like Air Transat and Scoot can forecast demand and dynamically priced to maximize revenue.\nNow, moving to B2B; in the healthcare space, we're seeing demand for our solutions, as companies look to digitize their selling motions.\nWe're also seeing momentum in transportation and logistics, where companies are looking to PROS to enable them to deliver a frictionless sales experience, as demand continues to rise.\nThis year, air cargo demand is expected to increase approximately 20% year-over-year.\nIn Q3, Emirates SkyCargo adopted our B2B Platform to empower their customers with a self-service buying experience, to drive a higher conversion of sales, using our omnichannel quoting capabilities and capacity-aware price guidance.\nSimilarly, Marken, a division of UPS Healthcare Logistics, that is essential in the delivery of vaccines globally, also adopted our B2B Platform to power digital selling across their enterprise.\nOur latest innovations are also inspiring existing customers to expand their partnerships with PROS.\nIn Q3, TE Connectivity, a PROS customer of eight years, chose to migrate to our cloud platform, which allowed them to expand adoption across their business.\nTE Connectivity is a leading manufacturer of electronic connectors and sensors that powers vehicles, factories, and homes across the globe.\nWith hundreds of billions of products manufactured annually, TE Connectivity is relying on the scale, speed, and precision of PROS' Price Optimization and Management capabilities to drive winning offers.\nHoneywell also expanded adoption of our Price Optimization and Management solution.\nLike many businesses today, Honeywell is experiencing the impact of rising commodity prices and the risk of inflation.\nTo effectively manage volatility and continue to produce winning offers, Honeywell named PROS as their global pricing solution vendor, and is actively rolling out our solution to all their strategic business units.\nSheila Jordan, Honeywell's Chief Digital Technology Officer, will be joining me in my keynote at Outperform, to share more on their success with PROS.\nNow, I am excited to share that we have been named a Leader in the 2021 Gartner Magic Quadrant for Configure, Price and Quote Application Suites.\nOur flexibility to support omnichannel selling, the combination of pricing and selling capabilities in a single platform, the performance, usability, and scalability of our platform were all cited as key strengths.\nWe also had the honor of once again being named a Leader in the 2021 IDC MarketScape Assessment of Worldwide B2B Price Optimization and Management Applications.\nIDC emphasized the ease of use and transparency within our solutions as a key differentiator.\nA core part of our strategy has been making our AI algorithms accessible, explainable, and extensible, which allows companies of all sizes to adopt our market-leading AI-powered platform.\nAs an engineer at heart, I'm incredibly proud of the market recognition we're receiving for our innovations, and I would like to express my deep gratitude to our amazing Product and Engineering teams.\nWith these most current designations, we're the only platform with a leadership position in both the CPQ and Price Optimization and Management markets.\nIn addition to our product awards, I am thrilled to share that PROS has been Certified by Great Places to Work for the second year in a row.\nThis year's designation extends the Company's original certification to all eligible countries, recognizing our inclusive, people-first culture on a global scale.\nThis award is based entirely on what current employees have to say about working at PROS, which is what makes this award so special to me.\nFinally, in September, we announced Rob Reiner's intention to retire from PROS.\nAs Chief Technology Officer, Rob has been key in driving our culture of innovation forward.\nRob joined PROS in 2016 to lead our pivotal transition to the cloud.\nWith his leadership, we transformed our Travel and B2B solutions into the most comprehensive and innovative SaaS offerings in their markets.\nSucceeding Rob, Ajay Damani has been promoted to the role of Executive Vice President of Engineering, and Sunil John has been promoted to the role of Chief Product Officer.\nAjay and Sunil each have over 15 years of experience with PROS, and have been a huge part of our success.\nI look forward to working closely with them, and continuing to accelerate our innovation leadership.\nIn closing, I'm proud of how our team is executing to drive adoption in the market, deliver industry-leading innovations through our platform, and create a culture that empowers every employee to reach their full potential.\nIn the third quarter, we significantly outperformed our profitability and cash flow metrics and delivered revenue results that were in line with our expectations.\nOur team continues to look for ways to drive efficiencies, as well as improve our customer satisfaction and collection processes.\nAs a result of our strong operational execution, our outlook for the full year is now much better on profitability and cash flow.\nAs Andres mentioned, the ongoing impact from COVID-19 and specifically the Delta Variant, did affect some of our travel customers in the third quarter.\nExamples of the impact during the quarter include; a travel customer declaring bankruptcy, a small number of contract restructurings, and some of our new opportunities and implementations being pushed by a few months.\nIndividually, none of these items significantly impacted our revenues, but the combination of these items did impact our subscription and services revenues slightly in the third quarter.\nThese items will also impact our fourth quarter revenues, and we expect total revenue for the year to be at the low end of our previous annual guidance range.\nAll of these items impacting the second half of 2021 are temporary in nature.\nWe expect to recover most, if not all, of these amounts during 2022.\nNow moving on to our results; subscription revenue in the third quarter was $44.1 million, up 5% year-over-year and total revenue was $62.7 million, up 2% year-over-year.\nOur third quarter recurring revenue was 84% of total revenue.\nOur gross revenue retention rate for the trailing 12 months was approximately 91%.\nAs a reminder, we disclose gross revenue retention rates, not net revenue retention rates.\nGross revenue retention does not include bookings from existing customers, which can mask real customer churn.\nOur revenue retention rates have continued to improve throughout 2021 and we anticipate ending the year at approximately 93%.\nThis returns us to world-class gross revenue retention rates and demonstrates the value our customers see in our solutions.\nOur non-GAAP total gross margins improved sequentially again to 61%, and our non-GAAP subscription gross margins were 72%, which are up sequentially from 71% and also up year-over-year.\nWe expect subscription margins to remain relatively constant in the fourth quarter of 2021.\nWe also continue to make steady progress on our services margins and were within $200,000 of breakeven in the third quarter.\nAs I mentioned before, we continue to make progress on adjusted EBITDA and were very pleased with our performance this quarter.\nAdjusted EBITDA loss was $4.4 million as compared to $6.2 million last year.\nRevenue growth and reduced operating expenses led to this improvement.\nTotal operating expenses declined by 5% in the quarter and 6% in the first nine months of the year.\nI am proud of our team's strong operational execution and how we continue to look for ways to drive more efficiency into our business.\nOur calculated billings decreased 5% for the quarter and for the trailing 12 months.\nAnd as previously mentioned, we anticipate calculated billings will grow in the fourth quarter, which would result in full year growth of at least 10%.\nOur free cash flow burn was $8.5 million in Q3 and $18.9 million year-to-date, a significant improvement over last year, driven by a combination of operating expense efficiencies, strong customer collections, and better gross revenue retention rates.\nWe exited the third quarter with $308.6 million of cash and investments.\nWe also made nice progress toward our year-end target of adding quota-carrying personnel, and we ended the quarter with 64.\nWe were able to hire ahead of plan, which allows our new team members to ramp up, so that they can be productive earlier in 2022.\nWe do not anticipate growing this metric further in the fourth quarter.\nAnd as previously discussed, we expect to exit the year with 60 or more quota-carrying personnel.\nNow turning to guidance; we expect Q4 subscription revenue to be in the range of $45 million to $45.5 million and total revenue to be in the range of $63 million to $64 million.\nWe expect fourth quarter adjusted EBITDA loss to be between $9 million and $10 million.\nUsing an estimated non-GAAP tax rate of 22%, we anticipate fourth quarter non-GAAP loss per share of between $0.22 and $0.24 per share, based on an estimated 44.4 million shares outstanding.\nFor the full year, we expect subscription revenue to be in the range of $176 million to $176.5 million and total revenue to be in the range of $249.5 million to $250.5 million.\nWe expect an adjusted EBITDA loss of between $27.3 million and $28.3 million, and a free cash flow burn between $22 million and $25 million.\nWe also expect our ending ARR on a constant currency basis to be between $214 million and $217 million.",
        "summary": "qtrly total revenue $62.7 million versus $61.5 million.\nsees q4 non-gaap loss per share $0.22 to $0.24."
    },
    {
        "text": "Slide 2 contains our safe harbor statement.\nFor the fourth quarter, we had adjusted earnings of 1.3 billion or $2.94 per share.\nFor the year, adjusted earnings were 2.5 billion or $5.70 per share.\nWe delivered record results in midstream, chemicals and marketing and specialties, demonstrating the strength of our diversified portfolio.\nFor the third quarter in a row, we saw improved refining performance.\nLooking ahead, we're optimistic about the outlook for our business.\nIn 2021, our employees exemplified the company's values of safety, honor, and commitment.\nOur 2021 combined workforce total recordable rate of 0.12 was more than 25 times better than the U.S. manufacturing average.\nLast year, our strong cash flow generation allowed us to invest $1.9 billion back into the business, returned $1.6 billion to shareholders, and paid down $1.5 billion of debt.\nThe 2022 capital program of $1.9 billion reflects our commitment to capital discipline.\nApproximately 45% of our growth capital this year will support lower carbon opportunities, including Rodeo Renewed.\nAs cash flow improves further, we'll prioritize shareholder returns and debt repayment.\nIn October, we increased the quarterly dividend to $0.92 per share.\nWe remain committed to a secure, competitive, and growing dividend.\nWe'd like to resume share repurchases this year and on our path toward getting back to pre-COVID debt levels over the next couple of years.\nWe're taking steps to position Phillips 66 for the long-term competitiveness.\nAcross our businesses, we're assessing opportunities for permanent cost reductions.\nMark and Kevin are leading this initiative and will provide additional details on the first quarter call in April.\nWe're committed to a lower carbon future while continuing to deliver our vision of providing energy and improving lives around the globe.\nWe announced targets to reduce greenhouse gas emissions intensity last year.\nBy 2030, we plan to reduce Scope 1 and Scope 2 emissions by 30% and Scope 3 emissions by 15% compared to 2019 levels.\nIn the fourth quarter, we had strong earnings from midstream, chemicals, and marketing and specialties, and we saw a continued recovery in refining profitability.\nWe made progress advancing our growth projects as well as taking strategic actions to position Phillips 66 for the future.\nIn midstream, we began commercial operations of Phillips 66 Partners' C2G Pipeline.\nAt the Sweeny Hub, construction of Frac 4 is 50% complete, and we expect to begin operations in the fourth quarter of this year.\nCPChem is investing in a portfolio of high-return projects, growing its asset base as well as optimizing its existing operations.\nThis includes growing its normal alpha-olefins business with a second world-scale unit to produce 1-Hexyne, a critical component in high-performance polyethylene.\nCPChem is also expanding its propylene splitting capacity by 1 billion pounds per year with a new unit located at its Cedar Bayou facility.\nBoth projects are expected to start up in 2023.\nCPChem continues to develop two world-scale petrochemical facilities on the U.S. Gulf Coast and in Ras Laffan, Qatar.\nIn addition, CPChem completed its first commercial sales of Marlex Anew Circular Polyethylene, which uses advanced recycling technology to convert difficult-to-recycle plastic waste into high-quality raw materials.\nCPChem has successfully processed pyrolysis oil in a certified commercial scale trial and is targeting annual production of 1 billion pounds of circular polyethylene by 2030.\nDuring the year, we began renewable diesel production at the San Francisco refinery and continued to progress Rodeo Renewed, which is expected to be completed in early 2024, subject to permitting and approvals.\nUpon completion, Rodeo will initially have over 50,000 barrels per day of renewable fuel production capacity.\nThe conversion will reduce emissions from the facility and produce lower carbon transportation fuels.\nIn marketing, we acquired a commercial fleet fueling business in California, providing further placement opportunities for Rodeo renewable diesel production to end use customers.\nAdditionally, our retail marketing joint venture in the Central region acquired 85 sites in December, bringing the total to approximately 200 sites acquired in 2021.\nThese sites support long-term product placement and extend our participation in the retail value chain.\nOur Emerging Energy Group is advancing opportunities in renewable fuels, batteries, carbon capture, and hydrogen.\nWe recently signed a technical development agreement with NOVONIX to accelerate the development of next-generation materials for the U.S. battery supply chain.\nWe own a 16% stake in the company, extending our presence in the battery value chain.\nIn December, we entered into a multiyear agreement with British Airways to supply sustainable aviation fuel produced by our Humber Refinery beginning this year.\nFor 2022, we'll execute our strategy with a focus on operating excellence and cost management.\nWe will do our part to advance the lower carbon future while maintaining disciplined capital allocation and an emphasis on returns.\nStarting with an overview on Slide 4, we summarize our financial results for the year.\nAdjusted earnings were $2.5 billion or $5.70 per share.\nWe generated $6 billion of operating cash flow or $3.9 billion excluding working capital.\nThese results reflect our highest annual earnings for the midstream, chemicals, and marketing and specialty segments.\nCash distributions from equity affiliates totaled $3 billion, including a record $1.6 billion from CPChem.\nWe ended 2021 with a net debt-to-capital ratio of 34%.\nOur adjusted after-tax return on capital employed for the year was 9%.\nSlide 5 shows the change in cash during the year.\nWe started the year with $2.5 billion in cash.\nCash from operations was $6 billion.\nThis included a working capital benefit of $2.1 billion, mainly due to the receipt of tax refunds as well as the impact of rising prices on our net payable position.\nDuring the year, we paid down $1.5 billion of debt.\nIn November, both S&P and Moody's revised their outlooks from negative to stable.\nWe are committed to further deleveraging as we continue to prioritize our strong investment-grade credit ratings.\nWe funded $1.9 billion of capital spending and returned $1.6 billion to shareholders through dividends.\nOur ending cash balance increased to $3.1 billion.\nSlide 6 summarizes our fourth quarter results.\nAdjusted earnings were $1.3 billion or $2.94 per share.\nWe generated operating cash flow of $1.8 billion, including a working capital benefit of $412 million and cash distributions from equity affiliates of $757 million.\nCapital spending for the quarter was $597 million.\n$265 million was for growth projects, which included approximately $100 million for retail investments in the marketing business.\nWe paid $403 million in dividends.\nMoving to Slide 7.\nThis slide highlights the change in adjusted results from the third quarter to the fourth quarter, a decrease of $105 million.\nOur adjusted effective income tax rate was 20% for the fourth quarter.\nSlide 8 shows our midstream results.\nFourth quarter adjusted pre-tax income was $668 million, an increase of $26 million from the previous quarter.\nTransportation contributed adjusted pre-tax income of $273 million, up $90 million from the prior quarter.\nThe increase mainly reflects the recognition of deferred revenue.\nNGL and other adjusted pre-tax income was $284 million, compared with $357 million in the third quarter.\nThe decrease was primarily due to lower unrealized investment gains related to NOVONIX, partially offset by higher volumes at Sweeny Hub and favorable inventory impacts.\nOur investment in NOVONIX is marked to market at the end of each reporting period.\nThe total value of the investment, including foreign exchange impacts, increased $146 million in the fourth quarter, compared to an increase of $224 million in the third quarter.\nThe fractionators at the Sweeny Hub averaged a record 417,000 barrels per day, and the Freeport LPG export facility loaded a record 45 cargoes in the fourth quarter.\nDCP midstream adjusted pre-tax income of $111 million was up $80 million from the previous quarter, mainly due to favorable hedging impacts in the fourth quarter compared to negative hedge results in the third quarter.\nThe actual hedge benefit recognized in the fourth quarter amounts to approximately $50 million.\nTurning to chemicals on Slide 9.\nChemicals' fourth quarter adjusted pre-tax income of $424 million was down $210 million from the third quarter.\nOlefins and polyolefins adjusted pre-tax income was $405 million.\nThe $208 million decrease from the previous quarter was primarily due to lower polyethylene margins, reduced sales volumes, as well as increased utility costs.\nGlobal O&P utilization was 97% for the quarter.\nAdjusted pre-tax income for SA&S was $37 million, compared with $36 million in the third quarter.\nDuring the fourth quarter, we received $479 million in cash distributions from CPChem.\nTurning to refining on Slide 10.\nRefining fourth quarter adjusted pre-tax income was $404 million, an improvement of $220 million from the third quarter, driven by higher realized margins and improved volumes.\nThis was partially offset by higher costs.\nRealized margins for the quarter increased by 35% to $11.60 per barrel.\nImpacts from lower market crack spreads were more than offset by lower RIN costs from a reduction in our estimated 2021 compliance year obligation and lower RIN prices.\nIn addition, we had favorable inventory impacts and improved clean product differentials.\nRefining adjusted results reflect approximately $230 million related to the EPA's proposed reduction of the RVO, of which about 75% applies to the first three quarters of the year.\nPretax turnaround costs were $106 million, up from $81 million in the prior quarter.\nCrude utilization was 90% in the fourth quarter and clean product yield was 86%.\nSlide 11 covers market capture.\nThe 3:2:1 market crack for the fourth quarter was $17.93 per barrel, compared to $19.44 per barrel in the third quarter.\nRealized margin was $11.60 per barrel and resulted in an overall market capture of 65%.\nMarket capture in the previous quarter was 44%.\nMarket capture is impacted by the configuration of our refineries.\nOur refineries are more heavily weighted toward distillate production than the market indicator.\nDuring the quarter, the distillate crack increased $3.10 per barrel, and the gasoline crack decreased $3.76 per barrel.\nLosses from secondary products of $1.88 per barrel improved $0.10 per barrel from the previous quarter due to increased butane blending into gasoline.\nOur feedstock advantage of $0.18 per barrel improved by $0.17 per barrel from the prior quarter.\nThe Other category reduced realized margins by $2.02 per barrel.\nThis category includes RINs, freight costs, clean product realizations, and inventory impacts.\nMoving to marketing and specialties on Slide 12.\nAdjusted fourth quarter pre-tax income was $499 million, compared with $547 million in the prior quarter.\nMarketing and Other decreased $52 million from the prior quarter.\nThis was primarily due to lower marketing fuel margins and volumes as well as higher costs.\nSpecialties generated fourth quarter adjusted pre-tax income of $97 million, up from $93 million in the prior quarter.\nOn Slide 13, the corporate and other segment had adjusted pre-tax costs of $245 million, an increase of $15 million from the prior quarter.\nThis was primarily due to higher employee-related costs and net interest expense.\nSlide 14 shows the change in cash during the fourth quarter.\nWe had another strong quarter for cash.\nThis is the third consecutive quarter that our operating cash flow enabled us to return cash to shareholders, invest in the business, pay down debt while increasing our cash balance.\nThis concludes my review of the financial and operating results.\nNext, I'll cover a few outlook items for the first quarter and the full year.\nIn chemicals, we expect the first quarter global O&P utilization rate to be in the mid-90s.\nIn Refining, we expect the first quarter worldwide crude utilization rate to be in the high 80s and pre-tax turnaround expenses to be between 120 and $150 million.\nWe anticipate first quarter corporate and other costs to come in between 230 and $250 million pre-tax.\nFor 2022, we plan full year turnaround expenses to be between 800 and $900 million pre-tax.\nWe expect corporate and other costs to be in the range of 900 to $950 million pre-tax for the year.\nWe anticipate full year D&A of about $1.4 billion.\nAnd finally, we expect the effective income tax rate to be in the 20 to 25% range.",
        "summary": "compname posts q4 earnings per share $2.88.\nq4 adjusted earnings per share $2.94."
    },
    {
        "text": "Today, we will be discussing Pioneer's strong second quarter results and our enhanced return of capital strategy.\nWe will also present our continued strong execution, underpinning our low reinvestment rate and best-in-class breakeven oil price.\nThis is all accomplished while maintaining our focus on safe operations and environmental stewardship in the field.\nObviously, we're very excited after talking about it for 18 months to announce that we are both accelerating our first variable dividend payment into the third quarter this year as well as increasing the payment to reflect 75% of second quarter free cash flow.\nAfter payment of the base dividend as our balance sheet continues to strengthen due to higher strip pricing as a result of improved oil demand and a successful vaccine.\nIn addition, we had two highly accretive transactions that also led us to making this decision and accelerating.\nWhen combined with the base dividend, total dividend payments in the third quarter will be greater than $2 per share, or a total of approximately $490 million return to shareholders during the third quarter alone.\nThe initiation of our variable dividend payments marks a significant milestone in our investment framework as shareholders will begin receiving material cash return through eight dividend checks per year.\nPioneer's strong execution continued during the second quarter, with production near the top end of guidance, delivering over $600 million of free cash flow, driving estimated 2021 free cash flow up to about $3.2 billion.\nLastly, Pioneer is the largest producer in the Permian, with the largest inventory of Tier one locations, over 15,000, and the lowest breakeven price in the Lower 48.\nBoth recent acquisitions were highly accretive and added significant Tier one inventory.\nWe were not looking at any more Midland Basin large acquisitions.\nWe bought the best two available.\nApollo, who was the largest shareholder from DoublePoint, our largest shareholder from DoublePoint has sold out from 13 million shares to about two million shares and now less than 1% of the outstanding of the company.\nGoing to slide four.\nPioneer's execution remains strong as total production and oil production were in the upper half of our guidance ranges as we successfully integrated DoublePoint's operations into our program.\nHorizontal lease operating expense dropped by nearly $0.25 per BOE when compared to the first quarter.\nIn total, Pioneer generated approximately $1 billion in free cash flow in the first half of '21.\nWe go on to slide five.\nOur strong balance sheet underpinned by improved oil price outlook supports both the acceleration and increase of our inaugural variable dividend.\nThe first variable dividend will be paid during the third quarter, and accelerated from 22%, will be based on second quarter free cash flow.\nAdditionally, we are increasing the third quarter variable dividend payment to 75%, post base dividend free cash flow from the previous 50%.\nThe increase up to 75% in our variable dividend program is approximately 18 months sooner than previously planned.\nThese changes result in over $1 billion of incremental cash to be returned to shareholders in 2021, with total dividends to exceed $6 per share.\nOn slide six, we remain committed to our core investment thesis, predicated on low leverage, strong corporate returns to average over the next five years in the mid-teens, low investment rate, around 50% over the next five years and generating significant free cash flow.\nThis durable combination creates significant value for our shareholders delivering a mid-teens total return through our stable and growing base dividend, compelling variable dividend program and high-return oil growth up to 5%.\nObviously, when you look at 2022, the turn on return is much higher because the oil strip over the next five years is about $10 in backwardation.\nWhen including the base dividend, approximately 80% of the company's free cash flow is expected to be returned to shareholders through eight separate dividend checks per year, inclusive of both the base and the variable dividend.\nWe will continue to maintain our pristine balance sheet as we allocate the remaining portion of free cash flow to the balance sheet.\nGoing to slide seven.\nAs you can see on slide seven, the product of Pioneer's high-quality assets and top-tier capital efficiency drive significant free cash flow generation amounting to greater than $23 billion through 2026.\nAgain, I want to remind you that the strip is in backwardation.\nIt drops about $10 in backwardation over the next five years.\nLet's get into free cash flow, which is based on current strip pricing, represents greater than 50% of our enterprise value and more than 65% of our market cap.\nConsidering the greater than $23 billion of cumulative free cash flow, this program generates over $18 billion of total dividends through 2026, with the remaining free cash flow allocated toward strengthening our balance sheet, driving net debt to EBITDA to less than 0.5.\nGoing to slide eight, positioning a leading dividend yield across all sectors, the combination of Pioneer's expected free cash flow and return on capital framework creates a compelling investment opportunity with a total dividend yield that will exceed all S&P 500 sectors as well as companies and the average yield of the major oil companies and all other energy companies in the S&P 500.\nAnnualized expected dividends paid in the second half of 2021 leads to a dividend yield of approximately 8%, which increases '22 to '26 time period to an average greater than 9% due significant free cash flow.\nAgain, when you look at you just focus on '22, the dividend yield is about 12%.\nAgain, a reminder, the strip with these numbers is about $10 in backwardation.\nThis highly competitive yield is underpinned by the greater than $18 billion of cumulative cash returned to shareholders outlined on the previous slide and speaks to the power and underlying quality of Pioneer's assets.\nWhile we have a few small items left on DoublePoint, the teams have worked extremely hard and have done a tremendous job and seamlessly integrating these operations in a very short period of time.\nTurning to and looking at slide nine.\nYou can see on the slide here, there's no change to our full year oil production guidance range of $351,000 to $366,000 barrels of oil per day and total production of 605,000 to 631,000 BOEs per day.\nSimilarly, on capital, it's unchanged at $2.95 billion to $3.25 billion, but we are seeing some inflationary pressure, although most of it is being offset by our efficiency improvements by the great work power of drilling and completions and facilities teams.\nLooking at cash flow.\nYou can see with the increase in commodity prices, our forecasted Operating cash flow has increased to $6.45 billion, and free cash flows increased to $3.2 billion that Scott talked about.\nBoth of those are up $500 million from what we forecasted in our May call related to Q1 earnings.\nTurning to slide 10.\nOur plan remains unchanged and is set to average between 22 and 24 drilling rigs for the full year.\nWe are currently running 24 rigs and eight frac fleets in the Midland Basin.\nIn terms of our Delaware plans, we are moving multiple rigs into the Delaware Basin this quarter, and the team is looking forward to bringing the same efficiency gains that we've achieved in the Midland Basin to the Delaware with the goal of further improving well returns, especially given the higher oil cut and lower royalty burden in our Delaware acreage.\nJust for reference, the Delaware production was 70% oil during Q2.\nAs you can see here, with over one million acres in the Permian Basin, we have a significant inventory.\nSo we will continue to evaluate opportunities to monetize portions of our longer-dated inventory.\nAs we've done in the past, these monetization opportunities will include small noncore acreage packages as well as evaluating other DrillCo opportunities.\nTurning to slide 11 and talk about synergies.\nYou can see here from the slide that we have realized $275 million synergy target related to G&A in interest and on both the Parsley and DoublePoint transactions.\nOn the operational synergies, we've made great progress with over 50% of the target synergies being identified and being incorporated into future plans.\nFor instance, we have leveraged our supplier relationships, we're seeing savings on pressure pumping, wirelines, cement, casing, among other items.\nJoey will talk more about it.\nWe've successfully tested our simul frac and have incorporated a second simul frac fleet into our program, which benefits mainly Pioneer, partially in DoublePoint acreage, given our -- leveraging our significant water system that we have across the Midland Basin.\nThe teams are also continuing to optimize future development plans to take advantage of existing facilities and infrastructure, including tank batteries, water disposal, reuse facilities, just to name a few.\nObviously, this reduces the need for future new builds.\nAnd lastly, just as examples which is significant, the team has identified over 1,000 locations that we can drill additional 15,000-foot laterals across our contiguous acreage position that are being incorporated into our future development plans, providing significant improvement in capital efficiency going forward.\nWhy don't I stop there, and I'll turn it to Neal.\nOn slide 12, you'll see Pioneer's high-quality asset base, which yields a peer-leading oil percent that drives our high-margin barrels, positioning Pioneer as the only E&P among our peers to realize a corporate breakeven below $30 a barrel WTI.\nThis peer-leading oil mix, combined with our unparalleled breakeven oil price in the high 20s, not only underpins our operational and financial strength, it enables Pioneer's low reinvestment rate and drive significant and durable free cash flow and return of capital to shareholders well into the future.\nI'm going to be starting on slide 13, where our drilling and completions teams have continued their continuous improvement journey.\nAs you can see, since 2017, these two teams have seen more than 75% improvement in their completed feet per day and more than 65% improvement in their drill feet per day.\nThis journey is even more impressive when considering our increased activity levels, including the integration of Parsley and DoublePoint.\nAs Rich mentioned, we've also seen the continued success of our simul frac operations.\nConsequently, we're in the process of starting up our second simul frac fleet.\nOur capital projects and production operations teams are working diligently to upgrade partially in DoublePoint facilities to our operational and environmental standards.\nAnd our teams are progressing our ESG initiatives by trialing new low-carbon technologies to power our operations.\nAs in the past, we're only noting the improvements in drilling and completions, but I want to emphasize that we continue to see tremendous performance in our production operations, construction and water management teams.\nAnd as always, none of this will be possible without the great effort from our development planning team, our robust supply chain and other groups that support our operations.\nWe continue to remain focused on keeping our employees and contractor partners safe, delivering peer-leading performance and reducing our environmental footprint.\nCongrats to the entire Pioneer team for our safe and efficient execution in Q2.\nI'm now going to move to slide 14.\nHere, you can see the results of Pioneer's long-standing commitment to meeting high environmental standards by our top-tier flaring intensity and best-in-class CO2 intensity compared to U.S. peers and majors.\nThis was only made possible through years of thoughtful planning and investments to minimize our emissions at our facilities, coupled with our comprehensive leak detection and repair program, which includes routine aerial surveys.\nDespite our leadership position, Pioneer's goal of reducing greenhouse gas emissions intensity by 25% and methane emissions intensity by 40% through 2030, demonstrates our commitment to further increasing our environmental standards.\nAnd now moving to slide 15 and continuing the storyline from the previous slide.\nPioneer also produces extremely low emission intensity oil on a global scale.\nThis, combined with our low breakeven results and exceptionally resilient production that we expect, will have a place in the global marketplace for a very long time.\nOn slide 16, Pioneer continues to hold all pillars of ESG of great importance.\nI think one of the most important points with the recent Rystad report, the Permian Basin has declined over the last 18 months as we've been talking about it from about $1 billion a day to less than 200 million a day in regard to flaring.\nSo people are focused on reducing flaring to less than 1% for most oil companies.\nWe continue -- the biggest flares continue to be the private companies in the Permian, and we need to continue to ask you in regard to if you find your private equity, we got to put pressure on the private companies in the Permian Basin.\nWe continue to promote a diverse workforce, which reflects the community in which we live and work.\nAs you can see, when you look at our top 15 individuals that run the company, we're at 47%.\nLori is an officer of D&I with Coca-Cola.\nWe're very excited to have her experience and her leadership play a pivotal role in navigating the changing global energy landscape.\nOur 2021 sustainability report is scheduled for release in the third quarter, which will include Pioneer's progress on the environmental targets outlined in the left portion of the slide.\nAnd finally, on slide 17.\nPioneer is committed to driving all of these values for our shareholders.\nNow we'll open it up for Q&A.",
        "summary": "expects its 2021 drilling, completions and facilities capital budget to range between $2.95 billion to $3.25 billion.\nduring 2021, company plans to operate an average of 22 to 24 horizontal drilling rigs in permian basin.\nin fy co expects its capital program to be fully funded from forecasted 2021 cash flow5 of approx $6.45 billion.\nin 2021 company expects its capital program to be fully funded from forecasted 2021 cash flow of about $6.45 billion."
    },
    {
        "text": "Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts.\nThese non-GAAP measures are adjusted net loss, adjusted loss per share, EBITDA and adjusted EBITDA.\nWe're using these non-GAAP measures today because they allow us to compare performance consistently over various periods without regard to nonrecurring items.\nIn addition, RPC is required to use EBITDA to report compliance with financial confidence under our credit facility.\nPlease review these disclosures if you're interested in seeing how they are calculated.\nDuring the third quarter of 2021, oilfield drilling and completion increased as exploration and production companies responded to higher commodity prices.\nRPC was ready to meet increased demand with equipment and crews.\nOur revenues increased and RPC generated quarterly net income for the first time in more than two years.\nAs the quarter progressed, commodity prices continued to increase and near-term industry forecasts predicted supply/demand dynamics favorable to our industry.\nWe began the fourth quarter of 2021 with a new state-of-the-art pressure pumping fleet and net pricing tractions in most of our service lines.\nOffsets to these favorable dynamics include supply chain constraints and increasing cost pressures, which we will continue to manage as we move forward in this industry up cycle.\nOur CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide some closing comments.\nFor the third quarter of 2021, revenues increased to $225.3 million compared to $116.6 million in the third quarter of the prior year.\nRevenues increased due primarily to higher activity levels and improved pricing compared to the third quarter of the prior year.\nOperating profit for the third quarter was $8 million compared to an operating loss of $31.8 million in the same quarter of the prior year.\nEBITDA for the third quarter was $26.5 million compared to EBITDA of negative $12.3 million in the same quarter of the prior year.\nOur diluted earnings per share for the third quarter were $0.02 compared to an $0.08 loss per share in the same quarter of the prior year.\nCost revenues -- cost of revenues during the third quarter of 2021 was $170.6 million or 75.7% of revenues compared to $100.9 million or 86.5% of revenues during the third quarter of 2020.\nCost of revenues increased primarily due to expense -- increases in expenses consistent with higher activity levels, such as materials and supplies expense, maintenance and repairs costs and fuel costs.\nCost of revenues as a percentage of revenues decreased primarily due to the leverage of higher revenues over direct employment costs that increased to the lower rate than the increase in revenues.\nDuring the quarter, RPC recorded a CARES Act tax credit that was largely offset by the resolution of a long-term contractual dispute defender.\nSelling, general and administrative expenses were $31.4 million in the third quarter of 2021 compared to $32.4 million in the third quarter of the prior year.\nSelling, general and administrative expenses decreased from 27.8% of revenues in the third quarter of last year to 14% of revenues in the third quarter of 2021 due to leverage of higher revenues over costs that are relatively fixed during the short term.\nDepreciation was $18.1 million in the third quarter of 2021 compared to $18.7 million in the same quarter of the prior year.\nOur Technical Services segment revenues for the third quarter were $211.8 million compared to $109.3 million in the same quarter last year due to significantly higher activity and some pricing improvement.\nSegment operating profit in the third quarter of 2021 was $8.3 million compared to a $24.9 million operating loss in the third quarter of the prior year.\nOur Support Services segment revenues for the third quarter of this year were $13.5 million compared to $7.3 million in the same quarter last year.\nSegment operating loss in the third quarter was $55,000 compared to an operating loss of $3.8 million in the third quarter of the prior year.\nOn a sequential basis, RPC's third quarter revenues increased 19.4% to $225.3 million from $188.8 million in the prior quarter.\nThis was due to activity increases in all of our service lines as well as slight net pricing improvement in several of our larger service lines.\nCost of revenues during the third quarter of 2021 increased 17% to $170.6 million compared to $145.8 million in the prior quarter.\nAs a percentage of revenues, cost of revenues decreased slightly from 77.2% in the second quarter of this year to 75.7% in the third quarter of 2021, reflecting some pricing improvement and operating expense leverage.\nSelling, general and administrative expenses during the third quarter of 2021 increased 6.9% to $31.4 million from $29.4 million in the prior quarter, resulting in positive operating expense leverage.\nAs a result of these improvements, operating profit during the third quarter of 2021 was $8 million compared to an operating loss of $1.2 million in the prior quarter.\nRPC's EBITDA was $26.5 million in the third quarter compared to EBITDA of $17.3 million in the prior quarter.\nOur Technical Services segment revenues increased by $35.7 million or 20.3% in the third quarter due to increased activity levels and some pricing improvement in the segment service lines.\nRPC's Technical Services segment generated an $8.3 million operating profit in the current quarter compared to an operating profit of $1.4 million in the prior quarter.\nOur Support Services segment revenues increased by 6.6% to $13.5 million in the third quarter.\nOperating loss was $55,000 in the current quarter compared to an operating loss of $2.4 million in the prior quarter.\nDuring the third quarter, RPC operated seven horizontal pressure pumping fleets.\nAlso during the quarter, we made the strategic decision to add a Tier four dual-fuel fleet.\nHeavily influencing this decision was an opportunity to partner with Caterpillar in the testing of new controls technology aimed at optimizing fuel burn, minimizing emissions and lowering maintenance costs.\nIn addition, we are working the fleet for a large E&P on a dedicated contract.\nThis equipment was added late in the third quarter and is reflected as a finance lease on our balance sheet with a balloon payment due at the end of 12 months.\nThird quarter 2021 capital expenditures were $19 million, excluding the equipment acquired under a finance lease in the third quarter.\nWe currently estimate full year 2021 capital expenditures, excluding lease financed equipment, to be approximately $65 million, comprised primarily of capitalized maintenance for existing equipment and selected growth opportunities.\nIt became clear this quarter that many E&Ps, including those among our customer base who are private operators, are beginning to respond with conviction to higher commodity prices and forecast of global energy shortages.\nOur calendars are filling up.\nAnd we are optimistic about the fourth quarter in spite of the traditional holiday-related slowdown at this time of the year.\nWe are also looking forward to a stronger 2022.\nAs we operate in this improving environment, we are closely watching emerging challenges in our business.\nChemicals, components and labor shortages, together with cost increases and third-party logistics, are all developing as operational issues.\nIn addition, we are also monitoring reports of shortages of tubular goods and other items used by our customers which could cause delays in the need for our services.\nThe continued volatile environment in which we operate makes forecasting difficult.\nBut I'm pleased that our financial strength has allowed us to remain competitive as we begin to realize the benefits of higher commodity prices and an improving operating environment.\nAt the end of the third quarter, RPC's cash balance was approximately $81 million, and we remain debt-free.",
        "summary": "compname reports q3 earnings per share of $0.02.\nq3 earnings per share $0.02.\nq3 revenue rose 93.3 percent to $225.3 million."
    },
    {
        "text": "But first, I'll review the safe harbor disclosure.\nAs such, actual results may vary materially from expectations.\nI have joining me on the call today, Stuart Rose, Executive Chairman of the Board; and Zafar Rizvi, Chief Executive Officer.\nSales for the quarter increased approximately 6.7%, primarily reflecting higher year-over-over ethanol pricing.\nSales were based upon 65.9 million gallons this year versus 72.6 million gallons in the prior year fourth quarter.\nSales for the full year were based upon 235.3 million gallons this year versus 285.8 million gallons in the prior year.\nThe reduced ethanol gallons were primarily at the NuGen plant due to the impact of the wet weather interrupting rail service in the spring and ultimately fewer corn acres planted near the facility and the resulting impact on affordable corn in that area.\nGross profit for the ethanol and by-products segment increased for the fourth quarter from $5.4 million to $8.1 million, primarily due to improved crush spreads in the early part of the fourth quarter, which fell off as the quarter progressed.\nThe refined coal segment had a gross loss of $1.5 million for this year's fourth quarter versus $3.2 million for the prior year with the decrease reflecting lower demand at the facility.\nSG&A expense increased for the fourth quarter from $4.5 million to $5.6 million, largely due to higher ethanol freight charges recorded in SG&A due to certain contract terms.\nThe Company recorded income from its unconsolidated equity investment of $1 million for the fourth quarter of this year versus the loss of $646,000 in the prior year.\nThis improvement is consistent with ethanol industry conditions during those quarters.\nWe recognized tax benefit of $3.4 million in this year's fourth quarter versus a benefit of $4.6 million in the prior year's fourth quarter.\nThe refined coal segment contributed a benefit of $1.5 million this year versus $4.8 million in the prior year fourth quarter, reflecting the aforementioned lower demand at the facility.\nThis resulted in net income for the fourth quarter increasing from $1.4 million to $4.4 million and the diluted earnings per share increasing from $0.17 to $0.70.\nDuring the current quarter, ethanol, the whole operation is running at a loss, mostly caused by ethanol.\nAmong the reasons that ethanol is running at a loss was a bad harvest in part of the country, as Doug explained.\nLow oil prices, low ethanol prices, COVID-19 outbreak -- resulting in low crush spread.\nIn terms of refined coal, the plants are running -- currently running idle.\nWe believe that's due to low natural gas prices and lower-than-expected demand.\nThe price of coal now in our opinion is making it uneconomical to run the refined coal operation.\nOn the good side of that, we have no need for the tax credits at this time.\nSo, it's not something that would definitely need running.\nIn terms of our Company itself, we saved our cash, which currently looks like a very, very good move.\nConsolidated cash is about $205 million.\nUses of this cash, which we're now -- we're certainly now actively looking at include possible buybacks, about 350,000 shares remain authorized.\nRight now, our stock is selling at a price that possibly makes that attractive, depending where it is on any given day.\nWe're also looking at carbon capture possibilities in Illinois.\nWe're still always looking at new businesses.\nThis is the same company that 10 years ago sold TVs.\nSo, we're certainly capable if this is prolonged in the ethanol business of making a pivot.\nAnd we're looking if an ethanol plant -- a very good word comes along at a very bargain price, we would consider it.\nZafar Rizvi, our Chief Executive Officer, will now discuss further the ethanol business and the overall business.\nAs I mentioned in our previous three calls, a challenging environment has continued throughout the last year.\nThe Company faced several issues due to weather-related problems, which delayed the planting of corn and resulted in an unexpected delay in the harvest.\nCommodity prices in 2019 was subject to significant volatility.\nWe've struggled to obtain an adequate supply of corn at NuGen facility in South Dakota, where production has fallen off historic levels and resulted in the higher last corn basis.\nOur production at this plant was interrupted, including no operation in October due to corn availability.\nWe entered fiscal 2020 facing continued challenges, including the recent decline in the crude and ethanol market, a decline in the price, and the emergence of the COVID-19 pandemic, all of which resulted in decrease in the fuel demand and the negative impact on the crush margins.\nThe federal government and various state governments are issuing advisory for social distance and working remotely from home, if possible.\nWe are taking every steps to keep our employees safe and are following Center for Disease Control and Prevention and state and federal guideline.\nAs I mentioned previously, our NuGen plant faced many challenges last fiscal year in response to COVID-19 and the challenging industry environment, we decided last week to keep the plant [Indecipherable] until the threat of COVID-19 is reduced and the crush margin increased.\nWe are in the process of evaluating further to take similar steps for One Earth Energy since the Governor of Illinois has issued stay at home orders and the crush margin has declined.\nThat's largely we are expecting a loss in the ethanol segment in the first and probably second quarter of 2020, if the threat of COVID-19 is not diminished and market conditions will not improve.\nOn top of these challenges, we are experiencing continued uncertainty because of the trade disputes and the small refinery exemption.\nIn 2019, ethanol export decreased to [Phonetic] 1.5 billion gallon compared to 1.7 billion gallon in 2018.\nTotal ethanol production in 2019 was 15.8 billion gallons compared to 16.1 billion gallons in 2018.\nU.S. export of distiller grains in 2019 was 10.79 million metric tons, down 9.23% from 2018.\nLet me discuss a little bit about what else we are doing as Stuart mentioned earlier.\nWe are working with the University of Illinois to explore a carbon sequestration project at One Earth Energy.\nThe plant produces approximately 500,000 ton of very clean carbon dioxide.\nGeologically mapping characterization and modeling have been demonstrated that storage potential in the Mt. Simon storage complex in the density [Phonetic] of the One Earth Energy facility is expected to have excellent reservoir quality.\nThe Mt. Mt. Simon Sandstones are a proven storage reservoir according to University of Illinois analysis.\nWe have completed a feasibility study, conducting seismic testing, and have purchased extra land for the project.\nHowever, we are in the very early stage of this project.\nThe University of Illinois has applied for the grant, and we are in the process of removing state and federal laws for bonding [Phonetic].\nAt this very beginning stage, we cannot predict yet whether we will be able to implement this carbon sequestration project.\nIn summary, in spite of very difficult and challenging environment, we were still able to produce a net profit for the year as well as the fourth quarter for the ethanol segment.\nI will give back the floor to Stuart Rose for his additional comments.\nIn conclusion, we're going through difficult times.\nIt's probably as bad as I've ever seen in the ethanol business.\nWith corn prices and corn availability, oil going down, COVID-19, a lot of things hitting us at the same time, but we have an experienced management team.\nWe know how to pivot when we have to.\nWe have lots of cash.\nWe have what we feel is the best people to handle these times and we will do our best to handle these times.\nWe hope to come out it better than ever.\nWe should -- but we'll see in these uncertain times.\nIt's like I said, very difficult right now.\nNow, I'll leave the floor open to questions.",
        "summary": "compname reports fourth quarter diluted earnings per share of $0.70.\nq4 earnings per share $0.70.\noperating environment remains severely challenged at this time."
    },
    {
        "text": "But first, I'll review the Safe Harbor disclosure.\nAs such, actual results may vary materially from expectations.\nI have joining me on the call today, Stuart Rose, Executive Chairman of the Board; and Zafar Rizvi, Chief Executive Officer.\nSales for the quarter increased approximately 4.2%, primarily reflecting higher year-over-year production in the ethanol segment and increased distillers grain pricing.\nSales were based upon 67.7 million gallons this year versus 65.9 million in the prior year fourth quarter.\nGross profit for the ethanol and by-products segment increased for the fourth quarter from $8.1 million to $8.3 million, primarily due to improved distillers and corn oil pricing.\nThe refined coal segment had a similar fourth quarter loss of $1.4 million for this year versus a $1.5 million for the prior year.\nSG&A decreased for the fourth quarter from $5.6 million to $4.4 million, largely due to lower ethanol freight charges recorded in selling, general and administration due to certain contract terms.\nThe company recorded income from its unconsolidated equity investment of $332,000 for the fourth quarter of this year versus $1 million in the prior year.\nWe recognized a tax benefit of $1.8 million in this year's fourth quarter versus a benefit of $3.4 million in the prior year's fourth quarter.\nThe refined coal segment contributed a benefit of $1.7 million this year versus $1.5 million in the prior year fourth quarter for the tax benefit.\nThe above factors led to net income for the fourth quarter of fiscal 2020 of $3.5 million compared to $4.4 million in the prior year, while diluted earnings per share decreased from $0.70 to $0.59.\nGoing forward, ethanol now is currently profitable, and we're up against a period last -- COVID-related closure period last year.\nIn terms of corn and ethanol prices, they are both up as virtually all commodities are up, and crush spreads remained challenging.\nDDG is up with the price of corn.\nThe new Biden administration appears to have appointees that are favorable to the ethanol industry.\nRIN pricing is still -- RIN pricing, although up right now, we are still waiting to see how they will treat RIN pricing.\nIn terms of the COVID, the COVID news is with the opening up of different states, it should help drive RIN, which should improve demand for our product, especially versus last year.\nIn terms of refined coal, remains profitable on an after-tax basis.\nWe plan on ending that operations by year end this year.\nIn terms of going forward with our cash, we have about $180 million in consolidated cash and equivalents, no debt, our plants are continuing to explore investing in carbon and carbon capture, we've made progress there and have spent a fair amount of time on working on that project.\nWe also are looking -- continue to look for a high quality ethanol plants.\nThe ethanol plants we would hope to find if we -- should we find ones to buy would be in our opinion something that is the best -- has good technology, good locations, good people.\nAs I mentioned in the last three calls, 2020 started in a challenging environment due to the COVID-19 pandemic.\nWe temporarily shutdown our plants during the first and part of the second quarter and we struggled to find corn for our NuGen facility.\nWe saw a decrease in the fuel demand and that negatively impacted the ethanol industry.\nDuring the third quarter, condition improved.\nWe received a steady flow of corn at both of our majority-owned as well as a minority-owned locations.\nThis resulted in improved crush margin and a very profitable third quarter.\nThese improved conditions continued through the beginning of the fourth quarter.\nLater we began to see a decline in the crush margin in addition to the price of ethanol failed to keep up with increase in corn price.\nFarmers lost interest in selling their corn because they were receiving a direct payment from the federal government under the CARES Act.\nWhen China stepped up its corn price -- stepped up its corn purchases, that led to the higher corn prices.\nBehind these factors, we experienced political uncertainty and trade disputes.\nIn addition, the EPA continue to consider and grant small refinery exemption from RFS compliance year.\nWe expect the crush margin in the near future to continue to be under pressure, but we also expect it to improve once the threat of COVID-19 declines with the progress in vaccination and people began to drive more again.\nMarch 9th report of the USDA showed that carry-out stayed at 1.5 billion bushels with export at 2.6 billion bushels.\nThe estimated corn yield is 172 bushels per acre and ethanol plants are expected to consume approximately 5 billion bushels in 2021 crop year.\nExport of the distillers grains in 2020 was approximately 10.96 million tons compared to 10.8 million in 2019.\nWe saw considerable improvements in export during the last quarter of the year.\nJanuary 2021, Mexico, South Korea and Indonesia were the top three importers in January 2021.\nEthanol export during 2020 totaled of 1.3 billion gallons compared to 1.46 billion gallons of 2019.\nJanuary 2021 export totaled 164.7 million gallons compared to 151.3 million gallons in January.\nIndia, China and Canada were the top three importers.\nSo we saw that India suddenly is on the top of the list compared to generally either -- normally the Brazil or Canada.\nSo we see some improvements coming out from India also.\nLet me give you some progress in the carbon sequestration project.\nAs I discussed in our previous calls, we are working with the University of Illinois to drill a carbon sequestration test well to determine suitability for an injection well at our One Earth Energy facility.\nThe University of Illinois is in the progress of evaluating a permit application determined 2D seismic survey to select a test well location and contracting a front end engineering and design, FEED study of the CO2 capture system.\nThe data will be analyzed to make sure the location is suitable for test characterization well.\nThe university expect to start drilling a test well.\nOnce the drilling permit is granted and the design is completed, we expect to start drilling the characterization well in early September.\nIt would take approximately six weeks to drill and another several weeks of testing.\nIt will require extensive modeling and computer stimulation to predict the behavior of the CO2 when it is injected.\nThese stimulation models will determine how much CO2 can be injected at the location and what rate, and it is eventual distribution in the sub-surface area.\nThis project is still at a preliminary stage and we cannot predict yet that we will be successful.\nOur target is to achieve net zero emission.\nIn summary, we are pleased to announce a profitable quarter and year in spite of a very difficult environment for the ethanol industry and other businesses last year.\nAnd I will give back the floor to Stuart Rose for his further comments.\nIn conclusion, the economy is starting to open up.\nWe have great plans, great people, great locations.\nWe have high hopes that when the economy does open up that our business will improve as demand improves.\nMost importantly and the biggest thing that we have going forward is our people.\nThey've stuck with us through thick and thin.\nAnd they are what we feel makes a difference and what separates us from the rest of the industry and who will continue to allow us to outperform the industry.\nI'll now leave it open to questions.",
        "summary": "compname reports q4 earnings per share $0.59.\nq4 earnings per share $0.59."
    },
    {
        "text": "The Everest executives leading today's call are Juan Andrade, President and Chief Executive Officer; Craig Howie, EVP and Chief Financial Officer; and John Doucette, EVP and President and CEO of the Reinsurance division.\nWe are also joined today by other members of the Everest management team.\nManagement comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in its filings.\nManagement may also refer to certain non-GAAP financial measures.\nFirst and foremost, I hope you, your families, your friends and your neighbors are all staying healthy and safe.\nOn behalf of our company, I want to offer our heartfelt condolences to all of those, including many in the Everest Re family who have lost loved ones during this difficult time.\nWe took early, proactive and decisive actions to protect the health and safety of our employees, their families and our stakeholders.\nAs a result, Everest continues to successfully operate remotely.\nWe are doing our part in support of the global economy by serving all of our customers and stakeholders without interruption.\nOur move to remote work was planful with a well-executed organizational resiliency plan and an underlying technology infrastructure that performs seamlessly and an information technology organization that has performed admirably.\nOur employees have been flexible, resilient and productive.\nWe have received accolades regarding our responsiveness and our stability.\nWe also continue to support our local communities around the world in their pandemic relief efforts.\nThese are leadership moments for people and companies.\nOur culture of collaboration, thoughtful assumption of risk, humility and relentless execution are at the bedrock of our performance.\nI am incredibly proud of our people and our company.\nOur diversified global platform, with its broad mix of products, distribution and geography, remains an important source of stable capacity to our broker partners and customers.\nOur capital position remains a source of strength with high-quality invested assets, significant liquidity and low financial leverage.\nDespite the pandemic and the economic downturn, Everest remains profitable, as reflected in our reported 98.6% combined ratio or 89.9% excluding catastrophe losses and the pandemic IBNR loss provision.\nAdditionally, Everest remains resilient, as reflected by both our 21% growth rate in gross written premium and by our capital position.\nWe have built a strong capital foundation over the years, holding $8.6 billion of shareholders' equity at March 31, 2020.\nWhile this is a decrease from year-end 2019, this decrease primarily results from: one, the sharp decline in the fair value of the investment portfolio, which has now substantially recovered since the end of the quarter; two, share repurchases and dividends paid; and three, the pandemic loss IBNR provision.\nMost importantly, our capital position continues to exceed what we need to run the business with excess capital relative to rating agency and regulatory requirements.\nWe have substantial liquidity from the cash we hold, and the cash flow from operations, which was over $0.5 billion for the quarter, were up 10% from 2019.\nWe have significant access to capital markets, including plenty of debt capacity as we carry very little debt compared to all of our peers at less than 7% of our capital when most of our peers typically carry upwards of 20% to 30%.\nLastly, our industry-leading expense ratio also gives us operating flexibility, which is particularly critical in times of uncertainty.\nTurning to the first quarter of 2020.\nEverest remains strong and is well positioned with broad capabilities and top talent.\nAnd we remain focused on solving our clients' most critical risk transfer needs in a disciplined and profitable way.\nWe demonstrated excellent momentum across both of our Reinsurance and Insurance businesses with gross written premium growth of 16% and 33%, respectively.\nWe also continued to benefit from improved market conditions during the quarter, which I will discuss in a moment.\nExcluding catastrophes and the pandemic IBNR loss estimate, our underlying combined ratios for the group at 89.9% and each of our divisions, Reinsurance at 87.7% and Insurance at 95.6%, are reflective of the strong underwriting performance across the group and the earnings generating power of the franchise.\nUnderwriting profitability remains at the core of everything we do.\nOur Reinsurance division had a strong January one renewal season.\nWe continue to judiciously deploy capital, and we underwrote a high-performing book that is focused on strong economic returns while improving the diversification and balance of our overall portfolio.\nWe also saw stronger opportunities in several areas such as retro and facultative risk.\nAs the quarter progressed, we saw continued momentum across the portfolio.\nJohn Doucette will provide additional details on market conditions and the underlying growth.\nOur Insurance division's growth remained strong and consistent with recent quarters.\nThe drivers for this growth were: number one, strong and widespread rate momentum.\nExcluding workers' compensation, the rate increase was plus 24% or plus 17% net of a handful of large deals booked in the quarter and over 12% including workers' compensation.\nThis is an improvement from the fourth quarter of 2019 where the rate increase was almost plus 12% excluding workers' compensation and plus 4% all in.\nWe also saw continued strength in the E&S space with strong submission flow and market conditions continuing to tighten in property and casualty in both primary and excess lines.\nWe also had strong renewal retention in both our retail and wholesale businesses.\nAnd we had increased productivity resulting from additional underwriters hired in 2019 that are now fully onboarded and providing capacity to address the increased submission flow.\nThe insurance growth was also balanced and diversified across our many lines of business.\nStrong rate and tightening terms drove the growth in the long-tail line.\nDespite the impacts of the pandemic in the quarter, our underlying insurance portfolio continues to perform well, and we are seeing the benefits of our various investments in portfolio optimization efforts, all of which position us well for this environment.\nNet investment income of $148 million was up 5% from the first quarter of 2019.\nOur investment portfolio had been and is defensively positioned with over 75% in investment-grade fixed income bonds and less than 4% allocated to public equities.\nMost of our risk is bond risk, and we also have the ability to hold bonds until they mature.\nIn addition, we have continued to further reposition our portfolio, moving up in fixed income credit quality and reducing equity exposure.\nAs per our April 23 announcement, we have taken $150 million IBNR loss provision in the first quarter related to the COVID-19 pandemic.\nThese losses relate to event cancellation, business interruption and other coverages such as accident and health and workers' compensation.\nOur estimate was based on an analysis completed during the first quarter.\nThis analysis was a thorough cross-functional review of the in-force portfolio by line of business, industry and geography.\nThe review was completed by a team of professionals representing every area of the company.\nGiven the fluid and continuing nature of this pandemic, this is an ongoing event and so is our analysis.\nWhile our analysis looked at all aspects of our global portfolio, our estimate does not take into account legal, regulatory or legislative intervention that could retroactively mandate or expand coverage provisions.\nAs stated in our release, our philosophy is to recognize and react to expected future losses on a timely basis.\nWe will be tracking pandemic losses separately from our attritional losses and as an ongoing event.\nWith regard to our specialty insurance business, we have limited exposure to event cancellation, accident and health, workers' compensation and business interruption.\nOur property policies have unambiguous policy language that requires direct physical loss for business interruption coverage to be triggered.\nAdditionally, the majority of the property policies in force contain a virus exclusion.\nOnly a very small number of policies have endorsed sublimits typically less than $25,000 and with short-duration caps that would offer BI for a notable notifiable human disease.\nThese exposures have already been recognized as part of the overall IBNR loss estimate for the quarter.\nThe majority of the IBNR loss provision was for the Reinsurance business given the relative size of this portfolio compared to our Insurance businesses.\nIt is important to note that as a reinsurer, we have contractual terms and conditions, such as retentions, limits, event definitions, hours clauses and other coverage provisions that will apply to this ongoing event.\nThus, we do not simply follow the fortunes.\nIt will be very fact-specific.\nWe have also done a thorough review of our mortgage reinsurance contracts.\nBased on our view of the economic situation that is aided by both external information and our own proprietary internal modeling, we currently believe that our loss picks and reserves remain adequate.\nWe will continue evaluating this business as the economic situation unfolds.\nIn summary, Everest showed forward momentum, resiliency and profitability in the first quarter of 2020.\nWe effectively transitioned to running our company remotely.\nAnd as always, we'll remain a consistent and trusted provider of capacity to our customers.\nGiven the uncertainties in the current public health and economic environment, there could be an adverse impact on results for the property and casualty industry and Everest for the remaining part of the year.\nThe impact is clearly dependent on the shape and length of the recovery.\nWhile the economic environment has changed, Everest remains a high-quality franchise with broad capabilities, a global platform and top talent.\nWe remain focused on solving our clients' most critical risk transfer needs in a disciplined and profitable way.\nWe have the right culture, the right platform and relevance with our clients and trading partners and the capital base to see us through this time.\nEverest reported net income of $17 million for the first quarter of 2020.\nThis compares to net income of $355 million for the first quarter of 2019.\nNet income included $172 million of net after-tax realized capital losses compared to $74 million of capital gains in the first quarter last year.\nThe 2020 capital losses were primarily attributable to fair value adjustments on the public equity portfolio.\nOperating income for the quarter was $164 million driven by strong underwriting results across the group, stable net investment income and lower catastrophe losses, offset by a COVID-19 pandemic IBNR loss estimate of $150 million.\nThe overall underwriting gain for the group was $29 million for the quarter compared to an underwriting gain of $196 million in the same period last year.\nIn the first quarter of 2020, Everest saw $30 million of catastrophe losses related to fires and hailstorms in Australia and a tornado in Nashville, Tennessee.\nThis compares to $25 million of catastrophe losses reported during the first quarter of 2019.\nOverall, our prior year catastrophe loss estimates continue to hold.\nThe combined ratio was 98.6% for the first quarter of 2020 compared to 88.7% for the first quarter of 2019.\nExcluding the catastrophe events and the impact of the COVID pandemic, comparable combined ratios were 89.9% for the first quarter of 2020 and 87.4% for the first quarter of 2019.\nExcluding the pandemic IBNR loss estimate, the attritional loss ratio was 61.5%, up from 60.2% for the full year 2019 primarily due to the continued change in business mix.\nFor the Reinsurance segment, the attritional loss ratio, excluding the pandemic loss estimate, was 59.8%, up from 58.2% for the full year of 2019.\nThis increase was related to the continued business mix shift toward more pro rata premium, which carry a higher loss pick but allow us to benefit directly from the firming primary market.\nPro rata premium is less volatile than excess premium, and we will see the benefit earn into our results as we lap the loss tax season over time.\nFor the Insurance segment, the attritional loss ratio, excluding the pandemic loss estimate, remained very steady at 66.1%, essentially flat compared to 66% for the full year 2019.\nAs you can see in the financial supplement, we also experienced more growth in areas that typically carry a higher loss pick and but a lower overall combined ratio.\nOur U.S. insurance franchise, which makes up the majority of our global insurance business, continues to run an attritional combined ratio in the low 90s, excluding the pandemic loss estimate.\nThe group commission ratio of 22% was down slightly compared to prior year.\nThe group expense ratio remains low at 6.3% and was higher than last year due to an increase in nonrecurring incentive compensation, benefits and payroll taxes in the first quarter, which will normalize during the rest of the year.\nBefore moving to investments, I'd like to point out that we are now reporting two segments: Reinsurance and Insurance.\nThis is consistent with the way the business is managed and the way management views the company's results.\nFor investments, pre-tax investment income was $148 million for the quarter from our $20 billion investment portfolio.\nInvestment income was 5% above the first quarter of last year.\nThis result was primarily driven by the increase in investment-grade fixed income portfolio, which had a higher asset base this year, and higher limited partnership income quarter-over-quarter.\nSince we report most partnership income on a quarter lag, the global equity market performance in the first quarter will be reflected in the limited partnership investment results in the second quarter.\nPretax yield on the overall portfolio was 2.9%, about flat compared to one year ago.\nFor our investment-grade portfolio, the new money rate was 2.7% for the quarter.\nOther income included $21 million of foreign exchange gains in the quarter.\nOn income taxes, the $60 million tax benefit for the quarter included a $31 million tax benefit related to the CARES Act, which extended the carryback period for cat losses to five years.\nExcluding this benefit, the effective tax rate on operating income was 12%, in line with our expected tax rate for the full year.\nPositive cash flow continues with operating cash flow of $506 million compared to $460 million for the first quarter of 2019.\nThis increase reflects a lower level of paid catastrophe losses in 2020 compared to 2019 and an increase in cash flow from our ongoing growth in insurance and reinsurance premiums.\nShareholders' equity for the group was $8.6 billion at the end of the first quarter, down from $9.1 billion at year-end 2019.\nThe movement in shareholders' equity since year-end 2019 is primarily attributable to the sharp decline in the fair value of the investment portfolio and by capital return for $200 million of share buybacks and $63 million of dividends paid in the quarter.\nThe reduction in investment portfolio valuation came from the realized losses in the equity portfolio and the $248 million mark-to-market impact on the fixed income assets resulting from the widening of credit spreads.\nThese mark-to-market adjustments have substantially recovered since the end of the quarter.\nDuring the first quarter, we made some tactical adjustments to reposition the portfolio by moving up in credit quality and further reducing our equity exposure.\nAs Juan said, our capital position remains a source of strength with high-quality invested assets, significant liquidity and low financial leverage in addition to our robust cash flow.\nThe strength of our balance sheet is critical to the success of our business.\nAnd now John Doucette will provide a review of the reinsurance operations.\nAs Juan did at the start of the call, I would like to add my sympathies to our reinsurance trading partners and their families affected by the Coronavirus pandemic.\nLike the rest of the group, the Reinsurance division, supported by our dedicated IT colleagues and our newly completed next-generation global underwriting platform was able to transition to 100% work from home without missing a beat.\nWe are reviewing submissions, quoting and binding facultative and treaty business and settling claims.\nNow I will review the quarter.\nDuring Q1, the Reinsurance division increased our gross written premium to a record of $1.8 billion, up 16% from last year.\nQ1 growth was driven by January rate increases in loss-exposed areas and retro and writing more PURPLE products and casualty business due to improving conditions there.\nGrowth was widespread, spanning territories and lines, including the U.S., international, casualty and property and short- and long-tail facultative reinsurance.\nExcluding COVID-19 losses, our underlying reinsurance loss ratio was up by two points largely due to more pro rata premium written over the last year.\nPro rata business directly benefits from an improvement in original rates while ceding commissions have generally been stable and, in some cases, improved.\nThose improved original rates will take some time to be recognized in our loss picks.\nNote that the volatility associated with $1 of pro rata premium is generally lower than $1 of excess premium, and combined ratio alone can obscure risk-adjusted returns.\nWe are pleased both with our progress at building a more diversified, profitable, sustainable gross portfolio and that we are seeing some tailwinds in the reinsurance market in casualty, property, retro, specialty and fac to help us achieve a stronger, more profitable portfolio.\nEverest's facultative operations continue to see an increase in demand.\nIn the U.S. and international, we are continuing to see significant double-digit rate increases in short-tail and long-tail fac, with dramatic increase in submission count.\nGiven that facultative renews on multiple inception dates, it is a good forward indicator of reinsurance demand and pricing.\nFor our casualty business, original rates on certain lines have shown some increases, which will earn through on our pro rata premiums.\nAs always, we are deploying our shareholders' capital judiciously, seeking to build the strongest reinsurance portfolio possible while maximizing returns, while limiting our downside risk through increased diversification and balance.\nNow to comment on recent and upcoming renewals.\nApril renewals showed continued rate momentum in loss-affected and capacity-constrained segments.\nJapanese wind and retro rates showed strong increases, consistent with the need to maintain appropriate returns.\nLooking near term, particularly the upcoming June Florida renewals, we expect rates will be affected by limited capacity, recent losses and the market's heightened sensitivity to risk due to climate change and social inflation.\nAlso, there is a strain on alternative capital, traditionally large players in Florida.\nTherefore, we continue to see upward pricing momentum in Florida along with improved terms and conditions.\nNow turning to mortgage.\nWith the ongoing economic disruption, primary mortgage insurers could see increased losses along with regulatory capital pressure.\nHowever, housing fundamentals are stronger today than they were heading into the financial crisis with higher credit scores, tighter housing supply and lower-risk products.\nOur reinsurance mortgage book is seasoned and pegged conservatively.\nTo give you some color on our mortgage book.\nBy limit, our book is roughly 80% GSEs and 20% mortgage insurance.\nVirtually all business we write is on a QM basis.\nThe underwriting box we participate in is very controlled and tightly underwritten, meaning our portfolio has no exotic products and has high FICO scores particularly on the GSE business.\nFrom the beginning of Everest entering the mortgage space, our pricing assumptions were and remain more conservative than the external vendor models that we use to validate our pricing assumptions.\nRegarding the MI treaties we reinsure, we effectively play in an excess position, thus avoiding the working layer losses and resulting in a meaningful buffer in gross loss ratio deterioration before we suffer any economic loss to our reinsurance treaties.\nDeterioration in this buffer range decreases the size of the profit commissions we would typically pay to the MIs but at no economic cost to us.\nRegarding our GSE business.\nGiven our more conservative view of underwriting, pricing and capital modeling, we preferred higher layers over lower layers in these programs, and we have weighted our book to higher attachment points accordingly.\nMuch of our exposure has been seasoned for several years, which benefits from home price appreciation.\nGoing forward, credit standards at nearly all stages of mortgage origination are tightening and improving, therefore increasing the credit quality of borrowers in our book.\nAdditionally, early government intervention in the economic crisis to support borrowers and lenders, including the broad offering of forbearance, will mitigate potential losses and help keep people in their homes and avoid default.\nWe are continually reevaluating the dynamics of this economically sensitive line to prudently manage our mortgage exposures now and on a go-forward basis.\nNow I will give some comments on the overall market ahead.\nDespite the uncertainty the industry faces, we cautiously anticipate that the reinsurance markets will remain healthy for the highly rated traditional reinsurers who can deploy capacity in multiple lines of business around the world while also meeting clients' increasing counterparty credit requirements.\nThis view is based on current reinsurance industry dynamics and the supply demand curve.\nStarting with the market supply.\nMore stable capital remains in place while some of the opportunistic capital is exiting.\nAlternative capital investors are reevaluating the thesis that reinsurance is a non-correlated asset class.\nPotential uncertainty from COVID-19 and the possibility of more trapped capital compounds frustrations of these investors from the last three years of cats and subsequent loss creep from several events.\nThis is in addition to higher relative return hurdle requirements given the increased price of risk across virtually all risk asset classes.\nOn the demand side, clients have increased reinsurance purchases for risk management and capital support particularly as some of them come under capital or earnings pressure given the volatile markets.\nThe flight to quality continues as reinsurance buyers and brokers are increasingly focused on the stability and quality of counterparties to protect program continuity and mitigate counterparty credit exposures in these volatile times.\nThe length of the economic downturn will ultimately be a key factor impacting reinsurance demand.\nThese market dynamics benefit Everest as we deliver stable capacity with strong security as a long-standing client-focused partner.\nRegardless of where the market turns, we will focus our capacity on those clients that align with our philosophy of prudent underwriting and sound claims handling practices.\nIn summary, Everest is built to withstand volatility and uncertainty such as we are seeing now.\nWe continue to prove our resilience, our solution-driven partnerships with long-standing clients and our ability to execute through these unprecedented times.\nNadia, could you please open up for Q&A?",
        "summary": "co wrote nearly $2.6 billion in gross written premiums for quarter, an increase of 21% as compared to a year ago."
    },
    {
        "text": "John and David will provide high level commentary regarding the quarter.\nWe kicked off 2021 on a solid note.\nOur ability to continue to deliver value this quarter is a testament to both the investments we've made, as well as our associates' unwavering commitment to our customers and communities.\nOur credit metrics continue to improve and reflect the good work we've done with our clients, coupled with the expected benefits from government stimulus.\nBased on this quarter's credit performance and the improving economic outlook, we reduced our allowance for credit losses by $142 million more than net charge-offs, while still maintaining one of the strongest allowance to loan ratios in the industry at 2.44%.\nAlthough, we continue to deal with the effects of the pandemic, our ongoing conversations with customers reflect optimism about further economic recovery and growth.\nVaccine distribution is improving in our footprint and businesses for the most part have reopened.\nThe majority of our largest deposit states are experiencing unemployment rates significantly below those of the US, as a whole and our loan pipelines are improving as we are seeing more activity in the marketplace.\nWe are increasingly optimistic this momentum will continue.\nThroughout this recovery and beyond, we will maintain our focus on deepening relationships with our customers, while providing personalized financial guidance combined with excellent technology solutions that continue to make banking easier.\nNow, David will provide you with some details regarding the quarter.\nLet's start with the balance sheet.\nAverage and ending adjusted loans declined 1% from the prior quarter.\nNew and renewed commercial loan production increased 5% compared to the prior quarter.\nHowever, balances remain negatively impacted by excess liquidity in the market, resulting in historically low utilization levels.\nAs of quarter end commercial line utilization was 39% compared to our historical average of 45%.\nJust a reminder, each 1% of line utilization equates to approximately $600 million of loan growth.\nCommercial loan balances continue to be impacted by the company's ongoing portfolio management activities and PPP forgiveness timing.\nAverage consumer loans again reflected strong mortgage production offset by run-off portfolios.\nOverall, we expect full year 2021 adjusted average loan balances to be down by low single digits compared to 2020.\nAlthough, we expect adjusted ending loans to grow by low single digits.\nWith respect to deposits, balances continued to increase this quarter to new record levels led by growth in the consumer segment, reflecting recent government stimulus payments.\nThe increase is primarily due to higher account balances.\nHowever, we are also experiencing new account growth.\nWe expect near term deposit balances will continue to increase, particularly as recent stimulus is fully disbursed and corporate customers maintain higher cash levels.\nLet's shift to net interest income and margin, which remain a significant source of stability for Regions.\nNet interest income decreased 4% on a reported basis or 1% excluding the impact from day count and PPP.\nPPP related NII declined $14 million from the prior quarter, as the benefits from round two were offset by slower round one forgiveness.\nTwo fewer days also reduced NII by $12 million.\nThe decline in core NII stems mostly from lower loan balances and remixing out of higher yielding loan categories.\nNet interest margin declined during the quarter to 3.02%.\nCash averaged over $16 billion during the quarter.\nAnd when combined with PPP reduced first quarter margin by 38 basis points.\nExcluding excess cash and PPP, our normalized net interest margin remained stable at 3.40% evidencing our proactive balance sheet management despite the near zero short term rate environment.\nSimilar to prior quarters, the impact from historically low long term interest rates was offset by our cash management strategies, lower deposit costs and higher average notional values of active loan hedges.\nCash management, mostly in the form of a December long term debt call contributed $6 million and 1 basis point of margin.\nInterest bearing deposit costs fell 2 basis points in the quarter to 11 basis points contributing $4 million and 1 basis point of margin.\nLoan hedges added $102 million to NII and 31 basis points to the margin.\nHigher average hedge notional values drove a $3 million increase compared to the fourth quarter.\nAt current rate levels, we expect a little over $100 million of hedge related interest income each quarter until the hedges begin to mature in 2023.\nWithin the quarter, we repositioned a total of $4.3 billion of cash flow swaps and floors targeting less protection in 2023 and 2024.\nWhile there may be additional adjustments in the future, we believe the resulting profile allows us to support our goal of consistent sustainable growth.\nSpecifically, we are positioned to benefit from the steepening yield curve and increases in short term interest rates in the future, while protecting NII stability to the extent that Fed is on hold longer than the market currently expects.\nA potential for loan growth only enhances our participation in a recovering economy.\nLooking ahead to the second quarter, we expect NII excluding cash and PPP to be relatively stable.\nWhile recent curve steepening has helped asset reinvestment levels, long term rates will remain a modest near term headwind.\nDeposit cost reductions, one additional day and hedging benefits will support NII in the quarter, while loan balances are expected to remain relatively stable.\nOver the second half of the year and beyond, a strengthening economy, a relatively neutral impact from rates and the potential for balance sheet growth are expected to ultimately drive growth and NII.\nNow, let's take a look at fee revenue and expense.\nAdjusted non-interest income decreased 2% from the prior quarter, but reflects a 32% increase compared to the first quarter of 2020.\nCapital markets delivered another strong quarter, as customers continue to respond to interest rate changes and potential regulatory and tax headwinds.\nFees generated from the placement of permanent financing for real estate customers and securities underwriting both achieved record levels.\nAnd M&A advisory services also delivered solid results.\nWhile we expect capital markets revenue to remain solid over the remainder of the year, some activity was pulled forward.\nLooking ahead, we expect capital markets to generate quarterly revenue in the $55 million to $65 million range on average.\nExcluding the impact of CVA and DVA.\nMortgage delivered another strong quarter, as we continue to focus on growing market share and improving our customer experience.\nMortgage income increased 20% over the prior quarter, driven primarily by agency gain on sale and favorable MSR valuation.\nProduction for the quarter was up 89% over the prior year, setting the stage for another strong year of mortgage income.\nService charges were negatively impacted by both seasonal declines and increased deposit balances.\nWhile improving, we believe, changes in customer behavior as well as customer benefits from enhancements to our overdraft practices and transaction posting are likely to keep service charges below pre-pandemic levels.\nAlthough, we expect the impact of these changes will be partially offset by continued account growth, we estimate 2021 service charges will grow compared to 2020, but remain approximately 10% to 15% below 2019 levels.\nCard and ATM fees have recovered, up 10% compared to the prior year, driven primarily by increased debit card spend.\nGiven the timing of interest rate changes in 2020 combined with exceptionally strong fee income performance, we expect 2021 adjusted total revenue to be down modestly compared to the prior year, but this will be dependent on the timing and amount of PPP loan forgiveness and loan growth.\nLet's move on to non-interest expense.\nAdjusted non-interest expenses decreased 1% in the quarter, driven by lower incentive compensation, primarily related to capital markets and mortgage, which was partially offset by a seasonal increase in payroll taxes.\nOf note, paid salaries were 4% lower compared to the fourth quarter, as we remain focused on our continuous improvement process.\nAssociate headcount decreased 2% quarter-over-quarter and 4% year-over-year.\nAnd excluding the impact of our Ascentium Capital acquisition that closed April 1st, 2020, headcount was down 6%.\nWe will continue to prudently manage expenses, while investing in technology, products and people to grow our business.\nIn 2021, we expect adjusted non-interest expenses to remain stable compared to 2020 with quarterly adjusted non-interest expenses in the $880 million to $890 million range.\nAnd while we face uncertainty regarding the pace of economic recovery, we remain committed to generating positive operating leverage over time.\nFrom an asset quality perspective, overall credit continues to perform better than expected.\nAnnualized net charge-offs were 40 basis points, a three basis point improvement over the prior quarter, reflecting broad-based improvement across most portfolios.\nNon-performing loans, total delinquencies, business services criticized loans all declined modestly.\nOur allowance for credit losses declined 25 basis points to 2.44% of total loans and 280% of total non-accrual loans.\nExcluding PPP loans, our allowance for credit losses was 2.57%.\nThe decline in the allowance reflects charge-offs previously provided for, stabilization in our economic outlook and improved credit performance, including the impact of the $1.9 trillion stimulus bill approved in March.\nThe allowance reduction resulted in a net $142 million benefit to the provision.\nOur allowance remains one of the highest in our peer group, as measured against period end loans or stress losses, as modeled by the Federal Reserve.\nFuture levels of the allowance will depend on the timing of charge-offs and greater certainty with respect to the path of the economic recovery.\nAs we look forward, we are cautiously optimistic regarding our credit performance for the year, while net charge-offs can be volatile quarter-to-quarter.\nBased on current expectations, we believe the peak is behind us, and we expect full year 2021 net charge-offs to range from 40 basis points to 50 basis points.\nWith respect to capital, our common equity Tier 1 ratio increased approximately 50 basis points to an estimated 10.3% this quarter.\nAs you are aware, the Federal Reserve extended their restrictions on capital distributions through the second quarter of 2021.\nThe Federal Reserve also indicated these restrictions are expected to be lifted beginning in the third quarter subject to capital remaining above required levels in the ongoing 2021 CCAR cycle for firms participating.\nWe have opted in to this year CCAR and assuming capital levels remain above required levels in the Fed stress test, we should be back to managing capital distributions against the SCB requirements beginning in the third quarter.\nHowever, our plan is to begin share repurchases in the second quarter subject to the Fed's earnings based restrictions.\nBased on our internal stress testing framework and amount of capital we need to run our business, we are updating our operating range for common equity Tier 1 to 9.25% to 9.75% with a goal of managing to the midpoint over time.\nSo wrapping up on the next slide, our 2021 expectations, which we have already addressed.\nIn summary, we feel really good about our first quarter results and anticipate carrying the momentum into the remainder of 2021.\nPre-tax pre-provision income remained strong.\nExpenses are well controlled.\nCredit quality is outperforming expectations.\nCapital and liquidity are solid.\nAnd we are optimistic about the prospect for the economic recovery to continue in our markets.",
        "summary": "qtrly total revenue of approximately $1.6 billion decreased 5 percent on a reported basis and 3 percent on an adjusted basis.\nqtrly average loans and leases decreased approximately 2 percent compared to prior quarter."
    },
    {
        "text": "We appreciate you joining our call today.\nWe're very pleased with our performance this quarter as we achieved earnings of $624 million, resulting in earnings per share of $0.65.\nAdjusted pre-tax pre-provision income increased 4% sequentially.\nAnd we generated year-to-date positive operating leverage.\nOur ability to keep the momentum going and deliver solid third quarter results comes from three primary factors.\nFirst, we continue to benefit from our growing footprint.\nUnemployment levels are improving.\nAnd most of our markets are well below the national level.\nPeople and businesses are continuing to move into our 15 state footprint and that bodes well for our growth prospects for the remainder of the year and into 2022.\nWe'll continue to make strategic investments in core and growth markets where we can grow new customers and deepen existing relationships.\nOn that note, we're also pleased to share that year-to-date net account growth has exceeded account growth for the preceding three years combined.\nSecond, credit quality has demonstrated incredible resiliency and continues to exceed our expectations.\nBusinesses across all industries have found ways to adapt and prosper despite ongoing supply chain and labor issues.\nAnd consumers continue to cautiously manage their finances.\nOverall, we feel very good about the health of our business and consumer customers.\nThird, we continue to take advantage of opportunities to invest in talent, technology and capabilities to support growth.\nFor instance, earlier this month, we closed on our acquisition of EnerBank, a leading home improvement point-of-sale lender, a key part of our strategy to serve as a premier lender to homeowners.\nWe also entered into an agreement to acquire Sabal Capital Partners.\nSabal has a strong reputation and proprietary technology platform that will expand our real estate capital markets' capabilities.\nOnce the transition is complete, we expect to be a Top 5 bank agency producer.\nThe EnerBank and Sabal acquisitions complemented our existing portfolio of products and capabilities in the consumer and corporate bank.\nWe will continue to evaluate prudent, non-bank M&A opportunities that will allow us to expand our products and services and enhance our relevancy with our customers.\nAlso, we recently launched our Bank On-certified Now Checking' Account.\nThis new product has all the benefits of a traditional checking account without the concern of overdraft fees.\nAnd finally, our investments in digital and data are positioning us for growth.\nThrough a technology-enabled seamless experience in branches and across all platforms, customers are responding to the personalized service, advice and guidance they receive from Regions.\nToday, more than two-thirds of our customer transactions are digital.\nFurther, over the last two years, active mobile banking users are up 23% and notably, Zelle transactions have more than tripled.\nWe feel really good about our progress and momentum.\nWe operate in some of the best markets in the country, have a solid strategic plan, an outstanding team, and the experience to compete effectively.\nWe focus everyday on delivering products and services that are valued by our customers, while continuing to support our communities and provide an appropriate return to our shareholders.\nNow, David will provide you with some details regarding the quarter.\nLet's start with the balance sheet.\nAdjusted average and ending loans increased approximately 1% during the quarter.\nAlthough business loans continue to be impacted by low utilization rates and excess liquidity, pipelines have surpassed pre-pandemic levels.\nIn addition, production remained strong with a line of credit commitments increasing $2 billion year-to-date.\nConsumer loans reflected another strong quarter of mortgage production, accompanied by modest growth in credit card.\nHowever, consumer loans remain negatively impacted by exit portfolios and further paydowns in home equity.\nOverall, we continue to expect full-year 2021 adjusted average loan balances to be down by low-single-digits compared to 2020, although we expect adjusted ending loans to grow by low-single-digits.\nWith respect to loan guidance, we are not including any impacts from our EnerBank acquisition, which closed on October 1 and resulted in the addition of $3.1 billion in loan balances that will benefit the fourth quarter and beyond.\nSo let's turn to deposits.\nAlthough the pace of deposit growth has slowed, balances continue to increase this quarter to new record levels.\nThe increase is primarily due to higher account balances.\nHowever, as John mentioned, we are also producing strong new account growth.\nWe are continuing to analyze probable future deposit behavior.\nAnd based on analysis of pandemic-related deposit inflow characteristics, we currently believe approximately 30% or $10 billion to $12 billion of deposit increases can be used to support longer-term growth through the rate cycle.\nAdditional portions of the deposit increases could persist on the balance sheet, but are likely to be more rate sensitive.\nLet's shift to net interest income and margin.\nPandemic-related items continue to impact net interest income and margin.\nNet interest income from PPP loans decreased $12 million from the prior quarter, but is expected to pick up in the fourth quarter.\nCash averaged $25 billion during the quarter and when combined with PPP, reduced third quarter reported margin by 54 basis points.\nExcluding excess cash and PPP, net interest income grew almost 1.5% linked quarter, and our adjusted margin was essentially stable at 3.30%.\nThis reflects strengthening loan growth as well as active balance sheet management efforts despite a near zero short-term rate environment.\nSimilar to prior quarters, the impact on NII from historically low long-term interest rates was completely offset by balance sheet management strategies, lower deposit costs and higher hedging income.\nDuring the third quarter, we repositioned an additional $5 billion of receive-fixed swaps.\nWe shortened the maturities from 2026 to late 2022.\nThe repositioning locked in the associated gains that will be amortized over the remaining life of the interest rate swaps and will allow for more NII expansion when rates are projected to increase.\nFurther, with the inclusion of EnerBank's fixed-rate loan portfolio, less hedges will be needed to protect NII and the net interest margin profile from falling rates.\nThe cumulative value created from our hedging program is approximately $1.6 billion.\nRoughly 75% of that amount has either been recognized or is locked into future earnings from hedge terminations reflecting the dynamic management of our hedging strategy.\nExcluding EnerBank and PPP, adjusted net interest income should be relatively stable in the fourth quarter, after excluding the non-recurring interest recovery in the third quarter.\nIncluding PPP and the EnerBank acquisition, linked quarter net interest income is expected to grow between 5% and 6% in the fourth quarter.\nAs illustrated on the slide, over a longer horizon, a strengthening economy, the ability to benefit from higher rates, and organic and strategic balance sheet growth are expected to ultimately drive net interest income growth.\nNow, let's take a look at fee revenue and expense.\nAdjusted non-interest income increased 8% from the prior quarter, primarily attributable to strong capital markets' activity, including record loan syndication revenue and solid M&A advisory fees.\nWe expect capital markets to remain strong in the fourth quarter, generating revenue in the $60 million to $70 million range, excluding the impact of CVA and DVA.\nWe will provide more specificity regarding 2022 expectations in January.\nOther non-interest income also increased during the quarter, due to an increase in the value of certain equity investments as well as increased gains associated with the sale of certain small dollar equipment loans and leases.\nMortgage income decreased quarter-over-quarter, primarily due to mortgage servicing rights, valuation adjustments, partially offset by improved secondary market gains.\nService charges remained relatively stable, compared to the prior quarter.\nAnd we continue to expect they will remain 10% to 15% below pre-pandemic levels.\nWe attribute the decline to changes in customer behavior as well as customer benefits from enhancements to our overdraft practices, including transaction posting order.\nCard and ATM fees remained stable compared to the second quarter.\nDebit and credit card spend remain above pre-pandemic levels as we continue to benefit from elevated account growth and increased economic activity in our footprint.\nGiven the timing of interest rate declines in 2020 and excluding the fourth quarter benefit from our EnerBank acquisition, we expect 2021 adjusted total revenue to be up modestly compared to the prior year, but this will ultimately be dependent on the timing and amount of PPP loan forgiveness.\nLet's move onto non-interest expense.\nAdjusted non-interest expenses increased 3% in the quarter, as higher salary and benefits and professional and legal fees were offset by decline in marketing expenses.\nSalaries and benefits increased 4%, primarily due to higher variable-based compensation associated with elevated fee income as well as one additional day in the third quarter.\nAssociate headcount also increased by 149 positions during the quarter with the vast majority of those within revenue producing businesses.\nFurther, exceptional performance, particularly in credit, is also contributing to higher incentive compensation.\nWe will continue to prudently manage expenses, while investing in technology, products and people to grow our business.\nExcluding approximately $35 million of core run rate expenses associated with our fourth quarter EnerBank acquisition, we expect adjusted non-interest expenses to be up modestly compared to 2020, and we remain committed to generating positive operating leverage over time.\nFrom an asset quality standpoint, we delivered an exceptionally strong quarter as overall credit continues to perform better than expected, reflecting continued broad-based improvement across virtually all portfolios and continued recoveries associated with strong collateral asset values.\nAnnualized net charge-offs decreased 9 basis points during the quarter to 14 basis points, representing the company's lowest level on record post our 2006 merger of equals.\nIn addition to lower charge-offs, non-performing loans and business services criticized loans also improved, while total delinquencies remain unchanged during the quarter.\nOur allowance for credit losses declined 20 basis points to 1.8% of total loans and 283% of total non-accrual loans.\nExcluding PPP loans, our allowance for credit losses was 1.83%.\nThe decline in the allowance reflects better-than-expected credit trends and the continued constructive outlook on the economy.\nThe allowance reduction resulted in a $155 million benefit to the provision.\nFuture levels of the allowance will depend on the timing of charge-offs, greater certainty with respect to the resolution of remaining risk to credit losses as well as the integration of EnerBank.\nYear-to-date net charge-offs are 25 basis points, and we expect full-year 2021 net charge-offs to approximate at same level, which includes the impact of EnerBank and excludes the benefit of any future recoveries that may occur.\nWith respect to capital, our common equity Tier 1 ratio increased approximately 40 basis points to an estimated 10.8% this quarter.\nAs previously noted, we continue to prioritize the utilization of our capital for organic growth and non-bank acquisitions like the EnerBank and Sabal that propel future growth.\nBeyond that, we use share repurchases to manage our capital levels.\nShare repurchases were temporarily paused ahead of the EnerBank closing, which absorbed approximately $1 billion of capital in the fourth quarter.\nWe anticipate being back in the repurchase market this quarter and expect to manage common equity Tier 1 to the midpoint of our 9.25% to 9.75% operating range by year-end.\nSo wrapping up on the next slide, our 2021 expectations, which we've already addressed.\nIn summary, we are very pleased with our third quarter results and are poised for growth as the economic recovery continues.\nPre-tax, pre-provision income remain strong; expenses are well controlled; credit quality is outperforming expectations; capital and liquidity are solid; and we are optimistic about the pace of the economic recovery in our markets.",
        "summary": "compname reports q3 earnings per share of $0.65.\nq3 earnings per share $0.65.\nqtrly average loans and leases decreased 1 percent compared to prior quarter."
    },
    {
        "text": "Then Tom Dineen, our Chief Financial Officer, will give an overview of the second quarter 2021 financial results, and then I will discuss our operations and the state of the market.\nCopies of these documents may be obtained by contacting the company or the SEC or on the company website at ruger.com/corporate or the SEC website at sec.gov.\nWe do reference non-GAAP EBITDA.\nPlease note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31, 2020, and our Form 10-Q for the second quarter of 2021, both of which are posted on our website in the Investor Relations section.\nNow Tom will discuss the company's second quarter 2021 results.\nFor the second quarter of 2021, net sales were $200.1 million and diluted earnings were $2.50 per share.\nFor the comparable prior year period, net sales were $130.3 million and diluted earnings were $1.05 per share.\nFor the first six months of 2021, net sales were $384.4 million and diluted earnings were $4.66 per share.\nFor the corresponding period in 2020, net sales were $253.9 million and diluted earnings were $1.91 per share.\nThe substantial increase in profitability for the second quarter was attributable to the increase in sales and production, resulting in favorable leveraging of fixed costs including depreciation, engineering and other indirect labor expenses, a significant reduction in sales promotional activities and improved labor efficiencies.\nNot surprisingly, our strong financial results yielded robust cash generation.\nDuring the first half of 2021, we generated $76.2 million of cash from operations.\nWe reinvested $11.5 million of that back into the company in the form of capital expenditures.\nWe estimate that 2021 capital expenditures will be approximately $20 million predominantly related to new product development.\nOur ability to shift manufacturing equipment between cells and between facilities improves overall utilization and allows for reduced capital investment.\nOur balance sheet at July 3, 2021, remains rock solid.\nOur cash and short-term investments, which are invested in UST bills, totaled $173.6 million.\nOur current ratio was 3.7:1, and we had no debt.\nOur stockholders' equity was $319.1 million, which equates to a book value of $18.14 per share, of which $9.86 per share was cash and short-term investments.\nOur shareholders continue to share in our success in a direct and timely manner.\nIn the first month -- in the first six months of 2021, we returned $27.6 million to our shareholders through the payment of dividends.\nOur Board of Directors declared a $1 per share quarterly dividend for shareholders of record as of August 16, 2021, payable on August 27, 2021.\nUpon receiving the $1 quarterly dividend, shareholders will have received over $2.50 of dividends per share thus far in 2021.\nAs a reminder, our quarterly dividend is approximately 40% of net income and, therefore, varies quarter-to-quarter.\nThat's the financial update for the second quarter.\nThe second quarter of 2021 marked the seventh consecutive quarter of meaningful growth in sales, profitability and virtually every financial and operating metric despite the challenges posed by the COVID-19 pandemic.\nDemand for our products has remained strong.\nThe estimated unit sell-through of the company's products from the independent distributors to retailers increased 13% in the first half of '21 compared to the prior year period.\nFor the same period, the National Instant Criminal Background Check System background checks, as adjusted by the National Shooting Sports Foundation, commonly referred to as NICS checks, decreased 5%.\nThe increase in the sell-through of the company's products compared favorably to the decrease in adjusted NICS background checks and may be attributable to the following: strong consumer demand for Ruger products, increases in production for each of the past seven quarters and the introduction of new products that have been met with strong consumer demand.\nNew product development remains among our highest priorities.\nOn the heels of the successful MAX-9 pistol launch earlier this year, we introduced the Ruger LCP MAX, a 380 Auto pistol in June.\nThis is the latest offering from the Ruger LCP family, which has set the standard for personal protection pistols for over a decade.\nThe LCP MAX joins an impressive roster of products that were introduced in the past two years.\nThese include the extremely popular Ruger-57 Pistol, which is awarded the 2020 Caliber Award for best overall new product by the Professional Outdoor Media Association in conjunction with the NASGW.\nThe LCP II in.\n22 Long rifle, which is based on the venerable LCP platforms and utilizes our Lite Rack system for easier slide manipulation and reduced recoil.\nThe Wrangler revolver, our latest take on the classic single-action revolver, which shows no signs of slowing down and the MAX-9 pistol, a versatile 9-millimeter pistol that has been met with tremendous excitement.\nIn the first half of 2021, new product sales represented $78 million or 22% of firearm sales compared to $48 million or 21% of firearm sales in the first half of 2020.\nAs a reminder, derivatives and product line extensions of mature product families are not included in our product sales -- new product sales calculation.\nNonetheless, they are valuable additions to the Ruger catalog of products and are greatly appreciated by distributors, retailers and our loyal Ruger consumers.\nWe look forward to the return of Marlin lever action rifles, which we plan to begin shipping in the fourth quarter.\nIf you're interested in following our progress with the Marlin product line, check out Marlin firearms on Facebook or Instagram.\nWe have been delighted with the overwhelming interest and support that we have received from Marlin fans.\nSince March of 2020, our workforce has been strengthened by approximately 400 folks, an increase of 25%, and our quarterly unit production has increased by over 200,000 units or 58%.\nThis outsized growth in production is indicative of our labor efficiency gains.\nAnd despite the growth in our output at the end of the second quarter of 2021, our finished goods inventory and distributor inventories of Ruger products were 160,000 units lower than they were at the end of the first quarter of 2020.\nThe last time these inventories were at what we would consider normal or expected pre-COVID-19 levels.\nSince the onset of COVID-19 in March of 2020, we remain proactive in maintaining the health and safety of our employees and mitigating its impact on our business, by providing all hourly employees with an additional two weeks of paid time off in 2020 and an additional week in 2021, providing cash and other incentives for employees to become fully vaccinated, holding multiple on-site COVID-19 vaccination clinics at our manufacturing facilities, reducing hiring in early 2020 to help maintain the health and safety of employees and the cleanliness of our facilities, encouraging employees to continue to work remotely wherever possible and maintaining social distancing throughout each manufacturing facility, including in every manufacturing cell, confidentially communicating with and assisting employees with potential health issues through our dedicated facility nurses, restricting visitor access to minimize the introduction of new people to the factory environment, implementing additional cleaning, sanitizing and improved ventilation and other health and safety processes to maintain a clean and safe workplace, providing all employees with multiple face mask coverings and other personal protective equipment and currently mandating their use by unvaccinated and at-risk individuals at all times in our facilities and issuing periodic guidance and reminders to all associates to encourage them to engage in safe and responsible behaviors.\nWith the United States once again seeing a rise in COVID-19 cases and positivity rates, we remain vigilant and are proactively adjusting our plan accordingly to keep our associates healthy and safe and to minimize any disruption to our business.\nWe estimate that COVID-related costs will total approximately $1.5 million in 2021.\nIncluded in this estimate is a $200 bonus for every employee who becomes fully vaccinated.\nOur financial strength, evidenced by our debt-free balance sheet provides financial security and flexibility as we manage through challenges like COVID-19 and remain focused on the long-term goals and creation of shareholder value.\nThose were the highlights of the second quarter of 2021.\nOperator, may we have the first question?",
        "summary": "compname reports q2 diluted earnings of $2.50 per share.\ncompname reports second quarter diluted earnings of $2.50 per share and declares quarterly dividend of $1.00 per share.\nq2 earnings per share $2.50.\nq2 sales $200.1 million."
    },
    {
        "text": "Before I turn things over to Jay, let me quickly go over our disclaimer.\nWe encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties.\nWe undertake no obligation to update these statements as a result of new information or further events, except as required by law.\nA recording of the call will be available later today.\nOur commentary today will also include non-GAAP financial measures.\nAnd with that, I'll turn things over to Jay Farner to get us started.\nOur platform continues to execute at scale and grow across our businesses.\nRocket Mortgage is the largest mortgage lender in America with industry-leading profitability.\nOur title and settlement services business, Amrock, is also the largest of its kind in the country.\nOur emerging businesses also set new records in the quarter.\nRocket Homes reached $2.3 billion in real estate transaction value, and its current annualized run rate placed the company among the top 20 brokerages in the country.\nRocket Auto also reached a record $530 million in gross merchandise value in the quarter.\nThe number of vehicle sales facilitated by Rocket Auto in the last 12 months would put the company in the top 10 of all used car dealers nationwide.\nI'm also excited to touch on the new Mortgage-as-a-Service opportunity we're launching in partnership with Salesforce.\nLast quarter, we had excellent results.\nwith closed loan volume and gain on sale margin exceeding the top end of our guidance range.\nRocket Mortgage delivered $88 billion in closed loan volume, and Rocket Companies generated $3.2 billion in adjusted revenue and $1.6 billion in adjusted EBITDA.\nOn an adjusted EBITDA basis, we doubled the size of our business compared to 2019, again, demonstrating the sheer power and scalability of the Rocket platform.\nWe hit new records in both purchase and cash out refi volume in Q3.\nWe've also just recently announced a major partnership with Salesforce.\nUp to this point in time, we have used Rocket technology to process our own mortgage volume through both our direct-to-consumer and partner network channels.\nThe Salesforce partnership will now open our mortgage technology and process to third-party financial institutions through the Salesforce Financial Services Cloud.\nThis new Mortgage-as-a-Service model is a game changer for the industry and for Rocket.\nMore than simply leveraging our technologies, these banks and credit unions will have Rocket integrated into their centralized workflow, making the process seamless and simple.\nThe opportunity is massive.\nIn 2020, the approximately 10,000 banks and credit unions originated over $1 trillion in mortgages.\nThat represents nearly a third of the total market in the US We believe Mortgage-as-a-Service represents a new model for financial institutions to partner with Rocket, paving the way for an even larger opportunity to provide consumer lending as a service, including mortgages, auto loans and personal loans.\nExpect to hear more about this partnership in the first half of 2022.\nWith multiple channels all operating at scale over a broad range of products, we have many levers to drive growth while optimizing gain on sale margins even in shifting markets.\nOur ability to pivot and scale is Rocket's key differentiator.\nIn fact, in the third quarter, we saw strong growth in our direct-to-consumer channel, where our purchase initiatives continue to gain traction.\nWe will be allocating additional resources to further support this growth.\nMore broadly, we've seen strength in products that aren't as interest rate-sensitive.\nIn the third quarter, both purchase and cashout refinancing hit new company records, rising approximately 70% year over year.\nThis growth is a direct result of Rocket's commitment to providing speed, certainty and choice to our clients, all of which are crucial in the ongoing inventory constrained, highly competitive housing market.\nNot only did we set a record for purchase volume in the third quarter with both our direct-to-consumer and partner channels achieving all-time highs, but by the end of September, we had already originated more purchase volume than any full year prior.\nThis rapid growth in the purchase segment puts us well on our way to reaching our goal of becoming the No.\n1 retail purchase lender by 2023.\nHelping drive our continued growth in the purchase category is our seamless end-to-end homebuying ecosystem in partnership with Rocket Homes.\nThrough our integrated platform, clients can find their next house on Rocket Homes' 50 state home listing search platform, secure an agent from the company's agent network, get financing through Rocket Mortgage, have Amrock conduct the title work and appraisal for them and then after closing, have their mortgage serviced by Rocket Mortgage, all from one centralized platform.\nOther key drivers helping us win in today's purchase market are industry-leading products like our Overnight Underwrite and a broad range of homebuying and selling services.\nFor instance, Rocket Homes offers the choice to sell your home through its on-staff agents, its 50-state network of real estate professionals or through its ForSaleByOwner platform.\nAdditionally, we recently rolled out our Breaking Barriers program for our Rocket Pro TPO partners.\nThese technology enhancements, paired with programming to better connect real estate professionals and mortgage brokers are designed to give our partners the tools that they need to win today and well into the future.\nAs we look ahead to the next year, we expect our Rocket Mortgage business to achieve continued market share growth, exceeding 10% share in a purchase-heavy market.\nThis is consistent with our track record of being opportunistic to grow share.\nFor instance, in 2019, our company's mortgage originations accounted for roughly 6.5% of the market.\nIn 2020, that grew to nearly 8.5%.\nWith the fourth quarter guidance released earlier today, which Julie will walk through in more detail, we are well on pace to break 2020's strong origination record of $320 billion and end the year with 9.5% market share.\nAs we look toward 2022, we will continue to invest in the rapid growth of our platform.\ndelivering a unified client experience across mortgage, real estate, auto, personal loans and solar.\nIn our emerging businesses, we expect continued growth from Rocket Auto and Rocket Homes in 2022, on top of the records reached in 2021.\nWe will also formally launch our solar program and continue to target new product categories to add to the Rocket platform, either organically or through acquisition.\nOur platform has been built to capitalize on the vast data, proprietary technology, trusted brand and Cloud Force here at Rocket Companies.\nRefined over decades, these pillars of our platform are the foundation of our growth ahead.\nWith that, I'll turn things over to Julie to go deeper into the numbers.\nI'm pleased to report another quarter of strong financial results for Rocket Companies as we continue to leverage our flexible platform, grow our business at scale and drive substantial profitability.\nNow, we'll get into the numbers.\nDuring the third quarter of 2021, Rocket Companies generated $3.2 billion of adjusted revenue, which is a 76% increase from Q3 2019.\nWe had $1.6 billion of adjusted EBITDA in the quarter, more than doubling the results of Q3 2019, representing a 48% adjusted EBITDA margin.\nWe delivered net income of $1.4 billion, up 181% from Q3 2019 and adjusted net income of $1.1 billion, exceeding Q3 of 2019 by more than two times.\nOver that same period, our adjusted net income margin was 36% and adjusted earnings per share was $0.57 for the quarter.\nRocket Mortgage generated $88 billion of closed loan origination volume during the quarter, up nearly 120% from $40 billion in Q3 2019.\nFocusing on home purchase, our momentum has continued with Q3 purchase volume up more than 70% year over year, marking a new company record set in just the first nine months of the year.\nIn fact, both our direct-to-consumer and partner network segment generated all-time highs for purchase volume during the quarter with our higher-margin, direct-to-consumer business having the strongest gain.\nFor the quarter, our rate lock-in on sale margin was 305 basis points, which was above the high end of our guidance range and substantially higher than multichannel mortgage originators.\nGain on sale margins improved quarter over quarter in both our direct-to-consumer and partner network segment.\nOur emerging businesses continued to reach new record.\nAt Rocket Homes, we generated record real estate transaction value of $2.3 billion during the quarter, closing more than 9,000 transactions.\nOur rockethomes.com website continues to increase high-intent traffic and was up nearly five times year over year with 2.4 million monthly average users during Q3.\nOn a year-to-date basis, Rocket Auto's gross merchandise value, or GMV, and has grown nearly two and a half times year over year as momentum for this business continues to grow as we expand inventory partners and with the launch of rocketauto.com.\nWe are leveraging our platform and strong base of 2.5 million servicing clients as of the end of October to grow and ramp these emerging businesses.\nThe Rocket Companies flywheel is based on leveraging our profitability advantages to constantly reinvest in our business, driving continued growth and strengthening our competitive position.\nWe see tremendous potential to drive sustainable and profitable market share gains in our core mortgage business.\nWe are also investing to grow beyond mortgage and leverage our platform to scale our newer real estate, auto, personal loans and solar businesses.\nThis growth will come from continued investment in the pillars of our platform, particularly technology.\nFueled by our vast data lake aggregated through millions of client interactions, our technology drives speed and certainty to improve client experience, higher efficiency for our businesses and opens the door to new market opportunities.\nFor example, Amrock completed its 1 millionth digital closing in September, cementing its leadership position in the eClosing market.\nAmrock digital experience makes the closing process easier, faster and more accessible translating to a better client experience overall.\nCumulatively, our technology investments are driving meaningful change in our business.\nWe expanded the rollout of Rocket Logic, which can now be used by substantially all of our Rocket Cloud Force.\nOn a year-over-year basis, our turn times improved by more than 33% this quarter, extending the gap between us and others in the industry.\nThis was achieved while generating a similar level of business with a substantially higher mix of purchase transactions, which historically take longer to close.\nWe're also leveraging our technology platform beyond our own four walls.\nAs Jay mentioned, our recently announced Mortgage-as-a-Service offering with Salesforce opens up a new opportunity for Rocket Mortgage to partner with medium and large-sized financial institutions that make up approximately a third of the mortgage market.\nMortgage as a Service represents a large incremental opportunity for Rocket Mortgage to continue growing market share in the years ahead.\nIncreasing the lifetime value of our clients is another core component to our growth strategy.\nOur business is profitable on the first transaction with the client.\nWe then maintain ongoing loan servicing relationships with 2.5 million clients representing over $530 billion in outstanding loan principal as of the end of October.\nMortgage servicing drives a recurring cash free for Rocket Companies of $1.3 billion on an annual basis, which covers nearly a quarter of our annualized expenses.\nMore importantly, with service unpaid principal balance of 30% in the past 12 months and net retention above 90%, we are positioned to continue to drive additional clients to our platform across both our direct-to-consumer and partner network channels.\nIn addition to generating our clients organically, we acquired MSRs with an aggregate unpaid principal balance of $3.6 billion during the third quarter.\nThis is in accordance with our growth strategy as we have found that our industry-leading retention rate positions us to generate attractive returns through select MSR portfolio acquisitions.\nWe remain aggressive in pursuing this strategy, and we'll continue to look for opportunities to deploy capital through these types of acquisitions.\nLooking ahead to Q4, the housing market remains active.\nHomeowners are sitting on the highest levels of home equity in history, and the investments we have been making are gaining traction across the platform, especially with the progress we're making in purchase.\nFor the fourth quarter, we currently expect closed loan volume in the range of $75 billion to $80 billion, and rate lock volume between $71 billion and $78 billion.\nAt the midpoint of our fourth quarter guided range, our full year 2021 closed loan origination volume would exceed $350 billion, exceeding the previous record of $320 billion achieved in 2020 by more than 10%.\nRocket Mortgage has a long-term track record of consistent market share gains.\nWe have grown market share from 1% in 2009 to nearly 8.5% in 2020, 9.5% in 2021 and expect to reach more than 10% in 2022.\nWe expect fourth quarter gain on sale margin to be in the range of 265 to 295 basis points.\nRegarding our expenses, we believe the run rate of operating expenses for the third quarter of 2021 is a good reference for the fourth quarter.\nTurning to our balance sheet, liquidity and capital allocation.\nWe exited the third quarter with $2.2 billion of cash on the balance sheet and an additional $2.9 billion of corporate cash used to self-fund loan originations for total available cash of $5.1 billion.\nTotal liquidity stood at $8.6 billion as of September 30, including available cash plus undrawn lines of credit and undrawn MSR line.\nKeep in mind, even with the record level of originations we generated in 2021, we need less than $1 billion of cash on hand to properly operate our business.\nOur business is capital-light and our balance sheet is extremely strong.\nAs we've said before, our capital priorities always start with proper capitalization and reinvesting in the business.\nWith $5.1 billion of available cash, we have the opportunity to consider acquisitions, repurchase shares and return capital to shareholders via dividends as we've done in the past.\nFor acquisitions, we look for bolt-on targets that would be additive to our platform by bringing new clients into our ecosystem, enhancing operational efficiencies or enhancing our product offering.\nDuring the third quarter, we increased the level at which we have bought back shares.\nThrough the end of October, we have deployed $94 million to repurchase approximately 5.7 million shares.\nThis is in addition to the special dividend of $1.11 per Class A common share, funded by an equity distribution of $2.2 billion that was paid in March.\nIn total, we have returned $2.3 billion to all classes of shareholders during the year.\nWe will deploy our capital in a strategic and disciplined manner to generate long-term shareholder value.\nAlso, one small housekeeping item.\nPreviously, we used the terms funded loan volume and funded loan gain on sale margin.\nSince loans are considered sold when they are purchased by investors on the secondary market, we felt the terms sold loan volume and sold loan gain on sale margin align more closely with the definition and are the terms that we will use going forward.\nThere's no change to the metrics we are reporting, only a change in the terminology.",
        "summary": "qtrly adjusted diluted earnings per share $0.57."
    },
    {
        "text": "Sorry for that, we were having a few audio issues.\nSo we've redialed back in.\nJoining me on the call today to discuss our quarterly results are CEO, Mick Farrell and CFO, Brett Sandercock.\nOther members of management will be available during the Q&A portion of the call.\nDuring our call, we will discuss several non-GAAP measures.\nWe believe these statements are based on reasonable assumptions.\nHowever, our actual results may differ.\nI'll then review top level financial results, some business highlights from the quarter, and a few key milestones.\nThen I'll hand the call over to Brett, who will walk you through our financials in further detail.\nOur team achieved another quarter of strong revenue growth across the portfolio driven by superb performance in the mask category particularly in the U.S. market with good performance across the 140 countries where we provide our solutions.\nWe continue to take market share with our software solutions that enable increased therapy adherence with resupply programs providing support to those who need it and with our innovative new products.\nCustomers are voting with their wallets and they are voting for ResMed.\nAs the world's leading software-driven medical device company, we are using digital health technology to transform the industry.\nWe have sold nearly 11 million 100% cloud connectable medical devices into the market and Air Solutions, our cloud-based ecosystem manages more than 12 million patients.\nIn the last 12 months, we have changed over 15 million lives by providing a person with a ResMed device or complete ResMed mask system to help them breathe better and live better lives.\nIn addition, our Brightree and MatrixCare software systems are helping to manage 19 [Phonetic] million more people outside the hospital.\nDigital health technology is an integrator across everything that ResMed does.\nAirView, myAir, Propeller and a portfolio of other digital health solutions allow us to better engage with our customers and partners, including patients, physicians, providers, payers and complete healthcare systems.\nWe are investing in advanced analytics and expanding our capabilities in machine learning and machine intelligence so that we can grow this digital health ecosystem at double digits on a volume basis.\nWe now have over 5.5 billion nights of respiratory medical data in the cloud and we are analyzing these data to derive actionable insights for the benefit of patients, physicians, providers and healthcare systems.\nOur relentless focus on product and software innovation continues to set us apart from our competition.\nWe have massive opportunities ahead in sleep apnea, in COPD as well as in outside the hospital software to help patients live better quality lives, to help patients and healthcare systems save money and to help achieve better management of chronic disease.\nWe believe that the future of healthcare is outside the hospital.\nThat's where ResMed's competes today and that's where we are winning today.\nWe have the right elements in place to achieve our strategy and to drive financial success as we provide market leading value to customers.\nLet's now briefly review our top level financial results.\nWe achieved another quarter of double digit revenue growth.\nWe were up 14% in constant currency across our portfolio.\nThis growth continues to be well balanced across our domestic U.S. as well as our global product sales as well as from our software as a service businesses.\nWe continue to deliver operating leverage with non-GAAP operating profit growth of 21% year-over-year and non-GAAP diluted earnings per share of $1.21.\nI'd like to focus now on our core sleep apnea and respiratory care businesses.\nIn the devices category, we delivered a good quarter with year-over-year constant currency device growth of 8% globally supported by strong 9% device growth in the United States, Canada and Latin America geographies, as well as by improving, Europe, Asia and rest of world growth, which was at 6% constant currency in the device category.\nWe continue to face headwinds for device growth in France as a result of the 2018 and 2019 digital health-related fleet upgrades.\nWe expect that the headwinds will begin to abate in the upcoming European summer and we will start to return to market growth for devices in France during fiscal year 2021.\nUnderlying patient growth remains healthy around the globe and we continue to benefit from strong market dynamics with over 900 million people worldwide suffering from undiagnosed and untreated sleep apnea.\nGrowth in the masks and accessories category of our business was incredibly strong during the quarter.\nWe were up 16% constant currency globally in this category, well ahead of market growth rates, indicating that we gained significant market share with our latest patient interface innovations.\nRemoving the impact of some software within this category, we are still growing our global mask franchise in the mid teens.\nOur flagship masks, the AirFit F20 and the AirFit N20 continue their growth across global markets.\nThe success of these masks was augmented by continued good uptake of our more recent masks launches.\nWe have launched a steady rhythm of mask innovation over the past 15 months.\nWe have just lapsed the successful launch of the F30 in the December quarter and we will lap the launch of the N30 the N30i and the P30i during the coming 12 months.\nThe F30i was launched just over a week ago combining the needs for patients in the freedom and the minimalist mask segments.\nWith our portfolio of solutions, we are ensuring that we have the right mask for every patient, every time.\nWe are innovating and expanding our mask portfolio to offer comprehensive options for physicians and home care providers and for the specific needs of the ultimate customer and that's the person who suffocates every night with sleep apnea.\nWe remain focused on driving innovation to meet underserved customer needs.\nWe are creating future products that are smaller, quieter, more comfortable, and more customized to each persons needs.\nThrough digital health technologies such as the myAir app, we are driving patient engagement with our therapy so that people can enjoy the benefits of better breathing and better sleep.\nWe have well over 2 million patients using myAir and leveraging its insights and personalized feedback through coaching algorithms.\nIn parallel, we are also ensuring that the cost of sleep apnea as a chronic disease can be better managed by physicians, providers, payers, and healthcare systems.\nOur digital end-to-end solutions combined with available 100% cloud connectivity as well as information provided to patients on their own smartphones are all leading to significant improvements in cost, improvements in healthcare outcomes, and improvements in quality of life.\nWe believe cloud-based software combined with world-leading medical devices can add value and improve both clinical outcomes as well as the patient experience.\nOn the partnership front, our joint venture with Verily is creating software solutions to help identify and engage and enroll people with sleep apnea on a journey to better sleep and better breathing.\nWe have commenced pilots in a handful of U.S. cities to improve awareness, identification, and engagement with the importance of good sleep and breathing to overall health.\nOur philosophy is this, the more a person knows about how much they suffocate every night and the consequences of that suffocation on their overall health outcomes, the more likely they will seek solutions.\nAt its simplest level, this partnership will drive incremental growth in our core sleep apnea business.\nOver the longer-term and on a deeper level, this partnership will also allow ResMed to participate in a broad chronic disease management platform covering sleep apnea, cardiovascular disease, diabetes, mental health and beyond.\nI'd like to now focus on our business in respiratory care.\nThere are nearly 400 million people suffering from chronic obstructive pulmonary disease or COPD worldwide.\nWe don't believe these people are well served by global healthcare systems today and many COPD patients are frequent visitors to hospital emergency rooms with admissions and frequent readmissions.\nWe have a vision to better manage COPD patients through the use of technology with digital end-to-end solutions, technology such as our Propeller platform helps how patients are communicated to, it helps how they are encouraged in their medical care and it helps how folks are looked after as an individual person.\nWe believe that technology combined with world-leading medical equipment can add substantial value to improve both clinical outcomes and the patient experience.\nWe plan to offer a portfolio of solutions through all stages of COPD progression.\nWe will be there with stage 1 and stage 2 COPD patients as they commence inhaled pharmaceutical therapy managed by the Propeller platform.\nWe will be there with stage 2 and stage 3 COPD patients as they add portable oxygen therapy to their care.\nWe will also be there with stage 3 and stage 4 COPD patients as they commence non-invasive ventilation therapy and ultimately life support ventilation therapy.\nWe will manage the person on one end-to-end digital health COPD platform, helping the patients, helping their caregivers and loved ones as well as helping their physicians and providers so that they have the right information at the right time, lowering costs and improving outcomes.\nOur team at Propeller continues to progress their business as we move along the path from pilot trials to commercial partnerships with both pharmaceutical partners and healthcare systems.\nThe digital health opportunity with inhaled respiratory medicine adherence will take time to build and we are making good progress.\nIn December, Propeller was included as the only chronic respiratory disease solution in Express Scripts' first formulary for digital health solutions.\nIn November, access for Propeller users was expanded to pharmacy services from CVS, from Walmart, from Kroger, and from Rite Aid.\nThis was accessed directly from the Propeller app via the My Pharmacy feature within that smartphone application.\nWe will update you on the milestones for Propeller with partners in both pharma as well as healthcare systems as we move forward throughout 2020.\nFinally, I'd like to focus on our software as a service business.\nWe continue to integrate and optimize the out of hospital SaaS portfolio for long-term growth.\nWe are focused on leveraging our competitive advantage as the only strategic player competing with leading software solutions focused on home medical equipment providers, skilled nursing facilities as well as home health and hospice providers.\nOur SaaS portfolio revenue grew 37% year-on-year this last quarter, benefiting from the MatrixCare acquisition that we lapped during November.\nWe estimate that the weighted average market growth rate of these sectors we compete in is in the high-single digits.\nExcluding the timing benefit of the MatrixCare acquisition and on a pro forma basis, our SaaS portfolio grew in line with market in Q2.\nOur plan is to beat that market growth rate over the medium to long-term.\nAs we reached the fourth anniversary of our Brightree acquisition here in 2020, we are achieving strong [Technical Issues] in our home medical equipment or HME sector with our Brightree team in Atlanta.\nWe just passed the one-year anniversary with our MatrixCare acquisition in the quarter and we are increasing our investments in our MatrixCare team up there in Minneapolis.\nThis investment is focused on new module introduction for our MatrixCare platform so that we can ensure that we are able to grow and share in our skilled nursing facility as well as home health and hospice sectors as we move forward.\nWe are doing the hard work to make MatrixCare as successful as Brightree is in the ResMed portfolio and we have all the elements in place to do that.\nIt took around 24 months to see strong sustainable returns from our investments in R&D and our management team at Brightree.\nWe think we can meet or beat that timeline for strong and sustainable returns from our MatrixCare investments that we are currently making.\nLast quarter, we announced a collaboration with Cerner as their new preferred partner for home health and hospice software for Cerner's customers.\nIt is early days in that partnership and things are going very well.\nWe've started to migrate existing home health and hospice customers to our MatrixCare solution.\nOur sales team is actively engaged with Cerner's sales team with customers learning of the benefits of our MatrixCare home health and hospice software.\nWe are excited to drive growth from this partnership.\nThe rich interoperability between our two solutions will provide value for both Cerner and ResMed customers as well as their patients and residents.\nI would like to take a moment to announce an exciting technology tuck-in acquisition that we are just in process of completing.\nJust this week, Brightree signed an agreement to acquire a company called SnapWorx.\nSnapWorx is a privately held software company that provides patient contact management and workflow optimization for sleep apnea resupply.\nThe combination of Brightree's technology and live call services with this new SnapWorx technology creates the largest resupply base in the industry with end-to-end workflow automation.\nFor our HME customers, the combination of these two technologies Brightree and SnapWorx will increase patient adherence and increase operational efficiency.\nWe expect the transaction to close very shortly.\nThe acquisition of SnapWorx is expected to be neutral to our non-GAAP ResMed earnings per share initially.\nHowever, we expect this acquisition will be accretive to non-GAAP earnings per share during fiscal year 2021.\nIn summary, we have the vision to transform and significantly improve software solutions across outside the hospital healthcare sectors.\nWe see a future [Technical Issues] of hospital care.\nThe continued success of our mask and device portfolio along with a solid pipeline of new products and new digital health solutions covering sleep apnea, COPD, and out of hospital software gives us confidence in continued growth as we move through the year.\nWe have positioned ResMed for the long-term as the global leader in digital health driving top line and bottom line growth as we execute toward our 2025 strategy.\nWe are focused on our triple aim.\nFirst, to slow chronic disease progression; second, to reduce overall healthcare system costs; and third, to improve quality of life for the ultimate customer, the patient.\nWith that, I'll hand the call over to Brett in Sydney for his remarks and then we'll go to Q&A.\nIn my remarks today, I'll provide an overview of our results for the second quarter of fiscal year 2020.\nAs Mick noted, we had a strong quarter.\nGroup revenue for the December quarter was $736 million, an increase of 13% over the prior year quarter.\nIn constant currency terms, revenue increased by 14%.\nExcluding revenue from acquisitions, group revenue increased by 11% on a constant currency basis.\nTaking a closer look at our geographic distribution and excluding revenue from our software as a service business, our sales in U.S., Canada and Latin America countries were $408 million, an increase of 14% over the prior year quarter.\nSales in Europe, Asia and other markets totaled $242 million, an increase of 5% over the prior year quarter.\nHowever, in constant currency terms, sales in combined Europe, Asia and other markets increased by 8% over the prior year quarter.\nBreaking out revenue between product segments, U.S., Canada and Latin America, device sales were $204 million, an increase of 9% over the prior year quarter.\nMasks and other sales were $204 million, an increase of 19% over the prior year quarter.\nRevenue in Europe, Asia and other markets device sales were $162 million, an increase of 4% over the prior year quarter or in constant currency terms, an increase of 6%.\nMasks and other sales in Europe, Asia and other markets were $79 million, an increase of 8% over the prior year quarter or in constant currency terms, an increase of 11%.\nGlobally, in constant currency terms, device sales increased by 8% while masks and other sales increased by 16% over the prior year quarter.\nSoftware as a service revenue for the second quarter was $87 million, an increase of 37% over the prior year quarter.\nDuring the rest of my commentary today, I'll be referring to non-GAAP numbers.\nThe non-GAAP measures adjust for the impact of amortization of acquired intangibles, purchase accounting fair value adjustment to MatrixCare deferred revenue, litigation settlement expenses, and acquisition-related expenses.\nNote that this quarter for GAAP reporting purposes, we are now reflecting the portion of amortization of acquired intangibles attributable to develop technology in our cost of sales rather than being allocated to operating expenses.\nWe've made this change to align with SEC disclosure guidance.\nThis will mean we'll disclose both GAAP and non-GAAP gross profit measures going forward.\nGoing forward, I will reference this non-GAAP metric as I believe it is the best measure of our underlying gross margin.\nOur non-GAAP gross margin improved to 59.7% in the December quarter compared to 59.1% in the same quarter of last year.\nCompared to the prior year, our non-GAAP gross margin increased by 60 basis points.\nThis was predominantly attributable to favorable product mix and manufacturing efficiencies, partially offset by typical declines in average selling prices.\nMoving on to operating expenses, our SG&A expenses for the second quarter were $171 million, an increase of 6% over the prior year quarter.\nIn constant currency terms.\nSG&A expenses increased by 8%.\nExcluding acquisitions, SG&A expenses increased by 2% on a constant currency basis.\nSG&A expenses as a percentage of revenue improved to 23.3% compared to 24.8% that we reported in the prior year quarter.\nLooking forward, subject to currency movements and taking into account recent acquisitions, we expect SG&A as a percentage of revenue to be in the range of 23% to 25% for the remaining two quarters of fiscal year 2020.\nR&D expenses for the quarter were $50 million, an increase of 16% over the prior year quarter or on a constant currency basis, an increase of 18%.\nExcluding acquisitions, R&D expenses increased by 4% on a constant currency basis.\nR&D expenses as a percentage of revenue was 6.8% compared to 6.6% in the prior year.\nLooking forward, subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 7% to 8% for the balance of fiscal year 2020.\nTotal amortization of acquired intangibles was $20.6 million for the quarter, an increase of 30% over the prior year quarter reflecting the impact from our recent acquisitions.\nStock-based compensation expense for the quarter was $14.1 million.\nOur non-GAAP operating profit for the quarter was $218.5 million, an increase of 21% over the prior year quarter while non-GAAP net income for the quarter was $176.3 million, an increase of 22% over the prior year quarter.\nOn a GAAP basis, our effective tax rate for the December quarter was 10.2% while on a non-GAAP basis, our effective tax rate for the quarter was 11.6%.\nOur tax rate was favorably impacted by a tax benefit of $20.3 million associated with the vesting of employee share-based compensation, in particular, the tax deduction associated with the vesting of executive performance stock units in November.\nExcluding the impact from this benefit, our GAAP effective tax rate would have been 21.6% and our non-GAAP effective tax rate would have been 21.8% [Phonetic].\nLooking forward, we estimate our effective tax rate for the second half of fiscal year 2020 will be in the range of 19% to 21%.\nNon-GAAP diluted earnings per share for the quarter were $1.21, an increase of 21% over the prior year quarter while GAAP diluted earnings per share for the quarter were $1.10.\nNow diluted earnings per share were also favorably impacted by the tax benefit that I've just discussed.\nExcluding the impact of this gain, our non-GAAP earnings per share would have been $1.07.\nCash flow from operations for the second quarter was $69.9 million reflecting robust underlying earnings, partially offset by the timing of tax payments with $111 million in tax paid in our second quarter.\nAdditionally, we made the payment for our settlement to the U.S. Department of Justice of $40.6 million this quarter.\nCapital expenditure for the quarter was $25.1 million.\nDepreciation and amortization for the December quarter totaled $45.5 million.\nDuring the quarter, we paid dividends of $56.1 million.\nWe recorded equity losses of $6.9 million in our income statement in the December quarter associated with the Verily joint venture.\nWe expect to record approximately $6 million of equity losses each quarter for the balance of fiscal year 2020 associated with the joint venture operations.\nOur Board of Directors today declared a quarterly dividend of $0.39 per share.\nAt December 31, we have $1.3 billion in gross debt and $1.1 billion in net debt.\nOur total assets were $4.4 billion and our balance sheet remains strong with modest debt levels.\nFinally, to recap, our top line revenue was strong this quarter with growth across all major categories.\nGross margin expanded and our operating costs remained well controlled.\nAs a result, we are continuing to drive operating leverage with Q2 non-GAAP operating profit up 21% year-on-year.\nWe are focused on driving operating results integrating our SaaS acquisitions and ensuring we continue to invest in our strategic long-term opportunities.\nAnd with that, I'll hand the call back to Amy.\nWe will now turn to the Q&A portion of the call.\nI would like to remind everyone to limit yourself to one question and if you have additional questions, please feel free to return to the call queue.\nChristine, we are now ready for the Q&A portion of the call.",
        "summary": "compname reports q2 non-gaap earnings per share $1.21.\nq2 non-gaap earnings per share $1.21.\nq2 gaap earnings per share $1.10.\nagreed in january to acquire snapworx."
    },
    {
        "text": "Joining me on the call today to discuss our quarterly results are CEO Mick Farrell and CFO Brett Sandercock.\nOther members of management will be available during the Q&A portion of the call during today's call, we will discuss some non-GAAP measures.\nWe believe these statements are based on reasonable assumptions.\nHowever, our actual results may differ.\nDuring this global pandemic, caused by a novel coronavirus and COVID-19, the disease state it leads to, I hope that you, your family and your friends remain safe and healthy during these times.\nWay back in early January, a ResMed employee, a ResMedian in Hubei province, China, put on a hazmat suit and helped set up ventilators to provide the gift of breath to many thousands of people that turned out in that city, while their immune systems fought against the first global cases of COVID-19 that ResMed saw in Wuhan.\nSince that time, seven months ago, our global team has provided vital support globally to combat this coronavirus, not just across China, but across Asia, then across Europe, across North America.\nAnd now we are just starting to -- preparing to -- actually, we're in the midst of continuing that battle in Latin America in, sub-Sahara and Africa and parts of the Middle East and Asia that still have that, what we call, the peak impact ahead of them in terms of hospitalizations and ventilator needs.\nSo I noted in our call 90 days ago, our Q3 call, that we would do more to support the global community and local healthcare systems with ventilators and ventilation mask systems across the 140 countries that we serve.\nDuring Q4, during this June quarter, we produced around 100,000 invasive and noninvasive ventilators, including bilevel positive pressure ventilators.\nThat brings our cumulative total to over 150,000 ventilators that we produced since the beginning of calendar year 2020.\nSo we've delivered on our promise to triple our production.\nAnd in fact, if you take the period from January 1 to June 30, for 2020, that is a 3.5 times increase over the period for 2019, so 3.5 times.\nFor our flagship ventilator, which is the Astral life support ventilator, we reached a peak of over five times our weekly production rate during the period.\nAnd we're still running at full capacity for the Astral to ensure that ResMed is there for, what we call, preservation of life as the coronavirus continues to move around the globe.\nI'm particularly proud of the role that our supply chain, our manufacturing, our distribution and our tech services teams have played during this coronavirus crisis, making sure that ResMed device and a complete ventilation system was there at the bedside when someone needed help breathing as their immune system fights against COVID-19.\nSo, looking forward, we have built a sophisticated set of analytic capabilities, including an epidemiology patient model that has helped us model the impacts of both the headwinds and the tailwinds that are part of this COVID-19 crisis, and we have detailed scenarios of the impacts by city, by region, by country and by ResMed business line.\nThrough all that analysis, I'm happy to say that we're confident in our ResMed ability to execute across the full range of potential scenarios for all of our customers and for all of our global businesses.\nThe tailwinds for ventilation in the March quarter and the June quarter from both the ventilator devices and the ventilation mask systems are starting to recede.\nAnd while we are still working on current and future contracts with hospitals, as well as city and national health authorities for these ventilators, the volumes will be significantly lower in the September quarter for these ventilators.\nAt the same time, the headwinds we experienced, especially in the June quarter, for our sleep apnea and COPD patient flow and patient diagnosis are also receding.\nSo, people are starting to return for their primary care physician visits.\nThey're starting to return for their specialist physician visits.\nAnd we see the system today growing from its nadir during the last period as we now see city by city and country by country, the markets are coming back online.\nSo over the portfolio of 140 countries that we serve, we expect a gradual, sequential, quarter to quarter, U-shaped recovery of patient flow to primary care physicians, sleep physicians, as well as pulmonary physicians that are treating COPD and asthma throughout fiscal year 2021.\nWe expect the expansion of home sleep apnea testing to continue.\nAs it did during the crisis, we think it will continue post the crisis.\nAnd we also expect a steady sort of sequential increase in sleep lab activity and visits to the pulmonary specialists both in person and through telehealth, which has been expanding rapidly under COVID.\nAdditionally, some very early research into the post-COVID clinical world shows that select patients who have recovered from COVID-19 may have lung damage, and some of them may require long-term ventilator support.\nThis is an additional area for focus for us, but I have to say, it's very early days in that area.\nI'll also recap our long-term strategy, our ResMed 2025 strategy and some execution highlights against some of our key operating priorities as part of that strategy.\nFinally, I'll discuss how we are advancing and learning in a post-COVID peak world, including how this pandemic has accelerated three important trends: One, the importance of respiratory medicine.\nTwo, the importance of digital health.\nAnd three, the importance of outside-hospital healthcare.\nThese are three key elements of our ResMed 2025 strategy that were in play well before the global pandemic.\nBut these are theee trends that have accelerated during this pandemic, and we think the momentum will continue in a post-COVID world.\nSo, to our business performance.\nWe delivered strong revenue and earnings growth for the fourth quarter and for the full fiscal-year 2020.\nWe had year on year annual 15% top line revenue growth to $3 billion in annual revenue for ResMed.\nOur results reflect strong growth and positive momentum across our innovative medtech portfolio and our market-leading digital health software solutions.\nWe have grown our global market footprint, finding new patients in the midst of a global pandemic, and we have driven growth with recurring revenue from our installed base of sleep apnea patients.\nWhile our financial results in March and June have benefited from high demand for ventilation devices and lower operating costs, our underlying core business of sleep apnea, COPD and asthma remains strong and well positioned for long-term growth.\nDuring fiscal year 2020, we generated $802 million of cash that allowed us to return $225 million of cash dividends to you, our shareholders, while also investing in our future with a double-digit increase in R&D, including clinical research, both digital and in person, as well as design and digital innovation across our sleep apnea, COPD, asthma and our software as a service businesses.\nWe have a full pipeline of innovative solutions that will generate both medium- and long-term growth opportunities, with an industry-leading intellectual property portfolio of over 6,000 patents and designs.\nImportantly, we have also seen significant growth in our digital health ecosystem.\nWe now have over 6.5 billion nights of sleep and respiratory medical data in the air solutions platform.\nWe have grown connectivity to our digital health ecosystem by over 26% this fiscal year, and we now have over 12 million 100% cloud-connectable medical devices in the market.\nAnd we have around 14 million patients enrolled in the AirView software solution.\nOur digital health ecosystem is a competitive advantage for ResMed that offers innovative solutions, as well as integrated care to drive superior outcomes, better patient experiences and lower healthcare system costs.\nOur acquisition and continued investment and development of the propeller platform has been a digital health accelerant for ResMed.\nOur recently announced commercial partnership with Novartis, which I will describe in more detail later during the call, is a great example of this progress with propeller.\nDuring the last 12 months, we have improved 16 million lives by providing a person with a device or complete mask system to help them breathe.\nImportantly, the ability to help these patients on their individual journey to better sleep and better breathing is powered by the over 6.5 billion nights of medical data in our ecosystem.\nThese data form a significant competitive advantage as they enable us to perform sophisticated analytics and drive actionable insights to benefit all of our customer groups, including the patients most importantly, but also improving workflows for physicians, for providers, for payers and for full healthcare systems.\nFundamentally, we believe the future of healthcare delivery is outside the hospital.\nThat's where ResMed competes today, and that's where we win today.\nGlobally, there are 936 million people with sleep apnea.\nThere are over 380 million people who suffer from COPD, and there are over 340 million people living with asthma.\nThey all need our help, and they all want that help at home, definitely not in a hospital.\nOur SaaS business is 100% focused on out-of-hospital care, leveraging the global trend for seniors to age in place.\nWe think this trend will accelerate in a post COVID world.\nResMed can provide seamless care for our portfolio of out-of-hospital care settings, including home medical equipment, skilled nursing facilities, senior living, life plan communities, home health, hospice, as well as home care services.\nCOVID-19 has accelerated the rapid adoption of digital health technologies, the recognition of the value of remote monitoring, virtual diagnosis and the evolution of global reimbursement models in the field of digital health.\nThis acceleration of digital health adoption represents a significant medium to long-term tailwind for our business.\nThese three trends, the increased importance of respiratory medicine, the increased importance of digital health and the increased importance of out-of-hospital healthcare will help ResMed achieve our goal to improve 250 million lives by 2025.\nSo on to our operating priorities.\nWe have three operating priorities that guide our daily focus here at ResMed.\n1 is to grow and differentiate our core sleep apnea, COPD and asthma businesses across global markets.\nWith over 1.6 billion people across these three chronic disease states, we know that delivering our innovative solutions to these underpenetrated markets is our clear No.\n2 priority is to design, develop and deliver world-leading medical devices, as well as digital health technology solutions to better engage physicians, providers and payers, as well as patients so that we can improve clinical outcomes so we can reduce costs, and we can enhance the patient experience.\n3 priority is to innovate and grow the world's best seamless software solutions for care that is delivered outside the hospital.\nWe think ResMed is uniquely positioned to deliver on these three priorities.\nSo, I'll quickly walk through some examples of innovation in each of these priorities, and then we'll hand over to Brett and go to Q&A.\nIn our core market of sleep apnea, we launched, what we call, the ResMed MaskSelector into our US geography.\nThe ResMed MaskSelector is a digital health technology to make remote patient mask selection and sizing both easier and more effective, helping the patient themselves receive the care they need from home.\nWe think that this is the digital solution to help our home medical equipment or HME customers in their challenge to find the right mask for each patient when they can't physically touch them due to physical distancing during COVID-19.\nWe are providing this solution at no charge during the coronavirus public health emergency.\nHowever, we think this technology's efficiency and benefits for both providers and patients will last well beyond the pandemic.\nDigital tools like this, as well as capabilities, including video support for doctors and their patients, as well as remote mask patient fittings, have seen good application during COVID-19.\nCombined with our mask resupply solutions, including SnapWorx, AeroCare and Brightree resupply, we have delivered solid mask growth.\nIn terms of new patient flow, the COVID lockdowns have had a significant impact on our business.\nWe saw double-digit declines in new sleep apnea patient flow across all markets that experienced lockdowns.\nIndividual cities, regions and countries had unique approaches to any lockdown and reopening processes.\nFor instance, today, in Germany, we stand at more than 85% of pre-COVID sleep lab capacity already up and running.\nWhereas in China, at the other end of the spectrum, we stand at 50% of pre-COVID diagnostic capacity in that geography.\nMost of the other 140 countries that we sell into around the world fall somewhere between those two extremes.\nIn big countries like the US, it's a story of 50 states with unique models, again, as a spectrum between these boundary conditions.\nThe average in the United States is probably somewhere in that 70% of diagnostic capability but some states will be closer to the 60% range, and some will be closer to the 75% range.\nAs I stated earlier, we expect a steady, sequential, quarter-by-quarter, sort of U-shaped recovery of the sleep apnea, COPD and asthma patient flow throughout fiscal 2021.\nClearly, a highly effective vaccine or a highly efficacious treatment for COVID-19 could, of course, turn that U-shape into a dramatic V-shaped recovery.\nHowever, we are not counting on that.\nAnd an event like that remains upside from what we call our expected or likely case scenario.\nIn terms of execution in our second key disease state of COPD and our ventilation solutions for COPD and other lung conditions, we launched our cloud-based remote monitoring software called AirView for our ventilator solutions in Europe, including the Astral product, the Stellar ventilator and the Lumis ventilator.\nThrough AirView, clinicians and care providers can now remotely monitor their patient's respiratory rate, as well as their blood oxygen saturation.\nThese are two critical indicators for a respiratory patient's condition.\nWe accelerated the delivery of this technology for clear and urgent needs during the pandemic.\nHowever, this enhanced AirView capability, providing insights across European ventilation patient populations will provide differentiation for ResMed through the clinical value for physicians and better outcome for patients in perpetuity.\nIn terms of execution in our third key disease state of asthma, ResMed has partnered with Novartis to co-package the propeller solution and digital platform with the new triple-action asthma medication in a brand called Enerzair Breezhaler.\nThis novel combination has been cleared by the European Commission for launch.\nThe propeller sensor attaches to the new inhaler from Novartis and its new medication where it can collect medication usage data.\nThe app works both as an adherence measure that gives the patient reminders to take their medication, but also as a means of collecting information about the patient's medical condition to help their physician provide even better care to the patient.\nThis is a breakthrough innovation as it is the first time a respiratory medicine has been co-packaged with a digital health platform and co-prescribed.\nThe benefits of this combination are tremendous for the patient.\nIt's a simple and convenient way to have a fully integrated experience to allow them to better live with their chronic disease, to better live with asthma with no incremental cost to the patient.\nThis brand-new approval is a new-to-the-world technology that will accelerate the adoption of digital health in the respiratory medicine space and will help us identify other innovative opportunities to combine our propeller tech with medicine delivery.\nThis new Novartis partnership follows our announcement in May that the propeller sensor and an app gained 510(k) US 510(k) clearance for use with the SYMBICORT inhaler for both asthma and COPD patients from AstraZeneca.\nThis sensor is built to fit various inhalers and their generic equivalents.\nPropeller's cloud-based system tracks medication usage of the SYMBICORT from these inhalers through a smartphone app, which patients can use to paint a clearer picture of their disease control for their clinicians.\nThese new partnerships with both Novartis and AstraZeneca and previously announced collaborations with Orion, as well as Boehringer Ingelheim expand the potential reach of propeller's technology to around 90% of inhaled medicines for both asthma and COPD in the United States.\nWe believe that this represents a significant upside opportunity for the expansion of the propeller platform in the US market, but also around the world as the benefits of digital health grow and move around the world.\nSo before I transition to details of our software-as-a-service business, I'd like to recap briefly why the SaaS business is integral to ResMed's long-term strategy to provide seamless transitions between hospital care and post-acute care or as we call it here at ResMed, out-of-hospital care because we don't think you have to go to hospital to get good care outside the hospital.\nOur vision is to enable a system where a patient's health data moves with them as they transition care settings, giving providers the information they need to deliver personalized care and saving the person and the caregiver, both time and money.\nWe are focused on leveraging our competitive advantage as the only long-term strategic player with solutions that span across these seven important out-of-hospital healthcare verticals, home medical equipment, skilled nursing facilities, senior living, life plan communities, home health, hospice, as well as home care services.\nDuring the quarter, our software-as-a-service business grew 7% compared to the year ago period.\nWe are integrating and optimizing the out-of-hospital SaaS portfolio to support long-term growth.\nWe continue to believe that the long-term weighted average growth of these SaaS verticals that we're in is in the high-single digits.\nThe COVID-19 market impact has particularly affected the skilled nursing facility census levels in that vertical that we serve.\nWe believe this impact will continue over the next several quarters, moving the weighted average market growth of these verticals to the mid-single-digit range for our SaaS businesses for that period with a return to high single digits as we start to see other analogous things, such as elective surgeries and hospital discharges return to their normal rates, at which time, we believe that market's weighted average market growth rate will return to the high single digits.\nOur goal here at ResMed is always to not just meet but to beat that market growth through delivery of superior market-leading solutions.\nTurning to more details of our SaaS business performance during the quarter.\nWe've been pleased with the early impact of SnapWorx technology, which we acquired in February.\nAs we discussed on our last earnings call, SnapWorx provides patient contact management and workflow optimization for sleep apnea resupply for our HME customers.\nThe timing of this acquisition couldn't have been better.\nWith COVID-19, our HME customers have been increasingly focused on resupply and better tech to interact with patients in a no-touch, noncontact world.\nThe combination of SnapWorx, as well as AeroCare and Brightree resupply, and all of these three technologies are under our Brightree brand, they provide the strongest suite of resupply solutions available in the market, period.\nThis technology is important to our customers, to their patients, as well as to our internal SaaS business and our core sleep apnea business, driving both patient engagement and better outcomes, as well as revenue growth.\nIn October 2019, we announced that ResMed entered into an agreement with Cerner Corporation to help clinicians make more informed treatment decisions, control costs and deliver seamless care across healthcare systems.\nWe have now integrated our Brightree-branded home health and hospice platform with the Cerner Electronic Health Record or EHR.\nThis partnership is performing above our expectations for both Cerner and for ResMed, and we anticipate opportunities to deepen and expand this collaboration as we continue to work together.\nIn summary, the SaaS portfolio is performing well and remains an important driver of our digital transformation of healthcare in settings outside the hospital.\nThe COVID headwinds in the near term will recede, and we will continue to invest now and in the future in research and development to make sure that ResMed has the best solutions for long-term growth and market leadership.\nThe future of healthcare delivery is outside the hospital.\nCOVID-19 has accelerated that, and we here at ResMed are well-positioned to capitalize on it.\nOur diversified solution portfolio and capabilities are arrayed against a compelling and expanding market opportunity in sleep apnea, COPD, asthma and out-of-hospital SaaS.\nThrough the first seven months of this COVID-19 crisis and this calendar year, we have maintained strong growth through our effective execution, our breakthrough innovation, our recurring revenue businesses, as well as margin expansion driven by our global operating excellence programs.\nWhile we look forward to moving COVID-19 into the rear view mirror, there are beneficial trends it has accelerated, which are not passing.\nMoreover, they're actually persistent and, we believe, impactful.\nThe importance of respiratory medicine, the importance of digital health and the importance of healthcare delivered outside the hospital, those three trends just got accelerated, and they're here to stay.\nWhile these macro trends of increased telehealth and increased remote patient monitoring represent short, medium- and long-term benefits for ResMed's business, more importantly, they represent tailwinds for significant improvement on the most critical patient metrics, improving clinical outcomes for the patient's chronic disease and enhancing levels of patient satisfaction for that ultimate customer, the person who just wants to sleep better, breathe better and live with a better quality of life.\nSo before I hand the call over to Brett for his remarks, I want to express my personal gratitude to the 7,500 ResMedians around the world.\nIn an unprecedented fiscal year, you have remained focused on creating value in our core markets and honoring commitments to patients through COVID-19.\nYou helped us pivot and produce 150,000 life-saving ventilators to help people breathe in 140 countries worldwide.\nWithout our team, our current and future success would not be possible.\nWith that, I'll hand the call over to Brett in Sydney, and then we'll open up for Q&A.\nBrett, over to you.\nIn my remarks today, I will provide an overview of our results for the fourth-quarter fiscal year 2020 and some remarks on our Q1 FY '21 outlook.\nAs Mick noted, we had a strong quarter.\nGroup revenue for the June quarter was $770 million, an increase of 9% over the prior-year quarter.\nIn constant currency terms, revenue increased by 10% compared to the prior-year quarter.\nRevenues for the fourth quarter were favorably impacted by significant sales of ventilator devices and accessories, partially offset by declines in our sleep business.\nWe estimate that the incremental net revenue benefit from COVID-19 related impacts was in the order of 20 million, reflecting estimated incremental ventilator and related accessory revenue of 125 million, partially offset by an estimated 105 million impact on our sleep revenue relative to our pre-COVID forecasts.\nTaking a closer look at our geographic distribution and excluding revenue from our software-as-a-service business, our sales in US, Canada and Latin America countries were $401 million, an increase of 4% over the prior-year quarter.\nSales in Europe, Asia and other markets totaled 278 million, an increase of 19% over the prior-year quarter and an increase of 22% in constant currency terms.\nBy product segment, US, Canada and Latin America device sales were $206 million, an increase of 1% over the prior-year quarter.\nMasks and other sales were 195 million, an increase of 7% over the prior-year quarter.\nIn Europe, Asia and other markets, device sales totaled $206 million, an increase of 32% over the prior-year quarter or in constant currency terms, a 35% increase.\nMasks and other sales in Europe, Asia and other markets were 73 million, a decrease of 8% over the prior-year quarter, while in constant currency terms, a 6% decrease.\nGlobally, in constant currency terms, device sales increased by 16%, while masks and other sales increased by 3% over the prior-year quarter.\nSoftware-as-a-service revenue for the fourth quarter was 91 million, an increase of 7% over the prior-year quarter.\nOn a non-GAAP basis, SaaS revenue increased by 6%.\nDuring my commentary today, I will be referring to non-GAAP numbers.\nThe non-GAAP measures adjust for the impact of amortization of acquired intangibles, the purchase accounting fair value adjustment to MatrixCare deferred revenue, restructuring expenses and litigation settlement expenses.\nOur non-GAAP gross margin improved by 60 basis points to 59.9% in the June quarter compared to 59.3% in the same quarter last year.\nThe increase is predominantly attributable to favorable product mix, partially offset by increased cost in logistics, component parts and manufacturing.\nThese cost increases largely reflect the impact of COVID-19 and our rapid ramp-up of ventilator production.\nIn particular, we incurred significantly higher inbound and outbound airfreight costs during the quarter reflecting both higher volumes and significantly higher rates.\nWe are rebalancing airfreight and sea freight volumes.\nBut in the near term, we expect to see elevated freight costs continuing into Q1 FY '21.\nMoving on to operating expenses.\nOur SG&A expenses for the fourth quarter were 165 million, a decrease of 4% over the prior-year quarter.\nOr in constant currency terms, SG&A expenses were consistent with the prior year.\nSG&A expenses as a percentage of revenue improved to 21.5% compared to 24.3% we reported in the prior-year quarter, benefiting from cost management and reduced travel as we work through the uncertain COVID-19 environment.\nLooking forward, we expect SG&A expenses to increase in the low single digits relative to the year ago period.\nR&D expenses for the quarter were $53 million, an increase of 3% over the prior-year quarter or on a constant currency basis, an increase of 4%.\nR&D expenses as a percentage of revenue were 6.8% compared to 7.3% in the prior year.\nWe continue to prioritize investments in innovation because we believe our long-term commitment to technology and product development will deliver a sustained competitive advantage.\nLooking forward, we expect R&D expenses to continue to grow in the high single digits to low double digits, reflecting our commitment to innovation through the economic cycles.\nTotal amortization of acquired intangibles was 20 million for the quarter, a decrease of 14% over the prior-year quarter, reflecting historical intangible assets becoming fully amortized during the quarter.\nStock-based compensation expense for the quarter was 16 million.\nNon-GAAP operating profit for the quarter was 243 million, an increase of 24% over the prior year quarter, reflecting strong top line growth, expansion of gross margin and well-managed operating expenses.\nOn a GAAP basis, our effective tax rate for the June quarter was 16.2%, while on a non-GAAP basis, our effective tax rate for the quarter was 16.8%.\nLooking forward, we estimate our effective tax rate for fiscal year 2021 will be in the range of 17 to 19%.\nNon-GAAP net income for the quarter was $193 million, an increase of 40% over the prior year quarter.\nNon-GAAP diluted earnings per share for the quarter were $1.33, an increase of 40% over the prior year quarter.\nOur GAAP diluted earnings per share for the quarter were $1.22.\nCash flow from operations for the fourth quarter was 330 million, reflecting robust underlying earnings and working capital management.\nCapital expenditure for the quarter was 18 million.\nDepreciation and amortization for the June quarter totaled 39 million.\nDuring the quarter, we also paid dividends of 56 million.\nWe recorded equity losses of 6 million in our income statement in the June quarter associated with the Verily joint venture.\nWe expect to record equity losses of approximately 15 million for the full fiscal year 2021 associated with the joint venture operation.\nWe ended the fourth quarter with a cash balance of 463 million, having generated 330 million in operating cash flow during the fourth quarter and 802 million during our fiscal year 2020.\nAt June 30, we had $1.2 billion in gross debt and 717 million in net debt.\nOur debt levels remained modest.\nAnd at June 30, we had just under 1.1 billion available for drawdown under our existing revolver facility.\nIn summary, our liquidity position remains strong.\nHowever, I also want to highlight that in these times of uncertainty, we are maintaining a disciplined approach and we are tightly managing expenses, cash flow and liquidity.\nToday, our board of directors declared a quarterly dividend of $0.39 per share, reflecting the Board's confidence in our strong liquidity position and operating performance.\nFinally, to recap on Q4 results, our earnings this quarter were very strong, reflecting significant demand for ventilators underpinning revenue growth and expansion in our gross margin and lower operating expenses.\nTurning now to our first-quarter FY '21 outlook.\nAt a high level, we expect to see continued demand for ventilators, but at a significantly lower level compared to Q4 FY '20.\nAdditionally, we expect to see a continued headwind for sleep device sales in Q1 in response to the temporary reduction in the diagnosis of new patients.\nMask and accessories have continued to demonstrate resilience over the past three months, which reflects the insulating value of the large patient installed base.\nConsistent with these remarks, for the first month of Q1 FY '21, we recorded group revenue growth in the low single digits.\nHowever, like many other companies, we are experiencing pervasive uncertainty in the current environment.\nAnd as a result, our forecast and possible future revenue outcomes remain dynamic.\nAnd with that, I will hand the call back to Amy.\nWe'll now turn to the Q&A portion of the call.\n[Operator instructions] Sheryl, we'll now -- we are now ready to start the Q&A portion.",
        "summary": "q4 non-gaap earnings per share $1.33.\nq4 gaap earnings per share $1.22.\nqtrly revenue increased 9% to $770.3 million; up 10% on a constant currency basis."
    },
    {
        "text": "On the call today are CEO, Mick Farrell; and CFO, Brett Sandercock.\nOther members of management will join us during the Q&A section.\nDuring today's call, we will discuss some non-GAAP measures.\nWe believe these statements are based on reasonable assumptions.\nHowever, actual results may differ.\nMore details and information, including an agenda and how to register, will be available on our investor relations website approximately two weeks before the event.\nOK, Mick, over to you.\nI will discuss execution highlights against our top three strategic priorities and our urgent and ongoing actions to address current industry supply chain issues and opportunities.\nI'll then hand the call over to Brett for further detail on our financial results.\nLet me start with the situation that has generated many stakeholder questions in the last month and a half.\nDuring the quarter, demand for ResMed's sleep and respiratory care devices surged dramatically after a competitor's recall announcement, putting additional pressure on an already challenging environment for our industry's supply chain.\nGlobal supply chain limitations, including a shortage of electronic components, as well as ongoing freight constraints and costs are impacting our ability to respond to the unprecedented increase in demand for ResMed products.\nExecutive teams across automotive, consumer products and communications technology industries have confirmed on their recent earnings calls that they are struggling with the same issues.\nSome major producers have suggested the chip and electronic component shortages could extend 12 or even 18 months.\nWe are working incredibly closely with our global supply chain partners to ensure access to additional supply of the critical components that we need to further increase production of our medical devices.\nDuring this June quarter, the demand spike was so high that we have been forced to allocate products due to the unprecedented demand and these real-world supply chain capacity constraints.\nIn doing so, our guiding principles are very simple.\nWe are focused on the highest acuity patient needs first.\nIt's very similar to our approach to ventilator allocation during the peaks of the COVID crisis these last 18 months.\nWe will continue to coordinate with all of our stakeholders as the situation develops and we begin to open up these supply constraints.\nWe understand this is a frustrating situation for all of our customer groups, including physicians, home medical equipment providers, payers and most importantly, the ultimate customer, the patient.\nIt is a unique time in our industry with steady recovery of patient flow after COVID-19 peaks in various countries with these global supply chain constraints and with an unforeseen competitor recall all occurring simultaneously.\nI wanna be clear that, through it all, our priority will always be patience, doing our best to help those who need treatment for sleep apnea, chronic obstructive pulmonary disease and other respiratory diseases.\nOur goal is to ensure that patients get the therapy that they need and when they need it.\nLet me be very clear about a couple of things.\nOne, ResMed's sleep apnea and respiratory care devices are safe to use.\nThey are the best in the market.\nThey are the smallest, the quietest, the most comfortable and the most connected therapies.\nAnd positive airway pressure therapy remains the gold standard for the treatment of sleep apnea.\nAnd two, ResMed will not be able to fill the entire supply gap that has been created by this situation caused by a competitor just seven weeks ago.\nThey were the No.\n2 player to our No.\n1 leading market position in almost all of the 140 countries that we compete in worldwide.\nWe are doing everything that we can to partner further and further up our supply chain in order to increase our access to the supply of the parts, the pieces and the components that we need to manufacture at scale.\nWe expect to be in a somewhat supply chain-constrained environment throughout fiscal-year 2022.\nThis news from our competitor was only released to the market on June 14, so we are in the first 7.5 weeks of our response.\nHowever, we have already partnered with our global supply chain team, both internal and external.\nAnd although we expect the current quarter and the December 2021 quarter will be the most supply constrained, we do see room for expansion of supply ahead.\nWe expect that the flow of ResMed products will accelerate significantly during the March 2022 and the June 2022 quarters.\nWe are focused on partnering with physicians, providers and distributors to ensure that our devices get to newly diagnosed patients.\nAnd while that human impact is the most important, I know our investors and our analysts need to model the future financial impact of this accelerated growth on our ResMed financials.\nBased upon our latest supply chain information and analysis, we see a path to $300 million to $350 million in additional revenue in fiscal 2022, over and above our previously planned revenue growth for fiscal 2022.\nImportantly, we see a clear opportunity to increase our long-term sustainable market share as patients, physicians and providers experience our ResMed market-leading device and integrated cloud-based software solutions.\nOur experience over the last seven-plus years since we launched our online platform called Air Solutions at scale is that when providers adopt and embrace our suite of digital health solutions, they can lower their own labor costs by over 50%.\nThey can drive their own patient adherence rates up to over 87% and beyond.\nAfter doing that, they don't want to go back to an inferior solution.\nAnd yes, during the near distant future, we will be starting the full product launch of our brand-new next-generation platform called AirSense 11.\nLet me now turn to overall market conditions in our industry.\nAs we discussed last quarter, the countries we operate in are at various stages of the post-COVID peak recovery process in terms of sleep apnea and COPD patient flow.\nWe are seeing continued improvement in patient flow country by country.\nBut there is a wide variance in that total patient flow from 75% of pre-COVID levels in some countries around the world to 95% or even 100% of pre-COVID levels in other countries.\nVaccines are steadily rolling out country by country, and at the same time, new variants, including the Delta variant, continue to cause disruption in some geographies.\nOur team remains committed to working with hospitals and healthcare providers to provide the ventilators, masks and training that they need for acute care.\nWe will continue to support frontline respiratory therapists and physicians, as well as providers, patients and our ResMedian team throughout the 140-plus countries that we operate in.\nA few things that have become really clear during this pandemic is that every country in the world has: one, increased its adoption of digital health solutions; two, increased its focus on respiratory hygiene and respiratory health; and three, increased its investments in healthcare treatment outside the hospital and particularly in the home.\nThese are all catalysts for ResMed's long-term growth.\nWe are pleased with the steady progress that we are seeing in diagnosing new sleep apnea, COPD and asthma patients.\nDuring the fourth quarter, our sales team delivered very strong revenue growth across our core sleep apnea and respiratory care business.\nThis incredible double-digit growth was despite the headwind from lapping $125 million of incremental COVID-related ventilator sales in the June 2020 quarter and with some tailwinds from our competitors' recall right at the end of the quarter.\nWhile I am proud of the team for this 10% constant currency revenue growth in the quarter, I'm also very proud of their achievement over the fiscal year, with over 6% growth in revenue throughout fiscal-year 2021 to over $3.2 billion in total annual revenue and with leverage producing over 12% growth in our non-GAAP operating profit, and all the while, fighting for recovery of patient flow and battling COVID-19 impacts.\nQuite a performance from our team of 8,000 ResMedians, helping people in 140 countries.\nWe expect to see steady improvement in patient flow for sleep apnea and respiratory care therapy as we move throughout our fiscal-year 2022.\nWe are encouraged to see patients, physicians and providers adopting digital health tools for remote patient screening, for home-based testing, for patient monitoring and for ongoing population health management.\nAs the leader in digital health for the treatment of sleep apnea, COPD and asthma, as well as other chronic respiratory conditions, we are well-positioned to drive this growth with our healthcare delivery partners.\nDuring the quarter, we generated over $227 million of operating cash flow, allowing us to return $57 million in cash dividends to shareholders these last 90 days.\nToday, we announced an 8% increase in our quarterly dividend for shareholders to $0.42 per share.\nWe are pleased to return your cash to you, our shareholders, reflecting our confidence in ResMed's resilient business and our ongoing cash flow.\nWe also increased our R&D investments in digital health technology during the quarter, as well as our research and development for masks, for devices, for embedded device software and for global clinical research, all the while maintaining fiscal discipline with SG&A and keeping other operating costs in line.\nWe are reinvesting for long-term growth.\nWe lead the field of remote patient engagement and population health management with over 15 million cloud-connectable medical devices in the market.\nOur increasing investments in digital health innovation will ensure that we provide superior value to patients, to physicians and to providers to be their partner of choice.\nWe don't take our leading market share position for granted.\nWe have to earn it every day with every product, every solution and every service and every customer interaction.\nCustomers vote with their wallets.\nAnd right now, they are voting for us, and we plan to keep earning their support.\nOur digital health technologies are a growth catalyst for our business.\nWe have an exciting pipeline of innovative solutions that will generate both medium- and long-term value with an industry-leading intellectual property portfolio, including over 8,200 patents and designs.\nWe now have over 9 billion nights of respiratory medical data in our cloud-based platform called Air Solutions.\nWe have over 16.5 million patients enrolled in our cloud-based AirView software solution for physicians.\nAnd we recently upgraded our patient engagement tool called myAir.\nThis app is now cloud-native and serverless in the cloud.\nThis new myAir 2.0 release supports our next-generation platform called AirSense 11.\nThe AirSense 11 platform comes to the market with new capabilities, with improved data delivery, with scalable architecture and with support for full-cycle teams.\nAnd what that all means is that we have the opportunity for accelerated innovation in our ecosystem.\nWe have over 110 million patients managed within our Software-as-a-Service network for out-of-hospital care.\nThese incredible data assets allow us to unlock value for all of our customer groups, for patients, for physicians, for providers, as well as for private and government payers and the communities that they serve.\nLet me now update you on our top three strategic priorities.\nThese are: one, to grow and differentiate our core sleep apnea, COPD and asthma businesses; two, to design, develop and deliver world-leading medical devices, as well as digital health solutions that can be scaled globally; and three, to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in the home.\nLast quarter, we previewed our next-gen platform called AirSense 11.\nResponding to the current industry situation, our market-leading research and development team accelerated the launch of the AirSense 11.\nFirst, by expanding the controlled product launch to additional customers just this last month; and second, by moving to an earlier full product launch date.\nWe now expect to launch in the United States before the end of this current quarter and then, to other countries gradually over time.\nThis AirSense 11 device launch will be a device launch like no other in the history of ResMed.\nPreviously, we carefully timed new product platform launches to minimize the selling overlap of device platforms.\nWe are in a unique situation today.\nOur market-leading AirSense 10 continues to be very strongly adopted, and we believe that it is better than any other device currently on the market.\nIn short, it makes sense to continue to sell the AirSense 10 at scale, particularly as this will help maximize the overall CPAP, APAP and bi-level volume available for our customers for sale given the unprecedented demand for new patients to receive ResMed devices in the market right now.\nThe bottom line is that we're gonna be selling both the AirSense 10 and the AirSense 11 in parallel for quite some time as we meet this extraordinary market demand over the coming fiscal year and as we continue to expand the availability of AirSense 11 to new markets and new geographies around the ResMed world.\nWe are very excited to bring the AirSense 11 to market.\nAnd I am understating the results when I say that the response to our controlled product launch has been very positive.\nAirSense 11 benefits patients and bed partners, and the device and software platform combination will also benefit physicians, providers, payers and overall healthcare systems.\nAs I said earlier, we make the smallest, the quietest and the smartest and the most comfortable devices on the market, but they are also the most connected and the most clever devices.\nAll AirSense 11 devices are 100% cloud-connectable with upgraded digital health technology to increase patient engagement and adherence, to improve clinical outcomes and to deliver proven cost reductions within our customers' own healthcare systems, engaging patients directly in their own digital therapy like never before in the industry.\nLet me now turn to a discussion of our respiratory care business, focusing on our strategy to better serve the 380 million chronic obstructive pulmonary disease patients and the 330 million asthma patients worldwide.\nOur goal is to reach these many hundreds of millions of potential patients with our respiratory care solutions, including noninvasive ventilation and life support ventilation, as well as newer therapeutic areas such as cloud-connected pharmaceutical drug delivery solutions and high flow therapy offerings.\nWe announced that our respiratory care business benefited this time last year in the June 2020 quarter as we sold incremental ventilation devices and mask solutions to meet the growing demand for COVID on an acute scale to the tune of $125 million in sales.\nDuring the current June 2021 quarter, we had modest COVID-related ventilator sales.\nThey were not material to our overall results.\nThey were under $20 million in sales, just under.\nAs the Delta variant of this coronavirus surges in various markets and regions, we will still be there to support governments and healthcare systems and the patients that they serve in their acute need.\nBut we do not expect the resulting revenue from COVID to be material to our global business.\nOf course, the broader humanitarian impact is immeasurable, with preservation of life through our ventilation solutions a top priority in all of these countries.\nOur supply chain focus is for Astral, our life support ventilator; then Stellar, our noninvasive ventilator; and then, our Lumis and AirCurve platforms to ensure that we can help patients who need our support the most.\nDemand for our core noninvasive ventilation and life support ventilation solutions for COPD are experiencing the same steady recovery in new patient flow as we see in our sleep apnea business.\nWe are balancing the growth in demand with the supply of ventilators that made it to market throughout the last 18 months as customers balance their inventory with ongoing acute and chronic ventilation patient needs.\nWe continue to see rapid adoption of the AirView for ventilation software solution that we launched in Europe this time a year ago.\nWe are now expanding this technology to regions around the world.\nThe value being provided through AirView for ventilation has been helpful to physicians, not only during the COVID crisis, but it is also increasingly valuable as an ongoing clinical tool for them and for the healthcare systems that they operate in.\nIn summary, we are helping to ensure that digital health is the new standard of care for respiratory care.\nLet me now review our Software-as-a-Service business for out-of-hospital healthcare.\nDuring the quarter, our SaaS business grew in mid-single digits year on year across our portfolio of markets, including home medical equipment, skilled nursing facilities, home health, hospice, private duty home care, home infusion and life plan communities.\nThe continued growth of home-based care is providing tailwinds for our HME and home health products.\nAnd we continue to grow with customers as they utilize and optimize our resupply solutions to improve patient care.\nThe COVID-19 pandemic has been challenging for some verticals in our SaaS business, particularly skilled nursing facilities or SNFs.\nHowever, we are seeing positive trends as census rates improve across SNFs and other care settings.\nWe are watching this very closely as COVID peaks and decays at varying rates around the country.\nWe expect there to be pent-up demand for our software purchasing that provides opportunities for us to increase our pipeline as COVID restrictions continue to ease state by state.\nOur leading position as the software provider of choice to the HME market enabled us to help customers manage through the pandemic and to maintain a healthy business.\nOur Brightree-branded software solutions are allowing HMEs to work through current challenges within our industry, including the need for increased patient support, the need for management of product shortages in some categories, as well as ongoing growth in the resupply of much needed home medical equipment.\nAs we look across our portfolio of solutions, we expect our SaaS revenue growth to gradually accelerate, increasing from its current mid-single-digit growth to high single-digit growth by the back end of this fiscal year.\nAs always, our goal is to meet or beat these market growth rates as we continue to innovate and take market share from competitors.\nAdditionally, we see opportunities on our radar screen to drive growth through further SaaS acquisitions to augment our existing organic growth.\nWe have a good history of thorough due diligence, ensuring that ResMed is the best owner of the asset and, of course, that we can bring additional value for our customers with the new offering and of course, additional value for all of our shareholders.\nIn summary, our SaaS offerings are well received in each of the verticals that we serve, and we see an increasing opportunity to leverage analytics to minimize acute care episodes for residents, patients and clients in our provider network; and ultimately, to allow people to age in place, away from a hospital and preferably in their own homes.\nLooking at the portfolio of ResMed's businesses across both sleep and respiratory care, as well as our SaaS solutions, we remain very confident in our long-term strategy and our pipeline of innovative products and solutions.\nOur mission and specific goal to improve 250 million lives through better healthcare in 2025 drives and motivates ResMedians every day.\nThe light shining on the importance of respiratory health and hygiene is brighter than it ever was due to this pandemic.\nCOVID has also highlighted the importance of digital health, its accelerated awareness and adoption of technologies that can be used for remote patient screening, diagnosis, setup, as well as patient monitoring and management.\nWe continue to invest aggressively in R&D to ensure ResMed solutions remain market-leading and provide a catalyst for long-term growth.\nWith over 1.5 billion people around the world suffering from sleep apnea, COPD and asthma, we see incredible opportunities for greater identification, enrollment and engagement of people within our digital health ecosystem.\nWe are relentlessly driving innovation and development to provide the scale needed to expand the impact of this technology across all of the 140 countries that we operate in.\nBefore I hand the call over to Brett for his remarks, I want to again express my sincere gratitude to the more than 8,000 ResMedians for their perseverance, hard work and dedication during the most unusual, almost perfect storm of circumstances.\nYou have helped save the lives of many hundreds of thousands of people around the world with emergency needs for ventilation these last 18 months as we suffered through COVID.\nAnd now you have rapidly pivoted the company back to provide ongoing support for our customers and patients during very challenging industry dynamics and supply chain constraints with unprecedented demand.\nWith that, I'll hand the call over to Brett in Sydney, and then, we will go to Q&A with the whole team.\nBrett, over to you.\nIn my remarks today, I will provide an overview of our results for the fourth quarter of fiscal-year 2021.\nUnless noted, all comparisons are to the prior-year quarter.\nGroup revenue for the June quarter was $876 million, an increase of 14% over the prior-year quarter.\nIn constant currency terms, revenue increased by 10% compared to the prior-year quarter.\nRevenue growth reflected increased demand for our sleep devices and masks, which was, in turn, driven by both sleep patient flow recovering from the COVID-19-impacted reduced levels in the prior-year quarter and by increased demand in response to the recent product recall by one of our competitors.\nThe increased year-over-year demand for our sleep solutions during Q4 was partially offset by a significant decline in COVID-19-related demand for our ventilators and related accessories.\nIn the June quarter, we estimate the incremental revenue from COVID-19-related demand, primarily in India, was approximately $20 million, a decline of $105 million compared to the prior-year quarter.\nExcluding the impact of COVID-19-related revenue in both the June '21 and June '20 quarters, our global revenue increased by 29% on a constant-currency basis.\nGoing forward, we expect minimal revenue from COVID-19-related demand.\nNote, as a reminder, in Q1 FY '21, we have COVID-19-related incremental revenue of approximately $40 million.\nAs I mentioned before, during the June quarter, one of our competitors announced a product recall on certain sleep and respiratory devices, which, in turn, has resulted in significantly increased demand for our devices.\nWe estimate that we generated incremental device revenue of approximately $60 million to $70 million in the June quarter due to our competitors' recall.\nTaking a closer look at our geographic distribution and excluding revenue from our Software-as-a-Service business, our sales in U.S., Canada and Latin America countries were $472 million, an increase of 18%.\nSales in Europe, Asia and other markets totaled $308 million, an increase of 11% or an increase of 2% in constant currency terms.\nBy product segment, U.S., Canada and Latin America device sales were $268 million, an increase of 30%.\nMasks and other sales were $204 million, an increase of 5%.\nIn Europe, Asia and other markets, device sales totaled $210 million, an increase of 2% or in constant currency terms, a decrease of 6%.\nMasks and other sales in Europe, Asia and other markets were $98 million, an increase of 36% or in constant currency terms, a 24% increase.\nGlobally, in constant-currency terms, device sales increased by 12%, while masks and other sales increased by 10%.\nExcluding the impact of COVID-19-related sales in both the current quarter and the prior-year quarter, global device sales increased by 46% in constant currency terms, while masks and other sales increased by 16% in constant currency terms.\nSoftware-as-a-Service revenue for the fourth quarter was $96 million, an increase of 5% over the prior-year quarter.\nLooking forward to fiscal-year '22, we expect several factors will drive demand, including the general recovery of the global sleep market from COVID-19 impacts, the launch of our next-generation AirSense 11 platform and share gains during our competitors' recall.\nHowever, while we are working hard to increase capacity, we will not be able to meet all the expected demand resulting from our products compared from our competitor's recall, primarily because of supply constraints for electronic components.\nAnd we expect these constraints to be more limiting in the first half of FY '22 than the second half.\nAs Mick mentioned, we believe component supply constraints as they stand will currently limit incremental device revenue attributable to our competitor's recall to somewhere between $300 million and $350 million during fiscal-year '22.\nDuring my remaining commentary today, I will be referring to non-GAAP numbers.\nOur non-GAAP gross margin decreased by 260 basis points to 57.3% in the June quarter, compared to 59.9% in the same quarter last year.\nThe decrease is predominantly attributable to a negative product mix impact, specifically a proportional increase in sales of our lower-margin sleep devices, ASP declines and unfavorable foreign currency movements.\nWe also continued to experience elevated and significant freight costs.\nMoving on to operating expenses.\nOur SG&A expenses for the fourth quarter were $181 million, an increase of 10%, or in constant currency terms, SG&A expenses increased by 4% compared to the prior-year period.\nSG&A expenses as a percentage of revenue improved to 20.7%, compared to the 21.5% we reported in the prior-year quarter.\nLooking forward and subject to currency movements, we expect SG&A as a percentage of revenue to be in the range of 20% to 22% during fiscal-year '22.\nR&D expenses for the quarter were $60 million, an increase of 14%, or on a constant-currency basis, an increase of 9%.\nR&D expenses as a percentage of revenue was 6.8%, which is consistent with the prior year.\nWe continue to make significant investments in innovation because we believe our long-term commitment to technology, product and digital solutions will deliver sustained competitive advantage.\nLooking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the vicinity of 7% during fiscal-year '22.\nTotal amortization of acquired intangibles was $19 million for the quarter, and stock-based compensation expense for the quarter was $17 million.\nOur non-GAAP operating profit for the quarter was $260 million, an increase of 7%, underpinned by strong revenue growth.\nAs I reported last quarter, we estimated and recorded an accounting tax reserve of $255 million during the previous quarter, which was net of credits and deductions for a proposed settlement of transfer pricing audits by the Australian Taxation Office or ATO.\nDuring the quarter, we progressed our settlement discussions with the ATO and have refined our tax reserve estimate.\nAs a result, we have determined the required reserve is $249 million or $6 million lower than the previous-quarter estimate.\nAnd accordingly, we have recorded this as a reduction in our GAAP tax expense in the June quarter.\nNext steps involve concluding a written agreement with the ATO and obtaining final approvals from each side, which we hope to achieve this quarter.\nOn a GAAP basis, our effective tax rate for the June quarter was 18.4%, while on a non-GAAP basis, our effective tax rate for the quarter was 21.5%.\nOur non-GAAP effective tax rate for FY '21 was 18.7%.\nLooking forward, we estimate our effective tax rate for fiscal-year '22 will be in the range of 19% to 20%.\nNon-GAAP net income for the quarter was $198 million, an increase of 3%.\nNon-GAAP diluted earnings per share for the quarter were $1.35, an increase of 2%.\nOur GAAP net income for the quarter was $195 million, and our GAAP diluted earnings per share for the quarter were $1.33.\nCash flow from operations for the quarter was $227 million, reflecting robust underlying earnings, partially offset by increases in working capital.\nCapital expenditure for the quarter was $28 million.\nDepreciation and amortization for the June quarter totaled $42 million.\nDuring the quarter, we paid dividends of $57 million.\nWe recorded equity losses of $1.3 million in our income statement in the June quarter associated with the Verily joint venture now called Primasun.\nWe expect to record equity losses of approximately $2 million per quarter for fiscal-year '22 associated with the joint venture operation.\nWe ended the fourth quarter with a cash balance of $295 million.\nAt June 30, we had $655 million in gross debt and $360 million in net debt.\nOur debt levels remained modest.\nAnd at June 30, we had a further $1.6 billion available for drawdown under our existing revolver facility.\nIn summary, our liquidity position remains strong.\nOur board of directors today declared a quarterly dividend of $0.42 per share.\nThis represents an increase of 8% over the previous quarterly dividend and reflects the board's confidence in our strong liquidity position and operating performance.\nOur solid cash flow and liquidity provides flexibility in how we allocate capital.\nDuring the pandemic, we have focused on paying down debt.\nGoing forward, we plan to continue to reinvest for growth through R&D.\nWe will also likely continue to deploy capital for tuck-in acquisitions such as Citus Health.\nAnd with that, I will hand the call back to Amy.\nRob, let's go ahead and start the Q&A portion of the call.",
        "summary": "q4 non-gaap earnings per share $1.35.\nq4 earnings per share $1.33.\nqtrly revenue increased by 14% to $876.1 million.\nquarterly dividend increases 8% to $0.42 per share."
    },
    {
        "text": "These statements are not guarantees of future performance and therefore you should not place undue reliance upon them.\nAlso, our discussion today may include references to certain non-GAAP measures.\nI'm joined today by Harp Rana, our chief financial officer.\nFollowing our strong performance in the second half of last year, we carried forward the momentum into 2021.\nIn the first quarter, we generated record bottom-line results of 25.5 million of net income and $2.31 of diluted EPS.\nOur growth initiatives helped to reduce our typical first-quarter seasonal liquidation and the impact of new stimulus payments, which in turn drove strong revenue performance.\nAt the same time, we maintained a superior credit profile with historically low 30-plus day delinquencies.\nDespite pressure from a combination of tax refunds and two stimulus payments in the quarter, our core small and large loan portfolio grew by $18 million, or 2%, over the prior-year period, and was down only $28 million, or 2.5%, quarter over quarter.\nThis strong result was driven, in part, by the new growth initiatives that we implemented in 2020, which continued to perform very effectively.\nWe originated $231 million of loans in the quarter, up 1% year over year and up 5% from the first quarter of 2019, with 29 million [Inaudible] originated loans derived from new growth initiatives.\nThe second round of $600 stimulus checks appeared to have been spent relatively quickly.\nThe third round of $1,400 stimulus checks led to a temporary period of higher loan payment activity along with some weakening of loan demand.\nAs a result, while the stimulus payments impacted first-quarter demand, the overall impact on our typical first-quarter seasonal loan portfolio liquidation was much lower than we expected and much lower than what some others in our industry and in the prime credit space experienced.\nOur large loan portfolio actually grew sequentially in the first quarter by $4 million or 0.6% as the stimulus measures disproportionately impacted our higher-rate small loan portfolio.\nLoan demand remained relatively soft in April due to the impact of the distribution of the remaining 20% of stimulus payments along with additional tax refunds.\nHowever, we saw demand start to pick up in the latter part of April, and we expect demand to continue to rebound in May and June, which should enable us to generate modest loan growth in the second quarter.\nWe continue to believe that loan demand in the second half of the year will be strong as the economy more fully reopens.\nCredit quality continued to remain very solid in the quarter, and our balance sheet remains robust.\nOur net credit loss rate during the quarter was 7.7%, a 280 basis points improvement from the prior-year period.\nAnd we ended the quarter with a record-low, 30-plus day delinquency rate of 4.3%, a 230 basis points improvement from the end of March of 2020.\nAs of April 30, our 30-plus day contractual delinquency rate further improved to approximately 3.7%.\nWe expect that our credit performance will continue to be strong throughout 2021.\nAny COVID-related net credit losses will occur in late 2021 at the earliest, though we anticipate that our delinquency rate will begin to normalize throughout the balance of the year as the benefits of federal stimulus dissipate.\nGiven our continued superior credit performance, we released $6.6 million in COVID-19 reserves in the first quarter and $3.8 million of additional reserves as a result of the seasonal runoff in the portfolio.\nour 139.6 million allowance for credit losses as of March 30 first continues to compare quite favorably to our 30-plus day contracts of delinquency of 47.7 million.\nOur allowance includes a 23.8 million reserve for additional credit losses associated with COVID-19.\nWe remain conservative in our maintenance with COVID reserves as the overall economy has not yet fully recovered from the pandemic.\nWe also continue to further strengthen our overall balance sheet and liquidity position.\nIn April, we enhanced our warehouse facility capacity by closing on two new warehouse facilities with our current lenders, Wells Fargo and Credit Suisse, and by adding a third warehouse facility with a new lender JPMorgan.\nWhile our prior facility only funded large loans, the new facilities fund multiple collateral types, including small loans, large loans, convenience checks, and digitally originated loans.\nWe are very pleased with this outcome.\nIt represents yet another step in the evolution of our capital structure as we continue to pursue new avenues of funding diversification and additional capacity to support our business growth plans and our capital return program.\nTo that end, we are happy to announce an increase of our quarterly dividend by 25% to $0.25 per share.\nIn addition, in May, we completed a $30 million stock repurchase program that began in the fourth quarter of 2020, having repurchase, in total, 951,841 shares at a weighted average price of $31.52 per share.\nOur board of directors recently authorized a new $30 million stock repurchase program, which we plan to commence later this month.\nOur outstanding performance and financial results over the past year have enabled us to maintain and expand an attractive capital return program for our shareholders.\nAs we discussed on our last call, 2021 is a year of investment in our long-term growth.\nWe remain focused on investing in our digital capabilities to complete our omnichannel model, geographic expansion into new states, and new product and channel development to drive additional long-term growth.\nIn the first quarter, we completed development of and began testing our improved digital pre-qualification experience for our customers.\nDigitally sourced originations represented 33% of our total new borrower branch volume in the first quarter and 25% of all branch originations we bought remotely in March.\nWe are very pleased to see the success of our digital and technological investments, and the adoption of our expanding omnichannel model by our customers.\nIn the second and third quarters, we expect to roll out the new prequalification experience to all our states and to begin integrating the new functionality with our existing and new digital affiliates and lead generators.\nIn addition, within the next few months, we will begin testing a new guaranteed loan offer program, which is an alternative to our convenience check loan product and offers online settlement with ACH funding into a customer's bank account.\nWe also remain on track to be in testing our end-to-end digital origination products for new and existing customers later this year.\nAnd by the first quarter of 2022, we expect to roll out an improved online customer portal and the mobile app.\nAs we communicated previously, we entered Illinois, our 12th state, in mid-April and are excited to begin offering our valuable loan products to millions of new consumers in the state.\nWe plan to open 15 to 20 net new branches in 2021.\nWe also expect to enter up to two additional states by the end of 2021 and an additional four to six states over the next 18 months.\nOur geographic expansion will be supported by our digital and new growth initiatives, allowing our branches in these states to maintain a wider geographic reach, resulting in higher average receivables per branch and the need for fewer branches.\nOur digital investments and geographic expansion will also offer new products to our customers including our new auto secured product which we began testing in the first quarter, and we expect to roll out to all our states by the end of the third quarter.\nWe are very excited about the rest of this year and what the future holds for our franchise.\nWe will continue to invest throughout the year and our growth initiatives while maintaining our focus on credit quality and optimizing our overall underwriting capabilities.\nAs of March 31, approximately 70% of our total portfolio had been originated since April 2020.\nThe vast majority of which was subject to enhance credit standards that we deployed following the outset of the pandemic.\nOur credit performance and underwriting capabilities continue to be foundational to our operational success and provide us with confidence as we pursue our long-term growth strategies.\nWe could not be happier with our first-quarter performance, which is a testament to the strength and dedication of the entire regional team.\nWe remain fully committed to our customers and our path forward, and we are in a prime position to generate strong top and bottom-line growth for the full year.\nAs we execute on our priorities this year, we are also looking ahead to 2022 and beyond.\nWe are focused on our key strategic initiatives of digital innovation, geographic expansion, and the development of new products and channels, all of which will allow us to gain market share and create sustainable, long-term value for our shareholders.\nLet me take you through our first-quarter results in more detail.\nWe generated net income of 25.5 million and diluted earnings per share of $2.31, resulting from our growth initiatives, stable operating expenses, lower funding costs, and strong credit.\nAs illustrated on Page 4, branch originations were comparable to prior year as we ended first quarter, originating 169.7 million of loans.\nMeanwhile, we grew direct mail and digital origination by 9% year over year to 61.7 million.\nOur total originations were 231.4 million, 1% higher on a year-over-year basis and 5% higher than the first quarter of 2019 despite two rounds of government stimulus payments in the first quarter.\nOur new growth initiative [00:13:13.23] [Inaudible] 29 million of first quarter origination.\nPage 5 displays our portfolio growth and mixed trends through March 31.\nWe closed the quarter with net finance receivables of 1.1 billion, up 3 million from the prior-year period as we continue to successfully execute on our new growth initiatives and marketing efforts.\nOur core loan portfolio grew 18 million, or 1.7%, from the prior year and decreased only 2.5% from the end of the fourth quarter, in line with normal seasonal liquidation despite the two rounds of government stimulus.\nSmall loans decreased 8% quarter over quarter due to the disproportionate impact of the stimulus payments on this portfolio, while large loans grew slightly at 0.6% versus the fourth quarter of 2020.\nFor the second quarter, as Rob noted, we expect some trailing impact from the third round of stimulus and tax refunds due to the extended tax season in April, followed by a rebound in demand this month and next.\nOverall, we expect to see modest quarter-over-quarter growth in our finance receivables portfolio in the second quarter.\nOn Page 6, we show our digitally sourced originations, which were 33% of our new borrower volume in the first quarter.\nAnother high watermark for us.\nThis demonstrates our commitment to meeting the needs of our customers and serving them through our omnichannel strategy.\nDuring the first quarter, large loans were 64% of our digitally sourced originations.\nTurning to Page 7, total revenue grew 2% to 97.7 million.\nInterest in field increased 10 basis points year over year, primarily due to improved credit performance across the portfolio as a result of the government stimulus, tightened underwriting during the pandemic, and our overall mix shift toward higher credit quality customers.\nThis resulted in fewer loans in nonaccrual status and fewer interest accrual reversals, offset in part by the continued product mix shift toward lower yielding large loans.\nSequentially, interest in field and total revenue yield decreased 80 and 90 basis points, respectively.\nDue to a combination of seasonality, our continued portfolio mix shift to larger loans, and the second stimulus payment, which is noted previously, had a disproportionate impact on our small loan runoff in the first quarter.\nAs of March 31, 65% of our portfolio were large loans and 81% of our portfolio had an APR at or below 36%.\nIn the second quarter, we expect total revenue yield to be approximately 30 basis points lower than the first quarter, and our interest in field to be approximately 20 basis points lower due to the impact that the third and largest stimulus payment is expected to have on our higher-yielding small loan portfolio.\nMoving to Page 8, our net credit loss is 7.7% for the first quarter, a 280-basis-point improvement year over year, while delinquencies remain at historically low levels.\nNet credit loss is roughly 80 basis points from the fourth quarter.\nThis is due to normal seasonal increases of NPLs in the first quarter, but the rate of increase of 80 basis points in frst quarter was below the 150 and 180 basis point seasonal increases that we experienced in 2020 and 2019, respectively.\nDue to government stimulus improving economic conditions and our lower delinquency levels, any COVID-related losses will occur in late 2021 at the earliest.\nAs a result, we expect that our full-year net credit loss rate will be approximately 8%.\nOur 30-plus day delinquency levels as of March 31 was a record 4.3%, a 230 basis point improvement from the prior year and 100 basis points lower than December 31.\nAt the end of April, we saw 30-plus day delinquencies dropped further to a record low of approximately 3.7%.\nMoving forward, we expect 30-plus day delinquencies to gradually rise off the April low to more normal levels.\nTurning to Page 10, we ended the fourth quarter with an allowance for credit losses of 150 million or 13.2% of net finance receivables.\nDuring the first quarter of 2021, the allowance decreased by 10.4 million to 12.6% of net finance receivables.\nThe decrease in reserves, including the base reserve release of 3.8 million from portfolio liquidation and a COVID-19 reserve release of 6.6 million.\nAs a reminder, going forward, as our portfolio grows, we will build additional reserves to support this new growth.\nAt the moment, the severity and the duration of our macro assumptions remain relatively consistent with our fourth-quarter model, including an assumption that the unemployment rate will be below 10% at the end of 2021.\nWe will review these assumptions every quarter to reflect changing macro conditions as the economy begins to rebound.\nOur 139.6 million allowance for credit losses as of March 31 continues to compare very favorably toward 30-plus day contractual delinquency of 47.7 million.\nWe remain confident that we remain sufficiently reserved.\nLooking to Page 11, G&A expenses for the first quarter of 2021 were 45.8 million, an improvement of 0.4 million or 0.9% from the prior-year period.\nPrimarily driven by reductions in executive transition costs and operating costs related to COVID-19, partially offset by an increase in personnel expenses, marketing expenses, and investment in digital and technological capabilities to support our new growth initiatives and omnichannel strategy.\nOur operating expense ratio was 16.3% in the first quarter of 2021 compared to 16.5% in the prior-year period.\nOn a sequential basis, our G&A expense rose 1 million, in line with our expectations due to lower deferred loan origination costs and fewer seasonal loan originations in the first quarter as compared to the fourth quarter.\nOverall, we expect G&A expenses for the second quarter to be approximately 2.2 million higher than the first quarter.\nWe expect to further ramp up investments in the back half of 2021 as we continue to invest in digital capabilities to complete our omnichannel model, geographic expansion into new states, and new products and channels to drive additional long-term growth.\nThese investments will help drive our receivables growth and lead to improved operating leverage over the longer term.\nTurning the Page 12, interest expense was 7.1 million in the first quarter of 2021 and 2.6% of our average net finance receivables.\nThis was a 100 basis point improvement year over year and 3 million, or 30%, lower than in the prior-year period.\nThe improved cost of funds was driven by lower interest rate environment, improved funding costs from our recent securitization transactions, and a favorable 785,000 mark-to-market increase in value this quarter on our interest rate cap.\nWe currently have 400 million of interest rate caps to protect us against rising rates on our variable priced funding, which as of the end of the first quarter, totaled 193 million.\nWe purchased 100 of additional interest rate caps in the first quarter to take advantage of the favorable rate environment.\nWe purchased a total of 300 million of interest rate caps since the beginning of the pandemic at a LIBOR strike price range of 25 to 50 basis points.\nAs rates fluctuate, the value of these hedges will be marked to market accordingly.\nLooking ahead, normalizing for the hedge impact in the first quarter, we expect interest expense in the second quarter to be approximately 8.5 million.\nOur effective tax rate during the first quarter was 24%, compared to a tax rate of 36% in the prior-year period.\nFor 2021, we expect an effective tax rate of approximately 25%.\nPage 13 is a reminder of our strong funding profile.\nOur first-quarter funded debt-to-equity ratio remained at a very conservative 2.7-1.\nWe continue to maintain a very strong balance sheet with low leverage and 140 million in loan loss reserves.\nAs of March 31, we had 573 million of unused capacity on our credit facilities and 207 million of available liquidity, consisting of unrestricted cash and immediate availability to draw down our credit facility.\nAnd as Rob noted earlier, we recently enhanced our warehouse facility, capacity closing on three new warehouse facilities with our current lenders, Wells Fargo, and Credit Suisse, and adding JPMorgan to our roster of lenders.\nOur total warehouse capacity has expanded by 175 million to 300 million, and the average term on the new warehouse is approximately 22, roughly a four-month extension from the prior facility.\nAs of April 30th, we had 758 million of unused capacity on our credit facilities, providing us with even more capacity to fund our operations, our ambitious growth plans, and our capital return program.\nIn the first quarter, the company repurchased 352,183 of its common stock at a weighted average price of $33.57 per share.\nunder the company's 30 million stock repurchase program.\nThe company completed the 30 million stock repurchase program in May, having repurchased in total 951,841 of its common stock at a weighted average price of $31.52 per share.\nAs Rob noted earlier, the company's board of directors has declared a dividend of $0.25 per common share for the second quarter of 2021.\nThe dividend is 25% higher than the prior quarters' dividend and will be paid on June 15, 2021, to shareholders of record as of the close of business on May 26, 2021.\nIn addition, as Rob mentioned earlier, we are pleased to announce that our board of directors has approved a new 30 million stock repurchase program.\nOverall, we are very happy with our top and bottom-line performance, resilient balance sheet, ability to turn excess capital to our shareholders, and our prospects for strong growth.\nThat concludes my remarks.\nIn summary, it was an excellent first quarter for Regional, as our omnichannel operating model, new growth initiatives, and superior credit profile contributed to record performance.\nWe're excited to execute on our key strategic initiatives, which will position us to sustainably grow our business for years to come and ensure that our customers continue to receive the first-class experience they have come to expect.\nThrough our long-term investments in digital innovation, entering new markets and developing new products and channels, we are positioned to expand our market share and create additional value for our shareholders.\nOperator, could you please open the line?",
        "summary": "q1 earnings per share $2.31.\nq1 revenue rose 1.7 percent to $97.7 million."
    },
    {
        "text": "These statements are not guarantees of future performance, and therefore, you should not place undue reliance upon them.\nAlso, our discussion today may include references to certain non-GAAP measures.\nI'm joined today by Harp Rana, our chief financial officer.\nOur team executed extremely well and delivered strong results in the fourth quarter.\nWe generated $14.3 million net income or $1.28 of diluted earnings per share as a result of continued quality growth in our loan portfolio, a strong credit profile, disciplined expense management and low funding costs.\nWe leveraged our new growth initiatives to take advantage of an increase in consumer demand in the quarter.\nWe originated $359 million of loans in the fourth quarter, which was comparable to the prior year and up nearly $51 million or 16% from the third quarter.\nThis drove sequential growth in our total portfolio of $77 million or 7%.\nOur core small and large loan portfolio grew by $80 million or 8% quarter over quarter.\nAnd on a year-over-year basis, our core loan portfolio grew by $19 million or 2%, and an impressive result considering the circumstances presented in 2020.\nCredit quality also remained stable in the fourth quarter, and we continue to maintain a very strong balance sheet.\nOur net credit loss rate during the quarter was 6.9%, a 210-basis-point improvement from last year, and we ended the quarter with a 30-plus day delinquency rate of 5.3%, down from 7% last year.\nOur $150 million allowance for credit losses as of December 31 continues to compare quite favorably to our 30-plus day contractual delinquency of $60.5 million and includes a $30.4 million reserve for additional credit losses associated with COVID-19.\nThis reserve assumes an unemployment rate of 9% at the end of 2021.\nWe continue to believe that we have ample coverage to absorb future credit losses.\nIn addition, with $452 million of unused capacity on our credit facilities and $203 million of available liquidity as of February 5, we have access to more than enough capital to invest in our business and fund our ambitious growth plans.\nEarlier today, we also amended our ABL facility to provide an additional $20 million of flexibility to return capital to our shareholders in the future, whether through dividends or share repurchases.\nIn addition, earlier this week, we priced our latest securitization transaction, which is expected to close on February 18.\nApproximately $250 million securitization garnered wide interest from investors, and priced at a record low average-weighted coupon of 2.08%, nearly 80 basis points better than our previous securitization.\nThe proceeds from the securitization will be used to retire our RMIT 2018-2 securitization, thereby significantly reducing our cost of capital and further strengthening our balance sheet.\nBefore looking ahead to 2021 and beyond, I'd like to take a moment to reflect on the accomplishments of the past year.\nFrom the beginning of the pandemic, we maintained our focus on serving our customers, supporting our team members, delivering assistance to our communities and generating value for our shareholders.\nFor our customers, we provided effective avenues for continued access through our valuable loan products.\nWe introduced curbside service for payments, loan closings and all other types of servicing activity, and we quickly created and rolled out electronic remote loan closing capabilities, enabling our customers to extend and expand their relationship with us from the comfort of their homes.\nIn December, we closed 20% of our branch originations through the remote loan closing process.\nWe also offered borrower assistant programs as a necessary bridge for those most impacted by the pandemic.\nAnd in combination with government stimulus, we experienced historically low delinquencies throughout most of the year.\nImportantly, we ensured our customer safety while continuing to provide the best-in-class service experience.\nFor our team members, we expanded our paid time off policy to provide them with flexibility to address personal obligations and to assist in situations where they were unable to work remotely.\nWe implemented enhanced safety measures in all of our branches, covered the cost of virtual health visits for our team members, and offered paid leave for those exposed to the virus.\nAt the end of the year, we announced significantly enhanced benefit programs.\nFor our communities, we introduced retail reach, an employee-led initiative dedicated to creating positive social change and goodwill through community service, charitable giving and diversity, equity and inclusion initiatives.\nIn the spring, we partnered with the American Heart Association and led all upstate South Carolina companies in fundraising for the Heart Walk.\nMore recently, we partnered with local food banks throughout our footprint to raise tens of thousands of dollars and collect literally tons of food for distribution within local communities.\nFor our shareholders, we grew our loan portfolio, maintained a stable credit profile, appropriately managed our operating expenses and decreased our funding costs, resulting in excellent bottom-line results.\nWe fortified our balance sheet, and we maintained access to significant borrowing capacity and liquidity.\nWe made considerable progress on our digital investments and initiatives, including by migrating our technology infrastructure to the cloud at the end of the year.\nThe resilience of our omnichannel operating model was clearly validated in 2020.\nAs we turn the page on what was for everyone, a very challenging year, I could not be prouder of our team and how they stepped up to navigate the crisis successfully.\nWe entered 2021 in a position of considerable strength and ready to embark on our next chapter.\nLooking ahead, we're excited about the opportunities that we see for sustainable growth.\nWe remain focused on expanding our market share, maintaining the credit quality of our loan portfolio and extending our competitive advantages.\nOver the next 18 months, we will acquire new customers through innovation and geographic expansion.\nWe will continue to prioritize our investment in digital capabilities to further enable our growth and make sure that we're always available at our customers' convenience.\nDuring the first half of 2021, we expect to roll out an improved digital prequalification experience for our customers, including expanded integration with existing and new digital affiliates and lead generators.\nWe're also moving ahead with our pilot of a new guaranteed loan offer program.\nThis will be an alternative to our convenience check loan product and may be fulfilled online with ACH funding into a customer's bank account.\nIn the second half of 2021 and into early 2022, we expect to test a digital origination product and channel for new and existing customers.\nAt the same time, we will complete the development of our mobile app and enhancements to our customer portal, allowing our customers easy access to payment functionality and additional features.\nIn parallel with our digital investments, we will expand our operations into four to five new states over the next 18 months.\nDoing so, we'll make our valuable product set, including a newly enhanced auto secured product available to millions of new customers.\nTo that end, we plan to open between 15 and 20 net new branches in 2021.\nWe believe this branch expansion strategy, supported by our digital initiatives will enable our branches to maintain a wider geographic reach and higher-average receivables per branch.\nThis will ultimately further expand our revenue and operating efficiencies and lead to stronger bottom-line growth.\nOur accelerated state expansion will begin with Illinois in the second quarter.\nWhile Illinois has recently passed legislation to cap the all-in APR at 36%, we feel that it remains a terrific opportunity to enter a new market with our digitally enabled business model and take advantage of the competitive disruptions from the recent legislation.\nAs of year-end 2020, 80% of our loan portfolio had an APR at or below 36%.\nWhile we have significant plans to invest in our growth in 2021 and beyond, we will not sacrifice the credit quality of our portfolio, which remains of paramount importance.\nAs of year-end, 61% of our total portfolio had been underwritten using the enhanced credit standards that we deployed during the pandemic.\nIt's our credit performance and underwriting capabilities that provide us with confidence in the pursuit of our long-term growth strategies.\nWe will continue to invest in our underwriting capabilities over time, including advanced machine learning tools to ensure the sustainability of our growth.\nAs we've said previously, any additional stimulus such as the recent $600 stimulus checks, will push COVID-related losses into the second half of 2021.\nAny subsequent stimulus will continue to positively impact credit, but will reduce loan demand early this year.\nAs we experienced in 2020, we expect a strong second-half balance in loan demand as vaccinations become more widespread and the economy begins to reopen more fully.\nIn sum, we had a fantastic end to a year that challenged everyone.\nWe executed across all facets of our business, and we have set ourselves up for an improved 2021 on both the top and bottom lines.\nOur team continues to go above and beyond to ensure that our customers receive the best possible experience.\nWe are excited about and confident in the sustainability of our omnichannel operating model, the resiliency of our customers and our team's ability to execute on our growth plans.\nLet me take you through our fourth-quarter results in more detail.\nWe generated net income of $14.3 million and diluted earnings per share of $1.28, resulting from quality growth in our portfolio, a strong credit profile, disciplined expense management and low funding costs.\nPage 4 shows our strong portfolio growth in the second half of 2020, driven by increased loan demand and our new growth initiatives.\nWe grew $114 million from June to December of 2020, with $77 million of this growth in fourth quarter.\nWe also increased our core finance receivables by $120 million from June to December of 2020 with $80 million of this growth in fourth quarter.\nPage 5 displays our portfolio growth and mix trends through year-end 2020.\nWe closed the quarter with net finance receivables of $1.1 billion, up $77 million or 7% sequentially and $3 million year over year.\nOur new growth initiatives drove $36 million of the $77 million of sequential growth.\nOur core loan portfolio grew $80 million or 8% sequentially and $19 million year over year.\nWe continued our mix shift toward large loans, which represent 63% of our portfolio as of fourth-quarter 2020.\nMoving to Page 6, as Rob mentioned earlier, originations continued to rebound in the fourth quarter.\nBranch originations grew from $233 million in the third quarter of 2020 to $272 million in the fourth quarter, a 17% improvement.\nMeanwhile, direct mail and digital originations increased from $75 million in the third quarter to $87 million in the fourth quarter, a 16% improvement.\nTotal originations in December increased 7% year over year.\nFor the first quarter, we expect to see our normal seasonal patterns, lower originations and higher runoff, as customers receive tax refunds and utilize their most recent stimulus payments.\nAs in prior years, we expect our net finance receivables to liquidate quarter over quarter with the timing of any new government stimulus reducing the loan demand temporarily.\nOn Page 7, we show our digitally sourced originations, which were 29% of our new borrower volume in fourth quarter, the highest we've seen.\nThis demonstrates our commitment to meeting the needs of our customers and serving them through our omnichannel strategy.\nDuring the fourth quarter, large loans were 60% of our digitally sourced originations.\nTurning to Page 8.\nTotal revenue declined 1% due to the continued product mix shift toward large loans and the portfolio composition shift toward higher-credit quality customers.\nOn a year-over-year basis, total revenue yield and interest and fee yield remained relatively flat.\nIn the first quarter, due to our seasonal pattern, we expect total revenue yield to be 180 basis points lower than fourth quarter and interest and fee yield to be 140 basis points lower.\nMoving to Page 10.\nOur net credit loss rate was 6.9% for the fourth quarter of 2020, a 210-basis-point improvement year over year and a 90-basis-point improvement from the third quarter of 2020.\nThe credit quality of our portfolio remains stable, as can be seen on Page 11.\nOur 30-plus day delinquency rate of 5.3% in December, continued to track near historic lows, even with the usage of borrower assistance programs remaining at pre-pandemic levels of 2.2%.\nOur delinquency level of 5.3% is 60 basis points higher than the third quarter, primarily due to normal seasonality, but it represents a 170-basis-point improvement year over year.\nWe expect the recent government stimulus will keep delinquencies muted for at least the first quarter of 2021 and perhaps longer, depending upon the level of the additional stimulus.\nTurning to Page 12, we ended the third quarter with an allowance for credit losses of $144 million or 13.6% of net finance receivables.\nDuring the fourth quarter of 2020, the allowance increased by $6 million to $150 million or 13.2% of net finance receivables.\nThe base reserve increased by $7.5 million due to portfolio growth and was partially offset by $1.5 million of COVID-specific reserves, resulting in $30.4 million of COVID-specific reserves as of quarter end.\nThe severity and the duration of our macroeconomic assumptions remained relatively consistent with our third-quarter model, including an assumption that unemployment is 9% at the end of 2021.\nOur $150 million allowance for credit losses as of December 31 and compares favorably to our 30-plus day contractual delinquency of $60.5 million.\nAnd at our current reserve levels, we are confident that we are sufficiently reserved if the pandemic continues for an extended period.\nFlipping to Page 13.\nG&A expenses in the fourth quarter of 2020 were $44.8 million, up $3.9 million year over year but better than our sequential guidance for the quarter by $0.7 million.\nThe increase in G&A expense was primarily driven by $3 million in higher marketing expenses and digital investments to support our growth initiatives.\nAs Rob noted earlier, in 2021, we remain focused on investing in our digital capabilities and marketing efforts, all to drive new revenue opportunities, enhance our customers' omnichannel experience and create long-term operating leverage.\nOverall, we expect G&A expenses for the first quarter to be higher than the fourth quarter by approximately $1 million, encompassing investments in increased marketing, our digital capabilities and our state expansion plans.\nWe will continue to invest in our new growth initiatives in 2021 to drive receivable growth and to improve our operating leverage over the long term.\nTurning to Page 14.\nInterest expense of $9.3 million in the fourth quarter of 2020 was $1 million lower than in the prior-year period due to the lower interest rate environment.\nOur fourth-quarter annualized interest expense as a percentage of average net receivables was 3.3%, a 40-basis-point improvement year over year.\nWe purchased $50 million of interest rate caps in the fourth quarter to take advantage of the favorable rate environment.\nIn the first quarter, we expect interest expense to be approximately $9 million.\nAs Rob mentioned, earlier this week, we priced an approximately $250 million securitization at a record low average-weighted coupon of 2.08%.\nProceeds from the securitization will be used to retire our RMIT 2018-2 securitization, which had a weighted average coupon of 4.87%.\nIn the fourth quarter, we accelerated $0.8 million for the amortization of debt issuance costs related to the RMIT 2018-2 transaction in advance of the expected repayment this quarter.\nThe new securitization transaction will further reduce our cost of capital and strengthen our balance sheet moving forward.\nOur effective tax rate during the fourth quarter of 2020 was 23.3%, compared to 24.5% in the prior-year period, better-than-expected due to tax benefits on share-based compensation.\nFor 2021, we are expecting an effective tax rate of approximately 25.5%.\nPage 15 is a reminder of our strong funding profile.\nOur fourth-quarter funded debt-to-equity ratio remained at a very conservative 2.8:1.\nLow leverage, coupled with $150 million in loan loss reserves provides a strong balance sheet.\nAs of February 5, we had $452 million of unused capacity on our credit facilities and $203 million of available liquidity, consisting of a combination of unrestricted cash on hand and immediate availability to draw down cash from our revolving credit facilities.\nIn summary, we have more than adequate capacity to support the fundamental operations of our business, as well as our ambitious growth initiatives.\nDuring the fourth quarter, we repurchased 435,116 shares at a weighted average share price of $27.58.\nAs of the beginning of the year, we still had $18 million of availability remaining under our $30 million share repurchase program announced in third quarter of 2020.\nIn addition, our board of directors recently declared a dividend of $0.20 per common share for the first quarter of 2021.\nThe dividend will be paid on March 12, 2021, to shareholders of record as of the close of business, February 23, 2021.\nWe are very pleased that our strong balance sheet enables us to return excess capital to our shareholders.\nThat concludes my remarks.\nIn summary, 2020 was a challenging year for everyone.\nBut when times were the hardest, our team rose to the occasion.\nAs a result, we entered 2021 particularly well positioned to grow our market share while also maintaining a very strong balance sheet and excellent credit profile.\nWe're excited for the future as we continue to provide our customers with a best-in-class experience and deliver additional value to our shareholders.\nOperator, could you please open the line?",
        "summary": "q4 earnings per share $1.28.\nas of december 31, 2020, company had net finance receivables of $1.1 billion and outstanding long-term debt of $768.9 million."
    },
    {
        "text": "The slides for today's call can be found on the Investors section of our website, along with the news release that was issued today.\nThese uncertainties could include economic conditions, market demands, and competitive factors.\nAlso the discussions during this conference call may include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles.\nReconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which is posted on the Investor's section of our website.\nDemand was strong across much of our business, and especially in the EV/HEV market where sales grew rapidly.\nRogers was not immune to the global supply chain challenges experienced by many manufacturing companies in the second quarter.\nThese conditions were more significant than anticipated, and tempered our top line growth and resulted in margins and earnings per share that were below our guidance.\nSpecific issues we faced included, supply constraints, labor shortages and raw material cost increases, which we're proactively managing through commercial and operational actions.\nOur operational excellence and capacity expansion programs are on track, and as supply conditions improve, we expect to achieve our 40% gross margin target.\nTurning to a review of our markets; in the second quarter growth was strong in several of our strategic focus areas.\nSales in the EV/HEV market continue to grow at a rapid pace, with Q2 revenues increasing at a mid-teens rate, compared to the prior quarter.\nLed by a rebound in solar and wind demand, clean energy sales grew at a double-digit rate sequentially.\nDefense market sales were again strong, and revenue improved at a high-single digit rate.\nIndustrial market sales were relatively flat, following a sharp rebound in the first quarter.\nADAS sales declined relative to the prior quarter, due to inventory adjustments.\nafter three strong quarters of growth.\nWe believe this is a temporary situation, as the ADAS market outlook is robust, which I will detail in more in a moment.\nAnd our leading market position remains extremely strong in ADAS.\nOur sales in the Portable Electronics market decreased slightly in Q2 over Q1, due to the manufacturing disruption at our UTIS facility.\nExcluding UTIS sales, Portable Electronics' revenue increased 5% quarter-over-quarter, reflecting the ongoing strength of the Portable Electronics market.\nOverall, we are very encouraged by the healthy demand across much of our portfolio and especially in the EV/HEV market.\nOur competitive positions continue to be strong, and we are seeing the benefits of our strategy to leverage our innovative and high performance solutions, in markets with long-term secular tailwinds, such as Advanced Mobility.\nTurning to slide 5; I'll provide an update on the longer-term growth outlook for Advanced Mobility.\nI'll begin first with ADAS before discussing the EV/HEV outlook.\nIn ADAS, we continue to expect a mid-teens growth opportunity in auto radar units over the next five years, driven by further market penetration and increasing levels of vehicle autonomy.\nNext-generation radar technologies are essential to the future of autonomous vehicles, and Rogers is helping to drive innovation in this space.\nWe continue to strengthen our leading position in this market with design wins in both current and next-generation programs.\nMoving next to the EV/HEV market, the long-term outlook continues to be very robust, with an expected annual growth rate of more than 30% over the next five years.\nRecent trends continue to support this strong outlook.\nFor example, year-to-date sales of plug-in EVs and HEVs in Europe accounted for 15% of the market.\nIn China, electric vehicle sales reached a new milestone in the second quarter, exceeding 10% of the market.\nThird party analysis also points to an acceleration in EV/HEV adoption, driven by growing consumer preference for non-ICE vehicles and supportive policy changes.\nA recent E&Y report highlighted that combined plug in EV and HEV sales in the U.S., China and Europe are now expected to surpass sales of all other powertrains five years earlier than previously anticipated.\nIn addition, growth expectations for full electric vehicles also continue to accelerate.\nFor instance, the latest projections from HIS, estimate that full electric vehicle production will reach close to 40 million units globally over the next four years.\nThis is an increase of 25% or about 8 million vehicles, compared to their forecast from only two years ago.\nReflected in these estimates are the growing number of automakers, who have announced plans to transition their entire fleet to full EVs within the next decade.\nTo take advantage of the strong growth outlook in Advanced Mobility, we are investing aggressively in new capacity and capabilities.\nWe plan to double our capital spending this year, in order to invest in new capacity to support growth in the EV/HEV market.\nOur next highlight, Rogers' strong portfolio of products for this market, and how we are positioned to benefit from both the acceleration of the market and the trend toward rising degrees of electrification.\nFor EV/HEV manufacturers reliability, safety and performance are critical design elements, and Rogers' solutions address these needs.\nIn the AES business, we have content opportunities with both our ceramic substrate and power interconnect products.\nIncreasingly, EV and HEV designs are incorporating wide bandgap semiconductors to improve vehicle efficiency and range.\nThese semiconductors require high performance packaging that our ceramic substrates provide.\nOur substrate content increases with higher degrees of electrification and is more than five times higher in a full EV, as compared to a mild hybrid.\nWe are encouraged by our success in this market and recent design wins are adding to our growth.\nPower interconnects provide an additional content opportunity in EV/HEV.\nThey are critical components that distribute power and are essential to the performance and reliability of the vehicle.\nWe have secured design wins with several leading entrants to the EV market.\nThis opportunity is expected to grow, as these customers ramp up volumes in the coming year.\nIn our EMS business, we have leveraged our expertise in polyurethane and silicone materials, to develop innovative solutions that improve the performance and reliability of EV batteries.\nOur content opportunities include.\nbattery compression pads for plug-in HEVs and EVs, and other solutions, such as vibration damping pads, and battery pack sealing systems, which can be used across all battery types and sizes.\nBattery compression pads have been larger content opportunity, which increases with battery size.\nSales of our other EV battery solutions have increased significantly this year, driven by a number of important design wins.\nIn addition to the opportunities in Advanced Mobility, there are also compelling growth opportunities in other areas of our market portfolio, such as clean energy, Portable Electronics, and defense.\nThese markets comprise approximately 30% of Roger's total sales, and we expect these markets to grow at a high-single digit rate over time.\nIn clean energy, we have exposure to both solar and wind energy markets with our ceramic substrates and power interconnects.\nYear-to-date growth has been strong and the combined solar and wind market is expected to grow at a 10% CAGR over the next five years.\nIn the Portable Electronics market, sales of 5G smartphones are expected to nearly double this year, as the overall market grows at mid-single digit rate.\nThe higher performance and advanced features of 5G smartphones, means that our content can range from 10% to 30% higher versus the previous generation of phones.\nOur near term Portable Electronic sales are tempered by lower UTIS capacity, but we expect 5G demand to remain robust for the next several years, which provides Rogers with a good growth opportunity, especially, as we rebuild our UTIS capacity.\nThe longer-term outlook in the defense market continues to be promising, as funding of technology programs, such as missile and radar systems, is expected to drive increasing demand for Rogers' advanced circuit materials.\nTurning to slide 7; I'll recap the key messages from today's call.\nWe are encouraged by the strong market demand that we continue to see across much of our business.\nThis includes, faster growing markets such as EV/HEV, but also in other attractive market opportunities like clean energy and defense.\nNear term, we are not isolated from the current global supply chain challenges, but we are making progress managing these issues and our operational excellence programs remain on track.\nWe continue to add to our strong competitive positions, with new design wins, and we are seeing the results of our strategic focus on growth opportunities in our market portfolio, and especially in Advanced Mobility.\nWe are moving forward rapidly with our investments in new capacity and related capabilities, to help ensure our leadership in the EV/HEV market, and to take advantage of the significant growth ahead.\nI will begin on slide 9.\nAs Bruce mentioned in his overview, we continue to grow our top line.\nQ2 revenue improved 2.5% sequentially to $234.9 million, which was at the midpoint of our guidance range.\nGross margin of 38.2% and adjusted earnings per share of $1.72, were below our guidance range, primarily due to the impact of raw material shortages and cost increases in the quarter.\nIn the slides ahead, I'll review our second quarter 2012 results in detail, followed by our third quarter guidance.\nTurning to slide 10; Rogers delivered Q2 revenues of $234.9 million, 2.5% higher than Q1.\nVolume increased 2.8% and were slightly offset by unfavorable currency rates of approximately 0.3%.\nQ2 sales growth was tempered by raw material supply constraints, and disruptions to our UTIS facility.\nAES revenue increased 6.5%, to $140.4 million, due to strong demand in power semiconductor substrate and RF solutions.\nEV/HEV applications revenues accounted for 15% of the segment revenues and increased 34% sequentially.\nCeramic substrates, used in power semiconductor devices, had a very strong quarter and revenues for the business grew over 40% sequentially.\nClean energy sales accounted for 17% [Phonetic] of AES revenues and grew 11% sequentially.\nWe believe that renewable energy demand will have a meaningful long-term momentum.\nWithin RF Solutions, the Aerospace and Defense business was 19% of the business segment revenues, and grew 8% versus Q1.\nWireless infrastructure revenues grew mid-single digits sequentially and accounted for 16% of the segment revenues.\nADAS was 15% of AES revenues and declined modestly versus prior quarter, due to customers adjusting inventory levels.\nThe EMS business finished the quarter with revenues of $89.3 million, 3% lower than the first quarter.\nMarket demand continues to be very strong, but sales for the quarter were impacted by the raw material shortages and lower unit revenue.\nEV/HEV sales, which represents 11% of EMS revenues, were relatively flat compared to Q1 due to order timings, Q2 general industrial sales which made up 46% of the segment revenue were also relatively unchanged versus prior quarter.\nLower use production resulted in a 7% decrease in Portable Electronics revenue.\nOur plan is to restart production of certain use products by the end of 2021, with full capacity ramp up from the first half of next year.\nTurning to slide 11; our gross margin for the second quarter was $89.8 million or 38.2% of revenues, 80 basis points lower than both Q1 and the midpoint of our guidance range for the quarter.\nOur operational excellence programs are on track, and we benefited from the higher volume in the quarter.\nHowever, higher than forecasted supply chain constraints resulted in the lower Q2 margins.\nGross margin for the quarter was negatively impacted by 130 basis points due to raw material shortages in EMS. Additionally, raw material cost increases in both AES and EMS unfavorably impacted margins by 70 basis points.\nAlthough the raw material supply situation has since improved, we expect some challenges to continue into the third quarter.\nAs mentioned previously, we have taken commercial actions to mitigate increasing commodity and other raw material costs, these actions will have a positive impact on our Q3 results.\nAlso, on slide 11, we detail the changes to adjusted net income of $32.5 million in Q2 compared to adjusted net income for Q1, of $36 million.\nThe adjusted operating income for Q2 of $40.8 million or 17.4% of revenues was 150 basis points lower than Q1.\nAdjusted operating expenses for Q2 of $49.1 million or 20.9% of revenues were 80 basis points higher than Q1 expenses.\nThe higher adjusted operating expenses, were mainly due to increase in performance based compensation cost, based on a stronger outlook, timing of certain expenses, as well as reinvestments in the business.\nOther income expenses was $1.8 million unfavorable compared to Q1.\nAlthough the copper hedging portfolio gains were positive in Q2, it was meaningfully lower than Q1, due to the steep decline of copper prices to the back end of the quarter.\nThe higher adjusted operating expenses and lower other income, just described were the primary reasons for the decline of net income and earnings per share versus prior quarter.\nTurning to slide 12, the company generated free cash flow of $11.9 million in the second quarter and $44.8 million June year-to-date.\nWe ended the quarter with a cash position of $203.9 million.\nIn the quarter, we generated $29.7 million from operating activities net of an increase of $13.9 million in working capital.\nWe repaid $4 million of our credit facility and ended the quarter with no outstanding debt.\nIn Q2, the company spent $17.8 million on capital expenditure.\nWe continue to guide our capital expenditure of $70 million to $80 million for the full year 2021.\nThe company continues to have a very strong balance sheet and generate robust free cash flows, that provides us the flexibility to accelerate the investments necessary to support organic and inorganic growth opportunities.\nTurning now to third quarter guidance on slide 13.\nWe see continued sales growth across most of our portfolio in the second half of the year, led by EV/HEV.\nHowever, this will be tempered by the lack of availability of certain raw materials.\nBased on these factors, we are guiding our third quarter revenues to be in the range of $235 million to $245 million.\nWe expect Q3 gross margin to improve sequentially, driven by higher volume, continued operational excellence initiatives and ongoing commercial actions.\nThese items will offset the impact of certain supply chain challenges that will continue into Q3.\nFor these reasons, we guide third quarter gross margin be in the range of 38.5% to 39.5% to the midpoint of 39%.\nQ3 operating expenses are forecasted to increase sequentially, mainly due to a $3 million one-time cost to support strategic growth initiatives.\nWe are guiding GAAP Q3 earnings in the range of $1.50 to $1.65 per fully diluted share, we guide fully diluted adjusted earnings in the range of $1.70 to $1.85 per share for the third quarter.\nThe effective tax rate for the full year is guided to 24% to 25%.",
        "summary": "compname reports q2 adjusted earnings per share of $1.72.\nq2 adjusted earnings per share $1.72.\nq2 sales $234.9 million.\nsees q3 2021 net sales $235 million to $245 million.\nsees q3 2021 earnings per share $1.50 to $1.65.\nsees q3 2021 adjusted earnings per share $1.70 to $1.85.\nsees 2021 capital expenditures $70 million to $80 million."
    },
    {
        "text": "I'll share a broad commentary on our consolidated performance for the quarter.\nPlease note that our comments will be on an as-adjusted basis and all comparisons are to the third quarter of fiscal 2021 unless otherwise indicated.\nFor the third quarter of our fiscal 2022, RPM generated record consolidated EBIT and sales despite a difficult comparison to the prior year.\nThese results were driven by our associates worldwide who persevered despite an extremely challenging operating environment, including ongoing raw material and labor shortages, omicron-related disruptions that were particularly acute in the third quarter as well as material wage, and freight cost inflation.\nOur consolidated adjusted EBIT growth was driven by three of our four segments: construction products, performance coatings, and specialty products, which leveraged selling price adjustments and operational improvements to the bottom line.\nOur consumer group is the outlier.\nMike will discuss this in more detail when he presents our segment results.\nWith our primary raw material costs up more than 40% on average versus a year ago, our consumer group will need to catch up with significant selling price increases, which will be instituted at the end of this month.\nWe have been fast to respond to supply chain challenges by quickly scaling up in-house resin production at a manufacturing facility we acquired in September.\nAdditionally, due to our ongoing investments in the fastest growing areas of our business, our high-performance building, construction, and coating systems have generated accelerated growth.\nConstruction and industrial maintenance activity is robust and energy markets have recovered while consumer takeaway remains strong.\nDue to three years of extraordinary work by our associates to implement our MAP to Growth operating improvement program, we have made structural improvements to RPM while maintaining our entrepreneurial culture, which is the core strength of RPM.\nAs a result, our performance coatings group and construction products group are operating not only at record sales and EBIT but at record margins in the third quarter.\nOur specialty products group is trending toward this same performance with record results in sales and EBIT and improving margin performance.\nAnd we are making good progress in our consumer business.\nIn short, we are playing offense almost everywhere, investing in accelerating organic growth, significant increases in capital expansion, particularly in the areas of Nudura ICF, roof restoration coatings, and a number of our consumer product areas, all of which are building positive momentum as we go into the fourth quarter and we roll into fiscal 2023.\nDuring the third quarter, we generated consolidated net sales of $1.43 billion, an increase of 13%, compared to the $1.27 billion reported during the same quarter of fiscal 2021.\nOrganic sales growth was 13.4% or $170.1 million.\nAcquisitions contributed 1.4% to sales or $17.8 million, while foreign exchange was a headwind that decreased sales by 1.8% or $23.4 million.\nAdjusted diluted earnings per share were $0.38, which was unchanged compared to the year-ago quarter.\nOur consolidated adjusted EBIT was up 0.8% to a record $80.6 million, compared to the $79.9 million recorded in the fiscal 2021 third quarter.\nOn a double-stack basis, comparing fiscal Q3 '22 to pre-pandemic Q3 of FY '20, sales, EBIT, adjusted EBIT, net income, diluted EPS, and adjusted diluted earnings per share all achieved double- or triple-digit growth.\nSimilar to the first and second quarters of fiscal '22, our third quarter performance reflects the benefits of our balanced business portfolio where softness in one segment is generally offset by strength in the others.\nDuring the third quarter of fiscal 2022, three of our four operating segments, construction products group, performance coatings group, and specialty products group generated strong double-digit sales growth.\nCombined sales in these three segments increased 19% while sales in the Consumer segment were up modestly.\nAgain, after removing Consumer, the remainder of RPM produced exceptional adjusted EBIT growth of 97%.\nOur consumer group continued to be disproportionately impacted by inflation as well as by omicron-related labor and supply chain disruption, particularly during December and January.\nThis instability in supply caused inefficiencies and continued to negatively impact conversion costs, resulting in a decline in adjusted EBIT at our consumer group for the fourth consecutive quarter.\nLater in the call, we'll discuss the actions we're taking to address these challenges affecting this segment.\nOur construction products group generated third quarter record net sales of $482 million, up 21.7% compared to the fiscal 2021 third quarter.\nOrganic sales growth was 23.2% and acquisitions contributed 2.2%.\nForeign currency translation headwinds reduced sales by 3.7%.\nCPG record revenue growth was largely due to the segment's ongoing success in promoting its differentiated restoration solutions, which offer particular advantages versus new construction, given the current raw material and labor shortages.\nThese same challenges have continued to help speed the adoption of the segment's innovative building envelope products.\nCPG's fastest-growing businesses are those providing roofing systems, insulated concrete forms, commercial sealants as well as concrete admixtures, and repair products.\nThe segment's international operations generated strong top-line growth in local currencies, which was muted by the strengthening U.S. dollar.\nCPG fiscal 2022 third quarter adjusted EBIT increased 89.7% to a record $35.1 million.\nDespite a difficult prior-year comparison, CPG was able to dramatically increase adjusted EBIT and EBIT margin to third quarter records due to improved product mix, volume growth, and operational improvements.\nAll of these factors, combined with selling price increases, helped to offset higher raw material inflation.\nOur performance coatings group's fiscal 2022 third quarter net sales were a record $270.9 million, an increase of 19.6% over the year-ago period.\nOrganic sales increased 17.8% and acquisitions contributed 3.4%, which were partially offset by foreign currency translation headwind of 1.6%.\nPCG continued its momentum with all of its North American businesses generating double-digit organic sales growth.\nPCG's businesses serving emerging markets generated explosive growth and its European companies continued their steady rebound.\nDriving its strong top line were increased industrial maintenance spending, recovery in energy markets, and price increases.\nPCG's best performing businesses were those providing polymer flooring systems, corrosion control coatings, and raised flooring systems.\nAdjusted EBIT increased 89.9% to a record $26.8 million during the third quarter of fiscal 2022.\nAdjusted EBIT increased as a result of volume growth, operational improvements, and a more favorable product mix.\nAdditionally, adjusted EBIT margin was a third quarter record.\nSpecialty products group reported record net sales of $189.4 million during the third quarter of fiscal 2022, an increase of 11.9% compared to the fiscal 2021 third quarter.\nOrganic sales increased 11.9% and acquisitions added 0.8%, which were offset by unfavorable foreign currency translation of 0.8%.\nSPG generated record sales as a result of strong performance at nearly all of its businesses, with the highest growth coming from those serving OEM and food additive markets.\nIn addition, this segment's sales of disaster restoration equipment rebounded after securing the supply of semiconductor chips and reconfiguring its products to accommodate them.\nThis is an example of how our businesses quickly adjust to challenges, demonstrating a key advantage to RPM's entrepreneurial culture.\nThis business did face a tough comparison to the prior-year period when demand for its restoration equipment was inflated because of Winter Storm Uri.\nAdjusted EBIT was a record $26.6 million in fiscal 2022 third quarter, an increase of 5.4%, compared to adjusted EBIT of $25.3 million in the last year's quarter.\nThis record-adjusted EBIT was largely due to operational improvements.\nOur consumer group achieved record net sales of $491.6 million during the third quarter of fiscal 2022, an increase of 2.9% compared to the third quarter of fiscal 2021.\nOrganic sales increased 3.6%, which was partially offset by unfavorable foreign currency translation of 0.7%.\nAs we anticipated, the segment grew revenue in part due to its ability to mitigate the severe alkyd resin shortages it had experienced by leveraging the new Texas manufacturing facility we acquired in September.\nDuring the third quarter, sales and productivity were challenged by unreliable shipping and supply, resulting from labor shortages caused by the omicron variant, particularly in December and January.\nSpeaking of challenges, the consumer group also faced a difficult comparison to the prior-year period when sales increased 19.8% and adjusted EBIT increased 48.6% due to elevated demand for its home improvement products during the pandemic's first phase.\nFiscal 2022 third quarter adjusted EBIT was $17.2 million, a decrease of 63.9%, compared to adjusted EBIT of $47.8 million reported during the prior-year period.\nDue to the nature of its products and the markets it serves, inflation has been more impactful on the consumer group than RPM's other segments.\nAnd raw material inflation, in particular, has had the most significant impact on EBIT.\nPartially offsetting these factors were price increases and operational improvements as the consumer group is currently investing in capacity and process improvements to meet customer demand as well as build resilience in its supply chain.\nThe consumer group is continuing to implement price increases to catch up with the inflation this segment has experienced over the last four quarters.\nLastly, I'd like to note that we have significant liquidity, which enables us to fund internal growth initiatives, make acquisitions, reward our investors with cash dividend payments, and repurchase our shares.\nHelping to keep our liquidity strong is a $300 million bond offering we completed in January.\nAlso during the third quarter, we repurchased $15 million of our common stock.\nFor the fiscal 2022 fourth quarter, our operations and those of our suppliers are expected to be impacted by ongoing supply chain challenges and raw material shortages, which will exert pressure on revenues and productivity.\nThe strengthening U.S. dollar will also unfavorably impact the translation of our results in international markets.\nIn addition, the war in Ukraine is creating some supply and inflationary pressures, which Frank will address in a little bit.\nWhile it's too soon to tell, rising interest rates may slow business and consumer spending in the coming months.\nDespite these challenges, we expect to generate fiscal 2022 fourth quarter consolidated sales growth in the low teens versus a difficult comparison to last year's fourth quarter sales, which grew 19.6%.\nOn a segment basis, we anticipate sales growth in the low teens in all four of our operating groups as a result of strategic investments we are making to capitalize on market opportunities and industry trends.\nWe anticipate that consolidated adjusted EBIT for the fourth quarter of fiscal 2022 will increase in the low teens versus the same period last year when adjusted EBIT was up 10.6%.\nWe expect that earnings will continue to be affected by raw material, freight, and wage inflation as well as by the impact on sales volumes from operational disruptions caused by raw material shortages.\nOur consumer group will be disproportionately impacted by these issues.\nIts EBIT margins have eroded all three quarters of this fiscal year due to inflationary pressures, which have a greater impact on the consumer group than RPM's other segments.\nWe continue to work to neutralize these factors by improving operational efficiencies, employing additional price increases to catch up with inflation, and adding manufacturing capacity to improve resiliency.\nThis concludes our prepared comments.",
        "summary": "q3 sales rose 13 percent to $1.43 billion.\nq3 adjusted earnings per share $0.38.\nfy22 q4, co's, suppliers operations are expected to be impacted by ongoing supply chain challenges and raw material shortages.\nrpm international- expects to generate fy22 q4 consolidated sales growth in low teens versus a difficult comparison to last year's q4 sales."
    },
    {
        "text": "Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.\nI hope you and your families are all well.\nWe are happy to have kicked off the new year in strong fashion.\nOur rent collections continue to tick higher.\nWe continue to benefit from the multiyear mark-to-market opportunity and strong demand at our centers.\nWe recently closed on our new net lease platform and are now under contract on our first property in the Boston market that we expect to allocate between RPT's balance sheet and the new platform.\nWe believe we now have the capital and the platforms to generate strong external growth as well as the portfolio quality and leasing demand to drive above-trend internal growth as we move past the pandemic.\nWhile the pandemic has created many hardships, it has also created opportunities that we have been able to capitalize on.\nFor instance, COVID-19 has had a negative impact on many tenant categories.\nBut unlike during the global financial crisis, it has also had a positive impact on many other tenant categories, like grocery, home improvement, electronics, wholesale clubs, general merchandise and medical use.\nIt has also boosted some businesses that were struggling pre pandemic, like pets, office supply and hobby.\nIronically, many of the big-box tenants that were not in favor pre pandemic have thrived sense, enough so that we think credit center is a more apt description for the power center category.\nOne of the biggest opportunities that we saw after the onset of COVID was an acceleration of the widening valuation gap between different segments of retail real estate.\nIt soon became clear that there were numerous value creation opportunities to unlock if we could figure out a way to monetize the various dislocations between single- versus multi-tenant properties, larger versus smaller footprints and between essential and high credit but nonessential tenant categories.\nOur solution was our new net lease retail real estate platform with our partners, GIC, Zimmer and Monarch, that we are calling RGMZ until we rebrand later this year.\nGiven the relationship with RPT and our existing operating and development capabilities, the new platform gives access to proprietary deal flow from multi-tenant assets, larger-scale sale-leaseback transactions with national tenants, blended extends of shorter-term leases on strong real estate, remerchandising of expiring leases and build-to-suit opportunities.\nThe net lease platform and our R2G joint venture should allow us to grow AUM and expand in target markets faster than we could do on our own.\nOur joint ventures also add a new, sustainable and diversified cash flow stream to RPT and we believe will improve our FFO growth profile by enhancing our returns and increasing the economic spread on our deployed capital as we take advantage of the valuation dislocations I mentioned earlier.\nAs we've previously noted, the $151 million initial seed sale to RGMZ will close in tranches over the course of 2021.\nThe first tranche of 13 parcels closed on March five for just over $36 million.\nI won't go into all the transactional details, but overall, we couldn't be more excited about the net lease platform.\nOur Northborough Crossing deal in the Boston MSA as currently under contract for $104 million is a perfect example of what we are trying to achieve with the net lease platform.\nHere, we are buying a premier shopping center that, upon close, will be accretive to RPT's earnings from day one.\nBut by selling parcels to RGMZ, we have the opportunity to materially lower our basis and enhance our yield.\nOur expectations are that we could sell up to $75 million of the center to RGMZ, resulting in a significantly reduced basis for RPT.\nConsistent with our thesis regarding the value dislocation between multi-tenant and net lease properties, our effective acquisition yield on the retained multi-tenant asset could improve by up to 300 basis points after the acquisition and parcelization processes close.\nThere is real synergy between RPT and the new platform that benefits both sides in a way that is difficult to replicate.\nFor RGMZ, they get access to high-quality tenants and a location with household incomes of about $148,000 that no other triple-net investor has access to.\nFor RPT, we gain entry into the attractive Boston MSA on a deal that we would likely have passed on without the potential parcel sales to RGMZ.\nEqually important is that, as a net lease platforms manager, RPT maintains equal control of the net lease components of the center.\nThis type of control is not available to multi-tenant owners that sell pads to unaffiliated entities.\nThe synergies of the two platforms give us a unique opportunity that we believe will result in outsized future earnings growth.\nWe look forward to providing more details on the Northborough and subsequent parcel sales over the next several weeks.\nTurning to our acquisition pipeline.\nSince we announced our net lease platform, we have engaged with many of you, and a consistent question that comes up is how quickly we can deploy the capital raised at both our RGMZ and R2G joint ventures.\nKeep in mind that while we only recently announced RGMZ, we had been working on the deal for almost a year, and we're actively cultivating an investment pipeline throughout the pandemic.\nOur ability to go to contract on Northborough so quickly after closing the new JV is a testament to the strong groundwork that was laid over the past year.\nAdditionally, we are in active contract negotiations on several other deals and have embedded a total of $100 million of net acquisitions at our pro rata share and after parcel sales to RGMZ into our guidance.\nWe remain optimistic that we will be able to deploy the vast majority of our current cash and future proceeds from the rest of the net lease platform seed sale by year-end, reflecting about $150 million of upside to what is currently reflected in our guidance range.\nWe are currently tracking a diverse pipeline of over $2 billion in markets like Boston, Atlanta, Tampa, Nashville, Miami, Jacksonville and Orlando.\nPipeline consisting of RPT, R2G and RGMZ deals runs the gamut from single-property, locally owned deals to institutionally owned portfolios.\nThe tie that binds each of these deals is the durability of underlying property cash flows and our ability to grow future NOI by buying under-market rents or properties with redevelopment opportunities.\nTyler Sorenson, who's heading up acquisitions for the net lease platform, brings a wealth of experience to RPT that we believe will further accelerate our net lease acquisition program and our pipeline.\nLast quarter, we outlined 11 remerchandising opportunities consisting of redemising, expansions or combinations.\nWith the exact lifts will fluctuate as deals move into and out of the pipeline, these larger leasing deals continue to reflect the best risk-adjusted use of our capital, and we will allocate accordingly.\nWe have made very good progress since last quarter with the grocery deal at Troy Marketplace moving from the shadow pipeline to the active pipeline.\nthree other projects were also added this quarter, bringing the total in-progress pipeline to over $13 million with expected returns in the high single digits.\nIt's no secret that COVID-19 put pressure on certain experiential tenants.\nBut as I noted earlier, this pressure has created opportunities as was the case at our Troy Marketplace property outside of Detroit.\nTroy Marketplace is a dominant power center that has maintained a high level of occupancy throughout the pandemic, was 97% leased at quarter end.\nBecause of COVID's impact on a recreation tenant, we were able to get the space back without a buyout and replace them with a new, premier, first-to-state investment-grade grocer.\nWe were able to generate an 88% rent spread on the new lease.\nAlthough the incremental return on capital is tighter than our typical underwriting, we believe that attracting a premier grocer at this already strong center will create significant value via cap rate compression of almost 200 basis points and position the asset for success for years to come.\nAs I've previously said, we see a lot of value creation from the addition of a grocer component to these credit centers and are looking forward to executing more of these.\nWe also continue to see strong leasing demand from our former Stein Mart space in St. Louis and are now in lease negotiation with a leading retailer.\nAt Winchester in Detroit, we are finalizing a lease with a quality national off-price tenant to take our only other Stein Mart box.\nFlorida has continued to be a robust leasing market for RPT.\nWe are seeing great activity across the board at our centers within the state and are close to deals that will significantly upgrade the tenant credit at West Broward and Shoppes of Lakeland.\nThere is also strong demand at the Marketplace of Delray, which is creating friction at this property that could result in a significant improvement in the tenant mix.\nAs we continue to move past the heart of the pandemic, we are again revisiting our development program we had put on hold pre COVID-19.\nAlthough we are still not ready to put shovels in the ground just yet, we have reengaged with potential partners on a few of our properties that we previously flagged for potential residential use in Florida.\nWe are seeing extremely strong demand for residential at both River City and Parkway Shops in Jacksonville.\nAs we've stated in the past, although the highest and best use of certain parts of our centers may not be retail, we will remain focused on our core retail competencies and will look to monetize non-retail components through ground leases, land sales or potentially even land contributions into partnerships with leading residential players to retain some future upside.\nToday, I will discuss our first quarter results, our strong balance sheet and liquidity position and end with a commentary on our updated guidance.\nFirst quarter operating FFO per share of $0.19 was up $0.01 versus last quarter, driven by our improving rent collections as we experienced a decline in rent not probable collection and abatement, which totaled $3.2 million in the quarter, down from $4.4 million last quarter.\nFurther, as disclosed on page 33 of our supplemental, our first quarter rental income, excluding prior year amounts, has ticked up since last quarter and is now only down 5% from first quarter of 2020 despite the continued nonpayment of our theater tenants who have remained closed since the onset of the pandemic.\nOur four Regals are slated to open in late May and account for about 75% of our total theater exposure.\nGiven Regal's reopening plans and recent liquidity infusions, we expect in our forecasting resumption of rent payments in the next few weeks.\nWe continue to take a conservative stance with uncollected rents and have reserved nearly 80% of our uncollected first quarter recurring billings.\nAdditionally, we effectively have no exposure to tenants in bankruptcy left in the portfolio.\nAs of quarter end, $18 million of our recurring billings for the trailing 12 months remain outstanding, of which $12 million has been reserved with the majority of the $6 million balance expected to be repaid over the course of '21 and 2022.\nOperationally, we continue to execute and put runs on the board.\nWe started 2021 on a high note, signing 62 deals in the quarter covering 556,000 square feet.\nThis was the highest number of deals signed in the quarter in almost two years.\nBlended rent spreads were up 9% as we achieved a 51% comparable new lease spread, our best quarterly spread in almost three years, driven by our Troy Marketplace grocery deal that Brian previously noted.\nWhile the TI related to this deal was outsized, it was more than offset by the value of nearly $20 million that was created by cap rate compression.\nExcluding this deal, our new lease spread would have been up 26%, highlighting a solid, broad-based demand and mark-to-market opportunities in our portfolio.\nOur renewal spreads also continued to improve, up 3.9%, making the third consecutive quarter of improving renewal spreads.\nGiven our strong leasing activity, we ended the first quarter with a signed not open backlog of $3.3 million, the majority of which will come online over the next 12 months.\nWe also have a full pipeline of deals with over $2 million of leases in advanced legal negotiations.\nAdditionally, as Brian touched on, we have identified several remerchandising deals that will generate well into double-digit return on cost in addition to cap rate compression across certain properties.\nIn the spirit of transparency, we have outlined these active and pipeline remerchandising opportunities on page 19 and 20 of our supplemental.\nOccupancy for the quarter was 90.6%, down 90 basis points sequentially due primarily to the proactive and planned recapture of our space at our Troy Marketplace and West Broward properties that will facilitate new grocer deals.\nGiven the lack of bankruptcy exposure in our portfolio, our signed not open backlog, our robust leasing pipeline and our remerchandising opportunities, we believe occupancy has troughed and expect it to track upward over the next several quarters as we march toward restabilization of our portfolio.\nThe closing of the first tranche of the initial seed sale to our net lease platform benefited both our leverage and liquidity levels in the quarter.\nWe ended the first quarter with net debt to annualized adjusted EBITDA of 7.2 times, down from 7.6 times last quarter.\nLooking forward, we continue to target leverage in the 5.5 to 6.5 times range, which will be driven by the normalization of EBITDA as the impacts of COVID-19 reverse course in '21 and 2022, the stabilization of our portfolio and as future tranches of the RGMZ seed close in 2021.\nHowever, it is important to keep in mind that the timing of acquisitions and subsequent net lease parcel sales may have a temporary impact on reported quarterly leverage levels.\nFrom a liquidity perspective, we ended the first quarter with a cash balance of $143 million and a fully unused $350 million unsecured line of credit.\nIncluding the expected proceeds from the remaining RGMZ seed sales, our pro forma cash balance would be about $250 million.\nIn short, we have a war chest of cash and a deep acquisition pipeline that we expect will generate strong external growth for RPT shareholders.\nRegarding our pending debt maturities through 2022, we have just one $37 million private placement note that matures in June and a $52 million mortgage that is prepayable starting in November and carries an above-market 5.7% interest rate.\nBased on the positive feedback from our unsecured debt partners, we expect to refinance both these notes later this year.\nHowever, given our strong liquidity position and as an interim step, we may repay our $37 million private placement note due in June ahead of our expected refinancing.\nAs with any debt issuance, we look to maintain a flat maturity ladder with a goal of having no more than 15% of our debt stack maturing in any given year.\nThe last topic I want to touch on is our updated 2021 OFFO per share guidance of $0.81 to $0.89, which is up $0.03 at the midpoint of our prior guidance range of $0.77 to $0.87.\nOur updated range includes the impact from the sale of the remaining tranches of initial RGMZ seed.\nAlso assumed in our forecast are $100 million of net acquisitions at our pro rata share.\nIncluded in this assumption is the gross purchase price of Northborough that is expected to close in the second quarter.\nHowever, it's important to again note that we expect to sell certain net lease parcels at Northborough to RGMZ in the fourth quarter that will lower our basis, as Brian mentioned.\nThe net impact of the initial seed sales and net acquisition activity of $100 million is expected to add $0.02 of upside relative to the midpoint of prior guidance.\nThe other $0.01 of upside stems from outperformance in the first quarter that we are now projecting in future periods.\nLike last quarter, the range around the midpoint of our updated guidance is largely driven by our performance on the bad debt front, particularly from our theaters.\nAlso, it should be noted that our guidance does not include any assumptions of recovery for prior period bad debt or straight-line rent reserves.\nAnd lastly, although we have $100 million of net acquisitions formally built into guidance, we believe we can deploy as much as $250 million into opportunistic acquisitions within our target markets that meet our disciplined underwriting standards, representing upside to our guidance range.",
        "summary": "q1 operating ffo per share $0.19.\nsees fy 2021 operating ffo per share $0.81 to $0.89."
    },
    {
        "text": "The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP.\nA reconciliation between GAAP and non-GAAP financial measures is provided in our fourth quarter Redwood Review available on our website.\nAlso note that the content of this conference call contains time-sensitive information that is accurate only as of today.\nThe company does not intend and undertakes no obligation to update this information to reflect subsequent events or circumstances.\nFinally, today's call is being recorded and will be available on the company's website later today.\nAs I reflected on the past year, it's hard to contextualize what our country has been through in the opening weeks of 2021, let alone all of 2020.\nWith unprecedented turmoil in Washington, an economy still rocked by the coronavirus pandemic, now seemingly populist revolt under way on Wall Street, it's hard for any investor to navigate all the tumult and volatility.\nSo we feel all the more fortunate to have emerged from such an unprecedented year in a renewed position of strength.\nIt's motivated us to make 2021 the best year in our company's history.\nWe exited 2020 with momentum building across both of our platforms, including record lock volumes in residential lending and very strong originations and contribution from business purpose lending.\nGAAP earnings for the fourth quarter were $0.42 per share, well in excess of our $0.14 per share dividend, and our GAAP book value increased $0.50 per share from the third quarter to $9.91 in the fourth quarter.\nBased on the trajectory of our operating businesses and our expectations for sustainably higher net interest income throughout the year, we are confident that we can safely support a stable to growing dividend in 2021.\nWe plan to announce our first quarter dividend in March.\nLooking ahead, our strategic priorities for 2021 include allocating ample capital to our residential consumer and business purpose lending platforms, doubling down on our technology investments to scale our business and continuing to support and develop our team members.\nStrategically speaking, the COVID-19 pandemic has only further validated our core investment thesis, as demand for single-family detached housing has grown significantly.\nWe expect much of that demand to be durable, as families choose to move away from dense urban areas, and more people are able to work remotely out of their homes regardless of proximity to the workplace.\nThis has already caused ripple effects across both the residential and commercial property sectors, especially in major metropolitan areas.\nThat's why our primary focus for 2021 will remain on our operating platforms.\nThe operating capital we allocate to these businesses is expected to generate returns on equity north of 20% post tax levels very difficult to come by when sourcing third-party investments in today's compressed yield environment.\nMost importantly, these businesses serve large and growing markets not covered by government lending programs, and as such are positioned to generate scalable and repeatable sources of future earnings, even in a less accommodative interest rate environment.\nSince they are earned within our taxable subsidiaries, the earnings generated can also be retained to provide a steady stream of internally sourced investment capital that can be deployed to further grow earnings and book value.\nTurning to our investment portfolio, our portfolio remains a strategic element of our business model, so that supports our operating platforms and third-party investing activities.\nOverall credit performance of the book remained strong as delinquencies have continued to decrease since their peak in the summer and strong home price appreciation has kept the actual credit losses low.\nThis means that, even if we retrace back to \"preCOVID-19\" valuations, we continue to expect significant further upside in these investments.\nCoupled with positive credit trends, high prepayment speeds have begun to unlock additional value on most of our credit investments held at a discount to par.\nAnd to channel the late Yogi Berra, I'll remind everybody that \"loans that prepay, don't default.\nOn the technology front, speed and disruption are top of mind in 2021 across the Redwood enterprise.\nThe goal is not simply to grow volume or issue more securitizations.\nWe aim to fundamentally change how the non-Agency sector operates, from end-to-end.\nThat entails more speed and automation, and keeping technology at the forefront of our planning process.\nIn the past several months, we have launched several new technology initiatives through both organic and new venture investment strategies.\nAnd just today, we are announcing the recent launch of RWT Horizons, a new venture investing strategy focused on early stage technology companies with business plan squarely focused on innovations that can disrupt the mortgage finance landscape.\nThe amount of capital deployed through this new platform will likely be smaller at first, however, the investments are designed to have an outsized impact on how our business operates.\nOur strategy centers on creating new efficiencies across the mortgage value chain, thereby making us a more meaningful partner to the broad network of market constituents to whom we provide liquidity.\nParamount to our success are our people and the core values by which we conduct our business.\nCaring for our employees has never been as important, as we continue to support our team members and their families through the impacts of COVID-19.\nInvestments in our employee programs and stewardship of our culture remain strategic priorities, and we're proud of the work that we've done to engage, develop and retain our workforce over such a challenging year.\nWe stand behind our core values, including an earnest focus on diversity, equity and inclusion, and a commitment to strong corporate citizenship, both socially and environmentally.\nOur commitment to our larger communities through volunteerism and charitable giving have also remained in sharp focus for us, particularly as our shared humanity has been amplified by the COVID-19 pandemic.\nWe believe our strategy will enable us to scale our business and take market share, grow durable and repeatable earnings and serve our mission to help make quality housing whether rented our owned, accessible to all Americans.\nWith optimism on the horizon for 2021, we're looking forward to the positive impact that Redwood can make for our collective stakeholders, including our shareholders, our employees and our communities.\nWith record performances from our operating businesses during the second half of 2020, we entered 2021 in a position of strength.\nOur fourth quarter results reflect continued improvement in the broader credit markets, the depth and breadth of our competitive advantages and opportunities for our business to further build market share and growing segments of housing finance.\nOur crisp execution during the quarter was supported by progress on key technology initiatives and increased efficiency in turning our capital.\nBefore getting into our results, I will further discuss some of the key housing industry trends we are observing.\nThe theme as we saw in the third quarter have continued and tailwinds for our operating businesses remain strong.\nSecular trends driving single-family housing demand do not appear to be abating.\nEven with the promise of a vaccine, consumers are embracing the flexibility of the work-from-home model, detethering them from urban centers and creating a substantial pocket of fresh demand for housing.\nThe need for space and functionality to conduct business in private homes has driven higher home values at all price points, in turn fueling the potential for expansion in both the owner occupied and an investor-owned segments of the market.\nHome price appreciation continues at pace as demand for single-family homes as far outstripping supply.\nMarket observers estimate that US housing stock and a total of $2.5 trillion in value in 2020, including $2.2 trillion from appreciation and existing homes.\nNationwide home prices were up over 10% year-on-year in December.\nAnd while the number of homes sold rose over 20%, inventory available for sale fell over 40%.\nResale inventories at its tightest level ever in many top markets and on average stands at less than two months of supply.\nOnce more mortgage rates have remained at or near record lows, even as 10-year treasury rates now stand more than 25 basis points higher than in late December.\nAnd while the pandemic continues to impact certain segments of the labor market in different ways, the personal savings rate at year end was up 90% from the end of 2019.\nAs such, a key outcome of Fed stimulus has been meaningful upward pressure on bank deposit levels, a phenomenon that among other things has important ramifications for bank appetite for assets.\nThis data coupled with the demand trends we are seeing for our products and the performance of our portfolio makes us optimistic about our immediate and long-term opportunities for growth.\nIn many ways, we will measure our success in 2021 by the velocity with which we enter 2022.\nWe believe our competitive positioning, commitment to technology solutions and deep client base will allow our businesses to operate at a steadily increasing capacity as the year progresses.\nNow I'll turn to some key metrics from the fourth quarter.\nSparkling results from our residential and BPL platforms coupled with strong performance in our investment portfolio drove a 20% annualized return on equity for the quarter.\nIn our residential business, we recorded a record $3.8 billion of locks with over 90 discrete sellers, up 81% from the third quarter.\nLoan purchase commitments, those adjusted for potential pipeline fallout during the quarter were $2.5 billion, more than double the amount in the third quarter.\nMomentum has continued into 2021, as January locks totaled $1.6 billion.\nThe vast majority of our locks continue to be select loans, which are reflecting some of the strongest credit metrics we have seen since the great financial crisis.\nIncluding average FICOs in the high-700s and debt ratios of 30% or lower.\nThese record volumes were well balanced by our multi-channel distribution model.\nDuring the quarter, we achieved strong execution on two securitizations backed by $669 million of loans in aggregate, including a $345 million single-investor securitization placed with an insurance company.\nWe also sold over $800 million of loans during the fourth quarter and entered into agreements to sell forward an additional $1 billion, expected to settle in the coming weeks.\nWe believe that in 2021, we will see a pronounced increase in consumer demand for jumbo loans, and that we are in the early stages of historically significant refinancing wave.\nWith rates remaining low, we are seeing our seller network continue to hire additional loan officers to support pent-up demand in the jumbo pipeline and an increase in participation in our seller training sessions.\nIn December, we officially launched a new seller initiative, Redwood Rapid Funding, demand has exceeded our expectations.\nAnd as of January 31st, we had funded nearly $120 million of loans through the program.\nWe are in the process of onboarding several more sellers as we transition from the pilot phase into a more formal program for a broader set of our clients.\nAdditionally, we recently launched the pilot phase of Redwood Live, an app-based tool designed to give our sellers visibility into the underwriting process with live status updates for each of their loans.\nAlso during the fourth quarter, we launched a new initiative to modernize our workflow on the Capital Markets' desk, which will include an end-to-end solution for accessing, reporting and analyzing standardized loan level data for our Sequoia securitizations.\nThis platform will provide secure real-time data and transparency on the underlying loan performance within our existing securitizations and a portal for potential investors during the marketing period.\nIn the coming months, we look forward to sharing more on these and other new programs, including the automation of certain portions of our underwriting process.\nTurning to CoreVest, our investment thesis for entering the business purpose lending segment continues to be supported by origination growth and clean credit performance.\nCoreVest continues to post truly differentiated operating results, fueled by growing consumer demand for single-family homes for rent and institutional investor appetite for the asset class.\nWe originated $448 million in BPL loans during the quarter, up 71% from the third quarter.\nAlmost 80% of this production was in single-family rental loans, for which demand from the securitization markets remains a highlight.\nWe completed two securitizations in the fourth quarter, including an innovative single-investor transaction placed with a leading insurance company.\nOur broadly distributed deal was backed by $274 million of SFR loans and was particularly well received by the market.\nCertificates placed with third-party investors represented 91% of the capital structure with the weighted average yield of 1.48%.\nThis was 20 basis point improvement upon the already strong execution of our previous issuance.\nThe single-investor securitization provides $200 million in financing for SFR loans, and includes a unique ramp up feature that enhances capital efficiency and reduces our reliance on traditional warehouse funding.\nDuring the fourth quarter, we distributed $60 million in SFR loans into the structure and expect to complete the ramp up later this month.\nWe intend to pursue similar deals in 2021, which would accelerate our ability to grow the business with more efficient use of capital and reduced market risk.\nAdditionally, in the fourth quarter, we called one of our previously issued SFR securitizations, which has $75 million of outstanding loans, the majority of these loans have either been refinanced or resecuritized, and the call allowed us to recycle our capital at a significantly improved cost of funds.\nOur BPL borrowers are encouraged by the resilience of tenant performance this past year, and continue to raise additional capital to expand their portfolios.\nImportantly, we continue to believe that there is a deep group of potential borrowers, many of which are seasoned real estate investors that remains unserved by these types of lending products.\nThe tailwinds that fueled our residential and BPL businesses have also positively impacted our investment portfolio.\nDuring the quarter, the fair value of our securities book increased approximately 3%, supported by of our securities book increased approximately 3%, supported by continued improvement in credit spreads and strength in underlying credit performance.\nOverall, 90-plus day delinquencies in our securitized portfolios across both jumbo and SFR are now below 2%.\nAdditionally, elevated prepayment speeds are accelerating our ability to unlock the value of many of our subordinate bonds.\nThe majority of which we have the right to call at specified dates or once the underlying pools pay down to a certain size.\nThese call rights are generally at par reflecting a discount to our current estimate of the fair value of the underlying loans.\nIn total, the net discount on our securities portfolio as of year-end was well in excess of $400 million.\nAnd while expected losses will to an extent influence its full realization, this discount reflects substantial potential upside to book value.\nAll in all, we remain very pleased with how our firm is positioned as we start the year.\nAgainst the favorable backdrop for our businesses, we are committed to the use of technology to facilitate scale, reduce customer acquisition costs and serve our growing client base more efficiently.\nThese high-quality operating earnings are complemented by more proprietary deployment opportunities for our portfolio, which should help to drive net interest income higher through time.\nAs Chris and Dash discussed, our fourth quarter earnings and book value benefited from strong results across our operating businesses and investment portfolio, contributing to GAAP earnings of $0.42 per share for the quarter and generating a 7% economic return on book value for the quarter.\nAfter the payment of our $0.14 dividend, our book value increased to $9.91 per share, representing a 5% increase for the quarter.\nThat was primarily driven by the strong earnings at our operating businesses.\nAs Chris mentioned, these businesses are operated within our taxable subsidiary, giving us the optionality to retain and reinvest that income or distribute it through a dividend.\nFocusing in on some of the operating results within the business, our residential mortgage banking team achieved record lock volumes while increasing gross margins relative to the prior quarter to generate $24 million of mortgage banking income.\nCoreVest also saw a large sequential volume growth and improved securitization execution during the quarter, which helped to generate $33 million of mortgage banking income.\nAnd a similar dynamic to the third quarter, though to a lesser extent, business purpose mortgage banking results included a benefit from spread tightening on the $286 million of SFR loan inventory it carried into the fourth quarter.\nIn our investment portfolio, net interest income remained relatively stable as capital deployment into CoreVest and Sequoia investments was outpaced by pay-downs, which have remain elevated due to higher prepayment fees.\nAs dash mentioned, higher prepay speeds, along with tighter spreads continue to benefit our subordinate securities that we hold at discount, and we saw a positive fair value changes across our portfolio.\nShifting to the tax side, in the fourth quarter, we had REIT taxable income of $0.05 per share and $0.37 per share of taxable income at our TRS.\nOur fourth quarter REIT taxable income was negatively impacted by a year-end adjustments and we expect it will shift up in the first quarter of 2021, and continue growing as we deploy capital into our investment portfolio, which is generally held at 3.\n[Phonetic] Given our full-year net taxable loss at the REIT, we currently expect all of our dividends paid in 2020 to be characterized as a return of capital for tax purposes.\nTurning to our balance sheet, we ended the fourth quarter with unrestricted cash of $461 million.\nAfter allocating incremental working capital to our mortgage banking operations during the fourth quarter and net of other corporate and risk capital, we estimate we had approximately $200 million of capital available for investment at December 31st.\nOur financing structure remained stable in the fourth quarter, after significant changes in prior quarters.\nOverall, we saw non-recourse leverage decreased slightly to 1.3 times at the end of the year from 1.4 times at the end of the third quarter.\nThis decrease was primarily due to some effective deleveraging within our investment portfolio from higher levels of paydowns and fair value increases during the quarter.\nAdditionally, as we completed several securitizations near the end of the year, we held at relatively low balance of loans in inventory, which helped to keep overall leverage down.\nAs we discussed, we generally expect our overall leverage to increase as we continue to build inventory levels at our mortgage banking operations.\nWe may also explore adding incremental non-marginable leverage to our investment portfolio, which currently has less than one times direct leverage excluding our long-term corporate unsecured debt.\nAt our mortgage banking operations to support growing volumes, we increased our residential warehouse capacity from $600 million to $1.3 billion and maintain $1 billion of capacity for BPL operations, with nearly 70% of this total capacity being non-marginable.\nI'll close with our outlook, which is also detailed in the new 2021 financial outlook section of our fourth quarter Redwood Review.\nWe expect demand for single-family housing to remain robust throughout 2021, which should benefit both of our operating platforms.\nThough we may experience a rising rate environment, we expect most existing jumbo loans will remain in the money and refinanceable in 2021.\nBefore 2021, we'll continue to focus on growth, technological efficiency and increased profitability in our operating businesses, which should allow us to retain more capital within our taxable subsidiary and grow book value.\nWe also expect these activities to support incremental capital deployment into our investment portfolio, which should drive higher net interest income and support a stable to growing dividend.\nLooking forward, we have arranged our outlook to focus on our operating businesses, which we run out of our taxable subsidiary and our investment portfolio, which we generally hold at our REIT.\nWe think it's important to make this distinction as our operating businesses generate higher returns and have a steeper growth trajectory.\nAnd with the ability to retain earnings from these operations, over time, we expect a significant capital we have allocated to these platforms to be valued as a function of their forecasted earnings streams.\nOn that note, at December 31st, we had approximately $375 million of capital allocated to our operating businesses, including $215 million for residential mortgage banking and $160 million for BPL mortgage banking.\nAnd in 2021, we expect after-tax returns on this capital to 20%.\nWe may allocate additional capital to each of these businesses to support growth in volumes throughout the year with similar return expectations.\nShifting to our investment portfolio, at December 31st, we had approximately $1.1 billion of capital deployed here, which we expect can generate returns on capital in 2021 between 10% to 12% relative to our year-end basis.\nWe expect net interest income to trend higher throughout 2021 as we deploy incremental capital into largely proprietary portfolio investments at returns consistent with or higher than our in-place portfolio.\nAdditionally, given current market conditions, we forecast the average cost of funds on our secured debt to continue improving throughout 2021.\nTo support our operating businesses and investment portfolio, we expect corporate operating expenses to be between $50 million and $55 million for 2021, with variable compensation commensurate with company performance.\nAnd we expect long-term unsecured debt service costs over 2021 to remain consistent with 2020, at approximately $40 million annually.\nI'll note that while this outlook provides for a strong returns in 2021, we expect that to return potential of the businesses will grow throughout the year as we deploy additional capital and continue to expand our operating platforms, positioning the business to generate even higher overall returns in 2022.\nOperator, you can open the call for Q&A.",
        "summary": "q4 gaap earnings per share $0.42.\ngaap book value per common share was $9.91 at december 31, 2020."
    },
    {
        "text": "These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.\nActual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors.\nI'll also discuss today's announcement of our plan to acquire Midwest Warehouse & Distribution System.\nJohn will take you through our third quarter results, which exceeded our expectation again this quarter and review our disciplined capital allocation strategy focused on returns.\nI'll then discuss our updated 2021 outlook.\nLet me start with some key highlights about the market and our results.\nLong term transportation and logistics outsourcing trends continue to support our growth strategy and investments.\nTrends in warehousing and distribution as well as in e-commerce fulfillment and last mile delivery of big and bulky items have continued to accelerate since the pandemic began.\nOur strategic investments remain focused on leveraging these favorable outsourcing trends.\nUnprecedented challenges impacting labor, supply chains and truck production are providing us with additional growth opportunities because they help drive companies to make long term outsourcing decisions.\nWe're seeing record new contract wins in supply chain and dedicated, which we fully expect will contribute to long term profitable growth.\nFMS is also benefiting as companies are looking to source truck capacity in this extremely tight market.\nConsistent with our disciplined capital allocation strategy, we're investing in our higher return logistics businesses through our planned acquisition of Midwest Warehouse & Distribution System, which adds multi client warehousing capabilities in supply chain and accelerates growth.\nWe also announced plans to return capital to shareholders over time through discretionary and anti dilutive share repurchase programs.\nUse of the new discretionary program is anticipated to occur over time, dependent on several factors, including balance sheet leverage, the availability of quality acquisitions and the stock price.\nWe now expect to achieve ROE in the range of 18% to 19% for the full year.\nThe team has done an excellent job of leveraging favorable pricing trends in used vehicle sales and rental resulting in outperformance in both these areas.\nIn addition, we've continued to increase lease pricing resulting in improved portfolio returns and a 4% increase in revenue per average active lease vehicle.\nWe expect additional benefits going forward as leases are renewed and repriced and as we utilize data analytics to further segment customer pricing based on application, equipment type and other key drivers of lease returns.\nMoving to cash flow.\nWe generated strong year to date free cash flow of over $800 million and have increased our full year free cash flow forecast to $1 billion to $1.1 billion, up from our prior forecast of $650 million to $750 million.\nOur full year forecast reflects an estimated cash flow benefit of $400 million from deferred capital expenditures due to OEM delivery delays as well as record proceeds from the sale of our used vehicles.\nWith balance sheet leverage currently well below our target range, we have additional capacity to enhance shareholder value by deploying capital consistent with our disciplined capital allocation strategy.\nslide five provides an overview of the investments we're making to drive accelerated growth in supply chain and dedicated, a key element of our strategy to generate higher returns.\nDeveloping new and enhanced products such as Ryder Last Mile, e-commerce fulfillment and freight brokerage provides opportunities to leverage profitable growth areas.\nInnovative technology enables us to deliver value added logistics solutions that are in high demand.\nLast quarter, I highlighted Ryder Last Mile offering.\nThis quarter, I'll discuss RyderShare, our real time freight visibility and collaboration tool that has proven to be a key differentiator in winning new business.\nSales and marketing are key to our brand awareness and ensuring customers are aware of our full array of supply chain capabilities.\nOur Ever better campaign and the increased digital marketing presence have driven a significant increase in qualified sales leads.\nWe're also expanding our sales force and investing in their capabilities to drive additional growth opportunities.\nStrategic M&A opportunities, such as our planned acquisition of Midwest, are focused on adding new capabilities, geographies and/or industry verticals.\nThese opportunities are an important way to accelerate growth especially in Supply Chain and Dedicated.\nRyder Ventures, our corporate venture capital fund aims to invest $50 million over five years through direct investment in start-ups.\nOur investments here advanced strategic relationships where we typically are working together to develop new products and capabilities that benefit our customers and solidify our position as an industry leader.\nWe've made investments in numerous exciting areas such as e-commerce micro fulfillment and digital driver staffing and are working with these start-ups to address important customer needs.\nWe also recently announced strategic alliances with several autonomous technology firms, which enables us to leverage our expertise in asset management, maintenance and transportation, positioning us as an innovative leader in this emerging space.\nslide six takes a closer look at RyderShare, an innovative digital product that combines Ryder's nearly 90 years of logistics experience with best in class technology.\nRyderShare provides users with real time freight visibility throughout the life cycle of an order as well as the opportunity to share information between suppliers, carriers and shippers on one platform with Ryder's team of supply chain experts managing exceptions.\nRyderShare users benefit from improved service, from their, for their customers, increased employee productivity and the ability to readily access information from one source for decision making.\nAlmost 70% of Ryder's transportation volume and supply chain and dedicated now runs through RyderShare.\nThe platform has processed over 4.4 million transactions and has over 5,300 users to date.\nWe're also excited about our recent launch of RyderShare for warehousing.\nThis enhancement makes RyderShare, the only visibility platform that connects transportation with warehousing.\nWe expect this will be a key differentiator in winning new business.\nTotal company results for the third quarter on page seven.\nOperating revenue of $2 billion in the third quarter increased 11% from the prior year, reflecting revenue growth across all three of our business segments.\nComparable earnings per share from continuing operations was $2.55 in the third quarter as compared to $1.21 in the prior year.\nHigher earnings reflect improved performance in aftermaths from higher rental, used vehicle sales and lease results, as well as a declining depreciation expense impact related to prior residual value estimate changes.\nReturn on equity, our primary financial metric, reached 15.7% for the trailing 12 month period.\nROE reflects higher earnings from rental, used vehicle sales and declining depreciation expense impact.\nImproved lease performance also contributed to higher ROE and reflects the impact of our pricing initiatives.\nyear to date free cash flow was strong at $829 million, although down from the prior year when capital expenditures were unusually low due to COVID.\nTurning to FMS results on page eight.\nFleet Management Solutions operating revenue increased 8%, reflecting 37% higher rental revenue, driven by strong demand and higher pricing.\nRental pricing increased 9%, primarily due to higher rates across all vehicle classes.\nFMS realized pre-tax earnings of $186 million, up by $170 million from the prior year.\n$93 million of this improvement is from higher gains on used vehicles sold and a lower depreciation expense related to prior residual value estimate changes.\nImproved rental and lease results also significantly contributed to increased FMS earnings.\nRental utilization on the power fleet was a record 83% in the quarter and well above the prior year's 71%.\nResults also benefited from ongoing momentum from lease pricing initiatives, partially offset by a 3% smaller average active lease fleet.\nFMS EBT as a percentage of operating revenue was 14.9% in the third quarter and surpassed the company's long term target of high single digits.\nFor the trailing 12 month period, it was in line with the target at 9.7%.\npage nine highlights global used vehicle sales results for the quarter.\nUsed vehicle market conditions remain robust due to strong freight activity and timing supply from truck production constraints.\nHigher sales proceeds reflect significantly improved market pricing.\nGlobally, year over year proceeds more than doubled for both tractors and trucks.\nWhile sequentially tractor proceeds were up 32% and truck proceeds were up 27% versus the second quarter 2021.\nAs you may recall, last year, we provided a sensitivity noting that a 10% price increase for trucks and a 30% price increase for tractors in the U.S. would be needed by 2022 in order to maintain current residual value estimates.\nOur current tractor and truck proceeds significantly exceed these levels.\nAverage current pricing in the U.S. for tractors and trucks is well above our residual value estimates used for depreciation purposes.\nAs such, we are comfortable with our residual value estimates and we do not anticipate the need for any significant adjustments at this time.\nDuring the quarter, we sold 4,900 used vehicles, down 44% versus the prior year and down 18% sequentially, reflecting lower inventory levels.\nUsed vehicle inventory was 3,500 vehicles at quarter end, below our target range of 7,000 to 9,000 vehicles.\nTurning to supply chain on page 10.\nOperating revenue versus the prior year increased 14% due to new business higher volumes and increased pricing.\nGrowth was partially offset by the impact of supply chain disruptions and automotive production activity.\nWe expect this disruption to continue to impact our automotive customers until global supply chains normalize, and we continue to work with our customers to mitigate the impact.\nWe have included an estimated impact from potential shutdowns in our balance of year forecast as the situation remains fluid.\nSCS pre-tax earnings decreased 62% and trailing SCS EBT as a percent of op revenue of 6.2% was below target.\nThis reflects lower automotive earnings, higher labor costs and strategic investments, partially offset by positive earnings from these business.\nWe anticipate the pricing adjustments we're implementing to improve SCS EBT percentages in the first half of 2022 and to move around the target range or move to around the target range in the second half of next year.\nMoving to dedicated on page 11.\nOperating revenue increased 16% due to new business, higher volumes and increased pricing.\nNew contract wins and DTS continue to be robust with year to date sales results already reaching full year record levels.\nNew contract wins are driven by ongoing secular outsourcing trends as well as current labor and supply chain challenges that are driving companies to make long term outsourcing decisions.\nWe're signing larger deals across a diversified industry base and new contract wins are also benefiting from cross selling opportunities from FMS and SCS.\nDTS pre-tax earnings decreased 54% and trailing DTS EBT as a percent of op revenue was below target at 5.3%.\nThis reflects increased labor and insurance costs partially offset by positive earnings from new business.\nAlthough unprecedented labor challenges are affecting current results in DTS and SCS, we are increasing our recruiting efforts and successfully working with our customers to implement price adjustments to address higher market costs.\nWe're encouraged by the early progress we're making on these price adjustments as we continue to deliver the superior service our customers expect.\nWe're confident that our new and expanded customer base and pricing adjustments will improve DTS EBT percentages in the first half of '22 with it moving to around our target range in the second half.\nTurning to slide 12.\nLease capital spending of $807 million was above prior year's plan due to increased lease sales activity in the year.\nLease returns are benefiting from pricing initiatives and support a more normalized lease capital investment.\nRental capital spending of $583 million increased significantly year-over-year, reflecting a higher planned investment in the rental fleet.\nWe plan to grow the rental fleet by approximately 15% in 2021 and in order to capture the increased demand we've seen from strong e-commerce and overall freight activity.\nOur full year 2021 forecast for gross capital expenditures of $1.9 billion to $2 billion is below our initial forecast range.\nThis reflects an estimated impact of $400 million from deferred vehicle purchases due to OEM delivery delays that Robert highlighted earlier.\nTurning to slide 13.\nOur 2021 free cash flow forecast has increased to a range of $1 billion to $1.1 billion, up from our previous forecast of $650 million to $750 million.\nThe full year forecast reflects our strategy to balance moderate growth in the capital-intensive FMS business, while generating positive free cash flow over the cycle.\nIt also reflects the impact from delayed OEM deliveries and record proceeds from used vehicles sold and, as noted earlier.\nBalance sheet leverage declined due to higher earnings and cash flow and is expected to remain below the low end of our target range this year.\nImportantly, we now expect to achieve ROE of 18% to 19% this year due to stronger than expected performance in FMS and a declining depreciation impact.\nHigher year to date comparable EBITDA, which excludes the impact of gains and losses on used vehicle sales, reflects revenue growth and improved operating performance.\nTurning to slide 14.\nI'd like to review our capital allocation priorities which are focused on creating long term shareholder value by investing in high return opportunities that generate positive free cash flow over the cycle.\nOur first priority for capital is investing in high return organic growth opportunities, which includes moderate FMS lease fleet growth and accelerating growth in SCS and DTS.\nIn our FMS business, we estimate investments of between $1.8 billion to $2.1 billion annually, and that is the amount needed to replace leased vehicles as contracts are renewed and to refresh the existing rental fleet.\nWe also estimate investing between $200 million to $500 million in annual fleet growth, which represents lease fleet growth of approximately 2,000 to 4,000 vehicles with commensurate growth in rental.\nReturns in both lease and rental are expected to continue to benefit from ongoing pricing initiatives.\nInvestments to accelerate growth in our higher return and less capital intensive supply chain and dedicated businesses as well as technology investments that expand or enhance our capabilities are also key priorities for organic growth capital.\nTargeted acquisitions such as our planned acquisition of Midwest, are focused on adding new services capabilities or industry verticals and provide us with important opportunities for long-term profitable growth.\nAccretive tuck-in acquisitions that supplement our base business as well as investments by RyderVentures provide additional opportunities for us.\nOur capital allocation strategy is also focused on returning capital to shareholders through dividends and share repurchases.\nRyder has made an uninterrupted quarterly dividend payments for more than 45 years.\nOur dividend growth rate over the past 10 years is 7% and our current dividend yield is around 3%.\nThe new share repurchase programs discussed earlier allow for both anti-dilutive and discretionary share repurchases.\nWe remain committed to offsetting dilution through the use of the anti-dilutive program.\nThe discretionary program is planned to be utilized over time to manage leverage and its usage will be dependent on several factors, including balance sheet leverage, the availability of quality acquisitions and stock price.\nOur capital allocation priorities are focused on achieving ROE of 15% or higher over the cycle while generating positive free cash flow and maintaining target leverage.\nTurning now to our earnings per share outlook on page 15.\nWe're raising our full year comparable earnings per share forecast to $8.40 to $8.50, up from our prior forecast of $7.20 to $7.50 and well above a loss of $0.27 in the prior year.\nWe're also providing a fourth quarter comparable earnings per share forecast of $2.36 to $2.46, significantly above the prior year of $0.83.\nUsed vehicle sales, rental and lease are the key drivers of higher expected full year results.\nGains are expected to be down slightly in the fourth quarter compared to the third quarter, reflecting strong pricing, partially offset by fewer vehicles sold due to low inventory levels.\nLooking ahead to 2022, we expect both higher revenue and earnings.\nRecord new contract wins in 2021 in supply chain and dedicated are expected to benefit 2022 revenue growth.\nSupply chain and dedicated margins are expected to improve in the first half of next year and move toward the target range in the second half, reflecting price increases to address higher labor costs, barring any further market disruptions.\nWe expect strong freight conditions and truck production challenges to continue into 2022 benefiting FMS results.\nDeclining depreciation expense impact is expected to benefit year over year earnings comparisons by $85 million.\nHowever, this is expected to be fully offset by higher book values on vehicles being sold next year.\nUsed vehicle sales volumes are expected to be flat to modestly higher.\nUsed truck pricing for the year is expected to be flat to modestly higher in 2022, remaining strong through at least the middle of the year and potentially declining in the second half if new truck production ramps up and used vehicle inventories and the overall market begin to normalize.\nFree cash flow next year is expected to decline, largely reflecting the $400 million capital expenditure deferral from 2021 into 2022 due to OEM delivery delays.\nGiven the unusual OEM production situation, it would be appropriate to look at combined free cash flows in 2021 and 2022.\nOverall, we're pleased with the trends that favor outsourcing and our efforts in sales, marketing and new product development.\nWe're confident in the actions we're taking to increase returns, including higher pricing to offset labor challenges, positioning us well for 2022.\nBefore we go to questions, please note that we expect to file our 10-Q later today.",
        "summary": "q3 non-gaap earnings per share $2.55 from continuing operations.\nincreased fy comparable earnings per share (non-gaap) forecast to $8.40 - $8.50.\ncontinue to work closely with scs automotive customers to mitigate impact from their supply chain disruptions.\nnow anticipate achieving roe of 18% - 19% in 2021 while generating free cash flow of $1.0 billion - $1.1 billion."
    },
    {
        "text": "This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company.\nI'm pleased to kick the 2021 third quarter earnings call for The Boston Beer Company.\nJoining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Frank Smalla, our CFO.\nBefore we discuss our business, I'll start with our disclaimer.\nI will now pass it over to Jim for some introductory comments.\nOur intent today is to provide some additional context around our third quarter earnings, discuss our views on trends, we see driving results at Boston Beer and in our industry and talk about how we see performance going forward.\nAfter I discuss a few highlights from the third quarter, I'll hand it over to Dave who will provide an overview of our business.\nFrank will then provide details of the third quarter financial results and how these results have been impacted by slower than anticipated hard seltzer growth, as well as our outlook for the remainder of 2021 and 2022.\nThen I will share with you our longer term view of the business.\nI'll begin with some context.\nIn measured off-premise channels year-to-date through October 10, where our brand portfolio represents only 4.4 of the total industry volume, we've delivered more than 41% of the total industry volume growth, the highest by far of all brewers.\nFour of our five major brands are growing depletions and gaining share in off-premise measured channels over the last 13 weeks.\nWe have a broad portfolio of healthy brands which we will further build in 2022 to continue driving our growth.\nOur success had been recognized by our most important customers, our distributors, who recently voted us the top beer supplier in 2021 in the latest Tamarron survey.\nThis is the 10th time in the last 12 years that our most important customers have recognized us as the top supplier in our industry.\nBut despite these ongoing strengths, we experienced very large unanticipated costs as the result anticipated costs as the result of the sudden unexpected slowing of growth in hard seltzer.\nBased on our growth projections, we moved aggressively to build inventory to try to avoid the out of stocks that we experienced in 2019 and in 2020 and to secure capacity both short term and long term to be ready for growth through 2023.\nDave will share our perspective on the decisions that led to these unanticipated costs, and Frank will share a fuller accounting of them.\nI'll now pass it over to Dave for a more detailed overview of our business.\nLet me start by addressing where we are strategically, how we're viewing the future of the hard seltzer category, and how we plan to grow our portfolio going forward, even without high-double-digit hard seltzer category growth.\nThere's no question that hard seltzers have generated tremendous growth for the beer category over the last five years and will remain a very important beer industry segment in the future.\nHard seltzers are 11% of total beer dollars year-to-date, up from 9% during the same period in 2020.\nConsumer metrics remain favorable.\nSocial media sentiment continues to trend positively.\nAnd household penetration, frequency, and buy rate, all are increasing over the past 13 weeks.\nVolume growth has slowed this year, but we continue to believe that hard seltzers can reach 15% to 20% of total beer dollars in the next five years.\nWe believe the ability to create alcoholic beverages from a beer base with the range and variety of flavors previously only available to mixed drinks, coupled with the convenience and portability of beer and beers tax and distribution levels will be a platform for long term growth for Boston Beer.\nWe've been playing to win and we've reaped many benefits.\nSo far this year, Truly has achieved the second highest household penetration in all of beer, behind only Bud Light beer and ahead of all its other hard seltzer and beer industry competitors.\nTruly has generated 54% of all hard seltzer category growth so far in 2021, 2.3 times the next highest brand.\nWe've gained 23 share points against the Category Leader since January 2020.\nWe've led the category in innovation and brand building and outgrow beer category for 13 straight months.\nWe also believe the Truly is blazing its own path and not following the category of like so many other entries.\nThus, we believe we are well-positioned to succeed in the future when it will be much harder for new entrants to gain share.\nWe've created $1 billion dollar brand in only five years and we're confident we'll continue to grow it going forward.\nSlowing hard seltzer category growth has certainly impacted our business.\nEarlier in the year, we had expected the category to grow at over 70% and Truly to gain share.\nThe Truly brand did gain share but the category did not grow as we had expected.\nBecause of our higher demand projections earlier in the year and our commitment to avoid the out of stocks that we experienced during the summers of 2019 and 2020, we added significant capacity and pre-built inventories of cans and finished goods to levels that ended up exceeding actual needs as the category slow down.\nAs a result, we are currently faced with significant temporary costs as we adjust to the new category trends.\nThese cost impacts are reflected in our third quarter financials.\nBuilding our capacity and inventory levels was an essential part of playing to win.\nIn that strategic context, we believe the risk of undersupply was bigger than that of oversupply.\nSo we resourced against a high growth scenario, securing supply constrained materials and capacity to gain market share in a highly competitive and fast-growing category.\nHaving said this, we've updated and evolved our own category growth model and believe the category could be flat to plus 10% growth in our most likely 2022 scenarios.\nClarity will probably not increase until we start to lap June and July 2021 when the category started to decelerate rapidly especially in the two year volumes stack which we look at closely.\nRegardless of which scenarios proved most accurate, we fully intend to extend our streak of outgrowing the category throughout the year driven by innovation, continued brand building and superior retail execution and distributor support.\nAs Jim mentioned, we have a balanced portfolio of healthy, well-positioned brands.\nAs we look toward 2022 and beyond, our aim is to continue double digit depletions growth on the foundation of this portfolio, especially as consumers drink more Beyond Beer products.\nWe are the number two player in Beyond Beer with a 26% share driven by the number one FMB and Twisted Tea, the strong number two hard seltzer in Truly and the number one hard cider in Angry Orchard.\nTwisted Tea has overcome this past summer supply chain issues and out of stocks.\nIt has grown 22% in the last 13 weeks and measured our premise channels.\nTwisted Tea is the second fastest growing brand year to date among the top 25 in beer, while Truly remains number one in percentage and absolute volume growth.\nWe will have industry leading innovation again with Truly starting with a holiday party pack next month and followed by the January 2022 launch of Truly Margarita Style, which has received a terrific response and initial discussions with our distributor partners and retailers.\nAs Twisted Tea expands its consumer base, we're launching a new Twisted Tea Light with only 109 calories.\nWith our innovations go beyond Truly and Twisted Tea for 2022, we're introducing new brands the Bevy Long Drink, Salsa Agave Cocktails and Hard Mountain Dew.\nWe're also expanding our lineup of award winning Dogfish Head canned cocktails with new vodka and gin crush styles and we're launching a new tropical fruit extension for Angry Orchard in addition to adding an Angry Orchard Hard Core, an 8% ABV product.\nMeanwhile, our Sam Adams, Your Cousin from Boston Campaign is paying dividends.\nAs Sam Adams grew double digits in the third quarter fueled by both on premise and off premise gains while also gaining share of craft in the off premise.\nNow, I'll hand it over to Frank to discuss our third quarter financials as well as our outlook for 2021 and our initial thoughts on 2022.\nBefore I get into the financial review of our third quarter results and financial outlook, I'd like to provide more detail on the third quarter charges and other costs related to the hard seltzer slowdown.\nAs Dave explained, we strategically resource against the high side of our internal category growth and market share projections to ensure we would not be constrained in our efforts to build our share position in the hyper-growth hard seltzer category.\nResourcing against our high-side scenario included adding internal and external capacity, pre-building distributor and internal inventory ahead of the peak summer season, and securing tight supply materials such as cans and flavors.\nThis strategy enabled us to gain share in 2020 and 2021 in a supply constrained environment.\nFollowing the rapid slowdown this summer, extra hard seltzer category growth fell below our internal low-side projections and resulted in excess capacity and higher-than-planned inventory levels of input materials and finished goods.\nAs a result, we have taken $102.4 million third quarter charge related to direct costs of the hard seltzer slowdown consisting of inventory obsolescence and destruction -- and related destruction costs of $54.3 million; contract termination costs, primarily for excess third-party contract production of $35.4 million; and equipment impairments of $12.7 million.\nIn addition, the third quarter results include indirect costs resulting from the slowing hard seltzer category growth of $30.6 million.\nThese costs include negative absorption impacts at company-owned breweries and downtime charges at third-party breweries of $11.4 million; increased raw material sourcing and warehousing costs of $11.8 million; and distributor return provisions for out of code or damaged products of $5.4 million; and other costs of $2 million.\nThe negative absorption impacts are the result of shipments lagging depletions to reduce distributor inventories to target levels and production lagging shipments to reduce internal inventory levels.\nWith this background and in the third quarter financial impact of the slowdown in hard seltzer, I will now turn to our overall third quarter results and our current outlook for full year 2021 and 2022.\nFor the third quarter, we reported a net loss of $58.4 million, a decrease of $139.2 million from the third quarter of 2020.\nLoss per diluted share was $4.76, a decrease of $11.27 per diluted share from the third quarter of 2020.\nThis decrease was due to the combined direct and indirect costs related to slowing hard seltzer category growth of $133 million or $7.73 per diluted share, net of the related tax benefit and high operating expenses, partially offset by increased net revenue.\nDepletions for the quarter increased 11% from the prior year, reflecting increases in our Twisted Tea, Truly hard seltzer, Samuel Adams and Dogfish Head brands, partially offset by decreases in our Angry Orchard brand.\nShipment volume for the quarter was approximately 2.3 million barrels an 11.2% increase from the prior year, reflecting increase in our Twisted Tea, Samuel Adams and Angry Orchard brands, partially offset by decreases in our Truly hard seltzer and Dogfish Head brand.\nWe believe distributor inventory as of September 25, 2021 average approximately six weeks on the hand and was at an appropriate level for each of our brands, except for Truly which had significantly higher than planned distributor inventory levels for certain styles and packages.\nTo address the slowing demand and continued volatility of future volume projections for Truly, we're working closely with our distributors to reduce Truly distributor inventory levels.\nWe adjust the production and shipments during the third quarter and expect to continue to do so during the remainder of the year.\nOur third quarter gross margin of 30.7% decreased from 48.8% margin realized in the third quarter of 2020, primarily due to the $84.9 million direct and indirect volume adjustment costs as a result of slowing hard seltzer growth described and higher materials costs partially offset by price increases.\nAdvertising, promotional and selling expenses increased by $58.8 million or 54.4% from the third quarter of 2020, primarily due to increased brand investments of $37.6 million, mainly driven by a media production and local marketing costs, and increased freight to distributors of $21.2 million that was primarily due to higher rates and volumes.\nBased on information of which we are currently aware, we're not targeting full-year 2021 earnings per diluted share of between $2 and $6.\nHowever, actual results could vary significantly from this target.\nThis projection excludes the impact of ASU 2016-09 and is highly sensitive to changes in volume projections, particularly related to the hard seltzer category.\nFull-year 2021 depletions growth is now estimated to be between 18% and 22%.\nWe project increases in revenue per barrel of between 2% and 3%.\nFull-year 2021 gross margins are expected to be between 40% and 42%.\nThe gross margin impact related to the combined full-year direct and indirect costs of the hard seltzer slowdown is estimated at $132.6 million of which $95.8 million have been incurred in the first nine months and the remainder of $36.8 million estimated to be incurred in the fourth quarter.\nOur full-year 2021 investments in advertising, promotional, and selling expenses are expected to increase between $80 million and $100 million.\nThis does not include any increases in freight costs for the shipment of products or distributors.\nI will now turn to 2022.\nWe're in the process of completing our 2022 plan and will provide further guidance and present our full year 2021 results.\nBased on information of which we are currently aware, we are using the following preliminary assumptions and targets for 2022 fiscal year which are highly sensitive to changes in volume projections, particularly related to the hard seltzer category.\nWe're targeting depletions and shipments percentage increases of between mid-single digits and low double digits.\nWe project increases in revenue per barrel of between 3% and 6%.\nFull year 2022 to gross margins are expected to be between 45% and 48%.\nWe plan increased investment in advertising, promotion and selling expenses of between $10 million and $30 million for the full year 2022, not including any changes in freight costs for the shipment of products to our distributors.\nWe expected our cash balance of $86.5 million as of September 25, 2021 along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements.\nNow, I'll hand it back to Jim for some closing remarks.\nRemind us all, we have a tremendous track record of growth at Boston Beer Company.\nFor the past 20 years we've grown our revenue at over a 12% compounded annual growth rate and have increased total shareholder returns at a 20% compounded annual growth rate.\nThat growth doesn't always come in a straight line.\nThe numbers are a beautiful thing but the actual results sometimes aren't pretty, but it has come over 20-years compounded because we've demonstrated the ability to consistently innovate and grow great brands in our niche, the high end of the beer and beyond category.\nThat brings us to where we are today.\nTruly is the number two hard seltzer in closing the gap this year with the current category leader.\nTwisted Tea is number one in hard tea and now the number one F&B and is continuing to gain share.\nThe Sam Adams brand is gaining share for the first time in several years, and Angry Orchard is number one in hard cider and maintaining close to a 50% market share.\nWe intend to grow these four brands and Dogfish Head as well in 2022 through brand building and executing at retail, the things that we've been doing for decades.\nWe believe we have the best brewers, the best high-end brands with potential yet to be fully tapped, the best sales force and the best innovation, again, for 2022.\nWe're fixing our capacity and supply chain issues.\nOur marketing is hitting its stride and we have the best distributor network behind us.\nThat's why we've been the fastest growing company in all of alcohol for the last few years.\nWe have a company and culture that not only delivers double digit growth, but also demonstrates resilience and agility when faced with challenges.\nAs Dave mentioned, we've been playing to win in the hard seltzer category.\nWe will continue to play to win, to nourish our brands, to exploit their untapped growth potential, as we're seeing with our 20-plus year old Twisted Tea brand and to innovate with new ones in the months ahead.\nToday, we hope to put the turbulence of the hard seltzer category slowdown behind us and continue to prove our ability to outgrow the beer category for many years to come.",
        "summary": "compname reports q3 loss per share of $4.76.\nq3 loss per share $4.76."
    },
    {
        "text": "This is Debbie Young, director of investor relations for SCI.\nWith that out of the way, let me pass it on now to our chairman and CEO, Tom Ryan.\nWe hope you and your families are staying safe and healthy.\nThen I'll offer some commentary on our 2021 outlook, with the understanding that there remains substantial uncertainty surrounding these effects of the COVID-19 pandemic, which could change guidance significantly.\nHowever, before I begin, I would like to say a few words about this past year.\n2020 has certainly been one of the most uncertain and challenging periods that any of us can remember.\nAs I reflect back on the last 10 months, I can say with certainty that our results are a testament to our team's incredible hard work and to the resilience of our underlying business.\nI'm extremely proud of our entire SCI team for going above and beyond the call of duty in 2020.\nIn this difficult period, we stayed relentlessly focused on what we do best, helping our client families gain closure and healing through the process of grieving, remembrance and celebration.\nThe health, safety, and well-being of our SCI family was a top priority.\nAnd not only were we able to avoid any layoffs, mandatory furloughs or reductions in pay as a result of the impact of COVID-19, we were able to recognize the incredible efforts of our frontline associates with hero bonuses and provide special bonuses for every associate that does not participate in our annual incentive plan.\nIn 2020, our services were needed more than ever, and I am proud that we were able to perform significantly increased number of services without any disruptions to our business, which highlights the power of our scale.\nOne thing that became clear throughout 2020 is that our fundamental business has not changed.\nWe did not see a wholesale shift in the consumer preferences, and our cremation remains stable.\nAlthough we were greatly restricted in our ability to have large gatherings in 2020, we heard loud and clear from our consumers that they still have a desire to memorialize and to celebrate the lives of their loved ones.\nVirtual arrangements, live streaming of services, outdoor services, drive-through visitations, radio transmitted graveside services, and many more unique memorialization and celebration of life ideas are now a normal part of what we do.\nThe success and acceleration of these enhanced service offerings have highlighted the importance of innovation in our industry.\nWe will continue to invest in technologies that enhance how we interact with consumers digitally, providing a better customer experience -- contact to the arrangement conference and beyond while also enhancing efficiencies in our operations.\nAs the year unfolded, actions we took in response to in-person meetings limitations yielded noncustomer-facing efficiencies.\nWe more effectively utilize our labor force using the virtual training, our customer relationship management system and other technology tools instead of incurring travel-related costs.\nWe also drove down our lead cost per sale by accelerating the growth of digital leads and making significant improvements to our direct mill program to drive record growth.\nAll of the many learnings from this year will make us a better company going forward.\nAs a result, we're positioned to enter the post pandemic world as a more agile and efficient company.\nNow let's shift and provide you with some color about the core.\nexperienced in late November and December.\nJust to give you a little color on the cadence of the quarter, our same-store funeral volumes were up 7% in October, then grew to 13% in November and an unprecedented 31% in December, which is the highest monthly growth rate we experienced all year.\nAnd as a result of this surge late in the quarter, we finished the fourth quarter with adjusted earnings per share of $1.13 compared to $0.60 in the prior year, well above the range we provided to you in October.\nBoth funeral and cemetery segments had margin improvement of over 600 basis points, driven by double-digit top line percentage growth applied against a more efficient cost structure.\nWe also benefited from a lower share count and a lower tax rate.\nLet's now take a look at funeral operations in the quarter.\nTotal comparable funeral revenues grew approximately $49 million or 10% during the quarter.\nBoth core and nonfuneral home channels performed very well and were slightly offset by lower general agency revenues caused by a decline in insurance funded preneed funeral sales production.\nCore revenues grew $53 million, driven by a 17% increase in the number of cases, partially offset by a 3.4% decline in the funeral sales average.\nThe predominant reason for the increase in services performed was due to the direct impact of COVID-19, and, to a lesser extent, to an increase in non-COVID related deaths such as heart disease, stroke, cancer, drug overdose and suicide, perhaps a consequence of a lack of access to healthcare during 2020.\nWords cannot convey the level of our appreciation and respect I have for our frontline team.\nThe tremendous care you provided record numbers of our client families during such a stressful time can only be described as heroic.\nThe decline in the funeral sales average of 3.4% was due to the local jurisdictions reimposing restrictions on gatherings, given the surge in deaths of November and December.\nThis resulted in a decline in a number of cases with the service.\nThe cremation mix shift was a moderate 120 basis points and had a minimal impact on the quarter-over-quarter funeral average decline.\nPreneed funeral sales production for the quarter was down 1.6% versus the prior year, which is just a significant improvement of our results posted in earlier quarters this year.\nWhile we saw record growth in production from our digital and direct mail leads, we continued to be hampered by a decline in preplanning seminars due to local restrictions and consumer reluctance on in-person gatherings in restaurants.\nFrom a profit perspective, funeral gross profit increase of $45 million, and the gross profit percentage increased 640 basis points to 27.5%, realizing a 92% incremental margin on our revenue growth.\nGrowth in our high incremental margin core business more than offset slight declines in our lower-margin revenue streams.\nWe also continue to benefit by the efficient management of labor hours with fewer and smaller services as well as the reductions in noncustomer-facing costs and certain marketing and promotional expenses.\nNow shifting to cemetery.\nComparable cemetery revenue increased $64 million or 18% in the fourth quarter.\nAtneed cemetery revenue accounted for $25 million of the growth, driven by more burials performed due to some effects of COVID-19.\nRecognized preneed revenues accounted for $35 million of growth, mainly due to higher preneed cemetery sales production during the quarter.\nPreneed cemetery sales production grew $40 million or 16% in the fourth quarter, driven by increased lead sources associated with the higher atneed services and burials performed.\nThe preponderance of the growth, $25 million or about 60%, was from a 12% increase in velocity with a number of contracts sold.\nThe remaining growth of about $15 million was primarily due to large sales activity.\nWe continue to see this more productive and efficient sales force with better utilization of our customer relationship management system and improved conversion rates from our direct mail and digital lead campaigns.\nConsumer reception to having a preplanning discussion remains very high.\nI want to take a moment to recognize the tremendous efforts of our sales team.\nFor the full year 2020, they wrote more than $1 billion in cemetery preneed sales production.\nThis is our new company record, so hats off to the entire sales organization.\nCemetery gross profits in the quarter grew by approximately $49 million, and the gross profit percentage increased 680 basis points to 39%.\nGrowth in revenues and strategic cost reductions combined to drive margins beyond normalized incremental levels.\nFor the full year 2020, we reported an adjusted earnings per share of $2.91, a 53% increase over 2019 in a one-of-a-kind year.\nObviously, the speed and efficacy of the vaccine rollout could have a significant impact on the spread of the virus, hospitalizations and, ultimately, on the number of deaths.\nThis, combined with the willingness of the consumer to transact on a preneed basis may have a material effect on our 2021 results.\nThere is no doubt that in 2020, we serviced deaths that were pulled forward from a future year.\nWhile we know that the timing of the pull forward is impossible to accurately predict, we have developed models are based on data from the IHME and the CBC, which incorporate historical trends and current COVID-related deaths by age group as well as by comorbidity factors in determining what future years are impacted by accelerated deaths and by how much.\nBased on all these assumptions, we also believe adjusted earnings per share in 2021 will likely range between $2.50 and $2.90 per share.\nWe have provided a wider than normal range based on the uncertainties surrounding the impact of COVID-19.\nLet's take a deeper dive into our assumptions for the 2021 earnings per share guidance.\nWe are modeling funeral volume to be down versus 2020, but mid single-digit percentage is higher than the 2019 levels due to the expected impact on funeral volumes in the first few months of 2021 associated with COVID-19.\nWe anticipate double-digit year-over-year percentage increases through March.\nThen while we expect the continued impact from COVID-19 deaths, we predict comparable volumes to trend lower for the rest of the year as compared to the very active final nine months of 2020.\nWe expect the funeral average to be down low single-digit percentages in January and February and begin to see favorable trends as we compare back to the early months of the COVID outbreak in 2020.\nWhile we anticipate growth year over year, we still believe we will struggle to get back to 2019 levels as we now believe that many people will continue to be reluctant to gather in large groups.\nWe expect preneed funeral sales production to begin to rebound in the back half of the year and for the full year to grow in the mid- to high single-digit percentage range.\nCemetery atneed revenues should see significant year-over-year growth in the first quarter, followed by a comparable decline in the last three quarters as we face a significant hurdle from the 2020 results.\nFor this year, we expect cemetery atneed revenue to be down versus 2020 but still show significant growth over 2019 pre-COVID levels.\nCemetery preneed sales production grew an unprecedented rate in the back half of 2020, and we believe that momentum will carry over into the first half of 2021.\nWe expect double-digit percentage growth for the first four months of the year before confronting challenging year-over-year comparisons beginning in May.\nFor the full year, we anticipate preneed cemetery sales production are to be down in the mid single-digit percentage range versus 2020 but still be delivering solid growth as compared to our 2019 levels.\nSo in closing, in spite of experiencing the most challenging environment, our team continued to deliver.\nWe rose to meet challenges never faced by our company before, and you have been an extraordinary example of commitment, professionalism and agility.\nIt's an honor to work with such great people.\nAs we look ahead, I'm extremely optimistic about our future.\nWhile we do not anticipate the impact from COVID to completely go away, it is our belief that we should see a more muted effect on our results for 2022.\nTherefore, we expect a decline in case volume and atneed cemetery revenues and, therefore, on the associated earnings and cash flow from the pull-forward effects of 2020 and 2021.\nHowever, this knowledge that we gained from this awful COVID experience is anticipated to produce a more competitive and profitable operating platform in the years to come.\nTherefore, we predict an impressive earnings-per-share growth for 2023 approaching $3 per share, resulting from a combination of enhanced market share and a leaner infrastructure, leveraging technology and a more efficient sales structure.\nAs the pull forward impact wanes and the baby boomers begin to enter their late 70s, we expect a further acceleration of earnings growth.\nWith our eyes on the longer term, we are now also continuing to invest in technology and new service offerings that allow us to remain relevant with our consumers, enhance digital clients experience and more efficiently and effectively serve our customers.\nAnd like I've done many times over the past few quarters, I'm going to start by providing you with an update on the strength of our financial position that has supported us through these very volatile times.\nI will then move on to address our cash flow results during the fourth quarter as well as the full year of 2020, followed by capital deployment activities for the year.\nAnd then I'll end by providing some details of our outlook for 2021.\nBut I think more importantly than any of that, before we begin, when we are reporting our 2019 earnings almost exactly a year ago today, I don't think any of us could have anticipated what we would be facing in 2020.\nDuring the year, our frontline associates helped our communities deal with this rapidly moving virus with unparalleled poise and dignity, particularly earlier on in the year when there was more speculation than there were facts available about coronavirus.\nBut even to this day, teams across our network are coming together and sacrificing their personal time, being away from home, all to support their colleagues and their broader communities as well who are managing in current COVID hotspots.\nNow I'll shift to the financial update.\nSo while we entered the pandemic, anchored by a strong financial position and a favorable debt profile, we continue to be very well positioned with a significant amount of liquidity of roughly $670 million at the end of the year, consisting approximately $230 million of cash on hand plus $440 million available on our long-term bank credit facility.\nOn the higher EBITDA resulting from the strong Q4 results we're talking about today, our leverage remains low at 3.19x at the end of the year.\nAnd as we look beyond the impacts of this pandemic, we still intend to manage leverage in a range of 3.5 to four times net debt to EBITDA.\nSo let's move to cash flow, which has been resilient for us throughout 2020.\nCash flow in the fourth quarter marked a much stronger-than-expected finish to the year, supported by the earnings outperformance that Tom just mentioned, associated with the surge of COVID-related deaths particularly in late November and in December.\nWe generated operating cash flow of $245 million during the quarter, representing an increase of $88 million or 56% over the prior year.\nThis increase is primarily related to the growth in cash earnings in the quarter as well as the decrease in cash interest payments of about $28 million, predominantly as a result of recent debt refinancing transactions.\nAlso remember, we continue to benefit from the deferral of our payroll tax payments as allowed under the CARES Act, which benefited the quarter by about $13 million and for the full year by about $41 million.\nThese positive inflows were partially offset by $25 million of higher cash tax payments on the higher earnings as well as a net use of preneed working capital, which we have seen all year on the growth in cemetery preneed property sales sold on an installment basis.\nAnd as we step back and look at the full year, we have generated over $800 million in operating cash flow, representing an increase of $170 million over the prior year.\nSo let's talk about how we deployed this free cash flow.\nDuring the quarter, we had a very robust capital program, deploying nearly $325 million of capital to reinvest in and grow our businesses as well as return value to our shareholders.\nSo regarding the breakdown, we invested $56 million in our businesses through maintenance and the cemetery development capital spend, which was about $2 million more than the prior year quarter but in line with our expectations.\nFull-year spend was approximately $185 million, which represents a 9% decline from the prior year as we curtailed or deferred certain expenditures during the very early stages of the COVID-19 pandemic, which we expect to make up in 2021, as I'll address later in my remarks.\nDuring the quarter, we deployed about $35 million toward acquisitions, which was a nice pickup in activity at the end of the year.\nFor the full-year 2020, we deployed just over $100 million in both acquisitions and growth capex for construction of new funeral homes.\nThen finally, in the quarter, we returned nearly $225 million to shareholders in the form of dividends and share repurchases.\nWith our strong liquidity and cash flow as a backdrop, along with our favorable leverage profile, we took the opportunity to deploy a very healthy amount of capital to share repurchases in 2020.\nIn the fourth quarter, we bought back about 2% of our outstanding shares, bringing the full year reduction in outstanding shares to about 6%.\nNow let's shift to our outlook for 2021 and in terms of cash flow and capital deployment.\nTom just gave you some color on the ever-evolving pandemic, making it challenging to forecast with great precision where our results will land in 2021.\nThere are a few items that I'd like to highlight when thinking about cash flow from ops in 2021.\nWe will incur three full quarters of what I would consider regular payroll taxes of about $40 million, which we're able to defer in 2020 as allowed under the CARES Act.\nAdditionally, we will also be required to pay half or about $20 million of our deferred payroll taxes in the third quarter of 2021, and the remainder will be due in 2022.\nThese two items then collectively create a $60 million impact to cash flow in 2021 when you compare it to 2020 associated with payroll taxes.\nFederal cash tax payments and state tax payments together are also anticipated to be about $25 million higher than 2020 at about $160 million in '21.\nThis increase is mostly related to the timing of cash tax payments associated with our stronger-than-expected Q4 2020 financial results that will be paid in early 2021.\nAnd from an effective tax rate standpoint, we continue to model in the range of 24% to 25% in '21.\nSo moving on to some thoughts about capital deployment as we move forward.\nOur expectation for maintenance and cemetery development capital spending in '21 is $235 million to $255 million, which is about $40 million higher than our pre-COVID level spend as we proceed with certain projects deferred from last year.\nIn addition to these recurring capital expenditures of $245 million at the midpoint, we also expect to deploy $50 million to $100 million toward acquisitions and roughly $50 million to $60 million in new funeral home construction opportunities, which, together, drive low to mid-teen aftertax internal rates of return, well in excess of our cost of capital.\nAnd so with those remarks in closing, 2020 was by far the most difficult backdrop we faced in a very long time.\nFortunately, we went into it with a superior balance sheet, and it stayed strong for the duration.\nDespite everything that has occurred, 2020 has been an extremely successful year for us, while managing through many unforeseen and unexpected challenges.",
        "summary": "service corporation international q4 adj shr $1.13.\nq4 adjusted earnings per share $1.13.\nsees 2021 diluted earnings per share excluding special items $2.50 - $2.90."
    },
    {
        "text": "stepan.com under the Investors section of our website.\nAs vaccines are rolled out across the country, we hope you and your families have had a chance to be vaccinated and that you will continue to stay safe and healthy.\nWe at Stepan remain committed to doing our part by supporting customers that supply essential cleaning, disinfection, and personal wash products to the market.\nScott has been a key leader at Stepan for the past 28 years.\nWe are pleased to recognize Scott's contributions to our success with his promotion and are excited about the challenge he brings to this role and the impact he will have on the value of our company for you and for all shareholders.\nThe company had a good start to the year and delivered record quarterly income.\nThe best financial quarter our company has ever had.\nAdjusted net income was $42.4 million or $1.82 per diluted share, up 75% from $24.2 million or $1.04 per diluted share last year when we had the power outage at our Millsdale facility.\nFor the quarter, surfactant operating income was up 47% primarily due to improved customer and product mix.\nOur polymer business was up 140% on the strength of 32% global sales volume growth.\nPart of the volume growth was driven by the INVISTA acquisition, organic market growth, and a rebound in our PA business.\nour Specialty Product business results were down due to lower margins within our MCT product line.\nOur Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.305 per share payable on June 15, 2021.\nStepan has increased its dividend for 53 consecutive years.\nLuis will walk you through a few more details about our first quarter results.\nLet's start with the Slide 4 to recap the quarter.\nAdjusted net income for the first quarter of 2021 was at a record $42.4 million or $1.82 per diluted share, a 75% increase versus $24.2 million or $1.04 per diluted share in the first quarter of 2020.\nSpecifically, adjustment to reported net income this quarter consist of adjustment for deferred compensation and some minor restructuring expenses.\nAdjusted net income for the quarter excludes deferred compensation expense of $1.7 million or $0.08 per diluted share compared to deferred compensation income of $3.6 million or $0.15 per diluted share in the same period last year.\nThe deferred compensation numbers represent the net expense related to the company's deferred compensation plan as well as cash-settled stocks appreciation rights for our employees.\nBecause these liabilities change with the movement in the stock price, we exclude these items from our operational discussion.\nSlide 5 shows the total company earnings bridge for the first quarter compared to last year first quarter and breaks down the increase in adjusted net income.\nBecause this is net income, the figures noted here are on an after-tax basis.\nWe will cover each segment in more detail, but to summarize, surfactants and polymers were up significantly, while Specialty Product was a slightly down versus the prior year.\nCorporate expenses and all others were higher during the quarter due to the higher acquisition-related expenses and incentive-based compensation.\nThe company's first quarter effective tax rate was 23.6% compared to 22.5% in the prior year quarter.\nThis year-over-year increase was primarily attributable to a less favorable geographical mix of income.\nWe expect the full year 2021 effective tax rate to be in the range of 23% to 26%.\nSlide 6 focuses on Surfactant segment results for the quarter.\nSurfactant net sales were $371 million, a 13% increase versus the prior year.\nSelling prices were up 13% primarily due to an improved product and customer mix and the pass through of higher raw material costs.\nVolume was flat versus the prior year.\nHigher demand for products sold in our functional product end markets, principally agriculture and oilfield was offset by lower North America sales volume into our consumer product end market.\nThe reduction in North America consumer product volumes was due to suppliers force measure following the severe weather in Texas.\nConsumer Products volume outside North America grew low single digits.\nSurfactant operating income for the quarter increased $17 million or 47% versus the prior year.\nThe increase was primarily due to an improved product and customer mix and lower supply chain expenses with the non-recurrence of the Millsdale plant power outage in the prior year.\nNorth America results increased primarily due to an improved product and customer mix.\nBrazil results were up, driven by higher volumes and improved customer and product mix.\nMexico volume was also up high-single digit.\nEurope results increased slightly due to an improved product and customer mix.\nNow turning to polymers on the Slide 7.\nNet sales were $150 million in the quarter, up 41% from the prior year quarter.\nTotal sales volume increased 32% in the quarter primarily due to 32% growth in rigid volume.\nGlobal rigid polyol volumes excluding the INVISTA acquisition was up 8% versus the prior year.\nVolume for PA increased significantly, given the weak base due to the Millsdale power outage in the prior year.\nSelling prices increased 7% and the translation impact of a weaker US dollar positively impacted net sales by 2%.\nPolymer operating income increased $10 million or a 140% primarily due to strong sales volume growth and lower supply chain expenses due to the non-recurrence of the Q1 2020 Millsdale plant power outage.\nNorth America polyol results increased due to higher volumes and lower supply chain expenses in the current year quarter.\nEurope results increased due to double-digit volume growth in rigid polyol primarily due to the INVISTA acquisition.\nAsia and Latin America Polymer results decreased slightly versus prior year due to a one-time extra cost in Q1 2021.\nVolume in Asia grew a strong double-digit.\nspecialty Product net sales were $16 million for the quarter, In line with the prior year.\nSales volume was up 4% between quarters and operating income declined $1.4 million.\nThe operating income decrease was primarily attributable to lower margins within our MCT product line giving higher raw material prices.\nMoving on to Slide 8.\nOur balance sheet remains strong, and we have ample liquidity to invest in the business.\nOur leverage and interest coverage ratios continues at very solid levels.\nThe total cash reduction from $350 million to $151 million was driven INVISTA acquisition in the first quarter of 2021.\nWe had a strong cash from operations in the first quarter of 2021 which was used for CapEx investments, dividends, and incentive-based compensation payments -- payments.\nThe Company also experienced higher working capital requirements, which is typical for the first quarter.\nBeginning on the Slide 10, Scott will now update you on our 2021 strategic priorities.\nI am pleased to be joining our earnings call and look forward to continuing to contribute to the success our team has had generating for our shareholders.\nAs we wrap up the first quarter of 2021, we believe our business will remain strong.\nWe continue to prioritize the safety and health of our employees, as we deliver products that contribute to the fight against COVID-19.\nOur EPA approved biocidal formulations kill the specific novel virus that causes COVID-19 and allow our customers to provide the public with additional tools to protect their families and fight the pandemic.\nWe believe Surfactant demand in the consumer product end markets should remain strong as a result of changing consumer habits and sustained higher use of disinfection, cleaning and personal wash products.\nCore cleaning and disinfecting product lines drove volume growth in Europe and Latin America offset by lower volume in the US due to raw material disruptions related to the Texas weather incident.\nWe are increasing capacity in certain product lines biocides and amphoterics to ensure we can meet anticipated higher requirements from our customers.\nWe are also increasing North American capability and capacity to produce low 1,4-dioxane sulfates.\nAs previously explained, recent regulations passed in New York will require reduced levels of 1,4-dioxane in on-shelf consumer products by January 1, 2023.\n1,4-dioxane is a minor byproduct generated in the manufacture of ether sulfate surfactants which are key cleaning and foaming ingredients in consumer products.\nThrough a combination of process optimization and additional manufacturing equipment, Stepan will be prepared to supply customers ether sulfates that meet the new regulatory requirements.\nThis project is the primary driver of our increased 2021 capital expenditure forecast of $150 million to $170 million.\nWe are working with our customers to ensure these product projects deliver our financial return targets.\nTier 2 and tier 3 customers continue to be a focus of our strategy.\nWe grew tier 2 and tier 3 volume by 9% in the first quarter and increased customer penetration adding 362 new customers during the quarter.\nOur diversification strategy into functional markets continues to be a key priority for Stepan.\nDuring the first quarter, global agricultural volumes increased with strong growth obtained in the post-patent pesticide segment and eight new products launched throughout the world.\nOilfield volume was up double digits due to higher oil prices.\nWe remain optimistic about future opportunities in this business as oil prices have recovered to the $60 per barrel level.\nWe remain fully committed to delivering productivity gains across the company.\nWe delayed productivity project implementation at Millsdale to allow the team to focus on COVID-19 related market opportunities.\nWork on the project has now begun, and we expect to see the benefits in 2022 and beyond.\nPolymers had a good quarter as the business is gradually coming back after a challenging year due to COVID restrictions.\nThe long-term prospects for our polyol business remain attractive as energy conservation efforts and more stringent building codes should increase demand.\nThe integration of INVISTA is going well, and we expect to deliver on our internal commitments during 2021.\nThe acquisition is expected to be accretive to both earnings per share and EBITDA margins in 2021.\nThe company expects the multiple on a post synergy basis to be between 6.5 and 7.5 times.\nWe expect to deliver full run rate synergies within two years.\nThe company also acquired a fermentation plant located in Lake Providence, Louisiana in February 2021.\nThis acquisition is part of Stepan's further development of bio surfactant technology following the acquisition of NatSurFact in 2020.\nStepan has strong knowledge of surfactant chemistry, and we are excited about fermentation as a new platform technology for our next generation of surfactants, as customers look to achieve sustainability goals while maintaining key performance attributes.\nWe continue to optimize our fermentation process technology including downstream processing.\nThe Louisiana plant will require additional investment to manufacture our target product portfolio but will provide world scale capabilities to support customers in both functional product and consumer product applications.\nGiven the strength of our balance sheet, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and to add new platform chemistries.\nThe company just completed its best quarter ever.\nLooking forward, we believe our surfactant volumes in the consumer product end markets should remain strong as a result of continued heightened demand for disinfection, cleaning, and personal wash products.\nWe anticipate that demand for surfactants within the agricultural and oilfield markets will improve versus 2020.\nGlobal demand for rigid polyols continues to recover from pandemic related delays and cancellation of reroofing and new construction projects.\nThis gradual recovery combined with our first quarter 2021 acquisition of INVISTA's aromatic polyester polyol business should position our polymer business to deliver strong growth versus prior year.\nWe anticipate our Specialty Product business results will improve slightly year-over-year.\nAfter a record first quarter and despite experiencing significant raw material price increases, we are cautiously optimistic about the remainder of the year.\nDaisy please review the instructions for the question portion of today's call.",
        "summary": "q1 adjusted earnings per share $1.82.\nstepan - believe surfactant volumes in n. american consumer product end markets may recover after supply chain disruptions from severe weather in texas.\nbelieve that heightened consumer demand for disinfection, cleaning and personal wash products will continue."
    },
    {
        "text": "stepan.com under the Investors section of our website.\nWe hope you and your families have had an opportunity to be vaccinated and that you have done so.\nThe best way to protect yourself and your family is to be vaccinated.\nAlthough, demand for cleaning, disinfection and personal wash products has slowed from the pandemic peak, we had Stepan remain committed to doing our part by supporting customers that supply these essential products to the market.\nThe company had a good first half and delivered record results.\nAdjusted net income was $84.6 million or $3.62 per diluted share.\nBoth adjusted net income and adjusted earnings per share were up 35% versus the first half of 2020, which was negatively impacted by the Millsdale plant outage.\nWe delivered our best second quarter and had $42.2 million adjusted net income.\nSurfactant operating income was down 5%, largely due to higher North American supply chain cost, driven by inflationary pressures and planned higher maintenance cost.\nOur Polymer operating income was up 48% on 44% sales volume growth.\nThe polymer growth was driven by both the INVISTA polyester polyol acquisition and organic market growth.\nOverall, the integration of INVISTA's business into our company has gone well and is on track with our business plans.\nOur Specialty Product business results were up due to order timing and improved margins within our MCT product line.\nOur Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.305 per share payable on September 15, 2021.\nStepan has increased its dividend for 53 consecutive years.\nLuis will walk you through a few more details about our second quarter results.\nLet's just start with the Slide four to recap the quarter.\nAdjusted net income for the second quarter of 2021 was $42.2 million or $1.81 per diluted share, a 10% increase versus $38.3 million or $1.65 per diluted share in the second quarter of 2020.\nSpecifically, adjustment to reported net income this quarter consists of adjustment for deferred compensation and minor restructuring expenses.\nAdjusted net income for the quarter excludes deferred compensation income of $1.1 million or $0.04 per diluted share, compared to deferred compensation expense of $1.9 million or $0.08 per diluted share in the same period last year.\nThe deferred compensation numbers represent the net expense related to the company's deferred compensation plan as well as cash-settled stock appreciation rights for our employees.\nThese liabilities change with the movement in the stock price, we exclude this item from our operational discussion.\nSlide five shows the total company earnings fees for the second quarter, compared to last year's second quarter and breaks down the increase in adjusted net income.\nBecause this is net income, the figure is noted here are on an after-tax basis.\nWe will cover each segment in more detail, but to summarize, Polymers and Specialty Products were up where Surfactant was down versus the prior year.\nCorporate expenses and all others were higher during the quarter due to higher acquisition-related expenses and overall inflation.\nThe company's effective tax rate was 24.4% in the first half of 2021 compared to 23.9% in the prior year period.\nThis year-over-year increase was primarily attributable to a less favorable geographical mix of income.\nWe expect the full year 2021 effective tax rate to be in the range of 23% to 26%.\nThe Slide six focuses on Surfactant segment results for the quarter.\nSurfactant net sales were $384 million, a 16% increase versus the prior year.\nSelling prices were up 17%, primarily due to improved product and customer mix as well as the pass-through of higher raw material costs.\nEffect of foreign currency translation positively impacted net sales by 5%.\nVolume decreased 6% year-over-year.\nMost of this decrease reflects lower volume into the North America consumer product end market.\nThis reduction was driven by lower demand for consumer cleaning, disinfection and personal wash products versus the pandemic peak in 2020.\nAdditionally, we continue to experience feedstock supply issues and customer inventory rebalancing efforts.\nThis was partially offset by higher demand for products sold into our institutional cleaning and functional product end markets.\nSurfactant operating income for the quarter decreased $2.6 million or 5% versus the prior year, primarily due to higher North America supply chain cost as a result of inflationary pressures and planned higher maintenance costs.\nLatin America operating results benefit from a $2.1 million VAT tax recovery project in the current year quarter.\nEurope results decreased slightly due to lower demand in consumer products, partially offset by increased demand in functional products.\nNow turning to Polymers on Slide 7.\nNet sales were $191 million in the quarter, up 70% from prior year.\nSales volume increased 44%, primarily due to 41% growth in Rigid Polyol volumes.\nGlobal rigid polyol volumes, excluding the INVISTA acquisition, was up 7% versus the prior year.\nHigher demand within the PA and Specialty Polyol businesses also contributed to the volume growth.\nSelling prices increased 21% and the translation impact of a weaker U.S. dollar positively increased net sales by 5%.\nPolymer operating income increased $7.5 million or 48%, primarily due to double-digit volume growth in the legacy polymers business plus INVISTA acquisition.\nNorth America polyol results decreased due to rising raw materials and manufacturing costs, partially offset by higher volumes.\nEurope results increased due to double-digit volume growth on the base business plus INVISTA acquisition.\nChina results decreased due to the nonrecurrence of a onetime benefit in the base period in 2020 and lower volumes.\nChina volumes in the first half of 2021 grew 5%.\nSpecialty Products net sales were $21 million for the quarter, up 33% from the prior year quarter.\nVolume was up 17% between quarters, and operating income increased $3.8 million or 116%.\nThe operating income increase was primarily attributable to order timing differences within our food and flavor business and improved margins within our MCT product line.\nMoving on to Slide 8.\nOur balance sheet remains strong, and we have ample liquidity to invest in the business.\nOur leverage and interest coverage ratios continues at very healthy levels.\nWe had a strong cash from operations in the first half of 2021, which was used for capex investments, dividends, share buybacks and investments in working capital, given the strong sales growth and raw material inflation.\nWe executed agreements for $100 million of new private placement debt at a very attractive and fixed interest rates of around 2%.\nWe will use a new cash to fund our organic and inorganic growth opportunities and for other general corporate purposes.\nFor the full year, capital expenditures are expected to be in the range of $150 million to $170 million.\nBeginning on Slide 10, Scott will now update you on our 2021 strategic priorities.\nWe are pleased to have delivered record first half earnings to our shareholders and look forward to carrying that momentum into the second half of the year.\nWe continue to prioritize the safety and health of our employees as we deliver products that contribute to the fight against COVID-19.\nOur EPA-approved biocide formulations kill a specific novel virus that causes COVID-19 and allow our customers to provide the public with additional tools to protect their families and to fight the pandemic.\nBased on customer feedback, consumer habits have changed, and these new behaviors require higher use of disinfection, cleaning and personal wash products.\nTherefore, we believe our surfactant volumes in the consumer product end market will remain higher versus pre-pandemic levels, however, lower than peak pandemic demand in Q2 of 2020.\nWe believe institutional cleaning volume will continue to grow as economies around the world reopen and people demand higher standards for cleaning and disinfection in public settings.\nWe also anticipate that demand for surfactants within the agricultural and oilfield markets will continue to benefit from higher agricultural and commodity prices and improve versus 2020.\nWe will continue working on improving productivity as well as product and customer mix to improve Surfactant operating income.\nGlobally, we are increasing capacity in certain product lines, including biocides and amphoteric to ensure we can meet higher requirements from our customers.\nAs discussed previously, we are increasing North American capability and capacity to produce low 1,4-dioxane sulfates, a minor byproduct generated in the manufacture of ether sulfate surfactants, which are key cleaning and foaming ingredients used in consumer product formulations.\nThrough a combination of process optimization and additional manufacturing equipment, Stepan will be prepared to supply customers ether sulfates that meet the new regulatory requirements.\nThis project is the primary driver of our 2021 capital expenditure forecast of $150 million to $170 million and will carry over to 2022 as well.\nWe are working with our customers to ensure these projects deliver our financial return targets.\nTier two and Tier three customers continue to be a focus of our strategy.\nTier two and Tier three volume grew in the second quarter, driven by increased customer penetration.\nWe added 150 new customers during the quarter and more than 500 customers in the first half of this year.\nOur diversification strategy into functional markets continues to be a key priority for Stepan.\nDuring the first half, global agricultural volume increased high single digits with strong growth obtained in the post-patent pesticide segment and new products launched throughout the world.\nOilfield volume was up mid-single digits due to higher oil prices.\nWe remain optimistic about future opportunities in this business as oil prices have recovered to the $70 per barrel level.\nWe continued our consulting work in our Millsdale plant and accelerated interventions and investments in both expense and capex to increase capacity and improved productivity.\nWe expect to continue this project and investment level throughout the rest of this year.\nWe are projecting a strong return on investment in this project through a combination of productivity improvements, more capacity in several high-margin product lines through debottlenecking key processes and improved service to our customers.\nWe anticipate starting to see the benefits of this project in 2022 and beyond.\nPolymers had a good quarter and first half of the year as the business is coming back from a challenging year due to COVID restrictions.\nThe long-term prospects for our polyol business remain attractive, as energy conservation efforts and more stringent building codes should increase demand.\nAs Quinn stated, the integration of this business acquired from INVISTA is going well, and we expect to deliver $16 million to $18 million of EBITDA in 2021.\nGiven the strength of our balance sheet, we also plan to continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and to add new platform chemistries.\nThe company delivered record first half earnings in 2021.\nLooking forward, we believe Surfactant volumes in North America consumer product end market will be challenged versus peak pandemic levels in 2020.\nWhile we believe institutional cleaning volume will continue to grow versus prior year, we do not believe it will compensate for lower consumer consumption of cleaning, disinfection and personal wash products.\nWe anticipate that demand for Surfactants when the agricultural and oilfield markets will improve versus 2020.\nGlobal demand for Rigid Polyols continues to recover from pandemic-related delays and cancellations of reroofing and new construction projects.\nThis recovery, combined with our first quarter 2021 acquisition, should position our polymer business to deliver growth versus prior year.\nWe believe that long-term prospects for Rigid Polyols remains attractive as energy conservation efforts and more stringent building codes are expected to continue.\nWe anticipate our Specialty Product business results will improve slightly year-over-year.\nDespite continued raw material price increases and planned higher maintenance costs, we remain cautiously optimistic about the remainder of the year.\nDaisy, please review the instructions for the question portion of today's call.",
        "summary": "q2 adjusted earnings per share $1.81."
    },
    {
        "text": "stepan.com under the Investor Relations section of our website.\nAnd we hope that you find information and perspective helpful.\nWe hope you and your families are safe and healthy.\nAs the world continues to be challenged by the global pandemic, we at Stepan remain committed to doing our part by supporting customers that supply essential, cleaning, disinfection and personal wash products to the market.\nWe are extremely grateful to our employees for their passion and commitment to get the job done for our customers throughout what was a challenging year.\nOverall, COVID opportunities in the consumer product segment of our business outweigh the negative impacts elsewhere and the Company delivered record fourth quarter and full year earnings.\nFourth quarter adjusted net income was $33.1 million or $1.42 per diluted share, up 29% from $25.7 million or $1.10 per diluted share last year.\nAdjusted net income for the full year was a record $132 million, up 11% from last year.\nFor the quarter, surfactant operating income was up significantly on volume growth, which was mostly attributable to continued strong demand for cleaning, disinfection and personal wash products.\nMexican operations delivered strong volume growth versus the prior year quarter.\nOur Polymer business was up significantly during the quarter due to the Millsdale insurance recovery.\nOur rigid polyol volumes are gradually improving, we had a good fourth quarter and finished strong with double-digit growth, driven by increased demand and customer inventory Brexit-build in Europe.\nOur Specialty Product business results were up slightly in the fourth quarter.\nBoard of Directors declared a quarterly cash dividend on Stepan's common stock of $0.305 per share payable on March 15, 2021.\nStepan has paid higher dividends for 53 consecutive years.\nAs recently announced, Stepan acquired INVISTA's aromatic polyester polyol business and associated assets.\nThe acquired business has global sales of approximately $100 million per year.\nWe are excited to add INVISTA's polyester polyol business and believe that INVISTA's available spare capacity combined with debottlenecking opportunities in both plants will allow Stepan to support future market growth in a capital efficient way.\nAt this point, I'd like Luis to walk through a few more details about our fourth quarter results.\nLet's start with the Slide 5 to recap the quarter.\nAdjusted net income for the fourth quarter of 2020 was $33.1 million or $1.42 per diluted share, a 29% increase versus $25.7 million or $1.10 per diluted share in the fourth quarter of 2019.\nSpecifically, adjustment to reported net income this quarter consist of adjustments for deferred compensation and cash-settled SARs and some minor restructuring expenses.\nAdjusted net income for the quarter exclude deferred compensation expense of $2.4 million or $0.10 per diluted share compared to deferred compensation expense of $1.8 million or $0.07 per diluted share in the same period last year.\nDeferred compensation numbers represent the net expense related to the company's deferred compensation plan as well as cash-settled stocks appreciation rights for our employees.\nBecause these liabilities change with the movement in the stock price, we exclude these items from our operational discussion.\nSlide 6 shows the total company earnings bridge for the fourth quarter compared to last year's fourth quarter and breaks down the increase in adjusted net income.\nBecause this is net income, the figures noted here are on an after-tax basis.\nWe will cover each segment in more detail.\nBut to summarize, Surfactants and Polymers were up significantly, while Specialty Product was slightly up versus the prior year.\nCorporate expenses and all others were higher during the quarter due to higher acquisition-related expenses and incentive-based compensation.\nThe company's full year effective tax rate was 25% in 2020 compared to 18% in 2019.\nThis year-over-year increase was primarily attributable to non-recurring tax savings in 2019 and a one-time tax cost in Q4 2020 due to a cash repatriation project as part of the INVISTA acquisition.\nLess favorable geographical mix of income in 2020 versus 2019 also impacted effective tax rate.\nWe expect the full year 2021 effective tax rate to be in the range of 24% to 27%.\nSlide 7 focus on Surfactant segment results for the quarter.\nSurfactant net sales were $358 million, a 16% increase versus the prior year.\nSales volume increased 8%, mostly due to higher demand for products sold into the consumer product end markets, driven by increased amount for cleaning, disinfection and personal wash product due to COVID-19.\nHigher sales volume to our Tier 2, Tier 3 customers also contributed to this increase.\nThis growth was partially offset by lower demand in agricultural and oilfield markets.\nSelling prices were up 11% and the translation impact of a stronger U.S. dollar negatively impacted net sales by 3%.\nThe higher selling prices primarily reflect improved product and customer mix.\nSurfactant -- Surfactants operating income increased $9.4 million or 28% versus the prior year, primarily due to strong sales volume growth and a $3 million insurance recovery related to the first quarter Millsdale power outage.\nNorth America results increased primarily due to strong demand in the consumer product end market and a better product and customer mix.\nBrazil had a record quarter driven by strong volume growth.\nLower Mexico results were due to a high base period with insurance payment in December 2019, although Mexico volume was up 31%.\nEurope results increased slightly due to higher consumer product demand.\nNow turning to Polymers on Slide 8.\nNet sales were $116.7 million in the quarter, in line with the prior year.\nSales volume increased 7%, primarily due to double-digit growth in global rigid volumes, lower PA demand partially offset the above growth.\nSelling prices declined 8% and foreign currency translation positively impacted net sales by 1%.\nThe Polymer operating increased $11.4 million or 100% versus the prior year, the $10 million insurance recovery and the positive impact of volume growth.\nAll regions did well during the quarter.\nNorth America polyol results increased due to higher volumes and margins, reflecting a gradual improvement in market conditions.\nEurope results increased due to double-digit volume growth in both rigid and specialty polyol, while Asia and Latin America results increased slightly versus prior year.\nSpecialty Product net sales were $19.6 million for the quarter, a 6% increase versus the prior year.\nSales volume was down 1% between quarters and operating income improved 2%.\nTurning to Slide 9.\nDespite significant challenge during the year, including the global pandemic and the first quarter 2020 planned power outage at our Millsdale facility, the company delivered record full year results.\nAdjusted net income was a record $132 million or $5.68 per diluted share versus $119.4 million or $5.12 per diluted share in the prior year, an increase of 11%.\nThe Surfactant segment delivered record operating income of $169 million, up 38% versus prior year.\nThis earnings growth was driven by a 6% increase in global volume due to higher demand for cleaning, disinfection and personal wash products as a result of COVID-19 and a significantly better product and customer mix.\nThe Polymer segment delivered $68 million of operating income, almost flat versus prior year despite the negative impact of COVID-19.\nGlobal Polymer sales volume was down 5% as a result of lower demand within the PA business.\nGlobal rigid polyols volumes were slightly down for the year due to construction project delays and cancellations due to COVID-19.\nSpecialty Product operating income was $14 million, down slightly from the prior year when we grew significantly versus 2018 actuals.\nSlide 10 shows the total company earnings bridge for the full year 2020 compared to last year and breaks down the increase in adjusted net income.\nThe figures noted here are on an after-tax basis.\nSurfactant was up significantly, while Polymer and Specialty Products were down slightly versus the prior year.\nMoving on to Slide 11.\nOur balance sheet remains strong.\nWe had negative net debt at year-end as our cash balance of $350 million exceeded total debt of $199 million.\nThe company had full year capital expenditure of $126 million and we are returning $41 million to our shareholders via dividends and share repurchases.\nThis strong balance sheet allow us to execute the INVISTA acquisition in January 2021.\nBeginning on Slide 13, Quinn will now update you on our 2021 strategic priorities.\nAs we wrap up a challenging but rewarding 2020, we continue to believe that Stepan's business remains better positioned to perform than most as we demonstrated in the fourth quarter and full year 2020.\nWe continue to prioritize the safety and health of our employees as we deliver products that contribute to the fight against COVID-19.\nOur EPA approved biocidal formulations to kill the specific novel virus that causes COVID-19 and allow our customers to provide the public with additional tools to protect their families and fight the pandemic.\nWe believe Surfactant volume and consumer product end markets should remain strong as a result of changing consumer habits and increased use of disinfection, cleaning and personal wash products.\nWe are increasing capacity in certain product lines, including biocides and amphoterics to ensure we can meet our customers' higher requirements.\nWe are increasing North American capability and capacity to make low 1,4-dioxane surfactants.\nAs explained in our previous calls, recent regulations passed in New York will require reduced levels of 1,4-dioxane in a number of consumer products by January 1, 2023.\n1,4-dioxane is a minor by-product generated in the manufacture of ether sulfate surfactants which are key ingredients in consumer products.\nThrough a combination of process optimization and additional manufacturing equipment, Stepan will be prepared to supply customers ether sulfates that meet the new regulatory requirements.\nThis project is the driver of our increased capex forecast for 2021 of $150 million to $170 million.\nWe are working with our customers to ensure these projects deliver our financial return targets.\nTier 2 and Tier 3 customers continue to be the center of our strategy.\nWe grew Tier 2 and Tier 3 volume by 28% in the fourth quarter and added 405 new customers.\nOur diversification strategy into functional products continues to be a priority for Stepan.\nDuring the fourth quarter, despite a slight volume decrease, our agricultural business grew in terms of profitability due to a favorable product mix.\nWe have introduced many new products to the agricultural market and will continue to invest in new capacity and capabilities to support growth in the agricultural market.\nOilfield volume was down due to overall challenges in the industry.\nWe remain optimistic about future opportunities in this business as oil prices have recovered through the $60 per barrel levels.\nPolymers had a challenging year given the availability of labor on construction projects and the need for social distancing.\nHowever, the long-term prospects for our polyol business remain attractive as energy conservation efforts and a more stringent building codes should increase demand.\nThe Illinois Rock -- River lock closure was completed on schedule during the quarter, which ended the premium logistic cost associated with the business.\nWe remain fully committed to delivering productivity gains across Stepan.\nWe delayed our project at Millsdale to allow the team to focus on COVID-19-related market opportunities.\nWork on the project will continue this year and we expect to see benefits in 2020 and beyond.\nM&A represents an important tool as a means to delivering meaningful EBITDA growth and margin improvement.\nWe are excited about the company's recent acquisition of INVISTA's aromatic polyester polyol business.\nThis is our largest acquisition to-date and will allow us to continue our journey to create a more specialized higher margin chemical company.\nThe transaction included two manufacturing sites, intellectual property, customer relationships, inventory and working capital.\nThe acquisition was financed with cash on hand.\nWe are putting our cash to work.\nThe acquired business has global sales of approximately $100 million.\nThe acquisition cost was $165 million plus working capital and is expected to be slightly accretive to Stepan's earnings per share and EBITDA margins in 2021.\nThe company expects the multiple on a post-synergy basis to be between 6.5 and 7.5 times.\nWe expect to deliver full year run rate synergies within two years.\nThis acquisition will allow us to support market growth for the next decade in a capitally efficient way through available spare capacity as well as debottlenecking opportunities in both plants.\nThe two additional locations also significantly enhanced business continuity for our customers.\nThe previously referenced multiples exclude the benefit of extra capacity acquired.\nThe company also announced the acquisition of a fermentation plant in Lake Providence, Louisiana.\nFermentation is a new platform technology for Stepan.\nAs we look to commercialize the next generation of surfactants, biosurfactants produced via fermentation are attractive due to their favorable biodegradability, low toxicity and in some cases unique antimicrobial properties.\nThis goes hand in hand with our previous NatSurFact rhamnolipid acquisition in 2020.\nThis technology provides an important new option as customers across markets seek to achieve greater sustainability advantages within their products.\nThe acquired plant will require additional investment to make our targeted products, but the site will provide world scale capabilities to support incorporation of new biosurfactants in agricultural and consumer products.\nGiven the strength of our balance sheet, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and to add new platform chemistries.\nFinally, 2020 was a difficult but rewarding year as our team responded to challenges and delivered on opportunities, particularly in our Surfactants business.\nWe believe the long-term prospects for rigid polyols remains attractive as energy conservation efforts and more stringent building codes should increase demand.\nWe believe our acquisition of INVISTA's aromatic polyester polyol business and two manufacturing sites position us better to meet long-term demand growth.\nWe anticipate our Specialty Product business results will improve slightly year-over-year.\nIn conclusion, we remain optimistic that we will continue to deliver value to you, our shareholders in the new year.\nTina, please review the instructions for the question portion of today's call.",
        "summary": "q4 adjusted earnings per share $1.42.\nqtrly net sales $494.7 million, up 11%."
    },
    {
        "text": "Before outlining some of our operational metrics I want to provide you with some summary comments regarding the effects of COVID-19 pandemic on our operations.\nFirst, let me say how proud I am of the operational leadership and clinical excellence I have seen throughout organizations these last several months.\nAnd these unusual times it is gratifying to see such a dedicated group of clinicians and support staff come together throughout our organization to provide the highest quality care while keeping our patients and staff safe.\nWe continue to adapt, evolve and innovate as we navigate through the pandemic.\nAs I mentioned on our last earnings call, the effect of the pandemic began to impact our company in mid-March.\nI also mentioned we thought April would represent the low point for our business, and we would begin to see a rebound in the areas of our business hardest hit by these disruptions.\nIn our critical illness recovery hospitals, we have held steady during the second quarter on census and our occupancy in light of some of the challenges COVID presents, while our cost of care has increased, we have seen increased occupancy and revenues every month throughout the pandemic.\nIn our rehabilitation hospitals, we had to temporarily restricted missions in our New Jersey and Miami markets in April and early May due to COVID outbreaks in those regions.\nThis had the effect of reduced volume and higher cost in those markets.\nWe also incurred additional cost to care for our patients and other markets.\nHaving said that, we saw a significant rebound in this business segment in June, as revenue increased over 24% for the month on the same period year-over-year basis.\nOur June occupancy rate is -- of 78% is close to pre-COVID levels and exceeded June's last year occupancy of 73%.\nIn our outpatient rehabilitation and Concentra segments, volumes continue to be our biggest challenge.\nAs we mentioned, last quarter volumes have been negatively impacted by a number of issues in both segments, some of which have lessened as we've progressed throughout the second quarter.\nOur outpatient rehabilitation volumes and revenues were down year over year 48% and 44% respectively in the month of April and May resulting in adjusted EBITDA losses in both of those months in our outpatient rehab segment.\nIn June however we saw meaningful improvement as states began to ease restrictions in hospitals and surgery centers began performing elective surgeries again.\nVolume and revenue shortfalls in June compared to prior year were 19.7% and 17.8% respectively which was a significant improvement from April and May and we experienced positive adjusted EBITDA in June.\nIn our Concentra segment volumes and revenues were down year over year 39% and 33% respectively in the month of April and May, but only down in June 12.4% and 6.4% as restrictions ease and employers started to increase their workforce.\nOverall, our net revenue for the second quarter was down 9.4% to $1.23 billion in the quarter.\nWe experienced meaningful declines in both our outpatient and Concentra segments which were partially offset by revenue growth in both our critical illness recovery and rehabilitation hospital segments.\nNet revenue in our critical illness recovery hospital segment in the second quarter, increased 12.7% to $520 million, compared to $461 million in the same quarter last year.\nPatient days were up 5.3% compared to the same quarter last year, with close to 277,000.\nNet revenue per patient day increased 7.4% to $1,867 per patient day in the second quarter.\nOccupancy in our critical illness recovery hospital segment was 72% in the second quarter compared to 69% in the same quarter last year.\nNet revenue, our rehabilitation hospital segment the second quarter increased 5.2% to $169 million compared to $160 million in the same quarter last year.\nPatient days declined 2.8% compared to the same quarter last year.\nHowever, net revenue per patient day increased 12% to $1,831 per day in the second quarter.\nThe entire decline in patient days occurred in April, with both May and June showing improvement when compared to the same period prior year.\nOccupancy -- hospitals was 71% in the second quarter, compared to 75% in the same quarter last year.\nNet revenue on our outpatient rehab segment, the second quarter decreased 36.2% to $167 million compared to 262 million in the same quarter last year.\nPatient visits declined 39.1% to 1.34 million visits in the second quarter.\nOur net revenue per visit was $106 in the second quarter compared to $102 in the same quarter last year.\nNet revenue declines were most significant during April which was down 45.6% year over year and May which was down 43.3% year over year.\nJune showed improvement from those trends with net revenues down 17.8% year over year.\nVolume trend that along the same lines as revenue for the same monthly periods when compared to the same month last year.\nNet revenue in our Concentra segment for the second quarter decreased 24.5% to $312 million compared to $413 million in the same quarter last year.\nFor the occupational health centers, patient visits were down 30.7% to 2.15 million visits in the quarter.\nNet revenue per visit in the centers was $124 in the second quarter compared to $121 in the same quarter last year.\nSimilar to outpatient net revenue declined for most significant during April which was down 34.9% year over year and May which was down 30.7% year over year, with June showing improvement from those trends with net revenue down only 6.4% year over year.\nTotal company adjusted EBITDA for the second quarter was down 4% to $178.8 million, compared to 186.2 million the same quarter last year.\nOur consolidated adjusted EBITDA margin was up at 14.5% for the second quarter compared to 13.7% for the same quarter last year.\nWe recorded $55 million in other operating income in the second quarter related to payments received under the provider relief funds, $54.2 million was recorded with our other activities and 800,000 was recorded in the Concentra segments.\nThe adjusted EBITDA results for our critical illness recovery hospitals, rehabilitation hospitals and outpatient rehabilitation hospitals segments do not include any recognition of these funds.\nTheir respective portions of these funds recognizing the second quarter were included in other operating income.\nOur critical illness recovery hospital segment adjusted EBITDA increased 39.9% to $89.7 million, compared to 64.1 million in the same quarter last year.\nAdjusted EBITDA margin for the segment was 17.3% in the second quarter, compared to 13.9% in the same quarter last year.\nAdjusted EBITDA and margin growth were driven by our revenue growth which was partially offset by higher operating expenses related to COVID.\nOur rehabilitation hospitals segment adjusted EBITDA was $27.6 million, compared to 30 million in the same quarter last year.\nAdjusted EBITDA margin for the rehabilitation hospital segment was 16.4% in the second quarter, compared to 18.7% in the same quarter last year.\nThe decline in adjusted EBITDA and margin are primarily driven by temporary admission restrictions in several of our hospitals in New Jersey and South Florida and higher operating expenses related to COVID.\nOur outpatient rehab and current adjusted EBITDA loss of $6.3 million in the second quarter compared to $42.6 million adjusted EBITDA contribution in the same quarter last year.\nAdjusted EBITDA was adversely impacted by the significant decline in volume during the quarter.\nWe did incur adjusted EBITDA losses in both April and May that had positive adjusted EBITDA in June as our volume shortfalls to prior year improved.\nOur Concentra adjusted EBITDA was $41.5 million, compared to 76.1 million in the same quarter last year.\nAdjusted EBITDA margin was 13.3% in the second quarter, compared to 18.4% in the same quarter last year.\nAdjusted EBITDA was impacted by the significant decline in our volume during the quarter.\nWe had adjusted EBITDA shortfalls to prior year results in both April and May but adjusted EBITDA in June exceeded both April and May as well as June of last year.\nEarnings per fully diluted share increased over 18% to $0.39 for the second quarter compared to $0.33 for the same quarter last year.\nAdjusted earnings per fully diluted share was $0.38 per diluted share for the second quarter.\nAdjusted earnings per fully diluted share excludes the non-operating gain and its related tax effect in the second quarter of this year.\nFor the second quarter, our operating expenses which include our cost of services in general and administrative expenses were $1.12 billion and 90.5% of net operating revenues.\nFor the same quarter last year, operating expenses were $1.18 billion and 86.8% of net operating revenue, cost of services or $1.08 billion for the second quarter, this compares to $1.15 billion in the same quarter last year.\nAs a percent of net revenue cost of services was 87.8% for the second quarter, this compares to 84.5% in the same quarter last year.\nG&A expense was $33.5 million in the second quarter compared to $31.3 million in the same quarter last year.\nG&A as a percent of net revenue was 2.7% in the second quarter.\nThis compares to 2.3% of net revenue for the same quarter last year.\nAs Bob mentioned, total adjusted EBITDA was $178.8 million and the adjusted EBITDA margin was 14.5% for the second quarter, as compared to the total adjusted EBITDA of $186.2 million and an adjusted EBITDA margin of 13.7% in the same quarter last year.\nWe recorded $55 million in other operating income in the second quarter related to payments received under the provider relief funds.\nI would like to reiterate that with the exception of $800,000 of grant monies to Concentra no grant monies were included in our segment reporting.\nDepreciation and amortization was $52.3 million in the second quarter this compares to $55 million in the same quarter last year.\nWe generated $8.3 million in equity and earnings of unconsolidated subsidiaries during the second quarter, compared to $7.4 million in the same quarter last year.\nWe also had non-operating gain of $300,000 in the second quarter this year.\nInterest expense was $37.4 million in the second quarter, this compares to $51.5 million in the same quarter last year.\nThe decline was a result of a reduction in the variable interest rates, as well as the refinancing activity we did during the second half of last year.\nWe recorded income tax expense of $23.3 million in the second quarter of this year which represents an effective tax rate of 25.7%.\nThis compares to the tax expense of $20.8 million in effective tax rate of 25.8% in the same quarter last year.\nNet income attributable to non-controlling interests were $15.8 million in the second quarter, this compares to $15.2 million in the same quarter last year.\nNet income attributable to Select Medical Holdings was $51.7 million in the second quarter and fully diluted earnings per share is $0.39 excluding the non-operating gain as related tax effects our adjusted earnings per share was $0.38.\nAt the end of the second quarter, we had $3.4 billion of debt outstanding and $510 million of cash on the balance sheet.\nOur debt balance at the end of the quarter included $2.1 billion in term loans, $1.2 billion in 6.25 senior notes and $77 million of other miscellaneous debt.\nOperating activities provided $642 million of cash flow in the second quarter which included $317 million in Medicare advances and $100 million in provider relief funds $55 million of which was recognized in operating income.\nAlso contributing to operating cash flow in the quarter was a reduction in our accounts receivable down balance and increased accrued liabilities and tax taxes payable.\nOur accrued liability includes $33 million in deferred employer FICA tax allowed for under the CARES Act.\nInvesting activities used $35.9 million of cash in the second quarter, the use of cash included $32 million in purchases of property and equipment and $5 million in acquisition investment activity this was offset in part by $1.2 million in proceeds from the sale of businesses during the quarter.\nFinancing activities used $169.5 million in cash in the second quarter, this includes $165 million in net repayments on revolving loans and $2.6 million in net repayments of other debt during the quarter.\nOur total available liquidity at the end of the second quarter was over $1 billion which is evenly split between cash on hand and revolver availability.",
        "summary": "compname reports q2 adjusted earnings per share $0.38.\nq2 adjusted earnings per share $0.38.\nq2 earnings per share $0.39.\nq2 revenue $1.233 billion versus refinitiv ibes estimate of $1.15 billion."
    },
    {
        "text": "Let me start out by saying Q4 was another very good quarter for us with all four business segments exceeding same quarter prior year revenue, adjusted EBITDA and margin.\n2019 was a solid year for development growth for the company.\nWe added a new 60-bed rehabilitation hospital in partnership with the University of Florida Health System in Gainesville, induced 60-bed rehabilitation hospital in partnership with Dignity in Las Vegas and a new 30-bed rehabilitation hospital with partners in New Orleans.\nWe also relocated our rehabilitation hospital in Newport News, Virginia that we operate in partnership with Riverside Health into a new 50-bed hospital.\nIn addition, we acquired four critical illness recovery hospitals in two separate transactions and added additional critical illness recovery hospital through a joint venture partnership.\nWe also increased our portfolio of outpatient rehab clinics by 78 clinics during the year and in 2019 with 1,740 clinics under our management.\nDuring 2019, we completed the integration of U.S. HealthWorks into our Concentra business and have fully captured the synergies we outlined when we acquired the business in early 2018.\nLet me now take you through our operational metrics for the fourth quarter and the full year.\nOverall, our net revenue in the fourth quarter increased 8.7% to $1.37 billion.\nFor the full year, net revenue increased 7.3% to $5.45 billion.\nNet revenue in our critical illness recovery hospital segment in the fourth quarter increased 6.7% to $455 million.\nThe increase was driven by both an increase in volume and rate with patient days up 5.2% compared to the same quarter last year and revenue per patient day up 1.5% to $1,742 per patient day in the fourth quarter.\nOccupancy in our critical illness recovery hospital segment was 67% in the fourth quarter compared to 66% in the same quarter last year.\nFor the year, net revenue in our critical illness recovery hospital segment increased 4.7% to $1.84 billion.\nAgain, we experienced an increase in both volume and rate compared to last year.\nPatient days were up 2.6% and net revenue per patient day was up 2.2% to $1,753 per patient day for the year.\nOverall, occupancy in our critical illness recovery hospitals was 68% this year compared to 67% last year.\nNet revenue in our rehabilitation hospital segment for the fourth quarter increased 20.9% to $380 million [Phonetic] compared to $151 million in the same quarter last year.\nPatient days increased 15% and net revenue per patient day was up 8% to $1,739 per patient day in the fourth quarter.\nOccupancy in our rehabilitation hospital segment was 78% in the fourth quarter compared to 75% in the same quarter last year.\nFor the year, net revenue in our rehabilitation hospital segment increased 14.9% to $671 million compared to $584 million last year.\nPatient days increased 11.9% and net revenue per patient day was up 4.9% to $1,685 per patient day for the full year.\nThe increase in patient days for both fourth quarter and the full year was primarily driven by the new hospitals we opened in 2019.\nOccupancy in our rehabilitation hospital was 76% this year compared to 74% last year.\nNet revenue in our outpatient rehab segment for the fourth quarter increased 7.7% to $272 million compared to $252 million in the same quarter last year.\nPatient visits increased 7.2% to over $2.25 million -- 2.25 million visits in the fourth quarter.\nOur net revenue per visit increased $104 in the fourth quarter compared to $103 per visit in the same quarter last year.\nFor the year, net revenue on our outpatient rehab segment increased 5% to almost $1.05 billion.\nPatient visits increased 4.3% to over 8.7 million visits for the year.\nThe overall increase in patient visits resulted from new start-up clinics, as well as acquired clinics.\nNet revenue per visit was $103 per visit both this year and last year.\nNet revenue in our Concentra segment for the fourth quarter increased 3.4% to $397 million.\nFor the fourth quarter, revenue from our centers was $354 million and the balance of approximately $43 million was generated from on-site clinics, community-based outpatient clinics and other services.\nFor the centers, we had patient visits of 2.9 million and net revenue per visit was $122 in the fourth quarter.\nThis compares to 2.8 million visits and $124 per visit in the same quarter last year.\nFor the year, net revenue in our Concentra segment increased 4.6% to almost $1.63 billion.\nThe primary driver of the increase was the full year effect of U.S. HealthWorks acquired February 1, 2018 and additional acquired centers in 2019.\nVisits in our centers increased 5.6% to almost 12.1 million visits compared to 11.4 million visits last year.\nRevenue per visit was $122 this year compared to $124 per visit last year.\nThe decline in revenue per visit for both the fourth quarter and the full year was driven by our change in our business mix with an increase in employer service visits, which are paid at a lower rate.\nTotal company adjusted EBITDA for the fourth quarter increased 16.9% to $171.9 million compared to $147.1 million in the same quarter last year with consolidated adjusted EBITDA margin at 12.5% for the fourth quarter compared to 11.6% for the same quarter last year.\nFor the year, total adjusted EBITDA increased 10.2% to $710.9 million compared to $645.2 million last year with consolidated adjusted EBITDA margin at 13% for the year compared to 12.7% last year.\nFor our critical illness recovery hospital segment, adjusted EBITDA was $60.5 million for the fourth quarter compared to $56 million in the same quarter last year.\nThe increase in adjusted EBITDA was driven by both an increase in our existing hospitals and contribution from the four hospitals acquired in 2019.\nAdjusted EBITDA margin for the segment was 13.3% in the fourth quarter compared to 13.1% in the same quarter last year.\nFor the year, critical illness recovery hospital segment adjusted EBITDA was $254.9 million compared to $243 million last year.\nThe increase in adjusted EBITDA was driven by an increase in our existing hospitals despite the extended temporary closure of our Panama City Hospital and the contribution from our four hospitals acquired in 2019.\nAdjusted EBITDA margin was 13.9% both this year and last year.\nOur rehabilitation hospital segment adjusted EBITDA increased 51.4% to $43.3 million in the fourth quarter compared to $28.6 million in the same quarter last year.\nAdjusted EBITDA margin for the rehab segment was 23.7% in the fourth quarter compared to 18.9% in the same quarter last year.\nThe increase in adjusted EBITDA and margin resulted from both increases in our existing hospitals, as well as contributions from the hospitals we opened in 2019.\nFor the year, our rehabilitation hospital adjusted EBITDA increased 24.7% to $135.9 million compared to $108.9 million last year.\nAdjusted EBITDA margin was 20.2% for the year compared to 18.7% last year.\nThe increases in adjusted EBITDA and margin resulted from increases in volume and rate across many of our existing hospitals.\nAdjusted EBITDA losses in our start-up hospitals, $8.8 million this year compared to $4.7 million last year.\nOutpatient rehab adjusted EBITDA increased 14.9% to $40.2 million in the fourth quarter this year compared to $35 million in the same quarter last year.\nAdjusted EBITDA margin for the outpatient segment was 14.8% in the fourth quarter compared to 13.9% in the same quarter last year.\nFor the year, adjusted -- outpatient rehab adjusted EBITDA increased 6.9% to $151.8 million compared to $142 million last year.\nAdjusted EBITDA margin was 14.5% compared to 14.3% last year.\nThe increase in adjusted EBITDA for the full year was driven by increases in both our existing clinics and contributions from new start-up and acquired clinics.\nConcentra adjusted EBITDA increased 6.8% to $56.8 million for the fourth quarter compared to $52.9 million in the same quarter last year.\nAdjusted EBITDA margin was 14.2% in the fourth quarter compared to 13.8% in the same quarter last year.\nFor the year, Concentra adjusted EBITDA was $276.5 million compared to $252 million last year.\nAdjusted EBITDA margin for the Concentra segment was 17% this year compared to 16.2% last year.\nThe increase in adjusted EBITDA margin for both the fourth quarter and the full year was a result of lower relative operating costs across the combined Concentra and U.S. HealthWorks business.\nEarnings per fully diluted share was $0.24 for the fourth quarter compared to $0.18 for the same quarter last year.\nAdjusted earnings per fully diluted share was $0.31 per diluted share for the fourth quarter compared to $0.20 in the same quarter last year.\nAdjusted earnings per fully diluted share excludes the pre-tax losses on early retirement of debt and its related tax effects for both -- in both the fourth quarters this year and last year.\nEarnings per fully diluted share was $1.10 for the year compared to $1.02 last year.\nAdjusted earnings per fully diluted share was $1.24 per diluted share for the year compared to $1.3 last year.\nAdjusted earnings per fully diluted share excludes the pre-tax losses on early retirement of debt and non-operating gains and the related tax effects.\nLast year adjusted earnings per share excluded the loss on early retirement debt, non-operating gains, U.S. HealthWorks acquisition cost and their related tax effects.\nFor the fourth quarter, our operating expenses, which include our cost of services and general and administrative expense were $1.2 billion.\nThis compares to $1.1 billion in the same quarter last year.\nAs a percentage of our net revenue, operating expenses for the fourth quarter were 88%.\nThis compares to 88.9% in the same quarter last year.\nFor the year, our operating expenses were $4.77 billion.\nThis compares to $4.46 billion last year.\nAs a percentage of our net revenue, operating expenses for the year were 87.5%.\nThis compares to 87.8% last year.\nCost of services were $1.18 billion for the fourth quarter.\nThis compares to $1.09 billion in the same quarter last year.\nAs a percent of net revenue, cost of services were 85.5% in the fourth quarter.\nThis compares to 86.5% in the same quarter last year.\nFor the year, cost of services were $4.6 billion.\nThis compares to $4.3 billion last year.\nAs a percent of our net revenue, cost of services were 85.1% for the year.\nThis compares to 85.4% last year.\nG&A expense was $34.1 million in the fourth quarter.\nThis compares to $30.3 million in the same quarter last year.\nG&A as a percent of net revenue was 2.5% in the fourth quarter.\nThis compares to 2.4% of net revenue for the same quarter last year.\nFor the year, G&A expense was $128.5 million.\nThis compares to $121.3 million last year.\nG&A as a percent of revenue was 2.4% both this year and last year.\nAs Bob mentioned, total adjusted EBITDA was $171.9 million and the adjusted EBITDA margin was 12.5% for the fourth quarter.\nThis compares to the adjusted EBITDA of $147.1 million in adjusted EBITDA margin of 11.6% in the same quarter last year.\nTotal adjusted EBITDA for the year was $710.9 million.\nThis compares to $645.2 million last year.\nAdjusted EBITDA margin was 13% this year.\nThat compares to 12.7% last year.\nDepreciation and amortization was $52.5 million in the fourth quarter.\nThis compares to $52.6 million in the same quarter last year.\nFor the year, depreciation and amortization expense was $212.6 million compared to $201.7 million last year.\nWe generated $6.3 million in equity in earnings of unconsolidated subsidiaries during the fourth quarter.\nThis compares to $7 million in the same quarter last year.\nFor the year, we generated $25 million in equity and earnings of unconsolidated subsidiaries.\nThis compares to $21.9 million last year.\nWe did recognize a loss on early retirement of debt in the fourth quarter this year of $19.4 million.\nWe recognized a loss on early retirement of debt in the fourth quarter of last year of $3.9 million.\nFor the year, we recognized $38.1 million of losses on early retirement of debt.\nWe also recognized non-operating gains of $6.5 million during the year.\nLast year we recognized $14.2 million of losses on early retirement of debt and $9 million of non-operating gains.\nThe loss on early retirement of debt in 2019 resulted from the refinancing activities in the second half of the year.\nWe were able to reduce interest rates and extend maturities on Select's senior notes, as well as reduced borrowing cost at Concentra through the repayment of their second-lien term loan.\nInterest expense was $44 million in the fourth quarter.\nThis compares to $50.5 million in the same quarter last year.\nThe decline in interest expense in the quarter resulted from both the decline in LIBOR rates, as well as the repayment on Concentra's second-lien term loan, which carried a higher interest rate.\nInterest expense for the year was $206.6 million.\nThis compares to $198.5 million last year.\nWe recorded income tax expense of $63.7 million this year.\nThat compares to income tax expense of $58.6 million last year.\nNet income attributable to Select Medical Holdings was $148.4 million for the year and fully diluted earnings per share in $1.10.\nExcluding the pre-tax losses on early retirement of debt and non-operating gains and the related tax effects this year, our adjusted earnings per share was $1.24.\nWe completed refinancing transaction during the fourth quarter, which effectively combined the capital structure of Select and our majority-owned subsidiary, Concentra.\nOn December 10, Select issued $675 million in incremental 6.25% senior notes due 2026 at a price of $1.06 [Phonetic] and entered into an incremental $615 million term loan.\nA portion of the net proceeds from the incremental senior notes and incremental term loan were used by Select to loan $1.24 billion to Concentra who then used the proceeds from the intercompany loan to repay in full its $1.24 billion in syndicated term loans outstanding.\nAt the end of the year, we had $3.4 billion of debt outstanding and $335.9 million of cash on the balance sheet.\nOur debt balance at the end of the year included $2.143 billion in term loans, $1.225 million and 6.25% senior notes and $78.5 million of other miscellaneous debt.\nOperating activities provided $178.5 million of cash flow in the fourth quarter.\nThis compares to $113.2 million in the same quarter last year.\nFor the year, operating activities provided $445.2 million of cash flow compared to $494.2 million last year.\nOur days sales outstanding or DSO was 51 days at December 31, 2019.\nThis compares to 53 days at September 30, 2019 and 51 days at December 31, 2018.\nInvesting activities used $46 million of cash in the fourth quarter.\nThe use of cash was primarily related to $33.2 million in purchases of property and equipment and $12.8 million for acquisition and investment activities during the quarter.\nInvesting activities used $316.7 million for the year.\nThe use of cash was primarily related to $157.1 million in purchases of property and equipment and $159.6 million in net acquisition and investment activities during the year.\nFinancing activities provided $67.4 million of cash in the fourth quarter.\nProvision of cash including $77.1 million in net proceeds from the refinancing in December.\nThis was offset in part by distributions to non-controlling interest and repayment of other debt.\nFor the year, financing activities provided $32.3 million of cash.\nThe provision of cash included $104.6 million in net proceeds from the refinancing activities during the year.\nThis was offset in part by common stock repurchases, repayment of bank overdrafts, repayment of other debt and distributions to non-controlling interest during the year.\nWe expect net revenue to be in the range of $5.575 billion $5.675 billion.\nAdjusted EBITDA is expected to be in the range of $725 million to $760 million.\nAnd fully diluted earnings per share is expected to be in the range of $1.27 to $1.46.\nAs many of you are probably aware, after the end of the year, we entered into agreements with our Concentra joint venture partners to purchase a total of 18.7% of the voting interest in Concentra for a total consideration of approximately $352.7 million.\nThe purchase was the first of our partners three put rights under the restated operating agreement post-U.S. HealthWorks transaction.\nAfter the purchase, Select now owns approximately 68.8% of the voting interest of Concentra.\nThe joint venture partners continue to have the right to put one-third of their initial membership interest to Select in 2021 and any remaining membership interest in 2022 with Select retaining the right to call any remaining membership interest outstanding in 2022.",
        "summary": "compname reports q4 earnings per share $0.24.\nq4 adjusted earnings per share $0.31.\nq4 earnings per share $0.24.\nsees fy 2020 earnings per share $1.27 to $1.46.\nsees fy 2020 revenue $5.575 billion to $5.675 billion.\nreaffirms its 2020 business outlook."
    },
    {
        "text": "Their ability to adjust to the changing COVID variance throughout 2021 is a great testimony to our team's adaptability and their professionalism.\nOur revenues grew nicely in all four of our business segments, with aggregate revenue growth for the quarter close to 7% and for the year, over 12%.\nHowever, we also experienced substantial wage pressure in Q4 in terms of agency, nursing rates and utilization, primarily in our critical illness recovery hospitals.\nMartin Jackson will cover these labor increases in more detail in his comments.\nThis information will provide a data point for each of our business segments prior to the pandemic compared to the current filing.\nWe will continue to include this information, as long as it provides meaningful insight to the impact of COVID-19 and the company's financial performance.\nI also wanted to note that we recorded $8 million in other operating income in the fourth quarter, and $124 million for the full year 2021 related to Provider Relief Fund grant payments.\nIn 2020, we recorded $36 million in other operating income in the fourth quarter, and $90 million for the full year 2020 related to these payments.\nThe adjusted EBITDA results for our critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation segments do not include any recognition of these funds.\nThe Concentra segment does include $1 million in the fourth quarter and $35 million for the full year 2021 of adjusted EBITDA related to these funds.\nTotal company revenue for the fourth quarter was $1.56 billion, a 6.8% increase compared to the same quarter prior year.\nFor the full year, total company revenue increased 12.2% to $6.2 billion, compared to $5.5 billion in the prior year.\nRevenue in our Critical Illness Recovery Hospitals segment in the fourth quarter increased 7.3% to $577 million compared to $538 million in the same quarter prior year.\nPatient days were up 3.2% compared to the same quarter prior year, with over 294,000 patient days.\nNet revenue per patient day increased 3.5% to $1,946 per patient day in the fourth quarter, as case mix index was 1.32 in the fourth quarter compared to 1.30 in the same quarter last year.\nFor the year, revenue in our Critical Illness Recovery Hospital segment increased 8.1% to over 12 -- $2.2 billion compared to almost $2.1 billion in the prior year.\nPatient days were up 1.9% and revenue per patient day increased 6.1% compared to the prior year.\nRevenue in our Rehabilitation Hospital segment in the fourth quarter increased 10.5% to $216 million, compared to $196 million in the same quarter prior year.\nPatient days were up 8.1% compared to the same quarter prior year.\nAnd net revenue per patient day increased 2.7% to $1,888 per day in the fourth quarter.\nFor the year, revenue in our Rehabilitation Hospital segment increased 15.6% to $849 million, compared to $735 million in the prior year, driven by both volume and rate increases.\nPatient days were up 11.8%, as revenue per patient day increased 4.2% compared to the prior year.\nRevenue in our Outpatient Rehab segment in the fourth quarter increased 7.8% to $277 million, compared to $257 million in the same quarter prior year.\nPatient visits were up 9.2%, compared to the same quarter prior year, with over 2.3 million visits in the fourth quarter.\nOur revenue per visit was $102 in the fourth quarter.\nFor the year, revenue in our Outpatient Rehab segment increased 17.9% to over $1.08 billion, compared to $920 million in the prior year.\nPatient visits were up 21.1% with almost 9.2 million visits for the year.\nOur net revenue per visit was $102 for the full year.\nRevenue in our Concentra segment for the fourth quarter increased 3% to $411 million, compared to $399 million in the same quarter prior year.\nFor the occupational health centers, patient visits were up 8.3% with over three million visits in the fourth quarter.\nRevenue per visit in the centers was $125 in the fourth quarter.\nFor the year, revenue at Concentra increased 15.4% to over $1.7 billion, compared to $1.5 billion in the prior year.\nFor the occupational health centers, patient visits increased 13.4%, with over 12 million visits for the year.\nRevenue per visit in the centers was $125 for the year.\nTotal company adjusted EBITDA for the fourth quarter was $138.4 million, compared to $221.3 million in the same quarter prior year.\nOur consolidated adjusted EBITDA margin was 8.9% for the fourth quarter, compared to 15.2% for the same quarter of prior year.\nFor the full year, total company adjusted EBITDA increased 18.3% to $947.4 million compared to $800.6 million in the prior year.\nOur consolidated adjusted EBITDA margin was 15.3% for the year, compared to 14.5% in the prior year.\nAs mentioned previously, adjusted EBITDA results for the full year included $124 million of Provider Relief Funds grant income compared to $90 million in the prior year.\nOur Critical Illness Recovery Hospital Segment adjusted EBITDA for the fourth quarter was $24.6 million, compared to $75 million in the same quarter prior year.\nAdjusted EBITDA margin for this segment was 4.3% in the fourth quarter, compared to 14% in the same quarter prior year.\nThe reduction in EBITDA was primarily driven by labor cost increases due to utilization of agency staffing.\nFor the full year, Critical Illness Recovery Hospitals segment adjusted EBITDA was $268 million, compared to $342.4 million in the prior year.\nAdjusted EBITDA margin for this segment was 11.9% for the full year, compared to 16.5% in the prior year.\nThe reduction of EBITDA is primarily related to increased labor costs throughout the year.\nOur Rehabilitation Hospital segment adjusted EBITDA for the fourth quarter was $39.3 million, compared to $42.4 million in the same quarter prior year.\nAdjusted EBITDA margin for the Rehab Hospital segment was 18.2% in the fourth quarter, compared to 21.6% in the same quarter prior year.\nWe also experienced nurse agency pressures in our rehabilitation hospitals during Q4.\nFor the full year, Rehabilitation Hospital segment adjusted EBITDA was $184.7 million, compared to $153.2 million in the prior year.\nAdjusted EBITDA margin for this segment was 21.7% for the year compared to 20.9% in the prior year.\nOur Outpatient Rehab segment adjusted EBITDA for the fourth quarter was $27.6 million, compared to $27.7 million in the same quarter prior year.\nAdjusted EBITDA margin was 9.9% in the fourth quarter, compared to 10.8% in the same quarter prior year.\nFor the full year, Outpatient Rehab segment adjusted EBITDA was $138.3 million, compared to $79.2 million in the prior year.\nAdjusted EBITDA margin was 12.8% for the full year, compared to 8.6% in the prior year.\nConcentra adjusted EBITDA for the fourth quarter was $70.7 million, compared to $69.4 million in the same quarter prior year.\nAdjusted EBITDA margin was 17.2% in the fourth quarter, compared to 17.4% in the same quarter prior year.\nFor the full year, Concentra adjusted EBITDA was $389.6 million, compared to $252.9 million in the prior year.\nAdjusted EBITDA margin was 22.5% for the full year, compared to 16.8% in the prior year.\nEarnings per fully diluted share was $0.37 in the fourth quarter, compared to $0.57 per share in the same quarter prior year.\nFor the full year, earnings per fully diluted share were $2.98 compared to $1.93 per share in the prior year.\nAdjusted earnings per fully diluted share last year was $1.89, excluding non-operating gains and their related tax effects.\nFor the fourth quarter, our operating expenses, which include our cost of services and general and administrative expenses, were $1.44 billion, which represents 92.4% of our revenues.\nFor the same quarter prior year, operating expenses were $1.28 billion and represented 87.8% of our revenues.\nThe primary driver of increases in our operating expenses is due to increased labor costs, particularly in our Critical Illness Recovery hospitals.\nWe have seen nearly a doubling of agency nursing rates in Q4, and also an increase in nurse agency utilization in our critical illness recovery hospitals.\nOur operators have done a good job of controlling other operating costs, as most have decreased on a per patient day and per visit basis.\nAs we have mentioned in previous earnings calls, our critical illness recovery hospital strategy is to continue to admit critically complex patients sent to us by our referral partners, even though our labor costs have increased substantially.\nWe have developed strong referral relations during this pandemic, and we believe continued acceptance of these referrals will provide for strong relationships over the long term.\nFor the full year, our operating expenses were $5.43 billion, compared to $4.85 billion in the prior year.\nAs a percent of revenue, operating expenses were 87.6% in both this year and the prior year.\nAs I mentioned in our Q4 operating expense section, the majority of increases in our expenses are the result of increased labor costs throughout the year.\nCost of services were $1.4 billion for the fourth quarter.\nThis compares to $1.25 billion in the same quarter prior year.\nAs a percent of revenue, cost of services were 89.9% for the fourth quarter, compared to 85.4% in the same quarter prior year.\nFor the full year, cost of services were $5.2 billion.\nThis compares to $4.7 billion in the prior year.\nAs a percent of revenue, cost of services were 85.2% for both the full year this year and prior year.\nG&A expense was $38 million in the fourth quarter.\nThis compares to $35.2 million in the same quarter prior year.\nG&A as a percentage of revenue was 2.4% in both the fourth quarter this year and the same quarter prior year.\nFor the full year, G&A expense was $147 million.\nThis compares to $138 million in the prior year.\nG&A as a percent of revenue was 2.4% for the full year.\nThis compares to 2.5% for the prior year.\nAs Rob mentioned, total adjusted EBITDA was $138.4 million, and adjusted EBITDA margins was 8.9% for the fourth quarter.\nThis compares to adjusted EBITDA $221.3 million and adjusted EBITDA margin of 15.2% in the same quarter prior year.\nFor the full year, total adjusted EBITDA was $947.4 million and adjusted EBITDA margin was 15.3%.\nThis compares to total adjusted EBITDA of $800.6 million and an adjusted EBITDA margin of 14.5% in the prior year.\nDepreciation and amortization was $51.9 million in the fourth quarter.\nThis compares to $51.5 million in the same quarter prior year.\nFor the full year, depreciation and amortization was $202.6 million.\nThis compares to $205.7 million in the prior year.\nWe generated $11.2 million in equity and earnings of unconsolidated subsidiaries during the fourth quarter.\nThis compares to $9.8 million in the same quarter of prior year.\nFor the full year, equity and earnings were $44.4 million.\nThis compares to $29.4 million in the prior year.\nWe also had a non-operating gain of $2.2 million in the fourth quarter this year, and a non-operating loss of $303,000 in the fourth quarter last year.\nFor the full year, we had non-operating gain of $2.2 million and non-operating gain of $12.4 million last year.\nInterest expense was $33.9 million in the fourth quarter.\nThis compares to $35.5 million in the same quarter prior year.\nWe also recorded interest income of $600,000 in the fourth quarter this year.\nFor the full year, interest expense was $136 million.\nThis compares to $153 million in the prior year.\nWe've also recorded $5.4 million in interest income this year.\nWe recorded an income tax benefit of $8.6 million in the fourth quarter this year, and income tax expense of $35.1 million in the same quarter prior year.\nFor the full year, we recorded income tax expense of $129.8 million, which represents an effective tax rate of 21.6% compared to income tax expense of $111.9 million, and an effective tax rate of 24.5% in the prior year.\nNet income attributable to non-controlling interests were $16.5 million in the fourth quarter.\nThis compares to $24.9 million in the same quarter prior year.\nFor the full year, net income attributable to non-controlling interests were $97.7 million.\nThis compares to $85.6 million in the prior year.\nNet income attributable to Select Medical Holdings was $49.9 million in the fourth quarter and fully diluted earnings per share were $0.37.\nNet income attributable to Select Medical Holdings was $402.2 million for the full year and fully diluted earnings per share was $2.98.\nAt the end of the year, we had $3.6 billion of debt outstanding, $74 million of cash on the balance sheet.\nOur debt balance at the end of the year included $2.1 billion in term loans, $160 million in revolving loans, $1.2 billion in 6.25% senior notes, and $85 million of other miscellaneous debt.\nWe ended the year with net leverage for our senior secured credit agreement of 3.77 times.\nFor the fourth quarter, operating activities used $60.8 million of cash flow.\nThis includes repayment of Medicare advances of $75.7 million and deferred employment -- employer payroll tax of $53.1 million.\nWe expect the remaining balance of the Medicare advances of $83.8 million to be repaid by April of this year.\nOur days sales outstanding, or DSO, was 53 days at the end of the year.\nThis compares to 54 days at the end of the third quarter, and 56 days at the end of last year.\nInvesting activities used $99.3 million of cash in the fourth quarter.\nThis includes $55 million in purchases of property and equipment, and $60 million in acquisition and investment activities during the quarter, including the acquisition of Acuity Healthcare in this quarter.\nFinancing activities used $513.7 million of cash in the fourth quarter.\nThis includes over $160 million to purchase membership interest in Concentra, which we now own 100% of the voting interest.\nFor the full year, operating activities provided over $400 million of cash flow, which was after the repayment of $241 million in Medicare advances, and the repayment of the $53 million in deferred payroll taxes.\nInvesting activities used $256.6 million of cash for the full year.\nThis includes $180.5 million in purchases of property and equipment, and close to $103 million in acquisition and investment activities for the year.\nThis was offset in part by $26.8 million of proceeds from asset sales during the year.\nFinancing activities used $647.4 million of cash for the full year.\nAs I mentioned, this included over $660 million of purchased membership interest in Concentra in the fourth quarter.\nThe company paid cash dividends to its common shareholders of $16.8 million in the fourth quarter, and $50.6 million for the year.\nThe company also repurchased over 387,000 shares of common stock, for a total cost of $11.1 million during the fourth quarter and 1.77 million shares for a total cost of $58.6 million for the full year under the terms of its board authorized repurchase program.\nGiven the uncertainties due to significant increased labor costs resulting from higher-than-expected use of agency clinical staff, we are issuing our business outlook at this time for revenue only for 2022.\nWe expect revenue to be in the range of $6.25 billion to $6.4 billion for the full year of 2022.\nWe are also reaffirming our previously issued three-year compound annual growth rate target for revenue only, which we expect to be in the range of 4% to 6% for 2021 through 2023.\nWe expect our capital expenditure to be in the range of $180 million to $200 million for this year.\nWe do plan to readdress our business outlook and target compound annual growth rates for adjusted EBITDA and earnings per common share when the labor climate stabilizes.",
        "summary": "q4 earnings per share $0.37.\nq4 revenue rose 6.8 percent to $1.56 billion.\nselect medical expects revenue to be in range of $6.25 billion to $6.40 billion for full year of 2022.\nselect medical is also reaffirming its previously issued three-year compound annual growth rate target for revenue."
    },
    {
        "text": "This audio cast is copyrighted material of Stifel Financial Corp.\nand may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial.\nI'm joined on the call today by Co-Presidents, Jim Zemlyak and Victor Nesi; as well as our CFO, Jim Marischen.\nI'm going to start the call by running through the highlights of our third quarter, before turning it over to Jim, who will take you through our balance sheet and expenses.\nI'll then come back with my concluding thoughts.\nThe COVID pandemic has impacted millions of people worldwide and resulted in ever-changing challenges for both our healthcare system and our economy.\nDespite this backdrop, it's the focus of my partners and associates at Stifel that has enabled us to provide the high-quality financial advice that our clients have come to rely on over the past 20-plus years as we've grown into a premier wealth management and middle market investment bank.\nWith that, let's look at our results.\nSimply, we had another great quarter.\nStifel benefited from strong capital raising and trading activity as well as continued growth in fee-based assets.\nThis more than offset the expected pullback in advisory revenue and net interest.\nNoteworthy, we had one of our strongest recruiting quarters in recent history as we've been able to successfully implement a virtual recruiting strategy.\nOur pipeline remains strong and despite the uncertainty of the U.S. economy resulting from the pandemic, Stifel remains well positioned for continued growth.\nI want to highlight the strength of our business for both the quarter and year-to-date.\nWe generated record third quarter revenue and our second best quarterly earnings per share.\nFor the first nine months of the year, we achieved record revenue and earnings per share.\nCapital raising revenue achieved a quarterly record, trading volumes are up year-over-year and credit quality remains strong at Stifel Bank.\nAdditionally, wealth advisor recruiting accelerated, which built on the momentum we achieved during the first six months.\nThe financial performance during the quarter and frankly, the past few years is driven by a diverse business mix that's enabled both our Institutional Group and Wealth Management segment to generate strong growth.\nThis diversification is illustrated by record nine month wealth management revenue despite significant declines in net interest income and deposit sweep fees, both a result of the Fed's implementation of a 0 rate environment.\nLikewise, we achieved record nine month institutional revenue as record capital raising and brokerage more than compensated for a 13% decline in advisory revenue.\nSimply, Stifel is a growth company with diversified, balanced and synergistic businesses.\nOver the last 12 months, Wealth Management, under both brokerage and fee models has contributed 46% of net revenue.\nInstitutional revenues, comprised of equity and fixed income, investment banking and trading, made up 41%, while net interest income comprised the remaining 13%.\nThe synergy and complementary nature of these businesses is reflected in our return on tangible common equity, which is 23.2% over the past 12 months.\nFor the third quarter, Stifel's net revenues were $883 million, up 8% from the prior year, representing the fourth highest quarterly revenue in our history.\nIn fact, for the 12 months ending September 30, 2020, Stifel generated revenue of more than $3.6 billion, up 14% from the 12 months ending September 30, 2019.\nCompensation as a percentage of net revenue came in at 59.6%, while operating expenses totaled 21%.\nI would note that our compensation ratio is higher for both the quarter and year-to-date as compared to the full year 2019, primarily as a result of the decline in NII.\nRelatively modest loan growth and the stabilization of economic factors, coupled with our management overlay, resulted in essentially no provision for loan losses.\nTo give a sense of the range of outcomes under our CECL economic models, assuming our base case scenario, we are approximately $40 million over accrued.\nOn our most severe scenario, we would be approximately $60 million under accrued.\nAltogether, earnings per share were $1.59, up 6%.\nPretax margins were 19.4%, annualized return on tangible common equity was 22.2% and tangible book value per share increased 13% over last year to $32.34.\nMoving on to our segment results.\nAnd starting with our Global Wealth Management group.\nThird quarter wealth management revenue totaled $527 million, up 4% sequentially.\nThe third quarter benefited from the expected rebound in asset management and service fees, which increased by 16% sequentially as well as improved brokerage revenue both offsetting an 11% decline in NII.\nThrough the first nine months of the year, our wealth management revenue was up 2% to a record of more than $1.6 billion.\nAgain, these results were achieved despite the fact that our NII and deposit fee income declined approximately $65 million.\nExcluding this impact, our year-to-date wealth management revenue increased 18%, driven by strong growth in our brokerage and asset management revenues, both of which reflect strong recruiting end markets.\nIn the fourth quarter, we expect another strong quarter for our asset management revenue due to the 8% sequential increase in fee-based client assets, which totaled $115 billion at September 30.\nI would also note that total client assets reached $326 billion at the end of the quarter and are just $3 billion below the record level set in the fourth quarter of 2019.\nAs you can see on the wealth management metrics slide, we had another outstanding recruiting quarter as our virtual recruiting strategies continue to produce significant growth in our advisor headcount.\nTo put numbers to this, we recruited 45 financial advisors with total trailing 12-month production of $38 million.\nOur recruiting performance this quarter is a continuation of our successful recruiting efforts since the beginning of 2019, as we've added nearly 250 new advisors who had trailing 12-month production of roughly $200 million.\nThis will continue to drive future revenue growth in wealth management as the new advisors transition their clients onto our platform.\nLooking forward, we have a lot of momentum behind our recruiting efforts.\nAnd while there is some seasonality in the fourth quarter, primarily due to the holidays, our pipeline remains extremely strong, as Stifel remains a very attractive destination for high-quality advisors.\nMoving on to our Institutional Group.\nThrough nine months, we generated record net revenue of $1.1 billion, which is up 33% from last year.\nReflecting our growth in investments, the first nine months of 2020 would represent our third highest annual revenue.\nThese results were driven by capital raising and brokerage, both up more than 50% from last year.\nFor the third quarter, net revenue totaled $363 million, up 25% from last year.\nSimilar to our year-to-date results, capital raising and brokerage increases of approximately 50% drove the increase in the quarter and more than offset the expected softness in advisory revenue.\nBefore I go into the details of this segment's performance on the next few slides, I want to take a minute to talk about the general perception of our institutional business.\nI'm sure you remember that on last quarter's call, I commented that this segment is continually underappreciated by analysts.\nIn general, institutional businesses tend to be transactional in nature.\nAnd consequently, there are persistent concerns that strong results in any given quarter are not sustainable.\nWhile it's true that we're not likely to generate record results every quarter, we believe that performance in this business is better judged by annual results.\nAs you can see by the chart on the bottom half of the slide, not only have our results been sustainable, they've grown substantially.\nIn fact, if you annualize our results for the first three months of 2020, our institutional revenues have grown at a compound annual rate of nearly 11% since 2009 despite substantial changes in the operating environment.\nThis growth is a direct result of the investments we've made into our business that has enabled us to pick up market share and become more relevant to our clients, which will help to drive continued growth in the future.\nWith that said, let's move on to our institutional equities and fixed income businesses.\nWhile this slide depicts brokerage and capital raising for both equities and fixed income, I'll focus on the brokerage business now and address capital raising on the investment banking slide.\nFixed income brokerage revenue was $97 million, up 60% year-on-year and was our third highest quarterly revenue ever, with the top two quarters occurring in the first half of the year.\nAs such, we are having a record year in fixed income brokerage, as the first three quarters are not only up 70% from 2019, but already surpassed our previous full year record in 2016 by 5%.\nThe strength of our results continues to be driven by activity in investment-grade, high-yield rates as well as municipals.\nEquity brokerage revenue of $54 million was up 32% year-on-year as activity levels slowed from the record levels in the second quarter as market volatility slowed.\nLike our fixed income businesses, we are also having a record year in our institutional equity brokerage business, as through the first nine months, revenues are up 23% from our previous nine month high recorded in 2014.\nI would also note that I'm pleased with the contributions from our international businesses.\nOn the following slide, we look at our firmwide investment banking revenue.\nRevenue of $218 million was relatively flat with the prior quarter and up 10% year-on-year, driven by record revenue and capital raising.\nOverall, the third quarter was our third strongest investment banking quarter.\nMuch like my comments about our overall institutional business, our investment banking business has not only been sustainable on an annual basis, but has grown at a compound annual rate of 20% since 2009 and has more than offset industry headwinds in our institutional brokerage business.\nWe will continue to invest in this business as we believe that we can continue to take market share and grow as a premier middle market investment bank.\nLooking at our capital raising business in the quarter, we generated record revenues in both our equity and fixed income issuance.\nEquity underwriting revenue of $85 million was up 41% year-on-year and surpassed our prior record by 20% as IPO activity was up significantly from the prior quarter.\nThe record results in the quarter underscore the diversity of the business we've built as healthcare and technology were our strongest contributors, while our largest vertical, financials, slowed as clients looked to raise capital in the debt markets.\nOur fixed income underwriting revenue of $53 million was also a record as our public finance business had a strong quarter and the issuance market continued to improve.\nStifel lead managed 264 negotiated municipal issues and one was again ranked number one nationally in terms of the number of issues managed.\nThrough the first nine months, we have lead managed 632 municipal issues, which is up 17% compared to the combined volume of Stifel and George K. Baum for the same period in 2019.\nI would also note that although our corporate debt issuance revenues were down from the prior quarter, we continued to benefit from our bankers' ability to cross-sell services.\nAs I mentioned earlier, KBW's clients continue to benefit from our expertise in the debt issuance markets.\nThis again highlights the benefits of our model.\nFor our advisory business, revenue of $81 million decreased by 23% year-on-year as we were negatively impacted by the slowdown in bank M&A following a very strong year in 2019.\nIn terms of verticals, the performance of our advisory business was driven by technology, industrials and restructuring.\nThe decline in advisory was expected as the market had been impacted by the slowdown in deal announcements earlier this year following the pandemic.\nThat said, we continue to see our clients reengage and our pipelines continue to pick up.\nWhile bank M&A activity continues to lag the robust levels we saw in 2019, we are starting to see some green shoots as we recently advised CIT on their announced sale of First Citizens, which will create a bank with $100 billion in assets.\nAdditionally in the fourth quarter, we advised Eastern Bank on the largest ever first step mutual conversion.\nIn terms of our overall pipelines, they continue to build, and I'm optimistic for our investment banking business overall.\nI would note that the capital raising business is robust yet highly market dependent.\nBefore I discuss net interest income, I'll make a few brief comments regarding our GAAP earnings.\nI would note that as we successfully integrated all of our recent acquisitions, we've seen the continued convergence of our GAAP and non-GAAP results.\nThis can be seen in what was our second highest quarterly GAAP earnings per share in our history, which resulted in an ROE of nearly 13%, an ROTCE of more than 20%.\nSimilar to last quarter, the strong GAAP earnings and the pause in our share buyback program resulted in fairly meaningful increases in book value and tangible book value that I'll describe in more detail in the following slides.\nAnd now let's turn to net interest income.\nFor the quarter, net interest income totaled $101 million, which was down $14 million sequentially.\nOur results were impacted by the 0% interest rate environment and elevated levels of cash on our balance sheet.\nOur firmwide net interest margin declined to 190 basis points, which was consistent with the bank's net interest margin declining to 237 basis points.\nFirmwide, average interest-earning assets were relatively flat due to a modest increase in our loan portfolio, primarily due to mortgage loan originations and an 80% increase in our cash position as a result of the debt and preferred equity issuances earlier this year as well as the elevated cash position held at the bank.\nMoving on to the next slide, we review the bank's Loan and Investment portfolios.\nWe ended the period with total net loans of $10.9 billion, which was flat sequentially.\nThe breakdown of our portfolio skewed to a greater percentage of consumer loans through the end of the third quarter.\nOur mortgage portfolio increased by $100 million sequentially as we continue to see demand for residential loans and refinancings from wealth management clients given the decline in interest rates.\nOur securities-based loans increased in the quarter by approximately $120 million.\nGrowth in securities-based loans continues to be strong as FA recruiting momentum continues to grow.\nOur commercial portfolio accounts for just less than half of our total loan portfolio and is comprised of C&I loans, which declined by 2% during the quarter.\nOur portfolio is well diversified with our highest concentration in any one sector at less than 7%.\nWhile the size of our portfolio declined in the quarter, we continue to focus our lending efforts on credits that have been less negatively impacted by the pandemic and typically have access to the capital markets, including such sectors as manufacturing, technology, healthcare and homebuilding supplies.\nWhile we remain cautious in our approach to loan growth, we continue to look for opportunities to grow our balance sheet with limited credit risk.\nMoving to the investment portfolio.\nAs you can see, the vast majority of our securities continue to be comprised of AA and AAA CLOs.\nWe've provided granular detail on the credit risk profile of this portfolio over the last few quarters and have not seen any material change in the underlying credit subordination provided by the securities.\nWe continue to view these securities as an attractive risk-adjusted return and an opportunity to have exposure to the underlying loans with structural credit protection.\nWe've not incurred any losses in this portfolio, and even under the most severe stress testing we deploy, we do not anticipate incurring any losses.\nTurning to the allowance.\nWe adopted CECL earlier this year, and in the first half of the year, we incurred $35 million of credit loss provisions through the P&L, which doesn't include the $11 million opening adjustment that ran through equity.\nMuch of the increase in the first half of the year was driven by changes in macroeconomic scenarios based on the Moody's model, which estimated increasingly severe declines in GDP as well as increasing unemployment.\nAs you can see on the slide, while the allowance for credit loss was essentially unchanged, we did see an increase in the allowance and our coverage ratio on our commercial portfolio, which increased to 2.03% as a result of additional management overlays.\nWe continue to see strong credit metrics with nonperforming assets and nonperforming loans at eight basis points.\nWhile we understand we are still in the early innings of the current credit cycle, we've yet to see anything but nominal charge-offs over the last several quarters.\nMoving to capital and liquidity.\nOur capital ratios were relatively stable during the quarter.\nOur Tier one leverage ratio increased to 11.3%, primarily on the strength of our earnings and a lack of share repurchases.\nOur Tier one risk-based capital ratio was 19.2%, a slight decline from last quarter's 19.3%, as we had elevated risk-weighted asset density in our trading portfolio, given some of the volatility we saw earlier in the year.\nThis decreased risk-based capital by approximately 90 basis points.\nLooking forward to the fourth quarter, we would not anticipate any material changes in our balance sheet.\nAs I mentioned earlier, we will pay off our $300 million, five year senior notes when they mature in December.\nGiven the timing of the maturity, we anticipate that interest expenses will be modestly lower in the fourth quarter.\nOur book value per share increased to $50.95, an increase of $2.11 sequentially and our tangible book value per share increased to $32.34, up from $30.16.\nThese increases were driven by strong quarterly earnings and improved marks on our AFS portfolio.\nAs I noted last quarter, our liquidity position remains strong.\nIn addition to the Sweep Program, the bank has access to off-balance sheet funding of more than $4 billion.\nWithin our primary broker-dealer and holding company, we've access to nearly $2 billion of liquidity from cash, credit facilities that are committed and unsecured as well as secured funding sources.\nI would also highlight that despite another quarter -- another strong quarter in the equities market, we continue to see an increase in client allocations to cash.\nWithin our Sweep Program, we saw balances increase by $1.7 billion in the third quarter.\nSo far in the fourth quarter, client cash has grown another $400 million.\nOn the next slide, we provide 4Q guidance and go through our expenses.\nIn terms of our outlook for the fourth quarter, we would expect net revenues to be in the range of $870 million to $920 million based on strong growth in fee-based assets and the robust investment banking pipelines that Ron described earlier.\nWe forecast the bank's net interest margin to come in between 235 and 245 basis points, which is in line with our third quarter guidance.\nBarring a meaningful decline in LIBOR, we estimate that our current guidance represents a good estimate for where we see bank NIM stabilizing.\nThis is based on the fact that our assets are predominantly floating rate, and we have limited reinvestment of cash flows from our bond portfolio in an environment with limited options for yield and fixed income.\nWe expect our firmwide net interest margin in the fourth quarter to come in between 190 and 200 basis points given the impact of the maturity of our five year debt in December.\nGiven NIM expectations, we expect our NII in the fourth quarter to be between $100 million and $110 million, which is in line with our third quarter guidance.\nIn the third quarter, our pre-tax margin improved 160 basis points sequentially to 19.4%.\nThis increase was a result of lower compensation accruals and a decline in our reserve for credit losses.\nSpecifically, the comp-to-revenue ratio of 59.6% was down sequentially as we accrued conservatively in the first half of the year.\nAnd given our clear outlook for the remainder of the year, we feel more comfortable with our overall comp accruals.\nAs such, we are forecasting a comp ratio of between 57.5% and 59.5% in the fourth quarter.\nNon-comp operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $173 million and represented less than 20% of our net revenue.\nWe estimate that non-comp operating expenses in the fourth quarter will represent between 19% and 21% of net revenue.\nIn terms of our share count, our average fully diluted share count was up by 2% as a result of the increased share price and some modest issuance related to normal stock compensation practices.\nIn the fourth quarter, assuming a stable share price and no repurchases, we estimate our average fully diluted share count will be 77.4 million shares.\nUnlike some of our peers that have more mono line business models, we are not solely reliant on strategies such as balance sheet growth or advisory growth.\nUnderscoring this, we've generated three of our top four strongest revenue quarters and are on pace to record our 25th consecutive year of record net revenue.\nThe strength of our performance was not limited to the top line as we also generated two of our top four earnings per share quarters, and our annualized earnings per share in the first three quarters would result in our second strongest annual earnings despite significantly lower NII and a substantial increase in our credit provision as a result of the implementation of CECL.\nAs we move toward 2021, I feel there is numerous questions about the impact of the elections, now less than a week away, and the impact on our outlook.\nRegardless of the outcome, the short-term environment should be favorable for our various businesses.\nAs pundits often say, don't fight the Fed.\nAnd in this case, you shouldn't fight an accommodative Fed coupled with huge additional stimulus package.\nIn conclusion, the diversified business model we've built continues to prove that it can generate substantial and sustainable revenue growth.\nWhile the market and the economy remain uncertain given the pandemic and the presidential election, the business we've built over the past 20-plus years will continue to generate strong growth and solid returns over the long term.",
        "summary": "q3 non-gaap earnings per share $1.59."
    },
    {
        "text": "I'm joined on the call today by our Chairman and CEO, Ron Kruszewski; our Co-Presidents, Victor Nesi and Jim Zemlyak; and our CFO, Jim Marischen.\nThis audiocast is copyrighted material of Stifel Financial Corp.\n, and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial.\nI'll start the call with some highlights from our quarter and first nine months.\nThen Jim Marischen will review our balance sheet and expenses, and I'll wrap up with some concluding thoughts.\nOur third quarter represented our second-highest net revenue and earnings per share, as both operating segments, Global Wealth and Institutional, generated strong results.\nAs I've said before, our success is driven by the continued reinvestment in our business.\nAnd based on our investment banking and recruiting pipelines, organic bank growth and expertise in acquisitions, Stifel remains well positioned to continue and build upon our decades-long growth.\nRevenue in the quarter totaled nearly $1.15 billion, an increase of 30%.\nWhile certainly pleased with our quarterly revenue, it is noteworthy that we achieved this despite the fact that several large advisory assignments which we had forecast to close in the third quarter have slipped into the fourth quarter.\nFor the nine-month period, we generated record revenue of more than $3.4 billion, up 28% over the comparable period in 2020.\nThe growth in revenue and lower expense ratios resulted in non-GAAP earnings per share of $1.65, which is up 56% year-on-year, and $4.85 year-to-date, which is up 68%.\nThe strength of our results were driven by a combination of revenue growth and expense discipline, resulting in pre-tax margins of nearly 24%.\nIn addition, reflecting our focus on returns to investor capital, we earned nearly 28% annualized return on tangible common equity.\nTangible book value per share also increased 27% in the last year.\nTurning to the next slide.\nOur third quarter net revenue was driven by record Global Wealth Management revenue and robust Institutional revenue.\nAs we forecasted, compensation as a percentage of net revenue declined sequentially to 58.2%.\nOur operating expense ratio was 17.9% and, excluding credit provision and investment banking gross-ups, totaled 16.9%, which was within the guidance range we gave on last quarter's call.\nTaken together, Stifel's quarterly pre-tax income totaled $274 million, which increased 60% from the third quarter of 2020.\nAs I said on last quarter's call, Stifel is and will continue to be a growth company, and our results in the third quarter and year-to-date illustrate our impressive long-term growth trajectory.\nOur disciplined approach to capital deployment and acquisitions has resulted in a diversified business model that has not only made us more relevant to our clients, but also enabled us to grow during good and bad market environments.\nLast quarter, we updated our full year 2021 revenue guidance to be in a range of $4.5 billion to $4.7 billion.\nOur annualized nine-months revenue is essentially in the middle of our guidance and would represent our 26th consecutive year of record net revenue and up over 20% from last year.\nOur performance in 2021 and, quite frankly, over the past six years has been a testament to our focus on consistently reinvesting in our business and our people.\nWe've built a diversified business comprised of highly talented people that has enabled our firm to generate consistent growth regardless of the operating environment, which is something I believe gets overlooked by analysts and investors.\nWe take a disciplined approach to capital deployment by focusing on where we can generate the best risk-adjusted returns.\nSince the end of 2015, this approach has enabled us to consistently grow our assets from $13 billion to over $30 billion, execute and integrate 11 acquisitions, add nearly 700 financial advisors, initiate and consistently grow our dividend and repurchase approximately 20 million shares.\nWe accomplished all of this while improving our pre-tax margins over that time period from 10% to nearly 24% and through the first nine months of 2021 generated an annualized return on tangible equity of nearly 30%.\nI would note these results are against a backdrop of a 0-rate environment, and Stifel is very well positioned from a net interest income and margin perspective for an increase in interest rates.\nWe expect this transaction to close at the end of October, and I'm excited about the strategic fit of this business.\nAs shown on this slide, we are adding a highly complementary business to our already strong fixed income franchise.\nVining Sparks focuses on providing institutional fixed income brokerage, balance sheet management, portfolio accounting and underwriting services to depository institutions.\nOur analysis indicates that 70% of Vining Sparks' revenue is generated from depositories with less than $2 billion in assets, while nearly 75% of Stifel's depository revenue comes from clients with greater than $2 billion in assets.\nAs such, we believe that the combination of our two firms is not only highly complementary, but cements Stifel's position as the leading investment bank for depository institutions in the United States.\nLooking another way at the complementary profile of this combination, there exists only a 5% revenue overlap within end clients of the combined client base.\nWe also believe there exist solid synergy opportunities in debt offerings and M&A through KBW and correspondent banking through Stifel Bank.\nMoving on to our operating segments, and starting with Global Wealth Management.\nAgain we posted record quarterly and year-to-date revenue.\nThird quarter revenue totaled $656 million, up 24% year-on-year, and year-to-date revenue was approximately $1.9 billion, an increase of 19%.\nThis growth was driven by recruiting, increased client activity and growth in interest-earning assets.\nThe continued growth in our asset management revenue in the third quarter was buoyed by higher market valuations and increased client assets in the second quarter, as the majority of our fee-based assets don't advance.\nDespite muted growth in equity valuations during the third quarter, as measured by the S&P 500, we finished the quarter with record client assets of $407 billion and fee-based assets of approximately $150 billion.\nI am pleased with both our loan growth and improvement in both net interest income, which increased 21% over last year, and a 10-basis point sequential improvement in our net interest margin.\nThe next slide highlights the strength of our recruiting and growth drivers of our platform.\nFor the quarter, we added 46 advisors, including 41 experienced advisors, with total trailing 12-month production of $35 million.\nOur recruiting pipelines remain very robust.\nAnd furthermore, I expect that our independent channel will begin to add to our recruiting success, as that advisor channel is gaining traction and momentum.\nMoving on to our Institutional group.\nWe posted our second-highest revenue quarter, as we continue to benefit from increased activity levels and the scale of our business.\nOur quarterly net revenue totaled $492 million, which was up 36% from the prior year.\nnine-month revenue increased 39%, to over $1.5 billion.\nRecord quarterly advisory revenues of $208 million were up nearly 160%, while capital raising posted revenue of $153 million, up 18%.\nAs expected, trading revenue declined to $124 million, while year-to-date trading declined 10%, to $455 million.\nOur Institutional pre-tax margin for the quarter was 25.4%, which was our second highest, trailing only the second quarter of this year.\nFor the first nine months, pre-tax margin was 25.3% and was up nearly 700 basis points, as we continue to generate substantial top line growth, which drives operating leverage.\nLooking at the revenue components of the Institutional group, our equities business posted record nine-month results of $533 million, up 37%, while our third quarter revenue totaled $142 million, up 7% year-on-year.\nOur fixed income business posted year-to-date revenue of $428 million and quarterly revenue of $135 million.\nOur quarterly fixed income business reflected strength in capital raising, offset by a decline in trading revenue.\nI'll focus on the trading businesses of these segments and discuss capital raising on the next slide regarding investment banking.\nWith respect to our trading businesses, quarterly equity revenue totaled $48 million, down 21% sequentially.\nAs I stated earlier, this was the result of lower market activity level, as volumes on the NYSE and NASDAQ declined 8% sequentially.\nAdditionally, we incurred mark-to-market losses attributed to warrants associated with certain investment banking transactions versus gains in the prior quarter.\nFor the first nine months, equity trading revenue was $189 million, up 1% from 2020.\nFixed income trading revenue of $76 million was down 17% sequentially, as we saw lower activity levels in agencies, corporates and munis, as overall market activity declined a similar amount.\nOn slide nine, investment banking quarterly revenue increased 71%, to $372 million, which was just $5 million short of what would have amounted to our fourth consecutive quarterly record.\nYear-to-date, investment banking revenue totals nearly $1.1 billion, up 77%, as both advisory and capital raising are having record years.\nThe $208 million of advisory revenue was our second consecutive record quarter, driven primarily by the strength of our U.S. business; notably, financials, diversified services and technology.\nWhile essentially all of our major verticals generated strong results, we also saw sequential gains in healthcare, industrials and in the fund placement business from Eaton Partners.\nWith our pipelines at record levels and barring a substantial change in the market or the economy, we expect another strong advisory quarter for the fourth quarter of 2021.\nMoving on to capital raising, our equity underwriting business posted revenue of $104 million, up 22%.\nWe saw a balance in this business, with contributions from healthcare, technology, financials and industrials.\nOur fixed income underwriting business posted its second consecutive record quarter, with $61 million in revenue, up 6% sequentially.\nOur municipal finance business posted another great quarter, as we lead-managed 257 municipal issues.\nFor the first nine months, our market share in terms of number of transactions increased year-on-year by 140 basis points, to 12.7% market share.\nIn addition to the strength of our public finance business, we continue to see strong contributions from our debt capital markets business, as we completed a record number of deals in the quarter.\nWhile activity levels in equity capital raising have slowed from the robust levels earlier this year, overall activity remains solid, and with strong pipelines in our fixed income underwriting business I expect another strong quarter for the fourth quarter.\nTurning to slide 10.\nFor the quarter, net interest income totaled $132 million, which was up 10% sequentially.\nOur firmwide net interest margin increased to 210 basis points, primarily due to increases in leverage finance fee income and our stock loan business, while our bank NIM remained at 240 basis points.\nThe growth in our NII was driven by a 5% increase in our interest-earning assets as well as the aforementioned increased leverage finance fee income and security lending activity.\nIn terms of our fourth quarter expectations, we see net interest income in a range of $125 million to $135 million and with a similar NIM to the third quarter, as we expect lower activity levels in some of the more episodic fee income opportunities to -- growth in our balance sheet.\nI'd also note that we've updated our asset sensitivity based on the increased size of our balance sheet.\nIn our first quarter earnings call, we estimated that we'd generate an incremental $150 million to $175 million of pre-tax income as a result of a 100-basis point increase in rates.\nHowever, given the nearly $3 billion increase in our balance sheet since the end of the first quarter, we are revising this forecast to a range of $175 million to $200 million, using the same market and deposit beta assumptions.\nMoving on to the next slide.\nI'll go into more detail on the bank's loan and investment portfolios.\nWe ended the quarter with total net loans of $13.6 billion, which was up approximately $730 million from the prior quarter and was primarily driven by growth in our consumer channel.\nOur mortgage portfolio increased by $390 million sequentially, as we continue to see demand for residential loans from our Wealth Management clients.\nOur securities-based loan portfolio increased by approximately $250 million.\nGrowth in these loans continues to be strong, as FA recruiting momentum continues to drive increased loan balances.\nOur commercial portfolio increased by nearly $100 million sequentially, primarily due to a 5% increase in C&I loans, as increases in fund banking loans more than offset the expected reduction in PPP loans.\nMoving to the investment portfolio, which increased by $330 million sequentially, the vast majority of the sequential growth was in our CLO portfolio, as we continue to see these securities as generating strong risk-adjusted returns.\nTurning to the allowance.\nWe had a modest reserve release of approximately $700,000, as the improvement in our economic projections was essentially offset by the additional reserves tied to loan growth.\nAs a result of the reserve release and the composition of our loan growth during the quarter, our ratio of allowance to total loans declined to 91 basis points, excluding PPP loans.\nI would reiterate that it's important to look at the level of reserves between our consumer and commercial portfolios, given the relative levels of inherent risk.\nAt quarter-end, the consumer allowance to total loans was 36 basis points; for the commercial portfolio, it was 120 basis points.\nWe also continue to see strong credit metrics, with nonperforming assets and nonperforming loans declining to only four basis points.\nMoving on to capital and liquidity.\nOur risk-based and leveraged capital ratios increased to 20.6% and 12%, respectively.\nThe increase in our capital ratios was a result of continued strength in our operating results, an incremental $150 million of preferred equity and the decreasing impact of volatility associated with the pandemic on our trading portfolio.\nWe continued our share repurchase program in the third quarter by buying back 670,000 shares at an average price of $66.74.\nYear-to-date, we've repurchased nearly 1.5 million shares, at an average cost of $66.34.\nWe have approximately 11.8 million shares remaining on our current share repurchase authorization.\nWe continue to feel good about our financial position, as our liquidity remains strong.\nIn addition to the $6 billion available in our Sweep Program, the bank has access to off-balance sheet funding of more than $5 billion.\nOn the next slide, we go through expenses.\nIn the third quarter, our pre-tax margin improved 450 basis points year-on-year, to nearly 24%.\nThe increase was a result of strong revenue growth, a lower compensation ratio and our continued expense discipline.\nOur comp-to-revenue ratio of 58.2% was down 140 basis points from the prior year and was down 130 basis points from the prior quarter.\nFor the first nine months of this year, our comp ratio was 59.5%, which was down 120 basis points from 2020.\nBut I would note that our total year-to-date comp expense is more than $400 million above the comparable period in 2020.\nNon-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $194 million and represented 16.9% of our net revenue.\nThe increase from the prior quarter was driven by increased conference, travel and entertainment expenses.\nIn the quarter, our non-GAAP after-tax adjustments totaled $13 million, or $0.11 per share.\nAs previously noted, the difference between GAAP and non-GAAP results are mainly related to deal expenses that primarily include stock-based compensation and intangible amortization.\nThe effective tax rate during the quarter came in at 25%, which was at the midpoint of our guidance we gave for the second half of 2021 on our last earnings call.\nWe'd expect to see the effective rate to move lower in the fourth quarter, given the anticipated benefit related to the tax impact on stock-based compensation.\nIn terms of our share count, our average fully diluted share count declined by 125,000 shares and was roughly in line with our guidance on last quarter's call.\nAbsent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the fourth quarter fully diluted share count to be 119.5 million shares.\nThis increase is largely attributable to the shares that will be issued in conjunction with the Vining Sparks transaction.\n2021 has clearly been an outstanding year in the markets, and our results so far illustrate the power of the business we've built and our ability to capitalize on this type of environment.\nThrough the first nine months, we're not only on pace to surpass our full year record revenue by more than 20%, but our earnings per share has already eclipsed last year's full year record, as our pre-tax margin is up more than 400 basis points despite the headwinds of a 0-interest rate environment.\nOur ability to generate these types of returns is a direct result of both the acquisitions we've made and the people we've hired.\nOur acquisition strategy has focused on adding complementary businesses that are not only accretive but are a good cultural fit.\nAnd at that point, let me again emphasize how happy we are to be adding a firm like Vining Sparks to the Stifel organization.\nOur strategy for recruiting is similar in many ways to our approach to acquisition, and we look not only for high-quality advisors and bankers but also individuals that are attracted to the culture we've built at Stifel.\nSimply, this growth strategy has increased the scale of our business and relevance to our clients while enabling us to capitalize on the strength of the operating environment in ways we could not have seen just five years ago.\nAs I look forward, the fundamentals of the current market remain positive, as fiscal and monetary policies remain accommodative and low interest rates continue to benefit the equities markets.\nThat said, there are a number of potential headwinds that include increased inflation, the potential for tax law changes, regulatory reforms as well as the ongoing impact of COVID-19.\nHowever, as we've proved over the past few years, our diversified business model is capable of generating strong results in a variety of market conditions, and I believe we remain well positioned for the future, fully understanding that market conditions can change quickly.",
        "summary": "compname posts quarterly non-gaap earnings per share $1.65.\nq3 revenue rose 30 percent to $1.1 billion.\nqtrly non-gaap earnings per share $1.65."
    },
    {
        "text": "Sherwin-Williams remained focused in the third quarter on solving customer challenges, combating rising costs with pricing and investing for future growth in a difficult and highly fluid environment that is impacting the entire coatings industry.\nDemand remained generally robust, but raw material inflation remained persistently high and raw material availability failed to improve.\nWhile these conditions challenged our quarterly results, we continued to strengthen our customer relationships and take actions that strongly position us for the long term.\nWe're confident in the demand outlook and even more confident in our strategy, our people and our position in the market.\nLet me briefly summarize the quarterly numbers.\nStarting with the top line.\nThird quarter 2021 consolidated sales increased 0.5% to $5.15 billion.\nRaw material availability negatively impacted sales by an estimated high single-digit percentage, with about 75% of the impact in The Americas Group.\nThe remaining impact was largely in the Consumer Brands Group with an immaterial impact to Performance Coatings Group.\nConsolidated gross margin decreased 630 basis points to 41.6%, driven by lower sales volume, raw material cost inflation outpacing our price increases near term and supply chain inefficiencies.\nSG&A expense decreased 2.7% in dollars and decreased 90 basis points to 26.6% as a percent of sales.\nConsolidated profit before tax decreased $264.1 million or 30.2% to $611.5 million.\nThe third quarters of 2021 and 2020 included $70.3 million and $76.4 million of acquisition-related depreciation and amortization expense, respectively.\nExcluding these items, consolidated profit before tax decreased 28.4% to $681.8 million.\nDiluted net income per share in the quarter decreased to $1.88 per share from $2.55 per share a year ago.\nThe third quarters of 2021 and 2020 both included acquisition-related depreciation and amortization expense of $0.21 per share.\nExcluding these items, third quarter adjusted diluted earnings per share decreased 24.3% to $2.09 per share from $2.76 per share.\nEBITDA was $834.2 million in the quarter or 16.2% of sales.\nNet operating cash grew to $2.1 billion, or 13.5% of sales in the first nine months of 2021.\nMoving on to our operating segments.\nDespite strong demand, sales in The Americas Group decreased 0.4% as volume and mid-single-digit selling price increases could not fully offset the decrease related to raw material availability.\nSegment margin decreased 3.8 percentage points to 21.3%, resulting primarily from lower sales volume and higher raw material costs, partially offset by selling price increases.\nSegment SG&A remained basically flat year-over-year in dollars and as a percent of sales, as we continued investing in strategic growth initiatives.\nSales in the Consumer Brands Group decreased 22.8% against a very strong comparison a year ago.\nThe decrease included approximately five percentage points related to the Wattyl divestiture, lower volume and the negative impact from raw material availability, partially offset by selling price increases.\nAdjusted segment margin decreased 11.7 percentage points to 14.7% of sales, resulting primarily from lower sales volume, higher raw material and supply chain inefficiencies, partially offset by selling price increases and good sales and marketing cost control.\nSales in the Performance Coatings Group increased 17.4%, driven by volume, price increases and favorable currency exchange.\nAdjusted segment margin decreased 5.5 percentage points to 10.5% of sales as operating leverage from the higher volume, selling price increases and good cost control were more than offset by higher raw material costs, where inflation was the highest among the company's three operating segments.\nLet me begin by reiterating the themes we provided on our September 29 update call.\nFirst, the demand environment remains robust across our pro architectural and industrial end markets.\nMany external indicators and more importantly, our customers, remain highly positive.\nDemand is not the issue.\nSecond, we are ready to meet this demand.\nWe continue to invest in growth initiatives.\nWe have significant production capacity available today and we are bringing 50 million gallons of incremental architectural production capacity online over the next two quarters.\nOur capabilities are not the issue.\nThe issues that impacted our third quarter and have persisted in October continued to be industrywide raw material availability constraints and inflation.\nLet me be very clear on how we are responding.\nNobody has more assets and capabilities than Sherwin-Williams.\nWe're employing all of these to keep customers in paint and on the job better than our competitors.\nWe will continue to focus on customer solutions.\nWe are aggressively combating raw material inflation with significant pricing actions across each of our businesses.\nWe implemented multiple price increases in the quarter.\nWe will continue to do so as necessary.\nWe continue to work closely with our suppliers on solutions to improve availability sooner rather than later.\nAt the same time, we're exploring every avenue to better control our own destiny going forward, including our recent announcement to acquire Specialty Polymers, Inc. There's no shortage of confidence on our team, which is deep and experienced.\nWe fully expect we will emerge from these current challenges a stronger company with stronger customer relationships and with continued strong value creation for our shareholders.\nIn just a moment, I'll add some color to Jim's third quarter results summary.\nBut first, I'd like to make a comment on our results year-to-date.\nWhile events largely outside of our control, it forced us to adjust our expectations, we have still delivered a solid performance.\n2021 year-to-date consolidated sales were up 9.4% or $1.31 billion.\nDespite high teens raw material inflation, adjusted PBT increased 1.5% or $33.1 million and adjusted diluted net income per share increased 4.8% to $6.80 per share.\nAdjusted EBITDA is $2.73 billion or 18% of consolidated sales.\nEven in this unusual environment, we've continued to make investments that will drive our momentum over the long term.\nAnd we are confident we will see significant margin expansion as availability and inflation headwinds eventually subside.\nNow returning to segment performance in the third quarter.\nIn The Americas Group, raw material availability challenges were a significant drag on sales.\nThe good news is that underlying demand remains sound and reported backlogs are strong.\nWe expect growth rates will improve significantly, commensurate with improvement in the industry supply chain.\nSales growth in the third quarter was led by Protective & Marine, which was up by high single-digit percentage.\nWe're seeing good demand in this business from customers in oil and gas, flooring and seal fabrication markets.\nTAG's largest business, residential repaint, grew by a low single-digit percentage against a strong double-digit comparison.\nAs industry supply chain issues are resolved, we would expect this business to return to its prior growth levels, where we've delivered double-digit growth for the last five years.\nNew residential sales increased by a low single-digit percentage.\nNew housing permits and starts have been trending very well since last summer, and our customers are reporting solid order rates.\nWe're seeing a number of projects being pushed out as a variety of building materials beyond paint are in short supply.\nProperty management was up slightly in the quarter.\nImproving apartment turns, along with the return to travel, the workplace and school are tailwinds that should support higher growth when raw material availability improves.\nOur commercial business was down slightly in the quarter.\nSimilar to new residential, projects are taking longer to reach the painting phase due to short supply of multiple building materials.\nAnd finally, as expected, our DIY business was down double digits versus an extremely difficult comparison, which was exacerbated by the raw material availability issues.\nFrom a product perspective, interior paint sales performed better than exterior sales, with interior being the larger part of the mix.\nWe realized a mid-single-digit increase in price in the third quarter resulting from our February one and August one price increases and our mid-September surcharge.\nWe would expect the combination of these pricing actions to result in a high single-digit percentage price realization in the fourth quarter, putting our full year price realization for TAG in the mid-single-digit range.\nWe will continue to evaluate additional pricing actions as needed.\nWe've opened 50 net new stores year-to-date.\nAlong with these new stores, we continue to make investments in sales reps, management trainees, innovative new products, e-commerce and productivity-enhancing services.\nWe are not taking our foot off the gas on these growth initiatives.\nMoving on to our Consumer Brands Group.\nSales decreased by a double-digit percentage, driven by difficult comparisons to the prior year, consumers returning to the workplace, raw material availability issues and the divestiture of the Wattyl business.\nOverall, DIY demand continued to moderate to more normal levels compared to 2020.\nThis was partially offset by growth in the North American Pros Who Paint category, which was up strong double digits in the quarter and year-to-date.\nWhile sales are down in all regions, sales were less impacted in North America, our largest region, compared to Europe and Asia, where COVID restrictions were more impactful.\nPricing was positive in the quarter, though below the level of The Americas Group.\nAs you know, our global supply chain organization is managed within this segment.\nThis team continues to work with suppliers to navigate the industrywide raw material supply chain disruptions caused by Winter Storm Uri and Hurricane Ida.\nWe stand ready with ample capacity and are adding more to serve customers at a higher level as raw material availability improves.\nLast, let me comment on the third quarter trends in Performance Coatings Group.\nWe continue to see momentum as this is the fifth straight quarter of growth for this business.\nGroup sales increased by more than 17% in the quarter, including a currency translation tailwind of 2%.\nPrice was in the high single-digit range, and all regions and all divisions generated growth.\nRegionally, sales in the quarter grew fastest in Europe and Latin America, followed by North America and Asia.\nEvery division in the group grew, the majority by double digits, driven by robust underlying demand, new customer wins and share of wallet gains.\nI'll start with packaging, which generated strong double-digit growth against a high single-digit comparison last year.\nSales were up double digits in every region.\nDemand for food and beverage cans remains robust, and our non-BPA coatings continue to gain traction within existing and new customers.\nNext is General Industrial, the largest division of the group, which posted its third consecutive quarter of strong double-digit growth.\nSales were up double digits in every region.\nSales were strong across most of our customer segments, led by heavy equipment, containers and general finishing.\nOur Coil Coatings business remains a consistent performer.\nSales grew by a double-digit percentage for the second consecutive quarter and were positive in all regions.\nThis team continues to do an excellent job at winning new accounts in all regions.\nConstruction and appliances led to growth.\nAutomotive refinish sales increased by a mid-single-digit percentage.\nMiles driven are nearing pre-pandemic levels.\nNew installations of our products and systems in North America remained strong.\nThe Industrial Wood division generated low single-digit growth.\nGrowth in North America, our largest region, was up strong double digits, but was offset by Asia Pacific where COVID-related shutdowns had a significant negative impact on sales.\nNew residential construction continues to drive robust demand for our products in kitchen cabinetry, flooring and furniture applications.\nBefore moving to our outlook, let me speak to capital allocation year-to-date.\nWe've returned a little over $2.5 billion to our shareholders in the form of dividends and share buybacks.\nWe've invested $2.1 billion to purchase 8.075 million shares at an average price of $265.88.\nWe distributed $442.9 million in dividends, an increase of 20.4%.\nWe also invested $248 million in our business through capital expenditures, including approximately $36 million for our Building our Future project.\nWe ended the quarter with a net debt-to-adjusted EBITDA ratio of 2.5 times.\nWe also announced the Sika and Specialty Polymer acquisitions, which are expected to close in early 2022, if not sooner.\nTurning to our outlook.\nWe expect robust demand to continue in North American pro architectural end markets.\nWe expect DIY demand to continue normalizing as consumers return to the workplace.\nWe expect industrial demand to remain strong.\nRaw material availability challenges will remain a headwind in the fourth quarter, but the situation is improving.\nWe believe we have weathered the worst of Hurricane Ida, and supply should continue to come back online.\nWe expect to be in a make-and-ship mode and do not anticipate building any inventory until the first quarter of 2022.\nOn the cost side of the equation, our raw material inflation expectations for the year moved up to the low 20% range from the high teens given additional pressure we've seen since our last guidance.\nWe do not see any meaningful improvement until well into 2022.\nAll businesses remain aggressive in implementing price increases as necessary to offset these costs.\nWe recognize that the timing of price realization will continue to put pressure on margins in the near term.\nAnd as we've said many times, we expect margin expansion over the long term and maintain our gross margin target in the 45% to 48% range.\nAgainst this backdrop, we anticipate fourth quarter 2021 consolidated net sales will be up by a mid- to high single-digit percentage compared to the fourth quarter of 2020.\nWe expect The Americas Group sales to be up by a mid- to high single-digit percentage, with pro sales at or above the high end of this range and DIY sales returning to a more historic level.\nWe expect Consumer Brands sales to be down by a mid-teens percentage, including a negative impact of approximately seven percentage points related to the Wattyl divestiture, and we expect Performance Coatings sales to be up by a mid-teens percentage.\nEmbedded in our guidance is a similar impact to our architectural businesses as a percent to sales from raw material availability as we experienced in the third quarter.\nFor the full year 2021, we expect consolidated net sales to be up by a high single-digit percentage.\nWe expect The Americas Group to be up by a high single-digit percentage; Consumer Brands Group to be down by a mid-teens percentage, including a negative impact of approximately four percentage points related to the Wattyl divestiture; and Performance Coatings Group to be up by a low 20s percentage.\nWe expect diluted net income per share for 2021 to be in the range of $7.16 to $7.36 per share compared to $7.36 per share earned in 2020.\nFull year 2021 earnings per share guidance includes acquisition-related amortization expense of $0.85 per share and a loss on the Wattyl divestiture of $0.34 per share.\nOn an adjusted basis, we expect full year 2021 earnings per share of $8.35 to $8.55.\nLet me close with some additional data points that may be helpful for your modeling purposes.\nWe expect to see a slightly improved sequential gross margin in our fourth quarter as additional price increases are implemented in the quarter.\nWe expect to see contraction in our fourth quarter operating margin due to the contraction in gross margin, partially offset by leverage on SG&A due to the strong sales growth.\nWe will continue making investments across the enterprise that will enhance our ability to provide differentiated solutions to our customers.\nWe expect to have around 80 new store openings in the U.S. and Canada in 2021.\nWe'll also be focused on sales reps, capacity and productivity improvements as well as systems and product innovation.\nWe also plan additional incremental investments in our digital platform in the home center channel.\nThese investments are all embedded in our full year guidance.\nWe expect foreign currency exchange to be a tailwind of approximately 2% in the fourth quarter.\nWe expect our 2021 effective tax rate to be slightly below 20%.\nWe expect full year depreciation to be approximately $270 million and amortization to be approximately $310 million.\nWe expect full year capex to be approximately $370 million, including about $70 million for our Building our Future project.\nThe interest expense guidance we provided last quarter remains unchanged at approximately $340 million.\nWe expect to increase the annual dividend per share by 23.5% per share for the full year.\nWe expect to continue making opportunistic share repurchases.\nWe'll also continue to evaluate acquisitions that fit our strategy.\nWe're on track to deliver solid full year results even with the considerable supply chain and inflationary headwinds we are experiencing.\nI remain extremely proud of our team and their focus on providing solutions to our customers.\nDemand remains strong, our customer relationships have strengthened and we continue to invest in our capabilities.\nWe expect to finish the year with significant momentum that will carry us forward in 2022.",
        "summary": "sherwin-williams q3 adjusted earnings per share $2.09.\nq3 adjusted earnings per share $2.09.\nq3 earnings per share $1.88.\nsees fy adjusted earnings per share $8.35 to $8.55.\nsees fy earnings per share $7.16 to $7.36 including items.\nqtrly consolidated net sales increased 0.5% to $5.15 billion.\nsees q4 net sales up mid-to-high single digit percent.\ndo not expect any moderation in raw material inflation any sooner than next year."
    },
    {
        "text": "On the call today are Signet's CEO, Gina Drosos; and CFO, Joan Hilson.\nAny statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially.\nDuring the call, we'll discuss certain non-GAAP financial measures.\nFor further discussion of the non-GAAP measures, as well as reconciliations of them to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.\nWe are embracing new capabilities in connected commerce with excellence as evidenced in this quarter's results.\nFurther to this, we are unlocking our team members' potential.\nWe know from listening and from our ongoing surveys that our team members are inspired by our purpose.\nThey're proud to be part of our organization and they're confident in the tightly integrated strategies that are guiding our growth.\nOur team members' inspiration, pride, confidence, expertise, and growing digital capabilities are the most important drivers of my confidence in our long-term success.\nIt is an honor to work at their side.\nAs I reviewed Signet's performance in Q1, I want to leave you with three messages.\nNumber one, we outperformed Q1 expectations and are raising our fiscal '22 guidance today.\nNumber two, we're making steady progress in all four of our where to play strategic focus areas and all three of our how to win core strengths: consumer-inspired insights, connected commerce presence, and our culture of innovation and agility.\nWe are continuing to expand these strengths because we know they are sources of competitive advantage.\nWe're outpacing market growth.\nAnd as a result, we're growing share.\nI'll talk through each of these points but first, let's look high level at the Q1 numbers.\nTotal sales were $1.7 billion, an increase of more than $250 million, or 18%, compared to Q1 two years ago.\nThis is significant because two years ago, we had 467 more stores than we have today.\nE-commerce is playing an increasingly important role with sales up more than 110% in the quarter versus last year and 124% versus two years ago.\nCash flow from operating activities of $161 million year to date was up $169 million compared to last year and $56 million compared to two years ago.\nHaving already paid down debt and with $1.3 billion of cash at quarter-end, we are continuing to invest in growing our business and, as Joan will discuss, returning cash to shareholders.\nEnding inventory was $2 billion, $373 million lower than last year.\nOur inventory reduction efforts are now institutionalized, less about rationalization and more about optimizing our merchandise mix and availability, getting the right product to the right places to maximize the speed of delivery and sales.\nOur digital capabilities give customers access to virtually every piece of jewelry in our system, no matter where it is, which is unlocking new levels of inventory productivity, so this has become more than a working capital story.\nWe are increasing our ability to flow newness into our inventory pipeline, bringing more innovative new products to more customers more frequently.\nAnd with data analytics, we're ensuring we have optimized assortments where we need them.\nOur Q1 performance demonstrates that we are off to a strong start implementing phase 2 of Signet's transformation, which we call Inspiring Brilliance.\nOn that note, I want to transition now to taking a closer look at the progress we're making in each of the four where to play strategic focus areas that we outlined two months ago in our virtual investor event.\nFirst, we are winning in our biggest businesses.\nOur strategy for keeping our core strong and growing is holistic.\nIt begins with the work we've done to differentiate our banners, including merchandise assortment, price tiers, balancing self-purchase and gifting, and offering brands that are designed to appeal to each banner's distinct target customer.\nFor example, we're generating compelling and highly targeted content that's tailored for each channel where we communicate with customers and for the moment in their journey when they are engaging with us.\nOur merchandise assortment is also uniquely targeted for each banner, including Neil Lane and Adrianna Papell at Kay, Vera Wang and Disney Enchanted at Zales, Levian and Pnina Tornai at Jared, and others across our portfolio.\nPerhaps most importantly, we're focused on product.\nOur merchants are continuing to innovate and scour the market for emerging ideas.\nIn bridal, this means larger, high-quality diamonds with more radiance and sleeker designs.\nFor the gift giver, collections with meaning really help our customers express their feelings.\nAnd for the self-purchasing woman and man, our most innovative collections reflect the style changes that we have seen this year: yellow gold, layered neckpieces, and fully outfitted ears.\nWe're finding that customers want to wear jewelry with all looks, including casual, athleisure, professional, and they want to do so particularly now that they are reigniting their social lives.\nOur differentiated banner propositions are working.\nAll of our U.S. banners delivered double-digit revenue growth compared to two years ago.\nWe attribute much of this to the success we're having in attracting new customers across our banners with our holistic marketing and customer experience strategies while maintaining the loyalty of existing customers as well.\nFor example, roughly 60% of our sales growth in Q1 across Kay and Zales came from new customers.\nWe've benefited from stimulus spending and other tailwinds, of course, but we believe that we've captured more than our fair share of this spending by having the right targeted assortments with the right level of newness differentiated by banner.\nThis is evidenced by Kay's strong growth in gifting and Zales' self-purchase.\nFurther, increasingly optimized assortments for our target customers led to an ATV increase of nearly 20% in these banners versus two years ago.\nWhen we combine our knowledge of product as a jeweler and our knowledge of customers as a retailer, along with the scale of our data-driven operations, we win, especially in our biggest businesses.\nSecond, we're making progress on our strategy to accelerate services, which are returning to pre-pandemic levels.\nServices are especially important because they are a long-term relationship builder, the glue that connects a lifetime value of relationship and purchases between a customer and our Signet team.\nWe jump-started services in Q1 in several ways.\nWe enhanced our financial services by expanding and strengthening payment offerings for customers.\nWe recently announced a new and more favorable agreement with two long-term partners, ADS and Genesis.\nThis gives us the ability to provide more payment flexibility more simply and more profitably than we could before.\nWe're also continuing to expand customization services.\nThis remains a growing trend.\nAmong recently engaged people, 13% designed their ring from scratch.\nWe're offering customization tools across all our largest banners.\nWith the Vera Wang love configurator, Zales' customers can choose a diamond or a gemstone center.\nKay enables customers to create a completely customizable engagement ring with a create-your-own-design tool or design a ring with Neil Lane to get that handcrafted Hollywood glamour style just the way they want.\nAnd Jared customers have a variety of ways to put their personal touches on jewelry, whether adding an engraved phrase to a ring or working directly with Jared artisans online or in person at one of our in-store foundry studios.\nConsistent with this, customization sales are up low double digits in Jared stores with a foundry.\nWe also continue to build on our investments in James Allen, a specialist in the custom jewelry space, and we're seeing strong results with more than 130% revenue growth to last year.\nFurther, we launched custom design and restoration events across Kay, Zales, and Jared in Q1.\nWe offered customers a 10% discount to bring in existing pieces of jewelry to be reimagined or restored to their previous brilliance.\nThese events, on their own, enabled us to exceed our goals for the quarter, and we plan to continue hosting them banner by banner going forward.\nWe're also moving into new areas such as jewelry rental subscriptions with the acquisition of Rocksbox, and we're quickly growing brand awareness through cross-promotion within our banners.\nJared, for example, offered customers a free two-month subscription to Rocksbox when purchasing a Jared piece, and then provided a bounceback coupon to anyone who activated a Rocksbox subscription.\nWe'll be offering a growing range of cross-banner promotions like this in the months ahead, including a Rocksbox rental offering partnership with Piercing Pagoda this summer.\nWe are building momentum and services, which we continue to believe is a billion-dollar growth opportunity on the path to the $9 billion overall revenue goal we laid out at our virtual investor event.\nThe third strategic focus area where we're making progress is expanding midmarket accessible luxury and value.\nWe're focused sharply on growing the top end of the midmarket with more intentional accessible luxury offerings.\nFor example, Jared's fastest growth this quarter came through higher price point merchandise, primarily above $3,000.\nThis includes Jared's new premium diamond assortment with sales of larger stones up roughly 30% to two years ago.\nChosen Platinum, Pnina Tornai, and Royal Asscher were strong merchandise drivers.\nPiercing Pagoda is expanding our strength at the value end of the midmarket, delivering its strongest quarter ever in Q1.\nJust to emphasize, ever means Q1 fiscal '22 was higher total revenue than any prior quarter for Pagoda, including fourth quarter.\nCustomers are highly receptive to our new assortment with particular emphasis on gold, which represents 75% of Pagoda sales.\nPagoda now has more than 135 stores on track to deliver $1 million in sales this year.\nAnd we currently have four Pagoda locations that already have more than $1 million in sales to date this fiscal year, a feat that took until August to achieve in fiscal '20.\nWe're eager to keep Piercing Pagoda growing and highly relevant.\nWe're taking two critical steps in that direction by investing in advertising and launching a branding refresh.\nThe strong return on our additional investment in advertising was proven this quarter as we continued to increase Pagoda's banner awareness.\nSales were up three times to Q1 of last year and up 80% to two years ago on a smaller store base in both years.\nOur second step, updating branding, is one that we believe will further accelerate our return on advertising spend.\nOur customer research indicates that the Piercing Pagoda name doesn't have the same modernity that our merchandise and banner experience bring.\nSo we're testing the opportunity to freshen and broaden Pagoda's brand equity and attract new customers while retaining existing ones.\nOur fourth strategy is to lead digital commerce in the jewelry industry.\nOur ability to combine digital and in-store experiences at the scale we are able to is a significant competitive advantage and we're continuing to innovate and to invest in both.\nFor perspective, Kay delivered nearly 17% more brick-and-mortar sales per square foot of physical store space than in the first quarter two years ago.\nAnd Zales is delivering 35% more.\nIn total, Q1 e-commerce sales were up more than 110% compared to last year, and brick-and-mortar same-store sales were up more than 105%.\nAs part of our growing connected commerce approach, we are integrating our physical stores into the digital customer experience with data-driven in-store consultations, buy online pickup in-store and curbside, and increasingly seamless interaction across our websites, stores, and inventory pipeline.\nThis integration is making a difference.\nWhile physical foot traffic is still down compared to this time two years ago, we've delivered growth through both higher conversion and higher average transaction value.\nWe believe this is because we are starting to provide a best-in-class experience from the first touchpoint of the digital shopping experience, all the way through in-person store consultations and fulfillment.\nWe added more than 100 new features and capabilities across our digital platforms in Q1 to ensure every digital touchpoint is a moment of customer delight.\nVirtual try-on for Kay drove over a 110% increase in its add-to-cart rate and nearly a 70% increase in order conversion in Q1.\nWe also rolled out Google Business Messages and Apple Business Chat, features that allow customers to engage virtual jewelry consultants in real-time or offline from search results or maps.\nApplications like these are laying the groundwork for further enhancements later this year as we build our agile team infrastructure and iterative innovation capabilities.\nLast year, we implemented virtual selling at the end of Q1 and had around 50,000 virtual interactions with customers.\nThis quarter, we had more than 450,000 virtual interactions.\nAnd importantly, conversion is also improving as our teams' capabilities continue to mature.\nFurther, our cart to check out conversion rate is up, and the rate of site visits that turn into cart views is up as well.\nOur digital development teams are not settling for creating the best online jewelry experience.\nThey're setting the bar higher by finding and innovating the best online consumer experiences in any category, and then bringing those experiences for our jewelry customers.\nI'll share one quick example of how this integration and growing digital capability is working.\nWe recently worked with a customer who came to us through our virtual chat feature with a mission and a deadline.\nHe wanted to propose to his girlfriend the next day.\nErika, one of our virtual consultants, noticed the urgency in his messages, and she made it her mission to help him achieve his.\nThis customer's soon-to-be fiance had a dream ring in mind, a cushion-cut two-carat syn pave ring in white gold.\nErika immediately began searching our virtual inventory to identify stores nationwide that had or could create the piece he was looking for.\nShe found a store near him that had the cushion cut with the color, clarity, and size that he needed.\nErika connected him directly to that store.\nThe customer loved the ring and bought it on the spot, a $25,000 sale I might add.\nThe team set and sized the ring while he waited.\nHe proposed that evening, she said yes, and he sent our team photos of the happy moment.\nThis customer told us he loved being able to start his shopping journey virtually, look at pieces online, chat with a virtual consultant, have us do the shopping with him, and then have the diamond and ring together for him to view in person.\nThat's the power of Signet connecting digital and physical, alongside our mission of helping all people celebrate life and express their love, even in 24 hours or less.\nWhat I hope you can see is that we are growing in each of our integrated strategic focus areas.\nThe best strategies are tightly integrated and create more value because they are mutually reinforcing.\nIt's making a difference as we've outpaced market growth over the last year and are gaining market share.\nI also want to emphasize that we are delivering the performance I've outlined with a deep sense of purpose.\nWe are committed to ongoing leadership in corporate citizenship and sustainability, and we view ESG initiatives as an important growth driver.\nThis past quarter, we released the company's first-ever corporate citizenship and sustainability report.\nThis reflects our continued leadership, prioritization, and board oversight of ESG initiatives.\nWe announced our 2030 corporate sustainability goals through our three love: love for all, love for our team, and the love for our planet and products.\nAs we enhance our corporate citizenship and sustainability goals, we believe in prioritizing our own team.\nThis quarter, we launched Signet's first team member experience, which is focused on providing team members with an exceptional and inclusive place to work while also providing a robust set of learning and career development opportunities.\nHaving been named a certified great place to work company last year, we aim to keep our high engagement and discretionary effort momentum going.\nAnd we are active in the communities we serve as advocates for change.\nWe made the first donation from our Signet Love Inspires Foundation to the Equal Justice Initiative as there is much to be done to fight systemic racism.\nAnd in line with our mission of celebrating life and expressing love for all, the company is celebrating Pride month across Signet banners and has endorsed the Human Rights Council's business statement on anti-LGBTQ plus state legislation.\nAs a global company with long-standing partners and vendors around the world, we donated to the Gajera Charitable Trust in India with the intention of support for COVID relief efforts.\nWe believe these purpose-inspired actions are attracting even more top talent to our highly dedicated team and are attracting and appealing to customers who are voting with their wallets in support of companies and brands that share their values and take a stand.\nIn summary, the Inspiring Brilliance phase of our transformation is off to a strong start.\nWe outperformed expectations in Q1, and we're making progress in all of our strategic focus areas.\nWe are growing our core strengths into meaningful competitive advantages.\nAnd most importantly, we are outpacing the market, growing share, and fulfilling our purpose as a company.\nWe still have plenty of hard work to do to sustain our performance and deliver long-term growth.\nBut we're encouraged by the momentum that's building and inspired by the opportunity to serve our customers and help grow the jewelry industry.\nInspiring Brilliance is advancing our transformation and has accelerated our growth to deliver a strong first-quarter performance.\nspecialty jewelry market, and we believe we are winning share, particularly in the mid-market.\nThere are four key highlights this quarter.\nFirst, our financial performance was strong in the quarter as we grew our top and bottom lines on a lower store base.\nWe grew our top line through higher conversion and average order value despite lower traffic.\nOur top-line strength was complemented by our continued cost discipline and leveraging of our fixed cost base.\nSecond, our balance sheet is strong.\nEfficient use of working capital through inventory reduction and spend management delivered an increase in liquidity to last year.\nThird, we successfully executed new credit agreements, resulting in benefits to our customers and favorable economics to Signet, reflected in our raise of cost savings guidance.\nLastly, we're committed to invest in Signet's growth and are raising our capital expenditures for the fiscal year.\nWe are investing in our talent, banner differentiation, and technology.\nWe are also pleased to announce today the reinstatement of a common dividend, demonstrating our confidence in cash flows and business performance despite our conservative view of the back half.\nTurning to the quarter, first-quarter total sales grew 98.2% over last year on a lower store base.\nOur sales growth was broad-based.\nWe saw strong performance across formats, regions, channels, and categories.\nWhile overall jewelry category trends remain healthy, we continue to outpace the market growth.\nspecialty jewelry market grew over 72% for the three months ending in April.\nCompared to that market growth, our U.S. banners grew total sales more than 109% this quarter.\nOur integrated strategic choices, including new connected commerce capabilities, modern marketing strategies, and enhanced product assortment, are all enabling a more than 250-basis-point increase to our brick-and-mortar conversion rate within our biggest businesses versus two years ago.\nMoving on to gross margin, we delivered approximately $680 million this quarter or 40.3% of sales.\nWhile that rate is a significant improvement to last year, when we look back versus two years ago, this is a 540-basis-point improvement.\nWe expanded our gross margin rate through a combination of factors.\nFirst, our top-line performance allowed us to leverage fixed costs, and we are benefiting from cost savings within gross margin.\nSecond, services revenue carries a more favorable margin profile and is growing, importantly, compared to two years ago, in programs such as extended service agreements.\nLastly, through enhanced pricing discipline and new capabilities, we improved our merchandise margin during the quarter.\nFlexible fulfillment and ship from store provide our customers nearly all of our product across our channels while more effectively managing our inventory throughout its lifecycle.\nFor the first time, ship-from-store automation is now available across all of our banners.\nSG&A was approximately $512 million or 30.3% of sales.\nHere again, the rate reflects a significant improvement to last year, but it was also a 290-basis-point improvement to two years ago.\nWe're effectively using data analytics to create a labor model that integrates our new capabilities, resulting in a 60% improvement in labor productivity versus two years ago.\nOur new labor model, coupled with our enhanced product assortment and marketing strategies resulted in a 15.2% increase in our North America average transaction value to last year.\nIn addition to labor productivity improvements, we are continuing our cost-savings efforts, including technology harmonization, optimizing our real estate portfolio, and overall spend management.\nNon-GAAP operating profit was $168.9 million, compared to an operating loss of $142.5 million in the prior year.\nFirst-quarter non-GAAP deluded earnings per share was $2.23, up from a loss per share of $1.59 in the prior year.\nTurning to the balance sheet, we continue to drive working capital efficiencies.\nWe reduced our inventory by $370 million to this time last year.\nAccounts payable also remains an important component of our working capital management and we continue to effectively manage payment terms within our network of vendors.\nWe ended the quarter with $2.5 billion in liquidity, up over $1.2 billion to last year.\nRecall, we have no drawings under our revolver and our longer-term obligations mature in calendar 2024.\nTurning now to financial services and as recently announced, we finalized agreements to restructure our credit offerings.\nWe've extended and expanded agreements with two of our long-standing credit partners through the calendar year 2025.\nThe terms of the new agreements will help to streamline the process for customers.\nAs an example, ADS will originate a wider array of customer profiles and Genesis will expand our second look program to do the same.\nI'd note that all banners will now harmonize to offer our customers no-down-payment financing with a minimum monthly payment structure.\nThese agreements, which are effective July 1, also provide favorable economics to Signet.\nAs these agreements were more favorable than originally contemplated, we're raising our fiscal '22 cost savings guidance by $20 million to a range of $75 million to $95 million, and we now expect cumulative three-year cost savings to be in the range of $220 million to $240 million.\nRecall, our current agreements with third-party, nonprime receivable purchasers are in place until the end of June.\nWe have signed a nonbinding letter of intent with them and are currently working toward a definitive agreement, and the terms would remove consumer credit risk from our balance sheet.\nNow, I'd like to discuss our fiscal 2022 financial guidance.\nWe continue to expect stronger sales performance in the first half of the fiscal year.\nAs the vaccine rollout progresses, we continue to believe there could be a shift in wallet share away from the jewelry category toward experience-oriented categories.\nThe magnitude and timing of which is difficult to predict.\nAs such, we're planning for increased marketing expenses to continue to fuel momentum in the front half, as well as proactively manage against changes in consumer spending as the year progresses.\nAs a result, we continue to conservatively plan for same-store sales to be negative in the second half of the fiscal year.\nAdditionally, India continues to see the tragic impact of the pandemic.\nAnd while we've proactively managed against disruptions to date, supply chain risk could increase later in the year.\nWe expect second-quarter total sales in the range of $1.6 billion to $1.65 billion with same-store sales in the range of 76% to 82%, and non-GAAP EBIT of $118 million to $130 million.\nFor the fiscal year, we now expect total sales to be in the range of $6.5 billion to $6.65 billion with same-store sales in the range of 24% to 27%, and non-GAAP EBIT of $490 million to $545 million.\nWe remain on track to open up 100 locations and close at least 100 locations, with nine openings and nine closings this year.\nThis includes the testing of formats that are quick to set up and require significantly less inventory on hand, as well as formats that contain multiple banners.\nWe'll continue using format testing this year to determine the best way to offer our customers our breadth of capabilities as efficiently and effectively as possible.\nOur long-term capital priorities remain to invest in the business, pay down debt, and return capital to our shareholders.\nFirst, in keeping with these priorities and as a result of our performance and cash generation, we are increasing our capex by $25 million to invest in growth initiatives.\nThis brings our fiscal '22 capital expenditures to a range of $175 million to $200 million with a continued focus on digital and technology investments to further strengthen our competitive advantage and long-term positioning.\nSecond, recall that we paid down the balance of our revolver and filed a loan in Q4 of fiscal '21, and our remaining maturities which carry favorable interest rates come due in calendar 2024.\nAnd third, on capital return, as we announced today, we're pleased to return cash to shareholders through a common quarterly dividend, which has been reinstated at $0.18 per share.\nWe're proud of the results we delivered this quarter and we're proud of our team's execution and commitment to each other and to our customers.\nAnd as we look ahead, we remain focused on our continued transformation under inspiring brilliance.",
        "summary": "signet jewelers' first quarter results exceed expectations.\nq1 non-gaap earnings per share $2.23.\nq1 sales $1.7 billion versus refinitiv ibes estimate of $1.62 billion.\nsees q2 total revenue $1.60 billion to $1.65 billion.\nsees q2 same store sales up 76% to 82%.\nsees fy same store sales growth 24% to 27%.\nsees fy total revenue $6.50 to $6.65 billion.\nexpects to close over 100 stores in fiscal 2022 and open up to 100 locations.\nincreased its gross cost savings expectations for fiscal 2022 to $75 million to $95 million.\nsignet jewelers - expect some tailwinds from stimulus and slower than anticipated return to travel spending to subside in back-half of 2021."
    },
    {
        "text": "I'm joined today by Mike Renna, our President and Chief Executive Officer; Steve Cocchi, our Chief Financial Officer; as well as additional members of our senior management team.\nThroughout today's call, we'll be making references to future expectations, plans and opportunities for SJI.\nReconciliations of economic earnings to the comparable GAAP measures appear in both documents.\nOur CFO, Steve Cocchi, will then review our third quarter and year-to-date operational performance and financial outlook.\nMike will conclude by offering some closing remarks.\nI am pleased to report that SJI, notwithstanding the continuing challenges of COVID, again delivered solid performance in the third quarter and through the first nine months of 2021, and we remain on-track to achieve our strategic and financial goals for the year.\nThrough the first nine months, we have seen economic earnings increase by 12% or approximately $12 million, reflecting solid performance in both our utility and nonutility businesses.\nConsistent with our strategy, our utilities, South Jersey Gas and Elizabethtown Gas represent the bulk of our earnings.\nUtility margin growth remained strong, reflecting above-average customer growth, positive rate case outcomes, infrastructure modernization programs and effective O&M management.\nNatural gas remains in strong demand across New Jersey with our utilities adding more than 12,000 new customers over the last 12 months.\nAnd while we are seeing increased new construction across the state, most of our growth continues to come from customers converting from heating oil and propane.\nOur infrastructure modernization and energy efficiency investments, critical to assuring safe and reliable service to our customers, remain on-track and have the added benefit of significantly reducing methane emissions.\nOn October 1, in keeping with the cadence approved by the BPU, we began recovery of these investments made over the last 12 months.\nI am also pleased to report that our regulatory initiatives continue to advance.\nIn August, the BPU approved South Jersey Gas' engineering and route proposal to construct needed system upgrades in support of a planned 2 Bcf liquefied natural gas facility.\nAs you know, the BPU has called utilities in New Jersey to evaluate preparedness for potential gas supply interruptions.\nThis investment is critical to ensuring service is not interrupted in the event of a significant outage, either behind our city gate or in one of the two interstate pipelines that serve the South Jersey Gas system.\nPreliminary engineering and design of the project has commenced.\nRegarding pending initiatives, we have requested $742 million in Phase 3 infrastructure modernization investments at South Jersey Gas.\nThis next phase of system modernization targets coated steel and vintage Aldyl-A plastic pipe, supporting the Murphy administration's safety and reliability, job creation and environmental goals.\nThe retirement of Rate Counsel in September and the leapfrogging of approval of our LNG redundancy proposal has extended our anticipated time line a bit.\nBut settlement discussions continue to progress, and we remain optimistic for a positive resolution soon.\nWith regard to pending legislation, the potential for rate base in RNG and hydrogen investments in New Jersey continues to enjoy strong bipartisan support that aligns with Governor Murphy's clean energy goals and is expected to be a priority item during the upcoming lame duck period.\nAs previously communicated, we believe this legislation will encourage innovation and accelerate New Jersey's decarbonization efforts.\nTurning now to our nonutility operations.\nBoth our energy management and energy production segments delivered solid quarterly and year-to-date results.\nEnergy Management results reflect strong performance in both wholesale marketing and fuel management, while Energy Production reflects positive results from fuel cell and solar investments over the past 12 months, particularly our Staten Island fuel cell as well as contributions from our 35% equity interest in our RNG development partner, REV.\nI am pleased with our progress on our clean energy and decarbonization goals.\nOur five-megawatt fuel cell project in the Bronx that was announced in June is under development and moving forward.\nSimilar to our 2 Staten Island for cells that were brought online in 2020, this fuel cell, which will be our third catamaran is eligible under New York's VDER program, which fixes 75% of revenue and is supported by O&M agreement that guarantees 95% availability.\nSJI will receive 92% of the investment tax credits, cash flows and net income from this project.\nOur decarbonization investments to our partner REV, remain on-track as well.\nOur 35% ownership of REV is now contributing nicely to our bottom line.\nAnd our development of renewable natural gas from future ejection into SJI system and other utility systems across the country continues to move forward.\nEngineering and design work at eight dairy farms is wrapping up with construction on deck and in service on-track for the second half of 2022.\nAs Mike noted, our business has performed very well in the latest period and through the first nine months of 2021.\nFor the third quarter, SJI posted a loss in economic earnings of $18.8 million compared with a loss of $6 million for the comparable period a year ago.\nThe latest period reflects improved results from utility operations, which was achieved despite the ongoing challenges of the pandemic and the inherent seasonality of our business.\nThese improved results from our utility business were offset by decreased profitability from nonutility operations, largely related to year-over-year timing of the recognition of ITCs from renewable investments.\nOur utilities contributed a narrower third quarter loss in earnings of $17.2 million compared to a loss of $18.4 million in the third quarter last year.\nImproved results primarily reflect rate relief at South Jersey Gas, strong customer growth, and base rate roll-ins related to infrastructure modernization and energy efficiency investments under our authorized plans.\nOur nonutility operations contributed third quarter economic earnings of $8.1 million compared to $21.6 million last year.\nEnergy Management contributed third quarter economic earnings of $4.4 million compared to $6.6 million last year, reflecting solid profits from asset optimization activities, albeit less robust than last year and improved profitability from our retail consulting activities.\nEnergy Production contributed third quarter economic earnings of $3.9 million compared with $13.8 million last year.\nAs previously mentioned, the decrease largely reflects timing associated with the recognition of ITCs from renewable energy investments, which was partially offset by positive contributions from fuel cell and solar investments made over the past 12 months as well as contributions from decarbonization investments through our 35% equity ownership in REV.\nMidstream contributed a loss in third quarter earnings of $300,000 compared to earnings of $1.2 million last year, reflecting the absence of AFUDC related to the cessation of development activity for the PennEast Pipeline project.\nOur other segment contributed a loss in economic earnings of $9.6 million compared to a loss of $9.2 million last year, reflecting higher interest and bank fees partially offset by lower outstanding debt.\nFor the nine months year-to-date, economic earnings were $112.1 million compared with $100 million last year.\nImproved utility results and consistent nonutility results largely reflect the same factors as previously discussed, that impacted third quarter results.\nOur capital expenditures and clean energy investments for the year-to-date were approximately $434 million with more than 80% of this amount allocated for regulated utility investments in support of utility infrastructure upgrades, system maintenance and customer growth.\nOur balance sheet, debt and credit metrics have all improved over the past year and support our growth plans.\nAnd as always, we remain committed to a capital structure that supports our regulated, focused capital spending plan while maintaining a balanced equity to total capitalization, ample liquidity and a solid investment-grade credit rating.\nOur GAAP equity to total capitalization improved to 35% as of September 30, compared with 32.2% on December 31, 2020, reflecting debt and equity financing and repayment of debt using proceeds from asset sales.\nOur non-GAAP equity to total cap, which adjusts for mandatory convertible units and other long-duration debt, improved to 43.4% at September 30 compared with 39.7% at December 31, 2020.\nWe continue to have ample liquidity at both SJI and our utilities with approximately $1.3 billion in total cash credit capacity and available through our equity forward and approximately $1.1 billion available as of September 30.\nIn addition, with the proactive refinancing efforts we've undertaken over the past year, as well as repayment of debt from our transactions and the remarketing of our prior mandatory convertible units, SJI has no significant debt maturities due in the near term.\nTurning now to guidance.\nBased on solid operational performance through the first nine months of the year, we are reaffirming our expectation for 2021 economic earnings of $1.55 to $1.65 per diluted share.\nOur long-term economic earnings-per-share growth target remains 5% to 8%, with significant step-ups expected in 2023 and 2025, driven by timing associated with utility rate cases and clean energy investments.\nWe're also affirming our five-year capital expenditures outlook through 2025 of approximately $3.5 billion.\nAs you know, PennEast capex in our five-year plan was relatively small, approximately $100 million, and we've identified a variety of utility and clean energy investments that match our current strategic growth requisites to take its place.\nWe are excited by the progress we've made in 2021 and remain highly confident in our ability to execute on our plan to safely and reliably deliver the clean decarbonized energy of the future through a fully modernized 21st century system.\nBut before opening up for Q&A, let me address a question that may be on your minds.\nWith regard to the recent rise in gas commodity prices, let me remind you that SJI has a prescriptive hedging plan in place approved by the BPU and designed to minimize the kind of pricing volatility our sector has witnessed in recent months.\nBased on this program, any impact to customer bills would largely be resolved in our next BGSS discussions with the regulators with new rates effective next October.\nI know many of you have gotten to know and engaged with Dave over the years.\nHe has served our company admirably and with great distinction for many years, including most recently with the responsibility of leading our utilities.",
        "summary": "south jersey industries reaffirms guidance.\nreaffirming 2021 economic earnings guidance of $1.55 - $1.65 per diluted share."
    },
    {
        "text": "This information is available on our Investor Relations website, investors.\nWe direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.\nDuring the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including funds from operations, or FFO; core FFO, same-center net operating income, and adjusted EBITDA.\nAs such, it is important to note that management's comments include time-sensitive information that may only be accurate as of today's date, May 6, 2021.\n[Operator Instructions] On the call today will be Steven Tanger, our Executive Chair; Stephen Yalof, Chief Executive Officer; and Jim Williams, Executive Vice President and Chief Financial Officer.\nWe are encouraged by a greater macro outlook over the past 90 days as vaccination rollout continues and an improving retail environment, as evidenced by the Consumer Confidence Index in late April, reaching its highest level since the onset of the pandemic.\nThe improvement we are starting to see in some of our operating metrics reflects the excellent value proposition that our open-air centers provide for both retailers and shoppers.\nWe are confident that, by continuing to make progress executing on our strategy, we'll position the company to return to sustained growth over time.\nWe're pleased to share that traffic to our domestic open-air centers in the first quarter nearly returned to 2019 levels and exceeded 2019 levels in April.\nWe continued to make progress on our core priorities for the business: leasing, operating and marketing our outlet centers.\nWe are focused on rebuilding our occupancy, driving leasing, and curating our merchandise mix to maximize shopper frequency and dwell time, and to bring new customers to Tanger Centers.\nConsolidated portfolio occupancy was 91.7% at the end of the quarter, up only 20 basis points from the end of 2020.\nThis reflects the anticipated 61,000 square feet of space recaptured during the quarter related to bankruptcies and brandwide restructurings.\nBlended average rental rates decreased 2.8% on a straight-line basis and 8.5% on a cash basis for all renewals and retenanted leases that commenced during the trailing 12 months ended March 31, 2021.\nHowever, this reflects a 300 basis-point improvement on a cash basis, a 390 basis-point improvement on a straight-line basis compared to our reported Q4 2020 spreads.\nWe believe we will continue to see improvement longer-term as positive traffic and sales trends will support driving better rents.\nHowever, in the near term, we anticipate that we will continue to see pressure on retenanting spreads this year as we fill recaptured space that was at rental rates above the portfolio average.\nCollections of contractual fixed rents billed in the first quarter of 2021 were approximately 95%.\nThrough April 30, 2021, we collected 96% of the deferred 2020 rents due to be repaid in the first quarter and had collected 83% of all deferred 2020 rents, leaving a balance of only $3.7 million.\nGiven this run rate, we're comfortable with our outlook for future collections.\nMeaningful rebound in traffic that we discussed last quarter has been sustained.\nFor the first quarter, domestic traffic returned to 97% of the 2019 level even as February traffic was impacted by severe winter weather, and we were still operating at 20% fewer hours.\nWe believe a comparison to 2019 is more relevant as we started to feel the impacts of the pandemic during March of last year.\nOur strong and sustained traffic levels clearly reflects the attraction of our open-air shopping centers, their dominant market locations, and the value proposition that we offer to both our retailer partners and shoppers.\nNote that in Canada, where we have two unconsolidated JV properties, stores had been closed under government mandate through mid-February and are again closed under mandate.\nThe trailing 12 months, 280 leases commenced, totaling over 1.4 million square feet.\nRenewals executed or in process as of March 31 represented 52% of the space scheduled to expire during the year compared to 63% at the same time last year.\nThe slower-than-usual pace reflects our decision to strategically delay some of our renewal leasing activity as the overall economic and retail environments improve.\nWe continue to expand relationships with our traditional tenants, and we are seeing a measured pace of new leasing activity, with particular interest coming from the higher-end brands.\nDeveloping new business with local and regional brands is one of our leasing priorities.\nThis initiative provides compelling opportunities to add new and interesting concepts to our centers and, with it, more variety for our shoppers.\nAdditionally, we continue to expand our tenant mix beyond apparel and footwear, growing such categories of food and beverage, interactive and experiential, home d?\ncor and design, housewares, sporting goods, and gourmet grocers.\nAs a result, we are reimagining design elements for our centers.\nIn Grand Rapids, Michigan, for example, we have created outdoor seating in a gathering space in connection with the new microbrew restaurant located in a formerly underutilized part of our center.\nIn our Hilton Head Center, iconic gourmet grocer, Nantucket Meat & Fish, is currently under construction for Memorial Day Grand opening.\nOur partnership with Fillogic, the logistics-as-a-service platform in Deer Park, has provided for 5,000 square feet of a micro distribution hub aimed at providing lower cost and efficient distribution solutions for our retailers and shoppers.\nWe continue to deliver strong pop-up leasing activity, which serves several important functions: introducing new brands to the outlet channel that may convert to long-term permanent tenants, creating retail vibrancy in an otherwise dark store; providing variety to the center and more choice for our shoppers, delivering immediate NOI contributions; and, in certain cases, allowing us to maintain occupancy on a temporary basis as we defer long-term leases for market improvement.\nThis tenancy represented approximately 8.6% of our consolidated portfolio total GLA as of March 31, 2021.\nThough elevated from previous levels, this is a proven approach that has historically benefited our centers.\nSince joining Tanger one year ago, our top priority has been evolving our operational discipline by empowering our field leadership team to drive local leasing, business development and operational efficiencies at the center level.\nThese efforts have proven effective and are reflected in our better-than-planned short-term leasing, paid media and operating expense contributions.\nRevenues derived from non-rental transactions, such as paid media and sponsorships.\nalso provided a significant contribution to the Other Revenues line in the first quarter of 2021, driving a 14% increase year-over-year.\nWe have decentralized shopping center operations, with each center's management team now participating in revenue generation and empowered with decision-making authority regarding operating expenses.\nAt the same time, we are centralizing certain procurement activities to benefit from the scale of our organization.\nOne thing the COVID environment reinforced is the importance of meeting the customer where they are and creating a more personalized experience.\nOur marketing and digital transformation teams have continued to expand our virtual shopper offering, curbside pickup with fluid interactive capabilities, and live stream shopping, and offer digital pre-shopping on the Tanger app and website.\nOur digital initiatives are aimed at creating a highly personalized relationship for users and further building our loyalty base by providing more relevant offers and content to our individual shoppers.\nOur operating strategy evolves, our commitment to environmental, social and governance efforts remains unchanged.\nIn 2021, we have launched a comprehensive materiality assessment conducted by a third party to ensure that we are addressing the ESG issues most important to our stakeholders and that these issues are integrated into our core values.\nOur Board and executive leadership team are engaged on ESG issues impacting the organization, and we are investing time and resources to grow our diversity, equity and inclusion program.\nWe believe that education is essential to embedding DE&I throughout our culture and are launching unconscious bias training for our senior leadership team, which will be rolled out throughout the organization.\nWe are also investing in our communities in new ways, including through our newly implemented small business owner outreach initiative.\nThrough this program, we're offering opportunities for new and existing businesses in our communities to set up shop in Tanger Centers supported by our proprietary suite of services to help them incubate and grow.\nIn 2021, we will continue our efforts to streamline ESG reporting so that the data is more accessible to stakeholders and easier to navigate.\nTo improve our transparency and reporting on our ESG efforts, we will begin to implement the recommendations of the task force on climate-related financial disclosures during 2021 with a focus on reducing greenhouse gas emissions, energy performance, biodiversity, water and usage and waste management.\nThese projects have impact on the global environment, broader Tanger's environmental efforts beyond our immediate footprint, and provide additional opportunities to engage with our employees, retailers and shoppers.\nOur team remains focused on a return to sustained growth.\nWe have strengthened our balance sheet and are exploring selective growth opportunities.\nWe are restarting our marketing efforts for our planned Nashville development and, as restrictions are lifted, prospective tenants are making site business.\nProgress we are making across each of our strategic priorities gives us confidence that we will create long-term value for our shareholders.\nFirst quarter results showed continued positive momentum but reflect the ongoing impact of the pandemic, recent bankruptcies and brandwide restructurings.\nFirst quarter core FFO available to common shareholders was $0.40 per share compared to $0.50 per share in the first quarter of 2020.\nCore FFO for the first quarter of 2021 excludes general and administrative expense of $2.4 million, or $0.02 per share for compensation costs related to a voluntary retirement plan and other executive severance costs.\nSame-center NOI for the consolidated portfolio decreased 8% for the quarter.\nThis reflects the rent modifications and store closings from recent bankruptcies and brandwide restructurings, partially offset by the reversal of approximately $1.6 million in reserves related to rents previously deferred or under negotiation.\nCollections of contractual fixed rents billed in the first quarter of 2021 were approximately 95%.\nWe also continue to collect rent bill for prior periods, including amounts related to 2020 that we allowed our tenants to defer to 2021.\nAs of March 31, 2021, remaining rental revenue reserves for 2020 rents deferred or under negotiation totaled $2.6 million.\nSince implementing our ATM program, in March we opportunistically raised capital to reduce debt and strengthen our balance sheet.\nDuring the first quarter, we issued 6.9 million common shares that generated $128.7 million in net proceeds at a weighted average price of $19.02 per share.\nWe used the proceeds to reduce $25 million of borrowings under our $350 million unsecured term loan on March 11, 2021; and, on April 30, completed the partial early redemption of $150 million aggregate principal amount of our 3.875% senior notes due December 2023 for $163 million in cash.\nSubsequent to the redemption, $100 million remains outstanding.\nWe have no significant debt maturities until December 2023.\nAs previously disclosed, we expect to take a charge in the second quarter of 2021 currently estimated to be approximately $14.1 million, or $0.14 per share, including an approximately $13 million make-whole premium to be paid for the early redemption of the notes and $1.1 million in unamortized debt discount and loan costs.\nThe charge will impact our second quarter net income and FFO but will have no impact on core FFO.\nWe expect the 2021 net dilutive impact per share to be approximately $0.12 for net income, $0.18 for FFO, and $0.04 for core FFO.\nThis reduction in debt improves our leverage ratio and enhances our balance sheet flexibility.\nWe have always prioritized maintaining a strong financial position.\nWe will continue our disciplined and prudent approach to capital allocation.\nIn addition to dividend distributions sufficient to maintain REIT status, our priority uses of capital include investing in our portfolio to grow NOI, reducing leverage to pre-COVID levels over time, and evaluating selective growth opportunities over the longer term.\nOur outlook for 2021 remains unchanged.\nWhile we are encouraged by the pace of our progress, we continue to anticipate pressure from current vacancies, additional potential store closures and rent modifications.\nAs mentioned on our fourth quarter earnings call, we expect store closures during 2021 related to bankruptcies and brandwide restructurings to total approximately 200,000 square feet during 2021, including the 61,000 square feet we recaptured during the first quarter.\nMost of the recapture should occur during the first half of the year.\nAdditionally, our guidance assumes there are no further domestic government-mandated shutdowns and assumed lease termination fees decrease by $9 million to $10 million, or $0.09 to $0.10 per share from the elevated level we recognized in 2020.\nBased on our current outlook, we continue to expect core FFO per share for 2021 to be between $1.47 and $1.57.\nWe are maintaining this guidance despite the $0.04 dilutive impact previously discussed.\nFor additional details on our key assumptions, please see our release issued last night.\nOperator, can we take our first question?",
        "summary": "q1 core ffo per share $0.40.\nsees 2021 core ffo per share$1.47$1.57.\nsees 2021 core ffo per share $1.47 to $1.57 (adds dropped word)."
    },
    {
        "text": "I will now read the Safe Harbor statement.\nAt this time, there are significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic.\nI hope you, your colleagues and loved ones are all doing well.\nAs the pandemic remains a challenge in our business and personal lives, we are focused on the safety of our teams around the world.\nWe are appreciative of the resiliency of the entire Skechers organization.\nWithout them we wouldn't have achieved our strong results and do what we do best; design, deliver, and market what we believe is the most comfortable and innovative footwear available today.\nBefore we share details of our record third quarter sales, it is important to note that the pandemic continues to impact our business globally.\nWhile many markets, including the United States and Europe eased restrictions, others particularly the Asia Pacific region experienced extended and even renewed lockdown measures.\nFurther, the global supply chain disruptions, including the congestion at ports around the world, especially in the United States and the COVID-19 related closures of factories in South Vietnam where we manufacture a limited amount of our product have delayed our ability to ship goods.\nTransit times doubled from what they were in the pre-pandemic period.\nThis is a global phenomenon that we believe will continue to impact our business into the first half of 2022.\nHowever, we are seeing positive signs that conditions are improving.\nFactory production in South Vietnam has restarted, albeit at a reduced capacity in some areas and the congestion at some global ports has improved.\nWe are optimistic given our strong start to the fourth quarter.\nSkechers third quarter revenue of $1.55 billion was a new record for the period and a remarkable achievement given the ongoing global supply chain disruptions just discussed.\nFor the nine months period we also achieved a sales record of over $4.6 billion.\nQuarterly gross margin remained strong at 49.6% primarily driven by higher average selling prices and fewer promotions in our direct-to-consumer business, partially offset by increases in freight costs.\nThe third quarter sales gain of 19% was the result of a 20% increase in our domestic business and a 19% increase in our international business, which represented 58% of our total sales for the period.\nWe achieved double-digit increases across all our reportable segments, driven by the continued global demand for our Comfort Technology footwear.\nSkechers direct-to-consumer business achieved the highest quarterly sales gains, increasing 44%, driven by a 61% increase in our international business and a 35% increase in our domestic business.\nWorldwide comparable same-store sales increased 31% including 34% domestically and 25% internationally.\nImportantly, unit volume improved 17% with an average selling price per unit increase of 23%, reflective of our less promotional stance, the success of our Comfort Technology product and a return to a more normal lifestyle and shopping behavior.\nThe increase in our domestic direct-to-consumer business was driven by a 43% gain in our brick-and-mortar stores where we saw higher traffic and normalized operating hours.\nOur domestic e-commerce channel increased 3% year-over-year, but 180% over the same period in 2019.\nOur domestic e-commerce business was particularly impacted by limited product availability in the quarter.\nThe increase in our international direct-to-consumer business was primarily driven by a rebounding demand and easing of COVID restrictions.\nThis growth came from triple-digit increases in Chile and Korea and double-digit increases in the United Kingdom and Mexico, as well as strong growth in Canada, Peru and India.\nWe continue to invest in our e-commerce infrastructure and launched new sites on our new platform in Ireland in September and the United Kingdom this month, with more markets planned for the fourth quarter and into 2022.\nIn the third quarter we opened 10 company-owned Skechers stores, including two in Columbia and one each in Peru, India, Germany and France.\nWe also opened a store in downtown Los Angeles in a renovated historic building, marking our first street location in this evolving urban center.\nWe closed one location in the quarter.\nTo date in the fourth quarter, we've opened three stores, including one in Naples, Italy and we plan to open an additional 15 to 20 locations by year end.\nAn additional net 119 third-party Skechers stores opened in the third quarter across 28 countries, including a net new 67 in China, 9 in India, 6 in Australia, and 4 in New Zealand.\nIn total, at quarter end, there were 4170 Skechers stores around the world.\nOur international wholesale business grew 11% year-over-year.\nThe quarterly sales growth was primarily driven by an increase of 62% in our distributor business and a 10% increase in China.\nOur distributor business performed well, reflecting a more normal selling environment, particularly with our largest partner base in the Middle East and Africa.\nOur joint venture business increased 5% for the quarter due to a 10% increase in China, as well as strong sales in Mexico and Israel.\nThese improvements were partially offset by declines in several markets in Asia due to continuing COVID related restrictions.\nSubsidiary sales increased 6%, primarily driven by improvements in India, as well as Colombia and Canada.\nThis growth was partially offset by a 11% decrease in Europe, primarily due to supply chain issues.\nWe are currently seeing progress in European ports with improvements in the flow of goods resulting in a strong October.\nSales in our domestic wholesale business improved 10% in the third quarter.\nThe growth came primarily from women's GO WALK, men's sport, work, all [Phonetic] from Skechers, as well as our performance in casual running style for men and women.\nCentral to our global success is our Comfort Technology footwear.\nComfort, innovation, style and quality are the Skechers product tenets.\nIn the third quarter and over the last 18 months, consumers have been increasingly loyal to Skechers Comfort as we elevated our products with more fit offerings, as well as lightweight cushioning options and added durability to many styles.\nWe also have focused our efforts on an expanding collection at futures recycled materials.\nOur ongoing goal is to meet consumers' needs with comfortable footwear at a reasonable price.\nWe drove awareness of our available collections through our multiplatform approach to marketing that included television, outdoor, digital, influencers and more.\nThis approach resulted in influencers from Tokyo, London, and Los Angeles, all wearing Skechers times, Kansai Yamamoto limited edition collection and localized campaigns featuring key opinion leaders in key global markets.\nGiven Skechers global growth, we are strategically investing in both our distribution and corporate infrastructure.\nOur UK and China distribution centers became fully operational in the third quarter and we narrowed down locations for a new DC in India.\nWe completed the first phase of our corporate headquarters expansion at Manhattan Beach and we are working on the expansion of our North American distribution center that will bring our facility in Southern California to 2.6 million square feet in 2022.\nBoth of these expansions will be LEED certified gold.\nWe believe our record results in the third quarter reflect our powerful global brand.\nWith factory production in South Vietnam restarted and transit times and port constraints improving, we are optimistic about the holiday season.\nOur results this quarter demonstrate the strength of our brand as the Comfort Technology leader, as well as our immense opportunities for global expansion.\nWhat makes us even more impressive is that we delivered this growth despite severe and ongoing supply chain challenges that significantly restricted product availability across the globe.\nLet me elaborate on that topic first.\nThere has been a lot of discussion about the factory closures in Vietnam over the summer.\nThis certainly impacted production at Skechers, though to a more limited degree than others as the majority of our Vietnam production is not in the South of the country.\nThe more disruptive issues have been widespread shipping container shortages, port congestion and last mile transportation delays.\nThe combination of these factors negatively impacted Skechers sales in the third quarter.\nThis is evident in our quarter end inventory balance which includes an incremental 218 million in-transit inventory, a year-over-year increase of over 140%.\nUnder normal conditions we believe a meaningful portion of that inventory would have been delivered to customers in the third quarter.\nAt Skechers our main objective remains delivering great comfort infused products to our dedicated consumers and once product availability is normalized, we fully expect to deliver even better results than the remarkable growth of this quarter.\nNow let's turn to our third quarter results, where we will provide comparisons to both prior year and where appropriate 2019.\nSales in the quarter achieved a new third quarter record totaling $1.55 billion, an increase of $250.1 million or 19% from the prior year, and a 15% increase over the third quarter of 2019.\nOn a constant currency basis, sales increased $222 million or 17% from the prior year.\nDirect-to-consumer sales increased 44% year-over-year supported by growth in domestic and international markets of 35% and 61% respectively.\nBoth markets delivered meaningful improvements in gross margins and strong year-over-year average selling price growth.\nAs compared with the third quarter of 2019, direct-to-consumer sales increased 20% the result of a 14% increase domestically and a 30% increase internationally.\nInternational wholesale sales increased 11% year-over-year and grew 10% compared to the third quarter of 2019.\nOur distributor business grew 62% year-over-year, but still remained about 9% below 2019 levels.\nThis channel continues to make good strides toward recovery, particularly in critical markets like the Middle East and Russia.\nParticularly sales increased 6% year-over-year and as compared to the third quarter of 2019 grew 8%.\nThe improvement was primarily the result of higher average selling prices and a strong recovery in India, as well as increases in Latin America and Canada.\nOur joint ventures grew 5% year-over-year led by 10% growth in China, driven by strong e-commerce demand, somewhat tempered by slower traffic patterns in retail stores, as well as temporary pandemic related store closures.\nContinuing weakness in several adjacent markets also weighed on joint venture growth in Asia.\nDomestic wholesale sales grew 10% year-over-year and as compared to the third quarter of 2019 increased 17%.\nWe continue to see very positive underlying trends with the majority of our domestic wholesale partners, including healthy sell-through rates and steady and average selling prices.\nGross profit was $769.4 million, up 23% or $144.3 million compared to the prior year.\nGross margin for the quarter was 49.6%, an increase of 150 basis points.\nOn a year-over-year basis, gross margins improved as a result of higher average selling prices, partially offset by a higher unit cost across all segments and the impact of product mix in our wholesale business.\nTotal operating expenses increased by $94.5 million or 18% to $630.7 million in the quarter versus the prior year, but decreased 50 basis point as a percentage of sales from 41.2% to 40.7%.\nSelling expenses in the quarter increased year-over-year by $33.8 million or 39% to $119.8 million.\nThe year-over-year increase was primarily due to higher demand creation spending as markets reopened globally.\nGeneral and administrative expenses in the quarter increased year-over-year by $60.7 million or 13% to $510.9 million.\nHowever, as a percentage of sales, this represented a year-over-year decrease of 170 basis points.\nThe dollar increase was due to a combination of factors, including increased retail store labor, incentive costs, rent expense related to new store openings and distribution center expansions, as well as volume-driven warehouse and distribution expenses.\nThis is partially offset by the $18.2 million corporate compensation expense last year related to the one-time cancellation of restricted share grants.\nEarnings from operations were $146.2 million versus prior year earnings of $92.1 million, an increase of $54.1 million or 59%.\nOperating margin improved 230 basis points to 9.4% as compared with 7.1% in the prior year.\nNet earnings were $103.1 million or $0.66 per diluted share on $157.1 million diluted shares outstanding.\nThis compares to prior year net earnings of $64.3 million or $0.41 per diluted share on $155 million diluted shares outstanding.\nOur effective income tax rate for the quarter was 15.6% versus 15.4% in the prior year.\nAnd now turning to our balance sheet.\nOur cash and liquidity position remained extremely healthy.\nWe ended the quarter with $1.18 billion in cash, cash equivalents and investments.\nThis reflects a decrease of $318 million or 21% from September 30, 2020.\nBut as a reminder, we fully repaid our revolving credit facility in the second quarter of which approximately $450 million was outstanding last year.\nTrade accounts receivable at quarter end were $758.7 million an increase of $49.8 million from September 30, 2020, predominantly the result of higher wholesale sales.\nTotal inventory was $1.23 billion, an increase of 17% or $177 million from September 30, 2020.\nHowever, as previously noted, this balance reflects a significant increase in in-transit inventory of $218 million on an inventory, that is inventory available to deliver to customers and our retail stores was lower by approximately 5% overall and in critical markets like the United States and Europe on-hand inventory was lower by over 20%.\nTotal debt including both current and long-term portions was $327 million at September 30, 2021 compared to $812 million at September 30, 2020 reflecting the repayment of our revolving credit facility last quarter.\nCapital expenditure in the quarter were $89.4 million of which 38 million related to investments in our new corporate offices and other real estate, $16.2 million related to the expansion of our joint venture owned domestic distribution center, $15.3 million related to investments in our direct-to-consumer technologies and retail stores, and $10 million related to our new, now fully operational distribution centers in China and the United Kingdom.\nOur capital investments remain focused on supporting our strategic priorities, growing our direct-to-consumer business, as well as expanding the presence of our brand internationally.\nFor the remainder of 2021, we expect total capital expenditures to be between $80 million and $110 million.\nNow I will turn to guidance.\nGiven the severe supply chain constraints we experienced throughout the third quarter, which we believe will continue for the remainder of the year and into the first half of 2022, we are updating our previous guidance.\nFor fiscal 2021 we now expect sales to be in the range of $6.15 billion to $6.2 billion and net earnings per diluted share to be in the range of $2.45 to $2.50.\nFor the fourth quarter this implied sales in the range of $1.5 billion to 1.56 billion and net earnings per diluted share in the range of $0.28 to $0.33.\nWe anticipate the gross margins will be essentially flat compared to last year as freight costs will largely offset improved pricing.\nOur effective tax rate for the year will be between 19% and 20% as compared to a rate of 5.5% in 2020 and 17.2% in 2019.\nOur third quarter revenues of $1.55 billion was a record for the period and represented our second highest sales quarter in our history and we achieved impressive gross margins of 49.6% and diluted earnings per share of $0.66, a year-over-year increase of 61%.\nOur innovative Comfort product resonated with consumers around the world and demand remains strong, demonstrated by both units sold and the average selling price increases.\nWe remain focused on developing more Comfort footwear.\nexpanding our apparel offering, reaching more consumers through our e-commerce expansion and looking at new opportunities to drive sales globally, including in the Philippines where this month we have transitioned from a third-party distributor model to directly managing our business.\nOur teams are working tirelessly to address the supply chain challenges across all touch points, resources, factories, container shortages, port congestion and in-country transit, all with a goal of delivering Skechers Comfort footwear to our customers and consumers.\nWe are also keeping a close watch on local pandemic-related restrictions and the health of our global teams.\nWe believe 2021 will be another record year for Skechers, a remarkable achievement given the uncertainties globally.\nWe look forward to 2022, a year that will mark our 30th anniversary.\nWe believe we'll be exceptional from a marketing product and sales perspective and a time where we will continue communicating our message to consumers that Skechers is the Comfort Technology company.",
        "summary": "skechers q3 earnings per share $0.66.\nq3 earnings per share $0.66.\nq3 sales rose 19.2 percent to $1.55 billion.\nsees fy earnings per share $2.45 to $2.50.\nsees q4 earnings per share $0.28 to $0.33.\nsees q4 sales $1.51 billion to $1.56 billion.\nsees fy sales $6.15 billion to $6.2 billion."
    },
    {
        "text": "One quick bit of housekeeping.\nCory and I will be participating in the Raymond James consumer conference on September 14 which will be held virtually.\nWe'll publish more details related to the time and date a couple of weeks in advance.\nWith that, let's move on to today's call.\nInvestors should familiarize themselves with the full range of risk factors that could impact our results.\nThose are filed with our Form 10-K, which is filed with the Securities and Exchange Commission.\nI also want to remind everyone that today's call is being recorded.\nAn archived version of the call will be available on our website.\nThis is an important call today, perhaps the most important call with the investment community over the past year.\nIt has nothing to do with the fact that we posted another strong quarter and remain on pace for a record year.\nIt's because we're finally at the inflection point, everyone knew was coming.\nYes, we're starting the run-up against tough comps in both businesses.\nYes, we're starting to see consumers get back to their normal routines.\nAnd yes, like a lot of consumer companies, the cost pressures we're seeing from commodities are starting to feel unrelenting.\nBut as I take a deeper look at our business, I can't help but feel positive.\nIf you only look at a quarterly P&L, you can't possibly understand what's happening here.\nYou have to dig, you have to analyze.\nYou have to find the answers to questions you've never been thought about asking in the past.\nFor more than a year, I've been telling anyone who would listen that I believe Scotts Miracle-Gro would exit COVID as a fundamentally stronger company.\nAnd the deeper we dig, the more we analyze, the more I'm convinced that is exactly what's happened.\nOur consumer base today is vastly bigger and more engaged than prior to the pandemic.\nOur ability to engage on their terms is better today due to the vast improvements in our direct-to-consumer initiatives.\nAnd our ability to provide them the best possible outcomes has been made even easier by an innovation team that continues to turn out important new innovation.\nOur growth engine, Hawthorne, continues to outperform the market and is positioning itself for long-term success.\nWe've built competitive advantages that others in the industry can't match.\nWe brought science-based innovation to this industry, and we continue to embrace a vision that is driving us to explore new and creative opportunities for growth.\nIn addition to the strength of our businesses, our balance sheet gives us more financial flexibility than we've had in a decade.\nWe have opportunities to invest in immediate growth, and we'll pursue those.\nWe have opportunities to invest in long-term growth, and we'll pursue that too.\nAnd we have the opportunity to return cash to shareholders, which we'll also pursue especially given the recent pullback in our share price.\nWe're not doing everything perfectly here.\nBut when I look for major weaknesses, I just don't see them right now.\nWe've taken full advantage of the unique opportunity that presented itself over the past 18 months and have put ourselves in a great position.\nFirst, I want to discuss the continued strength of our U.S. consumer business.\nConsumer engagement remain strong; and by the time we navigate through the next year, we expect to have retained nearly all of the growth we captured in 2020.\nI'm not sure many other CPG companies can say that.\nAgain, the trends are extremely strong.\nWe were up 48% in the quarter, and we continue to expect growth of 40% to 45% on a full-year basis.\nWe continue exploring opportunities that are bigger in scope, and we are increasingly committed to finding creative ways to invest in other areas of the cannabis industry.\nFourth, I'll share some early thoughts about our view of next year.\nWe're not providing fiscal '22 guidance today, but we do have a working thesis about next year, and I believe long-term shareholders will like what they hear.\nAnd fifth, I want to touch on our evolving thoughts about returning cash to shareholders.\nLet's start with U.S. consumer.\nClearly, we've done a better job on the top line than we expected coming into the year.\nConsumer engagement exceeded our expectations and allowed us to call up our numbers twice this season.\nOf course, a lot of that benefit in excess of $1 a share has been offset by commodity pressures that every company in the consumer product space is trying to navigate.\nI'll let Cory dive deeper into those details.\nI want to focus my time on the strong underlying foundation of the business.\nThe most critical takeaway is this: Consumer engagement remains extremely high.\nEntering the season, our research suggested about 85% of consumers who came into the category last year would return.\nWe believe the actual number was probably closer to 75%; however, we're confident we benefited from a higher overall level of participation as one-third of all consumers said they increased their participation in our category this spring.\nWhen we subtract consumers who did less gardening this year from those who did more, our data suggests participation was up 8%.\nAnd that aligns pretty well with consumer purchase of our products at our largest retail partners.\nEntering August, POS dollars at our largest four retail partners were up 4%.\nIn units, the number is 8%.\nThere's a story here and it's important to understand.\nIn most years, the gap between units and dollars is negligible.\nIn 2020, however, retailers did almost no promotional activity, so POS dollars far outpaced units.\nThis year, retailers promoted more than in 2020.\nThe change in their behavior meant the difference between POS dollars and units swung back in the other direction.\nIn our soils business, where four-for-10 and five-for-10 promotions were reintroduced, POS dollars are up 5% year to date.\nBut units, a more accurate reflection of our shipments, as well as consumer activity, are up 8%.\nIn mulch, dollars were up 11% and units up 20%.\nAnd our other branded categories where the year-over-year impact of promotional activity is less pronounced, like lawn fertilizer, weed control, and grass seed, POS dollars were up 3%, 8%, and 14%, respectively.\nThis is the third straight year we're seeing double-digit growth in grass seed.\nSo across all categories, the numbers we're posting would be good in any year.\nSo we're extremely pleased given the tough comps.\nStill, we've given up a lot of the POS gains we reported on the last call when the year-to-date number was plus 20%.\nMost of the reduction was expected because of the difficult comparisons.\nHowever, we believe the result would have been better if had not been for the weather challenges that undoubtedly drove the number lower in May and June.\nOn Mother's Day weekend, historically the largest weekend of the gardening season, it snowed in some key markets.\nMemorial Day brought record cold through most of the Midwest and Northeast.\nFather's Day was not much better.\nIn fact, June as a whole was extremely wet in much of the Midwest.\nAnd of course, the record heat and drought conditions in the Western U.S. have not helped either.\nWe believe the impact from weather was magnified this year.\nLast year, when people were working from home, we saw a lot more POS happening on weekdays than we were accustomed to seeing.\nSo if the weekend weather was lousy, it wasn't a big deal because more people were shopping on weekdays.\nBut this year, because weekday foot traffic was closer to normal, the weekends have become much more important again.\nSo lousy weather is more difficult to overcome this year and we've seen a lot of it.\nThis is not an excuse.\nWeather can impact the business and it was a significant headwind this year.\nBy September 30, I suspect weather will have cost us at least 2 points of growth in fiscal '21.\nNonetheless, consumer engagement remains encouraging.\nOur third quarter historically accounts for about 55% of full-year POS.\nIn the 13-week period from April through June, POS was down 1% this year compared to 2020, but it's up 24% in those same weeks compared to 2019.\nIf we look only at the last nine weeks of that period, that's when we started to hit tougher comps.\nPOS was down 12% from 2020 levels.\nHowever, it's up 30% from 2019 during that same nine-week window.\nIf we extrapolate the current trends for the balance of the year, we expect full-year POS dollars to be up slightly from last year.\nPOS units are likely to be up low to mid-single digits.\nCompared to 2019, we expect POS for 2021 to be up more than 25%.\nThe current consumer trends, combined with planned higher retail inventory levels, give us a high degree of confidence in our full-year sales growth guidance for the U.S. consumer business, which we set at the range of 7% to 9%.\nBehind the numbers, there are a lot of great stories.\nI'd love to share details on all of them, but I'm going to turn the page and share some of the highlights from Hawthorne where we continue to see strength across the board.\nThrough June, sales are 60% higher on a year-to-date basis as the business continues to build on its market-leading position.\nIn Q3, our lighting business grew 77%.\nWithin that number, our market-leading Gavita brand grew at more than twice that rate.\nWe continue to see new growth facilities come online across the country and the retrofit market remained an important part of the story in legacy markets in the Western United States.\nOur success in lighting continues to be led by innovation.\nIn particular, we continue to see great success with our new LED lighting products that provide growers a one-for-one replacement for existing, high-pressure sodium lights.\nOutside of lighting, we continue to see strength in the consumable category as well, which is a more accurate reflection of growth in the actual cannabis market.\nNutrient sales were up 54% in the quarter and growing media was up 32%.\nOur signature brands significantly outperformed the overall category.\nGeneral Hydroponics grew roughly 30 points more than the total nutrient portfolio, and our Mother Earth and Botanicare brands grew three times faster than the rest of our growing media business.\nThe across-the-board strength led to the 48% growth we saw in the quarter, which ended with our largest sales month ever in June.\nThe growth rate we expect for the full year is a little more than two times higher than our initial guidance.\nThe upside this year allowed us to upgrade our talent, enhance our innovation efforts and improve our marketing.\nWe expect those investments will help drive the business again next year and the years to follow.\nThe acquisition of HydroLogic is pretty straightforward.\nThis is an easily integrated bolt-on deal that is highly strategic.\nHydroLogic is a leading provider of products and systems related to water filtration and purification.\nThat makes it a strong complement to our existing irrigation supply business in a high-margin category.\nWe continue to have more M&A opportunities in the pipeline in both business segments than we can digest right now.\nThe challenge for Hawthorne is that many of the targets are small- to medium-sized businesses.\nYou might think that small deals are easy to get done.\nIn most cases, it's just the opposite.\nThe lack of sophisticated IT systems and financial controls makes the due diligence process harder and more time-consuming.\nAnd we're not going to rush the deal just to get it done, but I will tell you we're making good progress.\nSeparately, we remain committed to putting capital to work in areas of the cannabis industry that are closer to the end consumer and to the grower and within the balance of current federal law, as well as the requirements of our lenders.\nAfter months of work by an internal task force, we've created a process that will allow us to make nonequity investments in other entities that invest in cannabis brands and operations.\nIn fact, we've been in discussions with potential partners to bring this strategy to life and hope to see significant movement in the near future.\nWe've developed a highly successful business in Hawthorne based on the current state-authorized marketplace.\nEven though we've never been involved with plant-touching activities, we understand the space, as well as anyone, perhaps better than anyone.\nOur evolving vision is to create the optionality to have an early mover advantage in the broader U.S. cannabis market when federal law allows.\nThere is little doubt this industry is poised for significant growth.\nAnd given our track record, I believe we have an absolute right to win here.\nI look forward to sharing more details in the months ahead.\nSpeaking of the months ahead, I realize everyone wants to know what's in store for fiscal '22, so let me change gears and share some high-level thoughts.\nThe easy part of this equation is Hawthorne.\nThe run rate of this business segment remains strong.\nWe just completed an acquisition and hopefully, there are more on the horizon.\nWe continue to extend our leadership in the overall marketplace.\nWe continue to face the same challenge we've had for several years.\nWe entered fiscal '22 against pretty tough comps.\nBut based on everything we're seeing, it's hard to imagine growth being below 10% to 20% next year.\nI know that feels like a conservative estimate to many, perhaps it is, and perhaps our guidance range will be different.\nBut taking a conservative approach has worked for us over the past several years and we'll continue down that same path.\nI'm not going to overcommit to growth here.\nThe more challenging questions for next year are related to the growth in the U.S. consumer business and the continued pressures from higher commodity costs.\nI'll cover the first part, Cory will cover the second.\nWe still have two months to go in the year, so Mike and I are working to keep the team focused all the way to the finish line.\nThat said, I like where we are.\nThat remains my view.\nWe're probably going to continue to feel some top-line pressure through next April because of the difficult comps.\nSo to some extent, fiscal '22 will be a mirror image of this year, a tough start that should get easier as the year goes on.\nRight now, I believe it's prudent to plan for the U.S. consumer business to decline slightly next year.\nSome of you have models suggesting a double-digit decline.\nWe're hoping to do better than that given the expected benefits from pricing, but it's still too early to tell.\nObviously, we won't really know until this time next year.\nBut our consumer business picked up nearly a decade worth of growth in the last year, and it feels pretty sticky so far.\nCoupled with the changing demographics of the lawn and garden market and a red hot real estate market, it leaves us in a far stronger position in a post-COVID world.\nThat's why we've been investing so hard in our brands this season and why we'll do so again next year.\nThat's a point of view right now, not guidance.\nWe have a lot of work to do over the next 90 days and our thoughts could change.\nWe are still finalizing listings and programs with some major retailers for next year.\nWe also may take a second price increase in January, depending on what happens with commodities.\nAnd of course, we need to get through the fall season to understand what retail inventory picture looks like as we prepare for next season.\nSo we'd expect to give you a much clearer picture when we talk again in November.\nI said at the outset that it's tough to understand the business by just looking at the P&L.\nAnd I hope it's clear that we're feeling bullish and it's in that vein, I want to briefly cover one more subject: Returning cash to shareholders.\nAs we look at the pullback in our equity price since early June, it's clear that the uncertainty about next year is creating a drag on our value.\nI've said repeatedly that I think about this business with a long-term perspective, and I don't worry about quarter-to-quarter fluctuations.\nI like our strategy.\nI like how we're set up to execute, and I believe in this team.\nAnd though I've hinted at the possibility of a special dividend multiple times this year, I'm a big fan of buying our shares at these prices.\nI told Cory, I'm comfortable allocating upwards of $250 million to share repurchase in the months ahead under our existing authorization, so look for us to do that.\nBefore I turn things over to Cory, I just want to add one last bit of perspective.\nI was walking around our campus in Ohio last week and came across a group of our R&D associates, plant scientists conducting field research.\nTheir enthusiasm for their work and their belief in what it could mean for our future was inspiring.\nIt reminded me of why I love working here.\nThere's an optimism here that I don't think you'll find at many other companies.\nIt's what carried us through the early days of COVID and has helped us drive the record results we've been posting every quarter since.\nSo we aren't worried about the difficult comps we continue to face, or the fact that we're likely to see a couple of negative quarters coming up.\nAnd we aren't worried that our consumers will disappear when the world goes back to normal.\nWe believe in our vision here.\nWe believe in the mission we're executing against.\nWe believe our business does make the world a better place, and we believe the opportunities have never been more plentiful and that the future has never been brighter.\nWith that, let me turn things over to Cory for a brief overview of the numbers and to share some of his own early thoughts about next year.\nI agree with Jim.\nQ3 was another strong quarter.\nFrom my new vantage point in the CFO seat, I've had the opportunity to watch our team navigate a pretty unusual marketplace.\nThey're doing a great job, leveraging the opportunities in front of us while managing and overcoming the challenges.\nCompanywide sales were up 8% in Q3 and we're now up 29% year to date.\nWe remain on pace to deliver our guidance on both the top line and bottom line.\nAlthough we're likely to see even more gross margin rate pressure than we expected when we talked last, we're also seeing some unexpected pressure below the line from Bonnie.\nI'll get to those items in a few minutes.\nBut overall, I want to spend my time providing a clear understanding of three things: what we've seen in the recent months; what we expect to see for the balance of the year; and how we expect some of the current trends to spill over into next year.\nconsumer business, where sales declined 4% in the quarter but are 19% higher year to date.\nThat leaves us right on track with the guidance I provided back in June when we said we expect a sales growth of 7% to 9%.\nAs Jim already said, consumer engagement has remained extremely solid throughout the season.\nRetailer inventory levels have also increased over the past several months.\nThis is getting inventory levels back to where they needed to be.\nYou've already heard the details of what we've been seeing at Hawthorne, so there's no need to elaborate on Q3.\nWe remain confident in our growth outlook for the year on that business, too.\nSo in both major reporting segments, in order to maintain our sales guidance, you have to see a pretty dramatic change in the trajectory in Q4.\nTo get to our guidance means shipments in the U.S. consumer would decline by 40% to 50% year over year in Q4, and for our Hawthorne guidance to hold means a range of flat growth to plus 15%, which is obviously lower than what we've been seeing over the past year.\nBut those lower growth rates have nothing to do with the underlying strength of either business, so let me break that down for you.\nconsumer business grew 92% in Q4 and Hawthorne grew by 64%, so the comps are extremely high.\nThat's the first headwind.\nThe second is the shift in our fiscal calendar in 2021 that we talked about in Q1.\nOn a year-to-date basis, through Q3, we've had more days than a year ago.\nWhile the shift had a negative impact of approximately $115 million on companywide sales in Q3, it has added approximately $50 million on a year-to-date basis, which is pretty evenly divided between U.S. consumer and Hawthorne.\nOf course, that means we'll have fewer days in Q4 so that $50 million would come out of Q4 in order for the shift to be neutral on a full-year basis.\nconsumer, we're in the midst of shipping fall products and continue replenishing in other categories to keep the stores at the right level of inventory.\nWe've got good line of sight here, which gives us a high degree of confidence in our guidance, barring any unforeseen event.\nIn Hawthorne, the other major year-over-year headwind in Q4 is the 82% comp we're up against in California, which accounts for about 45% of our annual sales in the U.S.\nWe would expect the growth rate in California to be significantly lower this Q4 for a few reasons: First, obviously, is the difficult comp that we're up against.\nSecond is the fact that weather has had a strange impact on the outdoor growing season out West this year, which is an important part of that business.\nGood weather early in the year allowed outdoor growers to get off to a good start, and many of them have already turned their crops for a second time.\nFor those who haven't, the heat and drought over the past handful of weeks have negatively impacted their business and the need for some of our products.\nThird is simply a timing issue and the fact that we believe we saw a pull-forward of some sales into June.\nWhen we reset guidance at the beginning of June, we said we plan to reinvest some of the upside in both U.S. consumer and Hawthorne to continue driving growth.\nIn Hawthorne, that meant some previously unplanned promotions in June, which contributed to a record performance for the month that Jim referenced.\nSo we expect to give up some of that year-to-date growth over the balance of the year.\nBut net-net, we still expect Hawthorne to finish the year with 40% to 50% growth on top of last year's 60% growth.\nIn fact, our sales after nine months this year are already 7% higher than all of 2020.\nThis business continues to thrive.\nLet's move down the P&L and focus on gross margins, where we continue to feel the impact from inflation.\nClearly, this is an issue that all of you have been hearing about from other companies that you cover.\nFor Scotts Miracle-Gro, we've seen a steady increase in the commodities like urea, diesel, and resin that are easy for all of you to track yourselves.\nTypically, we expect to see some relief in urea prices over the summer, but that's not happening as global demand has kept prices stubbornly elevated.\nWe're also now seeing pressure from inputs you can't track as easily, such as grass seed and sphagnum peat moss.\nGrass seed has probably moved further than any of our commodities over the past year due to a supply and demand imbalance.\nMost of that seed is harvested in the Pacific Northwest.\nSo the harsh weather conditions out there this summer will likely impact plant yields and certainly aren't going to do anything to moderate the cost pressure.\nIn the third quarter, these issues led to an adjusted gross margin rate of 30.8%, a decline of 530 basis points from a year ago.\nI expect another significant decline in the fourth quarter, which would likely result in a full-year decline of approximately 275 basis points.\nThrough nine months, the adjusted gross margin rate is 280 points lower than last year.\nYear to date, higher distribution costs impacted the gross margin rate by 260 basis points and higher material costs put another 130 points of pressure on that rate.\nThose pressures were partially offset by more than 100 basis points of fixed-cost leverage.\nHowever, of the 390 points of downward rate pressure, about 235 basis points were unplanned.\nAnd while a significant price increase has gone live this week and will help for the final eight weeks of the year, there really have been a few other offsets to those higher costs all year long.\nAs we look ahead to next year, only about 25% of our costs are locked right now.\nThat's lower than normal for two reasons: First, it's been harder to lock in rates on some commodities, especially resin; and second, we've paused our hedging efforts for a few weeks with the hope of seeing some relief.\nI'll reinforce Jim's point that our goal is to take enough pricing for fiscal '22 to offset the commodity pressure.\nThe pricing that just took effect in the U.S. consumer was a little more than 5%.\nBut if costs don't begin to moderate by the end of the calendar year, our plan is to take another round of pricing in January, and we've already communicated that intent to our retail partners.\nSetting those issues aside, we still expect to make additional supply chain investments, and we will continue to see negative segment mix as Hawthorne will grow at a much higher rate than U.S. consumer.\nSo we're likely to see the overall rate decline again next year, though I can't give you a good range right now.\nThe team has done a great job over the past several months, offsetting the margin pressure by staying focused on reductions in SG&A.\nIn June, I said we expected full-year SG&A to be flat to slightly higher than 2020.\nWe've made some adjustments in the recent weeks, and I now expect the number to be flat to slightly down.\nThere are a couple of items below the operating line I want to explain as well, both of which are putting some downward pressure on EPS.\nThe first is the impact of Bonnie Plants.\nIf you recall, we originally said Bonnie would add $0.12 to $0.15 to earnings this year.\nBy the time we got to June, they had begun seeing lower profits than we expected because they had built too much inventory.\nSo when we reset the guidance in early June, our assumption was that Bonnie would have a neutral year-over-year impact on our adjusted EPS.\nSince then, we saw further erosion of their results, which is now leading to about a $0.20 headwind for the full year.\nWhile participation rates in edible gardening remain strong, Bonnie planned for a higher level of growth.\nMay and June came in light, in part because of multiple challenging weekends due to weather, which Jim explained earlier.\nThat meant they wound up growing more plants than they needed.\nA critical difference between that business and our other two major segments is the inability to carry finished goods inventory.\nIf we build too much fertilizer inventory, we carry it into the next year, no big deal.\nIf Bonnie inventory doesn't sell and get stuck in a greenhouse, it gets destroyed, and there's no way to offset that cost.\nSo the gross margin hit will flow straight to their bottom line, and that obviously means the benefit we expected from equity income will be lower.\nAs you think about your models for next year, it's important to remember that we've always expected Bonnie to be a year-over-year headwind in fiscal '22.\nIt has nothing to do with the state of the business.\nRemember, our results this year exclude Bonnie's first quarter due to the timing of when we struck our 50-50 JV with them.\nFiscal '22 will include Bonnie's first quarter, which is a lost quarter.\nWhile the result of this year from Bonnie is frustrating, we remain absolutely committed to live goods, especially edible plants.\nIt remains critical to our strategy, and we are working with the Bonnie team on improving the planning process to better navigate the in-season volatility that naturally comes with this business.\nThere could be another pressure point on earnings per share from higher interest expense.\nWe currently are contemplating another bond offering to lock in longer-term bonds, probably with a 10- to 12-year maturity at roughly 4%.\nIf we decide to execute on that plan over the next few weeks, it could add a few more cents of headwind by the end of the year.\nThis will allow for flexibility and liquidity and lock in strong borrowing rates for the next decade.\nBringing things down to the bottom line, GAAP earnings were $4 per share in the quarter and $9.90 year to date, an increase of 12% and 47%, respectively.\nOn a non-GAAP adjusted basis, which is how we provide guidance, earnings per share in the quarter improved 5% to $3.98 per share and 39% to $10.04 per share year to date.\nWe believed a year ago that we could come out of COVID a better and stronger company and I share his conviction that this is exactly what happened.\nIn the U.S. consumer business, we've made investments in traditional marketing, direct-to-consumer, sales, supply chain, and R&D that leave us exceptionally well-positioned for the future.\nAnd in Hawthorne, where I spent the previous six years, we have built competitive advantages that continue to propel that business forward too.\nIn addition, our low debt leverage, which was less than 2.2 times at the end of the quarter, gives us an enormous amount of financial flexibility to continue funding acquisitions and infrastructure improvement while also returning cash to shareholders.\nAnd if we've taken the right steps for the business, that means we've taken the right steps for our shareholders.",
        "summary": "q3 adjusted non-gaap earnings per share $3.98.\nsees fy sales up 17 to 19 percent.\nfurther strengthening of hawthorne gardening company portfolio with acquisition of hydrologic purification systems.\nhydrologic will add about $20 million in annualized sales."
    },
    {
        "text": "So it was.com Kessel Stelling, Chairman and Chief Executive Officer will begin the call.\nHe will be followed by Jamie Gregory, Chief Financial Officer and Kevin Blair, President and Chief Operating Officer for more detailed information.\nWe ask that you limit yourselves to two questions.\nDuring the call, we will reference non-GAAP financial measures related to the company's performance.\nAnd now here's Kessel Stelling.\nWe have two main stories today and probably many more.\nOne is of our strong core operating performance for the first quarter pre and post coronavirus arrival.\nThe other equally important story is the strength and resilience of our company, which is again proven our ability to innovate to execute quickly and effectively manage day-to-day operations while also shifting priorities and resources to meet the emerging needs.\nFrom the very beginning of this COVID-19 healthcare crisis, the decisions and actions taken by our team have been guided by two principles, doing what's best for the physical and financial well-being of our team members and doing what's best for our customers.\nWith those principles in mind, in March, our branches were converted to drive through and appointment only and we implemented aggressive cleaning, sanitizing, hygiene protocols at all of our company facilities.\nMore than 80% of 5,400 team members are now working from home and our IT team did a fabulous job quickly repositioning our workforce.\nWe've offered additional paid-time off the team members who are sick, who are quarantining or dealing with child care or other related family hardships and we're offering bonus payments to our hourly team members required to work on site to serve our customers.\nTo help our customers through this period of financial stress, we're waiting NSF and monthly service fees and offering payment the permit and other loan relief as appropriate.\nAlthough social distancing is more or less eliminated the in-person hands on approach we usually take toward community service, we're doing everything we can to support needs across our footprint, including matching contributions to the American Red Cross, providing financial support for feeding America and funding meals for first responders and front-line healthcare providers.\nI am especially proud of the effort our team has made to deliver paycheck protection program loans to our customers.\nSince the launch of P3 on April 3, our team has processed, approved and funded more than $2 billion in loans for 8,300 customers.\nWe're continuing to process submissions in our pipeline, preparing to find as many as possible with the additional appropriations made available this week.\nKevin Blair will talk more about the key aspects of our COVID-19 response later in his remarks.\nBefore I cover highlights for the first quarter, I want to talk about our confidence in our ability to manage through this current crisis and to emerge from it in even stronger position.\nSince the last crisis, our company has continually taken steps to prepare for an adverse economic environment including efforts to strengthen management in the key risk areas of capital credit and liquidity.\nWe routinely deploy stress testing and sensitivity analyzes to inform business decisions and we believe we're well positioned to sustain an economic downturn such as we're facing today.\nOn capital, our internal stress testing process gives us confidence in our ability to maintain strong capital ratios and stressed economic environments and our liquidity position remains strong.\nWe're also assessing and reprioritizing strategic initiatives under our Synovus forward program Kevin Blair is going to share more details later in the call on steps we're taking to ensure we're addressing the shorter term imperatives while also focusing on the right initiatives for strengthening our company long-term.\nI'll briefly walk through highlights of the quarter on slide four.\nAdjusted diluted earnings per share was $0.21 compared to $0.98 a year ago.\nThis year-over-year decline was driven by a 225 basis point reduction in the Fed funds rate, the schedule loss of loan accretion from acquired loans and a significant increase to the allowance that accounts for the anticipated impact of COVID-19 under the CECL framework.\nWe were very pleased with the fundamentals of our core performance including period end loan growth of $1.1 billion, deposit growth of $1.4 billion and core transaction deposit growth of more than $600 million.\nCore net interest income, which excludes purchase accounting adjustments was flat for the quarter.\nHowever, the core net interest margin declined 5 basis points from the prior quarter, slightly more than our original expectations due to the more significant reduction in interest rates.\nAdjusted non-interest revenue of $99 million grew $7 million from fourth quarter benefiting from significant activity in mortgage, capital markets and fiduciary businesses.\nThis was despite lower seasonal core banking fees and increased fee waivers as part of our effort to serve clients during this COVID-19 disruption.\nAdjusted non-interest expense totaled $271 million for the quarter, up $6 million versus the previous quarter, largely due to the $5 million increase in seasonal payroll taxes that were referenced during our fourth quarter earnings call.\nWe also had an incremental $1 million in expenses associated with COVID related bonus payments for certain front line team members.\nProvision for credit losses was $159 million and resulted in an allowance for credit losses ratio of 1.39%.\nThese metrics incorporate the impact from COVID and the first quarter of CECL.\nBefore I get started walking through the quarterly performance.\nI'd like to highlight that we have withdrawn our 2020 guidance.\nWe will give some near term indications of financial performance on key metrics throughout my commentary and we are committed to reestablishing longer-term targets when the economy stabilizes.\nWe discussed our increased productivity a bit on the fourth quarter call and it continue on to the first quarter with $3.1 billion in total loan production.\nOur Wholesale Banking team one boarded 155 new customers during the quarter, which represented $1 billion in new loans.\nIn March, we saw $300 million increase in line utilization.\nC&I line utilization plateaued at 50% in March as some customers increased draw-out of an abundance of caution related to the economic situation.\nWe are confident in the credit quality of our growth this quarter as we remain disciplined in our underwriting.\nIn the second quarter, we expect loans from the paycheck protection program to serve as the primary engine for loan growth as additional pipelines have declined.\nRate cuts in March led to loan yields of 4.6% excluding purchase accounting a decline of 15 basis points from the prior quarter.\nThe full quarter impact of these March costs will have a greater impact on the average loan yields in the second quarter.\nOn adjusted for hedges, approximately 50% of our loans have a floating rate.\nAs previously discussed, we have a hedging program in place to help mitigate the impact of changes in short-term rates on our floating rate loan portfolio.\nAt quarter end, we had $2.8 billion in receipt fixed swaps associated with these hedges with an average rate of 1.4% versus one month LIBOR.\nSlide six shows deposit growth of $1.4 billion, which included a continue to increases in core transaction deposits of $623 million.\nIn the first quarter, we took advantage of reduced pricing on wholesale broker deposits to increased balances and replace higher call single service deposits.\nWe will continue to monitor these markets for opportunities and while it remains a dynamic deposit environment and remain focused on growing our core deposit base and maintaining a prudent liquidity profile.\nIn terms of overall deposit pricing, we've certainly seen a response to the recent FOMC actions.\nAnd as you can see our total interest-bearing cost in March were approximately 30 basis points lower than the average from the prior quarter.\nIn this easing cycle, the FOMC cut their target rate by 225 basis points and our general expectation is for cycle betas to end in the low to mid 30s as deposits repriced throughout the year.\nAs you can see on slide seven, net interest income of $373 million declined $26 million from the prior quarter.\nThe majority of that decline or $25 million was attributable to the expected decline in purchase accounting adjustments.\nThe core net interest margin, which excludes PAA decreased 5 basis points from the prior quarter to 3.35%.\nAs we look into the second quarter, we expect net interest income to remain relatively flat as a result of significant loan growth associated with P3.\nHowever, this growth along with the depressed rate environment and an elevated cash position is expected to weigh on our net interest margin.\nExcluding those impacts, we reiterate that we expect the margin to decline 4 basis points to 5 basis points per 25 basis point decrease.\nWe expect the majority of the impact from March rate cuts to be realized in the second quarter.\nOn slide eight, you will see that we have had continued success in fee revenue generation, which increased to $99 million adjusted.\nThat's an increase of $7 million from the prior quarter and up $21 million or 27% versus the prior year.\nIn the first quarter, we continue to have diversified strength in our fee revenue business.\nMortgage revenue driven by high production levels and elevated secondary gain on sale margins increased $3 million.\nCapital markets volumes were higher by $2 million as our commercial clients locked in lower rates on their borrowings and income from brokerage grew $1 million, driven by increase in contributions of new hires in 2019 and higher transaction revenue from elevated market volatility.\nThese increases more than offset reductions in areas such as service charges on deposit accounts, primarily due to a decline in retail NSF fees.\nHowever, COVID is already impacting customer behavior including significant declines in capital markets activity, lower debit and credit card transaction volumes and overall business disruption for commercial clients.\nThis disruption will likely result in fee revenue declining 15% to 25% in the second quarter from our recent run rate of approximately $90 million.\nWe would expect an increase in non-interest revenues as the economy stabilizes.\nMoving to slide nine.\nIn the first quarter, non-interest expense was $276 million for $271 million adjusted.\nAdjusted expenses increased $6 million from the prior quarter, generally in line with our prior guidance.\nWith the increased level of COVID related expenses, which we currently estimate of $5 million to $6 million in the second quarter we expect adjusted expenses to remain relatively stable quarter-on-quarter before declining in the second half of the year.\nAs Kevin will discuss in a moment, we remain confident that our efforts over the past six months to identify ways to improve our operating efficiency will result in positive operating leverage over the long-term.\nWe are tailoring the timing of our Synovus forward initiatives to ensure they do not distract from our focus on team members customers and communities.\nThis doesn't change our commitment to our strategy, it simply adjust the timing.\nSlide 10 shows our credit quality metrics as well as the summary of our provision for credit losses and allowance.\nNet charge-offs at 21 basis points remain within prior guidance.\nThe NPL ratio did increase from the prior quarter to 41 basis points and this is up 1 basis point from the prior year.\nAdditionally, past-dues return to the low end of the recent range at 22 basis points.\nWhile we expect to experience stress in the portfolio as we progressed in the current economic environment, it is important to note that we are entering this downturn well positioned from a credit quality standpoint with NPAs, NPLs, past dues and charge-offs at or near lows for this economic cycle.\nProvision for credit losses and allowance for the quarter were impacted by the adoption of CECL on January 1 which generally results in higher provision for credit losses compared to the incurred loss.\nAs you can see on slide 11, the day one reserve increase was $110 million or 39%.\nWe did a lag the five-year transition period for regulatory capital treatment.\nOur 10-K reference the two-year reasonable and supportable period used in CECL estimate, but it was a more appropriate to reduce that for one-year horizon during this period of heightened economic uncertainty, a one-year reversion to the mean follows the reasonable and formal period.\nThe deterioration in the economic environment since January 1 due to the current healthcare crisis resulted in a higher allowance for credit losses ratio as of March 31st, then was modeled in the day one seasonal implementation and is currently at 1.39%.\nOur modeling process incorporates quantitative and qualitative considerations that are used to inform CECL estimates.\nThe internally developed economic forecasts used to determine the allowance for credit losses as of March 31 was approved on March 20.\nAt the time, the approved forecast line with rating agency and Wall Street economic forecast between that approval date and quarter-end, we saw further deterioration in the economic outlook, which resulted in the need for a qualitative overlay to our allowance for credit losses.\nThe qualitative overlay of $37 million at 10 basis points to the allowance for credit losses and better aligns the total allowance with the economic indicators and forecast at the end of the first quarter.\nSignificant economic uncertainty remains as a result of the continuing healthcare crisis and the ultimate impact of government stimulus efforts.\nIf our economic outlook on June 30 resembles these more recent forecast, we would expect to see further increase in the allowance for credit losses.\nCapital ratios on slide 12 include the impact of CECL and incorporate applicable regulatory transition period.\nAs we've shared in the past, our target capital ratios were determined through our routine internal capital adequacy assessment process and include the capital optimization efforts completed in 2019.\nThese capital ratios give us comfort that even in a severely adverse scenario we have a sufficient buffer to withstand the losses and our main well capital.\nIn the first quarter, our CET1 ratio declined 8.72% largely due to the increase in risk-weighted assets, which accounted for a reduction of 25 basis points.\nOur continued strength and PPNR generated 39 basis points of capital, which more than offset the 21 basis point impact of CECL related allowance build.\nAs a result of CECL, we anticipate capital ratio degradation earlier in a recessionary environment than under prior accounting guidance.\nHowever, it is that allowance, which will provide a significant buffer to absorb any realized losses later in the cycle and affords us the ability to return to our capital targets over-time.\nCurrently, the allowance bill was reflected in the total risk-based capital ratio, which increased 6 basis points from the prior quarter to 12.31%.\nBased on the same framework that was established and utilized for stress testing under the Dodd-Frank Act, we continue to leverage our internal capital management processes.\nThese processes coupled with our risk appetite framework provide a road map and outlines capital preservation strategies in the event we see a more protracted period of economic weakness.\nAs we navigate through this recession, we will be very diligent in how we deploy our balance sheet with a clear prioritization toward core customer relationships.\nThese processes also govern how we consider share repurchases in our common equity dividend.\nThrough this process, we determined to suspend our previously approved share repurchase program.\nWe continually evaluate our approach to common equity dividends in our capital planning process, which is guided by our assessment of capital adequacy as well as our projection of sustainable long-term earnings.\nWe believe a change in the common dividend is not warranted at this time.\nAs discussed, we remain confident in our capital adequacy and we continuously assess our long-term earnings outlook.\nLiquidity management has always been a priority at Synovus and we continue to improve our liquidity profile.\nIn the first quarter, we issued $400 million of bank debt at very attractive levels and we increased our collateral of the Federal Home Loan Bank by approximately $2 billion.\nAs shown on slide 13, you can see that we have approximately $14 billion in readily available balance sheet liquidity.\nWhile we expect loan balances excluding P3 loans to remain fairly flat over the near term, we do anticipate considerable second quarter growth associated with our P3 lending effort.\nTo best manage our risk and to maintain our existing funding sources for other customer need.\nwe anticipate using the Federal Reserve's P3 lending facility to support funding for at least a portion of these loans.\nWe believe that this is the most effective way to manage our overall liquidity position and to mitigate the associated impact on our capital ratios.\nKevin will now share a deeper dive on credit portfolios most impacted by COVID, some details about our responses to this crisis and provide an update on Synovus forward.\nBefore I go into deeper detail on several industries where the COVID-19 crisis is currently having a greater impact on business operations, this seems like an appropriate time to take a deeper dive into the composition and the quality of our loan portfolio by category as well as the significance of the diversification and derisking benefits that have been realized since the last financial crisis.\nThe chart on the slide shows the key components of each of our three portfolio categories with the table on the bottom right showing the shift in the composition from 2009.\nOur C&I book totaled $17.7 billion and is primarily comprised of general middle market and commercial banking clients across a diverse set of industries.\nWithin C&I, the specialty divisions such as senior housing and premium finance comprised about 14% of total loans and have been a significant contributor to our growth story while also possessing some of the best credit metrics over the last several years.\nThe overall portfolio is well diversified by industry and geography and is extremely granular with almost 35,000 loans with an average original loan balance of approximately $770,000.\nThe CRE portfolio is $10.7 billion and 86% of the book is comprised of income producing properties with multifamily office, shopping center and hotel being the largest property types within the portfolio.\nWe do adhere to a disciplined concentration management philosophy thus our largest CRE loan is less than $50 million with an average loan size of approximately $13 million.\nThis portfolio is diverse both from a geographic and property type standpoint with strong loan to value and debt service coverage levels.\nAs a result, this portfolio has continued to perform well and as it relates to net charge-offs, the CRE book is in a net recovery position over the last five quarters.\nThe consumer book is $10 billion, almost three quarters of the consumer portfolio is in mortgage and HELOC categories with the remainder in lending partnerships, credit cards and other consumer.\nYou can see by the credit score and loan to value statistics that this portfolio is super-prime and remains very healthy.\nUnder the existing economic conditions, we expect our consumer portfolio to decline in the near term as we decreased our appetite for unsecured lending and third party partnership purchases.\nThe last point I want to cover on this slide is the substantial improvement that we've made to the diversification and derisking of the entire loan portfolio.\nFrom 2009 until first quarter of 2020 we have significantly reduced our exposure to one-to-four family residential land and investment properties as well as CRE in aggregate.\nBy simply utilizing historical loss rates, the remix of our portfolio alone would result in a 50% reduction in losses.\nCombined with the improvements in underwriting and portfolio management, we would expect losses to decline even further when evaluating the impact of the severely adverse scenario.\nMoving to slide 15.\nWhile our entire loan portfolio is continuously assessed, we have introduced enhanced monitoring for the segments noted on slide 15.\nThese segments totaling $4.6 billion had been identified as having a more direct and immediate impact from the COVID-19 crisis.\nWe are continuously working with our customers to evaluate how the current economic conditions are impacting their business operations and ultimately their cash burn rate.\nWe are leveraging payment deferments as well as the CARES Act stimulus programs to help weather short-term financial effects.\nSolid underwriting and strong credit performance coupled with stronger balance sheets that have been built during our extended expansionary period give us confidence that these portfolios enter this downturn in the best possible position.\nIn the appendix on slides 27 through 29 you will find more detail around each of these portfolios, but I will touch on a few of them now.\nOur hotel book is over 85% franchised and primarily contains non-resort properties, more than 90% of our hotels are rated upper mid scale or above.\nThis portfolio has strong credit metrics with an average loan to value of 54% and debt service coverage ratios of 1.9 times.\nWe have about $1 billion of shopping center exposure to centers that aren't grocery pharmacy or discount store-anchored.\nBased on our southeastern footprint, these locations are situated markets that have continue to see good population and household income growth, which has created growth and stability for these businesses.\nAs such, these portfolios continue to perform well from a credit quality standpoint.\nThe restaurant book is $800 million with 56% of the book in limited service restaurants and 40% in full service.\nOver 60% of our restaurants are franchises and have an average loan size at origination of roughly $1.5 million.\nThe next 2 industries are non-essential retail trade and arts entertainment and recreation, combining for $1.2 billion in outstandings.\nBoth of these portfolios have performed well pre-crisis and are also very granular with average loan sizes at origination of $1.8 million and $1.2 million respectively.\nLastly, I will mention are relatively small exposure to oil-related industries at less than 1% of total loans.\nGiven our five state footprint, oil is not a prevalent industry, particularly as it relates to exploration and production.\nMost of our exposures and transportation operations and support related to the industry.\nThis portfolio has exhibited strong credit performance, but given the current state of the oil industry, we are more closely monitoring our exposure.\nOur bankers and credit team members continue to work with and provide financial advice and consultation to our customers and ensure we are providing the necessary support to mitigate the short-term disruption and cash flows.\nAs with our entire credit portfolio, each of these portfolios has exhibited strong performance over the trailing quarters and years and was as well positioned as could be expected coming into the current environment.\nThe duration of the downturn will obviously determine the impact on these businesses and how quickly these industries will return to more normalized cash flow levels.\nDespite rolling out our Synovus forward playbook in March, we quickly reconfigured our efforts to focus on our COVID response starting with the safety and well-being of our team members who are vitally important to support our customers as well as the communities we serve.\nWe effectively exercised our business continuity plan, which enables our employees to work remotely while continuing to provide customer facing roles in our branches and call centers to meet the needs of our customers.\nAnd quite frankly, that was our other primary focus, the safety and continued service of our customers.\nAlthough we continue to practice social distancing, we are here to serve our customers and continue to provide advice and new solutions to help them navigate the changing business climate and support their business operations.\nIn fact, during the first quarter, we implemented over 6,000 new services in our Treasury & Payment Solutions area, which represented a 320% increase over the first quarter of 2019.\nThis is another proof point of our continued commitment to serve our customers and our ability to do so in a difficult climate.\nAnd despite the crisis, our bankers continue to call on and on-board new prospects as our relationship-based approach is serving as a key differentiator in this trying environment.\nWe are going to deploy our capital in areas where we receive optimal returns and while this business approach may produce lower loan growth in aggregate, we will continue to focus on acquiring new full service relationships and deepening our current relationships with new opportunities.\nAs we have mentioned, we've also taken a proactive approach to providing relief to our customers when needed from waving fees to increasing ATM and mobile deposit limits to granting deferments on loan payments.\nOur loan deferment program is constructed to allow smaller loans upon request to receive a short-term 90-day deferral of interest and principal to the maturity date of the loan.\nFor larger loans, we have initiated a credit driven approach to review the specific circumstances of each request, annualized cash burn and obtain updated financial information while determining the need for the deferment.\nTo-date, our percentage of total deferrals is around 13% of the overall portfolio with those industries more directly impacted by COVID-19 carrying higher percentages.\nWe also have closely monitored all of the stimulus actions and programs made available by the CARES Act.\nObviously the paycheck protection program has had the greatest impact on our customers to this point.\nWe began the P3 process on March 28 with an online expression of interest portal.\nWe began taking applications on April 3rd, the day the program went live.\nAs Kessel mentioned earlier, as of today, we have secured funding for over 8,000 customers for approximately $2 billion.\nAs I close, let me transition to the future at Synovus Forward.\nAs we shared during an investor conference in March, Synovus Forward is our newly formed program that was built to generate an incremental $100 million of pre-tax income in the coming years and to lead to top quartile performance among mid cap banks in terms of profitability and efficiency.\nDuring the development of this program, we evaluated over 20 unique and distinct initiatives that included a combination of expense and revenue opportunities.\nWe are confirming today that the incremental opportunity is still very achievable.\nHowever, many of the benefits have been delayed due to the focus on the current crisis.\nMany of the expense and revenue initiatives that were planned for the first half of 2020 will be recast into the second half of the year or in early 2021.\nWhile we have had to delay some initiatives, we are also accelerating actions in others.\nThis includes increasing the efficiencies gained from the third-party spend initiatives, accelerating the development of digital and analytical capabilities to drive growth and manage risk and leveraging our remote environment to aggressively think about our physical distribution and locations.\nWe have also continue to invest in technology and more specifically, My Synovus, our consumer digital portal.\nIn March, we deployed major updates to enhance the bill-pay and transfer experiences of our customers.\nAnd as we made improvements, we've seen higher levels of enrollment and utilization while seeing our overall operating increase and it's important to note that the current crisis is creating opportunities to add new initiatives to the portfolio and resize current initiatives that we had planned.\nThe Synovus Forward portfolio is not rigid it and will continue to evolve we are committed to delivering and growing the value as we address new economic and customer behavior realities.\nThere is much work ahead of us and we understand the need to balance both short term and long-term priorities.\nThe end state benefits, their timing and sizing may continue to evolve in this fluid environment.\nAnd for a brief update on the weeks activities just wanted to share that on Wednesday, we hosted our first online only virtual shareholder meeting.\nAmong other actions our shareholders overwhelmingly approved the elimination of our 10 -1 voting structure and super majority voting requirements.\nThese changes reflect our Board's continuing commitment to best-in-class corporate governance.",
        "summary": "q1 adjusted earnings per share $0.21.\nwithdrew 2020 guidance and long-term goals announced with 4q19 earnings call."
    },
    {
        "text": "Also on the call are Brian McDade, chief financial officer; and Adam Reuille, chief accounting officer.\nFor those who would like to participate in the question-and-answer session, we ask that you please respect that request to limit yourself to one question and one follow-up question, so we might allow everyone the opportunity to ask question and the opportunity to participate.\nI'm pleased to report that our business has significantly improved after having addressed the impacts from COVID-19, including the restrictive governmental orders that have forced us to shut down, as well as reduce our operating capacity.\nI'm pleased to report our continued improvement in our profitability and cash flow generated for the first quarter.\nFirst-quarter funds from operation was $934 million or $2.48 per share.\nFFO increased approximately $150 million or $0.31 per share compared to the fourth quarter of 2020.\nOur international operations continued to be affected by governmental closure orders and capacity restrictions.\nAnd in fact, the quarter was negatively impacted by approximately $0.08 per share compared to our expectations given the closures that have occurred internationally.\nWe also recorded additional COVID impacts in the first quarter of approximately $0.07 per share from -- based upon basically domestic rent abatements and uncollectible rents.\nWe generated $875 million in cash from operations in the quarter, which was an increase of 18% compared to the prior-year period.\nWe collected over 95% of our net billed rents for the first quarter and our in-line tenant collections are back to pre-COVID levels in the approximate 98% range.\nOur operating metrics in the period were as follows: mall and outlet occupancy at the end of the first quarter was 90.8%, down 50 basis points compared to the fourth quarter of 2020.\nThis 50-basis-point decline for the quarter is approximately 75% -- 75 basis points less than the average historical seasonal decline from the fourth quarter to the first quarter.\nAverage base rents was $56.07, up 60 basis points year over year.\nLeasing spreads declined for the 12 -- trailing 12 months, primarily due to the mix of deals that have fallen out, the spread calculation that have resulted in an increase to the average closing rate by approximately $8 per square foot for the trailing 12 months.\nPricing continues to improve with the average opening rate per square foot for the trailing 12 months of approximately $60 per foot.\nAnd as you can see in the lease expiration schedule included in our supplemental, our expiring rents for the next few years are less than $60 per square foot.\nKeep in mind that the opening rate included in our spread calculation does not include any estimates for variable lease income based on sales.\nIn certain circumstances in addressing tenant COVID negotiations last year, we, in certain cases, agreed to lower our initial base rent in exchange for lower unnatural sales breakpoints, allowing us to participate in the improved sales performance as the economy recovers.\nNow we think that will end up being a very smart move on our behalf.\nThose deals are included in the average opening rate at the lower base minimum rent and does not include our estimation of what the percentage rent could be, and we'll, obviously, believe those contributions in time will add to our cash flow.\nLeasing momentum has continued across our portfolio.\nWe signed 1,100 leases for approximately 4.4 million square feet, and we have significant number of leases in our pipeline, our leasing volume in both number of leases in square feet was greater than the volume in each of the first quarter of 2020 and 2019.\nThe improving domestic economic environment, shopper sentiment, have increased shopper foot traffic and sales across our portfolio.\nAs I mentioned, increased in traffic for our open air and suburban centers has been very encouraging and retail sales continue to improve across the portfolio with higher sales volumes in March compared to 2019 levels.\nWe opened West Midlands Designer Outlet, our second outlet in the United Kingdom in early April.\nThis was behind schedule, was supposed to open in the fall of 2020 but was delayed due to COVID restrictions.\nWe're pleased that this has now been lifted and we're now able to open and serve the shoppers.\nDuring the first quarter, we started construction of our fifth premium outlet in South Korea.\nWe're excited about that opportunity.\nAnd hopefully by now, with respect to our brand and retailer investments, you've seen that we've been able to add significant value there.\nOur global brands within SPARC outperformed their plans in March and April on both sales and gross margin, led by Forever 21 and Aéropostale.\nFor the two months combined, SPARC outperformed the sales plan by more than $135 million and our gross margin plan by more than $75 million.\nAnd we're also very pleased with the JCPenney early results.\nThey continue to be above our plan.\nOur company's liquidity position at Penney is strong at $1.2 billion, and balance sheet is in very good shape with leverage of less than 1.2 times net debt to projected EBITDA.\nWe continue to add new brands to the JCPenney portfolio, and we expect growth to be our focus going forward.\nJust a quick update on Taubman, we're very pleased with our partnership and the results in the first quarter.\nOur teams have collectively shared and implemented many best practices and are adding value to the assets.\nWe expect to step up redevelopment plans with mixed-use opportunities throughout their TRG portfolio.\nCapital markets, very similar to what we always do.\nWe completed $1.5 billion senior note offering at 1.96%, weighted average term of 8.4 years.\nWe also completed a EUR 750 million note, shouldn't say dollar, at one and one-eighths percent coupon at a term of 12 years.\nWe used those proceeds to completely repay the $2 billion unsecured term facility associated with the Taubman deal, as well as pay off our $550 million senior notes.\nWe've also refinanced six mortgages for $1.3 billion, our share of which is $589 million at an average interest rate of 3.36%.\nThat market is continuing to improve.\nAnd at the end of the quarter, with all this activity, we have $8.4 billion of liquidity, consisting of $6.9 billion available on our credit facility; $1.5 billion of cash, including our share of JV cash.\nAnd reminder, that is net of $500 million of U.S. commercial paper outstanding at quarter end.\nWe paid $1.30 per share in cash, in terms of our dividend on April 23.\nAnd then, finally, as you've seen, given our first-quarter results, we are increasing our full-year 2021 FFO guidance from $9.50 to $9.75 per share to $9.70 to $9.80 per.\nThis is an increase of $0.20 per share at the bottom end of the range and $0.05 at the top end of the range or a 13% -- or a $0.13 increase at midpoint and that represents a 6.5% to 7.6% growth rate compared to our 2020 results.\nSo in conclusion, pleased with the results, encouraged with what we're seeing in terms of sales, traffic, retail demand.\nAnd we continue to continue to increase our performance and our Profitability.",
        "summary": "simon property sees fy ffo per share $9.70 to $9.80.\nsees fy ffo per share $9.70 to $9.80.\nq1 ffo per share $2.48.\nqtrly net income attributable to common stockholders was $1.36 per diluted share.u.s. malls and premium outlets operating statistics occupancy was 90.8% at march 31, 2021.\nwill declare a common stock cash dividend for q2 of 2021 on or before june 30, 2021."
    },
    {
        "text": "I'm Aaron Hunt, Director of Investor Relations.\nA year ago, we were contending with the unprecedented disruption and uncertainty from the continued 737 MAX grounding and COVID-19 pandemic.\nSince then, the FAA lifted the 737 MAX grounding order and shortly after that the aircraft resumed commercial service.\nToday the 737 MAX is certified in the U.S., U.K., Europe and many other parts of the world.\nAdditionally, Boeing has secured several new orders from airlines, including large orders from Southwest, Alaska Air and Ryanair, who will take delivery of their first newly certified 737 MAX 8200 aircraft in the near future.\nThe COVID-19 pandemic has had a significant global impact.\nThe aviation industry saw more than 19,000 aircraft grounded and air traffic down more than 95% at the worst point last April.\nWe continue to see encouraging news on the return to commercial air travel with domestic routes, primarily flown by narrow-body aircraft leading the way.\nIn the U.S., the TSA checkpoint travel numbers have been consistently staying above the 1 million mark since early March and more recently, we have seen many days above 1.5 million travelers, including 1.6 million travelers last Sunday.\nWe have observed a similar domestic recovery in China.\nWe believe Spirit is well positioned to benefit from this trend of recovering domestic air travel in the largest aviation markets, given that 85% of our backlog is narrow-body aircraft.\nIn line with the improved narrow-body outlook, as we described in our 10-K, Spirit is planning to produce about 160 737 MAX aircraft in 2021.\nThis plan allows for us to burn down the Boeing inventory of 737 MAX shipsets stored in Wichita and Tulsa.\nWith the current outlook, we should be at our targeted number of a permanent buffer to cushion the production system toward the second half of 2022.\nWe have regular conversations with Boeing on the current environment and we'll work closely with them to make any necessary rate adjustments as the year progresses.\nAs for our Airbus narrow-body programs, we have plans in place to support the A220 and the A320 Airbus schedule increases, as the air traffic demand recovery continues.\nInternational air traffic demand still remains at relatively low levels versus pre-pandemic times and is expected to take longer to recover.\nConsequently, we have experienced and believe there will continue to be pressure on our wide-body programs.\nThe wide-body programs have created significant pressure on our overall performance, as the OEMs have adjusted production rates on those programs downward.\nOn the A350, schedule changes this year and next year contributed to the forward loss of $29 million that we announced this quarter.\nThe forward loss also included some charges for tooling and bill process improvements to improve product quality.\nWe decided to implement the improvements at our Kinston facility during this period of lower production rates.\nOver the last few months, we have also been working with Boeing on the 787 program.\nAt Boeing's request, we conducted an extensive review and engineering analysis as a result of fit-and-finish issues that they had identified on other parts of the aircraft.\nWhile there were no safety-of-flight issues, areas of rework were identified.\nWe have started the rework and Boeing has reinitiated deliveries of the 787.\nThe rework plan that we have put into place supports Boeing's 787 delivery schedule.\nThe engineering analysis and the projected rework will drive a forward loss of $29 million.\nMark will provide more detail on the forward losses in his comments.\nThe uneven recovery from the pandemic, created challenges during our first quarter.\nDuring 2021, we expected to see performance start to normalize as we get into the second half of the year assuming air traffic recovery remains on track.\nOverall, our 2021 free cash flow usage is expected to be between $200 million and $300 million after considering the $300 million cash tax benefit.\nAs we have previously indicated, we expect our cash flow to be positive in 2022 as production rates improve and we realize all the benefits of the cost reduction and productivity actions that we have taken.\nNow I'd like to turn our focus to the integration process of our recently acquired Belfast, Casablanca and Dallas sites.\nThe integration of our three newest sites is progressing to plan.\nTo date, we have completed roughly 80% of the 450 tasks we have identified to capture synergies and integrate the operations into Spirit.\nSome of the remaining tasks such as exiting the information technology transition services agreement will take longer by plan design.\nA large part of our integration focus is capturing the synergies which we projected to be 6% of revenues.\nBased on 2021 revenues that are expected to be $700 million, we estimate the synergies to be $42 million.\nThe areas we are focusing on include A220 wing costs, supply chain, infrastructure and engineering.\nWe are on target to achieve the $42 million and perhaps even exceed it by 2023.\nIn the period beyond 2023, we are identifying additional productivity opportunities.\nIn addition, as part of our integration, we are evaluating the Belfast pension plan and our informal consultation with the employees and the unions on this matter.\nThe current plan is close to new participants and we are evaluating closing the plan to future accruals and replacing it with a defined contribution benefit plan.\nAnother significant part of this acquisition was a strong aftermarket business.\nOur Belfast and Dallas sites are now key pieces of our aftermarket revenue growth plan.\nWhile we've seen some COVID-related headwinds to the aftermarket business in the near-term, the combined team is working to transfer repairs between sites and strengthen customer relationships as air traffic recovers.\nIn the first quarter, some of our activities including moving tooling and rotables to Belfast to support Boeing programs.\nOur Belfast operations have recently completed their first Boeing 777 thrust reverser repair.\nTo grow the aftermarket business further, we recently announced that we acquired the assets of Dallas-based Applied Aerodynamics, which provides radome and flight control surface repairs.\nWe also announced the signing of a new JV agreement in Asia with EGAT in Taiwan, which enables us to provide our full suite of expanded repairs to that region.\nAll of these actions are contributing to our target of building the Spirit aftermarket business to $500 million in revenue at accretive margins by 2025.\nIn addition to diversifying into aftermarket, we've also been accelerating diversification into defense programs.\nAfter growing almost 20% in 2020, we expect our defense business revenue to grow 15% in 2021.\nThe excess commercial capacity we have in our wide-body factories, especially those that produce composite structures provide us with immediate capacity that we can repurpose to defense programs.\nWe have been fortunate to win positions on several new classified defense projects.\nWe believe we are on track to achieve $1 billion of defense revenue by the mid-2020s with typical defense margins.\nThe programs of record for where we have work content will generate approximately $6 billion of future revenue.\nIn addition to diversifying our business, we've also been focused on delevering to reduce the additional debt we have accumulated during this pandemic period.\nOne step we took was to repay $300 million in floating rate notes in February.\nOur next debt maturity is $300 million in 2023.\nWe also have other pre-payable debt that could be retired as part of our objective to repay $1 billion in the next three years as production rates recover and we start generating positive cash flow.\nWe believe these debt-reduction actions along with increased production rates will help us regain our investment-grade credit rating.\nOur efforts to drive margins are also progressing well.\nIn Wichita, the new automated floor beam assembly line that we discussed in the last call, is now operational.\nAnd in our Prestwick site, we produced the first shipsets of A320 spoilers using a resin transfer molding process and we'll ship those to Airbus in mid-May.\nBoth of these narrow-body manufacturing lines will help drive the margin improvement back to our target of 16.5% as production rates recover.\nI hope everybody is doing well and staying healthy.\nWe continue to see 2021 as a bridge year for our Spirit and commercial aviation industry.\nWhile the wide-body programs will remain a headwind for the next few years, domestic air travel in many regions of the world is trending in the right direction, which is an encouraging sign especially for narrow-body aircraft.\nDuring 2021, we have or are planning to increase production rates on our narrow-body programs in order to support our customer delivery of new aircraft.\nWe expect the first half of the year to be the most challenging to our financial results and expect to see improvement in the back half of the year as the narrow-body production rates increase.\nNow, let's move to our first quarter 2021 results.\nThe revenue decrease was primarily due to lower body rates which have been under pressure due to the reduced international air traffic resulting from the continued impacts of the COVID-19 pandemic.\nIn addition, our A320 production rate was lower in the first quarter of this year compared to last year.\nRevenue from our recently acquired Bombardier business jet programs and the A220 wing program helped offset some of the wide-body revenue decrease.\nOur defense programs continue to be a bright spot, up 41% as compared to the same quarter of last year.\nTurning to deliveries, wide-body program deliveries were 48, down from 91 in the first quarter of 2020, which is a 47% reduction.\nThe narrow-body program deliveries in the first quarter of 2021 were also lower when compared to 2020 with 171 shipsets in the first quarter of 2021 compared to 221 in 2020.\nThe main driver of the decrease was the A320 program with 58 less deliveries than the first quarter of 2020.\nThe first quarter 737 MAX deliveries have gradually increased to 29 compared to 18 shipsets delivered in the first quarter of last year.\nOverall, deliveries decreased to 269 shipsets compared to 324 shipsets in the same quarter of last year.\nLet's now turn to earnings per share on slide four.\nWe reported earnings per share of negative $1.65 compared to negative $1.57 per share in the same period of 2020.\nAdjusted earnings per share was negative $1.22 per share compared to negative earnings per share of $0.79 in the first quarter of 2020.\nAdjusted earnings per share excludes the impacts of the acquisitions, restructuring costs, the non-cash voluntary retirement plan charges, and the deferred tax valuation allowance.\nOperating margin for the first quarter was negative 14% compared to negative 15.5% in the first quarter of 2020.\nThe past actions we have taken have contributed to the improved first quarter of 2021 with lower cost and expenses including restructuring, excess capacity, abnormal COVID-19, and SG&A.\nThis was partially offset by additional forward losses on the 787 and A350 programs compared to the same period last year.\nAdditionally, the increase in other income primarily reflects the absence of voluntary retirement expenses recognized in the first quarter of 2020, partially offset by a loss on foreign exchange rates.\nInterest expense and financing fee amortization in the first quarter of 2021 increased $28 million, driven by increased interest expense on debt and higher interest rates compared to the same period in the prior year.\nIn the first quarter, we recognized forward loss charges of $72 million primarily driven by engineering analysis and rework to support Boeing's resumption of 787 deliveries and lower A350 production rates, coupled with higher one-time costs for production system and quality improvements.\nDuring the first quarter of 2021, an incremental $42 million valuation allowance on deferred income tax assets was recorded.\nAs a reminder, this is a non-cash item.\nNow, turning to, free cash flow on slide five.\nFree cash flow for the quarter was a use of $198 million, compared to a use of $362 million in the same period of 2020.\nThis year-over-year improvement is primarily due to favorable working capital management and cost-reduction efforts, partially offset by the absence of the $215 million received last February, as a result of the MOA with Boeing.\nExcluding the $215 million of Boeing advance payments received in the first quarter of 2020, free cash flow improved by about $380 million.\nFor the year, we expect free cash flow to be between negative, $200 million and $300 million.\nThis includes a cash-tax benefit of approximately $300 million.\nAs mentioned previously, we believe that the first half of 2021, to be our most challenging and expect improvements as we progress into the latter half of the year, due to planned single-aisle production rate increases.\nLet's now turn to cash and debt balances on slide six.\nWe ended the first quarter with approximately $1.4 billion of cash and $3.6 billion of debt.\nIn February, we prepaid $300 million floating rate notes that were due this year.\nAs Tom mentioned, we are planning to repay $1 billion in debt in the next three years, the timing of which will be in line with how air traffic and narrow-body production rates recover from the global pandemic.\nWe believe our cash on hand and cash flows generated from operations, coupled with our ability to vary our cost structure quickly will provide sufficient liquidity to address the challenges and opportunities of the current market.\nHowever, unevenness in the global recovery from the COVID-19 pandemic could result in fluctuations in our cash flows from period to period.\nNow let's turn to our segment performance on slide seven.\nIn the first quarter, Fuselage segment revenues were $437 million, down approximately $115 million compared to 2020, primarily due to lower production volumes on the wide-body programs, partially offset by an increase in 737 MAX defense and the recently acquired Bombardier business jet program revenues.\nOperating margin for the quarter was negative 14%, compared to negative 16% in the same period last year.\nIncreased 737 MAX production and higher defense revenues, helped contribute to the gross profit improvement.\nWe also recognized lower restructuring expenses, excess capacity costs and abnormal COVID-19 charges.\nThe Fuselage segment recorded $2 million of favorable cumulative catch-up adjustments and $55 million of net forward losses, during the quarter primarily due to the Airbus A350 and Boeing 787 programs.\nPropulsion revenue in the quarter improved to $227 million, primarily due to higher revenue from the 737 MAX program and aftermarket revenues.\nOperating margin for the quarter was positive 7%, compared to negative 2% in the same quarter of 2020.\nLower restructuring expenses, excess capacity costs, and abnormal COVID-19 charges were the main driver to the improvement in segment profitability.\nThe segment recorded $6 million of unfavorable cumulative catch-up adjustments and $5 million of net forward losses.\nLower production volumes on the 787 A320 and A350 programs, partially offset by revenue from the recently acquired A220 wing program were the main contributors to the reduction in wing revenue of $224 million.\nOperating margin for the quarter was negative 8%, compared to positive 5% in the first quarter of 2020.\nThe decreases in segment profitability and operating margin were primarily a result of forward losses recognized on the 787 and the A350 programs and lower margin recognized on the A320 and A220 programs, due to increased excess capacity costs.\nThe segment recorded $13 million of net forward losses and $2 million of unfavorable cumulative catch-up adjustments.\nThe first quarter of 2021 provided to be a very challenging start to the year.\nWhile uncertainty around the precise trajectory of the pandemic recovery remains, we are beginning to see positive signs in domestic air traffic demand.\nWe are pleased to see the progress made over the past few months on our defense growth and aftermarket diversification efforts.\nHigher narrow-body rates in the back half of the year should create positive momentum into 2022.\nCash flow is a focal point this year and is a top priority for our team in our day-to-day activities.\nOur 2021 cash flow is dependent on the planned delivery of approximately 160, 737 MAX shipsets.\nWe are closely monitoring the remaining regulatory approvals needed for the 737 MAX return to service, as well as the recovery from the global pandemic.\nFirst quarter of 2021 was challenging, as we managed through the wide-body rate reductions and investments that we have made to improve quality.\nAs a result in the first quarter, we had a higher rate of cash usage than we expected.\nWith domestic travel recovering faster in the US and China, we expect that narrow-body production rates will continue to improve.\nSpirit will benefit from this trend, since 85% of our backlog is narrow-body aircraft.\nIn 2021, we are planning to deliver about 160, 737 MAX shipsets as Mark just said, which is more than double what we delivered in 2020.\nWe expect our free cash flow usage for the year will be between $200 million and $300 million.\nWe also believe that we are still on course to be cash flow positive in 2022.\nOur diversification efforts continue with growth in our aftermarket and defense businesses.\nThe acquisition of the assets of Applied Aerodynamics and the establishment of the JV with EGAT in Taiwan will help accelerate the growth of the aftermarket business to $500 million by 2025 at accretive margins.\nWe believe our defense business revenue is on track to grow 15% this year, after growing nearly 20% in 2020.\nWe also continue to make good progress on our efforts to delever and to continue driving toward margins of 16.5%.",
        "summary": "compname reports q1 loss per share of $1.65.\nq1 loss per share $1.65.\nq1 adjusted loss per share $1.22.\nspirit aerosystems holdings - full-year 2021 free cash flow is expected to be between negative $200 million and negative $300 million.\nspirit aerosystems holdings - expect to deliver about 160 737 max shipsets in 2021.\nincreasing 737 max production rates in line with boeing's objective of 31 aircraft per month in 2022."
    },
    {
        "text": "I'm Aaron Hunt, Director of Investor Relations.\nWe are pleased to see signs of recovery in global air traffic.\nThe U.S. air travel recovery has been strong and has come back faster than some expected.\nTSA traveler throughput has exceeded two million passengers on multiple days during the past two months and some days in July where passenger screenings exceeded the 2019 levels.\nA recent International Air Transport Association report indicates domestic passenger market show improvement, but with demand still down 22% versus June 2019 levels.\nThe situation remains dynamic.\nWe are monitoring the most recent reports of a spike of COVID-19 cases and what impact this may have on air traffic recovery.\nHowever, the upward momentum of domestic air traffic over the past few months is an encouraging trend for our industry.\nWe are pleased to see the rebound of demand for the MAX and the news of large orders from United, Southwest, Alaska Air and Ryanair.\nRyanair took delivery of its first 737 MAX 8200 and had positive feedback.\nWith 85% of Spirit's backlog associated with narrow-body aircraft, we believe we are well positioned to benefit from this domestic air traffic demand and narrow-body recovery.\nIn the first half of this year, we delivered 64 737 shipsets compared to 37 in the first half of last year, a 73% increase.\nWe are also on track to deliver about 160 shipsets this year, a 125% increase over the 71 we delivered in 2020.\nAs we have discussed before, we are trailing Boeing in terms of 737 production rate to burn off the inventory of storage shipsets in Wichita and Tulsa.\nThis quarter, for example, we delivered 35 units but shipped 42 to Boeing.\nWe currently have about 125 units in storage, all of which Boeing owns.\nWe expect store units will decrease to about 100 shipsets by the end of the year.\nOur plan is that we will reach 20 stored units by the end of next year, which will remain as a permanent buffer to cushion the production system.\nTurning to the 787 program.\nAs a result of our ongoing engagement with Boeing, we identified an additional fit and finish issue in the forward section of the fuselage.\nThis issue is related to a part that Spirit receives from one of our Tier two suppliers, and we are working with Boeing and the supplier on a resolution.\nWe continue to coordinate with Boeing to ensure that we are performing all necessary rework.\nPrimarily driven by this issue, we have recognized a $46 million forward loss on the 787 program.\nDespite this forward loss, we are maintaining our free cash flow target of negative $200 million to $300 million, as indicated on our last earnings call.\nThis amount is net of the $300 million cash tax benefit, which we expect to receive in the second half of this year.\nNext, I would like to highlight the fact that we published our first sustainability report in June, outlining Spirit's environmental, social and governance strategy.\nThe report also includes a few of our notable 2020 achievements.\nFor example, by the end of this year, we intend to be 100% wind powered at our Wichita facility.\nNow our Chief Operating Officer, Sam Marnick, will take you through updates on our acquisition integrations.\nThe integration workstreams for our recent acquisitions are progressing well.\nWe recently acquired the assets of Applied Aerodynamics, and we've already completed approximately 60% of the 323 identified integration tasks.\nThe integration of our other acquisition from Bombardier is also going well.\nWe have completed about 90% of the tasks required to integrate the Belfast, Morocco and Dallas site.\nThe remaining tasks are largely associated with the information technology transition services agreement, and we expect to complete it before the end of the year.\nThe estimated synergies we're expecting from the deal are tracking to plan.\nWe have seen good progress on A220 wing costs, supply chain improvements and infrastructure optimization.\nAirbus continues to have confidence in this aircraft, and we expect production rates to continue to improve over time.\nTurning to the Belfast pension plan.\nWe have ended our formal consultation with employees and the unions.\nSubject to the completion of the process, we will close the plan to future benefit accrual and provide a defined contribution benefit plan before the end of the year.\nThe Bombardier asset acquisition significantly increased our business jet work statement.\nWe also secured the award of the engine nacelle on the new Falcon 10 times.\nThis new growth has established Spirit as a leading business jet aerostructure supplier, a market segment that is recovering rapidly following the pandemic.\nThese business aircraft inventories are down around 40% year-over-year, highlighting a strong demand.\nAdditionally, U.S. business jet flight activity is about 6% higher than prepandemic levels, another good indicator of a rebound in this market segment.\nWe believe our capabilities and business ship programs position us well to generate $500 million of revenue at accretive margins by 2023.\nAnother market segment, we are watching closely is urban air mobility, also referred to as electric vertical and take off aircraft or eVTOL.\nWe believe our expertise in composite aerostructure design and manufacturing bring unique capabilities in this future mode of transport.\nWe've been exploring opportunities with a number of companies in this exciting new area and have signed agreements that are already generating revenue.\nThese two acquisitions have helped us grow our aftermarket and business jet businesses.\nWe are also accelerating our revenue diversification efforts in defense, which we expect will grow by roughly 20% in 2021.\nI hope everybody is doing well.\nWe continue to see 2021 as a bridge year for our Spirit and the commercial aviation industry.\nDomestic air travel in the United States as well as many other regions of the world are starting to recover, which is encouraging, especially for narrow-body aircraft production rates.\nWe are cautiously monitoring the COVID variant and its impact on this recovery, particularly with international travel.\nWe expect international air travel will continue to recover at a slower pace, and therefore, wide-body programs will remain a headwind for the next few years.\nAs we work through the second half of the year, we are starting to see the benefits of increasing narrow-body production rates.\nNow let's move to our second quarter 2021 results.\nRevenue for the quarter was $1 billion, up 55% from the same quarter of last year and approximately 11% above the first quarter of 2021.\nThe revenue increase was primarily due to production on the 737 and A320 programs as well as increased revenue from the recently acquired A220 wing and Bombardier business jet programs.\nThese increases were partially offset by the lower wide-body production rates resulting from the continued impacts of the COVID-19 pandemic on international air traffic.\nOverall deliveries increased to 243 shipsets compared to 159 shipsets in the same quarter of 2020.\nThe second quarter 737 deliveries have increased to 35 compared to 19 shipsets delivered in the second quarter of last year.\nWe still expect to deliver around 160 shipsets during the year.\nAdditionally, second quarter A320 deliveries increased to 96 compared to 69 shipsets delivered in the same period of last year.\nLet's now turn to earnings per share on slide four.\nWe reported earnings per share of negative $1.30 compared to negative $2.46 per share in the same period of 2020.\nAdjusted earnings per share was negative $0.31 compared to earnings per share of $2.28 in the second quarter of 2020.\nAdjusted earnings per share excludes acquisition costs, restructuring costs, noncash voluntary retirement plan charges and deferred tax asset valuation allowance.\nLooking at the operating margin, we saw improvement in the second quarter to negative 10% and compared to negative 57% in the second quarter of 2020.\nThe cost-reduction actions we have taken over the last year, along with increasing production rates, have contributed to the improved results with lower cost and expenses, including excess capacity, restructuring and abnormal COVID-19 costs.\nWe also recognized lower forward loss charges compared to the same period last year.\nIn the second quarter, we recognized forward loss charges of $52 million, primarily driven by engineering analysis and rework on the 787 program compared to forward loss charges of $194 million in the same period of 2020.\nAdditionally, the increase in other income is primarily related to Belfast pension plan and the absence of voluntary retirement expenses recognized in the second quarter of 2020.\nI do want to mention that there was a revaluation of deferred tax assets during the second quarter of 2021 due to a future increase of the United Kingdom's corporate tax rate.\nThis resulted in an income tax benefit of approximately $55 million.\nThis benefit is included in both GAAP and adjusted EPS.\nThe revaluation of deferred tax assets, along with the adjustments related to tax law changes and other state tax impacts, resulted in incremental adjustments to the valuation allowance.\nAs a reminder, the valuation allowance is a noncash item.\nEarlier this week, Spirit received the latest 787 program demand from Boeing.\nBased on our preliminary assessment, we expect to incur an incremental forward loss of approximately $40 million to $60 million in the third quarter of 2021 due to the impact of reduced production volumes and the corresponding amount of fixed overhead absorption applied to lower deliveries.\nDue to the timing, this is considered a subsequent event and is not reflected in our second quarter financial statements.\nNow turning to free cash flow on slide five.\nFree cash flow for the quarter was negative $53 million compared to negative -- $249 million negative in the same period of 2020.\nThis year-over-year improvement is primarily due to cost-reduction actions, increased production volume and favorable working capital management.\nThe second quarter cash from operations also reflect an improvement of $142 million as compared to the first quarter of '21.\nExcluding the cash interest payments of approximately $80 million made during the second quarter, cash from operations was positive $51 million.\nWe expect the second half of this year to improve as single-aisle production rates continue to increase.\nDespite the additional challenge of the 787 program, we continue to expect free cash flow for the year to be between negative $200 million and $300 million.\nLet's now turn to our cash and debt balances on slide six.\nWe ended the second quarter with $1.3 billion of cash and $3.6 billion of debt.\nIn February, we paid $300 million floating rate notes early, and we remain on track to repay $1 billion in debt during the next three years.\nThe timing will be in line with air traffic and narrow-body production rate recoveries.\nThe cadence of the global recovery from the COVID-19 pandemic could result in fluctuations in our cash flows from period-to-period.\nNow let's turn to our segment performance on slide seven.\nIn the second quarter, fuselage segment revenues were $492 million, up 51% compared to the same period of 2020, primarily due to higher production volumes on the 737 and Bombardier business jet program, partially offset by lower production volumes on the 787 program.\nOperating margin for the quarter was negative 7% compared to negative 77% in the same period of the prior year, primarily due to increased 737 production volumes and the resulting decrease in excess capacity costs as well as less net forward losses in the absence of a loss on disposal charges.\nThe fuselage segment recorded $4 million of favorable cumulative catch-up adjustments and $36 million of net forward losses during the quarter, primarily due to the 787 program.\nPropulsion revenue in the quarter improved to $242 million, up 43% compared to the same period of 2020, primarily due to higher revenue on the 737 program and aftermarket sales, partially offset by decreased volume on the 777 program.\nDespite the challenging environment, operating margin for the quarter was positive 12%.\nThis is compared to negative 10% in the same quarter of 2020.\nIncreased 737 production and the resulting decrease in excess capacity costs as well as less forward loss charges were the main drivers to the improvement in the segment profitability.\nThe segment recorded $6 million of favorable cumulative catch-up adjustments and $9 million of forward losses.\nHigh production volumes on the 737, A220 and A320 programs were the main contributors to the increase in wing revenue to $259 million.\nOperating margin for the quarter was negative 6% compared to negative 35% in the second quarter of 2020.\nThe increases in segment profitability and operating margin were primarily a result of increased A320 production volume as well as less forward losses compared to the same period of 2020.\nThe segment recorded $8 million of net forward losses.\nIn closing, we are encouraged by the recovery in domestic air traffic demand.\nWe anticipate improved performance through the second half of the year as narrow-body production rates continue to increase.\nIncreasing narrow-body rates should also create positive momentum going into 2022.\nAdditionally, we are pleased to see the progress made so far on our aftermarket business jet and defense diversification efforts.\nIntegrating our acquisitions and expanding our diversification continue to drive long-term growth potential.\nCash flows remain a top priority for our team, and we are actively working on the execution of our cost and working capital initiatives.\nWe are also monitoring the remaining regulatory approvals needed for the 737 MAX return to service.\nAnd in addition, we are encouraged by the domestic aerospace recovery from the COVID-19 pandemic.\nWe continue to see improvement in domestic air traffic, which has translated to improved production rates for our narrow-body aircraft versus 2020.\nFor the year, we expect to deliver 160 737 shipsets, up from just 71 in 2020.\nThis quarter, we also continued work with Boeing to address fit and finish issues on the 787 program, and we'll continue to coordinate with them to complete all necessary rework.\nThe recovery in narrow-body production is supporting better overall performance.\nWe're also encouraged by the continued growth in our aftermarket, business jet and defense programs.\nWe are maintaining our 2021 free cash flow guidance of negative $200 million to $300 million.",
        "summary": "q2 loss per share $1.30.\nq2 adjusted loss per share $0.31.\nspirit aerosystems - as a result of ongoing engagement with boeing on 787 program, identified additional issue in forward section of fuselage.\nrecognized a $46 million forward loss on 787 program in this quarter.\nspirit aerosystems - expects to incur incremental forward loss of about $40 to $60 million in q3 of 2021."
    },
    {
        "text": "Some of these factors and cautionary statements are discussed in the company's public filings and reports, which are available on the SEC or the company's corporate website.\nNow I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.\nI'm pleased to discuss our results with you today.\nI'd like to first begin with a high level summary of our first quarter financial performance and we'll then turn to a more detailed discussion on the coronavirus pandemic, the impact it has had on our business and the actions we are taking to address this unprecedented situation.\nWe delivered a solid first quarter, operationally and financially.\nSales of $283.7 million increased 9.4% over the first quarter of 2019 and were driven by higher sales volume in North America.\nSales volumes increased primarily due to milder weather conditions in our key markets compared to a year ago which was an unusually cold and wet winter.\nSales were partially offset by weaker conditions in Europe, which was impacted by the COVID-19 beginning in mid-March.\nOur gross profit margin was strong at 45.7%, an improvement of 320 basis points year-over-year.\nThis was largely due to sales mix and decreased material costs.\nOur gross margin coupled with the relatively flat operating expenses, help generate operating income of $49.4 million, up 64.4% year-over-year and strong earnings of $0.83 per diluted share, up 66% year-over-year.\nBrian will provide additional details on our Q1 performance shortly, but now let me turn to discussion of the COVID-19.\nOur hearts go out to all of those who have been impacted by the coronavirus pandemic.\nThe health and safety and well-being of our employees, their families, our customers and our communities is our top priority, and is at the forefront of every decision we make.\nWe took immediate action at the onset of this crisis to enact rigorous safety protocols in all of our facilities, by improving sanitation measures, implementing mandatory social distancing, reducing on-site staff to staggered shifts and scheduled and remote working where possible and restricting visitor access to our location.\nAs of today, all of our US manufacturing facilities remain operational in accordance with the applicable shelter-in-place orders as suppliers of businesses deemed essential, including hardware stores and other building material companies.\nHowever, two of our larger European operation in the United Kingdom and France were ordered to cease nearly all operations in late March, forcing us to temporarily furlough many of those affected employees.\nWe have every intention of being able to bring those employees back to work, when the timing is right.\nOver the years, we've built a strong brand reputation with a loyal customer base and talented group of employees, and we have every intention of protecting that to ensure we can continue to service our customers, while operating in accordance with the local government regulations.\nImportantly, we have not experienced any supply chain disruptions related to the COVID-19 and have been able to meet our customer needs.\nIn the month of April, sales declined compared to March levels due to lower demand from the anticipated slowdown in housing starts and general construction activities.\nWhile this situation is highly unique and unlike any other downturn we've experienced in the past, we believe we are well positioned to emerge on the other side from a position of strength.\nIf you look back to 2008 and 2009 during the financial crisis, which was accompanied by a drastic decline in US housing starts and a simultaneous 28% drop in sales.\nYou'll see that our strong balance sheet played a major role in supporting our business through this recovery period.\nToday, our balance sheet provides us with ample liquidity to support our day-to-day operation.\nWe ended the quarter with $305.8 million in cash on hand, after drawing down $150 million on our revolving credit facility as a precautionary measure to preserve financial flexibility and ensure our working capital needs will be met in light of the current uncertainty, stemming from the COVID-19 pandemic.\nImportantly, following the 2009 crisis, we made significant strategic changes to our business, to ensure our foundation will be even stronger in the event of a future recession.\nThese actions included diversifying our business to be less reliant on US housing starts, by making key investments in adjacent products and markets.\nMore recently, we've taken significant steps to rationalize our cost structure over the past three years in connection with our 2020 plan goals.\nWe've been able to operate more efficiently, as evidenced by our 250 basis point improvement in our total operating expenses as a percent of sales for the first quarter of 2020 compared to the first quarter of 2019.\nGiven the level of uncertainty regarding the long-term impact of COVID-19, including market conditions and demand trends, we have proactively taken additional measures to ensure we maintain our strong financial position.\nBeginning in the second quarter, we've implemented a hiring freeze and will focus on employees retention and adjust and employee hours based on lower production levels in the near term.\nIn addition, our discretionary expenses including employee travel and spend on certain consultant-related projects have been significantly reduced, as we abide by the shelter-in-place orders throughout our operations.\nTurning to capital allocation.\nOur strategy has shifted in the recent months, focus more on cash preservation until this crisis passes.\nAs a result, we are reducing our planned capital expenditures to be used only for projects that are required for repair or maintenance or to address potential safety issues in our factories.\nIn addition, we are being highly selective in regard to inventory purchases in the current environment in line with our goal to improve our inventory balance through careful management and purchasing practices.\nThat said, you will notice inventory dollars on our balance sheet at March 31 increased compared to the level at December 31.\nThis is primarily to support the rollout of significant new customer in the second quarter of 2020.\nAbsent the impact of this new customer, our total inventory dollars and pounds on-hand, including finished goods, would have been down compared to the levels as of December 31.\nWe look forward to providing more details on this rolled out on our upcoming second quarter conference call.\nIn regard to stockholder return activities, year-to-date as of April 25, we paid over $20 million in dividends to our shareholders and repurchased more than 900,000 shares of our common stock at an average price of $69.46 per share for a total of $62.7 million.\nHowever, given cash conservation is our priority in this current environment, we are suspending our share repurchase program until further notice.\nFinally, before I conclude, I'd like to highlight that we completed the final phase of the SAP implementation in our major US sales organization during the first quarter of 2020 with the successful on boarding of our Stockton manufacturing facility.\nWe now have all of our US based sales organizations transitioned over to SAP.\nAs of today, we still anticipate a companywide completion goal at the end of 2021, however, we will continue to monitor and update our timeline should stay at home orders remain in place for a prolonged period of time.\nIn summary, we are pleased that we have delivered strong first quarter results.\nSince the COVID-19 pandemic began toward the end of the first quarter, we've begun to operate in a highly difficult and unpredictable environment that has shaken our global economy.\nIn terms of our 2020 plan, while the operating environment has made it difficult to predict, with these financial targets remain achievable by the end of the fiscal 2020, we continue to execute based on the same underlying principle of focusing on operating efficiencies and cost savings to guide us through this pandemic as we move forward.\nIn a world filled with so much uncertainty, I can say that we believe our business is very well positioned to weather the current storm as a result of our focus on elements that we can control, including upholding a best-in-class customer experience and manufacturing high-quality trusted products, maintaining overall financial flexibility by ensuring we have ample liquidity and remaining conservative in our capital allocation approach with focus on cash preservation in the near-term.\nI'm pleased to discuss our first quarter financial results with you today.\nNow turning to our results.\nAs Karen highlighted, our consolidated sales were strong, increasing 9.4% to $283.7 million.\nWithin the North American segment, sales increased 12.5% to $249.1 million due to higher sales volume supported by stronger housing starts compared to the wet winter, weather conditions we experienced a year ago.\nUS housing starts grew 22% in the first quarter versus the comparable period last year, notably in the west and south where we provide a meaningful amount of content in the home starts grew 27% and 19%, respectively year-over-year.\nIn Europe, sales decreased 8.5% to $32.7 million, mainly due to lower sales volume in our concrete business.\nIn addition, first quarter sales were slightly impacted by our facilities in France and the United Kingdom which experienced government mandated restriction orders on operations in March for safety precautions in response to COVID-19.\nAs a result, these locations were operating with minimal activity to comply with the orders.\nEurope sales were further negatively impacted by $1.0 million from foreign currency translations, resulting from Europe currencies weakening against the United States dollar.\nIn local currency, Europe sales were down approximately 5.5% for the quarter.\nWood Construction products represented 86% of total sales compared to 84% and Concrete Construction products represented 14% of total sales compared to 16%.\nGross profit increased by 18% to $129.7 million, resulting in a gross margin of 45.7%.\nGross margin increased by 320 basis points, primarily due to lower material and factory and overhead costs as a percent of sales on increased production, offset partially by higher labor, warehouse and shipping costs.\nOn a segment basis, our gross margin in North America improved to 47.7% compared to 44.4%, while in Europe, our gross margin improved slightly to 32.7% compared to 32.3%.\nFrom a product perspective, our first quarter gross margin on wood products was 45.4%, compared to 42.3% in the prior year quarter, and was 42.5% for concrete products compared to 39% in the prior year quarter.\nNow let's turn to our first quarter costs and operating expenses.\nResearch and development and engineering expenses increased 9% to $13.4 million, primarily due to increased personnel costs and cash profit sharing expense.\nSelling expenses increased nearly 2% to $28.5 million, primarily due to increased personnel costs and commissions in cash profit sharing, partially offset by lower stock-based compensation and advertising and promotion expenses.\nOn a segment basis, selling expenses in North America were up 2% and in Europe they increased nearly 2%.\nGeneral and administrative expenses decreased 3% to $38.5 million, primarily due to decreases in professional and legal fees and stock-based compensation.\nPartially offsetting these decreases were increases in personnel costs, cash profit sharing, bad debt reserve adjustment and intangible amortization expense.\nOn a segment level, general and administrative expenses in North America decreased 5%.\nIn Europe, G&A increased by nearly 6%.\nTotal operating expenses were $80.4 million, a slight increase of $0.5 million or approximately 1%.\nAs a percentage of sales, total operating expenses were 28.3%, an improvement of 250 basis points compared to 30.8%.\nIncluded in our first quarter operating expenses were SAP implementation and support costs of $3.4 million compared to $2.4 million in the prior year quarter.\nSince the project inception, we've capitalized $19.7 million and expense $29.3 million in total, as of March 31, 2020.\nOur strong gross margins helped drive a 64% increase in consolidated income from operations to $49.4 million compared to $30 million.\nIn North America, income from operations increased 63% to $53.6 million due to higher sales and lower operating expenses.\nIn Europe, loss from operations was $1.7 million compared to a loss of $0.4 million due to lower sales and higher severance and amortization expense.\nOn a consolidated basis, our operating income margin of 17.4% increased by approximately 580 basis points.\nThe effective tax rate decreased to 21.3% from 22.5%.\nAccordingly, net income totaled $36.8 million or $0.83 per fully diluted share compared to $22.7 million or $0.50 per fully diluted share.\nNow turning to our balance sheet and cash flow.\nAt March 31, 2020, cash and cash equivalents were $305.8 million, an increase of $192.4 million compared to our levels at March 31, 2019 largely due to the aforementioned decision to draw down $150 million on our revolving credit facility.\nThis action was taken as a prudent measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty, resulting from the COVID-19 outbreak.\nThe proceeds from the borrowings will be available to be used for working capital, general corporate or other purposes as permitted by the Credit Facility.\nWe have approximately $150 million of remaining borrowing capacity under our revolving credit facility.\nWe generated cash flow from operations of $16.8 million for the first quarter of 2020, an increase of $7.1 million or 74%.\nWe used approximately $6.8 million for capital expenditures, which included a minimal amount for our ongoing SAP implementation project.\nWe also spent $10.2 million in dividend payments to our stockholders.\nAnd on March -- excuse me, on April 23, our Board of Directors declared a quarterly cash dividend of $0.23 per share which will be payable on July 23 to stockholders of record as of July 2.\nTo date, there remains a significant amount of macroeconomic uncertainty regarding the coronavirus pandemic, including an overall lack of visibility into future market conditions, including the US housing starts, a leading indicator for a significant for a significant amount of our business.\nBased on these factors, we have chosen to withdraw our previously provided full year 2020 outlook as well as the financial targets associated with our 2020 plan.\nIn closing, we're very pleased with our first quarter results.\nWe believe our significant market share, geographic reach and diverse product offering combined with our ongoing cost saving initiatives from our 2020 plan strong balance sheet and near-term focus on cash preservation will play Simpson in a position of strength when shelter in place orders begin to be lifted.\nWe are confident in our ability to maintain our operations during this difficult time as long as we are able to continue operating as a supplier of central businesses and believe we are well positioned to support future demand trends once the COVID-19 pandemic passes.",
        "summary": "q1 earnings per share $0.83.\nq1 sales $283.7 million versus refinitiv ibes estimate of $274.8 million.\nwithdrawing 2020 plan targets and financial outlook due to covid-19.\nended quarter with nearly $306 million in cash on hand after drawing down $150 million on $300 million revolving credit facility.\nsimpson manufacturing co - in late march, 2 of co's european manufacturing facilities in united kingdom, france were ordered to cease nearly all operations."
    },
    {
        "text": "Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.\nWe encourage you to read the risks described in the company's public filings and reports which are available on the SEC or the company's corporate website.\nNow I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.\nI'll begin with the summary of our key second quarter performance, drivers and initiatives.\nBrian will then walk you through our financials and updated full year 2021 business outlook in greater detail.\nWe experienced strong business momentum in the second quarter, generating net sales of $410.3 million which grew 18% over the prior quarter and 25.8% over the prior year period.\nSales growth was primarily driven by the implementation of two product price increases during the quarter along with marginal increases in sales volume.\nThroughout the quarter, we were very pleased to be able to continue meeting the needs of our customers by providing them with our trusted product solutions typically within 48 hours or less.\nThis is despite the current environment marked by the increasing prevalence of global supply chain constraints, limited steel availability and a tight labor market.\nThe recent price increases we implemented drove significantly higher gross margins for the second quarter, which increased to 47.9% from 46.7% in the prior quarter and 45.9% in the year ago period.\nAs a result, our income from operations improved to $101.7 million and led to strong earnings per diluted share of a $1.66.\nLooking at our sales results in more detail, the majority of the increase we experienced both sequentially and over the prior year period was a result of two price increases that became effective during the second quarter.\nThese price increases were in direct response to rising material costs.\nEffective April 5, we implemented price increases ranging from 5% to 12% depending on the product mix for certain of our wood connectors, fasteners, and concrete products in the U.S. On June 16, a second price increase ranging from 6% to 12% primarily on our wood connector products in the U.S. also went into effect.\nAs the price of steel continued to rise throughout the second quarter, we announced a third price increase in June in the range of 7% to 15% across a variety of our product lines in the U.S. which will become effective for most customers in mid-August.\nConsistent with our historical business practice, our customers received at least a 60-day advance notification for price increases along with a clause that reduces significant pre-buying.\nThis enables us to manage our inventory levels in this challenging market.\nImportantly, while we expect these price increases will support our gross margin levels throughout the remainder of fiscal 2021, our gross margins in the first half of 2021 reflect an average cost of steel sourced prior to or earlier into this surge in steel market together with steel purchased more recently at significantly higher prices.\nThese higher prices are in the range of more than double those earlier costs.\nWe are continuing to acquire higher priced raw materials which we currently anticipate will result in gross margin compression beginning in late fiscal 2021 and into fiscal 2022.\nBrian will discuss this impact in more detail during his remarks.\nTurning back to our sales performance, we experienced mixed trends in the various forms of distribution channel we serve including our home center channel and other distribution channels to contractors and lumber yards.\nWhile our momentum with home centers continued, our sales reflected a high-teens percentage decline in this channel year-over-year given the challenging comparison with lapping the return of Lowe's as a home center customer in the second quarter of 2020.\nAs a reminder, the home center channel includes both our home centers, as well as co-op customers and is where we see much of our repair and remodel and DIY business.\nLast year, we experienced elevated volume levels as we began our load-in and shipped our connector products into Lowe's stores.\nWe expect to experience a similar trend next quarter as we lap the elevated volumes from our mechanical anchor and fastener load-ins at Lowe's in the third quarter of 2020.\nOffsetting the decline in the home center channel was double-digit growth in our other distribution channels during the quarter.\nThis was due to the aforementioned sales price increases and ongoing strength in demand for our products which benefited from upward trends in U.S. housing starts.\nAs we generally experience a multi-month lag in demand from the time of housing starts the second quarter reflected strength in the housing starts during the first quarter of 2021, which grew by nearly 9% year-over-year.\nFinally in Europe, our second quarter sales improved over the prior year on a local currency basis given strengthening demand compared to the prior year where we experienced government mandated COVID-19 related closures, which resulted in lower sales volumes.\nSales in Europe were also supported by our ability to continue meeting out customer needs due to our solid inventory management practices amid broader supply chain shortages.\nI'll now turn to a high level discussion on our three growth initiatives, which we first introduced earlier this year during our Virtual Analysts Investor Day event on March 23.\nOur growth initiatives focus on the following five markets, which I'll name in no particular order of priority; OEM, which is Original Equipment Manufacturers, repair, remodel and do it yourself; mass timber, concrete and structural steel.\nImportantly, we currently have existing products, test results, distribution and manufacturing capabilities in place for all five of our growth initiatives.\nIn these markets, we are focused on organic growth opportunities through expansion into new markets within our core competencies of wood and concrete products, as well as inorganic growth opportunities through licensing, purchased IP and traditional M&A.\nIn order to appropriately grow in the first three markets, that would be the OEM, DIY, R&R and Mass Timber, we aspired to be a leader in the engineered low-graded construction fastening solutions given each of these markets have a broader product opportunity within Fastenings Solutions.\nIn addition, we're striving to be a stronger leader in building technology by continuing to provide innovative tools and solutions that both help our customers with design and options management, while simultaneously enabling them to select and specify the right Simpson solution for the job.\nWe expect technology advancements would drive enhanced growth in all of our key growth initiatives as well as across all of Simpson in general.\nToday, each of our growth initiatives are in a different stage of development.\nWe are confident in our ability to execute them based on our strong business model which emphasizes engineering expertise, deep-rooted relationships with our top builders, engineers, contractors, code officials and our distributors, along with our ongoing commitment to testing, research and innovation.\nWe believe these initiatives will continue to position Simpson for above-market growth and we'll keep you apprised of any significant updates as they arise.\nFinally, I'd like to take a brief moment to touch on our capital allocation strategy.\nAs our business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities.\nWe will prioritize investing in our growth initiatives in areas such as engineering, talented market and sales personnel and testing capabilities.\nM&A also remains a high key area of focus in order to expand our product lines and develop complete solutions for the markets in which we operate as well as potential M&A opportunities in areas of direct alignment or support on our key growth initiatives.\nTo assist with these efforts, we're looking to other avenues such as venture capital expertise to help identify potential strategic acquisitions or investments including innovative technologies of interest in the building space.\nIn regard to stockholder returns, during the quarter, our board of directors approved the change to our capital return threshold to 50% of Simpson's free cash flow as compared to our previous threshold of 50% of our cash flow from operations.\nThis change was made to better align our capital return thresholds with our growth initiative strategies and investments.\nWe remain committed to returning value to our stockholders in the form of opportunistic share repurchases and dividends moving forward.\nIn summary, we are very pleased with our strong second quarter financial and operational performance.\nLooking ahead to the second half of the year, we expect to build on the continuing momentum we are experiencing including strong housing starts.\nWe look forward to continuing to provide our customers with Simpson's industry-leading solutions supported by our long-standing relationships, technical and field support, strong inventory position, and consistent product availability.\nI'm pleased to discuss our second quarter financial results with you today.\nNow turning to our results, as Karen highlighted, our consolidated net sales increased 25.8% to $410.3 million.\nWithin the North America segment, net sales increased 22.2% to $350.6 million primarily due to product price increases that took effect in April and June of 2021 in an effort to offset rising material costs along with marginally higher sales volumes.\nWe also continue to benefit from solid trends in our distributor channel, which reflected increased demand from ongoing strength in U.S. housing starts.\nIn Europe, net sales increased to 51% to $56.4 million primarily due to higher sales volumes compared to last year's COVID-19-related slowdown.\nEurope sales also benefited by approximately $5.3 million of positive foreign currency translations resulting from some Europe currencies strengthening against the United States dollar.\nWood construction products represented 87% of total sales compared to 86% and concrete construction products represented 13% of total sales compared to 14%.\nConsolidated gross profit increased by 31.1% to $196.4 million which resulted in a stronger Q2 gross profit margin of 47.9% compared to last year.\nGross margin increased by 200 basis points primarily due to the price increases Karen discussed earlier, which were partially offset by higher material costs.\nOn a segment basis, our gross margin in North America increased to 49.9% compared to 47.4%.\nWhile in Europe, our gross margin increased to 36% compared to 35.1%.\nFrom a product perspective, our second quarter gross margin on wood products was 47.4% compared to 46.2% in the prior-year quarter and was 47.5% for concrete products compared to 40.7% in the prior-year quarter.\nNow, turning to our second quarter costs and operating expenses.\nAs a reminder, last year, we curtailed expenses in light of the COVID-19 pandemic.\nAs a result, total operating expenses were $94.7 million, an increase of $17.1 million or approximately 22%.\nAs a percentage of net sales, total operating expenses were 23.1% compared to 23.8%.\nResearch and development and engineering expenses increased 16.2% to $14.2 million primarily due to increased personnel costs, cash profit sharing and professional fees.\nSelling expenses increased 23.6% to $33.2 million due to increased personnel costs, sales commissions travel and entertainment expenses and professional fees.\nOn a segment basis, selling expenses in North America were up 20.3%; and in Europe, they were up 36%.\nGeneral and administrative expenses increased 22.7% to $47.4 million primarily due to personnel costs, cash profit sharing and professional and legal fees offset by a lower stock-based compensation.\nOur solid top line performance combined with our stronger Q2 gross margin helped drive a 40.9% increase in consolidated income from operations to $101.7 million compared to $72.2 million.\nIn North America, income from operations increased 31.8% to $95.1 million, primarily due to increased gross profit, partly offset by higher operating expenses.\nIn Europe, income from operations increased 117.8% to $5.9 million primarily due to increased sales volumes and gross profit.\nOn a consolidated basis, our operating income margin of 24.8% increased by approximately 270 basis points from 22.1%.\nOur effective tax rate increased to 26.9% from 25.8%.\nAccordingly, net income totaled $72.5 million or $1.66 per fully diluted share, compared to $53.5 million or $1.22 per fully diluted share.\nNow turning to our balance sheet and cash flow; our balance sheet remained healthy with ample liquidity to operate our day-to-day operations.\nAt June 30, cash-and-cash equivalents totaled $305.8 million, a decrease of $9.7 million compared to June 30, 2020.\nAs of June 30, 2021, the full $300 million on our primary credit line was available for borrowing and we remain debt free mostly unchanged from year end.\nSubsequent to the end of the quarter, we entered into a fourth amendment to our credit facility, which extended the terms of the agreement from July 23, 2022 to July 12, 2026 and modified certain covenants to provide us with additional flexibility.\nOur inventory position of $310.3 million at June 30 increased by $13.6 million from our balance at March 31, primarily due to the increases we saw in steel prices over the first half of the year, partially offset by a reduction in pounds on-hand.\nWe continue to carefully manage raw material inventory purchases in the environment of rising costs and limited supplies, all while striving to maintain our high levels of customer service and on-time delivery standards.\nAs a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $63.8 million for the second quarter of 2021, an increase of $38.9 million or 156%.\nWe used approximately $8.8 million for capital expenditures during the quarter and paid $10 million in dividends to our stockholders.\nAdditionally, I'm pleased to announce that on July 14, 2021, our board of directors declared a quarterly cash dividend of $0.25 per share.\nThe dividend will be payable on October 28, 2021 to stockholders of record as of October 7, 2021.\nAs a reminder, in early May, our board of directors approved $0.02 or 8.7% increase in our dividend per share.\nWe are pleased to have increased our quarterly dividend, reflecting our strong financial performance and continued commitment to returning capital to stockholders.\nPrior to this, we had last raised our quarterly dividend by $0.01 or 4.5% per share in April 2019.\nWe did not increase our dividend in 2020 as a result of our focus on cash preservation at the onset of the COVID-19 pandemic.\nAs of June 30, 2021 we had the full amount of our $100 million share repurchase authorization available, which remains in effect through the end of 2021.\nGiven our confidence in our business and our expectation that our strategic initiative will continue to drive improved operational performance and a higher return on invested capital, we expect we'll remain both active and opportunistic as it relates to share repurchase activity.\nBased on business trends and conditions as of today, July 26, we are updating certain elements of our guidance for the full year ending December 31, 2021 as follows.\nWe are tightening our operating margin outlook to now be in the range of 19.5% to 21% compared to our previous estimate of 19.5% to 22%.\nThe current outlook reflects two quarters of actual results, the impact of our recent price increase announcement, rising raw material input costs, and the stronger than anticipated demand trends that we've been experiencing in 2021.\nIn addition, we continue to expect our effective tax rate to be in the range of 25% to 26% including both federal and state income tax rates.\nAnd finally, we are updating our capital expenditure outlook.\nFor 2021 we have authorized capex in the range of $55 million to $60 million including approximately $15 million to $20 million that will be used for safety and maintenance capex.\nAt this time, only a small amount of our capex spend is related to pursuing our growth initiatives Karen outlined earlier in the call.\nI'd also like to provide some additional commentary regarding our margin expectations for the remainder of fiscal 2021 and fiscal 2022.\nBased on our current expectations, we are anticipating continued raw material cost pressure in late 2021 and into 2022.\nAs Karen noted, our gross margins in the first half of 2021 reflect an average cost of steel sourced prior to or early into the rising steel market together with steel purchased more recently at much higher prices.\nAs we work through our on-hand inventory and continue to continue to buy raw material at these much higher prices, our anticipated costs of goods sold are expected to increase significantly in the back half of fiscal 2021 and into 2022 even if prices for raw material begin to decline, which will adversely affect our margins as the impacts from averaging raw material costs typically lags our price increases.\nAs a result, we currently expect a roughly 300-basis-point to 400-basis-point decline in operating margins for the full-year 2022 when compared to 2021.\nDespite near-term pressures, we continue to focus on the long-range view, a key company value put in place by our Founder, Barclay Simpson.\nAs discussed during our Analyst and Investor Day, we continue to believe we can maintain an industry-leading operating margin in the high teens range annually in the long term, a key goal in our five-year company ambitions.\nIn summary, we're very pleased with our solid second quarter financial results and operating performance.\nWe remain confident in our ability to execute against our strategic, operational and financial initiatives along with being able to support current and future demand trends.\nWe look forward to updating you on progress in the coming quarters.\nAs Brian mentioned in summary, we are very pleased with our second quarter results.\nWe continue to manage the key areas of our business that we can control while navigating the current macroeconomic environment, which is characterized by our ongoing rise in steel prices.\nWhile these factors will result in a notable compression to our margins in fiscal 2022, we remain confident in our ability to achieve our five-year company ambitions that we unveiled at our Analyst Investor Day in March.\nOur first ambition is we want to strengthen our values-based culture.\nOur Simpson's strong tie employees are our most important asset and we will continue to engage with them to ensure relentless customer focus that they're involved in leadership programs and instill a safety-first culture.\nSecond, we want to be a partner of choice in all aspects of our business.\nThird, we strive to be an innovative leader in our products categories.\nFourth, we aim to continue our above market growth relative to U.S. housing starts.\nThis, we will continue to target an operating income margin that remains within the top quartile of our proxy peers.\nWhile we expect increases in our operating expenses in the near-term to support our growth initiatives, our goal over the long-term is to expand our operating income margin from historical averages supported by enhanced revenue from our growth initiatives.\nAnd finally, we'll continue targeting a return on invested capital that remains in the top quartile of our proxy peers.\nWe commend you for your dedication to safety and for working hard every day to achieve our mission of providing solutions to help people build and design safer, stronger structures.",
        "summary": "compname reports q2 earnings per share of $1.66.\nq2 earnings per share $1.66.\nq2 sales $410.3 million versus refinitiv ibes estimate of $395.9 million.\nupdating full year 2021 financial guidance.\n2021 capital expenditures are estimated to be $55 million to $60 million."
    },
    {
        "text": "I do have a few words of caution before we open for comments.\nSTERIS' SEC filings are available through the company and on our website.\nAdditional information regarding these measures, including definitions, is available in today's release as well as reconciliations between GAAP and non-GAAP financial measures.\nWith those cautions, I will hand the call over to Mike.\nFor the quarter, constant currency organic revenue increased 12%, with growth across all segments.\nGrowth was driven by organic volume as well as 130 basis points of price.\nTo assist you with your modeling, I will share some color on the acquisition revenue contribution within the Healthcare segment.\nOf the approximately $220 million in acquired revenue, about 65% is consumable revenue from both Key and Cantel Medical, about 20% of the balance is capital equipment revenue, with the last 15% being service revenue.\nWe will not be breaking that down any further as it is already difficult to differentiate some product lines as we are integrating the businesses quickly, and that challenge will only increase with each passing quarter.\nGross margin for the quarter increased 120 basis points compared to the prior year to 46.2%, as favorable productivity, pricing and acquisitions were somewhat offset by higher material and labor costs.\nCombined, material and labor costs were about $10 million in the quarter, significantly higher than we were expecting.\nAs we look at the second half of the fiscal year, we anticipate that higher material labor costs will continue to impact gross margin by approximately $20 million or more.\nEBIT margin for the quarter was 23.3% of revenue, an increase of 80 basis points from the second quarter of last year.\nAs anticipated, we are starting to see some operating expenses, such as travel and sales and marketing costs, return somewhat limiting EBIT margin growth.\nThe adjusted effective tax rate in the quarter was 22%, higher than last year, but in line with our expectations for the full fiscal year.\nNet income in the quarter increased to $200.3 million and earnings per share were $1.99.\nOur balance sheet continues to be a source of strength for the company.\nOur leverage ratio at the end of the second quarter is now below 2.8 times.\nAs a reminder, we cash settled all of Cantel's convertible notes during the second quarter.\nThe total cash settlement value was approximately $371.4 million.\nAt the end of the quarter, cash totaled $383.5 million.\nDuring the first half, capital expenditures totaled $133.4 million, while depreciation and amortization was $201.7 million, reflecting recent acquisitions.\nFree cash flow for the first half was $135.8 million.\nAs anticipated, this is a decline from last year due to costs associated with the acquisition and integration of Cantel Medical and slightly higher capital spending year-over-year.\nOur fiscal 2022 is shaping up to be another record year for STERIS.\nOur first half turned out to be stronger than we anticipated, with constant currency organic growth across the business.\nIn particular, growth in our AST segment remained strong, with 23% constant currency organic growth year-to-date despite some tough comparisons in the second quarter of last year.\nHealthcare has also rebounded nicely, with 17% constant currency organic growth in the first half and record backlog of $311 million at the end of the quarter for the legacy STERIS products.\nLife Sciences consumables have stabilized, contributing 3% constant currency organic growth in the first half.\nAnd our capital equipment business backlog has grown to a record $98 million.\nLastly, our newest segment, Dental, reported 10% growth for the quarter, in line with our expectations.\nUnderlying our performance, procedure volumes in the U.S. have held steady as hospitals have learned how to manage through the pandemic.\nWhile we continue to see pockets of the world that are more limited in procedure volume due to COVID outbreaks, overall, we believe procedure volume is moving closer to pre-pandemic levels.\nWe are cautiously optimistic about the coming months as COVID cases appear to have peaked and are now once again receding.\nDespite the more difficult comparisons, we expect revenue to stay strong in our second half as we continue to benefit from these trends.\nWe also continued to make progress on the integration of Cantel in the quarter.\nThe majority of our staffing changes have been made, aligning STERIS to better serve customers, positioning us for growth going forward and contributing to cost synergies.\nWe are also making swift progress implementing Lean, and we are very pleased with how receptive our new colleagues are to our passion for continuous improvement.\nAll said, we would expect to exceed our synergy cost targets for the year and also in total.\nLooking at the full year, while we are increasingly confident in our ability to achieve our improved outlook provided last quarter, we are not increasing guidance further at this time.\nWhile we overachieved earnings in the second quarter, we have a few offsets that will likely impact the back half of the year.\nOn the revenue side, our comparisons do get a bit more challenging.\nAnd we do expect some headwinds from FX, in particular, from the euro and the pound.\nIn addition, while our teams have done outstanding work to mitigate the supply chain challenges so far this year, it is difficult to predict the unknown implications the current environment may have on the second half of the fiscal year.\nAll said, we are pleased with where we stand today and the underlying strength of our diversified business, and remain optimistic that if it were not for supply chain and inflation uncertainties, we would be at the high end or above our adjusted earnings per share guidance range for the full year.\nWe look forward to continuing to update all of you on our progress.\nGrant, would you please give the instructions and we can get started on Q&A?",
        "summary": "q2 adjusted non-gaap earnings per share $1.99.\nreiterates fiscal 2022 outlook."
    },
    {
        "text": "We are pleased with the continued outstanding performance of all our business segments.\nIn the second quarter, we delivered 61% growth in core FFO per share to $1.80 as compared to the second quarter of 2020 exceeding the high end of our guidance of $1.63 as our ongoing momentum accelerated beyond our forecasted expectations.\nComparing to a non-COVID impact quarter our second quarter FFO per share was 53% greater than the second quarter of 2019.\nThis outperformance, along with a positive outlook for the third and fourth quarters once again led us to raise our core 2021 FFO guidance range by $0.31 at the midpoint to $6.25 to $6.37 per share.\nThe change is being driven by continued outperformance of transient RV, marinas, the sustained strength in our manufactured housing portfolio and our robust acquisition activity, particularly as we begin to realize the meaningful marina industry consolidation opportunity.\nComplementing our operational performance was Sun's well received inaugural unsecured bond issuance, following our investment grade rating from S&P and Moody's.\nWe issued $600 million of senior notes in an oversubscribed offering in mid June.\nSun' access to the bond market provides us with enhanced financial flexibility to most efficiently match fund our investment activities.\nWith a healthy pipeline of internal and external growth opportunities we believe this was the right time for the step and we'll look to continue enhancing our credit metrics over time for improved ratings.\nFor the quarter, same community NOI grew 21.6% over last year, reflecting the continued demand in each of our segments and our favorable strategic positioning to capture that demand.\nWe entered the quarter with same community occupancy of 98.8%, a 160 basis point improvement over the second quarter of 2020 with manufactured housing same community NOI growing by 5.4% and RV same community NOI growing by 85.1%.\nYear-to-date we have filled more than 1,000 revenue producing manufactured housing and annual RV sites and have delivered more than 580 ground-up and expansion sites that will continue providing the runway for growth over subsequent quarters.\nNew site deliveries, one of Sun's key levers that we anticipate continuing to contribute to a sustained growth profile and value creation.\nAs of quarter end we had approximately 9,400 sites available for development that we anticipate delivering over time.\nWe have also remained active in growing our portfolio, adding 18 properties in the second quarter and through this earnings call deploying over $719 million of capital and adding more than 5,000 sites, wet slips and dry storage spaces.\nThis brings year-to-date acquisition volume to over $853 million across 28 properties.\nOur acquisition teams remain extremely active sourcing deals and channeling them through our underwriting process.\nWe are very enthusiastic about the opportunities we are seeing across each of Sun's businesses.\nOur excellent reputation as a transaction partner and our structuring flexibility gives us access to off-market transactions across manufactured housing communities, RV resorts and marinas.\nSubsequent to quarter end we completed the disposition of two manufactured housing assets that no longer fit our core strategy.\nWe sold these assets at a 4.3 cap rate, which we believe is a very positive indicator of the value and quality of our core portfolio.\nOur RV Resort business is benefiting from the demand for outdoor experiences.\nAs we have been discussing throughout the pandemic, once travel restrictions began to lift, RV travel quickly emerged as a vacation option of choice.\nAnd importantly, even as broader travel has picked up it is clear that people who have experienced the benefits of RV travel and the quality and amenities that Sun Resorts offer are becoming repeat customers.\nThere has been no waning of demand for RV vacationing even as other forms of leisure travel have become available and bounced back.\nAs John will discuss, we are confident this segment will remain strong for several reasons, including a solid forward bookings for transient and our annual site conversions.\nIn our Marina business results continue to track ahead of underwriting and we are in the midst of an active boating season.\nIn summary, we are pleased with our results and optimistic about our outlook.\nWe continue to achieve strong operational results and realize internal and external growth opportunities.\nFurthermore, with our equity raise in the first quarter and our recent bond issuance we are well-positioned to execute on each of these prospects.\nOur team members are the reason we continue to deliver the type of outperformance we have been discussing.\nWe believe that one element of that success is our commitment to ESG matters, which are becoming increasingly woven into all aspects of our business.\nAs part of that enhanced focus there is one element I wanted to highlight today.\nWe are proactively adjusting our pay structure at the property level to ensure that pay is properly aligned with a number of factors including job responsibilities, tenure of service and appropriate living wages.\nWhile this is resulting in a payroll and expense increase, we are committed to making Sun the best employer, which will facilitate us, continuing to foster a dedicated, skilled and healthy team.\nSun delivered a strong second quarter across the board, outperforming our prior expectations in RV, marinas and manufactured housing.\nOur results reflect the combination of the stability of our best-in-class portfolio as well as the incremental benefits of our growth initiatives across our three business lines.\nFor the second quarter, combined same community manufactured housing and RV NOI increased 21.6% from the second quarter of 2020.\nThe growth in NOI was driven by a 22.5% revenue gain supported by a 160 basis point increase in occupancy to 98.8% and a 3.3% weighted average rent increase.\nThis was offset by a 24.7% expense increase compared to the second quarter of last year when we had implemented expense saving measures including furloughs of properties impacted by COVID-related closures.\nSame community manufactured housing NOI increased by 5.4% from 2020 and same community RV NOI increased by 85.1%.\nThe RV growth reflects both the impact from the COVID-related delayed opening of 44 of our resorts on last year's results, as well as the incredibly strong transient demand this year.\nGiven the stay at home orders that were in place during the second quarter of 2020 we think it is helpful to look at these results relative to the second quarter of 2019.\nFor all of our comparisons to 2019 we're utilizing last year's same community pool of 367 communities.\nCompared to 2019, the portfolio's NOI CAGR was 9.7% and the CAGR for revenues and expenses were 8.5% and 5.9% respectively.\nThe RV NOI CAGR was up by 18.6%, including a 19.6% increase in transient RV revenues.\nLooking at the most recent holiday weekends further illustrates how demand has escalated.\nFor Memorial Day weekend RV revenue was up 39% compared to 2019.\nSimilarly, for July 4 weekend revenue improved 35% compared to 2019 and 36.5% compared to 2020 driven by a 10.5% increase in occupancy and a 19% increase in average daily rate.\nWe are pleased that so many new consumers have recently taken initial RV vacation.\nMoreover, we are confident that many of these vacationers have discovered the joy of RV travel and the quality outdoor experience at a Sun RV resort.\nTherefore even as other forms of travel have reopened or are deemed to be safe again, we are seeing demand persist through the second half of 2021.\nI would like to highlight a few metrics which illustrate the increasing interest in Sun Vacations and the engagement and loyalty of our guests.\nTraffic to our Sun RV resorts website was incredibly strong in the first half of 2021, up almost 80% from the first half of 2020 and 158% compared to 2019.\nWithin this growth, we are seeing a shift to a younger audience with significant increase in guests aged 18 to 34.\nOur social media efforts are attracting the largest following and engagement in the industry with over 1.3 million followers on three of the largest social media platforms Instagram, TikTok and Facebook.\nA big element of a Sun Vacation is the community and the activities we provide and these channels are in an ideal way to continue to showcase what we offer and to nurture community element to drive repeat guests.\nFrom the same community perspective, first time guests to our resorts increased 80% during the first half of the year compared to 2019.\nWe are also piloting a new RV resorts loyalty program where guests can earn points for stays and redeem them for benefits, discounts or free nights on future vacations.\nWith the size of the Sun portfolio and the geographic variety we offer we believe this program will further encourage guests to choose the Sun RV Resort as their vacation destination.\nAs we look to the back half of the year, our transient forecast is trending 15.2% ahead of our original 2021 budget.\nThere are a number of dynamics supporting the continuation of these positive demand trends.\nOne is the strong sale of new RVs.\nAccording to the RV Industry Association, 2021 RV unit sales are projected to be 34% higher than in 2020 and reach a new industry record.\nAdditionally, there are a few promising venture-backed platforms including RVShare and Outdoorsy, which allow owners to rent their personal RVs providing a new option for consumers seeking outdoor vacation without the capital outlay of buying an RV.\nThese platforms help activate otherwise idle RVs, which we believe will fuel additional demand for RV Resorts.\nWith respect to the total MH and RV portfolio, in the second quarter we gained 583 revenue producing sites.\nOf our revenue producing site gains over 350 transient RV sites were converted to annual leases with the balance being added to our manufactured housing expansion communities.\nWith the increase in RV guests we are able to realize the opportunity to convert transient sites to annual leases and achieve an average 50% increase in site revenues during the first year of conversions.\nMoving on to new construction, in the second quarter we delivered approximately 220 new sites, 100 of which were ground-up developments and 120 were expansion sites.\nThe ground-up development deliveries include RV sites at our newly opened camp tempo outside of Austin and Texas Hill country.\nThis marks the first delivery in a planned series of new ground-up family focused RV resorts within one of our JV partnerships.\nThose of you wondering, FIMFO stands for fun is more fun outdoors.\nThese completed expansion and ground-up development sites will contribute to revenue growth in 2021 and beyond as they fill up and stabilize.\nManufactured housing home sales in the second quarter is another area where we saw tremendous increase compared to the same period last year.\nTotal sales volume was up approximately 90% year-over-year as we sold more than 1,100 homes in the quarter.\nCompared to 2019, this sales volume represents an increase of 25%.\nWe believe the growth is due to a number of factors, including pent-up demand from limited home moves during the pandemic, the attainable nature of the homes in our communities in an increasingly tight real estate market, and lower relative increases for the construction and material costs of our product versus site-built housing.\nAverage home prices during the quarter for new and pre-owned homes rose 11.6% and 23.3%, respectively, underscoring the overall geographic mix as well as sustained demand for our product and the strong desire to live in a high-quality Sun community.\nThis favorable demand environment helped support attractive gross margin results for both new and pre-owned home sales, which expanded 50 basis points and 14.6 percentage points, respectively, compared to the prior year period.\nAdditionally, brokered home sales volume was up 113% compared to the second quarter of 2020 with the average home value increasing by 26%.\nIn terms of our operations, in our manufactured housing business, we are benefiting from sustained strength and fundamentals and demand for affordable housing.\nApplications to live in a Sun Community were up more than 20% compared to 2020 in the second quarter and year-to-date.\nTurning to the Marina business, we ended the quarter with 114 properties comprising nearly 41,300 wet slips and dry storage spaces, which includes the acquisition of four properties for approximately $423 million completed in the second quarter.\nBetter-than-expected performance for the Marina portfolio continues to come from demand for wet slips and dry storage spaces.\nSame marina rental revenue growth for the portfolio of 75 properties owned and operated by Safe Harbor since the start of 2019 was almost 17% for the first half of 2021 over 2019.\nThis is a CAGR increase in rental revenue of 9.7% for the quarter and 8% for the first half of 2021.\nOverall, the marinas are performing ahead of expectations and the Safe Harbor team continues to source attractive acquisitions as Gary discussed.\nAccording to the National Marine Manufacturers industry, both dealers are seeing record levels of demand.\nNew boat sales reached a 13-year high in 2020, and they remain at elevated levels with most recent reported sales data through March 2021, up 30% compared to the 2020 average.\nIn summary, we are very encouraged by our performance across all of our businesses year-to-date and our outlook for the remainder of the year.\nSecular demand trends are acting as a tailwind, and Sun has the platform and expertise to capture that demand and realize attractive growth.\nThe combination of the favorable macro environment, along with the strategy Sun has been implementing for years, has positioned us very well to continue to execute on our initiatives, drive industry-leading growth and create long-term value for all stakeholders.\nKaren will now discuss our financial results in more detail.\nFor the second quarter, Sun reported core FFO per share of $1.80, 60.7% above the prior year and $0.17 ahead of the top end of our second quarter guidance range.\nOutperformance was achieved across all business lines.\nOur manufactured housing business experienced higher-than-forecasted revenue, including rental home revenue and other community-related fees and charges as well as lower-than-expected operating expenses.\nAnnual RV revenue as well as transient and vacation rental revenues drove strong results in the RV segment, partially offset by higher operating expenses including wages and benefits, utilities and supply and repair costs.\nAnd the marina business was bolstered by higher boat slip, storage and service revenues, offset by higher payroll costs as well as utility and repair costs.\nDuring the quarter and subsequent to quarter end, we acquired over $719 million of operating properties, bringing our year-to-date total to over $853 million, adding 28 properties totaling over 7,600 manufactured housing and RV sites, marina wet slips and dry storage spaces.\nTo support our operations and growth activities, we have been active in enhancing our balance sheet and in capital markets activity, which provide the capacity and flexibility to pursue our ongoing growth pipeline.\nAs Gary mentioned, we are pleased to have received investment-grade ratings with stable outlooks from both S&P and Moody's.\nWe followed this news with a successful $600 million inaugural bond offering in mid-June.\nAdditionally, during the second quarter, we drew on the remainder of the forward equity sales agreement we had entered into in March.\nWe settled 4 million shares with net proceeds of $540 million, the majority of which was used to fund our acquisitions and pay down our line of credit.\nFinally, we recast our revolving line of credit agreement.\nWe replaced the prior $750 million line and Safe Harbor's prior $1.8 billion line with a combined $2 billion revolver with a $1 billion expansion option.\nWe ended the second quarter with $4.3 billion of debt outstanding at a 3.5% weighted average rate and a weighted average maturity of 10.4 years.\nAs of June 30, we had $104 million of unrestricted cash on hand and a net debt to trailing 12-month recurring EBITDA ratio of 5.1 times.\nWe are raising our full year 2021 core FFO guidance to a range of $6.25 to $6.37 per share, a $0.31 increase at the midpoint from our prior range, which represents year-over-year growth of 24% at the midpoint.\nApproximately $0.17 of the increase is due to our outperformance in the second quarter with the remainder due to contributions from our recent acquisitions and increased expectations across each of our businesses, particularly transient RV.\nThis is offset by approximately $8 million of property level proactive wage increases for the remainder of the year, which Gary previously discussed, of which approximately half had been included in prior issued guidance.\nAdditionally, we estimate an impact of $0.11 per share for the remainder of the year from the settlement of the forward equity offering completed in the second quarter.\nWe expect core FFO for the third quarter to be in the range of $2 to $2.06 per share representing 27% year-over-year growth at the midpoint on top of the 10% growth we delivered in 2020 over 2019.\nWe are also revising full year same community NOI growth guidance to a range of 9.9% to 10.7%, up 230 basis points from the previous midpoint of guidance of 8%.\nThis revised NOI growth range is inclusive of the aforementioned increased property level payroll expenses.",
        "summary": "compname reports q2 core ffo per share of $1.80.\nq2 core ffo per share $1.80.\nsees fy core ffo per share $6.25 - $6.37."
    },
    {
        "text": "I hope you're doing well and staying safe.\nIt's now a little over a year since I joined SolarWinds.\nThe efforts of our team resulted in several highlights in our performance, which I'll go into shortly.\nAs many of you are also aware, we held our annual Analyst Day meeting on November 10, 2021.\nDuring this virtual event, we described our portfolio and go-to-market plans for SolarWinds, our expanding market opportunity, which we believe will amount to approximately $60 billion by 2025; and our goal to achieve at least $1 billion in ARR by 2025, with a compounded annual subscription ARR growth north of 30% over that time period; and then building to EBITDA margins in the mid-40s.\nWe believe this combination of top line scale, growth and strong profitability will put us in a small group of public software companies with a similar financial profile.\nAs I mentioned earlier, we had several highlights in the fourth quarter of 2021.\nI'll touch on some of the highlights before turning it over to Bart for more color on the fourth quarter, as well as our financial outlook for the first quarter and full year of 2022.\nThe continued relevance of our solutions, the execution abilities of our teams and the trust that our customers have in us were all on display during the fourth quarter.\nFor the fourth quarter, we delivered revenues of $186.7 million, above the high end of the range we provided of $180 million to $184 million.\nAdjusted EBITDA was $78.4 million, representing an adjusted EBITDA margin of 42%, again, exceeding the high end of our outlook for the fourth quarter.\nCustomer retention remained our top priority throughout 2021, and we made great progress toward this goal in Q4.\nOur trailing 12-month Q4 maintenance renewal rate of 88% was above the low- to mid-80% renewal rates we noted -- we expected in 2021.\nBased on our customers' loyalty and strong execution of our customer and go-to-market teams, we expect to return to our retention rates to improve in 2022 and approach our historical best-in-class levels in the low-90% range.\nOur continued focus on driving subscription-first resulted in an 18% year-over-year increase in subscription revenues in the fourth quarter, and we believe we are well-positioned to accelerate this level of growth moving forward.\nFor the full year, we delivered $719 million of GAAP revenues, representing flat year-over-year performance relative to 2020; and adjusted EBITDA of $303 million, representing a 42% EBITDA margin while growing subscription revenue 19% year over year on a GAAP basis.\nWe anticipate both our license and subscription revenues to grow in 2022, reflecting a recovery in sales to new and existing customers and further expanding our recurring revenue base.\nOur focus on delivering simple, powerful and secure solutions, combined with our still very early efforts to build out our system integrator and enterprise go-to-market motions as a result -- has resulted in continued ASP expansion and an increasing number of large deals.\nSpecifically, our product and platform integrations combined with simplified packaging and pricing, delivered tremendous value to customers, resulting in multiple million dollar plus deals and an increasing number of $100,000 deals in 2021.\nOur efforts to transition our customers to our new SolarWinds' observability offerings was well received in the second half of 2021.\nWhile still very early, both customer adoption and subscription bookings have been very encouraging.\nCustomers are looking to leverage their on-premises deployments while seamlessly connecting to the cloud, and we are providing them with the solution to accomplish their goal while modernizing their deployments and helping them accelerate their digital transformations.\nThis subscription transformation to SolarWinds' observability will become a mainstay beginning in 2022.\nOur AIOps capabilities are being delivered on the same platform, further bolstering our customers' productivity by helping them to manage their deployments more simply to isolate issues efficiently and to remediate them quickly.\nWe are unifying our application monitoring solutions to give customers even easier ways to deploy and consume them.\nApplication monitoring will become an integral part of our SolarWind's platform.\nWe believe our database monitoring solutions continue to lead the market with significant depth and breadth across functionality, platform and deployment support.\nOur volume of $100,000-plus deals has continued to grow alongside our SolarWinds' velocity motion.\nWe intend to continue working closely with our hyperscaler partners like Azure and AWS to further accelerate our growth.\nOur service desk solutions are ideally suited for the mid-market, and we are accelerating our integrations most recently with Microsoft Teams.\nWhile we believe the stand-alone motion will continue to accelerate, our Service Desk solutions will become integral elements of the SolarWinds platform to support our automation and remediation capabilities.\nWe continue to take our commitment to building a safer and more secure customer environment very seriously.\nTo this end, we are working on all aspects of our Secure by Design initiative, which I detailed in 2021.\nOur teams recently published a white paper on our next-generation build systems, that is a result of our efforts to set a new standard in secure software development to engage with and contribute to open source efforts and to share what we have learned to help secure software supply chain practices.\nIt is my hope that the entire industry will embrace these practices and together, we can enable our customers' digital transformation securely.\nOnce again, I will discuss our SolarWinds results on a stand-alone basis.\nAs most of you know, our spin of the N-able business was effective on July 19, 2021.\nTherefore, their results are reflected as discontinued operations in our fourth quarter and full year financial results.\nAlso, a quick reminder that the guidance for the fourth quarter that I provided in October did not include any impact from N-able as the spin has been completed prior to the start of the fourth quarter.\nIn addition, our public filings will present N-able as discontinued operations in prior periods for better comparability.\nAt the start of 2021, we determined not to provide full year guidance, given the uncertainty we faced at that time as a result of the cyber incident, the ongoing impact of the COVID-19 pandemic and the potential timing of the spin-off of our N-able business.\nAs we discussed in our Q4 2020 earnings call, while we felt it was too early to predict a range of outcomes with our usual level of precision, we were encouraged by the recent customer engagements and focused on customer retention and maintaining renewal rates above 80%.\nReflecting back on the year, despite the significant challenges we faced, we are pleased with our performance and expect to improve upon it in 2022.\nAlthough we had indicated that we expected maintenance renewal rates to be in the low- to mid-80s, we ended the year with renewal rates at approximately 88% for 2021.\nWe also saw new sales improve as we moved through the year in our commercial business, and our fourth quarter financial results reflect another quarter of improving execution.\nThat execution led to another quarter of better-than-expected financial results with total revenue ending at $186.7 million, well above the high end of our total revenue outlook of $180 million to $184 million.\nFor the fourth quarter of 2021, there was no impact to purchase accounting on revenue, so our GAAP total revenue is equivalent to the non-GAAP total revenue measure we have historically reported.\nTotal license and maintenance revenue was $152 million in the fourth quarter, which is a decrease of 3% from the prior year period.\nMaintenance revenue was $119 million in the fourth quarter, which is a decrease of 3% from the prior year.\nAs we talked about at our Analyst Day, our maintenance revenue has been impacted by a combination of year-over-year declines in license sales for the past nine quarters and a reduction in our renewal rates in 2021.\nThe trend of lower license sales intensified with the introduction of subscriptions of our licensed products in the second quarter of 2020, as well as the cyber incident in December of 2020 as well.\nWe focus more of our efforts on longer-term customer success and retention.\nAs I mentioned earlier, we are encouraged by the fact that our renewal rates remained higher than our expectation of low- to mid-80s that we shared at the start of 2021.\nOn a trailing 12-month basis, our maintenance renewal rate is 88%.\nWorking with our customers has been a top priority this year, and our renewal rates reflect our focus on customers and the trust they place in our solutions and relationships.\nAlso consistent with recent quarters, we want to provide the in-quarter renewal rate for the fourth quarter, which currently stands at approximately 87%.\nBut believe it will be 88% by the end of the first quarter, which again is above our expectations at the start of the year.\nFor the fourth quarter, license revenue was $33.8 million, which represents a decline of approximately 2% as compared to the fourth quarter of 2020.\nOur new license sales performance with commercial customers improved sequentially each quarter during the year.\nOn-premises subscription sales resulted in an approximately 8 percentage point headwind to our license revenue for the quarter.\nMoving to our subscription revenue.\nFourth quarter subscription revenue was $34.4 million, up 18% year over year.\nThis increase is due to the additional subscription revenue from SentryOne products, as well as increased sales of our on-premises subscriptions as part of our early efforts to shift more of our business to subscription.\nTotal ARR reached approximately $631 million as of December 31, 2021, reflecting year-over-year growth of 1% and up slightly from our ending third quarter total ARR balance of $624 million.\nOur subscription ARR of $134.7 million is an increase of more than 20% year over year and 3% sequentially from the third quarter.\nTotal GAAP revenue for the full year ended December 31, 2021, was $719 million.\nSubscription revenue was $125 million of that total and represents growth of 19% year over year on a GAAP basis.\nThe growth was led by our continued focus on expanding our subscription offerings through our on-premises subscription sales, as well as sales of our database offerings, including the SentryOne products acquired in the fourth quarter of 2020.\nTotal license and maintenance revenue for the full year in 2021 decreased 3% year over year to $594 million.\nTotal maintenance revenue grew 2%, reaching $479 million.\nLicense revenue for the full year was negatively impacted by a combination of the 2021 cyber incident and the impact of offering perpetual license products on a subscription basis, which we expect to yield more revenue over the full duration of a typical customer lifetime but negatively impacts license revenue and total revenue in the near-term.\nWe finished 2021 with 829 customers that have spent more than $100,000 with us in the last 12 months, which is a 5% improvement over the previous year.\nWe continue to supplement our traditional high-velocity, low-touch sales approach with targeted efforts to build larger relationships with our enterprise customers, which we spoke about at our Analyst Day in November.\nWe delivered a solid fourth quarter of non-GAAP profitability.\nFourth quarter adjusted EBITDA was $78.4 million, representing an adjusted EBITDA margin of 42%, exceeding the high end of the outlook for the quarter despite continuing to invest in our business.\nAnd for the year ended December 31, 2021, adjusted EBITDA was $303 million, representing an adjusted EBITDA margin of 42% as well.\nExcluded from adjusted EBITDA in the fourth quarter are one-time costs of approximately $9.3 million of cyber incident related remediation, containment, investigation and professional fees, net of insurance proceeds.\nThese one-time costs for the full year of 2021 totaled approximately $33.1 million net of insurance reimbursements.\nThese cyber incident-related costs are not included in the adjusted EBITDA, are one-time and nonrecurring.\nThey are separate and distinct from our Secure by Design initiatives, which are aimed at enhancing our IT security and supply chain processes.\nCosts related to our Secure by Design initiatives are and will remain part of our recurring cost structure on a go-forward basis.\nWe expect one-time cyber incident-related costs to fluctuate in future quarters, but to overall, lower in future periods.\nThese one-time cyber costs are, however, difficult to predict.\nNet leverage on December 31 was approximately 3.9 times our trailing 12-month adjusted EBITDA.\nAs a reminder, we retained the full amount of the $1.9 billion in term debt that we had prior to the spin-off of N-able.\nOur cash balance was $732 million at the end of the fourth quarter, bringing our net debt to approximately $1.2 billion.\nOur plan is to keep that cash on our balance sheet for the foreseeable future.\nWe intend to maintain flexibility as it relates to our cash on balance sheet.\nOur debt matures in February of 2024, and we expect to reevaluate our level of gross debt and possible paydowns well in advance of that maturity date.\nI will now walk you through our outlook before turning it back over to Sudhakar for some final thoughts.\nWe are providing guidance for the first quarter of 2022 and for the full year of 2022 for total revenue, adjusted EBITDA margins and earnings per share.\nFor the full year guidance of 2022, we expect total revenue to be in the range of $730 million to $750 million, representing year-over-year growth of 2% to 4%.\nWe expect our total revenue to be positively impacted by increases in our license revenue, as well as subscription revenue growth as a result of an increase in new sales in 2022 as compared to 2021.\nWe will lead with a subscription-first focus as it relates to new sales, and we'll also focus on migrating our maintenance customers to our observability products, which are sold as subscriptions, especially in the second half of the year when we expect that more of the functionality will be available.\nWe expect that our total revenue growth will be partially offset by a decline in maintenance revenue due to lower license sales over the past two years.\nAdjusted EBITDA margin for the year is expected to be approximately 41%.\nNon-GAAP fully diluted earnings per share is projected to be $1.01 to $1.08 per share, assuming an estimated 162.6 million fully diluted shares outstanding.\nOur full year and first quarter guidance assumes a euro to dollar exchange rate of 1.13 down from the 1.16 we assumed for 2022 when we provided our initial 2022 outlook at our Analyst Day in November.\nEven so, we are comfortable reaffirming the guidance we gave previously.\nFor the first quarter of 2022, we expect total revenue to be in the range of $173 million to $176 million, representing a year-over-year growth rate of flat to 1%.\nOnce again, we expect license and subscription revenue growth to be partially offset by a decline in maintenance revenue, which we expect to be down approximately 4% to 5% year over year.\nAdjusted EBITDA margin for the first quarter is expected to be approximately 36%.\nOur historical trend has been that the first quarter of the year is at a lower level of profitability due to several factors, including payroll taxes on year-end bonuses, higher levels of social security taxes.\nIn addition, the full impact of our Secure by Design initiatives that we discussed a year ago are now in place.\nWe expect our level of profitability to improve as we move through the year as has been the case historically as revenue increases and our investments scale.\nAs stated earlier, our outlook for the full year for adjusted EBITDA margins of approximately 41%.\nNon-GAAP fully diluted earnings per share is projected to be $0.22 per share, assuming an estimated 160.5 million fully diluted shares outstanding.\nAnd finally, our outlook for the first quarter assumes a non-GAAP tax rate of 22%, and we expect to pay approximately $6.5 million in cash taxes during the first quarter.\nWe also expect that maintenance renewal rates will improve and continue to get closer to historical levels in 2022.\nAs we think about our EBITDA margins for 2022, the costs associated with our Secure by Design initiatives, investments in transitioning our product portfolio to a greater subscription mix and our continued investments in our sales and marketing initiatives are factored into the margins for the year and while we expect margins to be consistent with 2021.\nWe believe we will return to accelerating margins again in the future, but in the near-term, we are committed to and excited about the investments in our business that we shared with you at our Analyst Day in November.\nFinally, we believe our unlevered free cash flow conversion will improve in 2022 over 2021 and we expect to be in line with our fourth quarter 2021 levels.\nI'm pleased with our strong Q4 performance, exceeding our outlook in both total revenue and adjusted EBITDA and with how we ended 2021.\nWe are executing our mission to help customers accelerate their business transformation via simple, powerful and secure solutions for multi-cloud environments.\nI'm excited about accelerating our ability to serve our customers and to grow our business.\nWe expect to deliver strong license and subscription growth in 2022 via continued execution of our strategy.\nIn 2022, we will continue our journey of subscription growth with unified platforms, superior customer experiences, expanding go-to-market motions and a growing list of applications as the foundations for this growth.\nWe will continue to exercise discipline in how we invest in our business in order to deliver a unique combination of growth and profitability that we believe represents a compelling investment opportunity.",
        "summary": "sees fy non-gaap earnings per share $1.01 to $1.08.\nsees q1 revenue $173 million to $176 million.\nsees fy revenue $730 million to $750 million.\nq4 revenue rose 0.6 percent to $186.7 million.\nsees q1 2022 non-gaap diluted earnings per share of $0.22."
    },
    {
        "text": "Our quarterly reports and our definitive proxy statements for the special meeting regarding the Indigo transactions all are filed with the Securities and Exchange Commission.\nAlthough, we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results on developments may differ materially, and we are under no obligation to update them.\nWe may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers.\nWe appreciate you joining us today and I hope that you're all safe and well.\nHis strategic perspective and disciplined approach really complement our existing strategy and our management team.\nI look forward to working with both of these talented leaders as we continue to execute our strategy to enhance sustainable value for our shareholders.\nSouthwestern Energy's returns driven strategy focuses on creating sustainable value protecting financial strength, consistently delivering leading operational and financial results and pursuing opportunities to capture the benefits of increasing scale.\nAt the core of our strategy and value proposition is a commitment to the right people doing the right things.\nOur success depends on the alignment and commitment of a fully engaged diverse and inclusive workforce nurtured by our high performing innovative and value-driven culture.\nIn the second quarter, we took additional steps to deliver further value enhancements from our strategy and action.\nThe highlight of the quarter was the announced acquisition of Indigo Natural Resources.\nThe integration planning process is going well and ahead of schedule.\nThe shareholder vote is set for August 27 and we expect to close shortly thereafter.\nThis transaction expands the scope and scale of our Company by combining core positions across the country's two premier natural gas basins and accelerates the delivery of key financial and strategic objectives.\nBecause of Indigo's low-cost structure and strong balance sheet, we expect to see immediate accretion to key financial metrics, including improvement in corporate returns and increase in free cash flow and the accelerated delivery of our deleveraging goal later this year.\nIndigo furthers our sustainable value creation strategy by expanding our overall opportunity set and moderating risks to our business.\nThe expansion in the Haynesville adds Tier-1 dry gas inventory locations that complement our existing Appalachia inventory.\nThese locations are adjacent to premium gas markets including LNG and other growing demand centers.\nNotably, the firm sales agreements and fixed basis differentials will expand the Company's margins and dampen its overall basis volatility.\nSWN is well positioned to capture the many tangible benefits of scale that this transaction brings including cost economies, expanded inventory and further capital allocation optionality.\nThe benefits improve the sustainability of our free cash flow generation, particularly as commodity prices continue to improve.\nWe are on track to deliver the promised synergies at closing and furthermore we see the potential for additional value enhancements once the transaction closes from operational and commercial improvements, a strengthened credit self [Phonetic] profile and a lower cost of capital.\nWe are proven integrators and I'm confident that our new combined Haynesville team will find ways to deliver additional value from our newly integrated business.\nSWN's commitment to sustainability goes beyond the economics of a scale-enhancing transaction like Indigo, it is the ultimate objective of our ESG strategy as well.\nResponsibly sourced gas is one of our key initiatives.\nThis quarter, we implemented a basinwide program to certify and continuously monitor all of our Appalachia Basin unconventional wells through an agreement with Project Canary.\nWe have a long history with the firm as we've been marketing responsibly sourced gas for several years to end users in the Eastern United States.\nWe specifically selected a certification provider that utilizes a rigorous and comprehensive process.\nThe basinwide well certification process and site monitoring has begun and we have already installed continuous monitors at several operating sites across our Pennsylvania acreage enabling our operating teams to immediately address potential emissions should they occur.\nSouthwestern is a leading natural gas producer that is well positioned for a low-carbon future.\nWe have a unique combination of a strong balance sheet, large scale Tier-1 operated assets, proven execution and ESG performance providing the means to deliver sustainable value creation.\nWe continue to believe disciplined consolidation and the benefits of scale are core to our strategy for driving shareholder value.\nWe remain committed to holding capital investment at maintenance capital levels and disciplined in our risk management strategy including hedging.\nOver the next few quarters, we will further refine our capital allocation strategy including additional debt reduction and the potential return of capital to shareholders.\nOperationally, 2Q was another active quarter and our teams continue to deliver results within our guidance ranges while ensuring the continued protection of our people and our operations from the ongoing challenges presented by COVID-19.\nOur 2021 plan is on track and we look forward to operating in the Haynesville.\nI'll start with some highlights from the quarter.\nTotal production was 276 Bcfe or 3 Bcfe per day.\nThis included 2.4 Bcf per day of gas representing 79% of total production and approximately 104,000 barrels per day of oil and NGLs flat to the first quarter and consistent with our maintenance capital program.\nDuring the quarter, we averaged five drilling rigs, two in Pennsylvania, two in West Virginia and one in Ohio with two frac crews.\nAs planned, we invested $259 million of capital in the quarter and expect Q3 to trend lower with a further decrease in Q4.\nThe shaping of our maintenance capital investment in 2021 is consistent with our well-established approach of front-end loading and tapering in the second half of the year.\nWe brought 31 wells to sales in the quarter, drilled 23 and completed 19.\nCosts on wells to sales were in line with the first quarter at $626 per foot with an average lateral length of approximately 14,000 feet.\nWhile we are starting to see some inflationary impacts mainly related to diesel, steel and labor, due to our vertical integration proactive procurement strategy and operational efficiency gains, we continue to expect low-single-digit deflation in 2021.\nIn Southwest Appalachia, we brought online our first Ohio Utica dry gas pad and achieved our $100 per foot cost reduction goal with an average well cost of $728 per foot.\nThis three well pad had an average lateral length of approximately 13,700 feet and an average 30-day rate of 25 million cubic feet per day, all performing in line with expectations.\nIn Northeast Appalachia, we continue to drive operational efficiencies to reduce costs and enhance the capital program returns.\nWe placed 11 wells to sales in the quarter with an average well cost of $531 per foot at an average lateral length of approximately 11,600 feet.\nThese wells had an average 30-day rate of 14 million cubic feet per day.\nAs Bill mentioned, we are excited to join with our newest colleagues from Indigo and hit the ground running in the Haynesville.\nWe are currently doing our operational technical and HSE planning and we'll have a great operating team in place that represents a combination of employees from both Indigo and SWN.\nInitially, we will be focused on incorporating current Haynesville best practices and then look to combine that knowledge with our own operational expertise.\nI'm excited to join the team and help build on the momentum SWN has generated through its base business and acquisition progress.\nAs Bill mentioned earlier, this quarter, the Company accelerated delivery on its financial goals.\nIt generated free cash flow for the third consecutive quarter.\nWe're on track with the 2021 plan to generate meaningful annual free cash flow, expecting free cash flow generation to accelerate in the second half of this year.\nOnce the transaction closes, we will provide updated guidance to account for the addition of Indigo.\nThe solid quarterly financial results further improved our leverage ratio by almost half turn to 2.6 times.\nLiquidity remains in good shape with just under $570 million in borrowings and $1.2 billion of capacity on a credit facility.\nWith the accretive acquisition of Indigo and current robust commodity price outlook, we expect to achieve our two-time sustainable leverage goal by late 2021.\nThe key part of achieving this financial strength has been SWNs commodity and basis hedging strategy, which is directly linked with Company's enterprise risk management strategy.\nThe Company incorporates balance sheet strength leverage, commodity and basis fundamentals and the benefits to the Company's financial strength resulting from acquisitions among other aspects in determining the level and instruments hedging that will be employed.\nAs a result of our basis hedging strategy, the Company maintained its full year guidance despite widening basis in Appalachia.\nAs we integrate Indigo and update our capital allocation strategy in the coming months, we continue to ensure that our commodity and risk management strategy and practice remains aligned with the Company's risk profile in our long-term value creation objectives.",
        "summary": "qtrly total production 276 bcfe versus 201 bcfe.\nmaintains its full year 2021 price differential guidance before impact of indigo acquisition."
    },
    {
        "text": "With that, I'll now turn things over to Mike.\nThe dedication of our team is clearly visible through our excellent safety performance, where we achieved zero recordable injuries during the first quarter, a record for our company.\nIn the -- from the coronavirus front, we continue to take all necessary measures to ensure the health and safety of our workforce and have implemented policies and procedures that follow the guidelines established by the CDC, OSHA and local health and governmental authorities to protect our workforce and contractors.\nTurning to our results.\nIn the quarter, we were extremely pleased with the operational performance that our team delivered across both our Coke and Logistics segments.\nOur coke making operations returned to running at full capacity and our logistics operations saw a significant uptick in volume.\nWe achieved record-setting first quarter results with adjusted EBITDA of $70.6 million, a 14% improvement over Q1 2020.\nWe are also pleased with our initial performance in the foundry and export coke markets.\nOur products are well received and we are excited about the possibilities in these markets in the future.\nWe will continue to work on optimizing our production and growing our market participation for these products.\nA very encouraging development for our Logistics segment this quarter was the signing of a new take or pay agreement to handle iron ore pellets at CMT. As we discussed in our last call, we successfully tested this product during the fourth quarter of last year, which has resulted in a take or pay agreement and a new product for our logistics business.\nLooking at our capital structure and deployment of cash in the first quarter, we reduced debt by $33 million during the quarter and continued to execute on our deleveraging initiative, while also maintaining our $0.06 per share quarterly dividend.\nWe are well on our way to achieving our long-term gross leverage target of 3 times or lower by the end of this year.\nOverall, very strong operational and financial performance in the first quarter provides a solid foundation to build on for the rest of the year.\nWe now expect results at the top end of our 2021 guidance of $215 million to $230 million.\nTurning to Slide 4.\nOur first quarter net income attributable to SXC was $0.20 per share, up $0.14 versus the prior-year period, mainly driven by our Logistics segment performance.\nAdjusted EBITDA came in at $70.6 million in the first quarter of 2021, up $8.5 million versus the first quarter of 2020.\nThe increase was primarily due to approximately 1.1 million tons of higher throughput volumes at our Logistics segment.\nTurning to the detailed adjusted EBITDA bridge on Slide 5.\nFirst quarter 2021 adjusted EBITDA was higher by $8.5 million or 14% over the prior year period.\nOur coke operations performed well this quarter and results were reasonably consistent with the first quarter of 2020.\nThe majority of the period over period increase in adjusted EBITDA was driven by our Logistics segment and CMT saw a significant increase in coal export volumes driven by strong global demand and supported API2 pricing.\nWhen adding in slightly favorable results in corporate and other, we ended first quarter at $70.6 million of adjusted EBITDA.\nTurning to Slide 6 to discuss our Domestic Coke business performance in detail.\nFirst quarter adjusted EBITDA per ton was $61 on 1,038,000 sales ton.\nOur Domestic Coke fleet ramps back up to full capacity utilization during the first quarter of 2021 after the volume turned down in the second half of 2020.\nFoundry and export sales complemented our long-term take-or-pay contracted sales and are expected to continue to do so for the rest of 2021.\nAs a reminder, foundry tons do not replace blast furnace tons on a ton per ton basis.\nFor example, due to differences in the production process, a single ton of foundry coke replaces approximately 2 tons of blast furnace coke leading to lower coke production in sales in the current quarter as compared to the first quarter of 2020.\nOur coke plants continued their strong operational performance and disciplined cost management during the quarter, while producing and selling new products.\nOn the back of strong first quarter '21 -- 2021 performance, we are on track to achieve our full year Domestic Coke adjusted EBITDA per ton and production guidance.\nMoving to Slide 7 to discuss our Logistics business.\nThe Logistics business generated $10.9 million of adjusted EBITDA during the first quarter of 2021 as compared to $3.3 million in the prior year period.\nThe increase in adjusted EBITDA is primarily due to higher throughput volumes at CMT. Our Logistics business handled 5.3 million tons of throughput volumes during the quarter as compared to 4.2 million tons during the prior-year period.\nCMT handled 1.6 million more tons versus the prior-year period, mainly driven by higher coal exports and iron ore.\nIncreased global demand, strong API2 index pricing and increasing natural gas prices have resulted in higher thermal coal exports from the US.\nWe expect export volumes to remain strong in the second quarter.\nAlthough our domestic terminals volumes were lower compared to the first quarter of 2020, it was more than offset by lower operating costs resulting from the cost savings initiatives implemented last year.\nGiven our very strong first quarter 2021 results and looking at the API2 forward curve, we now expect to deliver at the higher end or possibly even exceed our Logistics adjusted EBITDA guidance range of $20 million to $25 million.\nWe expect to handle approximately 5 million tons of coal at CMT as compared to our original guidance of 4 million to 5 million tons, along with 2.5 million to 3 million tons of other products for which the guidance remains unchanged.\nThe volume guidance for our domestic coal terminals also remains unchanged at approximately 10.5 million ton.\nTurning to Slide 8 and our liquidity position for Q1.\nAs you can see from the chart, we ended the first quarter with a cash balance of approximately $54 million.\nCash flow from operating activities, generated close to $65 million due to strong operating performance and the timing of cash payments.\nWe spent $20.1 million on capex during the quarter, which included some carryover payments from last year.\nWe lowered our debt by $33 million during the quarter, with the majority of the reduction coming in the form of pay downs on our revolving credit facility.\nWe expect additional deleveraging to continue over the balance of the year as we continue to make good progress managing our balance sheet.\nWe also paid dividends worth $5.1 million at the rate of $0.06 per share during the quarter.\nIn total, we ended the quarter with a strong liquidity position of approximately $386 million.\nWrapping up on Slide 9.\nAs always, safety and operational performance is top of mind for our organization.\nWe want to continue our exceptional safety performance demonstrated in the first quarter, while focusing on successfully executing against our operating and capital plan in 2021.\nAs I mentioned earlier, we are pleased with the progress we have made during the first quarter on our foundry and export coke growth initiatives.\nThese additional sales, enable our coke fleet to run optimally at full capacity and we will continue to focus on further developing our customer base and participation in these markets.\nFrom our Logistics business perspective, the new iron ore take-or-pay agreement is another step in the direction of revitalizing CMT as we continue our efforts to bring new products and customers.\nThe uptick in coal exports underpinned by the revised take-or-pay contract provides a strong foundation to further build upon at CMT. We again made good progress on our well established and well balanced capital allocation goals, continuing to bring down our debt balance is critical to stabilizing and strengthening our capital structure.\nWe will continue to evaluate capital needs of the business, our capital structure and the need to reward shareholders on a continuous basis and we'll make capital allocation decisions accordingly.\nFinally, as I stated earlier, continued strength in steel and coal export markets combined with our excellent first quarter results leads us to comfortably project full-year results at the high end of our adjusted EBITDA guidance.\nWe will provide further updates to the guidance as we have more clarity about the second half of the year in our next earnings call.\nWith that, let's go ahead and open up the call for Q&A.",
        "summary": "q1 earnings per share $0.20.\nwell positioned to achieve top end of full year 2021 adjusted ebitda guidance range of $215m to $230m."
    },
    {
        "text": "I will then review our segment performance.\nAdemir will follow with a discussion of our consolidated results and financial position.\nFinally, I will conclude with comments on our outlook and key takeaways.\nOverall, fiscal first quarter results were ahead of our expectations on several fronts reflecting stronger-than-anticipated demand and solid operational execution, particularly at our Electronics, Engraving and Scientific segments.\nConsolidated revenue increased 8.5% sequentially.\nThis is ahead of the outlook we provided previously of fiscal first quarter 2021 revenue being flat to slightly above the fourth quarter of 2020.\nAt the Electronics segment, revenue increased 23% sequentially and 18.6% year-on-year, reflecting positive trends in magnetics as well as contribution from the recent Renco acquisition.\nSequentially, Engraving operating margin increased 800 basis points to 16.1% due to cost efficiency and productivity initiatives on 15.1% revenue growth compared to fiscal fourth quarter 2020.\nFinally, the Scientific segment reported its highest quarterly sales ever at $16.7 million.\nEarlier this year, we divested our Refrigerated Solutions business and established Scientific as a stand-alone reporting segment, both actions advancing our strategy to build our higher-margin segments.\nIn particular, the Scientific segment's results reflected increased demand for seasonal flu vaccine storage as well as initial sales related to potential COVID-19 vaccines.\nIn addition, our Electronics new business opportunity pipeline is healthy at $56 million across a wide variety of end markets.\nWe expect the sales contribution from this pipeline to grow sequentially on an annual basis.\nIn Engraving, we see continued opportunity in the tool finishing and soft trim tool laneways globally.\nWe are leveraging these top line trends with stronger operating disciplines in all businesses, complemented by several financial initiatives.\nWe are on track to deliver over $7 million in savings in fiscal 2021 from the actions we announced in the third quarter of fiscal 2020.\nWe also began to implement tax savings initiatives in the quarter, including optimizing our foreign tax credits.\nWe expect our tax-related actions to result in cash savings of $2 million to $3 million in fiscal 2021.\nAs a result, our tax rate in fiscal '21 is expected to be approximately 22% or 500 basis points lower than fiscal 2020.\nWe also expect to realize $1.5 million in cash savings in fiscal '21 due to our previously announced floating-to-fixed-rate interest swaps.\nWe continue to maintain a strong financial position with a solid balance sheet and significant liquidity supported by consistent free cash flow generation.\nStandex has -- had approximately $206 million of available liquidity at the end of the fiscal first quarter with a net debt-to-adjusted EBITDA ratio of 1.1.\nDuring the quarter, we generated free cash flow of $4.4 million.\nWe also continued our cash repatriation efforts with approximately $8 million repatriated in the first quarter.\nWe expect to repatriate $35 million in total in fiscal '21, which would result in $74 million in cash repatriated over the past two fiscal years.\nIn sum, we are off to a solid start and expect continued growth and margin improvements as we move through fiscal '21.\nOur financial flexibility will continue to strengthen through free cash flow generation, cash repatriation and new tax initiatives.\nIn our fiscal second quarter of '21, we expect consolidated revenue to be flat to slightly above the first quarter with a slight-to-moderate increase in segment operating margin.\nElectronics segment revenue increased $8.7 million or 18.6% year-on-year, reflecting a 3.9% organic growth rate with strength in the Magnetics product line and $5.9 million from the recent Renco acquisition or approximately 12.6%.\nThe balance of the revenue increase is related to foreign currency impact.\nAdjusted operating income increased approximately $1 million or 12.7% year-on-year, reflecting operating leverage on the revenue growth, productivity initiatives and Renco Electronics' profit contribution, partially offset by inflationary material cost increases.\nOur new business opportunities funnel has increased to $56 million and is expected to deliver $11 million of incremental sales in FY '21 across a broad range of end markets, including industrial, electrical vehicles, safety systems and military.\nWe are also very pleased with the pace of integration of our sales channels with Remco.\nIn three months, we've identified over $1 million of cross-selling opportunities in each other's accounts, ahead of our expectations.\nIn terms of our second quarter fiscal 2021 outlook, we expect revenue to be sequentially slightly higher and operating margin to be sequentially similar to the fiscal first quarter.\nOur outlook assumes improvement in European and North American markets with Asia results slightly below fiscal first quarter of '21.\nRevenue decreased approximately $2 million or 5.3% year-over-year, and operating income was lower by approximately $600,000 or 10.2%.\nThe results reflected the impact of COVID-19 on our end markets, partially mitigated by productivity and expense savings in the quarter.\nHowever, sequentially from Q4 fiscal '20, Engraving reported a significant improvement as revenue increased 15.1% and operating margin improved 800 basis points, reflecting an overall increase in the level of customer activity combined with cost efficiency and productivity initiatives, which will continue with the segment.\nLaneway sales are recovering quickly from Q4, growing by 27% sequentially to $11.7 million, nearly back to pre-COVID levels on strength in tool finishing offering and soft trim tools.\nI'm pleased to see the progress our North American Engraving business has made improving labor management through standard work and better capacity planning.\nOur Corporate VP of Operations, hired in February, is collaborating with business management to improve operating procedures and drive efficiencies.\nIn addition, the completion of our global ERP platform will allow additional analysis and improved performance management across all major global sites to further drive consistent performance.\nAs far as second quarter outlook on a sequential basis, Standex expects a slight revenue increase and continued improvement in operating margin in the fiscal second quarter of '21.\nThe expected revenue growth reflects an increased level of customer activity due to new automotive launches, along with continued introduction of soft trim tools and tool finishing offerings.\nWe expect to see continued margin improvement from the volume increase, combined with continued cost efficiencies and productivity initiatives.\nTurning to slide six, the Scientific segment.\nScientific segment revenue increased approximately $1.9 million or 13% year-on-year, reflecting organic growth in end markets, especially retail pharmaceutical chains.\nThe sales growth reflects distribution and storage of vaccine for the coming flu season as well as a few initial orders for COVID vaccine storage.\nOperating income increased approximately $400,000 or 10% year-over-year, reflecting revenue growth, partially offset with reinvestments in the business for future growth opportunities.\nThe picture highlights our under-counter cabinet used for storage of refrigerated and frozen medications and vaccines.\nStandex is well positioned with strong distribution channels for a leading role in a potential COVID-19 vaccine rollout.\nIn the second quarter, we expect to see a sequential and year-on-year revenue increase, driven primarily by continued positive trends in retail pharmaceutical chains and clinical end markets, and accelerated by the expected rollout of a national COVID vaccine.\nWe expect operating margin to slightly improve, reflecting volume increase, balanced with reinvestment for future growth opportunities.\nLooking further, we expect Scientific revenue growth sequentially and year-on-year in fiscal '21 with approximately $10 million to $20 million of incremental sales to support COVID vaccine storage.\nTurning to the Engineering Technologies segment on slide seven.\nAs expected, Engineering Technologies had a challenging quarter.\nRevenue and operating income decreased $7 million or 28.4% and $2.9 million or 86% year-on-year, respectively.\nThe first quarter results reflected the economic impact of COVID-19 on the commercial aviation market, especially engine parts manufacturing.\nHowever, we continue to experience positive trends in the unmanned segment of the space industry and defense sales.\nIn our second quarter, we expect revenue to be sequentially similar to the first quarter as a result of continued weakness in the Aviation end market.\nOperating margin is expected to increase slightly sequentially despite Aviation end market trends as a result of productivity initiatives, and cost reduction activities, which are ongoing.\nWe are pleased to show the progress of our efforts to expand capacity in our Billerica plant using lean processes.\nAs a result of set of time reduction, improved layouts and process improvements, we have increased throughput 20%, positioning us well to support continued growth in our space end markets and deliver higher margins.\nSpecialty Solutions revenue and operating income decreased year-on-year, although is in line with our expectations that results would be sequentially similar to the fiscal fourth quarter of 2020.\nRevenue decreased approximately $6.2 million or 19.7% year-over-year.\nThe decrease was primarily associated with the economic impact of COVID-19 on several end markets, including the food service equipment and hospitality industries at the Pumps and Merchandising businesses and the dump markets at Hydraulics.\nOperating income decreased approximately $1.7 million or 30.9% year-over-year, reflecting lower volume, partially mitigated by cost reduction efforts.\nTo partially offset these trends, we pursued additional opportunities focused on strengthening the segment's margin profile.\nWe continue to allocate hydraulics capacity to higher-value opportunities, particularly aftermarket sales.\nWe have also closed a Pumps operation in Ireland and outsourced the components previously manufactured there to save approximately $1 million annually.\nThe other end markets are down from the effect of COVID-19.\nThe businesses continued to utilize our growth discipline processes to work with customers on promising future opportunities.\nThe example pictured here is a pump control system that houses eight pumps along with the electronic controls and diagnostics.\nThis is a good example of the business using a structured approach to explore new growth opportunities in an inexpensive manner.\nAs far as outlook, in fiscal quarter -- the second quarter 2021, we expect revenue and operating margin to decline slightly sequentially due to normal seasonality and the lower number of shipping days in the quarter.\nFirst, I will provide a few key financial takeaways from our fiscal first quarter 2021 results.\nOverall, results were ahead of our expectations, specifically revenue at Electronics and Scientific segments was higher than anticipated.\nStrength in the Magnetics product line at our Electronics segment and vaccine-related storage demand at our Scientific segment benefited results in the quarter.\nIn addition, our cost efficiency and operational initiatives, which will continue throughout the fiscal year, are providing a tailwind to our results.\nAs previously communicated, we are well positioned to deliver over $7 million in annual savings related to cost actions.\nOur financial position remains strong with substantial liquidity and low leverage, complemented by consistent cash flow generation and ongoing cash repatriation efforts.\nIn addition, we have also implemented several initiatives in the area of tax planning and interest expense that will further add to our cash position.\nOn a consolidated basis, total revenue declined 3% year-on-year to $151.3 million.\nThis reflects organic revenue decline of 8.2% year-on-year, mostly due to the economic impact of the COVID-19 pandemic.\nAs we expected, this impact was felt primarily at Engineering Technologies segment due to weakness in the Aviation end market, and at the Specialty Solutions segment due to weakness in the food service equipment and hospitality industries.\nThe Renco acquisition, which closed in early July, contributed revenue of $5.9 million or a 3.8% offset to the organic revenue decline.\nIn addition, FX contributed 1.4% offset to the organic revenue decline.\nGross margin decreased 70 basis points, primarily due to a decline in volume and increased material costs year-on-year, mostly in Electronics.\nOn a sequential basis, gross margin increased 290 basis points reflecting cost outcome productivity actions and favorable product mix.\nOur adjusted operating margin was 11% compared to 11.3% a year ago.\nInterest expense decreased approximately $600,000 year-on-year mostly due to lower overall interest rate as a result of the variable-to-fixed-rate swap we implemented in the fiscal third quarter of 2020.\nIn addition, the tax rate of 22% in the quarter represents 580 basis points decrease year-on-year, largely due to various tax planning strategies we have started to implement.\nAdjusted earnings per share were $0.96 in the first quarter of 2021 compared to $0.91 in the first quarter of 2020.\nWe remain a consistent generator of free cash flow.\nWe reported free cash flow of $4.4 million compared to $2.8 million in the first quarter of 2020.\nThis increase primarily reflects a lower capital spending with $4.8 million in the first quarter of 2021 compared to $6.7 million a year ago.\nCapital investments in the first quarter of '21 were focused on maintenance, safety and our highest priority growth initiatives.\nStandex had net debt of $106.2 million at the end of September compared to $80.3 million at the end of June of 2020.\nIncrease in net debt is due to the Renco acquisition, which was financed with cash on hand.\nNet debt for the first quarter of 2021 consisted primarily of long-term debt of $200 million and cash and cash equivalents of $93.7 million, out of which $75.7 million was held back for in subs.\nWe also had approximately $206 million of available liquidity at the end of September.\nThe company's net debt-to-adjusted EBITDA leverage was 1.1 with a net debt-to-total capital ratio of 18.2%, and interest coverage ratio of approximately 9.9 times.\nWe also continue to proactively identify opportunities to further add to our financial strength.\nWe have started to implement several tax planning and saving initiatives, including implementation of strategies to optimize U.S. tax cost on global intangible low tax income, implementation of various foreign tax credit optimization strategies that are expected to provide us the ability to utilize additional credit, and the filing for amended returns to take advantage of regulations that have recently been finalized.\nAs a result, our tax rate in fiscal 2021 is expected to be approximately 22% or 500 basis points lower than fiscal 2020.\nWe expect these actions will result in cash savings of $2 million to $3 million in fiscal 2021.\nWe also expect approximately $1.5 million in annual interest expense savings due to the previously announced floating-to-fixed-rate interest swaps.\nWe also repatriated $8 million in the first quarter and expect to repatriate $35 million this fiscal year.\nFrom a capital allocation perspective, we had an active quarter.\nEarlier in the quarter, we announced the acquisition of Renco Electronics for approximately $28 million, which was financed with cash on hand.\nWe also repurchased approximately 87,000 shares for $5.1 million in the quarter.\nThere's approximately $38 million remaining under the Board's current repurchase authorization.\nWe declared our 225th consecutive quarterly dividend of $0.24 per share, a year -- a 9% year-over-year increase.\nAnd finally, we expect capital expenditures to be approximately $25 million to $28 million compared to a prior expected range of between $28 million to $30 million and actual expenditures of $19 million in fiscal 2020.\nIn the second quarter of fiscal 2021, we expect consolidated revenue to be flat to slightly above the first quarter of 2021 with a slight-to-moderate increase in operating margin.\nSeveral assumptions underpin this outlook.\nWe expect the Electronics and Engraving segments to have a slight sequential revenue increase due to an increased level of customer activity.\nAt Scientific, we expect a moderate sequential revenue increase as end market momentum builds to prepare for vaccine delivery.\nEngineering Technologies revenue is expected to be similar to fiscal first quarter 2021 as commercial aviation markets stabilize, with a slight increase in operating margin from productivity and cost reduction activities.\nAt Specialty Solutions, we expect revenue and operating margin to decrease slightly, primarily due to seasonality and a lower number of shipping days in the quarter.\nIn general, we expect continued growth and margin improvement as we move through fiscal 2021.\nIn addition, we see attractive growth opportunities across the businesses.\nIn the near term, we anticipate the opportunity for COVID-19 vaccine storage to be between $10 million and $20 million in the fiscal year.\nThe growing funnel of opportunities in Electronics will deliver an incremental $11 million in sales in the fiscal year.\nPrevious cost actions complete and expected to deliver over $7 million in savings in fiscal '21.\nOperational excellence initiatives are gaining momentum across all businesses.\nWe are also strengthening financial flexibility with strong free cash flow generation, continued cash repatriation and new tax initiatives.\nIn sum, we're very well positioned to further build our higher-margin business segments into more significant platforms with customized, differentiated solutions, supported by deep technical and applications expertise.",
        "summary": "cost actions on track to deliver over $7 million in savings in fiscal 2021.\nqtrly adjusted earnings per share $0.96.\nin fiscal q2 2021, standex expects consolidated company revenue to be flat to slightly above fiscal q1 2021.\nin fiscal q2 2021, company expects moderate sequential revenue increase at scientific as vaccine storage demand rises.\nqtrly net sales $151.3 million versus $156.0 million."
    },
    {
        "text": "I'm very pleased with our first quarter results which reflected solid financial performance and an expanding pipeline of growth opportunities.\nStandex is a stronger company today as a result of well-executed portfolio moves and a higher level of performance of our businesses.\nWe continue to have a favorable outlook for fiscal 2022, and look forward to further successfully executing on our growth strategy.\nRevenue and consolidated adjusted operating margin increased significantly year-on-year in fiscal first quarter 2022 as we leveraged positive demand trends and converted new business opportunities from our pipeline.\nConsolidated organic revenue growth of approximately 17% year-on-year reflected strength at our Electronics and Scientific segment.\nElectronics revenue increased approximately 37% year-on-year, primarily due to a broad-based geographical recovery with continued solid demand for relays in renewable energy and electric vehicle applications along with positive trends in transportation, appliance, test and measurement and distribution end-markets.\nScientific segment revenue increased approximately 29% year-on-year driven by retail pharmacies, clinical laboratory, and academic institution end-markets.\nConsolidated adjusted operating margin of 13.4% was a 250 basis point year-on-year increase and represented our second consecutive quarter of delivering our highest consolidated margin in Standex's history.\nOur results also reinforce the benefit of our continued investment in end-markets that had healthy growth prospects and where we can incorporate our innovative solutions and strong customer value proposition.\nSequentially, total company backlog realizable in under one year increased approximately 12%, with strength, particularly at the Electronics, Specialty Solutions and Engraving segments.\nAt the Electronics segment, the new business opportunity pipeline continues to grow and we are seeing positive trends in such end-markets as electric and heavy duty vehicles, defense, industrial and aerospace.\nIn addition, Renco Electronics, which we acquired a little over a year ago is contributing to the growth of our opportunity pipeline as we realized sales synergies from cross-selling opportunities in our expanded customer base.\nAt the Scientific segment; we are also introducing a new product family, blood bank refrigerators and plasma freezers leveraging our expertise in life sciences and refrigeration to expand into adjacent markets.\nExecution on our active form of productivity and efficiency initiatives is further adding to our success.\nWe are driving manufacturing and supply chain productivity with actions including new lean programs and mitigating inflationary trends through price realization and value engineering.\nIn addition, our reed switch production and material substitution project at the Electronics segment continues to mitigate some of the material inflation we are seeing, and remains on-track to be substantially complete by the end of fiscal 2020.\nWe continue to have significant financial flexibility to pursue new organic and inorganic growth opportunities given our strong balance sheet and liquidity position and consistent cash flow generation.\nAdemir will discuss our financial performance in greater detail later in the call.\nIn regard to our financial outlook, we are off to a solid start to the fiscal year and continue to expect stronger financial performance year-on-year in fiscal 2022.\nIn the second quarter, we expect revenue and operating margin to increase slightly compared to fiscal first quarter 2022 and significantly compared to the year ago quarter.\nRevenue increased approximately $20.6 million or 37.2% year-on-year, including 36.1% organic growth reflecting continued broad-based geographic and end-market strength, as well as a 1.1% positive contribution from foreign exchange.\nOperating income increased approximately $9.1 million or 100% year-on-year due to operating leverage associated with revenue growth and productivity initiatives, partially offset by increased raw material and freight costs.\nLooking ahead, we have a very active new business opportunity funnel for approximately $61 million, which is expected to deliver first year sales of $19 million with positive trends across all major geographic areas and business units, and are well positioned to further capture additional customer business.\nElectronics backlog realizable under a year sequentially increased approximately $13 million or 11% in fiscal first quarter 2002.\nThe picture on Slide 4 highlights the success of our customer intimacy sales model in moving up the value stack in a customer's product.\nIn this example, we addressed a customer application in 2015 by supplying a packaged reed switch.\nThis led to the opportunity to develop an entire sensor in 2018 which expanded by incorporating additional functions in 2021.\nAs our collaboration evolved, so does our value provided reinforcing the importance of our strong technical and applications expertise.\nRegarding our fiscal second quarter 2022 outlook, we expect a slight sequential decrease in Electronics revenue and operating margin, reflecting a lower number of production and shipping days and product mix in the quarter.\nYear-on-year revenue decreased approximately $1.2 million or 3.4% and operating income was nearly $1 million lower or 17% decrease due to the timing of projects and geographic mix, partially offset by productivity actions.\nLaneway sales of approximately $14.9 million represented a 27% increase year-on-year, including a positive demand outlook for soft trim tools, laser engraving and tool finishing.\nSequentially, backlog realizable under a year increased $5.9 million or approximately 44% in fiscal first quarter 2002.\nThe picture highlighted on Slide 5 shows the Tesla Model Y version.\nThrough cross regional collaboration within the segment, and based upon our soft trim proprietary technology, we were able to supply two sets of tools, substantially faster than our competitors production capability, further driving our growth opportunity in the China market.\nIn fiscal second quarter 2022, we expect a slight sequential increase in Engraving segment revenue and operating margin.\nThis is due to the timing of projects, regional mix and demand for soft trim tooling complemented by the impact of additional productivity initiatives.\nTurning to Slide 6, the Scientific segment.\nRevenue increased approximately $4.9 million or 29.2% year-on-year reflecting positive trends at pharmaceutical channels, clinical laboratories and academic institutions.\nOperating income increased approximately $0.4 million or 10.6% year-on-year due to volume growth and pricing initiatives, balanced with investments to support future growth opportunities and higher freight costs.\nSequentially, backlog realizable under a year increased $1.6 million or approximately 27% in fiscal first quarter in fiscal 2022.\nSignificant orders in the quarter were placed to support replacement of ageing cabinets from retail pharmacy locations, a phenomenon we expect to expand as our installed base grows.\nAs highlighted on Slide 6, we have applied our growth discipline processes in a two-year development project to leverage our expertise and intellectual property in life sciences and refrigeration into adjacent product categories, and are introducing a new product family; blood bank refrigerators and plasma freezers.\nThis product launch includes two sizes of refrigerators and freezers designed for hospitals, blood banks and other medical, clinical and research facilities.\nThese products comply with all relevant industry requirements, including those from the FDA and the Association for the Advancement of blood biotherapies.\nIn fiscal second quarter 2022 we expect Scientific revenue and operating margin to be similar to our first quarter reflecting continued demand for vaccine storage accompanied by the return of demand from traditional end segments and pricing actions, partially offset by increased freight costs.\nTurning to the Engineering Technologies segment on Slide 7.\nFirst quarter revenue at $17.6 million was similar year-on-year due to positive trends in the space end-market balanced with the absence of the recently divested Enginetics and the economic impact of COVID-19 on this segments end-markets.\nOperating income increased approximately $0.4 million, representing a 91.7% increase year-on-year, reflecting product mix and ongoing productivity initiatives offset by a $1.1 million one-time project-related charge.\nWe have an active new business opportunity pipeline in both, space and aviation.\nIn addition, as highlighted on Slide 7, our opportunities are also expanding international defense end-markets.\nAs shown here, we are collaborating with customers to develop bulk head assembly and additional solutions for domestic and international armored vehicles, and I've also captured customer wins to develop nose-cone [Phonetic] adjacent products in next-generation missile program.\nRegarding our outlook; in fiscal second quarter 2022, we expect revenue to be sequentially similar with positive commercial aviation and defense trends, partially offset by project timing in the space end-market.\nHowever, we expect a significant increase in operating margin due to project mix, productivity initiatives and the absence of the one-time project-related charge which occurred in the first quarter.\nOn a year-on-year basis, Specialty Solutions revenue increased approximately $0.2 million, or slightly under 1%, and operating income decreased $1.1 million or 27.9%.\nFirst quarter results reflected end-market recovery, particularly in foodservice markets, offset by the impact of a prior work stoppage which has since been resolved.\nIn addition, we experienced material inflation which we are seeking to recover through pricing actions.\nWe have a very strong backlog position realizable under a year, which sequentially increased $8.7 million or approximately 33% in the first quarter.\nWe also continue to expand our merchandizing product portfolio.\nHighlighted on Slide 8 is the recently launched Vision Series available in heated, refrigerated and non-refrigerated options.\nDeveloped through Standex's GDP plus growth process, this is a ground-up redesign of our core product.\nThe new version of this product has several attractive features including modern styling with a very viewable and accessible product area.\nThe Vision Series can accommodate a significant amount of food product in a highly efficient footprint and is capable of running under a variety of conditions, including high temperature and humidity.\nIn regard to our second quarter Specialty Solutions outlook, we expect a moderate sequential increase in revenue and operating margin due to execution on our strong backlog position and the absence of the financial impact of the prior work stoppage.\nWe continue to focus on recovering material inflation through pricing actions.\nFirst, I will provide a few key takeaways from our fiscal first quarter 2022 results which exhibited strength across several important metrics.\nOrganic revenue growth of approximately 17% year-on-year reflected solid demand trends at Electronics and Scientific segments.\nIn addition, we continue to see overall healthy order trends across the company as we enter our fiscal second quarter.\nFrom a margin standpoint, adjusted consolidating operating margin of 13.4% increased both, sequentially and year-on-year, and represented our second consecutive quarter of highest margin in Standex's history.\nThe strong operating performance reflects several factors including effectively leveraging volume growth, realizing the benefits of price and productivity actions, and the positive impact of our prior strategic portfolio moves.\nAlso, our financial strength is supported by consistent free cash flow generation, which increased year-on-year.\nIn summary, we are entering our fiscal second quarter with positive order trends, active funnel of productivity initiatives, and an expectation for continued solid cash generation in fiscal 2022, all further adding to our strong financial position.\nOn a consolidated basis total revenue increased 16.1% year-on-year from $151.3 million in fiscal first quarter 2021 to $175.6 million this quarter.\nThis revenue increase primarily reflected strong organic growth at the Electronics and Scientific segments, and a positive contribution from foreign exchange.\nRevenue growth was partially offset by the divestiture of Enginetics business which occurred in the third quarter of fiscal 2021 and trends at the Engraving segment, which reflect the timing of projects.\nEnginetics contributed approximately $3 million in revenue in the fiscal first quarter of 2021.\nOn a year-on-year basis, our adjusted operating margin increased 250 basis points to 13.4%, reflecting operating leverage associated with revenue growth and the readout of price and productivity actions.\nThis was partially offset by a $1.1 million one-time project related charge at Engineering Technologies segment, and the financial impact of work stoppage in the Specialty Solutions segment which has since been resolved.\nAs expected, our tax rate increased to 25% compared to 22% in the first quarter of 2021.\nWe expect that second quarter tax rate will be similar to the first quarter rate, and that the overall tax rate for fiscal 2022 to be in the 24% range.\nAdjusted earnings per share was $1.34 in the first quarter of 2022 compared to $0.96 a year ago.\nWe generated free cash flow of approximately $8.1 million in the first quarter of 2022 compared to free cash flow of $4.4 million in the first quarter of 2021.\nWe continue to successfully execute on our financial initiative with working capital turns of 5.6 times, representing a 33% increase year-on-year.\nStandex had net debt of $68.9 million at the end of September compared to $63.1 million at the end of June, reflecting free cash flow of approximately $8.1 million offset by $9.5 million of stock repurchases along with dividends and changes in foreign exchange.\nOur net debt for fiscal first quarter of 2022 consisted primarily of long-term debt of $199.6 million.\nCash and cash equivalents totaled $130.7 million, with approximately $102 million held by foreign subs.\nWe had approximately $267 million of available liquidity at the end of September.\nOur net debt to adjusted EBITDA leverage ratio was approximately 0.58 times, with a net debt to total capital ratio of 11.8%.\nWe expect that we will repatriate approximately $35 million in cash in fiscal 2022.\nFrom a capital allocation perspective, we repurchased approximately 97,000 shares for $9.5 million in fiscal first quarter 2022, with approximately $12.5 million remaining on our current repurchase authorization.\nWe also declared our 229th consecutive quarterly cash dividend on October 28th of $0.96 per share, approximately 8% increase over the prior four quarterly dividend payments.\nFinally, we expect capital expenditures of approximately $25 million to $30 million in fiscal 2022.\nIn fiscal '22, we expect stronger financial performance year-on-year as we execute on the positive end-market trends we are seeing, and further drive ongoing productivity initiatives across our significantly strengthened portfolio.\nUnderpinning this outlook is a very active pipeline of growth opportunities with a positive trajectory in our new business opportunity funnel and new product introductions.\nWe are leveraging the significant number of growth opportunities in front of us through ongoing manufacturing and supply chain productivity actions including initiatives such as new lean programs and mitigating inflationary trends through price realization and cost consolidation efforts.\nOur strong balance sheet and liquidity position and consistent free cash flow generation position us very well to pursue both, organic and inorganic growth opportunities, and we remain opportunistic and disciplined in allocating capital.\nAs highlighted by some of the order trends discussed today, our approach is resonating with customers reflecting the strength of our deep technical and applications expertise and innovative solutions and reinforcing the value of our high quality businesses.",
        "summary": "qtrly net sales $175.6 million versus $151.3 million.\nqtrly adjusted earnings per share $1.34.\nin fiscal q2 2022, company expects revenue and operating margin to increase slightly compared to fiscal q1 2022."
    },
    {
        "text": "I will then review our segment performance and outlook.\nAdemir will follow with a discussion of our consolidated results and financial position.\nFinally, I will conclude with comments on the longer-term financial framework we are introducing today and conclude with takeaways.\nWe're very pleased with our fiscal second quarter results.\nWe had solid revenue growth at Electronics and Scientific segments year-on-year, while our Engraving segment margin improved sequentially.\nAt Electronics nearly half of the 31% year-on-year revenue increase reflected organic growth with positive trends in electric vehicles, general automotive, appliances and semiconductor equipment.\nScientific revenue continued to grow at a double-digit rate with a 16% year-on-year increase driven by strong demand for COVID vaccine storage.\nWe now believe that COVID related storage demand is likely to be at the higher end of our previously indicated $10 million to $20 million range in fiscal 2021.\nAt the Engraving segment, margin improved approximately 100 basis points sequentially due to favorable geographic mix, productivity and cost actions.\nLooking forward, our portfolio has never been in better condition and that's reflected in our outlook.\nWe exited the second quarter with several positive trends positioning us well for a stronger second half and fiscal 2021.\nOur total backlog realizable under one year was approximately $173 million at the end of the second quarter and approximately 14% sequential increase.\nThis reflected strength in the Electronics and Scientific segments and a gradual market recovery at Specialty Solutions.\nWe are also actively engaged with our customers on emerging global opportunities in end markets such as electric vehicles, renewable energy and 5G.\nIn addition, the integration of Renco Electronics is ahead of our initial plan and we are effectively leveraging its complementary customer base and end markets.\nWe also saw continued progress on our productivity and finance initiatives.\nWe are on track for over $7 million in annual savings in fiscal 2021 from cost actions and are implementing additional productivity and efficiency initiatives, which will provide further opportunity heading into fiscal 2022.\nAt the Electronics segment while we are addressing rhodium material inflation with price actions in the near term, we are also implementing new manufacturing processes over the next two years, which will allow us to offer customers a choice of switches with rhodium or other materials removing our exposure to rhodium inflation once and for all.\nFinally, our previously announced interest expense and tax rate initiatives resulted in an approximate 15% reduction in interest expense and 510 basis point reduction in tax rate year-on-year in the second quarter fiscal 2021.\nWe also further strengthened our financial profile in the quarter providing significant flexibility to pursue our portfolio of organic and inorganic growth opportunities.\nWe generated strong free cash flow of $17 million in the second quarter and through the first half of fiscal 2021 have achieved 95% free cash flow to net income conversion rate.\nDuring the quarter we also repatriated approximately $17 million from foreign subsidiaries and are on track to achieve our previously announced $35 million repatriation target in fiscal 2021.\nWe ended the quarter with a net debt to adjusted EBITDA ratio of 0.9 times, and approximately $200 million in available liquidity.\nIn regard to our fiscal third quarter 2021 outlook, we expect a moderate sequential revenue and operating margin improvement compared to fiscal second quarter 2021 results.\nThis reflects a sequential revenue increase at Electronics, Scientific, Engineering Technologies and Specialty Solutions segments.\nEngraving revenue is expected to decline sequentially reflecting both geographic mix and timing of projects, but return to growth in fiscal fourth quarter 2021 both sequentially and year-on-year.\nI will begin to discuss our segment financial performance starting with Electronics.\nIn the second quarter Electronics segment revenue increased approximately $14.3 million or 31.2% year-on-year to $60.1 million, supported by organic revenue growth of approximately 15%.\nOrganic growth reflected a broad based geographical recovery with positive trends in electric vehicles, general automotive, appliances and semiconductor equipment end markets.\nIn particular, as shown in the picture on Slide 4, we have a growing portfolio of content for the electric vehicle market including relays, planar transformers and coolant level and charging position sensors.\nThe recent Renco acquisition also contributed to our revenue growth in the quarter with approximately $6 million in incremental revenue contribution year-on-year.\nElectronics operating income increased approximately $2.2 million or 28.1% year-on-year from operating leverage associated with revenue growth, productivity initiatives and profit contribution from Renco, partially offset by increased raw material prices.\nOur new business opportunity funnel has increased to $56 million across a broad range of markets and is expected to deliver $12 million of incremental sales in fiscal 2021.\nSequentially in the third quarter, we expect a moderate increase in Electronics revenue and operating margin.\nWe expect further growth for relays in renewable energy and electric vehicle applications as well as recovery in reed switch demand in transportation end markets.\nOur near-term backlog is very healthy with backlog realizable under a year increasing $15 million or 25% sequentially in the fiscal second quarter.\nRevenue decreased just under 1% year-over-year to approximately $37.9 million and operating income was $6.5 million or a 6% year-over-year decrease.\nThe results reflected the economic impact of COVID-19 on our end markets, partially mitigated by productivity and expense savings in the quarter.\nSequentially, revenue increased 2.5% excluding foreign exchange and operating margin improved approximately 100 basis points to 17.1%, reflecting favorable geographic mix and our productivity and cost actions.\nLaneway sales increased approximately 9% sequentially to $12.9 million focused around soft trim tools, laser engraving and tool finishing.\nAs highlighted to the left, we have further innovated our customer design process given the global travel restrictions due to the pandemic.\nIntensive customer collaboration is at the heart of the customer intimacy model in all of our businesses and was slowed by COVID-related restrictions.\nBy utilizing high-definition cameras and 3D software, we have created a remote approval process to enable customer engagement and design approvals despite global travel restrictions, allowing us to further the design process while maintaining a high degree of client engagement.\nSequentially in our third fiscal quarter, we expect a slight revenue decline and a moderate decline in operating margin at Engraving, reflecting geographic mix and project timing.\nIn our fiscal fourth quarter 2021, we expect an increase in revenue and operating margin sequentially and year-on-year.\nTurning to Slide 6 and Scientific segment.\nScientific segment revenue increased 16.1% year-on-year to $17.9 million largely due to positive trends at retail pharmaceutical chains and medical distribution companies, much of it associated with the demand for COVID vaccine storage.\nOperating income increased 4.4% year-on-year to $4.2 million reflecting the volume increase balanced with investments to support our growth opportunities.\nSequentially in the fiscal third quarter, we expect a moderate to strong increase in revenue and operating margin to be slightly ahead of second fiscal quarter 2021.\nThis reflects volume growth driven by continued COVID-19 vaccine storage demand balanced with reinvestment in the business for R&D and growth opportunities.\nThe segment's backlog realizable under a year increased approximately $4 million or 65% sequentially compared to fiscal first quarter 2021.\nWe expect COVID vaccine storage demand to come in at the high end of our previously indicated $10 million to $20 million sales range in fiscal 2021.\nTurning to the Engineering Technologies segment on Slide 7.\nOn a year-over-year basis, Engineering Technologies revenue and operating income decreased approximately 33.9% and 60.2% to $17.5 million and $1.4 million respectively.\nAs expected, the revenue and operating income decrease reflected the economic impact of COVID-19 on the commercial aviation market, especially engine parts manufacturing.\nOn a sequential basis, segment operating margin increased approximately 500 basis points on a similar revenue level to fiscal first quarter 2021 as a result of product mix and our ongoing productivity actions.\nBesides the early stages of recovery in our aviation end markets that we are seeing, we are also well positioned for continued space end market growth.\nIn addition to projected government launch forecasts to support NASA and national security, we also have significant opportunities in commercial space markets.\nIn the fiscal third quarter on a sequential basis, we expect a moderate increase in revenue, primarily due to the early stages of recovery in the commercial aviation end market.\nWe expect operating margin to be sequentially similar to the second quarter due to higher sales mix of lower margin engine parts business, partially offset by productivity initiatives.\nOn a year-over-year basis, Specialty Solutions revenue decreased approximately 17.8% to $22.8 million and operating income of $3.2 million or a 26% year-on-year decrease.\nAs expected, the revenue and operating income decline reflected the economic impact of COVID-19 pandemic on this segment's end markets.\nSequentially, in our fiscal third quarter, we expect a moderate sequential increase in revenue and operating margin reflecting a gradual recovery in the foodservice industry and strong order trends in the refuse markets.\nSupporting this outlook, our backlog realizable under a year increased sequentially approximately $3.5 million for 35% compared to Q1 fiscal 2021, reflecting ongoing recovery in food service equipment and refuse end markets.\nFrom a strategy standpoint, our emphasis on shifting hydraulics manufacturing capacity toward higher-margin aftermarket opportunities continues with aftermarket revenue increasing 15% year-on-year.\nThe hydraulics business is also a potential beneficiary from a potential infrastructure bill with increased investment in roads and bridges.\nFirst, I will provide a few key financial takeaways from our fiscal second quarter 2021 results.\nWe realized sequential improvement on several fronts during the quarter.\nFirst revenue increased at our Electronics, Engraving and Scientific segments and we expect revenue growth to continue in the third quarter in four out of our five reporting segments.\nFrom a margin standpoint adjusted EBIT margin also improved sequentially reflecting revenue growth, the impact of our cost efficiency and productivity actions, partially offset by continued rising raw material costs, primarily at our Electronics segment.\nWe continue to focus our efforts on productivity actions and are on track to realize savings of over $7 million in fiscal '21 related to our previously announced cost actions.\nIn addition, we further strengthened our financial profile through initiatives focused on free cash flow generation, reduced interest expense and tax rate and continued cash repatriation.\nWe also generated approximately $17 million of free cash flow in the second quarter.\nWe had approximately 95% free cash flow to net income conversion rate to the first half of fiscal 2021.\nOn a consolidated basis, total revenue increased 1.7% year-on-year and 3.3% sequentially.\nYear-on-year revenue increase reflected contribution from our recent Renco acquisition and foreign exchange, partially offset by the economic impact of COVID-19.\nOrganic revenue declined 4.3% year-on-year, much of it due to the impact of the pandemic.\nAs we expected COVID-19 economic impact was most evident at the Engineering Technologies segment due to weakness in the aviation end market and the Specialty Solutions segment to weakness in the food service equipment and hospitality industries.\nOur recent Renco acquisition and foreign exchange impact offset the organic revenue decline.\nRenco contributed approximately $6 million to revenue or 3.9% offset to the organic revenue decline on a consolidated basis.\nIn addition, FX contributed a 2% increase to year-on-year revenue growth.\nOn year-on-year basis our adjusted EBIT margin declined by 60 basis points to 11.4%.\nThis decline was primarily due to the economic impact of COVID-19 pandemic, increased raw material cost and increases in research and development initiatives offset by cost and productivity actions.\nOn a sequential basis adjusted EBIT margin increased 40 basis points.\nInterest expense decreased approximately 17% year-on-year primarily due to lower overall interest rate as a result of the previously implemented variable to fixed rate swaps.\nIn addition, our tax rate of 20.9% in the second quarter of 2021 was largely due to various tax optimization strategies we began to implement earlier in the fiscal year.\nFor fiscal 2021 we continue to expect approximately 22% tax rate.\nThis assumes a tax rate in the mid 20% range in the third quarter and a tax rate in the low 20% range in the fourth quarter of 2021.\nAdjusted earnings per share was a $1.05 in the second quarter of '21 compared to $0.99 a year ago.\nWe continue to consistently generate free cash flow with a conversion to net income of over 140% in the second quarter of '21.\nWe reported free cash flow of $17 million inclusive of $4.8 million pension payment, compared to $3.6 million a year ago.\nThis free cash flow increase reflected solid working capital performance as we deleveraged the balance sheet by approximately $9 million in the quarter.\nStandex had net debt of $90.9 million at the end of December, compared to $106.2 million at the end of September.\nNet debt for the second quarter of '21 consisted primarily of long-term debt of $200 million and cash and equivalents of approximately $109 million with approximately $80 million held by foreign subs.\nOur financial strength was evident in several of our key metrics.\nStandex net debt to adjusted EBITDA leverage ratio was approximately 0.9 at the end of the second quarter with a net debt to total capital ratio of 15.4%.\nThe Company's interest coverage ratio increased sequentially to approximately 10.3 times.\nWe had approximately $200 million of available liquidity at the end of the second quarter and continued to repatriate cash with approximately $17 million repatriated during the quarter.\nWe remain on plan to repatriate approximately $35 million in fiscal '21.\nFrom a capital allocation perspective, we repurchased approximately 36,000 shares for $2.5 million.\nThere is approximately $35 million left remaining on our current repurchase authorization.\nWe also declared our 226th consecutive quarterly cash dividend on January 28 of $0.24.\nFinally, we continue to expect fiscal 2021 capital expenditures to be between approximately $25 million to $28 million.\nOver the past few years we have meaningfully transformed our portfolio around high-quality businesses with attractive growth and margin profiles as well as strong end markets and customer value propositions.\nAs a result of these substantial changes, our portfolio has never been in a better position.\nWe believe it is now appropriate to provide a longer term, that is three to five-year, financial outlook.\nSpecifically, we are targeting mid-single digit consolidated organic revenue growth on a compound annual basis.\nOur outlook assumes a continued macroeconomic recovery.\nOur businesses are well positioned to grow in exciting areas such as electric vehicles, renewable energy, smart grid, space commercialization, vaccine storage and 5G.\nWe also have an active new product development process for our business, particularly in Electronics, Scientific and Engraving segments.\nWe are targeting an adjusted EBITDA margin in excess of 20% compared to the 16.4% we reported in fiscal 2020.\nA few productivity initiatives to highlight include improving our Electronics cost position by implementing new manufacturing processes to address rising raw material prices, ongoing operational excellence actions to further standardize operating discipline across business units and continuing to fully leverage our G&A structure.\nWe believe a free cash flow conversion ratio of 100% is achievable under these assumptions, particularly, given our continued working capital focus.\nFinally, it is our expectation that with this financial performance and disciplined capital allocation, we will increase our return on invested capital to above 12%.\nWe will continue to exercise discipline in our capital allocation process as illustrated in this page.\nWe have recently increased our hurdle for internal growth investments to over 20% IRR.\nIn addition, we will continue to buy back our shares on an opportunistic basis.\nWe expect a moderate revenue and operating margin improvement in fiscal third quarter 2021 compared to fiscal second quarter 2021 results and are well positioned for a stronger second half fiscal 2021.\nWe also provided a longer-term financial outlook today reflecting our meaningfully transformed portfolio focused around businesses with attractive growth and margin profiles as well as strong end market and customer value propositions.\nOur substantial financial flexibility allows us to be opportunistic with an active pipeline of organic and inorganic growth opportunities.\nOur ongoing productivity and efficiency initiatives provide further opportunity to leverage these trends for improved financial performance.",
        "summary": "compname reports qtrly adjusted earnings per share of $1.05.\nprevious cost actions remain on track.\nintroducing longer term financial performance targets.\nqtrly adjusted earnings per share $1.05.\nexpects to repatriate $35 million in fiscal 2021.\nexpects fiscal year 2021 capital expenditures between approximately $25 million to $28 million."
    },
    {
        "text": "I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation.\nDuring our call today, we will reference certain non-GAAP financial measures which we believe provide investors with additional information to evaluate the Company's performance and improve the comparability of results between reporting periods.\nThese non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP.\nOur actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic, governmental attempts at remedial action and the timing of a return of more normal economic activity.\nWe urge you to read Sensient's filings, including our 10-K, our first quarter 10-Q, and our forthcoming second quarter 10-Q for a description of additional factors that could potentially impact our financial results.\nPlease bear these factors in mind when you analyze our comments today.\nNow, we'll hear from Paul Manning [Phonetic].\nI'm very pleased with the results of our Flavors & Fragrances Group as well as our Food & Beverage business in the Color Group.\nFlavors & Fragrances is up mid-single-digits in revenue and high-single digits in operating profit during the quarter, continuing its revenue growth trend from the first quarter.\nWe also had favorable growth in our natural colors and pharmaceutical businesses, which were up in the quarter.\nThe growth in these businesses was offset by the adverse impact of COIVD-19 in the personal care market and throughout Latin America, Europe and Asia-Pacific.\nDespite these COVID-19 headwinds and based on current trends, we expect to deliver on our earnings per share outlook for the year.\nI'm also pleased on the progress we had made during the quarter on our divestitures.\nWe completed the sale of our Inks business and signed a definitive agreement to sell our Yogurt Fruit Prep business.\nWe anticipate closing the Yogurt Fruit Prep sale in the third quarter.\nWe continue to make progress on the divestiture of our aroma chemical and fragrance compound business, although we have been delayed by COVID-19.\nWe believe we can close this transaction by the end of the year.\nAll of our production facilities are open and have been throughout the pandemic.\nOur on-time delivery remains high and we have successfully managed our raw materials.\nOur staffing and attendance at our facilities remains outstanding and I'm very proud of the dedication of our employees.\nWe will continue to closely monitor each of our production facilities to remain ahead of prevailing GMP and sanitation practices.\nAs a result of COVID-19, we have incurred additional costs and we have experienced significant revenue headwinds in a number of businesses.\nOverall, the impact of COIVD-19 has reduced our earnings per share by approximately $0.10 year-to-date.\nThe impact of COVID-19 on our Food & Beverage business is mixed.\nHowever, the impact is significantly negative for our personal care business.\nNow let me turn to the Groups.\nThe Flavor Group had another nice quarter.\nAdjusted local currency revenue for the Group was up 5.7%.\nThe Group continues to experience positive sales growth in the finished flavors and extract product lines as well as an improving picture in the flavor ingredient product lines.\nThe natural ingredients business also had a solid quarter.\nThe overall impact of COVID-19 was negative to the Group's revenue.\nThe Group's revenue growth is based on strong new wins generated throughout 2019 and the first part of 2020, retaining existing business, and an overall decline in attrition which was a lingering effect from our earlier restructuring activities.\nNet of these factors, we had generated mid-single digit growth year-to-date and I anticipate the same growth rate for the remainder of the year.\nThis quarter, the Flavor Group returned to quarterly profit growth with adjusted local currency operating profit up 8%.\nThe higher profit was a direct result of the higher volumes, new wins, and the Group's production cost initiatives.\nMoving forward, I anticipate continued profit growth.\nOverall, the Group's operating profit margin was up 30 basis points in the quarter and I would anticipate a 50 basis point to 100 basis point improvement for the year.\nIn summary, I expect mid-single digit revenue growth and mid to high single-digit operating profit growth for the Flavor Group for the remainder of the year.\nWithin our Color Group, revenue for Food & Beverage Colors was up low-single digits for the quarter.\nPharmaceutical had a nice quarter, up double-digits and natural colors continues to grow and that product line is up mid-single digits for the year.\nSimilar to the Flavor Group, Colors continues to focus on retaining existing business and improving the Group's overall sales win rate.\nUnfortunately, the growth in Food & Beverage Colors revenue was offset by a more than 20% decline in our Personal Care business revenue.\nWhile we saw some improvement in our Personal Care business in Asia and Latin America, the demand for make-up in Europe and North America was down substantially in the quarter.\nGiven the uncertainty with COVID-19 and continued restrictions, I would anticipate continuing challenges for this product line in the second half of the year.\nIn terms of operating profit, the Color Group achieved mid-single-digit profit growth in Food & Beverage Colors for the quarter and has generated double-digit operating profit growth for the year.\nHowever, profit in Personal Care in the quarter was down by more than 35% due to the lower demand in make-up and other personal care products, and that was the main reason for the Color Group's overall decline in profit.\nThe Color Group remains focused on production take-out actions.\nHowever, these actions need more time to realize their full potential and we do not expect that the actions will outpace the profit decline in Personal Care.\nShort of a significant opening of the world economy, I would expect the profit declines in the Personal Care business to continue for the remainder of the year.\nIn summary, Food & Beverage Colors revenue is up nearly mid-single digits year-to-date and double digits for profit.\nFor the back half of the year, I would expect mid-single digit revenue growth and mid-to-high single-digit profit growth for that product line.\nBecause of the impact of the -- because of the impact of Personal Care, we would expect the Color Group to be flat in revenue and profit for the year.\nOur Asia Pacific Group had solid revenue growth in some regions but this growth was offset by declines in other regions as government COVID-19 restrictions have significantly impacted many sales channels.\nThe Group delivered outstanding profit growth in the quarter and I anticipate the Group to return to revenue growth once restrictions in certain areas begin to ease.\nBased upon current trends, I expect Asia to deliver a low-single digit sales growth and mid-to-high single-digit profit growth for the year.\nOverall for the Company, we continue to focus on our supply chain.\nWe have increased our inventory levels on certain key raw materials, and as a result, we are providing outstanding on-time delivery to our customers around the world.\nWhile we do experience supply chain disruptions, we have avoided any significant financial disruptions and we continue to reduce our overall inventory levels for the Company.\nI'm pleased with the progress we had made in the first six months of this year.\nThe Flavor Group has had a great first half and I would anticipate this to continue in the second half.\nOur Food & Beverage Colors business is also performing well.\nIn Asia Pacific, I'm confident that the strategy and investment we have in place will return this Group to revenue growth.\nWhile I am optimistic about our Food businesses, our Personal Care business will continue to struggle.\nFurthermore, the ultimate impact of COVID-19 remains unknowable.\nNew product launches are significantly below prior year and there has been some customer SKU rationalizations.\nNevertheless our business is strong and well-positioned to grow for the year.\nSteve will now provide you with additional details on the second quarter results.\nThe adjusted results for 2020 and 2019 remove the impact of the divestiture-related costs and the operations divested or to be divested.\nThe second quarter 2019 results do not include any divestiture-related costs.\nWe believe that the removal of the gains and losses connected to the businesses that we are divesting provides a clearer picture to investors of the Company's performance.\nThis also reflects how management reviews the Company's operations and performance.\nIncluded in this year's second quarter reported results is a gain realized related to the reclassification of accumulated foreign currency translation as a result of the sale of the Inks business as well as other divestiture-related costs, which were primarily non-cash.\nThese items, which are included in the divestiture and other related costs, increased net earnings by $1 million or approximately $0.02 per share.\nIn addition, this year's second quarter reported results include $28.2 million of revenue and an immaterial amount of operating income related to the results of the operations to be divested.\nLast year's second quarter results include $36.4 million of revenue and an immaterial amount of operating income from the operations to be divested.\nExcluding divestiture-related costs and the results of operations to be divested, consolidated adjusted revenue was $294.9 million in the second quarter of 2020 compared to $302.8 million in the second quarter of 2019.\nConsolidated adjusted operating income was $40.3 million in the second quarter of 2020 compared to $47 million in the second quarter of 2019.\nAdjusted diluted earnings per share was$0.70 in this year's second quarter.\nCompared to $0.81 in last year's second quarter.\nWe have reduced debt by approximately $60 million since the beginning of the year and approximately a $120 million over the last 12 months.\nWe have adequate liquidity to meet operating and financial needs through our cash flow and available credit lines.\nOur debt-to-EBITDA is now just under 2.7.\nCash flow from operations was $107.6 million for the first six months of 2020, an increase of 41%.\nCapital expenditures were $21.4 million in the first six months of 2020 compared to $16.6 million in the first six months of 2019.\nWe expect our capital expenditures to be approximately $50 million for the year.\nOur free cash flow increased approximately 45% during the first six months of 2020 to $86.2 million.\nWe expect continued strong cash flow growth for the remainder of the year.\nConsistent with what we communicated during our last call, we expect our adjusted consolidated operating income and earnings may be flat to lower in 2020 because of the level of non-cash performance-based equity that may be deducted in 2020 based on our results.\nWe also expected a higher tax rate in 2020 compared to our 2019 rate which was lower as a result of a number of planning opportunities.\nBased on current trends, the Company is increasing our GAAP earnings per share guidance to $2.10 to $2.35.\nThis guidance now includes $0.35 to $0.40 per share of divestiture and other related costs and the results of the operations to be divested.\nThis guidance also includes approximately $0.10 of currency headwinds based on current exchange rates.\nOn an adjusted basis, based on current trends, we are maintaining our original estimate for the year of a range of $2.60 to $2.80, which excludes divestiture-related costs, the impact of the divested or to be divested businesses and foreign currency impacts.\nWe are also maintaining our adjusted EBITDA guidance of low-to-mid single-digit growth.",
        "summary": "current diluted earnings per share guidance for 2020 is $2.10 to $2.35.\nreconfirms previously issued guidance of $2.60 to $2.80 for 2020 adjusted earnings per share.\ncontinues to expect 2020 adjusted ebitda to grow at a low to mid-single digit rate.\nsensient technologies - expect 2020 adjusted operating income to be flat to down at low-single digit rate, in each case on local currency basis.\n2020 adjusted operating income will be impacted by higher non-cash performance-based compensation.\nfull impact of covid-19 remains unknown and continues to create uncertainty.\nalso confirming previously issued guidance for low to mid-single digit revenue growth in 2020."
    },
    {
        "text": "This information can be accessed by going to the Investor Relations section of the website.\nDuring the call, we will refer to non-GAAP financial measures in discussing the Company's performance.\nYou can find a reconciliation of these measures to GAAP financial measures in our materials for today's call.\nFinally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties.\nSynchrony delivered strong results during the second quarter, reflecting the power of our technology-enabled model, the durability of our partner-centric value proposition, and the early indications of a consumer resurgence.\nWith now more than a year of the COVID-19 pandemic moving into the rearview mirror, I am proud of how our team has continued to execute on our strategic priorities.\nOur multi-product, multi-capability strategy has enabled us to nimbly adapt and deliver best-in-class products and services to address our partners' evolving needs, while also generating appropriate risk-adjusted returns for all our stakeholders.\nLet's get things started by reviewing some of the key financial highlights from the quarter.\nNet earnings reached a record $1.2 billion, or $2.12 per diluted share.\nThis reflected an increase of $2.06 over last year as we mark the anniversary of the pandemic's initial impact on our business and really, the world.\nWe are deeply grateful for all of the front line workers, scientists and leaders have done to support our community and make progress toward an eventual return to normalcy.\nPurchase volume grew 35% over last year, reflecting a 33% increase in purchase volume per account.\nThis increased spend was broad-based across our five business platforms.\nThis strength in purchase volume was largely offset by the persistently elevated payment rate trends resulting from the government stimulus and industrywide forbearance actions, leading to a slight increase in loan receivables, which were $78.4 billion for the second quarter.\nAverage balances per account were down about 4% for the period, while new accounts were up about 58%.\nNet interest margin of 13.78% was 25 basis points higher than last year.\nElevated payment rates and excess liquidity levels continue to have an impact on receivables and yield.\nThe efficiency ratio was 39.6% for the quarter, primarily reflecting lower net interest income.\nExpenses were down about 4%, compared to last year and down 5% year-to-date as our cost efficiency initiatives continue as planned.\nWe remain on track to remove about $210 million from our expense base by year end, even as we continue to invest in our business.\nCredit continue to perform very well.\nNet charge-offs were 3.57% for the second quarter, down almost 178 basis points from last year.\nTurning to our balance sheet.\nDeposits were down $4 billion, or 7% versus last year, reflecting retail deposit rate actions we took to manage our excess liquidity position.\nDeposits represented 81% of our funding mix at quarter end, a slight increase versus last year due to the retirement of some of our debt during the second quarter of 2021.\nDuring the quarter, we returned $521 million in capital through share repurchases of $393 million and $128 million in common stock dividends.\nWe also continue to reinvest in our business.\nOne of our greatest competitive differentiators remains our digital capabilities.\nWe continue to invest in innovative products and services that enable our partners to meet their customers wherever and however they want to be met.\nThat where and how, of course, can change fairly quickly, as can the objectives that our partners seek to achieve.\nSo we need to stay nimble and ahead of the curve.\nWe have continued to win and renew key partnerships, including our recent renewal with TJX Companies.\nThis has been a very valuable partnership for over 10 years now, and we are excited to continue to provide innovative financing products to TJX customers.\nWe also renewed 10 other programs during the quarter, including Shop HQ, Daniels, and Sutherlands and added four new programs, including JCB and Ochsner Health.\nOur go-to-market strategy utilizes innovative and scalable ways to reach and serve customers effectively across a broad spectrum of industries and financing needs and over the course of their life cycle.\nWe have built a technology platform that harnesses our proprietary data analytics, cutting edge digital capabilities to offer a customized suite of products specifically designed with our partners and their customers in mind, all while delivering appropriately aligned economic outcomes.\nOur recent business reorganization, which included the creation of a growth organization and the redistribution of our partners from three sales platforms into five will allow us to better leverage these company resources and deliver swifter, more optimized products and capabilities for our partners and sustainable profitable growth for our business.\nIn fact, the growth we expect to achieve within each platform will be driven by utilizing our suite of products to expand lifetime value, deploying more of our digital capabilities to expand customer reach, or adapting our value propositions to harness organic trends as the landscape evolves.\nIn the case of our Home & Auto platform, a combination of all three.\nIn particular, our home partnerships have been a focus of Synchrony's going back to our business inception when we started providing financing for appliance purchases.\nOver the years, we've significantly broadened the scope of this platform and expanded our customer reach.\nToday, Synchrony has penetrated across all distribution points in each sector of the home market, from big retailers, to independent merchants and contractors and OEMs and dealers, our Home platform provides financing solutions to about 60,000 merchants and locations across a broad spectrum of industries, including furniture and accessories, mattresses and bedding, appliances, windows, roofing, HVAC and flooring.\nOur partnerships are deeply rooted in industry expertise, data-driven strategic objectives, and mutually beneficial economic outcomes.\nThe average length of our top 20 partners is over 30 years, because we are able to deliver a breadth of financing products, innovative digital capabilities, and seamless customer experiences that are customized to each partners' needs as they evolve over time.\nOur data insights and analytics expertise, when combined with the partners' own data, empowers each merchant as they seek to optimize their marketing, customer acquisition and sales strategies.\nAnd the value that our suite of products provides to their customers is clear, about 58% of our sales are repeat purchases.\nWhether customers are looking to upgrade their living room couch, or suddenly find themselves in need of a new washing machine, we enable our partners to consistently support those needs through a variety of financing options that are best suited to the customer and the particular purchase they're considering.\nSo, whether we've been entrusted to enhance customer loyalty, drive transaction volume, or usher a retailers' adoption of digital assets, our strategy has enabled steady growth across the home market.\nFor the four years prior to the pandemic, Synchrony's Home receivables grew at a 7% CAGR as consumers spend within home improvement, furniture and decor and electronic and appliances sectors each grew by between 4% and 8% annually.\nCertainly, the pandemic has brought with it both challenges and opportunities.\nAs consumers quarantined in their homes, the desire to renovate their homes or upgrade their furniture and decor intensified.\nAs people thought to leave crowded metropolitan communities for suburban neighborhoods, home improvement spend increased.\nIn 2020 alone, the home industry represented an approximate $600 billion market opportunity.\nSynchrony serves a fraction of that today.\nEven as we normalize toward a pre-pandemic cadence, the consumers' desire to invest in their living spaces is as strong as ever, perhaps reflecting a secular shift in favor of more remote work.\nWe have positioned our Home platform very well to capitalize on these trends.\nWe have opportunities to deepen the scope and reach of existing partnerships, while also implementing a number of strategic initiatives to better leverage our core competencies and deepen our market penetration.\nFor example, we have begun using more data and advanced analytics to enhance our acquisition marketing and drive higher repeat sales.\nWe've also launched our direct-to-device capability, which puts the simplicity of our financing application and the power of our underwriting in the hands of the contractors and customers as they seek to install a new HVAC system, replace their windows or repair an oven.\nThis direct-to-device technology is also being deployed in retailer locations, which helps shorten checkout lines and delivers a completely digital solution to apply and buy when in store.\nIn short, we are excited about the opportunities for growth that we see in our Home platform.\nThere are certainly some natural tailwinds in the industry that should feel home spend even as life normalizes in a post-pandemic world.\nBut we are actually more excited about the ways in which we're leveraging our technological innovations to extend our customer reach, enhance the value of the products and services we offer, and deepen our competitive differentiation.\nAs we continue to execute on our long-term strategy, we are driving even greater customer lifetime value for our partners, better experiences for their customers and strong returns for our stakeholders.\nAs Brian mentioned earlier, the strong results we achieved during the second quarter reflected a number of factors.\nFirst, a healthy consumer with significant savings and pent-up demand to spend it leading to broad-based purchase volume growth.\nSecond, continued strength in credit quality across our portfolio.\nWe continue to closely monitor our portfolio as industrywide forbearance begins to expire across the broader consumer finance landscape and for some customers, as rental forbearance also expires.\nFinally, the strong positioning of our business, combined with consistent execution by our team, while we maintain focus on efficient delivery of customized financing solutions and digitally enabled customer experiences across our diverse portfolio of partners, merchants and providers focusing on the healthy consumer who has robust savings and desire to spend in an environment with improving economic trends.\nDuring the second quarter, consumer savings rates remained strong, unemployment continued to improve and consumer confidence reached a 16-month high.\nAs a result, discretionary spend seems to be making a gradual return to pre-pandemic levels.\nIn fact, a conference board survey from June indicated that there is also a healthy interest among consumers to spend on long-lasting manufactured goods over the next six months, including homes, cars, and major household appliances, which we expect to be a positive tailwind for our Home & Auto platform in particular.\nAcross our diverse set of platforms, strong consumer spend trends contributed to 35% higher purchase volume compared to last year, primarily reflecting 33% stronger purchase volume per account.\nWhen comparing these trends to the more normalized operating environment of the second quarter 2019, and excluding the impact of Walmart, purchase volume was 18% higher in the second quarter 2021 and purchase volume per account was 22% higher.\nThis demonstrates strong consumer demand translating to higher spend relative to pre-pandemic levels.\nDual and co-branded cards accounted for 39% of the purchase volume in the second quarter and increased 56% from last year.\nOn a loan receivables basis, they accounted for 23% of the portfolio and were flat to the prior year.\nAverage active accounts were up about 2%, compared to last year and new accounts were 58% higher, totaling more than 6 million new accounts in the second quarter and over 11 million new accounts year-to-date.\nLoan receivables reached $78.4 billion in the second quarter, a slight increase year-over-year as the period [Phonetic] strong purchase volume growth was largely offset by persistently elevated payment rate.\nThis marks the first quarter of year-over-year growth since the start of the pandemic.\nPayment rate was almost 300 basis points higher when compared to last year, which primarily led to a 6% reduction in interest and fees on loans.\nRSAs increased $233 million, or 30% from last year and were 5.25% of average receivables.\nThe increase relative to last year's second quarter was primarily reflecting the significant improvement in net charge-offs.\nAs a reminder, our retailer share arrangements are designed to share in the program's performance and when the portfolios are performing better on a risk-adjusted basis, our partner share in this performance.\nSo the RSA is performing as it is designed and the elevated levels we have seen over the last few quarters are a reflection of Synchrony's particular financial strength through the pandemic.\nWe continue to expect RSAs to decline as net charge-offs begin to rise.\nWith an improved credit performance and a more optimistic macroeconomic environment, we reduced our loan loss reserves by $878 million this quarter.\nOther income decreased $6 million, generally reflecting higher loyalty program costs from higher purchase volume during the quarter.\nOther expense decreased $38 million due to lower operational losses, partially offset by an increase in employee, marketing and business development, and information processing costs.\nMoving to Slide 8 and our platform results.\nWe saw a broad-based purchase volume growth across all five platforms as consumers have become increasingly confident and remaining local restrictions are being lifted.\nBoth our Health & Wellness and Diversified & Value platforms experienced more than 50% growth in purchase volume.\nIn Health & Wellness, this primarily reflected lifting of local restrictions on in-person interactions and consumers being more comfortable with the environment and undergoing elective procedures.\nThe lifting of state restrictions was also a primary driver of the significant purchase volume growth in our Diversified & Value platform as consumers increased their discretionary spend in categories like clothing and assorted household goods.\nMeanwhile, purchase volume grew by 30% in our Digital platform, 25% in Home & Auto and 9% in Lifestyle.\nLoan receivable growth trends by platform generally reflected stabilization or modest growth versus the prior year as the higher purchase volume was partially offset by the elevated payment rates.\nThe one exception being our Diversified & Value platform, which is also impacted by store closures in 2020.\nAverage active account trends were mixed on a platform basis, up by as much as 5% in Digital and down by as much as 6% in Health & Wellness.\nThe active account growth in Digital generally reflected the combination of a shift in the timing of an annual promotional events and the ramp up of some of our recent partner launches.\nThe active account decline in Health & Wellness was primarily associated with the continued strength in consumer balance sheets.\nInterest and fees were generally down across the platforms, with the exception of Lifestyle due to lower yield as a result of elevated payment trends we've been discussing.\nI'll move to Slide 9 to discuss net interest income and margin trends.\nDuring the quarter, the continued combined impacts of the March stimulus and high savings balance built during the pandemic led to higher-than-average payment rate across our portfolio.\nAs Slide 9 shows, payment rate ran approximately 280 basis points higher than our five-year historical average and about 300 basis points higher relative to last year's second quarter.\nIt's worth noting the gradual moderation in payment rate from April to June, at which point the payment rate was 18.5%, a 90 basis point decrease for the March monthly peak of 19.4%.\nWe expect continued gradual moderation in payment rate as consumers continue to spend the excess savings they accumulated resulting from the combined impact of stimulus and slower discretionary spend during the lockdown.\nInterest and fees were down about 6% in the second quarter, reflecting lower finance charge yield from elevated payment rate trends and continued lower delinquent accounts resulting from our strong credit performance.\nNet interest income decreased 2% from last year.\nThe net interest margin was 13.78%, compared to last year's margin of 13.53%, a 25 basis points year-over-year improvement driven by favorable interest-bearing liabilities costs and mix of interest earning assets, partially offset by the pandemic's impact of loan receivable yield.\nMore specifically, interest-bearing liabilities costs were 1.42%, a year-over-year improvement of 73 basis points, primarily due to lower benchmark rates.\nThis provided a 62 basis point increase in our net interest margin.\nThe mix of loan receivables as a percent of total earning assets increased by 170 basis points from 78% to 79.7% driven by lower liquidity held during the quarter.\nThis accounted for 32 basis point increase in the margin.\nThe loan receivables yield was 18.62% during the second quarter.\nThe 84 basis points year-over-year reduction reflected the impact of higher payment rate and lower interest and fees, which we discussed earlier and impacted our net interest margin by 65 basis points.\nWe continue to believe that in the second half of the year liquidity will continue to be deployed into asset growth and slowing payment rates should result in a higher interest and fee yields leading to increasing net interest margin.\nNext, I'll cover our key credit trends on Slide 10.\nIn terms of specific dynamics for the quarter, I'll start with the delinquency trends.\nOur 30-plus delinquency rate was 2.11%, compared to 3.13% last year.\nOur 90-plus delinquency rate was 1%, compared to 1.77% last year.\nHigher payment trends continue to drive delinquency improvements.\nFocusing on the net charge-off trends.\nOur net charge-off rate was 3.57%, compared to 5.35% last year.\nOur reduction in net charge-off rate was primarily driven by improving delinquency trends as customer behavior pattern improved over the last several quarters.\nOur allowance for credit losses as a percent of loan receivables was 11.51%.\nAs far as our credit outlook is concerned, we are monitoring trends in our portfolio closely as the accounts enrolled in multiple forbearance programs roll off, but have not seen any indication in our portfolio to date.\nOur best expectation at this time is that, delinquencies should begin to rise sometime in the back half of 2021, leading to peak delinquencies in mid-2022.\nThis would translate a net charge-off peak in late 2022.\nMoving to Slide 11, I will cover expenses for the quarter.\nOverall expenses were down $38 million, or 4% from last year to $948 million as we continue to execute on our strategic plan to reduce cost and remain disciplined in managing our expense base.\nSpecifically, the decrease was driven by lower operational losses, partially offset by increased employee, marketing and business development, and information processing costs.\nThe efficiency ratio for the second quarter was 39.6%, compared to 36.3% last year.\nThe main driver of the increase of the efficiency ratio was a negative impact from lower revenue that resulted from a combination of lower receivables and lower interest and fee yield.\nThis was partially offset by a reduction in expenses.\nMoving to Slide 12.\nGiven the reduction in our loan receivables in 2020 and early 2021 and the strength in our deposit platform, we continue to carry a higher level of liquidity.\nWhile we believe it's prudent to maintain a higher liquidity level during uncertain and volatile periods, we continue to actively manage our funding profile to mitigate excess liquidity where appropriate.\nAs a result of this strategy, there was a shift in our mix of funding during the quarter.\nOur deposits declined $4.3 billion from last year.\nOur securitized and unsecured funding sources declined by $2.6 billion.\nThis resulted in deposits being 81% of our funding, compared to 80% last year with securitized funding comprising 10% and unsecured funding comprising 9% of our funding sources at quarter end.\nTotal liquidity, including undrawn credit facilities, was $21.2 billion, which equated to 23% of our total assets, down from 29% last year.\nBefore I provide details on our capital position, it should be noted that we elected to take the benefit of the transition rules issued by the joint federal banking agencies, which had two primary benefits.\nFirst, it delays the effect of the CECL transition adjustment for an incremental two years.\nAnd second, it allows for a portion of the current period provisioning to be deferred and amortized with the transition adjustment.\nWith this framework, we ended the quarter at 17.8% CET1 under the CECL transition rules, 250 basis points above last year's level of 15.3%.\nThe Tier 1 capital ratio was 18.7% under the CECL transition rules, compared to 16.3% last year.\nThe total capital ratio increased 250 basis points to 20.1% and the Tier 1 capital plus reserves ratio on a fully phased in basis was 28%, compared to 26.5% last year, reflecting the impact of the retained net income.\nDuring the quarter, we returned $521 million to shareholders, which included $393 million in share repurchases and paid a common stock dividend of $0.22 per share.\nDuring the quarter, we also announced the approval of a $2.9 billion share repurchase program through June 2022, as well as our plans to maintain our regular quarterly dividend.\nWe will continue to take an opportunistic approach to returning capital to shareholders as our business performance and market conditions allow subject to our capital plan in any regulatory restrictions.\nAs we exit the pandemic and the environment normalizes, we are confident in our capabilities and positioning of our business.\nWe are emerging from this period as a stronger and more dynamic Company and we're excited about the opportunities we see to drive strong financial results and shareholder value.\nWhile the pandemic has presented our Company and the world with never before seen challenges, Synchrony has continued to rise to the occasion facilitating the evolution of many of our partners as a new operating environment has been ushered in.\nWe have a truly unique understanding of the partners we serve and the customer needs they seek to address.\nWe have an almost 90-year history in consumer financing.\nWe have continued to invest in our comprehensive product suite, amass our proprietary data and leverage our advanced analytics to achieve targeted outcomes for each of the merchants we work with.\nWe have been consistently investing in digital innovation for years and have demonstrated how effectively we can adapt to deliver the value our partners have come to expect, while also driving strong financial results and attractive returns for our shareholders.\nWe will now begin the Q&A session.\nSo that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question.\nIf you have additional questions, the Investor Relations team will be available after the call.\nOperator, please start the Q&A session.",
        "summary": "qtrly diluted earnings per share $2.12.\nqtrly net interest income decreased $84 million, or 2%, to $3.3 billion."
    },
    {
        "text": "For today's call, I will provide opening comments, followed by Preston with an update on the trends we saw during the quarter.\nGlenn will then provide additional details regarding our quarterly results before opening the call to Q&A.\nFor the quarter, we posted organic sales growth of 8.4% versus 2019, driven by excellent double-digit growth from our MedSurg and Neurotechnology businesses, but this was offset by softer sales of hip, knee and spine due to the resurgence of COVID-19.\nA slowdown in deferrable procedures primarily impacted the US and worsened through the quarter.\nWhile our implant businesses were challenged, we saw strong results for our Mako product technology and capital products across our MedSurg portfolio.\nIn addition, we had strong performances from our more emergent businesses, including our core trauma business and another standout performance by Neurovascular.\nInternational organic growth of 12%, again, outpaced growth in the US, representing robust performances and lessening impacts of COVID-19 across most major geographies, including strong results across Europe, Australia, Canada and emerging markets.\nOur year-to-date organic growth is 7.6%.\nAnd with the continued uncertainty related to COVID recovery as well as healthcare staffing shortages, we are updating our full year organic sales growth guidance to 7% to 8% compared to 2019.\nOur capital equipment order book remains strong, and we are well positioned for the eventual procedure recovery.\nOur adjusted earnings per share grew 15% versus 2019, and we continued our focus on driving cash flow, leading to a year-to-date cash conversion of 87%.\nThe earnings per share growth, although solid, was lower than our expectations and is reflected in our updated guidance, which Glenn will elaborate on.\nMeanwhile, we are pleased with our cash flow performance, which provides us with additional flexibility for future M&A opportunities.\nWhile the quarter did not progress as we had anticipated due to the Delta variant, we remain confident in the outlook for our businesses as evidenced by our strong international MedSurg and Neurotechnology performances.\nWe expect these businesses to continue to perform at high levels with the uncertainty most concentrated in deferrable procedures in the United States.\nWe continue to feel bullish about our longer-term prospects as the pandemic recedes with our proven strategy and strong fundamentals.\nWe are excited to share more with you at our upcoming Analyst Day on November 18th.\nMy comments today will focus on providing additional insights into the current environment, including how certain products and geographies performed during the quarter.\nIn addition, I will provide an update on the continued integration of Wright Medical, including the performance of our combined trauma and extremities business.\nDuring the quarter, significant spikes of the COVID-19 Delta variant drove increased infections and hospitalizations that require higher hospital bed utilization, which ultimately led to the deferral of elective procedures.\nIn addition to increased hospitalization, hospital staffing shortages also pressured procedural volumes throughout the quarter.\nThis primarily impacted our implant-related businesses including hips, knees and spine, which can be, in many cases, deferred for a period of time.\nHowever, the disease states that we treat are degenerative and the patients that defer their procedures will eventually return to have those procedures completed.\nThe impact on elective procedures was more pronounced in the United States than on other geographies outside the United States.\nWithin the United States, there were areas of disruption in most states but disruption was more widespread in the Southeast and Southwest portions of the country, impacting major markets like Florida and Texas throughout the quarter.\nOther markets around the world, including China, Japan and Australia experienced intermittent lockdowns throughout the quarter, which also drove uneven results across our implant-related businesses in those markets.\nDuring the quarter, Europe, which was more impacted by COVID in previous quarters, had impressive organic growth compared to 2019.\nCOVID related hospitalizations in the United States began to trend upwards toward the end of July and then progressively worsened peaking at beginning of September.\nAt the end of the quarter, infection and hospitalization rates were declining in impacted regions and has continued into October.\nAs a result, we are beginning to see some improvements in our more impacted businesses through the first few weeks of October.\nHowever, we expect the recovery will be partially muted by discontinued hospital staffing challenges and ongoing COVID related volatility.\nOur assumption for the fourth quarter is that deferrable procedures will gradually return, starting with a low base in October before returning to more normal levels by the end of the quarter.\nAs a result, we expect that the fourth quarter growth rates for our more deferrable businesses will be similar to the third quarter.\nDespite the ongoing challenges with elective procedures, we had strong performances in our more emerging businesses like Neurovascular, which grew strong double digits compared to 2019 as a result of continued market expansion and ongoing global demand for our innovative technologies.\nIn addition, demand for our capital equipment remains healthy as evidenced by our continued strong sales performance and robust order book for small and large capital products, including our surgical technologies, emergency care and neurosurgical businesses.\nThe ongoing strength in capital is also reflected in the continued demand for our Mako robotic technology.\nOur industry-leading Mako robot continues to help surgeons improve patient outcomes by knowing more and cutting less.\nThis trend across capital is expected to continue as hospitals take advantage of flexible financing and prioritize capital products like those within our portfolio that are critical to providing emergency care, driving profitable procedures and ensuring safe working environments for caregivers and patients.\nTurning to the Wright Medical integration, which continues to progress in all regions and functions.\nUnited States commercial integration has moved past the sales force realignment and is now focused on continued business process improvements and system efficiencies.\nThe teams have also developed long term product pipeline strategy.\nOutside the United States, we continue to work through integration activities, including sales force and indirect channel alignment across all key geographic regions.\nOverall, we remain pleased with the progress and the pace of integration over the past year.\nIncluding Wright Medical, the combined US Trauma and Extremities business has grown 8.1% year-to-date.\nThe year-to-date growth in the United States has been driven by strong double digit growth in both our core trauma and upper extremities businesses, reflecting the execution of the sales integration in the United States.\nOutside the United States, sales have declined 3.8% year-to-date, driven by timing of distributor conversions in Latin America and Asia Pacific and declines in our legacy Trauson and Trauma business in China as a result of the provincial tendering process.\nConsidering the latest results, ongoing COVID related volatility and the provincial tenders in China, we now expect our combined Trauma and Extremities business to grow mid single digits for the full year.\nToday, I will focus my comments on our third quarter financial results and the related drivers.\nAs a reminder, we are providing our comments in comparison to 2019 as it is a more normal baseline given the variability throughout 2020.\nOur organic sales growth was 8.4% in the quarter.\nThe third quarter included the same number of average selling days as Q3 2019 and Q3 2020.\nCompared to 2019, the two year impact from pricing in the quarter was unfavorable 2.2%.\nVersus Q3 2020, pricing was 0.7% unfavorable.\nForeign currency had a favorable 1.2% impact on sales.\nOur MedSurg and Neurotech businesses saw another very strong quarter, continuing the growth momentum of the second quarter with double digit growth in both segments.\nOur Orthopedics and Spine businesses have been adversely impacted by increases in hospitalization rates starting in early August, especially in the US as a result of the Delta variant.\nThe corresponding impact on elective procedures has significantly slowed the recovery in our Orthopedics and Spine implant businesses.\nFor the quarter, US organic sales increased 7.1%, reflecting the continued strong demand for Mako, instruments, medical and neurovascular products.\nInternational organic sales showed strong growth of 12%, impacted by positive sales momentum in Europe, Australia, Canada and emerging markets.\nOur adjusted quarterly earnings per share of $2.20 increased 15.2% from 2019, reflecting sales growth, gross margin expansion and a lower quarterly effective tax rate, partially offset by the impact of business mix and higher interest charges resulting from the Wright acquisition.\nOur third quarter earnings per share was positively impacted from foreign currency by $0.04.\nNow I will provide some highlights around our segment performance.\nOrthopaedics had constant currency sales growth of 19.9% and organic sales growth of 2%, including organic growth of 1% in the US.\nThis reflects the impact of the slowdown in elective procedures as a result of the Delta variant, which primarily impacted our hip and knee implant businesses.\nOur knee business grew 0.9% organically in the US, reflecting the previously mentioned impact on elective procedures, offset by continued adoption of our robotic platform for total knee procedures.\nOur US trauma business grew 8.8%, reflecting solid performances across the portfolio.\nOther ortho grew 19.8% in the US, primarily reflecting demand for our Mako robotic platform, partially offset by declines in bone cement.\nInternationally, Orthopaedics grew 4.1% organically, which reflects the strong performances in Europe and the momentum in Mako internationally, somewhat offset by the increased impact of restrictions imposed on elective procedures due to COVID, especially in Japan.\nFor the quarter, our Trauma and Extremities business, which includes Writer Medical delivered 3.2% growth on a comparable basis.\nIn the US, comparable growth was 7.4%, which included double digital growth in our upper extremities business.\nIn the quarter, MedSurg had constant currency and organic sales growth of 12%,,which included 12% US organic growth as well.\nInstruments had US organic sales growth of 15.9%, led by double digit growth in their orthopedic implants and surgical technology businesses, which include power tools, waste management, smoke evacuation and skin closure products.\nEndoscopy had US organic sales growth of 10.6%, reflecting strong performances across their portfolio, including video and general surgery products and strong double digit growth of their communications and sports medicine businesses.\nThe Medical division had US organic growth of 12.5%, reflecting double-digit performances in its emergency care and Sage businesses.\nInternationally, MedSurg had organic sales growth of 12%, reflecting strong growth in the Endoscopy, Instruments and Medical businesses across Europe and Australia.\nNeurotechnology and Spine had organic growth of 11.8%.\nThis growth reflects double digit performances in our neurovascular, neurosurgical and interventional spine businesses.\nOur Neurovascular business had particularly strong growth of approximately 26% and makes up roughly 30% of this segment.\nOur US Neurotech business posted an organic growth of 11.8%, reflecting strong product growth in Sonopet iQ, Bipolar Forceps and Bone Mill.\nOur US Neurovascular business had significant growth in all categories of products, including hemorrhagic, flow diversion and ischemic.\nInternationally, Neurotechnology and Spine had organic growth of 24.6%.\nThis performance was driven by strong neurotech demand in China and other emerging markets as well as Europe and Australia.\nNow I will focus on operating highlights in the third quarter.\nOur adjusted gross margin of 66.3% was favorable approximately 55 basis points from third quarter 2019.\nCompared to the third quarter in 2019, gross margin was primarily impacted by acquisitions, which was partially offset by business mix and price.\nAdjusted R&D spending was 6.7% of sales, reflecting our continued focus on innovation.\nOur SG&A was 34.1% of sales, which was slightly negative as compared to the third quarter of 2019.\nThis reflects continued cost discipline and fixed cost leverage, offset by ramping of certain expenses, hiring to support future growth and the dilutive impact of the Wright Medical acquisition.\nIn summary, for the quarter, our adjusted operating margin was 25.4% of sales, which is approximately the same as third quarter 2019.\nThis performance primarily resulted from our positive sales momentum, offset by the dilutive impact of acquisitions, primarily Wright Medical.\nRelated to other income and expenses compared to the third quarter in 2019, we saw a decline in investment income earned on deposits and interest expense increases related to our debt outstanding for the funding of the Wright Medical acquisition.\nOur third quarter had an adjusted effective tax rate of 14%, which was impacted by our mix of US, non-US income and favorable discrete items during the quarter.\nOur year-to-date effective tax rate is 14.8%.\nFor the year, we continue to expect an adjusted effective tax rate of 15% to 15.5%.\nFocusing on the balance sheet, we ended the third quarter with $2.6 billion of cash and marketable securities and total debt of $12.7 billion.\nyear-to-date, we have paid down $1.2 billion of debt.\nIn October, we completed the refinancing of our revolving credit facility and increased that facility from $1.5 billion to $2.25 billion.\nTurning to cash flow.\nOur year-to-date cash from operations was approximately $2.3 billion.\nThis performance reflects the results of earnings and continued focus on working capital management.\nBased on our performance in the third quarter, the continued volatility experienced as a result of COVID, procedural delays in hospital staffing shortages as well as uncertainty around the pace of recovery in the fourth quarter, we expect 2021 organic net sales growth to be in the range of 7% to 8%.\nAs it relates to sales expectations for Wright Medical, we now expect comparable growth for Trauma and Extremities to be in the mid single digits for the full year when compared to the combined results for 2019.\nIf foreign currency exchange rates hold near current levels, we expect net sales in the full year will be positively impacted by approximately 1%.\nAdjusted net earnings per diluted share will be positively impacted by approximately $0.05 to $0.10 in the full year and this is included in our revised guidance range.\nBased on our performance in the first nine months and including consideration of the aforementioned volatility impacting the recovery of elective procedures and the full year Wright Medical impact, we now expect adjusted net earnings per diluted share to be in the range of $9.08 to $9.15.\nAnd now I will open the call for Q&A.",
        "summary": "q3 adjusted earnings per share $2.20.\nexpect 2021 organic net sales growth to be in range of 7% to 8% from 2019.\nexpect 2021 adjusted net earnings per diluted share to be in range of $9.08 to $9.15."
    },
    {
        "text": "A copy of these materials can be found in the Investors section at sysco.com.\nTo ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up.\nI hope that you and your families are staying safe and healthy.\nI will provide an update on our business transformation and I'll share some highlights of our preparation for the pending business environment recovery.\nAs we have discussed during prior calls, Sysco has taken swift and decisive action throughout the pandemic to help our customers succeed during a time of disruption.\nWe have carefully managed our associate productivity, inventory productivity, and business investments.\nTo that end, we initiated a bold business transformation to strategically transform our company for long-term success.\nI am pleased to confirm that our business transformation remains on track and we are confident that the strategic initiatives will enable profitable future growth and will differentiate Sysco from our competitors.\nThe COVID environment has placed substantial restrictions upon the customers we serve in the food-away-from-home sector and has disrupted our marketplace.\nIn light of those realities, we are pleased with the financial results that we delivered in the first half of fiscal 2021, and for the second quarter, we performed generally in line with our expectations adjusted for the environment.\nWhile our second quarter financial results were down compared to prior year, we delivered a profitable quarter despite 23% decline in our top line sales and funded investments to enable our transformation.\nOur customers experienced increasingly restrictive conditions on their operations during the second quarter, which were most notable in December when restaurant traffic and sales declined.\nAdditionally, our international segment has been hard hit due to tougher restrictions in the countries in which we operate.\nAt Sysco, we are not taking the restrictions on customers as a gravity issue.\nWe are doing more than ever before to help our customers navigate this challenging environment.\nI am pleased to report that during the second quarter Sysco gained overall market share versus the rest of the industry, reflecting the early progress of our transformation and the success we're having in winning new business, We continue to win meaningful business in the national account space and signed an incremental $200 million of net new business in the quarter, which totals more than $1.5 billion of net new contracted business since the start of the pandemic.\nAdditionally, throughout the second quarter, we began making investments in preparation for the business recovery that we believe will begin in calendar year 2021.\nThose investments will increase in the third fiscal quarter and Aaron will speak more to this in a moment.\nExamples of investments during the second quarter include investments in our customers, in our people, in our working capital, and in our technology.\nI'd like to highlight some examples of each of these purposeful choices.\nInvestments in our customers, including our new Restaurants Rising campaign, which makes it easier for restaurants to succeed and strengthen their business for the future.\nMost notably, we announced in November that we are eliminating minimum delivery requirements for regularly scheduled delivery days, which provides operators significant flexibility in managing their business and makes it easier to order what they need when they need it.\nIn addition, we are not eliminating delivery service days during the second wave of COVID, a practice we know select competition is currently doing.\nWe see the light at the end of the tunnel and as such, we are prioritizing customer service.\nA little incremental expense right now is a small price to pay for customer loyalty and partnership.\nOur sales consultants are leveraging the restaurants rising program to retain current customers and help Sysco attract and serve new ones.\nIn addition to the no order minimums commitment, Sysco's sales consultants are assisting their customers with setting up touchless menus, optimizing delivery and takeout operations, and helping with marketing programs to create awareness of our customers' operations, just to name a few of our value-added services.\nI'm proud to report that our Net Promoter Score increased by more than 1,000 basis points in the quarter due in large part to the connections with our customers generated by the Restaurants Rising program.\nThe NPS increase was our largest quarterly increase in our company's history.\nImportantly, as you can see on page seven in our slides, the incremental closure rate of Sysco's customers is 50% below the industry average.\nAnd lastly, we onboarded more new local customers in Q2 than in any single quarter in the last five years.\nIn addition to investing in our customers, we are making investments in our people.\nWe are intentionally retaining drivers despite the volume decline in December to ensure we have them available for our pending volume recovery.\nDrivers are in short supply across the country and while this investment will drive some incremental transportation expense in the short term, over the long term, it will help ensure that Sysco is able to maximize our share gains during the upcoming business recovery.\nAs you know, we made changes to our sales organization and sales compensation during the summer.\nOur associate retention has improved compared to historical retention rates and our improved retention will help with sales productivity metrics in the future.\nWe are beginning to make investments in working capital to position the right products in the right locations in preparation for the upcoming business recovery.\nSysco has the broadest inventory assortment in the industry.\nOur ability to ship product on time and in full during the upcoming period of volume recovery is a core element of what makes Sysco the strongest broadline distributor in the industry.\nWe have the financial strength and capacity to invest in products and in inventory, while other foodservice distributors may struggle with sufficient cash flow to make similar investments in the coming quarters.\nWe are also offering payment plans in partnership with our customers to ensure their continuity.\nLastly, we are making strategic investments in our technology to improve the customer experience.\nThis includes our Sysco Shop technology, our new pricing software and improvements we are making in our supply chain systems.\nSysco's ability to invest in our customers, our people, our inventory and our technology while delivering a profitable quarter during this pandemic is a testament to the strength of our balance sheet and our leadership team.\nI'd like to turn now to providing an update on our business transformation.\nFirst, as we have shared previously, we are focused on advancing our customer-facing digital tools to improve the customers' experience with Sysco and drive incremental sales.\nPriority number one is improving our mobile ordering platform Sysco Shop.\nNotably, we are now onboarding new customers in less than 24 hours, a step change improvement.\nThe number of customer orders placed through Sysco Shop continues to meaningfully increase throughout the quarter.\nAdditionally, our new pricing software is now live in our first test region.\nWe are learning a lot through this regional pilot and we remain on track to roll out the pricing system across the country.\nThe goal of this effort is to improve pricing transparency with our customers and drive incremental sales in gross profit growth by optimizing prices at the customer item level.\nAdditionally, by automating customer level pricing, we will free up time for our valued sales consultants to spend with customers on value-added activities, such as menu design, Sysco brand penetration, and other drivers of sales and margin.\nSecond, we are improving our go-to-market selling strategy by transforming our sales process.\nThrough our sales transformation, we have an improved more customer-centric organizational structure.\nOur sales transformation is progressing well and the team-based selling approach is gaining traction.\nWe have created and built new specialist selling positions.\nWe have implemented a sales quarterback position that helps guide the collective sales teams across a given geography.\nAs I mentioned on our last call, we have launched our first cuisine segment go-to-market selling strategy and we are seeing initial signs of success with that customer segment through incremental market share gains.\nWe will roll out this program to additional cuisine segments in calendar 2021.\nLastly, Sysco completed the regionalization of our field leadership structure at the start of our second quarter.\nI am pleased to report that our new regional presidents are in place and are finding quick wins to improve our business.\nThe average tenure of our market and regional leaders is over 20 years and these experienced and talented leaders are highly capable of driving top performance within Sysco.\nExamples of quick wins include optimizing our inventory assortment across multiple physical sites and optimizing the servicing of key customers by ensuring the most efficient physical location services each customer location.\nTo be a great company, you need to have a world-class leadership team.\nI am pleased that during the quarter, we made important progress in strengthening our leadership team.\nAaron Alt joined Sysco as our Chief Financial Officer.\nAaron is a proven finance leader with over 20 years of experience in foodservice and retail leadership positions.\nHe has a track record of transformation and value creation at large organizations in multiple industries.\nAdditionally, Tom Peck has joined Sysco as Chief Information and Digital Officer.\nTom has experience leading enterprise information technology strategy, services, operations risk, and cybersecurity for large global enterprises.\nIn his most recent role, he worked great global B2B distributor in the electronics industry, experience that is directly applicable to the transformational journey at Sysco.\nAdditionally, Tim Orting has officially started his position leading our International division.\nTim will be based in our London offices and will be responsible for driving profitable growth and operational excellence across our international geographies.\nWith Tim joining Sysco, I was able to reduce the number of my direct reports by four, which allows me to focus more of my time and energy on managing the strategy development and execution of the company.\nJoel Grade has begun his new role leading business development and is actively engaged in identifying new sources of growth for Sysco.\nI am pleased to say that the transition of Sysco's leadership team is now complete.\nWe have a strong management team that balances Sysco and foodservice industry expertise with best-in-class experience from other industries.\nOur new leaders join a talented and experienced Sysco leadership team.\nGreg Bertrand, the leader of our U.S. business has over 35 years of industry experience and 30 years specific with Sysco.\nGreg's expertise and steady hand in running our largest business during the COVID disruption has been invaluable.\nI appreciate his leadership and the strong impact he has on our results.\nGreat leadership teams work as a team on a common agenda.\nOur transformation strategy has galvanized this leadership team around a common purpose, and I am honored to work with them to set the standard for foodservice distribution for many years to come.\nI report to you today with strong confidence that a pending business recovery sits before us.\nAs vaccine administration mixed progress across the globe, the restrictions currently placed upon our customers will begin to ease.\nWe can see in our performance data that once those restrictions ease, consumers are ready and willing to eat away from home.\nAt Sysco, we are working to maximize our opportunity to recover faster than the industry.\nWe have an opportunity to gain market share, given our financial strength and our compelling business transformation.\nWe are prepared to do more than any other foodservice distributor in the industry to ensure the success of our customers.\nAnd our customer success will generate business growth for Sysco.\nOur industry-leading sales force has been inspired by the Restaurants Rising campaign to support our customers at levels higher than any point in our proud history.\nOur warehouse and delivery associates are the best in the business, working hard every day to ensure we ship to our customers what they want when they need it.\nI am proud of their dedication during this challenging operating time.\nAt Sysco, our customers are an inspiration to us and we will show them just as much determination and how we serve them.\nI am really excited to be at Sysco.\nBefore I joined Sysco, what I could see from the outside was a company with global scale, a strong competitive position and great profitability and liquidity for the industry.\nNow that I'm on the inside, I see all of that in addition to a driven leadership team relentlessly focused on being ready for the business recovery and then driving a customer and capability-led transformation.\nIn short, I see many opportunities in front of us to create shareholder value.\nI will start today with second quarter results for the enterprise and our business segments, followed by an update on cash flow.\nSecond quarter sales were $11.6 billion, a decrease of 23.1% from the prior year, but flat to the prior quarter.\nSales had been trending ahead of Q1 through October and November as restrictions eased, but new lockdown restrictions during December reversed the earlier progress, particularly in the International segment.\nThere are a couple of additional metrics.\nFor the quarter, local case volume within U.S. Broadline operations decreased 19.7% while total case volume within U.S. Broadline operations decreased 23.7%.\nWe do know that there is keen interest in the continued impact of COVID.\nThe answer varies by region.\nEurope went into lockdown in December and is expected to remain in varying degrees of lockdown for a significant portion of the second half.\nHowever, since the week after the holidays, we have been seeing signs of life from volume improvements in our U.S. FS business and SYGMA continues to grow.\nThis battle will be fought week by week, region by region for the next couple of quarters until the vaccination is widespread and the business recovery takes hold.\nThe only commitment we can make is that we will be ready and more competitive than ever.\nAs we move down the P&L, gross profit decreased 25.8% to $2.1 billion in the second quarter.\nMost of the decline in gross profit was driven by lower volumes due to COVID.\nHowever, we did see a modest gross margin dilution at the enterprise level of roughly 67 basis points as our rate came in at 18.2%.\nA couple of thoughts on that.\nFirst, we typically see a seasonal decline in gross margin sequentially from the first quarter through the second quarter as we did this year.\nSecond, our largest segment US Foodservice and its partner segment SYGMA, each had a flat gross margin rate versus the same pre-COVID, quarter which is frankly remarkable given these market dynamics.\nGiven the growth of our national accounts business at SYGMA, which is lower margin, we did see business mix shift, which accounted for the vast majority of the margin rate change.\nOur enterprise margin was also impacted by the International and other businesses as both showed gross margin decline in the quarter for reasons which are being addressed.\nOur expense profile changed over the course of our second quarter as adjusted operating expense decreased 15.3% to $1.9 billion.\nThis expense profile reflects a deleverage of our cost structure as sales remained down 23%.\nThese results arise from some purposeful choices.\nFirst, and on the positive side of the equation, we targeted and achieved increased productivity in key areas such as our warehouse network.\nWe also maintained our key transportation efficiency metrics despite significant swings in case volume.\nSecond, we continue to make excellent progress against our $350 million of cost savings initiatives in fiscal 2021.\nI can see the savings in the detailed income statement, and we continue to identify and pursue more opportunities.\nThird, but on the other side of the equation, we have made the purposeful choice to leverage our financial strength to prepare for the business recovery before it happens.\nAs previously announced, we changed our sales consultant compensation to include both the fixed and variable component to drive retention and focus on key operational metrics.\nWe can see that change working in our market wins.\nAdditionally, we brought back hundreds of associates in the second quarter in support of our business model.\nIn the third quarter, and indeed in the back half, we anticipate we will hire thousands of additional sales consultants, new business developers, culinary experts and operations associates in anticipation of the pending business recovery.\nWe plan to be ahead of the recovery curve, not catching up and we have the financial resources to do just that.\nFinally, as Kevin mentioned, we continue to make purposeful investments in our capability builds in support of our transformation, pricing, customer experience, sales, vendor management and personalization.\nWhile we expect significant returns on these efforts in future quarters, the investment dollars are offsetting part of our savings in the second quarter and will do so in the back half.\nWhen combined with the impact of slower openings in our International segment, we expect our third quarter results to be more challenging than originally anticipated.\nHowever, as volume returns and grows, whether due to market recovery or our purposeful investments, we expect to move up the sales curve more rapidly than others and expect over the next several quarters the impact of the cost savings efforts separated from the ongoing investments will be more visible.\nFinally, at the enterprise level, adjusted operating income decreased 63% to $234 million.\nFor the second quarter, our non-GAAP tax rate of 16.8% was favorably driven by the impact of stock option exercises.\nAdjusted earnings per share decreased 80% to $0.17 for the quarter.\nNow let's turn to our second quarter results by business segment, starting with the U.S. Foodservice operations.\nSales were $8 billion, which was a decrease of 23.9% versus the prior-year period.\nNotwithstanding the difficult environment, the business acquired a record number of new customers, as our sales teams hit the streets and we deployed digital tools.\nWe also saw growth in our national accounts customer base.\nWithin the business, Sysco brand sales for the second quarter decreased 165 basis points to 36.5% for total U.S. cases, driven by the customer and product mix shift.\nWith respect to local US cases, Sysco brand sales decreased 455 basis points to 42%, which was driven by product mix shift in the pre-packaged and takeaway ready products.\nGross profit decreased 24% to $1.6 billion for the quarter, while as I called out earlier, gross margin was flat for the quarter at 19.7% as the business very successfully managed through the puts and takes of the COVID environment and addressed headwinds such as aged inventory for customers like cruise lines and product mix shift out of higher margin categories like PP&E.\nThe segment's adjusted operating expenses decreased 18.9% to $1.1 billion and adjusted operating income decreased 33% to $472 million.\nMoving on to the SYGMA segment.\nSales increased 4% to $1.5 billion compared to the prior-year period, driven by the success of national and regional quick service restaurant servicing drive-through traffic.\nThis is the second consecutive quarter of sales growth in this segment.\nWe continue to see new business wins in the SYGMA segment and are pleased by the overall improvement.\nGross profit increased 4.1% to $129 million for the quarter and gross margin was flat to the prior-year.\nAdjusted operating expenses increased 4%, $118 million and adjusted operating income increased 5% to $11 million.\nMoving to the International segment, our European, Canadian and Latin American businesses have been substantially impacted by recent shutdowns, which are more aggressive than lockdowns in the U.S. The International Foodservice operation segment saw sales of $2 billion, a decrease of 32% while gross profit decreased 36.2% and gross margin decreased 128 basis points.\nThe gross margin decline was a result of adverse market mix, customer mix, product mix and aged inventory.\nFor the International segment, adjusted operating expenses decreased 16% and adjusted operating income decreased 175% for an operating loss of $55 million.\nOur Other segment, which includes our Guest Worldwide business, remains challenged as hospitality occupancy rates remain low compared to prior year levels.\nHowever, the business is in better shape than many of its competitors and has achieved a number of recent customer wins, including being named the preferred distributor for Renaissance Hotels, JW Marriott, and Westin Hotels via a new contract with Avendra in both the U.S. and Canada, and being given access to all Marriott properties in North America, Central America and the Caribbean.\nWhile still in turnaround mode in a difficult hospitality environment, the business improved its underlying profitability during the second quarter.\nCash flow from operations was $937 million for the first half of fiscal 2021.\nFree cash flow was $788 million year-to-date, which is in line with our previously noted guidance.\nNet capex for the first half of fiscal 2021 was $148 million, which was $235 million lower than last year as the company carefully assessed its capital investment choices in the face of COVID.\nSysco remains financially strong from a balance sheet perspective.\nAt quarter end, we had balance sheet cash of $5.8 billion, plus access to $2 billion of available borrowing capacity for a total of $7.8 billion.\nOur cash and available liquidity ensures us the stability and flexibility to make decisions that are in the best interest of the company.\nWe continue to monitor our operating environment carefully.\nAnd as we assess reopening timelines and investment needs consistent with the transformation, we will be updating our views of our levels of cash and capital structure opportunities in future calls.\nAlthough this is a tough operating environment for our customers, which will impact our results for the next quarter or two, Sysco remains resolutely focused on managing its businesses aggressively preparing for the business recovery and building customer-centric capabilities to accelerate long-term growth.\nWe believe our strategy and our transformational initiatives will drive future value for our associates, shareholders and customers.",
        "summary": "qtrly sales decreased 23.1% to $11.6 billion.\ncompname reports q2 adjusted earnings per share of $0.17.\nq2 adjusted earnings per share $0.17."
    },
    {
        "text": "We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially.\nThese non-GAAP financial measures were not prepared in accordance with generally accepted accounting principles.\nThese non-GAAP measures are not intended to be a substitute for our GAAP results.\nThis was another excellent quarter, and I'm extremely proud of the entire SentinelOne team.\nOur ARR growth accelerated to 131% year over year in the third quarter, our third consecutive quarter of triple-digit growth.\nWe continue to scale our business on the back of leading endpoint protection, machine speed DDR, XDR innovation, and our powerful partner-supported go-to-market strategy.\nThe demand environment remains incredibly strong.\nBefore digging deeper into the details of our quarterly performance and results, I'd like to share some perspectives on the cybersecurity landscape.\nI'd encourage you all to also look at our shareholder letter we have on our Investor Relations website, which provides a lot more detail.\nWe're still early in the generational shift in cybersecurity led by the ongoing digital transformation of the enterprise.\nThere are millions of cyberattacks inflicting trillions of dollars in damages every year.\nThis is unacceptable and a growing risk to enterprises across the world.\nThe increasing number of attacks and sophistication clearly shows that enterprises must deploy best-of-breed solutions that enable them to stay one step ahead of attackers.\nTake the current state of ransomware.\nAttackers have shifted from simply holding operations hostage to actual data compromise and infiltration, infiltrating both legacy and unprotected devices.\nThat's where SentinelOne comes in.\nWe pioneered the world's first purpose-built, AI-powered XDR platform to make cybersecurity defense truly autonomous from the endpoint and beyond.\nWe believe it's essential to protect all parts of the enterprise estate, such as unknown devices, cloud workloads, and the data itself.\nWe focus on data to provide enhanced visibility and advanced analytics.\nWe protect our customers in real-time at machine speed, empowering human operators with the speed, scale, and precision of technology.\nOur approach is resonating with our customers.\nWe received the highest overall rating in the 2021 Gartner Voice of the Customer Report for endpoint protection platforms where 97% of reviewers would recommend the SentinelOne Singularity XDR platform.\nI'm very proud of the work we all do to keep our customers secure, engaged, and delighted.\nWe focus on putting our customers first.\nLet's turn the discussion to how we're executing.\nDuring our IPO earlier this year, we outlined five key aspects to our growth strategy.\nOur third quarter results demonstrate success and progress against each of these.\nFirst, we continue to innovate and enhance our cybersecurity and data platform.\nAutomation is a top priority for SentinelOne.\nMachine speed automation can help counter instantaneous cyberattacks and enable under-resourced IT teams.\nLast quarter, we introduced Storyline Active Response, or STAR, for customized dynamic detection and response rules.\nThis quarter, we began offering Remote Script Orchestration, or RSO, to instantly investigate and triage threats on multiple endpoints across entire organizations remotely.\nTogether, these two capabilities deliver increased level of automation, as well as help enterprises, consolidate legacy workflows in tooling with the Singularity XDR platform.\nI want to dig more deeply into RSO.\nWe designed RSO to transform endpoint management for incidence response providers and enterprises.\nWe're offering complete remote control and orchestration across endpoints.\nIt's a scalable way for security providers to not only detect and respond with existing endpoints but also manage and control the entire deployed footprint.\nIt's like having a security analyst on every single endpoint at all times.\nOur customers and partners are already realizing the benefits of the advanced capabilities of RSO.\nOne of our incident response partners said RSO helps eliminate time-consuming efforts to collect and consolidate forensics data in rapidly contained attacks, enabling us to minimize adversary impact.\nOn the customer side, a Fortune 500 wholesale company added RSO to help ultimate threat hunting capabilities, making SentinelOne more powerful and integral to their security posture.\nIn addition to automation, we believe a true XDR platform must be a comprehensive and open platform that provides visibility, protection, and response across the entire enterprise landscape.\nCustomers have been asking us to provide mobile protection to complement our leading protection capabilities.\nAnd just this week, we announced Singularity Mobile.\nSentinelOne customers can now manage mobile device security alongside endpoint, cloud workloads, and IoT devices.\nSingularity Mobile brings behavioral AI-driven machine speed protection, detection and responds directly to iOS, Android, and Chrome OS devices.\nPutting this all together, we were recently recognized as a strong performer in the Forrester New Wave Extended Detection and Response Providers report.\nForrester highlighted that SentinelOne Singularity XDR platform is the best fit for companies that want customizability and to grow into XDR. We were also named Best Innovator in SE Labs' Annual Report.\nThe second part of our strategy is to protect more enterprises every day.\nIn Q3, our ARR grew by 131% year over year, and our revenue was up 128%.\nOur business is performing exceptionally well.\nWe added over 600 new customers sequentially.\nWe grew our total customer count by over 75% to over 6,000 compared to a year ago.\nCustomers with ARR over $100,000 grew 140%, and we continue to see a growing mix of large enterprises within our business.\nIn addition to expanding our global presence through direct sales teams, our channel remains a source of scalable growth and differentiation.\nWith our partner-friendly approach, we're succeeding by further expanding our scale with incidence response in managed security service provider partners.\nNick will touch on this in more detail later on.\nThird, we're unlocking further product adoption within our existing customer base.\nIn the fiscal third quarter, our net retention rate reached 130%, a new record for our company.\nThis growth was driven by strong license expansion, platform upgrades, and customer adoption of our new capabilities.\nWe're early in our module strategy, but we're seeing great customer interest and adoption.\nOur emerging products such as Ranger IoT, cloud workload protection, and data capabilities are all growing at impressive triple-digit rates.\nIn particular, our cloud workload protection product delivered the highest growth during the quarter, a testament to the demand for our real-time run-time protection for cloud workloads and containerized environments.\nIn one case, a leading book publisher selected SentinelOne for cloud workload protection because of its ease of use, simplicity of deployment, and having a true EDR in one console to manage their cloud-native Windows, Linux, and Kubernetes environments.\nThe fourth element of our growth strategy is to further expand our global footprint.\nRevenue from international markets grew 159% year over year.\nInternational markets now represent 33% of our total revenue, up from 29% a year ago.\nAs an example, in Q3, we secured a European conglomerate by replacing over 20 different antivirus products.\nThis shows how our platform can help with vendor consolidation while also delivering leading performance.\nWe're growing our sales coverage and channel presence in international markets.\nLast quarter, we talked about opening a new R&D center in the Czech Republic, and I'm excited that we're hiring great talent in this region.\nThese initiatives will continue to strengthen our international presence.\nFifth and last, we're well-positioned to expand our total addressable market through both acquisitions and strategic investments.\nWe further strengthened our leadership team with the appointment of Rob Salvagno to lead Corporate Development.\nAs we consider acquisitions, we evaluate prospects that align with our product, customer, and strategic market opportunities.\nOver time, we intend to use these opportunities to extend the reach of our XDR platform into adjacencies that complement our offerings.\nOur strategy also involves making minority investments.\nWe recently made two strategic investments in early funding rounds for Laminar and Torq, companies that align with our approach to automation and APIs.\nInvestments in emerging technologies will allow us to constantly enhance the SentinelOne platform in areas that may be of future interest to us.\nThese investments reflect our long-term commitment to innovation, automation, and securing data wherever it resides with a front-row seat into cutting-edge cybersecurity technologies.\nFinally, as part of our XDR road map, Scalyr is performing extremely well and has continued to grow year over year and quarter over quarter.\nAt the same time, we're onboarding all new customers on our revamped back end seamlessly.\nWe've begun migrating select existing customers.\nBy using Scalyr, our customers are enjoying faster performance and advanced analytics capabilities.\nOur true competitive advantage comes from the employees of SentinelOne.\nWe've invested in talent across sales, marketing, engineering, and corporate functions while cultivating an inclusive and diverse workplace.\nWe've grown rapidly in the past year, and our number of employees has gone from 600 to about 1,100.\nThis has been no small feat, and we're continuing to grow and expanding the team.\nWe work very hard to foster a productive and inclusive culture, and our efforts are showing up in results.\nAs part of the 2021 Great Places to Work certification, 96% of responses from employees said SentinelOne is a great place to work.\nWe received several other awards during the quarter that recognize our workplace culture.\nWith the combination of our differentiated technology and dedicated team, we're helping our customers stay ahead of adversaries, prevent breaches, and autonomously respond to innovation.\nWe're helping our customers reimagine cybersecurity.\nI'm excited about what we can do from here.\nOur go-to-market flywheel of sales and marketing, channel, and technology partners resulted in another outstanding quarterly performance across the board.\nStrong demand for our Singularity XDR platform is evident by our third quarter results.\nOur customers are clearly choosing SentinelOne as a partner and technology of choice.\nIn Q3, we reported an impressive ARR growth of 131%, reaching $237 million compared to last year.\nThis growth was driven by a healthy combination of new customer additions, existing customer renewals, and upsells.\nToday, we are protecting over 6,000 customers through our Singularity XDR platform.\nThat's total customer growth of more than 75% or almost 2,500 more customers compared to last year.\nOur focus on automation, speed, and accuracy is critical to any enterprise, in fact, all enterprises.\nI want to be clear.\nThis is a competitive market.\nThe environment has not changed, yet we've maintained incredibly strong win rates in all competitive situations against legacy and next-gen vendors.\nWith every new quarter, we're protecting more and more mission-critical businesses around the world.\nIn Q3, we added a leading global financial exchange in a seven-figure multiyear agreement.\nThis was a true platform win.\nThey selected SentinelOne for endpoints, cloud workload protection, remote script orchestration, and data applications.\nIt's telling that we're getting so much attention by our competitors, which speaks to the traction we're having in the market.\nWe're winning more and more customers, and our growth rates speak for themselves.\nWhat enterprises need is automated security, not repackaged legacy AV and crowd-powered protection.\nOur mission is to elevate security for our customers through a relentless focus on innovation.\nAnd our customers are happy with 97% gross retention rate and the highest score in Gartner's Voice of the Customer survey.\nThat's hundreds of customer reviews, and that speaks volumes compared to any single customer example.\nLet me take a step back and share some details around our customer and business mix.\nWe grew customers with ARR over $100,000 by 140% versus last year.\nOur business mix from customers with ARR over $100,000 continues to grow driven by our success with larger enterprises, strategic channel partners, and increasing module adoption.\nIn addition to protecting new larger customers, we're seeing strong retention and expansion within our existing customer base.\nGross retention rates remained consistent with prior quarters.\nOur net retention rate was 130% this quarter, a new record for our company.\nThis record NRR was driven by license expansion, platform tier upsells, and adoption of emerging capabilities.\nIn Q3, two of our Fortune 10 customers renewed with multiyear deals, and both expanded their use of the Singularity platform, adding modules such as Ranger and Remote Script Orchestration.\nI'd like to talk more about our channel partners.\nOur partner ecosystem helps magnify our market access and significantly extends our reach and efficiency.\nWe do not compete with our partners.\nInstead, we equip them with industry-leading capabilities like multi-tenancy and open APIs.\nIn fact, we're expanding our partner ecosystem, and this is driving significant growth for us.\nLet me double click on our managed security service provider partnerships as an example.\nMSSPs provide outsourced monitoring and management of security devices and systems.\nOur growing and highly scalable partnerships with MSSPs give us robust mid-market and large enterprise coverage.\nTogether, we have fueled significant new customer and business growth over the past several quarters.\nWe're proud to partner with companies like N-able, AT&T, Pax8, Continuum, Kroll, and many others.\nTo demonstrate the momentum we're seeing, in our third fiscal quarter, ARR from our MSSP channel increased by 300% year over year.\nIn addition to MSSPs, our incident response partners leverage the SentinelOne platform for their breach response services, making us an integral part of their capabilities.\nLast quarter, we talked about our commitment to support even more IR partners through our Singularity platform.\nIn Q3, we built upon that progress and further expanded our network of IR partners.\nWe added KPMG as a global go-to-market partner for incident response and proactive cybersecurity services.\nOur growing network of IR partners continues to help secure businesses.\nAs an example, during the quarter, we won a large airline customer in Asia through one of our IR partners.\nFinally, I'd like to share how we're putting our customers and partners first.\nWe recently hosted our first-ever customer conference called OneUP.\nParticipation and response has been incredibly positive.\nWe've also hosted partner conferences throughout the Americas and EMEA.\nOur goal is to educate on our latest innovations and continue to build on our momentum.\nOver the last few quarters, we've also received great feedback on our accreditation programs.\nWe added continuing education courses to complement our accreditation programs.\nThese courses keep our partners up to date on new capabilities and modules, which in turn support our growing scale and platform reach.\nWe had around 2,000 accreditations in June 2021.\nWe've made amazing progress since then and now have surpassed over 6,000 accreditations across our sales and presales courses through the end of November.\nThis tremendous improvement illustrates the growing attention we're seeing in the channel.\nI'm proud to work with our global team of relentless Sentinels every day.\nI'm excited about our future.\nWe will continue to deliver on our vision with focus on execution and listening to our customers.\nI'll touch on the financial highlights from the quarter and then provide additional context around our guidance for Q4 and fiscal year 2022.\nOur third quarter results exceeded expectations across the board.\nOur revenue and ARR growth both accelerated in the quarter.\nOur performance strength was broad-based, coming from a healthy mix of new customers and existing customer expansion.\nIt also balanced across geographies and customer sizes.\nWe achieved revenue of $56 million, increasing 128% year over year, and delivered ARR of $237 million with growth accelerating to 131% over the same period.\nTurning to our costs and margins.\nOur non-GAAP gross margin in Q3 was 67%.\nThis was up 9% year over year and up 5% quarter over quarter.\nThe biggest benefits are coming from our increasing scale and business expansion, including modest benefits from module and platform upsell.\nCosts associated with the migration of existing customers to our Scalyr back end were minimal in Q3.\nThis contributed to the gross margin upside relative to our prior expectations.\nI want to provide more detail here.\nScalyr is a critical part of our XDR road map and future innovation, giving us enhanced data storage and ingestion capabilities.\nWe are balancing our product road map with our migration of existing customers.\nWe will follow the optimal cadence for our customers and our business.\nIn Q3, we took a more measured approach to migrations, which had less of an impact to margin.\nWe anticipate migrating more customers in Q4 and the first half of next year.\nThat said, when I look at our Q3 gross margin of 67% and how far we've come in just the past few quarters, I see glimpse of scale and efficiency in our model.\nLooking at the rest of our P&L.\nWe're investing for growth and achieved triple-digit growth rates in ARR and revenue again this quarter.\nOur non-GAAP operating margin was negative 69%.\nWe're continuing to make strategic investments that enhance our product and scale our go-to-market.\nEven still, this is a significant improvement from negative 102% in the year-ago quarter and also from negative 98% last quarter, showcasing the potential for leverage throughout our business model.\nWe remain in investment mode in the near term, which is the right strategy given the vast opportunity in front of us.\nNow for our outlook for Q4 and the full fiscal year.\nIn Q4, we expect revenue of $60 million to $61 million, reflecting growth of between 101% to 104% year over year.\nWe're raising our full-year revenue guidance from $199 million to $200 million.\nThis implies full-year growth of 115% at the midpoint.\nThe structural tailwinds of digital transformation, hybrid work environment, and an evolving yet persistent threat environment are here to stay.\nWe're executing extremely well.\nOur product innovation, increased brand awareness and scale, and go-to-market are giving us favorable opportunities to engage with existing and prospective customers.\nWe expect Q4 non-GAAP gross margin to be between 62% to 63% and full-year non-GAAP gross margin to be between 61% to 62%.\nOur Q4 guidance implies a minimum of 8% non-GAAP gross margin expansion year over year as we're benefiting from increasing scale, improved cloud hosting agreements, and processing efficiency gains.\nOur guidance also reflects the migration of existing customers to Scalyr, which we expect will continue into the first half of next year.\nFinally, for non-GAAP operating margin, we expect negative 83% to 80% in Q4 and negative 91% to 90% for the full year.\nWe see tremendous opportunity for growth and the investments we're making today will put us in a position to succeed for the long term.\nAdditionally, as a reminder, our IPO lockup expires, and vested options and outstanding shares can be traded starting December 9, 2021.\nThis is a continuation of late September's 15% lockup expiration.\nIn closing, Q3 was another excellent quarter with strong execution companywide, and we're expecting that momentum to continue into the end of our fiscal year.",
        "summary": "q3 revenue rose 128 percent to $56 million.\nqtrly annualized recurring revenue increased 131% year-over-year to $237 million as of october 31, 2021.\nsees q4 2022 revenue $60 million -61 million."
    },
    {
        "text": "In connection with our recently announced definitive agreement to acquire Attivo, management will provide additional information as to the benefits of the acquisition.\nHowever, we'll not factor the planned acquisition into our fiscal '23 guidance at this time.\nWe caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially.\nThese non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.\nThese non-GAAP measures are not intended to be a substitute for our GAAP results.\nThis was another excellent quarter, and I'm extremely proud of the entire SentinelOne team.\nOur ARR grew 123% year over year in the fourth quarter, making the fourth consecutive quarter of triple-digit growth.\nIn today's digital world, cybersecurity is mission-critical infrastructure in every geography, industry vertical and organization size.\nThe demand environment remains incredibly strong.\nWe continue to scale our business as a result of our cutting-edge autonomous XDR platform and our powerful partner-supported go-to-market strategy.\nWe've built an AI-driven security platform that spans endpoint, cloud, IoT, data and now also identity.\nI'm thrilled that today, we announced our plan to acquire Attivo Networks.\nAttivo is a premier and highly differentiated solution that will enable us to provide cybersecurity in one of the most critical and dynamic parts of enterprise security today, the identity parameter.\nWith Attivo's user-centric identity capabilities, we will be able to support an even more comprehensive zero trust framework.\nI'd also encourage everyone to read our shareholder letter we published on our Investor Relations website, which provides a lot more detail.\nLet's take a look back at our fiscal '22.\nIt was a groundbreaking year for SentinelOne.\nWe started the year as a private company, delivered a triple-digit revenue and ARR growth rate through all four quarters and ended the year as one of the fastest-growing technology companies in public markets with outstanding growth in ARR rapidly approaching $300 million.\nThroughout the year, we celebrated accomplishments that highlight our product market fit, innovation and superb customer experience, such as a Leader in the 2021 Gartner Magic Quadrant for Endpoint Protection, highest scores in Gartner Critical Capabilities use cases and being the only vendor with 100% visibility and no misdetection in the latest MITRE evaluation.\nOur fourth quarter and fiscal '22 results demonstrate the relentless execution of our teams and focus on innovation.\nWe're protecting more enterprises today than ever before at faster speed, greater scale, higher accuracy and with more automation.\nAutomation has never been more critical to tackle the complexity of today's threats.\nI'd like to dig deeper into three key points about our performance.\nFirst, our success with large enterprises underscores the scalability of our platform.\nWe added a record number of $100,000-plus ARR deals, a record number of million dollar-plus ARR customers and closed our largest ever net new customer contract, one of the most influential and leading global Internet companies.\nNick will discuss this in more detail later on.\nSecond, we paired our phenomenal growth with significant progress toward our long-term profitability targets.\nI'm pleased to share that we ended the fourth quarter with double-digit year-over-year improvement in both our gross and operating margins.\nOur gross margins expanded 12 percentage points year over year, and our operating margin improved 38%.\nThis progress reflects our growing scale and increasing efficiency.\nLooking at the full year, fiscal '22 was an investment year for SentinelOne.\nIt featured our IPO, solidifying our brand as an industry leader, as well as investments in our go-to-market and innovation engines.\nWe doubled our total workforce.\nI'm proud of SentinelOne being named to Comparably's Best Company Culture List and receiving the 2021 Great Places to Work award.\nGiven the significant market opportunity ahead, we remain committed to investing in the growth of our business.\nAnd just like we did last year, we intend to balance this growth with further margin improvement in fiscal '23.\nFinally, our business is performing extremely well with broad-based strength across new customer adds, existing customer renewals and upsells.\nThroughout the year, we significantly expanded our platform offerings.\nOur endpoint solution remains the primary driver of our business, which is being complemented by emerging growth vectors, including cloud, IoT and data.\nWe're still in the early innings of a large and expanding total market driven by the proliferation of hybrid work environment, digital transformation and an evolving threat landscape.\nIt's clear that we achieved a lot as a company in the past year, but we must remain as vigilant as ever around the threat landscape.\nThe persistence and sophistication of new attacks continues.\nWe entered 2021 on the heels of Sunburst and exited the year battling Log4j.\nAnd most recently, the potential for cyber warfare has significantly increased in light of the Russia-Ukraine conflict.\nThis has further escalated the threat environment.\nOur vision is to be a force for good, and we're committed to doing our part to help affected people and businesses in Ukraine and around the world to stay cyber secure.\nWe've established a Ukraine Crisis Resource Center and began offering free access to Singularity XDR for cyber threat protection in Ukraine.\nWe ran similar programs to help others in the wake of Sunburst, and we're committed to defending against cyber warfare.\nThreat sharing and collaboration are essential to our collective mission against cyber attacks.\nOur teams at SentinelLabs are leading the way by uncovering some of the most sophisticated attacks across the world.\nOur global footprint puts us in a unique position to not only protect our customer base in real time but also produce novel research to educate and arm the cybersecurity community.\nWe're able to leverage the power of our partner ecosystem to stay on the front line with leading incident response providers like Mandiant, KPMG, Kroll, RSA and many others.\nAs an example, we recently named and published research on HermeticWiper related to the escalating cyber attacks surrounding the Russia-Ukraine conflict.\nThis was a real-time discovery on the eve of Russia's ground invasion.\nIt helped bring awareness to cyber attacks accompanying modern warfare.\nOur publication was followed by an alert notice from Cybersecurity and Infrastructure Agency, highlighting the significance and relevance of SentinelLabs' research.\nIf we look at the evolution of cybersecurity technologies for a moment, it's clear that legacy AV represents the past, EDR is the present and XDR is the future.\nWhile the majority of enterprises still utilize legacy AV solutions, we have undoubtedly entered the XDR era.\nAt SentinelOne, we established the foundations of XDR by pioneering the world's first purpose-built AI-powered autonomous cybersecurity platform.\nSingularity XDR brings the critical capabilities customers need from a comprehensive cybersecurity platform: speed, scale and automation.\nEnterprises are increasingly selecting SentinelOne for our best-of-breed XDR. Over the past year, we significantly broadened our platform capabilities by introducing several mission-critical and highly differentiated innovations.\nI will briefly highlight a few of these.\nFirst, we enhanced our network visibility and control capabilities with Ranger Pro.\nRanger helps enterprises eliminate one of the most commonly exploited threat vectors: unprotected and rogue assets.\nIt reduces the attack surface by offering device mapping and management capabilities.\nSecond, we introduced Storyline Active Response, our engine for automated threat hunting, detection and response.\nNext, we developed Remote Script Orchestration, a powerful endpoint management tool for both IR partners and enterprises.\nFinally, we launched Singularity Mobile, a new AI-powered mobile security solution for iOS, Android and Chrome OS devices.\nBuilding upon the acquisition of Scalyr, we launched DataSet in February of this year, a revolutionary live enterprise data platform for data queries, analytics, insights and data retention.\nDataSet expands our capabilities beyond cybersecurity use cases.\nIt's a cloud-native, flexible enterprise data platform built for petabyte scale.\nNot only DataSet is the back end for our Singularity XDR platform.\nThe technology is already being used by hundreds of enterprises, analyzing trillions of real-time events.\nCustomers like DoorDash, Copart, Asana, TomTom and many others are selecting DataSet to unlock the power of their own data with speed, scalability and technology-driven cost advantages.\nOur platform approach is resonating and is contributing meaningfully to our financial performance.\nEndpoint continues to fuel the company's growth.\nAt the same time, we're seeing outstanding traction with our adjacent platform technologies and capabilities.\nOver a third of our fourth quarter new business was driven by our Singularity modules and DataSet, up from about 20% a year ago.\nAcross all of our capabilities, our cloud workload protection and data retention modules have been the most outstanding, each delivering year-over-year ACV growth of over 10x.\nLet me spend a second on cloud security.\nThis is one of the fastest-growing markets in security today, and we're already doing extremely well on this front.\nDemand for our cloud workload protection solution has been broad-based, both within our installed base, as well as with new customers.\nCloud security represents a sizable opportunity for SentinelOne for years to come.\nAnd today, we are further expanding our addressable market and extending our XDR platform capabilities with our planned strategic acquisition of Attivo Networks.\nWe're adding another growth vector to our platform.\nIdentity now joins endpoint, cloud, IoT and data.\nI couldn't be more excited to introduce everyone to Attivo.\nAttivo aligns with the M&A strategy we previously outlined.\nFirst, it expands our addressable market into a $4 billion and growing identity TAM.\nAnd within that, Attivo is capturing share, growing its ARR north of 50%.\nSecond, user-centric identity protection is highly complementary and value-add for our XDR platform and customers.\nIt opens new customer and cross-sell opportunities.\nFinally, it has a compelling financial profile and strong cultural fit, additive to our hypergrowth and accretive to gross margins.\nIdentity is a critical component of the enterprise parameter and zero trust framework.\nAttivo's market-leading identity offerings help organizations keep passwords safe, admin privileges restricted and user identity intact.\nAttivo Networks has the right technology and the team to advance our portfolio and is a natural extension of our Singularity XDR platform and go-to-market strategy.\nMisused credentials are now one of the top techniques used in breaches.\nIf an attacker can compromise the endpoint, they will often look for the next layer of vulnerability, the user's credential.\nIf successful, attackers can install backdoors, exfiltrate data and change security policies.\nAttivo, as part of SentinelOne, will help organizations reduce their attack surface not only at the device level but now at the human identity level, too.\nAttivo has a clear product market fit with an established customer and revenue base.\nIts differentiated and battle-tested solution is already trusted by over 300 customers from Fortune 500 enterprises to government entities.\nAttivo is not just any identity company or technology.\nWe strongly believe that it's the best and most comprehensive identity security platform in the market today.\nLet me briefly introduce you to the three parts of the Attivo platform.\nFirst, identity protection is an agent-based solution that secures credentials and detects malicious identity behaviors.\nIt delivers real-time protection against credential theft, privilege escalation, lateral movement and more.\nSecond is identity infrastructure assessment, identity-based vulnerability scanning and management for enterprise infrastructure.\nAttivo's scanner provides instant visibility of active directory misconfigurations, suspicious password changes and unauthorized access.\nThis complements our Ranger network asset visibility and control capabilities and now folds in a user-centric identity view.\nThird, identity power deception.\nAttivo's deception solution make attackers reveal themselves, their methods and targets through misdirection.\nThis sums up to a multi-layered approach and a broad set of capabilities to fend off, not just detect, identity-based attacks.\nAttivo will put us front and center in the identity security market.\nAs Dave will discuss later financially, even in the early stages of a joint go-to-market, this acquisition will add to our hypergrowth trajectory.\nI'd like to share a few closing thoughts.\nThere has never been a greater enterprise need for a modern cybersecurity platform, which means a tremendous business opportunity for SentinelOne's world-class autonomous protection.\nWe are still in the early innings of our innovation and growth.\nOur outstanding fourth quarter and fiscal '22 financial performance speak for itself, triple-digit revenue and ARR growth paired with double-digit non-GAAP margin expansion.\nWe're perfectly positioned for continued success and expansion of our business even in times of global uncertainty.\nWe delivered an outstanding fourth quarter across every geography, driven by our go-to-market flywheel of sales, marketing, channel and technology partners.\nMore large enterprises are selecting SentinelOne than ever before because of our industry-leading efficacy, automation, ease of use and differentiated XDR capabilities.\nListening to customers and following many of the largest incidents in cybersecurity over the past few years, identity is a critical vector in delivering the most complete XDR platform.\nNot only is it a natural fit within our platform.\nIt will complement our network of strategic service providers extremely well.\nIn Q4, we reported impressive ARR growth of 123%, reaching $292 million.\nThis growth was driven by a healthy mix of new customer additions, renewals and upsells.\nOur momentum with large enterprises was particularly strong this quarter.\nWe added a record number of customers with ARR over $100,000 and a record number of million dollar-plus ARR customers.\nAll of this is extraordinary and reflects the success of our sales and marketing organizations.\nLet me share more on this.\nOur customers with ARR over $100,000 grew 137% year over year to 520.\nAnd let me give you an example.\nIn Q4, we closed the largest new customer deal in our history with one of the most influential and leading global Internet companies.\nThis win came after an intensive evaluation process, including other next-gen security providers.\nI'd like to highlight one additional win, which is emblematic of what we're seeing in the market.\nLike most Fortune 500 companies, this enterprise was using multiple operating systems.\nThey lacked true security parity across all surfaces.\nTheir existing next-gen EDR vendor failed to quickly deploy and left critical Mac and Linux attack surfaces unprotected.\nThey terminated their existing three-year subscription mid-flight and turned to SentinelOne.\nSingularity XDR deployed instantly across the whole enterprise, which was expedited by our patented Ranger discovery and auto-deploy capabilities.\nThe customer has become a fantastic partner and is benefiting from our true cross-platform feature parity and automation.\nWe also closed new deals with many other large enterprises across verticals from technology to global consumer brands to financial services companies.\nSentinelOne is winning more market share in every major geography, replacing incumbent vendors of all types and winning against the competition.\nIn total, at the end of fiscal '22, we secured over 6,700 customers comprising both large enterprises and medium-sized businesses.\nThat's total growth of more than 70% or almost 3,000 more customers compared to last year.\nOur total addressable market is large and expanding.\nA majority of the market still utilizes legacy antivirus solutions.\nThe competitive environment has not changed.\nWe've maintained incredibly strong win rates in all competitive situations against both legacy and next-gen vendors.\nWhat's more exciting is that the opportunity per customer is much larger today than it was for legacy providers in the past.\nThis is because of the breadth of our platform, covering endpoints and surfaces of all types, cloud workloads, Kubernetes, mobile devices and IoT devices and soon, identity.\nWe, once again, achieved strong retention and expansion within our customer base.\nOur net retention rate of 129% remained extremely healthy and well above our target of over 120%.\nOur NRR was driven by footprint expansion, cross-sell of adjacent modules and upsell from platform tiers.\nWe continue to prioritize new customer growth, while at the same time, we are seeing massive success in customers consuming more and more of the Singularity platform.\nOur modules and DataSet now represent over a third of our new business.\nAnd once again, this is broad-based and includes everything from cloud and Ranger to managed capabilities and DataSet.\nOur cloud workload protection and data modules are delivering the highest growth.\nThey each grew over 10x year over year, reflecting demand for our best-in-class runtime protection for cloud workloads and unparalleled data retention offerings.\nI also want to call out our newest endpoint management module, Remote Script Orchestration.\nRSO has achieved the fastest ramp of any new module in SentinelOne history.\nOur incident response partners love the ability to remotely manage fleets of endpoints at machine speed in critical breach response moments.\nNext, I'd like to talk more about our channel partners.\nOur partner ecosystem continues to magnify our market presence, significantly extending our reach and efficiency.\nOur strategic technology and services partners have grown to over 20% of our business.\nThis includes MSSPs, MDRs and IR firms.\nThese partnerships are accretive to our overall growth rate with significant business expansion opportunities yet to be unlocked.\nLet me double-click on the success of our IR partnerships.\nOver the past year, we focused on partnering with many of the largest and most sophisticated IR providers in the world.\nIn the fourth quarter, Mandiant selected SentinelOne as a global go-to-market partner.\nWe are becoming the partner of choice for leading IR providers, including KPMG, Kroll, Arete and many others.\nOur strategy brings the best of both worlds to our joint customers, top incident response consultants leveraging the best-in-class XDR platform.\nI can't stress enough that we don't compete with our partners.\nWe work with over 100 of the world's leading IR firms, enabling us to address a majority of the IR market worldwide.\nThese partnerships create hundreds of high-value and fast-moving opportunities every quarter.\nThis is significantly more coverage than any single vendor could hope to gain on its own.\nWe are also very excited about our growing partnerships with MSSPs.\nThey continue to expand our coverage across large enterprises and mid-market customers.\nLeading MSSPs are choosing SentinelOne because of our technology leadership, ease of management and multi-tenancy capabilities.\nToday, we are partnering with top-tier MSSPs, including Enable, ConnectWise, Pax8, AT&T and hundreds of others, many of which exclusively work with SentinelOne.\nThese relationships have helped us achieve significant scale and exposure, complementing our enterprise sales success.\nLooking at just a few of our top MSSP partners like Enable and Pax8, they represent millions of endpoints now secured by SentinelOne.\nWe're extremely confident about the market opportunity we can jointly address with our MSSP partners as more organizations seek managed solutions.\nFinally, I'd like to share how we are helping enterprises adopt a zero trust security model by partnering with leading vendors.\nOur two-way technology integrations with Zscaler, Mimecast, ServiceNow and many others demonstrate top-tier vendors working together as part of the Singularity ecosystem.\nThis year has been incredible for SentinelOne, filled with innovation and growth.\nAnd we began the new fiscal year announcing our plan to add identity to our platform, which further expands SentinelOne's capabilities and offers exciting business opportunities.\nI'm proud to work with our global team of relentless Sentinels every day.\nI'm excited about our future.\nWe will continue to deliver on our vision by focusing on execution and listening to our customers.\nI'll discuss our quarterly financial highlights and provide additional context around our guidance for Q1 and full fiscal year 2023.\nI'll also touch on the financial highlights for Attivo and the full year implications.\nWe delivered another strong quarter of revenue and ARR growth, both well into the triple digits.\nWe achieved year-over-year revenue growth of 120%, reaching $66 million, and ARR growth of 123%, exceeding $292 million.\nWe added net new ARR of $56 million in the quarter, a new record for the company.\nWe saw strong momentum and a robust demand environment for our platform.\nThe strength of our performance was broad-based, coming from a healthy mix of new customer additions, existing customer renewals and upsells.\nAll of this was further magnified by the strong underlying seasonality of our fourth quarter.\nOur business expanded nicely across all geographies.\nRevenue from international markets grew 140% and represented 31% of revenue.\nTurning to our cost and margins.\nOur non-GAAP gross margin in Q4 was 66%, reflecting a double-digit increase of 12% year over year.\nWe're seeing the benefits from our increasing economies of scale and business expansion, including strong module attach, platform upsell and data processing efficiencies.\nThis was partially offset by the temporary costs we discussed last quarter associated with the migration of existing customers to our DataSet back end.\nWe've made excellent progress on this front.\nAll of our new customers are already using the DataSet back end, plus we've already migrated many of our largest existing customers.\nThese customers are enjoying up to 10x performance improvements.\nWe remain on track for our migration plan, and these temporary duplicative costs should be behind us after the first half of this year.\nWhen I put it all together and I look at the Q4 gross margin of 66% and a significant improvement compared to last year, I see increasing evidence of scale and efficiencies of our business.\nLooking at the rest of our P&L.\nOur non-GAAP operating margin was negative 66%, compared to negative 104% a year ago, a huge improvement of 38 percentage points.\nAnd we achieved these impressive results while investing for growth throughout the year, including the IPO, new product launches and doubling of our workforce.\nThis progress toward our long-term financial target demonstrates the potential for leverage throughout our business model.\nWe're investing in our business, which is the right strategy given the huge market opportunity and strong demand for our leading platform.\nMoving to our guidance for Q1 and the full fiscal year '23.\nIn Q1, we expect revenue of $74 million to $75 million, reflecting annual growth of 99% at the midpoint.\nFor the full year, we expect revenue of $366 million to $370 million, reflecting annual growth of 80% at the midpoint.\nWhile we don't specifically guide for ARR, I do want to remind you that we are a subscription business.\nOur ARR and revenue growth track very closely.\nOur revenue guidance for Q1 implies that we should be at or better than typical Q1 net new ARR seasonality, which has been down between 25% to 35% sequentially in the past two years.\nWe believe the structural tailwinds of digital transformation, hybrid work environment and an evolving threat landscape will continue to drive customer adoption of our real-time AI-powered security platform.\nThe threat landscape is more complex and elevated than ever before, and our product innovation, brand recognition and scaling go-to-market have positioned us well to capture the favorable opportunities.\nFor Q1, we expect non-GAAP gross margin to be between 63% to 64% and full year non-GAAP gross margin to be between 65% to 67%.\nOur Q1 guidance implies over 10 percentage points year-over-year gross margin expansion at the midpoint.\nWe expect to continue benefiting from increasing scale and better data processing efficiencies.\nOur guidance also reflects the migration of our remaining existing customers to DataSet, which, once again, we expect will conclude in the first half of the year.\nAs a reminder, these costs are temporary.\nBased on our full year guidance, we see the opportunity to achieve high 60% gross margins by year-end.\nFinally, for non-GAAP operating margin, we expect negative 84% to 86% in Q1 and negative 55% to 60% for the full year.\nBoth of these represent meaningful year-over-year improvements.\nAt the midpoint, we expect Q1 operating margin to improve over 40 percentage points and full year operating margin to improve over 25 percentage points.\nWe see tremendous opportunity for growth, and the investments we're making today will put us in a position to succeed for the long term.\nAnd we're doing this as we make progress toward profitability and our long-term target EBIT margin of 20%-plus.\nBefore I close, let me share the key financial points related to Attivo.\nThis should help you as you think through modeling the business for the future.\nWe're acquiring Attivo for $617 million in a combination of cash and stock plus additional retention.\nWe expect the deal to close in our fiscal second quarter, subject to customary closing conditions, including regulatory approval.\nI want to be clear, Attivo is not currently factored into our fiscal '23 guidance at this time.\nWe expect to incorporate their financials into our outlook after the deal closes on our next earnings call.\nAttivo is an excellent business that can become even stronger as part of our Singularity platform.\nThey concluded their quarter ended December '21 with over 300 customers and ARR of approximately $30 million, growing north of 50%.\nFor calendar year '22, the current forecast for the business is to deliver revenue of approximately $40 million for the full year.\nAnd from a margin standpoint, Attivo is accretive to our organic gross margins.\nBut remember, as we expect this to close during our second fiscal quarter, we would incorporate only a portion of that.\nAttivo and SentinelOne are highly complementary solutions that will open up new customer and cross-sell opportunities, further addressing the needs of larger enterprises.\nI want to join Tomer, Nick and all of SentinelOne in welcoming the Attivo team.\nIn summary, Q4 was another excellent quarter with strong execution companywide, and we're expecting that momentum to continue into the next fiscal year.\nWe can now take questions.\nOperator, can you please open up the line?",
        "summary": "q4 revenue rose 120 percent to $65.6 million.\nqtrly annualized recurring revenue (arr) increased 123% year-over-year to $292.3 million as of january 31, 2022.\nsees revenue $74-75 million for q1.\nsees revenue $366-370 million for fy 2023."
    },
    {
        "text": "Rong Luo, chief financial officer; Linda Huo, vice president of finance; and myself, IR of TAL.\nPotential risks and uncertainties include but are not limited to those outlined in public filings with the SEC.\nIn a recent couple of months, China's public health situation and economy show further progress.\nInternationally, [Inaudible] city efforts and vaccination programs are hope signs that the worst of the pandemic could be behind us all.\nMeanwhile, at TAL, our tutoring business, both online and offline, as well as our capacity expansion in all cities developed as planned for the fourth quarter of fiscal-year 2021.\nLet me give you a quick overview of the key metrics.\ndollar terms to $1,362.7 million and 47.7% in RMB terms.\nTotal normal price long-term course student enrollments increased by 44% year over year, mostly driven by online, as well as Xueersi Peiyou small-class enrollments.\nGAAP loss from operations was $297.2 million, compared to $41.3 million in the fourth quarter last fiscal year.\nNon-GAAP operating loss was $216.9 million, compared to $8.4 million in the same year-ago period.\nIn the full year of fiscal 2021, net revenue gross was 37.3% in U.S. dollar terms, which is 34.1% in RMB terms.\nShe will give you an update on our operational progress in the fourth quarter.\nNext, Echo Yan, our IR director, will review the fourth-quarter and the fiscal-year financials.\nAfter that, I will update you on our business strategy and discuss our business outlook.\nI will review the various revenue streams of our tutoring business for the fourth quarter of fiscal-year 2021.\nLet me start with small class and other business, which consists of Xueersi Peiyou small class, Firstleap, Mobby, and some other education programs and services.\nThese accounted for 61% of total net revenue, compared to 68% in the same year-ago period.\nTheir revenue growth rate was 43% in U.S. dollar terms and 33% in RMB terms.\nXueersi Peiyou small class, which remains our stable core business, represented 63% of total net revenue in the fourth quarter, compared to 69% in the same year-ago period.\nThe lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 32% of total revenue in the quarter, compared to 24% in the same period last year.\nFourth-quarter net revenue from Xueersi Peiyou small class was up by 43% in U.S. dollar terms and 33% in RMB terms.\nWhile our normal price long-term course enrollments increased by 21% year over year.\nAll in all, the improving overall situation in China supported the continued recovery of our Peiyou business in the course of fiscal-year 2021.\nOur key operational metrics of Peiyou such as retention rate, fulfillment rate, and the job upgrade remained very stable throughout the year even in these unprecedented circumstances.\nIn the fourth quarter, normal price long-term Xueersi Peiyou small-class ASP increased by 22% in U.S. dollar terms and increased by 13% in RMB terms year over year.\nThe increase was mainly due to the pricing gap refund we offered in February 2020 when we had to migrate Peiyou offline small-class students to online small class.\nXueersi Peiyou small class performed well in the various tiers of cities.\nRevenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen, and Nanjing increased by 44% year over year in U.S. dollar terms and accounted for 55% of Xueersi Peiyou small-class business.\nThe other cities accounted for 45% of the Xueersi Peiyou small-class business.\nNext, I'd like to discuss our Zhikang one-on-one business.\ndollar terms and 19% in RMB terms.\nZhikang one-on-one accounted for approximately 6% of total revenues in the fourth quarter of fiscal-year 2021, compared to 8% in the same year-ago period.\nIn the fourth quarter, normal price long-term Zhikang one-on-one courses ASP increased by 17% in U.S. dollar terms and 8% in RMB terms year over year.\nThe increase was mainly due to some slight discounts we offered in February last year when we had to move Zhikang offline students to online after the COVID-19 outbreak, as well as the regular increase of tuition fees in several cities during the period.\nNow, let me update you on our current capacity expansion strategy.\nWe continued the expansion drive in the fourth quarter as planned for this fiscal year.\nWe added eight new cities in the fourth quarter, bringing the total to 110 cities.\nOf which, 40 were newly added during fiscal-year 2021.\nThese eight new cities are Ma'anshan, Cangzhou, Weihai, Liaocheng, Rizhao, Yibin, Nanchong, and Zhaoqing.\nSimilarly, we expanded our learning center network in the fourth quarter based on a healthy and sustainable approach, and by following government guidelines and market demand.\nIn Q4, we added 108 new learning centers on that basis to a total of 1,098 learning centers.\nWe opened 119 new Peiyou small-class learning centers and closed nine, and a net of 110 Peiyou small-class learning centers.\nWe closed five Mobby and Firstleap centers.\nAnd we open four one-on-one centers and closed one one-on-one center, ending at 93 one-on-one centers.\nDuring the quarter, we added 677 Peiyou small-class classrooms.\nIn all, by the end of February 2021, we've had 1,098 learning centers in 110 cities of which 109 cities in China and one Xueersi Peiyou learning center in the United States.\nAmong these learning centers, 879 were Peiyou small-class and international education centers, 82 were the merged Firstleap and Mobby small classes, and 137 were Zhikang one-on-one.\nLooking into Q1 of the fiscal year 2022, we have conditionally rented some Peiyou small-class learning centers and expect to add a few more and close down some learning centers based on standard operations.\nWe will closely follow up with government guidelines as always and stay alert for COVID-19 developments.\nTurning now to our online business.\nFirst fiscal quarter revenue from xueersi.com grew by 115% in U.S. dollar terms year over year.\nAnd 100% in RMB terms, while normal priced long-term course enrollments grew by 71% year over year to over USD 3.7 million.\nIn the fourth quarter, xueersi.com contributed 32% of total revenue and 53% of the total normal price long-term enrollments, compared to 24$of total revenue and 44% of total normal price long-term course enrollments in the same year-ago period respectively.\nThe growth in online business was supported by increasing demand for online education as well as sales and marketing efforts and the retention of the previous quarters.\nIn addition, in Q4, normal-priced long-term course ASP increased by 9% in U.S. dollar terms and increased by 1% in RMB terms year over year.\nLet me now go through some key financial points for the fourth quarter and then briefly review the fiscal year 2021 financials.\nGross profit increased by 72.9% to $81.2 million from $451.8 million in the same year-ago period.\nGross margin for the third quarter increased to 57.3%, as compared to 52.7% for the same period of last year.\nSelling and marketing expenses increased by 171.6% to $650.5 million from $243.2 million in the fourth quarter of the fiscal year 2020.\nNon-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 168.4% to $635.5 million from $236.8 million in the same year-ago period.\nThe year-over-year increase of selling and marketing expenses in the fourth quarter of the fiscal year 2021 was primarily a result of more marketing promotion activities to strengthen our customer base and the brand as well as higher compensation to sales and marketing staff to support more programs and the service offerings.\nOther income was $7.9 million for the fourth quarter of the fiscal year 2021, compared to other expenses of $4.7 million in the fourth quarter of the fiscal year 2020.\nOther income in the fourth quarter of the fiscal year 2021 was primarily due to the value-added tax and social security expense exemption offered by the government during the COVID-19 impact period and partially offset by an impairment loss of non-current assets.\nThe income tax benefit was $80.5 million in the fourth quarter of the fiscal year 2021, compared to $63.6 million of income tax expense in the fourth quarter of the fiscal year 2020.\nNet loss attributable to TAL was $169 million in the fourth quarter of the fiscal year 2021, compared to a net loss attributable to TAL of $90.1 million in the fourth quarter of the fiscal year 2020.\nNon-GAAP net loss attributable to TAL which excluding the share-based compensation expenses was $88.7 million, compared to a non-GAAP net loss attributable to TAL of $57.2 million in the same year-ago period.\nFrom the balance sheet as of February 28, 2021, the company had $3,243 million of cash and cash equivalents and $2,694 million of short-term investments, compared to $1,873.9 million of cash and cash equivalents and $345.4 million of short-term investments as of February 29, 2020.\nAs of February 28, 2021, the company's deferred revenue balance was $1,417.5 million, compared to $781 million as of February 29, 2020, 30th, representing a year-over-year increase of 81.5%, which was mainly contributed by the tuition collected in advance of part of the brief semester of Xueersi Peiyou small classes and online courses through www.\nxueersi.com as well as deferred revenue related to other businesses.\nTurning now to the full physical year 2021.\nLet me briefly review some key financials as follows.\nThis year revenue grew by 37.3% to $4,495.8 million.\nGross profit grew by 35.6% to $2,447 million from $1,804.7 million in the fiscal year of 2020.\nGross margin for the fiscal year 2021 decreased by 70% to 54.4% as compared to 55.1% for the same period of last year.\nLoss from operations was $438.2 million in the fiscal year of 202, compared to income from operations of $137.4 million in the previous year -- the prior year.\nNon-GAAP loss from operations, which excluded the share-based compensation expenses was $233.3 million for the fiscal year of 2021, compared to non-GAAP income from operations of $255.4 million the fiscal year of 2020.\nNet loss attributable to TAL was $116 million in the fiscal year 2021, compared to a net loss attributable to TAL of $110.2 million in the fiscal year of 2020.\nNon-GAAP net income attributable to TAL which excluded the share-based compensation expenses was $98 million, compared to non-GAAP net income attributable to TAL of $7.7 million in the fiscal year 2020.\nNow, I will hand the call back to Rong Luo to swiftly update you on our strategy execution and provide the business outlook for -- for the next quarter.\nFiscal year was indeed an unprecedented year due to outbreak of Kobe COVID-19.\nOver the years, we timely respond to any government instructions related to public health and wherever necessary, to protect the safety of our students and clients, and contribute to our country's great efforts to fight against this pandemic.\nDespite all the challenges we have faced, we realize 37.3% revenue growth for the fiscal year 2021, which was in line with our long-term growth rate expectations.\nWe state our -- with state-owned costs of our development strategy, asset allocation, service provider, regardless of the pandemic and the intense competition.\nLooking ahead, we will continuously follow up with the government guidelines for the industry and conduct our class teachings in line with national public health -- health regulations, as well as keep investing in the quality of our -- our products, services, teachers training, and technologies, supported by sustainable marketing efforts, such our ever-more diversified tutoring offerings will be able to better meet customers changing demand and ability to pay.\nLet me turn finally to our business outlook.\nBased on our current estimates, total net revenue for the first quarter of the fiscal year 2022 is expected to be between us $1,302.2 million and $1,320.5 million, representing an increase of 43% to 45% on a year-over-year basis.\nOperator, we are now ready to take questions.",
        "summary": "sees q1 revenue up 43 to 45 percent."
    },
    {
        "text": "If you have technical questions on the quarter, please pick them up with the IR team in the days, in the weeks that follow.\nGAAP reconciliations for any non-U.S. GAAP measures are included in our news release or otherwise available on our website.\nAnd also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.\nSo with that, over to you Gavin.\nLet me start by stating the obvious, the first quarter was not the quarter we expected to have, that reality was driven by 3 events, cyber security incident that caused the global system outage, a freak winter storm in Texas, that forced utility companies to shutoff power to major businesses, including our Fort Worth brewery and government pandemic restrictions that shut down the entire on-premise channel in the UK and severely restricted much of the on-premise in Canada.\nTo say that all of these events happened in a single quarter is unprecedented, would be an understatement.\nSo while we can't control the weather, across the business, we executed well on what was in our control.\nThat's true, how we responded to each event.\nOur team quickly implemented contingency plans to boost production and get our core brands back to a stable inventory before Memorial Day.\nRight now, we are shipping, over 1 million barrels a week in the United States for the first time in nearly a year.\nBut most importantly, it's true of how we are executing on our revitalization plan.\nDuring the first quarter, Coors Light and Miller Lite outperformed the combination of Bud Light and Michelob Ultra in U.S. industry share performance versus the prior year according to IRR.\nOur U.S. above premium portfolio grew brand volumes versus the prior year and continue to gain industry share according to IRR, and we took substantial steps toward our hard seltzer ambition.\nOur Truss joint venture's non-alcoholic cannabis beverages are holding strong as the number 1 dollar share spots in the entire Canadian cannabis beverage market.\nAs expected, the availability of our 12-ounce standard cans returned to normal levels.\nAnd we continued working to protect the environment through significant initiatives in the United Kingdom.\nSo let's look deeper in each area.\nLet's start with our Coor.\nWe will continue to see improving brand volume trends for Coors Light and Miller Lite in North America over the past quarter, dovetailing off strong performance in 2020.\nBut the performance is even more impressive when you look at our biggest brand and our biggest family of brand.\nCoors Light finished the quarter with its strongest category share performance since Q1 of 2017.\nAnd Coors Banquet posted its best quarterly volume performance in over 4 years in the United States.\nWe're building on that strong performance in the Coors family of brands with the launch of Coors Pure in March, our first USDA certified organic beer brand.\nAnd we had a strong Q1 in Panama, with over a 50% increase in brand volumes with Coors Light's explosive triple-digit growth leading the way.\nNow, when it comes to our plans to aggressively grow our above-premium portfolio, as you know, we have big ambitions for hard seltzers is this year and the first quarter was a big one.\nAnd as we sit here today, our share of U.S. hard seltzer segment is over 50% higher than it was at the beginning of the year.\nIn a single week, Topo Chico Hard Seltzer jumped to 3.2 share U.S. hard seltzer category, despite only launching in 16 markets.\nAnd it achieved a 20 share in Texas.\nNow I know it's early days, but there is a stunning effect, which speaks to the opportunity with this brand.\nAnd it's not alone in our portfolio, Vizzy was IRR top 10 U.S. industry growth brand in Q1.\nWe are building on that with the brand's second variety pack, which launched in March and the new Vizzy Lemonade which launched several weeks later.\nThey are both performing well.\nAnd in fact, Vizzy Lemonade is the second fastest turning hard lemonade seltzer in the market.\nWe made significant headway with our hard seltzers in Canada and in Europe as well.\nOf just over a month in market, Vizzy and Coors seltzers are top hard seltzer brands with some of the leading Canadian retailers.\nIn the UK, our new Three Fold hard seltzer brand is launched.\nWhile our new brand Wai in Central and Eastern Europe is launching in the coming weeks.\nIn above premium beers, Blue Moon Light Sky, the number 1 new item in U.S. beer last year is currently the number 1 share gainer in U.S. craft beer in 2021.\nAnd Hop Valley has made its official national debut in the U.S. and Canada.\nSo our first national light here in the U.S., we believe it will be another driver of growth for our above premium portfolio.\nWhen it comes to our plans to expand beyond beer, last year we made a lot of news as we took on a number of partnerships to build a competitive portfolio.\nThis year, it's all about executing on those plans.\nThough it gives us a strong entry into the $16 billion U.S. energy and performance space and is positioned to take a meaningful share of the category within a matter of months, it's just now beginning to hit shelf.\nFor Bar Memorial Day we expect we will have over 80,000 points of distribution.\nAnd by the end of summer, that number is expected to climb to nearly 150,000.\nLa Colombe gives us the number 1 above premium player in the RTD coffee space and I'm excited to report that we are ahead of plan on all of our distribution targets.\nTruss Canada, a Canadian cannabis joint venture with HEXO is holding strong as the number 1 dollar share position with 6 of the top 10 cannabis beverage skews in Canada.\nAnd our Truss U.S.A joint venture is building on that through their first lineup of hemp-derived CBD beverages in Colorado.\nAnd we have entered the fast-growing RTD cocktails space through an exclusive equity and distribution agreement with Superbird in above premium tequila-based Paloma.\nThis entire lineup represents tremendous growth for our business and is helping us drive our emerging growth division toward a $1 billion revenue business by 2023.\nLast but certainly not least, is how we are investing in our capabilities, our people and our communities.\nWe have long been recognized as a leader for our environmental efforts, and several weeks ago, we became the first major UK brewer to operate entirely by renewable energy.\nSoon, everyone of the 1 billion pints of beer we produced annually in the UK will be made with 100% renewable energy.\nAnd we didn't stop there.\nWe are removing plastic rings from all of our major cracks across the UK.\nIn the U.S. this month, we announced our investment in TRU Colors, a North Carolina-based brewery that was founded on the premise that aligning rival gang members under the same roof with a common goal to both mitigate street violence and create economic opportunity.\nWe're excited to share our knowledge on growing brand positioning and supplier relationships.\nAnd we are excited to be part of the business that is driving positive change and creating economic opportunity.\nI can assure you the events of this quarter are not lost on any of us, but as the quarter came to a close, there is land on the horizon.\nThe on-prem gradually begin to open back up in the UK.\nOur industry standard can inventory normalized and our weekly shipments in the U.S., topped 1 million barrels for the first time in nearly a year.\nWe are making progress on the things that are within our control and we are delivering against our revitalization plan.\nAnd that is what gives me the confidence to reaffirm our guidance for the full year.\nThat is what gives me confidence in the current expectation that the Board will be in a position to reinstate the dividend in the second half of this year.\nThat is what gives me confidence that we'll achieve long-term top line growth.\nAnd that is what tells me the future of Molson Coors is bright.\nDespite the challenges Gavin mentioned, we are proud of our operational agility and resilience as we are deeply managed through these challenges, while still continuing to execute our revitalization plan.\nNow let me take you through our quarterly results and provide an update on our outlook.\nConsolidated net sales revenue decreased 11.1% in constant currency, principally due to lower financial volumes, which declined 12% while brand volumes declined 9.1%.\nWe delivered net pricing growth in North America and Europe as well as positive brand mix in the U.S. as we continue to premiumize our portfolio.\nHowever, this was more than offset by the on-premise restrictions due to the Coronavirus pandemic and a corresponding negative channel mix as well as the unfavorable shipment timing in the U.S. related to the cyber security incident and the Texas winter storms.\n20.53 Net sales per hectoliter on a brand volume basis increased 1.8% in constant currency as the net pricing growth more than offset the negative mix effects in Canada and Europe.\nUnderlying COGS per hectoliter increased 5.6% on a constant currency basis, driven by cost inflation and volume deleverage partially offset by cost savings.\nDriving cost inflation was higher transportation costs due to the continued tightening of the freight market in North America as well as higher can sourcing costs as we continue to source additional aluminum cans from all over the world to address the significant off-premise demand for our core brands.\nMG&A in the quarter decreased 15.9% on a constant currency basis, driven by lower marketing spend and discretionary expenses as well as cost savings.\nWhile the timing of our marketing investments was adjusted in areas impacted by the pandemic, we continue to invest as planned beyond our core brands and key innovation.\nAs a result, underlying EBITDA decreased 20.2% on a constant currency basis.\nUnderlying free cash flow was a use of $271 million for the quarter, an increase in cash use of $54 million from the prior year period driven by lower underlying EBITDA and unfavorable working capital, driven by the timing of payments related to lower volumes, higher non-income tax deferrals due to governmental programs related to the Coronavirus pandemic and incentive payments partially offset by lower capex spend.\nCapital expenditures paid were $103 million for the quarter, which were largely focused on our previously announced Golden brewery modernization project.\nCapital expenditures were lower in the quarter compared to the prior year, primarily due to project timing.\nNow let's look at our results by business units.\nIn North America, our markets experienced varying degrees of on-premise restrictions.\nIn the U.S., our largest market, we saw progressive reopenings, and while we have seen sequential improvement in the on-premise channel, we are still not back to pre-pandemic level.\nIn Canada, we saw significant restrictions and closures, while in Latin America, we saw restrictions easing.\nIn the U.S. brand volumes decreased 7.3% compared to domestic shipment declines of 9.5%, driven by the economy and premium segments.\nHowever, our U.S. above premium brand volumes grew versus the prior year and the segment reached a record high portion of our portfolio, relative to any prior year this quarter since the creation of the MillerCoors joint venture.\nCanada brand volumes declined 10.8% primarily due to the on-premise closures, while Latin America brand volumes grew 10.8%.\nNet sales per hectoliter on a brand volume basis increased 2.4% in constant currency.\nIn the U.S., net sales per hectoliter on a brand volume basis increased 4.1% driven by positive brand mix made by innovation brand, Vizzy, Topo Chico Hard Seltzer and ZOA.\nIn Canada, negative channel mix more than offset the net pricing increases, while Latin America net sales per hectoliter on a brand volume basis increased due to positive sales mix.\nNorth America, underlying EBITDA decreased 13.3% in constant currency, due to the lower net sales revenue and higher COGS per hectoliter partially offset by a 14.4% decrease in MG&A in constant currency.\nThe increase in COGS per hectoliter was driven primarily by inflation, including higher transportation and packaging material cost, volume deleverage and mix impacts from premiumization, partially offset by cost savings.\nThe MG&A decline was mainly due to lower marketing spend and discretionary expenses as well as cost savings.\nWe increased marketing investment behind core innovation brands such as Coors Seltzer, Vizzy and Blue Moon LightSky, and we increased media spending behind our iconic core brands, Coors Light and Miller Lite.\nThese increases were more than offset by lower spend in areas impacted by the pandemic such as sports and live entertainment events.\nEurope net sales revenue was down 39.5% in constant currency driven by volume declines and negative geographic and channel mix due to on-premise restrictions most meaningfully in the UK, given the on-premise lockdown for the full quarter.\nEurope financial volumes decreased 22% and brand volumes decreased 17% driven by a significant decline in brand volumes in the UK.\nHowever, our Central and Eastern European business has performed fairly well and was able to deliver comparable volumes basis the prior year period.\nNet sales per hectoliter on a brand volume basis declined 10.4% driven by unfavorable geographic channel and brand mix, particularly from our higher margin on-premise focused UK business, partially offset by positive pricing.\nUnderlying EBITDA was a loss of $38 million compared to a loss of $4.1 million in the prior year driven by gross margin impact of lower volume and unfavorable geographic and channel mix as a result of the pandemic, partially offset by lower MG&A expenses driven by cost mitigation actions.\nTurning to the balance sheet.\nNet debt was $7.7 billion, down $1.1 billion from March 31, 2020 and we ended the first quarter with a strong borrowing capacity with no outstanding balance on our $1.5 billion U.S. credit facility as of March 31, 2021.\nAs for our UK COVID corporate financing facility, it was closed on March 23, 2021, and we had no outstanding borrowings at that time.\nTurning to our financial outlook.\nWe are reaffirming our 2021 annual guidance provided on February 11, 2021.\nWe expect to deliver mid-single digit net sales revenue growth on a constant currency basis.\nWe are working aggressively to build inventories and expect domestic shipment trends in the U.S. to begin to exceed brand volume in the second half of the year.\nFor the year, we maintain our current year goal of shipping to consumption in the U.S. In the U.S., we expect improving on-premise trends in the second quarter as we left essentially full closures in the prior year.\nWhile in Canada, we have seen increasing on-premise restrictions continuing to pressure the on-premise channel.\nIn Europe, we've seen a gradual opening of the UK on-premise beginning in mid-April to after consumption only and we expect through the phase on-premise reopening later in the second quarter resulting in year-on-year improvement versus the prior period.\nWe anticipate underlying EBITDA will be flat compared to 2020 as growth is expected to be offset by COGS inflationary headwinds, but more significantly from increased investment to deliver against our revitalization plan.\nWe intend to increase marketing spend to build on the strength of our core brands and support our successful 2020 launches including Blue Moon LightSky, Vizzy and Coors Seltzer and new innovations like Topo Chico Hard Seltzer and ZOA.\nWith this in mind, we expect significant year-on-year increases in marketing spend over the balance of the year, and most notably in the second quarter.\nWe expect second quarter marketing spend to be higher than the second quarter 2020 level and to approach second quarter 2019 level.\nWe also continue to anticipate underlying depreciation and amortization of $800 million, net interest expense of $270 million plus or minus 5% and an effective tax rate in the range of 20% to 23%.\nIt also best reminding that in our 2020 -- that in 2020 our working capital benefited from the deferral of approximately $150 million in tax payment from various government-sponsored payment deferral programs related to the Coronavirus pandemic.\nAnd we currently anticipate the majority to be paid this year as they become due.\nAs 2020 positioned us with greatly improved financial flexibility, better in aiming us to execute our capital allocation priorities, to invest in our business to grow our top line growth and efficiencies, pay down debt and return cash to shareholders in 2021.\nWe plan to continue to prudently invest in brewery modernization and production capacity and capability to support new innovations and growth initiatives, improving efficiencies and advance toward our sustainability goals.\nDriven by our commitment to maintaining any time upgrading our investment grade rating, we expect to continue to pay down debt and reaffirm our target net debt to underlying EBITDA ratio of approximately 3.25 times by the end of 2021, and below 3 times by the end of 2022.\nAnd in line with our fourth quarter 2020 earnings comments, we currently anticipate that our Board of Directors will be in a position to reinstate a dividend in the second half of this year.\nNow, we are pleased with our ability to adapt and overcome the past incredible challenges we faced in the first quarter.\nOur continued progress against our revitalization plan, the agility of our organization in the face of challenges and the commitment and resilience of our people give us the confidence, we can continue to successfully execute our revitalization plan, driving long-term sustainable revenue and underlying EBITDA growth, and we look forward to updating you on our continued progress.",
        "summary": "qtrly net sales revenue decreased 9.7% reported and 11.1% in constant currency.\nqtrly net sales revenue per hectoliter increased 1.8%, on a brand volume basis.\nqtrly net sales$1,898.4 million versus $2,102.8 million.\nfor 2021 net sales revenue sees mid-single digit increase on a constant currency basis."
    },
    {
        "text": "I'm joined by our Chief Executive Officer, Patrick Beharelle.\nWe use non-GAAP measures when presenting our financial results.\nAny comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated.\nBefore I dive into quarterly results, I wanted to take a moment to reflect back on 2020.\nIn March of 2020, jurisdictions across the country began implementing restrictions to protect public health, as the impact of COVID set in.\nMany of our clients temporarily halted operations or reduced volumes and our revenue dropped precipitously.\nBy April, our year-over-year revenue decline had a level of 42%.\nManagement was prepared for this moment, and we reacted quickly.\nWe deployed pre-existing recession plans and modified operational protocols to focus on the health and safety of our employees, workers and clients.\nIn April, we unveiled a plan to reduce 2020 SG&A by approximately $100 million compared to 2019, which we have exceeded.\nThese cost reductions helped us right-size the business to match lower client demand and preserve capital.\nThe actions were difficult, but they were taken with care, and with the long-term in mind.\nFor the employees that lost their jobs, we provided three months of fully paid extended healthcare benefits so they wouldn't have to scramble for new coverage in the midst of the pandemic.\nTo ensure we're well-positioned as business conditions improve, we are investing heavily in client and candidate-facing technologies and kept our branch footprint fully intact.\nFinally, to reward our employees for sticking with us this year, we are paying a one-time bonus.\nThe impact of our efforts is evident in our results.\nOur revenue trends have been improving each quarter since Q2 2020, and we posted positive net income in the third and fourth quarters.\nFor the full year, revenue was down 22%.\nTo mitigate this decrease, we reduced selling, general and administrative expense by 21%.\nWhile we encountered a net loss for the year largely due to a goodwill and intangible asset impairment charge in the first quarter and workforce reduction charges in the second quarter, we were profitable on an adjusted net income basis for the year.\nOf equal importance, employee morale and engagement is high.\nOur most recent employee engagement scores from September were higher than they were prior to the pandemic.\nNow let's discuss our fourth quarter results.\nWe took the right actions to restore profitability and position the company for long-term growth as the economy continues to recover.\nIn addition to improving revenue trends with the fourth quarter down 12% versus 25% in the third quarter, we sustained our cost discipline to drive year-over-year growth of 25% in income from operations.\nNow, let's turn to our results by segment, starting with PeopleReady.\nPeopleReady is our largest segment, representing 60% of trailing-12-month revenue and 73% of segment profit.\nPeopleReady is the leading provider of on-demand labor and skilled trades in the North American industrial staffing market.\nWe service our clients via a national footprint of physical branch locations as well as our JobStack mobile app.\nPeopleReady's revenue was down 18% during the quarter versus down 29% in Q3, and we saw intra-quarter improvement with revenue down 15% in December versus down 20% in October.\nPeopleManagement is our second largest segment representing 32% of trailing-12-month revenue and 20% of segment profit.\nPeopleManagement provides onsite industrial staffing and commercial driving services in the North American industrial staffing market.\nThe essence of a typical PeopleManagement engagement is supplying an outsourced workforce that involves multi-year, multi-million-dollar onsite or driver relationships.\nThese types of client engagements were more resilient in the downturn, when compared to the supplemental nature of a typical PeopleReady client engagement.\nPeopleManagement returned to growth in the fourth quarter with revenue up 5%, and intra-quarter improvement with December up 9% versus up 1% in October.\nTurning to our third segment, PeopleScout, represents 9% of trailing-12-month revenue and 8% of segment profit.\nPeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings.\nRevenue was down 24% during the quarter versus down 48% in Q3.\nPeopleScout results were particularly impacted by exposure to large travel and leisure clients.\nNow I'd like to shift gears and update you on our key strategies by segment, starting with PeopleReady.\nOur long-term strategy at PeopleReady is to further digitalize our business model to gain market share and improve the efficiency of our cost structure.\nMost of our competitors in this segment are smaller mom and pops that don't have the scale or capital to deploy something like our JobStack mobile app.\nSo this, along with our nationwide footprint is what makes us unique.\nWe began rolling out JobStack in 2017 to our associates, and in 2018, we launched the client side of the app.\nWe now have digital fill rates north of 50% and more than 26,000 clients using the app.\nIn Q4 2020, we filled 811,000 shifts via JobStack, representing a digital fill rate of 57%.\nOur client user count ended the quarter at 26,300, up 23% versus Q4 2019.\nIn mid-2020 we introduced new digital onboarding features that cut application time in half.\nThis has led to some great operational results as we increase the ratio of associates put to work versus all applicants.\nWe continue to experience an increase in worker throughput of approximately 20%.\nWe expect this percentage to further improve as we fine tune the process.\nThis is exciting, and as we move back toward a more supply constrained environment, increased throughput will translate directly to revenue.\nRight now, we are very focused on driving heavy client user growth.\nA heavy user is a client who has 50 or more touches on JobStack per month, whether it's entering an order, rating a worker or approving time.\nJobStack heavy users have consistently posted better year-over-year growth rates compared to the rest of PeopleReady.\nThe growth differential between heavy users and non-users reached its peak in December with an over 30 percentage points year-over-year growth differential on a same customer basis.\nThis growth differential is largely driven by wallet share takeaways from competitors.\nHeavy user clients are telling us a major reason they are moving share to PeopleReady is due to JobStack's unique capabilities.\nOur focus on heavy user growth is beginning to become more material in our overall results.\nFor all heavy users, we doubled the mix since 2019, up from 11% of PeopleReady's business in fiscal 2019 to 24% for 2020.\nOf course, our positive strategic progress is overshadowed by the macro environment at the moment, but we continue to invest in our digital strategy and believe this approach will help PeopleReady emerge stronger than prior to the pandemic.\nAs our digital strategy continues to mature, we're taking a look at areas within PeopleReady where we can reduce our service delivery costs.\nIn 2020, we began testing a few different strategies to further reduce the cost of delivering our services.\nWe plan to expand our testing in 2021 to include more technology utilization and an altered go-to-market approach.\nAs we move down this path, I want to emphasize that the value and importance of our branch network should not be underestimated.\nWe need to maintain a local presence in our communities where we do business.\nAt the same time, we do see an opportunity to centralize more services and reorient job roles to improve our client-focused delivery.\nWe'll continue to update you on this front as plans progress.\nTurning to PeopleManagement, our strategy is to focus on execution and grow our client base.\nInitiatives we've already implemented include sharpening our vertical market focus to target essential manufacturers and leverage our strength in e-commerce.\nThese are verticals that have held up well relative to the decline in non-essential goods at traditional brick and mortar retailers.\nWe've also made a concentrated effort to enhance the productivity of our sales teams.\nFirst, we completed the integration of our Staff Management and SIMOS brand sales teams, allowing the integrated team to offer a full portfolio of hourly and cost per-unit solutions to clients.\nSecond, we are expanding our presence in smaller markets we believe have been underserved.\nThese strategic initiatives are already paying off.\nEven in the middle of this downturn, year-to-date new business wins at PeopleManagement are up 20% versus the prior year, as we've secured $79 million of annualized new business wins versus $66 million in the prior year.\nAs the demand environment recovers, we'll be increasing sales resources and investing in client care programs to maintain our momentum.\nTurning to PeopleScout, the strategy leverages our strong brand reputation to capture opportunities in an industry poised for growth.\nBefore COVID struck, we, along with our competitors experienced a trend toward more in-sourcing, with some clients bringing more recruitment functions in-house.\nMany of the in-house teams have been reduced or eliminated during the pandemic and we expect a trend reversal back toward outsourcing as the economy recovers.\nFocusing our sales teams on this trend will allow us to increase wallet share at our existing clients and diversify the industry mix within our portfolio.\nI'd like to take a moment to touch on our capital allocation priorities.\nDuring the first half of 2020, we repurchased $52 million of our common stock, or 9% of our common stock outstanding, at favorable prices.\nWhile 2020 was not an easy year, we took the right actions to preserve the longevity of the business while retaining our operational strengths.\nInvestments in our digital strategy and our lean cost structure have us well-positioned for 2021.\nI am extremely proud of the leadership and resolve demonstrated by the entire TrueBlue team.\nBy coming together and staying true to our mission of connecting people and work, we have continued to provide a vital service to our communities even in the midst of a pandemic.\nI'll now pass the call over to Derrek who will share greater detail around our financial results.\nTotal revenue for Q4 2020 was $519 million, representing a decline of 12%.\nWe posted net income of $8 million, or $0.23 per share, and adjusted net income of $11 million, or $0.33 per share.\nWhile net income this quarter declined 8% compared to Q4 2019 in large part due to a higher effective income tax rate, income from operations was up 25%.\nThis increase in operating profitability was due to further improvement in our revenue trends and disciplined cost management.\nThe Q4 year-over-year revenue decline was 13 percentage points better than the Q3 year-over-year revenue decline and Q4 SG&A was down 22% year-over-year, or down nearly twice as much as the revenue decline for the quarter.\nAdjusted EBITDA was $22 million, an increase of 4% compared to Q4 2019 and adjusted EBITDA margin was up 60 basis points.\nGross margin of 23.3% was down 190 basis points.\nOur staffing businesses contributed 170 basis points of compression from pay rates increasing faster than bill rates and from sales mix largely due to the revenue growth in our PeopleManagement business, which has a lower gross margin than our PeopleReady business, which had a revenue decline.\nPeopleScout contributed another 20 basis points of compression primarily due to client mix and lower volume.\nWe expect additional gross margin pressure in the first quarter of 2021, but expect it to moderate as we anniversary the onset of the pandemic in Q2.\nAssuming a strong bounce back in economic growth in the back half of 2021, we expect some gross margin expansion assuming we experience revenue growth in our PeopleScout business due to the operating leverage associated with its cost of sales, and to a lesser extent, gross margin expansion in our staffing businesses from favorable bill and pay rates spreads associated with less slack in the labor supply.\nTurning to SG&A expense, we delivered another quarter of strong results with expense down $28 million, or 22%.\nWe maintained our cost discipline while preserving our operational strengths to ensure the business is well-positioned for growth as economic conditions improve.\nWe also see opportunity to further reduce the costs of our PeopleReady branch network, while maintaining the strength of our geographic footprint through a greater use of technology, centralizing work activities and repurposing job roles.\nWe are in the early stages of planning the pilots that will occur throughout 2021, and if successful, will lead to additional efficiencies in 2022.\nAs Patrick mentioned, we are rewarding our employees with a one-time COVID bonus for their extraordinary efforts this past year.\nThis bonus, as well as COVID government subsidies, are excluded from adjusted net income and adjusted EBITDA.\nOur effective income tax rate was 28% in Q4, which included additional expense associated with less net operating loss benefit available to carry back to prior years, due to a stronger performance in Q4.\nExcluding the net operating loss adjustment, the effective income rate was 9%.\nTurning to our segments, PeopleReady, our largest segment, saw an 18% decline in revenue and segment profit was down 10%.\nAs additional social and government mandates were enacted in December to address the COVID-19 threat, our year-over-year decline did not improve much, but held relatively steady and this trend has continued into January where revenue was down 18%.\nPeopleManagement saw 5% growth in revenue and segment profit was up 104%.\nPeopleManagement experienced encouraging intra-quarter revenue improvement, with December up 9%, compared to 1% in October.\nRevenue growth continued into January with PeopleManagement up 5%.\nAbout half of the segment profit growth in Q4 is attributable to cost management and revenue growth and half from unique costs in Q4 last year creating a favorable comparison this year.\nTurning to PeopleScout, we saw a 24% decline in revenue and segment profit was down 18%.\nTemporary project work provided 6 percentage points of revenue benefit.\nAs Patrick noted, PeopleScout results were adversely impacted by exposure to travel and leisure clients, which made up roughly 28% of the prior year mix, and revenue for this vertical was down 54%.\nNow let's turn to the balance sheet and cash flows.\nOur balance sheet is in excellent shape.\nWe finished the year with $63 million in cash, no outstanding debt, and an unused credit facility.\nCash flow from operations in 2020 was $153 million, up from $94 million in the prior year, with the increase coming largely from the deleveraging of accounts receivable.\nIt was also a strong quarter for us from a working capital perspective with Days Sales Outstanding at 49 days or down 3.5 days in comparison with Q4 last year.\nFor the first quarter of 2021, we expect gross margin contraction of 290 basis points to 250 basis points and for the full year contraction of 50 basis points to 10 basis points.\nAs a reminder, in Q1 2020, there was 130 basis points of gross margin expansion from healthcare benefits that were excluded from adjusted net income and adjusted EBITDA.\nFor the full year 2020, there was 20 basis points of net benefit from the healthcare benefit I mentioned, less workforce reduction costs that were excluded from adjusted net income and adjusted EBITDA.\nYou can find more information on these items in our non-GAAP reconciliations.\nFor the first quarter of 2021, we expect a year-over-year SG&A reduction of $13 million to $17 million.\nI'd also like to remind everyone that we will anniversary most of our cost reduction actions in April of 2021.\nFor capital expenditures, we expect about $16 million for the first quarter and $37 million to $41 million for full year 2021.\nThese figures include approximately $8 million and $10 million for Q1 and 2021, respectively, in build-out costs for our Chicago support center, of which $7 million will be reimbursed by our landlord with $6 million of the reimbursements expected in the first quarter.\nThe reimbursements from our landlord will be reflected in operating cash flows.\nOur outlook for fully diluted weighted average shares outstanding for the first quarter of 2021 is 35.3 million.\nProviding an annual outlook for an effective income tax rate is difficult due to the semi-fixed nature of the work opportunity tax credit.\nWe expect our effective income tax rate for the full year 2021, before job tax credits, to be about 23% to 27%, and we expect total job tax credits to be $8 million to $10 million.\nDue to the size of expected job tax credits, it is possible to have pre-tax income and an effective income rate benefit instead of expense at lower levels of profitability.\nWhile we have more work to do to get back to where we were before COVID hit, we like the progress we have made.\nWe have seen steady improvements in our revenue trends, and with the prospect of meaningful vaccinations on the horizon, we are optimistic about the potential upside in many of the hard hit end markets we serve.\nWe took the right actions to improve profitability, and have done so without losing our operational strengths or technology momentum.\nAnd, we ended 2020 with a balance sheet that is stronger than where we started the year, which will further enable our ability to take advantage of the growth opportunities ahead of us.",
        "summary": "q4 adjusted earnings per share $0.33.\nq4 earnings per share $0.23.\nq4 revenue $519 million versus refinitiv ibes estimate of $498.1 million."
    },
    {
        "text": "Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today; followed by Claire Bramley, Teradata's Chief Financial Officer, who will discuss our financial results and our outlook.\nWe will also discuss other non-GAAP items, such as free cash flow and constant currency revenue comparisons.\nA replay of this conference call will be available later today on our website.\nAt our Investor Day, we provided some fresh insights into our strategic direction, differentiated product and value proposition and our financial model.\nWe have continued our transformation journey, executing on our strategy as a cloud-first profitable growth company.\nIn Q3, we met expectations for revenue once again.\nImportantly, our recurring revenue as a percentage of total revenue increased approximately five percentage points versus last year and is now approaching 80%.\nThis is meaningful because recurring revenue provides for predictable and durable streams of cash flow.\nIn addition, both GAAP and non-GAAP earnings per share were above expectations.\nClaire will address our financial metrics and outlook in more detail.\nIn the third quarter, our public cloud ARR was $148 million.\nThis was a substantial 83% growth rate over Q3 of 2020.\nWe had a handful of large deals slip out of the last day of Q3 into the fourth quarter related to customer timing.\nWe have already completed transactions that more than cover the $7 million that we expected in Q3, and we have closed most and are confident, we will close all of these transactions in the fourth quarter.\nWe continue to build upon our execution engine, which delivered more cloud deals in Q3 than in any other quarter.\nLooking ahead to the fourth quarter, our pipeline is robust, and we are working on bigger cloud deals.\nLooking at Q3 in more depth, we had numerous proof points that our strategy is solid.\nWe are executing and are making progress within our target market of leading enterprise accounts.\nQ3 was our highest quarter yet for new cloud customers.\nWe added tens of new large enterprise accounts across all of our regions.\nWe are determined to keep up the pace in winning new logos in the cloud and on-prem.\nOur dedicated new logo sales teams are coming on board, ramping up and are already starting to win.\nWe are gating the world's largest companies, often with extreme scale and complexity in their data environment to smoothly migrate to the cloud.\nThese global enterprises depend on their mission-critical Teradata platform every single day to help them extract the greatest value from their enterprise analytics.\nAs many of our large enterprise customers are transitioning to the cloud for the first time, managing through these types of transactions can take some time, requiring planning and coordination with multiple stakeholders across numerous functions and migrating to the cloud requires careful consideration of the interconnectivity of all aspects of the customer's on-prem analytic ecosystem.\nCustomers are recognizing that Teradata with our connected multi-cloud data platform for enterprise analytics is the best solution to overcome these challenges, and they are increasingly migrating to the cloud with Teradata Vantage.\nIn the quarter, healthcare, transportation and government led the pack in terms of our target verticals.\nJust one recent example of a seamless migration to the cloud is American Airlines, a Teradata on-prem customer for more than 14 years.\nAmerican just migrated its massive Teradata EDW to Teradata on Azure Our collective team of employees from Teradata and American Airlines executed very efficiently for a highly successful migration.\nThe airline's Teradata platform provides virtually every department access to analytics and reporting capability and supports thousands of users for many business initiatives, including revenue management, network planning, technical operations, cargo and marketing.\nThe migration is part of the airline strategy to provide greater agility, speed to market and frictionless scalability to its business community.\nWe have been told that its business users are extremely pleased with the speed and performance of the Vantage platform and Azure.\nCloud growth remains front and center for us.\nThe move to cloud is a clear direction and often a mandate for many organizations.\nIt's an issue of when, not if.\nWe are pleased that each of our regions saw growth in cloud customers in the quarter.\nAdditionally, we are seeing that once customers start in the cloud, they grow with Teradata.\nOur quarterly trend of healthy net expansion rates in the cloud continues to be greater than 130%, as customers add more use cases, more data and workloads and more users to their Teradata multi-cloud portfolio platform.\nHere's a handful of examples where we are competing and winning in the market.\nThe ANZ Banking Group is migrating its Teradata enterprise data platform to Vantage on Google Cloud.\nThis multinational financial services company has been a Teradata customer for more than two decades.\nIts Teradata platform is core to its critical business applications, supporting more than 2,000 users for many different business initiatives, including regulatory reporting, customer analytics, product profitability and responsible lending.\nThe migration is part of the bank's broader cloud mandate.\nHere, we are partnering with a leading global SI on the customers' migration to the cloud.\nA leading global oilfield services company is deploying Vantage on Azure to support center data management and advanced analytics.\nThis new Teradata customer is committed to continual innovation using technology to improve safety, productivity and quality of life in the oil and gas industry.\nThis transaction is one of the large deals from Q3 that fell just over the line and closed on day one of Q4.\nBNSF, one of the largest freight transportation companies in North America is migrating its Teradata data platform to Vantage on Azure Cloud as part of a long-term plan to have the majority of its analytic ecosystem in the cloud.\nHere, we won against cloud native competition, and Teradata will provide analytics and reporting for finance, operations and marketing.\nTeradata Consulting will be leading the migration effort with support from our partner, Microsoft.\nAs part of this effort, Teradata will be integrated into a hybrid-analytic environment with both IBM Mainframe and Microsoft Azure components.\nAnother airline, one of the world's largest and most admired, is migrating its long-standing Teradata environment to Vantage on AWS-as-a-Service.\nThe company's modernization efforts include increasing analytics for HR, finance, loyalty and customer care and will leverage both Teradata and AWS services as well as solutions from advanced analytics vendors.\nThe ability to leverage [Indecipherable] capabilities to utilize AWS three data and make it available for richer analytics was an important factor in migrating Vantage to the AWS cloud.\nThe customer considered cloud-native competition before selecting Vantage on AWS, Accenture was a supportive partner during their evaluation and leading the migration process.\n[Indecipherable], a leading tech equipment manufacturer based in [Indecipherable] as a new cloud customer, choosing Vantage on Azure as its cloud data and analytics platform.\nThe Vantage on Azure environment will be used for development work, POCs with customers, demos and applications testing.\nOur purpose, transforming how businesses work and people live through the power of data has never been more relevant, and we are successfully supporting customers in building and driving meaningful business value in their analytic environments, whether multi-cloud, cloud-only, on-prem or a hybrid combination of any or all.\nTo keep Teradata's differentiated market-leading position, we continuously develop and evolve our technology and Q3 was no different.\nIn the quarter, we advanced our innovations on multiple fronts.\nWe released a significant enhancement to Vantage, adding 30 new end database functions that enable customers to use partner tools of their choice to leverage the power of end database analytics, delivering performance at enterprise scale.\nWe introduced Vantage Streams in the cloud providing near real-time data, leveraging native object stores, AWS3, Azure Blob and Google Cloud Storage to help accelerate new business outcomes.\nCustomers can now stream IoT data, stock data, weather or website click-stream data to deliver new analytic use cases.\nThis is exactly what is needed by our target market and a recent research study by independent research firm, Vanson Bourne, 87% of IT decision makers felt that they must leverage these emerging technologies to remain competitive.\nWe also delivered an update to our bring-your-own model capabilities that allows customers to bring their own analytic models, built with third-party tools and languages into Vantage to run enterprise analytics at scale.\nAnd in keeping with our focus on customer and market drivers, we brought enhancements to our communications data model with full support of 5G network activity, including intelligent network optimization.\nWe are furthering the transformation and our go-to-market organization to execute with greater agility and help us accelerate the move to the cloud and build an increasingly strong partner ecosystem as well.\nThese actions are designed to drive results for Teradata and an exceptional customer experience.\nWe know that when our customers succeed, we succeed.\nWe're investing to drive faster cloud execution to help our customers maximize the value of the data and get optimal results from the Teradata environment in the cloud.\nWe are deploying senior cloud specialist sellers and cloud specialist architect teams in each region to progress and execute more quickly to close cloud deals.\nWe are doubling down on building mutually beneficial partnerships to drive scale and strengthen capabilities and have added senior cloud expertise to our global partner organization.\nStrong partnerships create a flywheel effect and accelerating successes in the cloud and in data analytics.\nHere's a few new partnerships that will help propel us forward.\nToday, we announced a strategic collaboration agreement with AWS.\nWe are both committed to increase product integrations and development with AWS Cloud services and launch joint programs to help customers migrate, modernize and derisk the cloud adoption journey with Vantage on AWS.\nWith this exciting announcement, we are working together to make it simple to use Vantage on AWS across the broad array of AWS services at enterprise scale.\nWe are very excited about the strategic collaboration that will make it even easier for customers to get the most value from their enterprise analytics at scale in the cloud, helping us both accelerate growth.\nIn important and growing AI arena, we recently announced a strategic partnership with H2O.\nai and the integration of H2O.\nai's hybrid cloud platform with Vantage.\nThis integration enables our joint customers to quickly and easily build and deploy AI solutions that inform new insights from machine learning and drive more meaningful business outcomes.\nWe're also pleased to be deepening our partnership with Accenture.\nTogether, we are building a global Vantage cloud data migration factory to enable joint customers to easily migrate to Teradata Vantage in the cloud.\nThe powerful combination of Accenture's recognized global capabilities and our unparalleled ability to harness data at scale will help drive smooth transitions to the cloud for our joint customers.\nI'm seeing the team operate with a stronger sense of urgency, accountability and enthusiasm, and I'm pleased that we are progressing in our go-to-market organization and across the company.\nWe are resolute in executing our growth strategy.\nLooking ahead, Q4 is traditionally our largest quarter for ARR growth.\nWe have a robust pipeline for the quarter, and we are seeing trends of more cloud deals and larger cloud deals, some in the seven and eight digit range.\nGiven these dynamics, you can be certain that the entire team will be focused and dedicated to closely managing the business, especially with the planning and coordination associated with closing some of these large transactions.\nWe believe our cloud business will be approximately $200 million by the end of the year.\nWe have a path to grow more than 100% year-on-year.\nHowever, given the timing we experienced in Q3, we believe it is prudent to lower our cloud ARR growth outlook from 100% year-over-year to approximately 90% year-over-year.\nWe remain pleased with this very strong annualized growth rate in our cloud business, a substantial cloud business that is based on a competitive product and differentiated position in a large and growing market.\nAt our Investor Day in September, I stated that Teradata is a profitable growth company in a large and growing market with the right technology, the right strategy and the right people.\nThat remains true today.\nAnd we remain incredibly dedicated to adding customers, growing and expanding existing ones and providing an outstanding customer experience with our connected multi-cloud data platform for enterprise analytics.\nOur focus is clearly on executing to keep winning and delivering shareholder value.\nThis confidence is reflected in the new $1 billion repurchase authorization that we announced today and our strong commitment to returning capital to shareholders via share repurchase.\nNow I'll pass the call over to Claire for additional insights.\nIn the third fiscal quarter, Teradata delivered revenue and profit in line or better than expectations.\nQuarterly highlights include recurring revenue of $352 million or growth of 7% year-over-year as reported.\nGross profit margin of 61.3%, up 30 basis points year-over-year.\nOperating margin of 15.4%, up 60 basis points year-over-year and non-GAAP earnings per share of $0.43 in line with prior year and $0.11 above the midpoint of our previous outlook.\nI am pleased that these results keep us on track to achieve or beat our fiscal 2021 outlook on many of our key financial metrics.\nSome of our year-to-date highlights include total ARR growth of 7% versus the prior year, which is in line with our 2021 full year outlook range of mid- to high single-digit growth.\nYear-to-date, recurring revenue growth of 14% versus the prior year compared to our full year outlook range of high single to low double-digit growth.\nEarnings per share of $1.86 against our previous full year outlook range of $1.92 to $1.96 and year-to-date free cash flow of $347 million compared to our full year outlook of at least $400 million.\nDespite the many highlights, it is unfortunate that a handful of our transactions slipped into Q4, which impacted our cloud ARR in the third quarter by $7 million.\nAs Steve noted, we have already covered this amount in the early days of Q4.\nWe have a robust Q4 pipeline, the strongest we have ever seen, and we continue to successfully close deals with good economics.\nWe therefore remain confident that our customers want and value our products.\nOver the last 18 months, as we have undertaken our transformation journey, Teradata has had a renewed focus on driving greater, rigor, discipline and accountability in the business.\nWe are focused on driving improved intra-quarter linearity, increased investment in our cloud go-to-market activities globally, and we are seeing increasing benefits from stronger partnerships with CSP and SI partners to accelerate migration to the cloud.\nNow let's get into the results, starting with ARR.\nOur customers continue to drive digital transformation activities in multi-cloud environments, and this keeps driving our growth.\nTotal ARR increased 7% year-over-year as reported and 6% year-over-year in constant currency.\nTotal ARR grew by $11 million sequentially.\nSubscription ARR increased 18% year-over-year and 2% sequentially.\nWe grew in all three regions from both existing and new enterprise customers.\nWe added on-premises new logo customers at a faster pace than last quarter, even though our new logo acquisition efforts are emerging.\nThese are all positive proof points that customers continue to choose Teradata for our differentiated value from a great product that provides a combination of best price and performance at scale, along with Teradata's industry knowledge and expertise.\nPublic cloud ARR grew 83% year-over-year and 6% sequentially.\nGrowth occurred across all three geographic regions year-over-year and sequentially in the Americas.\nIn both APJ and EMEA, we saw a slight sequential decline in growth resulting from transactional delay.\nOf the $9 million sequential growth, a little more than half resulted from customers migrating to Vantage in the cloud from on-premise perpetual and subscription licenses and most of the remainder from expansion.\nWe continue to experience healthy expansion rates that are in excess of 130% in the cloud, sustaining the positive trends that we outlined in our recent Investor Day.\nWe also added more new logo cloud customers in the quarter, a proof point of executing against our strategy.\nWhile the deal sizes can be small at the start, we see future growth opportunities with these new customers as they try, buy and expand.\nNow turning to revenue.\nTotal revenue was $460 million, a 1% increase year-over-year as reported and in constant currency.\nWe continue to build on a higher base of recurring revenue, which grew 7% year-over-year and 6% in constant currency.\nThis growth is primarily driven by a higher mix of recurring revenues.\nAs a percentage of total revenue, recurring revenue was 77% in the third quarter.\nRegarding upfront revenue arrangement.\nIn the third quarter, the net impact of upfront revenue was materially lower when compared to the first two quarters of the fiscal year.\nIn the third quarter, there was an approximate net negative $10 million impact related to upfront recurring revenue.\nThis was in line with our expectations.\nFor reference, this compares to a net positive $22 million impact in the second quarter and $24 million in Q1.\nThe negative $10 million is due to revenue pulled into the first half of the year from the third quarter, partially offset by upfront recurring revenue recognized in Q3, all related to the renewal or expansion of on-premises deals.\nAs anticipated, both perpetual and consulting revenue were lower year-over-year, given the strategic shift made to a higher-margin subscription model and greater collaboration with partners that drive higher adoption and consumption of Teradata.\nThird quarter gross margin was 61.3%, which was approximately 30 basis points higher than last year's third quarter, primarily due to a higher mix of subscription-based recurring revenue.\nThis was partially offset by the negative impact from upfront revenue arrangements pulled forward from the third quarter into the first half of fiscal 2021 as well as a small unfavorable impact from perpetual mix and a slightly lower consulting margin rate.\nThird quarter's operating margin was 15.4%, 60 basis points higher than last year's third quarter, driven by the combination of a lower cost structure from cost discipline, partially offset by sequential investments made in activities supporting the cloud in both go-to-market and R&D.\nTotal operating expenses were up 5% sequentially and flat year-over-year.\nThird quarter earnings per share of $0.43 exceeded our outlook range of $0.30 to $0.34 by $0.11 at the midpoint.\nOf the $0.11, $0.05 related to actual expenses being lower than expected, $0.04 related to cost delays and $0.02 related to favorable recurring revenue mix.\nTurning to free cash flow and capital allocation.\nWe are on track to achieve our fiscal 2021 guidance of at least $400 million in free cash flow.\nThrough the end of September 2021, year-to-date free cash flow was $347 million.\nIn the third quarter, free cash flow generated was $23 million due to the seasonality of billings.\nOur cash conversion metrics showed slight improvement quarter-over-quarter, driven by an increase in days payable outstanding due to the timing of invoices received.\nOur days sales outstanding remained strong, although it did increase by about two to three days sequentially.\nWe continued to take advantage of our strong balance sheet, buying back stock to offset dilution.\nIn the third quarter, we repurchased approximately 1.1 million shares or $58 million in total.\nFor the first nine months of the fiscal year, we spent $179 million on share repurchases for a return of 52% of year-to-date free cash flow to shareholders.\nFor the full year, we are on track to return at least 15% of free cash flow to shareholders via share repurchases while continuing to make investments in the company to support our strategy for profitable growth and cloud acceleration.\nWe now have a total of approximately $1.3 billion authorized under this open market share repurchase program, in effect immediately until the end of 2025.\nThis action is consistent with the capital allocation framework and our commitment to increase shareholder value that we outlined at our Investor Day.\nLet me move to our outlook.\nOverall, we have a very healthy growth rate on a large and scaling cloud business.\nGiven the strength of our products, along with our robust pipeline in Q4, we do see paths to achieve at least 100% growth in cloud ARR for the full year.\nHowever, it is also possible we will continue to see the timing volatility as we saw between September and October due to how difficult it is to predict the close date of some of our very large pipeline deals.\nAs Steve stated, our updated cloud ARR outlook is approximately 90% growth year-over-year or approximately $200 million.\nWith regards to earnings per share, we are raising our non-GAAP earnings per diluted share to be in the range of $2.11 to $2.15, while still continuing to invest in the business, an increase of $0.19 from the midpoint of the previous range.\nFor the fourth quarter, we expect non-GAAP earnings per diluted share to be in the range of $0.25 to $0.29.\nWe anticipate the tax rate to be approximately 26% in the fourth quarter and approximately 23% for the full year.\nWe also anticipate the weighted average shares outstanding to be approximately $113 million.\nWe are reaffirming our fiscal 2021 outlook for the following key metrics.\nTotal ARR growth, which is expected to be in the mid- to high single-digit percentage range; total recurring revenue, which is expected to grow in the high single to low double-digit percentage range year-over-year; total revenue, which is anticipated to grow in the low to mid-single-digit percentage range year-over-year; and free cash flow for the year, which is expected to be at least $400 million.",
        "summary": "q3 non-gaap earnings per share $0.43.\nq3 revenue rose 1 percent to $460 million.\nsees q4 non-gaap earnings per share $0.25 to $0.29 excluding items.\nsees q4 gaap loss per share $0.01 to $0.05.\nincremental $1 billion share repurchase authorization for open market share repurchases until end of 2025.\nfull year 2021 non-gaap earnings per diluted share now expected to be in range of $2.11 to $2.15."
    },
    {
        "text": "Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information.\nThe company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures.\nFirst, I'll start off with the usual quick overview of our strategy and then a few comments about the quarter and a discussion of our fiscal 2022 outlook, then Jorge and Mike will give additional color on the quarter.\nTo reiterate, we are unique in the industry in both the consistency of our strategy in good and bad times, as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle.\nTo summarize here are some of the reasons why we believe this.\nAbout 90% of our net sales are generated by proprietary products and over three quarters of our net sales come from products, which we believe we are the sole source provider.\nMost of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns.\nWe follow a consistent long-term strategy.\nSpecifically, we own and operate proprietary aerospace businesses with significant aftermarket content.\nWe utilize a simple, well-proven, value-based operating methodology.\nWe have a decentralized organization structure and a unique compensation system, closely aligned with shareholders.\nNext, we acquire businesses that fit this strategy where we see a clear path to PE-like returns.\nAnd finally, our capital structure and allocation are a key part of our value creation methodology.\nOur long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market.\nTo do this, we stay focused on both the details of value creation, as well as careful allocation of our capital.\nWe continue to see recovery in the commercial aerospace market and are encouraged by the trends in air traffic among other factors.\nOur Q1 fiscal results show positive growth in comparison to the same period in fiscal 2021 as we are lapping the first quarter of 2021, which was heavily impacted by the pandemic and prior to the widespread availability of vaccines.\nAlthough our results have improved, they continue to be unfavorably affected in comparison to pre-pandemic levels as the demand for air travel remains depressed.\nHowever, the continued improvement in global air traffic despite emergence of a new COVID-19 variant in late 2021 is encouraging, it further illustrates the pent-up demand for air travel and bodes well for the momentum of the commercial aerospace recovery in 2022.\nTo date, the recovery has remained primarily driven by domestic leisure travel, although we are optimistic for recovery of international travel as many governments across the world have softened travel restrictions.\nEven the travel restrictions reimposed by certain governments during the months of December due to the Omicron variant are now starting to ease, which is again an encouraging sign.\nIn our business, we saw another quarter of sequential improvement in our commercial markets, with total commercial aftermarket revenues up 10% over Q4 of fiscal 2021 and bookings up more than 15% compared to Q4.\nCommercial OEM bookings came in even stronger with almost 20% sequential improvement over Q4.\nI am also very pleased that despite the challenging commercial environment, our EBITDA as defined margin was 47.3% in the quarter.\nContributing to this better-than-expected margin is the continued recovery in our commercial aftermarket revenues, as well as the careful management of our cost structure and focus on our operating strategy.\nThis was achieved despite the emergence of the Omicron variant during the quarter.\nAdditionally, we continued to generate significant cash in Q1.\nWe had strong operating cash flow generation of almost $280 million and closed the quarter with a little over $4.8 billion of cash.\nWe expect to steadily generate significant additional cash throughout the remainder of 2022.\nNext, an update on our capital allocation activities and priorities.\nWe are now at a decision point with regard to our sizable cash balance, which is now approaching $5 billion.\nConsistent with our history, when we have a significant amount of cash available, we aim to get that back to the shareholders in one form or another.\nAt this time, we're still in the process of evaluating our capital allocation options with regard to any significant acquisitions, share buybacks and dividends.\nAll three options are on the table each individually, but then also potentially in some combination over the next 12 months.\nAny significant M&A, share buyback and/or dividend activity will still leave the company with substantial liquidity and the financial flexibility to deal with any currently anticipated capital requirements or other opportunities in the readily foreseeable future.\nWe continue to look at possible M&A opportunities and are always attentive to our capital allocation.\nBoth the M&A and capital markets are always difficult to predict, but especially so in these times.\nRegarding the current M&A pipeline, we are still actively looking for M&A opportunities that fit our model.\nWe continue to see a pickup in acquisition opportunity activity, but it's still slower than pre-COVID.\nWe have a decent pipeline of possibilities as usual, mostly in the small, midsized range.\nI cannot predict or comment on possible closings, we remain confident that there is a long runway for acquisitions that fit our portfolio.\nNow, moving to our outlook for 2022.\nWe are still not in a position to provide full financial guidance as a result of the continued disruption in our primary commercial end markets.\nWe continue to be encouraged by the recovery we have seen in our commercial aftermarket revenues and the strong bookings received for both commercial OEM and aftermarket in Q1.\nWe will look to reinstitute guidance when we have a clearer picture of the future.\nWe continue to expect COVID-19 to have an adverse impact on our financial results compared to pre-pandemic levels throughout the remainder of fiscal 2022 under the assumption that both our commercial OEM and aftermarket customer demand will remain depressed due to lower worldwide air travel.\nAlthough recent positive trends in commercial air traffic could impact us favorably.\nTo reiterate what we said on the Q4 earnings call, our teams are still planning for our commercial aftermarket revenue to grow in the 20% to 30% range.\nWe expect our commercial OEM revenue to grow significantly as well, but at a rate slightly less than the commercial aftermarket.\nAs you know, we aim to be conservative and would be happy to have both of these end markets rebound more strongly.\nTo reiterate, these are planning assumptions for organizational purposes and not guidance.\nAs for the defense market, we still expect defense revenue growth in the low single-digit percent range from fiscal 2022 versus prior year despite the slow start to the year.\nJorge will provide more color on our defense end market.\nWe now expect full year fiscal 2022 EBITDA margin to be slightly north of 47% due to the rate of commercial aftermarket recovery.\nPlease note that our Q1 EBITDA margin was stronger than anticipated, and we may see less year-over-year margin improvement for Q2 and expect margins to move up throughout the second half of the fiscal year.\nAs a final note, this margin guidance includes the unfavorable headwind of our Cobham acquisition of about 0.5%.\nWe believe we are well positioned for the remainder of fiscal 2022.\nAs usual, we'll closely watch the aerospace and capital markets as they develop and will react accordingly.\nMike will provide details on other fiscal 2022 financial assumptions and updates.\nNow, shifting gears for a moment to nonfinancial matters.\nI'd like to touch on our DoD IG audit report, which was released in mid-December.\nAs we expected and communicated, the audit scope and results were similar to prior audits.\nThe report found no legal wrongdoing on behalf of TransDigm or any of our employees.\nThe report asked for a purely voluntary refund of approximately $21 million.\nWe disagree with many of the implications contained in the report, as well as the methodology used to arrive at many of the report's conclusions.\nWe also disagree with the use of arbitrary standards and analysis, which render many areas of the report inaccurate and misleading.\nAdditionally, at the request of the House Oversight and Reform Committee, we participated in a hearing on January 19 to discuss the results of the audit.\nGoing forward, we will continue to work with the IG, the DLA and any other relevant parties to evaluate the results of this audit.\nThe U.S. government and the U.S. warfighter remained top priorities for TransDigm.\nAt this time, we are engaged directly with the DLA and do not have any further update on whether or not we expect to pay all or a portion of the $21 million voluntary refund request.\nFinally, I wanted to announce the retirement of our Vice Chairman, Bob Henderson.\nHe retired at the end of first fiscal quarter.\nBob has been a key member of the TransDigm management team for over 25 years and a significant partner in the company's growth during the entire period.\nHe served in a range of roles over his years with TransDigm, including as president of several operating units, executive vice president, COO of TransDigm's airframe business group and most recently, vice chairman, where he oversaw the integration of the operating units acquired as part of the Esterline transaction.\nWe wish Bob well in his retirement.\nLet me conclude by stating that I'm pleased with the company's performance in this challenging time for the commercial aerospace industry and with our commitment to driving value for our stakeholders.\nAs always, we remain focused on executing our operating strategy and managing our cost structure as we continue on this journey to a full recovery of the commercial aerospace industry.\nWe look forward to the remainder of our fiscal 2022 and expect that our consistent strategy will continue to provide the value you have come to expect from us.\nNow, let me hand it over to Jorge to review our performance and a few other items.\nI'll start with our typical review of results by key market category.\nFor the remainder of the call, I'll provide color commentary on a pro forma basis compared to the prior year period in 2021.\nThat is assuming we own the same mix of businesses in both periods.\nThis market discussion includes the acquisition of Cobham aero connectivity.\nWe began to include Cobham in this market analysis discussion in the second quarter of fiscal 2021.\nThis market discussion also removes the impact of any divestitures completed in fiscal 2021.\nIn the commercial market, which typically makes up close to 65% of our revenue, we will split our discussion into OEM and aftermarket.\nOur total commercial OEM revenue increased approximately 13% in Q1 compared with the prior year period.\nBookings in the quarter were robust compared to the same prior year period and strongly outpaced sales.\nSequentially, the bookings improved almost 20% compared to Q4.\nWe are hopeful that the narrowbody rate ramps disclosed by Airbus and Boeing will play out as forecasted.\nNow, moving on to our commercial aftermarket business discussion.\nTotal commercial aftermarket revenue increased by approximately 49% in Q1 when compared with prior year period.\nGrowth in commercial aftermarket revenue was primarily driven by increased demand in our passenger submarket, although all of our commercial aftermarket submarkets were up significantly compared to prior year Q1.\nSequentially, total commercial aftermarket revenues grew approximately 10% and bookings grew more than 15%.\nCommercial aftermarket bookings are up significantly this quarter compared to the same prior year period and Q1 bookings strongly outpaced sales.\nTo touch on a few key points of consideration, global revenue passenger miles remained low but continued to modestly improve throughout our Q1.\nIATA currently forecasts a 39% decrease in revenue passenger miles in calendar year 2022 compared to pre-pandemic levels.\nWithin IATA's estimate is the expectation that domestic travel will be back to 93% of pre-pandemic levels in calendar year 2022.\nDespite the impact of the Omicron variant, December global revenue passenger miles still improved month on month, which demonstrates the strong underlying demand and the willingness of passengers to travel.\nCountries that reimposed travel restrictions due to this variant are already announcing significant easing of those restrictions.\nThe limited impact from the Omicron variant on air travel provides optimism for the pace of the recovery of air traffic in 2022.\nThe recovery in domestic travel has been more resilient than international.\nDomestic air traffic for calendar 2021 was only down 28% compared to pre-pandemic versus international, which was still down 75%.\nAs the commercial aerospace recovery has progressed, the U.S. and Europe have shown strong demand for domestic travel.\nChina has been more volatile due to its zero COVID policies, which lead to localized lockdowns and rapid drop-offs in air travel.\nThough the pace of the international air traffic recovery has been slow, we are hopeful for improvement in international travel in 2022 as vaccination rates continue to improve globally and many of the government travel restrictions are softening.\nGlobal cargo volumes continue to surpass pre-COVID levels and it is generally expected that airfreight demand will remain robust throughout 2022.\nBusiness jet utilization remained strong.\nCommentary from business jet OEMs and operators have been encouraging and these higher levels of business jet activity may be here to stay, though time will tell.\nNow, let me speak about our defense market, which traditionally is at or below 35% of our total revenue.\nThe defense market revenue, which includes both OEM and aftermarket revenues, decreased by approximately 12% in Q1 when compared with the prior year period.\nAs we have said many times, defense sales and bookings can be lumpy.\nThis quarter, Cobham was lapping a very tough prior year comparison as Cobham's defense sales accelerated in fiscal Q1 2021, which was the last quarter prior to TransDigm's ownership.\nThis was the single largest contributor to the year-over-year decline.\nThere are also some supply chain-induced delays in fulfilling orders at certain operating units.\nAs Kevin mentioned earlier, we continue to expect low single-digit percent range growth in fiscal 2022 for our defense market revenues.\nLastly, I'd like to wrap up by stating how pleased I am by our operational performance in this first quarter of fiscal 2022, despite the continued impact of the pandemic.\nWe remain focused on our value drivers and executing with operational excellence.\nI'm going to quickly hit on some additional financial matters for the quarter and then our expectations for the full fiscal year.\nFirst, in regard to profitability for the quarter, EBITDA as defined of about $565 million for Q1 was up 19% versus our prior Q1.\nEBITDA as defined margin in the quarter was approximately 47.3%.\nThis represents year-over-year improvement in our EBITDA as defined margin of about 450 basis points versus Q1 of last year.\nSequentially, EBITDA as defined margin declined slightly by about 200 basis points during Q1 versus Q4 of last fiscal year.\nAs you know, this is typically the case for us given the higher volume levels in Q4 and lower number of working days in our fiscal Q1.\nNow, a few quick additional financial data points for the quarter.\nOrganic growth was 9%, driven by the rebound in our commercial OEM and aftermarket end markets.\nOn taxes, the slightly lower-than-expected GAAP rate for the quarter was driven by significant tax benefits arising from equity compensation deductions.\nThis is just timing.\nBarring some deviations in the rates for this first quarter, our tax rate guidance for the full year is unchanged from what we provided on our last earnings call.\nMoving to cash and liquidity.\nWe had another nice quarter on free cash flow.\nFree cash flow, which we traditionally defined at TransDigm as EBITDA less cash interest payments, capex and cash taxes, was roughly $250 million.\nWe ended the quarter with about $4.8 billion of cash.\nDuring Q1, we also paid down our $200 million revolver balance, which was drawn at the onset of COVID in March of 2020 out of an abundance of caution.\nThe $200 million revolver paydown is the primary reason that our cash balance ticked up much less than the $250 million of free cash flow we generated in Q1.\nOur net debt-to-EBITDA ratio is now at 6.7 times.\nThis ratio is down from 8.2 times, at its peak.\nWe expect to continue running free cash flow positive.\nAnd barring any additional capital markets activities, this ratio would keep coming down as we proceed through our fiscal '22.\nFrom an overall cash liquidity and balance sheet standpoint, we remain in good position and well prepared to withstand the currently depressed but now rebounding commercial environment for quite some time.",
        "summary": "full fiscal 2022 guidance remains suspended at this time."
    },
    {
        "text": "This is Jason VanWees, Executive Vice President.\nWe began 2021 with the best first quarter sales, earnings, operating margin and cash flow in the Company's history.\nFurthermore, we achieved these GAAP results despite incurring $39 million or $0.79 per share of expenses related to the pending acquisition of FLIR.\nExcluding these non-recurring charges, earnings increased 39.2% compared to last year.\nOperating margin increased 426 basis points and free cash flow nearly doubled.\nIn addition, I'm very pleased with the breadth of our financial performance across Teledyne.\nYear-over-year sales increased in nearly every major business category except commercial aerospace, which is now only 4% of our total sales.\nThe recovery in our short cycle commercial business is unfolding nicely and our government businesses are also growing and performing well, in both cases, strongest within our Digital Imaging segment.\nAlso in the first quarter, we received all time record orders with a book to bill of 1.15x resulting in quarter-end backlog of approximately $1.8 billion.\nGiven our strong first quarter, we now think a reasonable outlook for the total company organic sales growth in 2021 is approximately 6% led by forecasted growth of about 10% in Digital Imaging excluding FLIR.\nAnd now with respect to the fair acquisition over the last few months while transaction certainty progressively increased, Teledyne performed in-person visits covering 90% of all FLIR on-site several on multiple occasion.\nMost importantly, we were also granted access to the operating management in all key functional areas.\nTo summarize, FLIR's people, products, technology and manufacturing are outstanding.\nI am now even more excited about the prospect for FLIR as part of the Teledyne family.\nWe remain confident of immediate pre-tax annual synergies greater than $40 million having continue to expect, earnings per share accretion even on a GAAP basis in 2022 with earnings per share accretion, excluding amortization being substantially greater.\nAl will now comment on the performance of our four business segments.\nIn our Instrumentation segment, overall, first quarter sales increased 0.5% versus last year.\nSales of environmental instruments increased 5% from last year.\nSales of most product categories increased with the strongest year-over-year organic growth resulting from the gas and flame detection products acquired in 2019.\nSales of our electronic, test and measurement systems increased 4.8% year-over-year.\nSales of marine instrumentation decreased 6.7% in the quarter.\nHowever operating profit increased due to aggressive cost management and business simplification and standardization initiatives.\nOverall, instrument segment operating margin increased 291 basis points to 20.7%.\nTurning to Digital Imaging segment.\nFirst quarter sales increased 6.7%.\nGAAP segment operating margin was 19.7%, an increase of 200 basis points year-over-year.\nNow turning to the Aerospace and Defense Electronics segment, first quarter sales declined 3.3% as greater defense sales were more than offset by a 28.5% decline in sales of commercial aerospace products.\nGAAP segment operating margin increased over 1,000 basis points to 18.7% versus 8.6% in 2020.\nIn the Engineered Systems segment, first quarter revenue increased 8% primarily due to greater sales from defense and other manufacturing programs as well as electronic manufacturing services products.\nSegment operating margin increased 242 basis points when compared with last year.\nI will first discuss some additional financials for the quarter not covered by Robert and Al, and then I will discuss our second quarter and full year 2021 outlook.\nIn the first quarter, cash flow from operating activities was $124.9 million compared with cash flow of $76.4 million for the same period of 2020.\nRecord first quarter free cash flow, that is cash from operating activities less capital expenditures was $107.3 million in the first quarter of 2021 compared with $56.2 million in 2020.\nExcluding after-tax cash payments related to the FLIR transaction first quarter free cash flow was $110.1 million.\nCapital expenditures were $17.6 million in the first quarter compared to $20.2 million for the same period of 2020.\nDepreciation and amortization expense was $29.3 million for both the first quarters of 2021 and 2020.\nWe ended the quarter with $9.1 million of net debt that is approximately $3.24 billion of debt less cash of approximately $3.23 billion.\nThe higher cash and debt balances at April 4, 2021, including the proceeds of debt incurred to fund the cash portion of the consideration for the FLIR test acquisition.\nStock option compensation expense was $4.2 million for the first quarter of 2021 compared to $7.4 million for the same period of 2020.\nTurning to our outlook, management currently believes that earnings per share in the second quarter of 2021 will be in the range of $2.85 to $2.95 per share and for the full year 2021, our earnings per share outlook is $12 to $12.20.\nIn each case, these do not reflect the pending acquisition of FLIR and related acquisition and financing costs.\nThe 2021 full year estimated tax rate, excluding discrete items is expected to be 22.6%.\nIn addition, we currently expect less discrete tax items in 2021 compared with 2020.\nI will now pass the call back to Robert.",
        "summary": "sees q2 adjusted earnings per share $2.85 to $2.95.\nsees fy adjusted earnings per share $12.00 to $12.20 excluding items.\nexpect to complete acquisition of flir on may 14, 2021."
    },
    {
        "text": "I'll begin by discussing our 2020 results, briefly comment on the outlook for 2021, and of course, comment on the pending acquisition of FLIR.\nWe concluded 2020 with the best earnings, operating margin and cash flow in the company's history.\nCompared to last year, fourth quarter earnings increased 13.7%.\nOperating margin increased 173 basis points and free cash flow increased 50.7%.\nFor the full year 2020, GAAP operating margin increased slightly.\nFree cash flow increased significantly, 39.1% to $547.5 million.\nIt is worth emphasizing that full year margin and cash flow performance occurred despite over $33 million in nonrecurring charges, record negative GDP in the second quarter and the constant challenges faced by manufacturers during the COVID-19 pandemic.\nWe entered 2021 with a clear improvement in demand across the majority of our businesses.\nIn fact, we received record orders in the fourth quarter and ended 2020 with record backlog.\nQ2 orders were $920 million or 1.14 times sales with year-end backlog of $1.7 billion.\nWhile it's still early in 2021, we're expecting continuing recovery in our commercial businesses as well as growth in our government businesses.\nIn both cases, strongest within our Digital Imaging segment.\nGiven some caution and conservatism, related to the ongoing tug of war between shutdowns and vaccines, we think a reasonable outlook for the total company's organic growth is between 5% and 6% for 2021.\nOf course, the largely pre-COVID comparison in the first quarter will be the most difficult with revenue relatively flat.\nFinally, I want to comment on the FLIR acquisition.\nWe've been watching FLIR since we first entered the Space-based Infrared imaging market in 2006 when we acquired Teledyne Scientific and Imaging.\nWe believed then and we believe now that our infrared imaging technologies and market segments are uniquely complementary.\nAs both companies evolved, we've grown to be even more complementary.\nFor example, Teledyne entered the subsea drone business in 2008 and FLIR entered the airborne unmanned business in 2016, and more recently, the land-based robotics business.\nPerhaps more importantly, each company exited unattractive businesses, Teledyne in 2011 and FLIR in 2018.\nWhile our respective sensing technologies and market segments are different, the fundamental desire of our end customers is an image or even better, information.\nThis is true for extra imaging, infrared imaging, industrial machine vision and even our underwater marine sonar imaging and software businesses.\nIn other words, there is similarity and synergy in digitization, imaging algorithms, machine learning and other related technologies across each of our organizations.\nI will conclude by noting that for 21 years, Teledyne has consistently and predictably compounded earnings and cash flow, and 2020 was no different.\nNevertheless, I have never been more excited about Teledyne's future than I am today with the pending acquisition of FLIR.\nAl will now comment on the performance of our four business segments.\nIn our Instrumentation segment, overall fourth quarter sales decreased 6.2% when compared with last year.\nSales of environmental instruments decreased 6.7% from last year.\nHowever, sales increased 6.9% sequentially from the third quarter.\nCompared with last year, sales of certain products, such as wastewater samplers increased.\nHowever, this was more than offset by year-over-year declines and sales of selected industrial products, such as ambient air monitoring instrumentation.\nSales of electronic test and measurement systems increased 3.7% year-over-year to a quarterly record of $70 million.\nSales of marine instrumentation decreased 11.4% in the quarter, due in part to a difficult comparison with the fourth quarter of 2019.\nIn spite of lower sales, overall Instrumentation segment operating margin increased 262 basis points to a record, 22.3%.\nNow turning to the Digital Imaging segment.\nFourth quarter sales decreased 2.3%, and primarily reflect the core sales of X-ray detectors for dental and medical imaging, partially offset by greater sales of infrared and visible detectors for space applications.\nGAAP segment operating margin was 21.6%, an increase of 407 basis points year-over-year and also, a record.\nNow in the Aerospace and Defense segment, fourth quarter sales declined 14.8% as greater U.S. defense sales were more than offset by a 45% decline in sales of commercial aerospace products as well as lower commercial space sales related to OneWeb.\nThe GAAP segment operating margin decreased due to lower sales as well as $5.8 million in severance facility consolidation and other contract charges.\nIn the Engineered Systems segment, fourth quarter revenue increased 26.8%, primarily due to greater sales from defense, nuclear and other manufacturing programs as well as electronic manufacturing services.\nSegment operating margin increased 175 basis points compared with last year.\nI will first discuss some additional financials for the quarter, not covered by Robert and Al, and then I will discuss our first quarter and full year 2021 outlook.\nIn the fourth quarter, cash flow from operating activities was $236.4 million compared with cash flow of $167.9 million for the same period of 2019.\nRecord free cash flow, that is cash from operating activities less capital expenditures, was $217 million in the fourth quarter of 2020 compared with $144 million in 2019.\nCapital expenditures were $19.4 million in the fourth quarter compared to $23.9 million for the same period of 2019.\nDepreciation and amortization expense was $28.7 million in the fourth quarter compared to $29.3 million for the same period of 2019.\nWe ended the quarter with $105.4 million of net debt, that is $778.5 million of debt less cash of $673.1 million for a net debt-to-capital ratio of only 3.2%.\nStock option compensation expense was $5.9 million for the fourth quarter of 2020 compared to $5.7 million for the same period of 2019.\nTurning to our outlook.\nManagement currently believes that earnings per share in the first quarter of 2021 will be in the range of $2.55 to $2.60 per share.\nAnd for the full year 2021, our earnings per share outlook is $11.25 to $11.45.\nIn each case, these do not reflect the pending acquisition of FLIR and related acquisition and financing costs.\nThe 2021 full year estimated tax rate, excluding discrete items, is expected to be 22.3%.\nIn addition, we currently expect significantly less discrete tax items in 2021 compared with 2020.\nI will now pass the call back to Robert.",
        "summary": "sees fy earnings per share $11.25 to $11.45.\nsees q1 earnings per share $2.55 to $2.60.\nissuing full year 2021 diluted earnings per share outlook of $11.25 to $11.45."
    },
    {
        "text": "Due to the large number of participants on the Q&A portion of today's call, we're asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions during the allotted time.\nWe are willing to take follow-up questions but ask that you rejoin the queue if you have a second question.\nBefore Heath and I get into the slides and the details of the quarter, I want to frame our view of the environment that we're operating in as well as our performance.\nWe are in an economy that is showing strong GDP growth globally, driven by the recovery from last year's COVID shutdowns with consumer spending that is robust, as well as corporations around the world increasing investment to capitalize on this recovery.\nIn addition to the recovery, it's also important to note that we've strategically focused TE around select secular trends and these trends are accelerating in the key markets that we serve.\nYou'll see this in our transportation segment with electric vehicle adoption accelerating in our communications segment around cloud investment and in our industrial segment with capital spending accelerating globally around factory automation as well as digitization.\nWhile we have a recovery that is happening faster and is more robust than we all thought, the reality is that the world is dealing with supply chains trying to catch up to this faster recovery.\nThis is causing volatility for our customers as well as everyone that's in our customer supply chains.\nIn this backdrop, we are performing well in this environment and our strong results for the quarter and our performance so far this year demonstrates the strength and diversity of our portfolio.\nYou'll see this with contributions from each of our three segments.\nWe are generating sales, adjusted operating margins and adjusted earnings per share that are above pre-COVID levels and we remain excited about the additional growth and margin opportunities that we'll be on this year.\nWith this backdrop, let me provide some key messages from today's call about our performance.\nFirst, I am pleased with our execution in the third quarter and the quarterly records that we achieved.\nThese records include sales of over $3.8 billion, adjusted earnings per share of $1.79 and adjusted operating margins of over 19%.\nOur results were ahead of our expectations, driven by the continued recovery in most end markets that we serve, our broad leadership positions and strong operational performance by our teams.\nIt's also important to note that, while we are in a recovery, our growth also continues to be driven by the secular trends across our markets that are driving our market outperformance this year and will continue to drive the outperformance going forward.\nAnother key factor that you see is that, we are continuing to demonstrate our strong free cash generation model, and continue to expect free cash flow conversion to approximately 100% for this full fiscal year.\nAnd as we look forward, you'll see and we'll talk about our orders in quarter three remain consistent with our second quarter, and we expect our quarter four sales to be roughly flat to our quarter three sales.\nAnd we expect that these revenue levers will translate into strong performance with $1.65 in adjusted earnings per share in the fourth quarter.\nAs I mentioned, our results are demonstrating the strength and diversity of our portfolio, with growth and margin contributions from each segment.\nIn communications, you see the growth opportunities in the cloud and the ongoing increase in capital expenditure trends by the cloud providers.\nIn our industrial segment, you see increased investments in capacity and higher levels of factory automation.\nAnd in transportation, you see content growth trends for electrification, as well as further electronification of both autos and trucks.\nAnd in each of our segments, we are delivering strong operational performance, which are evident in the margins.\nAnd when we look back to our discussion we had in October, we did indicate that our first quarter would be the peak of global quarterly auto production for our fiscal year, but not the peak of our earnings.\nThis is playing out as we anticipated because of our diverse portfolio.\nFor this fiscal year, we are expecting over 20% growth in sales, approximately 400 basis points of adjusted operating margin expansion and over 50% growth in adjusted earnings per share.\nI am very pleased with this level of progress toward our business model and our team's ability to execute, especially with some of the markets continuing to recover and the broader challenges we've faced in the supply chain.\nSo, now, let me turn -- and I want to take a moment to frame the current market environment and our business relative to where we were just 90 days ago when we last spoke.\nSo, starting with transportation.\nConsumer demand for autos remains robust, but ongoing challenges with semiconductor supply continue to impact our customers' ability to produce.\nGlobal auto production came in slightly lower than expected in the third quarter, and we're expecting auto production to be approximately 19 million units in our fourth quarter.\nThe trends around our content growth remain strong in the transportation segment.\nOur content per vehicle has accelerated from the low $60 range, a few years ago into the $70 range this year.\nWe continue to benefit from increased electronification and higher production of electric vehicles, which will enable us to continue to outperform auto production going forward, as content continues to grow.\nIn our industrial segment, we continue to see an industrial backdrop that is improving, which is benefiting our industrial equipment, as well as our energy businesses.\nAlso, in our quarter, our orders in medical have begun to recover, and we returned to growth as interventional procedures have started to increase again.\nAnd the one area, where we are not seeing acceleration is in our AD&M business, but I will highlight, the business does feel stable at current revenue levels.\nFrom 90 days ago, let me talk about communications.\nThe end market trends that we mentioned last quarter are continuing.\nConsumer demand continues to be robust in appliances and capital expenditure trends remain strong in cloud applications.\nAnd while that to look at where we were versus 90 days ago by our segments, I do want us all to remember that we are in a world that's still dealing with COVID and the uncertainties around variants.\nWhile all our global factories are operational, we continue to watch developments in each of the regions we operate and our focus has been and will continue to be on keeping our employees safe, while also helping our customers capitalize on the improving economic conditions.\nIn the third quarter, sales of $3.8 billion were better than our expectations and were up over 50% year-over-year, demonstrating strong performance through the economic recovery with growth in all segments.\nAlso on a sequential basis, sales were up 3% and our earnings per share was up 14% with sequential margin expansion in each segment.\nCompared to last quarter, industrial segment sales were up 5%, driven by ongoing strength in industrial equipment and increases in energy and medical.\nAnd in the communications segment, sales were up 16% with double-digit growth in both data and devices and appliances on a sequential basis.\nAnd in our transportation segment, our sales were in line with our expectations.\nWhen you look at orders in the quarter, they remained strong at $4.5 billion consistent with the levels we had in the second quarter.\nAnd this reflects market improvement along with ongoing inventory replenishment by our customers.\nIf you think about the balance sheet, we continue to maintain the capital strategy between making sure we're returning capital to shareholders as well as M&A.\nEarlier this month, we entered into an agreement to acquire ERNI, a European connector manufacturer that has a complementary product line and serving the industrial market.\nThis acquisition has a purchase price of approximately $300 million and is consistent with the bolt-on strategy around acquisitions that we talked to you about.\nAs we look forward, we expect our strong performance to continue into our fourth quarter.\nWe expect sales to be up in the high teens over the year to approximately $3.8 billion.\nAdjusted earnings per share is expected to be approximately $1.65 and this will be up 40% year-over-year.\nAnd as you can see on the slide, we've included our full year numbers and our performance relative to both fiscal 2020 and 2019 which I highlighted earlier.\nFor the third quarter, our orders remained strong at approximately $4.5 billion consistent with the second quarter levels that I mentioned earlier.\nOrder levels continue to reflect economic recovery and replenishment across a number of our end markets.\nYear-over-year, we saw orders growth in all businesses and in all regions.\nTransportation orders remained elevated due to the market recovery, as well as the auto industry supply dynamics.\nIn our industrial segment, orders grew 8% sequentially and with growth in industrial equipment, energy and medical and flat orders in AD&M which indicates the stabilization that I mentioned earlier.\nIn communications, sequential order growth was driven by strength in data and devices.\nSo let me also add some color on orders and what we're seeing from a geographic perspective on a sequential basis.\nWe continue to see growth in Asia where our China orders were up 6% sequentially.\nIn Europe, our orders were down 7% sequentially and in North America, our orders were essentially flat versus last quarter.\nSo with that as a backdrop around orders, let me get into our segment results that you'll see on slides five through seven and I'll cover this briefly.\nStarting with transportation, our sales were up approximately 70% organically year-over-year with growth in each of our businesses.\nOur auto business grew 90% organically and we are benefiting from the market recovery and are demonstrating continued content outperformance due to our leading global position.\nWe continue to benefit from increased production of electric vehicles, as TE's technology and products are enabling high-voltage architectures and applications with every leading OEM on the planet.\nIn commercial transportation, we saw 56% organic growth driven by the market recovery, ongoing emission trends as well as content outperformance.\nWe are continuing to benefit from stricter emission standards around the world and increased operator adoption of Euro 6, which reinforces our solid position in China.\nThe other key point is that we continue to gain momentum with wins on electric powertrain platforms and trucks, which while this doesn't give revenue or orders today, it will provide future content growth for our leading position in commercial transportation.\nIn sensors, we saw 20% organic growth, driven primarily by auto applications and we also saw growth in the commercial transportation and industrial applications as well.\nFor the segment, adjusted operating margins expanded sequentially to 19.4% on essentially flat sales.\nSo let me turn to the industrial segment.\nAnd in this segment, sales increased 13% organically year-over-year.\nIn our industrial equipment business, sales were up 36% organically with growth in all regions and benefiting from the momentum in factory automation applications where we continue to benefit from accelerating capital expenditures in areas like semiconductor and automotive manufacturing.\nOur AD&M business, sales declined 7% organically, driven by the continued weakness in the commercial aerospace market.\nIn our energy business, we saw 9% organic growth driven by increases in renewables, especially global solar applications.\nAnd lastly, in our medical business as I mentioned earlier, a return to growth in the quarter and was up 10% organically year-over-year with the recovery in interventional procedures around the world.\nFrom a margin perspective, adjusted operating margin for the segment expanded year-over-year by nearly 300 basis points to 15.8% despite the volume declines in our AD&M business.\nAnd this was driven by solid operational performance by the teams.\nNow let me turn to the communications segment.\nAnd our team continues to demonstrate strong operational execution, while capitalizing on the growth trends in the markets that we serve.\nSales grew 31% in the segment organically year-over-year with robust growth in both data and devices and appliances.\nIn data and devices, we grew 16% organically year-over-year due to the solid position we built in high-speed solutions for cloud applications.\nWe continue to see capital expenditures increasing by our customers and our content growth is enabling us to grow cloud-related sales at double the market rate this year.\nIn appliances, sales grew 57% organically versus the prior year with growth in all regions driven by market improvement, our leading global market position, and ongoing share gains.\nI do want to say that our communications team continues to deliver outstanding performance to complement the higher sales levels that they're executing to.\nAnd you see this with our adjusted operating margin in the segment of 23.5%, which is up 760 basis points versus the prior year.\nOverall, across our segments our teams are capitalizing on growth trends in their end markets demonstrating the diversity of our portfolio while delivering strong operational execution.\nAdjusted operating income was $734 million, up significantly year-over-year with an adjusted operating margin of 19.1%.\nGAAP operating income was $714 million and included $11 million of restructuring and other charges and $9 million of acquisition-related charges.\nWe still expect total restructuring charges to approximate $200 million for fiscal 2021 as we continue to optimize our manufacturing footprint and improve the cost structure of the organization.\nAdjusted earnings per share was $1.79 and GAAP earnings per share was $1.74 for the quarter which included restructuring acquisition and other charges of approximately $0.05.\nThe adjusted effective tax rate in Q3 came in as we expected at approximately 18% with our fourth quarter tax rate expected to be around 20%.\nWe expect to continue our -- we continue to expect our adjusted effective tax rate for the full year to be around 19%.\nImportantly, we expect our cash tax rate to stay well below our reported ETR for the full year.\nAs Terrence mentioned, we delivered record performance in Q3 on sales, adjusted operating margins, and adjusted EPS.\nWe are not only showing progress versus the prior year, but we are also delivering higher sales margins and adjusted earnings per share versus fiscal 2019, which represents a pre-COVID baseline.\nSales of $3.8 billion were up over 50% versus the prior year and up 3% sequentially with solid performance in each of our segments.\nCurrency exchange rates positively impacted sales by $138 million versus the prior year.\nAdjusted earnings per share of $1.79 was up significantly year-over-year and up 14% sequentially reflecting our strong operational performance.\nAdjusted operating margins were 19.1% also up significantly versus the prior year.\nYear-to-date our adjusted operating margins are running at around 18% and our fourth quarter is expected to be a continuation of this strong performance.\nTurning to cash flow, in the quarter cash from operating activities was $682 million.\nWe had very strong free cash flow for the quarter of $539 million and year-to-date free cash flow is approximately $1.5 billion.\nIn Q3, we returned approximately $445 million to shareholders through dividends and share repurchases.\nOur cash flow performance demonstrates the strength of our cash generation model.\nAnd we continue to expect free cash flow conversion to approximate 100% for the full year.\nWe remain committed to our disciplined use of capital.\nAnd overtime, we continue to expect two-thirds of our free cash flow to be returned to shareholders and one-third to be used for acquisitions.\nAs Terrence noted, we entered into an agreement to acquire ERNI earlier this month.\nAnd we expect to close by the end of this quarter.\nERNI has revenues of approximately $200 million annually, and will be reported as part of our industrial equipment business.\nBefore we go to questions, I want to reiterate, that we are performing well in this environment, despite challenges in the broader supply chain.\nOur results for the quarter and our performance so far this year, demonstrate the strength and diversity of our portfolio with contributions from each of our three segments.\nWe delivered record performance in Q3.\nOur fourth quarter guidance represents a continuation of our strong performance.\nAnd we are excited about growth and margin opportunities beyond this fiscal year in line with our business model.\nLudy, could you please give the instructions for the Q&A session?",
        "summary": "te connectivity q3 adjusted earnings per share $1.79.\nq3 adjusted earnings per share $1.79.\nq3 gaap earnings per share $1.74 from continuing operations.\nq3 sales $3.8 billion versus refinitiv ibes estimate of $3.74 billion.\nsees q4 adjusted earnings per share about $1.65.\nsees q4 sales about $3.8 billion."
    },
    {
        "text": "I'm joined by John Garrison Chairman and Chief Executive Officer; and John Duffy Sheehan Senior Vice President and Chief Financial Officer.\nIn addition we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.\nReconciliations for these non-GAAP measures can be found in the conference call materials.\nI want to take a moment to emphasize once again that Terex actions are always guided by our values.\nWe consistently act with integrity operate with excellence and care for our team members customers and communities.\nSafety remains the top priority in the company driven by think safe work safe home safe.\nAll Terex team members have contributed to our effort to continue to produce some service equipment for our customers while maintaining a safe working environment.\nPlease turn the slide four.\nThe team is built on the strong foundation for long-term success with our environmental social and governance or ESG efforts.\nA few key points that I would like to highlight as we progress on this journey.\nLeading with strong governance our ESG efforts are led by senior management with oversight from our Board of Directors.\nTurning to social diversity equity and inclusion is being embraced and driven by our senior leaders as we increase the dialogue and training around this important topic.\nOn the environmental front you'll hear more later about how our teams continue to deliver sustainable and innovative products which our customers are demanding.\nFinally we continue to communicate with stakeholders about our ESG journey.\nWe recently released our second ESG report which can be found in our Investor Relations website.\nThe team support is continuing to engage with investors about ESG matters.\nI am pleased with our efforts to date but the team recognizes there is more work to do around this important topic and we will drive execution of our ESG priorities.\nNow let me highlight some of our third quarter results which Duffy will describe in greater detail.\nDuring the quarter we continued to deliver strong year-over-year top-line revenue growth.\nWe were impacted by supply chain challenges limiting our production output especially within our AWP segment.\nAs a result of the supply chain challenges revenues were approximately 9% below our expectations from the beginning of the quarter.\nGlobal end market demand remained very robust as demonstrated by our quarterly bookings and Q3 being double the prior year.\nEven when compared to historically good end market demand environment such as Q3 2019 our bookings were up approximately 140%.\nWe do expect end market demand to remain strong to the remainder of this year and into 2022.\nOur operating margins in earnings per share in the quarter improved significantly versus the third quarter of last year but were lower than our prior expectations because of the revenue shortfall supply chain challenges impacting the efficiency of our manufacturing operations and inflationary cost pressures which we are only partially offset by our pricing actions.\nWe expect the supply chain environment we experienced in Q3 to continue through the fourth quarter and into 2022.\nToday's updated financial outlet for 2021 reflects this expectation.\nI'm extremely proud of our team's management of working capital and free cash flow generation.\nWith $43 million of positive free cash flow in the quarter we posted our sixth consecutive quarter of positive free cash.\nYear-to-date we have now generated more than $180 million of free cash.\nThis strong performance allowed us to use available cash to prepay another $150 million of debt in October.\nToday Terex enjoys one of the strongest balance sheets it has ever had.\nDuring the third quarter our team worked tirelessly to manage supply chain and logistics disruptions by delivering for our customers.\nTightly managed all costs and delivered improved margins and positive free cash flow.\nOur financial results demonstrates that our strategic priorities are working to improve the company and to deliver positive financial results for shareholders.\nWe continue to improve Terex's global cost competitiveness.\nFor the full year 2021 our SG&A as a percent of sales will be substantially below our target of 12.5%.\nDuring 2021 we have been treating nearly all SG&A costs as fixed taking advantage of higher revenue to leverage the cost structure.\nWe will continue to maintain strict cost discipline while recognizing that growth in the business will necessitate some investment spending.\nIn the third quarter we started production of our telehandlers in Monterrey Mexico.\nThis action is on track and will reduce the cost of manufacturing our telehandler products for the North American market.\nTurning to innovation we remain focused on purposeful innovation delivering electrification digital and other offering enhancements that provide value to our customers.\nIn utilities we've rolled out our high-power solution which operates the boom electrically and eliminates noise and emissions.\nAnd Genie is producing E-Drive scissor which addresses the need for hybrid and fuel electric product offerings.\nApproximately two thirds of Genie's scissors and one third of Genie booms are offered with hybrid and electric technology.\nMP has launched 28 new products in 2021.\nThe segment also continues to develop and deploy digital offerings for dealers and customers.\nMore than 7000 units in the installed base are now fitted with telematics hardware that is enabling these offerings.\nMP is also implementing digital dealer solutions including connected dealer inventory or CDI.\nThe number of active dealers using CDI doubled in 2021 and more growth is anticipating.\nFinally we are investing for growth.\nIn China we're increasing production in both segments.\nWe produced our first Genie in our recently expanded Changzhou facility and our MP production is progressing according to plan.\nWe launch a new product line in waste and recycling called Terex Recycling Systems or TRS.\nThe new product line will lead modular offerings for stationary systems.\nThe TRS offering compliments our Ecotech and [Indecipherable] businesses which offer mobile waste and recycling equipment.\nTurning to slide seven our AWP and MP segments continue to demonstrate resiliency and flexibility to capture the benefits from the positive market fundamentals that we are seeing.\nFirst in Genie the current market dynamics points our multiyear replacement cycle for Genie equipment.\nThe average age of fleets globally is increasing and customers need to replenish their fleets.\nSo the replacement cycle is here.\nAdoption is taking place in emerging markets such as China non-residential investment indicate are positive.\nThese factors are leading to strong order activity.\nMaterial processes we expect global demand for crushing and screening equipment to continue to grow.\nBroad-based economic growth construction activity and aggregates consumption are the primary market drivers.\nWe are seeing strong markets for our concrete mixer truck material handling and environmental businesses.\nOverall we are seeing robust market conditions around the world for our industry-leading products and solutions.\nHowever while demand remained strong we anticipate ongoing supply chain disruptions to persist throughout the fourth quarter and into 2022.\nIt is a dynamic situation which is constantly changing and we're not expecting significant improvement in the near-term.\nFreight and logistics have also been a growing issue with delays and increased cost.\nThe availability of containers ships and increasing offload times are impacting our production and delivery schedules.\nOur production and supply chain team members are doing a remarkable job demonstrating resilience and flexibility to maximize the number of machines we can ship to our customers.\nOur strategic sourcing initiative has produced strong relationships with suppliers resulting in more impact in transparency and communication.\nThis has helped our teams work with suppliers to ensure we are receiving a higher allocation of components.\nOur engineering teams are working with suppliers to redesign components to maximize availability of critical electronic subsystems.\nThese are dynamic times and I am confident that Terex will deliver continued operational progress due to the tireless efforts of our team members.\nTurning to slide eight let's look at our third quarter results.\nOverall revenues of almost $1 billion were up nearly 30% year-over-year with both of our operating segments revenues up more than 25%.\nAs John mentioned earlier revenues were lower than our expectations going into the quarter.\nAs a result of the higher revenues our absolute amount of gross profit in the quarter increased 22%.\nThe current global supply chain dynamics materially increased the cost of our operations for both segments through reduced efficiency in our manufacturing facilities and higher material logistics and labor costs.\nIn the short-run given previously committed customer purchase orders especially in our AWP segment we have been unable to pass all of these increased costs onto our customers.\nAs a result gross margins contracted year-over-year in the third quarter.\nTo mitigate the negative impacts of the operating environment our teams have been maintaining strict discipline in our SG&A spending.\nDespite this quarter's revenue being 30% higher than the same quarter last year SG&A was $6 million lower than the prior year.\nFor the quarter we recorded an operating profit of $74 million compared to $37 million in the third quarter of last year achieving an operating margin of 7.5%.\nInterest and other expenses was approximately $3 million lower than Q3 of last year resulting from lower outstanding borrowings combined with reduced rates on the debt we financed earlier this year.\nOur third quarter 2021 global effective tax rate was approximately 23% driven by a mix of discrete items in the quarter.\nOur tax rate estimate for the full year remains 19% consistent with our previous look.\nFinally our reported earnings per share of $0.67 per share more than doubled year-over-year.\nTurn into slide nine and our AWP segment financial results.\nSales of $573 million were up 29% compared to last year driven by continued strong demand in all global markets.\nAWP delivered improved operating margins in the quarter driven by increased production and aggressively managing all costs.\nThird quarter bookings of $981 million were up dramatically compared to Q3 2020 while backlog at quarter end was $1.7 billion almost four times the prior year.\nApproximately 70% of AWPs September 30th backlog is scheduled for delivery in 2022.\nA portion of this backlog represents orders with 2021 pricing that were scheduled for delivery in 2021 that have now over into 2022.\nAs a result we expect the first half of next year to be price cost negative.\nHowever we do expect AWP to be price cost neutral for the full year 2022.\nNow turning to slide 10 a material processing's Q3 financial results.\nMP had another excellent quarter.\nSales of $419 million were up 35% compared to last year driven by strong customer demand across all end markets and geographies.\nThe MP team has been aggressively managing all elements of cost as end markets improve resulting in an operating margin of almost 14%.\nIt is a Testament to the MP team's operational strength to deliver these robust operating margins.\nMP saw its businesses strengthen through the quarter with bookings up approximately 62% year-over-year.\nBacklog of $1 billion is more than 3.5 times higher than last year and was up 18% sequentially.\nTurning to slide 11 and I'll now review our updated financial outlook for the full year.\nThis outlook takes into consideration the current end market demand environment as well as the increased supply chain and input cost headwinds that we have discussed today.\nAs for commercial demand we have seen our end markets remain robust over the course of the third quarter.\nWe expect continued global end market strength over the remainder of the year and into 2022.\nOur full year revenue outlook for the company as a whole and both segments is limited due to the availability of components from our supply chain.\nWe now expect our AWP segment revenues for the full year to be slightly lower than our previous sales outlook communicated in July.\nIn addition we are expecting our operations to be impacted over the remainder of this year and into 2022 by accelerating cost increases.\nAs we've already contracted with customers for nearly all of our remaining 2021 revenue most of the benefit of price increases which we have been implementing to offset inflationary pressures will not be realized until 2022 especially in our AWP segment.\nWe have slightly lowered our total company outlook for operating margins as a of lower AWP margins partially offset by improving MP margins.\nAs a result of positive first half callouts corporate and other costs continue to be expected to be slightly higher in the second half versus the first half of the year.\nFinally we continue to plan the total company incremental margins for the full year 2021 which exceed our 25% target.\nOur full year earnings per share outlook including charges of $0.27 per share for the refinancing of our capital structure and other year-to-date callouts has been revised to $2.75 to $2.85 per share based on sales of approximately $3.85 billion.\nFor the full year 2021 we are estimating free cash flow in excess of $200 million reflecting a strong year of positive cash generation.\nThe year free cash flow continues to include approximately $75 million from income and back tax refunds which are not expected to reoccur.\nWe now plan for cash capital expenditures of approximately $80 million.\nThe largest project included in capital expenditures is for the Genie Mexico manufacturing facility.\nTurning to slide 12 our updated 2021 full year earnings per share outlook takes into consideration.\nFirst the small reduction in our full year outlook for AWP segment revenues.\nSecond the inflationary cost pressures we are experiencing in most areas of our businesses.\nThird the benefit of price increases we have been implementing which is only partially offsetting these cost increases and finally the operational efficiency and SG&A cost mitigation actions we have been taking to improve the business.\nOverall our 2021 outlook continues to represent a significant improvement in operating performance when compared to 2020.\nWe will continue to aggressively manage costs while positioning our businesses for growth.\nTurning to slide 13 and I'll review our discipline capital allocation strategy.\nOur team members remain vigilant and will continue to efficiently manage production and scrutinize every expenditure.\nThe positive free cash flow of $43 million in the quarter demonstrates the focus and discipline of our team members who have tightly managed networking capital.\nTerex has ample liquidity.\nAt the end of the quarter we had approximately $1.2 billion available to us with no near-term debt maturities so we can manage and grow the business.\nOur strong liquidity position and cash generation allowed us to prepay $150 million of term loans in October which is in addition to the $279 million prepaid earlier this year all this while the company continues to pay our quarterly dividend.\nWe are committed to continuing to strengthen Terex's balance sheet while maintaining flexibility to execute our growth plans.\nAnd with that back to you John.\nHe has been a great leader mentor and teammate and he has created tremendous value for our company.\nIn his five years as CFO Duffy's guidance has been especially important to me as he has helped lead our transformation journey and position Terex for a strong future.\nI know you will continue to do the same for Julie.\nYour pushing and prodding made me a better CFO for Terex and most importantly to you John for giving me this opportunity.\nWe are a great team and good friends.",
        "summary": "sees fy earnings per share $2.75 to $2.85.\nsees fy sales $3.85 billion.\nq3 2021 income from continuing operations of $47.5 million, or $0.67 per share."
    },
    {
        "text": "Additionally, during this conference call, you will hear management make references to the estimated positive or negative impacts as a result of COVID-19 during the third quarter of 2020.\nYou'll also hear management make statements regarding intra-quarter business performance during the month of October.\nManagement is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters.\nIt's a pleasure to speak with you today, and I hope you're all keeping safe and well.\nOverall, considering the environment we are operating in, we are pleased with our third quarter performance as it reflected the expected improvement in trends across many of our global product categories, led by a faster-than-expected recovery within our Interventional Urology business, and continued strength within our vascular access product sales.\nWhile from a regional perspective, we saw particular strength within the Americas as the pace of recovery in the United States during the third quarter was encouraging.\nQuarter three revenues was $628.3 million, which was down 4.1% as compared to the prior year period on a constant currency basis but far better than the 12% decline we experienced during the second quarter of the year.\nThe decline in year-over-year revenue is due to the impact of COVID-19, which we estimate caused a net negative impact of approximately $78 million, or approximately 12%.\nIf we were to normalize for the negative COVID impact, we estimate that our underlying business grew by approximately 8% on a constant currency basis, consistent with our quarter two revenue performance.\nWe also saw a significant sequential improvement within our adjusted gross and operating margins from the levels achieved during the second quarter.\nWith our adjusted earnings per share of $2.77 in the quarter meaningfully exceeded our internal expectations.\nThis reflects the continued recovery we saw as we moved through the quarter, coupled with prudent operating expense management.\nBefore I go into more detail on our quarterly financial performance, I am happy to announce that during the month of October, we signed a definitive agreement to acquire Z-Medica, a market leader in hemostatic products.\nWe are pleased to be able to deploy capital for a differentiated product portfolio that leverages existing Teleflex call points and is immediately accretive to our revenue growth rates, adjusted growth and operating margin profile and to our adjusted earnings per share.\nTurning to a more detailed review of our third quarter results.\nAs I just mentioned, quarter three revenue declined 4.1% on a constant currency basis and 3.1% on an as-reported basis.\nThe decline in revenue was due to COVID-19, which we estimate had a negative impact of approximately $81 million across several global product categories.\nThis was somewhat offset by approximately $3 million of additional revenue within our vascular access and other product categories, which experienced modestly higher-than-expected demand as a result of COVID-19.\nFrom a margin perspective, we generated adjusted gross and operating margins of 57.2% and 25.1%, respectively.\nThis translated into a year-over-year decline of 140 basis points at the gross margin line and 190 basis points at the operating margin line.\nThat said, we saw a sequential improvement of 330 basis points on both the adjusted gross and operating margin lines as compared to the levels we achieved in the second quarter.\nOn a year-over-year basis, reduced sales volumes due to COVID was a headwind.\nHowever, it was partially offset by our cost containment efforts as we continue to tighten our belts where we deem appropriate in the current environment, balanced against continued investment to sustain our long-term growth aspirations.\nAdjusted earnings per share was $2.77, down 6.7% year-over-year but ahead of our internal expectations as the business continued to recover during the quarter.\nWhen excluding the negative impact of COVID-19 had on our third quarter results, we estimate that our adjusted earnings per share would have grown approximately 13% as compared to the prior year period.\nOverall, I am very pleased with our financial performance as it demonstrates the resiliency of our diversified global product portfolio.\nLet's turn to a discussion on our quarterly revenue trends, which will be on a constant currency basis.\nThe Americas delivered revenues of $375 million in the third quarter, which represents an increase of 0.4%.\nGrowth within the Americas was driven by vascular access and respiratory products, which both saw elevated demand driven by COVID.\nIn addition, Interventional Urology was a strong contributor as UroLift continues to be one of the fastest recovering procedures.\nHowever, there were offsets with declines in other product categories.\nWe estimate that the Americas would have grown approximately 9%, excluding the impact that COVID-19 had on the region.\nEMEA reported revenues of $135.7 million in the third quarter, representing a decline of 7%.\nDuring the quarter, declines occurred across most product categories as increasing COVID infection rates negatively impacted procedures and results.\nAdjusting for COVID, we estimate an approximately 3% underlying decline for the region.\nRevenues totaled $68.2 million in the third quarter, which represents a decline of 14.2%.\nHowever, we estimate that we would have had positive constant currency revenue growth in the high single digits, if not for the impact of COVID-19.\nAdditionally, during the third quarter, we began transitioning a distributor in Japan.\nWhen normalizing for both COVID and the distributor change, growth in the region would have been closer to the low double-digit range, consistent with our longer-term outlook.\nAnd lastly, our OEM business reported revenues of $49.4 million in the third quarter, which was down 11.8% on a constant currency basis.\nAs we anticipated, during the third quarter, our OEM business saw a lagged impact related to COVID relative to our other businesses.\nInvestors familiar with Teleflex will be aware that our OEM business supplies medical companies with complex catheters and surgical sutures, and the quarter three impact reflects reduced orders from these customers, whose business is tied to non-emergent procedures.\nExcluding the estimated COVID-19 impact, the business grew roughly 28%, which includes a benefit of approximately 11% from the acquisition of HPC.\nAs it relates to HPC, I am pleased to report that we remain on track with our integration efforts.\nLet's now move to a discussion of our revenue by global product category.\nStarting with vascular access.\nDue to growth within both our PICC and EZ-IO products, third quarter revenue increased 6.8% to $160 million.\nWe estimate that COVID-19 positively impacted the growth rates of our vascular products during the third quarter by approximately 1%.\nMoving to interventional access.\nThird quarter revenue was $93.2 million, or down 13.5% as compared to the prior year period.\nThe decrease was largely due to the delay in the recovery of certain non-emerging procedures because of COVID-19, along with the negative impact stemming from a catheter recall that occurred during the quarter.\nWe estimate that the recall impacted our business negatively by approximately $4 million.\nThe impact on the recall will continue to linger for the next several quarters as we do not expect to be back on the market with this product until September of 2021.\nWhen normalizing for the impact that COVID had on these product lines, we estimate that underlying growth was in the low single digits.\nRevenue was $75.7 million, which is lower than the prior year by 14.4%.\nThe revenue decline was the result of lower sales of laryngeal masks, regional anesthesia and airway management products.\nWe estimate that COVID had an approximately 10% negative impact in the quarter, implying mid-single-digit declines for the business on an underlying basis.\nRevenue declined by 12.3% to $82.2 million, driven by lower sales of our ligation and instrument product lines.\nWe estimate a 13% headwind from COVID during quarter three, indicating recovery as compared to the estimated 30% COVID headwind in quarter two.\nMoving to Interventional Urology.\nQuarter three revenue increased by 11% to $81.8 million.\nWe estimate an approximate 29% COVID-19-related headwind during quarter three.\nNotwithstanding the significant headwind on our growth in quarter three, we are pleased with the path of recovery for this business unit and are also happy with the early impact of our national DTC campaign, which is exceeding our expectations.\nAdditionally, we are encouraged that we trained 120 new urologists in quarter three, moving to a cadence that is consistent with our expectations prior to COVID.\nAnd finally, our other category, which consists of our respiratory and urology care products, grew 0.5%, totaling $86 million.\nIn large part, we estimate that growth during the quarter was due to increased demand for certain humidification and breathing products resulting from COVID-19.\nFrom a monthly perspective, we note that September outperformed July and August when normalizing for the distributor termination and the product recall within our interventional business.\nFurthermore, as we have progressed through the first few weeks of October, we continue to see additional modest improvements as compared to last October.\nThat said, due to the significant resurgence of COVID cases globally, and when normalizing for selling days, we expect to see a modest improvement in the constant currency revenue performance during quarter four as compared to the decline of 4% we achieved in quarter three.\nTom will provide more details later.\nThat completes my comments on quarter three revenue performance.\nTurning to some recent clinical and commercial updates.\nThe response to our national DTC campaign is exceeding our expectations.\nThe strategic role of DTC is important as about half of the 12 million men being treated for BPH believe prescription medications are their only solution.\nThus far, we are tracking well against the target to generate six times the number of impressions from the regional campaigns in the year ago period.\nWeb traffic has increased over 150% since the launch and another encouraging metric is that multiple urologists are now motivated to get trained on UroLift as a result of patient requests due to the campaign.\nIn addition, while there was likely a nominal impact on quarter three results, we expect the momentum for the campaign to continue building into quarter four and early next year as we turn down the advertising full strength starting in early September.\nTurning to UroLift two.\nSince the FDA clearance on July 31, we have begun a market acceptance test and received positive preliminary feedback, including the streamlining of the delivery device triggering mechanism and the reduction of waste.\nWe are also increasing manufacturing levels for the product ahead of the full commercial launch slated for early in 2021.\nLastly, regarding the UroLift ATC.\nWe know that the market acceptance test is well under way, and we have received very positive feedback, which indicates that the device is delivering on the intended benefit of enhanced tissue controls when treating challenging anatomies such as obstructive median lobe.\nTaken together, we see these efforts as helping to build momentum as we seek to further expand our leadership position in BPH.\nTurning to the next slide on key commercial updates.\nWe recently received an expanded indication for EZ-IO as the device can now be used for up to 48 hours when our alternate intravenous access is not available in both adults and pediatric patients, 12 years and older.\nWhile we do not expect a material sales uplift from this label expansion, we are always looking to improve our portfolio based on clinician feedback, and this is a prime example of those efforts.\nLastly, I'd like to provide the investment community with a few more details of the Z-Medica acquisition we announced last night.\nIn mid-October, we entered into a definitive agreement to acquire Z-Medica, an industry-leading manufacturer of hemostatic products.\nUnder the terms of the agreement, Teleflex will acquire Z-Medica, for an upfront payments totaling $500 million and up to an additional $25 million upon the achievement of certain commercial milestones.\nAs part of the transaction, Teleflex will also be acquiring certain tax attributes that are expected to result in future tax benefits.\nWe value these tax attributes at approximately $40 million, which we considered when arriving at our purchase price.\nZ-Medica's hemostatic technologies are helping reinvent hemorrhagic control with cost-effective efficient bleeding control solutions being adopted by markets worldwide.\nThe company offers three main brands: QuikClot, Combat Gauze and QuikClot Control+, which utilize the proprietary technology consisting of gauss impregnated with calin.\nThe technology activates and accelerates the body's natural clotting ability.\nZ-Medica's products currently focus on the trauma surgery, EMS, military, emergency departments and interventional segments with opportunities to expand into additional indications over time.\nTeleflex's strategy is to invest in innovative products and technologies that can meaningfully enhance clinical efficacy, patient safety and comfort, reduce complications and lower the overall cost of care.\nThe acquisition of Z-Medica enables Teleflex to leverage strength in the hospital, EMS and military call points with the differentiated products that complement our EZ-IO and EZPlas product portfolio.\nWe are excited to announce this acquisition given its above company average revenue growth capabilities as well as its above company average gross and operating margin profile.\nPending the receipt of certain regulatory approvals, the transaction is expected to be completed during the fourth quarter of this year.\nAs we look forward, the transaction is expected to contribute between $60 million and $70 million of revenue and between $0.07 and $0.15 of adjusted earnings per share in fiscal year 2021.\nBeyond 2021, we expect the acquisition to deliver a high single-digit revenue growth profile and further accretion to adjusted earnings per share.\nAfter our recent meetings with the FDA, we determined to proceed with the BLA submission rather than an EUA.\nWe continue to work closely with the agency in determining the timing of that submission.\nOverall, we continue to invest organically in clinical and commercial catalysts that will help to sustain our revenue growth aspirations in a normalized environment.\nWe will also look to augment those internal efforts through the deployment of capital for inorganic growth opportunities, such as Z-Medica.\nGiven the previous discussion of the company's revenue performance, I'll begin at the gross profit line.\nFor the quarter, adjusted gross profit was $359.6 million versus $380 million in the prior year quarter or a decrease of approximately 5%.\nAdjusted gross margin totaled 57.2% during the quarter, which is a decrease of 140 basis points versus the prior year period.\nThe decline in gross margin was primarily due to COVID-19-related impacts, including lower sales volumes and higher manufacturing costs, along with a foreign exchange headwind.\nThe volume impact was significant for the quarter as the adverse revenue impact from COVID-19 tended to skew toward higher gross margin products, including Interventional Urology, interventional access and Surgical.\nIn total, we estimate that COVID-19 negatively impacted our adjusted gross profit by approximately $59 million in the quarter.\nWe continue to tightly manage discretionary spending as a means to partially offset the reduced revenue and gross profit resulting from COVID-19.\nAnd as a result of the efforts, we estimate that operating expenses were reduced in the third quarter by approximately $22 million.\nWhile we expect the actions taken to continue to deliver opex savings through the remainder of the year, by far the largest quarterly opex reduction was realized in the second quarter.\nAdjusted operating profit during the third quarter of 2020 was $157.6 million, and this compares to $175.3 million in the prior year or a decrease of approximately 10%.\nThird quarter operating margin was 25.1% were down 190 basis points year-over-year, driven primarily by the gross margin decline.\nAnd while our adjusted margins were down in the third quarter as compared to the year ago period, we are pleased to see the sequential improvement in both gross and operating margins from the lows we experienced during the second quarter.\nLooking forward, we expect sequential margin improvement to continue during the fourth quarter.\nNet interest expense totaled $16.4 million, which is a decrease of approximately 14% versus the prior year.\nThe decrease in interest expense primarily reflects reduced average interest rates associated with our variable rate debt, partially offset by higher average debt balances versus the prior year period.\nFor the third quarter of 2020, our adjusted tax rate was 7% as compared to 10.3% in the prior year period.\nThe year-over-year decrease in our third quarter adjusted tax rate is primarily due to a favorable mix of taxable income versus the prior year period as well as a higher benefit from stock-based compensation as compared to the prior year period.\nAt the bottom line, third quarter adjusted earnings per share decreased 6.7% to $2.77.\nIncluded in this result is an estimated adverse impact from COVID-19 of approximately $0.60 as well as a foreign exchange headwind of approximately $0.09.\nTurning to select balance sheet and cash flow highlights.\nFor the first nine months of 2020, cash flow from operations totaled $241.5 million as compared to $289.2 million in the prior year period.\nThe decrease is attributed to larger contingent consideration payments, partially offset by favorable changes in other working capital driven by higher accounts receivable collections.\nOverall, the balance sheet remains in good shape.\nAt the end of the third quarter, our cash balance was $347.5 million versus $553.5 million at the end of the second quarter.\nDuring the third quarter, we repaid nearly $285 million of revolver borrowings and restored revolver availability to the full $1 billion.\nNet leverage at quarter end was approximately 2.6 times.\nThe acquisition of Z-Medica is projected to increase net leverage by less than 3/4 of one turn and net leverage pro forma the acquisition remains comfortably below our 4.5 times covenant.\nOur intention is to finance the purchase of Z-Medica through revolver availability.\nHowever, we may choose to permanently finance the acquisition through a future notes issuance.\nLastly, we have no near-term debt maturities of material size.\nGiven the continued uncertainty surrounding the impact of COVID-19 pandemic on business operations, we are not reinstating financial guidance at this time.\nHowever, we will provide the following directional expectations for the fourth quarter.\nLooking ahead, we continue to expect further sequential improvement in our constant currency revenue performance as compared to what we achieved in the third quarter.\nHowever, due to the resurgence in global COVID-19 cases over the past seven to eight weeks, we expect our constant currency revenue growth to be only modestly better than what we achieved during the third quarter.\nThis expectation of a modest fourth quarter improvement excludes the benefit of two additional selling days that occur in the fourth quarter of 2020, which we estimate would add approximately 3% of additional revenue growth during the fourth quarter.\nAnd this expectation also excludes any benefit from the acquisition of Z-Medica as the closing date is not yet determined.\nIn closing, we delivered solid third quarter results as our diversified portfolio showed continued expected improvement relative to our quarter two results on both the top and bottom line.\nExcluding the impact of COVID, we see our underlying business performance is encouraging and very much in line with our initial expectations.\nWe continue to view the resurgence of COVID globally, combined with the willingness of the more vulnerable population to get procedures done as the primary wildcards impacting recovery.\nWhile the next several quarters still have elements of uncertainty, we remain confident in our ability to execute as we head into 2021 and are optimistic in our long-term prospects.\nWe, as an organization, will continue to focus on serving our hospital customers and working with our key stakeholders.\nWe will manage the business prudently while staying focused to capitalize on the long-term potential of our global product portfolio.",
        "summary": "compname reports q3 adjusted earnings per share $2.77 from continuing operations.\nq3 adjusted earnings per share $2.77 from continuing operations.\nq3 revenue $628.3 million versus refinitiv ibes estimate of $619.3 million.\nnot reinstating 2020 financial guidance due to covid-19 pandemic."
    },
    {
        "text": "Before we begin, I'd like to direct all participants to our website, www.\nWe hope that you and your families are all safe and healthy.\nBefore I hand the call over to Kenneth, I will briefly review our financial results for the first quarter of 2021.\nIn the first quarter, we reported consolidated adjusted net income of 11 million, or $0.11 per share, up from 3 million, or $0.03 per share in the prior quarter.\nWe also generated total adjusted EBITDA of 202 million, up slightly from the previous quarter.\nCompared to Q4, we recorded higher results in each of our entities, supported by our large portfolio of long-term contracts in our gas shipping business, higher spot tanker rates in our oil shipping business, and higher revenues from our marine services business in Australia.\nAll of this despite the continued weakness in the spot conventional tanker market.\nLooking ahead, we are expecting the second quarter to be lower than the first quarter, mainly due to a heavy dry dock schedule in both our gas and tanker fleets, certain non-recurring items in the first quarter and the recent expiration of fixed rate charters in our tanker fleet that were locked in last year at higher rates.\nSince reporting earnings in February, we have made significant positive progress toward the strategic objective of winding down our FPSO segment, which we expect will result in a material reduction in our total asset retirement obligations in the second quarter.\nKenneth will discuss this in more detail on the next slide.\nOver the last couple of quarters, we discussed our ESG strategy, and we are now excited to have published our 11th consecutive Teekay Group sustainability report last month, which aligns with global frameworks such as GRI and SASB.\nWe have included a link to our latest sustainability report on this slide and it is also available on our website.\nAnd as Vince just mentioned, we have made good progress on winding down our FPSO segment.\nStarting with the Banff.\nAs highlighted last quarter, we have successfully completed Phase 1 of our decommissioning project with net costs below budget.\nWith respect to the recycling of the Banff, our Q1 cost came in lower than expected as the repositioning of the unit to its recycling yard was delayed while awaiting regulatory approvals.\nHowever, we are pleased to say that the unit departed by tow for its final voyage from the U.K. on May 2 and will safely handed over to the mass recycling shipyard in Denmark on May 11, where it will be recycled in accordance with the EU Ship Recycling Regulation over the next several months.\nAs such, in Q2, we expect to incur approximately $5 million to $6 million of costs relating to the towage and initial milestone payments to the recycling yard, which represents the most part of our remaining cost associated with the unit, with only minimal cost expected to be incurred after Q2.\nSeparately, in April, we entered into a conditional agreement with CNR, whereby the customer will take over our remaining Phase 2 decommissioning responsibilities on the Banff field, which, when finalized, will effectively conclude and eliminate our remaining obligations related to the Banff field after over 20 years of successful operations.\nThis agreement should enable CNR to achieve synergies when combining this with their own existing subsea decommissioning work scopes.\nregulatory authorities that Teekay has completed all of its obligations in relation to Phase 1 of the decommissioning project.\nWe're currently on track to satisfy these conditions by the end of May.\nThe Foinaven FPSO is now expected to be redelivered to us in the first half of 2022 as a result of BP's recent decision to suspend production on the Foinaven field.\nAs a reminder, the unit has been operating under a bareboat contract at a nominal day rate since we received an upfront cash payment of $67 million in April 2020.\nFollowing the redelivery, we expect to green recycle the unit with the associated cost expected to be covered by a fixed contractual lump-sum payment from the customer, which was also part of our new bareboat contract.\nThe redelivery of the Foinaven is happening earlier than what was previously expected.\nHowever, this will not have a material economic impact to Teekay since our day rate is only nominal.\nAnd, in fact, our cost to recycle the unit may be slightly less in 2022 compared to doing it after many years of additional usage, while the lump sum amount we will receive is the same irrespective of whether it is redelivered in 2022, or say, 2025.\nAs a result of these recent developments, we soon expect to have largely eliminated our remaining exposure to both the Banff and Foinaven FPSOs.\nAssuming the conditions precedent relating to the Banff decommissioning agreement are met by June 2021, we expect this to result in a material reduction in our net asset retirement obligation or ARO liabilities in the second quarter.\nWe'll provide an update on this in due course.\nLastly, the Hummingbird FPSO continues to operate on the Chestnut field under a fixed rate contract with the charterer having the right to terminate the contract with three months prior notice if the field is deemed uneconomic.\nHowever, the current level of oil production is stable at approximately 4,000 barrels per day, and oil prices are more than double the level that we experienced at this time one year ago.\nMeanwhile, the unit continues to generate stable positive cash flow for Teekay.\nOn Slide 5, I will briefly touch on the results and highlights of our daughter companies.\nStarting with Teekay LNG.\nThe partnership generated adjusted net income of $60 million, or $0.61 per unit, which is slightly better than the prior quarter.\nWe've been experiencing strong counter seasonal demand for LNG carriers since late March with increases in both the spot and time charter LNG shipping markets.\nTeekay LNG has taken advantage of this improvement by recently securing three new time charters, including one spot market linked contract.\nThe partnership's LNG fleet is now 98% fixed for the remainder of 2021 and 89% fixed for 2022.\nLastly, Teekay LNG recently increased its quarterly common unit distribution by 15% to $1.15 per unit per annum.\nThis represents the third consecutive annual double-digit increase to the partnership's common unit distribution.\nThis distribution level, which is supported by a large and diversified portfolio of long-term contracts, enables Teekay LNG to continue delevering its balance sheet, which provides financial flexibility to optimally allocate capital as the global demand for LNG continues to grow while adding $6 million per year to TK parent's free cash flow for a total of $43 million per year in cash distributions from TGP.\nLastly, Teekay Tankers recorded an adjusted net loss of $22 million or, $0.65 per share, which is an improvement of $19 million, or $0.56 per share compared to last quarter.\nAlthough the near-term outlook is uncertain due to the continued impact of COVID-19, we are seeing positive indicators that point toward an anticipated tanker market recovery, including improvements in the global economy, a continued decline in global oil inventories, an upcoming increase in OPEC+ production and positive tanker fleet supply fundamentals.\nTeekay Tankers is also maintaining its strong balance sheet with healthy liquidity and low leverage, which enables Teekay Tankers to continue reducing its overall cost of capital by unwinding expensive sale leasebacks and replacing them with lower-cost financings.\nWe're not out of the woods yet, especially in relation to the devastation that India is currently experiencing.\nBut we successfully managed through uniquely challenging circumstances last year, and we're confident that we are taking all measures to manage through the current situation.\nIn addition, we continue to see a strong correlation between global vaccination programs and the increase in oil demand, which we estimate to be approximately 5% lower currently compared to the pre-pandemic levels.\nAs the world recovers from the pandemic, we expect the demand for oil and gas and related transportation services to gradually return to 2019 levels, which we believe will be positive for our core gas and oil shipping businesses and for the Teekay Group overall.\nWith that, operator, we are now available to take questions.",
        "summary": "compname reports qtrly adjusted net income per share $0.11.\nteekay corp - qtrly adjusted net income attributable to shareholders per share $0.11."
    },
    {
        "text": "Before we begin, I'd like to direct all participants to our website at www.\nI will briefly review our fourth quarter results before I hand the call over to Kenneth.\nThe fourth quarter of 2019 marked a return to profitability for Teekay, as we recorded consolidated adjusted net income of $31 million or $0.31 per share compared to an adjusted net loss of $2 million or $0.02 per share in the same period of the prior year.\nWe also generated total adjusted EBITDA of $324 million, an increase of $113 million or 53% from the same period in the prior year, excluding the contribution from Teekay Offshore which we sold in May of 2019.\nOur fourth quarter consolidated results were positively impacted by significantly stronger spot tanker rates at Teekay Tankers, the start-up of various growth projects and higher charter rates secured on certain LNG carriers at Teekay LNG, improved results from our directly owned FPSO units and lower G&A expenses across the group.\nIn addition, we narrowed our consolidated adjusted net loss in the fiscal year 2019 to $19 million from $53 million in 2018 and we continue to expect 2020 to be a profitable year.\nTeekay Parent generated positive adjusted EBITDA of $14 million in the fourth quarter, which includes EBITDA from our directly owned assets and cash distributions from our publicly traded daughter entities.\nOur results were up compared to the fourth quarter of 2018, mainly as a result of lower interest expense due to bond repurchases over the past year and our bond refinancing completed in May 2019, higher contributions from the Banff and Hummingbird Spirit FPSO units, a 36% increase in TGP's quarterly cash distribution and lower G&A expenses.\nOverall, we are expecting another strong Q1 -- a strong quarter in Q1.\nOn the balance sheet side, in January 2020, Teekay Parent eliminated $52 million of debt guarantees previously provided to Teekay Tankers as a result of their $533 million refinancing completed during that month and we fully repaid the remaining balance on our 2020 unsecured bond with cash.\nTurning to Slide 4.\nWhen we presented at our Investor Day in November, our key message was that over the past three years we have significantly derisked the Teekay Group and that we expect stronger earnings and continued balance sheet delevering across our businesses.\nWe believe that the derisking of the Teekay Group has set us up to not only weather but actually continue to thrive during market volatility.\nFirst, let's start off on the near term.\nOn the gas side we have significant declines in LNG prices in Asia and Europe with Asia reaching levels below $3 per MMBTU, primarily due to the coronavirus outbreak and milder winter weather, which has put pressure on spot LNG shipping rates.\nOn the Tanker side, crude spot tanker rates reached the highest level since 2008 due to positive underlying tanker supply and demand fundamentals, normal winter seasonality, as well as one-off events such as US sanctions on COSCO that removed 26 VLCCs from the trading fleet, floating storage ahead of the implementation of IMO 2020 and the removal of vessels from the global trading fleet to retrofit scrubbers.\nHowever, the crude spot tanker market has come under pressure in recent weeks on the back of the coronavirus and the US lifting sanctions on COSCO with the former leading to a downgrade in oil demand by the IEA.\nLooking ahead, we believe the medium-term fundamentals remain intact with a record year in 2019 for new LNG projects reaching final investment decision that are expected to start up in 2022 onwards, and long-term demand for LNG expected to rise by 4% to 5% per year to 2030, as LNG continues to displace coal.\nFor crude tankers, we see strong underlying supply and demand fundamentals for the crude tanker order book at 20-year lows, measured as a percentage of the existing fleet.\nTurning to Slide 5.\nWe have provided a graph of our annual total adjusted EBITDA over the past three years that adjusted for our sale of Teekay Offshore has increased by 66% since 2017, primarily underpinned by our stable and growing cash flows from our gas business that have increased by 52% during this time.\nWe expect our total adjusted EBITDA to continue to grow in 2020 with our gas cash flows expected to grow another 10% to 14% in 2020 compared to 2019 and a full year of potentially stronger earnings from our tanker business.\nTurning to Slide 6, I'll provide a brief update on our three directly owned FPSOs.\nOn the Foinaven FPSO, we are now in advanced stages of discussions with BP for new contracting structure on the unit to address the negative EBITDA that we have incurred on this unit, and we'll provide an update to the market at the appropriate time.\nThe Hummingbird Spirit continues to operate on its contract out to 2023 and the customer continues to execute on its previously announced drilling campaign aimed at extending the production life of the field and we are continuing to pursue a divestment of this asset.\nOn the Banff FPSO, as highlighted at our Investor Day in November, there will likely be no further contract extensions on the existing field as a result of low gas prices, and we're now preparing for the cessation of production on the field and decommissioning commencing in mid-2020, and we're marketing this unit for sale.\nOur FPSO results improved significantly in the fourth quarter as the units ramped up production, following plant maintenance in the third quarter and the recognition of approximately $8 million in operational tariff revenues from the Foinaven, which is typically recognized in the fourth quarter of each year.\nLooking ahead to the first quarter, we expect our FPSO cash flows to be lower, mainly due to the annual operational tariff, revenue recognized in the fourth quarter and higher operating expenses in the first quarter relating to the Foinaven.\nAs mentioned earlier, the negative EBITDA is driven all by the Foinaven FPSO which we are in advanced stages of addressing.\nConsistent with our recent Teekay Group Investor Day, we have decided to change the order of our earnings calls with Teekay Corporation going first, followed by Teekay LNG and then Teekay Tankers.\nOn Slide 7, we have summarized Teekay LNGs recent results and highlights.\nTeekay LNG Partners report a strong fourth quarter and fiscal 2019 results that were within its guidance, generating total adjusted EBITDA of $184 million and adjusted net income of $50 million or $0.56 per unit, up significantly during the quarter compared to the same period of the prior year as growth projects continued to drive higher earnings and cash flows.\nWe expect these results to continue to grow in 2020 with adjusted earnings per unit expected to be 45% to 73% higher than 2019.\nTeekay LNG has reached an important milestone with the completion of its growth program, with the delivery of its fifth and sixth 50% ARC7 LNG carrier newbuilding for the Yamal LNG project, which immediately commenced their respective 26-year charter contracts, as well as its 30% owned Bahrain regas terminal completed mechanical construction and commissioning, and began receiving revenues in early January.\nAlso in early January, Awilco LNG fulfilled its obligation to repurchase two of TGP's LNG carriers, resulting in receipt of over $260 million in cash that was used to delever its balance sheet and increased its liquidity by over $100 million.\nAdditionally, Teekay LNG continues to execute on its balanced capital allocation strategy, which includes prioritizing balance sheet delevering for now and second consecutive year of over 30% increase in quarterly cash distributions with a 32% increase commencing in May 2020.\nAs outlined on the graph on the far right, this approach has allowed for significant delevering from a proportionate net debt to total adjusted EBITDA of 9.1 times in 2018 to 6.4 times based on our Q4 '19 annualized results, pro forma for the Awilco transaction that I touched on earlier.\nThis is creating significant equity value for all Teekay LNG unitholders with more to come as Teekay LNG approaches its target leverage of around 4.5 to 5.5 times and which is expected to result in significantly increased financial flexibility.\nLastly, since December 2018, TGP has opportunistically repurchased 3.5% of its outstanding common units at an average repurchase price of $12.85 per unit.\nTurning to Slide 8.\nTeekay Tankers reported record high adjusted net income in the fourth quarter, generating total adjusted EBITDA of $132 million, up from $62 million in the same period of the prior year and adjusted net income of $83 million, or $2.47 per share, in the fourth quarter, an improvement from $14 million or $0.42 per share in the same period of the prior year.\nTNK's results were driven by stronger spot tanker rates which reached the highest levels since 2008.\nThis strength continued into the first quarter of 2020 and I'm pleased to report that the tanker rates we have secured so far in Q1 are even higher with 77% of Q1 Suezmax days fixed at $51,700 per day and 63% of Q1 Aframax and LR2 days fixed at $38,600 per day compared to $39,100 and $33,000 per day in the fourth quarter, respectively.\nLooking ahead, TNK continues to maintain significant operating leverage, as highlighted in the graph on the bottom right hand side of the slide.\nOn an annualized basis, the rates that we achieved in the fourth quarter of 2019 would translate to over $320 million of free cash flow or over $9.50 per share.\nThis is compelling relative to TNK's closing share price yesterday of $12.66 per share and equates to a free cash flow yield of 75%.\nTurning to Slide 9.\nIn spite of the market volatility, we have continued to execute on our business plan to create intrinsic value across the Teekay Group as laid out on this summary slide.\nWe also continue to focus on further simplification of the group, which includes the ultimate divestment of our three FPSOs, as well as a potential IDR monetization.\nWith that, operator, we are now available to take questions.",
        "summary": "teekay corporation q4 adj earnings per share $0.31 excluding items.\nq4 adjusted earnings per share $0.31 excluding items."
    },
    {
        "text": "Before we begin, I would like to direct all participants to our website at www.\nBefore I hand the call over to Kenneth, I will briefly review our financial results.\nIn the fourth quarter, we reported a consolidated adjusted profit of $8 million or $0.08 per share, up from 95,000 in the prior quarter.\nWe also generated total adjusted EBITDA of 182 million, up from 165 million in the previous quarter.\nOur Q4 results were stronger mainly due to a modest improvement in spot tanker rates.\nIn fiscal year 2021, we reported a consolidated adjusted net profit of $20 million or $0.19 per share, compared to 83 million or $0.82 per share in the prior year, and generated total adjusted EBITDA of 721 million, compared to 1.1 billion in the prior year.\nThis decrease primarily reflects the exceptionally strong tanker market in the first half of 2020.\nPlease note that our consolidated net income and total adjusted EBITDA results for Q4 and fiscal 2021 include Teekay LNG, even though Teekay LNG's results are presented as discontinued operations in our financial statements.\nOn January 13 of this year we successfully completed the sale of all of our interest in Teekay LNG to Stonepeak, bringing in gross cash proceeds of approximately 641 million to Teekay Parent.\nUpon closing the sale, we expeditiously eliminated approximately 330 million of high-cost debt ranging between 5% and 9.25%.\nTeekay Parent is now largely debt free with a net cash position of over 300 million.\nLooking ahead to Q1, we expect our consolidated results to be lower as a result of the sale of our interest in Teekay LNG in mid-January 2022, partially offset by significantly lower interest expense due to Teekay Parent now being largely debt free.\nTurning to Slide 4, I will comment on the steps we have taken the past year to position Teekay for the future.\nWe expanded our asset light marine services business in Australia through a new strategic long-term contract with the Australian Government Department of Defense in September last year.\nWe've had a presence in Australia since 1997 and we are now providing services for nine Australian government vessels, which provides a solid and profitable foundation to further grow this business.\nWe continue to wind down our FPSO business, starting with the balance of the decommissioning of the unit is now completed and we are nearing completion of the recycling of the unit in Europe.\nWe're now planning for the decommissioning of our remaining two FPSOs, we received the formal notifications from our customers and expect the contracts to end of -- on the Hummingbird and Foinaven in May and August 2022, respectively.\nHummingbird's decommissioning process is well advanced and relatively straightforward.\nThe Foinaven decommissioning and recycling cost is expected to be largely covered by contractual payment from the customer.\nAs Vince mentioned earlier, we completed the sale of all our interest in Teekay LNG to Stonepeak with Teekay Parent realizing total shareholder return of 203% and an annual IRR of 12.5% since TGP's IPO in 2005.\nSince announcing the TGP Stonepeak merger in early October last year, the team has been working very hard on separating TGP from the rest of the Teekay group and setting up both companies for future success.\nWe have now transitioned all the gas employees to TGP, which is being rebranded as CP, and we expect the remaining restructuring and transition activities to be completed throughout 2022.\nLastly, we have now transformed our balance sheet and are now largely debt free with a net cash position of over $300 million.\nTurning to Slide 5.\nWe look at Teekays current portfolio.\nAs mentioned on the previous slide, we have a number of transition activities that will continue throughout 2022 as we are evolving both our organization structure and our business mix.\nWe're excited about the opportunities to create shareholder value with a lean organizational structure and stronger balance sheet.\nStarting with our position in our publicly traded daughter subsidiary Teekay Tankers, which is a well-established platform that provides significant and diversified exposure to tanker market recovery.\nWe have recently opportunistically invested $10 million of our cash balance to further build our position in TNK, acquiring shares in the open market at an average price of $11.03 per share.\nWith these purchases we now have an economic ownership of over 31% and voting control of over 55% in TNK.\nBased on TNK's closing price yesterday, our current position is valued at $125 million or $1.23 per Teekay Corp share.\nNext is our marine services for the Australian government, which is a specialized asset light niche business with a strong counterparty.\nThis long-term contract business currently contributes as stable annual profit of 5 to $6 million with potential for future growth.\nAnd this is one example where we're able to leverage our operating platform to enhance our profitability with minimal invested capital.\nLastly, as mentioned earlier, our net cash position is over $300 million equal to over $3 per Teekay Corp share, and we can't stress enough the importance of having financial strength and flexibility as a critical ingredient to achieving higher returns and allowing us to be opportunistic and counter-cyclical.\nLooking ahead, we stand to benefit from the strong operating franchise and capabilities developed over our nearly 50-year history combined with our renewed financial flexibility.\nAs the world pushes for greater energy diversification and a lower environmental footprint, we expect to see investment opportunities in both the broader shipping sector and potentially new and adjacent markets.\nWe believe that Teekay is well positioned to patiently and selectively pursue a range of attractive future investment alternatives that leverage our core competencies, relationships, and institutional knowledge to create long-term shareholder value.\nPlease refer back to our earnings conference call last quarter where we provided some comments on future opportunities, including the broader shipping sector and participation in the global energy transition.\nOn a quarterly basis TNK provides a detailed outlook on the tanker market along with various operational and financial updates.\nAt this time, we believe it will be duplicative for Teekay Corp to also have quarterly earnings calls.\nHowever, our investor conference calls won't be on a schedule quarterly basis, but instead they will be more event driven as we enter into new investments in the future.\nAlthough our investor conference calls would be more ad hoc going forward, we fully intend to maintain transparency and want to continue to have frequent dialog with investors.\nSo please reach out to our investor relations group.\nWith that, operator, we are now available to take questions.",
        "summary": "q4 adjusted earnings per share $0.08 per share."
    },
    {
        "text": "I'm William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations.\nDave will brief you on our operations and enterprise strategy, and Fay will cover the financials.\nAfter their remarks, we will open the call to questions.\nThe risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission.\nWe encourage you to review those, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results.\nAdditionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items.\nOur third quarter results reflect the returns of pre-pandemic demand across the majority of our geographic markets and verticals.\nOur comprehensive and innovative product offerings are resonating with customers during this broad-based market recovery, and we expect this demand environment to continue for the foreseeable future.\nWhile we are certainly encouraged by these positive trends, our financial performance continued to be impacted by the unexpected and prolonged global supply disruptions, inflation and labor constraints that have affected virtually every industry and geographic markets.\nThe increased demand for our products combined with the effect of macro level constraints on our production capabilities contributed to a record order backlog that varies by product category or region and is now 3 to 5 times our historical averages.\nIn response, we've taken actions wherever possible to minimize the impact on our operations.\nOur plants continue to remain open and operate due to the significant efforts by our global teams to maximize output and to safeguard our customers' experience.\nWhile we expect that these macro headwinds will continue well into 2022, we remain confident in our ability to drive long-term sustainable growth and improve our operational efficiencies to generate long-term value for our shareholders.\nWe are doing so not only through short-term mitigation actions, but also to the changes we've made and continue to make as part of our enterprise strategy.\nTo minimize the impact of higher freight costs and related supply disruptions, we continue to prioritize local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers.\nAs an example, we are making the necessary investments to add production of our T16 line to our China plants mid next year.\nThe T16 is a highly maneuverable battery-operated ride-on scrubber that has proven to be very popular with our customers within the APAC region.\nBy adding production to the local market, we can help minimize freight costs, improve lead times and better leverage our global production capacity.\nWe have continued to make capital investments to drive greater efficiency and capacity in all of our plants.\nAs just one example, we have invested in the new lays in our Minneapolis plant that will improve production flow, reduce the amount of labor spent machining parts and will allow us to in-source items that we would have otherwise purchased from vendors.\nNew tooling, specifically tooling related to our rotational molding machines, is another example of how we are investing in our business to support our local-for-local initiatives.\nThis lets us manufacture key components at the point of assembly, meaning, we can avoid situations where we manufacture in one location before shipping to a second location for final assembly.\nThese actions help avoid unnecessary shipping delays, freight costs, added time to manufacture and inventory carrying costs.\nWhile our teams are taking every opportunity to find creative solutions to address the current supply chain environment, each day brings new challenges in terms of parts availability.\nRight now, the lack of availability of hydraulic pumps, chips and other electronic components, which are critical parts within our machines, are main drivers of our increased backlog and are directly affecting our ability to deliver on our full year potential.\nHowever, we will continue to control everything we can control and work diligently to capitalize on the strong demand environment.\nAn important component of our enterprise strategy is a long-term move toward platform design.\nIn the current environment, our engineering teams are taking a balanced approach to this initiative as they weigh the long-term benefits of platform design with the near-term need to adjust our designs to allow for available parts and to increase our sourcing flexibility.\nOf course, our commitment to quality and safety and meeting the needs of our customers will not waiver.\nRegarding labor shortage, specifically in manufacturing, we are staying competitive with wages and are making every effort to attract new talent by providing a safe, rewarding and fulfilling work environment.\nWe are also supplementing and strengthening our talent acquisition teams by partnering with third-party vendors to assist with our employment outreach through targeted marketing campaigns and professionally staged hiring events.\nWe are encouraged by these actions which are having a positive effect on our recruiting and helping to mitigate the ongoing labor challenges.\nAs Fay will discuss, while our revised full year guidance reflects what continues to be a challenging operating environment, our team remains committed to meeting the needs of our customers and executing against our enterprise strategy to deliver on our long-term financial commitments.\nIn particular, we continue to innovate for profitable growth, which is the third pillar of our enterprise strategy.\nOver the past year, we've announced the introduction of new products to help address the evolving needs of our customers.\nEarlier this year, we introduced new mid-tier products, which leverage our IPC product portfolio, to meet the needs of a broader segment of customers by offering a wider range of performance and price points.\nOur mid-tier products have been well received by our customers and distributors.\nWhile they leverage the same IPC platform, these Tennant-branded products benefit from the broader customer experience associated with the Tennant brand, including the full ecosystem of application expertise, technological innovations and best-in-class sales and service support.\nDuring the past year, we've also introduced two key new products to our AMR portfolio, including the T380AMR and the T16AMR. Together with the T7AMR, these products have created a comprehensive robotic portfolio to meet all of our customers' needs.\nWith the addition of these new products, we have been able to strategically enter new verticals outside of just retail, including manufacturing, logistics and warehousing and education, among others.\nOur AMR portfolio continues to be well received by an expanding number of customers, and we look forward to updating you on a number of other AMR innovations as they materialize.\nThe one strategic pillar I haven't yet touched on is winning where we have a competitive advantage.\nFor example, we recently launched a value realization exercise in Australia building on our successful North American execution back in 2019 where we assessed all of our strategic accounts and distributor partners.\nIn Australia, this allowed us to realign over 40% of our strategic account customers and 80% of our distributor partnerships, ensuring that we have an optimized channel structure in place to serve this highly competitive market.\nBy adjusting our customer segmentation appropriately, we can better adjust lead times, pricing and sales support across our customer base.\nIn doing so, we are aligning the customer experience with our profitability goals.\nMoreover, we are relentlessly focused on providing our customers with high quality products and exceptional service as we execute on our enterprise strategy.\nWith that goal in mind, we will continue to take decisive and appropriate actions to maintain our customer experience, while remaining focused on our business objectives.\nFor the third quarter of 2021, Tennant reported net sales of $272 million, an increase of 3.9% over the prior year, which included a favorable foreign currency effect of 1.2% and a divestiture impact of negative 2% related to the sale of our Coatings business in the first quarter of 2021.\nOrganic sales, which exclude the impact of these currency effects and divestitures, increased 4.7%.\nAs Dave mentioned, our revenue results were tempered by the continued global supply chain disruptions and labor constraints, with North America being the most affected.\nTennant groups its sales into three geographies.\nThe Americas, which include all of North America and Latin America.\nEMEA, which covers Europe, the Middle East and Africa.\nAnd Asia Pacific, which includes China, Japan, Australia and other Asian market.\nIn the third quarter, sales in the Americas decreased 0.6% year-over-year, which included a negative divestiture impact of 3.1%, organic growth of 2% and a favorable foreign exchange effect of 0.5%.\nStrong customer demand in Brazil and Mexico drove a year-over-year increase in sales in Latin America.\nNorth America delivered modest organic growth as compared to the prior year, due to the previously mentioned supply chain and labor challenges as well as the lapping of the significant AMR order in the prior year.\nAdditionally, the current year period benefited from an increase in our service, parts and consumables businesses.\nSales in EMEA increased 16.1% or 14% organically, including a favorable foreign exchange effect of 2.1%.\nThe results which were impacted by global supply chain challenges reflected growth across all countries and product categories in the region as demand returned to pre-pandemic levels.\nSales in APAC decreased 0.4% or 2.9% on an organic basis and included a positive foreign exchange effect of 2.7% and a negative revenue impact of 0.2% related to the sale of the Coatings business.\nThe sales decline was partially attributed to pandemic-related lockdowns in some regional markets during the third quarter of 2021.\nSupply chain disruptions and labor constraints impacting North America plants that supply APAC also limited our ability to meet orders across the region with the largest impact experienced in China and Japan.\nEven so, the region experienced strong results for parts and consumables and service with strength in the Australian market across all product categories.\nReported and adjusted gross margin in the third quarter were both 40.1% compared to a reported gross margin of 39.6% and adjusted gross margin of 39.8% in this year ago period.\nAlthough the comparison to the prior year was favorable, the year ago period was unfavorably impacted by certain strategic investments and pandemic-related productivity challenges.\nAs we highlighted during our last conference call, our third quarter adjusted gross margin was lower than the adjusted gross margin in the first half of 2021.\nThis decrease was primarily due to increased material and freight costs and productivity challenges caused by parts availability.\nAs for expenses, during the third quarter, our adjusted S&A expenses were 28.3% of net sales compared to 29.3% in the year ago period.\nThe year-over-year improvement in leverage was a direct result of the cost saving actions as well as the adjustment of management incentives in Q3 of 2021 to better reflect current expectations.\nNet income in the third quarter was $21.5 million or $1.14 per diluted share compared to $11.7 million or $0.63 per diluted share in the year ago period.\nAdjusted diluted EPS, which exclude non-operational items and amortization expense was $1.33 per share compared to $0.90 per share in the year ago period.\nThe increase year-over-year was primarily driven by lower interest expense and increased business performance.\nAdjusted EBITDA in the third quarter increased to $36 million or 13.2% of sales compared to $32.6 million or 12.4% of sales in Q3 of last year.\nThe year-over-year improvement was driven primarily by increased revenues based on strong demand as we continue to lap the pandemic-related slowdown of 2020 as well as improved gross margins and an adjustment of management incentives previously mentioned.\nAs for our tax rate, in the third quarter, Tennant had an adjusted effective tax rate excluding non-recurring expenses of 3.8% compared to 11.3% for the third quarter of 2020.\nThe decrease in the effective tax rate was driven primarily by a tax benefit resulting from an election to step-up the tax basis of certain assets in Italy.\nTurning to cash flow and balance sheet items.\nOur long-term capital allocation strategy is to first fund operations and investment in growth, appropriately managed leverage, pursue strategic and accretive M&A and then to return excess free cash flow over time to shareholders through dividends and share repurchases.\nWe ended the quarter with $140.6 million in cash and cash equivalents and our net leverage of 0.93 times adjusted EBITDA is lower than our stated goal of 1.5 to 2.5 times.\nCash flow from operations was strong with $25.1 million generated in the third quarter and $62.9 million generated on a year-to-date basis.\nAdditionally, capex is approximately $12 million for the first nine months of the year.\nOur strong free cash flow generation allowed us to return capital to shareholders through the following actions.\nFirst, and as previously announced, Tennant's Board of Directors has authorized a 9% increase in the company's quarterly cash dividend to $0.25 per share.\nThe increased dividend is payable on December 15, 2021 to shareholders of record at the close of business on November 30, 2021, marking the 50th consecutive year that the company has increased its annual cash dividend.\nSecondly, during the third quarter, Tennant repurchased approximately 102,000 shares of its common stock for $7.5 million under its existing share repurchase program.\nThe increase in the dividend and our share repurchase activities are aligned with our long-term capital allocation priorities and display continued confidence in our ongoing business performance and future cash flow generation.\nLastly, turning to guidance.\nAs included in today's earnings announcement, Tennant adjust its full year guidance for 2021 as follows.\nNet sales of $1.09 billion to $1.1 billion, reflecting organic sales growth of 9% to 10%.\nFull year reported GAAP earnings in the range of $3.50 to $3.70 per diluted share.\nAdjusted earnings per share of $4.20 to $4.40 per diluted share.\nAdjusted EBITDA of $137 million to $142 million.\nCapital expenditures of approximately $20 million.\nAnd an adjusted effective tax rate of approximately 15%.\nThe challenges we're facing with global supply chain and labor shortages are not unique to Tennant and are likely to remain for the foreseeable future.\nThese challenges did have a direct impact on our Q3 results and our ability to meet our full potential in 2021.\nHowever, we are encouraged by the strong response to our innovative suite of products and the market recovery that is now at pre-pandemic levels of demand.\nOur continued execution of our enterprise strategy has enabled us to better navigate to continued macro challenges facing the overall economy.\nBut more importantly, the strategic actions we've taken over the past couple of years will ultimately drive long-term growth and profitability and enhance shareholder value.\nWe will now open the call to questions.",
        "summary": "q3 adjusted earnings per share $1.33.\nq3 earnings per share $1.14.\nsees fy gaap earnings per share $3.50 to $3.70.\nq3 sales rose 4.7 percent to $272 million."
    },
    {
        "text": "All of these materials can be found on our website at travelers.com under the Investors section.\nSpeaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, Chief Financial Officer; and our three segment Presidents; Greg Toczydlowskias of Business Insurance; Jeff Klenk of Bond & Specialty Insurance; and Michael Klein of Personal Insurance.\nThey will discuss the financial results of our business and the current market environment.\nAlso in our remarks or responses to questions, we may mention some non-GAAP financial measures.\nWe're pleased to report strong top and bottom-line results for the quarter and the first nine months of the year, including very strong underlying underwriting profitability and healthy top line growth.\nCore income year-to-date of $2.2 billion is about $800 million higher year-over-year, generating core return on equity of 11.6%.\nCore income for the quarter was $655 million or $2.60 per diluted share, generating core return on equity of 10.1% despite a high level of catastrophe losses.\nOur cat losses were well below our market share and well above the prior-year quarter and the tenure average for the quarter.\nUnderlying underwriting income of $632 million pre-tax was 6% higher than in the prior-year quarter, driven by record net earned premiums of $7.8 billion and a very strong underlying combined ratio of 91.4%.\nWe're particularly pleased with the continued strong underlying fundamentals in our commercial businesses.\nThe underlying combined ratio improved by almost 4 points in Business Insurance and more than 5 points in Bond & Specialty Insurance.\nAs you'll hear in a few minutes from Michael, underlying results in Personal Insurance were impacted by auto frequency returning to pre-pandemic levels and elevated severity in both auto and property due to higher costs for labor, materials.\nOur consolidated results demonstrate the value of having a diversified group of businesses.\nTurning to investments, our high quality investment portfolio generated net investment income of $645 million after-tax, reflecting reliable performance in our fixed income portfolio and very strong returns in our non-fixed income portfolio.\nThese results together with our strong balance sheet and cash flow enable us to grow adjusted book value per share by 10% over the past year after making important investments for the future and returning significant excess capital to our shareholders.\nDuring the quarter, we returned $821 million of excess capital to shareholders, including $601 million of share repurchases.\nTurning to the top line, net-written premiums grew 7% to a record $8.3 billion.\nEach of our three segments again contributed meaningfully to the top line growth.\nIn Business Insurance, net-written premiums grew by 5% with renewal premium change of 9.9%, up more than 200 basis points year-over-year, a near all-time high.\nRenewal premium change was driven by continued strong renewal rate change and higher exposure growth.\nImportantly, at the same time, retention was also higher.\nOur ability to continue to drive price change at historical highs while increasing retention reflects excellent marketplace execution and the stability of the pricing environment.\nIn Bond & Specialty Insurance, net-written premiums increased by 19%, driven by record renewal premium change of 13.6% in our Management Liability business and continued strong retention.\nWe're also pleased to report strong production in our Surety business.\nIn our Commercial businesses, written pricing continues to outpace estimated loss trend, which will continue to benefit margins as it earns in.\nGiven social and other inflation, the frequency and severity of weather-related loss activity and the low interest rate environment, we expect the pricing environment to remain strong.\nIn Personal Insurance, net-written premiums increased by 7%.\nPolicies in force in both auto and homeowners were at record levels, driven by continued strong retention and growth in new business.\nBefore I wrap up on results, I'd like to spend a minute discussing how our leading data and analytics and risk expertise contributed to our relatively favorable loss experience with Hurricane Ida.\nAs I shared in our first quarter earnings call, our share of the industry's property cat losses over the past five years have been meaningfully lower than our corresponding market share, and while there is always the potential for us to have outsized exposure to an event, it was no accident that we again outperformed in Hurricane Ida.\nOur medium underwriting expertise supported by cutting edge data analytics are key to an effective assessment of risk and reward.\nFor us third-party models are starting point for our more advanced proprietary cat modeling.\nAt the portfolio level, the insights from our models warned us away from the coast where Ida made landfall, given the impediments to achieving an appropriate risk-adjusted return.\nIn the other states among Ida's path, we effectively managed risk selection, pricing and other terms and conditions, sophisticated data and analytics at the fingertips of our frontline underwriters.\nThese include robust flood risk scoring, location intelligence down to the parcel level, Hill dashboards and output from our risk control engineers.\nWithin Personal Insurance, we continue to see the benefits from our highly segmented Quantum Home 2.0 product, which has now rolled out in more than 40 states.\nIn the Northeast, extreme rainfall from Ida resulted in significant claim activity for the industry, including from water and drainage back up, which is a coverage we provide in our QH 2.0 product.\nThe model underneath the product leverages data and analytics to underwrite a price tag coverage on a very granular basis.\nIn addition to underwriting, data and analytics are increasingly informing our claims handling strategies.\nFor example, our AI-assisted claim damage detection model was a key part of our Ida claim response.\nThis model uses AI and high-resolution aerial imagery to detect the extent of damage to individual properties as soon as a day after an event.\nWithin two days of impact, we were collecting and analyzing aerial imagery of customer properties along Ida's path as it moved across 20 states.\nThis enabled us to remotely identify which of our customers properties had sustained exterior damage and effectively organize our claim response.\nIn some cases, we can use this technology to adjust and pay total losses before the customer has even been able to return to their home.\nWe also utilized other virtual capabilities in our Ida response, such as image share and live video capture, on a majority of claims with interior damage.\nThese leading edge capabilities, enhanced the claim experience for our customers by cutting significant time out of the claim process, expediting an accurate loss assessment and in many cases, eliminating the need for physical inspection.\nAgain, with Ida, we successfully closed 90% of all homeowners plans within 30 days.\nAll of this also results in a more efficient outcome for our shareholders.\nAs strategic as the data and analytics are, maybe even more important is the culture that brings it all together.\nOur collaborative approach to developing a holistic, 360-degree view of risk, incorporating underwriting, claims, actuarial risk-control, legal and regulatory inputs is an important differentiating factor in effectively managing risk and reward.\nThat culture is decades in the making and very hard to replicate.\nAs I shared last quarter, Jeff is a 22-year veteran at Travelers most recently as a member of Tom Kunkel leadership team and head of our Management Liability business.\nJeff succeeded Tom, following his retirement last month.\nWe're fortunate to have Jeff in the role and you will hear from him in a few minutes.\nTo sum it up, we're pleased with our results for the quarter and year-to-date.\nOur significant and hard to replicate competitive advantages position us very well and continued to deliver meaningful shareholder value over time.\nCore income for the third quarter was $655 million compared to $798 million in the prior-year quarter.\nFor the quarter, core return on equity was 10.1% and on a year-to-date basis, core ROE was 11.6%.\nThe decline in core income was driven by prior-year reserve development and catastrophe losses.\nRecall that last year's PYD benefited by approximately $400 million of subrogation recoveries from PG&E.\nThose unfavorable year-over-year comparisons were partially offset by increased investment income and a higher level of underlying underwriting income.\nUnderlying underwriting income increased 6% to $632 million pre-tax, reflecting a higher level of earned premium in all three segments and a strong underlying combined ratio of 91.4%.\nImprovements in the underlying combined ratio in both Business Insurance and Bond & Specialty were offset by an increase in the underlying combined ratio in Personal Insurance.\nBusiness Insurance and Bond & Specialty results both reflected the benefit of our pricing efforts, as earned price continues to exceed loss trend.\nWe expected a higher underlying combined ratio in Personal Insurance given that last year's quarter benefited from unusually low auto losses related to the pandemic.\nAs Alan mentioned, the underlying combined ratio in PI was further impacted by higher severity in both the auto and homeowners products.\nGreg, Jeff and Michael will provide more detail on each segment results in a few minutes.\nOn a consolidated basis, the underlying loss ratio for the quarter improved slightly to 62% compared with last year's 62.2%.\nThe expense ratio of 29.4% was in line with the prior-year quarter and in line with our expectations.\nWe've improved the expense ratio by more than 2 points from where we were five years ago.\nHaving added roughly $7 billion to our annual net-written premiums over that period, while maintaining a focus on productivity and efficiency, all while adding significantly to the level of strategic investment we're making to ensure our future success.\nBefore turning to catastrophe losses, I wanted to point out that within our underlying combined ratio, non-cat weather was higher than we would have assumed for the quarter, although lower than the unusually high levels we experienced in last year's third quarter.\nOur third quarter cat losses were $501 million pre-tax compared to $397 million a year ago.\nRemember that in last year's third quarter, we had a full recovery under the property aggregate catastrophe XOL treaty.\nIn this year's third quarter, we recognized a partial recovery of $95 million from the treaty, $83 million benefiting the cat line with $43 million in Business Insurance and $39 million in Personal Insurance and $12 million benefiting our underlying results with $3 million in Business Insurance and $9 million in Personal Insurance.\nThat leaves us with $255 million of potential recovery in the fourth quarter, depending on the level of qualifying losses we actually experienced.\nIn terms of the level of cat losses relative to our assumptions, third quarter cats were elevated compared to what we would have assumed for a typical third quarter.\nAlthough our losses from Hurricane Ida are well below our relative market share, the sheer size of Ida on top of the other cat losses in the quarter resulted in overall cat losses that were higher than our assumption.\nTurning to prior-year reserve development.\nIn Personal Insurance, $30 million of pre-tax net favorable PYD resulted from better-than-expected experience from recent years in the property line.\nIn Bond & Specialty Insurance, $22 million of pre-tax net favorable PYD was driven by favorable loss experience in the surety product line for recent accident years.\nIn Business Insurance, net unfavorable PYD was $108 million pre-tax.\nOur annual asbestos review resulted in a charge of $225 million as the level of claim activity did not decline as much as we had assumed in our previous estimate.\nExcluding asbestos charge, Business Insurance had net favorable prior-year reserve development of $117 million, driven primarily by better-than-expected loss experience in workers' comp across multiple accident years.\nNet investment income improved to $645 million after-tax this quarter.\nOur non-fixed income portfolio delivered another strong results contributing $224 million after-tax.\nConsistent with our expectations, fixed income returns were down slightly from the prior-year quarter as the benefit from higher levels of invested assets was more than offset by a decline in yields.\nFor the fourth quarter of 2021, we expect NII from the fixed income portfolio, including earnings from short-term securities of between $425 million and $435 million after-tax.\nFor 2022, we expect that figure to be between $420 million and $430 million per quarter.\nTurning to capital management.\nOperating cash flow for the quarter of $2.5 billion was an all-time record.\nAll our capital ratios were at or better than target levels and we ended the quarter with holding company liquidity of approximately $2 billion.\nThe market value of the bonds in our fixed income portfolio declined as U.S. treasury yields increased and credit spreads widened during the quarter, and accordingly our after-tax net unrealized investment gain decreased from $3.2 billion as of June 30 to $2.7 billion at September 30.\nAdjusted book value per share, which excludes net unrealized investment gains and losses was $104.77 at quarter-end, up 5% since year-end and up 10% since September 30 last year.\nWe returned $821 million of capital to our shareholders during the third quarter with $220 million of dividends and $601 million in share repurchases.\nOverall a very good quarter performance with healthy top line growth, strong and improved underlying margins in our commercial businesses, excellent cash flows and a terrifically strong balance sheet.\nBusiness Insurance had another great quarter with strong financial results and terrific execution in the marketplace.\nSegment income was $558 million for the quarter, up more than 50% from the prior-year quarter.\nThe improved year-over-year result was driven by higher underlying underwriting income, prior-year reserve development and higher net investment income, partially offset by higher catastrophe losses.\nWe're once again particularly pleased with the underlying combined ratio of 90.2%, which improved by 3.8 points from the third quarter of 2020, primarily attributable to three things.\nFirst, about 2 points of the improvement resulted from earned pricing that continued to exceed loss cost trends; the other nearly 2 points resulted from a combination of a favorable impact associated with the pandemic and a lower level of property losses.\nTurning to the top line, net-written premiums were up 5%, benefiting from strong renewal rate and exposure levels as well as high retention.\nAs for domestic production, renewal premium change was once again historically high at 9.9%, while retention increased to an exceptional 85%.\nThe 9.9% renewal premium change was up more than 2 points from the third quarter of last year with strong renewal rate change of 6.3% and continued improvement in our customers' exposure growth.\nIn addition to our granular price execution, we've also focused on careful management of deductibles, attachment points, limits, sub-limits and exclusions which can also contribute to an increase in the price per unit of risk.\nNew business was down from the prior-year quarter as we continue to be thoughtful about balancing risk and reward for new business in the marketplace.\nAs for the individual businesses, in select, renewal premium change was a strong 9.7%, while retention improved from recent periods to 82%.\nUnderneath RPC renewal rate change was 4.1%, up well over a point from the third quarter of 2020.\nWe're also encouraged with the improving exposure which was up about 3 points as the economy continues to reopen.\nNew business was up a bit from the prior-year, driven by the continued success of our new BOP 2.0 product, which is now live in 39 states.\nIn middle-market, renewal premium change of 9.5% and retention of 88% were both historically high.\nRenewal rate change of 6.2% remained strong.\nAs always, we remain disciplined around risk selection and underwriting.\nTo sum up, Business Insurance had another terrific quarter.\nWe're pleased with our execution in further improving the underlying margins in the BOP and we continue to invest in the business for long-term profitable growth.\nI'm very pleased to be here.\nWe've built an industry-leading surety and management liability franchise and we look forward to continuing to perform, innovate and transform to profitably grow these businesses into the future.\nTurning to the results, Bond & Specialty delivered excellent returns and growth in the quarter.\nSegment income was $174 million, up about 50% compared to the prior-year quarter, driven by the impact of higher net earned premium, a significantly improved underlying underwriting margin and favorable prior-year reserve development.\nThe underlying combined ratio of 83.4% improved by 5.5 points from the prior-year quarter, reflecting lower pandemic-related loss activity, earned pricing that exceeded loss cost trends and a lower expense ratio.\nTurning to the top line, net-written premiums grew an exceptional 19% in the quarter with strong contributions from all our businesses.\nIn domestic management liability, renewal premium change was a record 13.6%, driven by record renewal rate change.\nRetention remained strong at 86% consistent with recent quarters, but down a few points year-over-year as we continue to non-renew cyber policies for accounts that don't meet our updated minimum requirements for cyber hygiene.\nNotably, research indicates that implementing affordable cyber risk mitigation controls such as multi-factor authentication should prevent the vast majority of rents [indecipherable] tax.\nDomestic surety also posted strong growth relative to the pandemic-impacted prior-year quarter.\nIn addition, our international business has again posted excellent growth including strong management liability retention and rate.\nSo both top and bottom-line results for Bond & Specialty were terrific this quarter, demonstrating our thoughtful approach and strong execution across our businesses.\nIn Personal Insurance, bottom-line results were impacted by weather, our return to pre-pandemic claim frequency in auto and higher loss severity impacting both auto and home results.\nSegment income declined by $394 million than the prior-year quarter.\n$262 million of that decline is attributable to lower favorable prior-year reserve development as the prior-year quarter benefited from the PG&E settlement Dan referenced.\nThe remaining unfavorable variance was primarily driven by lower underlying underwriting results.\nOur underlying combined ratio increased by 6.5 points to 95.2%.\nWe were pleased to see our top line momentum continue in the quarter, with net-written premiums up 7%.\nAutomobile underwriting results reflected higher loss levels for the quarter.\nThe combined ratio was 100% and included 3.4 points of catastrophe losses, mostly from Hurricane Ida.\nThe underlying combined ratio was 97%, up approximately 15 points from the prior-year quarter which reflected unusually low loss activity due to the pandemic.\nThe underlying combined ratio increased mainly due to claim frequency effectively returning to pre-pandemic levels in line with the trend we referenced in our prior quarter call.\nTo a lesser degree higher loss severity impacted the combined ratio as well as the vehicle replacement and repair costs remained at elevated levels.\nWe believe these profitability challenges are environmental and in response we are executing on our plans to file rate increases in about 40 states over the next three quarters.\nAs we indicated last quarter, it will take time for future rate actions to earn into results but we do expect to have higher rates in market in several states by year-end.\nIn Homeowners and other, the third quarter combined ratio increased by 16 points from the prior-year quarter to 109.3%, driven by a 24 point reduction in net favorable prior-year reserve development primarily related to the PG&E recovery from last year.\nThe combined ratio included 17.6 points of catastrophe losses, mostly from Hurricane Ida.\nHomeowner's catastrophe losses were 4.7 points below a very active prior-year quarter.\nThe underlying combined ratio was 93.3%, an improvement of 3.5 points over the prior-year quarter, which experienced a very high level of loss activities.\nThat said, the underlying combined ratio was above our expectations, reflecting elevated non-catastrophe weather and non-weather loss activity, both of which included higher severity related to a combination of labor and materials price increases.\nAgain, we believe these trends are environmental and we continue to seek price increases in response.\nBefore I shift to discussing production, I'll remind you that looking ahead to the fourth quarter, there tends to be a good amount of seasonality in our combined ratio results by line of business, with the fourth quarter auto losses typically higher and fourth quarter homeowners losses typically lower than their annual average levels.\nTurning to production, we were very pleased to deliver another strong quarter in both auto and home.\nAutomobile policies in force grew 5% to a record level, driven by strong retention at 85% and continued growth in new business which increased by 8%.\nRenewal premium change was essentially flat reflecting the continued impact of the rate increases we filed in response to the pandemic.\nDomestic homeowners and other delivered another excellent quarter with policies in force up 7% also to a record level, driven by retention of 85% and new business growth of 5%.\nRenewal premium change increased to 8.8%.\nIn the quarter, we continued to deliver solutions that meet customers where they are, give them what they need and serve them how they want.\nA couple of highlights from the quarter include: our new digital self-inspection process for property customers which improves their onboarding experience and provides valuable information to our underwriters; and IntelliDrive, our proprietary Auto Telematics offering which now had distracted driving as a rating variable in 40 U.S. markets in Ontario, Canada providing valuable feedback to drivers and continuing to advance our sophisticated pricing segmentation in automobile.\nWe will continue to invest in new capabilities like these for our customers and distribution partners.\nDespite a challenging third quarter on the bottom line, we remain pleased with our overall performance and we are well-positioned to profitably grow our business over time.",
        "summary": "compname reports q3 core earnings per share $2.60.\noct 19 (reuters) - :travelers companies inc - ‍​qtrly core earnings per share $2.60; qtrly earnings per share $2.62.\ntravelers companies inc - ‍​​qtrly total revenue $8.81 billion, up 6%.\ntravelers companies inc - ‍​​qtrly net written premiums $8.32 billion, up 7%.\ntravelers companies inc - ‍​​qtrly catastrophe losses of $501 million pre-tax versus $397 million pre-tax.\ntravelers companies inc - ‍​​qtrly net investment income of $771 million pre-tax ($645 million after-tax), up 15%.\ntravelers companies inc - ‍​​qtrly catastrophe losses primarily resulted from hurricane ida and severe storms in several regions of u.s..\ntravelers companies inc - ‍​​quarter-end book value per share of $115.74, up 5% from september 30, 2020."
    },
    {
        "text": "All of these materials can be found on our website at travelers.com under the Investors section.\nSpeaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, Chief Financial Officer; and our three segment presidents, Greg Toczydlowski of Business Insurance, Tom Kunkel of Bond and Specialty Insurance and Michael Klein of Personal Insurance.\nThey will discuss the financial results of our business and the current market environment.\nAlso in our remarks or responses to questions, we may mention some non-GAAP financial measures.\nBefore I address our fourth quarter and full year results, a quick comment on current affairs.\nYesterday, we witnessed the most American of events.\nThe peaceful transfer of power from one democratically elected administration to the next.\nIt's not a political statement, but a patriotic one to say that we want to see this next administration succeed.\nWe have significant challenges to overcome.\nA pandemic threatening the health and safety of our loved ones and neighbors.\nA distressed economy imperilling the lives and livelihoods of millions.\nAnd a deeply divided society, which undermines our collective sense of security and well-being.\nLet's hope yesterday marks the beginning of our political leaders on both sides of the aisle, taking a constructive approach to addressing these challenges.\nAnd with that, I'll turn to results.\nI'm pleased to report a very strong finish to the year with fourth quarter core income of $1.3 billion or $4.91 per diluted share and core return on equity of 20.5%, each up meaningfully from the prior year quarter.\nWe're also pleased to report full year core income of $2.7 billion, generating core return on equity of 11.3%, a substantial margin of the risk-free rate and our cost of equity.\nOur ability to deliver these results in the face of an historic pandemic, a record-high number of PCS catastrophe events and record-low interest rates is a testament to the strength of our franchise.\nMore specifically, to our talented and committed workforce, the value of our hard to replicate competitive advantages and our expertise in balancing risk and reward to achieve industry-leading returns over time.\nThe principal driver of the higher level of core income for the quarter was very strong underlying underwriting income, resulting from record net earned premium of $7.5 billion and an underlying combined ratio that improved 3.4 points to an excellent 88.7%.\nWe're pleased with the underwriting results in all three segments.\nWe once again recorded a sub-30% consolidated expense ratio for the quarter and the full year, demonstrating that our strategic investments in improving productivity and efficiency continue to pay off.\nThis quarter, our high quality investment portfolio performed well, generating net investment income of $572 million after-tax as the non-fixed income portfolio continued to recover from the pandemic-related impacts earlier in the year.\nOur operating results together with our strong balance sheet enabled us to grow adjusted book value per share by 7% during the year after returning $1.5 billion of excess capital to shareholders, including $672 million of share repurchases, which we resumed in the fourth quarter.\nNotwithstanding the challenges in the economy, we continued to successfully execute on our marketplace strategies to generate growth in top-line.\nNet written premiums in the quarter grew by 3%, driven by strong renewal rate change broadly across the book and continued strong retention in all three segments.\nGiven the headwinds facing the industry, we expect the favorable pricing environment to continue for some time.\nBusiness Insurance in our core Middle Market business, renewal rate change was a record 9.1%, up 4.5 points over the prior year and about a point sequentially, while retention remained strong.\nSegmentation and pricing is key in this business.\nAnd to that end, the quality of the execution underneath the headline production numbers was excellent.\nIn Bond & Specialty Insurance, net written premiums increased by 12% as renewal premium change in our domestic management liability business achieved a record 10.9%, driven by record renewal rate change, while retention remained strong.\nIn Personal Insurance, net written premiums increased by 7%, driven by strong renewal premium change in our Agency Homeowners business and strong retention and new business in both Agency Auto and Agency Homeowners.\nFourth quarter production contributed to full year record net written premiums of almost $30 billion, up 2% compared to last year.\nAdjusting for the premium refund to be offered to our Personal Insurance auto customers, net written premiums were up 3%, a strong top-line result in the context of this year's difficult economic environment.\nI've shared before our belief that any commitment to delivering industry-leading return on equity over time requires a strategy to grow over time.\nTo that end, a few years ago, we laid out a strategy to achieve profitable growth in the context of the forces of change we have previously identified is impacting the industry.\nAs you can see on the slide, despite the challenging economic and operating environment, 2020 was another successful year of the execution of that strategy.\nSince 2016, we have grown net written premiums and a 4.5% compound annual rate, substantially outpacing both GDP growth over the same period and rate over the prior years in the decade.\nWe accomplished that while maintaining a stable underlying underwriting margin.\nIn other words, we haven't grown by underpricing the product or changing our risk profile.\nThe growth has come organically from customer segments, products, geographies and producers that we know well.\nOver that same period through our ongoing and relentless focus on optimizing productivity and efficiency, we've also improved our expense ratio by about two points compared to the run rate from earlier in the decade.\nAs you can also see on the slide, the result of all that is significantly higher underlying underwriting income, meaningfully higher cash flow from operations and double-digit growth in invested assets.\nThose results have contributed to our ultimate objective of creating shareholder value and industry-leading return on equity over time.\nOur core return on equity has increased in each of the last three years and averaged 11% over that period.\nAnd that 11% is after bearing the impacts of significant cat and non-cat weather activity and meaningful increase in social inflation, historically low interest rates and the global pandemic.\nIn short, our performance this year and over recent years is the result of a sound strategy and the successful achievement of our strategic objectives.\nNotwithstanding concerns for their own safety and responsibilities for taking care of loved ones and educating their children, they never wavered from our purpose of taking care of the people with privilege to serve or our mission of creating shareholder value.\nI couldn't be more proud of this team.\nFrom the scientists to the regulators to those who volunteer to participate in trials, it's a remarkable feat.\nThe side of those vaccines rolling off the line inspires optimism for the coming year and the sheer human will and ingenuity behind the effort to inspire hope for the future.\nCore income for the fourth quarter was $1.262 billion, up from $867 million in the prior year quarter and core ROE was 20.5%, up from 14.8%.\nImprovement in both measures was the result of very strong underlying underwriting results.\nOur fourth quarter results include $29 million of pre-tax cat losses compared to $85 million of pre-tax cat losses in last year's fourth quarter.\nRecall that last year's fourth quarter cat losses included a $101 million benefit from recoveries under the underlying Aggregate Cat Treaty, whereas in 2020, we exhausted the Cat Treaty in the third quarter.\nSo there were no recoveries under the treaty in this year's fourth quarter.\nThis quarter's cat results include about $40 million of favorable development in our loss estimates for events that occurred earlier in the year.\nPYD in the current quarter, for which I'll provide more details shortly, was net favorable $180 million pre-tax.\nThe underlying combined ratio of 88.7%, which excludes the impacts of cats and PYD, improved by 3.4 points from the prior year quarter.\nOur pre-tax underlying underwriting gain of $804 million increased by nearly 50% over the prior year quarter, reflecting the benefit of higher levels of earned premium and higher margins, driven by earned pricing that exceeded loss cost trend and continued favorability in personal auto loss experience.\nFor the quarter, losses directly related to COVID-19, totaled a modest $31 million pre-tax, split about evenly between Business Insurance and Bond & Specialty Insurance.\nMore than offsetting those losses were lower levels of auto claims in both Personal Insurance and Business Insurance.\nThe net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about 2.5 points, mostly in Personal Insurance.\nWe continue to take a cautious approach in estimating the net impact of COVID-related losses given the ongoing uncertainty in this environment.\nAs has been the case throughout the year, the majority of direct COVID losses that we've booked through year end remains in IBNR.\nLooking at the full year net impact of COVID costs and benefits, including the impact of premium refunds to policyholders, our consolidated underlying combined ratio benefited by about a point.\nThe fourth quarter expense ratio of 29.4% brings the full year expense ratio to 29.9%.\nWhile throughout the year we continued to make the investments necessary to fuel our continued success, our ongoing focus on productivity and efficiency once again resulted in a sub-30% expense ratio despite the downward pressure on earned premiums from the impact of the soft economy on insured exposures and the premium refunds we issued to our personal auto customers.\nWe continue to be comfortable with the consolidated expense ratio of around 30%.\nAfter-tax net investment income improved by 9% from the prior year quarter to $572 million.\nA strong returns in the fixed income portfolio and a higher level of invested assets were partially offset by the expected decline in fixed income yields.\nLooking forward to 2021, we expect that after-tax fixed income NII, including earnings from short-term securities, will be between $420 million and $430 million per quarter as we project that the benefit of higher average levels of invested assets will be more than offset by a lower average yield on the portfolio in the lower interest rate environment.\nNet favorable prior year reserve development occurred in all three segments and totaled $180 million pre-tax in the fourth quarter.\nIn Business Insurance, net favorable PYD of $124 million was driven by better than expected loss experience in workers' comp, primarily from accident years 2017 and prior, partially offset by an increase to reserves related to very old years in our run-off book.\nIn Bond & Specialty, net favorable PYD of $32 million resulted primarily from better than expected loss development in the surety book.\nAnd in Personal Insurance, net favorable PYD of $24 million was driven by the automobile line.\nWith our combined 2020 Schedule P is filed earlier in the second quarter, the line of business analysis will provide more detail on the loss trends we've noted in our commentary throughout the year with favorability in workers' comp, commercial property and the personal lines coverages and some strengthening in the commercial liability lines, much of which was in very old accident years relating to our run-off book.\nOur long-standing Corporate Cat XOL Treaty renewed on terms in line with the expiring treaty and continues to provide coverage for both single cat events and the aggregation of losses from multiple cat events.\nRegarding the Underlying Property Aggregate Catastrophe XOL Treaty we first purchased for 2019, we have renewed the treaty again for 2021.\nWhile the treaty will continue to address qualifying PCS-designated events in North America, for which we incurred losses of $5 million or more, the 2021 renewal includes a $5 million deductible per event.\nIn prior years, PCS-designated events had cost us more than $5 million accounted toward the treaty from $1 [Phonetic].\nThe treaty provides aggregate coverage of $350 million, part of $500 million of losses, above our aggregate retention of $1.9 billion.\nThe aggregate retention for 2021 increased from 2020's $1.55 billion, largely reflecting recent years' experience and anticipated growth in our property book.\nHurricane and earthquake events once again have $250 million per occurrence cap.\nAnd for 2021, wildfires are also capped at $250 million per event.\nIncorporating our assumptions about cat and non-cat weather for 2021, we expect the full year impact of the treaty on our underlying combined ratio to be roughly half a point.\nAnd we anticipate only a minimal impact on the total combined ratio.\nBoth of those impacts are consistent with the assumptions we had in each of the past two years.\nTurning to capital management.\nOperating cash flows for the quarter of $1.9 billion were again very strong.\nAll our capital ratios were at or better than target levels.\nAnd we ended the quarter with holding company liquidity of approximately $1.7 billion.\nFor the full year, operating cash flow exceeded $6 billion for the first time ever and reflected the benefit of continued increases in premium volume subrogation recoveries from PG&E related to the 2017 and 2018 California wildfires and lower overall claim payouts as court room and other settlement activity slowed throughout the year due to COVID-related shutdowns.\nHigher levels of cash flow give us the flexibility to continue to make important investments in our business, return excess capital to our shareholders and grow our investment portfolio.\nInterest yields decreased modestly as credit spreads tightened during the fourth quarter.\nAnd accordingly, our net unrealized investment gains increased from $3.8 billion after-tax as of September 30 to $4.1 billion after-tax at year end.\nAdjusted book value per share, which excludes unrealized investment gains and losses was $99.54 at year end, a 7% increase from a year ago.\nWe returned $419 million of capital to our shareholders this quarter, comprising dividends of $218 million and share repurchases of $201 million.\nFor the year, we returned $1.5 billion of capital to shareholders through dividends and share repurchases.\nAs we entered 2021, we again thought it would be helpful to highlight the seasonality of our cat losses over the prior decades.\nAs shown in the data, the second quarter has regularly and noticeably been our largest cat quarter.\nCat losses in the second quarter have been about twice as much as any other quarter on average.\nAnd the second quarter has been our largest cat quarter in seven of the past 10 years.\nTo wrap it up, we are very pleased with the quarter and full year results, especially given the challenging circumstances.\nFor the fourth quarter, Business Insurance produced $713 million of segment income, an increase of almost 60% over the fourth quarter of 2019.\nHigher net favorable prior year reserve development, underlying underwriting income and net investment income as well as lower cat losses, all contributed to the favorable year-over-year increase.\nWe're pleased with the underlying combined ratio of 93.6%, which improved by 2.8 points from the prior year quarter.\nWe benefited again from earned pricing that exceeded loss trend with an impact this quarter of a little more than a point and a half.\nThere is also a point and a half of improvement due to the favorable comparison to the fourth quarter of 2019, which was elevated due to the reestimation of losses for prior quarters.\nTurning to the top-line.\nIn light of the ongoing macroeconomic challenges, we remain pleased with the resilience of our business.\nNet written premiums were only slightly lower than the prior year quarter with strong rate and high retentions mostly offsetting modestly lower levels of insured exposures as well as lower new business.\nThe lower insured exposures reflect lower levels of economic activity as well as impacts from our active management of terms and conditions and deal structures, including deductibles, attachment points and limits.\nTurning to domestic production.\nWe achieved a record renewal rate change of 8.4%, up almost four points from the fourth quarter of last year, while retention remained high at 83%.\nThis quarter marks the eighth consecutive quarter and with renewal rate change was higher than the corresponding prior year quarter.\nWe continue to achieve higher rate levels broadly across our book as rate increases in all lines other than workers' compensation were meaningfully higher during the quarter as compared to the prior year.\nImportantly, we continue to feel great about our deliberate and granular execution in terms of rate and retention on an account-by-account and class-by-class basis.\nThe segmentation beneath the headline numbers was once again excellent.\nAlso, one other thing that's not apparent in the headline numbers is the contribution to margins from the active management terms, conditions and deal structure that I mentioned a minute ago.\nWe're doing this broadly across the book, but most notably, in our National Property business.\nThe tighter terms tend to persist beyond the rate cycle.\nNew business of $440 million was down $35 million from the prior year quarter.\nGiven the lower levels of economic activity and given the hardening market conditions, there is a higher proportion of distressed business in the market.\nOur new business production reflects our disciplined approach to that business.\nRisk selection is particularly important during circumstances like these.\nAs for the individual businesses, in Select, renewal rate change increased to 4.2%, up more than two points from the fourth quarter of 2019 and more than one point from the third quarter of this year.\nRetention of 77% was down from recent periods, a result of deliberate execution as we pursue improved returns in certain segments of the business.\nAs I mentioned above, we're pleased with the segmented execution underneath the aggregate result.\nImportantly, we have not slowed down on our commitment to invest in product development and ease of doing business, which position us well for long-term profitable growth in this business.\nIn Middle Market, renewal rate change increased to 9.1%, while retention remained at 86%.\nRenewal rate change was up 4.5 points from the fourth quarter of 2019 and almost a point from the third quarter of this year.\nAdditionally, we achieved positive rate on more than 80% of our accounts this quarter, a more than 10 point increase from the fourth quarter of last year.\nTo sum up, we feel terrific about our results and execution, especially given some of the unusual economic challenges related to the pandemic.\nWe continue to improve the profitability of the book, while investing strategically for the future.\nThese investments include enhancing the experiences for our customers and distribution partners, developing new insights for our underwriters, digitizing the underwriting transaction and creating efficiencies.\nExamples of capabilities released this year include, rollout of our completely redesigned BOP 2.0, small commercial product which includes industry-leading segmentation and a fast easy quoting experience.\nThis new product is now available in 23 states and performing consistently with our expectations.\nAdvancement of our industry-leading strategic work intake initiatives which allow for automated receipt of submissions from the various technology solutions our agent partners use and the seamless routing of those submissions which improves the experience for our distribution partners and is more efficient for us.\nEnhancing our MyTravelers customer self-service application.\nAnd lastly, our Simply Business and Zensurance platforms continue to advance their digital capabilities and offerings in the alternative platform space.\nWe're as confident as ever that strategic investments like these, together with our meaningful competitive advantages, position us well for long-term profitable growth.\nBond & Specialty delivered strong returns and double-digit growth in the quarter despite the ongoing headwinds of COVID-19.\nSegment income was $164 million, nearly flat with the prior year quarter as the benefit of higher business volumes and a higher level of net favorable prior year reserve development were offset by an underlying combined ratio, which while still strong at 85%, was higher than the prior year quarter.\nThe underlying combined ratio of 3.7 points, driven by the impact of higher loss estimates for management liability coverages, primarily losses attributable to COVID-19-related economic conditions.\nAs we discussed last quarter, the products that we write in this segment are susceptible to elevated loss levels in times of severe economic downturn.\nWe experienced that during the financial crisis, and again, in recent quarters due to the impacts of the pandemic.\nNonetheless, with the strong rate levels we're achieving, we expect that the underlying combined ratio in 2021 will improve a little bit from the roughly 87% in the second half of 2020.\nNet written premiums grew an outstanding 12% in the quarter, reflecting continued improved pricing in our management liability business with nearly flat Surety production despite the continued economic impact of COVID-19 on public project procurement and related bond demand.\nIn our domestic management liability business, we're pleased that renewal premium change increased to a record 10.9%, driven by record high renewal rate change, while retention of 89% remained near historical highs.\nThese production results demonstrate the successful execution of our strategy to pursue rate in light of elevated loss activity, while maintaining strong retention levels in our high quality portfolio.\nWe will continue to pursue rate increases where warranted.\nDomestic management liability new business for the quarter increased $13 million, primarily reflecting our thoughtful underwriting in this elevated risk environment.\nConsistent with last quarter, submissions are up, while quote activity is down.\nSo Bond & Specialty results were again strong despite the challenges brought on by COVID-19.\nBeyond the numbers, notwithstanding our focus on managing through the challenging environment, we continued to invest in differentiating our businesses in the eyes of our customers and agents and broker partners, while positioning ourselves for continued profitability and competitiveness in the future.\nSome highlights from 2020 include, continuing investments in our Surety business to help our contractor clients more effectively manage risk, while providing insights that will enable them to more profitably manage their business.\nPiloting digital platforms that will improve the speed and convenience of accessing management liability and small surety products for our agents and brokers.\nAnd investing in a new sales management platform that will enhance productivity, optimize workflow management and increase sales.\nIn Personal Insurance, we're very pleased with our fourth quarter and full year results.\nFor the fourth quarter, segment income increased to $457 million and our combined ratio improved to 84.1%.\nFull year's segment income was $1.2 billion and the combined ratio was 89.7%.\nThe significant improvement for both periods compared to the prior year is primarily driven by lower frequency of automobile losses as well as the benefit to underwriting income from higher business volumes.\nIn addition, the full year results include higher net favorable prior year reserve development and elevated catastrophe losses.\nNet written premium growth for the fourth quarter and full year was 7% and 5% respectively with continued strong retention and higher levels of new business, resulting in record net written premiums of more than $11.3 billion for the year.\nAgency Automobile profitability was very strong with a combined ratio of 86.5% for the fourth quarter.\nThe underlying combined ratio for the quarter improved 12 points, continuing to reflect favorable frequency levels.\nApproximately one-third of the improvement in the quarter is from favorable reestimates of activity for prior quarters in 2020.\nWe continue to observe lower claim frequency as a result of fewer miles driven, reflecting the ongoing impact from the pandemic.\nWe will continue to analyze and incorporate current trends into our state-specific underwriting and pricing decisions as we balance business volumes and profitability.\nIn Agency Homeowners & Other, the fourth quarter combined ratio of 81.9% increased relative to the prior year quarter, driven by a higher underlying combined ratio and an increase in catastrophe losses.\nThe fourth quarter included one catastrophe, Hurricane Zeta, with no recoveries from the Catastrophe Aggregate Reinsurance Treaty.\nThe underlying combined ratio of 78.5% was five points higher than the prior year quarter due to higher non-catastrophe weather-related losses, and to a lesser degree, increases in other losses, specifically elevated fire losses.\nThe full year combined ratio of 93% was comparable to the prior year with increased favorable prior year reserve development and improved underlying results, offset by elevated catastrophe losses.\nThe underlying combined ratio of 82.9% was almost three points better than last year, driven by lower non-catastrophe weather-related losses.\nThis improvement demonstrates the success of our continuing efforts to improve returns in property, while growing the business.\nTurning to quarterly production.\nOverall results were again very strong.\nWe're pleased with our momentum in Agency Automobile.\nRetention was 84% and new business increased 12%, contributing to the 3% year-over-year growth in policies in force.\nRenewal premium changes were lower given our pricing actions in response to the favorable loss environment.\nWe continue to see growth in this profitable line.\nAgency Homeowners & Other delivered another excellent quarter with retention of 85% and a 21% increase in new business, while renewal premium change again exceeded 8%.\nPolicies in force were up 8% from a year ago.\nThese results reflect our continued efforts to grow, while improving profitability.\nLooking back, 2020 was both a challenging and successful year for Personal Insurance.\nWe achieved record levels of segment income, net written premium and policies in force.\nOur continued success reflects the execution of our strategy to meet customers where they are, give them what they need and serve them how they want.\nExamples include, nearing completion of our Quantum Home 2.0 rollout, which is now available in over 40 states.\nIncreasing the take-up of IntelliDrive by enhancing our Auto Telematics offering in 17 states.\nAnd just this week, we introduced IntelliDrive in Canada as well.\nImproving our customer self-service capabilities with our new MyT mobile app, which will be rolled out more broadly throughout the first quarter of 2021.\nPlanting an additional 500,000 trees for customer enrollment in paperless billing, bringing the total number of trees planted through our partnership with American Forest to 1.5 million.\nAnd just recently, announcing the acquisition of InsuraMatch, an innovative digital online platform that allows customers to compare offerings for more than 40 carriers across the United States.\nWe expect to complete the acquisition in the first quarter of 2021, subject to customary closing conditions.\nWe have strong momentum going into 2021 and are well positioned to deliver profitable growth, while investing in capabilities that will continue to enhance the value of our franchise.\nMichael, this is Tom Kunkel.\nI just want to jump in quickly and mention that I did misspeak when I was discussing management liability new business.\nI believe I said it increased by $13 million, and it is -- it actually decreased by $13 million.\nAnd operator, we are now ready to turn to questions.",
        "summary": "travelers qtrly core earnings per share $4.91.\ntravelers companies - qtrly core earnings per share $4.91; qtrly earnings per share $5.10.\ntravelers - qtrly core income increased due to higher underlying underwriting gain, higher net favorable prior year reserve development.\ntravelers - qtrly core income also increased due to higher net investment income & lower catastrophe losses.\ntravelers companies - qtrly net written premiums $7.27 billion, up 3%.\ntravelers - qtrly catastrophe losses, net of reinsurance $29 million pre-tax versus $85 million pre-tax."
    },
    {
        "text": "On the call today are Donnie King, President and Chief Executive Officer; and Stewart Glendinning, EVP and Chief Financial Officer.\nAs many of you know, I've been a Tyson team member for close to four decades.\nAnd in that time, I've led every business segment.\nWe've always believed in our mission and the vision of John W. Tyson, who founded this Company nearly a century ago because he wanted to find a better way to feed a growing country.\nToday, on my first earnings call as CEO, I am incredibly proud to stand alongside our team members to continue that legacy.\nIt's an interesting time to be in this industry and we have a leadership team that together can capitalize on the strengths of this Company and the opportunities ahead.\nLet's begin with the view of our overall performance this quarter.\nFirst, our retail performance.\n12 consecutive quarters of retail share gains in our core business lines is driven by strength of our brands, along with solid execution from our team.\nWe are in a market that has demonstrated strong demand for protein and people are reaching most for brands they trust.\nOur $1 billion brands Tyson, Jimmy Dean and Hillshire Farms have driven strong share growth with consumers buying more than ever before.\nSecond, we saw in the third quarter growing volume in foodservice channel, as reopening and recovery continue.\nWe saw an uptick from outlets nationwide reflected in our sales, which we were up $1.3 billion for the quarter.\nOur broad production and distribution network is well positioned to meet this growing demand.\nThird, the diversity of our portfolio demonstrated its value during the quarter, led by Beef, we delivered an exceptional result as the strong US and export demand, coupled with ample cattle supply, supported elevated margins in that business.\nFourth, we continue to build financial strength.\nThis quarter, we used higher operating cash flow to reduce debt.\nThe steps we've taken positioned us with a very strong balance sheet and high levels of liquidity.\nAnd finally, we are investing in future growth across our portfolio.\nWe're in the process of bringing 12 new plants online globally to address capacity constraints and growing demand.\nIn all, Tyson delivered a strong quarter.\nAs we look to the future, we want to build on these strengths.\nLet's look at how we plan to do that.\nFirst, we have built a solid footing to drive consistent results.\nOur strength include a diverse portfolio, well-known trusted brand, scale in meaningful markets and an exceptionally strong balance sheet.\nSecond, labor is our number one challenge.\nSo, we have continued our focus on improving our team member experience, without compromising their health and safety.\nWe are accelerating efforts to make Tyson the most sought-after place to work because we know how important team members are to our business.\nOne of the way that we're doing this is to accelerate our investments in automation and technology.\nThis not only helps us to eliminate more difficult, hard-to-fill task, but also reskill our labor profile to enable their contribution to more value-added activities.\nThird, we are actively working to recover volume from pandemic lows.\nAnd in doing so, improve the reliability we offer our customers.\nDynamic and evolving channel demand continues to create operational complexities.\nWe took steps earlier this year to make our organization more responsive to demand signals and to accelerate our speed to market by getting our sales teams closer to their customers.\nThere is more to do, however, and so our work here continues.\nFourth, our focus on operational excellence and disciplined cost management is especially important during periods of continued market volatility and increasing inflationary pressures.\nAs you will hear today, we continue to be laser focused in making progress in restoring the competitiveness of our Chicken segment.\nWe are also accelerating actions across our enterprise to become more operationally excellent.\nFinally, we will continue to optimize our balance sheet, which will give us optionality as we prioritize the delivery of shareholder value.\nTurning to Slide 5.\nWe improved our sales and earnings performance this quarter.\nThe results demonstrate the benefit of our multi-protein, multi-channel portfolio.\nSales improved 25% in third quarter and 8% year-to-date, reflecting improved volumes, which were up 10% for the quarter and flat year-to-date.\nIt also reflects effective pricing strategies in all of our segments during this inflationary environment.\nWe delivered strong operating earnings performance, resulting in approximately $1.4 billion in operating income for the quarter.\nThis represents an 81% increase compared to prior year and translates to $2.70 in earnings per share.\nOur earnings reflect our three key priorities: one, to be the go-to supplier for customers and consumers; two, to be the most sought-after place to work; and three, to be operationally excellent.\nWe want to be the most sought-after place to work.\nThis starts with an unrelenting focus on safety, every minute, every shift, every day.\nHealth and safety have been and will continue to be our top priority.\nWe have a history of using all the tools at our disposal to protect our team members and the vaccine is no different.\nAs many of you will have seen, last week we announced that Tyson will require COVID-19 vaccinations for our entire US workforce by November 1.\nWe do this now because the Delta variant is more contagious and getting vaccinated is the single most effective thing people can do to protect themselves, their families and their communities.\nWe have raised wages in many markets to ensure we're competitive and are exploring other ways to make Tyson the most sought-after a place to work in the communities where we operate.\nFor example, we are piloting child care facilities at some of our plants and we have opened medical clinics to make healthcare more accessible to team members and their families.\nFinally, we are accelerating investments in automation and advanced technologies to make team members' jobs easier.\nWe look forward to providing more detail on automation and technology roadmap at our upcoming Investor Day.\nWe're taking aggressive actions to add new capacity to meet demand, adjust our product mix by plant, and match our portfolio more closely with customer and consumer needs.\nWe're listening to our customers and are committed to improving reliability of supply.\nIn the third quarter, we improved volume levels across all segments.\nIn Prepared Foods, we continue to optimize our product portfolio, remove processing and supply chain complexity and prioritize products with the highest demand resulting in lower cost and better service to our customers.\nIn Beef, ample cattle supply, heavier animal weights, and strong demand have driven volumes higher year-to-date.\nIn Pork, our volumes are up year-to-date versus pandemic lows.\nWe are pleased to have additional capacity coming online at Eagle Mountain in Utah and Columbia, South Carolina, both facilities are expected to grow our pre-packaged Beef and Pork products.\nIn Chicken, volume declined year-to-date despite improved foodservice demand led by QSRs.\nWe also saw sustained retail demand, including the frozen value-added poultry category, limited capacity and persistent labor challenges have impacted customer fill rates in this segment.\nHowever, our new plant in Humboldt, Tennessee continues to ramp-up production, including harvest capacity.\nThis ramp-up is helping us improve customer fill rates.\nChicken remains a top priority for me and for our Company.\nWe continue to execute against our roadmap to bring operating income margin to at least the 5% to 7% range by mid-fiscal 2022.\nOur goal has not changed and we remain committed to restoring top-tier performance.\nWe are making progress.\nThe first imperative is to be the most sought-after a place to work.\nI've outlined the investments we're making to enhance our team member experience in my earlier comments.\nThe second imperative is to improve operational performance.\nLast quarter, we highlighted the impact of lower hatch rates on our Chicken operations.\nWe have begun to deploy new male parent stock, where this stock has been deployed, hatch rates are improving.\nWe expect a full rollout of this breeder stock to be complete this fall with harvest capacity improvements occurring by mid-fiscal 2022.\nOur rate of outside meat purchases has declined 25% versus last quarter and will continue to decline as hatch rates and utilization improve.\nWe have identified opportunities to reduce mix complexity across our Chicken footprint, which will help us operate more efficiently.\nThe final imperative is to service our customers on time and in full.\nWe're pleased by the continued share performance of our value-added products like Tyson Chicken Nuggets, Crispy Strips and Air Fried.\nWe gained share during the third quarter and the last 52 weeks.\nLooking ahead, we expect further growth and as a result, we're investing in line upgrades and increased capacity drive branded product growth.\nWe have increased prices to help offset significant raw material and supply chain cost inflation.\nPricings improved nearly 16% in the quarter versus the comparable period last year.\nWe will staff our plants, service our customers, grow our business and be the best Chicken Company, period.\nPart of being customer-centric means being as efficient as possible and taking cost out where you can, without compromising our ability to execute against our strategic and operational priorities.\nWe have ongoing efforts across the business to reduce costs.\nBut we must also find new innovative ways to be better and stronger.\nThis means investing in advances like automation and artificial intelligence to deliver productivity gains and competitive advantage.\nWe have already delivered strong productivity gains in fiscal year 2021.\nAcross our business, we are looking to build upon the strength of those actions in the months and years to come, which we will detail at the Investor Day later this year.\nThese improvements come at a time when we are investing heavily in capacity expansions across segments to better partner with our customers and meet long-term demand.\nLet me turn first to summary of our total Company financial results.\nSales were up approximately 25% in the third quarter.\nVolumes were up 9.7%, primarily due to strength in retail and the ongoing foodservice recovery.\nAverage sales price was also up about 17%, largely due to strong results in our Beef segment, the mix benefit from retail volume and the partial recovery of raw material inflation in net sales price.\nOperating income was up 81% in the third quarter due to continued strong performance in our Beef business.\nChicken and Prepared Foods also improved their respective segment earnings, while Pork earnings were down versus the comparable period a year ago.\nYear-to-date, operating income for the total Company improved by 49%.\nEarnings per share grew 93% in the third quarter due largely to strength in operating income, specifically within our Beef segment.\nEPS was up 61% on a year-to-date basis.\nWe performed well despite a challenging operating environment that span tough labor availability, significant inflationary pressures on raw material costs, global supply chain challenges and an evolving demand backdrop.\nSlide 11 bridges our total Company sales on a year-to-date basis.\nWe delivered growth in the retail channel along all reporting segments, which in aggregate accounted for more than $1 billion in sales improvement over the year-to-date period and more than $300 million in the third quarter versus the respective comparable periods.\nMoving to foodservice, sales improved by approximately $1.3 billion in the third quarter, leading to a year-to-date improvement for the channel of nearly $1 billion compared to the same period last year.\nExports were up over 18% versus the comparable period, led by Beef, where sales improved by more than $350 million on a year-to-date basis.\nAsia has been a key driver of Beef export strength.\nWe've also seen some strength in industrial, particularly in Beef and Pork.\nAnd finally, year-to-date sales grew $79 million or approximately 6% in our international business.\nThis business is a growth priority for Tyson and we continue to invest to develop further capacities and capabilities in new markets to meet growing global consumer demand for protein products.\nCurrent capacity expansions across seven international locations are expected to dramatically increase our fully cooked production capabilities.\nThese investments are fully aligned to our strategic growth priorities and when complete, will enhance our international processing capacity by close to 30% versus fiscal 2020.\nOverall, we're pleased with the Company's top line growth year-to-date.\nWe are carefully managing the current inflationary pressures through pricing actions, as well as commercial and operational excellence, with emphasis on productivity and cost.\nWe know that our price recovery efforts relative to inflation must be matched by equal aggressiveness on productivity.\nSlide 12 bridges year-to-date operating income.\nProduction inefficiencies and low labor availability resulted in total Company volumes roughly flat to the comparable period a year ago.\nHowever, we are encouraged by the volume improvement we are seeing across our segments in the third quarter.\nPrice mix benefited substantially in the year-to-date period from price recovery of raw material cost inflation, improved mix, strong Beef segment performance and continued retail strength across segments.\nOperating income was partially offset by $2.2 billion and increased cost of goods sold for the period, reflecting meaningful inflation in raw material and supply chain costs.\nFeed ingredients, labor, packaging and freight are all key components of this COGS increase, which we're working to mitigate.\nOn a comparative basis, SG&A benefited from the $56 million loss in the year-to-date fiscal 2020 period as compared to a $55 million gain in the first quarter of fiscal 2021 associated with the cattle supplier incident.\nThis was in addition to certain reductions in trade spend and travel costs.\nMoving into the Chicken segments' results.\nSales were $3.5 billion for the third quarter, up 12%.\nVolumes were also up in the quarter due to continued strength in retail, improving demand through foodservice and segmentwide operational improvements.\nThese were partially offset by COVID-related production inefficiencies.\nAverage sales price was up 15% in the quarter due to favorable mix, sustained retail volume and strong supply and demand fundamentals.\nOur reported price improvement also reflects actions we took to cover the inflationary pressure seen from higher grain, labor and freight costs.\nOur conversations with customers on widespread inflationary pressures have been productive.\nAnd we'll continue to partner with customers to ensure we receive a fair return on our products while working to deliver service levels and fill rates that meet or exceed their expectations.\nOperating income was $27 million in the third quarter and $137 million on a fiscal year-to-date basis, both stronger than comparable periods a year ago.\nThis represents an operating margin of 1.3% year-to-date.\nFiscal year-to-date operating income was negatively impacted by $410 million of higher feed ingredient costs, as well as $210 million of increased grow-out expenses and outside meat purchases.\nFor the third quarter, feed ingredients were $270 million higher, while grow-out expenses and outside meat purchases were $110 million higher.\nSegment performance also reflects net derivative gains during the third quarter of $125 million and $235 million on a year-to-date basis, both versus the respective comparable periods.\nThese results are associated with realized gains, as well as open positions.\nMoving now to Prepared Foods.\nSales were $2.3 billion for the quarter, up 14% relative to the same period last year.\nTotal volume was up 4.5% in the quarter with strength in the retail channel and continued recovery in foodservice.\nSales growth outpaced volume growth, driven by the pass-through of raw material costs, lower commercial spending and better sales mix.\nSegment operating income was $150 million for the quarter, up over 3% versus the prior year.\nYear-to-date operating income was $633 million, up 23% versus the prior year period.\nOperating margins for the segment was 6.5% for the third quarter, a decline of 60 basis points versus the comparable year-ago period.\nThe slowdown in segment operating margins versus the same quarter last year were driven by significant increases in raw material input costs.\nHowever, on a year-to-date basis, our operating margin of 9.6% was up 170 basis points versus last year, driven by favorable pricing and lower commercial spend.\nDemand for the balance of the year is expected to remain elevated at retail, with volumes continuing to exceed pre-COVID levels and foodservice continuing to recover.\nDuring the third quarter, core business lines experienced volume share growth of 90 basis points, while dollar share grew 70 basis points.\nWe continue to believe that the ongoing inflationary environment will create a meaningful headwind for Prepared Foods in the upcoming quarter.\nRaw material cost, logistics, ingredients, packaging and labor are all challenging our cost of production.\nTo offset inflationary pressure, we're focused on pricing, revenue management, and commercial spend optimization, while ensuring the continued build of brand equity through marketing and trade support.\nMoving to the Beef segment.\nSegment sales were over $4.9 billion for the quarter, up 36% versus the same period last year.\nKey sales drivers included strong domestic and export demand for Beef products with average sales price up 12% for the quarter.\nWe had ample livestock available in the quarter, driven by strong front-end supplies.\nMounting drought conditions in the Western United States cattle growing region, as well as elevated cost for grain also drove some cattle supply liquidation.\nWe have good visibility into cattle availability through fiscal 2022 and currently believe it will also be sufficient to support our customer needs.\nSales volume for the quarter was up year-over-year due to continued strong demand in contrast to a soft comparable period a year ago, driven by lower production volumes.\nWe delivered segment operating income of $1.1 billion for the quarter.\nThis improvement was driven by strong global demand for beef products and a higher cut-out, which were partially offset by higher operating costs.\nOperating margins for the segment improved 520 basis points to 22.6% for the third quarter.\nWhile our Beef segment experienced tremendous results on a year-to-date basis, we're still not at optimal levels of capacity throughput within our beef plants due to labor challenges.\nMeanwhile, drought conditions and elevated grain prices are creating incremental costs and risks for cattle producers.\nUntil these conditions stabilize and within the constraints I had mentioned, we will work to maximize our beef processing capacity to provide a reliable outlook for our livestock farmers and adequate product supply for customers and consumers.\nNow, let's move on to the Pork segment on Slide 16.\nThird quarter results reflect higher hog costs and operating expenses that weren't fully offset through Pork cut-out.\nSegment sales were $1.7 billion for the quarter, up 54% versus the same period last year.\nKey sales drivers for the segment included higher average sales price due to strong demand, partially offset by a challenging labor environment.\nAverage sales price increased more than 39% while volumes were also up relative to the same period last year.\nSegment operating income was $67 million for the quarter, down 37% versus the comparable period.\nOverall, operating margins for the segment declined by 570 basis points to 3.9% for the quarter.\nThe operating income decline was driven by higher hog costs and increased labor and freight costs.\nAt the end of this calendar year, lower projected 2021 Pork production and strong consumer demand are expected to support hog prices well above 2020 levels.\nSlide 17 captures our financial outlook for fiscal 2021.\nGiven the continued strength in our Beef segment and ongoing inflationary pressures that are partially being recovered through price, we are raising our sales guidance for the full-year.\nWe now expect to deliver annual revenues in the range of $46 billion to $47 billion.\nAt the segment level, we expect our directional annual guidance to hold.\nKey risks to this guidance include freight rates, labor cost and availability, grain costs in the Chicken segment, raw material costs for each of our businesses and continued export market strength along with price volatility in commodity meats.\nWe're slightly revising our outlook on effective tax rate to approximately 22.5%.\nWe'll continue to monitor the potential implications of new legislation, but we do not currently expect to see impacts to our adjusted rate this fiscal year.\nWhile our expectations related to liquidity are also unchanged, liquidity during the third quarter improved substantially to $3.4 billion and has since benefited from $1.2 billion of pre-tax proceeds from the divestiture of our Pet Treats business in early July.\nFinally, we expect our COVID-related costs, which totaled $55 million in the quarter to be approximately $325 million for the year.\nAs a reminder, some of the costs that were previously described as COVID-related, have evolved to become structural.\nTurning to Slide 18, in pursuit of our priority to build financial strength and flexibility, we have substantially delevered our business over the past 12 months, reducing leverage to 1.7 times net debt to adjusted EBITDA.\nInvesting organically in our business will continue to be an important priority and will help Tyson increase production capacity and market capabilities.\nEach of these levers individually and in aggregate will support strong return generation for our shareholders.\nWe will also continue to explore costs to optimize our portfolio through M&A through the lens of value creation and shareholder return.\nFinally, we are committed to return cash to shareholders through both dividends and share buybacks.\nIn short, we view the cash generation capabilities of this business as both strong and diverse, and we expect our capital allocation framework to deliver solid returns for our shareholders in the future.\nTo close, our priorities are clear, being the most sought-after place to work, being our customers' go-to supplier and doing so while driving operational and functional excellence across all areas of our business.\nThere is a lot to be excited about.\nWe look forward to discussing where we're headed during our upcoming Investor Day and hope you can join us.\nOperator, please provide the Q&A instructions.",
        "summary": "tyson foods - q3 adjusted earnings per share $2.70.\nq3 adjusted earnings per share $2.70.\ntyson foods - beef sales volume increased during q3 due to strong global demand and reduced production inefficiencies associated with covid-19.\non an adjusted basis, we anticipate prepared foods results in fiscal 2021 to be similar to fiscal 2020.\nat current grain prices, we believe chicken results will likely be lower in fiscal 2021 as compared to fiscal 2020.\nexpect sales to approximate $46 billion to $47 billion in fiscal 2021.\nexpect capital expenditures of approximately $1.3 billion for fiscal 2021.\ntyson foods - chicken sales volume increased in q3 due to increased demand in foodservice channel, reduced inefficiencies associated with covid-19.\nfor fiscal 2021, estimate that we will incur about $325 million of direct incremental expenses associated with impact of covid-19.\nprepared foods sales volume increased in q3 primarily due to increased demand in foodservice channel and sustained retail demand.\nprepared foods sales volume increased in q3 also due to reduced production throughput disruptions associated with covid-19.\npork sales volume increased during q3 due to strong global demand, reduced production inefficiencies associated with covid-19."
    },
    {
        "text": "Please go to slide two.\nPlease see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results.\nWhile the pandemic continues to present significant challenges around the world, our strategy as a global climate innovator remains steadfast.\nWe are innovating rapidly to address complex and pressing sustainability challenges for our customers and for our planet.\nThis is even more critical, as the clock is ticking on climate change and the battle intensifies.\nOur aggressive goals and bold actions can dramatically reduce carbon emissions and accelerate the world's progress.\nWe are committed to making a difference consistently, relentlessly and over the long term, our unwavering focus on innovation has been fundamental to our ability to drive market outgrowth and share gains in recent year and it continues to be a path forward for long term value creation.\nAt Trane Technologies, weve never built strategies around episodic investments which may increase for a year or two to driver growth and then slow in favor of margin or cash or any changing new priority.\nOur approach is markedly different.\nWe remain confident in our ability to lead precisely because our investments are continuous and ongoing.\nThey are focused on our clear purpose-driven strategy, a consistent operating system, and goals and expectations focused always on top quartile results for our stakeholders.\nThis relentless approach drives market outgrowth, which in turn helps us deliver strong margins and powerful free cash flow to deploy through our balanced capital allocation strategy.\nThe end result is more value across the board for our team, for our customers, for our shareholders and for the planet.\nMoving to slide four.\nOur global teams drove exceptional performance in the first quarter, which positions us well, as we look toward the balance of the year.\nWe delivered broad-based market outgrowth and share gains in each of our segments and business units, with total enterprise organic revenues up 11%, while at the same time delivering more than 400 basis points of margin expansion in every segment and for the enterprise as a whole.\nWe delivered double-digit bookings growth in all segments, growing our backlog over 30% sequentially versus December 2020 and up more than 30% versus our already strong backlog at the end of 2019 heading into 2020.\nAdjusted earnings growth was also exceptional, up 135%.\nAlthough it's still early in the year and overall visibility remains limited, our strong quarter 1 performance, growing backlog, improving markets and asterism for improved vaccination rates gives us confidence to raise our full year 2021 guidance for both revenue and adjusted earnings per share above the high end of the prior ranges.\nWe also continue to make excellent progress toward our transformation savings goal of $300 million by 2023 and expect to realize approximately $190 million in total savings in 2021.\nThat's up from $100 million in 2020.\nThese transformation savings help fund superior innovation, market outgrowth and share gains with sustainable strong leverage.\nWe expect a strong growth in leverage in 2021 to once again deliver powerful free cash flow which further strengthens our balance sheet and fuels our balanced capital allocation strategy.\nWe've raised our capital deployment expectations for 2021 by $500 million from approximately $2 billion to $2.5 billion to continue our commitment of deploying 100% effective cash overtime.\nWe're actually, our core strategy remains focused on backward sustainability mega trends of energy efficiency and sustainability which are becoming more press everyday.\nWe're one of just a handful of companies to achieve validation for our second set of science based targets, and our path to net zero carbon emissions.\nFor those of you know as well, you know sustainability has been at our core for a very long time.\nOur first set of science-based targets were approved in 2014 and we achieved those in 2018.\nWe also have revised our annual incentive compensation plan for approximately 2,300 leaders beginning this year to link directly to ESG metrics, including both carbon emission reduction, and advancing diversity and inclusion.\nIn addition, all salaried employees must now include at least 1 sustainability-related goal in their annual performance plans.\nOur commitment couldn't be stronger.\nWith our purpose to challenge what's possible for a sustainable world, we are uniquely positioned to solve pressing challenges for our customers.\nThis passion powers us forward to deliver top-tier financial performance and differentiated returns for our shareholders.\nWe delivered robust organic bookings growth of 31% in the first quarter.\nThe growth across all segment and business unit.\nWe also delivered strong revenue growth in each segment.\nOur Americas segment delivered growth in both bookings and revenue, up 36% and 9%, respectively.\nOur Americas Commercial HVAC business has remained resilient since the start of the pandemic, delivering strong Q1 bookings growth of low single digits in the quarter.\nWe're especially pleased with this performance relative to the mid-teens growth comp in the first quarter of 2020, making the two year growth stack for America's Commercial HVAC high teens.\nRevenues were flat in the quarter, which also represents strong performance relative to the growth in the first quarter of 2020, making the two year stack up mid single digits.\nServices were up low single digits.\nThe residential HVAC markets remain robust and our residential HVAC team delivered strong revenue growth, well in excess of 30% in the quarter as they once again grew market share.\nWe entered the quarter with a strong backlog, and exited the quarter with an even stronger backlog, putting us in a strong position entering Q2.\nOur Americas transport refrigeration business outperformed the North America truck and trailer markets in the quarter, delivering strong revenue growth, up mid-teens and exceptional bookings growth in the quarter.\nTurning to EMEA, our team's delivered 18% bookings growth in the quarter, with strong growth in both commercial HVAC and transport refrigeration.\nRevenues were also strong, up 12%.\nEMEA Commercial HVAC bookings were up high single digits and revenues were up mid-teens once again outperforming the market.\nWe continue to see strong demand for our products and services that help reduce the energy intensity and greenhouse gas emissions of buildings.\nEMEA transport bookings were up over 20% in the quarter and revenues are up high single digits, outperforming the broader transport markets.\nOur Asia Pacific team delivered bookings growth of 14% and revenue growth of 34% in the quarter, laughing a soft Q1 2020 that was heavily impacted by the COVID-19 pandemic.\nChina continues to outperform the rest of Asia, where a number of economies are still struggling with the impacts of the pandemic and low vaccination rates.\nDave provided a good overview of our revenues on the prior slide, so I'll focus my comments on margins.\nAdjusted EBITDA margins were strong up 460 basis points, driving adjusted earnings per share growth of 135%.\nWe delivered strong operating leverage in all regions, supported by superior innovation for our customers, strong productivity and cost containment actions.\nPrice cost tailwinds were particularly strong in the first quarter, driven by realization of premium pricing on leading innovation and pricing actions taken to remediate increasing material cost inflation in 2021.\nIn addition, we maintain high levels of business reinvestment in innovation, technology, and productivity.\nIn the Americas region, market outgrowth, cost containment, productivity and price drove solid EBITDA margin expansion of 400 basis points.\nLikewise, the EMEA and Asia Pacific regions delivered strong market outgrowth, productivity and cost containment to improve EBITDA margins by 540 basis points, and 1,160 basis points, respectively versus 2020.\nOur market outgrowth in each region is supported by relentless investments in superior innovation to help our customers solve their most challenging and complex problems, fueling new product and service offerings.\nWe delivered strong productivity from both our robust pipeline of projects and structural transformation initiatives that we outlined at our December 2020 Investor Event.\nCommercial HVAC in Americas has significantly outperformed the broader markets since the beginning of the pandemic through strong focused, agility, and execution combined with relentless innovation across products and services to our customers.\nDemand remains high for comprehensive indoor air quality solutions and we continue to see indoor air quality as a long-term tailwind for our business.\nEnd markets are mixed with continued strong data center and warehouse demand.\nThe pipeline for our education end market is also strong.\nTo-date we've engaged with many of our K-12 customers to perform indoor air quality assessments in anticipation of the time when Federal stimulus funds will be made available.\nAt this point, the full impact and timing of the stimulus remains to be determined, but it's clearly a multi-year tailwind for our business, given our strong presence in the education markets, and our direct sales force with deep relationships in this vertical.\nEnd market indicators are improving with ABI over 50 and both February and March, both positives for the road ahead.\nIn summary, though our visibility into some end market verticals remain somewhat limited due to continued uncertainty related to the pandemic, we continue to see solid prospects for continued underlying market improvements in the second half of 2021, given positive progress and trends related to increased vaccination rates.\nTurning to residential, we saw record first quarter bookings and revenue, which puts us in a strong backlog position entering the second quarter.\nOverall, we expect a strong first half and a challenging second half with tough comps in the back half of the year given record bookings and revenue in the second half of 2020.\nTurning to Americas transport, we're expecting continued strong growth for the balance of 2021 as markets continue to improve.\nOrders were very strong in the quarter with many customers placing orders for the year.\nAll-in, we expect 26% weighted average market growth for the year, reiterating our prior outlook.\nTurning to EMEA, the recovery continues to be country-dependent with some countries and additional rounds of lockdowns.\nIt's early to call the recovery broadly in Europe, but we expect continued improvement in 2021 with increased vaccination rates in the region.\nTransport markets, in particular, are expecting approximately 8% market growth, given the current rates of economic improvement, reiterating our prior outlook.\nTurning to Asia, we expect continued growth in China in 2021, however, the rest of Asia has been slowed due to virus and vaccination rates remain low.\nOverall, we see a mixed picture for Asia in 2021.\nBased on our strong first quarter performance, our growing backlog and the expectation for improving pace of global vaccinations, we have raised our full year guidance for both revenues and adjusted earnings per share for 2021.\nAs Mike indicated earlier, we expect to deliver a strong organic financial performance with organic revenue growth of approximately 9%, up from our previous guidance of between 5% in 7%.\nWe expect to deliver strong organic leverage over 35% for the full year, with organic leverage of approximately 30% for the balance of the year.\nWe continue to see about 1.5 points of revenue growth from the channel acquisitions, we announced last quarter, which will carry about five points of operating margin and deliver earnings per share accretion of about $0.05.\nAll-in, total revenue growth is expected to be approximately 10.5%, and adjusted earnings per share is expected to be approximately $6, which translates to approximately 35% earnings growth versus 2020.\nOur updated guidance reflects both our strong performance in Q1, and an improved outlook for the remainder of the year.\nWe also raised our free cash flow guidance with our increased earnings per share growth.\nWe expect free cash flow to remain strong and equal to or greater than 100% of adjusted net income.\nIf you project current FX rates out to the end of the year, FX would likely be a tailwind, albeit too early to call given market volatility.\nOur FX exposure is largely translational and each point of revenue were translated approximately translational OI rates.\nNet each point from FX would translate into about $0.05 of EPS.\nPlease go to slide number 10.\nAs we outlined during our investor event in December, by transforming Trane Technologies, we initially identified $100 million of fixed cost reductions by 2021.\nWe've exceeded our initial cost reduction expectations, delivering $100 million of savings in 2020, a full year early.\nAnd we expect to deliver a $90 million of incremental savings for a total of $190 million in savings in 2021.\nWe are now targeting and are on track to deliver $300 million of run rate savings by 2023.\nAs we outlined in December, we will continue to invest these cost savings to further strengthen our high performance flywheel, which has a reinforcing and compounding effect over time.\nFirst, we invest a significant portion of the savings into unrelenting business reinvestments in innovation and leading technology.\nThis fuels the second element, sustained growth above our end markets.\nThird, we invest another significant portion of the savings into an improved cost structure, which drives the fourth element, improved and sustainable incremental margins at or above 25% over the mid to long term.\nWhen combined, this creates a compounding effect of high quality earnings growth and free cash flow year-after-year.\nPlease go to slide number 11.\nWe remain committed to our balanced capital allocation strategy is focused on consistently deploying excess cash to opportunities with the highest returns for shareholders.\nWe continue to strengthen our core business with high levels of business reinvestment and high ROI technology, innovation, and operational excellence projects, which are vital to our continued growth product leadership, and margin expansion.\nWe remain committed to maintaining a strong balance sheet that provides us with continued optionality as our markets evolve.\nWe have a long standing commitment to a reliable, strong and growing dividends that increases at or above the rate of earnings growth over time.\nWe continue to pursue strategic M&A that further improves long term shareholder returns.\nAnd we continue to see value in share repurchases as the stock trades below our calculated intrinsic value.\nAll in, we expect to consistently deploy a 100% of excess cash over time.\nAnd I'll discuss how we plan to deploy excess cash in 2021.\nLooking at full year 2021, after fully reinvesting in the business, we plan to continue executing our balance capital allocation strategy.\nAnd have increased our capital deployment target to approximately $2.5 billion, a $500 million increase to our prior guidance.\nWe anticipate deploying the additional $500 million between value accretive M&A and share repurchases, taking the total target for M&A and share repurchases to approximately $1.5 billion for the year.\nIn the first quarter, we raised our dividend by 11%, deployed $174 million to M&A and share repurchases and paid down $300 million of debt.\nWe plan to retire an additional $125 million in debt as it reaches maturity in the third quarter of 2021, taking the total debt retirement to $425 million for the year.\nThis guidance increase reflects our strong balance sheet and liquidity position, our commitment to deploying 100% of excess cash over time and our continued confidence in our ability to deliver powerful free cash flow to execute our balanced capital allocation strategy.\nPlease go to slide number 14.\nThe objective of this slide is to lay out how to think about organic growth and leverage and the impact of the acquisitions.\nIt also provides some helpful modeling guidance elements outlined on the bottom of the slide.\nThe key takeaways are that we're expecting strong organic growth, leverage and earnings per share and the M&A adds additional revenues and modest earnings per share accretion in 2021.\nPlease go to slide number 15.\nWe want to provide an update on transport markets, as we know this is a topic of interest for investors and analysts.\nThe net takeaway is that our outlook for 2021 is largely unchanged from our prior outlook, where we highlighted that we expect to see approximately 26% weighted average market growth for transport Americas, and approximately 8% weighted average market growth for transport EMEA.\nWhile ACT has raised their outlook slightly on North America trailers, about 1% from 39% growth to 40% growth, they modestly lowered their outlook for truck, which nets out to be a wash on total growth.\nEMEA is in a similar boat with IHS lowering their 2021 forecast slightly, but not enough to shift our view.\nIn total, we've seen very strong demand through the first quarter in both transport markets, and we think that ACT and IHS have called the market about right for 2021, which means transport globally should have a very strong year for us.\nThis is consistent with our prior 2021 view, but I'd say, we have greater confidence after our first quarter performance and our growing backlog.\nThe other element I wanted to highlight for transport North America is that, ACT has increased their trailer forecast for fiscal year 2022 to 51,100 units, which represents an increase of about 13% over their 2021 forecast.\nWhile on the subject, we are occasionally asked about the historical cyclicality in the North America trailer market.\nData would suggest the patterns have changed.\nThe North America trailer market took a step-up in 2015 and has been above 40,000 units ever since with only one exception, 2020.\n2020 saw market declines intensified by the pandemic.\nSo I'm not sure how informative it is about the future.\nThe driver logs, driver shortage and added economic activity appears to have fundamentally shifted the market to new levels above 40,000 units, excluding economic disruption.\nACT's forecast for 2023 is also at the mid-40,000 unit level.\nIf they are correct in their forecast for 2021 through 2023, it will be eight of nine years where the North America trailer market has been in the mid-40,000 unit range, plus or minus 10%.\nNet, 2022 and 2023 are shaping up to be strong years as well.\nPlease go to Slide 16.\nEnergy efficiency and sustainability megatrends are only growing stronger, and we are uniquely positioned to deliver leading innovation that intersects with these trends and accelerates the world's progress.\nAnd we're not only focused on investments in innovation and growth, but also on investments in our business transformation.\nWe are on track to deliver $300 million in savings that will continue to improve the cost structure of the company and enable additional reinvestment to expand margins and further strengthen our ability to outgrow our end markets.\nWhen combined with the long-term sustainability megatrends underpinning our end markets, our exceptional ability to generate free cash flow and balanced capital deployment of 100% of excess cash over time, we are well positioned to continue to drive differentiated shareholder returns.\nI've said that train technologies has the essence of a start-up with the credibility of a market leader.\nThat unique profile fosters a culture of inclusion, ingenuity and performance that delivers results as we demonstrated in the first quarter.\nIt's this type of passion and purpose that sets Trane Technologies apart and is how it will change the industry and ultimately change the world.",
        "summary": "trane technologies q1 revenue up 14% at usd 3 bln.\nq1 revenue rose 14 percent to 3.0 billion usd."
    },
    {
        "text": "Please go to slide two.\nPlease see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results.\nAs we do each quarter, I'd like to spend a few minutes upfront on our focused sustainability strategy, the engine that enables us to deliver differentiated shareholder returns over time.\nLong-term sustainability megatrends continue to intensify, and our innovation leadership is transforming the climate industry as the world decarbonizes.\nOur aggressive goals and bold actions can dramatically reduce carbon emissions and accelerate the world's progress.\nThis is more critical every day as the clock is ticking on climate change.\nThat's why we are calling for businesses and governments to take stronger action at COP26 and why we continue to set aggressive science-based emission reduction targets to push our innovation further and faster.\nThat innovation also extends to emerging trends as we see heightened focus on indoor air quality and strong momentum in aging infrastructure in our schools.\nWe continue to make a difference consistently, relentlessly and over the long term.\nThis unyielding approach drives market outgrowth over the long term, which in turn helps us drive strong margins and powerful free cash flow to deploy through our balanced capital allocation strategy.\nThe end result is more value across the board for our customers, for our team, for our shareholders and for the planet.\nMoving to slide number four.\nOur global team delivered solid execution in the third quarter, and we continue to target top quartile earnings per share growth for 2021.\nBookings were once again exceptional in Q3, building on strong growth in both Q1 and Q2 and bringing our year-to-date organic bookings growth to over 25% for the enterprise.\nUnderlying demand for our innovative products and services have never been stronger, and our Q3 ending backlog reflects this strength.\nIn fact, Q3 ending backlog for the enterprise is up more than 70% or approximately $2 billion from year-end 2020 with all three of our business segments at record levels.\nAmericas and EMEA have backlog that are up over 90% and 65%, respectively, from year-end 2020.\nWe're well positioned to close out 2021 on a strong note and to enter 2022 with unprecedented levels of backlog as well.\nAs we highlighted on our second quarter earnings call and in subsequent forums, global supply chains, logistics systems and labor markets remain tight, and inflation is persistent.\nOur global teams are focused on meeting the unique needs of our wide-ranging customer base and helping them solve complex challenges on a daily basis as we navigate a challenging yet positive demand and supply environment.\nTemporary supply chain delays on key materials impacted portions of our product portfolio, shifting the timing of approximately $150 million or 4% of our revenue out of the third quarter and into future periods.\nWorking closely with our key suppliers and with our customers, we anticipate that between $50 million and $75 million or roughly 2% of the Q3 impact will shift into the fourth quarter, leaving our 2021 revenue guidance unchanged.\nWe expect the remaining balance to shift into 2022.\nWe also highlighted on our second quarter earnings call that persistent inflation would require us to execute an incremental $150 million in pricing actions in the second half of the year in order to neutralize the impact.\nStrong execution of our business operating system has enabled us to keep pace with the inflationary curve.\nIn the third quarter, we realized approximately $150 million or 4.3% incremental price, offsetting approximately $150 million of inflation.\nLeverage was negligible as you would expect on flat volume.\nWhile adjusted operating income was modestly higher in the quarter, primarily reflecting nominal pull-through on M&A and FX growth, consistent with our expectations and our guidance.\nWe continue to execute the business transformation projects we discussed in detail at our Investor Day in December and are on track to deliver approximately $90 million of incremental savings in 2021.\nThese savings support leading innovation across our end markets through relentless high levels of business reinvestment.\nThey also enable us to stay on track to deliver incremental margins of approximately 30% organic for fiscal 2021 despite persistent inflation, tight logistics systems and supply chain challenges.\nWe're also on track to deliver powerful free cash flow of equal to or greater than 100% of net earnings.\nThis provides us with strong optionality to deploy significant cash to opportunities now and in the future, including M&A and share repurchases.\nLastly, we never lose sight of our long-term, purpose-driven strategy and the tremendous leadership role we can play in bending the curve on climate change.\nBy changing the industry, we can change the world.\nExecuting our purpose-driven strategy is how we will continue to deliver top-tier financial performance for our shareholders.\nWhile we're still in the midst of our planning process for 2022 and anticipate providing guidance in conjunction with our fourth quarter earnings call, we thought it might be constructive to spend a few minutes discussing our initial thoughts on 2022 and some of the key dynamics we believe will be in play.\nWhile this is not a comprehensive list, it will highlight some of the key reasons why we're so excited about what the future holds for Trane Technologies as well as some of the key challenges we see on the road ahead.\nFirst, we expect to have strong fundamentals entering the year.\nExiting Q3, backlog in our Americas and EMEA segments are both at unprecedented levels, up over 90% and up over 65% versus December of 2020, respectively.\nAsia also has record backlog, up nearly 20%.\nIf we very conservatively plot out bookings through the balance of 2021, we anticipate entering 2022 with at least 70% more backlog in the Americas and EMEA than we entered 2020.\nI've been in this business a long time, and I've never entered any year with a stronger backlog position, which bodes well for us in 2022.\nAnother fundamental strength entering 2022 is the foundation of our business operating system.\nStrong execution of our business operating system has enabled us to stay ahead of the persistent inflation through 2021 and position us well to manage additional inflationary pressures and deliver strong price realization again in 2022.\nAnd we'll continue to drive transformation savings in 2022 that will support high levels of business reinvestment and continued innovation.\nThese savings will also support healthy incremental margins in what we expect to be another year of tight conditions for supply chain, labor markets and logistics systems.\nLooking out to 2022, we also expect to see continued acceleration of the strong secular sustainability megatrends that are so tightly aligned with our purpose-driven business strategy.\nDecarbonization of the built environment is accelerating.\nU.S. education stimulus dollars are being put to good use, upgrading our aging infrastructure.\nAnd momentum around indoor air quality upgrades, retrofits and new projects continues.\nAdditionally, the global economy is expected to continue to recover in 2022 with solid underlying GDP and other economic indicators driving broader expansion in the nonresidential markets.\nLastly, we're excited about the future of transport refrigeration markets where ACT and IHS are plotting a steady growth path forward in both 2022 and 2023.\nAll in, we're exceptionally well positioned for strong performance in 2022 and beyond.\nCustomer demand for our innovative climate control products and services continues to grow.\nWe delivered another quarter of robust organic bookings growth, up 20% with growth across all segments and business units.\nCustomer demand has been high all year, with organic bookings up over 25% year-to-date, driving record backlog in each segment.\nOrganic revenues were also up 4%, driven by continued strong price execution.\nOur Americas commercial HVAC business delivered robust bookings growth in the quarter with orders up over 30%.\nStrength was broad-based with applied and unitary bookings both up more than 50% and service bookings up high teens.\nDemand for system-focused indoor air quality solutions remain strong and contributed to our mid-single-digit revenue growth in commercial HVAC Americas.\nThe residential HVAC markets continue to be strong, and our residential team delivered low single-digit bookings growth, building on nearly 40% growth in the third quarter of 2020.\nRevenues were flat in the quarter as demand outpaced supply.\nAnd we entered the fourth quarter with record backlog, up more than 150% year-over-year and up from prior record backlog at the end of the second quarter.\nWith year-to-date organic bookings up over 80% and year-to-date organic revenue up over 30%, our Americas transport refrigeration business is significantly outperforming the North America transport markets.\nDuring the third quarter, with most of 2021 orders already in the backlog, we opened up our 2022 order book solely for the first quarter of 2022, which drove bookings growth of more than 20%.\nWe are methodically managing our 2022 order book in order to mitigate inflationary risks.\nOrganic revenues were also strong, up low to mid-teens.\nWe continue to see strong demand for our innovative products and services that help reduce energy intensity and greenhouse gas emissions for our customers.\nOur EMEA teams delivered 25% organic bookings growth in the quarter with strong growth in both commercial HVAC and transport refrigeration.\nRevenues were also strong, up 8%, led by high-teens organic revenue growth in transport refrigeration.\nOur Asia Pacific team delivered bookings growth of 11%.\nRevenue grew 1% in the quarter.\nThough we saw growth in China during the quarter, the impacts of the COVID-19 pandemic continue to be challenging in the region with low vaccination rates in some countries.\nOrganic revenue growth in the quarter was driven by continued strong price execution, yielding 4.3% incremental price in the quarter.\nPrice over material inflation was positive in the quarter and combined with mix offset the net impact of productivity over other inflation and increased investment spending to support leading innovation.\nOrganic volume and, therefore, pull-through leverage was largely flat for the enterprise in the quarter.\nAt a high level, positive leverage was primarily the result of mix and a modest flow-through of M&A and FX, consistent with our guidance.\nNet adjusted EBITDA and operating margins declined by 70 and 60 basis points, respectively.\nAdjusted earnings per share grew 5%, driven primarily by higher adjusted operating income.\nWe discussed the key revenue and margin dynamics for the enterprise on the prior page.\nThe dynamics impacting revenue and margins were similar across each of our business segments, as we've highlighted here, with strong price realization, productivity inflation and higher investments in innovation as consistent drivers.\nIn EMEA, solid price realization was accompanied by strong volume growth, delivering good leverage and margin expansion in the quarter.\nBoth the Americas and Asia Pacific segments delivered higher revenues on modest volume declines impacting leverage.\nAsia Pacific also experienced price versus cost headwinds in the quarter, further impacting margins.\nWe continue to expect Asia Pacific to deliver solid margin expansion for the full year and are pleased with our overall performance in the region.\nCommercial HVAC Americas has significantly outperformed the broader markets over a number of years through strong focus, agility and execution combined with relentless innovation for our customers.\nThese defining characteristics compounded by the strength in the underlying market conditions power the business forward today, yielding bookings growth of over 30% in the quarter, an exceptional backlog entering Q4.\nBookings strength was universal across nearly every vertical market and major product category.\nEnd markets continue to improve.\nVaccination rates are improving.\nAnd end market indicators are generally strong, with ABI over 50 since February and a healthy GDP.\nData centers and warehouse demand remain strong.\nEducation and healthcare end market demand is also growing.\nWe're benefiting from increased demand across our K-12 customers with federal stimulus funds supporting both current and more importantly, future growth.\nWe see this as a multiyear tailwind for our business given our strong position in the education market and our direct sales force with deep relationships in this vertical.\nOur residential end markets remain strong.\nAs I mentioned previously, we delivered low single-digit bookings growth in the quarter, compounding on nearly 40% growth in the prior year.\nAnd we are entering the fourth quarter with unprecedented backlog.\nI'm proud of our residential team that has continued to meet customer demand while ramping capacity after our February weather event in our Texas facility.\nThe team delivered historically high revenues in Q3 and is on track for capacity expansion in advance of next year's cooling season.\nTurning to Americas transport.\nWe're significantly outgrowing strong end markets in 2021.\nACT market forecasts are projecting strong growth in 2022 and 2023 as well.\nI'll talk more about the transport outlook in our topics of interest section.\nEconomic conditions are improving across the region.\nWe expect continued improvement for the remainder of the year with increased vaccination rates supporting the opening of an increased number and variety of venues.\nTransport markets have been strengthening throughout the year, and we're on track to outperform end markets in 2021 as evidenced by our year-to-date performance.\nWe expect growth in China in 2021, supported by increased vaccination rates and strength in data centers, electronics, pharmaceutical and healthcare.\nOutside of China, the picture is mixed, with vaccination and economic recovery rates still low in some countries.\nGiven all the puts and takes we've discussed today, our guidance for 2021 is unchanged.\nImportantly, we continue to see our 2021 adjusted earnings per share growth guidance of more than 30% as top quartile among peers in the broader industrials.\nWe've discussed the shift in revenues from Q3 into Q4 and 2022 throughout the call.\nOur fourth quarter revenues are supported by record backlog, and that backlog is firm.\nSupply chain, labor and logistics systems will continue to be challenging and are the limiting factor to potential upside, not demand or backlog.\nWe also continue to expect free cash flow to remain strong and equal to or greater than 100% of adjusted net income.\nPlease go to slide number 11.\nAs we outlined during our investor event in December, we're on track to deliver $300 million of run rate savings by 2023, including $90 million in 2021.\nImportantly, we continue to invest these cost savings to further fuel innovation and other investments across the portfolio.\nThis consistent investment strengthens our high-performance flywheel, which has a reinforcing and compounding effect over time.\nPlease go to slide number 12.\nWe remain committed to our balanced capital allocation strategy that is focused on consistently deploying excess cash to opportunities with the highest returns for shareholders.\nFirst, we continue to strengthen our core business through relentless business reinvestment.\nSecond, we're committed to maintaining a strong balance sheet that provides us with continued optionality as our markets evolve.\nThird, we expect to consistently deploy 100% of excess cash over time, using a balanced approach that includes strategic M&A that further improves long-term shareholder returns and share repurchases as the stock trades below our calculated intrinsic value.\nYear-to-date, we have deployed $1.8 billion in cash, with approximately $1 billion to M&A and share repurchases, including $250 million for the Farrar Scientific life sciences acquisition we closed in October.\nWe have paid $422 million in dividends and $425 million to pay down debt.\nOur strong free cash flow, liquidity and balance sheet continue to give us excellent capital allocation optionality and dry powder moving forward.\nWe are on track to deploy at least $2.5 billion in excess cash in 2021.\nPlease go to slide number 15.\nI wanted to spend a couple of minutes providing an update on the transport refrigeration markets for 2021 as we've seen the forecast shift a fair amount since our second quarter earnings call.\nI think the primary takeaway this quarter is that ACT is projecting an extended and more gradual upturn in the North America transport refrigeration markets than initially projected.\nNorth America trailers is probably the clearest example and one of the most watched by investors and analysts as a proxy for the overall transport refrigeration health.\nACT started out the year projecting an almost immediate snapback in the North America trailer production in 2021, up 39%, off the lows of the pandemic in 2020.\nAs trailer OEMs have had a challenging year producing enough trailers to meet the forecast, ACT has gradually pulled the forecast down and is now projecting a strong but more gradual improvement in 2021, up 18%, and continued improvement in production rates in both 2022 and 2023, up another 18% and 14%, respectively.\nIf you look at the all-in weighted average market forecast for North America transport refrigeration, 2021 is now expected to be up about 14% versus 24% projected in July.\nYear-to-date, our Thermo King Americas transport refrigeration business is up more than 30%, clearly outperforming the markets, and we expect to outperform the markets for the full year as well.\nLooking at IHS and other key indicators for EMEA markets, the outlook has improved about three points with the weighted average market growth now expected to be about 12% for 2021.\nYear-to-date, our Thermo King EMEA business is up more than 20%, clearly outperforming the markets, and we expect outperformance for the full year 2021 as well.\nPlease go to slide number 16.\nOne of the things we've talked about over the past several quarters is the North America trailer market has not been particularly volatile over the past several years, and it's not projected to be particularly volatile over the ACT forecast horizon either.\nOn the left side of the page, you can see the visual depiction of what we've been describing.\nWe chart ACT's reported actual trailer units built going back to 2015 and ACT's forecast for trailer builds through their forecast horizon of 2023.\nThe 9-year average is in the mid-40,000 unit range with the pandemic in 2020 being the only significant outlier.\nWe also see that good growth is projected in both 2022 and 2023.\nIt's important to note that our global transport refrigeration business is highly diversified.\nTrailer is an important part of the global mix at about 25% of the total.\nHowever, we're focused on strong execution across the transport refrigeration portfolio, which we believe will further help reduce variability of this business over time.\nPlease go to slide number 17.\n2021 is shaping up to be a strong year for us overall despite a number of macro challenges that we expect to continue over the near term.\nWe're seeing unprecedented levels of demand for our products and services across the board, and our backlog has never been stronger.\nWe're executing our business operating system well and staying ahead of persistent inflation with strong price realization.\nAnd we expect to deliver top quartile earnings per share growth for the full year.\nEnergy efficiency and sustainability megatrends are only growing stronger.\nWe are uniquely positioned to deliver leading innovation that addresses these trends and accelerates the world's progress, supported by a business transformation and our engaging uplifting culture.\nWe are proud to have been recognized by Forbes as one of the best employers for diversity and best employers for women and by Fortune as one of the best workplaces in manufacturing.\nIt's our people that power our innovation and bring our purpose to life every day.\nWe have many reasons to be excited about our prospects for strong performance as we look to 2022 and beyond.\nWhen combined with our exceptional ability to generate free cash flow and our balanced capital deployment, we are well positioned to continue to drive differentiated shareholder returns over the long term.",
        "summary": "qtrly reported bookings of $4.3 billion, up 22 percent.\nqtrly organic bookings up 20 percent.\nexpects to deploy at least $2.5 billion as part of its balanced 2021 capital allocation strategy.\nreaffirms 2021 guidance."
    },
    {
        "text": "It is great to be here with you today to share our fourth quarter and full year 2021 results.\nAs we ended 2021, we passed the midway point of our three-year turnaround plan.\nIn 2020, our priority was to stabilize the company.\nIn 2021, our priority was to build a foundation for omnichannel growth.\nAnd in 2022, we will expand our efforts and increase our investments to make our products available to consumers wherever they choose to shop.\nAnd while we focus on building a strong foundation in 2021, we reported both top and bottom-line growth in 2020 and in 2021.\nMost important to me and to our board at this point are accomplishments, what we've learned and what we see ahead of us in the second half of our turnaround plan.\nFirst, what has been accomplished.\nWe had to rightsize our cost structure to survive in 2020, carry that fiscal rigor into 2021, and successfully stabilize the company.\nWe reorganized and upgraded talent to help us fix and stabilize our direct selling business.\nWe have brought into the company new talent with retail and CPG experience to help us build an omnichannel business.\nWe restructured our debt twice, first, to provide a bridge loan in late 2020, and again in late 2021, to provide critical funding for growth, increasing our financial flexibility and reduce our cost of capital.\nWe divested non-core assets and reclassified the company's beauty business as discontinued operations in our financials as we work to complete remaining sales transactions in 2022.\nWe implemented proven methods of operations, utilizing data and techniques to revamp our core direct selling business.\nWe started building new capabilities to open up our iconic brand to new channels of distribution, with the goal of dramatically increased consumer access to our products.\nAnd we have been working with retailers around the world to take limited amount of products into new channels, and we closed the year ahead of our objective of $50 million in B2B revenue, which is product sales sold through retails in their loyalty programs.\nWe accomplished top and bottom-line growth in 2021, while continuing to execute on our turnaround plan.\nAdditionally, we made important changes and investments while navigating unprecedented operating conditions, such as COVID lockdowns throughout the world.\nAnd our gross profit was dramatically impacted both by higher resin prices and logistic costs.\nYet despite these outside distractions, we delivered growth in three of our four regions, with APAC being the outlier, as it was the hardest hit by the most recent COVID variant.\n2021 performance was a tale of two halves.\nThrough the first half of 2021, we were ahead of our internal expectations and really seeing the initial benefits of using direct selling methods that we know are successful.\nand Canada, and high resin and transportation cost as well as other inflationary pressures.\nThat said, we managed controllable expenses as we are exercising more discipline in our spending.\nWe ended the year up 1% of revenue and more than 50% on adjusted income.\nGiven the unknowns of COVID and all that we have accomplished to develop a stronger and scalable foundation, we are pleased with the progress our teams are making to prepare for an omnichannel future.\nAdditionally, as you know, we're up against very difficult comps in the second half of the year.\nI'd also like to mention a few noteworthy recent achievements.\nWe continue to focus on introducing new more sustainable materials to our product lines, new products design to solve consumer needs identified by data and insights, and refined product strategy tied to our renewed purpose to help consumers reduce food waste and eliminate the use of single plastic products and packaging.\nIn 2021, the ECO+ Coffee To-Go Cup received the Fast Company's 2021 Innovation by Design Award and the Green Good Design Award.\nThe Handy Spiral also received high honors by the 2022 German Designer Award.\nWe introduced a freezable reusable bottle that, when frozen, offers up to eight hours of fresh, cool water for consumers on the go.\nWe also launched our Universal Cookware set, a product line developed for small kitchens and spaces.\nIn 2022, we will expand the glass bakeware and storage category given the current needs of today's consumers.\nWith our purpose to nurture a better future, in 2021, we brought to life a collaboration with TerraCycle circular reuse platform called Loop, producing a one-of-a-kind reusable packaging container option for Tim Hortons and Burger King.\nLastly, we continue to make progress in our ESG efforts.\nWe published our 10th annual sustainability report in the fourth quarter, which highlights the degree to which sustainability is moving into our cultural nevus.\nFor the first time ever, we conducted a materiality assessment intended to guide our efforts toward the ESG targets, the most important to many of our stakeholders.\nThe new report includes first-time social and governance goals, a new established 2025 and 2030 environmental target, including 90% absolute reduction of greenhouse gas emissions by 2030.\nAs a testament to our sustainability reports, we're recently recognized by Newsweek as one of America's most responsible companies in 2021 for our commitment to our people, planet, and environmentally responsible products.\nAnd last month, we renewed our partnership with the National Park Foundation, providing $2 million multi-use donation to create meaningful impact across the National Park system.\nAs we head into 2022, and the second half of our turnaround plan, we believe our strategy is the right one: to make the company as big as our famous brand.\nWe will continue to fix our core business, continue to enter into product categories, and continue to open and expand into new channels, all of which we believe will transform this iconic brand.\nIn our core direct selling business, we're using a more data-driven approach to making better and smarter decisions.\nThis includes segmentation of how we look at our sales force and our customers to personalize their experience with Tupperware and, in some cases, introducing preferred customer loyalty programs in our biggest markets.\nWe're also turning around unprofitable markets through changing our sales models and supplementing with business expansion strategies.\nWhen we started the turnaround plan, we had 18 markets that we're losing money.\nBy converting these markets to a more omnichannel approach, this 18 formerly struggling markets now represent over $180 million in revenue and are contributing over 14% operating profit return on sales.\nAs I talked about in prior earnings calls, using importers is one of those models we're using more broadly to both expand sales and improve margins.\nAt the end of 2021, revenue from importers was almost $70 million, up 12% from last year.\nOur retail studio market, excluding China, grew 19% in 2021, while our B2B loyalty programs achieved $56 million revenue, over 50% higher than last year.\nIn 2021, we continue to create the foundation for transforming a business that has been a pure direct selling business for more than 75 years.\nWe continue to learn as we go and readjust and make investments to accomplish the goal that we set from the very beginning of the turnaround plan.\nWe're doing something no company has done before in taking a proved direct selling organization and going omnichannel.\nThis transformation will take time to execute organically, but we've made progress in 2021 through the expansion of importer, studios, and B2B loyalty programs.\nWe believe we are laying the foundation for further retail expansion as we enter into the next half of the turnaround.\nWe know the real price is opening up consumer access to our products in a major way, and that means meeting consumers wherever they shop.\nTherefore, in 2021, we invested in retail talent to develop and grow retail partnerships, expand with third-party distribution partners across the globe to improve service levels, implement detailed tools to support the retail business and enhance packaging and labeling.\nWe also onboarded a new product team and established a new sourcing and supply chain center of excellence in Singapore and developed a sub-brand specifically for this channel.\nIn summary, significant progress has been made in 2021 to build a foundation that accounts for both a direct selling business and the omnichannel business.\nand the U.K., just to name a few.\nOur focus in 2022 is globalizing direct selling best practices, accelerating new product development, increasing consumer access through omnichannel efforts, including expanded product access in the U.S. and Canada, stabilizing in China.\nThe entire Tupperware team, our sales force, our associates, our board, and our executive team is excited about the future.\nWe've made meaningful progress in 2021, despite some challenging headwinds in the second half of the year, while continuing to execute on our turnaround plan and lay the groundwork for future expansion and sustainable growth.\nIn 2021, we invested in the business to fix the core and set the foundation for expanding into more channels.\nWe refinanced the debt for more flexibility with more favorable terms, continued our efforts to divest of non-core assets, significantly improved our tax rate and remediated the material weakness within our Mexico operations.\nNow to our financial results.\nAs a reminder, we made an accounting change last quarter to classify our sold and held-for-sale beauty and personal care businesses as discontinued operations, which is consistent with our strategy to focus on the performance of our core business and expansion efforts.\nFor the full year 2021, we posted revenue of $1.6 billion, which represents an increase of 1% compared to 2020.\nAs Miguel mentioned, we were outpacing our plan during the first half of the year.\nThen in the second half, we had to manage through the impact of restricted COVID lockdowns, especially in Asia and Europe.\nWe also were challenged in the second half in the U.S. and Canada business with the implementation of a new sales force tool, but still managed to achieve an all-time high for revenue in this market in 2021.\nWe also grew in three of our four regions for the full year, with Europe up 2%; North America, up 6%; South America, up 20%; and APAC was down 11%, mainly due to China.\nBusiness expansion, which includes B2B loyalty programs, importers, studios, and retail, is now approximately 20% of our revenue.\nWe're pleased to report that the B2B loyalty revenue was $56 million for the year, exceeding our stated goal of $50 million for 2021 and $37 million in 2020.\nMiguel also mentioned the significant progress we've made in importers and studios outside of China.\nFor the year, three of our big four markets posted growth with the U.S. and Canada up 2%; Brazil up 9%; and Mexico higher than last year by 13%.\nChina was the only big four market that did not grow and was down by 21%, heavily impacted by fewer studio openings, impacts of lockdowns due to COVID and leadership changes throughout the year.\nFor the year, gross profit was $1.1 billion, flat compared with last year.\nHowever, gross margin was 66.7%, as compared to 67.5% last year.\nThe decrease of 80 basis points was driven primarily by higher resin cost of 200 basis points, partially offset by manufacturing efficiencies in the first half of the year.\nAdjusted EBITDA was $290 million or 18.1% of sales, relatively flat on a reported basis.\nExcluding the foreign exchange impact, EBITDA would have been lower due to the gross profit impacts I just spoke about.\nWe continue to improve SG&A, despite higher distribution and freight and incremental investments.\nAdjusted earnings per share was $3.25, as compared to $2.15 last year as reported.\nIn 2021, we had two favorable one-time items for the year: $0.15 related to a favorable ruling from the court in regard to a Brazil non-income tax matter; and $0.05 for a China grant, which are being partially offset by a deferred tax asset adjustment of $0.10 that we'll talk about in a minute.\nAdjusted for these one-time items and for tax items in both periods, adjusted earnings per share was $3.15 for 2021, compared to $3.33 for 2020.\nThe decrease was primarily driven by higher resin cost of $0.47; investments, $0.24; partially offset by $0.53 of favorable manufacturing efficiencies, tighter cost controls, and lower interest.\nThe operating tax rate was 21.9% versus 45.5% in 2020.\nAs we noted in prior calls, we made significant investments in 2021 to accelerate our tax strategies in an effort to achieve our goal of sub-30%, aligned with our peers and our global operating structure.\nNext, turning to performance for the quarter.\nOverall, the fourth quarter was heavily impacted by COVID lockdowns, especially in Asia and Europe.\nIt also had the highest resin cost for the year and a one-time tax adjustment that I'll discuss in more detail in a few minutes.\nFor the fourth quarter, net sales were $395 million, representing a decrease of 10% compared to last year.\nThe impact of omicron variant of the COVID-19 was significant in the quarter, with partial or countrywide lockdowns in various markets affecting our operations, particularly in Asia Pacific and Europe.\nExcluding the COVID impact, net sales would have decreased 2% in the quarter.\nAlso coming off a strong second half of 2020, we were facing tougher comps in Q4, particularly in the U.S., due to over $25 million of backlog from previous quarters being shipped in the fourth quarter of the prior year.\nOn a two-year stack, fourth-quarter revenue increased by 6%.\nQ4 was the strongest quarter for B2B loyalty program revenue, with $20 million of the full year $56 million and representing an increase of $15 million compared to the same quarter last year.\nTurning now to sales performance by region, including specific performance in our largest markets.\nFirst, in Asia Pacific, sales decreased by 10%.\nThe slowdown in China, which was down 14% in the quarter, was driven by COVID lockdowns related to resurgence challenges as well as studio closings and a slower pace of new openings, partially offset by the successful entry into small kitchen appliances in this market.\nWe also made an important leadership change and believe that we have the right person now in place.\nChina remains an important market for the Tupperware brand and holds significant potential for future growth.\nWe will continue to prioritize the revitalization of this important market, including through new product innovation, upgrading the look and feel of our physical studio locations and investments in digital and e-commerce platforms.\nExcluding China, the remainder of the Asia Pacific region was down 9% in the quarter, as we saw continued impact from lockdowns driven by the pandemic in Malaysia, Indonesia, and the Philippines, which significantly impacted sales efforts, particularly as digital adoption is low in many of these markets.\nWe think there is significant opportunity to improve performance within the region as we focus on increasing digital adoption.\nExcluding the impact of COVID, sales in the Asia Pacific region would have decreased by 2%.\nIn Europe, sales decreased by 7%.\nWhile sales were lower overall, $13 million of the $20 million B2B in the quarter was in this market at significantly higher profit margins.\nEuropean emerging markets were severely impacted by the lockdowns due to the omicron variant of COVID-19, as this market relies heavily on physical gatherings, resulting in lower recruitment and productivity.\nExcluding the impact of COVID, sales in Europe would have decreased by 3%.\nIn North America, sales decreased by 12% in the quarter, with the U.S. and Canada decreasing by 29%.\nThe decrease in the U.S. and Canada was driven by tougher comparables due to a large backlog shift in the fourth quarter of 2020 that did not reoccur in 2021.\nAdjusting for this, sales in the U.S. and Canada would have increased by 11%.\nSales in Mexico increased by 22% in the quarter, 5% from B2B, while the direct selling growth was driven by higher engagement and productivity due largely to the implementation of our proven direct selling methods, segmenting our sales force and sharing best practices as well as returning to in-person events during November and December as lockdowns were lifted in this market.\nWe believe the success in Mexico reflects our efforts, methods, and tools that we are also implementing in markets around the world to stabilize our direct selling business.\nIn South America, sales decreased by 10%.\nSales in Brazil were down by 21% driven by challenging economic conditions, including household debt levels and the expiration of the government stimulus in October, all of which contributed to lower levels of recruitment and productivity.\nDue to macro environment conditions and the upcoming October 2022 presidential and general election, we do expect this market to remain challenging for the next few quarters.\nMoving now to profit for the quarter.\nGross profit in the fourth quarter was $241 million or 61% of net sales, a decrease of approximately 740 basis points compared to last year, largely driven by inflationary pressures.\nOf the total, approximately 250 basis points was due to higher resin costs, with the balance being a mix of downtime and manufacturing inefficiencies due to lower volume and higher inventories, higher inventory reserves and market and product mix.\nIn the first half of the year, we were offsetting the resin impact through manufacturing efficiencies.\nHowever, as volumes began to decrease in the second half, we were no longer able to offset the impact and could not respond fast enough on pricing due to the nature of our catalog-based business.\nWe believe that inflationary pressures will persist throughout 2022, and we will look to raise prices to offset the dollar impact, being mindful of relative market dynamics.\nWe will also continue to look for opportunities to reduce cost and increase efficiencies where possible.\nFrom an inventory standpoint, we ended the year at a higher level than we had anticipated due to the softness in sales, and we will work to reduce that balance as we move through the first half of 2022.\nI should note that our ability to manufacture locally continues to be an advantage in the current supply chain environment, avoiding costly and time-consuming shipping delays.\nOur SG&A as a percentage of sales in the fourth quarter was 52.3% versus last year of 52.1%.\nIn the quarter, we made approximately $6 million of strategic investments, including information technology, new talent for products, sourcing, and business expansion to support future growth and the tax investments to achieve a sub-30s tax rate.\nAdjusted EBITDA for the fourth quarter was $47 million or 12% of sales, reflecting the higher resin cost and investments just discussed.\nOur fourth-quarter operating tax rate was 40% versus over 80% in the same quarter in 2020.\nDuring the fourth quarter of 2021, as part of a tax control design reassessment, we identified a deferred tax asset balance for stock compensation that included amounts associated with expired or forfeited awards and other amounts or awards with no expected tax deduction.\nThese were out of period and related to prior years that are recorded in the fourth quarter of 2021.\nWe also recorded a reserve related to transfer pricing in the quarter, which is also part of our comprehensive tax planning strategy.\nAs a reminder, the 2020 Q4 tax rate was impacted by the sale of the Orlando property and early retirement of debt.\nAs I stated earlier, on a full-year basis, our operating tax rate was 21.9%, so as you can see, we've made great progress toward our goal of sustainably lowering our tax rate and achieving our goal of sub-30s.\nIt's clear that our tax planning strategies are working.\nNow the earnings per share.\nAdjusted earnings per share was $0.38 in the quarter, compared to $0.22 last year.\nAdjusting both years for the tax impacts, adjusted earnings per share would have been $0.49 per share versus $0.89 per share in 2020.\nIn 2021, higher cost related to resin, manufacturing inefficiencies and higher inventory reserves resulted in a negative impact of $0.27, while lower profit on reduced sales was $0.12.\nTurning now to other notable financial matters for the year.\nOn a reported basis, for the full year, operating cash flow net of investing was $130 million, compared to $198 million last year.\nAs we previously discussed, cash flow benefited last year by aggressive cost savings actions, including pandemic-specific actions such as furloughs and significantly lower spending on inventory and higher payables in order to preserve cash.\nFor 2021, cash flow was impacted by investments we made in the inventory in an effort to improve service levels, given current global supply chain issues, while also reverting to a more normalized level of capital spending.\nMoving to the balance sheet.\nWe ended the quarter with a healthy cash balance of $267 million, which compares to $134 million last year, and we ended the quarter with a total debt balance of $712 million.\nAt year end, our consolidated net leverage ratio was 2.1 times, well below both historical levels and our required covenant of 3.75 times.\nWe mentioned on our last call that we would look to favorable market conditions to present opportunities to further improve our capital structure, and I'm pleased to report that we were able to do just that in the fourth quarter by refinancing our credit facility, reducing our cost of debt, improving liquidity and extending our maturities.\nOur new $880 million credit facility consists of a five-year $480 million revolving credit facility, a five-year U.S. dollar term loan of $200 million and a euro term loan of EUR 176 million.\nThe entire facility extends maturity out by two and a half years to 2026, increases liquidity by approximately $100 million through a higher level of revolver capacity and reduces the interest rate on our term loan by more than six percentage points.\nIn addition, the new facility resets our financial covenants to enhance operating flexibility, including capital allocation flexibility and leverage ratio calculation on a net basis, allowing for up to $100 million of cash to be applied toward debt balances.\nWe are also pleased to have the support of a new lead bank and banking syndicate, which is comprised of 10 banks and led by Wells Fargo.\nWe are also pleased and have made significant progress over the past 18 months in strengthening our balance sheet, refinancing our debt, investing in our business and selling our non-core assets.\nIn June of 2021, our board authorized a $250 million share repurchase program.\nAnd in the third quarter of 2021, we returned $25 million to our shareholders under this program through stock buybacks.\nThis $25 million was the maximum amount of share repurchase allowable under our prior credit facility covenants.\nUnder our new credit facility, we are no longer subject to the same restricted covenants as long as we remain below certain leverage thresholds.\nTherefore, as we continue to generate strong cash flow and given our confidence in our future growth trajectory, given the enhanced flexibility we now have to utilize this facility, we may opt to more aggressively support the stock at current levels, always being mindful to deploy capital as effectively and efficiently as possible.\nWhile we remain in a challenging operating environment and are only at the halfway point of our three-year turnaround, we feel we have sufficient visibility to provide a more tangible view into the coming year.\nGiven the uncertainty that COVID, inflationary pressures, volumes in response to pricing actions and a host of other variables, we will only be providing our view on profitability and cash flow for 2022 at this time.\nWe previously shared that at a quarterly run rate of $470 million of revenue and a tax rate of 28%, we believe we could sustainably deliver quarterly adjusted earnings per share of approximately $1 to $1.20.\nThat range was provided prior to the reclassification of our beauty businesses to discontinued operations.\nIf we adjust that range to reflect continuing operations only, we believe a reasonable quarterly range to be approximately $0.85 to $1, which assumes a tax rate in the mid- to upper 20s.\nAs we move into the expansion stage of our turnaround plan, which will require further investments and given the persisting uncertainty of the pandemic, we believe that for 2022, adjusted earnings per share will be approximately $0.65 to $0.80 per quarter, reflecting $0.05 to $0.20 per share per quarter lower than the normalized estimate.\nWe also believe that 2022 will be another tale of two halves, the trending opposite of 2021, with tougher comps in the first half exasperated by COVID and persistent cost pressures, followed by relatively easier comps in the second half.\nWe also expect our pricing actions to catch up with cost increases by the second half and for results to benefit from business expansion efforts that began to take root in the latter part of the year.\nTherefore, we expect the second half to be our stronger half for 2022.\nOur cash flow expectations follow a similar storyline.\nWe had originally shared that normalized annual free cash, which we define as operating cash flow net of investing cash flow, to be approximately $200 million.\nAdjusting for discontinued operations, that normalized number now moves to a range of roughly $140 million to $160 million on a continuing operations basis.\nFor 2022, we anticipate a similar range of between $125 million and $150 million given anticipated investments into the business for our turnaround plan.\nLastly, and as we alluded to last quarter, we look forward to conducting an in-person Investor Day this year.\nAnd given the current COVID trends, we've decided to push it to the second half of 2022, hoping to meet face to face and share many of exciting initiatives that are underway and designed to leverage our brand, expand our distribution and reach more consumers than ever before.\nWe'll also provide a more comprehensive view into the business, strategy, and tangible proof points of progress as well as a longer-term framework and outlook.\nLook for more details in the coming months.\nLooking back, throughout 2021, we continue to fortify our financial foundation, which enables us to strengthen our core business, while also increasing consumer access to our products by entering new sales channels and product categories.\nDespite a year of challenging and rapidly changing operating conditions, we held firm to our plan and executed on a number of important strategic initiatives that further strengthen our capital structure and position us well for future growth.\nWe refinanced our debt at very favorable terms, sold additional non-core assets, and announced the opening of a new global sourcing and supply chain center in Singapore.\nWe are entering the new year on solid footing, and we believe that our consistent execution will result in a stronger, more resilient, and durable business capable of delivering long-term sustainable growth and value.",
        "summary": "q4 adjusted non-gaap earnings per share $0.38 from continuing operations including items.\nas a result of its remediation efforts, material weaknesses were remediated as of december 25, 2021.\nimpact of the omicron variant of covid-19 on the company's financial results in the quarter was significant.\nas of december 25, 2021, co was in compliance with its financial covenants.\ncurrently exploring the sale of its nutrimetics and nuvo businesses.\nsees 2022 operating cash flow net of investing cash flow to be between $120 million and $160 million."
    },
    {
        "text": "Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today.\nOn the call today, we have Scott Donnelly, Textron's chairman and CEO; and Frank Connor, our chief financial officer.\nRevenues in the quarter were $2.9 billion, up from $2.8 billion in last year's first quarter.\nDuring this year's first quarter, we reported net income of $0.75 per share.\nAdjusted net income on a non-GAAP measure was $0.70 per share for the first quarter of 2021, compared to $0.35 per share in the first quarter of 2020.\nAdjusted net income for 2021 excludes $6 million of pre-tax special charges, $0.02 per share after tax related to the 2020 restructuring plan, and $15 million of pre-tax gain on the sale of TRU Canada, $0.07 per share after tax.\nSegment profit in the quarter was $256 million, up from $156 million in the first quarter of 2020.\nManufacturing cash flow before pension contributions totaled $71 million, up $501 million from last year's first quarter.\nOverall, the first quarter was a strong quarter for Textron.\nSegment margins were up 330 basis points in the quarter, driven by strong execution across all of our segments.\nAt Bell, revenues were up in the quarter on higher commercial revenues, partially offset by lower military revenues.\nOn the commercial side of Bell, we delivered 17 helicopters up from 15 in the last year's first quarter.\nWe saw solid order activity in the quarter across our commercial models, both domestically and internationally and across multiple end markets, including corporate, private, utility, and emergency medical services.\nOn future vertical lift, that was awarded a contract modification of $293 million for the second phase of the competitive demonstration and reduction program for FLRAA.\nAs we conclude final flight activity on the V-280, I think it's important to highlight the impressive performance milestones that the aircraft has demonstrated in over 215 flight hours over the past three-plus years.\nThis included 305 knots of demonstrated true airspeed, level 1 handling qualities, and autonomous flight.\nOn FLRAA, Bell is continuing with its build of the Invictus 360 prototype, where we are about a third of the way through the manufacturing process in anticipation of first flight in Q4 of next year.\nMoving to Textron Systems.\nRevenues were flat in the quarter while the business continued to execute well with improved operating margins.\nIn the quarter, Systems was awarded a contract to up to $607 million from the U.S. Army for the sustainment and modernization of existing shadow systems to the upgraded Block III configuration.\nAlso in the quarter, Systems successfully participated in the U.S. Army's Future Tactical Unmanned Aircraft Systems rodeo at Fort Benning and completed direct soldier flight demonstrations of our platform, the Aerosonde HQ.\nSystems is currently responding to the FTUAS RFI, which will help inform the next phase of that program.\nSystems also delivered the first RCV medium prototype to the Army customer as they look to test these vehicles and define requirements for the future of robotic combat vehicle programs.\nAt ATAC, we are continuing to ramp F1 flight hours at the operating sites related to the three awards of the U.S. Air Force CAPCAS program.\nAt the end of the quarter, we had 16 F1 aircraft certified for operation and deployed across our customer sites.\nIn Aviation, revenues were up -- I'm sorry, revenues were eventually flat in the quarter with slightly lower volume, reflecting lower aftermarket revenues, partially offset by higher pricing.\nWe delivered 28 jets, up from 23 last year and 14 commercial turboprops, down from 16 in last year's first quarter.\nOrder activity was strong in the quarter, resulting in backlog growth of $450 million to $2.1 billion at quarter-end.\nIn the quarter, we delivered our 1,560 XL-based Citation jet.\nThis milestone delivery is a testament to the value and performance of this platform, as well as Textron Aviation's commitment to the ongoing support of the fleet.\nWe also announced the new CJ4 Gen2 and delivered five aircraft in the quarter.\nThis model upgrade is another example of our continued investment in our existing portfolio of aircraft.\nOn the new product front, the Cessna SkyCourier aircraft certification program continues to progress well as we work toward entering to service targeted toward the second half of this year.\nRevenues were up from last year's first quarter, primarily driven by higher volume and price in our specialized vehicle product line.\nAt specialized vehicles, we continue to see strong retail demand across our customer end markets.\nAt Kautex, we saw our volume of fuel systems for hybrid electric vehicles more than double to about 9% of our total production volume in the quarter, the start-up of four new models.\nWhile the retail demand in industrial-owned markets has been improving, channel inventory remains below targeted levels as we work through supply shortages and disruptions, which we expect will improve throughout the course of the year.\nIn summary, it was a great start to the year.\nWe've seen improving customer demand in our end markets, increased commercial order flow at Aviation and Bell, and continued solid execution in our military businesses with strong cash generation in the quarter.\nLet's review how each of the segments contributed, starting with Textron Aviation.\nRevenues at Textron Aviation of $865 million were down $7 million from a year ago largely due to lower aftermarket volume, partially offset by higher pricing.\nSegment profit was $47 million in the first quarter, up from $3 million of profit last year primarily due to a favorable impact from performance and the mix of products sold.\nBacklog in the segment ended the quarter at $2.1 billion.\nRevenues were $846 million, up $23 million from last year on higher commercial revenues, partially offset by lower military revenues.\nSegment profit of $105 million was down $10 million primarily due to higher research and development in the quarter, largely related to future vertical lift programs.\nBacklog in the segment ended the quarter at $5.2 billion.\nAt Textron Systems, revenues were $328 million, flat with a year ago.\nSegment profit of $51 million was up $25 million due to a $27 million favorable impact from performance and other.\nBacklog in the segment ended the quarter at $2.4 billion.\nIndustrial revenues of $825 million were up $85 million from last year, primarily from higher volume and mix, as well as price at specialized vehicles and foreign exchange fluctuations.\nSegment profit was $47 million, up $38 million from the first quarter of 2020 primarily due to higher volume and mix, price, net of inflation, and favorable performance at specialized vehicles.\nFinance segment revenues were $15 million, and profit was $6 million.\nMoving below segment profit, corporate expenses were $40 million, and interest expense was $35 million.\nWith respect to our 2020 restructuring plan, we recorded pre-tax charges of $6 million on the special charges line.\nWe also completed the sale of TRU Canada in the quarter and realized a pre-tax gain of $15 million.\nCash performance in the quarter was strong with $71 million on manufacturing cash flow before pension contributions, a $501 million improvement over last year's first quarter as we continued our focus on inventory and working capital management.\nIn the quarter, we repurchased 1.8 million shares, returning $91 million in cash to shareholders.\nTo wrap up with guidance, we're raising our expected guidance of adjusted earnings per share to a range of $2.80 to $3 per share, up $0.10 from our prior outlook.\nWe're reiterating our outlook for manufacturing cash flow before pension contributions of $600 million to $700 million with planned pension contributions of $50 million.",
        "summary": "q1 adjusted non-gaap earnings per share $0.70.\nq1 earnings per share $0.75.\nfull-year adjusted earnings per share outlook raised by $0.10.\nnow expects 2021 earnings per share from continuing operations to be in a range of $2.76 to $3.00, or $2.80 to $3.00 on an adjusted basis.\nqtrly revenues at textron aviation of $865 million were down $7 million from q1 of 2020.\nbell backlog at end of q1 was $5.2 billion.\nqtrly bell revenues were $846 million, up $23 million from last year."
    },
    {
        "text": "Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today.\nOn the call today, we have Scott Donnelly, Textron's chairman and CEO, and Frank Connor, our chief financial officer.\nRevenues in the quarter were $3.3 billion, down from $3.7 billion in last year's fourth quarter.\nDuring this year's fourth quarter, we reported income from continuing operations of $0.93 per share.\nIn the quarter, we recorded $5 million in pre-tax special charges related to our 2020 restructuring plan or $0.01 per share after tax.\nExcluding these special charges, adjusted income from continuing operations, a non-GAAP measure, was $0.94 per share for the fourth quarter of 2021 compared to $1.06 per share in the fourth quarter of 2020.\nSegment profit in the quarter was $310 million, down $14 million from the fourth quarter of 2020.\nManufacturing cash flow before pension contributions totaled $298 million in the quarter.\nFor the full year, revenues were $12.4 billion, up $731 million from last year.\nAdjusted income from continuing operations was $3.30 per share compared to $2.07 per share in 2020.\nManufacturing cash flow before pension contributions was $1.1 billion, up from $596 million in 2020.\nOur business has closed out the year with another solid quarter.\nAt aviation, we continue to see favorable market conditions, including improved aircraft utilization, low preowned inventory levels and strong customer demand.\nOrder activity remained very strong with backlog growth of $655 million in the quarter and $2.5 billion for the full year, resulting in a $4.1 billion backlog at year-end.\nAs a result, we delivered aircraft on a more linear trend through the year, which improved manufacturing efficiency and cash flow generation.\nReflecting this improved operating environment and strong execution of our teams, aviation achieved a segment margin of 10.1% in the fourth quarter.\nFor the year, we delivered 167 jets, up from 132 last year and 125 commercial turboprops, up from 113 in 2020.\nAlso in the year, we saw sequentially higher aftermarket revenue on a quarterly basis driven by increased aircraft utilization.\nMoving to defense, aviation was awarded a $143 million contract for eight AT-6 aircraft, ground support equipment, spare parts and training from the Royal Thai Air Force.\nThis contract establishes Thailand as the international launch customer for the U.S. Air Force's latest light attack aircraft.\nOn the new product front, the Beechcraft Denali completed its first plate in November, launching the start of the flight test program.\nTotal revenues were down slightly in the quarter, largely on lower military revenues as expected, reflecting the continued wind down of the H-1 production program, partially offset by higher commercial revenues.\nIn December, Bell completed the first assault improvement modifications of an Air Force CV-22 Osprey.\nThis effort is part of an ongoing process to upgrade the Air Force Osprey fleet.\nOn the commercial side of Bell, we delivered 156 helicopters in 2021, up from 140 in 2020.\nWe also saw solid commercial order activity for the year, reflecting broad-based demand.\nMoving to Textron Systems.\nWe saw another strong quarter of execution that contributed to a full year margin of 14.8%, up 320 basis points from 2020.\nDuring the quarter, we delivered the fourth Ship-to-Shore Connector to the U.S. Navy after its successful completion of acceptance trials.\nOn the Shadow program, systems was awarded an $82 million logistics support contract for 2022.\nOn our common unmanned surface vessel platform, we completed file testing related to the unmanned influenced sweep system program, setting up potential for a production contract award in the first quarter of 2022.\nRevenues were lower in the quarter as we continue to experience supply chain challenges, including order disruptions in Kautex related to global auto OEM production schedules.\nAt Textron specialized vehicles, we continue to see a strong pricing environment and steady retail demand.\nDespite the ongoing supply chain challenges, both businesses saw sequential revenue improvements in the quarter.\nIn summary, there were many items to highlight in 2021 across our segments.\nIn aviation, strong order activity and customer demand throughout the year drove $2.5 billion of backlog growth.\nOn the new product front, we continued our product refresh strategy with the introduction of the Citation M2 XLS and CJ4 Gen2 aircraft.\nSky Courier completed the flight test program with 2,100 hours of flight test activity, and we expect FAA certification in the first half of 2022.\nAt Bell, we continued our work on the FVL programs.\nWe submitted the proposal for the FLRAA program in September, and the U.S. Army is expected to award the FLRAA program contract in 2022.\nOn FARA, we've made significant progress on the 360 Invictus prototype build with 75% of the effort complete at year-end.\nWe opened the Bell Manufacturing Technology Center, an innovative proving ground to test and refine technologies and processes across Bell's core production capabilities.\nTextron Systems, ATAC continued to grow its fleet of certified F1 aircraft in support of increased demand on U.S. Air Force, Navy, and Marine Corp tactical air programs.\nWe continued our innovation and development activities with the rollout of the Ripsaw M5 prototype vehicle for the U.S. Army and the Cottonmouth ARV for the Marine Corps.\nAt Textron specialized vehicles, we entered into a strategic collaboration with GM, which will assist our ground support equipment business and electrification of baggage tractors, cargo tractors and belt loaders for use in airports globally.\nWe also introduced the Liberty, the industry's first PTV to offer four forward-facing seats in a compact golf cart-sized platform powered by lithium-ion battery.\nAt Kautex in 2021, we were awarded eight contracts on new vehicle programs for our hybrid electric fuel systems.\nLooking to 2022 at aviation, we are projecting growth driven by increased deliveries across all product lines and higher aftermarket volume.\nAt Bell 2022 represents the beginning of a transitional period as we expect lower revenues related to military production programs while awaiting a downselect and award on the FLRAA program.\nAt systems, we're expecting flat revenue with growth on ship-to-store and tactical air programs, offset by lower fee-for-service volume.\nIn industrial, we're expecting revenue growth and margin improvement.\nWithin Kautex, we expect increasing volumes from improving OEM auto production.\nWhile specialized vehicles, we anticipate improving supply chain conditions and increasing volumes across our products.\nEarlier in 2021, we launched our eAviation initiative to leverage the resources and expertise across our aviation businesses to develop new opportunities in aircraft-utilizing electric propulsion systems.\nIn 2022, we plan to expand these efforts and increase our investment in developing technologies to accelerate the shift to sustainable flight, including eVTOL and fixed-wing aircraft.\nWith this backdrop, we're projecting revenues of about $13.3 billion for Textron's 2022 financial guidance.\nWe're projecting earnings per share in the range of $3.80 to $4 per share.\nManufacturing cash flow before pension contributions is expected to be in the range of $700 million to $800 million.\nLet's review how each of the segments contributed, starting with Textron aviation revenues at Textron aviation of $1.4 billion were down $201 million from a year ago, largely due to lower aircraft volume, partially offset by higher aftermarket volume.\nSegment profit was $137 million in the fourth quarter, up $29 million from last year's fourth quarter, largely due to favorable pricing net of inflation of $21 million and improved manufacturing performance.\nBacklog in the segment ended the quarter at $4.1 billion.\nRevenues were $858 million, down $13 million from last year, reflecting lower military revenues, partially offset by higher commercial revenues.\nSegment profit was $88 million -- of $88 million was down $22 million, primarily due to lower military volume and mix.\nBacklog in the segment ended the quarter at $3.9 billion.\nAt Textron Systems, revenues were $313 million, down $44 million from last year's fourth quarter due to lower volume, which included the impact from the U.S. Army's withdrawal from Afghanistan on the segment's fee-for-service contracts.\nSegment profit of $45 million was down $4 million from a year ago, largely due to the lower volume.\nBacklog in the segment ended the quarter at $2.1 billion.\nIndustrial revenues were $781 million, down $85 million from last year, reflecting lower volume and mix of $133 million, largely in the fuel systems and functional components product line, reflecting order disruptions related to the global auto OEM supply chain shortages, partially offset by a favorable impact of $50 million for pricing largely in the specialized vehicles product line.\nSegment profit of $38 million was down $17 million from the fourth quarter of 2020, primarily due to lower volume and mix, partially offset by favorable impact from performance.\nFinance segment revenues were $11 million, and profit was $2 million.\nMoving below segment profit, corporate expenses, and interest expense were each $29 million.\nOur manufacturing cash flow before pension contributions was $298 million in the quarter and $1.1 billion for the full year.\nIn the quarter, we repurchased approximately 4.5 million shares, returning $335 million in cash to shareholders.\nFor the full year, we repurchased approximately 13.5 million shares, returning $921 million of cash to shareholders.\nTurning now to our 2022 outlook.\nAt Textron aviation, we're expecting revenues of about $5.5 billion, reflecting higher deliveries across all our product lines and increased aftermarket volume.\nSegment margin is expected to be in the range of approximately 10% to 11%, reflecting higher volume, favorable pricing and increased operating leverage.\nLooking to Bell, we expect revenues of about $3 billion, reflecting lower military volume, primarily related to lower H-1 production.\nWe're forecasting a margin in the range of about 10% to 11%, largely due to the lower military volumes and continuing high levels of R&D investment.\nAt systems, we're estimating revenues of about $1.3 billion with a margin in the range of about 13.5% to 14.5%.\nAt industrial, we're expecting segment revenues of about $3.5 billion on higher volumes at Kautex and specialized vehicles.\nWe're estimating industrial margins to be in the range of about 5.5% to 6.5%.\nAt finance, we're forecasting segment profit of about $15 million.\nMoving to slide nine.\nOn a consolidated basis, we're expecting earnings per share to be in the range of $3.80 to $4 per share.\nWe're also expecting manufacturing cash flow before pension contributions to be about $700 million to $800 million, which includes an approximately $300 million impact from a change in the R&D tax law beginning in 2022.\nLooking to slide 10.\nWe're projecting about $150 million of corporate expense, which includes $30 million of investment in eAviation.\nWe're also projecting about $120 million of interest expense and a full year effective tax rate of approximately 18%.\nLooking to the other items and turning to slide 11.\nWe're estimating 2022 pension income to be about $120 million, up from $30 million last year.\nTurning to slide 12.\nR&D is expected to be about $585 million, down from $619 million last year.\nWe're estimating capex will be about $425 million, up from $375 million in 2021.\nOur outlook assumes an average share count of about 219 million shares in 2022.",
        "summary": "q4 adjusted non-gaap earnings per share $0.94 from continuing operations.\nq4 earnings per share $0.93 from continuing operations.\nsees fy earnings per share $3.80 to $4.00.\nsees 2022 revenues of approximately $13.3 billion, up from $12.4 billion.\nexpects full-year 2022 earnings per share will be in range of $3.80 to $4.00.\naviation backlog $4.1 billion at year-end, up $655 million in quarter and $2.5 billion full year.\nbell backlog at end of q4 was $3.9 billion."
    },
    {
        "text": "I'm Amir Rozwadowski, head of investor relations for AT&T.\nJoining me on the call today are John Stankey, our CEO, and Pascal Desroches, our CFO.\nBefore we begin, I need to call your attention to our safe harbor statement.\nResults may differ materially.\nAdditional information is available on the Investor Relations website.\nAnd as always, our earnings materials are on our website.\nIn addition, the FCC Spectrum Auction 110 results have been announced, but we're still in the quiet period, so we're limited in what we can say.\nI hope you're all doing well, and a belated happy new year to all of you.\n1.5 years ago, we began simplifying our business strategy to reposition AT&T for growth.\nAs you can imagine, this was a significant undertaking requiring us to not only focus our operational efforts toward growing customers, but also doing so in a manner that set us up for an improved profit trajectory in the coming years.\nSimultaneously, we took on the task of structuring our communications, video, and media businesses in a manner that ensures their future success with the right capital structures, access to capital, and most importantly, the ability to drive better returns in a manner consistent with their respective market opportunities.\nI'm pleased with the results our teams delivered last quarter, last year, and for the last six quarters while this repositioning was underway.\nWe finished last year with strong momentum in growing customer relationships, achieving outstanding yearly subscriber growth across Mobility, fiber, and HBO Max.\nIn Mobility, strong network performance and a consistent go-to-market strategy helped us lead the industry with about 3.2 million postpaid phone net adds.\nThat's more customers than we added in the prior 10 years combined.\nWe achieved this growth the right way with full year Mobility EBITDA up about $1 billion.\nIn fiber, we ended the year with a great build velocity, passing more than 2.6 million additional customer locations.\nWe added more than one million fiber subscribers for the fourth consecutive year, and full year broadband revenues were up 6.5% as we returned our Consumer Wireline business to revenue growth.\nWe also surpassed our high-end guidance for global HBO Max and HBO subscribers, adding 13.1 million subscribers in 2021, more than any year in HBO's history.\nHBO Max and HBO now reaches a base of 73.8 million subscribers globally.\nWarnerMedia is well positioned as a dynamic global business.\nIn addition to growing customer relationships, we also continue to make great progress in repositioning our operations to be more effective and efficient.\nWe achieved more than half of our $6 billion cost savings run rate target, which we've reinvested into operations supporting our growth.\nThis includes simplifying and enhancing our customer experience, which has resulted in higher customer self-service, lower customer churn and greatly improved mobility NPS and industry-leading fiber NPS.\nWe also continue to rationalize our low-margin Business Wireline services as we reinvest savings into segments that support improving returns.\nvideo assets in Vrio to our pending WarnerMedia transaction.\nTogether, these and other asset monetizations will generate more than $50 billion, and AT&T shareholders will own 71% of one of the world's foremost media companies in the new Warner Bros.\nWe also continue to generate meaningful levels of free cash flow, nearly $27 billion in 2021, a number we feel good about when looking at our business after the WarnerMedia transaction.\nSo to summarize, we did what we said we were going to do last year.\nI'm really proud of what our team has accomplished, and we're very pleased with the momentum we have.\nTurning the page to this year, we'll be consistent in focusing on these same three operational and business priorities.\nNow that our asset disposition initiatives are largely complete, I expect we'll take our execution to the next level.\nTo that end, we're encouraged with how the process for the WarnerMedia deal is progressing and now expect the transaction to close in the second quarter.\nGoing forward, we aim to be America's best broadband provider powered by 5G and fiber, and defined by greater ubiquity, reliability, capacity, and speed.\nWe're confident we can achieve that because in wireless, our focus will be continuing our subscriber momentum while increasing the pace of our 5G deployment.\nWe're confident in our ability to compete with 5G and our disciplined approach to selectively targeting and taking share in underpenetrated segments of the consumer and business marketplace.\nWhile we're still in the quiet period, I can share that we're very pleased with the results of Spectrum Auction 110.\nWe received 40 megahertz of quality mid-band spectrum that we can begin to put into service this year, and we plan to efficiently deploy it with our C-band spectrum using just one tower climb.\nWe're on track to cover 200 million POPs using mid-band spectrum by the end of 2023.\nAnd our network is only going to get better as we effectively deploy our new spectrum holdings.\nIn wired broadband, we have the fastest-growing fiber network and expect to capitalize on the expansion of our fiber footprint and accelerate subscriber growth.\nThe best-in-class experience we provide is getting even better with our multi-gig rollout, which brings the fastest Internet to AT&T fiber customers with symmetrical 2-gig and five-gig speed tiers.\nThis will truly differentiate how our customers experience the Internet.\nComing off an outstanding year with HBO Max, we plan to hand off the business with a strong exit velocity, and we look to further our international momentum and deliver more world-class content for viewers.\nWhen the deal closes, the investments made in both content and HBO Max growth, coupled with strong execution by the team, will ensure Warner Bros.\nDiscovery is positioned as a leading global media company with the depth of content and the capabilities required to lead in the next era of media.\nAs we expand our customer base, we'll continue to responsibly remove costs from the business.\nWe have a clear line of sight to achieving more than two-thirds of our $6 billion cost savings run rate target by the end of this year.\nAnd importantly, we expect the CD savings start to fall to our bottom line beginning in the back half of the year.\nOur increased ability to reinvest in our business will fuel growth and allow us to deliver an even better customer experience as we further improve NPS and sustain low churn levels.\nAs we expand our fiber reach, we'll be orienting our business portfolio to leverage this opportunity and stabilize our Business Wireline unit by growing connectivity with small to midsized businesses.\nWe also plan to use our strong fiber and wireless asset base, broad distribution and converged product offers to strengthen our overall market position.\nWe're now at the dawn of a new age of connectivity where customers want more consolidated and integrated offers, and we're well positioned to meet that demand.\nOur 5G network is already the best and most reliable.\nAnd it will be enhanced by our accelerated fiber expansion in 5G spectrum deployment, a great reputation for advanced and reliable networking and our expertise to bring it all together for the customer.\nWe remain laser-focused on reducing debt, and we'll strengthen our balance sheet by using proceeds from the WarnerMedia transaction to achieve a 2.5 times net debt to adjusted EBITDA by the end of 2023.\nWe also expect to remain a top dividend-paying company after deal close, with a dividend payout in the $8 billion to $9 billion range where anywhere in that range should rank us among the best dividend yields in corporate America.\nWe're now in the middle innings of our transformation, and the momentum we have is real and sustainable.\nWe're well positioned post deal close to have a capital structure and balance sheet that puts us in an attractive position relative to our peers.\nIn addition, we believe it provides us with the financial flexibility to invest significantly in our business and the flexibility to pursue additional shareholder value creation initiatives over time.\nWe look forward to giving you more detail at our virtual analyst event, which we expect to host in March.\nSlide 6 should look familiar.\nAs our pre-release earlier this month already indicated, we continue to deliver growth in postpaid phones, fiber, and HBO Max.\nJohn just highlighted our full year results.\nWe're really pleased with them and expect the momentum we've built in 2021 to carry over to 2022.\nLet's now take a look at our financial summary on Slide 7, starting with revenues.\nAdjusted EBITDA was down 8% for the quarter on a comparable basis.\nGrowth in mobility was more than offset by a decline at WarnerMedia from the increased HBO Max investment, the new DIRECTV advertising channel arrangements, and lower contribution from basic networks.\nOur consolidated operating income results continue to be impacted by certain retained costs from DIRECTV that are in the process of being rationalized.\nApart from WarnerMedia's contributions, our Communications segment EBITDA was up approximately 2% for the quarter.\nAdjusted earnings per share for the quarter was $0.78.\nIn addition to merger amortization, adjustments for the quarter were made to exclude our proportionate share of DIRECTV intangible amortization and a gain in our benefit plan.\nFor the year, earnings per share was up nearly 7% with strong organic growth in mobility, lower interest, lower benefit costs, and higher investment gains.\nWe exceeded our free cash flow guidance for the year.\nFor the quarter, cash from operations was $11.3 billion, spending increase year over year with capex of $3.8 billion and gross capital investments totaling $4.9 billion.\nFree cash flow for the quarter was $8.7 billion even with a year-over-year increase of $1.4 billion in capex.\nFor the full year, free cash flow was $26.8 billion despite an increase in capex of about $900 million and more than $4 billion in higher cash content costs.\nOur total dividend payout ratio was about 56%.\nThis included cash distributions from DIRECTV of $1.9 billion.\nLet's now look at our segment operating results, starting with our Communication business on Slide 8.\nFor the second consecutive quarter, our Communications segment grew both revenues and EBITDA.\nA big part of that growth was driven by our increasing strength in mobility, which turned in another solid quarter.\nService revenues were up 4.6% for the quarter and 3.7% for the year driven by postpaid and prepaid subscriber gains.\nPostpaid phone churn continues to run at low levels and in fact, hit a record low for the full year.\nOur strong subscriber momentum continues with industry-leading postpaid phone growth.\nPrepaid also continues to deliver impressive results with phone churn less than 3% and revenues up mid-single digits.\nCricket momentum continues with strong ad and phone churn substantially lower than 3%.\nMobility EBITDA was up more than $300 million, driven by growth in service revenues and transformation savings.\nThis growth comes without a material return to international roaming and with 3G shutdown costs of about $130 million during the quarter.\nWe remain on track to successfully shut down our 3G network next month and expect 3G shutdown impacts to peak in the first quarter of 2022 at about $250 million.\nIn addition, we expect another $100 million of expense in the first quarter associated with investment in our FirstNet operations and the completion of support funding for the CAF II program.\nBusiness Wireline EBITDA margins continue to be stable as we rationalize our portfolio of low-margin products.\nThis rationalization process will continue in 2022.\nAnd as we lap the beginning of this process, we should see improving revenue trends in Business Wireline in the latter part of 2022.\nWe believe we're really well positioned in the enterprise space.\nAnd there is an interesting dynamic as public and private networking stock.\nWe have the account management infrastructure, the consulting expertise and the capabilities to support those businesses through that evolution as converged wireline and wireless solutions become the norm.\nAt the same time, we're energized by the opportunities that our fiber expansion creates in the small to midsized business segment, and we plan to be more active there going forward.\nTurning to Consumer Wireline.\nOur fiber customer growth and fiber network expansion continues.\nAnd we continue to win share wherever we have fiber.\nWe added 271,000 fiber customers even in a traditionally slow fourth quarter.\nAnd our fiber network continues to get even better with our new multi-gig speeds for AT&T fiber.\nDriven by our strength in fiber, total Consumer Wireline revenues were up for the third consecutive quarter.\nWe had sequential EBITDA growth in the fourth quarter.\nSegment EBITDA did decline year over year due to a onetime pandemic-related benefit in last year's fourth quarter and higher network costs, including storms in the quarter.\nLet's move to WarnerMedia's results, which are on Slide 9.\nWarnerMedia revenues were up 15.4%, led by strong content licensing and D2C growth.\nD2C subscription revenues grew 11%, reflecting continued success of HBO Max, partially offset by lower wholesale revenues related to the termination of our arrangement with Amazon at the end of the third quarter.\nContent and other revenues were up 45%, reflecting higher TV licensing and theatrical releases.\nAdvertising revenues were down about 13% primarily due to lower audiences with tough comparison to the political environment in last year's fourth quarter.\nCosts were up year over year due to a significant increase in programming and marketing, including the international launch costs for HBO Max.\nIncremental HBO Max investments for the quarter was approximately $500 million.\nThe fourth quarter also included the impact of about $380 million in DIRECTV advertising revenue sharing cost.\nWe also launched some incredible content in the fourth quarter, including the premiere of the hit series And Just Like That and the third season of Succession.\nWith the production team operating close to full throttle, we expect peak content investment in 2022 with an even stronger release schedule, including Batman, Winning Time: The Rise of Lakers Dynasty and the highly anticipated Game of Thrones prequel House of the Dragon.\nNow let's look at our 2022 guidance on Slide 11.\nWhat we're showing you today is a full year view of our consolidated revenue outlook excluding DIRECTV and Vrio from both periods.\nOur outlook does include a full year of expected results for WarnerMedia and Xandr.\nWe also included our full year expectation for WarnerMedia's stand-alone contribution to help you model post close.\nWe now expect the WarnerMedia Discovery transaction to close in the second quarter.\nGiven this, we plan to update guidance for Remainco at our upcoming virtual analyst event in March.\nUntil then, let me walk you through our expectations for the year.\nFirst, we expect consolidated revenue growth in the low single-digit range with wireless service revenue growth of about 3% plus for the full year.\nMobility EBITDA is expected to grow low single digits plus over the course of the year as we continue to take disciplined share of subscribers with attractive long-term value.\nAs noted earlier, several onetime related impacts such as peaking 3G network shutdown costs are expected to impact year-over-year EBITDA trends in the first quarter.\nConsumer Wireline revenues and EBITDA are expected to grow on improving fiber subscriber trends.\nHowever, we expect front-end loaded investments to impact first quarter year-over-year EBITDA trends as we ramp up promotional efforts around our new multi-gig offering.\nAs noted earlier, we expect year-over-year comparison pressures to ease in our Business Wireline segment through the course of the year.\nHowever, we expect product rationalization to peak in the first quarter, resulting in more pronounced margin pressures in the first part of the year before recovering in the back half of the year.\nConsolidated adjusted earnings per share is expected to be in the $3.10 to $3.15 range.\nThis guidance reflects WarnerMedia's declining contributions due to anticipated investment initiatives, a 200 basis point increase in our effective tax rate and no anticipated investment gains.\nWe also expect adjusted equity income contributions from DIRECTV to be about $3 billion for the year.\nLook for more details on our earnings outlook during our upcoming virtual analyst event.\nGross capital investment is expected to be in the $24 billion range and capital expenditures in the $20 billion range.\nFree cash flow is expected to be in the $23 billion range.\nThat includes expected DIRECTV cash distribution of approximately $4 billion and $2 billion in higher expected cash taxes in 2022, reflecting the expiration of the immediate expensing of R&D and lower limitations on interest expense deductions starting this year.\nWe expect WarnerMedia's full year contributions when including Xandr to be revenues in the $37 billion to $39 billion range, EBITDA in the $6 billion to $7 billion range, and free cash flow contribution of approximately $3 billion as we expect 2022 to be the peak investment year for HBO Max.\nWe're now ready for the Q&A.\nOperator, we're ready to take the first question.",
        "summary": "at&t - qtrly earnings per share $0.69; qtrly adjusted earnings per share $0.78; qtrly consolidated revenue $41 billion versus $45.7 billion.\nat&t - qtrly mobility service revenues $21.1 billion, up 5.1%; qtrly warnermedia total revenue $9.9 billion, up 15.4%.\nat&t - at quarter-end, there were 73.8 million global hbo max and hbo subscribers; qtrly domestic subscriber arpu was $11.15.\nat&t - qtrly results that showed continuing customer growth in wireless, fiber and hbo max.\nat&t - 271,000 at&t fiber net adds in quarter for consumer wireline.\nat&t - expects to close in warnermedia transaction in second quarter.\nat&t - for 2022, including warnermedia and xandr, co sees consolidated revenue growth in the low-single digits range.\nat&t - for 2022, including warnermedia and xandr, co sees adjusted earnings per share from $3.10 to $3.15.\nat&t - for 2022, including warnermedia and xandr, co sees gross capital investment in the $24 billion range.\nat&t - for 2022, including warnermedia and xandr, co sees free cash flow in $23 billion range.\nat&t - for 2022, co sees revenue contribution for warnermedia and xandr to be in $37 billion to $39 billion range."
    },
    {
        "text": "So the first quarter results were very good, looking at it from both year-ago comparisons and then to go back to two years ago comparison, pre-COVID.\nRevenues were up 39% and versus two years ago, they were up 9%, so the pre-COVID timeframe.\nEBITDA grew 119% versus year ago this quarter -- this year and then up 62% versus two years ago, so both give us a strong start for fiscal 2022.\nIn fact, it gives us confidence to firm up our full year guidance and increase it modestly even after considering the impact of some of these micro -- macro headwinds that we're looking at right now such as labor, raw material increases and supply chain challenges.\nSo Craig and Eddie will take you through those details in the next few minutes, but here are four trends that we're seeing coming out of the first quarter.\nThe first one is the diversity of our geographic portfolio, it is a strong positive for us, so this quarter, Brazil and Asia had a very strong Q1.\nNorth America came in right above what we forecasted, but they could have done better.\nThe labor shortages in the U.S. kept us from producing to demand, and we expect that that headwinds probably going to persist through quarter two.\nAnd then in the second half of the year, we expect to see some improvement in that trend.\nThen, I think you can expect North America to start contributing more to our growth.\nThe second trend coming out of the first quarter was REPREVE sales growth continues to build.\nSo you look at REPREVE sales versus year ago first quarter was up 39% and then from two years ago, pre-COVID, it was up 27%.\nI think, customers right now are continuing to step up their commitment to recycled materials in apparel and footwear and auto and we've had numerous positive customer wins over the last quarter.\nThe third trend is productivity and the investment in EvoCooler technology and our operation will provide strong long-term productivity and we will begin seeing a little bit of that in the fourth quarter of this fiscal year.\nThe production on the current small scale that we rolled out is meeting our expectations in terms of efficiency and output.\nAnd the fourth trend is labor and labor in the U.S. is a challenge right now.\nOur manufacturing and HR teams have been working on the obvious fixes such as labor rate and benefits to make sure that we remain competitive in the marketplace.\nHowever, they have discussed -- they discovered several longer term solutions by conducting front line employee round tables in our plants.\nWe've asked our employees what can we do to make their jobs more fulfilling and to keep them with us for a longer time and they've come up with several very interesting improvements that are pragmatic and they're being implemented, everything from the quality of training and the amount of training to changing the way that the work gets done.\nWe sometimes forget, I think that the employees that are closest to the action can solve problems probably better than anyone else in the company.\nSo, we'll share more of this with you in the upcoming quarters.\nSo all-in-all, a good start to the fiscal year.\nThere is still a great deal of work to do, but we're optimistic about the outlook.\nAs Al mentioned, our first quarter fiscal 2022 results surpassed our initial expectations and the strong results reflect the flexibility of our global business model, our strong presence in each region and the hard work and dedication of each and every one of our employees who as we like to say at Unifi are working today for the good of tomorrow.\nWe continue to be grateful for the daily contributions our employees make to our company and to our customers.\nTheir commitment to Unifi has allowed us to continue operating a strong business, while navigating the recovery.\nOn Slide 3, we provide an overview of the quarter and as Al said, we are executing very well, driving growth and proving out how resilient our business model has become.\nQ1 revenues were up 6% sequentially, slightly ahead of our expectations and up 39% on a year-over-year basis.\nAlongside our focus on meeting customers' expectations, the growing demand for our core products and product lines in each region contributed to the increased revenues, which of course naturally translated into significant year-over-year profit growth.\nDespite Q1 exceeding our initial expectations, we had to navigate several cost headwinds and input constraints.\nHiccups in the supply chain from global logistics stoppages and domestic labor shortages placed even more pressure on each business segments.\nDespite of these difficulties, our teams' quick actions ensured no meaningful disruptions to our lines of business.\nI'll break down our execution as well as some of the challenges we faced during Q1 by region.\nIn Brazil, the volatility remains post the regional shutdowns that impacted our business in April and May period.\nIn fiscal Q1, the volatility in the market was driven by the rising freight costs from China, the uncertainty in the exchange rate and the rising cost of textured yarn and Asia, all of which has increased the local market price for textured yarn.\nThe situation has been compounded by inflation concerns, which are increasing at a pace not seen in several years.\nEarly indications are this may have some impact on demand.\nHowever, this may actually result in customers consuming more locally produced yarns, which would help us gain market share.\nThis is something that will remain on our radar as we move through the rest of the fiscal year and we will keep you updated on this.\nDespite all of this, as you can see we had another excellent quarter in Brazil.\nIn the U.S. and Central America during the quarter, we continue the process of catching up with raw material and other cost increases through proactive selling price adjustments.\nWe have additional work to do in this area as we can already see that polyester and nylon raw material prices are rising as a result of the recent increase in crude oil prices.\nWhile this is a very painful process, it is something our customers are facing too and like us, they are having to pass on their input cost increases to their customers.\nIn the U.S. specifically, like many other businesses also faced labor challenges.\nWe see this as an opportunity to become a better employer and are allocating more resources into training and retention.\nFortunately, the elimination of the federal subsidy at the beginning of September has once again brought more people into the workforce, and we are taking advantage of that.\nIt should be noted that the impacts of COVID are still being felt primarily in our manufacturing plants, resulting in us having to quarantine a number of employees.\nUnfortunately, we have also lost a few of our employees to the virus, and our thoughts go out to their families and friends.\nLastly, we have experienced a few delays in the supply -- extended the lead times of certain products, but nothing that is truly disruptive to business.\nAnd in Asia, we experienced a very positive start to the quarter with continued sales increases in our REPREVE brand and other value-added products.\nAs you are aware, there are some concerns at the Chinese central government label around the energy consumption and air pollution levels and this placed some pressure on the business at the very end of the quarter.\nWe are seeing minor caution from customers and suppliers who are battling COVID lockdowns and energy cuts.\nThis situation remains volatile and introduces some uncertainty for the short term.\nWe do expect to overcome these challenges in the next few months as the demand is usually strong leading up to the Lunar New Year, which this year is at the very beginning of February.\nAscending back to the consolidated business.\nIt's great to see the progress we have made toward our fiscal 2022 and longer term goals in the face of these multiple headwinds.\nWe remain committed to maintaining a solid financial position and our current balance sheet provides a strong backbone for us to execute on growth-focused capital allocation priorities.\nBeyond the financials, we continue to observe a growing number of customers shifting their commitments to making products using recycled material.\nDuring the first quarter, we shipped more than 23 million hang tags to brand customers.\nYou will note that on Slide 4, products made with REPREVE fiber comprised 37% net sales, consolidated net sales increasing from 36% in the first quarter of fiscal 2021.\nThis growth is regional and is primarily in our Asia, U.S. and Central American revenues.\nOur REPREVE momentum into new textile sectors and multiple brand adoptions across Europe has been very strong.\nLast month TenCate protective fabrics, a traditional workwear and industrial textiles company from the Netherlands began marketing, it's Tecapro line of workwear using inhibits taking -- REPREVE inhibit taking REPREVE further beyond traditional fashion textiles and into protective wear.\nThis is the first time our multi-functional REPREVE inhibit value-added combination is being used in flame retardant workwear to add in a sustainable twist to a highly durable products.\nTenCate chose REPREVE inhibit for quality, reliability, reputation, traceability and transparency and we've been excited to help them tell the sustainable and flame retardant story through a variety of co-marketing mediums.\nREPREVE's strength in the Turkish market continues, with a new line of denim by Mavi jeans.\nMavi jeans launched a nationwide TV commercial that showcases their adoption of recycled polyester in the new line of jeans.\nOther recent adoptions by European brands include French brands Jules and the German brands Marc O'Polo, Duke and Street One owned by CBR Fashion Group.\nOne of Inditex' brands Massimo Dutti has continue to roll out products using REPREVE RO.\nIn the U.S., we continued to see strong co-marketing in the menswear segment.\nHaggar has launched a new line of suit separates in a variety of fits under the name Smart Wash REPREVE suits.\nAnd I know from talking to employees and having direct conversations with them, it's a proud moment when they walk into are Kohl's or JCPenneys or go online and see this iconic U.S. brand shout out their sustainability story, which is based on REPREVE.\nGoing outside of the apparel market, our placements in the global homes good sector continues, with a new launch of several CD mattresses in Canada that feature REPREVE.\nNow turning to our operating segment performance during the first quarter.\nI'll provide some high level comments before Craig walks you through more specific details.\nStrength in our polyester and nylon segments persisted in the first quarter and benefited from strong sales momentum with robust customer demand.\nOur commercial and manufacturing teams have done a tremendous job navigating the headwinds I mentioned previously and we remain optimistic about the sales mix and pricing dynamics going forward for this segment.\nThe Asia segment demonstrated another strong quarter and volumes increased due to pull through on new and existing customer programs.\nShutdowns and uncertainty in Vietnam and Southeast Asia have not impacted us perhaps as much as other companies since it's a smaller part of that business.\nWhile we do anticipate some soft spots in China based on new temporary shutdown mandates related to managing energy level there, businesses are still running and the demand for sustainable yarns has never been higher.\nI'm confident that the teams' continued focus on meeting the ever-increasing sustainability and value-added demands of their customers will help us weather these challenges.\nAs mentioned by the financial performance, the Brazilian team has continued to do an exceptional job.\nDuring the first quarter, the strong price mix performance increased sales over 50% from the year ago quarter, driving more than 100% increase in gross profit dollars.\nLooking forward, we continue to anticipate a degree of moderation in profit from this region with the full year gross margin settling just below 20%.\nLast week, the U.S. Department of Commerce announced its final determinations that imports of polyester textured yarn from Indonesia, Malaysia, Thailand and Vietnam are being unfairly sold below their fair value in the U.S. The financing dumping duty deposit rates range from 2% to 56% and are currently in effect.\nThe next step in these trade cases will be the U.S. International Trade Commission's final determination, which is scheduled for November 30th.\nWith that, I would call the -- call over to Craig.\nThe remainder of our financial statement metrics were generally consistent with our expectations as it relates to overall SG&A spending, our effective tax rate and the amount outlaid for capital expenditures and working capital associated with our investments in the business and our strong sales performance.\nConsolidated net sales increased 38.5% from $141.5 million to $196 million, primarily due to business recovery we have seen over the last five quarters of sequential sales growth.\nFor the Polyester segment, the single-digit volume change was muted partially by the labor pool challenges Al and Eddie mentioned earlier.\nThe price and mix change demonstrates the selling price adjustments that have been made over the last several months in response to rising input costs although we have not fully normalized the portfolio for today's cost levels.\nIn Asia, the sales volume growth again demonstrates new and existing customer programs that continue to be successful on the REPREVE platform, while higher pricing associated with raw material costs was offset by a greater mix of lower priced products.\nIn Brazil, momentum surrounding higher pricing and market share continued to benefit revenues, as pricing was up over 50%, driving a significant change in quarterly revenues for that segment.\nAnd nylon exhibited stability with much higher sales and production volumes to start off fiscal 2022.\nTurning to Slide 6.\nPolyester demonstrated significant gross profit and margin improvement, despite labor inefficiency challenges in the current environment and some pricing lags.\nThe gross margin increase of 260 basis points is very commendable under today's circumstances.\nThe Asia segment's volume growth led to a $2.4 million improvement in gross profit as that segment continues its strong year-over-year growth trajectory and remains a significant component of the global commercial model.\nIn Brazil, our agility against competition and commitment to deliver high value to the market allowed us to maintain strong pricing levels and market share, double gross profit and driving margin improvement of 910 basis points.\nLastly from a segment performance perspective on slide 7 and 8, we've included a two-year GAAP comparison for enhanced understanding of this just completed quarter's performance.\nSlide 7 shows the consolidated sales increase of 8.9% from the same quarter two years prior lifted by a healthy combination of volume, pricing and mix across our segments.\nSlide 8 provides a gross profit overview for the two-year comparison.\nShown here, the Polyester segment exhibited strength against the previously discussed headwinds.\nThe Asia segment exhibited a 430 basis point increase in gross margin with recent mix and efficiency gains and the Brazil's segment exceptional performance is highlighted with the comparable doubling of gross profit.\nAgain, we are pleased with the progress made across our portfolio over the last several quarters.\nMoving on to Slide 9, which provides a brief update on our balance sheet and capital allocation priorities.\nWe continued to have zero borrowings on our ABL revolver, which had an availability of $74 million as of September 26, 2021.\nUnder our balanced approach to capital allocation, we expect to continue to invest in the business to drive innovation and organic growth, maintain a strong balance sheet and remain opportunistic with share repurchases and M&A opportunities.\nBefore I pass the call back to Eddie, I'm pleased to announce that Unifi will be hosting an Investor Day event in February 2022.\nThe event will be hosted by our leadership team at our manufacturing facilities in North Carolina.\nWe believe it's important for our investors to explore our world-class facilities first hand.\nMore details will be released on this event in the near future.\nHowever, doing so will mean continuing to remain nimble as we navigate the numerous market dynamics.\nThese include inflationary pressures, particularly related to the cost of recycled inputs, energy shortages in Asia that have resulted in temporary slowdowns for several of our customers and suppliers, uncertainty related to the continued impact of the pandemic and ongoing labor pool constraints in the U.S. Again, our team has done a tremendous job navigating all these headwinds and I believe they will continue to do so.\nWe will keep a close eye on all of these issues as we progress through each quarter.\nLooking forward, we are excited by recent trends in our REPREVE and other value-added products.\nOur expectations remain positive on these developments and will continue to be driven by our innovation and commercial teams and we anticipate them to grow long term.\nOur strong performance during the first quarter reflects our regional focus, global commercial model, innovation pipeline and the upside potential each has even when stressed with challenges in the broader market.\nFor the second quarter that ends in December 2021, we expect net sales to range between $185 million and $190 million and after consideration for seasonally higher SG&A level, some normalization of Brazil segment profitability and recent increase in oil prices, we expect to achieve an adjusted EBITDA between $14 million and $15 million.\nFor the full year fiscal 2022, we expect sales to surpass $750 million, representing a 12% or more increase from fiscal 2021's revenues.\nWe expect adjusted EBITDA to grow from the fiscal 2021 level in a range between $65 million and $67 million and our effective tax rate guidance remains in the range of 35% and 40%, while our capital expenditures will range between $40 million and $44 million.\nWe will continue to focus on partnering with global brands and retail leaders who want to position themselves using sustainable products.\nAs stated on previous calls, we believe the importance and demand for sustainability will only grow and consumer behavior attest to that.\nWe remain dedicated to innovating and repositioning the business to drive long-term organic growth.",
        "summary": "q1 sales $196 million.\nsees q2 sales $185 million to $190 million.\nsees sales volume and repreve fiber sales growth driving fiscal 2022 net sales to $750 million or more."
    },
    {
        "text": "We'd like to highlight just a couple of developments and business trends before opening the call up to questions.\nOn a combined basis, these items had a net favorable impact on after-tax earnings of approximately $30 million during the second quarter of 2021.\nEven if one chooses to ignore the favorable impact entirely, our earnings during the quarter still exceeded our internal forecast by a wide margin.\nFor most of the second quarter, we experienced a continued decline in the number of COVID-19 patients being treated in our hospitals and a corresponding recovery in the number of non-COVID patients.\nAs a result, most of our key volume metrics, including acute and behavioral patient days, emergency room visits and surgical cases grew to levels approaching those that we were tracking before the pandemic began.\nThis robust recovery in volumes exceeded the pace of our original forecast and drove the favorable operating results even in the face of continuing labor pressures in both of our business segments.\nOur cash generated from operating activities was $119 million during the second quarter of 2021 as compared to $1.45 billion during the same period in 2020.\nThe decline in cash provided by operating activities was driven by the previously announced early repayment of $695 million of Medicare accelerated payments, which were received by us during 2020 and repaid to the government during the first quarter of 2021.\nWe spent $482 million on capital expenditures during the first six months of 2021.\nAt June 30, 2021, our ratio of debt to total capitalization declined to 35.7% as compared to 38.3% at June 30, 2020.\nAs previously announced, we resumed our share repurchase program in the second quarter of 2021 after suspending it in April 2020 as the COVID volume surged for the first time.\nDuring the second quarter of 2021, we repurchased approximately 2.21 million shares at an aggregate cost of $350 million.\nAnd yesterday, our Board of Directors authorized a $1.0 billion increase to our stock repurchase program, leaving $1.2 billion remaining authorization.\nWe were extremely pleased with our second quarter 2021 operating results, which we noted were well ahead of our internal forecast.\nAs a consequence, we also raised our full year earnings guidance, including an approximately 6% to 8% increase in our full year forecasted adjusted EBITDA.\nI would note that during the past four to six weeks, many of our hospitals have experienced significant surges in the number of COVID patients, and it is not evident that this surge has yet reached its peak.\nGiven the uncertain impact of this most recent surge on non-COVID volumes and on labor shortages, we based our guidance for the second half of the year, primarily on our original internal forecast.",
        "summary": "universal health services increases 2021 fy earnings guidance."
    },
    {
        "text": "Our SEC filings can be found in the Investors section of our website at unum.com.\nNet income for the second quarter of 2021 included the after-tax cost related to the early retirement of debt of $53.2 million or $0.26 per diluted common share.\nThe after-tax amortization of the cost of reinsurance of $15.5 million or $0.08 per diluted common share, an after-tax impairment loss on the right-of-use asset related to one of our operating leases for office space we are no longer using to support our general operations of $11 million or $0.05 per diluted common share, a net after-tax realized investment gain on the company's investment portfolio of $600,000 or $0.01 per diluted common share and a net tax expense related to a U.K. tax rate increase of $24.2 million or $0.12 per diluted common share.\nNet income in the second quarter of 2020 included an after-tax impairment loss on the right-of-use asset of $10 million or $0.05 per diluted common share and a net after-tax realized investment gain of $25.4 million or $0.12 per diluted common share.\nSo excluding these items, after-tax adjusted operating income in the second quarter of 2021 was $286.2 million or $1.39 per diluted common share compared to $250.1 million or $1.23 per diluted common share in the year ago quarter.\nI am very pleased with our second quarter results.\nWe showed a 13% increase year-over-year in after-tax adjusted operating income to $1.39 per share.\nThese improved results were driven in large part by the significant decline in COVID-related mortality this quarter and by excellent performance in our investment portfolio.\nGiven our strong second quarter results, we are raising our outlook for full year 2021 growth in after-tax adjusted operating income per share to a decline of approximately 1% to 3% compared to our previous outlook of a decline of 5% to 6%.\nWe believe we're making good progress to returning to our pre-pandemic levels of profitability and margins over the coming quarters with the trajectory of that improvement dependent on the developing trends in COVID and the Delta variant.\nEmbedded in our expectations is that COVID mortality will improve but only slightly in the third and fourth quarters.\nIn many ways, results for this quarter played out in line with our expectations, with declining mortality impacts, solid underlying premium trends and further strengthening of our healthy capital position.\nThis quarter was also highlighted with some areas of positive upside relative to our expectations.\nMost notably, we saw continued excellent returns from our alternative investment portfolio, which is benefiting from the strong financial markets and growth in the economy.\nWe also saw a record level of quarterly operating income for Colonial Life along with an impressive recovery in sales.\nAnd rounding it out, we had favorable underlying benefits experience from our Closed Block business lines, both long-term care and the Closed Disability Block.\nIn addition to the positive trends we saw this quarter, I am pleased that our indicators continue to support our expectation of generating slightly positive growth in premium income in our core business segments this year with further improvement expected into 2022.\nSales trends are emerging in line with our expectations at our primary business lines within Unum US.\nAnd Colonial Life showed very strong results this quarter with over a 50% increase from the year ago quarter, a good indicator of consumer interest in the basic financial protection products we offer.\nIt also highlights that the agency model of Colonial Life is quite resilient as we saw some of the most pronounced headwinds in the early stages of the pandemic.\nIn addition to sales trends, we remain very encouraged with the strong levels of persistency we're seeing across the majority of our business, which provide a solid base to grow.\nFinally, we're seeing a pickup in natural growth primarily from higher wages in many sectors of the economy as we continue to build back premium income that was impacted by the sharp spike in unemployment in the first half of 2020.\nThe environment we are seeing today is quite good for our core business.\nWe often talk about wage inflation, but you have to add to the mix there is renewed recognition for the need to prepare for the unexpected.\nAnd in a competitive world for talent, employers are looking to ensure that they have competitive benefits package for their current and prospective employees.\nTurning to our capital position at quarter end.\nIt remained very healthy as well, with holding company cash of $1.7 billion and weighted average risk-based capital for our traditional U.S. insurance companies at 375%.\nBoth of these measures are in excess of our targets and provide substantial flexibility for us going forward.\nAdditionally, this quarter, we successfully completed a 30-year debt issue and redeemed a shorter high-coupon maturity, enabling us to further extend our debt stack while reducing the overall coupon.\nLeverage remains approximately 28% -- 26% and provides further capital flexibility for us.\nThis strong capital position creates options for us as we look to create value for our shareholders.\nOur deployment strategy will first focus on continuing to invest in the growth of our core business segments, both organically and through capability-driven acquisitions.\nWe like our position in the employee benefits market, and putting money to work to grow our core franchise is where we are focused.\nWe also expect to be consistent in returning capital to shareholders through dividends, which will increase by 5.3% with the dividend to be paid this month.\nWe do have funds in excess of these needs, so as we look to the future, we are constantly evaluating how to best deploy or hold on to this capital.\nA key question is how we can use these funds to lessen the challenge to our current share price from the overhang of our legacy LTC block.\nOur goal is to help reduce the LTC discount in our stock.\nAnd in the future, this funding would be utilized in any risk transfer transaction that we explore on a portion of this block should that become an option for us.\nWhile we are clearly optimistic looking forward, we do see areas of our business that continue to be impacted by the pandemic.\nResults in our short-term disability line and leave services continue to be impacted by COVID-related claims, which remains stubbornly high.\nThe group life and AD&D business within Unum U.S. returned to profitability in the second quarter after recording losses in the previous two quarters as COVID-related mortality in the U.S. declined materially from the peak levels experienced late last year through the early months of 2021.\nWhat we are watching now is that the Delta variant is impacting a younger, unvaccinated population that has different dynamics from what we have seen to date from COVID-19.\nRecently updated estimates for COVID-related mortality for the third quarter and second half of 2021 are pointing to persistently high counts and only a marginal improvement relative to the second quarter.\nWe continue to watch these trends closely and are reflecting them in our own plans.\nThere is room for optimism, though, as we have started to see employers looking at the role that they might play in getting more of the population vaccinated.\nAs we look at growth in our enterprise, the steps we're taking -- we've taken to run our business more efficiently have freed up funds that we're reinvesting in new products and capabilities that tackle some of today's critical business workplace challenges.\nDuring the quarter, we launched our new Total Leave and behavioral health solutions, and we've logged our first sales for both offerings.\nOn the digital front, platforms like My Unum and Colonial Life's improved portal are steadily providing more self-service, real-time capabilities for clients and customers.\nAnd new technology we're testing will enhance the digital enrollment experience, automate processes and allow people to interact with us in new ways.\nEqually important is the work we're doing to strengthen our culture and engage our employees across the enterprise.\nWe've taken steps during the quarter to accelerate and expand our inclusion and diversity journey, and we broaden the scope of our social justice fund to support even more groups facing discrimination.\nThese and many other efforts help place Unum among the Points of Light, Civic 50, and in Forbes Best Employers for Diversity, Best Employers for Women and Best Employers for New Graduates.\nWe're also happy to receive another perfect score on the Human Rights Campaign's Corporate Equality Index and to be named a best place to work for disability inclusion.\nThese efforts and accomplishments reflect the strong culture we have built.\nWe are proud of how it has helped us endure through the challenges of the past 1.5 years and how the engagement of our team will propel us going forward.\nNow I'll ask Steve to cover the details of the second quarter results.\nI'll start with the Unum US segment, which reported adjusted operating income for the second quarter of $179.3 million compared to $115.7 million in the first quarter.\nThese results improved significantly due to the improvement in COVID-related mortality in our group life business line, which I'll provide more detail on in a moment.\nWe also saw improved operating income from the supplemental and voluntary line, while income in the group disability line declined compared to the first quarter.\nWithin the Unum US segment, the group disability line reported operating income of $59.9 million in the second quarter compared to $64.1 million in the first quarter.\nThe primary driver of the change was lower net investment income, which largely resulted from a lower level of on calls.\nPremium income was generally consistent between the two quarters and on a year-over-year basis increased 1.1%.\nThe group disability benefit ratio for the second quarter was 74.7%, which is consistent with the first quarter benefit ratio of 74.8%.\nWe feel the benefit ratio will likely remain at this level over the near term due to the impacts we are seeing from COVID in the Delta variant, which we now believe will likely persist through the second half of the year.\nAdjusted operating income for Unum US group life and AD&D showed a sharp improvement in the second quarter to income of $5.2 million compared to a loss of $58.3 million in the first quarter.\nThis improvement is consistent with our expectations and largely explained by the significant reduction in COVID-related mortality in the U.S., which declined from approximately 200,000 nationwide observed deaths in the first quarter to approximately 52,000 in the second quarter.\nWe estimate that we incurred approximately 800 excess claims from COVID in the second quarter compared to an estimate of 2,050 COVID claims in the first quarter.\nOur average size of claim increased in the second quarter by approximately 10% as we experienced a mix shift to a more younger, working-age policyholders who typically have higher benefit amounts.\nNon-COVID-related mortality had little impact on results this quarter relative to the first quarter as lower incidents was offset by higher average claim size.\nNow looking ahead to the third quarter, our current expectation for nationwide COVID related mortality of approximately 40,000 compared to approximately 52,000 experienced in the second quarter.\nAssuming the shift in the mix continues to more younger, working-age individuals with a continued higher average benefit amount, we would estimate third quarter group life operating income to show a modest improvement over second quarter results to approximately $15 million.\nWe are closely watching the impacts emerging from the COVID variants, which have led to increase in estimates for second half mortality expectations.\nNow shifting to the Unum US supplemental and voluntary lines.\nWe saw an improved quarter with adjusted operating income of $114.2 million in the second quarter compared to $109.9 million in the first quarter.\nLooking at the three primary business lines.\nFirst, we remain very pleased with the performance of the individual disability recently issued block of business both in the second quarter and throughout the pandemic.\nThough the benefit ratio did increase to 48.4% in the second quarter from 42.4% in the first quarter, it continues to perform quite well compared to our pre-pandemic experience as new claim incidence trends and recovery levels remain favorable.\nThe voluntary benefits line recorded a strong level of income as well.\nThe benefit ratio increased in the second quarter relative to the first quarter, though it did remain consistent with the pre-pandemic results.\nThe benefit ratio in the group critical illness line increased, offsetting the improved experience in the life lines of business.\nAnd then finally, utilization in the dental and vision line was higher this quarter, as was the average cost per procedure, pushing the benefit ratio to 77.1% in the second quarter compared to 73.2% in the first quarter.\nDental and vision utilization has been volatile since the significant decline in utilization we did experience in the second quarter of 2020.\nSales for Unum US in total declined 3.1% in the second quarter on a year-over-year basis compared to a decline of 10.3% in the first quarter.\nFor the employee benefit lines, which include LTD, STD, group life, AD&D and stop loss, total sales declined by 3.1% this quarter.\nWe saw good activity and results in the core markets for group disability and group life.\nWhile large case sales were down year-over-year, we are seeing a good level of quote activity in the group markets, which is back to pre-pandemic levels.\nSales trends in our supplemental and voluntary lines showed similar improvement in the second quarter relative to the first quarter.\nFor this quarter, total sales declined 3.1% year-over-year compared to the 22.3% decline in the first quarter.\nOur recently issued individual disability sales increased 4.9%, and dental and vision sales increased 2.4% year-over-year.\nVoluntary benefit sales were down 7% in the quarter, which is consistent with our view that these sales will take longer to recover.\nLarge case DB sales in particular have a longer sales cycle and are more concentrated around January one effective date.\nPersistency for our major product lines in Unum US remained in line to higher this quarter relative to the first quarter of 2020, providing a good tailwind for premium growth for the full year and into 2022.\nWe have also seen favorable trends and natural growth in our employee benefits lines primarily from higher wage growth at this point.\nNow moving to the Unum International segment.\nAdjusted operating income for the second quarter was $24.8 million compared to $26.4 million in the first quarter and $15.1 million in the second quarter of 2020.\nThe primary driver of these results is in our Unum UK business, which generated adjusted operating income of GBP16.8 million in the second quarter compared to GBP18.6 million in the first quarter and GBP10.1 million in the second quarter of 2020.\nWe are pleased with these results, which showed improved underlying benefits experience particularly in our group life line.\nThe reported benefit ratio in Unum UK, which showed an increase to 82.5% in the second quarter from 75.3% in the first quarter was impacted by the increase in inflation in the U.K. in the second quarter compared to the first quarter.\nHigher inflation triggers higher inflation-related benefits to certain of our policyholders as well as higher net investment income from the inflation index linked yields in our investment portfolio.\nThe rapid increase in inflation in the U.K. from the first to second quarter did distort somewhat the timing of these two factors and produced a net negative impact of slightly less than GBP three million to adjusted operating income this quarter.\nThis short-term impact to income is expected to balance out over the course of the year.\nOverall, we are very pleased with the results in our International business with benefit ratios adjusted for inflation for Unum UK improving both on a sequential and year-over-year basis.\nPremium growth for our International businesses was also favorable this quarter compared to a year ago.\nLooking at the growth on a year-over-year basis and in local currency to neutralize the benefit we saw from the higher exchange rate, Unum UK generated growth of 3% with strong persistency and the ongoing successful placement of significant rate increases on our in-force block.\nAnd Unum Poland generated growth of 12.4%, a continuation of the low double-digit growth this business has been producing.\nWith this growth, our Unum International in-force premium is now at its highest level.\nNext, we are very pleased with the results generated by Colonial Life, with adjusted operating income of $95.8 million in the second quarter compared to $73.3 million in the first quarter.\nThis record quarterly income level was primarily driven by improved benefits experience and higher net investment income.\nThe benefit ratio improved to 51.7% in the second quarter from 55.4% in the first quarter as experience in the life insurance block improved with the overall decline in COVID-related mortality.\nExperience in both the accident, sickness and disability lines and the cancer and critical illness line also improved relative to the first quarter.\nAdditionally, net investment income increased on a sequential basis, which was primarily driven by higher income from bond calls.\nLooking out to the third quarter, we anticipate adjusted operating income to settle back to the low to mid-$80 million range as some of this favorable experience moderates.\nWe're very excited with the rebound in sales activity we experienced in Colonial Life this quarter, increasing 53.7% on a year-over-year basis.\nWhile this strong recovery comes off of a COVID depressed result in the year ago quarter, this quarter marks a return to year-over-year growth as face-to-face sales reemerge, and we drive further utilization of our digital sales and enrollment capabilities.\nAs expected, premium income declined 4.3% on a year-over-year basis and will likely continue with negative comparisons for the next couple of quarters until sales volumes have sufficiently recovered.\nPersistency for Colonial Life continues to show an encouraging trend at 78.3% for the first half of 2021, almost one point higher than a year ago.\nThen in the Closed Block segment, adjusted operating income was $111.2 million in the second quarter compared to $97 million in the first quarter, both very strong quarters relative to our historical levels of income for this segment.\nResults this quarter benefited from strong levels of net investment income due to higher levels of miscellaneous investment income, which I'll cover in more detail in just a moment, as well as favorable underlying benefits results in both long-term care and the Closed Disability Blocks.\nLooking within the Closed Block, the LTC block produced a slightly lower interest adjusted loss ratio of 74.6% in the second quarter compared to 77.7% in the first quarter, both results quite favorable to our long-term expected range of 85% to 90%.\nOver the past four quarters, the benefit ratio for LTC was 70% excluding the impact of the fourth quarter 2020 reserve assumption update.\nWe continue to see higher mortality experience in the claim a block in the second quarter and estimate that counts were approximately 5% higher than expected.\nLTC claims incidence was slightly higher in the second quarter, though we have seen higher recoveries on many of these claims, which mitigates the financial impact.\nLooking forward to the second half of the year, we anticipate that the interest adjusted loss ratio for LTC will likely remain slightly favorable to our long-term assumption range as mortality and incidence trends continue to normalize from the impacts of COVID.\nFor the Closed Disability Block, the interest adjusted loss ratio was 69.6% in the second quarter and 68.9% in the first quarter.\nThe underlying experience on the retained block, which largely reflects the active life reserve cohort and certain other smaller claims blocks we retained, performed favorably to our expectations primarily due to lower submitted claims.\nSo overall, it was a very strong performance this quarter for the Closed Block segment driven by both higher miscellaneous income and favorable underlying benefit experience.\nWe estimate the quarterly operating income for this segment will over time run within the range of $45 million to $55 million, assuming more normal trends for investment income and claim results.\nSo wrapping up my commentary on the quarter's financial results.\nThe adjusted operating loss in the Corporate segment was $48.5 million in the second quarter compared to $38.9 million in the first quarter.\nWe anticipate the quarterly losses in the Corporate segment will moderate in the second half of the year to the low to mid-$40 million range.\nI'd now like to turn to our investment portfolio, where we are seeing very favorable overall credit trends.\nFirst, there were no downgrades of investment-grade securities to high yield this quarter.\nIn fact, we had net upgrades in ratings overall for the portfolio, which generated a small capital benefit to us this quarter.\nIn addition, our internal watch list of potential credit concerns is now lower today than it was coming into the pandemic in early 2020.\nFirst, we saw a high level of miscellaneous investment income from bond calls again this quarter as many companies look to refinance higher coupon debt and take advantage of today's lower interest rates and tight spreads.\nWe had approximately $10 million higher investment income from bond calls this quarter relative to our historical quarterly averages.\nOver the past several quarters, this has been extremely volatile and difficult to predict from quarter-to-quarter.\nWhile these bond calls enhance current period investment income, it is a challenge to replace the lost deals in today's low interest rate environment.\nSecond, as I mentioned previously, we continue to see strong performance in the valuation mark on our alternative investment assets, which totaled $51.9 million in the second quarter following a positive mark of $35.9 million reported in the first quarter.\nBoth quarters are well above the expected quarterly positive marks on the portfolio of $12 million to $14 million.\nThis quarter's very strong returns, primarily reflected returns for the period ending March 30, 2021, due to the lags in reporting typical on many of these investments.\nThe higher returns this quarter were generated from all three of our main sectors, credit, real estate and private equity, and reflect the strong financial markets and strong economic growth.\nIt is hard to predict quarterly returns for miscellaneous investment income, but the third quarter so far, we are seeing a continuation of favorable trends in bond call premiums.\nMoving now to our capital position.\nThe financial position of the company continues to be in great shape, providing a significant financial flexibility.\nThe risk-based capital ratio for our traditional U.S. insurance companies improved to approximately 375%, and holding company cash was $1.7 billion as of the end of the second quarter, which are both well above our targeted levels.\nDuring the second quarter, we successfully completed a debt offering issuing $600 million of a 30-year senior note with a coupon of 5 1/8.\nThis was the lowest coupon on a 30-year debt issue in our history.\nThe proceeds from the issue were used to redeem the $500 million of 4.5% issue that would have matured in 2025.\nAnd you'll see the debt extinguishment costs associated with the redemption included in our net income this quarter.\nImportantly, this transaction enabled us to extend the duration of our debt stack and reduce the overall coupon on our outstanding debt.\nWith the issuance and the redemption completed in the second quarter, our leverage ratio currently is 26.2%, providing additional financial flexibility.\nAn important industry development recently was the finalization of the C1 factor changes, which have been under consideration by the NAIC for the past several years.\nAt our outlook meeting this past December, we indicated that our capital plan for 2021 -- in our capital plan for 2021, we assumed a negative impact of approximately $225 million from the adoption of the factor changes.\nAs you are likely aware, the NAIC concluded by adopting a recommendation from Moody's analytics, which are not as impactful to our capital plan as we previously had assumed.\nWe now estimate the impact to our capital position to be less than $70 million rather than the $225 million we had previously projected, a very good outcome for us, which provides upside to our capital expectations for year-end 2021.\nI'll close my comments with an update to our outlook for 2021.\nPreviously, we expected a modest decline of 5% to 6% for full year 2021 after-tax adjusted operating income per share relative to the 2020 level of $4.93 per diluted common share.\nGiven the strong second quarter results and our updated view on COVID trends, we are revising our outlook upward and now look for 2021 after-tax adjusted operating earnings per share to decline by a range of approximately 1% to 3% relative to 2020.\nOur underlying performance is expected to remain quite healthy, but COVID and the Delta variant will continue to be an important driver of results.\nAs you'll hear from the rest of the team, we continue to be very pleased with the operational performance of this company through what has been an extraordinary environment.\nWe believe we are well positioned to benefit from today's improving business conditions, and we remain vigilant as the pandemic continues.\nSo let me ask the operator to be open up the session.",
        "summary": "unum group q2 adjusted operating earnings per share $1.39.\nq2 adjusted operating earnings per share $1.39.\nfull-year 2021 outlook increased.\nsees decline of about 1% to 3% in after-tax adjusted operating income per share for 2021 relative to 2020."
    },
    {
        "text": "The team at Union Pacific continued to demonstrate their capability, as we moved increasing volumes while dealing with challenging capacity constraints in some of our important supply chains.\nThe result was the team delivered all-time record financial results.\nOur employees are making good on our strategy to serve, grow and win together.\nThis compares to $1.1 billion or $1.67 per share in the second quarter of 2020.\nWhile comparisons to the second quarter of last year are skewed by the COVID impact, a comparison to 2019 further demonstrates the impressive results we achieved during the quarter.\nOur quarterly operating ratio of 55.1% is an all-time record.\nIn addition, we set quarterly records for operating income, net income and earnings per share.\nThese records highlight how the team is running the Union Pacific franchise to deliver results, as we pulled all three profitability levers simultaneously, volume price and productivity.\nThe second quarter also marked an important milestone in our quest to reduce our carbon footprint, as we achieved a second quarter best fuel consumption rate.\nLocomotive fuel efficiency is the critical element to achieving our goal to reduce greenhouse gas emissions.\nAnd we're helping our customers achieve their ESG goals too, as they eliminated 5.7 million metric tons of greenhouse gas emissions in the quarter, by using rail versus truck.\nWhile, our financial results were impressive in the second quarter, our customers felt the impact of intermodal supply chain disruptions and costly rail equipment incidents.\nWithin the intermodal space, we've taken numerous actions to mitigate the customer impact, and are actively working with all parties in the supply chain.\nEven so, it's likely these issues will persist through the end of the year, as the capacity to move boxes from our ramp to the final destination falls short of demand.\nRelative to rail equipment incidents, while the number and rate improved their impact on the network was notable.\nWe're redoubling our efforts to utilize best-in-class technology, training, and root cause analysis to keep our crews, our customers and our communities safe.\nTo that end, we'll start with Eric and an update on our operations.\nWhile we don't see these events impacting us long-term, there's real work to be done to get past them.\nMoving to Slide 4, taking a look at our key performance metrics for the quarter.\nIt's important to note that year-over-year comparisons are a little skewed.\n2020 included a couple historically low volume months at the start of the pandemic.\nSo as Lance said, we've provided a 2019 comparison to give a little more context to more normal, seasonal volumes.\nFreight car velocity improved from 2019 due to the execution of PSR principles that reduced freight car terminal dwell and improved train speeds.\nHowever, we still have work to do to return to running a more fluid network, with the goal to return this metric back to the 220 to 230 miles per day range, we achieved earlier this year.\nAs you can see, our service reliability as measured by trip planned compliance has improved over the time in both service categories.\nHowever, current quarterly metrics do not meet our expectations or that of our customers.\nDisruptions in the international supply chains especially in the intermodal space have impacted our network significantly.\nAt the expense of our own service metrics, we chose to help reduce port congestion by moving more assets into dock operations.\nBut that West Coast port congestion has now moved east, and is affecting some of our inland terminals, most notably in Chicago.\nWe are working proactively with our commercial team and ocean carrier customers to address the congestion, while continuing to sustain shipment volumes, to and from the ports.\nTo help alleviate the congestion and maintain fluidity, we also temporarily reopened Global III in Chicago for use as an inland storage.\nWe are also working with our customers to develop additional storage and transportation options.\nWe will continue to work with all members of the supply chain, our ocean carrier customers, beneficial cargo owners, port operators, chassis providers, and dray carriers to mean the fluidity of international freight flows.\nDuring the first-half, our network has been impacted by weather and costly rail equipment incidents as well.\nWe have made good progress on reducing the frequency of rail incidents.\nHowever, the location of a couple of the incidents occurring on our East West main corridor, and our sunset route had a notable effect on both intermodal and manifest auto trip planned compliance measures.\nUltimately, we recognize the importance of improving these metrics to support our customers and our long-term growth strategy.\nTurning to Slide 5, we continue to make good progress in our efficiency measures, as both locomotive and workforce productivity improved in the quarter.\nImprovement in locomotive productivity was the result of running an efficient transportation plan that requires fewer locomotives.\nWorkforce productivity was an all-time quarterly record, driven by an increase in daily car miles of more than 20%, while workforce levels remained flat.\nThese improvements were also driven by our continued focus on growing train linked, which has grown by 9% since the second quarter 2020 to just over 9,400 feet.\nIncreasing and more consistent volumes provide the team with more optionality to adjust transportation plans.\nWe will continue to focus on train length to run a more efficient and reliable railroad for our customers.\nTurning to Slide 6, one driver of the continued increase in train length is our siding extension program.\nThrough the first-half of the year, we've completed seven sidings and began construction or the bidding process on more than 20 additional sidings.\nThrough growing train size, other productivity initiatives and technology, our fuel consumption rate was a second quarter record, improving 3% compared to last year.\nThe operating department understands the important role we play in achieving our long-term greenhouse gas emission goals.\nWrapping up on Slide 7, the entire team is focused on performing our work safer every day.\nYear-to-date, our safety results have been mixed.\nReal equipment incidents have decreased, but personal injuries increased.\nTo address personal injuries, we are maturing our peer-to-peer safety programs, which is a continuation and next level of our Courage-to-Care program.\nRecently, our network has been impacted by wildfires in Northern California.\nOur Dry Canyon Bridge north of Redding, California sustained significant structural damage.\nThe team is working around the clock to repair the bridge.\nCurrent projections have a reopening in late August.\nWe are actively rerouting traffic in that area, which requires additional crew and locomotive resources, as well as adding transit time to those customer shipments.\nUltimately, I have the utmost confidence that we will guide our network through these transitory challenges, and return our service product to the level our customers expect and deserve.\nThe team did an excellent job during the quarter and how efficiently we added volume to our network.\nPSR remains our guiding principle and the improvements you've seen, and our productivity and operating efficiency speaks to that commitment.\nOur ability to be far more volume variable with our cost structure is a testament to our employees who execute the plan every day.\nOur second quarter volume was up 22% from a year ago, as all of our major markets improved from the economic shutdown that we saw from the onset of the pandemic.\nFreight revenue was up 29%, due to the volume increase coupled with a higher fuel surcharge and core pricing gains.\nWe clearly have easy comp this quarter versus last year.\nIn order to provide a little more color into the current business, I will also share our sequential comparison to the first quarter, as I walk through each of the business groups.\nSo, let's get started with our bulk commodity.\nRevenue for the quarter was up 19% compared to last year, driven by a 13% increase in volume, and a 5% increase in average revenue per car, reflecting core pricing gains and higher fuel surcharge revenue.\nCoal and renewable carloads grew 6% year-over-year and 14% from the first quarter, due to higher natural gas prices supporting domestic coal demand, Winter Storm Uri in the first quarter, as well as increased coal exports.\nGrain and grain products were up 22% year-over-year due to the strength in both domestic and export grain.\nEthanol shipments also continue to improve as production recovers from COVID-related shutdown.\nFertilizer carloads were up 2% year-over-year and 23% from the first quarter, due to strong agricultural demand and seasonality of fertilizer applications.\nAnd finally, food and refrigerated volume was up 17% year-over-year and 7% from the first quarter, driven primarily by higher consumer demand, as the economy recovers from COVID, along with increased growth from truck penetration.\nMoving on to industrial, industrial revenue improved 24% for the quarter, driven by a 15% increase in volume, coupled with an 8% increase in average revenue per car from a positive mix of traffic, core pricing gains and a higher fuel surcharge.\nEnergy and specialized shipments were up 20% year-over-year, but we're down 1% compared to the first quarter, as strength in specialized shipments were offset by fewer crude oil shipments, and seasonal LPG demand.\nForest products continue to be a bright spot, as second quarter volumes grew 28% year-over-year and 7% over the first quarter.\nLumber drove this increase from strong housing start, repairing remodels, along with further penetration from product moving over the road.\nIndustrial chemicals and plastics shipments were up 11% for both year-over-year and the first quarter comparison.\nThe sequential growth was driven by the recovery of the Gulf Coast production rates from the February storm and improved demand.\nMetals and minerals volumes was up 12% year-over-year and 25% from the first quarter, driven by increased rock shipments and stronger steel demand, as the industrial sectors recover.\nTurning now to Premium, revenue for the quarter was up 50% on a 31% increase in volume.\nAverage revenue per car increased by 14% from higher fuel surcharge revenue, positive mix of traffic and core pricing gains.\nAutomotive volume was up 119% year-over-year, but down 4% compared to the first quarter, driven by shortages for semiconductor-related parts.\nIntermodal volume increased by 21% year-over-year, and 10% from the first quarter.\nDomestic intermodal improved from continuous strength in retail sales and recent business wins, parcel in particular, benefited from the ongoing strength in e-commerce.\nInternational intermodal saw continued strength in containerize import, despite congestion in the overall global supply chain.\nNow, looking ahead to the back-half of 2021.\nStarting out with our bulk commodities, we expect coal to remain stable for the remainder of the year, based on the current natural gas futures as well as export demand.\nOur food and refrigerated shipments should continue to be strong, as the nation recovers from COVID coupled with truck penetration wins.\nWe're also optimistic with our grain products business, as ethanol shipments will improve from increased consumer demand, and our focus in growing the renewable diesel market.\nLastly, while we see positive signs for the upcoming grain harvest and strengthen export demand, we expect tight supply in the third quarter, as well as top year-over-year comparisons in the back-half of the year.\nAs we look ahead to our industrial commodities, the year-over-year comps for our energy market are favorable.\nHowever, there is still uncertainty with crew plans supporting crew by warehouse shipments.\nWe continue to be encouraged by the strength and the industrial production forecast for the rest of 2021, which will positively impact many of our markets.\nIn addition, forest product volume will remain strong for us in the second-half of the year.\nAnd lastly for premium, automotive sales are forecasted to increase from 14 million units in 2020 to almost 17 million in 2021.\nHowever, we are keeping a watchful eye on the supply chain issues for parts related to the semiconductor chip.\nNow switching to intermodal, on the international side we expect demand to remain strong through the rest of the year.\nThe entire supply chain continues to be constrained by most notably to haul away our containers from our inland ramp.\nBut I've been pleased with the collaboration between our commercial and operating teams, as we work together to create solutions for our international customers to improve service and network fluidity.\nWith regard to domestic intermodal, limited truck capacity will encourage conversion from over the road to rail, tampered by constraint on chassis supply.\nRetail inventories remained historically low, and restocking of inventory along with continued strength in the sales should drive intermodal volumes higher for the remainder of this year.\nOverall, I'm encouraged by the improving economic outlook, but more importantly, by our commercial teams' intensity and ability to win in the marketplace.\nAs you heard from Lance, Union Pacific recorded record second quarter financials with earnings per share of $2.72 and an operating ratio of 55.1%.\nRise in fuel prices throughout the quarter and the two month lag on our fuel surcharge programs, negatively impacted our quarterly ratio by 210 basis points, and earnings per share by $0.04.\nBelow the line, our previously announced real estate gain and a lower effective tax rate associated with reduced corporate tax rates in three states added $0.13 to earnings per share.\nPartially offsetting that good news in 2021 is a real estate gain of $0.08 recorded in last year second quarter.\nSetting aside the impact of one-time items and fuel, UP's core operational performance drove operating ratio improvement of 800 basis points, and added $1.04 to earnings per share.\nThese results are a clear demonstration of how we are positioned to efficiently leverage volume growth to the bottom-line.\nLooking now at our second quarter income statement on Slide 15, where we're showing a comparison of this quarter's results to second quarter 2020, as well as 2019.\nThis is to provide additional context to our results by comparing periods with more normal seasonal volume levels.\nFor perspective, seven day car loadings in the second quarter of 2019 were almost 166,000, versus only 133,000 in 2020, and then rebounding this year to 163,000.\nSo, not quite back to pre-pandemic levels.\nFor second quarter 2021, the combination of operating revenue up 30% and operating expense only up 17%, illustrates our efficient handling of volume growth to produce record quarterly operating income of $2.5 billion.\nNet income of $1.8 billion and earnings per share also were quarterly records.\nLooking more closely at second quarter revenue, Slide 16 provides a breakdown of our freight revenue, both on a year-over-year basis and sequentially versus the first quarter.\nFreight revenue totaled $5.1 billion in the second quarter, up 29% compared to 2020, and up 10% compared to the first quarter.\nLooking first at the year-over-year analysis, volume was the largest driver up 22% against the pandemic impacted second quarter 2020 volumes.\nFuel surcharges increased freight revenue by 425 basis points compared to last year, as our fuel surcharge programs adjusted to rise in fuel prices.\nAnd as we experienced a strong demand environment, our pricing actions continue to yield dollars in excess of inflation.\nOn a year-over-year basis, those gains were further supplemented by a slightly positive business mix, driving in total 300 basis points of improvement.\nLooking at freight revenue sequentially, volume was again the largest driver of growth, up 875 basis points against weather impacted first quarter volumes.\nSequentially, fuel surcharge increased freight revenue 275 basis points.\nBusiness mix was actually negative sequentially, more than offsetting positive pricing gains and creating a 100 basis point headwind.\nNow, let's move on to Slide 17, which provides a summary of our second quarter operating expenses.\nWith volumes up 22% in the quarter, our benchmark of success is growing expenses at a slower rate.\nAnd as you have seen through our results, we did an excellent job of being more than volume variable with our cost structure.\nLooking at the individual lines, compensation and benefits expenses up 13% versus 2020.\nSecond quarter workforce levels were flat compared to last year, generating very strong workforce productivity, as Eric described.\nSpecifically, our train and engine workforce continues to be more than volume variable up only 10%, while management, engineering and mechanical workforces together decreased 5%.\nOffsetting some of this productivity was an elevated cost per employee, up 13% as we experienced increased overtime, and more recently, higher recrew [Phonetic] costs associated with some of our network outages.\nOther drivers of the increase were wage inflation, the negative comparison against last year's management actions in response to the pandemic, as well as higher year-over-year incentive compensation.\nQuarterly fuel expense increased over 100% driven by a 71% increase in fuel prices, and the 22% increase in volumes.\nOffsetting some of this expense was a 3% improvement in our fuel consumption rate, driven by our energy management initiative and a more fuel efficient business mix.\nPurchase services and materials expense increased 8%, primarily due to higher volume related subsidiary drayage costs, as well as other volume related expenses, such as transportation and lodging for our train crews.\nThese increases were partially offset by around $35 million of favorable one-time items.\nEquipment and other rents actually decreased 5% or $11 million, driven by decreased rent expense on stored equipment and higher TTX equity income, partially offset by volume increases.\nThe other expense line increased 21% or $49 million this quarter, driven by last year's $25 million insurance reimbursement, higher casualty expenses and higher state and local taxes.\nLastly, as previously announced in an 8-K during the quarter, we expect our annual effective tax rate to be closer to 23% for the year.\nLooking now at our efficiency results on Slide 18, despite some of the operational challenges that Eric discussed, we continue to generate solid productivity.\nSecond quarter productivity totaled $130 million, bringing our year-to-date total to $235 million.\nProductivity results continue to be led by train length improvements and locomotive productivity.\nAs we stated at our Investor Day, a better long-term indicator of our efficiency is incremental margins.\nSo looking at this quarter, we achieved a very strong incremental margins of 78%, demonstrating the positive impact PSR is having on our operating models.\nTurning to Slide 19, cash from operations in the first-half of 2021 decreased slightly to $4.2 billion from $4.4 billion in 2020, a 4% decline.\nThis decrease was the result of deferred tax payments last year.\nOur cash flow conversion rate was a strong 96%, and free cash flow increased in the first-half up $142 million or 9%, highlighting our ongoing capital discipline.\nSupported by our strong cash generation and cash balances, we've returned $5.4 billion to shareholders year-to-date, as we increased our industry-leading dividend by 10% in May, and repurchased 19 million shares totaling $4.1 billion.\nThis includes the initial delivery of a $2 billion accelerated share repurchase program established during the quarter, and funded by new debt issued in mid-May.\nWe finished the second quarter with a comparable adjusted debt to EBITDA ratio of 2.8 times, on par with the first quarter.\nWrapping up on Slide 20, we are optimistic about what's ahead in the back-half of 2021.\nFrom a volume standpoint, we are increasing our growth outlook for the full year to around 7%, which includes just over a one point headwind from ongoing energy market challenges.\nWe also see tough comparisons in both intermodal and grain, as well as continued impacts from the semiconductor shortage.\nAnd as you heard Kenny mentioned, supply chain challenges in the intermodal space are likely to slow asset turns and impact loading.\nOn the flip side, we see growing confidence in the industrial sector, and the team is successfully executing on our plan to grow and win with customers.\nLooking at operating ratio, we're dropping the low end of our initial range and now expect to achieve roughly 200 basis points of improvement, or an operating ratio closer to 56.5% for full year 2021.\nWith that strengthening outlook, cash generation is growing as is our plan for share repurchases, which we would target at approximately $7 billion or $1 billion more than we had originally planned.\nBehind each of these numbers is a member of the UP team, who works safely and efficiently to attract new business and serve our customers.\nAnd with UP's new employee stock purchase plan, the entire team has more opportunity to benefit from the company's success.\nAs I mentioned at the start, we must improve our safety performance, it's foundational to everything we do at Union Pacific.\nThe pace of our progress has to accelerate.\nAs Eric stated, we're dedicated to improving our service products to the level our customers expect and demand.\nAll of our long-term goals are predicated on a safe, reliable and consistent service product.\nAs you heard from Kenny, we're winning with customers and growing our business.\nYou're seeing our customer focus and obsession in action.\nWe've got fantastic momentum and we're excited about the increasing opportunities that we are creating and uncovering.\nGiven the workforce issues faced across various parts of the supply chain outside of UP, we will likely be working to overcome that congestion for the remainder of the year.\nBut our second quarter achievements set the table for continued strong results in the second-half of the year.\nThese results also provide a solid start toward the long-term targets we set for the next three years that we laid out at our Investor Day in early May.\nThe future is very bright for Union Pacific.\nWe're in a fantastic position to deliver value to all of our stakeholders, as we win together.",
        "summary": "q2 earnings per share $2.72.\nqtrly business volumes, as measured by total revenue carloads, increased 22%.\nqtrly union pacific's 55.1% operating ratio improved 590 basis points."
    },
    {
        "text": "As you saw we delivered a strong quarter with rental revenue and adjusted EBITDA coming in above our expectations supported by solid fleet productivity.\nToday, we'll get under the hood of our results.\nYou'll see the numbers were driven by a combination of factors both inside and outside the company including a favorable operating environment that continues to improve and a broad-based growth in customer demand.\nAnd that's the predominant theme today not just our growth in key metrics like rental revenue where we gained 22% year-over-year, but also the growth we see going forward.\nWe fully expect our momentum from the third quarter to continue through the fourth quarter and into the coming years.\nThat's evident in the latest guidance we provided.\nAnd as Jess walks you through the outlook you'll see that the updates are driven by our expectation of higher core rental results this year.\nBear in mind that this increase is on top of our July revision, which already accounted for the acquisitions.\nThat tells you we're looking forward to a strong finish to the year.\nBefore I get into operations, I want to spend a few minutes on our culture because the quality of our organization is key to our strategy.\nClearly our people are executing well through the busy season.\nThe integration of General Finance is going smoothly and our team members are being supported by our technology.\nWe also haven't missed the beat on safety.\nOur companywide recordable rate remained below one again for the quarter and 11 of our regions worked injury-free in September.\nResults like this showcase the caliber of our team and the value of our people.\nThe best-in-class workplace culture we've built for more than a decade delivers tangible benefits because we're known as an employer of choice.\nThis is a strong competitive advantage particularly in tight labor markets.\nWe've grown our team by almost 2,000 employees this year including 500 employees over and above our acquired people and our turnover rate has remained in line with pre-COVID levels.\nThe other part of our service of course is fleet and this is something we manage very closely.\nWe just guided to our third step-up in rental capex this year.\nAnd each time the increase has been warranted by customer needs.\nOur customers are optimistic.\nThey're busy and they continue to see more growth ahead and it's our job to be ready for that opportunity.\nSome of you have asked about the challenges of getting equipment delivered.\nAnd it's clearly a tight supply environment, but we've been able to secure additional fleet by leveraging our strong financial footing and our relationships with manufacturers.\nThe increase in our capex is also based on our leading indicators which echo customer sentiment.\nVirtually all of the indicators point to strong industry demand which bodes well for fleet productivity.\nThe used equipment market is another one of those positive indicators.\nIn the third quarter pricing in our retail channels was up 7% sequentially and up by double digits year-over-year.\nUsed proceeds were 60% of original costs which is a new high watermark for us.\nAnd you may remember back in the second quarter, we talked about our return to growth.\nIn fact, we've been able to leverage the gains we made in the first half of the year to accelerate our growth and that was despite a tougher comp in Q3.\nSome of that growth came from acquisitions and cold starts, but even with that factored in both segments are running ahead of expectations.\nIn the third quarter, rental revenue on our gen rent segment was up almost 18% year-over-year with all regions showing growth.\nIn addition, all of our Specialty businesses grew by double digits.\nOur Specialty segment as a whole was up 36% year-over-year with 21% growth in same-store rental revenue.\nAnd that's higher than the same-store growth rate we reported in the second quarter.\nWe've also opened 24 specialty locations through September which keeps us on track for the 30 cold starts targeted for the year.\nWhen you pivot to our end markets the picture looks similar, broad-based growth across a range of verticals.\nOn the Industrial side, we saw widespread growth in rental revenue led by double-digit increases from manufacturing, chemical, processing, metals and mining and entertainment.\nOn the Construction side, the gains were just as broad led by non-res construction where we were up 18% year-over-year.\nWithin non-res demand is becoming increasingly diverse.\nWarehouse and data center work remains strong and we're also starting to see a recovery in verticals that have been sluggish like hospitality and education.\nThe Power vertical continues to be an important one for us with wind and solar projects on the rise across multiple regions.\nWe're also seeing work build across the entire EV supply chain.\nPlant maintenance is another big driver for us and we're seeing that work start up again after being paused for COVID.\nAnd the most encouraging trend is project diversity.\nIt's early days, but we're starting to see a healthy mix of new projects like; casinos, highway work, hospitals, military bases and more.\nThat signals a return to business confidence.\nAs activity picks up, customers have an opportunity to think hard about who they want to do business with and they're placing an increasing value on corporate responsibility.\nWe have a lot of reputational currency here.\nGood corporate citizenship has been a priority at United Rentals for years and our company has a long track record of working with customers to support their ESG goals.\nWe're proud to be recognized by Newsweek as one of America's most responsible companies for two years running.\nLast week we released our new corporate responsibility report online.\nAnd you'll find that it gives you some good insights into our progress in key areas like environmental sustainability and workplace inclusion.\nSo in summary, we're in a strong position operational, financially and culturally in a healthy operating environment.\nCustomers have projects lined up stretching well into 2022.\nThe industry remains disciplined and our team is getting equipment out to job sites.\nInternally, we're focused on controlling costs and expanding our margins as we lean into growth.\nWe're leveraging our scale to deliver a combination of organic growth targeted cold starts and accretive acquisitions all with long-term synergies for value creation.\nAnd in the near term we reported quarter after quarter of profitable growth driven by tailwinds that show every indication of enduring.\nWe see a lot of potential for attractive returns and it gets better from here.\nJess over to you.\nOur financial performance in the third quarter highlighted better-than-expected rental revenue which was supported by broad year-over-year growth across our end markets.\nOn the cost side, we delivered solid results while activity was at its highest level of the season and we continue to sell used equipment in a robust market.\nAs for the rest of the year we expect seasonal demand will remain strong.\nAnd when coupled with the third quarter's results this supports a raise to our guidance for the year in total revenue and adjusted EBITDA.\nAnd more on guidance in a few minutes.\nLet's start now with the results for the third quarter.\nRental revenue for the third quarter was $2.28 billion, or an increase of $416 million.\nThat's up just over 22% year-over-year.\nWithin rental revenue, OER increased $325 million, or 20.7%.\nThe biggest driver here was fleet productivity, which was up 13.5%, or $212 million.\nThat's mainly due to stronger fleet absorption on higher volumes.\nOur average fleet size was up 8.7%, or a $137 million tailwind to revenue.\nRounding out the change in OER is the normal inflation impact of 1.5%, which cost us $24 million.\nAlso within rental, ancillary revenues in the quarter were up about $71 million, or 29%, and rerent was up $20 million.\nWhile our outlook to OEC sold for the full year remains unchanged, we made the decision to slow down the volume of fleet sold in the third quarter as we maintained capacity for rental demand.\nUsed sales for the quarter were $183 million, which was down $16 million, or about 8% from the third quarter last year.\nThe used market continues to be very strong, which supported higher pricing and margin in the third quarter.\nAdjusted used margin was 50.3% and represents a sequential improvement of 240 basis points and a year-over-year improvement of 610 basis points.\nOur used proceeds in Q3 recovered 60% of the original cost of the fleet sold.\nNow compared to the third quarter of last year, that's a 900 basis point improvement from selling fleet that averages over seven years old.\nLet's move to EBITDA.\nAdjusted EBITDA for the quarter was just over $1.23 billion, an increase of 14% year-over-year, or $152 million.\nThe dollar change includes a $219 million increase from rental.\nNow in that OER contributed $200 million.\nAncillary was up $17 million and rerent added $2 million.\nUsed sales helped adjusted EBITDA by $4 million, and other non-rental lines of business provided $8 million.\nSG&A was a headwind to adjusted EBITDA of $79 million in part from the reset of bonus expense that we've discussed on our prior earnings call.\nWe also had higher commissions on better revenues and higher T&E, which continues to normalize.\nOur adjusted EBITDA margin in the quarter was 47.5%, down 190 basis points year-over-year, and flow-through as reported was just over 37%.\nImpacting margins and flow-through in Q3 are few items worth noting.\nWe mentioned back in July that bonus expense would be a drag for the back half of this year with most of the drag in the third quarter.\nWe also have the impact of General Finance, which we've owned all of the third quarter this year, but of course is not in our comparative results last year.\nI'll also remind you that we had $20 million of one-time benefits recorded in the third quarter last year that did not repeat.\nAdjusting for these items, the flow-through was about 58% with margins up 130 basis points year-over-year.\nThis reflects strong underlying performance in the quarter, particularly when you consider the impact from actions we were taking on costs last year, as well as the impact of costs that continue to normalize this year.\nI'll shift to adjusted EPS, which was $6.58 for the third quarter.\nThat's up $1.18 versus last year and that's from higher net income.\nLooking at capex and free cash flow for the quarter, gross rental capex was $1.1 billion.\nOur proceeds from used equipment sales were $183 million, resulting in net capex in the third quarter of $917 million.\nThat's up $684 million versus the third quarter last year.\nNow turning to ROIC, which was a healthy 9.5% on a trailing 12-month basis, which is up 30 basis points both sequentially and year-over-year.\nNotably our ROIC continues to run comfortably above our weighted average cost of capital.\nLet's turn to free cash flow and the balance sheet.\nThrough September 30, we generated a robust $1.25 billion in free cash flow, which is after considering the sizable increase in capex so far this year.\nWe've utilized that free cash flow to help fund over $1.4 billion in acquisition activity and we reduced net debt almost $100 million.\nOur balance sheet remains in great shape.\nLeverage was 2.4 times at the end of the third quarter that's down 10 basis points sequentially and flat versus the end of the third quarter last year even as we funded acquisitions this past year.\nLiquidity at the end of the third quarter remained strong at over $2.6 billion.\nThat's made up of ABL capacity of just over $2.2 billion and availability on our AR facility of $68 million.\nWe've also had $320 million in cash.\nI'll also mention we refinanced $1 billion of five and seven-eighths notes earlier in the quarter and refinancing that debt will save $29 million in cash interest in 2022 and extends our next long-term note maturity out to 2027.\nAs we look out to the end of the year, I'll share some color on our revised 2021 guidance.\nGiven we have a quarter-to-go, we've tightened our full year ranges for total revenue and adjusted EBITDA and importantly, have raised our expectations for both.\nThese updates reflect better-than-expected third quarter results and the continuing momentum we see in demand and in managing our costs for the fourth quarter.\nWe've again raised our outlook for growth capex this year with a $250 million increase at the midpoint.\nThis means we would land more fleet than normal in the fourth quarter and that's supported by our planning for strong growth in 2022.\nWe've left the range on capex a little wider than we would normally at this time of the year as we continue to work with the OEMs to land what we've ordered.\nAnd finally, our update to free cash flow reflects the impact of these guidance changes, notably, the additional capex we expect to buy.\nAnd even with that increased investment in capex, free cash flow remains strong at over $1.5 billion at the midpoint.\nOperator, would you please open the line?",
        "summary": "q3 adjusted earnings per share $6.58."
    },
    {
        "text": "We want to send out our very best wishes that you and your families are well.\nWe've worked hard to prepare our materials and remarks for today to share with you the strength of our businesses and provide insight into what we believe, well, to be some of the most significant opportunities and challenges we'll face in the coming months.\nPlease let us know if we can do anything to provide more timely and important information.\nWith me, today and offering prepared comments are from TDS, Pete Sereda, Executive Vice President and Chief Financial Officer; from U.S. Cellular, LT Therivel, President and Chief Executive Officer; Ken Meyers, Senior Advisor to the CEO; Doug Chambers, Senior Vice President and Chief Financial Officer; and Mike Irizarry, Executive Vice President and Chief Technology Officer.\nFrom TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer.\nWe provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest, taxes, depreciation and amortization or EBITDA to highlight the contributions of U.S. Cellular's wireless partnerships.\nWe have updated our safe harbor statements to include specific risks related to COVID-19 and its impacts on our businesses and provided that here specifically on Slide 3.\nIn terms of our upcoming IR schedule, Slide 4, we will be virtually attending the Morgan Stanley's Corporate Access Day on August 13th and then doing a Virtual Morgan Stanley Non-Deal Roadshow on August 20th, which will include a fireside chat and our open-door policy is now more of a open phone or a open video policy, so please reach out to us and we can arrange them.\nBefore turning the call over, I'd like to remind everyone that due to the FCC's Anti-Collusion Rule, we will not be responding to any questions related to the FCC auctions and spectrum strategy.\nI'm going to make some brief comments about the balance sheet and actions we've taken during the COVID-19 crisis to protect ourselves, financially.\nBut before doing so, I'd like to highlight the strong operational and financial results of both business units during the quarter.\nThe pandemic has highlighted the criticality of our products to our customers and the teams have stepped up and continued to deliver on their typically outstanding service levels.\nNow to the balance sheet.\nAs we've talked about before, maintaining financial flexibility is one of the pillars of our corporate strategy.\nOver the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances, while at the same time making sure we have the financial resources we need to fund our businesses.\nAs you can see on Slide 5, at June 30th, TDS had $1.7 billion in available funding sources, including cash and cash equivalents, available credit facilities, undrawn term loans and the undrawn portions of our EIP securitization.\nWe took a number of steps earlier this year to solidify our overall liquidity and feel confident we are in a stable and sound position for the rest of the year.\nWe also repurchased a little over 500,000 TDS common shares at favorable prices during the quarter, balancing the need to retain liquidity with a pricing opportunity offered by the market.\nAs this is our practice, we will look to take advantage of favorable market conditions to augment our balance sheet going forward.\nWe believe we have additional access to the debt capital markets both retail and institutional as well as other conventional debt sources.\nIf it were necessary, we believe, we would also have a number of potential additional funding sources, including some related to our own towers and wireless partnerships, although we would view such financings less favorable -- less favorably than straight debt for costs and operational reasons.\nFinally, as you can see from the chart on the right side of the page, most of our existing debt is very long-dated with essentially no near-term maturities pressuring our liquidity position.\nI'd be lying if I told you this wasn't a bittersweet moment for me.\nI'm so proud to have worked for TDS and U.S. Cellular for over 30 years, by my count -- actually, by Jane's count.\nI've been involved in reporting for some 136 quarters, with many of you on the receiving end of some those, maybe even many of those or maybe just feeling that way.\nAnd I want you to know that I'm confident that I am leaving the organization in great hands.\nU.S. Cellular has an exceptionally talented management team and the most customer-focused associates in the industry.\nAnd now, has a new leader with the skills and experience to move the company forward.\nI'm humbled to have worked with you and which -- and wish each of you much success going forward.\nLT, it's all yours.\nGiven that I started this job just on July 1st, I'm going to share some of my initial impressions, but for the most part, I'm going to be in listen mode today.\nDoug Chambers is going to -- are going to -- is going to walk you through our results for the quarter.\nAnd this has been a challenging few months for everyone but I have to say, I'm proud to be part of this industry and I'm particularly proud to be part of this company.\nThe pandemic has validated that what we do is truly essential, connecting family, friends and commerce and this is a particularly exciting time to be in wireless, especially as we embark on 5G.\nAs you know, we've already launched some initial markets on 5G and we're going to provide some more details on that later in the call.\nMy first month at U.S. Cellular has been full of learning and listening and I feel it's been a seamless and effective transition.\nOver the past few weeks, I traveled to several of our various locations, met with many of our associates, of course, in the safest manner possible and I'm consistently inspired by our customer-centric culture and the high levels of engagement that we have across the entire company.\nThe flexibility and resiliency that our associates have displayed throughout this pandemic are tremendous and it's clear to me that our focus on the customer and our high quality network are critical to growing this business.\nAnd speaking of network, I'm pleased to report that our network strength was recently recognized as we won another J.D. Power Award.\nThis recognition validates for me that our network modernization strategy is working.\nI want to talk for just a minute about why I joined this company.\nIt's a strong company, tremendous corporate culture, it is also a company with incredibly valuable assets, spectrum, towers, distribution, and our assets have both significant financial value and operational importance.\nAnd my goal is to build on that strong culture and that strong assets in order to drive strong growth.\nLet me be very clear, I was hired to lead U.S. Cellular into the future to grow this business.\nI'm going to be very focused on building value for all of our constituents.\nOver the coming months, my leadership team and I are going to be developing a strategy aimed at doing what is best for U.S. Cellular to continue to be a formidable competitor over the long-term.\nLet me touch briefly on the quarter.\nMany aspects of our second quarter performance were impacted by the pandemic, yet we were able to generate very solid results.\nI'm extremely proud of what the team has accomplished and the results are really a testament to Ken and his leadership.\nDoug is going to take you through the details in a moment.\nAnd looking forward to the rest of the year, we're going to build off these strengths, we'll also intensifying our focus on community specific campaigns and delivering the products and services and solutions that our customers want.\nI'm looking forward to reporting on our progress throughout the back half of 2020 and getting to know all of you, our investors and our analysts.\nNetwork quality is foundational to U.S. Cellular.\nOur goal is to ensure our customers have a great experience, whenever and wherever they use their devices.\nAs most of you know, Iowa and Wisconsin were phase one of our multi-year 5G network expansion.\nAnd last week, we announced our next phase.\nPhase two will begin in the second half of 2020 and we will deploy in 11 states or about 10 million PoPs.\nWe are working with three equipment vendors and we are continuing to expand the number of 5G devices.\nWe've been very pleased with the performance of phase one.\nCustomers are receiving an improved customer experience, our 5G deployment improves average and peak speeds for our 5G and our 4G customers.\nIn addition to improved customer experience and new revenue opportunities, we expect 5G to carry traffic more efficiently, improving the cost to deliver a bit.\nAnd this efficiency enables us to get the most out of our spectrum portfolio.\nWe expect to begin deploying our Millimeter wave spectrum in 2021 to improve speed and capacity in denser areas of our footprint.\nFurther, we expect to conduct trials of our Millimeter wave fixed wireless service in 2021 in CLEC markets.\nTurning to Slide 8.\nFirst, let me briefly provide a COVID-19 update.\nFirst, our entire organization has been incredibly resilient as we successfully managed through continuing uncertainty.\nWe have maintained our work-at-home program for those where it is feasible and while we are working on a return to office plan, we have not set a timetable for doing so.\nOn the retail front, our stores are opened and largely back to normal hours.\nWe continue to follow important safety steps to keep our frontline associates and customers safe.\nAs expected, the pandemic led to reduced store traffic levels in the quarter.\nHowever, each metric has shown steady improvement off the post-pandemics lows.\nRecently, store traffic has been running about 20% below prior year levels.\nFinally, our supply chain remains fully functional and our inventory levels are good.\nTurning to Slide 9.\nEven with all this disruption, we are still executing on our strategic priorities.\nAs I will detail in a moment, subscriber results benefited from very low churn and strong connected device additions in the quarter.\nRevenue growth in the quarter was impacted by reducing roaming -- reduced roaming revenue, which was partially due to decreased mobility of wireless users during the pandemic.\nAlso, as an additional way to help our customers, we removed caps on data usage and waived overcharges, which had a negative impact on ARPU in the quarter.\nWe signed the FCC's Keep Americans Connected Pledge, where we committed to not disconnect customers who are experiencing COVID-19 related challenges for non-payment through June 30th.\nWe had about 56,000 subscribers sign up for the pledge with 39,000 remaining at June 30th.\nThis [Technical Issues] amount of paid subscribers is less than we anticipated at March 31st and resulted from proactively working with pledge customers to administer collections and enroll them in payment arrangements.\nAs a result, we decreased our estimate of bad debts expense related to the pledge in the second quarter.\nOverall, despite some negative impacts to revenue and expenses as a result of the pandemic, we continue to control cash expenses, which decreased 3% year-over-year.\nFrom a network standpoint, we engineer our network for peak usage periods and the network continues to perform well.\nTo-date, COVID-19 has increased data traffic about 20%-25% and our network has been able to handle that extra demand.\nThroughout the quarter, we continued our network modernization and 5G efforts and we will be finishing our VoLTE deployment this year.\nOur expansion markets in Iowa and Northern Wisconsin are doing well.\nAnd as LT highlighted, we won another J.D. Power Award.\nLet me touch briefly on postpaid connections results during the second quarter shown on Slide 10.\nPostpaid handset gross additions decreased primarily due to mobile switching activity and decreased store traffic due to the impacts of COVID-19.\nPartially offsetting this was an increase in demand for connected devices.\nTotal smartphone connections increased by 11,000 during the quarter and by 64,000 over the course of the past 12 months that helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU.\nAs mentioned, we saw connected device gross additions increased by 9,000 year-over-year.\nThis was driven by gross additions of Internet products such as hotspots and routers as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19.\nDuring Q2, we saw an average decline in store traffic of around 35% with the larger drop in traffic at the beginning of the quarter and the end of the quarter.\nDecrease in store traffic had a negative impact on gross additions and accessory margin although connected device activity remained stronger than the prior year.\nNext, I want to comment on postpaid churn rate shown on Slide 11.\nCurrently, as you would expect, churn on both handsets and connected devices is running at very low levels.\nPostpaid handset churn depicted by the blue bars was 0.71%, down from 0.97% a year ago.\nThis was due to mobile switching activity, resulting in a decrease in defections as customers' shopping behaviors were altered due to the overall COVID-19 crisis as well as reduction in non-paid defections related to the FCC pledge.\nPostpaid churn combining handsets and connected devices was 0.89% for the second quarter of 2020 also lower than a year ago.\nNow let's turn to the financial results on Slide 12.\nTotal operating revenues for the second quarter were $973 million, flat year-over-year.\nRetail service revenues decreased by $4 million to $658 million.\nThe decrease was due to a decline in the postpaid subscriber base, partially offset by higher average revenue per user, which I'll cover on the next slide.\nInbound roaming revenue was $41 million that was a decrease of $3 million year-over-year driven by lower rates, partially offset by higher data volume.\nOther service revenues were $54 million, that was an increase of $3 million year-over-year attributable to a 16% increase in tower rental revenues.\nFinally, equipment sales revenues increased by $4 million or 2% year-over-year due to the increase in devices sold, partially offset by a decrease in the average selling price and a decrease in accessory sales.\nNow a few more comments about postpaid revenue shown on Slide 13.\nAverage revenue per user or connection was $46.24 for the second quarter, up $0.34 or approximately 1% year-over-year.\nAt a per account basis, average revenue grew by $1.24 or 1% year-over-year.\nThe increase was driven by several factors, including having proportionately less tablet connections, which on a per unit basis contributed less revenues in smartphones, an increase in regulatory recovery revenues and increased device protection revenues.\nAs part of caring for our customers during the COVID-19 crisis, beginning in March, we elected to waive overage charges and we also waived late fees and other fees in conjunction with the FCC pledge.\nThese waived charges partially offset the increase to ARPU.\nLet's move next to our profitability measures on Slide 14.\nFirst, I want to comment on adjusted operating income before depreciation, amortization and accretion and gains and losses.\nTo keep things simple, I'll refer to this measure as adjusted operating income.\nAs shown at the bottom of the slide, adjusted operating income was $235 million, an increase of $23 million year-over-year.\nAs I commented earlier, total operating revenues were $973 million, flat year-over-year.\nTotal cash expenses were $738 million, decrease in $23 million year-over-year.\nTotal system operations expense increased year-over-year.\nExcluding roaming expense, system operations expense increased by 3%, mainly driven by increases in cell site rent expense and non-capitalized cost to add network capacity, while total data usage on our network increased by 72%.\nRoaming expense decreased 2% year-over-year due to lower rates, partially offset by a 42% increase in off-net data usage.\nCost of equipment sold decreased by $6 million or 3% year-over-year, primarily due to a lower average cost per device, a decrease in accessory sales and a decrease in charges recorded to reduce inventory to its net realizable value.\nThese decreases were partially offset by the increase in the volume of devices sold.\nSelling, general and administrative expenses decreased 6% year-over-year, driven by a decrease in bad debts expense, advertising and employee-related expenses.\nThe decrease in bad debts expense resulted from decrease in our estimated allowance for bad debt in the second quarter of 2020 related to our participation in the FCC pledge.\nAs I mentioned earlier, this decrease was driven by overall favorable experience in both administering collections from the FCC pledge customers and enrolling them in payment arrangements.\nShown next is adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income.\nAdjusted EBITDA for the quarter was $280 million, a 9% increase year-over-year due to the improvement in adjusted operating income as well as an increase in equity and earnings of unconsolidated entities, partially offset by a decrease in interest income.\nSlide 16 provides our guidance for the year and for comparison, we're also showing 2019 actual results.\nFor purposes of developing our guidance, we assumed that our markets will remain out of lockdown for the remainder of the year and an improvement to a more normal state by late Q3 2020.\nI want to take a moment to remind everyone that our guidance is on service revenues not total operating revenues, which includes both service revenues and equipment sales.\nVariations in equipment sales typically have a corresponding impact on cost of equipment sold and as a result, are less impactful to our profitability measures.\nTherefore, we believe that service revenues are the more meaningful revenue measure for guidance purposes.\nFor total service revenues, we have maintained a range of $3.0 billion to $3.1 billion.\nWe have also maintained our adjusted operating income and adjusted EBITDA ranges of $725 million to $850 million and $900 million to $1.025 billion respectively.\nFor capital expenditures, we are maintaining our guidance range of $850 million to $950 million.\nWe continue to make good progress on our key projects such as VoLTE deployments, 4G LTE network modernization and 5G, and do not currently anticipate a major disruption to any of them.\nAs we've highlighted throughout the call, there remains a good deal of uncertainty related to potential business outcomes for the year.\nCOVID-19 has an impact on service revenues, handset subscribers, gross additions and defections, roaming activity and operational costs.\nIn addition, impacts related to the ongoing pandemic on the economy and society, including additional governmental response to the pandemic are still not entirely clear.\nThis level of uncertainty factored into our decision to maintain our existing guidance at this point of time.\nOverall, we are very pleased with our results for the first half of the year and our ability to quickly and effectively respond to the COVID-19 pandemic.\nWe grew both revenue and adjusted EBITDA in the second quarter and made progress on advancing our fiber deployment strategy.\nLet me first begin by giving an update on the actions that we have taken in the quarter.\nIn accordance with the FCC pledge, we did not disconnect customers due to non-payment and we agreed to waive late payment fees for customers impacted by the pandemic.\nAs a result of both these actions, we recorded a reserve of $2 million in the quarter.\nIn advance of processing non-pay disconnect, which we began in July, early indications suggested about 70% of our customers are prioritizing their services and making arrangements to stay connected.\nIn addition to the FCC pledge, we also offered a free 60-day broadband promotion, contributing to our growth and we are now seeing the majority of these customers paying for these services.\nFrom an operational perspective, our highest priority is keeping our employees and customers safe.\nTo that end, we continue to operate in a work at home environment wherever possible and have expanded safety protocols for frontline workers, including the direct sales force as they return to selling door-to-door in the second quarter.\nFrom a product perspective, we are pleased to report that we have expanded our launch of our cloud TV product called TDS TV+ to additional cable and wireline markets, including our Wisconsin out-of-territory clusters and expect to complete those rollout in the third quarter.\nAdditionally, we plan to roll out TDS TV+ to our new fiber market, Coeur d'Alene, Idaho in the fourth quarter.\nThis is a really great product and while it is still early in its launch, we are focused on ensuring its success across our markets.\nFrom a network perspective, the current prices continues to reaffirm the importance of high-speed Internet and how important not only our investments have been, but also our continued efficacy on behalf of rural America.\nAs a result of driving fiber deeper into our market, we have robust networks, which continue to remain very stable and meet our customers' need.\nFrom an out-of-territory perspective, pre-sales continue to exceed our expectations.\nWe are currently installing service in our Wisconsin and Idaho clusters.\nWe remain focused on construction throughout these communities and we are working toward commencing construction in Spokane, Washington, where we recently launched pre-sale activity.\nOverall, we remain committed to achieving our strategic priorities through the second half of the year as outlined on Slide 19.\nNow, let me highlight our financial results for the quarter as shown on Slide 20.\nConsolidated revenues increased 3% from the prior year, primarily due to the cable acquisition, which closed at the end of last year.\nIt also reflects organic increases in broadband and video from our fiber expansions in wireline and continued growth in cable residential ARPU and broadband subscribers.\nAgain, these increases were partially offset by the reserve related to the FCC pledge.\nCash expenses increased 2%, including the acquisition and were flat without.\nAs we have seen meaningful favorability on employee expenses in the quarter and other cost-saving initiatives, offset by increased plant and maintenance expense.\nAdjusted EBITDA increased 2% to $83 million due to these increases in operations, partially offset by lower interest income in the quarter.\nCapital expenditures increased 7% to $75 million as we continued to invest in our fiber deployment.\nI will cover our total fiber program in more detail in a moment, but for now, let's turn to our segments, beginning on wireline on Slide 21.\nBroadband residential connections grew 6% as we continue to fortify our network with fiber and expand into new market.\nAt the onset of the pandemic, we saw an initial surge in demand, which has subsided to expected growth levels.\nAlso contributing to this growth is customers not disconnected due to the FCC pledge.\nIn June, we were excited to return our direct sales force to selling door-to-door and we saw an immediate impact on our new fiber market sales.\nFrom a broadband speed perspective, we are now offering up to 1 gig broadband speeds in our fiber markets.\nAcross our wireline residential base, essentially, one-third of all broadband customers are now taking 100 megabit speeds or greater compared to 26% a year ago.\nThis is helping to drive a 4% increase in average residential revenue per connection in the quarter.\nWireline residential video connections grew 9% compared to the prior year.\nVideo is important to our customers, approximately 40% of our broadband customers in our IPTV market take video, which for us is a profitable product.\nOur strategy is to increase this metric as we expand into new markets the value of these services and through the launch of our new TDS TV+ product.\nOur IPTV services in total cover one-third of our wireline footprint, leaving opportunity to further leverage our investment in video.\nSlide 22 shows the progress we are making this year on our multi-year fiber program, which includes our in and out-of-territory fiber build.\nAs a result of this strategy over the last several years, 265,000 or 33% of our wireline serviced addresses are now served by fiber, which is up from 27% a year ago.\nThis is driving revenue growth, while also expanding the total wireline footprint 3% to 810,000.\nOur current fiber plans include roughly 320,000 serviced addresses that will be built over a multi-year period.\nYear-to-date, we have completed construction of 25,000 fiber addresses, and overall take rates are generally exceeding expectations in these areas that we've launched to-date.\nWe are expecting our fiber service address delivery to more than double in the second half of the year, as we continue launching new markets.\nHowever, as we discussed last quarter, we are seeing some delays in construction, but at this point, we still expect to deploy at a pace that is within our capex guidance for the year.\nFor example, slower municipality permitting as well as electric utility dependencies associated with the aerial portion of our fiber build, continue to be a major watchpoint for us.\nIn some cases, we are pivoting to buried alternatives where it makes economic sense.\nLooking at wireline financial results on Slide 23.\nTotal revenues decreased 2% to $169 million, largely driven by the continued decline in CLEC commercial revenues and a decline in wholesale revenues.\nThese declines in commercial and wholesale revenues are offsetting strong growth in residential revenue, which increased 6% due to growth from video and broadband connections as well as growth from within the broadband product mix, partially offset by a 3% decrease in residential voice connection.\nCommercial revenues decreased 10% to $38 million in the quarter, primarily driven by lower CLEC connections.\nWholesale revenues decreased 6% to $46 million due to retroactive ATM[Phonetic] funding in 2019 and decreased access revenue.\nWireline cash expenses decreased 2%, this was driven by lower employee expenses, the capitalization of new modems, previously expensed and reduced cost of legacy services, partially offset by higher video programming fee.\nIn the quarter, maintenance expense also increased partly due to storm damage in several markets.\nIn total, wireline adjusted EBITDA decreased 4% to $59 million.\nMoving to cable on Slide 24.\nCable total revenues increased as customers continue to value our broadband services.\nTotal cable connections grew 12% to 378,000, while -- which included 31,000 from the acquisition and a 9% organic increase in total broadband connections.\nOn an organic basis, broadband penetration continued to increase, up 220 basis points to 46%.\nOn Slide 25, total cable revenues increased 16% to $71 million, driven in part by the acquisition.\nWithout the acquisition, cable revenues grew 7%, driven by growth in broadband connections from both residential and commercial customers.\nOur focus on broadband connection growth and fast reliable service has generated a 25% increase in total residential broadband revenue, including organic growth of $4 million or 15%.\nAlso driving the revenue change is a 6% increase in average residential revenue per connection, driven by higher value product mix and price increases.\nCash expenses increased 13%, due primarily to costs related to the acquisition, or 4% excluding acquisition due to increased employee expense to support the growth.\nAs a result, cable adjusted EBITDA increased 20% to $24 million in the quarter, improving margin by 130 basis points to 34%.\nOn Slide 26, we provided our 2020 guidance, which is unchanged from the guidance we shared at the beginning of the year.\nWe are pleased with our results in the first half of the year and even with some uncertainty related to the pandemic in the second half of the year, we remain committed to our strategic goals and financial objectives.\nOur fiber builds are expected to ramp up in the second half of the year and we currently expect to be within the guidance range.\nI look forward to updating you in the third quarter.\nAnd before opening the call to questions, I'd like to remind everyone once again that due to the FCC's anti-collusion rules, we will not be responding to questions related to any FCC auctions or spectrum.",
        "summary": "q2 revenue $973 million versus refinitiv ibes estimate of $900.7 million.\nqtrly postpaid retail arpu $46.24."
    },
    {
        "text": "We do want to send out our very best wishes that you and your families are well.\nWe provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest, taxes, depreciation and amortization or EBITDA to highlight the contributions of UScellular's wireless partnerships.\nIn terms of our upcoming IR schedule, Slide 3, we will be virtually attending the Raymond James SMID Cap Company Showcase virtually on November 12th and 13th, and we are attending the UBS Global TMT Conference virtually on December 8th and our open-door policy is now more of an open phone or open video policy, so please reach out to us if we can arrange something.\nBefore turning the call over, I do want to remind everyone that due to the FCC's Anti-Collusion Rules related to the RDOF Auction and Auction 107, we will not be responding to any questions related to FCC Auctions.\nI'm going to make some brief comments about the balance sheet and our liquidity position.\nBut before doing so, I'd like to recognize the impressive operational and financial results of both businesses during the quarter.\nAs we've discussed on past calls, maintaining financial flexibility is one of the pillars of our corporate strategy.\nOver the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances, while at the same time making sure that we have the financial resources we need to fund our businesses.\nAs you can see on Slide 4, on September 30 TDS continued to have a strong financial position including $2.2 billion in immediately available funding sources consisting of cash and cash equivalents, available credit facilities, undrawn term loans and undrawn portions of our EIP securitization facility.\nIn the quarter, UScellular took advantage of favorable market conditions and issued $500 million of 6.25% retail senior notes due in 2069.\nIt is very typical for us to opportunistically tap the market for funding when conditions are favorable, as they certainly were in August.\nAs highlighted on the slide we have a number of potential funding sources.\nIn this instance, given market conditions, we judge that the retail debt market was relatively favorable taking into account all factors including term, call ability, ease of execution, lack of impact on the business operations, lack of meaningful covenants and of course, the all-in cost of financing relative to our other potential alternatives.\nIn October, UScellular upsized its EIP securitization agreement from $200 million to $300 million.\nWhile shorter in term than some of our other financings, this is our lowest cost financing facility and we have a solid pool of receivables against which we can raise funds.\nIn sum, we are in a very strong position to invest in the growth opportunities identified by both of our businesses.\nIt's kind of hard to believe but I've been on the job for four months already and I'm really looking forward to providing all of you with a brief update on the progress we've made over that time.\nBut before we pass by this page, Page 5, I just want to point out the new logo that we introduced in September and this logo is just another aspect of our program to elevate and evolve the UScellular brand.\nThis provides I think a much more modern look, reflects the rapidly evolving technologies in the services we provide to our customers.\nYou would expect to see further changes to this brand in the marketplace in the coming quarters but this logo is the first step.\nLet's turn to Page 6 and talk a little bit about the quarter.\nSo we reported a really impressive quarter and I'm really proud of how the team executed.\nWe had strong subscriber and financial results and I think that's evidence of just how essential our industry is.\nThe value the customers ascribed to the services we provide but it's also credit to the talent and resiliency of the organization.\nWe saw strong sales of connected devices and that coupled with low churn helped us grow our base.\nWe also maintain significant expense discipline that drove adjusted EBITDA to increase 10% year-over-year.\nThose results are the primary drivers of our increased guidance for the year.\nDoug is going to provide a couple of more details on that in a moment.\nI do want to remind you that one factor that impacted year-over-year comparability is the later iPhone launch.\nSo last year, the device launch was late in the third quarter and as you know it was in October of this year.\nWe're excited about this launch and how that new timing is serving as the kick off to this very non-traditional and pandemic-influenced holiday selling season.\nThe timing should also help us to spread customer traffic out over the holiday-selling season and it's a really important consideration to keep our customers and our employees safe during the pandemic.\nSimilar to previous launches, we have competitive offers that appeal we believe to both new customers and our existing customers who are ready to upgrade their devices.\nAnd we're really pleased that the new iPhone 12 series of devices support our network requirements and that includes full support 5G, 600 megahertz spectrum that we're currently deploying as well as millimeter wave in the future.\nLike all businesses we continue to face challenges from the pandemic.\nThe safety of our frontline associates and our customers is of utmost importance.\nOur stores remained open throughout the quarter but store traffic continues to trend below prior year levels.\nWe continue to have favorable experience in terms of customer payment behavior and that contributed to the year-over-year favorability in bad debt expense.\nIn addition, with respect to our participation in the FCC's Keep Americans Connected Pledge 70% of customers that participated in the pledge paid or made partial payment or entered into payment arrangements.\nTalking just a bit about 5G.\nOn the 5G front, working with Qualcomm Technologies and Ericsson, we completed an extended range 5G millimeter wave data session over a distance of more than 5 kilometers with speeds ranging from 100 megabits per second near the edge to 1.8 gigabits per second closer to the cell site.\nThis is a world record and it means that we're going to be able to connect our communities with fiber-like speeds over wireless in the future and we're excited about that.\nOur network modernization and our 5G program continues to be on track.\nBy year-end we're going to deploy 5G to cell sites that handle about 50% of our overall traffic.\nWe turn briefly to our organization, so I've spent the last couple of months speaking with customers, employees and leadership team and I have to tell you, we have a fantastic culture in this company, we have amazing associates, we have an award-winning network, we have great distribution and great customer care.\nDuring the process of making some changes, we're going to promote even more organizational speed and agility.\nThis includes flattening the organization to create a faster and more decentralized decision-making process.\nAnd as part of that we've redefined some of our leadership roles.\nSo Eric Jagher is now responsible for Consumer Sales and Operations, Courtland Madock is responsible for operational marketing, Verchele Roberts for Brand Management.\nWe've also brought in some terrific new talent like Kimberly Kerr into expanding our participation in the business in the government sector as well as Austin Summerford who is going to be focusing on business development, enhancing our partnership and maximizing the returns from our tower assets.\nJay has announced he is going to be retiring effective January 1, 2021.\nHe's currently serving as a special advisor to me.\nAnd like most of you, we're watching closely and regularly refreshing our Twitter feeds to see updates with the situation.\nAnd that being said, regardless of who occupies the White House, my hope and my expectation is that the administration will focus on improving and investing in American infrastructure.\nAs part of that, I think it's important to separate two issues that are critical to our customer base.\nWe don't really talk about this in other forums.\nFirst, we need to ensure that strategies are put in place to ensure American competitiveness and leadership in 5G, particularly expanded access to spectrum for commercial use.\nBut secondly, we need to focus on ensuring access to quality, affordable wireless service.\nThat's regardless of G in difficult to reach and expensive to serve rural areas.\nWe're going to be focused on this as a company.\nThese are issues that we think will resonate regardless of who wins the election.\nWe're truly operating in unprecedented times and it requires a huge amount of operational flexibility.\nWe've had a really strong quarter, which is a testament to the hard work and the dedication of the team.\nI think we're in a really strong position moving into the busy holiday season.\nLet me touch briefly on the postpaid connections results during the third quarter shown on Slide 7.\nPostpaid handset gross additions decreased primarily due to lower switching activity and decreased store traffic due primarily to the impacts of COVID-19 and to a lesser extent the delayed iPhone launch.\nThis decrease is partially mitigated by increased demand for connected devices.\nTotal smartphone connections increased by 3,000 during the quarter and by 45,000 over the course of the past 12 months.\nThat helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU.\nAs mentioned, we saw connected device gross additions increase by 27,000 year-over-year.\nThis was driven by gross additions of hotspots, routers and fixed wireless devices as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19.\nDuring Q3, we saw an average year-over-year decline in store traffic of 25% related to the impacts of COVID as well as some heavier activity in the prior year when we had service plan pricing changes and the iPhone launch.\nThe decrease in store traffic had a negative impact on gross additions although connected device activity remains stronger than prior year.\nNext, I want to comment on the postpaid churn rate shown on Slide 8.\nCurrently, as you would expect, churn on both handsets and connected devices is running at very low levels.\nPostpaid handset churn depicted by the blue bars was 0.88% down from 1.09% a year ago.\nThis was due primarily to lowered switching activity as customer shopping behaviors were altered due to the COVID-19 pandemic.\nAnd we also saw more customers upgrading their devices with us resulting in a 4% increase in upgrade transactions year-over-year.\nThe FCC Keep Americans Connected Pledge ended on June 30th and 70% of the customers that were on the pledge at June 30th are current or remain at payment arrangements.\nTotal postpaid churn combining handsets and connected devices was 1.06% for the third quarter of 2020 also lower than a year ago.\nNow let's turn to the financial results on Slide 9.\nTotal operating revenues for the third quarter were $1.027 billion, a slight decrease year-over-year.\nRetail service revenues increased by $11 million to $674 million.\nThe increase is due to a higher average revenue per user, which I'll cover on the next slide, partially offset by a decline in the average postpaid subscriber base.\nInbound roaming revenue was $42 million, that was a decrease of $12 million year-over-year driven by lower data rates and to a lesser extent a decrease in data volume.\nOther service revenues were $59 million, an increase in $2 million year-over-year due to an increase in tower rental revenues and miscellaneous other service revenues partially offset by a prior year tower rental revenues accounting adjustment that increased tower rental revenues in the prior year.\nFinally equipment sales revenues decreased by $5 million year-over-year due to a decrease in new smartphone unit sales and lower accessory sales.\nNow a few more comments about postpaid revenue shown on Slide 10.\nAverage revenue per user or connection was $47.10 for the third quarter, up $0.94 cents or approximately 2% year-over-year.\nAt a per account basis average revenue grew by $3.40 or 3% year-over-year.\nThe increase was driven by several factors including increased device protection revenues, an increase in regulatory recovery revenues and having proportionately fewer tablet connections, which on a per unit basis contribute less revenue than smartphones.\nAs part of caring for our customers during the COVID-19 crisis, we elected to waive overage charges from March through July.\nThese waived charges partially offset the increases to ARPU.\nTurning to Slide 11 as we continue our multi-year network modernization and 5G rollout, control of our towers remains very important.\nWe have added this slide to provide visibility to rental income growth from our towers.\nBy owning our towers we ensure that we are located at the optimal location of the tower and it gives us the operational flexibility to move equipment, which is very important when you're going through a technology evolution.\nWhile the towers support our network strategy, we also recognize that they are valuable and provide a financing alternative, which we evaluate along with our other financing options.\nAs you can see on the slide, since we entered into a third-party marketing agreement, we have seen steady growth in tower rental revenues.\nWe will continue to focus on growing revenues from these strategic assets.\nMoving to Slide 12.\nI want to comment on adjusted operating income for depreciation, amortization and accretion and gains and losses.\nTo keep things simple, I'll refer to this measure as adjusted operating income.\nAs shown at the bottom of the slide adjusted operating income was $232 million, an increase of $24 million or 12% year-over-year.\nAs I commented earlier, total operating revenues were $1.027 billion, a slight decrease year-over-year.\nTotal cash expenses were $795 million, decreasing $28 million or 3% year-over-year.\nTotal system operations expense increased year-over-year.\nExcluding roaming expense, system operations expense increased by 1% mainly driven by higher sell site rent expense.\nNote that total system usage grew by 54% year-over-year.\nRoaming expense increased $2 million or 5% year-over-year due to a 69% increase in off-net data usage partially offset by lower rates.\nCost of equipment sold decreased $9 million or 4% year-over-year due primarily to a reduction in the number of new smartphone unit sales and a decrease in accessory sales.\nSelling, general and administrative expenses decreased $23 million or 6% year-over-year driven by a decrease in bad debts expense.\nBad debts expense decreased $22 million due primarily to lower write-offs driven by fewer non-pay customers and lower EIP sales in 2020 versus 2019.\nTurning to Slide 13 and adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings for our equity method investments along with interest and dividend income.\nAdjusted EBITDA for the quarter was $282 million, a $26 million for 10% increase year-over-year due to the improvement in adjusted operating income as well as an increase in equity earnings of unconsolidated entities, partially offset by a decrease in interest income.\nMoving to Slide 14.\nGiven the strong results this quarter and overall improved visibility given where we are in the year, we have revised our 2020 guidance in a number of ways.\nFirst, we have narrowed our guidance for service revenues to a range of $3.025 billion to $3.075 billion maintaining the midpoint.\nFor adjusted operating income and adjusted EBITDA, we have both increased the midpoint and narrowed the range.\nAdjusted operating income is now expected to be between $800 million and $875 million.\nAdjusted EBITDA is now expected to be between $975 million and $1.05 billion.\nWe are planning for aggressive promotional activity during the holiday season, which is reflected in these estimates.\nWe are maintaining our guidance for capital expenditures at the $850 million to $950 million range as we work to meet our deployment goals for the year.\nWe are well-positioned to close out the year successfully and we'll look forward to reporting those results to you in February.\nTDS Telecom had a very strong third quarter.\nWe grew both revenue and adjusted EBITDA up 7%, and 8%, respectively, and we made significant progress on advancing our strategic and our operational priority.\nThese include our fiber deployment strategy to generate growth and the work we're doing to upgrade our plant with A-CAM and state broadband grant as we continue to promote higher sales and customer satisfaction in existing markets.\nLet me first begin by giving an update on the actions we've taken in the quarter.\nDisruptions caused by COVID-19 and steps taken to prevent its spread continue to impact our way of doing things day-to-day and probably will for a long time.\nWe have established and continue to enhance protocols to keep our employees and customers safe.\nWe monitor and safeguard our networks to ensure service availability during these times of critical need and we are partnering with our community to share our resources to support their critical programs.\nCertainly the pandemic has shown a spotlight on just how important connectivity is to our society and our economy and we are proud to be providing these services to all of our customers, especially those in rural and underserved markets.\nAs it relates to the election, we have a history of working cooperatively with administrations from both parties and we'll continue to do so in order to provide high quality, affordable broadband service to rural America.\nThe pandemic has also become an inflection point in our economy and we are positioned to be a critical part of new and emerging workplace trends.\nAs innovation and human capital spread from cities to rural areas, broadband services become increasingly important and we'll provide the connection that allows people and businesses to succeed and we are perfectly positioned to provide that cornerstone.\nFinally, as we expand into new markets, dependencies on third parties such as vendors, contractors, and local governments have presented diverse challenges during this pandemic, which we are learning from and leveraging to create momentum in future projects.\nWe are progressing with our launch of our cloud TV product called TDS TV+ across our IPTV markets and across our largest cable market.\nWhile it is still early in its launch, we are focused on ensuring its success across our markets.\nWe are currently assessing initial customer feedback and making upgrades to the product.\nWe plan to continue rolling out TDS TV+ to the remaining cable markets and to our out-of-territory fiber market.\nIn our out-of-territory fiber market, pre-sales continue to exceed our expectations.\nWe are currently installing service in our Wisconsin and Idaho clusters and began construction in Spokane, Washington, which followed closely after its recently launched pre-sale activities.\nWe have completed construction in four Wisconsin markets and remain focused on construction through the remaining community.\nWe've identified additional attractive markets that support our selection criteria and are evaluating expansion in our major clusters.\nWe are continuing to drive faster speeds in our established markets by building to meet our A-CAM obligations.\nIn all our markets we utilize targeted local marketing and demand for our products is strong.\nThis investment is providing necessary services to underserved areas.\nOverall, we remain committed to achieving our strategic priorities through the remainder of the year as outlined on Slide 16.\nNow let me highlight our financial results for the quarter as shown on Slide 17.\nConsolidated revenues increased 7% from the prior year.\nThis growth is the result of our broadband initiatives and the contributions from the Continuum cable acquisition.\nOur fiber expansions are driving incremental increases on wireline, broadband and video revenue.\nThrough September, our entry into new markets has produced $15 million of revenue and is expected to contribute over $20 million for the year.\nIn addition to impact from the acquisition, we continue to see strong growth in cable, residential ARPU and broadband subscribers.\nCash expenses increased 4%, about half of which is from the acquisition.\nIn addition, expenses increased related to launching our new fiber market and cost to maintain and upgrade our existing facilities.\nRevenue increases exceeded growth and expense, driving an 8% increase in adjusted EBITDA to $78 million.\nCapital expenditures increased to $92 million as we continue to increase our investment in our fiber deployments and success-based spends.\nI will cover our total fiber program in more detail in a moment but for now, let's turn to our segments beginning with wireline on Slide 18.\nBroadband residential connections grew 8% in the quarter as we continue to fortify our network with fiber and expand into new markets.\nFrom a broadband speed perspective, we are offering up to 1 gig broadband speeds in our fiber market and 12% of our wireline customers are taking this product we're offering.\nAcross our wireline residential base, including our out-of-territory markets, 38% of broadband customers are taking 100 megabit speeds or greater compared to 31% a year ago.\nThis is helping to drive a 5% increase in average residential revenue per connection in the quarter.\nWireline residential video connections grew 9% and at the same time, we expanded our IPTV markets to 53, up from 34 a year ago.\nVideo remains important to our customers, approximately 40% of our broadband customers in our IPTV markets take video which for us is a profitable product.\nOur strategy is to increase this metric as we expand into new markets, the value of these services and through our new TDS TV+ product.\nOur IPTV services in total cover about 39% of our wireline footprint today.\nThis is leading opportunity to further leverage our investment in video.\nSlide 19 shows the progress we're making this year and our multi-year fiber footprint expansion, which includes fiber into existing markets and also out-of-territory fiber build.\nAs a result of this strategy over the last several years 280,000 or 34% of our wireline service addresses are now served by fiber, which is up from 29% a year ago.\nThis is driving revenue growth while also expanding the total wireline footprint by 5% to 823,000 service addresses.\nOur current fiber plans include roughly 320,000 service addresses that will be built over a multi-year period.\nAnd year-to-date, we have completed construction of 40,000 fiber addresses in addition to the 40,000 addresses we turned up in 2019 related to this program.\nOverall, take rates are generally exceeding expectations in the areas we have launched to date.\nWe are expecting our fiber service addresses delivery to accelerate in the remainder of the year, even though we continue to experience some delays in construction as I've mentioned in previous quarters, which will shift some of this growth into next year.\nLooking at wireline financial results on Slide 20.\nTotal revenues increased 2% to $173 million largely driven by the strong growth in residential revenue, which increased 8% due to growth from video and broadband connections as well as growth from within the broadband product mix partially offset by a 2% decrease in residential voice connection.\nConsumer revenues decreased 8% to $38 million in the quarter primarily driven by lower CLEC connections.\nWholesale revenues increased slightly to $45 million due to certain state USF support timing.\nWireline cash expenses were flat and lower employee expenses, legal expenses and the capitalization of new modems previously expensed offset by higher video programming fees and maintenance expense.\nIn total, wireline adjusted EBITDA increased 3% to $53 million.\nMoving to cable on Slide 21.\nCable total revenues increased as customers continue to value our broadband services.\nTotal cable connections grew 12% to 377,000, which included 31,000 from the acquisition and a 9% organic increase in total broadband connections.\nOn an organic basis broadband penetration continued to increase up 200 basis points to 46%.\nOn Slide 22, total cable revenues increased 19% to $74 million driven in part by the acquisition.\nWithout the acquisition cable revenues grew 10% driven by growth in broadband connections for both residential and commercial customers.\nOur focus on broadband connection growth and fast reliable service has generated a 29% increase in total residential broadband revenue including organic growth of $5 million or 20%.\nAlso driving the revenue changes is an 8% increase in average residential revenue per connection, driven by higher value product mix and price increases.\nCable cash expenses increased 18% due primarily to costs related to the acquisition or 8% excluding acquisition due to increased employee expense.\nAs a result, cable adjusted EBITDA increased 20% to $25 million in the quarter.\nOn Slide 23 we've provided our revised guidance for 2020 reflecting the strong performance so far this year.\nWe are maintaining our revenue and capital expenditure guidance and are increasing our expectations for adjusted EBITDA by increasing the midpoint and narrowing the range to $305 million to $325 million.\nWe are pleased with our results through the first three quarters of the year and even with some uncertainty related to the pandemic in construction schedules, we remain aligned with our strategic goals and financial objectives.\nOur fiber builds are expected to increase in the last quarter of the year and with additional success-based spend, we expect to be within the guidance range for capital expenditures.\nAnd in a lot of cases overcoming adversity to embrace our culture and continue to serve our customers with excellence while bringing our new markets to life during a pandemic.\nWith all these efforts we look forward to updating you on our progress in February.",
        "summary": "q3 revenue $1.027 billion versus refinitiv ibes estimate of $998.7 million."
    },
    {
        "text": "Our hearts go out to all those affected by the COVID-19 pandemic.\nWe are inspired by the healthcare providers, the first responders, the ingenuity of our communities, businesses and governments.\nWe commenced business operations more than 20 years ago, intent on protecting and serving our consumers in their most critical time in some of the most challenging coastal areas in the United States for natural disasters.\nWe have remained highly proficient and steadfast in that commitment.\nWe entered this critical time in a position of strength with a debt-to-equity ratio of less than 2%.\nAnd currently accruing more reserves than at any point in the company's history and with a highly experienced rapid response disaster team.\nWe are off to a good start in 2020 with solid first quarter results, including an annualized return on average equity of 16.1% and progress on our reinsurance renewals for June 1.\nIn this dynamic environment, we continue to support our consumers whether they are shopping for new policies, submitting claims, refinancing or extending terms, while having substantially all of our employees in our rapid response virtual protocol.\nOn those last two points, I would like to highlight the following.\nFirst, since March 15, we have extended favorable terms to consumers of all states upon request.\nSecondly, around the same mid-March time frame, we implemented our rapid response virtual protocol, which included outfitting employees with remote capabilities and enhancing our consumer outreach via virtual solutions.\nIn addition, we have accelerated the use of our virtual inspection software and trained an additional 100 employees on the application.\nWe have utilized various virtual tools to continue to attend appraisals, mediations and depositions.\nAll of our continuous improvement training has been uninterrupted through the use of Microsoft teams, led by our learning and development organization.\nMost importantly, we continued to accelerate the use of virtual desk adjusting when appropriate.\nAnd for the claims that cannot be adjusted virtually, we recognize the increased hardship placed both on the consumer and our field staff.\nSo as an essential business, we have outfitted our adjusters with the appropriate personal protective equipment.\nWe do not have exposure to many lines of business directly impacted by COVID-19.\nBut we continue to monitor the currently unknowable longer tail impacts to the housing and rental markets.\nWe believe we remain well positioned for 2020 and remain resolute in serving our consumers and creating value for our stakeholders.\nAs a reminder, discussions today on adjusted operating income and adjusted earnings per share are on a non-GAAP basis and exclude effects from unrealized and realized gains and losses on investments, and extraordinary reinstatement premiums and related commissions.\nAdjusted operating income also excludes interest expense.\nEPS for the quarter was $0.61 on a GAAP basis and $0.79 on a non-GAAP adjusted earnings per share basis.\nDirect premiums written were up 15.7% for the quarter, led by strong direct premium growth of 19% in other states and 15% in Florida.\nNet premiums earned were up 5.3% for the quarter, reflecting an increase in direct premiums earned offset by increased costs for reinsurance.\nOn the expense side, the combined ratio increased seven points for the quarter to 94.1%, driven primarily by increased losses in connection with the continued diversification in the company's underlying business to states outside of Florida, an increase in core loss pick for 2020, an increase in prior year adverse development, partially offset by a lower level of weather events in 2020 and a small reduction in the expense ratio.\nTotal services revenue increased 25.6% to $15.3 million for the quarter, driven primarily by commission revenue earned on ceded premiums.\nOn our investment portfolio, net investment income decreased 16.1% to $6.8 million for the quarter, primarily due to significantly lower yields on cash and short-term investments during the first quarter of 2020 when compared to the first quarter of 2019.\nThe prior year also includes onetime income benefits from a special dividend received and a onetime reduction in investment expenses.\nThe company continually monitors the Federal Reserve actions, which has impacted effective yields on new fixed income and overnight cash purchases.\nDuring March of this year, as a result of the COVID-19 pandemic, we saw extreme instability in the fixed income market prior to the Federal Reserve, providing liquidity into that market.\nAs a result of the instability, we had a decline in the amount of unrealized gains in our fixed income portfolio, which affected the balance sheet only.\nThat said, we still ended the quarter with an overall unrealized gain in our fixed income portfolio of $15.4 million, which has further improved subsequent to the end of the first quarter.\nTo be clear, the impact COVID-19 had during the first quarter on debt and equity markets affected our book value per share by approximately $0.45, made up of approximately $0.27 related to the balance sheet-only impact from the decline in the amount of unrealized gains in our fixed income portfolio with the remainder being attributable to the effect of unrealized losses on our equity securities reflected in the P&L and consequently in retained earnings.\nWith the exception to these factors, our book value per share growth would have been enhanced in the quarter.\nThe credit rating on our fixed income securities was A plus at the end of the first quarter with a duration of 3.6 years, which we feel gives us a strong foundation to weather the current market conditions.\nUnrealized losses on our equity securities were, again, driven by market volatility related to the COVID-19 pandemic, resulting in an unfavorable outcome for the quarter.\nIn response to the pandemic, the Board's Investment Committee has approved measures to continue building our portfolio's cash position to preserve capital for both risks and opportunities.\nIn regards to capital deployment, during the first quarter, the company repurchased approximately 312,000 of UVE shares at an aggregate cost of $6.6 million.\nOn April 16, 2020, the Board of Directors declared a quarterly cash dividend of $0.16 per share payable on May 21, 2020 to shareholders of record as of the close of business on May 14, 2020.\nAs we have done every quarter since Hurricane Irma made landfall, I would like to start with some additional color on past cat events, then talk briefly about 1Q weather and lastly, provide an update on our June one reinsurance placement efforts.\nOn past cat events, we continue to make progress in resolving the remaining open claims and, of course, handling the newly reported claims as quickly as possible.\nOur in-house claims and legal staff continue to deliver day in and day out for our company and for our reinsurance partners as we approach the finish line on these cat events.\nAs of 3/31, Hurricanes Matthew and Florence, each were approaching single-digit open claims and are very near the end.\nHurricane Michael had approximately 200 open claims and continues to be booked at the same $360 million as year-end.\nOn Hurricane Irma, despite the fact that new claims continued to be reported throughout the first quarter, we still successfully reduced the remaining open claim countdown to below 600.\nAs we prepare for the 3-year statute of limitation for filing new Irma claims, we elected to add another $50 million of IBNR to this event.\nThis brings our booked ultimate to $1.45 billion at 3.31%.\nAs a reminder, at this point in the life cycle of Hurricane Irma, the vast majority of any increase in ultimate is covered by the Florida Hurricane Catastrophe Fund.\nHowever, booking this level of additional IBNR did result in some net exposure as outlined in our release.\nTurning now to 1Q weather.\nFor the most part, 1Q weather for us was within plan.\nHowever, we continue to closely monitor two smaller cat events, one occurring in mid-January, impacting us, primarily in Georgia and Alabama; and a second occurring in early February and impacting us, primarily in Florida and the Carolinas.\nAs noted in our release, we have added an additional $1 million to accident year 2020 losses as we monitor these events.\nAs a reinsurance update, over the course of the past several months, we've met with nearly all of our reinsurance partners to discuss our upcoming June one reinsurance renewal.\nAs you might imagine, most of these meetings were forced to be conducted virtually, but the reinsurance market, overall, was very receptive and appreciative of the time and effort put forth to be able to share our message and answer their questions directly.\nAs is our normal practice from a timing perspective, we have already begun securing the necessary catastrophe capacity to be effective at June 1.\nIt goes without saying that the impacts of COVID-19 are being felt by many of our longtime reinsurance partners, and we could not be more appreciative of their professionalism in the face of this challenge.\nWhile we all might like to press pause on this reinsurance renewal, that is unfortunately not an option.\nWe will not be sharing any pricing specifics today as the negotiations are still in progress.\nHowever, I do feel it important to provide a few high-level comments on the overall status of our core first event reinsurance tower for this year.\nAs we disclosed during our year-end earnings call, with capacity already locked in via the Florida Hurricane Catastrophe Fund and multiyear deals, we stood at over 75% of our desired core first event reinsurance tower complete.\nThe market pricing for the remaining capacity has already been sent into the worldwide catastrophe reinsurance market for its proper subscriptions.\nAnd since last week, we have already been receiving authorizations from our reinsurance partners for the June 1, 2020 program.\nAs of today, the percentage complete is approaching 90%, so we are well on our way.",
        "summary": "compname reports q1 earnings per share $0.61.\nq1 gaap earnings per share $0.61.\nq1 adjusted non-gaap earnings per share $0.79."
    },
    {
        "text": "Our third quarter results, reported yesterday, demonstrate continued execution of our multiyear strategic priorities, including disciplined growth and operational improvements.\nOur direct premiums earned growth of 15% in the third quarter was primarily driven by primary rate increases in Florida earning through the book.\nWe have now filed for more than 34% in primary rate increases in Florida over the past 18 months while simultaneously continuing to shape our underwriting risk with total policies in force relatively flat year-over-year.\nOur business expenses were lower from continued expense management controls, including lower agency commissions and employee productivity gains, in addition to lower executive compensation accruals.\nThese results were highlighted by a 16.4% annualized return on average equity in the quarter.\nAs a reminder, discussions today on adjusted operating income and adjusted earnings per share are on a non-GAAP basis and exclude effects from unrealized and realized gains and losses on investments and any extraordinary reinstatement premiums and related commissions.\nAdjusted operating income also excludes interest expense.\nWe ended the third quarter with total revenue down 7.8% to $287.3 million, driven primarily by the realized gain on investments of $53.8 million in the third quarter of the prior year versus a $4.3 million realized gain in the current quarter.\nDirect premiums earned were up 15% for the quarter, led by primary rate increases in Florida and other states earning through the book as policies renew.\nEPS for the quarter was $0.64 on a GAAP basis and $0.63 on a non-GAAP adjusted basis, driven by a combined ratio improvement of 36.1 points for the quarter to 98.6%.\nThe improvement was driven by a 30.9 point improvement in the net loss and LAE ratio from decreased weather events and lower prior year's reserve development, partially offset by current year strengthening and higher reinsurance costs impact on the ratio.\nThe expense ratio improved 3.7 points on a direct premiums earned basis due to continued focus on operating efficiencies, as Steve mentioned in his remarks.\nOn a net basis, the expense ratio improved 5.2 points for the quarter.\nOn our investment portfolio, we saw our net investment income decrease 38.6% to $2.8 million, and our realized gains decreased 92% to $4.3 million for the quarter.\nBoth decreases are the result of the sale and subsequent reinvestment at lower yields of a majority of securities in the portfolio that were in an unrealized gain position in the third and fourth quarters of 2020 to recognize the fair value benefits in surplus.\nIn regards to capital deployment, during the quarter, the company repurchased approximately 101,000 shares at an aggregate cost of $1.4 million.\nThe company's current share repurchase authorization program has $17.8 million remaining as of September 30, 2021, and runs through November 3, 2022.\nOn July 19, 2021, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, which was paid on August 9, 2021, to shareholders of record as of the close of business on August 2, 2021.\nAs mentioned in our release yesterday, we are maintaining our guidance for 2021.\nWe still expect a GAAP and non-GAAP adjusted earnings per share range of between $2.75 and $3 and a return on average equity of between 17% and 19%.\nThe guidance assumes no extraordinary weather events in 2021 and also assumes a flat equity market for GAAP EPS.\nIf weather events exceed plan, we expect to see both the benefit from our claims adjusting business and increased loss costs.",
        "summary": "compname reports q3 gaap earnings per share of $0.64.\nq3 gaap earnings per share $0.64.\nqtrly non-gaap adjusted earnings per share of $0.63.3q21 direct premiums earned up 15.0% driven by primary rate increases earning-in."
    },
    {
        "text": "We ended the year with a record of more than $1.5 billion of premium now in force.\nUnfortunately, the industry, markets we served had a record-setting frequency of weather events during the 2020 winter season which impacted our 4th quarter and full year results.\nWe were impacted by Hurricane Sally, PCS, Zeta and Eta in 2020 and to a much lesser extent Hurricane delta.\nIn addition, we had exposure to a series of other 2020 PCS weather events and minimal exposure to the Midwest Derecho.\nAll told, we had a bit over 10,000 claims in the fourth quarter from named 2020 storms and other PCS events.\nWe did not have any exposure to hurricane Laura or any other weather in Texas or Louisiana including the recent winter storms.\nWe also had no exposure to the West Coast wildfires as we do not write business in those markets.\nDespite the weather in 2020, we continued our focus on underwriting increasing our primary rates in Florida, close to 20% for the full year, including 7% in the 4th quarter for 2020 reinsurance costs as well as increases in some of our other states.\nWe continue to implement new binding guidelines to address emerging loss trends.\nWe have continued to maintain a resilient balance sheet that has self funded our risk bearing entities capital requirements in addition to enhancing our reserves.\nWe continue to be backed by our great reinsurance program and partners with close to 75% of our first event reinsurance capacity for June 1, 2021 secured already.\nWe continued our geographic expansion efforts in 2020 and implemented our catastrophe rapid response teams during the COVID-19 pandemic which accelerated our use of digital technology for adjusting claims.\nWe also continue to develop adaptive adjusting approaches to address claims loss cost trends.\nWe look forward to 2021 as we continue to focus on resiliency and taking the necessary steps to provide reliability to consumers and reduce uncertainty for shareholders.\nAs a reminder, discussions today on adjusted operating income and adjusted earnings per share are on a non-GAAP basis and exclude effects from unrealized and realized gains and losses on investments, an extraordinary reinstatement premiums and related commissions.\nAdjusted operating income also excludes interest expense.\nWe ended 2020 with total revenue up 14.2% to $1.1 billion, driven primarily by growth in net premiums earned, realized gains on investments and increases in service revenue, partially offset by decreases in net investment income and increased reinsurance costs.\nEPS for the quarter was a loss of $0.57 on a GAAP basis and a loss of $0.84 on a non-GAAP adjusted basis.\nFor the year, we generated earnings per share of $0.60 on a GAAP basis and a loss of $0.90 on a non-GAAP adjusted basis.\nThese results were impacted predominantly by weather events in 2020 and related social dynamics and increased reinsurance costs.\nOur direct premiums written grew by 21.9% in Q4 compared to the prior year's quarter led by the impact of rate increases in Florida and other states taking effect as well as strong direct premium growth in Q4 of 18.9% in states outside of Florida.\nFor the full year, direct premiums written were up 7% led by rate increases and increased volume as well as strong direct premium written growth of 17.7% in other states and slightly improve policy retention.\nOn the expense side, the combined ratio decreased 18.9 points for the quarter to 124% but increased 9.7 points for the full year to 113.6%.\nThe full year increases were driven primarily by an increase of 13 points for increased weather in 2020.\nIn addition, increases were also attributable to an increase in our core loss pick when compared to the full prior year and the effect on the ratio from increased reinsurance costs.\nThe increases were partially offset by a lower level of prior years reserve development on prior year's losses in LAE reserves, which accounted for 4.1 loss ratio points.\nA benefit from our claims adjusting business and a 90 basis point improvement in the expense ratio, net investment income decreased 62.7% for the quarter and 33.7% for the full year primarily due to lower yields on cash and fixed income investments during 2020 when compared to 2019.\nRealized gains for the quarter and for the full year resulted primarily from taking advantage of increased market prices on our available for sale debt investment for portfolio and to a lesser extent aided by the sale of equity securities.\nUnrealized gains were driven by market fluctuations in equity securities resulting in a favorable outcome for the quarter and the full year.\nIn regards to capital deployment, during the fourth quarter, the company repurchased approximately 193,000 shares at an aggregate cost of $2.4 million, for the full year, the company repurchased approximately 1.6 million shares at an aggregate cost of 28.9 million.\nFor 2021 guidance, we expect a GAAP and non-GAAP adjusted earnings per share range of between $2.75 and $3 assuming no extraordinary weather events in 2021 and a return on average equity of between 17% to 19%.\nThe guidance assumes no extraordinary weather events in 2021.\nIt also assumes a flat equity market for GAAP earnings per share if weather events exceed plan, we expect to see both a benefit from our claims adjusting business and increased loss cost.",
        "summary": "q4 gaap loss per share $0.57.\nqtrly adjusted loss per share $0.84.\ninitiating fy21 guidance: gaap and non-gaap adjusted earnings per share of $2.75 - $3.00."
    },
    {
        "text": "These uncertainties are detailed in documents filed regularly with the SEC.\nWe use adjusted constant dollar amounts as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results of our business.\nYou may also hear us refer to reported amounts, which are in accordance with US GAAP.\nDue to the significant impact of the coronavirus pandemic on our prior year figures, today's call also contains certain comparisons to the same period in fiscal 2020 for additional context.\nThese comparisons are all under the reported dollar basis.\nOn June 28, 2021, the company completed the sale of its Occupational Workwear business.\nAccordingly the company has reported the related held for sale assets and liabilities of this business as assets and liabilities of discontinued operations and included the operating results and cash flows of this business in disc ops for all periods through the date of sale.\nJoining me on the call will be VF's Chairman, President and CEO, Steve Rendle; and EVP and CFO, Matt Puckett.\nWe are encouraged by the strong start to our fiscal 2022 year.\nOur teams delivered an outstanding first quarter powering VF back to pre-pandemic revenue levels while driving an earnings recovery well ahead of our initial expectations.\nWe continue to see broad based momentum across the portfolio, which furthers my confidence in our ability to accelerate growth through fiscal 2022 and beyond.\nWhile the near-term environment remains somewhat clouded by virus surges in Southeast Asia, uncertainties in other regions brought on by the impact of new variants and further pressures on the global supply chain, our teams are executing.\nWe remain focused on the things that we can control and winning the parts of our business with the consumers coming back strong.\nAnd we remain confident in our ability to continue driving this sharp recovery across our business.\nMatt, will walk you through our results in detail, but I'll start off with some Q1 highlights.\nVF revenue has surpassed pre-pandemic levels growing 96% or 83% organically to $2.2 billion with momentum across brands, regions, and channels.\nOur global DTC business delivered high single-digit growth relative to prior peak levels driven by a strong acceleration from our brick and mortar stores in the US and continued strength in our digital.\nOur organic DTC digital business is now 72% above fiscal 2020 levels including the growing benefit of our omnichannel capabilities as we serve our consumers seamlessly across their choice of channel.\nWe've seen a sharp recovery in our wholesale business, which grew over 100% organically in Q1 approaching prior peak fiscal 2020 levels.\nStrong sell-through trends and clean channel inventory levels from the past year are now translating into stronger fall '21 and spring '22 order books supporting an improving outlook for our wholesale business for this year and beyond.\nWe've seen a strong recovery in our gross margin, which grew 260 basis points to 56.7% in Q1.\nThis represents organic gross margin expansion relative to prior peak fiscal 2020 levels despite a 30 basis point headwind from a more challenging logistics and freight environment.\nVF drove organic earnings growth of 133% delivering $0.27 in Q1.\nessentially doubling our plan.\nWe're pleased to see our top line momentum and strong gross margin expansion translate into better than anticipated, SG&A leverage and earnings flow through an indication of the upside potential of our model as our recovery accelerates.\nNow, turning to our brand highlights from the quarter.\nThe Vans brand as returned to pre-pandemic revenue levels growing 102% in Q1.\nThe recovery has been led by global DTC business, which drove double-digit growth relative to fiscal 2020 led by 73% growth in digital.\nThis DTC strength has been broad based with each region reporting positive DTC growth relative to pre-pandemic levels.\nMore Vans consumers have returned to in-person shopping experiences earlier than expected and we see encouraging trends in our DTC KPIs with consumers buying more frequently and spending more per purchase relative to historic levels.\nIn EMEA despite the continued impact of lockdowns and supply chain disruptions, the Vans business grew 125% this quarter representing 30% growth relative to fiscal 2020, with strength across all major markets as stores reopened throughout the region.\nVans APAC business grew 19% in Q1, led by 22% growth in China.\nJune marked a milestone for the brand in China with the stock launch of the Vans Family program while the official launch will be celebrated with the Super Brand Day on Tmall tomorrow.\nWe have already registered over one million new loyalty members following the initial launch bringing Global Vans Family membership to nearly 17 million consumers.\nVans kicked off it's 52 week drop calendar this quarter seeking to create a consistent, predictable, globally aligned and focused approach to drive brand energy and consumer engagement.\nSeven weeks into the program, we are encouraged by the initial consumer reads and the instance sell out of several early drops.\nInternally, the Vans team has increased its focus, energy, and resources around driving newness and compelling storytelling, which we believe will unlock further long-term value for the brand.\nThe team is on track to more formally market the Vans drop list in fiscal Q3 ahead of the fall holiday season.\nWe remain bullish on the set up for Vans moving through fiscal 2022 and are encouraged by the early reads from the back to school season underway.\nWe are raising off our full year outlook to growth of 28% to 29%, representing growth of 9% to 10% relative to fiscal 2020.\nMoving on to the North Face.\nGlobal brand revenues increased 83% representing 6% growth above pre-pandemic levels.\nAll regions rebounded sharply in Q1, highlighted by continued exceptional performance in EMEA, which grew 142% versus the prior year, and 58% relative to fiscal '20, despite the impact of door closures over the period.\nThe APAC business grew 22% in Q1, highlighted by 80% growth in digital relative to fiscal 2020 levels.\nThe North Face's spring sell-through rates where some of the highest in years reflecting strong progress on the brand's ability to drive 365 day relevancy.\nTNF continues to drive energy in on-mountain categories with the FutureLight franchise as well as the Vectiv footwear rollout, further establishing its legitimacy in outdoor footwear.\nWe also see outsized growth in the casual categories such as logo wear, which grew over 100% in Q1 as consumers show strong engagement with the brand Off-Mountain.\nTNF loyalty program the XPLR Pass has grown to over 7 million consumers adding nearly 300,000 new members in Q1, driven by exclusive member experiences and reaching the consumer journey.\nWe continue to be encouraged by the broad-based global momentum at The North Face and now expect the brand delivered 26% to 27% growth this year, representing 15% to 17% growth relative to fiscal 2020.\nAlongside the significant top line recovery, we're seeing strong improvements in profitability and continue to expect mid teen profitability for TNF in fiscal 2022.\nThe Timberland brand delivered 63% growth in Q1 tracking ahead of plan.\nWe are encouraged by high-teens growth in the Americas, and 87% growth in digital relative to fiscal 2020 level.\nWe continue to see outsized growth from Outdoor, Apparel, and Timberland PRO each growing over 75% in the quarter.\nMomentum behind core iconic product also continues with heritage styles being strong demand despite historically low inventories.\nOur Timberland team remains committed to its purpose led vision highlighted by the recently announced Global Product Take-Back Program in partnership with ReCircled.\nBeginning this fall US consumers will be able to return any Timberland product to a brand store to either be refurbished for resale or recycled into future products.\nThis program supports the brand's bold vision announced last fall for products to have a net positive impact on nature by 2030.\nWe are encouraged by Timberland's strong start to the year and as a result, we now expect the brand to deliver modest growth relative to fiscal 2020 surpassing pre-pandemic revenues beginning in Q2.\nDickies delivered another exceptional quarter, growing 58% in Q1, well ahead of our plan as the brand has kicked off several new campaigns and inventories become more available, we've been pleasantly surprised by the intensity of sell-through performance across all wholesale partners in the US.\nThis acceleration continues to be driven by both Work-Inspired Lifestyle product, which reported strong growth across all three regions as well as core work items.\nWork-Inspired Lifestyle now represents about 40% global brand revenue.\nImportantly, the Dickies brand has begun to deliver meaningful profitability improvements, driven by both gross margin expansion and SG&A efficiencies.\nQ1 represented a strong start to our goal of returning to double-digit profit margins in the Work segment in fiscal 2022.\nFollowing a strong Q1 performance and accelerating demand signals across channels, we are confident raising the full-year outlook for the Dickies brand to mid teen growth in fiscal 2022 representing over 25% growth relative to fiscal 2020 levels.\nA quick update on Supreme we continue to be happy with the integration process.\nThe VF's supply chain organization continues to advance engagement with the Supreme teams with particular leverage opportunities in logistics capabilities, scale and relationships, which couldn't come in a more opportune time.\nOne quarter into our fiscal year, we remain confident in our outlook of $600 million and $0.25 from the brand.\nOur strong results are reflection of the consistent execution, hard work and inspiring dedication of our teams around the world.\nThis continued passion and energy alongside the broad based nature of VF's acceleration give me great confidence in our ability to continue driving the strong recovery underway.\nWhile the first quarter represents a small portion of our total year, we're starting off fiscal 2022 building up the great momentum which began in February of this year.\nI'm really happy to update you on our strong Q1 results and revised outlook for the year.\nWe are encouraged by the continued broad-based momentum across our business and the set up for each of our big brands heading into the heart of our fiscal year.\nDespite additional pressures throughout the global supply chain.\nI remain confident in our team's ability to execute and to build on the strong earnings recovery delivered in Q1.\nLet me start with an overview of the operating environment across geographic regions.\nIn the Americas, less than 5% of our stores were closed at the beginning of the quarter and all stores are currently operational.\nThe strong US consumer, easing US restrictions, and increased vaccination rates have encouraged a gradual recovery in foot traffic alongside continued strength in conversion.\nOur Americas DTC business grew 84% organically in Q1, surpassing pre-pandemic levels, led by a sharper than expected recovery in our brick and mortar business.\nConsumer appetite for athletic athleisure and outdoor categories remained strong benefiting our direct business as well as the performance of our key accounts.\nLow inventories and strong sell-through trends continue to drive down promotional activity and improved quality of sales across the marketplace, which is resulting in stronger than expected order books for the upcoming fall and spring seasons.\nMoving onto the EMEA region, while lockdown measures continue to affect economic activity our business has remained resilient.\nGrowing 97% organically in Q1, representing 13% growth relative to fiscal 2020.\nBoth wholesale and DTC channels returned to growth relative to 2020.\nAs continued strength from both our direct digital channel and from digital tightened partners have more than offset the impact of brick and mortar store closures.\nAbout 60% of our EMEA stores were closed at the start of the first quarter.\nAs we sit here today, all of those doors have now reopened.\nConsumer confidence is improving as restrictions ease and we've seen strong performance from our brick and mortar fleet following reopening.\nFor example, our UK business delivered triple-digit growth from open doors following 3 months of lockdown, representing growth of nearly 30%, relative to fiscal 2020.\nFinally, our APAC region continues to deliver double-digit growth despite sporadic resurgence of the virus across many market.\nOur China business grew 12% in Q1, which was impacted by a wholesale timing shift of revenues from Q1 into Q2.\nExcluding this impact, China would have delivered mid teen growth this quarter.\nWe continue to see digitally led growth in the region, particularly with our tightened partners and remain confident in our ability to deliver greater than 20% growth in China in fiscal 2022.\nWhile we remain pleased with our APAC performance to-date we are observing most Southeast Asian market facing various degrees of lockdowns and travel restrictions and while only about 5% of our stores are currently closed commercial activity has been impacted across most APAC markets outside of China and Hong Kong.\nThis latest wave also presents additional near-term uncertainty for our global supply chain.\nIn recent weeks more widespread virus outbreaks in key sourcing countries with lower levels of vaccinations have resulted in temporary factory lockdowns and manufacturing capacity constraints.\nOur supply chain also continues to be impacted by port delays, equipment availability and other logistics challenges.\nEssentially, every link in the supply chain has been impacted to varying degrees over the last 18 months.\nAnd while we're not immune to this, we believe we've managed these challenges relatively better than most.\nOur teams remain focused on delivering the products to satisfy increasing demand signals in the most cost effective and efficient way.\nSome of the actions include using air freights, other means of expedited shipping and dual sourcing where appropriate.\nWhile we remain confident in our ability to service our strong growth plan, there is a financial implications to these actions.\nFor example, we expect to spend more than $35 million in incremental expedited freight charges relative to fiscal 2020.\nWe view our supply chain is a key competitive advantage of VF and our teams are proving this now more than ever.\nI want to echo Steve's appreciation for the supply chain teams' incredible execution over the past 18 months.\nAs a result of their tireless and tremendous effort, I remain confident in our ability to continue navigating this dynamic environment.\nNow, moving into our Q1 financial results.\nTotal VF revenue increased 96% or 83% organically to $2.2 billion reaching pre-pandemic levels one quarter ahead of our initial expectations.\nOur Q1 digital business is 72% above fiscal 2020 levels organically, representing a 31% two year CAGR.\nWe also continuously strengthened from key digital partners globally with pure play digital wholesale growth of over 70% relative to fiscal 2020.\nVF total digital penetration was roughly a quarter of our Q1 revenues which represents about 2 times our penetration from the first quarter of 2020.\nGross margin expanded 260 basis points to 56.7% representing organic expansion from Q1 peak gross margin levels in fiscal 2020.\nRelative to last year, the strong expansion was driven by greater full price selling partially offset by the expedited freight costs and business mix as our wholesale business rebounded sharply in the quarter.\nWhen compared to fiscal 2020 gross margins, we generated a strong mix benefit, partially offset by the incremental air freight costs and FX.\nOperating margin expanded meaningfully to 6.8% driven by the strong gross margin performance and SG&A leverage relative to the prior year.\nWe delivered earnings per share of $0.27 in Q1, representing 133% organic growth driven by a stronger top line and earnings flow through relative to our initial expectations.\nOwing to strong broad-based performance in Q1, we are raising our full-year fiscal 2022 outlook.\nOur outlook today assumes no significant changes to the environment, including increased disruption to our supply chain operations.\nVF's revenue is now expected to be at least $12 billion representing at least 30% growth from fiscal 2021 and mid-teen increase relative to our prior peak revenue in fiscal 2020.\nExcluding the Supreme business, our fiscal 2022 outlook implies organic growth of at least 25% representing at least 9% organic growth relative to fiscal 2020.\nAs Steve covered, the increase to our revenue guidance is broad based across the portfolio, the stronger outlooks for each of our top core brands and sizable increases in two of our emerging brands, Altra and SmartWool.\nSpecifically, the improved outlooks are supported by stronger-than-anticipated order books and the accelerating DTC trends we've observed over the past five months.\nMoving down to P&L we still expect gross margin to exceed 56% despite a 20 basis point to 30 basis point headwind from additional airfreight that wasn't assumed in our initial outlook.\nWe now expect operating margins to be at least 13%, an improvement of over 20 basis points from our initial outlook, a signal to the upside potential of our model as their topline accelerates.\nFiscal 2022 earnings per share is now expected to be at least $3.20 including a $0.25 per share contribution from the Supreme brand representing at least 20% earnings growth relative to fiscal 2020.\nWe continue to expect to generate over 1 billion operating cash flow this year with planned capital expenditures of about $350 million including the impact of growth investments, as well as deferred capital spending from fiscal 2021.\nAs announced on June 28, we closed the sale of the Occupational Work business this quarter providing roughly $615 million of additional liquidity.\nThese proceeds are reflected in our fiscal 2022 outlook for total liquidity to exceed $4 billion.\nWe expect to exit this year with net leverage between 2.5 times and 3 times providing us meaningful near term optionality deploy excess capital moving forward.\nWe took bold decisive actions last year to position our brands and the enterprise with a strong recovery currently underway.\nAnd the balanced broad based nature of this recovery, along with the continued optionality that our model provides gives me confidence in our ability to drive sustainable long-term growth moving forward.",
        "summary": "vf sees fy adjusted earnings per share at least $3.20.\nsees fy adjusted earnings per share at least $3.20.\nsees fy revenue at least $12 billion."
    },
    {
        "text": "Nick will then summarize the performance of our Tobacco business.\nNow turning to Vector Group's consolidated balance sheet.\nAt June 30, 2021, our balance sheet remained strong.\nWe maintained significant liquidity with cash and cash equivalents of $490 million, including cash of $155 million at Douglas Elliman and $108 million at Liggett.\nWe also held investment securities and investment partnership interests with a fair market value of $212 million at June 30, 2021.\nTurning to Vector Group's consolidated results from operations for the three months ended June 30, 2021, Vector Group's revenues were $729.5 million compared to $445.8 million in the 2020 period.\nThe $283.8 million increase in revenues was a result of an increase of $266.8 million in the Real Estate segment and $17 million in the Tobacco segment.\nNet income attributed to Vector Group was $93.3 million or $0.61 per diluted common share compared to $25.8 million or $0.16 per diluted common share in the second quarter of 2020.\nThe company recorded adjusted EBITDA of $144.2 million compared to $76.5 million in the prior year.\nAdjusted net income was $96.5 million or $0.63 per diluted share compared to $28.7 million or $0.19 per diluted share in the 2020 period.\nMoving on to results for the six months ended June 30, 2021.\nVector Group's revenues were $1.27 billion compared to $900.2 million in the 2020 period.\nThe $373 million increase in revenues were primarily attributed to the Real Estate segment.\nNet income attributed to Vector Group was $125.3 million or $0.81 per diluted common share compared to $22.5 million or $0.14 per diluted common share in the 2020 period.\nThe company recorded adjusted EBITDA of $238.6 million compared to $136.7 million in the prior year.\nAdjusted net income was $141.8 million or $0.92 per diluted share compared to $68.6 million or $0.45 per diluted share in the 2020 period.\nMoving on to results for the last 12 months ended June 30, 2021.\nVector Group reported revenues of $2.38 billion, net income of $195.7 million and adjusted EBITDA of $435.3 million for the last 12 months ended June 30, 2021.\nNow turning to Douglas Elliman's financial performance for the three, six and last 12 months ended June 30, 2021.\nFor the three months ended June 30, 2021, Douglas Elliman reported $392 million in revenues compared to $132.9 million in revenues in the 2020 period.\nFor the second quarter of 2021, Douglas Elliman reported net income of $43.2 million and adjusted EBITDA of $45.3 million compared to a net loss of 50 -- excuse me, net loss of $5 million and adjusted EBITDA loss of $1.1 million in the second quarter of 2020.\nThe net loss for the three months ended June 30, 2020, included pre-tax restructuring charges of $3 million.\nFor the six months ended June 30, 2021, Douglas Elliman reported $664.8 million in revenues compared to $298.5 million in revenues in the 2020 period.\nFor the 2021 six-month period, Douglas Elliman reported net income of $57.1 million and adjusted EBITDA of $61.6 million compared to a net loss of $74.1 million and an adjusted EBITDA loss of $8.8 million in the 2020 period.\nThe net loss in the 2020 period included pre-tax charges for noncash impairments of $58.3 million and pre-tax restructuring charges of $3 million.\nFor the last 12 months ended June 30, 2021, Douglas Elliman reported $1.14 billion in revenues, $83 million in net income and $92.4 million in adjusted EBITDA.\nIn addition, Douglas Elliman reported closed sales of $42.9 billion for the last 12 months ended June 30, 2021.\nDouglas Elliman's strong year-to-date results were driven by continued momentum in all markets, and both closed sales volume and revenues more than doubled from the comparable 2020 period.\nWe are particularly pleased with the continued strength of the South Florida market as well as the rebound of New York City during the first six months of 2021.\nIn addition, Douglas Elliman's gross margin or company dollar increased to $105.5 million in the second quarter of 2021 from $42.7 million in the second quarter of 2020.\nFor the six months ended June 30, 2021, Douglas Elliman's gross margin increased to $179.6 million from $95.9 million for the same period in 2020.\nAs Douglas Elliman's revenues and gross margin significantly increased in 2021, we discontinued certain expense reductions implemented in the second quarter of 2020, including reductions to advertising and distressed scenario compensation.\nLiggett continued its strong 2021 performance during the second quarter with another significant increase in year-over-year earnings.\nDespite a challenging competitive marketplace, our go-to-market strategy continues to prove successful, and we remain confident our brand portfolio is well positioned to meet evolving market demands.\nIn the second quarter of 2021, Eagle 20's volumes remained stable and the brand delivered significantly higher margins, while Pyramid continues to deliver substantial profit and market presence to the company.\nWe are also very pleased with the performance of our price-fighting brand, Montego, as we expand its targeted distribution footprint.\nI will now turn to the combined tobacco financials for Liggett Group and Vector Tobacco.\nFor the three and six months ended June 30, 2021, revenues were $329.5 million and $598 million, respectively, compared to $312.5 million and $599.6 million for the corresponding 2020 periods.\nTobacco adjusted operating income for the three and six months ended June 30, 2021, was $103.2 million and $182.1 million compared to $79.4 million and $148.5 million for the corresponding periods a year ago.\nLiggett's second quarter earnings represent a 30% increase over the year ago period and were primarily the result of higher gross margins associated with higher pricing and promotional spending efficiencies.\nWe also continue to manage our tobacco operations cost base effectively.\nIn addition to these factors, increased wholesale inventories associated with the timing of our price increase at the end of June contributed to the quarter-over-quarter earnings increase.\nWe estimate that approximately 30% of the almost $24 million earnings increase is the result of these incremental wholesale purchases.\nWe expect this to reverse in the third quarter as inventories normalize.\nAccording to Management Science Associates, overall industry wholesale shipments through June 30, 2021, were down approximately 5% compared to last year, while Liggett's wholesale shipments decreased by 7.7% for the comparable period.\nAs we regularly note, we believe retail shipments are a better indicator of short-term industry trends, because inconsistent wholesaler purchasing patterns typically do not impact retail sales.\nLiggett's retail shipments through June 30, 2021, declined 6.4% from the year ago period, while industry retail shipments decreased 2.7% during the same time frame.\nAs a result, Liggett's year-to-date retail share has declined slightly to 4.13% from 4.29% in the corresponding period last year.\nAs noted on previous calls, we anticipated modest declines in Liggett's year-over-year retail share due to increased net pricing consistent with our successful long-term income growth strategy.\nHowever, we do expect this trend to abate throughout the second half of this year as we expand Montego markets.\nDespite price increases, Eagle 20's retail volume remained strong.\nIt is currently the third largest discount brand in the U.S. and is sold in approximately 85,000 stores nationwide.\nMontego is competitively priced in the growing deep discount segment, and we are taking a carefully targeted approach with expansion.\nTo date, we remain pleased with the market's response to Montego, which is now sold in nearly 30,000 stores.\nMontego delivered approximately 12% of Liggett's volume for the second quarter of 2021 compared to 5% in the second quarter of last year.\nIn summary, we are pleased with the operational and financial performance of our tobacco business.\nThe second quarter results continue to validate our market strategy and reflect the competitive strength we have in the deep discount segment, including our broad base of distribution, consumer-focused programs and the scope and executional capabilities of our sales force.\nAs we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base of our brand portfolio.\nFinally, while we are always subject to industry regulatory and general market risks, we remain confident that we have effective programs and infrastructure in place to keep our business operating efficiently while supporting market share and profit growth.\nVector Group had an outstanding second quarter, underscored by record quarterly revenues in our Real Estate segment and record operating income in both our Tobacco and Real Estate segments.\nWe have strong cash reserves, have consistently increased our tobacco market share on profits over the long term and have taken the necessary steps to position our Real Estate business for future continued success.\nWe are pleased with our long-standing history of paying a quarterly cash dividend.\nIt remains an important component of our capital allocation strategy, and it is our expectation that our policy will continue well into the future.",
        "summary": "q2 earnings per share $0.61.\nq2 revenue rose 64 percent to $729.5 million."
    },
    {
        "text": "If you have any questions after reviewing these tables, please feel free to contact our Investor Relations team after the call.\nWe saw significant improvement in refining margins globally in the third quarter as economic activity and mobility continued to recover in key markets.\nRefining margins were supported by strong recovery in product demand, coupled with product inventories falling to low levels during the quarter.\nlight product inventories are now at five-year lows and total light product demand is over 95% of the 2019 level.\nAcross our system, current gasoline sales are at 95% of the 2019 level, and diesel sales are 10% higher than in 2019.\nAnd on the crude oil side, medium and heavy sour crude oil differentials widened during the quarter as OPEC+ increased supply.\nCharles and Meraux refineries and the Diamond Green Diesel plant.\nWe immediately deployed emergency teams and supplies after the storm to help our employees, their families, and the surrounding communities in the restoration and recovery effort.\nThe affected facilities did not sustain significant damage from the storm.\nAnd once power and utilities were restored, the plants were successfully restarted.\nI'm very proud of our team's efforts and the ability to safely shut down and restart our operations.\nDespite the impacts of the hurricane, we also completed the Diamond Green Diesel expansion project, DGD 2, in the third quarter ahead of schedule and on budget and are in the process of starting up the new unit.\nDGD 2 increases renewable diesel production capacity by 400 million gallons per year bringing DGD's total renewable diesel capacity to 690 million gallons per year.\nIn addition, we successfully completed and started up the new Pembroke Cogeneration Unit in the third quarter, which is expected to provide an efficient and reliable source of electricity and steam and further enhance the refinery's competitiveness.\nLooking ahead, the DGD 3 project at our Port Arthur refinery continues to progress and is still expected to be operational in the first half of 2023.\nWith the completion of this 470 million gallons-per-year plan, DGD's total annual capacity is expected to be 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha.\nThe large-scale carbon sequestration project with BlackRock and Navigator is also progressing on schedule.\nNavigator has received the necessary board approvals to proceed with the carbon capture pipeline system as a result of a successful binding open season.\nValero is expected to be the anchor shipper with eight ethanol plants connected to this system, which should provide a higher ethanol product margin uplift.\nThe Port Arthur Coker project, which is expected to increase the refinery's utilization rate and improve turnaround efficiency, is still expected to be completed in 2023.\nOn the financial side, we remain disciplined in our allocation of capital, which prioritizes a strong balance sheet and an investment-grade credit rating.\nWe redeemed the entire outstanding principal amount of our $575 million floating-rate senior notes due in 2023 in the third quarter, and we ended the quarter well capitalized with $3.5 billion of cash and $5.2 billion of available liquidity, excluding cash.\nLooking ahead, we continue to have a favorable outlook on refining margins as a result of low global product inventories, continued demand recovery, and global balances supported by the significant refinery capacity rationalization seen over the last year and a half.\nIn addition, the expected high natural gas prices in Europe and Asia through the winter should further support liquid fuels demand as power generation facilities, industrial consumers, and petrochemical producers see incentives to switch from natural gas to refinery oil products for feedstock and energy needs.\nContinued improvement in earnings of our core refining business, coupled with the ongoing expansion of our renewables businesses should strengthen our competitive advantage and drive long-term shareholder returns.\nSo, with that, Homer, I'll hand the call back to you.\nFor the third quarter of 2021, net income attributable to Valero stockholders was $463 million or $1.13 per share, compared to a net loss of $464 million or $1.14 per share for the third quarter of 2020.\nThird-quarter 2021 adjusted net income attributable to Valero stockholders was $500 million or $1.22 per share, compared to an adjusted net loss of $472 million or $1.16 per share for the third quarter of 2020.\nThe refining segment reported $835 million of operating income for the third quarter of 2021, compared to a $629 million operating loss for the third quarter of 2020.\nThird-quarter 2021 adjusted operating income for the refining segment was $853 million, compared to an adjusted operating loss of $575 million for the third quarter of 2020.\nRefining throughput volumes in the third quarter of 2021 averaged 2.9 million barrels per day, which was 338,000 barrels per day higher than the third quarter of 2020.\nThroughput capacity utilization was 91% in the third quarter of 2021, compared to 80% in the third quarter of 2020.\nRefining cash operating expenses of $4.53 per barrel were $0.27 per barrel higher than the third quarter of 2020 primarily due to higher natural gas prices.\nThe renewable diesel segment operating income was $108 million for the third quarter of 2021, compared to $184 million for the third quarter of 2020.\nRenewable diesel sales volumes averaged 671,000 gallons per day in the third quarter of 2021, which was 199,000 gallons per day lower than the third quarter of 2020.\nThe lower operating income and sales volumes in the third quarter of 2021 are primarily attributed to plant downtime due to Hurricane Ida.\nThe ethanol segment reported a $44 million operating loss for the third quarter of '21, compared to $22 million of operating income for the third quarter of 2020.\nEthanol production volumes averaged 3.6 million gallons per day in the third quarter of 2021, which was 175,000 gallons per day lower than the third quarter of 2020.\nFor the third quarter of 2021, G&A expenses were $195 million and net interest expense was $152 million.\nDepreciation and amortization expense was $641 million, and income tax expense was $65 million for the third quarter of 2021.\nThe effective tax rate was 11%, which reflects the benefit from the portion of DGD's net income that is not taxable to us.\nNet cash provided by operating activities was $1.4 billion in the third quarter of 2021.\nExcluding the favorable impact from the change in working capital of $379 million and our joint venture partner's 50% share of Diamond Green Diesel's net cash provided by operating activities, excluding changes in DGD's working capital, adjusted net cash provided by operating activities was $1 billion.\nWith regard to investing activities, we made $585 million of total capital investments in the third quarter of 2021, of which $191 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance and $394 million was for growing the business.\nExcluding capital investments attributable to our partner's 50% share of Diamond Green Diesel and those related to other variable interest entities, capital investments attributable to Valero were $392 million in the third quarter of 2021.\nMoving to financing activities.\nWe returned $400 million to our stockholders in the third quarter of 2021 through our dividend, resulting in a payout ratio of 40% of adjusted net cash provided by operating activities for the quarter.\nWith respect to our balance sheet at quarter-end, total debt and finance lease obligations were $14.2 billion, and cash equivalents were $3.5 billion.\nAnd as Joe mentioned earlier, we redeemed the entire outstanding principal amount of our $575 million floating-rate senior notes due in 2023 in the third quarter.\nThe debt-to-capitalization ratio, net of cash and cash equivalents, was 37%.\nAnd at the end of September, we had $5.2 billion of available liquidity, excluding cash.\nWe still expect capital investments attributable to Valero for 2021 to be approximately $2 billion, which includes expenditures for turnarounds, catalysts, and joint venture investments.\nAbout 60% of our capital investments is allocated to sustaining the business and 40% to growth.\nAnd over 60% of our growth capital in 2021 is allocated to expanding our renewable diesel business.\nFor modeling our fourth-quarter operations, we expect refining throughput volumes to fall within the following ranges: Gulf Coast at 1.67 million to 1.72 million barrels per day; Mid-Continent at 455,000 to 475,000 barrels per day; West Coast at 230,000 to 250,000 barrels per day; and North Atlantic at 435,000 to 455,000 barrels per day.\nWe expect refining cash operating expenses in the fourth quarter to be approximately $4.70 per barrel.\nWith respect to the renewable diesel segment, we expect sales volumes to average 1 million gallons per day in 2021.\nOperating expenses in 2021 should be $0.50 per gallon, which includes $0.15 per gallon for noncash costs such as depreciation and amortization.\nOur ethanol segment is expected to produce 4.2 million gallons per day in the fourth quarter.\nOperating expenses should average $0.43 per gallon, which includes $0.05 per gallon for noncash costs such as depreciation and amortization.\nFor the fourth quarter, net interest expense should be about $150 million, and total depreciation and amortization expense should be approximately $600 million.\nFor 2021, we still expect G&A expenses, excluding corporate depreciation, to be approximately $850 million.\nBefore we open the call to questions, we, again, respectfully request that callers adhere to our protocol of limiting each turn in the Q&A to two questions.\nIf you have more than two questions, please rejoin the queue as time permits.\nPlease respect this request to ensure other callers have time to ask their questions.",
        "summary": "compname posts q3 adjusted earnings per share $1.22.\nq3 adjusted earnings per share $1.22.\nq3 earnings per share $1.13.\nrefinery throughput volumes averaged 2.9 million barrels per day in q3, which was 338 thousand barrels per day higher than q3 2020."
    },
    {
        "text": "Avner will review our financial performance and provide trends and key assumptions for the second quarter and full year 2021, with closing remarks from Steve.\nThis will be followed by Q&A.\nA replay of today's call will be available for the next seven days.\nI would now like to call over to our President and Chief Executive Officer, Steve Kaniewski.\nBefore we recap our first quarter results, I would like to share some opening comments.\nOn March 8th, we recognized our 75th anniversary as a company.\nWe've come a long way since 1946, when our Founder, Robert B. Daugherty, a young marine coming home after World War II, started a fabrication shop in the small community of Valley in Nebraska.\nOur business has certainly evolved over the past 75 years, but over this time we have remained centered on serving our customers and delivering value through our focus on execution, and our commitment to conserving resources and improving lives.\nAs we reflect on our history, we're very proud of the impact we've had on the lives of employees, customers, suppliers, business partners, communities and all those we have touched.\nAs we look forward, we are energized by the opportunity to continue expanding this impact long into the future.\nWe are also excited to host our Virtual Investor Day coming up in May, where we will share more about our strategic vision for the company, and have several of our business leaders provide greater insight into their businesses and markets.\nOur disciplined and deliberate strategy to be the price leader in all our markets, enabled by our strong product portfolio has served us well in this unprecedented inflationary environment.\nI also want to recognize our operations teams who have been working hard since the onset of the pandemic, and redoubled their efforts this past quarter to secure our supply chain.\nThrough these diligent and focused efforts, we were able to avoid material disruptions in our operations, and deliver solid operating income growth for the company.\nNet sales of $774.9 million, increased $100.7 million or 14.9% compared to last year, due to significantly higher sales in the Irrigation and Utility Support Structure segments.\nSales of $253.1 million grew $27.7 million or 12.3% compared to last year.\nStrong demand for renewable energy generation and utilities increasing investments in grid hardening and resiliency continue to drive sales growth.\nMoving to Engineered Support Structures.\nSales of $222.3 million decreased $8.4 million or 3.6% compared to last year.\nFavorable pricing, growth in wireless communication sales, and favorable currency impacts were more than offset by anticipated lower transportation market volumes, as delays in the FAST Act approval during 2020, and the impacts from COVID-19 continued to affect the timing of road and construction projects.\nWireless communication structures and components sales grew 20.6% compared to last year.\nStrong demand was led by carriers increasing their capital spending in support of 5G build-outs, as evidenced by significantly higher sales of our new small cell product offering and existing component sales.\nFavorable pricing in all regions also contributed to sales growth.\nSales of $93.3 million, grew $5.1 million or 5.9% compared to last year, and improved sequentially from last quarter, primarily from more favorable pricing and improving end market demand.\nIn Irrigation, sales of $229.7 million, grew $72.9 million or 46.5% compared to last year, with growth across most global regions, including 34% growth in our technology sales this quarter.\nIn North America sales grew 15% year-over-year.\nFarmer sentiment has improved significantly, and the positive market drivers we mentioned last quarter are generating strong order flow.\nAgricultural commodity prices remain at multi-year highs, and net farm income levels are expected to remain elevated.\nOverall, world market demand for ethanol and very low feed and protein stocks in the U.S. and China are driving significantly higher demand for grain exports.\nInternational sales growth more than doubled compared to last year, and was led by higher sales in the Middle East, European markets and in Brazil, where we recognized another record quarter of sales in local currency.\nDeliveries of the multi-year project in Egypt continued during the quarter, and the project is tracking well.\nSales in this segment were slightly below the range that we guided to last quarter, mainly due to a series of supply constraints of certain irrigation components.\nThe strength of our global supply chain, and the agility of our global footprint helped mitigate the impact and others across our businesses.\nAnd these constraints have improved as we've entered the second quarter.\nThis is just timing and we expect these sales to be recognized in the second quarter.\nScalability is one of the benefits of our portfolio, enabling us to purchase mill direct steel and minimizing disruption in the procurement of steel, zinc and other metals to meet customer order commitments.\nTurning to Slide 5.\nLast month, President Biden revealed the American Jobs Plan, valued at more than $2 trillion.\nThis multi-year stimulus package includes approximately $620 billion to modernize roads, bridges and highways.\nA $100 billion allocated to electrical grid investments and $100 billion focused on high-speed broadband investments.\nWe recognize that additional details and approvals must be worked through, so the timing of these benefits are uncertain.\nHowever, we believe the administration's increased emphasis on upgrading aging infrastructure on our nation's roads and highways, reducing traffic congestion and carbon emissions, hardening the electrical grid, and increasing access to wireless connectivity across the country, will provide longer-term funding, stability that will have a positive impact on our infrastructure businesses.\nMoving to Slide 6.\nLast month, we released our Annual Sustainability Report, highlighting the contributions of our products and services to conserve resources, improve life and build a more sustainable world.\nI'm proud to have also announced our 2025 sustainability goals for carbon intensity, global electricity and global combustion fuel, along with setting water standards across the enterprise within this report.\nLater today, as a part of our Earth Day activities, we will commemorate the installation of our 1-megawatt solar field at our Valley, Nebraska campus.\nWe are proud to be operating the largest, privately owned, behind-the-grid solar field in the State of Nebraska.\nCovering more than four acres, it will provide our campus with 6% of its electricity needs.\nI want to congratulate our team and our business partners who work diligently on this project.\nStrengthening our commitment to innovation with sustainability in mind.\nWe look forward to providing more updates on our ESG initiatives at our Virtual Investor Day and throughout the year.\nTurning to slide eight and first quarter results, operating income of $77.2 million or 10% of sales was similar in quality of earnings to last year, driven by higher volumes in irrigation in utility, favorable pricing, which helped offset the impact of rapid raw material cost inflation and improved operational efficiencies.\nFirst quarter diluted earnings per share of $2.57, grew 29.1% compared to last year, driven by higher operating income and a more favorable tax rate of 21.9%, which was primarily due to a one-time incremental tax benefit associated with employee stock option exercises.\nTurning to the segments.\nOn Slide 9, in Utility Support Structures, operating income of $21.7 million, or 8.6% of sales, decreased 380 basis points compared to last year.\nStrong volumes and improved operational performance were more than offset by the impact of rapidly rising raw material costs, which could not yet be recovered through pricing.\nMoving to Slide 10.\nIn Engineered Support Structures, operating income of $19.9 million, or 9% of sales, increased 210 basis points over last year.\nOverall, we were very pleased with the results from the actions we took to improve performance through proactive pricing strategies and reduce SG&A expense to offset inflation and the lower volume.\nTurning to Slide 11.\nIn the Coatings segment, operating income of $12.9 million, or 13.8% of sales, was 130 basis points higher compared to last year.\nFavorable pricing offset lower external volumes due to COVID impacts and end markets and a one-time natural gas expense of approximately $800,000 related to the February winter weather event in Texas.\nMoving to Slide 12.\nIn the Irrigation segment, operating income of $38.7 million or 16.9% of sales, was 180 basis points higher compared to last year.\nStrong volumes and improved operational efficiency were partially offset by higher R&D expense for strategic technology growth investments.\nTurning to cash flow on Slide 13.\nWe are focused on inventory optimization and overall improvement of a cash conversion cycle across our businesses.\nThese efforts helped us deliver operating cash flow of $33.2 million and positive free cash flow this quarter, despite extraordinary inflationary pressures.\nInventory levels are expected to remain elevated this year due to higher steel costs.\nTurning to Slide 14, for a summary of capital deployment.\nCapital spending in first quarter was approximately $28 million and we returned $21 million of capital to shareholders through dividends and share repurchases, ending the quarter with $391.5 million of cash.\nWe continued to have an active acquisition pipeline and are prioritizing strategic investments in technology, especially in irrigation, higher-growth products and markets, and business solution that align with ESG principles while meeting our return on invested capital goals.\nMoving now to Slide 15.\nOur balance sheet remains strong with no significant long-term debt maturities until 2044.\nOur leverage ratio of total debt-to-adjusted EBITDA of 2.1 times remains within our desired range of 1.5 to 2.5 times and our net debt-to-adjusted EBITDA is at 1 times.\nFor the second quarter, we estimate net sales to be between $805 million and $830 million, and operating income margins between 9.5% to 10.5% of net sales.\nThe tax rate for second quarter is expected to be between 23% and 24% due to the execution of certain U.S. tax strategies.\nWe are also reaffirming our outlook for the full year.\nNet sales are estimated to grow 9% to 14% year-over-year, which assumes a foreign currency translation benefit of 2% of net sales.\nEarnings per share is estimated to be between $9 and $9.70, excluding any restructuring activities.\nAs mentioned last quarter with unprecedented raw material cost increases and higher freight costs, we continue to take quick and deliberate steps to implement pricing actions across all our segments, including multiple increases since the beginning of 2021, and are maintaining these strategies across our served markets.\nWe are already seeing the benefit in most of our businesses with an improvement in Utility Support Structure expected in the second half of the year.\nTurning to our segment outlook on Slide 17.\nIn Utility Support Structures, our record global backlog is providing good visibility for 2021 and beyond.\nAlthough steel costs remain at elevated levels, we believe the biggest challenges are behind us.\nWe expect the quality of earnings to improve beginning in the second quarter.\nContractual increases in selling prices will begin offsetting steel cost inflation and we expect a meaningful improvement in gross profit margin to accelerate in the second half of the year as higher steel cost indices are reflected in selling prices.\nMoving to Engineered Support Structures.\nWe continue to expect some short-term softness in transportation markets as projects have been delayed due to the delays in 2020 FAST Act.\nextension approvals and continued COVID-19 impacts, especially in France and India.\nDemand for wireless communication structures and components remains strong.\nWe believe sales will grow 15% to 20% in 2021, in line with market expectations, as carriers investment in 5G are expected to accelerate throughout this year.\nMoving to Coatings, end-market demand tends to correlate closely to industrial production levels.\nWe expect to see modest sequential growth as the economy continues to improve and benefit from government stimulus initiatives in certain international markets, including Australia.\nMoving to irrigation, we expect favorable comparisons based on the estimated timing of deliveries of the large Egypt project, strong net farm income driving positive farmer sentiment, and a robust Brazilian market.\nWe expect another quarter of positive free cash flow, driven by our emphasis and improving the cash conversion cycle and strategic inventory management.\nRaw material inflation can create short-term impacts on cash flows, and as previously mentioned, we have enacted strategies to manage these impacts, including certain raw material financial hedges to cover backlogs.\nMoving to Slide 18.\nWe are off to a great start in 2021 across all end markets.\nAs evidenced by our record $1.3 billion backlogs at the end of the first quarter.\nIn Utility, our record backlog -- global backlog of nearly $720 million demonstrates the ongoing demand and necessity for renewable energy solutions, grid hardening and expanding ESG focus within the utility industry.\nWe are very pleased to announce that in the first quarter, we were awarded the third and fourth purchase orders, totaling $220 million for the large project in the Southeast U.S., extending our backlog through the beginning of 2023 with that project and reconfirming our customers' confidence in our performance.\nWe continue to strengthen key alliances with utility customers, and with our broad portfolio of products and manufacturing capabilities, we are well positioned to be the preferred strategic partner with utilities and developers, for their renewable energy and grid hardening goals.\nIn Engineered Support Structures, we expect a solid year with some short-term softness in transportation, but the longer-term market trends, especially for road construction and single-family housing support future growth.\nFurther, the critical need for infrastructure investment globally gives us confidence that these trends will remain strong.\nWe expect demand for wireless communication structures and components to accelerate throughout 2021.\nBringing reliable, high-speed broadband connectivity to people around the world is vital to elevating standards of living, safety and opportunity.\nOur broad portfolio of towers and components positions us well to support world broadband connectivity initiatives, working with groups such as the Wireless Internet Service Providers Association and the American Connection Broadband Project Coalition to help bridge the the digital divide.\nWe're encouraged that both current and proposed legislation has allocated funding to support these efforts.\nOur Coatings business closely follows industrial production trends, and general economic activity.\nThe drivers remain solid and the preservation of critical infrastructure and extending the life of steel fits well within our ESG principles.\nAnd in irrigation, recent improvements in net farm income have improved grower sentiment, and tighter ending feed and protein stocks are keeping grain prices at sustained six and seven year highs.\nAs evidenced by our global backlog of over $350 million, this improved demand along with the strength across international markets and the large-scale multi-year project in Egypt, is providing a good line of sight for this year.\nBuilding on our strategy as the technology leader, earlier this week we announced the acquisition of PivoTrac, a Texas-based Ag technology company, with products focused on telemetry and control.\nThis acquisition strengthens our footprint in the Texas Panhandle region, and adds more than 9,000 connections to our portfolio, growing our total connected machines to more than 123,000.\nThis technology will integrate well with our AgSense Platform going forward, and each connected device adds to the cumulative, positive effect of the recurring revenue stream that these solutions provide.\nTurning to Slide 19, the summary.\nOur focus on execution and the benefit of positive market tailwinds across our businesses have led to a great start this year, and these look to extend into 2022.\nWe expect solid operating performance and strong earnings per share accretion in 2021, and our teams are managing through the challenges of the current inflationary environment very well, through proactive pricing actions and the strength of our global supply chain.\nWe remain focused on profitable growth and return on invested capital improvement, while keeping our employees and communities safe and investing in our businesses for growth.\nAnd as a reminder we are hosting a Virtual Investor Day on May 20th, where our leadership team will provide a deep dive into our businesses, and an update on our strategies to drive growth and long-term shareholder value creation.\nWe encourage you to register in advance using the link on our Investors page.",
        "summary": "compname posts q1 earnings per share $2.57.\nq1 earnings per share $2.57.\nq1 sales rose 14.9 percent to $774.9 million.\nsees q2 sales $805 million to $830 million.\nreaffirming full year 2021 financial outlook."
    },
    {
        "text": "As usual, we'll start today's call with the CFO, who will review Vishay's second quarter 2021 financial results.\nDr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail.\nWe use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide.\nI will focus on some highlights and key metrics.\nVishay reported revenues for Q2 of $819 million, a quarterly record.\nOur earnings per share was $0.64 for the quarter, adjusted earnings per share was $0.61 for the quarter.\nThe only reconciling items between GAAP earnings per share and adjusted earnings per share are tax related.\nThere were no reconciling items impacting gross or operating margins.\nRevenues in the quarter were $819 million, up by 7.1% from previous quarter and up by 40.8% compared to prior year.\nGross margin was 28%.\nOperating margin was 15.3% There were no reconciling items to arrive at adjusted operating margin.\nAdjusted earnings per share was $0.61.\nEBITDA was $163 million or 19.9%.\nThere were no reconciling items to arrive at adjusted EBITDA.\nReconciling versus prior quarter, operating income quarter two 2021 compared to operating income for prior quarter based on $54 million higher sales or $55 million higher excluding exchange rate impacts, operating income increased by $28 million to $125 million in Q2 2021 from $97 million in Q1 2021.\nThe main elements were; average selling prices had a positive impact of $8 million, representing 1.0 ASP increase.\nThe volume increased with a positive impact of $22 million, equivalent to a 6.1% increase in volume.\nVariable costs remained flat in total.\nCost reductions and volume related efficiencies offset increases in materials, services and metal prices.\nFixed costs remained flat in total, in line with our guidance.\nReconciling versus prior year, operating income quarter two 2021 compared to adjusted operating income in quarter two 2020 based on $237 million higher sales or $215 million excluding exchange rate impacts, adjusted operating income increased by $84 million to $125 million in Q2 2021 from $42 million in Q2 2020.\nThe main elements were: average selling prices had a negative impact of $2 million, representing a 0.3% ASP decline; volume increased with a positive impact of $101 million, representing a 36.4% increase.\nVariable costs decreased with a positive impact of $6 million, primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts, which more than offset higher metal prices, annual wage increases and higher tariffs.\nFixed costs increased with a negative impact of $19 million, primarily due to annual wage increases and higher incentive compensation partially offset by our restructuring programs.\nInventory impacts had a positive impact of $5 million, exchange rates had a negative impact of $6 million.\nSelling, general and administrative expenses for the quarter were $104 million, in line with expectations.\nFor quarter three 2021, our expectations are approximately $104 million of SG&A expenses.\nFor the full year, our expectations are approximately $420 million at the exchange rates of quarter two.\nThe debt shown on the face of the balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs.\nThere were no amounts outstanding on a revolving credit facility at the end of the quarter.\nHowever, we did use the revolver from time to time during Q2 to meet short-term financing needs and expect to continue to do so in the future.\nNo principal payments are due until 2025 and the revolving credit facility expires in June 2024.\nWe had total liquidity of $1.6 billion at quarter end.\nCash and short-term investments comprised $856 million and there were no amounts outstanding on our $750 million credit facility.\nTotal shares outstanding at quarter end were 145 million.\nThe expected share count for earnings per share purposes for the third quarter 2021 is approximately 145.5 million.\nOur convertible debt repurchase activity over the past three years, together with the adoption of the new convertible debt standard, significantly reduces the variability of our earnings per share share count.\nOur US GAAP tax rate year-to-date was approximately 19%, which mathematically yields a rate of 20% for Q2.\nWe recorded benefits of $3.9 million for the quarter and $8.3 million year-to-date due to changes in tax regulations.\nOur normalized effective tax rate, which excludes the unusual tax items, was approximately 24% for the quarter and 23% for the year-to-date periods.\nWe expect our normalized effective tax rate for the full year 2021 to be between 22% and 24%.\nOur consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions as shift in income could result in significantly different results.\nAlso, a significant change in US tax laws or regulations could result in significantly different results.\nCash from operations for the quarter was $117 million.\nCapital expenditures for the quarter were $32 million.\nFree cash for the quarter was $85 million.\nFor the trailing 12 months, cash from operations was $365 million.\nCapital expenditures were $135 million, split approximately for expansion $86 million, for cost reduction $9 million, for maintenance of business $40 million.\nFree cash generation for the trailing 12-month period was $230 million.\nThe trailing 12-month period includes $30 million in cash taxes paid for both the 2020 and 2021 installment of the US Tax Reform Transition Tax.\nThe 2020 installment was paid in Q3 2020, whereas the 2021 installment was paid in Q2.\nVishay has consistently generated in excess of $100 million in cash flows from operations in each of the past 26 years and greater than $200 million for the past 19 years.\nBacklog at the end of Q2 was $2.050 billion or 7.5 months of sales.\nInventories increased quarter-over-quarter by $31 million, excluding the exchange rate impacts.\nDays of inventory outstanding were 76 days.\nDays of sales outstanding for the quarter are 43 days.\nDays payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 86 days.\nAlso in the second quarter, the steep upturn of our business visible since October of last year continued.\nWe keep ramping up critical manufacturing capacities, increasing revenues and profits further.\nQuite excellent plant efficiencies, the impact of price increases and our traditional discipline in fixed cost support the financial results.\nVishay in the second quarter achieved a gross margin of 28% of sales and operating margin of 15.3% of sales, earnings per share of $1.64 and adjusted earnings per share of $1.61.\nWe, in the second quarter, generated $85 million of free cash and we do expect another solid year of cash generation.\nThe economic environment for the electronics business continues to be exceptional with sales and backlogs at a historical high.\nVirtually all markets are currently in excellent shape and supply chains continue to be rather depleted.\nDespite all efforts to expand manufacturing capacities quickly, lead times for many product lines have stretched out rapidly and massively.\nPrice pressure presently is very low and selected price increases are being implemented, partially required to offset increased costs for metals and transportation.\nCommenting on the regions.\nWe see continued strong performance in Asia and in the Americas.\nEurope is somewhat lagging due to temporary supply problems in the automotive sector caused by a lack of ICs.\nThe Industrial segment drives demand in all the regions.\nDistribution in all hemispheres continues to be extremely hungry for product.\nTalking about distribution, global distribution continues to get overwhelmed with orders.\nWe see a record high since at least 15 years.\nPOS in the second quarter was 5% over prior quarter and a remarkable 45% over prior year.\nAfter massive increases in the first quarter, POS increased further in all regions; by 3% in the Americas, by 6% in Asia and by 5% in Europe.\nGlobal distribution inventory has stabilized on very low partially critically low levels.\nInventory turns of global distribution increased to quite extreme 4.4 from 4.3 in prior quarter; in the Americas, 2.1 after 1.9 in Q1 and 1.4 in prior year; in Asia, 7.4 turns after 6.7 in Q1 and 4.1 in prior year; 4.6 turns in Europe after 4.4 in Q1 and 3.0 in prior year.\nTalking about the various industry segments we serve.\nAutomotive continues strong globally with OEMs continuing to struggle for replenishing vehicle inventory.\nThe increase of electronic content clearly accelerates.\nThere are some temporary supply programs leading to some artificial slowdown of the industry.\nStill expect previously forecasted growth of 10% versus prior year in terms of vehicles.\nWe see an exceptional growth of the industrial sectors, which indicates an ongoing broad global upturn.\nFactory automation and accelerated residential development, governmental investments in power generation and transmission systems as well as alternative energy systems are driving the demand.\nMarkets for computer and peripherals equipment are holding up well.\n5G base station equipment continues to show promising growth in telecom.\nMilitary spending continues reasonably strong commercial aerospace showing first signs of recovery.\nThe medical sector stabilized on a high level and consumer market sectors continued to show growth, driven by high rates of home construction, traditional television and gaming.\nComing to the business development for Vishay.\nDue to high orders and backlogs and based on the continued increase of manufacturing capacities, Q2 sales excluding exchange rate impacts came in at a record and above the midpoint of our guidance.\nWe achieved sales of $819 million versus $765 million in prior quarter and $582 million in prior year.\nExcluding exchange rate effects, sales in Q2 were up by $55 million or by 7% versus prior quarter and up by $215 million or 36% versus prior year.\nBook-to-bill in the second quarter remained on a very high level of 1.38 after 1.67 in prior quarter, 1.41 for distribution after 1.89 in quarter one, 1.34 for OEMs after 1.41, 1.41 for semiconductors after 1.86 in Q1, 1.35 for passives after 1.50 in quarter one, 1.33 for the Americas after 1.42 in the first quarter, 1.29 for Asia after 1.86 in Q1, 1.54 for Europe after 1.62 in Q1.\nBacklog in the second quarter climbed to another record high of 7.5 months after 6.8 months in Q1, 8.4 months in semis after 7.7 months in quarter one and 6.7 months in passives after 5.9 months last quarter.\nThere's practically no price decline, in fact there are some increases quarter-over-quarter.\nVis-a-vis prior quarter, we saw a price increase of 1% and versus prior year a slight loss of 0.3%.\nIn semis, these numbers were an increase of 1.5% versus prior quarter and a slight decrease of 0.7% versus prior year.\nFor passives, price increases plus 0.4% versus prior quarter and plus 0.1% versus prior year.\nSome highlights of operations.\nSG&A costs in the second quarter came in at $104 million according to expectations when excluding exchange rate effects.\nManufacturing fixed costs in the second quarter came in at $141 million and according to expectation without ex tax rate effects.\nTotal employment at the end of the second quarter was 22,500, 2% up from prior quarter at 22,060.\nExcluding exchange rate impacts, inventories in the quarter increased by $31 million, $11 million in raw materials and $20 million in way-in-process and finished goods.\nInventory turns in the second quarter remained at a very high level of 4.8.\nCapital spending in Q2 was $32 million versus $25 million in prior year, $20 million for expansion, $2 million for cost reduction and $10 million for the maintenance of business.\nIn view of the extremely high market demand, we are accelerating mid-term expansion programs noticeably.\nWe now expect for the year '21 capex of approximately $250 million.\nWe generated in the second quarter cash from operations of $365 million on a trailing 12-month basis.\nWe generated in the second quarter free cash of $230 million, again on a trailing 12-month basis.\nDespite increased capex, we also for the current year expect a solid generation of free cash, quite in line with our tradition.\nLet me come to our product lines and I start as always with resistors.\nWith resistors, we enjoy a very strong position in the auto, industrial, military and medical market segments.\nWe offer virtually all resistor technologies and are globally known as a reliable and high quality supplier of the broadest product range.\nVishay's traditional and historically growing business has recovered completely from the pandemic running at record levels now.\nSales in the quarter were $195 million, up by $8 million or 4% versus prior quarter and up by $47 million or 32% versus prior year, all excluding exchange rate impacts.\nBook-to-bill ratio in the second quarter continued strong at 1.39 after 1.50 in prior quarter.\nBacklog increased further to 6.6 months from 5.6 months in prior quarter.\nDue to higher volume and quite excellent efficiencies in the plants, gross margin in the second quarter increased further to 30% of sales from 29% in prior quarter.\nInventory turns in the quarter remained at a very high level of 5.1.\nSelling prices are increasing plus 0.5% versus prior quarter and plus 0.6% versus prior year.\nWe are in process to raise critical manufacturing capacities for resistor chips and for power wirebond substantially, opening also a new production site in China.\nAnd we do expect a very successful year for resistors.\nThis business consists of power inductors and magnetics.\nSince years, this is our fastest growing business we have in passives and represents one of the greater success stories of Vishay.\nExploiting the growing need for inductors in general, Vishay developed a platform of robust and efficient power inductors and leads the market technically.\nWith magnetics, we are very well positioned in specialty businesses, demonstrating their steady growth.\nSales of inductors in the second quarter were $86 million, up by $2 million or 3% versus prior quarter and up by $19 million or 29% versus prior year, all excluding exchange rate effects.\nBook-to-bill ratio in the second quarter increased to 1.21 after 1.13 in prior quarter, backlog grew to 5.1 months from 4.5 in Q1.\nGross margin reached a quite excellent level of 34% of sales after 33% in the first quarter.\nInventory turns normalized to a level of 4.7, down from 5.1 in the first quarter.\nWe see a reduced price pressure.\nWe see price increases of 0.8% versus prior quarter and a decline of 2.2% versus prior year.\nWe are accelerating our next steps of capacity expansion for power inductors in order to get ahead of the demand curve.\nOur business with capacitors is based on a broad range of technologies with a strong position in American and European market niches.\nWe enjoy increasing opportunities in the fields of power transmission and of electro cars namely in Asia, especially in China.\nSales in the second quarter were $120 million, 13% above prior quarter and 36% above prior year without exchange rate effects.\nBook-to-bill ratio in the second quarter remained at a high level of 1.37 after 1.73 in prior quarter.\nBacklog increased to a record level of 7.7 months from 7.4 months in Q1.\nGross margin in the quarter improved further to 24% of sales coming from 23% in Q1.\nInventory turns in the quarter remained at 3.9.\nSelling prices are increasing, plus 0.2% versus prior quarter, plus 1% versus prior year.\nWe also expect a good year for capacitors driven by large governmental projects in China by a solid mill business and a very friendly business environment in general.\nVishay's business with opto products consists of infrared emitters, receivers, sensors and couplers.\nThe business in 2020 experienced a significant recovery from disappointing results in prior years.\nAlso in opto, we see a strong acceleration of demand.\nSales in the quarter were $76 million, 3% below prior quarter, but 47% above prior year without exchange rate impacts.\nBook-to-bill in the second quarter remained at a very high level of 1.69 after 1.66 in the first quarter.\nBacklog continued to grow to an extreme high of 9.3 months after 7 months in Q1, partially due to COVID-related restrictions of manufacturing capacities in Malaysia.\nThis is the only place we incurred such restrictions.\nGross margin in the second quarter remained at an excellent level of 32% of sales after 33% in the first quarter.\nI think we can say that opto is back to its historical profitability level.\nWe see more normal inventory turns of 5.8 in the quarter after 6.4 in Q1.\nAlso in the case of opto, selling prices are going up, plus 1.7% in prior quarter and plus 1.5% versus prior year.\nAnd we are in process to modernize and expand the Heilbronn fab in Germany.\nDiodes for Vishay represents a broad commodity business where we are the largest supplier worldwide.\nVishay offers virtually all technologies as well as the most complete product portfolio.\nThe business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years.\nThe business has started to exceed pre-pandemic levels.\nSales in the quarter were $175 million, up by $18 million or by 11% versus prior quarter and up by $47 million or 36% versus prior year without exchange rate effects.\nThere is a continued strong book-to-bill ratio of 1.45 in the quarter after 1.85 in the first quarter.\nBacklog climbed to an extreme high of 8.9 months from 7.9 months in prior quarter.\nGross margin continued to improve to now 24% of sales as compared to 22% in Q1.\nInventory turns were at 4.7 after 4.8 in prior quarter.\nAlso for diode, selling prices are increasing by 1.7% versus prior quarter and by 0.2% versus prior year.\nWe decided for a substantial expansion of our in-house fab capacity in Taipei introducing at the same time the 8-inch technology relevant also of course for cost reduction.\nAs expected, diodes with a return to normal volumes has reached the pre-pandemic profitability levels.\nVishay is one of the market leaders in MOSFET transistors.\nWith MOSFETs, we enjoy a strong and growing market position in particular in automotive, which in view of an increasing use of MOSFETs in automotive will provide a successful future.\nDemand has reached extreme levels and increases further.\nSales in the quarter were $168 million, a record level, 10% above prior quarter and 39% above prior year excluding exchange rate effects.\nBook-to-bill ratio for MOSFETs in the quarter was 1.26 after 1.97 in the first quarter.\nBacklog remained at an extreme level of 7.9 months as compared to 7.8 in Q1.\nDue to a combination of higher volume, better prices and even better efficiencies, gross margin in the quarter increased noticeably to 28% of sales, up from 24% in prior quarter.\nInventory turns in the quarter increased further to 5.0 from 4.7 in Q1.\nWe see decreasing price pressure.\nWe have indeed increases of prices reasonably prior quarter of 1.2% and minus 2.5% versus prior year, much lower than normal.\nMOSFETs remain key for Vishay's growth going forward.\nOur industry and also Vishay continues to operate in a quite excellent economic environment.\nThere is an unstoppable global trend toward electronification that makes our future promising.\nWe are exploiting the present high demand to the best we can.\nBut beyond this, we expect a mid-term acceleration of the electronification worldwide.\nWe are preparing ourselves in terms of available machine capacities and will provide the capital required.\nWhile enjoying higher growth, we will definitely keep our feet on the ground in terms of fixed costs, as we always did so in the past.\nBut we do plan to increase further our technical presence in the markets and we will increase critical R&D resources.\nWe will do our utmost to remain the same fair and service oriented supplier close to our customers we are known for.\nThe results for the third quarter look promising.\nWe guide to a sales range between $810 million and $850 million at a gross margin of 28.3%, plus/minus 15 basis points.\nWe'll now open the call to questions.\nAshley, please take the first question.",
        "summary": "q2 adjusted earnings per share $0.61.\nq2 earnings per share $0.64.\nq2 revenue $819 million versus refinitiv ibes estimate of $821.1 million.\nsees q3 revenue $810 million to $850 million."
    },
    {
        "text": "And Lori Lipcaman, our executive vice president and chief financial officer.\nAs usual, we'll start today's call with the CFO, who will review Vishay's fourth quarter and year 2019 financial results.\nDr. Gerald Paul will then give an overview of our business and discuss operational performance, as well as segment results in more detail.\nWe use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide.\nI will focus on some highlights and key metrics.\nVishay reported revenues for Q4 of 610 million.\nEPS was $0.10 for the quarter.\nAdjusted earnings per share was $0.13 for the quarter.\nDuring the quarter, we recorded restructuring charges of $17 million related to the cost reduction program we announced in July.\nAlso during the quarter, we repurchased 3.95 million principal amount of our convertible debentures, and we recognized a U.S. GAAP loss on extinguishment.\nI will elaborate on these transactions in a few moments.\nRevenues in the quarter were 610 million, down by 3% from previous quarter, and down by 21.4%, compared to prior year.\nGross margin was 22.2%.\nOperating margin was 4%.\nAdjusted operating margin was 6.7%.\nAdjusted earnings per share was $0.13.\nEBITDA was 60 million or 9.9%.\nAdjusted EBITDA was 78 million or 12.8%.\nRevenues in the year were 2.688 billion, down by 12.1%, compared to prior year.\nGross margin was 25.2%.\nOperating margin was 9.8%.\nAdjusted operating margin was 10.7%.\nAdjusted earnings per share was $1.26.\nEBITDA was 416 million or 15.6%.\nAdjusted EBITDA was 442 million or 16.6%.\nReconciling versus prior quarter, adjusted operating income quarter four, 2019, compared to adjusted operating income for prior quarter based on 19 million lower sales are 17 million, excluding exchange rate impacts, adjusted operating income decreased by 17 million to 41 million in Q4 2019 from 58 million in Q3 2019.\nThe main elements were: average selling prices had a negative impact of 5 million, representing a 0.8% ASP decrease.\nVolume decreased with a negative impact of 6 million equivalent to a 1.8% decrease in volume, including a negative mix shift.\nFixed cost increased with a negative impact of 4 million as expected due to individually immaterial items.\nVersus prior year, adjusted operating income quarter four 2019, compared to adjusted operating income in quarter four 2018, based on 166 million lower sales or 160 million lower excluding exchange rate impacts.\nAdjusted operating income decreased by 79 million to 41 million in Q4 2019 from 120 million in Q4 2018.\nThe main elements were: average selling prices had a negative impact of 19 million, representing a 3% ASP decline.\nVolume decreased with the negative impact of 64 million representing an 18.6% decrease.\nFor the full-year, adjusted operating income for the year 2019, compared to adjusted operating income for the year 2018 based on 366 million lower sales or 318 million lower excluding exchange rate impacts, adjusted operating income decreased by 199 million to 287 million in 2019 from 485 million in 2018.\nThe main elements were: average selling prices had a negative impact of 29 million, representing a 1.1% ASP decrease, which includes U.S. tariffs passed through to customers.\nVolume decreased with a negative impact of 124 million, representing a 9.7% decrease.\ntariffs and higher metal prices.\nWage and other variable cost inflation were compensated by cost reduction.\nInventory effects had a negative impact of 30 million.\nSelling, general and administrative expenses for the quarter were 95 million, sequentially higher by 2 million due to individually immaterial items and slightly lower than expected, primarily due to general belt-tightening measures.\nFor the year, selling, general and administrative expenses were $385 million versus 403 million in 2018.\n2.1% lower, excluding exchange rate impacts, primarily due to incentive compensation expenses and general belt-tightening measures.\nFor Q1 2020, our expectations are approximately 102 million of SG&A expenses and approximately $400 million for the full year at constant exchange rates.\nBut as you know, we did repatriate approximately 189 million net of taxes during the earlier periods of 2019 and 724 million net of taxes during 2018.\nSubstantially, all of these amounts have been utilized to pay down the revolver to settle certain intercompany debt to finance capital expansion projects and to pay for the tax reform transition tax.\ntax reform, they are subject to foreign withholding and other taxes and some state income taxes.\nThere's approximately $100 million of additional earnings available for repatriation with taxes accrued.\nWe are still evaluating the timing of such repatriation.\nWe had total liquidity of 1.6 billion at quarter end.\nCash and short-term investments comprised 803 million and no amounts were outstanding on our revolving credit facility.\nDuring the quarter, we were able to repurchase 3.95 million principal amount of our outstanding convertible debt instruments.\nThis is part of the programs we have undertaken over the past two years to retire the convertible debentures, which have certain tax attributes, which were no longer efficient after U.S. tax reform.\nOf the principal 575 (sic) 575 million amount of the convertible debentures that was outstanding at the beginning of 2018, only 17 million or 3% remain outstanding at the end of 2019.\nWe continue to be authorized by our board of directors to repurchase additional convertible debt instruments in open market repurchases or through privately negotiated transactions, subject to market and business conditions, legal requirements and other factors.\nOur debt at year end is comprised of the convertible note due 2025 and the remaining convertible debentures due in 2040 and 2041.\nThe principal amount or face value of the converts totaled 617 million, 600 million related to the notes issued in 2018 and 17 million related to the remaining debentures.\nThe clean value of 499 million is net of unamortized discounts and debt issuance costs.\nAs I said, there are no amounts outstanding on a revolving credit facility at the end of quarter four.\nNo principal payments are due until 2025, and the revolving credit facility expires in June 2024.\nI'd like to give you an overview of the cost reduction program.\nAs announced in July, we are implementing global cost reduction programs intended to lower costs by approximately $15 million annually when fully implemented and to provide management rejuvenation.\nOur strategy has been to seek volunteers to accept a voluntary separation early retirement offer, which has been generally successful.\nDuring Q4, we recorded restructuring expenses of 17 million, bringing the total expense for the program to 24 million, in line with expectations.\nThe expense was recognized when individuals accepted the offer.\nDue to applicable transition period, we will not fully achieve the cost savings until the end of December 2020.\nThe full-year effective tax rate on a GAAP basis was 27%.\nOur GAAP tax rate includes adjustments to remeasure deferred taxes related to the repatriation program, such as foreign currency effects and to consider certain corporate reorganizational activities that impact repatriation.\nThese adjustments were a benefit of 11.6 million for Q4 and 9.6 million for the full-year 2019.\nOur full-year GAAP tax rate also includes adjustments to uncertain tax provisions recorded in Q4, approximately 3.8 million.\nThe unusual tax benefit related to settlement of some of the convertible debentures and the tax expense on a tax basis, foreign exchange gain, resulting from the payment of an intercompany loan previously deemed permanent in Q2.\nBecause of the unusual tax items, the U.S. GAAP effective tax rate for Q4 is negative, a tax benefit on pre-tax income.\nOur normalized tax rate excludes these unusual tax items, as well as the tax effects of the restructuring and early debt extinguishment.\nA normalized tax rate for the full year was approximately 27% versus the 26% at year to date Q3.\nMathematically, this yields a normalized tax rate of 36% for Q4, impacted by the cumulative catch-up and low pre-tax earnings in Q4.\nWe expect our normalized effective tax rate for 2020 to be approximately 26% to 27%.\nWe continue to evaluate the provisions of the U.S. tax law, particularly aspects of the GILTI and BEAT taxes.\nOur consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions, a shift in income could result in significantly different results.\nTotal shares outstanding at year-end were 144 million.\nThe expected share count for earnings per share purposes for the first-quarter 2020 is approximately 145 million.\nIn our annual report on Form 10-K, we will change our U.S. GAAP segment reporting to separately disclose inductors and resistors.\nThese two segments were previously combined.\nPrior period data presented in the annual report will be recast to reflect this new alignment.\nPaul's comments on the quarter and year 2019 in a few moments will also separately discuss inductors and resistors.\nCash from operations for the quarter was 84 million.\nCapital expenditures for the quarter were 56 million.\nFree cash for the quarter was 28 million.\nFor the year, cash from operations was 296 million.\nCapital expenditures were 157 million.\nSplit approximately for expansion, 96 million.\nFor cost reduction, 16 million.\nFor maintenance of business, 45 million.\nFree cash generation for the year was 140 million.\nThe year includes 53 million cash taxes paid related to cash repatriation, 38 million and U.S. tax reform, 15 million.\nVishay has consistently generated an excess of 100 million cash flows from operation in each of the past now 25 years and greater than 200 million for the last now 18 years.\nBacklog at the end of the quarter was -- at the end of quarter four was 911 million or 4.5 months of sales, still high, compared to our historical average of approximately three months.\nInventories decreased quarter over quarter by 17 million, excluding exchange rate impacts.\nDays of inventory outstanding were 84 days.\nDays of sales outstanding for the quarter were 49 days.\nDays of payables outstanding for the quarter were 30 days, resulting in a cash conversion cycle of 103 days.\n2019 for Vishay is -- for the business with electronic components in general, has been a year of correction.\nVolumes dropped sharply vis a vis a strong year 2017, and in particular, 2018 as a consequence of the required reduction of inflated inventory levels in the supply chain.\nFurthermore, quite drastically reduced manufacturing volumes set a strong negative impact on our profitability.\nAdditionally, there were temporary inefficiencies coming from the adaptation of manufacturing capacities downward quickly and massively.\nVishay in 2019 achieved a gross margin of 25% of sales versus 29% in 2018.\nA GAAP operating margin of 10% of sales versus 16% of sales in 2018 and adjusted operating margin of 11% of sales versus 16% in prior year.\nGAAP earnings per share of $1.13 versus $2.24 last year and adjusted earnings per share of $1.26 versus $2.12 in 2018.\nThe generation of free cash also in 2019 remained on a quite excellent level.\nWe, in 2019, generated free cash of 140 million which includes taxes paid for cash repatriation of 38 million.\nQuarter four clearly has been disappointing.\nThe impact of an unfavorable product mix and of various negative singularities in variable costs led to a lower than normal contributive margin.\nFurthermore, other income was lower than anticipated due to exchange rates, and our normalized tax rate for 2019 was higher than expected, impacting also third quarter.\nVishay in the fourth quarter achieved a gross margin of 22% of sales.\nGAAP operating margin of 4% of sales, adjusted operating margin of 7% of sales, GAAP earnings per share of $0.10 and adjusted earnings per share of $0.13.\nLet me talk about the economic environment.\nThe economic conditions for our industry in the course of 2019 deteriorated very substantially, driven by the normalization of lead times and the subsequent major inventory reduction in the supply chain.\nThis, for the most part, concerned distribution but also OEMs reduced inventories.\nThe worldwide slowdown in automotive and ongoing political turbulences developed into an additional burden in the course of last year.\nBacklogs substantially inflated in the course of 2017 and 2018 continue to normalize with book to bill ratios much below one.\nRecently, we do see a recovery of orders.\nSelling prices for commodity products have restarted to decline.\nConsidering the strong slowdown of order cancellations in the fourth quarter, another substantial reduction of inventories in the supply chain during the quarter and increasing orders also from distribution.\nWe believe that the fourth-quarter represented the low point of this phase of correction.\nLet me talk about the regions.\nAfter a strong year, the American market softened in the fourth quarter.\nSales to OEMs, as well as POS of distribution were concerned, automotive and commercial aviation are weakening, whereas military spending remains robust and industrial markets remained stable overall.\nInventories being burned off by our distributors.\nThe European business continues to be burdened by too high inventories in the supply chain, as well as by a weakening of the automotive, in particular, of the diesel market.\nDespite continued destocking in Asia, we see signs of improvement in automotive and the stabilization of industrial and EMS segments.\nAsia, in fact, is expected to return to more normal business levels.\nFirst, setting aside any impacts of the evolving Corona crisis, of course.\nTalking about distribution, POS of global distribution ended the year 2019 weaker than expected.\nIt declined by 7% versus prior quarter and was 13% below prior year.\nPOS for the full-year 2019 was down versus 2018 by 10%.\nPOS in the fourth quarter was weak versus Q3 in all geographic regions, down in Europe by 6% and in Asia by 5% and down in the Americas by 11%.\nNevertheless, distribution inventories during the fourth quarter came down again in a noticeable way by 37 million.\nWe expect this trend to continue, maybe, to a lesser extent also in the first quarter.\nThere was no further decline of inventory turns in distribution in the first quarter, trends remained at 2.4% as compared to 2.9% in prior year.\nThe Americas showed 1.4 turns after 1.5 turns in the third quarter and 1.9% in prior year.\nAsia, Asian distribution showed 3.3 turns after also 3.3 turns in Q3 and 3.7 turns in prior year.\nEurope had 2.9 turns after also 2.9 turns in Q3 and 3.3 turns in prior year.\nOrders from distribution in the fourth quarter picked up in all regions substantially, which naturally gives some confidence.\nLet me comment on industry segments.\nThere is continued weakness in vehicle production worldwide, in particular in Europe, and there's political resistance to the diesel technologies.\nNevertheless, we expect improvements in the first quarter in automotive carried by traditional cars.\nThe industrial segment continues to show growth, but high inventories in the supply chain remain to be a problem for one or for two quarters.\nBasically, positive developments exist in industrial automation, power transmission, robotics, oil and gas and in smart metering.\nIn consumer, white goods set a strong quarter driven by air conditioning devices and also 2020 is expected to be positive.\nGaming should be strong due to the launch of the new Sony PlayStation in the course of this year.\nThere is ongoing strength of the military and medical sectors, computing is expected to see a better year in 2020 driven by growth in service.\n5G continues to be a major opportunity for strong growth starting in 2020.\nLet me talk about Vishay's business development.\nQuarter four sales, excluding exchange rate impacts, came in slightly above the midpoint of our guidance.\nWe achieved sales of 610 million versus $628 million in prior quarter and versus 776 million in prior year.\nExcluding exchange rate effects, sales in Q4 were down by 17 million or 3% versus prior quarter and down versus prior year by 160 million or by 21%.\nSales in the year 2019 were 2.668 billion versus 3.035 billion in 2018, a decrease of 11%, excluding exchange rate effects.\nBook to bill in the fourth quarter recovered to 0.94 from 0.72 in the third quarter, mainly driven by distribution.\nSome detail, 0.94 for distribution after 0.55 in the third quarter, 0.95 for OEMs after 0.90, 0.95 book to bill for the actives after 0.6 in Q3, 0.94 for the passives after 0.83 in Q3.\n1.03 book to bill for the Americas after 0.76 in the third quarter, 0.96 for Asia after 0.64, 0.88 in Europe after 0.78.\nBacklog in the fourth quarter was stable at 4.5 months, which relates to actives and passives.\nCancellations were substantially reduced in Q4, and they now have a quite normal level.\nThe price decline is back to historical rates.\nWe had minus 0.8% versus prior quarter and minus 3% versus prior year.\nActives semiconductors with a higher share of commodities set also stronger price decline, as to be expected, minus 1.2% versus prior quarter, and minus 5.9% versus prior year.\nThe passives with a higher share of specialty products at minus 0.3% price decline versus prior quarter and minus 0.2% price decline versus prior year.\nSome comments on operations.\nIn the year 2019, we were not completely able to offset the normal negative impact on the contributive margin by cost reduction by innovation.\nIn particular, temporary plant inefficiencies due to capacity adaptations burdened the variable costs.\nSG&A costs in Q4 came in at 94 million, slightly below expectations when excluding x-rate effects SG&A costs for the year 2019 were 385 million, 19 million of 2% below prior year at constant exchange rates, mainly due to lower incentive compensation.\nManufacturing fixed costs in the fourth quarter came in at $126 million, slightly above, maybe, 1 million above our expectations.\nManufacturing fixed costs for the year 2019 were 509 million, 10 million or 2% above prior year at constant exchange rates impacted naturally by higher depreciation.\nTotal employment at the end of 2019 was 22,400, 7% down from prior year, which than we were 24,115 all this, of course, the consequence of a broad capacity reduction.\nExcluding exchange rate impacts inventories in the quarter were reduced by 17 million, raw materials by 4 million and WIP and finished goods by 13 million.\nInventory and in the fourth quarter slightly improved to 4.3% from 4.1% in prior quarter.\nIn the year 2019, inventories decreased by 45 million, raw materials by 29 million and WIP and finished goods by 16 million.\nInventory turns for the entire year 2019, we had a good level of 4.3%, slightly down from 4.5% in 2018, excluding, again, exchange rates.\nCapital spending in the year 2019 was 157 million versus 230 million in prior year, close to our expectations.\nWe spent 96 million for expansion, 16 million for cost reduction and 45 million for maintenance of business.\nFor the current year, we expect capex of approximately 140 million, quite in accordance with the requirements of our markets.\nWe, in 2019, generated cash from operations of 296 million, including $38 billion cash taxes for cash repatriation, compared to 259 million cash from operations in 2018, including 157 million cash taxes for cash repatriation.\nGenerated last year in 2019, free cash of 140 million, including 38 million of cash taxes for cash repatriation, compared to a free cash generation of 84 million in 2018, including 157 million cash taxes for cash repatriation.\nI think we can say, and I'm proud to say that every time, that Vishay are also in -- economically softer.\nYears has lifted up again to its reputation as an excellent and reliable producer of free cash.\nNow, I come to the product lines, and as Lori indicated, we are going to report separately resistance and inductors from now on.\nAnd I'll start with resistors.\nVishay traditional and, since many years, steadily growing business continues to be highly profitable, despite having been impacted negatively in 2019 by lower volume due to inventory corrections in the supply chain.\nWith resistors, we enjoy a very strong position in the auto industrial, mil and medical market segments, and we do offer virtually all resistor technologies.\nSales in Q4 were 146 million, down by 6 million or by 4% versus prior quarter, and down by 37 billion or by 20% versus prior year, excluding exchange rate impacts.\nSales in 2019 of 648 million were down by 44 million or by 6% versus prior year, again, excluding exchange rate impacts.\nThe book to bill ratio in quarter four was 0.95 after 0.82 in prior quarter.\nBacklog increased slightly from 4.7 to -- from 4.5, excuse me, to 4.7 months.\nGross margin in the quarter came in at 24% of sales after 27% in prior quarter, low volume and efficiencies due to capacity adaptations for burdening the results temporarily.\nGross margin for the year 2019 was at a fairly good level of 28% of sales, down from 33% of sales in 2018, which, on the other hand, was a record year, supported by an inventory build in the supply chain.\nInventory turns in the fourth quarter were at 4.1 billion.\nInventory turns for the full year were at a satisfactory level of 4.1% also.\nAfter price increases in 2018, the development of ASPs returned to normal trends we have seen for resistors, minus 1% versus prior quarter and also minus 1% versus prior year.\nWith the inventory correction being over in a very foreseeable future, we expect the business to return to traditional profitability levels.\nThe business with inductors consists of power inductors and magnetics.\nOur fast-growing business with inductors represents one of the greatest success stories of Vishay.\nExploiting the growing need for inductors in general, Vishay developed some years ago, a platform of robust and efficient power inductors and leads the market technically.\nWith magnetics, we are very well positioned in specialty businesses, demonstrating steady growth since years.\nSales of inductors in quarter four were 77 million, up by 3 million or 4% versus prior quarter and flat versus prior year, excluding exchange rate impacts.\nYear-over-year sales of 299 million was virtually flat versus prior year.\nDespite all economic headwinds in 2019, again, I comment without exchange rate impacts.\nBook to bill in Q4 was 1.05 after 0.95 in prior quarter.\nBacklog for inductors was at 4.7 months, same as in the third quarter.\nThe gross margin in the quarter was at quite excellent 34% of sales, up from prior quarter, which were at 32% of sales.\nGross margin for the year 2019 was set, again, quite excellent 32% of sales, virtually on the same level as prior year.\nInventory turns in the quarter were at 4.8 as compared to 4.6 for the whole year.\nThere is only modest price pressure in inductors, minus 0.3% versus prior quarter and minus 1.8% versus prior year.\nWe continuously and will do so also in the future, expand our manufacturing capacities, in particular, for power inductors.\nOur business with capacitors is based on a broad range of technologies with a strong position in American and European market niches.\nWe enjoy increasing opportunities in the fields of power transmission and of ECAs, namely in Asia, China, in particular.\nSales in the fourth quarter were 95 million, 4% below prior quarter and 27% below prior year, excluding exchange rate effects.\nYear-over-year capacitor sales decreased from 466 million in 2018 to 423 million in 2019 or by 7%, again, excluding exchange rate impacts.\nBook to bill ratio in the fourth quarter for capacitors was 0.84 after 0.76 in previous quarter.\nBacklogs remained for capacitors at a high level of 4.1 months.\nThe gross margin in the quarter decreased to 18% of sales after 22% in prior quarter, lower volume and an unfavorable product mix burdened the results temporarily.\nThe gross margin for the year 2019 was a 22% of sales, down from 23% in 2018.\nInventory turns in the quarter increased to 3.7% as compared to 3.5% for the whole year.\nFor capacitors, we had price increases 0.7% versus prior quarter and plus 2.5% versus prior year.\nI come to our Opto line.\nVishay's business with products with Opto products consists of infrared emitters, receivers, sensors and couplers, as well as of LEDs for automotive applications.\nSales in the quarter were 51 million, 1% above prior quarter, but 21% below prior year, which again excludes exchange rate impacts.\nYear-over-year sales with Opto products went down from 290 million to 223 million, down by 22% year over year without exchange rate impacts.\nOpto was heavily burdened by inventory reductions in the supply chain.\nBook to bill in the fourth quarter was 1.11 after 0.86% in prior quarter, indicating we believe, a turnaround of the business.\nBacklog is at a very high level of 4.7 months after 4.4 months in the third quarter.\nGross margin for Opto in the quarter was at 20% of sales after 22% in the third quarter.\nGross margin for the year 2019 came in at 24% of sales as compared to 35%, again a record percent in prior year.\nAs I said, a real record for this product line.\nThe very high inventory turns of 6.4 in fourth quarter as compared to 5.4 in the whole year.\nIn Opto, we have relatively stable prices vis a vis prior quarter, the price increases of 2.3% vis à vis prior year, there was a price reduction of 1.7%.\nWe remain to be confident for this line growing steadily and also profitably, mainly in the segment of sensors.\nDiodes for Vishay represents a broad commodity business where we are the largest supplier worldwide.\nVishay offers virtually all technologies, as well as the most complete product portfolio.\nThe business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years.\nAfter two record years, the volume in diodes in 2019, suffered the most of all divisions from the inventory reduction in the supply chain.\nSales in the quarter were 123 million on the level of prior quarter but 30% below prior year, which excludes exchange rate effects.\nYear-over-year sales, diode, decreased from 713 million to 557 million, a decline of 21% without exchange rate impacts.\nThe book to bill ratio of 0.88 in the quarter was a definite improvement of the 0.57, which we have seen in quarter three, the worst appears to be behind us.\nThe backlog reduced slightly to a still high level of 4.7 months from 4.9 months in prior quarter.\nThe gross margin in the quarter came in at 16% of sales as compared to 17% in the third quarter.\nThe gross margin in the year 2019 was at 20% of sales, down from 28% in prior year.\nA quite enormous drop of volume in combination, some manufacturing inefficiencies and a strong ASP decline, especially in the fourth quarter were the reason.\nInventory turns remained at a very satisfactory level of 4.4% on the level of the whole year.\nThe ASP decline for diodes has accelerated in the fourth quarter, and we have seen minus 1.4% versus prior quarter and minus 7.3% versus prior year.\nWe are confident that this important business for Vishay will come back to historical volumes and also profitability's, whenever the inventories in the supply chain will have reach normal levels, and this will be in the foreseeable future.\nComing finally to MOSFETs.\nVishay continues to be one of the market leaders in MOSFET transistors.\nMOSFETs over the last years developed a strong and growing position in automotive, which is expected to provide a successful future for this product line.\nAlso MOSFETs currently see some impact of the destocking activities worldwide, but in a milder form than other commodity products.\nSales in the quarter were 116 million, 8% below prior quarter and 16% below prior year without exchange rate impacts.\nYear-over-year sales with MOSFETs decreased from 548 million to 509 million by 6% without exchange rates.\nBook to bill ratio in quarter four was 0.94 after 0.54 in Q3.\nApparently, the business is on the way back to normal.\nBacklogs continue to be on a high level at 4.2 months as compared to 4.0 months in the third quarter.\nGross margin in the quarter was at 24% of sales, no change from prior quarter.\nThe gross margin in the year 2019 came in at 25% of sales, a slight reduction from 27% in 2018 due to lower volume.\nInventory turns in the quarter were 3.7% as compared to 4.1% for the entire year.\nPrice decline for MOSFETs had accelerated, minus 2.5% versus prior quarter and minus 6.1% versus prior year.\nWe are confident to be -- we continue to be confident for the future of this line of MOSFETS, in particular driven by automotive applications, and we continue to expand internal and foundry capacities.\nAfter a record year 2018, our business in 2019 has entered a phase of massive correction, which principally was not a complete surprise, given the cyclical nature of electronics.\nNow, there are clear signs that the downtrend of orders and sales is behind us, and we believe that Q4 has been the low point for our business.\nThe inventory distribution is still relatively high and will moderate, therefore, the expected recovery for another quarter or two.\nWhereas the automotive market segment globally still will need some time to get back to historical strength, we see other fields that are encouraging.\nFor the mid- and long term, there is no reason to doubt the growth potential of electronics.\nVishay is a very well-established broad line supplier will benefit from all moves toward electrification going forward.\nOur increased machine capacities will enable us to participate in the next upturn to the full extent.\nWe are implementing our announced restructuring and rejuvenation program and expect an annual reduction of personnel fixed costs by 15 million, when it will be fully implemented by the first quarter of the year 2021.\nFor the first quarter, we guide to a sales range of 605 to 645 million at a gross margin of 24% of sales at the midpoint.\nThe guidance excludes potential impacts from the rapidly evolving coronavirus crisis.\nWe now open the call up to questions.\nRegina, please take the first question.",
        "summary": "compname reports q4 earnings per share of $0.10.\nq4 earnings per share $0.10.\nq4 adjusted earnings per share $0.13.\nsees q1 2020 revenue $605 million to $645 million.\nvishay intertechnology - for q1 2020 co expects further inventory reduction in supply chain and guide for revenues in range of $605 to $645 million.\nq1 guidance excludes impact from rapidly evolving coronavirus crisis."
    },
    {
        "text": "These materials are available on the Ventas website at ir.\nLet me start by saying that we believe the macro environment and the Ventas outlook have turned an important corner and that the worst of the pandemic is behind us.\nYou have no idea how good it feels to say those words, even though we recognize that significant uncertainty remains.\nThe whole Ventas team is actively engaged in taking steps to win the recovery for our stakeholders.\nThese steps include making smart portfolio and capital allocation decisions, capturing the embedded upside in our high-quality senior housing portfolio, focusing on operational excellence and initiatives, investing in value-creating development and acquisition opportunities across our demographically driven asset classes, attracting diverse, attractive capital, and maintaining financial strength and flexibility.\nI also think it's important to reiterate our gratitude and optimism.\nThe widespread administration and efficacy of COVID-19 vaccines have dramatically benefited the health and wellbeing of our senior residents and their caregivers, and also laid the foundation for sustained economic recovery.\nLet me first address senior housing trends and results.\nWith respect to health and safety, I'm thrilled to report that our confirmed new resident cases in SHOP have fallen to literally a single person per day out of a resident population of 40,000.\nAnd all our communities are now open to new move-ins and most have reintroduced expanded visitation and communal activities.\nAs a result, the natural, resilient and demographically based demand for senior living has revised, and we've reached the cyclical pandemic occupancy bottom in our SHOP portfolio in mid-March.\nSince then, led by our U.S. SHOP community, which posted 280 basis points of growth, we grew SHOP spot occupancy 190 basis points through April 30th to nearly 78%.\nOur Canadian SHOP portfolio, which has maintained occupancy of over 91%, tempered the full SHOP occupancy growth because Canadian clinical conditions and regulatory measures are currently lagging those in the U.S.\nWe do expect those to catch up over time.\nNotably, for the whole portfolio, March and April were the first two consecutive months when SHOP move-ins exceeded both, pre-pandemic move-in levels and move-outs since the start of the pandemic.\nIn fact, move-ins during April at 1,880 totaled more move-ins in a single month than we've experienced at any time since June 2019.\nWhile many of these positive trends began in the first quarter and therefore did not fully benefit first quarter results, we are also pleased with those results.\nOur first quarter normalized FFO per share and SHOP performance came in ahead of our expectations.\nAnd our SHOP occupancy gains were at or above those reported by other market participants to date.\nThe resilient and robust demand we are seeing for senior housing once again validates the need-based nature of our communities and the crucial role care providers play in facilitating longer, healthier lives for this portion of the nation's population, which is set to grow by over 2 million individuals over just the next few years.\nSupply trends in senior housing are also highly favorable.\nThis combination of growing demographic demand and constrained supply creates a favorable backdrop for senior housing recovery, which represents an incredibly significant value-creation opportunity for our shareholders.\nThe high quality of our senior housing portfolio, as Justin will describe, makes us well-positioned to recapture NOI and realize this upside.\nTurning to our capital allocation approach, we are confident of our ability to recycle about $1 billion through property dispositions in the second half of this year, and those are expected to enhance our enterprise.\nOn the investment side, our attractive life science, research and innovation business continues to provide us with value-creating opportunities to invest capital.\nThe Ventas portfolio, which now exceeds 9 million square feet, is located in three of the top five cluster markets and is affiliated with over 15 of the nation's top research universities.\nWe are also investing in our active and just delivered ground-up developments in life science, research and innovation, which totaled nearly $1 billion in project costs.\nAnd I'm pleased to report that we also have another $1 billion in potential projects affiliated with major universities, right behind the four developments currently under way.\nWe look forward to sharing more information on our exciting development pipeline with you, later this year.\nWe recently expanded our life sciences business through our investment in a Class A portfolio of life science assets anchored by Johns Hopkins Medical, which we purchased at an attractive valuation of $600 per square foot.\nLocated in the fourth largest life science cluster in the U.S., Hopkins is a global leader in research and medicine and the number one recipient of government research funding.\nThis acquisition leverages our unique expertise at the intersection of universities, life sciences and academic medicine.\nIn addition, we continue to invest capital in senior housing with our partner, Le Groupe Maurice in Quebec.\nLGM maintains a first-class brand, product and financial model for success.\nOur two most recently completed high-end communities with LGM opened in the fourth quarter and have already achieved 87% occupancy.\nWe have three additional developments under way with LGM, representing nearly $300 million in aggregate project costs.\nLooking at the broader investment market, deal volume is again trending toward normalized levels.\nIn a typical year, our deal team reviews over $30 billion in investment opportunities.\nOur pipeline of potential investments across our asset classes is active and growing, and we are on our front foot from an external growth standpoint.\nWe have access to significant liquidity and a wide array of capital sources to fund deals.\nOur investment philosophy continues to be focused on growing reliable cash flow and favorable risk-adjusted return, taking into account factors such as market position and trajectory of the asset and business, cost per square footer unit, downside protection and ultimate potential for cash flow growth and asset appreciation.\nIn closing, we believe we've turned an important corner.\nAnd key metrics in our business are showing meaningful improvement.\nThe positive investment thesis for all of our demographically driven asset classes and for Ventas is pointing firmly positive.\nAs a team at Ventas, we're really happy about the strength and stability we've shown and the recent upswing in economic, clinical and operating environment.\nWe have an abiding commitment to win the recovery for all our stakeholders, and we are confident we're taking the right steps to do so.\nI am very excited that senior housing recovery is under way.\nAs we've mentioned before, the lifestyle offering in our communities will be a leading indicator of performance.\nNow that vaccines have been executed, activities are picking up again, communal dining is coming back and all of our communities are open to visitation from relatives, the underlying demand for our services should continue to strengthen.\nAs we have visited communities recently, the enthusiasm expressed by residents, their relatives and employees is compelling as communities are literally coming back to life again.\nAs Debbie noted, we are pleased with the improvement in leading indicators in occupancy as our move-in and move-out performance in March and April resulted in 266 and 363 net move-ins, respectively.\nWe expect occupancy improvements benefiting from a return to 2019 move-in levels, while at the same time, move-outs to be lower than 2019 levels due to lower current occupancy levels.\nIf we use the move-out rate as a percentage of the resident population from 2019 and apply that percentage to the current lower resident occupancy, the outcome is lower move-outs than pre-pandemic levels.\nThat, in combination with a 2019 move-in run rate, results in projected net positive occupancy gains.\nI refer to this as the \"turn the lights on\" scenario, where we simply get the structural benefit from this netting effect.\nHaving said that, March and April, both performed well above this baseline, as we started to see a resurgence of high-converting lead sources, which include respites and personal referrals.\nAs these lead sources and professional referrals continue to recover, we could see move-in rates grow.\nMoving on to macro drivers.\nWe remain optimistic on our long-term supply and demand outlook.\nConstruction starts continued to decelerate in the first quarter to the lowest level since the first quarter of 2011, and were down 77% from the peak in the fourth quarter of 2017.\nFewer starts should translate into materially lower deliveries in 2022 and 2023.\nIn addition, we expect strong demographic tailwinds to provide support for occupancy growth.\nThe 80-plus population is expected to grow 17% over the next five years, more than double the rate witnessed during the five-year recovery following the financial crisis.\nI'll comment on our SHOP portfolio.\nWhen I joined Ventas just over a year ago, one of my first priorities was to assess the overall quality of our portfolio.\nNow that we are traveling again and visiting communities, I'm pleased to verify we benefit from a well-invested, highly diversified portfolio of market-leading senior housing communities with service offerings that range from an active adult, independent living, social assisted living, and assisted living and memory care.\nWe are well located in high-barrier markets that have substantial income and wealth demographics to support our offering.\nOur three primary operators, Le Groupe Maurice, Sunrise and Atria, are each uniquely positioned to be competitive within their respective markets.\nCollectively, they account for 90% of our SHOP NOI on a stabilized basis.\nWith these attributes of a high-quality portfolio in mind, moving forward, we are actively reviewing opportunities to optimize our portfolio through pruning, strategic capex investment, transitioning communities, new developments and pursuing new acquisitions to maintain our strong market position in senior housing.\nMoving on to triple-net senior housing.\nGiven the proactive measures taken last year where we addressed a substantial portion of our portfolio and additionally paired with government subsidies and other tenant resources, our tenants continue to pay, as expected, in the first quarter and through April.\nVentas received all of its expected triple-net senior housing cash rent.\nOur trailing 12 cash flow coverage for senior housing, which is reported one quarter in arrears, is 1.3 times and stable versus the prior quarter.\nI'll summarize by expressing our enthusiasm around our strong leading indicators, high-quality portfolio of communities and operators.\nI have a high confidence in our ability to compete in what should be a very exciting period of recovery for the senior housing sector.\nWith that, I'll hand the call to Pete.\nI'll cover the office and healthcare triple-net segments.\nTogether, these segments represent over 50% of Ventas' NOI.\nThey continue to produce solid and reliable results.\nFirst, I'll cover office.\nThe core office portfolio, ex parking, performed well.\nCore office grew 1.7% year-on-year and 1.1% sequentially.\nThose results were tempered by lower parking activity, which I'm pleased to say is materially increasing.\nAll-in, the office portfolio delivered $123 million of same-store cash NOI in the first quarter.\nThis represents an 80 basis-point reported sequential growth.\nIn terms of rent collections, our strong record continued during the quarter and into April.\nThis outstanding record is enabled by the mission-critical nature of our portfolio and our high-quality creditworthy tenancy.\nIn our medical office portfolio, 88% of our NOI comes from investment-grade rated tenants and HCA.\nIn our life sciences portfolio, 76% of our revenues come directly from investment-grade rated organizations and publicly traded companies.\nAll of our MOB properties are in elective surgery restriction-free locations and clinical activity and building utilization is rebounding.\nA clinical rebound provides confidence to healthcare executives in making business decisions.\nWe're certainly seeing that on the real estate side.\nAs an example, we are finishing negotiations on a 10-year 160,000 square foot renewal with a 16,000 square foot expansion with a leading health system in the southeast.\nWe relocated and extended several hospital offices on a Midwestern campus to accommodate the addition of a 50,000 square foot healthcare-focused technical college.\nThe leases will commence in July, a win for the health system, the college and Ventas.\nMedical office had record level retention of 91% for the first quarter and 86% for the trailing 12 months.\nDriven by this retention, total office leasing was nearly 1 million square feet for the quarter.\nThis includes 160,000 square feet of new leasing.\nThe result is that MOB occupancy stayed essentially flat, down only 10 basis points for the quarter, both sequentially and year-on-year.\nPrevious actions to bolster leasing are clearly showing results.\nIn 2019, we hired a head of leasing.\nIn 2020, we hired a digital marketing lead.\nIn 2020, we redeployed 30% of our third-party brokers.\nAnd in 2020, we increased the number of third-party brokers by 70% to impact the local coverage.\nOur digital marketing program focused on local market awareness and virtual touring of vacant suites is fully in place and making a difference.\nAverage length of term for new leases was 7.3 years, 5 months higher than the 2019 average.\nRenewal term length also exceeded 2019 averages.\nAverage escalators for new leasing was 2.7%, higher than our average in-place escalator of 2.4%.\nAll of this represents growing healthcare community confidence in the recovery.\nI'd also like to highlight our pre-leasing construction initiative.\nThis is where we take a vacant suite where it is difficult to visualize this future potential and either demolish the in-place improvements to Core and Shell or complete a hospital standard physician suite in advance of leasing.\nWe've invested over $2 million in a pilot across 20 suites.\nThe results have been fantastic.\nThese projects have driven 20 basis points of occupancy and created a nearly 20% return on investment.\nBecause of these results, we intend to expand this program later this year.\nWe remain enthusiastic about the office business and particularly investment opportunities in the R&I space.\nWe continue to make progress on our recently announced $2 billion pipeline of development opportunities with Wexford.\nWe've publicly announced four projects in that pipeline, Arizona State University in Phoenix, which opened in the fourth quarter and is soon to be over 70% leased.\nDrexel University College of Nursing in Philadelphia is 100% leased.\nThe project, in partnership with the University of Pittsburgh for immunotherapy is 70% preleased.\nAnd our new development in the thriving City submarket of Philadelphia between Penn and Drexel is showing strong pre-leasing activity.\nSince the acquisition of our South San Francisco life science trophy asset, we have renewed several tenants and have driven occupancy to 100%.\nIn some cases, the mark-to-market has exceeded 30%.\nAt our newest life sciences acquisition on the Johns Hopkins Campus in Baltimore, we are in lease negotiations to take the buildings from 96% to 100% occupancy.\nDemand far exceeds our current capacity.\nNow, let's turn to healthcare triple net.\nDuring the first quarter, our healthcare triple-net assets showed continued strength and reliability with 100% rent collections in April and May.\nTrailing 12-month EBITDARM cash flow coverage through 12/31 improved sequentially for all of our healthcare triple-net asset classes.\nAcute care hospitals' trailing 12-month coverage was a strong 3.5 times in the fourth quarter, a 20 basis-point sequential improvement.\nArdent has performed extremely well in this dynamic market.\nIRF and LTAC coverage improved 10 basis points to 1.7 times in the first quarter, buoyed by strong business results and government funding.\nCensus levels were high at year-end and continued into the first quarter.\nDuring this period, Kindred has been able to demonstrate their expertise in treating complex respiratory disorders to their health system partners.\nRegarding our loan portfolio, it is fully current.\nThey are our heroes.\nWe are relieved that now, protected by the vaccine, they can do their jobs with peace of mind and in safety.\nIn my remarks today, I'll cover our first quarter results, our expectations for the second quarter of 2021 and our recent liquidity, balance sheet and capital activities.\nLet's start with our results in the first quarter.\nVentas reported first quarter net income of minus $0.15 per share, driven by noncash charges in the quarter as we transferred assets to held for sale.\nNormalized funds from operations in the first quarter was $0.72 per share, a $0.01 beat versus the high end of our prior guidance range of $0.66 to $0.71.\nAs previously communicated and included in our Q1 guidance range, we received $0.04 in HHS Grants in SHOP in Q1.\nAdjusted for these grants, Q1 FFO per share was $0.68.\nAs expected, office and triple-net contributed stable sequential NOI performance in the first quarter.\nQ1 outperformance was driven by better occupancy and lower-than-expected operating expenses in SHOP.\nAs a result, same-store SHOP NOI declined sequentially by 8% in the second quarter versus the first.\nTurning to our Q2 guidance.\nSecond quarter net income is estimated to range from flat to $0.07 per fully diluted share.\nOur guidance range for normalized FFO for Q2 is $0.67 to $0.71 per share.\nThe Q2 FFO midpoint of $0.69 is $0.01 higher sequentially than the first quarter results due to an improving SHOP trajectory, after adjusting for HHS Grants in both periods.\nKey second quarter assumptions underlying our guidance are as follows.\nQ2 spot occupancy from March 31st to June 30th is forecast to increase between 150 to 250 basis points, with the midpoint assuming the occupancy improvement in March and April, continues through May and June.\nSequential SHOP revenue is expected to grow modestly as a result of occupancy gains.\nWhile operating expenses, excluding HHS grants, are forecast to be flat with lower COVID costs, offsetting higher costs due to increased occupancy, higher community activity levels and an additional day in the second quarter.\nFinally, we've not included the receipts of HHS Grants in SHOP in our Q2 guidance.\nIn our Office and Triple-net segments, we expect stable NOI in Q2 relative to Q1.\nAnd finally, we continue to assume $1 billion in proceeds from property dispositions in the back half of 2021.\nI'd like to underscore that we're still in a highly uncertain environment.\nThough trends in SHOP are positive, the pandemic's impact on our business remain very difficult to predict.\nWe continue to enjoy robust liquidity with $2.7 billion as of May 5th.\nNotably, in the first quarter, we renewed our revolver at better pricing and improved our near-term maturity profile by fully repaying $400 million of senior notes due 2023.\nIn terms of capital structure, we maintained total debt to gross asset value at 37% in the first quarter.\nQ1 net debt-to-EBITDA was 7.1 times, as EBITDA continued to feel the impacts of COVID in the quarter.\nWe expect net debt-to-EBITDA will reach its peak in the first half of '21 and then begin to improve in the second half as senior housing rebounds and we reduce debt with asset sales.\nOn behalf of all my colleagues, Ventas is committed to continuing to take the actions to win the post-pandemic recovery, which finally is appearing in our sights.\nBefore we start with Q&A, we're limiting each caller to two questions to be respectful to everyone on the line.",
        "summary": "compname reports sees q2 adjusted ffo per share $0.69 excluding items.\nsees q2 adjusted ffo per share $0.69 excluding items.\nqtrly normalized ffo per share $0.72.\nqtrly nareit ffo per share $0.67.\nsees q2 normalized ffo per share $0.67 - $0.71.\nsees q2 nareit ffo per share $0.67 - $0.70."
    },
    {
        "text": "These materials are available on the Ventas website at www.\nI will now turn over the call to Debra A. Cafaro, Chairman and CEO.\nThe Ventas team is dispersed but unified in spirit as we join you for today's call.\nI'd like to provide an overview of our consistent strategy, discuss our third quarter results, highlight how we are driving our research and innovation business forward, describe our competitive advantage and managing institutional third-party capital and touch on the positive senior housing operating trends that continue into October.\nOur enterprise continues to benefit significantly from our steady commitment over decades and various cycles to asset class operator and geographical diversification.\nWe aim to generate reliable growing cash flows from a high-quality diverse portfolio of assets on a strong balance sheet.\nWe've seen that staying disciplined about diversification has protected the downside and also provided myriad opportunities for our stakeholders.\nThe current environment is certainly proving out the merits of this strategy.\nFirst, our diversified portfolio is enabling the company to remain strong and stable, despite the disruption occasioned by the COVID-19 pandemic, which has affected our different asset classes and geographies in non-correlated way.\nOur medical office, research and innovation business and our healthcare triple-net lease business now represents over half of our enterprise.\nDuring the quarter, these asset classes have continued to perform well and led our third quarter performance, enabling us to deliver $0.75 of normalized FFO per share.\nSecond, our diversified asset base with five verticals has given us the ability to continue successfully allocating capital over time and through cycles.\nFor example, following this spinoff of our skilled nursing business, we invested in high quality health systems with [Indecipherable], which is currently performing very well as hospitals have asserted essentiality to the healthcare delivery systems in the U.S. Also, just as we did when we allocated capital to the medical office building business a decade earlier, in 2016, we entered the research and innovation business, and we have found significant opportunities to drive that business forward since then, through both ground up development and asset acquisitions.\nThe addition of life sciences to our enterprise has provided uplift to our results, our investment activity and our enterprise value.\nTwo recent examples of the benefit of our diversified strategy include our investment in a $1 billion Class A Trophy Life Science Portfolio located in the Premier South San Francisco Life Science Cluster at a forward cap rate of 5% on cash NOI.\nThe tenant base is a nice mix of public companies and a diverse group of early to mid-stage life science company.\nThe South San Francisco market consistently ranks as one of the elite life science clusters.\nSpurred by record capital flows into the life science sector, this market has less than 2% lab vacancy, unparalleled access to a large concentration of life science firms and an extensive venture capital network going after the world class talent pool.\nWe also recently recommenced construction on a 400,000 square foot state-of-the-art Life Sciences project known as One UCity in this thriving research sub market of Philadelphia, bookended by 10 and Drexel.\nThis project is designed to be LEED certified and total estimated project costs are over $280 million.\nSimilarly, we've invested on a geographically diversified basis with over 30% of our shop portfolio now in Canada.\nLast year, we acquired the high-quality Le Groupe Maurice portfolio in Quebec.\nBuilding on the strong performance LGM has delivered and its history of successfully developing and leasing up senior communities for vibrant older adults.\nWe are also investing nearly $420 million in ground up development of new consumer focused senior living communities, which are well under way.\nWe do see areas where we can recycle capital too.\nWe have recently sold or placed under contract certain portfolios of senior living assets that are not long-term holds for us.\nWe want to continue making senior housing a key part of our diversified portfolio because of the operational asset class upside post-pandemic, the demographically driven demand that is in front of us and the continued improvement on the supply side.\nThere remains a strong bid from private capital for senior living, which supports our conclusion.\nOn the other side of the ledger, through our growing third-party institutional Capital Management Platform, we also continue to diversify our capital sources, augment our investment capacity, expand our footprint, leverage our team and industry expertise and improve our financial flexibility and liquidity, all of which are positive for our public shareholders.\nHaving additional partners and tools to use at appropriate times and for customized situations, provides a significant competitive advantage for Ventas and as an incremental source of earnings.\nWe already have over $3 billion in assets under management in our institutional third-party capital management platform.\nThese forms include our successful open-end funds, launched in March of this year, that has already grown to nearly $2 billion and 2 million square feet in assets under management.\nFollowing the South San Francisco Life Sciences portfolio closing, when we raised over 600 million of discretionary new equity, our fund exceeds $1 billion in equity capital, and continues to have additional committed capital to accommodate new investments.\nWe've also today announced a new joint venture with GIC, one of the most respected global real estate investors.\nThis joint venture covers four research and innovation development projects currently in progress with approximately 930 million in estimated project costs.\nOur joint venture with GIC may be expanded to over $2 billion with other pre-identified future R&I development projects currently in our pipeline if they go forward.\nWhile maintaining a majority interest in all these projects and receiving market-based compensation, our GIC joint venture enables us to align with a strategic partner, improve our liquidity and financial profile and accelerate our research and innovation development pipeline, including the recent construction commencement of the One UCity project in Philadelphia.\nThe success of our open-end fund and the GIC partnership demonstrates a tremendous market opportunity within life science, medical office and senior housing real estate Also they are a testament to Ventas's excellent team and investment track record.\nTurning to the year-end now, I'd like to provide some key observations about our U.S. senior housing operating portfolio.\nImportantly, in the third quarter, our operators continued to build on the improving trend that began in the second quarter.\nOur communities demonstrated sustained increases in leads and movements, which continued through October.\nWhile we are sober and clear eyed about the recent increase in COVID-19 cases nationally, to a record level of nearly 120,000 confirmed cases today, we believe in the strength of the senior living business as we look toward the post-pandemic environment.\nWe are also appreciative that HHS has recognized the crucial role senior living plays in protecting vulnerable older Americans.\nHHS has allocated CARES Act funding to the assisted living community to partially mitigate the losses directly suffered because of the COVID-19 pandemic.\nFinally, we are encouraged by the progress being made by scientists and doctors on vaccines and treatments for COVID-19.\nOlder Americans, including our residents, will be prioritized for vaccine distribution slated just behind first responders and frontline healthcare providers.\nMost of our operators have already registered with pharmacy distribution sources to administer the COVID-19 vaccine as soon as it becomes available.\nAn effective, widely distributed vaccine will further improve conditions for a senior housing recovery.\nWe are glad that we have significant embedded exposure to that upside in our diversified portfolio.\nToday, we published our corporate sustainability report that showcases our long-standing commitment to and leadership in ESG.\nAmong other things, this report discloses our new environmental goals are consistent and growing investments in sustainability improvements in our portfolio, and our principles and practice, which is a series of case studies showing our actions on health and safety and COVID-19 describing our emergency preparedness, and demonstrating our customized framework to achieve greater gender and racial equality and social justice.\nIn closing, let me reiterate that the long-term demographically driven thesis for healthcare real estate and for Ventas remains in place.\nI'm incredibly proud of our Ventas team.\nOur consistency and cohesion are great assets for all our stakeholders.\nAll of us at Ventas have an abiding commitment to stay strong and stable and win the recovery.\nI'll start by mentioning the encouraging trends we continue to see in our shop portfolio.\nWe are pleased to have had our first net positive move in month since the start of the pandemic in October and a majority of our portfolios delivering move ins at levels that are equal to or more than typical levels across the U.S. and Canada.\nThe underlying demand for need driven senior housing in the U.S. and independent living services in Canada persists.\nWhile we are encouraged about these positive trends, we're mindful that the pandemic causes ongoing uncertainty and choppy waters in the senior housing business.\nI will also add that in spite of the near-term pressure on the sector, we remain committed to the senior housing business and excited about the supportive underlying supply demand fundamentals that should persist for years to come.\nNow I will review our third quarter senior housing results in the shop and triple-net portfolio and follow that up with some comments on our latest trends and outlook.\nFirst up, the shop, for the quarter, shop results were in line with the company's expectations.\nOur 395 assets sequential same-store pool comprising over 90% of our shop NOI, posted cash NOI of 109 million which is effectively flat versus the second quarter.\nAverage occupancy was 130 basis points lower sequentially with improving trends inter quarter while RevPOR declined 30 basis points and grew 50 basis points in our U.S. and Canadian operating portfolios respectively.\nLeading indicators such as leads and movements also saw a consistent and positive trend intra quarter, both in absolute numbers and relative to prior year, highlighting the resilient demand for senior housing.\nIn September leads and move-ins were 85% and 94%, respectively, as compared to the prior year.\nThird quarter revenue declined 3.6% which was offset entirely by 4.5%, lower operating expenses sequentially, primarily driven by lower COVID related expenses.\nAs a reminder, all COVID-19 impacts including elevated testing, labor, cleaning and supplies costs have been reflected in property operating results.\nAs with last quarter, I'll highlight our Canadian portfolio, which represents 33% of our shop portfolio and demonstrates the benefits of our diversification and a well-orchestrated public health response.\nThe 72 communities within our sequential Q3 same-store pool, including our LGM investment was 93.2% occupied, which compares to an average of 93.7% for the second quarter, outperform in the U.S. on an absolute and relative basis.\nSame-store cash NOI on a sequential basis grew in Canada by over 10%.\nMoving on to our triple-net senior housing portfolio, in the third quarter and through October Ventas received all of its expected triple-net senior housing cash rent.\nOur underlying triple-net senior housing portfolio performance continues to be impacted by COVID-19, which we have been collaboratively addressing with our tenant partners.\nAs a result of our proactive steps to improve coverage through mutually beneficial arrangements with Capital Senior, Holiday, Brookdale and other smaller tenants, our trailing 12 months cash flow coverage for senior housing is 1.4x.\nWe also expect triple-net senior housing tenants will receive CARES Act funding, which will be a positive development.\nNow I'll address recent trends.\nAs described earlier, demand characteristics supporting senior housing remain solid and leads and move-ins continue to improve since the low point in April and month-over-month in the third quarter.\nThese trends persisted into October as we experienced net positive move-ins helped in part by selective move in incentives.\nOur operators successful execution of screening, protecting and testing protocols has been supporting a living environment that's more open and more robust than earlier in the pandemic.\nCurrently, 96% of our communities are accepting move-ins.\nMoving on to our clinical results.\nAs a result of the diligent efforts of our operators executing, testing and preventative protocols new resident COVID-19 cases more than 75% better than the peak seen in April, in spite of broader market trends of increased new infection rates among the U.S. general public.\nIn regards to the Q4 outlook for shop, due to the uncertain environment, it is too hard to predict.\nHowever, we would expect occupancy to soften and we would expect expenses to be relatively flat at the current elevated levels as the health and safety of the residents and frontline caregivers is the biggest priority.\nIn summary, we are encouraged by the continued improvement and leading indicators through the third quarter and October and we remain committed to the senior housing business moving forward.\nWe are proud of our operators' efforts in the third quarter to successfully execute COVID-19 related protocols while focusing on the health and safety of frontline caregivers and residents.\nWith that, I'll hand the call to Pete.\nI'll cover the office segment third quarter results and trends.\nOur office segment which now represents over 30% of Ventas' NOI continues to produce strong results and show its value proposition and financial strength and missed the pandemic.\nMOBs and research and innovation centers, the two lines of business within our office portfolio play a key role in the delivery of crucial healthcare services and research for life saving vaccines and therapeutics.\nThe Office portfolio continued to provide steady growth delivering 126 million of same-store cash NOI in the third quarter.\nThis represents a 40 basis points of sequential growth.\nYou will note that the same-store cash NOI declined 2.2% year-on-year for the third quarter.\nHowever, we lapped a large $4.7 million termination fee in the third quarter of 2019.\nnormalizing for this fee.\nThe same-store cash NOI grew 1.5% from the prior year normalizing for the paid parking shortfall and increased cleaning costs due to COVID, same-store cash NOI grew by 2.8%.\nIn terms of rent receipts, office tenants paid an industry leading 99% of contractual rents in the third quarter in line with the second quarter.\nThis is without D docs for deferrals, which were de minimis.\nSubstantially all granted second quarter deferrals that came due have been repaid and new granted, deferrals were negligible.\nAs of November 6, our tenants have paid more than 99% of October contractual rents.\nReceiving 99% of total rent without D docs is a direct reflection of the quality of our tenants and the quality of our buildings.\nThe solid result underscores the durability and quality of our tenant base.\nRemember 88% of MOB NOI is from investment grade tenants or HCA and 97% of our MOB NOI comes from tenants affiliated with major health systems, including some of the nation's most prestigious, not-fort-profit health systems.\nMost tenants have received significant amount of federal support through a variety of programs designed to assist healthcare providers in small businesses.\nAs an example, we estimate that our top 10 Health System tenants have collectively received nearly 5 billion in CARES Act relief and 10 billion in Medicare advanced payments.\nFor our R&I portfolio 76% of our revenues are received from investment grade organizations and publicly listed companies a very solid foundation.\nThird quarter 2020 office occupancy for the same-store portfolio was 91.1%, a sequential decline of 40 basis points due to several small tenants not reopening post COVID.\nThis was partially offset by the lease up of research and innovation assets associated with the University of Pennsylvania in Philadelphia and Washington University in St. Louis.\nLab space continues to be in high demand and the R&I portfolio is now 97% leased an outstanding result.\nMedical office had a record level retention at 90% for the third quarter of 2020 and for the trailing 12 months.\nDriven by this retention total office leasing was 1.2 million square feet for the quarter and 2.7 million square feet year to-date.\nThis is 400,000 square feet higher than our third quarter of 2019 leasing and 300,000 square feet higher than the third quarter 2019 year-to-date leasing.\nWe also saw a positive space utilization trends that mirrored admissions in surgery volumes reported by the health systems.\nThese trends have continued through October.\nAs an example, paid parking is more than doubled from the depths of COVID but as recovered to 65% to 70% of pre-COVID levels, climbing but still below historical levels.\nAs Debbie mentioned, we are pleased to have added three R&A buildings in South San Francisco.\nSince going under contract, we have signed a large renewal and are experiencing a high level of leasing activity.\nThis gives us confidence that our occupancy will soon build from the current state which is already 96% leased.\nDuring the third quarter, we received the results of our annual tenant satisfaction survey.\nI am pleased to report that this year's results were significantly higher than in prior years.\nIn fact, when compared to other MOB portfolios by an independent third-party, our tenant satisfaction is in the top quartile.\nOne of our highest rated scores was how our team supported our tenants during the pandemic.\nThese essential field personnel who serve our tenants on-site during the pandemic, have done a terrific job.\nWe are grateful for their effort and commitment.\nAnd we continue to focus on the health and safety of these personnel and our tenants.\nIn sum, our tenant satisfaction, leasing, NOI and cash receipts were positive during the third quarter, a clear build from the second quarter and we look forward to continuing the normalization of healthcare in research operations as we entered 2021.\nWith that, I'll pass the baton to Bob.\nI'll touch on our healthcare triple-net lease portfolio before I close with some enterprise level commentary.\nDuring the third quarter, our healthcare triple-net assets showed continued strength and resilience as evidenced by receiving 100% of third quarter, October and November from our total healthcare tenants.\nFurther trailing 12 months EBITDARM cash flow coverage for the second quarter of '20, related to the available information improved sequentially for all of our healthcare triple-net asset classes despite COVID-19.\nBoth acute and post-acute providers have had early access to significant government funding to create liquidity and to mitigate losses related to the pandemic.\nAcute care hospitals trailing 12-month coverage was a strong 3.1x in the second quarter.\nNationally hospital inpatient admissions and surgeries continue to rebound in Q3 and third quarter admissions approached over 90% of prior year levels.\nArden continues to perform extremely well despite the challenging market conditions and is benefiting from over 90% of its hospitals residing in jurisdictions that are open for elective procedures.\nHerbs and health tax coverage improved 20 basis points to 1.5x in Q2 on the heels of government funding and significantly improved census.\nHealth tax have increasingly proved their importance in the care continuum, with or without COVID.\nAnd finally, within our loan portfolio, our Colony, Holiday and Brookdale loans are all fully current.\nTurning to our third quarter financial performance, and let me start with Q3 GAAP net income, which includes $0.06 in non-cash charges as a result of COVID impacts.\nMost notably the write-off of straight-line rents across five tenants, with Genesis being the largest.\nThese tenants are now on a cash basis and represent approximately 50 million of annual cash rent, notwithstanding the write-offs, all these tenants are current, and we will endeavor to collect all our contractual rents going forward.\nThese non-cash charges are excluded from third quarter normalized FFO.\nWe provided additional information in our supplemental on page 34.\nIn terms of normalized FFO per share, we delivered $0.75 in Q3 2020 versus $0.77 in the second quarter.\nShop and office NOI were stable sequentially, with the $0.02 reduction in FFO in the third quarter, as compared to the second described by the Brookdale rent reset in the third quarter.\nIn the third quarter, we saw the results of the decisive actions taken earlier in the year to ensure a strong and stable Ventas.\nThese included reducing our corporate cost structure by 25%, resulting in 30 million in annualized SG&A savings in Q3.\nWe are also active in managing our balance sheet and liquidity, including paying down substantially all borrowings under our revolving credit facility, successfully tendering for 236 million of near-term bonds and issuing under our ATM to help fund the South San Francisco investments.\nNet-net, we feel good about our financial flexibility.\nOur liquidity is strong at 3.2 billion between available revolver capacity and cash on hand as of November 5.\nWe have limited near-term debt maturities, access to diversified capital sources, strong fixed charge coverage and debt to gross asset value just 37%.\nTo close, we're pleased with our performance in the quarter and the continuing improving trends in senior housing.\nThe entire Ventas team is sharply focused on taking the actions that will enable us to win the recovery when the pandemic is finally behind us.\nBefore we start with Q&A, we're limiting each caller to one question with one follow-up to be respectful to everyone on the line.\nAlso given the fact that we continue to be remote, I'd ask Debbie to do her Roethlsberger impression and quarterback our QA.",
        "summary": "ventas inc - qtrly ffo $0.75."
    },
    {
        "text": "Joining me on the call today are Dale Gibbons and Tim Bruckner, our Chief Financial Officer and Chief Credit Officer.\nI will first provide an overview of our quarterly results and how we are managing the business in this current economic environment, and then Dale will walk you through the Bank's financial performance.\nI would like to focus on three trends that were present this quarter and will continue throughout the year: PPNR strength, credit provisioning expense and balance sheet growth.\nCombined, these trends will support earnings and capital growth and dividend distribution throughout 2020 and 2021.\nStarting with our second quarter results, Western Alliance generated net income of $93.3 million and earnings per share of $0.93, which was up 12% over the previous quarter.\nTangible book value per share of $27.84 was an increase of 4.2% over the previous quarter and 12.9% year-over-year.\nDriving these results was record operating pre-provision net revenue of $194.7 million, up 27.7% year-over-year and 19.1% quarter-over-quarter, with strong operating PPNR ROA growth of 18 basis points to 2.56%, which benefited from a recognition of $13.9 million in Payment Protection Program net fees.\nThese results demonstrate that the long-term earnings power of Western Alliance's core business remained strong amid the current economic and market volatility and will support significant ongoing capital accumulation, provide financial flexibility to fund balance sheet growth and accommodate changes to the allowance for credit losses or revisions to the economic outlook.\nIn the quarter, we recorded provision for credit losses of $92 million versus $51.2 million in Q1, which was primarily attributable to changes in macroeconomic forecast assumptions and net charge-offs of $5.5 million.\nDale will go into more detail in a bit on the specific drivers of our provisions, but our total loan ACL to funded loan ratio now stands at 1.39% or $347 million.\nContinuing our strong balance sheet momentum from 2019, loans increased $1.9 billion this quarter to $25 billion and deposits grew $2.7 billion to $27.5 billion.\nWithout the inclusion of PPP, loans grew a more modest $117 million and deposits demonstrated strong growth of approximately $1.6 billion.\nThe lower adjusted loan growth reflects muted demand, for which we held back our marketing activities and directed our focus to low-loss, high-quality loan segments, in addition to assisting our clients with their PPP applications.\nWe are encouraged by our pipeline and our opportunity to continue to grow in low-risk asset classes.\nThroughout the crisis, we have continued to attract new high-quality relationships to our bank at pricing and terms that would not have been available to us in other circumstances.\nFurthermore, this quarter's positive operating leverage supported our expanding PPNR, as our strong efficiency ratio improved sharply to 36.3% compared to prior year.\nBecoming more efficient during this economic uncertainty provides the incremental flexibility to maintain PPNR.\nLooking ahead, we will continue to invest in new product offerings and infrastructure to maintain operational efficiency, but Q2 levels are temporary and will eventually rise back to a sustainable level in the low-40s.\nHowever, our branch-light business model and our National Business Lines strategy continue to give us a competitive advantage.\nFinally, supported by our healthy PPNR generation, Western Alliance remains well capitalized with a CET1 ratio of 10.2%, which puts us in a position of strength, uniquely prepared to address what's ahead in this uncertain environment.\nNow, let's take a moment to provide an update on Western Alliance's response to the COVID pandemic.\nWe continue to follow CDC protocol and state-by-state return to work guidance, as our organization returns to the office.\nAs I initially described on our Q1 earnings call, WAL's unique credit risk management strategy is focused on establishing individual borrower level strategies and direct customer dialog to develop long-term financial plans.\nOur approach to payment deferral requests is to look for resourceful ways to partner with our clients, along with assessing their willingness and capacity to support their business interests.\nWe asked our clients to work hand in hand with us, whereby our clients contribute liquidity, capital or equity as an integral component to modify payment plans.\nOur approach collectively uses the resources of the borrower [Phonetic], government and bank's balance sheet to develop solutions that extend beyond the six-month window provided for in the CARES Act.\nSince April 1, WAL has funded $1.9 billion in PPP loans, which provided expedient liquidity to over 4,700 clients and benefited more than 150,000 employees.\nAt quarter end, $2.9 billion or 11.5% of loans had been modified with the bulk of these loans receiving principal and interest deferrals.\nExcluding the Hotel Franchise Finance segment, in which we executed a unique sector deferral strategy, the Bankwide deferral rate is approximately 5%.\nThe vast majority of our borrowers elect to utilize their own resources or PPP funds to bridge their business through the COVID crisis.\nI will provide an update on the portfolios most impacted by COVID later on, but I did want to highlight, in our Hotel Franchise Finance portfolio, our sophisticated hotel sponsors continue to see value in and support their properties with 92% of deferrals achieved by posting additional liquidity as a component of future payment deferrals.\nOur differentiated deferral strategy provides our customers the runway to resolve their liquidity issues and allow the appropriate time to recover.\nUnlike the cookie-cutter big bank approach, we established the expectation that the burden of responsibility of solving the long-term cash flow problems remains with our client base.\nIn our Gaming book, all borrowers continued to make interest payments as 90-day principle-only deferrals were approved for 37% of the portfolio.\nToday, 95% of our clients are open for business and are experiencing a strong rebound of demand.\nThese facts and the daily conversations with our people and clients help me feel confident that our credit mitigation strategy and early approach to proactively managing our risk segments is bearing fruit and puts Western Alliance in a strong position to come out on the other side of the pandemic in better shape than our peers.\nDale will now take you through our financial performance.\nOver the last three months, Western Alliance generated net income of $93.3 million or $0.93 per share.\nAs mentioned, net income was impacted by elevated provision expense for credit losses, driven by the adoption of CECL in Q1 and changes in the economic outlook during the quarter.\nNet interest income increased $29.4 million, primarily as a result of loan growth and lower rates on liabilities, as interest expense was cut in half.\nOperating non-interest income fell $5.2 million to $11.1 million from the prior quarter as lower levels of financial activity generated lower -- fewer fees.\nWe also benefited from several non-operating items during the period, including a recovery of approximately 40% or $4.4 million of the mark-to-market loss on preferred stock holdings we recognized in Q1.\nAdditionally, bank owned life insurance was restructured, resulting in an increase of $5.6 million as we surrendered and reinvested lower-yielding policies.\nIn addition to this gain, this should moderately increase BOLI revenue prospectively.\nFinally, non-interest expense declined $5.7 million, primarily from an increase in deferred compensation expense of $3.3 million related to PPP loan originations, plus a 52% decrease in deposit costs and a 64% decline in business development and travel expenses.\nStrong ongoing balance sheet momentum, coupled with diligent expense management, drove operating pre-provision net revenue of $194.7 million, which was up 27.7% year-over-year.\nWe believe this is the most relevant metric to evaluate the ongoing earnings power of the Bank.\nOur strong PPNR covered an 80% increase in provision costs from Q1 to $92 million, while driving earnings per share up 12% to $0.93 on a linked quarter basis.\nTurning now to our interest drivers, investment yields increased 4 basis points from the prior quarter to 3.02%.\nHowever, the overall quarterly portfolio yield decreased by 32 basis points from the prior year due to the lower rate environment.\nLoan yields decreased 45 basis points, following declines across most loan types, mainly driven by the 83 basis point reduction in one-month LIBOR during the quarter.\nYield reductions were partly offset by an average yield on our PPP loans of 5.02%.\nProspectively, we expect loan yields to trend toward the end-of-quarter spot rate shown of 4.66%.\nInterest-bearing deposit costs fell by 50 basis points in Q2 to 40 basis points, as this quarter received the full benefit of our proactive steps taken to reduce deposit rates immediately after the FOMC cut rates twice in March.\nThe spot rate of total deposits at quarter end was 20 basis points.\nTotal funding costs declined by 34 basis points when all of the Company's funding sources are considered, including non-interest-bearing deposits and borrowings.\nThe spot rate on total funding costs of 31 basis points is higher than the quarterly average due to the issuance of subordinated debt mid-quarter at 5.25%.\nWe expect funding costs to have stabilized at these levels as no further Fed actions are anticipated.\nDemonstrating the flexibility of our business model, despite a transition to a substantially lower rate environment during the quarter, net interest income rose 10.9% or $29 million during Q1 [Phonetic] to $298.4 million, up 17% year-over-year.\nOur origination of PPP loans, coupled with strong balance sheet growth and immediate steps taken to reduce the cost of interest bearing deposits, counteracted the decline in prime and LIBOR.\nPPP lending supported our net interest margin during Q2 as SBA fees were recognized, resulting in a loan yield of 5.02% in this sector.\nWe estimate most of PPP loans will be forgiven within eight months from origination.\nOf the $43 million in triple PPP loan fees we received from the SBA net of origination costs, one-third or $13.9 million was recognized in the second quarter.\nNet interest margin contracted 3 basis points to 4.19% during the quarter, as our earning asset yield fell 34 basis points, but was offset by an equal improvement in funding costs.\nOur outsized deposit growth and mounting cash reserves will continue to place downward pressure on the NIM until the excess liquidity can be deployed, which we expect will take two to three quarters.\nWith regards with our asset sensitivity, our rate risk profile has declined notably over the last year, and we are now asymmetrically positioned to benefit from any future rate increases as 70% of our loan portfolio is behaving as a fixed rate since floors on variable-rate loans have largely been triggered.\nOur estimated net change of net interest income in a 100 basis point parallel shock higher is 4.2% over the next year, and we now project zero net interest income at risk if rates move lower.\nTurning now to operating efficiency, on a linked quarter basis, our efficiency ratio improved 550 basis points to 36.3%, which continues to demonstrate our industry-leading operating leverage.\nAs mentioned earlier, the non-interest expense improvement is related to an increase in deferred compensation expense of $3.3 million unrelated PPP loan originations, plus a 52% reduction in deposit costs and a 64% decrease in development and travel costs.\nNormalizing for PPP net loan fees and interest, the efficiency ratio for Q2 would have been 38.4%.\nAdditionally, our branch-light model has given us the flexibility to identify two locations that we are transitioning from full service offices to loan production facilities.\nOur core underlying earning power remained strong as pre-provision net revenue ROA increased 18 basis points from the prior quarter to 2.56% and return on assets was flat at 1.22%.\nWhile we expect the 2.56% is a high watermark as elevated liquidity will hold down the margin, we believe we will continue to maintain industry-leading performance.\nThis provides a significant flexibility to fund ongoing balance sheet growth, capital management actions or any credit demand.\nOur balance sheet momentum continued during the quarter as loans increased $1.9 billion to $25 billion, and deposit growth of $2.7 billion brought our deposit balances to $27.5 billion at quarter end.\nThe loan to deposit ratio fell to 90.9% from 93.3% in Q1, as our strong liquidity position continues to provide us with balance sheet capacity to meet all funding needs.\nOur cash position increased to $1.5 billion as deposit growth continues to outpace credit expansion.\nWhile this impairs the margin near term, we believe it provides us with inventory for good credit growth as demand resumes.\nOf note, during the quarter, we issued $225 million of bank level subordinated debt to ensure ample capacity to support our growth trajectory by bolstering our total capital ratio.\nFinally, tangible book value per share increased $1.11 over the prior quarter to $27.84, an increase of $3.19 or 13% over the prior year.\nThe vast majority of the $1.9 billion in loan growth was driven by increases in C&I loans of $1.6 billion, residential loans of $154 million and construction loans of $138 million.\nResidential and consumer loans now comprise 9.8% of our loan portfolio, while our construction loan concentration continues to trend downward and is now at 8.8% of total loans.\nExcluding PPP loans, loan growth was $117 million, which was affected by line paydowns from draws during Q1 and offset by growth in residential and construction.\nHighlighting our continued focus on growth in low-risk assets, tech and innovation loans were flat in total, while within the category, capital call and subscription lines grew $35 million, mortgage warehouse loans grew $325 million and residential mortgages grew $165 million.\nCorporate finance loans decreased $233 million compared to the increase we saw in Q1 as borrowers repaid their line draws, reducing utilization rates down from 38% to 17%.\nAnd all loan growth was fully funded by deposit growth.\nWe continue to believe our ability to profitably grow deposits is both a key differentiator and a core value driver to our firm's long-term value creation.\nNotably, year-to-date deposit growth of $6.1 billion is higher than the annual deposit growth of the Company in any previous calendar year.\nDeposits grew $2.7 billion or 10.9% in the second quarter, driven by increases in non-interest-bearing DDAs of $2.3 billion, which now comprise over 44% of our deposit base.\nPPP loan related deposits grew $1.1 billion, and savings and money market accounts were up $845 million.\nHOAs contributed to total deposit growth by adding $136 million, and Tech & Innovation increased $262 million as capital raising activity during the quarter was active.\nExcluding PPP-related deposits, growth would have been $1.6 billion or 6.5%.\nRegarding asset quality, special mention loans increased $292 million and non-performing loans rose $53 million during the quarter.\nOne-half of the increase in SM loans are from the hotel portfolio.\nGenerally consistent with our previously discussed Tech & Innovation rating guidelines, these loans were downgraded as we do not have clear line of sight to more than six months of remaining operating liquidity.\nThese borrowers are current, however, as they made loan prepayments that were -- we required for us to consent to a deferral modification.\nOur other borrowers in this segment are also paying as agreed or provide cash -- or provided cash payments when the -- that when coupled with the payment deferral, have no additional debt service requirement until sometime in 2021.\nSecond, we've aggregated an event planning and leisure sub-segment, in which the business models are essentially dependent on social distancing relief, and in some cases, the resumption of group events.\nOf the $150 million total exposure to this sector, $60 million has been moved to special mention and $40 million to non-performing.\nWhile the portion to FM has over a year of current liquidity, it was downgraded as the revenue models have been sharply impaired.\nThe loan moved to non-performing has had -- now has limited remaining liquidity.\nThe remainder of the migration to special mention is fairly granular from our client spreads throughout our metropolitan markets where liquidity has been tightened.\nThese loans are generally collateralized by an array of assets that include real property.\nFrequently, a loan may be downgraded to SM because of liquidity concerns, even though collateral average may be considerable.\nFor this reason, migration to special mention has a low correlation to ultimate credit losses as over the past five years, less than 1% has moved through to charge-off.\nOur allowance for credit losses rose $86 million during the quarter as the change in mix of the balance sheet released $4.2 million of reserves and changes to the outlook accounted for $96.2 million, including covering $5.5 million of net charge-offs.\nRevisions to the CECL macroeconomic outlook assumptions, which have declined since March 31 but have generally stabilized since April, accounted for the entire net reserve build.\nThe earning [Phonetic] allowance related to loan losses was $347 million excluding held-to-maturity securities, or 1.39% of funded loans, an increase of 25 basis points.\nThe current reserve build reflects our best estimate of the future economic environment as of quarter end, including the impact of government stimulus programs and credit migration actions.\nWe have migrated to a consensus economic outlook of Blue Chip Economic Forecasts as it tracks largely management's view of a recession and recovery.\nNet credit losses of $5.5 million were recognized during the quarter, which were mainly attributable to small business and C&I borrowers.\nIn all, total loan ACL to funded loans increased 25 basis points to 1.39% in Q2 as provision expense for loan losses of $87.3 million significantly outpaced net loan charge-offs.\nRelative to most other banking companies, our lower consumer exposure continues to result in lower total loan losses.\nI would now like to briefly update you on the current status of a few exposures to the industries generally considered to be the most impacted by the COVID-19 pandemic.\nDuring the last two weeks of the quarter, Tim Bruckner, the credit administration team and I conducted the most extensive quarterly portfolio review process in the Bank's history.\nThe review covered 95% of WAL's outstanding loan balances, excluding purchased residential mortgages.\nOur $2 billion Hotel Franchise Finance business, focused on select service hotels, represents approximately 8.2% of the loan portfolio.\nThe financial flexibility of these borrowers is maximized by working with financially strong institutional operating partners with deep industry experience, expertise and conservative underwriting structures focused on loan to cost.\nOccupancy rates are tracking national averages, currently around 46%, which have tripled compared to the lows in April of around 15% and are now only a few percentage points short of fully covering estimated operating expenses.\nAt approximately 55% occupancy, select service hotels are also estimated to cover amortizing debt service.\nAs a testament to the operating models of the select service hotels, revenue per available room has fallen 55%, but they have been able to shrink their cost structure by over 40%.\nAnd as a result, the typical hotel is operating at breakeven.\nNearly 85% of our hotel portfolios either pay as originally agreed or on proactive payment deferral plans that bridge into 2021.\nWe feel positive about the trajectory of the portfolio and that our proactive deferral strategy will produce relatively stronger credit performance, given the active support of our sponsors have demonstrated through the material upfront payments made to receive deferral plans.\nTo augment the strategy, we nearly doubled the reserve of the portfolio this quarter and increased the ACL to loans ratio by 93 basis points to 1.95%.\nThe investor dependent portion of our Technology & Innovation segment is primarily focused on lending to established growth companies with successful products and strong investor support, which provides greater operating and financial flexibility in this environment.\nOverall, a significant sponsor support and an active fund raising environment continue for these growth firms.\n81% of loans have greater than six months' remaining month liquidity, up from 77% in Q1.\nAdditionally, we have had over 50 clients successfully raise over $1.4 billion in new capital since March 1.\nOur $509 million Gaming book is focused on off-strip, middle market gaming-linked companies whose revenue is driven by local demand factors.\n37% of the portfolio is on 90-day principle-only payment deferral as they continue to cover interest payments.\nAdditionally, these clients benefited from $28.4 million of PPP loans.\nInclusive of our recent closure mandates in Nevada to limit certain business activities, businesses representing 95% of the portfolio are open for operations.\nUpon reopening, all casinos borrowers are performing at or above their COVID operating plan, and no loans were downgraded to criticized or classified at quarter end.\nLastly, our commercial real estate portfolio continues to perform as 99% of our industrial leases are current.\n90% of our office rents are paid on par with the national average.\nThe sub-segment of CRE that's showing signs of stress for the industry is retail.\nWAL's CRE retail exposure of $676 million is focused on local personnel service-based retail strip centers with limited merchandise retail exposure.\nSimilar to HFF, we are utilizing deferrals to support a path to recovery for these borrowers, while requiring demonstrated sponsor support with high level of additional payment reserves.\nOf note, 67% of WAL's [Phonetic] investor CRE retail tenants paid May's rent payments compared to 50% nationally.\nWe continue to generate significant capital and maintain strong regulatory capital ratios with tangible common equity to total assets of 8.9% and a common tier 1 ratio of 10.2%, an increase of 20 basis points during the quarter.\nExcluding PPP loans, TCE to tangible assets is flat from Q1 at 9.4%.\nInclusive of our quarterly cash dividend payment of 25% per share, our tangible book value per share rose $1.11 in the quarter to $27.84, an increase of 12.9% in the past year.\nWe continue to grow our tangible book value per share at a rate significantly faster than our peers as it has increased three times that of our peers over the last 5.5 years.\nIn conclusion, we expect loan growth to be fairly flat in Q3 as PPP pay-offs and forgivenesses are largely offset by the organic growth in low risk asset classes.\nDepending on the timing of the realized PPP forgiveness, organic loan growth should offset PPP run-off, resulting in net loan growth being relatively stable.\nWe anticipate another strong quarter of deposit growth in Q3, primarily by executing on our deposit initiatives and achieving our market share gains in mortgage warehouse.\nThe anticipated deposit growth and resulting liquidity will primarily be deployed into residential mortgage assets to improve returns on cash over the next several quarters.\nHowever, as PPP loans roll off and liquidity continues to rise, pressure on NIM will also continue until it can be fully deployed into productive assets.\nWhile we are pleased with our deposit growth, the pace is exceeding loan growth.\nAnd as Dale mentioned, it will take several quarters to redeploy this liquidity into low risk loans or assets providing yields greater than the Fed's current offering.\nOperating PPNR is expected to decline modestly as PPP income begins to abate, loan balances growth -- grow begin -- growth begins to reignite and the deployment of excess liquidity continues and deferred loan origination costs return to normal levels.\nOur long-term asset quality and loan loss reserves are informed by the economic consensus forecast, which is [Phonetic] consistent going forward, should preclude material increases in reserve levels from this point.\nThe pace, timing and size of future net charge-offs are uncertain to us as we have not seen a material increase in delinquencies or substandard [Phonetic] migration.\nFinally, our strong capital base and access to ample liquidity will allow us to both take advantage of any market dislocations to grow in low-risk areas and to address any credit demands in the future.",
        "summary": "compname reports q2 earnings per share $0.93.\nq2 earnings per share $0.93.\ncompany does not anticipate any need for additional liquidity.\nnet interest income was $298.4 million in q2 2020, an increase of $29.4 million from $269.0 million in q1 2020.\nco's net interest margin in q2 2020 was 4.19%, a decrease from 4.22% in q1 2020."
    },
    {
        "text": "This quarter's results continue to demonstrate the unique benefits of Western Alliance's National Commercial Business Strategy to position Western Alliance as one of the country's premier growth commercial banks that can consistently generate leading balance sheet and earnings growth with superior asset quality across economic cycles.\nThis quarter the bank produced record net revenues, PPNR and EPS, while expanding on net interest margin generating the highest return on tangible common equity in the bank's history and returning asset quality to pre-pandemic levels.\nFor the second quarter Western Alliance earned total net revenues of $506.5 million, net income before merger and restructuring charges of $236.5 million and adjusted earnings per share of $2.29, an increase of 20.5% from the prior quarter.\nThese results benefited from a $14.5 million reversal of credit loss provision consistent with our excellent asset quality results.\nStrong balance sheet growth continued with loans rising $2 billion excluding PPP loans or 29% on a linked quarter annualized basis and deposits by $3.5 billion or 37%.\nOur deposit and loan pipelines are very active and total assets now stand at $49.1 billion.\nNet interest income totaled $370.5 million up $53.2 million or 16.8% for the quarter as robust balance sheet growth rising NIM and access liquidity deployment significantly moves the earnings needle.\nStrong loan growth led to a 5.5% or $1.5 billion increase in average loan balances quarter-over-quarter.\nAdditionally, after closing the AmeriHome acquisition on April 7, we added $4.5 billion in held-for-sale mortgages primarily GSE qualified or 12.4% of our average interest earning assets yielding approximately 3.21% as an alternative to cash or mortgage backed securities.\nOptimizing our interest earning assets mix helped NIM expand from 3.37% to 3.51% in the second quarter.\nFee income was a record $136 million, representing 27% of total revenue as it began to integrate and optimize AmeriHome's mortgage banking related activities throughout the rest of Western Alliance.\nMortgage banking related income was $111.2 million in the second quarter demonstrating our ability to adjust win share as gain on sale margins fluctuate to maintain earnings.\nI think it's worth reemphasizing that what most attracted us to AmeriHome's business model was their low costs and flexible mortgage production and servicing ecosystem.\nTheir leverages are complementary corresponded and consumer direct channels to feed and enhance value throughout Western Alliance's commercial businesses while minimizing risk.\nBusiness-to-business correspondent mortgage lenders have several business levers and the flexibility to sustain earnings throughout the rate or throughout rate and economic cycles.\nDespite the evolving mortgage sector fundamentals AmeriHome continues to meet our expectations and contributed $0.39 to earnings per share in Q2.\nWe have optimized AmeriHome's balance sheet to Western Alliance capital levels with a servicing portfolio of $57.1 billion in unpaid balances.\nNo -- yeah, UPD, sorry.\nExpanded the number of correspondent sellers by 57 to 819 and taken advantage of market dislocations to drive value.\nIn the second quarter since April when the transaction closed, AmeriHome generated $20.7 billion in loan production or 25% above levels for the full quarter period a year ago and only down 3.6% from Q1 with 47% from traditional home purchases.\nGain on sale margin was 64 basis points for the quarter in line with 2019, 63 basis points.\nGiven the flexibility of AmeriHome's business model, we continue to stand by our full-year guidance of $1.41.\nAsset quality continued to improve this quarter as the economic recovery extended in breadth.\nTotal classified assets declined $43 million in Q2 to 49 basis points of total assets which is lower than Q1 '20s levels on both a relative and absolute dollar amount just as the pandemic impact was beginning to be felt.\nFor the quarter, net loan charge-offs were zero.\nFinally, Western Alliance is one of the most profitable banks in the industry with a return on average assets and a record return an average tangible common equity of 1.86%, 28.1% respectively which will continue to support capital accumulation to strong capital levels.\nTangible book value per share modestly declined to $32.86 from $33.2 as goodwill and intangibles doubled to $611 million in Q2 mainly from recognizing the AMH platform value.\nAt this time, Dale will take you through the financial performance.\nFor the quarter, Western Alliance generated adjusted net income of $236 million or $229 million adjusted earnings per share up 22.9% and 20.5% from the prior quarter.\nThis is inclusive of a reversal credit provisions that Ken mentioned of $14.5 million.\nIt excludes pre-merger -- pre-tax merger and restructuring expenses of $15.7 million related to AmeriHome.\nAdditionally, pre-provision net revenue of $277 million rose 37% quarter over quarter, excluding those same charges.\nAfter the AmeriHome acquisition, total net revenue grew $169.5 million during the quarter to $506.5 million, an increase of over 50% from the prior quarter.\nNet interest income rose $53 million during the quarter to $370.5 million, an increase of 24% year-over-year, primarily a result of our significant balance sheet growth and deployment of liquidity into higher yielding assets.\nAverage earning assets increased $4.1 million, while lower yielding cash proportion held at the Fed fell to 4.4% from 15%.\nNon-interest income increased $116.3 million to $136 million from the prior quarter and now represents 27% of total revenue due to mortgage banking-related income of $111 million from AmeriHome.\nWithin this category, net loan servicing revenue was a negative $20.8 million, as high refinance activity drove accelerated amortization of servicing rights but was far exceeded by gain on sale of mortgage loans.\nPre-AmeriHome WAL contributed 18% Non-interest income or $24.8 million in the second quarter compared to $19.7 million in the first quarter, supported by $7 million of income from equity investments.\nNon-interest expense, including merger and restructuring charges increased $94.5 million mainly due to the acquisition of AmeriHome which increased compensation costs as we added approximately 1,000 new members to the WAL team, as well as new costs related to loan servicing and origination expenses.\nTurning now to our net interest drivers, you can begin to see the benefit of AmeriHome to our strategy to expedite and optimize the deployment of excess liquidity into higher yielding assets as we added $4.5 billion in loans held for sale yielding 3.2% as opposed to cash yielding 10 basis points.\nInvestment yields improved to 10 basis points from the prior quarter to 2.47 while on a linked quarter basis loan yields excluding HFS declined 11 basis points following ongoing mix shift toward residential loans and a slight reduction in non-commercial real estate loan returns.\nInterest bearing deposit costs were flat from the prior quarter at 22 basis points.\nThe total cost of funds increased 8 basis points to 27 based on the -- due to issuance of $600 million of subordinated debt and the assumption of AmeriHome borrowings.\nThe spot rate for total deposits, which includes non-interest bearing was 11 basis points.\nWe expect funding costs have generally stabilized at these levels.\nAs a result net interest income grew $53.2 million to $370.5 million during the quarter or 24% year-over-year as average earning assets increased $4.1 billion.\nCash as a portion of the average interest earning assets fell to 4.4% from 15% in the quarter, which drove expansion by 14 basis points to 3.51%.\nAdditionally excluding the impact of PPP loans the margin would have increased 22 basis points.\nOur efficiency ratio rose to 44.5% from 39 in the first quarter mainly driven by the addition of AmeriHome employees and increase in incentive compensation costs.\nAs mentioned on our first quarter call we expected the efficiency ratio to rise to the mid-40s as a result of the acquisition.\nPreprovision net revenue increased $75 million or 37% from the prior quarter and 35.4% from the same period last year.\nThis resulted in preprovision net revenue of return on assets of $231 million for the quarter an increase of 28 basis points compared to $203 million in the first quarter.\nThis continued strong performance and leading capital generation provides a significant flexibility to fund ongoing balance sheet growth, capital management actions or meet credit demands.\nBalance sheet momentum continued during the quarter as loans held for investment increased to $1.3 billion or 4.6% to $30 billion and deposit growth of $3.5 billion brought balances to $41.9 billion at quarter end.\nIn all, total assets have grown 54% year-over-year as we approach the $50 billion asset level.\nBorrowings increased $1.2 billion over the prior quarter to $1.8 billion primarily due to $600 million subordinated debt issuance as well as the assumption of AmeriHome borrowings.\nFinally tangible book value per share decreased $0.16 over the prior quarter to $0.3286 but increased 18% year-over-year again driven by the AmeriHome acquisition of intangible assets that were largely offset by Q2 earnings and the issuance of common stock from our ATM of 700,000 shares for $70 million.\nDespite heightened competition and pricing pressure we continue to generate consistent strong organic loan growth from our flexible national commercial business strategy.\nLoans held for investments grew $1.3 billion in the quarter or $2 billion excluding PPP payoffs of approximately $700 million.\nA majority of growth this quarter was driven by an increase in residential real estate loans of $2 billion, which now comprise 17% of total loans as we look to deploy excess liquidity and integrated new flow arrangements from the recent Galton and AmeriHome transactions.\nThis was supplemented by growth in capital call lines of $162 million and construction and land loans of $89 million.\nTurning to deposits, we continue to see broad-based core deposit growth across business channels.\nDeposits grew $3.5 billion or 9.2% in the second quarter driven by increases in non-interest bearing DDA of $2.6 billion, which now comprise 48% of our deposit base and savings in money market deposits of $534 million.\nMarket share gains in mortgage warehouse continue to be significant drivers of deposit growth during the quarter along with strong performance from regional commercial clients, robust fund raising activity and tech innovation and seasonal inflows from the HOA banking relationships.\nOur asset quality continued to significantly improve this quarter.\nTotal classified assets fell $43 million in the second quarter to $238 million to 49 basis points of total assets.\nWhile our total classified assets ratio declined 16 basis points to 49 basis points due to continued improvement in COVID impacted clients.\nFinally, special mention loans declined $69 million during the quarter to 1.35% of funded loans.\nSimilarly, quarterly net credit losses were negligible at $100,000 for the quarter or zero basis points of average loans compared to a $1.4 million net loss in the first quarter.\nOur loan allowance for credit losses fell $16 million from the prior quarter to $264 million due to continued improvement in credit trends and macroeconomic forecasts and loan growth in portfolio segments with low expected loss rates.\nIn all, total loan ACL to funded loans declined 9 basis points to 88 basis points or 91 basis points when excluding PPP loans.\nFor comparison purposes the loan allowance for credit losses to funded loans was 84 basis points at year end 2019 before CECL was adopted.\nFinally, given our industry-leading return on equity and assets, we continue to generate significant capital to fund organic growth and maintain regulatory capital ratios.\nOur tangible common equity to total assets of 7.1% and Common Equity Tier 1 ratio of 9.2% were weighted down this quarter by the AmeriHome acquisition and strong asset growth.\nHowever we issued 700,000 shares under our ATM shelf during this quarter and completed a $242 million in credit linked note transaction that reduced risk-weighted assets as we continue to look for ways to optimize our capital levels to support ongoing growth.\nAdditionally we completed $844 million in mortgage servicing rights dispositions and have already completed our expected Q3 mortgage servicing sales.\nCapital levels should build from here.\nInclusive of our quarterly cash dividend payment of $0.25 per share our tangible book value per share declined $0.16 for the quarter to $0.3286 compared to an increase of 18% over the past 12 months.\nI'll now hand the call back to Ken for closing comments.\nAt the midpoint of the year I thought I would take this opportunity to reflect back upon our performance.\nWe deployed excess liquidity and turbo charged our net interest income.\nYear-to-date non PPP loans have grown $3.6 billion and deposits have grown $10 billion or 2.75 times the amount of loan growth providing us an opportunity to deploy liquidity and growth and grow net interest income AmeriHome's past Q2 guidance and is tracking to full year projections.\nAsset quality improved with substandard special mention and non-accrual loans tracking downward with nearly no net charge-offs for the quarter.\nReturn on tangible common equity was 28.1% for the quarter.\nPPNR, a key metric for the company earnings power was 37.1% -- grew 37.1% and we executed several capital raising transactions that Dale just mentioned.\nSo, for the second half of the year I think you can expect loan and deposits to continue to grow between $1 billion and $1.5 billion per quarter.\nNet interest income to grow quarter-to-quarter with incremental liquidity deployed into loans and investments to overcome the interest drag of the new sub debt and credit linked note issuances.\nNIM will continue to see some pressure as competition, interest rates and loan mix nudge loan yields downward.\nPPNR will follow net interest income and fee income growth and will continue to rise throughout the year.\nAsset quality will remain steady although with net charge-offs tracking to prior year -- prior year's performance or prior quarter's performance.\nWe continue to believe we will exit the year at a $9 earnings per share run rate level.\nAnd lastly, we will deploy growth based capital strategy to support above trend balance sheet growth.",
        "summary": "q2 revenue $506.5 million versus refinitiv ibes estimate of $494 million.\nnet interest income was $370.5 million in q2 2021, an increase of $53.2 million from $317.3 million in q1 2021."
    },
    {
        "text": "I would like to start the call on Slide three by paying our respects to the founder of our company, Jim Waters, who passed away on May 17.\nJim was a brilliant and spirited scientist and a pioneer in liquid chromatography.\nI met Jim the first time in 2019 when he came to talk to me about the merits of a technology we had acquired in a previous company.\nWe spent hours in front of a whiteboard debating how to manage innovation and, in particular, how the application of certain technology could deliver benefit.\nJim continued reaching out to me, not just on technology, but also on our mutual love for science education and then, more recently, on Waters.\nJim's legacy will live on with each and every one of our innovations as we continue to strive to deliver benefits.\nOur teams around the globe have continued to manage admirably through the pandemic, which is still very much with us.\nMost of all, we've kept the working environment safe for our employees and have remained flexible and resourceful as we continue to support our customers.\nI remain grateful for the ongoing resilience, commitment and dedication that our team has shown.\nMoving on to Slide 4.\nDuring today's call, I will provide a brief overview of our second quarter operating results as well as some commentary on our end markets, geographies and technologies.\nI will also update you on the progress of our transformation plan.\nWe continue to be focused on three primary objectives: number one, regaining our commercial momentum; number two, further strengthening our organization; and number three, building on a core -- on a strong core to access even higher growth areas.\nAmol will then review our financial results in detail and provide comments on our updated third quarter and full year financial outlook.\nAs outlined on Slide 5, in the second quarter, our revenue grew 31% as reported and 27% on a constant currency basis, reflecting continued strength in our pharma and industrial end markets with strong demand for both our instrument systems and recurring revenue products across our major geographies.\nSales for this quarter represent a 6% compounded average yearly growth versus our 2019 results on a constant currency basis.\nThis translates to a 7% stacked CAGR versus 2019 for the first half of the year, again, on a constant currency basis.\nOur strong top line growth resulted in year-over-year Q2 non-GAAP adjusted earnings-per-share growth of 24% to $2.60 per share.\nOur top and bottom line performance translated into solid free cash flow performance and allowed us to strengthen our balance sheet.\nLooking more closely at our top line results in the quarter on Slide 6.\nFirst, by operating segment, our Waters Division grew 27%, while TA grew by 32% on a constant currency basis.\nBy end market, our largest market category, pharma, grew 31% in constant currency; industrial grew 28%; and academia and government grew 7%.\nContinued strength in sales to pharma customers was broad-based across customer segments, geographies and applications.\nLate-stage drug development activity drove sales of our tandem quad MS instrument systems such as the Xevo TQ-XS and Xevo TQ-S micro.\nSmall molecule applications in manufacturing QA and QC grew across Asia, Europe and North America and were particularly strong in India.\nIndustrial end market growth was also broad-based across geographies and applications, continuing its recovery so far this year.\nFood testing and environmental demand grew nicely in the quarter, as did our thermal and geometric portfolios.\nTurning to academic and government, which is less than 10% of our business, growth in the U.S. and Europe was partially offset by lumpiness in China.\nYear-to-date, our primary geographies have all returned to growth versus last year.\nMoving now to our sales performance by geography on a constant currency basis.\nSales in Asia grew 28%, with China up almost 40% and India up almost 60%.\nSales in the Americas grew 28% with the U.S. growing 26%, and sales in Europe grew 25%.\nIn the U.S., all end markets had strong year-over-year performance led by pharma and industrial.\nAcademic and government saw a return to growth for the quarter as the market continues to recover.\nEurope's growth was also broad-based across end markets and subregions.\nOverall, pharma drove growth with strong demand in small molecule and large molecule applications.\nIndustrial and academic and government markets continued their recovery, with both having strong quarters and strong starts to the first half of the year.\nChina sales were up sharply in our pharma business, and we had solid growth in our industrial and applied end markets there as well.\nWe're encouraged by our continued strength in the contract labs business due to strong execution of our growth initiatives.\nIn India, sales for the quarter were again very strong even as the country continued to feel the effects from the pandemic.\nWe're really grateful for the hard work and dedication of our colleagues who persevered through these challenging and tragic conditions.\nTrends in Q2 and year-to-date for our LC instrument portfolio is a positive indicator for sustainable growth in consumables and service plans.\nIn the second quarter, LC instruments grew across all major geographies with more than 40% growth, driven by our instrument replacement initiatives and new products, especially Arc HPLC and a strong uptake of our Premier instruments, both Arc and ACQUITY lines.\nThis week, I spent time with customers at our Immerse innovation lab in Cambridge discussing the separation and purification of mRNA and oligonucleotide molecules.\nWhile mRNA vaccines have developed at a record pace, we are far from solving key issues such as aggregation and selective binding of plasmids and mRNA molecules to various surfaces, something that our Premier technology addresses really well.\nFurther strengthening our UPLC portfolio, the Arc system was launched earlier this year for customers who need ultimate sensitivity.\nThe Arc Premier delivered fivefold improvement in detector sensitivity and tenfold improvement in assay-to-assay precision, helping labs accelerate time to market.\nMass spec sales grew in excess of 30%, driven by demand from pharma research and development and food and environmental applications.\nThis included high-resolution systems used for research applications such as the Xevo QTof, tandem quad led by our Xevo TQ-XS and TQ-S micro systems and our SQD and QDa single quad detectors utilized in high-performance LC-MS applications.\nWe introduced the Waters SELECT SERIES MRT, a high-resolution mass spectrometer that combines multi-reflecting time-of-flight MRT technology with both enhanced DESI and new MALDI imaging sources.\nThe MRT provides scientists with a unique combination of speed, resolution and mass accuracy especially relevant for applications in proteomics.\nWe have been in conversations with customers to see how we can collaborate using MRT to analyze libraries of samples to create a database of proteins and metabolites to further understand the impact of therapeutics on a variety of tissues.\nSales of precision chemistry columns, sample prep kits and reagents grew 28%, driven by increased utilization by our pharma customers and improved industrial demand.\nDemand for our Premier Columns continues to be strong.\nThe low double-digit 2-year stack growth of chemistry columns revenue in Q2 when compared to our 2019 base underscores the rebound in customer activity, the strong position of our portfolio and building momentum of our e-commerce initiative.\nService also showed strong double-digit growth.\nOur service engineers continue to have good and improved access to our customer sites, and I'm grateful for the way they have served customers while continuing to navigate the challenges of the pandemic.\nFinally, with respect to TA, demand continues to rebound and was balanced across all major geographies and product lines, with particular strength in the U.S. and Europe.\nLet me now give you some highlights on our progress with the implementation of our transformation plan on Slide 7.\nStarting with our first priority, regaining our commercial momentum.\nWe continue to see progress in our instrument replacement initiative.\nOur recently released Arc HPLC has played an important role in the LC replacement initiative.\nIts improved mechanical specs and ability to seamlessly transfer networks from Alliance HPLC or other HPLC platforms have been very well received by our customers.\nWe are already crossing a mid-single-digit stack growth versus 2019 on a year-to-date basis in LC.\nWith our CRO and CDMO customers, our ability to develop and provide method transfer support continues to be a strong driver of growth.\nThis segment grew 60% on a year-to-date basis versus the comparable period in 2019.\nEarly strength that we saw in China has now been replicated in Europe as well as in the U.S.\nOur e-commerce and recurring revenue attachment initiatives are also starting to boost the momentum observed in our year-to-date 2-year stacked CAGR for chemistry and service revenue.\nMoving on to our second priority on Slide 8.\nWe have strengthened our organization with the addition of Wei Jiang to our Board of Directors.\nWei currently serves as President of Bayer Pharmaceuticals for China and APAC.\nHis results-driven experience will further expand the perspective of the Board that directly aligns with what is the strategy to accelerate growth and innovation.\nDan joins us from Bristol Myers, where he was VP of Worldwide Commercialization Strategy and Innovation.\nDan joins several of our other technically trained Executive Committee members with experience in orchestrating transformations and M&A in relevant customer segments like pharma and diagnostics.\nThis brings me to our third priority of building our core to drive durable growth.\nAs you will see on Slide 9, Waters already has a strong foundation in large and growing end markets with a leading position of science and innovation in a roughly $65 billion market, a high exposure to end markets that grow around mid-single digits with a deep rooted presence in regulated end markets like QA/QC, a large installed base of instruments with over 50% recurring revenues, a diversified geographic base with over -- almost 40% sales in Asia and industry-leading margins with a strong financial flexibility.\nSo you'll agree with me that this is a solid base to build off.\nNow I'm on Slide 10.\nWe built a team of leaders who have a strong track record of execution.\nBoth Jon Pratt and Jianqing Bennett, Heads of the Waters Division and the TA Division, respectively, are highly experienced commercial leaders and are now very focused on building capabilities to sustain our commercial momentum.\nWhat gives me most pleasure is that we have started to hit our stride with new product introductions across the portfolio, and these are contributing to our sales momentum already.\nThe leadership that is focused on execution and innovation is preparing us well to further build our portfolio to access even faster-growing adjacencies.\nWe're exploring and nurturing opportunities both organic and inorganic to increase our exposure to biologics, be it bioprocessing reagents or novel modalities.\nWe're actively shaping the promise of LC-MS in diagnostics and proteomics discovery applications and advancing lab connectivity applications through our informatics portfolio.\nHigh growth areas such as sustainable polymers and renewable energy are a focus of the TA division.\nIn summary, we've had a strong start to the year with a broad base -- with broad-based contributions from our end markets, product portfolio and geographies to our revenue growth.\nIn addition to the impressive growth versus our 2020 base of comparison, our business dynamics and customer demand look healthy on a 2-year run rate basis.\nMarkets we serve are in a healthy state, and our geographic regions are rebounding solidly from pandemic lows.\nWe remain focused on the continued progress and success of our short-term initiatives aimed at tactically strengthening our core business.\nWe're confident in the opportunities ahead to bring LC-MS products, separations expertise and compliant data management experience into high-growth biopharma and diagnostic applications.\nI look forward to continuing to share more with you as we progress on these various fronts.\nWith that, I'd like to pass the call over to Amol for a deeper review of the second quarter financials and our outlook for the remainder of 2021.\nAs Udit outlined, we recorded net sales of $682 million in the second quarter, an increase of 27% in constant currency.\nCurrency translation increased sales growth by approximately 4%, resulting in reported sales growth of 31%.\nLooking at the product line growth, our recurring revenue, which represents combination of chemistry and service revenue, increased by 18% for the quarter, while instrument sales increased 40%.\nChemistry revenues were up 28%, and service revenues were up 13%.\nAs we noted in our last earnings call, recurring revenues were not impacted by a difference in calendar days this quarter.\nLooking ahead, there is no year-over-year difference in the number of days for the third quarter either.\nHowever, please note there are six fewer days in the fourth quarter of this year compared to 2020.\nNow I would like to comment on our second quarter non-GAAP financial performance versus the prior year.\nBefore I do so, a reminder that in the second quarter of 2020, we took decisive actions to manage our costs as part of our near-term cost savings plan in light of the pandemic.\nWhile our COVID cost savings plan was successful totaling approximately $100 million for 2020, it does have some implications in our year-over-year comparisons as we normalize from an abnormally low expense base.\nGross margin for the quarter was 58.9%, down 10 basis points compared to the second quarter of 2020, driven by 80 basis points foreign exchange headwinds.\nExcluding the impact of foreign exchange, gross margin improved by 70 basis points despite higher instrument mix and COVID cost actions in 2020.\nThis improvement was driven by volume leverage and productivity gains.\nMoving down the P&L, operating expenses increased by approximately 39% on a constant currency basis and 42% on a reported basis.\nThe increase was primarily attributable to higher labor costs and variable compensation, the majority of which relates to normalization of the prior year cost actions.\nIn the quarter, our effective operating tax rate was 14.8%, a decrease from last year as the comparable period included some unfavorable discrete items.\nOur average share count came in at 62.2 million shares, approximately flat versus the second quarter of last year.\nOur non-GAAP earnings per fully diluted share for the second quarter increased 24% to $2.60 in comparison to $2.10 last year.\nOn a GAAP basis, our earnings per fully diluted share increased to $2.69 compared to $1.98 last year.\nTurning to free cash flow, capital deployment and our balance sheet.\nWe define free cash flow as cash from operations less capital expenditures and excludes special items.\nIn the second quarter of 2021, free cash flow declined 12% year-over-year to $155 million after funding $37 million of capital expenditures.\nExcluded from the free cash flow was $14 million related to the investment in our Taunton precision chemistry operations, a $38 million tax reform payment and a $3 million litigation settlement received.\nIn the second quarter, this resulted in $0.23 of each dollar of sales converted into free cash flow.\nYear-to-date, free cash flow has increased 17% to $348 million.\nIn the second quarter, accounts receivable DSO came in at 73 days, down 14 days compared to the second quarter of last year.\nInventories increased slightly by $5 million in comparison to the prior year.\nWe maintain a strong balance sheet, access to liquidity and well-structured debt maturity profile.\nIn terms of returning capital to shareholders, we repurchased approximately 535,000 shares of our common stock for $168 million in the second quarter.\nAt the end of second quarter, our net debt position was $940 million and a net debt-to-EBITDA ratio of about 1.\nOur capital deployment priorities remain consistent: invest for growth, maintain balance sheet strength and flexibility and return capital to shareholders.\nWe remain committed to deploying capital against these priorities.\nIn addition, we will evaluate deploying capital to well thought out, attractive and adjacent growth opportunities.\nAs we look forward to the remainder of the year, I would like to provide you some update on our thoughts for 2021 on Slide 11.\nIn the first half of the year, we saw good momentum in our market segments driven by robust demand and strong commercial execution.\nWe believe that this momentum will continue in the second half of the year, but the comparisons are more challenging.\nFourth quarter of 2020 was the first quarter in our transformation journey and was further favorably impacted by higher year-end budget plus spending.\nIn addition, we have six fewer calendar days in the fourth quarter of this year.\nWe are also keeping a watchful eye on the potential impact of newer COVID variants and the likely disruption they may cause to both supply and demand.\nWe expect our near-term growth initiatives and commercial momentum to contribute meaningfully to our performance.\nThese dynamics support updated full year 2021 guidance of 13% to 15% constant currency sales growth.\nAt current rates, the positive currency translation is expected to add approximately one to two percentage points, resulting in a full year reported sales growth guidance of 14% to 17%.\nGross margin for the full year is expected to be approximately 58%, and operating margin is expected to be approximately 29%.\nWe expect our full year net interest expense to be $37 million and full year tax rate to be 15%.\nAverage diluted 2021 share count is expected to be approximately 62 million.\nThroughout the year, we'll evaluate our share repurchase program and provide quarterly updates as appropriate.\nRolling all this together and on a non-GAAP basis, full year 2021 earnings per fully diluted share are now projected in the range $10.50 to $10.70.\nThis includes a positive currency impact of approximately three percentage points at today's rates and assumes no adverse demand or supply impact from COVID.\nLooking at the third quarter of 2021, we expect constant currency sales growth to be 7% to 9%.\nAt today's rates, currency translation is expected to add approximately one percentage point, resulting in third quarter reported sales growth guidance of 8% to 10%.\nThird quarter non-GAAP earnings per fully diluted share are estimated to be in the range $2.25 to $2.35.\nThis includes a positive currency impact of approximately three percentage point at today's rates and also assumes no adverse demand or supply impact from COVID.\nIn summary, there is much to be pleased about the first half of the year driven by strong growth across our major end markets.\nOur transformation plan continues to progress with commercial momentum and strong leadership team in place.\nWe now turn toward deploying our strategy in large and growing end markets we operate through accelerating innovation, through our portfolio as well as progressively aligning our portfolio with higher growth areas in adjacent markets.",
        "summary": "compname posts q2 non-gaap earnings per share $2.60.\nq2 non-gaap earnings per share $2.60.\nq2 sales $682 million versus refinitiv ibes estimate of $622.2 million.\nsees q3 non-gaap earnings per share $2.25 to $2.35.\nsees fy non-gaap earnings per share $10.50 to $10.70.\nq2 gaap earnings per share $2.69.\nexpects q3 2021 constant-currency sales growth in range of 7% to 9%.\nexpects full-year 2021 constant-currency sales growth in range of 13% to 15%."
    },
    {
        "text": "This conference is being recorded.\nI'll now introduce Webster's President and CEO, John Ciulla.\nCFO, Glenn MacInnes and I will review business and financial performance for the quarter.\nI will also provide some additional information on the line of business performance and COVID-19 related activities across the bank.\nI hope that all of you and your loved ones are healthy and safe.\nAnd I want to let those whose health has been impacted by the crisis know that the Webster Bank family has you in our thoughts.\nThe way our bankers have taken care of each other, our customers and communities over the last two months is truly amazing.\nI'm so proud of the entire Webster team.\nWebster Bank and the entire banking industry has rallied to be part of the solution to this health crisis and the resulting economic fallout.\nConsistent with the way our values based organization has operated since our founding during the Great Depression in 1935.\nWe immediately took action at the outset of the pandemic to support our employees, customers and the communities we serve.\nThe safety of our employees was and is our number one priority.\nWe swiftly moved 80% of our workforce to remote or at-home work thereby creating a safer socially distance work setup in our buildings for those who need to be on-site to execute the central operations.\nWe modified branch activities and hours to ensure the safety of our employees and customers, while being available to meet our customers' needs.\nThis included moving to drive through an ATM service with bank lobbies open by appointment only.\nWe established a no-interest loan program for our employees whose families had been financially impacted by the pandemic.\nWe've paid all of our employees at 100% of pay, including those who are home because of illness, quarantine, higher health risk or to take care of loved ones or kids home because of school closures.\nWe've increased the daily pay of those bankers on the front line and have added PTO time to those workers as a future benefit.\nWe have not reduced our workforce by a single FTE during the crisis.\nAnd we've augmented and expanded our employee assistance programs to support our employees during the pandemic.\nFor our customers, just as we led the banking industry with our foreclosure avoidance program during the Great Recession, we immediately placed a moratorium on residential mortgage foreclosures relating to Webster-owned mortgages.\nWe waived fees on early CD withdrawals.\nWe increased availability and amount of funds for withdrawal by our customers, and we've worked with our customers adversely impacted by COVID-19 through the modification of loans, the deferral of loan payments and through participation in the SBA Paycheck Protection Program and the Fed's Main Street Lending Program.\nHere are some data points related to activities we've undertaken both as principal and what we've done through government programs.\nAs of April 16, we have modified over 2,000 units, representing $476 million of residential mortgages and home equities, that's approximately 6.5% of total home equity and mortgage balances, roughly 750 borrowers or $300 million of small business loans, representing approximately 17% of our small business portfolio outstandings, and over 300 borrowers and close to $1.6 billion of commercial loans or roughly 13% of the funded commercial loan portfolio.\nWith respect to the Paycheck Protection Program, we started accepting applications on day one, and despite technology and process challenges experienced by all banks, we were able to help many business clients in need.\nWhen the SBA stopped accepting applications last Thursday, we had more than 2,000 SBA approved loans, representing approximately $650 million, most of which should be funded over the next week.\nWe've continued to process applications internally and will begin submitting those applications for approval when the SBA has additional funding and opens up the process, which it looks now like it will be later this week.\nWith respect to the Fed's Main Street Lending Program, we've worked with our industry organizations and directly with the Fed to be prepared to utilize these loan programs to help our larger commercial customers through the crisis.\nAnd for our communities, we've increased the amount of our 2020 philanthropy budget and repositioned dollars to support those most impacted by the COVID-19 pandemic.\nWe've made more than $375,000 in donations thus far to Feeding America, the American Red Cross and United Way's across our footprint to provide urgent basic needs.\nI'll now turn to our financial highlights on Slide 3.\nWebster's first quarter results continue to demonstrate our ongoing commitment to strong execution on strategic priorities through any and all operating environments.\nPre-provision net revenue of $125 million was up modestly from Q4, driven by a slight increase in total revenue and a slight decline in expenses.\nEarnings per share were $0.39 in the quarter compared to $0.96 in Q4 of 2019 and $1.06 in the prior year's first quarter.\nThe declines resulted primarily from an increased provision resulting from the adoption of CECL, a weakening forward economic outlook and the impact of a significantly lower interest rate environment.\nGlenn and I will walk you through the assumptions underlying our CECL process and ultimate provision number.\nOur CECL process is strong, consistent with the requirements and controls of the accounting process.\nIn this quarter, that process included the appropriate amount of conservatism and thoughtful judgment to reflect the uncertainty of the environment and the behaviors in our portfolio with respect to onset of the pandemic.\nTangible book value per common share increased 8% from prior year.\nOur first quarter return on common equity was 4.75%, and return on tangible common equity was 5.95%, with each reflecting the $68 million reserve build in the quarter.\nThe combination of a slight increase in total revenue and a slight decrease in expenses led to improvement in the efficiency ratio, which was 58% in Q1.\nMarch 31st reported credit metrics remained strong, while our forward forecast of economic conditions deteriorated significantly with the onset of the pandemic.\nSlide 4 presents loan and deposit trends.\nLoan growth was strong as total loans grew 11%, and commercial loans grew almost 16% from a year ago or by more than $1.8 billion.\nStrong organic growth in CRE was augmented by approximately $450 million in revolver drawdowns in the commercial portfolio in March and we saw a reduction in prepayment activity.\nDeposits grew 7.7% year-over-year, driven by the inflow of HSA deposits and public funds, and transactional and HSA deposits now represent 60% of total deposits, up from 57% a year ago.\nAlso of note, footings at HSA Bank increased 9% from a year ago for growth of $679 million during the year.\nTurning to Slide 5, I will spend a few minutes speaking to each of our three lines of business.\nIn Commercial Banking, loans were up nearly 7% linked quarter and 15.5% from a year ago, which includes the aforementioned $450 million in net revolver draws.\nCRE drove the year-over-year growth, while Sponsor & Specialty loan balances, which saw the lion's share of the revolver draws drove the linked quarter increase.\nPrepayments were lower in the quarter, partially attributable to lower economic and transaction activity in the second half of the quarter due to the emergence of the pandemic.\nDeposits were up smartly some 15% linked quarter and 20% from a year ago, largely driven by the depositing of revolver draws into DDA.\nNormalizing for revolver usage, deposits were up approximately 5% in Commercial Banking in the quarter.\nLoan and deposit volumes in the quarter drove a 3% year-over-year increase in net interest income and Commercial Banking despite rate pressure.\nExpenses were up 4.3% year-over-year, driven by investment in people and technology.\nCommercial Banking PPNR was relatively flat year-over-year.\nWhile we are appropriately cautious with new underwriting activities, I can tell you that we closed meaningful high-quality new business in the quarter in segments that are not experience -- experiencing a material adverse impact from the pandemic, segments such as software and technology infrastructure.\nIn fact, in early April, we closed our largest agency deal on a best efforts basis, a $350 million technology infrastructure deal where we held just over 10% of the risk after close.\nTurning to Slide 6.\nIn HSA Bank, we are continuing to make great progress.\nWe concluded another successful first quarter as we opened 338,000 new accounts for a total of 734,000 new accounts opened over the last 12 months.\nIn addition, we added over 1,000 new employers in the quarter.\nThere was no material impact in the quarter related to the previously reported movement of accounts tied to the decision by two wholesale partners, custodial partners to in-source account administration.\nEnding accounts were up 6.4% to $3.1 million, while deposits increased 8.5% to $6.7 billion.\nThe 2019 year-end Devenir report indicated an overall HSA market that slowed marginally as the market growth rate of accounts was flat and the deposit growth rate declined by three percentage points during the year.\nOne important point to note is that HSA Bank's funded account growth rate was 9.2% in 2019 compared to the industry rate of 5.6%.\nIn the first quarter, our funded account growth rate was 6.8% year-over-year, both reflective of our consistently low percentage of unfunded accounts when compared to industry data.\nWe had a good start to the year from a sales perspective as we signed several large employers in the quarter.\nWe also announced a major partnership with Jellyvision that will further enable our customers to make informed and smart healthcare choices.\nWe also launched partnerships with Blue Cross Blue Shield of Michigan and Principal Financial Group.\nThese partnerships are all uniquely capable of delivering strong growth especially within the jumbo employer market.\nIn addition, as you may have seen, yesterday, we announced that we signed an agreement to acquire State Farm Bank's portfolio of seasoned HSA accounts, representing approximately $140 million in deposits.\nWe expect to close that transaction in the second or third quarter.\nIn response to the pandemic and consistent with all of Webster, we were able to quickly transition 96% of our HSA staff to work from home in less than three weeks, maintaining 24/7 customer support and continuing to meet service and quality metrics.\nIn addition, we are working closely to support our customers through the pandemic at a time when our services may be particularly critical, including capabilities we have deployed directly or via partnerships, such as eHealth, HSA FSA Store, GoodRx, Blink Health, Medical Cost Advocate and Healthcare Bluebook.\nWe feel that the current legislative and political landscape remains favorable for the HSA industry and the chances of a near-term Medicare for all national healthcare solution are even more remote than they were a year ago.\nOur relationship with WEX, our technology partner and Cigna, our largest HSA partner have never been stronger.\nI'm on Page 7.\nIn Community Banking, we've done a tremendous job keeping our employees and customers safe, while continuing to provide the standard of customer service our clients expect.\nTotal community bank loans grew by 5% year-over-year with business banking loans leading the way at 9%.\nDeposits grew by 3%, again led by business banking.\nNon-interest income was up 9% as a result of higher mortgage and investment services revenue.\nMany more customers have transitioned to self-service channels as digitally active households crossed 50% in the quarter for the first time and we see that trend continuing given the pandemic.\nAs you can imagine, our Community Banking team along with the resources from across the bank are working digitally -- diligently in executing on the PPP loan program, which will help so many of our customers.\nWe've been focusing on customer outreach and support.\nAnd I can't say enough about the way our community bankers, including all of those in our banking centers have delivered for our customers and communities during the first quarter and over the last several weeks.\nFirst, we are completely focused on internal execution, and other than opportunistic HSA transactions, bank M&A remains a low priority.\nWe have a strong capital position enabling us to support our customers and assist in the financial recovery in the country.\nAlso after a modest repurchase of approximately 2 million shares in early Q1 before the onset of the pandemic, we do not anticipate repurchasing additional shares until this pandemic is behind us.\nI'll begin with our average balance sheet on Slide 8.\nAverage loans grew $516 million or 2.6% linked quarter.\nGrowth was led primarily by the commercial business.\nA linked quarter increase of $329 million in commercial real estate was the result of strong originations and a reduction in pay-offs.\nOn a year-over-year basis, our commercial real estate loans grew more than $1 billion.\nCommercial loans now represent 66% of total loans compared to 63% in prior year.\nConsumer loan performance was driven by a $96 million increase in residential mortgages with some offset in home equity.\nOn the deposit side, our low-cost transactional and HSA deposits have increased more than $1.2 billion from last year and now represent 60% of total deposits with a combined cost of 13 basis points.\nThe Q1 seasonal inflow of HSA and government deposits funded loan growth, as well as a $200 million reduction in short-term borrowings.\nWith regard to capital, the modest average linked quarter reduction in common equity is reflective of a day one CECL adjustment of $58 million and approximately $77 million as a result of share repurchases in the quarter.\nLikewise, modest reductions in the common equity Tier 1 and tangible common equity ratios are also reflective of CECL, share repurchases and asset growth.\nWe have elected to phase in the CECL impact on regulatory capital, which favorably impacts our ratios by 20 basis points to 25 basis points.\nEven excluding the phase-in in capital treatment, our capital ratios would remain very strong and well in excess of regulatory well-capitalized levels.\nSlide 9 summarizes our Q1 income statement and drivers of quarterly earnings.\nNet interest income was flat to prior quarter as the $6 million benefit from loan growth was offset by the effect of a lower rate environment.\nThis is reflective in our net interest margin, which was lower by four basis points versus Q4, 16 basis points due to lower loan yield, which was partially offset by nine basis points from lower deposit costs and three basis points from lower borrowing costs.\nVersus prior year, net interest income declined $11 million, $31 million of the decline was due to lower market rates with a partial offset of $20 million from earning asset growth.\nNon-interest income increased $2.5 million linked quarter and $4.8 million from prior year.\nHSA fee income increased $3.4 million as a result of account growth and the seasonal increase in interchange.\nIn addition, our mark-to-market on hedging activity increased $2.6 million, which was offset by a decline in syndication and client swap revenue.\nThe increase in non-interest income from prior year reflects the mark-to-market on hedging activity, as well as higher mortgage banking revenue.\nReported non-interest expense of $179 million declined modestly linked quarter and grew less than 2% from prior year.\nPre-provision net revenue of $125 million increased $3 million from Q4 and decreased $9 million from prior year.\nProvision for credit losses for the quarter was $76 million, which I will explain in more detail shortly.\nThe efficiency ratio improved to 58% from 58.5% in Q4, reflecting a modest increase in revenue and a slight decrease in non-interest expense.\nAnd our effective tax rate was 22.6% compared to 22.3% in Q4.\nTurning to Slide 10, I will review our results of our CECL adoption and the first quarter allowance.\nAs we look at the walk, the day one CECL adoption was $58 million, a 28% increase in the allowance, resulting in a starting coverage ratio of 1.33%.\nDuring the quarter, we had $7.8 million in net charge-offs.\nWe recorded a $12 million provision as a result of loan growth of $855 million during the quarter.\nLoan growth primarily came from the commercial categories and included $450 million in line draws in March, slower prepayment activity and loans funded from our strong fourth quarter pipeline.\nThe remaining Q1 provision was $64 million, bringing our allowance to $335 million or a coverage of 1.6%.\nThe provision is reflective of our economic outlook, including GDP, unemployment and housing prices and a qualitative assessment of our loan portfolio and how it will perform through the pandemic.\nThis was accomplished by reviewing higher-risk sectors, loans participating in modification programs and potential risk-rating migration based on a granular bottoms-up credit review.\nAt the time we closed the books in early April, our outlook included a second quarter GDP decline of nearly 20% with unemployment peaking just under 10% and a recovery beginning in the second half of 2020.\nAs we move into the second quarter, we will refine our assessment in three critical areas.\nFirst, would be an update of our outlook on macroeconomic variables, second, an updated review of higher-risk sectors and our loan modification programs, and third, the assessment of the impact of government stimulus programs on our portfolio.\nInitial April economic forecast are projected to be more severe as the second quarter GDP decline could exceed 30% with unemployment peaking near 15%.\nAll of these areas are still developing making it difficult to project how the pandemic will impact the provision in the second quarter and over the remainder of the year.\nThat being said, our provision in the second quarter will be driven more heavily by the expected duration and severity of the pandemic.\nSlide 11 highlights our key asset quality metrics at March 31 prior to the effects of the current environment.\nNon-performing loans in the upper left increased $12 million from Q4.\nC&I represented $9 million of the increase.\nNet charge-offs in the upper right increased slightly from Q4 and totaled $7.8 million in the quarter.\nCommercial classified loans in the lower left represented 287 basis points of total commercial loans.\nThis compares to a 20-quarter average of 317 basis points.\nThe allowance for credit losses increased to $335 million, resulting in a coverage ratio of 1.6%.\nSlide 12 highlights our key liquidity metrics.\nOur diverse deposit gathering sources continue to provide us with a strong competitive advantage.\nMore than $1.1 billion of core deposit growth in Q1 has maintained our favorable loan to deposit ratio of 85%.\nWe are predominantly core deposit funded with brokerage CDs representing less than 0.5% of total deposits at March 31.\nIn addition, our sources of secured borrowing capacity remain intact, totaling over $9 billion at March 31.\nSlide 13 highlights our key capital metrics.\nOur regulatory capital ratios exceed well-capitalized levels by substantial amounts.\nThe common equity Tier 1 ratio of 11% exceeds well-capitalized by $1 billion, while the excess for the Tier 1 risk-based capital ratio is $809 million.\nThe unprecedented environment makes it difficult to provide formal guidance at this time.\nWhat I can tell you is, we expect average earning assets to grow in the range of 4% over Q1, driven primarily by loan growth.\nWe expect net interest income to be flat to Q1 as a result of loan growth, Paycheck Protection Program volume and lower deposit and borrowing costs to be somewhat offset by lower asset yields as average market rates have come down since Q1.\nNon-interest income will likely be flat to modestly down given the mark we recognized in Q1, and non-interest expense will likely be flat to Q1's level.\nOur share count will be about 1.3 million shares lower on average due to buybacks completed in Q1.\nWith that, I'll turn things back over to John for a review of our credit profile.\nMany of you know that I'm deeply involved in our credit execution as I grew up in commercial lending and credit and served as Webster's Chief Credit Risk Officer during the financial crisis.\nAs I said many times, I'm proud of the credit risk framework that we have built over the last dozen years with respect to risk selection, underwriting portfolio management and credit reporting.\nThe nearly $21 billion loan portfolio we have today has been thoughtfully and purposefully built.\nWhile I never predict credit performance, the ultimate outcome of which will be determined by the depth and duration of this crisis.\nI can say that we have been true to our underwriting guidelines and I'm very proud of our line of business and credit professionals, who always put risk management first.\nStarting on Slide 14, you'll see an outline for this discussion.\nAs I mentioned Jason and I will comment on our exposure to those segments most directly impacted by the COVID-19 pandemic.\nI'll then provide what I hope to be a clear and concise comparison of our current loan and securities portfolios with our 2007 pre-Great Recession portfolios.\nAnd then I'll briefly walk through each of our loan portfolios allowing Jason to provide some context with key metrics, so hopefully, you'll get a sense, have a clear granular view of the $21 billion we have in loans.\nI'll highlight on each slide without reading every detail, but I will provide you with what I believe to be the key takeaways.\nSlide 15, you've seen this disclosure from other banks as they have reported.\nThis attempts to capture our loan outstandings in each of the most impacted sectors, including rating of categories, modification and line draw activity through 3/31, which Jason will update in a moment.\nI want to make clear, we wanted to be transparent with this disclosure, but this doesn't represent all of the loans that we think are at risk.\nMany of these loans are not at risk.\nThese are simply the categories that the industry has been reporting that are obviously most impacted in the first order [Phonetic] by the pandemic.\nIn fact, 94% of these loans are pass-rated and you'll see here that there has been limited modification and revolver draw activities, so I want to provide a little context there.\nThe key takeaway on this slide is that our direct exposure to these segments is modest on both an absolute and relative basis.\n94% as I said are in pass-rated categories, most representing 1% or maybe 2% of our total loan portfolio.\nWe are fortunate as our strategies have over the long-term been focused on less cyclical industries with recurring cash flows.\nSo on a relative basis, we've not really pushed hard on sectors like energy, transportation, discretionary retail as focuses.\nThe other point I want to make before letting Jason provide some context is that you'll see retail in -- as broadly defined represents 5% of our loan portfolio.\nIn this category, more than 50% of those loans are in high-quality investor CRE, and those are mostly in non-discretionary pharmacy or grocery anchored.\nAnd for those of you who've heard me talk about Bill Wrang over 25 years, with his retail exposure, he's always looking for non-discretionary.\nI'll also tell you that an additional 20% of that retail exposure is fully followed in our ABL Group, where credits are borrowing base secured and often have cash dominion.\nAnd I've been working with Warren Mino in that group for the entire 15 years I've been here and they have an unbelievable track record in managing even struggling large retail exposure.\nSo we've got a lot of confidence within that pocket of retail.\nTo provide an update on the information on the slide as of late last week, the overall pace of modification request has slowed the last couple of weeks.\nModifications are up to $692 million versus the $517 million.\nRevolver draws in these sectors are up modestly to $130 million versus $122 million.\nThat said, as John mentioned early, commercial modifications in total have been roughly $1.85 billion as of late last week.\nSo we're clearly seeing modification activity beyond just these sectors.\nReality is that many of the companies being impacted may have a portion of their revenue tied to these sectors or otherwise feeling the ripple effect of the current environment.\nIt's a bit hard to capture all that with a straight top-down approach by sector.\nAnd so for that reason, we're using a more granular bottoms-up approach to identify the exposure to borrowers that we believe may be more impacted in the current environment.\nBy exposure, we've reviewed over 80% of the accounts in the portfolio and have reached out to the majority of those where we have direct relationships.\nWe created a common framework to rate the potential level of impact to the borrowers, we roll that up weekly and have a call to review updates.\nBased on this, I believe we have a good handle on the exposure to borrowers that may need some accommodation in the near-term.\nI will also say that 90% of the borrowers that have requested modifications are pass-rated and many have low loan to values, junior capital, owner and sponsor support and liquidity.\nSo assuming we start to see a resumption of economic activity throughout 2020, we're optimistic that the majority of these borrowers will recover and we will certainly do our part to support them in a prudent way.\nTurning to Page 16, these next three slides demonstrate the purposeful strategic shifts in our portfolio since the Great Recession.\nThis is the execution that I talked about earlier.\nThe reason I think these three slides are so important is that I've seen so many people use credit performance by asset class during the Great Recession as a proxy for loss prediction during the next credit downturn like the one we are entering into right now.\nAgain, I'll never promise or predict ultimate credit outcomes.\nBut I can tell you that our portfolio today is vastly different than what we had in 2007.\nNot only are the portfolio dynamics different, but the way we underwrite, manage and report on risk is light-years ahead of where we were in 2007 when we had only a few years earlier transitioned to be an OCC regulated commercial bank.\nA key takeaway on this slide comparing consumer and business banking loan portfolios and performance is that the overwhelming majority of losses here come from broker-originated non-centrally underwritten out of market mortgage and home equity loans and from a small portfolio of business banking unsecured loans.\nWe no longer originate out of market mortgages and home equity loans with few exceptions.\nWe centrally underwrite everything internally even correspondent in market loans, and we have been very disciplined on underwriting guidelines over the last 10 years.\nMoreover, we have virtually no unsecured business banking loans and we do not originate that product.\nOn Page 17, it shows the same analysis for our Commercial Banking portfolios.\nWe had outsized losses in a discrete residential development portfolio and a discretionary aviation portfolio and equipment finance.\nConsistent with my earlier comments, we have focused since the Great Recession on less cyclical verticals and businesses and you can see here that our exposure in those two areas is minimal as a result.\nAnother key point on this slide is the fact that sponsor and specialty and leveraged loans within our C&I business in general performed at the same level or better than our other portfolios in the commercial bank, a point I have made several times over earnings call -- calls when asked about the nature of our leveraged loans.\nWhile our sponsor and leveraged loan portfolios are larger today on an absolute basis, I'll remind you that they represent roughly the same percentage of C&I loans as they represented in 2007, and they represent roughly the same percentage of Tier 1 capital plus reserves that they represented in 2007.\nOn Page 18, this is a critical slide.\nYou've heard me talk about the geography of our capital losses during the Great Recession.\nHere you can see that the single biggest category of losses or writedowns for us during the financial crisis was not in the loan portfolios, but in trust preferred securities in our investment portfolio.\nToday, only 18% of our $8.5 billion securities portfolio is credit-sensitive compared to 44% in 2007.\nAnd the nature of those credit-sensitive instruments today is higher rated and higher quality.\nAgain, this was a purposeful strategy shift from lessons learned during the Great Recession.\nSo the natural question after these three slides is, so you've eliminated those activities that drove the highest losses, but are there other portfolios hidden in the port -- in your overall loan portfolio that could blow up and have losses.\nAnd again I can't tell you that there's not going to be a specific segment or industry that will not have credit losses depending on the depth and duration.\nBut I can tell you, our ability to monitor our portfolio, the surveillance we have, the ability to look at correlated risk to cross portfolios, the quality of our risk management team is light-years ahead of what it was before.\nAnd I can tell you that we've pivoted over time in the last 12 years on things like contractors or traditional advertising-based media, so that we're able to make decisions quickly to reduce emphasis in certain portfolios over time and we've done that.\nSo my confidence that there aren't hidden pockets of risk is much higher than it would have been during the Great Recession.\nAnd I hope that those three slides provide some perspective on how thoughtful we've been about building our portfolio and the fact that we did take to heart lessons learned during the last downturn.\nOn Slide 19, you'll see just an overview of the portfolio.\nAnd the truth is, it's a straightforward mid-sized bank typical portfolio with obviously a sponsor book in there where we have industry expertise.\nYou can see a high-level breakdown here of the $21 billion, and in the carats on the right, you'll see where those exposures reside.\nSo for consumer finance, the $7.2 billion portfolio, $7 billion of that are prime in-market residential mortgages and home equity loans, and then a small pocket of consumer finance, which includes Lending Club.\nI will speak to each of these on the following slides.\nOur commercial real estate is comprised of a majority of it in our Commercial Banking Investor CRE book run by Bill Wrang for over 21 years here, who's had great asset performance even during the Great Recession.\nThat also encapsulates our business banking investor CRE and owner-occupied CRE, and it also includes owner-occupied middle market commercial real estate loans, as well as some technology infrastructure data center like real estate secured businesses.\nThe C&I is typical C&I in middle market, in sponsor and specialty, it includes our enterprise leveraged loans, asset-based lending and equipment finance, and then you'll see the investment securities where we make the point again on the breakdown between non-credit and credit-sensitive instruments.\nAnd on page 36 in the supplemental information, please don't turn to it now, you'll see a detailed breakdown of the investment securities portfolio, which I will not cover here.\nOn Page 20, residential mortgage.\nThe key takeaway on this slide is that our $5 billion mortgage portfolio is a high-quality prime in-market centrally underwritten portfolio with high FICO scores and modest LTVs, both at origination and when updated for today.\nCredit performance not surprisingly has been outstanding.\nAnd I told you that we've only had a modest level of modification and payment deferral request to-date on this portfolio.\nOn Page 21, home equities, pretty much the same story as mortgages.\nIn-market prime, strong FICO and LTV metrics at origination and even slightly improved when updated today.\nWe manage this book effectively through end of draw on much of the portfolio and we have not seen interestingly any defensive drawdown activities on the unfunded portion of these home equity loans thus far into the crisis.\nI also want to highlight one carat there that close to 50%, 50 of this portfolio is in a first-lien position.\nOn Slide 22, personal lending, a very small $220 million.\n80% of it represents Lending Club.\nAnd as you know, it's about $176.2 million and has been coming down since the peak of about $230 million, $240 million.\nWe stopped purchasing lower tranches in 2017, purchasing just As and Bs, and recently just As.\nAnd we are no longer purchasing Lending Club.\nIf you look at it, the FICO scores are strong and has been improving and we have not seen credit performance in this small portfolio deteriorate yet.\nWe'll obviously watch it closely.\nWe've got good geographic diversity in the portfolio.\nAnd over the time we've been involved with Lending Club, we have seen performance in the portfolio that meets or exceeds expectations.\nOn Page 23, in commercial real estate, our total CRE portfolio.\nWe've had meaningful and targeted growth over the last few years as we are good at it and we've been underweight compared to peers and when compared to regulatory concentration hurdles.\nMajority of this business is in our investor CRE line within the commercial bank led by the same management team for many years and through cycles.\nI'll provide more detail on that $3.8 billion representing the 62% you see in the top chart there on the next page.\nThe overall portfolio was well diversified with limited exposure in more volatile sectors, and very little hotel exposure, very little discretionary retail exposure.\nWe've had less office exposure as well than we did 10 years ago.\nSo on the next page, let's do a deep dive on our largest exposures and our largest part of the retail -- portfolio.\nFocusing on Investor CRE, we've had a targeted strategy of growing multifamily and industrial, selectively financing office projects in strong markets.\nIt's more of an institutional quality real estate portfolio.\nIt performed exceptionally well during the last downturn.\nIt tends to be lower yielding, but more resilient during a tough credit time.\nWe partner with experienced sponsors on equity partners and provide well-structured solutions with sufficient cushion to withstand volatility.\nIf you look here at the origination metrics, they've been very steady over the last few years despite competing in a highly competitive lending environment and that discipline tends to serve us well.\nIt's also translated into very strong updated portfolio statistics, which are the bottom chart there.\nSo we're not talking about 80% loan-to-value real estate loans.\nWe're talking about a portfolio of 60% loan-to-value real estate loans with an average debt service coverage ratio of nearly two times.\nOverall and not surprisingly, asset quality is really strong in this portfolio and we've been reaching out to our customers aggressively and we will be managing through whatever the crisis brings us, but we feel really good about this portfolio.\nOn Page 25, you'll see the C&I portfolio balanced and diversified.\nThis includes our sponsor and leveraged portfolios, which are primarily industry-focused, collaterally focused businesses in ABL and equipment finance, core input [Phonetic] businesses in middle market and business banking.\nMost meaningful concentrations are in broad diversified categories, such as services and communications, a good portion of which is software, technology and infrastructure originated in our sponsor business.\nAnd we've maintained lower exposure in construction and retail, as well as finance companies, which we feel could represent correlated risk with our broader portfolio, so we have deemphasized over time those segments.\nOn Page 26, we'll talk about sponsor and specialty and leveraged on these last two pages, and I'll ask Jason to provide a little more color and context.\nOne of the important things that we always talk about and I'm not sure is fully understood is that our sponsor and specialty business is $3.3 billion or something.\nOnly a third of that is leveraged loans.\nWe're reporting here leveraged loans, which are leveraged at origination based on regulatory definitions generally three by four senior to total leverage.\nSo, a full two-thirds of our sponsor and specialty portfolio is acquisition and industry-specific financing that does not qualify as leveraged loans.\nMost of our leveraged loans are in this book over 80%.\nWe've been lending the sponsor-backed and leveraged companies since 2004 when Chris Motl and I arrived at the bank.\nWe've meaningful shift -- meaningfully shifted this book over time to make sure that we're lending to non-cyclical end-markets that have recurring protectable, predictable streams of cash flow.\nYou'll see that software, tech and infrastructure has grown from about one-third of the portfolio to almost 50%, again that's because of the nature of the transactions in the underlying companies, and these companies seem to be less susceptible to this particular crisis as well.\nHealthcare is another defined vertical, where we seek to support routine medical services that will benefit from demographic trends.\nAnd at the same time, we've shifted away from some segments that are less predictable and less protectable from a cash flow perspective.\nAnd the last slide, I'll cover before I let Jason provide a little context on sponsor and specialty is Slide 27.\nAnd this is something that I talked about a little over a year ago on an earnings call when we talked about leveraged lending.\nThis page shows comparative metrics between what we're originating in sponsor and specialty and the broader leveraged loan capital markets.\nOn average, we have a turn to a turn and a half less leverage on the deals we do versus the market, that's less risk.\nWe've maintained discipline on covenants with only 7% of our book being covenant-lite, where the general market is almost 84% covenant-lite.\nThe leveraged deals we have those that are leveraged loans are still half a turn to a turn inside the broader leverage market and non-leverages are almost two turns inside the market.\nWhen we look at the borrower's ability to service debt, we have a very strong profile with 85% to 90% having fixed charge coverage ratios of greater than one and a half times.\nAnd on average for both leveraged and non-leveraged deals in sponsor, our loan-to-value, that's the loan to the enterprise value is between 35% and 40% on average.\nIn most cases with significant cash equity or junior debt beneath us.\nAnd the sponsors that we have worked with through financial crisis with relationships over a long time have deep financial and management resources to help us through a downturn.\nWe saw that during the 2008 crisis.\nJason, can you put maybe a finer point on some of those or fill in something I might have missed.\nLook, John, I think you hit all the key points.\nI guess the only thing I would say is, we've really increased the percentage of direct deals that we've done over the last four, five years from about half to about two-thirds, which we think is important.\nAnd I guess the last thing I'd probably add and I think it just speaks to the credit culture here at the bank is, our strategy in sponsor and leveraged has not only been deliberate, but it also has been very collaborative between the lines of business and credit.\nWe've been particularly disciplined in moving away from the areas that you mentioned like traditional media and restaurants, as well as smaller cyclical credits, where we've had some historical losses.\nAnd we've also been very clear about our underwriting parameters as we've grown.\nAnd for example, we -- in tech and infrastructure, which is the largest segment.\nWhen we talk about financing recurring revenue business models, 90% of the exposure in that book has over 70% recurring revenue.\nThere is only one deal that has less than 50% of recurring revenue in that book, which again represents almost half of the sponsor book.\nIf deals come in outside those parameters, our commercial leaders generally just pass.\nAnd again it's not to say that those deals will be bulletproof, right.\nIt really depends on the end-markets those customers serve and the competitive dynamics.\nBut our thesis is that the services and software being provided are making customers more efficient and smarter about their businesses.\nSo we expect that once installed, the revenue will be sticky.\nThe insights, direction and dedication that Jim and John have given to Webster over so many years have helped to make this organization what it is today and will continue to influence us into the future.\nThey are both personal mentors to me and I'm proud to call them friends.",
        "summary": "compname reports q1 earnings per share $0.39.\ncompname reports first quarter 2020 earnings of $0.39 per diluted share.\nq1 earnings per share $0.39."
    },
    {
        "text": "Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures can be obtained via WESCO's website at wesco.com.\nReplay of this conference call will be archived and available for the next seven days.\nOn behalf of WESCO, I hope that all of you have been staying healthy and safe in these challenging times.\nWe prepared a very thorough update for you today.\nI'll lead off with a few introductory remarks, and then Dave will take you through our second quarter results, and then we'll provide a review of the excellent progress we're making on the Anixter integration, as well as the outstanding value creation that our transformational combination of WESCO and Anixter will create.\nSo first for an update on our business in the second quarter.\nResults exceeded our expectations across the board; that is for sales, operating margin, operating profit, earnings per share and free cash flow.\nBusiness momentum improved through the quarter as we outperformed the market and built an all-time record backlog for the legacy WESCO business.\nImportantly, sales improved sequentially each month, and we saw continued growth in our utility business.\nAnixter also delivered a strong performance to close out the second quarter.\nOur positive momentum has continued into the third quarter.\nWe're very encouraged by that, with quarter-to-date sales through workday 28, that's quarter-to-date, down 8% versus prior year, but up a 11% sequentially, with a book-to-bill ratio above 1.0.\nAs we have done in prior economic cycles, we aggressively managed our business and took significant cost reduction and cash management actions, which enabled us to achieve a decremental margin of only 10%, and generate exceptionally strong free cash flow of $140 million or 250% of adjusted net income.\nAs you know, we increased debt to complete the Anixter combination.\nWe expect our consistently strong and counter-cyclical free cash flow generation to enable us to rapidly delever and get back within our financial target leverage levels within three to six [Phonetic] months.\nNow turning to Anixter.\nThe second quarter will prove to be a watershed period in our WESCO's history, as we've successfully closed on our industry-shaping merger of WESCO and Anixter.\nIn combining few industry-leading Fortune 500 companies was successful track record.\nWe are creating the premier electrical communications and utility distribution and supply chain solutions company in the world.\nIn May, we completed a well oversubscribed and highly successful capital raise of approximately $5 billion in bonds and bank debt, all with very favorable terms.\nWe satisfied the remaining closing condition when the waiting period for the Canadian Competition Bureau expired on June 18th, and then successfully closed the Anixter transaction on June 22nd.\nThis timing met our commitment to close this transaction in the second or third quarter.\nAgainst the challenges imposed by the global pandemic, the extraordinary determination of our WESCO and Anixter associates to execute a flawless day one closing, just five months after signing the merger agreement was very impressive.\nI could not be more proud or more appreciative of the entire team and their extraordinary efforts in achieving this noteworthy milestone.\nAs I mentioned before, we've been executing a detailed rigorous and process -oriented integration planning effort over the last several months.\nNow, all of our integration efforts and organizational focus shift from planning to execution and synergy realization.\nI'm happy to say, we are off to an excellent start in integrating the two businesses in our first six-weeks since closing, and have already completed actions to deliver over 50% of our year-one cost synergy target of $68 million.\nWe have also begun to realize our first sales synergies through leveraging our expanded global footprint and cross-selling what is now our broader product and services portfolio.\nThe strong cultural alignment between WESCO and Anixter is proving to be a key driver of our initial success.\nWe are both building on this early successes, and we remain highly confident in capturing the significant upside potential and exceeding our three-year cost savings, sales growth, margin expansion and cash generation synergy target.\nHe is going to walk you through our second quarter results and then discuss our integration, execution and synergy capture plan in more detail.\nI'll start with an overview of results beginning on Page 4.\nThis slide presents our second quarter walking you from our reported GAAP results to the legacy WESCO results.\nThe column on the left shows our reported GAAP numbers and to the right of that column are the various adjustments to our reported results to remove the transaction-related impacts.\nThe third column subtracts the merger-related adjustments from the reported results to show the underlying results of the business adjusted for all deal-related cost and activities.\nTo the right of that are the Anixter and WESCO components of these adjusted results, respectively.\nReported sales in the quarter were down 3% and down 12% organically, driven by lower demand due to the COVID-19 pandemic.\nI'll walk you through our sales results in more detail in a moment.\nThe legacy WESCO business generated approximately -- operating profit of $70 million [Phonetic], approximately $28 million lower than the prior year and a sales decline of approximately $285 million, representing a decremental margin of 10%.\nSG&A was down $33 million compared to the prior-year quarter, reflecting COVID-related cost actions and lower volume.\nLegacy WESCO adjusted operating margin was 3.8% for the quarter and adjusted earnings per share was $1.04.\nThe legacy adjusted Anixter results for the period following the merger at gross margin of 20.3% and operating margin of 8.3%.\nThis exceptional result was driven by the strong Anixter sales during the nine-day ownership period in the second quarter, continued gross margin expansion and cost reduction actions initiated by Anixter in response to COVID-19.\nOn an adjusted basis, the combined WESCO and Anixter business generated operating margin of 4.2% and diluted earnings per share of $1.36.\nA brief comment on the merger-related adjustments.\nThe $73 million of SG&A primarily represents investment banking, legal and integration management fees.\nAdditionally, we recognized a one-time expense associated with the change of control provisions of the transaction.\nYou will also note several impacts below the operating profit line, including interest expense of $45 million.\nThis includes interest paid on the bonds issued and non-amortized financing fees.\nWe also recognized preferred dividends expense of just over $1 million in the quarter related to the preferred stock consideration to Anixter stockholders.\nWe will provide a detailed update on the Anixter acquisition a bit later in the call as we have made substantial progress on the integration of the businesses and the generation of synergies.\nTurning to Slide 5.\nThis summarizes the organic sales growth by end-market and geography for the legacy WESCO business and does not include any contribution from Anixter.\nYou can see on the right hand side that monthly organic sales in the quarter were down 16%, 10% and 13% in April, May and June respectively versus the prior year.\nAs John mentioned, sales improved sequentially through the quarter on a same workday basis with April down 13%, followed by increases of 9% and 5% in May and June respectively.\nDifferences in foreign exchange rates reduced growth by 90 basis points, primarily reflecting unfavorable Canadian dollar exchange rates.\nLooking at the sales results by geography, the U.S., which is roughly 75% of legacy WESCO overall revenue, was down 12%.\nCanada was down 17% organically.\nBoth the U.S. and Canada results were driven by declines in our industrial and construction end-markets, as many projects were delayed beginning in March.\nIndustrial sales were down 21% organically in the U.S. and 22% in Canada, as we saw broad-based weakness in market verticals we serve due to COVID-19.\nBidding and project activity remained strong, however, and a number of industrial markets improved sequentially from Q1.\nConstruction sales were down 16% in U.S. and 21% in Canada, reflecting the project delays due to COVID-19.\nOur legacy WESCO backlog reached a new Company record and was up 17% versus the prior year and up 4% sequentially from Q1.\nConsistent with what we saw through the end of April, construction projects have been delayed rather than canceled.\nUtility sales continued to be exceptionally strong in the quarter with the U.S. up 6% organically and Canada up 36%.\nSequentially, U.S. utility sales were up 8% and Canada utility sales were up 27% versus Q1.\nThis was our 12th consecutive quarter of organic growth in the U.S. utility business.\nCommercial, institutional and government or CIG, organic sales ended down approximately 5% for the quarter.\nThis end-market exhibited positive momentum in the quarter, and sales were up 13% and 11% sequentially from Q1 in U.S. and Canada, respectively.\nProjects related to data center builds, security and cloud computing projects with large technology customers, continue to provide significant sales growth opportunities.\nMoving to Slide 6, let me take a moment to remind you of our liquidity and some features of our new borrowing facilities that we closed on in June, as they position us to meet the challenges related to the economic impact of the coronavirus.\nOur liquidity, which is comprised of invested cash and borrowing availability on our bank credit facilities, is strong at $819 million.\nWe have maintained sufficient cash on the balance sheet of $265 million.\nCollections throughout the quarter and into August have performed at or above historical trends.\nBad debt reserves are also tracking consistent with historical levels.\nIn connection with our closing the Anixter merger, we raised new senior unsecured notes of approximately $2.8 billion, a portion of which was used to refinance Anixter's 2021, 2023 and 2025 notes.\nWe also entered into a new $1.1 billion ABL facility, and increased the AR facility commitment to $1.025 billion in June.\nOur bank credit facilities are low-cost LIBOR-based agreements and mature in June 2023 and 2025.\nWe expected our ratio of fixed rate debt to variable rate debt to be approximately 70% at closing, and it ended up at 72% at the end of June.\nOur credit facilities include limited operating covenants, and we easily passed some liquidity thresholds by which compliance is measured by a very large margin.\nHaving completed the Anixter merger, our capital allocation priority will be to support the integration, organic sales growth opportunities and to rapidly retire debt.\nWe do not expect to utilize any remaining amounts available under our Board authorized share repurchase program that expires on December 31st of this year.\nTurning to Slide 7.\nLet me recap our second half priorities.\nOur first priority is to build on the improving sales momentum we experienced this quarter.\nDespite weakness in certain markets in Q2, we capitalized on improving momentum within our business and are well-positioned to leverage our broad portfolio of products and services to drive sales ahead of the market.\nWe will maintain our cost discipline to meet or exceed the $50 million [Phonetic] in cost savings generated by the actions that we took in April in response to COVID-19.\nWe are planning to reinstate full compensation on October 1st for legacy WESCO employees that was temporarily reduced between 12% and 25% effective May 1st.\nWe will be deploying across the legacy WESCO business, Anixter's gross margin improvement programs that enabled Anixter to deliver seven consecutive quarters of year-over-year improvement.\nWe will continue to rapidly execute our integration plan and deliver the year-one merger synergies with a high confidence of delivering substantial upside.\nAs we generate cash, our priority will be to retire debt consistent with our objective to return to our target leverage of 2 times to 3.5 times debt to adjusted EBITDA within 36 months post close of the transaction.\nFinally, beginning in the third quarter, we will begin reporting results for the three strategic business units announced as part of our new organizational structure in early June.\nSo I'd now like to reemphasize the outstanding value creation that our transformational combination of WESCO and Anixter will create.\nThere are seven key highlights regarding this industry shaping merger.\nNumber 1, the merger is a transformational combination that creates, as I said before, the industry leader in electrical, communications and utility distribution and supply chain services.\nNumber 2, the combined company benefit from a step change in scale and capabilities in what remains a highly fragmented electrical and communications distribution space.\nOn a combined basis, we're the industry leader in North America with approximately $17 billion in sales revenues and over $1 billion in adjusted EBITDA on a pro forma basis, including the identified cost synergies.\nNumber 3, the two businesses are highly complementary in terms of products, industries and geographies, which enables us to sell more products to more customers in more locations around the world, and more importantly, accelerate our sales growth by more than 100 basis points versus stand-alone projections.\nI've said this before.\nThis is an extraordinary combination of two successful companies, where one plus one is equal to three.\nNumber 4, we're executing an integration plan to deliver well over $200 million worth of cost synergies.\nAnd I mentioned previously, we're off to an excellent start, only six-weeks since closing this acquisition in late June.\nAnd Dave will take you through our notable progress in much more detail shortly.\nNumber 5, the financial benefits of this combination that will be generated will be exceptional.\nWe expect our earnings per share growth rate to double and adjusted EBITDA margins to expand by more than 100 basis points through the cost synergies I just discussed.\nNumber 6, both companies benefit from a highly resilient business model to generate substantial free cash flow through all phases of the economic cycle.\nThe combined company is expected to generate free cash flow of more than $600 million annually by year three, which we expect will enable rapid deleveraging to within our target range within 36 months, as well as provide future capital deployment options to drive value creation.\nAnd finally Number 7, the collective WESCO and Anixter management teams are result oriented and laser focused on driving an efficient integration and on generating these synergies to drive the substantial value creation.\nIn summary, with Anixter, the new WESCO will capitalize on the accelerating secular trends of electrification, increased bandwidth demand driven by higher voice, data, video and mobile usage and the digitization of our B2B value chain.\nWe are more bullish than ever in the substantial value creation that this transformational combination will create for our customers, our supplier partners, our employees, our investors and the communities in which we operate.\nWith that, I will now hand it back to Dave to provide additional details on the excellent progress we're making on the Anixter integration.\nMoving to Slide 10.\nThe enhanced scale that this merger creates is clear.\nIt brings together two highly complementary companies.\nCombining them benefits our customers and creates value through significant cross-selling opportunities, premier supply chain services, acceleration of our digital initiatives and improved operational and supply chain efficiencies.\nOn a trailing 12-month basis through June 30th, the business generated revenue of approximately $17 billion and adjusted EBITDA of over $1 billion on a pro forma basis, including the $200 million of cost synergies we are confident that we will deliver.\nTurning to Slide 11.\nThe North American electrical distribution industry is very large and highly fragmented, with an estimated total size of $114 billion per year.\nWith the merger, the Company has a share of approximately 13%.\nEven with this merger, the market remains highly fragmented and offers substantial opportunities for accelerated organic growth.\nBoth WESCO and Anixter have invested in supply chain services to differentiate our overall customer value proposition.\nThe combination of these two companies not only increases our overall scale, but also improves our ability to better serve our customers through an expanded product and services portfolio.\nMoving to Page 12.\nAs we consider the future of the combined enterprise, there are numerous ongoing and attractive secular trends and growth opportunities.\nThe demand for increased bandwidth driven by higher voice, data, video and mobile usage, greater connectivity needs for remote work, home and school applications, and the increasing electrification of our infrastructure are just a few of the growing secular trends that are directly aligned with the core capabilities of our combined business.\nThe right hand side of this page outlines the financial benefits of this transformational combination.\nWe are highly confident in exceeding our three-year cost savings, sales growth and cash generation synergy targets communicated earlier this year.\nWith the challenging economic cycle we're facing near term, this strategic combination remains compelling, as we're doubling the size of our Company and will transform the new enterprise through execution of the integration plan and delivery of these synergies.\nMoving to Slide 13.\nWe are focused on leading and exceeding the commitments we've made to our investors when we announced the merger in mid-January.\nWe raised approximately $5 billion in bank and bond debt with favorable terms and the bond offerings were substantially oversubscribed.\nWe closed the transaction near the end of Q2, in line with our initial commitments to close in Q2 or Q3.\nWe increased our liquidity to more than $800 million as of the end of Q2.\nWe are rapidly executing our integration plan and have already completed actions to deliver over 50% of our year one cost savings target of $68 million.\nWe're already generating sales synergies from the merger that are in addition to the minimum $200 million of cost synergies that we expect to generate.\nTurning to Page 14.\nOur top focus is executing a detailed, rigorous and process-oriented integration that delivers our committed synergies as well as the clear upside potential, while combining the best elements of each company.\nThe three objectives that our planning has encompassed are, first, executing a flawless Day 1 and first 100 days post closing that ensures business continuity and an effective on-boarding process.\nSecond, delivering the value of the combination through both the cost and sales growth synergies.\nAnd third, implementing an operating model for the new enterprise, which deploys cutting-edge digital tools and applications, and is led by an organization that is staffed with the best leaders of each company.\nValue delivery teams comprised of approximately 150 employees from both legacy organizations have identified more than 500 initiatives and 2,500 milestones to combine the best of our two companies.\nThe six value delivery work streams that we are working on in our integration planning and execution include commercial, digital and IT, supply chain, operations, marketing and the corporate functions.\nWe are also mindful of the critical importance that culture plays in the value creation opportunity of this combination.\nWe conducted a wide scale and thorough survey of all employees to understand the key attributes of the cultures and are developing a plan to combine the best of both.\nThe high degree of collaboration among and across these teams has been inspiring and underscores the strong cultural alignment between the two companies.\nWe are taking advantage of the opportunity to leverage the best talent and ideas of two successful organizations, as we create a new world-class enterprise.\nTuring to Slide 15.\nThis slide highlights our progress against the three core integration objectives outlined on the prior page.\nWe achieved our first priority, which was to execute a flawless Day 1.\nOur various value delivery teams have spent months preparing for Day 1, which I'm pleased to report was very successful.\nWe executed a detailed plan of communicating to our customers and suppliers, providing updates to our 18,900 colleagues and held multiple town hall events for our employees to get to know our new management team.\nOur second critical objective is to complete all of our master planning and value capture initiatives.\nHaving generated more than half of our year one target of $68 million of run rate synergies, we're on track to exceed this target.\nWe have deployed commercial targets for sales growth, margin improvement and cash flow, and are already experiencing success with our first cross-sell pilot programs.\nOur final critical objective is to build a new world-class company.\nWe have announced our three strategic business units and the first two levels of our senior management team.\nMoving to Page 16, you can see the detail of the composition and expected timing of our synergies.\nOf the 45% that is corporate and administrative, approximately two-thirds will come from the elimination of duplicative general and administrative costs and one-third will come from corporate overhead.\nOf the 55% that will be generated from supply chain and field operations, the majority will come from supply chain efficiencies.\nThe field operations estimate includes the footprint rationalization of both companies' branch networks.\nApproximately two-thirds of WESCO and Anixter facilities in the U.S. are within 20 miles of each other.\nAdditionally, with the combined $14 billion in total cost of goods, we have identified over $70 million of supply chain-related synergies.\nBoth the supply chain and field operation synergies are expected to begin in year one, but the bulk of these opportunities will be realized in years two and three.\nWe are confident in achieving the synergies and believe that they can be realized efficiently with minimal disruption to our day-to-day business.\nTo date, we have already executed more than 30 unique initiatives across the four synergy types, resulting in more than $35 million of run rate synergies.\nWe have eliminated duplicative public company related expenses of approximately $7 million, as well as C-suite and other duplicative roles that provide an additional $20 million in savings.\nMoving to Page 17.\nBoth WESCO and Anixter have strong track records of generating free cash flow throughout the economic cycle.\nOver the past five years, the business has generated an average of $370 million in free cash flow on a combined basis.\nWith the combination of earnings growth and the realization of cost synergies, we expect the annual cash generation of the combined company will expand to over $600 million per year, by year three.\nThis includes $75 million in free cash flow through the release of working capital.\nAs we mentioned earlier, the strong free cash flow and earnings growth will enable us to rapidly deleverage the balance sheet.\nOur ratio of debt to adjusted EBITDA was 5.7 times, as of June 30th, 2020.\nIncluding year one synergies of $68 million, our leverage ratio was 5.3 times.\nWe are expecting to return to leverage within our target range of 2 times to 3.5 times net debt to EBITDA within 36 months.\nMoving to Slide 18, both WESCO and Anixter benefit from several dynamics that make our Company highly resilient to economic cycles.\nFirst, our cash flow is counter cyclical as we release working capital during the downturn.\nSecond, a cost structure that allows for quick adjustments in response to changing demand levels.\nAnd third, no [Phonetic] required capital expenditures, given the nature of the business model.\nOver the past 10 years, WESCO and Anixter capital expenditures have averaged less than 0.5 point of sales.\nIn the current environment, this resilience has enhanced by WESCO and Anixter's high degree of diversification by customer, supplier, end market and geography.\nBoth WESCO and Anixter have proven abilities to delever through the economic cycle, as they both did from 2007 to 2011, when their net leverage was reduced to below two turns as a combined $1.9 billion of free cash flow was generated.\nAdditionally, both companies have demonstrated the ability to use their cash flow to rapidly pay down debt following a sizable acquisition.\nIn the case of WESCO, we reduced leverage from 4.5 turns to 2.7 turns following the acquisition of EECOL in 2012.\nIn Anixter's case, it reduced leverage from 4.1 turns to 2.8 turns in the two years following its acquisition of HD Power Solutions in 2015.\nThis quarter was an excellent example of our strong counter-cyclical free cash flow, as the combined company generated $142 million in free cash flow or approximately 248% of adjusted net income.\nMoving to Slide 19.\nWe had closed the merger on June 22, 2020, as the waiting period for the Competition Bureau expired on June 18, 2020.\nUnder the terms of the agreement, WESCO agreed to divest the legacy WESCO Utility and Datacom businesses in Canada.\nThis includes the utility businesses of Brews, Trydor and LaPrairie acquired some years ago.\nCombined, the WESCO Canadian Utility and Datacom businesses represent approximately $150 million in sales or less than 1% of the revenue of the combined organization.\nThe divestitures will have no impact to the overall outstanding value creation opportunity of this merger.\nI'd now like to hand it back to John for a quick summary, before we open it up to Q&A.\nWe responded to a quick and decisive actions in response to the global COVID-19 pandemic.\nWe will continue to aggressively manage our business, as we have done in prior economic cycles and respond to this crisis as needed.\nJust five months after announcing the definitive Anixter agreement in January, we completed a very successful and oversubscribed capital raise in May, and then we successfully closed the Anixter merger on June 22nd.\nMost notably, all of this was done against the COVID-19 backdrop.\nAs I mentioned earlier, integration is off to an excellent start and execution is accelerating.\nWe expect to exceed our cost savings, sales growth, margin expansion and cash generation synergy targets and deliver the substantial upside potential and value creation associated with this transformational combination.\nAnd finally, it's the start of a new era for WESCO.\nAs an industry leader, we are now larger and more diversified with differentiated scale and capabilities and what remains a highly fragmented industry.\nAs a result, we are exceptionally well positioned to lead not only a digital transformation of our business, but also of our industry.\nOverall, we are doing what we said we would do, and we will continue to transparently provide our progress versus our plan and our commitment.",
        "summary": "compname reports q2 adj. earnings per share $1.36.\nq2 adjusted earnings per share $1.36.\nq2 sales $2.1 billion versus refinitiv ibes estimate of $1.9 billion."
    },
    {
        "text": "Information required by Regulation G of the Exchange act with respect to such non-GAAP financial measures can be obtained via WESCO's website at wesco.com.\nReplays of this conference call will be archived and available for the next seven days.\nI'd like to start out by saying on behalf of WESCO, I hope that all of you have been staying safe and healthy.\nI'll start with the third quarter highlights, then I'll provide an introduction to our three new strategic business units.\nAnd I'll be emphasizing their strong positioning to deliver above-market sales, margin and profit growth.\nDave will then take you through our third quarter results.\nThe excellent progress we're making on our second half commitments and synergy capture efforts and our increased synergy targets for the transformational combination of WESCO and Anixter.\nSo let's first start with an update on our business and third quarter results.\nWESCO's new era is off to an absolutely exceptional start.\nAs our results exceeded our expectations across the board for sales, cost, margins, profit, EPS, free cash flow generation and reduced financial leverage.\nThis was our first full quarter of results after completing the acquisition of Anixter in June and clearly highlights the substantial value creation potential of this transformational combination.\nOur management actions and strong execution were effective in this COVID-driven environment.\nWe expanded margins, reduced costs and grew profits, both sequentially and versus prior year.\nBusiness momentum improved through the quarter as we took market share and built an all-time record third quarter backlog.\nOur positive momentum has continued into the fourth quarter with October Workday adjusted sales down just 3% versus prior year and a book-to-bill ratio remaining above 1.0.\nFree cash flow generation was exceptional at over 300% of net income and demonstrates our resilient business model and strength through the cycle.\nNotably, net debt was reduced by $280 million, consistent with our capital allocation priorities.\nMore importantly, financial leverage was reduced to 4.8 times at the end of the third quarter, marking a reduction of about 1.5 turns over the four-month period since closing the Anixter acquisition.\nNow turning to Anixter.\nWe accelerated our integration planning execution and synergy realization efforts and made outstanding progress in the third quarter.\nThe strong cultural alignment between WESCO and Anixter is proving to be a key driver in our initial success.\nAnd as Dave will explain in more detail momentarily, just four months since closing the acquisition on June 22, we have already initiated actions that will deliver 100%, 100% of our year one cost synergy target of $68 million.\nI could not be more pleased with the team's execution of our integration plan.\nAs a result, we are raising our year one, year two and year three cost synergy targets to $100 million, $180 million and $250 million, respectively.\nOur initial integration progress gives us confidence that we will revisit our synergy targets as we build success upon success.\nWe're also realizing initial sales synergies through leveraging our expanded global footprint and cross-selling our broader product and services portfolio.\nWe believe our sales synergy efforts will support incremental -- important incremental sales growth in the years ahead.\nAs we build on these early successes, we are increasingly confident in our ability to achieve significant upside potential and exceed our three-year cost savings sales growth, margin expansion and cash synergy targets.\nSo let's turn to Page four.\nWe're reporting our results for the first time under our organizational structure that we announced in June.\nAnd these are our three strategic business units or SBUs as we call them -- outlined on this page.\nSo first is Electrical and Electronic systems, or EES, which is a little more than 40% of our company's total business.\nSecond, Communications and Security Solutions, or CSS, which is roughly 1/3 of our company's total business.\nAnd then third, Utility and Broadband Solutions or UBS, which represents the remaining 1/4 of our overall combined company business across the enterprise.\nThe respective industries and types of customers that these SBUs serve are outlined on this page.\nYesterday, we also filed an 8-K with pro forma operating performance for each SBU on a quarterly and annual basis for 2019 and for the first two quarters of 2020.\nAs I mentioned last quarter, one of the most meaningful and positive discoveries post close is how complementary the WESCO and Anixter portfolios are.\nThe pie charts on this page depicts the legacy WESCO and legacy Anixter composition for each of the three businesses.\nEES is comprised of WESCO's leadership and deep roots in electrical coupled with Anixter's depth and breadth and leadership position in wire and cable solutions.\nAnd EES brings the complete electrical package and best-in-class solution offers to customers.\nCSS includes Anixter's leading global position, capabilities and scale in communications and security.\nAnd that's coupled with WESCO's Datacom, AV and Safety portfolio.\nCombined, CSS is exceptionally well positioned in high-growth markets with very attractive secular growth trends.\nAnd finally, UBS which combines WESCO's and Anixter's leading Utility and Broadband businesses is also very well positioned to outperform the market with a strong execution track record and unmatched supply chain capabilities.\nOrganizing our company around these three global businesses enables us to leverage their industry-leading scale and highly complementary portfolios and super serving our customers.\nEach of these SBUs does between $4 billion and $7 billion of business annually, and they offer hundreds of thousands of products and industry-leading services, which makes them highly valued partner to both our suppliers and our customers.\nIn what remains a highly fragmented distribution value chain, the combined company benefits from a step change in scale and capability.\nAnd we're leveraging that to sell more products and more services to more customers in more locations all around the world.\nFinally, the leadership teams of these three businesses are comprised of the best of the best from each company and all possess decades of experience in our industry.\nNelson Squires who was previously WESCO's Chief Operating Officer and Head of the Canadian and International businesses is leading our ESS business.\nBill Geary leads our global CSS business, and he previously was Head of Anixter's network and security business.\nAnd Jim Cameron leads our UBS business after running WESCO's utility business since 2014 and WESCO's broadband business since 2016.\nI'm very pleased that each of these leaders is off to a great start in delivering strong results in our first full quarter of WESCO plus Anixter.\nNow let's move to Page five.\nOur SBUs, each and every one of them are extremely well positioned to benefit from the numerous secular trends that will drive future growth for WESCO.\nWe shared these 12 evolving secular growth trends we do previously, but today, we wanted to specifically highlight that they will drive growth across all of our businesses.\nAs we see an increase in automation, machine-to-machine connections, electrification of our infrastructure and demand for faster bandwidth and data center capacity, along with or coupled with the positive impact of the emerging trends, such as relocation of supply chain back to North America and increased remote connectivity, all three of our strategic business units have the scale and the capabilities to capture the resultant secular growth.\nWe've created the industry leader in electrical, communications and utility distribution and supply chain services just as these trends are poised to drive secular growth in the markets we serve.\nFinally, moving to Page six.\nWe first communicated our three year cost savings sales growth, margin improvement and cash generation synergy targets back in March.\nSince that time, we've been executing a detailed, rigorous and process-oriented plan to integrate WESCO and Anixter.\nAgainst the backdrop of a challenging COVID-driven economic cycle, this strategic combination is even more compelling as we have doubled the size of our company and are transforming our new global enterprise.\nWith the benefit of what we have learned since the closing in June and our strong initial execution of our integration plan, we are increasingly confident in our ability to achieve these financial goals, including our updated synergy targets.\nAnd most importantly, we're increasingly confident that we'll ultimately deliver the substantial value creation associated with this transformational combination.\nAs the industry leader, we are now larger and more diverse with differentiated scale and capabilities in what remains a highly fragmented industry.\nWe're evolving into a growth company and are exceptionally well positioned to lead the digital transformation of our business and our industry.\nTurning to Slide seven.\nDuring our second quarter earnings call, we outlined six second half priorities, and we want to provide you with an update on the substantial progress on each of these goals.\nStarting with sales, demand continued to improve, and we believe we've taken share.\nSales in the quarter were down versus prior year due to COVID and up 8% on a pro forma basis from Q2.\nWe maintained our focus on cost management and exceeded expectations.\nPrior to completing the merger with Anixter, we laid out our expectation to deliver $50 million of COVID-related cost actions.\nBetween Q2 and Q3, we exceeded this target.\nOn a pro forma basis, operating expenses were down $44 million in the third quarter versus the prior year.\nOn gross margin, we discussed the success Anixter had expanding gross margin through a targeted improvement program, and we are deploying it to the legacy WESCO business.\nGross margin was up 20 basis points on a pro forma basis, with broad-based improvement across the combined company.\nWe are extremely pleased with the progress made on the integration.\nAs John mentioned, we have already initiated actions to achieve the full year one synergy cost target of $68 million in the first four months of the integration and are increasing our cost synergy target.\nOne of the areas we are most pleased with is cash generation.\nFree cash flow was extremely strong at $307 million in the quarter, and we reduced net debt by $280 million.\nOur leverage, including year one synergies, improved to 4.8 turns on an adjusted EBITDA basis.\nLastly, we have fully transitioned our reporting structure to our new strategic business units that John walked you through a moment ago.\nWe issued an 8-K yesterday, providing you with the historical WESCO-only results, recast to the new segment reporting structure as well as a pro forma, combining the historical WESCO and Anixter results, including the reconciliation of adjusted EBITDA.\nAgain, we're very pleased with the results in the quarter against a difficult operating environment due to COVID.\nMoving to Slide eight.\nWe are increasing our three year cumulative cost synergy target to $250 million.\ntwo drivers to the increase.\nFirst, we set internal goals that are higher than we announced publicly, and our teams are delivering.\nSecond, there were specific areas where detailed information and analytics could not be completed until after we close the transaction.\nWe are finding upside to our initial estimates in all four buckets of synergies and are particularly excited about the incremental synergy opportunities in the areas of supply chain and SG&A, giving us confidence to take up our target.\nIn Q3, we realized $15 million of cost synergies and expect to achieve $100 million in the first year of the merger.\nWe still believe there is additional upside, and we plan to build upon our success to drive additional value capture in the areas of cost, cross-selling and net working capital synergies.\nI'll also mention that we continue to make progress with the divestiture of the legacy WESCO Canadian Utility and Datacom businesses, which represent less than $150 million in revenue.\nWe engaged an investment bank and are working with potential buyers and are on track to complete the divestitures on a timely basis.\nTurning to our third quarter results on Page nine.\nThis summary table compares our third quarter results to the WESCO plus Anixter pro forma results for the prior year period and sequentially, against the second quarter of this year.\nSales were down 5% versus the prior year and up 8% sequentially.\nThese sales improvements represent substantial growth above pierce and indicate we are taking share.\nOctober Workday adjusted sales were down just 3% versus prior year.\nAnd as John mentioned, our book-to-bill ratio remains above 1.0.\nSequentially, October Workday adjusted sales versus September were better than typical seasonality.\nAdjusted gross margin, which excludes the effect of merger-related fair value adjustments of $28 million, was 19.6%, up 20 basis points versus prior year and sequentially.\nWe are clearly seeing traction from our margin improvement initiatives and are just beginning to deploy Anixter's proven gross margin improvement programs across the business.\nAdjusted earnings before interest and taxes was $200 million in the quarter.\nReported EBIT was adjusted to remove the effect of merger-related cost of $14 million, the merger-related fair value adjustments on inventory of $28 million and a gain on the sale of an operating branch in the U.S. that was unrelated to the integration of $20 million.\nRegarding the branch sale, we divested a single location that primarily sold Rockwell Allen-Bradley automation equipment in a specific geography.\nCompared to the prior year, adjusted EBIT margin was up 30 basis points, reflecting the benefits of synergies and cost management actions in response to COVID-related demand declines.\nOn a sequential basis, adjusted EBIT was up 60 basis points.\nAs I mentioned on the prior slide, the legacy WESCO business expected to generate $50 million in total COVID-related cost savings in the last three quarters of the current year.\nThis quarter, we delivered approximately $28 million of these savings.\nAdjusted EBITDA, which excludes the effects of the adjustments I just mentioned as well as stock-based compensation in both the current and prior year periods and other net adjustments was $252 million, 5% higher than the prior year and 19% higher sequentially.\nAs a percentage of sales, adjusted EBITDA margin was 6.1%, 60 basis points higher than the prior year and sequentially.\nThese exceptional results, reflecting both year-over-year and sequential improvements of both adjusted EBIT and adjusted EBITDA, reflect our continued strong execution, disciplined cost management, market share gains, industry-leading value propositions across all of our business units and the acceleration of our synergy capture.\nOur leading position and participation in the many secular trends discussed earlier as well as our track record of operational excellence, sets us up exceptionally well to drive substantial value creation.\nAdjusted diluted earnings per share for the quarter was $1.66.\nTurning to Slide 10.\nOur EES segment delivered sales that were down 10% versus prior year and up 13% sequentially.\nThe sequential growth reflects construction demand that continues to improve in North America, and which was up double digits in the U.S. and Canada.\nOur backlog, which primarily reflects construction activity was a third quarter record, consistent with the trend we have observed of project delays due to COVID-19 but not cancellations.\nWe continue to see increasing momentum in our OEM business as well as in many industrial verticals that we serve.\nIt is important to note that oil and gas, which previously represented approximately 7% of WESCO's business prior to the combination with Anixter, is now a low single-digit percentage of the combined company's revenue.\nAdjusted EBITDA of $108 million was 6.5% of sales, approximately in line with the pro forma prior year results and 70 basis points higher sequentially, which is an excellent result given the lower sales versus the prior year.\nDuring the quarter, we were pleased to be awarded multiple contracts to provide switchgear and electrical materials, including lighting for the upgrade of a water treatment facility in Ontario, Canada.\nTurning to Slide 11.\nOur CSS segment delivered an exceptional quarter.\nSales were down 2% versus prior year against a broader market that was down substantially more and up 10% sequentially.\nWe are clearly taking share in these markets.\nAs with EES, we saw continued positive momentum throughout the quarter.\nSecurity sales were up low-single-digits versus a market that was down mid-single digits.\nOur global accounts activity was up low-single digits, reflecting strong performance with hyperscale data centers, global security and system integrators.\nProfitability was also strong.\nAdjusted EBITDA of $121 million was up more than 8% versus prior year, and adjusted EBITDA margin improved 80 basis points above the prior year.\nIn the second quarter, we were pleased to be awarded a multimillion-dollar contract to provide a comprehensive solution of products and material management services for the construction of two data centers in Mexico.\nTurning to Slide 12.\nSales in our UBS segment were flat sequentially and down 2% versus the prior year.\nThis result reflects strong growth from broadband sales, offset by weakness in the industrial-focused areas of our integrated supply business.\nBroadband sales were up mid-single digits versus the prior year in high-single digits sequentially, driven by continued 5G build-outs and fiber-to-the-x deployments.\nUtility sales were flat on a pro forma basis compared to the prior year.\nStorm response activity contributed to this growth as there were a number of hurricanes and tropical storms that made a landfall in the U.S., especially in September.\nAdjusted EBITDA of $86 million was up more than 11% versus prior year on a pro forma basis and represented 7.8% of sales, 100 basis points above prior year and 30 basis points above Q2.\nAs an example of our recent success, we were awarded a multiyear contract to provide electrical transmission and distribution materials and inventory management services for our public utility.\nMoving to free cash flow and liquidity on Slide 13.\nThis quarter, WESCO generated $307 million of free cash flow or 315% of adjusted net income.\nThis exceptional result highlights our countercyclical cash flow generation, which is one of the many reasons we are highly confident in our ability to reduce leverage throughout all phases of the economic cycle.\nYear-to-date, the company has generated $462 million of free cash flow or 292% of adjusted net income.\nOur capital allocation priority remains unchanged.\nWe will allocate capital support the integration and invest in our business.\nOur priority is to rapidly delever the balance sheet and be within our long-term target leverage range of two to 3.5 times net debt-to-EBITDA by the end of year three in June, 2023.\nWe made substantial progress on this goal in the quarter as we reduced net debt by $280 million.\nOur leverage ratio, including the revised target of year one synergies was 4.8 turns, about half a turn below the comparable metrics in Q2 of 5.3 turns.\nOur liquidity, which is comprised of invested cash and borrowing availability in our bank credit facilities is exceptionally strong and totaled, approximately, $1.1 billion at the end of the third quarter.\nA reminder that we will remit the first cash interest payment on the 2025 and 2028 senior notes, and expect to pay the quarterly dividend on the preferred stock in December.\nExceptional free cash flow throughout the economic cycle remains a hallmark for WESCO.\nThat, along with strong liquidity supports our future growth.\nMoving to Slide 14.\nWe've also provided additional information about the business units and the slide that answers some FAQs regarding the upcoming quarter.\nThis quarter was clearly an exceptional result in all fronts for WESCO against a COVID-driven economic backdrop.\nWe increased margin across the board despite the challenge of COVID-driven '19 sales weakness.\nThis was driven in part by decisive actions to reduce costs given the uncertainty of demand.\nWe see core demand continuing to improve across our businesses, noting that we typically see a seasonal effect to Q4 sales and have three fewer workdays sequentially in the current quarter.\nWe restored salaries and benefits effective October 1, and we are incredibly proud of how our team has responded to the crisis and has continued to service our customers.\nIn just four months since closing the transaction, we have initiated actions to meet the initial full year one cost synergies.\nWe have increased our year one target from $68 million to $100 million and are increasing our total cost synergy target from $200 million to $250 million.\nIn addition to the substantial cost synergies, we are already generating revenue synergies from our cross-sell pilot program.\nAs a result of this excellent position and continued integration of Anixter, we expect to exceed our value creation targets of sales growth, margin expansion and cash generation.\nOur free cash flow was also exceptional, demonstrating our resilient business model and cash generation ability throughout the cycle.\nEach of the new strategic business units that we reported on today are extremely well positioned to capitalize on several continued and emerging secular growth trends.",
        "summary": "q3 adjusted earnings per share $1.66.\nraising our year 1, 2 and 3 cost synergy targets to $100 million, $180 million, and $250 million, respectively."
    },
    {
        "text": "We have Scott Lauber, who's now our president and chief executive; Xia Liu, our chief financial officer; and Beth Straka, senior vice president of corporate communications and investor relations.\nThis exceeded the upper end of our most recent guidance, which was $4.07 a share.\nOur positive results were driven by favorable weather, solid economic recovery in our region and our continued focus on operating efficiency.\nOur balance sheet and cash flows remain strong.\nAnd as we've discussed, this allows us to fund a highly executable capital plan without issuing equity.\nI would also note that the earnings we're reporting today are quality earnings with no adjustments.\nAs you know, we've been very active in shaping the future of clean energy.\nLooking back on 2021, we set some of the most aggressive goals in our industry for reducing carbon emissions.\nAcross our generating fleet, we're targeting a 60% reduction in carbon emissions by 2025 and an 80% reduction by the end of 2030, all from a 2005 baseline.\nIn fact, by the end of 2030, we expect our use of coal for power generation will be immaterial and our plan calls for a complete exit from coal by the year 2035.\nOf course, for the longer term, we remain focused on achieving net-zero carbon emissions from power generation by 2050.\nNow we all recognize that advances in technology will be needed to decarbonize the economy by 2050.\nAnd hydrogen, of course, could be a key player, a key part of the solution in the decades ahead.\nTo that end, we announced last week one of the first hydrogen power pilot programs of its kind in the United States.\nWe're joining with the Electric Power Research Institute to test hydrogen as a fuel source at one of our newer natural gas-powered units located in the Upper Peninsula of Michigan.\nThe project will be carried out this year, and the results will be shared across the industry to demonstrate how the use of hydrogen could materially reduce carbon emissions.\nSwitching gears now, we're driving forward on our $17.7 billion ESG progress plan, the largest five-year plan in the company's history.\nThe plan is focused on efficiency, sustainability and growth.\nOne of the highlights is the planned investment in nearly 2,400 megawatts of renewable capacity over the next five years.\nThese renewable projects will serve the customers of our regulated utilities here in Wisconsin.\nOverall, we expect the ESG progress plan to support average growth in our asset base of 7% a year driving earnings growth, dividend growth and dramatically improved environmental performance.\nIn summary, we believe we're poised to deliver among the very best risk-adjusted returns our industry has to offer.\nAnd now, let's take a brief look at the regional economy.\nWe saw a promising recovery throughout 2021 despite the prolonged pandemic.\nThe latest available data show Wisconsin's unemployment rate down at 2.8%; folks, that's a record low and more than a full percentage point below the national average.\nImportantly, jobs in the manufacturing sectors across Wisconsin have returned to pre-pandemic levels.\nAnd major economic development projects are moving full steam ahead.\nHARIBO, the gummy bear company is now recruiting workers at its brand new campus in Pleasant Prairie.\nKomatsu has begun relocating employees to its new state-of-the-art Milwaukee campus.\nMilwaukee Tool's downtown office tower is set to begin operations this month, and we see more growth ahead.\nFor example, ABB, a global industrial and technology company; and Saputo, a leading dairy products company have announced plans for major expansions in our region.\nAnd finally, you've heard the phrase: a rising tide lift all boats.\nWell, I'm pleased to report that one of the most celebrated luxury boat makers in the world, Grand Craft Boats, is relocating its operations from Michigan to the Milwaukee region.\nYou know, J. Lo, George Clooney, Robert Redford, they're among the high-profile clients of Grand Craft.\nSo it will be interesting to see who shows up below deck at our next analyst day.\nBottom line, we remain optimistic about the strength of the regional economy and our outlook for long-term growth.\nLooking back, we made significant progress in 2021.\nI'll start by covering some developments in Wisconsin.\nAs Gale mentioned, we're continuing to make progress on the transition of our generation fleet and our ESG progress plan.\nI am pleased to report that our Badger Hollow 1 Solar project is now providing energy to our customers.\nYou'll recall that we own 100 megawatts of this project in Southwest Wisconsin.\nWe have also made progress on the construction of Badger Hollow 2.\nCurrently, we expect an in-service date in the first quarter of 2023.\nThis factors in a delay of approximately three months due to ongoing supply chain constraints.\nWe do not expect a material change in the construction costs.\nIn addition, the Public Service Commission has approved our plans to build two liquified natural gas storage facilities in the southeastern part of the state.\nConstruction has started and we plan to bring the facilities into service in late 2023 and mid-2024.\nWe expect this project to save our customers approximately $200 million over time and help ensure reliability during Wisconsin's coldest winters.\nAnd we recently signed our first contract for renewable natural gas or RNG, for our gas distribution business.\nWe'll be tapping into the output of one of our large local dairy farms.\nThe gas supplied each year will directly replace higher emission methane from natural gas that would have then entered our pipes.\nThis one contract alone represents 25% of our 2030 goal for methane reduction.\nThe Wisconsin-based company, U.S. Gain, is planning to have RNG flowing to our distribution network by the end of this year.\nThe commission also approved the development of Red Barn, a wind farm in Southwestern part of the state.\nWe expect our Wisconsin Public Service utility to invest approximately $150 million in this project and for it to qualify for production tax credits.\nWhen complete, it will provide WPS with 82 megawatts of renewable capacity.\nAnd just this past Monday, we filed an application with the commission for approval to acquire a portion of the capacity from West Riverside Energy Center.\nWest Riverside is a combined cycle natural gas plant owned by Alliant Energy.\nIf approved, Wisconsin Public Service would acquire 100 megawatts for approximately $91 million.\nThat's the first of two potential option exercises.\nWe expect the transaction to close in the second quarter of 2023.\nLooking forward, we expect to file a rate review for our Wisconsin utilities by May.\nWe have no other rate cases planned at this time.\nTurning now to our infrastructure segment.\nThe 190-megawatt Jayhawk Wind Farm located in Kansas, began service in December.\nWe invested approximately $300 million in this project.\nOverall, we have brought six projects online in our infrastructure segment, representing more than 1,000 megawatts of capacity.\nAnd as you'll recall, we expect the Thunderhead Wind Farm to come online for the second quarter and the Sapphire Sky by the end of this year.\nIncluding these two projects, we plan to invest a total of $1.9 billion in this segment over the next five years, and we remain ahead of plan.\nAnd with that, I'll turn things back to Gale.\nWe're confident that we can deliver our earnings guidance for 2022.\nWe're guiding, as you know, in a range of $4.29 a share to $4.33 a share.\nThe midpoint $4.31 represents growth of 7.5% from the midpoint of our original guidance last year.\nAnd you may have seen the announcement that our board of directors, at its January meeting, raised our quarterly cash dividend by 7.4%.\nWe believe this increase will rank in the top decile of our industry.\nThis also marks the 19th consecutive year that our company will reward shareholders with higher dividends.\nWe continue to target a payout ratio of 65% to 70% of earnings.\nWe're right in the middle of that range now.\nSo I expect our dividend growth will continue to be in line with the growth in our earnings per share.\nNext up, Xia will provide you with more detail on our financial results and our first quarter guidance.\nTurning now to earnings.\nOur 2021 results of $4.11 per share increased $0.32 or 8.4% compared to 2020.\nOur earnings package includes a comparison of 2021 results on Page 17.\nI'll walk through the significant drivers.\nStarting with our utility operations, we grew our earnings by $0.10 compared to 2020.\nFirst, weather added $0.04, mostly driven by colder winter weather conditions compared to 2020.\nSecond, continued economic recovery drove a $0.09 increase in earnings.\nThis reflected stronger weather-normalized electric sales, as well as the resumption of late payment and other charges.\nLet me give you some highlights on our weather-normalized retail sales.\nOverall, retail delivery of electricity, excluding the iron ore mine, were up 2.6% compared to 2020.\nWe saw a continued economic rebound in 2021 in our service territories.\nSmall commercial and industrial electric sales were up 4.4% from 2020, and large commercial and industrial sales, excluding the iron ore mine, were up 5.1%.\nNatural gas deliveries in Wisconsin were relatively flat excluding gas used for power generation.\nLastly, rate relief and additional capital investment contributed $0.14 to earnings and lower day-to-day O&M drove a $0.03 improvement.\nThese favorable factors were partially offset by $0.17 of higher depreciation and amortization expense and a net $0.03 reduction from fuel costs and other items.\nOverall, we added $0.10 year over year from utility operations.\nEarnings from our investment in American Transmission Company decreased $0.02 per share year over year.\nThe positive impact of additional capital investment was more than offset by two factors: a 2020 fourth quarter that benefited 2020 earnings and an impairment that we booked in the fourth quarter of 2021 on an investment outside of the ATC service territory.\nThis substantially wrote off all of the goodwill on the project.\nEarnings at our energy infrastructure segment improved $0.06 in 2021.\nThis was mostly related to production tax credit from the Blooming Grove and Tatanka Ridge wind farms.\nFinally, we saw an $0.18 improvement in the corporate and other segment.\nLower interest expense contributed $0.07 year over year.\nAlso, we recognized a $0.04 gain from our investment in the fund devoted to clean energy infrastructure and technology development.\nThe remaining positive variance related to improved rabbi trust performance and some favorable tax and other items.\nIn summary, we improved on our 2020 earnings by $0.32 per share.\nLooking now at the cash flow statement on Page 6.\nNet cash provided by operating activities decreased $163 million.\nThe increase in cash earnings was more than offset by working capital requirements, mostly related to higher natural gas prices.\nAs we resume normal collection practices in the spring, we expect working capital to improve throughout the year.\nTotal capital expenditures and asset acquisitions were $2.4 billion in 2021.\nThis represents a $471 million decrease compared to 2020, due primarily to the timing of the in-service date of Thunderhead Wind Farm.\nTurning now to financing activities.\nWe opportunistically refinanced over $450 million of holding company debt during the fourth quarter.\nThis reduced the average interest rate of these notes from 4.5% to 2.2%.\nWe continue to demonstrate our commitment to strong credit quality.\nAdjusting for the impact of voluntary pension contribution and the year-over-year increase in working capital, our FFO to debt was 15.7% in 2021.\nFinally, let's look at our guidance for sales and earnings.\nFor weather-normalized sales in Wisconsin, we're expecting 0.5% growth this year in both our electric and natural gas businesses, continued growth after a very strong year.\nIn terms of 2022 earnings guidance, last year, we earned $1.61 per share in the first quarter.\nWe project first quarter 2022 earnings to be in the range of $1.68 per share to $1.70 per share.\nThis forecast assumes normal weather for the rest of the quarter.\nAnd as Gale stated, for the full year 2022, we are reaffirming our annual guidance of $4.29 to $4.33 per share.\nOverall, we're on track and focused on providing value for our customers and our stockholders.\nOperator, we're now ready to open it up for the question-and-answer portion of the call.",
        "summary": "wec energy group inc reported quarterly operating revenue $2.2 billion versus $1.93 billion.\nqtrly operating revenue $2.2 billion versus $1.93 billion .\nreaffirmed its earnings guidance for 2022.\n2022 earnings are expected to be in a range of $4.29 to $4.33 per share."
    },
    {
        "text": "Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K and other periodic reports.\nWe believe these measures are important indicators of our operations as they exclude items that may not be indicative of results from our ongoing business operations.\nWe also think the adjusted measures will provide you a better baseline for analyzing trends in our ongoing business operations.\nListeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.\nAt this time, all participants are in a listen-only mode.\nAs a reminder, we ask that participants ask no more than two questions.\nBefore we discuss our first quarter business results, I'd like to take a moment to discuss the volatile industry dynamics and our decisive response plan.\nIn the first quarter, global semiconductors and resin shortages amplified existing supply constraints and thus impacted our product availability.\nFurther, we all faced the rapidly rising inflationary pressures primarily in steel and resins.\nTo address these issues, we swiftly responded with necessary actions to protect margins and product availability.\nWe announced significant cost-based price increase in various countries across the globe, ranging from 5% to 12%.\nAdditionally, we reset our supply chain model to constraint-driven Nordic, the constantly adjusted production based on component availability.\nI strongly believe that we have the right actions in place to protect our operating margins.\nThese actions propelled our Q1 results and give us high confidence to significantly increase our full year ongoing earnings per share guidance by 18% to a range of $22.50 to $23.50.\nNow turning to our first quarter highlights on slide 5.\nWe delivered strong revenue growth of 24%, driven by sustained consumer demand and previously announced cost-based pricing actions.\nAdditionally, we delivered record ongoing EBIT margin of 12.4%, the third consecutive quarter of double-digit margins.\nFurther, we generated positive free cash flow of $132 million as a result of strong earnings and lower working capital levels.\nLastly, we successfully delivered on our long-term gross debt leverage target of 2 times.\nTurning to slide 6, we show the drivers of our first quarter EBIT margin.\nPrice mix delivered 575 basis point of margin expansion, driven by reduced promotions and previously announced cost-based pricing benefits.\nAdditionally, we delivered margin improvement of 375 basis points from net cost related to a carryover impact of structural cost takeout action and higher volumes as we begin to compare against the impact of COVID-19 in the prior year.\nThese margin benefits were partially offset by raw material inflation, particularly steel and resins resulting in an unfavorable impact of 225 basis points.\nLastly, increased investments in marketing and technology and continued currency devaluation in Latin America impacted margins by a combined 125 basis points.\nOverall, we're very pleased to be delivering on our long-term EBIT margin commitment and we are confident this positive momentum will continue to drive outstanding results throughout 2021.\nTurning to slide 8, I'll review our first quarter regional results.\nIn North America, we delivered 20% revenue growth driven by continued strong consumer demand in the region.\nAdditionally, we delivered another quarter of record EBIT margin driven by strong volume growth and the flawless execution of our go-to-market actions.\nLastly, we continued to optimize our supply chain operations, resulting in modest sequential share gains.\nThe region's outstanding results continue to demonstrate the fundamental strength and agility of our business model.\nTurning to slide 9, I'll review our first quarter results for our Europe, Middle East and Africa region.\nStrong demand and share gains in key countries drove a third consecutive quarter of double-digit revenue growth in the region.\nAdditionally, the region delivered year-over-year EBIT improvement of $36 million led by increased revenue and strong cost takeout.\nThese results again demonstrate the effectiveness of our ongoing strategic actions.\nTurning to slide 10, I'll review our first quarter results for our Latin America region.\nNet sales increased 18% with revenue growth excluding currency of 35%, led by strong demand across Brazil and Mexico.\nThe region delivered very strong EBIT margins of 8.5% with continued strong demand and the early impact of cost-based pricing actions offsetting significant currency devaluation.\nTurning to slide 11, I'll review our first quarter results for our Asia region.\nIn Asia, we delivered strong year-over-year net sales growth led by demand across the region and share gains in China.\nAdditionally, we delivered significant EBIT expansion across both India and China, led by go-to-market and continued cost productivity actions.\nHowever, uncertainty remains as COVID-19 cases continue to surge in India.\nTurning to slide 13, Marc and I will discuss our revised full year 2021 guidance.\nSo while the macroeconomic environment remains uncertain, we are confident that sustained strong consumer demand and our previously announced cost-based pricing actions will offset the impact of global supply constraints and rising input costs.\nWe are raising our guidance for net sales growth from 6% to now 13%, and EBIT margin from 9% to now approximately 10%.\nIn addition, the higher earnings we now expect to deliver free cash flow of approximately $1.25 billion instead of $1 billion.\nFinally, we're also raising our earnings per share guidance significantly to $22.50 to $23.50, by a year-over-year increase of 25%.\nTurning to slide 14, we show the drivers of our revised EBIT margin guidance.\nWe expect 600 basis points of margin expansion driven by price mix as we continue to be disciplined in our go-to-market strategy and capture the benefits of our previously announced cost-based pricing actions.\nWe continue to forecast net cost takeout to favorably impact margins by 150 basis points as we realized the carryover benefits of our 2020 cost reduction program and ongoing initiatives.\nThe global material cost inflation in particular in steel and resins negatively impacted our business by about $1 billion.\nWe expect cost increases to peak in the third quarter.\nIncreased investments in marketing and technology and unfavorable currency, primarily in Latin America are expected to impact margins by 75 basis points each.\nOverall, based on our track record, we are confident in our ability to navigate this uncertain environment and deliver approximately 10% EBIT margin.\nTurning to slide 15, we show our updated industry and regional EBIT guidance for the year.\nWe have slightly increased our global industry expectation to 5%, reflecting the demand strength in North America.\nWe have updated the EBIT guidance of our North America and Latin America regions to reflect the benefits of pricing actions and continued demand strength.\nThis brings our EBIT guidance for North America to 15.5% plus and Latin America to approximately 8%.\nLastly, in March, Galanz launched its formal partial tender offer for a majority stake in Whirlpool China.\nOur EBIT guidance for Asia assumes Galanz's partial tender offer is successfully closed in the second quarter.\nBased on this assumption, we would expect to see approximately seven months of Whirlpool China revenue and EBIT removed from the region's results.\nThis is approximately $300 million in net sales and approximately $15 million of EBIT loss.\nWith the deconsolidation of Whirlpool China business and continuation of our profitable India business, we anticipate an increase in Asia's EBIT margin to 5% plus.\nTurning to slide 16, we will discuss the drivers of our 2021 free cash flow.\nWith expectations for stronger top line growth and improved EBIT margins, we increased our cash earnings guidance by $250 million.\nFrom a working capital perspective, we expect to see inventory build throughout the year as we compare against record low levels in 2020 and unlock bottlenecks in our supply chain.\nLastly, we now expect $150 million from the sale of a majority of our shares in Whirlpool China in addition to the continued optimization of our real estate portfolio.\nOverall, we now expect to drive free cash flow of approximately $1.25 billion or 5.7% of sales, in line with our long-term goal of 6%.\nTurning to slide 17, we provide an update on our capital allocation priorities for 2021.\nWe continued to expect to invest over $1 billion in capital expenditures and research and development, highlighting our commitment to driving innovation and growth in the future.\nAdditionally, with a clear focus on returning strong levels of cash to shareholders, we increased our dividend for the ninth consecutive year.\nAlso, we have increased our share buyback program by $2 billion, bringing our remaining authorization to $2.4 billion.\nLastly, we have delivered on our long-term gross debt leverage goal of 2 times.\nAnd let me just recap what you heard over the past few minutes.\nWe are highly confident in our ability to manage through the supply constraint and cost inflationary environment.\nWe have consistently demonstrated our ability to be agile, take decisive actions and deliver strong operating results despite challenging market conditions.\nI firmly believe that we have the right actions in place to protect our operating margins, which is once again demonstrated in our record Q1 results.\nWith increased demand and price mix expectations, we significantly increased our guidance for revenue, EBIT, earnings per share and free cash flow.\nLastly, we remain unwavering in our commitment to drive strong shareholder value and return cash to shareholders.",
        "summary": "oration delivers very strong q1 results and raises full-year guidance.\nfull-year 2021 earnings per diluted share now expected to be $22.50 to $23.50 on an ongoing basis.\nincreased share repurchase authorization by $2 billion to about $2.4 billion.\nincreased full-year 2021 net sales growth to 13 percent from about 6 percent growth."
    },
    {
        "text": "A copy of the release has also been included in an 8-K submitted to the SEC.\nWe achieved a record $669 million of sales in the first quarter, 32% growth over last year.\nGrowth was split fairly evenly, weighted a little bit more to favorable pricing than volume growth.\nDemand remained strong at both ADS and in Infiltrator throughout our end markets and geographic footprint.\nIn addition, international sales increased 82% this quarter with growth in our Canadian, Mexican and exports businesses.\nOur backlog and pace of orders remain favorable as well as our ability to capture price in the market, giving us confidence in the updated sales targets we issued today.\nWe have issued several price increases since late last year to cover inflationary cost pressure, and we'll continue to use our leading market position in that respect as well as ADS and Infiltrator's scale position in material procurement and recycling operations to procure material at the best possible cost and availability.\nOur adjusted EBITDA increased 4% on a dollar basis given -- again, driven by the favorable pricing and strong volume growth.\nThe price increases we issued over the last 10 months largely covered the inflationary pressure on materials and diesel.\nThere are additional headwinds related to driver availability, an increase in the use of common carrier and an increase in common carrier rates that we are working to offset.\nWe remain confident in our ability to identify and execute the right mitigation programs and expand our margins over time.\nMaterial prices started to rise in October 2020, increasing more significantly as a result of the winter storms that hit the Gulf region in February of 2021.\nIn the first quarter, our material cost per pound increased significantly compared to the prior year.\nAdditionally, in the second quarter, we will experience the largest gap between historically high material prices this year and historically low material prices of last year.\nThe price increases we pushed into the market are largely covering material, and we continue to raise prices in line with these material increases as well as reprice quotes over 30 days old to ensure we're recovering the sequentially higher cost.\nMaterial availability has improved since our last call.\nIt comes at a price, but we are doing what it takes to give materials out to our facilities so we can support customer needs, including incurring additional transportation costs and shuffling production scheduling more than we have in the past.\nWe remain committed to meeting our customers' demand and have efforts underway to ensure we continue to do so.\nAcross the market, attracting and retaining manufacturing labor and drivers is difficult right now.\nWe've had to increase the pay rate in many locations to help mitigate this issue, both starting pay as well as raises for current employees.\nIn addition, last year, we delayed all manufacturing merit increases until the second quarter due to the COVID-19 pandemic, making the first quarter year-over-year comparison more pronounced than usual.\nWithin transportation, there are three major factors driving additional costs.\nOne, we have a shortage of available drivers for our fleet, requiring us to utilize more common carriers than normal to service our customers.\nNumber two, common carrier rates are up over 50% year-on-year.\nAnd number three, we're moving more material throughout the network to get it into the right locations so we can meet customer demand.\nWhile three of our largest cost components, materials, labor and transportation, have a lot of moving parts, we're responding with the following programs.\nTo address the labor issues within manufacturing, we are focused on simplifying the manufacturing process for new employees, including focusing production and decreasing SKUs, reducing changeovers and deploy centralized scheduling techniques.\nWe've also consolidated inventory of some key products to fewer locations for better visibility and order management, again, simplifying the task and providing better visibility.\nManagement time is focused on a handful of locations where we have the most issues, particularly with labor and capacity.\nWe've created dedicated transportation lanes and are deploying route planning techniques to help with the transportation labor shortage.\nAs well, we've expanded the use of 3PL partnerships for retail to an additional region which freed up ADS fleet capacity for trade deliveries.\nMore broadly, on labor, we have added recruiting process outsourcing partnerships for our manufactured and transportation labor hiring, which has improved both the applicant flow and the onboarding process.\nWhere possible, we've increased pipe imports from our Mexican and Canadian operations to further supplement supply and availability in the U.S. Finally, we are making capital investments to increase capacity with some having an impact in Q4 for Infiltrator and the ADS pipe manufacturing.\nWe started up a pipe production line this month in the Midwest to increase capacity, and we've also made aggressive investments in the strong tech business to increase production capacity.\nWe saw capital spending increasing year-over-year in the first quarter, and this will continue as we invest in the long-term potential of both businesses.\nAll that said, the momentum underpinning the core drivers of our business remains strong.\nInfiltrator maintained the high levels of profitability in the first quarter, despite similar challenges around materials, labor and transportation.\nThe international businesses also performed very well with double-digit revenue and EBITDA growth in each of those businesses.\nThe domestic pipe business is large and complex, and while we are very proud of the sales volume and pricing power, there are work guidance, particularly with labor and transportation, which we'll have to grind through and continue to improve.\nWhile some of these work items are inflationary and potentially transitory, others are operational that needs to be worked through systematically.\nAnd the areas where we started implementing programs using these techniques, namely the agriculture business, Canada and Florida, we've seen positive results over the years.\nHowever, throughout our larger manufacturing network is our task now.\nThe ADS legacy and Infiltrator businesses combined to have their best sales quarter in our history.\nThe combination of the highest demand we've seen in our history across all regions simultaneously, in an environment with labor and driver shortages and rapid inflation.\nThis all came on us and our industry like very quickly in May and June.\nAnd given this environment, we expect our profitability going forward to look different quarter-to-quarter this year, more like the seasonality in fiscal 2018 when we made the majority of our profitability dollar growth in the back half of the year.\nOn slide six, we present our first quarter fiscal 2020 financial performance.\nThere are some key points that I want to hit on from a results perspective.\nObviously, from a top line perspective, we had significant growth year-over-year, driven by both pricing and volume.\nLegacy ADS pipe products grew 42% and Allied Products sales grew 13%.\nInfiltrator sales increased 24% with double-digit sales growth in both tanks and leach field products.\nConsolidated adjusted EBITDA increased 4.5% to $167 million resulting in an adjusted EBITDA margin of 24.9% in the quarter, down from 31.4% in the first quarter of fiscal 2021.\nScott discussed in detail the actions we have taken around the largest drivers of the margin compression: materials, labor and transportation inflation as well as the labor availability.\nMaterial costs are at the highest levels in recent memory and have continued to increase sequentially month-to-month throughout this year.\nWe've issued two more price increases since the end of our fiscal first quarter, one in July and another just last week.\nWe will hit the full run rate of the announced price increases that today in our fiscal third quarter.\nFrom an SG&A perspective, the first quarter results contain approximately $2 million of wages, travel, medical and other expenses that were not incurred last year due to the COVID-19 pandemic.\nIn addition, commission expense increased in line with the sales growth we experienced in the first quarter year-over-year.\nIn summary, we have good line of sight to the cost impacting us and have actions in place to offset such as we move through the year.\nBased on the timing of these actions, we expect to see most of this improvement in the second half of our fiscal year.\nThe long-term fundamentals of the business are still intact, and we will play out -- and will play out as we move past this unique period of higher inflation.\nMoving to slide seven.\nWe generated $79 million of free cash flow this quarter compared to $124 million in the prior year, primarily driven by increased capital spending and working capital.\nThe impact from working capital was primarily due to the higher material costs moving to the balance sheet as compared to the year ago period.\nWe continue to make progress on our working capital initiatives.\nAnd during the quarter, working capital decreased to approximately 19% of sales, down from 21% of sales last year.\nOur first priority for capital deployment remains investing organically in the growth of the business, as demonstrated by the $15 million increase in capital expenditures we experienced in the first quarter.\nFor the full year, we continue to expect between $130 million and $150 million in capital expenditures, our largest investment being to support future growth, followed by our productivity and automation initiatives.\nFurther, as part of our disciplined capital deployment strategy, we repurchased 1.1 million shares of our common stock for a total of $115 million in the first quarter, leaving $177 million remaining under our existing authorization as of June 30.\nOur trailing 12-month leverage ratio was 1.2 times, and we ended the quarter with $480 million of liquidity.\nFinally, on slide eight, we have updated our fiscal 2022 guidance.\nBased on our performance to date, pricing actions taken, order activity, backlog and current market trends, we currently expect net sales to be in the range of $2.5 billion to $2.6 billion, representing growth of 26% to 31% over the prior year.\nOur adjusted EBITDA guidance is unchanged at a range of $635 million to $665 million, representing growth of 12% to 17% over last year.\nThe increase in our revenue guidance is due primarily to pricing that we've introduced into the market to date to offset the additional inflationary cost pressures we've discussed on the call today.\nOperator, please open the lines.",
        "summary": "guidance for fy adjusted ebitda is unchanged.\nsees fy 2022 revenue $2.5 billion to $2.6 billion.\ndemand, backlog and pricing remain favorable, giving confidence in increased fy sales targets."
    },
    {
        "text": "On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer; and Joe Hayek, Worthington's Chief Financial Officer.\nWe had another strong quarter in Q2 with reported earnings of $2.15 per share compared to a loss of $1.40 in Q2 a year ago.\nExcluding a small onetime restructuring gain, we generated a second quarter record $2.12 per share in Q2.\nIn the prior year period, excluding restructuring and the unrealized loss and onetime charges associated with our investment in Nikola, we generated earnings of $0.95 per share.\nConsolidated net sales in the quarter of $1.2 billion were up significantly compared to $731 million in Q2 of last year.\nIncrease in sales was primarily due to higher steel prices along with increased volumes across our businesses and our recent acquisitions.\nOur gross profit for the quarter increased to $185 million from $135 million in the prior year quarter and gross margin was 15% versus 18.5%.\nOur adjusted EBITDA in Q2 was $168 million, up from $96 million in Q2 of last year and our trailing 12 months adjusted EBITDA is now $677 million.\nI'll now spend a few minutes on each of the businesses.\nIn Steel Processing, net sales of $938 million doubled from $469 million in Q2 of last year, primarily due to higher average selling prices and a slight increase in volumes.\nTotal shipped tons were up 4% from last year's second quarter through the inclusion of Shiloh's BlankLight business and were flat excluding that acquisition.\nDirect tons in Q2 were 47% of the mix compared to 48% in the prior year quarter.\nAutomotive demand is still difficult to predict, but late in the quarter, production forecast began to improve, and we're optimistic that trend will continue.\nProduction levels in automotive are not approaching historic averages, and a myriad of risks and challenges will persist for several quarters, but we are seeing indications that the worst of the semiconductor-related production interruptions may have passed.\nDemand across our other major end markets remains robust.\nAnd while supply chains and steel availability remains tight, our teams continue to navigate those challenges exceptionally well.\nIn Q2, steel generated adjusted EBIT of $72 million compared to $34 million last year.\nThe large YoverY increase was primarily driven by higher spreads combined with slightly higher volumes.\nIn the quarter, the scrap gap remained wider than historic averages.\nIn Q2, we had pre-tax inventory holding gains estimated to be $42 million or $0.61 per share compared to negligible gains in Q2 of last year.\nBased on recent declines in steel prices, we believe we will have meaningful inventory holding losses in Q3 and will also face continued headwinds from the scrap gap.\nIn Consumer Products, net sales in Q2 were $141 million, up 20% from $118 million in the prior year quarter.\nThe increase was driven by the inclusion of sales from GTI, which we acquired in January, combined with higher average selling prices.\nAdjusted EBIT for the consumer business was $18 million, and adjusted EBIT margin was 13% during Q2 compared to $17 million and 15% in the prior year quarter.\nConsumer team continues to do an excellent job managing through a fluid environment.\nDemand remains robust, and we have invested in new equipment and headcount to increase our production capacity.\nMargins have been under some pressure due to higher input costs and we're limited in our ability to pass those costs along because of fixed price contracts with customers.\nLate in Q2, we were able to start recapturing some of that margin.\nAnd as a result, we expect margins will improve moving forward.\nBuilding Products generated net sales of $121 million in Q2, which was up 29% from $94 million in the prior year quarter.\nThe increase was primarily due to higher volumes as construction markets continue to grow and higher average selling prices.\nBuilding Products adjusted EBIT was $55 million, and adjusted EBIT margin was 45%, up significantly from $26 million and 28% in Q2 of last year.\nThe large year-over-year increase was driven by record results at ClarkDietrich, contributed $27 million in equity earnings, combined with solid results from WAVE who contributed $22 million.\nThose teams have done a great job continuing to deliver value for their customers in a rising price environment.\nOur wholly owned Building Products business generated 47% year-over-year EBIT growth in the quarter due to an improved demand environment and higher average selling prices.\nThe markets for our products and solutions, which are driven by commercial and residential construction, continue to show strength as the economy recovers, and we are maintaining and growing our share through new product development and our ability to add value to our customers' efforts.\nIn Sustainable Energy Solutions, net sales in Q2 were $33 million, down slightly from $34 million in the prior year.\nDespite continued demand headwinds related to semiconductor chip shortages at their customers, the business was profitable and reported adjusted EBIT of $1 million in the current period compared to $2 million in the prior year.\nThis business is in the early stages of repositioning itself to serve the global hydrogen ecosystem and adjacent sustainable energies like compressed natural gas.\nWe're very pleased with our progress and some early wins.\nThe markets we serve will take time to develop, but we're very excited about our growth prospects over the long term.\nWith respect to cash flows and our balance sheet, operations used cash of $119 million in the quarter driven by a $235 million increase in operating working capital, primarily associated with higher steel prices.\nFor context, we've added $568 million in working capital over the last 12 months, and our free cash flow in that same period is an outflow of $201 million.\nAs steel prices decline, these increases in working capital should subside, and ultimately reverse, as they are converted back into cash.\nDuring the quarter, we received $29 million in dividends from our unconsolidated JVs, invested $24 million in capital projects, paid $15 million in dividends and spent $13 million to repurchase 235,000 shares of our common stock.\nFollowing our Q2 purchases, we have slightly over 8 million shares remaining under our repurchase authorization.\nLooking at our balance sheet and liquidity position.\nFunded debt at quarter end of $702 million and interest expense of $7 million were both down slightly compared to the prior year, primarily due to favorable exchange rates for our euro-denominated debt.\nWe ended Q2 with $225 million in cash which we used to fund our December 1 acquisition of Tempel Steel.\nEarlier today, the Board declared a $0.28 per share dividend for the quarter, which is payable in March of 2022.\nI'm proud of our employees for delivering yet another record quarter, the best second quarter in the company's history and the third best quarter ever.\nIt's a great way to finish the calendar year and enter the holiday season.\nWe have a lot of positive momentum in our businesses, but operating challenges remain, some of which we have been able to improve over the past few months.\nSupply chain issues still exist, but the chip shortage appears to be improving, although it is still impacting our automotive volumes.\nOur HR team has done excellent work reducing the number of open positions across the company but labor availability is tight and not expected to change much in the foreseeable future.\nOur success is directly attributable to the efforts of our people who continue to do exceptional work meeting customer needs.\nDemand levels are good across almost all of our end markets, and backlogs are solid.\nIn Consumer Products, price increases needed to offset rising costs are beginning to show up in our financial results and will help profitability going forward.\nWe continued to invest in working capital during the quarter and have added almost $600 million in the past year, but the price of hot-rolled steel peaked during the quarter in the mid-1,900s [Phonetic] and has already fallen close to $300 a ton.\nOur purchasing team believes there are more declines coming, although the pace of that decline remains open for debate.\nConsumer Products, Building Products and Sustainable Energy Solutions all performed well during the quarter, but a special mention to the team at ClarkDietrich, who have successfully navigated the challenging environment to record profits.\nWe continue to be very bullish on the future of all of these business segments as we refine and execute broader and more aggressive growth strategies.\nLeveraging innovation, transformation and M&A will drive above-market growth and higher returns on capital.\nWe also completed our Investor Day in November.\nWe are thrilled to have closed the acquisition of Tempel Steel on December 1.\nTempel is already a global leader in the electrical steel laminations market, which supplies the manufacturers of transformers, electric motors and electric vehicle motors.\nThis business is led by a talented team and should experience significant growth in the coming years as the world converts to electric vehicles and the electricity infrastructure is upgraded and expanded to meet these demands.\nThe business environment continues to be very dynamic, whether it's COVID, labor shortages, supply chain issues or the volatility in commodities, particularly steel.\nOur teams continue to excel in managing through these challenges safely and effectively.\nOur customers' needs are being met, and our shareholders are being rewarded with record profits.\nWe'll now take questions.",
        "summary": "q2 sales rose 69 percent to $1.2 billion.\nworthington industries - net earnings of $2.15 per diluted share, for fiscal 2022 q2."
    },
    {
        "text": "We refer to certain of these risks in our SEC filings.\nParticipating in today's call with me will be Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Karen Filter, Senior Vice President and General Counsel; Drew Hammond, Chief Accounting Officer and Treasurer; and Graham Montgomery, Vice President and Head of Research.\nWe delivered strong second quarter financial performance against the backdrop of the ongoing economic disruption, highlighting the resilience of our portfolio.\nAs the local economy gradually reopens, our primary focus continues to center around the health and safety of our residents, tenants, employees and their families.\nOver the past several months, WashREIT created and implemented a comprehensive reentry plan to mitigate the spread of COVID-19 at our properties.\nWe connected with our office tenants through personalized outreach to understand their needs and discuss our approach to make sure that they are comfortable with the protocols that we have implemented.\nWe are fortunate to have not experienced material bad debt to date in alongside reentry planning, we've been diligently working with tenants who have been financially impacted by the economic shutdown to discuss and finalize deferral arrangements.\nAs of today, we are pleased to report that we have substantially completed that effort.\nThere is no doubt that these are trying times.\nHowever, we have adjusted to the new demands of today's operating environment and have taken swift and deliberate action to protect and support our residents and tenants.\nI could not be more proud of the dedication shown by the WashREIT team during this challenging period.\nFurthermore, these times have highlighted the importance of social fairness, equity and justice.\nAnd our company has responded with a refocused commitment to improving diversity, inclusion and belonging within our company and our community and creating long-lasting positive change.\nAs we enter the second half of the year, we are increasingly confident in the resilience of our region and likewise, our portfolio.\nOur Washington metro focus provides economic stability compared to other major metropolitan areas.\nThis is true both historically and during the current downturn.\nAs the Washington metro area continues to experience fewer job losses since the pandemic hit than other large metro areas and the U.S. overall.\nWashington Metro employment declined 9% during the second quarter compared to over 11% for the U.S. overall.\nA recent analysis completed by Delta Associates determined that the Washington multifamily market is better positioned to weather a down cycle than nearly all of the nation's other large metropolitan areas.\nThis is due in large part to the presence of the federal government and the corresponding stability of the professional business services sector, which together comprised 46% of the D.C. metro economy compared to 25% for the 30 largest metro areas.\nFurthermore, our professional business services sector is more heavily weighted toward the professional, scientific and technical subsector, which has fared very well during this crisis and generated year-over-year job growth of 1.6% in June.\nThis sector is expected to bounce back much quicker than other sectors and continues to be the primary private job creation source in the region over the long term, according to Delta Associates.\nUnsurprisingly, the federal government sector has been the least negatively impacted by the pandemic thus far.\nMany federal agencies actually received funding a funding boost, which could lead to additional hiring, especially at critical agencies such as the FDA, NIH and FDA.\nGovernment contractors have seen $1.2 billion in contracts awarded year-to-date that are directly tied to the COVID-19 response, according to JLL.\nEmployment trends for the regional information sector reflect limited disruption and major tech industry investments, including Amazon's HQ2 campus construction and Virginia Tech yard campus.\nThe Washington metro area led the country in Q2 leasing activity, driven by 1.6 million square feet of positive net absorption in Northern Virginia.\nDespite the stay-at-home orders, office leasing activity in Northern Virginia declined only 12% in the second quarter compared to the five-year trailing quarterly average, according to CBRE.\nOver half of the leasing activity in Northern Virginia was driven by government contracting services.\nGovernment contractor awards are up 4% year-over-year due to the government's response to COVID-19.\nCheck and government contracting for 60% of our office leasing volume in Northern Virginia last year.\nAnd looking forward, we expect demand from these sectors to continue to grow.\nUnsurprisingly, Washington D.C. office leasing activity has slowed more than it did in Northern Virginia due to lower momentum leading into this downturn.\nHowever, the impact of local job losses for office using sectors in D.C. has been limited.\nWith no office using sector losing more than 5% of the total workforce during the second quarter, according to BLS data.\nAdditionally, the number of tours increased substantially in July.\nWe expect our D.C. office portfolio to act defensively against this backdrop.\nMaryland, Virginia and D.C. each took a phased approach to reentry beginning at the end of May.\nD.C. and Maryland are currently in Phase two with limited reopenings of shops and restaurants, and Virginia is in Phase 3, which has allowed all retail and public services to resume with social distancing measures in place.\nWith the implementation of Phase two reentry protocols, we are seeing increased activity across all of our asset classes.\nMultifamily touring and application volumes have increased threefold from early April for both our same-store and non-same-store assets and same-store applications are trending above prior year levels.\nFollowing the closure of our leasing office, we took advantage of our virtual touring capabilities and continued leasing in April and May.\nAnd once social distancing requirements were eased locally, we began offering self-guided tours in June.\nJust recently, we have opened our multifamily amenities in common areas and started offering in-person tours with additional safety precautions.\nLease-up of Trove continues to progress and is expected to reach stabilized occupancy in the fourth quarter of 2021.\nWhile the economic shutdown has impacted the original expected pace of leases, we averaged approximately 16 leases per month during the second quarter and expect to reach breakeven levels of occupancy by year-end, followed by steady quarterly NOI growth thereafter.\nOur total lease rate growth for the quarter was a positive 40 basis points, which, combined with our sequential decline in ending occupancy of less than 80 basis points to our stabilized properties demonstrates the resilience of our value-oriented multifamily portfolio.\nLease rates for our non-same-store portfolio, which includes strong performance from our Class B suburban communities, grew over 2% during the quarter on a blended basis, comprised of 2.6% of renewal lease rate growth and 1% of new lease rate growth.\nOur suburban garden-style apartments offer larger unit sizes, open-air hallways and less density compared to mid or high-rise buildings, allowing us to participate in the increasing demand for these qualities over the near-term in the wake of the pandemic.\nOver the long term, the expansion of our multifamily portfolio to growing suburban markets in the D.C. metro suburbs positions us to capture an increasing share of regional household formation and job growth.\nWe began to experience an uptick in utilization at all of our office properties toward the end of the quarter, although, most notably at our Northern Virginia office assets, as Northern Virginia is now in Phase three of reopening.\nIn preparation for the repopulation of our properties, we prepared a detailed property reentry plan that emphasizes employee and tenant health and well-being as top priorities.\nWe have reached out to our tenants to discuss the plans and protocols that we have put in place.\nThe feedback regarding our collaborative approach has been very positive, and in many cases, we strengthened our relationships with our tenants.\nWe've upgraded our office buildings to ventilation filters, which is the standard for superior commercial office buildings, installed directional safety practice signage, contactless opening technology and proactive shield around front office desk in addition to a variety of other measures taken to facilitate safe reentry.\nWe have also established enhanced cleaning protocols that include more frequent cleaning and the use of electrostatic cleaning sheets and have developed elevator and common area safety protocols designed to mitigate the risk of virus transmission.\nOur tenant experience app, NU, which began rolling out in January, has kept us connected with many of our tenants despite working remotely.\nThe Concierge program has continued to provide a wide range of on-demand services and partner with local vendors and farmers to provide grocery and other essential deliveries.\nWe could not have picked a more critical time to roll out this technology to assist our tenants both professionally and personally during this challenging time.\nOur Space+ program has allowed us to meet changing tenant needs more efficiently with flexible lease terms.\nOur spaces offer tenants quick move-ins all in pricing, flexibility for short and long-term planning as well as privacy and independence, not just for brand building, but now more importantly than ever for control over the health of the tenant's office.\nAll of our Space+ tenants have control over their own private space, which is becoming increasingly important in this COVID-19 environment.\nIn an environment where many tenants are moving slower on larger and longer requirements, flexibility is key, and Space+ is playing a crucial role in meeting tenant needs.\nWe entered 2020, expecting to see sequential quarterly growth, driven by renovation-led value creation and commercial lease commencements.\nWhile the pandemic has disrupted the timing of that growth, our key growth drivers remain intact.\nIn multifamily, we have positioned our portfolio to retain the growth drivers but we may capture that value for our shareholders as normal activities and opportunities return.\nWe've allocated capital to Class B properties in submarkets with wider than average gaps between Class A and Class B rents and limited competitive supply, which sets us up for a quick recovery and preserve the value-add rent growth from renovations for the future.\nThrough our 2019 strategic allocation, we increased our renovation pipeline to over 3,000 units, which represents five years of growth at compelling return on costs.\nWhile most of our portfolio does not directly compete with new supply, deliveries in Northern Virginia, where 80% of our multifamily portfolio is located, are expected to decrease by 24% over the next 12 months.\nFurthermore, the pandemic will likely cause delays in projected construction starts in the second half of 2020, which will reduce the number of deliveries in 2022 and into 2023.\nAnd overall, there is an acute housing shortage in the Washington metro region and our in-house research affirms our confidence that growth opportunities are still ahead of us.\nWe also have a tremendous opportunity for growth, having substantially made the capital outlay for Trove with Phase two delivering in a couple of months.\nWhile the disruption certainly changed the initial pace of lease up, we expect to reach a breakeven occupancy level in the fourth quarter and thereafter achieve quarterly sequential NOI growth through stabilization in 2021 and into 2022.\nWe in the office portfolio, our embedded growth is comprised of future commencements for high-quality space and value-oriented pricing and move-in ready space with flexible lease terms.\nWe expect signed leases to continue to occupy, and we expect to benefit from higher occupancy in the fourth quarter and throughout 2021.\nMany of our speculative leasing opportunities, for which we had excellent momentum before the pandemic hit, are located in our best assets, including Watergate 600, Arlington Tower and Silverline center as well as our Space+ program, which is positioned well to meet demand in these early, cautious transition months.\nWhile physical touring did pause, it is now resuming, although decision-making remains slower than normal wire entry is being more pure by prospective tenants.\nWe believe those leasing opportunities are a matter of when, not if, they will commence.\nI'll start off by discussing our cash collection performance before reviewing our second quarter results and outlook for the remainder of 2020.\nOur multifamily collections continue to be very strong, which is a testament to the resilience of our submarkets and industry mix and lower average rent-to-income ratio of 26%.\nWe collected over 99% of cash rents during the second quarter and over 99% of contractual rents.\nAnd our rent collections through the first three weeks of July have been strong also.\nWhile we are offering deferred payment programs to residents who've been financially impacted by the pandemic to date, deferrals have been relatively low, representing less than 0.4% of total monthly rental income on average.\nOur monthly multifamily collection performance continues to track above national averages.\nWe collected 99% of cash rents in June compared to 96% per NMHC.\nWe attribute our outperformance in part to high exposure to industries that have outperformed during this crisis and lower relative exposure to underperforming industries.\nThe impact of COVID-19 on the Washington metro market has been contained primarily to three sectors, representing approximately 75% of Washington metro job losses.\nWhile the impact has been more broadly spread across a wider range of sectors in the U.S. overall.\nAs those same three sectors represented less than 60% of total losses nationally through June.\nThus, the U.S. overall is experiencing job losses that are spread across more industries than our region.\nThe Washington metro market's relative strength reflects the stability in business revenue provided by technology and federal contracting.\nWe track the industries our residents are employed in, and our exposure is most heavily weighted to the most resilient economic sectors and likewise, less weighted to the industries that have been most impacted, which has resulted in very high collection rates and stable cash flows.\nWe collected 97% of cash rents during the second quarter and over 99% of contractual rents, which excludes rent that has been deferred.\nAs of July 22, our collections for July are in line with the same period in June.\nSimilar to our multifamily resident industry minutes, our office tenants are relatively weighted to the stronger economic sectors than the U.S. overall, which has helped us experience limited bad debt thus far.\nWe have agreed to defer $1.2 million of rent for office tenants, and we expect to collect over 85% of that deferred rent by year-end 2021 with the balance thereafter.\nWe believe our efforts to substantially derisk our portfolio by selling all single-tenant office assets and 75% of our prior retail exposure, including all of the power centers, and reallocating that capital to our multifamily portfolio is certainly proving its value in these economic times.\nRetail now comprises just 6% of NOI and while retail tenants have struggled the most, we collected 72% of retail rents in the second quarter.\nExcluding deferred rent, our collection rate was approximately 90% during the second quarter and 91% during the first three weeks of July.\nYear-to-date, we've only incurred approximately $770,000 of bad debt expense related to retail tenants and $638,000 of that was related to covet 2019.\nWe will continue to monitor their strength and ability as the economy progresses.\nWe've agreed to defer approximately $1 million of rent for retail tenants, and we expect to collect over 50% of that rent by year-end 2021.\nThis assumes that our region continues to gradually reopen through year-end.\nTo date, we've not incurred material bad debts related to COVID-19.\nOverall, we have only deferred a small portion of rent and the expected cash NOI impact is less than $0.01 per share through year-end 2021.\nWhile we have possibly experienced the most disruptive part of the pandemic, uncertainty regarding its duration and future impact remains.\nWe currently believe the second quarter represented the most challenging quarter.\nHowever, future and ongoing economic disruption could result in bad debt greater than what we've incurred to date.\nWe will continue to monitor future developments and proactively address them as they occur.\nTurning to the balance sheet.\nWe have a strong liquidity position with approximately $530 million of available liquidity as of June 30, and no significant capital commitments for the balance of the year and no remaining maturities in 2020.\nAs of June 30, our net debt-to-EBITDA ratio was 6.1 times, at the lower end of our targeted range.\nWe prepaid our $250 million 4.95% bonds in early April, and we can go to the capital markets to further term out debt when it makes sense to do so.\nWe expect to remain well within our bank and bond covenants and have access to our mostly undrawn line of credit if needed.\nBased on our current projections, we have reduced 2020 assumed capital expenditures for the year by approximately $40 million compared to our initial 2020 guidance.\nIncluded in this amount is almost $30 million of lower assumed capital expenditures and $11 million in less development spending as we no longer expect to break ground on the Riverside development this year.\nOur capital expenditure reductions include nonessential building improvements, tenant improvements and leasing costs, perspective of leasing as well as lower multifamily renovation capex.\nI our future multifamily renovation pipeline remains intact, although we are suspending the program until after the market disruptions subside.\nWe plan to allocate the renovation capital at a later date when the market allows for rent increases to deliver the appropriate ROI.\nAs we navigate through the second half of the year, we will continue to explore opportunities to further reduce nonessential capex spending to further bolster our liquidity.\nLooking forward, we feel confident in our ability to execute on our short-term goals of providing payment flexibility to residents and tenants in need while retaining the operational flexibility necessary to execute our long-term goals.\nAs Paul mentioned, we posted a solid second quarter despite the challenging operating environment.\nI will discuss those results before addressing our future outlook.\nWe reported core FFO of $0.39 per diluted share.\nOverall, same-store NOI declined 4.5% year-over-year on a GAAP basis and 3.5% on a cash basis, due to the same-store office NOI decline of 4.8% on a GAAP basis and 3.7% on a cash basis as well as bad debt expenses related to COVID-19 of approximately $720,000.\nThe same-store office NOI decline was driven by expected decline in parking income as well as an increase in bad debt expenses related to COVID-19.\nExcluding the decline in parking income and the increase in bad debt expenses compared to our prior 2020 expectations, same-store office NOI would have increased slightly on a year-over-year basis.\nOur multifamily same-store NOI increased by 0.7% year-over-year on a GAAP basis and 0.8% year-over-year on a cash basis.\nThe company achieved 40 basis points of blended year-over-year lease rate growth, driven by strong performance from our suburban assets in our non same-store portfolio.\nSame-store new lease rates declined by just under 4%, while renewal rates increased by over 1.4%, reflecting blended lease rate decline of approximately 40 basis points.\nNon-same-store lease rates grew over 2% during the quarter on a blended basis, comprised of 2.6% of renewal lease rate growth and 1% of new lease rate growth.\nOur same-store multifamily portfolio is currently approximately 94% occupied, and our total day bag portfolio is over 94% occupied, a 97% leased.\nSame-store NOI decreased in our residual retail centers, which we report as other, by 24.6% on a GAAP basis and 22.1% on a cash basis, driven primarily by higher credit losses, which included amounts to do from tenants impacted by COVID-19, been likely not collectible.\nAnd lower recoveries compared to the prior year period.\nThe combined write-off impact of COVID-19 in the quarter was approximately $560,000, which included straight-line rents and lease intangibles, and the cash impact was approximately $335,000.\nTurning to leasing activity for the quarter, while velocity and touring was hit by the economic shutdown, we signed approximately 20,000 square feet of new office leases and 15,000 square feet of office renewals in the second quarter.\nWe achieved rental rate increases of 0.8% on a cash basis and negative 2.3% on a cash basis, both for new leases and 19.4% on a GAAP basis and 1.9% on a cash basis for renewals.\nThe impact of operational cost savings initiatives reduced operating costs by approximately $848,000 during the second quarter, net of tenant recoveries and expense related to preparing our built office buildings for reentry.\nSecond quarter operational cost savings primarily included reduced utility consumption, lower R&M, security expenses and lower tenant event and amenity expenses relative to our original forecast.\nNow I'd like to discuss our financial outlook.\nWe are now four months into the pandemic.\nAnd while we are not in a position to predict the ongoing magnitude of the pandemic or durability of the recovery, we believe that we are able to forecast subject to certain caveats, the impact of COVID-19 for the balance of 2020 on our NOI and interest expense, exclusive of future bad debt.\nToday, I will describe the impacts that we're experiencing on various financial performance metrics.\nOur expectations are based on the assumption that the gradual reopening will continue uninterrupted through year-end.\nMultifamily occupancy dipped to 94% in June and has remained stable through July.\nWith the easing of confinement measures and increased staffing in our leasing offices, we've seen touring and application volumes increase substantially.\nTotal application volumes have increased by 3 times from early April lows, and same-store applications have trended over 30% above prior year levels since the end of May.\nWe expect the continual increase in leasing volume to drive a gradual increase in occupancy to 95% by year-end.\nWe did not increase rents on 12-plus month renewals and for the second quarter, which impacted our NOI growth as we normally would be achieving significant rent increases during the strong second quarter leasing season, especially since we had such strong lease rate growth in March.\nAs a result, we experienced an increase in renewal retention to 60%.\nWhile this higher renewal retention has helped us to maintain occupancy and preserve our seasonal rent roll during these uncertain times, it did not fully offset the impact of occupancy from lower new leasing volumes.\nLower new and renewal lease rate growth as well as lower move in and other fee income were partially offset by operating expense savings initiatives during the second quarter.\nThe majority of the expected full year impact of operating expense savings related to COVID-19 was recognized in the second quarter.\nExcluding the impact of bad debt, we expect the impact of COVID-19 on our multifamily NOI to translate to a reduction of approximately $0.03 per share relative to our initial core FFO guidance for 2020.\nOverall, we had previously expected significant multifamily growth in 2020, and that growth is likely now going to be deferred until 2021 and thereafter.\nAs Paul said, we have a five-year pipeline of value-add renovations once conditions improve and it is appropriate to resume such growth.\nAnd we still expect future NOI growth from TRO, which I will cover next.\nTrove is on pace to deliver Phase II in the fourth quarter.\nOur lease-up had just begun when social distancing measures drew on-site touring to a haul.\nHowever, we've been successfully converting virtual tours into signed leases.\nWhile virtual touring is having continued success, we expect lease-up to take longer than we have originally guided and will likely to incur a loss of between $600,000 to $700,000 in 2020.\nWhich translates to a negative impact on core FFO relative to our initial guidance of approximately $0.01 per share.\nAs Paul also said, we expect to reach breakeven occupancy near this year-end and to reach stabilization in the fourth quarter of 2021.\nTherefore, the TRO should not only provide substantial growth in 2021 and but also further year-over-year growth in 2022.\nNow moving on to commercial.\nTenant improvement build-outs for near-term lease commencements are expected to continue uninterrupted.\nWe have over 55,000 square feet, representing approximately 150 basis points of future increased occupancy of signed leases that have not yet written commenced.\nAlthough physical tours had stopped they resume toward the end of the quarter and a substantial increase through July to just below pre COVID-19.\nOverall decision-making has been slower as the pace of Phase III entry has, in many cases, allowed prospective tenants more time.\nAdditionally, we are in lease extension negotiations with a handful of tenants who were previously expected to vacate.\nOur previous revenue expectations for 2020 included speculative office lease commencements that have been impacted by the current economic disruption and are now likely to be substantially executed in 2021.\nThe lease is not signed as of today.\nThe majority of this leasing was expected to occur during the third and fourth quarters at high-quality spaces across Watergate 600, Silverline Center, Arlington Tower and Space+.\nThe leasing momentum has been the strongest.\nWe expect the impact of lower speculative leasing to be only partially offset by higher revenue from lease renewals and extensions.\nAnd we have minimal commercial lease expirations for the remainder of 2020, limiting the downside risk of our internal leasing estimates.\nOffice lease expirations represent approximately 4% of our office revenues and less than 2% of our overall revenue.\nAnd as many tenants are opting to delay long-term decisions, short-term lease extensions and renewal activity could trend higher as the year progresses.\nParking revenue is down as people are not driving to their offices.\nOur current projection of set parking revenue will decline by over $1.3 million over the remainder of the year.\nHowever, that estimate could change if the shutdown is more protracted than we've assumed.\nLikewise, once the economy returns, we can experience an increase in parking income from higher utilization as tenant transportation preferences shift away from public transportation.\nWe are already seeing signs of increased transient parking at many of our properties.\nCurrently, we are assuming that we may achieve additional operating cost savings of approximately $750,000 for the balance of the year, assuming a gradual increase in office utilization over the remainder of the year.\nThis amount is net of expenses associated with preparing our bill for reentry and the cost savings that we expect to pass along to our tenants.\nExcluding future bad debt, we expect the impact of COVID-19 in our office and other NOI to translate to a negative impact of approximately $0.08 per share relative to our initial core FFO guidance for 2020.\nMost of that impact will occur during the second half of the year as we previously expected a ramp-up in that time frame that we now expect to occur throughout 2021.\nOffsetting a part of the negative impact of COVID-19 on our business is a reduction in our expectations for interest expense by $0.04 per share relative to our initial core FFO 2020 guidance, excluding any future refinancings to further term out debt.\nOn a combined basis, we expect the impact of COVID-19 on NOI and interest expense to translate to a negative impact of approximately $0.08 per share relative to our initial guidance for 2020.\nWe are not updating other guidance assumptions at this time.\nThe majority of the impact will occur during the second half of the year as we previously expected a ramp-up in that time frame that we now have expected to incur throughout 2021.\nOverall, we're actually slightly ahead of our original budget for the first six months of 2020, despite going through a historically challenging four-month period.\nAs we just explained, much of the growth we had planned for the second half of 2020 appears to be deferred, but we believe still intact for the future.\nIn closing, while we are operating in a challenging environment, we are confident in our ability to effectively manage through this period of uncertainty while preserving the embedded growth of our assets.\nOur value-oriented portfolio has demonstrated resilience as we absorb the near-term impact, which is further underscored by our strong rent collection performance and the proven stability of the Washington metro economy.\nFurthermore, our sustained multifamily lease rate growth and stabilizing occupancy trends highlight the value of our research-driven capital allocation strategy, which has led us to invest in well-located residential units that will be in the path of growth once the economy resumes.",
        "summary": "washington real estate investment trust q2 core ffo per share $0.39.\nq2 core ffo per share $0.39.\nqtrly same-store noi declined 4.5% and cash noi declined 3.5% compared to q2 of 2019.\navailable liquidity of approximately $530 million as of june 30.\nis not reinstating 2020 guidance at this time.\ncore ffo attributable to operating multifamily portfolio to be about $0.03 per share lower than assumed in initial guidance for 2020.\nexpects slightly positive same-store multifamily noi growth for 2020.\nfor 2020 excluding any future re-financings, interest expense is expected to be about $0.04 per share lower than initial guidance."
    },
    {
        "text": "Hope everyone is having a safe and good day.\nThis is Al Nahmad, Chairman and CEO.\nAnd with me is A.J. Nahmad, who is our President; and our two Executive Vice Presidents, Paul Johnston and Barry Logan.\nNow as we normally do, before we start, we need to read our cautionary statement.\nNow on to our report.\nI am pleased to share that Watsco has delivered an incredible second quarter, achieving new records in virtually every performance metric.\nEarnings per share jumped 64% to a record $3.71 per share on a 66% increase in net income.\nThis was by far our most successful quarter ever.\nSales grew 36% or nearly $500 million to a record $1.85 billion in sales for the quarter.\nGross profits increased 50% with gross margins expanding 220 basis points.\nOperating income increased $88 million or 68% to $217 million.\nAnd operating margins, this is a big one, operating margins expanded 220 basis points to a record 11.7%.\nNow these results are all the more positive when considered against last year's second quarter, which had only a modest impact from the COVID-related slowdowns.\nNow we have two new companies in our family, TEC and Acme.\nThey performed very well, and we cannot be happier that they are now part of an important part of Watsco.\nThey have a rich and successful history and we will help them any way we can.\nLooking ahead, we are engaged in a very fragmented $50 billion North American market.\nAgain, this is a $50 billion North American market.\nAnd we hope to find more great companies to join us.\nGreater scale in this industry provides more capital for us to fund our growth priorities.\nAlso Watsco's industry-leading technologies continues to gain traction, and we believe they are helping us gain market share.\nHere are a few important highlights to mention.\nFirst, growth rates among active users of our technologies continues to outpace the growth rates of nonusers.\nCustomers using our technology are simply growing faster.\nNext, attrition among customers using our technology is meaningfully lower compared to nonusers.\nThe technology enables us to create stickier customer relationships.\nAlso, more customers are using our digital selling platforms that are called OnCall Air and CreditForComfort.\nThey help and modernize how HV solutions are presented to homeowners.\nThese tools have also benefited the sale of higher efficiency systems, which we think is an important contributor to the climate chain discussion.\nAs older systems are replaced, our technology can play an important role in helping consumers choose more energy-efficient solutions.\nOur progress is very encouraging, but we believe it is still early in terms of reaching the full potential of our technology investments.\nOur focus remains in the long term.\nI think you've heard me say that over and over again.\nWe are long-term players in the industry.\nPlease feel free to schedule a Zoom call with us, and we can further explain our technology and its impact.\nFinally, but very important, our balance sheet remains in pristine condition with only a small amount of debt.\nWe have plenty of capacity and even more ambitions to grow our company both organically and through acquisitions.",
        "summary": "watsco earnings per share jumps 64% to $3.71 in q2.\nwatsco earnings per share jumps 64% to $3.71 setting records for sales, operating profit, operating margin and net income.\nq2 earnings per share $3.71.\nq2 revenue $1.85 billion versus refinitiv ibes estimate of $1.68 billion.\ntargeted operating cash flow to exceed net income in 2021."
    },
    {
        "text": "The company undertakes no obligation to update this information.\nwhitestonereit.com in the Investor Relations section.\nWith that, let me pass the call to Jim Mastandrea.\nWe continue to hope and pray that all of you, your families and your businesses remain healthy, and are doing well as we navigate these most unusual times.\nI am pleased to share with you our strong operating and financial results that have sustained the economic downturn caused by the COVID-19 pandemic.\nOur business has recovered quickly, and in doing so produced shopping center sector-leading results.\nDave Holeman, our Chief Financial Officer, will provide a more detailed look at the drivers of our operating and financial performance.\nWe attribute these results to owning properties located in areas with high household income neighborhoods and the fastest-growing MSAs in business-friendly states.\nOperating a consumer business-driven model based on consumer demographics and psychographics to design a tenant makes that drives customer visits and experiences.\nOur strategic customer focus differentiates Whitestone from other real estate owners that leads to traditional hard and soft good retailers.\nTo enhancing our intrinsic value through redeveloping and developing, which adds value to -- value as we physically expand our real estate footprint and grow rents and to balancing a capital management structure to drive revenues, net operating income and funds from operation.\nWith this background, I would like to provide some color as to where we are today, where we plan to go in the coming months and quarters to drive long-term shareholder values, key building blocks to Whitestone's success and our progress toward the long-term goals we announced in February of 2018.\nFirst, where we are today.\nSince the onset of COVID-19, which injected considerable economic uncertainty, relative to the real estate industry in particular, we've had shopping center sector leading rental collections throughout the pandemic and most recently announcing 90% cash collections for the third quarter of 2020.\nThese results are in line with our expectations and are trending upward from the first-half of the year.\nRental collections, solid leasing spreads and execution of our business model is deeply rooted in Whitestone's team culture.\nSince the end of the first quarter, we focused on improving our dividend payout ratio, increasing our cash on hand, paying down our debt and strengthening our balance sheet.\nThese actions have prepared us for the next level of growth and provided greater financial flexibility.\nOur judicious and disciplined allocation of capital has produced positive third quarter operating results, including occupancy of 88.9% at the end in the quarter, revenue that approached $30 million for the quarter, up 8% from the second quarter.\nProperty net operating income of $21.3 million, up 6% from the second quarter.\nLeasing spreads that were strong and resulted in a positive 11% increase for the quarter.\nCash collections, which I mentioned earlier that achieved 90% for the quarter were up from 81% in the second quarter and funds from operation core that were solid at $0.23 per share, up $0.01 or 5% from the second quarter.\nDave in his remarks will follow mine, will go into greater detail on these results and comparisons to the prior year.\nOverall, I am very pleased with the way our management team is navigating the economic crisis caused by the coronavirus, stabilizing our business quickly and enabling us to refocus on extracting the embedded intrinsic value in our properties, while targeting acquisitions that are accretive and further scaling our platform.\nSecond, where we plan on doing in the coming months.\nWe intend to maintain our disciplined capital allocation philosophy going forward, as we have over the past.\nOur track record of our growth from 2010 to 2019 speaks to our plan.\nOur long-term plan is to grow our strategically chosen markets of Houston, Dallas-Fort Worth, Austin, San Antonio and Phoenix through redevelopment and development opportunities within our portfolio and externally grow by making targeted acquisitions in our existing markets and beyond.\nThird, the key building blocks for Whitestone's success is building a portfolio of choice properties in great markets that we lease and manage with a team of well-trained professionals who continue to do what has worked for us in the past.\nWe view Whitestone as a highly differentiated and somewhat a special really -- specializing in e-commerce-resistant entrepreneurial tenants and crafting the right mix of those tenants who ultimately meet the neighborhood consumers' needs.\nOur diversified mix of tenants provide essential services for lease that cannot usually be acquired online, if at all.\nAs a result, our open-air centers provide community experiences that cater to adjacent neighborhood as an extension of their lifestyle.\nWhile we recognize that we are in the retail real estate business, our differentiated approach and contrarian business model has allowed us to profitably grow an asset base over the years despite significant overall industry challenges.\nOur growth since our IPO in 2010 has been steady and disciplined and we intend to continue this disciplined approach.\nFinally, we continue to make progress toward our long-term goals of improving debt leverage and scaling our G&A cost that we set in 2018.\nDuring the third quarter, we paid off $9.5 million of real estate debt from cash, lowering our net real estate debt by $11 million from a year ago and improving our ratio of debt to gross book value real estate assets to 55% from 58% a year ago.\nWe also are making progress on scaling our G&A.\nThese costs since the beginning of the year have been reduced through reduction of headcount from 105 to 85 or 21% through further automation, improvements in processes and all of our team working smarter and harder.\nOur total G&A costs for 2020 are approximately $900,000 or 6% lower in the same time last year.\nWe have a highly dedicated team that works every day to create local connections in communities that drive and we feel strongly that we are positioned to withstand the current headwinds and thrive into the future.\nGiven the severe economic pressures caused by the coronavirus during the quarter, our portfolio has performed quite well.\nDespite having a significant amount of our tenant businesses impacted, we only had a handful of tenants close for good such that the portfolio occupancy rate held up well ending the quarter at 88.9%, down just 0.3% or 13,000 leased square feet from the second quarter.\nAlso our annualized base rent per square foot at the end of the quarter was $19.43 and $19.38 by cash and straight-line basis.\nThis represents a 0.5% increase on a cash basis and a 1.3% decrease on a straight-line basis from a year ago.\nThe decrease on a straight-line basis is largely related to the conversion of 84 tenants to cash basis accounting and the associated write-off of accrued straight-line rents.\nOur square foot leasing activity was up 43% from the second quarter of 2020 and 46% from the third quarter of 2019.\nAnd we are pleased with positive blended leasing spreads on new and renewal leases of 3.3% and 11% on a cash and GAAP basis for the quarter.\nAs Jim mentioned, for the quarter, we collected 90% of our rents, this include base rent and triple net charges billed monthly.\nWe have also entered into rent deferral agreement on 3% of our third quarter rents.\nAs part of the deferral agreements, we have negotiated beneficial items, such as, entry into our online payment portal, further reporting of tenant sales, suspension of co-tenancy requirements, loosening of exclusive or restrictions that allow further development and stronger guarantees.\nWhile we are encouraged by how things are progressing, the pandemic has continued to impact our business in term -- in the terms of our financial results.\nFunds from operations core for the third quarter was $10.1 million or $0.23 per share compared to $10.9 million or $0.26 per share for the same quarter of the prior year and our same-store net operating income for the quarter decreased by 4.5%.\nThese decreases are primarily due to the impact of the pandemic, which resulted in a charge of $1.3 million to bad debt expense and $100,000 in write-off of straight-line receivables in the third quarter.\nThis charge was incremental to the bad debt expense and straight-line revenue recorded in the prior year by $900,000 or $0.02 per share.\nLet me add some color on our collectability analysis related to the pandemic and the related receivable balances.\nAt the end of the quarter, we had $23.6 million in accrued rents and accounts receivable.\nThis consists of $21.1 million of billed receivables, $1.9 million of deferred receivables, $16.1 million of accrued rents and other receivables and a bad debt reserve of $15.5 million.\nSince the beginning of the year, our billed receivable balance has increased $4.4 million and our deferred receivables have increased $1.9 million for a total build and deferred receivable balance increase of $6.3 million.\nAgainst this increase of $6.3 million, we have recorded an uncollectible reserve in 2020 of $4.5 million or 71%.\nOur accrued rents and other receivables had decreased by $1.1 million, largely the result of the write-off of accrued straight-line rent receivables on tenants converted to cash basis accounting and our bad debt reserve has increased by $4.3 million.\nIn accordance with generally accepted accounting principles, if the company determines that the collection of a tenant's future lease payments is not probable, the company must change the revenue recognition for that tenant to cash basis from accrual basis.\nIn light of the financial pressures that COVID-19 has been placing on many of our tenants, we reevaluated all of those tenants in the second and third quarters, as a result have switched 84 tenants in our portfolio to cash basis accounting.\nThese 84 tenants represent 3.6% of our annualized base rent and 3.4% of our leasable square footage.\nAs a result of this conversion to cash basis accounting we have written off $1.1 million of accrued straight-line rents for the year, but the company intend to collect all unpaid rents from its tenants to the extent possible.\nOur tenants on cash basis accounting paid 63% of contractual rents in the third quarter, up from 41% in the second quarter.\nWe have provided some additional details of our collections, it can be found on Page 27 of the supplemental.\nTurning to our balance sheet.\nSince March, we have implemented various measures to conserve cash, including further reductions in headcount.\nTo-date, we have approximately $39 million in cash, representing a 6% increase since March 31st.\nAdditionally, we paid off $9.5 million of real estate debt in the third quarter and have no debt maturities in 2021.\nWe have reduced our total net real estate debt by $11 million since the third quarter of 2019.\nCurrently, we have $111 million of undrawn capacity and $13 million of borrowing availability under our credit facility.\nWe are in full compliance with our debt covenants and expect to remain so in the future.\nLooking ahead, one particular trend we are seeing as COVID-19 persists is that Whitestone's best-in-class geography is benefiting from net migration of businesses coming out of the regulation-heavy gateway market.\nOur markets continue to attract both large and small businesses, as evidenced by Charles Schwab's recent announcement of its move of its headquarters to Dallas from San Francisco.\nWhitestone's properties are seeing this migration also.\nRecently, we added a successful restaurant who needed to escape the high-tax high-regulation environment of California to our Mercado property in Arizona.\nExamples like these prove the resilience of our markets and give us further assurance that our business model is thriving.\nWe have seen pent-up demand in our markets, as consumers are leaving their homes and returning quickly and in force.\nParking lots are filling and stores and restaurants are becoming more active.\nWhitestone is well positioned to capture this pent-up demand and intends to do so.\nOur team has worked together through this ongoing crisis and our shareholders will reap significant future benefits through greater collaboration, a more robust exchange of ideas, better and more effective communication and improved systems and processes that provide new actionable data and allow us to more efficiently scale our infrastructure.\nWhitestone is continuing to perform and deliver on our strategic plan.\nWe operate in many of the most highly desirable growth markets in high-population growth states and expect these markets to lead the country in economic recovery from the pandemic.\nWe look forward to providing further updates as we progress.\nAnd with that, we will now take questions.\nOperator, please open the lines.",
        "summary": "qtrly net income attributable to common shareholders of $0.02 per diluted share.\nqtrly core ffo per share $0.23."
    },
    {
        "text": "On Slide 2 is our safe harbor statement.\nThese statements are based on our beliefs and assumptions, current expectations, estimates and forecasts.\nDuring today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin and adjusted diluted EPS.\nThe past several months have been some of the most difficult times for our communities across the world as we face challenging circumstances related to COVID 19.\nThis pandemic has made clear the importance of global healthcare and the criticality of the role West plays during these unprecedented times.\nOur mission to improve patient lives cannot be any more meaningful than in times like today.\nWe take great pride that for nearly 100 years, we have provided innovative, high-quality products and solutions for the containment and delivery of injectable medicines.\nDespite the COVID-19 challenges, the West team remains focused on creating and delivering value to all our stakeholders.\nWest has two priorities that are guiding us through this pandemic.\nFirst and foremost, we're focused on the well-being and safety of our team members across the globe.\nOur crisis management team was engaged at the outset, implementing precautionary measures across our company to protect our teams.\nIt seems nearly every day, I learned about another great way that our team is stepping up to deliver the critical components to meet the urgent needs of our customers and their patients while looking out for the safety of one another.\nThese moments are not only inspirational, but they serve as a testament to the collective strength of the One West team, and I'm grateful for their unwavering commitment to our mission.\nIn addition, our culture of philanthropy and community involvement has our team members offering their time, unique skills and knowledge in support of local response efforts.\nTurning to Slide 4.\nOur second priority is the continuity of manufacturing and supply of components and solutions to our customers.\nThe strong tenets of our market-led strategy and globalization of the manufacturing network are contributing to the resiliency of West's business in today's climate.\nI'm pleased to say that the growth trends we experienced throughout 2019 have continued in the first quarter, and the outlook for the balance of the year remains positive.\nDespite the current challenges, so far, we have been able to maintain operations at normal capacity.\nFor the benefit of our customers, we have been able to leverage our world-class global manufacturing network by enabling the right capabilities, scale and flexibility to keep up the increase in demand.\nBecause of the constantly changing environment and its effect on the economy, we conduct business impact analyses daily and make adjustments as they are required.\nThese assessments are an integral part of our business continuity plans within each of our global sites and operations network.\nThroughout the past several months, we have monitored our supply chain, including our close partner, Daikyo, and at this time, do not foresee any negative impact from direct or indirect suppliers.\nAs the pandemic has intensified, as expected, we have seen an increase in customer orders in recent weeks.\nWe are monitoring order flow to ensure that we're addressing the true demand for our products.\nAs shown on Slide 5, despite today's uncertain environment, I am pleased to report that we had a strong first-quarter performance, and we entered the second quarter well-positioned.\nWe had 13% organic sales growth in the first quarter, largely through strong high-value product sales.\nThis resulted in double-digit growth in adjusted earnings per share for the first quarter.\nAs we enter the second quarter, the demand for our products continues to be solid from both existing customers, as well as new opportunities from companies looking to develop COVID-19 solutions.\nEach day seems to bring new challenges: supply chain, transportation, government regulations.\nAnd I want to emphasize that across West, we're operating with a sense of urgency to address and manage these issues.\nI hope everyone is healthy and safe during this time.\nSo let's review the numbers in more detail.\nWe'll first look at Q1 2020 revenues and profits where we saw strong sales and earnings per share growth, led by strong revenue performance, primarily in our biologics and generics market units and contract manufacturing.\nI will take you through the margin growth we saw in the quarter, as well as some balance sheet takeaways.\nAnd finally, we'll review guidance for 2020.\nGAAP measures are described in slides 13 to 16.\nWe recorded net sales of $491.5 million, representing organic sales growth of 12.7% and 30 basis points of inorganic growth.\nProprietary Products sales grew organically by 11.8% in the quarter.\nHigh-value products, which make up more than 63% of Proprietary Products sales, grew double digits and had solid momentum across all market units throughout Q1.\nLooking at the performance of the market units, the biologics market unit delivered strong double-digit growth.\nWe continue to work with many biotech and biopharma customers who are using West and Daikyo high-value product offerings.\nThe generics market units experienced high single-digit growth led by sales of Westar and FluroTec components.\nOur pharma market unit saw mid-single-digit growth with sales led by high-value products and services, including Westar, NovaPure and FluroTec components.\nAnd contract manufacturing had double-digit organic sales growth for the first quarter, led once again by sales of diagnostic and healthcare-related injection systems.\nMoving to Slide 7.\nWe continue to see improvements in gross profit.\nWe recorded $167 million in gross profit, $20 million or 13.6% above Q1 of last year, and gross profit margin of 34% with a 90-basis point expansion from the same period last year.\nWe saw improvement in adjusted operating profit with $88 million reported this quarter, compared to $71.3 million in the same period last year or a 23.4% increase.\nOur adjusted operating profit margin of 17.9% was a 180-basis point increase from the same period last year.\nAnd finally, adjusted diluted earnings per share grew 36% for Q1.\nExcluding stock tax benefit, earnings per share grew by approximately 31%.\nSo what's driving the growth in both revenue and profit?\nOn Slide 8, we show the contributions to sales growth in the quarter.\nVolume and mix contributed $51.1 million or 11.5 percentage points of growth.\nSales price increases contributed $6.6 million or 1.5 percentage points of growth.\nAnd changes in foreign currency exchange rates reduced sales by $9.7 million or a reduction of 2.2 percentage points.\nLooking at margin performance, Slide 9 shows our consolidated gross profit margin of 34% for Q1 2020, up from 33.1% in Q1 2019.\nProprietary Products' first-quarter gross profit margin of 40.2% was 130 basis points above the margin achieved in the first quarter of 2019.\nThe key drivers of the continued improvement in Proprietary Products gross profit margin were favorable mix of products sold, driven by growth in high-value products.\nProduction efficiencies and sales price increases, partially offset by increased overhead costs, contract manufacturing's first-quarter gross profit margin of 14.3% was 30 basis points above the margin achieved in the first quarter of 2019.\nOur adjusted operating profit margin of 17.9% was a 180-basis point increase from the same period last year, largely attributable to our Proprietary Products' gross profit expansion.\nNow let's look at our balance sheet and review how we've done in terms of generating more cash for the business.\nOn Slide 10, we have listed some key cash flow metrics.\nOperating cash flow was $57.1 million for the first quarter of 2020, an increase of $9.5 million compared to the same period last year, a 20% increase.\nOur Q1 2020 capital spending was $32.1 million, $3.3 million higher than the same period last year and in line with guidance.\nWorking capital of $633.1 million at March 31, 2020, was $74 million lower than at December 31, 2019 primarily due to a reduction in our cash and cash equivalents.\nOur cash balance of March 31 of $335.3 million was $103.8 million less than our December 2019 balance primarily due to $115 million of expenditures under our share repurchase program.\nOur capital and financial resources, including overall liquidity, remains strong.\nSlide 11 provides a high-level summary.\nFull-year 2020 net sales guidance continues to be in a range of between $1.95 billion and $1.97 billion.\nThis includes an estimated headwind of $26 million based on current foreign exchange rates compared to prior guidance, which forecasted a $15 million headwind.\nWe expect organic sales growth to be approximately 8%.\nWe expect our full-year 2020 reported diluted earnings per share guidance to be in a range of $3.52 to $3.62, compared to prior guidance of $3.45 to $3.55.\nCapital expenditure will be in the range of $130 million to $140 million.\nThere are some key elements I want to bring your attention to as you review our guidance.\nEstimated FX headwind on earnings per share has an impact of approximately $0.07 based on current foreign currency exchange rates, compared to prior guidance of $0.04.\nThe revised guidance also includes a $0.07 earnings per share impact from our first-quarter tax benefits from stock-based compensation.\nSo to summarize the key takeaways for the first quarter, strong top-line growth in both Proprietary and contract manufacturing, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted earnings per share and growth in operating and free cash flow, our sales and earnings per share projections for 2020 and performance are in line with our long-term construct of approximately 6% to 8% organic sales growth and earnings per share expansion.\nOur company is financially strong.\nToday, more than ever, the pursuit of our mission is priority and not taken for granted.\nWest products are needed by patients across the globe and in many cases, for the administration of life-saving medicines.\nAs the market leader, we are committed to ensure continuity of supply to our customers around the globe.\nIn addition, we are supporting our many customers that are developing potential solutions to address COVID-19 with components for diagnostics, antiviral therapeutics and vaccines.\nWe are confident in our long-term growth strategy.\nAlthough these are trying times, we are optimistic and dedicated to doing what is necessary supporting the healthcare industry as it works to resolve this global pandemic.\nWe will emerge from this experience collectively stronger.\nAnd on behalf of all of the team members at West, it is our wish that you stay healthy and safe in the days ahead.\nAndrew, we're ready to take questions.",
        "summary": "sees fy 2020 adjusted earnings per share $3.52 to $3.62.\nsees fy 2020 sales $1.95 billion to $1.97 billion.\nq1 sales $491.5 million versus refinitiv ibes estimate of $466.8 million.\norganic sales growth is expected to be approximately 8% in 2020.\nnet sales guidance includes an estimated full-year headwind of $26 million for full-year 2020."
    },
    {
        "text": "On Slide 2 is the safe harbor statement.\nThese statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts.\nThe company's future results are influenced by many factors beyond the control of the company.\nDuring today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS.\nBefore we dive into our Q3 results and raised 2020 guidance, I like to make clear the importance of our mission at West and the values that formed the pillars in which we operate.\nIn today's uncertain environment and what seems like a new set of challenges each day, we remain focused on two key priorities: keeping our team members safe and ensuring uninterrupted supply of high quality containment and delivery devices required by our customers and the patients we currently serve.\nMoving to Slide 5, West is uniquely positioned to satisfy increasing market demand by leveraging our global operation of scale and our resources.\nOur team recognized at the outset of the pandemic that need to increase production capacity.\nWe were already supporting the growth trajectory of our base business and the future demand for our products required for COVID-19 vaccines and therapeutics meant that we needed to act quickly and very decisively.\nTo address the increase in demand, we brought forward planned capital investments and production capacity.\nSo, earlier this month we installed new manufacturing equipment at one of our HVP sites to prepare for the future demand of FluroTec and NovaPure.\nAs of this week, that capacity is operational and we have additional equipment being installed at a second HVP site with more installations planned in the coming months at other global sites.\nThe strength of our performance this past quarter demonstrates the forward momentum we have built over time with our market led strategy and also One West team approach to satisfy market demand.\nAnd now turning to Slide 6, the disruption caused by the pandemic has impacted the way all of us conduct business in our daily lives.\nWest is no exception.\nCustomers can come to West for a scientific and technical expertise, and this differentiates us in the market.\nWe have been investing in digital technology and automation with two objectives in mind, bringing new connected products to market, as well as enhancing the productivity of our operations at every level of the organization.\nWhile we're early in our digital journey, I would like to share a few examples of the recent success, starting with our manufacturing automation strategy.\nWe made great strides over the past year and helping us to achieve continuous improvements and quality, safety, service and cost.\nPetersburg, Florida site has developed an automation process for robotically loading and unloading molding presses.\nThis has considerably reduced idle production time associated with product changeovers and improved operating efficiency.\nOur Kinston site has automated molding, trimming, rinsing processes, which will drive higher quality and final product and greater efficiency gains.\nAnd I'm especially pleased with the team's agility in bringing forward the production capacity expansion, I mentioned earlier.\nA great deal of planning and engineering went into this initiative to help us meet our customers' requirements.\nOn the digital front, we have just introduced the West virtual, the future of customer interactions with a truly immersive, fully interactive online experience.\nWe expect this tool to be a primary customer interface, even beyond the current pandemic.\nSo, turning now to Slide 7 and our performance in the third quarter, our financial results remain strong.\nI'm pleased to say that the growth trends we have experienced over the past several quarters continued in the third quarter and the outlook for the fourth quarter remains positive.\nAnd we've had over 18% organic sales growth in the third quarter, driven again by robust high value product sales, as well as sales in contract manufacturing.\nAnd we experienced solid growth in operating profit margin expansion.\nThis resulted in a strong adjusted earnings per share and free cash flow for the third quarter.\nSimilar to the second quarter, our base business had solid organic sales growth in the third quarter.\nWe also had incremental sales associated with many COVID-19 development projects we are supporting for both therapeutics and vaccines.\nSpecifically for vaccines, toward really the back end of the quarter, we were asked by our customers to accelerate initial deliveries of components is more than offset continued sales decline of products associated with injectable drugs and treatments such as dental and elective surgeries that have been impacted negatively by the pandemic.\nAs for guidance for the remainder of the year, we are confident that we're well positioned with the strength and resiliency of our core underlying business and the incremental opportunities being presented to support our customers with pandemic solutions.\nTherefore, we're raising our sales and earnings per share guidance for the remainder of this year.\nLet's review the numbers in more detail.\nWe'll first look at Q3 2020 revenues and profits, where we saw strong sales and earnings per share growth, led by strong revenue performance primarily in our biologics and generics market units and Contract Manufacturing.\nI will take you through the margin growth we saw in the quarter as well as some balance sheet takeaways.\nFinally, we'll review our updated 2020 guidance.\nOur financial results are summarized on Slide 8, and the reconciliation of non-U.S. GAAP measures are described in Slides 16 to 20.\nWe recorded net sales of $548 million, representing organic sales growth of 18.2%.\nCOVID-related net revenues are estimated to have been approximately $32 million in the quarter.\nThese net revenues include the assessment of our components associated with treatment and diagnosis of COVID-19 patients, offset by lower sales to customers affected by lower volumes due to the pandemic.\nExcluding net COVID impact, organic sales grew by approximately 11%.\nLooking at Slide 9.\nProprietary product sales grew organically by 20.3% in the quarter.\nHigh-Value Products, which made up more than 65% of proprietary product sales in the quarter, grew double-digits and had solid momentum across all market units throughout Q3.\nLooking at the performance of the market units, Biologics market units that were -- have delivered strong double-digit growth.\nWe continue to work with many biotech and biopharma customers who are using West and Daikyo high-value product offerings.\nThe generics market unit experienced high single-digit growth led by sales of Teflon stoppers and FluroTec components.\nOur Pharma market unit saw mid single-digit growth with sales led by high-value products and services, including Westar and FluroTec components.\nAnd Contract Manufacturing had double-digit organic sales growth for the third quarter, led once again by sales of diagnostic and healthcare-related injection devices.\nWe continue to see improvement in gross profit.\nWe recorded $194.6 million gross profit, $46.8 million or 31.7% above Q3 of last year.\nAnd our gross profit margin of 35.5% was a 310 basis point expansion from the same period last year.\nWe saw improvement in adjusted operating profit, with $103.9 million recorded this quarter, compared to $70.1 million in the same period last year for a 48.2% increase.\nOur adjusted operating profit margin of 19% was a 360 basis point increase from the same period last year.\nFinally, adjusted diluted earnings per share grew 46% for Q3.\nExcluding stock tax benefit of $0.02 in Q3, earnings per share grew by some 53%.\nLet's review the gross drivers in both revenue and profits.\nOn Slide 10, we show the contributions to sales growth in the quarter.\nVolume and mix contributed $77.1 million or 16.9 percentage points of growth, including approximately $32 million of volume driven by COVID-19-related net demand.\nSales price increases contributed $6.1 million or 1.3 percentage points of growth, and changes in the foreign currency exchange rates increased sales by $8.7 million or a reduction of 1.9 percentage points.\nLooking at margin performance.\nSlide 11 shows our consolidated gross profit margin of 35.5% for Q3 2020, up from 32.4% in Q3 2019.\nProprietary products third-quarter gross profit margin of 40.8% was 260 basis points above the margin achieved in the third quarter of 2019.\nOur key drivers of the continued improvement in proprietary products gross profit margin were: favorable mix of products sold, driven by high-value products; production efficiencies; and sales price increases, partially offset by increased overhead costs.\nContract Manufacturing third-quarter gross profit margin of 17.9% was 350 basis points above the margin achieved in the third quarter of 2019.\nThis is a result of improved efficiencies and the plan utilization.\nNow let's look at our balance sheet and review how we've done in terms of generating more cash.\nOn Slide 12, we have listed some key cash flow metrics.\nOperating cash flow was $323.8 million for the year-to-date 2020, an increase of $63 million, compared to the same period last year, a 24.2% increase.\nOur year-to-date capital spending was also $116.7 million, $27.9 million higher than the same period last year and in line with guidance.\nWorking capital of $790.6 million at September 30, 2020 was $73.5 million higher than at December 31, 2019, primarily due to an increase in Accounts Receivable due to increased sales activity and inventory, mainly as a result of increasing safety stock.\nOur cash balance at September 30 of the $519.4 million was $80.3 million more than our December 2019 balance, primarily due to our positive operating results.\nOur capital and financial resources, including overall liquidity, remain strong.\nTurning to guidance, slide 13 provides a high-level summary.\nFull year 2020 net sales guidance will be in a range of between $2.1 billion and $2.11 billion.\nThis includes estimated net COVID incremental revenues of also approximately $85 million.\nThere is an estimated headwind of $4 million based on current foreign exchange rates.\nWe expect organic sales growth to be approximately 14% to 15%.\nThis compares to prior guidance of $2.035 billion to $2.055 billion and growth of approximately 12%.\nWe expect our full year 2020 adjusted diluted earnings per share guidance to be in a range of $4.50 to $4.55, compared to prior guidance of $4.15 to $4.25.\nAs Eric discussed, we are expanding our HVP manufacturing capacity at the existing sites to meet anticipated 2021 COVID-19 vaccine demand.\nCapex guidance remains at $170 million to $180 million.\nThere are some key elements I want to bring your attention to as you review this revised guidance.\nEstimated FX headwinds on earnings per share has had an impact of approximately $0.02 based on current foreign currency exchange rates.\nThe revised guidance also includes $0.18 earnings per share impact from tax benefits from stock-based compensation.\nSo just to summarize the key takeaways for the third quarter, strong top-line growth in both Proprietary and Contract Manufacturing, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted earnings per share and growth in operating and free cash flow.\nOur sales and earnings per share projections for 2020 and performance are in line with our long-term construct or approximately 6% to 8% organic sales growth and earnings per share expansion.\nBefore I close, I'm pleased to share that last evening we received FDA clearance for West to market our 20 millimeter Vial2Bag advanced product.\nThe team is excited to bring this innovative product to the healthcare professionals.\nTo conclude, there are many challenges ahead of this, but we're resolute in our mission focus systems and most importantly, the team to address these challenges.\nWe see strengths in our core business and we're confident in our long-term growth strategy.\nOur market led strategies delivering unique value propositions to our customers.\nOur global operations network is able to flex and respond to the demand, while driving our market leading service and quality.\nAnd our investments in digital technology and automation will continue to keep us on the forefront of the industry.\nWe remain focused on delivering value to all our stakeholders on a very sustainable basis and doing our part to support the healthcare industry as it works to resolve this global pandemic.\nOn behalf of the team members at West, we continue to wish you well in the days ahead.\nGila, we're now ready to take questions.",
        "summary": "sees fy 2020 adjusted earnings per share $4.50 to $4.55.\nsees fy 2020 sales $2.1 billion to $2.11 billion.\nq3 sales $548 million versus refinitiv ibes estimate of $510.1 million.\nsees fy 2020 organic sales growth approximately 14% to 15%.\nfull-year 2020 adjusted-diluted earnings per share is expected to be in a range of $4.50 and $4.55."
    },
    {
        "text": "We're glad that you could join us.\nDuring today's call, Bob will provide an overview of the second quarter and discuss the current state of our operations and markets.\nHe will also update you on our smart and connected and sustainability efforts.\nShashank will discuss the details of our second quarter performance, provide an initial outlook for the third quarter and offer a revised outlook for the full year 2021.\nFollowing our remarks, we will address questions related to the information covered during the call.\nFor information concerning these risks, see Watts publicly available filings with the SEC.\nThey've been navigating a robust demand environment and at the same time, managing through persistent supply chain constraints and the emergence of COVID-19 variants.\nI'm proud of our team's efforts to support our customers while remaining safe in the workplace.\nWe anticipated a strong second quarter performance as the economy improved.\nHowever, demand was even better than we expected and our team delivered record results.\nAs we guided last call, the February U.S. weather freeze provided a revenue tailwind in Q2 and we also benefited from our announced price increases.\nAdjusted operating margin exceeded our estimate, driven by incremental volume and our focus on productivity and cost management.\nYear-to-date, free cash flow is strong despite additional working capital needed to meet the current demand.\nIn late June, we successfully completed negotiations to exit our manufacturing facility in Mery, France.\nThis action will help to simplify our manufacturing structure and provide the incremental productivity.\nWe've taken a charge for GAAP reporting in the second quarter.\nWe expect to realize the full savings by 2023.\nShashank will provide more financial details in a few minutes.\nNow, let me provide a view on the markets.\nIn general, the markets continue to move in a positive direction during the second quarter.\nGDP expectations for 2021 have trended up in many of our key global regions since the first quarter.\nSo, we expect that should continue to drive repair and replacement activity.\nIn the Americas, single-family residential new construction remained strong in the second quarter in both residential and non-residential repair and replacement activity was buoyant.\nThese markets have more than offset weakness in multifamily new construction and certain non-residential new construction especially in verticals like lodging and office buildings.\nEurope markets were solid again in the second quarter, driven by repair and replacement activity.\nThe wholesale market remained strong in France and Italy, while the OEM market held its own, especially in the electronics business.\nHere, we saw high demand from channel anxiety caused by component shortages in the market.\nWe also saw heating OEMs continue to benefit from green initiatives driven by government stimulus.\nWe are introducing our third quarter outlook with sales and margin improvements expected versus the prior year, and we have increased our full year adjusted outlook to account for the stronger second quarter and expected third quarter results.\nWe are more encouraged about the markets in general, but still have concerns about non-residential new construction, supply chain issues, continued inflationary pressures and virus variants.\nOn Slide four, I'd like to update you on our smart and connected journey.\nWe continue to introduce new connected products in the marketplace based on customer feedback.\nThe tekmar snow melt controller has a snow ice sensor interface designed specifically to integrate into building management systems.\nIt was developed to eliminate the need to write custom code, which is a time and cost saver for the contractor.\nIn addition, the challenge of commissioning, testing and then maintaining the code is made easier.\nThe tekmar snow ice interface provides proven snow melt functionality in a simple to integrate device.\nHF scientific's copper silver monitor or CSM is designed to monitor the level of copper and silver ions in a plumbing system down to the parts per billion range.\nCopper-silver ionization has emerged as one of the leading technology used in mitigation of waterborne pathogen growth, specifically Legionella in the plumbing systems of healthcare and hospitality facilities.\nBy monitoring ion concentrations daily, the CSM allows copper-silver ionization systems to more accurately regulate their disinfection levels.\nUnder dosing reduces the efficacy of the system, while overdosing increases operating costs and risk patient guest health.\nDuring the second quarter, the percentage of smart and connected product sales to total sales increased sequentially as compared to the first quarter as well as to the full year 2020.\nWe continue to make progress toward our goal of 25% smart and connected product sales by 2023.\nNow, on Slide five, I'd like to update you on our sustainability efforts.\nWe are focused on and committed to having a positive impact in the world.\nThis commitment is leading us to deploy ongoing initiatives to reduce energy, water and waste usage within our own organization as well as developing solutions to support our customers' sustainability goals.\nWe also view our role as an employer as an opportunity to affect positive change and are addressing diversity, equity and inclusion in our everyday actions.\nIn June, we issued our most comprehensive sustainability report to date, highlighting 2020 accomplishments in establishing some longer-term goals to reduce our environmental impact.\nIn 2020, we reduced our water usage by 33% and our greenhouse gas emissions by 13%.\nOur product portfolio shift to ecofriendly products and solutions continues.\nThis past year, sales of our condensing boilers and water heaters reduced more than 110,000 metric tons of CO2 for our customers, more than four times what Watts generated as a company.\nWe have maintained our partnership with Planet Water, providing funding and resources to install water purification systems for disadvantaged areas of the world.\nTo date, we have positively impacted over 30,000 people in eight different countries, providing safe drinking water and education on the importance of proper hand sanitization.\nAnd later this year, we'll be sponsoring additional sites as part of a Global Handwashing Day initiative.\nConcerning diversity, equity and inclusion, we commenced our first internal DE&I survey to employees.\nWe've revised our recruiting guidelines and training manuals to include new diversity based standards.\nWe've begun partnerships with several historically black colleges and universities, supporting programs that we hope will garner future Watts employees, and we've initiated multiple diversity employee resource groups to promote education, awareness and inclusivity.\nSales of $467 million increased 38% on a reported basis and 32% organically, driven primarily by the global economic recovery.\nSales benefited from a five percent foreign exchange tailwind and acquisitions added one percent.\nAdjusted operating profit increased 85% and adjusted operating margins expanded 380 basis points to 14.9%.\nBoth measures were driven by increased volume from easier compares to last year, price, productivity and cost actions.\nThis more than offset incremental investment spend, inflation and the return of expenses related to business normalization.\nAdjusted earnings per share increased 100% as compared to last year from the better operating result as well as favorable below the line items and a foreign exchange benefit.\nOur adjusted effective tax rate was 27.1% compared to 26.4% in the prior year period.\nAs a reminder, last year included a benefit from a discrete item related primarily to the foreign exchange impact of repatriations.\nAs Bob mentioned, we have completed negotiations to exit our facility in Mery, France.\nTotal pre-tax exit costs approximate $26 million, which includes approximately $2 million in non-cash charges.\nMost of the costs are severance-related and are expected to be incurred through 2022.\nFor GAAP purposes, we booked approximately $18 million of those costs in the second quarter and expect approximately $2 million in additional restructuring charges in the second half of 2021.\nFull year pre-tax run rate savings should approximate $5 million, which should be fully realized in 2023.\nWe expect about $0.5 million in savings this year, largely in the fourth quarter.\nFree cash flow was $65 million through June 30, up 160% from the same period last year.\nThe increase was due to improvements in net income and lower net capital spending.\nOur goal remains to achieve free cash flow conversion at 100% or more of net income for the year.\nThe balance sheet remained strong.\nGross leverage was 0.7 times and net leverage was negative 0.2 times.\nOur net debt to capitalization ratio at quarter end was also negative at 4.5%.\nDuring the quarter, we repurchased approximately 31,000 shares of our common stock and at investment of $4 million, primarily to offset dilution.\nTurning to Slide seven and our regional results.\nThe region experienced organic sales growth of between 28% and 51% during the second quarter as compared to last year, amid a strong economic recovery.\nSales also benefited from favorable foreign exchange in Europe and APMEA by 14% and 10%, respectively.\nAcquisitions benefited APMEA sales by 14%.\nThe Americas had an estimated five percent revenue tailwind from the continuing benefit of the February weather freeze in South Central United States.\nThe Americas experienced strong repair and replacement activity and growth in single-family residential markets.\nGrowth was across all major platforms with plumbing related products, especially strong.\nAmericas adjusted operating profit increased 54% and adjusted operating margin increased 270 basis points to 17.7%, driven by volume, price, cost actions and productivity, which is partially offset by incremental investments, inflation and the return of expenses related to business normalization.\nEurope delivered another solid quarter with sales growth in all major regions and platforms.\nThe wholesale markets in France and Italy remained strong and we saw a good growth in Germany and Italy OEM sales.\nElectronics sales increased as pre-buying by customers continued from market concerns around component shortages.\nEurope's adjusted operating margin increased 700 basis points to 17.1%.\nThis was driven by volume, price and cost actions, which more than offset investments, inflation, the return of expenses related to business normalization and the loss of benefits from government employment subsidies.\nAPMEA's second quarter sales increased double-digits, both inside and outside China.\nChina sales continued to benefit from commercial valve demand in data centers.\nOutside China, New Zealand was strong due to the residential demand and the Middle East is slowly improving as the region benefits from higher oil prices.\nAPMEA's adjusted operating margin increased 460 basis points to 17.9%, driven by trade volume, a 61% increase in affiliate volume, productivity and cost actions, which more than offset inflation.\nMoving to Slide eight and general assumptions about our third quarter operating outlook.\nWe are estimating consolidated organic sales growth for the third quarter to be eight percent to 12% over the third quarter of 2020.\nVersus last year, we should see the benefit of additional volume and price increases allowed through June.\nWe have announced a third price increase in the Americas, which goes into effect in September, but we anticipate minimal benefit in the third quarter.\nAcquired sales should approximate $2 million.\nWe anticipate that our adjusted operating margin could range from 13.7% to 14.5% in the third quarter, driven by volume and price, partially offset by investments of $6 million and incremental cost of $7 million related to the return of discretionary spend.\nCorporate costs should approximate $13 million in the third quarter.\nInterest expense should be in line with Q2 at about $1.5 million.\nThe adjusted effective tax rate should approximate 27%.\nForeign exchange is expected to be neutral to slightly positive to last year should current rates persist throughout the quarter.\nFrom an organic perspective, we expect Americas sales growth to be in the range of nine percent to 13% for 2021.\nThis is higher than anticipated in our May outlook and is being driven by stronger growth in non-residential repair and replacement due to higher GDP expectations, a stronger North America residential market and the third price increase recently announced.\nSales should increase by about $5 million for the full year from acquisitions.\nWe expect adjusted operating margins in the Americas should be up versus 2020, driven by the drop-through benefits of additional volume, including the freeze impact.\nWe also expect the price will more than offset cost inflation for the year.\nFor Europe, we're forecasting organic sales to increase between 10% and 14%.\nIn France, the increase will be driven by continued residential market growth and government energy incentives will drive the growth in Germany and Italy.\nAdjusted operating margin should be up from incremental drop-through on volume, price and cost savings initiatives.\nIn APMEA, we now expect organic sales to grow from 23% to 27% for the year.\nSales also increased by approximately $6 million from the AVG acquisition in the first half of 2021.\nWe anticipate adjusted operating margin for the year to be up as compared to 2020 from third-party and affiliate volume drop-through.\nConsolidated organic sales growth for the full year is expected to range from 10% to 14%.\nThis is approximately 7.5% higher at the midpoint from our previous outlook and is primarily driven by better global end market expectations and our third price increase in the Americas.\nWe anticipate adjusted operating margin will be up by 100 to 150 basis points year-over-year, driven by the incremental volume drop-through, price, restructuring savings of approximately $12 million, partially offset by $32 million of incremental investments and expenses related to business normalization and general inflation.\nAnd now regarding other key inputs, we expect corporate costs will approximate $48 million for the year.\nInterest expense should be roughly $7 million for the year.\nOur estimated adjusted effective tax rate for 2021 should approximate 27.5%.\nCapital spending is expected to be in the $35 million range.\nDepreciation and amortization should approximate $46 million for the year.\nWe expect to continue to drive free cash flow conversion equal to a greater than 100% of net income.\nWe are now assuming a 1.21 average Euro U.S. dollar FX rate for the full year versus the average rate of EUR1.14 in 2020.\nPlease recall that for every $0.01 movement up or down in the euro-dollar exchange rate, our European annual sales are impacted by approximately $4 million and our annual earnings per share is impacted by $0.01.\nWe expect our share count to approximate 34 million for the year.\nTo summarize, let me leave you with a few key themes.\nSecond quarter results were better than expected as activity improved during the quarter, helped by the global economic recovery, a strong repair and replacement market and the U.S. weather freeze tailwind.\nWe have announced a third price increase in the Americas as inflation and supply chain costs continue to rise.\nMarkets are supportive and the leading indicators for non-residential new construction are positive entering 2022.\nWe continue to invest in long-term growth opportunities, especially in smart and connected solutions and in productivity-enhancing technology in our manufacturing facilities that support our long-term strategy.\nWe have also increased our full year investment spend.\nDuring the second half, we expect to see increased costs on necessary investments, such as in-house training as business normalizes from pandemic levels.\nStill, we continue to closely monitor expenses.\nWe expect to see improvement in third quarter results versus last year.\nOur full year outlook has been raised for both sales and adjusted operating profits, given the stronger than anticipated second quarter results and expectations for Q3 in the second half.",
        "summary": "q2 sales $467 million versus refinitiv ibes estimate of $425.5 million.\nincreasing adjusted full year 2021 outlook."
    },
    {
        "text": "On our call today is our CEO, Hikmet Ersek; and our CFO, Raj Agrawal.\nDuring the call, we will discuss some items that do not conform to generally accepted accounting principles.\nWe have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section.\nWe will also discuss certain adjusted metrics.\nThe expenses that have been excluded from adjusted metrics are specific to certain initiatives, but may be similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future.\nWe appreciate you joining us today to discuss our third quarter results and the progress of our business.\nOur business continues to rebound from the effects of the COVID-19 pandemic delivering double-digit revenue growth in digital and Business Solutions as well as strong profitability and operating cash flow during the quarter.\nAdditionally, we are continuing to make good progress on our key initiatives, including our pricing evolution and platform enhancements.\nNow let's take a closer look at the third quarter results.\nOverall, we achieved revenue growth in the quarter of 2% on a reported and constant currency basis, which was driven by 15% growth in digital and 31% growth in Business Solutions.\nWhile these two business grew nicely, the Retail business was affected by the slower economic recovery, in particular, recovery in the labor markets where employment of migrant workers remains below 2019 levels.\nAs a result, our C2C revenue was flat on a reported basis or down 1% in constant currency terms with transaction growth down 1%.\nBoth principal per transaction and cross-border principal increased approximately 4% during the quarter.\nYear-to-date, our cross-border principal increased 19%, reflecting the elevated levels of support that our customers provide to their loved ones during the period of uneven economic recovery.\nWith that, based on the latest World Bank forecast, we believe we are growing market share.\nOur digital business continues to generate strong growth.\nRevenue generated during the quarter was $266 million, maintaining the record high level that we achieved in the second quarter and putting us well on pace to exceed $1 billion in revenue this year.\nMost of our digital business is westernunion.com, which grew at a healthy pace in the third quarter with 16% principal growth and 12% revenue growth.\nWu.com average monthly active users increased 8% in the quarter.\nAlthough wu.com growth is moderating as expected, as we grow from a much larger base and compare results against the prior year's accelerated growth levels, we anticipate growth to remain healthy as we continue to invest in marketing, product and customer experience.\nWe were particularly encouraged by the results we are seeing in our account-to-account business, which is the fastest-growing portion of our business.\nThe other component of our digital business is digital partnerships.\nMomentum is building in this business as we expand relationships with existing partners and launch new partners.\nWe recently completed our previously announced acquisition of a minority stake in stc Bank, formerly known as STC Pay, which was a leading digital wallet service provider and is now in the process of launching as one of the first digital banks in Saudi Arabia.\nIn addition, we are planning to launch a number of new partners in upcoming months.\nOur progress confirms that the capabilities we have built to serve our branded direct digital business is also well suited to serve the needs of leading banks and digital wallet providers.\nOur solution emphasizes flexibility and choice built on a strong foundation of compliance and technology.\nWe are able to offer a branded solution partners who want to feature our leading brand in cross-border payments or we can offer capabilities that partners incorporate as a white label solution.\nOur real-time account payout capabilities, currently available in over 100 countries, improve on incumbent solutions while also providing choice for consumers who preferred to direct transfer to our agent network.\nWe recently announced that Western Union International Bank has joined SEPA Instant Credit Transfer scheme as a direct participant, further enhancing our real-time payment capabilities in Europe.\nOur capabilities have focused on cross-border remittances historically, but partner needs are evolving to include broader use cases.\nThus, as we have integrated with traditional payment systems in the past, our platform can also be extended to incorporate future use cases related to digital currencies.\nKey to our success, whether serving our direct consumers through our branded offering of -- or serving the customers of our partners is our omnichannel capabilities, which enable payouts to more than 200 countries and territories in over 130 currencies through our extensive global network of billions of bank accounts, millions of wallets and cards, and approximately 600,000 retail locations.\nWe continue to invest in expanding our payment capabilities to provide our customers and partners with additional options and convenience across platforms, devices, borders and currencies.\nTurning to our profit performance in the quarter.\nProfitability was strong, with operating margin increasing to approximately 25%, as a result of solid Business Solutions revenue growth and lower planned marketing investments, which was partially offset as we continued to invest in our technology and global omnichannel platform.\nEarnings per share for the quarter was $0.57 on a reported basis and $0.63 on an adjusted basis.\nBefore turning it over to Raj to discuss our financial performance for the quarter in more detail and our updated 2021 financial outlook, I'd like to provide an update on a few key strategic initiatives.\nStarting with Business Solutions, our planned divestiture remains on track.\nThe majority of the business and the entire proceeds are expected to transfer in the first quarter of 2022.\nAs we announced earlier today, we are expanding our ecosystem strategy.\nWe are on track to launch our digital bank pilot in Germany and Romania in the fourth quarter, offering customers a digital banking and integrated money transfer solution through our Western Union International Bank.\nThe digital banking offerings Western Union branded WU Plus is an important part of our ecosystem strategy, which is focused on bordering and deepening our relationship with customers by offering them additional relevant products and services.\nAnother component of our ecosystem strategy is WU Shop, a shopping and cash back rewards program that enables our customers to shop internationally at over 12,000 online stores and send gifts directly to their families and friends in other countries while receiving cash back on their purchases.\nWU Shop is now live in Germany and Austria, several more countries, including the U.S., are targeted to launch by year-end.\nOverall, despite an uneven economic recovery and the continuing effects from the pandemic, our business proved resilient, and we are on solid footing as we finish the year.\nToday, I will discuss third quarter results and our full year 2021 financial outlook.\nThird quarter revenue of $1.3 billion increased 2% on a reported and constant currency basis.\nCurrency translation net of the impact from hedges benefited third quarter revenues by approximately $3 million compared to the prior year.\nIn the C2C segment, revenue was flat on a reported basis or decreased 1% constant currency.\nB2C transactions declined 1% for the quarter as the slow recovery from COVID-19 impacted retail money transfer, partially offset by 19% transaction growth in digital money transfer.\nThe spread between C2C transaction and revenue growth was one percentage point on a reported basis and flat on a constant currency basis.\nTotal C2C cross-border principal increased 4% on a reported basis or 3% constant currency, driven by growth in digital money transfer.\nTotal C2C principal for transaction or PPT continued to grow and was up 4% or 3% constant currency, driven by mix and changes in consumer behavior.\nDigital money transfer revenues, which include wu.com and digital partnerships increased 15% on a reported basis or 14% constant currency.\nWu.com revenue grew 12% or 11% constant currency on transaction growth of 9%.\nWu.com cross-border revenue was up 16% in the quarter.\nRegionally, wu.com revenue growth was led by North America and Europe and CIS.\nDigital partnerships continued to show solid growth across revenue, transactions and principal in the quarter.\nMoving to the regional results.\nNorth America revenue decreased 2% on both a reported and constant currency basis, on transaction declines of 5%.\nConstant currency revenue was impacted by U.S. outbound, including U.S. regulations concerning Cuba that limit our ability to provide services there and continued declines in U.S. domestic money transfer.\nRevenue in the Europe and CIS region declined 3% on a reported basis or 5% constant currency on transaction growth of 3%.\nOur digital business continued to generate strong transaction and revenue growth, offset by softness in the retail business.\nThe digital partnership business in Russia was the primary contributor to the spread between transactions and constant currency revenue in the quarter.\nRevenue in the Middle East, Africa and South Asia region declined 2% on both a reported and constant currency basis, while transactions grew 2%.\nThe digital partnership business continued to generate strong performance, driving regional transaction growth in the quarter and was the main contributor to the spread.\nConstant currency revenue declines were driven by the regional business.\nRevenue growth in the Latin America and Caribbean region was up 25% or 26% constant currency on transaction growth of 10%.\nConstant currency revenue growth was generally broad-based as the region recovered from prior year economic dislocation due to COVID-19 with growth led by Mexico, Chile and Ecuador.\nThe driver of the spread between transactions and constant currency revenue growth was due to business mix.\nRevenue in the APAC region increased 1% on a reported basis and declined 1% on a constant currency basis while transactions declined 13%.\nConstant currency revenue in the region continued to be impacted by COVID-19.\nBusiness Solutions revenue increased 31% on a reported basis or 28% constant currency.\nRevenue growth was driven by increased payment services activity and the education vertical, while trends remained on a positive course with the continuing recovery in cross-border trade.\nThe segment represented 9% of company revenues in the quarter and benefited by growing over lower revenue in the prior year period.\nOther revenues represented 5% of total company revenues and increased 3% in the quarter.\nTurning to margins and profitability.\nThe consolidated GAAP operating margin in the quarter was 24.8% compared to 22.7% in the prior year period, while the consolidated adjusted operating margin was 25.2% in the quarter compared to 23.5% in the prior year period.\nThe GAAP and adjusted margin increases were primarily driven by revenue growth and lower planned marketing investment, partially offset by higher technology investment.\nThe GAAP operating margin also benefited from prior year restructuring costs.\nAdjusted operating margin excludes M&A expenses in both the current and prior year period and last year's restructuring expenses.\nMoving to segment margins.\nNote that M&A expenses are included in other operating margins for both the current and prior year period and segment margins exclude last year's restructuring charges.\nB2C operating margin was 24.3% compared to 24.6% in the prior year period.\nThe slightly lower operating margin was due to higher technology spend as we continued to invest in our platform partially offset by lower planned margin investments.\nBusiness Solutions operating margin was 32.9% in the quarter compared to 10.5% in the prior year period.\nThe increase in operating margin was primarily due to increased revenue.\nDuring the last 12 months, the Business Solutions segment generated $402 million of revenue and $86 million of EBITDA.\nOther operating margin was 18.3% compared to 20% in the prior year period due to higher M&A costs this year related to the divestiture of Business Solutions.\nThe GAAP effective tax rate in the quarter was 20.2% compared to 12.4% in the prior year period, while the adjusted effective tax rate in the quarter was 13.7% compared to 12.7% in the prior year period.\nThe increase in the GAAP effective tax rate was due to deferred taxes recorded on the pending sale of Business Solutions.\nGAAP earnings per share or earnings per share was $0.57 in the quarter compared to $0.55 in the prior year period, while adjusted earnings per share was $0.63 in the quarter compared to $0.57 in the prior year period.\nThe increase in earnings per share reflects the benefit of revenue growth and lower planned marketing investments, partially offset by a higher tax rate and higher technology investment.\nGAAP earnings per share includes a $0.05 impact related to the deferred taxes recorded on the pending sale of Business Solutions.\nTurning to our cash flow and balance sheet.\nYear-to-date cash flow from operating activities was $686 million.\nCapital expenditures in the quarter were approximately $35 million.\nAt the end of the quarter, we had cash of $1 billion and debt of $2.9 billion.\nWe returned $170 million to shareholders in the third quarter, consisting of $95 million in dividends and $75 million in share repurchases.\nThe outstanding share count at quarter end was 404 million shares, and we had $558 million remaining under our share repurchase authorization, which expires at the end of this year.\nMoving to our outlook for 2021.\nToday, we provided an updated financial outlook reflecting recent business trends in macroeconomic conditions.\nAs Hikmet mentioned earlier, the pace of recovery from COVID-19 has created a fluid environment.\nFor example, GDP expectations were revised downwards in recent months and labor markets have not fully recovered.\nOur outlook assumes that the macroeconomic environment will be similar to what we experienced in the third quarter, while our previous outlook assumed a moderate improvement.\nWe now expect full year 2021 GAAP revenue growth will be approximately 150 basis points higher than constant currency revenue growth.\nOur previous GAAP revenue outlook calls for a mid- to high single-digit increase.\nConstant currency revenue, excluding the impact of Argentina inflation is expected to grow between 3% and 4%, while our previous outlook call for a mid-single-digit increase.\nOur operating margin outlook has not changed, with the full year GAAP operating margin expected to be approximately 21%, while the adjusted operating margin is expected to be approximately 21.5%.\nCompared to the third quarter, fourth quarter margins are expected to be closer to the full year average as we anticipated from incremental investment in lower revenue from Business Solutions in the fourth quarter, which benefited from seasonal factors like tuition payments.\nWe continue to anticipate our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis.\nGAAP earnings per share for the year is expected to be in the range of $1.80 to $1.85 compared to the previous outlook of $1.82 to $1.92, reflecting the tax impact related to the pending sale of Business Solutions.\nWe are also raising the bottom end of the range for adjusted earnings per share with a new range of $2.05 to $2.10, which compares to $2 to $2.10 in our previous outlook.\nTo summarize, we're pleased with the progress we continue to make toward achieving our long-term strategic objectives.\nAnd operator, we are now ready to take questions.",
        "summary": "compname reports q3 adj. earnings per share of $0.63.\nq3 adjusted earnings per share $0.63.\nq3 gaap earnings per share $0.57.\nq3 revenue $1.3 billion.\nwestern union - consumer-to-consumer revenue were flat on a reported basis, or declined 1% constant currency, while transactions declined 1% during quarter.\nsees 2021 gaap revenue: about 150 basis points higher than constant currency revenue growth.\nsees 2021 revenue on constant currency (excluding impact of argentina inflation): about 3% to 4% growth.\nsees 2021 gaap earnings per share in a range of $1.80 - $1.85.\nsees 2021 adjusted earnings per share in a range of $2.05 - $2.10.\nadvances ecosystem strategy with launch of wu shop and an upcoming pilot of digital banking services in select countries."
    },
    {
        "text": "Leading today's discussion are Vince McMahon, WWE's Chairman and CEO; Nick Khan, WWE's President and Chief Revenue Officer; Stephanie McMahon, WWE's Chief Brand Officer; and Kristina Salen, WWE's Chief Financial Officer.\nTheir remarks will be followed by a Q&A session.\nActual results may differ materially and undue reliance should not be placed on them.\nAdditionally, the matters we will be discussing today may include non-GAAP financial measures.\nYou should note that all comparisons are versus the year-ago quarter, unless otherwise described.\nLike every other form of entertainment, we're sports.\nWe're coming out of COVID.\nAt first, we were in survival mode, but we found a way.\nOnce we felt secure, we then saw this as an opportunity too.\nWe think the way we do business and open what, I call, a WWE treasure chest, the only way to do that the best management team in WWE history.\nWe have that team, a team that's innovative, drives revenue and as we organize our company in a far more efficient way to take advantage of new revenue streams, new online platforms, new consumer products, new content creation and new opportunities to expand our media rights portfolio on a global basis, I'm always excited about our business.\nI don't think I've ever been as excited as I am now.\nThis is Nick Khan.\nIt's going to be nice to speak with all of you again.\nSince our last earnings call, there have been significant developments in the media industry.\nWe'd like to discuss them and how the economics of these deals signal to us, a marketplace that continues to put premium on live content.\nAdditionally, we'd like to outline a number of new revenue streams we've identified in the recent corner -- quarter, excuse me.\nI will end by providing an update on our expanding original programing slate, as well as giving you an update on our return to live events and touring.\nRecent developments in media have been highlighted by the completion of new content distribution deals.\nFirst, as we discussed last earnings call, Amazon grabbed the Thursday Night NFL package.\nSo we have no inside knowledge of this, we wouldn't be shocked if Amazon was negotiating now, as we speak, to get that package on its air exclusively early.\nIn terms of leads, both the NFL and NHL realized substantial increases in the rights fees for their license programs, demonstrating the continuing value of live content.\nThe NFL saw a media rights increase of 79% even as linear ratings went down a little bit in recent season.\nThe NHL has already doubled its media rights AAV, having sold just over half of its package.\nIn the case of the NHL, linear ratings are down about 25%.\nIn this context, the NHL received tremendous credit for already doubling its AAV from $200 million to $400 million, with another package still available for sale in the marketplace.\nOur bet is that part of the package goes to a new suitor.\nThese deals are indicative of where the media rights marketplace is and where it continues to head.\nOne of the big takeaways to us, if you look at these packages, is that the overwhelming majority of the media networks are paying to license both the linear rights as well as streaming rights.\nThe days of splitting those rights appear to be over for the moment.\nLook at the NFL, which often sets the standard in media rights negotiations.\nEach media partner outside of Amazon paid a multiple of what they were previously paying for the rights to show the games on linear or digital or both.\nIt's clear to us that these companies view live rights as meaningful subscription and retention programing for their OTT services.\nWe are confident that our robust marketplace with interested buyers across broadcast cable and OTT positions our rights portfolio for long-term growth.\nWe had an early case study in WWE delivering audiences for our partners' streaming services a little over two weeks ago, when our premiere event, WrestleMania, was distributed for the first time exclusively on Peacock in the United States.\nWe were thrilled with the result and our partners at Peacock were even happier.\nStephanie will provide a more thorough update on these achievements from WrestleMania momentarily, but we couldn't be more pleased with the first event.\nThe promotion from our partners at Fox and NBCU leading into it and the number of conversations we have engaged in subsequent for the Peacock partnership announcement.\nAnd coming off of the subscriber and viewership success of WrestleMania that was delivered to Peacock, we're excited about possibly replicating the licensing of WWE's network to potential streaming partners in key international territories.\nIt's a story we're sharing with the international community as we introduced WWE Network to potential partners across the globe.\nIf you look at the success that we're having with our Tencent deal in China, we've seen a 30 times increase in views across all platforms in China, since striking this deal, with 30% of that coming from the viewership on Tencent.\nWe look at the success we continue to have in India and the United Kingdom, we're excited to replicate that and to grow it further.\nOf course, content rights are not our only revenue focus, we're always looking at new streams of revenue.\nOn April 10, our first day of WrestleMania, we dropped our first NFT, featuring iconic moments from the Undertaker's legendary WWE career.\nMany of these sold out in seconds.\nWe were thrilled with our first foray into this space.\nConsidering our vast library of wholly owned intellectual property, look for more NFTs from us in the near future.\nIn this quarter, we also made a key deal in the gambling space.\nStephanie is going to provide background on that deal later as well.\nAs we continue to expand WWE's brand beyond the ring, we remain focused on developing the slate of original programing from our WWE Studio.\nWe've sold a multi-episode animated series to Crunchyroll, which, as all of you know, is now owned by Sony, Young rock, which we've talked about previously, chronicles the real life journey of Dwayne Johnson from childhood to WWE legend and beyond.\nThey debuted on NBC and it's doing significant business on NBC and with rears on USA and Peacock.\nAnd last Sunday, the Stone Cold Steve Austin documentary was the highest-rated biography in 16 years on A&E.\nOur other show on A&E that night, WWE's Most Wanted Treasures retained 79% of that lead end audience.\nThere are seven more biographies featuring our superstars each Sunday for the next seven weeks.\nAgain, all of these projects from sitcoms to unscripted to documentary to animate are produced or co-produced by us via our Studio.\nLast, as I mentioned earlier, stay tuned for our announcement showcasing our full-time return to live event touring.\nThis year's WrestleMania was historic for many reasons, attracting more than 50,000 fans, representing full capacity for the two-night event.\nI would be remiss if I didn't mention how amazing it felt to have the opportunity to stand on the stage, look out at the faces in the audience and hear their cheers.\nFrom the superstars next to me to the people in the crowd to even maybe my father Vince McMahon, there wasn't a dry eye as we all celebrated something much bigger than ourselves, the power of the lion.\nLast year's WrestleMania with no fans at our performance centers went back to Raymond James Stadium with a full circle moment, providing a sense of hope for the future and where our signature then, now, forever became then, now, forever together.\nIt is because of this powerful fan base, what we call the WWE Universe that we were able to achieve record-breaking performances across all of our platforms, including reaching new audiences through our domestic streaming partner, NBCU's Peacock.\nAnd a world went 52 days, we successfully launched our partnership with Peacock with cross-functional task forces responsible for assimilating meta data, transporting and formatting our most viewed content and creating marketing direct to consumer campaigns and one of the most comprehensive publicity plans we have ever had for WrestleMania.\nOne executive at Peacock described our process as a best-in-class example for how partnerships should work.\nThe results with the most viewed live events in Peacock's young history.\nThe launch was supported by two integrated media campaigns executed across the Comcast, NBCU, Peacock and WWE portfolio.\nWrestleMania media coverage increased 25% with over 500 individual new stories, representing 1.2 billion media impressions.\nCreatively, everything kicked off the Friday before with the WrestleMania addition of SmackDown on FOX, where Jey Uso won the esteemed Andre the Giant Battle Royal.\nSasha Banks and Bianca Belair became the first African-American female superstars to main event WrestleMania.\nPop star, Bebe Rexha, saying the national anthem and hip-hop star, Wale, rapped Big E down to the ring.\nGrammy award winning artist Bad Bunny and YouTube influencer Logan Paul found themselves getting in on the action inside the ring.\nBad Bunny's performance received praise from ESPN, counting it as one of, if not, the most impressive showings by a celebrity in the ring.\nAnd apparently, a lot of people enjoyed seeing YouTube influencer Logan Paul gets stunned as he trended number two on Twitter and generated nearly 100 million impressions on social media alone.\nWWE also secured a record 14 new and returning blue chip partners for WrestleMania, including Snickers as the presenting partner for the sixth consecutive year and presenting partner of the main event.\nPapa John's Cricket Wireless, P&G's Old Spice, Credit One Bank and DraftKings.\nDraftKings is now an official gaming partner of WWE, focusing on their signature free-to-play pools, which included placing some fun bets on main event matches in both nights of WrestleMania.\nVideo views during WrestleMania week across digital and social platforms, including YouTube, Facebook and Instagram, hit 1.1 billion and 32 million hours of content were consumed, representing a 14% and 9% increase, respectively.\nWWE related content saw 115 million engagements and WrestleMania was also the world's most social program, both nights of the weekend, delivering 71 Twitter trends.\nAs Nick mentioned, for the first time, we launched a series of NFTs, featuring the Undertaker at record-breaking WrestleMania weekend e-commerce sales and record merchandise per capita sales in stadiums.\nWe also held more than 10 community activations throughout the week, including collaborating with the Mayor's Office to customize our vaccination messaging for the local market, recognizing local community champions, teaming with FOX Sports to donate equipment to Special Olympics, Florida, and working with various organizations, including Feeding Tampa Bay to combat food and nutrition and security.\nOn USA Network, the following Night Raw delivered its best performance in the 18 to 49 demo in over a year and NXT's debut on its New Night on Tuesday was up 29% in the 18 to 49 demo year-over-year.\nAs we move toward our next streaming special, WrestleMania Backlash on Sunday, May 16, we are excited to build on our recent success, grow our audience through Peacock's enhanced reach, align with Iconic franchises, such as the Olympics and the Super Bowl and continue to leverage Peacock sales and promotional teams.\nAdditionally, key brand metrics in the first quarter are as follows.\nTV viewership continued to remain stable, maintaining a trend that began when we transitioned out of the performance center and invested in WWE ThunderDome at the end of August.\nFrom that time to the end of this quarter, Raw ratings have held steady and SmackDown ratings increased 9%.\nNotably, all Raw appearances featuring Bad Bunny showed an increase of 31% in the Hispanic persons 18 to 34 demo.\nAnd Bad Bunny's total social impressions during the time of his story lines equaled nearly 700 million.\nDigital consumption increased 7% to 367 million hours.\nWWE's flagship YouTube channel crossed 75 million subscribers and is now the fourth most viewed YouTube channel in the world.\nWWE sales and sponsorship revenue increased 19%, excluding the loss of a large scale international event.\nAs I mentioned on our last call, brands are looking for unique ways to reach their consumers.\nWWE is perfectly positioned to do just that with the ability to create customized content experiences and utilize WWE superstars that resonate with target audiences.\nFor example, the creation of our digital content series, Grit & Glory, for GM's Chevy Silverado brand and the creation of a new superstar, the Night Panther and a first-ever campaign integration across multiple platforms to market the new scent from Old Spice.\nIn our view, WWE is well positioned to continue to elevate our brand, grow our business and engage new and existing consumers across all media platforms.\nAs Vince, Nick and Stephanie highlighted, transitioning WWE Network to Peacock, while launching WrestleMania with a live audience of 50,000 fans in attendance is a major accomplishment.\nI would add by the flexibility, speed and sheer brute force of will demonstrated by the WWE team, the innovative and entrepreneurial spirit on display was as strong as I've seen in my 25-plus years prior in the tech industry.\nToday, I'll discuss WWE's financial performance, which underscores that spirit.\nAs a reminder, all comparisons are versus the year ago quarter, unless I say otherwise.\nIn the first quarter, WWE continued to manage a challenging environment.\nTotal WWE revenue was $263.5 million, a decline of 9% due to the cancellation of live events, including a large scale international event and the associated loss of merchandise sales, all due to COVID-19.\nDespite this decline, adjusted OIBDA grew 9% to $83.9 million, reflecting the upfront recognition related to WWE's licensing agreement and the decline in operating expenses that resulted from the absence of live events.\nLooking at the WWE media segment, adjusted OIBDA was $107 million, growing 4% as increased revenue and profit from WWE's licensing agreement with Peacock, as well as increased revenue from the escalation of domestic core content rights fees more than offset the absence of a large scale international event.\nDuring the quarter, we continue to produce Raw and SmackDown in our state-of-the-art environment, WWE ThunderDome, at Tropicana Field in St. Petersburg, Florida.\nOur operating results continue to be impacted by the year-over-year increase in production costs associated with bringing nearly 1,000 live virtual fans into our show, surrounded by pyrotechnics, laser displays and drone cameras, we did achieve some efficiency quarter-over-quarter.\nWith the April transition of WWE ThunderDome to Yuengling Center in Tampa Bay, we expect this investment will continue through at least the second quarter as it elevates the level of excitement and brings our fans back into the show.\nDespite a challenging environment, WWE continues to produce a significant amount of content, nearly 650 hours in the quarter across television streaming and social platforms.\nAnd as Nick described, we continue to develop our slate of original programing from our WWE Studios.\nLive events adjusted OIBDA was a loss of $4.3 million due to a 97% decline in live event revenue.\nThese declines were due to the loss of ticket revenue, resulting from the cancellation of events.\nAs we've said, we are delighted to have entertained ticketed fans and an audience of over 50,000 at WrestleMania a few weeks ago.\nWe look forward to the highly anticipated return of regular ticketed events.\nHowever, predicting the pace of that return is challenging and as of this moment, we do not anticipate staging such events until at least the second half of 2021.\nWWE also continues to introduce new products, leveraging a superstar talent brand and strong distribution partners.\nAs examples of WWE's continuing commitment to product innovation, WWE released three new championship title belts and a suite of branded products to commemorate Stone Cold Steve Austin's 25 years at WWE.\nAlso in the quarter, WWE continue to be the number one action figure sold at Walmart, where it continues to deliver exclusive products.\nIn the first quarter, WWE generated approximately $54 million in free cash flow, which was down slightly.\nImproved operating performance and lower capital expenditures were offset by the timing of collections associated with network revenue.\nNotably, during the first quarter, we returned approximately $84 million of capital to shareholders, including $75 million in share repurchases and $9 million in dividends paid.\nTo date, more than $158 million of stock has been repurchased, representing approximately 32% of the authorization under our $500 million repurchase program.\nAs of March 31, 2021, WWE held approximately $461 million in cash and short-term investments, which reflected the repayment of the remaining $100 million borrowed under WWE's revolving credit facility.\nAccordingly, WWE estimates debt capacity under the revolving line of credit of $200 million.\nAnd finally, a word on WWE's business outlook.\nLast quarter, WWE issued guidance for 2021 adjusted OIBDA of $270 million to $305 million.\nThis range of guidance reflects estimated revenue growth, driven by the impact of the Peacock transaction, the gradual ramp up of ticketed live events and large scale international events and the escalation of core content rights fees, offset by increased personnel and television production expenses.\nThe company is not changing full-year guidance at this time.\nThe guidance range is subject to risk over the remainder of the year, particularly related to the impact of ongoing COVID-19 restrictions on the company's ability to stage live events, including large scale international events.\nTurning to WWE's capital expenditures, as we mentioned last quarter, we anticipate increased spending on the company's new headquarters, as we restart this project in the second half of 2021.\nFor 2021, we've estimated total capital expenditures of $65 million to $85 million to begin construction, as well as to enhance WWE's technology infrastructure.\nWe're in the process of reevaluating the headquarter project and will provide further guidance on future capital expenditures when that work is completed.\nFor the second quarter of 2021, we estimate adjusted OIBDA will decline as incremental profits from Peacock and the escalation of content rights fees are more than offset by increased production, personnel and other operating costs.\nAs a reminder, the year-over-year rise in television production costs reflects the impact of our investment in WWE ThunderDome relative to the lower cost of producing content from our training facility, as we did exclusively in the second quarter of last year.\nAs the timing and rate of returning ticketed audiences to WWE's live events remain subject to uncertainties, we are not reinstating more specific quarterly guidance at this time.\nIn the first quarter, WWE generated solid financial results as we executed on key strategic objectives.\nAs Vince, Nick and Stephanie mentioned, we believe we can continue to innovate, enhancing our fan engagement, driving the value of our content and developing new products and markets, as well as cultivating new partnerships.\nWe look forward to sharing our progress on these initiatives with you all.\nThat concludes our remarks, and I will turn it now back to Michael.",
        "summary": "q1 revenue fell 9 percent to $263.5 million.\nnot changing full year guidance at this time.\nq1 2021 results were up, largely driven by impact of wwe network-peacock licensing agreement."
    },
    {
        "text": "Leading today's discussion are Vince McMahon, WWE's Chairman and CEO; Nick Khan, WWE's President and Chief Revenue Officer; Stephanie McMahon, WWE's Chief Brand Officer; and Kristina Salen, WWE's Chief Financial Officer.\nTheir remarks will be followed by a Q&A session.\nActual results may differ materially and undue reliance should not be placed on them.\nAdditionally, the matters we will be discussing today may include non-GAAP financial measures.\nYou should know that all comparisons are versus the year ago quarter unless otherwise described.\nWe generated solid second quarter financial results as we focused on fan engagement and increasing efficiency in our content production.\nWe have positive trends in our OIBDA and the demand for our live event ticket sales as well as our television ratings and digital consumption.\nLive events that have aired through July 26 have been at closure at full capacity.\nWe have advances for our live events that looked excellent including I might add SummerSlam,, which will be the largest SummerSlam event we've ever had here in the United States.\nTelevision ratings for our initial shows were up significantly.\nFirst-time we played before large crowd on July 16, it was up 42% increase in 18 to 49 demo, which was extraordinary, Raw of 15% as well.\nIn the quarter, we implemented certain organizational changes that will also increase efficiency and our content production on the post event.\nI'll give you a little bit more information on that.\nLooking ahead, we believe we can take advantage of the evolving business environment as we always have crowd engagement developing business and will drive growth.\nDo you want to go, Nick?\nNice to speak with you all again.\nAs always, we'd like to start with some industry perspective.\nIn our last earnings call, we discussed how earlier this year the NFL, NHL and Major League Baseball realized substantial increases in the rights fees for their license programs even with lower linear television ratings.\nThe NFL saw media rights increase of 79%, the NHL more than tripled its media rights AAV and Major League Baseball is getting a higher per game rate as part of its new Disney deal.\nThe second quarter was another busy quarter with deal activity.\nA number of rights holders closed media rights deals that saw substantial increases or their product, both in their home market, as well as in other territories.\nAlso in this quarter, we saw a number of private equity firms invest in sports teams, primarily based on the assumption that there was growth opportunity yet to be realized for their media rights.\nAdditionally, Steph and I would like to touch on the growth opportunity that exists in our sponsorship segment.\nWe will end by updating all of you on a number of WWE deals from this quarter that have led to new revenue streams.\nThe top Spanish soccer division, La Liga, closed an eight-year deal with Disney in the United States with an estimated AAV of $175 million, which represents a 35% increase from their prior deal with ESPN.\nWimbledon recently announced its 12-year extension with Disney in the U.S. and a three-year extension with the BBC in the U.K. Both deals saw significant increases.\nAlso in this quarter, private equity from RedBird Capital announced that it was acquiring a 15% stake in an Indian Premier League cricket team valuing the team between $250 million and $300 million.\nPart of the rationale for this investment stems from the rising value of media rights for live sports content globally.\nWe're confident in saying this because we are seeing similar growth for our own international deals.\nJust last week, we renewed our deal in Australia with our partners at Foxtel securing an increase for package of rights in that territory.\nAs we begin our efforts to license WWE Network internationally, we are encouraged by the trends we saw this quarter and are confident we will continue to see success as we engage with our partners internationally.\nMore on that to come in the future.\nAs Vince mentioned at the top of the call, ratings are up across all of our shows following the return of live fans.\nStephanie will provide more details on the ratings growth shortly.\nAllow us to discuss Peacock for a moment.\nFour months into the Peacock partnership, we are seeing the benefits of a streaming partnership with a platform that has broad distribution and continues to grow.\nSince moving to Peacock, viewership of our pay-per-view events have increased with Backlash up 26%, Hell In A Cell up 25%, and Money In The Bank up 46% from the prior year performance on what was the stand-alone WWE Network.\nThese viewership numbers are also up considerably from our pre-pandemic WWE Network numbers.\nAs you recall, when we announced the Peacock deal, we said one of the key reasons for the partnership was to bring the WWE product to a wider audience than those subscribed to WWE Network.\nWe expect viewership of WWE to continue to increase, particularly as Peacock rose its base of users.\nWe also wanted to discuss our return to live event touring with you.\nAs many of you know, we made our return to live event touring on Friday, July 16 with SmackDown on FOX from Houston, Texas.\nOne nuance to know here.\nThis was not a return to live events for us.\nWe held live events with fans via video screens throughout the pandemic, not one week of production missed.\nSo, again, this is really our return to touring with live fans, felt great for the fans, for our Superstars and for our business.\nNormally, we won't walk you through the specifics of events; however, today, allow me to give you a taste of how our live events are performing.\nOn Friday, July 16 at the Toyota Center in Houston, Texas, we sold out.\nThis event was the highest-grossing non-pay-per-view event in WWE history in Houston.\nOur merchandise sales for that night almost 50% greater than they were for our last event in Houston.\nPlease keep in mind that these merchandise figures come off of a phenomenal e-commerce sales period throughout COVID.\nTwo nights later at Money In The Bank on Sunday, July 18 at Dickies Arena in Fort Worth, Texas, we sold out.\nThis event was a highest-grossing non-WrestleMania event in WWE history in the Dallas-Fort Worth area.\nOur merchandise sales for that night, almost the 100% greater than they were for our last event in the area.\nThese two arena sold out prior to John Cena surprise return at the end of the second show, the end of the Money In The Bank show that is.\nThe very next night, Monday, July 19 at American Airlines in Dallas, just down the road from Fort Worth, with a highest paid attendance in Dallas in over three years, our merchandise sales for that night almost 50% greater than they were at our last 2019 event in the Dallas-Fort Worth area.\nOur next live event, SmackDown, this past Friday from Cleveland.\nThis event was our highest grossing non-pay-per-view gate in WWE history in Cleveland.\nOur merchandise sales for that night over 60% greater than they were at our last event in Cleveland.\nThat same night, this past Friday, we also made our first-ever appearance for either our Raw or SmackDown brands at a music festival in the U.S. Rolling Loud, the preeminent hip-hop music festival, which was in Miami, over 230,000 paid attendees over the course of that three-day event, two WWE matches including our SmackDown women's champion, Bianca Belair coming off of her and Sasha Banks' ESPY win for best WWE moment in front of over 75,000 fans on Friday night, almost all under the age of 25.\nWe saw strong merchandise sales there as well.\nThe next night, we held our first non-televised live event since the pandemic from Pittsburgh.\nThis was the highest-grossing non-televised live event gate in WWE history in Pittsburgh, 95% of tickets sold.\nOur merchandise sales for that night, more than 25% greater than they were at our last event in Pittsburgh.\nAnd the night after that, another non-televised live event from Louisville, Kentucky.\nThis was the highest-grossing event at the KFC Yum Center in WWE history and a highest paid attendance for a non-televised event in Louisville in over five years.\nOur merchandise sales for that night, more than 25% greater than they were at our last event in Louisville.\nOn Raw this past Monday, just three nights ago from Kansas City, Missouri.\nThis is our highest grossing WWE non-pay-per-view event in Kansas City in 14 years.\nOur merchandise sales for that night were almost 50% greater than they were at our last Kansas City event.\nAlso in the quarter, we added the ability to purchase merchandise via our app for in-venue pickup or to be shipped from the venue to any location you choose.\nAlso, as you may recall, as part of our 2021 Live Events Calendar, we announced that SummerSlam would be taking place for the first time from an NFL stadium, from Allegiant Stadium in Las Vegas on a Saturday night, August 21.\nSaturday is a new Night for us in terms of a pay-per-view event.\nWithout a main event or even a card announced, we have sold over 40,000 of 45,000 tickets and we'll have a record gate for a non-WrestleMania event.\nFrom Rolling Loud, which I previously mentioned, Bianca Belair also announced with Atlanta Hawks Superstar, Trae Young that we'll be having a New Year's Day pay-per-view this January 1, again, a Saturday from State Farm Arena in Atlanta, Georgia, Atlanta expects over 300,000 visitors for New Year's weekend.\nNew Year's Eve is a Friday this year.\nThe college football playoff championship games are on that New Year's Eve, December 31, Friday.\nThe NFL, which traditionally goes on Saturday nights, when the college football regular season has ended, is not going on Saturdays late season with its new 18-week regular season.\nSo, we saw what we think as an opening on the sports calendar and we believe ticket sales and viewership will both be indicative of that.\nWe look for us to announce the rest of our 2021 calendar and most of our 2022 pay-per-view calendar shortly.\nAnother area where we are growing and believe we will continue to grow as our sponsorship business, Stephanie and our global sales and sponsorship team have delivered over 20 new and existing sponsors so far in 2021 with many of them Blue Chip companies and executed on a number of innovative activations that really only can be done by WWE.\nWe're bullish on this segment and we're confident brands looking for unique ways to reach consumers will see our record of success and seek us out.\nOne thing to note, we announced our first ever ring announcer competition on TikTok, sponsored by Pure Life Water where anyone can submit how they would announce one of our Superstars on their ring walk.\nThe winners will be the ring announcers for match at SummerSlam.\nSo far, there have been over 9 million views of the TikTok announcement and thousands of submissions.\nStephanie will have more on sponsorship and a few other items shortly.\nAs we look ahead to SummerSlam, we're planning our second NFT drop leading into SummerSlam this time with John Cena.\nThis follows our successful NFT launch with the Undertaker of WrestleMania.\nAs you're all aware, NFTs trading cards, memorabilia, all incredibly popular right now.\nWith our wholly owned intellectual property, we are uniquely positioned to capitalize on this growing business.\nLast, we announced this past Monday that we partner with Jason Blum in Blumhouse on our first scripted dramatic mini series.\nThe United States of America versus Vince McMahon, which will tell the story of the federal indictment of our Founder and CEO by the United States Attorney's Office in the Eastern District of New York.\nThe 30th anniversary of that not-guilty verdict and acquittal was just last week.\nWe're excited for this story to be told.\nThis is an exciting time for our business.\nAlthough we don't know precisely what the future holds, the return to our live event touring positions us at an inflection point in terms of our potential fan engagement and financial performance.\nAs Nick mentioned, we return to live event touring with fans in attendance on July 16 for the first time in well over a year.\nAs a smaller side, Triple H and I went outside to greet our fans in person before doors opened at the Toyota Center in Houston and the feeling was overwhelming.\nAnd the energy and excitement has only picked up, especially with the return of one of our biggest superstars, John Cena, kicking off what we have branded the Summer of Cena, taking us into SummerSlam.\nOur partners NBCU and Fox supported our return with different campaigns airing across their respective platforms and programing.\nFrom a production standpoint, WWE applied key learnings and techniques from producing virtual and physical television to upgrade our audio and visual experience, including the use of a 40-foot-tall by 80 foot wide state of the art curved LCD display for superstar entrances.\nIn addition, we are utilizing Epic's Unreal Engine 3D creation tool to generate a wide variety of augmented reality elements and surroundings, bringing our superstars to life in ways we have never done before.\nCosts associated are on par with 2019 per episode costs on average and we have seen the results translate into linear viewership.\nAs Vince was mentioning earlier, the July 16 episode of SmackDown generated a 21% year-over-year increase in total viewers and a 42% increase in the coveted 18 to 49 demo.\nSimilarly, the July 19 episode of Raw generated an 8% year-over-year increase in total viewers and a 15% increase in the 18 to 49 demo.\nStrong demand for live event tickets and the increase in television ratings builds upon favorable trends in key operating metrics evident in the second quarter.\nTV viewership continued to remain stable, maintaining a trend that began when we transitioned out of the performance center and invested in WWE ThunderDome at the end of August.\nFrom that time to the end of the second quarter, Raw ratings have increased modestly and SmackDown ratings have increased 7%.\nSince the return of our live audience, however, Raw ratings are up 22% in the 18 to 49 demo and SmackDown ratings are up 20%.\nIn the quarter, digital consumption increased 5% to a quarterly record of 394 million hours and video views increased 13% to 11.2 billion as compared to a prior-year period that benefited from COVID-19 related viewing trends.\nThe growth included a three-time increase in Facebook hours and a two-time increase in views as viewers demonstrated interest in current and past events.\nWWE is also driving value outside of our in-ring programing.\nWe saw solid performance for A&E's WWE biographies and Most Wanted Treasures series increasing A&E's Sunday night performance by 90% in the 18 to 49 demo and increasing total viewership by 21%.\nWhether it is with Hearst Communications via A&E, Fox, Comcast, Netflix or Facebook, WWE continues to make a positive impact for our partners.\nAdditionally, WWE sales and sponsorship revenue increased 43% year-over-year.\nAs I mentioned during our last call, brands are looking for unique ways to engage with their consumers that goes well beyond generating impressions.\nWWE is perfectly positioned to do just that with an ability to create customized content experiences across multiple lines of business and utilize WWE superstars that resonate with target audiences.\nA recent example includes a full on zombie invasion to promote Netflix's original production's Army of the Dead as the presenting partner of WrestleMania Backlash.\nThe show opened with a cool video mashup of Army of the Dead and WWE storylines, narrated by WWE legend Dave Bautista who is also the star of the film, setting the tone for the night.\nZombies randomly appeared in backstage scenes and popped up as a part of the virtual audience, only to then have zombies actually surround the ring and be a part of the action when Miz faced Damian priest.\nThe results speak for themselves.\nIn addition to generating over 0.5 billion growth impressions, we saw 25 million content views across digital and social and three of the 14 trending topics from that night were directly tied to the integration.\nThe cultural impact and disruption during and after WrestleMania Backlash played a significant role in the film's quicker sent to becoming one of the top 10 most-watched movies in Netflix history.\nComing off the heels of our fall 2020 partnership announcement with Credit One Bank, we officially launched the WWE Championship Credit Card this past June, giving card members the opportunity to show their affinity for WWE while earning cash back rewards on everyday purchases.\nRecognizing our ability to reach consumers, we recently completed a deal with Blue Triton brands, the corporate parent of Pure Life water, the official water of SummerSlam.\nPure Life is activating in multiple ways across WWE's portfolio tied to SummerSlam including sponsoring the aforementioned SummerSlam ring announcer TikTok challenge, providing product to WWE community partner events and sponsoring our summer slam after party, which we announced yesterday, will be hosted by celebrity and comedian, Tiffany Haddish in support of her foundation, the She Ready Foundation.\nIn the quarter, we also released our 2020 community impact report to nearly 5,000 global partners.\nThe report highlighted our various initiatives through the pandemic including generating 12.5 million in kind media value and over 650 million impressions for our community partners as WWE continues to deliver on our mission of putting smiles on people's faces.\nIn our view, WWE is well positioned to continue to elevate our brand, grow our business and engage new and existing consumers across media platforms.\nToday, I'll discuss WWE's financial performance.\nAs a reminder, all comparisons are versus the year ago quarter unless I say otherwise.\nIn the second quarter, WWE generated solid financial results as we focused on driving fan engagement, strengthening our organization and increasing efficiency in our content production.\nTotal WWE revenue was $265.6 million, an increase of 19% reflecting the increased monetization of content across platforms, including growth from the staging of WrestleMania with ticketed fans in attendance.\nAdjusted OIBDA declined 7% with $68.1 million, primarily due to higher television production expenses associated with the staging of WWE ThunderDome and to a lesser extent WrestleMania at Raymond James Stadium, both of which were produced in our performance center a year ago.\nIn addition, adjusted OIBDA was impacted by increased personnel expenses as our employees fully returned from furlough by the end of 2020.\nFinally, during the quarter, we combine WWE's television, digital and studio teams into one organization for a more unified content strategy and more streamlined content production.\nThe related severance expense of $8.1 million dollars has been excluded from adjusted OIBDA as a material non-recurring item.\nLooking at the WWE Media segment adjusted OIBDA was $86.2 million, a decline of 5% as increased revenue and profit from WWE's licensing agreement with Peacock and the escalation of core content rights fees were more than offset by increased production expenses.\nDespite what continue to be a challenging environment, WWE produced a significant amount of content, more than 680 hours in the quarter across television, streaming and social platforms.\nAt the start of the quarter, we transitioned WWE's ThunderDome from Tropicana Field in St. Petersburg, Florida, Florida to the Yuengling Center in Tampa Bay.\nRecall that in the second quarter of 2020, we were producing a BareBones Production out of our performance center in Orlando.\nWhile our operating results continue to be impacted by the year-over-year increase in production expenses, associated with live streaming nearly 1,000 live virtual fans into our show, we also continue to achieve greater production efficiencies relative to our own expectations.\nWith the return to touring in July, we expect that production expenses for Raw and SmackDown will continue to decline on a sequential quarter basis, approximating their average per episode costs in 2019.\nThis is a tremendous feat from our television production team, which created the award winning ThunderDome environment using state-of-the-art technology, all while producing shows every single week throughout the pandemic with a constant eye on efficiency.\nLive events adjusted OIBDA was $1.1 million, increasing $5.3 million due to an 8 times increase in revenue with the staging of WrestleMania.\nThis premiere event entertained ticketed fans and an audience of over 50,000.\nRecall that in the year ago quarter, we staged no live events with ticketed fans.\nAs we have said, we are thrilled by the return of regular ticketed events.\nCurrently, for our announced return schedule, we anticipate ticket demand and profit per event that is least on par with 2019.\nThe improved performance reflects heightened consumer demand and a more analytics efficiency-oriented approach by our Live Events team in the scheduling, routing and staging of our events.\nThe modest decline in sales on our e-commerce site, WWE Shop, reflected a tough comparison to strong COVID-related sales in the prior year quarter.\nAs a reminder, in the second quarter last year and in each quarter through year-end 2020, growth in e-commerce revenue nearly offset the absence of venue merchandise revenue due to the cancellation of live events.\nIn previous earning calls, we have discussed how the introduction of new products such as new toys, title belts and mobile games has generated growth in WWE's Consumer Products business.\nThis quarter, I'd like to focus on how we're applying technology to enhance product sales.\nDuring the quarter, we introduced a new branded app at WrestleMania for pre-ordering merchandise.\nThe app enables our fans to order merchandise before as well as during the event and to pick up merchandise at a specific location within the venue.\nThis means that at key upcoming events such as SummerSlam, we can expand the sales window and increase sales volumes without significantly increasing the number of transaction sites.\nDuring the quarter WWE generated approximately $13 million in free cash flow, declining $54 million primarily due to the timing of collections associated with network revenue and to a lesser extent lower operating performance.\nDuring the second quarter, WWE returned approximately $28 million of capital to shareholders including $19 million in share repurchases and $9 million in dividends paid.\nTo-date, more than $177 million of stock has been repurchased, representing approximately 35% of the authorization under our $500 million repurchase program.\nAs of June 30, 2021, WWE held approximately $443 million in cash and short-term investments.\nDebt totaled $220 million including $198 million associated with WWE's convertible notes.\nThe company has not drawn down on its revolving line of credit and estimates relative debt capacity of approximately $200 million.\nAnd finally, a word on WWE's business outlook.\nIn January, WWE issued adjusted OIBDA guidance of $270 million to $305 million for the full year 2021.\nDuring the second quarter, key performance metrics demonstrated positive trends and we continue to realize better than expected television production efficiencies, stronger sponsorship sales and heightened demand for live events.\nHowever, we are not adjusting full year 2021 guidance at this time given ongoing caution regarding the potential impact of COVID-19 and its variance on WWE's operations.\nFor the third quarter 2021, we estimate adjusted OIBDA will decline.\nIncremental profits from the return to live event touring and the growth of content rights fees will be more than offset by increased television production and other operating expenses.\nAs a reminder, the majority of the third quarter of 2020, we remained in our performance center in Orlando, Florida, the site where we have the lowest production costs.\nWe did not move into WWE's ThunderDome until the end of August 2020.\nSo, beginning in the fourth quarter of 2021, we expect more favorable year-over-year comparisons of television production expenses, as well as sustained profit from our return to touring.\nHowever, given the ongoing uncertainty regarding the potential impact of COVID-19 and its variants, we are not receiving more specific quarterly guidance at this time.\nFinally, turning to WWE's capital expenditures.\nAs mentioned last quarter, we anticipate spending on the Company's new headquarters as we restart this project in the second half of 2021.\nFor 2021, we've estimated total capex of $85 million to $105 million to begin construction as well as to enhance WWE's production and technology infrastructure.\nThe increase in capital expenditures for 2021 reflects the acceleration of certain construction spends, as the overall cost of construction has not materially increased.\nThe total net cost of the Company's new headquarters through completion and net of tenant incentive tax credits and other capital offsets is estimated within a range of $160 million to $180 million.\nIn the second quarter, WWE generated solid financial results as we prepared for WWE's return to live event touring.\nPositive trends in WWE's key performance metrics and expectations of sustained performance, reinforce our belief that continued innovation can enhance WWE fan engagement and drive the value of our content and products.\nPlease open the line.",
        "summary": "compname reports q2 revenue of $265.6 mln.\nq2 revenue $265.6 million versus refinitiv ibes estimate of $254.4 million."
    },
    {
        "text": "On the call today are Blake Krueger, our Chairman and Chief Executive Officer; Brendan Hoffman, our President; and Mike Stornant, our Senior Vice President and Chief Financial Officer.\nReferences to underlying performance reflect the exclusion of the recently acquired Sweaty Betty brand.\nThese disclosures were reconciled in attached tables within the body of the release.\nI hope everyone on the call is safe and well.\nConsumer demand for our market-leading brands and product offerings continues to surge and exceeded our expectations in Q3.\nOur strategic focus on a deeper connection with consumers, digital and DTC capabilities and product and design innovation is paying dividends.\nWhile the supply chain challenges that have been well documented across many industries has limited our ability to fully service this growing demand in the short-term, I have never been so enthusiastic about our future and our outlook for 2022.\nEarlier today, we reported over 29% revenue growth versus 2020 and 11% over 2019.\nThird quarter revenue was approximately $637 million.\nEarnings leverage driven by gross margin increases was very good.\nWe estimate that factory closures and logistics delays impacted Q3 by at least $60 million.\nThe Wolverine Michigan Group's revenue was up 13% year-over-year and the Wolverine Boston Group's revenue was up over 33%.\nBoth groups delivered growth over 2019.\nAdjusted earnings per share for the company were $0.62 in line with our expectation despite the shortfall in revenue driven by macro supply chain issues.\nWe believe the company is well positioned to deliver accelerated future growth with a number of fundamental elements supporting our enthusiasm.\nOur brand portfolio strategy and international distribution base continue to reduce risk and provide a meaningful strategic benefit in the current environment as the company is not dependent on any single product category, geographic region, consumer group or distribution channel.\nWhile consumer lifestyle choices have increased demand for performance product, the underlying trends in this category are long-term in nature and are expected to persist.\nConsumers are increasingly focused on health and wellness with running, hiking the outdoors and exercise in general, serving as the primary activation to this mindset.\nParticipation in running in the U.S. has increased every year over the last five years.\nAnd a significant majority of new runners today they plan to continue running in the future.\nParticipation in all outdoor activities, including hiking, walking and boating has also increased with over 20 million new hikers in the U.S. alone since 2015.\nThis past spring and summer, National Park shattered attendance records and new boat purchases and water activities in general reached a 13-year high.\nConsumers' renewed affinity for the outdoors is expected to continue into the future, especially as consumers begin to travel again.\nThe work category has also showed strong growth supported by healthy macro industry conditions and work wear fashion tailwinds.\nWarehousing jobs have more than doubled since 2005 and construction companies are expected to hire hundreds of thousands of additional workers over the coming months.\nLooking ahead, the passage of a major infrastructure plan in the U.S. will further boost momentum in this category.\nAcross all brands and product categories, we have placed our consumers at the heart of our global strategy, and that has changed how we bring product to market and operate the business.\nThis strategic focus led to our recent acquisition of Sweaty Betty, a trend right women's active wear brand that adds a very meaningful DTC business to our portfolio with over 80% of revenue generated through DTC channels.\nIncluding Sweaty Betty, DTC e-commerce revenue more than doubled in Q3 relative to 2019 and our DTC stores are up over 35% versus that year.\nOur owned online business and the online business of our wholesale customers now account for over 30% of global revenue.\nTogether with the DTC businesses operated by our distributor partners around the world, nearly 40% of our global revenue and a larger percentage of our payers is now generated through consumer direct channel, enabling enhanced brand shopping experiences, a wealth of consumer insights and data and a more efficient business model.\nWe continue to capitalize on the fundamental consumer trends that are playing out in the market.\nIn addition to our strong DTC business, these trends are reflected by continued strength in retail sell-through and a historically high order backlog that now extends into Q3 of 2022.\nWe remain bullish on our outlook in light of these trends and the composition of our brand portfolio, which over indexes in trending performance and lifestyle categories.\nWe expect strong long-term consumer demand, especially for Saucony, Merrell, Sweaty Betty, our work brands and Sperry, which will launch a line of products in the active sport category next spring.\nFor our call today, Brendan Hoffman will provide some additional insight on key brand performance during the quarter.\nMike Stornant will review our Q3 financial performance and updated outlook in more detail.\nAnd I'll conclude with some final remarks.\nWith this, I'll now hand it over to Brendan.\nIn the third quarter, we acquired sweaty Betty, a powerhouse brand that operates in the global addressable active wear market of over $200 billion.\nThe brand delivers on our key strategic priorities by delivering a powerful line of industry-leading products, expanding our direct-to-consumer presence and growing our business internationally.\nWe plan to leverage these strengths by deploying Sweaty Betty's best practices and apparel expertise across our portfolio.\nThe business grew over 50% in the third quarter, ahead of our expectations.\nLess than three months after welcoming Sweaty Betty to the Wolverine family, we are even more excited about the growth potential, product collaborations and operational synergies in front of us.\nSaucony delivered a very strong performance in Q3 with more than 40% growth over 2020 and 60% versus 2019 despite some supply chain challenges.\nsaucony.com was up more than 50% and nearly tripled 2019.\nThe brand has seen global success with all regions contributing significant growth.\nOutside of the U.S. market, technical running and lifestyle performance in Europe was especially strong, up 30% versus 2020.\nOur Saucony Originals lifestyle business continues to perform well, especially internationally.\nOur performance in Europe continues to accelerate, while the Asia Pacific region is a big opportunity for us moving forward with the brand delivering over 60% growth in Q3.\nSaucony stores and the online business are performing well in China as the brand's joint venture there continues to gain momentum.\nSaucony continues to deliver a consistent flow of powerhouse performance product and trend-right lifestyle product.\nThis has translated to consistent robust growth for the brand over the last several quarters, and we expect this to continue into 2022.\nThe road running category leads the way, including the recent launches of the new Ride 14, the brand's biggest franchise shoe and Triumph 19.\nSaucony's trail running business also grew by more than 40% in the quarter.\nLet me shift to Merrell.\nThe brand continues to experience record demand and great momentum in all global channels.\nDuring Q3, Merrell was impacted by factory closures in Vietnam, which resulted in missed revenue opportunities of at least $25 million.\nDespite these challenges, Merrell still delivered mid-single-digit growth in the quarter versus 2020.\nMerrell's DTC business grew mid-single-digits in the quarter with merrell.com building on its nearly doubling of the business last year.\nMerrell stores also continued to outperform our expectations, a promising indicator of the strength of the brand and the consumers return to shopping in stores.\nMerrell holds the number one U.S. market share position in the hike category and is the category leader in many key markets across the globe.\nWhile Merrell continues to successfully optimize its well established and market-leading core product franchises, fresh innovative product offerings are driving brand's heat and new consumer interest.\nThe Moab Speed and Moab Flight collections are energizing the performance category.\nThese styles represent the brand vision for fast, lightweight footwear for the trail and light hiking and also build on the heritage and success of the world's number one hiker, The Moab.\nThis momentum is further fueled by the uptick in organic media placements that bridge both performance and lifestyle.\nFor example, Annie Leibovitz used the Moab Speed in the September issue of Vogue for a major photo shoot and style with the Louis Vuitton jacket and skirt.\nAdditionally, Merrell was featured on The Today Show during Q3, showcasing the Moab Speed, which aligns well to the brand's Step Further campaign, encouraging increased commitment to the outdoors.\nBoth collections have exceeded our expectations, and we are excited about the potential for new performance collections in 2022.\nMerrell's Lifestyle business performed better than the brand's overall growth in Q3.\nWe are seeing positive results from our strategic focus on further elevating Merrell as a lifestyle brand.\nRecent brand health research indicates that consumers are incorporating Merrell into their own identity at an increasingly higher degree.\nThese trends are manifesting in the strong performance we are seeing in lifestyle product, including the Hydro Moc and the newly launched Cloud all-day casual sneaker collection made with eco-friendly materials.\nAs we mentioned on our Q2 call, Merrell introduced its 1TRL capsule collection on merrell.com, which focuses on younger, fashion-forward consumers demanding authentic outdoor influenced style.\nLooking ahead, Merrell possesses a substantial growth opportunity globally, particularly in EMEA, which has seen increasing momentum for several quarters, and in Asia Pacific where the China JV is just beginning to gain momentum.\nOutdoor and performance trends are strong around the world, and Merrell is capitalizing on its heritage and brand positioning.\nIn Q3, our work business accounted for nearly 20% of total revenue and the category continued to deliver strong growth with Wolverine, the leader in the U.S. work boot category, up over 16%, Cat Footwear, up nearly 40% and with strong contributions from our smaller brands.\nAs Blake indicated, we expect continued strong growth in the work category as we pivot toward 2022.\nBased on the performance of Merrell, Saucony, Sweaty Betty, Wolverine and our other work brands, our performance business developed growth of nearly 30% over 2019 during the third quarter.\nThe Sperry brand continued its steady recovery in Q3 with over 40% growth.\nThe brand's DTC business was up 25% driven by ongoing e-commerce growth and very good Sperry stores performance.\nAll product categories delivered strong double-digit increases in the quarter.\nThe overall boat market showed strong growth, particularly in men's, and Sperry gained significant market share growth in this key category.\nFrom a fashion standpoint, there are clear indications that we are at the forefront of a boat shoe trend with very encouraging demand from key retailers for the first half of 2022.\nI hope you all saw 007 James Bond wearing a pair of our iconic boat shoes in No Time To Die.\nIn the coming months, Sperry plans to build on the energy created by recent collaborations with Rowing Blazers and Netflix Outer Banks and product capsules with John Legend and Rebecca Minkoff.\nThe brand is also well positioned for the current seasonal women's boot business with strong demand and healthy inventory levels.\nSperry will also leverage the easy on-off trend during Q4 with the new Moc Sider and the Cozy Float collections.\nIn Spring '22, the brand will launch its new Sperry Sport collection through a path into macro consumer trends with more trend-right performance-based product for the water.\nLooking forward, our product lines are robust across the brand portfolio and order demand continues to strengthen.\nWe have been flexible and responded quickly to navigate the ongoing macro supply chain challenges to service the increased demand we are seeing in nearly every brand.\nWe believe strong product coupled with more precise merchandising and consumer focus as well as healthier inventory positions will drive growth over the next year.\nOur DTC channels remain a top priority and a source of opportunity for the business.\nWe have pivoted to a more dynamic e-commerce operating model to enable faster implementation of technical enhancements and new commercial capabilities, which will also help us extend improved online functionality to our global online wholesale customers.\nIn addition to our global DTC e-commerce business, we are seeing meaningful wholesale growth with our online retail customers.\nAs global economies have reopened, we have seen consumers shift a portion of their spending back to brick and mortar stores.\nAbout 50% of our footwear is now sold online in the important U.S. market.\nThis bodes well for the current brand operating model that we are executing, including a more continuous product flow and best-in-class digital marketing content to benefit all channels.\nWe continue to look closely at our store fleet and suspect there may be favorable and profitable opportunities for us to explore as we expand our footprint in key markets starting in 2022.\nI'm now going to hand it off to Mike to review the third quarter financial results and our increased 2021 outlook in more detail.\nLet me start by reviewing the company's strong third quarter financial performance, and then I'll cover our revised outlook for 2021.\nThird quarter revenue of approximately $637 million represents growth of over 29% compared to the prior year and includes $39 million from the recently acquired Sweaty Betty business.\nOn a pro forma basis, Sweaty Betty grew over 50% versus 2020.\nBased on increased consumer demand experienced across the portfolio during the quarter, the company was on track to deliver just under $700 million in third quarter revenue.\nBut as Blake mentioned, the unprecedented factory closures and other well documented supply chain disruption impeded our ability to service this strong demand.\nDespite these headwinds, Saucony and Sperry each delivered over 40% growth.\nMerrell was impacted most heavily by the factory closures in Southern Vietnam, yet still delivered mid-single-digit growth.\nOur work business also continued to drive meaningful growth at over 20%.\nAdjusted gross margin improved 330 basis points versus the prior year to 44.6% due to the higher average selling prices, favorable product mix and the addition of Sweaty Betty for nearly two months of the quarter.\nMerrell, Saucony and Sperry all well exceeded gross margin expectations in the quarter, a testament to their strong position in the marketplace and robust pipeline of relevant trend-right product.\nSweaty Betty's premium positioning, distinctive product offering and strong consumer trends are yielding robust gross margins which are accretive to our underlying business in Q3.\nTotal air freight costs were approximately $10 million in the quarter, of which $7 million was excluded from our adjusted results.\nIncluding the full air freight impact, our adjusted gross margin would have been 43.5% still 220 basis points higher than last year.\nWe continue to use air freight where appropriate to mitigate exceptional supply chain delays caused specifically by COVID.\nAdjusted selling, general and administrative expenses of approximately $208 million were $56 million more than last year, primarily due to increased revenue, the addition of Sweaty Betty and increased marketing investments.\nAdjusted operating margin was 12% for Q3, an improvement of 140 basis points over last year and ahead of our expectations.\nThis very strong leverage on the company's revenue growth resulted from gross margin expansion and a balanced operating expense management.\nAdjusted diluted earnings per share were $0.62 compared to $0.35 in the prior year, growth of 77% or 3.5 times our revenue growth in the quarter.\nReported diluted earnings per share were breakeven and include a number of non-recurring or exceptional items comprised of approximately $34 million of cost related to bond retirements executed in the quarter to significantly improve the company's capital structure and future liquidity, including future savings of nearly $10 million in annual interest expense.\nApproximately $10 million of cost directly related to the acquisition of Sweaty Betty.\nApproximately $17 million of costs related to our legacy environmental matters.\nIncluding ongoing defense costs and an estimate of potential future settlement costs for a portion of the outstanding litigation.\nAnd finally, approximately $7 million of air freight considered to be well above normalized levels based on historical experience.\nDuring the quarter, the company and 3M entered into a non-binding term sheet outlining proposed settlement terms on certain individual lawsuits filed against the company related to our legacy environmental issue.\nWhile the proposed settlement remains subject to finalizing terms and contingencies that allow any of the parties to opt out of the proposed settlement, we believe this is another important step toward potential resolution of these matters.\nLet me now shift to the balance sheet.\nTotal inventory grew approximately 26% versus 2020, including 16 percentage points of growth from Sweaty Betty.\nUnderlying inventory was up approximately 10% compared to last year and still down compared to 2019.\nOur inventory position has improved over the last two quarters, especially for Saucony, Sperry and our work brands, but is still not in line with the higher demand.\nMerrell continues to manage through the recovery from closed Vietnam factories which has put more pressure on inventory levels.\nBased on current visibility, inventory levels will continue to improve as we benefit from supply chain diversification, the addition of several new factories and incremental capacity for 2022, higher production orders placed in mid-2021 and other actions we have taken to counterbalance macro supply chain headwinds.\nSince August 1, we acquired Sweaty Betty for approximately $410 million.\nThe purchase was financed through a combination of existing cash and borrowing under the company's revolver.\nWe also executed some important refinancing activities to support future growth and optimize our capital structure, most notably, a bond refinancing and a new credit facility that gives us added liquidity and flexibility to invest in growth.\nAs a result of these recent actions, we've added a powerhouse growth brand to the portfolio and our balance sheet remains extremely healthy with total liquidity of approximately $800 million.\nI will now provide an update on our outlook for the rest of 2021.\nFirst let me focus on the strength of demand signals across the portfolio that support a very optimistic outlook for growth over the next several quarters.\nOur order book remains at historically high levels and provides very clear demand visibility for our global wholesale and distributor businesses well into 2022.\nRetail sell through continues to be very strong.\nDespite shipment delays and supply chain disruption, our order cancellations have been limited as retailers remain committed to our industry-leading brands and product offerings.\nThe positive momentum of our performance and work footwear brands continues, and now Sperry is beginning to show signs of a healthy recovery.\nSweaty Betty is now the fourth largest brand in our portfolio and is driving outpaced growth.\nTrends in our DTC business remains strong with year-to-date underlying e-commerce revenue up nearly double 2019 and year-to-date underlying store revenue up mid-teens.\nFinally, demand in our APAC and Latin America regions is recovering nicely as we transition to spring 2022, and we see near-term strength across many international markets.\nAll of these indicators give us great confidence for the future.\nThe strength of new product offerings and improved go to market tactics across the portfolio will allow us to continue to fuel growth despite the macro supply chain headwinds that we believe will persist well into 2022.\nIn the short-term, the impact of factory closures and a volatile logistics environment is having an unplanned negative impact on revenue for the last four months of 2021.\nAs a result, we are adjusting our fiscal 2021 outlook.\nWe now expect fiscal 2021 revenue of approximately $2.4 billion, growth of nearly 35% compared to the prior year and approximately 28% growth on an underlying basis.\nDespite the shorter term supply chain impact, we still expect to deliver up to 25% growth in the fourth quarter.\nThere will be ongoing cost pressure related to higher freight and logistics costs throughout the fourth quarter, and we will continue to invest behind our future growth opportunities, including brand enhancing marketing and key talent.\nWe now expect full year adjusted diluted earnings per share in the range of $2.05 to $2.10 and Q4 adjusted diluted earnings per share of $0.38 to $0.43, representing 100% growth over 2020 at the high end of that range.\nFull year reported diluted earnings per share are now expected in the range of $1.16 to $1.21.\nWe have good line of sight to the start of 2022 and have great enthusiasm for continued brand momentum as we pivot into the New Year.\nWhile certain known supply chain headwinds will continue to be in play, we still expect to deliver mid-teens underlying growth and mid-20s overall growth in the first quarter of 2022.\nOur confidence in delivering double-digit underlying growth next year remains very high, and we believe Sweaty Betty adds significantly to the growth profile of the company.\nWith that, I will hand it back over to Blake for some closing remarks.\nOur healthy growth and strong financial performance in Q3 are a testament to the company's strategic focus and accelerated brand investments.\nOver the last several years, we've consistently invested behind digital and DTC capabilities, technology, talent and the e-commerce as well as product innovation and design.\nIn Q3, we made an important acquisition of Sweaty Betty, which will be an important catalyst for growth across our performance brands.\nOur product pipeline is robust, consumer demand is surging and brand heat and ongoing trends favor our brand.\nWe are confident as we plan for double-digit growth in 2022.\nThe advantageous position we find ourselves in today is a credit to our team's expertise and relentless work, especially over the last couple of years.\nGlobal marketplace continues to be dynamic and fast changing and our people and company are excelling in this environment.",
        "summary": "wolverine world wide sees fy21 adjusted earnings per share to be in range of $2.05 to $2.10.\nsees fy21 adjusted earnings per share to be in range of $2.05 to $2.10 .\nsees fy revenue up 35 percent.\nsees fy revenue about $2.4 billion.\nquarterly adjusted earnings per share $0.62.\nsees fy21 diluted earnings per share to be in range of $1.16 to $1.21.\nsees fy21 adjusted to be in range of $2.05 to $2.10."
    },
    {
        "text": "We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website.\nI'm extremely proud of our team's accomplishments in the second quarter.\nTheir collective efforts delivered the company's strongest quarterly adjusted EBITDA on record at $1.6 billion, surpassing last quarter's record by 43%.\nOur year-to-date adjusted EBITDA is almost $2 billion higher than the first half of 2020.\nWood Products delivered another record quarter at $1.4 billion of adjusted EBITDA, surpassing last quarter's record by 56%.\nTurning now to our second quarter business results.\nI'll begin the discussion with Timberlands on Pages five through eight of our earnings slides.\nTimberlands earnings and adjusted EBITDA improved by approximately 5% compared with the first quarter.\nIn the West, adjusted EBITDA increased slightly in the second quarter.\nWestern domestic markets remained favorable despite the decline in lumber prices late in the quarter and a healthy supply of logs to the market.\nDemand remains strong as mills took precautionary measures to bolster log inventories in response to an early fire season resulting from persistent dry conditions in a period of extremely high temperatures.\nThis steady demand pull drove our sales volumes modestly higher during the second quarter.\nSalvage operations from last year's fires in Oregon are continuing to supply an abundance of smaller diameter logs to the market.\nConsequently, prices for smaller diameter logs in Oregon have experienced some downward pressure.\nAs a result of this dynamic, our domestic sales realizations were slightly lower in the quarter.\nTo date, we've harvested nearly 2/3 of our planned salvage volume in Oregon.\nSalvage productivity has slowed somewhat as warm summer weather arrived early and we began to transition salvage harvest operations into higher elevation tracks, which generally have lower productivity and higher operating costs.\nForestry and road costs were seasonally higher during the quarter as we do a significant amount of this work during the warmer summer months.\nTurning to our export markets.\nIn Japan and China, demand for our logs remained strong, and our sales realizations increased significantly.\nGlobal logistics constraints, particularly with respect to shipping container availability and strong North American lumber prices continued to impact the availability of imported lumber into Japan and China.\nThis has resulted in strong demand for locally produced lumber and increased demand for imported logs.\nAdditionally, a ban on Australian logs continues to reduce the supply of imported logs to China.\nOur China sales volumes increased in the quarter as we intentionally flexed volume from the domestic market to capitalize on strong demand signals and pricing from our Chinese customers.\nMoving to the South.\nSouthern Timberlands' adjusted EBITDA increased by approximately 10% compared with the first quarter.\nSouthern sawlog markets improved due to record lumber and panel pricing for most of the quarter and supply limitations resulting from persistent wet weather.\nFiber markets also strengthened as mill inventories remain lean and wet conditions constrained supply.\nAs a result, our sales realizations were slightly higher than the first quarter.\nFee and sales volumes were significantly higher in the quarter despite impacts from multiple heavy rain events across the Gulf South.\nThe wet weather in the quarter did, however, limit our ability to catch up on delayed harvest from the first quarter snow and ice events.\nLog and haul costs increased slightly, and forestry and road costs were seasonally higher.\nAlthough Southern export represents a small component of our operations, we continue to see strengthening demand signals from China and India, resulting in increases in both sales volumes and realizations in the second quarter.\nHowever, container availability and increased freight rates continue to be a notable headwind.\nIn the North, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions, partially offset by significantly higher sales realizations.\nTurning to real estate, energy and natural resources on Pages nine and 10.\nEarnings and adjusted EBITDA decreased by approximately 5% compared with the first quarter due to timing of real estate sales and mix of properties sold, but were significantly higher than the year ago quarter.\nEarnings increased by more than 230% compared with the second quarter of 2020.\nDemand for HBU properties has been very strong year-to-date and average price per acre remains elevated compared to historical levels.\nWe continue to capitalize on this market and have been increasing our prices in many regions.\nThis is resulting in a steady stream of high-value transactions with significant premiums to timber.\nIn Energy and Natural Resources, production of construction materials increased as demand remained strong during the quarter.\nWood Products, Pages 11 through 13.\nWood Products earnings and adjusted EBITDA improved by almost $0.5 billion compared with the prior quarter.\nOur lumber, OSB and distribution businesses all established new quarterly adjusted EBITDA records in the second quarter.\nThese exceptional results were delivered, notwithstanding ongoing challenges with transportation and resin availability in the quarter.\nIn the lumber market, average framing lumber composite pricing increased 29% compared with the first quarter.\nLumber demand was strong during the first half of the quarter, but began to soften as do-it-yourself repair and remodel activity weakened toward the latter part of May.\nThe drop-off in the do-it-yourself segment, largely a result of changing consumer spending habits coming out of COVID restrictions and to some extent, record high lumber prices resulted in lower sales activity and higher inventories at the home centers and treaters.\nAs a result, lumber prices peaked in late May and retreated at a rapid pace for the remainder of the quarter.\nAlthough inventories at home centers and treaters increased, inventory levels at dealers and distributors serving the homebuilding and professional repair and remodel segments remained below normal at quarter end.\nBuyer positioning remains cautious with the reluctance to build meaningful inventory positions and a dynamic pricing environment.\nAdjusted EBITDA for lumber increased $291 million or 57% compared with the first quarter.\nOur sales realizations increased by 25% and sales volumes increased moderately.\nLog costs increased slightly in the second quarter, primarily for Canadian logs.\nOSB markets experienced historic strength in the second quarter as demand continued to outpace supply.\nInventories remain lean throughout the channel and supply constraints persisted due to resin availability and transportation challenges.\nAs a result, pricing continued to accelerate to record levels before peaking at the end of the quarter.\nAverage OSB composite pricing increased 52% compared with the first quarter.\nOSB adjusted EBITDA increased by $172 million or 57% compared to the first quarter.\nOur sales realizations improved by 48%.\nProduction and sales volumes decreased modestly and unit manufacturing costs increased, primarily due to a planned extended maintenance outage to complete a capital project at our Elk in OSB mill.\nFiber costs were slightly higher in the quarter, primarily for Canadian logs.\nEngineered Wood Products adjusted EBITDA increased $11 million compared to the first quarter, a 26% improvement.\nSales realizations improved across all products, and we continue to benefit from the price increases announced over the last year for solid section and I-joists products.\nThis was partially offset by higher raw material costs for oriented strand board web stock, resin and veneer.\nSales and production volumes increased for solid section and I-joists products.\nIn Distribution, adjusted EBITDA increased $36 million compared to the first quarter, a 92% improvement as strong demand drove higher sales volumes for most products and the business captured improved margins.\nI'll begin with our key financial items, which are summarized on Page 15.\nWe generated over $1.3 billion of cash from operations in the second quarter and over $2 billion year-to-date.\nThese are our highest first half operating cash flows on record.\nAdjusted funds available for distribution or adjusted FAD for year-to-date second quarter 2021 totaled nearly $1.9 billion, with approximately $1.2 billion related to second quarter operations, as highlighted on Page 16.\nYear-to-date, we have returned $255 million to our shareholders through payment of our quarterly base dividend.\nAs a reminder, we target a total return to shareholders of 75% to 80% of our annual adjusted FAD; in the case of 2021, the majority will be returned to the variable supplemental component of our new dividend framework.\nTurning to the balance sheet.\nWe ended the quarter with approximately $1.8 billion of cash and just under $5.3 billion of debt.\nDuring the second quarter, we repaid our $225 million variable rate term loan due in 2026 and incurred no early extinguishment charges.\nWe plan to repay our $150 million 9% note when it matures in the fourth quarter.\nLooking forward, key outlook items for the third quarter and full year 2021 are presented on Pages 17 and 18.\nIn our Timberlands business, we expect third quarter earnings and adjusted EBITDA will be approximately $25 million lower than second quarter.\nTurning to our Western Timberland operations.\nDomestic mills ended the second quarter with ample inventory.\nWe anticipate slightly lower domestic log sales realizations in the third quarter, absent significant fire-related disruption.\nThis is primarily due to modestly lower pricing for smaller diameter sawlogs.\nWe expect large log pricing will remain favorable due to limited supply and strong export demand.\nWe anticipate seasonally higher forestry and road spending as those activities accelerate with favorable weather conditions.\nTypical of the drier, warmer summer months, harvest activity will focus on higher elevation tracks where operations are less productive, resulting in slightly lower fee harvest volumes and higher per unit log and haul costs.\nMoving to the export markets.\nIn Japan, log demand remains strong.\nWe expect our third quarter sales realizations and log sales volumes to be generally comparable to the second quarter.\nIn China, we anticipate significantly higher sales volumes and slightly higher sales realization.\nAlthough Chinese log demand generally moderates during the summer rainy season, we expect demand for U.S. logs will remain strong as imports from other countries remain constrained.\nIn the South, we anticipate significantly higher fee harvest volumes as well as higher per unit log and haul costs during the third quarter due to a seasonal increase in activity.\nAlthough our sawlog and fiber log pricing should be comparable to the second quarter, we expect average sales realizations will be slightly lower due to a higher percentage mix of fiber logs.\nWe also expect seasonally higher forestry and road costs as most of this activity is completed during these dryer summer months.\nIn the North, sales realizations are expected to be lower due to mix, while fee harvest volumes are expected to be significantly higher as we come out of the spring breakup season.\nI'll wrap up the Timberlands outlook with a comment on the sale of our North Cascades Timberland, which was completed on July 7.\nIn the third quarter, we will record a cash inflow of $261 million and a gain of approximately $30 million related to this transaction.\nThe gain will be reported as a special item within the Timberlands segment.\nTurning to our real estate, energy and natural resources segment.\nWe expect third quarter adjusted EBITDA will be comparable to the third quarter 2020, but earnings will be approximately $20 million higher than one year ago due to a lower average land basis on the mix of properties sold.\nAs Devin mentioned, we continue to capitalize on exceptionally strong demand and pricing for HBU properties.\nIn addition, we've seen strong year-to-date production of construction materials.\nAs a result, we are increasing our guidance for full year 2021 adjusted EBITDA to $290 million.\nWe now expect land basis as a percentage of real estate sales to be approximately 30% to 35% for the year.\nFor our Wood Products segment, third quarter benchmark pricing for lumber has significantly reduced from record levels and benchmark pricing for oriented strand board has also recently declined.\nAs a result, we are expecting adjusted EBITDA will be significantly lower in the third quarter.\nFor lumber, our quarter-to-date realizations are approximately $425 lower, and current realizations are approximately $535 lower than the second quarter average.\nFor OSB, our current realizations are still significantly higher than the second quarter average due to the length of our order files.\nOur quarter-to-date OSB realizations are approximately $155 higher and current realizations are approximately $125 higher than the second quarter average.\nAs a reminder, for lumber, every $10 change in realizations is approximately $11 million of EBITDA on a quarterly basis.\nAnd for OSB, every $10 change in realizations is approximately $8 million of EBITDA on a quarterly basis.\nFor lumber, as prices have retreated, we expect higher sales volumes as inventories at home centers and treaters normalize and demand signals improve for do-it-yourself activity.\nWe are also anticipating improved unit manufacturing costs during the quarter.\nWe anticipate this will be partially offset by slightly higher costs for Canadian and Western logs.\nFor oriented strand board, we expect demand will remain favorable due to continued strength in new residential construction activity.\nWe expect improved operating rates following the second quarter outage to complete the capital project at our Elkin OSB mill previously mentioned.\nWith increased operating rates, we anticipate higher third quarter sales volumes and improved manufacturing costs.\nThese improvements are expected to be partially offset by higher fiber costs.\nFor Engineered Wood Products, we expect higher sales realizations for our solid section and I-joists products as we continue to benefit from previously announced price increases.\nIn May 2021, we announced another increase, which ranges from 15% to 25% and will be captured over the next several quarters.\nWe anticipate significantly higher raw material costs, primarily for oriented strand board web stock, as the cost of web stock lags benchmark OSB pricing by approximately 1/4.\nFor our Distribution business, we're expecting the recent declines in commodity pricing will result in reduced margins and significantly lower adjusted EBITDA.\nBusiness results are expected to remain strong compared to a historical perspective.\nI'll wrap up with a couple of additional comments on our total company financial items.\nEach year in the second quarter, we finalize prior year-end estimates for pension assets and liabilities.\nAs a result, we recorded a $138 million improvement in our net funded status as well as a reduction in our noncash, nonoperating pension and post-employment expense.\nSlide 18 includes our current full year outlook for pension and post-employment items.\nIt also shows the $40 million capital expenditure increase we announced back in June for some additional high-return projects across our businesses.\nWe are now -- we now expect our effective tax rate to be between 20% to 24% based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary.\nThe $90 million tax refund associated with our 2018 pension contribution has now been approved, and we expect to receive the refund in the third quarter of 2021.\nU.S. housing activity continues at an impressive pace, with total housing starts in the second quarter averaging 1.6 million units on a seasonally adjusted basis and total permits averaging 1.7 million units.\nSingle-family starts in June reached their highest monthly level since May of 2007.\nNotwithstanding a slight pullback in the second quarter as homebuilders navigated supply chain disruptions, year-to-date momentum is strong, and our customers continue to expect robust housing activity over the back half of the year.\nOur near-term and longer-term housing outlook remains very favorable and is bolstered by encouraging long-term housing demand fundamentals.\nTurning to repair and remodel.\nAlthough demand for small do-it-yourself projects has softened from the elevated levels established in the pandemic, demand for larger professional remodels remains healthy.\nOur long-term outlook for repair and remodel continues to be favorable, supported by an aging housing stock, rising home equity and low interest rates.\nIn closing, we delivered our best financial performance on record in the second quarter, and we're well positioned to capitalize on favorable demand fundamentals for U.S. housing.\nLooking forward, we remain focused on industry-leading performance across our operations and are on track to deliver our 2021 OpEx target of $50 million to $75 million.\nOur balance sheet is extremely strong and with year-to-date adjusted FAD of nearly $1.9 billion, we expect to return significant amounts of cash to shareholders through the variable supplemental component of our new dividend framework.\nAnd finally, I'm pleased to announce that we will hold a virtual Investor Day on September 22.\nNancy, Russell and I will give an update on our key longer-term strategic, capital allocation and sustainability initiatives.\nWe're excited to share that update and we'll look forward to speaking with you all again in September.",
        "summary": "for real estate, energy & natural resources sector, company expects adjusted ebitda will be comparable to q3 2020 (adds segment).\nfor timberlands, co expects q3 earnings and adjusted ebitda will be significantly lower than q2.\nweyerhaeuser-sees fy2021 adjusted ebitda for real estate, energy & natural resources about $290 million, an increase from $255 mlnpreviously expected.\nweyerhaeuser - sees q3 real estate,energy & natural resources significantly higher than q3 2020.\nweyerhaeuser - for wood products sees q3 earnings and adjusted ebitda will be significantly lower than the second quarter."
    },
    {
        "text": "They will provide their perspective on Xylem's second-quarter results and our outlook.\nI'll ask that you please keep to one question and a follow up and then return to the queue.\nA replay of today's call will be available until midnight, on August 31.\nAdditionally, the call will be available for playback via the investors section of our website under the heading investor events.\nAll references will be on an organic or adjusted basis unless otherwise indicated.\nThese statements are subject to future risks and uncertainties such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC including in our Form 10-Q to report results for the period ending June 30, 2020.\nWe have provided you with a summary of our key performance metrics including both GAAP and non-GAAP metrics.\nLet me start by expressing my sincere hope that you and everyone close to you are keeping safe and well.\nIn hindsight, April turned out to be the low point of the quarter.\nWe hope we'll eventually look back and say it was a low point of the pandemic.\nAfter April, we saw modest improvement in both May and June as demand began to stabilize in our key markets.\nBecause our business is global, we were exposed to the pandemic's effects early, and so we've also benefited from our presence in markets that have already begun to recover.\nBack in April, it's fair to say that uncertainty overshadowed both supply and demand outlooks as COVID spread from Asia to Europe and then North America.\nSo we felt it responsible to set our second-quarter guidance range intentionally wide to bracket a broad set of scenarios for the macro environment.\nToday, we have far more insight and confidence on the supply side, that's because of one notably positive effect of feeling COVID's impact early.\nIt catalyzed early action by our teams.\nFortunately, we were working from solid financial foundations and a strong position.\nSo we were able to focus on adapting to the uncertainty and managing the things under our control.\nIn addition to addressing the immediate need, those actions have built a more robust foundation for both the medium and long term.\nI want to make a point of giving credit to my colleagues across Xylem and all of our external partners who made that happen.\nThey've shown incredible resolve and resilience to a time that has put excessive demands on everyone.\nI want to credit everyone around the world who's kept the water flowing and kept essential services running despite everything being thrown at them.\nThroughout this period of incredible challenge, they've focused on keeping everyone safe and serving our communities.\nWithin Xylem, I want to highlight the work of our supply chain, manufacturing and our distribution team.\nThey've kept our customers supplied and serviced with very few interruptions.\nToday, we are up and running across our manufacturing network at greater than 90% availability.\nSo while demand side uncertainties continue, our outlook now reflects greater clarity and confidence about supply, putting us in a much better position to guide for the third quarter.\nI also want to recognize the dedication of our commercial teams, despite the challenges of working remotely.\nThey drove 10% backlog growth, despite COVID-related macro softness.\nYou will have seen our announced wins in Telangana, India and with Anglian Water in the U.K. The Telangana irrigation project is our largest win in the country to date, and we do anticipate it will generate roughly $115 million in revenue over the next two to three years.\nwhich combines metrology, communications and digital offerings, is expected to deliver revenues of roughly $90 million over the course of the project.\nThese wins are further evidence of the durability of our business, even in challenging times.\nBecause of the differentiation of our portfolio and the resilience of our teams, we expect we will have more news to share about additional big wins when we deliver our third quarter results.\nClearly, I'm very pleased that the team's hard work is evidenced both operationally and commercially.\nHaving said that, the outlook for the second half is still not back normal.\nTherefore, we are not reinstating full-year guidance.\nConditions are improving in a number of our key markets, but the shape of the COVID curve overall is still unpredictable.\nNow, I'd like to hand over to Mark to provide some detail in the second quarter, and then we'll come back to our outlook and the trends we see emerging through this period.\nMark, over to you.\nOur revenue in the quarter declined 12% which was better than we anticipated coming out of the first quarter.\nAs Patrick mentioned, our revenue and orders performance improved throughout the quarter with a very strong month in June.\nGeographically, U.S. revenues declined 15% as our businesses felt the impact of site shutdowns and project deployment delays.\nEmerging markets were down 15% driven largely by the lockdowns in the Middle East and India.\nNotably, China grew 6% in the quarter as the utility end market returned to nearly pre-pandemic levels, and industrial and commercial businesses began to modestly recover.\nEurope was also a relative bright spot for us as revenues declined a modest 3%.\nWestern Europe which is the majority of our European revenue base was down mid-single digits.\nHowever, our business in Eastern Europe grew double digits.\nThis has been a region we've been very focused on, and I want to highlight the tremendous work our team has done there.\nThey have quietly but consistently delivered a revenue CAGR of mid-teens growth over the last five years.\nOrders declined 9% in the quarter, while total backlog grew 10% driven by the large Signature deals Patrick mentioned earlier.\nBacklog shippable in 2020 is down 1%.\nHowever, backlog shippable after 2020 is up 23% which gives us confidence that we'll be emerging from 2020 in a position of strength with a solid foundation for growth in 2021 and beyond.\nOperating margin was 9.3% in the quarter which I'll review in more detail by segment shortly.\nBased on our experience in China, we entered the second quarter cautious of COVID potential impacts on our supply chain.\nHowever, based on those learnings and the great work of our global supply chain teams, we successfully managed through the COVID challenges and turned those learnings into a competitive advantage.\nOur teams quickly adapted and began to work in new ways with our customers, our suppliers and internally, enabling us to deliver earnings per share of $0.40, an achievement punctuated by commercial savvy, operational excellence, cost discipline and a focus on what really matters.\nWater Infrastructure orders grew 7%, and total backlog grew 24% in the quarter.\nThis performance was largely driven by the $115 million deal we won in India which is expected to deliver revenue beginning late this year and over the next three years.\nShippable backlog for the remainder of 2020 is up 5%.\nSegment revenue declined 8% in the quarter and was significantly impacted by declines in the dewatering, industrial and construction rental business.\nAs we noted last quarter, we expect utilities to continue to remain resilient as they focus on maintaining their critical infrastructure for wastewater collection and treatment.\nThis was certainly true this past quarter as our wastewater transport business declined only 4%.\nTo date, we've seen wastewater capital projects continue with minimal delays.\nThis was an important driver of the strong quarter from our treatment business which grew 7%.\nWhile U.S. sales were impacted by double-digit declines in the dewatering business, Western Europe revenues were flat in the quarter, showing resilience and some early signs of recovery, especially with our utility customers.\nAs we continue to feel the near-term impacts from COVID-19 across the emerging markets, we remain confident in the long-term growth prospects for the water sector.\nThe Chinese and Indian governments, for example, have expressed their ongoing commitment to continued investments in infrastructure for clean drinking water, wastewater treatment and environmental protection.\nOperating margin in the quarter was 16.2%, contracting on lower volumes and unfavorable mix impacts from dewatering partially offset by productivity, cost savings and price.\nThe applied water segment's orders declined 17% in the quarter, while revenue declined 13% as site restrictions continue to impact customers across industrial, commercial and residential end markets.\nAs regions begin to reopen, we're seeing modest recovery in our book and ship business in both commercial and industrial markets.\nWe also had a strong quarter in the North American ag business driven by dry weather conditions.\nTotal segment backlog grew 1% in the quarter.\nGeographically, both the United States and emerging markets revenue declined 14%.\nHowever, we saw demand in China begin to recover, growing 2% in the quarter.\nIndustrial and Commercial end markets in China have been slower to recover than utilities, and our customers are indicating that it may take several months to fully recover in those end markets.\nOperating margin in the segment was 13.4%.\nMargins contracted primarily due to volume declines and inflation partially offset by 570 basis points of productivity and cost savings as well as 100 basis points of price.\nMeasurement and control solutions orders declined 24% in the quarter, and revenue declined 17% as the metrology business slowed due to utility workforce availability and physical distancing requirements including restrictions on approaching or entering residents' homes.\nThis is delaying both project deployments and installations of replacement meters.\nWe expect order and revenue trends to normalize over the coming months as utility workers are able to safely return to meter replacement and installation.\nImportantly, our bidding pipeline remains strong, and there have been no project cancellations.\nDespite the near-term challenges, we're very encouraged by the large win we announced with Anglian Water in the U.K. The $90 million contract demonstrates the competitiveness of our AMI and digital solutions to drive key international wins.\nThis win, and a robust pipeline of AMI opportunities highlight the continued commercial momentum and the differentiated value our offerings bring through our combined digital platform, networking, data analytics and metrology capabilities.\nTotal segment backlog grew 3% year over year with backlog shippable in 2021 and beyond up 12%.\nThe segment margin performance was primarily driven by the impacts from volume declines on meter replacement activity and project deployment delays stemming from COVID-19, while we continue critical investments to support growth.\nLooking forward, we expect meaningful leverage on the upside as revenue growth drives increased incremental margins from recent large contract wins.\nWith continued commercial momentum and growing project backlogs, our MCS segment will be a significant source of revenue growth and margin expansion for the company in 2021 and beyond.\nWe ended the quarter with approximately $1.6 billion in cash and total liquidity of roughly $2.4 billion driven by the $1 billion green bond offering we issued in June as well as strong cash flow performance in the quarter.\nThe green bond offering was opportunistic enabling us to lock in longer maturities at historically low rates while effectively prefunding $600 million of maturities due in October 2021 at an after-tax cost of less than 1%.\nThis offering was also the latest example of the importance of linking our financing strategy to our sustainability goals.\nGiven the strength of our financial position and liquidity, I'll take a moment to note that our capital allocation strategy remains unchanged.\nAlongside funding organic investments in key strategic areas, M&A remains a top priority.\nAnd we maintain a healthy pipeline of opportunities which we closely monitor.\nNow turning to cash flow.\nOur performance in the quarter was very strong.\nOperating cash flow improved roughly 50% year over year in our free cash flow of $137 million, more than doubled from the prior year.\nThis was driven by the continued focus and discipline around working capital, the timing of payment on taxes and the prioritization of our capital spend which was $44 million in the quarter, down almost 30% from the prior year.\nWorking capital as a percentage of sales improved 110 basis points year over year as our teams continue to drive hard on collections and payment terms while managing inventories in a very challenging demand environment.\nI'm pleased with our overall cash performance through the first half of the year, and we now expect free cash flow conversion for this year will be at least 100%.\nAnd with that, I'll hand it back to Patrick.\nThe end market dynamics we anticipate going into the third quarter are consistent with what we saw in Q2.\nUtilities have remained relatively resilient as expected.\nHowever, there is significant divergence between wastewater and clean water.\nAs Mark mentioned, our wastewater business was down only modestly.\nWe're seeing continued opex spending to service mission-critical needs and continued execution of capital projects with approved funding.\nOn the clean water side, the short-term declines were steeper.\nThey were in the mid-teens.\nWe are seeing some project delays, but not cancellations, and we do expect execution to pick back up when physical distancing requirements ease.\nAnd we've had some very impressive wins, reflective of healthier long-term trends.\nThere is considerable discussion about the U.S. utilities capex budgets going into 2021.\nWe do expect modest capex softening in the U.S. utilities, but as a leading indicator, we are not seeing a slowdown in our bidding pipeline for capital projects.\nIt is worth noting for a broader context that only 8% of our overall revenue is tied to U.S. utilities capex.\nBy contrast, opex represents 70% of our overall U.S. utilities revenue, and it remains resilient.\nIn addition, we see healthy multiyear trends in both opex and capex in emerging markets, Europe and the rest of the world.\nTurning now to industrial and commercial end markets.\nIndustrial didn't slow as much in the second quarter as originally feared, but it will remain soft while facilities continue to deal with restricted access.\nCommercial has lagged industrial, and the book and ship business will remain vulnerable in COVID-19 hotspots.\nOur backlog remains robust.\nThose distributors who destock in the face of uncertainty are beginning to rebuild their inventory.\nWe see these end market trends fairly consistent across emerging and developing markets, but it's clear that China and Europe are showing more resilience in the U.S. as they emerge sooner from the pandemic.\nChina's recovery which was up 6% in the second quarter is a strong indicator.\nis still grappling with the pandemic's impact, we remain appropriately cautious.\nNow please turn ahead to Slide 12.\nIt's worth noting a few trends that we're seeing more broadly across the sector.\nFirst, there are some fundamentals that COVID-19 has not changed.\nThe most important is the role that water plays in society.\nThere is perhaps no service more essential than drinking water and wastewater.\nAs a result, our strategy is as relevant as ever.\nThe global challenges of water scarcity, affordability and the resilience of our water systems remains front and center.\nInnovation of all kind is essential, now more than ever, to addressing those challenges.\nWhile the fundamentals are unchanged, other dynamics are accelerating.\nInterest in digital adoption has clearly gained pace as operators seek a step change in their operational and financial resilience.\nIn a constrained budget environment, they are rethinking how they spend their money.\nIt's become an operational and economic imperative to consider the benefits of remote monitoring, automated operations and their decision support systems.\nIt is absolutely front of mind for every utility executive I speak with, and we're seeing their interest reflected in accelerated quote activity.\nWe're also seeing a shift in the way that we work with customers every day.\nThe trends are away from face-to-face interaction and more toward virtual customer engagement across sales, commissioning and servicing.\nBecause of that, we're making changes to reinforce our competitive strength.\nFirst, as you know, we took a number of structural cost actions across Xylem during the quarter.\nSecond, we've reprioritized our investments.\nWe're focusing further on the projects that deepen the differentiation and the market leadership of our portfolio, things such as increasing connectivity and interoperability across our solutions, and we continue to invest in our highest growth geographies.\nLastly, we are reorienting the way that we work within Xylem.\nWe've accelerated the deployment of the IT platforms that make remote engagement, distant selling and virtual servicing easier for both our customers and our colleagues.\nAnd we are of course assessing the permanent changes that we make to travel, facilities and distance working, changes that no doubt will have a positive impact on cost and productivity and also on employee engagement and morale.\nWe are focused through the pandemic on managing the things that we can control.\nAnd we're taking the actions now that will make us even a stronger competitor in both the near and longer term.\nGiven the uncertainties related to the reemergence of COVID-19 across parts of the U.S. and other geographies and its potential ramifications for the back half of the year, we're not reinstating full-year guidance.\nHowever, we do have reasonable visibility through the third quarter which I'll briefly highlight.\nWe expect revenue declines of 8% to 12% and operating margins in the range of 11% to 11.5%.\nThis reflects approximately 200 basis points of sequential margin improvement and year over year decrementals of approximately 45%.\nThe decremental margins are impacted by continued softness in our high-margin dewatering and North American Sensus water businesses, along with a tough prior year compared to last year's third quarter, where we had 90% incremental margins on revenue growth.\nWhile we've seen some positive trends in the second quarter, the global economic landscape remains uncertain, and we are by no means out of the woods.\nWhile Europe is showing positive trends toward recovery, we're closely monitoring the trajectory in the United States.\nThe pandemic's impact varies widely across emerging markets, from a return to normalcy in China to ongoing shutdowns in India and parts of Latin America.\nLastly, I want to provide a little more clarity on the structural cost actions we announced in early June.\nIn that announcement, we detailed our plans for permanent actions to simplify our operations and increase our ability to act as one company.\nThese actions help us better serve our customers and afford us long-term financial resilience.\nThis year, we expect to incur $80 million to $100 million in restructuring and realignment charges.\nThis predominantly reflects the actions that we announced in early June, but also some carryover related to prior programs.\nWe have also provided a summary table on this slide which details the total savings we expect to realize in 2020 and 2021 from our announced structural cost programs.\nAs a reminder, that includes savings from restructuring and realignment actions we initiated before this year as well as savings from actions we announced in June of this year.\nIn total, we expect to realize approximately $70 million in savings this year and an additional savings of approximately $80 million in 2021.\nSo before we go to Q&A, there are a few other milestones that deserve a mention.\nThe first to touch on sustainability.\nWe released our most recent sustainability report in June, and I'm very proud of the work by the team, and it reflects the impact our colleagues have delivered across the company.\nIt shows how we delivered on our 2019 goals, and establishes comprehensive 2025 targets.\nIt also reinforces the relevance and the value of a strong sustainability approach even in these difficult times.\nWe follow that up with the launch of our green financing framework which underpinned our recent $1 billion green bond offering.\nIn addition to showing up our financial strength and liquidity, it extended our commitment that sustainability is at the heart of our business strategy, something we've been doing and we'll continue to do.\nWe recently announced that Mark will be retiring at the end of the year.\nI feel confident in saying he will take with him the gratitude of all Xylem's stakeholders, but most of all mine.\nThis impact has been undisputable.\nAnd his commitment to both our principles and to delivering value has been constant and unwavering.\nWe have appointed an outstanding CFO to succeed Mark.\nSandy Rowland has been CFO of HARMAN International, both while they were publicly traded and since becoming part of Samsung.\nAnd that experience has put her right at the intersection of innovation, technology and disruption.\nIn her board role at Oshkosh makes her no stranger to capital goods, manufacturing and muni markets.\nWe look forward to introducing her after she joins us on October 1.\nMark is going to be with us through the end of the year which will ensure an orderly and a smooth transition.\nAnd lastly, we also announced today that we've appointed two new members to our board of directors as part of our normal board succession process.\nThe board has appointed Lila Tretikov, who is the corporate vice president at Microsoft and a globally renowned technologist.\nAnd we look forward to her bringing that perspective to the digital transformation of our sector.\nOur second new board member is Uday Yadav, who is president and COO of Eaton's electrical sector, and he brings a disciplined global operating perspective to our growth.\nThese appointments further deepen our board's diversity, our technology depth and our global orientation.\nI'm very pleased that Xylem continues to attract this quality of talent to our purpose and to our mission as a company.\nWith that, let's open up to questions.\nAnd operator, please lead us into Q&A.",
        "summary": "xylem q2 adjusted earnings per share $0.40.\nq2 adjusted earnings per share $0.40.\nappoints two new board members.\nnot reinstating full-year guidance.\nproviding a framework for q3.\nsees q3 organic revenue will be down in range of 8 to 12 percent - down 10 to 14 percent on a reported basis.\nsees q3 adjusted operating margin will be in range of 11.0 percent to 11.5 percent.\nlila tretikov and uday yadav have been elected to company's board."
    },
    {
        "text": "I hope you are all well and safe.\nJoining me virtually today are Bryan Hanson, our President and CEO; and CFO, Suky Upadhyay.\nWe're obviously very pleased to see that so many people now have access, full access to the COVID-19 vaccinations, and that adoption has been pretty strong so far.\nNow of course, we'd like to see this even more broadly on a worldwide basis, but it certainly feels like we're making really important progress toward moving forward -- and ultimately, as a result of that moving, hopefully, on from the pandemic.\nNow it's not over.\nI think all of us realize that.\nBut I, for one, feel more optimistic than ever that we're coming out, I think, on the other side of COVID-19 and with that, much better days ahead and I guess with that, probably it's a good lead into our Q1 call.\nQ1 was a stronger quarter than we initially expected and I'm pretty excited to discuss it with you.\nWhenever you have a good quarter, obviously, earnings calls are a lot more fun.\nSo clearly, we're excited about this one and I'm going to try to keep my remarks relatively brief this way.\nI know you're kind of laughing at that because it's not always easy for me to do that.\nI'm going to try to keep it brief.\nSo I'm just going to stick to really three topics, as a result.\nNumber one, I want to talk about the COVID recovery just briefly and our execution inside of that recovery and then ZB's ongoing transformation and our progress against that.\nThat will be the second topic and the third topic would just be around our long-term growth strategy, just reiterating our position there and how we believe that's going to drive value for our shareholders and stakeholders overall.\nSo let's start with navigating COVID and how we're executing inside of it.\nCOVID clearly is not over, just as I stated a minute ago and I'm very confident we're going to continue to have surprises ahead and disruptions ahead, but based on what we saw at the end of Q1 and what we're seeing in the beginning of Q2 and coupling that with just the pace of vaccine rollouts right now, we're clearly moving in the right direction.\nI don't think anybody can argue against that and is that shift toward what I would define as more stability, and I know that's on a relative basis, kind of talk about stability here.\nBut that shift toward more stability, it really enabled us to give you the full year 2021 financial guidance.\nNow inside of that guidance, there's going to be some important assumptions about trends and recovery timing that underpin our outlook, and Suky's going to get into more of that in just a few minutes.\nBut overall, it feels good, feels good to have better insight into the broader market and greater confidence in what the rest of 2021 should look like for our business.\nNow as we start to return to a more normal environment, I'm going to put normal environment in air quotes given the situation right now.\nBut when that happens, we expect that part of what we'll see is a pretty significant tailwind from the backlog of patients that has built up over the last year or more.\nNow how fast that happens, how fast we work through that backlog, especially across certain regions is something we're going to have to pay attention to.\nYou're going to have to watch and track.\nBut we absolutely believe that the vast majority of those patients who put off in elective procedure will come back into the funnel and that's going to provide a significant tailwind well into 2022 and I, for one, cannot wait for that tailwind and I can tell you that ZB is ready for them.\nThey're ready for those patients, and we're ready to be able to help our customers, care for those patients.\nSpeaking of being ready.\nAs I've said to you before, the things that ZB was able to directly control over the past year, I truly think the team has executed against.\nI'm very proud of the ZB team for how they stood up and delivered against a backdrop of a whole lot of things that were absolutely out of their control and I know I talk a lot about the importance of our talent, our mission, our culture here at ZB and I can tell that each were absolutely critical for us in 2020 and continue to be in 2021 and well beyond and with that in mind, we've made some additional changes to our leadership team here very recently.\nWe've added a Chief Transformation Officer, again, to help us with all the transformation that we're going to continue to have as an organization.\nWe've appointed a new Chief Human Resource Officer to help us move our talent agenda forward.\nOne of the key areas of focus for me as we move forward as an organization, and promoting Sang Yi to group President of Asia Pacific.\nHe's now going to have some responsibilities of certain projects, OUS.\nHe brings a real disciplined execution mindset, and he can absolutely help us outside of Asia Pacific and then expanding Ivan Tornos' role as a Chief Operating Officer with the added leadership now of EMEA, which is a region that he has had deep responsibility for in the past and knows very, very well, and I know it can bring us value in that region.\nSo I can tell you is continued focus on talent and development is not just contained to the executive ranks.\nOur entire ZB organization is hyper-focused on our people.\nI'm really getting the right team members in the right roles and giving them the tools and support and really the opportunities to drive their performance, to develop and excel, and it's working.\nI can tell you, this focus on talent is working and I believe it is going to continue to set us apart from the competition and in addition to the foundation built by our team members, our mission, our culture, our core business momentum is stronger than ever.\nThe team's execution continues to be on point.\nOur market momentum is building.\nOur commercial confidence is higher than ever and I can say right now, we are very excited about the R&D innovation pipeline that we still have coming.\nThat's an important part of our revenue growth.\nThroughout Q1 and even in recent weeks, we hit key milestones with our ZB products and our innovation.\nThe application for Partial Knee now is available for ROSA.\nI was just approved by the FDA.\nWe've actually already had our first procedure using that application last week with very good results and this is just the latest addition to our ROSA robotics program, our platform here and it's also another launch inside of our ZB edge suite of integrated digital and robotic technologies.\nAgain, something we truly do believe will set us apart from the competition.\nSo if I just look at ROSA overall in the quarter, we continue to see strong market demand traction with our ROSA platform.\nFor Persona Revision, another strong performance.\nThis continues to move forward in an amazing way.\nQ1 was ahead of our expectations and it is another example of a tip of the spear product that we have that as we make the conversion of provision, we also have the opportunity then to go after the standard knee business as well.\nSo again, still exciting opportunities there for revision and then our Signature ONE Planner for shoulder procedures, again, demonstrated a very strong sequential growth from Q4.\nWe're actually up 65% over Q4 when we look at registrations.\nAgain, that's a pretty significant move.\nAnd again, this provides that stickiness with our customers in that procedure, but it also provides a mix benefit wherever that presurgical planning is used.\nAnd as we come into Q2 and the rest of 2021, ZB has additional innovation that's coming.\nAnd it's pretty exciting innovation with our anticipated launch of Persona iQ and also ROSA Hip later in the year.\nAnd I can tell you, for Persona iQ, the initial feedback from evaluating surgeons has been very positive.\nAnd I can tell you that they're interested in being able to capture data from inside the body.\nI mean this is unique.\nThey've not been able to do this before.\nAnd then ultimately, remotely monitoring those data the hope would be that using that information to change the way that we care for patients.\nSo the excitement around this is very strong from our surgeons.\nAnd we can tell that the momentum is going to be strong when we do get regulatory approval.\nSo all I have to say, the momentum on the innovation front is real here at ZB.\nThis will allow us multiple shots on goal across a number of innovations.\nAgain, with multiple robotics launches, continuing success with Persona Revision, Persona iQ, new iterations of mymobility and just really the broader ZB edge ecosystem to drive mix benefit, for sure, but also competitive conversions.\nAnd ultimately, we really believe, change the way that we care for patients, change the treatment paradigm for patients.\nThat's really what it's about.\nIt's about driving the mission of this organization.\nTruthfully to remove pain from patients around the world and improving the quality of their life.\nAnd we truly do believe ZB edge can help us do that.\nNow you've heard me talk about the three phases of transformation.\nThe first was winning the hearts and the minds of the organization of the team members and really dealing with the execution challenges that we had that we spent a lot of time on in the first year.\nAnd then second was moving to that longer-term firm strategy for the organization that would drive innovation and really building the structure around that strategy and the operating mechanisms to ensure that we move it forward.\nAnd then third, where we are now is the portfolio transformation.\nAnd truly, that is where we sit that is squarely where we are positioned today in Phase III, these three phases.\nAnd we have the ZB portfolio management strategy and process in place.\nAnd we have definitely built out our capabilities to move forward in this phase.\nWe're focused on what we're going to define as mission-centric M&A that is WAMGR accretive that would absolutely increase our weighted average market growth and does not disrupt our best-in-class margin profile and as you've seen, we've moved this forward already with selective tuck-in acquisitions that we did last year and that really does illustrate the strategy of work.\nNow those deals were smaller.\nNo question, they're smaller, and they're relatively immaterial when it comes to the initial revenue that we acquired, but they're absolutely designed to fill portfolio gaps and better position us in high-growth markets.\nThose high-priority markets and submarkets where ZB has a path to leadership, and we believe are right to win in markets like sports medicine, ASC and in the external closure market for us and each of these deals gives us a gap filling and, we believe, differentiated product portfolio to drive growth, and that's important to growth, but also drive additional confidence in our ASC business category and of course, inside of this active portfolio management phase, there's the planned spin-off transaction of our spine and dental business that we discussed back in Q4.\nThat process of creating two independent even stronger companies is on track.\nIt's early days, obviously, but it is on track and as you saw from our Q1 results, we do not believe it's causing distraction or disruption in our business.\nIn fact, it's more the opposite.\nWe've seen significant energy in the business, kind of a gelling in the business as the NewCo team starts to come together under CEO Vafa Jamali, and they begin to build out their own strategy and their focus.\nSo again, it's early days, but we're very happy with the progress so far of this spin.\nWe've said before, we'll say it again that the spin-off of NewCo actually serves to de-risk and potentially accelerate our path to mid-single-digit growth and a best-in-class 30% operating margin profile by the end of 2023 and we're confident that throughout this process and as we achieve this growth in margin profile, we're also going to have the flexibility to reinvest for growth and that is a key thing for us.\nWe've got to continue to be disciplined, but ultimately invest for growth in this business.\nAnd that's what we will continue to do.\nNow to get these growth levels and to achieve our top quartile performance in TSR, which, I think, you probably remember, is one of our strategic pillars, and we're going to continue to execute in our priority growth areas.\nAnd just as a reminder, that means that we expect to drive above-market growth sustainably in knees.\nWe plan to grow hips consistently at market, but then later this year, above-market rates when we launched the ROSA Hip application and we expect to stabilize, first and foremost, but also drive focus.\nAnd then ultimately, through that focus, drive our set business at the higher end of market rates there.\nWe're also very focused on driving change for ZB, a real evolution of the company from a metal and plastic provider of implants to a leading med tech innovator.\nThink of us as a high-tech company that happens to be in med tech.\nThat's the ZB brand that we're looking for, that brand evolution of this company and I can tell you that already, more than 70% of our product development dollars are being spent in this area, being spent on ZB edge, that ecosystem of connected technologies.\nNow we're always going to be an implant company and that's the center of the universe for this company.\nBut the ZB edge ecosystem around it is the way that we can differentiate ourselves versus the competition and we're already -- we have exclusive relationships to help us here.\nWe have relationships already with Apple and several other tech companies that we truly do believe will drive future innovation that will delight our customers and ultimately benefit patients and I believe, fundamentally, that this shift is coming, not only for us -- this technology shift, not only for us, but for the entire market that we play in them and I truly do believe that the technology advancements potentially can reshape the growth curve of these markets.\nI'll say that again, I think the technology advancements that we're seeing and the value they bring can reshape the growth curve of the markets that we play in.\nAnd I think very importantly, also change the care paradigm for our customers and their patients.\nLet me close by saying that I continue to be highly confident in the ZB team and in our business momentum and I truly believe that we are well positioned for success, and our strategy is working.\nOur transformation is well under way, and I'm excited about the value that we can drive for our shareholders on a go-forward basis.\nYour vigilance and dedication to our safety protocols over the past year or so has been absolutely critical.\nAnd you're focused on our mission, our strategy and really just how you show up and execute every day, it's unmatched in my view, it truly is unmatched.\nYou are what makes us ZB, I truly believe that.\nAnd what makes me confident really is you, that we can absolutely continue to deliver on all fronts.\nHe's going to give you more financial details on the quarter, and obviously, most importantly, our expectations looking forward.\nAs Bryan mentioned, our underlying fundamentals remain strong as does our confidence in our outlook.\nAnd third, how ZB is positioned for long-term growth in 2022 and beyond.\nNet sales in the first quarter were $1.847 billion, a reported increase of 3.6% and a constant currency increase of 80 basis points versus the same period in 2020.\nIt's important to note that we had one fewer selling day, resulting in approximately 150 basis point headwind to consolidated revenue growth.\nOverall, consolidated and regional results were better than our initial expectations, as vaccine adoption continued to ramp up and pandemic pressure eased across most markets in March versus January and February.\nFirst, the Americas increased 1%.\nWe continue to see variability by country, and while the region was in decline for most of the quarter, a sharp increase in U.S. procedures in March drove regional growth.\nAs expected, the EMEA region was hardest hit by COVID-19, decreasing 10.3% with all submarkets in decline.\nWhile we did see some recovery or decrease in COVID pressure as we move through the quarter, some markets continue to operate under recently enacted restrictions and actions that are limiting the near-term recovery of elective procedures.\nSo we are continuing to monitor uptake very closely and expect that recovery in EMEA will lag other regions by one to two quarters.\nLastly, Asia Pacific grew 15.5% with solid year-over-year growth across our three largest markets.\nOverall, we've seen a stabilization around COVID cases and surges in the region, but we continue to see some significant delays in recovery across India and other smaller markets.\nTurning to our business performance in Q1.\nBefore jumping in, let me call out that we've updated our product category reporting to provide visibility into NewCo and to align products to categories based on how we internally evaluate performance of those businesses.\nAlso, we have adjusted our historic reporting of revenue for these changes to assist in year-over-year comparisons.\nFirst, our ROSA robotics capital revenue has been moved from the knee's category to the other category.\nAnd our disposable revenue associated with robotic knee procedures have been moved from the other category into the knee category.\nThis will allow us to more clearly indicate to investors the growth of our base knee business and sets us up for reporting once we launch ROSA Hip, which is currently expected in the second half of 2021.\nWe've also broken out our global spine and dental revenues this quarter in conjunction with NewCo reporting.\nThe global knee business declined 5.2% versus Q1 2020, negatively impacted by ongoing pressure from COVID.\nInside of that, we continue to see strong momentum from Persona and from ROSA Knee.\nOur global hip business increased 0.3%.\nBoth the Americas and Asia Pacific continued their growth trends, increasing 0.9% and 11.2%, respectively.\nWe continue to see strong demand and favorable feedback on the Avenir Complete hip with adoption from both gold and platinum accounts.\nSports extremity and trauma increased 7.2%, driven by solid growth in upper extremities, trauma and CMFT.\nIn S.E.T., we continue to see strong surgeon registrations of the Signature One surgical planning system for shoulder procedures.\nOur dental and spine segment grew 9.6%, fueled by outpaced recovery, especially in Dental.\nNew products and better commercial execution also drove growth in the quarter with strong contributions from implants and digital solutions in our dental business and from Mobi-C and Tether within Spine.\nFinally, our other category was down 2.5%.\nAs mentioned earlier, this quarter, our other category includes the contribution of ROSA Knee capital sales.\nMoving on to the P&L.\nIn the first quarter, we reported GAAP diluted earnings per share of $0.94 and adjusted diluted earnings per share of $1.71.\nOur reported GAAP diluted earnings per share were up significantly when compared to a reported GAAP diluted loss per share of $2.46 last year.\nThe increase in year-over-year GAAP earnings was driven by higher revenue in the current period in tandem with prior year goodwill and product liability related charges.\nOn an adjusted basis, earnings per share was up about 60 basis points driven by higher revenues, with operating margins down slightly compared to 2020 and a higher share count.\nThe adjusted tax rate of 16% in the quarter was better-than-expected, driven by the realization of excess stock compensation benefit and other smaller discrete items.\nTurning to cash and liquidity.\nOverall, operating cash flows were $247 million and free cash flow totaled $137 million for the first quarter.\nWe paid down an additional $200 million of debt and ended the first quarter with cash and cash equivalents of $724 million.\nWe continue to make good progress with another quarter of delevering the balance sheet.\nMoving to our full year outlook and financial guidance.\nWhile we continue to see pressure due to the global pandemic, vaccine rollout and adoption is approaching meaningful levels.\nTranslating into a reduction of infection surges and hospitalizations in most markets.\nThis increased stability gives us greater confidence that we'll return to normalized market growth in our key markets within the year and also begin to see deferred patients reenter as an added tailwind.\nAs a result, today, we provided financial guidance based on our latest expectations, and that is underpinned by two key assumptions: First, current vaccine adoption trends continue to strengthen, driving a decrease in the number of new COVID-19 cases through 2021; and second, hospitals increase capacity to work through some portion of patient backlog this year.\nAgainst that backdrop, our current expectations for full year 2021 financial results are reported revenue growth of 14% to 17% versus 2020 with an expected foreign currency exchange tailwind of approximately 150 basis points.\nAdjusted operating profit margins of 26.5% to 27.5%, an adjusted tax rate of 16% to 16.5%, adjusted diluted earnings per share in the range of $7.50 to $8 and free cash flow of $900 million to $1.1 billion.\nInside of that guidance, we expect to see seasonality in revenues in '21 that begins to resemble pre-COVID cadence.\nAdditionally, our investments in R&D and key commercial initiatives will increase throughout the year.\nHowever, we do expect operating margins to improve as we exit 2021 as a result of higher revenues.\nNet interest expense is expected to step up about 5% versus 2020, and we expect fully diluted shares outstanding to be about 211 million shares for the full year.\nOf course, we will continue to update you on market dynamics and financial expectations as we move through the year.\nLet me now turn to our long-term growth profile.\nWe continue to expect our structural organic revenue growth rate to accelerate to the mid-single-digit range, with adjusted operating margins of at least 30% as we exit 2023.\nWe're confident in our expectations as a result of the following proof points.\nFirst, we have been delivering consistent strong performance versus the market.\nSecond, we have the best new product pipeline in the company's history that will complement an already robust portfolio.\nAnd third, our global team members continue to ramp up execution across our strategic priorities.\nIn addition, our previously announced transformation initiatives are progressing well, and the addition of a Chief Transformation Officer has the potential to drive even greater investment opportunity for growth while maintaining a leading margin profile.\nTo summarize, we are pleased with our better-than-expected revenue performance in Q1.\nWhile we anticipate and are prepared for ongoing short-term market uncertainty due to COVID and remain sensitive to ongoing challenges in a number of markets, from a financial standpoint, we believe the worst of the pandemic is behind us and look forward to improving results as we execute on our strategy.\n[Operator Instructions] With that, operator, may we have the first question please?",
        "summary": "compname reports q1 earnings per share $0.94.\nq1 adjusted earnings per share $1.71.\nq1 earnings per share $0.94.\nq1 sales rose 3.6 percent to $1.847 billion.\nsees fy revenue up 14 to 17 percent."
    },
    {
        "text": "I hope you are all well and safe.\nJoining me virtually today are Bryan Hanson, our Chairman, President and CEO; and EVP and CFO, Suky Upadhyay.\nAs we're all aware, obviously, given the news recently, COVID is still very much with us, and we're watching it very closely, as you can imagine.\nBut given that even, we've seen some real progress since our last call, and I think that's obvious to everybody.\nThe world has not returned to normalcy yet, but travel is returning.\nWe have more team members in our offices, and I am personally looking forward to attending the AAOS meeting in about a month in San Diego.\nSo really looking forward to that meeting.\nWe have a lot of great technology that we're going to be able to showcase there and just really happy it's going to be in person again, finally.\nYou, our team members are the driving force for this progress that we've seen in our own facilities and certainly in our communities as well.\nAlso, I want to say that I hope in our investor community that you're continuing to stay safe and have been hopefully able to travel over the last few months to see family and friends.\nThis is an opportunity for us to take advantage of some travel as we begin to turn to more of a normal environment, of course, not there yet, and we know this isn't happening consistently anyway in all regions.\nBut overall, we are encouraged and we're doing our part to keep this moving forward.\nAnd every single day, we are supporting our customers and patients that they serve.\nWe're doing this safely, obviously, but this is a big focus for us as a mission-driven organization to be there for our customers so they can complete the procedures that they have and we can make sure that the patients receive the care that they deserve.\nAnd with that, I think it's a good lead into our Q2 call.\nAnd I think most importantly, our 2021 guidance view on a go-forward basis.\nAnd then I'll come back to close out the call with some updates on our active portfolio management and product in pipeline highlights.\nI'll wait to do that after he provides the guidance information.\nSo just to set him up a little bit, overall, let me just say that our performance in the quarter improved meaningfully from the first quarter of this year, and that was pretty much across all regions and product categories.\nAnd as recovery from the global pandemic continued to take hold, we saw that recovery in our procedures also move in the right direction.\nWhile we certainly anticipate some ongoing COVID pressure, we currently think it's going to be manageable by hospitals, and we expect that the recovery will continue to build sequentially throughout the second half of 2021.\nAgain, moving in the right direction.\nAnd my revenue and P&L commentary will be on a constant currency or adjusted basis.\nAlso, I'll provide constant currency revenue growth versus 2019 as we think that is a more relevant comparison for this quarter.\nNet sales in the second quarter were $2.027 billion, a reported increase of 65.3% and an increase of 60.7% on a constant currency basis versus the same period in 2020.\nWhen compared to the second quarter of 2019, net sales were flat on a constant currency basis, and we did not have a material impact from selling days.\nOverall, consolidated and regional results were slightly better than the expectations we provided on our last quarterly call, with growth versus 2019 in the Americas and Asia Pacific and sequential improvement in EMEA.\nFor the quarter, the Americas increased 68.3% or up 1.9% versus 2019.\nWe continue to see variability by country within the region with the U.S. growing 66.2% or 3.3% versus 2019.\nEMEA grew 80.5% or down 7.3% versus 2019 with continued COVID pressure being a factor.\nWe did see improvement in EMEA as we moved through the quarter, and we expect that trend to continue through the back half of this year.\nLastly, Asia Pacific grew 24.4% or 2.8% versus 2019 in spite of some unexpected headwinds.\nWhile the region has been largely stable in recent quarters, it was impacted late in the second quarter by channel inventory contraction in our knee and hip categories within China, and advance of the rollout of volume-based procurement or VBP.\nIn addition, we saw a resurgence and increase of COVID19 in a number of markets, including Japan.\nDespite these headwinds, the region continued to pose growth.\nTurning to our business categories.\nThe global knee business increased 72.2% or down 6.3% versus 2019.\nIn the U.S., knees increased 77% or was flat versus 2019.\nWhile we are seeing sequential improvement in the recovery of procedural volumes in large joints, the path back to normalized market growth is taking a bit longer than most expected.\nStill, we continue to be encouraged by the team's execution and ongoing strong momentum for Persona and ROSA Knee.\nOur global hip business increased 39.9% or down 2.8% versus 2019.\nIn the U.S., hip grew 46.6% or up 3.1% versus 2019.\nStrong demand and favorable feedback continues for the Avenir Complete hip, which continued adoption for both gold and platinum accounts.\nThe sports, extremities and trauma category increased 53% or up 10.8% versus 2019 driven by solid growth in sports medicine, CMFT and upper extremities.\nWe continue to see strong surgeon registrations of the Signature ONE surgical planning system for shoulder procedures.\nOur dental and spine category grew 69.4% or up 0.8% versus '19, fueled by recovery in dental.\nNew products and better commercial execution drove growth in the quarter with strong contributions from implants and digital solutions in our dental business.\nFinally, our other category grew 105.9% or up 7.5% versus '19.\nThis reflects the ongoing demand for ROSA Robotics and strong capital purchases in the quarter.\nWe saw improvements both sequentially versus Q2 2020 in units sold as well as increased revenues from software due to the launch of our Partial Knee application.\nMoving on to the P&L.\nFor the quarter, we reported GAAP diluted earnings per share of $0.67.\nOur reported GAAP diluted earnings per share were up significantly when compared to a reported GAAP diluted loss per share of $1 in the second quarter of 2020.\nThe increase in year-over-year GAAP earnings was driven by higher revenue, offset by normalized spending levels and IPRD investments within the quarter.\nIn addition, the second quarter of 2020 had some onetime GAAP charges that did not repeat.\nOn an adjusted basis, diluted earnings per share of $1.90 was significantly higher than the prior year, driven as expected by the recovery of elective procedures since the pandemic drop in the second quarter of 2020.\nAdjusted gross margin was 71.7% and in line with expectations.\nOur adjusted operating expenses of $923 million stepped up sequentially versus the first quarter due to higher variable selling expenses related to higher sales and increased discretionary spending to support investments in commercial infrastructure and innovation through R&D.\nImproved revenue performance and stable gross margins more than offset higher spending to drive 26.2% operating margins, a slight improvement over the first quarter of this year.\nThe adjusted tax rate of 16.5% in the quarter was in line with our expectations.\nTurning to cash and liquidity.\nFor the quarter, operating cash flows were $453.9 million, and free cash flow was robust at $358.7 million, and we ended the second quarter with cash and cash equivalents of just over $1 billion.\nWe continue to make good progress on deleveraging the balance sheet and expect to make another $300 million in debt repayments in the third quarter.\nMoving to our financial guidance.\nWe are tightening our guidance range to better reflect our year-to-date performance and a more informed view of the potential impact of COVID.\nThere are some key assumptions that underpin our 2021 financial guidance.\nWe assume no worsening of elective procedure trends due to COVID and that procedure volume recovery continues in the second half of the year.\nBut recovery may not be linear by region and/or by product category.\ne also expect to see seasonality impact in the third and fourth quarter as we have observed in prior years.\nWith the narrowing of our guidance range, we are now expecting reported revenue growth to be 14.5% to 16.5% versus 2020, with the impact of foreign currency unchanged at about 150 basis points of a tailwind for the full year.\nOn a constant currency basis, compared to 2019, we expect Q3 to grow sequentially over Q2 and for that improvement to continue in the fourth quarter.\nTurning to the P&L.\nOur adjusted diluted earnings per share is now in the range of $7.65 to $7.95, and we have narrowed our adjusted operating margin projection to be 26.5% to 27% for the full year.\nOur updated earnings per share guidance reflects our performance to date, our expectation of improved growth in the second half and that discretionary operating expenses remained consistent with Q2 through the balance of the year.\nWhile operating margins are expected to decline sequentially in the third quarter, in line with lower sales revenue and steady investment levels versus the second quarter, we expect overall second half operating margins to be stronger than first half operating margins.\nOur adjusted tax rate projection is unchanged at 16% to 16.5% for the full year.\nAnd finally, our free cash flow estimates remain in the range of $900 million to $1.1 billion.\nWe will continue to update you on market dynamics and financial expectations as we move through the remainder of the year.\nTo summarize, our performance in Q2 was slightly better than our expectations that we have communicated to you through the second quarter.\nWhile we anticipate some ongoing COVID pressure, we have more confidence in the momentum of the recovery and our ability to execute against that backdrop.\nAnd I'm going to now just hit three topics before we move to Q&A.\nFirst, I want to talk about execution in some of the product and pipeline highlights that we have under that category; second, I'm going to talk about our progress against active portfolio management, which is a big effort for us, obviously; and then third is innovation.\nAnd inside of that innovation, how we believe we're going to be able to drive attractive long-term growth that ultimately will deliver value to you, our shareholders.\nSo let's start with our team's execution.\nAnd I've said this before, and I'll continue to say it, that the things that ZB was able to directly control over the past year, 1.5 years, the team -- they've executed against it, they delivered against it.\nAnd I'm very proud of the team for doing that during a time of significant turbulence around them.\nAnd in Q2, in the recent weeks, we've hit key milestones with our ZB products and our solutions.\nROSA for Partial Knee was approved back in April, as we've talked about before.\nAnd our first patient surgery was actually performed early in the quarter, and we've continued to see good traction with that technology so far and great feedback so far.\nAnd it's important for us because partial knees, I think most of you know, is a market where ZB has a sizable market share position.\nSo we're very excited about the possibilities here, not just from a revenue standpoint, but also the potential impact for patients in the surgery area.\nAnd then if I just look at ROSA overall, we did see another strong quarter in Q2 of market demand and traction with ROSA total knee as well with placement momentum broadly continuing across the world, not just in the U.S. but internationally as well.\nWe want to see strength in the U.S., but we want to see that OUS, and we did get to see that kind of mix again in Q2.\nWe also saw capital expenses for our customers being much stronger in Q2 and -- And as a result of that, we saw a shift back to upfront sales of ROSA.\nSo more of those happened in Q2 than what we would typically see.\nAnd again, that just speaks to the strength of capital budgets and people's desire to acquire in that way.\nBut what is clear is that there's a real focus for hospitals to be bringing in robotic systems for their ORs whether they buy them outright or they get them through other arrangements.\nEither way, that momentum, that demand is very real.\nAnd ROSA continues to be a cornerstone, one of the key ones, of our ZBEdge suite of connected solutions.\nSo again, a lot of enthusiasm on what that will mean in coming years in terms of expansion of indications, and overall robotics penetration for ZB.\nAlso in the quarter, we saw Revision continue its very strong momentum.\nAgain, this is a great tip of the spear product for us, where we can go in and get competitive conversions and revision but also use those competitive conversions for access to the typical total knee as well for that surgeon.\nSo very exciting, not just on the revision side but also opening the door to a much larger opportunity to get their typical knee conversion as well.\nWe're also excited about adding another key variable to our ZBEdge portfolio of connected technologies, and that is our Persona iQ, which will be the first and only smart implant on the market.\nAnd we certainly still have to get FDA approval on that.\nWe're working diligently with them to help with any information they need to move that forward, and we're certainly hoping to receive approval in the relatively short term.\nBut ultimately, again, that time line is up to the FDA.\nAnd it's important for us because it takes the Persona implant, which is that known and trusted design in an implant and it combines it with Canary Medical's tibial extension, which has the sensor technology in it.\nAnd the combination of those two things will now inside the body, give us an opportunity to measure the range of motion of that patient, step count, walking speed and other mobility metrics that we believe are going to be indicators of post-surgery progress.\nSo again, helping us close the loop in those connected technologies that we have in ZBEdge.\nSo more to come when we hear back from the FDA.\nBut once we do get that approval, we would look to limited launch the technology for a quarter or two and then post that time frame, move into full launch.\nSo let's move to my second topic that is on active portfolio management, and our efforts around active portfolio management.\nWe have the ZB portfolio management strategy in place.\nWe have the right process in place, and we have definitely built our capabilities to move this forward over the last 1.5 years to two years.\nSo we're excited about this phase of the organization.\nAnd we're focused, as we said before, on mission-centric M&A that is WAMGR-accretive.\nSo in other words, weighted average market growth accretive to the organization.\nAnd you've seen us move this forward already with the selective tuck-in acquisitions that we did late last year that really illustrate our strategy at work.\nThese are smaller deals, again, tuck-in size deals that were designed to fill portfolio gaps and better position us as an organization in high-growth, high-priority markets like sports medicine, ASC and sternal closure where we truly do believe we have a right to win in attractive markets with strong profitability.\nAnd of course, there's the planned spin-off transaction of our spine and dental businesses that is fully underway and on track.\nWe continue to be encouraged by the energy and the momentum around NewCo.\nAs CEO Vafa Jamali, builds out his team and refines his corporate strategy, and we believe creates two independent and even stronger companies that is going to maximize value for not just our customers, but also for you, our shareholders.\nAnd that brings me to the last topic that we have before we move to the Q&A, and that's going to be around innovation.\nAnd really inside of innovation, how we see our ability to drive attractive long-term growth that will ultimately deliver value to all of our stakeholders, including you, obviously, our shareholders.\nWe are focused on evolving ZB from what I would define as a metal and plastic provider of implants into a leading med tech innovator.\nAnd we have a lot of shots on goal across a number of programs to do this, including a number of robotics launches over the near term, smart implants that we have today, but also the technology road map that we have in smart implants.\nNew functionality with mymobility and really just the broader ZBEdge ecosystem of those connected technologies that are going to help us drive mix benefit and share of wallet benefit, but also competitive conversions.\nAnd I've mentioned before, more than 70% of our new product development investment is directed toward ZBEdge and those connected technologies inside of ZBEdge.\nAnd our exclusive partnership with Apple continues to be productive and collaborative.\nAnd we forged several other tech alliances that we know are going to drive future innovation that will benefit patients.\nAnd I believe this fundamental shift is coming for ZB and for our core markets with technology advancements, potentially changing the care paradigm for patients in the future, and that's really what our focus is.\nSo the momentum is real on the innovation front.\nAnd we think it will ultimately allow us to drive long-term growth that is very attractive to us and to you.\nAnd most importantly, it also gives ZB the chance to really change the lives of patients around the world.\nAnd let me close by saying that I continue to be highly confident in the ZB team and our business momentum.\nWhile there continues to be uncertainty due to the global pandemic that we cannot control, I truly believe that we are ready and well positioned for success.\nAnd our strategy is absolutely working.\nThe transformation of our business is well underway, and I'm excited about the value we can drive for our shareholders on a go-forward basis.\nYour dedication to safety is critical and your focus on delivering on our mission is unmatched and you do it daily.\nI remain incredibly proud of what we're accomplishing and what we're accomplishing together.\nWith that, operator, may we have the first question, please?",
        "summary": "q2 adjusted earnings per share $1.90.\nq2 earnings per share $0.67.\nq2 sales $2.027 billion versus refinitiv ibes estimate of $1.98 billion.\nupdates 2021 financial guidance, narrowing range for full year outlook.\nsees 2021 reported revenue growth of 14.5% - 16.5%.\nsees 2021 adjusted earnings per share of $7.65 - $7.95."
    },
    {
        "text": "I am joined today by Kristin Peck, our chief executive officer; and Wetteny Joseph, our chief financial officer.\nOur remarks today will also include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles, or U.S. GAAP.\nWe also cite operational results, which exclude the impact of foreign exchange.\nWe grew revenue 15% operationally, which is once again above the anticipated growth rate for the animal health market, and these results were highlighted by 27% operational growth in our companion animal portfolio with 1% operational growth in livestock.\nOur parasiticide dermatology vaccines, diagnostics, and monoclonal antibody therapies all contributed to these strong results driven by the positive trends in pet care, trends that we see continuing to be a key growth driver in 2022 and beyond.\nFrom a segment perspective, we saw solid balance across our global footprint with the U.S. up 14% and international growing 17% operationally.\nOperationally, for the year, China grew 25%, Brazil grew 28% and other emerging markets grew 22%, leading the way for our international performance.\nAnother major growth driver for the year has been our global diagnostics portfolio, which grew 21% operationally with significant strength in international markets and the continued launch of VetScan Imagyst, our AI-driven diagnostics platform.\nBased on the strong revenue performance, we were able to deliver 19% operational growth in adjusted net income for the year while investing significantly in our latest product launches as well as staffing, R&D, and manufacturing projects for future growth.\nLooking ahead, we believe this momentum sets us up well for 2022.\nWe expect to continue growing revenue faster than the market in the coming year driven by continued strength in pet care, expansion of our diagnostics portfolio internationally as significant growth in both companion animal and livestock product sales for emerging markets, including China and Brazil.\nAs a result, we are guiding to full year operational growth of 9% to 11% in revenue.\nWetteny and I will discuss more details about the full year 2022 guidance.\nBut let me share some views on the year and other updates.\nFirst, the essential nature of animal health continues to be affirmed by our performance during the COVID-19 pandemic.\nWe have seen the fundamental drivers such as increased emphasis on pet wellness, a growing global population, and continuous consumption of animal-based proteins all reinforce the animal health industry as a positive investment choice.\nIn terms of the companion animal market, people's commitment to the health and well-being of their pets has continued to drive higher spending and new opportunities for innovation, geographic expansion, and increasing levels of care.\nPet owners spending in animal health remains one of the more durable trends in consumer spending as people place a premium on the health and wellbeing of their pets, even during challenging economic times.\nIn January, the Human Animal Bond Research Institute and Zoetis released the results of a new global survey of more than 16,000 pet owners and 1,200 small animal clinics which reinforce how deep the connection is between pets and pet owners and how that dynamic relates to views on veterinary care and the related benefits of pet ownership.\nIn the study, 92% of respondents said there was no reason they could ever be convinced to give up their pets and 86% said they would pay whatever it takes if their pet needed extensive veterinary care.\nThe strength of the human-animal bonds strongly correlated with higher rates of veterinary treatment for both preventative care and specific conditions in their pets.\nThis study and other research support our focus on advancing an innovative pipeline for pain, dermatology, and parasiticide for pets, and we continue to invest in our field force, direct-to-consumer marketing, and manufacturing capacity to bring these products to market.\nMoving on to the livestock industry.\nThe need for safe and reliable sources of animal protein continues to be a fundamental growth driver for the industry, particularly in emerging markets.\nIn any given year, weather, disease, and market dynamics may have various regional impacts, but the underlying demand continues to be served locally or through global trade across more than 100 markets where Zoetis products are sold.\nWe've continued to see Zoetis' livestock business show modest growth during the pandemic and recent economic challenges based on our strength internationally.\nWe see that international growth continuing this year while we continue to see declines in the U.S. driven primarily by generic competition in certain product lines.\nOur competitive strategies in pricing and new life cycle innovations will help us mitigate some of that impact.\nLivestock products are a key element of our global strategy and long-term growth, and we've continued to expand our vaccine product lines like Poulvac Procerta for poultry and Alpha Ject micro for fish, as well as Draxxin KP as a treatment for cattle.\nWe're also exploring more livestock innovations around greater efficiency, precision animal health, and more sustainable food production.\nWe've been focusing on our investments in vaccines for prevention and maintaining healthy animals, data analytics for more individualized animal care, and research into other sustainability improvements around immunotherapies.\nI was particularly excited by two recently announced additions to our precision animal health portfolio, Performance Ranch, a new cloud-based cow-calf management software this simplified tracking of individual animal performance and health product usage, and our new Blockyard platform, which is blockchain technology developed in cooperation with IBM to provide a secure way to share information across different segments of the animal production supply chain.\nFor Zoetis, we continue to stay focused on our five strategic priorities for the long term, and we are optimistic about the growth drivers we see for 2022.\nPet care will remain a major growth driver for Zoetis globally based on our diverse and innovative portfolio.\nWe see continued growth potential for our dermatology portfolio which surpassed $1 billion in revenue for the first time in 2021.\nOur parasiticide, driven by our triple combination, Simparica Trio as well as Revolution Plus, Stronghold Plus, Simparica, and ProHeart 12 will continue to achieve growth as we gain market share in major markets and look at further life cycle innovations and label gains across the portfolio.\nLibrela and Solensia are monoclonal antibodies for control of osteoarthritis pain in dogs and cats will continue to increase their revenue in 2022 primarily in the EU, and we're making regulatory progress for these products in the U.S.\nWe received FDA approval for Solensia in January with the launch expected in the second half of the year, and we still anticipate approval of Librela in the second half of the year, assuming FDA inspections are completed at a facility outside the U.S. As we begin 2022, we are seeing strong demand in the EU for Librela and Solensia and we remain confident in the blockbuster potential for Librela in 2022 and Solensia in the longer term.\nWe continue to optimize our global supply chain and manage ongoing challenges, which have been creating isolated constraints for Librela, Solensia, and some of our other products.\nAs always, maintaining a consistent reliable supply for our customers is our top priority, and we've been communicating with them about any impact to their orders.\nWe want to ensure all pets can continue their treatments without interruption especially for chronic treatment of OA pain.\nOur global manufacturing network is working around the clock to ensure reliable supply for our customers as they did throughout 2021, and our full year guidance and strong growth reflects our views on supply.\nDiagnostics is our next major growth driver in 2022 with a fully integrated point-of-care business that is prime for strong growth internationally, along with the expansion plans for a relatively new reference lab operations.\nWe are making significant progress in one of the fastest-growing markets for animal health.\nWe're adding more dedicated field force and customer service resources while developing more offerings that will leverage our portfolio across the continuum of care.\nAnd finally, we see significant growth opportunities in emerging markets, including China and Brazil, where we see excellent opportunities for both our companion animal and livestock products based on increased medicalization and other positive trends.\nMeanwhile, our R&D team, along with external partners, will continue to generate the industry's most productive pipeline in the years to come with more than $500 million in R&D spending in 2021 our largest ever annual investment for R&D.\nWe continue progressing research to address allergies, livestock health, chronic pain and inflammation, chronic kidney disease and diagnostics through our vaccines, therapeutics, and digital technology platforms.\nZoetis remains well-positioned in terms of our market leadership, financial strength, investment strategies, and diverse portfolio to deliver sustainable growth to investors in 2022 and beyond.\nNow let me hand things off to Wetteny.\n2021 was an exceptional year for us with revenue of $7.8 billion and adjusted net income of $2.2 billion both exceeding the high end of our November full year guidance range.\nFull year revenue grew 16% on a reported basis and 15% operationally with adjusted net income increasing 21% on a reported basis and 19% operationally.\nLooking deeper into the 2021 numbers, price contributed 1% to full year operational revenue growth with volume contributing 14%.\nVolume growth consisted of 6% from other in-line products, 5% from new products, including Simparica Trio, and 3% from key dermatology products.\nRevenue growth was again broad-based with the U.S. growing 14% and international growing 17% operationally.\nOur strong performance was driven by our innovative, diverse and durable companion animal portfolio, which grew 27% operationally.\nOur livestock business, which faced generic competition on key franchises as well as challenging macro conditions in certain markets, grew 1% operationally on a year-over-year basis.\nPerformance in companion animal was led by our small animal parasiticide portfolio bolstered by full year sales of Simparica Trio, which generated revenue of $425 million, an increase of $305 million compared to 2020 sales.\nSales of Simparica also grew double digits for the year with operational revenue growth of 13%.\nFor the year, the Simparica franchise grew 82% operationally with revenue of approximately $0.75 billion.\nOur key dermatology products performed incredibly well, growing 24% operationally with approximately $1.2 billion in revenue for the year, performing above our expectations.\nOur diagnostics portfolio grew 21% operationally in the year with strong contributions from our U.S. and international segments, and we will continue to make meaningful investments in the coming years to drive global growth.\nrepresents larger growth opportunities geographically and feel we are favorably positioned to capture future growth in those markets.\nOur livestock performance in 2021 depicts the importance of geographical diversification.\nGeneric competition and challenging market conditions weighed on our U.S. performance but were offset by solid growth internationally primarily in emerging markets.\nThe modest lifestyle growth on a global basis was in line with our expectations for the year.\nMoving on to our Q4 financial results.\nWe posted another strong quarter with revenue of $2 billion, representing an increase of 9% on both a reported and operational basis.\nAdjusted net income of $474 million is an increase of 8% on a reported basis and 5% operationally.\nOf the 9% operational revenue growth, 1% is from price and 8% from volume.\nVolume growth of 8% consisted of 5% from new products, which includes Simparica Trio, 2% from key dermatology products, and 1% from other in-line products.\nCompanion animal products led the way in terms of -- growth, growing 21% operationally, with livestock declining 6% on an operational basis in the quarter.\nSmall animal parasiticides were the largest contributor to growth in the quarter where our innovative and diverse flea, tick, and heartworm portfolio was 32% operationally.\nSimparica Trio posted revenue of $124 million, representing operational growth of 106% versus the comparable 2020 period and the third consecutive quarter with sales exceeding $100 million.\nMeanwhile, our key dermatology products, Apoquel and Cytopoint, again, had significant global growth in the quarter with $316 million of revenue, representing 23% operational growth against a robust prior year in which key derm grew 27% in the fourth quarter of 2020.\nOur livestock business declined 6% in the quarter as a result of generic competition for DRAXXIN unfavorable market conditions in the U.S., primarily resulting from elevated input costs as well as softer conditions in China, loss driven by reduced pork prices.\nOur fish business grew double digits in the quarter, and along with the strength of our emerging markets, partially offset the broader decline.\nOverall livestock performance in the fourth quarter was in line with our expectations.\nNow moving on to revenue growth by segment for the quarter.\nU.S. revenue grew 9%, with companion animal products growing 20% and livestock sales declining by 13%.\nU.S. pet care vet practice trends remained robust in Q4, with practice revenue growing approximately 8% with visits growing 3% despite challenging prior year comps.\nCompanion animal growth in the quarter was driven by sales from our Simparica franchise as well as key dermatology products.\nWe are driving growth in both therapeutic areas by making meaningful investments primarily through direct-to-consumer advertising and field force, and we continue to be pleased by the return on investment the programs are yielding.\ngrowth in Simparica Trio was again strong in the quarter with sales of $114 million growing more than 100%.\nWe also met our clean penetration target and continue to take share within the clinics.\nKey dermatology sales were $216 million for the quarter, growing 22% with Apoquel and Cytopoint each growing significantly.\nOur investments to support the franchise have been instrumental in driving more patients into the clinic, and we'll continue to invest meaningfully in this space as the large portion of dogs with dermatitis remain untreated, representing an opportunity to further expand the market.\nU.S. livestock fell 13% in the quarter, primarily resulting from our cattle business which, as expected, was challenged by generic competition for Draxxin as well as elevated input costs continuing to weigh on producer profitability.\nOur poultry business was negatively affected by reduced disease pressure from smaller flock sizes as well as generic competition while swine faced competitive pricing pressure on anti-infectives and vaccine products.\nMoving on to our International segment, where revenue grew 8% on a reported and operational basis in the quarter.\nCompanion animal revenue grew 23% operationally, and livestock revenue declined 2% operationally.\nIncreased sales of companion animal products resulted from growth of our key dermatology products, our monoclonal antibodies for alleviation of OA pain, and our parasiticide portfolio.\nSeveral key brands are benefiting from our international DTC campaigns in Latin America and parts of Europe, and we remain excited with the long-term prospects of these programs.\nOverall, companion animal grew double digits operationally in every major market in the quarter.\nWe are encouraged by the performance of our monoclonal antibodies for OA pain with Librela generating $15 million and Solensia delivering $3 million in fourth quarter sales.\nIn the fourth quarter, Librela became the No.\n1 pain product in the EU in its first year with the underlying performance metrics being very favorable for future growth.\nReordering rates were in excess of 90%, and compliance rates exceeded our initial expectations.\nIn the past, we've highlighted the significant opportunity to expand the pain market.\nTherefore, we were extremely pleased to see approximately 40% of Librela and Solensia sales were from patients receiving medication for the first time.\nInternational livestock declined 2% operationally in the quarter as declines in cattle and swine were partially offset by growth in fish and poultry.\nCattle declines were largely in the EU and Canada as generic competition for Draxxin weighed on sales.\nThe decline in swine sales was primarily the result of lower pork prices in China negatively impacting producer profitability.\nOur fish portfolio grew double digits again this quarter driven primarily by growth of Alpha Flux in Chile and the growth in poultry was largely attributed to further key account penetration.\nNow moving on to the rest of the P&L for the quarter.\nAdjusted gross margin of 69.6% increased 190 basis points on a reported basis compared to the prior year resulted from favorable product mix, lower inventory charges, favorable FX, and price.\nThis was partially offset by higher freight, manufacturing, and other costs.\nAdjusted operating expenses increased 12% operationally with compensation-related costs being the primary driver of the 15% operational increase in SG&A as well as 3% operational increase in R&D expenses.\nIncreased international advertising and promotion expense for key brands also contributed to higher SG&A, while R&D had increased project spend in the quarter.\nThe adjusted effective tax rate for the quarter was 18.6%, an increase of 510 basis points driven by the impact of prior year discrete tax benefits and changes to the jurisdictional mix of earnings.\nAnd finally, adjusted net income grew 5% operationally, and adjusted diluted earnings per share grew 6% operationally for the quarter.\nIn December, we announced a 30% annual dividend increase continuing our commitment to grow our dividend at or faster than the growth in adjusted net income.\nIn the quarter, we repurchased approximately $200 million of Zoetis' shares and announced the authorization of a $3.5 billion multiyear share repurchase program.\nBecause we generate significant free cash flow, we have the ability to grow our business through organic investments and business development and return excess cash to shareholders without consuming our cash balance or being dependent on elevated leverage.\nNow moving on to guidance for 2022.\nPlease note that guidance reflects foreign exchange rates as of late January.\nWe are expecting an unfavorable foreign exchange impact versus prior year by approximately $160 million on revenue, which is roughly 200 basis points, and approximately $0.12 on EPS, which is about 250 basis points.\nFor 2022, we are projecting revenue between $8.325 billion and $8.475 billion, representing 9% to 11% operational growth.\nWe again expect companion animal to be the primary growth driver in 2022 with the continued strength of our diverse parasiticide portfolio, further expansion of our key dermatology products, the adoption of our monoclonal antibodies for OA pain, and the growth in point-of-care diagnostics and reference labs.\nWe see a very favorable companion animal backdrop for 2022 while expecting certain vet clinics trends to moderate over time, we believe they will remain above pre-pandemic levels.\nThe catalyst for growth in 2022 and beyond stem from a younger pet owner demographic and the standard of care increases, which took shape over the prior two years.\nWe anticipate modest livestock growth again in 2022 led by the contributions of our emerging markets.\nThe macro trends, which makes livestock and essential business remain intact, and we believe more normalized growth will occur in 2023.\nI'd like to touch upon the key assumptions that underpin our expectations for revenue growth.\nin 2022 to compete against Simparica Trio or competitive entrants for our key dermatology products, Apoquel and Cytopoint.\nAs Kristin mentioned, in 2022, we expect Librela to become a blockbuster product in the first full year of sales with revenue exceeding $100 million largely from the EU markets.\nWe remain very optimistic about the potential of Solensia as well.\nWhile the revenue curve will have a different shape due to the lack of an established feline pain market, we view Solensia as a long-term blockbuster product, which suggested a significant unmet need in animal health.\nIn livestock, we expect generic competition to negatively impact Draxxin revenue by approximately 20% in 2022 comparable to the impact we saw this year.\nFor the remainder of the P&L, adjusted cost of sales as a percentage of revenue is expected to be approximately 29%, where favorable product mix and price are expected to generate margin expansion.\nAdjusted SG&A expenses for the year are expected to be between $2.07 billion and $2.12 billion with the increase from 2021 focused on supporting primary drivers of revenue growth, including investments to support new and existing products as well as diagnostics.\nAdjusted R&D expense for 2022 is expected to be between $540 million and $560 million.\nZoetis is the leader in animal health because of the novel products, disruptive innovation, and life cycle enhancements we bring to the market.\nOur internal R&D engine remains the primary source of innovation, and we are committed to ensuring it will continue to be significantly funded as a priority in capital allocation.\nAdjusted interest and other income inductions are expected to be approximately $240 million, representing a minimal year-over-year change.\nOur adjusted effective tax rate for 2022 is expected to be approximately 20%.\nThe increase in 2022 is primarily related to the favorable impact of foreign-derived intangible income and nonrecurring net discrete tax benefits that occurred in 2021.\nAdjusted net income is expected to be in the range of $2.415 billion to $2.470 billion, representing operational growth of 10% to 13%.\nOur guidance once again reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue.\nWe are anticipating a significant increase in capital expenditures in 2022 primarily related to investments in manufacturing expansions in Ireland, the U.S., and China.\nFinally, we expect adjusted diluted earnings per share to be in the range of $5.09 to $5.19 and reported diluted earnings per share to be in the range of $4.75 to $4.87.\nWhile guidance represents our expectations for full year financials, I would like to provide some color on the expected phasing of growth in 2022.\nWe expect top-line growth to be fairly consistent between the first half and Second half of the year.\nHowever, due to the impact of generic competition for Draxxin, isolated supply constraints, and the continued weakness of our swine business in China, we expect growth in the first quarter of 2022 to be lower than the remaining three quarters.\nIn addition, the significant investments we are making early in the year to support revenue growth, primarily in companion animal, including diagnostics, along with very challenging comparative periods for T&E and other expenses, will impact Q1 materially more than the subsequent quarters.\n2021 was another exceptional year, our best performing year with 15% operational revenue growth and 19% operational growth in adjusted net income.\nOur guidance for 2022 reflects the strength of our innovative portfolio, our ability to successfully launch new products and establish new markets, and our confidence in the end market dynamics for the spaces we compete in.",
        "summary": "sees fy earnings per share $4.75 to $4.87.\nsees fy revenue $8.325 billion to $8.475 billion.\nq4 revenue rose 9 percent to $2.0 billion.\nsees fy adjusted earnings per share $5.09 to $5.19."
    }
]